Our latest guest post during our month of sharing comes from Trent Hamm, the writer behind The Simple Dollar, a blog focusing on personal finance and personal development. Be sure to check out his blog after reading this truly inspiring piece.
Every time you spend a dollar, you sacrifice a bit of your future.
Five years ago, I believed the above sentence was foolishness. I was 24 years old, working at a high paying job, and about to get married to a wonderful woman. I had just spent almost ten thousand dollars on a wedding ring and an exorbitant honeymoon in Europe, and I was actively shopping for a new vehicle because, well, my current ride just wasn’t quite good enough.
Roll forward three years. I had $17,000 in credit card debt and literally not enough money to pay my bills. A good chunk of the debt incurred for that honeymoon still sat on the credit cards. My wife, son, and I lived together in a tiny apartment, trying to figure out what we were going to do next.
Everywhere I looked around me in that apartment, I saw stuff I didn’t need. Video game consoles piled high under the television, along with a small mountain of games for the consoles. Over a thousand DVDs. A gigantic television set that dwarfed our living room, looking almost comically out of place. A huge collection of Magic: the Gathering cards. So many books that half of our child’s bedroom consisted of bookshelves. Two nearly-new cars sitting outside.
And yet I felt empty inside. I held my child close, thinking about all of the things I wanted to give to him, but instead I had chosen to spend all of my money on stuff
Every time you spend a dollar, you sacrifice a bit of your future.
Today, not only do I believe deeply in that sentence, it underlines every choice I make in life. I turned that disastrous ship around, realized that all of that stuff was standing in the way of my passions and dreams, and in just two short years, I found enough financial freedom to do what I’ve always wanted to do: quit my nine to five job, stay at home, and focus entirely on my family and on my passion for writing.
The name of this blog, Unclutterer, really underlines the entire idea. Clutter exists in all aspects of our life, not only in the way we arrange items in our office and in our home, but in how we manage our time and manage our money. Clutter is distraction from the big picture, in every way, shape, and form. Clutter can even blind you and choke you if it grows out of control.
Financial clutter is a particularly insidious form of clutter, because it winds through so many aspects of our life. Much of the clutter in our office and home has a financial cost to it, meaning that we actually spent some money to create that clutter. The cluttering of our time is also financial clutter – if we waste our time on things that drain our money or don’t earn as much as we potentially can, we’re draining our financial plans of a great deal of vitality.
Here are six great steps that you can do immediately to reduce the financial clutter in your life – and begin to open the path to a truly remarkable life.
Calculate the true value of your time. Figure up how much you earn in a year. Now, subtract from that the cost of transporting yourself to and from work, the cost of work clothes, the cost of income taxes, and any other costs that your job foists upon you (like entertaining coworkers, for example). Now, figure up how many hours you actually work in a year, and add to that the time spent transporting yourself to and from work, the “extra” time spent working when at home, the time spent buying work-related materials, the time spent schmoozing with coworkers, the time spent on business trips, the time you “need” to spend unwinding after work, and any other time investments you make at work. Then divide the calculated amount you make by the number of hours you work for the year. That’s how much you really value an hour of your life. Know that number. Remember that number. It’s important.
Physically unclutter your living space. Go through all of your possessions and ask yourself whether you actually use it or not. Is it something that has honestly provided value for your life? Look for books you’ve not read, DVDs you’ve only watched a time or two, unplayed games, unlistened music, collections of things that you no longer feel passionate about, and so on. Gather up all of this stuff and estimate how much you’ve spent on it. Then divide it by the value of your time that you calculated above, and if you want to, divide that by 40 (so you can see this in terms of weeks). That’s how much of your life you spent working so you could have this stuff. When I first did this, I estimated that I had spent two years of work accumulating stuff I barely use.
The next step is to get rid of all of this stuff and make a clean break. Eliminate the stuff that you’re not using, haven’t used, and likely won’t use again. Get some degree of financial return out of this stuff in any way you can. Don’t worry about maximizing your return – you rarely will be able to make back the value of your time by seeking out a slightly higher return for the stuff. Then take that money and put it into the bank – it’s now your emergency fund so you don’t have to turn to credit cards when something bad happens.
Set some big goals – and remind yourself of them all the time. This is an effective way to de-clutter your mind. Sit down and figure out what your true big goals are. My goals were to spend more time with my children and write for a living – that’s what I really wanted to do more than anything else. Your goals may differ, but spend some time really searching within yourself to know what they are. Focus in on just one, two, or perhaps three goals that really speak to the core of your life.
Once you’ve figured out what you’re really shooting for, let most of the other stuff in your life melt away. If you’re focused on becoming a full-time writer, don’t burden yourself with chasing promotions at work. If you’re focused on being a great parent, don’t spend your mental energy worrying about social obligations in the neighborhood. Focus in on your goal and use all of your energy to reach that goal.
The best way I’ve found of keeping on focus with the goal is to put visual reminders of the goal all over the place. My desktop wallpaper is a picture of my children, and I keep pictures of them everywhere. I also keep notepads everywhere to make it easy for me to jot down thoughts – and also to remind myself of my writing dreams.
Use the true value of your time – and those visual reminders of your big dreams – every time you consider making a purchase. Let’s say the true value of your time came out to be $5 an hour (it can easily be this low, even at a “good” job). You’re at the store and you’re lusting after buying a Nintendo Wii – it’s $270 after taxes. That’s 54 hours of your life spent working for someone else so you can buy something else to clutter up your home. Even better, that’s $270 – or 54 hours – taken away from your big dream.
This works well for small purchases, too. Is that latte worth an actual hour of your life spent working? Is one latte a week for a year worth 52 hours of your life – more than an entire work week? Might that $270 not go better helping you save to make that dream come true, perhaps by helping you build up the financial cushion you need to quit your job and follow that crazy dream?
Go through every. single. monthly. bill. Many of the bills you receive every month have some sort of extra fee in it. Look at your cell phone bill, for instance. Are all of those features something you really need to pay for, every single month? Figure out what you don’t need – what’s just cluttering up your bill – then ring up your cell phone company and get those “features” dropped. Look at your credit card bill. Is that finance charge ridiculously high? Call up your credit card company and request a rate reduction. If the first person you talk to says no, ask to talk to a supervisor.
Even better are bills you can eliminate entirely. We used to subscribe to Netflix, but we were scarcely watching two movies a month, so we cancelled the service. Now, if we get the itch to watch a movie, we just go rent one or download one — it’s far cheaper than the Netflix grind. We used to be members at a gym, but now we get most of our exercise at home or by jogging around the block, so there goes another substantial chunk of financial clutter.
De-clutter your debt. Make a list of every single debt you have – credit cards, student loans, car loans, mortgages, and anything else you have. Write down the total amount you owe and the interest rate you’re paying on that debt. Order them by interest rate. Then, each month, make the minimum payment on each of them, then make a substantial extra payment on the highest interest debt. When that debt disappears, move on to the next one on the list until they’re all gone.
The best way to do this is to create a “virtual bill” for you to pay each month. Figure out an amount that you can afford without too much hassle – say, $200 – and then each month give yourself a bill for that amount. That bill is payable to whichever debt is on top of the list.