“Watch your pennies and your dollars will grow”. Old saying, yes, overly simple, maybe, but dead on accurate for sure. This is something you just have to try rather than rationalize out on paper. Sure it will work on paper but the calculation gets way too detailed and by-passes the important psychological aspect.
Growing money is a mindset. This doesn’t mean being cheap but rather training your mind to always look for value and think in terms of long term repetition. There are many situations where a more expensive purchase option is the better value over time.
Good personal finance is not about being good with numbers, it is about being disciplined. If you don’t happen to be especially talented with numbers, no problem, just keep your financial plan simple and stick to it. A person who is good working with numbers may even have a disadvantage as they need to be careful not to get overconfident, which can be lead to out of control spending quickly.
Live within your means, plan for your future, and make sure you get maximum value and enjoyment from the things you spend your money on. Don’t get sucked in to the “once in a lifetime” deals or fall for tricky marketing campaigns. It totally baffles me to see someone actually believe they are saving money by purchasing something. If you really want to economize, don’t buy the product at all. Look closely at what you need vs. what you want.
Don’t try to keep up with the Jones’s either, just worry about your own situation and you will be much better off in the long run.
To check out where you stand just write down all of the routine expenditures that you have, and estimate those you do not know the exact amount for. When complete, total the expenditures and compare it to your take home pay. Don’t be surprised if you come up way short with your first calculation. If this happens, keep working at using your best estimates until the numbers add up….it will be well worth your time. Once you have a handle on where all the money is going it is much easier to make decisions on where to shift funds or cut back if necessary. I have seen a lot of people who make tremendous amounts of money but because they do not keep track of their expenditures they end up in a poor financial situation.
The more comfortable you get at knowing your spending history the easier it is to stay under control. Also, what you learn from your spending data will put you in a position to make steady economic improvements on a continuous basis into the future.
A completed balance sheet will tell you what you are worth in dollar terms. Simply, it means if you converted everything of value that you own into a dollar equivalent and subtracted your debt, the dollar difference would be your net worth. The result can be either positive or negative.
This process may seem a bit nerdy, but it is the only way to accurately measure your entire personal financial situation. If you don’t know how to do this, there is a lot of help available on the internet, through software, or a financial advisor. Be cautious though and do not allow someone or something to overcomplicate this for you. It can be effectively done at a high level using a minimum amount of numbers. One piece of paper, handwritten will do just fine.
Many people may have an aversion to this exercise because they fear the result. Please don’t let that stop you as the result is information only and if you happen to be in a negative net worth situation it is better to at least know where you stand. In today’s economy you will have lots of company, primarily because of the falling home values.
Money alone will not make you happy. The further away money is from the focal points of your life the better. That said, being flat broke is not a good situation either. The ideal situation is to have enough money to do the important things in life that you want but not too much money where it starts causing more problems than it is worth. The better you manage your money the more money you will be able to handle.
Besides the bragger another person to be wary of is” the know it all”. Be cautious entering into a financial arrangement with someone who has all the answers. In over 30 years of overseeing financial endeavors, I have never once seen a project end up exactly as planned, with about 95% of them exceeding budget.
The more information you have going into negotiations for a major purchase, the better. Keep this fact in the back of your mind, people go into the sales profession for a reason and that reason is typically because they have good communication skills. What some sales people cover up is that they are not good with numbers but have learned their pitch so well they often come across as math geniuses. Use this insight to your advantage when applicable.
For example, the difference in having lunch at a restaurant four times per week compared to twice a week will cost a person about $500 a year on an average. To accurately evaluate the lunch expenditure, compare the $500 cost to one time purchases that cost about the same. There is no right or wrong answer here just personal preference. However, one should make sure they are comparing apples to apples when making these types of decisions.
The previous example is one of dozens made by individuals on a routine basis. Just think about the lump sum of money that may be available if you economized more aggressively on all of the routine re-occurring purchasing made on an ongoing basis.
It is difficult to eat good quality food and in general live a healthy lifestyle if you happen to be flat broke. No money, poor food, and an unfit body don’t normally generate a lot of fun in one’s life. Following are some ideas that can enhance your personal financial situation and allow you to get more out of your day.
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