Change your Thinking – Page 8

The Long Haul

I sometimes struggle with consistency in my efforts – and I bet you do to. Making the decision to change your financial future isn’t all that hard; a moment of clear thinking is all that it takes to understand that you can and should be doing more with your money. Setting up a plan to accomplish your new found goals isn’t all that hard either; you know you need to spend less then you make, pay off debt, and save.

The hard part is to follow the plan long term – way past that first month. Why is this so tough? Because in order to accomplish this, or any other behavior changes long term, you must change the way you think. That’s hard enough by itself; but you also have to maintain this new attitude in the face of incredible pressure from others to go back to your old non-thinking, fun-loving, easy-spending ways. Dang it! How’s somebody supposed to do that?

Slowly

In our enthusiasm for change, or distaste for the stuff required to accomplish it, we often try to do it all in one night. So, you know that debt it took you 4 years to accumulate? Chances are you are not going to wipe it out tonight. And, if you did by some unexpected windfall have the ability to do so, chances are you would just run it up again. We need to change our thoughts and behaviors and the best way to do that is a little at a time.

Your first spending cuts should not be to expenses that are near and dear to you. Cut things you won’t notice much or find lower cost substitutes. In an earlier article, I named my first three cuts; I substituted purchased books for library books; I ironed my own shirts and we changed our phone service. The phone service never bothered me for a minute; the books took a little effort; but I found that if I kept several unread library books at all times, I could easily talk myself out of the temptation to pick up a paperback when I was out. The shirts were a different story.

Of the three cuts, eliminating the laundering of my shirts offered the least significant savings, but it may have been the most important in terms of behavior change. Every Sunday, I spend 45 minutes ironing my shirts for the upcoming workweek. Sometimes I really do not want to iron those shirts, but once I get started, it’s not so bad. This active participation serves to remind me what our financial goals are and what we are willing to do to achieve them. If I spend four hours a month saving $35, I am much less likely to go over budget for something unnecessary. If you don’t have shirts to iron, what can you do that you used to pay someone to do? Find a way to be happy accomplishing the task and remind yourself about the mission you are on.

When you are comfortable with the first round of cuts, you can start round two. Don’t be in a hurry, deeply cutting an expense that you really care about can led to rejecting the whole plan.

Together

Work has always been important in our house. Much of our fun has been working together on projects. We can even find enjoyment in everyday chores of cleaning or yard work as long as everyone participates. In our house, you won’t find anyone kicked up in the lazy boy while the vacuum is running.

The same goes for financial goals, we are all pulling in the same direction. Change is so much easier when you surround yourself with others on the same path. Seek out friends and family that can understand and support your efforts. It’s imperative that your spouse or significant other is on board; fighting their reluctance while trying to change is like waging war on two fronts. Put your whole plan on hold and get on the same page. You might have to go slower than you want in order to walk together – but it will be worth it.

Simply

Keep your plan simple. Do one thing at a time. It’s really easy to get sucked into trying to accomplish a whole lot at one time. It won’t work. Diluting your effort across a whole bunch of goals means nothing gets accomplished quickly. We need some quick wins to stay motivated. Focus with laser intensity on one small goal at a time and get it done.

Don’t Save for Retirement

One of the big mistakes we all make when considering making a change is trying to do too much at one time. We decide we need to eat better so we plan to eat less meat and more vegetables – better make those organic, and even though I don’t cook, I’ll make it all from scratch. On and on, our plan gets bigger and better and as a result, less likely to be executed.

What we should do is plan in baby steps. Start small and celebrate your successes.

Today while listening to a coach advise one of his clients, I just wanted to yell, “Baby Steps”.

The client was a 28-year-old living in Chicago making 45K a year. She has a student loan balance of 30K, a $1000 emergency fund and a very generous employer who monthly pays an amount equal to 15% of her gross into a 403b. The coach was harping on and on about getting this student loan paid off so she could save more for retirement.

Really? Come on; she’s trying to live in Chicago on 45K. First thing we need to do is throw this girl a party; she is a rock star – 28 with 37K in retirement and no credit card debt. Who does that? The answer is very few.

The coach was right when he said that she needs to focus on paying off those student loans. But let’s not try to inspire her by tempting her with calculations of how much she could be worth when she’s 67. She has a lot a life to live before 67. Maybe a really cool vacation, a wedding, a condo? Live a little, girl.

We need to give this young woman a chance to learn that saving is not a bitter pill; it is not a diet devoid of chocolate. Once she sees herself as a saver, her financial future will be much more secure.

The way to learn to be a saver is to start small. In the beginning, it is a lot easier to save for a want rather than a need. So what do you want that we can get in three paychecks? How much can you set aside out of each check?

Swim with Manatees – $35 plus lunch and gas, $35 out of each check

Take your mom to Julio Iglesias – 2 tickets at $60, $40 from each check

4 night Cruise with your friends – $300, $100 out of each check

Try it. Pick a three paycheck goal, something fun and get going.

Once you can successfully do the three paycheck goal, try a six paycheck objective.

Visualization helps a lot; so draw a thermometer, post it on the fridge, and color it in after every check. Get the kids involved and they will naturally grow into savers.

It is easy-peasy to learn to be a saver:

1) Pick a little goal

2) Set the time period and the amount from each check

3) Record each increment as you save it – in color on the fridge door.

4) Party! You are a saver!

Of course you know that we do need to save for cars and retirement and less fun things like roofs and medical needs, but once you become a saver the rest is easy.

Don’t go it Alone

Many businesses spend lots of time and money blocking non-business websites from their employees. These businesses are trying to protect themselves from decreased productivity caused by high time-demand sites like Facebook, YouTube and twitter – as well as the problems caused by allowing access to inappropriate sites and the malware frequently found there.

Often the response from the employees to this restriction is anger. Employees grumble about not being trusted and being treated like children. Of course, if you are a business owner and your employees carry cellphones, you may have succeeded blocking the traffic from your network but you did not stop the access. I have spent some time on the management side of this problem and it is a sticky situation; you want to trust your good employees to be motivated and stay on task, but you know trust is not enough. Additionally, you understand that social media can be an important piece of your marketing efforts.

Unfortunately, most jobs have lots of boring or difficult tasks that are easily postponed by grabbing a few minutes surfing the web, checking your “watch items” on eBay or catching up with your friends on Facebook. Depending on the difficulty or boredom factor of the waiting tasks, a few minutes can stretch out to an hour or more without any problem.

I have recently made the move back to self-employment. I get to decide what I do and how and when I do it – and where my success is related directly to my productivity.

Guess who uses an internet filter now. If you want to get things done, be creative or just think – you need to focus. If you really want to focus, you need to eliminate distractions.

How to get stuff done:

Define the task and set a deadline.

Clearly define the objective. Are you writing a first draft or a completed report?

Need to make cold calls? Will you dial 15 numbers, make 10 connections, talk to 3 people or set on appointment?

How much time will you allocate to this task? Remember the task will grow to fill the allotted time. Set a count-down timer that you can easily view on your system or your phone.

Eliminate all distractions for the time period

Turn off email notifications (you should do this anyway).

Quiet the phone. Put it on DND; turn off the ringer or turn it completely off if you cannot ignore it.

Turn off your internet unless you absolutely need it for the task. If you’ve gotta have it, block your “time-suck” sites.

Freedom for Mac or Windows ($10) locks your networking for the number of minutes you set, up to eight hours. What to cheat? You’ll have to reboot!

LeechBlock for Firefox (free) allows you to block 6 sets of sites. You can block sites within fixed time periods (e.g., between 9am and 5pm), after a time limit (e.g., 10 minutes in every hour), or with a combination of time periods and time limit (e.g., 10 minutes in every hour between 9am and 5pm).

Put on your headphones; put up the “DO NOT DISTURB“ sign; close the door and make them leave you alone!

Focus fully on the task at hand

Stay with it. Calling? Then call; or sit quietly until you can. Writing? Then write; or sit quietly and refuse to get up until you actually write something. Don’t do anything except the task at hand. Remember why you want to accomplish this and get excited about it.

Count it down

Get it done on time. Check you count-down timer once in a while and see how you’re doing when focus fades.

Celebrate or recommit

You got it done! Yippee! Get up and take a walk, check that twitter feed and reward yourself. If you failed to accomplish your task, try to figure out where the train left the tracks and schedule a new session at a later time.

Focus takes practice; don’t expect to be perfect. Start with important tasks you really care about and set up your distraction-free environment for a short period of time. You will be able to use these techniques for harder tasks and longer periods as you progress.

The important thing to remember is to use every trick or tool available when you what to accomplish something. Don’t carry that credit card; don’t bring Twinkies in the house and turn off the internet when you need to get something done. You are a crafty devil and it takes a lot to keep yourself on track.

The Redshirt Wealth Building Plan

I recently had a conversation with a very bright, but self-admitted and purposefully undisciplined woman. She wants to do better with her money but does not want to change her ways. No Budget for her – No way, No how.

This presents quite a conundrum for a whiz-bang financial coach. Someone whispers they want to become wealthy; I’m all about finding a way to make it happen.

Here’s someone who professes a desire to “do better”. With a bit of conversation, we could grow that tiny seed of desire into a little sprout of a goal. Unfortunately, without a willingness to change, our sprout, in all probability, will wither and die.

This woman has a lot of wealth-building potential. She’s employed and in a position that holds promise for future advancement. She is not overspending on her basic living expenses; housing, utilities and transportation costs are all reasonable.

But she is not ready to change. Every dollar that finds the way to her hand is going to be spent on “good times”. She’s not going to make a budget and she’s not going to track her spending.

Enter the Redshirt Wealth Building Plan.

You know how a college basketball or football coach might hold out a very talented athlete their freshman year, allowing them to grow and mature a little more without losing eligibility? Well, we use that same idea here. Redshirt freshmen get to practice that first year; they just don’t get to play in the games.

Participants in the Redshirt Wealth Building Plan:

Stop borrowing. Redshirts may not borrow. Hide, cut up or give your mom your credit cards for safekeeping.

Embezzle Funds. No; not from someone else – from yourself. Open a savings account; ing is easy and online. Do it right now. We don’t ask redshirts to think much just yet. Decide how much you could live without each paycheck and make that transfer happen automatically.

Pay as you go. Live your life using your debit card and the money in your checking account. Don’t look at your savings, don’t even think about it and definitely don’t touch it.

Measure your Progress. Set an appointment with yourself every 60 days and ask yourself two questions: Can you increase your savings amount? Are you ready to make a commitment to get in the game?

It’s OK to give yourself some time to develop some muscle; but be sure to follow the redshirt plan so we don’t have to waste your wealth-building efforts digging out of a hole.

Evil Credit Cards & Brownies

If your progress toward your money objective has slowed, stopped or even reversed, maybe you need to examine your goal and re-commit.

We all struggle from time to time with focus. I know I’m struggling right now with some extra pounds. I can rationalize the why in 10 seconds flat – you know the holidays, the windy colder weather that doesn’t invite a good ride, been too busy to eat right, blah blah blah. The real reason I’ve put on these pounds is that I lost sight of my goal.

Losing weight and paying off debt are both about changing our behavior. If our old behavior did not include overeating and/or under exercising we probably don’t need to lose weight. If we had not over spent in the past, we wouldn’t have the debt. When we get tired or anxious or somebody bakes delicious brownies, it becomes very easy to fall back into our old behaviors of overeating or overspending.

Step 1 – Awareness.

Ok, my knees hurt, my pants don’t fit and the scale is registering numbers I haven’t seen in quite a while.

You pull those credit card bills out of the mailbox and tally them up.

Are you now painfully aware? I know I am.

Step 2 – Give a hoot.

Do I care that my knees hurt and my clothes don’t fit? Yep, I do.

How about you? Do you care that you’ve backslid from your goal?

Step 3 – Give enough of a hoot to do something about it.

This is the hard one. Do we care enough to make the difficult choices to give up something we want right now in order to get something we want later?

It depends on what the later is. You and I both need to clearly define that long-term goal. You gotta make it something worth struggling for.

My long-term goal is to be fit enough to hike the Grand Canyon down and back with my grandchildren. Since I don’t have grandchildren and I don’t have any say in the when; I’ll have to choose an intermediate goal that I can attach a date to.

Here it is. On or before May 1, I will ride my bike on a single trip for 100 miles in less than 8 hours. OK, so maybe this doesn’t sound like a weight loss goal; but it is. There is no way I could do a century carrying extra weight without my knees (and maybe my lungs) exploding. So, to achieve this goal I need to: a) ride a lot in the coming 100 days and b) eat carefully. If I do those two things the weight should take care of itself.

As shorter-term goals I’ll do a 50 mile ride on or before March 5^th in under 3 1/2 hours and a 75 mile ride on or before April 2 in under 6 hours.

OK, that was scary; now it’s your turn. What goal are you working on?

What can you do in the next 100 days that will firmly put you back on track to your goal? What will you accomplish by March 5? And by April 2?

In the coming days every time we feel the urge to backslide, we need to visualize that long term goal. Are we really willing to jeopardize that goal for this immediate want?

OK, now that we’ve got our new goals in place, we need to commit to them. One way to do this is to tell somebody. I think I’ve got that covered; how about you? You could just leave it here in the form of a comment- that would work. Get your friends to log on and do the same. Let’s do this together.

Winners Quit

Recently I re-read Seth Godin’s book, the dip. In this little book, Godin writes mostly to business people about knowing when to quit a project. When he says, “Winners quit fast, quit often, and quit without guilt” it flies in the face of a lot of what we’ve been taught. Godin advises that winners quit when their path leads to a dead end – but to persevere when they are just in a dip.

This concept of winners quitting, is one that also works in realm of personal finance.

The key of course is knowing when to quit and when to stick.

For some situations, this determination is easy. If your income situation has changed for the worse, whether due to job loss, hours cut or a reduction in bonus, I have some no-fail advice for you: QUIT! Quit your old lifestyle – Today! Do not eat up savings or take on debt to maintain a lifestyle you can no longer afford.

Given the doom and gloom pessimistic economic news, it’s surprising that so many people can be so overly optimistic in their personal life. High earners are particularly susceptible to this problem. I get this and I’m also optimistic; but let’s practice a little planning for the worst. Do not let stuff drag you under; unload it and when you land that great new job you can always buy more.

For other situations, the determination is much harder. Here in Florida in early 2011, 46% of homeowners with mortgages have negative equity. Wow! That needs to be said again. Almost half of the people in Florida who owe money on their home, owe more than they could sell the home for.

If you are one of these families, how long do you stick?

People often need to move when they graduate, retire, marry, divorce, get a new job, have children, children move away, or for a myriad of other reasons. At one time as many as 20% of all Americans moved in any given year. Today, the poor housing and poor job markets have been a factor in greatly reducing that number.

Faced with either a legitimate need to relocate or the inability to realistically make the payments, many people choose to stick in their negative equity home way past the time they should have quit.

While I would not advise anyone to default on their mortgage just because the home value has dropped, I also would not advise someone to indefinitely postpone a needed move just because their home is underwater. (The “How you quit a negative equity home” is very important, but not the subject of this post).

In much the same manner as Godin advises business people to figure out if the path they are on is a dip, a cliff, or a cul-de-sec; if you feel stuck in a financial situation you need to calmly and strategically do the same.

Decide in advance when to quit.

The underwater homeowner who can no longer reasonably pay the mortgage may decide to commit “x” number of dollars of their savings toward keeping the mortgage paid while trying to land a better job or short sale the house. When the money is spent, it’s time to quit. Deciding in advance takes the emotion out of decision day and helps prevent quitting in a panic.

Will quitting now allow you to win later?

If a better job, life or family situation is on the other side of quitting, you may need to quit sooner than later. Carefully weigh the cost of sticking – waiting on the market to recover vs. quitting and starting new in a better place. The unknowns of the marketplace make this calculation very difficult but we do know that while you can make more money you cannot make more time.

Recognize the cliff

Be brutally honest with yourself. Put your what-if analysis on paper. Quantify it. Review it with someone you trust. If the path you are on leads to a financial cliff, its way past time to quit.

Remember, there is no prize for not quitting. People will not cheer your dogged determination if the end result is failure.

How to Say No

One of the fundamental principles taught to lifeguards is to protect their own life and health. This same principle is vitally important when a loved one asks you for financial assistance.

Rule 1: Protect yourself – you are no help to anyone if your drowning loved one pulls you under.

One important way to protect yourself is never to co-sign a loan for a friend or family member. This is very easy in theory but surprisingly hard in practice. When someone you care about comes to you and makes their case about how things will be so much better for them if they could just get this loan; it is very difficult to tell them no. Saying no feels like a vote of no confidence from you to them. As unsure as we are of exactly what our loved one needs, we can be certain they need someone to believe in them.

But, there is a reason they cannot get the loan without a co-signer; the cold hard statistical facts predict that they will default on this loan. Co-signing puts you fully on the hook for the debt and places your relationship in serious jeopardy.

Loaning money to our friend or family member in crisis is likely to have the same consequences as co-signing. They may not be willing or able to re-pay the loan; placing you in the uncomfortable position of playing debt collector to someone you care about. This is not likely to end well.

When faced with saying no to a loved one’s request for money, try one of these strategies:

Make your refusal to co-sign or loan money part of your personal code of conduct. This takes some of the sting out of your refusal. You are not refusing to co-sign this loan, you refuse to ever co-sign any loan. Stating this part of your personal code occasionally when the opportunity arises may save you from ever being asked in the first place.
Blame it on your financial advisor. No sane advisor has ever recommended co-signing a loan for a friend or family member.
Offer something you can do that will help resolve their issue “No I cannot so-sign that car loan, but I could give you a ride to work for a month”.

Your goals need to be to protect yourself, protect the relationship and to leave a door open in case they really need help – not just a quick solution. There is nothing wrong with giving money to someone in need as long as: a) you can afford it; b) you are fairly certain that giving will not just enable continuing their bad money behavior.

If you’re the kind that feels bad for saying no, stop! Chances are you did this person a great favor; a few more no‘s and they might just starting looking inward for the solutions to their problems.

What we need here is an Epiphany

When you were seven you said “Please” and “Thank you” and “Yum, these are the best beets I’ve ever had” to your Grandma – not because you meant it, nor because Grandma’s feelings were important to you; you did it because you were told to.

And somewhere along the growth chart you (hopefully) started internalizing those behaviors. You began to understand that kindness and manners are a display of respect and consideration for others. You learned that others mattered. But until you got to this level of understanding, you faked it.

Faking it is a perfectly acceptable way to learn wanted behaviors.

An epiphany is the opposite of faking it.

With an epiphany:

The 350 lb woman who, after years of battling the health problems caused by her weight, has an experience that causes a sudden intuitive leap of understanding that allows her to find the motivation to lose the weight.

The smoker who, for 25 years, ignores the pleas of their parents, their spouse and their children continuing to smoke until one day something said in an ordinary conversation causes a sudden intuitive leap of understanding, and they quit.

The family that happily bounces along acquiring debt and not saving until some ordinary but striking occurrence causes them to realize this is not smart.

You want to be healthy and you want your family to be financially secure; but you just can’t seem to have that ordinary but striking event to bring about a sudden intuitive leap of understanding.

It’s OK. Just fake it. You already know what to do. Eat right, exercise more, live on less than you make. Even without your epiphany, you may find your happiness.

The Whole Truth

Do you ever watch the TV program House? You know how he never believes anything a patient tells him?

“Everybody lies”, is House’s line. If people think they are telling the truth, is it really a lie?

In the world of personal finance, everyone is overly optimistic. If you ask almost anyone how much debt they have, unless they have none, chances are their estimate will be significantly lower than the actual number.

Awareness is the first step in initiating any change. Before we can solve a problem (if there is one) we must clearly define it.

Two numbers you should know, that is really know, not guess, are your Debt and your Net Worth.

To determine your net worth draw a line down the center of a piece of paper (or use excel). In the left hand column, we are going to list your assets in the right hand column your liabilities (debt).

Assets-What you own	Liabilities-What you owe
Checking	Credit Card #1
Savings Account	Credit Card #2
401K	Credit Card #3
Stocks	Student Loan
Home Value (www.zillow.com)	Mortgage
Car Value (Kbb.com)	Car Loan
Other	Owed to friends or Family
Total	Total

Now the trick here is to really do it. We are looking for the real truth here, not some optimistic interpretation of the truth.

Look up your balances, estimate your car value using Kelly Blue Book. Don’t go crazy trying to determine your home value just pick either Zillow or use your tax appraiser’s estimate.

Go to Annualcreditreport.com to get a free credit report, did you miss any debts?

Net Worth = Assets – Liabilities

Is you number positive (good) or negative (not so good)?

Either way your number is not you, it’s just a number that’s going to allow us to track your progress towards financial fitness.

The sum of you debt (liabilities) is the other number you want to track every month. As you use your income to pay off debt, your liabilities number will go down and your net worth will go up.

Write down these two numbers: Net Worth and Total Debt, along with today’s date and post them somewhere you can see them. Set yourself a reminder to do this exercise again next month.

If you really did the exercise – “WOO HOO! YEA YOU! CONGRATULATIONS!”; you’ve taken the first step towards financial freedom.

Good Debt vs. Bad Debt

In the world I grew up in there were two kinds of debt, good and bad.

Good debt was debt used to buy things that are going up in value, real estate, home improvement or education.

Bad debt was debt for depreciating stuff like clothes, vacations, dinners out etc.

Cars, even though they depreciate like crazy, got a pass and were ruled ok debt.

This is no longer that world.

In today’s world there is Bad Debt and Worse Debt and Toxic Debt.

Bad Debt is a 15 year fixed rate mortgage on a home that the payments are no more than 25% of your take home pay. How can this possibly be bad? It is debt. It has risk. It costs you money in the form of interest. It is as close to being “good” as a debt can get but let’s call it bad to remind us we want out of it as soon as possible.

Worse Debt is secured debt on rapidly depreciating cars, boats and other toys. In the old world, advisors would say a car loan was fine if paying cash would wipe out your reserves; after all you need a car. Depending on where you live and what you do for a living you might convince me you need a car, but you will have a very hard time convincing me you need a car loan. Buy a car you can afford. Can’t pay cash for a new car? Guess you don’t get a new car. Can’t pay cash for a 5 year old car? Try an 8 year old car. Maybe you really have to have a car loan but if so, it should be a very small loan on a used car and you need a plan to pay it off really fast.

Toxic Debt paying 12-25% interest on stuff that has virtually no resale value is financial suicide. You did not need the stuff in the first place. If you carry a balance on your credit card it proves you could not afford the stuff. Don’t buy stuff unless you can pay for it.

Another form of Toxic debt is the school loan. This is new world. The price of tuition has gotten so high and the lure of easy loans is so strong that many graduate with huge loans that are totally out of line with their probable earnings.

The Financial Aid Officer sitting across the desk from you is the devil incarnate. You are selling your future. Be very, very, very careful.

Wake up! If you have been living by the rules you were taught and you’re not winning, it’s because the world has changed.

There is no good debt and right now is a great time to assess how you can adapt and win.