Last month I had a reader ask how he could save on a small income and I posted it for Free Money Finance readers to answer -- and boy did they! I got some GREAT responses that I just HAD to share with you all. Here's part three of those responses -- starting with thought on spending less than you earn:
I was an enlisted member in the USAF and didn't earn much for several years, but I always managed to put money away. The big thing to remember is how much you have going out vs. how much is coming in, and not to live beyond your means.
The big thing for me was to separate my needs from wants. When my friends were buying rims and stereo systems for their cars, I was maxing out a Roth IRA. The same thing goes for clothes, entertainment, etc. Have nice clothes for work, a dependable car, a have a good time, but don't go overboard.
The ideas for earning side income were also good. Keep your eyes open for opportunities! :)
And finally, the advice ended with the long (17 suggestions!) but well-thought-out and valuable comment that follows:
1) Housing is the biggest cost; share your rental house/apartment with one or more roommates. The money they contribute to your housing costs can be saved for an emergency fund. My husband and I did this while we were graduate students and while there is a decrease in privacy, you don't have to allocate such a large portion of your income to housing costs.
2) Buy everything second hand. Everything. Furniture, clothes, shoes, cooking utensils. Thrift stores are utilized more heavily now than when we were students but it is still possible to get stuff that you can wear, use and sit on. Try and get family to give you their old, extra pieces of furniture for free. Don't bother to buy any nice furniture until you have assets. Don't buy too much furniture until you have your own house; you'll just end up selling the stuff or lugging it all to the new place.
3) Save 25% of your income. It can be done. You won't be going to bars on a regular basis but if you learn to cook, BBQ and have pot luck social affairs, you can decrease your entertainment and food costs which if I remember my student days, were fairly high. Start small, and move up to the 25% amount. Place this money in your RRSP (retirement funds) or another account that you cannot access easily and forget about it. Pretend it doesn't exist and you won't be tempted to pillage it. I did this while I was a twenty something and the money I saved in the forgotten account became my 50% downpayment on my first house.
4) Don't follow the crowd. Don't spend like the crowd and don't take on debt like the crowd. The only debt that makes sense is a house mortgage but only after you have a 25% downpayment, are committed to living in the house buying area for a decade and that you aggressively pay off within ten years. Debt is a waste of your income and should be viewed as EVIL. The current practice of taking on debt to fuel investment is sustainable only if the current bubble market in real estate persists and you are able to off load a hefty house mortgage onto someone else in the future at a profit. Otherwise, I don't see houses as investments: they are simply a place to live in and a liability if you don't have cash funds available to pay them off fast.
5) Don't shop for recreation. You just accumulate stuff. It is far more useful to shop for continuing education or other assets such as a rental property. Spend the money you would on Walmart junk on more education. Or travel experiences. Or real life experiences. Buying stuff is not a useful way to invest your income.
6) To build up a cash position quickly, get a second job for a certain period of time. Work in retail or sales on weekends. Just get some money in and stash it.
7) It is not that difficult to save money if you are determined. If you don't have the determination, no one can give you the right set of tips to get you to save. You have to decide to "just do it".
8) Don't drive a brand new car. If you can get a decent second hand car and check insurance rates. Try to use the public transit system as much as you can.
9) Don't think deprivation; think control. By saving money, you are being wise with your resources. Every time you look around and see your cohorts flushing money down the toilet, think assets not depreciating product purchases. It is possible to have a happy life without buying a lot of stuff, working yourself to death and following the scripts of our upbringing. Money is important but it isn't as important as life.
10) We use our credit card (one) to buy all our groceries, non-food purchases and gasoline for our car; we get PC points back that we use for decreasing our food bill. But we don't carry a balance. We have money in the bank before we charge anything. With large purchases (over $200) we wait for at least a month before we decided to buy and only when we have researched the product. We only buy a product if we can't get it secondhand or if it is a computer related product. We never carry a credit card balance and paying interest is simply a poor use of our limited resources. For high end product purchases - such as a new home purchase, take your time before you buy. We waited five years. Yes, we paid more for our house but we got the house we wanted in the area we wanted. Could we have bought a starter house and then resold and made money and bought the second house? Yes. But we were saddled with debt from student loans, a rental house mortgage and my husband was just starting out in his second career. We waited. We paid off our debt. We deferred gratification. I did not make money in the real estate market, but I still have my house. And all our other debts are paid off. Financially, we are in a stronger position than if we had gone the first house, second house route.
11) I follow our expenses monthly tracking them with our credit card statements. If expenses appear to be going too high, I cut back. Savings must always be much higher than expenses.
12) I sweat the small stuff. I make my coffee at home. I pack lunches. I don't buy the kids everything they want and I do say "NO". I show our boys the expenses for maintaining our household and the income flow in. They learn that there is money available for whatever they desire but we choose not to spend like our friends. Sad for them, but good for our net worth.
13) Take a small portion of savings and do get maximal returns on that cash: go for a trip, buy the computer, have a family reunion. Saving money to leave to the kids is not in our plan. Our plan is to be self reliant, independent and ensure that our kids have the education, skills and mindset to be high earners and not dependent on their parents. I think it makes good sense for people to get the maximal return for their work time. If you aren't earning as much as you can in the work you are enjoying then it is always a good policy to review this state of affairs and try to maximize earnings in your field. Still can't get more money? Learn new skills that will bring more money in. Low earners, as we learned from our own experiences, just do not have a chance to accumulate assets. Their earnings go towards survival requirements. Thus, we will be encouraging our kids to go into high income generating areas that they have an interest in.
14) Change jobs judiciously to increase your income and skills. Try and get good benefits. Be brave. Members of our family took risks and started businesses. They are well rewarded for their efforts. If your first career doesn't provide you with a good standard of living and skill set - change it. Go back to school and do it over again. Just don't debt yourself into slavery. There are tons of scholarships, grants and if you cannot get an education freely in this manner - work and build up an education reserve so you can pay for the second career education. And if your employer can pay for you to do this - do it.
15) Pay off your student loans. We did it as soon as we could. I don't see the advantage of carrying a student loan just for the tax value. Far better to use the money you pay for student loan payments to pay your mortgage off quickly.
16) Simple entertainments save you money: walk, hike, bike, no T.V., get together with friends at homes, hobbies like quilting, writing, reading or low cost trips to local parks and lakes to get away from it all.
17) Basically, it boils down to this: live like a student on your early earnings, save, invest and spend judiciously and later on, when you really, really want to do something such as go off to Nepal to write a book on mystics you will have the money, the mental discipline and the simple lifestyle to make your dreams truth. If more people lived like this, i.e. lived their dreams, I don't think we would all be malling away our very brief lives as we currently are doing. We would be living our lives.