Friday, December 23, 2011

How to save more money? The best way ...

When you search saving money or how to save money on the web, you will be overwhelmed with many web pages trying to give you practical or unpractical tips on this issue. And most of them are single minded. They focused of one side of the coin and do not even bother to cover the other side which is more important. But you are luck, you have found here and I will give you the most important rule of saving more money, the first rule.

Unfortunately, many people concentrate on reducing their spending and saving a larger percentage of their take home pay when it comes to saving more money. This is a very common middle class mindset and although it is important and highly recommended, it is not the most important thing to do to save money. Middle class people usually over-concentrate on saving while rich people concentrate on earning more and then saving. In return they save more. And since rich people are richer than middle class people with more savings, their strategy must be better than the middle class.

But again if an average person is lucky enough to hear this advise, he usually does one of these four things:

(1) he tries to find a job paying better,
(2) he tries to get promotion,
(3) he works harder if he can get over time or
(4) he gets a second shift time.

Although all of these are better than doing nothing and spending hours in front of a TV box as majority does, they are still not enough.

There is a better way to save more money. In my opinion this is the first rule of saving money, especially for the young people. I have heard this advise from my favorite economists, Robert P. Murphy, in Austrian economy web site The first rule of saving money is to develop multiple streams of income and earn more money.

This does not mean you should find another boss to pay you more, to pay you in the night shift. It does not mean a young executive should work as a waiter in the night. Or it does not mean a young office worker should fall pray to get rich quick dream sellers like FOREX gurus. It means you should consider a host of entrepreneurial ventures to earn and save more:

"Rather than looking for other bosses, young people should become their own bosses, at least in a few limited areas. To some people this suggestion may sound intimidating. But notice that plenty of young people are entrepreneurs and they don't even realize it: Anybody who babysits or cuts lawns for neighbors is an entrepreneur. Such kids have to find customers (usually through word-of-mouth) and provide a service for which they get directly paid. That's what an entrepreneur does.

When I have mentioned this recommendation in public settings, sometimes students ask me what sorts of businesses they should start. The short answer is, "I don't know; that's what you need to figure out." The entrepreneur looks around and identifies a product or service that people currently lack but would be willing to pay for, in such amounts as it would be worth the entrepreneur's money and effort to provide it."[1]

This advise is more valid at this time when economic future is uncertain. But even if the overall economy was in a better state, we live in a time where there is no guarantee of working in the same job for a long time. Typical "Life time jobs" of our parent's times are disappearing. So it is more critical to have other income streams which would not only supplement your daytime income, it will also help you to keep floating when you do not have a major employment. And in my opinion, your goal about these multiple income streams should be more than that: your goal should be earning your life completely from one or more of these entrepreneurial ventures eventually.

But what can you do? It depends on your character, environment or opportunities. I know an executive in my sister's company who sells village produced, high quality honey from his hometown. Another person I know, a software engineer, develops iPhone apps in the night. A friend who is not a computer geek, writes blogs and earns some advertisement income from internet. They all do something which suits them well or an opportunity they grap. The only way to find "what to do to develop more income streams" is to actively try many things and continue the ones which works. The sure way to not able to find any extra income stream is to brainstorm on this one bright idea which will surprisingly not come.

To give an idea of how strange an entrepreneurial opportunity can be, let me share with you the story of a a Turkish entrepreneur. Mehmet Cetin, living in the Mediterranean city of Antalya, has lost his job in the global economic crisis of 2008. During one unemployed day, he has visited his grandfather's grave. He has seen that the grave was uncared-for while all of his relatives were busy with earning their life. He has also seen that many other ones in his city and most of the country were in bad shape and required maintenance. The 29-year-old entrepreneur then planned to establish a company that professionally tends graves. And unlike the majority who would never pursue this weird looking business, he has started this service. The result: he now has a company with five employee, including an agricultural engineers. He has reached 100 permanent customers in nine months.[2]

It is not enough to try to save more by looking at a monthly budget of a single income and just focus on cutting as much as possible from it. As Murphy puts it the better way is  to say, "If I cut back here, I can free up another $100 per month. And if I cleaned three houses every Saturday, then after expenses and treating myself to a nice dinner every weekend, I could save an additional $600 per month."[1]

[1] - My Advice to Young People
[2] - Turmoil gives birth to grave maintenance firm

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