Don’t Waste Your Money on These 5 Dumb Things

“A penny saved is a penny earned” – Benjamin Franklin

One of the best ways to build good money management habits, is to not waste money on dumb things.  Avoid the following wasteful habits and you can use the extra cash to add to your savings or retirement accounts.

1.   Grande Skinny No Whip Lattes – you will spend close to $5 bucks every time you order a specialty drink at Starbucks. If you order one every day, that is $35 per week or $140 per month!   Instead, have a cup of coffee at home (you can add all of the sugar and whip cream you want!) and save all of that cash.   I’m not saying to never go to Starbucks, but be careful.  Those are expensive drinks.

2.   Ordering Drinks at Restaurants – it is easy to get into the habit of always ordering a coke, sweet tea or other beverage at restaurants.  These drinks usually cost about $2 and they are just sugar water.  Try ordering water instead.

3.   Monthly Bank Charges – once you open up a checking/debit account, banks notoriously charge all sorts of monthly fees if you don’t follow their rules.  They may require minimum monthly balances or charge a fee if you write too many checks or charge fees for not using their ATM machines.  These fees can ALL be avoided.  Some banks have special “Student” accounts that will waive most of the fees.  Others may “link” accounts (to your savings or your parents) to avoid fees.  Some will waive fees if you have “automatic deposits” once a month.  Regardless, spend the time to understand the potential fees and avoid them.   It is literally money in the bank!

4.   Late Fees – one of the dumbest ways to waste money is getting charged a “late fee” for not paying a bill on time.  These fees can run from $25 by paying a credit card late, to substantially more for late rent or mortgage payments.  There is no reason to let this happen.  You can set up auto payments through your bank, put reminders in your phone, or pay them once they arrive in the mail.  In the event you are charged a late fee, CALL the company and ask them to remove it.  Most companies will waive the charge once per year – but you have to call and ask them to waive it.  Not only do you waste your money with late fees, it will also negatively affect your credit score.

5.   Buying Things You Don’t Need – “On Sale” – It is tempting to purchase things “on sale” because they are a “great deal”.  But if you don’t really need them, you are wasting your money.   Stores tempt us all the time with “end of season” sales and “clearance sales”.  I’m all about buying things on sale versus paying full price, but you have to be selective.  Just because “it’s a great deal” doesn’t mean you need to buy it.  Instead of thinking about all the money you saved by “buying it”, think about all the money you saved by “NOT buying it”.


Money Management – What are the Priorities?

“Honor the Lord with your wealth and with the best part of everything you produce. Then he will fill your barns with grain, and your vats will overflow with good wine”     Proverbs 3:9-10

When one start’s making money, what do you do with it?  When you work for someone (or yourself), you will receive a paycheck of some kind on a regular basis.  What are the priorities?  Do you buy the new clothes you’ve had on your list? Do you pay off bills?  What about investing for the future?  How about tithing?

It is tempting to go buy all of the things on your “want” list first.  You have earned it, why not spend it!?  We are bombarded by advertising all the time to buy the latest and greatest items to fit in and be popular.  You need to establish priorities for your money.  What does that mean?

You need to think about dividing your money into 4 portions or buckets.  Each bucket represents where that portion of money will be used.  When people have money problems, it is almost always due to using the buckets of money in the wrong order or priority.

It is wise to use the money with the following acronym – “GIBS”

•Give to God
• Invest in yourself
• Bills
• Spend

Bucket #1 – Give to God – Kingdom Building

God had entrusted each of us with great gifts to allow us to earn money in the first place.  Doesn’t it make sense to give to Him first?  You can decide how much and what part of Kingdom Building you want to support.  It could be to the church, supporting someone on a mission trip, or a variety of charities.

Bucket #2 – Invest in yourself

After you have given to God, the next portion of your money should go to invest in yourself.  First, put money into an account for emergencies so that you are not in a crisis when an emergency occurs (the rule of thumb is to save 3 months of your living expenses).  Put this money into a savings account that pays you interest and is safe (insured).  After you have saved for emergencies, you should invest for retirement (long term savings).  You can open a variety of retirement accounts for this purpose.  Finally, put a portion of your money into investments (stocks, bonds, real estate) that will earn income that you can use on an ongoing basis.

Bucket #3 – Pay your Bills (“Needs”)

The next priority is to pay your bills.  You will have a number of expenses on an ongoing basis (cell phone, rent, car, insurance, gas, food) which need to be paid on time.  Think about these as your living expenses.  These are “needs” instead of “wants”.  We will talk about establishing a budget for your bills later, but your bills need to be paid before you spend money on yourself.

Bucket #4 – Spend on “Wants”

The final bucket of money is to spend on your wants.  Notice, that this is the last priority for your money.  You will always have a long list of things you will want to buy.  Focus on the first three buckets before spending on yourself and you will be off to a great start managing your money.

Compound Interest #2

“Do not save what is left after spending, but spend what is left after saving”.  Warren Buffet

Let’s look at another example of how compounding works. If you take your allowance or a portion of your paycheck and put it in a savings account at a bank every month instead of spending it, the bank will pay you interest every month. If you leave it in the bank and not withdraw (take it out) it for a while, it will grow and compound.

Let’s say you put $100 every month (the “principal”) for one year in a bank, and the bank pays you 2% interest each month. How much will you have at the end of one year?

The table shows what you will have at the end of each month

Month 1        $102
Month 2        $206.04
Month 3        $312.16
Month 4        $420.40
Month 5        $530.80
Month 6        $643.41
Month 7        $758,28
Month 8        $875.44
Month 9        $994.94
Month 10      $1,116.84
Month 11      $1,241.16
Month 12      $1,367.98

Do you see the power of compounding? If you just kept the $100 each month sitting on your desk for the entire year, you would have $1200 ($100 x 12 months). But if you invested it in a bank (or another investment) that pays interest, it compounds to $1.367.98.  If you can be disciplined to save/invest a portion of your money each month, it will compound and grow into a very large amount of money over time.

There are many websites that have a “Compound Interest Calculator” that will help you determine how much money you will make based on various interest rates. Money Chimp has a good one.

The Principal of Compound Interest

“Those who don’t manage their money will always work for those who do.”  Legacy Journey

One of the most important concepts of money, is understanding the power of compounding. Once you understand compounding, you are on your way to making your money work for you.

Compounding is the concept of adding interest (or earnings) to the amount you started with so that both of them earn interest from that moment forward. Both parts (the original amount) and the interest continue to earn interest.

The best example I can think of  is which would you rather have – $100,000 today OR  one penny that doubles every day for the next 30 days?

Well, which one would you chose? Most people will say they’d take the $100,000. But, you would have 100 TIMES more if you chose a penny that doubles every day for 30 days!

After 10 days $10.24
After 20 days $10,485.76
After 25 days $335,544.32
After 27 days $1,342,177.28
After 30 days $10,737,418.24

Isn’t that incredible? A penny will grow to over $10 million in just 30 periods if it doubles (or grows 100%) each period. We will discuss saving for retirement in future lessons and how important it is to start saving at a young age. A little amount will grow to a very large amount over 30+ years by employing the concept of compounding

The “Why” of this Blog

Most people do not learn about money management in high school much less college. In raising children, I realized that I was the one who would help prepare my children for financial freedom. Thus, I have started writing this blog. This blog is written from the perspective of a Dad teaching his kids about money management.  It is for the teens/young adults to read and learn themselves. It is written in “bite size” and easy to follow posts….My goal is to explain the concepts of money management in weekly lessons that can be read on the go via your smart phone, ipad or computer.

My dream is that you become “wise” in your ways and avoid being the “fool” when it comes to your money.