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Will Tiny Homes Save Boston Residents From A Destructive Household Debt?

house with cash in itIn an article we wrote in June of this year, we mentioned how there is an increase in household debt. We mentioned how there is a steady increase in debt from July 2013 to March 2014. From $11.5 trillion, the debt now currently stands at $11.6 trillion. It may be a sign of growing consumer confidence or it may be a sign of us going back in our own ways. But one thing is for sure, we need to keep our debts in check if we do not want to return to the same situation we were in during the Great Recession.

In an article published on Boston.com, an interesting concept is discussed about how tiny homes can possibly solve financial problems.There are middle, high school and college students who are currently interested in these tiny houses. Young professionals and retirees are also attracted to the appeal of these low cost homes that could lead them to a debt free life. If you think is a fad, it is not. With a more comfortable and homelike feel than RVs, these tiny houses are gaining attention in all of the country. In fact, the article mentioned that Texas, Wisconsin and Oregon are all utilizing these small home structures to solve their problems with homelessness. There are also private investors who are starting to plan Tiny Home communities.

According to statistics published on the ILoveTinyHouses.com there is a continuing growth in the popularity of these homes. In fact, from 2004 to 2013, there is a 687% growth in the “Tiny House” keyword search. That means people are interested in the idea of these small homes.

In Massachusetts, this trend is not yet gaining foothold but that does not mean it is not welcome. The article mentioned a couple of facts that indicate how this movement may be what the Boston residents need to alleviate their respective household debt.

What is the credit situation of homes in Massachusetts

The article mentioned that the reason why this is not as popular as it is in other states is because the situation in Massachusetts is not as bad. The unemployment rate is 7.4% – which places the state in the 18th place in the lowest unemployment list. Only 11.6% of the residents are living below the poverty line and that means people are not really in dire financial conditions.

Does that mean there is no financial problem here? That is unlikely. There are three important statistics that the article mentioned that can spiral out of control and become a full blown crisis.

  • Boston is the 31st most expensive city in the whole world. If this cost of living is not lowered, the young adults may have to relocate in order to afford paying off their student loans and build up their savings.
  • Massachusetts in general experienced the highest increase in homelessness. They are actually in 5th place compared to all the other states in 2012 to 2013. The count in January 2013 is 19,029 homeless people. The state is spending $82 a night to help a homeless family live in a motel room. That is $30,000 a year.
  • Students spend an average of $7,500 to $9,000 a year on room and board expenses alone. That is approximately $30,000 to $36,000 for a 4 year course. This cost is adding to the debt that the student has to take in order to afford the high cost of a college education.

The article also mentioned a couple of nationwide statistics that will not add to the confidence that people in Boston has to be feeling. The statistics show that:

  • The median middle class household income in 2012 is at $51,071 – which is actually still lower than the average in 1989 at $51,681.
  • The poverty rate in the country in 2012 is at 15% – approximately 46.5 million people.
  • The household income declined by 8.3% since the crash of 2007.
  • The young adults that are aged between 25-34 are still living with their parents and have a poverty rate of 9.7%.

These statistics are quite scary especially for the young adults who are graduating with a lot of student loans. We do not want the future leaders of the country to start their lives in debt because this is the norm that they will get accustomed to.

How can they afford to live the American Dream that is comprised of a stable career, a big home and their own car? In fact, a lot of Millennials are delaying a lot of things in their lives because of their debts. They cannot buy a home, pursue a career that they love and live a stress free and optimistic  lifestyle – all because of the household debt that they are currently burdened with.

How can Tiny Homes help keep people out of debt?

The article ended by mentioned three ways that Tiny Homes can help Massachusetts deal with the three problems mentioned above.

  • To deal with the homeless families costing the state $30,000 a year, the article suggested that Tiny Homes be put up for them to live on. This makes a lot of sense because these homes cost between $20,000 to $24,000 only.
  • Make Tiny Homes available to college students – something they can purchase and pay off while they are in college. They can use this home to eventually finance something greater when they graduate – like paying off their student loans or selling it to finance the down payment for a bigger home.
  • Residents who are burdened with high rental prices can actually live in these homes for a fraction of a cost than the bigger houses.
  • The Tiny House industry also needs investors. This is a booming industry that attracts a lot of investors from different states. This may be a business that residents of Massachusetts can make money from.

You see, the article is saying that downsizing to a Tiny Home can help you save major categories in your household budget. We can see three important benefits to these Tiny Homes that the article did not mention.

No Mortgage

First of all, there is no mortgage. This is the highest amount in the average household debt. The cost of a Tiny Home, even if you get a company to build it for you is only between $50,000 to $60,000 at the most. That is usually the 20% down payment that is needed for the average American home. You can pay for your tiny house in cash and be free from mortgage. According to Bankrate.com, the average mortgage payment for a 3 bedroom home is $865 in the fourth quarter of 2013. This is based on a 30 year fixed rate mortgage at 4.46% and with a 20% down payment.

Lower cost of homeownership

The smaller the home, the less you have to pay in terms of utilities and other monthly bills. When you live in a tiny home, you will need even less. Since your space is also small, you will not have the urge to buy unnecessary stuff. This will really keep your spending to a minimum.

Faster growth of personal wealth

Lastly, you will benefit from a faster growth of your personal wealth. Without the mortgage payment and the lower monthly bills, your chances of accumulating household debt will be a lot less. Not only that, you will have more money to put aside in your savings. You can build up your emergency fund and that will make it very easy to maintain debt freedom.

Here is a video of Amy Henion about tiny homes and why she thinks that it is the ‘gateway dream.’ By this she means tiny homes can help you reach a lot of your dreams – may they be related to your finances or not.

11 Financial Things You Should Have Done Before Turning 30

woman smilingIf you’re close to or about to turn 30, this is a fairly significant milestone. Your youth is behind you and you are now definitely an adult. With adulthood comes some great responsibilities and number one on your list should be to take charge of your finances. We understand this doesn’t sound like much fun and that personal finance can sound like a very dry topic. But it cannot be denied that financial things play a huge part in our lives, that money is always one of the top stressors and that it can cause the biggest discord among couples. In fact, every report we’ve seen ranks finances as the second biggest reason for divorce – right behind communication or lack thereof. We hope that you already have your personal finances at least somewhat under control. You should have a reasonably good idea as to where your money’s going and how your spending stacks up against your earnings. Beyond this, here are 11 goals you should have achieved by now. These goals are, of course, not for everyone and some of them may not be feasible for you. However you should keep these in mind as general guidelines. And if you haven’t yet achieved them, it might be time to sit down and write out a plan for accomplishing them.

You should have saved up for the big expenditures of life

You should be thinking about, anticipating and saving up for the big expenses of life. You will need to factor in your wedding, children, a pet, a house and other similar big ticket items. If you plan for these events, you’ll be adjusting your lifestyle, you will be able to afford those expenses and you will not have to go into debt to pay for these items. You should probably try to budget a realistic amount to cover these expenses so you don’t have to go into debt. Of course, another good idea is to forgo some of these expenses and question if they really are necessities.

You should be living within your means

By now, you should know about living within your means and also enjoying life. You should be able to put priorities on your spending and then save in other areas so you can enjoy those “guilty pleasures”. Even if that pleasure is just a daily latte, you should be able to indulge yourself so long as you’re cutting your spending aggressively on other items. Also, be careful about comparing yourself to other people. What they skimp on may not be what you want to give up.

You should have emergency savings

We hope you already have an emergency fund. Most experts say this fund should be the equivalent of six month’s worth of your living expenses and some say it’s even better to have a year’s worth as a better buffer. Of course, it’s easy for those experts to say this. If you find that it’s extraordinarily difficult to save the equivalent of six month’s of living experiences, try for at least three. Life is full of unanticipated issues such as an automobile accident, a serious illness, a friend or family member who suddenly needs financial help or losing your job. If you don’t have an emergency savings fund your only alternative will be to go into or further into debt.

You should be maxing out your 401(k) contribution

If your employer offers a 401(k), you should max out your contribution or at the very least meet your employer’s match. A 401(k) is really the workingman’s best friend. The money is taken out of your salary before you even see it – making your donation practically painless. If your employer does match your contribution this is like free money. While the stock market probably won’t continue to grow the way it has the past several years you could still earn good money by choosing the right stocks or mutual funds for your 401(k). And if push comes to shove you could borrow from your 401(k), which means you would be borrowing from yourself and the interest you would pay you would be paying yourself. And that’s not a really bad deal.

You should be a master of automation

You should by now have learned how to master the art of automation. If you send a chunk of your salary automatically to your savings every month you would be paying yourself first. And when you save money, you can tap into the power of compounding interest. This is when you earn interest on your savings, which is added to your savings and you then earn interest on it. If you automatically save as little as $50 a month for 30 years you would end up a millionaire – thanks to the power of compounding interest.

You should have a Roth IRA

If you have a conventional IRA, good for you. That’s money that you save pretax, meaning it’s money you don’t have to pay taxes on. However, the downside to this is that you will have to pay taxes on the money when you begin withdrawing it. In comparison, with a Roth IRA you pay taxes on the money you deposit into the account but it’s then tax-free when you withdraw it.

You should have written a will

None of us wants to think about our “final destination” but there’s no way to avoid the fact that your life will ultimately come to an end. If you don’t have a will, you will die intestate. If this occurs, a person will be named as your executor and will decide what happens to your property. Under intestate succession laws only spouses, and registered partners (if you live in a state where that’s an option) and blood relatives can inherit. This means any friends, unmarried partners or charities would get nothing despite any intentions you might’ve had to the contrary. So, if you haven’t done this already, go to an attorney or a site such as LegalZoom and get a will prepared That way you will be able to control exactly where your money and your properties go.

You should be paying off your high interest debts

If you haven’t done this already you need to sit down and make a list of your debts in order from the one that has the highest interest rate down to the one with the lowest. Once you have your debts prioritized, you need to concentrate on paying off the one that has the highest interest rate. Of course, you will need to continue to making at least the minimum payments on your other debts. But when you pay off the one that has the highest interest rate, you automatically save the most money, which you can then use to begin paying off the debt with the second highest interest rate and so on.

You should have a decent credit score

If you’ve been handling your finances sensibly, which means keeping your credit card debts under control, you should by now have a fairly decent credit score – of 750 or above. Most lenders look at credit scores in ranges as follows.

  • Very good or excellent – between 700 and 850
  • Good credit score – between 680 and 699
  • Average credit score – between 620 and 679
  • Low credit score – between 580 and 619
  • Poor credit score – between 500 and 579
  • Bad credit score – between 300 and 499

If you haven’t seen your credit score recently, you can get it from www.myfico.com for $19.95 or free if you sign up for a trial of the company’s Score Watch program. It’s also possible to get a version of your credit score at sites such as www.creditkarma.com. If you have a credit score lower than 680, you may have some work ahead of you to get it raised. The reason for this is because there’s an indirect ratio that exists between your credit score and how much interest you will be charged on a credit card or a loan. In other words, the higher your score the lower interest rate you will be charged.

You should have already read several good personal finance books

While some people like to think you can master personal finance instinctually, this is just not the case. If you really want to be on top of your personal finances you need to have by now read several books. If not, you need to get to work. You should probably start with Your Money or Your Life ($12) and Total Money Makeover ($18). Beyond these, the simple fact is that you just can’t read too many books about money management.

You should know how to negotiate

Finally, by now you should have had some practice negotiating – over your salary, with service providers and others. While there are areas where it’s simply impossible to negotiate – like at your neighborhood supermarket – there are also many other areas where you can save money if you know how to negotiate successfully. If not, here’s a video with some good information about the art of negotiating.

The American Household Debt Crisis: Improving, But Far From Over

cartoon of American debtThe consumer debt problem of Americans had always been viewed as a cultural thing. As sad as it may seem, Americans are known for being overspenders. Our culture gave us the notion that bigger is better and more is always merrier. Unfortunately, this mentality got us under so much household debt during the Great Recession.

It may seem like the economy is improving but the latest report from the New Your Fed reveals that the consumer debt is steadily increasing in the first quarter of 2014. According to the article published on Liberty Street Economics blog of NewYorkFed.org, there is an increase in the willingness of lenders to lend money. They allowed longer payment periods and they loosened the restrictions that used to hinder consumers from borrowing money. That means the credit supply is increasing and consumers are well aware of that. That is one of the factors driving up the level of household debt in the country.

The American consumer debt is improving compared to other countries

But while the debt is higher, a report from the OECD or Organisation for Economic Co-operation and Development revealed that compared to other countries, the US is one of the few who showed that their credit level is going down. The report from the OECD-iLibrary.org revealed that both United Kingdom and United States household debt fell by 24% between 2007 and 2011. The other countries like Netherlands and Greece increased their debt level by 41% and 34% respectively.

The same report also mentioned that the ratio of the household debt versus the net disposable income is highest in Denmark at 135%. The countries following the statistics include Netherlands, Ireland, Norway and Switzerland. The lowest recorded ratio comes from Slovak Republic at 49.4%.

What does this mean for all of us? Does it mean we do not have to worry about anything when it comes to our finances? Have we finally started to apply the right financial and credit management skills?

Well that is still too early to determine at this point. There are conflicting data that will tug at opinions about our ability to manage our money.

On one side, we are exhibiting better recovery and debt growth statistics compared to our neighbors. But that does not mean we should take this lying down. The New York Fed said that our debts are still rising. Unless we have successfully lowered our debt amount, which is still more than a trillion dollars, we cannot assume we are past the danger zone. It is too early to say that we have wiser financial practices – but we cannot erase the fact that we are improving. That means we still deserve a pat in the back.

An article published on FoxBusiness.com discussed an interesting idea about our debts. They mentioned that although American household debt rose to $129 billion during the first quarter of 2014, it is not so bad. Although it increased for three consecutive quarters to $11.65 trillion, it is still below the peak of the 2008 financial crisis.

Not only that, the article mentioned that credit card delinquencies continue to decline. That means Americans are paying off their debts. They may be racking up debt, but this is debt that they can afford to pay. At least, at this point, more people are financially able to live comfortably and keep up with their payments at the same time. This apparent credit confidence is viewed by economists as a good sign.

In a country whose economy is 70% driven by consumer spending, this bodes well for businesses. It means people are in a financial situation that makes them more confident to make purchases. And when they make more purchases, it will lead to higher profit for a lot of businesses. When businesses are earning well, employees are compensated and have higher job stability. That can put households in a better position to increase their respective net worth.

The Fox Business article quoted experts who say that higher debt levels with lower delinquency rates is reflective of a better economy. But this does not mean we should encourage taking on more and more credit. There should still be a cautious approach to applying for more debt. Do not do it to upgrade your lifestyle unnecessarily. It makes sense to take on credit for a new home but make sure that you will not make it excessive. Do not buy a bigger home using credit when you can live in a smaller home and be free from mortgage debt sooner than later. Refrain from buying a vehicle that is flashier than you need it to be.

How to keep debt at home low

In all intents and purposes, you want to keep your household debt in manageable amounts so that when the economy turns south, you will not be as crippled as you once were during the Great Recession. Although consumer debt indicates financial confidence, you need to be smart about it.

We are not saying that you should completely remove debt from your life. There are debts with the potential to jumpstart your net worth. These include mortgage loans and student debts. But make sure that you borrow only what is necessary and do not base it on what your current income can afford to pay off. If something happens to your job, that can leave you with mountains of debt that you cannot afford to pay back.

So to help keep your household debt from leading to your financial demise, here are four tips that you can implement.

  • Budget your credit card spending. Making credit card purchases is good for your credit report but make sure that you include it in your budget. It can only be beneficial to your credit score if you can pay it back in full during the grace period. It also means you do not have to worry about additional financial charges that will make you spend more than you should. When you plot your credit card spending in your monthly budget, you will be able to put aside the money that will allow you to pay it back in full once the bill comes in. It will also give you a limit as to how much you should be spending on your card each month. That will keep you from the temptation of overspending your card purchases on things that are not necessary.
  • Make one expensive purchase at a time. There are times when we need to make expensive purchases on electronics, home repairs, gadgets, etc. There is nothing wrong with this. But make sure that you schedule it well. If you see a great sale on a TV but you know that the AC unit in your home requires replacement, you need to prioritize. Make one expensive purchase so you will not compromise your budget for the month. Know the schedule of your purchases so you can save up for it and buy them in cash instead of credit. Reserve your credit for expensive expenses that happen unexpectedly – e.g. blown transmission, busted taillights, etc.
  • Boost your emergency fund. Another effective way to keep your household debt from increasing is to grow your emergency fund. That way, any unexpected expense will not have to compromise your budget significantly. You can keep it from destroying your financial schedule and force you to be in debt. Planning and preparation is the key to a healthy financial life.
  • Get debt help. When you have more than enough debt to deal with, you also have the option to get debt help. There are many debt relief programs that can help make your monthly credit payments a lot easier. You have debt consolidation, debt management, debt settlement and balance transfer. You have the option to hire a professional to help you out or you can do it all yourself. In case you plan on getting debt help from a professional, make sure that you know the laws protecting you from abusive ones.

It may be true that the American culture dictates that household debt will always be present. But that does not mean it should be allowed to grow significantly that will put us in danger of another financial meltdown. We need to learn from our past mistakes and use that knowledge to improve our financial future.

8 Signs That You Need To Implement Financial Management

checklistFinancial management is a critical part of growing up. It dictates how well you are able to handle income and dispense the same for payments on your expenses and other loans. It restricts your purchases and tells you what is important and what can wait. It tells you as well what you can do to increase your income to meet financial targets. Financial management can also be a potent tool against debt.

This is important to share when there are about 20 million college students on an average at any given year according to Asa.org. That is a lot of college seniors entering the workforce where they will be earning on their own and experiencing life in full blast. The walls of their colleges and universities has now grown bigger to accommodate a lot more responsibilities. On top of these is developing financial management in running their money.

It starts with a desire to get their finances in order. There are still  a good number of Americans who are not able to balance a checkbook. The 410 (k) retirement fund, investments and emergency funds are alien to them. These are some of the foundations of financial management and college graduates and even some seasoned professionals needs to understand this to survive financially.

8 signs that you should start working on money management skills

As you go through life, there are pit stops where you need to make decisions and add some financial tools in your arsenal. Some of these can start as early as when you get your first job and for others, it could be as late as a few years before retirement. Whenever it happens, you should be able to discern these signs and know that it is time to work on your financial management skills.

When you start earning your own money

As soon as you leave university, the first order of business is not a vacation with your friends or a cruise with your partner. It should be to look for a job because your expenses and loan payments will not wait for your to finish a good time. If you have student loans, six months is a short time for a grace period and you need to start making payments after. Getting a place to stay, applying for utilities and others will require you to have a steady income.

When you get a job, income will not be too far behind. And when you start earning your own money, it is a clear sign that you need to implement proper financial management. This will put order in your finances and ensure that your monthly salary will not only last you until the next paycheck but will actually provide financial security for you in the long run.

When you already have a bank account

Forbes.com shared that there are about 7.7% of American households who still do not have their own bank account. That is approximately 1 in every 13 American families. There are mixed sentiments on how the banking system helps consumers but it cannot be denied that it is one of the safer ways to keep money and allow it to grow. When you open your own bank account, it is another step up  that needs proper management of your finances.

When you are saving for a goal (e.g. retirement, etc)

Having financial targets is another clear sign that it is high time for financial management skills. These can be in the form of emergency funds or retirement funds. In fact, there is only about 18% of Americans who are confident that they have enough funds for retirement according to Statisticbrain.com. Having financial goals is also a clear sign of financial maturity as you are already planning ahead and not just for the moment.

Here is a video explaining how saving for retirement might need to be done until 68 years old:

When you are responsible for paying monthly bills

Being able to pay for utilities such as water, electricity, phone, internet, and cable is another benchmark on the need to implement financial management. You need to be able to juggle your income with your expenses to avoid coming out short at the end of the month.

When you have started taking on credit

Taking on credit is another sign of financial maturity. Adding expenses on your card or taking out a payday loan to fix some part of the house needs proper management of finances. Without it, you might just end up in a store sale using up the loan you took out for another unnecessary expense.

When you start monitoring your credit

Monitoring your credit comes from the need to understand where you are putting your hard earned money. What items are you buying and where you can cut down on expenses. Financial management will help immensely at this point because it can provide a clear direction on how you can proceed after monitoring your credit.

When you  have started investing

Investment is a by-product of forward thinking and once you start delving into the world of investments, you will need financial management to guide you through your options. In fact, investing is one key to financial independence. It can help you plan for your future and hopefully retire at the time when you want to, not when you need to.

When you start paying your taxes

Making tax payments is a sign that you are already earning your own money. This calls for the need for financial management not only to monitor your income but to check as well if you are remitting the right amount for your taxes. Tax refund is a great surprise at the end of the year but it actually stems from wrong tax calculation. That would have been money you could have used for investment at the early part of the year. Instead of just giving the government an interest-free money, it could have earned a few dollars somewhere else.

4 important concepts of financial management

Financial management has four key pillars that consumers need to understand. It is beneficial to know these points in order to practice proper management of your finances.

  • Budgeting. Income has to be treated as the output of your hard work. You should put importance on how you use it and this is where budgeting comes in. Understand the important expenses and forego those that you can live without.
  • Saving. At this day and age, not a lot of people has an excuse not to save. Even technology has made saving easier. This is an important aspect of financial management because it allows the consumer to have funds for future use.
  • Smart spending. Similar to budgeting, spending smartly allows you to weed out your needs from your wants. It helps you identify and prioritize the important spending items in your budget.
  • Credit monitoring. It is important to be on top of your finances and monitoring your usage of credit can give you a great overview of your habits. Where you spend too much and where you can make improvements are just some of the advantages of checking your credit spending.

Financial management is an important tool in putting sense in your finances. Some people say that it is not how much you earn but how well you use what you have. This is where proper management of your finance kicks in. As long as you see the signs along the way, financial management can guide and steer you in the right direction.

Are Money Habits Contagious? Absolutely!

woman thinkingYour money habits can make or break your financial life. It does not matter how much money you earn. What matters are the decisions that you will make regarding how it will be used.

In truth, your preferred habits will play a role the financial decisions that can change your life. This is why you need to be careful about that habits that you will allow yourself to develop and get used to. The thing about these habits is they are instinctive. They become an integral part of your behavior that in most cases, you no longer think when you act on them. It is important that you learn how to choose the right money habits so it will only lead to the good financial behavior that will lead you to the growth of your personal net worth.

What is tricky about your financial habit is they are contagious. It goes both ways. You can influence the behavior of other people and they have the same effect on you. In fact, a study done by the American Institute of CPAs and published through the AICPA.org proves that financial peer pressure does exist. When Millennials are asked about their financial behavior, they usually have similar traits as their peers. 78% of young adults admitted that they have adapted the same money habits as their friends. In fact, 66% said that they consciously try to keep pace with their peers in terms of living arrangements. 64% feel the same way about their choice of clothing.

While there is nothing wrong about you wanting to keep up with your friends, you need to be cautious about how you are doing it. If it means that you have to rack up sizable credit card debts, then you may want to step back and analyze if the money habits you are showing is still healthy for your financial life.

Signs you are easily swayed by financial peer pressure

Succumbing to financial peer pressure is not really for everyone. Some people act as the influencer in the sense that they help others pattern habits according to their own. There are those that are on the other end in which they can easily be swayed by their friend’s money habits.

It has to be noted that not all influences are bad. You can save money through the influence of friends. But before you can identify how you can filter out the good from the bad influences, it is important to learn if you are highly inclined to adapt the habits of the people around you.

There are certain signs that will tell you if you can easily be influenced by the people around you.

Most of the stuff you own are things that you friends also have.

If you look at all your possessions and you find that there are several similarities with those of your friend’s, then you know that you either influenced them or they influenced you to make the purchases. It can go both ways but the important thing here is that within the group, someone is influencing others to buy all the same stuff. It does not have to be an active influence that they literally tell others to buy the same purchases. It can be a passive influence that will seem like each individual is making a choice but they are in fact, highly motivated by the money habits of others.

You do not aspire to own something unless it is owned by your friends.

Do you get the urge to buy something just because you saw a friend own it? When you shop with friends, you end up buying stuff that you never intended to. That is an indication that you are more likely to succumb to peer pressure. In some cases, it may not even be a friend. It can just be someone you know. Make sure that you will not give in to these urges if they are not necessary in your life. Although may think that you earn the same amount of money, your financial situation will always be unique compared to those of your friends. You may have other financial obligations that they do not have. They may be able to afford that purchase but the same is not true with you.

Opinions of other people matter to you.

Lastly, you know that you can easily be swayed by money habits of other people when you find that the opinion of other people matter to you. There is this innate need in us to be accepted by others. This is what leads us to seek out the opinion of other people. According to an article published on BeingHuman.org, as much as we need food and shelter, we also need acceptance. Even in the past, we needed to group together so we can survive by hunting in groups. Belonging to a group requires acceptance and that need in us fuels the importance of other people’s opinion. But here’s the thing – how important is it to you? Getting the opinion of other people is okay but make sure that you do your own thinking too. Do not blindly agree – think your way through it first.

How to keep yourself from contagious financial habits

We are not entirely saying that you should not let yourself be influenced, you just need to learn how to filter which influence will be worth your while. These is a connection between your money habits and your financial decisions because acting on your habits usually make you feel good. When that positive feeling is there, it helps you make a solid decision about your finances. After all, your emotions are one of the strong influencers in your life.

Here is a video of Professor David Tuckett, a member of the UCL Psychology and Language Sciences. He is explaining the role that emotions play in making financial decisions.

It is not yet a complete study but it is interesting that he said how emotions invested in a financial decision will help in the motivation of reaching a particular goal. That is part of the investment that you will personally make in your decision to act on certain money habits.

If you are intent on curing compulsive buying habits that are ruining your finance, here are some tips that we have for you.

  • Buy stuff on your own. If you have to make a purchase, just do it on your own. This is one of the ways you can curb the most dangerous money habits there is – overspending. In addition to that, you may want to make a list of what you need to buy. Bring that list with you and do not go beyond that list.
  • Look for a financial goal buddy. This will be a person that you will reveal your financial goals to so they can help tell you off if your decisions will take you further from your target. In most cases, this is a person with the positive money habits that you want to have – or at least, you both aspire to have the same financial behavior. It does not even have to be someone that you have known for a long time. It can be someone new. According to an article published on LiveScience.com, changing behaviors sometimes require someone new in the group. That way, they can bring something new to influence you with.
  • Keep track of your finances. Identifying the good financial habits mean you have to start tracking where your money  is going. That will help you identify what are the leaks and what should be prioritized. When you know your priorities, you will have the motivation to change any bad money habits that you may have.

4 Benefits Of Budgeting That Goes Beyond Your Income And Expenses

budget on top of moneyIf you really understand budgeting, you will never need an explanation why you have to implement it in your life. Nobody took the time to budget their money and follow it strictly yet still ended up in a financial crisis. No foolproof budget plan will ever lead to your financial demise. If you really want to improve your finances situation, one of the things that you cannot live without is a budget.

Sadly, it seems like Americans are slipping back to our old ways. The effects of the Great Recession included a more cautious American spender that used a budget to keep themselves from overspending. That time seems to have passed.

According to the latest survey from the NFCC.org, majority of the respondents (3 out of 5), revealed that they are not budgeting and keeping track of where they are spending their money. This is one of the habits that got most of us in debt and in a lot of trouble in the mid 2007 to 2008. Those who claim that they are spending less is also declining – which indicates that consumers are increasing their purchases. While this may seem good for an economy that is 70% reliant on consumer spending, that does not really bode well for the average American household.

We are not saying that you should stop spending. We are in a consumerist society. Not spending will be very difficult to do even if that is what you really want to happen. What we really want you to do is to keep on spending but before you do that, you have to seriously implement budgeting in your life. That way, you can easily monitor where your money is really going.

4 ways your budget plan can help your finances

If you need some motivation to get started on your budget plan, you may want to focus on the benefits. There are many positive results to budgeting and it goes beyond just telling you what your income and expenses are. To get you excited, here are 4 ways that a budget plan can help improve your financial management efforts and ultimately, increase your personal net worth.

You can take care of your future self.

Although it might seem far off, you have to believe that every decision that you make today will dictate the life that you will live when you retire. If you have the habit of splurging your income in your youth, your older self will feel the effects of that. A credit card debt that accumulated since your 20s or 30s can haunt you for the next few decades – especially if you decided to pay only the minimum of what you owe. Based on a study done by the Employee Benefit Research Institute and published on EBRI.org, the retirement confidence in 2014 is slightly better compared to 2009 to 2013. But although that is true, there is still 24% of workers who are not confident about their finances when they retire. The study revealed that those who felt confident with retirement are usually those who had a plan in place. If this is your sentiment, then you should realize that budgeting will help you organize your income so you can ensure that your retirement contributions will always be met.

You can plan your spending splurges.

Some people have the wrong idea about budgeting. They think that when they plan their expenses, it will put them in a very restrictive and depriving way of living. This is not true. If you know how a budget works and you can implement it correctly, you will realize that you can splurge on the things that you want and not feel guilty even if it is unnecessary. That is because your budget plan will help you identify the priority expenses and shift other purchases so you can make smart splurges every now and then. That way, buying new clothes or that new camera will give you genuine pleasure because you know that your budget is allowing that purchase.

You can spot spending leaks.

Another benefit of budgeting is it will tell you where you are spending your money in places that you really should not. By seeing these leaks, you can move to seal that off or at least, schedule it so your other priority expenses will not be compromised. A budget plan is usually on a monthly basis. Those $1 or $5 purchases may not seem like much but if you total them, it will show you how it is eating up your finances and compromising your true spending capabilities. Once you have seen the leaks, it will be easier to make the sacrifices that will lead you to stop wasting money on them – like brown bagging your lunch or carpooling.

You can be one step closer to meeting your goals.

Any financial goal, big or small, requires a plan to achieve them. That is how you ensure that you will succeed in achieving the goal. If you want to make managing financial goals easier, that can be accomplished by a clear and foolproof budget plan. Of course, it has to be partnered by implementation but the planning by itself puts you one step forward in reaching your goals. A budget allows you to put aside the necessary contributions needed to make your goals into a reality. It will also help you determine your progress so you can gauge if you need to kick your saving efforts up a notch.

Common pitfalls your budget can save you from

As you are implementing your budgeting efforts, you also have to be aware of the pitfalls that can be averted by following a budget plan. There are three important financial mishaps that it can save you from.

  • Being late on payments. You will never be late again you input all of your debt payments into your budget plan. You do not have to worry about not having the money to pay off a financial obligation because your budget will make sure that you have put aside the contribution for that. But again implementation is the key to never be late on your due dates.
  • Foregoing saving because of too much expenses. NerdWallet.com revealed that one of the habits that helped selfmade millionaires is their ability to save. You may think that this has no room in your finances because of too much expenses. If you list everything down in a budget plan, you can identify the details that you can remove so you can make way for your savings.
  • Wrong assumption of your financial capabilities. This happens to most of us. We think that we can afford something when in truth, we cannot because there is a more important place for your money other than an impulse buy. Your budget will easily give you an idea about what you can afford to spend and what you cannot. Consult your budget at all times so you can stop overspending once and for all.

Budgeting can really work wonders in your financial life but, as mentioned several times, you have to be disciplined in following it. In case you feel like you budget is very difficult to implement, you might have created an unrealistic one. Do not be afraid to revise it if you have to. In fact, you need to keep on revising this budget plan so you can ensure that it is still aligned with your current financial priorities.

10 Things Your Parents Didn’t Tell You About Personal Finances

Girl looking worriedIf you were fortunate your parents sat you down at some point and you had “the talk.” No, not the talk about sex. The talk about personal finances. Or maybe you were like me and your parents never discussed money with you. I guess mine thought I’d either figure it out on my own or just sort of pick it up by osmosis. In any event I finally did learn the important lessons about personal finances but in some cases it was definitely the hard way – like the time my wife and I decided to have a home custom built for us when we hardly knew what a mortgage was.
Even if your father or mother did have “the talk” with you, the odds are that there were some things they neglected to tell you that are important and here are 10 of them.

1. Being in debt is like indentured servitude

If you’re not familiar with the term indentured servitude the online encyclopedia Wikipedia defines it as, “a voluntary labor system whereby young people paid for their passage to the New World by working for an employer for a certain number of years”. The reason why debt is like this is because basically what you’re doing is sacrificing future earnings (working for a credit card company) in exchange for instant gratification (passage to the new world). How do you avoid going into debt? It’s pretty simple. If you have a credit card make sure you pay off your balance on time every month. Ditto store charge cards, and an auto loan – if you have one. I understand that it takes a certain amount of self-discipline to do this but it will pay off in the years ahead when you’re not sending 20% or 30% of your hard earned income off to a credit card company or companies.

2. If you need to ask your boss for a raise, you need a new employer

Assuming that you come to work every day on time and are good at your job you should earn a raise without having to ask for one. If you work for a corporation you probably get an annual review accompanied by a raise of some kind. If not, you’ll be at the mercy of your employer. But, again, if you’re doing a good job you should earn a raise without having to beg for one. And if you do have to beg for one, you might want to think about finding a new employer.

3. You can’t manage your money if you don’t track your income and outgo

The cornerstone of good money management is to know how much you earn and where your money’s going. Most of us do know how much we earn but if you’re not tracking your spending, it’s like playing baseball without keeping score. You may believe you’re ahead but you could actually be falling further and further in debt. There are a number of smart phone apps available today that make tracking spending drop-dead simple. Alternately, you could just use a pen and a notepad. But whichever method you choose it’s important to note all of your expenditures right down to the penny. Add them up at the end of the month and you’ll then know whether you’re winning or losing. If you find that you are losing – or spending more than you earn – you will need to find areas where you could cut costs.

If you would like more information about tracking spending here,  courtesy of National Debt Relief, is a video  that reveals three ways to do this.

4. Only suckers play the lottery

If you’re carrying a boatload of debt don’t think that playing the lottery is your way out. A very smart person once said, “Lotteries are for the mathematically challenged.” We have radio commercials for our state’s lottery that generally ends with words like, “chances of winning the Powerball lottery are one in 25.4 million”. You have a better chance of getting struck by lightning than winning a one of those lotteries.

5. Shun those credit card “convenience” checks

“Convenience” checks are those that you receive periodically from your credit card company or companies. They might seem like a convenient way to get cash but the interest rate on these things are often anything but convenient. Convenience checks usually come with a fee of 3% or 4% of the amount you’re borrowing, plus a very high interest rate. Most credit card companies charge the same interest rate on a convenience check as cash advances. This means the interest on a convenience check could be twice that of purchases.

6. A spreadsheet can help even the most disorganized

Even if you’re a very disorganized or scattered brained person a spreadsheet could help you successfully manage your personal finances. You could use one to track your spending, create and stick to a budget and help you pay off your debts. If you don’t have a spreadsheet program such as Excel, there are free ones available through OpenOffice.org, Google Docs, Kingsoft and a number of other sources. While it may take you 30 minutes or an hour to set up a spreadsheet once you’ve done this it probably won’t require more than a few minutes a week to keep your personal finances under control.

7. Patience is a huge virtue when it comes to saving money

You’ve undoubtedly heard the old story about the tortoise and the hare. When it comes to saving money, the tortoise is clearly the winner and by a wide margin. This is due to compounding interest. You could put as little as $50 a month in a savings account and end up with several hundreds of thousands of dollars. If you’re not familiar with compounding interest it’s basically where you earn interest on interest. For example, if you put that $50 into a savings account that pays 2% annually, you would have $612 at the end of the year and $1236 at the end of year two – or your $612 plus $600 plus 2%.

8. Money won’t buy happiness

A friend of mine used to say that while money won’t buy happiness it will rent a bunch of fun until happiness comes along. But that, of course, isn’t really true either. Real happiness doesn’t come from having enough money to buy a bunch of stuff. Nirvana comes from financial freedom. You might think that the guy that drives an almost new Lexus is better off then your friend who drives an old beater but this is often not the case. The guy in the Lexus may be up to his belly button in debt while the friend in the old beater has more than $100,000 in his 401(k). If you live prudently and save a good portion of your income the day will come when “no man will be your master” and you will be financially free, which is true happiness.

9. Not everyone needs a budget

We don’t know of a single financial guru that doesn’t preach the importance of having a budget. But the truth is that not everyone needs one. Some people just instinctually know how much they’re spending versus their income and how to keep the former from getting ahead of the latter. You may also not need a budget if your finances are relatively simple.

10. Frugality is not the be-all and end-all

You may have read some of the many articles regarding the importance of living frugally. Of course, living frugal is never a bad idea. However, frugality has its limits. You could cut your spending to the very bone and still not have enough money to create an emergency savings account or to invest. The best answer sometimes is finding ways to earn more money. For example, this might be harsh but you could get a second job. Our economy is mostly back to what it was before the Great Recession and there are many companies now hiring part-time employees. These jobs generally don’t pay much – usually nine dollars or $10 an hour – but 20 hours a week could go a long ways towards funding your savings account or making investments.

10 Signs That Your Financial Management Skills Suck!

man looking frustratedDo you want to know how to improve your finances? Well you and a millions of Americans are after the same goal. We all had our finances suffer when the Great Recession hit and it was devastating to watch everything that we have worked so hard to acquire go down the drain.

We all blamed debt for most of our financial suffering. We thought that if we did not have debts, none of us would have gone through so much stress the way we did. While this way of thinking is sound, you need to realize that it is incorrect. Despite the obvious destructive effects of debt, the obvious culprit in our suffering is our own financial management skills. Or at least, the lack of the right skills.

According to a study done by CreditDonkey.com, the average income of Americans is $4,000 a month. Most of that goes to groceries, transportation, insurance, and housing expenses. Only 3% of the disposable income goes to savings and not even everyone can afford that. Low and mid income families usually cannot meet all the expenses so they are forced to pay for any deficit through their cards. The average is usually $58 a day. If you compute that, it amount to $1,740 a month – which is already 40% of the average income of Americans.

The way we spend our money, pay off deficit in our expenses and the little amount that we save is like a ticking time bomb. One glance and you know that there is something wrong with how we manage our money. It does not matter if you can earn more – if your financial management skill suck, then you will always be on the brink of a financial crisis.

10 reasons your money management skills will fail you

There are certain signs that will tell you if your money management skills is leading you to a disaster. You want to go through this list so you can be certain if you need to improve the way you manage your money.

Here are 10 reasons why your financial management skills put you in a compromising position.

  1. You do not have an emergency fund. Let us start with your financial security. One of the indications that you are financially secure is when you have enough money in your emergency fund. If not, then you know that you are in trouble. According to the latest Financial Security Index from Bankrate.com, 26% of the respondents in their survey said that they do not have any emergency fund. 24% has less than 3 months covers, 17% has 3-5 months and 23% has an emergency fund that is worth 6 months and more. If you are not part of the 40% who has an emergency fund worth 3 months or more in expenses, then you need to save more to secure your finances.
  2. You fail to keep track where your money is spent. Another sign that your financial management skills are not ideal is when you do not know where your money is going. Some people blindly pay their bills and daily expenses without really checking if they are able to pay off the priority. Even if you do not end up with a deficit each month, you need to track where your money is being spent. That is how you ensure that it is funding the expenses that matter to you.
  3. You have no idea how much you owe. As scary as this may sound, there are people who have no idea how much debt they have. This is dangerous because in most cases, they realize too late that their debts have grown into an amount that they cannot afford to pay back. Do not let it reach this point and just start monitoring all your credit accounts.
  4. You have a problem differentiating a want from a need. An important skill that you need to learn in financial management, that is admittedly quite tricky, is to distinguish the want from the need. The problem is, we try to justify the wants as a need. But here’s the thing. We want a big house but all we really need is a safe and comfortable home. We want designer jeans and dresses but all we really need are decent clothes. Learn how to prefer the essentials.
  5. You cannot say no. We’ve written an article that discusses how saying no can save you from a financial crisis. There is so much truth to this that  you need to really learn how to say no. That means saying to to your friends, family and even yourself. Helping is good but make sure you are not giving them the easy way out. They have to learn from their mistakes and instead of giving them the quick relief, guide them as they go through the painful process of saying no. In the end, you are not only helping them, you are also protecting your finances from being compromised.
  6. Your expenses are bigger than your income. If your expenses are bigger than your income, then you know that your financial management skills need improvement. Try to lower your expenses by cutting back on those that are not necessary. Live within your means because any purchase in excess of your income is done through credit.
  7. You always spend using your credit cards. Now that we have mentioned credit, let us discuss credit cards. It is not bad to use them but you have to learn how to use them properly so you do not end up in debt. Make sure that when you use it, you have the cash on hand to allow you to pay for it in full at the end of the month.
  8. You only pay the minimum requirement. In connection with the last, if your credit card payments are only based on the minimum requirement, you should know that it is also a sign of bad financial management skills. This payment method will keep you in debt for a very long time. So pay more than the minimum and if you cannot do that, then stop using your credit cards for the meantime until you have paid off your balance.
  9. You compare what you have with others. Another bad habit that could lead to your financial disaster is always comparing what you have with others. Their life is not the same as yours. It may be true that you have the same position and earn the same amount of money but you financial obligations might be different. You see them sporting new cars but that may be because they already have investments in place to help them afford it. Just focus on what you need and not what your neighbors have.
  10. You are not paying attention to your credit report. Lastly, not checking on your credit report is a big mistake for a lot of people. Some have gone through life with no debt or have made wise financial decisions but since they failed to check their credit report, they did not see that they were victims of identity theft. Unknowingly, someone got your details and borrowed huge sums of money under your name. If you fail to spot that in time, you could end up paying for all of that yourself.

5 steps to improve how you manage your finances

If you are guilty of any of these signs, then it is a must that you work on your financial management skills. In case there is a need to improve your habits, here are 5 things that you can do.

  • Improve your financial literacy. First of all, you have to be able to identify the mistakes before you make them. This can only be done if you are aware of what is right and wrong. Improve your financial literacy by reading about personal finances. You can start by visiting Consumer.gov – especially the part about managing your money.
  • Set up financial goals. Once you have educated yourself, set financial goals that will lead you towards a more prosperous financial standing. It can be as simple as growing your money up to $X amount or buying your own home.
  • Create a budget. When you have your goals, you can work on a budget that you will follow each month. This budget plan will not only help you practice financial management, it will also help you setup your finances so you can reach your financial goals.
  • Identify the habits that are sinking your finances. Obviously, you need to stop those bad spending habits in order for you to keep a tight lid on debt. Other habits that you may want to correct includes failing to check your credit report, not saving enough for retirement, etc.
  • Stop acquiring debt and pay off existing credit. Lastly, you want to make sure that any debt that you have will be paid off and you will also stop acquiring unnecessary debt. This will help maximize what limited resources you have each month.

Here is a video from HowCast that teaches how you can avoid credit card debt.

Things Boomers Need To Think About Before Getting Remarried

Happy old couple looking at a cameraLove has no age limit. You can fall in love when you’re a teenager, in your 20s or 30s or even when in your 60s or 70s. According to one report an estimated 500,000 Americans ages 65 and older remarry every year. And as we continue to live longer and longer, this statistic is almost sure to increase.

Why would older people remarry?

There are a number of older people who get remarried simply on moral grounds – they just don’t feel good about living together in sin”. Of course, there are other couples that simply enjoy the status and privilege that marriage brings. There is research showing that a good marriage offers mental health and physical benefits. People who are unmarried are generally at a greater risk to die at any given point than married people. Maybe love does heal. And it certainly can heal taxes. More than half of all married couples paid less taxes when filing jointly than if they had filed individually.

There is also the fact that we are sexual and social beings over the entire course of our lives. It doesn’t matter whether you’re a teenager or a senior, the excitement and nervousness you feel that comes with dating are very much the same. This can come as a big surprise to older people who unexpectedly find themselves involved in a new relationship.

The advantages of remarrying

While it isn’t really true that two can live as cheaply as one, it is a fact that two people together can live on far less money than two people living apart. There are economies of scale married people enjoy that single people simply cannot equal.

In Social Security and under the majority of pension plans spouses enjoy benefits that unmarried lovers and domestic partners do not have. If one spouse dies, many pension plans include some kind of a benefit that transfers the pension to the surviving partner. However, many of these do not offer the same benefit to a domestic partner.

Not for everyone

Of course, remarrying after the age of 60 isn’t for everyone. It could mean a loss of Social Security benefits or complications having to do with inheritances. As an example of this, if a widow remarries she will no longer be eligible to collect her dead husband’s Social Security benefits. Adult children may object to the marriage due to the fact that they’re worried about their inheritances or maybe they fear that their deceased parent will somehow be forgotten. In some cases, the children may simply not like new person. Personal chemistry can be an issue when someone new is brought into a family. In the event that both people have adult children, this could just complicate the matter. One set of children might see the new wife as loving and wonderful while the other set wishes the husband would just go away. And the adult children of each family may just not like each other or see them as gold diggers.

It’s the same but it’s different

There are many similarities to being married whether you’re 25 or 65. You can take trips together, share hobbies, go to movies together or just enjoy being with the person you love. However, there is one fundamental difference between getting married when you’re young and getting hitched after the age of 60 or 65 – and it’s called your finances.

If you’re in your 20s money isn’t much of an issue for the majority of couples. The most important thing you may need to talk about is your student loan debts. But if you’re 60 or older merging your finances can get complicated. You probably have life insurance and so may your betrothed. The two of you may have separate savings accounts, trust accounts, automobiles, homes, retirement plans and even businesses. You and your intended should have serious talks about your finances though these may not be the most pleasant ones you’ll ever have.

When it comes down to it the both of you need to take into account how you will protect your financial assets. Given the changes that have been made recently to estate tax laws, each of you should take a hard look at the concept of portability to protect his or her individual exemption amounts.

Questions you should ask your future spouse

Again this may not be a pleasant conversation but you need to not only discuss your finances but each partner should provide a detailed analysis of his or her personal finances. You should each explain all of your accrued assets and your retirement plans. You should also have a frank discussion regarding your spending and savings habits.

couple with debt management consultantProtecting your assets

The harsh fact is that if you’re remarrying and have many assets you need to get a pre-nuptial agreement. It’s valuable and almost essential to have in writing an agreement that protects the each of you.

Make a plan

By their very nature retirement accounts are individual accounts. However if you are a boomer and get remarried the two of you should immediately draft a plan as to how you will combine your other finances. This needs to include any insurance policies as well as your savings accounts and investments.
Again this is not a pleasant conversation but you need to discuss whether one or both of you had divorce decrees or some court mandated beneficiary relationships. If so, it’s critical that you be aware of this and how it applies to your new marital situation.

Discuss debts and spending habits

It’s also important to sit down and talk about your spending habits and your debts but without starting an argument or being offensive. Your betrothed might be unwilling to discuss current or old debts and his or her spending habits. But this is a very important conversation to have because money issues are often the cause of breakups. If you and your about-to-be-spouse have very different approaches to managing money and how you spend it this can cause tension and serious problems in your relationship. And as painful as it might be you need to be totally honest about past debts so you can resolve any issues together. Don’t keep skeletons in your closet as they will eventually come out and could really hurt the relationship. For example, if it turns out one of you has a bad credit score or had filed for bankruptcy at some point this could prevent you from purchasing a home, a business or from doing something else financially.

Protect your assets

There’s another thing people in their 20s rarely need to worry about and that’s children from a previous marriage. But if you are age 60 or older it’s almost certain that one or both of you have children. You will both probably want to pass on some of your assets to those children. In some cases this can be as simple as having properly designated beneficiaries. In others, you may have to utilize more complicated trusts. However, regardless of the scenario if have assets and want to protect your children you should definitely consult a qualified professional.

4 Good Financial Habits That Can Go Too Far

woman looking at her credit cardYour financial habits are hands down, the key to improve your financial situation. It does not matter how much income you earn. If you implement the wrong habits because of incorrect financial concepts, then you have no chance of getting out of a bad economic situation.

Some people have grappled with the idea of what habits should and should not be implemented in their personal financial condition. There are so many misconceptions out there that it can be quite confusing to know which should be followed or not.

Take for instance our belief that credit card debt is caused by irresponsible spending. While it is true that your spending can lead you to unmanageable credit card balances, that is not the whole reason why you have credit card debt. According to a study done by Demos.org, there are other factors affecting your credit card spending. Things like your education, insurance coverage and children are part of the reasons why you are currently suffering from credit card debt. You have to understand these things before you can truly and completely be free of your compulsion to spend using your cards.

Just like this misconception, there are also a lot of things that you should know about financial habits. It is not a simple good and bad habit. You have to go deeper than that concept to truly understand what is right and wrong for you. Sure it is easy to say that you should practice only good financial behavior. But you have to know that there are certain habits that although they have good motives, can turn out of be really bad for you.

4 good habits that can ruin your finances

In truth, anything in extreme is never good for you. It is true what they say – too much of a good thing can also be bad for you. That being said, let us discuss 4 financial habits that will not do you good if exaggerated.

Saving too much for the future.

A lot of people might disagree here. In fact, financial experts love to preach this: we need to always think ahead into the future because we owe it to ourselves to have a good retirement. They say that we need to pay ourselves first – meaning we have to make sure that our retired future self will be well provided for. There is some justification to this but remember that you should also let yourself enjoy the present. We need to save but not to the expense of our present life being too miserable. What need do you have for millions of dollars in your retirement if you will only spend it on expensive medical treatments because you exhausted your body trying to earn money to save? Saving can save your life but you need to set a limit. Plan what you need to save up for and cut your present self some slack once in a while.

Cutting back on your unnecessary expenses.

This is another of the financial habits that can really tear consumers apart. Some people believe that cutting back on that latte is imperative if you have a lot of debt to pay for. There are also people who will tell you not to treat yourself to a spa or a massage because that money could go to your savings. If you think about it, these make a lot of sense but here’s what you should consider. Some unnecessary expenses are needed for you to be motivated enough to pursue your financial goals. People may think that the morning latte is a waste of money but if it gets you going in the morning, then indulge yourself. If that is important to you, then buy that unnecessary item. Just make sure that when you do so, it will not make your expenses bigger than your income or it will not put you in debt. But if you have the extra cash to spare without making your savings contributions for the month zero – then give yourself the needed pampering. You do not have to completely let go of these things to find financial happiness. In fact, it might be just what you need to be motivated.

Comparing prices.

We all want to get the best value for our money. However, you do not want to spend forever trying to figure out and compute what product to use. While we do not want to waste our money, you do not want to waste your time either. Take for instance couponing. It is true that this can help you lower your expenses but it is just too tedious and time consuming to do. If you have the option to work longer hours to earn more, wouldn’t you want to spend it earning instead of clipping coupons? Are you really saving if you are too obsessed with saving pennies on each purchase you make?

Forgoing professional services.

DIY – this is another of the financial habits that we are being encouraged to pursue. There are things like debt relief or financial planning that we can do on our own but this is not always applicable for everyone. Again, time is a factor here. But even if you have the time to work on something on your own, make sure that you can do it properly. There are certain tasks that are best left in the hands of  professional because the cost of making a mistake will end up making you spend more that you should. While it is a great idea to do it yourself, make sure that you really have the capabilities to do it correctly.

Learning to balance your present needs with your future goals

We are not saying that these financial habits are bad. We are just saying that they should be done in moderation and with a deep regard for present circumstances. Being wise with your spending and saving more money are great habits to have. However, you have to learn how to balance your present needs with that of your future goals.

There is this article on Forbes.com that discussed how even spending on experiences instead of material things may not make you happy. The article mentioned that if you focus on life experiences, it does not necessarily mean you will be happy with your spending. You have to take into consideration what is valuable to you as a person.

For some people concentrating on buying for the sake of experience could work but for others, it may not. For instance, buying clothes is more of materialism than experientialism. However, if you are in an industry wherein you need to portray your professionalism through your outward appearance then buying clothes is something that you know you have to do.

What we are trying to point out is this. The financial habits that you should pursue may or may not be according to what the majority is doing. Sure saving for retirement is a good idea but if it is keeping you from enjoying your life today, then you need to rethink how you can save for retirement without depriving the present.

All it really takes is to know what is in moderation. Even the good financial habits, when done in extreme can do you more harm than good. Do not be too blinded by your need to succeed financially. First and foremost, understand yourself and your financial personality. Once you have that knowledge firmly in place, you will know what you truly deserve out of your money. After all, it is just a tool to help you thrive in this life. Everything else, the rules, the control, the plan and the implementations are all up to you.

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