Savings, Minimizing Expenses, Finding Cheaper Alternatives, Building Passive Income?

[TheSlasher]

This will be my first time being officially full-time employed, and I heard from a lawyer who was already very old, and thus, exprienced, said that you can't be rich in five to ten years. The reason according to him is that, while your income might be rising, your expenses also do.

With that in mind, I am trying to find the root causes for these phenomenon. One that I remember is the marginal propensity to consume where merely an increase in income makes people want to spend more of it.

To counter this, I am thinking of setting up habits such as spending only 10% of my monthly income after compulsory expenses that have no alternatives (such as transportation, but not food, because the food market has almost limitless alternatives).

Speaking of alternatives and finding cheaper deals, I want to know more of them from you guys. Let's not go to real property alternatives for now because chances are likely that we have different laws governing real properties. Maybe ways on how to make car payments as cheap as possible and also on clothing or whatever matters I have not mentioned.

For example, a cheap coffee has almost the same effect in drinking at Starbucks. Another example, maybe is a $50 dollar sushi that could have an alternative worth $25 to $10. Also, opting for the cheaper alternatives (both the obvious and the carefully studied alternatives) is a good practice for discipline. As for cars, they say that e-mailing dealers will make them ask for lower payments because they will sense that you're e-mailing more than just one dealer.

Now after following the 10% rule, of course, there would be issue on the remaining 90%. I am now more or less convinced that my wealth (money) shouldn't just be growing linearly by savings, and that instead, what I should be aiming for is to grow is my income per unit of time. And that is what I am thinking my 90% savings should be for.

Since I will be a full-time employee, a business isn't a practical alternative for now, except if I can devise a system and find the right people where I only need to manage my business in the weekends and part-time. Basically, the question here is what are the best ways you think would my savings be used to generate passive income?

Tl;dr:
1.) Ways to find cheaper alternatives to almost anything where money needs to be paid.
2.) Ways of saving money.
3.) How to use the savings to generate passive income.

Eventually, the return would be used for my establishing of a business (a life project) which I am doing my best so I can pull it off in two years.

 

[Tenacity]

Idk what lawyer you spoke to, but apparently he hasn't heard of something that we call, "a budget". A budget inconjunction with an investment plan and tax management, are the keys to managing your money, without them you are going to be off financially no matter how much money you make.

I believe in living below your means while maintaining as much quality as possible. This allows you to save for emergencies, handle inflation (rising costs of living), handle a potential drought in unemployment with no income coming in, as well as handle new costs that you couldn't avoid (such as insurance deductibles).

Establish a budget that includes how much you spend on Rent in total (unit and utilities), your Car (gas, insurance, state fees, repairs, car notes), Food, Insurance Premiums (renters, health, life, and of course auto), and then Personal Entertainment such as your cell phone, movie trips, dates, vacations. I would try to keep this at 30% - 35% of what your income is.

Then on the side, you would have a budget for any student loans you might have, I would try to keep the loan payments at no more than 20% - 25% of what your income is. You can also include your credit card payments here but for personal expenses, I believe in using a credit card and PAYING IT OFF before the grace period. Don't overspend and just throw it on a credit card to "worry about it later".

This means that for your personal expenses and loans, 50% - 60% of your income is going out for those items. This will allow you enough money to cover taxes which might be the equivalent of about 15% of the income leaving you with 35% - 45% remaining. I would put that entire remaining amount into a mixture of CDs, Retirement Accounts, and general Investment accounts. Leave a good chunk in the CDs because that's going to be your "emergency" money should you need it.

 

[evan12]

You can invest it in mutual funds or stock. but you need to take in account their value fluctuate over the time . it is NOT risk free.
Some poeple buy home , it is kind of forced saving and you will have equity . you can also rent part of your home so that will generate more income.

 

[Chronocidal]

This will be my first time being officially full-time employed, and I heard from a lawyer who was already very old, and thus, exprienced, said that you can't be rich in five to ten years. The reason according to him is that, while your income might be rising, your expenses also do.

With that in mind, I am trying to find the root causes for these phenomenon.

Not surprising. People's lifestyles and life goals change. Raising a family and educating children is costly. There will be no Social Security nor Medicare for us in retirement either, and healthcare costs are going up since more people are living longer and demanding healthcare, so that's a lot of money one needs to earn during one's working life, whether through employment or business ownership or whatever else.

You also outlined another issue, known by some as the "hedonic treadmill"...

One that I remember is the marginal propensity to consume where merely an increase in income makes people want to spend more of it.

...which would pretty much be this. As you likely suspect, and as another user said quite well, budget discipline is the simple answer...

Idk what lawyer you spoke to, but apparently he hasn't heard of something that we call, "a budget". A budget inconjunction with an investment plan and tax management, are the keys to managing your money, without them you are going to be off financially no matter how much money you make.

...as Tenacity said here. Even high-earners aren't too well-off long-term if they're overspenders.

For example, a cheap coffee has almost the same effect in drinking at Starbucks.

I think it's safe to say that Starbucks made its fortune on what some would call the "gourmetization of lunchpail items". If your goal is to sidestep inflated costs by either brewing your coffee/tea/etc. yourself or else downgrading to instant-coffee/etc., or abandoning coffee entirely, that's your choice.

Another example, maybe is a $50 dollar sushi that could have an alternative worth $25 to $10.

Obviously, it's more budget-conscious to go to the town's local Japanese restaurant than to some glitzed-out sushi place where one is paying for the place's name-recognition than for extreme skill on the part of the chefs. And, of course, not going to a restaurant is cheaper than going out to a restaurant.

On another tack, if any friends of yours have any Asian culinary training, perhaps you could ask them these sorts of questions?

Yet another related alternative could also be to take a few relevant Asian-style cooking classes at a nearby culinary academy and learn the basic skills of sushi preparation for yourself, but that's of course going to have up-front costs in instruction and in preparation-equipment for your home kitchen.

 

[Desdinova]

I take it you haven't read my thread:

http://www.sosuave.net/forum/showthread.php?t=219064

I save (and make) All kinds of money by cutting corners and using unorthodox methods to Increase the amount of cash in my pocket. Some things you just can't get around, but modifying your other expenses can give you the money you need for those things in life where you cannot cut corners.

 

[synergy1]

I think people nailed it with the budgeting threads/ concepts. Its not overly difficult if you take discipline out of the equation. My only other two cents in regards to budgeting ( which I am currently revamping myself), is to build in error into your budget. Life happens. No one counts for a busted timing belt, a cavity they need filled, or a new septic system to their house. For me, I built in a 10% error into my budget and financial projections. That way, I can be up to 10% incorrect and still hit what dollar value I want to be at by the same time next year.

Passive income can come from many ways. The best for the non self-employed is obviously dividend paying stocks. You can find the yields of any stock on MSNmoney, yahoo, or google. You need a large sum into the stock market to make a noticeable income though. as for percentages, I keep 6 months of living expenses on hand at any given time. The rest can be whatever you want - a house, stocks or both. Too much cash, and you lose to inflation. Too little, and you might be forced to sell holdings when prices are down which means you lose money.

 

[Desdinova]

My only other two cents in regards to budgeting ( which I am currently revamping myself), is to build in error into your budget.

See, that's the beauty of my lifestyle. I don't budget 5hit. I find budgeting time-consuming and stressful. I'm just in-tune with how my financial situation is at the given moment. I see my regular income as balancing scale. If I have to spend money on minor things that happen to come up, my luxuries take a hit. Generally, if I need it, I get it. If I want it, I consider how I'm sitting financially and debate on whether I should spoil myself or pass. The scale moves according to how much I'm spending, or how much I'm not spending.

All the extra money I make outside of my job goes into a savings account. I've adapted to the idea that I can truly survive on my income, even though it may be mostly breaking even. That extra money I scrape up is just that, extra money. I stuff it away and generally don't touch it unless I really need to. Most of my regular income covers my expenses as well as the occasional glitch in my life.

 

[Tictac]

First, build up a 4-6 month emergency reserve fund equal to no less than that many months' expenses. Keep that liquid, safe and untouched.

Then, take the 10% and channel it into a stock index fund - preferably a Vanguard of other very low cost provider. Best if this is a tax-deferred 401(k) or IRA that you cannot touch until age 59 1/2 or a Roth IRA (maybe even better given your age).

After that, you need not worry about budgeting too much unless you are targeting certain purchases - home, car...