Poll: How Often Did You and Your Parent(s) Discuss Money?

National surveys indicate that the majority of parents across our country have never spoken seriously with their children about money. In our own surveys done with high school students, we also find that a majority of parents are not fulfilling their responsibility to raise children to understand how money and credit work and how to stay out of consumer debt.

More than half of the students we survey indicated that they’ve had, at most, two conversations about money in their lifetime with parents. And these were high school seniors!!!

What about you? Interested in describing your own experience about money conversations with your parent(s) from your formative years? In your teen years, how often did you have discussions with your parent(s) about money, credit and/or debt?

Thank you for your participation. Have a wonderful week!

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

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What Is a Realistic Amount for Emergency Savings?

April 30, 2011

Emergency Savings Tips from Debt Reduction Services IncChances are that if you’ve ever looked into how much money you should be putting away as an emergency/”rainy day” fund, you have found that most financial experts, including myself, will suggest something like three to six months’ worth. The question, though, is three to six months’ worth of what? Gross income? Net income? All household expenses?

Here’s my take on this vital subject. First of all, it is my opinion that having an emergency fund is one of the top two or three indicators as to whether a household will remain financially stable or remain living continually on the edge of a financial abyss.

Next, I differ from many professionals who advocate paying down credit card debts and establishing a retirement fund before ever working on an emergency savings strategy. When asked which of the three should be the priority (emergency fund, credit card debt repayment, or retirement funds), my answer is always the same: “yes.”

From my experience, emergency savings is an attitude that leads to action, so committing to saving regularly, even in small amounts initially, is more important than trying to figure out long-term amounts. Perhaps, an initial savings goals could just be having $1,000 in a savings account within a reasonable time (perhaps 6 months or a year). If you can achieve this, you’ll already be ahead of 85% or more of the general US population.

That said, to establish a truly effective emergency savings strategy, each household needs to look at their current income sources (usually some type of employment) and ask themselves, “If I were to lose my job today, how long would it take for me to find another job earning me/us about the same income?”

A recruiting specialist once shared her rule of thumb with me that I think works in many situations: For every $10,000 of annual income you receive from your current employment, it will likely take you a month to find a replacement position. That means that if you earn $30,000 a year, it will take you on average 3 months to find another similarly paying  job.

However, during an economic downturn, it would be safe perhaps to double that estimate. So $30,000 of annual income might take 6 months to replace.

Next, now that you have an idea of how many months you might be without income, multiply those months by the amount of money you would need not only to survive but also to be at least minimally comfortable.

  1. Include expenses such as rent/mortgage, vehicle-related costs, food, basic clothing, utilities, holiday and birthday gift giving, and any contracted services with penalties for early cancellation.
  2. Do not include expenses related to vacations and travel, dining out, external entertainment (think theater, cinema, clubs, concerts, etc.), back-to-school shopping, charitable giving, etc.

If you ever lose you employment (or if you have a major medical event), your household should go into financial lockdown immediately, cutting out all expenses under List #2 above while planning for those under List #1. Unfortunately, we all tend to be far too optimistic about our ability to find re-employment soon, leading many to continue to spend at current levels even though we no longer have steady income. Of course, even if you do qualify for unemployment income (for which many do not because of the circumstances leading to their job loss), it only replaces a small percentage of your monthly income.

In summary, if you earn $40,000 per year and have monthly expenses (under #1 above) of $1,800, you’ll want approximately $7,200 available to you in case of job loss (4 months x $1,800 = $7,200).

Where to keep your emergency savings?Does that mean that you should put it all in a savings account, earning .25% interest? Of course not. You want to earn as much interest as possible while also keeping the cash in a fairly easily accessible account (“liquid”). One possibility would be to work toward having four 4-month Certificates of Deposit of $1,800 each, with one maturing each month. Money Market accounts may also work as emergency savings vehicles.

Best wishes in developing and implementing your emergency savings strategy. It will take time and effort, but in the end, it will definitely be worth it.

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Published in: on April 30, 2011 at 9:42 am  Comments (1)  
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Can Budgeting Be “Fun?”

April 20, 2011

Last night, I met with a couple in one of my classes and wanted to share their insight into what they were experiencing. They had come to my Budgeting (aka “Spending Plans”) class a couple of weeks earlier, and they shared last night that they were making solid progress.

They had not only gone home and talked about a household budget, Can Budgeting Be Fun?but they had put one together and had been having regular discussions about it. I was excited for them because I know how a household budget can affect the family finances.

When I asked them how they were feeling about the past couple of weeks, the wife shared that they were having “fun” working on their budget. Now, you have to understand that during many of my budgeting classes, I explain how the critical step missing in virtually all failed budgets (written financial goals) makes budgets “meaningful,” but that even I – a budgeting professional – don’t think of budgets as “fun.”

So, when she said they were having fun, I had to ask for clarification. I was doubtful, I must admit. But, as she began explaining how they were enjoying the process of working together on a budget and feeling more in control of their finances each day, I could actually tell that she really was enjoying the whole process.

Budgeting Brings Peace of Mind and Greater ControlThe feeling of lacking control when it comes to our household finances is very disconcerting for pretty much all of us. Regaining that control really can provide us with a sense of euphoria that will have us coming back to our household spending plan again and again. In that sense, then, budgets certainly can be and are “fun.”

How about you? What are the feelings you’ve had as you’ve taken back control of your finances? Please feel free to share.

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Raising Financially Savvy Kids-Part 1

April 6, 2011

Some of the inherent responsibilities of parents include protecting their children and preparing them to be responsible adults in our society. Teaching children the proper management of their financial resources helps to accomplish both of these goals.

If the children in your family are similar to my own (and I would bet there are far more similarities than there are differences), they probably do not enjoy being lectured by their parents, nor do they learn much thereby. So how else are they supposed to learn to be financially fluent if they don’t listen to what we tell them? Well, we show them.

Further suggestions will follow today’s blog, but here’s an easy, fun and effective way to teach children that money does NOT grow on trees and that it must be properly managed and controlled:

  1. Pull out the game of Monopoly or any other board game that has play money in real denominations. If you don’t have such a game, you can print some play money from www.printableplaymoney.net.
  2. Gather the kids around the table to “play” a game. Count on spending anywhere between 15 and 45 minutes for this activity. This game is best for children 8 or 9 years old or older, since they’re getting to the point of being able to grasp abstract concepts. You can tell them you’re going to play a game to show them how Mom and/or Dad makes and spends money every month.
  3. Explain the rules, such as, “We’re going to count out how much money Mom and/or Dad make every month and put it in the middle of the table. Our goal is to spend it on everything we need and then on things we want without running out of money.”
    At this point, you may choose to explain your feelings that you are sharing information that is only meant for your family, and that you are trusting the children not to talk to their friends or to extended family about how much money Mom and/or Dad make.
  4. Teaching children the realities and the value of household budgetingEnthusiastically and dramatically count out of the bills how much money your household makes every month. This should be gross income (before taxes and other deductions). Enjoy the look of astonishment on the children’s faces while it lasts. For many, any amount over $100 might lead them to think that the family is RICH!!!
  5. Explain that the first thing that comes out of the monthly income is Taxes. Remove from the pile of money in the middle of the table the amount of taxes you pay each month. To raise a financially responsible child, you should explain the benefits that come from paying taxes, including security provided internationally by our armed forces, security provided locally by the police and/or sheriff,  transportation infrastructure, schools, laws, health and human services, public transportation, and more. Avoid complaining bitterly about taxes, though it may be educational to explain how we have the right and responsibility to vote for representatives in our government who we hope feel the same way we do about how taxes should or should not be used.
  6. Next, explain that other amounts come out of your paycheck before you receive any money, including Medicare and Social Security (FICA), in addition, possibly, to insurance premiums and retirement account contributions. Remove the amount of your monthly deductions from the pile of money in the middle of the table.
  7. Teach children the importance of committing to saving for emergenciesNext, explain to the children that you have committed to paying yourself first, in case of emergencies, so that there is a specific amount that you put into your savings plan right off the bat. Let them know that this amount is non-negotiable, and that as they grow up, you expect them to do the same. Many children, even fairly young ones, may take comfort in knowing that their parents have a plan in place in case anything unexpected happens. Remove your monthly savings contributions from the pile.
  8. Then, ask the children if they think you should next pay for things you need or want? Explain what your survival needs are and remove that money from the pile. Typically, needs include shelter and security (rent/mortgage and their corresponding insurance and utilities), food and water (NOT including dining out), protective clothing (the very basics), and possibly medications or medical procedures.
  9. The next expenses to come out usually include things that make life comfortable and convenient, like transportation costs, child care, additional clothing, school activities, air conditioning in the summer,  etc. You may also include other obligations and loan repayments (credit card, student loan, signature loan, etc.).
  10. Continue to remove money from the pile until you’re left with “extra” money (usually pretty scarce). Remember to calculate the monthly amounts to set aside in order to take care of periodic expenses like vacations, car and home repair, holiday and birthday gift giving, etc. You may also consider including the children’s allowance or amounts they can earn through chores.

Going through this exercise every couple of years or so will help your children to realize that money is not an infinite resource, that it doesn’t grow on trees, and that their parents are in control of their finances. It generally has the added benefit of stemming the continual flow of the “gimmees” and the “buymees.” “Give me this” and “buy me that.”

Finally, letting our children “see” how important budgeting is to us will lead them to value it as well.

Have fun with this activity, and let me know how it goes.

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Debt Repayment Options Made Simple

December 20, 2010

One of the most talked about, written about and thought about financial topics in this country is, and has been since its founding, the best way to get out of debt (and then, hopefully, stay out of debt). Yet for all of the tongue wagging, ink wasting, and energy squandering on this endeavor, most American still have an extremely poor, if not completely mistaken, idea of what options they have available to them when they are ready to repay excessive consumer debts.

So, below you’ll find my unofficial “The American Consumer’s Guide to Debt Repayment Options: the Abbreviated (and just about all-you-ever-needed-to-know) Version.” I have listed them in order of their typical impact upon an individual’s credit history and personal finances, from least to greatest, according to  my own opinion:

  1. Pay your debts off on your own
    Minimum Payments Option: Make only the minimum payments requested by your creditors, and it’s quite possible that you’ll need 15 to 25 years to get out of debt – assuming you never use your credit cards again! NOTE: This is universally accepted by financial experts as a poor choice since minimum payments are designed to maximize interest (profits) from your own pockets to those of your creditors.
    Level Payments Option: Never pay less than this month’s minimum payments, even as creditors begin to request a smaller and smaller minimum payment because of a decreasing total balance. NOTE: Realistically, this could have many consumers out of credit card debt in just 5 to 6 years without any direct impact on current household spending levels.
    Extra Payments Option: Use the “Level Payment Option,” but add an extra $25 to $50 (or more) to the payment for the account with the highest interest rate (or, also not a bad choice, the account with the smallest total balance). NOTE: Many such consumers can pay off a $5,000 credit card debt this way in just 3 years!
    Equity Loan Option: Borrow money against the equity in your home or other asset and pay down your credit card debt. NOTE: On paper, this seems like a no brainer, since such loans are often at low interest rates and can have definite tax advantages to them. The problem for many (actually most) who choose this option is that within one or two years, those credit card balances that they paid off with their home equity loan will creep back up to their original amounts, meaning now the consumer will be dealing with the same credit card debts AND be at risk of losing their home because of the additional home equity loan. This is NOT the best option UNLESS the consumer has made a total commitment to budgeting their expenses and reining in any expensive or impulsive lifestyle issues.
  2. Debt Management Program:  A  modified repayment plan available through nonprofit credit counseling agencies (disclaimer: I am employed by one such – see AICCCA.org for a list of nonprofit agencies nationwide). Such programs, known by their acronym of DMPs, target high interest rates and penalty fees. Credit counselors work with creditors to lower the consumer’s interest rates and/or cease any recurring penalty fees. While the debts themselves are not consolidated, the consumer makes just one payment per month to the credit counseling agency, which turns around and disperses the payments to creditors according to accepted repayment proposals. NOTE: Depending upon the consumer’s current credit history, there may be an initial drop in credit score due to the fact that accounts on DMPs must be closed to further usage, which may have a detrimental impact on the consumer’s credit usage ratio. However, FICO has not considered credit counseling as a direct factor in its credit scoring model since 1999, and on-time monthly payments have the greatest impact on credit scores. At the end of the DMP (which cannot last longer than 5 years), creditors should remove any notations on the consumer’s credit report referring to their participation in a DMP, thus leaving no lasting indication of DMP activity. Finally, while consumers can often work directly with a creditor to put into action a DMP for one solitary account, consumers with more than one account will usually find that their creditors are unwilling to provide interest rate concessions unless all of the consumer’s other creditors are also committing to them. That’s were the nonprofit agencies play such an important role.
  3. Consolidation Loan: This option allows consumers to replace multiple smaller debts with one large debt (and, consequently, many monthly payments with just one). NOTE: First, if you’re struggling to repay your debts, you likely have less-than-perfect credit, which means you won’t qualify for a consolidation loan at anything less than an astronomical interest rate. Even consumers who somehow find an affordable consolidation rate are then subject to same temptation as those who use home equity to pay down debts: to recharge those same credit cards back up to unmanageable levels due to poor money management plans and habits.
  4. Borrowing from Retirement: Some retirement plans allow the individual to borrow money or to outright withdraw invested money from their retirement account. There are usually extensive penalty fees associated with some of these options. NOTE: At the very least, the consumer who chooses this option becomes subject to the temptation to recharge their cards back to their original balances, just as the consumer who uses a home equity loan or a consolidation loan.
  5. Debt Settlement: You offer to pay the creditor less than what they say you owe them. Debt settlement can be done directly between the creditor and the consumer, or the consumer may contract with a third-party negotiator (which may even be an attorney) to pursue a settlement. NOTE: Now we’re getting serious. Debt settlement means, by definition, that you have no intention to repay in full the debts that you owe. Such intentions brought to fruition form the basis of a poor credit reputation that is circulated by consumer reporting agencies among potential lenders for the next seven years. Additionally,  fees from third-party negotiators can tally up to 25% or more of the original debt, leaving the consumer still having to pay a total of 80% to 95% or more of the original debt owed.
  6. Personal Bankruptcy: Generally considered the final option where consumer debt is concerned, a chapter 7 or chapter 13 bankruptcy provides legal protections to consumers who are overwhelmed by their debts to such an extent that their creditors are threatening (or actually beginning) to take away all or portions of the consumer’s assets. Assets may include, for example, a home, vehicles, or even income. NOTE: No one enjoys going through bankruptcy. It’s not a pleasant experience. While our own statistics show that there is a fairly significant amount of recidivism among filers (close to 20% have filed before and 3% have filed at least two cases of bankruptcy before their current case), most people end up in bankruptcy due to job loss (about 40%), poor money management (25%) or excessive medical expenses (19%). Going through bankruptcy likely means giving up a portion of control over your own finances and even some of your assets. The consumer’s creditors receive so little of the amount they’re owed that bankruptcy has a solidly negative impact on a consumer’s credit for 7 years and remains on their credit reports for 10 years.

I’m sure there are other, more creative, debt repayment options out there, so I invite you to share those of which you are aware.

Have a fantastic day!

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Santa’s Not Comin’ to Town Quite Yet

November 15, 2010

I’ve always thought that Thanksgiving gets the short end of the stick when it comes to fall holidays. Christmas seems to invade stores almost as soon as kids are back on the school playgrounds after summer. Maybe that’s why I love Thanksgiving some much. It hasn’t been (and hopefully never will be) commercialized. Hopefully it stays the most home-centered of gatherings of our society.

Additional Thanksgiving expenses on decorations, travel, and entertaining can add upStill, just because it’s not been co-opted by Madison Avenue doesn’t mean we don’t, as a nation, spend a lot of additional money on the holiday. Thanksgiving generally means extra expenses in:

  • Travel: If you’re flying to your destination, you’ll generally spend anywhere between 10% and 50% less if you DON’T travel the day before Thanksgiving and the Sunday AFTER Thanksgiving.
    TIP: Consider flying out TWO days before the holiday and coming home on Friday.
  • Meals: Often, a portion of the extra money we spend on Thanksgiving meals can be recouped by enjoying leftover turkey sandwiches for a week or two afterwards.
    TIP: To make leftovers easier to deal with, separate them into smaller portions, place them in freezer bags, and pack into the freezer. That way, you won’t have to pull huge portions out of the freezer to use all at once.
  • Decorations: After travel, decoration expenses can be considered to be the most expensive “optional” expense of Thanksgiving. Whether it’s new Thanksgiving-themed plates and serving dishes, front door wreathes, pewter turkey-shaped napkin holders, or other household ornamentation highlighting the joys of fall, a spendthrift household could easily lay down an extra $200 or $300 each Turkey Day in making their dinner more festive.
    TIP: If children or grandchildren are available, use their pictures or artwork to decorate the house. Back a small photo of a family member with some construction paper and tie them around the napkin as a holder.
  • Entertainment: More and more families are deciding to spend the afternoon or evening of Thanksgiving at the movie theater. Whether Hollywood pushed for it or reacted to it, the demand is definitely there. That’s why many blockbuster movies often debut on Thanksgiving Day or that weekend.
    TIP:  Games at home can be more affordable and usually much more interactive, but if you insist on going to a movie, make the decision to skip the high-priced treats. After all, you’ll probably still be feeling as stuffed as the turkey was just a few hours before.

Have a wonderful, safe, and happy Thanksgiving Day and holiday season!

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Top 3 Personal Finance Tips

November 2, 2010

I’ve answered the golden question many times in my classes and presentations: “What is the number one suggestion you have for financial success?” In all honesty, don’t we already live in a society that’s plenty busy and plenty complicated already? Why throw on our shoulders another five, ten or twenty financial skills to master?

Each time I answer the question, though, it’s within the context of a specific course topic, whether it’s budgeting, using credit wisely, or getting out and staying out of debt. Consequently, three different people in three different classes have heard me provide three different #1 suggestions. Today, I’ll combine my three top tips into one gloriously simple but profound blog:

  1. Write down your financial goals.It’s true that every journey starts with one step. I also love the expression, “An unwritten goal is just a dream.” However, I am not referring to massive, long-term goals. We can’t relate our day-to-day financial choices to goals that are more than 3 years away or that require more than probably $1,000. For large goals, you’ll need to break them down into monthly, if not weekly, savings required to reach the goal.Regardless of nature of your goal, you should write down the following: 1) What you want to achieve, purchase, or do with money, 2) How much money you project you will need all together, 3) What month and year you plan to achieve the goal, and 4) How much you’ll need to save each month/week/paycheck from now until the time you plan to reach the goal.
  2. Pay yourself first.Once you have suggestion #1 in place, suggestion #2 becomes both easier and more meaningful. Without #1 in place, #2 because a chore and will likely not last or produce any significant results.Set up an automated deposit, ideally directly from your paycheck but otherwise from your checking account, into your savings and investments accounts. Even if it’s just $5 per month or paycheck to start with, consistency is much more important than the amount you transfer to savings. Once the money is out of your checking account, you’ll be much more likely to live within your remaining income and will probably not even miss the money placed into savings.
  3. Pay ALL your bills ON TIME and IN FULL.So much time and energy is wasted in discussing what makes up good credit, what credit is, and what it’s used for, that many people overlook the simple fact that online payments every month is the simplest and most effective way to build a solid credit score.Before figuring out the best way to pay down debts or determining how many credit cards you should carry in order to have the best credit score, remember that credit is a reflection of your financial habits with regards to debts and accounts for which you are responsible. As such, your credit score is an indication of your credit reputation. Paying your bills on time as agreed is the surest way to protect your credit reputation. Defaulting on your payments or making a late payment is basically an indirect way of telling your creditor that paying that as you agreed is not very important to you. Consequently, they will tell other creditors of your actions (that’s what a credit report is), impacting your credit reputation.

    Although paying down debts and avoiding a “maxed out” card is nearly as important, no one can argue that on time payments (even they are just the minimum payments required by the creditor) make up the most influential portion of your credit score.

So, there you have them: my top three personal finance tips of all time. Hopefully they make your life, your parenting techniques, and your overall well being a bit easier and much less complicated.

If you have a personal finance tip or suggestion that you feel deserves a crack at the top 3, please let me know. Having taught hundreds of classes, written scores of articles, met with thousands of students, and read innumerable studies and opinions on the subject of personal finance, the one thing I know and accept is that there are always better ways to approach things. What’s yours!

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Entitlement Spending

Picture this: You’ve had a lousy day at work. You’re exhausted. You’ve worked your tail off for your boss, and he/she can hardly remember your name let alone express appreciation for all your hard work.

Now, let’s assume that it’s also payday. Here come the temptation. Do you go out after work and spend money you don’t have in order to blow off some steam or do you find another avenue for relieving your frustration.

Spending money you haven’t planned for or that you just plain don’t have, all because you feel you “deserve” to treat yourself to something nice, fun or tasty, is called “Entitlement Spending.” For those who unwind at a bar after work every day, we’re talking about $400 or so a year just for one beer. For those who splurge on clothing once a month, it could be much more than that.

Entitlement spending can also work the other way around, though. Some people feel the same urge to spend when they’ve had a great day. “It’s time to celebrate!”

Here are our tips for dealing with the temptation to fall into the entitlement spending pit:

  1. Add a category to your monthly budget called “free money.” This is not “free” as in no cost, but “free” as in “available.”
  2. Set aside a modest amount into this budget category. For some people, it might be $5 per month. For others, it might be $50.
  3. Don’t think of this “free money” as something you’ll spend on anything specific. Rather, this is for those days and times when you want to spend on impulse.
  4. You may want to withdraw the cash from your bank and place it in an envelope in your glove box, purse, or desk drawer.
  5. Just remember to tell yourself that once this money’s gone, that’s all there is for the rest of the month. Try to hold onto it until the last week. By then, you’ll realize that you really don’t even want to spend money as a way to blow off steam.
  6. Seeing your emergency savings account grow can be a reward in and of itself.

Kick the Entitlement Spending Self-Defeatist HabitFinally, my favorite way of looking at Entitlement Spending, especially given that we hear a lot of people try to justify it by saying, “I deserved it,” is this:

Telling yourself you deserve to spend money you don’t have after a rough day is like smashing your thumb with a hammer and then saying you deserve to give yourself a puncture wound to go with it.

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: MoneyDay2Day

Published in: on August 26, 2010 at 4:12 pm  Leave a Comment  
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What It Means to Be Rich

August 23, 2010

Today, I read a good blog post about the 3 Ps of True Wealth (http://bit.ly/9WxV8l) and felt to add some of our own insight into the concept of wealth and riches.  People, Passion and Purpose make up Jason’s 3 Ps, though all of them revolve around building relationships and the people with whom we interact day to day.

What it means to be richI added a comment regarding what we teach about being rich. In a way similar to the 3 Ps standing for true wealth, being rich involves setting personal goals that require money and then making your money work for you in order to reach those goals.

Being rich is not an amount, an income, or a lifestyle. It’s not about showing off. It’s not about envying and wishing. It’s about doing what’s important to you. Accumulating money, unfortunately, serves as a pseudo-goal for too many people.

“I want to be rich” is a phrase we hear far too frequently. Having a lot of money is a relative concept. For someone living in poverty, a few hundred dollars could be a lot of money. For a recent college graduate, a lot of money might be a $40,000 annual income. For others, it might be $1,000,000 lottery ticket (Please!!! Don’t get me started about the lottery unless you’re truly willing to listen).

The reality, though, is that if we were to set a financial goal to have or earn a certain amount of money, we would find that amount insufficient to satisfy us once we reach it. It’s not how much money you earn or have that counts so much as how much you keep. By “keep,” I mean hold onto in order to reach your own truly satisfying personal goals.

A goal needs to be specific (in outcome, time frame, and amount of money needed), but it needs to be, most of all, motivating. What is it that truly inspires you? Relationships? Accomplishments? Charitable work? Respect? Admiration? Knowledge? Time with family or friends? Experiences? Ask yourself, “When all is said and done and my time on this earth is over, what do I want others to remember me for?” How’s that for a question to get you thinking?

Whatever your goal may be, write it down and keep that goal on top of any spending plan (budget) you every work on. Post it on your fridge. Tape it to your bathroom mirror. Carry it in your purse or wallet. Look at it regularly and recommit to it every day. You’ll soon find that you have little care for spending your money on “stuff” that you’ll now see as frivolous. Saving for an important goal will become fun and exciting.

Once you have your motivating goals in place, it’s then time to act like you’re rich already. But remember that the rich don’t work for money (duh!). Act like the rich by making your money work for you (savings, investments, lending). You may not have hundreds of thousands of dollars to act like the rich, but first of all, you have to get rid of the Hollywood stereotypes of the rich. Most millionaires do NOT drive luxury vehicles, don’t live in mansions, don’t have butlers and maids, don’t take vacations every month, don’t fly in personal jets, don’t frequent trendy boutique shops, and don’t call attention to themselves with what they wear, drive, or live in. That sort of ridiculous spending is targeted at members of the middle class who think that they can spend their way into the upper class. Seriously? How can you spend your way up the wealth ladder?

Most millionaires earn their own wealth through running their own business or being careful with their own money and investments. They are conscientious about and control their own finances. They make they’re money work for them, not the other way around. When they do spend, they spend with purpose. And that purpose is what we’re talking about today.

What’s your purpose? What do you want to accomplish and do in life? How much money will that require? Does it really involve a $500/month car payment and designer clothing? Does it require the biggest home mortgage you could possibly qualify for?

Goals goals?

Goals are the Key to Financial Success and Personal SatisfactionWrite them down! Write them down!  Write them down!

Goals that are not written down are just wishes, and except in fairy tales and the movies, wishes are earned, not granted.

Best wishes for financial success in reaching your own goals!

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Education@NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Plastic or Cash?

How to Use and Not Use Credit CardsWith all the talk about the dangers of credit cards, it might be easy to decide to bury your Visa, MasterCard, American Express or Discover cards in your back yard and just stick with your debit card instead.

Before doing so, you should be aware that studies have indicated that regardless of whether you use a credit card or a debit card, you still spend about 12% more than you would have if you were to use cash or a check.

This fact should bring home several implications, including the following:

  1. We overspend when we use credit cards rather than cashIf you use credit cards, and you pay off your balance in full every month, you probably think your pretty wise for taking advantage of the credit card companies. After all, using a credit card is generally more convenient and more secure than carrying around cash. After all, with credit cards, you don’ t have to go to the bank to withdrawal cash, you don’t have to reorder checks every 6 months to 2 years, and you essentially get an interest free loan on your purchases if you pay them off in full with the next bill. However, be aware that if you’re an ultra credit card user (perhaps making $2,000 or more in credit card purchases each month that you pay off with the next bill), you’re likely spending an additional $250 or more every month in real money because of the psychological temptation to purchase more expensive items and to do so more often due to the convenience of the plastic in your purse or wallet.
  2. We spend 30% or more at restaurants paying with credit or debit cards than if we were to use cashIt gets much worse if you’re using plastic when you go out to eat. Think about it! If you walk into a restaurant, all of your senses combine against you as they try to communicate this one issue: satisfy us NOW! There are smells; there are often sounds of food cooking; there are brightly colored menues; and then there is your stomach growling at you. That’s why, when you use a credit or debit card in a fast food or other restaurant setting, you’ll probably spend upwards of 30% to 40% more than if you had brought in cash. It’s no wonder, then, that when McDonald’s began accepting credit cards, their average purchase when from the $4 range up to more than $7!!!

I’m not suggesting you ditch credit cards. As I mentioned (and I truly believe), credit cards are safer and more convenient to use than cash, not to mention that their proper use can help us to build a solid credit history, especially important in advance of a large purchase on credit such as a home or car.

However, I do believe that too many people use their credit cards without setting and sticking to actual spending limits. That’s my challenge to all of us: establish your spending limit long before you enter a store or restaurant and stick to it. Otherwise, you ought to consider putting your plastic on ice.

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Education@NationalFinancialEducationCenter.org
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Published in: on August 19, 2010 at 11:59 am  Leave a Comment  
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