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Dilbert makes you money

Today has been a busy day for me, trying to arrange for my girlfriend to have a happy birthday. Unfortunately, that means I didn’t have time to put towards a full length post. Since I didn’t want to just slap something together, I decided to point you at a post on another blog, to tickle your fancy.

Financial Markets Explained by Dilbert

Scott Adams actually has an MBA from U.C. Berkley, so he’s far more qualified to give financial advice than I am.  Crazy…

July 7, 2009 | Filed Under Finance

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Are you lying like the governor?

The governor of South Carolina came out yesterday with the news that he has been having an affair, and decided to travel to Argentina with his mistress.  And he mislead his staff about where he was going.  Not to mention that he didn’t follow proper protocol, so the state was practically without a leader for about five days.  He was lying, and it all started by him lying to himself, telling himself he’d never get caught. Isn’t that what everyone thinks when they are trying to get away with something?

Guess what, you’re probably lying to yourself about your finances right now – and trust me, you’ll get caught.  Are you carrying too much debt?  Are you living off your credit cards?  Heck, are you just trying to keep up with the couple down the street that happen to have a ton more ’stuff’ than you do?  All of these are common things that we do, and we convince ourselves that we’ll figure out how to pay for all of it later.  We’re lying to ourselves, day in and day out, trying to make ourselves feel better about all this debt we’re carrying around.

The first step we have to take is very similar to what the governor did today – we have to admit we’ve screwed up.  Maybe we don’t have to do it in such a public way, but at the very least we need to be truthful with ourselves, and realize we’ve dug ourselves in a hole that won’t fill itself in.  As I understand they say in all of those twelve step programs, we first have to admit that we have a problem.  Maybe that problem is carrying debt, or trying to keep up with our friends new cars, or maybe our problem is that we just buy too much crap that we don’t need.  Whatever it is, fessing up to it is the first step to fixing whatever financial mess we’ve gotten ourselves into.

Can you do that?  Can you come to terms with our failings, and then take whatever steps we can to rectify them?  I was reading somewhere this week that people who are too far in the hole tend to wait too long before declaring bankruptcy.  Why?  Because it takes a lot of guts to basically announce to the world “Hey, I screwed up and I need help.”  I’m not saying you need to go so far as that to fix your problems – hopefully you don’t.  But it’s time to be brave – putting it off just makes it harder.

June 25, 2009 | Filed Under Finance

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Secure Yourself

If you’re coming into this piece from Moolanomy, please check out some of my other pieces while you are here.  Some of my most popular ones are Never Move For Money!, Fixing your W2 Withholding for Fun and Profit, and Sales, lies, and videotape.

I’ve been thinking a lot about online security and our finances recently.  Doesn’t it scare you that someone could literally spend a few hours at a computer, and probably destroy your life for months, if they manage to break into your bank account or one of your other web-based accounts?  It scares me.

This week, I spent some time writing a guest post for Moolanomy about this very topic (it will hopefully be posted sometime in the next few days, if it hasn’t been already), and I covered a few basic things we all should be doing to protect our online financial identies from thieves.  This is stuff like making sure your bank has enhanced online security measures available to you (and using them), and making sure you’re using secure passwords on any sites where you are storing personally identifiable information.  This is good stuff, but really, it isn’t enough.

Why?  Because if someone breaks into your computer and puts a virus on it (or you just pick one up roaming around the web), all of that work is for naught.  My girlfriend and I learned this first hand when she got a virus on her laptop that had a keystroke logger built into it – basically, it was on the prowl for any usernames or passwords we used to log into any of our websites.  Talk about a flurry of activity, finding a clean computer and changing all of our passwords.  No fun.  And I only used her computer once to log in and check my balance.

So, what can you do?  Here are some things to make sure you have set up:

In the Moolanomy piece (which I will link back to when it is active), I talk a good deal about those last two bullet points.  At some point I will do the same thing here.  I don’t want to go into detail about this today, but I thought it was worth breaking out of my current blogging theme to talk about.  What do you think?  Do you have any other suggestions on how to secure yourself when working online?

June 12, 2009 | Filed Under Finance, Investment, Money, Security

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Tackling your debts

Getting rid of debt is the first thing that anyone needs to do to live a wealthy life, because debt is the opposite of freedom, and I believe that is an integral part of living a wealthy and happy life.  So important, in fact, that I’m going to give it a brief overview here before we go into some of the one-off tactics I’ve come up with for reducing major expenses.  Besides, for a lot of us (myself included), our debt payments overwhelm our other expenses.

From reading other finance blogs and several books on the subject, I have heard about two major tactics for paying off debt.  The first is to pay the minimum on all of your debts and then take the highest interest one and pay that down more aggressively.  Once you’ve killed that debt, you move on to the one with the next highest interest rate and roll the payment you were making on the just paid off debt into the new one.  This makes the most financial sense because long term because it costs the least money, but if your highest rate debt is also one of your largest, it’s hard to feel like you’re making any progress.  The other tactic is to pay off your smallest debt as quickly as possible, and then roll that payment into the next smallest debt.  This can be slightly more expensive, but there is a sense of more immediate progress, because paying off that $2,500 credit card bill is a lot easier than the $25,000 car note or your $250,000 mortgage.

I’m honestly not a huge fan of either method.  For one, while I think both are great ways to pay down your debt, I feel like both emphasize too much sacrifice without enough reward.  If you are deep in the hole, and one of these methods is your only way back to solvency unless you declare bankruptcy, I say go for it.  But for anyone that isn’t quite as deep in debt, I think both methods are a bit too drastic.

I like something a bit more flexible.  To begin, any revolving debt or credit lines (credit cards, payday loans, etc) that aren’t getting paid off every month need to be paid off immediately.  If you have the money in your emergency fund, use it to pay this debt off.  If you don’t, forgo paying more than the minimum on your other debts until these are paid off.  If you have more than one credit card carrying a balance, either consolidate it on one card (and stop using the others) or use one of the methods I described above to pay them off.  You’ll never get this monkey off your back if you’re beholden to floating interest rates or whatnot.

For each of your fixed payment loans (student loans, car loans, mortgage), instead of paying one down aggressively and only the minimum on the others, take your monthly payment, divide it by 10, and add that to your regular payment.  Some of your payments didn’t go up by very much, but you are now digging into the principle all across the board.  Live with these new payments for 3 months – they didn’t hurt very much (if at all), did they?  Every three months, add an additional 1/10th to your payments until you reach a point where you are starting to feel it, and then pull back just a bit.  This is your comfortable debt payment, and at least you aren’t stressing yourself.  If you pay off one of your debts, take half to three-quarters of that money and divide it among the remaining debts.  Take the rest and treat it like you would a raise at work – save some of it and enjoy the rest.  Consider it your reward for beginning the process of getting out of debt.

Will this pay your debts down as quickly as one of the other methods?  No, but I feel like it’s quite a bit more sustainable than some of the other, more drastic measures.  And if you are working to build up your credit score, it keeps more of those lines of credit open longer, giving you a stronger credit history, which will hopefully give you the opportunity to refinance some of those bigger loans to save even more cash.

Just be careful, some debts have early payoff penalties – if that applies to you (or you even think it might), it pays to talk to a financial adviser about what makes the most sense in that particular situation.

May 29, 2009 | Filed Under Finance, Money

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Where did it all go?

If we want to spend the next few weeks knocking down our biggest expenses, first thing we need to do is figure out where our money is going and how much we’re spending.  I like using tools like Mint or Wesabe for this kind of thing, but if you have security concerns you could very easily use something like Microsoft Money or Quicken for this work.  Heck, if you want to do some of your own programming, you could even use a series of spreadsheets to manage this stuff.

Whatever way you decide to do that is fine, we just need to determine what are biggest hits are to make sure we address them in an order that makes sense.  Don’t forget to include any periodic expenses, like car insurance, and I like to lump my expenditures into categories and tackle a category as opposed to an individual bill.  This lets me see trends in my spending that wouldn’t necessarily show up at a transactional level.

My top five spending categories since the beginning of the year:

  1. Home (this includes my mortgage, home owners insurance, property taxes, and housekeeping) – Yes I have a housekeeping company that cleans my place.  It is definitely worth every cent, but that’s another article.  This is artificially high for me at 39% of my net expenditures because I am aggressively paying down my mortgage, but is still by far my largest expense.
  2. Food and Dining (this includes groceries, eating out, my bar tab, snacks) – This is about 11% of my net expenditures, but is pretty highly inflated because I eat out all the time and don’t track this well.
  3. Shopping (Electronics, clothes, housewares, random crap, games, books, and other entertainment) – this is about 10% of my expenses, and includes just about anything I might buy for myself on a whim that isn’t for social consumption.
  4. Other (petty cash) – this is how I categorize any pocket money that I don’t otherwise account for, and is usually spent on a mixture of #2 and #3 if I’m being honest.  But it looks like my cash outlay is about 8% of my expenses – I’d like to get this figure down to around 5% if I could.
  5. Travel (vacations, hotels, airfare, my Penn State football tickets) – this is about 7% of my spending.

Last year when I still had a car payment, my auto costs were my second largest expense, at 14% of my spending, but getting rid of my car payment (I paid it off) was a huge boost to my bottom line.  Note that this does not include any credit card payments – it would only make the list if you aren’t already paying it off every month, and should reflect what you could be paying, not the minimum due (the way I handle my mortgage overpayment is a good example of this – the number reflects what I’m spending in total, more than just the due amount).

Now, I’m not talking about a budget here, and those percentages are based on what I spent, not what I made.  But if the idea is to cut the fat without cutting anything you’re going to miss, it doesn’t really matter how much you’re making.  Once you start getting at cutting out things you’ll actually miss you are talking about budgeting, which much like dieting is really a dirty word in most peoples minds.  So don’t think about that right now, and focus on getting your spending down as far as it can go without cutting out the stuff you want.  Then, if you are still not bring in enough to meet your savings goals and pay all your bills every month it is time for a down to earth discussion with yourself.

What, you say?  You don’t use cards for anything and don’t have this detailed a listing of your spending?  First thing I want you to do is collect all your bills (including the credit card) and your bank statement.  Then, based on that information, take an educated guess.

Yes, I told you to guess.

Then, for the next month, pay for everything using a piece of plastic if you can.  Don’t trust yourself with a credit card, or don’t have one with a zero balance so you can avoid those nasty finance charges?  Move money from your savings account into checking and use your debit card.  Only for a month.  The idea is to figure out where your money is going so you can focus on those areas where you are spending the most.  The first guess will let you get started cutting down somewhere – lets be honest, you know where at least some of your money is going.  The next month will give you the hard data you need to adjust your perceptions.  Using a tool like Mint for this is great because I have almost two years of financial data now and can track my spending trends pretty readily as life changes occur and I pay off my various and sundry debts.  But you have to start somewhere, and if you don’t have this information in a tool somewhere already, now’s the time.

If you’re really old school and don’t want to do the card thing at all, you could save all your receipts and get a scanner to load the info into Quicken (they have a tool for that I believe) or maybe MS Money, but there is a cost associated with that which I would avoid if you don’t need the scanner for something else.   However you decide to do it, this will set you up for success down the road as we tackle our biggest expenses.

May 28, 2009 | Filed Under Finance, Planning / Goals, Spending

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Don’t buy into the hype

Gadgets are a guys best friend.  Some guys like tools, or cars, or stereos.  Me, I like electronics.  All electronics.

And I have the crap in my house to prove it.

So when I hear about a new technology for a better, faster, stronger television that might just out-do the monstrosity that is currently sitting in my living room, my ears perk up and I begin to read.

Today I was reading a piece over on cnet about 240 Hz televisions.  The idea with these kinds of TVs is that they have less motion blur noticeable during action scenes, and companies like Sony are trying to convince everyone and their cousins they should buy a new TV with this 240 Hz technology, even though every review I’ve checked out basically tells me that they can’t tell the difference between this new technology and the older 120 Hz designs.

They are using an advertising technique that writers of fantastic stories have been utilizing since the dawn of time, hyperbole.  The idea behind hyperbole is that they exaggerate the features of whatever this newest, hottest item is and make you want it.  And sometimes, I’m a sucker for it, which is why I have stuff in my house that I will never use.

These new TVs perform better on synthetic benchmarks than their older predecessors, but there is no way the human eye can tell the difference.  Even CAD monitors (these are monitors that have to be very precise and have response times that are very fast to allow for detailed engineering rendering) don’t perform at this 240 Hz rate.  It’s completely unnecessary, like owning a custom made sports car when you never get it over 75 mph.

Do you want to be wealthy?  Figure out a way to ignore the hype and only buy what you really need or will really enjoy.

May 22, 2009 | Filed Under Advertising, Finance

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Obsessions Can Hurt Your Financial Health

One of my earliest readers here at {be} Wealthy / [get] Happy recently asked me to write something up about how to manage obsessions so they don’t destroy your financial health.  Specifically, I believe he is struggling with spending a bit too much money every week on golfing.  I’ve suffered from that very same malady at different times, spending too much money on electronics, golf, travel, eating out, you name it.

It can be very difficult to break out of such a gorging pattern, but there is one tactic that I’ve found to be unusually helpful in managing these desires.  I set aside money for them in a separate bank account, and fund them only with that account.

That’s right, I have a fun-money account.   I’m not talking about budgeting – that’s too much of a hassle and always breaks down anyway.  Instead, I split my money up into different buckets and manage things that way.  I pay myself first, putting the appropriate money in my various savings vehicles.  I also have a special checking account which I use to pay my bills – any money that is needed to pay fixed expenses goes into that account.  Everything that isn’t ear-marked for savings or my fixed living expenses goes into this fun-money account, to be spent as I please.  If there isn’t any money left in there for the month, then I start telling people I’m broke but to hit me up in a week after I get paid.

Since I’m a big fan of using a credit card for most of my purchases, it takes a bit of mental gymnastics to make sure I don’t spend money I don’t have, but I generally use tools like Mint to track my spending, and make sure I don’t overdo it on my credit card.  If my credit card spending for the month gets close to what I have in my fun-money checking account, I stop spending.  That’s it.  No magic, no complicated spreadsheets, or crazy envelope systems like you’ll see discussed elsewhere – I’m glad those things work well for the people who’ve implemented, but I’m neither anal enough or organized enough to manage my money at that level.

I find that this is a very liberating way of handling my finances, and it makes sure I get to do all the fun things that get me excited about my day to day life.  If the money is there, in that account, I can spend it without feeling even the smallest twinge of remorse, because that is why it is there.  How do you make sure you don’t overspend?

May 19, 2009 | Filed Under Finance, Money, Planning / Goals, Spending

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Weekend Edition

I’ve decided to move away from doing regular posts on the weekends, instead I’m going to give a quick recap of this week’s feature content.

I’ve gotten some great feedback from several people telling me how much they like the blog – I’d love to hear from you too.  That kind of encouragement makes it much easier to persevere as this site gets more mature.

May 16, 2009 | Filed Under Emergency Funds, Finance, Money

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Nothing will be fine?

I was reading Dooce.com the other day and came across this quote in an piece about remodeling a bathroom that turned into a catastrophe:

This reminds me of the book I want to write about remodeling. It would go, “Nothing will be fine. Now go re-read that first sentence. The end.”

I think this applies well when you’re talking about more than just remodeling your bathroom.  Think about it – when was the last time things went exactly as you planned?  I can tell you that I don’t remember the last time everything came out perfectly, how about you?

I think this is a great reason to make sure your financial cards are in order.  If you read the rest of the piece on Dooce, you’ll see that this whole experience for them was a bit of a debacle.  They weren’t prepared, but worse, when things went wrong, they didn’t have another plan.  Make sure you have a plan for when things go wrong.

You don’t have to cover every possible contingency, you just have to have the ability to be flexible.  How can you be financially flexible?  Don’t live paycheck to paycheck.  Pay off your debts.  Save for a rainy day.  That’s it.

Seriously.

Have you ever been in a situation where you weren’t prepared for what you were getting into?  I had an experience like that in 2007 when I bought my condo.  I thought I was all smart, buying a piece of property that was already down 20%, thinking the real estate market was going to rebound and I would make a killing.  I didn’t.  My place is great, but I wish I had continued to rent.

Yeah, that’s right Ryan, I should have listened to you.  So sue me.

I wasn’t prepared for my property value to continue dropping.  I wasn’t prepared to pay for a plumber to come in when the toilet broke.  And I wasn’t prepared to do the maintenance required to keep up a place.

But guess what?  Everything will be fine – I’m prepared now for all of those things, even if it is a couple years too late.

May 15, 2009 | Filed Under Emergency Funds, Finance, Money

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The Biggest Loser meets The Biggest Winner (you!)

Two friends of mine are getting married this summer, and are having a joint bachelor/bachelorette party in Vegas in about a month.  As a part of the Vegas festivities, they’ve decided to sponsor their own ‘biggest loser’ competition.  No one in our group of friends is particularly fat, but I think this is a great thing, and I signed right up.  I could definitely stand to lose some weight.  It’s even better that they’ve put a definitive goal date and there’s a prize at the end.  They’re even going to set up a weekly mailing discussing everyone’s progress to keep people honest.

This got me thinking, what if we treated our savings goals in the same way? Personal finance has a lot in common with personal fitness – it requires patience, some delayed gratification, some hard work, and more patience.  Both are also very ’simple’ but yet are very difficult for most people.  Losing weight is simply burning more calories than you eat.  Saving money is simply spending less than you earn.

For something like this to work, it would have to have the following elements:

How would you set up a savings competition?  What are you saving for? I think a great way to try this would be to have a savings goal for a group vacation.  Get your friends on board, schedule the date, and then support each other in your savings efforts.  Since the reward (the vacation) at the end is shared by anyone, maybe the winner gets dinner on the group during the trip – just a little something to sweeten the hopper, even though everyone is winning.  Instead of seeing who can put in the most money, maybe everyone agrees on how much to put in per month, and that money is pooled to pay for travel/hotel, and the remainder is split between the members.

Granted, you’d have to figure out how to handle people who put in less, and everyone would need to be in agreement, but since everyone is friends that shouldn’t be too terrible.  What do you think?  Is this a crazy idea?  How would you improve it?

May 14, 2009 | Filed Under Finance, Money, Planning / Goals

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