Ryan Guina is an entrepreneur and writer. He has worked for Fortune 500 companies and served six years in the USAF. He writes about money management and small business topics at Cash Money Life and military money topics at The Military Wallet. You can follow his twitter feed.
One of the keys to financial success is spending less than you earn. There are many ways to go about doing that, but the easiest is to create a workable budget and stick to it. That means prioritizing wants and needs, because if you don’t then you run the risk of going in the hole — and that is the quickest way to financial ruin.
I’ll give you a small example of how prioritization works for me. Take going out to eat at a family restaurant, for example. I enjoy going out to eat as much as the next person, but it can be expensive to take a family out to eat. To maximize my dining dollars I rarely, if ever, order an appetizer or dessert and I usually order water. It’s not that I can’t afford to buy an appetizer, regular entree, soft drink, and dessert. I can.
But aside from the fact that I can’t eat that much food, ordering each of those items will easily double your bill. Soft drinks are about $3 each at your standard family restaurant, appetizers run $5 to $9, and a dessert is usually $5 and up. I can go out to eat twice on the same budget by sticking to a regular entree and skipping the extras. Do my waiter/waitress or my friends think I’m cheap? Who cares? I’m comfortable sticking to my budget. (For the record, I tip well; usually in the 20 percent range or better).
This works for big ticket items as well. Last weekend my wife and I went used car shopping. We watched another couple test drive the vehicle we came to see, and they later bought it. We aren’t in a rush so we looked at a newer and somewhat pricier version.
I went into the sales room to speak with the salesman about the possibility of taking that car home. there was one problem. It was out of our budgeted price range (by about $5,500). I talked to the salesman and let him know we were very interested in the vehicle and we were willing to buy that day if he price was right.
He brought out his little salesman worksheet — you know the dealership sheet with the four squares? He asked the obligatory car salesman question, “how much would you like your payments to be?”
“I don’t want payments,” I said. “My wife and I are prepared to pay cash today if the price is right.”
We went back and forth a couple times and I let him know what we had budgeted and what we could afford and he went into his manager’s office to “see what he could do for me.”
In the end he came back with a price that was $3,500 cheaper than the original sticker price, but it was still $2,000 more than we were willing to spend, which I told him.
He started a speech about how they had good dealership financing and that I could use some of my budgeted money as a down payment and keep some of the cash for whatever other needs I had. After all, it was only a difference of $2,000.
But that $2,000 is not in my budget and I didn’t want financing, so I thanked him for his time and left. You should have seen the look on his face. Why would I walk away from such a great vehicle for a difference of $2,000?
Why? Because it is not in my budget. Cars come and go, and I’m sure my wife and I will be able to find something nice if we look long enough.
Make your own priorities, don’t follow someone else. Life is not about keeping up with the Joneses. Money is a finite resource. If you want to reach your financial goals you need to exercise a little give and take. For me, it’s sticking to a budget and paying for the things I plan to spend on, not worrying about what others think about me or my spending habits.