moneyFYI
Financial Freedom Is Merely Organized Common Sense
Clearing Away The Money Vampires
Much of what we do is on autopilot
In 1803, the British created a civil service position. It involved a man with a spyglass standing on the cliffs of Dover watching for Napoleon to come across the channel. If he saw the French coming, he was to ring a bell and alert the militia. They abolished the position in 1945, (some reports say 1951).
We do new things consciously. We quit consciously too, but only if the subject rises to some level of importance. The ones that continue past their best before date, like the civil servant at Dover, are part of class we must do a two-step solution. Find it and destroy it. Without a conscious effort, they just tick along, consuming resources in the background.
Examples
In my case, they include things like cable channels no one watches, a bank account that I no longer use but which has a monthly cost, pet insurance that has increased in price 50%, a number of subscriptions to internet services, and a newspaper I don’t read. There are more but I found these quickly.
These are all convenient to keep. There Is an effort to stop. The money for them just disappears without any effort on my part.
Everyone has unnecessary overhead.
Periodically review your expenses. Look at pre-authorized amounts on credit cards and in bank accounts. Review subscriptions and see how many are set to auto-renew. Then examine them as to usefulness.
You can do it most easily when you are preparing your annual budget.
Zero-Based Budgeting
Most budgets are based upon last year plus a change for inflation or something similar. 35 years ago there was a control process called Zero-Based Budgeting. That methods deletes the oversight element of budgeting. In a perfect world, every line item could be justified as price sensitive and necessary. No one has the patience for that, but it should be done once in a while.
In zero based budgeting, every department head received a memo “Your base budget is zero for next year. Rationalize any increase from that.” Some people still use a modified form but it is uncommon. Certainly so in the civil service.
For people, it works and it is not hard to do.
Go through the credit card and automatic bank charges and ask yourself the question, “For this price, if I was not already getting this service, would I immediately rush out and buy it.” You might be surprised how many times NO! appears. They idea is to rationalize what you spend both in terms of what you can afford and in terms of the relative importance of each element in the budget.
The quit quick advantage.
When things don’t make financial sense they should be discontinued. The idea is “Quit Quick!” Zero based budgeting gives you the ability to find the things that should be dismissed. Without that budget discipline, it is easier to just let those things run on. Money is not so easy to earn that it makes sense to waste.
Think how easy it would be to have more after tax income. Not easy at all. Even if it was easy to earn more, you probably only keep only 50 to 60 cents on the dollar. Finding $1,000 of wasted spending is like getting a $2,000 raise.
Now go check how you spend your time. Same rules. Keep asking, “Would I start if I wasn’t already doing this?” and “Could I stop without harm?
I help business owners, professionals, and others understand and manage risk and other financial issues. To help them achieve their goals, I use tax efficiencies and design advantages to acquire more efficient income and larger, more liquid estates.
In previous careers, I have been a partner in a large, international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. don@moneyfyi.com 705-927-4770
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