Posts Tagged ‘how to save money’

7 Easy Steps towards financial success

Wednesday, August 20th, 2008

(article (C) 2008

Here I’ll outline 7 easy steps that you can take towards financial success. Surprisingly, I thought a lot of these truths were self evident, very obvious, and that everyone knew them, until I ran into a few friends that didn’t quite realize it. Hopefully, if you are having any difficulty, this can help you.

1. Spend less than you make.

This might actually sound really quite silly, but a lot of people spend more than they make. They see the t.v. commercials where they can buy now, pay later, get a lease on a fancy car, get a big screen t.v., go on a cheap vacation, buy a bigger house, etc, etc. All of these amounts seem really small, like $200/month for a car, $100/month for a t.v.,,etc, etc, but it quickly adds up. If you only make (net) $2000/month, don’t spend more than $2000/month. Otherwise you quickly get into debt, and it compounds very quickly due to ridiculously high interest charges, etc, not to mention how it affects your peace of mind.

2. Treat credit cards as cash

It’s very important to treat credit cards as cash. It’s too easy to think that credit is ‘free’ money, and in fact a few credit card companies prey on this (because the interest rate is so high). In fact many university students make this mistake, and take out a number of student loans, credit loans, and spend it like it is free money. (Yes – some money does go towards tuition, but they don’t get a job during university because feel they don’t have to – and instead spend time partying in addition to studying). Once they’ve graduated, they have this huge debt plus interest that usually takes them several years of full time work before they can pay off. (I’ve personally known some people that has taken them 10 years to do so).

Most credit cards average anywhere from 20-30% per year. If some guy off the street offered you those terms, he’d be called a loan shark. If you ‘borrow’ $10,000, you will need to repay $3,000 in addition to the $10,000 you borrowed.

Really the only ‘good’ purposes of credit cards is to use it for accounting purposes (when filing taxes), or if you are afraid of losing your wallet and any cash contained within it. Credit cards should be paid off promptly and in full. For most people, the two biggest purchases in their life are both a house and a car. “Credit” is really only important if you don’t have the money to buy a house or car outright, and want to get a mortgage or lease to get one. It really doesn’t help you any other way.

3. Tithe 10% or help others out in other ways

I don’t know how to explain it, whether you want to call it good will, karma, sowing seeds, what goes around comes around, etc, etc. But for some strange reason, helping out other people actually does help you. People will remember acts of kindness, and it will eventually benefit you even if you didn’t initially intend it that way. It reminds me of a movie, I think it was Casino with Sharon Stone, but it was really fascinating how Sharon Stone always tipped generously in that movie when she was very wealthy. When she found herself in tough times, all of the sudden people she didn’t know started helping her, because they remembered her acts of kindness. If you find it hard to help for altruistic means, then help others because it may very well help you in the future.

4. Spend 30% of your income on yourself

Why should you do this, you might ask. Well, because if you don’t – it’s very easy to get in a rut where you are always “trying” to make ends meet – and you don’t really enjoy the process of making money. You don’t get to “see” the fruits of your labours. By making sure that you save 30% of ‘guilt-free’ money for yourself, you’ll feel better about yourself because it is like a ‘reward’ for all the hard work you’ve put in. If you always spend 100% of your money to pay ‘bills’, you’ll feel pressure and like you are always “trying” to get by, and will never really enjoy yourself.

The next question I suppose you’ll ask is “how” can you do this? You have bills to pay, your children need money for school, and you just barely have enough money to make ends meet, let alone spend 30% of your income on yourself. Well, thing is, no matter what amount of money you have, you’ll always have bills to pay. If you are always “just” making ends meet, then it means that you are spending too much money and that you need to manage your money better. Instead of driving a big SUV, trade it in for a smaller car. Or if you have a small car, maybe try taking the bus instead with a bus pass. Or walking. You need to feel that you have the “freedom” to do what you want, and that you have control of your money, instead of it having control of you. See point #7 where I talk about some money saving tips.

5. Don’t hoard money.

It is a good idea to save a bit of money in the bank or in other investments. In fact, I’d strongly recommend it. It will help you give you a feeling of security in that should you ever find yourself in a tight financial situation, you have a little bit of extra money for yourself.

But the opposite of spending too much money is saving too much money. What good is money, if all you do is put every dollar in the bank, but then nickel and dime sales people, go to garage sales every weekend to buy “new” furniture, shop at the thrifty stores to buy $5 suits, and buy the two day old half rotten food in the supermarket? I’m not talking about people who might be trying to get back on their feet and need to do this for a short period of time to get control of their finances – I’m talking about people who have what many would consider to be an abundance of wealth living like this. (For example, someone who might make $50k/year and only spend $5k in expenses). What is the difference between a person who lives like this, and a pan handler off the street that needs to beg for their next meal? Not much, except that probably the pan handler knows that he doesn’t want to continue this lifestyle, whereas the guy making $50k actually thinks he is living life. In today’s society, money is power, and by putting it all in the bank, you are letting someone else have that power, not you.

I actually knew of a guy (through a friend) who literally had 5 million dollars in the bank, but had lived the last 20 years of his life putting every time in the bank. I think he may have even gone to the food bank a couple times to save money. How sad is that – he is no wealthier than a pan handler on the street.

6. Buy the best that you can afford

This doesn’t mean go out and spend your last penny buying an Armani or Gucci suit because you can afford it (with you life savings), but it does mean spending enough on general goods or services that will raise the overall quality of your life. For example, at one point in time money was very tight for me. I was looking for new apartments to live in, and had found one at about $600/month, whereas the better quality ones where $900/month. (Of course the really expensive ones were about $2000/month, but those were more like luxury apartments). I was seriously considering living in the $600/month ones because I figured I would be able to save about $3600 a year, until I realized it would cost me more to live there than at a $900/month one. The reasons? First of all, it was in a very poor neighbourhood, so I would be worried about safety; it was a crappy apartment in the first place so I would be embarrassed to invite any friends over, it was very remote so I would spend more money in bus fare, take hours to get anywhere, etc etc. So even though in the short term it would save me $3600, it would cost me a lot more in the long run in terms of peace of mind, time (very remote), and so forth. So I decided to go with a $900/month apartment and felt much better. (As an aside I got a couple roommates to help offset the cost, that wasn’t necessarily the best decision, but a different story J). But bottom line I was more comfortable and felt a lot better in this new apartment.

7. Several Tips for ‘rebalancing’ for finances

If you find yourself in dire financial straights, here are some quick tips that you can take to get back control of your finances. It’s not something you have to do for the rest of your life, but it’s something that you can do for 1-2 months while you get back on your ‘financial feet’.

  1. Start buying groceries and make food at home, instead of eating out. If you eat out every second night, it can easily cost upwards of $400/month for one individual.
  2. If you do want to buy ‘new’ furniture, you can go to garage sales for some good bargains.
  3. Get rid of any non-essential subscriptions (i.e., t.v. subscriptions, cellphone subscriptions, newspapers, etc). Cellphone companies design their plans in such a way to maximize their total profit. If they give away ‘too good’ of a deal, they then discontinue that plan and restructure their ‘deals’. You can easily spend $200/month on current cell phone plans. Get a regular land line instead, use a payphone, or get call answering service for $5/month. Depending on what kind of T.V. programming you like, it can cost anywhere from $50-$200 a month as well, and you really don’t need that either.
  4. Save your ‘petty’ cash. Instead of buying a $4 coffee, a $1.5 chocolate bar and $1.5 soda every day, either stop – or if you really must have it – go buy those items in bulk, bring it home and then take one of each to work/school with you every day instead. You can easily save $300/month on incidentals like this.
  5. Buy clothing from thrift stores. There is no shame in wearing someone else’s used clothing, if you are doing it to get back on your feet.
  6. Contrary to popular belief, you don’t “need” a car. It’s definitely nice to have, but you don’t “need” it. You can get to work/school by walking/biking/bus/etc. If you really must go by car, car pool – and see if someone is willing to split the costs with you. Or get a bus pass. If you really need a car for certain occasions, you can always rent a car. Of course small families may ‘need’ a car – but then see if you can car pool with your neighbours, take turns, etc. Not only will you have new friends, but you’ll save more money from the gas money you don’t spend. Depending on whether you totally get rid of your car, or simply start car pooling or walking, you can easily save $150-$400/month. An added benefit to taking something like the bus is that you can take the extra time to read a good novel, work on a project, or just enjoy the ride. Sitting in traffic doesn’t allow you this luxury.

Anyways, if you are experiencing any financial difficulties, I hope by following some of this steps it helps to get you back on track.

© 2008