Posted: April 5th, 2012 | Author: Joe | Filed under: Lifestyle | Tags: Frugal Lifestyle, Insurance, Investing, Saving Money, spending, Tips | 5 Comments »
A recent stay at a “Boutique Country Hotel” got me thinking about the meaning of minimalism vs. simplicity and how they relate to personal finance.
It all began with our hotel room. It was a renovated riverside hotel from the 1800′s, with a curious mix of old and modern. The floor boards were the wide, plank floor boards common in 19th century construction, while the bathroom featured a state of the art Jacuzzi.
This is what our shower looked like, only ours had no shower head.
The decor was sparse, yet modern too. There was a flat panel television and one piece of post-modern art on the wall that consisted of one-quarter of an old tire, a piece of chicken wire mesh, and various other castaway everyday items all fused together in a loosely triangular shape and painted black.
But what really made an impression was the shower.
It was a standing rectangle large enough for a single person and was comprised of an Italian marble wall on two sides, and glass on the remaining two sides. It was, quite simply, a beautiful shower and elegant in its minimalism. Until I tried to use it, that is.
Once I stepped inside I realized just how minimal the design truly was. There was no shelf for holding soap or shampoo, and the faucet control only turned one way, from lukewarm to hot. There was also no showerhead. The water simply fell from a perforated plate in the ceiling. I had no place to stand out of the way of the water to lather with soap or shampoo.
It was at this point that I thought, minimalism is one thing, but what good is it if it’s not useful too?
This is when I realized I really favor simplicity over minimalism. Our modern lives have become so clutter and full or noise and distraction that there truly is a psychological benefit from simplify our lives. There’s also a financial benefit too.
Here are a few financial benefits to simplifying your life.
- One retirement account means less fees and less time spent managing various options. It also means that all your available funds are better focused, which magnifies the effect of compounding interest and dividends.
- Fewer retirement funds in a single retirement account means even less time managing the account, less fees and more focused returned.
- Fewer savings and checking accounts means less overhead and time in managing them and keeping track of your money. It also means your money is more focused and earning even more compound interest.
- Rolling all your insurance needs into one provider makes tracking your policies easier, and usually gives you a multi-policy discount on the premiums.
Are you sensing a theme here?
Generally speaking, simplifying your life makes you more efficient and frees up more time to do what you love.
Many people seem to be focusing on minimizing their lifestyle, standard of living, etc.. but that may be missing the point. I think it’s far better to streamline and simplify your life – make it easier to do the things you really want – than it is to simply downgrade your life.
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Posted: January 10th, 2011 | Author: Joe | Filed under: Debt | Tags: Debt, frug, Frugal Lifestyle, lifestyle creep | 4 Comments »
I just re-read Ayn Rand’s The Fountainhead for the first time since I’ve been blogging about debt, and it struck as strangely relevant. For those who haven’t read The Fountainhead, it’s a book about the individual and what it means to be true to one’s self. One of the criticisms I often hear of the book is that the characters are flat and lifeless. I don’t think that’s necessarily true, but it’s certainly not a character driven story and I think that’s what throws some people.
At it’s heart, it’s a book about the individual vs. the herd. It’s a character study in how certain people are taken by the flow of popular sentiment while others seem able to resist the groupthink and remain true to themselves. In the book, Rand presents various characters that serve to bring into focus various characteristics that she sees as being emblematic of the people who remain individuals and those who lose themselves to the collective.
She does this loosely by breaking the characters up into two groups:
- The “Second-Handers.”
- The Creators.
The second-handers.
A second-hander is someone who seeks themselves in others. They have no sense of identity without other people. Everyone knows a second-hander. In fact, most of us are at some point in our lives second-handers. The second-hander is overly concerned with how
other people perceive them.
In terms of personal finance, the second-hander is always striving to Keep up with the Jonses and generally end up with little more than being deep in debt and living paycheck to paycheck. Many times, it’s debt for something they didn’t truly want or need and regret buying. It may be little things like the latest gadget – iPod, iPad, etc… – a fancy car, or even too much house.
In the world of finance, this situation is often called
“lifestyle creep.”Creators.
In Rand’s view, most people end up living much of their lives as second-handers, but a few break out of the cycle and realize their full potential. These are the creators. The creator is motivated by his own desires and what moves him, not others. Think of that hackneyed phrase: Do what you love and you’ll never work a day in your life. The creator is driven by his own passion. He follows his bliss without regard for how he may be perceived by others.
Sometimes this leads to truly great thinkers and individuals – Picasso, Einstein, Frank Lloyd Wright, Beethoven and many more. Other times it may simply lead to being thought of a strange and ostracized from the crowd, but creators don’t care. They’re happy because they are doing what they love because they love it. Period.
Don’t be a second-hander.
Not everyone is a transformative genius at heart, but that’s ok. The point is to be yourself, or as Shakespeare said, “to thine own self be true.”
One of the best ways to prevent becoming a second-hander, or cure yourself if you find yourself in this trap, is to simplify. Simplify your lifestyle, and you’ll find a freedom you never knew existed.
Scale back your life.
- When you feel the urge to buy something, wait at least 48 hours. If it’s truly a need, it will still be a need after 48 hours. Chances are that if it’s not necessary, you’ll find the desire greatly diminished after a couple of days.
- Simplify your bills – eliminate the non-essentials, and consolidate what’s left.
Got Debt?
- Consider consolidating your debt to a lower rate. You’ll save on interest, and having fewer payments to focus on will reduce your stress, and allow you to really concentrate on paying it down.
- Take a part time job to get extra income to put toward paying off your debt.
- Cut your expenses, cancel the cable do whatever it takes to free up extra cash and spend less.
Learn and practice “the virtue of selfishness.”
- Seek to make yourself happy, and not to make others admire you.
- Take care of yourself financially first, then help others. Many parents fail this, over-extend themselves and wind up going down financially with the kids. Remember, junior can take out a loan for college, but you can’t get a loan to fund your retirement.
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Posted: May 12th, 2010 | Author: Joe | Filed under: Saving, spending, Tips | Tags: Frugal Lifestyle, Inflation, psychology, Saving, Saving Money, spending, Tips | 3 Comments »
I love to save money, but sometimes saving money can actually cost you money. Here are 3 ways you may end up losing more than you save.
Inflation.
People often sacrifice for what they perceive as safety – especially in uncertain times. The news seems awash in stories of people so terrified by the stock market crash and recession that they pulled their entire retirement savings out of their investment portfolios and kept it in cash. I even know people who cashed out their 401k and kept the cash in a safe – in their home – under the illusion of safety.
The fact is, your mattress is a bad place to stash your savings. Period.
Many brick-and-mortar banks already pay criminally low interest in the best of times, but your mattress pays zero. It may only be 2 or 3%, but it adds up over time. Even so, it’s not enough to outpace inflation over your working life.
Consider this…
If you put your savings in the bank and earn an average of 2% interest over ten years, but inflation runs 4%, you’ve actually lost 2% of your money per year.
Here’s an historical example: if you had $1,000 in a bank with no interest in 1975 it would have the same buying power in 2007 as $247.05. Ouch!
Online, high yield, savings accounts and CDs are the best place to store emergency savings, but they’re financial suicide for retirement savings – because they just can’t keep up with inflation.
The only way to beat inflation over a working lifetime is to invest in a mix of stocks and bonds, probably mutual funds if you’re one who panics easily. Just don’t confuse that with your emergency savings, and you’ll be fine.
Psychological repression.
The reason most people fail at budgeting as well as saving is that they over compensate. I’m ignoring the lazy people who never try in the first place, because they never got far enough along to fail. I’m talking about people who try to squeeze every last penny of savings from their paycheck only to finally crack under the pressure of living like a pauper and splurge on something so pricey that they lose any ground they made during their penny pinching.
Repressed spending builds pressure like a kink in a house, and when that pressure is finally released it can lead to overindulgence and spendthrift ways.
I think the frugal lifestyle is worth living, but there has to be a balance. Reward yourself a little at a time when you achieve a new success. Set milestones for yourself and when you reach them, treat yourself to a small something. Letting go of some of that repressed spending in a controlled manner will prevent the Vesuvius like explosion that can lead to ruin.
Once again; spending, saving and budgeting is a lot like dieting. You want to indulge a little every once in a while, and avoid the binge-and-purge approach.
Missing moments of life.
This is perhaps the worst way in which saving money can cost you because what you lose may be lost for ever.
I bet if you stop and think about it for a minute, you can come up with a person who sacrifices personal time or family time in the pursuit of money or the perfect career. It’s easy to get caught up in saving for that rainy day, only to never enjoy the sunny days along the way.
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Posted: May 4th, 2010 | Author: Joe | Filed under: Debt, Tips | Tags: Debt, Frugal Lifestyle, lifestyle creep, Saving, spending, Tips | 4 Comments »
If you're not careful, lifestyle creep can sneak up on you and ruin your financial house before you realize what's happened.
One of the most common and insidious causes for debt is what’s commonly called “lifestyle creep”. Lifestyle creep occurs when your spending rises to match or exceed your income. I personally think this happens to everyone at some point in their life. It’s human nature. There’s a certain psychological euphoria that comes from making money, and when we make more of it we tend to celebrate more than we should.
I myself became a victim of lifestyle creep. Whenever I received a raise at work, I’d spend it. I didn’t even spend it on anything lavish. I bought way too much car when I landed my first job, so a lot of my future income after that was spent on paying off that car. Other than that I just spent a little here, and a little there. I ate and drank my fair share of it, and went out to the movies a lot. I spent a small fortune over the years on computer games and the fastest computers to run them. I bought books new and never even read them! (I thought libraries are for old people and college students). Stupid stuff, really.
Lifestyle creep is a drain on the young, but it can be devastating to the old. Lifestyle creep robbed me of my future income because I not only bought more car than I should have, but I probably spent $5 for every one I earned in a raise through the use of credit. See, earning a raise made me feel like I was always going to have more money tomorrow than today, so why save anything? Eventually, my income started to grow more slowly and I couldn’t keep up with my spending. That led to my financial tipping point and I realized something had to change.
But for people 5-10 years from retirement, lifestyle creep can really set them back. I still have time to save more, but a person who is 10 years from retirement and upgrades his car, buys a vacation home or spends his money on all the trappings of the midlife crisis is up against a wall when retirement comes. These people are typically at their peak earning years and when those years coincide with their peak spending years, they set themselves up for a lifestyle that’s impossible to maintain on a fixed income.
How to avoid lifestyle creep
The reason lifestyle creep is so prevalent and so dangerous is that it really does creep up on you. It starts with $50 here, and $25 there and before you know it you’re spending hundreds or even thousands of dollars on completely random things. And the higher your income, the faster it happens and further in debt you go. Look at the pantheon of bankrupt celebrities.
Admission is the first step to reform. The second is changing your behavior to avoid falling into the trap further. Here’s what you can do:
Shopping.
Laura Rowley shares these shopping tips from her blog at MoneyandHappiness.com:
Ask yourself if you’re spending enough on the necessities (beyond food and shelter), namely; retirement, paying down debt, college savings (probably in that order). If you’re not, then you should put that money toward those things first.
Ask yourself if you have enough cash set aside for any maintenance costs coming up. If your car needs new tires in the next couple of months, you shouldn’t be spending the money on a new computer or game system like I did.
Ask yourself if you would feel better buying an experience and creating memories instead of buying some new “thing”. Would you rather take a trip on a long weekend with your spouse than have the latest iGadget from Apple?
Save before you buy. Don’t use credit unless you pay it off at the end of the month – and even then make sure you’ve saved up for the item first.
Handling that raise.
When you get a raise, pretend that you didn’t. I know, what’s the point of the raise if you can’t enjoy it? But it will pay off in the end – trust me. Here’s what I do:
Take 80-90% of your raise and deposit it each month to your savings account – automatically. That last bit is the key. It must be automatic, or you won’t do it and the lifestyle creep will sneak up on you again. By keeping that 10-20% of your raise, you still get to enjoying spending some of it but you won’t be living at the expense of your future. You could also wait until the second month to do this and spend the entire raise from the first month as a treat. I think that’s a good compromise.
Live like a college student for 5 years after you graduate.
No, seriously. It will pay off huge dividends in the end. College students are used to living on next to nothing, so it’s not a big lifestyle change to continue doing so after college. But doing so will allow you to avoid falling prey to spending that fat new paycheck when you finally get your first real job. It also means that you can save that new income and have it at the ready for a new house or wedding when you reach that point in your life.
The bottom line is simple - live below your means.
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