Basic Financial Principles PT. 2

YOU CAN HAVE ANYTHING YOU WANT

Over time. This concept was instilled in me at a very young age but has one little caveat, WORK. It is true that you can have anything you want, but acquiring it requires putting in the work. By work I don’t always mean punching the clock and making extra money, though that is part of it. A lot of time for me “work” requires doing the research on what exactly I want, how to get it, and if there is anything I should be aware of. There are also factors involved such as price, options and features, color (yes, it matters), effectiveness, usability, and the list could go on and on for any thing one might want.

I recently purchased a new to me motorcycle to complete a long journey. I’ve had my eyes on one bike for several years but never really had a reason to purchase one. With a long trip across the country coming up I decided (with the help of friends) that it may be time to purchase a bike that could handle the mileage. The brand new ones looked great but were very expensive, price was a big factor for me. Dipping in to the used market provided me with any number of bikes ranging from 1 year old to 20+ year old models with a range of features from basic to blue tooth connectivity and on-board diagnostics. Taking all of these factors in to consideration and what factors were most important to me, I went smack dab in the middle for a used bike that wasn’t too fancy nor too primitive. Something that would suit my needs. Not everyone has similar needs and wants, so that is up to the individual to decide what is important to them.

Something else that might happen when you put in the work to find what you really want, is a tendency to keep things. Another principle I live by is the philosophy “buy what you want and keep it”. Not replacing everything you own every year gives you an asset and a tool. Whereas, knowing you will trade in your car two years down the road makes you liable for the down payment and the negative equity when rolling over loans. Marketing doesn’t help this at all, giving consumers a reason to buy the newest model each year or why the old one is outdated. This only adds to spending more than you make if the next year you are trading up. Before I make a decision to trade up I like to ask myself:

Does what I have do the tasks I ask of it?

Is upgrading worth the new features or do I have enough?

Can I afford it? If not, how can I?

Am I losing too much by upgrading?

Is this a want or a need?

A few short questions can provide valuable insight to weather the upgrade is a good idea or not. In this fast paced market it is hard not to want new things but holding off on that purchase can save lots of money and you will appreciate the value of something when you do eventually upgrade. This principle can be applied to most any purchase; cars, electronics, homes, and even clothing. It also gives you a game plan on acquiring something. For example, purchasing a house is not an easy process both financially and personally. Every person is looking for something slightly different in a home and each person is in a different place financially. This makes a home purchase very in-depth and complicated, but it can also be one of the most rewarding purchases in your life! Setting yourself up for success starts with laying a solid foundation, and building up from there.

The lesson here is take some time before making a decision and really get in touch with what it is you want and what you want your purchase to do. Then do the research on how to acquire that purchase in the most efficient means possible. Doing the leg work before making the purchase will deliver a sense that you made the right choice. You did all of the hard work to find exactly what you wanted based on criteria that you set. Now that is an accomplishment!

Thanks for reading, I hope you have a wonderful day!

-Rhino

Basic Financial Principles PT. 1

Some things seem glaringly obvious to me, finance management is one of those things. I grew up in a household with an accountant for a mother so a few things might have trickled down. One of the more difficult challenges with managing one’s finances is knowing the circumstances of that individual. Each person is so different and their needs are unique to them; this is why having one system that should be applied to everyone is not going to work. There are also lots of tactics one can use to manage their finances with out needing to buy in to a “plan” or “program” to help them. These are my personal tactics, what I use on a daily basis to manage me funds and allocate them appropriately.

SPEND LESS THAN YOU MAKE

Simple, right? At least the concept is simple. Execution is the difficult bit. When I was growing up I developed a frame of mind that allowed me focus less on how much money I was making and more on where that money was going. “It is not how much you make, it is how much you spend” I would tell my self. This mindset allowed me to live very well within my means and acquire things that were important to me, but also gave me the freedom to not need things lower on the priority list. For example, I loved, and still do love, cycling. Mountain, road, cross country, whatever it is I just love being on a bicycle. This was my hobby, lifestyle, and transportation. It was also where a significant portion of my income went. That being said, I didn’t have a new car or other toys that were also very expensive; I had bicycles.

To get started, make sure you have a precise gauge on how much you are bringing home and how much your fixed costs (costs that don’t change like rent, car payments, etc…) are for the month. Then, subtract the fixed costs from your take home pay to have an idea of your “discretionary income” or the funds that aren’t already allocated towards bills. Make sure you are calculating how much you spend on consumable items such as food, gas, and entertainment every month. These costs can fluctuate greatly month to month but an overall gauge is good to have. Any funds left over after you have paid rent or a mortgage, utilities, food, and any other reoccurring bills can be used for any variety of things that you see fit whether that be investing, vacation, or treating yourself to something nice. The problem I see is anticipating those funds and spending next months or three months worth of discretionary income; now begins “spending more than you make”. My solution, sock those funds away in a separate account that you don’t see every day until you have enough to make the purchase.

Getting in to a habit of spending more than you make is easier than it seems, especially with credit card offers showing up in the mail every other day, car loans, and a mortgage (if that applies). Credit cards are not bad, just inherently risky to over extend yourself. By not using credit cards, you save yourself the trouble of accidentally spending a bit too much and starting a chain reaction of every month being a little more behind and going a little further in debt. If you do use credit cards, make sure they are paid off each month and make sure you have a little extra cash set aside just in case you do overspend or if there is something you would like to purchase outside of your normal spending.

All of this about spending, spending, spending, but what if you already do make more than you spend? Now is the time to invest, whether in yourself or into financial vehicles for retirement, or what ever the case may be. If your expenditures are less than your income, make those extra funds work for you!

Using your disposable or discretionary income to provide more income is an excellent tool. Multiple streams of income is not only satisfying but also provides more stability. Investing in yourself can be a variety of different things like going back to school or starting a side business. These are all ways of growing as a person and getting in touch with what really makes you happy and how you can make some extra cash doing what you love. In particular, I like side businesses. Getting a business license for home is surprisingly easy and filing a business name is no more difficult than ordering pizza, and the benefit of a side business is that it’s on the side, not your full time job, so it can be put on hold or if it doesn’t work out, you didn’t loose your main source of income. This will also allow you to pursue something you are passionate about, and fully willing to spend countless hours working on. In the end, it may remain a side gig or it may become your full time job! Then you are working for yourself doing something you love, and isn’t that really the goal?

Thanks for reading!

-Rhino