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6 Key Personal Finance Lessons

It seems as though a new year brings new hope for many people. This is truly a great thing, as rejuvenation, renewed energy, and a strong sense of direction can go a long way toward improving the quality of our lives. This includes the realm of personal finance, as it fits within our lives.

While setting goals for a new year, and getting ready to charge ahead, it’s often important to take some time to reflect on what we have learned. After all, it’s better to move forward with a more informed perspective that captures what we have learned from past experiences, isn’t it?

Along those lines, I have been thinking about my perspectives gained 2010, specifically as they relate to personal finance. Much of this I had crystallized a few months back, and shared on Yakezie. That said, this seems like a good time to take stock and think about these insights that can help 2011 be an even better year.

Here are 6 lessons that relate to personal finance that I have learned or had reinforced:

Expect the unexpected. Life doesn’t always move forward in a linear fashion. No matter how much we try to avoid them, most of us will have some ups and downs. The “ups” can be fantastic, and the “downs” can be frustrating. Many of us almost expect the positives, and the negatives don’t align with expectations and can ruin our “plans”. To alleviate that, factor in the reality that the unexpected will happen. I have learned that it’s good to frame expectations that way, and realize that things will come out of left field and impact us. That way, you are prepared, even as you optimistically strive for the very best.
Think savings first, lifestyle second. This is an extension of the need to discern wants vs. needs. It’s of course important to enjoy life to its fullest every day, and it can be done within your means. If you do it oustide your means, you’re adding stress that will show up either now or later when the proverbial bill is due. It’s so much better and peaceful to live within your means and save appropriately. Life can be rich either way.
Even before savings, think of earnings. You can cut as many coupons as you want, but it’s better to focus first on actually making the money that you ultimately want to save. If a company had steady revenue but was not working toward growth prospects or protecting it’s earnings, this would be reflected in it’s stock price. Who would want to invest in such a stock? Let’s remember that we need to have positive cash flow before we can think of saving it.
Diversify your income potential. In the days of yesteryear, some people would stay with one company for 30 years and get a small pension and a nice parting gift, such as the classic “gold watch”. These days, for the most part, our future is self-directed. You will buy your own gold watch, so to speak. To that end, hitching your wagon to one employer or source of income is shortsighted. Rather, keep your skills fresh and current, and continually build and maintain your network. Additionally, think like an entrepreneur and better yet, become one – even if on the side.
Enthusiastically pursue your goals. We all have our goals and dreams. To my way of thinking, as long as you’re not negatively impacting anyone else’s life, and are also being responsible, allow yourself to get fired up, have fun, and go for it!
Be a giver. Reward those that have been loyal to you. There are probably more people than each of us might suspect, at first glance, that have really done some nice things for us. Let’s remember this. In addition, it’s important to selflessly give to others without strings attached. It feels great to help others, and it can be done without possessing great means, while responsibly being done within our means. Even though you don’t expect anything directly back, you will be rewarded in some way, whether immediately or somewhere down the line.

These happen to be mine, but what about yours?

What lessons have you learned or had reinforced within the last year, that you can put to great use going forward?

Flexibility and Embracing Change Helps the Bottom Line

By Squirrelers 7 Comments

Recently, the family spent a day together visiting downtown Chicago. One of the things we planned was a visit to the top of the John Hancock building, which rises 1,127 feet from the heart of the shopper’s paradise known as Michigan Avenue.

For those of you who haven’t been to Chicago, it’s a city with a remarkable concentration of skyscrapers. In fact, 4 of the 7 tallest buildings in the United States are in Chicago. The John Hancock building comes in at #4 in the city, but offers arguably the best views, with a clear look at Lake Michigan, and the city in all directions.

We got to the observation area on the 94^th floor, and then proceeded to take in the views. It was a real thrill for me, despite having seen this several times in my life, because I got to take my 7-year old for her first visit to a true skyscraper.

As I was excitedly showing her all the sights, such as the lake, and all the rooftops, and how you could squint and see Michigan across the lake – I then pointed to the tallest building in Chicago. “See that”, I exclaimed, “That’s the Sears Tower!”

“No it’s not”, my daughter calmly said.

“Sure it is, sweetheart”, I said. “It’s the tall black building over there”.

Then – to my surprise – she said, “It’s the Willis Tower. It used to be the Sears Tower but now it’s the Willis Tower.”

“Well, I like to call it the Sears Tower”, I said. “You can call it the Willis Tower if you want to.”

“Why do you want to call it the Sears Tower when that’s not its name anymore?” she then asked.

I had to stop and think about that. Why would anyone call this building by an old name? Well, the building was called the Sears Tower from its opening in 1974. From the time I was a kid, I had always known that the tallest building in the United States was the 1,451-foot tall Sears Tower. But on July 16, 2009, after 35 years of being known as the Sears Tower, this iconic building was officially renamed the Willis Tower.

It dawned on me that I was totally holding on to what was familiar, what fit into my comfortable view of things. Clearly, for many in my generation, that building is the Sears Tower; it’s what we know. But to a whole new generation of people, it’s the Willis Tower. For now, that is. It could be altogether something else in the future, who knows. But it’s no longer the Sears Tower.

As I think about this, I wonder just how often we hold on to old beliefs, clinging to what makes us comfortable, because we are resistant to change.

Could this apply to personal finance?

I think it could, in many situations.

For example:

Clinging to old views on real estate: “you won’t lose money on a home over time, homes are always a sound investment”
Holding on to investments too long: “I know this stock has dropped, but I don’t want to sell it until it comes back up in value”
Staying with the same job too long: “My employer will always take care of me”
Resistance to learning about new techniques: “I don’t want to pay any bills online – I only want the old-fashioned way of writing checks”
Refusing to explore diverse investment opportunities: “I’ll just stick to what I already know”

Things change, and we have to adapt to the times. It’s important to keep our core values and beliefs, but also accept that it’s important to keep an open mind and learn at all times. These positive, open traits can lead to a more positive orientation toward wealth preservation and creation.

What do you think? In the world of personal finance, do you know anyone who sticks to long-time beliefs, but could benefit from fresh thinking and an open mind?

Random Acts of Kindness Can Bring Riches of Happiness and Experience

By Squirrelers 11 Comments

Many of us are so busy in our day to day lives, that we don’t take the time to realize how something so small can mean so much to someone. We tend to look at things from our own individual perspectives, and value certain actions or objects based on what they mean to us. There’s the saying that one person’s trash is another person’s treasure. Not the perfect analogy here, but an action that’s no big deal to one person may be special to another.

I had one of those experiences the other day. I ran into a elderly gentleman who was in a motorized wheelchair. He didn’t look healthy, and seemed to have a sad face. He was asking people, while in a public walkway, if they could help him. Most kept walking by.

As I walked by him, slowing to get a better sense of what he was about, he looked at me and said, in a raspy voice, “excuse me, would you be willing to help me?”

Now, living in a large metropolitan area, I have seen all kinds of scams. Plus, you never know when a seemingly innocuous situation could be a setup.

That said, I still stopped and asked him, “What do you need?”

He looked at me, seemingly with relief and appreciation, and said – with difficulty – “Can you please pick up that book for me?”

Next to his motorized wheelchair was a book, almost like a diary of some kind. I looked around, making sure this was legit (you never know, I thought), and grabbed this book for him. Then I handed it to him. He took the book gently from me, hands shaking, and said “Thank You”.

He then proceeded to tell me it’s a book that’s important to him, and unfortunately he just couldn’t pick it up when it was on the ground. He had real trouble getting in and out of the motorized wheelchair. The part that hit me, though, is that he said “I really appreciate that you did this for me. Nobody else would stop and help me. They all walked by me without answering or just said no.”

It made my stomach turn when I heard that.

Then, I asked him if he needed any other help. He said “No, thank you. I just really appreciate you doing that for me. Thank you very much, it was really helpful to me.”

I followed by asking “Do you have anyone nearby to help you?”

He said “No, I live alone. It’s not easy but I have my phone with me if anything really bad happens to me. I had internal bleeding last year and a heart attack, but the ambulance got there just in time.”

I asked again if he was sure about not needing anything, and he said he was sure, and he thanked me again. Then he slowly motored onward, as I watched him move on. After a few seconds, I moved on too.

As I reflect on that situation, I think of that old man – so frail, with so little energy, and little mobility. And nobody living with him. He had a very tough existence. Yet he carried on, and showed me appreciation for helping him. I just did the right thing, nothing more.

The people that walked right by him missed out on a great opportunity for a chance encounter that could have enriched them immensely. How can we be so callous to let this be the exception, rather than the norm, when it comes to helping someone? I felt bad for being leery at first; I could have walked by him too.

I have to say, whatever small amount of help I gave him, he gave me much more back in terms of happiness for being able to truly help someone who needed it. More than that, he taught me how someone in a tough situation can still be nice to others and appreciate what they have. It was actually a moving experience.

What a great investment of my time. It paid off tremendously.

Wherever you are, sir, I hope you’re well. It was great to meet you. And by the way – thank you.

Movie Tickets are Free When You Use a Credit Card, Right?

By Squirrelers 9 Comments

I recently went to see a movie with my 7 year old daughter. It was going to be a great Daddy and Daughter time, just the two of us having a fun few hours.

I had promised her a chance to see the most recent Shrek movie, and she was excited about it. For me, there was excitement because this might be the last movie in the Shrek franchise:) That said, I was looking forward to the movie because of the chance to share in her excitement, and to have a fun Sunday afternoon together.

So we went to the theatre complex, I parked the car, and we walked in. We saw on the marquee that the movie was playing in three forms: normal screen, 3-D, and 3-D on an IMAX screen. For those that haven’t experienced it, the IMAX is pretty cool – you get to see the move on a much larger screen and in higher resolution. The sound systems are typically very good, so the overall experience is different but a bit better in my opinion.

Anyway, my daughter saw that it was showing in IMAX and got excited about the possibility of seeing the movie in that particular format. She really wanted to go. So, what does a dad do? I said yes. Couldn’t resist, and actually, I didn’t think about the consequences. Perhaps it was a few dollars more, I thought, but I really didn’t give it much more thought than that. I just thought of her happiness and excitement.

So we walk up to the ticket counter, and I ask for one adult ticket and one child ticket. The cashier promptly said: “That will be $30.50 please”.

I paused. I did a double take. I thought to myself…$30.50? Really? Are you KIDDING me?

So, I asked the cashier how much the other options were. She said it would have been $14.50 on a conventional screen, $23 to see it in 3-D, and $30.50 to see it in 3-D on IMAX.

I looked down at my daughter, with those puppy dog eyes of hers looking up to me, and I said to the cashier: “That’s fine. Here’s my card.” Then I let my daughter hand the card over (by the way – that’s not my daughter in the picture; kids aren’t growing up that much faster these days!)

So, as we walked into the theatre and to our seat, she said: “Daddy, these tickets are expensive.” Feeling like I had already said enough about money after questioning the cashier, I told her that it was ok and that I was glad that we were going to have fun.

Then, she surprised me, as kids often do to their parents. She said: “It’s a good thing you used your credit card so we didn’t have to give them any money.”

I paused, and thought to myself, surely she doesn’t think these were free. A few months back, she had shown some surprising maturity for such a young kid, when she told me about saving and investing. This time, it looked like another learning opportunity to teach a child the value of money. Just to confirm, I asked if she thought that using a credit card means that we weren’t paying anything.

Her answer: “If you use your credit card to get something, it means it’s free!”

So, I tried to explain to her that if that were the case, then wouldn’t everybody use them?

“Yes”, she said. “If they don’t make what you buy free, then how do they work?”

I quickly came up with an example. I started by saying, “let’s pretend that you buy 10 hamburgers in a month, for $1 each. With a credit card, you can charge them each time, and then pay all $10 at the end of the month.”

She immediately said, “But I don’t like hamburgers that much!”

OK – I forgot that I was talking to little kid here! Let’s try again, I thought.

“Well, instead let’s pretend that you bought a barbie doll for $10”, I said. “If you pay with cash, you will pay the store $10 right away. If you pay by a credit card, you don’t pay them right away – but will pay in a month after the credit card company sends you a bill.”

“Why would you do that?”, she said.

“You would pay them because you owe them. Since the credit card company let you buy the things with their card, you will owe them later”, I said. “It’s not fair for them to let you buy things, and then you don’t pay them back.”

I think she got that, from her expression.

Then I added, “the good thing is that you can buy even more things, add up the cost, and pay them the total when the send you the bill. So if you got another Barbie two weeks later, and it was also $10, how much would you then owe the credit card company?”

She thought about it, and said, “You would have to pay them $20”. I was pleased – she figured out how the payment process works. At least that part of the equation was understoon, which is a good start!

Ultimately, I can’t pretend credit cards don’t exist. They do. Some even offer cash back. I want her to eventually have an understanding of their proper use, the need to never carry a balance or pay interest/late fees, and the benefits of cash.

Overall, this experience reinforced and also taught me a few more things about kids and money:

Don’t assume that they understand what appears obvious to you. Clearly, we all know that credit card doesn’t equal free. While far too many adults still charge away like there are no consequences, if you’re reading this or other personal finance blogs, you probably don’t do that. But if some adults actually do have difficulty understanding some basics, then it’s certainly understandable how kids have their own learning curve as well.
When explaining a concept to kids, keep it simple. Instead of complicating it as I initially did, I changed tactics and talked about one barbie doll instead of 10 hamburgers. One purchase makes it a simpler concept.
Make it interesting. Talking about hamburgers got her distracted. Talking about something she likes, Barbie dolls, kept her engaged.

Have you had any experience teaching kids about credit cards – whether younger child or teenager? Any tips to share with us?

The Frugal Athlete

By Squirrelers 2 Comments

It takes a highly positive, can-do attitude to be a great athlete. You have to have a vision to be the best you can be. Set high goals, work hard, practice, and demonstrate great determination. Make it all second nature, a part of your persona. Then, after a lot of effort, commitment, and dogged perseverance, you make yourself into the athlete who wins the big trophy.

The frugality trophy, that is.

What? Did you think I was talking about sports or fitness?

Actually, I was talking about what it takes to become a great frugal athlete!

The term “frugal athlete” could mean many things. One definition could be an athlete that happens to be frugal. You know – someone who wants to get in shape without spending a lot of money. That would be a great topic, perhaps one for another article, but I’m talking about something different here. When I talk about a frugal athlete, I’m talking about someone who is a highly skilled, competitive athlete in the sport of frugality!

Let’s face it: there are many people that thrive on living within their means, and maximizing the income minus expense gap. To do that, you have to:

a) protect and maximize your income earning potential; and

b) maintain a disciplined approach to keeping expenses low

As financial athlete, you take the two together. We can call that cross-training:) But in terms of the sport of frugality, we will focus on the latter: managing expenses.

So, how do you become a frugal athlete? Well, let’s just say I’m continually working on the “manual” as I train, day by day! But here is how I view it:

1) Visualize success. Just as athletes work toward the goal of winning a championship, making the game winning shot, or getting the clutch game winning hit, the frugal athlete can work toward his or her individual, overall financial goal. Within that goal is the sub-goal of reducing expenses to the lowest reasonable level at which a comfortable lifestyle can be lived. As with many things, what is “comfortable” is relative to each of our individual tastes. That said, it’s visualizing where you could be in terms of spending – living a waste-free life that’s comfortable, where you don’t throw away money but do get value for every hard-earned dollar you spend.

2) Break apart the long-term goal into tangible, intermediate goals. Just as a pitcher in baseball learns his pitching mechanics, fastball, curveball, pickoff move, fielding skills, etc – you can break up your frugality goals into different tasks. These might include: deciphering wants vs. needs, knowing where to shop for groceries, learning how to obtain the best mortgage, learning the best sources for online coupons, etc.

3) Train effectively. Just as an athlete works with knowledgeable trainers and uses the latest techniques, the frugal athlete should do the same. To me, this entails spending time learning from the most current and knowledgeable sources – such as books, blogs, and those who have achieved frugal success themselves.

4) Practice Regularly and Routinely. Natural talent alone will not get it done here; you must work hard at making frugality a part of your daily routine. This could mean substitution: cutting out that $3 daily latte for a $1 cup of coffee instead. Or, it could mean cutting out that cup of coffee for water, thereby kicking that caffeine habit. Perhaps it means checking online for coupons before grocery shopping at a store with good prices, as opposed to going to a pricier store that you’re used to visiting. No matter how you do it, you have to practice. The more you practice, the better chance you have to succeed.

5) Persevere. Just as an athlete must press onward in the face of obstacles, so must the frugal athlete. A basketball player, for example, may get up at 5:30am in the off-season to run sprints and keep in tip top shape. If he gets tired, loses focus, and skips a few days – then he slips back a bit in his conditioning. He needs to be mentally tough. With the frugal athlete, it means keeping your focus and discipline when you have weak moments. For example, you may want to give in to the temptation of buying a very nice pair of shoes at the mall, but when you realize it will blow your budget, you pass on the opportunity and head down to a less expensive store. Emotion can be a big obstacle to staying disciplined.

Ultimately, the athlete who takes these steps will be in a great position to succeed and meet that big goal, be it winning a tennis tournament or achieving a personal best in a marathon. For the frugal athlete, taking these steps could lead to achieving the goal of bringing down expenses as a part of maximizing the income minus expense gap. The prize in this case could ultimately be financial freedom.

Is this a bit esoteric? Maybe it is. But we can learn a lot about reaching goals and becoming our best from areas outside of personal finance. Applying these principles to our money management could lead to our own victories that bring us a higher quality of life.

What do you think? Do you think that we can learn from other disciplines to become better at managing our money and reaching our overall goals?

This post was included in Festival of Frugality #232 at Provident Planning

Lessons Learned: Baby Clothes and Toys on a Budget

By Squirrelers Leave a Comment

The birth of a child is one of the greatest joys in life for most people. For many people having their first baby, there is a tendency to buy a lot of new things and sometimes more than truly necessary. This is certainly understandable, as that little prince or princess deserves to have good things in life, which includes fun developmental toys and nice clothes.

As a parent of two kids, experience has taught me that while it often makes the parents very happy to buy all the best new outfits and gizmos for their kids, the kids themselves don’t care. After all, they wear diapers and don’t exactly analyze how their clothes will look and how clean they will be after a long day. Do they care if they’re wearing last year’s styles, or playing in a great looking but 2 year old pack and play? Of course not – but the parents sure do!

And why is that? Why, when it makes no difference to the child’s well being, development, or happiness, do many of us who are parents focus on getting everything brand new? Its emotional, irrational, and sometimes an attempt to “keep up with the Joneses”. Frankly, this is understandable to some degree, considering the deep love parents have for children. After all, not all purchase decisions need to logical – some can be emotionally driven and that’s ok. That said, if one does try to make the decision as logical as possible, it truly makes no sense to purchase only new items for a child when it makes no practical difference anyway.

With my first kid and second kid, generous shower gifts were a blessing and a nice help. Beyond that, everything for the first child was purchased new. For my second child, I used my experience and employed the following strategies:

1) Barter with friends. This has worked very well with clothes. I have a 6 year old girl, my friend has a 4 year old girl; I have an infant boy, my friend has a 1 year old boy. The informal system has worked like this: when my daughter outgrows her clothes, some are passed on to the friend’s daughter; when her son outgrows his clothes, they are passed on to my son. It works out well. Of course, only VERY clean and gently used clothes are passed on. For my daughter, given that she’s older, I’m not sure I would feel the same way about “hand me downs”, but for a baby it’s all good. At that age, they don’t know the difference. The same applies for toys, provided they are in good working order and are safe (no loose parts, no recalls on the product, etc),

2) Accept gently used items as “gifts”. In this case, instead of bartering, sometimes friends will just “give” you some nicely used items instead of a quid pro quo exchange. This works well, though I ALWAYS maintain that if you’re willing to take, you must be equally willing to give. This means that you are also willing to give as “gifts” to folks in just the same way. Much like networking, this approach only truly works in the long run if there isn’t scorekeeping.

3) Buy on Craigslist. I purchased a pack and play playpen (retail over $150) for $65. The catch is, it was a few years old and gently used. That said, I carefully inspected the item before purchasing it, asked all relevant questions, and made sure it was clean and safe before paying for it. In addition, I have purchased a light stroller, a “bouncy” seat, and an ExcerSaucer – all at similarly discounted prices. The results have been great – these have worked very well, just like new. One note: I have not purchased clothes this way, as I feel better about buying toys from strangers but not clothes – but others may feel more comfortable with it, that’s just a personal choice.

4) Shop Sales. Shopping opportunistically, you can periodically identify some great deals – particularly with clothes. Even if the outfits are too big for your baby, he or she will grow into them. For example: fight after my son was born, I saw a few 9-12 month outfits that were of good quality, originally $9.99 marked down to $1.99. I don’t necessarily advocate going out of one’s way to do this, as often times our time is much more valuable than saving a few dollars. But let’s say you are in a mall and happen to walk by a store with some great deals, its not costing you much time incrementally, so it could be worth it.

When it comes to cribs, car seats, etc – that’s a whole different topic. Some things you just have to be extra careful about when it comes to buying used, unless you trust the source. For my son’s crib, I trusted the source – as I had originally purchased the crib for my daughter, who has long outgrown it. Generally speaking, when it comes to health and safety, newer is better.

With baby clothes, toys, playpens, etc – gently used is a better option than new in my opinion, when factoring out the emotional component (which again, doesn’t always need to be factored out all the time). When taking this logical approach, you can afford that baby. One can look at it as analogous in some ways to buying a used vs. new car – you get much of the benefits, but the merchandise has depreciated in value. Except in this case, the clothes and toys have probably depreciated MUCH more! As I can attest to, doing things differently with my second child, it can easily save hundreds of dollars in the first few months alone. Considering all of the costs already associated with having a baby, this can be a big help for many people.

This article was featured in Festival of Frugality #278 at Live Real, Now

Teaching Young Kids the Value of Money

By Squirrelers 5 Comments

Childhood is such a great time of life. Many lucky kids are able to be taken care of in terms of food, shelter, clothing, and school, all the while being able to play with friends and toys. Given how special childhood is in the life of a person, parents often face the dilemma, in many situations, of how and when to shelter their kids from “real” life. After all, childhood is a time of fun and innocence, right?

Questions such as this often come into play when it comes to money and kids. While questions can take various shapes and forms, they can be summarized with the overarching question: “How can you teach kids the value of money, so they learn to be financially responsible adults later in life?”

As a parent of a 6 year old child, I’m early in the game. She’s too young to understand and fully appreciate the value of money. My daughter, like many other girls her age, likes toys. But its not just toys she likes – it’s also books, movies, arts, crafts, etc. Thinking about fun usually comes first for kids, and thinking about financial constraints does not. That said, I am committed to raising her in a way that she appreciates the value of money, and is ultimately a very responsible young woman later in life. To that end, I have been working on setting the foundation for this future.

Here are my tips for getting started with teaching young children the value of money:

1) Explain how money is earned. It seems obvious to us, but kids don’t intuitively understand. One of my friends shared with me that his 8-year old thought money came from ATM machines – whenever you needed more, you just went to the machine! I have tried to teach my daughter than we get money by earning it. When I do work, I get money. If I don’t, I won’t get money. This simple way of putting it makes it clear, without confusing them.
2) Explain how we acquire “things”. Most items – be it a car, furniture, food…and yes, toys – cost money. Thus, if we want something, we must use money.
3) Give an allowance. A small allowance for a child will teach them that the limit to what they can spend is what they have. I am not an advocate of linking household chores to money, as these are things that we all need to do and don’t get directly paid for anyway. There are pros and cons to this, but my approach is to have kids view this as we would view a “salary”.
4) Link basic math to money. My 6 year old has had some math exercises at school where she is shown pictures of different coin combinations, and she has to write the number that corresponds to the cents displayed in that combination. This equates money to quantifiable, numerical units – and makes it more real, in a language that they are beginning to understand. They know at 6 years old that 3 plus 2 is greater than 3 plus 1, for example, so by extension they realize that 5 dollars are more than 4 dollars. I reinforce this in some of the supplemental work I do with her at home.
5) Comparison shop with them. When they go to a store, they can compare how one product costs more than another. For example: why does one toothpaste cost $3.99 and another cost $2.99? Why pay $1.00 more – are you getting anything extra for that additional $1.00? When these questions are asked, as they understand math, it offers examples of how to make wise decisions when it comes to money.
6) Translate savings into “things”. To take it a step further, I link the savings to something she likes, such as a stuffed animal from Build-a-Bear (what an interesting business model, by the way). She can see how purchasing one toothpaste over another could save $1.00, and saving $12.00 through different purchasing decisions could allow for a nice new stuffed animal to be purchased.
7) Introduce the concept of the time value of money. Compounding, of course, is a critical concept in personal finance. One can “introduce” this concept by simply giving an example such as: “if you have $100 and you don’t spend it, after one year it might be $105. So instead of 100 sticker booklets, you could get 105 sticker booklets” (not that anyone needs that many, but you get the idea!). This gets a kid motivated to save money. I have described this type of example to her as showing the value of “investing.”

Has this worked? Recently, when we were in a bookstore, she was looking at books and wanted to buy something that cost $15.99. On her own, she said, “I can just buy this book for $4.99 and then (pause, as her mind is working to do the math) I can save $11. I like the book that’s $4.99 better anyway.” I told her I that I thought she was making a wise choice, and asked her what she could do with the $11 that wasn’t spent, and she smiled and said, “Save and invest!”

Needless to say, as someone who has a personal finance blog, I was pleased 🙂

I have to confess, I ended up caving and bought her the $15.99 book anyway! That smile of hers just took my heart away (as if that wasn’t the case anyway). The way I see it, she has been learning her lessons well – and besides, childhood is a time of fun and innocence, right? We can teach lessons, but can’t be frugal all the time!

This post was included in Carnival of Personal Finance #255 at Well-Heeled Blog.

Get off the Canvas: 10 Steps to a Personal Finance Recovery

By Squirrelers Leave a Comment

“It won’t happen to me!”

Job loss, divorce, serious illness, accident, act of nature. Each of these situations happens regularly throughout the country, to people of all walks of life. No matter what demographic, gender, or socio-economic segment you look at, these unfortunate situations happen in each of them. Somewhere, probably even close to you, each of these is happening today.

But many of us don’t expect these things to happen. Sure, maybe we acknowledge that one or two of these types of things could happen, but we don’t dwell on it. Or, perhaps, we have been impacted by one or more in the past, and feel that we have “learned our lessons” or are “past our misfortunes.” Being an optimist, I certainly would like to believe that. I truly believe in positive thinking, and its power. Your outlook can to a large degree shape the direction of your future. That said, we also have to be realistic and accept the reality that stuff happens.

The thing is, its not just the emotional or physical aspect of the situation that ends up making an impact on your life. One way or another, it’s the financial impact that comes into play as well, and that can knock us to the canvas.

In getting back up off the canvas, and making a personal finance recovery, here are 10 steps that can help get you back on track:

1. Figure out exactly what has happened, and why it happened. This may seem sophomoric on the surface, but often times we are on a path to get ourselves in a situation but we just don’t realize it or understand why its happening. Take the time to figure out what the source of the problem was. If a job loss, could you have been more attuned to impending layoffs, performed better, or built your network better? If a divorce, could you have communicated better with your spouse, or more importantly picked the right person initially? If a health issue, could you have done something ahead of time to prevent it, such as stopping smoking, eating healthier food, or exercising more? Figure it out and learn from the experience to better position yourself to succeed in the future.
2. Make a budget. Take stock of your current expenses and your actual needs, and then put together a realistic budget that you could follow. Be sure to add in room for so called “unexpected” situations, and build an emergency fund contribution to the budget. Additionally, save money for future purchases – for example, even if you have a car with no loan outstanding, save regularly as part of your budget for your next vehicle.
3. Track expenses. By this, I mean track your daily expenses. All of them. Even 25 cents for a parking meter or a gumball for your kid – track it, record it. As you track expenses, be sure to categorize appropriately – not to broad, but not too few.
4. Reduce spending. As you track your spending, you will most likely identify categories where you are just shocked at how much you’re spending. For example, if you have been spending $3.00 each morning for a specialty coffee, you may be surprised to see how you’re dropping about $90 per month if done daily. You’ll be aware of the opportunity to reduce spending, and can then make a plan to do so.
5. Set goals, both long and short-term. Where do you want to be 20 years from now? Visualize your future and set goals that a part of the process of getting you there. Short term goals are building blocks to larger term goals. For example, lets say you want to go from a negative net worth to $1,000,000 in those 20 years. First set short-term goals around getting your expenses well below your income, then becoming debt-free. Make the goals realistic, but a stretch.
6. Make it automatic. Pay bills automatically, via online services. This will keep you from missing payments, which will help your credit rating. Don’t forget: make paying yourself automatic as well.
7. Check your credit score: Credit scores range from the 300-range to 850. A higher score will get you better access to loans, and at better rates. Plan to actively work to keep your credit score high. Check Equifax, Experian, and TransUnion once per year each.
8. Correct any credit errors: Inaccurate credit reports can cost you considerable time and energy to rectify, but you could save yourself considerable time, energy, AND money if you clean up your record. Don’t let an inaccuracy impact your ability to get back up on your feet and reach your goals.
9. Improve your knowledge of personal finance. Invest your time in learning many aspects of personal finance: the basics, philosophies, and specific strategies. Read multiple primers on personal finance, to gain different perspectives. Then, on specific issues, drill down further and develop a better understanding to the point that you become confident in your decision-making in that particular area. For example, if you don’t know much about Roth IRAs, read about the subject to the point that you could lead a conversation about the topic and actually make intelligent recommendations to others.
10. Invest in your career. Simply put, for most people, your earning power is one of the greatest assets you have. Most people have a lot of room to increase savings, but there comes a point where you can only limit your expenses so much. Its better to focus on living within one’s means and make that a habit, but really devote your energy and intellectual efforts toward your career.

Overall, being positive, taking action, and taking personal responsibility for your future financial success will be a big help in helping you reach your overall life goals. These 10 steps are a good start in that direction for those who are getting back on their feet