Monthly Archives: June 2009

The Savings Sweep – Today’s Quick Tip

Today’s Quick Tip – The Savings Sweep

At the end of each pay cycle, right before I receive a paycheck, I’ll do a savings sweep.  I take a peak at my monthly budget, notice any categories where I might have “left over” money, and sweep that money from my checking account into my savings account.

Benefits of Today’s Tip –

  • Savings account pays higher interest rate than does checking account.
  • Money in savings account is harder to spend than money in checking account.
  • This gives me one more chance to analyze and tweak my budget.
  • I am motivated to live under-budget, so that my sweep amount can be maximized!

Bonus Tip –

If you are in debt, consider a payment sweep.  Instead of sweeping “left over” money into savings, consider making an additional payment to one of your creditors.

I always keep a small amount in my checking account.  This would be especially important for those living without free checking.

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Breaking Bad Financial Habits – It’s Only

It’s only twenty dollars…

It’s only three percent…

It’s only for six months…

It’s only – Is there a more powerful, desire-justifying phrase in the English language?  How many times have I blown my budget, because I fell into the It’s only-trap?  Seriously, even those of us who are trying to follow our budgets tend to spend more, in bits and pieces, when we convince ourselves that twenty bucks, spent here or there, is no big deal.  It’s only twenty bucks, right?

Only after we get home, and reconcile our checking accounts or take a look at our wallets, do we recognize the truth – All of those it’s only-purchases have used up our cash, depleted our checking account, and inflated our credit card balance.

Over the next few weeks, I’m going to write a series of articles about breaking bad financial habits – To be sure that you receive each of the articles in this series, sign up for my site feed, via RSS or daily email.

A few days ago, I talked about impulse purchases, those spur-of-the-moment purchases that break our budgets.  The first cousin of the impulse purchase – is the it’s only-purchase.  Remember, it takes just the briefest moment of weakness, the slightest mental hesitation, for a company to convince us to spend money on their products.  And, unfortunately, these companies are aided by our own internal weakness – the it’s only-gene, if you will.

Here’s how I’ve learned to deal with the it’s only-gene.  Think about these techniques, and see if they might work for you.  If you have other techniques or tips, feel free to share them in the comments section.

1.  Recognize that some it’s only-purchases are okay.  Seriously, once in a while, it’s cool to “waste” a little money.  I have three kids.  There are times, when we are at a restaurant or at the store, that’s it’s fun to give them each a dollar, and watch them purchase a bouncy ball or a fake tattoo from one of those little machines.  In our budget, we have a miscellaneous category.  Each month, we allow ourselves – and our kids – to be a little frivolous.  This keeps us sane.

2.  Admit that most it’s only-purchases should be eliminated.  Clearly, it’s cool to have a little fun, but let’s not get carried away.  If we are not careful, one dollar becomes five dollars, and five dollars becomes twenty dollars, and twenty dollars becomes one hundred dollars.  Create a specific amount for miscellaneous spending, and then honor that amount.

3.  Avoid situations that promote it’s only-purchases.  I’m married, with three little kids, and I know how little kids think.  They love to spend quarters on video games, toys, soda, and other assorted junk.  Knowing this, I tend to avoid situations where this assorted junk is available.  If I have a choice between restaurant A or restaurant B, I will tend to favor the restaurant without the massive wall of arcade games.  Depending on your age or station in life, you might need to avoid situations and places where you tend to overspend.  For some, that means skipping a visit or two to the mall.  For others, this might mean no more online shopping.

4.  Learn to substitute.  Instead of rewarding yourself (or you kids) with numerous, small, it’s only-purchases, reward yourself (or your kids) with really awesome free things!  Take your kids to the park.  Go to the library.  Pop some popcorn and watch a move at home.  Find free things to occupy your mind (and their minds).

5.  Do a little math.  If you are unmoved by any of the emotional reasons for avoiding it’s only-purchases, consider the mathematical reasons.  $10 per day, for one year, is $3,650.  If you continue to save, at $10 per day, for the next 50 years, and you get a modest return of 5%, you would have over $790,000.  Seriously.  Those it’s only-purchases really do add up!

Let’s leave the it’s only-purchases in the past.  Instead, let’s have a little fun, stick to our budgets, find alternatives to spending, and remember the long-term financial benefits.  In the end, we will not miss those unnecessary things, and we’ll be glad that we learned to be a bit more responsible.

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Micro-Goals And Staying Motivated

I’ve been thinking about motivation.

Where does it come from?  How can it be maintained?

My primary motivation to get out debt was born out of a desire to have more control over my life.  To be frank, I was tired of living with the constant burden of interest payments.  Deciding to do something about my debt, I began to make major changes in my spending and saving habits.

I’ve come to the conclusion that there were forces, external and internal, that combined to push me towards my decision to get out of debt.  First, a few months before I began to get out of debt, I began to listen to Dave Ramsey.  Day after day, I would listen to his radio program, and week after week, I was encouraged by the stories of those folks who were getting out of debt.  Regardless of whether you agree with Dave’s techniques, you have to admit that he is a dynamic motivator.  Second, I began to think about my situation, and a great anger began to build, deep in my spirit.  I was angry – with myself – for working so hard, for so long, and having so little to show for it.  Third, I looked around, and realized that I was a father, with two kids, and a wife, and I needed to do a better job of preparing our family for the future.  These forces combined to, quite literally, create the motivation that I needed to get out of debt.

But what kept me going?   I had tried to get out of debt before, only to fail.  Why was this time different?

Looking back, the biggest difference was, that in the past, my only goal was to “get out of debt”.  There’s nothing wrong with this goal, except for the fact that it’s too vague.  This time, when getting out of debt, I broke my goal down into specific, manageable micro-goals.  So, instead of saying “I want to get out of debt” my next micro-goal became “I want to send $200 to American Honda Finance, this month”.

By focusing on these smaller, realistic micro-goals, I was able to stop thinking about my total debt balance, and really focus on the next creditor on my debt reduction plan.  Shoot, not only could I focus on the next creditor, I could focus on the very next payment.  In other words, I kept my nose to the grindstone, and tried not to look up until I had completed each of my micro-goals, and ultimately, my final goal.

After getting out of debt, I didn’t stop setting micro-goals.  Instead, I picked an amount that I wanted to save, set a date for saving it, and then broke that amount down into monthly (and eventually weekly) micro-goals.  I created a system that gave me almost instant feedback, making either payments or deposits, not on a monthly or quarterly basis, but on a weekly, or even daily, basis.  I never lost my motivation, because I was constantly creating, then achieving, micro-goal after micro-goal.

If you are struggling to stay in-the-game and remained focused, consider breaking your goals down, into smaller and smaller micro-goals, until you are forced to remain engaged.  I’ve written about the success I had making multiple monthly payments.  This technique not only reduces your average daily balance, but it keeps you focused on your debt reduction game-plan.

After getting out of debt, and saving up an emergency fund, things get a little trickier.  Why?  Well, the main goals – and thus the micro-goals – aren’t so clear.  Do I want to save for retirement?  Yes.  Do I want to save for kids’ college?  You bet.  How about saving for a new house, is that important?  Oh, yeah.

I have had to learn how to focus on more than one goal at a time.  This is a little more difficult for me, because I like the immediate impact of putting all extra available income towards one goal!  (In other words, it’s more fun to see $600 deposited into my saving account than it is to see $200 deposited into my Roth, $100 into my daughter’s ESA, $100 into my son’s ESA, and $200 into my wife’s Roth.)  Slowly funding these accounts, quite frankly, isn’t nearly as fun as rapidly building an emergency fund, but it’s something I’ve learned to do.

I think, when you first begin to focus on your finances, it’s important to be like a laser, and focus on the very next micro-goal on your list.  As you mature, it gets easier to spread your focus, just a bit, and focus on several micro-goals at once.  If, however, you’ve been doing this a while, and you feel like you are losing that focus, take a breather, block out all of the other goals, and go back to one, specific, manageable micro-goal.  I think that you will soon find that familiar motivation that got you started in the first place.

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