In this month’s Guidepost, there were two great questions to ask before you buy anything.

"Do we really need this?"

"Is there another option?"

(The Cheapskates Guide to Happiness by Mark Savage)

I especially love the second question. So often we buy things we think we "need" without questioning if there is another option. Like borrowing, renting, finding something in the house that might work, getting it used, checking out freecycle, or bartering. I love that there are more options besides buying something new.

My son ran out of money even though he kept saying he wasn’t spending it. We told him this happens to most people when they all of the sudden make much more than they had made before.  It’s easy to lose track of how much you are spending. So we had him print out the last three weeks of spending.

Then he added up categories like gas, eating out and computer stuff.

He was shocked by how much those $10 here, $20 there’s added up to.

Next it was time for a simple, simple budget. The less categories the better, so he had money he owes his grandparents for the truck, gas, food, savings (which wasn’t even on the radar before), computer, car insurance, phone and misc.

He figured out how much to put in the categories and decided he can’t eat out more than once or twice a week and definitely can’t be driving all over in that big truck. And his misc. dwindled way down.

He has his budget up at his computer and also in a notepad in his car. He writes down what he spends under the different category columns in the notepad so he knows when he has to stop spending.

How’s your budget?

Not only does clutter cost in energy, focus and flow of your home, it actually costs in dollars.

Have you ever paid bills late because you didn’t have them all together? They were in various piles around the house.

Or had clothes to take back but not be able to locate them in time for the refund period?

How many times did you have to buy something new, because you couldn’t find the original?

Some people have to own extra storage pods just to store their stuff. Much of which they never use or need. (It is stored after all.)

When you have too much stuff, it’s hard to keep it organized and stored safely. Then things get moldy or damaged.

And library fines from not being able to find those library books.

How is clutter costing you?

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Photo by Public Domain Photos

Guest Post by Chris Marchalleck

I rarely have guest posts, but I thought this would be helpful to share with you.

Building Substantial Net Worth

Most Americans begin their professional careers with a goal of retiring comfortably one day.  After all, no one wants to work 40 hours a week when they are in their 70’s.  Thus, it is safe to assume that most, if not close to all, Americans have a desire to build a substantial net worth during the course of their lives.

Net worth is calculated as one’s assets minus her liabilities.  This number is a person’s net worth.   Unfortunately, most Americans never build up a substantial net worth.  In fact, very few people even retire comfortably.  It is estimated that 62% of Americans who reach age 65 have less than $25,000 in net worth for retirement, and another 35% have less than $100,000. 

So, let’s arbitrarily decide that $100,000 is substantial net worth.  If we were to say that building a nest egg of $100,000 meant that a person had build up a substantial net worth, then statistics tell us that only about 3% of Americans do it.  Now, of the 3% of Americans that do build substantial net worth, only about 2-3% of those people have over $1 million.  The reality is that very, very few people ever build up any substantial amount of net worth.  The question we must ask is why?

Do people just not make enough?

This is a legitimate concern.  Perhaps most Americans simply do not make enough money in order to build substantial net worth.  Have you ever calculated how much money you will make over the course of your professional career?  Most people have not, but if you do use a financial calculator to determine this amount, it can be quite revealing.  Assume Jared is 25 years old, and he graduates college and lands an entry-level job at a company, earning only about $30,000.  If he receives a standard 3% raise each year during the course of his career, by age 60, Jared will have earned a total of $1.8 million!  And this number is not taking into consideration the fact that Jared may move into higher paying positions at some point in his professional career.

By calculating lifetime earnings, it quickly becomes apparent that the problem is not that the average person does not earn enough money.  Instead, the most likely scenario is that most people do not properly manage the money they do make.  Let’s examine this a bit more.

Unfortunately, the current economic system in the United States is built on consumer debt, and it is a societal norm that a person enters in adulthood with major yokes of debt.  An average college graduate has tens of thousands of dollars in education loans, credit card debt, and maybe even car loan debt.  Most Americans enter in their professional lives with a heavy negative net worth, meaning their liabilities far outweigh their assets.  Then, as most people begin earning more money as adults, they simply continue to increase their living standard and increasing general expenses, so no real headway is ever made toward building substantial net worth.  So, what are the practical steps one can take to break this cycle and walk toward true financial independence?

Eliminating Liabilities

The first step is to eliminate liabilities.  Once liabilities are eliminated, then that extra cash flow each month that used to be spent paying off liabilities can now be funneled toward purchasing assets.  The best way to practically eliminate liabilities is to sit down and list them all out and list out the interest rate you are paying on each one.  Interest rates are extremely powerful weapons in financial planning, and they can both work for you if you are earning interest or against you if you are paying interest.  Thus, you want to list out your liabilities and begin making significant payments toward your highest interest debts.  Once you have identified which debt needs paid off first, then you are ready for the second step.

Track Expenses

For one month, track every single penny you spend.  Write every expense in a notebook and keep the receipt, whether you are purchasing a pack of gum or a flat-screen television.  At the end of the month, review your spending habits and see how much you are spending on discretionary items (things you don’t really need).  Then, honestly evaluate how much of that spending you can cut back.  One of the quickest ways to build net worth is to simply adjust your life style and begin spending less money.  This extra cash flow each month can then be funneled directly toward paying off debt.

Final Step

Once all of your liabilities are eliminated, then you are ready for the “fun” part of investing.  This involves directing your extra cash flow each month into purchasing assets.  These can be as small and risk-free as bank CD’s, or they can be more risky such as real estate, currency trading , or stock market  investments. It is also beneficial to investigate your companies retirement plans such as 401k’s and IRA’s where the company matches every dollar you invest.  These decisions are best made with a financial planner.

 Want to find out your net worth?

What are you saving for?

Usually I do my financial weekend closer to the New Year, but it’s still January so I’m ok.  In order to improve your financial well being and to simplify your life, you need to be honest about where you are right now. That’s what my financial weekend does for me.

This weekend:

• I updated Quicken to calculate my Net Worth. You can also use this calculator:

  http://cgi.money.cnn.com/tools/networth/networth.html

• Checked our credit reports
• Got our Fico Credit Score
• Updated our Spending Plan
• We recently moved to a credit union to I added that money goes automatically to savings once a month
• Updated my debt reduction planner
• Set up this year’s tax folders and finance folders

Is all your financial info up to date? If not take some time the next couple weekends to update it.

With food being so expensive nowadays, I took on a challenge I saw in Body and Soul Magazine. The article suggested recording how much and what kind of food you waste during a week.

I was appalled with my results. That certainly doesn’t help the food budget.

So the next week I was much more conscious. Here are some changes and ideas:

• Only shopped for enough produce for 3 days
• Added leftover rice to the black bean soup
• Added leftover vegetables and fruit to salads
• Made soup from some leftovers
• Chopped up the rest of the green pepper and onion to freeze before they went squishy
• The chicken fajita stuff from dinner made it into a breakfast omelet
• When I had tomato soup, I added it to my menu plan for lunch two days later

I found just being aware is what has made the difference. Every day I peek and see what needs to be used soonest. So those fruits and vegetables get used first. Leftovers might become breakfast or lunch. And really it only take a few seconds to evaluate the fridge as long as it’s not overstuffed.

The second idea that helped me the most, is to see what leftovers I had right after meals, before they are even put into the fridge and incorporate them into my menu plan for 1-2 days afterwards.

I feel very new to this sort of thing. I think my Mom and Grandma were much better at it. So if you have any tips to give me on making the most of the food in my fridge, please leave me a comment.

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Salad by SuaveHouse