Archive for the ‘money’ Tag

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. 

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 About.com-Money 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.

 

Careful When Lending Money

Most of us have been in the position where we where have been asked if we could lend some money to a friend or relative.  Many of us have also been in the situation where we might of had to be the ones asking for the money.  Did it change the relationship between the two of you? How did you come to an agreement of paying it back?  Personally, lending money to friends and family are just something I don’t do. 

When I am talking about lending money, we are talking about $100 or more (To me that is a lot of money to loan, but I understand that to some that is not a large amount).If you where the potential lender, think back to that awkward feeling you had while trying to make the decision whether to lend the money or not.  If you did loan the money, think about how the relationship changed afterwards.  Maybe he didn’t pay you back, maybe you had to hassle him for the money.  Whatever the case may be, it is an experience we all hate to have.

My father was a small business owner back when we lived in Mexico.  His business was in all kinds of financial troubles so he started to look into other ways to make ends meet as well.  To pursue these other business interests he need it some money to make it happen so he went to his brothers and cousins for some money that they could “invest” with the promise of payment in full in the future.  As you can guess, my father never payed the money back and his relationship with them has never been the same.  Money became such a divider between them that my father has very little contact with his brothers and cousins.

Due to prior experiences with lending money and hearing so many other people have negative experiences as well with the subject, I have come to the decision to not loan money to friends and/or family.  If somebody I care for finds themselves in a situation that they need help financially and ask me for me money, depending on the circumstance, either I will help them some other other way (educating them on personal finance-If they are receptive to the info) or I will gift them the money with no expectations of getting the money back.

Lending money is a personal issue that can strain and even break relationships.  Some point in time we are all asked and will probably be asked again if we can loan somebody money.  Don’t just think of the amount they are asking for-think about the other effects that it can cause between you and the other party involved. 

Top Money Pitfalls

Back in 2007, I started my crusade on becoming better informed in the world of personal financing.  As I began to read personal finance books, I started to notice that many of this authors had different ideas and solutions for retirement, savings, spending etc.  At the same time though, you can still find many similarities.  Here are some of the four most common mistakes people can make financially:

  • Car payments.  In my opinion, this is one of the biggest money pitfalls people can fall into.  Usually, this becomes the largest monthly expense an individual has other than their house payment.  Imagine what you could invest your money in if you didn’t have to give $300 a month($3600 a year) to a car that is depreciating every time you drive it.  Instead of spending money on a new car, your best bet is to save cash and buy a reliable used car.
  • Rent/House payments.  Many people make the mistake of getting”too much house”.  What I mean by that is that they buy a house that they really can’t afford (Hmm sounds like mortgage crisis).  Basic rule of thumb is that your house payment shouldn’t be any more than 1/4 of your take home pay.
  • Not Saving Long Term.  Start saving now!  It is never too early or too late to start investing in your future.  The power of compound interest is in our sides, especially for those starting off early.  If you don’t have any car payments, you have a reasonable house payment, and you are watching your spending, there should be no reason why you are not saving a little a very month for your future.
  • Not Budgeting.  Having an understanding and a plan of where your money is going is considered one of the simplest, yet most important things you can do with your finances.  It doesn’t matter if you do it monthly or yearly, with software or by pen and paper, the important thing is that you do it.

Knowing what mistakes to avoid financially is very important when trying to gain your financial freedom.  Many times we are told what we need to do to reach our goals, just remember to watch out for those pitfalls that might occur around the way.

I’m curious of finding out what do you consider to be money pitfalls?  Do you agree with the ones I’ve chosen?  How can you avoid them?