Monthly Archives: October 2012
I just came across this gem of a comment on an old post:
I think it’s hard for people to understand the emotional burden of money – and I’m including myself in this group. Money never really has an emotional impact on me. It’s just kind of…well, there or gone.
I think a lot of it has to do when you have your first “intimate” moment with money. Like…when you first realize that money is going to affect a lot of decisions you make, or have made. If you’re the kind of person who’s first experience or realization with money was an “oh snap” kind of moment, you’re probably going to have a different perspective than someone whose money v-card was taken by a “wow, I can be rich” moment.
But what do I know? I’m not a money therapist – these are just my two cents on it.
First, sorry JT that it took me so long to notice this comment, and thank you for leaving commenting gold which leads to a whole new post. Indeed, how emotional you are in regards to your money-related experiences (and doesn’t that seem to be a whole lot of our experiences?) will have a HUGE impact on your finances and your life. Credit cards do a great job of catering to your emotions, they offer promotions that are not worth it if you are carrying a balance and paying interest, yet this is exactly what many of us do when we are mindlessly plowing ourselves into debt–we find ways to justify spending and companies that make money from lending you money are more than happy to encourage your emotionally-wrought, money-spending ways. If you first came to understand money as something to be spent, and watched as spending sprees and vacations came to spell emotional distress after the fact, then money probably carries some emotional factors for you. I fall into this category-I grew up spending time at the mall and looking at model homes as a pastime, and shopping and vacations were big rewards which one could never seem to get enough of. We sometimes talked about investing, but never as much as we talked or thought about spending, and that was a big part of my life until a couple years ago. I know I’m on the right path because I have been A LOT less emotional about money lately. I’m resigned to the fact that I need to pay off most or all of my credit card debt before I can make any big business or real estate moves, but it doesn’t keep me up at night. Paying off the debt methodically and as fast as possible is just part of my regular routine now. Not getting all worked up about stuff I can’t afford is really easy, and in fact, the less stuff I buy, the less I feel like I am missing out on anything.
So if you want to be less emotional when it comes to your money, here are a few key ideas:
1) Know where you stand. Don’t be in the dark about your finances. Know what your net worth is, what your debts are and whether you are doing a good job of spending less than you earn. If you can’t answer any of those questions, you might be in denial about your situation or just being lazy about your finances.
2) Set short-term goals for your money. For a long time, I couldn’t make any progress on my finances because all I had were these big goals which I was doing nothing about. I need to pay off $40,000 in debt! I need to own many properties! I need to be an investing genius! I finally decided to just take it one account at a time with debt and one step at a time when it comes to real estate and you know what? I’ve paid over $20,000 off in a year and a half and I am saving for a down payment with every bit of income I make. And with investing, I’m focused on reading as much as I can and building my knowledge of companies, financial analysis and investing strategies. I want to have my own plan and not follow anyone else blindly this time around.
3) Make progress on long-term goals for your money. Instead of getting emotional around the rise and fall of stock prices, create an investment strategy that focuses on what you understand and can invest in. Personally, I want to invest in local business with a small portion of money for investing in the markets. I’m talking to business owners daily and since I work for a small business, I get to see a lot of the behind the scenes work that I might not see otherwise. I don’t own my own business yet, but I am working on these goals every day and seeing the next steps I need to take.
4) Have a plan for entry and exit in all money matters. Do you pay a mortgage off early that’s $100,000 underwater? Do you hold on to a stock of a fading technology that you originally planned to exit when it was at 80% of its original value? Do you keep bailing out a friend who hasn’t paid you back since 2007? If you can make a plan and feel confident in its reasoning, you will be less likely to get emotional when it comes time to make a decision.
5) Avoid the “My emotions and money are all intricately wound together” situations as much as possible. You can’t avoid them all. You can’t really miss your best friend’s wedding and you can’t get them an ultra-cheap gift (although maybe you could make something on the cheap?). If your mom asks you for money, you’ll probably want to lend it to her. But you also don’t have to go to every dinner and outing your friends go on, especially not the ones where everyone will be feeling the need to spend a lot to impress one another. You might think you need to live in the “right” neighborhood (West Coast: Santa Monica, Newport Beach, La Jolla, East Coast: Hoboken, TriBeCa, Chelsea, Georgetown) because you are young and single and all your friends live there, but you could find that forging your own path and living somewhere that makes sense for your budget is a lot more rewarding than trying to keep up with the amorphous mass that is your circle of friends.
6) Find Opportunities to Invest Your Money Now, Even at Small Amounts. If you can make investing an important and rewarding activity, you will probably feel less inclined to go out and spend your money for an emotional reward. You can invest in stocks, peer-to-peer lending networks, or even buy some vending machines for a busy area.
7) Read, Read, Read. I feel much more confident now that I understand how money works on an individual level. I am great at an institutional or business level about money – but never understood how to successfully manage my own money, expenses and investments. Now I read blogs, books, and investment newsletters and I can still be reading more.
8) Be honest about your money triggers. It took me a while to admit that I spent money to feel like I was part of some illusory elite group. Being in Nordstrom and shopping for $36 lip gloss meant I was important. Lingering over a fine wine on a Saturday night in a little Italian place made my relationship more romantic. Knowing the best jewelry designers meant I knew good craftsmanship and belonged to a special club for those of us in the know. I can laugh at myself now, but before, all these little images I had of myself were painfully important. I had to be honest with myself and figure out why I wanted to spend so much, even when I couldn’t afford it. I will get to the point where I can do all of those things and more, but I have a feeling that I will no longer care about that stuff (because I already don’t).
Our emotions are wasted on money. Instead, good long-term planning and realistic assessments of our abilities and potential will help carve a path towards using money as a tool and not turning it into a life-consuming beast (is that an emotional description? I guess I’m not fully reformed yet!)
The Big Money Test BBC (pretty cool test with money “types”)
How your emotions can cost you money CNNMoney
Money Comes with Emotion Behavior Gap
I don’t want to look back after 20 years and think, what the hell did I do in all that time? Was the most important thing I got done something that someone else directed me to do? Did I let the time pass by in a haze of commuting, drive-thru meals, meetings, paperwork and stuff that deep down or not so deep-down I think is a bunch of bullshit? Because let’s be honest, I think most stuff is bullshit, nothing is worth getting too serious and worked up about, and yet I find myself getting worked up on a daily basis, sitting at my desk, doing things that someone else is telling me to do. I need to wake up early enough to see the sunrise, to catch the glint of the morning sun as it rises over the landscape. I don’t want to get stuck in the rut of sleeping till the last minute, waking up to a frantic fifteen minutes of get-dressed-walk-the-dogs-brush-teeth-chug-OJ and get out the door to jump into the car for a 45 minute commute, work mindlessly all day, sit back in traffic for another hour to get home, and then try to cram a bunch of activities in the next four hours of the evening before I pass out again, having skipped at least 4 of the “must do today” tasks on my list, to repeat that same day four more times before the weekend hits. I’ve done that routine before. It drove me crazy. I fell into a mindless routine and spending money was the only escape. But there are so many opportunities in the day I just described. It’s easy to miss them [wake up early to work out] [take a morning walk for a break] [bring a book or journal to study or write at lunch][take advantage of work at home and non-commute options] and I think I have been for the past few weeks. So I have to remind myself to not work myself into a foggy haze. To not let someone else do my thinking and not take any initiative. To not question my own abilities. To not let writing fall to the wayside because “I’m tired” (must be said in a pouty voice, with hands on hips). I can do everything on my plate and much, much more. I’m ready for the next big challenge.
I was thinking about things that have changed for me since I started focusing on getting out of debt and a big one hit me: I stopped keeping a Stuff I Want list. I’m always taking notes for myself, not unlike Marissa, and some of them used to always be daydream notes. I need new flowy tops! Blank cards with cool printed designs! Those green moss balls to decorate my place like a Pottery Barn catalog! It’s a great way to stay in debt, is to always want stuff and to justify purchases with “Well, I have been wanting one of these for a while…” I looked through my notebook the other day and I haven’t written a Stuff I Want list in at least a year. I guess things do change…
Men’s Health featured Tyler Perry this month and his own brand of success. He owns his own content, which is apparently a big deal in Hollywood. The MH Editor in Chief framed Perry’s motivation this way: “Being willing to change the status quo-even if the status quo is pretty damn good-is a hallmark of a lifetime of physical and emotional health. New workouts to challenge your body, new careers and new hobbies to challenge your mind-they keep the mangy dog of self-satisfaction from running you down midway through the race.
Speaking of workouts, apparently we have all been fooling ourselves with P90x and Insanity…this guy refuses to be photographed and one workout with him will change your life. Frank Matrisciano says of his own insane workouts: “Train like this for long enough and a weird thing happens,” says Matrisciano. “The voice changes; it starts being positive.” Instead of holding you back, it spurs you on, helping you build strength and power that translate far beyond the gym. “Whatever you do in life,” says Matrisciano, “this type of training makes you better at it.”
Best of the Blogs
Do We Have Too Much Choice? by DQYDJ
Bernanke’s Boom: Dividends, Leverage, and Why This Time Isn’t Different by MoneyMamba
Why I Stopped Pushing My Son to go to College by So Over This
I’d Rather Have New Shoes Than Kids by My Broken Coin
The Myth of Diversification at MoneySmartGuides
Best Cashback Credit Cards at Free Money Finance
Shortcuts to Financial Freedom at See Debt Run
You Need to Understand Algebra at 6400 Personal Finance
My LA buddy, Emantable has a very aesthetically pleasing blog. I tagged along with him to do a 5-mile run yesterday with the Pasadena Pacers. I hope he doesn’t mind that I am always inviting myself to these things, but his progress is really exciting!
Reggaeton Pick of the Week
I am totally stealing this format from Financial Uproar. This section is my intro to the best reggaeton songs and there’s no better place to start than with Calle 13’s Atreve-te-te-te:
The mortgage prequalification process is the first step on the road to buying your first home. Your banker will ask for several documents from you to gather a more complete picture of your financial situation. Home loans in 2012 include real underwriting, with someone looking into you in far more detail than they would if you are applying for a credit card or an auto loan. I just started this process and my bank has asked for the following items to complete a home loan prequalification:
*Complete Loan Application with current information
*Paycheck stubs from the past 30 days that show YTD totals
*Original W2’s for the past two years
*2011/2010 Signed Federal Tax returns if self employed, commissioned employee, receive rental income, or need overtime to qualify. If self employed please provide past 2 years of business income tax returns.
*Past two months bank statements showing CASH assets (ALL PAGES)
*Statements from 401K, CD’s, IRA’s, Stock, Bonds, etc. If using 401K funds for down payment, please provide a plan summary description of your 401K showing loan terms.
*Home Owners Insurance Policy Declaration Page (current)
How to Gather All the Needed Documents
Set aside at least one interrupted hour at home to get this done. Your W-2’s are probably in a file somewhere, and you don’t want to print your tax returns and other sensitive documents at work or at the library where the downloaded version of that file may get stored on a shared computer. Next thing you know you’re opening a retail credit card at a Cabela’s in West Virginia to purchase five different shotguns. Why your coworker stole your information for such a bizarre reason, I DON’T KNOW. He probably just sells that stuff online, so be guarded with personal information and financial documents.
With the exception of the last item on the checklist which doesn’t apply to first-time homebuyers, I’ve gathered all of the items above to give to my bank for the big number “reveal”. I am waiting about six weeks from when I paid off my car so that that paid-off account will be reflected on my credit and to give myself a chance to rebuild some savings again. Even though I am not handing anything in yet, seeing all those documents in one place was a real eye-opener! I’ve been tracking my spending, paying down close to $2,000 in debt every month, checking into Quicken, and just being a lot more conscious about money, but I still had no idea how the whole situation looked until I was staring at my stack of paystubs, tax returns, bank statements and retirement accounts in one place. Your bank statement hides NOTHING. Example: Deposits: $1,000 Withdrawals: $960. My net income was $40?!! Let me just say that I have not spent more than a dollar a day on food since I put this thing together. My credit score is pretty good at around 750, but I’d love to get it higher by the time I have an offer accepted on a place and need to fund a loan. I’ve never made a late payment and don’t have any recent hard inquiries on my credit score, so the reason my score isn’t better is because of my credit card balances, which are already my first priority. Paying down my balances will reduce the credit utilization ratio, improve my score and free up cash! Two birds, baby.
Why Prequalification Matters
The prequalification process is really important. First, it pushes you to get serious about all this homebuyin’ talk. I’ve been wanting to own real estate since I was about 12…and yet I did not take any real action to make that happen until 2011. Now that my situation is finally improving, a prequalification will tell me what the bank thinks I can afford. My banker (I know, sounds cheesy, but I always befriend my bankers) has said I will probably qualify for something around $250K, but it’s time to find out for sure. And that’s their number. Second, you decide what your budget is based on what you’ve qualified for and what you understand about your situation and your goals for the home. I want to be well below whatever I prequalify for. I’m just looking for a decent condo in a working-class neighborhood that needs plenty of renovation (since I have access to construction professionals within my family and close friends, not to mention myself) that will make sense as a rental in the long-term. That is definitely NOT a brand new condo in Irvine for over $300K. It’s the harder-to-find but still out there older homes in North Orange County (the area I think I am going for, as of now). Third, you can start assessing the market with a good real estate agent who knows your preferred area. Your agent will take you seriously with a prequal letter. Not to mention that many agents won’t even start showing you around without a prequalification. They don’t want to waste their time.
All this wanting to buy and get serious reminded me of the first episode of Party Down, at the Willow Canyon Homeowners Annual Party. Henry’s back as a bartender (after not making it as an actor) for the Party Down catering company. The homeowner husband has been feeling particularly trapped in his suburban nightmare all night as he mingles with homeowner neighbors in his spacious home with the swimming pool, all while wearing pleated shorts:
Homeowner: (leaning dejectedly against the bar) Bet this is a laugh to you.
Henry: Actually, it looks pretty appealing. Yeah, I kind of wish I was you right now.
Homeowner: Come on! You did the right thing, being an actor. You went for it! You’re not someone who does the same shit day in, day out, wearing pleated shorts…I wasn’t always like this. I coulda been you! I was in a band, living crazy…you know when was the last time I did anything unexpected?…(whispers) Cancun!
Henry: OK, but, you know…you have a house! You have a family. You have a life. You know what I’d give for that?
Homeowner: (Makes a face and mimes jerking off for an extended period)
And I know how Henry feels. It’s a weird place to be to have never thought about stability and settling down, and then deciding that you want those things after all. You have a house! Yeah, I want that. It’s going to be a long process, but I’m ready to do it. The benefits outweigh the costs and the fear of a potential rejection (“Congratulations, you’ve been pre-approved for a $15,000 mortgage.”) I’ll figure my way around those (Get 30 friends to go in on a place at $15K each!) and I will learn a ton in this process to share here and make the average consumer more savvy and informed. Because if there is one thing that will hurt you the most in the homebuying process, it will be lack of information.