Today’s post is back to the basics. Here are three simple questions that will save your budget, no matter how good you are at sticking to it.
First, “Can I afford this?” Is this something that is already in my budget? Also keep in mind that your budget sometimes needs adjustment over time. If at one time you were splurging for extras, there may be times that you need to trim back.
Second, “Is this contributing to my goals and priorities?” If making a purchase is outside of your current goals and priorities, then it isn’t worth buying either.
Lastly, “Do I really need this?” Or, can I afford to have it in my life. There is a price we pay for having more stuff in our lives. So it is helpful to consider this before we bring more stuff into our lives. Even if it is in your budget, this doesn’t mean that you need it in your life.
If the answer is no to any of these questions, then take a pass on whatever it is you are considering to purchase. They might be very simple things to consider, but they can save your budget.
When unreasonable costs arise, it is always in your best interest to fight back.
On my recent trip to Boston, I faced this situation with some very unreasonable phone calls.
Given that I was coming in from out of the country, I had originally arranged for my cell phone to be mailed to the hotel I was scheduled to stay in for the finance conference in San Francisco that I was to speak at. Instead, with my delays getting out of Kabul, I never ended up making it to San Fran, and thus didn’t have my cell for the week I was in Boston.
This obviously was a pain (we wonder how we ever lived without the darn thing!), trying to connect with friends and so forth.
In the first couple of days that I was at the hotel I made a few thirty second phone calls to connect with family and let them know how to reach me. My thought that a couple of bucks would suffice as an unreasonable charge for a phone call. Little did I realize that they wanted to charge me $9.69 per call!
This meant that my phone calls would have been equivalent to a nights stay (at the priceline rate).
Obviously I wasn’t going to take those kind of charges. I protested and managed to get it reduced to a less than a quarter of what they originally wanted to charge. They tried to give me some crap about it being a service charge that they were charged. My response was that if they were getting charged that much, then they weren’t a competitive hotel, and if they were passing those charges on to their customers, then they weren’t servicing them either. In the end I felt like I won out, but what a pain over a couple of quick calls!
Just remember to fight back when anything like this happens to you.
As frequent readers of this blog will know, we are currently in the midst of paying off our second mortgage. Well, I am happy to report that we’ve got the debt down to $11,400 from $17,700 at the start of this year.
So far, we’ve done two major things to chip away at the number:
1) Reprioritized. We’ve routed all our secondary cash flows to the debt. This includes money from our prosper.com account, available bucks from stock dividends, the profits from our investment apartment, and chunks of whatever found money comes our way.
2) Credit Card Arbitrage. We transferred as much as we felt comfortable onto a zero balance credit card. Miel shopped hard and found a card that had a zero interest 12 month transfer offer. We ended up moving 9 grand from the second mortgage onto this card. Now, I’m not really such a fan of credit cards, but no interest on $9,000 is much better than 9% on $9,000. Also my wife Miel has a pretty good handle on paying these things off, so we should be able to avoid some of the major pitfalls associated with having this kind of consumer debt.
Whats interesting about the process is that although Miel’s budget has been pressured at times, we haven’t experienced undue stress in discharging the obligation. For example, we’ve still been able to meet each other in Switzerland, we’ve maintained an active social life in both DC and Kabul and I’ve been able to sneak in the occasional savings bond purchase. The main reason is that when we set the goal, we purposely built in some wiggle room. I think this shows that some planning and a little pro-active management its possible to have your cake and eat it too.
James & I are very keen on setting goals for ourselves and working together to accomplish them.
Right now we are currently working towards paying off our second mortgage. We have around $12k left towards our goal.
Since I’m currently in the states for a brief visit, we have taken some time to consider what our next goals are going to be.
After some consideration, we’ve narrowed it down to working on four financial goals simultaneously. We realize that we would achieve one of them faster if we put all of our resources into one area, but we find it more empowering to work towards several things at the same time. Here is what looks to be next on our agenda
1. Building up and maintaining a $5k liquid rainy day fund.
2. Pay down Miel’s student loans.
3. Build up an entrepreneurial fund. We would like a pot of money to be available when an opportunity to build a business arises – in the mean time this would be in a dividend yielding stock that would produce passive income.
4. Max out James’ Retirement. We’ve agreed that once we are closer to starting on these goals, that we will both budget out and decide how much to contribute to each of these on a bi-monthly basis.
We also agreed that we can individually choose any one of the goals to throw our extra cash towards. We’ve found that it is best to put your extra funds into something that really turns you on. So, it may be that I’m working towards getting the easy goal of the emergency funds taken care of as soon as I can, and James will put more of his extra money towards his retirement or our passive income fund.
This means that we’ll be making consistent progress on all of the goals and then perhaps get ahead a bit as well.
One thing that we haven’t yet established are the time lines and amounts towards each of these goals. We still need to determine how much we want in our entrepreneurial fund or how fast we want to be able to pay off my student loans. We’ll look at those issues more closely once we are closer to starting on these goals. For now it feels good to know what is on the horizon after we’ve accomplished paying off our second mortgage.
“God gave me my money. I believe the power to make money is a gift from God… to be developed & used to the best of our ability for the good of mankind. Having been endowed with the gift I possess, I believe it is my duty to make money & still more money & to use the money I make for the good of my fellow man according to the dictates of my conscience.”
– John D. Rockefeller 1905, 1839-1937, the richest man of all time, worth $200 billion (in 2001 USD)
The Detroit News is reporting that 60 year of David Sneath of Livonia Michigan recently won a $136 million dollar jackpot in the Michigan state lottery. On hearing that he won the lottery Mr. Sneath promptly walked off his job at a Ford motor company warehouse. We heard about this story and got to chatting about what we would do if we won that kind of money. Interestingly enough our reactions were pretty different.
James
1) Take control of a prosperous mid-sized corporation.
2) Buy several politicians.
3) Ensure that my family remained members of America’s wealthy oligarchy.
4) Crush anyone who gets in my way.
Miel
1) Use some as capital to start a green real estate development company.
2) Use some for seed money for a philanthropic organization to help people in need, likely internationally.
3) Start a scholarship fund to promote study abroad programs for high school students.
4) Go on a nice international vacation at least once a year.
Pretty different first reactions…yet we manage to stay married!
The other night I was out with friends and the topic of money came up. The wife began to say that her husband had this new “scheme.” The husband’s response was that this “scheme” is what other people call a budget, and that it is not some revolutionary concept.
The “scheme” was to go to the ATM once a week and get out the budgeted money needed for the week and then spend from that. The couple has a two year old and have more of a need to budget these days with a little one.
While it made for humorous conversation, the thing it got me thinking about was how important it is that both partners are in agreement on the budgeting terms that are established within a couple. In this case it was clear that this “scheme” was more of a joking criticism than any real conflict within the relationship.
However, it can be easy to have a budget become some type of racket that one is pulling on the other. Granted that this is likely in the best interest of both partners well-beings, but it must also feel like it is a partnership where both members contribute to the financial management.
This of course is easier said than done if a couple is trying to be financially prudent and one of the partners doesn’t know how to, or see the value in, sticking to a budget. For this reason I think it is crucial that a couple establish some type of balance in their financial outlooks.
If a couple are on two totally different financial paradigms this is likely to cause strife in the relationship. I do think it is possible to work together to negotiate this balance when a couple might be within range of doing so, i.e. they aren’t the extremes of frugal and shopaholic.
Readers: What have your experiences been around striking a balance in establishing financial protocol within a relationship? We’d love to hear what your views are.
As you may know, Eric Tyson is a prolific writer and personal finance columnist. We have a copy of his book Personal Finance For Dummies, and have found it consistently useful for several years. Among other things, Tyson gives the following five points of advice:
1) Prepare for Lifes Changes: The more you live within your means, build up a cushion of emergency savings and keep your expenses low, the better off you will be financially and emotionally when your life changes.
2)Read Publications That Have High Quality Standards and that Aren’t Afraid to Take a Stand to Recommend Whats In Your Best Interest. In this case, you should probably take publications by brokerage companies with a grain of salt. Skepticism is required especially in publications advertising their in-house mutual fund’s performance. Very often the advertisement will select years in which the fund did well, but ignore years where it lost money. If you took the advertising at face value, you would get a distorted picture of the fund’s actual performance. Since your money is on the line, you should know what you’re getting into.
3) Prioritize Your Financial Goals and Start Working Towards Them: This is good advice, but I’d go further to say your goals should be measurable and achievable.
Regarding Measurement. It makes sense to avoid vaguely stated goals like “financial freedom”, because its hard to know when you’ve achieved “financial freedom”. – It simply means different things to different people. For a homeless person, it might mean having a job. For a family of four it might mean building up an emergency fund. Instead, try to put your goals in a metric that helps you to know if you achieved your goal or not. For example, your goal might be to “achieve net worth of $100,000” or “buy 9 savings bonds”. In both of these cases, you know if you made the goal or not. That is, either you bought the 9 bonds or you didn’t – its not subject to interpretation.
About Achievability: You should be able to reasonably meet or surpass your goal. For example, lets say you set a goal of becoming a millionaire in 1 year, but you only have 20 dollars in your pocket. Unless you are Warren Buffett, the chances of meeting your goal are not very good given that all you’ve got it is 20 bucks. When you make unachievable goals you are setting yourself up for failure. Don’t do that.
4) Hire Yourself First. Tyson says you are the best financial person you can hire. Amen. It never makes sense to abdicate control of your finances to a financial manager. Instead, it is probably best to work in partnership with them.
5) Invest in Yourself and Others. Invest in your education, your health, and your relationships with family and friends. Personally, I’m a bit of nerd when it comes to investing, but I also find it very rewarding to spend time with friends and family. In fact, the older I get, the more family becomes important. So, Tyson is right on with this final point as well.
In honor of James’ 33rd Birthday, I thought I’d share some interesting tidbits about this fabulous number.
Thirty-three has the meaning that good will always triumph over evil.
It is an auspicious number in modern numerology, one of the master numbers along with 11 and 22.
In fact, the average lifetime of a blog is 33 months.
To make James feel better, the average net worth at age thirty three is $2,125. Though we do have our friends over at My First Million at 33 to aspire to.
The median income at age thirty-three is $44,473. If James were earning more than a student income it would certainly surpass that. Though those with a Ph.D. would be earning $65,937 at the same age.
All this to say, enjoy the prime of your life James! So glad to be your wife!
Yahoo finance has a pretty good posting called “8 Last Minute Ways to Save for Vacation“. Some of the tips, like eating stuff from your pantry one night a week to cut your food expenses, are pretty good. Check out the list here.
