Fighting the Urge to Spend Part 2

Last post I covered how we can be tempted into spending money while trying to become financially free.  Unfortunately, the urge to spend will still be there even after you have control of your finances (take a look at my sneaker incident).  So what are some ways one can control this urge?  Here are some tips that I have gathered that have worked for me in the past:

  • For the married folks.  Don’t ever let money be an issue between the two of you.  I believe that everyone should have a hand on the household finances even if one is more knowledgeable about it than the other.  A simple yet great tip I found was to always discuss any spending over $100.  That way, at the end of the month there shouldn’t be any surprises when you are reviewing your monthly budget.
  • Use the 24-48 hour rule.  My brother is a tech geek.  He loves anything doing with technology.  Naturally, he loves going to electronics stores and seeing the latest and greatest.  So when the newest thing comes out, he gets that must have feeling.  One of the ways he fights the urge of spending money on gadgets is using the 24-48 hour rule.  If he really gets that feeling that he needs to buy an item, he waits between 24-48 hours and the feeling usually deteriorates.  He understands that what he had was a compulsive buying feeling where the satisfaction is only from buying the item right then and there, and not necessarily because he wants it for the long run.  I find myself using this technique as well.
  • Limit the amount of time in temptation hot spots.  Temptation hot spots are places that you know make you want to spend money more than usual.  For me, any sporting good store or website dealing with sneakers are my temptation hot spots.  Just remember that we are limiting the amount of visits to these places.  I can definitely afford to buy some of the things I want so I sometimes walk into these stores to take a look.  But if I was trying to get out of debt, I would not even look at these places so I wouldn’t loose focus on the bigger picture of being financially free.
  • Have a constant reminder of your goal.  If your goal is to become debt free, why not keep in your wallet or purse a piece of paper with the amount of money you still owe written down.  When you see something you want, look at that paper and say to yourself, “do I need to add to this total?”.  Maybe you are saving for a car or a new home.  Have a picture of that in your refrigerator or with you to remind you about what you are saving for.  Get creative, and look at the bigger picture.
  • It’s okay to treat yourself.  All work and no play can make you dull.  If you save cash, have no debt, and are saving for the future, why not include a category in your budget where you can have some extra cash to buy that thing you like.

We are bombarded constantly by the media with the importance of buying stuff.  Many people become almost obsessed with the idea that the more stuff we have the better we will be.  Remember that these items are not what makes you happy.  Look at that old exercise machine you bought, or that gadget you have only used twice since you bought it.  Has it really made your life any better now?  The urge of buying is more than anything an urge for immediate satisfaction and less of a long term need.  Using the previous techniques can help you, but as always your will is what will carry you to do it.

So what are some spending blunders you had?  How do you fight the urge to spend?  I would love to read the ways you control your spending habits. 

Fighting the Urge to Spend

If you are in the process of trying to get rid of debt and becoming financially stable, you have probably been tempted to spend your money on things that you don’t really need.  Even when you are already financially free, temptation can still hit you pretty hard.  I found myself in this scenario last week.

I love basketball.  Anybody who has a true passion for the sport knows that basketball sneakers and basketball itself go hand in hand.  That being said, basketball sneakers are what I call my kriptonite.  In other words, you put a pair of brand new sneakers in front of me, and the temptation to buy them becomes very irresistible.  When I was young and didn’t really think about saving or investing, a big part of my income was going into collecting shoes.  I amassed a collection of over 80 sneakers.  Many of this have gone unworn for years.  Flash forward to the present and I see the huge money error I committed.  Now that need to buy shoes has diminished, but I also make sure to stay away from stores and websites that sell or deal with the subject so I’m not tempted to go and buy another pair that I don’t need.

Now I am in the process of selling many of this shoes through eBay.  The good thing is that most of this shoes will make me a profit so I will have some extra cash to spend and save.  The bad thing is that to find out how much to charge for them I had to do some research on the very websites I’m trying to stay away from.  As I browse these websites, I found myself fighting the urge to buy more shoes!

So how can one fight temptation to spend money unnecessarily?  In the next post I will give some tips on how to do this.

Save to the Future Update

For the past two weeks updates have been slow to none.  I want to apologize to all the readers, but unfortunately my work schedule has made it difficult to sit in front of the computer and type.  It looks like I will be able to get back in two writing at least 3 articles a week again.  Thanks again for your support and readership.

Taking the First Step Into Savings

Last week, a friend and I began talking about saving for the future.  I told him about my current plans and how I’m saving about 20% of my income annually for retirement.  He told me he really has not saved anything.  Personal circumstances had put him in a situation where he thinks he can’t save for himself right now.  As the conversation progressed, he asked me for some advice.  What should I invest on?  Where do I do it?  How do I start?  His focus was more on the investing side of the equation.  I told him that right now, that is not as important as taking action.  The last question was what I thought was the most important one-How do I start?

If you ever wanted to loose weight, change jobs, or any type of situation that might require some deep thinking, the most important thing you can do is to take action.  Taking that first step is what will help lay the road for the future.  This concept is no different when talking about personal finance.  Don’t worry about the schematics of investing.  Worry about doing something to get you started.

The first step you should take should be taking a closer look into what you spend your money on.  I had asked my friend if he new what his income was after expenses.  He didn’t know.  I told him to just take a look at where his money is actually going.  Then, he will notice  that either A) He needs to find a way to increase his income B) Decrease his expenses C) Both.

It does not matter how large or how small the amount of savings you put aside is.  The important thing is to do it.  When I first started saving for retirement, I could only save about 50 dollars a month, sometimes even less.  But that didn’t discourage me.  In fact, it motivated me into saving even more.  When you start to see your savings grow, you want to keep feeding it more and more.  You start to notice that you can maybe save a little bit more this month.  As the next month rolls around, you noticed that you can save a little bit more.  Soon, saving will become a habit.

As the saying goes “the journey of a thousand miles starts with the first step”.  So open a high yield savings accountlive more frugally, read about personal finance, do whatever it takes to get the ball rolling in savings. 


How To Write a Budget

Knowing where you are spending your money is a key in controlling your finances.  Most financial experts and amateur bloggers (like myself) suggest doing a monthly budget.  A budget is the best way to help you keep on track your income, expenses, and savings.  Whether you use a computer program or do it the old fashion way with a pencil and a piece of paper, the important thing is that you see where your money is going.

Every month, I sit down and plan the budget for the month and take a quick glance at the yearly budget.  I have a notebook that it is dedicated to this which I keep on my office desk.  At the top of the paper I write the month.  At one end I write my income and in the other the expenses.  Then, you simply subtract your income from the expenses, and you have your savings.  That’s it.  It doesn’t take more than 10 minutes to do.  Here is a simple explanation to the different parts of a basic budget:

Expenses.  When writing down your expenses, make sure to write down everything that is a necessary expense, such as bills, food, and maintenance.  I would also suggest adding a category for entertainment, and a category called buffer money.  The goal is to only spend exactly what you wrote down or less.  The category called buffer money will be used in case you underestimate a category.

Income.  This is simply the amount of money you get monthly after taxes.  If you are using automatic deposits (which I suggest) for your 401k and/or another type of long term investment, do not count it as part of your income.  Remember to always pay yourself first.  That way, you will have an automatic way to save for your retirement and future financial goals without worrying about budgeting for it.

The word budgeting has always had a negative connotation.  When my fiancee and I first started discussing it, she really irked at the sound of the word.  Now, after seeing her money grow, learning where her money is going, and gaining control of her finances, she looks forward to sitting down monthly and planning her budget.  Most people who have control of their finances have some sort of system to keep track of their spending.

I have given you a very basic starting point into how to write a budget.  Here are some useful links that can help you further with this subject:

These links are brought to you by JD at Get Rich Slowly. 

What is a Money Market Account?

As I created this blog, one of my main goals was to make this a place where people can find simple and to the point answers on personal finance.  In previous posts, I have covered things such as compound interest, high yield savings account, 401k’s, and more.  The next topic I would like to talk about would be money market accounts.

Money market accounts are similar to a savings account.  The money is usually invested in  short term securities.  What makes them different from a savings account is that they usually have higher interest rates and your are limited to the transactions you can do per month.  Warning:  Money Market Accounts are different from Money Market Funds.  MMFs are not insured by the Federal Deposit Insurance Company (FDIC).  For more info on MMFs check this article in Market Funds-Risks and Benefits.

Who/Why should one have a money market account?  I would recommend a money market account to those who are going to do some long term saving.  This is money that you would not be touching for a long time (3+ years).  Many people suggest using an mma for your emergency fund.

I don’t have an mma.  The interest rate that you can earn is higher than most regular savings accounts but the limited transactions is something I don’t like about them.  I prefer using a high yield savings account as a place to store your emergency fund.

If you would like to compare mma’s check out Bankrate for side by side comparisons.


Saving for a Vacation

On a previous post, I had mentioned how travelling is my one thing I like to splurge on.  I love going to other places, eating different food, meeting new people and all the things you get when vacationing.  But with the rising cost of oil, saving for a vacation has become harder to do.

I am a firm believer in paying cash for almost everything, which includes vacations.  Vacationing is a luxury not a need.  So if you don’t have the money to go on a vacation, you simply just don’t go.  With our hectic schedules and high pressure jobs, a vacation can be a great way to relax from the every day grind.  Here are some tips on how to save and make money for a vacation:

Make sure to include it in your budget.  When making your monthly or yearly budget, include a category for vacation(s).  That way, you are allocating money to it little by little until you have enough to take a trip.

Pick up a part time job.  For a couple of months, try to work part time to get extra money so you can have that special vacation sooner, and have more cash to spend on it as well. 

If travelling abroad, watch out for the weakening dollar.  Our current economic state has made our currency less powerful in many countries.  Right now, going to countries that take Euros can be quite expensive.  Research countries that your dollar might be able to go a long way.  I did a quick search and found that the dollar is still pretty strong in Argentina.  What better place to go if you want that European vibe with that Latin flavor.

Vacation in the great USA.  We have over 3 million square miles of land right in front of us.  If you are looking for something exotic, why not try Hawaii.  How about the Pacific Northwest if you want to see our beautiful wilderness.  Skiing anyone?  California and Colorado have great ski resorts.  You want to go to the beach?  We have  vasts coastlines both sides the country.  With 50 states to choose from, there is something for everyone right in our soil.  You don’t always have to travel outside of the country to experience new things.

In September I’m planning going to Mexico.  I have been saving all year long a little bit every month.  On top of that, I have picked up little side jobs to make some extra spending money for the trip.  The dollar is still strong there depending in where you stay.  High-travel cities tend to inflate prices because they can usually get away with it.  Foreigners might not know any better, so they will pay the higher costs.  If you go to a city not so high in tourism, you can surely stretch your dollar a long way.  As with any type of spending, do some research.  Compare and contrast places, and make sure to not go in debt just so you can have a vacation.

Happy travelling!

Carnival of Personal Finance #154

Hey Guys,  make sure to check the Carnival of Personal Finance #154 hosted by Canadian Dream: Free at 45 .  My article Self-Dicipline and Money was one of the articles chosen.  Thanks for all the support!

Rising Cost of Traveling by Plane

airplaneI love travelling.  That is the one thing I like to splurge on.  I was born and lived my childhood in Mexico so I specially love travelling back to my hometown at least once a year.  In September, I’m getting married in Mexico so something that I have followed closely has been the cost of plane tickets.  What use to cost me around $250 round trip has spiked up to more than $500 in 5 months!

While browsing USA Today, I found an article talking about the rising cost of oil and its future effects on the air travel industry.

But with today’s unprecedented jet fuel prices, airline executives and aviation analysts are warning that only extreme fare increases and dramatic cutbacks in flights will enable the industry to cover a 2008 jet fuel bill the airlines’ trade group projects will be 44% higher than last year’s.

By this time next year, there could be as many as 20% fewer seats available if carriers respond to oil prices well above $100 a barrel by cutting as many flights as securities analysts such as JPMorgan’s Jamie Baker are suggesting…

 This is something that I’m monotoring carefully.  Unfortunately, I don’t see plane tickets dropping back to what they use to be.  What I’m looking for is a stabilization of prices.  It looks like I will have to be reconsidering travelling more than once a year by plane or finding ways to cope with the increase in prices.

Carnival of Financial Planning-May 24 2008 Edition

The Skilled Investor has just published a carnival with great posts from all over the web.  Make sure to check them out.

He was also kind enough to include my previous post:  To Commute or Not Commute.  I discuss how commuting can affect your pocket book, your health, and your personal life.