Money Musings 💭 Spending money isn’t always the answer
A few months ago, our friend Becca (@BlondeBrokeandBougie) posted a challenge around spending. She encouraged people to start with a free option before investing money into a problem or new hobby.
If you want to work out more, commit to doing free workouts at home (or outside) before signing up for the gym
If you want to up your skincare game, start by drinking the recommended amount of water per day (free) or using up products you already have before investing in expensive serums (talking to myself here 🤪).
It’s a way to prove to ourselves we’re serious before we spend. It’s also a way to make sure our spending is actually solving for the thing we need help with.
I was rocking on our porch yesterday doing a nice little meditation, but I kept getting distracted by all the things that needed fixing up. There are some broken tiles that J and I have been talking about repairing, but it would require redoing the tiles on the entire patio, which would be pretty expensive. We’ve priced it out and set money aside but haven’t gone through with it. Something holds me back.
Looking around outside, I think I start to notice what. This is embarrassing to admit but the patio is completely dirty. There’s random stuff all over and I even see trash. Cleaning that up would make a huge difference in how the patio looks and feels. I notice we have two scraggly plants out there. Adding some plants and even covering the broken tiles with a welcome mat would make a huge difference.
If I’m not willing to put in the work to sweep and clean up the patio, is redoing the tiles really going to solve my problem? Here’s a place I can start to commit with the free activity. Then once I do that, I can spend a little on plants and the welcome mat. From there, we can talk about redoing the steps.
Okay, now we have plans for Saturday. I’m going to share this plan with J. Wish me luck LOL. 😆
MONEY MOVE OF THE WEEK
GET CONSCIOUS - TRACK YOUR NEXT PAYCHECK.
A really eye-opening (often life-changing) exercise we do in the Tackle Your Debt course is tracking our paycheck dollar for dollar (I call it a cash tracker). This is different from a monthly budget or spending plan in that it’s looking specifically at where each dollar from your paycheck is going to go. This is a helpful exercise to figure out if you’re spending more than you’re earning, as well as how much of each paycheck you can actually save (or put towards your debt).
Take a look at a previous paycheck to find the exact amount that will hit your bank account next payday. Then make a spending plan for payday until your next paycheck hits. This works best if you spend in cash, use a debit card, or pay with a credit card but pay it off right away.
List out each of the bills that are due during the period and how much each will cost. Look at your calendar and see if you have any plans that will cost money (i.e. dinner plans with a friend or birthday party where you’d want to bring a gift). Plan for the entire time period until you receive your next paycheck. If your next paycheck can’t cover a bill in its entirety, you can set aside some from this paycheck.
Here’s a visual to give you an example:
YOU GOTTA SEE THIS
DEFINE: SIMPLE VS. COMPOUND INTEREST
Let’s start with simple interest.
SIMPLE INTEREST is as the name suggests, simple. You take the interest rate and multiply it against the balance of the loan (or investment). If you have a $1,000 loan with an interest rate of 5%, you pay $50 ($1,000 x 5%). If you own a $1,000 bond with an interest rate of 5%, you receive $1,050 when the bond matures. You earn $50.
What financial products use simple interest? For earning interest, bonds. For paying interest, many loans like car loans and mortgages.
COMPOUND INTEREST can be magical or painful, depending on what side of it you’re on. Compound interest means that your interest earns interest. And that interest earns interest. And over time, the growth is exponential.
Would you rather have $1,000,000 or a penny that doubles for 30 days?
The penny that doubles for 30 days will be almost $5.4 million at day 30. I didn’t believe it either, until I made this chart ⬇️.
Some interest, like most credit card interest, compounds daily.That means that when your interest rate is 25%, you’re not paying a simple interest rate of 25%. You’re paying much more. If you have a credit card of $1,000 with a 25% interest rate and you pay the minimum payments of $35 per month, by the time you pay the card off (in 43 months), you will have paid $1,494, an interest rate of 49%.
Interest on our investments also compound daily (because prices change daily). That’s why when we invest earlier and give our money more time to grow, we can invest a lot less than someone starting later and still have more. See investor #1 vs. investor #2? She’s invested $50K while investor #2 has invested $150K. Investor #1 will have $175K (or 30% more than investor #2) when she retires because she started 10 years earlier.
