Monday, December 13, 2010

The Spirit of Money - Part 2

“If you want to feel rich, just count the things you have that money can't buy.” ~author unknown

Last week, we asked ourselves some revealing questions our financial habits.  For some of us, the reality we uncovered was not pretty.  If you didn't read last week's post about the spirit of money in our lives, you can do so here.  

The objective last week was to acknowledge your habits and patterns. You can't begin to change anything without first having an understanding of what you are doing that isn't working.  Think of this journey very literally as a trip: if you are using a GPS for directions, you must first state your current location before you can proceed to your next destination. Consider that you are now traveling from point A (financial instability or poor financial habits) to point B (clarity around the purpose of money in your life), and view these posts as your roadmap. 

Now that we know what isn’t working, let’s explore various ways to change course.  The simplest way to do this is to replace your old habits with new ones. Ever notice how if you take something that a toddler is enjoying away from him or her, they will become upset? But if you take away one thing and replace it with another, their attention is barely diverted as they shift focus to this new and exciting thing. By switching out your old erratic behaviors with sensible ones, you are re-training yourself to exercise more practical habits.

1.  Document.   Keep a money journal or spreadsheet.  Be completely transparent as you capture everything you bring in, and everything you spend. This should include bills and “other” expenditures that are coming up - wedding gifts, girls’ nights, trips etc.  Microsoft Excel works well for this, as well as programs like Quicken or Quickbooks. 

2.  Get online.  Join an online personal finance service like mint.com or mvelopes.com that helps you to manage your money, create savings, and generally works to give you an understanding of how you spend money.  

3.  Steal away.  Hide money from yourself.  Keep an emergency $20 bill hidden in your wallet, leave singles in the closed compartments of your car when you get change from a toll or a drive-thru, slip a $5 bill into a dresser drawer. You will be less likely to spend these funds if they are not mixed in with the rest of your money or in your checking account, and they’ll be a pleasant “surprise” when you need them.

4.  Sleep on it.  Give it 24 hours before you buy. This will help you learn to distinguish between ‘needs’ and ‘wants’ and cut back on impulse spending.

5.  Always pretend like you don't have any money.  Be creative.  Make a conscious decision to live below your means.

6.  Educate yourself.   Read books on personal finance by authors like Suze Orman and George Kinder. Subscribe to money management emails like Daily Worth or Dave Ramsey’s newsletter. It doesn’t matter which resource you use as long as the information is presented in a way that you can understand. Choose which works best for you.

7.  Hustle.   Create additional revenue streams. Get that part time job you’ve been considering, take on some additional freelance projects or start that side hustle you’ve been dreaming about. 

8.  Pay yourself first.  Allocate to your savings before you pay bills; if you give away all your income, you will never be able to build any savings for yourself. Establish savings accounts with sites like ING Direct where it takes a few days for money to become available--making it more difficult for you to withdraw, and allowing you to pause long enough to consider if you really need whatever you are transferring the money for. Sites like SmartyPig.com allow you to save for a rainy day, but also towards specific goals. 

9.  Avoid payday loans like the plague. Period. The short term solution is not worth the long term interest that accrues against the loans or the potential damage to your credit if you can’t pay them off. 

10.  Tell someone about your financial goals. It is often easier to stick with a plan when there is someone cheering you on and holding you accountable for your actions.

These are just a few suggestions to help you achieve clarity around your spending habits and to aid you in making more sensible financial decisions. Please share any additional methods that have worked for you in the comments and stay tuned for part three next week.

2 comments:

jessj said...

So, I'm admittedly obsessed with Suze Orman. I think her advice is sound and pretty common sense, but for the ave. American living in this culture of want want want spend spend spend it feels so out of reach: live on HALF?! HOW?! Well, you could if you had to! We are economically hedonistic, and don't even know it.

I think that finding a partner who shares my same financial views has been a Godsend, because it would be really easy to say, "shoot! we're both gonna be Doctors, I'ma drive a BWD, he'll push a Range, we're living in a mansion, etc." But no, lol we're both frugal, practical spenders at heart and neither of us is fond of debt. The first thing I'm doing with my first check is starting a 529 savings plan for my kiddies. I don't want them to accumulate student loan debt and that was the BEST thing my parents ever did for me. Sometimes my province leaves me feeling like an outcast, but most of them time I just feel happy that it takes so little to put a smile on my face.

Chic Mommy said...

I am a fan of Suze Orman's as well. Her "Young, Fabulous and Broke" was one of the first financial books I read and it was an eye opener for me. I agree that some of her advice seems far reaching for someone just starting to get a hold on their habits around money, but taking the practical advice, even on a smaller scale, can make a huge difference in how someone views their money--in my opinion. It gives you something to aspire to. I thought "Okay, perhaps I can't have 8 months of salary saved just yet, but I can save 2 months of salary." Activating upon the principles is a step in the right direction.

I commend you for being so frugal. Being a little uncomfortable sometimes in the present can really help to allow a lot more freedom in the future. It's not always about actually buying that Range or the mansion--but knowing that you COULD if you chose to. You seem to have beautiful priorities. Keep doing what works for you!

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