Personal finance is almost entirely behavioral. We all have lots of bad money habits and sometimes we don’t even care. Spending money is fun. It’s fun to not care what we spend our money on, enjoy life, and just go for it. But, if you’re anything like me, the guilt of spending begins to set it right as I try to go to sleep. There are some things I never regret spending money on: gifts, food, things for my kids, essentials. But almost everything else bothers me after the initial excitement goes away. There’s actually a solution to this. In my opinion, if we can manage our behavior by tweaking small decisions, it’ll have a huge impact on our finances. We will be able to spend money without feeling guilt and know that we’re moving closer towards ultimate financial peace of mind.
Here’s a list of my favorite “hacks” that will lead to a better relationship with our money.
Set up a budget
Why are we so afraid to examine our budget? We need to take this first step in order to understand our inflow and outflow. Once we examine this, we can start “trimming the fat” out of the budget - cutting out the unnecessary expenses and waste. Whenever I do this, it makes me feel good about my spending and the process of optimizing cash flow can actually become a fun thing to do. If you’d like a free copy of our budget template, send us an email at firstname.lastname@example.org and we will send it over!
Don’t be afraid of investing - start now!
Literally, it’s never been easier to invest than it is now. It’s never been cheaper (there are actually funds with ZERO cost to hold!) than it is now. Thanks to the titans of the investment world like Vanguard, costs to invest have come down dramatically. For example, funds used to charge in excess of 2% just to manage your money. What’s even better than that, in my opinion, is that the minimum amount needed to invest with a real financial planner is lower than it’s ever been. Liftoff has NO MINIMUM. That means you can work with an advisor to build an investment portfolio from literally $0.00. If that’s not something you’d like to do, there are lots of automated investing apps that you can use. It doesn’t really matter how much you have to invest, just that you start.
Earn in your savings account.
In response to the Great Financial Crisis that started in 2007, the Federal Reserve lowered what is called the Federal Funds rate from 5.15% to 0%. This was done in order to increase liquidity in the markets during the recession. The Fed did this to spur spending and borrowing, with the hope that it would help the markets and economy grow. It worked! Unfortunately, one of the consequences of lowering interest rates was that our savings accounts stopped earning interest. With the Great Financial Crisis about 10 years in the rear view mirror, the Fed has been reversing course and raising interest rates. The Federal Funds rate is now at 2.5% and as a consequence, banks are now offering interest on savings account. I love the idea of the money I have at the bank earning interest. There are many online banks that offer high yielding savings accounts. Mine offers 2.2%! Your savings account should be earning money!
When you want something, WAIT THREE WEEKS.
Delay gratification. When you want something, set a rule to wait three weeks before you pull the trigger. If you still want it, then go for it. I do this myself and it does a wonderful job at sorting my purchases and helping me avoid the downfalls of instant gratification.
Save money just to spend it. Reward yourself.
Build spending money into your budget. One of my favorite things to do is to set a “fun” category in a budget. For example, allocate maybe $100/month to “fun” expenses. If it’s fun (and you get to be the judge of this), buy it. Set a limit so that you don’t go too crazy but as long as you stay within your limit, buy whatever you want and DO NOT feel guilty about doing so.
Snowball your debt!
This is one of the most powerful ideas in demolishing debt. Here’s how it works: let’s say you have 5 outstanding debts. List the debts, from smallest to largest. For example, let’s say you have these debts:
Credit Card - $50/month, balance of $800.00.
Personal Loan - $150/month, balance of $1,740.00.
Car - $275/month, balance of $14,500.00
Student Loan - $550/month, balance of $18,750.00
Mortgage - $1,800/month, balance of $175,000.00
When following the snowball method, focus on the smallest debt first. Continue to make all of your payments, but throw extra cash towards the credit card. Once that is paid off, take the $50/month you were applying to the credit card, and put that towards the personal loan. Once the credit card and personal loan are paid off, take the $200/month and apply it to the car. You’d now be paying $475/month to the car. Once it’s paid off, put all it all towards the student loan, etc. After enough time, your debt payments are accelerating and you’re out of debt MUCH faster than normal. Most people do not do this. Instead, once a debt is gone, they just spend the money. Snowball your debt and get rid of creditors. It leads to financial freedom!
Think in terms of net worth, not cash flow
When you make a financial decision, ask yourself, “is this increasing my net worth?” If the answer is yes, it’s probably a good financial decision. If the answer is no, you need to ask yourself if the expense is worth it or not. Sometimes, it’s worth it and you should spend the money. If the answer is no, it might be a foolish use of money and the funds could be allocated towards paying down debt, building your net worth, or spent on something that is worth the cost.
DO NOT save your credit card on websites (including amazon).
Amazon “one click” will be the death of me. It’s extremely convenient to use. But why do you think Amazon built the feature? They want more of your money. PayPal is now integrated into most websites as well. It makes checking out so easy. Compared to the hassle of grabbing your card, inputting the info every time you buy something online, PayPal and “one click” are a breeze. It’s also an incredibly convenient way to WASTE MONEY on stupid stuff. If you’re online shopping at 11PM from bed, the last thing you want to do is get out of bed, find your wallet, and input the card info. If you have to do that, you might just not purchase the items in your cart. Don’t save your card info, PayPal info, or enable “one click” check out on websites and watch your savings accounts grow.
Learn how to cook
Let’s face it, we all love good food. There’s always the temptation to go out to eat. While I’m a big fan of good food, I’ve realized that I can save a significant amount of money by cooking my own food. It’s delicious too. Cooking at home also has immense health benefits. It’s easier on our wallets and our waistlines!
Go outside more.
A few weeks ago I asked my wife, “not including our marriage or the birth of our children, when’s the happiest time in our marriage?” She thought about it and told me it was during our hiking trip to Yosemite National Park. Of all the trips we’ve gone on, all the things we’ve purchased, the happiest we’ve ever been is when we went spent a week outside. There’s just something about getting outside, breathing the fresh air, being in the sun, and not sitting at a desk, that makes us happy. If you’re itching for an adventure, consider local hikes, go to the park, go to the lake, or any other outside activity. It pays immense dividends and makes you happy. Oh, and it’s cheap.
Hopefully these “hacks” will help you improve your relationship with money. If you’re interested in taking the next steps towards building your financial independence, click here and schedule free planning consultation with us. We’re anxious to help you build a financial plan and watch you move closer to your financial goals.