You Have to Eat While You Dream

When I started the project, the primary objective for this blog was to be an ideas board for long term wealth creation through trading and investments, however, I am now made aware that basic survival is a primary objective for traders and all people. As a (hopefully) consistently successful independent trader, overhead should be fairly simple, and comprising mostly of the cost of living, entertainment, information sources (Internet), and utilities. In this sense independent traders have an advantage over many businesses which have larger operating costs.

On Friday July 3rd, 2009 in the evening I had Bloomberg Television streaming in the background when I heard an interview with Jack Welch, on For The Record. One statement given by Mr. Welch caught my attention more than any other: "you have to eat while you dream."

The statement was a consise reply to the question posed (and I'm paraphrasing) that: "is it a bad thing that [Jack's] record has set a standard on Wall Street, and should short term goals be achieved at the expense of long term goals?"

He expanded further when he stated that a business needs to meet short term goals in order to survive for the future and that a good business should be doing both at the same time rather than sacrificing one for the other.

Although Mr. Welch was speaking as the former CEO of GE, and his comment was intended as advice for up and comming and established business leaders, it can be taken to heart by individuals. As independent traders, we are all business leaders in the sense that we operate our own businesses.

In case you are like me and do not own or want a Television, you can stream Bloomberg TV at http://www.bloomberg.com/streams/video/LiveBTV200.asxx

Part of keeping expenses down to increase your capital is eliminating wasteful costs, and one of the most wasteful for some, is the circumstance of carrying a large credit card balance. If you are like me, you have decent or average credit, and you have a credit card or two. If you are a trader, I imagine you need a credit card to at least open your trading account and to fund it.

Although credit card debt has been a growing issue over the last few decades, it has come to a head with the recent recession.

You do not need to cut up your credit card. Credit cards have some very useful benefits, and for some, a credit card is absolutely necessary to their way of life or business.

There are several good rules to keeping your costs down, and of course to keep your credit card from costing you additional monies. One piece of advice that I was given years ago was to "Live beneath your means", [even if only slightly beneath your means.] The essence of this is to spend less than you take in. The purpose of which is to have extra money. What you do with the extra money is your business, wheather it be for your next vacation, your next car, house, having an large emergency fund, using it to build more wealth, or just for the sake of having it. The result of this recommendation should be a personal mental adjustment that has saving money occupy the back of your mind at all times.

In regard to the credit card, my golden rule is:

Pay your full balance before the due date

The reason for this is simple. When interest is paid on a credit card, the credit card companies are being paid for a service from which the holder receives no lasting benifit. Credit card holders are paying out money for the luxury of holding a balance on things and/or services that they have previously purchased. If the holder cannot pay the full balance for one month, it can be understandable; either they overspent through lack of foresight or for the sake of an emergency. Ces't la vie. If the full blance is not paid for two months, the costs start to magnify and it may be a clue that the holder of the credit card has a serious problem. If this situation repeats over a series of monthly balances, the holder may be in a downward debt spiral and extreme measures can be taken by either the individual, or in a worst case scenario, the credit card companies will eventually pursue the holder for the full balance if and when a minimum payment is missed. This is a personal financial disaster waiting to occur.

You don't need to always pay cash, in fact, in my opinion, the whole point of having a credit card is convienience; you don't need to carry a large amount of cash ever, and you can track your expenses very easily with a credit card, in fact, more easily than paying cash. The caveat is to not overspend your margin of error, and in my humble opinion to have the cash in your bank account before you do the damage on your plastic. One of the first psychological steps is to not count a credit card as a extension of personal income, rather as a means to extend your purchasing power temporarily.

Have a minimum of cards to track, and try to have or obtain cards without a yearly fee.

Keep track of your credit cards regularily, and a good way to do this is to make use of online banking to check balances weekly; be aware of the upcomming balance to be paid and then pay the full amount a few days beforehand. The reason for this is simple, anything that can go wrong will go wrong; in this case, Internet connections fail, weekend getaways can happen on the spur of the moment, or simple memory lapses. In addition paying it off will ease any potential anxiety.

In regards to existing credit card debt, I can only advise paying down the principal as quickly as possible, over an above the monthy minimum but hopefully people in general avoid the trap before it springs. If you have a legitimate and uncontrolled problem, you may want to either seek help and/or have the card cancelled until you can learn self-discipline.

If you have not watched it, I do recommend that you watch The Secret History of the Credit Card which I recommend to anyone with a credit card. You can do so online at http://www.pbs.org/wgbh/pages/frontline/shows/credit/view/

Through my own experiences, I have some aditional personal tips to pass on to help your bottom line.

Eating out can be a expensive so I try to keep it to a minimum and save it for social occasions to get the most out of my money. Unless you work 18 hour days, most people can manage to prepare the majority of their food at home. When I was doing tech support, I was a cronic take-out and dine-in junkie. When I let go of this habbit, and kept these to a minimum, I found an immediate improvement in my bottom line. In addition, you should be buying the bulk of your food at a supermarket as opposed to convienience stores (which charge higher prices on staples and basic food items, and your produce (fruits and vegetables) at a decent produce store (typically better quality and cheaper than a supermarket). It also goes without saying that when you do eat, you should make balanced and healthy choices to keep your body and mind in shape, which helps you stay productive and happy.

Before you buy it, ask yourself: do you need it, is it useful, do you really want it, will it make you happy in the long run? I know several people that have houses or apartments filled with things that they either don't need, serve no purpose, and does not add to their quality of life in the long run. Knick knacks encourage clutter, which can cause you to lose valuable time when you have a mess, and a major inconvieniece if you lose something of actual value or necessity. In addition, I'm sure the earth will be better off without a few useless trinkets.

Increase your personal equity (savings and assets) through goal setting and visualisation. Give yourself a small first goal, and then when you get there, increase it. Try for something simple at first, like having 1 full paycheck in the bank, or say $1000. Creative visualization and self-discipline are handy for this; it is the process of goal setting, and thinking positively while actively pursuing your desires. When you start to accumulate money, then you may want to actually get your money to work for you. Wheather it be real-estate, stocks, mutuals, savings bonds, or investing in a business, remember that your end goal should be to do something good for yourself, your friends, your family or the world. Money doesn't buy happiness, that much is true, but as a tool it can expand personal options dramatically when used properly and with respect.