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Archive for June, 2009

The Savings Sweep – Today’s Quick Tip

June 29th, 2009

NCN

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.

Posted in Savings, Tips

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Breaking Bad Financial Habits – It’s Only

June 29th, 2009

NCN

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.

Posted in Frugality

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Micro-Goals And Staying Motivated

June 25th, 2009

NCN

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.

Posted in Goals, Motivation

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Breaking Bad Financial Habits – Impulse Purchases

June 23rd, 2009

NCN

As you read this, you already know something about yourself, something very important. You know, without even having to think about it, if you are the kind of person who makes impulse purchases. You also know, with equal certainty, if this tendency to make impulse purchases is negatively affecting your financial situation. Over the next few weeks, I’m going to write a series of articles about breaking bad financial habits – and I’m starting with a big one – impulse purchases. To be sure that you receive each of the articles in this series, sign up for my site feed, via RSS or daily email.

First, it might do us some good to think about why we make impulse purchases. I, for one, tend to make them when I’m bored. Others, I’m sure, make them when they’re depressed. You, on the other hand, might only make them when you are happy – or as a way to reward yourself. Whatever the reason, it might be a good time to think of other ways to deal with your emotions, besides spending money. When I get bored, for instance, I’ll head to the gym or go outside for a walk.

It’s also important to think about the situations where we are tempted to overspend. I tend to spend more when I’m out with my family – especially if I’m at the grocery store, it’s getting late, and the kids are hungry. Perhaps you spend more when out with certain friends, or away on vacation. Some might be tempted to overspend when at the mall, or shopping online, or while watching late-night television. As we think about impulse purchases, keep in mind the situations where / when you struggle, and apply the techniques we are going to talk about to those situations.

Speaking of those techniques, here we go -

1. Make a commitment to yourself and agree that you will be more responsible with your finances. Four years ago, I promised myself that I would get out of debt. That commitment required me to make lots of sacrifices. Each time I would think about frivolous spending – I would remember my commitment. It sounds simple, but it really does work.

2. Learn to love your budget. Seriously, get over your fear of “the big bad budget”. We love our budget, because it not only guides us through the month, putting limits on our spending, but it also allows us to plan for little “splurges”. We use the You Need A Budget software to manage our finances. YNAB is a long-time sponsor of No Credit Needed and I’m proud to promote their product. Whatever method you use to plan your spending, honor your plan!

3. Consider an accountability partner. You might want to think about sharing your goal – your new commitment – with a close friend, or group of friends. It really does help to have someone with whom you can talk.

4. Cultivate friends who respect your financial decisions. This one can be tough, but I think it’s very important. If you struggle with overspending, especially overspending as it relates to group outings or activities, you might want to make a few new friends. This doesn’t mean that you have to rid yourself of your old friends, but it might mean that you need to change the nature of your relationships.

5. Think about implementing my $100-a-day-rule for preventing impulse buying. Click to read the post, but here are the details. If I want to make a major purchase, I have to wait 1 day for every $100 that I want to spend. A $400 television requires 4 days of waiting – and researching. This simple, even silly, rule really has helped me.

6. Never make a purchase that you ordinarily would not have made, simply because someone is offering you special financing / special rebates / or special discounts. In other words, never walk into a store, intending to spend $50 on paint, and then walk out with a $800 table saw, simply because the saw was “on sale”. Sales will come and go. If you haven’t planned for it – which means budgeted for it – don’t buy it. (This might mean, that once in a while, you will miss a great deal. On the whole, however, it will also mean that you have remained under-budget and that you’ve avoided foolish purchases.)

7. If you are married, talk to your spouse about ways that you can help one another avoid impulse purchases. It’s funny. A wife can plan to be frugal – and a husband can plan to be frugal – but then the two of them, when shopping together, can tend to be non-frugal. It’s like going on a diet. You might be willing to stick to your plan, but if your wife is having a piece of cake, you might be talked into having a piece of cake. Instead of working against your family goals, agree to be frugal, together. Be on the same team.

8. Make a big deal out of reaching financial goals. We are emotional creatures. If we struggle with making impulse purchases, it’s probably because we like the immediate emotional response we get from buying something. Let’s shift that response away from purchases, and let’s celebrate savings. Stay connected to the process, and you’ll be less likely to spend money on things you don’t really need.

I hope some of these techniques help, or at least get you to thinking. If you have any suggestions, for how we can overcome our tendency to make impulse purchases, I’d love to read them. You can leave a comment, here on the site, and you can also connect with me via Twitter. Simply follow me, and then shoot me a tweet.

Posted in Frugality, Goals

11 Comments »

Rebuilding Cash Reserves

June 22nd, 2009

NCN

I have made a (temporary) change to the amount I contribute to my 403(b) retirement account. After making a few major purchases, it’s time to rebuild our cash reserves.

Our income has been down, just a bit, as compared to this time last year – and expenses have been up. We now have three kids, and our youngest is still in diapers. As a family, we are trying to eat at home more often, and we are focusing on fresher, healthier (and therefore more expensive) foods. I also used some of the money in our cash reserves to purchase some additional (and un-budgeted-for) disability insurance. We also purchased a new computer – a MacBook that I love – and a new lawn mower – which I also love. Adding it up, we’ve spent more this year than in previous years, and now it’s time to reign in the spending and rebuild our reserves.

One interesting thing that I noticed over the course of the last few months, is how strange it feels to buy things, even things we can afford. In the past when I used a credit for most “major” purchases, I would focus on monthly payments, barely giving a thought to the real cost of each item. Now, as I move through life paying cash, it “hurts” to spend money, because every dollar, every single dollar, comes straight out of our bank account, right up front. Buying a $1500 computer requires – surprise, surprise – $1500.

The season-of-splurging (if buying a laptop, insurance, and a lawn mower can be considered splurging) has come to an end. We are going to focus on rapidly rebuilding our cash reserves. Here’s our quick-and-easy plan for piling up the cash.

1. I will temporarily reduce contributions to my 403(b) account. By temporarily, I’m thinking six months, or less. Reducing my contributions will increase our taxable income, but we are willing to “take this hit” in order to rapidly build our cash cushion.

2. I will automatically deposit a set amount, at the first of each month, into my online savings account.

3. At the end of each month, any extra money that I might have earned from blogging or eBay sales will be deposited into the savings account.

4. We will fine-tune our budget, cut out the fat, and go back to our more-frugal ways.

For the first half of 2009, I’ll freely admit, I’ve been a bit more “relaxed” than I could have been. I needed these six months, to focus on my family, my commitments at work, and my health. Now, however, it really is time to “get back into the game” and get serious again. It felt good to spend a little money, and it will feel just as good to rebuild our savings.

Side-Note: I consider “cash reserves” to be any money not allocated to retirement or education savings accounts, and above our standard six months’ of expenses “emergency fund”. Also, even with the reduction in retirement account contributions, we will still be contributing more than 15% of our gross household income to retirement savings.

Posted in Savings

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