Saturday, August 5, 2017

Inspiration from Kaia Kater, Jane McGonigal, Billy Bragg, and More

Once a month (or so), I share a dozen things that have inspired me to greater personal, professional, and financial success in my life. I hope they bring similar success to your life.

1. Ralph Waldo Emerson on being yourself

“To be yourself in a world that is constantly trying to make you something else is the greatest accomplishment.” ― Ralph Waldo Emerson

I often have this sense that much of the modern world exists to try to shape all of us in certain ways. Marketers want us to want particular products and to buy certain things. News producers try to evoke emotional responses in us to sway our opinions and views.

In a world that theoretically values individualism, I often feel as though we are all being pushed in very similar directions, to become very similar people. The things that we argue vociferously about are actually tiny differences in the big scheme of things. We all accept so many of the core elements of what it is like to live in the modern world that the differences between us that seem so huge are actually very tiny.

It is hard to be yourself in that world. It’s hard to even find yourself sometimes, let alone let it all out.

I’m finding, more and more, that there is some great power in disconnection. Turn off the computer, the cell phone, the television. Spend time just with yourself, or just with other people who are also consciously disconnecting, and see what there is. See what you think. See what matters to you without all of those hints and nudges about what others think should matter to you.

2. The Radiant Child

This is a documentary about the life of artist Jean-Michel Basquiat, who came to prominence in the 1980s as one of the prominent artists in the neo-impressionist movement. A surprisingly good description of Basquiat’s work comes from Wikipedia:

Basquiat’s art focused on “suggestive dichotomies”, such as wealth versus poverty, integration versus segregation, and inner versus outer experience. He appropriated poetry, drawing, and painting, and married text and image, abstraction, figuration, and historical information mixed with contemporary critique.

His art, to me, takes a number of elements that seem very simple and even crude and childlike on their own, but combines them together into something profound and thoughtful. When I see his work, my initial reaction is often of underestimation. I see very simple elements – individual elements that could be produced by lots of people. As I look, though, bigger themes come out. It’s the combination of the simple elements in the purpose of a broader idea is what really makes him amazing.

This documentary of his work, directed by Tamra Davis, is really well executed and is easily the best summary of his work that I’ve seen or read. I saw it for the first time on PBS in 2011, but I failed to record it (and actually missed a portion of it). I am extremely glad that I found it again.

3. Antoine de Saint-Exupery on work and longing

“If you want to build a ship, don’t drum up people to collect wood and don’t assign them tasks and work, but rather teach them to long for the endless immensity of the sea.” – Antoine de Saint-Exupery

People ask how I can write on the mechanics and psychology of personal finance every day, but the secret is that most of the time, that’s not really what I’m writing about.

Budgets and 401(k)s and frugal tips – those are just tools. What personal finance really is all about is figuring out the really big things in life that your heart desires, thinking about them and seeing them until your heart longs for them, and then using that dream to pull yourself through the challenges that others aren’t quite willing to match.

I dream of spending an entire summer with Sarah, riding around from national park to national park, camping in each of them, while we’re still young and healthy enough to do so and without a real worry in the world. I dream of having independent children who don’t need me in their life, but sometimes want me there.

It is those dreams that pull me into personal finance. It is those thoughts that convince me to pick up the tools I need to make personal finance work for me. It is those visions that convince me to do the best I can to keep my marriage strong, build independence and self-reliance in my children, and preserve what wealth I have.

That’s the sea I long for.

4. Adam Alter on why our screens make us less happy

From the description:

What are our screens and devices doing to us? Psychologist Adam Alter has spent the last five years studying how much time screens steal from us and how they’re getting away with it. He shares why all those hours you spend staring at your smartphone, tablet or computer might be making you miserable — and what you can do about it.

Why would I share this on a website, you might ask? And how is this possibly “inspirational”?

For me, the research presented here – and other studies like it – have convinced me that I need to spend a significant chunk of time each day completely free of any type of screen. That includes my phone, my work computer, the television, and everything else.

Over the last several months, I’ve moved myself to a daily routine of having at least three hours free of screen time. I spend that time going on walks or bicycle rides, reading books, playing board games with friends, making food… very “analog” things. My cell phone is completely off, as is my work computer, and they’re stored away out of sight and out of mind.

I genuinely think that this change has done wonders for my mental well being.

In fact, I went on a weeklong screen-free period this summer. During that period, I didn’t really notice my mood raising, but afterwards, when I found myself again working in front of a screen and regularly using my phone, I could feel that the screen time definitely wasn’t a net positive in my life. It definitely brought advantages, but it brought subtle but strong disadvantages as well.

Take a break. You’ll be glad you did. The world itself, the one outside of your screen, just might inspire you.

5. 1 Second Everyday

I’ve been using this clever little app for a while to record one second of video each day that captures some key essence of what that day was about. The app then allows you to stitch those seconds together into a video of your life. So, for example, if you recorded one second a day for a month, you’d have roughly a thirty second clip of one second shots of each day, and if you recorded for a year, you’d have a six minute summary of your year.

Not only have I found this practice to be very enjoyable and the videos produced to be wonderful, it gradually becomes really obvious what things are important to me. My clips are loaded with bits that include my wife and my children, along with natural settings, books, and other specific hobby interests (often with friends).

I capture that stuff because that’s the stuff that means something to me. This app doesn’t produce some video for mass distribution (unless you were intentionally creating something to be shared that way). It creates something closer to a video diary for personal consumption. It’s a great way to reflect on your life and see what really matters to you.

6. Billy Bragg and Joe Henry – Tiny Desk Music Concert

From the description:

Earlier this year, Billy Bragg and Joe Henry set off on a journey. They boarded a train in Chicago, bound for Los Angeles. Each time the train stopped for more than 20 minutes in cities like St. Louis and San Antonio, they’d grab their guitars, hop off, find the waiting room and record an old railroad song. The result of this journey is an album called Shine A Light: Field Recordings From The Great American Railroad.

Bragg has been weaving folk and punk with protest music since the late ’70s, when he first started busking around London. You can hear his passion for American songwriters such as Woody Guthrie and Lead Belly on this record. Henry is an American singer and songwriter with 13 albums of his own. He’s also produced so many great records for others, including Rodney Crowell, Lisa Hannigan, Bonnie Raitt — and Bragg himself.

This concept record could be seen as a nostalgia trip, but both Bragg and Henry will emphatically say that it’s not. These songs and this journey celebrate the modern railroad as a major economic engine and a still-vital form of transportation. The songs are filled with mythic poetry and the metaphoric romance inherent in train songs, but the vitality in the performances keeps the songs current. You can hear that behind my desk as well as you might in a rail station.

One of my best friends joked that this album, Shine a Light, is like a checklist of things I like. It’s firmly in the folk and Americana genre, which is my favorite flavor of music. Billy Bragg is involved, one of my favorite musicians. The theme of the album is the classic American railroad.

Unsurprisingly, I love it. This music has been on heavy rotation at my work desk for most of the summer. Their version of Rock Island Line is particularly wonderful.

This type of music – folk, alt-country, Americana, whatever you want to call it – makes me feel connected to the world in a very deep way. Other flavors of music trigger all kinds of emotions and thoughts, but this is the type of music that comes closest to emulating how I feel connecting with new people and exploring new places.

7. F. Scott Fitzgerald on the passage of time

“I didn’t realize it, but the days came along one after another, and then two years were gone, and everything was gone, and I was gone.” – F. Scott Fitzgerald

About five years ago, I wrote a short essay for a parenting site about my then kindergarten-aged son and how one of the highlights of my day was when he would come home from school (the bus stop is right outside our front door) and immediately run up the stairs to find me. He could not wait to tell me about his day at school.

I lamented then that he would grow older and he wouldn’t rush up those stairs like that every single day after school. The thing is, though, he still does, at least some days. On other days, he does his homework or does something with his little sister or little brother.

The thing is, most days after school, at least one of them still runs up to tell me about their day. They want to tell me about something crazy that happened on the bus or something they learned about.

Why do they do it? My best guess is that I just completely stop my work and listen to them with my full attention. I ask them questions about it. I usually follow them downstairs and make an after school snack for them. I’ll usually sit in the same room with them as they’re doing homework and read a book while they do their homework and occasionally answer questions.

To put it simply, the reason my son still runs up the stairs four or five years after I figured he’d stop is that I give him some of myself, day after day. It pays off.

I’m writing this article early in the morning on the day my two oldest children are supposed to arrive home from summer camp. My goal is to be finished with a few days’ worth of writing in advance so that I can be completely in the moment at their camp closing ceremony and when they show me their cabins and introduce me to the friends they met at camp. We’ll go home, have meals together, play a game or two together, and visit some other family members over the next few days.

When you give of yourself, it is repaid. It might not always be repaid tomorrow, or the next day, but it is repaid. It might not be repaid in ways that you ever directly see, but it is repaid.

Give of yourself to others, especially those you love. Don’t worry about what you’ll get out of it. Just give. You’ll find, slowly and steadily, that things are given to you in return.

I do not view this quote as sad, though it may have been intended to be. Instead, I view it as a reminder that life will change, and what I do today shapes what tomorrow will be like. I will blink and five years will have passed. What did I do today to make that future the best it can be?

8. SuperBetter: The Power of Living Gamefully by Jane McGonigal

SuperBetter is a wonderful book about turning life’s challenges into a game. The concepts of the book are stuck in my head these days, and I’m exploring the strategies she outlines here for self-improvement as I write this. I have no doubt that this will inform future posts.

So, why mention it here? SuperBetter is one of those books that comes along that flips some switch in your head. It makes you address elements of your life in a different way than how you addressed them before, simply because it’s a better way for you.

It’s why I write, honestly. The stuff I write about won’t click for everyone, and the voice I use (I try hard to stick to an earnest Midwestern tone with what I write most of the time) isn’t right for everyone. However, I know that it really clicks with some people.

The thought that a person can write down their thoughts and ideas carefully enough that it can shift the thinking and behavior of someone else is endlessly inspiring to me. So, here, I’m doubly inspired – McGonigal’s book seems to be directly impacting my life, and the writing itself inspires me to do better (SuperBetter?) with my own words.

9. Benjamin Franklin on action over words

“Well done is better than well said.” – Benjamin Franklin

Actions speak louder than words. Actions speak louder than promises.

What commitments to others do you have on the table right now? What commitments to yourself do you have on the table right now?

Those commitments mean little if they’re not paired with actions. All of the budgets and the promises in the world add up to almost nothing if they’re not paired with doing something.

The world runs on action. The bright future that you want will only be borne through action.

10. Kaia Kater – Paradise Fell

From the first few notes on the banjo and that opening line, paradise fell and the tenements grew, I fell in love.

She was born of African and Caribbean descent in Montreal, grew up in West Virginia for a while, and plays a mix of bluegrass and Canadian folk music with lyrics that stretch into areas, particularly the types of personal narrative, that are new and fertile ground for music of that style.

In short, I can’t stop listening. This is from her most recent album, Nine Pin, which is great from beginning to end.

11. Warren Buffett on making money while you sleep

“If you don’t find a way to make money while you sleep, you will work until you die.” – Warren Buffett

Do you make money when you sleep?

If you’re asking yourself how that’s possible, it’s simple. Do you have investments? Do you own things that grow in value over time with no additional effort from you? Do you have money in the bank that earns interest? Do you have stocks that earn dividends? Do you have properties that earn rent? Do you own things that appreciate in value?

You should be spending some of the money you earn from working on those things, because without them, you will keep working and working and working and working, without end.

12. Tim Ferriss on defining your fears instead of your goals

From the description:

The hard choices — what we most fear doing, asking, saying — are very often exactly what we need to do. How can we overcome self-paralysis and take action? Tim Ferriss encourages us to fully envision and write down our fears in detail, in a simple but powerful exercise he calls “fear-setting.” Learn more about how this practice can help you thrive in high-stress environments and separate what you can control from what you cannot.

This is a really good practice, one that’s surprisingly effective at cutting through some of the fears you have in life.

Basically, just imagine the things you fear actually happening, then think about what you’d need to do to get your life back on some sort of track that you’re happy with. Obviously, some of the biggest fears make returning to your current life impossible, so you’re looking for how to return to a life you’re content with, not necessarily your current life.

Now, what can you do today to make those “getting back on track” steps as easy as possible? What can you do right now so that, if those worst case fears come to pass, you can return to a good life as painlessly as possible?

That’s fear setting. It’s really useful. It causes you to fear the worst case scenarios a lot less than before simply because you see that they’re recoverable, and it also helps you to take action to minimize the impact of those scenarios.

Give it a try. You’ll be glad you did.

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Friday, August 4, 2017

Your Budget Is No Place for Wishful Thinking

Budgets are often presented as being some kind of magical tool that people can use that will transform their day-to-day life from an ongoing slow-motion financial disaster into a debt eliminating and wealth building machine.

Quite often, personal finance books and websites buy into this picture, too. They immediately suggest creating a budget for your spending, setting caps on all kinds of spending areas, and then showing that this budget somehow “transforms” your income into covering all of your needs and leaving you with lots of money to pay down debts and build a great financial future.

It’s exciting. It’s motivating. And it’s wrong.

A strong budget is much like a 1,200-calorie-a-day diet. If you actually manage to stick to it, it’s going to produce great results fairly quickly. If you can’t, it falls apart and becomes useless.

Part of the problem is willpower, of course, but another big part of the problem is that life is simply not fully predictable. You don’t know what tomorrow will bring, and if your budget is so tight that you have little breathing room for the unexpected, your budget will break. Just like a very tight diet sometimes dies when you have unexpected travel or a friend shares a treat with you, a very tight budget sometimes dies when you have to travel for a funeral or your car breaks down.

A super tight, super optimistic budget is doomed to failure, by definition. The simple unexpected nature of daily life is going to force you into very difficult decisions and you will eventually – and surprisingly quickly – find yourself trampling over a tight budget, much like a person quickly finds themselves shoving aside a diet that’s too restrictive.

Why do people have restrictive budgets, then? The simple reason is wishful thinking. If you envision a future where everything goes well and there are no problems whatsoever, then a strict budget will work and it will get you to your financial goals as fast as possible. Thus, the wishful thinking is twofold: Your life will go perfectly with perfect discipline and your financial goals are achievable in absolute minimum time.

The problem with that wishful thinking, as noted above, is that it begs for your budget to fail and quickly become meaningless. Wishful thinking turns budgeting into a flight of fancy rather than a really useful financial tool.

Instead, a good budget is a picture of your real spending with a few good choices thrown in. Think of it as a financial version of a diet that’s going to cause you to lose a pound a week or something realistic rather than a “beach body in 30 days” diet.

The first step in building a good budget isn’t to sit down and start writing down ideal numbers; instead, you should start by simply tracking your spending. If you have receipts and statements for the last month, that’s a brilliant starting point, as you can use that to make a baseline “budget” for the last month… in reality, it’s just a picture of how you spent your money.

In fact, your best move is to make several of these “budgets” over the course of several months. Where did your money actually go each month? This helps with figuring out things like irregular bills, like quarterly insurance payments or annual property taxes or vehicle registration, something that is often overlooked in a tight budget. It also helps you get a grip on irregular expenses, like buying gifts or traveling – these things aren’t strictly bills per se, but they are expenses that don’t pop up like clockwork every single month. Some months have minimal travel costs, while others have significant travel costs. Ideally, you’ll take several of these “spending pictures” and average them to get a picture of a true “average month” of spending.

One area many people struggle with is “categorization.” How does one organize one’s expenses in a sensible way? There are thousands of budget templates out there – here’s my own guide to a simple first budget – but you shouldn’t treat the categories they provide as written in stone. Treat them as a starting point. You can make up new ones, or divide the ones they have into pieces, or even combine pieces. Turn it into something that makes sense for you, so that you intuitively know what category each expense in your life belongs in with minimal effort or thought.

For example, rather than having a catch-all “entertainment/hobby” category, I actually split our family’s budget up into several sub-categories so that I can keep careful track of various flavors of spending there. This allows me to budget my own personal hobby spending and put some light but reasonable caps on the overall hobby and entertainment spending for our family (we’ll get to this in a second). This may make sense for some, while it may not really click for others.

Find categories that work for you. Over a few months, chop up each month’s spending into those categories. It’s then, and only then, that you can make a sensible budget going forward, one that isn’t reliant on wishful thinking.

What do you do when you have those things? Make an “average” picture of your spending. Just average out each of those categories across all of the months.

Let’s say that, in January, you spent $50 on books, and books was a line item on your budget. February had $70 in book spending, while March had $50 again, while April had only $30. You add all of those up – $200 – and divide by the number of months – 4. This gives you an average of $50 a month you spent on books. You do this exact thing for each spending category you have, and what you’ll produce is a true picture of what an average financial month looks like for you.

Now, all you need to do is put some light caps on a few of the flexible categories. In the example above, that person is “budgeting” $50 a month for books – that’s their average spending over several months. That person then creates a budget for the coming month and puts in $40 for books.

Do the same thing for every category that’s actually flexible – in other words, ones where your choice has an impact. Cut it by 10% or so. If you spend $200 a month eating out, make that target number $180 or $175 for the coming month. You get the idea.

Now, what about those less flexible numbers? Just start going through them and see if there’s anything you can trim that won’t really affect your quality of life. Maybe you realize that you almost never watch cable any more and instead you just watch Netflix. In that case, perhaps you can simply cut out your cable service and save $50 a month. Maybe you can call your cell phone provider and switch to a smarter plan. Maybe you can shop around for insurance. Maybe you realize that you’ll start saving $10 a month by buying an annual bus pass instead of a monthly one. When you permanently reduce a bill, you can reduce that matching number in your overall budget.

There are still a few things to do to really make this a worthwhile budget.

First, it’s a good idea to account for emergencies, so include a line in your budget for putting money into your savings account for an “emergency fund” and treat it like a bill. The more you put aside here, the easier it is to handle unexpected disasters. Leave that line alone and continually transfer that much money each month – in fact, automate it if you can. Then, only tap that emergency money if you need to.

Second, it’s also a good idea to add a little bit of “inflation” to irregular bills. Although you calculated an average of many of your bills, it’s a good idea to add a little bit to each of those averages to make sure you come in below budget in those categories most months. For example, if your electric bill averages $200 a month, but your bill varies a lot, it’s a good idea to budget $225 for it. There’s no need to budget the maximum amount, but budgeting a bit above average gives you breathing room.

Continuing on with that thought, when you come in under a budget category, don’t just spend that money freely. Instead, use it to cover other areas of your budget where you may have gone over this month, then bank the remaining amount for overruns in future months. Let this be an addendum to your emergency fund, in other words.

It’s important to note that this isn’t a crutch to allow yourself to consistently go over budget in your flexible spending areas. Rather, you should be making smart choices about your flexible spending areas in your budget so that you don’t go over budget during the course of a month. For example, just because you came in under budget with your electric bill doesn’t mean that it’s okay to choose to go way over budget on your entertainment spending. You should be shooting for your target in every category, regardless of the performance of other categories, and ideally coming in a bit under budget in as many categories as possible.

As you can see, a budget isn’t a place for wishful thinking; it’s a place for realistic thinking. It’s a place where you can get a meaningful picture of your spending for the coming month, see where your money is going, set some reasonable goals for your own money behavior, and plan out your steady march toward your big financial goals!

It all starts with a little realistic thinking!

Good luck!

Related Articles:

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Thursday, August 3, 2017

Celebrating Life Events Frugally and Meaningfully

I recently celebrated my birthday with my family and a few friends. It was a decidedly low key affair. We went out to dinner together at a pretty low-cost restaurant with some good vegetarian fare, and then we played some board games together. Yes, I’m quite the party animal, but this is actually exactly the kind of low-key event with friends that I really enjoy and prefer.

In contrast, two old friends of mine had major celebrations in their life recently. One of them celebrated the completion of her Ph. D. with a trip with her partner to Davos. Another friend celebrated her wedding anniversary by receiving a beautiful necklace with ten diamonds and four other stones (representing the birth stones of each of them and their two children) and taking a trip to a beach resort.

Don’t get me wrong – there’s absolutely nothing wrong with celebrating achievements, life events, and milestones. Celebrate your birthdays and anniversaries and successes with gusto!

The only caveat here is to make sure that the celebration doesn’t undo the successes you’ve built leading up to the celebration.

Your birthday celebration shouldn’t undo the progress you’ve made in your life goals that year. The same goes for your anniversary. Your celebration of hitting a financial goal shouldn’t involve spending a lot of money (which will undo that goal). Not only do such celebrations have a hefty cost attached, they often completely overshadow the very thing you’re celebrating and often leave you in a more difficult spot than if you’d celebrated modestly.

Not only that, many of the best celebrations in life don’t actually strain one’s budget or damage one’s life goals and ambitions. Here are five key approaches for celebrating life’s events with a frugal mindset.

Celebrate with Time (and Energy), Not Money

We have a lot of different resources in our lives. Time. Money. Energy. Often, when we celebrate, we’re using those resources for something that’s purely fun for us. We spend money on a material item. We spend money and time on a fancy vacation. We spend money and a little time on a big night out on the town.

Why not try a different approach? Rather than investing money in a celebration, simply invest some of your time into it.

What do I mean by that? Consider some of the following ideas for celebrating a life event, with ideas for both the celebrator and the celebrated.

Spend a day in genuine leisure by reading a book or binge-watching a TV series you’ve missed or working on some hobby project or something else entirely. Give yourself the reward of that blocked-off time to enjoy something that you don’t regularly give yourself time to enjoy. I often do this – rather than “blowing off steam” or celebrating by spending money, I’ll consciously block off most of a day to have a big board game day with friends or make a batch of home-brew or curl up with a book. That, in itself, is a great celebration.

Take care of a friend or family member’s obligations so they can have a day to themselves to do whatever they’d like. If you’re giving a gift to someone for a life event, rather than giving them a material item, take on some of their responsibilities. Everyone has a different story, so think about the person in question and consider what you can do to give them a day of freedom. Perhaps you can watch their children, or maybe you can do some of their chores. The end result is that you’re giving them the gift of time, by taking some of their time burden and putting it on your own shoulders. That’s almost always a great gift, and it costs you nothing in terms of money.

Give your gift with subtlety. Rather than doing something obvious, like giving a gift of “coupons” that the other person will be reticent to actually use, give your gift with much more subtlety. Simply put it in your calendar that you’re going to stop by and visit your mother each Friday and help her with some chores and grocery shopping. Simply commit, quietly to yourself, to calling up your sister once a month and offering to babysit for an afternoon so she can get some peace and quiet and unwind a little bit. On the big occasion, go small, but on the smaller occasions, go big.

Celebrate with People, Not Things

While it can often be easy to center your focus around the physical items and around the specific place you go, the truth is that the value of a celebration often comes from the people you’re with.

Take me, for example. A celebration really never feels complete without my wife, my children, my parents, and at least a few key friends. I like to have them all present whenever I can, especially when there is something to celebrate. The truth is that it really doesn’t matter what we do together. The enjoyable part of the celebration is the people.

I’m happy going on a picnic with them. I’m happy going on a walk in the woods with them. I’m happy playing a board game with them. To me, it feels like a celebration just because people I care about are together, and the actual activity doesn’t matter, nor do the gifts or the physical items.

Here are some ways to harness people power when it comes to celebrating life events.

Organize low key social events for celebrations. Don’t have an expensive dinner or an elaborate party. Don’t focus on expensive gifts or expensive accessories. Instead, focus on bringing together people you like to do something low key. Have a simple dinner party or even just a movie night. Put the effort into making sure people that the celebrator really loves and cares about are present, rather than on the specifics of the party itself. I’d far rather have a guest drive out of their way to pick up another friend than drive out of their way to pick up a gift, for example.

Intentionally pair people with low cost activities, and enjoy them together. Some of my friends deeply enjoy board games; others do not. Some of my friends love hiking; others do not. What I’ll often do for a celebration is plan a hike at 1 PM and then board games at 5 PM or something and then invite everyone to everything, giving them the times. I’ll then encourage friends who don’t like to hike to skip the hike, and friends who don’t like board games to skip the board games. That way, I get to enjoy low-cost activities specifically with my friends who also love those activities and not have to find things that include everyone. You can follow the same logic when planning a celebration for someone else, like a spouse or a close friend.

Give consumable gifts and establish that as a pattern among your group. A consumable gift – one that can be opened immediately and shared with the group – turns the focus of the event right back on the people. Rather than focusing on the item, it becomes quickly about the further shared experience. You can do this by setting an example of giving such gifts, sharing any such gifts you receive, and being open about your appreciation of them.

Celebrate with Experiences, Not Destinations

It’s often tempting to use your vacation time for travel with loved ones, which can be quite expensive. It’s often tempting to celebrate with friends to go out on the town – perhaps to a restaurant or to another place of interest. In both cases, however, the celebration involves some kind of destination – you’re going somewhere, which is inherently costly.

While going somewhere isn’t altogether bad, it really makes the most sense when done in the service of an experience. Why are you going out? Why are you traveling? What experience are you shooting for that you can’t get at home or at a nearby place or at a lower cost place? Most importantly, what local things are you overlooking?

The reality is that most areas have an abundance of overlooked options, starting at home, but extending to the local level. They’re found in forgotten things in your life, overlooked local sites, and in the passions of your friends. All of those things are wonderful sources of celebration!

Here are three ways to tap into celebrating with experiences rather than destinations.

Find local places and experiences you haven’t enjoyed. What’s available locally that you haven’t tapped into? Have you explored all of the trails at nearby state, local, and national parks? Have you visited all of the restaurants of interest? Have you checked out all of the groups of interest on Meetup? Have you checked out all of the local places of interest in your area? If you’re hesitantly answering “no” to those questions, then you have a ton of options available to you. Find what you’re missing locally and use that as a tool for celebration, preferably with friends. For example, my wife and I celebrated a life event not that long ago by simply visiting local wineries with friends and doing their wine tasting, picking up just enough bottles along the way to share at dinner together. It was a very low cost way to spend the day, in truth, and it resulted in a wonderful day together.

Dive into the interests of friends, or ask them to dabble in your interests. What do your friends like to do? There are few better ways to cement a friendship and to really maximize their celebration than by diving headfirst into one of their hobbies. My passion for home brewing was ignited by this kind of celebration, in which a friend of mine had a small birthday party that turned into what amounted to a home brewing class. It cost virtually nothing – we simply worked together to make a batch of home-brew – but it was absolutely amazing for him to be able to spread his hobby to a friend and it was fun for the rest of us to discover something new. For me, it ignited a new hobby.

Celebrate by doing something that stretches you a bit outside your comfort zone. Both of the above options will probably point you to things you would never have normally done as part of a celebration. That’s okay. Look at a celebration as not just an excuse to do the same old thing. Instead, look at it as a way to explore something new. There are few better ways to grow yourself and build relationships than by trying something new, and your local community and your local friends offer ample opportunities for that.

Celebrate the Event, Not the Prizes

A friend made a comment to me recently as he reflected on his wedding: “I don’t know why we planned so much and spent so much money. All I really remember is my wife and the people that showed up.”

The truth is that the core of most celebrations is the people you’re with and the event itself. A wedding is about a lifelong commitment between two people and the family and friends coming together to celebrate it with them. It’s not about expensive clothes or an expensive cake or an expensive band or photographers or all of that other stuff. It’s the event itself that matters and that sticks with you, not the prizes and accoutrements.

In fact, it’s often all of those extras that draw the focus away from the achievement itself. A wedding becomes less about finding the love of your life and more about the perfect cake and the perfect location and the perfect clothes. A birthday party can quickly start revolving around gifts instead of revolving around enjoying the people you’re with.

Here are three ways to turn a celebration back toward the event worth celebrating rather than the celebration itself.

Celebrate in a way that reinforces what you’re celebrating rather than working in opposition to it. If you’re celebrating a weight loss achievement, don’t go out for a giant meal. Instead, make a superb version of your favorite meal from your diet, or do something else entirely, like run a 5K. If you’re celebrating a career change, don’t use that celebration to burn bridges or make a jerk out of yourself by drinking too much. Instead, focus on cementing the good relationships you have going forward. Focus on what got you to the celebration and incorporate that into the celebration itself.

Allow the actual achievement fill you with pride and joy, not the celebration. The focus of a wedding celebration should be on the two of you, not the decorations or the locale or the food or anything else. The focus of a birthday milestone celebration should be the things you’ve done and the relationships you built, not the fancy dinner or anything else. Focus on your actual achievements and what they’ve brought to you and let that be your pride and joy.

Give a thoughtful gift rather than an easy one. If you’re giving a gift to someone, take the time to make the gift a thoughtful one that actually reflects who they are as a person. If you’re going to give something easy, make it a consumable gift as noted above, but if you’re not going that route, put thought into the gift and make the gift about the person themselves, rather than a thoughtless item.

Celebrate with Reflection, not with Erasure

Celebrations often revolve around some sort of “turning of the page” in life. You’re older. You’re now married. You’re moving on to a new career. You’re retiring. You’ve achieved a goal. Those are things that often signify moving onto a new stage in life.

Often, big celebrations turn into some kind of “erasure” of what came before. The big party itself can overshadow the achievement, or actually cause backtracking on the achievement in some cases. Often, the celebration becomes very disconnected from the event worth celebrating.

One great way to keep a celebration meaningful (and frugal) is to ensure that it remains intimately tied to what’s being celebrated. Here are three ways to achieve that.

Look for ways to help with positive connections with the past that can bring meaning going forward. Set up the celebration to intentionally highlight past events. Spend some time thinking about something meaningful to say to the person being celebrated, or to give a thoughtful set of comments if you are the person being celebrated. Orient the celebration around the achievement and the person, rather than the activity itself, and the activity becomes far less important and it becomes far more sensible to keep it low key and low cost.

Give gifts that genuinely highlight the event that’s passed, such as a memento of the achievement. The gifts that are remembered are the ones that are meaningful. The most meaningful gifts I’ve ever received were things like wall art made by the person giving it to me that highlighted some shared moment, or a large card filled out by several coworkers writing down what they had personally gained from our time working together. Those things meant something and they cost almost nothing. I know I’ve received many gifts over the years, but the ones that stuck were the ones that were connected somehow to the relationship shared, and those were almost always low-cost gifts. Focus on those types of gifts, ones that reflect on the moment rather than taking away from it.

Take the time to offer genuine and meaningful thoughts on the event being celebrated. Why are you at this celebration? Why is the person being celebrated? Why are you being celebrated? Why do you care about the people who are there? What have they taught you and brought into your life? Those questions, and how they’re shared, form the foundation of a truly great celebration. Make that the centerpiece in thought, word, and deed.

Some Final Thoughts

There’s often a big disconnect between meaningful celebration and expensive celebration. Often, the most thoughtful and meaningful ways to celebrate don’t cost much money at all. What they do cost, however, is time and thought and a bit of openness. Those are the truest gifts worth giving.

We often use money as a substitute for those types of celebrations and gifts. It’s worthwhile for all of us to rethink that exchange.

Good luck!

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Costco vs. Amazon Fresh: A Real-World Grocery Shopping Showdown

Amazon made big waves in the business world with its recent purchase of Whole Foods Market. As surprising as that was, it makes sense — Amazon was already a big player in the grocery game. They offer many bulk foods, as well as fresh food deliveries in certain areas through their Amazon Fresh delivery program. The Whole Foods deal seems like it will make those initiatives even more successful.

Amazon’s purchase of Whole Foods happened right around the time that my Costco membership was up for renewal. I figured that Amazon would soon have some Whole Foods-type offerings at discount prices, so I decided to cancel my Costco membership and give it a try. It was time to flex my millennial muscles and enter the brave new world of grocery delivery services.

There are many options for grocery delivery services, with Instacart and FreshDirect being two of the biggest. But, I decided to try Amazon both because of the Whole Foods purchase and simple brand loyalty: I’ve been an Amazon user forever, and I trust them to do a good job.

Over the past month, I tracked my spending via Amazon and compared it to my previous Costco purchases. Here’s how the two services stacked up.

Costco vs. Amazon Fresh: Membership Cost

A Costco executive membership costs about $120 per year. You can also get a more basic $60-a-year membership, but then you don’t get any cash back rewards. With the executive membership, you get 2% back on your purchases.

Amazon Fresh requires an Amazon Prime membership, which costs $99 a year (and comes with perks like free video and music streaming). Amazon Fresh costs another $15 per month on top of that, so the total cost comes out to $279 a year (or $180 if you’re already a steadfast Prime member regardless).

One nice thing is that Amazon offers free one-month trials of both Prime and Fresh, so you get to try it out before committing that large sum. Another thing to keep in mind is that Amazon Fresh charges a delivery fee on orders under $40. That’s not a problem for me, as I do big buys when I use the service, the same way I would at Costco.

But, it’s clear that over the course of the year, Costco is the winner in this department, by a wide margin — it’s $159 cheaper for the executive membership, and a whopping $219 cheaper for its basic membership.

Can Amazon make up that ground with its product prices? Let’s have a look.

Costco vs. Amazon Fresh: Price Comparison

Prices will vary by region and time of year, but we’re going with what I paid in the summer of 2017 in New York City. (These are per-unit price, as opposed to total cost.)  Also, this is not intended to be an exhaustive list, but rather a reflection of what I’ve actually been buying.

Eggs (organic, 1 dozen)

  • Costco: $3.20
  • Amazon: $4.79

Milk (1 gallon)

  • Costco: $2.65
  • Amazon: $4.75

Honey (5 lbs)

  • Costco: $10.99
  • Amazon: $23.35

Kale (1 lb)

  • Costco: $3.19
  • Amazon: $7.00

Spinach (1 lb)

  • Costco: $1.92
  • Amazon: $5.38

Honeycrisp apples (1 lb)

  • Costco: $2.36
  • Amazon: $7.92

Almonds (1 lb)

  • Costco: $4.23
  • Amazon: $6.65

Pistachios (1 lb)

  • Costco: $4.99
  • Amazon: $6.00

Kerrygold butter (1 lb)

  • Costco: $5.13
  • Amazon: $7.00

Frozen shrimp (1 lb)

  • Costco: $7.00
  • Amazon: $5.46

Italian sausage (1 lb)

  • Costco: $2.80
  • Amazon: $3.78

Ground beef (1 lb)

  • Costco – $3.20
  • Amazon – $3.99

Canned black beans (8 cans)

  • Costco: $6.79
  • Amazon: $8.00

Russet potatoes (1 lb)

  • Costco: $0.25
  • Amazon: $0.99

Whoa. I figured Costco was cheaper, but I didn’t think it would be that much cheaper. Amazon cost me an extra $44 compared with my previous month using Costco. If it wasn’t for the frozen shrimp, Costco would have beat Amazon on every single item I bought.

Over the last year, I made bi-monthly trips to Costco. If we suppose that I’d use Amazon Fresh at the same rate, and that the price gap between the two holds up, then I’d end up spending an extra $264 for my food at Amazon. Adding in the membership difference, Amazon would cost me $423 more per year than Costco.

That’s quite a bit more than I was expecting, but it wasn’t a deal breaker either — because Amazon Fresh excels in a key area where Costco falters.

Don’t Forget About Opportunity Cost

Opportunity cost refers to the idea that the time spent doing a task must be factored into the total “cost” of the task. So, if you normally spend two hours on your trips to Costco, those are two hours you could theoretically be spending on any number of things that bring you value or money. You don’t get that time back.

Unless you’re the type of person who likes fighting for parking, crowded aisles, screaming babies, and long lines, you probably consider your Costco trips more work than play. I also just learned that Costco purposely moves their items around so that you’re never quite sure where to find them. They want you to wander the aisles, as this increases the chances you’ll throw a 12-pack of Honey Nut Cheerios into your cart on a whim.

These are not issues you face with Amazon. Their ease of use is a big part of what makes the service shine.

Initially, it takes a bit of time to scroll through their site and find what you want, as with any shopping experience. But at least this can be done from the comfort of your home. Once you have your shopping list set, you can simply click a button and have the same deliveries made, whenever you need them.

You can time the deliveries so that you’re home when the goods arrive, or you can have them waiting for you. They do a great job of using cold packs to keep frozen foods cold, so even if there’s a time where your groceries will be sitting for a while, you don’t have a melted mess on your hands.

Amazon is one of the premier companies in the world when it comes to deliveries, organization, synchronization, and supply chain management. With their Fresh service, it shows. They just seem to get it right, and I never had a missed delivery or a screwed up order.

At this point in my life, the simplicity of Amazon is actually worth that extra cost. I can find other ways to make up the difference. If I have to sacrifice some other things in order to pay for the luxury of having all my food magically show up at my door, without fighting traffic or thinking, “I wish I could affix a horn to the end of my cart because it’s the only way anyone will ever make room for me,” I’m fine with that.

The Intangibles

Costco’s in-house bargain brand is called Kirkland, and some people swear by it. Kirkland makes quality, affordable goods ranging from socks to eggs. If you’re a Kirkland brand loyalist, you must factor that into your decision. Finding a brand you trust that is also affordable is no small feat. A Costco membership makes a lot of sense for those who could never fathom a world where they can’t buy the Kirkland brand.

On the other hand, if you like variety, Amazon has Costco beat. I’ve had many trips to Costco where I got a bit bored by their selection. I know I’m nitpicking, but if you want, say, figs, Amazon lists 20 different options. Costco has one. I’m sure the Costco analytics team has done their research and realized that they wouldn’t benefit from expanding their fig selection. But, if you want to try different brands or styles, you’re out of luck.

Those who are still refining their palates and exploring options might give Amazon some bonus points for their wide selection. There are plenty other intangibles that might sway your decision, too — like if there’s a Costco right around the corner from your house, or if you’re already a loyal Amazon Prime member. These are personal factors that are hard to quantify.

Summing Up: Costco for Price, Amazon for Convenience

No matter how I slice it, Costco wins big on price. During a period of my life where I had more free time and a car, I wouldn’t think twice about re-upping my membership. But, being car-less and busy, I find Amazon’s convenience to be an irresistible option that’s worth the extra cost.

That said, everyone has different circumstances. And it’s not too difficult to try out both to see which one you prefer: Amazon offers a free one-month trial, and while Costco doesn’t offer one-day passes like Sam’s Club does, if you know someone with a membership, it’s easy to tag along for a shopping trip.

Both retailers are popular for a reason — they have a lot to offer their customers. So unless you’re a fine fig connoisseur, you can’t really go wrong with either one.

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Wednesday, August 2, 2017

Personal Cash Flow and You

Let’s start out with defining exactly what “cash flow” means. It’s a business term that refers to the amount of money coming into and going out of a business over a period of time. In general, positive cash flow means that the amount of cash (and other things they might easily sell for cash without disrupting the business) on hand is increasing, while negative cash flow means that the amount of money on hand is decreasing.

For example, if a business pays all of its bills that month and still has $1,000 per month more in checking than where it started, it has a positive cash flow. If a business pays all of its bills and has $1,000 less in checking at the end of the month, it has a negative cash flow.

The same exact philosophy works with people, and it presents a very useful way to look at your personal finances.

Much like a business, you can simply create a cash flow statement each month or each quarter or each year to assess how much money is coming in, how much is going out, and how much is staying with you.

Let’s stop for a moment and look at what exactly a positive cash flow really means for a person. The larger your positive cash flow, the greater the difference between your income and spending over a given period of time. That means that, if you don’t make any changes to your life, you’re going to be accumulating wealth. It can also indicate the relative ease with which you can make life changes.

On the flip side, if you don’t have any positive cash flow at all or are seeing negative cash flow, it’s an indication that you’re on the road to financial ruin and need to make some changes, even if you haven’t seen any real problems pop up yet. A negative cash flow statement is a really good early warning sign for upcoming financial troubles and it can clearly alert you that some changes need to be made, particularly in terms of cutting spending.

My favorite use of personal cash flow is in making financial decisions.

For example, looking at a cash flow statement can help you determine whether a career change is something that makes sense or not. If you have a positive cash flow, that’s a sign that your current lifestyle can tolerate an income cut. If you’re considering a career change, that’s the type of information that can make a huge difference.

A cash flow statement can help you reprioritize your financial choices. Cash flow statements often point you toward taking action on things that will either decrease the amount of money you’re paying out each month or increasing the amount of money you’re taking in each month. Debt repayment becomes a big priority because that signifies the elimination of a bill once the debt is paid off. Career improvement can become a big priority, too. Cash flow statements often lead to action. Those types of decisions lead directly to an increased positive cash flow.

So, how do you prepare a personal cash flow statement?

Over the course of a month, simply keep track of all of the money you earn as well as all of the money that leaves your possession. How much were you paid? How much money did you pay out in the form of cash purchases and bill payments? That’s really what you’re concerned about – the end destination of every dollar you bring in. Did it wind up staying in one of your accounts (or in your wallet)? Or did it end up getting mailed out to a credit card holder or the mortgage holder or the electric company? Or did you use it to directly buy something?

That’s the simplest way to calculate your cash flow. I like to take it one step further. I count the purchases I make with a credit card against the current month. Then, when I actually pay a credit card bill, I only count the interest as money actually leaving my possession at that time. I counted the principal already when I counted the original purchase on the credit card. So, for example, if I buy a new shirt for $50 in August using a credit card, but then pay that credit card bill in September, I count that $50 as money going out. It takes some extra work – you have to read your credit card bill with some care – but it presents a much clearer picture of your true spending.

It’s useful to break down your spending into some categories when doing this. Make a big list of your various expenses, like utilities, food, entertainment, and so on. Where did all of that money go? That’s the point of a cash flow statement, and the more care you put into organizing that list of where all the money went, the better.

In the end, a cash flow statement might look something like this:

+$4,000 – Four paychecks, $1,000 each take home
-$400 – Utilities
-$800 – Food and household supplies
-$1,000 – Mortgage payment
-$300 – Car payment
-$200 – Car maintenance – gas, oil change, etc
-$300 – Insurance
-$300 – Entertainment – Netflix, cable, going out, hobbies
-$150 – Student loans
-$50 – Credit card interest
Total: +$500

That person managed to hold onto $500 that month. They have a positive cash flow, and that $500 is being put away for the future. Maybe it’s money being saved for a big upcoming expense, like a car replacement. Maybe it’s being put into a Roth IRA, or being put into an emergency fund. Whatever it is, this person is moving in a positive direction for the month.

However, if you do statements like this each month, it’s very likely that some months will have a negative cash flow. When a big bill comes in, it’s likely to cause you to tap some savings to be able to afford it, and that’s going to show up as a negative cash flow for the month. That’s why longer-term cash flow statements can also be useful, as they smooth out some of those bumps on the road and show you the broader picture.

So, what can you do with such a statement?

It can definitely show you areas in which to cut back your spending. Does this person really need to spend $300 in entertainment each month? Probably not. What about $800 in food and household supplies? Again, probably not.

It can help you set some good financial goals. This person might want to strive to have a neutral cash flow for a while in order to eliminate that $1,000 mortgage payment, by simply making extra mortgage payments. What that will do is eliminate the mortgage payment sooner rather than later, which will immediately turn that +$500 monthly cash flow into +$1,500. (It should be noted that a simple cash flow statement like this does put a high premium on paying off debts; it also doesn’t really inform you in terms of what to do with that positive cash flow, but that’s an entirely different can of worms.)

It can help you figure out whether major life changes can really work. If you have a +$500 cash flow in an average month, that means that you could make some major lifestyle changes without changing other things. You could switch to a less stressful job that brings home $500 less per month without making any lifestyle changes. If you made some smaller changes, you might be able to swing a full career change! Does a housing change make sense? Can you buy a house now with relatively minor lifestyle changes? This is the kind of thing that a cash flow statement can help with.

Having said that, a cash flow statement is just a tool, not a “be all end all” solution. It can help you figure out certain financial decisions and life choices. What it does not do is assess your overall financial health. It does not help you assess whether your investments are healthy. It does not clue you into your net worth. A net worth statement is good for that.

The more tools you have at your disposal for looking at your finances, the more likely it is that you’re going to arrive at financial and life decisions that make sense for you today as well as make sense for you in the long run. Remember, your goal is to improve your financial state so that the challenges of your future can be easily met, and your cash flow statement is one tool that can help you figure out that path.

Good luck!

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Five Back-to-School Items I Refuse to Buy This Year

Is there anything that says “summer is basically over” quite like the arrival of next year’s school supply list? Since my children’s school follows a “modified, year-round” schedule, they head back to school today, August 2nd. This is a huge departure from when I was a child; back then, we had three full months of summer, as we didn’t start school until after Labor Day.

So yeah, our kids get a shorter summer (eight weeks), but we make up for it with a two-week fall break, winter break, and spring break. It’s a fine arrangement if you ask me, other than the fact the new school supply list came out in early July – well before I was ready to face it.

This year’s supply lists aren’t that crazy, as the first- and third-grade teachers aren’t asking for outrageous supplies like specialty Ticonderoga pencils or reams of paper.

It does have the standard list of “optional contributions,” like Ziploc bags, baby wipes, and Kleenex, but I’m more than happy to chip in for those. As we all know, teachers are all-too-often stuck paying out-of-pocket for supplies that parents don’t donate and schools don’t fund. By adding in those “extras,” I can hopefully save my kid’s teachers from spending their own money.

Still, there are a few standard back-to-school items I just won’t be buying this year. We don’t need them, and I resent the constant pressure and sales ads that insist I buy them anyway. Here are five items that won’t be on my back-to-school shopping list this year:

#1: A New Wardrobe

Shopping for back-to-school clothes is a standard tradition, although it varies from family to family. When I was growing up, we would normally get a few pair of jeans along with two or three coordinated outfits. I would estimate my mother probably spent $100 on clothes for each of her children, which was quite a bit of money back in the late ’80s and early ’90s.

And that was fine; to be honest, we probably needed those clothes. I grew up in a one-income household where we barely had more than the necessities. Back-to-school shopping was more than practical; it was necessary.

But, my kids are in an entirely different boat. They both have late spring or summer birthdays, which means they have some newer clothing already. I also bought them some nice dresses and tops at garage sales and from friends this summer.

The bottom line: They don’t need new clothes right now, so I’m not buying them a new wardrobe for the first day of school just because society says I should. Actually, I would much rather wait until fall, when they actually need some new jeans and cold-weather clothes. Right now, they’re doing just fine.

#2: New Shoes

While I bought new shoes for my kids’ first day of school last year, I’m skipping the tradition for first and third grade. This is mostly because they both got new shoes earlier this summer. Warm weather brings heavy play, and they’ve actually both ruined a few pairs this year.

If I bought new shoes now (simply to comply with the back-to-school tradition), they’d probably outgrow them before they got to wear them too often. Since their feet (and everything else!) grow so fast these days, I’m going to hold off shoe-buying until they wear out their newest round of footwear. At this rate, it won’t be long anyway.

#3: New Lunchbox

Last year, my kids wanted new lunchboxes for those days when I actually pack lunches for school. That was fine with me, so they each chose their own style for around $10 each at Meijer. While my youngest chose a Finding Dory lunchbox, my oldest chose a purple lunchbox decorated with smiling owls. Those lunchboxes held up fine all year and everyone was happy – that is, until we were back in Meijer last week.

Now my kids are aching for new lunchboxes to keep up with their changing styles. Apparently, Finding Dory is out and Trolls are in. And owls? My oldest daughter says she’s more into koala bears this year.

Sorry, but it’s not happening right now – at least, not until their lunchboxes fall apart. I hate wasting money, but we also dislike wasting perfectly useful items, too.

#4: New Backpacks

The backpack is another necessary item that we’ve been programmed to upgrade each year. But, just like with lunchboxes and shoes, the backpacks they have now still work perfectly fine.

We’re not going to get rid of perfectly good backpacks until the ones we have fall apart.

#5: Disposable Lunch-Packing Supplies

Last but not least, I did something different this year when it comes to prepping for the kids’ lunches. Normally, I would stock up on plastic baggies (the kind that fold over) and snacks that come in single-serving sizes. This year, though, I’ve vowed to be less wasteful and make a real effort to avoid most disposable products.

So I bought several sets of reusable lunch containers. The ones I purchased are similar to these, except they’re a generic brand offered through my local grocery store.

My hope is that these containers will help us reduce waste, spend less on plastic bags and single-serving snacks, and make it easier to pack healthy, nutrient-packed foods. No more single-serving bags of chips or pre-made crackers with cheese. With these little containers, it should be easier to pack more fruits and veggies instead.

The Bottom Line

Back-to-school season is expensive, but I’m afraid many of us make it more expensive than it needs to be. While the standard “school supply list” is full of important provisions our kids actually need for school, it’s up to us to decide how much we spend on everything else.

If we want to save more or simply reduce waste, it’s up to us to cut through the hype and figure out what our children really need. This year, I overlooked much of the back-to-school marketing and promotion. Instead, I chose to make the most of what we had.

Holly Johnson is an award-winning personal finance writer and the author of Zero Down Your Debt. Johnson shares her obsession with frugality, budgeting, and travel at ClubThrifty.com.

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Are you buying everything on your kid’s back-to-school list this year? What do you refuse to buy?

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Tuesday, August 1, 2017

Buying Things Versus Buying Experiences: A Deeper Look

One of the core ideas that I like to share regarding personal finance success revolves around the idea that it’s better to spend your money on “experiences” rather than “stuff.” For example, I’d rather spend $100 going to a convention for a particular hobby than spend $100 on items for that hobby.

An astute reader, Lisa, called that into question with a very nice mailbag submission:

How do you draw the line between “stuff” and “experience”? Is it just whether or not you wind up with a physical item at the end?

If I buy a book for example, I buy it to go on some intellectual experience. Take me away with a good story or some new ideas! That’s an experience, right? Or is it stuff, because you wind up with that physical book at the end? Does the distinction really matter?

That’s a really good question, and it’s one that’s right in line with several other things I’ve read recently and some of the directions of my own life as of late.

What really led me down this path was this interesting short article from The Guardian, which describes a recent research study from by two researchers from the Hungarian Academy of Science, Tamás Hajdu of the Institute of Economics and Gabor Hajdu of the Institute of Sociology. Their paper suggests that there really isn’t that much of a difference between the total amount of happiness that people extract from “material” purchases versus “experience” purchases. Here’s the abstract of that paper:

In the last decade, a number of experiments have stated that spending money on experiences rather than on material goods tends to make people happier. However, the experimental designs used to analyze the relationship between consumption and subjective well-being had several limitations: small and homogeneous samples, a direct question assessing the effect of consumption, and a potential social desirability bias due to the stigmatization of materialism. To reduce these limitations, we used a survey method. In two studies based on survey data from nationally representative samples in Hungary, we estimated linear and non-linear associations of experiential and material expenditures with life satisfaction. Although both experiential and material expenditures were positively associated with life satisfaction, evidence supporting the greater return received when buying experiences was limited. The main difference between experiential purchases and material purchases was that the marginal utility of expeiential purchases appeared to be linear, whereas the marginal utility of material purchases was decreasing. Despite the limited differences between the effects of experiential and material purchases, the results of the non-linear estimates indicate that to maximize life satisfaction, an average person should allocate more money to buying experiences rather than material goods.

In other words, the overall joy one receives from material purchases versus experiences was actually pretty similar. The biggest difference between the two was that the joy received from experience purchases was linear while the material purchases decreased over time.

To be more specific, people tended to be very consistent when reporting their joy about a past experience, regardless of how long it was in the past. If they liked it a certain amount a month after the fact, their feeling was pretty similar a year after the fact.

On the other hand, if they were considering a material item, their pleasure with that item was much higher if it was a recent purchase, and it declined over time. Overall, the total happiness was about the same in the survey data, but the brunt of the happiness from a material purchase occurred shortly after the purchase, while the happiness from an experience tended to spread out more.

Let’s put that into a real world example. Let’s say, for example, that I had $100 to spend. I might use that $100 to buy a new ten gallon mash tun for my home brewing setup, as it’s something I’ve been itching to have for a long time (don’t worry about what a mash tun is – let’s just say it’s a useful thing for home brewing). On the other hand, I might spend that $100 going out with my wife and a couple of friends for a great meal and something fun afterwards.

If you ask me a week or two afterwards, I’d probably give higher marks to the mash tun. I would have probably used it for two different home brew batches by then and would be really high on that purchase. I’d give high marks to the dinner, but I’d really be happy with that mash tun. I would mark the mash tun as providing more happiness than the dinner at the two week mark.

On the other hand, if we wait a year, I’d probably have that mash tun on a shelf somewhere without having touched it for a couple of months. I’d think about how I probably should use it and feel guilty that I hadn’t used it, and then also think about how much space it was taking up. My marks might still be positive, but they wouldn’t be strongly so.

At that same point, I’d still look back at that night out on the town with my wife and our friends with fondness. I’d probably remember a few of the highlights and get a big smile on my face, and I’d mark it as being a very positive memory that still brings me happiness and helped to reinforce some of my best relationships. I’d probably rank the dinner experience as being better than the mash tun one year out.

Overall, the total amount of joy is about the same. Neither one can be rated as spectacularly higher than the other one.

However, there are a few big key advantages that point toward the value of experience rather than the value of a material item.

First, the material item requires upkeep. If you have an experience, then it’s done. It’s over with. You don’t retain any sort of physical item. What remains of that experience is in your head. Perhaps it changed you in some way, like a great book or an amazing piece of music or a wonderful experience with a friend. No matter what, though, the experience doesn’t leave you with a physical item.

Buying a material item does leave you with a physical item, for better or worse. Often, as Lisa pointed out in her question, that physical item is connected to an experience of some kind. That book you bought will take you on an intellectual journey, for instance. That mash tun will enable me to make an amazing IPA.

The problem comes when you’re not actually having that experience. At that point, the book just becomes another thing clogging up your shelf. The mash tun becomes a large object in your garage.

Those objects that aren’t a part of an active experience take up space, and that’s space you have to pay for in some way. It has a real cost. You have to pay for the square footage to store it; if you have too much stuff, that means a larger home or a storage locker of some kind, which has a direct financial cost. You have to maintain it – dusting it, keeping it clean, and so on. You have to deal with it when you move. It’s another item that’s in the way when you’re trying to find something else. You may have to deal with the guilt when you see it because of the unfulfilled experience it represents (“Man, I have that mash tun… why am I not making a batch of beer with it? I’m so lazy!”).

On the flip side of that, a fresh purchase brings along with it some additional happiness due to that positive feeling of acquisition. We feel good when we buy something that we’re excited about. We get that short term burst of pleasure of having this new item, of opening it up and using it for a time or two. That’s a heightened experience, one that is often even better than a paid experience at the same cost that’s often over very quickly.

The problem, of course, is that the newness fades. The honeymoon ends. At that point, you’re left with that physical object, one you may not be as excited to use. It ends up on the shelf, unused, and then it becomes much less of a positive and perhaps even a negative.

Let’s compare these two situations using something very similar.

Case in Point: A Book You Want to Read

Let’s imagine, hypothetically, that a new book is coming out and you’re really excited to read it. You have two potential options regarding this book: you could reserve it at the library and read it within a few weeks of getting it from the library and then return it, or you could buy it and read it at your convenience and keep the book.

The library option gives you the experience of reading the book. You get that full intellectual journey. You also don’t have to pay for it. However, after going on that intellectual ride, you have to return the book to the library. You paid nothing, but at the end, all you have are the memories and thoughts.

On the other hand, the bookstore option gives you that physical book. You get the burst of pleasure of buying it, and then you can read it at your convenience. You still get that same intellectual journey, but afterwards you still have the physical book, although it’s used now. On the downside, you do have to pay for the book in this situation. You get the memories and thoughts and you still retain the physical book.

Is it better to pay $0 for the experience alone, or $10 for the experience and the physical book (which you could probably sell for a dollar or two later on)?

It’s probably not easy to answer that question, just as it’s not easy to answer the overall question of experience versus physical purchase. That’s because you’re choosing between two completely different curves. They’re both fun immediately, one rises to a peak shortly after the initial expense (the purchase) and then falls below the other over the long tail (dealing with the less-wanted physical object).

Even given that, there are four reasons why I prefer an experience purchase over a physical one most of the time.

The Four Reasons

First, the chaining together of that peak pleasure from buying physical objects becomes addictive. Let me offer up a theory here, one of my own devising based on the research study quoted at the start, many other readings, and my own experiences.

You buy an item. It’s pretty enjoyable – you get that rush of excitement from the purchase and the new experience of enjoying that object. It’s yours – you can use it at your convenience and enjoy it as you please! It’s fresh and new!

But, eventually, that starts to fade. It’s not providing pleasure like it once was. How can you fix that? Buy another new thing!

By consistently buying new things, you manage to keep that level of pleasure artificially high. (Of course, after a while, even that high consistent level of pleasure begins to dull, but that’s another subject.)

You buy something. The pleasure bursts, then fades. You miss that pleasure, so you buy something else. The pleasure bursts, then fades.

In other words, to consistently keep the level of pleasure from buying physical objects higher than that of experiences, you have to keep buying physical objects. This explains a great deal about how people fall into credit card debt. They become accustomed to that high level of consumer pleasure. They feel empty when it fades and buy things to bring it back.

To put it bluntly, I don’t want to fall into that addiction.

Second, I want to find joy and contentment in what I already have. It is my goal to be content with what I have, to explore my inner self, and to find joy in the simpler things in life.

The reasons for this are plenty, but almost every one of them points toward valuing experiences over things. Many experiences are free, while not many things are free. Delving into one’s own thoughts is an experience, and a free one. Most simple pleasures – things like walking barefoot in the grass or getting lost in a great book or walking on a trail or enjoying the company of a good friend – are free experiences, and many other simple pleasures – the flavor of homemade potato salad, the chill of a cold glass on a hot summer day – are nearly free experiences.

Best of all, those types of experiences can always be found, no matter what hand life deals you. There are very few outcomes in my life that would cause me to lose the pleasure of a good book or a cool glass of lemonade or the feeling of warm sun on my skin. I want my life to be full of those things, rather than physical objects. I yearn for every day to be an appreciation of the bounty I already have, rather than a yearning for endless new things.

Third, I already have plenty of clutter, and adding another object that I’m not certain to be using frequently is not a good choice. I’m far more interested in downsizing the number of possessions I have rather than increasing them. I want to spend less of my time (and, to an extent, my money) taking care of the possessions I have. Instead, I’d rather spend time enjoying them and having experiences.

This simply boils down to a time and energy management issue. The more possessions I have, the more time and energy I have to spend in my life dealing with them – cleaning them, maintaining them, finding places to store them, digging through them when I’m looking for something, and so on. When I add a possession to my life, I want to be sure that it’s actually adding enough value to overcome that, which means I tend to default to “experience” over “stuff” unless a clear case is made otherwise.

Finally, a focus on collecting great experiences – and things that provide the foundation for more, such as good friendships – raises the baseline joy of life. If my life is loaded with a long history of great experiences, my life becomes more joyful. Every one adds a small note of joy to my overall life – every book read, every conversation, every hike in the woods, everything. Investing my time and energy into experiences – and into things that build more and better experiences, such as building good friendships – equals a higher baseline quality of life, one that doesn’t constantly have to be refreshed with the latest purchase. This is actually one of the most active areas of my life right now, as I’m spending a lot of time evaluating how I use my time and energy to make my life consistently better, and I’m finding that experiences and building up to great future experiences adds a ton of value to my life, a value that sticks around and doesn’t really fade over time.

There’s the obvious additional factor that most of the time, experiences are simply less expensive than things. Undoubtedly, there are expensive experiences and free things, but in general, there is such a wide variety of free and low cost experiences in life as compared to the variety of free and low cost physical items that, by defaulting to spending your time and energy focused on experiences, you’re likely to spend less money. It costs far less to check a book out from the library than to buy one from the bookstore, after all.

Tying It All Together

So, here’s my answer to the battle between things and experiences. I default to experiences, and avoid buying things unless there’s a clear reason to do so. I want to spend as little of my time as possible managing and caring for and storing objects, and as much of my time as possible actually having experiences or preparing for greater experiences by building skills and relationships. That choice also happens to be the more financially astute choice most of the time, which is another large benefit.

This leaves me with one final question: when is it the right choice to buy a thing rather than buying an experience? When is it okay to have an object rather than just paying for an experience? For me, it comes down to consistent use. Am I going to use this item consistently in my day to day life? For example, with a book, have I checked it out from the library multiple times? That’s why I own a copy of The History of Western Philosophy. With a tool, have I borrowed it from a friend multiple times? That’s led me to buy a corded drill, for example. I return to those things consistently.

Things that I’m going to use once and then simply store it, likely never to be used again, are things I want to avoid buying going forward. I don’t mind owning a few reference books or books I intend to reread, but books that I’ve never read before? I’m going to borrow them. I’m in the process of rapidly paring down my board game collection to ones that I want to play again and again, and I’m becoming much more picky on new ones that I acquire (and that’s one of my biggest hobbies). I haven’t bought any new home brewing gear in a long while.

Am I spending more money on experiences than before? I don’t know, perhaps a little, but I do know I’m consciously investing more of my time into trying to genuinely experience things and stay in the moment and build the foundation for more experiences. The number of people I count as “friends” has gone up drastically in recent years. The percentage of the books I’ve read that have come from the library or from book swapping at little free libraries has gone way up. I’m “collecting” things like trails walked at local parks or days with more than 10,000 steps taken, rather than collecting DVDs.

I generally come down on the side of “experiences” for all of these reasons. I don’t believe it’s always the right answer, and I don’t think there’s a perfect right answer for everyone, but it’s something that I think is worth exploring for everyone.

Do you need all of the physical objects that you own? How many of them just sit there gathering dust until you have to dig through them to find something or to rearrange a room or to simply get cleaned up? Is there any reason to add more, when you already have all of this stuff? Perhaps most important: can you find joy without buying something?

Good luck in figuring out the answers to those questions for yourself!

The post Buying Things Versus Buying Experiences: A Deeper Look appeared first on The Simple Dollar.

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What Your Credit Score Is Trying to Tell You

Have you developed the habit of regularly checking your credit reports and scores? If so, kudos to you. You’re already doing a better job monitoring your credit than most Americans. However, if your focus remains fixed solely on those three-digit scores, you could be missing some valuable and helpful information — your “score factors.”

What Are Score Factors?

What if I told you that I could give you advice and guarantee it will improve your scores? And not just obvious, high-level stuff like “pay your bills on time” or “get that judgment deleted.” I’m talking about customized advice, specific for you and only you.

Whenever you access a copy of your credit reports with your FICO or VantageScore credit scores, you may notice that that there are generally four (or more) statements included alongside your scores. These statements, also called score factors codes, explain why your credit score isn’t higher.

Score factors are generally expressed in two digits. Each code represents a specific reason where you sacrificed credit score points in that scoring model. For example, if you were to look at an actual credit report received by a lender or credit card issuer, underneath your credit scores you’d find something that looks like this:

Your Credit Score: 560
(40) Derogatory Public Record or Collection
(85) You Have Too Many Inquiries
(11) Amount Owed on Revolving Accounts Is Too High
(13) Your Most Recently Opened Account is Too New

Your Credit Score Offers a Roadmap to Better Credit

The above score factors are actually a hybrid of the FICO and VantageScore score factors. You can see a full list of VantageScore’s score factors here. These factors are specific to your actual score, so paying attention to areas identified as obstacles and working to resolve them can be a great place to start if you’re looking for a roadmap to a better credit score.

It would be impossible to cover all of the reason codes in depth in one, short article, as there are hundreds of them. Fortunately, you don’t have to be knowledgeable about all of the score factors, because only four of them matter to your scores at any given point in time.

There are, however, score factors that seem to come up again and again – certainly some of the more common reasons people don’t have higher scores. These factors tend to be specific to the presence of derogatory information, excessive credit card debt relative to your credit limits, too many accounts with a balance, too many inquiries in the previous 12 months, and a credit file that is too young.

Whenever you’re wondering why your credit scores aren’t higher, it’s not uncommon to hit the web looking for information about credit scores, what makes them tick, and how to increase your credit score. That’s an entire waste of your time. The answer – customized to your situation and credit profile – has already been made completely evident by either FICO or VantageScore in the form of these factors.

For example, say you have a VantageScore of 750, and the number one factor explaining why your score isn’t higher is that the balances on your credit cards is too high.

Would you try to pay down your car loan faster? Would you pay off one of your smaller dollar student loans? Would you go so far as to tap your nest egg to pay off a mortgage or home equity loan? Some of those actions could improve a person’s credit score. But if you did any one of them, you’d be completely ignoring the very specific advice that the scoring system was trying to give you, personally. Auto loans, mortgages, and student loans are not credit cards.

Now, if you’d have listened to what your VantageScore factors were telling you, then maybe you would have used the same funds and paid down a credit card or paid it off entirely. Maybe you’d have paid off a retail store card, or a few of them. And not only would your score have improved, it may have improved considerably.

Just follow the roadmap put forth by your score factors, and your credit scores will have no choice but to improve.

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.

The post What Your Credit Score Is Trying to Tell You appeared first on The Simple Dollar.

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