"Spend less than you earn"

I don't know about you, but I'm really sick of hearing people say that building wealth requires you to "spend less than you earn". Isn't that obvious? While most of us agree that it is, we often do not listen to this sound piece of advice. I'm not talking about someone who is unemployed and forced to temporarily live on credit cards to get by. I'm talking about those of us who are employed and should be doing well on paper, but are instead living paycheck to paycheck.

It is important for each of us to have short, medium, and long-term savings goals, and to scrutinize any spending that interferes with those goals. This will provide insulation if/when an unexpected turn of events in life should occur (layoff, divorce, illness, etc). Your goals can and should include big-ticket items like cars and vacations, so that you are not creating unnecessary debt for yourself by putting things on credit cards and taking on useless debt. I'm not going to talk about this in any depth, because it's obvious and almost insulting to your intelligence to explain the importance of saving money. I do, however, want to say something that unfortunately often goes unsaid: If you live beyond your means without having a financial cushion, you will nearly ALWAYS impact your family, friends, and possibly society. Even if your loved ones don't outwardly give (or lend) you money (which they might end up having to do some day), this impact may manifest itself in smaller ways. Your loved ones who are aware of your lack of savings may feel obligated to pay for you when you go somewhere, or may just be sick of hearing you complain about money. This unspoken obligation WILL lead to resentment by your loved ones who sacrifice to live within their means. Likewise, if you do not worry about your own retirement and you live past an age where you are able to work (which we all hope to do), you will very likely not be able to get by on social security income alone. This will mean you will become a burden to your children or the average American taxpayer.

We live in a capitalist society that tends to place significant value on having a bunch of "stuff". Some of the things we buy are necessaties and, and some are things that just make us feel good. I love nothing more than to go out for dinner. It is convenient, relaxing, and after a long day of work I don't always feel like cooking. However, I don't really *need* to go out to eat. I'm sure I can whip up something fairly inexpensive (and likely much healthier) in the comfort of my own home and I will be just fine.

Many people will say "well, you have to live every day like it's your last", or "you can't take money to the grave". However, it seems like there is an epidemic in society of people obtaining happiness through spending cash we don't really have on things we are not really sure we need or want. Not to mention that the same people who make these comments tend to be broke. (That leads into a future post about not taking financial advice from people who are broke). Perhaps we should instead examine *why* buying/owning "stuff" seems to make us so happy.

I can speculate for hours on this, but I think it's a personal question that each of us must ask ourselves. For some, it's a feeling of competition (with others and even with ourself). Others have resigned themselves to being perpetually broke, and falsely believe they are in a hole that has no escape -- so why bother trying? Like I said, it's personal and I won't pretend to understand. I can, however, say that it doesn't have to be that way. When I am tempted to spend money on things I don't really need, I often ask myself "Is this purchase ultimately going to make me happy, and if so, is there a way to get this same level of happiness by spending less money?".

The first part of the question is the easy part. I think most purchases will provide us with the instant gratification (and the rush) we need to get through the day. However, when we get the credit card bill, or when we are unable to buy something that we actually may need because we don't have enough spare cash, are we still happy that we made that purchase? Maybe not. The second part of the question is the tough part. If we are buying clothes, for example, would we get the same kind of superficial happiness from shopping at H&M or Old Navy that we would shopping at Prada? Can we find a better deal on an item by doing some comparison shopping and possibly even looking for coupons or specials? Do we need a 30k car when a 20k car gets the job done? Do we need a 2 bedroom apartment when we can barely afford to pay for the one bedroom apartment we already have? If we go out to eat, will we have the same amount of fun going to an inexpensive local restaurant that we would have at a fancier establishment?

I use this strategy each time I am about to spend money that could be put toward building wealth on an item I'm not sure is a necessity. This works for me, but only because I have a plan in place to retire early so I can use my time to work on projects that are important to me while being able to support myself. Before I had this plan, I was much more likely to spend money without thinking too hard, just because it was there.

By the way, for inspiration, you can check out this blog about a family determined to live a happy minimalistic lifestyle. The URL is http://www.becomingminimalist.com/.

This brings me to my final point in this (much too long) post. In addition to the happiness gained through acquiring "stuff", we tend to put off really saving money unless there is an immediate goal. For some people, it is the purchase of real estate (which I am a BIG fan of -- but only when it makes financial sense). For others, it's a wedding, a car, a vacation or some other short-term goal. While we are in this mode of saving, it is much easier for us to let go of the little luxuries in life that we enjoy because we can taste the sweet reward of whatever it is we are saving for right around the corner. Having my early retirement plan in place provides me with that same feeling, only the goal is spread over a much longer term.

Moral of the story:
Examine what *really* makes you happy over both the short and long term, and spend your money in a way that aligns with your values.

Setting a very important savings goal may help you prioritize your cash flow and avoid the trap of spending just because it's there.

A bit of cynicism never hurt

I hate to sound like a cynic (well, maybe I don't really care), but I learned a long time ago that if someone can take advantage of you -- they probably will. Of course, this doesn't always apply to the people you have close personal relationships with - family, friends, etc. However, it most likely applies to the corporations and individuals that you do business with on a daily basis, including your employer.

Now, this does not mean that the world is against you and that you should retreat to a fallout shelter in your backyard and live on dead squirrels. It just means that you should be looking out for your own financial well being and should not expect anyone else to care about it as much as you do.

With that being said, this blog is about the little things that companies try to get away with on a daily basis that may not have an immediate impact on your net worth, but over time they could add up to something meaningful.

Let me give you some examples.

A few months ago, my boyfriend deposited a check in the ATM at his bank (without naming names, let's call it "Shitty Bank"). The check was for something like $24.07. After a few days, he noticed online that the deposit amount was for $24.00. It took a few irritating phone calls and some arguments with offshore call centers, but eventually the "error" was corrected and the .07 was credited to his account. At first glance, it seems like a waste of time and energy to even bother with $0.07, but THIS IS EXACTLY WHAT BANKS ARE COUNTING ON. If a bank has several million customers, and they steal $0.07 from just 1M of them in a single day, that adds up to $70,000. If they do this once a week for a year (to a different set of customers), that adds up $3,640,000. I don't know about you, but I would be pretty happy to have an extra $3.6M lying around. The moral of the story - it's worth the energy expended just for the sheer principle.

Another example is with my credit card company and their lovely annual fee. I recently changed from one credit card reward program to another (I plan on writing a lot about these so-called "reward programs" -- in due time), and was assured that my new card had no annual fee. After a month, a $30 annual fee appeared on my card. My first phone call to the credit card company resulted in a promise of a credit. After waiting several weeks, I decided to pay the $30 because I am anal and obsessive and was concerned that a lack of payment may end up reflecting on my pristine credit report. However, now I was pissed. During my second phone call, I was told that there was no record of my first call, but they did assure me once again that the fee would be credited. Once the next statement arrived (online, of course), I noticed a $25.00 credit for the annual fee. However, if you recall, I had paid $30.00. I won't bore you with any more boring details, but just know that it took several more phone calls before the additional $5.00 was finally credited. You can do the math and figure out how much $5.00 per customer is worth. Once again, the moral of the story is that the time spent fighting for my lousy $5.00 was worth it on principle. The more people fight for what is theirs, the less companies would even attempt to get away with such nonsense.

I can go on and on about other examples of companies attempting to take advantage of you and hoping you don't notice, but whining gets old quickly. This does, however, lead me to my next blog, which will be about tracking your finances. It's the single most important thing you can do for your net worth.

Until then, stay cynical and fight for your own money.

Learn to Love your Loot

Sometimes it takes a life crisis to re-evaluate your priorities in life. Since having the year from Hell, I have decided to devote some time and energy into something I feel passionate about -- money, and specifically, a woman's financial life.

I don't care about money for the traditional reasons (having nice houses, car, clothes, "things", etc.); I care about it for security reasons. Money equals independence, and while it can't buy happiness, independence can make you sleep better at night.

We are in a recession right now, so money is the topic du jour for most Americans at the moment. However, I am hoping that this is not just a phase and that we all come away from this time having developed some frugal habits to keep with us into the future.

I'm going to share with you some of the things I do on a day to day basis to keep track of my money, and to ensure that I am on the right track to financial independence.