Money TIP 3: Cut unnecessary expenses

Most of us go by:

Savings = Income - Expenses

But if you have been following along the previous articles in this blog, we put forth the idea of paying yourself first. The equation should be changed to:

Expenses = Income - Savings (your own paycheque to yourself)

What the hell???

You may be asking that question right now, how will I be able to do this? You have your car payment to worry about, you have to do groceries, you have to pay utility bills, put gas in your car, and so much more. Ask yourself the question: What do I really need and use?

By cutting unnecessary expenses, I don't mean to say that you walk to work, starve yourself, and live under a bridge. I meant cutting the expenses that are absolutely unnecessary. Make a list of all the expenses you have and figure out the expenses that are absolutely necessary, such as rent/mortgage payments, transport fares/gasoline, groceries, etc.

Try to figure out the expenses you absolutely don't need. Do you really need to go to Starbuck's(TM) everyday and buy a coffee for $4 or $5? Do you really need to eat out for dinner everyday and spend over $10? Think over your list of expenses and find out what you could cut. It's amazing how easy it is to limit your expenses by these means.

5 Quick tips

1. Curb out-of-home dining expenses. Instead, buy the ingredients at the local grocery store and prepare the meals yourself.
2. Save energy! Saving energy not only helps reduce overall demand on natural resources, it also helps save the environment. Replace incandescent bulbs with fluorescent ones, make sure that your home is sealed for maximum heating/cooling efficiency, and turn off the water tap when not in use.
3. Evaluate your mode of transportation. Do you really need to pay $600 a month on that huge gas-guzzling SUV in your garage? What else do you do with it aside from drive to work? Consider trading it in for a smaller vehicle with low or no monthly payments to save on expenses, as well as conserving fossil fuels.
4. Don't carry loose change! Use your debit/credit cards responsibly instead of carrying cash, and you will notice a big difference with the temptation to use change to buy stuff from vending machines and other stores.
5. Reduce your trips to shopping malls. Shopping malls are temptation heaven. So if you are the type that loves to go shopping for stuff you don't eventually use, steer clear from temptation, steer clear from shopping malls!
   

Money TIP 2: Pay yourself first!

Have you noticed that you live paycheque to paycheque without saving anything up? Chances are, you will spend 90-95% of your current paycheque anyway before your next paycheque without having anything saved up!

Before we continue, I would like to make it clear that I am not contradicting my first article on this blog by saying that you should pay your debt first. It is still imperative that you get yourself out of high-interest debt before you embark on the journey to building wealth.

You are your own employee, so give yourself a paycheque!

This doesn't mean that you will have to spend it all on signature clothes or an expensive dinner out. You should pay yourself for hard work, and tuck the money away in a "rainy day" fund or "retirement" fund that you could easily access in the event that you are out of work either by chance or choice.

A good rule of thumb is to have 10% of your paycheque tucked away before you have a chance to spend it. Have your employer automatically deduct a small amount from your paycheque and put it into a Registered Retirement Savings Plan or another bank that is a little bit harder to access.

If you get paid bi-weekly like the author and have even just $100 deducted every paycheque, you would have saved $2,600 in a year without even feeling it. In addition, if you put into a tax-sheltered investment vehicle, you would save even more in taxes!

Write yourself a cheque

If you like the feeling of holding a cheque in your hands with your name on it, here's a way to experience that satisfaction. Write a cheque from your payroll chequing account into another savings account in a different bank. This is especially helpful if you can't easily access the other bank where you hold your savings account. If you get statements mailed to you, after a while you will be pleasantly surprised with the nice sum of money you have accumulated.

Keep yourself happy and healthy

As with any other business, you need to keep your sole employee happy. Give yourself a nice treat every once in a while (make sure that it is still within your means) and keep yourself healthy.

Quit or reduce your smoking and/or drinking [alcohol]. It will save a good chunk of money as well as improving your overall health.

The bottom line of this section is plain and simple, health is wealth too. After all, a sick employee can't be productive. To keep yourself profitable, stay healthy, and it won't be long before you are wealthy too.

MONEY TIP 1: Pay debt first

by: AX

Ever looked at where all your last paycheque went? If you are the average working-class person with 2 or more credit cards and are just paying off the minimum payment on your card, chances are your payments are just going towards interest charges without touching or barely paying off your principal balance.

Consumer loans

Before you even think of tucking away money for the future in a saving's account, make an effort to pay off ALL your high-interest consumer loans. Banks may pay 2-3% in interest for savings accounts, but most credit cards could charge anywhere from 8%-30% in interest. So if you tuck away $100 in a 3% savings account, you will make $3 in a span of one year.

However, if you pay off an 18% credit card with that same $100, you would have saved yourself $18 in interest in that same span of 1 year. That's a difference of $15! It may sound small, but if you had $10,000 owing on that card and you had the cash on hand and the choice to either tuck it away in the saving's account or pay off the bill, that's easily a $1,500 difference in savings between paying of debt and tucking the money away.

The same thing applies to mortgages and lines of credit. If you have extra cash on hand, consider paying down the principals and save big-time on interest charges.

Consolidation loans

Are you drowning in debt? Stop tiring yourself on that never-ending treadmill of trying to make enough money to service your debt. If your interest rates are especially high, consider getting a consolidation loan.

Most banks are willing to consolidate all your debt into one loan where you could make a regular payment to which will carry a lower interest rate than all the other debt you have. Make sure though that you don't 'charge-up' your credit cards you had the bank just pay off. Most banks, however, conditionally approve the consolidation loans to the other credit card accounts' closure. Even if they don't require you to close out the credit cards, this writer strongly recommends that you do so to remove the temptation of getting into even more debt.

Paying down that principal!

The best way to lower the interest payments, and in turn to lower your overall debt, whether or not you have been able to consolidate your loans to a lower interest rate is to pay that principal down. Make more than the minimum payment regularly, and watch your principal, and your interest payments go down. If you pay down your principal faster, the faster you will achieve freedom from debt.