For your reading convenients below you will find all the Make Your Money Work published in 2016
Many times when people hear the word "finance," they tune out because there is a stereotype going around that only mathematically inclined people or people who have a lot of money to go around are the ones who really worry about this thing called "finance." What if I told you that this is, in fact, not true? What if I told you that you, the average Joe and Jill reading this newsletter, should worry about this word? Chances are you'd look at me as if I was smoking something I shouldn't be smoking, or at the very least you'd say I'm simply blabbing on and on, like those all too well-known university professors who don't have enough material to cover a day's lecture so end up going off on tangents.
Whatever your reaction is, I'll still write it: you should pay attention to this word. Yes, yes, "But, why? I hardly make enough to support myself--forget having extra!" Gotcha number one! Did I ever write that you need extra cash? In reality, you don't need thousands of dollars to get started. But we're jumping ahead of ourselves here. So let's slow down a little bit.
Why am I writing this series? The answer is I'm writing for two reasons. First, I'm just like most of you. I am not some fancy rich person who goes out to buy a house just because I feel like it. I make a living through hard work, just like you do. I put in long hours, just like you do. I went to university on a government grant, just like many of you did, or will soon do, depending on where you are in life. My point is: I don't live in gold. So let's destroy that image, m'kay? Here's the sticker: I've made some financial decisions that have helped me tremendously in life, and I want to share them with you. Again, not from a billionaire's perspective (and, yes, if you want my tax return, ask me) but from an average Joe's perspective. Many times, financial advisors on the radio talk about "building equity on your home," or "investing in your 401(K)." I have neither a home, nor a 401(K). So those options are out the window. Many of these decisions I made were during a time when I was living paycheck to paycheck. And if I did it, you can too. And no, I don't have a degree in business or accounting.
Second, in my experience, because many of us as blind people are on some sort of government benefits program, our "financial IQ" is lower than it should be, and many times through no fault of our own. Together we will raise that IQ and become more familiar with the financial side of things.
In essence, we'll assume we have no savings, no investments, no home to build that equity thing on, and absolutely no plans for retirement. Yes--unlike your university professors who insist they're starting from the beginning but actually start in the middle, we will start at the real beginning. So you can get rid of that calculator you just pulled out; you won't need it, at least not yet.
Here's the next question: Why bother? Because financial decisions absolutely WILL impact your future; and, whether it's a positive or negative impact is mostly up to you. I write "mostly" because there are some things beyond our control, but we'll get to that later. Finances are a thing worth getting smart about. It will make the difference between you living comfortably later, or living how you were when you were fresh out of school: paycheck to paycheck and having to decide between eating or leveling up in Candy Crush. What if you could eat, and also level up in Candy Crush? Do I have your attention now?
In this series, we'll talk first about your everyday finances; things like managing your money and trying to have some left over at the end of the month.
Next, we'll talk about priorities: what should you do first? It's a very bad idea to walk straight into a full-blown brokerage firm and be like "Hey Mr. Money Man, help me save my money!" Chances are they'll steal half of it first, and then throw you out.
After we get our priorities straight, we'll start taking bigger steps towards really securing a good financial future. And with that, I'd like to leave you with this disclaimer. Because this newsletter is international, I'm hesitant to target one specific audience. I hope to be as general as I can, so that no matter what country you are in, you will be able to apply the concepts we will discuss to your specific situation. That said, one thing you must be careful of are your government benefits, if you receive them. I can write a book if I were to include all the rules and regulations surrounding what you can do with your government benefits, so I won't do that. Instead, I'd like to warn you. Make sure to research your specific benefits program. I'll give you an example of how Supplemental Security Income works in the U.S. The laws are in the process of being changed, but as it stands right now, an SSI recipient is not allowed to have more than $2,000 in savings at any given time. So, if you fall into this category, sadly you will be restricted by the regulations you have to follow as a recipient of SSI. But I'll leave all that up to you. I'll be writing from the assumption that no one reading this newsletter is restricted by such government regulations to keep things as simple as they can be, but it will be your responsibility to make sure you are within the legal bounds of your particular benefits program.
In the next article, we'll talk about day-to-day financial decisions that can have a huge impact on your financial success later on. So stick around if you want to see how others are doing it!
If you have any questions or comments on this article, you can Email me at my address above.
Last time, I gave a conceptual overview of what we'll be covering in this series. In this article, we'll talk about seeing what you already have.
The first step to any sort of financial success is to figure out what your current money picture looks like. A lot of us simply take money in, and give money out. But how much exactly do we take in and give out? This term is called "cash flow." Without an accurate understanding of your cash flow, you won't know what you can and can't do with your money. So, naturally, we need to figure out our cash flow. Here's how.
First, calculate how much you earn every month. Cash flow is calculated on a month-by-month basis. It will help us draw up a budget later on. Let's say we work forty hours a week, at $10.00 USD an hour. The situation presented here is hypothetical; we're using pretty numbers so we don't need to think about the numbers too much. I'm using US currency, but you can convert into your equivalent currency at:
Companies typically pay every other week, so we get two checks a month. Lets' do the numbers:
40 hours/week * $10/hour = $400 /week.
That's how much we get every week. Now multiply that by 2, and you get $800 every two weeks.
Next, multiply that by 2, and you get $1,600 a month.
The $1,600 is my "gross" pay, which is what I'm earnings before taxes.
I know I know. I wrote that you won't need your calculator for a while. Well, you really don't...because we're using pretty numbers! Now, for purposes of this article, we'll neglect taxes. So assume for a minute that you live in a world where you actually get to keep everything you earn. Idealistic, I know, but you'll love me for it, because I won't send you off to some overly-complex website that has you pulling your tax forms from the ice age just to tell you how much of your money the government has.
So this $1,600 is my final figure. Step one is now complete.
Secondly, we need to calculate our total monthly expenses. This section is important because there are some caveats you should be aware of.
Again, let's use our idealistic world as an example. I have rent, utilities, and groceries. I live with a roommate, so we split the rent. Let's say my share is $400 a month. Next, for utilities, we're on a fixed-rate plan that comes out to $200 a month. My share is $100 a month.
So far, I have expenses of $500 a month. But I left out groceries! And here is the caveat. Groceries are considered a "variable" expense. Be careful not to minimize how much you spend. For example, if I spend between $50 and $200 a month on groceries, my groceries expense should be $200. The idea is that you rarely hit this target, and that's ok! If you underspend, you have more to save, which means more money in your pocket.
So, let's do the numbers again:
$400 rent + $100 utilities + $200 groceries = $700 total monthly expenses.
Before we move on, remember I said that this is a hypothetical situation only. The number we just calculated seems small, right? Don't worry if your expenses are much larger. The real world isn't as cheap as we're making it here. Also, you might have more categories of spending. Common categories include transportation, rent, utilities, groceries, and food. Yes, food should be a separate category; don't lump "eating out" and "groceries" into one category. The more categories you have, the easier it will be to manage your cash flow.
So, we make $1,600 a month and spend $700 a month. That $700 you can consider nonexistent. $1,600-$700 = $900. The $900 we have left over is our net earnings. I can tell, you don't like that too much. But if you don't block this money right away, you'll run the risk of overdrawing your account.
And that's how you calculate your cash flow. Now, we're aware of how much we make, and what our expenses look like. Don't you feel better already? You should. You've just taken your first step towards becoming more fiscally responsible! So pat yourself on the back!
Uh, wait one moment. My cash flow number is negative! Well, that's not good. It means you spend more than you make. We need to work on those spending habits a little...
Ok, so what if you really don't spend much, but your cash flow is still negative? Try cutting some things out of your cash flow. If you have TV and Internet service, look for a cheaper package. Or, like, get rid of your internet altogether. Your grandparents will be proud, because that's how they did it anyway, so what are you waiting for, kid?
No really...I can't get my cash flow to be positive. Ok. If there's really nothing you can cut, try a different approach. Increase your gross earnings. That way, you can still keep your super expensive TV and life will go on happily ever after.
In all seriousness, if your cash flow is negative, you should work on that before moving on.
We consumed a lot of information in this article. We were introduced to a new term called "cash flow." We saw how to calculate our gross earnings and expenses, and get a feel for what we actually make after expenses. Then, we discovered the difference between fixed expenses and variable expenses, and we saw how to calculate them into our cash flow. In the next article, we'll talk about what to do with our left over money. To some of you, it may seem as if we're going too slowly. I want to give you information in bite-sized pieces, because finances tend to be dry, with a lot of information to process. I think for something as important as money, it's better to go slowly and do it correctly rather than go too quickly and mess up somewhere. In the financial world, such mistakes can cost you (literally.)
If you have any comments on this article, you can Email me at my address located above
Last time, we talked about cash flow. In summary, it's the calculation of your earnings minus any expenses. We came up with a hypothetical situation where we were left with $900 at the end of the month. In this article, we're going to focus on this left over money.
In my first article, I mentioned that as your money sits idle, it loses value. So, are we going to solve that problem now? Nope, sorry, not yet. There is still one thing left to do, and that's budgeting.
We've briefly seen the two categories of expenses: fixed, and variable. We're going to go into a little more depth about them now. Both are as they seem: fixed expenses are amounts that don't change often. Variable expenses are amounts that change month to month. Things like transportation and food are variable expenses, and things like rent and Internet are fixed expenses. Now, your fixed expenses might change year to year (for instance, if you're rent goes up next year) but these increases don't happen often enough for us to consider them variable. Only expenses that change month to month should be considered variable expenses.
Now, let's talk about budgets. Your variable expenses such as transportation and groceries can be considered budget items. You should never spend more than you've allowed in these categories, because these numbers are calculated into your cash flow. Think about this: your groceries expense is listed at $200 a month, but you consistently spend only $100 a month. Over the course of one year, you've saved $1,200! That's almost an extra paycheck! Let's say you have two or more budget items and you keep underspending on these budgets. Your savings will be even greater. In fact, you can use some of that extra money to offset a month where you overspent a little, or to offset the excessive spending habits of your significant other.
This is one type of budget, and one that we covered in brief last month. Another budget is built on your left over cash. So after we spend on groceries, rent and utilities, we have $900 left. This $900 can be considered discretionary money. It doesn't go into any specific category, but you have it there just as a remainder. That's great! The point of cash flow isn't to maximize your spending; it's the opposite. So the fact that we have $900 left over means we're doing pretty well for ourselves.
Next, let's make a budget, called "discretionary spending." Cap it at $300. That will keep us safe from overspending and going negative, because we still have $600 of buffer money.
So can this discretionary budget grow or shrink? Absolutely. Remember that this $900 is after your cash flow has been calculated. So this $900 that you have left, it's your money.
Now, since we have a discretionary budget of $300, we should think that we have $300 a month to spend on ourselves. Again, notice that we're being careful and not maximizing our spending. This is key to financial success: live beneath your means. Can you spend $900 on yourself every month? According to your cash flow, yes. But is it wise? Not really, because then you won't have any money left to grow. If you spend absolutely every dollar you make every month, you're gaining nothing from your hard-earned wages.
Ok, so what happens to that $600 just sitting around (no, please don't give it to your significant other?) This is the money we'll use to grow our net worth. Your net worth (in its basic form) is how much freely available cash you have. I write "basic form" because the definition of net worth will evolve as we start talking more about growing our wealth. Next month, we'll start by saving a little bit. How much should we save, and indeed, how much should we NOT save. Pretty soon, you'll have a buffer of cash, and you'll find that you're sleeping better at night time because of it. But...please get rid of that overspending significant other of yours. After all, life is all about hard decisions, isn't it? I think you get the idea by now. So about that significant... Ok, moving on.
In this article, we talked about fixed and variable expenses in cash flow. We also discussed extra budgets, and we came to an agreement that cash flow is not meant to help you maximize your spending. Finally, we established that creating a "discretionary" budget is a good idea, and you should only spend what's available in that budget. Next time, we'll start growing our money.
If you have any comments on this article, you can Email me at my address above.
We've done a lot to become financially stable so far. We'll start off by recapping the key points.
We started by talking about cash flow: what do your monthly expenditures look like? Then, we went into budgeting. How should you categorize your expenses, and what amounts should you put into each category? After this, we talked about your discretionary budget. This is the budget that you can do with whatever you like (its "discretionary" for a reason.) Treat yourself to a night out if you so choose. But even that, we capped it.
So, as it stands, we have a budget, we know where every dollar goes (almost,) and we also have some "fun money." Isn't it dandy? You'll notice that just by having this much knowledge of your finances makes it feel as if a huge weight has been lifted off your head. If you do feel this way, that's great! You're getting the benefit of reading this series.
But why stop here? Remember that in our situation, we still have $600 to play with. This is where we start talking about that money. We'll call this left over cash "investment cash." This is the money that you've got absolutely no idea what to do with. You have your fun money, you know your budget numbers, and you've got absolutely nothing else to spend on. So it's literally extra cash that's just sitting idle. From this money, we'll increase our net worth.
Recall that net worth is how much cash you have available at any given time. This is the simplest version, and that's all we're concerned with right now. So let's start increasing our net worth. Sound good? From the $600 we've got left, all we want to do is set a chunk of it aside. A common figure for savings is that you should save ten cents of every dollar you make; or, in more general terms, save 10% of your earnings. Here, I'm going to do things the long way so you can see how we actually arrive at the numbers we'll be showing. But don't worry, I'll show you the simple way afterwards.
For us, the savings amount translates to the following (remember from our earlier articles that we make $1600 a month). 10% of $1600 is:
10 / 100 = $x / $1600 is
100 * $x = $1600 * 10 is
100 * $x = $16,000 is
$x = $16,000 / 100 is
$x = $160
So, we got that x is $160. Wow! Why all this math? Well that was the long way, and I wrote it for those of you who like seeing details. But all you need to know is this: take your monthly earnings, and move the decimal point over to the left once. For instance, $1600 is actually $1600.00. If we move the decimal point once to the left, that's 10% of 1600, and we get $160.000, which looks weird...but we ignore the last 0. So we get $160.00. This method applies to any number. If you want 10% of $1753.98 (if this, for some reason, was your monthly earnings) all you would do is move the point over to the left, and let the least significant digit drop. So you would get $175.398 which would result in $175.39. Now, in this case, would you really save exactly $175.39? Well, if you're really precise, maybe. But just so it looks better, try to go with the next whole unit up. So you'd save $176. Besides, I don't think that extra $0.61 will kill you, will it? (And if it will kill you, I sincerely apologize in advance for any death that saving an extra 61 cents will cause.)
Also, the precise ones among us will argue that $175.398 can be rounded to $175.40. But this isn't a Math textbook, so we'll ignore everyone who's precise.
Anyway, now that we've seen how to quickly get 10% of your earnings, and I've ever so conveniently indemnified myself from your impending death should you save an extra $0.61, let's get back to the topic. This $160 is 10% of our earnings every month, and this is what is recommended that we save on a monthly basis. But wait! We have $600 of left over cash! If we only save $160, we still have $440 left every month! Aha! See why I wrote that it's "recommended?" No really, I did write that, and you can go look.
Remember when we were talking about discretionary spending, and I discouraged you from making your discretionary budget too large? Well, within reason, it's the opposite here. With our hypothetical situation, we can certainly save more, so we will. But how much should we save? Great question! Certainly, there's a cap on savings, too. Our goal, after all, is to be careful: not overly ambitious, but not too cautious, either. So, let's save $300. Wow! Save $300 a month? If we quickly do the numbers, we end up saving a whopping $3600 a year! And notice now, that we keep mentioning this word, "save." I'm doing this on purpose because I want you to really see this as SAVINGS, and not just, you know, money you can use to settle on the divorce you served your overspending significant other from our last little chat.
You should move this money into an actual savings account with your bank. It should be kept away from money that you use to pay your bills and money that you use on yourself. This cash that you're saving should go nowhere except into the savings account. This is the only way to really build your net worth. In fact, the only time this money should be used is in case of emergency; don't even use it as a long-term goal fund. Just let it build up. Just by doing this, you're increasing your financial well-being. Think about it: in two years, you'll have access to $7200 in cash whenever you want. Isn't that wonderful? What about five years? Get ready for it...$18,000! And no, that's not a type-o!
But Munawar...I still have $300 left, even after all this! You have several options here. You can split that in half and add that extra to your savings. You can also make a long-term goal plan for yourself. For example, many of us as blind people attend a convention in summer. You can use this extra money to fund your convention trip. Wouldn't it be nice to go to the convention without worrying about how you'll pay for the expensive parties you hosted? (Not that we host expensive parties, of course...)
And here, I anticipate the precise among us (sometimes you just can't ignore them) noting the use of the word "several" which means "more than two." So if you're looking for something new as opposed to these two options, next month I'll show you something else you can do with this extra money (See? I choose my words carefully.) Remember, this is NOT the money you've already set aside to save. This is the $300 remainder AFTER you've made a discretionary budget and AFTER you've set aside money to save.
A final note: although we came up with the figure of saving $300 a month, remember that the situation we're showing here is hypothetical. The aim is for you to take the general approach demonstrated here and apply it to your own situation. So, even if your numbers work out to saving $50 a month, don't be discouraged or think that you're not doing enough. Even by saving $50 a month, you're growing your savings, and in the end that's really all that matters.
We took it back to Algebra with this article (sorry!) We saw how much is recommended to save every month, and how we should adjust our savings amount. We also saw a few ways to make use of our still-left-over cash after savings. Next month, we'll talk about an option for this left over cash if we don't have long-term goals we want to fund.
If you have any comments on this article, you can Email me at the address above.