Beating Broke

Personal Finance from the Broke Perspective

You Need a New Money Mindset

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At last count, there were roughly 4.7 gazillion blogs(*give or take a few) covering money, saving, and wealth – this one included. And with great minds giving all-out efforts to helping people save up for retirement, stick to a budget, buy their first home, or find ways to save, there’s a message and a solution for everyone out there.

So, what gives? Why is it that over three-quarters of Americans are still living hand to mouth? With little or no savings to bolster their budget, they’re living in fear of what will happen when they lose work or have a sudden need for a large chunk of cash.

Why Your Money Mindset Must Change

Personal finance blogs proliferate because they can work. It doesn’t matter how far behind you are in the area of personal finance: it can be fixed and you can reach your goals with the right approach and a little guidance.

The problem is: too many people focus on the wrong things when they try and solve their money issues. The solution isn’t going to be found in cutting coupons or setting budgets aimed at whittling down debt a tiny bit at a time.

What has to happen, if you really want to improve your financial standing in the world, is you have to adopt a new mindset when it comes to money. That’s a behavioral change, and it ain’t easy. If it were, everyone would be debt-free, flush with cash, and right on track for retirement.

What a Difference the Right Money Mindset Can Make

The trick to winning at personal finance isn’t actually a trick. Rather, it’s a mind-change that starts with realizing what money is really for. I’ve known people who make almost six figures, and can’t figure out where all the money goes, and can’t pay their bills. Some of them don’t even have any kids!

On the other side of the spectrum, I have an artist friend who makes an annual salary in the low-$30s and he manages to max out his IRA contributions every year ($5,500 for 2016 but he’s 53 so he gets to put in $6,500) as well as live a debt-free, totally happy life.

What’s the difference? If you look at how my high-earning friends are spending their money, it’s pretty clear: their spending is out of control. They buy brand-new cars, for starters. Plus, they buy expensive cars- and most of them live right in NYC, where you don’t even need to own a car!

What is Money Really For?

Those are just examples- the things we buy, for the most part, are what bring us down, financially. Unfortunately, though, consumerism is built into our culture. We crave the new thing and we show status by displaying our nice things, whether it’s designer heels, a fancy car, or a home in the best neighborhood. We are what we own.

How to Adopt a New ‘Money Mindset’

Not everyone has to live that way, and in fact not everyone does. The people who figure this out early on in life are the ones who usually end up more financially secure, no matter what their salaries are.

Buying things is also a fast road to buying more things. People buy stuff and they enjoy the initial rush of pleasure they get from having something new. Then after a while they get used to the stuff and they want to experience that (temporary) happiness again. So they go out and buy more stuff.

Scientists have a name for that: “Adaptation level theory”. Recognizing this phenomenon in yourself is the first step towards developing the right money mindset. Once you master that, everything else is cake. You’ll have more money to put toward the important things in life like travel, retirement, emergency funds, living well, and even maybe someday leaving a legacy to your heirs.

Instead of buying “things” why not invest in yourself like learning more about financials, taking a course in trading, going to night college to gain a new skill to further your career.

Breaking the myth that you don’t earn enough to save

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I live in New York City. A friend of mine, who makes a low-mid 80s salary, recently told me that he doesn’t see how he’ll be able to ever stop living check-to-check at his current salary. Mind you that he doesn’t have any children or other mouths to feed other than his own. Meanwhile, I have another friend who makes low 40s and has managed to save at least $5,000 over the course of 1.5 years. This reinforces the fact that people of all income levels earn enough to save. It’s not how much you make, but rather your overall mindset that matters.

I have had the opportunity to have visited marginalized communities, very poor, where there is the concept of savings. I have witnessed people who make a savings, no matter how small, for rainy days. It is not a formal savings, is variable and not very planned, but it is savings for when needed.

Upper classes: less saving and more debt

Breaking the Myth
Breaking the Myth

Even if I do not have the statistics to back it up, I realized that those who saved less, were those that were in the middle to upper-class sections of society. Why? Because unfortunately they are heavily indebted.

As BeatingBroke has pointed out, we live in a society where it seems that we are measured not by what we are, but by what we have. This apparently gives us social status and even a sense of belonging. Heck, even the number of Twitter, FB, or Instagram followers is apparently tied to your worth nowadays.

The more we own, the more we are wont so spend because we have suddenly been made more aware of other “shiny new objects” that we just have to have in order to “keep up with the Joneses.” We now have access to lines of credit that allows us to go up to a full year without paying interest! We are humans and we want to live better, we convince ourselves saying: “I deserve this.”

Then we pledge our future income on big ticket items that deplete, nullify, or make virtually impossible to start, or continue any sort of savings plan. This endless cycle prevents us from building appreciable. Look, there is nothing wrong with spending a little when we do it in a conscious way, nor should we feel bad about this. But all in balance.

Saving: All about Priorities

That is why it is so important to have clear priorities in life. Some say that the security for your family is paramount, while others are concerned about being able to live well when they’re no longer able to work. But not enough of us have an emergency fund, life insurance, or have even been concerned enough to make a retirement savings plan. They say (my friend, for example) that they do not have enough to do so because they are still paying the monthly payments of the flat screen that they bought last year. I imagine that “taking advantage of the offer” was more important.

A few years ago chatting with my brother, I asked if he had begun his saving for retirement. He was an unmarried person at that time, working and earning a salary that without a doubt was sufficient for his needs. He was a person that almost every weekend partied and dined at nice restaurants, and in addition was paying a hefty car note. Unsurprisingly, his answer was no, but that he had plenty of time. He’s 38. I just shook my head. What else could I say that he hast heard 100 times over.

The fact of the matter is that one never earns “enough.”  If one expects to save when you reach some magical number, then guess what, it will never happen!

I have always saved because ever since I was a kid, I got used to getting by with a portion of the money I made. I always separated some money and place it in a portfolio that is not used, inside the drawer of my socks. (hey, I was 12, don’t judge me 🙂 . At certain stages of my life I have had to live with a limited income, but that was never a pretext: I always found the way to save something.

The point I’m trying to make is that I am by no means rich. Especially when I was just a little kid. But my parents instilled in me the will and wisdom of saving. Whether you’re a millionaire, or getting by on minimum wage, saving even just 5% of your income every week, can put you in the right mindset to be able to save even more money when you, hopefully, eventually grow your income to the point where your savings can become substantial assets.

Instead of trying to always keep up with the Joneses, start saving a little for that rainy day. There are plenty of apps and financial instruments to help you along the way. But remember, mind over matter.

1 Simple Trick to Find More Money in Your Budget

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Do you have a budget that already feels tight?  Have you cut and cut but still have more month than money? Are you struggling to find more money in your budget?

I know how that goes.  Over the last few months, my husband and I have been working hard to cut our budget as much as possible.  We thought we’d cut all that we could, but I discovered one more secret, which, depending on your budget could help you “find” another $20 to over $100 a month.

So what’s the magic secret?

Make your payments on a semi-annual or annual basis rather than on a monthly basis.

Paying Annual Can Provide Big Discounts

1 Simple Trick to Find More Money in Your Budget
Find more money in your budget.

We have Ooma for our home phone line.  I pay $17.99 a month.  Recently I had to call Ooma because I was having an issue with the service.  After the customer service rep had finished helping me, she asked if I wanted to pay annually instead of monthly.  An annual payment would be $105, the equivalent of $8.75 a month.  In other words, I was paying an additional $110.88 a year for the convenience of monthly payments.

Our life insurance is the same.  When I checked into it, I realized that we would save $22 a month if we paid annually instead of monthly.

We already pay our car insurance semi-annually, but if we opted to pay monthly, we’d be charged a $2 per month fee.  Other car insurance companies charge as much as 5 to 10% more for a monthly payment.

Convenience is expensive.

Take a look through your monthly bills.  Are there any that you can choose to pay annually or semi-annually?  If so, how much will you save per month if you pay annually instead of monthly?  In our case, we “found” an extra $32 a month.  Sure, that doesn’t sound like a lot, but over a year, it adds up to an additional $384 we now have that we didn’t have before.

Two Caveats

Before you change your payment method, it’s important to consider two factors.  First, if your budget is already tight, you may need to wait to switch to an annual payment until you have a windfall like a bonus at work or an income tax return.  If you’re used to paying $80 a month for car insurance, even with a discount for paying annually, you may still be looking at paying $800 or $900 in one swoop, which can be difficult on a tight budget.

Second, only use this method if you know you’ll be disciplined enough to set aside money every month for the annual payment.  If your annual car insurance is $800, then set aside approximately $65 a month so you’ll have enough to pay the annual payment when it comes due.

Making payments annually or semi-annually can be a great way to find extra money in your budget, but before you change to this method, make sure that you have the discipline to set aside (and not spend) the money each month for the annual payment.

Do you pay bills like your insurance monthly or semi-annually or annually?  Which do you prefer?  Why?