Who is wealthier: The man who drives a fast car, eats at expensive restaurants, has all the latest gadgets, and lives paycheck-to-paycheck? Or the man who drives an older model, reserves dining out for special occasions, doesn’t bother with expensive toys, and has enough money accumulated in the bank and in investments to live for the rest of his life?
Which person do you want to be?
The Simple Life
The Simple Life is not just a TV show starring two overindulged heiresses. In fact, those girls’ lives are anything but simple. They have money, but they are extravagant spenders who never had to work for their wealth.
The majority of wealthy Americans are not like Paris Hilton and Nicole Ritchie. In fact, many of the millionaires in America live lifestyles that do not match our popular conception of “rich”. There’s a reason they got that way: they live simply.
What does it mean to live a simple life? I am not suggesting that you sell all your possessions and live in the forest and eat bark. Living simply, and saving money, is all about asking yourself the right questions when it comes to your finances.
Am I living above, at, or below my means? Are my expectations of my money too high?
Do you spend more money than you earn? That’s not living wealthily or wisely, that’s getting you into debt.
Do you barely make ends meet? Are you breaking even each month? Then you are living just at your means.
Many wealthy people live well below their means. This means they can afford expensive cars and meals, but they don’t spend all their money on them. Instead, they invest their money into stocks and bonds that can earn them money, rather than watch it fly out of their pockets.
Are you expecting too much from your money? Money can only go so far. It isn’t magical. You have to work to earn it, work to save it, and yes, work to spend it, wisely.
Where do I keep my money?
Get your money into a savings account as soon as you can, and then forget about it. Out of sight, out of mind. You won’t spend that money. If you have a retirement 401(k) plan, have money automatically deducted from your paycheck and put into savings. Automatic deductions that get your money into a savings account help stop the temptation to spend it. Mutual fund companies can also help by creating automatic regular deposits into an IRA.
What are the major, necessary expenditures in my budget? How can I decrease those costs?
You take a big hit each month in your necessary bills – utilities, mortgage, credit card, and auto-insurance expenses. Look at those closely and see if you can change them. Your mortgage for example. If you pay bi-weekly instead of monthly, you wont pay any greater amount, but you will wind up making an extra payment each year, and you’ll be paid off seven years sooner!
Also, look around at various auto insurance and utility companies. You may be able to save as much as $1,000 if you simply see what is out there. The TV commercials about saving money on insurance are typically true.
What are my smaller, everyday expenditures? How can I decrease my everyday spending?
Each day, you spend bits of money here and there. Coffee, a newsstand magazine, some French fries, a coke from the coke machine. It may be small change at the time, but it adds up! Simply paper bagging it at lunch, instead of going out, can save you money.
How do I avoid debt?
Credit card debt is one of the biggest headaches in the world, and so easy to get into. Credit cards are a slippery slope! They can be really handy in a pinch, but they take away the reality of money. Dealing with cash tends to be safer. When you are physically handing over bills, you will find it harder to part with your hard-earned green. But when you do use a credit card, make sure you choose one that has no annual fee and that gives you something back–frequent flyer miles or rebates on something you buy a lot, such as gasoline.
Okay, I have saved some money. Now what do I do with it?
How can you make your money work for you? Consider compound interest. If you are earning a salary, you are eligible for a Roth IRA. Money put into such an IRA historically earns an average of up to 10.6% interest each year. If you make the maximum $3,000 a year contribution, in 30 years you could have over $500,000. That makes for quite a nice nest egg.
What am I planning for?
We live in a world of instant gratification, but if we keep our eyes on our goals, we can better accept taking a pass on that expensive pair of shoes in favor of saving the money to take that family vacation.
And we may not like to think about it, but expensive cars and homes are little comfort in the event of an emergency, while a healthy savings account can be something of an aid. iPods don’t last forever. But good planning and wise spending can help your family be financially secure in your future.
The number one question you can ask yourself, when trying to save money and simplify your life, is this:
Do I need this?
If the answer is no, that does not mean you shouldn’t treat yourself. But simply stopping to ask yourself that question will make you more aware of where the money in your life goes, and think of where else it could be going instead. Plus, we hear that donut shop coffee is just as good (some say even better) than that expensive coffee shop chain.
You can still enjoy a comfortable lifestyle while saving money and building on your bank account. Just ask yourself all the right questions, and answer them truthfully and wisely. To live simply, you don’t have to live like Hetty Green, the infamous Witch of Wall Street. The parsimonious old woman was worth over 100 million dollars by the time of her death in 1916. In the history books she is known as one of the wealthiest Americans of all time, but also one of the strangest. It wasn’t just her shrewd investments that made her wealthy–the woman was so cheap, she washed only the hems of her skirts, because it was cheaper than cleaning the whole dress!
© 2008 AmericanCreditFoundation.org®. Michael G. Peterson is a co-founder and Spokesman of American Credit Foundation, an IRS 501 (c)(3) non-profit consumer credit counseling organization that has assisted thousands of individuals and families with their financial situations through seminars, education, counseling services, and, debt management plans. For more information, and free consumer resources visit www.americancreditfoundation.org
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