Moneywise24 Personal Finance

For quite some time I was pretty obsessed with money; I wanted more, bigger salaries, huge cars, the list is endless. This obsession started when I moved to a larger city right after I graduated, and I felt really bad to be at the bottom of the ladder, just starting my career from scratch. I saw BMWs and Porches driving around, peope I met were bragging about their brand new penthouse in the city center, a Maserati comes by with a 20-year old blonde at the wheel. I got so caught up with what I thought had to be the average living standard, that in my very first application I sent out, I asked for an annual salary of 200 thousand Dollars (and this is not a joke).

Soon I discovered that everything I experienced was only a big fasade; all the successful people who had earned their money with hard work did all they could to show it off, and those with moderate jobs tried to hide what they didn’t have; the sales clerk at the counter of a department store would put on a suit for tonight’s after-work party and tell everyone in the club that he makes half a million at a large investment bank.

Many people are so preoccupied and virtually obsessed with their career and with becoming wealthy, that they often disregard the other vital areas of their lives. The results are usually depressions, burn outs, health deficits and a poor social life. What should we take into account if we want to lead a healthy and fulfilling life?

A few months ago I had the pleasure to meet a psychologist during a social gathering. As we started to get to know each other, we talked about our work, and as the conversation progressed she casually mentioned the disturbing increase of burnout cases and people with depressions. Whereas the majority of patients seemed to be men, the number of female patients was alarmingly increasing as well. With these words in the back of my head, I started noticing how money- and career oriented many people are: 60 working hours or more per week is not uncommon for many people, people are on unhealthy diets, continuously being on the move, and their social activities suffer. Even those people, who do have enough spare time, seem to be so much preoccupied with money, career building, and wealth.

But life has much more to offer than being wealthy. In fact, each and every person has three basic areas in his/her life, which needs to be satisfied in order for any person to be truly happy. If one area is neglected, the others will suffer. This might acutually often result in a viscious circle, during which the life of an individual starts to crumble down.

Health

Leading a healthy life means being on a healthy diet, eating fruits and vegetables as frequently as possible, avoiding unhealthy fat food, and doing sports on a regular basis in order to keep the body fit. Being healthy also means having a positive and confident state of mind; a healthy mind is just as important as a healthy body. 

If your body is not healthy and fit, it may result in an increased doctor’s and medication bill, impacting your wealth negatively. Additionally, you are prone to being sick more often, and therefore not being able to go to work or to socialize. It will be harder to bond with your friend and family, and to find or maintain a partner. Additionally, a person who is overweight will typically work for a lower wage than someone who is in good shape, doing the same kind of work.

Psychological disorders might be just as severe. This includes any form of depression, mistrust in people or society, insecurity, or anything which may impact a person’s life in a negative way. Many people do not even know that their state of mind is not as it should be. As a result, people with psychological disorder may have a difficult time finding friends, leading an active social life, or negotiating the salary they deserve. In the worst case, a bad state of mind may result in people losing their jobs due to increased sickness or their inability to concetrate over a long period of time, and the mental disorder may become physical, such as skin or heart disease.

Relationships

Each and every person needs to engage in relationships with other people. Humans are very social beings, be it with friends, family, or a sexual partner. If a person’s social life suffers for whatever reason, it is likely that depressions are on their way. A person with unhealthy relationships, or the inability to find new friends, may find himself/herself in isolation quickly, which is unlikely to contribute to his/her well-being.

In its turn, depressions are likely to lead to not being able to concetrate at work, and the start of chronic diseases (the skin, for example, is very sensitive to an individual’s well-being… cases of skin diseases such as psoriasys or neurodermitis are increasing). A bad state of mind may additionally cause a very unhealthy diet, and the start of addictions, which trigger that feeling of ‘happiness’.

Wealth

Money is an important instrument to obtaining a number of basic needs for survival: shelter, food, water and medical care if required. However, there is more to life than simply the basic needs. Humans have the need to develop hobbies, activities and social lives. They want to travel, explore the world, learn a new language, go to college, be mobile. If there is a severe lack of money (or time due to too much focus on a career), a person will not have the means to do all that. They will have a hard time to go out and perhaps meet new people; that person will not be able to pay for his/her doctor’s bills; that person might have very limited resources available to any type of sports, and he/she will be able to afford only the cheapest kind of food, in stead of the healthiest. All this may impact his health in a negative way, it may create a feeling of isolation, depressions, and the relationship with friends and family might suffer.

The first, and perhaps most important step, towards leading a fulfilling life is the recognition of the above mentioned areas, and a self-analysis of which area needs development. It might be extremely difficult to focus on all of the three areas simultaneously if they are not already in good shape. For myself, stepping back from the idea of wanting to be a millionnaire yesterday has helped me tremendously, and allowed me to focus on all areas of my life simultaneously. I still keep a certain focus on building wealth at the long term, but not being wealthy does not make me unhappy.

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As soon as you spend money, it is gone and you will never get it back. Surely you will earn some more money, but it is not the same money. You have lost the money, unavailable for investing it, unavailable for paying back debt. Looking at things differently, you may actually have spent much more on your purchase.

Look at money from a different perspective for a moment:

If I spend some money on some item now, it will not be able to generate interest.

The magic word in this statement is ‘interest’. If I buy some item at this point in time, I am litterally missing out on obtaining interest on it. Let’s taken an example of this, a men’s suit which I bought a few weeks ago. The suit costed me 220 Euros, which is not expensive. However, would I have not bought this suit, I would have had this money available to put on my savings account. Assuming that the savings account has a duration of 5 years with an annual interest rate of 4%, these 220 Euros would turn into 268 Euros over that 5-year period. This is an increase of 21%.

If you are currently paying back debt, and you are allowed to transfer additional one-off sums, the effect is the same; the interest rate for debt is much higher than it is for savings (for example 12%). Suppse you are paying back a 10,000 Euro loan at an interest rate of 12%, during the next 60 months. The monthly payback rate would usually be 219 Euro per month, during a period of 60 months. Now suppose, you would make a down payment of 220 Euros (what you would have otherwise spent on the suit). This leaves you with a monthly payment of 215 Euros per month. You are saving 60×4 Euros, making a total of 240 Euros.

The benefit of using such a calculation as the ones above, is to be contious of the future value of the money you are spending. For myself, it allows me to strictly determine whether I really, really need an item, and whether or not it will enrich my life. If it does not enrich my life significantly, or if it does not help me in some way to either reduce expenses or increase income, I will usually not buy it. I would rather put the money aside on a bank account, or perhaps invest it, so it can grow over time.

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Surely you know the process: you arrive at a club with your friends, pay high entrance fees, and at the end of the night you spent another 100 Dollars and you try to compensate for the high costs during the rest of the week. However, clubbing does not need to be all that expensive.

A typical night out with your friends probably starts out at home; you have a few drinks, you dress up and take a taxi or the car to the club or a bar. In a club, you will usually pay rather high entrance fees in order to enjoy the privilege of too loud music and bad air. Once inside, you might drink one or two cocktails, go for a dance, talk with a few people, have some more cocktails or wine, and the same routine is repeated until the sun sets in the morning. You still remember having at least 100 Dollars in your wallet at the beginning of the night, and still only a 10 Dollar note left.

I find going out very important; it is a good chance to have fun with your friends, to socialise, and basically to have a good time. I believe it is essential to having a high-quality life. However, with the right mind-set, going a night out does not need to be that expensive, nor do you have to ask others to buy you drinks.

Do not pay entrance fees

I have never understood why clubs charge entrance fees just to ‘come in’. Clubs are virtually the same as bars, only that the music is louder and there is a dance floor. I personally avoid clubs which charge too high entrance fees. I might make an exception if an artist I want to see is performing, but else I have no business there. Alternatively, I will find low-budget clubs or I will simply go to a bar in stead. In my experience the people are somewhat more relaxed.

Stay away from cocktails, long-drinks and everything expensive

Cocktails, long-drinks, and everything which is rather expensive has become a fashion. In Europe, a cocktail can quickly cost 11 Euros (around 16 US Dollars). Drink three of those, and you have already spent half of your 100 Dollar budget. In stead, it makes much more sense to stick to either non-alcoholic drinks, or simply beer if you must drink alcohol. Not drinking alcohol by the way does not mean you can’t have all the fun. It is simply a matter of the right attitude, and you will also feel much better and vital the next day.

Avoid taking a taxi

Taxis are typically the expensive beginning and/or ending of a great night out. The typical reasons why people take taxis are either out of convenience, because they had too much to drink (and either they can’t drive or they want to get home quickly), or because no public transportation is running during the night. One remedy could be to simply drink less alcohol, this would allow you to drive your car during the night, or you could take public transport without feeling bad. Additionally, you may want to check when public transportation is running, and either take back the last option of the night, or take the first option in the next morning.

Give rounds, but don’t spend drinks

If I am on a night’s out with my friends, we usually give rounds. I am happy to do that, because I know that I am getting the drinks back. Additionally, I know that my friends will not order the most expensive drinks available. I trust them, and it is give-and-take. On the other side, I will never spend drinks on people I don’t know or I have just met. Especially particular women use this strategy, in order to have a free night’s out. Particularly men are subconsciously trained to spend women drinks as a part of the flirting process. Simply don’t do it, unless you really want to, and it is someone you trust.

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Owning a car can be quite expensive. Fuel is one of the highest cost factors, especially for people who need their vehicle on a regular basis. However, the cost of fuel is controllable up to a certain extent. With 10 easy-to-implement tricks, you will be able to significantly decrease the fuel consumption, thus saving money.

Think about fuel consumption when you buy your vehicle

The first step in reducing fuel consumption is to consider the future costs when purchasing your car. Two major factors to consider when buying a car is the size of the engine, and the size of the car in general. Large engines deliver more power, and therefore fuel consumption is much greater. Often you will not need such power, and a vehicle with a smaller engine would do just as fine. Furthermore, a large car which is heavy will consume more fuel, since the engine will need to move a larger mass. For these reasons, you will want to consider what size of car you really need, and what engine size would be appropriate for the that size of vehicle. Additionally, your car dealer will usually have statistics available on fuel consumption for that particular type of car. If you have the possibility to select between multiple vehicles, it might prove to be beneficial to compare the average fuel consumption.

Do regular check-ups

If car parts start to become older and wear out, they might actually increase fuel (and oil) consumption. Therefore, you should have your car checked on a regular basis, and have old car parts replaced with new ones.

Keep the weight as low as possible

Additional weight in your car drives up fuel consumption. Many people use their trunks as trash collectors, leaving all sorts of heavy items in their cars, unaware that this is unnecessary. In stead, make sure that you keep your car as light as possible. You might even consider taking out the spare wheel. There are many alternatives available (such as special sprays) which can be used in the event of a flat tire.

Know when to shift gears

If you drive a manually shift car, you can safe fuel if you know when to shift gears. Usually, a car will consume more fuel with a high RPM (rotation per minute). For this reason, you can start saving money by shifting up your gear as soon as possible, and shifting down as late as possible. Generally try to keep your RPM as low as possible.

Turn off the engine

If you are not moving for more than one minute, it may be recommendable to turn off the engine completely. As long as the engine is running, fuel is being consumed, and turning off the engine may add to your fuel saving strategy. Also, in winter it makes little sense to turn on the engine and let it heat up the car while it is not moving; it is better to turn on the engine and immediately start driving.

Keep the vehicle rolling

When you are driving, look ahead to see what is coming. Your main goal is to keep the vehicle rolling as much as you can; “stop and go” consumes lots of fuel. If you notice that there is a red light coming up ahead, you may want to slow down slightly in the hope that the light turns green before you come to a full stop. Some people make it a sport to rush from one red light to the other. This consumes lots of fuel and is not recommendable.

Drive smoothly

Sometimes it may be fun to drive in a very sporty way, accelerating and driving fast. However, this driving hardly saves any time, and certainly does not save money. Try to drive as smooth as you can, accelerate gently, take the curves gently. Additionally this would significantly reduce the risk of getting involved into an accident.

Check your speed

Driving fast will increase your overall fuel consumption; the engine will operate at a higher RPM and the air resistance is greater. Driving at a moderate speed may greatly contribute to saving money on fuel.

Complete your tasks in one trip

If you have different tasks or business to complete on a day, try to complete them in one single trip. This way you can create a synergy effect; the total driving distance for this one trip is shorter than multiple trips, and you are saving time in the process.

Consider whether you need your vehicle at all

Some businesses can be attended without vehicle. It is sometimes astonishing how many people drive to the grocery shop around the corner with their card. In stead, you may want to consider walking or driving by bicycle. Also you may want to consider whether and when you can take public transportation. This also has additional benefits, such as not having to look for a parking space. Sometimes, in large cities taking public transportation is much more time-efficient than going by car.

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I have a few questions for you: Do you know your monthly net wage? Do you know how much money you spent on groceries last week? If you consolidate all of your accounts, including checking accounts, credit cards, and investments, how did your assets and liabilities develop per month during the past 6 months?  

These may seem some tricky questions perhaps, but how can you maintain a grip on your finances if you are not able to see how your finances develop over time, or if you can’t match your budget with your actual expenses? Making your finances transparent and visible is perhaps one of the first essential steps in gaining financial control.

 Doing your very personal bookkeeping means making your finances transparent. Bookkeeping does not need to be as boring as many people imagine it to be. Actually, it can be great fun, since you are actually seeing how, for example, specific changes in purchasing behaviour have a direct impact on your financial strength. Generally, Bookkeeping requires nothing more than a piece of paper (or a pre-printed book of household accounts) and a pencil. You will require separate columns for the following information: 

• Date of the transaction
• Credit amount, or the amount you received
• Debit amount, or the amount you spent
• Transaction category (e.g. groceries, real estate, living, automotive. You can define your own categories as you see fit).
• Payee
• Description / further comments

Alternatively, you can use a programme such as Microsoft Excel. Microsoft Excel offers the benefit, that you are able to set filters easily and create statistics. For example, if you would like to gain an insight on how much money you spent on automotive last month, you can set the appropriate filters and Excel will calculate this information.

If you are looking for an all-round solution, which allows you not only to do your daily bookkeeping, but also assist you in evaluating the results, you may want to consider purchasing a product such as Microsoft Money or Quicken. These programmes are specifically designed for personal finance purposes. They allow you to create multiple accounts, categories, budgets, and to enter all your transactions. In the background the programme will evaluate the data, and the programme may supply you with all the information you need.  Additionally, such programmes often allow its users to do research on companies and shares, and to plan possible future scenarios.

 The benefit of using personal finance software is tremendous; if administered regularly and precisely, you will know exactly where your money is coming from and where it is going to. Once you have your finances visible, it will allow you to make changes to how you handle money and the success over time.

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