spending

The Paper Chase

ChasingMoney Motivational posts are a big thing on social media. Type in hashtags like “motivation,” “inspiration,” “hustle,” “grind,” “quoteoftheday,” and so on, and a plethora of slick memes will show up with quotes from business leaders and motivational speakers through the ages. You will find many quotes from Jim Rohn, Robert Kiosaki and Tony Robbins, to name a few, extolling the virtues of persistence, focus, planning, how to build wealth, and the like. Entrepreneurship has exploded as the internet has made education more accessible than it has ever been. Technology has lowered barriers to entry for many industries in terms of knowledge as well as start-up capital. In theory the playing field of capitalism is far more level than it has ever been before. My inbox and social media accounts are flooded with offers to take a look at some idea to build wealth using the wonders of modern technology, usually with a rags-to-riches testimony.

Now we can “monetize” just about anything. Industries are growing for motivational speakers, business coaches and trainers, for which clever entrepreneurs will provide instruction on how to tap into the market, for fees small and large. Usually potential clients are lured into listening to the sales pitch with a free webinar or ebook download. Somewhere within the material, usually at the end, there is a sales pitch – an up-sell – to turn the free information into a revenue stream through memberships, subscriptions or further coaching. That sales pitch usually includes at least one quote from a “guru”, such as those mentioned above, to imply that the person shares that winning mentality; they have the thing that you don’t think you have. It is a very effective tactic as it taps into the deep-seeded self-doubt many of us live with; our desire to be perceived as and feel successful; and guilt over not achieving our full potential. When I was in network marketing we were taught to always search for the NEED and posit the product as the solution. The need that motivates many people to pour hundreds to tens of thousands of dollars into these trainings is freedom from the imprisonment of financial struggle.

But even with the abundance of opportunity at our fingertips there is still a pervasive sense of lack in our society. Increasing abundance of opportunity has not resulted in increasing satisfaction or happiness. Why is that?

Ecclesiastes 5:11

As goods increase, so do those who consume them. And what benefit are they to the owners except to feast their eyes on them?

gold-dollar-sign-on-ground I decided to call this blog The Financial Fashionista in part because I recognized that I myself had a conflict between my desire to acquire things and my desire to establish a solid financial foundation. I have an economics degree and experience in high and low finance. (That’s a joke.) In my head I have a very clear understanding of how money works: the concept of compound interest, investing in the financial markets, financial products and services, saving, interest expense, depreciation, the difference between cost and value. In college my focus was mortgage-backed securities, the same product that brought down the world financial markets. But when it comes to personal finance emotion is almost inextricably linked. This is why most people pull their money out of the market during a correction, as happened in 2008, marriages fail, and even cause business owners to make poor management decisions.

I am now looking very closely at the ‘why’ in my spending habits and attitude toward money in general. What lessons from my past must I un-learn? How do I bridge the gap between my rational understanding and my emotions? I have rooms full of “stuff” that I never have to look at or touch for the rest of my life. The older I get the more I realize that it is all meaningless. Whatever satisfaction I receive from purchasing a new dress or some other thing is absolutely fleeting. And as such the process must perpetuate to reach the same high.

What motivates us to do this? I know I’m not alone.

Ecclesiastes 4:4

And I saw that all toil and all achievement spring from one person’s envy of another. This too is meaningless, a chasing after the wind.

Chasing after the wind.

Another thing that social media brings to the forefront is the deep desire to be simultaneously approved and envied by others. We lament the unrealistic standards of beauty and lifestyle promoted on the medium but those who do it best gain the most followers, by which they are able to creative highly lucrative businesses. Posts and hashtags about grinding and hustling extol the value of pushing to reach goals and measurable achievements; we respect most the people who seem to be accomplishing big goals and dreams and the wealth that comes with it. But that value system is based on outward signs of a success that can disappear even faster than it came; not character or the virtues of community, humility, patience, temperance and generosity. It is inherently inauthentic. No wonder it cannot bring forth lasting satisfaction and happiness.

Motivation in this day and age is temporary because it tends to be based on comparing ourselves to others and wanting what they have. Inspiration is more authentic and long-lasting because it is based on the vision and purpose that is uniquely suited to the individual. As the saying goes, “chase your passion and the money will follow.”

Debt & Delay

It is not hard to find advice on managing money. There are print publications, websites, gurus, apps, non-profits, licensed professionals and people we know who give us their ideas on money: saving it, investing it, making more of it and how to spend it.

One of the biggest concerns Americans have about money is debt. In our consumer-centric culture we rely on interest-bearing credit cards and loans to finance non-essential wants, in the process racking up mountains of debt that we end up struggling to pay. We are bombarded with ads while checking e-mail, on social media and elsewhere designed to trigger our impulse to purchase on a whim. Temptation to consume is everywhere. But for the small business owner, being mindful of discretionary spending is especially important; the consequences of personal finance habits can have a big impact on their business aspirations.

Debt & Delay

According to the 50/30/20 rule, 30% of your income should be allotted for discretionary spending.

A disheartening consequence of having unmanageable “bad” debt is delay in attaining goals and dreams. Bad debt is debt acquired for things that have no real value. (Good debt is that which is acquired for things that we can use to increase our net worth today that could also continue to provide resources in the future; for example, a home mortgage.) Money diverted toward paying the monthly interest on balances carried forward on credit cards represents an opportunity cost both in the moment and the near future. This is especially true for entrepreneurs. Access to capital is essential to start and grow a business. Many entrepreneurs will apply for a bank loan and solicit investors for this purpose. After loan officers and investors read the business plan, they will want to assess the owner’s financial credibility. They may look at the credit report and bank accounts among other things, and usually require that the owner have some “skin in the game” to share in the risk (a certain percentage of the loan amount.) The amount of his/her own cash and/or assets that the owner is expected to have invested in the business could be sizable. Besides that, business owners always need a cushion for unforeseen hits to their budgets. Even the most motivated entrepreneur with the best ideas can have trouble getting their business off the ground due to perpetual financial constraints. An entrepreneur can spin his wheels for years and years, missing out on opportunities and delaying plans, due to large amounts of avoidable debt.

Unmanageable, avoidable, high-interest debt can cause delay in living as well. We probably all have a wish list of things we’d like to do and things we’d like to see. Travel pages on Instagram are some of the most popular on the platform. They portray idyllic destinations both abroad and at home and we can just picture ourselves on that beach or walking those shop-lined streets. A nice trip to Morocco, Tanzania, Singapore or Brazil can cost thousands. But most Americans have less than $500 in their savings account. People put off weddings until enough money is saved to have the kind of wedding they would like. In so many areas we delay living our lives to work for money to pay debt.

Or as soon as we pay debt off or down we begin the cycle again. When we don’t have the cash to do and have the things we want we often turn back to our credit cards. When we in the habit of using credit there is always something else for which to use it. If we cannot save or save less than we should, we remain cash-poor and resort to credit once again.

2017 is the year to end this vicious cycle of debt and delay! It will require discipline, planning and keeping our long-term vision in focus.

There are behaviors to void and behaviors to embrace:

AVOID EMBRACE

Impulse buying/Giving in to temptation Delayed gratification

Using credit cards Paying with cash

Lending money you can’t afford to not get back Paying Yourself First

Scrambling for money in an emergency Building an Emergency Fund

Spending Every Penny Saving 10-20% of Income

Redundancy Reusing/Recycling/Repurposing

Spending for unnecessary things Spending for experiences

Expensive outings with friends & family Free to low-cost events

Delayed Gratification: Do you have a closet full of clothes that you hardly ever wear? A house full of belongings you hardly ever use? You were probably excited to buy them. But you got over it quickly. If we choose to take the time to save the cash for a purchase instead of whipping out the credit card, after a while that item may not seem as desirable.

Credit Cards: Take a look at the interest payment you make on each card every month. Have you ever added them up? Get a monthly total of interest you pay to make it viscerally clear how much your debt is actually costing you; money that you are not able to invest into your future. Remember this feeling every time you consider using a credit card to buy something you don’t need or could put off until you have the cash.

And have $1,000 saved before attacking your debt.

Lending Money You Can’t Afford to Get Back: Judge Judy would be out of business if people would say “no” to friends and family who ask them to borrow money that they cannot afford to lend. Such a loan is really a gift by another name. A generous spirit is beautiful, but it should not cause you stress and damage your relationships. Part of becoming successful is knowing when to say “no.”

Scrambling For Money In An Emergency: On the other hand, it doesn’t feel good when you have to resort to asking family and friends for money to bail you out in a pinch. Things happen. There’s no shame in needing and asking for help. Sometimes it’s unavoidable. The best thing to do is save as much as possible when times are good, not spend it all. An emergency fund should be at least three, but ideally six, months of living expenses. Start where you are towards a specific target based on a realistic idea of how much you live on every month. But strive to consistently save 20% of your net income (after taxes), before spending or paying bills. Visit www.bankrate.com to compare savings account interest rates. I like Barclay’s.

Don’t neglect to invest – and I don’t mean CD’s!

Redundancy: As stated above, many of us have lots of stuff we don’t use and eventually forget about. It is good to take an inventory of those junk drawers and crowded basements to avoid re-purchasing items we need down the road for a project or errand that pops us. Otherwise try to sell excess belongings, especially duplicates, on auction sites like ebay, apps like 5miles, or sites like craigslist.

Spending On Unnecessary Things: A lot of times when we shop, especially women, it can feed a need for satisfaction, accomplishment or escapism. How about putting that money and effort toward investing in experiences? Concerts, art shows, international travel, charity, lessons to learn a skill or develop a talent. Good experiences that allow us to de-stress, meet new people, learn new things and really LIVE can satisfy the same needs while also allowing us to grow as individuals.

Expensive Outings: I have a small group of girlfriends that I love spending time with. We schedule regular outings to eat, go to cultural events and hang out. I found myself spending much more than I would intend to and promising myself that the next time I will stick to a budget. In 2017 I am going to be more disciplined about this. Being honest with my friends about my need to reign in spending will help me to keep focused. I have a specific saving and investing goal for the year and I am going to be ruthless in achieving it.

It can be challenging for entrepreneurs to remain motivated and inspired. The things of life can distract us and make our dreams seem farther and farther out of reach. Controlling spending and debt can help to secure some peace of mind and allow us to leap forward when the right opportunity comes about.

The ‘Trial’ Temptation

There are many obvious ways that our efforts to save money and practice good financial habits can be sabotaged. High interest rates, late fees and even the opportunity costs of not investing and/or saving adequately are among them. But there are other subtle little bank balance busters that go unspoken in media on household money management. One of them is unwanted memberships and subscriptions from un-cancelled free trial or introductory periods.

In a consumerist culture like ours it can be hard to make a budget and stick with it. It takes an enormous amount of disciple to resist the incessant barrage of temptations that surround us almost every moment of every day, to keep spending money. One of the ways that savvy companies tempt us to put our guard down and hopefully spend money (we don’t have to spare) is the “free trial offer”. Trial offers can last days or even several weeks but the key is to obtain our credit card and contact information to allow us this temporary access to services and information for free.

The words “free” and “no risk” are a great way to peak interest in a product or service. Who doesn’t want something for free if they can get it and it can be of benefit to them? But we also know that there is usually a catch: that free trial will come with some expectation upon us to do something or give something up at some point. It can be referrals, which businesses often find even more valuable than a one-time sale, or the sale itself – subscription or membership. Not to mention that once we willingly provide our personal details the company has gained the ability to continue to market itself to us.

The problem with trial periods – for the consumer, at least – is that it can be difficult to remember to cancel on time. Many people take advantage of these offers with the intention of cancelling before it’s over. If you forget to cancel a trial membership or subscription you end up paying for something you don’t want, and if you don’t catch on for weeks or even months there is the potential for a substantial financial loss to you. Companies have different rules regarding canceling a subscription after the trial period has expired. Some companies will reimburse all of the subscription rate if you cancel within a day or two of the first charge; others will prorate the reimbursement based on how many days are left in the subscription. Others disallow reimbursement of funds but will cancel charges as of the next billing cycle.

Obviously there are ways to try to prevent this mistake from happening, like adding the last day of the trial period to your calendar, but of course the easiest way to avoid the problem is to not sign up for trial periods at all. There are times when you need to utilize a service but only for a short period of time to accomplish a specific goal. This is when trial periods are most useful and sensible. What you want to avoid is failing to discontinue a trial period for something you never even used or didn’t find beneficial anyway.

The “Millennial Investor” Is A Thing…

Thirty trillion dollars. “Trillion.” With a “t.” That is the estimated amount that so-called millennials will inherit from their baby-boomer parents over the next few decades. It is the largest transfer of wealth, possibly in human history. By the way, who are these people? Seriously. The fact is most people are entirely unprepared financially for retirement! Clearly these are not the kids of the millions of baby boomers who will be reliant upon social security to make ends meet. But I digress.Wealth managers today focus a lot of energy targeting the baby boomers themselves, especially to help them protect whatever wealth they have amassed, to sustain their lifestyle after retirement. It is a very large market. But apparently the wealth that is going to be transferred to millennials will be an even larger market, and investment advisors are beginning to position themselves to capture the opportunity. In the clip below, one such advisor talks about a program his firm offers called Backpacks to Briefcases. It pairs millennial clients with their contemporaries in the wealth management game, whom they may better be able to relate.

Financial literacy is woefully lacking in our education system, even among the well-off, so this is a great idea. The fortunate ones who will be coming into enormous sums of money will need the training that many of their parents didn’t receive in order that they may make wise decisions about managing, spending and donating their windfall.

Preparing Millennials for a $30 Trillion Wealth Transfer

You don’t have to inherit a large fortune for sound money management to be relevant to you. Any amount of money you have earned or inherited should be handled properly. True, we are more likely to blow through money that we have been given rather than money that we have earned on our own. But no matter the circumstance, sound financial practices matter. For example: a guy in his mid-20’s inherits the proceeds of a large life insurance policy, pension and 401K upon his mother’s passing, totaling several hundred thousand dollars. He uses his windfall to live the large – traveling, partying, and everything else. Fast forward five years, the money is gone and he’s worse off than he was before. True story. There is an expression one of my friend taught me: “It’s not what you make (have), it’s what you keep.”