My financial philosophy

Not to toot my own horn or anything, but I'm pretty good with money. Whenever I tell anyone how much I have saved up, I tend to get a few raised eyebrows, a nod of approval and one of these:

But I wasn't always good with money. When I returned to the US at the age of 19, I moved to LA. Due to not having a degree and parents who thought any kind of financial support was on par with socialism, I was forced to work minimum wage jobs, which made me less than $1000 a month, which I think is below the poverty line. Of course, I knew nothing about welfare or employment offices, so I was forced to rely on my meager wages, but that's another story. 

I tend to give financial advice to anyone within earshot, kind of like that hobo mumbling about the end of the world while wedging himself firmly into the 'uncomfortable' zone of your personal bubble. Except people actually find my advice useful, and I don't live behind a dumpster (yet).  And now that you're reading this, you get to be the reluctant receivers of my eager advice.

Here's my financial philosophy, in a nutshell:

1) I can afford to buy a new car (or a boat, expensive clothes, etc) precisely because I DON'T buy those things. I'll explain below.

2) If I haven't saved up enough money to last me the rest of my life, I haven't saved enough, and need to cut back on the non-essentials.

Anyway, so living in LA, I wasn't making enough to get by, and would have to put things like gas and groceries on a credit card, which I was unable to pay off at the end of the month. As you can probably guess, my debt grew. I ended up joining the military and got a steady source of income, but it still took a few years to pay off my debt.

Finally, in March of 2010 I paid off my credit card and my car loan, and have been debt-free ever since. Since then, I have managed to save up (including stock gains) about 2 years worth of my current salary. It's going to be 3x by the end of next year, as long as things keep going the way they are, and if I still have a job.

Anyway, so here's the advice I give people, boiled down to the most basic info:

1) You need to have a good source of income.

You can stop rolling your eyes now. The sarcasm is duly noted. You may think it goes without saying, but it's true. I only managed to save so much because I have a relatively high source of income, and tend to have a lot left over after paying for the essentials.

2) Speaking of which, you need to figure out what's essential and what isn't. Housing, food, clothing and a cell phone are essential; but a mansion, restaurants, brand name clothes and the latest iPhone are NOT. Catch my drift? Cut out as much of the non-essentials as you can.

3) Pay off your debt as quickly as possible, starting with the loan/credit card with the highest interest rate first, and making minimum payments on the others. Debt brings on more debt. The money you spend on interest could have been earning you money in the stock market.

4) When you are out of debt, put 3-6 months' worth of expenses into an emergency fund. Have a savings account or some other account from which you can easily get money if you need it. Now, this part is very important, because let's say you finally finished paying off your debts, but then your car breaks down and requires a bunch of expensive repairs. You didn't start an emergency fund, choosing instead to take the wife out on a celebratory shopping spree with all the money you now have extra every month from not having to pay towards your debt. So what you would now do is put those costly repairs on your friendly credit card and BAM! You're back in debt. Having an emergency fund will help keep you out of debt. 

5) Put your money in an interest-bearing account or in stocks. Keep in mind that inflation is about 3% a year, so if your money's in a savings account (which currently give you about a 1% return), it's actually losing purchasing power. What you need to do is put it in the stock market. Mutual funds are good to start out with. Do some research. Or you can contact me and I can go into more detail.

Going back to my philosophy, you need to forgo the trends and spend less.  Have you ever noticed how Bill Gates and Warren Buffet dress?  I don't think they've gone clothes shopping in 5 years, and when they do, it's to Goodwill.  Rich people realize that the $200 homeboy just spent on the latest Jordans could have been put to much better use in his savings.  I know due to the recession and all, it's currently cool to be fiscally savvy, but trends come and go.

Pardon the crop.  This is the last time I let Hellen Keller edit my blog

Anyway, there you have it.  Take it or leave it.  Oh, and if you have any good websites related to the topic of finances and saving, leave them in the comments.