Sunday, July 30, 2006

Emergencies versus Lack of Planning- Which is Which?

I read alot about Emergency funds for when there are emergencies in life. I wanted to spend a few minutes defining in my head the difference between a financial emergency and general lack of planning and talk about practical preparations for both.

Here are some examples:
Lack of Planning-- new tires for your car.
Emergency-- Transmission repair

Lack of Planning-- covering your insurance deductible if you have a wreck.
Emergency: Covering mulitple Co-Pays resulting from an emergency room visit and doctor follow-ups.

Lack of Planning-- Not having the money to pay your property taxes (if they are not escrowed).
Emergency-- Your property taxes go up $200 (or whatever) a year and you don't have the money set aside.

Lack of Planning: It's vacation time and you don't have all the money. (Obviously right!)
Emergency: Someone gets sick and you have to make a quick trip to see them.

Lack of Planning-- It's time to buy school clothes and you don't have the money.
Emergency-- You need a new suit for a funeral.

Other "Lack of Planning" things that are mistaken for emergencies:
- Most car repairs.
- Insurance premiums.
- Christmas/Birthdays/ all other gift giving occasions.
- Higher than last months utility bills.
- Prescription co-pays you currently have.
- Almost anything else.

Honestly, I think the concept of an "Emergency Fund" is really misguided. Really the definition of an emergency is "a serious situation or occurrence that happens unexpectedly.

In all actuality there is almost nothing in life that we can't expect... don't you expect that you'll have to take an unplanned trip or make a visit to the emergency room. It may not be what you WANT but you can certainly expect that it will happen. Does that make it an emergency?

The bottom line is this-- you need to have money set back. You need to have as much set back as you can and you need to touch it as little as possible.

For those in credit card debt a combined approach is good. Set up your Payment Stack (thats what I call it) and start working it but at the same time put some money back for those things you have failed to plan for. Then, when they come up you'll have them.

If people would stop calling things "Emergencies" they'd feel more in control.

Friday, July 28, 2006

Italian Food and All You Can Eat Crablegs

My last post I complained about spending $20 to go out and eat Italian Food. That meal out was on Wednesday night- today is Friday. Tonight we spent $65 and I didn't feel one bit of regret...primarily because it was all you can eat crab legs, shrimp, clams, fish, etc. I love crablegs so no guilt there. Plus, the reason I felt bad before was because our meal out was a spontaneous move when we had food right in the refrigerator.

If people would just learn to say "I choose not to spend money today because I know I don't have to." That would be a big step.

One of the hardest things in the world to do is to not spend money when you feel like it. Your head screams, "I can't afford this while your hands are tossing stuff in the basket." If only people could make the connection between their head and their hands. It's just that when we are walking around the store or deciding what to eat we rarely keep the immediate future of not having money to pay the bills in our minds.

Often our decision not to spend money is made without regard to the immediate future. It's not that we don't have the money today, it's that spending the money today means we don't have the money for something else tomorrow. For many people that means that tomorrow they are putting their utility bill on a credit card.

One secret to smart spending decisions is the ability to base current spending decisions on future needs.

Thursday, July 27, 2006

Italian Food, Trout, and Pork Loin

Homemade tomatoe sauce with a clear taste of Oregano full o f sliced chicken breast with Penne pasta....yummy yummy yummy.

The bread is great too. Great bread.

And we got two meals, including tip for $20 (we drink water when we go out.) So it's hard to argue with that meal... Italian for two, including tip for $20!

But two nagging things kept running through my head-- Trout and Pork Loin.

The pork loin was from the night before, the trout from two nights ago. On a sultry summer evening either one of those would have made an excellent sandwich. The thought of either one sounded good. It would have been an especially practical option knowing we were going to be gone for the next four days and that those dishes will go to waste....but there we sat eating Italian food.

Going out to eat last night was just one of those emotional things...we knew we were going to be gone so "we" didn't want to cook. I didn't even think of the leftovers until we were already sitting down.

So there went another $20, never to be had again.

Tuesday, July 25, 2006

Carnival of Personal Finance

Hey, I'm learning again.... the Carnival of Personal Finance I am in this week is up and I think it is good manners to link to it.

You can both read it here.

Thanks Savvy Saver!

Saturday, July 22, 2006

Ha! Saturday Night Live--- Investment Sketch

I'm watching Saturday Night Live and the dude puts up a pie chart and shows this lady what her investment diversification should be.

The sketch talks about "Investment Strategies for the Rest of Us." and "Why let the rich be the only ones to make money."

Their investment offices are accessible to all bus stops and they have free snacks.

The lady getting the investment advice is going to "Show my momma she was wrong about me."

Ah, yes, the advice the nice gentleman was giving her was to invest her money like this!


That's right, the lottery as an investment! Grrreeeattttt.

It's a fact thought that gambling can be very bad for people. Lotteries offer the the ultimate in false hope.

I was talking to my accountant last week about PF stuff and he said he has seen alot of people in this area hurt by the many new "casinos" we are getting. He had just finished working with a guy who won $60,000 in 2005 at casinos. He only had to play $80,000 to "WIN" it. For most people 20K at the casinos in a year would be devastating.

There are many many many ways that people are taken advantage of because of their inability or unwillingness to closely evaluate the facts.

Another post on this is to follow!

Friday, July 21, 2006

Redefine your scope of excuses

"Well I could have..."
"At least I didn't..."
"Well THEY..."
"It could have been worse..."
"Next time..."
"They just..."
"If I don't..."
"Just as well..."
"I'll miss out..."

Rationalize and Minimize...

This is one of those behavior things in dealing with finances. We are often telling ourselves things to make us feel better. Anything to get past the nagging feeling that we can't afford something. Anything to forget we are already in debt. Anything to lose sight of the fact the car payment is due in five days. We tell ourselves "things" so that we don't feel bad when we put our items on the checkout counter.

It's not even that we feel like we deserve it. Except for an occasional ice cream cone we don't feel like we deserve it... we feel like WE HAVE TO BUY THIS RIGHT NOW OR ELSE...

Here is how it works... listen to yourself and see what you hear:
"Well, these shoes just cost $75, at least I didn't spend $150." Minimize.
"I haven't bought a new pair of slacks in months." Rationalize.
"I only spent $50 today, last time I went shopping I spent $200." Minimize.
(Side note: It doesn't matter if you spend five dollars. If you are in debt or struggle to pay the bills then you don't NEED to be spending it.)
"I got this on sale for $40 off." Rationalize.
"If I don't buy this today they might run out." Rationalize

It's never about your intentions, it's about your actions.
It's not about what you tell yourself.
It's not about what you tell others.
It's not about how you feel when you do it.
It's not about how you hope it will make you feel.

At the end of the day it's about being responsible for hundreds of little spending decisions that you make every day.

Now, I realize this is not easy. Can compulsion be cured by reading a blog.... Nope. Can a lifetime of excuses stop today. Well, maybe, but probably not.

So, how do you stop rationalizing and minimizing? (There are usually two sides of these things- the cognitive and the practical.)

In life, as you work on correcting a vice, you'll find that just WANTING to fix it goes a long way. Whenever you are buying something just think about how you feel right then. Think about how you will feel about that puchase later that day. The more you think about your spending decisions the more your mind will help you make the right ones. You won't even WANT to spend crazy money anymore.

Whenever you are buying anything think about the bills you have coming due.

The thing you always read in personal finance articles is something like-- "Remember that vacation you want to take and then make that spending decision." HA! You are going to take that vacation if you have to donate a kidney to do it. What you need to think about is how freakin stressed out you are going to be when all your bills start showing up next week.

A new pair of shoes is no fun when the money to pay your electric bill is sitting on your closet floor.

No one ever feels bad about something they bought two weeks ago... they feel bad that they are stressed out over their credit cards. If you can connect those dots then your emotions can work in your favor instead of against you.

Thursday, July 20, 2006

Carnival of Business

Ah, I am learning.... I should have let you know about this several days ago.

I wanted both of my readers to know that I was included in this week's Carvinal of Business....

There were some great entries and I really am grateful to have been included.

Here is the link to this carnival of business:
http://davidmaister.com/blog/148/

You two can also view the rest of David's site at http://davidmaister.com

Tuesday, July 18, 2006

Limiting Debit Card Fraud Exposure

OK, this post is in response to some comments on ContentmentIsWealth.com. Lisa's blog post has to do with debit card fraud and asks for ideas on how to prevent it....

By doing what I lay out below you never have to worry about your entire bank balance being zapped. If your account is compromised you also save the hassle of having to notify ALL of your auto-pay's, ordering new checks, etc.

Here is how to have a "worry free phi-LOS-o-phy" about debit cards:
1. You open a second bank account.
2. You only put in what you would normally spend on debit card type .
3. You write checks and do all auto debits, etc out of your first account.
4. Cancel your debit card on your first account.

If your “debit card account” gets compromised you will have ZERO nsf fees because there are no checks out there- they are all on your other account. You would have almost zero headache other than closing and re-opening your “Debit card account” that holds your “Everyday Money”.

By putting in just part of your money every pay period you accomplish the goal of limiting your exposure when using your debit card. They only have access to the money that you put in each pay period. This amount even goes down in between pay periods limiting your risk even further.

A commenter named Matt says that they have their second checking account money auto deposited. This is even better if you have gotten past the fabled "personal cash flow" issues. In other words you don't want to use this system if you get alot of NSF fees! In that case instead of a second account use cash. Opening a second checking account will cause MORE problems for you! This reduces the number of transactions on your account and will result in fewer NSF fees.

At one point in that list of posts someone talked about using checks-- after thinking about that this was my response....Gee, a paper check is maybe more susceptible to fruad, anyone can take a cell phone pic of your check and have your account AND routing number AND phone number AND address AND your signature ... not good. If not that they can stick it on the office copier or hand write it and accomplish the same thing. I really should get rid of my check book! One lesson to be learned here... put as little info as possible on your checks. Most stores don't take checks any more anyway. f you have your social security number on your checks then throw those time bombs out and order new checks...


(somehow I feel like I am breaking some ethical blog rule.... is it ok to turn mine and other people's comments from one blog into a post on my own blog? Let me know!)

Follow up to Theory of Accurate lifestyle

After reading that last post of mine I found it to be rather cliche, blase' , etc. ... it was kinda plain... "just plan a little more" is reiterated over and over again. Of course we know that!

Well, that wasn't really what I was trying to communicate... thank you to Lisa for helping me see this. She is right people DO live beyond their means and try to look like they have it all together.

It is pretty well accepted that people usually take many months and years to get into debt. So, really here we go--- it's not the car insurance or car repairs or unexpected funeral trip or wedding trip or a surprise medical bill that gets us into debt... it's the shoes and tickets and meals and gadgets that we buy in between that gets us. In other words we'd have the money for our car repairs if we bought fewer things before the car breakage occurs.

Here is where my "Theory of Accurate Lifestyle" comes in (I should stop calling it a Theory... this is not a Finance Journal.)

"Lifestyles fit within a given socioeconomic status."

The practical part of the theory should give anyone hope. You do not live WAY beyond your means. If you did you'd quickly go bankrupt. If you are in debt you are living just a little outside where you should be. So, that means that you should be able to make just one minor adjustment and get out of debt forever.

The one minor adjustment-- start putting $25-$100 per month in a savings account and don't let that account burn a hole in your pocket. It should be a game to not touch that money.

(By the way, I hesitate to put the $25-$100 amount in. You might need to put in $400 a month to cover contingencies...)

Now, I've re-read THIS post and it is still pretty simplified. I guess that just reminds me that if you have a good mouse trap why try to fix it. If setting money aside is a good idea then it's just a good idea.

Oh, more food for thought, "A stereotype wouldn't be a stereotype if it weren't a stereotype."

Friday, July 14, 2006

Follow up to "Debts are not Bills" -- my "Theory of Accurate Lifestyle"

My "Theory of Accurate Lifestlye" says that people are living a lifestyle consistent with their income. If not they'd be bankrupt in just a few months.

People find themselves in debt not because they are purposefully buying more than they should. They climb into debt because they are planning less than they should.

People know if they can afford $15 jeans or $150 jeans and buy the "right" ones. They also drive cars they can afford, eat at restaurants that won't weigh down their budget, etc. People's lifestlye generally reflects their income (except for those days when their inner Tyler Durden kicks in) and socio-economic class.

What people don't do is plan for things like tires, car insurance, wedding trips, job changes, and (even) toys, etc.

The remedy for debt then is not about reducing your lifestyle, the remedy to debt is to just to spend a LITTLE bit less than you have been so you build yourself a cushion, then a savings account, and eventually a retirement.

Debts are not Bills

I usually get an idea for a blog from a comment I make at someone else's... in this case it was my comments here.

Debts are not Bills.... debts are previous expenses that you are paying for now. "People in debt have cash flowed their future right into their past."-- Me.

If people didn't have hundreds of dollars a month in credit card payments they could live their current lifestlye just fine and even be able to save some money.

My definition of a bill versus a debt is clear.... A bill is anything that will never be paid off...Phones, TV Content, Satellite Radio (which I don't have), Electric, Rent, Water, etc.

A debt will be paid off eventually.... Cars, credit cards, bank loans, student loans....

If people would stop saying "I can't pay my bills." and start recognizing debts for the cancer they are then perhaps they'd get on a health kick and start purging those silly things.

Thursday, July 13, 2006

Personal Cash Flow

OK, I am really confused... can someone explain to me how a person has "personal cash flow" issues?

I am just thinking about it and it seems like that you are either 1. Going INTO debt or 2. Not.

Unless a person has a change in income or expenses then cash flow should not be an issue after the first paycheck or two........

I'd like to hear about particular situations.

Wednesday, July 12, 2006

Citibank Dividend Card

OK, I only keep two credit cards and pay them off every month.... when I had the business the hardest thing in the world to do was to pay off the entire $11,000 or so balance each month when I knew I didn't have to.

Now, about credit cards in general. If you have trouble paying your bills on time don't try using a reward cards. The rewards are simply not worth it... bottom line.

If you carry any credit card balance it is not a good idea to open another credit card....the things are really bad for your financial health.

Any way over at www.makelovenotdebt.com they were talking about rewards cards..

Right now Citibank's Dividends card is offering zero cost balance transfers with 0% interest for 12 months. If you have a card with a high rate this would be a good one to transfer to.

Now my big rule on transferring balances is this... you have to transfer entire balances... several small cards or one bigger one. Whatever the case you need to eliminate another card altogether. If you can't do that then it may be better not to ADD a whole new bill. This is especially true if you already have six, seven or eight cards. If you have one or two then you my rule doesn't apply.


Oh about the Citibank Dividend card. On MakeLoveNotDebt.com they were talking about rewards for cash advances. Here is what I gather from the
They also offer "rewards" on their cash advance... which is funny credit card company talk. Their are no rewards... the fee is 3% and I am assuming the reward is 1% so basically what they are saying is that it will cost you 2% for a cash advance. Credit card companies really should be held accountable for that kind of crap.

"These Days I Barely Get By"

As a personal finance blog I thought George Jones' lyrics to this song would be appropriate fodder (even if you are not a Country Music fan);

I woke up this morning aching with pain
Don' think I can work, but I'll try
The car's in the shop so I thumbed all the way
Oh these days I barely get by

I walked home from work and it rained all the way
My wife left and didn't say why
She laid all her bills on the desk in the hall
Oh these days I barely get by

Put my only two dollars on my favorite horse
He lost by a nose and I cried
Oh, my boss says come winter we'll all be laid off
Oh these days I barely get by

These days I barely get by
I want to give up, lay down and die
Worst of all is when she told me goodbye
Oh these days I barely get by

Oh these days, one barely gets by

Sunday, July 09, 2006

Is your business idea a good one?

First, let's face it, small business is tough. The "American Dream" of owning your own business and making a ton of money is very achievable but is nearly out of reach. As I tell people on a daily basis "Making money is very difficult and very easy." Every month I read an article that goes something like this.... "With $4 Million in annual sales the company is almost profitable." ALMOST! Wow... just goes to show how uphill the business climb can be.

I recently sold my business and there is nothing in life that I enjoy more than talking about people's dreams and ideas in business. Many people have an idea for a business in their head or in the beginning stages of planning but have no clue if it would make a good business...below are some ways to tell.

Many people either get too excited or too discouraged about their idea. As with most things in life a good dose of reality and balance do wonders. One thing is for sure, no business ever succeeded unless it was first started.

1. You don't have to be first or even best....
...If your goal is to make a living then figure out what it will take to do that and based on that determine if your idea is a good one. New ice creams, bakeries, clothing stores, consultants, and photographers "happen" all the time. You just have to evaluate your skills, experience, and potential market to see if your idea is a good one where you are.

As a matter of fact being first can actually be bad for business. Also, finding an idea you can improve on is a great way to get started.

2. Scalability--
If you want to really make alot of money then your business has be be scalable... it has to be able to grow beyond yourself. You only have 24 hours a day so you need to be able to expand your skills and services beyond yourself.

3. Pay Attention To Market Research and adjust your plans accordingly.
You need to do research on your potential type of business. If the research says it's highly competitive then believe it.... the data says restaurants have a 3%-5% profit margin-- believe it. If you think you are some kind of business Zorro you'll be in for a shock. Reality is reality because it is reality.

4. Don't Think You Have to be Huge
GOOGLE's and "Ben & Jerry's" are rare. There are thousands and thousands of entrepreneur millionaires who you have never heard of. Shoot for a piece of the pie, not the whole thing...they don't call it market "share" for nothing.

5. Do a Business Plan
Deciding if an idea is a good one involves looking at the potential numbers.
Here is a business plan in a nutshell: "How much of "this" can you sell to "who" for "what" profit?

Answering those questions in advance is what gives you the red or green light on your business. You can eliminate many ideas after you do the math. I was recently approached by someone very excited about an idea... they laid out the numbers of customers and the numbers of sales and was very excited... in the end however, if you got ALL of the area market share the gross revenue would only have been $150,000. I don't know what the gross profit would be but even at 40% the profit is not there to make it worth doing... the math made the decision for me!

Call similar businesses in other towns to get the owner's feedback on the realities of the industry you are thinking about. Don't over or underestimate your competition.

6. Consumables or Subscriptions
Whatever business you are in it needs to be repeatable... get a customer once, get paid many times.

I would rather build relationships with my customers who keep coming back over and over again. The power of multiplication is a wonderful thing.


7. Maximize Your Market Size
Sell something that you can sell nation or even world wide. Sell online!!! Sell to men and women. Sell belts AND belt buckles. Be willing to drop ship to people. Market in nearby towns.

Remember too, that a business idea that is very profitable in a big city is not necessarily good for a small town.

As a caveat here...it is also dangerous to OVER diversify. You need to be focused on getting the easiest and most accessible piece of the pie that you can.

8. Sell Hope
Sell something that makes life easier for people or makes them look, feel, or act better. The more you can make a guy feel like James Bond the more he'll open his wallet for you!

After looking these over I realize I mixed in some "How to do's" with my "What to do's" but all of the points are worth making.

These are just some good guides for business ideas. The more of them you fit into your idea the more likely you will be to make some money~~!

Wednesday, July 05, 2006

The Devil Wears Prada

Being a blog about thinking about money then this movie deserves a "revue" as you will.

First, the movie is great, it makes you laugh and is one of those movies that kind've "teaches you a lesson."

The base lesson: Money isn't everything.

The movie does show further evidence of one of my longstanding theories: "Mean people are better liked." Here is why- everyone wants to be liked by everyone soooo if someone (who is mean) does not like you then you try you "like them harder" to get them to like you. The more they put you off the more you try. In short mean people earn your "respect". It's that feeling you get when you have the satisfaction of finally earning their favor.

The problem with the "money does not buy happiness" line is that to some degree it is not true.
Here is a quote by someone: "Money can't buy happiness but it can buy you the kind of misery you prefer. "

I asked the checker today how she was and she exlaimed, "I could be better, I could be rich."
This was a great opportunity to let loose with another favorite quote of mine- this one attributed to Mark Twain--
"I am opposed to millionaires but it would be dangerous to offer me the position."

I've read in recent studies that the "happiness floor" is 50K a y ear. Seems low to me....but they say if you make above that then the "happiness yield" flattens out. In other words if you make above 50K a year then money doesn't buy you more happiness. (by the way I made up all the "happiness yield" stuff. I just graphed it in my head as I was typing about it.)

You know there are probably fewer than a thousand people in the world who could buy whatever they want...who have literally more money than they could spend. Spend it fast enough and anyone can outspend a fortune.... for example Michael Jackson.

Monday, July 03, 2006

Style and Frugality are Relative

I am not a particularly stylish guy (my alter ego on the other hand is VERY stylish). I wear jeans and a polo shirt around every day (I used to wear them to work but I sold my work so now I just wear them around until I make up some new work, which I am working on.) See, some would consider a Polo shirt pretty stylish because they get to wear around coveralls all day or must wear shorts and a T-Shirt....it's all relative.

I was visiting with an Aunt and Uncle and was talking about the fact that I'll look around for shoes that are $39 instead of $49 but I'll gladly throw down $80 for a good meal. The look they had on their face told me they thought $39 for shoes was high. I am sure that others would find $39 embarrassingly low and "Why would anyone ever be seen in public with $39 shoes." It's all relative...

My jeans are always the same brand... they get worn out and faded in about four or five months which I really love. They are I never pay more for $15 a pair for them. Thrift store shoppers would find me a really extravagant and uppity jeans wearer...others an unnecessarily cheap scrooge... it's all relative.

Next we have diamonds. Today I read a post about diamonds...lets see I think it was mapgirl.
Diamonds and gold are weird in my head. For some reason I like to buy jewelry at a jewelry store when I know they would be cheaper at some chain department or discount stores. I guess I need to get over that.... I could buy then buy more jewelry... and honestly browsing for just the perfect diomand(s) is really a blast.