Living Below Your Means

by Fabio Marciano

"A Penny Saved Is A Penny Earned." – Benjamin Franklin

Remember the old adage, "A Penny Saved is A Penny Earned" by Ben Franklin? Right, of course you do. Over the years, there has been much written about how you should forget about watching the pennies and focus on building your business, increasing your means and all that other nonsense. Okay, maybe it’s not nonsense, but for the 95% of people who are LAZY and are NOT going to build a business, invest in investment real estate properties or strike it rich with the next Microsoft, I offer a simpler solution – one that’s been around for decades. Try living below your means.

Andrew Tobias in his book "The Only Investment Guide You Will Ever Need" wrote about living below your means and saving money. The title of his chapter was "A Penny Saved Is Two Pennies Earned" seems contrary to what Franklin was talking about, but it’s really not. What Tobias was getting at was that if you save a penny or dollar and don’t spend it, it’s like earning two pennies or dollars. How? Simple.

While the book has some good insights into investing (it was written 25 years ago and some things have changed), the subject of saving money is one of the best I’ve seen because of it’s clarity and ability to get straight to the point. His lesson about 50% money is really critical to changing your mindset. You heard me right, 50% money, which is what Kiyosaki writes about (book: "Rich Dad, Poor Dad").

Tobias shows you in a couple of paragraphs how the last few dollars you earn are worth only 50 cents after you pay federal, state, local, social security and Medicare taxes. So if you make $10 bucks an hour, you’re only taking home $5 at the end of the week. It’s just that you can’t see the 50% tax because when you look at your paycheck and the amount you paid in taxes, you’ll see what percent you paid on average.

We’re on a graduated tax schedule, which means that you pay 10% on the first $12,000 you earn, 15% on the next dollars to $46,700, while you pay 27.5% on the next dollars you earn after that (I’m not up on the tax changes, but some of this might have changed slightly). Slap on the state and local, Social Security and Medicare taxes and you’re quickly up to close to 50%, so yes, you keep roughly 50 cents of every dollar and those last few dollars you earn.

The best return you can get on an investment is one that gives you passive savings from reducing your expenses. So a penny saved IS two pennies earned. That’s why Tobias’ titled the chapter that way. I guess Benjamin Franklin was right. A penny saved IS a penny earned. The point Tobias was making is that each dollar is worth something and every dollar saved through smart spending, the more you’ll have to invest.

Yeah, but I’ve tried living below my means, but…….

No buts about it. Take a look at some of the following (in random order because that’s the way I think <grin>) and see if you can’t cut that budget of yours!

Tips for Living Below Your Means
- Don't drink alcohol, don't smoke. You’ll save a ton of money, live longer and feel better. (Okay, go ahead and smoke. I’ll invest the money in Philip Morris stock and let’s see who comes out ahead).
- Learn to cook. It’s cheaper to eat in than dine out.
- Dine out less often.
- Bring your lunch to work. Say no to sodas and other junk food and vending machines.
- Pay your highest interest rate cards first to save money on interest charges.
- If you carry a balance on your cards, pay your bill as soon as it arrives. You’ll pay less in interest.
- Pay off your credit cards in full every month.
- Save for your vacations in advance. Don’t pay with a credit card and carry a balance.
- Kill your TV. Well, not really, just turn it off and invest in yourself by reading books, listening to tapes or calling on investment properties.
- Borrow books from the Library.
- Buy books from www.half.com or www.ebay.com.
- Go to matinee movies and save money.
- Carpool to work. Might be a hassle for some, but it works for others.
- Don’t order wine with your dinner. Drink water. This saved me literally close to a $1,000 dollars one year. You read that right, $1,000 and I only have a glass or two with dinner. Of course that year I didn’t follow the rule of dining out less often, hey..I was single at the time!
- Skip dessert and coffee when dining out, eat it at home.
- Eat "OUT" at friends houses instead of going out to a restaurant. It’s worth the extra effort.
- Don’t lease, buy your USED car.
- Do you need caller-id or call waiting? A friend of mine got rid of call waiting. If we NEED to get to him, we call him on his cell phone.
- If you can deal with the ad box, go with netzero instead of AOL.
- E-mail your friends instead of calling long distance. I know it’s not the same thing, but if you must have instant replies, check out instant messaging on AOL or other service providers.
- Use coupons and shop on double or triple coupon days. Most people don’t use coupons, only 1.5%
>- Try figuring out the cost per ounce. Usually the smaller the bottle, the more you’re paying per ounce. That’s why warehouse clubs have great deals – bigger sizes
- I’m in marketing, so this one hurts - Buy store brands. If you don’t like the store brand’s taste/quality, switch back.
- Find the place around you that has the cheapest gas.
- If you’re not using your membership at the local gym, quit.
- Return your videos on time to Blockbuster. Late fees are killers.
- Say NO to the ATM. Take out cash in advance and put it in a drawer at home.
- Take out money when you need it. If that’s too much work, then ONLY use your bank’s ATM.
- Shop for groceries on a full stomach, you’ll buy less.
- Cancel subscriptions to magazines you don’t read.
- Buy your clothes out of season. J. Paul Getty was quoted as saying he bought his straw hats in the winter and he had MILLIONS of dollars and yet was concerned with saving a few pennies.
- Movies? Go to matinees or go to the library and take them out for free! If you go to the movies, bring your own snacks. Do you really need to spend $3.00 for a dollar bag of Skittles?

VALUE FOR YOUR MONEY
Pay Yourself First– Set Up and Automatic withdrawal from your account/paycheck every time you get paid. Aim to save 10% of your net pay.
- Before you spend every dollar, ask yourself if the purchase is a good use of your money. After all, you worked hard for that money. You might as well get a good return (fun is a return as well) from it.
- On purchases over $100, wait two weeks before buying. IF you still want the item, purchase it.
- Establish a debt-repayment plan to get you out of debt. Pay off High Interest debt first, then when a balance is paid off, attack the next highest interest loan/balance. The Richest Man in Babylon suggested allocating 20% of your pay toward debt repayment. Why make the credit card company or banker rich, why not make yourself rich instead? Interest you’re paying is working AGAINST YOU. The whole Idea is to have money work FOR you, not the other way around.
- Create a Cash Can – Put all your loose change in it at the end of every day. Never pay with ‘coins’ always pay with dollars. Deposit the change in your account each month
- Create a Mad Money Fund – Sure all this stuff sounds fine and dandy, but it seems like you’d be cutting out EVERYTHING and living in a shack. Fine, create what I call a Mad Money Fund. Set aside a couple of bucks a week into a separate bank account or another Cash Can and this money is yours…to SPEND…on whatever you want!!!!! Seriously.

Okay, I’m almost done. Essentially what I’m saying is that there are 1,001 different ways to save more money in your budget every month. Only YOU can DECIDE where you’re going to cut back. I suggest that you make those choices that will not leave you feeling deprived as in, "I’m not enjoying this thing called life anymore because I’m trying to free up some cash to invest." Life is about making choices. You can choose to have instant gratification, but that often burdens you under a mountain of debt. Live too frugally and you’ll never make it because your psyche will revolt.

For the skeptics, critics or the just plain uneducated, before you flame me with responses, check out The Millionaire Next Door and once you’ve read it, you’ll realize that the majority of millionaires in this country LIVE BELOW THEIR MEANS

Just learn to manage and control your spending habits. Make those tough choices. Pay yourself first, set aside 20% or more for debt repayment, give something back in the form of money, time or service to charity and prosper. It’s a simple path, but not an easy one to follow. I suggest you concentrate first on learning to live below your means.

Take control of your cash flow by managing your expenses.
Increase your knowledge by reading up on ways to increase your means.
Decide how you’re going to "GET RICH".
Create your plan of action.
Take action…duh!

By the time you’re ready to put your "GET RICH" plan in motion, you should have some extra money every month thanks to managing your expenses that can be put toward building your empire.
So what are you waiting for? TAKE ACTION!!!!

All the Best!