by Ryan on October 18, 2007
My financial success story began when I was young. I don’t have an exact date or age; all I remember was that I was fascinated with big numbers. This fascination with big numbers taught me something very important early in my life. I learned that if I didn’t spend all my money, the number attached to my savings would be bigger. And I liked that! To this day, spending less than I earn has been the biggest contributor to my financial success (so far anyway!).
Here is my financial story and how spending within my means helped me grow financially:
Learning to use money. My basic financial education began when I was young. My parents gave my brothers and I a small allowance for doing our chores and sometimes for good grades on our report cards. My allowance gave me choices on how to spend my money. I could buy things for myself, buy gifts, pay Boy Scouts dues, or save. Even though my allowance was small, I often found ways to do all of these. As I mentioned, I liked big numbers, especially when my savings account was getting larger!
As a high schooler, I was expected to use my part time job money to pay for gas, dates, gifts, etc. Because I had a finite amount of money each paycheck, I had to learn how to be judicious with my funds.
Uh-oh! Credit Cards! When I was 18, I went against my father’s wishes and I got a credit card. He didn’t think I could handle it, and I thought I needed a credit card to build credit. Thankfully, I had the restraint to use my credit card as a tool. I made one big purchase for $300 and paid it off over a couple months to begin building my credit. I could have written a check for the balance, but I considered the interest charges part of doing business.
After I joined the USAF, I was stationed in the UK. I bought a car there, and though I could have paid cash, I took out a $2000 loan. Why? Again, because I wanted to build credit. I paid the car off quickly and continued to build my credit. To this day I have not taken out any loan that I could not pay off in full at the time I took it. I have only taken loans for convenience or to build credit. (My wife and I have a mortgage, but she purchased the house before we were married). All of this has helped me build an excellent credit rating.
Investing. Because I learned early in life to live within my means, I had extra money. I overheard my Dad talk about his 401(k) and IRAs before, but I had no knowledge of what they were, or how mutual funds or other investments worked. I learned a little about investing and went to a financial planner based on a friend’s recommendation. There I learned brokers don’t always act in your best interest. No, I wasn’t cheated, but I found out I could invest more cheaply on my own with fewer fees and expenses.
Eventually, I learned more about investing and began to invest in IRAs, the Thrift Savings Plan, and taxable funds. Paying yourself first is one of the easiest methods to learn how to spend less than you earn. You won’t spend it if you never see it!
But I never deprived myself. I live within my means, but I have a lot of toys – electronics, instruments, movies, CDs, etc. I have also owned a motorcycle, taken many nice trips, and I prefer to buy quality items even if I spend more. But here is the difference between myself and some people who are in debt: I rarely make an expensive purchase on a whim, I research to find the best deal for my money, and I take my time to decide if the item is something I will actually use.
I am not perfect and I am not rich… but I consider myself financially successful. Why do I think that? Because every month I don’t worry about paying my bills. I know I have enough money in the bank to pay them in full. I don’t worry about bouncing checks. In fact, I haven’t balanced a checkbook in years. I use my rewards credit card and transfer money to pay it off. I rarely write a check and I always make sure I have enough in my account first. I also consider myself to be financially successful because my wife and I were recently able to take a substantial salary reduction because our quality of life is more important to us than money. We could not have afforded to do that if we did not live within our means.
I am financially successful because I spend less than I earn. I know it is an easy concept, but one that is not easily mastered. Thankfully, I learned this at an early age, and still continue to do this. I hope you can learn to do it too. It’s a beautiful feeling. 
Note: For more great financial success stories, check out the Get Rich Slowly Forums.
by Ryan on October 17, 2007
Dealing with a drastic reduction of income can be difficult. I know. My wife recently changed jobs, and in doing so we took a reduction in pay of almost $20,000 per year after taxes. Yes, that is a lot of money, but thankfully we planned this over a year in advance and were prepared for it.
Unfortunately, most people can’t afford to take a large pay cut, especially when it is unexpected. That is why I am writing this article – to help others if they fall into a similar situation, whether it is planned or not.
Here are the steps I recommend to those with a drastic decrease in income:
Don’t Panic – analyze your new financial situation: Panicking will not solve the problem. Instead, ask yourself how much money are you now bringing in? Did any new expenses arise, such as loss of employer provided housing, food, or health care? Are you saving money now with lower commuting, eating out, or day care costs?
Update your budget based on your new situation: If your new income still covers your expenses, you might be just fine. If it does not cover your expenses, or is extremely close, you will need to look for ways to trim expenses from your budget. Here are some tips to help you out:
- Separate wants from needs: You need shelter, food, health insurance, and some form of transportation. You do not need a mansion, steak and lobster for dinner, or a $400/mo. vehicle payment. Before you buy something, ask yourself if you really need it, or if you want it?
- Cut expenses and save money: Use coupons, buy items on sale, change your thermostat setting to save energy costs, combine trips to save gas, reuse or repair items instead of buying new, buy generic items when appropriate, and consider canceling subscriptions such as Netflix, cable, and magazines. There are many other ways to trim costs from your budget.
- Talk to your creditors: Your creditors may grant you an extension on certain loans, or possibly reduce your interest rates. It never hurts to ask.
Look for other sources of income: If you need to take a lower paying job, or even one or more part time jobs to make ends meet – do it. You can also earn money by selling unused items on eBay or Craigslist. At this point, earning some money is better than earning none at all. Other sources of help:
- Network: Talk to family, friends, former coworkers, etc. They may know of current job openings or may be willing to act as a reference if you apply for another job. Your family and friends may also know of other ways that can help you in your new situation.
- Update Your Resume and begin a job search: Make sure your resume reflects your current skills and your past and current duties. You can look for a job through your network, local temp agencies, job fairs, classified ads, and on-line job search engines such as Career Builder, Yahoo Jobs, Monster, etc. Job searching is almost a full-time job, so be patient and put forth your best effort.
- Tap your emergency fund if necessary: Everyone needs an emergency fund, and a sudden decrease in income is a good reason why. Keep in mind, an emergency fund should be used for emergencies, and not to maintain a standard of living above your new means. Food, housing, medical insurance, or new brakes for your car qualify as expenses you should use your emergency fund on. Cable, or a new Prada purse – no.
Look to others for help: There is no shame in asking for help when you need it. Again, your network of family and friends may be able to help you through this time. Beyond friends and family, there are other places you can go:
- Social services: You may be eligible for unemployment, welfare, food stamps, Medicaid, or other services. These may not be enough to live on, but they should help you bridge the gap. The rules for many of these social services vary by state, so I recommend checking with your state for more details.
- Visit your church: Many churches have food pantries and other services to help people through hard times. Your local church leaders will welcome you with open arms.
Keep your spirits up: Dealing with unemployment or a decrease in income can be very stressful. I have gone through a period of unemployment, and it is not easy. Thankfully I had wonderful family and friends who were supportive. Again, this is where reaching out to your network and church can make all the difference in the world.
If you are not able to prepare in advance for a drastic drop in income, I hope this guide will help you to better deal with your new situation.
by Ryan on October 16, 2007
The Carnival of Money Stories is up at Free Money Finance. This Carnival features money stories from personal finance bloggers. The carnival has quite a few great articles. Hopefully you can learn a few things from them.
Here are some of the articles that stood out:
Thanks for hosting the carnival FMF!
In related news, the Festival of Frugality #96 has been posted to Fire Finance! My recent article, How to Vacation Without Breaking the Bank, was included. Along with my article, there were many other great money saving tips in this week’s edition.
The articles that particularly got my attention are:
Don’t forget to check out some of the other great articles at the Festival of Frugality! Thanks for hosting the Festival of Frugality Fire Finance!
by Ryan on October 16, 2007
My wife and I just took a large salary decrease – to the tune of about $20,000 per year after taxes. We did this voluntarily, because for us, our quality of life was more important than the money we were earning. We were able to afford this big pay cut because a year ago we gave ourselves a “voluntary pay cut.” We knew we would be earning less money within the year and we committed ourselves to spending much less than we were earning. Doing this allowed us to focus our “extra” money toward preparing for this salary decrease.
Personal finance blogger No Credit Needed recently asked his readers:
What would happen if your boss came into your office tomorrow morning, and told you that your salary had been reduced by 15%? Furthermore, what if he told you that a new law had been passed and you couldn’t change jobs for one full year – and you couldn’t borrow any money, for any reason?
What would you do?
This was very similar to the situation we faced, only our boss didn’t tell us we had a reduction in pay coming, we made this decision based on our desire to spend more time together as a couple.
Some people would have a very difficult time adjusting to a 15% (or other) decrease in pay, but many would find a way to be successful. NCN asked this question to get people thinking about how much they spend vs. how much they really need to spend. Spending less than you earn is one of the best financial moves you can make.
The benefits of giving yourself a voluntary pay cut:
- Change Your Financial Habits. If money is there, most people will spend it. Once you get in the habit of having less to spend, you will spend less. From personal experience, it is much easier to make this transition gradually instead of being forced to make this transition, but it can still be done.
- Financial Cushion. If a decrease in pay actually occurs and becomes permanent, you will have already been living on less money. Hopefully, there will not be much of an adjustment necessary to meet your financial obligations.
- Extra Money. At the end of the month there is something left over. You can use this money to build an emergency fund, reduce debt, invest, or save for a large purchase such as a new(er) car, a vacation, college tuition, etc. Before my wife and I took this voluntary pay cut, we used our “extra” money to get rid of all consumer debt. After the debt was gone we invested our “extra” monthly income.
- Peace of mind. You won’t worry from month to month about whether or not you have enough money to pay the bills, or if your checks will clear. You already know the answer is yes. And that is a beautiful feeling.
- Options. When you pay down most or all of your bills and have a sizable emergency fund, you feel less trapped in your current job. My wife and I were able to choose employment that offered us better hours and less stress because we were able to afford to do it. We weren’t forced to stay in an unpleasant work environment because we needed the money.
Sounds great doesn’t it? Now, how do you do it?
How to live on less than you earn:
- Analyze Current Expenses: Track your expenditures for a month or two to determine where you are spending money. You might be surprised at how quickly those “inexpensive” lunches and other things add up.
- Cut unnecessary expenses. You know where your money is going – now cut out those little things that you don’t need to spend money on. Chances are, there are many things you are spending money on that you don’t need.
- Make a budget and stick to it. Once you know you income and expenses and have cut unnecessary expenses, you can now make a budget. To live on less than you earn, don’t use 100% of your income as your starting pay. Instead, pick another number such as 85% or 90%. Base your budget from this income, stick to it, and you will be on your way to living on less than your income.
- Automate. Place bills and savings on automatic bill pay. Placing all your bills in one location makes it easier to organize them and see how much you are spending. This equals less worry and fewer hassles. Another benefit: you will not be tempted to spend your investment or debt repayment money on something frivolous if you never touch it.
- Be creative. Save money by bringing your lunch to work, carpooling, making gifts instead of buying gifts, or other creative methods. There are hundreds of ways to be more frugal and save money.
Giving ourselves a voluntary pay cut was one of the best financial moves my wife and I have made as a married couple. Doing so gave us to the opportunity to spend more time together, plan for family get-togethers and holidays, and enjoy ourselves more. My wife and I were only able to do this because we gave ourselves a voluntary pay cut over a year ago and planned this reduction in income. And you know what? We don’t feel as though we have deprived ourselves in any way. In fact, we have less stress and are happier.
Note: This article was inspired by the article: Give Yourself a (Pretend) Paycut, which was featured on personal finance blog No Credit Needed. This article is part of a series NCN is currently writing – 33 Days and 33 Ways to Save Money and Reduce Debt. There is a lot of other great information in this series!
by Ryan on October 15, 2007
Two great carnivals are up today – the Carnival of Personal Finance #122, and the Carnival of Debt Reduction #109.
The Carnival of Personal Finance was hosted at Mighty Bargain Hunter. MBH did a great job organizing this week’s carnival in a Dr. Suess style rhyme. It ’s a lot of fun to read. In addition to including my post – The Playground Economy, some other posts stood out to me including:
The Carnival of Debt reduction was held at Debt-Free Revolution. My recent article, Which Type of Credit Card User Are You?, was included. I also recommend reading these standout articles:
Thanks for hosting these great carnivals!!
