I must have at least a 100 acquaintances and about 10 solid friends. But for the sake of easy numbers, let's just say that I associate with a 100 folks to some degree, in some way, in my life--be it daily or not. I can honestly say that about 90 out of the hundred live paycheck to paycheck. Not long ago, I too was in the same scenario and I wondered how it would be possible for me to get my bi-weekly pay on a Friday and within five days, I'm left to stretch my last $80 for the next nine days. Quite honestly, I was dumbfounded when I wondered how I spent most of my money? I do know that a majority of it went toward bills (creditors always gotta be paid) but then I wondered where the other (smaller) chunk went. As silly as this sounds, I tried writing down my spending habits and it helped me budget myself a little better but it was only a week or 10 days before I just said "to hell with this!" and I went back to the same cycle that led me to poverty to begin with. But I did create a cycle, a habit, that allowed me to increase my net worth with very little effort.
Years of seeing myself struggle and live check to check made me obsessed with the realization that there had to be a way to break the cycle and start all over from scratch. Imagine if you could turn your life over to a clean sheet of paper and say, "ok, I'm gonna start over now and make this right 'cause I can't live like this anymore." Would you take the chance to do it? Sure, most people would. Since I always was into reading articles, books, blogs, and even financial TV shows, I learned one thing that all the experts like Robert Kiyosaki, David Bach, Phil Town, Loral Langemeier, and the rest were obsessed with preaching in their books: acquire and build assets! So I took into consideration that I did not have any special skills, I wasn't done with college, I had an ok job with a crappy salary and bills that were piled higher than Erykah Badu's turban! So what was I to do? I decided to take David Bach's simple strategy of making it automatic. Seriously speaking, I did it in the easiest step by step way that I knew how. I signed up and enrolled in my company's 401K plan and opted to put just 4% of my pay into the 401K as that was all that I could afford. Well, my company matches up to 4% of my pay so I figured that if I was going to be matched dollar for dollar by my company, how could I go wrong? So for example, if my salary was just $20,000 a year and my 4% amounted to just $800 for a whole year, I realized that an extra $800 was being matched by my employer and at the end of the year, I'd have $800 more added to the fund and my total would be $1600. Big deal, right? Well, I used the one skill that I did have (the ability to use my brain and do a little research from the comfort of my own home via the computer) and allocated that 401K money into 5 different funds for the sake of not putting all of my eggs in one basket. When I realized the power of compounding interest, it really intrigued me. One of the greatest minds of all time, Albert Einstein, referred to the power of compounding interest as the 8th wonder of the world. Just to give you an example of what he meant, realize this: Francis I of France paid $20,000 for Leonardo da Vinci's painting in 1540. Instead, had he invested the same $20,000 in a 6% after-tax investment, his estate would be worth $1,000,000,000,000,000,000 or $1 quadrillion (a million billion) by 1964.
I do realize that we all don't have 424 years in us to realize such gains but trust me when I say that the power of compounding interest is staggering. Just take a look at credit card companies and you'll see just how well they're doing. Don't believe me? Ok, how many credit card companies do you know that have declared bankruptcy? What was that? Zero? Exactly!!!!!!! But please trust me when I say that compounding interest is nothing to take lightly. Anyone researching the world's 2nd richest man, Warren Buffet, will come to know that Mr. Buffet feels the same way.
It's shameful to admit what my next course of action was. I noticed that my pockets were emptier regardless of how much of a raise I was getting, regardless of how many promotions I received, and even how many jobs I worked (I worked part time, full time, and finished college by going full time for 3 years). Along the way, I realized that my waist went from a very slim 29 to a 32 inch waist. It then dawned on me that eating those slices of pizza, value meals from fast food places, and pricey beverages was really taking a toll on my appearance and health. I decided to just bring lunch from home to work and just save myself a simple 5 bucks from spending on lunch but I continued to allow myself $3 for breakfast and $7 for dinner. What I did was open up a new checking account with another bank and a no minimum balance savings account. Everytime I saw that I saved some money on lunch, I just made a telephone transfer from my checking to savings account right over the phone. The transfers took all but 2 minutes and after about 2 weeks, it occured to me that I had about $50+ to spend on clothes, shoes, or better yet, invest in some way. I decided to continue with my plan and just do the lunch thing and allow myself to spend on breakfast and dinner. But this time, I set a goal to open up a trading account with the minimum $500 to start. It didn't matter that my friends told me that I needed a lot of money to make money. I was so happy after one month, that I decided to slash my breakfast budget altogether and bring cereal from home to work and add that $3 breakfast budget to my current savings plan. I was able to open the trading account with my $500 and then added another $500 to it and turn that $1000 into almost $1500. Now for those of you who say, "big deal, $1500 isn't much," I ask you this: would you pick up $500 from the floor if you found it as you were walking and no one was there to claim it? I see that $500 as free money as I didn't work too hard for that $500, I made that $1000 work for me and earn me $500 on top of my $1000. A 50% return in a year is not bad at all!
If I haven't put anyone into an irreversable coma by this point, then my last bit of advice will be very brief and to the point. I stopped all of my credit cards and worked with a debt consolidation company to lower my credit card interest rates. The debt consolidators have saved me a lot of money by cutting my credit card rates from an average of 20% to 9%. Although 9% is a bit high, I'll take that over the 20% any day!
The best weapon to use against bad debt and the paycheck to paycheck lifestyle is knowledge and a little bit of innovation. If you have neither, not to worry, some books that can certainly help are authored by David Bach (Automatic Millionaires series), Robert Kiyosaki (Rich Dad series), and Phil Town (Rule #1 investing). Knowledge is power and the internet and bookstores allow that knowledge to be as inexpensive as the air we breathe. Be sure to take advantage of it. I hope that I have helped at least one person with my blog. I welcome any and all comments. Please feel free to post! This was my very first blog and I hope to continue to help in any way that I can.
-Perry
Thursday, November 8, 2007
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