"To make a million, start with $900,000." - Morton Shulman

SavingAdvice.com Blog

Bridging the gap between saving money and investing

personal finances

Money and Weight Loss: Getting Past the Plateau

By Leave a Comment

Getting your finances in order is a lot like weight loss. You start off great in the beginning. You drop a lot of debt quickly. It’s almost too easy to cut expenses. You realize that you’ve got lots of things you can cut and you eagerly drop unwanted services, renegotiate bills, stop eating out, and stop shopping so much. Then the day comes when it’s not easy anymore. All of the big cuts have been made. You feel like there’s nothing left to cut and nothing left to do. However, you may still have debt to pay off or other goals you want to reach, but it’s not so easy now. You’ve hit the plateau. As with weight loss and those last fifteen pounds, there’s more work to be done but it doesn’t seem possible. You may even want to give up.

Don’t let the plateau get you down. You can get beyond it, but you’re going to have to work harder. The first thing to do is to be really honest with yourself. Have you really made all the cuts you can or is there something you’ve been holding on to? Pull out all your expenses and study them. Look for little things that are slipping in, or big things that you’ve overlooked (either accidentally or intentionally). Cut what you find. Chances are you’ll find at least one thing to cut.

Second, it may be time for big sacrifices. If you’re still struggling, it may be time to do some things you don’t want to do. It may be time for a second job. Maybe you have to pull the kids out of private school. Maybe you need to get a smaller house or learn to live with one car. Maybe you have to give up your annual vacation. These things are called sacrifices for a reason. They aren’t fun and they are a big deal. However, giving them up may get you past your plateau and back on the road to your financial goals.

Third, challenge yourself more. If you want to lose weight, you have to challenge yourself with ever harder and longer workouts. You can’t just do the same routine and expect it to have the same effect. Same with finance. Shake things up periodically and challenge yourself. See if you can funnel an extra ten dollars a week into savings. See if you can put an extra $50 onto a debt. See if you can reach that big goal like paying off the mortgage. See if you can cut your power bill by twenty percent. See if you can live without something (like cable) that you don’t think you can. Think of a challenge and then try to meet it. You can always adjust your challenge if it’s too hard or too easy. These challenges make you stronger financially because you’re forced to make new adjustments and work on new skills.

Finally, make new goals. Maybe your goal was just to pay off a credit card. When that’s done, make a new goal and strive for it. Maybe now you aim to pay off the house. Maybe you have other areas to work on like retirement or estate planning. There’s always something to work towards so never find yourself without a goal. That’s a sure way to keep your financial situation exactly the same.

A plateau is disappointing and frustrating, but it doesn’t have to be a reason to quit. You can get past it with some extra thought and work. Soon you’ll find your finances are improving again and you’re learning new things.

Don’t Let The Media Color Your Financial Picture

By Leave a Comment

If you turn on the TV or read a newspaper, you’re likely to be confronted with two opposite messages. Either everything is great, the economy is strong, and finances are looking better, or things are terrible, everyone is poor, and we’re heading for doom. It depends on the day and the reporter/station as to which message you’ll get. It’s bad enough that these conflicting messages are around us all the time. We never know what to believe. It gets worse when we let the media tell us how we should feel about our own finances.

I know several people whose fortunes seem to rise and fall with the media’s predictions. If the news is good, these people are upbeat and optimistic about their finances. If the news is bad, they’re one step away from having to go on food stamps and sell their house. The same people who were planning a great vacation yesterday are suddenly stockpiling Ramen noodles today. These people don’t have an inner compass about the true state of their finances. In some cases it’s because they just don’t know what they have. They’ve never troubled to figure it out. In others, it seems to be a case of just following along with the herd. “Oh, if everyone else is suffering, I must be suffering, too.” In either case, these people are too easily led by media reports into either spending what they don’t have or into thinking that they can’t buy anything because they must be broke.

People who let the media tell them how to feel about their finances are setting themselves up for trouble. If, in response to good news, they go on a spending spree with money they don’t personally have, they’re in trouble. If, in response to bad news, they deny themselves things that they can easily afford, they’re taking the fun our of their life and making things harder on themselves than they need to be.

The thing is, even if times are great, you may not have any money. You may be so deep in debt or unemployed that you just don’t have anything to spend. In that case, it doesn’t matter if the rest of the country is shopping until they drop. You cannot afford to. On the opposite end, the country may be going through terrible times with large unemployment and scary stock losses. However, if you’ve got a lot of money saved and have a good job that you aren’t worried about losing, there’s no reason why you can’t indulge yourself. (And the economy will thank you for it.) You have to base your actions on what you know your situation to be, not what the media tells you it should be.

You need to develop your own understanding about your personal financial picture and separate yourself from the media’s reporting. You need to sit down with your own checkbook and figure it up for yourself. List all of your accounts and all of your debts to get a true picture of what you really have (or don’t have). Only then will you know whether you can splurge or if you should save. Your finances have nothing to do with the media. It’s not the media that has to pay your debts, buy your groceries, or fill up your gas tank. It’s you, and only you can know whether you should be worried or relaxed.

Stop Worrying and Do Something

By 4 Comments

Last week I wrote about reframing the economic crisis. The point of that piece was to bring a little positivity into what is becoming a pretty gloomy economic time. I hoped to challenge you to think of the positive things that may come from disaster. So, in the interest of continuing that bit of positivity, I’m going to offer up another “positivity challenge.” This week, I challenge you to stop worrying about the economy and do something to make things better, whether for yourself or someone else.

As I pointed out last week, attitude has a big part in determining how well we deal with crises. When bad things are happening, we tend to feel out of control, at the mercy of events we cannot change, scared, stressed, and confused. Those negative feelings lead to a desire to hide away in our rooms, to worry, and even to illness and bad decisions made out of fear. The key to dealing with a crisis is to bring a sense of control back to the situation. Taking action is better for your mental state than idly worrying about what is or may be. Mindless worry without action will do nothing but make you sick. You may not be able to solve every problem or fix every mess, but you can take steps to bring some things under your control. You can’t control what the government or big companies choose to do (or not do), but you can do things to make your situation better or help others. Need some ideas? Here’s a list of action steps you can take to bring some control back to your world during the economic crisis.

1. Polish your resume and build your network of job prospects. You never know when a layoff might happen, so be prepared to look for work.

2. Open a savings account. Put as much as you can into it, even if it’s only a few bucks a week, to act as a buffer between you and disaster.

3. Start contributing to a 401K or IRA. Every little bit you can stash away for retirement builds a more secure future for yourself.

4. Make a budget. Having a plan for your money gives you more control than flying blind.

5. Slash spending. If you’re worried that you don’t have enough cash stashed away, slash spending on all unnecessary items and start putting the extra away.

6. Educate yourself. Learn about finance and financial concepts so you can better understand the crisis and plan the actions you need to take in response.

7. Plant a garden to reduce food costs.

8. Pay down debt so that if you do lose a job you have fewer bills to worry about.

9. Figure out what you’ll need for retirement and when and adjust your savings plans accordingly.

10. Make a list of things that you will cut and in what order if things get bad for you.

11. Take a part time job or open a freelance business on the side to give you an extra source of income.

12. Check your credit reports and clean up any errors so that if you need a loan to get by you’ll stand a better chance of getting one.

13. Learn to do more things for yourself so that you can both save money and be more independent.

14. Volunteer your time or donate some money to those less fortunate. No matter how bad you think you have it, someone has it worse. Show some compassion and help others. It’ll help you feel more positive.

15. Generate some extra cash and then sock it away for the bad times.

16. Get all your other financial matters under control. Make a will, set up a trust, and review your insurance policies to make certain you’re covered in the event something really terrible happens.

17. Get organized. Spend some time creating a good organizational system so that you know where all of your bills, important papers, and legal documents are kept. In times of crisis, you don’t want to be fumbling around looking for documents.

18. Talk. Talk to people you trust like friends or family. Talking about your troubles or worries often makes them seem smaller and less bothersome. Also, if you think the situation is spiraling out of control or might if you lose a job, take some time and talk to a financial professional. Whether it’s your hometown banker or an independent professional, pick their brains for help. The time to talk and get advice is before you are desperate.

19. Clean and fix up your house so that if you have to sell it you’re ready to do so.

20. Brush up on or learn new skills related to your work. You’re more employable if you’re up to date on the latest developments in your field.

Any action you can take to get more control over your situation will make you feel better and better able to deal with the poor economy. You may not be able to prevent a layoff, the collapse of your investments, or other bad things from happening, but you can prepare for the bad times and improve your current situation. If you get lucky and nothing bad happens, at worst you’ve saved some extra money or made some better plans. If something bad does happen to you (or has already happened) taking concrete action is better for you than simply sitting in a corner and worrying.

When Friends Want Validation of Their Spending Choices

By 12 Comments

It’s well known where I work and in my circle of acquaintances that I am, shall we say, financially conservative. I don’t blow money for fun and everyone knows that about me. So it never ceases to amaze me the number of people who still ask me out to pricey restaurants for lunch, or to go shopping with them at the designer stores after work, or to go to the movies every weekend, or out to nightclubs. I used to think it was because they genuinely wanted my company, and maybe they do. But lately I’ve come to the conclusion that what they may really want is my validation of their spending choices.

I tend to be the only non-spender in a very spendy group of people. (Where I live it’s very difficult, even in a recession, to find frugal people.) It means that I say “no” a lot. The trouble is, most of my spendier acquaintances are not financially healthy. The few times I’ve gone out with them, it’s like going out with multiple personalities. On the one hand, they are spending for all they’re worth at the restaurants and the malls and having a great time of it. But all the while they’re spending, they’re complaining and whining about how little they have and how much debt and financial trouble they have. I don’t get that sort of life and refuse to participate in the whine fest, so I rarely go with them.

I have noticed that, on the rare occasions when I do go, these people are very dedicated to getting me to spend along with them. “Come on,” they say, “Just buy this.” Or, “You can afford it. Treat yourself.” No amount of polite refusal on my part will get them to give up. I used to wonder why they were so dedicated to getting me to spend frivolously. Why couldn’t they just mind their own business and spend their money, leaving me in peace?

Then one day I had an epiphany. By not spending and by exercising restraint, I was shining a big glaring light on what they knew was wrong with their habits. I was exercising the restraint they knew they should be using. I was acting in the manner that they knew would end their financial troubles, yet for whatever reason they were unable or unwilling to do so. So rather than have me stand out as an example of responsibility, they wanted (maybe even needed) me to fall with them. My ability to refuse to spend merely made them feel even worse.

But it still mystified me why they would keep asking me along. If I made them feel badly, why would they want me along? Surely they could better spend themselves into oblivion if their personal Jimminy Cricket weren’t chirping along on their shoulders about responsibility. Then I got it. If they could get me to go along and they could convince me to spend, it would serve as validation of their choices. They could say, “Ah ha. As long as she’s spending with us, it’s okay. She’s the model of financial success so if she spends, too, then we’re doing the right thing. They needed me to go and they needed me to spend to serve as validation of their lifestyle.

I could say they wanted to sabotage my financial efforts because they wanted to feel better about themselves, but it wasn’t sabotage they were after. They could care less whether or not I am financially successful. If I were a financial mess, I would be just like them and could complain along with them. But they didn’t need me to fail, they needed me to be exactly who I am but with a spendy side. In that way, they could point to me as a success who is doing the same things they are.

Obviously, this isn’t going to work. For one thing, I’m never going to be a spendy person. It’s just not in my makeup. And, for another, unless you have great wads of cash lying around, it’s very difficult, if not impossible, to be both spendy and financially successful. Sure, I could buy one or two things to get them off my back and make them happy, but that would be sending the wrong message (and wasting money I don’t want to waste). They could point to me and say I’m spending, but so what? I can spend because I have the money. They don’t. My spending and making them feel better about their choices is an empty validation that proves nothing.

If you want better spending habits, you have to exercise personal discipline. You can’t use others to validate your choices. You can’t force another person to conform to your habits and then think that you are a success because they are “on your side” now. The only way to be successful is to work hard, spend wisely and save a lot. That’s it. Even if a financially successful person spends wildly in your presence, you can’t use them as validation of your poor choices. If they are truly financially successful, they have money to spend. If you are in financial trouble, you don’t have money to spend. Period.

Why We Should Judge People By Their Finances

By 19 Comments

A recent Saving Advice article called on all of us to pursue the path of kindness when confronted with people who are suffering as a result of our current economic crisis. I am very much in agreement with the author’s plea that we approach people in hardship without “anger” or “resentment” – those emotions are not going to help anyone – but I cannot agree that we should address people in financial distress without “judgment.”

We have to judge the mistakes of others and doing so is neither cruel nor hateful. It is merely a way of acknowledging that mistakes were made. Indeed, if we do not acknowledge the mistakes that are at the root of a problem, I do not believe that we can address the problem.

A colleague of mine who was laid off from his job at the same time that I was (about 15 months ago) mentioned in an e-mail that he has been able to weather the economic storm because he has been “saving, saving, saving” for the past several years. I have been doing the same and, although the depletion of our bank accounts is unsettling, I still have a cushion to see me through to a job later this year (I hope!).

While we were saving our money, and buying comparatively modest homes, our other colleagues were chiding us for not investing heavily in the stock market. They could not understand how we could be content owning only those things that we knew we could afford or how we could stay home and relax on our vacations, rather than travel the world. For that matter, I was often asked why I was driving such an old truck (a 2002 model with only 80,000 miles on it – so still young in my mind) when I could trade it in for a new vehicle.

When we look back on the past decade and more, we see a global culture that was engaged in hyper-spending based on theoretical money. Even after the dot com bubble burst, and people started to realize that the value of so many dot com success stories amounted to little more than vapor, people in the USA continued to believe that housing prices would continue to rise forever. As a result, homebuyers over spent for fear of being left out of the riches that could be gained from the appreciation of real property.

So where does that leave us now, when we have to deal with all of the millions who are suffering? Where does it leave us as individuals as we look at our own problems and our own mistakes?
It leaves us as judges.

And that is not a bad thing. For too long, Americans and people in other developed nations have lived with a sense of entitlement. A sense that success should come easy. A sense of “I’ve want what I’ve got coming to me.” The thing is, we have no entitlements. Success does not come easy. The only thing that is coming to us is what we earn. Someone needed to remind us of that a long time ago. We all should have had judges to tell us what we were doing wrong.

So I suggest, the next time you encounter someone with a problem, judge them. If they caused their own problem and they are not acknowledging it, tell them clearly, but without malice, that they screwed up. That is judgment.

But do not stop there. After you have judged, you need to go on to inform. Explain how the problem could have been avoided and what the person can do to remedy it going forward. If the problem cannot be remedied, be clear about that and then encourage the person to move on.

The problems arising in our economy today are of our own manufacture. We are all judged to be at blame and there is no harm in admitting it. In fact, if we did more consistently assess ourselves and those around us, and pass judgment on the merits and flaws of our collective behavior, we may find that we do not create another economic crisis a generation after the current crisis ends.

What do you think? Are we tough enough to give tough advice and to receive it? Shouldn’t we be strong enough to be judged? We all have flaws and failings. Is it time that we accepted them and were able to hear other people admit them to us.

How to Maintain Your Finances in Difficult Times

By 2 Comments

When my mother died, I worried a lot about my father. How will he cope? What will he eat? Despite my worrying, I didn’t need to worry much about his finances. His forethought saved his financial life, despite our family’s terrible loss.

Dad always has been a stickler for details. This carries over into his bill paying and investments. During their marriage, he was the one who took care of the bills. He was the one who managed the income. He was the one who made sure they could afford their comfortable life.

Of course my father reeled from the loss of his wife. We all did. Mom and Dad’s lives had meshed together well from the time they started dating. They had a good life together.

Two years later, dear Dad is slowly piecing his emotional life together. During this time, it seems he has ignored his finances. In reality, he has been able to rely on advice from his trusted financial advisor and the clear, efficient way he managed their money before and after Mom’s death.

Deposit money electronically

I remember when the miracle of automatic deposit became a reality. Ever since its inception, Dad faithfully used it for both his and Mom’s paychecks. When they retired, they set up their Social Security and pension payments to be deposited automatically too. By never having to step foot in the bank to physically deposit a paycheck, it was easier for him (and Mom) to resist taking cash out.

Pay bills electronically

Dad was also an early subscriber to automatic payment. Every bill that could be paid through automatic withdrawal is paid from his checking account. This was a blessing in his time of grief: the money was deposited automatically, the bills paid automatically, and he could keep an eye on his checking account from time to time through the bank’s telephone banking system. Although one doesn’t want to make a habit of this, it was good there was one less thing Dad had to worry about during the first months without Mom. Dad is again taking care of his financial housework, which includes balancing the checkbook and tracking investments.

Get an advisor you trust

Dad’s financial advisor has been a family friend for years. Happily, she is also really good at what she does. With a lot of common sense, and a good feel for what amount of risk her client is willing to take, Dad’s advisor was able help him make the most of the money my mother left. This financial advisor helped reinvest my mother’s retirement portfolio to provide consistent income for my father, a plan that was way beyond what even my father – with his savvy saving and spending habits – could imagine.

Pay more than required

When my mother was sick in the last year of her life, the credit card bills and medical expenses piled up. Dad chipped away at these expenses during his first year alone by paying as much as he could to each creditor over the months. By paying more than the minimum required by the credit card company, he taught me that you can actually make headway on your bill. The next month’s bill has a chunk out of it so the interest is less. It is truly delightful to watch your bill shrink away.

Keep good records

There were also a lot of loose ends to tie up with insurance after Mom’s death. Final claims had to be filed, final bills paid – all that detritus had to be finished. This was not easy, but Dad had kept paperwork on the treatments, unreimbursed expenses and payments made by himself and the insurance companies. When there were questions, he was able to produce documents to provide the information. His tax preparer was able to use the paperwork on unreimbursed expenses on the taxes as well.

Share the hiding spots

Yes, it’s morbid, but when tragedy hits, it’s comforting for your trusted person to know where your will is stored, where the bank accounts are, what debts are outstanding, and where your important financial records live. If you’re a widow or widower, this is especially important. My parents took me on the tour every few years, and since Mom’s death, Dad continues to keep me apprised of where his finances stand. This includes where he keeps his credit cards to where he stores the safety deposit box key.

Update your will and beneficiaries

While you’re at it, make sure your will is updated. Do you have someone to take care of your children? Have you appointed an executor to be your personal representative? Is that still someone you want to represent you? It is also important to make sure the beneficiaries on any accounts are up-to-date. Families grow and change over the years, and your stated beneficiaries may need to change too.

There is so much to be done when tragedy hits. Unfortunately finances are one of those things that need to be monitored whatever happens. It makes a tragedy a bit easier to bear if one’s finances are set up well.