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How to stretch your paycheck and avoid being abused by family and friends

The number one enemy of personal finance is procrastination. Therefore live by the philosophy of MTHN (make things happen now) and take control of your personal finances – let money be your servant, and not the other way around.

As with any other goal you approach, you need to start by asking yourself: “What is my reason for doing this??” The question of investing, saving, insuring and reducing debt only have relevance if you have clearly articulated why you are doing it. Ask yourself: “Why do I invest?” “Why do I want to have more money?” Once this is ascertained, ask yourself: “What is the price tag of my goal and am I prepared to pay the cost thereof?”

By clearly articulating your goals in all aspects of your life such as work, health, family, leisure, personal growth and work in the community, your intrinsic motivation will help you clarify your purpose and help motivate you to stick to your wealth-building process and ensure your goals will not be derailed by extrinsic factors.

This self-discovery will make you realise how your money is integrated into all areas of your life. Once you realise what your values and priorities are, it will enable you to see the direct link between your money and your life goals, i.e. that your financial security and your spending strategy will not only support your life goals, but also expand these goals. Recognise that money in itself is not a goal, but rather a tool for achieving goals and increasing life satisfaction – effectively merging your money and life.

Establish ground rules for spending, saving and investing that will form the cornerstone of your financial plan. In his book Behavior Finance: Past Battles and Future Engagements Meir Statman writes: “Rules are good self-control tools. ‘Consume from dividends but don’t dip into capital’ is a good rule for investors whose self-control problems centre on spending… investors with imperfect self-control are afraid, as recovering alcoholics are, that one dip might lead to another.”Untitled22

Consider the following 5 practical tips:

  1. Start by analysing your spending pattern and cut on expenses that prohibits you from reaching your goals. Keep receipts of all your purchases made for the month such as credit card bills, utilities and literally everything you spend money on. At the end of the month add them all up and ascertain where your money went. Once unnecessary costs are cut, develop a spending plan that is in line with your values and financial goals.
  1. Reduce your credit card debt and interest rates by accelerating payments. One credit card is more than enough to cover emergencies and unexpected costs. Take a month’s worth of credit card bills, add the interest you’re paying up and multiple that by 12. You’ll be shocked at what you are wasting every year by using your card instead of cash. Once your debt is settled, you can start investing in your future.
  1. Know your personal budget busters. Many of us (including myself) have an Achilles heel when it comes to impulsive spending. For instance, you can’t walk into a bookstore without buying a new book, even if you have 10 unread books piled on your shelf. Ascertain what your number 1 impulse purchase is and withhold yourself from buying a new book until you’ve finished reading your “inventory”.
  1. In business, as in life, you don’t get what you deserve, you get what you negotiate… Everything in life is negotiable!! There is absolutely nothing wrong with it – you don’t have to pay face value for something if it’s not necessary. You may as well not get a lower price, but you will surely never get a discount if you don’t ask for it. This is especially true when you are dealing with contractors, furniture stores, and carpet stores. Negotiating is a skill that needs to be developed, start off small and by being well prepared in terms of the going rate for the specific items. In his book Getting more in Business and Life Stuart Diamond writes: “It’s not about getting everything, it’s about getting more.”
  1. Save your raise or annual bonus. It’s essential to have an emergency fund and invest for your future. If your pre-raise salary covers the bills, put your extra cash towards a savings, retirement, or varsity savings account for later use. When investing for the long term, your “raise” is doing double duty by actually making you more money through investment earnings and gains. Investing in a well-rounded portfolio is an excellent way to seriously stretch your paycheck.

The simple strategy to follow is to spend less than you earn, avoid debt and invest for growth. Make this your personal mantra when dealing with financial decisions, as it is the small, daily decisions we make (our reasoning with money) that influence us most in our wealth building process. You need to save in order to invest. In the famous words of Warren Buffet: “Do not save what is left after spending, but spend what is left after saving”.

Once you are on track and successfully implementing your strategy, some individuals might feel that they have a right to share in your success or that you owe them something… The only thing that makes this so hard is that you are dealing with family or friends. When they ask for money they don’t use logic but play on your emotions. Decisions based on emotion rarely work out, therefore ensure that emotion and fact is separated. This decision must entirely be based on facts.

Take a firm position from the start and state the obvious – a loan is never a good idea and has the potential to tear the family/friendship apart. Clearly state that it makes you very uncomfortable being placed in such a position.

See it for what it is – a loan. Enquire about the reasons that led to the financial difficulty and how a loan per se would solve the issue and not an alternative remedy rather. Further request that a formal motivation and pay-back schedule be drawn up, taking the responsibility away from you.

Remember that this is their problem and they are requesting you for a favour, you have all the right to decline. Should you feel obliged to comply or can’t avoid it, rather consider it a gift with no expectations, opposed to a loan.

Izak Strauss

Business Coach