Monday, February 29, 2016

Stuff: 10 Tips for Downsizing Your Money Life

Art and money at an ATM in Yerevan, Armenia.

Recently, Lifehacker published an article, Go On a Regular Purge to Downsize Your Life and Save Money.

I like the take on this article, which is more about purging expenses than stuff. The author references an article in a website new to me, MoneyNing, titled How to Downsize Your Lifestyle.

Both articles are frustratingly fluffy, but there's enough yeast in them to get one thinking.

Here are my own tips

1. Get into the right frame of mind.

Set concrete financial goals:
  • "I want to have x dollars in the bank by x month and year."
  • "I want to be debt-free by x month and year." 

Your desired future guides your financial goals. You don't need to have it all figured out today, but do you have a rough idea of what you want your life to be like in the next five, 10, 20, 40, 60 years?

Accept that different phases of your life cost more than others. Depending on your age, family status, and so on, there is an ebb and flow of income outflows, such as student loans, setting up a home, daycare for young children, extra-curricular activities for school-aged children, etc. Think over the long haul (the roughed-in vision of your future), but always with an eye on living within your means today so you can achieve the goals for the future.

2. Challenge what you think you know.

Question common "truths."

For example, do you HAVE to take on student loans to get an undergraduate degree? Hell, no. But to avoid this, you will have to buck the crowd mentality. For example, maybe you'll take six years to graduate instead of four, so you can work your way through school. Maybe you'll get a relatively inexpensive associate's degree at your local community college and then go to a four-year university as a junior so you can get your bachelor's there. None of your friends are doing this? Who gives a fuck? You'll graduate without a student loan that will chain you down for 10+ years. ...

The same strategy works for other rites of passage. Does it make economic sense for everyone to buy a house? No, it doesn't. The common wisdom about a house being a better financial investment than renting isn't always correct.

3. Do follow some rules of thumb

Set aside a fixed percentage of all income for short-term and long-term savings. ANYTHING is better than nothing. The point is to make it a life-long habit to pay into your future with every paycheck or windfall.

Set these two financial goals regardless of your vision of a desired future:
  • A fund for sudden expenses, such as a car repair, appliance/equipment replacement, doctor's bill. 
  • Six to nine months of replacement income in case you lose your income stream. 

4. The road to hell: "just 10 bucks a month"

If I can get something I want for just 10 bucks a month, that sounds good to me. Unfortunately, there are lots of things that are only 10 bucks a month, and if I add them up, I'm suddenly at 100 bucks a month and, damn, how did that happen?

Go through your list of small monthly expenses. Purge the ones you use only occasionally. Peer closely at the ones you use frequently - can you get the same or similar service or product another way, for free or at a lower cost?

5. The other road to hell: Bundling and Friends

Bundling our services is seductive, as is joining a service that our friends and family members belong to, because we can (we're told) save money.

But these can suck your money in cunning ways:
  • You include an unnecessary service into the mix because it's "only" 10 bucks a month or because you "need" to add this service to get the bundling benefit of a reduced cost on a service you do want or need.
  • You voluntarily chain yourself to the bundle because you agree to a contract that will cost you a penalty if you leave before the end of the contract period. 
  • You voluntarily chain yourself to the bundle because it's such a hassle to un-bundle if you want to try one service that another provider offers, while keeping the other services in your bundle. 
It's almost always best for me in the long run to keep a diversified portfolio when it comes to phone, internet, and cable services. Therefore, I do not bundle. (Nor do I ever use an email account that is tied to an internet service provider because that is just another chain that keeps me tied to a particular vendor.)

If you bundle, look at your contract's expiration date. Research no-contract phone services. Check the numbers on your family plan to see if you can do better by each person using a stand-alone, pay-as-you-go plan. Do you still need cable or satellite TV? Do you still need a land line? Come up with a bundling exit strategy.

6. Beware of automatic withdrawals

On one hand, using automatic withdrawals for paying our bills is liberating. No more paper! No more forgetting to pay the bill! No more late due notices! Better credit rating!

On the other hand, we continue to pay for goods and services we no longer want or need because:
  • We signed up for automatic renewal of a subscription and - DAMN! - we missed the deadline to cancel and now we're stuck with another year of something we don't want, don't need, or can't afford. I have done this myself.
  • It's a pain in the ass to contact the company to stop the automatic withdrawal, so we just tell ourselves we'll get around to it next month. (Oh, and some companies are notoriously slow at stopping the automatic withdrawals.) Ch-ching. 
Pore over your credit card bills and checking account balances for forgotten or neglected automatic withdrawals. Calendar renewal dates so you can cancel timely.

Dave Ramsey is a popular financial adviser who I admire for what he says about managing our money. (Note: This does not mean I endorse his political, faith, or other personal views.)

Dave Ramsey's tag line is brilliant:

“Live like no one else now so later you can live like no one else.”

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