Financial Fitness: Finding the Right Financial Advice

- Spending

Most of us will probably need some financial advice from time to time, but how do we know if we’re getting good advice? Clearly we want something that covers all the bases while being
affordable and practical. Most important, it must be a lasting solution, not a quick fix.

Exercise Your Money Muscles

Let’s look at our metaphor of physical fitness. You don’t go to the doctor or your personal trainer every day. You’ve got daily habits to maintain that don’t require the caliber or expertise—or the expense—of daily checkups. These are long-term habits for a lifetime, and no one can exercise for you!

Similarly, you won’t talk to your financial advisor every day, and advisors don’t dictate your penny-by- penny expenditures and savings for you. So obviously getting financial advice that leads to real financial fitness requires effort. Never fear: We can keep this relatively pain-free with a simple three-fold plan.

Three-Fold Financial Fitness Strategy

Here’s a straightforward, realistic strategy for going from financial “flab” to financial fitness:

#1: Learn What to Do

You can easily find information on diet and exercise. It’s the same with finances. Education is your first step, and there are a number of resources available. Financial literacy gives you basic knowledge and techniques for good money management.

Some of us have bigger learning curves than others. Here are some of my favorites for different levels of learning:

For the basics, Dave Ramsey’s Financial Peace University: This 13-week course covers the most critical areas, including debt elimination, insurance and investment basics. Ramsey’s style doesn’t appeal to everyone, but he does a good job of entertaining while he is educating.

For clever tips, Get Rich Slowly: This is one of the most popular personal finance blogs out there. I often learn something new or benefit from looking at things from a fresh angle.

For sound investment info, the Bogleheads forum and wiki: These cover the basics of do-it-yourself index investing. The main page is a bit overwhelming, so click Getting Started at
the top for a gentler introduction, then drill down from there.

#2: Start Doing It

Learning what to do is easy. The difficult part is doing it! There are plenty of resources to educate us but not much to help us consistently maintain good habits. We’re human, and we need regular reminders. Just like you’d join a dieting club or take an aerobics class, you need a financial fitness program to make the right money moves consistently.

A financial fitness program involves getting others’ support for maintaining good financial practices on an ongoing basis. It’s hard to find a financial fitness program that’s comprehensive and designed to meet human needs around finance. That’s the primary reason I started Moneymentals. Right now, the Moneymentals community is unique in the marketplace. If you choose to join, you’ll build your personal plan during a Moneymentals webinar facilitated live by me personally. Learn more about how it works, and tryit out! You’ll be part of something fun and new.

#3: Get a Coach

Ahh, here’s where the financial advice comes in! Sometimes you need the individualized attention and expertise of a doctor. Likewise, you can go to your financial advisor for periodic checkups. Now that you know the ropes, you won’t need hours of costly financial advice, just a little when you have questions. Often that advice will involve not what to do, but how. You wouldn’t trust a snake-oil salesman with your health, so be cautious when choosing a financial advisor. For most people, fee-only advisors who work on an hourly basis are best. First, they lack commission biases. hey also maintain a fiduciary standard, so they put client interests first. Because they’re hourly, you can decide how much assistance you want and what kind. Need help finding the right advisor? . An good source for fee-only advisors is www.NAPFA.org. Not all NAPFA member advisors will work on an hourly basis, but many will.

Wealthy Habits

Thinking you can get by with poor money habits and somehow catch up later is a proven formula for failure. The best time to start practicing wealthy habits is today and every day. So learn the basics and get started. A good financial fitness program will serve most of your needs, and you can see an hourly fee-only financial advisor when you need a pro.

Four Reasons Why Traditional Budgets Don’t Work

- (No) Budgets

Have you tried and tried to create a budget and stick to it?

Is it working for you?

If you are reading this blog post, probably not.

There are many reasons why your budget may not be working, but you are not alone. Only 32% of U.S. households have a budget- in spite of almost half of Americans feeling anxious about finances. Let’s take a look at some of the common reasons why budgets tend to fail:

Budgets make you deal with too much at once, all the time.
Like dieting, if you dive headfirst into a sudden “all or nothing” approach to your finances, you’re setting yourself up for a very short-term success. Making a change is good, often necessary, in order to get results, but when you make such sudden and restrictive changes anywhere in your life, you’re much more likely to fall back into your old habits, and feel like a failure for it.

Budgets assume an almost infinite amount of self control.
According to this study from the Journal of Consumer Psychology, self-control is not limitless. If we use our self-control in one area (like finances), the study suggests that we end up sacrificing it in another area. One example in the study was two groups that were given a set of problems to solved showed that the group who was also trying to resist cookies gave up trying to solve the problems faster. When a significant portion of our self-control is being used in one area of our lives, it’s more likely that we’ll fail to show willpower in another area.

Thinking of life month by month is not a great way to manage your life.
When people draft their budgets, they often forget to account for non-monthly expenses, like doctor’s appointments, holidays, or even that unexpected events like emergencies will come up. Also, it can be hard to think of big, long term goals like home ownership and retirement with a budget. A more accurate budget has to incorporate irregular and large future expenses can get overwhelming fast.

Budgets can feel restrictive.
Most people have a preconceived association with the word “budget,” much like the word “diet.” Whether or not you consciously realize it, when you decide to create a budget, you could be creating a negative association in your mind. And, like most things, if you don’t have a positive mindset towards it, you are less likely to stick to it.

While it may seem like the general concept of budgeting should be simple, the reality is a bit more complex.

The good news is there are better ways to approach your financial goals. According to this article (and others), some strategies include breaking your big goals into smaller ones, and approaching your new money mindset as something that will bring you future joy, rather than cause deprivation and suffering. When I created my course, I made sure not to use budgets for many of these reasons.

So please know you can have financial success without a budget. I know I do.

If you have financial goals you’re working toward, and are tired of the pitfalls of budgeting, check out our Moneymentals course!

 

Managing Your Money and Your Life: Spend Wisely

- Spending

Imagine buying that new laptop you saw advertised. At the register, the associate doesn’t ask for money. Instead, she sends you to the back of the building to work 35 hours to cover the cost of your purchase. Immediately you wonder, “Is it worth it?”

For every buy, we’re actually trading the hours of work it took to earn the money, plus a lot more besides. Money is simply a way to store the life energy we put into working so we can use those dollars later for what we want.

In their book Your Money or Your Life, Joe Dominguez and Vickie Robbins expand on the concept of “money = life energy.” This idea has had a number of voices over the years. When you’re looking for financial freedom, it helps to think about money and personal finance this way.

Life Energy and Time

If saving money lets us store life energy, what’s life energy? The U.S. Bureau of Labor Statistics’ American Time Use Survey tells us we spend about 13 hours per day on basic needs like sleeping, eating, personal care, household chores and getting around. This leaves just 11 hours per day—only about 4,000 hours per year—for pursuing meaningful goals and wealth building. Our precious 24 hours each day plus the vitality (or lack of vitality!) we use to live them can be called life energy.

So the process of earning money converts life energy—taken from those 4,000 hours per year—into currency. It takes more than we think to trade life energy for money. For instance, the typical professional likely spends 8 to 11 hours each weekday working, getting to and from work, preparing for work and recovering from it. That means about 70% to 80% of our useful life energy gets converted to money. The sanity of that trade is for another post…

Real Earnings

Since spending money is really spending life energy, our money management efforts should include getting maximum happiness out of every dollar. But a dollar earned isn’t really a dollar! Just for kicks, let’s look at your real hourly wage, because there are work-related costs we don’t always think about.

Take your weekly after-tax take-home pay, subtract work-related expenses (like special clothing, dry cleaning and commuting costs) and divide by the number of hours a day you’re working or doing job-related activities. Here’s an example:

  • $1500 weekly take home pay – $100 gas – $25 dry cleaning = $1,375
  • 40 hours working + 3 hours preparing for work + 5 hours commuting + 3 hours recovering + 4 hours checking e-mail at home = 55 hours
  • $1375 / 55 hours = $25 per hour (real hourly wage)

Scary, huh? Obviously the money we earn comes only at the high cost of life energy, which has great value. That brings me to the question of whether time is money or if money is time. Saying, “Time is money,” implies that money is the more valuable of the two, so we shouldn’t waste time because we’re wasting money. The truth is the opposite: Money is time, which implies that time is most valuable. We don’t want to waste our earnings because that wastes time.

Our most valuable non-renewable resource is time. We won’t get more years, days or minutes, and none of us knows how much time we have left. Time is wasted if we don’t do what we want in life. Managing money means we store it and consume it later to achieve our goals, have meaningful experiences and perhaps pass a little along to others who are special to us.

Something New to Try

That really cool iPad® costs not $500, but 20 hours ($500 / $25) of life energy! Are we handcuffed resentfully to our jobs because of what we’re buying? Or is it worth it?

Try this: Before making your next purchase, consider how many hours of scarce life energy you’re exchanging for the item. Then ask yourself if you’ll get enough pleasure from it to justify all those working hours. No matter the answer, you’ll be making a conscious choice that contributes to your happiness—and the value of what you have will increase in your eyes!

Looking to spend your life energy only on what’s worth it? Check out our online Moneymentals class!