Welcome to the part-1 of series of posts on money management, financial independence and similar matters. If you are relatively young, this series can have life changing impact on you. If you are slightly old, you can still learn a lot (hopefully) and may become far more successful just by making simple changes.
Importance of Money
Most of us grow up in normal households where one or both parents work and make all the good things accessible to us. Santa Claus, fairy tales and all the great stuff come from hard work of parents. And that short circuits our brain. All parents want to provide best of childhood and opportunities to their children and rightly so. But growing up with little to no significance and respect for money lead many to pitfalls. That's why many fortunes evaporate by third generation. Lottery winners become bankrupt all the time.
So make no mistake. Money is extremely important for any adult. All your life decisions. Education, career, parenting, relationships will be affected by it. Money = Freedom. Drill that in your mind as deep as you can.
Still with me? For rest of this article I will write simple money saving hacks. Simple situations and places where you can stretch your money and thereby can have more of it.
Currency Conversion
I travel a lot and it appals me to see people changing money at airports. Don't be that person!. Conversion rates are biggest ripoffs, many of them are not regulated or are self regulated. Depending on where you are they can fluctuate between 1% to 15%. Many people never think about it. They do not realize that by converting money they are losing it every time.
Do your own research next time you are in such a situation. Banks are better places for this. They have fixed (normally ~2.5% rates). There are some debit/credit cards who have 0% rates for certain currencies. Even if you are paying 1% that's more than the savings rate in many jurisdictions and people pay that in one transaction! So don't!
Banking Fee
If an account has less than minimum balance, banks charge fee. The fee will be on debit/credit card transactions or a fixed quarterly fee. Some banks call it monthly maintenance fee. And it can easily run into 10%+ of amount in the account. Even higher. Say someone has $500 in their account while minimum balance required is $1000. If they are paying $10 as monthly or $25 as quarterly fee (can vary and be higher). They are effectively paying 20% a year to the bank for operating their own money!
Ideally, have minimum balance required. If that's not possible, be aware of these fee and search for the best bank in terms of these.
Savings Account/Emergency Fund
Please please please start saving into a savings account. Build up to six (yes 6!) months of expenses in it and forget about that money. Life takes twists and turns. Job loss, accident, some other adversary. You be better prepared to handle such situations and come out unscratched. This one requires discipline and some lifestyle changes. I can not be a judge of someone's lifestyle choices. But reflect on your expenses and see which one you do not need. Never spend money to impress people or to copy someone's lifestyle. This can be a great money saving hack because short term loans are the most expensive.
Some areas that expenses can be cut at
- Eating out
- Don't throw away money at bars (normally 50% is taxes)
- Same applies for cigarettes (many insurance companies will refuse you if some illness is result of smoking)
This one boils down to pure discipline and commitment. And will require some reflection. Unless you realize importance of money, you won't do it. That's why I listed it as first thing.
Credit Cards
Throw them away. Like seriously. Credit card fees are exorbitant. Anyone is doing themselves huge disservice and long term financial harm by paying credit card interest fee. Minimum payments is a huge pitfall. I am writing about them at the end. Because it would be good to first get into savings habit (emergency fund). Once you have some money lying around, you will be far less inclined to make impulse decisions and to pay extra charges for using someone else's money.
In the next part, I will write about investments. Feedback welcome.