Would Like a Copy of Your Receipt?

How the Magical Money Monster Saved Our Budget

Sorry I haven't posted in a while! This can be blamed on: 1) too much working/traveling/visitors, 2) some of the keys on my laptop keyboard have mysteriously become uncooperative—namely letters x, c, v, m, and q (it’s hard to talk about cash flow without the letter c--but never fear! a frugal solution was found in an unused USB keyboard!), and 3) I am pretty sure I only have about 5 readers at this point—so to you, faithful reader, I will continue to bestow my (non)wisdom!

Do you keep your receipts? I never did. Whenever I was asked if I wanted a copy of my receipt, I thought of the paper wasted and always declined. When my statements came through I figured I always remember what I spent. Those that were forced upon me became crumpled bits of paper in the bottom of my purse for scribbling notes or wrapping up gum that had outlived its usefulness (random fact: the average lifespan of gum in my mouth is about 10 minutes). But now receipts have their own special place that borders on reverence—the Magical Money Monster wallet:

Say what? Don’t worry, we’ll get there.

So, today we are going to talk about the “B” word, which some people think is a dirty word. Not me. I love budgets. Budgets are beautiful. Streamlined. Organized. Granted, I am not your average person. But budgets make me feel like I have some semblance of control over my money. I won’t go over the specifics of budgeting in detail, but it is basically a plan for your money. You figure out what you earn on a monthly basis, figure out what your monthly expenses are, and then decide where the money should go. There are many ways to do this. I like to use Excel because at some point in my life I figured out how to use the E3:E7 – B2:B5 technology, and this is the only real world application I can find for it.  Or you can just write it all down on a piece of paper.

You of course have the necessary categories, like housing and utilities and car payments and such. We list our savings category first so we take it seriously. Then we have other categories like fun money and vet bills and car maintenance. And then we spend money according to our budget and it all works out perfectly, right?

Ha ha. As if! (Did you hear Alicia Silverstone there?)

The budget is just the plan. I am great at planning. The cash flow is the execution (if you are like me and hardly ever use cash, consider it the digitized monetary flow)—where is the money actually going? This part I am not so good at. We have a beautiful budget that I like to gaze at longingly when I am feeling pretty idealistic. But cash flow—cash flow represents reality. Nothing busts a budget faster than cash flow. And our cash flow has been a catastrophic train wreck.

With our perfect budget we figured out that we would have about $250 left over every month. We called this “ancillary money” and used it to cover those unexpected expenses that life throws at you. You know, like buying trash bags. And that random screw you needed to fix the door. A trip to urgent care. Eating out when we felt like it. Those cute socks at Target. Ancillary became a catch all. And it started costing way more than $250. But we didn’t know this because we had no concept of cash flow.

We would simply get the credit card statement every month and my stomach would fall to my ankles a little. Then mild panic would set in. I started going through the transactions thinking “this can’t be right!” But it was. After the spending amnesia that occurs as you are actively spending money, I remembered every last transaction. We were still paying off our credit card every month, but sometimes it meant dipping into our savings to cover it. You know, using our savings to pay for things like ice cream. Ouch.

Then we’d “buckle down” for a while and eat canned beans and never hang out with our friends and get a little bit of control back. This would last for about 2 weeks before we really started hating life. Then, since things were back in “control”, we’d ease back into our old ways and start the cycle all over again. A retroactive cash flow study (i.e. where did the money go?) helped us see that our spending was sometimes out of control. But it didn’t do much to change our behavior in a way that was helpful or sustainable.

We needed to know where our money was going. Here. Now. In the present. So here is the secret to cash flow. Are you ready for it? It has taken financial gurus centuries to come up with this little nugget, so you may want to sit down:

Write down or otherwise record every penny you spend. Every. Last. Cent.

That’s it. It’s easy but tedious. Hard but not complicated. But it serves two purposes: 1) you actually know what your money is doing in real time, and 2) it makes you think about what you are buying as you are buying it (no more spending amnesia). 

In short, it’s like lifting the fog off of your bank account. Before you could kind of see what was happening, but without clear vision it was pretty easy to miss that curve and go careening off of the road. When you get rid of the fog, you may still go flying off of the curve, but at least you can brace yourself for the impact. We are still hitting several trees (sorry, trees!), but it’s doing a lot less damage.

Now, you can carry a handy notebook and record things with the tried and true paper method. You can use a fancy app and enter transactions in real time. There is probably some magic where you can scan your receipts and your smartphone will do it for you.  I personally made myself a very sophisticated Magical Money Monster wallet with some duct tape and cardboard (see above—I know, I’m weird) that eats my receipts until I get home and faithfully enter them into my YNAB software (www.youneedabudget.com –if you haven’t checked this out, you should—it’s beautiful). But it is vital to know where your money is going before you can tell it how to work for you.

Some people will say that all of this is too much work. I guess it can be, especially in the beginning. But in actuality it only takes me about 30 minutes a week. And it is a heck of a lot less work than the damage control money-shuffling that happens when I overspend. All because I wanted some ice cream.

Now every receipt I collect makes things a little less foggy, which makes everything a little bit clearer. Plus the Magical Money Monster gets fed (nobody likes a hangry monster). Like us, you will probably still go off the road when life throws you a curve. But you’ll go off a little bit slower. A little bit more prepared. That’s okay. Be nice to yourself. Just by being honest with your spending you are making great progress.  Soon your idealism and your reality will be (mostly) the same. You’ll be able to smooth through those curves without all of the drama. So make yourself a special monster wallet. Or download a fancy app. Or just use a scraggly piece of paper. Be nice. But be honest. Your budget will thank you.

 

 

Frugal is the New Black: Living within Your Means (Part 2)

Last time we talked about the importance of developing a frugal mindset. That is, learning to ask the question, “What is this worth to me?” in evaluating your spending decisions. Now it is time to put that wisdom into practice (since I know you’ve completely revamped your brain in under a week J ).

Today we are going to go through various expenses and talk about where you might be able to shave off some dollars. Remember, this list is based on my values and choices…your list will probably look very different. But if there aren’t enough dollars to go around, you’ll have to decide what is most important to you and go from there.

This is just a brief overview of various categories. Some of these we will explore more in-depth later on, but the idea is to get you thinking about what you are spending, and how you may go about some of these needs/wants in a different way.

So, first off, I think it is important to have some guilt-free, “I can spend this on whatever I want” money. This is especially important if you share your finances with someone else. Nothing is more annoying or nagging than having to account for every last penny when sometimes you just want to buy something simply because you want to.

This means I don’t have to justify buying forest-friend post-it notes to my husband, and he doesn’t have to explain why his tractor needs yet another random part.  We take this money out as cash at the beginning of the month and spend it however we want, no questions asked. When it’s gone, it’s gone.

This is also money we use to save for “wants”—for example, he is saving for a fiddle, I am saving for an iphone. Combined with some money I got for Christmas, this is how I paid for our new couch (it took me over 6 months to get there).  I whittle this cash into an envelope so I am not tempted to spend it elsewhere. It can be as little as $5 if that is all you can budget for—but I think it’s necessary to have some "splurge" money that you don't have to feel bad about.

Anyway, on to the less exciting categories (in no particular order):

·         Housing—this is easily the biggest expense. Most financial experts agree you should spend no more than 30% of your income on housing (including taxes and insurance). I think this number can be pretty hokey when individual circumstances vary so greatly. For example, if you live in a city with zero need for a car, you can probably afford to spend more on housing. But I do advise you to keep it as low as possible.  Our mortgage, taxes, and insurance totals about 25% of our income (Our lender approved us for up to 40% of our income. We thought they were out of their ever-loving minds). If you find you are spending too much on housing, you have 2 options: 1) move somewhere cheaper, or 2) take on roommates. We have done both. Those of you that know me have been to some of the places I have lived (and some of them have been quite lovely!), and you know what I mean. But you have to do what you have to do.

·         Utilities—we live in a rural area with no central heat pump, so our utilities are pretty low. I understand that is not an option for everyone (you can’t live in Georgia without air conditioning), but there are some things you can do to lower expenses.  In the winter, we use “zone heating”—we  keep the thermostat really low (62) and use a space heater in the rooms we are in to stay comfortable (don’t leave space heaters on unattended or overnight!). We have a down comforter dubbed “Satan’s Marshmallow” that sometimes sweats us out even on the coldest of nights. I absolutely hate being cold, but combined with our wood stove, which gives off the loveliest free heat you will ever feel, we made it comfortably through winter. We also take our recycling and trash to the transfer station ourselves rather than pay for trash pick-up. Recycling is free, trash costs us $1 a bag. This also encourages us to generate less trash, because we hate going. We have a well so we don’t pay for water (this can present its own challenges), but if you do pay for water, installing low-flow shower heads and other water saving devices can really help you.  All told, our utilities average about $40-$80 a month depending on the season. Where you live can really affect your utility costs, so make sure to take this into account if you are looking to move.

·         Internet—ah, where would we be without the internet? Isn’t it strange how in the span of 10 years I have become completely dependent on something that didn’t exist when I was born? That being said, you pay a high price for lightning fast speed. We have DSL “lite”, which is an accurate description. You can’t watch Netflix and buffer a video at the same time without someone sighing and rolling their eyes as something gets interrupted. But, you know, a small price to pay for a functional connection that costs us $30 a month. Again, where you live will affect your costs here. 

·         Cell Phone—My favorite category for saving a chunk of change! I had Verizon for 7 years before I realized we were paying an outrageous amount (over $100 a month) for two dumbphones with barely any minutes. If you have a contract, you are probably paying a ridiculous amount of money for a “free” upgrade every 2 years. That free phone is probably costing you $600-$1000 a year, which is typically more than the cost of a new phone. We discovered the world of prepaid and never looked back. Right now we pay about $40-60 a month for two smartphones—and we have way better customer service. We have found coverage/service to be comparable or better depending on the provider.

·         Groceries—I am not a smart shopper or a coupon clipper. We could probably save more money by going to several different stores like Sam’s or ALDI before hitting the regular grocery store. But our time is more important to us, so we usually just shop at Ingles unless we need a specialty item from somewhere (for example, we are picky about meat). Which brings me to an easy way to save money on food—eat less (or no) meat.  I am (mostly) vegetarian, my husband is not, but we rarely buy meat unless it is for a special occasion or on a steep discount, and then we pay a premium for the hormone/antibiotic free “humane” variety. This means we rarely buy it because it is pretty expensive. Surprisingly, Target is a pretty cheap place to buy a lot of food items (like organic tortilla chips), and I use it to supplement my grocery shopping since I’m there at least once a week anyway. We budget about $60 a week for the two of us, and we are usually on target.

·         Personal/Household Items—I can’t say too much in this category, since I don’t really buy that many personal care products. I will pay more for cruelty-free/natural products. Same for recycled toilet paper/paper towels/cleaning products. I also will pay good money for a haircut, having been the victim of too many cheap haircuts where I told the stylist it looked great and then cried when I got to my car.

·         Gas—I really don’t think it’s worth it to drive across town to save 5 cents a gallon on gas. Also, those grocery discount cards give you a discount on their gas pumps, but if you take a close look they simply hike up their regular price to compensate for the “discount”. So, you know, look for a cheaper price, but it’s all going to be relatively the same. The best way to save money on gas is to drive less. Some will say you should buy a more fuel efficient vehicle. If you’re already in the market, then yes, you should be looking for the most fuel efficient model you can afford that meets your needs.   But picking up or increasing a car payment to get better gas mileage isn’t really saving you money (Cash for Clunkers was probably the biggest waste of tax payer dollars ever—did that actually happen?!?).

·         Entertainment—the last time I had cable was when my parents paid for it. We have a Roku box and pay for Netflix to the tune of $8.55 a month. The only time I wish I had more access to cable television is during events like the World Cup or the Olympics. But, oh well… it doesn’t justify the cost to me, and we saw a lot of the games on the big screen at our local brewery. We don’t go to the movies unless it is something we really want to see, and then it comes out of our “fun” money as previously discussed. Sometimes we will rent a movie or TV show from our local video store (they still exist!) if there is something we really want to watch. If there is a show you follow religiously, you may want to look into Amazon Prime where you can buy individual episodes. My favorite form of entertainment is spending about 3 hours in a bookstore. And the library, oh, the library—you’d be surprised what you can find there! We have a thing going. But, you know, I’m pretty boring.

·         Eating Out—for some of you, this probably belongs in the “Entertainment” category. But eating out is a major vice and thus has earned its own category in our budget. This is the place where we bleed money the most, so I am too embarrassed to tell you what we have spent. But, we are learning to eat out without spending so much money. This usually involves drinking only water, eating appetizers or splitting plates. Doing any or all of these things can cut the bill in half, easily. But I love Dr. Pepper like my life depends on it, so I will usually choose to order a drink and then just order cheese dip rather than get a big plate. My husband would rather have the food. But before we go out, we have started asking ourselves how we can keep the bill lower. And don’t skimp on tips. That just makes you cheap, not frugal.

·         Insurance—bleh. Nothing sucks more than paying a small fortune for something you might never need. Some types of insurance are necessary, some are good to have, and some are just pretty stupid. We will go over all of that in another post. However, I will take this moment to step on one small soapbox: YOU ABSOLUTELY MUST HAVE HEALTH INSURANCE. Medical bills are the number one cause of bankruptcy. This isn’t about a sinus infection or a broken bone. This is about cancer, a serious car accident, multiple sclerosis, a pregnancy with major complications. It happens. Even to young people. Seriously, unless you fall in one of the loopholes in the new law (and there are some, especially if your state rejected Medicaid assistance and you make very little money, or if you make too much to qualify for subsidies, or some other random things that weren’t planned very well—these words are not directed at you), then the ACA (aka Obamacare) should have some sort of plan that you can afford. So go sign up. Right now. (I actually think open enrollment starts in November. So do it then).  If you don’t know how or feel overwhelmed, then hire an agent to do it for you (they are paid by the insurance companies, not you, so you can hire one for free). Even if all you can swing is a plan that just covers major catastrophes, you need to do it. With health insurance, being on the hook for 10,000 if something major happens still sucks. But it is better than being bankrupt. I said I wouldn’t prioritize your spending, but in this case I will do it for you: it needs to be at the top. Now I will step off my soapbox…

·         Fitness—meh. Fitness is important, don’t get me wrong. But gym memberships have never gotten me there. If it keeps you motivated or if you want to be an elite athlete, go for it, but mostly we buy memberships, go for a month, and then never go again. I find gym workouts boring and classes and open swim always seem to be at incredibly inconvenient times. We enjoy running (or at least my husband does), biking, hiking, and, in inclement weather, the 30 day shred (or various other fitness videos/apps). We also occasionally sign up for an ultimate/dodgeball/soccer/etc. league. Just don’t pay for a YMCA membership so you can go to that Zumba class once a month. Walking is free and is a peer-reviewed method for staying in shape and prolonging your life.

·         Kids—wow, I’ve got nothing here. Anyone want to do a guest post on how to live frugally with kids? J

·         Pets—I work in the veterinary industry, so I feel like that gives me a little bit of an inside edge here. The biggest way to save money on your pets is to pay for preventive care. Not every vaccine is necessary (rabies is required by law), but unless you just picked up a puppy off the street, parvo should not be on your radar. Neither should heartworms, fleas, or other parasites. These are all preventable diseases. (*News flash*--inside only cats can have major flea infestations. They can get heartworms, too). Buy the highest quality food you can afford. Brush your pet’s teeth (no, I’m not joking). Learn how to do your own grooming (including trimming your pet’s nails). If your pet won’t let you, visit www.sophiayin.com (RIP L) to teach your pet to not only tolerate but enjoy these procedures. And don’t underestimate the cost of veterinary care or what you would “do” for your pet. A lot of people think it’s “just a dog” until their pet is in a crisis, and then they want the best care possible. If the thought of a $2000 vet bill makes you want to wet your pants, I suggest investing in pet insurance (we will talk about that soon, too!).

·         Clothing—I’m pretty sure at this point you know how I feel about fashion. I think being a kid trains you into thinking that you need new clothes every season, because when you are constantly growing, you do! But as an adult, most of the stuff from last year still fits (most of the time J ). I don’t buy much in the way of clothing, and when I do, it’s either at Target or Goodwill. I will pay good money for shoes, since I usually get about 5 years out of them, and for jeans, because it is such a pain in the rear (haha!) to find some that fit that when I finally do I don’t care about the price tag. But I buy about half a pair of jeans on average each year, so it’s not too expensive. I also don’t like cheap socks because I hate when they bunch in your shoe or flop off your foot.

Finally, one of the best tips I can give you for living more frugally is to hang out with frugal people. I never in my life thought I could survive using a wood stove until a girlfriend got me hooked on splitting wood (seriously, it is one of my favorite activities ever). Instead of social pressure to keep up with the Jones’, find people who will (kindly and gently) exert the opposite social pressure by planning your social activities with frugality in mind. And make sure your friends know you are on a budget. The people who love you will understand and will help you stick to it. If you’re like me, sticking to it is the hardest part, so rally all the help you can get!

Frugal is the New Black: Living within Your Means (Part 1)

While sorting through the world’s most ginormous stack of unfiled pieces of paper (where does it all come from?!?!), I came across a Social Security statement from 2010. In case you’ve never gotten one, it summarizes all the taxable income you’ve ever received in your whole life and tells you what kind of retirement benefits you can expect (they stopped sending them out, after realizing all that paper and printing and postage was costing an exorbitant amount of money—you can still get this info online if you feel comfortable putting your social security number into a website).

Anyway, mine dates back to 1997, when I had my first job at Chik-Fil-A (I made $344 that year).  In 1999, my senior year of high school, I made $3,502 (Toys R Us).  That’s easy to live on when you have zero expenses and are living with your parents. But I was shocked to keep reading. In 2004, my first full year out of college, I made $12,504 (I’m pretty sure that is near the poverty line).  In 2009, I pulled in a whopping $5,760. How on earth did I survive on $5,000 without sinking into debt?

There are a lot of reasons, really.  Maybe it was luck (I got married, though he wasn’t making much either as an intern on an organic farm).  Maybe it was grit (we essentially lived in a 10x10 house and couldn’t take a shower without getting the rest of the bathroom soaking wet). Maybe it was genes (my Grandma, who is now in her 90s, once told me she insisted on leaving the hospital with her newborn well before the doctor wanted to release her, because she was out of money and that was that). But somehow I made it work.

If you think of my income as an accordion, growing and shrinking from year to year, I lived with my life squeezed in the middle. And it was always squeezed. When the accordion took on income, I thoughtlessly expanded my spending to meet the edges. When I made less, I shrunk my life to fit inside. I wasn’t exactly smart with my money (oh, I wish I had been!), but I was living within my means.

This is the first and most crucial step to getting your finances where you want them to go. It is also one of the most difficult. There is no shortcut here—if you are spending more than you are earning, you’re going to have to do the hard and painful work to figure out why. I know this might be overwhelming, but if you’re still reading this blog it’s because you want to get your head out of the sand. So if all you get out of this is a little more awareness before plunging your head back underground, I’ll take it.

If you have some negative cash flow, there are three ways to solve this problem:

·         Option one is to earn more money. This might be a valid option for some. Sometimes when we are feeling strapped, I will pick up some overtime to give us a buffer. But most of the time, my emotion makes this decision and decides that the added stress isn’t worth it.

·         Option two is to wait for the magic bullet. This would be, for example, an inheritance, or a super-winning lottery ticket. (Not recommended)

·         Option three, and the one I am going to talk about in this post and the next, is to spend less money.

This is the part of money where people get judgy and opinionated. As those of you who know me know all too well, I can be judgy and opinionated (there, I said it). But I have no wish to do that here. The only person who can judge the integrity of your spending is you. My only wish is to help you see where maybe you could make some more frugal choices. Notice I didn’t say cheap choices. Cheap isn’t necessarily bad, but it isn’t what I mean. A cheap person can be miserly, selfish, and still incredibly irresponsible with money. Being frugal is its own form of wisdom:

                               A frugal person doesn’t ask, “How much does this cost?”

                               A frugal person asks, “What is this worth to me?”

This is the part where finance gets personal, and why I talked last time about using your emotions and your logic to prioritize spending. For example, I care zero about fashion. One time in my adult life I tried on a pair of skinny jeans, and when I struggled to get them over my ankles I panicked and wondered what would happen in the dressing room if I couldn’t get them off. It was easy to say no to those pants.

But I absolutely love food. I am drooling at the thought of my favorite thinly sliced okra fries slathered in lime and cilantro and masala salt. If you put this in front of me and ask me if it’s worth $7, I am always going to say yes. This doesn’t get me into too much trouble because it involves a popular restaurant in a tourist town, so it takes some real effort to even get this plate in front of me. The stressful emotions elicited by a trip downtown on a Saturday night usually trump my palate (I don’t really like going downtown anymore. Seriously, one day I just woke up old. I don’t know how it happened).

So I can’t tell you how to prioritize your spending, because you would just waste all your money on food and wear the same pair of jeans every day (ah, the good life!). But I will tell the choices we have made to cut back on our spending and to readjust our priorities in order to live within our means. Sometimes this was easy (no skinny jeans for me!). But sometimes this was pretty hard (not having a second bathroom when we finally bought a house).

The important thing is that you are asking, “What is this worth to me/us?” You need to let your own values and goals answer this question. You can’t let your friends, your parents, your kids, your neighbors or your culture make this decision for you. Having a new iphone is well and good if you can afford it. But if that data plan is regularly making a dent in your grocery money/your emergency fund/your generosity/fill in whatever matters to you, you are letting your culture decide your values.

One of my favorite quotes about money comes from a little song writer named Bobby Jo Valentine, who says, “Wealth is a measure only decided by what you believe.”  Words like that make me feel hopeful about the world. It doesn’t matter if you are wealthy compared to someone else’s standards. But it matters if you are wealthy compared to your own. So before we have a financial house cleaning (coming up!), think for a minute about what you believe. Is living beyond your means keeping you from living up to your own standards? If so, stay tuned for Part 2: a little frugal can go a long way!

More than Just Numbers: On Cars, Cupcakes, and Eating Out

Recently I read a book called The Righteous Mind: Why Good People are Divided by Politics and Religion by Jonathan Haidt (pronounced height, not hate, though I am sad at the loss of irony). This guy is a moral psychologist—yes, that’s a real thing—and his book focuses on a sort of evolution of morality. Is morality innate? Developed? Culturally relevant? Most people would consider moral reasoning—that is, deciding what is right and wrong—as a logical thought process that helps us formulate an opinion on a certain issue, and then, in a sense, our “righteous anger” or other emotional state develops in response.

But according to Mr. Haidt, the opposite is actually what usually happens. That is, we have a gut reaction to a certain moral issue or event (for example, “This cupcake is so tasty…nom nom nom”), and we then use moral reasoning to justify our particular position (“It’s okay because it’s my birthday/my friend’s birthday/my friend’s friend’s birthday/I just had a bad day.”).  I bring this up not because I want to discuss the morality of cupcakes (I know, you’re disappointed!), but because this is how most of us make spending decisions.

To give you a more-finance-less-cupcake-related example, we recently purchased a new car. Prior to this car purchase, our only debt was our mortgage. I hadn’t had a car payment in over 8 years. But our Hyundai was, well…struggling. At around 210,000 miles, the alternator went out ($500 plus $80 for towing). Then the battery ($120). Then the connections to the battery (factory parts: $100, but we dubiously pieced it together for about $10). We were also looking at some expensive regular maintenance ($1000 to have the timing belt and water pump replaced, as well as a transmission flush). We paid $2000 for the car when it had 145,000 miles on it, so you see where I am going here…these repairs were more than the car was worth, and we didn’t want to sink more money into it.

You’ve probably heard the advice before: buy used, pay cash.  But since we just bought a house last year we didn’t exactly have $10000 in our back pocket. And what was the point of buying a cheap used car that would have problems similar to the one we were trying to get rid of? So we started looking for a new car. We found a good deal on one we liked, put down a little bit of money, and covered the rest with nearly free financing. We felt good about making such a smart choice on a fuel efficient car with good financing that would likely last more than 10 years, and gave ourselves a financial pat on the back.

This is all well and good, except that we have 2 other, completely paid for, perfectly functioning vehicles. Granted, they are both pick-up trucks, so not great for passengers or traveling. They are both approaching 200,000 miles, so they won’t last forever. But none of these reasons are a pressing need. We willingly put ourselves into debt simply because we wanted a new car. We made an emotional decision and then used our stunning logic to justify why it was the right choice.

This doesn’t mean I regret this choice—the car payment was budgeted and isn’t an undue burden (and at some point I want to do a post on why having a car payment isn’t exactly the worst thing ever). Essentially, our car payment buys peace of mind, which is a price we are willing (and able) to pay.  I only bring it up as an example of how much our emotions drive our financial decisions. You can have the most well-reasoned budget in the whole world, but it won’t help you if you don’t take the emotional side of your spending into “account” (see what I did there? J ).

***Don’t misunderstand me: emotions are not bad. You likely cannot—and should not—make financial decisions devoid of emotion. Studies have shown that using pure logic to make decisions can have dire consequences (the worst being that you cannot make a decision at all). Logic informs our decisions, but emotion helps us make up our minds.***

For example, I am already the sort of person that can spend 30 minutes picking out conditioner. When I recently found myself torn between two products that seemed essentially equal, I eventually chose the one with a cruelty-free logo. I used my emotions—how I feel about cruelty to animals—to guide my decision. Maybe you care more about a particular brand (loyalty), or the actual ingredients (no parabens), or the color of the bottle (oooh, I love orange!)—these are all decisions guided by your emotions.

Traditional financial advice tells you to focus on your needs vs. wants. This is true to some extent, as we all have the same basic needs: food, water, shelter. But at some point the line between needs and wants gets pretty darn fuzzy. Do I need a cell phone? A car? A pet? A computer? You can live without all of these things. But a cell phone provides a means of communication—human contact. A car gets us where we need to go. A pet provides companionship. A computer helps us keep our lives organized. None of these things are necessary for survival, but they all have VALUE in our lives—they have the potential to make our lives better. Exactly how valuable they are to us is a decision made by our emotions.

Wow this post is getting long. If you need to, go take a cupcake break. If not, then onward....

I don’t want to discount logic in this discussion. Logic tells us how much money we have available for spending, as well as the myriad of ways to possibly spend it. When we discard our logic, our emotions can get us into serious trouble. But after logic has been applied to our spending choices (as it should be), how we feel about something is often what makes the ultimate decision.

I am learning that the key to making good financial choices is not to take emotions out of the equation (which I have tried and failed at a dozen times). The key is to be aware of your emotions, and then use that knowledge to either

A)      trade one emotion for another

        OR

B)      use your stunning logic to meet the same emotional need in an alternative way.

Let's apply this principle to the biggest hole in our budget—eating out. We absolutely love eating out. But why? My emotions tell me that eating out provides a means of companionship—it is what we love to do with our friends. When my husband and I eat out together we leave the distractions of our life behind and can focus on the conversation at hand. Eating out is a way to relieve stress (“I’ve had such a long day—who wants pizza!?!?”). It’s super convenient. And, of course, it’s tasty! But my logic tells me that eating out is like having a sieve in my wallet. So how do I change this behavior?

Using principle A), I can find another emotion more powerful than the emotions previously elicited. So, for example, one of our goals is to max out contributions to our Roth IRA (if you don’t know what that is, that’s okay… we’ll get there). Building wealth in retirement accounts makes me feel secure, because I know that I won’t always work simply because I have to. Every dollar I spend eating out that isn’t budgeted is a dollar that I cannot contribute to the future. So when deciding whether or not to eat out, I can ask myself:  Is spending this money now worth possibly having to work longer when I’m 60? Sometimes the answer is yes, but more frequently the answer is no. I am using my feelings of security to trump the emotions elicited from convenience, companionship, or the pull of my taste buds.

Of course, in our busy lives, convenience and companionship are important. I don’t want to become a miser who has no friends and lives in a hole. So if I have maxed out my eating out budget, or if I just need to put that money somewhere else, I can employ principle B) and use my logic to meet these emotional needs without eating out. For example, cooking or preparing meals ahead of time for convenience. Inviting friends over for a bonfire and a potluck for companionship. Keeping a few comfort foods handy when I just need food to get over a stressful day (don’t judge). These are all cheaper than eating out, but I am still getting things that are important to me.

Most of us don’t really need a financial planner—we know where our money needs to go. Most of us need a financial therapist (surprisingly, also a real thing)—we need help getting our money where we want it to go, and we can't figure out (or don't want to figure out) why it is not getting there.  Well, I am neither a financial planner nor a financial therapist, but I can recap this very long post with this bit of advice: use your logic to inform your spending choices, but use your emotions to prioritize your spending.

 It won’t do you any good to logically decide that you need to cut back on cupcakes when the smell of chocolate is wafting into your nose. But you can use your emotional awareness to confront the cupcake: “Cupcake, you sure do look delicious. But, alas, that money is going toward my trip to the Wizarding World of Harry Potter. Too bad you won’t be able to go. Plus, I’ve got this handy stash of trail mix that isn’t quite like you, but at least it has chocolate. And you don’t have any almonds. Take that, cupcake!”

Tuck these thoughts into the forefront of your mind, because they will become important when we talk about our next topic (and really, all of our topics). Now go have a cupcake. If you've made it this far, you probably need one!

 

 

 

My Meducation: Why I am Starting This Blog

Quick question: where did you learn to manage your money? If you’re like me, the most formal education you ever got in personal finance was a brief stint in high school economics where you played monopoly (not sure what the lesson was there) and learned how to balance your checkbook (which I haven’t done in about 10 years). Did that prepare me for the real world? Well, I do know how to write a check (but I haven’t done that in a while, either). To their credit, my parents did their due diligence by making me pay for my own things with my own money and encouraging me to save. But they can hardly give me advice about the future when my own reality is and will be so different from their own.

Beyond living within my means (an important aspect that we will talk about soon!), most of my life has been devoid of decisions related to personal finance. In my early 20’s I bought a book called The Complete Idiot’s Guide to Personal Finance in your 20s and 30s. I readily accepted the early chapters about your first job and budgets and car payments and rent. But once they started talking about mortgages and retirement and taxes, I felt like they were speaking an alien language. My life was too busy to think about such things, and why should I scrimp and save and sacrifice now when I had no hope of saving enough and would probably work until I died, anyway? That was my plan—work until I died. Plus I couldn’t remotely understand what they were talking about.

Fast forward 10 years and hello, reality check! I don’t know about you, but I’m pretty sure wrangling a 160lb Great Dane into the perfect position for x-rays will be difficult when I’m 70. Of course, I may not do this job forever, but it did get me thinking about the future. What would happen if I became disabled? If I got cancer? If I lost my job? If I had a kid? If I lived long enough to be too old to work (it will probably happen to most of us)? News flash: I would be broke.

So I took my head out of the sand and started my own education in personal finance. And then I started talking about it. all. the. time.  Have you heard of this budget software? Would you take out this loan? What kind of interest rate did you get on your mortgage? Are you making contributions to the 401k or a Roth IRA? How much do you spend on groceries? What kind of deductible do you have on your health insurance? Asking all of these questions was enlightening on two fronts:

• Money is a taboo topic, and sometimes for good reason. Money is not just a tangible resource to be spent or saved. It is deeply entangled in our emotional psyche, whether we love it or hate it or somewhere in between. When you talk about money, it requires you to be incredibly vulnerable.
• But I also learned that most of our generation knows almost NOTHING about personal finance. Yes, we know how to pay bills and use online banking and other essential skills (and don’t forget that we know how to write checks! Hooray!).  But even with modest income a lot of us are living paycheck to paycheck (or on credit) and can’t seem to break that cycle. I know of zero people who saved up a 20% down payment for a house. When I say the words “Roth IRA” people’s eyes glaze over and I hear crickets.

While we pay off our credit card every month, earlier this year I did a quick scan of a credit card statement to see where our money was going. Sometime when I know you better and can be more vulnerable I will tell you what I found. But suffice it to say that I realized we were being terrible stewards of our money. That is when we really started educating ourselves about personal finance. And that is what this blog is for—as Jesse says in Pitch Perfect (it’s okay, you don’t need to be embarrassed that it is your favorite movie ever): “You need a money education. A meducation. And I’m going to give it to you.”

So, some caveats:

1)      I am not a financial planner, an accountant, a tax consultant, or any other professional that qualifies me to give you advice about money.  This is simply information based on my own research and experience. Only YOU can make your own financial decisions.

2)      It’s called personal finance for a reason…because it’s personal. We all have different priorities in life and our monetary choices will reflect those priorities. So no judgment here. With that being said, the goal is that those priorities will actually reflect your values—is the money in your life doing what you want it to be doing?

3)   Economic disparity and income inequality are real things, and I do not wish to dismiss the fact that sometimes it feels like an uphill battle.  It’s impossible to save 10% of your income when you can’t put food on the table, and I don’t wish to diminish that if it reflects your experience. We all should care about economic justice, and I encourage you to work towards it with your actions, your voice, and your vote. I hate that our entire economy is built upon endless consumption of stuff that we mostly don’t need. However, this blog is about taking responsibility for yourself within that framework, even if that framework is completely insane.

So there you have it. It is my desire that a money education (henceforth a meducation) will help you to take control of your money rather than having it control you (believe me, I am in this process with you). And what I have to say is nothing new—there are literally endless resources if you have the time and desire. This blog is merely a dissemination of knowledge that I have gleaned, broken down into manageable clumps to keep you from feeling completely overwhelmed and putting your head back in the sand (what I did for the duration of my 20s).

If you have stories or information to share, I would LOVE to hear them. More than anything, I want people to be able to TALK about money without feeling embarrassed, guilty, boastful, or awkward. We have all made some pretty smart money choices, as well as some absolutely dumb ones. But we have all learned something in the process, and it is my hope that we can share what we have learned with each other.

If you’ve made it this far, I am humbled that you actually kept reading J.  Next time, we will talk about the “personal” of finance before diving in to some practical suggestions. Stay tuned for a meducation!