Piracy has made a surprising comeback on the high seas, but little pirates have been attacking my financial ship for years. Just like shipping interests have had to alter their methods of operation, I’ve had to alter my habits and my budget to insure that these pirates don’t make me walk the plank.
The king of the personal finance rules of thumb, spending less than I earn is easier said than done – but name one thing that isn’t. Living on less than I earn began with changing my personal spending philosophy. I’ve had to learn to moderate my cash outflows and avoid reckless spending. The gratification I get from knowing I don’t have to walk the plank is surprising. It really is a freeing experience to know that things have less control over me.
Pirate #2 – Living Without An Emergency Fund
I’ve lived life without an emergency fund and lived life with one. Guess which is better? If you’re just a job loss or a medical emergency away from financial ruin, you need an emergency fund. Most experts recommend you fund your emergency fund with three to six months worth of income, but if you make it to three to six months of basic living expenses in a liquid account, you’re way ahead of 99% of your peers. If you wonder how you can save that much, check out 17 Sneaky Savings Strategies and give them a try.
Pirate #3 – Overusing My Debit Card
Just having that piece of plastic can make you feel that the money has no end. Too many times I’ve been guilty of “guesstimating” how much was in my checking account only to be surprised … and sometimes embarrassed. Implementing a strict cash-only diet not only puts my own spending habits in perspective, but it forces me to think before making that impulse buy.
Pirate #4 – Resorting To Credit
I’ve been guilty of “wanting it now” syndrome. What’s odd is that the times that my wife and I saved money to pay for something (a tent, a camper, a vacation) it was so much sweeter than when we bought other things on credit. What’s even more odd, is that I can’t remember those other things, but I CAN remember the things we saved for.
Pirate #5 – Saving Inconsistently
Until I began making regular AUTOMATIC deposits to savings and retirement accounts, I would put money in only to take it right back out again. Slow and steady wins the race and those constant ups and downs in my savings account didn’t do anything but increase the fees I paid to the bank.
Pirate #6 – Investing in Individual Stocks
Investing in individual stocks is like playing golf. You always make four or five really good drives or putts and those few successes make you come back next time. You forget about the 103 shots that were horrible! I fell victim to chasing the dot com returns back in 2000 only to watch my portfolio crash and burn. I’ve successfully found the exact highs and exact lows of many individual stocks. I have a natural talent for it. The problem is that I buy on the highs and sell on the lows. That’s why I’ve moved my investing into index funds that represent the whole market.
Pirate #7 – Forgetting To Budget For Fun
All budgets should allow for fun, entertainment, occasional dining out, and something you enjoy. I’ve had to think about where my personal recreation priorities lie and decide how much I want to spend each month on those activities. Many experts say that if the total is more than 10 percent (5 percent is ideal) of your total household budget, it’s time to scale back. But don’t blunder by eliminating recreation altogether or your best-laid plans will eventually self-destruct. You know what they say about all work and no play …
Pirate #8 – Paying Only The Minimums
Far too many times, I paid only the minimum payments on any loans. The result? A much longer payoff and much more interest paid to the banks and credit card companies. Only when I began making more than the minimum payment did I start making progress. Today, many people are recommending that you only pay minimums until you have a healthy emergency fund in place and I couldn’t agree more. But don’t get that emergency fund in place and neglect to start making larger payments on your debt.
Just like the golden age of piracy came to an end when nations tired of losing their ships, sailors, and cargo to pirates, I’ve tired of losing my financial cargo to these eight “pirates.” Don’t let these pirates make you walk the plank.