| Real Life Strategies for Building Wealth

Have you read a book called ‘Wolf Brother’ by Michelle Paver? Ok, I know that it passes as a book for pre-teens but it was the one I couldn’t put down; I also eagerly awaited each next volume. On the surface, it is one of the ‘magic’ stories about a boy who was raised by a wolf and one of the litter is his companion (brother). They are chased by spirits, blessed and cursed by magic and go on dangerous adventures; oh, and a girl shares in all that.

Below the surface, this book explores different lifestyles (the author did a lot of anthropological research to write it) and conveys important messages. One of these is about sustainable living and eliminating waste. People in the book had very strong taboos about waste: they used each and every part of a kill; otherwise the ancestor Gods would get angry.

Taboos aside, my grandmother didn’t generate waster either; in fact she didn’t have a waste (rubbish) bin. Most everything used to get recycled, composted or burned (the occasional piece of paper that had outlived its purpose(s)). Both, the people in Michelle Paver’s story and my grandmother led a life that was probably not wealthy according to the measures of today but their lives were abundant. There wasn’t even a notion of ‘being broke’.

Now, personal finance bloggers, writers and financial advisors tell us about different reasons/factors for being broke. One we hear often, for instance, is ‘don’t spend more than you earn’. Which is all very well except that, wise as most advice on managing our personal finances may be, it has important blind spots.

Yes, people are likely to be broke if they spend more than they earn; but how does this help us change out behaviour? It doesn’t. It doesn’t not because the observation/statement is wrong but because it is so abstract. Put simply, the rule for spending less than we earn tells us nothing about why we overspend. Reasons are almost as varied as individual background and preference. People overspend because of ignorance, shopping addiction or even simply because they earn far too little to even meet their very base needs of shelter, food and security.

But the one common trait to being broke is being wasteful.

Waste can infect all areas of life: from our budgets to our life energy. But the two areas of waste that are likely to get you broke, I believe, are having waste in your budget and waste of food.

Waste in budgets

Most people have a fairly ‘leaky’ budgets; some have budgets that leak like an old bucket and what spills out doesn’t nourish our lives – it is plain and simple waste. To know whether you have an ‘old bucket’ budget, or a budget that is as tight as the red dress Julia Roberts wore in Pretty Woman you need to use a budgeting tool that is sufficiently detailed to allow you to act and at the same time easy to use.

When we found ourselves in a ‘spot of bother’ (OK, it was a rather large amount of debt which is now history) we measured, analysed and found the following:

  • Over 80% of the waste in our budget was under two kinds of spending: ‘changeable’ and ‘variable’ expenditure.
  • Changeable expenditure consists of all bills that can be negotiated down. These include: house insurance which can be negotiated down annually if you have a lower quote; car insurance which is worth looking into annually; health and dental plans which usually can be changed at any time; and telephone and internet provision though these may be subject to contract. All items falling under this category are in industries where competition is high and business moves fast. Hence shopping around regularly (or when renewal is due) usually pays off. We, for instance, realised that we were had waste on all our insurance, including life insurance; about £400 ($600) per month of waste.
  • ‘Variable’ is all expenditure that can be quickly changed and includes spending on food, drinks, clothes, entertainment etc. This is not only the most flexible part of your budget but also it is the part where quite a lot of ‘minor’ waste that adds up to considerable sums can be found. We used to overspend on most items. It is enough to mention that yesterday John ‘discovered’ in his draws two brand new t-shirts that were bought seven-eight years ago: now this is a waste on so many counts! Also the budget line on food was so bad that it has a separate place in this article.

Action:

One shouldn’t cope with waste in their budget but deal with it by:

1)      recording changeable and variable spending;

2)      identifying waste by comparison (to other offers, a standard or desired state);

3)      acting to reduce waste.

It is important to remember that there are two kinds of waste, namely over-use and under use. In other words, think carefully whether you are using to the full all that you are paying for by direct debit or another standing arrangement. You may be in for a surprise.

Waste of food

Food, and the way in which we relate to it, is one of the clear examples of the world we live in; which is a world of contrast, inequality and contradictions. Want some examples? Here they are:

  • Roughly 20% of the world population is under-nourished; this means that these people don’t have enough food to be healthy and active. At the same time, 35% of adults aged 20 an over were overweight in 2008.
  • One third of the food we produce (1.3 billion tons) is wasted annually at different stages of the supply chain. In low income countries most waste is at the production stage; in developed countries it is at the consumption stage.
  • According to a study in the UK, households waste on average £650 ($1,021) worth of food per year. I will be very surprised if the waste in the US is less although finding comparable data was not possible.

This is not good! Not good at all and not good for the:

a)      socio-political situation of the world (inequality breeds trouble);

b)     the future of the planet (19% of the waste in landfills is food which contributes to global warming); and

c)      your finances.

Action:

Stop wasting food by:

1)      Shopping for meals. That’s right; our food shopping bill halved when we started planning our menus and shopping for what we intend to cook rather than shopping for…well, just shopping. Most of the saving is from eliminating waste: when I look in our bin now all I find is inevitable refuse (peels) and plastic; no waste.

2)      Batch cooking. Yep! We do cook rather large meals and freeze them. This way the ingredients get used no waste) and there is a large time saving (no waste).

Finally:

Most personal finance bloggers would tell you that if you are broke you should crunch your numbers, stop spending, start earning and get on with your ’emergency’ fund and your pension contributions. All valid points. But I’d say that you also should check out your waste: it is a symptom and a reason for the condition you may be in.

Do you have any tips for reducing and eliminating waste?

photo credit: JasonParis via photopin cc