Ok, so assuming you did what was in the last post what did you learn? You learned (hopefully) that you could do without something. I needed you to figure that out before we moved on. My whole theory of financial freedom revolves around knowing that I don't "need" everything that I think I need. As a matter of fact I don't need 75% of the things I think I need. Do you know how much money is spent on advertising in the US each year. Go to www.wiki.answers.com and look it up, the number is so very much bigger than you think. Then ask yourself what is the goal of advertising? To sell stuff. How do they sell stuff, by convincing every person that the product or service they sell is a "need" and we should give up what little extra money we have to get it. Now I wouldn't say that everyone should only buy exactly what they need because I am all about creature comforts, toys, cool stuff, etc. The point is that most of us have fallen for the Need advertising and bought too much crap.
So, of course the first thing that came to your mind was car, boat, jet skis... Stop it! I know very few rational individuals who spontaneously buy big ticket items like this. Most people on a budget plan before buying something big, even if they overspend in the moment (which we will address later). What I am talking about is the nickle and dime stuff.
You can "20 dollar spend" your entire paycheck in no time, think of my eating out problem. Advertisers count on us to spend 20 bucks or less without thinking about it and that is where you loose your control. $20 is not that much money unless it is all the time, which for a lot of people it is. One example would be DVD's, most are less than $20. You cruse into Walmart and right next to the checkout stand is a new movie just released. That vision is embedded in your mind as you do your shopping, by the time you get back to check out you are convinced you need that movie and it is only $19.95, score. Ok, how many times are you actually going to watch that movie? Why didn't you rent it at Redbox for a buck? The answer in your head right now is "well because I now I own it." If you own something you will never use it either becomes a stupid decoration or another reason to get a storage unit. So not worth it. Now if you happen to be a movie buff, collector of DVDs, etc then that purchase was worth it, the specialty cheese grader next to it was not.
This is where you start paying attention to what you buy. Once you get a hazy view of where you are habitually making the $20 and under purchases you can start putting it in order. Do I need this and why? Ask yourself that every time. On the one hand you may need something that others don't but on the other hand don't fall into rationalizing every purchase as necessary. The point is don't lie to yourself, you're on a budget, we are in a recession you only "need" so much.
Tuesday, January 27, 2009
I know very few ex-smokers who were able to quit cold turkey. They say it takes 2 weeks to form a habit and 2 weeks to break one. I am pretty sure it takes longer to kick a habit the longer you have had it but that is my own belief. I would love to do the whole make you feel good sunshine thing but I like to be realistic. We as humans like our habits and most of the time really don't have a strong desire to change them, but given the right set of motivators we can reluctantly alter ourselves. Let's take me as an example, I am an accountant with all the penny pinching, money hoarding that goes along with it but I was not always so miserly...
I am the son of a doctor, so as embarrassing as it is, I was spoiled. When I got to college my parents continued to give me money through my first year. It was great, the ATM was like a magic money tree, I put in my card and out came money. I did and bought what I wanted so long as it was not excessive (relatively). After the first year I got a job at Jiffy Lube and started to support myself (sort of). I would work full time, go to school and if I ever ran low, money would appear in my magic bank account.
About this time I met my wife and we started dating. She wasn't spoiled like I was. Despite this small difference we got engaged. After a month she started watching my spending. One day we hit the ATM and I pulled out $20 for dinner. When my balance came up 0.00 I didn't even blink an eye. I turned to find her staring at me in disbelief.
"What?" I asked, confused at this look I had never seen before.
"Didn't you get paid just this week?" she inquired.
"Well yea, so what?" I replied stupidly.
"What did you spend all that money on?" she pressed.
I answered as intelligently as before "I dunno."
Needless to say the evening was ruined from here. I couldn't figure out why she was so upset and she couldn't figure out why I was such an idiot.
After dropping her off I decided to figure out where exactly I had spent all that money (mostly so I could show that I spent it on her). I didn't have to pay rent or utilities or anything like that. My tuition was all paid up and books all purchased. So, given that I did not have any big ticket items I had to dig deeper. It took me some time since I kept no records on my spending, but sadly here is basically how it worked out:
Gas 1 week - $20 (it was cheaper back then)
Groceries - $50
Dining out - $130
Snacks - $50
That's it, I spent my entire paycheck eating out. No mortgage, no car payment, no credit card payment, just eating out. I couldn't believe it, I went over it again and again to see where I had missed the huge purchase I had made to account for all that money. There wasn't one, my car and I had managed to eat an entire paycheck in one week. I was so distraught that I immediately went out to Taco Bell, it definitely made me feel better.
At this point I would love to say I changed my ways for good but I was a college student and human all at the same time (see opening statement). Miraculously though my wife still married me and through much weeping, wailing, and gnashing of teeth she corrected my spending habits. However, she was smart enough not to simply cut me off completely because I would have surely fought back a lot harder. She started small, no more Gem doughnuts and chocolate milk between every class, slowly dinners out were eliminated, soon sack lunches were encouraged for work instead of going to McDonald's every day, and so it went on.
The point of this whole story is that I would have been unable to miraculously transform from spoiled money-waster to penny pinching tight-wad in the blink of an eye. Just like anything else, learning to manage money needs to be done in small steps and thought of in small steps. Remember What About Bob with Bill Murray
"Baby steps out the door, baby steps down the hallway..." Baby steps with your finances. It'll take longer but you will be infinitely more successful.
Also, how many times do we need to reiterate that everyone is different before we actually start to believe it. We always pretend to know that everyone is different but when it comes to our quest in life we feel like everyone should be just like us. So, along those lines I am going to admit that yes, we are all different in our spending habits as well. I would wager to say that everyone has some good habits and some bad ones.
Look at your spending, find out what it is on which you waste money (it should be fairly obvious). Mine happened to be food, that doesn't mean yours is food. You are not me, don't copy me I have hated that since I was a kid.
It doesn't have to be something huge, that is the biggest killer of a good financial betterment strategy. Start with something small which doesn't hurt that much. If you are a big movie person, you know, you use them as the thing that keeps your life sane, well that is obviously not the thing to cut out. In fact if you cut something so dear to you right off the start you are an idiot. No, you need to remember start small and easy, nothing you love, just kinda like. After you have successfully cut something out (not just for one day, I mean really cut it out) come back and we will move on.
Monday, January 26, 2009
I may reiterate this several times but I am a CPA. Not only am I an accountant but I have a tendency towards being frugal (or cheap you can decide which). I don't have to tell you the world is in financial turmoil, it is somewhat obvious. Everyone is looking for money, bailouts, what have you. I could set up a link to MSNBC on this but I think everyone can pretty much find it themselves. Which brings us to the buzz phrase of the century "Financial Freedom" (I hate buzz words and phrases but that is a discussion for another time). The term Financial freedom is used in I don't know how many ways but usually by some moron trying to consolidate our debt for us "in 5 min right over the phone". In my opinion the kind of financial freedom advertised on the radio will come only when our entire commerce system crashes and we can go back to trading chickens for flour. Since that doesn't appear to be imminent we will go with the next best thing which is actually possible even for the financially stupid, ex. doctors (don't argue I have immediate family in the field and I know the truth). My view of financial freedom is the freedom from thinking about how crappy ones finances on a constant basis. There are very few people who have not had the plesant experience of worrying for days at a time about the mortgage, car payment, utilities, credit card balance, credit card balance, credit card balance, etc. We live in this fantastic society that allows us to purchase everything we want even if we can't afford it or the payments on the loan for it. None of this is new, we have all heard it before but how many of us out that have actually admitted to ourselves that we are one of those that bought too much. I would wager to say not too many, but right now as you are reading this there is a nagging itch in the back of your mind shaped suspiciously like this $SCREWED$. At this point you should be saying to yourself something to the effect of "I really do need help". Of course there is no way in this economy that anyone is going to pay a professional financier to help them get there financial life in order, I'll be the first to say that kind of thing is way too expensive. So, whether you like it or not, I am going to try my best to provide my insights into reducing our great financial mental handicapp. I figure everyone needs to help others in some unselfish way, and this is the only way I can help people because it is pretty much the only thing I am good at.
Monday, January 19, 2009
Just to make things crystal, I am a lifelong republican with very strong conservative roots. So when I told my brother the other day that I had voted for Obama I knew that my mother would be calling within the next 1/2 hour to disown me. What suprised me though was when he told me he wished he had done the same and was impressed that I had. You know I have always been afraid to say what I really think because I have no talent for debate and I come out looking like and idiot whenever I cross anyone else's point of view. Therefore I am nearly always wrong even when I am most assuredly right. However I realize that my inability to debate stems from a lack of confidence in my knowledge. Further I believe that my lack of confidence stems from the fact that I rarely engage anyone in a debate. You see how this might perpatuate itself. So when I told my brother from my super republican family that I had voted for Obama I was ready to once again loose a debate but I was for sure going to try because I felt so strongly about what I had done. Ok the point is simply this, I have never taken a stance, never put anything out there to be critisized or debated, well now is the time. If I do this I will surely have people tell me I'm and idiot and since I internalize everything it will cause me some serious digestional discomfort. However if I don't I will always be nothing to nobody and I don't think I can live with that either. So one way or another this is going to hurt...the pain begins tomorrow (for the readers and for me).