Money Lessons from 2 Countries - Chapter 4

After talking about college education and the cost of it, and credit cards and other credit tools that are available more in the US than in Romania, this week we will talk about the way to earn money through work and investments.

I grew up during a time when all employees were paid in cash - in fact, my mother worked in the department that was in charge of giving out the wages 2 days a month. I remember my mom bringing home new bills, and then exchanging my savings to new crisp bills - the higher the value, the better. I have talked to many American friends who have memories from their childhood regarding saving money, and many of their stories are similar to mine. The main difference is the time of the childhood. My American friends talk about the 1960's and 1970's while my memories date from after 1985 - guess Romania was a little behind in adopting the plastic and the ACH as a method of collecting wages.

During the communist regime, we only have a central bank in the country and all the savings went there - building up a small interest for staying parked in the account. I remember taking a long time to collect an amount that I liked looking at and dreaming about. The system was set up in an artificial way that limited the inflation, therefore the value of money didn't go down much over time.

As soon as the Revolution changed the financial system in Romania - among other things - the inflation hit full force and many Romanians (including me) saw the value of the savings accounts shrink. the new "fashionable" savings accounts became the ones in foreign currency. This was quite profitable for a time - until the interest on in became so low that it lost all its appeal. The main challenge for the Romanians came a little later, when the banks caught on with the appeal of making more money from foreign currencies and started offering loans in foreign currencies. I have friends who are still struggling to pay off loans taken out in Swiss Francs many years ago.

From my experience with the financial system in the United States, I learned to appreciate the stability of the national currency that maintains the values of loans as well as savings on a level that can be easily understood. Since the banks make profits by trading money, the interest on savings is always lower than the interest on loans. This makes sense on a logical level, however much it affects the average Joe or Jane who is trying to make their money work for them. 

For now, I will stop the stories of my 2 countries. Next month we will be talking about money tips that can help you keep more of the money you make.

Money Friendship Month - Chapter 1

April is the month to make friends with your money. Why? you ask... Well, because it is my deepest desire to see people prospering and making their dreams come true. And if you are buying into the myth "money doesn't buy happiness", you are missing out on a lot of things that money will buy that can bring you happiness: great vacations with loved ones, comfort for yourself and your family, being able to make a difference in someone's life through the charity of your choice, etc.

I chose April to share some tips on how to build better relationships with your money because of the famous "April showers" - in Romania rain is a sign of prosperity because it brings life to the land. So this seemed the perfect time to share some money lessons that I learned throughout my life, by living in 2 different countries, through communism, then democracy and then a different kind of democracy.

While you read my tips and tricks, please take into account that they were developed based on my personal experiences, and the reason why they worked for me comes down to my feelings and ideas about money. You may not share those same feelings, and that is OK. Take it all in, and then adapt it to your own money story, to based on your own feelings about money.

Saving...? Yes, please! 

The reason why most people don’t save is because they decide to save the money they have left after paying the bills and spending on both needs and wants. Most months, they don’t have anything left after spending on things they want – even though sometimes they mask wants as needs. The cliche about "running out of money before one runs out of month" rings true for a lot of people, unfortunately. In this case, even the best intentions are not powerful enough to turn into action.

Most financial gurus will advise to “pay yourself first” and put 10% of the money you get paid into savings before directing money towards anything else; and then live on the rest, to cover both needs and wants. They are correct in explaining that everyone saving by this method will figure out ways for the money to be enough. One hurdle in applying this method is the fact that sometimes people are intimidated by the 10% amount - it sounds scary and then leads to analysis paralysis while people try to talk themselves into it. So, for most people, it may be a better idea to start with a lower amount than 10%, and then increase it every couple of month while getting used to less money available every month.

Depending on how you get the income, you can have an automatic deposit straight from the paycheck, or an automatic transfer from the checking account on preset days. If you get commissions you may consider a percentage of income; whereas, if you get a fixed salary, you may want to designate a set amount. If you are an entrepreneur or an independent contractor and rely solely on commission, it is easier to set up the transfer the day after the commission gets deposited into your account - or better yet, see if your company can direct deposit a certain percentage to another bank account.

The number one thing to remember is that saving takes discipline and you need to build up your discipline muscle if you depend on yourself, and not an employer that forces your saving into a retirement plan, for example.

The strategies that always worked for me were to have a savings account at a bank a little out of the way, where I don’t go very often, or to use an online bank – again one that I don’t use on a regular basis. The one trick that has always helped me to keep the money in savings, is to not look at the money too often. Out of sight, out of mind concept at its best!