Category Archives: (No) Budgets

Buying Happiness Roundup: Does Money Buy Happiness?

- (No) Budgets , Spending , Uncategorized

You’ve probably heard it said that money doesn’t buy happiness. Is this true? Actually, there is a connection between money and happiness—but it’s not what you might think. Today’s blog is a roundup summary of my previous blogs on money and happiness. Take a look. Maybe you’ll find ways your income can boost your happiness level.

Connecting Money and Happiness

Although conventional wisdom says money can’t buy happiness, there actually is a connection between the two. If you’re unhappy because you don’t have money to buy food, pay bills or pay for healthcare, money sure helps! Nobel laureate Daniel Kahneman and his research team discovered that increases in income can bring increased happiness—but only to a certain point.

According to Kahneman, a psychologist and pioneer of behavioral economics, that point is $75,000 in yearly income for Americans. Apparently, as household income approaches the $75,000 threshold, making additional money seems to make us happier. Beyond that amount it doesn’t. If this concept of diminishing returns intrigues you, see my blog Does Money Buy Happiness? Sometimes.

Anyone with even a little money would want to get the most out of it. Perhaps the secret for buying happiness lies in whether or not you’re spending your money right.

Using Money to Increase Your Happiness

We can spend money in certain ways to increase our satisfaction and our happiness. Here are some proven spending tactics that just might put a smile on your face:

  • Small pleasures: Don’t miss out by spending lots of money on what you think will make you happy but won’t. Because our brains quickly adapt to them, big-ticket items can be taken for granted. Often a series of smaller purchase is better for boosting your mood. My blog Buying Happiness: It’s the Little Things helps you distribute your happiness over time. Unusual, small, frequent and even surprising purchases can reset your “happy meter” for enjoyment.
  • Meaningful experiences: Experiences trump objects and possessions when you’re on the market for happiness. You’ll reminisce about a vacation or a trip to an amusement park with a child more than the widescreen TV that quickly goes unnoticed. Experiences Are a Better Way to Buy Happiness encourages you to focus on building memories instead of adding to your material possessions.
  • Assistance for others in need: Here’s a great happiness booster: Use your money to benefit someone else. This can increase positive feelings even more than buying something for yourself. Any skeptics out there should try the easy experiment in my blog Spending on Others is Buying Happiness for Yourself. Science supports the fact that humans are wired for social connections. We gain pleasure from helping each other—and there are plenty of needs to be met today.
  • Delayed purchases: Studies have shown that looking forward to a happy event can even bring more pleasure than the event itself. Your imagination could be a deal sweetener. In my blog Buying Happiness: Anticipation Enhances Reality, I explain that “buy now, pay later” offers detract from your overall happiness. Saving for a purchase with the delight of anticipation gives you more for your money. It also helps you avoid added debt.
  • Gratitude: Do you have a tendency to see others’ possessions or financial situations and feel like a “have-not”? It’s time to count your blessings by looking at the big picture. Many people cannot read, don’t know what the Internet is and can’t even access clean water. One of my daughters inspired this blog: What Are You Thankful For? Gratitude involves a conscious choice. Without increasing your wealth one bit you can feel ten times better!

Getting a Better Perspective

More money might make you happier, but only to a certain point. Obviously, what matters is how you spend it.

None of the happiness-building ideas in this roundup are off-the-charts expensive. You don’t have to be financially independent to use money in rewarding ways. In fact, the difference between a rich person and one who enjoys his or her wealth is the motive for making money and how it’s spent.

Managing Your Money and Your Life: Spend Wisely

- (No) Budgets , Saving , Spending , Uncategorized

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!

 

Once Upon an Emergency Fund

- (No) Budgets , Saving

Emergencies are no picnic. There’s nothing like the dismay, panic and anxiety, followed by that rush of adrenaline to solve the problem. No solution can mean double the emergency. With finances, unfortunately one emergency often leads to another. A single emergency can be a huge setback for your financial freedom—unless you’re prepared.

What do you do in an emergency? Call 911. This blog helps you set up a “911 fund” that will be there when you need it

Understanding What an Emergency Fund Is For

An emergency fund is your cash cushion against loss of income or truly unexpected expenses.
Here are some examples

  • You lose your job. Finding another takes time, but the bills won’t wait.
  • You can’t work due to an illness. Even if with disability coverage, there’s usually an exclusion period of three to six months during which bills must be paid.
  • Your car breaks down and needs extensive repairs. Large, unforeseeable expenses go beyond standard maintenance.

An emergency fund is not a substitute for poor planning. “I need to buy Christmas gifts,” isn’t a reason to call 911. Christmas comes each year, so plan and save for that. An emergency fund also isn’t a reason to make a big purchase on a whim because the advertisement says, “Act now!”

Calculating the Amount

Opinions differ as to how much should be in your emergency fund. I recommend three to six months of living expenses. However, it doesn’t hurt to have more. Some retirees keep two years’ worth.

Use your living expenses, not income, to calculate the amount. Do you know the total of your basic expenses during a typical month? If you’ve read my blog No Budget Way to spend Less 7 Save More, that’s what goes into your “Spend account” every month. My blog about uneven cash flow might help with irregular income and expenses.

Choosing Where to Put the Money

When calling 911, time is of the essence. Liquidity and safety are most important, so your emergency fund goes in the bank instead of a higher-interest investment vehicle. Sometimes online banks offer good returns (see www.bankrate.com).

Handling the Tradeoff with Debt

Your emergency fund comes before other priorities even if you have debt and want to pay it down. Before beginning any debt-reduction efforts, have at least a month or two of expenses in your emergency fund. Why risk plunging further into debt when an emergency fund can handle the unexpected?

Using Credit

If you’re suddenly strapped, a credit card might fill the emergency fund role temporarily. It’s not a good practice long term.

Some argue that good credit, a large home-equity line of credit and high credit-card maximums can cover for them instead of having a lot of cash in the bank. Be careful. Instead of relying on credit, get a three-month emergency fund first. Your good credit can be a second-layer backup to give you a total of six months. You must have cash in reserve, because it’s tough paying a mortgage with a credit card, and every credit card comes with a minimum monthly payment. Do yourself a favor: Get a cash cushion to avoid bad situations. It’s about balance.

Another second-layer backup can be a Roth Individual Retirement Account (IRA) if you qualify for one. Unlike other kinds of IRAs, you can withdraw the principal without taxes or penalties, subject to certain restrictions. However, don’t make a habit of pulling money out of your Roth IRA! Before considering credit or a Roth IRA as part of your plan for emergencies, you should have three months’ expenses in cash in the bank.

Avoiding Discouragement

If it costs you $5,000 each month to live, you need $15,000 to $30,000 in the bank. Don’t be intimidated by that. An emergency fund is not all-or-nothing. If you’re able to save a month’s worth of expenses, that’s one month toward financial freedom! You can increase your fund from there and work in saving priorities too. At three months you might put some savings elsewhere, then later build your emergency fund up to a full six months.

You can do it!

Ask Moneymentals: Building Wealth On A Cash Income

- (No) Budgets , Saving , Uncategorized

Let’s say you earn a lot of cash in tips as a bartender: how do you minimize your taxes and invest this cash?

How do you manage an irregular income?

Michael Goldman, CFP® and creator of Moneymentals helps us figure our some strategies to make that cash work for you.

Ask Moneymentals: Splitting Money As A Couple

- (No) Budgets , Saving , Spending , Uncategorized

Know a cohabitating couple trying to make it work in love and finances?

Michael Goldman, CFP® and creator of Moneymentals helps couples figure out how to split their finances fairly.

The No-Budget Way to Spend Less and Save More

- (No) Budgets , Saving , Spending

You thought simple saving was within reach. You’ll do better this month, right?

Obviously we need a consistent, predictable way to decrease spending and increase saving. Despite this dilemma, we balk at the thought of completing a budget.

Why Budgets Don’t Work

Budgets are the traditional way of managing spending and saving habits. Yet psychologically and behaviorally speaking, budgets—like diets—don’t really work for most people. The New
York Times article Why a Budget Is Like a Diet—Ineffective tells us that human nature can foil the best of intentions!

Some people do well at budgeting. With couples, sometimes one person is more conscientious about money management and adhering to a spending plan. If you’re a good budgeter, keep it up, because it’s an effective tool. For the non-budgeting majority, there is hope! We can comfortably reduce spending and increase savings using the two-bucket spending method with a drip-by- drip savings plan.

The Two-Bucket Method

Behavioral economics research tells us we tend to separate in our minds various purposes we have for our money. This “mental accounting” can be to our advantage. If we have a purpose for a certain amount of money, we tend to avoid using it for other things.

The two-bucket method I describe here helps you start putting mental accounting to work on
paper! It’s simple:

1. Set up two bank accounts, preferably at the same bank. Ideally, one should be a checking account and the other a savings or money-market account. These are your two “buckets.”
2. Label the checking account your “Spend” account and the savings your “Save” account.
3. Link the two accounts so you can transfer money between them easily. Banks that allow you to set up automatic transfer via the Web (most do) are more convenient too.
4. Pay yourself first! Instead of depositing income into Spend, put it all into Save. If you have automatic deposits, direct them straight to savings.

Income goes directly into Save, so simple saving is your default option. Because the default requires no effort, you’re taking advantage of a behavioral economics technique called
automaticity. You are saving automatically and have achieved a big milestone for simple saving. Congratulations!

Saving Drip-by-Drip

Your mental accounting is probably already in gear. Here’s how to build your savings and imperceptibly nudge yourself to wealth:

1. Time an automatic transfer after each payday to move money from Save to Spend. The transfer amount should initially be 99% of your paycheck. If you are already saving, bravo! Set the transfer to preserve your current saving rate.
2. Always pay bills and take spending money from the Spend account. Keep track of your balance and don’t overspend it.
3. Each month, decrease your automatic funds transfer by 1% of your income. For example, if you started with 99%, transfer 98% from Save to Spend the second month, 97% the third month and so on. Each 1% is just $10 per $1000 in monthly income. If you’re paid $4000 per month, you’ll only be reducing spending by $40 per month. Painless!

Our brains are wired to notice sudden or dramatic changes, but not small changes over time.  We find small ways to trim. It’s possible to reach a savings of 20% or more of income without suffering from the pinch. Bill payments and basic “creature comforts” are a must, so when things get too tight, that’s the signal to stop increasing the percentage.

Time for a Reward—and a Fatter Retirement Account

Phew—no budget! Once you have money accumulating in savings, reward yourself. One way is to take up to 50% of what you accumulated in the Save account after six months and do something special or fun, like a nice massage or a dinner out. What about the rest of the savings? Well… remember your New Year’s resolution to put more in your retirement account?

What Are You Thankful For?

- (No) Budgets , Spending

“Daddy, what are you thankful for?” my five-year-old asked. We were at the breakfast table with my youngest, age two, after a hectic frenzy getting ready for school. This direct, innocent question was probably prompted by school discussions.

Surprised but inwardly pleased, I smiled and said, “Well, of course I’m thankful for you!” Then I smiled at my other daughter and explained how I was thankful for her too, as well as for my friends.

After I said, “I’m thankful this house,” my five-year-old piped up, “Yeah, because some people are homeless.” I agreed. “And some people are poor,” she said, “and we’re not poor.”

There are many reasons to count your blessings. It’s good for your soul and your mental well being. It’s also good for your personal finances due to something called social comparison.

Make the Right Comparisons

It’s human nature to make social comparisons, comparing ourselves with those around us. In particular, we tend to compare our wealth with others’, both consciously and unconsciously. The negative side is “keeping up with the Joneses”: They accumulate more and more possessions, so we think we need to match their pace. What a source of discontentment that can be!

There’s a flip side. A tried-and-true advantage of pausing to count your blessings is remembering how very fortunate you are. No matter what your plight or your station in the pecking order of socioeconomics, you’re probably better off than somebody else.

For example, are you reading this on a computer?

  • Likely you’re not homeless—and many people are.
  • You’ve probably eaten something today—and there are those who can’t even get clean water.
  • You have the means to access and use a computer, which many people don’t have.
  • You have time to read, while some are too busy.
  • You can read—and illiteracy, even in the United States, is quite high.

Thankfulness involves a conscious choice about our social comparison point. We can compare upward or downward. Always comparing ourselves to folks who are more materially wealthy than we are gives us the consistent feeling of a “have-not.” However, if we compare ourselves to those who have less and take a moment to be grateful for what we’ve got, we feel wealthy and blessed.

Giving also multiplies our sense of wealth. As I mentioned in my blog Spending on Others is Buying Happiness for Yourself, giving just $5 a day can boost your mood and positively affect your outlook.

See the Big Picture

We compare upward too often when we’re always exposed to people who have more. Watching newscasts or documentaries about less fortunate individuals brings reality into focus. We get a more balanced comparison and can truly see the heart-wrenching conditions numerous people face on a constant basis.

In high school I dated a woman whose parents had spent years as missionaries in Africa. Her father, Jack, was a minister. He’d eat only a small bowl of rice for lunch on a daily basis—and nothing else. For decades this was his way of reminding himself that most of the world lives off the same amount of food or less each day. Jack turned lunch into a thankful moment as part of his routine. He didn’t want to lose touch with how blessed and fortunate he growing up in this country where we have so much.

My blog With Buying Happiness: It’s the Little Things talks about fostering a sense of gratitude and avoiding taking things for granted. Yet another way to bring thankfulness into perspective is to compare your current wealth or possessions with having nothing. Maybe you need (or want) the latest iPhone®. What about having no phone at all?

Look Beyond the Trappings
Obviously, July 4th is more than just Fireworks and Thanksgiving is more than just turkey. A grateful outlook improves our satisfaction levels with life and with our possessions.

Maybe we should all be like Jack and have something in our day prompting us to pause and remind ourselves of how fortunate we are. So take a moment. Count your blessings and realize just how wealthy you really are. Regardless of what you have, you always feel richer when you’re grateful for it!

How To Manage Your Money When Your Cash Flow Is Uneven

- (No) Budgets

We need predictability in our lives, because too many changes and surprises can be unsettling. Irregular income and out-of-the-ordinary expenses are two financial factors that can throw us off kilter—unless, that is, we learn how to manage the unpredictable rollercoaster of uneven cash flow.

Many people get steady paychecks for approximately the same amount every two weeks. On the expense side, bills are usually monthly, involving routine things like mortgages and car payments. Managing money isn’t difficult when everything occurs consistently on a monthly basis. If inflows and outflows don’t match up, things get complicated.

Assessing Inflows and Outflows

Uneven cash flow can be related to inflow, outflow or both. Many people have irregular income due to their jobs or other factors. They might be small-business owners, seasonal workers, freelancers, people who count on commissions or bonuses—or even those supplemented by Grandma’s occasional gift checks.

Expenses are different. We all have uneven outflows some time during the year, because not all bills arrive on a monthly basis for manageable amounts. For example, insurance can be paid monthly, quarterly, every six months or annually, depending on the type of insurance and carrier.

Managing Irregular Income

Often those with irregular income must pay bills today when money will come in next week. Businesses handle this using either a line of credit or a cash reserve. Individuals, however, can get into debt problems without the right strategy.

The goal is to make irregular income regular so money is available for expenses regardless of when expected inflow arrives. Like businesses, individuals can accomplish this using either credit or a paycheck account—and the latter is definitely the better option.

  • Credit: Using a credit card or line of credit and paying it off when money arrives is risky. It’s tempting to rationalize splurges by thinking you’ll pay it off later. Credit is fast and convenient, and you don’t have to keep a lot of cash in the bank, but I don’t recommend this deceptive road to debt. The consequences are much greater for you than for a business.
  • Paycheck account: Open a savings account that’s your “paycheck account” and always deposit your income there. Pay yourself a regular paycheck biweekly or every month by transferring a set amount to your checking. Savings account interest rates are low now, but you’ll eliminate any potential for incurring credit-card interest payments. This gives you an instant raise!

Start building your paycheck account when a larger inflow comes in, such as a check for completing a major project. Be disciplined about increasing that reserve over time so you can begin paying yourself regularly.

Managing Irregular Expenses

You might be doing very well using my no-budget system when suddenly a very large bill appears that your income can’t cover. The options and techniques for managing irregular expenses are similar to those for irregular income:

  • Credit: You can pay irregular expenses with credit. This is bad news for all the reasons mentioned earlier.
  • Cash reserve account: The ideal solution is opening another savings account that’s your cash reserve and making periodic small deposits toward larger expenses. Your cash reserve account helps you turn large irregular expenses into predictable monthly ones. For example, your auto insurance policy is $600 annually. You can pay $55 each month, but yearly is cheaper because it’s the equivalent of $50 per month. Therefore, you deposit $50 into your cash reserve account every month. When the $600 auto insurance bill comes, your payment is ready. You’ve skipped the $5 monthly finance charge while earning a little interest to boot.

A single savings account can serve as a cash reserve for multiple irregular expenses, including life insurance, disability insurance, estimated taxes, heating oil and so on. You can track sub-funds in your reserve account, but this is optional.
A cash reserve account is for anticipated future expenses. It’s an entirely different account than your emergency savings (911 fund), which is for unforeseen irregular expenses such as a job loss or major car repairs.

Creating Predictability

To keep inflow separate from outflow, maintain a separate paycheck account (if needed) and cash reserve account. That way you won’t be tempted to combine them and take a “bonus” when you see extra money that’s temporarily in your reserve account. Two accounts might mean a little more effort, but they’ll give you the benefit of mental accounting and keep you honest.

The pain of credit card debt is so excruciating that it makes the low interest offered on savings accounts a pleasant option. Enjoy mastering uneven cash flow with your paycheck account and a cash reserve. The sense of control is worth it!

Simple Saving Priorities: Where to Put Your Money

- (No) Budgets

After you’ve passed the piggy-bank stage, some financial difficulties are good to have. For example, it’s a happy problem to need direction as to where to put your savings. Congratulate yourself that you have an income today, you’re saving some of it and you’re reading this blog!

Some frequently asked questions at Wealth Gathering involve how to allocate savings. Which goals do you save toward first, second and so on? What types of accounts are best for
achieving your goals?

Freedom

My blog Seeking Financial Freedom, not Just Retirement covers long-term savings. Today’s blog talks about this Freedom money, which is different from Purpose money (short-term savings for enjoyment).

Today’s blog also addresses only moderate-income households. The priorities shown here apply to those with an Adjusted Gross Income (AGI) of less than $122,000 for individuals or $179,000 for married couples because these limits are the phase-outs for Roth IRA eligibility. With higher incomes, saving priorities are a bit different and will be the subject of a later blog.

Priorities: What to do and Why

Here’s the best way to prioritize your savings:

1. Prep Your 911 Fund: Calling 911 won’t help if there’s no answer, so set up an emergency fund for the unexpected. Without money in the bank, you’re one surprise away from bankruptcy, whether it’s a layoff, lost pay due to illness, car trouble or worse. Your cash cushion provides the ability to sleep at night!

To set up an emergency fund, calculate 3 to 6 months of expenses (not income). This is 3-6 times your monthly Survive spending. If you spend $5000 to Survive every month, then $15,000 to $30,000 goes in your emergency fund. If you dip below the 3-month mark, divert all savings to your 911 Fund until you reach the minimum requirement. Your 911 Fund must be totally liquid and safe, so it goes in the bank. True, interest rates are low—but if you’re calling 911, you can’t wait several days for help to arrive. Some online banks provide good returns (search www.bankrate.com).

2. Get the Match: Do this step only if your employer offers a retirement plan with a match. Often a company matches every dollar you put in a 401(k) or 403(b) plan up to a percentage
of your salary (typically 3% to 5%). Declining this option is like turning down a bonus. Your employer says, “Do you want this extra money?” You reply, “No, I’ll take less income and more taxes.”

At first, only contribute the amount required to get the full match. If no match is offered, go to the next priority.

3. Kill the Debt: Nothing destroys a sense of freedom like being shackled to a load of debt. If you’re worried about bills and chained to your job (or two) by debt payments, it’s a sure
sign that the debt owns you and you’re not free.

While debt-elimination is critical, this is not step 1 because someone who is debt-ridden and lacks a 911 Fund is one bill away from bankruptcy! Debt-elimination isn’t step 2 because matching represents additional income. Credit card interest might be 20%, but you get approximately a 125% return on matched contributions because of the match plus tax savings.

4. Get a Roth IRA: You ask, “Should I put money in a Roth or my employer’s plan?” Roth IRAs are the best deal because they grow tax-free, and after age 59 1/2 you can withdraw the money tax-free. You can also limit your fees and have more investment choices instead of being restricted to employer offerings. A Roth is the only type of tax-sheltered account where you can withdraw invested moneys (but not earned interest) penalty-free. A Roth can also be a second-layer emergency fund or savings vehicle. However, since they’re investment accounts, Roth IRAs can lose value. If you plan on withdrawing early, invest conservatively. To complete this step, invest up to the yearly limit, which is $5,000 per person and $6,000 if you’re over 50.

5. Revisit 911: Make sure there’s enough in your emergency fund. Consider building it to the 6-month mark, especially if you’re self-employed, the primary bread winner or a person with irregular income or job insecurity.

6. Take Your Pick: Way to go! If you’ve still got Freedom dollars left, you have many options:

  • Max out your employer retirement plan contribution
  • Start a college savings account for your kids
  • Enjoy some guilt-free Freedom
  • Give extra to meaningful charitable causes

Keep these steps handy. They make a good savings roadmap for practicing wealthy habits on the road of financial freedom!

A Creative Way to Save Money- On Purpose

- (No) Budgets

You’re trudging through a barren, hot desert of working, working, working and saving, saving, saving for retirement, and the goal is far away. Occasionally there’s a mirage. You hope the oasis ahead is real this time—then you realize you’ve got about 20 or 30 years to go!

My blog post Seeking Financial Freedom, Not Just Retirement talks about reframing how you think about your retirement account so it becomes your Freedom account instead. Even with this new perspective, freedom is a long way off for most people. Because the goal’s at such a distance, it’s important to have meaningful sources of short-term inspiration that don’t undermine wealthy habits. This is particularly true if you don’t like certain aspects of your job.

Save for Today

You might remember reading about Surviving and Thriving in an earlier blog. Surviving is when you spend money on the basics, while Thriving is using your money to make your life more meaningful. Thriving can pertain to the distant destination of Freedom (formerly known as retirement) or to shorter-term goals I call Purpose goals.

Purpose is about saving for something we can look forward to within the next year or less instead of the next few decades. Using the concept of simple living, we trim our spending to
make more choices in favor of what we value as opposed to spending mindlessly.

Choose Your Inspiration

Here’s an acrostic to help you make finance fun with a Purpose goal that ADDS inspiration and meaning:

Achievable: Purpose goals should be achievable within a 12-month period, not “Someday, when I retire . . .” A goal that costs more than you can save in 12 months is too big. Shoot for a small pleasure or break your goal down into smaller ones.

Desirable: You need to be inspired, so pick something you really want instead of something you should do or will buy anyway. Purpose goals should be so appealing that you’ll give up other purchases for them.

Defined: Vague goals don’t give you something concrete to shoot for. Think about a very specific goal, define it clearly, and write it down so it can inspire you.

Smart: Some purchases bring more happiness than others. Remember that simple pleasures and experiences (rather than “stuff”) are great buys for happiness.

Reach Your Goal

You can start earning your Purpose with these easy steps:

1. Write the name of your Purpose goal on a blank envelope. For extra inspiration, glue, tape or draw a picture of your goal on the front. The picture might represent your vacation destination, the iPad® you want or the out-of- town sporting event you hope to attend. The idea is to make your Purpose goal tangible.

2. The first month, put a predetermined amount in the envelope from your Survive account as soon as money is available. The amount should be a monthly total that enables you to reach your goal within your timeframe, but it shouldn’t be more “fat” than you can trim. For example, if your goal is a $1200 weekend escape with friends in 12 months, then put $100 in the envelope.

3. Seal the envelope and carry it with you. If you want to avoid carrying cash, put a picture of your goal in your wallet. You can even tape it to your credit or debit card.

4. Whenever you’re about to make a purchase of any size, ask yourself if you’d forgo the purchase to achieve your Purpose goal sooner or to be more certain of reaching it.

5. If you make it through the month without opening the envelope and dipping into Purpose money, deposit it into a savings account for your Purpose.

6. You can also sweep into your Purpose account whatever’s left at the end of the month in your Survive account.

7. The next month, restart with step 2.

This is a great money-saving technique because spending Purpose money feels like a loss. The pain of losing some Purpose money outweighs the psychological pleasure of gaining the immediate purchase at hand, so saving starts feeling like the right thing to do!

Want to learn more about setting up different Survive and Thrive accounts? Check out our Moneymentals Course!