Big Screens and Benjamins

If I told you I was a millionaire how would you picture me?  I mean a multi-millionaire.  A decamillionaire even.  You’d probably envision me writing this post from a fancy office in my 6,000 square foot home with CNBC on in the background.  You might speculate about my typical work day as a risk taking stock broker squeezing money out of thin air or perhaps producing hot new music tracks in my personal studio.  Let me just stop you right there because I’m not a millionaire (not yet at least).

It’s interesting the way images that come to mind when some is described as a millionaire.  Dr. Thomas Stanley illustrates in his book The Millionaire Next Door that most millionaires don’t fit the profile we typically think of. Here is a quick break down of millionaire’s professions:

74% – Business owners
10% – Senior executives
10% – Doctors and lawyers
5%   – Sales people and high flying consultants

The groups listed above make up 99% of millionaires.  So what’s the remaining 1%?  Stock brokers, inventors, authors, song writers, actors, directors, athletes, and lottery winners.  How is it we let 1% of the millionaires life styles completely influence our perception of how millionaires live?  According to Dr. Stanley’s research most millionaires avoid flashy consumer purchases and drive late model pre-owned cars.  They live in normal suburbs and probably not even in the nicest house on the street.  They worked hard to smartly accumulate their wealth over many years.

Does this change your mental picture of millionaires?  Probably.  And if you’re striving to become one hopefully it will reshape your image of millionaires to be more like 99% of them in America.

What About You?

• Does your mental model of millionaires influence your spending?
• Will this change your perception of rich?

How Technology Undermines Your Budgets Success

So you’re finally giving this budget thing a real shot.  Good for you!  But, wait! Before using that spreadsheet or logging onto that helpful website, consider this: There is a lot more to successful budgeting than addition and subtraction. Spreadsheets and personal finance websites are not the right tool.  At least not at first.  Now, I’m sure you’re wondering why in the world I would suggest doing anything other than utilize the speed and convenience of technology for successful budgeting.

Personal finance is much more behavior than math.

Using technology to run your budget will only get you so far because what you do is more important than what formulas your spreadsheet can do.  Sitting down with a pencil and paper will leave a much deeper impression on the behavioral part of your personal finances.  For example, forgetting to allocate enough money to groceries will force you to physically erase money from other parts of your budget to compensate.  What you’ve created after your first budgeting system is your very own uniquely crafted budget. This ownership and experience is incredibly important to your success!

Once you have a few successful months of budgeting under your belt you can certainly transition to a digital spreadsheet version of your budget.  This allows most of the calculations to be automated as well as the ability to easily add and delete rows as needed.  The tracking of expenses during the month is still 100% manual.  For example, when you buy clothes the first thing you should do is list that purchase wherever you’re tracking your expenses for the month.  Websites such as Mint.com can automatically discover and categorize your purchases to relieve you of this burden. However, I don’t recommend using this particular tool because it takes away your ownership of your budget.

If you want to really succeed in starting a budget, ensure that you own it! I suggest waiting a few months before using your computer as a budgeting tool.  It won’t be easy or natural initially, but you will soon reap the rewards and become master of your cash flow.

What about you?

• Have you taken ownership of your budget?
• How do you track your monthly expenses?
• How do you ensure your budget is a success?

Help! My Credit Card Company Raised My Rates!

If you’ve read even a handful of personal finance articles over the past few months you’ve undoubtedly come across this headline already.  You’ve heard plenty of tips about how to minimize the damages or adjust credit usage to life on the new frontier.  What is shocking however is that I don’t hear more people saying ENOUGH already!

What would you do if you found out your cell phone company doubled your rates?  Or if your local grocery store started charging you for each trip down an aisle?  People have been outraged with much slighter changes, so why is it we’re all so happy to adapt to the credit card companies? Consumer Reports recently published an article stating that 100% of top banks credit cards are guilty of deceptive and unfair practices (under the Credit CARD Act final phase, which becomes active in February).  ONE HUNDRED PERCENT! How is it that the necessity for credit has become so ingrained in the American psyche that we’ll put up with anything?

Just because you think you’re a model customer doesn’t mean you’ll get fair treatment either.  Recently Citi closed unsuspecting people’s gas credit cards with no warning, leaving them stranded at the pump. Bank of America is adding fees for paying your balance on time every month.  No really, for paying your balance ON TIME EVERY MONTH.  Why do you want to do business with companies like this?

The good news is there IS another way. Now what I’m going to propose here requires you to pause, step outside your current thinking patterns, and consider this:  Don’t use credit cards. That’s it.  It’s that simple.  My wife and I quit using credit cards years ago, and we’re doing great.  We recently bought a house and no one seemed concerned that we didn’t have any credit cards.  I spent exactly zero hours over the past year pondering my credit card rates.  Not a single dime of my hard earned money went to payments.

Telling people you don’t have or use credit cards elicits quite a range of responses, the most common being “really? (accompanied by confused face).”  Yes, and it’s awesome!  If you’re tired of reading articles about how to get the most out of your credit or you’re simply tired of doing business with companies that treat you like dirt, then stop using credit cards!  Cut them up.  Close the accounts.  Never look back!

The Five Ws of Budgets

So I’ve convinced you to start budgeting for success.  What’s next?  Well, first we need to go over a few ground rules to ensure your household’s success.

Who?

If you’re single, this is easy. It’s just you.  If you’re married, it’s important that both of you are involved in creating the budget.  That doesn’t mean that you have to sit side by side at a computer tweaking spreadsheets, but it means you DO sit down together and plan out how to spend this month’s income.  Each of you has an equal say in this process.  No one gets out of this because “my wife usually pays the bills,” or because “I don’t really know what to do.”  I’ll say it again because this is one of the most important parts:  Both of you sit down and plan out together how to spend this month’s income.

What?

In most relationships there is a ‘nerd’ and a ‘free spirit.’ I’m the nerd in my marriage so I’m the one who gets excited about spreadsheets and number crunching.  If you happen to be the nerd in your relationship then don’t expect the free spirit to get all excited about the clever way you’ve organized your budget in excel.  Once you’ve taken care of that is when you can sit down together and agree on a budget together. In my house I usually do the monotonous 75% of the budget before we have our monthly budget meeting.  When my wife comes in we typically have a quick discussion about what to plan for this month and tweak the numbers accordingly.

When?

Your budget should be ready by the first of the month so that means you need to plan a time toward the end of each month to create the next month’s budget.  You may need to have additional meetings during the month to tweak a budget that isn’t quite working.  Again, this is something that you do together with equal input from both people.

Where?

Wherever works best for you.  We do our meetings in the study at our house gathered around a well crafted spreadsheet.  When I first started out as a single guy I used to go to Starbucks where I couldn’t be distracted by TV or video games.  Some people like to discuss the month’s budget items over dinner, and I’ve heard of others marching the family down to the public library.  Whatever is the most comfortable for you and your family.

Why?

Planning your financial future is one of the most important things you can do. I’m sure you want a relaxing retirement, to take a fun vacation, or to move to that dream house.  These are things that take careful planning and years of work to accomplish.  You can ensure your success and reach these goals by living on a budget.

You’ll also dramatically improve your relationship with your spouse as well. You probably noticed I pointed out often that you should be doing this together.  I emphasized this point because it’s essential to your success as a team.  Both of you need to talk about your financial goals, and budgeting is a map to get you to your goals.  This will not work if one of you tries to do it for both of you.  Even if one of you willingly submits to the plan created by the other, you need to both have input.  It’s okay to disagree on how much money you’re spending on your hobbies, but you need to have that conversation and make a decision.

What About You?

• Are both you and your spouse equally involved in planning your monthly budget?
• Are you nerding your free-spirit to death?

Budget for Success

What is it about budgets and budgeting that makes people cringe? I mean good, hard working people striving for success who just hate the ‘B’ word. Admittedly I was once a budget-hater too, but learning how to properly plan and budget has changed my life!

I think the heart of the problem is misinterpretation. When the word ‘budget’ enters the conversation, most people actually hear ‘limit,’ ‘work,’ ‘math,’ or worse… ‘NO!’ However, learning to budget and plan correctly will allow you to hear ‘freedom,’ ‘peace,’ ‘success.’ Here are a few tips to help you get there:

New month, new budget:

Don’t budget for the ideal month from heaven. Budget for this month. A financial planning class I once took taught financial planners to gather expenses for a whole year and come up with a monthly average to use in a budget. It’s a nice procedural way to teach people to budget, but it just doesn’t work when applied to real lives! My electric bill is not the same month after month. It is expensive in the winter and summer and cheap in the fall and spring. My car doesn’t need $12.65 worth of maintenance every month. And of course there are a seemingly endless string of “one time” expenses.  Making a budget should be a monthly event for you and your household. Dave Ramsey says it best, “Sit down and spend this month’s income on paper on purpose.”

Be honest about your expenses:

If you’re spending $500 a month at the grocery store then don’t pretend you can make it on $300 (unless you really can of course!). If you have to see every movie that comes out in theaters then don’t trick yourself into thinking you spend $9.99 each month at the movies. Creating and sticking to a budget doesn’t mean you can’t keep doing the things you love or that you can’t spend your money. In fact, most people reportedly feel like they have more money than before they lived on a budget.  Budgeting will also help you develop an awareness of exactly how much things cost, which is an important sense.

Oil the machine:

You’re free to create your budget any way you like that works for you and your family. There is, however, one important category that should be a part of every budget. A ‘miscellaneous’ category is the oil that makes the machine run smoothly week after week without grinding to a halt. In fact, you can even label it OIL. Adding $100 to this category will allow you to easily take care of small things without grinding the gears of your budget. Maybe you need to bring a hostess gift to an impromptu party or pick up some home office supplies. Small things like this will come up monthly, and you should be prepared. But if this line item becomes too large, it means you’re not planning well. My wife and I budget $100 to spend however we want (music, books, etc.) each month.

Freedom, Peace, Success:

As I mentioned earlier, learning to budget and plan properly has completely changed my life. Imagine your spouse coming home excited about their latest purchase, and you’re excited with them with no ill feelings or nervousness about where the money came from. Imagine the fun of celebrating major financial milestones you’ve worked toward for months or years. How would your life be different if instead of stressing about money you were filled with peace? How would that impact your relationship with your spouse or your performance at work?

Even with these briefs tips budgeting will not be easy at first. Your first few budgets will likely hardly work at all. It’s usually about the fourth or fifth month in which people’s budgets really start to click and the whole process becomes habit. If you discover your budget isn’t going to work, don’t give up! Instead have an emergency budget meeting to adjust the budget to get you through the month.  For example:  If you need to spend $100 to repair your car, you need to find $100 somewhere else in your budget to put towards it.  Persistence will eventually yield a healthy budget and peaceful lives.

What About You?

• How would eliminating financial worries impact your work?
• What challenges do you face making a budget work for your household?

It’s Not Finance, It’s Personal

Whether your goal is to eliminate debt, save more cash, or simply to be smarter with your money, the first step is to realize that YOU are the biggest stumbling block to your financial success.  Some people shy away from planning their financial futures because they find the numbers intimidating. And when they do try their hand at personal finance, they often make the mistake of approaching it armed only with conventional wisdom, calculators and spreadsheets. Not to say that those tools aren’t appropriate, but they’re not the most important elements of the equation. Understanding that PERSONAL finance is more about YOU than the numbers will get you farther than any other personal finance tool out there.

Great! So where do I start? For a majority of people a good first step is awareness. How much income do you have each month? How much are you spending on food? On gas? On your transportation? These may seem like trivial questions, but the answers should have come to you easily as you read along. That’s the level of awareness you need to have of your finances. The more you develop and refine your awareness of your finances, the more you will be able to accurately value the things you’re spending money on. How does splurging on a new TV impact your ability to reach your savings goals for the year? Is it really worth it to go back home to pick up that 10% off coupon?

A fitness enthusiast friend of mine can answer off the top of his head precisely the number of calories he has consumed in any given meal. He meticulously weighs out the appropriate portions of food for each meal and records the values (by the way, he’s in phenomenal shape!). Do you think he developed this behavior AFTER his impressive physique? Of course not! He changed his behavior and the results followed.

Learning to control the person you see when you look in the mirror will enable a complete transformation of your financial life. In fact, this same advice enables you to transform your physical, spiritual, professional, or any other aspect of your life you desire. Take the first step to changing your behavior this week by developing an awareness of your spending.

What About You?

• Do you know how much you spend on food each month? Gas? Clothing?
• Does an awareness of cost help you evaluate decisions at the register?

Coming Soon!

Welcome to Bradley Coaching. This space will soon be filled with blogs about personal finance, finding a job, and reaching your goals! Come back soon!