Financial Stalactites - One Drop at a Time

When I was younger I enjoyed spelunking. If you aren't familiar with the term it is the hobby of exploring caves. One of my favorite things to find is a stalactite which is created by the constant dripping of mineral rich water. There are some expenses that I like to compare to stalactites because while they seem small their ever constant dripping adds up over time. Eating out once a day is a good example. Assume you spend $5.00 each day, you work 5 days a week, 48 weeks a year for 40 years. $5.00 x 5 x 48 x 40 = $48,000. Now that may not seem like such a big deal, especially since it happens over 40 years.

Now imagine that same amount of money invested over 40 years making a 5% annual rate of return. Would you care to guess how much money you would have at the end? $164,892.00. Go crazy and dream that you could make a 10% rate of return and you would have $632,907.00.  (For an easy online calculator click here.)

Now if you don't think this applies to you because you don't eat out every day I challenge you to find the financial stalactites in your life? My wife realized that hers was a cell phone. She had an iPhone and by the time we paid for the talk time, texting and data plan it was $43 a month. That breaks down to almost $10 a week which if invested could be from $65,957.00 to $253,163.00. (Stay tuned for a future article about how to save money on cell phone bills.)

As you look for these wealth killers remember that the average person makes over $1,000,000 in their 40 years of working (35,000 per year * 40 years = $1,400,000). The challenge is that the money doesn't get delivered in one lump sum, it trickles in drop by drop. What are you doing with your drops?

Happy Savings,
Jimmy

P.S. Feel free to post your thoughts and comments on the blog.

New Year - A Time for Changes

I am writing this while riding on my exercise bicycle. It is the new year and I love to do new things. Exercising is one of those things I know I should do more of but I always have one excuse or another for not doing it. I have a bad spinal disc so walking or running are not options for me but I do love bicycle riding. However, I feel guilty for spending 30 minutes or more but not accomplishing anything else at the same time. A few years ago I saw a video article about a wealthy millionaire investor who had a custom exercise bike designed for him so that he could manage his stock portfolio from several large computer screens that were next to his exercise bike. After seeing that I always wanted to be able to do the same thing. Since I work at a desk job I thought it would be amazing to be able to exercise while I work!

So this week I decided I now had all the pieces necessary to be able to exercise while I work at the computer. I have a wireless keyboard and mouse, a dedicated office space (so kids don't mess with stuff), a recumbent exercise bike (purchased a few years ago and not used nearly enough). All I needed to do was to hook up some sort of shelf that could hold the keyboard and mouse and a way to move a computer monitor close enough that I could use it. So I spent a few hours with my trusty power tools and built myself a solution. As you can see it is not elegant or made from fancy materials but it works. I am actually typing this blog entry while sweating to my favorite workout tunes!

What does this have to do with finances you may ask? Several things.

1. Don't be afraid of ugly. For many years my wife and I lived in a beautiful new home but since it was so beautiful I didn't do any modifications to the house because I didn't want to ruin the brand new house look. Now that we live in a 40 year old home that needs some work I am not afraid to cut out some sheet rock or anything else to make it work better for my wife and I. Budgets are like an old house, they are not perfect and as such you will constantly be making adjustments to them. Don't be afraid if they are "ugly" to others, the important thing is that it works for you. Our family budget is kind of ugly, we use a combination of mint.com and a spreadsheet with a ton of worksheets. It may look ugly to some but it works for us.
2. There isn't necessarily one right way to make a budget. I have learned that while there are building codes and laws regarding remodeling and construction there is still a lot up to the builder as to how they accomplish the goal. Some people struggle with perfection or doing it the "right" way. Finances do have certain laws and codes, for example, you can't spend more than you earn for too long before it catches up to you. But there is much that is up to you such as how do you create your budget (paper, spreadsheet, computer program or web site), how often you meet to discuss the budget with you spouse, etc. Your budget and your method of budgeting will never be the same as someone else's so find what works for you.
3. You will screw something up. While building my shelf I had saved a piece of wood for one purpose then accidentally screwed it to something else. Yes I measured twice and cut once but most of the time life still happens. Your budget will be the same, no matter how much you plan something will sneak up and surprise you. Don't be upset, just move with the punches. Like anything else, the more you use it the better you get at it. 
4. Time and experience - “That which we persist in doing becomes easier for us to do; not that the nature of the thing itself is changed, but that our power to do is increased” Ralph Waldo Emerson. I think this is the hardest one for people to understand. Properly managing our finances takes time and effort. Not only do we spend time reviewing our budget and making sure we are on track but we also research methods for saving and investing money and looking at our lives and predicting what some upcoming expenses may be that we hadn't planned for. I don't know of many successful businesses that don't have at least one person who spends time managing the finances.

So this year decide to make a change. Be in charge of your finances.