Right off, I'm plugging in a wonderful read(and a must read for EVERYONE), even if you don't run your own business it has crucial information that can help anyone obtain financial security and freedom without feeling restricted. It is called "Your Money: the missing manual" written by J.D. Roth.
I have gone through it in under two weeks and have already eliminated some personal debt, built significant savings, projected short and long term goals. It has helped me do this and I haven't sacrificed going without day-to-day spending money.
I've never been good with money, I think most of you can relate. A large chunk of spending is done emotionally and/or impulsively, and that is a big mistake on our part. If you prioritize what purchases are truly important to you, you can decrease needless spending - and therefore have more $$$ for what you REALLY want.
Let's not forget the ads as well. Advertising is made to make us think that we NEED the things they are peddling, that's why it works. If you do run your own business, or own a car, computer, cell phone, etc, I'm sure you can think of a commercial or an ad for a product you've purchased(or are selling).
So being aware of that is crucial to not spending needlessly.
The idea of paying myself is my favourite though, and why not? Who wouldn't like to pay themselves first? I put a percentage of all of my income into a savings account, it is separate from my checking account(otherwise called my spending account). My checking account holds my spending money, money left over after savings and bills have been paid. My savings account is completely forgotten. As soon as I put some cash in there I forget it exists. It never gets touched, ever, unless there is a crucial(and I mean CRUCIAL) purchase, emergency, etc happening. You would be surprised how fast that grows when left alone.
Another percentage of my income goes towards specific debts/bills, like credit cards, lines of credit, car payments, etc. Each person is different, regards to income, bills, debts, so figure out which amounts work for you.
Now here's the trick: When a debt gets paid off - you DON'T gain any increase in your spending money.
Let me elaborate here. Say you have a VISA card, you pay $200/month on it until it's paid off. The day comes that it's paid and that means you don't have to put that $200 towards it anymore. What does that mean? Does it mean that you have $200 more to spend on take out, movies, new tech toys? It could, but you've been living fine without it, and if you ever NEED something soooooo bad(remember it has to be crucial) you still have your savings. So instead of blowing that cash - you snowball it.
If you're lucky, the VISA card is your only debt(remember regular bills ie-power, rent, phone, etc, aren't really debt, lines of credit, student loans and credit cards are debt), then you're pretty lucky. Maybe you can splurge it on stuff. Or maybe you could snowball it into your savings. Say you normally put $200/month into your savings, add on this extra cash and now you're putting away $400/month, and you're not going without anymore that you have already. You never had that extra $200 to spend in the first place so you will never miss it. Know what that means? It means that you can go on that trip south this year instead of the next, or that new lens is on its way before of the end of the month instead of the end of the year. It means even more financial freedom for the things that actually matter to you.
I'm guessing there are more people than not that have more kinds of debt than a single credit card. Guess what? You can snowball this too. Snowball that extra cash into your next debt and watch it disappear faster than you originally projected. It is truly energizing to see the weight of debt drop away.
As I mentioned earlier, I've only started this system, and I have to say that I haven't done everything that this book suggests, but I have adopted the things that work for me.
You have to know what works for you and do that, it won't work any other way. My wife's way of saving, paying and spending is very different from me. She gets paid differently, she pays things differently, she saves differently. Luckily her system is more simplified and straightforward than mine is and I have found a way to make them both work well together.
I made a judgement call the other day. I could delve into my newly made savings and pay off a debt immediately, freeing up the cash that I would've used over the next few weeks on its payments to put onto something else - or,
I could keep my savings as they are and continue on my slower but still steadily payments. I decided to go with the first option. I received instant gratification from this decision. Not only did I get rid of a personal debt in no time at all, but I saw the end projection of my next item of debt(remember, I'm snowballing this extra income into my other debt) go from 3 months away to the end of this month!
So can anyone tell me what this
means? Snowball again!! I will eliminate 2 items of debt within a month(btw, I still have ample savings which is just icing on the cake), and this cash will soon go onto my other debt to get rid of them even faster than originally projected. Or maybe I will split the difference, some in savings and some on debt. That means my saving will grow faster than it is now and my debt will stilll decrease at a faster rate. If you can't tell, I'm pretty excited about this. The main reason why is my main goal: financial independence.
I've been able to calculate how much money we need to live for a year. Now I can use this information and the simple(very simple) tools that I've learned to obtain the savings in order to quit my day job and go full time into my passion: photography. Going fulltime photography, I can increase my clientel, travel and create income that will slow the spending of my savings. A great benefit is that I will be able to spend lots of time with my wife and our child(arriving next year).
Well I think I've plugged this read enough for one blog. I just want to say that every successful business owner or photographer that I have ever met or spoken to agrees that eliminating debt and creating savings are the most important things needed to keep doing what they love to do. Otherwise they couldn't afford it.
So check it out, enjoy, and be happy.
New pics in the next blog, I promise.