Top 7 Ways to Save Money

Top 7 Ways to Save Money

What would you do if you won the lottery? Portrait of a very happy young man in a rain of money; Shutterstock ID 148789697; PO: lottery-winner-money-stock-today-tease-160108; Client: TODAY Digital

Recently, I was thinking about the last “7 Ways to Save Money” list I made and thought just how typical and boring it really was.  I thought about what people really wasted their money on.  Then I got to think that in reality, people waste money on different things at each different stage in their life.

So I decided to start off by targeting the worst money waster: the mid-twenties dude – which is what I recently past.

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1) You don’t need to blow $150 a night at a bar/club to have fun: Back when I was mid-twenties, I wasted a lot of money on booze.  My buddies and I used to go out to bars and waste $150 – $200 a night on booze and fast food.  Looking back now, it is easy to see what a waste of money it was.  But in addition to that, I was foolishly thinking that it would help me pick-up the hotties.  The reality is that first, most respectable girls do not look at a guy that gets wasted and think that he is a good catch; second, if you’re throwing money around like that, you’ll probably be attracting the wrong types of women.  Thirdly, you’ll end up wasting most of the next day recovering and regretting what you have done.  Don’t get me wrong; having a bender once in a while is one thing, doing it weekend in and weekend out is another.  Instead, when I go out now, I take a much more reserved approach to drinking, and only have a few drinks.

2) Downsize the vehicle: I think most guys are guilty of this one.  Which guy doesn’t want to have a nice vehicle, rolling up to a red-light with your chrome 22″ spinners – blacked out windows… and which hottie isn’t going to check you out.  But, if you bought the rims credit and have a real fat car loan, the real question is which women is going to want to stay with you?  If your vehicle is too expensive for you to drive, maybe you should think selling to pay off the debt associated with it.  If you cannot afford to keep the car you have now but don’t want to get rid of it, you should try growing up and start understanding that in life, you can’t have everything.  The reality is that you should downsize it at your will or the car will have to get re-possessed cause you can’t afford it.

3) Tickets to the game/Sports: Anybody who watches football, hockey or soccer, understands how fun it is cheering your favourite team.  In addition, to that, watching it with buddies over some beers can be one of the best things.  However, if you bought all that shit on your credit card and don’t have the money to pay for it, it can be one of the stupidest things to do.  Let’s say you go out to a Stanley Cup Playoff Game – let’s say tickets cost $500, and you spent $150 on booze and food, $30 on gas and parking, and another $20 on miscellaneous things like 50/50 draws etc. Your total bill would be $700.  Using a minimum payment of 5%, it would take you roughly 62 months to get rid of your debt, and you will pay $295.32 in interest. If you used a fixed payment of $35.00, it would still take you 25 months to get rid of your debt, and you would pay $158.62 in interest.  That just takes the fun out of going to the game doesn’t it.

4) Gambling: I’m not going to lie.  I am guilty of this one too.  However, gambling is something that I just do not do anymore.  It is just not worth it.  Fact is that any casino that you go to, the odds are always stacked against you.  No matter what game you are playing, the house always has the edge on you.  They don’t make millions of dollars a month by splitting the odds with you 50/50.  For example, roulette was one of my favourite games at the casino.  However, have you ever calculated your odds of winning??  Well, if you bet on one number, your odds are 1/38 or 2.63% but the casino only pays you 35:1.  So they have 100% – 2.63% chance they are going to win. However, because they only pay you 35:1, they have a 3/38 edge over you – or a 7.89% edge when paying out.  So 7.89% – 2.63% = 5.26% house edge.  If you want to just want to waste some money and have fun, that’s one thing, but gambling can ruin your financial goals – forever. So be very careful.

5) Golfing: There is something to going out with the boys and playing a round of golf while enjoying the sunshine and having a few beers.  However, it is undoubtedly one of the most expensive sports you can play.  Personally, I think it’s a rich man’s sport.  To prove this, let’s do the math on this.  Let’s assume you play for half the year – so 26 weeks and average 2 games per week @ $75 a round.  Every year, you would be spending $3,900, just on greens fees.  However, include the beer, food, travel, golf balls, clubs, etc., and it can easily reach $6,000 a year.  Let’s assume you make $200k a year, this would be manageable.  However, if you only earn $75,000 before tax, and take home only about $56,000, you would be spending over 10% of your after-tax income to a sport.  And let’s be honest, it’s barely a sport.

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6) Clothing: In high school, those who wear old tattered clothes are usually ridiculed and pestered.  However, young men and women (even teenagers) nowadays wear designer clothes that are way over the top – jeans that cost $250 or more – shirts that cost well over $100.  While you should definitely strive to look and feel good, it doesn’t mean you need to spend $250 on every pair of jeans you have, or $100 on every shirt you have.  That’s just crazy and would probably cause you to go broke.  Instead, try varying your wardrobe to include an everyday $50 – $75 pair of jeans and maybe a few $30 shirts.

7) Electronics/Phones/Computer: Technology is a good thing. Right now, I am typing on my brand new iPad and I love it.  However, I do not just go out and buy things willie nillie.  The average American spends approximately $1,200 a year on technology.  Don’t forget that this means that some spend none and others spend greatly more than $1,200.  You should look at what you spend and compare it to the average.  Also, try to decide whether you really need what t is you are buying – maybe you can do without.

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What is Money??

What is Money??

Most of us grow up without ever wondering how or where it gets its value.  Unfortunately, many adults don’t know where money comes from and what gives it value or causes it to drop in value.  Soooo…… What is money??

For something to be used as money, it needs to ensure that it can be used as the following characteristics, including:Store of Value – Most metals and many mined materials can be considered a store of value because it takes an incredible amount of labour to extract them.   Unit of Account – The greenback is the unit of account for the US money supply.  The dollar is further broken up into the half dollar, quarter, dime, nickle, and penny.

Medium of exchange – Ease of trade is the basic purpose of money.

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In order to accomplish the above, money requires the following characteristics:

  • Durable – Money needs to be durable enough to withstand the test of time.  For example, an apple has value and unit of account but fails at being durable.  Therefore, it cannot be a medium of exchange.  By contrast, gold and silver are extremely durable and can last centuries underwater without corroding.
  • Consistent – Money must be consistent to ensure that it represents an exact unit.  However, clipping or shaving of gold and silver coins was common throughout history and is a major problem with using gold or silver coins as currency.  Not to mention, if you were buying a car, bringing carrying around bags of silver coins would be a little cumbersome.
  • Divisible – Money must be divisible and must have different denominations.
  • Portable – Money must be light and easy to carry.
  • Uniform – Money needs to be uniform to ensure acceptability and purchasing power.
  • Limited in Supply – Money isn’t valuable if there is too much of it.  That is why inflation is problem.  Inflation is the increase in the money supply.

Why do we need money??

Money is something that is created to make the economy function more efficiently.  It makes our complex economy much more user friendly.  For instance, imagine we were paid in silver or gold; we would need to transport these around – and if we were making a large purchase, say an automobile, it would be obvious we were carrying a large amount of money. How does money come into existence??

Currency (paper and coins) are produced by the  U.S. Treasury’s Bureau of the Mint and Bureau of Engraving and Printing.  It is legal for these guys to print money because the Constitution says it is legal (Section 5112 of Title 31 of the United States Code).  In Canada, printing is done by the Bank of Canada.

What the problem with money??

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The problem with the US dollar, and all fiat (debt based monies), is that there are no control for the average person to ensure that the value of the money is maintained.  That is, all of the currencies printed and minted into existence fails on the very first point above.  It lacks the “Store of Value” needed to make it a good candidate for a money supply.  Therefore, it is my belief that someday in the near future, the real value of the US dollar will be exposed and it will become worthless.  This has been happening for quite some time, back in the 1920’s a house with a couple acres could be bought for $4,500.  Nowadays, that house is worth $200,000+.  The reason it is worth more money is because there is more money in the system – therefore the prices get “inflated”.Is there any hope for money??

The US dollar hasn’t always been a fiat currency.  It wasn’t until 1971 that President Nixon took the US dollar off the Gold Standard.  It was a move that has had a devastating effect on the currency. However, I believe that one day will come where the citizens of America will demand that the currency be backed by something tangible.  Until then, there really isn’t any hope for the dollar.

Good vs Bad Debt

Good vs Bad Debt

Not all debts are created equal.  When most people hear the word debt, they think of real bad credit card debt.  And while this is true, and that credit card debt is the worst there is, there is also good, and sometimes very beneficial debt.

Bad Debts

Bad debts are any debt that has been used to purchase an item of luxury using a credit card or line of credit.  These may include:

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  • cars
  • boats
  • vacations
  • flat screen televisions
  • shoes, coffee, or anything you purchase on a credit card.

You can think of it like this: if you buy something on credit, and it disappears or it’s value diminishes over time, it’s considered bad debt.  The average North American (American and Canadian) debt is over $25,000.  While this includes car loans and lines of credit, it is still an astronomical number.  And while most people consider a home loan as “good debt”, I would venture to say that it is on the borderline between good and bad debt.  I would define a home as bad debt since there is liability attached to it.

Think of the millions of Americans that have foreclosed on their homes in the last five years.  Just because it is a house, doesn’t mean it is a “good investment”.  It is now very well known that the value of a house can depreciate significantly, therefore, is it safe to say that it shouldn’t be considered good debt??

However, if you have done your due diligence and researched what drives a real estate market upward and downward, it should give you comfort in knowing that the debt you are taking on isn’t as risky.  Read articles such as “What Creates a Real Estate Bubble” and “The Wealth Effect Explained” to give you an idea of what can happen in a real estate bubble.

Good Debts

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Good debt is often referred to as “self liquidating debt”.  Debt is used to purchase something that will pay down the debt as you own it.  Examples of this include:

  • business loan
  • school loan
  • car loan
  • investment properties
  • any loan that pays your debt down and over time, will make you money

Wait a minute, why do I have cars in both.  Well, the vehicle loan can be considered good debt if you are able to write the expense off under your business.  In the bad debt case, it is a personal car loan which is 100% non tax deductible.  You should try to strive to have no debts at all, however, “good debts” can be used to achieve your financial goals easier since any interest accumulated on these loans is usually tax-deductible.