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July 2014 Newsletter: Focus on Big Chunks; Create Wealth by Getting Skilled Up
July 27, 2014
Hello to all my frugal friends:

Our summer is here and I'm up to my neck in summer projects. It feels great to get things accomplished, but everything takes more time and effort than what I expect. So it goes with most things. All the effort can sometimes overwork muscles I never knew I had, but the good news is I can still smile about it.

I'm following the same pattern as the last several months, two articles you won't find on the site, so let's get to it.
The first article this month is about getting out of debt by focusing on the big chunks. It's the best way I know how. You can only save big money where you spend big money.

The second article deals with the series I'm writing about economic and financial preparedness. I talked before about making more money by challenging ourselves as an employee of another...this time I want to address getting skilled up and how that can serve us well as an employee when we're trying to be better prepared from an economic and financial perspective.

Enjoy.


Get Out of Debt – Focus on Big Chunks

by Clair A. Schwan

There are perhaps as many ways to get out of debt as there are ways to get into it. Here’s one, among many that I endorse: focus on the big chunks.

Okay, the term “big chunks” doesn’t sound like it would appear in a magazine article or economics course textbook, but it should express the idea clearly for most of us; we need to focus on getting out from underneath those elements of our debt that are large and burdensome. In other words, the most serious of our concerns...the big chunks capable of building a mountain of debt for us.

Eliminate the building blocks of the mountain, and you can eliminate the debt.

When an employer needs to save money, what do they do? They lay off personnel. Why? Because employees are often the single largest controllable expense they have. Employees are the big chunks when it comes to the expense side of the ledger; employees have salary, benefits, paid time off, and non-productive time that one is hard pressed to find the equivalent of when it comes to equipment, buildings, utilities, materials and other expenses associated with a business.

So, if the big chunk approach works for businesses, a similar perspective might be good to employ when it comes to our attempt to get out of debt.

What are Big Chunks?

Let’s take a quick look at what those big chunks might be for the average household in America.

Housing – this cost typically represents about 30% of our annual expenses. Clearly with all of the foreclosures of late, there are many among us who just didn’t (or refused to) see their housing costs as a big chunk that needed whittling down. Instead of managing that expense, many allowed it to manage them – right out into the street.

Give some thought to alternative housing like a mobile home, travel trailer, renting a room, getting roommates, renting instead of owning, or perhaps living in a tiny house. Housing ought to be the first big chunk to consider when it comes to reducing expenditures so you can start paying down your debt.

Transportation – a household expense that is typically about half of what housing is for the average American, let’s say about 15% of our annual expenses. When you start to think about monthly payments for a car, filling the gas tank, annual registration fees, paying for insurance and parking and tolls, it can start to add up. Just think about having more than one driver in the family, and now think about how many individuals own more than one car. Whew, it’s one of those big chunks!

Start thinking about one car, a used car, and going without a car. Life in America doesn’t have to be “on wheels” at all times. When I moved to California, I went without a car for my first year, and most people were dumbfounded that anyone could find a way to be regularly employed and not own a car. In fact, I bought my first home long before I bought my first car.

Food – one might not consider food as a large expense, but it’s about 12% of the average annual household budget in America. It’s no mystery that we eat too much in America. People from overseas have remarked that they seek to immigrate to the U.S. because they “want to live in a country where the poor people are fat.” No offense intended to my corpulent friends out there, as I’m also a member of that club. When clients of mine from Colombia came to work with me for two weeks in my hometown (because I refused to risk travel to that country), they marveled at the size of the lunch plates at a restaurant. They simply ordered one meal and split it between the two of them.

Have you thought about how much you consume and how often? Consider meals out and fast food as a luxury, instead of a necessity. Avoid snacks, bottled water, and overly priced “foods” like soda and coffee. Consider buying in bulk at discount prices. Perhaps you can buy in bulk from a local producer instead of smaller quantities from a retailer. Can you grow some or most of your own food? It’s easy, even with just a small garden plot.

Clothes, Entertainment and Miscellaneous – these items are bundled together as one of the big chunks because they’re something that I rarely spend money on, yet together they make up roughly another 12% of the typical annual household expenses in America – a parallel to the cost of food. That fact alone seems to cry out for an examination of what we’re spending on clothes, entertainment and miscellaneous products and services.

Start thinking about buying clothes only when necessary; I just recently replaced some of my T-shirts that were 10 years old. Try buying clothes second hand, create at-home entertainment instead of going out, and make a concerted effort to examine all of the miscellaneous things you buy to see if they are truly necessary or simply something that is discretionary in nature.

Utilities – the last on my list of big chunks, and perhaps the annual expense that most of us are familiar with when it comes to saving money. I include utilities in this discussion because on average they represent 6% of our annual budget, about half as much as we spend on food. Reductions in our housing costs will often lead to utility savings, but there are other things we can do to improve our financial profile in this arena.

Give some thought to eliminating wasteful practices as well as ways in which you can conserve when it comes to heating and cooling. Attic insulation is one of the best money saving actions you can take because it helps all year long. Utility savings can be had when it comes to water and communications as well. Drip systems save lots of water, prepaid cellular plans can be quite affordable, and bundling Internet and phone services can be a good way to eliminate redundant services and the expense that goes along with them.

What’s the Bottom Line?

All right then, what might all of this mean for those of us trying to get out of debt? Well, let’s assume that we could shave off 25% of the expenses associated with the big chunks discussed above. That might be ambitious for some of the areas, and rather simple for others, it all depends on how much you believe you’re skimping now. Assuming we could do this, that means we’re reducing 75% of our budget by 25 % and that gives us nearly a 20% savings on our budget overall. That nearly 20% savings could be applied to paying down debt.

To be clear, we’re not talking about paying an additional 20% on our debt, we’re talking about making additional payments equivalent to roughly 20% of our entire household budget. That’s more than the average American family allocates to savings, investments and retirement combined. Another way to look at it, it’s like taking all that we spend on food now, and half of what we spend on transportation now, and having that money available to pay towards our financial obligations. For most people, that would be a considerable additional amount of money to help them get out of debt.

This approach won’t work for everyone, but I offer it as a type of mindset that some will undoubtedly identify with. So, the next time you’re wondering how to get out of debt, think of the big chunks of your household budget. It likely the best place to start.


Economic and Financial Preparedness – Time to Get Skilled Up

by Clair A. Schwan

In this series on economic and financial preparedness, we’ve already discussed challenging yourself to earn higher income by following the supervisory and managerial route. Now, let’s talk about following the route of a skilled technician. It’s a viable option in an economy that appreciates value-added. And, most people appreciate that indeed. If you’re a dentist trying to make crowns or dentures for your patients, you (and your patients) would be happy to work with someone who excels at making them well.

Being the “average Joe” employee provides little assurance of higher pay, so you need to stand out. You need to be the proverbial farmer out standing in his field, but this time be outstanding in your chosen field of endeavor, not just standing out in the field somewhere. Remember, it’s higher pay we’re seeking so we can grow our wealth at an accelerated pace.

Let’s review my second general suggestion from the introductory article for how to create wealth so we stay on target:

Become skilled and knowledgeable for upward and lateral mobility – in the absence of taking the management route up the employment ladder, one can take the technical route and become a specialist.

The main focus here is that of being a technician or specialist, someone with a career path. They’re paid much more than the average employee who is just working a job. Think of experts in computer programming, vehicle diagnostics, languages, researchers, the proverbial brain surgeon, a pilot, a captain of a ship, an aeronautical engineer, the criminal defense attorney who specializes in serial murder cases, or an entomologist who knows everything about honey bees. The first idea here is to find a niche. That makes you special and in demand. The second idea is to make sure your niche has a future. You’ll need sufficient demand for your specialized talents so you have both a steady stream of income, and a higher stream of income than others who aren’t so skilled or specialized.

As an example, if you look for employment opportunities today, one general area that always seems to be hiring is Information Technology. Whether it’s a programmer, an administrator, hardware installers, website developers, troubleshooters, or specialists in applications, you can’t swing a cat in the room without hitting one...you can’t open the classifieds or look at an employment website without finding dozens of employers across the country looking for people skilled and experienced in this arena.

Looking for a easy lesson to take away from this discussion? Here it is: talent is always in demand. Be that talent and you’ll always be in demand.

Upward and Lateral Mobility

A lot of folks understand the idea of upward mobility, it’s the ability to promote yourself upward in terms of pay, position, status and what have you. It’s clearly important to earn more if you hope to have a better handle on financial preparedness. If you’re a helper on a house painting crew, then you might move up to painter, and then later perhaps a crew leader. All the while you’re increasing your pay.

The idea of lateral mobility gets much less coverage, but it’s important for those who would like to be in a better place in terms of economic preparedness. The idea of lateral mobility is an ability to change jobs, perhaps to something that is equivalent, and not lose ground in terms of income. In order to do this, you need to be qualified in a manner that allows you to step into other market sectors with the same skills. As an example, perhaps you’re a automotive designer. Can your designing skills lend themselves to electric cars, consumer products, or toy manufacturing? I think they can, and that’s lateral mobility across market sectors.

Another type of lateral mobility is found when you start out working in one area of a business but then slide over to another position because you have other skills and interests. I know a gal who went from office administrator to computer programmer with no formal training or experience in software development. Her employer valued her attention to detail, work ethic and congeniality, as these were qualities that just couldn’t be taught, whereas computer programming skills can be.

In yet another example, perhaps you’re a glazier, someone who specializes in leaded glass windows. You can probably move from one glass company to the next with little trouble since that’s a specialty, and as long as you stayed in certain areas of the country, you could probably make a good living repairing, replacing or creating leaded glass windows for homes in historic neighborhoods.

The bottom line is simply that having mobility, upward or lateral, is something that provides options. When you’re looking for work, looking to keep your job, or looking for advancement, having options is a good thing indeed. Usually, specific skills and experience beat general skills and experience when it comes to building a resume and being a valued member of a team. Consider getting skilled up as part of your economic and financial preparedness plans.

How to Get Skilled Up

Perhaps our first question ought to be how to accomplish the task of getting skilled up. There are many routes, and it all depends on what route might be best for you. Let’s look at a few ways to do this:

Education – this is perhaps the first idea that comes to mind. Education is important for many job positions because it provides knowledge. Today we probably have too many people in school spending too much time getting knowledge instead of experience, but since a degree is valued, we can’t overlook this avenue. Unfortunately, we commonly find that graduates have a hard time finding a job that matches their education. The key to success is to match your education with what you’d like to pursue, especially if your aim is a career that requires a formal education...think physician, attorney, accountant and so forth.

In other cases, it’s experience that positions you for advancement, and not so much the formal education. I know individuals who are simply “getting their ticket punched” through the educational system because that’s the mindset we have today. These people are largely self-taught, but need formal credentials to open doors for them and give them credibility in the marketplace.

So, education for you might be a requirement, or it might simply show that you have initiative and you're capable of being taught.

Experience – we’ve all heard that experience is important, and sometimes those who have no formal education but loads of experience are in high demand. Experience is what bridges the value gap when comparing someone with lots of book smarts versus an applicant with lots of time spent hands-on in the work environment. On-the-job experience is valuable, especially when it’s broad as well as deep. A previous supervisor of mine said to me once, “I was always willing to work for half pay just for the opportunity to learn a new job.” I think that’s a great attitude, and as you might imagine, someone with broader experience as well as a specialty can often find it easier to find a place to call home when it comes to employment.

Trade school – for those who aren’t cut out for book study, a hands-on education might be a much better use of time and resources. Getting qualified takes months instead of years, and quite often the average pay is greater than that of a college graduate, especially when you keep in mind that so many today aren’t employed in their field of study. That means in many cases they’re underemployed. On the other hand, you might find that certain skilled trades, like welders and fabricators, are in high demand.

Apprenticeship – related to both experience and trade schools is the idea of being an apprentice alongside of an experienced tradesman. Three trades that come to mind are electrician, carpenter and plumber. All three lend themselves to good pay, lots of opportunities upwardly and laterally, and there is also a good chance that someone with “the right stuff” could start their own enterprise one day.

Teach yourself – this is a little bit tricky, but there are those who are self-taught when it comes to their employment. As an example, an associate of mine is a bright guy who was educated in power plant engineering, but he taught himself about electricity and electrical transmission and distribution equipment. Now, he’s a successful consultant to utilities who are looking to maintain their power delivery equipment. He expanded his marketability by moving from power plant generation to the delivery of electricity generated by power plants.

Specialized training – to broaden your abilities and make you more valuable, you might add some specialized training to your resume. As an example, perhaps you could learn a language, like Korean. Along with the language, you’d pick up information about their culture and history. When it comes time for you to be a company representative, you’re much better positioned to be a good corporate office representative of products, materials or resources between Korea (an emerging market player) and your company in America. Without the language skills and cultural training, you’ll have less value to your American company and less appeal to companies you’re dealing with in Korea.

Incorporate management in your training – although I believe a specialty is something that grabs attention on a resume, the ability to supervise or manage is also desirable as part of your breadth of experience. From the standpoint of a small organization, it’s key to have people who understand supervision and management. How can a small organization grow unless they have largely self-supervised employees? Also, getting experience in these areas helps put you in a position where you’re much more capable of running your own enterprise.

The Bottom Line

When building wealth is your aim, it helps to have an edge. Sustained income and higher income is much more likely when you have a desirable skill set in a growing field of endeavor. Talent is always in demand, and employers are willing to pay a premium to get the skills they need to survive in a competitive marketplace. Having good depth in a specialty and some breadth as well will help keep you employed, allow you to demand a good compensation package, and give you plenty of options with respect to lateral mobility. Skills that are considered niche to some extent usually garner higher pay. Position yourself in a growing sector of the marketplace with good skills, training and experience, and you’re well on your way to creating wealth faster than you otherwise would.

Next Up

In the next edition of this series, let’s look at positioning yourself in your own enterprise. I believe it’s the single most important thing you can do to boost your income and have more control over your financial future. If you’re looking for economic and financial preparedness, you should be genuinely enthusiastic about the prospect of your own enterprise. It can be quite lucrative if you put your mind to turning yourself into a lean and mean money-making machine


Next Month

In upcoming issues I'll provide more articles that I think are of interest to those with a frugal mindset, and at least one of the articles will be a continuation in the economic and financial preparedness series.

In next month's newsletter I'll provide an article about listening for the call to action when it comes to recognizing you're in tough financial shape.

I'll also provide another article in the economic and financial preparedness series. This time I'll provide suggestions about starting your own enterprise, one of the best ways to make higher income and be better positioned as a player in the marketplace.


Thanks for being here with me at Frugal Living Freedom. I hope you enjoyed the articles and can put them to good use in your own life to better your financial position and enhance your own peace of mind.

All the best to you and yours,

Clair

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