Ben Todd | Apr 16, 2017 | 3
How to Build Wealth When You Are Living Hand-To-Mouth
Do you have any disposable income just before you are paid for a month of work? If not, then you are probably living hand-to-mouth. It is an expression for living on your wages with little or no money saved in reserve.
For example, if you suddenly decided that you need a new washing machine, do you have the money in your account today to pay for it without having to scrimp money from your other budgets? If not, then you are probably living hand to mouth, so how you do build wealth in such a situation?
You Do Not Have To Earn More Money
Earning more money is going to help you quite substantially, but that is not the point of this article. This article assumes you only have a certain amount of money per month and your income is unlikely to go up any time soon.
Understand Your Income And Outgoing Balance
The money you take in from your wages or benefits is your money coming in. every penny you spend on everything including things such as bills, food and such, are your outgoings. If you have no money left just under a month after you have been paid, then your income is not as much as your outgoings. If you have money left at the end of the month before you are paid, then your income is more than your outgoing.
At the end of every payment cycle, which is usually a month, you should be saving the money you have left over and should not be spending it the month after. This is the very first basic step towards building wealth. You shouldn’t miss the money because it is excess money that you had anyway–so you didn’t need it.
Understand How Building Wealth Works
Saving money in a bank without it gaining any interest is not really saving because over time your money becomes less valuable, but we will go into that idea a little later. First, we need to understand how saving works and how you may apply it to your life.
Most people get a set amount of money every month, and they use that money to pay for bills and other things. The money that is left over at the end of the month is the money that is saved. Most people save very little at the end of the month, and many people dip into their savings on a frequent basis.
A Poor Person Has No Savings
If at the end of the month you save none of your money, then you are not building wealth.
A Semi-Poor Person Has Savings
If at the end of the month you save a little of your money, then you are not building wealth correctly.
A Rich Person Earns An Income From Their Savings
If you save money and keep it saved, then the interest you earn will become part of your income. That income is a large part of wealth building.
You Have Got It All Wrong About Saving
“Saving is just delayed spending,” who knows whom said that, but it is terrible advice and it represents the worst type of attitude you could have regarding your money. You have been trained to give away your money!
Think about it, why is it delayed spending? Why does it have to be spent at all? Why is spending it the main goal? People always say they want more money, but how can they get more money if their goal is to spend it all.
You may counter that statement with, “You can’t take it with you,” implying that you should spend your money because it is useless to you when you are dead, but how useful is being broke when you are alive!!!
A Simple Example Of Failing To Build Wealth
You work and you save a little each month. You save over a number of years and have a nice little nest egg. You have not built wealth, even if your savings are worth thousands. What you have done is stored a little money away. That money could go with the next depression, or could be stolen tonight, or could be spent in Vegas in one weekend. Saving money alone is not building wealth. It isn’t a bad idea, but it is not building wealth.
A Simple Example Of Building Wealth
You earn $950 per month, so you put $30 into an account every month for 12 months and you have $360 at the end of the year. You invest that money and it earns you $7.20 per year. You then count that $7.20 as part of your income, and you start the process again but factor your income into how much you save.
– Assuming your investment pays 2% annual interest.
– Assuming you add all your interest into your monthly saving (interest/12 = monthly amount)
– Assuming you add your interest earned to your income
|Income||Monthly Saving||Amount Invested Per Year||Interest Earned|
In just five years, you have increased your income by $29.67 because your income has gone up by over $7+ every month. If you build enough wealth, then interest alone can pay your wages, and that is how you build wealth. The example above shows a small investment with a tiny interest rate, in real life you could save more (we give examples below), and you can get a far better rate than 2% if you choose wise investments.
Making A Saving Takes Less Effort Than Working
In the simple example given above, you may be under whelmed by how much your income-via-interest is, but that is a simple example with very small numbers. There are many ways you can reduce the amount of money you spend (i.e. make savings) so that you may invest more month per month. It is far easier and takes far less effort to save money than it does to make money.
Some people think that making money is the key to success and riches, but that is a lie sold to you by the millionaires you see on the TV and on the Internet. Real millionaires are often tight with their money because that is how they got rich in the first place. Most millionaires have never spent more than $300 on a suit, and most have a family car over the typical sports car you see millionaires with on TV and the Internet.
Let’s say you switch from a branded washing liquid brand that costs $3.20 per bottle, to the store brand that costs $1.50. Assuming you buy just one bottle per month, if you buy the store brand you will save $20.40 per year. If you work for $8 per hour, then that is two and a half hours extra you have to work per year just so you may buy more expensive washing liquid.
An Example Of A Small Saving Adding Up
Let’s say you use paper kitchen towels in your kitchen to soak up spills and clean up your mess. Each pack costs $2, and it lasts you around one week. Over the course of a year, that costs you $104 in kitchen towels. If you switched to using ten cloth towels that you run through the washing machine every week, then they may cost $4 for the towels, and $0.50 to wash with your other items. That $0.50 per week costs $26 per year. Add that to the $4 cost for the cloth towels and it costs you $30 per year, which is a saving of $74 per year.
Instead of using that $74 per year saving on something else, what if you purposefully saved it in an interest gaining account. Even with 1% annual interest, you would have $383 within five years. By making a simple change to your lifestyle, you have just built $383 in wealth. What if you stuck to this and did it for 10 years, then you would have $786 for doing nothing more than switching what you clean your kitchen with. That is a perfect example of how making a saving takes less effort than working.
Ever Notice How Reading About Saving Money Makes You Want To Save?
Part of the reason for this is because of the old “Monkey See Monkey Do” feeling we all get. It starts at a young age when we see a brother, sister or friend playing with a toy and we want to play with it too.
Another reason is that most people view saving as delayed spending, whereas here it is described as a way of living without having to work for your money because you are living on your wealth. It is natural that part of you wants to give it a try.
Can you use your urge to save when reading about it? If you know you are more compelled to save when you read about it, is there a way you can use that? Could you put up a poster that reminds you how saving is helping you see a brighter future?
Saving Money In An Account Without It Gaining Interest Is Not Saving
Remember the table from a while ago in the article? The one that said you could invest as little as $30 per month and over time your income goes up without you working and without losing anything because the money you invest is still yours? After five years, not only is your income increased by $29+ per year, but you also have $1873.20 saved too. However, if you do not invest your money into something that earns interest, then you are technically losing money; even a savings account is better than nothing.
The reason for this is called inflation. Every year the dollar buys you less and less–that is just the way the economy works. At the moment, your $60 may buy you a tank of gas, but in 5 years your $60 may only buy you half a tank of gas. If you kept $60 in your account today and drew it out in 5 years, it would have lost value and you would only get half a tank of gas from it.
If you invest your money into something that earns interest over time, then your money goes up hopefully at the same rate as inflation. If your money increases due to interest, and the interest is more than inflation, then you will have made a profit within five years so that your may buy more than a tank of gas with your original $60 investment.
You Need Discipline To Build Wealth
If the argument for building wealth falls apart on one issue, then this is the issue. Most people do not have the discipline to save money, and it is not really your fault. There are a lot of pressures on you to spend your money rather than spend it.
Here are a few of the most common ones:
There are just so many bills
If you are living hand-to-mouth, your bills are just too much and you need your money to pay them.
You are in debt
It is difficult to put money into your savings when you are in debt because money is often too tight.
You have been taught to spend
Since childhood, you have been marketed to and shown time and time again how spending money is your best route to happiness.
You are being sold to on a daily basis
Why do you think advertising is everywhere? It’s because it works, and the worst thing is that people think they are not influenced by adverts–but you really, really are!
There is just nothing left at the end of the month
That is one of the reasons you have found this article, it is because you have no money left right before you are paid your wages, but hopefully this article will help change that.
Improving your discipline is going to help you become better at living on a budget, better at saving money, and better at balancing how much you spend and how much you earn.
How To Save If You Are In Debt And Disciplined With Money
Your first and only step should be to save your money by paying off your debt. Paying it off as quickly as possible is the wisest course of action because the interest you are paying on your debts will mean you lose out if you invest your money.
For example, if you were to put $100 into a savings account at 2% interest, by the end of the year you would have $102. However, if you are in debt by $100 at an interest rate of 3%, then by not paying off your debt and saving your money, you actually owe $103, meaning you lose $1 overall.
It is better to pay off your debts with a regimented repayment method such as paying a certain amount over the minimum every month until your debt is repaid. If you are able to maintain that repayment plan (the one you created yourself), then you have the discipline to continue after your debts are repaid and start saving in a similar manner by investing the same amount every month.
How To Save If You Are In Debt And Undisciplined With Money
If you are undisciplined with money, then you need to take a very different route. You firstly need to cut up your credit cards and remove all the ways in which you may get into further debt.
You then need to pay the minimum on your debt every month, and put another amount into a locked-away savings account. This is an account that doesn’t let you have access to your money until a certain period of time has elapsed. You keep putting money into this account on a monthly basis with the knowledge you cannot draw it out. Keep doing this whilst paying the minimums on your debts.
The amount you save in the locked-away account will eventually be available for you to withdraw. At this point, it should be a tidy sum if you have done it for a few months. You then take this money and put it all on one of your debts, thereby paying off a chunk of your debt. You then restart the process all over again until your debts are paid off. Just make sure there are no other ways that you may get into further debt.
Peer-to-Peer Or Lock-Away Saving May Help If You Have No Discipline
There are bonds you can buy where they do not mature until a certain amount of time has passed. If you save up a reasonable amount, you may buy a bond that lasts a number of years and your money is locked away. As a person that lives hand-to-mouth, such an idea may be quite daunting, but think of the last time you paid a big bill and went without money for a while, buying a bond is the same as doing that except that you create a light at the end of the tunnel with regards to your finances.
Peer-to-peer saving may offer more options than the usual bank and credit union options. For example, there are some that allow you to lock your money away for a month, a year, or a few years. The idea is that you invest money and they lend it to other people. If you choose to lock your money away for a year, then after the year is up the money is returned to you with interest. In these cases, you may be able to choose the interest rate that is paid, which means you can hold out for a better deal.
Peer-to-Peer Saving When You Have No Money
If you really want to save your money but things keep getting in the way, and locking your money away for a long time seems too risky because big bills may pop up, then try a different method. Invest the money for just a month. The interest return is very low, but it effectively takes your money out of your hand for a full month so that you cannot spend it. When the month is up, you are able to gain access to your money again.
The goal is to re-invest your money again in a month when it is made available to you. Having your money locked away for a month may seem like too long, but once you realize that you went through a month without needing the money, or at least not needing it as badly as you thought, then it becomes easier to invest your money again after a month is up.
The goal is to re-invest your money again for a month, plus adding more to it so that the lump sum grows bigger. Just seeing all that money may be tempting, but if you re-invest it right away, then you are only tempted for one day and not for a full month. Even spendaholics can resist one day of temptation.
Forcing Yourself To Save When You Are Already In Debt
It is difficult and scary, but a change in attitude may help. Do not think about saving as something you do with your extra or spare income–because you don’t have any. Think of saving as another bill. Think of it as if you have just bought another phone and you need to pay the contract every month. The money should go into an account or an investment that makes it difficult for you to retrieve it on a whim. Think of a reasonable amount you wish to save every month and pay it into your account as if you were paying a bill. Do not leave an amount in your current/checking account and call it savings, you literally have to send it to another account or investment that generates interest. If you leave it in your regular account, then you are not treating it like a bill and you will spend the money.
The Solution For Spendaholics In Debt
You need to understand that it is not your debt that is making you poorer, it is not your lack of income or your low income–it is your spending. You are able to live with the money you have, and on the income you have, but you are choosing to live beyond your means because at the time it doesn’t seem like such a bad thing. There is often some sort of safety net that allows you to go on spending without realizing the full consequences until it is too late.
Do you spend too much out of habit, out of impulse, or because you are just bad with money. Or, do you have a genuine shopaholic problem? Do you have three or more of the problems listed below?
+ Preferring to use credit cards instead of cash
+ Alienating relationships because of a shopping preoccupation
+ Mulling over money matters takes up at least 50% of your thoughts
+ Repeatedly spending over your budget
+ Shopping to eliminate feelings of anger, loneliness or depression
+ Arguing frequently with people about your shopping habits
+ Buying more than you actually need
+ Returning items because you feel guilty
+ Experiencing guilt and shame after a spending spree
+ Keeping excessive buying a secret from family and friends
+ Repeatedly delaying paying bills because of your spending
+ Opening new credit accounts to allow more shopping
If do three or more of the things you see listed above, then you may have a more serious problem than this article is able to handle. However, the problem is not as serve as it seems. A little behavioral therapy may be all you need to help you readjust your ideas and priorities in a way that stops you spending excessively through shopaholism.
Have You Got The Point Yet?
The point is that you can earn more money and save money, and you can make wise investments and save money, or you can balance your incoming and outgoing where your incoming is more than your outgoing so you may invest the extra so that it increases your income.
The shorter version is that you should save money so you can invest money so you may live on the interest from your investments.
A Shopping List Of The Savings You Can Make
Remember how it is easier to make a saving than it is to earn money, it means taking a good hard look at your outgoings and seeing where you can make savings. Lowering your outgoings will help free up some money so that you may save and invest it in an account or financial product. To get you started, here are a few areas you may be able to comfortably save money.
If the journey is less than a mile, then use a bicycle or walk.
Do not buy expensive branded items and buy store brand or economy instead.
Offers In Superstores/Supermarkets
Only buy as much as you need, and pass up the multi-buy offers.
Do Not Buy Things On Sale
Just because Pringles are half price this week doesn’t mean you should buy them.
Freeze Things Over Buying Fresh
For example, a bag of frozen broccoli will last longer than buying fresh broccoli.
Your Heating And Cooling
There are plenty of online articles about saving money in this area
If you don’t like buying cheaper brands, then buy clothes that have no brand insignia.
Buy food in bulk and you will get it at a far bigger discount.
Pet insurance is always worth the money, even if you only use it for vaccinations.
Use Public Transport And Carpool
Find the cheapest way to get to work no matter how inconvenient.
Lower Your Power Use
Do you need your outside lights on, or to wash clothes at such high temperatures?
Your Cable Bill
Lower your subscriptions or cancel them and use the Internet instead.
Cancel Your Subscriptions
When you are better off you can restart them, but for now, you should cancel them.
Downgrade Your Insurance Coverage
It is a bit of a risk, but it can save you a lot of money in the long run.
Get Better Insurance Quotes
Shop around more and haggle more for your insurance. Spend more time on research.
Lower Your Childcare Costs
Will your parents take the kids for one day to save you one day worth of childcare per week/month?
Only Wear Old Clothes Around Your House
Save your better clothes for when you are out and you will save a bundle.
Move To A Less Expensive Area
Saving on rent and mortgage payments can add up to a tidy sum.
Get A Less Expensive Car
One that uses less fuel and costs less for insurance will save you a lot of money.
Only Have One Credit Card Per Family
It should stay in a lock box until a genuine emergency comes along.
Eat Out Or Eat Takeaways Fewer Times
Cut your consumption of such by at least 50% if not 75%.
Can You Learn To Do Without
Has your sofa broken, couldn’t you learn to live without one for a while?
Buy Some Things Second Hand
Clever second hand investments can save you a massive amount of money.
+ Stop Driving Your Kids To School
It is costing you money and is not helping your children learn about the real world!
+ Take Up A Cheaper Hobby
Give up jet skiing for a little while and take up DIY.
+ What Can You Buy In Bulk?
Most non-perishables can be bought in bulk, from washing-up powder to toilet rolls.
+ Stop Snacking
Apart from smoking, it is one of North America’s citizen’s biggest wastes of disposable income.