Wednesday, November 30, 2016

Balancing Your Financial Success and the Luxuries of Your Friends

We’ve all been there at some point or another.

We meet up with a friend and discover that he or she has acquired some sort of luxury good or had some sort of expensive experience. Maybe that person has a brand new car that’s shining in the sun. Maybe that person has the latest smartphone. Maybe that person just got back from a trip to Rio.

Whatever it is, they’ve just enjoyed some luxury, one that’s well outside the borders of your budget.

And you’re jealous. At least a little.

It’s not a question of whether or not their luxury is something you’d actually want for yourself. It’s that a friend of yours has a luxury in their life. They have access to something luxurious that they personally desired at a time when you don’t have anything luxurious yourself.

You look at your ordinary routines and then look at the luxurious item or experience that your friend has and you simply feel jealous of it.

It’s at that point that you’re primed to make some awful financial choices. You might instantly decide that you need some sort of luxury for yourself and then, within the next day or two, find yourself making a purchase that you wouldn’t have otherwise made. You might dwell on that luxury, letting it swell in your mind and convincing yourself that your current life is denying you so much that you just abandon your financial principles for a while and start splurging. You might even begin to doubt the entire reason that you make good financial choices.

After all, if you can’t have that luxury, what good is it?

Here are some vital things to think about if you find yourself in that mindset.

First of all, you’re actually in the process of buying one of the best luxuries in the world. You don’t have the latest smartphone or a shiny new car, but you do have financial stability in your life and you’re probably building to a state where you can quit working many years before your friends and family while enjoying all the free time in the world to do whatever it is that you enjoy most in the world.

To me, there is literally nothing better that I could be doing with my money. I cannot imagine anything else I’d rather have in this world than endless amounts of free time with enough financial security to not have to worry about day-to-day needs. There are so many things I’d love to explore or try or dig deep into, and the only way to be able to do that is to maximize my control over my time, and the best way to do that is to build a financially secure foundation for my life.

What I often do is transform that luxury item into that free time. My friend might have that shiny car while I have a fourteen year old SUV that I bought off of Craigslist (seriously, I drive an old Honda Pilot that I bought off of Craigslist), but when I look at that shiny new car, what I actually see is about a year‘s worth of days where I have the freedom to choose whatever I want to do with my time. I would way rather have that year – and I think a lot of people, if they really thought about it for a while, would prefer that year, too.

Second, you probably don’t want that luxury anyway. There are many “luxuries” that I have witnessed my friends purchase that I honestly wouldn’t own if I had a billion dollars. It’s just not me. Although I can see that the item is clearly a luxury item, it’s not something I would want.

I have a friend who purchased a Jaguar several years ago. I genuinely have zero interest in owning a Jaguar. I can appreciate that it’s beautiful and so on, but that doesn’t mean I want to own it or use it as something to get back and forth.

That doesn’t mean that I view the person who bought that item with disdain. I understand why someone would want a particular item, but I simply recognize that it’s not for me. I understand why my friend wanted a Jaguar and I understand that my friend is likely to get a lot of enjoyment out of a Jaguar, but I recognize that I wouldn’t get nearly the same enjoyment out of owning one.

Third, you have a friend in front of you that’s probably very happy about this luxury, so share in that joy! Even if you feel immensely jealous of that item that your friend just acquired or that experience that your friend just had, check that jealousy for a moment and switch shoes with that person. Imagine that you just bought something you’ve always wanted or taken a fantastic trip or something and you can’t wait to share it with a friend. How would you want that friend to react? With joy? Or with jealousy, bitterness, and negativity?

Be the friend that you want in your own life. Even if you feel insanely jealous of the purchase. Even if it’s clear it’s something that you wouldn’t buy for yourself. Even if you think the purchase was financially disastrous. No matter what, check the negative feelings and be happy for your friend.

It can be really tempting as well to swing into judgmental talk about finances. Don’t. You can save the financial talk for later. Even if you can’t muster a single ounce of joy related to the item, focus instead on the joy of your friend and be a part of that.

What I’ve found, almost every time, is that by sharing in the joy, my own desire to get something luxurious actually fades away. I begin to realize that it’s not about the luxury item, but about my friend doing something that brings my friend joy. The luxury item could be anything – it doesn’t matter.

Fourth, you likely have things already in your own life that bring you joy, so make sure you always have room for them. I’ve found, over and over again, that I become more jealous of the luxuries that my friends have when I’m feeling negative about the state of things in my own life. If I’m unhappy with some big aspect of my own life at the time my friend shows up with a luxury, I’m going to end up with negative feelings of jealousy. Negativity feeds on negativity, after all.

What’s the solution, then? The solution, for me at least, is to do my best to maintain a life balance. If I feel negativity creeping up in my life, I do everything I can to address it head on. For me, addressing that negativity usually comes in the form of consciously setting aside time and energy for things that are important to me that I’m currently neglecting. Whether it’s a relationship or a hobby or something else, I make sure that I’m setting aside time for that thing, giving it the attention that it needs so that it is no longer a negative.

Letting a bad situation limp along in your life because you believe “it’ll get better soon” or “I can deal with it next week or next month” isn’t a solution because those outcomes never happen. If there’s something in your life that’s bothering you, deal with it now because the longer you let it sit, the more likely it is to become a lasting pattern that you just can’t get rid of.

Finally, give it time. Many of the solutions I describe here require time more than anything else. You might still feel jealousy in the moment, but if you don’t do things in response to that jealousy and instead give yourself some time to reflect on the state of your own life, why you feel that jealousy, and what areas of your own life are feeling negative right now, you’ll probably end up coming to some valuable conclusions that don’t involve spending a dime.

For me, a strong jealous response to something means that something is out of whack in my current life. Those things can be hard to figure out, especially in the moment. So, if you feel jealous, recognize that jealousy, but don’t act on it. Give it time. Try to figure out why you’re feeling jealous.

You may just find that the answer you needed was right there all along.

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What Are My Student Loan Repayment Options?

Graduating from college takes determination, hard work, and fortitude — but so does paying for your education. Picking the right student loan repayment option is so hard because you often enter into the process before you have a real idea of what your future will hold. And while you can change the terms of your loan down the road, you can’t change the amount you borrowed.

“Many students just borrow loans without thinking about what the payments will look like, what their job prospects will be, and how they will handle their finances in the future,” said Betsy Mayotte, director of consumer outreach at American Student Assistance, a Boston-based nonprofit. In other words, if you’re drawn to a career that typically pays $35,000 a year, it may be unwise to take on $200,000 of debt to pay for a private school education.

And when it comes to private loans, tread lightly! It’s important to remember that unless you have a well-established credit history, you’re going to need a cosigner to take out a non-federal student loan — private lenders won’t take on the risk. And private loans don’t come with the protections and flexible repayment options of federal student loans: Once you have a private loan, your only real option for changing the terms of it is through refinancing.

Federal Student Loan Repayment Options

Don’t panic, though: When it comes to your federal student loans, you have options. The Department of Education’s (DOE) website lists a number of federal loan repayment options meant to cater to borrowers’ needs. There’s also the Federal Student Aid Repayment Estimator, a great tool for estimating repayment for all of the federal plan options available, including how much you’d pay per month, overall, and if there is any forgiveness available.

But while you’re here, let’s take a look at the two primary types of federal loan repayment plans: Basic and Income-Driven Plans (IDP), and what they encompass.

Basic Repayment Plans

Basic loans are not driven by your post-graduation income. There are three types of Basic plans: Standard, Graduated, and Extended.

Standard Plan

  • Definition: This is where you start, a 10-year plan at a fixed amount. If you’re consolidating with other loans, be sure to review this repayment schedule, as your term may be longer.
  • Who should consider: Those who are confident that a lucrative post-college career will allow them to pay down their loans without trouble.

Graduated Plan

  • Definition: Same style as the Standard plan, except your payments start small and grow every two years.
  • Who should consider: People entering into careers with regular promotions that lead to increasingly larger paychecks.

Extended Plan

  • Definition: Similar to Standard, with lower monthly payments spread out over a longer period of time. The borrower must have $30,000 in outstanding direct-loan debt, and no outstanding debt from previous loans; check here to see if you qualify.
  • Who should consider: People who need longer periods to repay their debt, but don’t necessarily want their repayments to be calculated based on their income.

Income-Driven Plans (IDP)

Most of us fall into the income-driven spectrum. There are a few different flavors of Income-Driven Plans, but they all share many of the same traits:

  • Repayment is based on a percentage of your discretionary income—usually 10% to 20%. Discretionary income, according to Mayotte, is “your adjusted gross income minus 150% of the poverty line for your family size.”
  • The loan periods are longer than basic plans — 20 or 25 years.
  • More money is paid in the form of interest over the life of the loan.
  • With Income-Based and Pay-As-You-Earn plans, it’s your discretionary income at the beginning of the payment schedule that counts. These loans will never become more expensive per month than the Standard Plan. With Revised-Pay-As-Your-Earn and Income-Contingent Repayment plans, your monthly repayment schedule changes based on your income. These loans could get more expensive per month than the Standard Plan. More information is available on the DOE website.
  • IDPs feature loan forgiveness at the end of their terms — however the forgiven balance is treated as taxable income. That means if you have $50,000 in student loans after 25 years for an Income-Based Repayment loan, that balance will be forgiven — but will be considered taxable income.

Speaking of forgiveness, check to see if you’re eligible for Public Service Loan Forgiveness (PSLF), which wipes out your balance after 10 years of governmental or accredited non-profit employment. PSLF is not taxable.

Income-Based Repayment Plan (IBR)

  • Definition: Your monthly payment is limited to 15% of your discretionary income (10% if you have no outstanding Direct or FFEL loan balances). There are income level and family size requisites, so check to see if you qualify. Outstanding balances are forgiven after 20 years.
  • Who should consider: People not earning enough based on their debt to pay off a loan under the Standard plan. With this plan, married borrowers should file their taxes separately.

Pay As You Earn Plan (PAYE)

  • Definition: Repayment is capped at 10% of your discretionary income. There are income level and family size requisites — check here to see if you qualify. Outstanding balances forgiven after 20 years. The main difference between IBR and PAYE is that with IBR, you pay 15% of your income if you aren’t considered a new borrower.
  • Who should consider: People with high debt-to-income ratios. As with the IBR plan, married borrowers should file their taxes separately.

Revised Pay As You Earn Plan (REPAYE)

  • Definition: Like PAYE, payment is capped at 10% of your discretionary income. Outstanding balances are forgiven after 20 years (undergrad loans) or 25 years (grad school loans).
  • Who should consider: Pretty much everyone qualifies for this plan. People interested in but not eligible for the PAYE plan usually consider REPAYE.

Income-Contingent Repayment Plan

  • Definition: Monthly payments will be either 20% of your discretionary income or the amount you would pay based on a 12-year fixed payment plan, whichever is less. Outstanding balances forgiven after 25 years.
  • Who should consider: Any borrower with an eligible loan can access this plan, including parents.

When it comes to student loans, remember to consider the “long game,” as Mayotte says. “It’s not about paying the least amount per month–it’s about paying the least over time,” she says. If you take a close look at the DOE’s website, talk with your loan servicer, and consider your future career, you’ll make the right loan choice for you.

Related Articles

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Tuesday, November 29, 2016

Figuring Out a Great Life on a Limited Budget

About a week ago, Sarah and I sat down and took a look at our finances, something we do on occasion. We’re mostly just looking for things we can be doing better, as we’ve found that, for the most part, we’re on a very good financial path that we don’t want to upset.

For kicks, we decided to see what our day-to-day financial life might look like if we suddenly both decided to quit our jobs. What would happen to us if we were both unemployed by choice for a long period? We ran the math on our retirement and other savings and found out that we would be living somewhere close to the poverty line if we stuck with a 4% withdrawal rate on our savings and added in residual income that we would earn with no additional working effort.

This was an unusual moment for us. It was the first time that we felt like we could actually do this. We could, if we really wanted to, walk away from our jobs and just fill our hours however we wanted on the backs of the careful spending and saving and professional choices we’ve made over the past decade.

But what would that life really look like? Could we live an enjoyable life on that income level?

We concluded, after some discussion, that if we gave up some of the things that we value, we could in fact pull this off, and that it’s the relative value that we place on those things that would maintain our professional focus for the ensuing years. (Mostly, we’d have to give up some well-loved hobbies and we would seriously axe our travel plans in coming years.)

We could live a happy life on about $22,000 a year, in other words. This does include having our home paid off in full, though we would still have to pay insurance and property taxes on it.

What would that life look like, though? How can someone with modern tastes enjoy life on such a limited budget? Mostly, it falls right in line with the way we already live our lives, with a few significant alterations.

Cut almost every subscription bill right down to zero or as close to it as possible. We’d eliminate our cable bill and switch exclusively to Netflix and over-the-air channels (with Netflix being chopped, too, if necessary). We’d keep our internet bill, but go down to a lower speed, and the same would be true for our cell phone bill (less data, mostly). We’d cancel basically every other subscription that we have – things like Amazon Prime would vanish.

The thing is that we mostly use television for unwinding from a stressful professional day and without that daily stress, neither one of us would have much reason to watch television at all.

Is this a big loss? See, the thing is, it seems like a big loss given our day-to-day routines right now. I need a stable internet connection for professional purposes (as does Sarah at times), but without that… what real purpose does it serve? My main hobbies don’t involve the internet and none of Sarah’s do. I almost never watch television and Sarah usually only watches it in the evenings to de-stress, and without professional stress there’s really no need for anything beyond over-the-air channels. Most of the Prime packages I get are work-related (books for research, etc.) so that could easily go away. It’s easy to see how many subscriptions and ongoing bills are mostly necessary thanks to our careers, and eliminating most of them and reducing some of the others would not strongly negatively impact our day-to-day life.

Eliminate a vehicle. With both Sarah and I no longer chasing professional goals, we could easily eliminate one of our vehicles, reducing ourselves down to one vehicle that could transport our whole family if necessary. We’d sell or trade both cars and replace them both with the most fuel-efficient minivan that we could find.

This elimination cuts out insurance costs, registration costs, the cost of replacing a car, and so on. There’s no need to own and maintain a second car if we can get by with the other transportation tools available to us to meet our needs.

Is this a big loss? Again, it’s not a loss at all if Sarah is no longer commuting to work. Our biggest real need for vehicle redundancy is to ensure that Sarah can make it to work in all circumstances (nasty weather, a car breakdown, etc.). If that’s no longer a need, one vehicle can meet our family’s needs almost all of the time, as redundancy is far less vital. Our day-to-day quality of life would barely be impacted by the elimination of a vehicle.

Improve the fuel efficiency of your remaining vehicles. Taking little steps to make your current automobiles a bit more fuel efficient can save you a surprising amount on fuel costs, making each and every drive a bit less expensive. Naturally, using your cars as little as possible is the best strategy, but when you do use your car, it should burn as little gas as possible.

You can improve fuel efficiency by keeping plenty of air in your tires, by minimizing the weight you’re carrying in the vehicle (except under winter weather conditions, where extra weight can sometimes help with traction), by driving at the speed limit, and by driving in a fuel efficient manner by not overly accelerating and coasting and minimizing brake use when possible and reasonable.

Is this a big loss? Most of these strategies result in no real change whatsoever in a person’s day to day life. It simply means that when you do drive, your car isn’t eating as much gas, which is going to end up saving quite a bit of money over the course of a year.

Use alternative methods of transportation. Even better than using less gas is simply using no gas at all. When you have to do something outside of the house, consider using other methods of transportation to get there such as walking or riding a bicycle.

Take our current situation, for example. We live within a couple of miles of a grocery store and a library. It might be tempting to just drive there, but the truth is that riding a bike to both places doesn’t take much longer, gives me some exercise, and doesn’t burn any gas at all. I can hit the library, hit the grocery store, and get back home in not too much more time than I could in a car and it’s basically free.

Is this a big loss? It does require some changes in the types of transportation that you choose to use and if you’re not used to walking or biking a mile or two, it can be challenging at first. However, most alternative transportation methods at short distances don’t take significantly longer than using a car, provide some exercise, and have virtually no cost associated with them.

Strongly consider moving. While our current home is paid for, we are still facing a significant property tax and insurance bill each year. A smaller home – one that eliminates a bedroom, for example, and perhaps eliminates one of our “family rooms” and has a more efficient layout – would serve our family perfectly well.

Making that move would create some revenue from the home sale, enough to buy the new home and leave us with some leftover money. It would also cut our property taxes and insurance costs, which would lower our annual burden.

Is this a big loss? Honestly, it’s not that big of a loss. We essentially have two living rooms in our home, making one of them practically redundant, and we could easily trim a bedroom and reorganize our sleeping arrangements. I would no longer need a home office, which frees up even more space. While a move wouldn’t be a guarantee, I’d describe it as fairly likely if we were on a limited budget. Our day-to-day quality of life wouldn’t be significantly reduced by a move to a smaller home.

Eat mostly at home. We already eat mostly at home, but this would become even more frequent. Our biggest reason for eating out at this point in our lives is our need to stack a bunch of family appointments and activities together onto the weekends which sometimes leaves us out and about during a mealtime. With more flexible scheduling, which is what would happen with one or both of us stepping away from our careers, we would rarely find ourselves in that position.

For many families, this can be a steep threshold to climb. As I’ve noted in other recent articles, the average American family eats out more than they eat at home and the primary reason for that shift is a growing lack of comfort in the kitchen. Many people resist making food at home – even though it’s incredibly obvious how much money it saves – simply because they’re intimidated by how much time and effort it will take as an addition to their busy lives. The truth? Cooking at home actually isn’t that hard, especially with tools like a slow cooker, and the amount of money it saves is tremendous. Plus, if you start cooking and get more comfortable cooking at home, it starts to seem easier than going out to eat (I’m not kidding in the least – I’d rather make a simple meal at home than go out most days, even if the cost were the same).

Is this a big loss? For our family, it’s not a major change, so I wouldn’t describe it as a major loss. Eating out would become even more of a treat, of course, and we’d make almost everything at home (and plan picnics for our excursions). For other families, this might be a tougher challenge, but it’s one that becomes easier the more you eat and prepare meals at home.

Find free or extremely low cost hobbies and sources of entertainment. When I look at three of my primary hobbies – reading, playing tabletop games, and walking on trails – all of them could easily fold into a completely free hobby. I can fully sustain my reading hobby at the library. The hiking hobby is already basically free. The tabletop game hobby could be sustained by playing what I already have and trading for other games and attending community game nights. So, luckily, if our income were suddenly sliced, I would not have to make major changes to my hobbies, though I would have to cease many of my hobby purchases.

This might not be true for others. Many hobbies, like golfing and hunting, have a constant upkeep of expenses. Any hobbies that constantly require new supplies (golf balls, ammo, etc.) or constantly require entry fees (like greens fees) are naturally expensive hobbies and should be looked at very carefully for anyone struggling to find financial success on a tight budget.

Is this a big loss? For us, it’s not a big loss. Sarah’s primary hobbies largely overlap with my own, so we’d just utilize the library all the time for books and movies and we’d hit all of the local parks for trails. For others, it might be more of a challenge.

Expand gardening operations and consider raising chickens We currently have a small garden and that’s something I’d love to expand greatly with an increase in my free time. Our garden, as it is, is an income-positive hobby already, as we reuse seeds from previous years and plant them again for more produce. The only real cost is time and I find that time to be very meditative and valuable for my mental well-being.

When I was a child, my family raised chickens primarily for their eggs, though occasionally for eating. If you have a good location for it, chickens are actually pretty easy to raise. I would happily raise a few chickens again in order to enjoy the eggs they produce.

Is this a big loss? It would push gardening (and perhaps chicken raising) more to the front of my list of hobbies, but is that a big loss? I don’t think so. Gardening is already something I enjoy in a narrow timeframe, so giving it more time actually seems really appealing.

Buy almost exclusively store brands. This is something we already largely do, but perhaps not as universally as we could. What we’ve found is that for our purposes, most store brands are functionally identical to the name brands, with the only difference being that the store brands have a lower cost and the name brands have flashier packaging and a more familiar name. There are a few rare exceptions (trash bags come to mind), but this rule holds almost universally true for us.

Many people perceive a decline in quality when using store brands, but most of the time that decline in quality comes from not paying close attention to the name brand but suddenly looking for flaws when buying the store brand. Often, those same flaws exist in the name brand, too, but people aren’t looking for flaws in the name brand.

Is this a big loss? For the vast majority of products people buy, buying a store brand is going to have zero impact on their life versus buying a name brand. The only difference that it will make is in an occasional product where you’re already very sensitive to product performance. Most of the time, they’re truly identical, and in the cases where store brands and name brands aren’t exactly the same, you won’t notice a difference the vast majority of the time.

Cut vices down sharply. Many people have a vice of some kind that helps get them through their life. Alcohol. Tobacco. Marijuana. Maybe something else entirely. Vices often form a psychological crutch that people rely on to take the edge off of their stress and challenging feelings.

The problem is that vices are an expensive psychological crutch when a cheap one will do. Smoking might take the edge off of stress and create a brief bloom of good feelings, but so do many other practices in life (like meditation or vigorous exercise). Not only that, those alternative methods of bringing about positive feelings and de-stressing are often far cheaper than vices. There might be a case for occasional social use of vices, but when you’re using them when at home alone, there are better methods for de-stressing that are more effective, less expensive, and have much better long term health consequences.

Is this a big loss? Cutting a vice out of your life is hard, particularly when you have daily routines built around them or they’re physically addictive. However, finding new ways to handle daily stress and negative feelings, particularly ones without a constant financial cost, is going to reduce your expenses drastically while also making it easier to deal with those feelings.

Make your home as energy efficient as possible. Your home gobbles energy, as witnessed by your monthly home energy bill. One effective way to continue leading a great life on a low budget is to find every possible way to trim that energy bill, and one great way of doing that is to make your home incredibly energy efficient.

There are lots of methods for doing this. You can replace all of your light bulbs as they burn out with LED bulbs. You can air seal your home by caulking your windows and adding weatherstripping around external doors. You can add more insulation to your home, too. The list goes on and on.

Is this a big loss? Since you’ll essentially not notice any of the energy-related changes at all around your home, it’s a very big stretch to suggest that any such changes are a loss at all.

Maintain your home, your car, and your expensive appliances. One big expense that often hits many people when they’re trying to live a great life at a low income is the unexpected expense of something that you rely on breaking down. A car breakdown or an appliance failure at an unexpected moment can thrust a huge expense at you at a moment when you least expect it.

The best solution that a person can apply to this is to simply keep your stuff maintained. Follow the maintenance schedule for your automobile as closely as possible (you’ll find it in the manual) and do as much of the maintenance yourself as you can. Look into common steps for maintaining your home and your largest appliances and follow them on a schedule as well. Put things like replacing the furnace filter or vacuuming behind the fridge on your calendar and set aside a little time to do those things and your home, car, and appliances will last far longer and result in far less unexpected expense.

Is this a big loss? It takes time, sure, but it’s time that you’re not spending having to figure out how to deal with a broken-down car or a failed appliance. It’s time you’re not spending shopping for a new car or a new appliance. I’d far rather spend some time doing a little low-cost or zero-cost maintenance than to spend time shopping for a new appliance and dropping hundreds or thousands of dollars.

Final Thoughts

Almost all of the strategies above have little real impact on a person’s life, particularly if they have a bit of extra time available. I consider these strategies to be the key part of anyone’s plan to deal with life changes that result in a lower income, whether that change is by choice or otherwise. They can help you through adjusting to a period of unemployment, an early retirement, a lower-paying job, or any other shift that may lower the stress and challenge of life but decrease one’s income.

In the end, lower income is not a ticket directly to misery. Instead, it’s an opportunity to look closer at the life routines we all take for granted and adjust them in a way that enables us to skate right through the harder part of life’s changes and embrace the benefits.

Good luck!

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There’s a Right Way and a Wrong Way to Take on Holiday Debt

You probably know that taking on extra debt during the holidays isn’t the best idea. Newly incurred debt can be bad for both your wallet and your credit score.

If you can manage to pay for your holiday purchases without spending more than you’ve already saved up for the purpose, then, by all means, you should do so. However, if you’re definitely going to finance some of your holiday shopping, you should at least try to do so as wisely as possible. Here are some tips to limit the damage to your credit this holiday season.

Consider a Personal Loan

While any new debt has the potential to harm your credit scores, the variety of debt you choose can mitigate your damages. Certain types of debt are worse for your credit than others.

For example, revolving debt (aka credit card debt) can damage your credit scores significantly, even if you make all of your payments on time. Statistics clearly show that people who incur large balances on their credit cards are riskier borrowers than those who don’t. So the strategy, if it works for you, is to avoid this kind of debt by using a personal loan rather than credit cards to pay for holiday purchases.

A personal loan is installment debt – which means you pay it back in defined increments, like a car loan or student loan – which is the key to this strategy. Credit scoring models treat revolving debt very differently than they treat installment debt. A $5,000 personal loan will likely have no negative impact on your credit scores if you pay it back reliably. Conversely, a $5,000 credit card balance, especially if that balance uses up a large portion of your credit card limit, could be viewed very negatively from a credit scoring perspective.

For this reason, given comparable interest rates and other terms, it would almost certainly be better for your credit scores if you took out a personal loan to finance your holiday expenditures instead of taking on new credit card debt for those same purchases.

Map Out a Debt Payoff Plan

If you’re going to take on new debt during the holidays, map out a payoff plan first. Do you plan to wipe out the new debt within three months? Six months? Or longer? If you don’t know the answer to this question, then your holiday purchases are going to cost you considerably more because of the interest you’re going to pay while you carry the debt. Your goal is to determine how much extra you’ll need to pay each month to exhaust your newly acquired debt as quickly as possible.

Even if you intend to pay off the debt with a bonus or tax refund, put your plan in writing – this can make you more likely to stick with your budget.

Once you’ve paid off the debt, you might even consider starting a special savings account so that hopefully you won’t find yourself in the same situation when the holidays roll around next year. Paying 16% APR on your holiday purchases — the average interest rate charged on a general use credit card — is not the best money management decision.

Avoid Retail Store Credit Cards – They’re Even Worse

As a final word of advice, you should know that it can be a very bad idea for your credit to use new retail store credit cards to finance holiday purchases.

Just like traditional credit cards, large balances on retail store cards can lower your credit score. However, since retail store cards are notorious for their low credit limits (coupled with generally high interest rates), even a relatively low balance on a retail store card could max out or nearly max out your available credit limit.

When you combine the probability of a maxed-out card with a new credit inquiry (prompted by opening the account) and throw in a high interest rate to boot, a retail store card could be a trifecta of trouble for your credit in the new year.

Related Articles

John Ulzheimer is an expert on credit reporting, credit scoring, and identity theft. He has written four books on the topic and has been interviewed and quoted thousands of times over the past 10 years. With time spent at Equifax and FICO, Ulzheimer is the only credit expert who actually comes from the credit industry. He has been an expert witness in over 230 credit related lawsuits and has been qualified to testify in both federal and state courts on the topic of consumer credit.

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A Loan to Build a Dream On: Where to Find Small Business Funding

You want to start a business. And you have more than a wisp of an idea. You know what you’re selling, and how you’re selling it, and who you’re selling to. You’re ready to go.

Well, almost ready. You need cash, and as the saying goes, it takes money to make money. And you don’t have it. So where can you get a business loan? You have several options, from the conventional and fairly obvious to something resembling a Hail Mary pass.

Go to your bank – or a credit union.

This is often not as easy as it sounds. Sure, banks lend money for businesses all the time, but you need to have good credit, and preferably excellent credit, and even that may not be enough. It helps if you already have a business – and if you don’t, a loan officer will want to see a business plan. A really, really detailed business plan.

All of that said, it’s best to go to the bank first, without a business plan, and it’s fine if you haven’t written it yet, says Hal Shelton, author of “The Secrets to Writing a Successful Business Plan.”

Shelton says that when you’re approaching the part of the process where you know you’ll need revenue to start your business, you should set up a meeting with your bank’s small business loan officer (and it’s always best to start with the financial institution you currently bank with, since you’re a known entity, Shelton says).

“I encourage my clients to go in with no business plan,” says Shelton, who is a mentor at SCORE, a well respected national nonprofit that offers business education and free mentoring. (In fact, if you’re still stuck on how to get small business funding after reading this, I highly recommend meeting with an advisor at SCORE and getting whatever advice you can. I’ve been writing about small business issues since the 1990s, and I’ve interviewed numerous business owners over the years who have sung the nonprofit’s praises.)

But back to meeting with your bank’s small business loan officer: Shelton suggests that you explain that you’re still working on your business plan, and that you’d like to know if there are any pertinent details the bank would like to see in the plan that you’ll eventually give them.

This way, while you work on your business plan, you’ll be tailoring it to your bank lending department’s tastes and requirements.

Now, if you develop your business plan, hand it over to the loan officer, are still turned down, Shelton recommends hitting up other banks.

Or you could try a local credit union, which are virtually indistinguishable from banks but have a reputation for being more community friendly, easier to deal with, and more willing to lend than a giant corporation.

“Ultimately,” Shelton says, “the bank wants you to demonstrate that your loan can be paid back, with interest, on time and without hassles.” That’s true of a credit union, too, of course.

If your bank or credit union won’t give you a loan, there are other ways to get money from a bank. But that would require overpowering a guard and getting past the alarm system, so, uh, no, I wouldn’t recommend that. But in all seriousness, try this next idea…

Apply for an SBA loan.

You might be able to get a small business loan through the U.S. Small Business Administration (SBA). You can get more information on what you need to do to apply for a loan here.

SBA small business loans range from the fairly small microloan of $5,000 to as much as $5 million, according to the SBA website. The average loan, however, is $371,000.

As with approaching a bank for a loan, you’ll want a business plan and a solid credit history (if your credit score is something of a dumpster fire, you aren’t likely to be handed a huge check).

And if this doesn’t work either…

You might try crowdfunding.

This crowfunding practice – of asking people, from family members to strangers, to give you money to get your business going, sometimes by offering them a reward, pre-ordered merchandise, or piece of the company – is definitely worth considering.

You’ve likely heard of Kickstarter, the best known of the crowdfunding bunch. But there are many, many crowdfunding sites for all different types of businesses and industries and entrepreneurs. “Nobody knows how many crowdfunding sites there are,” says Shelton, who hazards a guess that there may be 500 to 800 of them.

He suggests that before you jump into the first crowdfunding site you find, you check out CrowdsUnite, a comprehensive crowdfunding education site and directory.

You could apply for a loan from an online lender.

Please be careful here. Some lending services, like peer-to-peer lenders, have solid reputations. (Shelton is generally a fan of peer-to-peer lending sites.) Lending Club and Prosper Marketplace are two of the biggest names in peer-to-peer business loans, if you’re drawing a blank at where you might go.

But there are also plenty of online alternative lending services that are little more than payday loan stores online, and if you’re starting a business, the last thing you need is to have a high-interest-rate debt on your books.

Here are some other small business funding ideas.

I’m just going to toss out a number of ideas, quickly. Otherwise, we’ll be here all day. If you’ve already looked into everything I mentioned above, you could also:

Raid your retirement account. I wouldn’t. You’d better really believe in your business, and if you believe in it that much, you’d think someone would be willing to invest in your company. So why am I bringing this up as an option? Because it is an option. I didn’t say it was a good one.

Take out a home equity loan. Rather than my retyping that last paragraph, you can simply read what I said about raiding your retirement account. It’s an option, not a good one.

Enter a business plan competition. Some universities do that, and then you end up winning funding for your business. See, writing a business plan can help you out in a lot of ways (it’ll also help you determine exactly how much you need to borrow).

Apply for a residency in a business incubators. These are often hard to get into, but many communities have them. You generally get, if not funding for your business, a cheap place to set up your business and, often, access to things you’ll need to run your business, like free phone and internet service.

If none of those ideas are working for you, you could try working piecemeal. That is, as Shelton puts it, “You could work as far as you can on your business without the money you need, far enough to get some more traction and then go back to your bank and ask for a loan.”

In other words, if you can’t get a loan, don’t give up. You’ll likely get it. But it may take awhile. And that should be okay with you. It’s that patience, persistence, and passion you have for your business idea that will eventually inspire a lender or investor that you’re worth lending money to.

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Monday, November 28, 2016

Questions About Eating Out, Keurigs, Juicing, Hobbies, and More!

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to summaries of five or fewer words. Click on the number to jump straight down to the question.
1. Locking in gains?
2. Trustworthy sources of information
3. Giving up on old car
4. Making money from a hobby
5. Eating out is normal?
6. Preparing for automated workforce
7. Having control over your life
8. Frugal Keurig for the holidays?
9. Musical instruments for children
10. Starting a Roth IRA
11. Cheap juicing?
12. Preparing for presidential change

Based on some recent reader feedback, it’s probably worth taking a look at The Simple Dollar and who writes for it.

I’m Trent Hamm, the primary writer for The Simple Dollar. The majority of the content that comes out on The Simple Dollar in a week is written by me. I founded the site in 2006 and have been writing for the site ever since.

In 2011, I sold the site, mostly because management of the site was taking up so much of my time that I was no longer able to write, which was the part of The Simple Dollar that I enjoyed the most. Part of the arrangement was that I would stick around over the long term as the primary writer for the site.

However, it’s a pretty poor idea to have me be the only writer for the site. What happens if something happens to me and I’m no longer able to write? I might get sick or get hurt or just outright quit. So, naturally, they want to have other writers in place to take up the reins if something unexpected or undesirable were to happen.

(I’m not unhappy in the least with the owners of the site. They give me almost complete free reign to write about whatever I think is useful and productive personal finance advice. The only guidance I’ve ever received from them are some vague word count targets. They’re completely hands off in terms of editing or content of my writing.)

Sometimes, people read the site and aren’t aware that two different articles on the site are actually written by different people. Although the other writers and I tend to agree on most points, you’ll occasionally find some areas of disagreement, such as whether or not it’s a good idea to buy used furniture (I wouldn’t buy anything upholstered unless it came from a very reputable place, for example). You also might find changing viewpoints from the same writer over time – I know that I don’t fully agree with every personal finance perspective I had several years ago.

So, if you find a specific point that doesn’t seem to match up with something else you read in another article, make sure who those articles are written by and also whether they’re written on similar dates.

Q1: Locking in gains?

My brother was insisting over the weekend that everyone should be locking in their gains because the stock market is so high. He was telling everyone that they should move their investments into bonds and cash and real estate and keep them out of stocks until they’re quite a bit lower than they are right now.

This makes a lot of sense in the “buy low sell high” way but you have always advocated for “sit and forget it” strategy. What do you think?
– Terence

Timing the market – the “buy low, sell high” strategy, in other words – only tends to look good in the rear view mirror. With the power of hindsight, we can point to the “highs” and “lows” of the stock market and know when we should have bought and sold, and when you make calculations based on those optimum dates, yes, you’re going to make more money than you would have following almost any other strategy.

The problem is that it’s essentially impossible to predict the “bottom” and the “top” as they are happening. Yes, the stock market is at or near all-time highs right now, but that doesn’t mean that it won’t continue going up from here. It might do that. It might go down. It’s essentially impossible to predict.

The best thing an ordinary investor can do is buy stocks and hold them for the long term and then sell them only when they actually need the money or when they’re following a long-term strategy to move that money into something less volatile. Unless you are a day trader or someone deeply focused on the daily shifts of a market, you shouldn’t be making moves based on the ups and downs of that particular market. In fact, the day-to-day values shouldn’t matter much at all to you.

You should just sit tight with your current strategy, in other words.

Q2: Trustworthy sources of information

I’m feeling highly disillusioned with the media recently and find myself not trusting anything I read from any source. How do you find sources of information that you trust enough to actually use their information/advice for personal decisions?
– Mal

In general, I don’t trust the “news” much at all, especially in terms of making personal decisions. I’ve found again and again that news tends to be inaccurate. It’s often written in a high-pressure deadline environment where people are racing to get a “scoop” and to grab the attention of a particular audience. It’s often not factually correct and written from a particular slant.

Instead, I tend to trust long-term analysis with a lot of sources much, much more. I tend to trust well-regarded books that are well-sourced or books that make an argument that explains their reasoning in depth. I’ll trust a book like Your Money or Your Life or The Bogleheads’ Guide to Investing much more than I will trust an article hyping some “trend” at the Wall Street Journal. In terms of periodicals, I tend to trust the writing in feature articles much more than “quick takes,” as they’re usually much more in depth with a lot more research behind them.

Part of the reason for this is that I don’t make meaningful life decisions or make up my mind about issues without a lot of information, generally from several different sources, and I tend to trust books and long-form reporting more than anything else. If a source has a reputation of providing “news” and opinion that is slanted toward a particular political viewpoint, I tend to regard it less, to the point that I don’t bother reading it. Every news source has some biases, of course, but it’s pretty easy to eliminate ones that have excessive bias.

Q3: Giving up on old car

When do you know it is time to give up on an old car? I have a 1998 Mercury Sable with 190,000 miles on it. I use it for a 9 mile round trip commute to work. I have had several major repairs done to it but none recently. It seems to run fine. But I was talking to a mechanic recently and he told me without looking at the car that late 90s Sables rarely last that long and I should think about trading it. Seems like I should wait for warning signs from my actual car to do so. What should I do?
– Tammy

My honest suggestion is that you should either be confident enough about what’s under the hood of your car to do the maintenance work yourself or you should be taking your car to a trusted mechanic for all of your maintenance work (and that means not a “quick oil change” place). Following a maintenance schedule and paying attention to what you see under the hood and what you hear when you’re driving is the key to maximizing the life of a car.

You’re correct: there’s no real reason to trade off a car until there are warning signs of major problems or repairs in the future. A good repairperson will be able to tell you of those things in advance and you’ll be able to notice early signs yourself if you’re following your own maintenance schedule and listening and paying attention to your car.

Interestingly, my wife had a 1999 Mercury Sable that she drove to about 175,000 miles before trading it in on her current car, a 2009 Toyota Prius. It served her well until the last few thousand miles or so.

Q4: Making money from a hobby

My favorite hobby in the world is to go hiking on trails. What I love to do is go to a fresh new state park, hike on trails until I find somewhere out in the middle of nowhere, eat a lunch out of my backpack, read for an hour or two, and then hike back. It’s a great way to spend a Saturday.

While this is almost a zero-cost hobby, there are some expenses involved. I am trying to think of ways to cover those costs. Any thoughts?
– Jeff

One suggestion that immediately comes to mind is to get a GoPro camera and attach it to a hat that you wear while hiking. Record video of your entire hike (turning it off when you stop to read) and then, when you have a free evening, edit it into a ten minute video or so giving the highlights of your hike. You can use simple video editing software to add basic narration to the video and some video captions and the like.

You can then take this video and upload it to Youtube, enabling ads. Label it with the name of your video series along with the name of the park and trail that you walked.

You’d be surprised how many views this kind of video would get. I often look for Youtube videos of trails and things like that when considering a trip to a state or national park and would probably end up watching your videos. For you, the only thing that would change is that you’d have a tiny camera on your hat and you’d spend some free time on weeknight evenings editing videos.

You could even make some “meta-videos” covering all of the trails in a particular state park and giving recommendations to new hikers while videos from the various trails are running. I’d definitely watch this type of video.

Q5: Eating out is normal?

I used to think that your comments about eating at home to save money were kind of silly. I grew up eating at home and at my first job that’s what most people did. Everyone bought leftovers to work and we usually ate leftovers together in the break room.

Switched jobs in September and now everything is completely different. Everyone goes out for lunch every day. I bring in my leftovers most every day but I eat alone or with one old janitor guy.

It turns out that almost none of my coworkers ever eat at home. They eat out for literally every meal. The only time they eat at home is when they bring home some leftovers from a restaurant meal and microwave them. I suggested having a dinner party and they all looked around like I had suggested something insane.

Turns out that norms are different everywhere you go. I go out for lunch now about once a week just to talk to coworkers but I still would way rather eat leftovers and I do almost every day.
– Jane

I worked in two different office environments over the years. One of them was pretty mild in terms of going out for lunch – it was perhaps once a week and even those lunches were moderately priced. The other was somewhat more frequent, but even then, leftovers weren’t seen as anathema. Having said that, I hung out with a young professional group for a while and almost none of them ate at home ever. I don’t believe they even took home leftovers at restaurants. I often ate dinner with them during my earliest professional years (transitioning slowly to eating dinner with Sarah after our marriage).

In other words, I don’t think it’s unusual at all to find professionals – particularly younger professionals – who just don’t eat at home or prepare their own food. Quite often, it’s a revelation to young professionals that it’s way cheaper to prepare your own meals at home rather than eating out, but even then, the idea that cooking at home is somehow hard adds resistance to eating primarily at home.

It’s not hard. It’s actually pretty easy. Once you become practiced, it’s usually easier to make something simple at home than to eat out. I’d far rather make most simple things at home than to eat out.

The problem is habit. Many people get into a habit of eating out for every meal and thus moving away from that habit is hard. It’s like breaking any other habit. People are creatures of routine.

Q6: Preparing for automated workforce

I am 34 years old and currently work as a lab tech for [a large agricultural company]. I have been reading a lot about automation coming to more and more industries and it has me concerned in a lot of ways. I am worried to a small degree about losing my own job but in a much larger degree about what rampant unemployment in the future will bring about. What can I be doing now to prepare for an automated workforce?
– Ken

There are several things you can do.

One big thing you can do is get yourself into the strongest financial position possible while jobs are still prevalent. If you have a lot of money in the bank, you can handle societal changes that might have a negative impact on your potential employment. You can just walk away.

Another thing you can do is pursue careers in areas that are hard to directly replace with automation. Creative careers are definitely one area where this is true. Software engineering will almost assuredly remain a hot field. I would avoid any career where automation is clearly on the horizon.

You should also diversify your career options, if possible. Start a side gig in an area very different than your current career so that if one of them falters, you can rely on the other one. It’s great advice for anyone.

Q7: Having control over your life

I recently saw an interview somewhere where the interviewer asked the person what they thought success was and the person thought that success was measured by the percentage of one’s life that a person has control over. Made me think about financial success and how it gives you a lot more control over how and where you work, household chores, etc. Thoughts?
– Amy

I agree completely with that sentiment. Almost every major professional and financial choice I’ve made in the last decade has been to expand the amount of my life that I have control over.

Right now, I have a job where I can basically write whatever I want and I have no set “hours” other than meeting due dates and word counts. I can work in a coffee shop in the morning or in my sweatpants in the basement late in the evening or whatever else I want to do. I am able to be at home every day when my kids leave for school and there when they get home from school, with the ability to focus on them.

To achieve that, I had to give up income. There’s no two ways about it – I would be earning a lot more money if I sacrificed some of that freedom and control. It’s not worth it for me. We live a life that doesn’t require a lot of income, so it’s a trade that works. I might not have tons of stuff, but I have a lot of control over my life. That’s a trade I’m extremely happy with.

Q8: Frugal Keurig for the holidays?

So my mother has not subtly hinted that she wants a Keurig coffee pot for Christmas. Most days she only drinks one cup of coffee so having a full coffee pot seems like a waste. The thought of hundreds of more of those plastic cups in the landfills bothers me a lot as does the continuous expense (almost $1 per cup? at home? seems like a ripoff). Is there a better way to set up single cup brewing that’s easy for my mom?
– Nina

For starters, Keurig makes a reusable filter that works in their coffee pots called the My K-Cup. You just refill it with whatever coffee you prefer, pop it into the Keurig coffee pot like a normal pod, and then instead of tossing it when it’s done, you just wash it, let it dry, and reuse it. Keurig makes an official one and there are many unofficial options.

Assuming your mother lives alone and is only ever going to make one cup at a time, I’d get her a very small K-50 pot, which is very inexpensive and works with the reusable K-Cups. It’ll fit nicely in almost any kitchen and does work with the disposable K-Cup pods if you so choose.

In other words, a good gift idea for your mom is to give her a K-50 and a couple reusable K-Cup pods so she can fill them herself with whatever coffee she likes. If she chooses to use the individual pods, that’s her choice, but you’ve given her a path to less expensive and more environmentally friendly coffee options.

Q9: Musical instruments for children?

My oldest child started in band in the fall and got a “loaner” instrument for the first semester but now he wants to continue and we’re faced with buying or renting an instrument. The local music store rents out instruments for $40 a month which seems expensive. We have found several other options. We have found used instruments on eBay in the $200-300 range. We also found new instruments in the same range but they seem to be imports and have some reviews where the instruments broke easily. A new high quality instrument is really expensive. Are there factors we are not thinking about? What do you recommend?
– Stephen

If you’re confident that your child is going to stick with it for more than another year, then buying is obviously the better choice. It only takes about eight months of renting at those prices to exceed the cost of owning a used instrument or a new low-quality instrument.

My honest recommendation would be to go used here. Look for a used instrument from a reputable eBay reseller that’s from a reputable manufacturer, or else see what used instruments your local music store has in stock. Most used instruments are in surprisingly good shape – they often come from people who played an instrument in school for a while and then gave up on it, so they’re not heavily practiced.

We’ve had two success stories following just this practice (both flutes) and so our home has two wonderful used flutes that cost us far less than a year of renting a flute.

Q10: Starting a Roth IRA

My father announced at Thanksgiving that he’s starting a Roth IRA for each of the children for Christmas with $1000 to start. We are supposed to open an account before Christmas and then we will be gifted the $1000 for seed money. I have been thinking about a Roth for the 9 months or so I have read your blog. Recommendations for opening one?
– Tammy

In a word, Vanguard. They’re the investment house I trust the most.

I’m assuming that once you’ve opened your Roth IRA, you’re going to at least contribute a little to it. Even if you just contribute a tiny amount, like $10 a week or something, that money will build up surprisingly fast.

For a first investment with Vanguard, your choices are fairly limited with a $1,000 initial investment. If I were you, I’d put it into Vanguard STAR and then start contributing a little each week or month. When you get to the $3,000 mark, move it into either a Target Retirement Fund or into the Vanguard Total Stock Market Index (if you’re in your twenties, that’s a perfectly good choice).

Good luck. That’s a great gift from your father.

Q11: Cheap juicing?

My brother got me a juicer for our holiday gift exchange (a Breville). While I like the idea of juicing in concept, it seems to me that it’s just cheaper to eat the fruit, right? I sat down and did the math on what you have to put in there to get juice and it seems like you’re basically just removing the pulp. It seems antifrugal to “juice” an apple instead of just eating one.
– Axel

Choosing between juicing, blending, and simply eating the raw fruit mostly comes down to your preferred way of consuming it. Juicing fruits and vegetables makes for a juice – it’s going to be a relatively thin liquid that contains some of, but not all of, the nutrients in the vegetable or fruit. Blending means you’re drinking the fruit or vegetable in a smoothie form, often with enough water or yogurt or other things added to make it into a thick drink. Or you can just eat the raw fruit.

It comes down to personal preference. Personally, I prefer a thick smoothie versus juice, any day of the week. It’s more filling for virtually the same calorie count and I think it tastes better and feels better in the mouth. Some don’t like the thickness, though, and prefer juice. Others – like, perhaps, yourself – prefer just eating fruits and veggies.

Your brother probably gave this to you because he finds value in juicing or hopes that you’ll adopt a healthier diet than what he perceives that you currently have. Maybe it doesn’t work for your current dietary choices, but it is a caring gift.

Q12: Preparing for presidential change

I don’t want to turn this into a political shouting match but I am wondering what you think people should do to prepare for the upcoming change in presidency. Are there smart financial moves that people should be taking?
– Eldon

Regardless of your political feelings, the fact remains that we are about to experience a shift in personnel not only in the White House, but also in the House and Senate, and those shifts will have some impact on our lives.

The problem is that we don’t actually know yet what kind of impact those changes are going to have. We don’t know what bills will be proposed. We don’t know what laws will be passed. We certainly don’t know the long term economic impact of those changes.

My advicetoday is the same that it is after every major election: don’t change anything suddenly. Instead, wait and watch. See what kinds of actual changes are getting passed and assess for yourself if those changes warrant any personal finance changes for you.

I think that making financial moves in advance of what you think the next president might do is very premature considering that the new president has not taken any action yet and will not do so for more than a month. Be patient, stay with your current course of action, and only make changes if the changes in our nation’s policies actually warrant it.

Got any questions? The best way to ask is to follow me on Facebook and ask questions directly there. I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.

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Should You Invest Your Short-Term Savings?

A lot of people hate the idea of keeping money in a savings account. They feel like it’s just sitting there, earning next to nothing, and that they’re missing out on getting better returns elsewhere.

Have you ever felt like that?

It’s a feeling that makes a lot of sense. After all, there really IS no reason to settle for worse returns when you could be doing better elsewhere. A better return means you reach your goals faster, and isn’t that the entire point of saving money?

Of course it is. But there’s always a trade-off.

Investing makes a ton of sense for long-term goals like financial independence because the downside is minimal and the upside is large. If you do the hard work of sticking with your plan through the ups and downs, you’re likely to come out ahead.

But it’s a lot murkier when you look at short-term financial goals, like the house down payment you’d like to make in a couple of years or the emergency savings you might need at any moment. Does investing make sense in those situations? How can you get reasonable returns without sacrificing the goals you want to reach?

Here’s my take.

Three Reasons Not to Invest Short-Term Savings

In most cases, a simple savings account or CD is the best short-term investment for money you’ll need within the next three years.

I know, I know. It’s not exciting, it’s not sexy, and it certainly won’t make you rich. There are three good reasons why short-term investments just aren’t worth it when your timeline is so short.

1. There’s Too Much Uncertainty

The big trade-off with investing is the uncertainty. Sure, you may find yourself up 10% for the year, but you could just as easily find yourself down 20% or more. And since you have no control over that timing, it’s very hard to make any definitive short-term plans. What if the stock market plummets a few months before you want to buy your house? What do you do then?

With a savings account, you know exactly how much you need to save and when you’ll reach your goal. You also know that the money will definitely be there when you need it. It makes planning your life easy and certain.

2. The Difference Isn’t as Big as You Think

Over short time periods, the amount you save matters MUCH more than the return you get. Even big differences in return likely won’t matter all that much.

Let’s say that you want $24,000 for a down payment on a house that you’d like to buy in two years. If you save $1,000 per month and earn 1% in a savings account vs. 8% in an investment account, after two years you’ll have:

  • $24,231.41 in the savings account
  • $25,933.19 in the investment account

That’s a difference of about $1,700. Or to look at it another way, you could save $65 less per month and still reach your goal if you get an 8% return instead of a 1% return. But there are a few words of caution:

  1. If you really need the extra $1,700, you could guarantee it by contributing an extra $70 per month to the savings account.
  2. If you save less each month and/or save for a shorter period of time, the difference between the two returns will be smaller.
  3. That 8% return is not guaranteed. You could actually end up with less money from investing if the market takes a tumble right when you need to withdraw those funds.

The bottom line is this: Yes, investing gives you the chance to have more money at the end of it. But we’re not talking about being rich versus being poor. We’re talking about fairly small differences relative to your financial goals.

3. You Can Avoid the Emotional Roller Coaster

It’s one thing to look at the numbers and think to yourself that the downside is worth the upside, but actually experiencing the ups and downs of investing is a whole other thing.

How will you feel if the stock market tanks and you see your down payment fund cut in half — potential postponing your dream of home ownership for years? What if your emergency fund suddenly loses $4,000 at a time when you’re feeling uncertain about your current job stability?

Remember, a better return isn’t the goal. The real goals are the things you want to do with your life, and investing means that you’ll constantly be worrying about whether or not you’ll be able to do them.

When Short-Term Investments Make Sense

With all of that said, it’s not like investing is bad. Investing is a fantastic tool in the right situations, and here are two cases where it can make a lot of sense to invest your short-term savings.

1. Your Timeline Is Flexible

Maybe you’d like to buy a house in two years — but it’s not a big deal if you have to wait three years. If your timeline is flexible and you’re okay with the possibility of having to wait longer to reach your goal, then the potential upside of investing may be worthwhile.

2. You Have More in Savings Than You Need

Let’s say that you need $30,000 to equal a six-month emergency fund, and you have $60,000 saved. In that case, you could invest the money, hope for a better return, and still likely have enough money in your account even if the stock market tanked right when you needed it.

In other words, if you can afford to lose a significant amount of your savings and still be on track for your goals, then the upside of investing may be worth it.

What Are You Saving For?

Whenever you’re making a decision like this, it’s helpful to step back and remind yourself of the specific outcome you’re actually hoping for.

In this case, you’re saving for a specific personal goal because you feel like it will improve your life in some way. THAT’S the outcome you’re looking for. The return you get is only relevant to the extent that it helps you achieve that goal.

Matt Becker is a fee-only financial planner and the founder of Mom and Dad Money, where he helps new parents take control of their money so they can take care of their families. His free book, The New Family Financial Road Map, guides parents through the all most important financial decisions that come with starting a family.

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Sunday, November 27, 2016

Four Strategies to Stay Sane While Battling a Student Loan

The most surprising part about paying off my student loan has been the mental anguish it causes. I get sad thinking about how much money I owe — like, actually sad. If I ever find myself staring at a wall with a blank look on my face and my mouth slightly agape, zoning out, it’s usually because I’m thinking about the burden of my loan.

What if I lose my job? What if the stock market rockets up 10% or more, and I’m losing money paying down my debt that carries a 7% interest rate? What if the day I make my very last payment, Congress passes a law that abolishes all student loan debt? As good as I’d feel for all my comrades with loans, there would be a not-so-small part of me that would want to scream into a pillow for an hour straight.

All these thoughts can be stressful, almost to the point of becoming debilitating. You just want to close the browser window showing your current loan balance, start looking at cat GIFs, and hope that you have an eccentric, rich relative somewhere who’s going to surprise you with a windfall once they pass.

That’s all normal, but unfortunately, it’s not productive. The only real way to deal with the oppressive weight of student loan debt is to take action. Here are some of the things I’ve had to deal with, and how I go about solving those challenges.

Make a Plan and Get Started

Paralysis by analysis is a real thing. I’ve spent hours researching debt consolidation. I’ve downloaded a million fancy spreadsheets to stay organized. I’ve looked on Ancestry.com to see if I have any royal bloodlines, and thus a claim to some ancient stash of gold sitting in a palace somewhere.

I hemmed and hawed for years trying to decide whether I should put excess money into the stock market, or some money into a Roth IRA and some toward the debt, or if it made sense to pay the debt one year and then invest the next. I was about to look into whether people had better luck paying off debt when Mercury was in retrograde if they were a Gemini born after 1980, when I realized enough was enough.

As with investing, the most important thing to do is to simply get started, and the best time to do so was yesterday. So I picked a strategy that sat well with my mental makeup. For me, that meant an all-out, hyper-aggressive, no-holds-barred plan to pay off every last penny of debt as fast as was humanly possible.

I don’t know if that’s going to be the best plan when I look back in 10 years. Maybe the market will have a historic rise, and I’ll miss out on all those returns. Maybe I’ll really, really wish I had more money in my Roth IRA account when I turn 60. You just never know.

And that’s the key thing to keep in mind. You have to pick something and stick with it, because the future is uncertain — and sitting and moping is always the wrong decision.

It always helps me, a naturally pessimistic thinker, to remember that I could also be right. The stock market could take a nosedive the next 10 years, and I’ll be thrilled that I decided to take the “guaranteed” return that comes with paying down my debt.

In my case, I decided to pay it off aggressively, and that’s what I’ve been doing for the past two years — throwing any extra money I can at my student loan balance. I want to note that I’m fortunate to be in a situation where I can even make a dent in that loan. I empathize with the millions of people out there who can’t even make their monthly payments. And I know my current income level might not last, so I’m going to do everything in my ability to attack my mountain of debt while I’m in a position to do so.

Create Rules for Your Bank Account

When you’re putting the vast majority of your non-food, non-housing-related money toward your debt, it helps to have ironclad rules so you don’t get sidetracked. For me, the key is to make sure my checking account contains as little money as possible.

If I let the money sit in my checking account for a few days after I get paid, I start to get ideas. It’s like in the cartoons, when a devil appears on your shoulder.

“You’ve been working so hard, why not get that new laptop you’ve had your eye on?”

“Are you suuuuuuure you don’t want to buy some stocks, they’ve been going up!”

“Why don’t you write a scathing letter to the Dean of your University, ripping her for charging exorbitant tuition fees when the school has an endowment worth more than many countries’ GDPs? You’ll be a hero to alumni everywhere!”

This is counterproductive, to say the least. Automating my payments would help eliminate those temptations, but I’m unable to do that with my current loan. So I’ve made a rule that I have to put the money toward my loan within 24 hours of it arriving in my account, and that makes for less of an internal struggle. It’s there, it’s gone, and I get on with my life.

Share Your Progress and Seek Encouragement

Using a debt payoff calculator can be a sobering experience. It’s usually after inputting some realistic numbers and seeing how far I am from debt freedom that I start thinking about whether college was even worth it. It feels like I’m going to be eating rice and beans for the next 10 years because my 18-year-old self thought it’d be wise to spend a ton of money getting a non-STEM degree. I paid a hefty price to learn about the Federalist Papers and Shakespeare.

But ultimately, regret serves no useful purpose. I deal with the Sisyphean feeling of paying off debt in a few different ways.

One favorite is imagining how I can help people once it’s gone. I’ve become interested in several charitable causes lately, and I would like to be able to support them. Thinking about giving money to people who really need it instead of making loan payments is motivating.

Similarly, I think about being able to help my family members. My brother and sister both have student debt of their own. I’m nowhere near being able to help them make payments, and I might never be able to, but just thinking about the possibility keeps me focused and hungry.

Finally, I get a big lift from talking to some select friends and family about my progress. When I tell my fiancee or my mother about progress I’m making, they’re always incredibly supportive and tell me how proud they are. There would be no such response if I told them about how I’d just bought an Oculus Rift. Those little encouragements take away some of the loneliness that can set in as you slog through the debt payment process.

It’s OK to Say ‘No’

My dad always told me that honesty is the best policy, and the older I get the more I realize his simple advice was right. When I get invited to things that are beyond my budget, I don’t think of excuses to get out. I’ve made it a point to just be honest.

If I can’t afford to do something, I tell the person why, even if it makes me uncomfortable. I think that owning up to the debt is a better long-term plan than pretending it doesn’t exist, as many of us tend to do in this country. You only have to look at this recent article in the Atlantic that details a middle-class man’s “secret shame” about living paycheck to paycheck to see how common it is to feel bad about your financial standing. Our culture is one in which you’re looked down upon if you aren’t “living the dream.”

I think this might be easier if Instagram made a rule stating that next to every picture you post of yourself smiling and looking perfect in some impossibly exotic locale, you had to state how much it cost you, and whether you thought it was worth the price. The captions might change from “Not WINE-ing about this trip to a French vineyard!” to “Total cost: $2,300. That’s two weeks’ pay so I could battle jet lag and a sea of tourists to get this picture. Maybe I’ll visit the brewery near my house next time.”

Summing Up

Having a huge student loan is a real bummer. Yes, I know, that’s like saying the sky is blue or that mustard is better than ketchup on a hot dog. (That’s obvious to everyone, right?)

I could have a beautiful three-bedroom home in Indiana for the price of my degree. But I made the choice to take out money to go to college, and now I have to live with it. Facing your debt instead of running away from it, being honest, learning on a support group for encouragement, and sticking to a plan can all help you keep your sanity while paying down your debt.

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Saturday, November 26, 2016

Achieving Financial Success Without Extreme Frugality or a Huge Income

It’s not too hard to find stories in the media about seemingly ordinary people finding great financial success. You hear about what seems like an ordinary guy or gal who worked in what seemed like an ordinary career path and somehow they’ve got a million dollars in the bank. How did they do it?

Unfortunately, many of those stories have additional details that you don’t read about in the headlines. Often, you’ll find that those people practiced a level of frugality that seems like complete misery to you. They live in a very tiny home or they eat a very strange diet or they never leave the house or they homestead for all of their food needs. Sometimes you’ll find that although their job title is ordinary, they’ve actually earned a ton of money through either a higher-than-average salary or some other financial benefit (like receiving an inheritance of some kind).

At that point, the walls come crashing down. Rather than giving the idea that anyone can do this, they again reinforce the idea that financial success is something that only occurs in exceptional circumstances.

I’m here to tell you that it’s actually quite possible to achieve financial success without extreme frugality and without a lot of wealth already in the bank and without a huge salary.

Since the start of our professional lives, my wife and I have never earned more than about 25% above the average American salary with the exception of one year where I almost worked myself into a mental breakdown (never again…). We don’t make a ton of money. We also have three children at home and anyone with children knows that they’re money pits, so it’s not like we’ve got tons of income to spare, either.

At the same time, we’re not extremely frugal. I try different things for experiments in my writing, but in our day to day lives, I don’t consider us to be insanely frugal in any way. We eat normal meals, have normal hobbies, and have normal lives.

Yet, over the past decade, Sarah and I have paid off two car loans that measured in the five figures, then eventually replaced those cars and paid for them in full. We paid off our student loans, which was in the five figures for each of us. We also paid off a ton of credit card debt, also measuring in the five figures. We bought a four bedroom home and then paid off the entire thing in about four years. Right now, we have no debts – not even a mortgage – and are saving for actually retiring early.

How is that even possible? It’s possible thanks to using a handful of very smart strategies along the way. The rest of this article is a basic blueprint for what we did.

Focus Your Frugal Efforts on Things You Don’t Care About (or Barely Care About)

People have this false impression that frugality is all about deprivation. When people think about being frugal, about cutting back on their spending, the first things that their mind flashes to are the expenses in their lives that they really care about.

Think about it yourself. When I suggest cutting back on your spending, what do you think about? It’s incredibly likely that most of your immediate thoughts come down to things that you get a lot of personal pleasure out of (with a few of your worst spending mistakes sprinkled in there for good measure).

That’s a completely backwards approach to frugality. That’s an approach that’s virtually guaranteed to be miserable and guaranteed to fail. You’re simply not going to succeed in terms of cutting your spending if your image of cutting your spending is taking away the things you most enjoy in life.

The truth is that the actual success of frugality comes from cutting away things you barely notice and then not spending that money you save but instead using it for something financially positive. It comes from doing things like air sealing your home so that you’re not wasting warm air during the winter months. It comes from things like buying store brand hand soap and store brand laundry soap. It comes from things like making a grocery list before you go to the grocery store. It comes from negotiating for a better insurance package. It comes from moving closer to work so you don’t have to drive each day.

It doesn’t come from eliminating a stop at a coffee shop if you truly love that perfect morning coffee. It doesn’t come from completely abandoning your favorite hobby. It doesn’t come from sitting at home by yourself while your friends have fun. Those are unrealistic visions rooted in a fear of change, a change that has nothing to do with an effective approach to frugality that will actually earn dividends.

Use this approach when you look through big lists of money saving tips. Don’t do the ones that sound like they’d make your life substantially less enjoyable. Instead, focus on the ones that seem like they’d feel almost effortless and the ones that, when you think about it for a second, you realize that it wouldn’t be much of a change. Focus on ones that involve doing one big thing up front and then having it permanently reduce a bill. That’s effective frugality. That’s the kind that will last. And, honestly, it’s pretty fun, because you realize you’re making a low-impact change to your life that will have better long-term results.

Learn How to Cook Well Enough So That It’s More Convenient to Eat at Home

Food is such an enormous drain on the budgets of so many families simply because of the huge cost difference between restaurant food and meals prepared at home. The difference between the two is astronomical, and when you keep repeating that cost difference several times a week, it really adds up.

Believe it or not, the average American family eats out more today than they eat at home, even with that huge price difference. Why? There’s this perception that eating out is simply way more convenient than preparing food and eating at home.

In my experience, that perception is borne out of a lack of comfort that many people have in the kitchen. Cooking a decent meal seems intimidating. Even cooking a simple meal can seem intimidating. When you’re intimidated, your mind amplifies the challenge of the work involved, and when your mind starts to amplify the work involved, it makes eating out seem so much easier that it makes up for the cost difference.

How do you beat that perception? You beat it by actually getting experienced in the kitchen, and you do that by actually making yourself cook lots of meals at home.

Every time you cook a meal at home that you would have otherwise consumed at a restaurant (or takeout or delivery), you’re going to save a little money, but more importantly, you’re going to become a little more skilled in the kitchen.

Something like poaching eggs and making coffee, which might have seemed like an enormous chore in the morning, becomes something you can whip out while getting ready for the day. Something like beef stew might have seemed like a huge challenge, but soon you begin to realize that you can just chop up the ingredients the night before in about ten minutes, dump them all in a slow cooker in the morning, and come home to finished beef stew after work.

As that transition occurs, the intimidation factor of cooking at home will become lower and lower. It won’t seem overwhelming to come home and make even a fairly complicated meal. And, believe it or not, it will actually seem easier to just go home and make something simple like a pot of pasta and sauce than it will to go out to a restaurant.

Doing this transforms eating out (a relatively expensive endeavor) from a crutch that you have to rely on to get through the week to an occasional treat that you use to enjoy an unusual meal.

Don’t Waste Food

I’m often stunned at how much food many households simply waste. They’ll buy something at the store, let it sit in the fridge or on the counter until it goes bad, and then toss it. They’ll buy a food item, stick it in the pantry, and then when they discover it again they judge it to have “gone bad” and just toss it. They’ll pack up leftovers from a meal, stick them in the fridge, and discover them several days later with a thick coating of mold.

All of that is wasteful.

Here’s a new approach. At the start of each day, look in the fridge and see if there are any leftovers you can eat today instead of prepping a meal. Doing that turns one of your meals into a freebie and guarantees you won’t be tossing food in the trash. At the start of each week, when you’re planning meals (something we’ll get back to in a minute), look in your pantry and freezer and use that stuff as the basis for your meal plans. That way, you really don’t have to buy all that much at the grocery store. If you’re looking for a snack, look at what’s in the fresh food areas of your home – are there fresh fruits in the fruit bowl? Are there fresh veggies in the crisper?

Those steps alone take care of a lot of the food waste that a family undergoes. Remember, whenever you toss food in the trash, you’re literally throwing away money. That food cost something to get it into your home and now you’re just tossing it. Try to avoid doing that.

Scale Back Treats Until They Become Treats Again

Humans are routine-oriented creatures. We often fall into daily routines and weekly routines that we just repeat over and over again. Usually, we do them without thinking or feeling – they’re just the norm.

Every time you spend money as part of that daily routine or that weekly routine, you should be questioning whether or not it’s worth it. Are you really getting real value from that expense?

What you might notice if you ask that question seriously is that there are many things in people’s daily routines that aren’t really necessities at all. They’re basically treats. Think of a morning cup of coffee from Starbucks instead of from the coffee pot at work. Think of a regular stop at a store that caters to your hobby.

When you repeat such a thing often enough, it ceases to be a treat. It becomes routine. When something becomes routine, not only does it become a required expense in your life, it also loses a lot of the pleasure. It ceases to be a treat and just becomes “normal.”

One of the best “frugality secrets” out there is that life is actually much more enjoyable if you make your “normal” routine as inexpensive as possible and then spice it with treats with enough intervals in between so that they really feel like treats.

So take your daily stop at Starbucks and spread it out to become a weekly thing or even an every-other-week thing. Instead, get your morning coffee from the shared pot at work.

Here’s the weird part: you’ll actually start to find that drinking it once every week or two reinstitutes it as a treat. It will make the cup much more of a pleasure than before, when it had become a dull routine.

Make your routine bare-bones, then add treats sparingly so that they’re actual treats instead of just a boring routine. You’ll spend a lot less money and the treats will actually bring you more joy and pleasure than before.

Be Organized in Your Thinking and Planning Every Time You Would Spend Money

This one’s simple: whenever you are thinking of spending money, give it some advance thought and plan for it a little bit.

When you go to the grocery store, make a meal plan first and make a grocery list from that plan. That way, when you do go to the store, you have a list to follow.

When you go to the bookstore, give it some advance thought and decide on what exactly you’re looking for as precisely as you can. That way, when you go there, you’re not just wandering around.

Don’t put yourself in situations where you would spend money without thinking about it in advance, and that means far enough in advance that you’re not caught up in the moment of the purchase. Think about your grocery list at home and write it down rather than thinking about what you’ll buy on your way into the store.

This doesn’t mean that you can’t ever be spontaneous with your money. It just means that, if you’re going to be in a position to be spontaneous, you’ve already put some reasonable boundaries on it so that you’re not wrecking your finances by doing so.

For example, if I’m going out with friends on an unplanned evening, I’ll think about that evening in advance and take only enough cash to handle a reasonable evening out on the town rather than a credit card which can open the door to a huge amount of impulsive spending, far beyond what I can reasonably afford. If I take $40, that means I’ve thought about it in advance and I know that I can feel completely fine spending that $40 however I please and still know that everything in my life is still right on track.

Intentionally Move Your Hobby Time Away from Accumulating and Towards Doing Instead

When you’re passionate about a particular hobby, it’s easy to fall into the trap of accumulating stuff related to that hobby rather than actually doing things within that hobby.

For example, if you’re an avid book lover, you can often find yourself building up a huge book collection rather than actually, say, reading books.

This is a reflexive trap that many people fall into as their lives become busy. They begin to get a sense that they don’t have time for hobbies that they once loved, so to fight off that perception, they buy items instead as a substitute for that hobby time.

Here’s a much better approach: schedule blocks of time to actually practice your hobbies. Put them in your calendar first, before other appointments, and actually keep that time sacred.

Give yourself time to read if reading is your passion. Give yourself time to play board games if tabletop gaming is your passion.

That way, when you’re tempted to make a purchase, instead you can look at that block of time and think about the activities you’re actually going to do instead of the things you’re just accumulating.

You’ll find that when you do this, your desire to accumulate stuff actually melts away. For example, that time you might have spent thinking about all of the books you wish you had time to read instead becomes time you spend thinking about that book you’re going to read this weekend. Actually owning that book becomes secondary, and that makes things like stopping at the library much more appealing because the library is focused around using rather than accumulating.

Always Question Every Purchase

The last few entries are actually just specific instances of this overall strategy, which really sums up what a frugal mindset really is. You just question every single purchase.

That doesn’t mean that you cease spending money. It just means that when you’re about to spend money, you ask yourself critically whether this purchase really makes sense, and after you’ve made a purchase, you again reflect on that purchase critically and see whether it really made sense looking back on it.

A financially responsible mindset takes those situations and constantly runs them through their head. When you’re driving or sitting at the doctor’s office or whenever idle thoughts are running through your head, you just parse through a few recent buying decisions or some buying decisions that might be coming up. Do they make sense? Is there a better way to do it? Can I just borrow that item? Can I buy the store brand instead?

What you find is that you start to whittle away a lot of your expenses. You start to see unnecessary expenses as being unnecessary.

At the same time, what you find is that you’re not cutting away at the things that are really important to you. If you spend time considering a purchase, it really becomes clear after a bit which purchases really bring value into your life (and you don’t cut them) and which purchases do not.

That’s the purpose of such reflection. It cuts your spending down to the stuff that really matters.

Automate As Many Bills As You Can, Including Your Savings Plans

When you start paying down your debts and saving for the future, it’s easy to do it at first. You’re excited about the changes and if you’re being frugal, you have money to make those changes happen.

After a while, though, the newness wears off and when you’re making that choice to make a double debt payment or to put $100 away in savings, it becomes a lot harder to manually do that. It’s easy to put it off or justify not doing it.

The best way around that is to just automate it. Automate your large debt payment so that it happens automatically each month. Automate a transfer from your checking to your savings to build up an emergency fund.

That way, you don’t have to repeatedly think about your financial moves. It just happens. You don’t even give yourself a real opportunity to talk yourself out of them. It just happens, automatically.

Treat Your Career as an Opportunity, Not an Obstacle

Many people look at their career as drudgery. It’s something that life forces them to do and they hate every minute of it. They try to avoid actually doing much work and try to get by doing the minimun needed to keep their job.

That’s the wrong perspective, and it’s one that needs to be thoroughly replaced if you want to see lasting financial success.

Instead, see your job as an opportunity. Don’t live to work, work to live. The time you spend at work is time invested so that you can do the things you want in the other areas of your life. The time and energy you invest there is returned to you in terms of financial security and the ability to do all kinds of things in life.

Not only that, it’s an opportunity to open up even more freedom.

Look, if you’re going to be at work for eight hours anyway, why not use that time intentionally to maximize every possible dollar you can earn from your job? You can do that by simply taking on the difficult tasks. Look for situations to challenge yourself at work. Look for opportunities to get free education. Look for things that can bolster your resume and produce a great work review.

If those things aren’t appreciated in your workplace in terms of better pay, so what? They make for great resume material and you can always look for a job elsewhere when your resume starts to look really good. You may even find opportunities for independent work, like taking on a gig as a freelancer in your spare time or setting up a small business.

Just look at those hours you’re investing in your career as, at worst, an exchange for the things you have in life and, ideally, as an opportunity to improve your income and make your path to financial success move along that much faster.

Treat These Changes as Your New Normal

All of those changes seem doable on their own, but for most people, they’re different than the habits and routines that they currently have. These things represent a behavioral shift, a different way of approaching day-to-day life.

The thing is, it requires a permanent shift to these kinds of behaviors in order to make them work. These aren’t things that you try on when you think of them. These need to become statements that describe normal life for you – to do things differently than this needs to become the “strange” or unusual pattern.

Without that change in your sense of normal behavior, these changes won’t stick. They won’t become permanent alterations in your behavior and without that permanent change, they won’t bring about the financial results that you desire.

It’s like the old adage goes: the definition of insanity is to keep doing the same thing and expect different results. If you don’t change something – and by change, I mean change it permanently and establish it as the new normal in your life – then you’re going to keep getting the same results in life. There’s no way around it.

For some people, adopting a lot of changes at once is the best approach. For those people, making all of these changes in one swoop is what they need to do. For others, gradual change works best and they should focus on adopting new changes one at a time and letting them settle.

Remember, the key is to be on guard with these life changes until they truly become normal and the old way of doing things becomes strange. It isn’t until you wake up one morning and realize that your sense of normal now includes those things that financial success will really start pouring into your life with little apparent effort.

Final Thoughts

Here’s the take-home message from this article: the key changes that a person needs to make from the “typical American” lifestyle to one that builds wealth are not really radical changes. More than anything, they simply require introspection. They require reflecting on the choices we’re making and asking ourselves whether there’s a better way of doing things on decisions both big and small.

The path to financial success doesn’t begin with a bunch of misery. It begins with asking questions about why you’re spending each dollar that you’re spending. It begins with figuring out which things really matter to you and which things don’t matter as much. It begins with trying and discovering new things. It begins with building a few new skills that will make you more comfortable doing ordinary things like preparing a meal.

Those things come together over time to raise you up from living paycheck to paycheck. They raise you up so that you can pay off your debts surprisingly fast without giving up things you genuinely enjoy (and, believe it or not, often finding more space for doing things you enjoy).

It’s a path that begins not with radical change, but with asking lots of questions.

Are you ready? Let’s go.

The post Achieving Financial Success Without Extreme Frugality or a Huge Income appeared first on The Simple Dollar.

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