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Day 29: Don’t Feel Bad For Keeping Things Simple

Here’s what I think – If you spend enough time reading about personal finance, watching CNBC, and visiting financial websites – your head might explode.    With all of the information that is available, you would think that everyone in America would be financially secure, out of debt, well-diversified, and on the way to enjoyable retirements.  But, as you well know, most folks are living paycheck-to-paycheck, in debt, poorly invested, and worried about their retirement plans.

Is it reasonable to ask – “What’s wrong”?  With so much information – so many ways to “get” educated and “take control” – why are so many people still struggling financially?

I think I know.  Taking control appears to be “too complex” – so most people throw up their hands and settle.  Most people don’t have (won’t take) the time to sit down and create a budget – because they don’t really know where to begin or how to begin.  Lots of folks (contrary to what most personal finance bloggers might think) don’t pay off their credit cards each month – even though they know they should.  I have seen statistics that over 50% of married couples don’t have wills, that more than 35% of workers don’t contribute to 401ks and that more than 30% of workers have borrowed from their retirement plans to pay off debt.

Why?  If you talk to people, they will quickly admit that they worry about their money – but that’s about as far as it goes.  Clearly, there is a huge gap between where folks wish they were and where they actually are.  Pick up any personal finance and you’ll see dozens of ‘how to’ articles.  Surf through my site (or those listed in my blog roll) and you’ll pick up tip after tip after tip – idea upon idea – for saving money, getting out of debt, and retiring with dignity.  But (and this isn’t a sentence I will enjoy typing) most of the folks I know in real life are still confused, still in debt, still afraid, and still worried about their finances.

I cannot put this off to the standard – “their lazy, they don’t care”.  So, I think that the problem is deeper – rooted in the fact that most folks are confused by financial jargon.

My goal, besides sharing my own story, is to create a place for “regular folks”.  There are thousands of websites and dozens of magazines dedicated to the “insiders” – and I’m glad those websites and magazines exist.  But, the truth is, I am quickly off-put by the “you should know our language” attitude of so many in the personal finance media.

Would you like to see my plans for 2008?  Here they are:

• Each month, sit down for 20 minutes and create a budget
• Spend as little as I can – save as much as a I can – give as much as I can
• Fully fund my 403b ($15,500) – pre-tax – invested in an S&P 500 Index Fund
• Fully fund my Roth IRA ($5000) – after-tax – invested in VTI (Total Market ETF)
• Fully fund my Wife’s Roth IRA ($5000) – this money is after-tax – invested in RFG (Mid Cap ETF)
• Fully fund my Daughter’s ESA ($2000) – after-tax – invested in RSP (S&P Equal Weight ETF)
• Fully fund my Son’s ESA ($2000) – after-tax – invested in RSP (S&P Equal Weight ETF)
• Deposit all extra money into my savings account – use savings for major purchases
• Pay cash and avoid credit cards

Now, of course, as “life happens”, I might have to modify my plans (adding to them or creating new ones) – but the reality is, I like to keep things very, very simple.  My goal is to create plans that are simple, straight-forward, and “what I’ll actually do”.

The real keys are:

• Have a plan that you understand
• Have a plan that you will implement
• Only change the plan if YOU are convinced that changing the plan is beneficial

I’d love to read your comments… Have you developed a simple system for managing your finances?

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Observant readers will note that this series has taken much longer than 33 days. I can assure you, I am blogging as often as life permits.

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Day 26: Give Yourself A (Pretend) Pay Cut

What would happen if your boss came into your office tomorrow morning, and told you that your salary had been reduced by 15%?  Furthermore, what if he told you that a new law had been passed and you couldn’t change jobs for one full year – and you couldn’t borrow any money, for any reason?

What would you do?  You would probably freak out – then go home and tell your family – and then you would sit down and figure out what to do.  You would begin to examine your spending habits – and you would force yourself to make some changes.  In a year’s time, you would still be alive, and somehow you would have managed to live on 85% of your original salary.  You might have had to give up some of your favorite things – going to the movies, eating out, taking vacations – but you would have survived.

But, we all know that your boss (more than likely) isn’t going to come into your office in the morning and tell you those things.  Nope, you’re life will go on, much like it has for the past few months – you’ll make the same salary, you’ll be able to borrow money, and you will be free to look for a new job.  But, what if you decided to make the spending changes anyway?  What if you decided, today, to live on 85% of your salary? or 75%? or 98%,? or even 60%?  What if you went crazy and “gave yourself a pay cut”.  Not a real pay cut, mind you, but a pretend one.  What if you decided to live on 85% of your salary, instead of 100%?

Sit down with your spouse and discuss what the two of you might do if household income were decreased by, say, 15%.  Then, go out and do HALF of those things – and I’ll bet you’ll be amazed at how quickly you can reduce you debt and save money.  It is amazing how much money we spend on things that are “unnecessary”.  Most of us, if we would focus on the truly necessary things, could fully fund our retirement accounts, live debt free, and enjoy abundant lives.

If you have voluntarily “down-shifted” – given yourself a pretend pay cut – leave a comment.  Or perhaps you’ve given yourself a ‘real’ pay cut – left a job that you didn’t like for a lower paying job that you love – leave a comment and let us know about the changes you’ve made.

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(Final note:  I realize that many of the folks who read my blog find themselves in difficult financial situations.  Some of you have lost your jobs – due to downsizing, health issues, or disability.  I further realize that many of you have already made tremendous cuts in your budgets and that you can’t “squeeze blood from a turnip”.  The inspiration for this post comes from the lady I saw at the grocery store, who was complaining that her credit card was maxed out, as she’s getting into her brand new Lincoln Navigator.  There is a difference between “voluntary simplicity” and “involuntary unemployment” – and I truly sympathize with those who are struggling to make ends meet.)