Slow Money Movement

[jeffrey]

A question to members since I assume that most of you are already part of this:

If someone were to put together a "Slow Money Movement" (the opposite of get rich quick) to show people how to get back to financial basics, what do you feel would be essential to make it work?

The basic framework is "live within your means" -- is that sufficient or do you think that basic rules are needed. If so, what rules would they be?

[disneysteve]

I would start with the 50-30-20 spending plan: 50% of income to needs, 30% to wants and 20% to savings. If everybody would just follow that one rule, it would solve tons of financial problems. That allows you to have frivolous things and luxuries as long as they fit within the 30% category for wants. It insures that you aren't living beyond your means (50% for needs). It also insures that you are providing for your future needs (20% for savings).

[happygirl]

Sadly, I think an explanation of the difference between wants and needs would be helpful. I hear people say they need a newer car or a fancy coffee drink or a plasma tv, and often I think they truly believe it.

[disneysteve]

Sadly, I think an explanation of the difference between wants and needs would be helpful. I hear people say they need a newer car or a fancy coffee drink or a plasma tv, and often I think they truly believe it.

Very good point. Even within an apparent "need", there are nuances. For example, I consider basic phone service to be a need. That does not mean, however, that adding caller ID, call waiting, voice messaging, 3-way calling and call forwarding is a need. That just elevates a $20 phone bill to an $80 phone bill that no longer qualifies as a need.

The same goes for cars. For most of us, a car is a need. But anything over a certain price point, which we can debate all day but let's say about $10,000, really qualifies as a want.

[Mr Nice Guy]

A one week, or one month spending diary for newbies. it typically proves to be quite the wake up call

[disneysteve]

Never carry a balance on a credit card. If you don't ALREADY have the money in your account, don't buy it.
Don't take a mortgage with a payment higher than 28% of your monthly income and put down at least 20%.
Don't take a car loan with a payment higher than 10% of your monthly income and not for more than 3 years.
Maintain a 6-month emergency fund.

[Slug]

I like Jeff. Always thinking big.

I would note that it's only slow in the beginning when you're turning the debt boat around to get into a positive cashflow and net worth growth. Then compounding takes over and you have a nice snowball effect. It's not get rich quick, but it's certainly observable on a monthly basis so not really slow either.

[snafu]

Like a house, I see the building wealth framework on three levels; foundation, main floor & upper level. The foundation could follow the popular DPIE.
D: -Diagnosis,
P: -Prescription,
I: -Implementation,
E: -Evaluation.

Often new posters do not appear to have a budget/spending plan. [wish every high school taught how to create a personal budget and evaluate it annually]. People need a 'can I afford it' standard to apply to major purchases and be able to identify $$$ leaks like the daily Starbucks drip, drip, drip or failing to take advantage of tax savings.

Moving up to the next level allows more sophisticated thinking. SWOT examines Strengths, Weaknesses, Opportunities, Threats. Wealth building needs a written plan with measurable outcomes. With defined pensions disappearing, taking advantage of any employer matching funds for retirement needs emphasis.[one of the rules] Sadly people are unaware of the huge mistake if they choose to cash out existing retirement savings to bail them out of financial distress.

The higher level expands on what has already been built. Asset allocation is the double edged sword of opportunity and threat in building wealth. There is some level of risk in all plans whether ultraconservative or aggressive. No one cares about your money more than you do, it's our responsibility to monitor and evaluate our plans regularly.

[jpg7n16]

If someone were to put together a "Slow Money Movement" (the opposite of get rich quick) to show people how to get back to financial basics, what do you feel would be essential to make it work?

Automatic withdrawals (either through payroll, or set up with you bank/brokerage)
And either budgeting software or a pen and paper.

One of the basics is pay yourself first. So set up systems that automatically pay you. If it's able to come out of your paycheck before it gets to you, that's even better (like 401k).

And then we all know about budgeting. But you need something to help make it work and give yourself that 'wake-up call' Mr.Nice Guy is talking about. It doesn't have to be fancy, but it has to get your attention.

"I spent how much on food??????"

The basic framework is "live within your means" -- is that sufficient or do you think that basic rules are needed. If so, what rules would they be?

If I was setting up some rules for spending?

1. No more than 25% of your after-tax income to housing.
2. Don't buy a car worth more than 30% of your income (if you make $50k/year, don't buy a car over $15k)

For debt:

1. Either keep a $0 balance on your credit card, or pay more towards your card each month than you charged that month.
2. Focus less on your credit score, and more on your net worth.

And for saving:

1. Save 2-5% more this year than you did last year (if last year you saved 10%, try for 12-15% this year; if you did 15%, try for 17-20%; if you did less than 10%, try for at least 10%)
2. Automate your savings using either payroll deduction, or auto-transfers

If people were able to stick to those rules, that would likely solve at least 80% of today's personal financial problems.

[feh]

Backing up a step from the initial replies, I would say "improve/invest in yourself". Generally speaking, that means education. Learn a skill that makes you more valuable to a potential employer.

It's hard to get rich (quickly or slowly) if you can't get a job that pays more than $10/hr.

[jpg7n16]

I would start with the 50-30-20 spending plan: 50% of income to needs, 30% to wants and 20% to savings. If everybody would just follow that one rule, it would solve tons of financial problems. That allows you to have frivolous things and luxuries as long as they fit within the 30% category for wants. It insures that you aren't living beyond your means (50% for needs). It also insures that you are providing for your future needs (20% for savings).

Never carry a balance on a credit card. If you don't ALREADY have the money in your account, don't buy it.
Don't take a mortgage with a payment higher than 28% of your monthly income and put down at least 20%.
Don't take a car loan with a payment higher than 10% of your monthly income and not for more than 3 years.
Maintain a 6-month emergency fund.

I completely agree on both accounts.

It's very surprising how many problems would be prevented by changing only 3 or 4 things about the way people think about money (like your 50/30/20 system). And it's also surprising just how many people's finances are sabotaged by too much house, car, and/or credit cards.

The common thread: using debt to live beyond your means.

[snshijuptr]

I think one problem with the "one size fits all" plans are that everyone has a different situation. I think the greatest dichotomy is the advice you give a person with major financial problems and the advice you give a person who is doing fine but needs to understand their financial situation.

So what are you trying to do: fix financial problems or teach good financial practices? It doesn't help to give people information that they don't need anymore, never needed, or won't need for a while.

[jeffrey]

Thank you all for the responses. One issue I have been thinking about that hasn't really been addressed yet is people's relationship with money. The Slow money Movement also came somewhat from the slow food movement where getting back to basics and plant diversity is taking place. Just as grocery stores have brought up a generation of people that believe that fruit and veggies must look perfect for them to be good (even though they lack the flavor of many other varieties), we have also been brought up with consumerism being "good" -- how would you go about teaching people how to spend money on the things they really want rather than what they have become accustomed to spending on?

[jIM_Ohio]

Spend less than you earn.

Then focus all attention as to either

a) spending
b) saving

When spending, can it be done cheaper, is the cost recurring (like a cable bill) or one time (like an HOA fee or car registration). Is there a discount (like paying for car insurance as one premium vs making monthly payments). If the cost saves you money (like installing energy efficient windows), it is still spending, but there is an ROI aspect to the expense.

When saving, focus on the savings rate. Saving 5% of gross is better than saving nothing. Saving 10% is better than saving 5%. Saving 30% is better than saving 20%. Whether a person puts 30% into a savings account or 5% into a 401k and stock fund is not important, what is important is saving something EVERY pay period, and doing this consistently over 20-40 years.

[jIM_Ohio]

I would start with the 50-30-20 spending plan: 50% of income to needs, 30% to wants and 20% to savings. If everybody would just follow that one rule, it would solve tons of financial problems. That allows you to have frivolous things and luxuries as long as they fit within the 30% category for wants. It insures that you aren't living beyond your means (50% for needs). It also insures that you are providing for your future needs (20% for savings).

define want, define need, define saving

some people could spend $500 on groceries and eating out, use coupons to save 20%, and think they saved 20%. I know that's not what you meant, but to some people that is saving. To me and you its spending less. The difference and fundamentals of this approach needs more info.

Never carry a balance on a credit card. If you don't ALREADY have the money in your account, don't buy it.
Don't take a mortgage with a payment higher than 28% of your monthly income and put down at least 20%.
Don't take a car loan with a payment higher than 10% of your monthly income and not for more than 3 years.
Maintain a 6-month emergency fund.

define emergency fund, define "money in account".

Like a house, I see the building wealth framework on three levels; foundation, main floor & upper level. The foundation could follow the popular DPIE.
D: -Diagnosis,
P: -Prescription,
I: -Implementation,
E: -Evaluation.

Often new posters do not appear to have a budget/spending plan. [wish every high school taught how to create a personal budget and evaluate it annually]. People need a 'can I afford it' standard to apply to major purchases and be able to identify $$$ leaks like the daily Starbucks drip, drip, drip or failing to take advantage of tax savings.

Moving up to the next level allows more sophisticated thinking. SWOT examines Strengths, Weaknesses, Opportunities, Threats. Wealth building needs a written plan with measurable outcomes. With defined pensions disappearing, taking advantage of any employer matching funds for retirement needs emphasis.[one of the rules] Sadly people are unaware of the huge mistake if they choose to cash out existing retirement savings to bail them out of financial distress.

The higher level expands on what has already been built. Asset allocation is the double edged sword of opportunity and threat in building wealth. There is some level of risk in all plans whether ultraconservative or aggressive. No one cares about your money more than you do, it's our responsibility to monitor and evaluate our plans regularly.

excellent post...
what I would emphasize from this is be on lookout for financial decisions which destroy wealth- like buying too much car, too much house, financing too many purchases.

Automatic withdrawals (either through payroll, or set up with you bank/brokerage)
And either budgeting software or a pen and paper.

One of the basics is pay yourself first. So set up systems that automatically pay you. If it's able to come out of your paycheck before it gets to you, that's even better (like 401k).

And then we all know about budgeting. But you need something to help make it work and give yourself that 'wake-up call' Mr.Nice Guy is talking about. It doesn't have to be fancy, but it has to get your attention.

"I spent how much on food??????"



If I was setting up some rules for spending?

1. No more than 25% of your after-tax income to housing.
2. Don't buy a car worth more than 30% of your income (if you make $50k/year, don't buy a car over $15k)

For debt:

1. Either keep a $0 balance on your credit card, or pay more towards your card each month than you charged that month.
2. Focus less on your credit score, and more on your net worth.

And for saving:

1. Save 2-5% more this year than you did last year (if last year you saved 10%, try for 12-15% this year; if you did 15%, try for 17-20%; if you did less than 10%, try for at least 10%)
2. Automate your savings using either payroll deduction, or auto-transfers

If people were able to stick to those rules, that would likely solve at least 80% of today's personal financial problems.

I like focus on net worth more than credit score- I would even add to this to emphasize lots of things over credit score (401k balance, savings rate, mortgage interest rate just to name a few).

I also like the idea of changing savings rate once per year. Start small (5%) and add 1% to it per year, and if you get a raise, add another 1% to savings rate as well.

The common thread: using debt to live beyond your means.

define live beyond means

Backing up a step from the initial replies, I would say "improve/invest in yourself". Generally speaking, that means education. Learn a skill that makes you more valuable to a potential employer.

It's hard to get rich (quickly or slowly) if you can't get a job that pays more than $10/hr.

excellent points



A short summary-

if this is going in a blog or book, realize many times financial issues are clouded because those of us which know use complex words or phrases to define what we mean. If the goal is "save slowly", things need to be spelled out in basic words with some simple examples.

Examples of words and phrases which confuse people until they read them 2-3 times, or words which need to defined the moment they are used:

Live below your means
Asset Allocation
Budget
needs vs wants
savings
mortgage
interest rates

When I was prepping a personal finance curriculum a few months ago, this was an example of the types of issues which need to be covered- taking simple words- like Asset allocation, and defining them before the two words are even put together.