Not cheap, Fiscally concerned

When you graduate from college or graduate school - do you want to be rich when 65 or by 30? To be honest, I couldn’t care less for retirement at that time. I graduated with my first degree when I was 23 and didn’t spend a moment thinking about being 65. Later on, while working I achieved my second degree. I am now 31 and while it would have been nice to be rich by now - life throws different challenges at you.

Bach’s books - one of which I keep a permanent link on the sidebar every page of this blog, try to grab the attention of the greedy book shopper who wishes to get rich and then tell them how to reorganize their finance so that they could retire rich. I was not disappointed to find that out. It’s my opinion that “get rich quick” schemes and authors are peddling rubbish and will get you in bigger trouble than where you started out. Some of these “I got rich” books will only tell you how happy the guy is to make his million doing some questionable things you should never repeat. He’s actually making most of his fortune now from telling you how he was lucky to get rich.

65 or 30 or now? Of course now, but let some reality in, you are very likely not to get rich quick. Once you start working, set some aside in your IRA or 401k and forget about it - you won’t even notice it gone - and you will sure regret later if you don’t do it at all.

Here are 12 questions for the recent graduates to ask themselves as they embark on their career and dream of being rich:

1. Given a first job in your career path, where do you see yourself in 2,5, and 10 years from now and how does this job bring you there?
2. Would you be happy rich at 35 if you spend your 20 to 35 living like a beggar?
3. Would you sacrifice career over family? When do you imagine you will marry and when do you think your first child will be born?
4. What is a rich man to you; The guy with the nicest car but a mountain of debt or the guy with the most at the bank riding a used clunky car?
5. Could you devote yourself to very long work days if you opened a business?
6. How far will you go to sacrifice for your career? Would you relocate across the globe?
7. How strong of a personality do you have to regroup and restart after a scorching failure?
8. Are you financially responsible in your personal life?
9. Are you organized enough to apply it towards your career?
10. If you had gotten a large yet not huge sum, like 70k for example, would you spend it or save it?
11. How do you view debt - a leverage to growth or an anchor on your earnings?
12. Did you study the right things to help you reach your goals and if not - are you willing to continue learning?

Some of these question I had faced before, some I’m still pondering.

A few points of advice from me to the young and ambitious:

• If you don’t plan, your only chance of success is luck… don’t count on it
• All plans are made to be changed. Always assess what is more important at the present.
• Family, friends and relationships are ten times more important than money.
• If it feels wrong, if it’s against your principles, don’t do it. Simple as that. People who made their fortune from trading arms with the darkest regimes on this planet make me sick - yet some consider them to be gods simply because they flash their dough and sometimes pay a tiny contribution to charity.
• Always give some to charity. I know I should give more, no matter how much I’ve given.
• Don’t stress about broken home appliances… it’s only a small setback
• CNBC won’t get you rich - but it will hypnotize you into believing you are a tiny forest animal…
  
• For 99% of people, blogging is NOT a source of income!

Cheers!

It is reasonably easy as a single person to restrict your own self to a tight budget so that you can achieve some goal like pay down a mortgage, go on that dream vacation, reach a golden number to identify yourself as rich, or simply reaching a comfortable financial safety cushion. If as a single person you find yourself unable to contain yourself from spending, get a book, get some help, use software and always ask yourself what it is you are giving up on in the near future for the momentary gratification of immediate spending. It can and is done by many.

Once you get married your financial future is intertwined. Regardless of having a joint or separate checking accounts, what you spend and what you keep matters to both of you. You can no longer keep your own personal goals selfishly, you must share those goals. If as a single person you spent some months eating very little and very cheaply, your spouse might never agree to such restrictions. If you used to shop for clothes once a year (or less), you should not be surprised to find out how such behavior might be completely unacceptable on your partner’s behalf.

People have different views of what fun is, as the former frugal single that is in a relationship you must acknowledge that your wife or husband enjoys an occasional Sunday shopping. Just walking around in shopping centers and picking up things. As a single person you might never have done that, especially not in distressed months. Now you bite your tongue and smile and say how lovely the new shirt is and how the kids definitely need all these new shoes for next year.

Trying to raise the issue of being in a financial hole can often lead to vocal arguments regarding the purpose of recent shopping. Who is the selfish one when one buys for the family based on needs and on sales and discounts, and the other wants to put money aside for vacations and other things? It gets even worse if the frugal mind fails to write down what those mysterious future needs are and then gets into a corner in the argument – accused of being cheap for the sake of being cheap.

You might think you are having a great relationship, you communicate and the love between the two of you is still blooming – you are probably right. There’s still something you should do. To become frugal as a couple, to succeed financially as a family, you must dream together. You must know what it is you want and your spouse wants to achieve financially in the near and distant future.

Dreaming of a better future is the first step. The next is getting back to reality. Those dreams should be translated into attainable goals. You should not be surprised to find out you could probably reach an annual or semiannual well funded family vacation. You should probably know that you could live rent or mortgage free if you do certain things.

Now that you share some dreams and goals look into your current joint financial situation. List out your income sources and expenses and agree to live by a budget. You may consider the budgeting system I propose here, but there are many worthy others and you must agree to adhere to that budget together.

Now that you have shared goals and agree to adhere to a budget together, begin allocating small sums into future goals. Now is the time to exercise your spreadsheet abilities (or seek some help) to see what will happen if you save so and so, and how much could you spend on your goals each year.

Speaking out of personal experience, doing exactly what I described above enhanced our mutual frugal sentiment and brought some excitement to it. We began planning annual vacations, writing destinations and budgeting costs. Every few years we plan on big ones like going to Disney world, abroad, visiting back in Israel (someday…). I bring the vacation thing again and again because that’s the easiest and most common goal. There are many other such goals and to each couple their own.

Be fiscally concerned, not cheap and remember that you need to always keep a balance between staying happy as a couple in the present and building up your even happier future.

Since starting to post on this blog – about a week ago – my wife’s been frowning at me. I sit too much time in the evening in front of the laptop and I’m not talking enough. I agree honey – and I’m sorry. I believe that communication is the key to a successful marriage. One of the examples given in the book “Dealing with people you can’t stand” is of a mature couple where the husband says nothing and the wife is frustrated. It seems that for many married couples, that situation is at least the perception of reality – if not the reality itself. The book gives a good strategy on how to improve upon the situation by engaging in inquisitive conversation and insisting on getting answers. A conversation has two sides, and if you think your partner is not saying much – be assertive and muscle out some answers. If your partner is drowning in his newspaper, book or laptop and you feel left out, reach out – touch – and stare at his/her face from a short distance. You will get that kiss your face is demanding and it is the right opportunity to talk about something. Don’t hesitate to start the conversation.

At our first years as a couple – finance was a touchy subject. Whenever I raised the issue I came out as a villain and as cheap. I avoided talking about it altogether and I silently observed as our tiny savings account shrunk further and further. We didn’t have a plan, we didn’t agree, we spent on what we thought we needed. It wasn’t selfish; whenever my wife would buy something she would feel guilty and try to explain to me how it is for the family. I struggled for years to reach an understanding between us on our money.

About two years ago I did something very sneaky. We both enjoy going to book stores and browsing through the selection. Our kids scan through their section and we take turns on looking for what might interest us. I picked up two personal finance books – “Smart couples finish rich”, and “The automatic millionaire”. I suggested to my wife that we each read one book, and when we are done we exchange and read the other. The result was stunningly good. We both learned more about managing our money and we finally began thinking together on how we should plan and execute together. My wife came up with the program discussed here in “How to spend less than you earn, in a nut shell” and I added the electronic part to it – “How to spend less than you earn, part II”.

The books introduced us to the idea of setting goals. For me it was always a given that we should save money. Even if we don’t get rich, money would be there for us when we need it. My wife, coming out of Russia and seeing how inflation and political turmoil can render yesterday’s money worthless always assumed that money is there for us to use now. We now have an understanding of why we save and how we will use the money in the future. Money isn’t accumulated so that we could count it greedily – it is there for a purpose and we have already seen the fruits of that strategy. Before – we would charge our credit and I would act frugally. We have begun taking annual vacations with money we save each year and we enjoy it so much more.

Since then, we regularly discuss where we stand on a fiscal basis. My wife no longer feels guilty she buys things when I don’t. We have turned the corner and have begun saving more. As long as our income and health do not change – we know where we are heading financially and are pleased with it.

Communicating about money between couples is key to a happy marriage.
Communication in general and expressing fondness and love is what ties it all together.

On the previous post I discussed the basic rules we keep in our family to spend less than we earn. Here I’ll present the template spread-sheet we use and how.

To recap, when you intend on spending less than you earn:

1. Calculate your “available flexible living sum”.
2. Devote some of this sum to your savings and investments based on your goals.
3. Divide the rest between 3 parts of the month.
4. When spending, spend on whatever you want, but when the 10 days budget is spent – stop spending until the next 10 days.

I created a template in excel, and then I import it into sheet.zoho.com. I find that site to be very similar to excel. Using an online spread-sheet allows me and my wife to track together our spending without worrying about different versions residing on different computers at home or at work. Wherever we are we can log in and update. We can always peek and see if we have enough money to spend.

The best thing about keeping the spread-sheet online is the ability to check up and update from wherever. From work, from home and on the road.

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Some people use Microsoft Money or Quicken to track their spending and balance their checking accounts. I find Microsoft Money to be useful for balancing my checking account and predicting my cash-flow, but as far as budgeting is concerned I find it almost useless. I don’t need a tool to tell me how much I spent on different categories, or that I didn’t categorize something. What matters for the purpose of spending less than you earn is not what you spend your money on, but when.

We time our spendings, not limit it. The spreadsheet allows us to do so dynamically enough - without over-reaching and complicating things with software like Microsoft Money. If our plan changes, if we modify the way we budget, it’s a spreadsheet and it is easy enough to change.

I hope this was useful for you and your family, let me know. Do comment and share with your friends
Cheers!

We’ve all heard about getting rich slowly techniques. The key point in trying to do so is spending less than you earn. Once you have achieved that, you can start eliminating debt, growing your savings, start investing and possibly someday get rich.

Without delving into my personal story, before generalizing my spread sheets, I thought it might be proper to lay out in the shortest and simplest way what it is we do to spend less than we earn – and thus meet our goals and live richly.

Before you plan and implement what I suggest here, imagine spending a couple of days a month living like the poorest man in your neighborhood. Imagine you have no money for the next couple of days and you need to spend the last 100$ you have in your pocket to stock up for basic things you and your family can survive on. For us, this means always having piles of the cheapest rice and pasta. If we don’t have enough money to buy a thing, we can still cook some white rice. Like the title says, I’m fiscally concerned.

Now start asking yourself some questions about what you earn, and how it is spent:

1. Write down all of the expected annual income your family makes, and divide it by 12 regardless of the month to month fluctuations due to number of working days or other variables. This sum should include the amounts you get after tax deductions.
2. Write down all of the recurring expenses you cannot control. Including monthly-quarterly-yearly bills. This includes home (mortgage or rent),cars’ license plate renewals, average cash withdraws from ATM, loan payments, existing credit debt payments (above minimum – enough to pay off someday). This does not including any items for which you go to a store for, or which you can choose to skip for months. Again, reach a yearly sum and divide it by 12.
3. Subtracting the monthly recurring expenses from the average monthly expected income - the remainder should be considered the living expenses you still have some control over. This is the sum where we will exercise our flexibility. I will refer to this sum as “available flexible living sum”, or “the living sum”.

I’ll pause here and stress something out, you have to be honest with yourself and write real numbers. If the sum you reach at item 3 is less than 900$ then I think you should consider ways to reduce your “uncontrollable expenses”. This is your food and gasoline money and you have to be able to pay for it. Cancel some home services, relocate to a cheaper place, get another job or a raise – because whatever you do, you need to have enough to get by – and that money must be earned, not borrowed.

Only from here can we start cutting the income pie:

1. Dedicate a fixed amount into your deferred goals. Take some percentage off the living sum and put it into some savings. I’ll leave the discussion of such saving to some other time… for us, it goes into a high yielding money market – and we spend a fixed amount of it annually to vacate. We also allocate it for other goals… again, I’ll discuss this elsewhere. On our long term plan we plan on increasing this amount and have detailed why such an increase will happen (raise, stop some fixed payment, buckle down).
2. Split the remainder into 3 sums, and allocate those sums to 3 parts of the month, typically 10 days each, except the last third of the month which could be longer. Be strict with yourself, you can buy or spend that third of the flexible living sum however way you want, but when that 10 days budget is used up enforce virtual abstinence and don’t buy a thing.
3. We use a single credit card we pay in full each month. Every purchase me or my wife makes we record on an online excel sheet, and compare it to the card’s online records so we can’t really miss out and lie to ourselves.

What?! Wait – what did I just say? Well, that’s the point – you need to think of your money like cell-phone minutes, you can carry them over, but over usage should be considered very punishing.

You need to prepare yourself as a family to a situation where there could be 3 to 7 days where you “virtually” don’t have any money – even if the bank statement says you do. Use canned food – store bulk products and live like a cheap bastard. For only a short number of days, it can definitely be done.

And that’s the “secret”. We do and buy whatever we want. It’s not a question of “if”, it is a question of when. We don’t buy when we can’t, but only a few days away we assure ourselves that we can.

Notice I didn’t budget for expense types. It doesn’t matter if we go to a theater and dine out every night, if we can – it’s our privilege to enjoy what we earn. If we want to buy a sewing machine, we can – but if it takes away from the 10 days budget – we have to limit our selves after the purchase and wait until our self placed budgetary restrictions are met. No money means no money, even if the bank says otherwise.

Wow – that’s a shell of a nut that’s a bit bigger than I thought it will be. I’ll try to summarize this and post again as a standalone page on this website at some point.

Please comment, it’ll be much appreciated

Cheers