OUR TAKE
Magic's Money Moments

Format for Printing

Format for printing

Request Reprints

Reuse/Reprint

By Dayana Yochim (TMF School)
August 1, 2002

It doesn't matter if you're a basketball superstar or a busboy at one of his T.G.I. Friday's franchises -- the laws of money management are the same for everyone. If you want to get ahead, you must spend less than you make.

Still, that simple finance lesson was lost on Earvin "Magic" Johnson in his early days in the NBA. The superstar recently admitted that it took him almost five years to realize he was spending more than he earned. "Once I understood what I need versus what I want, my bank account started to reflect that,'' he told reporters at the launch of a National Urban League program to educate black professionals about personal finance.

The push and pull of wants vs. needs is a simple concept to understand, but a hard one to master. Here are a few ways to make saving a slam-dunk:

  • It's all simple math: All of money management revolves around this simple concept: Spend less money than you bring in. Do that and your money works for you whether you're watching Walker, Texas Ranger or taking it to the hoop during the playoffs. Flip the concept on its head, and you're looking at big trouble in the form of credit card debt, angry collectors, bankruptcy court, and some unflattering headlines in The National Enquirer.

  • Every dollar counts: Can you afford to set aside just 10 bucks a week? Over the course of 15 years, you'll pile up more than $10,000 in savings (and that's assuming just a 4% annual rate of return). By contrast, spending $10 a week on a credit card charging 18% interest will slam you with a balance of $40,000.

  • Take a snapshot: A net worth statement is simply a snapshot of where your finances stand at one particular moment. See where you're at right now with this simple exercise:
    1. Add up your assets. This is all the stuff you own, including your savings (retirement and what's in your checking account), and the spare change in your pocket. (For this brief exercise, we're not factoring in your home equity or mortgage debt.)
    2. Subtract your liabilities. That's what you owe, including credit card, student, car, and cousin Vinnie loans.
    3. Voil�! You've got your net worth. If that number is positive, good for you! If it comes out negative, read on.

      (For a more detailed assessment of your inflows and outflows, try out TMF Money Advisor for a month, free.)
  • Write down what you spend for a week: Every dime. Yes, even parking meter change. Getting a handle on your regular expenditures can be an eye-opener. And chances are you'll get so sick of having to break out the notepad every 10 minutes that you'll keep your wallet in your pocket.

  • If all else fails, consult the stars: According to Magic's natal horoscope, he's well suited to run his own business. His athletic achievements aside, the stars seem to be right. His Johnson Development Corp. has raised millions for HIV research and the education of urban youth and lured high-profile businesses to inner-city neighborhoods, helping both the businesses and the community to thrive.

Next: J. Lo's lessons in market timing.

Recent Articles by

  • 04/06/2014 - 10 Rules to Guide You Through a Lifetime of Financial Decisions
  • 11/28/2013 - Black Friday 2013: How to Game the BF Sales at Wal-Mart
  • 09/28/2013 - Top 3 "Healthy" Fast-Food Flops
  • 09/14/2013 - Christmas Creep: Besides Kmart, Which Retailers Are Pushing the Holidays Way Too Early?

The Motley Fool is investors writing for investors. To view a writer's current stock holdings, check out his or her online personal profile.