Finding the money to make planned spending a part of your money management isn’t as hard as most people think. It’s a matter of looking at where your money is going now and deciding whether that’s still working for you. If not, you can change what you’re doing.
Most people spend more on their insurance than they should. Insurance is yucky, after all, and having put it in place it’s easier to just keep paying whatever you agreed to and not think about it too much. Want to save some money? Most insurers offer a multi-vehicle discount, which can add up to 10% off both cars. Switch your home policy to the same insurer and save another 5%. Ask about age, low mileage, anti-theft, occupational and auto club discounts, all of which could save you money. And raise your deductibles to $1,000. Potential overall savings? About 35%, which could translate into $1,260 a year.
Are you still paying your mortgage monthly? Really? Where have you been? Everyone knows that by simply switching to an accelerated weekly payment you can save buckets of money. On a $300,000 mortgage at 8% amortized over 25 years, your savings would be more than $90,000 over the life of the mortgage. Wow! So easy.
How many hours a day do you spend watching TV? The average is about four hours, but most active people with busy lives get to the tube less frequently. If you’re not a couch potato, then the $100 a month you’re spending on the Ultimate Cable Package is a waste. Never mind having the whole world at your clicker-tips. Buy only what you watch. Spend half as much and you’ll have another $600 in savings.
Carrying a balance on your credit cards? About half of us do. And, sadly, many of us are unconscious enough not to know what it’s costing us. Time to get those statements out to see what we’re paying. More than 9.9%? With your terrific credit history, you should be getting a better deal. Throw your weight around to have your interest rate lowered. Failing that, get a cheaper card and transfer your balance. A $5,000 balance at 18.9% costs $945 a year in interest. Get the rate down to 9.9% and cut costs by almost half. Better yet, get a teaser rate of 2.5% and save $820 a year. That’s got to be worth a call.
When was the last time you looked at your cell phone plan to see whether it’s still working for you? If you’re on the road and don’t have the right long-distance package, those long-distance charges can add up fast. Ditto if you go over your limit on minutes. With the cell phone industry in upheaval, and everyone fighting for their piece of the pie, you can negotiate hard to get lots of costs—texting, voicemail, caller ID—waived completely. Do the kids have phones too? Save $16 a phone on four phones and you just stuck $768 back in your pocket.
I could go on and on and on about all the ways to save. But you know what, that’s your job. If you want to find the money to achieve a goal, go back over your budget and cut back. Be creative. Think outside the box. Do some research online for ideas to get you started. All you have to do is Google “ways to save money” and you’ll be buried in ideas. Read through them and see which ones will work for you.
Pick one category of your budget and do some research on how you could save money. When you come up with the amount you think you can save, plug the amount you would save monthly into an online savings calculator and figure out how much you would save in 5 years, 10 years, 25 years by changing just one thing. If that’s not motivation enough to swap a bad habit for a good one, then maybe it’s simply that you’re not yet ready to change.
Strategy 8: Beware the False Bargain
Who doesn’t love a good sale? But when bargain hunting, coupon clipping, or mastering the deal becomes the objective, you and your budget are likely headed for big trouble. I can’t tell you the number of people who have said, “But it was such a deal!” Really? A deal? Hmm.
If you’re spending money you don’t have—if you’re putting it on credit and paying interest on it—it’s not a deal. If you’re buying something you don’t need, it’s not a deal. If it takes you three weeks, three months, or until the end of time to put what you bought to use, it’s not a deal.
A deal is buying the snowsuit your child is going to wear next winter on sale this winter at 70% off. A deal is picking up a new book you’re dying to read for half-price. A deal is getting something you really need or want at a significant savings and being able to pay for it in cash.
There are some places that are known for having “deals,” and people take the value they’re getting for granted without actually checking the prices. Dumb! And there are people who will go to extremes to get a deal, lining up for hours to browse—and ultimately buy—in stores where they wouldn’t normally shop. What’s up with that?
In a culture that worships shopping, it’s only natural that the “bargain” be the Holy Grail. But if you find yourself being suckered into buying stuff just because “it’s a great deal,” you’re definitely not as smart as you think you are. If you’ve saved so much money with all your bargain shopping, show it to me.
If you can’t show it to me sitting in your retirement plan, in an educational savings plan for your kids, or in your emergency fund, you’re deluding yourself. You need to find something constructive to do with your time. Bargain hunting isn’t doing it for you.
GAIL’S TIPS
People who can’t pass up a good sale even if it’s on something they don’t want, need, or even particularly like aren’t smart bargain buyers, they’re compulsive shoppers. Scoring deals helps them to ease their insecurities and feel more competent and in control. And they rationalize their purchases as something good they are doing for themselves or their families.
Do you know that people actually get a buzz from bargain shopping? Are you a bargain junkie? Do you
• hit sales and clearance racks when you’re feeling sad or mad?
• spend more than you can afford?
• see sales as opportunities you just can’t pass up?
• feel guilty about your shopping?
• walk out of stores with things you hadn’t expected to buy?
• hide your purchases?
• routinely forget what you bought and find things in your closets with the tags still on?
Write the five questions below on an index card and stick it in your wallet so that the next time you find yourself sidling up to the cash register with a bargain in hand, you can ask yourself the following:
• Do I need it?
• Where will the money come from to pay for it?
• What will I do with it?
• What would happen if I waited?
• What else am I willing to give up so I can take this home?
Strategy 9: Don’t Make Shopping Emotional
I grew up listening to adages like “Money doesn’t make you happy.” When I was married to my first husband and trying to figure out where I was going to get the money to go to work the following week, I figured all that stuff I heard was a load of B.S. Over time, I’ve worked hard, traded in husbands, and discovered that money—more and more money—doesn’t make you happier. Yes, too little money can make you miserable, but once you have enough to meet your needs, more money doesn’t increase your sense of well being.
So let’s turn the equation around for a minute. If we’re willing to accept that money doesn’t make you happy, is it possible that sadness makes you spend more?
One study found that when people are sad, they spend more money—way more money. The researchers concluded that when people are sad, this sadness could trigger extravagant tendencies. Nicknamed the “misery is not miserly” phenomenon, it’s clear that having access to credit when you’re bummed out can end up costing you big-time.
Maybe the most disturbing part of the study was the fact that the sad people—who were made sad by watching a sad movie—spent more than four times what the not-sad people spent and had not a clue that it was their sadness that prompted them to splurge. They were completely unaware of how their own emotions were feeding into their consumerism. We’re bummed out and dumb about it, so we go Cheer Me Up Shopping.
So what’s a b
ody to do? It would seem that if you’re feeling sad you should stay out of the stores, leave your credit cards in your freezer, and carry the minimum amount of cash. Or you could do something nice for someone else, and that’ll make you feel better and won’t cost a cent. Offer to cook a meal for a harried neighbour. Water someone’s garden. Put a dollar in someone’s meter. Little things that take your focus off you and your misery and move your focus outward will help you overcome the desire to go Cheer Me Up Shopping.
An investment in getting happy might just pay dividends on the financial front. Happiness isn’t always about getting what we want. It’s about wanting what we have. So instead of making lists of all the things we want or wish we had—even silent lists in our heads—today make a list of all the things you have that you want. This would be your inventory of how full and rich your life is. Then you can focus on what you have instead of what’s missing. Then the next time you see a tear-jerker movie, break up with a friend, bang up the car, yell at your kids, fail to get the promotion—whatever it is that’s triggering your sadness—you can look at the blessings in your life and say, “Thank you.”
What are you going to do the next time you feel sad and are battling the urge to splurge? Make a plan now since one won’t come easily once you’re in the dumper. And if you don’t have a plan, you’re only going to be sadder when the credit card bill arrives!
Strategy 10: Avoid Buyer’s Remorse
Have you ever bought something you just couldn’t live without and afterwards found yourself scratching your head and wondering what the hell you were thinking? Then you’ve experienced something called Buyer’s Remorse.
The fallout of shopping with the Impulse Gremlin on your back, Buyer’s Remorse makes you feel really crappy. You feel guilty about the money you’ve spent. You wonder whether you got a good deal. You question whether you bought the right product.
Whether you leave the restaurant wishing you’d ordered the fish instead of the steak, or cringe because you ended up spending 40% more than you’d planned on the new surround-sound system, Buyer’s Remorse turns shopping into an excruciatingly painful experience. And Buyer’s Remorse is far more widespread than most people think, mostly because we tend to suffer silently. Do you know that some researchers estimate that most people end up regretting up to 80% of their discretionary spending within a year of having spent the money? Wow! That’s a lot of “I wish I could take it back,” isn’t it?
Buyer’s Remorse often climbs on our backs when we find out we’ve paid too much for something, so making sure we know how much the item we’re buying is really worth can go a long way to removing the remorse. So can putting a little time between seeing the item you want to buy and actually slapping down your money. Getting a second opinion often helps too. Take your sister, your best friend, your mom or dad with you, and ask whether they think it’s worth the price. And if there’s financing involved, figure out what the item will end up costing once you’ve paid the financing charges. If you don’t do this step, you’re deluding yourself and you deserve to feel like a dope.
The best way to avoid Buyer’s Remorse is to ask yourself, “What else could I do with the money I’m spending on this item?” Are you working toward a goal that would be served well by applying this money? Is there another priority that should take precedence? Figure out (or refocus on) what’s really important to you, and then put your money where it will do you the most good.
JUSTIFICATION VERSUS RATIONALIZATION
I was yakking with a TV news chick one day when she confessed that she and her husband sometimes go out for dinner and spend a lot of money. She said they could justify it because they eat at home most of the time. I said, “The only thing you have to worry about is your use of the word justify.”
If you’re spending money on dinner out because you have the money and you want to eat dinner out, why do you have to justify it? You don’t. Justification only comes into the equation when you’re trying to convince yourself or someone else that what you’re doing is okay. If you want to be honest about your shopping—instead of playing mind games—lose the justification and move to rationalization.
Here’s how rationalization works:
You see a new set of dishes and you really, really like them. You decide you want to buy them. You ask yourself two questions:
1. Do I have the money to pay for these right now?
2. Do I have another purpose for that money?
If you have the money to pay for the dishes, and you have no other purpose for the money—a bill that’s coming due, a savings goal, a debt that must be repaid, or an upcoming expense—and you want to buy the dishes, buy the dishes. If you have to justify buying the dishes by saying something like, “I never buy myself nice things” or “I work hard” or “I haven’t spent a penny in the last two weeks,” then you’re listening to the Gremlin and you should think twice about spending the money.
If new furniture, a family vacation, or a spectacular wedding is so important to you, why haven’t you saved the money to pay for it? I have no problem with how people spend their money, as long as it’s their money they are spending and not credit. You want to blow $50,000 on a wedding? Then have $50,000 in the bank. It’s that simple. But to go into debt for a wedding is just about the stupidest thing I can think of.
If you really want to buy something, and you don’t have a system for keeping your mental accounting honest, you will create the ambiguity you need so you can justify spending the money. But whatever justification you come up with for spending money you haven’t yet earned (shopping on credit) or spending money that should really be going somewhere else (to savings, debt repayment, or on an upcoming bill), you’re just fooling yourself. If you’re ripping off tags, hiding stuff in the back of cupboards, lying about what you spent, or creating excuses for your shopping, you’re playing games, and you’re going to lose.
If you have a well-thought-out plan for buying something you need or want—if you’ve put it on your shopping list, planned your spending, and accumulated the money—you can go shopping and enjoy the pleasure of the acquisition. You can revel in the drugs your brain releases when you bag your treasure. And you can enjoy shopping without worry of going home with Buyer’s Remorse because you are in control.
PART FOUR
PREPARE FOR THE FUTURE
8
SAVE FOR THE LONG-TERM
Once upon a time, when we made $10, we saved $1. Some people saved $2. Some saved 50$¢. But people knew that if they wanted to feel safe they had to have some money put aside just in case. Back in the mid-1970s, Canadians saved 10% or more of their income. By the 1980s, the Canadian savings rate had jumped to about 18%, which is why Canadians got the reputation of being “savers” and so much better than our American cousins when it came to money. How the mighty have fallen: by the end of the 1990s, Canadians’ savings had dived into negative territory.
One reason we stopped saving is that we was fooled. Because of record growth in both the stock and real estate markets, we let ourselves be convinced that we were rich. Another reason we stopped saving was that with ample credit available, we saw no need to save. We believed that the money would always flow smoothly from pocket to pocket, and there was plenty to go around. If you needed money and couldn’t get your hands on cold hard cash, you could always use credit.
Each of us holds in our hands the power to make the life we want. Each of us can create for ourselves a life that is full, inspired, happy, peaceful, creative, loving, exciting, grand. To do so means setting aside a little of what we have now for when we don’t have so much. Yes, it means “saving.”
SO YOU WANT TO RETIRE? SOMEDAY? MAYBE?
We’re full of trepidation about retirement. Some of us just ignore it because we’re sure we’re never going to be able to stop working. Some of us stick our heads in the sand because we’re afraid to look at the possible outcomes. Even those of us who are socking away money every year often find ourselves confused ab
out where we should be putting our money. There are so many conflicting messages that many of us feel paralyzed. Taking no action seems so much easier than trying to figure out the answers to the big questions.
Ya know what? It isn’t that big a deal. Yes, you have to think. And yes, you have to do some math—oh gawd, not more math!—but figuring out how much you’ll need is actually pretty simple. It’s a matter of answering the four key retirement questions:
How old are you and how much time do you have before you retire?
How much will you need and what sources of income do you have?
How much return will you earn on your investments?
How serious are you about saving?
How Much Time Do You Have?
The earlier you retire, the more you’ll need to get you through retirement. According to the Stats Man, our average life expectancy continues to go up and the gap between men and women is closing. If you’re planning to retire at 60 and stay put until you’re 82, you’ll need enough money to get you through 22 years of not working. The longer you put off your retirement, the more you can accumulate before you trade in your workboots and the less time that money has to last.
If you plan to work part-time during retirement, you’ll be able to supplement your pension with money you earn. This is a growing trend as we recognize that work ain’t all that bad after all.
Debt-Free Forever Page 13