Issue time 11:52 am, by CTreit
Category:personal finance
Earn more or spend less – it doesn’t matter which!
July 26th, 2010When you face financial challenges, you get the good advice that you should either earn more or that you should spend less. Both make sense and are a good short-term fix. But neither one of them is really the problem, because for most of us, the difficulty lays elsewhere.
The bottom line is this: if you don’t have good spending discipline, you will find a way to spend a higher income once you get it. It almost doesn’t matter how high your income gets; a spending problem stays with you.
I’m no better than anyone else when it comes to this. You see, in my first job I made very little money, but I still managed to save money even with that measly income. I rented an apartment that fit my income, I drove a cheap second-hand car (maybe it was a third- or fourth-hand car), and I spent little on entertainment. Over time I have made some good money and my spending could increase. I bought a house, I drove a better car, and I spent more money on entertainment. My higher income found a way to be spent.
But all was not lost. The crucial thing is that no matter how much or how little money I have made, I always managed to save some of my income. Some years I would save more than in other years, but I always had some money left over at the end of the year.
There is one simple reason why I saved money even when I made little money: I am spending my income conscientiously and I don’t ever spend more than I make. That way I know that I can always survive no matter how high or how low my income is. I never needed a higher income to help me get out of financial trouble. (Let’s hope it always stays that way!)
If anything, having a higher income made my financial life a little more complicated and not much easier. As my higher income found ways to be spent, I acquired things that led to ongoing costs like expenses for storage, upkeep, running expenses, and so on. My necessary “fixed” expenses have increased, but not terribly so. Most of them can be lowered very easily and quickly if I ever have to do that.
To sum it up, in my personal experience a higher income has not solved any money problem for me whatsoever. My overall well-being and happiness did not change with the income either, well, not really. I do not recall feeling particularly unhappy with my low starting salary. Neither do I recall feeling particularly happy with higher incomes.
So, my advice would be not to focus too much on earning more in the future. Rather, focus on your own self right now. Find out who you are and how you can live within your own means. Never mind finding out how you could live within the means of somebody else, even if that somebody else is your own self, ten years down the road, with a higher income.
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Issue time 9:29 am, by CTreit
Category:personal finance
Save Money video on YouTube
July 23rd, 2010We posted an animated video “Save Money” on youtube. What do you think?
You can find weekly lists of great blog posts written by personal finance bloggers at various carnivals. We are happy to report that the following posts of our blog were included in three different carnivals:
Obvious and Hidden Financial Risks in the Carnival of Personal Finance hosted by Funny about Money.
What to do about the risk of not reaching your financial goals? in the Carnival of Money Stories hosted by The Financial Blogger.
How money loses its power of buying things in the Carnival of Financial Planning hosted by Finance Blog.
Thanks for hosting and for selecting our posts!
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Issue time 9:39 am, by CTreit
Category:Debt Management
To eliminate debt or run up debt? That is the question.
July 22nd, 2010What a silly question, right? The answer is so obvious. Of course, you want to eliminate debt, especially in this day of age when we all seem to have too much debt as it is. But let’s not go crazy here, because surely there are instances when debt is more than okay.
Think about how a corporation operates, or take a look at the balance sheet of a public company. You will find things like current liabilities and long-term liabilities on the balance sheet. These are the debts of companies. They hold debt all the time!
Why does almost every company have debt? A company runs up debt if, for example, it buys a new machine for which it cannot or does not want to pay cash. It finances this machine with a loan. Yes, it runs up debt. At the same time this machine in question helps the company produce stuff for which the company in turn gets paid. The company can then use this money to pay back the loan it took out to buy the machine that allows it to produce things in the first place. In other words, the company has acquired an asset that helps it make money. Nothing wrong with that, is there?
As individuals we should look at our assets and debts the same way. If you buy an asset that helps you make money, it is ok to run up debt – all within reason just like it is the case with a company.
One of the goods that help you make money is education. This is why we can easily argue that financing an education with debt is ok. The higher income that results from your education will allow you to pay back the loan. Adding to your education is making an investment in yourself that is expected to pay for itself with higher incomes at later dates – and the evidence shows that this is normally the way it turns out!
The same goes for founding a company or buying a car. If the car allows you to make money by getting to work or visiting customers, it is a great asset to have, one that is worthy of running up debt for. Again, the additional money you make allows you to pay back the loan. If the car is just for joy-riding, though, or you found a company and do little to make it profitable, you’re not really making investments.
The key to debt is quite simple. If you take on debt, make sure you acquire some asset that makes you enough money to pay back the loan and then some. When you follow that simple rule, debt will serve you well and won’t be a great added burden to your financial life.
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