Live Cheaply, Be Happy, Grow Wealthy

Live Cheaply, Be Happy, Grow Wealthy

By Sharon Marchisello

Smashwords Edition

Copyright 2013 Sharon Marchisello

Smashwords Edition, License Notes

This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each recipient. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then please return to Smashwords.com and purchase your own copy. Thank you for respecting the hard work of this author.

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Overview

Why Me?

When I told friends and colleagues I was writing a book on personal finance, I noticed a few raised eyebrows. My degrees and career were not in accounting, finance, or economics. I didn't even like math in school.

I don't claim to have all the answers. I can only share my experiences and hope you learn something from them. I grew up in a middle-class home, never starved, never felt terribly deprived, but neither did I have every luxury handed to me. The most important lesson I learned from my parents, children of the Great Depression, was a healthy respect for money, that it doesn't grow on trees, as my mother was fond of saying. I married for love, not wealth, but fortunately my heart led me to someone who shared this same attitude about money.

Although I usually managed to stay employed when I wanted to be, neither my husband nor I ever held high-paying jobs; we're not entrepreneurs, we did not have trust funds, and we never won the lottery. (I think you have to buy a ticket first.) Yet we were able to average two or three cruise vacations a year, while our colleagues were running up credit card bills with nothing to show for it. We paid off our mortgage in 10 years, while our colleagues were trying to refinance and consolidate their debt. When my company offered an attractive early retirement buy-out, I had a personal net worth of over a million dollars and was in a position to take advantage; colleagues the same age and making the same salary could not even entertain the idea, unless they already had job prospects at another enterprise. We must have been doing something right. After comparing notes with others, I discovered that our plan of commonsense living within a small financial footprint was not all that common.

In fact, I visited a financial planner one day, and he was amazed after looking over our portfolio. You're like The Millionaire Next Door! he exclaimed. "Why are you here? I should be the one asking you for advice."

Everyone has different needs; everyone places different values on life's pleasures. I don't expect you to embrace every piece of advice I am about to dole out. But maybe I will inspire you to formulate ideas that will work better than mine for your specific situation. I hope that after reading this book, you will be on your way to finding happiness living within your means, being content with a smaller financial footprint. And living within your means is the first step to growing wealthy, and sustaining that wealth.

Your Financial Footprint

The term financial footprint is not widely used, so allow me to offer my interpretation. We all leave footprints during our brief stay on earth. You have probably heard talk of your carbon footprint which is related to how much energy you consume. The larger your carbon footprint, the more natural resources are required to sustain your existence.

Your financial footprint is how much money you need to fuel your life style. The smaller your financial footprint, the fewer financial resources you will require to lead a satisfying life. The less money you require to sustain your existence and pay for the things and experiences you value, the more you will have left to build wealth, which you can use to further enrich your life.

Audience

This book was not written for the financially savvy investor, nor for those who are so mired in the quicksand of debt that bankruptcy may be the only option. It is not meant as specific advice for any individual's situation.

I think this book is best suited for young people just starting out, before they've made too many costly mistakes, or for people of any age who are beginning to take an interest in shrinking their financial footprint in order to get a little bit ahead, having money work for them instead of against them.

Steps to Live Cheaply, Be Happy, and Grow Wealthy

This book is divided into 10 chapters which outline the steps I recommend you follow if you want to shrink your financial footprint and start accumulating wealth:

1)Live Within Your Means

2)Find the Best Value

3)Get out of Debt

4)Set Aside an Emergency Fund

5)Save for Retirement

6)Begin to Invest

7)Consider Relationships

8)Teach Your Children

9)Get Completely out of Debt

10)Invest More

Congratulations on taking an interest in your personal finances, and best wishes for success!

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Chapter 1 - Live Within Your Means

Objectives:

Understand your big picture: what is coming in, what is going out

Classify expenses as absolutely necessary, necessary but reducible, discretionary but important, and totally unnecessary

Recognize the benefits and disadvantages of cash, credit, and debit

Create a plan to spend less than you earn

Learn to squeeze the most out of your money

Make a lifetime commitment

The Big Picture

There is no such thing as unlimited wealth. Even the developers in Dubai learned that lesson after the global financial meltdown of 2008. One catastrophic spill can wreak havoc with the fortunes of a titanic oil company. No matter how much money you earn, if you spend more than you have, you will run out. The converse is also true: no matter how little you earn, if you spend less than that, your wealth will grow. It is simple arithmetic.

Think of certain professional athletes who rose from poverty to snare multi-million dollar contracts, yet declared bankruptcy within a few years. Or lottery winners who quit their jobs and proceeded to fritter away their fortunes. Contrast the retired school teacher with a modest home who left millions to her favorite charity. The difference: living within your means.

Not having enough money to meet your needs and live the way you want is stressful. It can cause health problems. It can ruin a marriage. Some people are tempted to violate the law, or fall victim to get-rich-quick scams, trying to take a shortcut to solvency. Every time you turn around, someone has a hand out. The prices of basic necessities rise, but your income may not keep pace. Your possessions break or wear out, and must be repaired, replaced, or updated. The best-laid plans can be thwarted by an emergency expense no one could have foreseen, or a catastrophe that was not even your fault. How can you possibly live within your means?

The first step is to know exactly how much is coming in, and how much is going out. If you hire a financial planner or credit counselor, he or she may tell you to write down every penny you spend and receive for a specified period of time, and then make a budget: the dreaded B word. I must confess I never did this.

The closest I came to budgeting was when my future husband and I purchased a house together. He had money for the down payment; I did not. I had a job, though, so agreed to pay all the utility bills and buy the groceries after we moved in, in addition to my share of the house note. We kept a log of our household expenses and I would deduct his half each month from what I owed on the down payment loan.

Even after I paid off my down payment loan, we continued to maintain separate checking accounts and keep track of our common expenses, including who paid what. Periodically, we tally everything up and he writes me a check for the difference. Once we went to a financial planner and she asked me about our budget; I was able to produce one from this log, our checking account statements, and our credit card bills.

My point is that whatever method you choose to document your big financial picture is fine; the goal is to understand what money is coming in, and what is going out. Writing down every expenditure and then making a budget works for a lot of people.

Once you have figured out how much is coming in and how much is going out, it is time to start analyzing. If more is coming in than going out, you're in better shape than most. You still might want to continue reading this book to see how you can increase the gap and build wealth faster.

If you have more money going out than coming in, the faster you take steps to reverse the situation, the better off you'll be. The magic of compound interest and wealth building principles are working against you.

So how do you do that?

Can you increase what is coming in? Ask for a raise or apply for that promotion? Take advantage of a little overtime? Get a part-time job or start a business on the side? Send the kids out to solicit yard work from the neighbors? Re-structure investments or tap an asset? Organize a big garage sale or start selling your treasures on eBay?

For most people, it is not easy to increase the coming in column, and some of those solutions might only be short term. For example, once you've sold all your valuable possessions, if you're still spending more than you make, then what? We will concentrate on shrinking the going out column.

First, classify your expenses as absolutely necessary, necessary but reducible, discretionary but important, and totally unnecessary.

Absolutely necessary, non-negotiable expenses probably include your rent or mortgage payment, and other fixed costs like insurance premiums, union dues, tuition, and taxes. Necessary but reducible might include utility bills, gasoline, and groceries. Discretionary but important expenses are not necessary for survival but add value or pleasure to your life: travel, cultural activities, magazine subscriptions, entertainment, toys, pampering. Totally unnecessary expenses eat up your income and add no value to your life: late fees, fines, excess interest on credit card debt.

Totally Unnecessary Expenses

Start with the low-hanging fruit. If you are paying late fees or excess interest because you did not make a payment on time, you need a better system for managing your bills. Not only does it hurt your credit rating, making it more expensive or more difficult for you to borrow money in the future or even find employment, it is money that could be better spent on something you need or enjoy. Many companies allow you to set up automatic payment arrangements, to deduct the balance you owe from a checking account or charge it to a credit card on the due date, so you'll never have to worry about late payments. If you do this, make sure you keep enough money in the specified account to cover these payments, so you won't be assessed a returned check fee or other penalty—another unnecessary expense. Perhaps an e-mail reminder from the creditor will work better for you, or a special folder, kept in a prominent place, for organizing bills. Be familiar with the due dates, so if a bill gets lost or misplaced, or an e-mail reminder is accidentally deleted or ignored, you can contact the company and get your balance paid on time. If you are planning to be out of town when your statement is scheduled to arrive, contact the creditor, have someone handle the payment for you, or consider setting up an online payment to occur just before the due date. Whatever your system, just make sure you use one that works, so your bills are always paid on time, your checking account is never overdrawn, and you never charge over your limit. If your outgo numbers are so skewed that you have to negotiate with your financial institution if you ever expect to balance your budget, then do it.

Traffic tickets, parking violations, library fines, etc., are all categorized as unnecessary expenses that add no value to your life. Nothing you can do about them once incurred, but you can learn from your mistakes and try not to repeat them. If the traffic ticket is a first offense, investigate the possibility of attending traffic school or doing community service to have it removed from your driving record, otherwise, you may keep on paying for it through higher insurance rates.

My husband takes issue with my listing library fines as an unnecessary expense. If he is unable to renew a book he has not yet finished, he will keep it a few extra days and pay the fine. He considers it renting a book he wants to read but doesn't want to buy. A similar case could be made for incurring a parking ticket to keep from being late to an important job interview. It's your list; if you're honest with yourself, you will be able to identify expenses that can be trimmed or avoided without compromising your values.

Some people may put vices, such as smoking or gambling, in this unnecessary expense category. If you did that, maybe the habit does not give you enough pleasure to justify the cost. Think of the money you can save by giving it up, and work toward that goal. Motivate yourself by setting aside the money you would have spent (for example, for a pack of cigarettes or a lottery ticket) and watching it grow.

Discretionary Expenses

Chapter 2 will delve into deriving the most value from your money and deciding what discretionary expenditures bring you the most happiness. But if you are spending more than you earn, this category is a logical place to look for reduction. Do you subscribe to magazines or newspapers you never read? When you plan to leave town, do you fail to place a vacation stop on your deliveries and ask that your subscription be extended? Do you buy books or movies you could have checked out of the library? Do you watch all those premium cable channels you are paying for? Does your calling plan require you to pay extra for features you do not need or use? Maybe a pay-as-you-go cell phone would serve your needs better than a calling plan and landline. Are you paying dues to a country club or gym you rarely visit? When you travel, do you buy souvenirs that end up in the next garage sale? Do you exchange gifts with people just because it is expected? (And then later re-gift what you received, knowing the others will do the same?)

Are you paying for a storage facility to keep stuff you'll probably never use or might have even forgotten about? Why not de-clutter and have a garage sale, or make a donation to charity, saving yourself the monthly facility rental bill?

Do you over-pack when you travel? Years of working for an airline and flying standby taught me to pack lightly, rarely taking more than would fit into a small roll-aboard suitcase. (And this includes packing for a