Wants Versus Needs

We all WANT different things, big homes, fancy cars, whatever it may be….but do we really NEED this stuff?  When it comes to sticking to your budget, it’s so important to really think about this question.   It’s really worth repeating over and over…do I really NEED this?

If you are going to be successful long-term you need to really think about every purchase and decide if it’s something that you absolutely need.  I remind myself of this all the time.  Do I really need a new big screen TV?  Well, the truth is in this case, I definitely don’t need a new TV.  It’s killing me too, especially with the Super Bowl right around the corner!  But again, I just had to take a look at my budget and just realize that it’s not a smart move right now.

Every year I look around the office at work and notice how many people continue to buy new cars every couple of years.  It’s amazing how far in the hole a new car can put you.  Obviously we all really should have reliable cars, but to purchase a brand new car?  It’s really not a good move for your long-term financial goals.  In all reality, it’s so much better to go out and find a nice, clean, well-taken-care-of, used car.  It will save you thousands and thousands of dollars over the life of the loan, in most cases.  I just can’t stand the idea of paying a car loan for years, it’s just such a waste of money.

Remember, the goal here is long-term financial success.  When it comes to big purchases, you really need to think it through and understand whether or not you really NEED to make the purchase.  Staying on course with your investments and savings will get you ahead and keep you ahead.

So, next time you are looking to buy something really ask yourself if you absolutely need to make the purchase.  I realize we all have to have spend money on fun things or hobbies, just to keep our sanity sometimes, but when it comes to cutting corners on your budget you need to think it through.  This is especially true when you still have not established a financial cushion with your savings account.   This must be done first before you get to a point where you can start dropping cash on material things that you likely don’t need to have.

Stay focused on building wealth and forget about wasteful spending on things you really don’t need.  Once you get to a good comfort level, you will be able to pay cash for those things that you just can’t live without.  Just make sure it’s cash…no loans or credit cards!

 

How Do You Measure Financial Success?

measure

 

Financial success could mean just about anything, if you ask any given person.  So ask yourself the question, what does financial success mean to you?   Is it reaching a certain level or amount of money?  Becoming debt free?  Having a few extra bucks in your pocket at the end of the month?

All of these examples could be good measures or goals of financial success.   For a lot of working-class people, just having extra money left over after bills and your financial obligations are paid every month, is truly success.   At this level, money left over is your way to start saving and investing in your future.  As you progress in this system of money management, your financial goals start to change to new levels or larger amounts incrementally.

Depending on what level you are at with your own finances, you should always have goals. Your first two goals should be:

1. Eliminate small debt.  Focus on credit cards or loans.  Pay them down, one at a time, and don’t use the credit cards again.

2. Create a security blanket savings account.   You must have an “emergency” savings account saved.   Shoot for a balance that gives you a comfort level to cover the majority of issues that arise, then continue to add whatever you can every paycheck.  I mentioned savings account, because this account has to be liquid or readily available to handle unexpected expenses.

These two goals actually work together, because as you pay down debt you will have extra money left over to increase your savings account.  Just make sure you stay disciplined and focused on stashing this extra money.  Eventually you will get to a comfort level in your savings account where you can easily handle any expenses outside of your normal budget and you won’t need to use any credit cards.  Once you get to this point, I would consider this a huge success for most people.

When it comes to credit cards, it’s a good idea to keep one credit card account open and available (once it’s paid off), to be used to handle emergency and/or unexpected costs that exceed your savings account level.   This card must only be used for this purpose!  Hopefully you will not run into this situation often, as it will unfortunately set you back.

So, what is your measure for financial success?  No matter where you are in your own  financial situation, there is always room for improvement.  Set goals and make your own measures.  Track them and stay focused.  Work on your monthly budgets, closely monitor your spending.  I suggest using a great budgeting tool called Mint.com, it’s free and really easy to use.  You can link this program to all your accounts, both savings & checking, and all debt accounts etc.  You can then setup each category of spending and input a budget amount.  Monitor the budget amount for each category monthly and adjust accordingly.  It will take a few months to really understand where your money is going.  Once you get this system tweaked, you will know exactly how much you are spending in each particular category.   It’s amazing once you actually see where your money is going, the realization sets in and you’ll know where you did well in your spending and where you went wrong (exceeded budget).

Stay focused on monitoring your budgets every money and you will be amazed how much progress you can make once you set you mind to this task.  You will know exactly where you can “tighten the belt” and cut back.  Evaluate each area closely and determine where you can save money.  Put anything you have left over in your savings account until you reach a good comfort level.  Once you made that level, it will be time to start finding other areas of investing to actually make money on your money.

Financial Stress

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When it comes to stress, is there anything worse than financial stress?   The pressure of paying bills, putting food on the table, or even just hoping that you have enough money left to put gas in the tank of your car to get to work that week… wow, it can just be overwhelming at times.  I’ve been there myself and it’s a terrible feeling.  I remember looking at my checking account and stressing over the fact that I only had $30.00 left to last until payday.  It really changes your prospective on things.

For me, I knew I had to buckle down and squeeze out every dollar I could to make it until I got paid.  The stress it creates to be down “to the wire” like that, is incredible.  It was times like this that I knew I would be crushed if any type of emergency were to happen.  I always told myself that I would get ahead and create a cushion, just for that reason.

I’m sure you’ve had times where you can relate.  Financial stress puts an incredible burden on a relationship also.  There is nothing worse than fighting over money issues.  It’s sad because we seem to get caught up in these types of situations and somehow forget how truly lucky we are to just have each other and appreciate all the good things around us.   How many good relationships have you seen go down in flames because of financial issues?

How do we turn the table on this type of stress?  As I mentioned earlier, we work to create a cushion and save enough money to create an emergency fund.   In my opinion, you need to save and maintain a minimum of $1000.00 in your savings account.   You need to have at least this amount saved to cover a good majority of the issues that arise, and you need to have it in an account where you can quickly and easily access it.   That’s why It’s best to have this money in a bank savings account.  Better yet, set a long-term goal to have one month’s pay in this emergency fund, that would give you a nice security blanket!  You will also need to start funneling money into other areas where you can actually get a decent return on your money, but for now you definitely need to have a savings account available first.

I assume (and hope) that you have a decent medical insurance plan.  When I mention “emergencies”, I am really implying the majority of the issues are financial emergencies.   Medical emergencies are a whole different animal, but either way, having money available for whatever reason is critical.

Once you get the cushion you need, the stress level will dramatically drop.   This is the start of your financial success and the first stage to getting ahead of the game.  Stay focused on this task, then start funneling money into other areas or investments.  One step at a time, first thing’s first, get that savings account established then you can start looking to make some money on anything that’s left over.   More articles to come on that!

Pay Yourself First

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First thing’s first, you must find a way to pay yourself before anyone else.   What I mean by this is, you need to stash some money right off the top when you get paid.   It doesn’t matter how much you keep for yourself (be realistic with your budget….you do have a budget, right?), but you must find a way to put a little cash away every pay check.  If you do this first, then you can plan accordingly to pay all the rest of your bills and follow the budget that you’ve created.

In the past, I always paid all my bills right after pay day.  For me it was even more difficult because I only got paid once a month!  After I got paid, I went ahead and paid all of my bills right away.  Unfortunately, that normally left nothing for me at the end of the month.  Once I realized that I needed to pay myself first, I always found a way to keep that money stashed.  I told myself that I wouldn’t touch it once it’s in my savings account.  It’s amazing how you can always find a way to pay yourself before everyone else and still get by! Everything else seems to always work itself out by the time the next paycheck comes.

Over time, you start to realize that you have accumulated a significant amount of income from that contribution.  It’s amazing how it can grow.  Remember, when the budget is tight, it’s really about baby steps to get ahead.  You have to be patient….and frugal!   Keep to your budget, stay disciplined and focused on saving, and you will be shocked how it can add up.   Start today and work to secure your financial future!

Budget?…Who Needs A Budget?

"Starving" piggy bank

Do you have a budget established?  If not, you absolutely need to get one started right now!   It’s imperative that you know where every cent of your income is going.  Without this information, you cannot clearly understand what you need to do with your finances or where you are going wrong every month.  I highly recommend using Mint.com.  It’s really easy to set up and better yet, it’s free!

With Mint.com you link all of your bank accounts (secured, read-only) to the program, so it can track money-in/money-out transactions.  You can also link any credit card accounts or loans, so you can track everything in one convenient site.  Once you set your own budgets, you can easily track your spending by categorizing each and every transaction.   At any given time, you can see exactly what you have spend for each budget category.  If you go over budget for a given category you can easily see it, then it helps you to understand how to plan your finances accordingly.   Once you go through and categorize every transaction, you will be able to see trends in your spending.

Mint.com gives you some really cool tools to evaluate trends in spending, month over month or year over year.  It also gives you suggestions on how to save money every month by applying for a lower interest credit card, for example.   It actually gives you links to apply for the best cards available (not that I’m preaching the idea of getting credit cards, but it’s just one more nice feature).  I even use Mint.com to link up to my asset accounts like Ameritrade, so I can monitor those as well.  Give it a try, it’s really easy to use.

Remember, without a budget there is really no accurate way for you to monitor your spending.  If you don’t know where your money is going, how in the world are you ever going to be able to plan to get ahead of the game!   Obviously there are many different types of programs available for this purpose.  Even a pad and pencil could do the job.   But to be able to link everything you have (income, debt, assets, etc.) all in one place, you can’t go wrong with this program. I like to keep it simple…..and free!

Is Time On Your Side?

Time-Clock-Money-Vial

Depending on your age and current financial situation, time is critical for your future financial success.  Obviously the younger you are the better the situation because you have more time on your side to start the process of investing in your future.  You also have more time to cover the ups and downs of life in-general, including life changing events and the current climate of the financial world.  Although you have a significant advantage starting out at a younger age, just getting the process started at any age is better than not doing anything at all.

For me personally, I never understood (or really bothered paying attention) to my long-term financial situation.  This is unfortunately all too common with working-class folks like myself.   I think a lot of people just assume that everything will just work itself out and something like Social Security (SS) income will provide for them after they retire.  The reality of this proposition is frightening to me when you actually look at the sheer number of your SS benefit, in comparison to the type of living you are accustomed to.

It doesn’t take a mathematical genius to figure out that you simply can’t afford to maintain the type of lifestyle you currently have working now, with only a fraction of that income coming in from SS to live on.  With that said, do the calculation yourself on paper (or in your head, because it’s really that simple) then start understanding the realization that you will need other sources of income to be able to come close to your current standard of living.  As I mentioned earlier, it doesn’t really matter what age you are, starting right now is the key to moving forward.    I certainly wish I would have started to aggressively save money and investing years ago, but raising a family and working pay check to pay check was my dilemma, like so many millions of other people.

The bottom line here is, start paying yourself first (saving money) every month.  Even if it’s $10, $50, $100 every paycheck.  Start there first, stay focused on this task, and never stop.   The money will compound after years of saving and you will be shocked how much you can accumulate over time. Hopefully the money will be invested in an account that will give you a decent return on your investment.  That is a discussion for many more blogs, but for now let’s keep it as simple as putting money in your savings account.  After all, we all should have a savings account that can be quickly accessed in case of an emergency.

I can’t stress this enough, it’s very important to build up a savings account first, then investments will follow.   Of course reducing/eliminating any and all debt is also the key to long-term success.   Many more blog posts to come on that topic also.   For now, get that savings account built up to a comfortable level, then consistently add to it every pay check.  You will be amazed at how much it will grow year over year.