Whether you are pink, green, purple, blue, young, middle aged or old, there is one thing that you all have in common and that is money.
Money is ubiquitous in our lives from having money to spend on gum, to the bus, right through to saving and getting a return on your investment.
We all have choices and how we view money, will depend on our choices made, degree of wealth and motivation to earn or spend. We can make money work for us, or we can work for it. Again it is down to choice, attitude and outlook.
After reading countless financial blogs, advice columns and reflecting on my own life, I have come up with a few thoughts of my own:
Before you start looking at investments, returns, 401k, IRA and all the other acronyms and investment vehicles, you should really concentrate on the basics and get your foundation of “wealth management” under control. Hone your money management skills and decision making so that you can consider all those investment vehicles at a later stage.
You can only spend a dollar once. Once you have handed it over in the store, you will need to replace that dollar given with another one earned. Easy logic to follow but unfortunately a lot of people cannot comprehend this. If you do not have the money, you should not spend it.
Humor me with an analogy. If you ask a favor of a friend or family, they quite often will help you and will not want anything from you in return. In the movies and television shows, when you ask a favor of someone who is not your friend, they will always want something in return. Now take that same analogy when you decide to use a credit card. On every purchase, you are using someone else’s money and they want to know what is in it for them. They will always want something in return and in this case it is generally 20 cents extra on every dollar that you have used of their money. However, if you pay back the money immediately there is no interest and this is where a lot of people fall down by only paying the minimum payment.
Your paycheck is not your budget. Any money that you receive is not your budget. Think about it, in order to have money for the future, an emergency fund or savings, you have to have money to put into that fund. If your paycheck is your budget and you spend it all, even with simple math you will realize that $1000 coming in and $1000 going out means $0 left to invest, save or put in your emergency fund. Over 50% of all Americans do not have an Emergency fund. Are you one of the 50%?
We do get accustomed to the amount of money in our pockets and do spend accordingly. But how about if we slightly alter our outlook and attitude? People do not like change and I get that, but if the rewards outweigh the short term costs, it has to be beneficial.
I used to work in a boarding school and on Sunday morning the students would have breakfast at 8 am before church and then have nothing to eat until 1pm, where they would get a sandwich and an apple which would have to last them until 6.30pm for dinner. I changed the routine where the students would have hot chocolate and toast at 8 am, then have big breakfast 10.30 am upon return from lunch. By having breakfast later, it split up their day and they were less hungry throughout the day. At first all the students complained because it was change and for the majority of people, change is not something that is welcomed. The following week, they were all happy with the new routine and did not want to change back.
With this in mind, if you were able to change your budget, i.e. not spending your complete paycheck “Pay yourself first” – which simply means taking 10, 20 or even 30% out of your paycheck and putting it into a savings account automatically each month. Once your paycheck is deposited, the allotted amount is instantly taken out of your checking account and placed in a Savings / emergency / future investing account. Because it hasn’t been in your checking account, you don’t miss it and you adjust your spending accordingly while building up your reserves.
Unfortunately, as a nation we want instant gratification and are quite often not prepared to put any effort in in order to get what we want. We are for the majority a materialistic nation. We have the need to buy. If we are not spending, we are cheap and our lives are not getting better. We as a nation need to look beyond this. Instead of looking at price and thinking hey this is a bargain – I must buy it because I am saving money off of the original price. Think about whether you actually need the item and once you have bought it, how much enjoyment you will actually get from it.
If you go to a restaurant, Is a $100 per person dinner any better than a $20 per person meal? Is it 5 times better? This can be applied to all your other choices too. When you next buy something, consider the alternatives. Maybe you can save yourself some money or even talk yourself out of spending as your life will carry on without that purchase. As mentioned before, if you are using someone else’s money i.e. a credit or store card, you had better pay it off straight away or it will cost you 20 cents for every dollar spent in interest.
When you get home, empty your pockets and put all your small change in a jar. You will be amazed at how quickly it adds up. I have a system at home where I will put all my quarters in a bag for laundry and my dimes, nickels and pennies go in a huge jar. Over a year, you will probably collect $100, which is a great way of saving and having extra money for unforeseen emergencies, gifts or even treating yourself.
This last point is probably the most difficult for a number of reasons. At the end of the month, you should write down the amount of money that you received and what you spent your money on. This should include all transactions. I think you will be surprised by how much money you actually received and what you need.
If you are struggling to pay your rent, ask yourself do you really need those new shoes, cigarettes or alcohol? Can you find activities for free like walking, joining a library and taking advantage of their free books and other resources and if you want to learn, what classes are free for you to attend at local college etc. Once you have taken note of the previous month’s transactions, can you make better choices and find areas where you can save money? If your rent is too high, are there other places to live? If your car payment is too high, can you drive a cheaper car. Is your insurance due for renewal or can it be moved to another insurance company? When you did your grocery shopping, did you use the coupons that come through your door each day or take advantage of the items on sale in the store? When you brush your teeth, do you turn the faucet off to save water, or turn off the lights when you are not in the room or keep the windows closed when you have the air conditioning on? I am sure there are 101 ways to save money. It is a personal thing, but if you are determined, you will find a way.
Paul Vasey Owner of CashCrunchGames.com – Working towards putting a dent in financial illiteracy.