Beating Broke

Personal Finance from the Broke Perspective

Want to Save Money? Eliminate Some “Needs”

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One of the key parts of any successful personal finance strategy is to save money.  It’s a two-prong thing.  You save money by putting it away in a savings account and you also save money by reducing the money that you would be spending.  Each plays a very important part in your financial life.

Often, when you talk to someone about saving money, they are quick to exclaim something along the lines of  “but, I’ve already squeezed as much as I possibly can out of my budget and spending!  There’s nowhere else to save!”  And in nearly every single one of those cases, they are completely wrong.  And in almost every case, that person needs to have a very serious discussion with him or her self and think about what is really a “need” and what is actually a “want”.

What you think are needs are not.  Do you really need a car?  Two pairs of shoes? Two cars?  Three bathrooms? How about the ever favorite whipping post that is cable t.v.?  How deeply are you willing to cut.  How much unlike everyone else are you willing to live so that you can save money and work towards financial freedom?

What extremes are you willing to go to?  Are you willing to go so far as to exist on Ramen and Rice for a year?  How about walking to work?  How about cutting back to only one pair of shoes?  How about selling your house and moving into something much smaller?  Yes, those are all sacrifices.  And, yes, they will all take a lot of adjustment to get used to.  But the savings could be a potential boon to your personal finances. What other money saving ideas can you come up with?

2004-10-03 Newport, RI - Cliff Walk, Carey Mansion
You really need to decide what you really “need”.  Many of the things that we think we need are really things that we want, but that have become so ingrained into our lives that we feel we need them.  For instance, in our family, we have two cars.  My wife needs a car for her work, and it’s easier for us if we don’t have to try and coordinate our schedules.  So, we have two cars.  We don’t have to try and figure out how to rearrange so that one of us can get home at 5 when the other has to be at a meeting at 4:30.  Could it be done?  Perhaps.  We’ve made it work for a few days at a time when one or the other of our cars has been in the shop.  Another more personal example would be books.  I like to read.  I get a few here and there for review that I usually don’t have to pay for, but otherwise, I buy my books or trade for them on Paperbackswap.com.  Once I’ve read them, I usually put them back into the paperbackswap system, but you can sell used books for cash too. Even trading for them, it still costs me the cost of shipping to send them to whomever requested them.  It’s way cheaper than buying retail, but it still has a cost.  I certainly don’t need those books.  I could just as easily borrow books from the library.  But, would they be the exact ones I want to read?  Not always.

In our case, there are many wants that have been elevated to a level of need.  Deep down, we know we don’t really need those things, but we want them bad enough and they give us enough value that we’re willing to keep them and the expense that goes along with them.

Yes, if we decided that we wanted to be rid of our debt now and not a minute later, we could eliminate a lot of things and be rid of it.  We choose not to go to that extreme, however.  Part of that decision is that we just don’t feel that we need to.  We’re making advances in our finances, and, while it’s slower than it could be, we’re happy making that compromise.

But, what about you?  How extreme are you willing to go to get rid of your debt.  And what compromises, like us, are you willing to make at the risk of delaying your debt payoff?  If you’re paying off debt, take a close look at the things that you think you need.  If I were still a betting man, I’d bet that a very large portion of those things aren’t really needs at all.

Image Credit: 2004-10-03 Newport, RI – Cliff Walk, Carey Mansion by QuiteLucid, on Flickr

Psych Yourself Rich

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Psych Yourself Rich

By: Farnoosh Torabi

As a personal finance blogger, I read a lot of books on personal finance.  These books range from the simplified budgeting and saving books to more complex books (like Early Retirement Extreme, which I’m reading now).  In all honesty, Psych yourself rich lands somewhere in the middle.  Parts of the book are over-simplified.  Other parts seem to make things more complex than they should be.

One of the biggest things that I had against the book was that it wasn’t written for me.  What does that mean?  Well, the book was written for the younger folks out there.  The 20-somethings that are struggling with their careers, relationships, and money.  I’m a 30-something (just barely, though) that is pretty secure where I work, married, and have a pretty good grasp on my money despite my money being a bit unruly at times.  Many of the topics just didn’t apply directly.  I certainly could take the general lesson involved and it could apply, but at the surface, it isn’t the same.  Also, it’s more of a primer.  It doesn’t go in depth on a lot of the topics, choosing to cover more topics, but shallowly.

The one thing that I really enjoyed about this book.  Yes, enjoyed is the right word.  Even for as strange as it may seem to use that word with a non-fiction finance book.  I’m a sucker for the psychology of things.  The why we do what we do.  Torabi did an excellent job of exploring the psychology behind many of the financial moves that we make.  Speaking from experience, she wrote extensively on the psychology of the layoff.  I, personally, have never experienced a layoff.  I’ve been lucky.  I know there are plenty who have in the last few years especially.  More important than the psychological effect of the layoff, she takes on the attitude you need to take once you’ve been laid-off in order to quickly recover and gain your feet again.

The psychology aside, this is an excellent book for a beginner in personal finance.  Someone who finds themselves deeply in debt, or facing repayment issues based on a layoff.  It’s also aimed at those (like me) who like to know why they are doing something, or why they are feeling the way they are about their finances.  The book is well written, with some very nice asides that give it a personal touch.

The Role of Optimized Trade in the Worlds Economy

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First, let’s get the basics out of the way. From the World English Dictionary, we get this definition of Optimize:

2. ( tr ) to plan or carry out (an economic activity) with maximum efficiency

The world is a big place.  There are billions of people that live in various places all around it.  Heck, even at the poles.  What is the role of trade, and, more specifically, the role of optimized trade in the world economy?  A couple of days ago we spoke about isolationism and the stagnation that could occur after an isolationist stance is taken for a long enough time.  The specific example was that eventually the supply and demand would reach an equilibrium.  In truth, an equalized supply and demand trade system is a fully optimized trade system.

In our every day lives, we buy things that are made all around the world.  In fact, it seems that we buy more foreign made items than we do domestic ones.  Why?  The common answer is that it’s cheaper to make these things in foreign countries than it is to make them here.  Why is it cheaper?  Because the trade to and from those countries has become optimized to the point that it’s so efficient that the costs of freighting those items here is still cheaper than making them here.

Freight ShipMaking trade routes more efficient through optimization reduces costs for trade along those routes.  Many of the things that we have today wouldn’t be available to us if we hadn’t optimized the trade routes here.  Consider oranges.  They don’t grow up here in the northern plains.  The only way to get them is to import them from someplace like Florida or California.  If the trade routes between Florida and the northern plains hadn’t been optimized by the invention (and use) of the combustion engine and, later, the invention of the federal highway system, it would make oranges too expensive to ship way up here.  The oranges would either rot on the way here, or the added expense of keeping the oranges from spoiling on the way here would be cost prohibitive.  But, because that trade route has been optimized to a greater degree, it’s possible for me to go to the local grocery store and buy oranges that were grown in Florida for nearly the same price as I would for produce that was grown here.

Optimized trade has a grand role in the worlds economy.  The more optimized the trade becomes the more likely it will be that things will be made in so many more places around the globe.  It will become easier to get authentic items, rather than semi-authentic items made here.  Eventually, when the trade has become optimized fully, a stagnant period will occur.  That scenario is impossible to imagine right now, because there are so many parts of the world that have no access to optimized trade.  We call them 3rd world countries.  They are so far removed from the optimized trade that many of the things that you and I in our 1st world society take for granted are mere dreams for them.  A fully optimized trade system would eliminate that.  Who knows, maybe someone will invent the transporter and we’ll have instant transfer of freight.  Imagine the possibilities!

Image Credit: Freight Ship by SpammT, on Flickr