Money from Nothing - Part III

This is a continuing series called “Money from Nothing,” which means if you’re an average Joe that is just getting by paycheck to paycheck to pay bills and not able to save or have a back-up fund, then this is for you.  Not a get rich scheme, just a way for someone with a job, but no resources can create financial stability.

If this is your first time here, then you might be interested in Parts I & II.  In Part II, I get right to the point with 6 things I did that changed my financial situation.  I didn’t lead into it gradually or give details because I’ve gone to one of those web ads that say they’re going to show you some fancy health or money benefit program but drones on and on, and then half an hour later you still don’t know what the product is!

I didn’t want to do that.

If you’ve read Part II, I don’t expect you to run out and start implementing my idea’s just yet, first there are some details that will determine the success of your financial journey.  My goal is to make as many people as possible, financially stable and secure.  All I ask in return is a world with people with less financial stress, which in turn will give me a better world to live in.

Let’s face it; we live in a world with road rage, angry mobs, terrorists and thieves desperate for money.  I believe in most cases, if you have all that you need and maybe even a little more, your not going to go out and commit these acts of desperation.  That being said, I’ll get right to the meat and potatoes.

Here’s a little more detail about each point from Part II:

Regarding the 401k:
I contributed the maximum I could afford into my 401k plan, even when we were struggling for grocery money.  If your employer pays any sort of match, put in the maximum that they match.  For example if they pay a 40% match of up to 5% of your earnings, and then pay that 5% so you get the maximum amount.  If you can afford more than that, then I would do it, but with two toddlers and two low incomes, the match was the best I could do.  For most, this retirement grows very slowly, but I’m going to show a simple way to make this grow faster than usual.  I know if your younger, a 401k plan seems like “money for some day.” But as I mentioned you’ll be able to use this asset to help benefit your financial situation very soon so it won’t seem like you’re just dumping money into a hole for some distant future.

Regarding the budget:
I created a spreadsheet that lists all our expenses, from groceries, to mortgage.  I used estimates for things like groceries, gasoline and electric bills.  It’s in date order so if the gas bill comes in on the 5th, that is the entry on day five, the electric comes on day 10, so it is the entry on day 10, and so on.  Include your paycheck dates too.

Then I copied and pasted the monthly expense list into a spreadsheet for each month, January thru December with a column of expected expenses and a column of actual expenses.  When I balance our checkbook, I filled in the actual expenses in the actual column.  If you set up an estimated account balance next to the estimates column, you’ll not only know how much you have, but you’ll know how much money you will have on any given date in the future.  In other editions of this series, I’ll provide some examples.

Here’s how it comes in handy.  Let’s say you need a new washing machine.  Maybe you could go out and get it on credit today, but instead, you review the budget spreadsheet and find out if you wait a couple of months you’ll be able to pay for out-right and not have to pay interest.

This works way better.  Why not save for it and eliminate a future bill?  You’ll get what you want, and have more money available in the future.  But what if you checked the budget and there’s no extra funds?  What do you do now?

This plays right into my next subject.

Regarding cutting costs:
Once you visualize how much you spend, I would hope you’ll want to start slashing your expenses.  That’s the next step.  A dollar saved is a dollar earned.  Go thru your budget (once it’s made) and start looking at ways to save.

Here are some real examples.

We were spending $85 a month for cable, when we could afford it the least.  I switched to a cheaper satellite TV plan at $45 a month (we still have that plan), $40 more bucks in my pocket each month.  Then we switched from a telephone land line to Magic Jack (which we still have), saving about $55 a month.  All of a sudden I have $95 of expendable cash (that could be saved for that new washing machine).

When I started tracking our spending, I found we were spending about $500 a month on miscellaneous stuff (on the spot purchases, that we usually didn’t need or trips to fast food).  I lowered it to $300 ($75 a week).  Once we hit our limit, we just stopped spending.  At first I physically took out the $75 dollars cash and when we ran out we were done till next week.  To be honest, currently we’ve doubled our miscellaneous because we can afford it now.  But 10 years ago we had to trim that spending.

Now were talking about $300 a month, $3,600 a year.  A lot of money if you have a limited budget!
We got rid of our nice Malibu, with a v6, and replaced it with a hybrid car.  Our other old car was replaced with a cheap Yaris.  We were spending about $300 a month in gas, now we spend $75 maximum.  Now we’re approaching an extra $500 a month, it’s like getting a raise.

Maybe you applied for that dream promotion that came with an extra $5000 a year but didn’t get it.  Well so what, you just gave yourself a $6,000 promotion!

Back to the 401K:
Once my 401k reached $80,000, I borrowed $10,000 from my 401k paying back $85 a month and started making that someday fund work for my today.  I won’t tell you what to invest in, but I will guide you on a safe way to find good potential purchases.  The experts tell you to save a little each month and invest, but we didn’t have any extra…it was literally an impossibility for us.  And if you’re in a similar situation, maybe this will work for you.  I do have to stress, this is NOT wealth building.  This is just a way to create a financial safety net when your living hand to mouth.  You are borrowing money to invest, and that does have its risks.  However, I choose to borrow from myself in my 401k.  So the payback goes into my account instead of going to a bank.

So in the future, if your investment account grows to $12,000 and you have unexpected medical bills, you could use some of that to help pay off the bill.  Ideally if you’re saving money on expenses and budgeting, you’ll have some funds in a money market account that you can draw from when needed.  But if you’re not there yet, you can sell some shares.  The main point is, in the future, a financial set back won’t send you spiraling in debt, and it’ll just be an inconvenience.

Well, that’s the basics of what worked for me.  There are many details of those basic concepts to come, like how to make the spreadsheet and what mine looks like, how does someone who knows nothing about the stock market get a 30% growth rate?  Why are points so bad when you buy a house? All these questions and more will be answered in coming additions.

Politics!
Very, very sad day for the country that we lost John McCain. 
It makes me wonder why other politicians are so…broken.  Willing to ride any wave of popularity to stay in office, they give up any concept of right and wrong.

Perhaps they have so many issues and responsibilities, that they get sucked down by the wave and are just struggling to stay afloat not realizing they’ve become part of a machine that represents everything that they once stood against.

Maybe John McCain was just a better surfer!