So you want that cheddar, that cheese? You want to bring home the bacon, the cake, the bread – and not that wonder bread shit. You want to bring back the whole wheat, double protein, triple fiber, nut-encrusted gourmet loaf to your home, your girlfriend, your wife, providing a good home and life for you and your family?
Regardless of what you call it, money is power and freedom. Being financially secure will afford you the ability to get out of jams completely, or quicker, and make better decisions with your life as a whole. And we’re all about the whole.
Well, avoid these pitfalls and you’ll be ahead of 99% of people out there (I just made that number up).
1) Not Living Within Your Means
I work on websites. That’s what I do, I design, build and market them for a living, and I am finally applying those skills to ANOTHER business, this business, the business of manhood.
“But, Zach” you’re probably wondering “websites have nothing to do with personal finance.” Well my friend, you are dead wrong.
You see, I see websites, particularly shopping carts get tens of thousands of visitors and make hundreds or thousands of sales. Fortunately, the companies with these websites are doing a great job marketing themselves and bringing in quality traffic. But, when it comes time to grow – to make more money, they try to figure out what new, cool, or targeted marketing techniques will bring in more traffic and more business. WRONG!
Instead of concentrating on bringing in more traffic, they should concentrate on converting the traffic they already get. “Converting” refers to the people that do come to your site and make purchases or sign up for your products/services.
So what does this really have to do with your personal finance and living within your means? Well, instead of concentrating on getting ahead, by shoving more money in your pockets (a process that will invariably involve MORE work on your part and CONTINUED work if you plan on keeping it up), you should first understand how to live on what you already have, and sock away some. This means, mapping out a plan, maybe even using a spreadsheet (I recommend google docs – it’s FREE!), and analyzing all of your monthly expenses as well as your monthly income. If the two match – great. But, you still have work ahead of you. If they don’t, if you are spending more than you are making… BIG PROBLEM! But, you can adjust this quickly with a few changes in your life. Additionally, I highly recommend signing up for a service like Mint.com which will securely connect to ALL of your bank accounts, credit accounts, etc. and give you a fairly accurate picture of where every penny is being spent – and categorize it for you AUTOMATICALLY! This tool is invaluable when you are trying to analyze your current living and monetary situation in order to figure out where and what you can cut.
Right away you need to figure out what is essential, what is absolutely NOT essential, and what you’d like to keep. Cut back on the latter two, eliminating anything that you don’t need to be spending your money on, and cutting back on non-essentials. If and when you are able to free up some cash – from your existing cash – sock it away or put it towards any debits! Speaking of debts:
2) Using Credit Cards
Credit cards are number 2 on this list for good reason. First of all – in general the use of a credit card implies you are not living within your means! Come on… I thought we just talked about this. Scroll up the page and look at #1 again. Credit cards, are just that – credit. Meaning of course that you don’t have to pay for an item right away; instead you can make small monthly payments, all while smiling gladly, as a big bank shoves a fist in your ass. Because credit cards are very much like a fist in the ass – tempting, but ultimately leading to incontinence.
Don’t get me started on credit cards, but I will say this… if you only pay the minimum balances on your cards every month, EVERYTHING you’ve ever bought will end up costing MANY times more than you expected. When you see the 1%, 5% or 10% rates on your card, you have to understand that this is compounded over time, meaning your $1000 TV may take years to pay off and end up costing you twice as much if you only make the minimum payments.
Pay off your credit cards first! This is a greater priority than saving.
How would you like to immediately get a 10%, 15% or 20% return on your money? Well, you can get that by paying off your credit cards. By paying off your credit cards as quickly as possible, you are eliminating the EXTRA money (in interest fees) you pay to your credit card company every single month! Here are some shocking facts that illustrate my point:
- The Census Bureau reported that there were more than 1.4 billion!!!!!! credit cards in use in 2004 for only 164 million cardholders (average of 8.5 cards/person)
- Currently 115 million Americans carry a balance
- Some research suggest that American households carry an average of $12,000 in credit card debt. At a typical interest rate of 18% that’s over $2000/year in interest payments (just on credit cards) alone!
Take a look at that last bullet… if you have $12,000 in credit card debt, with an interest rate of 18% (the rate at which the bank is charging you to “use” their money), you are paying $2000 EVERY YEAR to the bank. Pay off your credit cards, and save the $2000.
3) Not Saving
What? You don’t have a savings. I’m not going to sugar coat this… that is bad. You must have a savings. I remember pooling up my 2 dollar bills (the ones my uncle used to give me every holiday) until I had a huge wad. I looked like a pimp at 10 years old – it got me all the ladies. And by ladies I mean stuffed animals and He-Man action figures.
Unfortunately, life gets in the way, and if you don’t want to use credit cards for every emergency you must have a savings in place.
Now, don’t get me wrong. I understand using or having credit for emergencies (I have credit cards for this purpose myself), but even in cases where it really is an emergency, going into debt is like slavery. At least that’s how I look at it. I pay a big company hundreds or thousands of dollars, making them rich, while getting nothing more than a) the ability to pay for something quicker, or b) access to funds in case of an emergency. And once you’ve dipped into that credit, it can take years of payments (servitude) to get out. Don’t you want to work for yourself, and not American Express?
At the same time credit in general, is the way of the U.S. now, both on a large, and small scale. The government operates almost completely on credit from other nations (we are the largest debtor nation), and many individuals too live solely on credit. You are literally judged by your credit score in almost ever facet of your life, getting a place (apartment or purchase), applying for a job, etc. People want to see that you are a responsible individual when it comes to credit, but at the same time you need to play the game to get a good score. I get it.
But, you need to be stashing your money away. Maybe you have a dream to purchase a condo, maybe you simply want to be protected in case of emergency. Regardless of what the money will be used for (although having a goal can help) you need to sock away the money you save by avoiding the two pitfalls above. If you save money by minimizing expenses, use it to pay down your credit cards faster. If you’ve paid off your credit cards, save it up!
4) Not Doing Your Homework
Man… school was over years ago. I don’t want any stinking homework!
Well, that’s great, but that kind of thinking probably put you in the pickle you’re in today. If you want to be financially secure you’re going to have to do some homework. Don’t worry, it can be fun, and you may just get addicted to saving. I remember when I was 5 or 6, when my mom would take me grocery shopping, I made a game out of saving as much as I could on the groceries. We would divvy up the list and I would find the cheapest hot dogs, bread, etc. I always came back with the cheapest price per dog, but unfortunately they usually tasted like cardboard.
Doing your homework, either before hand, or IN a store can be both financially rewarding, fun, and can also lead to some surprises:
Did you know that you can get a Costco Executive membership at no cost? They literally give you a percentage back on every purchase, and if that percentage doesn’t add up to MORE than your membership dues they will give you the membership for free. If it adds up to MORE than your membership dues, you keep the remainder.
Did you know you can save around 10 – 15% off your insurance bill by prepaying for 6 months or a year of insurance? Yes you can! And, you won’t have to worry about cutting a check every month.
Not only does “doing your homework” apply to general purchases – ie televisions, chairs, tables, etc. But, if applies to every facet of your financial life – services, utilities, etc. Every single line item you come up with from pitfall #1 can be analyzed for either:
a) a competitor – perhaps someone does just as good of a job on a similar product for much cheaper
b) bulk or general discount – prepaying, buying in bulk, or attaining a membership might just save you hundreds or thousands per year (and help avoid inflation!)
Doing your homework on the products and services you buy is one of the quickest ways, once you’ve cut out your non-essentials to get more cash in your pocket. It may cost more up front if you buy in bulk, and you better be damn sure you use the 100 pack of Scott Toilet Tissue, but in the end you can save tons of money AND TIME.
Finally, when doing your homework you must also keep in mind that TIME IS MONEY. If a product or service is $0.50 cheaper at walmart that’s great. But, if it takes 45 minutes and a gallon of gasoline, is it really worth your time and effort? There is a balance, and if you waste a ton of time saving money, that’s also time taken away from your job, family, and leisure.
5) Women
Women spend money like there’s no tomorrow, grabbing your credit cards and swiping it through the point of sale machines like battle hardened samurai’s slash a katana. All so they can get yet ANOTHER Louis Vuitton handbag, pedicure, and egg-shaped lip plumper.
Just kidding! I don’t want to get shot here.
This last item should probably be called “relationships” as it isn’t women in specific that spend money (I just wanted to rock the boat). In fact, I’ve seen the tables turned with many friends, where the women are hard working and their bo’s or husbands are the sloths, slowly moving from branch to branch eating the leaves of her money tree. Where can I find me one of these?
In truth, you need to rally everyone you know behind your personal finance call. If you are a man reading this, the bread winner, and you want to take more control over your finances, and have a girlfriend that is clueless to money, sit her down and discuss the situation and where you would like to go. She will respect you a million times more than if you a) try to do it covertly, or b) don’t do it at all and end up losing everything during an emergency. And if you are a woman do the same thing! I personally would find that very attractive. In general you may need to notify your friends of your lifestyle change(s). To give you an example:
A friend of mine recently moved in with his girlfriend, and although both him and his lady make decent money, they are now living on their own, fully supporting themselves, but they want to continue to be financially prudent and have since cut-off many of the more expensive or costly ‘fun’ activities we used to enjoy as they are trying to save up to purchase a home.
I was told this in a quick conversation and I understand and respect it.
These conversations, be they with siblings, friends, or lovers is also a great way to learn more about the people in your lives.
Avoid these 5 pitfalls and you will be on your way to personal financial freedom!
If you have any other suggestions or stories, please share them below:
