Towards a Better Financial Future (Even If You Don’t Have a Penny to Save)

A dime in income, a dollar in expenditure; the story of our lives. But today, I am not talking about lifestyle inflation. I am not talking about those who go beyond their means to keep up with the Joneses. I am talking about the ones that are genuinely in situations where the income is far less than expenses. Such as students. Or someone in between jobs. Just someone unable to contribute actively to a savings fund of any form, due to whatever challenge life threw at them. I am talking about non-permanent situations that people sometimes go through. But they dream. And hope. And have the patience and will power to get to a better place some day. Where they will have money to save for emergencies and retirement. Where they will be able to look at investments and portfolios. But they are not quite there yet. What would you tell them about personal finance? What lessons would you share from having made the cross over from that place to something better?

Here’s what I have learnt. Some of these were conscious choices. Others just happened maybe because of my upbringing or because of life-lessons learnt the hard way. But overall, they have helped me a lot in being able to squirrel away a significant amount each month now, in my better place.

Stay away from debt.
And if its too late for that already, try and get rid of that debt as soon as you can. By any measure this is the most important lesson I learnt (unfortunately, the hard way). You may not be able to save a lot now. But remember, this is a temporary phase. You will someday soon be in a better situation where you will have more income to be able to save. A large debt can completely mess that up. By piling on a huge debt, you will just stretch the bad times. So, if the income is a dime, limit your expenses to a dime. Easier said than done, I know. But seriously, very few kinds of debt are really justifiable. To me, student loans and any loans for medical reasons are pretty much the only ones that can be justified, if you are down and under. All else, especially credit card debt, should be avoided like the plague. Besides, some hardship it good for you :) It will motivate you to get out of this situation faster.

Build a good credit history.
This one, kinda happened naturally in our case. Once we realized we had gotten ourselves into a shit load of debt, we made an all out effort to get rid of it. All the while that we used credit cards, we were never late on our payments. With the aggressive plan to be rid of debt, we were paying a lot more than minimum payments. Also, the total utilization on our card started to go down. Once we were clean, we used credit cards only to charge as much as we could pay off each month. I guess all that helped our credit history a lot. When we bought the house we go an amazingly low interest rate. A 1% difference in interest rate on a $175K mortgage loan will save us over $38,000 during the 30 year period! That’s just the basic savings. Imagine how much interest that money can earn for us over the years if invested wisely! Also, for the first time this year, my credit cards will make money for me, to the tune of $2,000! I don’t know if I can repeat this year-after-year, but I don’t see why not. What I am trying to get to here is that, even if you cannot save much now, if you make sure your credit history remains good, you can save thousands of dollars later. Use credit cards wisely and always pay off the full balance at the end of the month. And after some time, the money will come looking for you, literally!

Take care of your assets.
This one, I attribute to good upbringing. Both the better half and I were raised to value our stuff. We always take good care of things. And that makes things last longer. That means we need to spend less on buying new stuff. Take for example, our car. One of our cars is 13 years old and has 155K miles on it. But it runs fine. Sometimes it has some natural ageing issues, which the mechanic fixes for a couple of hundred bucks, but overall, it’s in a great shape. When I was a student, I kept thinking that I will buy a new car as soon as I get a job. But now that I have started working, every month that I postpone the “big” purchase, I add a couple of hundred dollars to my savings account. All I did during my student days was to make sure I did the oil changes regularly and got the other fluids checked, made sure the tires are properly inflated and that’s just about it. It’s saving me big bucks now. Similarly, protect TV, desktop etc., with surge protectors. And above all protect your health. Healthy eating and good exercise can go a long way in making sure you spend a lot less and save/enjoy a lot more later in life!

Focus on what you need to do to get to the better place.
Finally, focus on getting out of the current situation, fast! If you are a student, look for ways to graduate soon. If you are in between jobs, pick up any job to start with. If you are not happy with it, you can keep looking for better jobs, but don’t turn down an offer because some aspect of it does not live up to your expectations. If you are stuck in a minimum wage job and are having trouble making ends meet, find ways to pick up a new skill that will pay better. You could do this in any number of ways – by taking classes in community college, or online classes or self education etc. Depending on what area you like, you could possibly even learn by just observing and practicing. Focus on increasing you income, and make sure to keep your expenditure low. And never stop trying.

That’s it. If you plan well and try hard enough, you will soon be in a much better place where you can make and save a heck of a lot of money. I know, because I’ve been there, done that. In the first 5 months of my job, I took my 401K from $0 to $10K! And the 401K is just one of the many savings vehicles I am using. The good part is, I am just getting started. Just you watch!

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