There are more and more people becoming homeless these days. It seems that the very words i am using are becoming rather prophetic, but alas poor frivolous spender I knew him well... he is on 4th street currently asking me for a quarter. Do you think this will be you if you continue to live paycheck to paycheck? If so then read on.
Now let it be told that I am no saint, but I am certainly not a prophet either. I am just a small time investor with big dreams. I just know what I need to do in order to save money and reach my goals. For those of you that wish to know more about the current economic crisis, books I recommend are "Getting Started in the Underground Economy" by Adam Cash, "Rich Dad, Poor Dad" by Robert Kiyosaki and "Finance Wars" by Stephen Palmer. This is your reading list for today. I am Prof. Eggleston and Surviving the Neo-Depression is now in session.
Here is some basics you need to figure out:
1. Setting a budget- Before you even start a saving plan you need to figure out how much you pull down every month. People with multiple jobs/investments will obviously have the advantage over the guy with just one job, but that is okay. With a budget you can set aside money to invest every month until something pays off.
The object of setting a budget is to gear you towards thinking like a frugal person and an investor. Let me put it to you this way: right now I do not make a whole lot, but I do not live paycheck to paycheck anymore. There is a reason for this-that is neo feudalism. At some point I decided that life was the pits and I wanted to do something about it. The first thing I did was set a budget and I have not looked back. I continue to reach for the stars even in this failing economy.
Do you think Donald Trump and Warren Buffett got anywhere by being frivolous spenders? No they set budgets on various projects. Trump even said in his book "Why We Want You To Be Rich" that setting a budget is one of the most important things you can do for yourself. It will put you on the path of being rich.
2. Set aside money as an emergency fund:
This is actually one of David Ramsey's suggestions in the total money make over and it makes sense. You got to start somewhere and the best way to do so is to save up $1,000 is quickly as possible. For those of you that are 9-5ers like me, you will find this rather discouraging, but if you have a lot of bobbles or doodads, you can formulate a strategy and turn them into a small profit. While you might have to sale some of your stuff at a loss this might actually be a good thing: the more stuff you have in your life, the more you complicate it. So to counter this and to set aside an emergency fund, have a yard sale, Ebay it or use some other site to sell your stuff on it.
For the most part, I have my emergency fund in precious metals because I am mainly preparing for stage 3, but I also have $1,000 in addition to this set aside. And I am glad I did this because I had a situation to deal with last month and I am glad it is over. And guess what? I did not even break a sweat over the $1,000 being gone--I earned it back. your emergency funds should be for your worse case scenarios--not your checking account.
3. Save $10 week: starting now- Both Dave Ramsey author of "Total Money Makeover" and one of my other friends recommend this. The object of doing this is so you can have something to spend for yourself. You CANNOT use this money until the end of the year or until Christmas.
Want that X-box? Want that LCD TV? With this strategy, you can have it in 1 year without dipping into your savings for it. The secondary objective is to teach you patience and how to manage money. If you just have a part-time job, this might be a bit harder, but taking $10/week aside will motivate you to a) find a better job and b) invest. This money should not be stored into your bank account. Any envelope will do. The reason for this is to curb temptation. If you find yourself diving into this envelope, obviously you suck at managing money and need to rethink your strategy. And if you cannot do this simple task, I'd rather have a trained seal give me financial advise. I have done this already and guess what? I reinvested it. I took the $520 and bought gold, silver, and a foot switch for my guitar (hey it is meant for yourself right)?
4. Calculate Expenses- While I have low expenses (more on this in Frugality and Personal Finance 102), I still have them nonetheless. Everyone has them. We all consume something and have to pay something. Everything has a price and this aspect of finance cannot be avoided. Let us use my expenses as an example.
Food: $90 Which is less than what it was, I could lower this more, but I enjoy eating out every once in a while. I am not a serf, so I eat out whenever I feel like it. Mostly, I target canned goods.
Phone: $45-Cricket Wireless; Per-paid service; no contracts.
Student Loan: $60
My total expenses is $590 for the whole month. It might hit $600-700 depending on which investment I go into, but for the sake of simplity let just say it is $600. Like I said I do not make a whole lot so we will just calculate my petty "earnings" which would be higher if I was not taxed but that will be reserved for another blog.
Note: This is above average: there are month where I pay more or less. This month I actually pulled down $900 because I ate out less and paid in advance on my loan. You might ask, why is there nothing for clothes, video games, hygine supplies, etc.? The reason why is because that expence does not come up all the time. I have a strategy for not spending much on neccesities and luxury items. In fact, I do not bother with luxury items. Instead, I invest my cash in myself and in ideas. That is what the $10/week for 1 year plan is for. LCDs and electronics lose half their value in roughly 2.5 months so I do not buy them.
Notice that my expenses are simple. I did not even have to sit down with a calculator to calculate what I am earning. I can fire off the numbers off the top of my head without breaking a sweat. While I love math, I hate complicating my life with stuff that does not matter. Yes, investments do tend to get complicated, but I have also strategized how much per month I am willing to invest. Usually I buy stocks and precious metals, but I will do other investments once I earn more money. This blog is one of those things. Instead of money, I am investing time. If I see a return on my investment, aka revenue or profit I will invest some money into this site, but for right now, I just do this in my free time.
For right now I will say simplifying your expences is rudimentary to successful frugality. If you cannot do this then you will live a complicated life and it will be more complicated to begin saving money. If you have to sit down with a calculator just to calculate your expences (excluding financial investors/advisors) you have to many expences and need to re-evaluate what is neccessary in your life. Obviously I do mean downgrading your lifestyle. Keeping up with the Jones's will keep you broke. You might have certain things you can't live without, but there are certainly things you CAN live without. Living without those things can keep you from living paycheck to paycheck and can keep you from living in the streets.
5. Releave Yourself of Those Nasty Credit Cards- Cut them up: I used to not understand the difference between good debt and bad debt, but not it is crystal clear. Credit cards are designed to keep you broke. You do not need a credit card to invest. Just get a debit card with a Visa or Mastercard logo. I use to have a credit card while I was in college and I was making the payments on them. They start out small but gradually increase with the more you spend. If you want to be frugal, you have to understand that credit cards will only keep you broke. When I paid mine off I felt a tremendous weight leave my shoulders. Yes, the loan I took worth way more than the credit card, but in the end, the card cost me money while the loan helped me make money.
While I am not in the career of choice, (70% of all college students start in a feild outside their studies) I have earned enough through to make myself free man and debt free. And there is a bonus to this: people who live their lives without using a credit card will find themselves with more cash in the long run than with people who actually gotten credit cards. Imagine that. You want a $1,000 to use? Save it up for a "rainy day" fund. Do not spend it on stuff that goes down in value. Borrowing credit is not part of frugality-eliminate "credit" from your volcabulary. The only type of debt that is good is that which could make you wealthier, but you need to mmake sure that whatever you invest in (i.e. mortage, stocks, assets) brings you a return before you start investing in it.
5. Save: This is the final basic step to follow. You might actually start out paycheck to paycheck, but if you say then you can calculate how many pay check away from the street you are. As a side note: if you start out, you might be this far from the street. It might take you awhile to get out of this, but the more you save the more you can earn. It is like walking a tightrope at first, but saving will be the end all for people. This is the simplieststep of frugality. You put money in the bank, it stays in the bank. You do not let it leave the bank. The more it leaves the bank, the more you will lose. I do not believe in losing as a winning strategy.
Now I know you are thinking, "that's it"? But simple things are rarely simple. This is where saving becomes an art: you have to figure out how to keep the money from leaving the bank. And that is where it becomes a little tricky. If you have bills find ways to reduce them if not eliminate them. If you have investments which are not earning you a profit, get rid of them. If you have people that are asking for hand outs, ignore them--they're losers that want something for nothing.
Your homework is to make a list of things in your life that cost you money and figure out ways to reduce them. If you can reduce them or eliminate them then you will figure out one facet of personal finance-reducing costs. Bills are liabilities, so reduce them as much as possible and you will be on the path of NOT living paycheck to paycheck. If you find anything I mentioned above complicated, then there is a special little white school bus you should be taking.
If you have anything that is in your life that is considered "complicated" excluding stuff that is beyond your control like child support, I will be glad to help you for a nominal fee of $50/consultation visit. I have to charge for the complicated stuff because it is taking away time I could be using for the internet for research or working. I do not do "free". It is another word that I rarely use. Everything has a price, and so do my services.
The dollar might collaspe, due to the mis-management of the economy, but if people in Congress knew how to be frugal, then there would be no problems in the dollar, but we are a nation of spenders and our economy is being managed by spenders. You might want to think outside the box and save. Quit borrowing for expensive stuff that is above your means. Do not fall for anything that is on the ol' idiot box. I wrote a long article on saving because people obviously do not know how. Everyday people come up to me and ask me how do I do it.