Sometimes it’s hard to own up to reality and we’d rather just pretend things are fine. They’re not. They’re bad. Money is tight. We’re spending more than we make. Debt is climbing. Retirement contributions have come to a standstill.

You basically have two choices: 1) continue doing what you’ve been doing and get the same result (which actually is a decline, not a maintenance of the status quo) or 2) change what you’ve been doing and start seeing some improvements.

This small desire for change is a great start.

Facing reality–finally–can be a pretty rough thing. Operating the YNAB Way means you record every single purchase you make, look at how much money you have available to spend and allocate every single dollar of that available pot to a job before you spend it.

If you’re needing to face reality then YNAB will throw it right back in your face (as kindly as it knows how). When you’re recording every transaction you’ll be painfully aware of it. You’ll be forced to address it with an actual thought process (vs. a zero-thought, impulse purchase): “Was that a smart purchase?”, “Did I really need that?”, “Could I have gotten by without it?”.

These questions won’t always be asked, but when you’re attempting to climb out of a hole you’ve been digging for the past while, they’ll be asked a lot. And that’s a good thing.

YNAB also makes sure you’re facing reality by forcing you to acknowledge that you are not made of money, it does not grow on trees, and you will run out if you spend all of it. It does this with Rule Two: Give Every Dollar a Job. You have $2,000 available, you budget $2,000 into spending/saving categories and when that money’s gone, your job is done. There’s no pretending, no fudging the numbers, no hesitation. You have a finite amount of money–just like everyone else. Get used to it.

Having your head in the sand financially is a very–eh–unproductive way to go about managing your finances. It only pretends to give you reprieve from your financial stress, but we all know that deep down inside of you there is your Voice of Rationality that screams as loud as it can (muffled by the sand maybe?) for you to stop acting irrationally. You still feel the stress. You can’t ignore it. You can, for a while, convince yourself through exerted efforts and some type of (ir)rationalization that what you’re doing is fine…but that eventually just adds fuel to the fire and the point of change, the “Ahhhhhh!!!!” moment will just be more painful.

I just want to give you a small baby step toward getting your head out of the sand. Pick a spending point that you believe has room for improvement: groceries, eating out, entertainment, etc. (those are the popular leaks in most everyone’s budget) and record what you spend in one of those. Don’t go all out. Just pick one category and record what you spend. Do this for two week blocks and compare each two weeks to the last. Notice a trend?

That downward trend is you pulling your head out of the sand.

Tags: Budgeting, flamingoes, habits, head in the sand, saving money, spending

There are few people who haven’t at least heard the word annuity. But I think that there are few people who actually understand what an annuity is. I think it is important to understand what an annuity is because there is a very large effort in our country to get people to invest their money in annuities and a lot of misinformation, both for and against, such an action. From the beginning I will let you know that I believe there are annuities available that would be good for some people in certain situations – in fact that would be the best choice that they could make. However, I also believe that way too many people are sold annuities that would be much better served in other ways, as well as many annuity products that are not beneficial to anyone.

In the Beginning

To begin, the word annuity means a series of payments at set intervals for a defined amount of time. You most commonly find this term (when it comes to income) in lottery payments, pension payments and insurance products. When it comes to the insurance products the word annuity has come to mean a lot of other things in addition to the definition that I gave. However, that definition is the underlying basis of the product.

Insurance Annuities

The fact that annuities come from insurance companies is significant. When you purchase an annuity you are really purchasing insurance on your money. Just like you insure a car or a house in case of loss, you are insuring your money in case the value goes down. If it does, the insurance company makes up the difference, to one extent or another. And, just as with any other form of insurance, for that protection you are paying premiums or fees as you go along in order to get that promise of protection. The fees are taken as a percentage of the amount of money that is being protected, or the total value of the investment.

To continue the analogy, with car and home insurance there are things that you automatically protect and then other things that you can add to protect as well. Each time you increase the level of protection you also increase the fees that you pay for that protection. So, I may choose not to protect my car against theft or chipped windshields, but you may think it is worthwhile. All else being equal, you will pay more for that protection than I will.

What Kind of Protection Can I Get?

There are three basic things (with tons of variations) that annuities can protect against. I will discuss these options further in subsequent installments. For now I will give you the basics.

Income Protection
Annuities got their name from this protection feature. The idea is to protect you against a shortfall in future income. In essence, the insurance company takes your money and, in turn, promises to pay you a certain amount for a defined amount of time. That time period might be 5 years, 10 years or even a promise that they will pay that amount for as long as you live. The alternative is to have your money elsewhere and take the risk due to market fluctuations, inflation or theft (if you put the money in your mattress). Like I said before, there are a bunch of variations of this protection feature, but this is the basic idea underlying all of them.Principal Protection -

In this case the protection that you are purchasing is a promise that no matter what happens in the investment world (including where your money is invested) you will not lose money. It may not go up in value, but it won’t go down either. With this promise there are also rules that you have to abide by in order to receive the promise. Usually one of the rules is that you can’t withdraw the money for a certain amount of time. Break the rules and all bets are off.Inheritance Protection -

This type of protection is usually called a death benefit. It is very similar to the principal protection, except that there is usually no time frame and no extra rules. It is basically a promise that if you die your heirs will receive at least an amount equal to what you put in, or more if the account has a greater value. This feature is an automatic part of almost every annuity that I have seen, but there are a few exceptions.

Taxes and Penalties
One more feature of an annuity that is often touted by those who sell them is the tax benefits. The IRS gives to annuities many of the same rules as they do to IRAs or 401(k)s. You will not receive a tax deduction for investing in an annuity (unless it is also an IRA or the like). However, the money grows in the account tax deferred – meaning you won’t pay any taxes on the growth while it remains in the annuity.

Along with the tax benefit also come the consequences and possible penalties. First, when you to pull money out of an annuity you will be taxed on the growth. Second, if you remove money before the year in which you turn 59 ½ you will also have to pay an additional 10% penalty. This is the case even if you don’t use the money but only move it to a different type of investment, like a mutual fund (for non-qualified money only).

To top it off, nearly every annuity product has its own penalty schedule and rules for how and when you can take your money out. There is usually a period of years after the initial investment where you have a penalty assessed on the entire principal for taking the money out early. That number of years varies greatly, but I usually see four years at the low and I have seen as many as fifteen years at the high end. The penalties tend to range from 8 to 10% for the first year, and then slowly move down over the remaining years.

A Few More Quick Things

All of the promises and guarantees are based on the insurance company’s ability to pay. Be careful which company you are choosing. Second, should you choose to annuitize (start that guaranteed income stream) that is almost always a permanent decision. Usually there is no turning back once it starts.

In the following three parts I will discuss in more detail the annuity options that are available in the market today. Whether one or another is right for you depends completely on your personal situation and on the particular product that is being offered. I will only discuss the general details of each type of annuity.

* This article is commentary on basic principles. In no way should the things said in the article be construed or interpreted to be advice for your specific situation. Before making any financial decision you should consider all factors and consult with a professional. 

In thinking about becoming the boss of your money, the subject of charitable giving just doesn’t go away. I was reminded of an article I read in BYU’s Marriott School Magazine last year that made me look at giving in an entirely different way.

This post is the first in a series regarding charitable giving. Each of these posts will be based on the article The Privilege of Giving by Arthur C. Brooks, the Louis A. Bantle Professor of Business and Government Policy at Syracuse University’s Maxwell School of Citizenship and Public Affairs.

Myth 1: Giving Makes Us Poor

From the article:

This was the misconception that I had because I was stuck being an economist. I had a mechanistic view of life, but life is not mechanistic. Life is more perfect than that. Giving doesn’t make us poor; giving makes us richer.

How is it possible that when we give money (or time) away we become richer? We explore that in more detail in a post devoted specifically to that topic, but it may have to do with how our own psychology is changed, and also how the psychology of the recipient is changed, when we give. The return on investment of charitable donations is truly astounding.

Myth 2: People Are Naturally Selfish

The author makes the great point that when we’re truly our natural self — our happiest most “in tune” self — we’re giving and doing so generously.

…when we are really acting as if we were made in God’s image, we’re not selfish. We have evidence that this is our most natural selves because this is when our brains are in tune.

The author is writing from a Christian perspective, but the lesson remains were you to adapt it to many different religious philosophies. When you are at your best, in sync with life, you’re a generous person.

Myth 3: Giving is a Luxury

We’ll explore reasons why in later posts, but it turns out that giving is truly a necessity if you want to lead a healthier (literally), happier, more productive life. As a people we need to give! Dr. Brooks makes the obvious point that the working poor give a higher percentage of their income than any other class. They obviously don’t subscribe to the idea that giving is a luxury!

Myth 4: A Nation Cannot Afford to Give

You’ll hear at times that the government failed in this or that aspect of governing when private charities are forced to step up and fill the apparent gaps. What would the likely outcome be if the government were able to take away our “need” to give charitably?

if we crowd out charitable giving by paying for everything through the state, we’re going to pay the price. My data will tell you that we’re going to be unhappier, unhealthier, and poorer as a country unless we take responsibility.

Remember that last bit — we’ll be unhappier, unhealthier, and poorer if we don’t give. We’re going to explore those various aspects of charitable giving in more detail later, but those are at the crux of charitable giving. It seems that it truly is one of the greatest investments you can make.

Tags: byu, charitable giving, charity, marriott school

A year or two ago I received a phone call from a couple that I know, but that were not clients. The wife was on the phone and told me that they were about to sign refinance papers on their house the next day but were having reservations. They wanted to get my opinion on what they were about to do. I listened to their story and told them that they had to come right down and talk to me before they moved forward. Their foresight to call may have saved them from financial ruin.

He Wants You To Do What?
A few weeks earlier a man had come to their house. He presented to them a new way to give more security to their family, pay off their home quickly and save for their retirement. All of this would be possible without any money out of their pocket. How was this miracle possible?

He told them that all they needed to do was to refinance their home, taking out every penny of equity that they could get, using a reverse amortization loan. They would then place all of the proceeds of the loan in a Variable Universal Life Insurance policy (VUL). They were also to begin putting hundreds of dollars per month into the policy as a premium. Then, like magic, the loan on their house would grow, but at a much smaller rate than the value of their home. In the mean time, the investments in the VUL would grow at 10-12% or more per year.

After the investment had grown at a great rate for a number of years they could take it back out and pay off the balance of the loan. In fact, this was such a perfect plan that he told them they should take all of their money out of their retirement account at work (even with the penalties) and invest it in this VUL as well. And to top it all off, the VUL would provide life insurance that would pay off the loan in the event of their death. Why hadn’t someone thought of that before? (By the way, the commission that this guy would have earned on this deal would have been very nice!)

My Advice
RUN! This was a scam if I had ever seen one. Perhaps in the best possible scenario this scheme would work – I don’t know. I haven’t bothered to spend the time with the numbers. All I know is that I never plan on the best possible scenario because I have never seen it happen. To me this was a recipe for disaster. This couple was not in a position for a house payment that would go up in the future. They didn’t need the amount of insurance that he was suggesting. They certainly shouldn’t take the money out of the employer retirement plan. What would happen if it didn’t work out?

Hindsight
Looking back now I can’t believe how bad it would have been for them:

First, interest rates began to go up. They didn’t have the money to pay any more than they were on their home. They would have been in real financial trouble.

Second, they have since tried to sell their home (for other reasons) and have not been able to at all. If they had not been able to make the increasing payments they could not have gotten out of the home.

Third, the value of their home has dropped significantly. As it is they don’t have much equity left in it right now. Had they gone forward with this scam they would be seriously upside-down in their mortgage to home value.

Fourth, I don’t know the specifics of that VUL, but I doubt it has done much better than the market – likely worse because of the high internal fees of a VUL. It is very likely that the money that they had put into it would be worth quite a bit less today.

I am glad to say that they followed my advice and they are much better off for it today. They bought a very inexpensive term policy on their lives (that they could actually afford) and kept the rest the same.

Warn Your Neighbor
That was the first time that I had heard of this scam. I have run into it three other times since then, so it’s a growing trend. Now there are seminars that you can go to and learn how to make such a “wise” investment. There are even two multi-level marketing organizations that I am aware of that are touting this scheme to their customers (victims). Better yet, they have figured out how to make even more money from the whole deal. I am aware of one group that will do the refinance (and make a commission) and then do the investment (and make a commission).

Surprisingly a lot of people are falling for it. “Too good to be true” still seems to sell very well.

* This article is commentary on basic principles. In no way should the things said in the article be construed or interpreted to be advice for your specific situation. Before making any financial decision you should consider all factors and consult with a professional. 

Lately I’ve felt like our money has begun asserting itself a bit more. It’s talking back. It drags its feet. It slouches at the dinner table. It ignores me when I’m talking to it. (The purchase of our first home has everything to do with the new bad attitude).

And yes, I often think of my money as a teenager.

“We’ve Seen the Enemy. It is Us”

You need to show your money respect and recognize its inherent value. Ah, but its deserving respect goes much deeper than that. You must also recognize that money is a part of you — an extension of you — no, a reflection on you. Not completely, but also not in a small enough way that you’re allowed to ignore its behavior.

I will readily admit there are times when money truly is out of control. That just happens. It’s to be expected to a certain degree. However, there are so many things that can be done to reduce those times of bad behavior, that it does much more good to focus on the things to be done and be assertive, rather than adopting some type of “woe is me” attitude.

Establish Yourself as “The Boss” over a 72-Hour Period

I propose you do something a little radical to regain your authority. I wrote about this a while back for a non-profit organization, but only as a passing idea, part of a list — now I want to flesh it out a bit.

You will not spend a dime for 72 hours. It’s called a Money Fast.

Don’t start formulating your excuse — you don’t have one.

Plan ahead. By that I don’t mean to go on a spending binge (you all know the Monday diet drill, right? You know that “Monday [you're] going to start eating better” so Sunday you just eat whatever you can get your hands on to fill up the tank, so to speak?). However, if you’ve been waiting for the price of oil to come down and your car’s running on fumes, you should probably fill up before you start. If your refrigerator’s stock consists of half a bottle of ketchup and some old cheese, you should hit the grocery store. If one of your bills would normally be paid during those three days, pay it early. If you’re going out with friends you’re not allowed to say you’ll pay them back. Borrowing money during your fast is the same as spending your money.

I was reminded of the Money Fast after reading Trent’s post over at The Simple Dollar on 100 Things to Do During a Money Free Weekend (this is really great stuff and must’ve taken a ton of time to put together, if YNAB readers find the list helpful, digg it and say as much!).

I think the weekend is a great place to start at trying your money fast, but the real challenge lies in bucking old habits that are ingrained because of your normal weekday routines.

A Money Fast Has Nothing to Do with Saving Money

Yes, you’ll save money doing your fast, but we’re not worried about saving money here, we’re worried about regaining, or gaining for the first time, some control. We’re talking about asserting your authority as The Boss.

This has everything to do with your psychology and very little to do with anything else. I’m talking about a 3-day sprint, being totally radical, and just turning off the leaky faucet. Just Say No comes to mind. No restaurants. No movie rentals (library has them for free). No stopping and grabbing a coffee.

Your bank balance will thank you, but the psychological win dwarfs the benefits of a few dollars saved because that psychological win can stick with you — impacting hundreds (or thousands) of future purchasing decisions. The next time you’re tempted to buy that _______________? You’ll recall how you went three days without spending a dime and you certainly don’t need to spend any right now.

Take control. Reverse the bad attitude that your money’s been displaying for the past little while. Go on a money fast! Who’s with me?

Tags: Budgeting, money, personal finance, save money, spending, the simple dollar

It was Tuesday, April 15, 2008. Yes, the infamous “tax day.” It was about 11:00 a.m. as I sat outside on the deck of our office speaking with a client. She was there to sign the last tax return that I had to do for the 2008 season. The feeling of relief was very nice. However, the topic of our conversation muted my joy and saddened my spirits. This client had a story that hurt to hear.

They Had Done Everything Like They Should
Her husband had joined a Fortune 500 company right out of school. He worked very hard in their manufacturing operations until he had become a very essential part of the entire operation. He often worked 12-16 hour days. It got to the point where only he and two others had the knowledge and experience necessary to perform certain critical functions in the operation.

Then, out of the blue the company announced that they would be dissolving that area of their business. My client was not quite sure what to do. He was in his mid-forties and was not mentally prepared to start over, even though the company offered to transition him into a new role. He and his wife discussed their options and decided to take an early retirement.

You see, in addition to working very hard in his career my client had done something else right. During the twenty years that he worked for this company he also put a ton of money away into his retirement plan. Now, facing the choice of a new career or retirement, he had $1,200,000 available to help him make that decision. He had done exactly what any good advisor would have told him to do. He saved really well throughout his working life and, because of that, he had options when life changed. And so he retired.

Well . . . Almost Everything
Now, with a very large sum of money in their bank account, they knew that they needed to invest it. Along came a friend that had recently entered the financial industry. He assured them that he could invest their money in a way that they would have a very comfortable retirement. They trusted him and did exactly what he told them to.

Ten Years at a Glance
He told them that they could invest their money in a way that they could earn 12% a year and withdraw 9% to live on. That way their money would continue to grow at the rate of inflation and they would always have enough. They did the calculation and figured out that they could withdraw $108,000 per year, and so they did exactly that.

In 2002 alone their portfolio value dropped by $500,000. However, they continued to pull the same amount of money out of their investments each year. Well, with $500,000 left that meant they were pulling out 20%, then 25%, then 33%, then 50%, then . . .

In 2007 they were out of money. Now, in a panic, she scrambled to start a business and he scrambled to get trained in a new industry and find a job. They held on for dear life to their house and possessions and did everything they could to keep it all together. They were starting over from scratch!

Who’s to Blame?
Probably both are to blame – the advisor and my clients. My clients made two big mistakes. The first was putting their trust in an advisor who, at best, was doing a lousy job for them. In fact, it seems to me that once his commission was earned he wasn’t doing anything at all for them. But I only know one side of the story, so I will withhold that judgment. My clients, when deciding what to do with their entire financial future, should have at least interviewed a few financial planners and gotten second opinions about the advice that they were about to follow. It could very well have saved them from impending ruin. The second big mistake that they made was not paying attention to what was going on in their portfolio. When they saw the value dropping at a very fast rate they should have clued in much sooner and made adjustments before it was too late.

What did the advisor do wrong? First, he never should have planned for them to be able to take out 9% and have their money last – especially with a 40-50 year time horizon for their retirement. There are multiple studies that show that planning to take out more than 5% is a dangerous prospect. Once you cross the 5% line your likelihood of running out af money increases substantially.

Second, in order to try to achieve a 12% return, he had to invest their money way too aggressively for someone in retirement. When invested aggressively there is too great a chance for a substantial downturn and loss of money, which can devastate the portfolio and which, in fact, is what happened.

Last, he should have been monitoring their situation. To have lost half of the value of their portfolio and then to not advise them to take out less money is like seeing someone hanging off a cliff, clinging to a rope, and then cutting the rope. There is no way that the money could last or recover if they continued to pull it out at that rate. He should have been meeting with them at least annually, monitoring the situation and advising them to reduce the amount they pull out if they want it to last.

Significant, Lasting Effects
A good advisor could have kept this from happening, at least if his advice had been followed. Yes, there could have still been ups and downs in the value of their investments, but they would never have run out of money so fast had they received sound advice in the beginning and continued to receive it on a regular basis. I hurt for them, and after talking with them I am certain that they will not make the same mistake again.

* This article is commentary on basic principles. In no way should the things said in the article be construed or interpreted to be advice for your specific situation. Before making any financial decision you should consider all factors and consult with a professional. 

Tags: certified financial planner, cfp, financial advice, financial advisor, financial planning

I don’t have an answer for the wife of a husband that won’t listen to your worries when it comes to paying the bills, buying the necessities, etc. It boggles my mind that people can be married and live together but still be living (or at least attempting to live) completely separate financial lives. I’m not talking about how you actually manage the day-to-day funds — which accounts you use, who pays bills out of what, etc. — I’m talking about mentally leading separate financial lives. How is that possible while still being productive?

I don’t understand why money is such a touchy subject for a couple. Why do you take offense when your spouse asks about XYZ expense? Why do you assume you’re being attacked? Is it because you feel guilty? Is it because you immediately mentally turn the question around and start holding your spouse up to the same scrutiny, spouting off that they spend on XYZx2?

What do you hear when your spouse tells you “money is tight.” Do you hear blame or shared concern?

What do you hear when your spouse mentions that “this could be a bad month.” Do you hear an accusation that you aren’t earning enough or a message from a trusted friend to ‘hang in there’?

Why do you attempt to exercise control over your spouse through your finances? Do you not trust them? Why?

Why do you hide spending from your spouse? Is it because they’re so controlling? Why?

Why do you make your spouse do all of the financial paperwork? Why do you stick your head in the sand when there’s a financial crisis? Why do you have such a hard time facing the reality that your spouse has been trying to tell you about for the past six months?

Why can’t you talk about money openly with your spouse? How is it that you can talk about your childhood, raising kids, religion, fears, sex, aspirations… but can’t manage to throw together one productive conversation about money without taking offense, or going on the offensive?

Why is money the number one cause of divorce? Why do we tie everything else in life back to money? What makes money such an emotionally-charged topic? Do you feel that money is a reflection on you?

Why?

Talk.

About.

Money.

Openly.

Take off the gloves, step out of the ring, (remove the mouthguard), towel off, and talk. Better yet, simply ask very open-ended questions and listen. Don’t respond to answers, just listen. Don’t begin formulating your next question, just listen to the answer being given. Don’t think of the past wrongdoings (yours or theirs), just listen. Understand what it is that your spouse is telling you. If they aren’t talking a lot, listen to that. And listen hard because it’s a lot tougher to listen to someone that doesn’t (want to) say much.

Confess.

Confess that you take offense too quickly because you’re insecure about money (but don’t, for the life of you, know why!). Confess that you offend too quickly. Confess that you question your spouse’s spending too harshly. Confess that, in your feeling frustrated about money, you’ve carelessly shifted the blame completely to your spouse.

Apologize.

Apologize for not doing more to help with the financial stuff. Apologize for not wanting to talk earlier. Apologize for being a jerk about spending money (apologize for being a hypocrite about spending money). Apologize for always blaming and never taking some of the blame for yourself.

I am not a marriage counselor. Trained as an accountant, I learned to read financial statements, not women (oh that there were a major for that). I do not understand all of the intricacies that make up a relationship as complex as the one you’re currently in.

I do understand budgeting. I have a handle on it. I’ve seen what it can do for marriages. No, I can’t tell you what behavior you’re exhibiting when you do A and your spouse does B and together you get C… but I can tell you what behavior will put your finances back on track.

Sit down every month and give every dollar a job together.

Maybe one person does most of the actual day-to-day entry of expenses, that’s fine. We’re starting small here. But make sure that both of you sit down every month and give every dollar a job. Face reality together.

Your communication will improve. Your guilt will go away. Your finances will recover. Your anger will subside. Soon your goals will begin to be realized.

You’ll be dealing with the same bills, the same income, the same crises…but you’ll be dealing with them together. And there is the secret!

Tags: Budgeting, communication, counseling, divorce, marriage, money, personal finance

There is a bit of “conventional” wisdom out there that I just don’t understand. I take that back. I understand it. I just don’t understand how seemingly intelligent people subscribe to it. It is even touted by CPAs and Financial Advisors as great advice. The idea is that it is good to get or keep a mortgage because it is a tax write-off.

I have lost track of the number of people that have told me that the reason they are not paying off their mortgage is because it is a tax deduction. Another comment closely related to that on is when people buy things for their business that they don’t really need because it is a tax write-off. It has to just be an excuse to spend the money, or a convenient justification in their minds, because it just doesn’t make sense to me.

So Let Me Get This Straight
Here is an example. A client came to me a little while back and he said that he planned to take out a much larger mortgage on his house. When I inquired why he explained to me that his CPA had told him that he needed more deductions to get his tax bill lower. The CPA suggested taking out a much larger loan on his home and showed him how much he would save on his taxes.

“So,” I said, “you are going to pay $10,000 more per year in interest to the bank so that you can pay $3,000 less to the government in taxes? You must really, really hate paying money to the government!” Why on earth would someone put themselves $7,000 more in the hole to avoid taxes? It seems like they are taxing themselves more in the process.

I’m All for Paying Fewer Taxes
Don’t get me wrong. I have no desire to pay more taxes. I try to find every honest way to save my clients tax dollars and help them keep what they earn. But I wouldn’t suggest that they spend more than the tax savings in order to get those savings.

Now, if you have to have a mortgage, then by all means you should take the tax deduction for it. But please don’t get a bigger mortgage so that you get a bigger deduction. And don’t take out a home equity line of credit to pay for your vacation so that you get a deduction for the interest you pay on the cost of that vacation. No matter how big the deduction, you are still paying more for the vacation! You only get a percentage of the interest, not a dollar for dollar reduction of the price you paid.

One More Example
There is a guy I know that owns his own little business. Almost every time I talk to him he tells me about the new tools or equipment that he just bought. Then he smiles and says, “Hey, it’s a tax deduction.” Maybe he is just taunting me. But it is not like the fact that the tool is a tax deduction makes that tool free. Especially if he is not making a lot of profit on this business, which in turn means that his tax bracket is not very high. So, maybe he saved 20% on the tool when you take into account the write-off. He still spent the other 80% on a tool that he didn’t really need. It is the same logic that leads people to by things that are “on sale” that they never would have bought otherwise. I don’t care how much you saved – if you wouldn’t have bought it otherwise you just wasted your money.

* This article is commentary on basic principles. In no way should the things said in the article be construed or interpreted to be advice for your specific situation. Before making any financial decision you should consider all factors and consult with a professional. 

Tags: cpa, home mortgage deduction, tax deductions, Taxes

Just sending a quick link over to the carnival at MightyBargainHunter. He did a great job hosting and there are a bunch of great articles. A few of my favorites:

• Living Almost Large uses the word “buffer”, so I’m biased from the get-go. The question is how big of a financial buffer do you need?
• And MoneyNing emphasizes keeping things simple. Amen to that!

Tags: carnival, moneyning, personal finance

Habit: Spend five to ten minutes every night brainstorming ideas, creating a To Do list, and prioritizing the list.

That was my desired habit. Yours may be completely different. I would, of course, like to see one of your habits be the regular recording of your expenses, and a monthly budget meeting.

21, 30, 45 days? Nah. I managed to nail this habit down in one evening with six steps.

1. Routine Mapping - Visually Reminding

My first step was to visualize my daily routine. You’ll find that you do have a routine, even if you don’t think you’re a routine person. I visualized where I showered, dressed, ate, drove, worked, etc. I then strategically placed written reminders in those areas: “To Do!”

This isn’t a new strategy, though I did perhaps take it to the extreme when I spray-painted “To Do” on the overpass I drive under every day (I’m kidding — but couldn’t I hang a sign there or something? All of my fellow commuters are well aware of the fact that Jane loves Steve. It’s working.).

No, the extreme part of the strategy is hitting your routine in multiple places. Several months ago I made a sign that I hung on the wall directly above my main computer monitor: “Are you adding value right now?” This was supposed to remind me to stay on task and do things of value. I never see the sign anymore. It’s there, but I don’t see it. I need to either 1) move it, or 2) change the color of paper. Putting a sign on your bathroom mirror is fine, but also stick one on the fridge, on your car’s sun visor, on the inside of your office door at work, on the back of your office chair, right behind your toothbrush, in a sleeve protector in your shower, and under your pillow.

2. Make it Public

I’m doing this right now. I’m letting everyone reading this know that I now have the habit of planning my daily tasks. I feel accountable. This really does work. Why do we see so many blogs appearing for getting out of debt, losing weight, and improving oneself? The blog authors are making themselves accountable to their readership — and it works.

You may not have a blog, but you have other methods for getting the word out. Call some friends, send out an email. Make it known! The pressure will be healthy for you.

3. Schedule It

You probably have some type of appointment book. Write an appointment in there to ___________ [desired habit here]. I wrote mine on the next 30 days at the end of every day. I have a standing appointment with myself and I intend to keep it.

4. Use Other Reminders

Grab your Outlook software and build in reminders as frequently as necessary. Better yet, use Jott to send you reminders on your cellphone (you likely always have your phone nearby, where you may not be sitting at your computer all day).

(Jott can be used to help you organize “random” ideas you have throughout the day. You just call and tell it you’re jotting to yourself, then start speaking. It will transcribe the message and email you.)

You could conceivably have Jott text you every evening at 9:30 PM:

Dude, you need to do thirty pushups before going to bed.

Voilá. Your pectorals are more defined.

However, more effective would be to market the new habit to yourself a little more effectively. Just talk about benefits:

Dude, with rock-hard pectorals, you’ll have the confidence needed to (finally) talk to ________.

5. Remember, This is Just the Temporary You. The Old You Will be Back Shortly.

I spent some time honestly telling myself that this is just an experiment: Jesse, this whole task organization thing is just a test. If it doesn’t fit the real you, well, then you can just stop after August 10th. Don’t worry. You only have to keep doing this if you really like it.

6. Don’t Strive for Perfection. Strive for Consistency.

In writing down exactly what your desired habit is going to be (both in your visual reminders, other reminders, appointment book, public email, blog, and perhaps in your journal), be sure to outline the parameters for success. Make them doable. This sixth step was key in my cementing my new habit into place.

When first beginning a budget, people are gung-ho about the whole deal. They want to set their spending limits and watch as everything goes just perfectly and they stay under budget in every category (we’re yet to experience that, going on 5+ years of using YNAB). You’re in for some big disappointment if you set your parameters for success too high.

Notice, I carved out five to ten minutes each day. I didn’t shoot for 30 minutes of meditation/visualization. I need something doable, and five or ten minutes each day is doable.

Do less.

My friend Ramit from IWillTeachYouToBeRich said it best,

“Do you know people who get so into their idea du jour that they go completely overboard and burn out? For me, I would rather do less, but make it sustainable.”

If you’re just starting out on your budgeting, pick a single budget category and try and stay under. Don’t worry about any of the others. Just focus on one that you’d like to beat. Prove to yourself that you can do that consistently over a month or two and then pick another one or two categories and focus.

A New Habit is Formed

I’m on day one of my new habit. It’s going great. You may say that they say it takes (21, 45, 30) days to form a new habit–that a habit can’t be formed in one evening–but I’m confident you’re wrong! These six steps make it a given.

Oh, I suppose Step 2a is to be so publicly brazen about your new habit that it really is a given.

Tags: behavior change, Budgeting, habits, jott, success