Start Building Your Financial Future Today!
“The best time to plant a tree was 20 years ago. The second best time is now.” – Chinese Proverb
What if we could go back and plant a tree in a home before we bought it? Can we envision the shade that years of comfort the tree might stand for? If you could go back and tell a younger you what to do financially to give you a better today, would you? Of course, we have all thought about the what if’s and then settle on the fact that “hindsight is always 20/20”.
Better Ways to Think About Money
Dealing with money, or more specifically a scarcity of money, can be extremely frustrating and stressful. If you are frequently dismayed or surprised at how little money you have, this article is speaking to you. If you are starting to worry about the future and where you’re going to be 30 years from now, you are the audience for this article. We’re going to talk about three ways you can improve the way you view and handle money: thinking about the future, spending money vs. investing money, and why interest is the devil.
Think About the Future
As you’re making decisions about where to spend your money, no matter how in-the-moment those decisions may be (e.g. whether to pick up breakfast at McDonalds or scramble a couple of eggs at home), in order to make a good financial decision you need to have the future in mind when you make it. When you’re considering buying a new smartphone, ask yourself if you’ll be wishing you had that $400 a few months from now. Try to think about purchases in terms of a monthly budget. If you think in terms of how much money you’re spending on average each month on something, it becomes much clearer where all your money is going. For example, if you spend $600 on the newest iPhone each year, you are actually paying an average of $50/month for your smartphone, plus however much you are paying for the data plan. A $600 one-time expense doesn’t sound so bad, but $50/month sounds pretty pricey. You might forget in December how much money you spent on your phone in March, but it’s still affecting your budget.
Investing Money vs. Spending it
The difference here is pretty obvious – when you invest money, you get it back in some form at a later date, often with even more along with it because it increased in value. When you spend money it’s just ‘poof’ gone. People often make the mistake of assuming that electronics are an investment because you can resell them later after using them for a few years. Getting $200 for your used iPhone that costed you $600 two years ago is not an investment; it’s an attempt to recuperate some of the cost of the phone. Don’t get me wrong, selling used electronics is a good way to make some of your money back, but it’s not an investment.
But let’s talk about this in a little more depth. If you’re a blogger like me, then spending money on a nice laptop can definitely be an investment. Why? Because my laptop is what enables me to make my money. An electrician buying his tools is investing even though the tools themselves will depreciate over time. The tools enable the electrician to make more money. When you are making decisions about how you use your money, focus on using the money on things that are going to make you more money. When you do spend money, focus on spending money on things that actually solve a problem that you are having. For example, the touchpad on my laptop is pretty good, but it can’t compare to a regular mouse, so I bought a Bluetooth mouse and now I can get work done faster and with less trouble. Start the purchase process with the problem, and make the purchase your solution to the problem. If you really want something but can’t think of a problem you have that it solves, it’s not worth it and you’ll probably regret the purchase afterward.
Interest is the Devil
My father is fond of saying, “There’s two kinds of people in this world: those who pay interest and those who collect it, and the latter drive nicer cars.” This is exactly right. For you as a consumer, interest is your greatest enemy and most fearsome nemesis. I recently read that the average indebted American household has around $15,000 of credit card debt. Considering that even decent credit cards have interest rates of like 14%, that’s over $2000 per year of money completely flushed down the toilet on nothing but interest.
Interest is the price of a product that never arrives. Every dime you pay in interest is a dime you wouldn’t have had to pay if you had chosen differently. Granted, there are some situations (specifically housing) where paying interest on a mortgage is better than spending money on interest’s equally evil cousin: rent, but those situations are few and far between. Run away from interest as fast as you can, and only make a purchase that will bring interest when you absolutely must and there’s nothing you can do about it.
If you want to get a handle on your finances, start by thinking about the future and in terms of a monthly budget, then make sure you are investing money instead of spending it every chance you get. Focus on buying solutions to problems, rather than just buying cool stuff or things you want. This can even apply to clothes and shoes (buying brown dress shoes to go with your brown dress clothes is better than buying brown shoes because you like them). Last, avoid interest at all cost. If you incorporate these principles, your finances will get better fast.
This is what holds true for personal finances. This video will describe ways that we can all start setting money aside and think long term and open our eyes to looking at a budget. What are you investing in to build your financial future? What are you saving for? Answer these today and you will know yourself and your future better.