Douglas Antrim is the founder of StartSavingMoneyToday.com He is retired US Army, and also served in the US Navy (What?!? 2 Branches of Military? WOW!). Most of his financial experience comes from finding frugal and creative ways to get the most out of life. You’ve got to check his blog out. The posts are jam-packed with great tips for making smart-money decisions. Check him out on Twitter and Facebook too.
It All Depends on How You See It
Everything we do begins with a thought. Thinking brought us to where we are today. Of course, thought should be based on knowledge, and our actions should follow suit. This is true of every facet of life, whether it’s driving safely, putting together a financial plan, or anything else. The thought comes first, and action follows. Depending on how consistently we maintained that thought and the plan it engendered, the path here may have been straight or circuitous.
That last bit means the initial thought is our goal. We have to develop it, apply it, practice it, and tweak it in order to attain it.
Take one aspect of safe driving—stopping. How much thought did you put into obeying the last stop sign you saw?
Preparation Becomes Habit
In reality, you planned your response long in advance of the occasion. Do you remember Driver’s Education class? Among other things, you were taught the importance of stopping at stop signs, as well as the proper way to do it: The white line was the goal. The amount of instruction that went into getting students to stop correctly was significant. The object was to get to that line without crawling and holding up traffic, but to not go so fast you had to slam on your breaks to keep from overshooting it. You were taught how to stop, and you’ve been practicing ever since. I imagine the method has become second nature…
Today on my way home from work, I came to a stop sign (one I encounter every day on my way home), and as I think about it now, I realize I didn’t need to put much if any thought into stopping there. It’s habit—both the place and the manner: I know where I am, and I automatically start slowing down far enough ahead of time so that I can come, safely, to a complete stop. But, suppose I’m out and about somewhere unfamiliar, doing the speed limit, and I see I’m approaching a stop sign. That’s when I have to put some thought into what I’m doing. Something is different, but I want the outcome to be the same as usual. I don’t want to be in an accident, nor do I want to chance a ticket. That’s when I have to take the training I received and assess how to use it. Maybe, I need to slow down a bit more quickly than I’m accustomed to. I have to think about what is generally correct, and how to achieve the present goal: Stopping safely—this time.
By the way, if you’ve ever thought it was OK to be negligent about stopping at a stop sign, and most of us have at one time or another, it’s quite possible you experienced one or more negative consequences—accident/ticket. If you’re negligent often enough, it will come to one or both. That given, I’m pretty sure you adjusted your thinking and got back with the plan.
It’s interesting. There are universal laws that come into play when stopping a car. One of them is that friction from applying the brakes causes the car to stop. The harder I push on the brakes, the more friction is produced, the quicker the car stops.
Develop Good Habits or Risk Disaster
Knowledge: What we think about it: What we do with it. Action follows thought. In this case, it’s bringing the car to a stop—safely.
Our financial safety depends on how we think about money, and therefore, how we manage it. Action follows thought.
I know a guy whose car was repossessed. It was a really nice car, but he lost his job and couldn’t keep making the payments. The truth is, he could have avoided that loss. Long before this occurred, he could have put some thought into financial security, and developed habits that would have allowed him to get through the crisis (accident, if you will).
Losing his job wasn’t his fault. The business he worked for closed rather suddenly. (At least, he hadn’t anticipated it.) He worked there for years and had always made decent money. He figured he’d have a really long, lucrative career, and he hadn’t got around to preparing for an uncertain future. (Believe me, when it comes to finances, the future is always uncertain.) He purchased that car about a year before things fell apart. I think he’d made ten payments. He was on a sixty month plan, so it was going to be quite awhile until it was paid off.
All the time he worked, he’d been making good money, and he chose to live on all of it. That car is just one example of his lifestyle. He always lived to the max (and beyond) what his salary could support. To use a Driver’s Ed analogy, losing his job was not the first unexpected stop sign he’d encountered, but he’d always managed to slide through, seemingly without serious impact, and without considering that there could be a next time. This time, he was broadsided.
Over the years, my friend could have chosen to be more conservative with his money (frugal). Remember, he just hadn’t got around to it. He could have saved money, specifically, for this car—any car he wanted—and waited to purchase it until he had cash to pay for it. He could have had enough money in a savings account (an emergency fund) to get him through hard times, like unemployment. He chose to live on the edge, to not save, to not budget. He thought of money as a means to accessorize the present. His actions followed suit.
There are universal laws governing money management. Two of them are:
1) If you spend everything you have, you’re broke.
2) You need a budget.
There’s a third law that applies to finances and everything else: Things change. (I touched on that above.)
“Broke” does not just mean “being out of money.” It means you have no money to deal with normal living expenses. “Broke” is an emergency in itself and, while you’re “Broke,” there’s that multitude of exigencies that life presents—whether you are broke or not.
Many people counter with, “I’ll be OK. I have credit.” In a financial emergency, especially, if you’re “Broke,” trying to get by on credit just makes things worse. You may be able to live for a time on credit, or handle a short-term emergency, but credit runs out, and you’re not just “Broke.” You’re in “Debit.” So—no employment, no money coming in, no credit, and you’re facing legal consequences. Now, let’s say (eventually—because things can change for the better), you find new employment. That’s great! Money will start coming in. You’ll start to get your life back. But … How long will you have to pay for having used credit? How long will paying for it affect your monthly disposable income? After going through the ordeal, surely you thoughts on money management have changed, and you want to develop a financial safety net. It may be a challenge. Well, really, no “may” about it, it will be. You’ll have to deal with the damage and change the habit of living on all you get. But … If you don’t want to be “Broke,” you need to spend less than you earn. It’s that simple—really.
"If you don't want to be Broke, you need to spend less than you earn. It's that simple"
Whether you are dealing with the effects of a catastrophe, or want to do all you can to avoid one (or perhaps, another one):
Do Something Now…Budget
A budget is a plan for your money. When properly used, a budget allows you to have the money for the things you need, things that are important to you, and the unexpected things that life gives you. It’ an ongoing process, but it’s worth the effort.
I use a budget, and I save money (spend less than I earn) every payday. I want to be able to handle life’s emergencies and normal living without using credit. I, also, want to pursue things that are important and pleasurable to me. Using a budget, I’m able to do all within reason. Of course, in order to meet my financial needs and desires, it’s taken time. Honestly, there will not come a time when I’ll be able to say, “It’s done.” There’s no way everything could have been accomplished at once or permanently. It requires discipline—practice—but over time, practice becomes routine rather than arduous.
Your budget should include a spending plan—which is, essentially, an extension of your savings plan. After all, one of the major reasons to save is to have sufficient money to spend. Your spending plan will tell you what bills need to be paid and when. You can save for them incrementally every payday. This eliminates the element of surprise and the need to “scrounge” when something comes due. (You don’t want to be in the habit of forgetting bills—getting behind. It leads to late fees and spending more money than you need to.)
My budget has a spending plan. Every payday I go through my routine. I allot my money to categories that need funding. Then, looking at my spending plan, I can see what I need to pay out. Every payday, I use this same practice. I get the most of my dollar by doing this. It eliminates a lot of the unexpected, rather like driving home on a familiar route—I know where the stop signs are, so I can anticipate them (know when I’ll need to have money ready).
If you habitually spend all your money, or worse (live on credit), you are on a collision course with disaster. You won’t have sufficient funds to get through an emergency. Not only that, you will never be able to achieve any long-term dreams.
Now is the time to change this dangerous habit. Learn good money management principles: Budgeting is a major one. Put them into practice. When they become routine, you won’t have to put too much thought—worry—into the usual pattern of your finances, and you’ll be prepared to minimize the effect of circumstances that tend to be distressing.
About my friend who lost his car: He did learn better money management skills, but it took him awhile to get the most out of them. Because he had no savings, he immediately had to find (or manufacture) jobs that let him “just get through.” Those jobs limited the time available to hunt better ones. It took him about three years to find something that approached his previous pay level. During those years he lived on much lower paying jobs and credit. Unfortunately, he had to deal problems in that area also, and if both his parents and in-laws hadn’t helped him, he would have lost his house. I think one of the biggest tragedies is that ten years out of college and with families of their own, his two kids are still paying on student loans.
Because of how we think about money, we are where we are, financially. If you are in financial trouble, if you are not satisfied, because you have nothing to fall back on, change the way you think about money management. Develop a plan for budgeting. Follow it. Action, and therefore, consequences (good or bad) follow thought.
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