Friday, March 05, 2010

By 

James W. Stone

I constantly hear about people who don' t have any money. I don't mean the truly destitute jobless person, or the family dealing with a major illness. I mean the average Joe who has a job, lives in a condo, drives a car, eats in restaurants, and wants a better life. People just like most of us, except they don't seem to have enough money.

They ask the question, "Why can't I make ends meet?"

Is it that they don't make enough money? For this argument let's assume their income places them above the poverty line. Plenty of people make a decent income and still don't think they have enough money to pay their bills. And if they can't pay their bills today, you can bet they aren't saving for emergencies like when they lose their job, or have an accident and can't work.

A quick look at the situation and you see a person who has sufficient income but has no money going into savings. This person is not a victim of unfortunate circumstances – unless you consider bad money management an unfortunate circumstance What happens if Average Joe needs to go to the hospital and can’t pay the bill? The hospital won't deny him service. Instead, they will add the cost of his "charity" care to the bills of all their other patients (that would be you and me). There are many other ways our society will attempt to assist people like Average Joe through their lives. Banks will allow dead-beat borrowers to walk away from their credit card debt. It is easier for a bank to write off a debt as uncollectable than it is to spend years hounding the debtor for payment. Bankruptcy, short sales, and foreclosures are other strategies often used by people who don’t know how to manage their money. In the end, you and I pay for this in the form of higher bank fees and tighter scrutiny by lenders.

Maybe my concern for people with a decent income but no spending money is worry about my own money going to help them instead of staying in my bank account for when I need it. I'm okay with thinking that way. I didn't earn my money to give it to someone who can't manage their own money. I realize there are people who do need help when true emergencies arise. I try not to hesitate when it comes to donating to charities helping victims of disasters, accidents, major illnesses. But I don't want to help people who fall into financial difficulties because of their own lack of planning or lack of control over their spending.

With that thought in mind, I make every effort I can to help people understand some basic truths about money. There is one axiom that serves as the foundation for all that I know about money: The money you spend comes from money you have coming in. What is left over is saved for future needs. Putting that another way, "Income minus Outgo equals Savings."

From that starting point, there are some other guidelines to consider as you go through life:

• It is easier to control your spending than it is to convince your boss you deserve a raise.
• There will be a time when you receive a bill you were not prepared to pay. And it won't be the last time that happens.
• Just because someone else has the latest electronic gismo (or handbag, or jewelry, or whatever) doesn't mean you have to have it, too.
• Most advertising and product placement is designed to make you aware of things you should spend money to get. The person advertising didn't really have your best interests in mind so much as his/her best interest in mind when prompting you to spend your money.
• Eating out, exotic vacation trips, brand label clothing, fine jewelry, etc. are nice if you can afford them. But there are less expensive ways to show the world how fantastic you are. Donate your time. Mentor others. Read to your kids, and your friends' kids. Recycle. Be a good example. Be a good friend, spouse, parent. Live within your means.
• Rolling over your credit card debt is an indication that you have spent more money than you have. Interest on your debt is the additional cost you pay for having something before you can afford to buy it.

To be a productive member of society you need to have a way of making a contribution to that society. But, first, make sure you aren't a financial drag on society:

• Don't spend more money than you earn.
• Have money available to handle financial emergencies.
• Save (and wisely invest) money for that time when your ability to earn comes to an end (retirement).

I'm sure there are people who never thought about their money like this. That's why I'm speaking out! If you already understand these basics and live a financially responsible life, I'm happy for you and proud of you. Maybe you know someone who needs a nudge toward financial responsibility. If so, pass this message on to them.

James W. Stone
(follow me at http://twitter.com/theJamesWStone)
Copyright 2010, James W. Stone, all rights reserved worldwide