Beyond Dave

Part 3 in the 3 part series Your Identity and Your Money. Find Part 1 here and Part 2 here.

As I was relating my upcoming plan to do a winter hike in the Grand Canyon to a friend, I admitted I was a little scared. “Scared? Really? What could you be afraid of?” he asked. “You’re not frightened” he tried to convince me, “you are just excited.”

This is exactly why I love spending time with young adults. He was honestly surprised at my fear. In considering his reaction, I understand his failure to empathize. At his age, I too was rarely afraid.

The few things that did cause anxiety for me at that age, heights and rats, were external. I cannot recall ever being immobilized by the fear of failure or the fear of rejection or the fear of a wrong choice.

My old fear of heights has mellowed greatly. I can climb ladders and ledges with just enough fear to keep me cautious. I am more affected by watching a child stand close to the edge or totter up a steep staircase than I am by my own exposure.

However, those internal, “What if I’m not strong enough? Smart enough? Good enough?” fears are much more present in my life today than when I was young.

Sometimes writing what should be something simple can stop me in my tracks for days.

Indecision, another byproduct of those internal fears, is my constant companion. My indecision and I frequently battle on a wide range of topics. Most days I can beat it back to the level of rational and helpful doubt, but sometimes it creates a full-blown fear fest waste of a whole day.

Certainly, some of this new fear is due to losing that big paycheck. Like many, a big part of my identity and self worth came as a paycheck. It was a monthly concrete validation of my worth in the world. In addition to the check, that job gave me a great feeling of accomplishment, most days. (It wasn’t all roses – there were significant daily challenges- but that’s another story).

Wrapping yourself in that paycheck is just as harmful and dangerous as measuring your worth by your stuff. One of the more harmful side affects of a paycheck identity is that it invites judgment of others. I’m ashamed to say that I have thought myself better than others because I earned more. You know what it means if you earn more than someone else does? It means you make more money – period. Are you more educated, a harder worker, smarter, or more talented? Maybe, or maybe not. There are many highly educated motivated talented people doing incredible work in fields that don’t pay that well. Conversely, there are plenty of jerks, greedy un-innovative (is that a word?) people that are raking it in.

God help those who think the best measure of their worth are the numbers on their paycheck. These poor souls are just about guaranteed to be sucker punched when they retire, quit or are let go.

I won’t kid you; some moments, I would eagerly trade the new half-baked “better” me for the judgmental decisive fearless a$$hole I used to be.

I tell you this to assure you that I understand that identity change is hard; there will be setbacks. Just know if you are struggling with this, I’m right there with you – everyday. Based on my observations, I think we are in good company.

So who are you?

In this series of posts, we’ve learned:
I am not my FICO score (regardless of how good or bad the number is).
I am not my car, boat, or house.
I am not the high tech toys, nice clothes, or brand name stuff I own.
I am not my bank balance.
I am not my job and certainly not the numbers on my paycheck.

I am a greatly loved child of God.
I am a mother, a lover, a daughter, a sister, an aunt and a friend.
I am kind, dependable, trustworthy, hard working and encouraging.
I am smart, curious, adventurous, and strong.
I am brave.

There – that should beat back those fears for a bit. Now it’s your turn.

Who are you?

Part 2 of 3 the part series Your Identity and Your Money. Find part 1 here and part 3 here.

Why would an otherwise rational and intelligent person chew through their retirement account to keep the mortgage paid on an upside-down house. Or borrow against their home to pay off credit cards even when they know they can’t realistically afford the payments?

The two reasons I’m most often told:

I don’t want to hurt my credit score and/or

I don’t want others to think badly of me

Both of the reasons speak to the same underlying and fundamental question: “Who are you?”

Do you think the only reason you are someone is because you live in a nice house, drive a shiny car, or have an 825 FICO score?

Having an identity that is tied to my stuff, my job, my diploma, my looks, my accomplishments (or worse my kid’s accomplishments) or anything else that has my in front of it, is building our life on a foundation of sand, right at the edge of the beach, near warm hurricane-prone waters.

It might not happen today or this week or even in the next five years, but a big storm will come and it will knock the snot out of you. If you are lucky, that tumble will force you to re-assess who you are.

If there is anything sadder and more limiting than defining yourself by your stuff or your achievements, it’s dying having never known another way.

Let’s make sure we don’t have a misunderstanding here. I think it is vitally important that you meet your obligations. You should pay your debts in full and on time. That’s what you promised to do when you signed that loan agreement and it’s important to me and I know it’s important to you that you keep your promises – right up until you can’t. When you can’t, you must find the courage to realistically and rationally evaluate the situation.

If you are borrowing from one credit card to pay another or have taken out a 401K loan or cashed out retirement savings to pay your mortgage, you (at least temporarily) can’t pay your debts.

There are people who break their promises easily; they can without a moment’s hesitation suggest strategic defaults or debt settlements when the sky darkens. But I don’t know these people.

The people I know see the clouds but insist they can handle the storm. When an illness or a job loss wreaks havoc on their ability to meet their obligations, these Pollyannas trudge on using new debt to pay their old debt, insisting things will be better soon – but they are too scared to sit down and define exactly when soon is or how things will get better. Unfortunately, for some percentage of these good people, the better will not be big enough or fast enough to avoid lasting and sometimes permanent damage.

Often it’s the fear of losing our identity that keeps us from facing our problems head-on; it makes us irrational and just plain stupid. If you puff out your chest and tell me your credit score while ignoring the fact that your net worth is negative, it’s likely you have tied some part of your identity to that number.

Instead of, “I’m Barbara and I have near perfect FICO score” try on “I’m Barbara, beloved daughter of Christ and heir to his throne” and see if that fear doesn’t fade.

Part 1 in the 3 part series Your Identity and Your Money. Find Part 2 here and Part 3 here.

We all know someone, and I know I’ve been that someone, whose identity has gotten all tangled up in their stuff. When what you own becomes who you are, you become fearful of losing it; when a car is no longer just a car or a house a house you start making stupid decisions.

I’ve had that identity problem with a car. The first brand new car I bought for myself was a BMW 325i. It was beautiful and fast and came with a very thick payment book.  That car replaced maybe the ugliest car I ever owned, an orange Datsun B210 hatchback. I bought that one used for about $800 as I remember. It was easy on gas, took me where I wanted to go and never failed me. I neither loved nor hated that car; it was just a car.

Before the B210 I had a MGB Roadster with rusted out floorboards. I loved the MGB. I didn’t even care (most of the time) that it constantly failed me. However, once I had a baby, I started thinking that a car should be safer; like maybe it should have seatbelts and perhaps you shouldn’t be able watch the road whiz by between your feet.  As much as I liked the MGB – it was a car that I owned and had fun driving – it never became part of who I was.

The BMW was a different story, I bought it because I was selling and was convinced by others (it didn’t take much convincing, I really like cars) that I needed to look successful. I loved not just the car but also the way that car made me feel –  more successful, more important, more grown up. It also made me feel very broke.

About half way through that book of payment coupons, my marriage crumbled and I found myself as a single self-supporting self-employed mom. That car payment was by far my biggest expense and many months I worried about making it. The real problem came when the car needed maintenance or repair. The dealer’s service guys were always very polite and efficient. They would fix the car, wash it and deliver it back – usually with an invoice for over a $1000. A $1000 was a fortune to me at that time.

When there were well over 100,000 miles on the odometer and with coupons still in the payment book, in the middle of nowhere it quit on me requiring a long distance tow. I decided I should bite the bullet and get something dependable and that I could afford.

The way I know for sure my identity was all tangled up with that car, was that when I decided I couldn’t afford it one more day, I ended up at the BMW dealer negotiating a trade of my upside-down, much too expensive  present circumstances car for a new one just like it.  With the car picked out, the loan approved (a loan that covered not just the new car with no down payment but also the deficiency on the old car’s value), I arranged to pick up my new ride the next day. I was trading an almost paid off car with payments that choked me for a heavily financed car with even bigger payments that would go on nearly forever. What is that definition of insanity? Doing the same thing but expecting different results.  Oh yeah, I forgot.

Someone saved my life that night; I can’t remember just how it came about but with the next morning came a burst of sanity. Instead of driving up to the BMW dealer to pick up my new car, I headed over to the Honda dealer and traded the old Bimmer on a very vanilla Civic. With the upside down car rolled in to the new car loan, I’m sure it was one of the most expensive Civics ever sold – still it was nowhere near the price of the new BMW. (While not as stupid as the purchase I almost made, I have learned a thing or two since that day and now would never finance a car and I would be very reluctant to buy a brand new car – here’s how I would buy today.)

I know you expect me to tell you that I loved that sensible Civic; that I never again wanted for a fast, tightly engineered, cool car but it’s not true. What is true is that, as of today, I haven’t since let a car be part of my identity and I haven’t since bought a car I couldn’t afford. Now that we could afford that brand new 3 series, it makes me crazy to think about spending that much money on a car, I can easily think of a zillion better ways to spend 40 grand.

These are the ideas that help me in my ongoing struggle to  keep my stuff separate from my identity.

It’s wrong-minded, stupid and downright dangerous to let your stuff become who you are. I know when this is happening because I become willing to make choices that allow me to acquire or keep things that go against my overall goals. I am a fantastic rationalizer and I can talk myself into almost anything. I know this can be a problem, so I always discuss big purchases with someone rational and uninvolved and I go slowly in making those decisions.

It’s perfectly OK to have stuff. Even really cool, expense stuff. As long a) as you can pay for it, in cash, in full without touching your retirement savings or emergency fund or using any other silly accounting self-trickery and b) it doesn’t conflict with your overall long term goals.

Never buy to impress others. If you didn’t own that car, that house or that boat would you still be the same person? Would others still see you the same? Do you own it for your own personal enjoyment or do you use it to try to influence others opinion of you?

When you left your packed lunch in the office fridge and went out to the corner deli with your co-workers, it was only $11.

But then you made that unscheduled stop at Starbucks, downloaded that song from itunes, picked up that blouse on 75% off sale and bought a new book at Target.

All of these are things that most of us have done and then justified with the “It’s only” 5, 10 or 15 dollars.

Being mindful with our big stuff spending is important, but all the good we do there can be undone if we are not just as careful with the little stuff.

In our house, by count – fully one half of our spending transactions last month were under $25 and by total dollar amount – one half of our transactions were under $100. Clearly, paying attention to small transactions is important in our financial life and I bet it is for yours as well.

If you are trying to pay off debt, then starting right now, there is no “It’s only”. Everything counts. 

The only exception to this is your very modest amount of budgeted blow money.

If you have already killed that debt monster – Yea You! Celebrate but don’t backslide. If you stop budgeting or if you only pay attention to the big stuff then you are quitting way before the finish line. Keep moving up those baby steps and collect the prize of true financial peace.

Sometime ago I met with a single mom who could not make ends meet. Every month she was late paying several bills. This cost her a lot of money in late fees and even caused the water and electric to be turned off on several occasions.

When we reviewed her bills, the payment for the nearly new small SUV jumped out as an expense she just could not afford. We spoke of alternatives. Our conversation went something like this:

Me: Let’s talk about selling the SUV and buying a beater with cash.

Her: But the SUV is upside down and I have no cash to pay it off or buy a beater. Besides my kids play soccer and I need an SUV. I’ve owned old unreliable cars my whole life. I deserve a dependable car.

Me: You could sell the SUV by financing the difference and then ride the bus until you pay off the gap loan and save up enough to buy a beater.

Her: Ride the Bus? I would NEVER ride the BUS.

Me: Never, really why?

Her: Have you seen the people that ride the bus?  I would get lice. There’s not a stop near my work. It would take forever to get the kids in the evening.

Now the fact is, I HAVE ridden the bus. Public transportation in our city isn’t great, we have no subways, no trains and somewhat limited bus service but the buses we have are clean and punctual and without a doubt lice-free.

Before we jump to finding fault and passing judgment on our single mom, let’s make sure that we don’t have a problem “riding the bus”.

Maybe it’s the idea of a second job that you dismiss without consideration. Or perhaps it’s moving closer to work or getting a roommate.

The truth is most of us have some picture in our head of what our life is supposed to be like and it is a challenge to keep an open mind about alternatives. This vision often fails to align with the reality of our situation. If we really want our financial position to change, we must make some big changes in our behavior. If we keep doing what we’ve been doing we can’t be surprised that we keep getting what we’ve been getting-right?

Changing that mind’s eye view is not that hard. You can get past the “what will my friends think” and the “I deserve” mindset to shop at Wal-Mart or the consignment store. You can drive an older paid for car or ride a bike and you can live in a smaller house. The question is not can you do these things, but will you?

What waits for you on the other side of that behavior change? What will a debt-free, living-within-your-means life look like for you and your family? How will you feel when the car breaks down and you can simply write a check to have it repaired? How will it feel to have the freedom to choose your work?

Although it takes time, you can align your vision with your current reality and your future dreams. The more you practice being open to new ideas the easier it gets.

• Start every day with a decision to be open to change.

• Be curious about how other people win.

• Explore the possibilities.

And then choose. Start small, practice everyday and you just might find yourself “riding the bus”.

If you want to do not a little better with your money, but worlds better, you need to meet one of my favorite money bloggers, Mr. Money Mustache.

I just love this guy, he’s smart and funny. One word of caution, he occasionally uses colorful language to make a point. I am intentionally hard to offend but if you are very delicate, read gently.

Here is  my favorite excerpt for his most recent Reader Case Study Post

CREDIT CARD DEBT IS AN EMERGENCY!! It goes out first, before you engage in any other activity. Do not write to Mr. Money Mustache for advice if you still have credit card debt. My advice is: tap all possible resources, up to and including couch-surfing, prostitution and illegal drug and organ sales, to pay off your credit card debt first. After that, we can start fixing the rest of your life.

You don’t know how often I’ve wanted to recommend selling a kidney to pay off Visa ! 🙂

Two more of his posts that you really need to read:

What Do You Mean “You Don’t Have a Bike”?!

How to Go from Middle-Class to Kickass

Mr. Money Mustache is clearly BeyondDave but not in the  traditional crunchy granola, live in a tiny house,  grow my own food, make my clothes, way. He lives with his wife and child is a very nice, rather large house. They have lots of toys and take long vacations. Still they are, at a very young age, financially free. They’ve accomplished this by being extremely intentional with their decision making.

I know we can all learn something from that.

Change is possible and it doesn’t have to be a knockdown slugfest. Patience and kindness have been scientifically proven to extend the stamina of our woefully out-muscled willpower. Tiny steps, fast wins and environmental tweaks can make a seemingly impossible change happen almost painlessly.

Most of us, who have tried to cut back on spending, either to pay off debt or increase our savings, think we have a money problem. We don’t. We have a behavior problem. Our spending habits are based on the same neurological loop that is at the core of all habits.

We have been generously rewarded hundreds or thousands of times for the very behavior that we now need to change. That fact, all by itself, will make long-term change hard unless we carefully plan the change using everything we know about habits and behavior. No matter how smart or how disciplined we think we are, none of us can easily force ourselves to do what we know we should do long-term, if it is contrary to our established habits.

One great way to change habits is to leave the cue and reward in place but change the routine. Let’s say you normally head for the corner pub on Friday evening after work to meet a friend. A drink and an appetizer later you’ve easily spent $20 not to mention a ton of empty calories. The cue is 5 o’clock on Friday; the reward is the relaxing social time with a friend. If we change the routine from meeting at the pub to meeting at the park for a stroll, leaving both the cue and the reward in place, this habit will be easier to change.

The challenge is to carefully and mindfully dissect your problem behaviors in order to determine what the cue, the routine and the reward truly are and then finding a replacement routine.

Another great strategy that you must employ if you want to painlessly produce big behavior changes is teeny tiny steps. As a Dave Ramsey trained coach, I fully endorse the use of Ramsey 7 baby steps but most of those baby steps are huge giant leaps compared to the teeny tiny steps I’m referring to. Much of the magic of Ramsey’s plan is found in Step 2, the debt snowball. The debt snowball for most families does use tiny steps allowing for some fast wins and helping change behavior. But what if you have no small debts? I see this problem frequently. If the very smallest debt you have is going to take seemingly forever to pay off, it is easy to become discouraged and quit.

We must find a teeny tiny step that you can successfully accomplish. Maybe we start with just tracking your spending using Mint.com No shame, no blame, no changes required, let’s just see where we are. Or maybe we can start with no restaurant spending for lunch for today? Can you do that, not eat out for lunch, just for today? It absolutely does not matter that neither of these behaviors will pay down that huge debt, it only matters that you can and will do them. With patience, we can build a staircase of teeny tiny steps that will lead you to your goal.

For my attention challenged or just plain busy friends, if you don’t have time to read this post in its entirely then skip down to the bottom and do the 3 Actions steps.

Ask yourself; are you better off than you were four years ago?

Some 32 years ago, then presidential candidate Ronald Regan asked that question of American Voters and then walked away with the election. Clearly, many felt they were indeed worse off than they had been just four years earlier.

What if we ask the same question of your family today?

If you really want to have control over your life, you have to start believing that you have the power to shape your own future.

Unlike Regan, I’m asking about your very personal economy. We all know that both our national and the global economies have been struggling. High unemployment, shaky markets and the housing crash have hurt many families; however other families have fared remarkably well. Still others took a big hit but have since turned things around and are well on the road to recovery. While there is no denying that the world economy can and probably does affect your personal finances, your behavior affects them more.

Regularly tracking your overall financial health is one of the key habits you can develop to insure a positive answer to the “are we better off” question.

One fairly easy, reliable method for measuring your financial position over time is to periodically compute your net worth. We track ours once a month. Mint.com does a good job of tracking most of our accounts but our investment accounts don’t report, so we do our monthly net worth calculation in excel.

Others find that some other number makes a better yardstick.  JD Roth over at Get Rich Slowly found that back in 2008, focusing on the one number he was trying to affect at the time (i.e. debt and then savings) was easier and more helpful then tracking his net worth; Why I don’t Track My Net Worth. I think in the early stages of wealth building, this is a perfectly acceptable alternative. The important thing here is to actually do it.

Pick some indicator of your progress with money and track it consistently.

One of the issues that stopped JD from calculating his net worth was the indecision of how to value the house. We allow Zillow through Mint to value the house. I don’t think Zillow does a great job of determining the actual fair market value of our home, but I do think it tracks fluctuations in the local market very well. For me, the actual number is not nearly as important as the trend. This same thinking applies to our net worth number. It’s the long-term trend of that number that really matters to me; not the actual number on any given day.

When you are on baby step 2 (paying off all your debt except the house) changes in your net worth are hugely significant. Each tiny increase is evidence of your discipline and hard work. Make sure you graph your net worth month to month and put it where you can see it easily. You might have started with a negative net worth but just watching the line move in the right direction is validation that you are doing the right thing.

Baby steps 3, 4 and 5 are all about actively saving (1^st an emergency fund, then 15% of your income towards retirement plus saving for the kids college) and in baby step six you are really going to be pounding down that mortgage debt. These actions will almost all of the time produce steady upticks in your net worth number.

Nonetheless, as the percentage of your assets held in investments increases, it is not usual to have a bad market month that really kicks your net worth in the teeth or a great month that starts you thinking if your money can make that much in a month you don’t need to work. Remember your long view here, market and real estate losses (or gains) are not realized until you sell. Calmly, plot you net worth number for the month and move on. Month by month, year by year you will be not just collecting a record of your money behaviors and outcomes but you will be in real time alerting yourself to trends you can change to ensure the future you want for your family.

Take Action

1. Set an appointment with yourself monthly to calculate your net worth. I do mine the last day of each month. Use whatever means you have you have to remind yourself to complete this task. I use a Google calendar event with an email reminder. You might use an iPhone reminder or a note on your paper calendar. We all need an accountability partner to ensure it gets done.
2. Enter the value of your assets and liabilities in a spreadsheet like this one. First, make a copy or download the spreadsheet then customize it so it clearly lists your assets- the House, the 1999 Toyota Camry, IRA etc. and your liabilities Chase Credit Card, Home Equity loan etc. DO NOT use an online calculator; you need to keep this data. I do list vehicles and my high value boat on our statement but not personal property (furniture, clothes, jewelry). If you have high-value jewelry or collectibles that are readily convertible to cash list them at their true current market value.
3. Save your entries and plot your chart every month. Here’s mine.

This summer, my tribe of young wakeboarders introduced me to a new term; “Fall of Shame”. They tell me it’s defined as just letting go of the rope and slowly and gently sinking after a run. So what’s so wrong with that I ask? The answer, it’s a wasted opportunity, proof you weren’t pushing to learn a new skill or perfect an old one, going easy instead of going hard. Wow, it’s no wonder I love these boys so much!

We can’t push hard in all areas of our life all the time but we need to frequently and honestly re-assess where we are and what we are doing to move forward.

• When is the last time you took a course or read a book with express purpose of improving your job performance?

• If you are a student, are you challenging yourself with your class selection or looking for the easy A?

• Are you actively trying to grow your business and your influence; or are you coasting?

• What level of effort are you really investing in your goals?

Even a 14 year old knows that life is richer for having chosen to endure the occasional stinging face plant over the peaceful “Fall of Shame”.

How do you tell your story?  Do you leave out parts, shine them up or out and out fabricate?

How did you become the you that you are today? Was it an easy straight line stroll on a well swept sidewalk? If so, you must be very young.

Many of us need to re-learn to tell our story without the omissions and without the self-incriminating tone.

Back when I was hiring, I loved the idea of hiring athletes. Not because they knew how to win but because they knew how to lose and not quit. Give me somebody that has puked and kept going and it makes me think they can hang tough when the project is not going well and management is not cheering.

The single mom that worked two lousy jobs for six months when she was laid off from her professional career shows me she understands the need to do what needs be done without ever whining, “it’s not my job”.

A serial entrepreneur demonstrates incredible courage. He has been willing to risk and fail, risk and fail and have the guts to risk again. Read this except of an interview Ramit Sethi did with Amanda Steinberg of DailyWorth.

How do you deal with failure?

“It’s part of the game. I like to call myself a serial entrepreneur with a try-fail try-fail try-win try-fail try-win mentality.

My first company was an e-commerce gift store which I hand-coded my senior year of college. I didn’t sell a single gift, but I learned all about transaction engines. A technology module business I launched in 2006 to support the Joomla open source community (Joomla is a competitor to WordPress) failed because it only spit off $3,000 a month as customer support was too expensive to make it worth it. A platform I launched in 2008 to help mental health practitioners discuss patients anonymously didn’t have a sound revenue model, so it failed.

DailyWorth, which is now almost four years old and reaches 250,000 + readers daily, is successful because the market opportunity is enormous, the revenue model is sound, and the technology is simple.

It doesn’t matter if you’re selling products or services, working for someone or yourself — the key is to turn your failures into valuable lessons you can leverage and learn from next time. Now I can solve people’s problems because I’ve launched more than 200 Websites, properties, and campaigns over the years — I’ve seen it all, and I have countless successes and failures to point to. That’s priceless.”

When I read this I can hear the confidence in her words. There is no way anyone she speaks with is going to discount her abilities based on these failures. She believes her failures are her biggest asset and she can make you believe it to.

So how can we get you to quit looking at your shoes when we start talking about the holes in your resume?

If it took you 6 years to earn your degree from a no name school while working full time in a high pressure job, talk about the real life skills you acquired during this period.  While many new grads have never held a real job, been solely responsible for paying the bills or had to fit their studying into the few remaining hours after a full work day, you did. How did this affect your time management skills or your ability to perform under pressure?

Are you embarrassed by that long stretch of unemployment? What did you do during that time? What did you learn?

Chances are you’ve been through some character exposing trials; take some time to consider what you learned and practice telling your story with pride and confidence.