Every year we make New Year’s resolutions with great intentions and on January 1st we try and stop our old habits cold turkey.  Why do we start trying to make major life changes smack dab in the middle of the busiest time of the year?

I don’t know about you but I always have a lot going on with family, work, and the holidays so its tough to suddenly introduce big new life changes right in the middle of it all.  This year I propose something different – this year I challenge you to get a head start! 

Start Today, December 1st

Pick one thing you desperately want to change in your life, only one thing so you can keep focus.  Something you want to change more than anything else.

Now commit to working towards that change beginning today.  Rather than waiting until January 1^st, get a head start.  When the first of the year rolls around and everyone else is starting fresh on the first day of their New Year’s Resolutions, you’ll aleady have a whole month under your belt. 

When your friend’s talking about how they’ve lost 5 lbs by the second week of January, you can just smile to yourself and think about how you’ve already lost 2–3 times that much.

Get Momentum On Your Side

When everyone else is struggling to get past that rut in the third week of January, you’ll have a huge advantage over them.  You’ll have momentum behind you! You will have been living your new habit for almost two months and will definitely be seeing some results. 

They say if you do something seven times in a row it starts to become a habit.  So by January 15^th, it’ll have been 45 days, plenty of time to make it a part of your routine.  You’ll have beaten back the cold sweats and major urges and be on a roll. 

You may even be doing well enough that you can start working on a second change.  Many people can’t even see one New Years Resolution through, you might even be able to knock out two!

Listen All Y’all, It’s a Sabotage

I’m sure the Beastie Boys weren’t singing about the month of December when they sang about “Sabotage” but if you have resolutions about losing weight or getting your finances back on track then December is definitely the month of sabotage.

With holiday shopping and cookies galore the last month of the year can be a total disaster.  It’s a time of overindulgence both financially and from a calorie perspective.  If you spend December spending way too much money and eating tons of treat, then January 1st you’ll be in the hole.

So make that change December 1st. Reign in your spending or the number of calories you’re eating and you’ll have a major head start on January 1^st – instead of being behind before you start.

I don’t know how many people I’ve known (myself included) who started a new diet January 1^st but spent the last two weeks of December stuffing their face because they know they won’t be able to in January.  Obviously the problem is you put on an extra five or ten pounds before your new diet even starts so you start out fat and discouraged.

The same goes for spending. If you go bezerk with Christmas presents you could off on January 1st with major debt – or at least some big bills to pay.

Just look at the picture at the top of this post. Who would you rather be January 15th? The guy out in front with an advantage or the guy who hasn’t left the blocks yet?

Change is Hard

Another problem we run into is that we begin January 1st and expect everything to go perfectly.  Often a major life shift requires significant changes and if we haven’t thought these through we can run into some serious resistance when we implement our new self.

By starting a month early you’re actually able to work through those issues and address them now so when the New Year does roll around you’ll have already figured out how to incorporate those changes into your life. 

So, my challenge to you is to get a head start this year along with me.

My Sugar Embargo

For all of December and January, I won’t eat any sweets.  No cake, cookies, candy, ice cream, pie, or anything sweet.  I’m going on a sugar embargo during the holidays and beyond. 

Just like the basics of personal finance are simple (spend less than you earn) the essence of losing weight is also simple (burn more calories than you eat).  So the second part of my change is that I’m starting to exercise twice a week (I know it doesn’t sound like much but it will be twice as much as I’m exercising now).

That’s my head start.  What’s yours?

Begin With the End In Mind

Sorry for the unpleasant throughts but this is one of the exercises in Stephen Covey’s book, the Seven Habits of Highly Effective People.  Picturing your own funeral is something he discusses when covering the 2^nd Habit, “Begin With the End in Mind”.

The premise is that you should start everything you do with a clear direction of how you’d like it to end and then take the steps necessary to get to that destination.  Dr. Covey recommends creating a Personal Mission Statement that hones in on what you want to with your life and who you’d like to become.

Life Planning at Ninety Miles an Hour

I remember I skipped that exercise when I first read his book in my mid twenties thinking, “how do I know what I want to be when I grow up?”  Now in my early thirties it still makes me uncomfortable because unlike Owen Meany, I don’t know what day I’ll die or what I should do to prepare for that day.

I do plan for the future finanancially but it’s hard for me to make any BIG life goals because “then” seems so far away and “now” just moves so fast.  I wake up each day to crying, whining, or fussing kids who eventually cheer up (usually) and see me off to work. At the end of the day I rush home to spend time with the little ones before they hit the sack; then I hop on the computer and work as long as my eyes will stay open.

Three Life Planning Questions

Last night I ran across financial planner George Kinder, of the Kinder Institute, and a video where he asks three questions that make you think about where you’ll end up.  They’re similar to Covey’s “imagine you’re dead” exercise but for some reason they seem easier to answer. I suppose because he breaks the questions down into different time frames and they’re a little more specific. Here they are:

1) If you had all the money that you needed, how would you live your life? How would you change your life?

2) If you only had 5-10 years left to live, what would you differently?

3) Imagine the doctor gives you 24 hours left to live. What did you miss?  Who did you not get to be?  What did you not get to do?

Kinder recommends forming your financial plan around the answers to those questions so that you plan the life you want to live rather than planning your life around money. It may be easier said than done but it sounds like a good approach to me.

What about you? Are you planning your life around money or around your goals?

To help keep me honest I’ll occasionally be running a financial confessional where I talk about a money topic that I’m not proud of.  Feel free to chime in and let me know how foolish or selfish the habit is, or whether you suffer from the same affliction.

Bad Tipping Habits

I’ll start it off by openly admitting that I’m a horrible tipper at restaurants.  I know that people work hard for their money and deserve to be compensated for their efforts but due to some mental block, I have a learned instinct to try and tip as little as possible. I guess it basically boils down to the fact that I’m cheap and don’t like to part with my money but I feel guilty about the impact it has on hard working waiters and waitresses.

Luckily for me, I married a woman that doesn’t have the same flaw so I’ve found an easy solution to under-tipping.  Anytime we go to a restaurant, I simply pass the receipt onto my wife and have her leave the tip.  I know that she does a good job leaving a fair tip and will be much kinder to the server than my stingy tip mentality would allow.

So what do I do when she’s not there?  Usually the only time I go out for food is when I’m with my family but on the occasion she’s not around I always think WWWD (What Would Wifey Do).  I usually have a lower number in my head that I feel like tipping, but instead I go with the higher amount that I know my wife would leave.

So I guess you could say she’s my tip muse : )  I haven’t broken the bad tipper affliction, it seems to be baked into my psyche, but I’ve found a way to at least get around it.  Anyone else a bad tipper?

-Sean Connery breaks into Alcatraz in “The Rock”

–Will Smith flies an alien craft into the mother ship in “Independence Day”

–Saruman’s Orcs breach Helm’s Deep in the “The Two Towers”

–Luke Skywalker slides a proton torpedo down a heating vent to destroy the Death Star in “Star Wars – A New Hope”

Okay, so this is just Hollywood, not real life but I think these stories represent a very real concept.  No matter how secure we feel about our finances, we all have a weakness somewhere.

In all of these cases, the people on the inside of the protective wall thought they were safe but found out otherwise.

In reality, no one is safe.  Given enough time and dilligence, marketers or just bad luck will find the trapdoor into your wallet.

So if it’s inevitable, what can we do about it?  First off, don’t be overconfident.  Don’t assume, “that won’t happen to me”, or “I’d never do that”.  Review your financial defense for potential holes.

• What are the things you’re most likely to spend money on with impulse purchases?
• Are you over-weighted in a certain investment?
• How stable is your job, your company?
• Is your home/apartment and health insured?

Then follow up your analysis by beefing up your defenses in the appropriate areas and making contingency plans for situations where something like a Jedi Knight or nasty orc slips through the cracks.

College Basketball Lesson
This came to mind as I watched the NCAA basketball final last night between Mephis and Kansas.   With seconds left in the game, up by three, and without the ball, the Memphis coach and players were faced with a situation that seemed obvious.  Play good defense for a few seconds and you win the game. Don’t foul, certainly not on the three point line, just deny Kansas a shot.

It turns out, Kansas did get that shot, “Super Mario” Chalmers tied the game with a buzzer beating three pointer and Kansas won the match in overtime (congrats to Kansas on their National Championship!)  In the post game analysis the commentators pointed out how Memphis could have won the game if they’d fouled Kansas as soon as they crossed midcourt, putting them on the free throw line.  Even if Kansas makes both free throws, they’re still down by 1 and Memphis gets posession with only seconds left.

This move goes against the natural reflexes of a college basketball player.  Typically when you’re winning, you don’t want to foul the other team, stop the clock, and give them a chance to score some points. However, had Memphis followed this plan, they may well have been national champions.

Buy Low, Sell High
I think there are good examples of this in personal finance as well. In the stock market, everyone knows you’re supposed to buy low and sell high but it’s not always psychologically easy to do.  It’s hard to sell your winners, stocks that have been making you money.  Plus, some of the best opportunities to buy low are when a good company has hit a rough patch.  It may not be easy mentally to buy stock in a company that’s experiencing hard times. 

Tax Refunds
Another scenario that comes to mind is tax refunds.  Many people over withhold taxes from their salary and look forward to getting a money back at tax time.  From a financial perspective, it’s better to actually owe some money instead of getting a refund.  The money you didn’t give Uncle Sam all year can be put to work earning interest for you, instead of the government. Although it may be nice getting a check come tax season, your money is better off in your pocket all year long.

While writing about money every day I make lots of suggestions and judgments about a wide variety of personal finance issues and they all come from a distinct perspective.  A married thirty some year old male in a certain tax bracket, job industry, and zip code. As some of those things about my identity change with time, I look back on older articles and see them in a different light.

Financial Changes
Over the last two years my family has added another member and gone down to one income.  Prior to that, we had enough money to invest 30% or more of our income, pay our bills, and still have a disposable income.

With higher expenses and lower income, we have to make choices that we didn’t have to worry about before.  We have to balance quality time spent with our son against income and contribution levels to our retirement accounts. 

Money Decisions & Actions
We still have the same habits and lives but less money coming in and more going out so tough decisions are necessary.  I’m learning its one thing to say, “Invest 25% of your income” and another thing entirely to do it.  Life happens and you find there are more important things than money.

Not that we don’t follow the same basic spending and investing principles as we did before, it’s just now we have less of a margin to work with and sometimes building net worth, a retirement egg, or other financial goals have are a lower priority.

Money Perspective
Your perspective on money will likely change based on the amount that you have. I think the key to success is sticking with the basic financial principles and to also remember everyone around you is in a unique financial situation and faced with very personal financial decisions.

My wife was watching Suze Orman give people advice on credit card debt and home loan issues last night on Oprah and I was amazed at how clueless some of the guests seemed when explaining their problem or asking questions.  I imagine the majority of them have access to an abundance of personal finance materials such as online content, books, or magazines so why don’t they know more about money?  I came up with several money ignorance factors:

Upbringing Factor
They were raised in settings that gave no thought to money management and may have demonstrated unhealthy financial habits. People affected by this factor just never knew any better and it’s hard to break old habits.

Friends Factor
In addition to family, another huge influence on most people’s lives are their friends.  If none of their friends show any interest in money or ability to manage it well a person is less likely to be financially informed or make healthy financial decisions. 

Time Factor
Life is busy.  People get involved in their families, jobs, health, communities, hobbies, etc and just don’t make time to learn about money. The unfortunate part is that finances can have a big impact on all the parts of life I just mentioned so if people ignore money long enough, it will eventually affect other parts of their life.

Intimidation Factor
Personal finance involves a lot of numbers and concepts that can be intimidating.  If they don’t have friends or family they can ask financial questions of, they may not feel comfortable learning about money on their own.  As they try and slog through all the details of confusing financial topics they become overwhelmed and just decide to make an uninformed decision.

Denial Factor
There are a lot of hard working people that don’t get paid well, don’t have good benefits, and just have bad luck.  I can imagine if I was faced with dire financial circumstances it would be discouraging to think about money.  Rather than dwell on a negative part of their life, people choose to ignore it completely and hope the details will work themselves out.

What Can Be Done?
These factors don’t stand alone; a person could be affected by some or all of them so it’s easy to see why some people are so clueless about their persona finances.  Unfortunately the reasons behind why someone can’t manage their money won’t help them when the bills are due.  Debtors don’t want to hear “excuses”; they just want to be paid. 

I guess the billion dollar question is how can our society help address these different factors so more people are knowledgeable about money and fewer people run into the sad stories we hear about on Oprah.

As I read through the Quiet Millionaire I ran across a list of things that can be damaging to our personal finances.  I’ve given my take on each one:

1) Undisciplined Spending
Discipline is not a fun word; a lot of times we associate it with the opposite of fun.  However, the truth is that being disciplined doesn’t mean you can’t have fun.  It really just means you have to do a little more planning for your fun and be able to find ways to have fun that don’t cost so much.

2) Materialistic Thinking
Being happy is not about what you own but rather what you look forward to.  Take this sentence for example:

“I can’t wait to drive my Mercedes to our $1 million home, catch an episode of “The Office” on our $2000 TV, and then enjoy dinner with my wife at our $1000 dining room table.”

Now compare that to this sentence:

“I can’t wait to drive home, catch an episode of “The Office”, and then enjoy dinner with my wife”.

Does it really matter whether it’s a Mercedes, a $1 million dollar home, an expensive TV, or high end dining room table?  What is it that you’re really looking forward to, that’s what matters the most.

3) Burdensome Costly Debt
Everyone wants to be in charge of their own future.  How can you be in charge of your own life when you owe everything to debtors?  Not only will debt prevent you from building wealth, it can also prevent you from building a life.

4) Taxes
This is a tricky one.  We have to pay taxes but they definitely eat away at the amount we have to spend now or invest for the future.  Tax planning to minimize or defer the amount of taxes you pay can give you more money to work with.

5) Inflation
This obstacle is a sneaky one.  Since you never have to write a check or pay a bill to inflation it’s easy to forget that it exists. The Quiet Millionaire refers to it as the “silent erosion of wealth and purchasing power”. You should factor the effect of inflation into all of your long-term financial planning and calculations.

6) Poorly Structured Investment Portfolios
“Undiversified investments possessing an unjustifiable amount of risk relative to the potential for reward.” The simplest way to overcome this obstacle is to put your money in index funds across the spectrum of asset classes. We met with a certified financial planner to help us evaluate our current investments and choose the best index funds for us.

7) Unforeseen Life-Changing, Financially Devastating Events
This is the scariest obstacle to me since a lot of it is largely out of our control. The book gives examples of things like medical expenses, divorce, job loss, disability, death, and law suits.  You can work to prevent some of these but the best defense is to insure against them so you have some help if and when they do occur.

eBay Discounts
I had an eBay customer ask recently for a discount if they bought two of the same item. I knew how much I stood to make with and without the discount and both amounts fit the profit margins guidelines I try to follow for all sales. On one hand I wanted the sale so maybe it was smart to offer a discount to close the deal.  On the other hand, I try to maximize the amount I earn off each sale and a discount would drop down the margins. 

After giving it some thought I informed them there would be no discount and they bought both items anyway.  This transaction got me thinking about how it is that we value our money and how we decide what we’re willing to pay as consumers.

Valuing Money
This lady liked the price but it didn’t hurt her to ask for a discount.  She may have even paid more for the product if I’d been asking a slightly higher price.  When you’re in the store or online browsing for a purchase, how do you decide how much is too much?  Some people spend $10 bucks for a pair of jeans on the sale rack at Old Navy while others pay $675 for Diesel Denim Gallery jeans.  The end product is pretty much the same exact thing, I don’t care how you look at it, jeans are jeans.

What makes a cheapo like me think $20 jeans are too expensive and a big spender in New York think $675 is a rational amount to pay for a pair of pants? If you looked around enough, you could almost always find the same thing you just bought for a little less or a little more.  So how do we choose that magic number that makes something affordable for us? 

Playing the Odds
If you are going to play the odds for income outside of your job, you might as well try starting some venture of your own.  The historical statistics aren’t so good for the success of a new small business.  However, even though many fail in the first few years, your odds of making a small-business work are definitely higher than winning the lottery.

Building Value
Of course offering your own product or service is a lot more work than buying a lottery ticket but statistically it is a much smarter move. A lottery ticket doesn’t hold any long-term value unless it is the winning number. The experience and connections you build when starting your own venture will be of value for years to come, even if the first business doesn’t work out.

Mental Rewards
Running your own enterprise, regardless of size, can be more psychologically rewarding than trying to guess the winning numbers.  When you play the lottery it’s pretty much up to chance, you don’t have control over whether your number is picked.  It can be frustrating when you don’t win time, after time, after time. All you can do to try again is buy another long-shot ticket.

On the other hand, building your own business is something you do have control over.  If something doesn’t work you have the power to make some changes and try something different.  Knowing that you’re in charge of the end result is more empowering than hopelessly wishing the numbers will finally fall your way.

Get Rich Slowly
The obvious draw to the lottery is the get rich quick appeal.  It’s easy to play and you can win a lot of money.  Not to say that I wouldn’t love to win the lottery but the odds are I won’t.  Rather than hold on to a slim hope of hitting it big so I can quit my job, I’d rather put my time & money into growing something that might actually let me quit my corporate job someday.  Not to say you should never play the lottery on a whim, just that you shouldn’t make winning the lottery be your life plan.