Before we get to the point that we can talk about saving, investing, passive income and ultimately, early retirement, we need to have cash on hand to work with and no matter your circumstances, whether you are a top paid executive or a day-to-day worker: If your expenses are higher than your income, then you got a problem to solve.
One of my first career steps was a vocational education in one of the largest banks in Europe and what I learned early on really astounded me: People with great salaries, expensive cars, amazing apartments or houses were often those with the worst bank accounts. They usually had great salaries, but their monthly expenses would eat up most of the money even before they could have any chance of withdrawing anything.
Therefore, one of the first and most important recommendations for any financial planning is to have a budget. But before we even get to that, today my top 5 recommendations on the most basic tips for a frugal living that require no effort whatsoever except for dedication on follow through. Here we go:
- Don’t have cash or credit cards on you. It is really as simple as it gets: You can’t spend money if you don’t have access to it. And vice versa, the easier the access to money, the sooner it’s gone.
This is in fact not only a personal financial advice but also one that is followed through by many companies. All the rules and regulations that you have at most workplaces set up by your accounting department will make it really difficult to proceed with any kind of payments. They will set up systems that consist of purchase requests, purchase orders, and payment vouchers so everything needs to be double and triple checked before any money goes out from the companies account. While some employees might consider it very annoying and slow (nothing ever gets done), it is, in fact, the most simple and most effective system in the world to control cash flow.
- Don’t go to a grocery store when you’re hungry. Not just a fun fact, it is the truth: The hungrier you are when entering a grocery store, the more your basket will be filled up at the cashier counter and the less you will care about it. NOTHING is more important than satisfying our most primal desire of avoiding thirst and hunger and we will seldom feel guilty of spending money on fulfilling this basic need. The guilt will come later, but the money will be gone by then and the fridge filled with plenty of useless stuff that one wouldn’t probably look at under “regular” circumstances.
- Don’t shop online. I know, Amazon is very successful, as is Baidoo, LAZADA, and E-Bay. I am not saying that it is not less convenient or that you couldn’t get better bargains on these sites. But it is exactly this comfort and convenience that makes online-shopping so dangerous for the money-savvy individual. As a rule of thumb, one should always remember, that the easier any company makes it for you to spend your hard-earned cash, the less you should utilize its services.
You might feel like a unicorn first, but especially in Europe, you will quickly discover that you are not alone. A farmers market i.e. is always very popular among all generations. You get great food, often from local farms or manufacturers and you get a real sense of what you are actually doing as opposed to clicking on virtual shopping baskets and waiting for the delivery. The walk to the market, the socializing with local dealers and some human-to-human conversations may also be good for your physical and mental health by the way.
- Don’t chase trends, especially in technology-related items. When I was 10 years old, I bought my first computer, a C64. I was very proud as I paid for it with my own, saved cash which I was able to gather by walking to school instead of taking a bus. Day by day after school on the way back home I would stop by the bank and pay-in the saved cash until after almost a year I had enough to get my first computer.
6 months later, one of my best friends got an AMIGA500 and his dad an AMIGA2000 which made me so jealous that I decided to start saving for a PC (a 486DX33). I cleaned walkways, distributed newspapers, walked to school and was trying to gather cash wherever I could, and my parents go so impressed that they finally supported me to get a 486DX2-66 (the DX33 got already outdated by then).
Only a year later, I upgraded it for a Pentium, and shortly after for a Pentium 2 while my parents were still paying off the loan they took for the DX2-66.
Point is: Technology is moving so fast, you can sink a fortune in it and you will still never be on top. Just appreciate what you have and learn to fully utilize it. Trust me, it will do the job just fine as long as you keep investing in quality.
Having learned all that, I swapped from PC systems to a MacBook back in 2007. I got my first, white MacBook and was very happy with it as a student and beyond until 2012. Then I purchased a MacBook Air and used it for 5 years until 2017. After that, I purchased a MacBook Pro and I intend to keep using it until 2021 or maybe even beyond. 5 years usage-cycle works perfectly for me but I can imagine to extend it even to a 6 or 7-year cycle. And by the way, all my previous MacBooks are still working and being used as I donate them to my sister who continues using them as long as possible.
- Learn to say no, to yourself and to your friends and/or family. I could name hundreds of stories when people get into financial trouble just to fulfill expectations of others. In the end, in most cases, no one wins on such occasions and you just keep adding more personal and financial pressure to yourself.
There is always “something”. A friend gets a job promotion and wants to celebrate. Christmas, New Years, Birthdays, family events, school reunions, the list is endless! And it is really easy to spend money on every single one of these events. The sooner you and your family learn to handle it, the better everyone will be off and there is a high chance that your social circle will actually start to appreciate some adjustments on this front because, while many people may not show it in the beginning, buying things for others all the time and overpaying events on a weekly or monthly basis is no one’s favorite.
One more point that should be on this list but which I will have a separate post about is concerned about loans. There is no rule of thumb and the topic is a little more complicated, but for most parts, taking loans is not a good advise until you learn to use them to your advantage. But more on this point later on.