Are you about done with conventional personal finance advice? Follow this 7 Step Guideline and you can’t help but run into that pot of gold at the end of the rainbow, kind of thing? Hmmm, Lucky Charms may have been magically delicous, but that pot of gold? Not so much.
You see, the same old tired wisdom keeps getting recycled and put out there as the magical solution. The problem is that even though this advice may in fact contain some gold nuggets, we have heard the same old same old so many times we don’t even pay attention to it anymore. Kind of like the folks that live in the city and don’t even hear the sound of traffic anymore, it’s just outside noise.
Yet when it comes to your personal finances, you cannot afford to let yourself fall into the trap of missing out on what could in fact turn your whole life around. With that in mind, let’s go about this from a different perspective.
You may have heard the old saying attributed to Benjamin Franklin where a penny saved is a penny earned. Inflation and the current value of our U.S. dollar aside, this 200 plus year old quip actually contains some pretty profound wisdom. Take a look at the hidden truth about the money you spend.
Once you spend that dollar, (okay for modern times let’s say that $20 bill that’s burning a hole in your pocket), it’s gone. In other words, unless you happen to be the one in a million who wins the Lotto this weekend, you will have to work to earn another $20. But that’s just the tip of the iceberg. Without going all fancy with finance high math, you don’t even to think very hard to realize that $20 you just spent will not earn you any more money in the next 25 years or so. For example, if you had taken that $20 and applied it to one of those credit card bills, it’s almost the same as earning that 17.99% interest you are being charged.
Have you ever taken the time to contemplate the real cost of the things you buy? Seriously, this exercise can be eye-opening. Here’s an easy example that you are most likely doing every week anyway. Suppose you head down to the corner and fill up your car with gas. Let’s suppose you have a relatively newer car and you get a decent miles per gallon so you only have to fill up once a week. You watch as the numbers spin on the meter, $20, $26, $37, $48, $68. Ouch, so $68 to fill up your tank. Now, how many hours did you have to work to just fill up your tank just to go to work? You see how it works?
It Gets Worse
Continuing with the example above. So you whip it out (your credit card that is) and pay the $68.39 for the full tank of gas. Are you thinking that’s the end of the story? Oh no. Where did that $68 come from? If it came from the money you earn from your job, you actually had to earn more than the $68. For easy math, suppose you earn $34.00 an hour. So, on the face of it you might think you worked two hours to fill up your tank.
Not so much. The reality is you also had to work another bit of time, say thirty to forty-five minutes to pay the taxes (pulled out before you get your money, by the way). In other words, you gave up almost 3 hours of your life for a tank of gas. Was that a good choice? Maybe, maybe not. The real point to get is that ALL of the money you spend works this way. You want to take a step back and think about how long you have to work for the money you are spending before you reach for your wallet.
Another round for the boys? Well sure, just remember, you may end up working a day and a half for that one time expense. The point is NOT to become a Scrooge, it’s just to bring a sense of reality into your spending.
What about You?
Now you have it. Now it’s your turn. Have you considered whether or not the trades you are making are really worth it?