Last week, my 27 year-old Niece called me.
“Hey! BuddhaMoneyLama, I have a problem I’d like to talk about.”
“Well, with my new job, I’m finally making decent money. I mean, after paying for rent, food, utilities and other necessities, I actually have money left over.”
“Too much money? This is a problem?”
“Ha ha, you’re so funny. The problem is that I don’t know what to do with my money. No one ever taught me and I feel like I don’t even know the basics.
“So you called me? Such a sweetheart!”
“Can you help?
“Are you kidding? BuddhaMoneyLama lives for these situations!”
“So, where do we start?”
“Where would you like to start?”
“That’s the thing; I don’t know. All I know is that I want to buy a house one day. But I don’t know how to get myself to a place where I’ll have enough money to afford a down payment and all the other costs that go along with home ownership.”
“How about we start with talking about the Blissful Money Rules.”
“These are Rules that you absolutely, positively, unequivocally need to know to empower yourself, and get your self walking on the path toward home ownership and greater wealth.”
Blissful Money Rule #1 … What’s The Plan, Stan?
Some folks prefer to surf on a hope and a prayer when it comes to money issues. Not BuddhaMoney. Instead, we favor creating a detailed plan for your self. Because a Money Plan plots your best path for taking control of spending and saving. Do this and you’re halfway to reaching your financial goals.
“I’ve never written a Money Plan. Help?”
“What do you say we walk this path together, step by step.”
- Goals. Write them down. When you know what your goals are, saving is easier. For you, dear Niece, your medium term goal is to buy a home. Keep this in mind every day when you’re spending money. Because every dollar you spend somewhere else is a dollar that’s not saved toward your dream home.
- Expenses. Once you know your goals, write down all of your expenses and figure out which ones may be reduced or cut out altogether. And the beauty of cutting spending? Reduced expenditures automatically translates into more money in your pocket. Obvious? Sure. But some folks need to be reminded, to stay focused on their goals.
Here are some examples for you to chew on:
Cable. Cut the cord. Who needs to pay for cable? Really, who needs television at all? For all those who haven’t completely abandoned television, there’s Netflix at about $10/month, and other free and inexpensive viewing services available online.
Cell Phone. Check out discount carriers and do not sign up for a large data plan. If you need some data, go for the minimum. Because you just don’t NEED to be constantly surfing the web on your phone. It’s a bad habit for too many of us. Your time would be better spent daydreaming or, Buddha forbid, reading a book, or tuning out and just being quiet. You’ll be amazed at how quiet time recharges energy and lifts spirits.
Home and Car Insurance. Shop around and compare prices. All the insurance companies offer the same coverage but prices may vary a fair bit. Be sure you’re not overpaying.
Coffee/Tea. Drop $5/day getting your coffee on the outside, multiply by 365 days, and that’s $1,825/year. Yikes! Is it worth it?
Fuel. Fill up your gas tank once a week at $50/pop and that’s $2600/year – compared to paying nothing for riding a bike to get around town (other than initial bike cost) or much less for car sharing or public transit.
Restaurants. Watch this one. It’s too easy to drop big dollars when eating out. Allow yourself a certain amount each month and stick to your budget.
- Track Money Flow. Once you’ve listed all of your expenses, and considered what to eliminate and what to reduce, it sure helps if you track your spending. Do this the old-fashioned way using pen and paper, a journal is a good idea, or use an app of your choice; here’s a few worth checking out:
- Bottom Line. Really, it comes down to a matter of priorities. If purchasing a new home is your priority then you’ll start making a habit of cutting spending.
Blissful Money Rule #2 … Save, Save, Minimize Spending, and Save Some More
You’ve heard it so often that maybe you’ve tuned out. Well, BuddhaMoney is here to tune you back in: save your money. Make saving a habit. Because you need savings to achieve financial freedom.
How much should you save? Calculate savings as a percentage of your net your income, after deducting expenses. Ballpark number for savings: 10%. If you can save more, good for you; you’ll achieve your goals that much sooner.
And once you commit to a percentage, stick with it! No creative rationalizing (i.e., but I really need to drop five grand on a vacation to Mexico and I swear I’ll make up the lost savings soon), and no inventive, trivial justifications (i.e., it was a once in a lifetime sale and, really, the more I spent, the more I saved).
Of course, if you spend less than you earn, then staying disciplined about savings is that much easier. If you spend more than you earn, well, you’ve got work to do because at this rate there will not be any savings, and financial freedom is a fantasy.
No matter what you earn, you can save when you cut down expenses. Sure, you may have to ditch old habits and establish new ones, but it will be well worth it. Every step closer you walk toward your savings goal or eliminating debt will feel, well, quite excellent, and will reinforce your desire to continue saving, largely because you’ll know that you’re taking control of your finances and your life. And that feels right and it feels good.
Blissful Money Rule #3 … You Do NOT Want Debt
The blissful truth: there’s no freedom in carrying debt. And your goal should be financial freedom, which translates into minimal money related stress and headaches.
That said, not all debt is created equally.
Mortgage debt for example, serves a worthwhile purpose. Homes cost a fair chunk of change, and few people are able to pay all cash for their home. So, you borrow from a financial institution. Okay, this is all good as long as you can afford the mortgage payments. Because as long as you have the mortgage, yes, you’re building equity. Kudos. But you’re also paying interest. Drag on your savings. So, before you sign up with your friendly neighborhood banker for that big ticket mortgage, draft your self a mortgage repayment plan, and be sure this is a plan you can follow through on.
As for credit cards, the goal is to NEVER pay a cent of interest for credit cards. If you cannot afford to pay the balance owing each month in full, then don’t use a card. Carry interest and you’ll be paying an annualized rate of close to 30%. Robbery? Yes. Legal? Yes. Why do you think Visa (NYSE: V) and Mastercard (NYSE: MA) are massive companies each with a stock market value north of $100 Billion? Charging interest is a wonderful game to play when you’re the lender.
So what do you do? Toss all credit cards from your wallet except one. Suggest keeping a Visa or Mastercard as these are accepted by most every merchant. Use the card only when necessary (other than Sweden, most countries remain on board with coin and paper currency – http://www.newyorker.com/magazine/2016/10/10/imagining-a-cashless-world).
Blissful Money Rule #4 … Invest Your Dough
Don’t leave your savings in a bank account earning practically nothing. Invest your money. When you invest, your money is going to work, not you. This is what you want. The more you can afford to invest the better. And, similar to being disciplined about savings, be disciplined about building your investments. Set aside a certain amount each month that makes its way directly to the investment account.
Here’s a nut and bolts illustration that may whet your investing appetite: if you invest $10,000 at a 5% annual return, you will earn $500 in one year. In year 2, the $10,500 will generate $525, for a grand total after two years of 11,025. After 20 years, the $10k turns into $26,532.98. This is the power of compounding returns and a long-term investment horizon.
The second Noble Truth teaches that trishna (thirst or craving) causes stress or suffering. Wanting to own a home, wanting to be financially secure is perfectly fine and good. The challenge is to avoid clinging to these wants such that wants become obsessive cravings and we forget what’s important: to be grateful for our life, for who is in our life, and for what we have.
Blissful Money Rule #5 … It’s All About You
Here, I’m talking about stepping up and taking responsibility. No one will walk the path for you (although BuddhaMoney sure will guide you in the right direction). It’s your decision whether or not to empower yourself, take control of your finances, and eventually achieve financial freedom.