Tag Archives: Building Wealth

Repost: Value is more than dollars

This is post from July of last year that fits in nicely with my usual Friday series on building wealth.  It’s been a busy week, and I haven’t had time to write anything new.  I should be back with original content next week.  If you want to read more in my series on building wealth, please click on that category in the sidebar.

The Simple Dollar has a nice post up on the value of frugality, I thought I might add a bit on the subject of value, dollars, and time.

The writer at The Simple Dollar was asked:

I don’t see why I should spend fifteen minutes making a batch of homemade laundry detergent just to save a few bucks when I could spend that fifteen minutes building my career. Most “frugality tips” seem like a waste of time.

There’s a pretty simple way to look at this, and the poster points it out pretty well. If the value of the 15 minutes is higher than the value of the laundry detergent + the cost of purchasing detergent, then certainly your time is better spent doing something else.  (BTW, the cost of homemade detergent is higher than just 15 minutes of time!)

Another example:  My employer pays me about $50 an hour (it’s more complicated than that, as I don’t ‘do’, but rather ‘manage’ and ‘think’ and ‘plan’, so my employer is paying me more for my work product than my time, but time is the simplest way to look at things for our purposes). That’s as good a starting point as any to value my time.  I hire someone to clean my house every two weeks, and pay her $80. $160 a month just on housecleaning to some is an extravagant expenditure… but do the math. It would take me about 3 hours to clean my house.  Thats $150 of value of my time, assuming I like cleaning as much as I like my job, which isn’t true at all.  I would charge you $100 an hour to clean your house (which is why I don’t run a housecleaning business).  So $160 a month to get back 6 hours to do something I want to do, is a huge bargain for me.

It isn’t all about dollars, frugality of time is as important, isn’t it?

If that’s the case, be honest with yourself about it. It’s not just about earning money, it’s about personal enjoyment, and you’re accepting that the return is less (or possibly nonexistent) because you enjoy doing it. That’s great, but it doesn’t mean that the frugal task has any less value.

Here’s an example. One of my cousins is a meticulous housekeeper, to the point of being obsessive. Yet she enjoys it. She’d far rather be doing that than engaging in other activities. Sure, it serves as great maintenance on her home, but it doesn’t put much financial value in her pocket. What it does do is make her feel good when she sees her sparkling clean house. She often chooses that for a Saturday afternoon instead of networking within her career.

Everyone has different values for time, as well as values for enjoyment.  I was making small talk with a friend’s husband a couple of weeks ago, and we got on the subject of wine (to his credit, we were meandering around for something to talk about other than the weather, and even though he’s not into wine, he at least sounded interested so we could not stand there in silence while the ladies were inside going on about weddings or shoes or whatever).  We were discussing the cost of wine, and how hard it is for me to spend more than $30 on a bottle for something I’m just going to drink.  I was a bit uncomfortable, as I had recently purchased a $70 bottle of wine.  He pointed out he would regularly spend $200 on 4 hours of golf, and that it’s worth it because he loves it.  He then just asked me if I really liked the wine.

Made that $70 look like a value play.

Don’t focus on the numbers, focus on the value.  Sure, the basics still apply – if you are in debt and want to build your net worth, you may need to give up golf and wine for a while.  But once you are comfortable and on track with your goals, use more than just dollars to measure value.  You’ll find bargains everywhere.


Setting Goals

This is part of a weekly series on personal finance and wealth building.  If you care to read them all, please click on the ‘Building Wealth’ category on the right.

Goals are a critical first step on the path to wealth. Without goals, you are unable to build plans, budgets, or schedules. Without goals, you don’t know what success is, much less how to get there.  While the words in this article are mine, the structure (SMART) and ideas are not.  I’m not sure where they originated, or even where I heard it first, but here I make it as much my own as I can.  (If you own or know who owns the copyrighted or original material on SMART goals, please let me know).

Goal setting became an interest of mine several years ago in the context of powerlifting.  Building short and long-term plans around short-term goals that all fed in to longer term goals is an important part of training and diet for performance.  I found using the SMART framework works very well for any goal setting, and certainly moving towards building wealth requires setting goals.

All goals should be SMART.  Specific, Measurable, Attainable (Actionable), Realistic, and Time-bound. Continue reading

Debt Repayment Strategy

This is part of a weekly series on personal finance and wealth building.  If you care to read them all, please click on the ‘Building Wealth’ category on the right.

If you’ve followed along for the last several weeks, you’ve gotten to the point that you are ready to develop and implement a debt repayment strategy.  You’ve seen the five basic steps to maximizing wealth, you’ve built your balance sheet, income statement, and your budget.  Now it’s time to get you out of debt.

How you got into this mess is largely irrelevant.  I’m not judging, and you shouldn’t beat yourself up.  I know I made a lot of poor choices when I was younger when it came to money, and I paid for it.  The good news for you is that, like with almost anything, if you put your mind to it, stick to a plan, and work hard, you can get out of overwhelming debt faster than you think.  Continue reading

Financial Friday: The Balance Sheet and Income Statement

This is part of a weekly series on personal finance and wealth building.  If you care to read the first one, click here.

The first step of the trip from where you are now to where you want to be is understanding how to tell where you are.  For wealth, that’s a Balance Sheet.  You also need to know how that’s changing over time, which is where you need the Income Statement.

Many financial ‘experts’ poorly or incorrectly explain the balance sheet, assets, liabilities, income, and expenses.   I’ve seen one go as far as to suggest your house isn’t an asset (and then suggest a good way to get rich is to invest in real estate).  While I’m not presenting a lesson in Finance, these are pretty much the same tools you would learn to use in a Finance 101 class. Continue reading

Financial Friday

This is an inaugural post in a weekly series on personal finance and wealth building.

Managing your personal finances and building wealth can seem a daunting task.  It did to me about 12 years ago, when I was over my head in credit card and auto loan debt, renting an apartment, and struggling to pay the bills, even though I had a pretty decent paying job.  With the help of my now wife, I figured out how to dig out of the hole, and in a short time turn my negative net worth into what many would consider a positive net worth.

Lots of folks make lots of money selling books on how to get rich.  Some of those books have outstanding advice, some aren’t worth the paper used to print them.  Much like the fitness and strength training world, a lot of effort goes in to making something pretty simple look really complicated.

There are only a few basic steps to building wealth.

Get Out of Debt

One of the most valuable lessons I got out of my Finance classes in graduate school was don’t pay interest on depreciating assets.  That means exactly what it says – when you purchase an asset that will depreciate (clothing, cars, televisions, computers) pay for it up front, not on credit.  I know this sounds easier than it is (simple doesn’t mean easy, trust me), certainly when it comes to items with high up front costs.  Not everyone has the $25,000 it takes to buy a car.

Most people are already in debt.  They carry a balance on their credit cards, they have one or more car loans.  In order to build wealth, you have to eliminate these debts.  (I’ll address appreciating assets and debt later, but for now, ignore your mortgage if you have one).  Your net worth only goes up as your income exceeds the expenses of your liabilities.  Which leads us to… Continue reading

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