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The Dangers of Short Term Thinking

June 13, 2012 By

Short Term ThinkingI had a boss who never liked to do any type of research or analysis. She would either have me or another coworker do it, or she would ignore it completely and just go for the easiest solution. Here favorite phrase was, “let’s just do it [the easy way] now, and we’ll worry about cleaning things up later”! All she would focus on is avoiding any type of hard work in the short term.

It wasn’t that we didn’t have the tools to conduct rigorous analysis, but it was that she suffered from two major deficiencies. The first was an inability to think logically through a problem - many of the things which we were called upon to do were beyond her mental capacity (this was really not her fault). Since we can’t control the types of minds we have (I have no creativity whatsoever, for example), I can’t completely blame her for this (there are things that we can do to learn a skill that that doesn’t come naturally).

However, it is the second deficiency which will be the focus of this article. She was both a proponent and victim of short term thinking. She was never able to look at the big picture and do what was right for our unit and company in the long run.

 

The Dangers Of Short Term Thinking

There are a couple of areas in which the dangers of short term thinking are best illustrated.

 

The Dangers of Short Term Thinking in Our Personal Finances

If we all didn’t become victims of short term thinking within our own finances, then the credit card industry would only serve a niche market. Instead, most Americans have borrowed from their future in order to have instant gratification. We are no longer willing to save up to buy something that we want, but instead we will end up paying double or triple the price of the item over time, just to have it now!

This is true whether we are talking about buying new smartphones, iPads, laptops, clothing, cars, houses, tuition, and anything else in between.

The danger in short term thinking is shown in our inability to wait for the things which we desire. We have become a group of undisciplined people, who feel entitled to everything we want (as soon as we want it), simply because we are breathing!

We will not be able to teach our children the virtue of patience, and the idea of waiting on God will not be known to the future generation (they will just see him as a benevolent genie), if we don’t change our thinking pattern now!

 

Short Term Thinking in Business

In the example at the beginning of the article, we looked at one way that businesses suffer due to short term thinking. Managers, analysts, and others are oftentimes not willing to put in the hard work up front in order to see long term results. This causes businesses to suffer and this type of thinking will eventually catch up with them.

Another way in which businesses are hurt by short term thinking is the need to “impress” shareholders every quarter. Corporate executives are known for making decisions based on their need to have a strong showing in their quarterly earnings report.

Sometimes the best decisions for the short term success of the business will also line up with the long term goals. However, this is not always the case, and sometimes the sustainability of the business is damaged. The problem is when the short term thinking overrides the ability of the executives and other managers to consider the long term effect of their actions.

A more personal example in business can be seen in the people who choose to burn bridges. To leave a job in such a way that they would never want you back, is the epitome of short term thinking. Many people do this out of anger and/or a desire to “get revenge”. In the short run, this may not seem like a bad idea - especially if you have been treated badly (of course, God makes it clear that we are never to seek out revenge…see Romans 12:19-20). However, doing this means ignoring the fact that we may be ruining our reputation within the company or even industry, by our actions.

 

How Short Term Thinking Ruins Our Health

As some of you may know, I am trying to lose 100 lbs and pay off over $100,000 in debt. Well, I have had so many days where I ate like garbage, simply because my mind could only focus on the taste of the food. I didn’t even want to think about the long term effects on my health. I know for a fact that I am not the only one who has suffered from short term thinking when it comes to diet. Now I am paying for it with grueling workouts, and fighting off the temptations to go back to my old lifestyle.

The same goes with exercise, taking vitamins and supplements, and other forms of preventative health. Most of us suffer from the danger of short term thinking in these areas. We complain about how much it costs us to live healthily - “vitamins and supplements are too expensive”, “organic food costs more than fast food”, “I don’t have time to exercise”, “it’s too hard to cancel a gym membership“, “blah, blah, blah”.

All of those are nothing more than excuses that are supported by short term thinking. We are unwilling to pay what are seemingly large amounts of money in order to be healthy; but we then complain about obscene health care costs. The best way to cut down your overall food & health care costs, is to try and prevent any serious issues from arising. Of course, you can’t control everything, but for the things you can control, you need to change your mindset.

By considering the long run in our day-to-day thinking, we can avoid many of these pitfalls that seem to be so common in modern times.

 

Examples of Short Term Thinking In Government

I think that how our government handles spending on every level is probably the most obvious example of the dangers of short term thinking. It’s extremely difficult for elected officials to think of anything else but the short term, since they are only in office for a few years, and they are oftentimes re-elected only if they have made tremendous progress during their term.

One of the clearest (and most recent) examples of this can be seen in President Obama’s sense of urgency regarding his health care legislation. Whether you agree with his position or not, I think we all can agree that it was pushed through rather quickly. Rather than bring in the leading health care economists and other experts to address the real issue (which, by the way, is cost not coverage), he forced the bill through as quickly as possible, so that it would be in place before the election year.

I’m not picking on Obama or his administration, this happens all the time with presidents all the way down to local school boards. Since politicians know that voters will not re-elect them if things aren’t going well, they make decisions that promise to destroy the system (or at least a part of it) in the long run, but make them look good in the short run.

Our economy would be in much better shape if the most prudent long term decisions were made 10, 20, 30, and even 80 years ago!

How To Avoid Short Term Thinking

The key to avoiding this kind of thinking is actually pretty simple. There are two main steps that you will have to take. First, be sure to evaluate your situation from all angles, and be sure to consider the pros and cons of each possible choice. When the first (usually the easiest) answer pops into your head, analyze it and look for all the negative consequences of that action.

Second, you must be willing to deal with the short term pain. Most of us will discount the impact of negative consequences, the further they are out into the future. This means that if a certain action will have a terrible consequence 2 years from now, we will convince ourselves that it “won’t be that bad”. By doing this, we are able to justify taking [what seems to be] the easy way out.

The only way we can avoid falling into this trap is to be willing to accept the short term “pain” that may come from making the best overall choice. Whether it’s putting off making a purchase, having an earnings report falls short of the market’s expectations, working out, buying healthier food, prolonging a recession, or anything else that makes us cringe; we have to be willing to push through a few tough moments, so that we don’t live the rest of our life suffering and in regret!

 

Reader Questions

  1. How often do you find yourself falling into short term thinking?
  2. How do you avoid falling into this trap?
  3. Can you think of any examples where short term thinking is appropriate?

(This article was written by Khaleef Crumbley who writes about personal finance from a biblical perspective over at Faithful With A Few (the blog of KNS Financial), and is chronicling his struggle to lose 100 lbs and pay off over $100k in debt at Fat Guy, Skinny Wallet.)

photo by Salvatore Vuono

Filed Under: Budgeting, Frugal Living, General Finance, Investing

10 Great Saving Strategies in Todays World

June 8, 2012 By

saving strategiesI spend a lot of time helping readers get out of debt and learn to save to build wealth. Unfortunately, in the world we live in today, the average savings rate for most people is even lower than what it was in the 70’s!

That should really strike a nerve or at least let your ears perk up. Not to mention, that we are in a down economy - which at least tends to make people hold on to money more. In that sense though, how can we make more interest on the money that we do save and get the best returns?

I’ve gone ahead and compiled a list of 10 great investment strategies to help your money grow so that you can someday achieve your financial dream.

Enjoy!

 

1. Treasury Bills

If you’ve got at least a minimum of $10,000 to invest, treasury bills are a great investment strategy and backed by the U.S. Government.

Pros: Government backed securities. You can easily make 5% or so on your money and because it’s usually large amounts, it’s easy to reinvest the dividend. Also, they are usually commission and tax free (when collecting returns at redemption).

Cons: Can be a bit hard to purchase as they have large minimum amounts to come up with.

 

2. Certificates of Deposit

Many people don’t tend to like CDs based on the length of time that they take to mature and cd rates. However, if you choose short term CDs (1-3 months), your money could see decent gains vs. saving your money in a traditional bank account. Shorter terms gain less interest than a longer term for the same CD.

Pros: Good way to stash your cash for a while and build some interest. Longer CDs will pay better interest.

Cons: You can face penalties for early withdrawals (break the CD) and it can tie your money up for the length of the CD term.

 

3. ING Direct

Offering a better saving rate than traditional banks, ING is a great way to keep your money safe and growing steadily. In its prime, ING offered savings rates of between 2-6%. Currently, you can make around 1% on your money as I write this.

Pros: Offers convenience and yet higher interest rates than most banks.

Cons: Usually, you can find better savings strategies, but this is a good mix to keep your money in.

 

4. Index Funds

Wikipedia describes Index funds as a collective investment scheme (usually a mutual fund or exchange-traded fund) that aims to replicate the movements of an index of a specific financial market. I like to describe them as a collection of some of the best performing mutual funds. As of May 8th, 2012 - the S&P 500 Index has a performance year to date of 9.2% returns.

Pros: Usually stable and reliable investment vs. traditional stocks investing. Moderate, annual returns on average of 5-10% are within norms.

Cons: Can have less returns on investments than similar, yet more risky stock investments.

 

5. Roth IRA

Assuming that you have access to investing into a Roth IRA, this is a great long term investment strategy. You can contribute a max $5000 per year to your IRA. If you were to do that strategy for say 20 years at an assumed 8% rate of return, you could easily end up with a return of $147,114.61 ($100,000 deposit over 20 years minus your total withdrawal amount - $247,114.61).

Pros: At the end of the Roth IRA term (your retirement age), you have tax free withdrawals (vs. traditional IRAs). Good average rate of returns. Uses the power of compounding interest on gains.

Cons: Beneficiary cannot withdraw from the Roth IRA until meeting retirement age eligibility. Withdrawals before retirement age can be met with taxes and other penalties like most retirement plans.

 

6. Real Estate

It’s no mystery that as I write this, we are in a housing crash that has affected home prices globally. This should come to no surprise that housing is at a steep discount and can be grabbed up right now for phenomenal buys. Real estate over the last century is still one of the most consistent ways of gaining returns.

Pros: Usually, represent a somewhat stable investment and have had average returns of about 10% annually until the stock crash of 2008. A buy and hold strategy might be the best way to go forward.

Cons: Housing can be much pricier than most investments. Values can drop erratically in a down market, which can also raise risk.

7. Oil

When oil drops less than say $60-$70 a barrel, great gains can be made on this volatile consumable. Politics aside, it still represents a good investment strategy for those looking to diversify their assets. Timing is key to making a great gain. A long term hold approach can also be applied.

Pros: Very high in demand as millions of barrels are traded and consumed daily. Can rise very quickly in stock price based on external factors.

Cons: It’s a controversial consumable that has made the world depend on the Middle East for supply. Fossil fuel that has a finite world supply.

8. Precious Metals

Although gold is at an all time high, other precious metals such as silver, platinum and palladium can be had at fairly affordable rates. Precious metals represent a good way to hold value in something other cash and are very liquid. Gains can be made when world shortages of a particular metal are experienced.

Pros: Great way to hedge against inflation and are usually a great investment in a bad economy.

Cons: Due to the volatility of precious metals, it’s usually recommended to keep no more than 10% of your portfolio invested.

 

9. Company Shares

If you by chance work for a public traded company or a private held one, you should check out your options in purchasing shares as an employee. Usually, because you work for the company, you may be entitled to benefits for owning company stock that may not available to the general public. Owning shares on a payment plan or being given company stock as an option for remuneration is not unheard of.

Shares in stock can have decent returns and gains over time, so consider it a worthwhile investment.

Pros: Great way to keep your money safe and growing if the company is growing or the stock is up.

Cons: May not be a viable option for all companies. Also, stocks can drop at any time, so keep a diversified portfolio.

 

10. Become a Book Author

Payments and royalties from becoming a book author can add a great boost in income, especially if you make it on to a best seller list! You don’t have to be a bestselling author to enjoy good sales though, just become an authority in your chosen field that you write in. Respect goes a long way with readers. I’m currently working on this strategy myself.

Pros: With the advent of self publishing and syndication methods such as Kindle, Nook and others. It’s very easy to publish an online version of your book as well as a physical copy. Book Authors can enjoy good passive income with a fairly popular book.

Cons: There’s no guarantees that your book will resonate with the pubic on a whole which may result in lower sales.

 

I hope you’ve enjoyed these top 10 tips that can make money grow for you without too much effort in today’s economy. As always, consult your financial planner and always diversify your portfolio of investments to hedge against losses.

(Dwight Anthony is a Personal Finance and Financial Freedom blogger that runs the Financially Elite Blog. Drop by and visit - where you can learn topics on Achieving Financial Freedom and other Personal Development tips. While there, make sure to pickup your FREE â˜Golden Nuggets - 25 Absolute Steps You Need for Financial Freedom’ Guide that can put you on the path to building real wealth in life.)

Filed Under: Budgeting, Investing, Life Experience, Retirement

Three Tips for Decorating on a Budget

April 6, 2012 By

decorating on a budgetHome decorating can be extremely expensive, especially when you’re trying to pay off debt or save up for a down payment on your first home. It’s tough to decorate on a budget during that transition phase when you’re too old to still have plastic shelving like in your college dorm days but you’re too broke to afford the quality furniture your parents own.

You may be asking yourself if it’s worth it to splurge on high quality furniture even though it may cause you to defer some of your other goals, such as paying off credit cards or student loans. But at the same time, you’re fed up with settling for second-hand furniture.

This is the exact dilemma I found myself in when we recently moved from our one-room loft to a two-bedroom townhome. We suddenly found ourselves with more space and no furniture to fill itâ”we didn’t even have a dining table!

However, I didn’t let my desire to decorate our home negatively affect our bottom dollar budget. Here are my top three tips for decorating on a budget:

Decide what you can live without

We had a lot of furniture to buy when we moved, and there was no way on our limited budget that we could afford to buy everything brand spankin’ new.

We decided at the beginning to budget on the bigger items, such as a new couch, a dining table and a desk for the spare bedroom that we decided to turn into an office/man room.

We found all our large items on Craigslist after scouring for days. We paid $150 for a large sectional couch that easily would have cost several hundred brand new.

We also scored a seven-piece dining room set for $250 plus a large brown wall mirror for $100. And the large oak desk for the man room was $150.

In total, $650 was spent on four solid furniture and décor pieces that easily would have cost us thousands brand new. The trick with buying stuff on Craigslist is finding people who are moving either out of state or down-sizing and are in real need of selling their items.

All our pieces were purchased from people who were in the process of moving and needed to get rid of their stuff fast.

Splurge on a few key pieces

With the savings from our large furniture pieces, we decided to splurge on a few key pieces that would really shape our décor. It’s a big help to decide beforehand what’s worth a splurge when it comes to decorating and what you can live without.

For example, we currently use a dark cherry wood dresser as our entertainment stand rather than going out and buying a new media console. We scored the dresser for free from our old apartment building when someone moved and decided to leave behind the dresser.

For our splurge items, we decided to go with some key items that would really help transform our living area. We chose to splurge on a brand new rug and a metal chandelier for the dining room. We will also purchase some smaller items, such as throw pillows, a table lamp and some other items to help complete the look.â

Buy as you go

I know it may seem tempting to buy everything as soon as you move in, but give yourself some time to live in the new space before you make any drastic decorating decisions.

What you thought would look good when you did your first walk-through in the evening might not look so great with the sun glare on a Sunday afternoon.

Decorating on a budget takes time to find great deals as well as saving up for the perfect pieces. If you find something you like, but it’s completely out of your price range, search online for a coupon or wait for a sale. Even better, you can often search online for similar yet less expensive items.

Decorating on a budget takes a lot of patience. It’s okay to not have everything look like the spread of a home magazine and let it evolve over time.

Filed Under: Budgeting

Five Ways to Increase Your Income Today

February 17, 2012 By

Unless someone is independently wealthy, they would like to have more money coming in. But with all of our current responsibilities it may seem like it’s just a dream. But in reality, it’s not only possible, but much easier than you might imagine. Here are five ways to increase your income today.

But in order for this to work, you have to change your way of thinking. That means changing your entire mentality as it pertains to money. Don’t believe that it isn’t possible. Believe it and acknowledge it!

Here is an example of the right motivation: If you were told to save $500 within the next two weeks, most likely you would blow off the concept and consider it impossible. But if someone told you that unless you came up with $500 within the next two weeks that you would go to prison, you would instantly become a money-making machine. That is the kind of drive that you need.

 

Idea #1: Sell, sell, sell

That means everything lying around your home that you don’t need or use consistently goes into a garage sale. Clean out closets, go through the garage and the basement , venture up into the attic and get rid of it. You’ll be surprised at what you’ll find and what people will buy.

 

Idea #2: Go online

More and more people are working online for added income and the numbers are growing. Businesses are taking advantage of this workforce by offering plenty of opportunities to make money. Many require little or no training or experience. The good news is they have secured payment methods and most offer flexible schedules.

 

Idea #3: Get paid to write

People are always looking for bloggers or someone who can write articles for them. The more you write, the more you make. Getting yourself established means that customers will start coming to you instead of having to fish for additional work.

 

Idea #4: Collect all your old gold and jewelry and cash it in.

Everyone has old gold lying around in their jewelry box. With the upsurge in gold prices, this is the perfect time to exchange it for cash.

 

Idea #5: Hire out your hobby or skill

Do you like photography? Are you an expert at cleaning? Are you a master at sewing? There are many trades that most people are not good at and would pay handsomely for. The trick to making money at your skill and being successful is offering something that other people either don’t have time for or don’t like to do.

For instance, most people hate cleaning. If you don’t believe it, take a look at their homes. You might not really enjoy cleaning, but if you are efficient at it then this could pay off very well. Put the word out that you are for hire to take care of the task that other’s put off and you’ll have more work than you can handle. Who knows? You could even hire an assistant to work for you and pocket the difference.

 

What are some other ways YOU are making more money today?

Filed Under: Budgeting, Frugal Living, General Finance

Are you Frugal or Cheap? Find Out With This Test

December 26, 2011 By

frugal or cheapFrugal and cheap. Those are two words that people interchange in daily conversations. Speaking from a general sense, frugal is more respectable than being cheap. When I think of a cheap person I think about someone who takes towels home from hotels. On the other hand, I envision a frugal person buying name brand clothes at discounted retailers.

But what does the Dictionary say about these two types of people?

Frugal- economical in use or expenditure; prudently saving or sparing; not wasteful

Cheap- embarrassingly stingy

I’ll be honest folks, I’ve been called both. And let me tell you, it’s never fun to be considered the “cheap guy.” Thankfully I’ve changed from my cheap ways and I’m much more value focused and not just on the price.

So, how would you know if you are frugal or cheap? Moolanomy came out with a frugal vs. cheap test a while back which inspired this post. Take out a sheet of paper and a pencil and answer these 12 short questions:

 

1- When you fill up for gas, what do you do?

1. I go to the most expensive gas station. Must be better quality right?

2. I shoot for the name brands but look around for the best prices

3. I fill up at the cheapest gas station regardless of brand

4. Why fill up, I can run on fumes for another two days

 

2- What car do you drive?

1. Why buy when you can lease?

2. I’m always on the lookout for next year’s model

3. Used is the only way to go, I never buy brand new

4. I take the bus, it’s better for the environment

 

3- When Christmas rolls around, what do you do for gifts?

1. I want to impress everyone so you get the latest tech toys recommended by MSN

2. I buy reasonably priced gifts from their lists

3. I buy gift cards for everyone

4. I don’t buy anyone anything and hope no one notices

 

4- When you want to update your wardrobe, what do you do?

1. Time to hit good ole’ Nordstroms

2. I buy off-brands and maybe one brand name item

3. I space out the purchasing over a couple months and shop at Ross and TJ MAXX

4. I never shop for new clothes. That’s what Goodwill is for

 

5- When you grocery shop, what do you do?

1. I head to Whole Foods and buy whatever I want. Grass fed beef anyone?

2. I go to one grocery store and bring my coupon book

3. In one trip, I go to multiple discounted grocery stores

4. I take food from work for my meals

 

6- While walking you see a quarter on the ground. What’s your next move?

1. You snicker and keep on walking

2. I pick it up and then toss it because it’s dirty

3. I pick it up and put it in my wallet for later

4. I pick it up and start looking for other coins on the ground

 

7- What do you use for showers?

1. I have designer shampoo and conditioner

2. I buy high quality products but always look for the sale

3. I buy whatever is on sale

4. Who needs product? I use water and a bar of soap

 

8- Where do you invest your money?

1. Uhhh what does the word “invest” mean…

2. I invest in the latest hot stock or mutual fund

3. I invest through a wide range of mutual funds and ETFs

4. I can’t afford to eat because I invest so much

 

9- What do you usually do with your tax refund?

1. I hot the closest casino and lose it all

2. Get the latest and greatest TV of course!

3. I invest it

4. I let is sit in cash gaining zero interest

 

10- What do you usually tip at restaurants?

1. 20% plus, waitresses rely on the tips for income!

2. I tip based on performance

3. Average service gets no more than 15%

4. I don’t tip, that’s just ridiculous

 

11- When it’s time to change your oil, what do you do?

1. Take my car to the nearest dealer

2. I get my oil changed at an independent mechanic shop

3. I change my own oil with the cheapest oil out there

4. I skip oil changes and hope my car keeps running

 

12- A friend asks you to borrow some money. What’s your response?

1. I whip out your wallet and ask your friend how much he/she needs

2. I ask what the money is for and then agree on a payment plan

3. I write down how much I’m lending and make my friend sign a contract

4. I tell my friend to hit the road

 

Drum-roll please! How did you score?

The point system is simple. All you gotta do is give yourself 1 point for a #1 answer, 2 points for a #2 answer, 3 points for a #3 answer and 4 points for a #4 answer.

And here’s a breakdown of your score:

48= You’re cheap and you should be ashamed of yourself!

36-47= Congrats, you’re frugal and should give yourself a pat on the back 🙂

24-35= You’ve got some work to do. Time to get back to the basics

12-23= Boy oh boy, you’re not doing too hot. You should shred your credit cards and follow a budget again

 

What did I score?

I scored a 38. What does this mean? I guess this makes me frugal! I probably didn’t need a quiz to tell me that but I always need some affirmation.

Take some time and take this test. When you’re done please comment below and share if you;re frugal or just plain cheap!

Filed Under: Budgeting, Family Finances, Frugal Living

9 Tips to Getting Control of Your Finances

December 23, 2011 By

Many people are so intimidated by setting up a budget that they never do it. Setting up a budget is really an easy process. It can be done in nine easy steps.

1. Organize Incoming Funds
The first step is to organize the money coming in. Many people work more than one job. They may work a full time job, but also do several side jobs. The first step in creating a budget is to get a handle on all the ways your family is bringing in money.

2. Journal
For one month record every penny that you spend. If you spend it write it down in a book. Many people are amazed at the money they spend on incidentals each month, because it goes out a little at a time.

3. Organize Outgoing Funds
While the second step may take some time, it is vital to the success of your budget. Now look at the list you created in the second step. Divide the list into categories. List these categories according to their importance.

4. Control the Outgoing Funds
The fourth step is to determine your budget before the month starts. Look at your categories you have set in your organization step. What needs to be changed? Do you need to add savings for your kid’s education or your retirement? Now, determine how you will spend each penny of your earnings.

5. Go Ahead and Pay Yourself First
The fifth step is to pay yourself first. Take the first ten percent and put it aside. You work hard for your money and deserve to have some fun with it. Without rewarding yourself, you will not feel encouraged to keep working. Take that money off the top so that you be encouraged to stick with the program.

6. Giving Money
The sixth step is to give away some money. Give away ten percent of your money. Decide what church or charities deserve your money and give away ten percent. If you are not use to doing this, it may bother you a little to begin with, but you will be amazed at how good you feel. It will also encourage you to work even harder.

7. Save Money
The next category you should include is savings. Put ten percent of your income into a savings account Many people ask how much savings is enough. You should have a minimum of six months of expenses in a savings account.

8. Mortgage or Rent
Your mortgage or rent should be the third thing you pay. It should not exceed 33 percent of your income. If it does, you may need to consider moving. In the first three steps, you have spent 63 percent of your income.

9. Remainder of the Outgoing Funds
The remaining categories are very personal. Look at where you are spending your money now. Take steps to control how much money is going into each of the remaining categories.

Many people find it hard to set up a budget. The hard part is to make it personal. Make sure and reward yourself first. Then, give some money away. Next, save ten percent of your money. Stretch the remainder of your money to cover your bills by using great coupons. Never pay full price for anything.

(Jemma Ryan wrote this article - she loves blogging about her pets, cooking & improving her credit score.)

Filed Under: Budgeting, General Finance

Can “Doin’ it Yourself” Save you Money?

December 2, 2011 By

It seems fair to say that times are tough right now. Many people are struggling and lots more are looking for ways to cut back on expenditure. One method that is often touted as a good way to save cash is doing it yourself. But is a DIY approach all it’s cracked up to be? As with everything, there are two sides to the story. For instance, while doing your own decorating might be a big tick in the â˜yes’ box, doing your own car repairs (unless you’re actually a mechanic) is probably not going to help you â“ and it’ll probably reflect badly in your car insurance quotes.

So then, it seems that while doing things yourself does have potential, there is something of a tricky path to steer to get the best results from it. Let’s take food and drink as an example - this is one area of big spending where, for many of us, a little bit of DIY probably wouldn’t go amiss.

For instance, many people who go out to work every day by their lunch while they’re out. Whether this is a sandwich from the lunch cart, something from the company canteen or something upmarket from a local restaurant, it involves spending dollars you don’t really need to spend. Making your own lunch before work might not be that exciting, but if you’re looking to cut back, it makes a difference.

Say you currently spend $5 a day on lunch and other snacks while you’re at work. That’s around $100 a month just on lunch alone. It’s not much of a stretch to say you could save upwards of half of that by switching to homemade meals. After all, it isn’t much of a stretch to spend $5 on a single cup of fancy coffee when you could be making your own for a fraction of the cost, so food is clearly an area where DIY can help us save money.

As mentioned above, household activities such as decorating can also be benefitted by DIY. Maybe you already do all your decorating yourself, which is great, but many of us still hire someone in to take care of these things on our behalf â“ and labor is costly, especially if you want a really good job. Instead, buying the supplies yourself and setting aside a weekend to decorate a room costs a small percentage of hiring someone to do the job for you â“ and if you’re spending all weekend painting, you won’t be spending money elsewhere, either.

All of this shows that if you want to save money, it pays to take matters into your own hands. Of course, there are some things where DIY is resolutely not advisable, such as anything to do with electrics or other tasks that require a professional touch. However, there is a surprising number of ways where we can save money simply by putting a bit more of an effort in. From getting your own insurance quotes instead of sticking with the same supplier to getting busy in the kitchen, we could all make some changes in order to save some cash.

Filed Under: Budgeting, Frugal Living

Money Tips from 49 Personal Finance Bloggers

November 21, 2011 By

money tipsI’ve been getting sick of my own voice recently. No, no, not my physical voice, but my writing voice. I have my own opinions on financial issues, but I’ve been wanting to get inside the heads of other top personal finance bloggers and see what they think. So, in my quest for knowledge, I contacted 49 of the top finance blogs on the web and asked one simple question: “What is your #1 personal finance tip?”

I ended up receiving short and sweet answers as well as more in-depth answers. It was awesome to find out other financial blogger’s opinions on the number one thing that drove financial success. A few even surprised me with their answers.

The following is the end result. Each blogger has something great to say, and feel free to head over to their blogs. Enjoy these money tips:

 

Sustainable PF- “Pay yourself first. By saving 10% in an automated matter you can save for your retirement more easily.”

Money is the Root- “Spend less than you earn, and you will never be broke!”

My Personal Finance Journey- “My top financial tip would be for college students to open up a Roth IRA and fund it if they have a job in college or during the summer between classes so that they can take advantage of compound interest to save for retirement.”

College Investor- “Start investing your income from your first job to get ahead. The power of compounding is amazing!”

Prairie EcoThrifter- “My best tip would be to make your own cleaning and personal care products. You can save a bundle and they are much healthier for you and your family.”

Net Worth Protect- “When developing a savings plan keep it simple. As soon as you receive your paycheck allocate a percentage towards savings and immediately move the funds out of your spending account. Out of sight, out of mindâ

Funancials- “Your child can easily get a loan for school, but you cannot get a loan for retirement. I think too many parents have the dream of paying for their child’s education (which is great) but they reduce their retirement savings to make it happen. Big no no.”

One Cent at a Time- “Do not prepare your buying list after clipping coupons rather, get your shopping list and find coupons for each of them.”

20’s Finances- “Start saving for your future today! Planning for retirement even in your 20’s can earn you lots of money in the long run and make life much easier.”

DollarVersity- Failing to plan is planning to failâ”you need a roadmap to achieving goals. Paying off debt, building wealth, or running a successful business may be the goals, but you need to plan your course to reach those destinations.â

Free From Broke- “Don’t spend more money than you have.”

KrantCents- “Savings is the key to success. I learned how to save early and it, more than anything, helped me achieve success.”

The Jenny Pincher- “Spend Less Than You Earn! It’s so simple yet so effective if we can get ourselves in that mindset!”

The Family CEO- “Be very intentional with your spending. Cut back on or eliminate the things that don’t bring you much value, so you can have in your life the things and experiences that do.”

101 Centavos- “Early is for go, late is for show. If you want to be successful, get up early. Getting to work while everyone else is either still asleep or just now brushing their teeth will give you a leg up on the competition. Staying late is fine if you want to impress the boss, but your productivity decreases along with your energy levels.”

Millionaire Nurse Blog- “To prevent lifestyle creep, any raises, bonus money, and gifts can be put into your emergency fund, or added to your retirement savings. You will hit your savings goal faster and not increase your lifestyle costs, a twofer!”

Your Finances Simplified- “Limit your rent/mortgage payment to no more than 25% of your net income. The reason why you want to do this is so that you are flexible when life happens or you have the opportunity to invest more money and generate wealth. This tip alone has given me the income to invest in multiple income producing business that will have me retiring by 40 or sooner.”

The Frugal Toad- “Diversify among asset classes, re-balance quarterly, employ dollar cost averaging, and keep your hands off!”

20 and Engaged- “Don’t keep up with the Joneses. Live your own live beneath your means and you’ll prosper financially.”

Money Beagle- “When setting large goals, make sure to set smaller goals along the way. Reaching the smaller goals (and giving yourself a small reward) will help you stay on track and minimize the chance of losing momentum and focus on the way toward your larger goals.”

Money QandA- “We spend our entire lives buying things and collecting things. Instead spend your money doing things, gaining experiences, and checking things off your bucket list. Not only is that the way to financial success, it will make your life more rewarding as well.”

Retire by 40- “My top tip is to start saving and investing as early as possible. If you start saving and investing as soon as you start making money, then you will have a lot of time to take advantage of compound interest. It will also give you more time to learn about investing and a lot of time to correct the many inevitable investing mistakes. ”

Wisebread- “Many rewards credit cards pay you a sign-up bonus only after you reach a minimum spending threshold. The best way to reach this minimum is to purchase gift cards for merchants you visit often, or even cash cards from Visa or American Express. Simply make the purchase before the deadline, and use the gift cards later. You can also buy gift cards at grocery stores in order to maximize bonus spending categories. For example, the American Express Blue Cash Preferred card gives customers 6% cash back from supermarkets.”

Free Money Finance- “Spend less than you earn.”

Money Crashers- “It’s really important to focus on cutting expenses and implementing strict budgets to allow us to live our lives to the fullest while still saving for the future. But, beyond that, one of the most overlooked strategies is creating incremental income. For example, do you have a passion or expertise you could leverage into a business? Then consider some of the many side business ideas as an avenue for you to create some valuable passive income. And if you’re lucky, this could potentially turn into a full-time job that you’re truly passionate about each and every day!”

Afford Anything- “Spend lavishly on things you love and cut ruthlessly on things you don’t care about. Money is just a stand-in for your priorities.”

Financial Highway- “Start Investing EARLY! Even at $50/month you can benefit from the power of compounding, it is better to save $50 today then $100 a year from now. ”

Christian Dollar- “Spend less than you make, make more through hard work and patience, and give more than you want to. It’s really that simple.”

Financial Samurai- “To listen to people who are wealthier and older than you.”

GenXFinance- “Don’t sweat the small stuff. So you’ve cut out the daily Starbucks, dropped cable, and clip coupons to save a couple hundred bucks a month. Who cares. You will never become wealthy by worrying about how to save the next five bucks. It is a losing game because there is only so much that can be cut, and beyond the basics you end up sacrificing your quality of life for the sake of saving what amounts to essentially nothing. Instead of spending time dreaming up ways to cut things out of your life to save ten dollars, think about how to make an extra ten dollars. Or a hundred dollars. Or a thousand dollars. Unlike the limited upside by cutting expenses, the upside of potential income is limitless. Yes, you still want to be conscious of how you spend your money, but focusing your energy on earning more has the potential to make a much greater impact on your life.”

Bucksome Boomer- “Choose your life partner well. Divorce sets you back decades in your net worth and financial health.”

Life and my Finances- “The best tip I could ever give anyone is “put on your blinders”. Your happiness in life does not depend on how shiny your car is or how many square feet you have in your house. Be thankful for what you have and ignore the Joneses.”

Financial Success Young Adults- “Stay on top of the markets! The Wall Street Journal and CNBC are great ways to keep up with the flow of information. The economy does impact your personal finances and keeping up with help you become familiar with the language of finance and help you better manage your money. ”

Narrow Bridge Finance- “My best money tip is to know when to buy and sell stocks. Technical and fundamental analysis sound complex, but once you know the difference you will know how to buy a stock for long run value over the trends of the moment.”

Debt Eye- “Check your bank statements every month, and make sure there are no reoccuring charges that you’re not familiar with. These can include: identity protection, credit monitoring, and or services you hardly use.”

Ultimate Smart Money- “Think wisely before you act. Make your purchasing decisions based on your need instead of what you want. Don’t allow your emotion to control your decision.”

Frugal Confessions- “Create an End-of-Year Windfall for Yourself: If you max out your Roth IRA every year ($5,000) by spreading out the payments, it would be around $416 per month. Instead, pay $500 per month for ten months and create a small windfall of cash for one of the most expensive times of the year: an extra $500 cash flow for November and for December. Remember to turn the automatic withdrawals back on after the holidays.”

Fat Guy Skinny Wallet- “Whenever we are tempted to splurge on an item, or in some other way, spend money on an item for which we haven’t budgeted, we pay that money against our debt instead. For instance, if I get tempted to order a pizza and some wings on the way home from work, what helps me refrain from wasting my money is the thought of using that money to pay off debt instead. So we will not make the purchase and instead we will sign onto our bank’s website and make a payment against our credit card in the amount of the splurge ($20 for pizza in this case). This helps us to fight the urge to spend money frivolously, and it helps us to pay down our debt faster!”

Soldier of Finance- “Find a battle buddy that shares your financial goals to keep yourself accountable (like a workout partner) and help each other succeed.”

Good Financial Cents- “Incorporate the multiple bucket approach when saving for your retirement. Do this by incorporating Roth IRA’s, Traditional IRA’s, 401k’s, and regular investment accounts to give you plenty of options for your retirement income needs.”

Budgeting in the Fun Stuff- “Keep track of your spending. If you don’t know where your money is going, you can’t manage it for your present or future.”

Maximizing Money- “Always make your money work hard for you, but remember to work even harder for your money.”

Roshan Watson- “The Real Golden Rule: He Who Has the Gold Makes the Rules”

ChristianPF- “For me I think being content with all that we have is one of the smartest things we can do financially. We all know living below our means is a key to financial success, but for many being content with what we have is the first step to living below our means.”

Digerati Life- “My #1 personal finance tip is to prioritize where your money should go. Many people don’t use a budget or think about where their money is being spent. But if you take the time to sit down and do some planning (even just a little), by focusing on your financial priorities and on how you intend to parcel out your money (a limited resource), you may be surprised by what you find. For example, if you’ve got debt, you may decide to prioritize this over saving for a much longer term goal, like a house purchase. Either way, the exercise of thinking about your income and outgo can be a good first step in making sure your finances are in order.”

DQYDJ- “Sweat the big stuff. Automate your retirement contributions and savings and eventually you’ll thank me.”

Thirty Six Months- “My biggest financial tip to budget for everything and don’t buy on impulse. That’s how you get in trouble.”

Frugal Wiz- Financial Tip: “Establish an emergency savings account first before paying off your debt.”

Filed Under: Budgeting, Frugal Living, General Finance, Investing

Controlling Expenses From the Top Down

October 26, 2011 By

top downIn an attempt to get control over finances, we’ll usually start with an assault on the smallest expenses; because they’re the smallest, cutting them will produce the least amount of disruption in our lifestyles. But it’s equally true that cutting small expenses also produces the lowest savings. No amount of coupon clipping, turning out unused lights or canceling subscriptions will offset a crippling house payment or an outsized car payment.

If we’re serious about controlling our financesâ”and I mean really serious-nothing will have greater impact than lowering expenses from the top down, meaning the Big Stuff. I’m talking about four expenses in particularâ”housing, cars, health insurance and entertainment.

Let’s consider each and the impact it has on our finances. At the end, we’ll discuss why this is even more important for a Christian.

Housing

Many or even most other expenses in your budget will be determined by how much you spend on housing. A house is the single biggest driver of lifestyle inflation! Where you live and the size of the home affects what you pay for utilities, repairs and maintenance, furniture, insurance and even entertainment and the car you park in your driveway. It’s never just about being able to afford a particular house payment-bigger houses seem to demand higher outlays for everything else.

For this reason it’s critical to be conservative in your choice of housing. For decades we were told to buy the biggest house we could afford, and our finances would grow into it; do we believe that anymore? Should we?

Here’s something else: once you close on your home and sign the mortgage papers there’s no way to lower your monthly house payment should it become necessary! This is especially true today since the ability to refinance is no longer assured. And while the principal and interest portion of your payment will be stable for the life of your loan (on a fixed rate), taxes and insurance can and usually do rise over time.

Consider these facts when buying a home, or even if you’re currently struggling to maintain your payment. It’s better to buy beneath your means when it comes to housing.

Cars

High car expense isn’t nearly as long term in scope as housing, but it can still do a lot of damage in the short run. Much like housing, other expenses tend to rise the more you pay for a car. Like housing, there’s a strong argument for buying less car than you can afford.

If you’re struggling with an uncomfortably high house payment you may want to consider buying no more car than you can afford to pay cash for. A car payment on top of a large house payment can be the tripwire into financial oblivionâ”most of us can afford to carry some debt but we can’t have it coming at us from all directions.

Health insurance

There’s a strong case to be made that this is quite possibly the most important expense we have in the modern world, but even if that’s true it still has limits. Many people want their health insurance plan to cover as much as possibleâ”the fewer checks they have to write the better. The problem with this goal, from a financial standpoint, is that it’s also very expensive.

A substantial part of the cost of health insurance is coverage over first dollar expenses. What this means is that the lower your co-payments, deductibles and co-insurance provisions, the more you’ll pay for your premiums.

If you’re in generally good health, it can be more cost effective to trade higher co-payments, deductibles and coinsurance provisions for lower monthly premiums. You can also offset these by maintaining an emergency fund balance large enough to cover your maximum deductible and coinsurance provision in any one year. You’ll be covered in the event the worst happens, and if it doesn’t you’ll be ahead through lower monthly premiums.

Entertainment

Not so long ago entertainment was a fringe expense, something we paid for with what was left after all the bills were paid and some money was socked away in the bank. No longer. Today entertainment has a far stronger claim on our first fruits, so much so that many go into debt to be able to afford it.

The problem with this lifestyle is that it’s expensive! Theme parks, travel, restaurant meals and professional sporting events are expensive, and even old stand-by’s, like movie theaters, are no longer cheap. If you’re entertaining yourself with these on a regular basis it’s a solid bet that entertainment is eating up a much larger slice of your finances than you might assume.

I have a theoryâ”stay with me for a momentâ”I think formal entertainment has grown with the decline of families and communities. The less interaction we have with people, the more we’re willing to pay to find recreation and contentment in more formal venues.

Spend more time with peopleâ”they’re more fun than formal entertainment, and a lot less expensive. Be purposeful about getting together with family and friends on simple activities like potluck suppers, outings or at home movie nights.

If boredom is an issue, try volunteering to help the less fortunate, exercising to improve your health or starting a side business to earn extra money.

What’s the payoff?

I’m of the opinion that as Christians we need to travel light❠in life. That starts with keeping control of the biggest expenses. By doing so we have more money free for other purposes; some examples:

Mobility. God sometimes calls us to stop what we’re doing and to go in a different direction. Mission work is an example; a career or geographic move are a couple of others. It’s not so easy to heed such a call when we’re weighed down with expensive possessions, large debts or a high cost lifestyle. We need to be ready because we can never know when such a call might come.

Peace of mind. Possessions have a way of controlling our thinking. The more possessions we have, and the more money we have tied up in them, the more we obsess on them. While we’re obsessing, we’re stressing, to at least some degree, and almost certainly neglecting other pursuits we’re charged with, including prayer and Bible study, fellowship and volunteering.

Liquidity. I believe that as Christians, we have an implied command to stay liquidâ”that is to have money, time and resources to contribute to our churches and to help others. Having income available and at least some discretionary savings will enable us to either deal with a personal crisis, or to help others with theirs. None of that can happen if our income and savings are maxed out in possessions or a lifestyle that’s at or just beyond our reach.

Giving. The less money we spend on our basic cost of livingâ”in other words, the money we spend on usâ”the more we’ll have to store up treasures in heaven❠( Matthew 6:20) by helping others.

Time. It’s become almost axiomatic in our culture that we never have enough time; how much of this owes to the fact that we strive to acquire and maintain a certain lifestyle? Time is probably a more valuable commodity than money because it represents our very lives, and not just our money. The more of it that we have that’s free, the more we have to do everything else we should be doing as followers of Jesus Christ. Our witnesses are driven more by how we use our time than by how we use our money. But in the Catch-22 that life can be, how we use our money has a major effect on how we use our time as well.

We can free up both our money and time for Kingdom purposes by controlling all kinds of expenses. But by tackling the biggest onesâ”by controlling our expenses from the top downâ”we can do even more!

Filed Under: Budgeting, Faith and Finances, Housing Tagged With: , , , , ,

Creating a Spending Journal: Tips for Budgeting

October 8, 2011 By

spending journalWondering where your bank account has gone? Individuals and families who don’t do the best job in the budgeting department can arrive often move along through a vicious cycle of living paycheck to paycheck, because they’ve neglected to budget their money. If you’re wondering how your money seems to disappear shortly after each perhaps a spending journal could be the answer.

 

The Useless Budget

Your budget might be useless. If you have no knowledge of how you’re spending money, where it’s going, and how your finances look by month’s end (budgeted amount vs. actual expenses) â“ you might be wasting your time with your current budgeting strategy.

A budget is something like a credit card statement, so to speak. In other words, you should not just update your budget, fill in the expected category values with idea numbers, and then even fill in what you’re spending. You have to put it into action: your budget should serve as a guide, a conversation❠of sorts between you and the numbers.

It may seem a little odd to explain it in that way, but it’s true. If you aren’t engaged with your budget, looking through the numbers and seeing how you’re doing, you might be wasting your time. The budget serves as a guide, giving you perspective into your income, expenses, savings, and furthermore.

 

Using the Spending Journal

Whether it is or isn’t part of a formal budget, a spending journal can give you that perspective.

Imagine if you wrote down anything that you spent money on â“ from your groceries to your morning visit to the coffee kiosk, and even your actual bills â“ all noted in your spending journal. And add the option to attach a category onto the purchase, which would allow you to itemize and sort the payments. What would that do for you?

At the end of the month, you would have a list of all the purchases you made, from the expected ones to the compulsive ones that undermine your budget. This is the idea of the spending journal; it is a simpler form of the budget⦠and it could be all you need if keeping track of income isn’t complicated.

As you look at your spending habits, you’ll be able to find areas of improvement. Maybe you’re spending too much on coffee in the mornings, or eating out (always an area with potential.) This is the type of tool that can keep your spending habits in check, and allow you to concentrate on your saving/investment goals, and whatever is pressing at the moment (debt, buying a home, etc.).

 

How?

Well, of course you can keep the journal as a true journal. Those that prefer the old fashion way of doing things can still log items in via the pen and notebook.

Technological individuals have a number of options. You could keep your spending journal on a spreadsheet or get a free personal finance budgeting program. There are a number of free options online, or available through software you can install on your computer. If you have a smartphone, you could easily keep track of your expenses when you’re on the go â“ very convenient, as you can imagine.

 

It’s really up to you!

Regardless of how you keep a spending journal, this powerful tool can offer plenty of potential. It’s up to you as to how useful it can be in your financial situation.

How do you plan your spending each month? Do you find that a set-in-stone budget is a must-have for financial success? Share your tips with us â“ leave a comment below!

(The following is a guest post by Lisa at Wallet Watcher, an Australian personal finance blog created to help readers figure out how to save money and watch your own spending habits.)

Filed Under: Budgeting, Family Finances, Frugal Living, General Finance
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