Wednesday, November 21, 2012

thats what i want

the best things in life are free
but you can give them to the birds and bees
I want money

-- That's What I Want -- Written by Berry Gordy and Janie Bradford, 1959

So, lately people (friends and coworkers) have been asking me about my finances, in sum, how do I handle them?

It is an interesting question. I mean, look at me, I have been (until recently) single, living in my parents home (with sporadic living on campus for work/school), with not too many financial obligations, given that I have no dependents nor real responsibilities. Yet, for some reason, people always from all walks of life, ask me about handling finances as though I am some sort of expert.

So, I'll give you my top five hints and maybe a bit of explanation as well. This isn't really in a planned order, just whatever pops into my head in whatever order.

(1) Start Young

Its not really a hint... but it was part of my experience. The first allowance I had (mind you was like $20/month), my dad taught me to budget it. I think I was roughly 10 years old at the time, maybe even younger. Now, you may think, this is a heavy topic for a little kid, but its not. Really, it comes down to simple adding and subtracting. But what you learn is how to look at your wants and needs and plan for them both. Because trust me, 15 years later, you no longer plan, you just know.

(2) Differentiate between Wants and Needs

This is a major, major, major, major thing for me. In our commercialized society we are seriously condition to think we desperately need something, especially when it first comes out. For example, all those rushing to get the iphone 5... DESPERATELY NEED IT! But, really, YOU DON'T! You know that saying 'If it's not broke, don't fix it' -- well, personally I add a 'and don't replace it until unfixable' --- which is ironic since one of the cellphone ads this year is of all these people breaking and sabotaging their phones in order to buy a "better and newer" one. But the reality is "newer is not necessarily better".

So, basically, you need to learn: A need is something that is crucial to living during your day-to-day life. A want is anything else.

Think of it this way: You need food to live -- you want twizzlers because you want a sugar rush. --> You buy a bag of apples $1.99 --> you buy a pack of twizzlers $1.99 --> you end up buying a bag of apples anyway, because you're still hungry and your body still needs nutrition.

This doesn't mean cut out the wants from your life, but it means only consider a want after you have fulfilled your needs, put some money on the side for future needs (i.e. savings), and then revisit if you still want that thing.

(3) Use only what you have, not more and always less

One major detail that my close friends know about me is that I have never had a credit card. I don't believe in using imaginary money. EVER. I like to use only what I have. So, say for the month I have $20 dollars and I need to fill some gas, get a formal shirt to wear for a panel presentation, and pay my electricity bill. I know, random, but sometimes our needs are a bit random...

For most people this is what happens:

(A) Pay electricity bill
(B) Buy shirt on credit card
(C) Fill gas on credit card
(D) Hope to God that next month we can make the monthly payment for the credit card dues.
(E) If remaining money is about $10, buy lunch for that day since we've exhausted ourselves mentally for worrying about finances.

So, in my mind:

(A) Pay my electricity bill in full (say about $10)
(B) Fill enough gas to make it until my next paycheck and walk A LOT. If anywhere is within a 3 mile radius, I sure as heck walk there. --> which usually keeps my gas pretty much unused.
(C) Take one hour to shop for a shirt within the remain cash that I have left over, assuming its about $10. If I don't find anything in that 1 hour, I put that money in my savings and find a shirt that is suitable in my closet, my mom's closet, my sister's closet, and then I move on to friend's closets. And since the females in my family as well as most of my friends work as teachers or are professionals, I can come up with something. If someone ever wants to do the same, let them. Don't think twice.

--- One thing that is important to note is you NEED to save. Consider it part of your Needs and not a Want.

(4) Budget in categories with margins of error

There are things that can be grouped together, for me it usually looks like this:

Monthly bills - car payments, insurance, rent (or mortgage), electricity, water,phone, heat ect (these thing are typically fixed and to be expected)
Day-to-Day expenses - groceries, gas, etc (these things fluctuate based on need, aren't as fixed, so sometimes you can go over and others you can go under)
Leisurely - Fun with family and friends, maybe a gym membership (your wants) - things that you can do, but you will always have some sort of free or cheaper alternative --> i.e. going out for coffee, even though you can invite a friend over at home and brew them a cup, go jogging in your neighborhood, borrow a book from the library instead of buying it, etc.

Say your paycheck is $175 a month (I am using small amounts on purpose, but you can imagine it is 2 times that amount or even 10 times, but this is to keep it simple, so that if you are a high schooler wanting to handle finances or a doctor with 3 clinics). I would allocate to each category only what I can afford:

Monthly bills ($75) ---- ($70)
Savings ($25) ---- ($20)
Day-today expenses ($25) ---- ($22)
Leisurely ($10) ---- ($7)
TOTAL - $135 ----- ($119)

So, where are those last $40? They are your margin of error. We always have some sort of emergency or day-to-day payment we couldn't account for. This covers for that. If nothing comes up: roll it into your savings or if you want to be adventurous use it for some fun family outing. BUT ONLY after the whole month has passed and nothing came up.

Also, if you noticed, a second column there is a $16 difference. You should aim to use the lower end of your allocated funds. This is because, again, your payments won't always be a certain fixed amount, and if don't account for these things, then you may totally financially screw yourself over.

(5) Constantly, Constantly, Constantly be appreciative for what you have and NEVER EVER ask for more.

Its one thing to need help to meet your needs, I am not saying don't ask a family member or friend for some help to meet your basic needs. But what I am saying is, don't constantly strive to get the newer and better or more of something. You have a computer at home to do your work, you can't quite afford that laptop yet, then don't get it until you've actually saved enough cash to buy it... don't buy it on credit card.

The thing is, often times people have wants and needs that don't match up with other's wants and needs. I, personally, am a minimalist. I don't like having more than I ever need. But many people are not like that. Don't be ashamed, but don't throw yourself into an ocean of debt just to fulfill your wants.

Say, you've been buying a cup of coffee daily and your finances are being stretched thin, well start brewing it at home (assuming you already have it), and save yourself $1 a day. It may seem like nothing, but over time, that $1/day will be helpful, especially when you have $365 at the end of the year and decide to use it on buying a new laptop... and yes, you can actually buy really great laptops for under $400... that will last you about 3-4 years.

Okay I'm going to add a 6th, a 7th, and an 8th... but I'll try to be brief.

(6) Donate

Don't treat money like its easily dispensable. Treat it with care. I'm not asking you to be stingy. DONATE PLEASE PLEASE PLEASE DONATE something. No matter how tight you are with your cash, donate something, $1 a month, more, less, but something. Money isn't yours forever, it circulates and moves, so be part of that movement, but rather in a selfish way, move it in a selfless and loving way. You don't have to go broke donating money, but you have to give something...

(7) Be Humble

Now, I'm writing a post about finances... makes me feel like a mighty person... but reality is, I'm not. I don't know jack about life, so I'm sorry I wasted 20 minutes of your time while you read this post.

But, really, being humble doesn't mean putting yourself down, or dressing like you haven't showered in 2 months. Or never buying yourself that little pick-me-up. Being humble, for me, means two things:
1- Recognizing that this stuff is beyond yourself. You are just one person in millions. Or your money, is only yours temporarily. That ownership is in flux and the only thing we own are our actions. So, its not about the money, but our actions when dealing with money.

2- Treating everyone and everything as valuable. Abuse comes when things are treated as though they lack value. Just because we may not consider something valuable, doesn't mean another feels the same. For me, my most valuable possessions are really worthless in the eyes of others. They hold much sentimental value. But what I am trying to say is, people, money, things, the world, they all have value and they should be treated with care and respect, just as you would like to be treated with care and respect. Yes, so treat a cup of coffee, as you would like to be treated. That is what I am saying, appreciate it, savor it, love it, all while you drink it.



(8) Just be thankful.

I know I said this repeatedly in different ways, but you can never understand how much gratitude and thankfulness plays a huge roll in your outlook on life and how to deal with finances. So, just be thankful.