Entries from February 2008 ↓
February 29th, 2008 — Money Tools
The Hard Work
Yesterday’s post was the warm up, today comes the hard work. Putting your budget on paper is difficult. Not only is it detail work that requires time, the process of putting your income and expense on paper dredges up a lot of emotions. There are two things you can do about that:
1. Keep reading this blog and find some books to help you work through the emotions of money.
2. Dive in and get to work.
Putting together a budget is not something that can be completed in one evening. Not even a long weekend, for most people. It’s going to take a good two weeks to a month to really get an accurate budget, and you will find it will still need some tinkering. That’s OK. Set aside some time to get started, and then work on it as the data becomes available.
Sit down with a pencil and paper or an Excell spreadsheet and start with your income; I always list income before expenses to remind me the money needs to come in before I can spend it. Here you include your salary/wages, dividends, interest, rent, pensions, gifts, and any other income you take in. Total your income.
To make your budget realistic, you need good data on your spending habits. Write down the categories where you spend money. Dig into your checkbook register and credit card statements and pull your expenses from there; if you have all of last year’s spending data, great. If you only have 3 months or even just 1, that’s a start. If you use a lot of cash, you’ll be looking through receipts or estimating. Be as accurate as you can be, and remember expenses that come less frequently, such as registering your car, trips to the dentist, insurance payments, and Christmas shopping. Take the next two-four weeks to keep track of every income and expense. For lists of possible expenses, scroll down on this page. Finally, total your expenses.
The Results are In
Now, hopefully your expenses are less than your income. Or, they are the same because you have already included your savings and investments in your expense categories. If you are spending more than comes in, you definitely need to start adjusting your expenses and think about increasing your income. Spending more than you make is absolutely unacceptable.
As you look at your budget, are you surprised by any categories? Did you know you spent that much on clothes or eating out? Can you believe how much you are spending on fuel or rent compared to the amount of your income? Are you saving as much as you could be?
This is where budgeting becomes so powerful! Right in front of you you can see where all your money goes each year. Do you like how those numbers look?
This is probably the part that people hate about budgets. Because the “happy/fun” things they spend their money on each day are the things that they think they “should” cut back on. If there are things, “creature comforts” perhaps, that you want to cut back on, be reasonable, know thyself, and act accordingly. Don’t cut back so drastically that you feel completely deprived and end up going on a spending spree and spending more than you would have before the budget.
It’s OK to include expenses in your budget that make you feel good. Budgeting is not about depriving yourself; it’s about using your money to give yourself the life you want, now and later.
The important thing right now is that you have your budget and you are not spending more than you are earning. as you keep learning, particularly about topics such as budgeting, investing, goals, retirement planning, saving, and making more, your budget will change as your priorities change. So get your budget on paper, and make some judgments about if your spending and earning is consistent with who you want to be.
1. Budgets are good things. Use your budget to make sure you are using your money to create the life you want to live.
2. Don’t listen to the “shoulds.” It’s your life and your money. Make it work for you.
3. Sit down and do the hard work of budgeting. This includes
recording all your income.
recording all your expenses.
making sure you are not spending more than you are bringing in.
making sure your expenses match your values and your goals in life.
February 28th, 2008 — Money Tools
Budget. There I said it. If we had a “report inappropriate content button,” would you use it? Do you hate the word “budget” or do you just hate the idea of living by one?
Why do people hate budgets?
If you think of a budget as financial shackles or the proverbial ball and chain, think again! A budget is one of the essential tools of personal economic growth. Unfortunately, the term “budget” has so many bad connotations because people don’t understand and aren’t willing to face the emotions that come with budgets. I’m here to tell you I have a budget, I use a budget, and budgets are good things!If you are the one who makes up your budget, you can allocate your money wherever you want. It’s all about funding your life. And by life, I am not talking about you getting up and going to work, getting through the day, and then grabbing take out on the way home. I’m talking about you deciding who and where you want to be and making sure your spending lines up with those goals.
Control, Freedom and Peace
Your personal budget is your plan for how to use your money. It helps you make sure you reach your goals instead of frittering away your hard earned cash on things and experiences that don’t take you closer to your goals. A budget is a huge part of being financially responsible and it allows you to TAKE CONTROL.
Ironically, you will actually find freedom in using a budget. The freedom comes from the fact that in following your budget, you are actually working towards your goals instead of just hoping you’ll achieve them.
In using a budget you will find peace. The peace comes from knowing everything is taken care of. Depending on your situation, this peace may take a little bit of work to find, but setting forth a budget is the first step on the road to taking responsibility and controlling your financial future. The Peace will come.
The problem comes in then if you don’t know your goals or where you want to be. If you’re not confident and passionate about your goals, then you start listening to the “shoulds,” The “shoulds” are what other people tell you you ought to do with your money.
“You should have a college account for each of your children.”
“You should be saving 10% of your income.”
“You shouldn’t have spent that much on your house.”
I hate the word “should” and I’ve just about removed it from my vocabulary. You could do the same. (Doesn’t that sound better than “You should do the same”?) Your budget is not about what other people, even experts tell you “should” do with your money. Your budget is about how you want to use your money for your life. Of course, once you learn more about financial planning and decide where you want your life to go, you may take a lot of the expert advice, but it won’t be because you think you “should,” it will be because you’ve decided it’s the right thing for you.
Take Action Today
Today, start to come to terms with the idea that a budget is an essential tool for creating wealth and directing your life. Your budget, if you stick to it, can take you where you want to go. Think about where you’re going to start spending your money. Think about how you are going to start funding your LIFE.Tomorrow, we’ll look at the steps involved in putting it all on paper.*Be sure to check out the other great posts at the Carnival of Personal Finance!
February 26th, 2008 — Materialism
Would you be happier with a new car? How about a new house? Do you like yourself more when you buy new clothing? Does your new furniture make other people respect you? Do you feel joy when you look at your massive DVD collection? Are you a bigger man because of the beer you drink?
I think I’m pretty enlightened when it comes to being materialistic, but lately I’ve noticed sometimes I let my Stuff stand in for my true identity (meaning I want others to see my cool new running shoes or my mac computer because of the assumptions those people will make about me when they see these things). I’m guessing most Americans do this, and it’s mostly subconscious. One of the effects of this thinking is that we fill our lives and our homes with meaningless Stuff.
Sure, it may be beautiful Stuff. It may be expensive Stuff. But studies are now showing excess Stuff actually bolsters low self esteem, and is related to self-doubt. So, while you think others are thinking more of you because of your Stuff, you are actually thinking less of yourself and feeling down about it.
Practicers of Fung Shui believe everything you own is energetically connected to your spirit. The more Stuff you have, the more tied down your spirit is, and the less freedom you have to become who you really want to be.
From a more practical stand point, the more Stuff you own, the more costs you have in cleaning, maintaining and storing you Stuff.
So, how do we quit our love affair with Stuff? How do we quit letting stuff speak to us about other people, or quit buying stuff that we want to speak to other people about us? How do we Shut the Stuff Up?
1. Stop watching so much TV
There’s a reason big ad agencies make so much money: they are good at what they do. Very good. And what they do is convince people to buy Stuff. Mostly they try to convince you that you can be better/smarter/more attractive if you buy their product.
They are lying.
So, avoid TV if you can, and when you do watch it, use your DVR to fast forward through the commercials.
2. Read fewer magazines
Magazine publishers actually make more money selling ad space than they do subscriptions. Home magazines are designed for advertisers of appliances and flooring. Car magazines are designed for advertisers of performance parts and garage “essentials.” Travel magazines are designed for advertisers of luggage, vacation packages, and travel clothing. Print advertisers are just as good at their jobs as TV advertisers. Read fewer magazines. Same goes for billboards.
3. De-junk your spaces
Have you looked around at the clutter you’re keeping? Are there clothes in your closet you don’t wear? Is your junk drawer overflowing? Has your garage become a big storage room instead of a place for your car?
All the unnecessary Stuff you are hanging onto is trapping you in your past. It weighs on you as it clutters your space. Some of your Stuff may be from past relationships, or other phases of your life that you are through now. Some of the items may be from impulse purchases you now regret, or they may represent the debt you’re carrying around.
Can you see how this stuff weighs on you?
My personal code of de-junking
When I am cleaning up and deciding if I want to keep a particular item or not, I ask my self these questions:
1. Do I feel happy/peaceful when I look at this object?
2. Have I really needed to use this object in the last year?
If neither of these is a resounding “yes,” then the object needs to go to a new home. I happily throw the trash away and take those things I no longer need to the thrift store. You might want to hold a garage sale. Whatever works for you to clear out your clutter is a good thing.
By the way, don’t forget your office or car; any space you use can be de-junked.
4. Shop smarter; Shop less
Have you ever noticed that when you run to the store to just pick up some diapers and a gallon of milk, you come out with those two things, plus a bag of chips, 2 12 packs of coke (because they were “buy one, get one free), and a newly released DVD?
It doesn’t matter if it’s the grocery store, a clothing boutique or the giant sports center . . . stores want to sell you things. When you go there, you will be bombarded with messages: “buy me.” “buy me now.” “you will look good in me.” “I taste delicious.” These messages are hard to overcome, especially when “it’s just one!”
You can actually shop smarter by planning your shopping trips. If you keep a running list of things you need, shop once a week, and buy only what’s on the list, you will save money, save time, and cut down drastically on impulse buys.
Shopping smarter will be easier as you de-junk your spaces because you will really like living without clutter. As you live with less clutter, you think twice before making purchases–”How often will I use this? Where am I going to put it? Do I really need it?”
5. Set a buying waiting period
Predetermine a waiting period from when you decide you want to buy something to when you allow yourself to actually make that purchase. When you do find something you really want, put it on a list; the “Waiting List,” with a date. When your waiting period is up, reevaluate and decide if you still need the item. If so, go get it. If not, scratch it off the list.
How long should you wait? It’s up to you, but take the size of the purchase and your personal spending habits into consideration. You might choose to wait a week, a month, or even six months; the length of time can be different for each object on the list. Whatever the amount of time is, it should be longer than you think you can really wait. You can do it.
Think of past purchases that you now regret. Why did you buy those items? How did you buy them (is pulling out your credit card just too easy for you? Or was your cash burning a hole in your pocket?) Did they bring the joy you thought they would? How long did it take before you regretted your purchase? Use past experience to guide you in setting up your waiting period. Leave your credit cards at home if you need to.
6. Fill yourself up with other things
So often we are buying Stuff to change who we are or how we feel. And it usually works, but only for a minute. The next time you feel the need to buy something you don’t really need, try one of these activities instead; they will help you feel better, and they are great habits to get in to.
• get in touch with nature
• play with kids at the park
• volunteer to help with a cause that’s meaningful to you
• take time to write down what you’re grateful for
• do something spiritual
Each of these 6 suggestions requires you to take control of the direction of your life and be smarter with how you spend your money. As you take responsibility and guide yourself into smarter purchases, you will feel powerful as you Shut the Stuff up!
February 21st, 2008 — 1000 Millions
My job is to talk to broke people on the phone. After talking with a couple thousand people who are cash-poor, frustrated, and embarrassed, I know what they sound like, and I know how they feel.
On the other hand, each week I interview three or four millionaires about their financial situation - the two groups sound nothing alike at all.
Why am I so preoccupied with how people sound? It comes from spending hundreds of hours talking to them on the phone. Let me explain.
The Power of Tone
In any interaction between two people, meaning and feeling are conveyed in three ways: body language, tone of voice, and syntax (the words you use). But the three are not equally important in expressing yourself. Here’s how they break down:
38% of a person’s meaning is conveyed through the tone of their voice.
55% is expressed through body language.
Only 7% of communication takes place through your choice of words (syntax).
Do the math. Body language is eight times more important than syntax, and tone is a little over five times as important. What you say isn’t nearly as important as how you say it. Now what does this all have to do with anything?
The Sound of Broke
When I’m talking to a person on the phone, I can’t read their body language, so I’m left with their tone and words.
How can I explain the tone of ‘broke’? You know how someone looks after a twelve hour road trip where they had a flat tire and got caught in a snowstorm? Or maybe you’ve been in an airport during the holidays and you saw two parents with three little kids, one of them a screaming toddler (as you hear the announcement of the flight being delayed)?
Well, the way those people look is how most of the people I talk to sound. I think that gives you pretty clear picture. These people are just exhausted and ready to have something go right.
So if that’s how broke people sound, what difference do I hear in a millionaire’s tone of voice?
The Voice of Independence
I can sum it up in a single word: Calm. There is a sureness and confidence in the voices of the millionaires I’ve interviewed over the last few weeks. Not many sentences have to leave their mouths before I have the thought “This person sleeps well at night.” And why wouldn’t they? Contrast some of their statements with those from my conversations with the financially frustrated:
- Broke: “I have debt I’ll never pay off.”
- Millionaire: “I paid off my mortgage in two years and I’ve never owed on a home, car, or anything else since then.”
- Broke: “I don’t have any college funds set up for my kids.”
- Millionaire: “When some tough family circumstances came up that required a lot of cash, I had it on hand.”
- Broke: “I can barely keep up with the minimum payments on my credit cards, let alone pay down the balance.”
- Millionaire: “I’ve never paid interest on a credit card.”
- Broke: “My retirement funds aren’t anywhere near where they need to be.”
- Millionaire: “If I sold my business tomorrow I could maintain my lifestyle forever just living off the interest.”
- Broke: “I hate my job.”
- Millionaire: “At a certain point I decided enough was enough when it came to money, and it was time to move on to more important things.”
Not bad huh? And let me point something out - when I was listening to these guys talk there was something I was not hearing; arrogance. They’re almost embarrassed to admit how successful they are.
I interviewed one man who had spent over twenty years as one of the top financial advisers in a major firm. He hesitated to talk about his accomplishments, saying he felt too boastful. Trust me, he wasn’t boastful.
There’s a Big Difference Between High Income and Wealth
Many of my conversations with people I’d call broke are high earners that love to talk a big game - doctors, lawyers, sales professionals. They’ve got six figure incomes and seven figure debt, and the reality is if they missed a few paychecks they’d be facing foreclosure.
What I hear in the high-income Broke is bravado, laced with fear. Nothing like the millionaires. The truly wealthy men I’ve talked to are completely at ease with money.
The world at large is pretty frantic about money right now, with all this talk of mortgage crisis and recession. The millionaires I’ve talked with don’t have much fear about it. One of them, whose job it is to buy public equities (stocks) to the tune of hundreds of millions of dollars, was actually almost giddy about the current state of affairs.
That’s the reward for a lifetime of good decisions. When the economy turns down, the wealthy don’t panic. They get out their checkbooks. Whether it’s real estate or stocks, everything goes on ’sale’. Smart people increase their wealth much more quickly in down markets.
Million Dollar Decision Making
So what are the decisions my millionaires make? Some you could probably guess; others may surprise you because they go so contrary to what you hear in the media. Stick around and you’ll find out what millionaires really have to say about their success.
February 20th, 2008 — Materialism
Last spring my husband and I were working in our front yard when an acquaintance happened by. We said Hello and chatted for a minute, and then he looked up at our house and said to my husband, “So, Mike, you live here?!”
“Yes,” was the obvious answer, but the question (and my insecurity about it) got me thinking: why was he so surprised Mike lived here? Is our house too big? Is it too small? Is the courtyard too much? Do we have the front lights wrong?
What is it about our house that didn’t match up with what our new friend’s impression of my husband? And why was he judging us based on something as materialistic as our house?
Other peoples’ Stuff
The short answer is: we all do it. We all look at other peoples’ Stuff and make assumptions about who those people are.
Think about how it feels to walk into a business conference where you don’t know anyone. Where do your eyes go? What do you focus on? How do you size up the room? Admit it: within 5 seconds, you have noted first, the gender, ages, and good looks of the other participants, but then your eyes went to watches, jewelry, clothing, brief cases, purses, laptops, planners, whatever people are carrying to this particular gathering. You’ve instantly compared their “Stuff” with your “Stuff” and determined your status, and the status of many in the group, just by looking at and comparing the things you are carrying.
Status is a necessary thing. We all feel a lot more comfortable relating to each other when we know our status in the group. In fact, we humans automatically position ourselves in relation to others, and we’ve been doing it for thousands of years. When our ancestors lived in caves, they positioned themselves under (or tried to become) the alpha male–the best hunter and protector, the one everyone relied on for survival.
We still see that kind of positioning today. When our “survival” is at stake (think “Survivor” or “Lost”), our status in a group is determined by our skills and abilities as they relate to keeping the group alive. But rarely are we in the 21st century concerned with basic survival in our day to day lives. The things we seek, (such as success and happiness) are much less easily defined. So, to position ourselves in a group, we look to material goods: who has the most expensive car, the biggest ring, the largest house, the most toys? The reason we do this is because we want to make instant judgments about our status in a group and material goods offer the easiest measurement.
If you think about it, this is ridiculous, and we are lucky our cave dwelling ancestors were a lot smarter in determining status, or the human race might not still be here. Consider for a moment if our ancestors had chosen to follow the member of their group who found the biggest rock, or the one who could pile dirt the highest. What if the group decided that whoever had the longest hair should be the leader? Those examples sound silly now, but are they any more silly than us determining a person’s status according to the brand of jeans he is wearing or the number of diamonds on her Rolex? Is it not ridiculous to allow Stuff to be the deciding factor as to how we stack up among our fellow humans?
Who spent the most?
Remember, exterior materialistic symbols tell us only who spent the most money. They say nothing of success, happiness, fulfillment, or longevity, all things we say we want. Do you really care who has spent the most money? Do you want to be the person who has spent the most money? No! No one cares who has spent the most. The problem is we make the unconscious assumption that the person who has spent the most money must have the most money to spend, and money, like it or not, is a sign of happiness and success in our culture.
Don’t make that mistake. Don’t burden your psyche with that mistake. In this day of oversize mortgages, home equity lines of credit, skyrocketing credit card debt, and a pay day loan store on every corner, the person who has spent the most money is probably the person with the most debt.
You don’t want to measure your worth against someone else’s debt. You don’t even want to measure your worth against someone else’s assets. We all know in our heads that happiness, fulfillment, freedom and peace do not come in a Nordstrom bag. You can’t pick them up at the Mercedes dealership. We need to get that understanding down into our hearts, down where it really matters to who we are. Then, and only then are we each free to pursue the things that really do matter to each of us individually. Then we can measure ourselves as people and not as collectors of Stuff.
February 19th, 2008 — Broke
I sell business education for a living. For the last four years (almost), I’ve talked to several people each day who are struggling badly financially. I’d guess I’ve talked to close to 2000 people during that time that want desperately to change their financial situation, which means I’ve probably had the following dialogue 2000 times:
Me: What do you do for a living?
Person: (insert any profession from janitor to surgeon - I’ve talked to them all.)
Me: How long have you been doing that?
Person: (frustrated laugh) I don’t know…too long. Years.
Me: So after being in that job so long, about how much are you bringing home annually?
Person: (insert any income from a $500 disability check to $500,000 per year.)
Me: Hm. So making about $____ per year, would you say you’re getting ahead financially or living more paycheck to paycheck?
Person: (whether janitor or surgeon) Hah, paycheck to paycheck for sure. I just can’t seem to get ahead.
It never ceases to amaze me how people can be broke no matter what their income is. Clearly the janitor and the surgeon are broke for different reasons, but they’re frustrated in similar ways. It strikes me that groups at both ends of the income spectrum seem to envy each other.
Said the school teacher of the surgeon:
“It’s not like I’m some brain surgeon or something. Sure I’d love to spend every day on the golf course, but that’s just not going to happen for me. I work 12 hours a day between the classroom, lesson prep, and grading. And for what? Peanuts, and a measly pension.”
Said the surgeon of the school teacher:
“Do you know what it’s like to be on call at all hours of the day and night, weekend and holidays? What I wouldn’t give to be a teacher. Can you believe those guys only work nine months out of the year? Not to mention the two weeks they take at Christmas. Sure, I make a good wage, but what do I have to show for it? It’s not like I have any time to enjoy it anyway. And with the health insurance situation I’m seeing my income drop every year.”
Isn’t it interesting how they exaggerate the upside of the other profession and make no mention of the drawbacks?
No question there are happy surgeons and teachers out there, but I haven’t talked to many of them. The dominant emotion I come across is discouragement, but there is a specific set of emotions attached to every bit of financial pain I discover as I talk to people.
Ask yourself if you can relate to any of the following:
- “I hate my job.” - Boredom, embarrassment, discouragement, frustration.
- “I don’t make enough money.” - Anger, envy, shame, fear.
- “I work too many hours.” - Fatigue, fear of missing out.
- “I have debt I’ll never pay off.” - Guilt, shame, fear.
- “My retirement funds aren’t anywhere near what I’m going to need.” - Fear, sense of uncertainty.
- “I don’t have any college funds set up for my kids.” - Guilt.
My impression is that people feel helpless about their money circumstances, mostly because they’re in the habit of living their financial life as they do. When you have a habit long enough, you become convinced that it’s a foregone conclusion. The fact is it’s still a choice. You can choose to spend less, earn more, save more. The surgeon chooses to live the way she/he does, and so does the teacher.
We can have long conversations about how these people can improve their situations, and we will. In the meantime, look at your life and your finances. Do you accept that you’ve chosen your current financial reality, and that you could choose a different one? Here’s a quote to think about: “The three most powerful words in the English language are “I am responsible.”
How can you benefit from that quote? “I am responsible” is a forward thinking statement. “I am to blame” is a backward thinking statement. Focus on a better future, then develop the disciplines to realize it.
What’s the payoff? I guess you could say it’s the surgeon’s paycheck and the school teacher’s summer off. Imagine what that would be like. Based on my interviews with millionaires I think I can give you some insight on what it takes to get there.