Last month I talked about Make as Much Money as You Can. This month let's dive into Step 2 - Do Not Spend More Than You Earn. The adage "live within your means" comes to mind here. To “live within your means” simply means to spend less on your lifestyle than you generate in earnings. Your “means” is your income. To live within that threshold, spend less than you earn. This requires self-control. A person does physical exercise to improve his muscular physique. A person does quizzes to improve his mental sharpness. Similarly, one has to exercise his financial muscle, live frugally and save money. Here are some tips to help you save money every month:
I am not saying, "Don't have good material things in life." God blesses us with life and all the abundance in life, we should enjoy having things that make us feel good, better and happy. What I am saying is live within your means. Be content with what you have. Do aim for higher, but spend what you can comfortably afford. Warren Buffett, arguably one of the greatest investors of our time, is a well-known billionaire. He has great wealth, but he lives frugally. He bought his house in 1958 for US$31,500, the equivalent of US$285,000 today, and he still lives in the same house. In a BBC documentary, his daughter said he bought cars that he could get at reduced prices, like those that were hail-damaged. The cars were fixed and didn’t look hail-damaged and became a regular part of the Buffett lifestyle. “You’ve got to understand, he keeps cars until I tell him, ‘This is getting embarrassing — time for a new car,'” said his daughter in the documentary. Buffett also told Forbes in 2014 about his car-buying habits — or lack thereof. “The truth is, I only drive about 3,500 miles a year so I will buy a new car very infrequently,” he said. Remember this the next you’re in the market for a car: Since cars tend to depreciate quickly, it can be better for your finances if you try to keep your well-working car for as long as possible — or at least opt to buy a used car instead of new. (source: Business Insider) Buffett can easily afford to live like these Joneses, one hundred times over. But he doesn't choose to. So what are your reasons for keeping up with Joneses? 5. Resist the marketing and advertising bombardment When you visit websites, listen to the radio, watch YouTube or TV, you will see or hear a lot of advertisements. This is the business model of media business, they get most of their revenue from advertisers. These advertisers advertise their products and services, to make you aware of them, and trying to get you to action.While it is good to be aware of products, services and specials out there, you need to learn to be a smart consumer. Ask yourself:
If at least three of your answers to the questions above are “Yes", then buy. If not, you may want to reconsider your buying decision. 6. Resist the temptation of buy now and pay later. Many retailers give you easy terms, you can pay for something over 6, 12, 24 or even 36 months. I describe these as financial shackles. These easy terms come with interest and charges. For the financial astute, these are poison. For the financial illiterate, these are gospel. I would like to give a couple of real life advertisements to illustrate (by the way, I have nothing against these companies used in the examples): Exhibit 1: Incredible Connection, HP Envy 13 X360 RYZEN 7 4700U 8GB 512GB 2-1 laptop. Retail price R21,999. You can pay as little as R1,375 (small print: pm (per month) x 24 months, Rate 23.75%, credit price R33,000) The keyword here is "as little as". This means this is the minimum you would pay, and possible you could pay more than this. Just simple arithmetic, R33,000 over R21,999 means you pay 50% more for the same laptop, for the luxury of "buy now, pay later". Exhibit 2: Dial-A-Bed, Simmons Healthsmart Plush Queen Mattress Standard Length, Retail price R26,599 (on special). Or pay on credit "from" R2,522 per month. When you click on the link for credit, 12 monthly repayments (including interest charged at 20.50%* per year and excluding Mobicred's set-up and service fees). The keyword here is "from". This means this is the minimum you would pay, and you will definitely pay more than this due to additional fees and charges. Just simple arithmetic, R30,264 (R2,522*12) over R26,599 means you pay 14% more for the same mattress, for the luxury of "buy now, pay later". This is before fees and charges. The only exception to this is when you buy a house or a car. For most people, we don't have the money upfront to buy a house or a car, which cost a lot of money. It will then make sense to take out a home loan or vehicle finance to afford it. For people that understand money and interest, they make it. For people that don't understand money and interest, they pay it. 7. Save for the thing(s) you need or want. f you need or want something, save up for it. Use a separate savings bank account for this purpose. Save money every month, and transfer the savings to this savings account. See it grow. Accumulate. When you have saved up the money, use that money to buy that thing. If you do so, when you buy that thing you want with the money you have saved up, it gives you a sense of achievement and satisfaction. So, what is your story? Write to us to share with us.
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Last time I outlined what financial planning is. Let us have some correct ideas about money before we dive deeper into financial planning. 1. Money will come and go. We did not bring money into this world, and we will not take money with us into the next world. Money is for us to use in this world. Do not put your hope in wealth. The Chinese have a saying, "a storm may arise from a clear sky; men's fortunes may change overnight." Something unexpected may happen at any time. Money can leave us overnight. The Bible tells us, "Cast but a glance at riches, and they are gone, for they surely sprout wings and fly off to the sky like an eagle." Also says, "... nor to put their hope in wealth, which is so uncertain, but to put their hope in God, who richly provides us with everything for our enjoyment." 2. Money is the medium of exchange for products or services. In ancient times, before the currency was invented, people bartered, exchanging goods for goods. Later, for the convenience of transactions, the currency was invented. In ancient times, shells, gold and silver, and copper coins were used. Today, banknotes and credit cards are used. Knowing this, you will use money instead of just saving money for no purpose. 3. Money is limited. Some people are addicted to money, and even sacrifice their lives for money. But money is not omnipotent. Think about the following: Money can buy food, but can't buy life Money can buy drugs, but can't buy health Money can buy skin care products, but can't buy youth Money can buy a diamond ring, but can't buy a happy marriage. Money should be our servant for us to use. We don't want to be slaves to money and live for money. The Bible tells us not to love money. 4. Make good use of money. We should use money in a legitimate and positive way, not to waste, squander, or use money for illegal things. Let us use a negative example: Some people enter and leave the casinos, gambling with their money, trying their luck in making a big profit, or turning defeat into victory. However, gambling becomes addiction, messing up life and ruining families. At the end a person is faced with a broken home, financial ruin and divorce. 5. Live within your means. Under normal circumstances, our expenditure should not exceed our income and wealth, so as not to lead to debts and financial pressure. Don't abuse credit cards for impulsive shopping. Except for home loans and vehicle finance, which enable big-ticket items such as house and car, we should avoid loans, especially high-interest loans. In the future I will write about the preparation and analysis of personal or household financial statements and the management of income and expenditure, to help you live within your means. Next time, I will share with you the financial planning process. |
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January 2025
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