Schools of fish

They swam together. They communicated as one unit. And they got caught in the giant nets as a group too. Humans are not so different.

There was a suspicion that the remaining balance on your neighbor’s mortgage might affect the value of your house. If the Joneses still had a huge debt to pay, then their risk of foreclosure is higher than someone who is close to owning the home already. Because some might also be underwater, they have less incentive to take care of the property and things start to look real scraggly. And ugly houses and foreclosures drag the prices of the neighborhood down. But you can’t leave the neighborhood, you say. Well, neighbors are not the only ones that can drag you down.

Getting caught in the same net

Unlike house location you can choose whom to hang out with. Our friends are there because they share our interests. But if they do not share the same financial goals… We have already discussed how important it is to have your significant other be on the same page as you for success. But what if your friends (and family too) are always going out and spending money? What if they do not share your plan and goals and would rather just have a good time?

Can you not go? It would be hard because you are all swimming as a team. And you will just seem weird to everyone else for always flaking out.

Busting free

In order to escape the fishermen’s net, the fish needed a leader to tell them what to do and where to go. They managed to get loose and as soon as they were all free, they went their separate ways. This is important when it comes to choosing which people to hang out with. If they are all directionless, you might need to become the leader and show them goals. But if they are not receptive to your goals and dreams, then it does not make sense to keep them around all the time.

Turtles are wise

However, when you find a group of people who have the same destination in mind, then it makes a whole lot of sense to try to ride the currents with them. Nemo’s dad learned a lot, taking on wisdom left and right. By being surrounded by financially wise friends, it can only make us wiser too about our own finances.

(photo: jaky)

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Then when he went to pay for his groceries, he paid with food stamps. How can someone who looked so wealthy be too poor to afford his groceries just using his own resources? I actually got kind of mad knowing that he was using my tax dollars to dress better than me. I mean it’s not that hard to out dress me but still.

Everyone wants to impress

There is a great deal of pressure to put up an image to the rest of the world of wealth and success. We want people to think that we actually have a lot more money than we have. I used to work at a place where everyone drove around BMW 750 Li but lived in a small studio apartment. It just didn’t make sense. They go out of their way to project this persona and they are willing to do anything to at least appear successful.

Any means necessary

There are many statistics out there documenting how lower income people are usually the ones who play the lottery the most. While some play the lottery for the enjoyment of the game and the whimsical notion of just one day maybe winning. But I am sure a majority of the people buy tickets hoping and wishing against crazy odds of making some money. Everyone wants to become a millionaire or at least be thought of as one.

How do real millionaires play?

They actually are the least likely to play the lottery. Also, they live very normal (cheap and sustainable) lives. Whether that is because they want to remain inconspicuous or they want to retain more of their wealth is up to each individual I suppose. The most common car make for millionaires is a Toyota. Yup. It’s not a Benz or a BMW or an Audi. They drive Toyota’s.

They also do not buy houses they can’t afford. Most of the millionaires have houses worth just a fraction of their net worth. They live in houses that are worth about $300,000 only. My father’s house cost more than that so I can imagine what kind of living space that kind of money affords. It is very comfortable but also quite basic.

The real look of a millionaire

Instead of trying to impress people with fancy cars and big houses maybe all we need to do is drive around a Prius or Camry to make people think that we are wealthy. After all that is how real millionaires live. Maybe if we start living like that, we can actually afford to pay for our own groceries too.

(photo: gracewong)

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The Scrooge In All of Us

This will most likely mean that because cash will be primarily used for purchases, the gifts underneath the tree will most likely be smaller and less expensive. Everyone is tightening their belts when it comes to spending and while that is good thing, it can also lead to fewer people on your list who will get presents. I mean, how close are you to that cousin from another state anyway? And what about that neighbor of yours who always liked to show off his good fortune in the middle of a recession whether it was through a new car or a summer vacation? Surely, they can do without a gift from you.

What to get?

So now that you have cut that list down to the bare minimum, should you get started? Not so fast. In Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays, Waldfogel, an economist, argues that we may be just wasting money. He calculates that about 85 billion dollars worth of presents goes down the drain each Christmas season. How can that be?

Well, when was the last time that you received gifts for Christmas and loved every single one of them. I can’t remember a year. All those presents that I did not like were bought with the best intentions (please keep buying me gifts!) but were ultimately ignored or even re-gifted. Guilty.

It’s a horrible thing to find out that your gift was unappreciated and made even more so by the fact that it was purchased on a credit card like most people used to do. You are in debt and the gift was a bust. Yeah, I would call that wasting money.

The solution?

Gift cards. A whopping 55 percent of people polled said that they would prefer to get gift cards so that they can decide what to buy themselves. Apparently some people do not like what they get for Christmas and would rather have the choice to shop for themselves. So is this the best choice out there? It lets you give a present that they will most likely appreciate and there is a wide variety of them.

Who is Uncle Barnes & Noble?

But the downside of gift cards or prepaid cards like some from Visa or American Express is that they come with some fees. By giving a gift card for someone from a retailer like a bookstore, you might also be giving them some hassle. They come in the form of fees.

If the recipient of your well-thought out present does not use the gift card in a specific amount of time, the companies start taking a ‘dormancy” fee every month. So when your sister goes to the store to use your present, they might not even have the full value of the card anymore. And if they wait a really long time, the money might completely disappear altogether through inactivity fees and other fees like it. You just gave the bookstore 50 dollars and now your sister is mad at you for not telling her to use her gift card sooner.

Does this really happen? Yes, it does. According to some statistics, about 8 cents of every dollar used to buy gift cards goes to the gift card issuer. Add up all the gift cards every year and that present to the gift card issuer is almost 8 billion dollars. Now that is a gift I am sure the companies will really appreciate. And here you are cutting out your cousin from the list and giving 8 billion to a stranger. Tsk! Tsk!

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The Devil On Your Shoulder

But you can also use negative thoughts to prevent wasteful spending. The best way for me to check my would-be purchases is to think of money as work stored in dollars. I try to recall how hard I had to work to make my checking account grow and whether it is worth using up an entire day’s worth of work just to buy a ridiculously expensive pair of jeans. Seriously, I have to work an entire eight hours just to buy jeans? It does not make sense when I pose this question to myself. And for those who dislike or even hate their jobs, this argument should be even more powerful. Can you imagine one hour at work just to go to a movie which might not even be any good? That’s money and time you cannot get back.

Time Is Money

The dollars in your account also represent time you had to trade in that could have been spent somewhere else, doing something else. I have a son and he is a year and a half. He is at that stage where he idolizes everything I do and is genuinely happy to see me when I come home. Every hour, every minute and every second I am at work or commuting to and from work is a moment that I am not with him. All this money I have accumulated in my account by working is made possible only by me leaving him for long stretches of his waking life. So when I look at something and have the urge to buy, I just think of how much I had to sacrifice in units of time in order to earn my money. Is having the latest cell phone worth all the hours I spent away from my son? There is something out there that is more worthy of the trade. That, I am sure.

The Angel On Your Shoulder

Another way to discourage frivolous spending is to think of money as valuable tools in achieving something bigger than yourself. Something more worthy. Instead of using money to just purchase and consume resources, we have the option to actually try to do good with it. Nonprofit organizations, charities, microfinance institutions – all would benefit from a helping hand. Since these are all investments in his future, I am sure my son would not mind me trading time away from him to give money to certain programs out there. It might not benefit him right away but when he grows up, he might be happier because of it.

Money Does Not Buy Happiness

Next time, you have the impulse to buy something, think first whether it is a purchase based on trying to make yourself feel better. If that is indeed the basis for a particular purchase then in all likelihood, the former state of discontent will reappear when the jeans become outdated or when the cell phone becomes obsolete. Money will never buy long term happiness and should not be spent trying to achieve it. I discourage it.

What methods do you use to discourage yourself from buying stupid things? Is it better than having a good motivation?

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Entitlement

One of the main reasons we do what we want within our sphere of influence is because we feel that we deserve certain things in life. We deserve a raise. We deserve a bonus. We deserve material things to buy with our deserved bonuses and raises. I think this sense of entitlement is actually one of the reasons why impulse spending occurs.

Acting without thought

We quickly rationalize the purchase of some material thing and within a split second, it is in our hands. Most of the time, people will say that they bought things simply because they wanted them. This is a statement that could very well be true. But the want is usually rooted in some sense of entitlement. For example, person A sees person B with the latest iPhone 3GS. Person A decides that they want one too even though they have a cell phone already and goes to the store and buys an iPhone. Why did person A get an upgrade? I believe that they deemed themselves worthy of having this cool device and as such they deserved it.

Losing money

Because of this sense of entitlement, I myself have found that I rationalize some of my extraneous expenditures based on my supposed deservedness. I tell myself that I can eat out once in a while because I have worked hard the past week and need a little treat. But little treats add up and saving money becomes impossible. Use Mint.com to really see how much your little personal treats really are costing every month. Look at the total sum. You might be surprised to see how much you really think you deserve.

Still feeling special?

To make matters worse, I know that the number I see on the pie chart could have really been a lot more useful if I had used it with just a little bit more wisdom. Maybe an extra share of AAPL, few more bucks in the emergency fund, or even help someone out. Now that the impulse is gone and I have more time to reflect:

What the heck made me think that I’m that special?

(Photo: stopdown)

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Early Car Problems

When I submitted the paperwork for the credit check at the dealership, I was a little nervous because I knew that my credit score was not going to be the best. Sure enough, they came back and told me that since my bad credit placed me in the bottom tier of their credit worthiness scale, my APR would be close to 16 percent. My monthly payment would have been in excess of 500 dollars a month.

I Needed To Go With Plan B

My dad came to the rescue and co-signed. With his awesome credit, the APR got dropped down to 6 percent and my monthly payment was reduced to around 400 dollars. Because of someone’s good credit, I was going to be saving 100 dollars a month for the entire length of the car loan.

100 dollars multiplied by 60 months is 6000 dollars. Essentially, I saved 6000 dollars because of good credit.

Wear and Tear

Over the course of our lifetime, the wear and tear of bad credit can cost us TENS of thousands of hard earned dollars. According to the Department of Motor Vehicles, the average sedan lasts barely over sixteen years. That means based on the average lifespan of an American and assuming you get your first brand new car at 16, you would still go through about four different cars.

Damages

If you were to buy four new cars over your life and pay for them all while having bad credit, it is easy to see that you could be overpaying by as much as 24,000 dollars over your lifespan. Imagine that. That is more money than all these people will make in an entire year.

Being In the Driver’s Seat

Conversely, if you have good credit and had to buy four new cars over your existence, then that means that you SAVE 24,000 dollars over the course of your life. That sum is an entire year’s pay for some people. This is a prime example of how good credit can actually help you save money.

Once you start on the journey to better credit, it literally pays to stay on course until you find yourself at the end because sometimes that can be just the beginning of something great.

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It eats money.  The biggest reason that it is foolish to hide your money in these popular hiding places is the fact that inflation exists.  Inflation can get to your money in your piggy banks and pretty much anywhere else you can think of hiding it.

What is this monster?

Inflation is the reason why 150 dollars bought me 100 gallons of gas when I started driving in 1997 and why the same 150 dollars will only buy me 48 gallons today.  That is less than half and that is with me using websites like this to find the cheapest pump.  This monster has raised the prices of other stuff too like groceries and house prices.  For example, this is a more detailed list for one city.

How do you fight it?

To keep inflation from rendering my money totally useless, I’ve personally looked for better places to hide it in.  This is not to say that inflation can be totally avoided but by putting my money in these places instead of just holding it, I give my money a chance to grow a little bit.  In that way, even if I needed to buy 100 gallons of gas,  my initial 100 dollars could have grown to 215 dollars or even more.  Inflation still gets the upper hand in this case but at least my money is not totally getting demolished.

Look for a good hiding place

Savings (high yield) -  There are a lot of online banks and institutions that offer an OK return.  And you have the option of taking the money out if in a pinch.  But you might see the APY move up or down.  This is the one I use.

CD’s-  These certificates are given to you by the bank or institution and they give a higher fixed APY return than regular savings because they encourage you (through big penalty fees) to keep the money with them for the entire term of the certificate (ranging from 6 months to 5 years).

MMA’s-  Money market accounts are kind of in the middle of these two.  You can take out money if you had to but only six times a month or so.  They really encourage that you keep as much money in your account and not take it out by hitting you with fees if you do take your money out too often.

These people can help

Check out Bankrate.com to see who is offering the best deal.  And you need to get the best deal because some are already forecasting a sizable inflation bump may be around by March next year.

There are also rumors going around that a more vicious and money-hungry enemy is lurking just outside the shadows: HYPERinflation.  And yes, it is as scary as it sounds.  But that is a whole other topic…..

Where are you hiding your cold hard cash?  Has it been a good place to keep it in so far?

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I mean, seriously, who likes saving anyway?

It is too much like self-denial.

What’s in it for you, right?

For me, in order to find the motivation to save, I had to set an achievable goal. You see, I want desperately to go to Apricale in Liguria, Italy. It is a goal that is lofty enough to keep me motivated but achievable enough that I do not feel overwhelmed. I have a photo of Cinque Terre as my desktop background to remind me daily of what I am working towards.

What is your motivation?

You need to find something that will motivate you to pinch those pennies. This motivation has to be strong enough to offset any and all temptations (well most of them anyway) in order to be successful. The idea is to find something that is just out of reach but definitely within the realm of possibilities. This will keep you going.

Maybe you can use the prospect of buying a house as motivation. Or saving for your son’s Princeton University tuition. Or maybe just upgrading your current brake pads so that you stop getting all those stares at four way stops. Whatever it is, stick to it and give yourself a daily reminder.

Then something very cool happens…

You start realizing that every cent and dollar you save is not really self-denial, rather they are getting you that much closer to achieving your goal.

I think about it like this: instead of eating out at the lame restaurants around this neighborhood and buying movie tickets for two for a movie which will undoubtedly disappoint, I can save that money and hold on to enough of it to travel to Italy for one day’s worth of projected expenses. If I start saving money instead of going out to the movies seven times, I would have enough money to spend a whole week in Tuscany. JUST LIKE THAT. Convince your significant other to skip seven stupid movies and you both will find yourself in another continent in no time.

But only YOU can make it real

Not going to the movies or eating out so much is a conscious choice that I have had to make every weekend so that I can put money in my Italy travel fund because I realize that if I do not act on my motivation, then all I have is a really pretty desktop background and nothing more.

If I don’t save, I will NEVER make it to Italy and that to me sounds like self-denial.

What motivations are you all using to save? Are they strong enough to overcome temptations? Has it been easy or hard?

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I thought that might get your attention.

Recently I started thinking about how I was spending my money and how I was saving a bundle by doing so.

Huh?

Let me explain.  My girlfriend and I bought bicycles recently and we have been riding around the neighborhood to get our leg workouts every day.  Combined both bikes cost about 200 dollars.

Now you ask, where are the savings?

Trading down?

Well what I neglected to mention was that we used to be members of a gym where we used to do our treadmills and stairmasters and ellipticals and all sorts of other contraptions.  But then we canceled both memberships after realizing that we were each paying 30 dollars a month to drive to the gym once a week.  This story is not uncommon I am sure.

For the price of  two four month memberships, we both got bicycles that we use nearly every day.  We bike to the grocery store, to the post office, to the bank.  Heck, we even bike to adjacent cities just for the adventure of it.

Spending wisely

We are now saving money by not having to pay 60 dollars a month for a gym that we never went to very often.  Also now we like our workouts more now that we don’t have to towel dry the seats after someone has sweated all over the machines.  What else?  We are saving the environment with less carbon emissions.  And, and, and now we have legs like Lance Armstrong.

There are many blog posts out there detailing how you can trade some of the things you do to cut back on expenses:

1 FOOD

2 PERSONAL

3 CAR

but I think that it doesn’t necessarily have to be a trade down.  In the example above, my girlfriend and I actually got more benefits by spending our money wisely.   It shows that it is very possible to spend money AND save money at the same time.

Next time, I will tell you how you can have your cake and eat it too…

But in all seriousness, how are you saving money by spending wisely?  Any tips?

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