SMS 135 – Guilt Free Spending

Guilt Free Spending

Guilt free spending vs purchase justification

Why guilt free spending is important?
– deprivation is not sustainable
– bring change into your life

How much should you be spending guilt free?
– relative to your income

Spending considerations:
– on a regular interval
– not on life’s necessities
– not automated spending
– be deliberate about it
– make sure it is aligned with your priorities
– no room for personal agendas (not significant in value)

Sources of guilt free money:
– allowance – make it part of your budget
– gift money

Beware of the purchase justification machine

Mr. Money Mustache

SMS 134 – Re-Thinking Emergency Funds

What is an emergency fund?

  • should be 3 to 6 months of survival expenses
  • Insulation from life (living insurance) – removes risk from you life

The purpose of an emergency fund:

  1. Job loss
  2. Unanticipated expense

Who needs an emergency fund:

  1. Negative net worth – having debt in your life adds risk
  2. Relative low income – close to the financial edge
  3. Home owner – learn to predict expenses
  4. Car owner – learn to predict expenses
  5. Unstable employment – be observant
  6. Significant number of dependents – adds complexity to your life
  7. Known credit issues

How to build and manage an emergency fund:

  • Make it a line item in your budget
  • Stop all savings & aggressive debt repayment until you have $1,000
  • Aggressively build up 3 to 6 months of survival expenses
  • Have the discipline to not spend it on non-emergencies
  • Make it accessible but not too accessible

Who doesn’t need an emergency fund:

  • Positive net worth with no debt
  • Earn significantly more than you spend
  • Do not have credit issues
  • Very stable employment

Mr. Money Mustache

MMM vs. The Emergency Fund – MMM Show Episode 9

SMS 133 – Does Costco Really Save You Money?

Starting from the standpoint that everybody should have a Costco membership and the reason you want it is to save money.

Membership cost:

  • Gold Membership $60 per year
  • Executive Membership $120 per year with 2% cash back (spend $6,000 cash back $120)

My personal issues with a Costco membership:

  1. Membership costs – have to save the membership costs plus
  2. Altered consumption – having an endless supply could change how you use
  3. Walk past the shiny stuff – everybody know my weakness for electronics
  4. Creates a sense of scarcity
  5. Not supporting local business
  6. It stands for consumerism (more is better)

Who should not have a Costco membership:

  1. Single people
  2. You don’t own a car
  3. Have a consumer weakness
  4. No Costco in your local community

SMS 132 – Financial Myths

Personal Finance Myths
We like to make excuses; easier to blame others then ourselves. We all, like eating, have the ability, for thee majority, to earn, save, and spend.

1.“Personal finance is too hard.” — news flash, a lot of the most important things we will ever embark on in life are really hard. Anything worth having, anything worth being good at is always going to challenging, But its how willing you are to fight to achieve what you want to achieve is the true measure of strength and resiliency. Change will come from a place of discomfort.

2. “Personal finance is easy… just don’t buy anything or spend any money, I’m set…” — things happen, clever marketing ads get shoved in your throat in all sorts of subconscious ways, its harder then ever not to spend money

3. “My parents are bad at it which means they didn’t teach me how to get too at it.” — the moment you stop letting someone else dictate how good or bad you are and will ever get at something is the moment you relinquish control. Control and permission to excel at something and be great. You are not your parent’s legacy, instead you can foster your own legacy at leading an incredible personal financial life. Yes, you may not have been dealt an incredible hand, but you own how you play that hand out. I will also in the same breathe be the the first to admit that my parents are incredible with their finances, that everything I know and everything I told true is because of them.

4. “People with a financial background have an upper hand.”

5. “Personal finance is a place you get to.” — in reality, it’s a journey not a destination and you have to be kind, gentle, and patient with yourself as you grow and go through this journey

6. “There’s a “right” way to do personal finance” — and by right way we mean there are right strategies to take on i.e. spend less then you earn, but the things that work for your neighbour, friend, etc. might not work for you. It’s easy to get caught up in the perfectionist side of things, that if you live your life according to the success plan that worked for someone else it’ll work for you, however in reality our lives are all so unique.

7. “I’m older now, its too late.” — its never too late

8. “Caring about personal finances is only for those with lower incomes.”

9. “If I made more money I wouldn’t have any financial worries or problems”. —Don’t look for external solutions to an internal problem

10. “Everyone else around me is living large, why can’t I?”

11. “It feels like my debts will never get paid off, why even try or start?”

12. “I tried the personal finance thing and it didn’t work.” — Trust yourself — trust yourself that you’ll have the ability to succeed

13. “My spouse takes care of the personal finances so I don’t have to.” — faulty approach, important to delineate roles, but also as important for both partners to have a pulse on your joint personal finance situation and be jointly involved (regardless of who may be the primary/larger bread winner of the family unit). Each partner serves as a sounding board, your accountability partner. Ensures your immediate/short term actions align with your long term goals.

14. “Thinking about personal finance is too restrictive — budgets, curbing my spending…”

15. “I’m not wired that way.” — its not about math, its something you need to learn, something you should embrace getting good at

16. “Personal finance is something I can ‘dabble in’ whenever its convent for me” / “I have a bad habit on spending money on things I don’t need.” — no, personal finance is a way of life and a way of living, not a habit to be broken and then commit to next week or next year when you think it’ll be easier.

SMS 131 – Financial Mentoring

Financial Mentorship – You need to be willing to be mentored and be willing to be a mentor

Ways to be a financial mentor:

  1. Demonstrating
  2. Teaching
  3. Coaching
  4. Accountability Partner

Choosing a Financial Mentor:

  1. Somebody who is moving in a direction you want to move
  2. Somebody who has your long-term interest
  3. Somebody who is your senior – generally not a sibling
  4. Somebody who will be in your life for an extended period of time
  5. Somebody you are will to share your financial life plans with

Being a Financial Mentor:

  1. Listen and understand the issues
  2. Be compassionate
  3. Somebody you think you can help
  4. Somebody you think you can communicate well with
  5. Somebody you can motivate and inspire
  6. Somebody you are willing to share your financial details – successes and failures
  7. Somebody you can be available for the teaching moments

When is it time for a Mentor:

  1. Preferably ongoing but before significant life events
  2. When you start to lose direction, motivation, or traction
  3. When this go bad – one-time events or a pattern of behavior

SMS 130 – Budgeting Part 2 – How to Budget

Part 2: How to Budget

Developing a budgeting is a process,

  • Track your income and expenses
  • Develop income and expense parameters
  • Project future income and expenses.

First develop your expense tracking skills:

  1. Start with a smart phone app – automation is your enemy
  2. Develop the skill of tracking your spending for 3-6 months create 1 income category and 4 expense categories: Home, Living, Transportation, Other
  3. At the end of 3-6 months you should have a solid view of how you income expenses are flowing
  4. Divide your 4 expense categories into 4 sub-categories (drive behavior, facilitate decisions making)

Now you can begin to develop income and expense parameters

  1. Determine monthly income budget
  2. Use averages to determine monthly expense budget by category
  3. Zero based budget means you have to account for every dollar

Your budget has evolved to the point where you bring expense tracking and spending parameters together

  1. To account for every dollar you have to reconcile to your bank account
  2. Monitor your performance of your actual spending against your budget and make adjustments

You are now at the stage of financial planning where you can begin to see how you can achieve your financial goals

  1. Develop a spreadsheet to mirror your income and expense categories
  2. Input 12 months of historical data
  3. Project monthly income and expense by month for the next calendar year (previous, current, and next year)
  4. Project annual income and expenses for the next five years.

Home Budget App

SMS 129 – Budgeting Part 1 – Why Budgeting is Important

Part 1: Why have a Budget

To survive without budgeting at some point would require the use of credit or a very extremely conservative lifestyle which would mean lost opportunity.

Very High level – How to Budget

  1. Tracking income and expenses – find a tool and develop the skills
  2. Set spending parameters – this is where the “why” becomes important
  3. Project future income and expenses – this is the real payoff to budgeting

Budgeting Myths:

  1. Budgets are for “poor people”
  2. Budgets are restrictive
  3. Budgets are temporary
  4. Budgets are “one size fits all”

Why Budgeting is important:

  1. Provides a roadmap with directions to your goals
  2. Budgets identifies problems before they occur
  3. Makes you aware of where your money is going – automation is your enemy
  4. Budgets drive behavior change – you need to review your budget regularly

Budgets are a tool for decision making

SMS 128 – Wants vs Needs

Wants vs Needs

The problem with wants

  • They do bring excitement but do not bring lasting happiness
  • It becomes a unquenchable thirst of spending – there is no end it just manifests

Life is real simple but we choose to make it complicated and one of the biggest complicating factors is our desire to satisfy wants before needs, this flips the Maslow Hierarchy of needs upside down.

Should you pursue wants – yes but choose long-term long lasting wants, wants to do not continually erode your long-term wealth, avoid wants that might become unsustainable.

Early financial impendence is without question a want that I have spent a great deal of money on, but when I am retired some of that money will transition into stratifying survival needs.

Identifying a want vs need:

  1. Requires justification
  2. Exceeds its function utility
  3. Where would this appear in your budget
  4. You have buyer’s remorse
  5. You buy on credit

How to control your wants:

  1. Have a documented budget – have financial goals that lead to long-term wealth building
  2. Be an adult – children focus on their wants adults focus on their needs
  3. Adopt a life changing philosophy such as minimalism – one in one out
  4. Focus – go ten feet deep rather than 10 feet wide
  5. Practice gratitude – value the things you do have (we are solving 1st world problems)

SMS 127 – (un)Fortunate Events

(un)Fortunate Events

My first thought about this email and episode was that we should not wait until something bad happens to make changes in our lives, but then I reconsidered….

  1. Life is not a straight line – forcing it to be straight will only bring regret
  2. We naturally move toward pleasure – growth come from a place of discomfort
  3. Have a plan – “No battle plan ever survives first contact with the enemy”- Hemluth von Molke
  4. We learn very little from our successes in life but our failures are provide great wisdom
  5. Formal education is manufactured adversity

Life is journey not a destination, it is enhanced not by the things you bring with you, but rather by the people that you meet along the way.

SMS 126 – Used Cars Part 2 – How to Buy a Used Car

How to buy a used car:

  1. Realistically access your transportation needs – not a status symbol, narrow your search make/model
  2. Set a budget and stick to it – maximum loan 3 years, 40% to 50% of your annual income tied up in cars
  3. Do your research – become an informed buyer, know your prices & search out known problems
  4. Only buy from a dealership – buy a previously leased car, don’t buy somebodies problems – know why the car is for sale
  5. Test drive as many as possible – you have to drive a bad one, check the car proof, take it home and wash it
  6. Beware of a deal that’s too good to be true – be willing to pay fair market value (the seller knows more than you do)