Since I effectively stopped writing for newspapers about three years ago, I have become somewhat interested in the financial markets. As everyone knows by now, that's quite a fickle thing given the current state of the economy. So I wanted to give people some tips on how to cut back financially to create a better standard of living. This may be part of a big series, and if that's the case you can consider this the foundation.
1. Nothing comes free
I was in class about three weeks ago when I came up with the joke about a friends boss who doesn't give away money. The joke is the boss would say "Hey (insert name here), here's $600 dollars go to Starbucks and get me a coffee. Keep the change.". Would this every happen? Well it depends. If the person who you work for won the lottery, you would have a better chance than if the person worked their way up to where they are now. Millionaires, and I'm not talking about a person who has one million dollars, get their money by keeping their money. So don't expect these individuals to want to give anything in proportion to what they make.
2. Understand financial dynamics
I'm a realist. I'm middle class, and I surely don't have change to spare outside of the local Walmart. If I see a charity that has something cool which makes my quarter spin a couple times and thus enthuse my daughter, I'll donate. But in general, I try to keep what I have because I don't have much. So this is an easy start for any of you want-to-be rich people. First, cut back on everything. I know, I know, everyone says cut back. Yet they don't seem to give any way of cutting back. The truth is, that's because cutting back for me and cutting back for you are two different things. So here is what I did to save money: One of my habits is to eat fast food. Not because I like it (I do), but because my house is usually far away from wherever I am at. So a quick stop and Carl's Jr. or Taco Bell and I'm full. I make up for the loss in my wallet by the addition to my stomach. A couple of hours later, both are empty. Let's first analyze why eating out is bad, well aside from the health standpoint. Every time you spend money at a restaurant, you are effectively telling that store that they have good business. The more times this happens, the higher the price goes. It's like this: say I spend $7 every day at Taco Bell. Then let's say that the average amount spent is $6 for every meal. Taco Bell in return raises their prices to 7 and now people have to decide. Those like me who are far away from home accept the price increase and buy. But who really leaves? Well for a while, those who don't like the prices leave. But then they get the craving for good ole' taco bell and bobs your uncle they are eating at taco bell. The next thing about eating fast food is what you could get in return by packing a lunch. All of the food at fast food restaurants happen to be designed with your taste buds in mind. They have no regard for your digestive system or waste size. These items also cost more because they have to be mass preserved to last longer. So the meat that you are eating is actually filled with preservatives to allow the meat to last longer while the meat at the store is not. When you eat fast food, you get full. But your body will burn those preservatives quickly leaving the meal behind. Had you eaten at home, this would not have happened, but now you are eating 3/4 of your meal. Placing the guy who ate at home next to you, you will be eating sooner. And if you think about it, you paid $7 for a meal that was actually only worth $5.25 of nutritional value.
3. Get a financial plan
No this is not a budget. Budgets often fail because they are constantly being re-written on a daily basis. A financial plan lays out what you want. And let's face it, when you walk into a store it's usually more about what you want than what you need. By setting what you want aside, you can figure out how badly you need it. For instance, here is my list of wants for the month:
1. tickets to the hockey game
2. new hockey equipment
3. new motorcycle exhaust system
4. college graduation gown
Now take a look at this list. You will see that everything on here is not needed. But wait you say, what about your graduation gown? Well, I don't have to go to graduation. I'll still get my transcript and degree without graduation. So this is a want. It's not a requirement for me to graduate. So now let's list what I need.
1. Groceries
2. Gas
3. daycare
4. Diapers
As you can see, I didn't create a list of everything. So let's compound this list step by step. This is actually where people go wrong in creating a financial plan. They create vague plan's which are open to interpretation. Trust me, if it's not clearly defined you will fail. So without further delays, my list. Groceries: What do I need? Well I don't need soda, but it's nice so let's place that in the want section below. I have a daughter so I'll need to get milk because it goes with some of her foods. Juice. yes, my daughter could drink water and not juice, however since she spends most of her time playing she will need something with sugar. This is a swing choice, so I will let you put it in your own pile but for me it's a need. Bottled Water. Well this is an interesting thing to have. It's water, and we need water. For me it's a want though because I have a tap water purification system on my faucet. A simple reusable bottle will do the trick. Next is going to be the meat. I'm not vegetarian, so this is going to be a staple of my diet. Next is the infamous pizza. I can get it cheap, but do I really need it? Well no, so it's a want.
WANTS
1. Soda.
2. Bottled Water.
3. Pizza.
NEEDS
1. Milk
2. Juice
3. Meat
As you can see from my list, I haven now broken up a six item grocery list into wants and needs. This is going to be the first step. I will take the wants and put them aside with the wants above. I will take the needs and put them aside as "already spent" because I need them. Now gas is tricky. This is another "think your way through item". First, do I need to take that useless trip for an hour or can I skip it and stay home? Well if the trip does nothing more than give you mental satisfaction, the answer is it's a want. Driving to work or daycare or the store is a need. Again, take these and separate them. Move down and you will see daycare. This one is hard because it's your children. But never the less, paying someone top dollar to watch your children can be a want. Shop around and find a provider which gives you peace of mind for a good price. Next is Diapers. Diapers are a want, plain and simple but there is a side to this that you must know. Diapers are generally made in the same manufacturing plant in China. These diapers are made and endless representatives from companies wait at the end of the line to stamp their product logo on the diapers. So for starters, don't buy the expensive diapers. You're paying for the name. Next, buy in bulk and never just to "get by".
If you start on this path, you will succeed. Please keep checking back for new updates.
