Ten Big Mistakes #3: Lifestyle Funded by Credit Cards
Along my financial journey in life, I made a great number of mistakes. In this ten part series which runs from July 19 to July 30, I’m going to focus on ten of my worst mistakes and the difficulties and successes I’ve had in overcoming those mistakes.
I spent more than I earned and made up for the difference with credit cards.
It started in college. The bookstore offered a discount on textbooks if you signed up for a card. I signed up. Later, I used that card to buy video games, starting with The Ocarina of Time.
When I graduated from college, I had a small amount of credit card debt – nothing unmanageable.
Next came our honeymoon, a year later. I financed most of our honeymoon to London, Edinburgh, and Inverness on a credit card, nearly reaching the credit limit on that card.
When we returned, we furnished our new apartment with a new card. I bought some golf clubs and a bunch of electronics. I began to settle into a routine of buying books every week.
I remember buying a $500 crib for my son on credit in late 2005, going home, and attempting to pay bills. There was less than $500 in my checking account then and I really didn’t think anything of it until later on. I just kept rolling on.
The end result? By April 2006, I had accumulated around $20,000 in credit card debt. The monthly payments on that debt were actually higher than our rent. When you add car payments and student loan payments on top of that (as well as all the regular bills), we simply did not have enough money to continue to make ends meet.
The tricky part about this mistake is that it was actually just a series of small mistakes that I didn’t bother to fix. Every time I used credit to pay for something I couldn’t afford, I could have just said no. Every time I went through with buying something unnecessary, I could have been more frugal in other areas of my life and just paid for that indiscretion.
I didn’t do either one. Instead, I kept buying things that I couldn’t really afford. As the debt built up, I found that I could actually afford less and less because of the growing monthly bills, but it didn’t keep me from racking up more debt.
Why did I buy? There was a mix of things going on. Poor impulse control. Career-related anxieties. Lots of stress. All of these things were solvable on their own and buying things I couldn’t afford was merely a short-term salve for them. It was easy to forget that pain if I could go home and read a new book or play a new game for a while.
What can you do to avoid this trap?
The solution is simple: never, ever put a balance on a credit card that you can’t already afford to pay at the end of the month. The moment you do that is the moment you’re financing a lifestyle that’s beyond your means.
If you’re already in a situation where you’ve built up a large deal of consumer debt, start getting rid of it now. Yes, this means you’ll have to live quite a bit below your means for a while. The first place to start is by selling off all of the stuff in your closets and on your shelves that you never look at or use. If you have a CD or a DVD or a video game or another item that you’ve not looked at in more than a year, sell it. Use that money to hammer the debt. When you’ve done that, focus on minimizing your monthly spending – here are 100 such tactics – and roll the money you’re saving into a debt repayment plan.
Finally, deal with the other problems of your life head-on. Start wiping away the stress and the concerns. Focus on fixing broken relationships and moving on from ones that can’t be repaired. Deal directly with the things that are bothering you. Seek professional help if you cannot. Eliminate the stress and clear your mind to make better decisions with the resources you have.
Just remember that you can do this – and don’t beat yourself up over every mistake. Success isn’t perfect and it doesn’t come in an afternoon.
Continue reading Ten Big Mistakes #3: Lifestyle Funded by Credit Cards …
From The Simple Dollar.
The Simple Dollar Weekly Roundup: Playlist Edition
With all the road trips scheduled this summer, I’ve been thinking about a song collection that both my wife and I would enjoy on the trip. So, we’ve started co-curating one, where we each add 100 songs to a playlist, then we are each allowed to delete anything we don’t like from the list.
My wife doesn’t like to do this, so I’ve essentially been doing it vocally with her, asking her what she thinks of song X and song Y and she lets me know whether they fit or not.
The end result? The list is loaded with early-to-mid-90s “alternative” stuff. Soundgarden. Oasis. Pearl Jam. Jeff Buckley. Blind Melon. Collective Soul. Counting Crows. That’s the flavor of almost the entire list.
Guess our 2010 road trips will be like a road trip into 1995.
The Absolute Beginner’s Guide To Starting A Small Online Business Just a note: without a lot of hard work up front with no guarantee of compensation at the end, a small online business will never work. If you put in the footwork, though, you can actually build something that thrives. (@ zen habits)
The Incredible Shrinking Emergency Fund I think this makes sense, given the continuing high unemployment rate and the fact that emergency funds are there for emergencies – like joblessness, for example. (@ get rich slowly)
Thinking Small without Guilt: Setting Your Minimum Goal Standards The number one reason I fail at my goals is that I set them too high. Don’t try to lose fifty pounds. Try to lose five instead. Don’t try to completely reverse your spending – instead, shoot for saving $50 a month. (@ dumb little man)
11 things to do (and not do) when you’re burned out For me, the best thing to do when burnout occurs is something completely different than what it was that caused the burnout. (@ white hot truth)
Money Myth 1: “I Can’t Afford It!” “I can’t afford it!” is much different than “I choose not to buy it!” The former implies that you’re not taking a strong role in increasing your income, while the latter just implies strong spending sense. (@ pick the brain)
Continue reading The Simple Dollar Weekly Roundup: Playlist Edition …
From The Simple Dollar.
Pay What You Want
Let’s say you go to a restaurant somewhat regularly and each time you go, you spend about $10 on your meal. One day, rather than receiving a bill, you’re simply directed to a box on your table that said “pay what you want for this meal.”
Would you put in anything at all? Would you put in the usual $10? Would you put in less than that? More? Does it depend on the specific circumstances in your own life at the moment?
What is that meal worth to you?
The interesting part is that this is really all about negotiation. When a restaurant puts a price on the menu, they’re telling you what value they expect for the meal. You can either accept that value or simply go elsewhere.
Now, let’s say you prepare a meal at home. You choose what meal you want to make. You also choose what ingredients you want to use and how much labor you want to put into it. The end result? You pay a much more reasonable price for your meal.
The lesson here is simple. The more you do it yourself, the better the bargains are and the more your spending is in line with what you value.
The same principle holds true with, well, almost everything. Take The Simple Dollar, for instance. Almost all of the people who read The Simple Dollar pay nothing for the articles posted here – I make income from the site indirectly through sidebar ads and other writing opportunities brought on by what’s posted here.
But if I place a “Donate” button here…
… almost no one will click on it (yes, a few of you will, and yes, a few of you are awesome). Why? It’s a better bargain not to donate if you can already get it for free.
This is because of the same principle listed above. A blog like The Simple Dollar is a great value in seeking personal finance advice. Because readers “did it themselves” and sought out multiple sources of information, they found that a free subscription to The Simple Dollar provided more bang for the time and money investment than a subscription to an expensive personal finance magazine.
(Of course, I could change that value structure by charging for it, and some of you might continue to see the price as a good bargain for you, but many of you would not. Or I could write a book with new material not given away for free and some of you will choose to purchase it to accompany the site – again, a different alignment of value for your dollar and for your time.)
So what’s the point? The more you “do it yourself” and seek out lots of solutions to your needs in life, the better value you’ll find. If you just stop with the first option – say, a restaurant or a DVD series purchased off of an infomercial – you’re probably not finding the best value. Keep searching. Make a meal at home. Visit the library. Read some blogs.
If something is important to you, keep seeking value and you’ll find it. It’s a journey that constantly rewards you with better and better value for your dollar and for your hour. Good luck.
Continue reading Pay What You Want …
From The Simple Dollar.
Pay What You Want
Let’s say you go to a restaurant somewhat regularly and each time you go, you spend about $10 on your meal. One day, rather than receiving a bill, you’re simply directed to a box on your table that said “pay what you want for this meal.”
Would you put in anything at all? Would you put in the usual $10? Would you put in less than that? More? Does it depend on the specific circumstances in your own life at the moment?
What is that meal worth to you?
The interesting part is that this is really all about negotiation. When a restaurant puts a price on the menu, they’re telling you what value they expect for the meal. You can either accept that value or simply go elsewhere.
Now, let’s say you prepare a meal at home. You choose what meal you want to make. You also choose what ingredients you want to use and how much labor you want to put into it. The end result? You pay a much more reasonable price for your meal.
The lesson here is simple. The more you do it yourself, the better the bargains are and the more your spending is in line with what you value.
The same principle holds true with, well, almost everything. Take The Simple Dollar, for instance. Almost all of the people who read The Simple Dollar pay nothing for the articles posted here – I make income from the site indirectly through sidebar ads and other writing opportunities brought on by what’s posted here.
But if I place a “Donate” button here…
… almost no one will click on it (yes, a few of you will, and yes, a few of you are awesome). Why? It’s a better bargain not to donate if you can already get it for free.
This is because of the same principle listed above. A blog like The Simple Dollar is a great value in seeking personal finance advice. Because readers “did it themselves” and sought out multiple sources of information, they found that a free subscription to The Simple Dollar provided more bang for the time and money investment than a subscription to an expensive personal finance magazine.
(Of course, I could change that value structure by charging for it, and some of you might continue to see the price as a good bargain for you, but many of you would not. Or I could write a book with new material not given away for free and some of you will choose to purchase it to accompany the site – again, a different alignment of value for your dollar and for your time.)
So what’s the point? The more you “do it yourself” and seek out lots of solutions to your needs in life, the better value you’ll find. If you just stop with the first option – say, a restaurant or a DVD series purchased off of an infomercial – you’re probably not finding the best value. Keep searching. Make a meal at home. Visit the library. Read some blogs.
If something is important to you, keep seeking value and you’ll find it. It’s a journey that constantly rewards you with better and better value for your dollar and for your hour. Good luck.
Continue reading Pay What You Want …
From The Simple Dollar.
Pay What You Want
Let’s say you go to a restaurant somewhat regularly and each time you go, you spend about $10 on your meal. One day, rather than receiving a bill, you’re simply directed to a box on your table that said “pay what you want for this meal.”
Would you put in anything at all? Would you put in the usual $10? Would you put in less than that? More? Does it depend on the specific circumstances in your own life at the moment?
What is that meal worth to you?
The interesting part is that this is really all about negotiation. When a restaurant puts a price on the menu, they’re telling you what value they expect for the meal. You can either accept that value or simply go elsewhere.
Now, let’s say you prepare a meal at home. You choose what meal you want to make. You also choose what ingredients you want to use and how much labor you want to put into it. The end result? You pay a much more reasonable price for your meal.
The lesson here is simple. The more you do it yourself, the better the bargains are and the more your spending is in line with what you value.
The same principle holds true with, well, almost everything. Take The Simple Dollar, for instance. Almost all of the people who read The Simple Dollar pay nothing for the articles posted here – I make income from the site indirectly through sidebar ads and other writing opportunities brought on by what’s posted here.
But if I place a “Donate” button here…
… almost no one will click on it (yes, a few of you will, and yes, a few of you are awesome). Why? It’s a better bargain not to donate if you can already get it for free.
This is because of the same principle listed above. A blog like The Simple Dollar is a great value in seeking personal finance advice. Because readers “did it themselves” and sought out multiple sources of information, they found that a free subscription to The Simple Dollar provided more bang for the time and money investment than a subscription to an expensive personal finance magazine.
(Of course, I could change that value structure by charging for it, and some of you might continue to see the price as a good bargain for you, but many of you would not. Or I could write a book with new material not given away for free and some of you will choose to purchase it to accompany the site – again, a different alignment of value for your dollar and for your time.)
So what’s the point? The more you “do it yourself” and seek out lots of solutions to your needs in life, the better value you’ll find. If you just stop with the first option – say, a restaurant or a DVD series purchased off of an infomercial – you’re probably not finding the best value. Keep searching. Make a meal at home. Visit the library. Read some blogs.
If something is important to you, keep seeking value and you’ll find it. It’s a journey that constantly rewards you with better and better value for your dollar and for your hour. Good luck.
Continue reading Pay What You Want …
From The Simple Dollar.
Five Financial Problems We Struggle With
Given all of the things I write about on The Simple Dollar, some people tend to assume that all of this just comes easy for me and my family. To put it simply, it doesn’t. Just like everyone else, we struggle with decisions at times and find ourselves flailing at things that seem easy on paper.
Here are five things we struggle with.
Clutter / Keeping Too Much Stuff
I’m a collector of things that are important to me now, but I have no problem letting go of collections that I’ve grown away from. My wife, on the other hand, doesn’t collect as much, but she’s very sentimental about the things she has collected.
As a result, we run into problems where one closet in the basement is full of board games I’ve picked up at various sales, crowding out her box of She-Ra toys from her childhood that she keeps for sentimental reasons. A corner of our garage is devoted to several tubs full of “sentimental” items of hers that she rarely looks at but gets upset at the scarcest mention of tossing out or selling. Our son somewhat follows in his mother’s footsteps here, as the thought of getting rid of some of his most favorite toys freom his early childhood makes him very upset.
As a result, we simply accumulate too much stuff over time. On occasion, I go on large purgings of this stuff, usually with her blessing and a few rules as to what not to touch. Still, my feeling is that we have far too much stuff accumulated here and there throughout our home.
Assigning Tasks
My wife prefers to pay bills with a checkbook by looking at the statement, writing the check, and sending it in. I prefer to do that all electronically.
The end result is that several times a year, we both pay the same bill. She’ll pay the cell phone bill by check, while I’ll pay it electronically, and the next month we have a bill with almost a zero balance on it.
While this isn’t necessarily a terrible thing, it does mean that we’re losing interest on that money during the “extra” month and it also means that we could communicate better when it comes to such bill paying and basic planning.
Event Planning
Again, this is another “digital versus analog” conflict. My wife puts all engagements and appointments on a paper calendar in the kitchen. I do all of my calendaring on Google Calendar. This means that we need to sync the calendars on a fairly regular basis.
When that doesn’t happen, of course, there are problems. “You didn’t check the calendar? Today’s the day you’re supposed to pack a vegetarian sack lunch for Joe!” “Didn’t you see? I have a teleconference today at 2!”
Of course, the real solution is probably about two or three years down the road – a digital kitchen calendar that syncs with Google Calendar. I’ll be early in line for one of those.
Limits of Spending Choices
My wife and I are both strongly on board with spending less than we earn and, on the whole, we do a good job at achieving that goal. Of course, we each have different ideas on what some of the better choices on the fringe of frugality are.
My wife, for example, tends to be very picky about cleaning supplies, whereas I’m happy to clean with vinegar and baking soda. On the other hand, I’m very particular about the food we eat – I’ll choose organic milk, while she’ll choose the cheap milk.
If we were on the same page on these issues, we would probably save a lot more money than we do. But, since neither one of us spends money in any outrageous fashion, we let the other one have their way on buying decisions like these.
Long-Term Investing Risk
Sarah is far more risk-averse than I am. We’ve known this for years, but it really came up recently when we both took a quiz identifying what sort of investments our retirement savings should be in.
My investments suggested 95% of the money should be in stocks, with a good portion of that in foreign and developing country stock and in small cap stock. My wife? 40% stock, 30% bonds, 5% real estate, 25% cash. She’s thirty years old.
What we’ve done so far is to put her retirement savings in a portfolio that matches her risk and put my retirement savings in a portfolio that matches mine. Of course, since we’re tied together, that does mean that she’s exposed to more risk than she’d like and I’m more conservative than I’d like, but it’s worked fine so far – even through the 2008 bear market.
Continue reading Five Financial Problems We Struggle With …
From The Simple Dollar.
Am I Unhappy?
I talk to a newspaper, radio, or television reporter on the phone once a day on average. The topics vary all over the place, but they’re usually seeking a quote from the “author of 365 Ways to Live Cheap” for their article or report.
Usually, my response has to do with some financial discipline. I often talk about the many ways my wife and I have cut our spending. I usually mention the fact that our daily routine doesn’t involve much spending – we eat at home, I work at home, our children play outdoors a lot, and so on. I also often include the fact that we don’t indulge in luxury items that much, particularly new ones.
These revelations usually cause the reporter to ask some variation on the big question.
Are you happy living like that?
Absolutely. Here’s why.
I realized that the best way to spend your money is to spend it on time, not on stuff.
For starters, that means trimming your spending on material items. We just don’t buy as much stuff as we used to. Our entertainment budget is about 20% of what it used to be. We don’t buy gadgets very often any more. I wear my socks until they’re actually worn out. We buy many items in bulk and try to get every possible use out of them. The end result of that is that our normal routine of life is a lot less expensive than it used to be.
Many people, in that situation, would channel that extra money into more stuff. We choose to channel it into more time.
Because of these spending choices, I get to spend tons of time with my kids. I was able to switch to a job with a much more flexible schedule (writing) because we didn’t require the nice income from my previous job. Now, we go to the park, the Science Center, out in the yard, and do countless projects all of the time. These are things I simply didn’t have much time for until we took control ove our life.
Because of these spending choices, my wife will take a sabbatical from her job for a while to be a stay-at-home mother. She loves her job and wants to go back to it, but like me, she wants to spend a lot of time with our children, especially when they’re young. This would have been impossible a few years ago – we “needed” the money too much.
Because of these spending choices, I have the time to learn new things. I’m learning to play the piano. I’m steadily improving as a fiction writer. I’ve become very adept in the kitchen. I’ve been able to tackle some extremely challenging books and really stretch my mind. Back in the day, I would have never had time for all of these things.
My life is more rich not because I can afford more stuff, but because I have more time. I’m able to have that time because I applied some financial discipline to my spending.
To put it simply, I stopped trading my time for more stuff that I didn’t have time to adequately enjoy. The first step in this journey, of course, is financial discipline, and it can be hard. But when you reach a point where your debts are taken care of and you’re spending far less than you earn, you begin to see a huge world of opportunities before you. You can move into work that matches what you want in terms of professional challenge and time flexibility instead of whatever work pays the best.
That might not be the result that everyone wants – or even that most people want. I certainly know people who seem very happy with the material items that they have.
I just know that because I took control of my spending and installed some financial discipline, I was able to find a lot more of the one thing I wanted most – time. And I couldn’t be happier with it.
Continue reading Am I Unhappy? …
From The Simple Dollar.
“Superman Syndrome” Revisited: Money and Self-Esteem
Two years ago, I posted a nice long article about what I call “Superman Syndrome” – a tendency for people to try to demonstrate their worthiness to others by buying things for them.
Just yesterday, a reader emailed me about that article:
Superman syndrome is just another example of poor self-esteem and how it can entrap you and your money. It’s no different than keeping up with the Joneses or anything else like that.
It’s true. We only need to impress other people if we feel that somehow we need to impress them, that we don’t have enough already on the table to make them happy and make them want us.
Do you buy clothes because they fit you well and keep you warm, or do you buy them based on how they impress others?
Do you buy electronic gadgets because they fill a real use in your life, or do you buy them with an eye towards showing them off to your friends?
Do you go out to dinner and pick up the tab because there’s a real reason to do so (like you’re treating someone for a special occasion), or are you thinking about how it’ll butter someone up?
Do you throw money into redecorating because it’ll improve how you feel about your living quarters or do you do it to impress and stun your guests?
In other words, is your personal worth based on what you value or what you think others value?
For most of my life, I placed an inordinate amount of value on what others thought of me. I was only cool if others thought I was cool. I was only worthy if others thought I was worthy. Thus, I would strive to make others feel as though I was cool so that, by osmosis, I would feel as though I was cool.
The end result was that I would constantly spend money to make others think I was somehow cool or worthy. I’d take people out to dinners. I’d buy gadgets based largely on impressing others (”This one would be fine for what I need, but this higher model… that’d impress ‘em!”). The list goes on and on.
There are lots of problems with that kind of attitude, of course. I’ll just outline two of the most relevant ones.
First, other people are fickle. You might impress someone one day, but the next day it doesn’t matter. Why? Once a person’s opinion of you is set, it takes quite a lot to alter that opinion, and it’s a change that you usually can’t buy. Sure, in the short term, you can get their attention with something shiny and new, but they’re fickle and they’ll soon revert to their already-established view of you.
Second, the only person that you always have to live with is you. At the end of the day, when you close your door, you’re the only person there. All of the cash you’ve spent trying to impress others has turned out only to drain away the resources you need to do the things you want. You’ve got a shiny car and a lot of cool gadgets that impress people, but when you close that door at night, do you have the life and the career that you want? Are you fulfilled when you’re alone?
It took me a long time to realize that I often wasn’t fulfilled when I was alone – and that, underneath the bravado, the shiny things I owned, and my material generosity, others knew it, too. Their opinions of me weren’t made of the things I bought (for myself or for them), but from my personal character.
Spending time with someone, genuinely listening to them, and helping them when you can (usually in non-material ways) goes far more towards building a positive reputation with others than throwing cash at them – or at things to impress them – ever will. Even better, you can save your financial resources to put yourself in a better position in life, doing whatever it is you dream of doing.
Continue reading “Superman Syndrome” Revisited: Money and Self-Esteem …
From The Simple Dollar.
The Framework
We all have lives that are chock full of distractions.
Television. Radio. Magazines. The behavior of other people. The comments of our friends and family. We use all of these things as cues for how we should behave. Often, we even try to think ahead about these things and use them as a behavior guide.
I’ll hear my mother’s voice all the time, for example, when I’m at the grocery store. I’ll think about my friends and their reactions when I look at cell phones. You can’t help but get at least a few cues planted in your head when you read a magazine or watch a bit of television – beyond the ads, the material itself puts such ideas in your head.
All of these cues add up to a big influence on our decision-making process.
There’s another big factor, too – the short amount of time we have for such decisions. We make thousands of little choices each and every day. In order to make so many snap decisions, we have to rely on our almost instinct-like quick thoughts to make many of them. We don’t spend ten minutes at the grocery store comparing two different versions of the same item. Instead, we combine together the cues we have in our head – and various pieces of information about the state of our life, from what we have in our kitchen to what we have in our bank account – and make an instantaneous decision. We put an item in the cart and keep going.
This quick decision phenomenon is simply a constant in our lives. A day doesn’t go by when we aren’t making hundreds, if not thousands, of them. At the same time, we have countless cues about what decision to make thrown at us around the clock.
The end result of all of this information and all of these choices is that it’s incredibly easy to make some poor choices along the way. Every single person does it. I do it (particularly when I’m in a bookstore, for example).
Here’s the big secret, though. The big framework for personal finance success is to override those cues in our decision-making process.
How does one do that?
First, you have to spend some time figuring out what’s truly important to you. This is purely a soul-searching adventure, but for most people, there’s a group of one to four things that really form the center of their lives. These things bring them lasting happiness and fulfillment.
It can be a real challenge to find these things. There are many things in life that seem to fulfill us at first glance, but really don’t bring any lasting joy. I put them into a category I call “time fillers” – things we do that fill our hours without really fulfilling us.
Spend some time teasing apart the things that really matter from the things that don’t. One great way to start is to ask yourself what your most enjoyable moments and things of the last year were. Make a list of them and start looking for commonalities. My list quickly fills up with great books I’ve read and moments spent with my family, for example.
Second, isolate what’s really at the center of those things. Again, for me, it’s my family and reading/writing. Those things are really the two things I’m most passionate about with my time.
Let’s dig a little deeper here with the reading element of things. I love reading books and, for a long time, I confused that love of reading with a love of buying and owning books. Thus, I would go to bookstores and allow that passion for reading to take over, causing me to way overspend.
In truth, though, it’s the act of reading that I love. I really don’t care much at all whether I own the book I’m reading or whether it’s a library book, or whether the book is used or new.
Once I realized that, my bookstore spending went down. Way down. Instead, I started doing most of my book browsing at the library or on PaperBackSwap.com or in my friends’ book collections.
Once you’ve figured out those true key central values in your life, use them as the first filter for everything that you do, especially spending money.
When I go to the grocery store, for example, the first thing I ask myself is whether or not my family will get genuine value out of this item. Thus, my shopping starts in the fresh produce area (and I shop at farmers markets during the summer).
Does my family get genuine value out of “premium” toilet paper? Not really. Then why spend more on it?
Does my family get genuine value out of a new digital camera? My old one takes great pictures. So why spend the money on it?
Does my family get genuine value out of a round of golf on the weekend? Maybe once or twice when I take my son and/or daughter out with me, but not every weekend, not by a long shot. So why spend money on this, especially when there are much less expensive ways to relax?
Here’s the big idea: once you’ve figured out what really matters in your life, start passing everything you do through those filters. Cut your spending hard on the areas that don’t matter and you’ll find that you have the money you need for the things that do matter, plus you’ll be able to be debt free and start building up savings for yourself (which itself is a protection for the things that matter most to you).
Note: I’m giving a talk on Monday evening concerning the above topic. As I was sketching out the notes for the talk, I decided it would make a pretty good post, too.
Continue reading The Framework …
From The Simple Dollar.
Review: One Year to an Organized Financial Life
Every other Sunday, The Simple Dollar reviews a personal finance book.
The title of this book pretty much sums it up.
One Year to an Organized Financial Life by Regina Leeds basically lays out a week-by-week plan for getting your financial house in order. The book is divided into twelve chapters (months), each containing four subsections (weeks in a month), and each of those sections details how to take control of a specific aspect of financial life.
The end result is something that feels very much like a detailed plan to follow. Personally, such a plan gives me mixed feelings – while it’s great for a person who just wants to be told what to do, I’m a big believer in understanding your finances and your motivations and, at times, this book feels more like a “just follow these steps” kind of guide than a “understand what you’re doing” book.
The big question, though, is whether the information is worthwhile. Let’s dig in.
January: Take Control
More than anything, this opening chapter focuses on information management. Quite often, people’s personal information is in a very unorganized state, with cards and receipts jammed in purses and papers tossed into boxes and filing cabinets. The solution? Start from scratch. Clean out your purse and figure out a good place to put that stuff. Start a real financial filing system. Even more important, go through your mind and start asking yourself why you make the choices that you do.
February: Assess Your Finances
This month is all about creating a budget. The process is standard by now: record all of your expenses, then parse them into groups that make sense to you, then from there figure out what you should be spending in each category and shoot for that new target. My concern here, though, is that to set up a really accurate budget, you need more than just a month. You have to record your expenses over a longer period of time than a mere month to get an accurate grasp on your money. Although the procedure here makes sense, stuffing it into such a short timeline does not.
March: Get Ready for Taxes
This chapter summarizes the process of doing your taxes. Collect your documents and your relevant receipts. Decide whether or not to use a professional or do it yourself. Then, take the plunge – fill out the paperwork and file. It’s a process that most of us (painfully) have to go through each spring. A big key suggested here is to start a filing system now to store all tax-related documents throughout the year so that when you do your taxes the following year, all of the receipts and other materials you need are ready to go.
April: Spend Less, Save More
Frugality is the buzzword here. This chapter focuses strongly on cutting your expenses – much of the advice is right in line with the ongoing “Trimming the Average Budget” series on The Simple Dollar. Hand in hand with that kind of trimming, though, is the need to actually save what you’ve been cutting, because the tendency often is to take that money and spend it on things that you seemingly couldn’t afford before, thus raising your standard of living and sticking you right back in the spot you started in.
May: Borrow Smart
Leeds covers the ins and outs of borrowing money here, largely supporting the good debt, bad debt dichotomy. The advice is smooth and straightforward: trim the “bad debt” (high interest debt) as quickly and efficiently as you can and don’t take on any more of it. Leeds does subscribe to the idea that “good debt” is largely good and mostly focuses on shopping around for home loans and auto loans, but as time goes on, I’m less and less of a fan of any kind of debt.
June: Build a Nest Egg
Retirement savings are next. Leeds’ advice is pretty straightforward: max out your 401(k) and then run the numbers to see if you need even more using a reliable retirement calculator. She also advises against underestimating what you need for retirement, making it clear that you’re better off with more than you need at retirement time than not enough.
July: Make Long-Range Financial Plans
What about your other long-term savings goals, like saving for your dream home? Leeds encourages most people to get a financial advisor for this task. On the other hand, given the great tools available on the internet, I think that most people today can actually handle their own long-term savings. The big keys are to make sure you’ve clearly specified your goals and to automate your savings so that it’s building on a regular basis over time without your manual intervention.
August: Refinance and Downsize Options
Sometimes, the old home mortgage gets to be overwhelming. In those times, refinancing and downsizing are two choices that people usually consider, and Leeds walks through these optiosn here. Ideally, of course, the tactics from the earlier chapters have put you in a better place with your money so that this isn’t a worry. A big key: maintain your good credit. Put a priority on maintaining a high credit rating and things like refinances will go much easier – plus you’ll find that your insurance rates are lower.
September: Children and Money
This chapter is of particular interest to me, since I’m a parent and I enjoy reading ideas for teaching good money values to my kids. Leeds suggests giving your child as much practice as possible with managing their own money, from an allowance to a job in their teen years. For college, parents should start a 529 as soon as possible and, perhaps more importantly, should get their children actively involved in saving and preparing financially for college.
October: Protect Your Assets
Here, the book felt perilously close to insurance salesmanship, as several different types of personal insurance are pushed hard. Leeds also encourages people to pay more in order to lave lower deductibles on their medical bills, which actually is a policy that I feel runs contrary to the advice given elsewhere in this book. After all, when you have your financial house in order with a nice emergency fund, you can afford the higher deductibles, so you should save on the premiums if you can on your health insurance.
November: The Season for Sane Spending
How do you keep your holiday spending under control? The best way to do it is to plan your shopping carefully. Instead of heading into the store with a head of steam and a big list, spend some time coming up with great gift ideas for each person you need to buy for, then researching how to get those items for a great price. Don’t let your impulsiveness run the day or you’ll find yourself spending a lot more than you ever intended to spend.
December: Year-End Money Moves
Most of the year-end money moves involve reviewing your spending and financial activity over the course of the past year (an awesome idea) and preparing for your taxes by doing things like harvesting any investment losses by selling now and making sure your charitable contributions are taken care of and adequately recorded (another great idea). In short, you should end the year by making sure all of your ducks are in a row and ready to set sail for the next year (and the coming tax season).
Is One Year to an Organized Financial Life Worth Reading?
One Year to an Organized Financial Life doesn’t offer many new ideas, perspectives, or angles on personal finance. Instead, what it offers is a clear organizational scheme – a very thorough step-by-step plan for people who simply prefer to have a plan to follow. In that regard, One Year to an Organized Financial Life is a home run.
I think what it comes down to is this: do you learn better by figuring things out for yourself, or do you learn better by following the patterns that someone else has set in place? If you’re in the former group – and I’d put myself there – One Year to an Organized Financial Life won’t do much for you. If you’re in the latter group, One Year to an Organized Financial Life will be an incredibly useful read.
One Year to an Organized Financial Life depends more on the reader than on anything else, as it provides exactly what the cover promises: a one year, step-by-step plan to financial organization.
Continue reading Review: One Year to an Organized Financial Life …
From The Simple Dollar.