how to handle your financial situation

[Supa]

One important point in TMF for me is: if you can't handle money, earning more money won't solve that problem.

So I thought it would be cool to have a thread where everyone who wants can put his/her insights of that topic into. I'm honest with you, I absolutely can't handle my finances. I never did, but I need to fix that part in my life.

In order to understand my lavish behaviour when it comes to money, I first needed to understand where it comes from. Actually I never learned how to handle money, the main reason I think is, that compared to other kids in my age, I didn't receive pocket money. My parents took care of paying for the things my brother and me needed (clothes, food, etc). So I never got the chance to handle my financial situation on my own as a child. Sure I bought my Playstation Games and music CDs from the money I got for my birthday or on christmas, but all the other everyday things were paid by my parents.

I am not complaining, nor am I blaming my parents for my behaviour. I know they meant it good with me and my brother, and even if my family wasn't rich or upper middle class, my parents tried to give my brother and me an awesome childhood, and they did.

But it was important for me to understand why I spend every dime I got since I started earning my own money. I was 17 when I started working at my first job, and until that day I never had to handle my own finances. So when I received my first monthly salary (about $500), you guessed it, I spent it until nothing was left. This behaviour went on since that day, no matter how much I earned ($650, $800, $1300, $1500) I always spend all my money until nothing was left. In the beginning it wasn't too bad, because I spent my money over the month, until nothing was left right before I received the next salary. But with increasing monthly costs (car, phone, rent) I slowly got into the red numbers every month, until the point that I am in the red numbers the whole month, being afraid of not being able to pay the rent every month.

I tell myself, that it is just a temporary situation, while I'm working on a my Fastlane business. But I realized that if I can't handle $1500 a month, I will probably also have problems handling $150000 a month. That's why I want to fix it now.

I am not even spending big amounts on stupid stuff, I'm not driving an expensive car (an old 1997 BMW), I only pay $350 for my rent (sharing the flat with my brother) and I'm not partying a lot. I think the biggest amount I spent in the last months was $250 and that was for our business logo design.

So the majority of my money is spent for everyday expenses, like buying food, going out for dinner, going to the cinema, and stuff like that.

The reason I made this thread is that I would like to get some insights into the belief systems of someone who CAN handle his/her money situation. I know the importance of handling that area in my life while creating my Fastlane business in order to really live a life free off financial pressure one day.

 

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[Jakawan]

What gets measured, gets managed. Keep track of every dollar for 3 months. A hundred here, a hundred there, makes thousands go fast.
Do you keep your business and personal account separate?
Do you use Quickbooks? I'd also suggest getting a Simple.com bank account. It's great for budgeting, saving, and keeping track of where your money goes.

So.. what helped me.. is I keep my business and personal account separate. I pay myself a salary every month from my business account to personal account. This amount covers all bills and living expenses, gas, and a little leftover for a couple meals per week and miscellaneous.
I also set up an automatic withdrawal at my bank, it automatically pulls 10% of my salary out of my checking account and goes into my savings.
I also tithe 10% to my church. Andddd, I give myself 10% bonuses when I have a good month. So.. just a few things I do there that help.
Another thing is... I don't know how much money you make.. but maybe you're not making enough and should focus on income?
And give yourself smaller rewards. Don't upgrade your car and your phone, and buy a $100 meal, etc learn to reward yourself with smaller, cheaper rewards so that your expenses don't go up as your income goes up.

Hope this helps!

 

[SlowlaneJay]

I'll catch shit for mentioning it, but Dave Ramsey's Total Money Makeover was the book that really hammered everything home for me. You know how sometimes you read a book at the perfect time in your life? Well for me, the timing was perfect.

I had very little cash, I worked in retail at a failing computer store, and I had an expensive girlfriend. Oh, and I was getting ready to go to—and pay for—university.

Ramsey's book got me sorted financially. Then Masterson's Automatic Wealth, and DeMarco's TMF got me sorted mentally. But truly, I wouldn't be able to even think about this business stuff without the foundation laid by Ramsey.

But if you aren't a keen reader, here's the bullet points:

1. Budget for everything
There shouldn't be many "financial surprises" in your life. Christmas is not a surprise. Your sister's birthday is not a surprise. If it happens with some regularity, or if you can otherwise predict it— do so. For example, at the moment a percentage of everything I earn goes to a plane ticket so I can return to Canada in January. I know it's coming, so I plan for it.

2. Free money should be saved
Don't rely on your tax return. If you get birthday money save it. If you find $50 in the street, don't spend it. You were doing fine without this money, you'll do even better down the road when you need it most. Say you get hit with heavy traffic over Christmas and you need to upgrade your website's hosting plan. Bet you're glad you didn't spend your tax return on a speaker system aren't you?

3. Put your savings somewhere semi-reachable
In Canada, a TFSA isn't easy to take money out of. With both my banks, I have to call them up, ask for a transfer, and wait 3–5 days. This means I can't spend impulsively. But in an emergency, I can still access the cash. Find something in your country that earns you enough interest to beat inflation, but is still semi-liquid. Then put your cash in it.

4. If you think you can afford it… you can't
This is in TMF too. But basically, if thinking about a purchase involves complicated mathematics, shuffling cash here and there, or whatever— you can't afford it. You aren't at the point in your life where you can have that thing. Make more money, or save more money, but right now, you can't afford it.

5. Track everything
Every income, every outgo… track it. Put it in a spreadsheet so you can see how much you actually spend on bullshit. If you're putting money away for future purchases (birthdays, a holiday, etc.) make sure you know exactly how much money you've put away so far, and which account it's stored in.

Good luck!

DISCLAIMER: I understand the position of the forum is that earning trumps saving. I get that. But the discussion here is about managing finances. Without learning how to curb impulse spending, track financial transactions, and keep expenses under income… how can anyone learn to manage their finances? I think saving is just a healthy part of good wealth management.

 

[Roland]

When I first joined this forum, I wasn't in red numbers as you say you are but I was spending everything I was earning on stupid ideas. What I did to get things back under control was to take ALL my expenses of the previous 12 months and break them down to a cost per month. Then I took one envelope per "cost centre" and wrote on it what it was for and how much money I had to put in it every month. Since this day, when my salary comes into my bank account, I take out this amount and split the cash between the different envelopes. Even my car insurance which I pay once a year or my water bills which I pay twice a year, I know how much I should put in the envelope and when the bill comes, there is already enough money in there to pay for it.
Spending cash rather than on debit/credit card allows you to see what's actually going out. When there is no cash left, well, you will have to wait for the following payday. It has worked quite well for me so far, maybe it can work for others.

 

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[zrail]

I was like you for awhile, just out of college. I got this high paying software development job, bought a new car, rented a fancy apartment, flew home five times that first year after moving to the other side of the country... and then bounced a rent check AND a student loan payment.

That event made me realize my money process was horrible. I started tracking every penny, and now eight years later I have a healthy bank account balance at all times, and if I wanted to I could stop saving for retirement today and be happy as a clam at "traditional" retirement age. The key for me was to actually hand-enter every single transaction. Every paycheck, every movie, every coffee. I typed out every single penny I spent, and that helped me get a visceral, physical understanding of where my money was going.

I'm going to echo the Dave Ramsey idea. His investment advice is crap, but you don't need that now. You need to get your feet under you, and Ramsey's advice is actually really good for that.

The other thing I would suggest is watching the videos for You Need A Budget and then trying out the demo. It has helped thousands of people just like you to put their financial lives back together and is well worth the money. They also give out free licenses if you do their free classes. Something to look into.

 

[leono]

Have you ever considered that this could actually be a good thing? That is, with a little bit of perspective and reframing, you could turn this weakness into an advantage.

Here's how...

Follow what everyone else -- especially SlowlaneJay -- has said, but with the frame of mind that you are giving your money (each paycheck) a purpose. That is, you're still going to zero out your paycheck, but now, it's because you've decided (beforehand) where the money is going to go.

This portion is going to savings.
This bit to eating out.
This for my fastlane business.
And that to go skiing!

Every cent has a purpose and is given a direction (a "location").

 

[zrail]

Have you ever considered that this could actually be a good thing? That is, with a little bit of perspective and reframing, you could turn this weakness into an advantage.

Here's how...

Follow what everyone else -- especially SlowlaneJay -- has said, but with the frame of mind that you are giving your money (each paycheck) a purpose. That is, you're still going to zero out your paycheck, but now, it's because you've decided (beforehand) where the money is going to go.

This portion is going to savings.
This bit to eating out.
This for my fastlane business.
And that to go skiing!

Every cent has a purpose and is given a direction (a "location").

For what it's worth, this is exactly what YNAB is all about, and what the software helps you do. Every little green soldier that comes in the door gets a job, even if that job is "hang out for a month while I decide what you should do."

 

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[Bellini]

Dave Ramsey's Total Money Makeover was the book that really hammered everything home for me.

Thanks for this.

I am just about to start this book. It's required reading for a Financial Coaching Class I am taking. (It's just one of the books we are required to read)

I have been familiar with Dave Ramsey for years, and I agree that it's a good place to start. I need to go over the basics again.

It concerns me when I see all these young, inexperienced people who have no financial education whatsoever bragging about wanting 'millions', when they don't even know how to handle 'hundreds'.

What happens when they suddenly rake in thousands through their 'affiliate marketing program' or whatever? The money is completely squandered because they don't know what they're doing. They are trying to fly before they ever learned how to walk financially.

There is a big difference between making money and managing money.

I had to learn that the hard way!

 

[sija1]

@Supa I can't give you useful advice as I am still learning the same thing you are. One of the things tho that changed the way I see money management (and helped me spend less since I read it) is this thread: https://www.thefastlaneforum.com/co...-i-have-some-money-what-do-i-do-threads.52906

Read the whole thing, especially replies from @GrumpyCat, it shows a real life example of how much you can save and multiply.

 

[Bouncing Soul]

My parents were mostly terrible examples for personal finances. We got serious about this due to debt, and a realization I'd have fired myself for handling my money as I did in my personal life. I read a whole shitload of books on personal finance, and only Dave Ramsey passed the smell test. I am not as anti-401(k) as many on the forum, but I view it as insurance, not as a good path to wealth or financial independence. A decent budget, spending cash etc, was an integral step in our journey from Sidewalk to Slowlane to Fastlane.

If you do read Dave, pay attention to what he rarely, though occasionally, mentions about how he created his significant personal wealth. (I've only heard him discuss it on his podcast) Fastlane stuff. Also, when discussing finances with people that make lots of money, or have a liquidity event, he does not advise 15% in to a 401(k) and then spend the rest, he advises much higher rates of saving, often mixing in cash owned real estate or adding money in to a successful business to scale.

 

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[Bila]

A successfull friend of mine told me once '' It's easy to make money, what's hard ? to keep the money '' ....I always remind myself of this. It's hard indeed with the demands of modern life, but you have to make choices for the long term over short term.

We are all in this by the way, because the demands are always here, always bombarded with new '' stuff'' to buy, new destinations to travel to, new restaurants to try in town...etc.

 

[Supa]

Thanks for all your responses!

I'm re-reading TMF at the moment, and today I started reading the chapter on choices. That topic fits good to this thread. I have to learn to make choices based on long term goals instead of instant gratification. This goes for my process of losing weight, aswell as for learning how to manage my finances.

It's crazy how good it feels when you integrate new beliefs and a new behaviour that turns into habits. 1-2 months ago I couldn't go to the supermarket without buying some chocolate bar. After reading 'The Miracle Morning' by Hal Elrod I started to do Affirmations. Guess what, it must be a month ago that I bought my last chocolate bar. I often feel like I could use one now when I'm shopping groceries, but as soon as I get to where they are I think "nah man it doesn't do anything good for you" and I just don't grab it. I also look at the people while shopping, the overweight woman with all those chocolate stuff and so on in her shopping cart and I think to myself "do you still wanna look like you do now when you are as old as her?" I would have never thought this way without becoming aware of my limiting beliefs, and actively changing them. I think this will work for the behaviour with my finances too.

 

[Roland]

Thanks for all your responses!

I'm re-reading TMF at the moment, and today I started reading the chapter on choices. That topic fits good to this thread. I have to learn to make choices based on long term goals instead of instant gratification. This goes for my process of losing weight, aswell as for learning how to manage my finances.

It's crazy how good it feels when you integrate new beliefs and a new behaviour that turns into habits. 1-2 months ago I couldn't go to the supermarket without buying some chocolate bar. After reading 'The Miracle Morning' by Hal Elrod I started to do Affirmations. Guess what, it must be a month ago that I bought my last chocolate bar. I often feel like I could use one now when I'm shopping groceries, but as soon as I get to where they are I think "nah man it doesn't do anything good for you" and I just don't grab it. I also look at the people while shopping, the overweight woman with all those chocolate stuff and so on in her shopping cart and I think to myself "do you still wanna look like you do now when you are as old as her?" I would have never thought this way without becoming aware of my limiting beliefs, and actively changing them. I think this will work for behaviour with my finances too.

Well done, keep going!

 

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[Ninjakid]

I don't know what the living expenses are like in your part of Germany, but $1500 may not actually be that much money where you are. Especially since that's only like €1300. In Vancouver, owning a car is like declaring war on your bank, and even little things like eating out and going to movies eats up your $1500 like I eat a jar of Nutella (with a spoon, and it's gone in about three sittings). Contrary to what you said in the first line, I think making more money could actually help.

Eating out, going to movies, and partying are not necessities. Cutting down in any one of those areas will give you A) More money. B) More time to hustle and increase your bankroll.

 

[Equilibrium]

I started out in the same boat buddy!
man $500 goes so fast doesn't it. A steak there, a latte here and you left looking at $20 in your bank.

Here's how to fix that.

Step 1:
GET RID OF CABLE.
I speak from personal experience here as a tech support agent.
you will spend at LEAST $20 a month on a idiot box. why? your paying to watch commercials.
you will learn nothing from TV. you will however, lose $407.76 per year at a rate of $33.98 per month

Step 2:
seriously
get rid of cable.

If you really want to watch movies, text ''freebie'' to 727272 to join the redbox text club
free movie every month, various promos throughout., your welcome.


Step3:
Decide how you want do this.
no matter what you choose, if you want to EVER have your money collect pay. yourself. first.
I highly recommend the book ''the richest man in Babylon'' for TLDR, save 10%

BEFORE you account bills.
BEFORE you start buying frappes.
save 10% of your money. treat it as a bill.
and when I say pay, i mean PAY.
get another bank account for the pure purpose of transferring money
SHRED the debit card. Assign $50 to transfer, every month on your SECOND paytcheck.
in your budget app, set up 50 bill.
your goal is to automate this. set and forget. that money DOESN'T EXIST.

Does it work? here's my setup.

This is money I don't care about. it means nothing, because I don't need it.
that insignificant $50 you would have blown on who cares or knows goes towards the future.
now lets move on.

if you MUST use your bank account ballence, drop your bank and sign up with simple

The Easy way.
(sample image)

Level Money
Level money is a Android and iphone app. It hooks into your bank account and auto tags transactions.
it looks great and is easy to use. At the start you set up your bills, from then on level auto subtracts that amount from your income. You can also set it to save money, all done automatically.
now if your have a android phone, drag the beautifully designed widget onto home-screen. Iphone users, open the app. it lets you see at a glance what your ''spendable'' is.. which is the money you can spend after all bills are paid.


Mint.
stay the heck away from mint. Its transactions sorting powers are mediocre at best, and its money helpful; tips include opening loans. Though some people use it, I detest it.

EveryDollar
I can not offer advice here, because the app plans with nonexistent money (next paycheck you don't have yet) and i wont touch it.


The not so easy, but so worthwhile way <- awesome
YNAB

Now, before we continue you must understand this.
the money your bank shows, and the money you have to spend are two different things.

STOP using your bank app.
make sure your account isn't in the hole, and delete its mobile apps.

with Simple, you will get instant notifications when you spent auto categorized with you needing to do nothing.

Level same thing.. but it needs to be monitored in the start.
YNAB is only for people who want to maximize funds. YNAB takes dedication, manually entering in transactions.

however, whatever you choose you must stop looking at your bank amount.

Beef it out!
restaurants will be a big expanse.
so how do you fix that? you buy a $9.00 skillet and some steaks man!
every day I throw some beef, chicken, or whatever looks tasty on the grill, or skillet.
I soak it in whorschire sause, and read a book while it cooks. takes about 12 mins.. most days ill cook a lil extra. $10 for a pack of thin cut steak. $19 for a thick cut. get some bacon..
I love waking up in the morning to fresh brewed coffee, and steak. sure tastes a lot better than greasy fat pies from local buyabloat fast food. Instead of mcgobbles fake and bleughs, im enjoying fresh lox and bagles.

and those starbucks drinks? search for imitation starbucks, and buy the $5 bucks of ingredients to make them.. i was beyond amazed. now pay about $0.15 for a grande cappuccino.

once you hit seven days, use your next paycheck as a buffer. then the next.
then always run with two paychecks ahead.
and always.. always. pay yourself first.

$500. Thats what your going to need saved in the bank at every moment. so if you have $540 guess what? you have 40 bucks. better make more..

when you can train yourself to PAY all bills, and still save 5..10 bucks a week (this is AFTER paying yourself)

you start to think less like
''Bank has..bills are..yeah I can buy a coat.''
and more in the terms of

What the bank says I have: never read. who cares?
What my budget says I have:this is my bank amount.
My 'buffer: This is my monthly income, two times. I ignore it.
My spending money: Wooho! new coat!

By paying yourself first, your bills next, and supplying double the income for a buffer,
all worries of money will melt away. It really does change how you see things.
At work people alway celebrate. ''WOHOO FRIDAYYYYY!!''
uh.. whats so special?
''MONEY! GREENS! PAYDAAAAY!!''

oh.right.. payday. I forgot.
enjoy your steak

 

[Bouncing Soul]

People like to do this differently. Nothing wrong with tracking every expense if that's your style. I hate it.

Pulling out $500 cash for food (or whatever your amount is) and using it over the month works way better for us.

Try both, there's no "right" answer other than the system you can maintain over the long haul.

 

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[Charmander]

I can´t believe the advice people are really giving here, writing paragraphs of bull....,really ...

But I realized that if I can't handle $1500 a month, I will probably also have problems handling $150000 a month.

Realize that it will only be a problem IF YOUR EXPENSES GO UP. If they don´t (as it should)-earning more money is NOT going to be a "problem". Remeber, there is a reason why Warren Buffet lived in the same house, drove the same car etc... His income went up, not his expenses (atleast straight away, and of course, his expenses became managable with his growing income to be able to afford him planes,etc...)

Also do not ever track "every dollar" spent. (I mean seriously?)

Also, there is difference between "eating out" that is financially dangerous (50-200$ meals), and eating 3$ meals (which actually SAVE you money, because as it turns out, if you were to buy it yourself by the ingredients, all you would save is penies, but loose hours, cooking it all)... And also, sometimes you need to eat out, because you need it mentally..

4. If you think you can afford it… you can't

This is true, but I think that nobody(most of the people) can REALLY afford 90% of things in store, as they are allready super-overpriced compared to the incomes. (really, can you really spend X% of your total net worth on an item/food?)

Just don´t go crazy, and don´t worry,there are people who are going broke spending 200$ a day on food[so also don´t about worry loosing money(in the past) happens(ed) to (I think) everyone]...

________
Also, prices are at their rock bottoms these days(as 90% of the population is broke(yes it was not this way all the time), the prices had to adjust of course), so if you are making a nice income you are in no trouble...
Though I see spending ALL of my money as an investment - sure it might be better long term to invest in stocks, rather than use the money for food, but as long as spending money (even on food) is going to make me either a) feel more happy(and no I do not confort to "instant gratification") b) more productive or c) give me more money in the future - I am going to be doing that (just think about pulling a lever on a slot machine - if it gives you 2$, each time you throw in 1$, how much more would you be doing that?)

And my most imporant Tip : SAVE MONEY WHERE YOU SHOULD, instead of where YOU SHOULDN´T.
-For example, you can save THOUSANDS, when buying/renovating houses

(we lost almost €50k this way!-for example, we bought a kitchen area worth 5000€ more than an equivalent model, and now we BUDGET(ed) FOR FOOD!!!!) -what sense does this make? Doesn´t it make more sense to buy quality food, instead of quality "crap"?
You can also save a TON of money by not buying high end furniture - really, what difference does it make to have (for example) a wardrobe worth thousand, when a 50$ one is going to do that same job? I mean if you think about it, a lot of businesses are built on the simple fact, that they sell super cheap stuff for super high prices (and food industry is certainly one of them - just pause and realize that you are spending 1 dollar(more in a restaurant) on a can of coke, that costs 5 cents to make...

Really, all this stupid penny pinching, dollar tracking garbage is just to drive people so crazy, that it is going have the opposite effect that it is supposed to have.

I mean- if I KNOW that I simply don´t have enough money to buy an item, without even "thinking" about it, and making it an instantaneous decision, I am just not going to do it.

If you think you can afford it… you can't

 

[zrail]

I can´t believe the advice people are really giving here, writing paragraphs of bull....,really ...


Realize that it will only be a problem IF YOUR EXPENSES GO UP. If they don´t (as it should)-earning more money is NOT going to be a "problem". Remeber, there is a reason why Warren Buffet lived in the same house, drove the same car etc... His income went up, not his expenses (atleast straight away, and of course, his expenses became managable with his growing income to be able to afford him planes,etc...)

Also do not ever track "every dollar" spent. (I mean seriously?)

Also, there is difference between "eating out" that is financially dangerous (50-200$ meals), and eating 3$ meals (which actually SAVE you money, because as it turns out, if you were to buy it yourself by the ingredients, all you would save is penies, but loose hours, cooking it all)... And also, sometimes you need to eat out, because you need it mentally..


This is true, but I think that nobody(most of the people) can REALLY afford 90% of things in store, as they are allready super-overpriced compared to the incomes. (really, can you really spend X% of your total net worth on an item/food?)

Just don´t go crazy, and don´t worry,there are people who are going broke spending 200$ a day on food[so also don´t about worry loosing money(in the past) happens(ed) to (I think) everyone]...

________
Also, prices are at their rock bottoms these days(as 90% of the population is broke(yes it was not this way all the time), the prices had to adjust of course), so if you are making a nice income you are in no trouble...
Though I see spending ALL of my money as an investment - sure it might be better long term to invest in stocks, rather than use the money for food, but as long as spending money (even on food) is going to make me either a) feel more happy(and no I do not confort to "instant gratification") b) more productive or c) give me more money in the future - I am going to be doing that (just think about pulling a lever on a slot machine - if it gives you 2$, each time you throw in 1$, how much more would you be doing that?)

And my most imporant Tip : SAVE MONEY WHERE YOU SHOULD, instead of where YOU SHOULDN´T.
-For example, you can save THOUSANDS, when buying/renovating houses

(we lost almost €50k this way!-for example, we bought a kitchen area worth 5000€ more than an equivalent model, and now we BUDGET(ed) FOR FOOD!!!!) -what sense does this make? Doesn´t it make more sense to buy quality food, instead of quality "crap"?
You can also save a TON of money by not buying high end furniture - really, what difference does it make to have (for example) a wardrobe worth thousand, when a 50$ one is going to do that same job? I mean if you think about it, a lot of businesses are built on the simple fact, that they sell super cheap stuff for super high prices (and food industry is certainly one of them - just pause and realize that you are spending 1 dollar(more in a restaurant) on a can of coke, that costs 5 cents to make...

Really, all this stupid penny pinching, dollar tracking garbage is just to drive people so crazy, that it is going have the opposite effect that it is supposed to have.

I mean- if I KNOW that I simply don´t have enough money to buy an item, without even "thinking" about it, and making it an instantaneous decision, I am just not going to do it.

Hedonistic adaptation is absolutely a real thing, and for many people, when their income goes up their spending goes up. Living within or below their means doesn't come naturally to everyone. Many people don't have a good intuitive sense of how much money they have available, or how much they should be spending. Tracking every penny is very useful to instill that sense, even if you only do it temporarily.

 

[JustAskBenWhy]

Rule #1: You should never pay for your expenses - someone else should, cause you can't afford it!
Rule #2: You should never pay for your expenses - someone else should, cause you can't afford it!
Rule #3: You are loosing 30% to the taxman but worrying about budgeting to save 3% of gross - are you nuts?

Budgeting is important, but there are big items that keep you poor, and there are insignificant marginal items that don't matter much. Focus on the big stuff first - you are welcome hahah

This is the fastlane forum, is it not? We don't think like normal people here - we think like financially free people. And those of us who don't have it made yet must fake it til we make it. Act the part, folks - take care of the big stuff, and then save on cafe moca if you want...

 

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[Charmander]

Hedonistic adaptation is absolutely a real thing, and for many people, when their income goes up their spending goes up. Living within or below their means doesn't come naturally to everyone. Many people don't have a good intuitive sense of how much money they have available, or how much they should be spending. Tracking every penny is very useful to instill that sense, even if you only do it temporarily.

Yup, it is good to develop the saving habit, but it is tough to do so, unless the person atleast grasps the importance of it.
It seems that most people learn it the hard way though...

 

[zrail]

Rule #1: You should never pay for your expenses - someone else should, cause you can't afford it!
Rule #2: You should never pay for your expenses - someone else should, cause you can't afford it!
Rule #3: You are loosing 30% to the taxman but worrying about budgeting to save 3% of gross - are you nuts?

Budgeting is important, but there are big items that keep you poor, and there are insignificant marginal items that don't matter much. Focus on the big stuff first - you are welcome hahah

This is the fastlane forum, is it not? We don't think like normal people here - we think like financially free people. And those of us who don't have it made yet must fake it til we make it. Act the part, folks - take care of the big stuff, and then save on cafe moca if you want...

To be extra-pedantic, this is the Sidewalk subforum, where we discuss Sidewalk things.

I'm not sure what you're saying with your rules. How do I get someone else to pay my expenses, and how do I control how much tax I owe? Because ultimately everybody owes income tax, it's just a matter of degree as to how much you owe in any given year.

OP's stated goal for the thread is to learn from people who have their financial house in order, not people who are faking it. Faking having your finances in order ultimately is just going to lead to failure, because usually it implies going into consumer debt for meaningless things that detract from the goal. MJ didn't buy the Lambo until he had won the game.

 

[JustAskBenWhy]

To be extra-pedantic, this is the Sidewalk subforum, where we discuss Sidewalk things.

I'm not sure what you're saying with your rules. How do I get someone else to pay my expenses, and how do I control how much tax I owe? Because ultimately everybody owes income tax, it's just a matter of degree as to how much you owe in any given year.

OP's stated goal for the thread is to learn from people who have their financial house in order, not people who are faking it. Faking having your finances in order ultimately is just going to lead to failure, because usually it implies going into consumer debt for meaningless things that detract from the goal. MJ didn't buy the Lambo until he had won the game.

Haha - Well, I am not surprised that you don't understand what I mean by "deflect your expenses". You can either listen and think on it, or you can continue to work hard to pay your bills, and see if that get's you off of the sidewalk and into the fast lane...

OP is trying to learn conventional wisdom. Conventional wisdom almost never works. Budgeting is important, but it starts not with discretionary, but the big liabilities. MJ's book has been purchased and should arrive any day - I look forward to reading it. But, even not having read it, I am rather sure he would agree with me

We don't all pay income tax, and certainly what we pay is not equally a function of income. All of the wisdom is inside the tax code - now there's some nice reading for you.

 

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[zrail]

Haha - Well, I am not surprised that you don't understand what I mean by "deflect your expenses". You can either listen and think on it, or you can continue to work hard to pay your bills, and see if that get's you off of the sidewalk and into the fast lane...

OP is trying to learn conventional wisdom. Conventional wisdom almost never works. Budgeting is important, but it starts not with discretionary, but the big liabilities. MJ's book has been purchased and should arrive any day - I look forward to reading it. But, even not having read it, I am rather sure he would agree with me

We don't all pay income tax, and certainly what we pay is not equally a function of income. All of the wisdom is inside the tax code - now there's some nice reading for you.

Ah, you haven't read the book. Well, to give you a preview: MJ's message is to live below your means while simultaneously expanding your means. He never says to "fake it til you make it" with regards to finances, unless I missed that part. He also explicitly states to set aside 40% of income for taxes.

Having thought a little about your first and second rules, here's the methods I can come up with:

1. Pay expenses through a business entity and deduct them from your taxes.
2. Literally get someone else to pay your expenses, via travel reimbursements or whatever.
3. Literally get someone else to pay your expenses by asking for loans or taking advantage of their generosity, or whatever.

Am I on the right track? Am I missing something? Method 1 would work to a point, I suppose. Method 2 is considered taxable income. Method 3 is getting into unethical territory, but I guess if that's what it takes to get ahead?

I will grant you that there are legal loopholes that allow you to pay zero tax. Cap gains rates + carried forward cap losses + exceptions for kids + various other allowed deductions would get you there. Is any of that a useful exercise for the OP, who doesn't even know where their money is going? I don't think so.

Oh, and knowing the conventional wisdom is useful, not only because sometimes there are good ideas there, but also because if you don't know what it is you won't know when to break from it. If you don't know what you're competing against, you're just making stuff up.

 

[JustAskBenWhy]

Ah, you haven't read the book. Well, to give you a preview: MJ's message is to live below your means while simultaneously expanding your means. He never says to "fake it til you make it" with regards to finances, unless I missed that part. He also explicitly states to set aside 40% of income for taxes.

Having thought a little about your first and second rules, here's the methods I can come up with:

1. Pay expenses through a business entity and deduct them from your taxes.
2. Literally get someone else to pay your expenses, via travel reimbursements or whatever.
3. Literally get someone else to pay your expenses by asking for loans or taking advantage of their generosity, or whatever.

Am I on the right track? Am I missing something? Method 1 would work to a point, I suppose. Method 2 is considered taxable income. Method 3 is getting into unethical territory, but I guess if that's what it takes to get ahead?

I will grant you that there are legal loopholes that allow you to pay zero tax. Cap gains rates + carried forward cap losses + exceptions for kids + various other allowed deductions would get you there. Is any of that a useful exercise for the OP, who doesn't even know where their money is going? I don't think so.

Oh, and knowing the conventional wisdom is useful, not only because sometimes there are good ideas there, but also because if you don't know what it is you won't know when to break from it. If you don't know what you're competing against, you're just making stuff up.

Well, I guess MJ and I agree

 

[Imgal]

Thanks for all your responses!

I'm re-reading TMF at the moment, and today I started reading the chapter on choices. That topic fits good to this thread. I have to learn to make choices based on long term goals instead of instant gratification. This goes for my process of losing weight, aswell as for learning how to manage my finances.

It's crazy how good it feels when you integrate new beliefs and a new behaviour that turns into habits. 1-2 months ago I couldn't go to the supermarket without buying some chocolate bar. After reading 'The Miracle Morning' by Hal Elrod I started to do Affirmations. Guess what, it must be a month ago that I bought my last chocolate bar. I often feel like I could use one now when I'm shopping groceries, but as soon as I get to where they are I think "nah man it doesn't do anything good for you" and I just don't grab it. I also look at the people while shopping, the overweight woman with all those chocolate stuff and so on in her shopping cart and I think to myself "do you still wanna look like you do now when you are as old as her?" I would have never thought this way without becoming aware of my limiting beliefs, and actively changing them. I think this will work for the behaviour with my finances too.

As you've discovered the truth is that making changes in your life really is about reframing things! Some people fail to manage their money. Others fail to manage their talents, habits and motivation and end up depleting their time and money banks by not being able to see the best ways to use either. You are doing incredibly on both fronts @Supa and I commend you so publicly owning your limiting beliefs and issues and being so open to improving your self to be the person you really want to be.

 

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[Bouncing Soul]

Rule #1: You should never pay for your expenses - someone else should, cause you can't afford it!
Rule #2: You should never pay for your expenses - someone else should, cause you can't afford it!
Rule #3: You are loosing 30% to the taxman but worrying about budgeting to save 3% of gross - are you nuts?

Budgeting is important, but there are big items that keep you poor, and there are insignificant marginal items that don't matter much. Focus on the big stuff first - you are welcome hahah

This is the fastlane forum, is it not? We don't think like normal people here - we think like financially free people. And those of us who don't have it made yet must fake it til we make it. Act the part, folks - take care of the big stuff, and then save on cafe moca if you want...

I had a whole lot of my expenses paid (car allowance, fuel, fancy meals, travel, insurance, retirement contributions, computer, cell phone, ISP fees, hell even my home office furniture and supplies) when I had a job, and I don't mean out of my taxable income. Is that what I should be after?

 

[JustAskBenWhy]

I had a whole lot of my expenses paid (car allowance, fuel, fancy meals, travel, insurance, retirement contributions, computer, cell phone, ISP fees, hell even my home office furniture and supplies) when I had a job, and I don't mean out of my taxable income. Is that what I should be after?

Having expenses come out pre-tax is a perk. But, you can't afford to have that be facilitated by W2 income. First, W2 income is unsafe. Also, you simply get killed by the income and FICA taxes. 1099 is a little better, but only slightly...not much, really. Only in that it is more diversified, but it is still earned and pass through, so you still get killed on taxes. Don't you find the self-employment tax is just annoying as hell...?

Understand the flow of capital. Position yourself in the flow. And remember - make your money on Schedule C and Schedule E to have the latitude unimaginable with either W2 or 1099. In my opinion, if you are paying any more than 15% effective tax rate, you are doing something very wrong...

Incidentally, big corporations agree

 

[Supa]

As you've discovered the truth is that making changes in your life really is about reframing things! Some people fail to manage their money. Others fail to manage their talents, habits and motivation and end up depleting their time and money banks by not being able to see the best ways to use either. You are doing incredibly on both fronts @Supa and I commend you so publicly owning your limiting beliefs and issues and being so open to improving your self to be the person you really want to be.

thanks @Imgal really appreciate it!

 

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[Bouncing Soul]

Having expenses come out pre-tax is a perk. But, you can't afford to have that be facilitated by W2 income. First, W2 income is unsafe. Also, you simply get killed by the income and FICA taxes. 1099 is a little better, but only slightly...not much, really. Only in that it is more diversified, but it is still earned and pass through, so you still get killed on taxes. Don't you find the self-employment tax is just annoying as hell...?

Understand the flow of capital. Position yourself in the flow. And remember - make your money on Schedule C and Schedule E to have the latitude unimaginable with either W2 or 1099. In my opinion, if you are paying any more than 15% effective tax rate, you are doing something very wrong...

Incidentally, big corporations agree

The point I was making is tax is just an expense to watch and try to optimize. The goal is money in your pockets, not lowest tax rates. A distinction people forget to great cost all the time.

 

[JustAskBenWhy]

The point I was making is tax is just an expense to watch and try to optimize. The goal is money in your pockets, not lowest tax rates. A distinction people forget to great cost all the time.

Lower tax is money in your pockets...lol

So - say you earn $100,000 @ 30% effective tax rate - your spendable CF is $70,000
but - if you earn $77,500 @ 10% effective rate - your spendable income is also $70,000

Several questions come about:
1. Is it easier to earn $70,000 or $100,000? Say $70,000
2. Could you earn $100,000 and manage to keep your effective tax rate at 10%? Say yes
3. Could you earn $200,000 and manage to keep your effective tax rate at 10%? Say yes
4. Could you earn $400,000 and manage to keep your effective tax rate at 10%? Say yes

The point I am making is that for those of us who know how to read (the tax code), there is never any reason to pay high taxes. The law is clear on what to do and what not to do. Tax code is one big incentive apparatus...