Posts filed under 'Saving'
Scott Berkun, a project management and product design consultant, writes about the importance of being frugal; not with money, but with our attention. He explains in his essay, Attention and Sex, that we determine the value of something by deciding how much attention we devote to it.
Law of lost attention: The value of something you spend attention on is dependent on how much attention you spend on it.
I feel this if very applicable to personal finance, entrepreneurship, or anything we wish to improve or succeed at. If financial independence is a high priority, are we devoting enough of our attention to our finances so that goal becomes a reality? We can ask that question about any ambition we have to determine if it is really valuable to us.
This is an excellent lesson for me because the time I spend on the important things in my life is often at the mercy of several less important things I try jamming into my day. Learning to focus my attention on the worthwhile will bring me the success I seek. In our day and age of mult-tasking, we divide our attention over many trivial things, and focus less on the things that will bring satisfaction and meaning.
“There isn’t a single great work in the history of civilization, no novel, symphony, film, or song that was completed as a 1/5th time-slice between e-mail, IM, cellphones and television.”
Sources: Attention and Sex
March 24th, 2006
This year marks the 300th birthday of United States Founding Father Ben Franklin, who was born on January 17, 1706. A printer, statesman, and inventor, he was famous among other things for sayings such as “Time is money” and “A penny saved is twopence clear” (”A penny saved is a penny earned”).
He loved Boston, where he was born, and Philadelphia, where he worked and lived, so when he died in 1790 he left each city a sum of $4,400 (£1000) with the condition it remain invested for 200 years. When the cities cashed out the investment in 1990, each sum was worth more than $7 million, a testament to the power of compound interest. (These investments weathered the Great Depression!)
Get out of debt as soon as possible, so compound interest isn’t working against you, then start getting compound interest on your side. The sooner you save, the more you’ll have in the end.
Sources: Vanguard, Wikipedia
March 20th, 2006
I read a post recently at MyMoneyBlog entitled “How do YOU budget?” I wasn’t sure how to answer that question. What does the word “budget” mean? I think for most people it means pre-determining how much money can be spent on each expense category per month; for example, $100 for food, $30 for entertainment, $75 for gas, etc. This type of budgeting is often compared to losing weight by dieting because, like dieting, it’s tedious and requires a lot of motivation to stick to it. It seems to focus too much on the “means” rather than the “end”, and that’s not satisfying. This is not the way I budget.
Another way to budget – the way I prefer – is to compare all your monthly expenses (out-goes) to your monthly income (in-goes) with the goal of being cash flow positive each month. This type of budgeting seems to be more effective because it eliminates the tedium of budgeting for each specific category. To stay consistent with the “losing-weight” comparison earlier, I would compare this second type of budgeting to playing sports as a way to lose weight and become healthier. Unlike dieting, playing a sport is enjoyable to most people, but can still achieve the same result (weight loss). The out-goes vs. in-goes method of budgeting, like sports, focuses mostly on the end result – win or lose. To simply see each month if I’ve won (out-goes < in-goes) or lost (out-goes > in-goes) is much more motivating and easier to stick to than the first method. Budgeting for each individual expense category becomes unnecessary because the motivation to “win” encourages me to manage all my finances responsibly.
Which type of budgeting do you prefer?
March 14th, 2006
One of the principles that seems to be common across many personal finance books is to “pay yourself first”. That is, you should set aside a specific percentage of your income for saving, investing, or debt reduction. It should be a constant percentage that you stick to each month. For example, if you decide to set aside 10% each month to “pay yourself first”, — whether to savings, investment, or debt reduction — you have to simply learn to live off of the other 90%. Contrast that with the attitude “I’ll save whatever is left at the end of the month.” Nothing is ever left at the end of the month!
If you don’t make paying yourself a priority, it won’t happen. (By the way, buying yourself a new pair of jeans or taking a trip is not paying yourself.) If you *do* make paying yourself a priority, you’ll learn to live on less and the income you set aside can work in your favor.
If paying yourself first is such an important principle, why shouldn’t your personal finance program encourage you to do it?
February 13th, 2006
Next Posts