Note: Below is an article/post submission adapted from the new book “Save Wisely, Spend Happily,” which offers the collective advice of 125 money professionals to give people the tools they need to make managing their money less intimidating. See more at: http://www.360financialliteracy.org/Save-Wisely-Spend-Happily. This piece, by CPA Leonard Wright, offers several great tips on how to prioritize our needs and wants to help reduce debt.
These days we are inundated by news stories of how bad life is. But is it really that bad? While no one can discount that times are different, the reality is that there is nothing wrong with expecting a greater standard of living. The problem comes when that standard of living is based on excessive debt. Each of us should consider the benefits of having less debt in our lives and gaining control over how we live.
We have used the following steps with extraordinary results over a relatively short period of time:
1. Recognize the need for change. Remember, denial is not a river in Egypt.
2. Plan for your success. Don’t be a deer in the headlights. Budget. As boring as that sounds, a number of tools are available that can provide daily updates to foster your success and offer exceptional debt payoff strategies. Each can be set up over coffee and your budget categories created over dinner.
3. Identify needs and wants. Eliminate all wants and re-evaluate your current circumstances. Whether you are spending more than you receive in salary, or less, the trick is to get out of debt as quickly as possible. A $50,000 credit card debt at 19.99 percent interest is over $800 per month. If just the interest payments are channeled into a 401(k) plan, you will build considerable wealth over the years. It’s time to build your wealth, not the credit card company’s!
4. Establish a safety fund.The appropriate amount will vary based on your facts and circumstances; generally between 3 to 12 months of expenses in cash. Business owners tend to prefer larger amounts of cash on hand.
5. Recipe for any raise: 1/3 to pay off debt, 1/3 to cash safety fund, 1/3 to wants. You have been successful, reward yourself! Take some of that money and do whatever you like!
6. Dot the i’s and cross the t’s in your financial life. Experience shows that the biggest catastrophes are sudden unforeseen circumstances—a fire that sweeps through town, a car accident that results in a permanent disability, or any number of problems that pop up uninvited. Make sure your homeowner’s policy reflects code upgrades and replacement costs, that you have adequate life insurance, disability income insurance, and long-term care cover- age, and that your automobile insurance policy is adequate.
7. Carry a red credit card in your wallet. It will reinforce that you are going into debt every time you use it. Are you purchasing a need or a want? Use cash for wants.
8. Enjoy life! The world does not come to an end without a $5,000 vacation. An America the Beautiful Pass may be purchased for $80 per year. It is even a better deal for seniors: a $10 fee for a lifetime. You can’t beat that! Research shows that we appreciate experiences more than tangible purchases. A quick experiment will demonstrate how true that is. Look down at your shoes. Do you remember how they felt the first day you wore them? Probably not. Now reflect on your last good vacation with your family. You see my point.
Leonard Wright, CPA/PFS
San Diego, California
On Wednesday, May 30, 2012, Todd Romer, President of Young Money Events and Founder of Young Money Magazine spoke with Financial Bin’s David Domzalski about personal finances and entrepreneurship for Gen Y. He also explained the reason he started Young Money Magazine and Young Money Events — AND why he believes FAILURE is necessary for SUCCESS.
About Young Money —
Headquartered in Orlando, Florida Young Money was launched in 1999 to change the way young adults earn, manage, invest and spend money. Nearly 8 million copies of Young Money magazine were published from 1999 – 2009 along with a significant content presence at youngmoney.com A separate division called Young Money Events was started in 2010 to bring relevant and in-person financial and entrepreneurship education to the college market titled Young Money LIVE. For more information, please visit www.youngmoney.com.
1. Todd, can you walk us through your background briefly prior to Young Money?
2. When did you start Young Money magazine and why?
3. Why the transition from magazine publisher to public speaker? Do you feel this will be more effective in spreading your message?
4. What is your goal with Young Money Events? Could you tell us a little about what you do with this?
5. What kind of feedback and press have you received? How receptive is your target audience to the message?
6. As you know, Financial Bin focuses on personal finance and entrepreneurship for Gen Y as well. What is one tip you always leave with the audience at your events?
7. What are your future plans with Young Money? Where do you plan on bringing the tour in 2012 and 2013?
8. How can listeners contact you and find out more about Young Money?
Remember when you just graduated college? The very last thing you ever thought about was student loan debt.
After all, you were so excited to take on the world. You thought you had a plan for your life and, if you were lucky, you had a job lined up before graduation.
No, you didn’t worry about budgets. You probably didn’t even know what debt was. Wasn’t a bill something your parents paid?
Then, you get your first paycheck and it’s not as big as you would hoped. Taxes and all other fun stuff rob you of that juicy gross income. Further, you get smacked with a student loan bill that you may have not even realized existed.
When Anna and I were just starting out, we neglected to keep a budget. We paid for the big television package that had all the interesting business channels that we enjoyed watching. Yes, we are news and financial nerds.
One Saturday night, in particular, we sat down to watch some TV before bed and on came Dave Ramsey on the Fox Business Network. His opening line was (which is all too familiar to us now) was about living like no one else, so that someday you can live like no one else.
That line really stuck with us. And it lead to a big mindset shift for us.Continue reading
So you’re ready to dive into investing! Great move! Trust us, it’s not nearly as intimidating as the so-called “pros” would have you think.
As a beginning investor, you probably have a lot of questions swirling in your head. When should I start investing? What are the best types of investments to pursue? Should I hire a financial advisor to make sure I don’t screw it up?
It can seem overwhelming, but have no fear. We’re here to answer those questions and provide you with a few simple steps to get your foot in the door. Before you know it, you’ll be investing your way to financial freedom! Let’s get started.
We’re not talking strategic investment decisions here, just your everyday personal cash flow management. You know — all that stuff you do to maintain some sense of control over the money moving in and out of your life. If you’ve been doing it for a while, have you ever questioned why your productivity level seems stagnated — regardless of the amount of time and effort you may put in every week for months and even years?
At first you might think you’re getting better. But for the sake of comparison, let’s consider putting that same time and effort into practicing the piano. Would your skill level in each be comparable after practicing these tasks for a few hours every week, say, over a few months’ time? Maybe.
Let’s extend that time period to a year. What would you be accomplishing on the piano now compared to your money management efforts? What about five years down the road? By this point you could easily be performing wonders on stage with that piano.
How’s your money management skill and productivity level doing? Are you still tracking that loose change on your mobile app after every cup of coffee you buy? At this point you may realize that no matter how many more years of time and effort you put into “practicing” money management, your skill level and productivity will never comparatively improve.
There’s only one reason your personal money management proficiency and productivity stalled long ago but your piano playing skills continue to soar higher.
Figuratively and literally speaking, when first learning to play the piano (like learning money management), you have to first map out where all the notes are on the keyboard (where all the money is in your life), to gain an understanding before you can begin to play your first two-finger tune (actually start making money management decisions). But here, is where your money management skills get left behind and your piano playing skills break out.
Without a second thought, when playing that piano the second time, you’d take for granted the fact that all the notes on the keyboard were in the same place they were the first time. So quite naturally, with “practice” (doing the same thing over and over—an important distinction), you’re able remember the position of the notes and move on to the next level and practice managing those notes into the true skill-building part of actually playing a song.
In contrast, when managing your money the second time, you have to first figure out where all your notes are again (timeframes, income, expenditures, balances…) because they’ve all changed position since the last time you “practiced.” It’s at this point you might realize, the only thing you’re practicing, is finding notes.
The reality is, if you keep managing your money this way, you’ll have an entirely new keyboard arrangement (financial picture) in front of you every single time. So in essence, you’re starting over every single time. This is the reason you can’t improve your money management skills to the same degree you can improve your piano playing skills.
Let’s turn this concept around, and now ask yourself, after five years, how good you would be at playing that same simple song on that piano, if every time you sat down to play it, you had to first figure out where all the notes were? Maybe you recognized that problem early on so you decided to employ the latest high-tech note-finding software. But how’s your skill level at actually playing that song? Improving? How about five years from now?
You’d might come to realize that no matter how well you mastered your note-finding abilities, your performance threshold has never really gotten off the ground–and will never get off the ground, because your understanding, knowledge and wisdom of the keyboard (your financial picture) will always be limited because it’s never the same.
But now consider what might happen to the whole concept of money management if your money (timeframes, income, expenditures, balances…) stayed in the exact same position you left them the last time…and the time before that. To get a real good idea of what that experience might be like, just consider what happens to a musician as his skill level grows at playing that piano.
Consider for a fact that it doesn’t take long for a musician to stop thinking about the notes on the keyboard entirely (can you imagine?). The musician’s initial time and effort to “account” for the notes (pun definitely intended) has naturally advanced to the organization and management of the notes (song playing/money management). With time, through simple repetition and memory, his song playing grows more intricate and precise, while the ease and effort at playing them becomes more elementary. His knowledge of the keyboard has moved into a completely intuitive state (invisible?) and he’s now operating at a level of mastery, accomplishing so much more with only the slightest of effort.
Thousands of people, performing a thousand different activities, are reaching mastery level everyday. If you’re already investing time in managing your money, there’s only one reason you can’t reach mastery level…you’re mistaking note counting for money management.
All this talk about music get’s me creative…let’s see:
What financial masterpieces
Could you be performing
With effortless skill
And pleasure and delights
If all your notes
Were in the same place
Lee Roesner is a business owner, entrepreneur and developer of MoneySlinger™ Speed-Budgeting™ Personal Finance System. This article was originally published on MoneySlinger.com.