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Friday, July 3rd, 2015


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Do You Earn, Spend, Earn? Free Yourself.

This article is part of our 52 week journey through Bill’s latest book, The Graduate’s Guide to Life and Money. Each week, a full excerpt from his book will be presented from beginning to end. To get your copy of his book, visit www.TheGraduatesGuide.com.

Who are You, Really?

You have to assess who you are in order to make the best decision according to your circumstances, and at the same time, understand that your personality may influence you strongly towards or away from risk. Once you understand your personality and how it relates to money, you will be better prepared to handle the one person who is most likely to talk you out into spending the most amount of money irrationally in your whole life—You!

Don’t Get Caught in the Trap!

Most people, when left to their own devices, just follow along with whatever society is telling them to do. After all, it’s much easier to be a follower, right? As long as you are doing whatever everyone else is doing, nothing bad can happen. There is strength in numbers as the saying goes. Well, there is another saying also, “Misery loves company.” Society would have you believe you should go ahead and buy, you can always pay later. But those same people will be right there harassing you for repayment when life turns ugly. What can happen to you though? You’re young, you’re smart, you have a college degree.

Another famous saying is, “Nothing is certain except death and taxes.” One more thing is certain. Life. Life happens to everyone. For some people life happens when they are really young. For others it does not happen until they are really old. For the rest of us it happens right here in the middle. What do I mean by life happens? Businesses go bankrupt, unions become corrupt, employers move jobs overseas, spouses get sick, children sometimes come unexpectedly. And these are just some of the major examples. In our daily lives we have cars that blow head gaskets just a few months after we pay them off, dishwashers that leak all over the floor, pipes that burst, roofs that need replaced and other unexpected and unbudgeted events.

You may have heard of “Keeping up with the Joneses.” A mentor of mine once said, “ in our society, we spend money we don’t have to buy things we don’t need to impress people we don’t know.” He also said our neighbors “just live at a higher level of poverty.” When your buddy gets a new sports car, or your neighbor adds a hot tub to their new deck, don’t think that you need to buy those things just to keep up. Don’t feel as though you are somehow not as successful just because you don’t have as many play toys as those around you. For one thing, it is natural to only compare ourselves to those who have more, and never to those who have less.

It’s also natural to accumulate jealousy from a number of different people. If the neighbor on the left gets a pool and the neighbor on the right gets a new car, we feel compelled to keep up with both neighbors, not just one. In some instances, the neighbors simply make a lot more money than you. Your goal is to simply spend less than you make, so maybe you can’t afford what they can. It’s certainly not worth risking your future retirement over a few nice things that will depreciate over time.

If buying more expensive “stuff” is important to you, then you need to look for ways to increase your income through career advancement, additional income sources, or starting your own business. However, before you begin those pursuits, please think about why it is you feel so compelled to have more stuff. A thriving business sector in our society is in mini storage units. Do you know why they are doing so well? Because we buy so much stuff we don’t need and don’t have room for, that we pay somebody to let us keep stuff we spent too much money on that we obviously don’t need, otherwise we wouldn’t be storing it in the first place. We are a consumer driven society. There is a lot of money out there, and you will make a lot of it in your lifetime. Other people want to get as much of your money as they can over the next 60+ years. At least now you know the rules of the game you are playing.

Money is a reflection of how we handle deeper issues in our lives. The way we handle money is simply an outward reflection on how we work internally. That is why insurance companies have begun to look at our credit history to determine what type of risk we are as a driver. Let me give you an example. A person who is generally disorganized, and does not care about their appearance, and does not respect their employer will be much more likely to have a low credit score than the type of person that cleans their dishes each night before going to bed, and always shows up to work on time and gives their best at the office.

You might think these two sets of traits are unrelated, but they can be used as indicators of one another. If your finances are in disarray, your life is probably in disarray also. I’m not talking about how much money you have. You can have millions of dollars and still be totally screwed up. Just look at Britney Spears. Her credit report might say she is okay because she has people that are paid to take care of her bills, but I’ll guarantee you she loses more money each year through waste and fraud than many of us will earn over a lifetime.

When you start taking care of your life, your career, and your family, you will gradually begin to also take care of your finances. Paying your bills on time becomes more important, saving money for your future becomes essential, and putting money away for retirement becomes mandatory.


Live Your Life to its Fullest

For many of us our parents just went along with whatever society told them they should do. They had a thirty-year mortgage that lasted thirty years. They bought an expensive car and spent four or five years paying it off, so that they could get another expensive car and start over. They relied on their pension benefits from work or from social security for their retirement. They were really the first generation fully integrated into “buy now, pay later.” For many of our parents they are still paying. They are still stretching out their mortgage. They are refinancing their credit cards into their mortgage, only to charge up their credit balances again.

Ask your parents how many times they bought things just to impress other people, and how many times they wish that they had not done so. What you will find is that you have the opportunity to make smart money choices earlier in your life than your parents ever did, because you are armed with the information that is hidden in our society. Information that even some of the financial experts don’t realize, or don’t pay any attention to.

You now understand how debt works, how investing and savings work, how financial products and services work. Add that to everything you learned already in order to get your degree and you are on your way. You will be watching your investments and savings grow over the next ten years. Soon you will be able to see your money work for you as you accumulate enough wealth and start earning more money from your investments than from your job. That’s when you know you have finally made it. That is a real status symbol of success. Not some fancy car that has to be leased because you can’t really afford it in the first place.

You will be buying your cars with cash some day, and you will be able to buy a really nice car. And when you retire early, you can rest assured as your neighbors continue to work for many more years, all so they could borrow a newer car for a few years or have the biggest house or the nicest golf clubs or shoes and handbags whose names elicit curbside conversations in New York. I’m not saying don’t have any fun with your money now. I’m saying don’t have fun with tomorrow’s money today, because tomorrow, you’ll going to wish it were still today.

Bill Pratt is a former credit card executive turned student-advocate. He is the author of Extra Credit: The 7 Things Every College Student Needs to Know About Credit Debt & Ca$h and The Graduate’s Guide to Life and Money. Bill speaks at colleges to educate and entertain students about real-life issues in money, leadership, and success. His goal is to help students succeed personally and financially so they can improve the lives of those around them. You can learn more at www.ExtraCreditBook.com or www.TheGraduatesGuide.com

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One Response to Do You Earn, Spend, Earn? Free Yourself.

  1. Alex says:

    I agree in a sense that you should live within your means and purchase things you can actually afford. However, this issue is a double edge sword. Well at least the not spending until retirement part. What’s to say you don’t even make it to retirement? What if you have all these assets that will give you a great life once your 55 but until then you are pinching pennies? I don’t think you should be afraid to have some pleasures in life that include spending some money responsibly.

    Personally I think the whole credit issue is kind of messed up. Today day people make them seem like a trap and that you should not use them. Most college and high school kids think their debit card is a credit card. Credit cards can be great if you can use them properly. In my opinion, if you’re young and have little liabilities you should pretty much be using a credit card for every purchase you make. Things like gas, food, rent and other periodic expenses should be a no brainer. Why should you do this? Plenty of reasons. First of all, using a credit card properly (well from the consumer side of things) helps you build credit. Second it is a very safe choice. Not only do you not have to carry around serious cash, which could be stolen in a moments notice, but using a credit card can track your purchases. Especially in today’s internet age where you basically have a real time balance on your account. Heck, you really don’t even have to balance a check book anymore. A lot of cards offer plans to protect your card form false purchases via a stolen cards. Try getting that kind of protection with cash. Also using a credit card can provide a record of where you have been and where you may potentially be. God forbid something were to happen to you, using your credit card could safe your life or at least help find you. Bottom line, if your young and have few liabilities, use a credit card. Set a monthly limit for yourself and make sure to pay the balance off each month. Do it right, and people are letting you borrow safe money for free! You might actually get some money out of it with points and what not.

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