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Wednesday, June 29, 2011

Financial Baby Steps: STEP 1 Change Your Mindset & Change your Life!

The inspiration for this post was taken from Thomas Stanley's book, The Millionaire Mind

The financial baby steps series on Talented Generation is a way for young professionals to get their finances in order, one step at a time. We all want to get to a land of financial freedom but it is a long and, often frustrating, process. As a newly minted graduate, I want to get my finances in order, get out of debt (don't be pretentious and act like you don't have any) and achieve financial freedom. These are things I have promised myself I will achieve. My biggest hurdle is to adjust from living on lump sums of financial aid and grants to biweekly pay checks. 

I know you may be wondering why in hayle I think I'm equipped to give you all financial advice and that is a valid concern. How about you take a look at what I have to say and if you think its along the same lines as Steve Harvey's relationship advice then don't follow my advice. I don't claim to be any kind of expert. I've been walking for 24 years and I still trip up every now and them. I don't promise to be a financial expert but I did promise to share my knowledge in an effort to help you all make improvements. 

Still reading? Good! Lets get down to business. 

The first step towards financial freedom is to make the commitment to change. This means you have to change your mindset! Not only do you have to make the commitment to change but you also have to change the way you look at spending.  Think about the price of things in terms of the Initial Cost vs. The Total Life Cycle Cost. Initial cost is the total cost of purchasing something. Its the cost you pay at the register.  Total Life Cycle Cost is the amount the product will cost you over its lifetime. This includes maintenance, upkeep, etc. Think about it this way: I needed new black pumps for work and I had a choice between $100 shoes and $250 shoes (why are my shoes so expensive?!). I chose to purchase the pair for $100. $100 is the initial cost. After 50 wears (I wore them everyday for a little under 2 months), the soles and taps had worn out. Prior to getting the soles fixed, the shoes cost $2 per wear. Still, I made the smart decision to get the soles fixed for $30 instead of buying another pair. A few months later, I purchased pumps for $250. I have had them for 3 years and gotten at least 450 wears out of them and they are still going strong. At this point, wearing them has cost me roughly 62 cents per wear. 

Here's another example: You need to furnish your apartment and when deciding between expensive solid wood furniture and Ikea,  you mosey over to Ikea. You stock up on $100 shelves, $300 couches and $150 tables. Good deal right? WRONG! In 16 months the shelves are falling apart, the couch is worn and the tables are less than presentable. Now you have to replace the pieces and you end up investing in the better quality items you should have gotten the first time. While you saved money on the front end, you actually spent more on the back end. That example is a bit extreme but I think you get my drift. In terms of everyday costs, consider this:  Lets say you $90 on groceries for the week and $15 for lunch everyday. Your groceries can last a week and a half or even longer if you buy staple foods but that $15/day lunch adds up to $75 for 5 days and it only amounts to ONE meal per day. 

Stop thinking about things in terms of the initial cost and  start seeing the long term benefit or lack there of. 

Stay focused! WE can do this! 

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