In a past blog posting, we mentioned the importance of playing a good offense when trying to meet your financial goals. The offense involved earning some extra money and setting that money aside (along with a portion of your salary) for later investment.
In today’s post, we want to talk a little bit about playing defense. Most of us have grown up in aneconomic system that pushes us into spending money that we don’t have and into thinking that the only way of paying our bills is by getting a 9-5 job. But after you have learned that true financial freedom comes only after you take control of your finances, you will surely be very eager to get going. So along with earning some extra money and setting it aside to be invested later on, what can you do to play some defense and reduce the amount of money that you need right now? And how can you stay motivated throughout the process?
Try to think of your bank account like a bathtub that has just one faucet (the income from your job) filling it up. Have you ever noticed that no matter how much money you make your bank account balance at the end of the month almost always looks the same? What’s happening? Just like a person who tries to fill up a bathtub but who forgets to plug the drain, many people spend all of their hard-earned money on their living expenses and have little left over at the end of the month. So what’s the solution?
PLUG THE DRAIN!
There are some expenses that simply cannot be avoided, like rent (or a mortgage), utilities, food, gas, insurance, and so on. One way to fill up that “bathtub” more quickly would be to reduce the amount of money flowing out at the end of each month. But in order to stay motivated, the quality of your life shouldn’t be adversely affected. In other words, if you take all of the little things that you love out of life, are you going to feel very happy? Probably not, and it won’t be long before you go back to your old ways. So let’s try to find a way of reducing your expenses without ruining your life.
Start by shopping for comparable services. There are lots of businesses out there fighting for your attention, and many of them offer some attractive incentives to get it. For example, can you transfer some credit card balances and avoid paying really high interest rates? Can you find a lower cost insurancecompany or phone service that will give you the same coverage for less? You may be surprised at how much money you can save each month and how quickly it can all add up.
Then, have a look at your monthly expenses and ask yourself if each one of them is really necessary. For example, are you paying for a data plan for your iPad, even though you only use it to connect to your home Wi-Fi? Are you paying for a home security service that you don’t even use? Do you have a gym membership for a club that you haven’t visited in years? Now is the time to be realistic and to make some tough calls. Your future self will thank you for plugging up that drain.
Finally, ask yourself if you can reduce your consumption of certain items. Can you carpool to work or take public transportation and thus spend less on gas? Can you turn off lights in the house when you aren’t using them and lower your electricity bill? Can you shop at a store that has the same great quality foods but that sells them for a lower price?
Each of these changes, small though they may seem, can add up to big savings over the months and years. And each penny that you save can be invested later on, forever banishing the ghosts of financial worry that have haunted us for too long.