The following is a guest post from David Hamilton (aka FPT Guy), owner and author of Financial Planning Tips – where you can find sensible information on personal finance for the average Joe or Jane.
We all could use a little improvement in terms of our financial health right? Maybe some of us more than others. But wherever you are in terms of your finances, it doesn’t really matter – just that fact that you want to get better and know that you can improve puts you ahead of many people.
I happen to have solid money habits from being part of a family that has managed its money quite well. I feel I’ve been successful in terms of my personal finances: never had a problem saving my money, buying the things I wanted, going on vacations and I’ve never been in credit card debt except for once – which was planned to help me with an expensive move out to New York City.
I’ve always understood the importance of cash flow and increasing it whenever possible via promotions or switching jobs to make more. My money personality is that of an earner and a saver. But because I’ve been successful, it doesn’t mean that I don’t need to improve.
So where to start in improving your financial health? If you’d like – get out your pen and paper and follow each category and assess how you are doing – what your strengths are, and where you think you can improve your financial health, and what you need to do to change it. As we go along, I am going to break down where it is that I’m strong and where I need to improve my financial health.
Your Mindset around Money
Money doesn’t grow on trees? Easy to come by or hard? Do you think you even deserve to have money? Is it the root of all evil? Anything that you say is “true” about money, is actually just your belief about it, which in turn creates your habits. Write down what you believe about money and notice how that’s what you make happen in terms of it. I “believe” that belief is the main driver behind all financial habits and the difference between making things easy or difficult.
Here are my basic beliefs around money, and I’ve noted which I think are “resourceful” or “not resourceful”:
“I am intuitive and great with managing my money.” (Resourceful)
“I am great at using my credit card and never carrying a balance.” (Resourceful)
“It’s fun to look at my accounts and see all that money in them. I feel safe and secure with there.” (Resourceful)
“I spend my money wisely, and by only what I want and need, not what others tell me to.” (Resourceful)
“Owe as little debt as possible.” (Resourceful overall, but not resourceful in terms of assets like a home – which I’ve never owned)
“I suck at investing in the stock market and real estate, it’s not for me.” (Not resourceful)
“Hard work = money.” (Resourceful to a certain extent and gets results, but that’s in terms of trading time for money rather than thinking like an entrepreneur. I’m shifting my mindset about working less but making more).
As I take a look here, it’s easy to see why I’ve gotten little results in terms of investing, and why I’m not making as much as I could be in terms of money. If you believe that mindset controls fuels your habits, it can be a very powerful place to make changes. So what were your beliefs?
Cash Flow
Are you focused on cash flow and increasing it? It’s very important to realize that if you are at all skilled at what you do, you are probably more valuable than you think. It shocks me how often people undervalue themselves and their talent – I did the same for years. Perhaps you can start an internet business on the side to rake in some more cash, or even get your kids involved in it. Not only will that help out the family, but teach them money making skills as well. I do believe now that the best way to make money is to start your own business, but that does require quite a shift in thinking from the employee to the owner.
Budgeting & Expense Tracking
Do you have a monthly budget? Are you tracking expenses at all? To be honest, I wasn’t doing this until I became an entrepreneur, but then again I didn’t that I had to and was always ok. Even then I could have probably been more diligent with my budgeting, but hey, at least I’m doing it now. Even if you are good with intuitively managing your money like I am, I actually recommend this and am very glad I started doing it.
Credit Card Usage
Do you pay off your balances every month, or are you a “balance carrier” or perhaps deep in credit card debt? This can be a tricky one. If you carry balances it may be time to reform your ways and use your credit card as “electronic money” rather than credit – where you spend on your card to gain rewards and other perks, but always pay off your balances in full. If you are deep in debt, it goes without saying that you need to get yourself on the path of settling credit card debt for good.
I actually attribute a lot of my financial success to this habit, because credit card interest and late fees are just money down the drain – and I haven’t ever carried balances – except for my move to New York City when I was 25 years old. But as soon as I landed and I was done with moving expenses I devised a plan to balance transfer everything to 0% APR cards and had it paid off in 9 months.
Over the years I’ve had a near perfect credit score due to this practice, and to be honest it isn’t all that hard if you don’t stray from it.
Savings
Are you paying yourself every month? Always stash cash in your savings account – an often quoted standard is 10% – and only withdraw from your checking. This can be money saved up for vacations or special items your want to buy or projects you want done. But weigh those carefully – do you really need them? Depending on how adept you are at saving, a portion of this money can be used for investing or going to your children’s college funds.
Retirement Accounts
How much are you contributing to 401ks and IRAs? Think about contributing as much as you can to these accounts. Why? Because the restrictions & penalties should make you think twice about ever withdrawing from your accounts until retirement and that’s more money saved that will compound when invested properly. Of course special cases do apply for withdrawals – but in general the money has to be put back. Of course Roth accounts are even more flexible with these rules. But I discourage withdrawal from these accounts at all until retirement age. Another strong point of mine has been my consistency in contributing to these to their maximum
Investing
This is the number one area that I need to improve on, especially now that I work for myself. No more 401K or matching for me, so I need to be a more active investor in the stock market. Taking time to learn how to actually evaluate companies and funds is something that I’ve been dreading for years. But know that I need to do it, and to learn how to decipher what companies, funds and sector will be the best investments for my portfolio and personality type.
Recap for me:
Strengths – earning, saving, budgeting, using credit cards to my advantage.
Areas to improve – active stock market investing, taking on “good debt” in the future like a house or condo.
Now it’s your turn. Feel free to comment here about any section that interests you, let’s hear from you about your money habits – what you’re good at and what you’d like to improve.
Note from Crystal: We’re perfect and need to make zero changes…
HAHAHAHAHA!!! That’s funny!
Seriously, I think we are good at prioritizing our spending, but we need to work on scaling back a few of our budget categories. For example, we go over our restaurant and fast food budget a little bit most months but we shrug it off since we are doing well overall. We need to stop shrugging.
I think we’re perfect too.
Even if this month’s credit card bill made me go “oofta.” But that’s really just because of travel expenses and the new beds we bought, all planned purchases.
What we really need to do before Sept 1 is change our 403(b) and make an appointment to get a will. That should be easier once we have internet at home, which should be today.
BFS – I too probably shrug too much. It is hard to know the right balance between ‘living’ and saving. However, if I had credit card debt or something, I would be shrugging a lot less!
@Nicole, you don’t/didn’t have internet at home! That’s my worst nightmare (well, that and vampires attacking my grandparents house for some reason…).
We need to get a will made as well…just one more thing on a growing list of crap we’ve put off. I think we’ll be opening another Roth IRA instead of contributing to hubby’s 403(b) since we cannot afford to do both and have any fun at all…
@Everyday Tips, YES, I find it’s much easier to shrug now that we only have mortgage debt – we need to tighten our belts just a little because of lifestyle creep (our cc bills were usually $1300-$1700 and now they’re more like $2000…we’ve had a lot of pop up wants and needs that we splurged on but at least I can take that extra from our fun money…).
Two weeks without internet. I HATE Verizon. We should have gone with the cable option, but we didn’t know. We get by briefly stealing spotty wireless from neighbors. This doesn’t work during peak usage times or when it rains. Wailey wailey woe. Hopefully when I get back home today we will be plugged in for real.
Really great and insightful post. My weak area is in investing also. I try to invest in small amounts, after doing research. But, my investments always seem to lose money, no matter how hard I try.
@Nicole, I’ll cross my fingers for you having internet if you cross yours for me for actually having my 16gb Ipod Nano delivered (it was supposedly delivered on Monday, but I didn’t get it and it wasn’t at my front door so Amazon was kind enough to send another one…there will be a super positive full blog post as soon as I have my purple Nano in my hands…this will be my first used Ipod – my mom bought me an 80gb regular Ipod two years ago and I never used it and hubby adopted it and won’t give it back…).
@Young Mogul, I was really worried that Mr. BFS would have that same problem after we pretty much lost our first $2000 invested in stocks, but if you stick with high-dividend yielding stocks with a solid history, you may lose money in the markets but make money long-term with the dividends (that’s how we made back the majority of our starting-out losses). Of course, I personally love target date mutual funds and am scared silly of individual stocks, so I will continue to nag Mr. BFS to actually post his strategy and methods…I really only have a general idea.
Awesome awesome post! I would say that I’m resourceful in pretty much the same categories as you, and non in about the same as well! Although, I invested in the stock market once, and came out about 50% high than when I went in (I went in during the height of the recession).
I’d say my areas to improve are: Investing in the stock market again, and looking more seriously into owning a home!
My area of much needed improvement is definitely the budgeting and expense tracking. I need to get in to a routine for this. Any tips?
@Jenna, when I first started our budget, I scheduled a time for updating it every week. I ended up doing it daily because I’m a freak, but schedule a 1 hour block one-time a week to simply enter in all your expenses. Make it a time that you are almost always available (for me, it was at 11am Sunday morning and gradually shifted to 8-9pm Sunday night).
To track your expenses, save your receipts if you use cash. Then enter those amounts and the amounts on your credit cards into their specific categories. If you’re interested in seeing/using my Excel budget sheet, just shoot me an email and I’ll send it over. It’s super simple, so don’t expect much, but it works well for me.
@myfinancialobjectives, I am biased, but owning a home kicks butt. I love going home to MY place, decorating the way I want, and being able to even handle the problems at my own quicker pace. I’d suggest it to anyone who can afford it and wants their own place. Plus, they’re cheaper right now.
Great to see all the comments here!
Nicole: I really, really feel your pain and agree with BFS. I had the same experience when I lived in NYC with Verizon where my internet was basically out. So I unf. I had to piggyback of a neighbor’s open network. I eventually switched to Earthlink/Time warner and that resolved my problem and was cheaper due to their promotion. Just make sure not to sign up for cable too, if you don’t already have it!
Young Mogul: sounds like we are on the same wavelength! Yes I fear investing right now very much, but as they say, the best investors know how to make money in any market whether bear or bull!
MFO: great post there on the 20-yr lessons – wow! I love the part about saving half your salary, which is easier to do I suppose if you are single (like me). Although yes with being single it’s very easy to blow money if you’re not careful. But I wonder how families can manage to do this?
Mrs. BFS! How are ya? Interesting point about the house. It’s a very emotional thing. It seems people also feel the same way about renting, due to the fact that they don’t want to take care of repairing and issues with a house. Pretty interesting Reuter’s article on how 1/4 of renters will never buy a home –> http://www.reuters.com/article/idUSTRE67H3O520100818
Cheers!
@BFS – I think I’m going to try and keep a journal in my wallet and track every item starting in Sept. and see where that gets me..
Hi- Great and comprehensive post. Big saver, budgeter, planner. I may err on the side of being overly concerned with all things financial. In fact, when playing a party game with friends…. I came up as being more financially focused than anything else. I guess I’m either passionate about personal finance- or insane? you choose!
@Jenna, I’ve journaled for dieting before and it works great (I lost 10 pounds that month and then kind of gave up, so don’t give up and you’ll do great). I bet it will at least let you see how to start a running budget and will get you in the habit of paying attention to spending (if you don’t already). Good luck!
@Barb, I choose passionate since I’m just as nuts *ahem*, passionate, as you are…
@David, seems like your post was a hit! Thanks for starting a great conversation!
David, very well put together post! I enjoyed reading this, and found it thought provoking.
Crystal, shrugging off a few little expenses is ok. It’s all good:)
@Squirrelers, I hope so because I find myself a little too laid back to worry too much.
Internet! Only took 2 hours on customer service and digging out the extra modem since the one they sent us was broken… Ah Verizon…
@Nicole, Nano! Woot, karma support kicks butt!
Ms. BFS: As always, great stuff and well thought about too.
re: Learning to play the stock market. Take the time to “learn” before jumping in. Sometimes it’s the base hits that win the game. And when a home run ball comes along? Even a double or triple? If you know the playing field you can swing away becasue you know what you are doing (beforehand) and can get out (while others are still greedy. Whening trading, no matter if day-, swing-, or core/position trading, always have 1) an entry, 2) a target, and (most important) 3) a stop. Any exceptions would be what I seem to remember you said you and Mr. BFS do … by the ones with dividends. the ones that will last for the long haul. IMO, in the future, people are going to turn more and more into different types of “traders” vs. letting a fund manager “manage their money.” For a % or fee.
If you ever are interested in such … I recommend a simulator FIRST!!! Or just papertrade. Trading doesn’t have to be fast and furious. In fact, it can be quite laid back.
If I can interject a few more lines, Aug 2009 to the peak in late spring this year/2010. I work in the O&G sector. I see what goes on. If one knows their [tested market] and can see the trends, you can & will do just fine…. as long as the 3 rules above are adhered to ones forehead/brain. (Super Glue might work too, but could be alittle messy)
I lost my “religion” back in April 2000 (aka: hope and pray). Sometimes the lesson is in the learn. And it was a good one. Anyone can learn if they “go the distance.” (Ha! A few baseball metaphors tonights)
ODWO.
(my first blog post is in the Website box. Not sure if I did it right … :^? )
@ODWO, thanks, I’m glad you liked this guest post!
Good tips for beginning investors – try test trading before jumping in and look for stocks that have lasted and pay good dividends – that’s how Mr. BFS runs our stuff (although our test period was for real and we lost $1500 overall so far).
I see you’ve started your own blog so I’m going to see if I can get to it from work.
My weaknesses – need to do will and life insurance. Need to find time to do these things!
Otherwise, I think we are good. As for cash flow – trying to increase your pay is also a good idea.
@Julie, we need to get that will done too. Increasing pay is awesome – now I just have to think of something I like more than a job that lets me blog half the time…
Great post! It definitely pays to examine yourself often, even if you don’t have any gaping holes in your finances.
There is always room for improvement – even as far as being too frugal and missing out on life!
@Jenna – yes! Track, track, track! I do that on a spreadsheet everyday. Wallet method is good too.
@BarbF – it is good to be PF insane in the membrane!
@Mrs. BFS – yes this post is rockin…but that’s really thanks to everyone here who’s making this discussion happen, really! BTW that is no test trade, that’s the real deal! ALthough in all honesty it’s not that much to lose…small business owners blow way more money than that trying new things out. I should know!
@ODWO indeed a great simple methodology. You’ve inspired me to learn by doing some paper trading.
@Khaleef, at least I don’t think anybody can really ever say I miss out on life! Good point!
@David, we lost $1500 in stocks the year after losing $15,000 (yes, 3 0′s) with a friend’s business gone wrong. I understand learning mistakes…
@ Ms. BFS .. I must have a short attention span. I now see the guest post. (Doh!)
@ David .. Great Stuff. I’ll be listening in for more. There’s always something someone else does that makes one go “Hey, I hadn’t thought of that.”
Happy Friday!
>:
It really is mindset. I actually like to pretend I’m broke, or close to broke so I can get the motivation to work harder during the day and night.
Life seems a little too easy sometimes, and I tend to slack as a result!
the common theme appears to be that everyone is good at the basic stuff (saving money, spending less, etc) but most have similar pain points like stock market investing for example. the reason can be information overload, and conflicting information from all kinds of constituencies ready to gobble up your money. investing does not have to be difficult. stop trying to beat the stock market (fact: majority do not understand how it truly works anyway). save at a steady rate consistently over time in diversified value investments (ex: low fee/no load mutual funds) and dollar cost your way to wealth.
side note to Nicole: i just switched from Verizon (was charging me $60) to time warner (charging me $30).
re: Stock market investing and information overload.
Some of my coworkers talk about their experiences into the stock market. I can hear (and see from a chart – pure technical trader I am..) where they went wrong. There is an information overload, for most. They think they can predict the market (wink). If it’s trending, then it’s easy. Long/Short/Consolidation, that’s all it ever does. Most get stuck or caught in the Consolidation part, they’re guessing and not realizing that the market isn’t through going in [the opposite direction] of their position taken. Then the emotional part comes, “do I let it ride? Or sell it now for the loss?” (more hope & pray?) For me, that’s an easy answer … “Stop Bleeding”
If the money is burning in ones pocket, they should change pants. Or go to vegas. you can lose your money and still have fun.
Another tidbit is that no one makes a profit until you cash out your position – personal, business or even retirement/401K. As I learned back in the heyday of 1998-2000, it doesn’t matter if your profits are up, only what you get when you close your position. Being up $xxxK doesn’t matter if you sell after I’ve lost most of it. (How smart am I again?) The market isn’t the killer (just up/down/consolidation) .. it’s the battle within our emotional mind.
Master that and you have found a way to make money in the market. You’ll know what to do when it’s time to do it. Nothing wrong with taking a profit, even if it goes higher. The problem is when it starts going negative and you sit and wait for it to go back up. And then sell @ the bottom, only to watch it rise again.
This post is about stock markets and investing (or trading). Clear out the TMI factor and you can see what’s really going on, technically speaking.
For those who watch Big Bang Theory … Mr. Spock would be the best trader/investor of them all. Be a Vulcan. It either does as he wants (entry and target), or he gets out with very minimal lose (hold ones Stop Loss – the logical choice) and wait for the next setup. If the method is right, but the market about faces, then you did the right things, but keep the capital where it belongs until the next setup.
Sorry David/FPT Guy, not trying to over shadow any parts of your original post. Trading is a part of my life. I’m quite passionate about it and had some very good mentors. ex: undergroundtrader.com / pristine.com (I’m not affliated with either of these but they have the best basic info. on investing/trading that I know of out there – even the free stuff is A+) despite the pay-to-learn stuff, you can do it on your own. Anyone can … if one wants to bad enough. Free.
ODWO – you are not overshadowing! This is exactly why this thread is here and investing being one of my week point, I am here to learn too! All I know is that before the Sept 2008 crash I got lucky. I switched jobs and rolled over my 401k, which put it in all cash, this was in Aug. Then when the crash started happening, I took everything in my Roth and went cash – solely because I didn’t want to worry. I lost a little, but not as much as when the big crash happened a couple weeks later. Simply because I didn’t want to worry.
I will scour those free resources, that’s just what I’ve been looking for. To me, you just provided a ton of value here to those who are tentative about investing like me
Truth be know I am still all cash right now, dumb or not, things are still in the toilet from what I see. It doesn’t take a rocket scientist to figure that one out.
What are your thoughts experienced investors?
@Financial Samurai, I try to make life easier so it’s interesting to hear that you try to make it tougher.
@Sunil, I do love how each individual has similar personal finance issues, but the specifics are always so different…it’s fascinating to me.
@David: You know, your getting out at the time you did is actually a historic timeframe. October is historically a bad month during the year. September is usually when a consolidation starts to happen. Avoid consolidations like the plague unless you’re in a position that is already a winner. then, keep the stop close. Consolidations – tighter prices – are like a spring getting compressed. Eventually it moves .. the $375K question is which way. best to wait for it to tell you, then a decision can be made, while siting on the sidelines. less stress too. Instead of gambling red or black.
You did the right thing back in 2008, no doubt. WTGo.
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