College is long on theory but short on application, long on ideas but short on reality, long on book learning but short on real world experience. I think people without college degrees sell themselves short by thinking that they’ve missed the boat, but my experience says that, while a degree is worthwhile, it isn’t a requirement for success in life.
Some of the most successful people in the world have learned how to be successful in their personal finances by incorporating three simple ideas:
1. Spend less than you earn. Whoa! Stop the presses. Here’s a revelation for the ages.
There is a stack of money that you bring home each pay period. Your goal is to NOT use it up. By creating a gap between what you earned and what you spend, you set yourself up to have “disposable income.” Your goal is to increase that disposable income as much as possible by either spending less or by earning more.
Spending less means maximizing every dollar that comes into your home. It means searching, diligently searching for way to reduce the amount you have to spend on needs and coming to terms with the amount you spend on wants. Not every want is a need and you’ll have to sort that out within yourself.
What freebies could you get? What opportunities do you have for clipping coupons, carpooling, cooking at home, or cleaning your own clothes? What expensive (cough, cough Starbucks) habits do you indulge in? Some people I know spend mountains of dollars on sodas, snacks, and vending machines. Could you give up smoking? How about season passes to NASCAR? Oops, stepping on some toes here.
Don’t be cheap, be frugal. Cheap is inviting people over and serving them sodas in small glasses overloaded with ice. Frugal is inviting people over and serving them a delicious home-made mint tea that only cost 5 cents per serving. Don’t make yourself miserable and don’t get a reputation for being a cheapskate, but also don’t forget the big picture.
Earn more by furthering your education or by setting up a side business. Could you start a blog or build decks or sell homemade candles online? It doesn’t really matter what you do to earn more, what matters is your attitude. You must constantly be seeking, actively seeking opportunities to increase your income. Could you tutor someone, or babysit for four moms that work 3rd shift, or set up your own house cleaning crew? The possibilities are literally endless if you take the attitude that you will succeed.
2. Manage your money properly. Begin by getting current with all debt and possibly negotiating with your creditors to lower your rates (they will usually do this if you only ask). Next create an emergency fund so that when the car needs a new battery, or new tires, or you have to pay a deductible on your son’s broken arm, you don’t immediately reach for the credit card. Next move to pay off all your debt by the debt snowball or by debt snowflaking. Pay everything you can towards one debt and the minimums on all others, then when that one is paid, take everything you were paying on it and put it towards your next debt. Continue on until there’s no more debt left!
Once you’re out of debt, you can begin to consider investments of different types. Be sure you take advantage of your employers You should also consider your personal commitment to your children’s college education and make arrangements for that if you’re so inclined.
Most financial advisers recommend that you begin your investing journey by using broad based, low fee, index funds. I would concur until you feel you have the time and the wherewithal to investigate investing in individual stocks. Stock investing involves a ton of research and should only be undertaken with money you can afford to lose.
3. Remember why you’re doing all this. It’s about you controlling your life rather than being controlled by money. It’s about you being able to decide to play a round of golf on a Tuesday because the weather is nice and NOT having to play hooky from work. It’s about being able to go to the school plays, the ballet recitals, the baseball tournaments, the middle of the day parent teacher conferences. Money, in and of itself, is useless. It’s just a piece of paper with some printing on it. But what it does, in sufficient quantity, is allow you to experience something that few people get to experience: freedom. The freedom from worry, the freedom from debt, the freedom from a boss breathing down your neck, the freedom to go fishing with your 4 year old grandson in the middle of the day.
Once you have time freedom, you’re able to alter your life, and time freedom is purchased with money. People don’t love money, they love what it represents. For some it’s power and prestige, for others it’s the accumulation of “things,” for others, money represents the ability to live life on their own terms, without being shackled by worries and concerns that the money will run out.
College doesn’t teach this stuff. Virtually no one teaches this information to our children and college age adults. Most businesses are in the business of getting them ensnared in high interest rate debt as soon as their feet hit the college campus.
It’s a shame, too, because students are usually going into student loan debt just to pay for college, then incurring additional high interest rate debt in the form of credit cards. The irony is that most issuers wouldn’t give a card to someone making minimum wage and living in a shared apartment, but if that person is a college student, then the rules are thrown out the window.
[tags]personal finance, debt, income, spend, save, freedom[/tags]