Personal Costs

 Personal Costs

Hey there web surfers do you feel that you never have enough money?
Well let me be your guide to money handling, my name is Allstar a business student and budding entrepreneur.








Now your might be wondering what can I teach you about money?


Many things,


first thing that comes to mind is that your odds for multiplying money are better  invested in the stock market or housing than gambling at a casino or on a sporting match.



In this post however I will be talking about Personal Costs.



Personal costs are all expenditures pertaining to your personal life that are spent to fulfil the needs and desires you have.











Personal costs is money that is spent on you and the ones you love and can be anything from buying a snack to eat,  the latest iphone or gadget or taking yourself and a loved one to the movies.

There may have been times where you have reflected on an experience and you have asked yourself  "why did I spend money on that?"





To understand why we spend money on items that are not bills we need to a look at prominent theories on human motivation.



Abraham Maslow's hiearchy of needs is a widely recognized and used concept in business and management theory.

Maslow states that each individual has several sets of needs in a hierarchy that must be met in a chronological order.

1. Physiological needs
every person seeks to first meet these needs food, warmth, water, sex and sleep, these are instinctive needs we are born with.
These are primeval desires that should be managed smartly - don't eat too much, buy what you need to keep warm, when possible try not to buy water and don't pay for sex otherwise you will form the habit of paying for something that is meant to be a 'free gift',
October has the highest birth rate, why? Because of the 'free gift' people give for Christmas.


 



2. Safety needs
the second level of needs that people seek has to do with safety and being secure.

Some people make themselves feel secure by the place they choose to live, while others find security in a steady job.


An obsession with wanting to feel secure can seriously limit the amount of money a person can have.
This can be seen in people that pay a lot of money for rent just so they can be in a 'safe' suburb or are too scared to move jobs, because they feel secure in the job they are currently in.

3. Belongingness and love needs
The third level is a desire to belong, a desire to love and be loved.

This is an important one to consider,  money doesn't give you real friends or make people love you.


However money does mean you can do nice things like go out to dinner with friends or with that someone special, or enable you to participate in an activity that allows you to bond with others, e.g bowling, playing golf, going on camps.





In wanting to belong people sometimes feel that they have to spend money, whether its buying the same pair of shoes or paying to go on camp,  logical thinking,  i.e. budget is often overlooked in this area.




However be warned sometimes culture dictates who is paying, this is most important to consider when dining out with friends.

4. Esteem needs
In this area your money is being spent on things that make you feel good about yourself that reflect self worth and status.
Unfortunately vanity can get the best of people in this area.






The question must be asked do I really care about impressing people I don't know and don't care about?






Products that could be purchased for esteem needs tend to be unique or prestigious items, such as an IPhone , Mercedes Benz, Rolex, an antique previously owned by a celebrity, a spa , golf club membership, Armani suit, Gucci bags,  and big rims that don't fit on a car.

If you desire items like these there are always cheaper alternatives that would do the same job,
but people decide to pick the more expensive product because of the name behind it, which they hope will help  make their self esteem feel better.






The easiest way to meet your self esteem needs is to make the most of what you have now.






Taking pride in your physical exercise is the first step towards a life time of healthy self esteem and self image.

To start playing a sport doesn't cost much money at all.
Its only when you start paying for membership that you start giving away more money.

I'm not saying memberships are bad, but you should consider how much each year is being spent on your membership and consider cheaper alternatives, this is especially true with Gym membership.






Consider this Gym A costs $600 a year , While Gym B costs $400 a year.
Gym A is open 24/7, while Gym B is open 7am to 9pm, which is why there is a cost difference.

Now be honest with yourself, do you need access to a gym 1am in the morning?
If not then Gym A probably isn't for you.




If you were with Gym B you could have set aside an extra $200 a year in a savings account.
I say savings account because every little bit of interest multiplies what you have.

The money you saved on membership could be put aside for the future.

Even in Australia we have free savings account where you can receive 4%  standard non variable interest on your savings.






There is a bank called UBank powered by NAB, UBank is an online bank that won bank of the year (2014) in Australia's Money magazine.






Taking this principle the first year you put $200 in from what you saved from your gym membership, you receive $8 in interest, not much hey?






Well consider the 2nd year you put $200 in,
you now have $400 saved so you can get $16 in interest.






The third year you add another $200
you now have $600, so you get $32 in interest.




It may not seem like much to begin with, but it could get you  started in the stock market one day, or you could put that money to use as a college fund for your children /nephew/ niece/ grandchildren.

Don't be fooled, Standard interest is better than Variable interest

Standard interest is more important than variable when considering a savings account.






A good Variable interest account can give you high interest for the first six months of your account say 6% .


Although a high Standard interest account can give you 4% interest over the life time of your account.






You may see a bank advertise an exciting ad where its says "high savings interest" at 6.25%.
Then in the small print it says on a variable interest for the first six months, or sometimes four or five months.




You need to check the standard variable interest of this "high savings interest", you may find its only 2% standard interest, compared to a high standard interest savings account of 4%.






It is an example of the classic tale the Hare in a running race against the tortoise.

Let's say the race is like the savings performance of two savings accounts over five years.
Both competitors start with $1000.






The hare jumps out of the starting line at a speed of 6.25% for the first six months, then slows down to 2.25% for the remainder of the five years.









The tortoise however moves at a constant speed of 4.1% for the whole five years.









The hare in the first six months has made  $375 dollars
Equation - $1000 X 6.25% = $62.5 each month


$62.5 X Six Months = $375 dollars.




After six months there is
$1375 in savings.








So now we look at what the hare will make for us in the remaining 54 months of the five years.




$1375 X 2.25% = $30.937 each month




$30.937 X 54 Months = $1670.598


Therefore after five years we have saved $1670.598 with the hare.






Now for the tortoise...


$1000 X 4.1% = $41 each month


$41 X 60 Months = $2460


Therefore after five years we have saved $2460...




$789.4 more dollars than the hare.


Slow and steady beats the short distance sprinter.

5. Self Actualisation
The last step on the pyramid is referred to the point where people are able to achieve their dream and find fulfilment in life accomplishments because all of the lower needs have been met.






Some people think money is a bad thing, but in today's society you need money to live, money is power that enables you to reach your dreams, its the petrol in your car, its your ticket for the train.









You may say there were those who made their name in history who didn't have money that found self fulfilment and significance in life.

That's not completely true...

Mother Teresa was a poor nun who owned only five items in this world.
Although she attracted the attention of people that had money which enabled them to share her story.


Journalists and publishers shared her story, her message with the money/power they had to publish.







Camera crews and television reporters who receive a salary for their work came to see her to broadcast her message.


A full budget movie was even produced to share the life of Mother Teresa.

She also attracted the donations of people of faith who heard of the orphanages she wanted to set up in India.

Money is something that can bring benefit to others and can be a way of making a contribution to this world with your existence, Money is not there to simply bring us pleasure, which is why we must look at the personal costs of money.

 

I leave you with the words of John D. Rockefeller who was asked to sum up his life at age 86.

"I was early taught to work as well as play,
My life has been one long, happy holiday;
Full of work and full of play—
I dropped the worry on the way—
And God was good to me everyday".
















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