Money can’t buy you happiness but it can eliminate a lot of unhappiness
Most of us have dreams and ambitions. Realizing those dreams and ambitions could be so much easier if we have some financial comfort. For example, if you want to spend a vacation in the Caribbean, you need money. If you want to help less privileged people, you need money. Money is the medium of exchange which can help you realize your dreams and ambitions. Money does not guarantee happiness but it can eliminate a lot of unhappiness. It’s a great relief when you don’t have to worry about money for essential needs such as food, shelter and medicine.
How do we make sure we have enough money to cover our essential needs and to achieve financial security?
It’s my belief that anyone in North America (and in most industrialized countries) has an opportunity to make money. Since the arrival of the sharing economy, anyone with an extra room can create extra income ( affiliate link ) and anyone who knows how to drive can start earning some money with Uber ( affiliate link). For the first time in North American history, women have an equal opportunity to earn money as drivers (See this article by the National Post). And there are so many other ways in which a person can start earning money almost immediately. You can earn money by walking dogs. You can earn money by putting together Ikea furniture. The idea is to start earning money today while you build a medium-term and a long-term plan to continue earning money in the future.
Money is a tool with great leverage capabilities. For example, if you want to buy a $200,000 house and you have good credit, you can give a down payment of only 5% ($10,000). If your house goes up in value 5% in two years ($210,000), you would have made 100% return on your investment.
But, in order to acquire this fantastic tool that you can use as leverage to realize some of your goals, you need to start saving today.
OK, so how do you save money?
Most personal-finance books and/or websites advocate the use of budgets. Budgets to track your spending habits and to make sure that you don’t spend too much in consumer items such as lattes, restaurants, and designer clothes. Hopefully you will notice all the ways in which your money is being mismanaged and you will fix it. The problem with creating a budget is that no one likes to budget.
I don’t like to budget either, that’s why I suggest to save by taking money off the top, to pay yourself first, even before the government takes its cut. Talk to your employer or to your bank and ask them to automatically take a percentage of your paycheck and to deposit it into your registered retirement account.
Reduce your tax bill by saving for your retirement
When you take money off the top and put it into your registered retirement account, you are also reducing your taxable income.
Here is a quick example: Let’s say you earn $40,000 per year. If you take $10,000 and put it into your registered retirement account, your taxable income is only $30,000. You pay less taxes because you’re in a lower tax bracket.
Unfortunately, ours is a progressive tax system ( I prefer to call it “oppressive” ), which means that if you earn more, you are taxed at a higher rate. In Canada, at the upper scale, people are taxed way in excess of 50%. Can you imagine? More than 50% of your work is taxed away from you.
Start saving today, even if you save a small percentage
My suggestion is to start saving 10% of your income. For many this is a big move. If saving 10% is too much, then start saving 5% or even 2%. The important thing is to get started. Once you get started, once saving money becomes a habit, then you can gradually increase the percentage of your savings year after year.
My saving habits
Once you have decided to save a percentage of your earnings, then you need to figure out how to live with what is left over. Life is made of a thousand small decisions. This is how I go through the process of spending less so that I can save more.
- I don’t have cable. When I want to watch a movie I use Netflix. A great movie which was released two years ago, is still a great movie today. Movies don’t go bad after two years.
- I buy my clothes at Walmart. I am not endorsing Walmart, but I think it is dumb to spend $80 for a pair of designers jeans when I can pay $20 for normal jeans. Also, I only buy new clothes when my old clothes begin to tear.
- I cut my own hair. One day I was frustrated because my favorite barber (the one who only charges $15) was too busy. I went across the street to his competitor who charged me $35 for a haircut that wasn’t any better. I was so upset with the price that I went to buy my own hair cutting machine. It took me half an hour to learn how to cut my own hair and now I have become an expert. I spend 5 minutes cutting my own hair every Tuesday and the cost is $0.00. I believe Mr. Money Mustache also cuts his own hair.
- For transportation, I prefer my bicycle, then public transportation and finally Uber. Taxis are too expensive.
- Recently a friend of mine invited me to celebrate her birthday at an expensive restaurant. In spite of liking this friend very much, I decided not to go. My budget for restaurants is $20 or less.
- For wine, I try to stay below the $10 price range.
- I have a thing against Apple products. I think they are too expensive. My Android phone does just as good a job sending texts for a lot less money.
How about you? What are your money saving strategies? What are your consumer habits? In which ways are your frugal? In which ways do you spend too much?
I know many of you don’t agree with me in one way or another, please feel free to speak your mind.
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