Intro to Finance 101...

"What you do with what you have is far more important than what you have"

                                                 ~  George Clason

So it's now the second week of January... so for most of us... that means two things...

The Christmas decorations are now safety put away until next year... and our New Year's resolutions are already history...

Experts say that the two most common New Year's resolutions are to lose weight (get healthy) and to save money / get out of debt.

Now long time readers of the my blog have already heard about my annual "Skinny Jimmy" diet that I do each autumn (to re-read about the Skinny Jimmy diet click here)... today I want to talk about the second most popular resolution... finances.

So here's my story...

In growing up in a large "blue collar" working-class family, my parents did all they could to put food on the table and keep a roof over our heads.  If my siblings and I wanted money to do things or buy things we needed to go out and earn the money ourselves.  This was just the way things were...

At 12 years old, I decided that I was old enough to push a lawn mower and use a pair of scissor trimmers to mow and edge a lawn. 

So all summer long I went around the neighborhood soliciting customers who wanted their lawns mowed.  I also did weeding, tree trimming, and a variety of other yard work where I could earn a very modest sum of money.

On a typical Saturday, I would work up to 6-8 hours doing manual labor around the neighborhood and by the end of the day, I might have a whole $5 in my pocket (probably worth about $50 in today's dollars)... which wasn't too bad for a 12-year old at the time.

After my "work", I would go to the local convenience store, buy a Coke and stock up on candy, and then perhaps walk with my friends to the theater to see a movie.

On Sunday, after church, I would buy a doughnut at the church bake sale.  Later that afternoon, I might head back down to the store to buy a Slurpee.

By Monday, typically I was out of money...

... but on Thursday there was a matinee movie that I really wanted to see... so I convinced one of my friends to lend me a dollar so I could go to the movies... promising to pay him back come Saturday when I knew I could earn some more money which just meant that I had to work harder on Saturday to repay my debt.

All summer long... the weeks repeated themselves... work really hard... earn some money... then spend it all (sometimes spending even more than I had earned that particular week) on entertainment and things I really didn't need (like sweets).

At the end of the summer... I had nothing to show for all my hard work (I couldn't even remember the movies that I had seen).

During the following fall and winter, I found a job as a score keeper at a bowling alley two nights a week.  I was paid $0.35 per bowler so my net "take home pay" was about $2.00 per night (after bus fare to and from the bowling alley).

Instead of spending the entire $4.00 per week, I decided to spend only $2.00 and save the remaining $2.00. 

It wasn't easy... I had to continually make excuses as to why I couldn't go out with my friends... but by the end of spring; I had saved more than $40.

Once I had enough money, I decided to look through the local classified ads to try and find a used gasoline-powered mower and edger.  I knew that if I had power tools, I could cut three times the amount of lawns that summer and earn three times as much money.

In the end, I figured out a way to spend less of my earnings through a bit of austerity, create savings with the excess earnings, and then use the savings to create more earnings (and less calluses on my hands).

Over the years, I continued this type of thinking, with different types of business ventures... paper routes... painting house numbers on curbs... and retrieving golf balls from the ponds at our local municipal golf course and selling the balls back to golfers on the back nine the next day (as well as trying to sell them refreshments).

So about this time... you might be thinking to yourself... exactly how does this little nostalgic story help us in today's world?...

Well I suppose that there are several lessons to be learned...

Many of us often find ourselves in the endless cycle of earn and spend... we earn a paycheck and then spend everything that we earn... or worse spending more than we earn and finding ourselves deep in debt... we tell ourselves that we have an earning problem... when in fact we have a spending problem...

The most important key to creating wealth is to spend less than you earn...

If this is not the case... then a lifestyle adjustment needs to be made before anything else.

Once we have created positive net income, then the next thing is to pay off debt.

I understand that not all debt is bad... for instance... using debt to purchase appreciating assets (like a home or income property) can be a good thing.

However, using debit to finance expenses or depreciating assets (cars, boats, furniture, etc.) is almost always a bad thing.

After the debt is paid off... we need to start savings... savings is created with the difference between what is earned and what is spent.

Our savings should be used for two primary purposes:

1. As a safety net should something negatively happen to our earnings
    
2. As working capital to fund new earning opportunities

We've all heard the term... it takes money to make money... and it's true!

There are countless investment opportunities, big and small, for those who have capital to participate.

Investing can be as simple as going to local garage and estate sales to look for things of value that can be resold at a small profit (I have a good friend who has created a million dollar business doing just this).

Investing is not the same as gambling... it is careful, deliberate, and educated. 

With all the extra time that we might have by not spending as much money going out, we could use that time to educate ourselves a bit on various investment opportunities.

Investment opportunities are everywhere once we have capital.  
 
Proper investments are the only real way to true financial independence...

Investment takes capital... capital comes from savings... and savings comes from spending less than you earn...

There are still 355 days left in the current year... so what are we waiting for?

Thank you very much for your continued support of OptiFuse where we always hope to give you a positive return on your investment.