Downsizing To Save Hundreds Per Month & Reduce Needed Income.

Yep, moving again. Granted, this move isn’t as far as my last few – California to New Mexico and then New Mexico to Colorado – but in a week or so I will be moving exactly 1/2 of a block. After much angst and discussion, I decided that I wanted to stay in Colorado for a while but that I also wanted to cut out a big chunk of my expenses, which in turn means I don’t need to bring home as much money as I do currently to pay the bills. So I will be moving from a 2 bedroom/2 bathroom apartment to a 1 bedroom/1 bathroom apartment and going from 1300 square feet to 756 square feet. I have known for a while now that I had way more space than I needed, so this will be a nice move to the “right” size place for me. But even better than that is the amount of cash I will be saving!

This move is going to save me $400 per month in rent alone. That’s $4800 over the course of the next year! My heating and cooling costs should be less as well because my square footage is being cut in half, meaning I should save at least a little there also. That $400 a month is about $550 in income before taxes, so that’s $6,600 less per year that I would HAVE to make just to stay at my current level. This should potentially free up some of my time for traveling, starting new ventures, and spending more time in the great outdoors rather than sitting behind this here desk. $400 less per month in expenses is nothing to sneeze at, but that’s not all I will be saving starting next week…

I also sold my Subaru Forester the other day. The payment on the Subaru was $300 per month, so I no longer have that monthly expense either. That’s a savings of $700 per month starting immediately! And that’s also another $430 or so of income I no longer HAVE to have each month (before taxes). I have bought and paid for with cash a used car that is smaller and gets better mileage, so I will still have transportation, but I will no longer have that big monthly car payment.

From just these two changes alone, I have eliminated $700 per month in monthly expenses or about $1,000 in necessary pre-tax income. That’s a huge difference in how much money I need to live and how much I spend each and every month. In adjusting my monthly budget with these new numbers, it appears (and I bet this is subject to change) that I can now comfortably live on less than $2000 per month, including a few meals out and still putting money away for a rainy day. Of course, I will still try to save as much as possible, but cutting my expenses down by this much could open worlds of opportunity to me to try other things.

I write this not to just “tell” you what is going on, but to encourage you to take a look at your expenses, income, and budget – and see if you can make any changes that could really benefit you. Sometimes we just accept things “as they are” without really digging any deeper, and being comfortable with downsizing and wanting other opportunities gave me the courage to move to a smaller apartment and sell my expensive car.


5 Dangerous Misconceptions People Have About Money.

Few subjects are as distorted by myths, half-truths and falsehoods as money. While most people know enough to get through their lives, Mark Twain described much shoddy thinking about money when he famously said:

“It ain’t so much what we know that gets us into trouble. It’s what we know that just ain’t so.”

There are many reasons for the widespread state of confusion about money, but a major problem is simple lack of education.

As critics have pointed out over the years, most public schools do not teach personal finance or even basic concepts pertaining to money. Most colleges offer such courses, but they are typically electives, not requirements for the entire student body. Consequently, America has reached a point where, as Forbes reveals in its January 2010 article “America’s Financial Illiteracy”, only 50% of respondents could correctly answer two of three basic questions about money. Even worse, only 18% could correctly answer all three. Others have argued that our financial illiteracy helps fuel speculative manias (like the tech and housing bubbles of the 2000’s.)

Below, we’ll attempt to set the record straight on five of the biggest misconceptions people have about money.

Being Rich Means Earning a High Income


The word “rich”, in common parlance, often refers to someone who earns a high yearly income. Doctors, lawyers and professional athletes, for example, are frequently thought of as being rich. And indeed, many of them are. However, it is important to know that a high income alone does not necessarily make someone rich. In reality, whether you are wealthy or not is a reflection of your net worth, not merely your income. About.com defines your net worth as “…the grand total of all your assets minus your liabilities.” Essentially, it’s a measure of your overall, accumulated wealth, which includes income, savings, investments, business and/or home equity.

Using net worth as the criteria, a plumber earning $50,000 per year while judiciously saving and investing most of it can, in short time, be richer in real terms than a lawyer earning $150,000 per year while spending most of it. This implies that there are actually two ways to get rich: offense (making more money), and defense (saving or keeping costs down.) If your goal is to get rich, or even if not, you would do well to begin thinking in terms of net worth rather than just yearly income.

Raises at Work Are Earned by Seniority


Some of the most dangerous misconceptions about money involve salaries and wages. Foremost among these is the belief that getting a raise at work is the result of doing the same job for longer and longer. Under this way of thinking, simply hanging on in your current job will eventually induce your employer to pay you more. But in his classic book on management, Dan Kennedy writes that “…getting a certain job done has only so much value, and that value does not increase by the number of years a person does it or that person’s need for income.” Those seeking higher incomes, Kennedy advises, ought instead to look for ways to add more value in the job they are doing. Only when a clear line can be drawn from your performance to higher sales or profits can an employer justify paying you more.

While some companies do base raises partially on seniority, it is generally unwise to rely on that. You cannot control whether your boss rewards seniority, but if you can prove that your actions demonstrably boost the company’s bottom line, you can confidently request a raise or seek one elsewhere. The key lesson to absorb here is that raises (generally speaking) come from results, not time spent working.

Money & Time Are Correlated


A similar but separate misconception about money is that it is correlated with time. Most people, when they think about making money, instinctively think of a job. At most jobs, you are paid for each hour that you work on the premises, under managerial supervision. Over the years, this has led many of us believe that you must trade time for money. In fact, this is just one of several ways to make money. Venture capitalist Paul Graham wrote a simple but thought-provoking essay about this called How to Make Wealth. His main point is that fundamentally, money is made by doing something people want. All a company (and a job) is, under that way of thinking, is a collection of people working together to do or create things people want. “Your contribution may be indirect”, Graham writes, but that is all your current employer does.

The lesson is that you can do something people want, independently of any job. You could start a business, for example, that uses automated technology to sell a product that you create. Rather than being paid hourly, you are paid by the sale, which can occur whether you are actively working at the moment or not. Another way to make money is by investing in the stock or bond market, which (you hope) produces a return on your money without any involvement by you – simply because you invested it.

Stock Markets & Banks Are “Too Risky”


Some people – especially since the recession hit – actually store their savings at home because they believe the stock market and even banks are too risky. Instead, they think, it’s smarter and safer to keep their money nearby, where it can be watched. Unfortunately, this thinking is wrong for a few reasons. First, nothing is categorically “too risky.” The question always needs to be: risky compared to what? In this case, the risk of keeping your savings under your mattress (so to speak) is that it will be eaten up by inflation, which is a “…rise in the general level of prices of goods and services in an economy” according to Wikipedia. Worst of all, inflation occurs at about 3%-4% every year, which means the money sitting under your mattress becomes 3%-4% more worthless annually. Putting your money in a savings account (which might pay 1% interest) is a way to protect your money partially from inflation. Investing in the stock market is a way to potentially earn more than the rate of inflation. If you can make 8% on your money in the stock market, for instance, your after-inflation return is 4%.

Granted, there is the risk of bank failure or stock market recessions, but losing purchasing power every year by not doing either is a certainty. Additionally, your bank accounts are federally insured up to $250,000 in case the bank did fail.

Renting is a Waste of Money

(dave mcmt)

Would-be apartment renters are often chastised by their home-owning friends or family that renting is a waste of money. After all, the argument goes, with a mortgage, you are building equity in the home. With an apartment, you are paying rent that you wont ever see again. It’s pretty convincing, and in some cases it’s certainly true. But it is not true in all cases, and there are two main reasons. The first is property taxes, which can be staggering and which virtually all homeowners pay. (Renters generally do not pay property taxes.) The second is a concept called opportunity cost, which NetMBA defines as “…the value of the next best choice that one gives up when making a decision.” Basically, if the amount you save by renting earns you a higher return (such as by building a business or investing in the stock market) than the equity you could be building in a home, it’s not a waste of money to rent.

Indeed, if we are talking from a strictly economic point of view, it would then be a waste of money to own. If you are undecided as to whether you should rent or buy, the first step (economically speaking) is to determine the opportunity cost of doing one versus the other. Only once you have done this will it be clear whether renting is a waste of money or the correct economic decision.

Guest post from Chris Bennett, the marketing director for Creditloan.com. Established in 1998, Creditloan.com has been providing insight, advice and news on a range of financial topics, such as personal loans, debt consolidation and credit cards. In addition to the thousands of articles, you will also find reputable service providers and tools that will help you with all of your budgeting needs.


Taking The Necessary Steps To Be More Financially Responsible.

We all know how important being financially responsible is..you owe it to yourself, your family, and your kids. There is nothing like the feeling of being financially secure; knowing you are going to be OK if the SHTF (and it will!). That is why I have worked so hard to get all of my money working for me and all of my ducks in a row…for the time that “what if” might happen. That all being said, I thought I would assemble a list of what I thought were the most important steps for you to take starting right now so that you can be more financially secure:

1. Save, save, save. Every time you get paid, you should be setting aside at least 10% of your paycheck for yourself. Pay yourself first, they say, and I cannot agree more. What is the sense in working if every dollar you make is going right back out the door? Make it automatic; have the bank automatically take 10% of every check and put it in a savings account. After a year of this, you will not believe how much it adds up to, and after a while, you won’t even miss it.

2. Stick to a budget of some sort. I do not budget down to the penny, but I do monitor my spending and watch my accounts on a weekly basis. It is what works for me. If you know you can afford X amount for food every month, stick to that plan. If you can afford to go out to eat twice a month, make sure it is only twice! Budgeting to the penny can be frustrating and time-consuming, but making a general budget is much easier on the brain and will still keep your spending in check.

3. Pay off all your debts! If you have credit card debt, make this the first step. There are a few methods out there to get that debt down, but the most effective for me was the snowball method, where you concentrate paying down one card at the time, and after each card is paid off, move that payment over to the next card along with the minimum you were paying on it. Eventually your debt will be gone. What a feeling that is!

4. Get organized. There is no way you can track all of your expenses and income if you have no idea where anything is! I have a great filing system set up that lets me access my info on any account at any time very quickly online. Also, you could use an online account that combines all of your accounts onto one page, so you only have to look at one site. Mint and Yodlee are great sites for this.

5. Set goals for yourself. What is the use of money if you do not have any goals for it? Whether it be a new car, moving to a better place, starting a business, or paying for your child’s education, you need to set goals. What better way to stick with a budget than knowing that you are doing it for a reason?

These 5 steps I think are the most important ways to becoming financially responsible. Sure, there are many things that could be added to this list, but in general, these are the steps I followed in order to get to the place I am in today. Start today – tomorrow is too late to start planning!


Must-See Documentary: Maxed Out.

This weekend I sat down to find something to stream from Netflix and came across the documentary Maxed Out, which is about credit card debt and how it has affected every day Americans. While painful to watch, it just confirmed my thoughts about debt – it’s a pain in the ass. From small town families who can no longer make the minimum payments due to job loss, all the way up to the Federal Government, it seems that while debt has become the standard way of life, it has some very ugly side effects. The film, while concentrating on the credit card industry for much of it, does also touch on real estate greed, how some people feel they “deserve” all the stuff they cannot afford, and how predatory lenders and check cashing schemes can make anyone’s debt situation even worse than it already is.


The documentary also talks to Dave Ramsey, who is a big-time anti-debt talk show host and author. While I disagree with some of the things he preaches, his overall message is good and helps many people get out of debt. Thank goodness there are people like him (who average folks can relate to) helping out those in need. So no – it’s not all gloom and doom out there. But the film does a great job of showing just how our indebted financial system works in this country and just who is holding the purse strings. My advice? See this movie ASAP and get out of debt. If you carry debt, you are enslaved to it and it may be holding you back from living the kind of life you want.


Money Quote Friday – Hard Work Edition.

Opportunities are usually disguised as hard work, so most people don’t recognize them.” – Ann Landers

Hope you guys have a fantastic weekend – I know I am enjoying the Spring weather here in Colorado!

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