Personal update

It is time for another rambling update.

I put 51% of my income this month (of $12,075 yes everything is always in pesos so yes, if you are new to my thread, I am poor. :-) ) in different investments part in my CetesDirecto account as CETES, part as a 30 year bond and some as international funds mostly emerging markets in my investment account. My BMV selections are still up by around 14% so the market must still like Mexican companies. of course all the international investing is keeping CETES below inflation which is still officially below 5% for the year. (although food is probably around 8%)

I have been having problems with one of my English groups, I was 12 minutes late entering class so they decided they wouldn't attend that class and that I needed to give them another class later to make up for it so I told them no and that this Tuesday they can find a new teacher. I also had started a class for one of the students of that group and her husband at a big discount and I told them they can continue at the normal price if they wish.  In effect I lost about one third of my income for this next month. It was really stressing me out though and if I let this group get away with canceling at the last minute they'd tell other groups and they'd start doing it too.

The good thing is that now I only have to make the hour and a half trip to Atizapan on Tuesdays and Fridays. I'll also be home by 6pm both days. With the problem group I got home about 9:40 on Tuesdays. I still have a Monday morning class about an hour away by bus or subway and a Thursday morning class also about an hour away. Remember Mexico City is a megacity, so only an hour away is good. More than an hour is   bad. I'm open to starting new groups since an even lower income means that even with roommates and sharing rooms, etc, it will be even harder to save without the income from those two groups.  In any case, my remaining classes will cover all my essential bills so I have no reason to touch my investments or emergency money in November.

One of my roommates mentioned (last month) the possibility of working in the area he supervises doing data entry and other admin assistant work. I said that it would be good since I'd be making about the same money plus have benefits like vacation, but he still hasn't told me when they'll be having interviews so it is hard to say if it is true or not. I hope so. Having a regular office type job 5 days a week and classes before or after work or on Saturdays would be great!  Yeah, if that happens I'd have to leave most or all remaining groups in Atizapan, but I could look for new groups near his office in Polanco.

One roommate is still behind one money. He promised to pay what he owes me from last month tomorrow and to be caught up tomorrow. Another needs to pay me tomorrow too so lets hope the follow through. The one who was sharing my room left to share with his university classmates and a new person should be moved in next week. I hope this new one can stay a while longer.

My net worth (using valuations of different investment accounts + cash) is at $116,884  (yes as always in Pesos) I know that is pocket change for most of you but I'm very happy. It went up about 3,000 in existing investment value since the stock market went up and about 6,000 in earned income contributions I made from being so frugal.  
55% of my network is in retirement accounts. It was at 67% in April. :-)  I expect November and December Net worth to be flat or to go down a little since most classes are canceled after the 12th of December and they don't start back until January 6th.  It all depends on the new potential job and any art/design income I can make.

The consumer credit trap and how to avoid it

This morning I found an interesting advertisement from HSBC which said I had won/earned (ganado) 2 percent monthly interest rate on purchases made through the end of October. I was not thrilled.  I probably get an e-mail message each month telling me of different buy now pay later offers for different stores and I keep asking myself "why?"

Why would I want to shop at those stores?
Why would this be in my interest?
Why would I want to pay 2% a month (24% a year!) to go buy stuff this month with my credit card?

Unfortunately many people would see that e-mail and immediately plan to go buy stuff sometime that week.  The problem is that credit cards and any other form of consumer credit is a drug. As humans we get a little excited and happy every time we have something new. It doesn't require a purchase, but shopping is a very easy way to get new stuff.  It is also unfortunate that this happiness is very temporary. Typically from a few seconds to a month. After that it is either consumed or gets put in a pile of other stuff. Eventually we need to buy containers to store our stuff in and find somewhere to put it all. That's probably why the bigger the house, the more stuff we have and the more stuff we have the bigger the house we "need".  Since housing is a huge fixed expense, just having a huge collection of stuff - even free stuff - would have a large financial burden. You'd need an extra bedroom and a garage just to store it all.

What about the credit card balance? First of all you will now have to pay it. If you are late on a payment or miss a payment you'll pay a large fee. Additionally you'll be paying 24% each year this month's purchases that you didn't even need.

You'll need to consider the opportunity cost of your consumption. Consumption is a bad word. The cost of the goods you buy plus interest plus the occasional late fee plus storage cost is huge. Say I went out and bought a new wardrobe up to my current $3500 peso limit. Those clothes are not going to generate income. If I already have sufficient clothing it was a waste of money. I could have just bought what I need and could pay off at the end of the month without paying interest.   It would be great to have another pair of trousers and a dress shirt, but I don't need to spend more than 900 pesos perhaps less if I go to a store like Walmart or Soriana. I probably won't even buy those. I don't really need to buy a shirt. I could just buy trousers with cash or using credit and pay my card off in full at the end of the month.

Instead of spending $3500, I could spend 400 pesos for what I could really use and assuming I actually had $3100 pesos available, I could invest it in stocks, bonds, or CETES (T-bill equivalent). Supposing that I already have met my savings goal for long term needs, I could put the money in the bank to pay for  my vacation!

How can you avoid the consumer credit trap?

• Be aware that banks are not your friends. They want you to owe them money so that you will become a steady source of income for them.
• Be aware that happiness from stuff is only temporary, but its cost is long term in money, interest and fees, and in increased storage and housing.
• Pay yourself first. Set aside money every time you get paid. Some money should be for irregular expenses and some money should be for retirement. The irregular expense money that isn't spent should be put in investments.
• When you see something you like in a store, ask yourself if you really need it and if you have the cash available to pay for it (without taking money from your savings!) Better yet, wait a day or a week before making the purchase.  You'll be surprised how often you feel you absolutely need something one day and the next week you no longer want it.
• Don't carry your credit card(s) with you.  
• Plan your shopping trips. Make a list of the things you need and stick to it.
• Don't go to shopping centers as social events. Go to parks, go for walks,etc. 
• Don't watch television. Those advertisements might make you think you need something.

Sometimes you need to find new friends on the path to financial freedom

Resistance by friends to your budgeting and saving may be strong. In my case, I can think of several occasions when I was either insulted, told I was cheap so I wasn't worthy of a relationship, or worse. It is time for another story.

A friend of mine, at least I thought he was a friend, who I know had trouble grasping the concepts of frugality so that one could save money for whatever, had asked me to join him and other friends to celebrate Saturday, the 15th of September (grito de independencia). We had gone out before with and without other friends so I thought it would be fine.

There were several of us and we had a decent time, but I think I would have enjoyed myself as much watching a movie on the computer. I bought three drinks and relaxed a little. As we left around 4 in the morning I could tell that my friend was in a bad mood.

 He started to complain to the others about how I bought inexpensive shoes.  I had told him one day many months ago how I had bought new dress shoes at the mall near the apartment for about 500 pesos and I casually mentioned that my last tennis shoes were 200 pesos in the market. That day he mentioned that he knew of a place where I could get very good tennis shoes for 400 pesos of better quality and I had said yes, I was interested. Many months later he hasn't accompanied me to go buy them. We had actually scheduled a day to go shoe shopping once and he left me waiting for his call. That didn't however stop him from telling them how cheap I was early Sunday morning. Obviously cheap tennis shoes aren't going to last very long, but for 1/3 of normal price  I don't really care if they'd only last a few months.

I don't remember all of the conversation, but  I commented that I am careful with my money because I'm saving money to buy my house. Instead of saying ok, not having my own home yet, was again held against me.  It seems that you aren't supposed to save money and you are supposed to magically own while maintaining an above one's means lifestyle!  The topic then changed for a few minutes.

Supposedly we were all going to go have supper at 5am somewhere. When we arrived at a bus stop, one of them said that I was inviting them to supper. I guess all my efforts to save part of my low income makes them think that I'd buy a meal at an undisclosed location for people I had just met (my "friend" had friends I hadn't met join us).  Then several others repeated that statement that I'd pay. Here in Mexico, inviting someone means you pay the bill. I said no and then one of them said that my Spanish was very bad (even though I'm fluent). It was clear that he was offended because I wouldn't invite them a meal. Of course, they didn't invite me any drinks or anything earlier.

I keep discovering that the people who accuse me of being cheap and ask me to "invite" them things are people who never buy me anything not even a subway ticket.

I didn't respond to his insult since I didn't see the point. I normally don't have a desire to argue or fight especially about stupid things between 10pm and 9am. I'm much rather relax, have a good time, or sleep. Instead of fighting back, I retied one of my shoes.  Then one of them said they didn't feel like waiting more for the bus and they started walking toward the undisclosed all night restaurant. Since it was only a few seconds after the insult, I decided to cut my losses. They went one way and without a word because I was angry, I crossed the street to take the same bus route going the opposite direction home.

I was hoping to get a text message or a message in Facebook asking what happened or if I was ok, but instead I got nothing.  I can interpret this in several ways. One is that my friend is jealous that I'm saving money now and trying to reach a goal. Another is that he's a very low quality friend or at least very inconsiderate. Finally I can accept that while I might join him sometime in the future to a bar, that that's about the extent of our friendship and that it is time to find friends who are happy that one is trying to improve his situation.

If you have been saving money for your future whether you are saving for your first home or your retirement, don't be surprised to find out that your friends are less than supportive even when they have more money than you do.  Sometimes you need to find new friends on your path to financial freedom!

The pleasure of investing for your financial freedom

I'm a long way from financial freedom, but I've noticed a change since I started my switch from saving to investing. There are many definitions for saving and investing so I'll give you my own.

Saving is putting money away without earning interest or earning significantly less than inflation. Saving for me is Emergency fund money or any other money in cash or anything that pays less than 3%. Why 3%?  Current inflation here is about 4.7% (officially). Your typical bank savings account, money market account and certificate of deposit would be savings.  Savings are important. If you have no savings you need to save first and then you can invest.

Investing for me is putting money in stocks, bonds, and any other investment that earns near, at, or above inflation in any case it should earn at least 3% to keep up with "ideal inflation".

Anyway, I had paid off my credit card in 2011 (My previous savings got spent during the recession), and saved up my emergency savings for 4 month's expenses and then I started researching and found how I wanted to invest in a mix of stocks and direct bond purchases earning 4-6%.  I put 3/4 of my emergency funds into those so I'm down to one month of expenses in cash.  I'll probably keep it like that for the near future since my cash earns no interest in the bank. I just keep that there as I might need it tomorrow/real emergency money. The refrigerator could stop working or something else might come up. Still I hate to see the purchasing power drop due to inflation.  In fact yesterday, I noticed that two things I enjoy went up by one peso each.

Yesterday, I got the first bank statement for my new bank account that includes investments. Although only a small part of it was new money from last month's income, I felt just as good as if I had bought a pizza or new shoes.

Every Thursday when I see the new cetes and bonds assigned to my Cetesdirecto account, I get a little excited that I made another small step closer to my goal of financial freedom.  New shoes wear out, and  pizza gets eaten, but investments make you more money.

I've started to ask myself how many 20 or 30 year bonds I'd need to buy a pizza every month with interest or something else I enjoy. I suppose once I start getting dividends I'll do the same thing.

If you haven't yet, start saving so you can start investing for your future. Even if you don't want to retire early, you'll find uses for that new investment income.  Saving isn't fun, but investing feels great!

When you are doing well don't tell your friends or family.

I've discovered that at least in Latin America, it is best to tell people how bad you're doing. I've been working hard at cutting expenses and minimizing others. I'm still spending too much on food, but much less than many people I know.

Even though I only just implemented my investment strategy this month (The strategy I've been working on for several months), I've already gotten comments that "I make more than them so I should be more generous." or that I'm very "cheap" because I am not sharing my new found wealth.

It is ridiculous because I have been struggling and making sacrifices to save and invest what I can of the very low (much less than minimum wage in the United States) income I have. I won't see income above a few dollars a month for at least a year and that is supposing that I have non-stop work for the next twelve months. That is pretty doubtful since most of my groups cancel most of December and half of January plus a week or two for holy week in the spring. Of course for those few dollar a month earnings I'm saving much more which is a net loss every month; sacrificing money today for money years from now. It isn't as if I had won the lottery or inherited a fortune.

I have:

• found roommates for the other rooms in the apartment.
• found a roommate to share my room.
• one roommate uses my closet and sleeps in the living room.
• refused to buy a car and I only take a taxi when necessary.
• limited myself to inexpensive food when at home and eating out. When I eat out I normally buy something very cheap on the street.
• started washing my clothes by hand when I have time to do so. 
• rented an apartment in a relatively poor area of the city with good public transportation.
• recycled and reused what I can.
• stopped buying magazines or newspapers except when they are for use in my English classes. I have been reading some newspapers and magazines at the university library where I teach a few days a week and I'll read news articles online.
• refused to buy more gadgets except as a replacement.
• paid my credit card in full every month. 
• refused any unjustified regular expenses. I have my cell phone and internet at home. I don't need anything else that isn't essential.

I have many more things to do like try cooking more of my food at home, but I feel good to know that I'm making progress. This doesn't make me "very cheap", it makes me responsible.  I don't have to ask friends for a loan. I don't have to take what doesn't belong to me since I am being responsible with my low income.  No, I don't have a huge bank account. I decided to keep no more than one month's income in cash except in the event that I take a much needed vacation.  No, I couldn't live for a year on my investments. I suppose if I could cash everything out I'd be able to survive for a little under a year, but it would be only survival. Of course, I would then have nothing for retirement nor for a house or condo to call home.

It seems that all the minor miracles I've been managing to have humble savings is considered to be a horrible thing to the general population. I should, according to them, spend all my money on stuff and on them and forget about being responsible or savings. Will they take care of me one day? Will they give me food, clothing, and shelter?  Of course they won't!  They are just jealous of what little someone else has been able to manage. They are jealous that I've made the commitment to prepare for my future. 

My advice to you is that if you have friends or family who are like them, tell them you are broke, that you have no savings and that you aren't sure if you'll be able to pay your rent next month. They'll be happy thinking you're just as bad off as they are and when you want to save money instead of spending a huge portion of your paycheck on a night at a bar or on a cruise ship vacation. Tell them you can't afford it because you need to buy a new television or other stuff that they would think is important. 

Measuring Financial Independence Progress and the arrogance of idiots

Last night I was in Messenger, and I said hello to a contact that I haven't met in person, but he was someone with whom I'd chat with about 2 years ago.  All was well until I mentioned to him that I started sharing my bedroom in the apartment I rent.

He didn't ask me why, but he quickly went on to judge me (someone he hasn't even met). He asked my age. I'm 36. Then he went on to ask me about my posessions. Do I have my own house? no
Do I have a car? no, and I don't want one. I live only a few minutes walk from the subway and a major avenue. I definitely don't want to waste money on a car. Then he went on to tell me that I don't even know if I'll have food to eat tomorrow.  That isn't the case, but I didn't feel like correcting him since he didn't seem to care about my situation only my posessions.

He then told me that I have nothing. Then he continued to tell me how he has his own house and furniture and he pays his bills.

The difference is that he lived with his parents most of his life and his parents gave him for free the lot to build his house on. The hardest thing in a megacity is to find WHERE to build a house and actually buy it. The actual construction here is very easy to manage once you own the land. It is very likely he never rented.  I'm not saying anything he did to have his house is wrong.  What I'm saying is that his arrogance is wrong since he basically lived off of his parents while I have had to pay rent and bills and yes, I buy my furniture too.  If he had been renting since his early 20s like I have and had he bought the land his house is on then I'd admire him. Since that's not the case, I think he's a jerk who deserves retribution for being so arrogant.

Should I have my own place by now? I suppose I really should, but my income isn't high, and I'm single. Most of my income isn't considered when applying for a loan. He also works independently, but since his parents gave him the land, he didn't even need to request a loan to build.  Land in a megacity/metropolis is very expensive. If I lived in a small town or even a small city, I probably would be able to buy an empty lot for not so much.

As for his scolding me for sharing my room, I think that was just stupid, but that shows you how backwards people are. Instead of praising you for making a sacrifice to finally get ahead financially, they scold you since you really should spend as much money as possible and somehow manage to buy a house of your own while single on a low income.  Sorry, but I'm not going to buy into that backwards thinking.  That's what leads people into mortgage foreclosure and living on the street or with family, because they spent instead of saved.

No, I don't regret not living off of my parents during my 20s and then have the option of being an arrogant idiot like him.  I'm very proud that I've been able to survive without having to ask my parents to support me or to give me land for my own house.  I only regret not posting the roommate advertisement years ago! I'd have a lot more money saved today if I had a roommate sharing a room not only an apartment. I also wouldn't have had to move  a few years ago when times were tough if I had shared the rent of my room with another.

I definitely want to continue to live with roommates and yes share my room (I started sharing this month).  Some of the money I save will go toward bunk beds. The rest of the money I save goes toward my financial independence and early retirement.  I definitely hope to have my own home, but I'm not going to be a jerk about it when I do.  As long as I am single, I plan to have roommates! It just makes sense to share.  Housing costs are normally the biggest expense and rent money isn't an investment. You pay it and it is gone. When I buy my own place, I also plan on having roommates. If I'm lucky their rent money will pay the bills or most of them. I will be able to have my own place and still retire early.

I actually could get a small loan for a tiny house without a yard on the outskirts of the metropolis, but I wouldn't be able to live there while I am working since it would be about 2.5 or 3 hours away and since there is no yard I wouldn't be able to have a garden. Those houses only have 1-2 tiny bedrooms so I wouldn't be able to share. It wouldn't be a very good investment since it wouldn't be a place I'd want except in an emergency. It makes more sense for me to invest in dividend stocks and bonds.

What do you value? Do luxuries like a car make you feel like you have more value that someone who takes public transportation?  I think a better measure of how you are doing is in stability, the ability to cover your basic needs, and safety for the future. Having your own home gives stability, but only as much stability as being able to live in it and pay the bills.  A car doesn't make you more stable, it eats money. A car is a convenience.  How many months could you survive if you stopped working your regular job today?  If I stopped earning money today, I could easily live 7 months and 10 months if I only cooked basic food at home.

Is life really too short to invest for your future?

I had an interesting chat with my other new roommate two nights ago. We were discussing my philosophy which isn't really new to me. Many people believe in living simply and saving for the future unfortunately here in Mexico and apparently in most of Latin America (this roommate is from Venezuela), the habit of saving is only for very short term savings typical reasons for saving money were for a party, for vacation, and for home electronics. Only about 8% of Mexicans according to the survey I read in a newspaper actually are saving anything for their retirement even though over 50% say they have the habit of saving.

Let me get back to the conversation. My roommate mentioned how its possible to die soon and not be able to enjoy your savings and early retirement. That is true but I think the odds are much higher that I'll live to be at least 50 and since all my grandparents ( I believe) were mid-80s or older when they died, unless I get sick or die from an accident I'll most likely live to my mid-seventies or older.

I guess it comes down to two things, how long you expect to live and if you believe that pleasure today is more important than pleasure tomorrow and the day after.  In other words, is it worth it to sacrifice the car or the apartment in an expensive area and the restaurant meals in favor of simple living in a cheap apartment sharing with roommates so that you'll be able to cover emergencies and if there aren't any emergencies in the next 6-10 years be able to retire early?

Only you can answer that question for yourself.  Like him, I also think that life is too short. I think it is very possible that I could die before I'm 67 or whatever the government's retirement age happens to be.  I would like to be able to be financially free and do whatever I want for years before that time. I'd like to travel the world and make destination photo books to sell online. I'd like to meet new people, try new food, and learn new languages. I'd like to have time to take lessons to improve my manual art skills. If I didn't have to work everyday to live, I'd have a lot more time for those activities especially travel.

It is difficult to say if I'll be able to reach the goal since I'm averaging about 50% savings even with my frugal lifestyle. My income isn't high enough to save more. I do know that even a little makes a big difference over time.

Are you one of the 92% who leaves your normal-old-age retirement to God or your children?  It is time to wake up because you might not die young as you planned and your children might be spending their money on your grandchildren instead of you.  What does life is short mean to you?  Does it mean to forget the future and be irresponsible or does it mean to plan for tomorrow?

"Quality of life" and therefore happiness seems to be defined very differently by the early retirement or financial independence people and regular spend-what-they-earn people.

I've been trying to show by example to my new roommates the concepts I live by since one clearly doesn't understand but I didn't get it when I was 20 either.

We were talking about what we'd do when (or if) we find a high paying job. Many know that I haven't actually looked for a job for several years. I've been freelancing for several years. I did poorly when the economy was bad and relatively well in the last and first year. (although compared to most people in the USA, I'm dirt poor in income)

The roommate that just doesn't get my perspective said he'd rent an apartment in an expensive neighborhood and get a nice car when he gets a high paying job.

I commented how I wouldn't do that because I'd just be spending all the extra money I'd be earning (I wouldn't get ahead). He gave me a shocked look and said that I'd be living a better quality of life.  Obviously to him, living alone (or with his partner) in an expensive apartment paying for an expensive car is a better quality of life.   Personally I don't see how quality of life improves by living somewhere expensive. Sure, it might be prettier or closer to work, but is that really a better quality of life?

I have nothing against those things, I just would rather have my future covered and live simply. I still spend too much on food, but very little on everything else. I replied that if you change (increase) your expenses and later lose your job, you'd have no way to keep paying for those things.
He paused and said that it would be better to buy a house. I can agree on that.

What do you think? How do you define quality of life and happiness? Are you happier living in someplace expensive than someplace that is inexpensive? What about long term happiness?  Would you still be happy if you lost that high income and had to move to a small cheap place or live with your family because you didn't have enough savings? Does paying for an expensive car really make you happier than taking public transportation or having an affordable car?

Follow through and follow up on your new Budget

In the last two posts I introduced budgeting and how I normally create a budget. To get ahead you need to know where your money is going, plan for the future, and carry out that plan.
Once you have your fresh budget created you need to actually implement the budget by reaching or exceeding your savings, spending, and investment goals. Here are some important things to consider:

1. Follow up on expenses.

 Make sure they are accurate.  Did you forget to add your monthly haircut or your personal care products to your budget?  Perhaps you forgot to include your monthly gym membership?  You might have spent more than planned so you'll either need to save less or spend less in other areas. Make changes to your budget to reflect reality THEN change reality by reducing what you spend.  As you modify your spending habits, you'll see the change on your spreadsheet where you register expenses and income.

2. Review your goals

Once a month, reconsider your goals, their priority, and timeframe. Are you saving enough? Are your investments earning as much as you predicted?  You might have to increase savings or change the start date for your new projects. However without your budget you wouldn't have realized it.

3. Have circumstances changed?

Even a perfect spending plan will frequently change because circumstances change. If you lose your job, get a second job, get or lose a roommate, or decide to buy a new car, guess what? your budget will have to be updated. You are responsible for your personal finances regardless of whose fault it is.

4. Did you pay yourself first?

If you put your expenses before saving and investing you might discover that you didn't save as much as was in your budget. Really of all your spending plan, your savings and investments are the most crucial to get ahead financially.  Since you didn't meet your goals, check to see what the problem was and next month deposit the percent of income you have budgeted into your savings and investment accounts as soon as you get paid!  Instead of saving and investing with the left over money, use the left over money for non-essentials.

The Budget or Spending Plan that I Follow

For many years I struggled to find a way to budget that would work for my personality and time constraints. I know that having a precise record of spending and spending per category is useful, but I can't keep it up over the long term.  If you can that's great.

Then one day over a year ago, I was reading an article on MSN Money about the 60% solution.  I would have linked the original article, but it is no longer available on MSN. I searched for it and the link in their own search results is bad so I guess they pulled the article. It is too bad because it is the best budget method I've been able to find.

Here's how it works (at least how I remember it!)

Take your total income and multiply it by .6 to get 60% (and add a line in your budget to calculate it and to compare it with your current planned expenses)
Lets say you get paid $500 twice a month. 60% would be $600 for the month.
60% is the most you can spend on ALL of your normal expenses. Yes, thats everything you normally spend money on even your month's credit card expenses, food, housing, transportation, cable, insurance, telephone, cell phone, etc.)

The remaining 40% is for entertainment (10%) and Savings (30%).   That means that you can't spend more than 10% of your income on Entertainment (not 40%!).

If I remember correctly the 30% is divided into 3. 10% for irregular expenses like vacations, weddings, gifts or when something expensive breaks and you need to fix them.  10% for long term saving like for a new car, buy a house, etc. 10% for retirement.

It is a good system for most people since it will cover almost anything that comes up. That 30% savings every month will quickly grow an emergency fund and later investments or you could be strict and really put 10% in different accounts.

What about debt?   If you are in debt, you can spend 20% from Savings and 10% from Entertainment to pay the debt down.    Obviously if your current expenses are below 60% don't increase them!  any additional money that can go towards debt payment and investing is great.

What I'm doing differently from the 60% solution

I have an irregular income instead of a paycheck so my 60% is different every month. That means that I can't set up any automatic process of moving $x to 3 different saving and investment accounts on the 16th and 1st.  I calculate what I should make every month based on what I expect and as classes get canceled, I reduce the number and update the income field for the month.
If I'm having a really bad month I'll save only 30%.  If I'm having a good or normal month I'll deposit 50% of the money I receive twice a month (since I charge twice a month). Yeah, I know 50% is much higher than the 30% in the plan, but you never know when a month will arrive that won't let me save anything so it will probably average down to 40% this year.

My goals include buying a condo, house, or land outside of the city for building a small house.  30% savings won't get me there!  Therefore I've been slowly adjusting my expenses down from a 60% solution to a 40% solution. 40% solution would therefore be to limit regular expenses to 40%, consider 10% for irregular expenses and entertainment and put the other 50% toward savings and investing.

If I were to divide up the 50% up into groups, it would depend on age. I'm 36 now and I don't own my own home or even some place to camp on if I needed to so my first goal is to have enough savings for emergencies and to buy some place to call my own. If I save 50% the next 4 years, I should have enough money for a deposit on a tiny condominium here in Mexico City or pay for half of a house out on the edge of the city (about 2 hours in public transportation from where I live now!)  That money would probably pay for an undeveloped lot outside of the city  about 3 hours away from here. They all have pros and cons.

My next goal is to have money for retirement or semi-retirement. Until I buy my own place, I'm putting all the money that isn't emergency fund into a special account for retirement savings. There are no fees for taking money out before I'm old. If I don't see the money grow there, I might move it to a brokerage account.

If you are new to budgeting, you are probably thinking "60% or 40%? you've got to be kidding me!"   No, I'm not. I make less money than you'd make on minimum wage in the United States. I share an apartment in a relatively poor area. I don't have a car. I don't buy a lot of stuff.  I only pay for services that I really want. I don't have movie channels. I don't have a television either.  I pay for internet and an inexpensive cell phone plan. I don't have a home telephone right now either. I don't buy a lot of clothes and none of it is name brand.  I'm currently only struggling with my food expenses. It is easy to buy fast food or a taco going to or from work.  If I cooked and packed all my meals I'm sure I'd have 50% saved every month as long as I keep working and sharing the apartment.

If you can't save 30% every month, start by reducing the biggest expenses: housing, transportation, and food. Then go after extras that you pay for every month. Finally go after the entertainment related expenses until you can reach your savings goal at 30%, 50%, or more!

Introduction to Budgeting (creating a spending plan)

This post is for those who are new to the concepts of managing your money.

What is a budget and why is it important?

A budget is a spending plan. In its most essential form, a budget is a list of income and expenses for a specific period of time. You could have a budget for your vacation, a budget for a business trip, or a personal finance budget. I'm referring to the last one in this blog since it is about my personal finance journey.

What do I need to create a personal finance budget for me (or my household)?

To create a budget you need to decide how often you'll update your budget (typically every 15 days) , how long of a period it will cover (typically one month), and some place to write down all the numbers and make calculations.  You also need to know how you spend your money. It is good to have a pile of bills from the last month and the last of the bills that come every other month or longer like the utility bills or car insurance.  If you earn a paycheck take out the last month's pay stubs. If you work freelance, look at your client payment register and look at checks and deposits to your account. 

The period of a budget and the level of detail in a budget really depends on you, but since most regular bills come every month, it is much simpler to do a monthly budget and update it as you go even if you are paid every week, every two weeks, or twice a month.  

The frequency you use to update your budget is a matter of personality and dedication.  If you like to micromanage and you have free time everyday, you could update your expenses and categorize each one and then compare the end of the month with your plan. It can be great to see how you think you spend your money is different from how you really spend it!

Personally, I think of a budget as a guide. I don't really care where every last cent or peso got spent during the month as long as I'm making the desired progress toward my goals.  As soon as I start to fall short I'll make an adjustment.  I do however pay special attention to repeating, regular expenses since those need to be reduced, cut, or replaced when my income drops. 

Since I don't like to worry about every peso that leaves my pocket I consider my money as going to the following categories:

1. Basic Expense

2. Entertainment/ going out

3. Irregular Expense

4. Savings and Investments 

No, I don't actually make those categories on my budget spreadsheet, but that's how I think about expenses for budgeting.

On my actual budget spreadsheet I group them as follows:

1. Expenses (with a list of regular expenses and approx. costs)

2. Savings and Investments (divided by account I deposit the money to)

Basically, on my budget it is:

1. Money I plan to spend

2. Money I have saved

3. Money I end up spending on Entertainment or other misc. irregular expenses.

If you control every peso/dollar that you have then you just have:

1. Money you spend

2. Money you save

What is important when creating a budget?

The most important things to consider when creating a budget are your goals, and  to live below your means. That means that all your expenses planed and unplanned need to be well below 100%. (no, 90% isn't well below). If you spend 100% of your money every month, you are not going to have money for anything else and you'll either have to go without or go into debt (credit card!)

Your budget should reflect your goals. If you have no goals then make a list of what is important to you and what isn't important. What makes you happy? What would make you happy? Where do you see yourself in 5 or 10 years according to your current spending and where would you like to be?

Most people want to change or improve their finances, but they are afraid or they don't have established goals.  Without goals, it is too easy to just spend money on whatever you feel like and usually end up in debt. Another big problem is that with credit cards and debit cards it is very easy to spend money as long as you have one or the other in your billfold so to actually carry out a budget it is often important to keep those locked away at home most days or get used to having small quantities for cash for spending that day or week. You'll have to find what works best for you.

Where should you create your budget?

You only really need a notebook, a pen or pencil, and a calculator, but I think it is much better to do a budget on a computer since it can calculate percents and averages.  It is important to keep a monthly log of spending and/or saving along with income to get a better idea of your progress that you can compare with your general spending plan and your goals. 

I know that for USA and Canada there is a service called Mint.com that is useful for making a budget and tracking spending with reports, but that isn't available to someone outside of those countries.  There is also special software like Quicken that you can buy, but then you are stuck updating when you are on the computer it is installed on. I tried some budgeting software, but it was more tedious and of course if the hard drive crashed or the system became corrupt, I'd sometimes lose my data and configuration.  The best option (at least for those of us who don't have Mint) is to use a spreadsheet stored online (and a backup on your computer). My favorite service is Google Docs (now part of Google Drive).  I can create/edit/update my budget anywhere I can find a computer with an internet connection. I don't need to worry about software purchases or upgrades that way.

I recommend that after you set up your basic categories of income, spending, and savings, and of course the subcategories for the level of detail you want, add special calculations that will help you with your goals for example:

Make fields for % saved and % spent (including savings & investment)  If the number is over 100%, you messed up or you have unspent money from last month that you forgot to deposit!

A column for total spent and average spent in each category is also very useful. Over time, you'll know your average income, expenses, and savings either as approximate or precise depending on how regular you update it.  I'm more careful  updating income and savings and less worried about the rest.   

A spreadsheet page for calculating your net worth (assets vs. liabilities) over time is also very useful, but it is your spreadsheet so you should adapt it to your needs.

In the next post, I'll write about the spending plan I currently use.

Ten Lifestyle Rules for Financial Independence and Early Retirement.

Financial Independence and very early retirement seem almost impossible to people who are not used to budgeting and/or living simply.  Most people just believe the illusion that they can spend almost all of their money or 100% of it and that somehow their employer funded retirement account or the government will manage to take care of them while they pray they'll be healthy and have work to pay for their expenses from now until their official retirement date.

Unfortunately, that isn't true for most people. People lose their jobs and in short order they lose their extremely meager savings (perhaps enough to survive a month!)  and then they lose their home that they were making mortgage payments on or they get kicked out of their apartment (which they couldn't afford either!) because they stopped paying their rent.

We all need to budget our personal spending because there is no reason why we can't lose our income before the official retirement age or lose our ability to work before that age.

Most importantly, one needs to change his or her attitudes toward money.  Money isn't a right and we aren't entitled to any specific lifestyle or spending. Those who have the money can spend it as they can see fit.

Rule #1:

Live BELOW your means.

If you take home $1000 a month, NEVER spend 100% of it. Make a point of keeping your regular expenses at or below 60% or $600.  You probably won't make early retirement with only 40% for irregular expenses, debt repayment, and savings, but it at least your savings will cover real irregular expenses and you should be able to grow a decent emergency fund between personal finance disasters.

If you want to retire early and truly be financially independent you need to save  and invest at least half of your after-tax income. The greater the percentage that you save and invest every month, the faster you'll see the benefits. 
At first you'll see that in an emergency you can pay your bills without using a credit card or having to ask for a loan. 
Your money needs to make you more money. Eventually your investments will be large enough to pay your bills then you will be able to quit your job, retire, change jobs, go from full-time to part-time, or make your hobby your new profession. 

Rule #2

KNOW where your money goes.

It is great to believe your regular expenses are less than 60% of your take home pay, but you need to either track all expenses or periodically track them and be pretty consistent with your spending.  An easy way to verify is to add up money put in savings and investments and debt reduction (monthly credit card and mortgage payments are not debt reduction) If the total is at least 30% of your take home that leaves about 10% spending for irregular and entertainment. if it is less than you need to be more careful at planning and tracking your expenses.
Be specially careful with bank and credit card fees. Below minimum balance, late payment, and missed payment fees can be huge! There are also account maintenance fees on some bank accounts. Credit cards often have annual fees.  These should be covered in your REGULAR expenses until you get rid of them.


Rule #3

Don't give up after making a mistake.

Ok, you spent a lot of money at a night out with friends. Accept that it happened and it was a mistake if it was over budget. Just don't give up your budget. Track your expenses better and stay home some other night you normally go out so it balances out to an acceptable level.  Making a mistake doesn't mean it is time to throw in the towel. This month you had a setback. Next month you'll make progress!

Rule #4

Make lifestyle changes

If you are used to living beyond your means, you will have to reevaluate what is really important to you. Do those expensive nights out at the disco and the daily taxi drives or the expensive SUV really make you happy?  I really doubt it makes you happy beyond a few days.
Reduce or eliminate expenses that don't make you happier or healthier.  Downsize your lifestyle. Cook at home more, eat out less. Rent or own a home that is big enough for you and your family. Share your apartment or rent out extra rooms.  Make coffee at home instead of going to an expensive coffee shop every day.  Don't buy new trendy clothing every season if conservative timeless styles will do. Buy used clothing and shop at garage sales or online for used goods in good condition.
Not everything good will cost you money. Libraries have books, museums often have a free day, parks are generally free.
Limit your consumption when you go to expensive places. Buy one drink instead of 4. Buy the daily special instead of a regular menu item at the restaurant when you go out on a date or with friends.

Rule #5

Focus on big expenses, subscriptions, and simplicity.

A simple lifestyle gives you freedom. Cutting from your budget services you never or rarely use makes sense.  If you only watch one movie per month, why pay more than the cost of a visit to a movie theater for those movie channels?  If you don't use internet on your cell phone, why pay for the service?  If you don't use it or rarely use it, reduce it then cancel it.  For example start with your cable and internet bill. Start by reducing from the full package to a package without movie channels and wait a month.  Did you miss them? Probably not if you are like most people. The next month go to a more basic package or go to just what you actually used the previous month.  Do you always watch TV online? Cancel the television service and just pay for internet. Do you always use the internet on your breaks at the office, cancel your internet service at home.  The same goes for magazine and newspaper subscriptions.  If you don't read half of the magazines, then it makes more sense to just buy one at the news stand when an issue has an article you want to keep.  Better yet, go to the local library to read magazines and newspapers!
Can you walk, ride your bike, or take a bus to work instead of driving your car?
The biggest expenses are normally rent, transportation, food, and utilities.  Reducing those will make the biggest dent in your monthly expenses.

Rule #6

Record your income, savings, and investing in a spreadsheet.

You need to make a budget, but recording your general spending or every single expense will keep you honest and on track.  Personally I don't record every expense, but I do make a point of saving 40-50% of my income as much as possible. Yes that means sharing the apartment, not using a car, etc.  You need to decide what you value until you have substantial investments paying your bills.
Today, tracking your expenses compared to your budget is easier than ever since you can use Google Docs spreadsheets and update your figures anywhere you can find a safe internet connection.

Rule #7

Learn the difference between an asset and a liability and start investing your savings in a variety of assets.

What you don't spend once you are living below your means, can go to your emergency fund and investments. Start investing right away. Inflation eats the buying power of cash savings, so it is important to take some risk by investing.  Certificates of Deposit are probably the safest, but they generate little income. Stocks are high risk, but they'll normally grow faster than inflation or pay dividends. Rental property can make regular income for minimal effort, but you need a big up-front investment as a down payment and there are of course property taxes, mortgage payments, and home owner fees.  Find a balance that is right for you, but invest in assets instead of spending money on liabilities.  Assets generate income and/or grow in value.  Liabilities cost you money.

Rule #8

Pay yourself first.

Every time you get your paycheck or get paid for a service you provide or a product you sell,  put a % of the payment in your savings and investments. It should be equal to or greater than the % you decided in your budget. No, 10-15%  is NOT sufficient. That won't cover real emergencies nor your retirement unless you started saving when you were 20.
If you have a regular salaried job, you know how much money you make every paycheck so you can regularly have money transferred to your savings and brokerage accounts. A freelancer should just deposit a % with each payment received.
Why pay yourself first?  It is too easy to see money unspent and buy something that you want (but probably don't need). Once the money is invested, it isn't so easy to spend it on something trendy, or cool. Once you have time to think about it you probably will decide that you didn't really want it that much or it can wait another month or two until the price drops.

Although a 10-15% savings rate is not enough for financial independence or even a decent retirement if you are new to budgeting and saving, it is a very good start if you aren't used to living on less than 100% of their paycheck.

Rule #9

Buy basic goods more than processed goods at the supermarket.

When you go shopping you see most things at the supermarket are processed ready to heat and eat. Unfortunately most have added sugar, salt, and fat. If you are busy it is nice to have something to eat quick, but eating mostly processed food will increase your food expenses. Natural oatmeal is easy to prepare and much cheaper than processed cereals. Potatoes can easily be sliced on a cutting board (carefully!) and fried in canola oil for much less than a bag of precooked french fries. Fried rice is extremely easy to cook and of course it is much cheaper than precooked fried rice.  Tea is cheaper than soda and much healthier too.

Rule #10

Only buy deals for things that you'll actually use before they go bad.

Couponing is one example. Yeah, you'll save money with coupons, but you'll notice that coupons are not available for unprocessed natural goods. Eggs, oatmeal, fresh fruit and vegetables, are already cheap. Processing adds costs and makes them expensive therefore the coupons. If you buy basic goods then coupons don't make sense.   If there is a promotion on your shampoo then you're probably safe, but if you live alone you probably won't eat 2 kilograms of tomatoes before they spoil.  It is hard to guess how much you'll consume, but if you know you don't eat more than 500 grams of something every week and normally less, then don't buy more if it will spoil. I know I never eat more than 2 kilograms of carrots in a week. Sometimes I eat only one so I try to plan according to my average consumption.

More thoughts about having roommates and Financial Independence

In my previous post I explained how much of a financial difference it can be to rent your spare bedrooms using my own real life example.

I wasn't sure when I wrote it if it would be worth it to share a bedroom, but now that I've had a day to think about it I'm sure. Would it be worth it for you to share your bedroom too? It depends on your income and how expensive your apartment or house is.  

It doesn't matter if you own your own home paying a mortgage or if it is paid off or if you are renting. Sharing your home is a great way to save money. I would say that if you don't have a stable regular income then it is essential for you to reduce your fixed expenses.  Your fixed expenses are those that are always there and rarely change. You can't just cancel them when times are tough or you have a contract or they're something necessary for you.  Variable expenses could also be necessary, but they normally change a lot due to consumption.

For financial freedom or early retirement it is more important to reduce the large bills than eliminate the small bills. Yes, all expenses are important, but a 25% reduction of a large bill has a greater effect than 25% off a small one.

Housing, food, and transportation are the biggest expenses although not necessarily in that order!  Focus on reducing those first then worry about the $4 coffee.  I like to think about it this way.

Housing bills can be reduced by moving to a smaller place, moving to a more basic place of the same size, moving to a cheaper area of town, or sharing what you have.  If you own your own home, it makes more sense to look for roommates than to move. It is your place and you really should be there to take care of it!  If you are renting then you have to consider overall cost, safety, schools (if you have children), and how much people will pay to share a room and what kind of person would be willing to share in the neighborhood you will live in.  Cheaper places mean cheaper rent for you and potential roommates, but people who like nice neighborhoods might have the higher income to pay for the more expensive room or they might not and you'll have a more expensive rent to pay by yourself.  

Make sure that where ever you decide to live that it is a place that you could pay by yourself if you had to. Don't plan on an expensive place expecting to have roommates. That would not be smart! The idea is to save money and be financially free or retire early not lock yourself into somewhere that you couldn't pay today!

Currently my rent in a relatively poor area of the city that is a short walk to a supermarket and also a short walk to a subway station is 3,800 pesos per month. It has 3 bedrooms. This is considered an inexpensive apartment for this area of the city. Typically 3 bedroom apartments in this area are 4,000 or 4,500 pesos.  I moved here with two other roommates who both abandoned the apartment. I almost left too because they were not good people, but I stayed because I couldn't find anything better without paying much more.

3800/3  = approx. 1267 so if three people equally paid their share of rent that is how much it would be per person. That's not bad! A one bedroom apartment in the area would cost a little over the cost of paying two bedrooms by myself.  If I think about it in terms of work, I'd need to teach a little over 5 hours of classes to pay for one room or 16 hours of classes to pay for the entire apartment's rent.  No, that isn't a big deal, but when I save those 10 hours of class income, I'll make money in interest or have it for an emergency or my vacation!

What if I have people in the other two rooms and I share my bedroom? I'd only have to teach 3 classes to pay my share of the rent. I'd lose a little more privacy, but I'd reduce my housing cost to that of my bus and subway ticket expenses. (you didn't think I had a car, did you?) Another advantage would be if someone moved out of one of the other two rooms, the person sharing with me might decide to rent that room. My expense would go back to that of one room, but that's better than going from paying one to two.  In the case that the person who shares with me doesn't want to be alone, I'd then go to paying for 1.5 rooms. Again not a big deal.

Having Roommates makes a big difference! Reduce your housing costs for Financial Independence.

The last 7 month's have been a little crazy for me.  Before mid-December of 2011 I was in a stable roommate situation in a very cheap and very tiny town home very far out in the suburbs.  I wasn't happy with my roommate due to his financial decisions (always broke do to poor judgement)  and due to his occasional tantrums (even though he is one year older than me, he seemed more like a grade school student when he didn't get his way).  Obviously, I wanted to change my situation because happiness is more important than money and if you are not happy at home, you won't be truly happy elsewhere.

I was offered the opportunity to share a 3 bedroom apartment in a slightly poor area 30 minutes in transportation north of downtown just a few minutes walk from a subway station.  My cut of the expenses was much more than I was paying  way out in the suburbs, but I had poor neighbors and I knew that I didn't want to rent alone due to the expense and of course rents are much higher in the city proper than on the outskirts of the metropolitan area.   I accepted and the drama quickly started.  I discovered I replaced one bad roommate with two.  These were very dishonest and noisy. They loved having loud parties every holiday and all night.  I tried again to find a room to rent in a decent place for a good price, but I didn't find one.

As luck would have it one bad roommate moved out in March about half way through a month he didn't pay. He owed me some money too. I paid more to cover half of his room's cost that month. I was happy that he left because I learned to despise him during the few months we shared the apartment.

In May, I discovered that the OTHER roommate, who did find someone to rent the other room the next month, had lied to me and the new (better roommate) about needing to pay an extra month of deposit. It wasn't true.  Last month (May) that roommate left leaving his stuff and owing money for the electricty and water bill which he said he'd pay but never did. He of course owed money to the landlady and to me for the last month's rent and the "extra deposit" money I had given him.   Thankfully a mutual friend was able to pressure him to give money for (most of ) his outstanding bills at the apartment.

Now starting July, I discover that I'm the one in charge of the roommate situation here but also in charge of paying the rent and the basic bills (internet, water, gas, electricity).  I didn't imagine it would turn out like this, but life does that to you.  You think everything will be just right and then everything changes!

What's different?  Well I'll be signing a one year contract for renting here. It doesn't bother me because it isn't expensive and it is a good location.  There was one problem.  for June, I still hadn't found a roommate for the extra room so I paid 2 of the 3 rooms here.  I got 1 month back from the money they got from the roommate who left in May, but that money went from my pocket back out as rent.

How does it feel to pay 2/3 of the apartment instead of 1/3? It felt horrible because my housing cost doubled.  Double rent means 1267 pesos less in savings or for other expenses like clothing or whatever else I could use.

In an ideal world I'd be able to find good honest and responsible roommates from the start, but it seems you don't really know what someone's like until you live with them for a few months!

What if I had rented this apartment by myself from the start like many people?  I would have saved 2533 pesos less each month for the months I have had paying roommates. That is a huge amount! People who rent a house or an apartment with more than one bedroom and don't rent out the other room are wasting money every single month.  Yes, you can have bad roommates, but you can also find good ones eventually.  Every month you share the cost of your home, you can save money for other things you need or for your retirement.

Lets say you don't care about retirement, but you are renting a 2 bedroom apartment alone.  If you can find someone to pay 50% of your rent to stay in the other room, you could save the other half for emergencies, for a vacation (instead of using the credit card), to buy your own place in cash eventually, or perhaps for that large screen 3D LED/LCD TV you've been drooling over. Sure it might take a few months or more to pay for that television in savings, but the point is that sharing makes financial sense.

I am happy to report that two days ago after a month of asking friends in Facebook, MSN, etc. if they know of anyone who wants to share, a friend let me know of two best friends needing a place to stay. They'd prefer separate rooms, but for the moment they can share.   I gave a price of rent plus general expenses to cover bills plus cleaning supplies, toilet paper, and stuff like that.  NO, I won't make any profit on this. Any extra money after paying bills and other general apartment expenses I'll set aside for things requested.

Last night after their first night here, one suggested getting a washing machine. That really wouldn't be a bad expense since I hate washing by hand and a washing machine would pay for its self in 12-15 months including the extra cost of electricity, water and detergent. I didn't want to get one because I didn't know if I'd even still be living here in 2-3 months, but since I'll be signing a contract for a year and finally have people in the other room, I might just go for it if I can find a machine that isn't more than 4000 pesos.  It would eat my extra savings the first month, but I'd save about 350 pesos each month by not dropping of my clothes to be washed every week. How much would I save with a full house of roommates using a washer? Probably not much, but if each pays 100 pesos more in their rent, that would cover the extra utilities and everyone would be happy. They'd save money and so would I.  

What's next for me?  I know I spend too much on food, but what I'd really like right now is to find a roommate to share my bedroom with. I'd probably spend 1 or two month's in savings just getting my essential stuff organized to make room for someone else, but later I'd have an extra 633 pesos each month for saving or again for whatever I want.  Plus, I really like sharing with others as long as they are not noisy and are responsible. I'm really not sure if I'll put up an advertisement for sharing my room, but if anyone asks I'll be sure to mention the opportunity!

How is my financial freedom situation different from others online? I make very little money compared to most I see in forums online. I'm not an engineer or physicist or any other high paying occupation. I work freelance so my income is irregular, I just need to sacrifice more in spending. What someone in USA considers bare-essentials seems very luxurious to me with their car, whole apartment and budget that includes clothing and other extras. I'm a shy extrovert. I like being with good people so even sharing my own room would be good.  If you are introverted, find another introvert for your OTHER bedrooms. Since both of you will need more alone time, you'll discover you'll chat for a few minutes and be in your bedrooms most of the time you're at home!

If you are lucky enough to have a good steady income, take advantage of the opportunity to have roommates and save money for your future.  If your extra rooms and garage are full of stuff you haven't touched for at least a year, plan a garage sale, sell it on E-bay, or just donate that stuff to Goodwill!

Modeling Update June 18, 2012

I picked up my model photos. my "book" as it is called here, Is a CD with 40 photos from the session. I'm in the process of creating a Facebook Fan page as model and actor just for modeling and acting photos. Occasionally, I act as a hobby so I might have photos from a play or musical to upload once a year or two.

The photographer gave cards with composites to the modeling agency and I keep the CD and 3 composite cards which has one photo on the front and three on the back.

The photos on the CD are high-resolution so I could distribute them or send them to familiy, friends, or to other modeling agencies.
I am just not sure what I want to do with it now that I have all the photos. Sure, I can start going to castings for commercials, but I discovered two problems.

1. Sometimes castings conflict with my teaching schedule. Most of my classes are at the typical Mexican lunch time and three days a week I teach far from the area where most castings will be located. To go from one place to another will take at least an hour and a half those days. If a casting is in the southern part of the city, it would take me at least two hours.  I don't mind making the trip for the option of making good money if chosen, but if I have a class teach, it isn't logical to skip or risk missing class for just a small chance of getting a one day job. If a casting is from 11 to 5 and I teach an hour and a half away and spend an hour and a half at class that is effectively 4 and a half hours minimum that I'll be gone. Adding probable heavy traffic bumps it up to 5 or 5 and a half hours. Which means that I can't go to those castings the days I teach far from the city center.

2. The second point I also just discovered.  I was told by the person who lets us know when the different castings will be, that she'll only send me to those that don't require speaking since I don't have a native "neutral" accent.  Of the two castings for last week, one requred speaking so she didn't send me the information.  so far that is 50% of potential work. Perhaps I could have gone to that casting!

3. Extra potential expenses
I'll need to improve my fitness level especially muscle mass to have a better chance of getting something at a casting. To me that means figuring out some routine using bodyweight exercises, using dumbbells, or going to a gym.  To get information on all castings, I will need to take a course for making my accent more native. I have no idea where or how much that would be. An accent course would also help for acting.

It is good to remember that sometimes more expenses will come up as you look for new opportunities. Carefully consider what you are willing to spend on unless it is your dream job.

Take some small risks to increase income for financial independence

Life seems to like to pass us by.  Things change. The job market changes, and demand for our services can sometimes drop down to almost zero, but you still need to pay the bills and have a roof over your head and somehow keep saving a high percent of your income for financial independence and of course it would be nice to retire early too, right?

Have you diversified your job and income?  It may sound strange to some who was taught to be specialized through university degrees and get a good job to diversify income, but it is important if the only company that needs your specialization closes and you don't want to move to another city.  If they downsize or outsource you, what will your options be?

Diversifying your income could mean for a self-employed person (like myself) and increase in one area while the demand for another service goes down since things seem to go in cycles.

Currently I have two activities. I teach English classes (and sometimes do translations), and I sell prints of my digital artwork (and photographed traditional artwork) on the internet. The second income is semi-passive since once I upload and make images available they'll stay available as long as I have an account on a Print on Demand website. However the initial time investment is huge so unless you sell hundreds of copies of something you'll be making less than minimum wage.  Still It is something I love and it helps pay the bills. I also like it because I can do it whenever I want to and not do it when I have some other activity.
Classes are more complicated. I make more money teaching, but schedules are more or less set and there are many cancellations and other problems. The biggest problems are that I can't have a fixed schedule from say 8 to 11 am. Instead it is before my students work and later during the lunch hour and sometimes after they finish work. In other words I lose a lot of time between classes and in transportation going to and from classes.

I'm not saying that you should do either of these activities. Instead I think you should take some small risks to try different activities to generate a side income that you could invest or save for other new income streams. It doesn't have to be anything complicated. If you're a woman you might be asked to babysit after work or on your day off. Perhaps you could help with weekly cleaning or doing laundry for a friend who works all day.You could sell something you make or grow. Really there is always something you could do.

This month I'm taking a small risk. I decided to take my potential savings for the second half of the month and spend it on professional photos for my "book" for a modeling agency.  I know there is some demand since I have been contacted by two agencies and one was quite insistent in seeing me. They would send my info to potential third parties for commercials, advertisements and perhaps as extras and send me information about casting evernts when my profile might match.  If I get used for the project they'll take 10% of the income each time.  It sounds quite fair for me and it isn't exclusive.
Of course spending my second half of the month savings plus a little more is a risk. Perhaps I'm not attractive enough to get selected. I am not very fit. I'm a little flabby mostly because I'm not very motivated to exercise alone so the photos that were taken yesterday won't be as good as some guy who works out in the gym, but I decided to give it a try.   The worst case scenario is that I'll have a set of nice photos to upload to Facebook for friends to laugh about the poses.  The best case scenario would be getting regular work and increasing my income significantly.

Why do I consider this a small risk?  First of all, I'm not taking out a loan or borrowing money for the photos or anything related to this.  I did buy a new shirt and some exercise clothes since if I go through with this I need to be in better shape for castings, but these are normal clothes which I can still wear whether or not this generates income. Additionally, this is a small risk since the investment is minimal. including the clothes, it was about 50% of this month's income (I bought  cheap clothes not name brand).  Finally it is a small risk since further investment would be in things to improve my health and I suppose if I do get off my rear and exercise regularly I'll want to have new photos taken in 6-9 months.  Compare that cost with starting a workshop, building a greenhouse or a lot of other income generating hobbies and it isn't bad.  Yeah I might join a gym, but if I do it will be a cheap one. I will most likely buy a set of dumbbells and go to 10 peso Zumba classes a neighbor gives. In any case, health is always a good investment.

What you should not do is spend all or most of your savings or take out a loan for something that you might make money from.  If you know there is demand for something you make or do and it requires an investment in machinery or other equipment, see if you can rent or borrow at first and calculate how many paid projects you'd have to do to pay for it.  If people are asking for something that requires an investment in expensive equipment, ask to be paid at least half in advance and/or have a contract signed.  Once you have one regular stable client or multiple repeat customers, the investment will be less risky.

What if you cannot even accept the small risk of half a month's savings for something that might make you money?  Don't bother, just buy Certificates of Deposit in your bank. :-)

Saving and Investing are essential for a volatile future

I wrote in previous posts about saving money for emergencies and for financial independence which could eventually become early retirement, but today I want to share some thoughts about change.

It is important to think beyond monthly expenses and just think about all the what-ifs. What if you lose your job tomorrow?  What if there is a disaster and your home is damaged?  What if there is a plague or severe drought and food prices double for a few months?

How adaptable are you? If one of the above occurred today, would you survive?

If you depend on your job for survival, it is essential that you start your emergency fund (cash) right away.   If you lost your job today, you'd need money for food, rent, and essential bills for as long as it takes you to find a new job.  You might need to take a course to learn new skills or get a new certification first. If you know where the market is going, have enough savings to cover those expenses and time. You want to have at least 3 months of expenses covered in your emergency fund. See my earlier post on that topic to estimate how many month's you'll probably need to set aside (typically 3-12 months) Once you go beyond 6 months, it makes more sense to put the money in Certificates of Deposit or other investments since if you have an emergency you'd first spend your cash savings and then you could plan to convert investments to cash with little penalty (as the CDs expire, etc.)

Of course if you don't have very expensive things the second scenario isn't terribly important if you have savings available to replace your stuff. However if your savings is limited or you have a priceless collection, it is time to investigate the cost of having home owner or renter insurance. If you can replace what you have with the money you'd have spent in 1-3 years of premium payments, it would make more sense to me to just save more money for emergencies. If your house is made of wood then I'd understand the need for insurance for fire damage. If your house is built on a flood plain then you should either sell it or get flood insurance since a flood could destroy everything very easily.

In the case of plague or drought, there are several things you could do.  First, if you have the space you could always have one or two months of long lasting food which you actually normally cook and eat.  Lentils, beans, rice, pasta, oats, and canned goods are normally good for months to years. Be sure to only buy what you eat though. It is also nice to have extra staple food in case you have a financial emergency. You could just eat the extra food and spend less on food until the emergency is over. If you eat one kilogram of rice a month, buy a couple extra bags, use the oldest bag and buy another bag when you go shopping.
This could also work for other basic things you use like shampoo, deodorant, toothpaste and soap. Buy more basic goods that you use when on sale, but don't buy more than you'll use before the expiration date, and don't buy more than you have space to keep them (and keep them organized)

The typical suggestion of saving 10% of your income is not realistic unless you spend a high % on insurance which is of course money you'll never get back. 10% of your net income probably will only cover retirement at age 65 if you start in your 20s and you never have an emergency or lose your job in all that time. That is NOT very likely. Most people will have many jobs in their lifetime and company paid pensions are a think of your grandparents' generation.

Don't forget that most things especially electronics and appliances don't last forever. All those things that make life easier could break down. Repairs and replacements are not free! It wouldn't be a bad idea to set aside 10% of your income for a repair and replacement fund.  If you don't use it by the end of the year, you could put the money into your retirement fund investments or use it to save for a house or use it to pay down your mortgage loan early.

It is essential to be prepared for what you can't anticipate. Save at least 30% of your net income (take come money) and you'll have at least some level of safety.Save 50% for a year and you'll have enough money to live off of for another year, but don't stop there. Life is about more than an emergency. Keep it up and you'll eventually be prepared for almost anything including early retirement. (many people have to stop working long before 65 due to health reasons so don't just plan on working until you die!)

The Joy of using cash for spending

When I look back on the last 12 years of my life I see that many things I didn't need were bought with a debit card and some where bought with a credit card.  You might not find that to be significant, but it really is.

Everytime I wanted something and had a debit or credit card available, I could purchase without thinking and then I'd have something that would make me happy for a few days to a few weeks or perhaps it was something I consumed in the moment otherwise it would end up in the clutter with all the other stuff I had accumulated.

I wouldn't want to get rid of it right away because I just spent money on it.  That's how it usually works for most of us. It made us happy in the moment, but now we need to find a space to put it, something to put it in, or we have to take time to clean or maintain it.

Yeah, it seems the more stuff we have, the less money we have and the more money we spend.  That's why living on cash is easier when you have a budget.

How do I do it?  First you have to keep a budget. I recommend following something like the 60% solution on MSN (basically no more than 60% regular expenses, 10% entertainment, and 30% savings (10% short term, 10% long term, 10% retirement).   Once that gets easy you can start increasing your savings to a decent level. 50% savings would be good for most people, but if you haven't kept and followed a budget before, 30% will seem huge and impossible at first.  I lived on the 60% budget for almost a year before deciding to start my extreme retirement or financial independence journey.

Once you have your budget and cash your check, separate into envelops or piles the money for that month's rent (or better yet the next month's rent), entertainment, and daily spending money for that period.  If you are paid weekly then separate daily expenses and entertainment for that week only.  Before you leave work or the night before separate the money you need to survive that day and put it in your billfold.  If you spend less, you can keep it for another day. If you spend less everyday, adjust your daily expenses down a little in the budget and put the rest back into savings. Don't spend more than you budgeted + left over funds from other days. If your budget is $10 a day in transportation, food, and misc. don't spend more. In fact, don't put more than your daily allowance in your pocket.  Keep the rest locked away in a safe place where it won't get stolen.

Don't make a point of spending it all either.  When you make a purchase ask yourself if you really need it or if there is an alternative.  Could you cook at home today instead of going to the restaurant? Could you cook one day and bring the left overs to work the next day or two for lunch?

Once you get used to using cash for every day expenses using this method, you'll break the debit & credit hard habit, you'll spend less on things, food, and bank fees!

Get excited over small improvements for Financial Independence

On the road to early retirement or financial independence, it is easy to lose motivation due to the fact that it takes time to save and invest enough money (especially for someone with a low income)  Unless you plan on dumpster diving and camping in the woods, you will always have some basic costs which require at least 300 times your monthly expenses in investments to be considered safe (4% annual withdrawal)

So what can you do?  To stay motivated enough to make a difference?

• First realize that every month that you live frugally by not buying things you don't need, packing lunches for work, drinking water or tea instead of soft drinks, and sharing your home (and therefore rent or mortgage and utilities) IS an improvement.  That's one month you didn't dig yourself deeper in debt or that is one month more in your emergency fund or investments.  Even if you stop next month, it did make a difference.
• Second, look back on your progress since you started to take actions. (Thinking about it doesn't count) When did you start making large payments to your emergency fund?  When did you get the new roommate? When did you start seeing your bank account balance grow even though your income didn't go up?  Start from that point. Either compare bank, credit card, and investment (including retirement) statements from then and now or check your personal finance spreadsheet if you have it there in a net-worth spreadsheet. I always enjoy seeing my AFORE account grow when I get the statements every four months. It isn't a lot, but I know that I don't need the retirement funds yet (almost 36 years old), and even if I stop saving now that money will grow. Also the AFOREs have INFONAVIT funds for purchasing an urban lot or buying a home. The loan they could offer me right now would be for a really tiny townhouse at the edge of the suburbs without a yard and limited in services.  While I might not mind that for retirement, I can't do that while working since I'd have at least a two hour perhaps even 3 hour commute. I can't justify doubling my commute right now. However if I regularly save a large percent of my money every month I should be able to either buy a large house on the edge of the suburbs or a tiny condominium close to the city center. Both have advantages and disadvantages, but through each month's saving and investing, I know I'm a little closer to the goal even if it is just 1% of what I need to pay in cash.
• Keep a progress report:  You could use a tab in your spreadsheet for an informal report on how  you're doing. Make a rough net-worth page dividing your assets and liabilities. Make one row for each. Each column can be a month. As you get your statements for each account make an entry for that month. Make a field for totals for both assets and liabilities and finally one for the net worth which is the difference.  Celebrate going from debt to zero and celebrate short term goals like saving at least 50% of your income consistently. 
• Don't feel bad when you make a mistake or can't save one month due to an emergency or other setback.  It happens. Learn from it and move on. I probably will only be able to save money 9 months of the year because I normally only teach half of April, December, and January. Half the income means I just lost my 50% savings. I still have to live the entire month! Instead of feeling bad about those three months I should feel good about the nine months I worked on paying off the credit card and saving my 4 month emergency fund.  The next 9 out of 12 months should make a big difference in investments. 
• Get excited about firsts. What do I mean?  The first time you have something good for your financial health, take a moment to feel good about it. Knowing that your financial future (independence or retirement) is good should be just as exciting as the new purse or 3-D LCD television.  I just got a first yesterday when I finally got access to check my AFORE statements online (including current balances).  Instead of having to wait every four months, I can log in and get a report showing how each sub-account is doing.  I was excited to see that my voluntary deposits earned 14.50 pesos in the last month and a half. Yeah I know that's the cost of a sandwich, but over half of the savings were deposited 14 days ago. 
• Take time to dream about your future.  I see 14.50 pesos in growth of my voluntary deposits and I can imagine 25 next month, and 40 the next as I double the amount and later increase it by a third then a fourth. (as the balance increases my monthly deposits increase the total by a lower percent, but every pesos I add helps earn that month and the following until I spend it on one of my goals or need it for an emergency.
• Imagine what you could buy using the interest from your investments to motivate you to keep investing (sacrifice the short term to enjoy the long term)  No, you didn't buy the TV this month, but that $1000 USD should earn you at least 4% or $40 USD a year. Don't buy the TV and instead invest it and eventually you'll have enough interest to pay your electricity bill or your vacation once a year even if you don't reach early retirement or financial independence even a few months of effort will make a big difference.

What to do with all your excess stuff when getting rid of the clutter

In the last post, I wrote about my thoughts on organizing and the importance of getting rid of what you don't need, want nor use.

What should you do with your huge pile of stuff?

Sort it out into new piles and put what can't be recycled in trash bags. Make one pile for things you want to sell. Books, CDs, working electronics, furniture, DVDs, etc could be sold at a garage sale.  Make another pile for things that are usable, but you don't want to bother with them that's your donate pile.

Have a couple garage/yard/sidewalk sales and/or put items for sale online. Whatever doesn't sell in a couple months can be donated. Keep those items away from your organized things. Don't let them back in. You separated them for a reason!

Also consider going to garage and yard sales when you need something, buying used is normally 1/4 of what you'll pay new for something.

Decluttering can save you time and money

I have always been a collector. I remember in elementary school I collected stickers, In junior high, I had my cassette tape collection (yeah I'm showing my age. CDs were expensive when I was in high school! and my first CD Player was stolen at school though I never reported it).  Anyway, although not an extreme pack rat, I know that I've always had the tendency to collect and keep stuff.

I'd always justify keeping something when I'd do my spring cleaning. I'd say, "but I 'm sure I'll use it later." and surprise the next year I'd say the same think even though I never used it all that year.  

I'm trying to improve, but it is hard to go against nature. I really believe that the collecting tendency or desire is genetic like so many other behaviors.  I remember my Mom still had her old record collection in her bedroom.  I can't remember her ever playing them when growing up.

Unfortunately if you have a lot of stuff, you need a house or room big enough to store it all. You also need the storage supplies (shelving, book cases, boxes, etc.) to put everything in. Additionally you need some kind of organizational system and labeling so when you actually need something you know where to find it or your spend hours or even days looking for it. How many middle class family garages are full of storage while the cars are parked on the street? That's serious clutter!

Another thing I've learned about myself over the years is that I'm very much out-of-sight, out-of-mind.  What I mean is that if something is stored in a box or some other container I can't look into without opening, I forget I have it. Perhaps I would have used it sometime during the year, but I didn't because at the time I had forgotten I had it. 

Since I share an apartment, I try to keep most of my stuff in my bedroom. That means that I have my large plastic containers stacked and on top of other things. One container is on top of my file cabinet. Another box is on top of my armoire/wardrobe, and I have two stacks (3 and 2) along the back wall of my room. 

I have my desk, a tall book case, and another piece of furniture (about the size of a dresser but with shelves instead of drawers) for storing stuff.  Most, but not all of my clothes fit in my wardrobe when folded correctly.  My wardrobe isn't very big. I have quite a few small boxes with CDs (games and backups)

When I moved in December 2011, I stared my efforts to remove the clutter. I realized that in just the last few years my collection of stuff had expanded out of control.  I got rid of half my clothes (mostly worn out stuff) and at least half of my books. 

I was quite proud of myself to have gotten rid of all that, but I still needed to rent a moving truck mostly for boxes of stuff. I really don't have that much furniture.

Now, only a few months later, I got the bug to remove more clutter. I guess you'd say that my clutter is pretty normal, but I'm in a small space so my room always looks like a mess.  

This weekend I went through my file cabinet and got rid of some papers and at least one small box worth (probably 2) of stuff. There was an old wireless router, a bunch of cables, wires and adapters for only God knows what, and misc. stuff that I'll never use again like two checkbook holders. I haven't had checks for at least 5 years, but I brought the holders with me on the last two moves. No, they don't take up much room, but you could say that about a lot of stuff. Believe me, I've used that same excuse many times.

I then went on to boxes of stuff. In my CD boxes I found many old software application install CDs for some very old versions. I'll never use those again. The shoe box I keep them in was almost full. Now it is half empty!

One of my large plastic containers had my extra hanging folders for my file cabinet.  With the extra room I got by throwing out the junk from the file cabinet, I found the space to keep the extra folder boxes in one of the drawers. Now that large plastic container is empty.

I found quite a few books that were out-of-date or warn out. They'll go in the trash if I can't find a way to recycle them.  I decided to keep almost half of my books and now they are all on ONE shelf of my book case.  Just last year they would have taken almost the entire bookcase. 

I later went through my other boxes and shelves. I didn't do a 100% job, perhaps next weekend I'll finish, but I was able to put some tote bags of stuff that were on the floor on a shelf that was completely packed and disorganized. 

I've rediscovered a few binders and notebooks that were almost unused or had stuff I don't want anymore so I got rid of what they contained. I just need to decide if I want to keep or give away the binders. Just a year or two ago I went to the store to buy a binder because I thought I didn't have any! 

How does this incredibly long post relate to early retirement and financial independence?  Well, if I had remembered that I had binders with junk in a box I could have saved the time and money I had spent on a new one. 

Additionally, things that are improperly stored are more likely to wear out or break. Of course if things are packed away you lose time trying to find them if you even remember you had them at all. Time is money. If you are efficient, you get more done!

Most importantly, the less stuff you have, the less space you require to live. That means you could live in a smaller house or smaller apartment or share an apartment before all your clutter took up the extra room.  If you want to go really extreme, share your bedroom with a friend that you can trust.  The cost of bunk beds or a loft for one or both beds will probably be less than what you save in two months. Rent is the largest fixed monthly expense for most people. Save a lot of money by downsizing to a smaller home and put that money toward saving and debt reduction.

Even if you prefer living alone in a one bedroom apartment, you'll save more on moving costs (smaller truck), and you'll save time packing and unpacking.  

Sometimes you need to increase income to reach very early retirement

Being frugal is sometimes not enough for extremely early retirement (or financial independence) 

Extremely early retirement is possible through frugal living, but it is also important to have a decent come to let you save up fast. If you only make what counts for minimum wage in your country, even a high percentage isn't much money and who wants to live on a completely bare-bones depression budget?  We should live off of the basics, but not suffer to get by.

To me frugal is to only spend on what you need to be healthy, happy, and comfortable over the long term. I don't need to have a night at the cinema to be happy. At least I don't need that more than once a month (or perhaps once every two months.

I do however need to eat a variety of vegetables on a regular basis. If I don't eat my veggies, I feel bad and lethargic. I know that if I only ate the cheapest vegetables I'd spent a little less on food, but it would cause a large decrease in happiness compared to the savings of perhaps 30-40 pesos per week.

Being frugal is also not buying on impulse or getting something just because it is cool, trendy, or what all your friends have. It is living without spending a lot of money on entertainment.

Having said that, we all have to eat, pay for a place to live, and clothes to wear. Unless you have a several thousand dollar a month income or live for free with your parents, it will be difficult for you to save the 80% of income needed to retire in about 6 years.  saving 80% spending 20% withdrawing 4% annually 6.25 =25/(0.8/0.2).


The less you save the longer it will take you to reach your very early retirement savings goal. I was a little disappointed to see that at my current 50% savings  (about 40% more than your typical earthling), It will take me about 25 years according to the formula. 25 =25/(0.5/0.5) If I were in my early 20s that would be fine, but I'm almost 36 years old and I want to retire in my mid 40s so I need to make a plan to increase that percent!


If I go from 50% to 60% (which would either mean packing my sandwich or rice with vegetables or eating at home everyday and perhaps washing my clothes by hand), It will take me about 17 years. That's still too long for me.


The only solution is to live frugally and increase income. The more I make while maintaining my expenses at the current (frugal, but no suffering) level, the more I will save (the higher the percent for savings).


At 70% savings, I can retire at almost 11 years. That's not bad. It is one year more than I'd like, but I am actually planning on working on my artwork so I could sell a few paintings and digital artwork and sell some graphic design. I very much doubt that Print-on-Demand websites will go away so I won't have to live 100% off my savings. I might go into semi-retirement after 8 years if I can build a small or tiny house in the country and have a garden, internet, and a solar water heater. It is hard to say since I only recently thought of the idea. It would be fun to have a couple years dedicated to creating art and design to survive on and live simply. Sometimes being a teacher with a full schedule can be stressful.


Now that I know I need to increase my income and live simply to reach my retirement goal, the next step is to find ways to increase that income. Do I want to find another job? Perhaps I could blog for someone else or write a book? I could put extra time into creating great graphic design. I could try to find more translation work. It is stressful, but a long translation could mean a lot of income if I could find someone who needs that help. I could also raise prices for English classes, but that also will increase the possibility that people will cancel when they have unplanned expenses.