Two Incomes (Part Two) – Now let’s deal with the fun part. We all like buying fun stuff. Like I said in Part One, I’m not trying to tell you not to. I wouldn’t follow my own advice if I said not to buy anything luxury, so I wouldn’t expect you to. Do I follow the rest of my advice? We’ll give that its own section in a bit. When you buy luxury items, you should first of all budget for it. You should not buy anything on impulse. Yes, you will always regret that you didn’t buy the CD version of Bongwater’s “Double Bummer” just because of something silly like you needed to pay your rent, but it’s just a good habit to have. You should try to do all of these other money saving things first, and then reward yourself for doing it well. Here’s the flowchart: necessities – luxuries that are almost necessities – luxuries that are just luxuries. You can buy luxuries, but don’t do it on impulse, and don’t do it out of that order. If you do that on one income, here’s the nice thing. If you take on a small part time job, or just the occasional odd job, or you sell something you don’t need anymore, you can pretty much do what you want with it. If every hour I work over forty a week was just to have fun with, I’d be happy. But I have to work two jobs just to meet my obligations, and that doesn’t make me happy. Don’t make my mistake.
Replacement – Here’s an odd thought. What if your TV exploded and the remote crashed through the microwave, killing it? Put less oddly, what would you do if something that you owned and used frequently needed to be replaced? Well, if you’re broke, you might have to suffer for a while. What if you had the money already set aside? And I’m not talking about: Well, I followed what he said about saving up for a year – I’ll just use that. No. I mean what if you had money set aside years before your TV should be burning out that was earmarked to replace your TV? One way to do this would be to buy the item and then save an equivalent amount. For instance, you’re going to buy a $500 TV. You should actually save up $1,000, buy the $500 TV, and save the money for the replacement that you’ll be getting five to ten years later. But what if you already own the TV? Save up what you bought it for, or what it would likely cost to replace it, and set it aside, and then do that for everything in your house that might one day need to be replaced, right down to the $1 can opener.
The Special Case of Cars – I’ve been in car payments before, and every single time I have regretted it. When I say this, I mean to say that I have never ended up feeling good about the car payment, and I have never ended up feeling indifferent to the car payment. I have felt regret. I’m irresponsible enough that I can justify some dumb things, but I just can’t justify a car payment, and I have justified car payments. Remember that word I used? Regret. I can’t justify it. I’m sorry. But if you absolutely feel like you have to have a car payment, by all means, go ahead. Start making a payment into your savings account every month, and when you have enough to buy a car, go buy a car. When I’ve gotten into car payments it has always been because I felt I had no other option short of borrowing a car, bumming rides, or walking. If you have a car that runs, and you think you can handle a car payment to get into something better, prove to yourself for six months that you can handle the car payment by making the car payment into your savings. If you dip into it, guess what? You can’t afford a car payment.
Another Special Case of Cars – If you’re already in a car payment, make an extra car payment every month. Make it into your savings. Only use that money for repairs (because you do still sometimes have to repair cars you’re paying on) or to eventually pay the car off when you have enough to.
Yet Another Special Case of Cars – Here’s what I want you to do. I’ve honestly been thinking about doing this myself, and will do it, probably when I get my next paycheck. I want you to set up a special checking account. I want you to put $500 into it (more if you spend more than $250 an month in gas). Each time you get a paycheck, I want you to write down your mileage on your car(s). Whatever mileage you have put on since the last paycheck, I want you to put half of that in dollars into the special account. Ex: You put 1,000 miles on your car, so put $500 in the account. If your car gets at least 20 miles to the gallon, that amount will pay for all your gas and for some of the eventual repairs. Use this account only for the operating costs of the vehicle: gas, tires, inspection, repairs. Do not use it for things that you should be budgeting in your bills like insurance, car payments, traffic tickets, or registration. By putting 50 cents, per mile driven, into that account, you might not be fully prepared for every repair, but you’ll be better prepared. The mistake people make is presuming that when you buy a car, you’ve paid for the car. You still have to pay to operate it. For extra credit, put an extra $500 in to cover an emergency tow.
Why Not Just Budget a Certain Percentage of My Paycheck to Save? – Huh? Oh, I see. You didn’t understand that I meant all of this in addition to that. You should be living on about 80% of your income to begin with. All this other stuff is your way of paying for the future without having to hit your savings when shit happens. You should do your best to have no debt. You should do your best to do a retirement account like a Roth IRA. You should give about 10% of your income to charity. It is perfectly ok to take the tax deduction for charity if you qualify. The reason it is there is to give us, as taxpayers, the opportunity to let private sector charities take care of things. It’s paying taxes, but to a private charity rather than the government. Believe me. If private charities don’t take care of things, the government will eventually raise taxes to do so. You’ll pay it either way.
My Report Card – So how well do I follow my own advice? Well, first of all, I’m struggling financially, so I’m not a good scorecard anyway, but I will say this. I have tried almost everything that I have spoken about here. If I was better focused I would be diligent about it. The thing is that while I still struggle to get ahead, I have always found my life to be less stressful when I pay attention to what my money is doing. Remember when I said that I’ve been thinking about setting up the special car operating account. Come on, it wasn’t that many sections ago… kidding. The reason why is because that’s one of the areas that always, and I mean always, screws me up. I’ll be going along, doing pretty well with all the other money management I’ve discussed, when one or more of my vehicles break down. (I have two currently, both fully paid for.) I know for a fact that this is because I presume a certain amount to go to gas and car repairs, but I never base it on what kind of driving I’ve actually done in recent days, weeks, and months. And it is always stressful when a vehicle breaks down for that exact reason. I’m unprepared. Everything I discuss in this is my way of saying: Tighten your belt while you’re in control, so you don’t have to as much when things get out of control.
Summary – Pay attention to your money. Cut corners where you can safely cut corners. I don’t want you driving a car that might catch fire one day and injure you. I don’t want you moving into an excessively violent neighbourhood just to save $20 a month. I don’t want you to wear poorly fitting clothing. I don’t want you to essentially starve to death because ramen, and macaroni and cheese, don’t really have nutritional value. I don’t want you to not get proper health care. So forth. I’m not even saying I don’t want you to never have any fun. (Using a possible double negative is, in fact, fun.) Budget to pay your bills. Budget to save for the future. And then see how much extra you can squeeze out of what you have. Make it a game of sorts. I pay my bills on time. I save and I give to charity. I pay for the operation of my car in advance. Now, in addition to that how many goals can I hit each year? Can I make an extra house payment? Can I save two to four paychecks each year? Can I save six to eight paychecks each year? Can I actually have enough money in the bank to pay for the next year of my life? Can I have enough money to replace electronics that break down in my house in addition to everything else? Can I live off of one full time income? Don’t become obsessive. Still do stuff for yourself, because life is a more limited resource than money ever will be, but just see what you can do.