Saving – The Road to Independence – S01E17

In this video I talk about the importance of saving and how it brings us independence from the financial servitude of living in debt.

Original Script of the Video (not a direct transcript)

Introduction

Hello, everyone, and welcome to this week’s episode of Watch Me Shine. My name is Brian and I would like to thank you all again for joining me. This week, I want to talk about saving. Living week-to-week or month-to-month is what I referred to in my last video as the modern day indentured servitude, if not modern day slavery. Getting out of debt and saving is the road to independence.

Update On Tasks From Last Week

Let’s take a look at the tasks from last week.

  1. Get your mindset right about money. Remember that it’s simply a tool.
  2. Stop buying things using debt. Make a commitment to stop using loans and credit cards to buy things.
  3. Know where you are financially. Get an understanding of where your money goes.
  4. Get some help. Find a financial advisor or a friend that can help you get things under control.
  5. Stick to the plan. Get back to zero and start climbing.

Comment on how you did or ask for help. I’m here if you need it.

Things I learned This Week

Saving is something I have never been very good at. Honestly, I have always been bad with money. As I said in my last video, I started living off debt at a young age. I took loans from my parents. I took loans from banks. I took loans from credit cards, which are backed by banks. I took loans from the government. Many of those loans, I’m still paying off. I am indentured to these groups because I owe money. This is not the way to live. These people have a certain amount of power over me because I owe them. Part of my life is lived in service to these people. Part of my work is solely done to pay back things I own or life I’ve already lived. I’m living in the past, not working towards the future.

Think about that. How much do you owe on debt? How much do you have to pay on that debt every month? If you bring home $2000 per month after all your taxes and benefits and such, assuming you get them, you’re basically making $12.50 an hour, after all is said and done. If you owe $125 per month on debt, you work 10 hours a month for other people. If you owe $250 per month on debt, you work 20 hours a month for other people. This isn’t utility bills. This isn’t dining out. This isn’t new clothes. I’m not talking about those things. I’m talking about things you owe for: things you’ve already purchased, life you’ve already lived. And, no top of that, you’re paying interest on it. Think about that for just a moment. Work you do is paying off things you’ve already bought, life you’ve already lived, and it’s benefiting other people, not yourself.

I mentioned how my family went to Disney World several years back. When we went, my plan was to use credit cards to pay for things on the road because I didn’t want to carry a ton of cash or traveler’s checks. My plan was to come home and use the money I had saved to pay off those credit cards when we got home. But, when I returned, I lost my job because my contract ended. Staring at unemployment is scary. I decided to hang onto the savings and live off of it until I found another job.

That span of unemployment lasted four months. I was let go right before Thanksgiving, which happens in the fourth quarter. At the end of the year, companies are trying to make budget. Many companies are laying off, let alone hiring. And almost nobody hires until first quarter budgets come out. Over that four months, despite getting unemployment insurance checks from the government every week, I chewed through my savings. When I finally did get another job, we were essentially broke. And what was still hanging over my head? All that credit card debt.

But I learned a few valuable lessons here:

  1. Stick to the plan. I could have paid off the credit cards, as I intended, and two things would have happened. My credit score would have been much higher and I could have used the credit cards to survive, if I needed them.
  2. Having that savings to live off of felt much better than living off the debt. If I could have chosen one or the other, but after all was said and done, I found that I much preferred watching my savings disappear than my debt rising.
  3. I should have peered further into the future and saved more. I knew my contract was coming due and didn’t have a replacement yet. I should have saved knowing this was coming and I could have paid for both the vacation and that span of unemployment.

So, what is saving? Let’s take a few minutes to go over what saving is and why it’s so important.

  1. Saving is self-determination – Saving isn’t an aggressive growth of resources. It’s slow, methodical, and constant. It’s deciding what we’re going to provide for ourselves in the future. It’s building a safety net.
  2. Saving is discipline – Saving shouldn’t be something we do when we have the money. It should be something we do with what money we have. Although there are several I could mention, there is one fundamental difference between the rich and the poor when it comes to saving: The poor spend their money and save what’s left. The rich save first and spend what’s left. Saving should be something we do first, immediately when money comes in. It should be a percentage of income taken right off the top and stored away. What’s left is what we should spend and live on.
  3. Saving is self-reliance – Our goal, you, me, everyone, should be to not have to rely on anyone else, whether that’s our loved ones, the government, or banks. Our goal should be to have enough savings, something to fall back on when things go bad, but also generating money in the background, and providing a steady source of income we can live off of. With that safety net, we can afford to live when times are tough, to switch jobs, to spend more time with family and friends, and to take time off. With that safety net, we’re in a position to help both ourselves and others.

So, what should our savings goal be? That really depends on who you ask and what situation you’re in. In my career field, many IT workers are contract. Those contracts are usually temporary. The idea is to work a contract, but start looking for a new contract when the one you’re on is coming to an end. I’ve found through experience that relying on contracts to get extended or turn into a full-time employment situation can bring disaster. I’ve have worked contracts I knew would come to a close and I have worked contracts that were considered ongoing as long as I wanted to work there and performed at a satisfactory level. Even with full-time employment, businesses go under, get bought, layoffs happen, not to mention just plain getting fired. I’ve been paid very well, but usually I’ve been paid below the level of service I provided. And, when employment has ended, I’ve usually spent some time unemployed and looking for work.

Although unemployment insurance does provide a buffer, it’s not enough to live on, usually. When I have been paid well, I’ve been able to store some away, knowing that I would eventually be unemployed again. This has allowed me to survive, sometimes quite comfortably, allowing me to focus on finding something else. However, during the times I wasn’t paid at the level I needed, I had to scramble for something, often taking anything I could find at any rate I could get. This only compounded the problem, forcing me to provide for my family living week-to-week and relying on debt.

My personal goal is to figure out my family’s budget, what we pay for necessities, living expenses, and a few luxuries, and know what that cost is. My savings goal is to figure out what that number is, multiply it by six, and store that amount of money away. My longest stretch of unemployment was seven months. If I had six months of expenses in savings, untouched at any other point in time, I could afford to be unemployed for that amount of time, living off of savings and the buffer of unemployment insurance, without changing the manner in which my family lived. That seems like a reasonable goal to me. It would mean that unemployment would feel more like a vacation than a source of stress and anxiety.

So, how do we save? Well, before we get to this, we need to do the steps from last week. We need to budget, knowing what we spend our money on, what we can afford to spend on and what we should let go of. We need to have an idea of where we are, what we could do to improve, and how we can get things under control. Once that’s done, there are five steps to saving money.

  1. Schedule It – Use the day your paycheck comes in. In fact, do it whenever any money comes in. Make it a habit that, whenever you receive money, paychecks, birthdays, Christmas, tax returns, anything, you save part of it.
  2. Pay Yourself – Save first. Make it a habit to take a percentage of whatever income comes in and stick it in savings. My goal is to eventually save 10% of everything I make. Right now, my budget can’t afford that, so I’ve started with 1%. It doesn’t sound like much, and it’s really not. But I’m starting to build the habit of doing it and it’s what I can afford. Eventually, as I pay off debt, I will start diverting more to savings.
  3. Have A Goal – Like I said earlier, mine is six months of expenses in savings. I’m nowhere near that right now, but it’s something you build over time. Don’t look at how little you’re saving. Look at how much you’ve saved. Whether it’s a small amount or a large amount, if that number is growing at all, you’re progressing.
  4. Don’t Touch It – It’s for emergencies only, like unemployment or illness. Have this savings first, then start another fund to save for purchasing other things.
  5. Invest – Once you get your initial safety net savings and you start to save for other things, don’t spend that percentage you used to build your safety net. Take a portion of that money you’re using to save for other things and start to divert some of it into investments. Put your money to work to bring in more money. Talk to a financial advisor about ways you can safely invest to bring in more income.

Tasks For Next Week

So, that’s really your tasks for next week. Start analyzing this process, your budget, and what you can do to start saving. Then, start putting that plan into action. Again, it’s not about the amount, it’s about the habit. Over time, small improvements become large changes. And, although the feeling of being out of debt is incredible, the knowledge that you have a safety net in case something goes wrong is unparalleled. Do it for yourself. Do it for your loved ones. Do it because you want to be free. 

Outroduction

And, until next week… Watch me shine.


Leave a Reply

Your email address will not be published. Required fields are marked *

*

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Top