Change your Thinking – Page 9

Radical Changes

Yesterday, we looked at Dave Ramsey’s 7 baby steps; these are steps almost everyone can follow. If you have an income, a reasonable level of commitment and some patience, you can make some real progress at becoming financially secure.

So what if you really want to go crazy with this thing? If you have a very early retirement as your goal, you might want to read what Jacob Lund Fisker has to say. Mr. Fisker has a 21 day makeover plan to get you on the path to save 75% of your income and retire extremely early. This guy is really smart. His is also way out under the long tail of our graph.

If you are willing to start questioning why we live they way we do; try:

The forest versus the trees Early Retirement Extreme: — written by Jacob Lund Fisker

In this blog Fisker explains how the actions of his deliberate and planned frugality interact.

Dump Stuff is a suggestion that Fiske makes early in his 21 day plan. He contends that a too big, too expensive house or apartment is one thing holding people back from achieving their goals. People buy or rent too much home so they have a place to put their stuff.

Small & Close are the words to have in mind when looking for a place to live.

Save Time & Money – Live close to work, recreation and shopping. You will save time and money on your commute and may be able to get down to one, or no cars.

Be Happy & Healthy – Walk or bike that commute to decrease your stress and improve your health. Spend some of that saved commute time cooking healthy real food.

Each of these actions has a benefit by themselves, but done together a real money saving synergy is created.

If we look at the opposite of the life he describes, we have a huge house in the suburbs, where no one can walk to anything.

Both parents must work to pay the mortgage, insurance, taxes and upkeep of our big house.

Commute times and costs are so high that three nights a week dinner is from a drive through.

The kids spend more time in the car shuttling from school to activity than they do playing outside.

At night the family zones out in front of their 52 inch 212 channel TV. No one has time to nurture relationships and everyone’s health suffers from lack of exercise, stress and poor diet.

How about that, we started off trying to save your money and instead we might just save your life.

Golden-Crowned Flying Fox

Recently while doing some research, I read a parent’s statement about teens and student loans, “Very few if any teens have any conception of what it means to have a loan or repay one. It’s just magic right now, you sign your name and money appears.”

I totally agree but I think we can amend the statement to read “Very few if any teens people have any conception of what it means to have a loan or repay one. It’s just magic right now, you sign your name and money appears.”

Teens are not the only ones that make life-altering decisions armed with almost no knowledge of the subject. Adults do it all the time.

How do you know what you know?

If I asked a group of my friends what they know of the Giant Golden-Crowned Flying Fox, most would reply nothing but let me google that.

Ask that same group what they know of student loans or home mortgages or car leases and they would admit to some knowledge on the subject. After all, these are things they’ve done, their parents did, their friends and neighbors do.

When I amended the statement to read, “Very few if any teens people have any conception of what it means to have a loan or repay one.” I didn’t mean most people have never had loans. Most people have taken out loans and most people have paid off some debt. However, most people, maybe even you, have never sat down and studied what that debt costs them.

Being familiar with a subject is not the same as being knowledgeable.

If you’re thinking of leasing a car, have you actually done a cost comparison? Put real numbers on a spreadsheet – including risk.

If you think keeping your mortgage is smart because of the tax break, have you computed those savings?

Let’s assume you have a $200,000 balance on your mortgage at an interest rate of 5%, that’s $10,000 a year that you pay to the bank. If your income puts you into a 25% tax bracket, then not having a mortgage (or interest to go with it) means you pay $2,500 to the government on that extra $10,000 in the form of taxes. Do you really think it’s smart to pay the bank $10,000 so you don’t have to pay the government $2,500?

When it comes to your future security and freedom, you need to treat every decision like the subject of the Giant Golden-Crowned Flying Fox. You don’t know enough. Get online, get out the calculator or the spreadsheet and prove to yourself what you think you know. Read differing opinions and make your decision based on real information.

The Two Yous

You suffer from a split personality.

There is the “Thinking You” that wants to lose weight, stop smoking, read books or save money.

Then there is the “Impulsive You” that eats cake, smokes- but only when drinking, watches hours of mind-numbing TV or can’t resist a $6 Starbucks on the way to work.

The “Thinking You” is always yelling at the “Impulsive You”: “Have some self-control.”

“Smart You” may win for a while but when you’re tired, or hungry or lonely or sad, YOU are going to lose.

Keeping a grip all the time is exhausting. It’s no fun and it doesn’t work. It is true that once new habits are well established things get a lot easier, but in the beginning before your desired behavior is a habit, it can be a battle.

So, how do you win? Easy, you cheat.

If you need $150 a paycheck to go into savings to cover those non-monthly expenses like insurance, taxes, vacation and Christmas you have two choices. You can cash your check and wrestle “Impulsive You” for the $150 or you can, either through direct deposit or automatic transfer, have the money put where it belongs before you ever see it.

If the morning Starbucks is not in your budget but you routinely find yourself there, try one of these solutions:

If you can budget one a week you may be able to pacify “Impulsive You” by saying we’ll stop on Friday.

If your to-go cup is full with really good home brewed coffee when you leave the house, there is less reason to stop.

Can you take another route? Maybe pick up a co-worker on the way and enjoy some conversation instead.

Nobody knows “Impulsive You” like “Thinking You”. Plan around your temptations. Self-control is not an endless resource. At any given moment you’ve only got about a cup of it, use it up and you are at “Impulsive You’s” mercy for the rest of the day. When you know a situation saps your self-control, avoid it. Automate important or difficult processes so you don’t need to re-make your decisions every month.

Remember the kids that stared at the marshmallow? They ate it. They used up all their self control and the marshmallow was still sitting there, so they gobbled it up. The successful kids distracted themselves by looking away or singing songs.

Take a lesson from the 4-year-olds and learn to distract the “Impulsive You”.

Need a ride?

This is a graph.

Let’s call it our “How People Get to Work Graph”.

Most people live under the big fat part of the graph. They are driving financed or leased cars to work. They are obligated and indebted. They are normal.

Normal Sucks. (Please remember this highly technical financial phrase; it can make you rich).

If we move just a little to the right, we find people driving their paid off cars to work. These people are not entirely normal, they are not indebted (at least not for their car) and they have given themselves a chance to win. Dave approves of these people’s transportation.

Out to the right a little further, we might find two or more people car-pooling, sharing their transportation expense. Most of you are still with me here, that’s a scenario that you can wrap your head around.

But let’s go way out under the long tail. Here we can find people who have sold their car. They don’t have a car. They don’t have car insurance or maintenance or parking or gas expenses. They don’t have finance costs or depreciation draining their net worth. They are car-free. These people are way Beyond Dave.

Could you do this? Before you answer please notice I have my fingers in my ears. Go ahead a rattle off your 52 rationalizations why this is crazy and the people who do it are nuts and why it would never work for you. Done?

The average American spends nearly 20% of the income on transportation. Twenty percent, how much is that for you?

Edmunds True Cost to Own can give you an idea what it really costs to own different models.

These people without cars plan to live without cars. They live relativity close to work. This means not only do the save on transportation costs, but they may also save on commute time as well.

What would more time at home mean to you?

Would it mean you could get a load of wash done in the morning so everyone is less rushed and stressed in the evening? Would it mean you could cook dinner more often instead of picking up unhealthy and expensive drive through food? Could you get an extra hour with the kids?

Add this value to your twenty percent.

So, how do you get to work if you don’t have a car?

Buses, trains, subways and car pools work in some places.

Electric Bikes, bikes and walking work in others.

A combination of any of the above works in even more places.

I commuted by bike 10 miles each way for a number of years. I usually rode at least 3 days a week. It was good for my health and good for the budget. It wasn’t as good as being car free but it was much better than normal.

How far can get you from normal?

I Stepped in Something

Phew! I can tell. Go clean it off and let’s keep walking.

Simple, right? You make a mistake, fix it. You make a mess, clean it up. Not later. Now. Set things right so we can keep going.

When it comes to money mistakes, many seem to be reluctant to clean up their messes. They stick their head in the sand and wait for the problem just to go away.

The stupid new car purchase is a decision that many make and refuse to correct. The ridiculously high payments strain their budget, their relationships and their lifestyle. Rather than taking the hit and getting out of the mess, some people continue doggedly watching the resale value drop. All the while, their ability to get some traction on their goal is lost.

Maybe you’ve made the “too much house” mistake. If your house or rent payment is much more than 25% of your take home pay, you may survive but you cannot prosper. If in the near term you cannot increase you income you’ve got too much house. The real question is what are you going to do about it?

The same question must be asked of credit card balances. You can rant about the increased interest rates, about the higher minimums and the unscrupulous companies but what are you doing to get out?

If you took out a student loan last semester and now are starting to understand this may not be smart, don’t automatically accept one this semester. Just because you started down the wrong path doesn’t mean you can’t turn around.

Mistakes happen. If a lapse in judgment allowed you to make a money mess, forgive yourself, clean it up and let’s move on.

5 Ways to use your Money to Ruin your Relationships

Hide spending, income or debt from your significant other
Give the kids everything they want or might want someday
Co-sign a loan for anyone you care about
Loan money to someone you love
Wait to be happy until– (you’re out of debt, you’ve saved enough, you make more etc.)

Even Snake Charmers get Bit

I’m a Dave Ramsey follower, a fan, a true believer. I have no doubt that his simple personal financial process changes lives. I know it has changed mine.

It works whether you make 24K or 240K a year. It works if you are deep in credit card debt or if you’ve never borrowed a dime.

But even I can occasionally get the But Dave’s. If you’ve ever listened to his radio show, you’ve heard the But Dave’s. People call in and say I get the process and I agree – BUT. They think their situation, intelligence or self-control is so different than everyone else’s; they should be given a pass on some Dave principal.

One of the most common But Dave questions involves the use of credit cards. Dave is very clear–you should NEVER use a credit card. He refers to credit cards as snakes and warns if you play with snakes you’re going to get bit.

But Dave, I pay it off every month.

This is where I was when we started Dave’s program. We had debt but not credit card debt. I was however, always living on next month’s paycheck. I lived on my American Express, put most of my recurring bills on it and then sent them a huge piece of my paycheck the 1^st of every month.

Getting off this cycle was not easy but it helped a lot.

Once I quit using the card, I had control again of my check. I could plan what to do with the money rather than react to what I had already done.

I spent less. It’s a proven fact you spend more when using a credit card.

While I quit using my cards for personal use, I continued using my American Express for reimbursable business expenses. From software, to continuing education classes for the employees, to computers and client gifts; as a key decision maker at a very busy insurance agency, my card got used a lot. It was convenient, it was easy, and above all it was stupid.

When the owners of the agency and I agreed to part ways, it was not easy or comfortable. They were angry and insulted that I had refused their new contract and yet, they asked me to stay through the end of the year. I agreed not wanting to hurt the agency or the employees. For six weeks, our relationship deteriorated. On my last day, having completed all I promised, I left without a reimbursement check.

My reimbursement was paid. But it wasn’t be until my blood pressure maxed out and the “boys” demonstrated to their own satisfaction their absolute power.

What did I learn?

It is stupid, expensive, risky and unnecessary to use credit cards. If you can’t pay for it, wait until you can.

It is light-years beyond stupid to use your credit card for someone else’s stuff. If your employer can’t find a way to pay for their own stuff AND your travel expense without using your credit – start looking for a new job.

Appearances

Keeping up appearances is one of the reasons people get into, and stay in debt – they are living beyond their means. Dave Ramsey says, “We buy things we don’t need, with money we don’t have, to impress people we don’t like.”

You have probably spent your whole life learning this “need” to impress, and it is surprisingly difficult to change.

I see two year olds sporting Nike and Ralph Lauren; so if a good part of your decision making involves what others might think, let’s get the blame thing out of the way. It is your parents’ fault (just kidding, Mom). Now let’s start looking for ways to change this.

We have been proudly on our “austerity” program for some time as we worked to pay off our debt, build our emergency fund, and finally pay off our house. We’ve been killing it, living on a tiny percentage of our income and very happy doing it. We do not feel restricted or deprived. Many of our friends and family know what we are doing and although they sometimes poke a little fun, they are for the most part very supportive.

So given this and the fact that I think I’m way past spending money to impress others, what was up with my GT soda explanation? We recently had some family over for dinner including a favorite aunt and uncle that I don’t often get a chance to see. As I served our guests refreshments, I found myself giving a lengthy explanation of my Aldi (discount groceries) brand diet cola. I do believe I was a little embarrassed to be offering an off-brand soda to people I care about.

How silly is that? These people have known me all my life, I’m certain whatever they think about me would not have changed based on the brand of a cola.

It’s an important to be aware how much this concern of what others might think controls our decision making. Before last night I would have said none, but apparently the real answer is some.

If you find yourself at the car lot because your car isn’t new a enough or nice enough for your friends – STOP. What do you think? What financial goal are you currently working on? Will a new, or new to you, car advance or setback that goal ?

The objective is not to take all emotion out of decision making but to create an internal dialog where we catch ourselves before making choices that conflict with our goals.

Build yourself a list of the thoughts that trip you up and check your thinking before making choices.

“Self, I’ve noticed that you still tend to make some decisions based not on what will lead you to your goal, but based on what others think. Is this one of those decisions?”

“Self, Seems like sometimes what you really, really want today – you lose interest in by next week. Is this one of those decisions?”

So easy peasy, now that we know you’re predisposed to want things to impress others (that’s your parents’ fault remember), all you have to do is be on the outlook for choices that don’t move your goals forward. Question your choices and rethink these stinking thinking decisions; you’ll be richer for it.

Be Here

Where are you right now? Are you really there or are you somewhere else? I recently spent a day with a college freshman. I spent it with her but she definitely did not spend it with me.

I get the feeling that while she spends some weekends on campus, she isn’t really there either. With her eyes and thumbs tied to whatever is going on inside her phone, she drifts along, not attending at all to the here and now.

If you’ve spent much time around teenagers lately this probably doesn’t surprise you. But you might be wondering: “What does this have to do with my money?”

The answer is a lot. If you are not winning with your money; if you don’t feel like you have a handle on things or you’re not achieving your financial goals, chances are, in this arena you’re just another teenager with a Smartphone.

PAY ATTENTION!

No one is going to care more about your future or your money than you; so start caring. Turn off the phone, the facebook, the twitter and the TV and take a moment to evaluate where you are and where you are going – financially.

Check off Ramsey’s steps as you complete them.

Determine your net worth NOW and update it every month.

Start thinking about what it means to be intentional and present.

Did you eat your marshmallow?

Winning with money is more about behavior than knowledge.

Plenty of very smart high earners do a poor job of building wealth. I know, because I was one of them. They typically out-earn their “stupid” behavior right up until they hit one of life’s speed bumps. I was lucky and got my wake-up call before wiping out.

If you’re not winning, it’s not because you lack intelligence. If you’ve tried to work a plan in the past and have been unsuccessful it could be you’re lacking some self-control. To fix that all we need is a bag of marshmallows.

Oh, The Temptation from Steve V on Vimeo.

In the 1960’s Walter Mischel conducted an experiment to measure the self-control of preschoolers. The kids were given one marshmallow and were told they could eat the one marshmallow now or if they could wait they would be given a second marshmallow. Turns out those who waited were, in later years, more dependable, better adjusted and scored higher on their SATs.

The cool thing that is rarely mentioned about the marshmallow study is that Mischel, in later studies, was able to teach the kids some simple mental tricks that dramatically increased their self-control when measured by the candy test. Mischel found that the kids that stared at the marshmallow could not resist, but those that looked away, sang songs and distracted themselves could. One successful trick Mischel asked the kids to try was to pretend that the temptation was only a picture. When they kids employed this trick they could wait 15 minutes.

Mischel says. “Once you realize that will power is just a matter of learning how to control your attention and thoughts, you can really begin to increase it.”

So this means if you have car fever stay out of the showrooms, you shoe collectors stay out of the shoe store, unless you selling stuff stay away from ebay.

You don’t need an iron will. You just need to focus your attention and thoughts on something other than your temptation.

Do you want one marshmallow or two?

Click to read more about Mischel The Secret of Self-Control.