Nickeled and Dimed

If this is your first time visiting Centsability to Wealth you may want to see what we are about , read about me, or read our introductory post.

On Wednesday we talked about the personal finance formula, which is Cash flow= How much you earn - How much you spend.  Yesterday I listed 30 ways to cut your monthly expenses.  Today we will go over the other part of the equation, ways to increase your monthly earnings.

When looking for ways to increase their monthly cash flow, most people will immediately start looking for ways to cut expenses.  This is fine, cutting expenses can be a great way to improve your finances.  But you can only cut your expenses so far.  Your ability to earn more money, on the other hand, is essentially limitless.  Yet most people ignore this part of the equation.

So here is a list of some ideas to increase your monthly earnings:

• Get a second job- No one wants to work more than the 40-60 hours a week the work in their “real” job.  I understand that.  But if you need extra money to pay off debt or build an emergency fund or simply save for a vacation, nothing is more effective than get a part-time second job.  Even a minimum wage job working 20 hours a week could increase your monthly cash flow by $400 or more.  $400 extra dollars a month is huge!
• Sell your stuff on eBay or Craigslist- Selling electronics, clothes, furniture, books or nearly anything else on eBay or Craigslist can be a great way to earn a quick $100 or much more.
• Turn a hobby into extra income- Whatever your hobby is, you can probably find a way to make money off it.  Play the guitar?  Give guitar lessons.  Enjoy writing?  Do some freelance writing.  Good at tennis?  Give tennis lessons.  If you have skills in a certain area, there is probably someone looking to learn those skills (and willing to pay for it).
• Earn cash back from credit cards- If you are a responsible with credit cards, they can be a great way to earn money with their cash back offers.  Simply make all purchases with your credit card and then immediately pay it off and you will rack up the cash back earnings.  The better your FICO score, the better cash back offers you will receive.
• Ask for a raise at work- With the current economy, it’s not the greatest time for this one, but in normal times ask for a raise when you feel you are being underpaid.
• Switch jobs- Again not the easiest time to do this, but sometimes the best way to a promotion is switching jobs.
• Have a garage or yard sale- Similar to selling things on Craigslist or eBay, but easier to sell a bunch at once and you keep all the profits.
• Rent out a spare room- Excellent way to significantly increase your monthly earnings with very little work from you.  You will have to be willing to give up some of your privacy, but if you can handle that and are careful with the screening process, it could even be fun.
• Babysit- Babysitting can be a way to earn decent income.
• Donate plasma- Depending where you live, you could be paid anywhere between $30 and $70 to donate your plasma.  And most places will allow you to do this twice a week.
• Donate sperm- Similar to donating plasma, though doesn’t pay quite as much typically.

These are just a few ideas to increase your monthly income.  There are plenty more out there.  While cutting expenses could save you hundreds or thousands of dollars a month, there comes a point where you can’t cut anything else.  Your ability to earn more income has no limits and you could easily increase your cash flow by tens of thousands of dollars a year by implementing a few of the strategies above.

If you are looking for ways to increase your cash flow, nothing is more effective than finding ways to increase your income.  Try some of the suggestions above or come up with your own ideas.

What do you do to earn extra income?  Have any ideas that I didn’t list here?

Please continue sending any personal finance related questions to centsabilitytowealth@gmail.com.

If this is your first time visiting Centsability to Wealth you may want to see what we are about , read about me, or read our introductory post.

In the first accounting course I ever took, my professor spent half the class stressing to us the most important formula an accountant would ever need to know; Assets= Liabilities + Owners Equity.  Once you figured this formula out, everything else we did in the class became much easier.  If you were making an entry to one side, you simply had to figure out where it hit on the other side to make the formula balance again.

Your finances have an equally simply formula.  And like in accounting, once you fully grasp the formula everything else begins to fall into place.  What is this magical personal finance formula?  Cashflow= What you earn - What you spend.

Cashflow is the key to your finances.  It is what you save, invest and pay off debt with.  In order to increase your cashflow, you have two choices, you can either raise your income or lower your expenses. 

The problem a lot of people run into is trying to get around this formula.  If they don’t have the cashflow to buy the new Plasma TV they want, they put it on a credit card.  This only further throws their personal finance out of whack, as they have now increased their monthly expenses (credit card payments), while keeping their income the same.  This is how our country got to the point we were at a few months ago where we had a negative savings level.

The larger the gap you can create between your monthly earnings and your monthly spending, the better your financial situation will be.  For the next two days we will discuss first different ways to save money, and then different ways to earn more money.  Some of these may work for you, while others will not.  But if you can implement just a few strategies from each side, you could dramatically improve your formula and in turn improve your finances.

Please continue sending any personal finance related questions, suggestions and story tips to centsabilitytowealth@gmail.com.

If this is your first time visiting Centsability to Wealth you may want to see what we are about , read about me, or read our introductory post.

The dumbest financial decision I have ever made came when I was 22 years old and about to start my junior year in college.  My friend had bought a motorcycle a couple months earlier and I was convinced I had to have one too.  Forget the fact that I had never even rode on a motorcycle, much less driven one, I needed one and I was going to buy one.

So when my college roommate and I visited a local motorcycle shop and I saw that brand new, shiny blue, Kawasaki Ninja 250R sitting there, I knew I had to have it.  After the $3,200 for the bike, $180 for the helmet, $800 for the useless warranties they suckered me into and various taxes and title expenses, the total bill ran to about $4,900.  Being an unemployed college student, I had no money to put down.  Kawasaki didn’t let this stop me from buying their motorcycle, though.  They simply gave me a $5,000 limit credit card to make the purchase on (You may be wondering how a college student with no job was approved for a $5,000 credit card?  That was easy, the nice lady in the credit department of the motorcycle store simply told them that I made $36,000 a year.  Shocker that we are in the credit crisis we are currently in, huh?).

After signing off on my $4,900 loan at 8 percent interest (was set to jump to 12 percent after two years), I had myself my dream motorcycle.  I spent the next few weeks learning to drive it and spending even more money getting “necessary” motorcycle equipment and insurance.  After about a month, one thing became clear; the motorcycle wasn’t for me.  I reluctantly came to the conclusion that I need to sell it.

For the next year and a half, the motorcycle sat in my dads garage.  I “tried” to sell it, but was extremely unrealistic in my prices and never got a serious offer.  Finally, in the spring of 2008, I sold the motorcycle on Ebay for about $2,500.  Here’s a look at the final cost for my months worth of motorcycle riding:

$4,900 purchase price + $200 equipment cost + $200 insurance cost + $400 interest payments = $5,700 total cost

$2,500 selling price - $100 eBay fee’s - $130 new battery cost - $50 fixing up fee’s = $2,200 total earned from sale

Total amount of money lost on motorcycle purchase= $3,500

Ouch.  Until I sat down to write this article I never realized how much that silly motorcycle actually cost me.  That seriously hurts. 

The road to financial independence is paved with many mistakes.  Like all other mistakes in life, the important thing is what you learn from them.  Here is what I learned from my costly motorcycle mistake:

1. Seek advice, not just approval.

When I started asking people for advice on whether or not I should buy the motorcycle, I simply ignored the people who told me it was a bad idea and listened to the people who thought it was a good one.  I wasn’t seeking advice.  I was seeking approval.  And anyone who didn’t give me that approval got ignored.

When making an important financial decision (or important decision in any area, for that matter) ask the opinion of the important people in your life.  Write down each opinion and give each opinion equal weight in your final decision.

2. You shouldn’t have to create a sales pitch on why something is a good idea.

Before telling people I was considering buying a motorcycle, I first came up with all kinds of reasons it was a “good” idea.  I came up with all kinds of reasons I should buy it, from saving money on gas (that baby did get 85 miles to the gallon!) to puting less miles on my car, I was positive this was a good idea.  By the time I was done, I had come up with a formula that showed I would be saving money by purchasing a $4,900 motorcycle! 

If a financial decision is a good idea, it will usually sell itself.  Look at both sides of the equation, not just the “benefits”.

3. If you have to lie in order to qualify for a loan, you can’t afford the loan.

When the credit department had to tell Kawasaki that I made $36,000 a year in order for me to afford the loan, that should have set off some HUGE warning bells.  If people who issue the credit had determined that you need to make at least $36,000 a year to afford their motorcycle, and I was currently making somewhere around $5,000 a year doing summer work, how in the world did I think it was a wise investment for me?

Look at the qualifications for a loan, if you have to lie to meet any of those qualifications, you can’t afford it (not that being able to meet all the qualifications means you can afford it).

4. Take an emotional cooling off period before making a large purchase.

When I bought my motorcycle, I went to the store, found one I wanted, got the financing, and bought it the next day.  Had I waited a week after seeing the motorcycle, my senses may have kicked in and realized it was an awful, awful decision.

By taking some time to let your emotions settle down from the excitement of a big purchase, you may realize it is actually a bad idea.

Even the most financially successful people have and continue to make many mistakes in their financial lives.  Mistakes are a natural part of the process.  By learning from your financial mistakes you can turn them into a positive experience in your journey to financial success.

My $3,500 motorcycle mistake is still painful to think about.  But I have learned several lessons from it and if it is the largest financial mistake I ever make I will be very happy.

What’s the dumbest financial decision you have ever made?  What did you learn from it?

Please continue sending any personal finance related questions, suggestions and tips to centsabilitytowealth@gmail.com.

If this is your first time visiting Centsability to Wealth you may want to see what we are about , read about me, or read our introductory post.

As you may have seen me mention a few times recently, the company I work for is struggling badly at the moment (what company isn’t?).  Last week, as a result of these struggles, I witnessed an event that served as a shocking reminder of why I work so hard to be responsible with my money and why I made this site to perhaps help others do the same.

On Tuesday, our company called a meeting to discuss what is ultimately their last resort effort to save our jobs.  In order to cut expenses without cutting jobs, they were forcing everyone in the company to take a two week furlough.  A two week furlough is essentially a two week unpaid vacation.  And instead of taking the furlough one day at a time for ten days, the government requires that it be taken a week at a time.  What this means is that two times this year we would all have paychecks with a weeks less pay in them.

As I was listening to the speaker continue to tell us how sorry he was, blah, blah, blah, I was thinking about what this would mean to my finances.  And basically, it wouldn’t mean that much.  Yes, some of my goals would be pushed back a month or two.  But I wasn’t going to starve as a result of a weeks less pay.  My electric or car or cable bills weren’t going to be left unpaid because of a weeks less pay.  I would simply cut down on the amount of debt I paid off in the months I took the week long furlough.

So aside from the fact that I had just been told my 2009 salary was being lowered (on top of receiving the news we wouldn’t be getting our annual raises this year, either), I was feeling pretty lucky that the company had figured out a way to keep me employed (at least for now).  I figured other people, mostly ones who made much more money than me, were feeling the same way.  Then the question and answer session started, and boy was I wrong.

The first question came from a woman in the back, I’d guess in her mid 40’s.  She grabbed the microphone and asked, amidst holding back tears, “so basically you are telling me for two different months this year my family will have to choose between making my house payment and making my car payment”?  REALLY?  A week without pay will cause you to choose between your home and your car?  What about an emergency fund?  Or simply cutting down on expenses the next few months? 

This woman had to the minority, I thought.  After all, this was a room consisting mostly of accountants and engineers, not minimum wage fast food workers.  Surely at least the accountants, who on top of earning a high salary are supposed to be good with money (it is kind of part of the job), would be better prepared for this small hit?  Nope.  Soon some of the accountants in my department began to get up and ask questions about how they were supposed to get by with this hit on their salary, or if they could sell vacation days to make up for the loss.

In a room of high wage earners, half of whom manage money for a living, people were downright panicked and wondering how they were going to survive with two less weeks of pay this year.  This absolutely blows my mind.  These aren’t bad, irresponsible people.  Most of the ones I know personally are great people.

These were good people who had put themselves in a financial position that even a weeks less pay was a disaster.  This is a sad reminder of why being wise with your money is so important.  This is why we build emergency funds.  This is why we pay off our debt.  At some point in your life you will be the victim of a job loss or pay cut.  It is up to you how severely those circumstances will impact your life.

Wealth isn’t necessarily being able to go on luxurious vacations, or having an ocean front house, or even being debt free.  Perhaps wealth is simply not being brought to tears as you are forced to decide between your house and your car because of a weeks less pay?

Please continue sending any personal finance related questions, suggestions and story tips to centsabilitytowealth@gmail.com

Technorati Tags: personal finance, job cuts, wealth

How can you set good, attainable goals this year for your finances? Here are four tips from life coach Lisa Mininni on setting New Year’s Resolutions or goals:

1. Make your goals specific.

Do not make vague resolutions like, “I want to lose more weight,” or, “I will save more money.” Make the goal measureable, “I will lose 20 pounds by March,” or, “I will save 1,000 dollars by April.”

2. Create a plan of action steps with specific time targets.

Tell yourself how you will obtain your goals and by when. “I will lose 20 pounds by March by exercising three times per week,” or, “I will save 1,000 dollars by April by tracking and cutting out unnecessary expenses.”

3. Keep your plans realistic.

Make your goal and plan something you realistically follow through with. If you tell yourself you will lose 50 pounds by February by working out seven times per week and not eating past noon you will never follow through.

4. Adjust your plans when necessary but learn to incorporate activities because you are committed.

If your goal is to save 1,ooo dollars by April and you only have 500 saved come March, do not scrap the whole goal.  Instead, move the deadline back and keep using the steps that you have implemented, or if necessary, adjust the steps.

By following these tips you can help insure your financial goals for 2009 will be achieved.