Moneywise24 Personal Finance

I was thinking a few things over last night, amont others how my financial situation would look if everything crashed: stocks plummet and I would lose my job due to a financial crisis. In my case, this wouldn’t look good at all.

Currently I keep 3 different bank accounts:

• a checking account, where my employer transfers my monthly income, and which I use for day-to-day expenses.
• a short-term savings account, which I use to park money which I do not need immediately. I use this money for clothes, a new computer, furniture, etc.
• an investment account, which I use to buy shares and make other long-term investments.

I figured, one thing is missing. What happens when I would lose my job, and my investments would plummet? Or if my house is burnt down and I need money immediately in order to start up again with having nothing? It came to me, that having an emergency account is actually of great importance. For me, an emergency account would ideally be an account which has virtually no risk of the money being lost. Probably, the best solution is a savings account, with a potentially low interest, where the money is ‘parked’, but always readily available, for situations when I would need money fast.

The Bank

Different banks have different policies. We may assume, that each bank will invest our money and our savings into some form of investment, share, or fund, and in exchange we receive an interest. My biggest concern when selecting a bank, is the amount which I am guaranteed to have when things go heavily wrong with the economy. We have probably all heard about the Iceland banks and its account holders, who lost all its money since the bank did not have enough reserves available when shares plummeted with the financial crisis in 2008. Myself, I am Dutch, and I know that my bank guarantees reserves of at least 25,000 Euros per account holder; the governement is thinking about raising this amount to 100,000 by law. Surely for those having some million Euros on their bank accounts, it poses a great risk. But for my purposes, it will definitely do.

Availability

The second criteria is that my money is always readily available when I need it. Firstly, this means that the account type itself is not locked for a specific number of years, and I am allowed to transfer money from that account to my checking account when necessary. Second, it means that the bank should have an online banking system available, which operates in real-time, and that transfers are conducted immediately. I currently have accounts at two different banks; one of them, for example, would withdraw the transfer amount from my account but keep it for a couple of days before transfering it where I want it. This means that the money which I might need in an emergency situation is not available for a few days; not good.

Interest

I do not want my money to sit around without any interest being paid. Since I will not be investing this money anywhere, I will look at the best interest deals available, within the frame of the two previous points mentioned. As such, my money can grow over time.

Amount

The amount, which should sit on the account, should be enough to either be able to live off it for a period of 6 month in case I have no income, or it should be enough to build a new existence from nothing. The exact amount, which someone needs should be determined on a case-by-case basis, but below is the calculation I made for myself:

• My monthly living expenses are approximately 1,200 Euros per month. These are only necessary expenses, which I will have in any case, and does not include clothing, excursions, or anything which I do not need to get by. 1,200 Euros over a period of 6 months is 7,200 Euros.
• Looking at the 7,200 Euros above, this is also quite sufficient to build up something new; initial costs for renting a new apartments, costs for moving existing furniture to the new place, or buying new furniture.

The biggest trick, ofcourse, is not to touch this money whatever happens. If I do not badly need it, it should simply rest on my account. Should I not have needed the money until my retirement, I can then use it as a small retirement bonus.

By the way: if I leave this 7,200 Euros sit on the account for 30 years at an annual interest rate of 3.0%, it will be worth 17,476 Euros by the time I retire; that is a really nice trip around the world.

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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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