If there is one life skill that is going to really assist you in this capitalistic society, that is how to manage your money. There is an illusion or a notion that if you make more money, you would have more money saved up and you will never be broke again. If you can’t manage $2000, then how are you going to manage millions? As you can see in following documentary, Broke, having millions of dollars is not the solution for escaping poverty.
What I’m about to demonstrate and explain is one of the most difficult and confusing concept to understand for countless people in North America.
If your monthly income is $2000 and you spend $2000 for that month, you have $0. If you spend $2500 for the month while your monthly income is $2000, that is -$500. It means you probably owe $500 to someone or somewhere unless you have money saved up. Now, to make it more interesting, if you used a credit card to owe that $500, there is going to be a high interest that you have to pay on that amount. So if your credit card interest is 15% and you don’t pay back the money you owe, you will be paying additional $75 every year on top of $500 until you pay back the whole amount.
If you somehow understand this concept, there are many things you have to avoid in order to not put yourself in a financial hole. One of them is spending money when you don’t have enough money. Spending money to invest is one thing, but buying things for leisure purposes when you don’t even have lots of money and a good paying job is simply senseless.
I’m going to use an example here that many people might relate to. Trent is a salesman with $2000 monthly income with $2000 monthly expense. Somehow he saved up about $5000 to buy a car when his work, grocery store, liquor store, convenience store, restaurants, strip club and etc. are all within 5 – 10 minutes of walking distance. He initially thought about getting a brand new car, but he didn’t want to have a debt. He eventually decided to buy an old model sporty 2 door car for $5000 from a questionable owner.
This car unfortunately turned out to be a junk. The exterior and interior looked good enough, but it constantly caused issues where repairs were frequently required. It’s like a person with a great resume with great reference and interview, but incompetent in real action. Trent had to spend more money time after time to repair his car. In the end, he stopped driving his car with not much in return after spending lots of money. He could’ve spend $50 per month for train passes to visit his family, but instead he spent $300 per month for his insurance plus gas and maintenance.
If you really need a car to make money, then that is a good investment. However, if you don’t even have sufficient bankroll or positive cash flow, buying a car that you don’t even need is a bad decision. Especially, if you are buying a car because you want to impress a girl or drive for fun. This goes the same with excessively eating at restaurants everyday instead of cooking at home. Having unessential memberships or subscriptions that actually make you spend more money could also add up. Your habits, discipline and way of thinking all affects the way you handle your money.
With so many options and avenues online, there is no need to be stuck in old ways of doing things. When I had a paid-membership to shop at a big retailer, I thought I was saving money because I was buying items at wholesale prices. I actually thought it was providing an awesome value. After when I stopped buying at a membership retailer and started to buy from non-paid membership stores and online, I realized I was actually saving more money and time. Here are a few of my own personal tips on how to cut down on some of your expenses:
- With online delivery with so many options and pricings, I only have Amazon Prime membership. It also comes with streaming service. Prime video may not be the best but it is good enough to substitute for a cable TV. I save money, time and gas by not having to go anywhere and stand in line for a long time. However, I don’t buy any fresh/produce/food online because I would like to see them for myself before I pay.
- There are so many online outlets to buy just about anything for good prices without paying any membership fees. I have bought furniture, tables, electronics and etc. through online for better price than other paid membership retailers.
- Company like T-Mobile offers a phone plan where Netflix is included or you might have to pay $2 extra on top of your monthly bill. Also, if you have a smart TV, it probably has so many streaming apps or services that provide hours of entertainment for free in exchange of watching advertisements. You can cut down your cable TV bill this way by just streaming online.
- Stay home and find something entertaining to do instead of going out to clubs and bars often. Drinks + tips + any other expenses can all add up. I remember one time when I was at a club for someone’s birthday party. I’ve known these guys since high school and I agreed to pitch in for the bill at the end of night. There were so many people at our table/booth who were friends of others in our group. As the night went on, guys were ordering bottles after bottles. The whole night, I only had a glass of vodka and cranberry juice. When the bill came, it was somewhere around $10,000 – $20,000. I paid $50 and left. You can call me cheap but I have no desire to be the “man of the hour” and give out free drinks to impress strangers who don’t even know who I am. Even if I could afford it, I don’t think I would literally piss my money away like that.
It’s important to be financially literate if you want to live comfortably. Read a book if you have to. If you don’t have enough money but you want to spend more, then you just have to find other ways to make more money. Learning about investing and how money works at a young age can help you tremendously throughout your whole life. I can’t tell you what you should invest because that depends on your interest and expertise. There is a risk of losing money when it comes to investing, so I can’t recommend how you should go about it.
You should never judge a person’s character and virtues based on one’s finances. But one thing is for sure, people can easily change and do things out of desperation. Being broke will make you do things whether it’s stealing or lying to keep a job. Therefore, it’s never too late to be smart about your finances and prevent yourself from becoming one of those shysters or connivers.