Over time, I have gleaned a lot of information about personal finance from a number of sources: Martin Hawes, Money magazine, various bloggers, and of course, my own parents (not that I always listened, but they are actually quite clever). It’s taken me a while to finally synthesize and accept these lessons, but I have, and implementing them has meant reaping huge benefits in terms of quality of life and financial health.
I decided to write all of the lessons I learned, and add my own experience and perspective, and I’ve come up with my ten truths about money.
1. Time is money. Compound interest is the “fountain of youth” of the finance world. But it takes time to work, so you have start now and need to be patient. For most of us, being truly financially well off is a lifetime of effort, requiring care and attention. The sooner we realize and accept this, the better.
2. From little things, big things grow. I stole this from a super fund commercial, but it is a great piece of money-wisdom. I have a habit of “rounding down” — if I get paid $104.25, I flick that $4.25 into a savings account. Got a few dollars in your wallet? Put them in a jar, or a piggy bank. Without realizing it, you’ll amass a small fortune in change. Saving can be easy (and relatively painless) when you look at it as everyday changes in habits, and making small changes where you can.
3. Millionaires don’t “act” like millionaires, most of the time. (Nearly) anyone could be a millionaire with a great deal of patience and determination, but it is rare for anyone under the age of 50 to have anything close to that without a windfall like an inheritance or having set up and sold a business or a heap of property, all of which take a lot of money (or luck) in the first place. But self-made millionaires don’t just happen overnight, they are highly organized and educated about their financial situation and goals; they are religious savers, are not wasteful, and they take calculated risks. Their lives are not defined by lavish spending, but rather by intelligent, concentrated effort. While your goal might not be to acquire seven figures, the strategies of slow, sustained money growth are ones any person can apply to their life, to great benefit.
4. Money can’t buy happiness. But it can buy opportunities or experiences which make you happy. It is true that money can’t buy happiness. Ask any woman who has bought the latest fashion item because she just ‘had to have it,’ only to get it home and realize the unbearable truth that neon yellow really doesn’t look that good on most ordinary people. However, money can (and does) accentuate your life if you use it intelligently. Aside from the comfort and stability of a solid base income, you can choose to spend money on things that directly enhance your quality of life and allow you to explore your passions. If you’re a marathon runner, then nothing is more glorious than a brand new pair of runners or a two-hour leg rubdown after a race. You like pigeon racing — buy a new pigeon. Spending thoughtlessly brings guilt, stress and, ultimately, unhappiness. But spending mindfully can make your life feel incredibly rich.
5. You can choose what you do, but you can’t choose what you love to do. Central to having money is, of course, earning it. I truly believe there are few people in the world who are lucky enough to have pursued a passion and turned it into their daily, sustained work — and even then, the most thrilling jobs have their tedious days. But I have also personally learned the hard way not to stay in a job that makes me miserable. It is simply not worth it — you will end up limiting your own earning potential as you eventually stop striving for success, and will compromise your quality of life as you slip into the “living for the weekend” dynamic. Try to be one of the lucky few, and to find a way to involve your passions into your professional life. But if you can’t make a change at the moment, try to find a middle ground between “a job that makes me miserable” and “a dream job that would make me happy.” Perhaps you could look for a position with shorter hours, a better commute, a chance for training in new skills, or simply a nicer work environment. Our options are wider than we think.
6. Assess everything on a ‘$1 per use’ basis. I have my mother to thank for this one. Everything I buy — clothes, shoes, household items — is assessed on the basis of “Will I wear/use this enough for to only cost me $1 per wear/use?” Now, obviously things like wedding dresses, for example, don’t fall into this. But next time you go to buy that trendy, ephemeral “must have” item, break its cost down into realistic uses. Often, you’ll find that what seemed like a deal is actually a waste of money, as it will find its way to the back of your closet after a few brief wears.
7. Own only two types of things: those that are beautiful, and those that are useful. Anything else is just clutter. This is a quote I saw years and years ago, and as hoarder (just a minor one, I haven’t graduated to the pros like some of those TV shows you see), it rang very true for me. I wasted a fair bit of money on stuff that had no value (see 4 above. And 6), and didn’t bring me any aesthetic joy, either. Now, I strive to get at least one of the two in every purchase, and sometimes I even find things that are beautiful and useful, and this brings me a not-unsubstantial bit of joy.
8. Pay yourself first. You’ll see this in most “tips about money” columns – always, always pay yourself first. That is, put your savings away before everything else (build your emergency fund, pay off debts, etc). If your company payroll can do a salary split, get your savings paid into a separate account — somewhere you’ll never see it, and won’t be tempted by it, because you won’t count it mentally among the “money you have to spend.” Then pay your bills, and then you get to spend whatever is left. This is called a budget, of course, and it’s not nearly as scary or difficult as people make it out to be, it’s simply a question of removing temptation to correct bad habits. Pretty soon, you’ll be addicted to watching that little number on your account tick slowly upwards.
9. Sometimes you have to spend to save. Things like big appliances, a decent car, good-quality clothing items or shoes can often be expensive up-front, but will save you money in the long term. Buying an inferior quality product may be cheaper now, but could cost you more in the long run as you replace parts, pay for maintenance, or end up wearing it out before you’ve got your $1 per wear/use out of it. Most of us have been sucked into the trap of youthful, wasteful spending on what amounted to throwaway items, in everything from our wardrobe to large items like appliances. It’s simply not a sustainable (or fun) way to live, with things constantly breaking. But this doesn’t mean you have to have the new, most expensive model of everything — quality does not always equal popularity. It simply means do your research on big or important purchases, and spend wisely.
10. Being “wealthy” means having enough money to be protected, and comfortable. Wealth is having the means to obtain what you need to survive, and also what you want to enjoy your life. It’s not a fixed number, nor is it as great as we imagine. We can all work towards it actively, with simple and intelligent changes in our everyday lives.
Tracy is a Kiwi (from New Zealand) about to embark on a 14 week trip around the world. She is on Twitter.