Not have to, as in “I have to work at a job I hate.”
Not need to, as in “I need to work to pay off debts I incurred years ago.”
Not must to, as in “I must make more money to keep the collection agencies at bay.”
But I want to, as in “I want to go to the county fair and see the quilt show.”
Learning from the Experts
How can you achieve this wonderful state? You do it by not owing anyone any money. This includes your mortgage. You have to own the house you live in, since as long as you are a renter, you will have to earn enough money to pay the rent. Landlords insist upon regular payments. It is how they make their money. You cannot owe any money on credit cards (which might be better called debt servitude), vehicle loans, boat loans, student loans, and personal loans (of any kind, including the money you borrowed from the pawn shop).
The only money expenditures you should have are for taxes, utilities, food, health care and other basic goods and services. These should all be cash transactions and, of course, minimized as much as possible. Less money needed for basics translates into less money needing to be earned.
I have read dozens of thrift and saving-money books over several decades. Notice I did not say financial management books. That is because financial management books are about the stock market, the bond market, annuities, insurance plans, and things like that. You cannot and should not play at those games unless everything else is paid for and you have the spare cash to do so.
Thrift books are about saving more money and spending less, sometimes spending a lot less. The best author, by far, is Amy Dacyczyn. She wrote a wonderful newsletter called “The Tightwad Gazette” back in the early 1990s. Most, but not all, of the newsletter material was repackaged by Villard books as “The Tightwad Gazette”, volumes I, II, and III. Finally, Villard repackaged all three books into one volume: “The Complete Tightwad Gazette.” (Amazon, Indybound)
This is the only book I will ever recommend that you buy, full price. If you cannot cut your spending after reading “The Tightwad Gazette,” it is because you don’t want to. Some of the material is dated (the prices given sure are) but it is still the best book on how to be thrifty by a mile. You need your own copy to read, to study, to reread on a regular basis, to make notes in: to use and refer to every day. Think of it as being your bible on thrift.
Another very good book is “America’s Cheapest Family” by Steve and Annette Economides (Amazon, Indybound, Excerpt). If you can only afford one book, buy Amy’s and get the Economides book from the library. Later, as your savings increase, you should spring for this title.
Here’s one reason why: The single, best piece of information I have gotten from the Economides is for an order of operations on spending. I modified it slightly based on my own experiences and studies.
- Establish a working budget
- Pay off all consumer debt, including family and personal loans
- Build up your emergency fund
- Set aside regular savings for regular big expenses
- Pay off your cars and start saving for their replacements
- Pay off your student loans
- Evaluate your life insurance needs: can you now use less?
- Pay off your house
- Save up six months to one year of salary or income
- Invest in IRAs or 401(k)s
- Save for college for your kids
——> if you don’t do this first, you can’t do anything else
——> start with a $1,000; you may decide you need more
——> car insurance and taxes are not emergencies! They are regular costs that come on a regular schedule
——> term insurance is usually best; do your homework!
——> if you lose your job, this (and being debt free) will make life easier
——> if your employer matches funds, contribute up to the maximum match and no more until your debt has been erased and you have a savings cushion
Any basic money management book will tell you how to set up a budget. The hard part is sticking to it. If it helps, call your budget a spending plan. Go through your credit slips, bills, receipts, checkbook registers and bank statements and find out how much money you really spend every day. Find and list (be honest!) ALL of your debts, including the money you owe friends and relatives.
Now, look at your actual income and see how the numbers match up. Is there cash left over or are you ending every month in the red? Amy Dacyczyn and the Economides give hundreds of ways to cut back on the spending.
I will repeat: if you cannot cut back your spending after reading their books, it is because you like owing money more than you like saying no to every little whim.
Melting the Debt Snowball
Now for the debt. I like the debt snowball method and Dave Ramsey has nice worksheets on how to do this in his money management books. List all your debts in order from the smallest dollar amount owed to largest. Make the minimum payment to all of them, except the smallest one. Focus every extra dollar on that account until it is paid off. Then, move this entire amount to the next smallest bill, adding it to the minimum you are already paying. Focus putting every extra dollar onto this bill until it is paid off. Repeat the process until all of your debts are repaid.
1. This won’t work unless you stop adding to your debt load! And, you must still make at least the minimum payment to every account so your debt doesn’t go even higher. Your attitude is important to keep yourself on track. Don’t think of not being able to use your credit cards as denying yourself. Instead, remind your wanting self of how nice it would be to not be a debt slave anymore.
2. Along with getting the debt snowball going, you need to set aside money for an emergency fund. Your car will break down, your daughter will sprain her ankle, your cat will need emergency veterinary care. If emergency dollars get spent, you may have to slow down the debt snowball a bit until you replenish the account. When the emergency account is back up to full, then push that snowball further.
When looking at your money makeover, remember that your salary may not be your sole source of income. Whenever we received money from heaven (gifts, tax refunds, bonuses, eBay sales, inheritances), we put it to one of three places: debt repayment (including the mortgage), home improvements or infrastructure, and savings. A vacation paid for with a bonus is nice. Even nicer is using that bonus to beef up the emergency fund or pay down another bill while enjoying vacation time at home.
A Library of Inspiration
Hundreds of books have been published on thrift and saving money over the last fifty years. The topic goes in and out of fashion as the economy goes up and down. The result is that any library of any size has at least one or two books on the subject of miserly money management. The topic isn’t too hard to find at yard sales, library sales, used bookstores, and thrift shops. And of course, eBay and ABEBooks have an unlimited supply of titles.
I have slowly built up a pretty decent library of thrift books from all these sources. We’ll talk more about them later, but there’s no reason why you can’t start acquiring them now. I reread them regularly to refresh my memory and keep me on track: I want to be financially independent, to never have to leave my house unless I want to, to have more control over my life. A salary from a job is the biggest and most reliable source of income most of us will ever have. Make the most of it and that measly salary can get you closer to your goals if you make it happen. All it takes is clearly distinguishing between wants and needs. Very simple, even if it isn’t easy. You won’t win the lottery but you can win at money management. Start today!
Next Week: Control Your Future By Setting Goals