Financially stAble

You’ve heard it said before, “thoughts become things.”  Usually these words are associated with personal development and accomplishing personal goals.  But what about your money?  How do your thoughts impact your financial stability?

We should first start this discussion by outlining how powerful thoughts are with regards to the action we take.  Say for instance you are spending an afternoon at home enjoying your day off. Lunch time is approaching so you prepare a delicious lunch for yourself with all of your favorites.  The reason you are enjoying your scrumptous meal is because you had a series of thoughts.  Your first thought was related to the fact that you were hungry.  Maybe a second thought inspired you to check the time of day.  Another thought had you thinking about your lunch options.  Finally you made up your decision and began to prepare your food.  All of this came about because of a thought. 

That is a simple example of the direct correlation between our thoughts and what we do.  With that said, lets talk a little about our thoughts with relation to our spending habits. 

Example 1: DEBT

What do your thoughts have to do with the amount of debt you have? Chances are you probably have the same thoughts that most of us do. Your mind gives you an idea about eating out, purchasing a new toy, or something else that does not fall within your normal spending.  You receive the thought and you allow it to marinate.  You do not entertain any notions of the fact that this item is simply not something you can afford at this time. You reason the necessity of the item.  You make the purchase. This series of events, repeated over and over, leads to reality of debt. 

Example 2: No Savings

You are about 3-4 days away from receiving your next paycheck.  Your bills are paid and you have have enough groceries in your fridge. Knowing that you will get another paycheck in just a few days, you think about what you can do with the money left. “It’s not that much money,” you think to yourself, and besides, you’ll have more of it in just a few days. So you decide to “reward” yourself with a spa appointment or an upgraded phone or whatever.

So the point that I am trying to drive is that most of what we are experiencing in our lives, financially, was influenced, in one way or another by our thoughts. So what can do you about it?

The first thing you want to do is take inventory of where you are financially. How much debt do you have? What about your savings?
Once you have a clear idea of where you are you need to identify the thought patterns that got you there. Are you experiencing financial lack because your thoughts lead you into making poor financial decisions?

The remedy to this destructive thinking is to implant the thoughts of those who are financially stable. Those individuals have these thought patterns in common:
1. They think ahead-People who are financially competent always have thoughts of what can be done now to impact their financial future. They ask themselves, “what can I do with this paycheck that can make more money for me in the future?” “How can I make this money work for me?”

Just the simple ask of asking yourself these types of questions will produce wealth-building thoughts in your mind. Once you have these types of thoughts swirling in your mind, you will not easily be swayed by the temptation to spend.

2. They view money in a different light-Most wealthy individuals have desires of building their wealth. Whenever one attempts to build something, that person must gather more than enough supplies to build. Without enough materials, the object cannot be built. Your thoughts must be about building. You should think about how you can free your money by reducing your debt. Think about how good it will feel to have money coming in that does not belong to a debter. You can only build your financial freedom with your income. As such you must prize your income and think carefully about how to allocate it.

Keep in mind that your mind is constantly creating thoughts both consciuosly and unconsciously. Your homework is to keep track of your money related thoughts and create powerful thoughts that shift your spending and saving habits. If you work at this everyday you are in essence adding fuel to the fire. Soon you will find that your behaviors automatically work to create wealth for you.

Visa has a new advertising campaign aimed at convincing the masses to use plastic for faster, more convenient shopping. The ads feature individuals dancing joyously as one after another uses a credit card to make purchases. Then, all of the festivities cease abruptly when an inconsiderate imbecile has the nerve to use cash to pay for his items. Flooded with embarrassment, the poor sap has no choice but to use a credit card. Once the credit card is swiped, the music once again commences and the party continues.The message communicated in the advertisement is blatant. Use plastic to buy or you are viewed as an outcast. We already know how detrimental the situation with Americans spending is today, the last thing we need is a major business telling us how “uncool” we are if we chose to use cash. Using cash can be a powerful tool for you on your road to wealth. Here are just three reasons why paying with paper will help you to have more money.You know exactly how much you spendI can not tell you how many times I had to ask myself how much money I just spent minutes earlier at a register. When the cashier gave me the dollar amount I had no need to hold the number in my head. I did not have to physically count the money before handing it to the cashier. I had no attachment to the outcome of the purchase because a simple swipe of the card took care of the entire situation. Have you ever been to a grocery store and witness a shopper ask the cashier to provide a running total with each item? The shopper does not have enough money on hand to buy everything she wants. A few items are left behind and the person does not acquire any debt in the transaction. Using cash in sales transactions involves you both physically and emotionally in each transaction you make. The more involved your are, the more likely you will be to make more sound spending decisions.You spend less moneyNo one wants to fork over his or her last five dollars over for a non-urgent item. But we do it all the time when we use plastic. When we have ventured from spending to borrowing, we are essentially spending our last five dollars or more on likely unnecessary purchases. Everyone loves the feeling of having money left over after expenses are paid for. We lose that thrill when we no longer deal in cash. Using plastic is a numbing experience that allows us to cause further damage to our financial situation without feeling the pain of what we have just done. By the time we experience the reality of our actions, the damage has already been done. The more you deal in cash, the more you want to hold on to it for the simple feeling of having cash. This week, try giving yourself a small allowance that you must use for your weekly spending. Make your goal to have a few dollars left over when the week ends. You’ll find that spending below the dollar amount is much easier to do when you are using money that you can see and feel. You respect your moneyWhen you use cash to make your purchases, you are essentially trading in your money for something of value to you. The more you hand over, the more valuable the item is to you. You understand that the cash in your hand has the power to provide you the things you desire therefore you are less likely to simply hand over your hard earned cash for silly frivolous items that you do not value. If you are not cautious with your decision, you must pay the penalty of going without that money until a later date. The money has power. If you want more of the things you like, you must forgo spending on the unimportant in order to afford the things you want. The problem with credit is the boundary is not rigid enough to influence our behavior. In the end, we end up with a bunch stuff that we didn’t really want but bought anyway simply because we could. If you use the almighty dollar, you realize the power that it has and you will work smarter to create more of it.

Sure we would all like to win a $30 million lottery jackpot that would change our financial situation overnight.  But for most of us, just having financial stability would be enough of a milestone to provide us peace of mind and a good night’s sleep.  So here is my short but consise list of the habits of the financially stable.

Financially Stable individuals spend less than they earn 

The most basic way of becoming a financially stable person is to have money left over when the expenses are paid. Money left over can be saved or invested for those inevitable surprises that put a strain on our wallets.  If you want to become a financially stable person, you must figure out a way to make sure that you have money left over, no matter how much, after each paycheck.  One of the most effective ways to make sure that there will be money left when you need it is to spend your check on paper using a written budget before the money reaches your hands. By creating a budget before hand, you can get a clear picture of where you will be financially when the month ends.  If you know ahead of time, you will make wiser decisions with your income during the month. You won’t likely make an impulse purchase of $100 knowing that you only have $75 left over after all expenses are accounted for. 

Financially Stable people have a plan

You financial plan does not have to be a major ordeal.  It can be a short term plan of saving an extra $100 in the bank this month, or it can be a long-term retirement plan.  I recommend you have both but start with very short term plans.  Have a plan for this week.  An example would be to bring lunch to work every day in a week, or to save all of the change you receive this month.  Whatever the plan, you will be more likely to become financially stable with one then if you coast through your days without having one in place. 

Financially Stable people have money for emergencies

Lets face it, the amount of money that you have coming in is important, but the amount of money that you have set aside for emergencies is what determines your finacial stability.  Financial stability is a measure of how your fianical situation fares in the face of a financial crisis.  If you lost your job today, how long would it be before you lost your car or your home?  A person without a car payment is more financially stable, in this situation, then someone who has a $350.00/month car loan.  A person who has high interest debt payments  will not fare as well as someone who has little or no debt to worry about. 

To summarize, financially stable individuals are the kind of people we all want to become.  We all want to live with the peace of mind that comes with having money in various places working for us behind the scenes.  Becoming a financially stable person is acheivable with focused attention to your spending habits and future thinking.  The key to being financially stable is to know where you are financially today and know where you want to be. 

I know how crucial the budget is to a person’s financial well being.  This is why I tried, and failed, at several methods of budgeting.  I tried the envelope system, but for me, carrying around so many envelopes was a bit of a burden.  I also tried using a small index card filer  similar to this one  as a way of managing my cash expenditures.  The filer worked better for me than the actual envelopes but it was still a bit bulky to fit into some of my purses.

Then one day it happened….I was online doing some surfing and found some information about a method to reduce the amount of time required to pay off your home home mortgage.  I will not get to technical with the process but it involves having a home equity line of credit that you use to take care of your monthly expenses.  Meanwhile, you deposit your entire paycheck into the line of credit to pay your mortgage.  I’ve heard to good and bad about the process so I have no opinion one way or another.  I highly was entrigued by the fact that the person’s paycheck was working for them at all times. 

I immediately went back to my checking account and mentally reviewed my saving patterns.  Like most people, I budgeted for my expenditures and set aside an amount for automatic draft.  That system worked well enough, but the problem was that my savings was not growing like I had hoped.  I immediately saw the benefit of having my most of my check working for me in my online savings account producing a higher interest. 

I vowed that when I received my next paycheck, I would first set aside a portion for tithes and pay on one of my two mortgages (I have one scheduled for payment on the first of the month and one on the fifteenthof the month).  The remainder of the money would then deposited into my online account until a household bill was due later on in the month.  I purposefully transferred over 3-4 times  more money into my online bank then I normally would have via my automatic draft. In order to have access to funds on a regular basis, I would use my credit card. These purchases included gas and groceries. 

Please note: I only allowed myself to use a credit card because I absolutely loathe paying unnecessary interest. I make sure to always pay off the card completely every month.

So I found my self transferring over several hundred dollars a paycheck to my savings account.  Although I did spend some of it for my monthly expenses, most of it remained in the account.  Why?  For two reasons.

1. The money was harder to get a hold of because it was not directly linked to my check card.  If I needed to get extra money, I would have to transfer from my online bank account to my traditional bank account. This usually took 2-3 business days. I also received an additional benefit of a higher interest amount deposited in my online account at the end of the month simply because I kept higher balance in the account throughout the month.

2. I started spending less because there was less money in my checking account.  Remember Parkinson’s law about work expanding to meet the amount of time provided to complete the work.  The same applies to the money we spend. I had less money in my checking account to spend, so I spent less money. 

Before using this method, additional money left in my checking account after my bills and expenses were paid was considered free money that could be used on miscellaneous expenses.  Now there is little to no “free money” because all of it is working for me to earn interest in my online banking account.

I started using this method in mid August of this year.  I certainly had to tweak it along the way but overall, it definitely changed the way I save my money.  Since then my savings increase by 65%. Best of all, the method is painless.  I do not have to carry cash around. I simply know that I have a limit on how much money I can spend from my checking account.  Budgeting is still required before you receive your paycheck. You will also have to keep an eye on your spending throughout the month to make sure that every thing is going as planned. Overall, this has been my most productive way to save my money. Try this method, you may adjust to fit your needs if you wish. I definitely believe that it is a fool proof way to save your money.

Stumble It!

I have recently found myself in a position where I may be facing a hefty auto repair bill.  My 2002 Nissan vehicle has the tendency to stall at random stop lights.  The problem does not seem to be the typical mishap where I simply run down to my local auto parts store and purchase an inexpensive replacement.  This time the issue seems to lie in the electrical system.  The serious nature of the problem leaves me no choice but to take my vehicle to the dealer.

I understand how expensive this repair may be.  In fact, just the other day I contacted the dealer inquiring about the cost of a tune up.  The friendly person on the other line quoted me an obsurd dollar amount before I quickly hung up the phone.  Now I find myself in a situation where I may have to bite the bullet and pay the amount of money they request. 

In times such as these, I am glad that I have funds saved that will allow me to complete the repairs.  Although I do not know how much it will cost, I am not worrying myself to death wondering how I will be able to survive this major setback.  Even as the holidays set in, I am fairly confident that this situation will not have devastating blow on my finances.  If they do, I am comforted by the fact that my savings have been created by a simple system that I can replicate to restore my emergency fund once again.

I try to make saving money as easy as possible.  I know how painful it can be to run out of money when I really need it the most.  We all know that life has a tendency to surprise us with minor inconveniences from time to time and our best defense is not to avoid but to prepare.  Take a look at this simple equation:

If money earned is >(greater than) money spent, you will have money left over for saving. 

The trick is not to allow your spending to overtake the amount of disposable income you earn.  The easiest way to do this is to create a budget.  Sometimes sticking to a budget is more difficult than we would like.  This is why I recommend an automatic draft.  Parkinson’s law says that we have a tendancy to expand work to fill the amount of time allotted.  This is also the case with how much money we spend.  Five years ago you did not make as much as you do today, yet you survived with the basic necessities (and then some).  The reason we have a $400 car loan is because we can afford it.  We may not necessarily need a car that costs us $400 for the next five years. We only feel we do because we have the funds.  If your life were to change today with regards to your income, you would adapt your lifestyle to meet your new allowance. 

Automatic savings method forces us to limit our lifestyle to the amount left over after our savings has been drafted from our account.  We then adapt our lifestyle accordingly to accomodate our new income amount.  As we receive payment for our work, we go on living our lives without even noticing that money was drafted to our second account.  One day we look at our savings, and viola, there is actually money in it.  It was almost as if someone was saving the money for you. 

In my next post, I will discuss my other method of saving that has worked even better for me than I predicted.  This method has allowed me to save at a rate that far exceeded my expectations.  It simplifies the two pillars of building wealth, saving and budgeting.  Stay tuned.

Stumble It!

Many of us struggle to put our financial lives in order. Our money situation only seems to get worse with each passing day. The financial strain is unbearable and you finally decide that you are no longer desire to accept your circumstance as reality. Understanding the root causes of the problem is the first step towards improving your financial standing. Here are the main reasons why your financial situation is not where it should be.

You do not know where your money is going
The main reason why your paycheck has a lifespan of a fruit fly is not because of the amount of money you earn. A person can earn $10,000 a month but if they spend $10,100 a month, that person will be broke. This is the why we often hear the accounts of lottery winners losing all of their money in a relatively short amount of time. If you can not account for every dollar spent from your last paycheck, you are at risk of losing your hard earned cash on frivolous spending without even knowing how it happened. When you track what you spend, you are making sure that you have money left over by cutting expenses in certain non-essential areas like eating out or shopping.

You do not put your money to work
Your money can work harder for you than you can work for your money. Unless you understand the way money works, you will continue to wonder why you can not accumulate wealth. Saving is a good thing, but investing your money is better. You can even start with an interest bearing online savings account. These accounts require little to no minimum balance and pay you every month for the money you save. Once you start seeing the monthly interest deposits into your account, you will wonder why you had not done this sooner. The absolute best thing you can do for your financial health is think your money as employees and make them work as hard as possible to bring more income for you.

You buy things that you can not afford
When you make purchases with your credit card and fail to pay off the balance when it becomes due, you bought beyond what you could afford. The math is simple. One minus two equals to negative one. Financially sound people seek to obtain a positive net worth. The goal of obtaining wealth is to actually have more money than you owe. Your long term goal should be to reach a positive net worth by owning more assets than liabilities. As long as you continue to spend in a way that maintains your negative worth, you will struggle in your personal finances.

You do not plan for your future
Part of the reason we use credit cards is because we did not save for a rainy day or expected emergencies. Looking ahead is an important aspect of your financial health. A portion of the income you receive today should be allocated towards your future. Planning for your future will ensure that you do not have to struggle during your retirement. Planning for your future will ensure that you will even be able to retire when the time comes. Start focusing on your future today and make decisions that will secure your financial situation long-term.

You have no financial goals
Without financial goals many of us remain in a cycle of struggling. Months, even years pass and we wonder why our money situation has not magically improved on its own. Goals are a key aspect of evolving financially. Your first goal should be write out measurable short and long-term objectives which will bring your finances to the next level. Goals keep us motivated. Without them, we wander aimlessly paycheck after paycheck without putting a purpose to our money. If our money does not have a purpose, we suffer the fate of having an ailing financial life.

These are five simple things that you should avoid doing when it comes to your money. If you are diligent to making sure that you abstain from committing these financial faux pas, you will begin to create new money habits. These habits are the foundation of wealth building that will positively impact your financial resources.

Stumble It!

So what do you do?  If someone were to ask you that question in a social setting you would immediately start talking about the company you work for and the activities you do weekdays, during business hours.  This is not an uncommon response because we automatically know to answer this question with a description of our occupation. We pride ourselves in being able to provide an adequate enough response to impress the person.  In order to do this, we need to have obtained a fabulous position as results of years of hard work and countless man-hours.

This type of conditioning has warped our concept of a rich, fulfilling live into one that focuses mainly on how you are able to obtain your income.  The other activities we do with our time are considered hobbies and are treated with less importance.  So unimportant, in fact, that most people say that they will be able to focus more on activities that bring them joy once they are able to retire. 

Your time should not be so rigidly tied to your money.  Yes, this is the standard method of operation in our society, but this way of thinking is dangerous and unproductive.  You find yourself giving up more of your precious time to make more money, or worse, spending more time in hopes of a promotion to a position which will require more of your time. The cycle continues.  Many of us long for more time to spend with our families, friends, and to do more of what we enjoy doing. But we do not see the light at the end of the tunnel because we have been offered little or no alternative but to continue pouring hours into our jobs in hopes of racking up some more overtime or a promotion.

Tim Ferris details the importance of automating your income and your work in his bestselling book, The Four Hour Work Week.  This book is a practical guide on how to detach yourself from the bonds of 12 hour days and create a life where you can be more productive, have more time, and increase your income. 

The book has information on how to truly manage your time by implementing the 80/20 rule.  Productivity is increased with less time invested by focusing on the tasks that bring about the most results.  He also recommends checking your email only twice a day as another productivity booster.  His focus is on elimination of information and menial tasks, and automation of work and money.  These actions will work together to increase the both amount of income you receive and the time you have to enjoy your life.

I find our current system of working excessive hours for money flawed on several levels.  I believe in setting up systems that generate passive income to you while you are engaged in other activities.  Start with small passive income generators like your 401(k) or interest on your high interest online savings account.  Once you get into the habit of receiving money that was made without a direct correlation to your time, you will seek out and find more ways to duplicate that system.  Check out Tim Ferriss’ The Four Hour Work Week, you will never think the same way about your work again.

If you are carrying a large consumer debt such as credit card, auto loan, furniture, etc, you will have to make some drastic lifestyle changes to get from where you are now to where you are going. 

Before, you likely did not think twice about handing over your plastic over for a purchase that you probably could not afford.  This will no longer be your method of operation.  You will now be among the elite of people who do not have to concern themselves with high interest charges and crippling monthly payments. 

What I would encourage you to do is to set aside time every morning to visualize yourself without debt.  See yourself paying off the very last piece of consumer debt you owe.  How much extra money would you have each month?  What would you do with it?  You should also make a habit of visualizing yourself doing the daily things that will help you meet your financial goals.  For instance, see yourself bringing your lunch to work, see yourself finding creative ways to save every week.  See how you use the money saved to further pay down your debt.  If you visualize routine tasks such as these everyday, it will not seem as awkward to you when you are performing them in real life.  I want to prepare for this new life where you are debt free.  If you do so, you are more likely to see it through until you are a success.

Saving money is one of the pillars of creating a wealthy lifestyle. But not all savings methods are created equal. As a general rule, you should use your savings accounts for money that may be needed in the near future such as a home, car, or for the creation of an emergency fund. Wealthy people always seek to earn the highest rate of return on their money. Making wise savings decisions is a must if you wish to create wealthy habits.

Traditional banks offer little or no interest on the money you place in your personal accounts. What you may not know is that the money you put away is earning a high interest rate on loans the bank provides their consumers. Your money is making the bank money. Why not get a bigger piece of the action by placing your money in an online bank account. Online banks do not have the high overhead of physical banks. They are able to offer much higher interest rates to their customers and often require no minimum amount to get started. Another benefit of an online bank is that your money is much more accessible than other savings methods such as certificates of deposit (CD’s). If the bank is FDIC insured, you have a government backed guarantee that your money is protected up to $100,000.

Wealthy people leverage other people’s money when making wise investments. You can leverage other people’s money when you enroll in your company’s 401(K) program. Most organizations are offering a match to your contribution amount. That match is sometimes as high as $100% of your contributions. Where else can you find a guarantee of 100% on your money? If you are not currently enrolled in your company’s 401(k) plan, do so today!

Another key to saving like the wealthy is to take the money you save from smart purchases and put it to work. You get no benefit from finding the best deal on groceries, if you turn around and spend your savings on something else. The key to saving wisely is to take the money saved from your lifestyle changes and placing it somewhere that it can grow for you long-term. Remember that your money can work harder for you than you can work for your money.

Hello All,

This entry will showcase other blogs from writers who have great insight how to maintain a life free of debt.  I am a very strong proponent of a zero debt lifestyle that focuses on obtaining wealth while reducing debt.  Wealth accumulation occurs more rapidly when we are not bogged down with having to pay outstanding debts.

Please enjoy the submissions presented by money bloggers who have great incite on how to live debt free.

Millionaire Mommy Next Door presents Memories are made of the things we DO, not the things we BUY posted at Millionaire Mommy Next Door.

T. Pettinger presents 10 Painful but Effective ways to reduce Debt. posted at Mortgage Blog.

FIRE Finance presents Energy Saving Tips For This Summer posted at FIRE Finance.

KCLau presents How A Fresh Graduate Plan to Retire in 8 years posted at KCLau’s Money Tips.