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How to Easily Overcome Your Bad Financial Choices
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Personal finance is about 95 percent mental and 5 percent physical. Once you've put the right system into place, you just have to block out all the noise and plow ahead.
So as much as you may have been led to believe otherwise, the biggest thing blocking your success is you.
You are your biggest investment — and sometimes you make the wrong decisions. That's simply human nature.
The 7 Psychological Money Traps
Bankrate has a great story about 7 'psycho' money traps and how to beat them, highlighting how we cause ourselves problems.
Their seven mental money traps:
1. The lure of 'free'
2. The 'anchor-price' persuasion
3. The instant-gratification attraction
4. The dollars-to-donuts decoy
5. The separate-buckets blunder
6. The 'sacred-fund' slip-up
7. The lost-money fallacyThese are all great examples of how we naturally make poor financial decisions. You're not the only person who's ever made these mistakes. But you can easily overcome them.
Use Automation to Remove the Human Element
If you want to ensure that you aren't blocking your own financial success, automate the processes.
Want to save for a new car? Set it and forget it.
Leave your paycheck sitting around instead of cashing it? Get direct deposit.
Working hard to time the stock market? Automate your investments and you'll benefit from dollar-cost averaging.
When you take the 5 percent action required, you've set yourself up for financial success. Turn around your bad habits and start to feel comfortable with your decisions.
When Technology Can't Help You
Online banking and the Internet can do a lot to improve your money management shortcomings, but they can't do it all.
No one's going to stop you from buying that videogame you don't really need.
No one's going to stop you from living beyond your means (except maybe the bank, and you don't want to go there).
No one's going to stop you from being lazy and putting off the process to your financial freedom.
You've got to be the one who steps in and makes smart decisions. The tools are all there, but you need to make it happen.
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A Radical Idea: Crowdsource Your Finances
Can the wisdom of the crowds decide how to manage you finances better than you can? I'd love to find out.
Imagine a person who left all of their financial decisions up to "the crowd." From budgeting to investing to spending, their entire financial situation was determined by others.
A number of social finance sites, like Wesabe, have popped up. But they're more about comparing your spending to other people.
What would happen? Could the crowd successfully manage someone's finances?
This would be something really compelling to follow — whether it's a blog or a podcast or whatever. And it's my gift to you — absolutely free to use.
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Automate Your Finances, Feel Comfortable
One of the biggest reasons you should put your finances on autopilot is for the sheer comfort of it.
Literally.
When your bills are getting paid automatically, your savings is being fed without you touching it, and your paycheck is going straight into your checking account, you don't have to worry about them. It's the biggest weight off of your shoulders.
You don't need to find the time to head to the ATM. You automatically pay yourself first. You don't have to worry about the post office losing your check in the mail.
The only bill I still pay by check is my credit card, and every other day I forget exactly when it's due and, therefore, when I need to send it in. It's weighing down on me.
So much about money management is mental. Am I saving enough? Should I save for the long run or the short run? Do I really need that thing I want?
The less you have to worry about, the better off you are. Don't let your finances overwhelm you.
Automate today and feel more comfortable.
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What's Your Financial Cushion?
I don't keep a lot of money in my checking account, which we use to pay all of our bills. Why would we? It's a non-interest bearing account from Bank of America that literally only gets used to funnel money in and out.
Money is either coming in via direct deposit, getting automatically sent to pay our bills, or going out to our retirement or housing funds by itself. Since this keeps us on a paycheck-to-paycheck mentality, we like to have a little extra money available: a financial cushion.
Beyond having an emergency fund (which is in a separate, high-yield online savings account), the financial cushion keeps us from worrying that, somehow, a bunch of our transfers will happen on the same day and leave us empty (or worse, overdrafted).
Funny about Money describes his paycheck-to-paycheck safety net of about $500, which will cover his short-term emergency this month.
For us, the financial cushion is a little bit higher — around $600 — mainly because so many of our transactions are automated. For the most part, the transactions happen on the same days every month, but I don't trust our service companies (Sprint, Comcast, etc.) to keep to that schedule.
So, should there be a blue moon and a bunch of transactions automatically happen within a day or two of each other, we're covered.
Do you have a financial cushion? If so, how much?
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Yelp Reviews Financial Services In Your City
Today I rediscovered a site I used to check out a little while ago, yelp.com.
It's a site where people can write reviews about a variety of different things. It seems to have taken off, and I plan on using it more (if I can remember).
The reason I bring it up in this forum is that members have critiqued and rated financial institutions, which can be of great use to prospective customers.
The ones I've read seem to focus more on the service and décor in physical locations, and not so much on the actual products.
But, if you're new to an area it's certainly a nice place to start your banking search, especially if you intend to be a frequent user of actual branches.
Tom Valenti is a marketer and project manager who currently works for a financial institution in New Jersey. For more info, visit him at http://tomvalenti.com.
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Money Saving Links: 2/29/08
Happy Leap Day! On to the links …
20 Money Hacks: Tips and Tricks to Improve Your Finances - Zen Habits
Improving your finances improves your happiness, in general, so I thought it would be important to share stuff that's worked for me.
I'm in the best financial shape in my life, despite quitting my job and my wife recently quitting hers too. A lot of that is thanks to you guys, the readers, but it's also thanks to frugality, to eliminating debt, to saving as much as I can. To these hacks.
Facing The Frustrating Realities With Which We Must Deal - No Credit Needed
As you move away from financial irresponsibility and towards financial stability, you will find yourself becoming aware of certain new realities. First and foremost, you will note that the vast majority of Americans live without much regard for their own financial futures. Supported by a massive government that believes in handouts and bailouts, many folks have forgotten the idea of personal responsibility. Living well beyond their actual means, most have succumb to the pressure to have more, get more, and use more.
Lessons I've Learned From Being Broke - Kiplinger.com
Being broke has taught me how to better manage my money so I can actually meet my financial goals. Sounds cliché, but it's been a blessing in disguise.
That's not to say poverty is a requirement for acquiring good money skills. Anyone can learn to be a good steward of what he or she has — whether plentiful or lean.
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Do You Manage Your Money Online?
Within the last year, there has been a proliferation of interactive money management sites. If you don't know how they work, they basically categorize your income and spending so that you can better track your finances.
Depending on the service, you enter in your own data or can have it scraped from online banking sites you already are signed up with. Kind of like what one would see in Money or Quicken, but online, and often they give advice based upon your data.
For instance, if they see you have a high-interest credit card, they might suggest one with a lower rate. As of now, they all seem to be free of charge.
Some examples: Wesabe, Mint, Buxfer, Geezeo, Billeo, Quizzle. I know I've seen even more. I can't recommend or offer too much individual comment on any of these because I haven't used them enough and, frankly, I don't feel like going through the set up for each one.
I really don't know how anyone decides which ones(s) to use.
The ancestor of this technology seems to be the account aggregators, such as Yodlee. With the explosion of so-called Web 2.0, they've evolved into something more. It's inevitable there will be a shakedown sometime soon, with some collapsing, some merging, maybe some charging, and some being bought by banks or online banking providers.
Until that happens, I plan to sit on the sidelines.
Is anyone using any service like this yet? If so, how has it (or not) helped you?
Tom Valenti is a marketer and project manager who currently works for a financial institution in New Jersey. For more info, visit him at http://tomvalenti.com.
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Paycheck to Paycheck On Purpose: It Works
One of the most popular posts here covered why living on a paycheck to paycheck mentality works. (Despite the lack of comments, a number of readers flocked to it.)
Single Ma from Fabulous Financials has a post up over at Consumerism Commentary on how she lives paycheck to paycheck, but is saving money through automatic deductions and taking money off the top.
By the time I receive my “real” paycheck, it’s less than half of what I actually earned, which is ok with me. All of my financial priorities are accounted for, so I have fewer things to worry about. Automation also locks in the funds to make sure I achieve my financial goals (e.g. max out 401k, IRA, and tax deductible college savings).
Having all of your investments, savings and tax-favored spending accounts (FSA, etc.) filled before you get a chance to spend it on impulse purchases is the easiest way to save.
You don't always feel like you're saving because so little work is involved, but you're doing better than if you waited until the end of the month to scrounge up whatever is leftover to put away.
Unless your paycheck is way out of proportion with your spending (on the positive side), try living with a paycheck to paycheck mentality. It works.
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