Month: July 2011

I often talk about trying to be intentional with my money; but how do you really do that?

Unintentional

Most people I talk to think that if they pretty much do the right thing everything will work out. If they are in school, the thought is stay out of trouble; go to class, do really well in the classes you care about and ok in the rest and you will be fine. In the work force, many trust that showing up on time and doing a good job will lead them up a ladder of promotions. This same mindset carries over to sports, relationships, and money. This “just let it happen” attitude often leads to mediocre outcomes. If you want an ok education, a so-so job, average relationships and normal finances just try to do what is expected of you; there is a good chance you will succeed. If you are lucky enough to have an extraordinary talent, you may even get exceptional results with this thinking, but you will not be as successful as you could have been.

Being unintentional with your money is “normal”. It is exactly what the average American family does. Almost universally, we want to be out of debt, we want to have savings; we want to help our kids pay for college. But, we don’t make decisions that lead to these goals. We go to work, get paid and then pay our bills. If there is money left at the end of the month, we might go out to eat or buy a new TV or maybe even put some in our saving account, but we do it all without a clear plan.

When we buy a new car with credit, we may be actively deciding we want that particular new car but that decision is not likely to be in line with our goals and dreams. We are just letting the “normal” American life happen.

Intentional

Carefully choosing what to do and what not to do in alignment with our overall dreams and goals is at the core of being intentional. To make these choices you must have a clue of both where you are and where you want to end up.

Are you intentional with your money? If you are, you probably know the answers to these questions.

• What is your total household take home pay?
• What debt do you have?
• What are your total monthly expenses?
• How much do you save each month?
• What is your net worth now and what do you predict it will be 5 years from now?

On a small scale, being intentional with your money means:

• Always have an active financial goal – consider using the baby steps.
• Make a written schedule to help you focus on actually accomplishing each step.
• Actively choose not to be de-railed by friends, family, or old habits.

On a larger scale, being intentional with your money might mean:

• Skipping the nights out, turning up the ac, not buying new clothes and cutting back in  a 100 other little ways in order to get out of debt so that your family can have more security or
• Choosing a state school and working through college to avoid student loan debt so that you can be comfortable on a teacher’s salary or
• Working a job you don’t really love in order to stack up cash so you can quit and travel

Being perfectly intentional requires that you ask yourself with every purchase or financial choice: Will this lead me closer to my goals? Of course, we’re not perfect but the more we practice the better we get.

I recently read a blog post where the author was a bit smug about all the smart financial things he was doing and how these intelligent decisions had protected him and his family through this recession.  I am glad to hear it; smart financial choices do protect us through a downturn. Having some savings and avoiding unnecessary risks can make us look smart but sometimes the truth is we just got lucky.

Here in Florida, lots of people did some really risky real estate deals before the crash. Many everyday working families decided that they could be successful real estate speculators. When reading the definition of speculator, they missed the risk part; higher-than-average risk in return for a higher-than-average profit potential. Most of those that you thought made a “bundle” during the boom really didn’t. They may have made out on some deals, but most of them were still “in” when the market fell. The ones who found a chair when the music stopped were for the most part, no smarter or better informed then the rest; they just got lucky.

That’s the thing with risk; sometimes you are going to win, sometimes you are going to lose. You have to be sure that you can afford to take the loss before you play.

There is an implied inference that those that really got hurt had it coming. While this kind of thinking may make you feel less vulnerable, it’s simply untrue. Many who were leading conservative financial lives have been greatly affected, through no fault of their own, by the drastic change in the real estate market.  Others, who were normally conservative people, did act outside their normal comfort zone. They were seduced by the tales of their neighbors and friends turning huge profits.

Overgeneralization is an irrational thought process that we must guard against. Whenever we observe a few people winning at something (like flipping houses), we find it easy to conclude that everyone is making a fortune and we better rush to get ours. There are two major flaws in this thinking. The first flaw is our observation is incomplete. We hear the success stories but not the failures because that is what our friends want to talk about: the times they hit it big. Secondly, we without sufficient investigation, conclude that if their deal made money, then our deal will also. Yikes, even in a boom market, profit is not guaranteed.

I was not speculating through the boom or bust but I am not so smug as to say it was because I was so smart. I know it could have very easily been me.

What has you stuck? Too much house? A job you hate? Smothering debt that is very slowly and painfully suffocating you?

The worst part of being stuck is the soul-sucking hopelessness. The feeling that no matter what you do it will always be this way. Every escape plan you try to make fails before you start. You can’t sell the house, its underwater, you can’t quit the job, you have bills to pay, you can’t make any headway on the debt because it takes every penny you make to keep things current.

I am here to tell you, you can get unstuck; there is cause for hope.

Surrender

Accept the reality of where you are. When we are in a bad place our natural tendency is to put our heads down and watch our feet shuffle. We are afraid to measure the true depth and width of the swamp. Quit fighting the feelings and accept that you are afraid, worried and overwhelmed. Measure the swamp. Calmly and clearly, state the problem.

Fly

Get the 1000’ view. The ability to seeing the big picture is vital. If you could imagine it’s someone else’s problem, what would it look like?  Find someone who has made it through the same swamp, how did they do it? Reach out.

Be Bold

Be willing to accept pain to get unstuck. Go back and review the things you “can’t” do. Chances are it is one of those things that you will need to do to be free.

When the solution is a three-year plan, we irrationally avoid starting because it seems so hard. Yet, in our avoidance, we endure three more years of pain without progress.

Start

The good news is as soon as you start working a plan, the hopelessness turns to hope and that makes all the difference in the world.

I believe you have misinterpreted what your well-meaning parents told you when you were three. You cannot have it all. You have to choose and every choice you make has a consequence.

For quite some time, my friends and family have accused me of being the fun police, it is not that I hate fun it’s just I do not think they (or you) should finance their fun. Do you want to go on vacation? Save your money and go. Go wherever you want, go exotic or mundane; do whatever you want, have a ball—just don’t borrow money to do it.

I have also started to develop this reputation of being a doomsayer. I predict you will die and if you have dependents, I think you need a term life policy. I also predict that someday you will quit, retire, or be fired from your current job. You need to have a transition plan in place.

The truth is I am neither pessimistic nor universally frugal. The truth is I now try and make every choice intentionally, measuring the benefit of the choice against it’s cost. I now try and consider the worst case scenarios for decisions, as opposed to the old way of thinking that bad things won’t happen to me. This doesn’t make me a pessimist, it makes me a realist.

I  spend on the things I care about (within my means) while relentlessly beating down the expenses that don’t bring me comfort or joy.

I conserve my gas budget by riding my bike, sharing rides and bunching my errands just so I can spend a ridiculous amount of money on gas for our 454 hp ski boat.

I do not eat out much, but that allows me to very happily to triple our grocery budget when we have boys in the house.

I have some expensive toys (like the aforementioned boat) but our cars are old, we don’t take expensive vacations and we don’t have cable.

We didn’t always live this way. There was a time that when I wanted something I bought it with little or no attention paid to the consequence of that choice. This is exactly how most of us find ourselves stuck. Stuck in a job we don’t want, stuck in a city we hate, stuck in relationships that don’t work. Debt robs us of our freedom and for what? Most of the time we can’t even remember.

There is nothing wrong with wanting something, even something frivolous or expensive. There is nothing wrong with occasionally (within in your means) giving into those desires. The danger lies in indulging every want.

 

Sometimes $1000 will rock your world and once you get your mind right, it is not that hard to come by.

Get over yourself

On the face of it, many of the ways to get a fast grand or a steady $1000 extra a month, will not make you the envy of the neighborhood. If you are living an average middle class life, your friends and neighbors might think it strange that you swap your suit for a pizza delivery guy shirt at 7 pm everyday or that you get up at 3 am to deliver papers. Get over it. The sooner the better. If you need to supplement your income to pay down debt, keep you afloat until you land your “real job” or stack up cash for an upcoming need, set aside your silly pride.

Realize its not forever

The idea here is get cash coming in quick. We don’t need to find a job that will lead to a lucrative career; we need something we can start NOW.

Many “Cash Now” opportunities are not advertised. They are off the books, word of mouth gigs. Can you cut grass, babysit, paint, tutor or clean? Drive, walk dogs or sew? Pick something you can do well. Print up some flyers and get after it. Check craigslist, the local paper, ask your friends and neighbors. Cut your hair, tuck in your shirt and answer the phone when people call – you’re ahead of 95% of the odd jobbers out there already.

Part-Time Job

If you just need $1000 this month, an odd job or a gig might be all you are looking for. With a gig, there is no obligation on your part or your customers to continue past the completion of the agreed upon task. If you need additional money for a longer stretch of time, there are many part-time opportunities out there – from Waiting Tables to UPS package sorter, Bartender, Delivery Driver – check out SnagAJob for some ideas.

Sell Something

Look around, what can you unload? You do not need to make your $1000 in one sale, 200 $5 sales at your big garage sale will get you there. If you are not actively using something and it has value – sell it!

Start

To get this thing started you need to do something. Quit looking for the prefect work from home, make a million on line, opportunity and get your hands dirty. The goal is to make an extra $1000 in the next 30 days.

What have you done to bring in the cash?

Normally, I share with you articles or blog posts that I find informative or that say something I have tried to say in a new and better way. Today, I am sharing a blog post that I really disagreed with.

The author doesn’t really tell us a lot about herself other than “This is a tale of our journey about climbing out of debt by tightening our money belt, letting go of the idealities of a consumeristic society, and finding what it means to live a great frugal life.” Well good for her, I can have no argument with that.

The post I disagree with is Adult Children Living at Home – 5 Reasons to Live with your Parents Longer.

Here are some of Money Funk’s reasons for staying in your parent’s home and why they make me crazy:

Can you really afford a home that offers all the amenities and features you have come to rely upon?

HUGE RED FLAG If you have this attitude or are have encouraged this attitude in  your children;  STOP and think while there is still time. This attitude of entitlement may be the single most common denominator in people who fail to win with their money.  It is no surprise that your parents can (after 20+ years of work) afford to live better than you can. You are not entitled to what they have. Do I really expect you as a young adult to live in a tiny dumpy apartment and drive an old crappy car? If that is what you can afford on your starter salary, then not only do I expect that, I expect you to do it joyfully. Take great pride in your ability to do it – all by yourself.

Maintain relationships with your parents and anybody else (siblings, extended family) living in the home.

Independence does not need to weaken relationships. Healthy parent-child relations do grow and the day an adult child’s becomes completely self–reliant is a remarkable milestone in this evolution. Not living in the same home is no reason for a loss of intimacy. Many adult children speak to their parents frequently. They are as interested and involved in their parents lives as their parents’ are in theirs.

Focus on advancing your career or education

I am good with the education thing. For many college age kids living away from home in a dorm is an important component of the maturation process. However, for some kids living at home while attending college is a better fit for their personality or financial situation.

The idea of staying in your parents home so you can focus on advancing your career is a bit harder for me to embrace. My thinking is the minute you are making enough money to be self reliant, you should want to stand on your own. Someday you will need to manage your career AND do your own laundry. You might as well start today.

Is it ever ok to move back home?

Of course it is. Family is all about being there for each other. In times of illness or job loss or transition, it is comforting to know you can always go home.  I love my parents.  I know I could always go home and they would do everything in their power to make things right so that I could be independent again.  I love my son and he is always welcome in our home. Someday, I may need his help in a big way or he may need mine. As independent adults, I know we are both willing and able to handle the responsibility that comes from loving someone.

Maybe it is time to have the discussion in your house. When is it ok for adult children to move home?

When we think of ways to improve our financial situation, we know we can earn more or spend less. But are both approaches equal? Although on the surface it would seem so; on closer examination it is clear there is a large disparity between the two.

Exiting the consumer rat race has a far bigger impact on your ability to achieve financial freedom than does increasing your earnings.

The reason for this is twofold:

1) Earnings are taxed; heavily.

2) Earning increases influence your wealth only while you are earning. Once you quit or retire the affect stops. Learning to be happily frugal has benefits that extend for the rest of your life.

Allan Roth’s article, Financial Wealth – It’s Time not Money explores this concept.  Roth gives the following example of a 50 year old that can reduce spending by $10,000 for the rest of her life or increase earnings for the balance of her career.

A 50-year-old woman can make $10,000 a year more and will retire in 15 years, which translates to $150,000. But if a third goes to taxes, she is only left with an additional $100,000. On the other hand, if she spends $10,000 a year less and has a 33 year life expectancy, that translates to $330,000 in savings.

A dollar saved is $3.30 earned

So in the above example, lowering annual expenditures by $10,000 had about a 3.3 fold benefit over earning $10,000 more. That means a dollar saved is worth far more than a dollar earned – in the above example it equaled approximately $3.30.

Many of us try to out-earn our past or present spending habits. This seems particularly true of high earners. The problem is the more we earn the more we spend. If you are currently earning at least average wages, focus the majority of your early efforts on reducing your expenses in order to win.

Plugging the hole in your bucket before filling it with earnings is so much more effective than the alternative.

You’ve cut the cable and the lattes. You haven’t been to the mall or a restaurant or to a movie theater since – you can’t remember when. But still there is no way you can afford your health insurance.

If you are self-employed, unemployed or your employer does not offer benefits; you may be facing this dilemma. What can you do?

Our long-term goal is to find a way to get adequate coverage in place (we will talk about this in another post). Our goal today is to do the very best we can with what we have.

Some is better than None

You may be able to afford a high deductible, no office visit plan. Do not assume you can’t afford it based on what someone else told you. Most major companies have temporary plans if you are between jobs and almost all of them let you price plans on line — just be aware if you have pre-existing conditions or  if you are over weight, the online price or plan may not be available to you.

If you cannot cover yourself (existing conditions make you ineligible or even the high deductible plans are unaffordable), get a quote for just your spouse and kids.

Here are some Providers that offer on-line Quotes:

Aetna

Assurant

BlueCross BlueShield

Cigna

Humana

UnitedHealthcare

Cover the Kids

Most states have some type of coverage available through their welfare agency. In Florida, we have Medicaid and KidCare – for those that make too much to qualify for Medicaid. At this time, Kidcare has a sliding scale premium based on income; even if you earn more than 200% above the poverty income level, you can purchase Kidcare for the full premium. Most colleges offer Student Health Insurance and some will offer financial aid to help cover the premium.

Stay Healthy

We can all do a lot to improve our chances against future health problems. This means dump the weight; get some exercise, stop with the junk food, booze and cigarettes.

Some of the factors that raise your health care premium are within your control (weight, smoking) and some are not (pre-existing conditions). Fix the things you can. It can absolutely make the difference between qualifying for an affordable plan or being ineligible for any individual coverage.

Move On

Our healthcare system is broken. You know it, I know it, the doc’s, the government and the insurance companies know it. We have all heard the heart-breaking stories of astronomical premiums and denials of coverage. If you are without coverage, the inequities of the system cannot be your focus. Accept that the situation sucks and pour your energy into getting the best you can for your family today.

Living with debt or inadequate savings is more an indication of the lies we were sold, rather than a reflection of our character.

That is until revelation day. Revelation day happens when the bank surprisingly turns you down for additional credit or when you lose your job or the first time you cannot pay all your bills. My revelation day happened when I heard Dave Ramsey tell me I was a fool.

After that day, it is all about character. Will you stick your head back in the sand and pretend you don’t know or will you do the work required to change your behavior?

I have a very dear friend that recently achieved her totally debt free goal; a real cause for celebration. It was not long ago that she was stuck in too much house. No matter how much she cut the budget, her expenses exceeded her income. She was eating ramen, never turning on the heat, barely running the ac, just paying minimum on her debt and even then; the taxes and insurance on that beautiful pink elephant were slowly pulling her under. She spent years losing the fight against the incoming tide.

This woman is a professional; she’s bright, educated and her high heels always match her dress. Unlike me, she knows which fork to use and is totally at ease at fancy smancy social events. She is no spring chicken either, with a kid in college; she is well past the days where it’s easy to burn the candle at both ends.

Once she truly and sincerely declared war on her debt, my friend found a night job cleaning an office. Four nights a week and on Saturdays she vacuumed and dusted and mopped and scrubbed toilets – after putting in 50 hours at her regular job. And, she still ate ramen.

At first, I believe she was embarrassed to be working a second job and embarrassed that the job was cleaning. I know she had to be tired and often discouraged; nevertheless, she persevered.  She did this for seven months and the only thing the extra income allowed her do was stay afloat. But, that was enough. When the too much house finally sold, she was free to start her new debt free life.

I could not be more proud of her.

What sacrifice are you willing to make to win?