The beginning

2007-12-18T00:10:00.000-08:00

Well, not the *very* beginning. If I were to go that far back that would've been about 10 years ago. Back then I bounced checks as a matter of status quo. Back then I never answered the phone because, nine times out of ten, there was a creditor on the other end wondering where their money was.

Today I've moved on. I'm not perfect by any means, but I'm far better. The last time I bounced a check was nearly 3 years ago, and even then I had enough money in my savings account to cover it. So it didn't really bounce, but it still stung to realize it almost did.

For the longest time I never received credit card offers in the mail, and when I did they were of the sort that gives a small credit line, exorbitant interest rates, huge annual fees, and fills up the whole credit limit with various fees right off the bat. Now, three years after the divorce, I'm doing very well financially. I even have two legit credit cards with average interest rates, tolerable fees, and fair terms. And, like I said earlier, I no longer bounce checks. I live within my means--for the most part.

Right now I'm doing well, but I don't have much of a financial plan. Basically, to date, it's been essentially, "don't spend money you don't have, Abe." Which has worked fine for building the basics of credit, and for being a moderately respectable adult.

However, living pay check to pay check can put a person into a bind now and then. Last month my car had some issues. Those issues included not starting. Those issues cost $450 to fix. Ouch. When it comes to car repairs it's not like there's a whole lot of thinking which has to be done about whether or not to get them done. A person needs a car, I needed my car. So, $450 later and a blow to my pride in asking a friend for a loan, my car was fixed. But what about next time? I delude myself if I pretend it won't happen again. Cars break down, wrecks happen, illness strikes, layoffs occur... For those living pay check to pay check such events are far worse than they are for those who've planned for a rainy day.

Thinking about how I can plan for a rainy day brought me to the realization that the same skill set which makes one prepared, financially, for challenging times, also can make one wealthy.

This blog, then, is about my attempts to attain a state of financial security--even while in college, even while legitimately "cash strapped." I figure that if I can be fiscally wise and restrained now then I'll set myself up for the rest of my life--when money isn't nearly as tight, and there are fewer demands on my limited funds. If I can do it now, it'll only get easier in the future, in other words.

After much reflection I decided that a good start would be a savings account. And, more particularly, a savings account NOT at the same bank I have my checking account at. Having my savings account at a different bank will make it harder to access the money (i.e., spend it on a whim), yet still available in case of emergencies. I chose ING Direct because of their solid interest rate, no minimum deposit, and no-cost transfers to and from my bank accounts at my credit union.

STEP 1: Open a savings account at a different banking institution.

As I mentioned previously, money is far tighter than it has been in recent memory. Going to school full-time and only being able to work part-time will do that to a guy. I used to work full-time so I'm having to adjust my lifestyle to be far more restrained (i.e., cheap/poor/thrifty). I used to get a monthly haircut at a salon ($30 w/tip), but now I'm skeptical of anything costing in excess of $10.

STEP 2: Decide where you'll splurge (be specific: movies? dinners out? coffee?) and where you'll cut yourself off.

Now that you've got into the restrained, fiscally responsible mindset, decide what you can do without. As anyone who's had an economics class can tell you: savings/investment is what remains after you take Income - Consumption - Taxes. If you shoot too low you'll feel like you're not making any progress and scratch your whole goal of financial security. But don't shoot too high either, otherwise you'll quickly feel a painful pinch and give up because you're constantly withdrawing money from your savings, and then what's the point (or so you'll think to yourself)?

STEP 3: Determine the amount which will be enough to feel like you're making progress, but not too much to be too painful. For me this is $35 each paycheck.

Now, to make it harder to spend that money, and easier to do without it, treat it as a bill. In a sense, it is. You're paying yourself. I've set up ING Direct to automatically withdraw that $35 every two weeks from my checking. And, when I pay my bills every two weeks, I just subtract that $35 from my balance.

Ultimately, at this stage my overall goal is simply to save 10%. So, if I receive a financial aid refund of $2200 then I'll be putting $220 into my ING savings (which I call my emergency fund), and the rest into my short-term savings fund.

Which brings me to another point: establish different savings accounts (if you find it helpful) to clearly delineate the different allowable uses of the money within them. Three kinds of savings are helpful: short-term, long-term, goal oriented. Honestly, I'm still working up my definitions, but what it comes down to is that I want a savings account which is there for emergencies (ONLY car maintenance, health issues, etc.--serious life complications in other words), one which is there for short-term necessary living expenses (rent, utilities, educational expenses), and one which is there for fun stuff.

If I had to break things down, I'd say that over the past three years I've been working on being fiscally responsible at the most basic, short-term, level. The next phase, for me, is to learn to save religiously. I'll start at 10%, but eventually I'd like to save 25%. Before you think that's ridiculous, did you know that the average Chinese person saves 40% of their income? Yeah, now how crazy do I seem?

Maybe the next step, after the Savings Step, will be to branch out into investing (CDs, Bonds, stocks, and maybe even speculating in currencies and commodities).

Anyway, this is the beginning. I'll try to write at least once a week about how it's going: saving, learning to live more frugally, and continuing to be responsible with my debts and credit.

Wisely he thought, "I shall become rich!"

The beginning