Pimp Your Finances

Mint.com recently published a list of 7 lessons that can be learned from the Great Depression.  While the economy isn’t as bad as it was then, there’s a lot to be learned from the past.  Here are their lessons – and my commentary.

1. Food – Grow a garden

There is a lot of money to be saved in food costs, but I don’t think growing your own is the way to do it.  It’s satisfying to have a garden, but I don’t do it to save money.  It’s hard to beat the price of stores and local farmers.

A better way to save on food is to cut back on eating out.  Do more grocery shopping (buying generic of course), and cook more meals at home.  Don’t just stop there – have one night a week where you try to spend as little as possible.  Go old-school once a week and have grilled cheese and ramen noodles for dinner.  I normally do it a few times a week, just because I like it so much.

2. Entertainment: Enjoying the simple things

The article suggests staying at home, keeping entertainment simple, and resisting the temptation to buy the latest tech gadgets.  I couldn’t agree more.

Just like eating, you can save money by staying at home.  Invite friends over for drinks or to play board games (like Cranium, one of my favorites) instead of going out.

Use Netflix to watch movies.  You may have to wait a few months to see the latest flicks, but you’ll save at least $15 a movie (assuming you go out as a couple), maybe more after you factor in food and gas.

3. Transportation: How many SUVs does your Family need?

While it’s probably not cost efficient to get rid of your current vehicle, you can save on gas costs by walking more or taking public transportation.  When you do drive, combine errands so you can save a trip out later.  As an example, stop by the store on your way home from work on Friday so you don’t have to go there on Saturday or Sunday.

Another way to save on transportation is to use your current vehicle longer (within reason).  Don’t get a new car just because you’re tired of driving an old one.  If it’s already paid off, drive it for a few more years.  Take the money previously spent on payments, and put it towards savings instead.

When it is time to get a new ride, buy something reliable that gets good gas mileage.  Don’t try to impress people with an expensive car.

4. Housing: Downsize or rent a room

Irresponsible housing decisions are having an incredible impact on the economy – more so than anyone could have imagined.  The amount of defaulted sub prime loans is at most $250 billion, which is a large sum, but nowhere near enough to explain the current downward spiral.

For most people, housing is the biggest expense – and thus their biggest opportunity for improvement.

Downgrading to a smaller house probably isn’t an option if you already own one, but you may be able to rent out a room to a friend or relative.

If you’re thinking about buying a house, consider renting as well.  Make sure you factor in the costs and benefits of each.  If you still think buying is the best decision, don’t buy more house than you need.  When my wife and I bought a house, we were approved for waaaaaaaay more than we could afford.  But we didn’t give in.  Our house cost 60% of what we were approved for.  I’m convinced we could not afford what the bank was willing to give us.

5. Jobs/Entrepreneurship: Nothing left to lose?

The article says that if you’re looking for employment, you should consider looking for a position that is below your salary (which I agree with).  Beggars can’t be choosers, especially in a downtrodden economy.

It also says one advantage is that you may be in such a bad place that you have nothing to lose, so it is a good time to start over in a new career or start a business.  I don’t agree with this.  First, it’s hard to say that having nothing left to lose is an advantage.

Second, if you’re in a bad place, I feel like you should do your best to at least tread water, and not start again from scratch.  Until you’ve lost your house, car, and declared bankruptcy, there is always something left to lose.

I do feel it’s a good time to identify some additional sources of income, but they should be supplementing your income – not replacing it.  If you have spare time, consider picking up a part time job.  Or find something you are passionate about, and see if you can grow it into a business.

6. Credit: Redefining what you can afford and need

If you can’t afford to pay cash, you can’t afford it.

I agree 1000%.  Now is a good time to get out of debt.  For too long, people (including myself) used credit to purchase things under the assumption that they could pay it off in the future.  Normally it’s a safe bet, but that hasn’t been the case recently.

We should all make it a priority to get out of debt – and stay out.

7. Money management / Budgeting: Simplify your system

This one turned into a bit of an advertisement for Mint, but it’s still good advice.  When times are tough, you have to cut your expenses.  It’s much easier than increasing your income.  You also need to stay on top of all of your accounts, debts, and bills.  The last thing you want to do is throw away money on overdraft or late fees.

I track all my accounts on a daily basis, and recommend that others do the same.  Once you balance everything for the first time, it only takes a few minutes a day to keep them reconciled.

History is a great teacher, if one takes the time to learn from it.  By learning from the Depression and showing more responsibility in our personal finances, we can hopefully prevent history from repeating itself – or at least make sure we’re prepared if it does.