My work has officially started. I’ve missed the sweet smell of a paper paycheck (can’t do direct deposit for the first paycheck.. darn), depositing it into the bank, and watching my cash balance go up. I’m planning on practicing absolute discipline with spending money and tracking my money’s whereabouts every second every day. Ok, not that dramatic but something close to those lines.
The thing I love about money is that I control it and money does not complain about that. I get to decide if I keep my money or if it goes to someone else. The flip side is that money has power over me. Money dictates whether I get to eat the next day and whether I stay healthy with regular doctor visits. Therefore, I keep a very close eye to where it makes its trips through monitoring my spending.
When I make a spending decision to decide where my money gets to go and who it gets to go to, I make sure that I am purchasing something that is necessary to live another day. I quickly realized that my peers do not think the same way. I thought my peer’s spending habits would change now that they are out of college but it has gotten worse.
My friends weren’t shy about spending money. Their justification to every spending habit is “I will get paid next week and the cover charge to this bar is only $5.” I don’t think they realize how much $5 is but besides that, why they choose to spend has been an interesting topic that’s been on my mind for a long time.
Many people spend money on things based on affordability and ability to pay it off, not based on necessity or need. This is why credit card companies are able to make money. They understand that it’s human psychology to prioritize ability to pay more than the necessity of the object they are purchasing.
The minimum monthly payment required from credit card companies is between $25 and $35. Credit card companies understand that most consumers look more at the minimum payment than the overall payment. “I get to have a $10,000 Rolex watch and by only paying $25 a month for it? Sign me up!” This is the wrong way to make a purchasing decision.
The fine print is that credit card charge double digit interest rates. The fact that credit card holders would have to pay an interest rate of 20+% misses their thoughts when they are purchasing that Rolex and most don’t realize they are paying a high multiple of that purchase price when they only pay the minimum. I’m all for credit cards, but not for credit cards used the wrong way.
Why do I Save So Much?
Back when I was a child, when I asked my mother to help me buy something, I would get a short but effective response of “no”. I tried to justify that it only cost $5 for a pack of Yu Gi Oh cards, but the answer still came out to be a simple “no.” Even though it was simple, that powerful word gave me the unconscious start to my aggressive saving habits.
She wasn’t the best model in terms of spending because she would save whenever she could but she would spend a lot as well, especially when it came to clothes. She would buy me designer clothes and highly branded clothes. She loved saving pennies but she also loved spending dollars. However, I did pick up her aggressive penny-pinching habits and focus more on saving and not spending.
Areas I’m Working on
I look for ways to use anywhere I could, even the little stuff such as electricity, water, and gas. The EIA states that the average home owner uses around 900 kWH per month. I am projected to use ~200 kWH this month and that is on the very high end of the estimate. It’s also been 3 weeks since I put gas into my car. My car is a very fuel efficient car and so my monthly gas budget is about 25 dollars a month and rarely use it. I always look for ways to save.
When it comes to saving, I am forecasted to save over half of my pretax money into my 401k and HSA accounts. I will be living on close to $8,750 after tax from now until 12/31/2016. This will pay for my rent, food, insurance, and miscellaneous expenses. It doesn’t feel that much because rent alone costs $700 a month plus insurance will cost $250+ a month. However, this is my goal that I’m making public and I will be making regular updates on this site to show my progress and whether I am failing or succeeding.
Why Pay a Premium and Use More Money?
People use money to make their lives more convenient. Instead of taking the bus or riding the bike, we buy cars or use Uber. I actually know someone in college who used Uber every day because she didn’t want to walk 10 minutes to class. So she took Uber from her apartment to campus then from campus to her apartment. Every. Single. Day. Did she also drink coffee every day? Not unless it’s a premium priced coffee such as Starbucks. Those obviously taste better even though it’s a commodity.
High priced bean vs low priced bean
Another friend in college also didn’t believe in saving. Her mentality was “save for what?”. I kept quiet because I wasn’t going to judge her lifestyle but I will answer her question on this post.
- If I wanted to start a business in the future that required a 5 figure investment, I wouldn’t want to run the risk of banks saying no.
- If I had a huge medical emergency bill and my insurance company says they can’t cover me because of a technicality, I would be at least able to cover a significant portion of it.
- If I wanted to take an extravagant vacation in the future, I would be able to take it without any guilt because I meticulously saved my money.
If you don’t save money, you will always be under the mercy of another to cover you. Here’s one thing I learned from dealing with people. Convincing someone to do something for you is HARD. Why make your life harder than it has to be? Take the easy way out and ease your stress by saving your money.
Convenience is great. I love paying for convenience if I feel like it’s worth it. I drive my car every day to work. I love using my phone because it provides a convenient service that I enjoy. However, when you’re deciding between convenience and money, it’s better to err on the side of money because convenience can be expensive. It’s better when your default position is to save and lose convenience than for you to have convenience and lose savings.
How do you decide when to spend money? Are you willing to pay a premium for convenience and other amenities? Let me know in the comments below!
My goal is to enable your success in personal finance so that you can realize the American dream. The first step is starting today!
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