Canville Communications: Article
Ever wish you’d been born with a guarantee–a guarantee of receiving
$10 million (tax-free) per year for the rest of your life? You
could enjoy homes at the lake, in the mountains, and on both coasts.
You could select which of your fleet of luxury cars to drive on
any given day. Except for staying within yearly limit, you wouldn’t
have to think about what you spent or saved. But reality interrupts:
If we don’t spend, save, and invest wisely, we’ll get into a pit
of debt.
How can anyone buy what they need or want plus save, invest, and
keep debts at a manageable level? Here’s how:
1. Remember that marketers are masters of psychology. They try
to make us to think we need to see the movie, buy the video, the
video game, and tee-shirt. But do we really need to? No. We may
want to, but we don’t need to. We don’t need a picture-taking
cell phone, either, no matter how cool they seem. And the people
who look as if they’re having fun are being paid to act as if
they are. Except for basic food, water, shelter, transportation,
and a few friends, you don’t need what anyone is selling. Of course,
you may want it...
2. Marketers also try to make us want things we’d never realized
we wanted. They brainwash us to believe we’d be more popular/better
looking/happier if only we: Bought season tickets to see football
games at the stadium instead of watching them on TV; procured
an intense big-screen TV instead of a 25-inch one; purchased a
$400 cell phone that does everything except go to the bathroom
instead of one that just lets us talk. Of course, if you really,
really want the season tickets, movie-screen TV or do-it-all cell
phone, go ahead and get it–if you can afford it. Just make sure
that you...
3. Shop around to get the most for your money.
a. Say you want to take a real vacation this year. Check out cheap
air/hotel Websites, call a couple of travel agents, and call some
hotels. Can you fly more cheaply by staying over a Saturday night?
Does the hotel offer a multi-night discount package? Find out
when the tourist season is, and go either one week or before it.
Avoid traveling around holidays. And compromise. Though Paris
would be magnificent, wouldn’t Montreal do?
b. Need new wheels? Check out the Websites and visit as many dealers
as you can. Compare prices of various models, find out which options
are included, and compare financing terms. Decide which options
would be “nice” and which are necessary. A stereo may be necessary,
but you might want to think about the leather upholstery. Buy
a car in July or August, just before the new arrivals are due.
Also check out pre-owned cars. Always negotiate the price; if
the dealer won’t talk, then be prepared to walk.
4. Emergencies happen, but try to avoid as many as you can by
planning ahead. The time to shop for a new car is before your
old one dies. If you wait, you’ll feel pressured to buy one of
the first cars you see. Shop around for a new apartment or condo
well before your lease on your current one expires. Planning doesn’t
mean giving up fun; it means being able to afford more fun in
the future.
5. Create a spending plan. Record all your cash, check, and credit
expenditures for one month so you’ll see where your money is going.
Prioritize your expenditures and determine where you can cut back.
Every bit counts. Do you really need a facial every month, or
will every other month do? Instead of going to the theater twice
a month, maybe you can rent a video once per month. Bring your
lunch to work four days per week instead of eating out every day.
When you meet your friends for drinks, try sipping three drinks
instead of downing six. Do you really need to wear the same clothes
the famous b-ball player or rapper wears? If you manage to save
just $100 per month, in one year you’ll have saved $1200 plus
interest! Maybe it won’t cover a European vacation, but it will
fund a couple of weeks at the beach.
6. A spending plan will also help you build an emergency fund.
No one’s job is safe, so build a buffer in case the worst happens.
The GSA Federal Information Center recommends saving an amount
equal to three to six months of living expenses. Keep it in an
easy-to-access savings account, short-term CD, or money market
account.
7. Determine your short-term and long-term financial goals and
be prepared to compromise. Do you want to visit your sister in
London next month? Want to buy a house or condo within the next
five years? Wish to retire in 25 years? Figure out how much each
goal costs and how much you’ll need to save each month to pay
for them. Perhaps you can stay with your sister for a week instead
of two weeks so you can put aside a little for the condo and retirement.
Maybe you won’t be able to buy a house in five years; wouldn’t
seven years do? And there’s no shame in retiring at the age of
55 instead of 50. (But the sooner you retire, the more money you’ll
need to save–we’re talking millions.)
8. Items bought on credit still cost money. Buying on credit means
putting off paying for an item–and paying more for the convenience.
Use your card as little as possible and pay off the debt as soon
as you can to avoid paying hundreds or thousands in finance charges.
Try to ignore those Internet sites that make buying via a credit
card so easy and secure. Keep the number of credit cards down
to one. Throw out offers for new credit cards, and tell telemarketers
“No” no matter what.
9. Get a loan only when you have to. Loans are meant for financing
cars, houses, and college educations, not for funding two weeks
in Aruba or for backing horses or roulette wheels.
10. Wise people don’t gamble with their money. They don’t rely
on social security, the volatile stock market, or rich friends.
They:
a. Keep their emergency funds in an FDIC-insured saving account,
despite the low interest rates.
b. Utilize Money Market Deposit Accounts, which earn slightly
higher interest and still allow easy access to money.
c. Use CDs, which also earn more interest than a savings account
and are very low risk.
d. Take advantage of an employer’s 401(k) Plan to save for retirement.
You may be only 22 now, but some day you will get old.
e. Take advantage of Individual Retirement Arrangements (IRAs).
The earnings grow tax deferred until you begin withdrawals.
f. Invest in mutual funds–if they invest in securities at all.
By pooling your resources with other investors, you can invest
small amounts and still get the benefits of diversification: lower
risk.
Planning, saving, and investing may not be fun, but their results
sure are: The knowledge that we’ve got our fiscal futures under
control, are free of heavy credit-card debt and loans, and can
still indulge our passions for Nintendo games, purple espadrilles,
mountain climbing--or dreaming about having $10 million per year.
Source: Federal Information Center of the GSA at (Spending Plan) and (Consumer’s Almanac).
About the Author: Anne Verville is a New Hampshire freelance writer who has a small
savings account but big dreams.
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Ten Steps to Financial Freedom
