Author Topic: Advice on getting started  (Read 3406 times)

Redhall

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Advice on getting started
« on: January 02, 2013, 03:27:05 AM »
Hi all,

I'm new to this forum so please forgive me for asking what may seem to everyone else to be obvious (stupid?!) questions.

I've always had the goal of paying off my mortgage early, but have just stumbled across the idea of ERE (why didn't I think of this earlier?) and would love to know your best tips for getting started. Why figures do I need to crunch, what one thing made the biggest change to your financial life, what do you wish you had known years ago?

Eagerly and gratefully awaiting your advice!

stigto

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Re: Advice on getting started
« Reply #1 on: January 02, 2013, 04:27:29 AM »
Opinions will differ, but in my case the following was essential:

Track everything you spend in a month (every single purchase)
Make a budget with categories based on that spending. There will likely be areas where you've spent more than you'd guess beforehand.
Adjust the budget. There are numerous tips in MMM's article and in the forum for reducing costs.
Rinse and repeat.

Good luck!

BlueBeard

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Re: Advice on getting started
« Reply #2 on: January 02, 2013, 10:22:15 AM »
Opinions will differ, but in my case the following was essential:

Track everything you spend in a month (every single purchase)
Make a budget with categories based on that spending. There will likely be areas where you've spent more than you'd guess beforehand.
Adjust the budget. There are numerous tips in MMM's article and in the forum for reducing costs.
Rinse and repeat.

Good luck!

+1.  This is the strategy I follow year after year.

josephpg

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Re: Advice on getting started
« Reply #3 on: January 02, 2013, 10:32:08 AM »
I dont know if this is common or not, but know how much every dollar your paid per hour is really worth after taxes. really helps with calculating and asking for more money.

Matt K

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Re: Advice on getting started
« Reply #4 on: January 02, 2013, 11:07:13 AM »
Opinions will differ, but in my case the following was essential:

Track everything you spend in a month (every single purchase)
Make a budget with categories based on that spending. There will likely be areas where you've spent more than you'd guess beforehand.
Adjust the budget. There are numerous tips in MMM's article and in the forum for reducing costs.
Rinse and repeat.

Good luck!

+1

I will add three things: the "pay yourself first" principle, keep a history, and track your net worth.

What is meant by Pay Yourself First (I first read the term in 'the automatic millionaire') is that you make paying your retirement fund, and all other mid/long term funding goals as automatic bills. 'Pay yourself' before you get to your spending budget. Pay yourself first before figuring out how much rent you can afford. Pay yourself first before you figure out how much car payment you can afford (not that as a mustachian you'd take on a car loan, but it's here for compeletness). Stores figured out that people will pay monthly bills pretty much no matter what, and they'll take on a lot of them until there is almost nothing left. That is why everything from TVs to Matresses now come with payment plans. Make your future-self your first and most important payment plan.

I've taken to paying myself even outside of automatic bills. After years of recording every single dollar saved and spent, I know myself well enough to know that I will end pretty much every month with a zero bank balance. I'm not a natural saver. If I have $200 available to me, I will justify some way to spend it on something.

Instead, I chose to "spend" on long term savings. In addition to my automatic contributions, when I have excess cash, I buy investments instead of toys. Sometimes it is stocks, sometimes it is extra payments on the mortgage. Because I track both of these, I can watch these go up and get a sense of satisfaction (and consumer-high) by buying them instead of the latest iToy.

Secondly, I would suggest that however you track your spending & budget, you keep a history. At the end of every year, roll up totals spent on each category; this will be useful to see how much more bad ass you are getting, and for future budget planning.

Lastly, keep a tally of your Net Worth (value of major assets, cash, savings, investments, and debts), and update it once or twice a year, keeping your old values. Your net worth is a much better yard stick for how you are doing than your income (the only thing many people pay attention to). Again, having the history lets you watch it grow (for that feeling of progress) and shows you when things are getting off track ('why did my net worth only go up $2000 last year when it went up $5000 the year before?'). Knowing how, how much, and why your net worth is changing is an important part of being truly financially independant. But for now, just counting it up, and holding on to that number is enough.

James

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Re: Advice on getting started
« Reply #5 on: January 02, 2013, 11:18:39 AM »
...what do you wish you had known years ago?

I greatly wish I had known about the ideas MMM puts out years ago, I highly suggest simply starting with the first post and reading through the entire blog archive.  You can put a lot of what MMM says into less words, but there is something about the reinforcement of hearing it from all the different post and in all the different ways, it just sinks in better and becomes more applicable to your life.

Second, stop thinking and start acting!  I read about ERE and read MMM blog for months before putting much into action, I greatly wish I had just started taking steps along the way.  You can't become perfectly mustachian in one step, but you can start today.  The sooner you get started the greater the impact of your changes over time.

There isn't an right or wrong answer for the general idea of paying off the mortgage, it depends a lot on your goals and your specific situation.