Are you looking to have more control of your money? I just finished a great new book called “Don’t Pour Your Money Down the Drain” by Stuart Norris.
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Stuart breaks down the pertinent steps you should take to really take control of your finances.
From Budgeting and cost-cutting to paying off debt and investing. He covers it all in detail while keeping the book short and easy to understand.
If you are looking for a great book to get you started on bettering your financial situation, you need to check out “Don’t Pour Your Money Down the Drain.”
Here are a few of my favorite highlights from the book:
What are your financial goals?
What do you want to achieve in life and how much will it cost you to do that? Set SMART Goals for Yourself and figure out what you need to do to get there.
- Do you want to buy a house?
- How much do you need to save for a down payment?
- Do you want to pay for your children’s college tuition?
- How much do you need to put away in their 529 each month?
- Do you want to take annual vacations with your entire family?
- How much would that average and how much do you need to put away each paycheck?
Go through your own life and figure out what you want and how you can start working to achieve it.
Create a budget
Income
Begin creating your budget by adding up all of your income.
If you just have one paycheck from one job, it should be easy enough.
But if you work on commission, have multiple side jobs, or have things like child-support or other types of income, add them all up, and see what’s actually coming in each month.
Expenses
Now, track every dollar of your spending for a month or 2.
- Extra coffee.
- Drive-thru dinner on the way home.
- Every extra bubble bath you throw in the basket at Target.
- Plus all of the regular bills like rent, gas, groceries, insurance, utilities, car payments, credit card bills, etc.
See how much you are actually spending each month.
Don’t forget surprise items like a birthday present for your kid’s classmate or a random vet visit.
Is your income greater than your spending?
Yes, great! You can begin building a budget that includes more savings and investing!
No, you will just need to work a bit harder at building a successful budget.
Stuart goes into detail about building a folder with all your financial information to keep yourself organized and motivated.
Automate your savings and build an emergency fund
Stuart discusses automating your savings.
Every paycheck, have your company direct deposit a certain amount into your savings account.
You begin building an emergency fund of 3-6 months worth of expenses (which you know from the last step).
Once your emergency fund is filled, you can begin investing and/or saving for other goals, like a house, college, vacations, or whatever!
Aggressive Savings
Many financial experts say to save and invest at least 15% of your pay. If you do this throughout your entire working career to the age of 65+, you should have a nice retirement account to live off of in your later years.
But if you are interested in becoming Financially Independent and/or FIRE (Financial Independence Retire Early) way before 65, you will need to become an aggressive saver.
An aggressive saver saves 50% or more of their earnings!
By doing so, they are able to build an investment portfolio that could fully cover their living expenses way before the “normal” retirement age.
This is accomplished by having a high income, keeping expenses minimal, or both.
If this is one of your goals, (like Mr. Bean and I) then it is time to take your earnings and spending seriously and get saving.
Minimize your spending
Stuart goes on to discuss how important it is to shop around and minimize your spending in order to keep your finances rocking!
Shop around for your largest expenses:
- Insurance rates
- Cell Phone Plans
- Rent even
And if you are in need of lowering your general spending:
- Get rid of unnecessary subscriptions or memberships like cable or the gym
- Cut down to grocery shopping every week, or every few weeks to avoid those “extra purchases” that always end up in your cart
- Meal Plan, this helps bring down grocery costs and ensures you have healthy meals ready to go on busy days
“Good” Debt vs Bad Debt
Stuart discusses the gray points of what is often referred to as Good Debt.
Good Debt is often thought of as borrowed money that can help you advance to higher income or net worth later on. This can include things like:
- College Student Loans
- Mortgage
- Business Loan
Each of these loans can help you to build a better life. But it is important to make sure that you are not taking on this “Good” Debt unnecessarily.
If you are going to college for a career that will average a $50,000 salary the first year then your total student loans should not be more than $50,000.
If it is, it will be a major burden for you to pay off.
- Find a less expensive school.
- Apply for scholarships.
- Or stretch your college career so that you can work while attending.
Same thing with a mortgage.
According to most financial experts, your home expenses should not account for more than 30% of your income. Ideally, less than 25%.
If you take on a huge mortgage loan that you are not comfortably able to pay, it can cause all sorts of other issues in your life other than just financial, due to stress.
If you’re priced out of your area:
- Continue to rent for a while longer
- Move to a lower cost of living area
- Change your idea of the “perfect” home
- House Hack
Bad debt is easier to understand.
Credit Card Debt for unnecessary purchases is the biggest one.
Things like new clothes, the latest electronics, or a new car, you can’t actually afford, are all examples of bad debt.
- Avoid them in the first place
- Pay them off using a debt snowball
- Get that bad debt out of your life
Investing
The last step Stuart discusses is investing.
Once you have your budget created. Expenses in line. And debt paid off, you want to begin investing to make sure your money can keep up with inflation.
The average inflation rate in the US has been between 1-3% annually and a regular bank account only pays 0.1-0.5% interest. Every dollar you have just sitting around is actively losing value!
Research your investment options and keep up and/or beat inflation.
The S&P 500 stock index has averaged about 10% growth over the last century.
(Here are some of the easiest investment options I have found)
Wrap-Up
While reading “Don’t Pour Your Money Down the Drain,” I realized over and again what a great book this is for those just starting out on their financial journey.
Stuart explains things in an easy-to-understand way and doesn’t ramble on.
If you’re looking to start getting serious about your finances, I highly recommend checking out this new book, currently available on Amazon.
(Full Disclosure: I was sent a free copy of this book in exchange for my honest personal review. I was not paid in any way, I just genuinely found his book really helpful for beginners.🙂 )
I followed up with the Author and was able to get multiple copies to give away to my awesome subscribers!
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