Have you ever wondered why you always seem to be behind the eight-ball whenever it comes to personal finance and saving enough money? I used to ask myself, "Why would U.S. schools spend so much time, effort and money to educate and test students on such important subjects such as math, English, history, science, language, etc. but then fail to teach their students anything regarding how to save money or proper money management?" Then it dawned on me…the politically correct answer would be: "Well, money is a personal subject; and therefore finances should really be discussed in the home between children and their parents." However, I believe the real reason why most schools do not teach students about personal finance or money management is because there is no universal, or formally accepted, educational model to teach them about the value of, or one's strategic relationship with, money.
This realization blew my mind because not only is money one of the most debated topics in our society, but it is also extremely controversial because most people tend to have different experiences, emotions and opinions regarding money. That is, people have their own personal relationship with money, just like they do with other personal things in their life (e.g., people, food, fear, risk, etc.). The way people tend to learn about, and develop their own relationship with money is often most likely based upon their early childhood programming by having observed their parents, teachers, friends and/or the media.Prior to the 1960s and 1970s, most Americans tended to practice good money management by working (earning), saving and then buying (yes, in that order!). Yet today, most have been led to believe (as is the norm in our consumer-driven society) that we must have it now, charge it now, and pay for it…later. Except what they don't teach you is that you really pay for it later. This is not a good formula for saving money.
As a result of several decades of easy credit, in combination with years of economic uncertainty, many people now find themselves financially obese and desperately falling deeper into the vicious cycle of being trapped in their financial holes. They are overextended and unable to pay back the total balance of the money that they borrowed (besides the minimum payments due), and as a result they just keep incurring higher and higher outstanding balances. As their balances grow, their interest continues compounding, their credit card bills increase and their financial holes become deeper and deeper. Unfortunately, too many people still continue to rely on living off of borrowed credit and find themselves one or two paychecks away from bankruptcy. Needless to say, living that way will not provide the quality of life that comes with financial success. By incorporating disciplined money management habits early on, you will be giving yourself the healthy financial infrastructure you'll need in order to avoid the kind of financial distress that most adults currently end up enduring today. This is a good formula for saving money.
To help you get a better grip on why your cash flow never seems to be enough, or why you can't seem to put away any of your hard earned money, I want to share the following tips on how to save money:
- Create a Monthly Spending Budget: You need to stop aimlessly spending your hard-earned money and start tracking your daily expenses in a small notebook or budgeting app such as Intuit's Mint.com so you can begin to save your money. Learning to live within your financial means is crucial for not only saving for the short-term, but also to help you prepare for your retirement. Learning to budget and manage your money, from any age, will help ensure that you have enough money on which to live throughout all of your retirement years.
- Start saving a percentage of your monthly income in a personal savings account (preferably at least 10%): This money should only be used for emergencies or for opportunities to generate new passive income streams that can lead to greater profit and savings. Your savings account is not an extension of your checking account. Resist the temptation to treat it like an ATM—leave it alone and let it continue to grow.
- Avoiding Bad Debt: If you find yourself either purchasing or acquiring some product/ service that requires you to borrow money from a lender with interest (additional charges), and this product/service never generates any probable passive income (profit) for you in the future, that's bad debt. If you must charge any items on credit, make sure to pay off all outstanding balances the very next month to avoid getting stuck in the expensive cycle of paying the monthly compounded interest rate fees (and additional late fees [if you don't make your payments on time]). If you find that you are unable to pay off all of your outstanding balances within a month, that's a sign that you are probably using credit cards as "extended income" and that you should not be using credit whatsoever (especially not for impulsive emotional purchases). It is also important to remember to pay your bills on time to help protect your credit and FICO score.
Tips to help you manage your credit or loan payments
Create a calendar alert or buy yourself a monthly planner or wall calendar so that you can write the full, or minimum amounts due, as well as the due dates owed to each company. This will ensure that you don't miss your monthly payment. For example: $25 due to MasterCard on August 14th. Make sure you always get your payments credited to your account by the stated due date. Each month your bill arrives, make sure you pay careful attention to the actual due dates printed on the statement as these dates may fluctuate. Credit card bills are due every 30 days from the billing cycle date—not necessarily the same date each month (based upon their 30-day billing cycle contractual fine print).
My final words of advice as you embark on your new money management and positive spending strategies—pick someone close to you, whom you trust (parent, relative, mentor, spouse, significant other, etc.), to meet with you on a weekly or monthly basis. They will help you review your monthly budget and savings plans so that, like a gym buddy/partner, they can help support you to stay motivated, focused and hold you accountable as you develop your new personal savings habits for success.
About the Author
Larry is passionate about imparting the very knowledge and tools that have empowered him to become a successful trader and financial author.