Crackerjack Greenback Prudent Advice for a Prosperous Future

October 31, 2008

Why a Budget Is Good (or “Spending Plan” if That Makes You Feel Better)

Filed under: Budgeting,Spending,The Basics — Paul Williams @ Crackerjack Greenback @ 3:38 pm

       That’s right. I just said a budget is good. We hate the sound of that word, don’t we? It reeks of denial, hardship, restraint, and, for most people, boredom. But failing to create a budget and stick to it (to some degree) is one of the primary reasons so many people have a hard time managing their personal finances. So here are a few reasons why it’s good to have a budget and track your expenses.

A Simple Budget (Piggy Bank by ES on Flickr)

   You can easily figure out if you’re spending too much money.

       By tracking and totaling your expenses over one or two months, you can easily figure out if you’re spending too much money. Add up your monthly income, subtract your monthly expenses, and if the result is negative then you’re spending too much money. There are other ways to tell if you’re spending too much money (is your debt increasing every month?), but this is one surefire way to double check it.

   You can see where your money is going.

       It’s easy to lose track of all your bills and remember where you spent the cash you had in your wallet or purse. By creating a budget and continuing to track your spending, you can keep a comprehensive list of all your expenses and how much they cost. From there, you can see where your biggest outflows are and find ways to save money in those areas.

   You can target specific areas for improvement.

       Once you’ve tracked your spending for a bit and are comfortable with the numbers, you can decide on budget goals. Where do you want to cut back and by how much? If you don’t have your budget written down (on paper or electronically), it’s much more difficult to set these goals for yourself.

   You’ll start spending less.

       The mere act of tracking your spending is likely to cause you to spend less. Why? You’ll become more conscious of your spending habits and begin to carefully examine your purchases. Once you start to question whether or not you need to spend money you’ll start spending less. Be careful – Corporate America doesn’t want you to do this!

   You can have less stress and make better decisions.

       Do you want to take your significant other out to dinner but you’re not sure if you can afford it? Check your budget. Friends invite you on a weekend roadtrip but you’re worried about money? Check your budget. If you can fit the expense into the appropriate budget category, then you can spend without guilt. (Assuming, of course, that you are meeting your savings goals.) Finally, you’ll have a good idea of how much money you should have in your emergency fund. Take your necessary monthly expenses and multiply by some number between 3 and 6. (You can’t do this if you don’t know your monthly expenses!)

My Budgeting Confession

       With all that said, I have to tell you that I no longer track my expenses. I do have a budget, but it’s mostly because I like numbers. I don’t actually keep track of what I spend. I have all my bills set on auto-pay (except heating oil), my savings is automatic, I have a sizable emergency fund, and I have my spending under control. If you can say the same about your own situation, then I actually encourage you not to track your spending too closely. It’s a waste of time if you don’t need it.

       On the other hand, if you aren’t paying yourself first (automatic savings), haven’t established an emergency fund, or don’t have your spending under control, then you absolutely need a budget until you get to that point. If you really hate the idea of budgeting and tracking your expenses, just remind yourself that eventually you won’t have to do it anymore. It’s only temporary!

       Next Friday I’ll list a few different ways you can create a budget and track your spending.

October 30, 2008

You Don’t Need Things to Feel Rich

Filed under: Consumerism,Contentment,Values — Paul Williams @ Crackerjack Greenback @ 3:33 pm

Family Time by Joe Thorn on Flickr       Stop Buying Crap has a great post on 10 Simple Ways to Feel Rich Without Materialistic Means. You’ll notice that none of them require you to buy some fancy new Stuff to have fun and feel wealthy.

       Numbers 1 and 8 are some great ways to spend time with family. Having strong family relationships is good for your health and can increase your life expectancy. I also like numbers 7 and 10 because they remind us to appreciate the oft-ignored beauty all around us.

       The things that make us feel truly wealthy often have nothing to do with our Stuff or bank accounts. What are some non-materialistic things that make you feel wealthy?

October 29, 2008

Corporate America Wants Your Soul

Filed under: Consumerism,Contentment,Spending,The Basics — Paul Williams @ Crackerjack Greenback @ 5:00 pm

       This video on YouTube titled “Please Buy More Stuff” portrays American consumerism and the message that corporations bombard us with every day through the media and advertisements. The underlying message is that buying or doing these Things will make you happy, make you feel whole, or otherwise give you a better life than you currently have.

       Here’s the secret though…none of it is true! Buying more Stuff, having more Things, or being richer than your neighbor is not really going to make you happy or fulfilled. Most of us already have more than we’ll ever need but we still can’t seem to be happy. So we start to believe the message coming from Corporate America that if we buy more Stuff and become wealthier then we can have the “Good Life” and be much happier.

       Why do we think this Stuff will make us happy? What’s the purpose of it all? You can’t take it with you when you die, and it’s highly unlikely that any of it is going to make your life longer. Wealth and material Things just aren’t going to matter when you’re dead. You’re giving up time (to earn money) that you could have spent with family and friends, pursuing your passions, or enjoying your hobbies just to buy more things. Many of us start spending money we don’t even have to get more of this stuff, and then we get trapped in an endless cycle of earning money to pay off debt while we keep buying even more stuff.

       So why do you need it? Why do you need the things you’re being told you need? The truth is you probably don’t. You can break free from this endless cycle of consumerism. Do you want to know the secret to escaping the rat race?

       It’s called contentment. It’s not easy, especially in America, but it is so amazingly freeing. You’ve probably got food, clothes, shelter, and so much more. We take these things for granted, but what else do we really need? A new iPhone? A shiny new car? A bigger house? Once you realize how truly wealthy you are then you can begin to recognize that you don’t need more stuff to actually be happy. (Granted, if you are living in poverty then a little more money can make a big difference, but beyond that money can’t make you happy.)

       Stop and ask yourself right now – What really makes me happy in life? Then start figuring out how you can get more of that. Most of the time the things that really make us happy in life are our relationships with family and friends, our passions, or having a purpose – not the Stuff we are told to buy on TV.

       The truth is being happy with what you have and resisting the messages from Corporate America will bring you far more happiness than a big raise, huge investment gains, or more Stuff. We need to wake up from the consumeristic American Dream and grab hold of the life which is truly life!

October 28, 2008

Three Financial Formulas You Need to Know and Understand

Filed under: Earning,Spending,The Basics — Paul Williams @ Crackerjack Greenback @ 4:00 am

       If you can remember and understand the following three financial formulas, you’ll be well on your way to building wealth. They’re not complicated, they’re not fancy, but they will put you ahead of 90% of the population. Well, I don’t really know that 90% figure is true, but it sure seems that way!

Formula One: The Debt Formula
The Debt Formula

       In simple terms, 2 – 3 = DEBT. If you spend more money (represented by the 3 piles of money) than you earn (represented by the 2 piles of money), you will go into debt. There is no way around it. Spending even one dollar more than you earn is bound to lead to financial destruction if carried out over a long enough period of time.

Formula Two: The Broke Formula
The Broke Formula

       Once again in simple terms, 2 – 2 = BROKE. If you spend every penny you make, you will be broke. There is no way around it. You will be living paycheck-to-paycheck until you can break the cycle and begin following Formula Three.

Formula Three: The Wealth Formula
The Wealth Formula

       OK, this one is a little more complicated, so pay attention! 2 – 1 = SAVINGS. If you spend less than you earn, you’ll have money left over to save. If you take that savings and invest it, you get WEALTH. How do you invest it? There are numerous ways, but here are a few:

  • Pay off debt!
  • Invest in yourself! (Education & Training)
  • Invest in the Stock Market! (In a low-cost, tax-efficient, diversified portfolio)
  • Invest in Real Estate! (Be careful with this one!)
  • Start a Business! (Probably the best option if you have entrepreneurial skills and a good business idea)

That’s All the Math You Need!

       Well, there is one other formula you’ll need to understand – compound interest. We’ll talk about that later though. For now, just figure out how you can start following The Wealth Formula if you’re not already. Oh, and don’t spend any more time trying to figure out other financial formulas just yet. This will be all you need for a while!

October 27, 2008

Setting and Prioritizing Goals

Filed under: Goals,The Basics — Paul Williams @ Crackerjack Greenback @ 4:00 am

       If you’ve read The Importance of Values and completed the exercise to identify and prioritize your values, you are now ready to set and prioritize your goals. Your goals should line up with your values, else you will have a very difficult time staying motivated to reach the goals you set.

What Are Goals, and Why Are They Important?

Soccer Goal by Road Warrior        A goal is a specific result you are working towards achieving. Goals help you focus on a final destination for all the hard work you are doing right now. We constantly live in the present – focused on the here and now. Unless we find a way to visualize the future, we are easily distracted and sidetracked from achieving our goals. Clear, specific goals help us keep that picture of the future in our mind so we know why we are making the right choices today. As J.D. Roth says at Get Rich Slowly, the road to wealth is paved with goals.

What Makes a Good Goal?

       Good goals with a high chance of success have certain attributes in common. When you write or verbalize a goal, you should make sure it meets the following two criteria:

    Specific – A goal should specifically state the desired result (What?), a time frame (When?), cost (How Much?), and the personal value it aligns with (Why?).

    Realistic – A goal should represent an end result that you are willing and able to work towards. This does not mean that you should not set high goals, but you must know if you can truly accomplish your goal. Setting unrealistic or impossible goals could mean you are preparing yourself for failure.

       If you’re not sure a goal is realistic, go ahead and do your best to achieve it. Just because a goal seems out of reach does not mean you cannot accomplish it. If you find out your goal is much too ambitious, you can always scale it down in the future.

List Your Goals

Write a List by Swiv        Although you certainly aren’t required to have written goals, it helps a lot to write them down on paper or electronically. I personally use a single Google Docs Spreadsheet to track my budget, net worth, and goal progress on separate pages.

       To start off, just list all the financial goals you can think of. This may include some more personal goals that will affect your finances, but you should be sure your goal can meet the two criteria above. Don’t worry too much about having the “right” goals at this point – just list them all.

Eliminate Conflicting Goals

       You may have listed some goals that are conflicting. For example, if you listed “Buy a new car for $30,000 next year” and “Eliminate $30,000 of credit card debt in the next twelve months” you could have conflicting goals! You have to decide which goals are the most important, focus on those, and eliminate the rest.

Prioritize Your Goals

       Next, you’ll need to figure out which goals are the most important in terms of their value to you and how soon they need to be accomplished. For example, establishing an emergency fund of at least $1,000 before you focus on paying off debts is important because it will keep you from taking on additional debt if a need arises suddenly (car repairs, unexpected bill, etc.). You may be able to prioritize your list without any tools, but if you need some help I recommend CNN Money’s “The Prioritizer” calculator. It’s a fun and quick way to prioritize any list of items. Just remember to keep asking yourself which goals are most important and need to be accomplished first as your prioritize.

Commit to Your Goals

       Once you’ve narrowed down and prioritized your goals you must commit to achieving those goals. The best way for most people to do this is to put the goal in writing. You will also want to figure out a way to remind yourself about the goal every day and find ways to motivate yourself to achieve the goal. Share your goal with someone close to you who will be supportive and provide you with accountability. Focus on the positive effects of achieving your goal when the going gets tough (and it will get tough). Most importantly, do whatever works for you to keep your motivation up.

Don’t Give Up!

Hang in There by Latente        No matter how hard you may be working at achieving your goals, it’s likely you’ll run into some roadblocks along the way. Don’t give up! Unless a change in your situation necessitates an adjustment to your goals, stick to the goals you set. Think about why the goal is important to you and what it will mean to you once you’ve accomplished it. Saving money and paying off debt are going to be hard because they require you to change long-held habits and demand some sacrifices. However, you have to keep in mind the freedom and peace you will have once you accomplish these goals! Our brains are not wired to think long-term, so this won’t be easy. Do your best to remind yourself every single day why you set your goals and why you want to achieve them. With time and discipline, you will accomplish your goals!

October 26, 2008

The Importance of Values

Filed under: The Basics,Values — Paul Williams @ Crackerjack Greenback @ 4:00 am

What Are Values, and Why Are They Important?

       Why do you do what you do? What motivates you? Why is it important to plan for the future? What are you planning for and why? These are just some of the questions I start asking myself when I begin thinking about my goals and my future. Figuring out my goals isn’t very important if I don’t know why they are my goals in the first place.

       These are questions we often don’t ask ourselves when we’re rushing around to keep up with the day-to-day. But the answers to these questions are quite important, and we need to know our own personal answers by heart. The key to answering your own questions fully and effectively is to identify your values.

       Values are principles, standards, or qualities you consider worthwhile or desirable. Values will vary greatly from person to person because they depend on your personal judgment. What principles, standards, or qualities do you consider worthwhile or desirable? In other words, what are your personal values?

       If you cannot answer this question confidently, you may want to continue reading. Knowing your personal values is extremely important because those values shape everything about you. Your relationships, behavior, choices, and personal identity are all affected by your values. Even if you cannot name all your values, they are still influencing every aspect of your life.

Compass by seany @ flickr        However, we are easily distracted – especially with all of the busyness and media in our lives today. It’s far too easy to get sidetracked and led away from your values. This is why it’s vitally important to know your personal values. Those values are your compass for the day to day decisions you must continually make, and they help draw the map of your entire life.

The Role of Values in Personal Finance

       Now why would I be discussing values on a personal finance website? Isn’t that more of a personal development topic? Well, yes – it is. But the truth is that your values will have an impact on your financial decisions. There is no use in looking at numbers, giving you advice, or talking about investments until you can list your personal values. That would be like going on a great journey to some unknown land without a compass or any sense of direction. How will you know you got to the place you wanted to arrive?

       For a lot of people, including myself, retirement is a goal. The question I ask is: Why? Why do I want to retire? Well, I know someday I won’t be able to work because I’ll be older and my health could be declining. I don’t want to be a burden on my future family, so I want to plan ahead for retirement. I also would like a time of rest from paid work, when I no longer have to work for money. That’s not to say I won’t be working. On the contrary, I may spend a lot of time volunteering or working for charities. Which gets into another important question. What am I going to do when I retire? And why do I need to wait until retirement to do those things? The answers to all of these questions are somehow tied to my values.

       As I mentioned above, your values shape everything about you. Your values affect your behavior and choices. Your behavior and choices affect your personal finances. Therefore, you must recognize and understand your values before you can really start to work on your personal finances.

       For example, let’s say you want to start using a budget to track your spending and find ways to save money. If your values include frugality, thrift, and organization, then this will probably be an easy goal. But if your top values include extravagance and liberation, you’re probably going to run into some problems trying to stick to a budget.

       So before you spend any more time reading about personal finance, take a few minutes to identify your personal values. There are different ways to do this, but I’ll explain the method I’ve used. If this doesn’t work for you, then a quick Google search will provide you with other ways to accomplish the task.

       If you are married, have a partner, or your finances somehow involve other people, then you may want to do this exercise with the other people involved. This will elicit an important discussion and ensure you are in agreement or at least at an understanding about your guiding principles.

Identify Your Values

       To start this process, you will want to make sure you have time to focus. Sit down with some paper, and ask yourself this question: What is most important to me in life? Write down your values to answer this question. Try to make these one or two word phrases, and don’t worry about the order yet. I was able to get the major ones for me (Faith in God, Family, and Love) but I hit a road block trying to think of everything that’s actually important to me.

       If you’re like me and are having trouble listing specific values, you can try using Steve Pavlina’s list of values as a starting point. Go through this list and write down the values that you feel are most important. Try not to choose the values you think you should have, but choose the ones you find truly important in your life.

       If you’d rather not write these down on paper, I have included a link to Steve Pavlina’s List of Values in a Microsoft Word Document so you can edit it in an electronic format. Feel free to add other values or put them in your own words.

Prioritize Your Values

       Now try to narrow down this list by combining similar values into a single value (or two if you need to). You want to get this list down to no more than 10-15 values. Using the list of values mentioned above, I ended up with 59 on my list. I had a lot of paring down to do! I eliminated the overlapping values to get it down to the phrases I thought summed up that particular group the best. For example, I eliminated ‘Education’ and ‘Knowledge’ and used ‘Learning’ instead. It took me a while, but I got my list down to 13 values.

       Then you need to prioritize your list of values. You can do this by listing your top value first, then your second highest value, and so on until you’ve prioritized your entire list. If you are having difficulty prioritizing this list, then you might want to try CNN Money’s “The Prioritizer” calculator. The Prioritizer allows you to list up to 15 items and then asks you a series of questions that forces you to choose between each possible pair of goals. Once you’re finished, the calculator will give you a list of your values in priority order according to your choices.

Examine Your Values

       Now that you have your prioritized list of personal values, it’s time to examine these values closely. Are there any that you feel do not fit? Are there any you’d like to change? This can mean dropping a value, adding a value, or tweaking your priorities. Some of your financial goals may require changing your values or priorities, so feel free to reexamine this list at any time.

       After examining my prioritized list, I decided to drop 3 of the values I had listed leaving me with 10. Here’s the list of my top ten values in order of importance:

      Paul’s Top 10 Values

  1. Faith & Relationship with God
  2. Devotion to Family
  3. Compassion & Love
  4. Giving
  5. Integrity
  6. Curiosity & Wonder
  7. Contentment & Simplicity
  8. Fun & Youthfulness
  9. Prudence & Wisdom
  10. Balance

Evaluate How Your Values Should Affect Your Life

       Finally, it’s time to consider how your specific list of values will affect your life. If these are the things that are most important to you in your life, how should they steer your decisions? You might feel like you’re not following your values very well at this point in your life, but you have the ability to change that right now.

       With your list of values in hand, you can evaluate any decision with intelligence and confidence. You just have to ask yourself: What should I do in this situation if these are my guiding principles in life? Apply this method to every area of your life, and you’re sure to see your life becoming more aligned with your values. As your situation changes, you might need to revise your values. Adapting to changes in your life will be crucial to your success in accomplishing your goals.

       Now that you have your list of personal values, you can proceed with evaluating and planning your personal finances. These values should help lead you in making the necessary decisions about your goals, priorities, necessities, and the things you’re willing to sacrifice. All of these are important in reaching a financial future that will ultimately make you happy and fulfilled.

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