Financial Planning for the Ant
“In the winter season a commonwealth of Ants was busily employed in the management and preservation of their corn; which they exposed to the air, in heaps, round about the avenues of their little country habitation. A Grasshopper, who had chanced to outlive the summer, and was ready to starve with cold and hunger, approached them with great humility, and begged that they would relieve his necessity, with one grain of wheat or rye. One of the ants asked him, how he had disposed of his time in summer, that he had not taken pains, and laid in a stock, as they had done. Alas, Gentlemen, says he, I passed away the time merrily and pleasantly, in drinking, singing, and dancing, and never once thought of winter. If that be the case, replied the Ant, laughing, all I have to say is, “That they who drink, sing, and dance in the summer, must starve in the winter.”
Aesop’s Fables - The Ant and the Grasshopper.
Don’t be a grasshopper. Be an ant.
Providing food, shelter, clothing, utilities, healthcare, and transportation is the ultimate security for you and your family.
About 78% of Americans Live Paycheck To Paycheck – Forbes Advisor , meaning that they are just trying to provide basic necessities for themselves and their family.
Before you can save for your dreams, saving for your necessities can be completed in about five steps.
1) Set up a budget and track your income and expenses. You don’t need an elaborate App or software program. Just using a pad of paper where you loosely track your income and expenses each month is fine. With electronic bank statements and credit companies that itemize your expenses, tracking your income and expenses is fairly easy. As long as you maintain monthly contact with your finances, “A budget will tell you where your money is going rather than wondering where it went.” (Dave Ramsey)
2) Decide on your necessities. The six necessities outlined above are good places to start but I know many of you can’t imagine life without your cell phone or without some form of television, so those may be included as necessary expenses. Once you decide on your necessary expenses, determine the monthly cost of each and place that in your budget.
3) Include an emergency fund of 3 - 6 months worth of wages to prepare for unforeseen medical expenses, a job loss, a disability, or time off to care for a relative.
4) You must also include debt payments, which would include any mortgage payments but also any student loans, auto loans or credit card debt that you’ve incurred, as a necessary expense.
5) Add up all your necessary expenses. If your income covers all these expenses, great! You’ve met your monthly needs and protected you and your family. With any extra savings, you can fund your retirement, build up a health savings account, paydown any loan principal and begin saving toward those future dreams.
If your necessary expenses exceed your monthly income, now you need to hunker down and start saying “no” to yourself. Attempt to avoid building up credit card debt. This is where that emergency fund is quite useful! Barring use of the emergency fund, look at your expenses. Assuming you’ve eliminated discretionary expenses like cable TV or gym memberships, consider the following:
Are there cheaper alternatives? For instance, can you buy less expensive canned goods or can you cut coupons to reduce your costs? Can you buy in bulk? Can you wait until sales to buy bigger ticket items?
Can you buy second hand or used products from thrift stores or garage sales?
Can you consider an alternate credit card with a lower interest rate?
If you own a house, can you refinance your mortgage loan?
Can you reduce the cost of your insurance policies by increasing your deductible (health plans) or reducing the benefit amount (life or disability)?
Can you reduce child care costs by pooling resources with your neighbors or friends?
For example, can you and your neighbor watch each other’s children one or two days per week?
Can you get a library card and read more often rather than watch TV? It makes you smarter anyway!
Can you automate payments to eliminate late fees?
Can you adjust your thermostat by a degree or two to save energy costs?
Can you learn to cook so that you don’t dine out as often? “Eating in” can save you 100% over dining out for the same meal. If you eat out a lot, you have the potential to save a lot just by cooking your own meals.
Implementing some of these practices is uncomfortable but like a diet where you cut out snacking or eliminate one meal per day, you’ll get accustomed to the saving practices within a few weeks to save more money. Being disciplined is profitable. Use the extra savings to pay down credit card debts, build up your emergency fund, or add to your home down payment or retirement fund.
These tips are appropriate for everyone but many of them are for that 78% who have problems making ends meet. Everyone goes through tough periods. Things don’t always go your way. Recessions come and go. Job losses happen. Hope for the best but prepare for the worst. Above all, don’t get discouraged. Eventually, with a little discipline and time, things will go your way. Happy saving!