Over past few weeks I’ve seen a spurt in the number of Black in America folks try to help others get their finances in order. Everything from free guidance and group synergies to for-fee service has been suggested. I also recall reading one brother’s posting that suggested that Black folks want advice for free…even though they know he’s in the for-profit business of financial consulting: no free rides.
Well I’m going to give away some free financial advice. That’s right 100% absolutely free!
This Blog will teach us the wealth building secrets on how to save money, so you might want to print this Blog…and keep it in a cool dry place.
One of the things that I rarely do is give out free money-type advice. IHMO if a person gets advice without the exchange of money…they don’t value the information and tend not to follow it. But after hearing/reading some of the for-fee advice that folks are doling out, I think that it may be time for me to hand out some free nuggets of gold that could change your life.
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I don’t want to come off as condescending, but for the sake of anyone who is not business or money savvy…please allow me to start with the absolute basics: how money works. I’d like to start here because if you know what money is and how it works…you will be in a better position to follow the steps to wealth that I will give-away at the end. And for the many Black in America financial planners, don’t worry I’ve leave room for folks to use your services.
Our American capitalism system, in all its glory, is no more that an evolved system of bartering: trading one good for another. Over many years, it has been realized that bartering has it’s good sides and bad sides. One bad thing with bartering is determining value.
What is the relationship between a bushel of wheat and fresh turkeys? By that I mean…how many turkeys would I need to give you in exchange for one bushel of wheat? Is it one turkey for two bushels or one bushel for two turkeys? Moreover, what is the tax on this wheat to turkey transaction? As you can imagine, pure bartering had its share of problems.
That evolved to using a middle unit (measure) to determine value: Gold. Rather than determining the relationship between turkeys to wheat, we determine the relationship between turkeys to gold…and wheat to gold. Thereby, we know the relationship between turkeys to wheat. But gold was hard to come by and even harder to carry/exchange….so paper money was invented (some could argue reinvented) to represent the value of the gold: The Gold Standard.
Although the USA no longer uses the Gold Standard, the basic premise of free market capitalism (bartering), based on units of measure has remained the same:
1. You go to work and produce a good or service
2. The value of those goods are presented to the owner/accounts receivable department as money
3. Your share of the work is given to you in the form of a paycheck
Rather than paying you 2-pints of wheat out the wheat ABC Company received from the turkey to wheat transaction…you are paid with dollars. In turn, you can now use those dollars to pay for other services: water, electricity, food, clothing, movies, BMWs, etc. As well, since this these transitions have a unit of measure (dollars) the government (local, state, federal) can impose taxes to pay for things that are needed to make sure the system continues to work (roads, schools, hospitals, police, fire fighters, etc).
Okay…not that we know why we have money, let’s look at how it works so you can grow wealth. During the wheat to turkey transaction it was easy. If you didn’t have enough turkeys to get a bushel of wheat…you were shown the door. But once gold (and the follow-on paper) was introduced, the middle person (lender) saw an opportunity. The lender got between the transaction to provide the gold or paper to the turkey buyer…so they could buy more turkeys. Once those turkey were sold for gold or paper at market…the lender received their initial loan amount back… plus a usury free (interest): 3 or 4 extra pieces of gold are paid to the lender.
Today, banks and money markets make and pay interest using this very simple middle person concept. To grow money faster however, they make transactions that compound (this is an area I will leave for one of the financial experts on the site to guide you through for a fee :0). Note: gaining compounded interest on your money is the way to go!
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All of this money 101 discussion leads me to the meat of this Blog. Ask any financial expert and they will tell you that there are only two was to “have” more disposable/ discretionary income. To get more disposable/ discretionary money you have to make more money or spend less money. But note, traditional financial planning says that you save money after your taxes have been paid…but before your BMW payment.
(**Disposable income: The amount of money left after taxes have been paid, available for spending and saving. **Discretionary Income: The amount of money an individual has left over for spending after the essentials (such as food, clothing, and shelter) have been taken care of- blow money, pocket change.)
Saving money before you pay the bills is a hard concept for many folks to grasp. The catchy slogan of “Pay yourself first” is hard to do when the light note is due, there’s no food in the box, or your daughter’s shoes don’t fit. But time-and-again, this is the advice that will be provided…”You should save” or …you need to save more”.
So here’s your free gold nugget(s).
1. Seek out ways to pay yourself before you pay your taxes. If your company offers a 401K, Stock Option, DRIP (or similar) investment program…invest all that you can stand. Heck, even over invest just a bit if it’s not going to bankrupt you and your family. This will allow your money to be pretax invested. It will have the smallest impact on disposable/ discretionary income if you pretax invest.
2. If you have an accounting or HR department at work…and you received a tax refund last year….ask your money department at work to help you reduce your FITW ratio. Although, the government thanks you for the money…you could probably use it more/ better. Your goal should be to owe nothing and get NOTHING BACK! Getting a refund of your money is counter to the concept of compounding your money. It can’t grow for you if you can’t use it.
***3. (Most important part) - I don’t suggest saving a dime of your discretionary money until you knew where the money is going. That means you need to get disciplined about writing stuff down. I’m going to ask you to spend a few pennies here. Go to a store that sells pocket size note books…like Wal-Mart…and get a pocket sized notebook and a pencil. Now over the next 90-days, you need to write down each one of your barters. Write the date, item you purchased and amount. If you make it too complex you won’t follow it. After you start to see dividends…you can grow and expand your cash flow journal, but keep is simple for the first 90-days.
• If you get a low-fat, decaf Mocha-lotta…write it down. Hair cut/styled…write it down. Donate paper to the homeless…put it in the notebook. Pay towards the building fund or tithe at church…yup write that down as well. Gas, light note, car payment, insurance, daycare…write it all down. Don’t worry, this is your private book…so write it all.
• After 30-days start to organize your spending: don’t change your habits…just start to organize. Put the items you spent money on into categories. Put food stuff together, hair stuff together, clothing stuffs together, etc.
• After 60-days, divide the stuff even further into vital versus likes. Some folks have done this as wants/ needs. Light note, water, car… maybe these are needs. Haircuts, coach purse, McDonalds…although some may feel these are needs…these are wants. Use your 60-day mark to figure out the priorities of your cash flow habits. BUT AS NOTED ABOVE…don’t change your spending habits.
• After 90-days…now look for where you are spending the most money. Also look for where you are buying most of the same stuff (this may not be taking up the most money but it is important to know).
• These two areas will be targets for savings. Looks for easy kills first: Reducing the cable bill, using the cell phone as the house phone, finding different places for cheaper groceries, shopping for car insurance, etc...
• Next, If you’re spending $10 per week for 12-weeks on haircuts, you may decide that this is a good place to save money. Try growing out a go oh-natural for 6-months or so and put that $120 into a usury that pays you: interest paying account, mutual, stock, CD, Bonds, etc. But here’s the key, figure out what your normal haircut day is..and make the deposit on that day (note: the dates are in the notebook..so this will be easy to figure out). This will help to keep you from doing something else with the money.
• Set short-term breaks (goals) with counter balances for better savings. For example: if you are spending $10 per day (5-days a work week) for lunch, set a 4-month goal to get in better shape. Maybe you could spend $50 for 30-days worth of food to cook at home and take to work for lunch. You could take the remaining $150 and buy a bicycle (that you keep at the job) to ride to the park to eat your home-cooked lunch. For the next 3-months, you will have $150 per month to invest/save. Using counter balances allows you to remain focused on the savings goal.
You will find that if you take control of your finances, it will not take long before you are seeing tremendous savings. Who knows…between the Mocha-lottas, hair styles, lunches, Vibe magazines, movies, donations, cell phones, IPod downloads, purses, new shoes, car washes, gas-for-flossing, and other low-value added things we buy… you may even end up with enough money to start your own business or buy that home you’ve always wanted.
Posted By: Dr. Ahmad Glover
Friday, September 12th 2008 at 12:17PM
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