[Updated 2/13/2009]
Like it or not, American consumers are perceived as reckless spenders. According to the Federal Reserve Bank in October 2008, the personal savings rate for Americans is 0.7% of their income. This is a sharp contrast to 24% for the Chinese. I have read stories about the foreclosures and financial stress of some unfortunate people. I sometimes find interesting things in the pictures that came with the articles. For example, I clearly remember a lady who was facing the foreclosure of her house, who was siting in front of her RV with a cigarette between her fingers and two soft drinks on her picnic table. I later used that picture to teach my kids about what I thought was wrong with that picture.
I am not suggesting that an RV, a pack of cigarettes, or a couple of soft drinks would save her from her financial trouble. I do think that her luxury lifestyle was somewhat related to her financial trouble, though. If you are starting a business, I suggest that you keep in check how you and your business spend your capital, especially during the current "credit crunch."
Understand and Budget Your Expenses
First of all, you should secure the financial resources necessary for at least covering your basic living expenses and the capital needed for your business. If you are starting an internet business as a sole proprietor, you should at least have a computer with access to the Internet. For a starter, an entrance-level desktop computer would cost you about five to six hundred dollars. A basic DSL service costs you about thirty to forty dollars per month.
To assess your financial situation, you should have a good understanding of all your expenses. Software like Intuit Quicken and Microsoft Money can help you record your expenses and analyze where your money goes. Alternately, you can refer to the annual spending report from your credit card companies. With that big picture at hand, you can take strategic and conscious actions in restructuring or cutting your expenses.
Some More Tips
If you have made some strategic changes in your spending and are still in need of some small ideas, below are some tips that might help. The guiding principal here is: "Buy what you need, not what you want."
Like it or not, American consumers are perceived as reckless spenders. According to the Federal Reserve Bank in October 2008, the personal savings rate for Americans is 0.7% of their income. This is a sharp contrast to 24% for the Chinese. I have read stories about the foreclosures and financial stress of some unfortunate people. I sometimes find interesting things in the pictures that came with the articles. For example, I clearly remember a lady who was facing the foreclosure of her house, who was siting in front of her RV with a cigarette between her fingers and two soft drinks on her picnic table. I later used that picture to teach my kids about what I thought was wrong with that picture.
I am not suggesting that an RV, a pack of cigarettes, or a couple of soft drinks would save her from her financial trouble. I do think that her luxury lifestyle was somewhat related to her financial trouble, though. If you are starting a business, I suggest that you keep in check how you and your business spend your capital, especially during the current "credit crunch."
Understand and Budget Your Expenses
First of all, you should secure the financial resources necessary for at least covering your basic living expenses and the capital needed for your business. If you are starting an internet business as a sole proprietor, you should at least have a computer with access to the Internet. For a starter, an entrance-level desktop computer would cost you about five to six hundred dollars. A basic DSL service costs you about thirty to forty dollars per month.
To assess your financial situation, you should have a good understanding of all your expenses. Software like Intuit Quicken and Microsoft Money can help you record your expenses and analyze where your money goes. Alternately, you can refer to the annual spending report from your credit card companies. With that big picture at hand, you can take strategic and conscious actions in restructuring or cutting your expenses.
Some More Tips
If you have made some strategic changes in your spending and are still in need of some small ideas, below are some tips that might help. The guiding principal here is: "Buy what you need, not what you want."
- Credit Card Interest: Try to pay off your credit card debt in full and on-time to avoid the high interest rates charged by the credit card companies. It would greatly improve your credit rating and allow you to qualify for business loans at lower rates. If you really need the money for your business, consider a home equity loan that is at a much lower rate and tax-deductible.
- Insurance: You have to change your mind-set when looking at your insurance policies. Insurances are the safety nets for big losses, not for casual bad luck. Avoid small claims, if possible, because the insurance companies are likely to raise your premiums at the next renewal. Raising the deductibles significantly of both your auto and/or home insurances can save you lot of money.
- Cell Phone: How much does your cell phone plan cost you every month? You should consider a less costly program or even a GO phone (pay as you go) based on your usage. Take advantage of night and weekend minutes that are often free-of-charge. Save the money for new ring-tones and pay for the features that are absolutely necessary. Similarly, you should review your phone bills for your local and long distance phone services.
- Entertainment: You may be paying too much to your cable company or for your satellite TV. Cutting down your time on TV may actually benefit your business. If you agree, consider terminating your TiVo or NetFlix subscription altogether.
- Travel and Gas: Defer your travel plans to Europe or Asia. With the dollar weakening in recent years, you end up spending more for less. Consider shorter trips instead, which would benefit your local economy. Also, cut down on unnecessary rides to save on gasoline. Trade in your SUV for a smaller car or a hybrid, if that makes sense.
- Food and Drinks: Spending on food is normally small compared to other types of spending. Going to restaurants daily or too often could be costly, though. Drink water instead of soft drinks, which are bad for your teeth and health over the long term. Drink tap water that is as good as bottled water and does not harm the environment. Lastly, enjoy home-made coffee and save the trip to Starbucks.
- Newspapers and Magazines: If you are paying subscriptions to printed newspapers or magazines, consider reading the equivalent contents on-line. An RSS reader such as, Google Reader, helps you find and organize your contents-of-interest . The RSS feeds are more up-to-date than the printed newspapers. Best of all, they are free of charge.
Believe it or not, these tips can easily save you hundreds, if not thousands, every year. Plus, use the saved money to invest in your business' assets to further maximize the power of the money. What money can be made easier than this?
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