Money Listens

So, you want to buy an elephant. You’ve already followed the first two suggestions to make sure it’s a good decision. First, you’ve waited. You’ve been wanting an elephant for a really long time. Last month you visited all the elephant dealers in town and found just the one for you. You’ve also done research on the Internet and have a good idea of how much you should pay. You wrote down “Elephant” on your wish list, and dropped hints like crazy, but nobody bought one for your Birthday.

You also followed suggestion #2 and examined your motives for wanting an elephant. An elephant is unlike anything you now own, and you can’t borrow one. It is versatile, and useful. You’re not buying one because it’s the “in” thing, or because of the little logo on the front, or because the kids have been begging for one.

You think you’re ready to buy. You have the cash in your savings account.

But how much do you really know about elephants? Do you understand everything about them? Sure, you know the latest model numbers and accessories. Do you know what it takes to maintain one? How often do they need servicing? How long will it take to learn how to use it? Are you good with large mammals? Where will you put it? Do you have the time and energy to take care of another thing? Or will it just hang around the garage?

Don’t buy anything that you don’t fully understand. If you don’t know how to work all the bells and whistles, maybe you need something less elaborate (like a hedgehog.) If you don’t understand how it compares to other similar items, don’t buy it. This goes for complicated items like insurance policies, investments, and funeral plans, and for simple items, like elephants.

Why do you want to buy an elephant?

Because everyone has one. I’ll really be cool if I have one. Those families on TV riding together on an elephant look so happy. I know I’ll look good on one. Because my kids have always wanted one. I need it for working in the yard. It’s on sale today. My old one doesn’t have an iPod jack.

Are there any hidden motives behind your purchase? See if you’ve been influenced by an advertisement, or a desire to keep up with the Jones’. Will an elephant make you feel good?

Some questions to ask yourself before buying something new are:

1. Is my old one still working fine?
2. Do I own anything else that will do the job?
3. Can I borrow one?
4. I this something that I am going to use often?
5. Can I wait a little longer before buying this?

You’ve just saved yourself some money. And you’ve probably realized you have a hidden motive for wanting the new item. The one that always gets me is about the kids. I’m more likely to spend money if it’s for someone else. I want to make them happy. But I know more stuff isn’t the way to do it. Stuff (even elephants) won’t make me happy. And buying things for the wrong motive won’t get me to financial peace any quicker.

The only reason a great many American families don’t own an elephant is that they have never been offered an elephant for a dollar down and easy weekly payments. — Mad Magazine

Maybe you haven’t been tempted to buy an elephant, but I bet there are a lot of other things you’ve bought on impulse. In Financial Peace Dave Ramsey sets out five ways we can develop power over our purchases. There are plenty of salespeople who will tell our money what to buy, if we let them. The five steps will keep us from buying elephants.

1. Wait before making a purchase.
2. Consider your motive for buying.
3. Never buy anything you do not understand.
4. Consider the opportunity cost of your money.
5. Seek counsel before buying.

Number one can save a lot of money. Just wait before making a purchase. How long? Dave says at least overnight. I’m going to say a week, but a month is even better. Say you’re online ready to buy, or in line with the item already in your shopping cart. Don’t buy it. Instead, write it down somewhere, perhaps where you keep your spending plan/budget. Title it “Things I’m Considering Buying.” I keep my list in my Palm.

After waiting, if you really need/want it and it works with the budget, go ahead and get it. With cash, of course. If you’re like most people, after the impulse wears off you decide you don’t really need it. After a few weeks, you’ll find you’ve acquired a tidy wish list of things you can live without. (Or maybe it’ll only take a few hours for you shopaholics.) Now you have a great list of suggestions for gifts. Post the list on your fridge before your Birthday.

Don’t go overboard on this, I’m not talking about groceries or those things you’ve already considered and planned to buy. I’m talking about those impulse purchases that seem like such a good idea at the time. Things like going to Academy for a fishing license and coming out with an Avet Pro 30 Wide tournament class reel. Or getting your sister’s favorite perfume for her birthday and coming out of the mall with Ralph Lauren 400 thread-count sheets. From now on, don’t buy anything without waiting first.

Do you read the newspaper on Monday? You should. If you don’t know how an IRA works, or what an ARM is, chances are you’re going to make some poor decisions with your money. It’s not always your fault– after all, you weren’t taught this stuff in school. But if you want to start making good decisions you’ll need a financial education. One of the easiest and least expensive ways is by reading the newspaper every Monday.

For most major newspapers Monday is “personal finance” day. The newspapers don’t have the usual stock market and corporation news since companies are closed on the weekend. So they focus on news for you.

Last Monday my newspaper had an article titled “Frugal Strategies Counter Rising Costs.” It had some good tips on saving money on food and fuel. A financial planner said, “It really doesn’t matter what you make. It matters what you spend.”

Columnist Scott Burns answered the question of whether buying a big house is a good hedge against rising inflation. (It’s not.) Humberto Cruz discussed how taxpayers can know if they’re eligible to contribute to an IRA. (You can if you’re under age 70 and have income from work.)

Jeanie Wyatt shared bits of wisdom from a dinner with Ben Stein. “My take-away from his remarks? That those 78 million baby boomers approaching retirement should accelerate their savings drastically and prod their kids and grandkids to learn economics.”

If you go on-line, you can read the Wall Street Journal’s excellent Monday business section for free. It, too, is all about you. Get in the habit of making Mondays “educate me day.” Just by reading the newspaper you can end up with a pretty good financial education.

Here’s a bonus. The “Science” page is on the back of the business section. Did you learn much science in school? It’s Monday, so dig up your newspaper and continue your financial education today.

We’re all working on our finances, heading toward our destination. (Hopefully, in the fast lane.) We’re disciplined, we’ve got our route planned. What happens when we hit a roadblock? We’ve all been stuck in a traffic jam, a construction zone, or an accident that really slows our progress. How do we keep going?

That’s when we pull #3 out of our luggage, resourcefulness. Resourcefulness is the ability to find quick and clever ways to solve problems and get past roadblocks. No matter how well we’ve planned, we can’t anticipate every problem. As Yogi Berra said, “Prediction is difficult, especially about the future.”

Don’t panic. Use your resources. Ask your spouse and friends for help. Check out a book or find an Internet site for suggestions. Tweak your plan. You might have to slow down, or even take a detour, but keep on going. Remember Murphy’s Law. Just when you get your emergency fund established, you have a major medical bill that wipes it out. Keep the big picture in mind. That’s the reason you had the fund in the first place. You were able to pay the bill without going further into debt. That’s a good thing!

Seth Godin wrote The Dip– a Little Book that Teaches you when to Quit and when to Stick. His premise is everything starts out fun and exciting, but then you hit a “dip” when things get hard and it’s no longer fun. Sometimes all you need is a new strategy to solve the problem and push past the dip. But sometimes you should quit if the dip isn’t worth the reward at the end. He’s not talking about the long-term strategy here, financial peace is a worthy goal. He’s talking about the tactics you’re using to get there. If something’s not working very well, quit doing it and do something else.

How’s this apply to us? Say you’ve been spending a lot of time on cutting your food spending. You’re making menus, comparison shopping, using coupons, preparing food from scratch. It’s taking an unbelieveable amount of time, and you’re saving about $50 a month. I’m not going to sneeze at $50. That’s a nice round number. But say you have a car you could sell for $18,000. What if you sold it, bought a $3,000 car and had $15,000 to work into your plan? Wouldn’t that rocket you through the dip with much less time and effort?

That’s why we have to keep changing our plans– not our goals, but how we’re going to get there. Don’t feel bad if you try something and it doesn’t work. Feel bad if you don’t quit doing that and replace it with something that does work.

Traveling the road to financial peace is like going somewhere you’ve never been before. The 4 essentials to make your trip more enjoyable are:

• Self-discipline
• Planning
• Resourcefulness
• Relationships

Today, we’ll tackle #2. Planning is everything. Planning is thinking in advance with an eye toward the future. It’s keeping the bigger picture in mind while you decide on your actions. What do I have to do, in what order, to get where I want to be? First, you have to ask yourself some questions:

• What do I want my future to look like?
• How would I feel if I were debt free?
• Would I be less stressed if I had an emergency fund and savings?
• Will a vacation be more fun because I have the cash to pay for it?
• What do I want to do when I have enough money to quit my job? Travel? Spend time with family? Volunteer? Start my own blog?

Spend some time envisioning your future. How does money fit into your future? What will financial peace look like? We must have enough money to pay for the necessities in life– food, shelter, clothing, and transportation. It’s a plus to have a little more money to make life fun. Does there have to be a trade-off between the present and the future? Will you be unhappy now because you can’t spend as much as you are used to spending? No, because much of what you’ve spent in the past hasn’t really brought you satisfaction. And it certainly hasn’t brought you closer to any thoughtful goals.

What are your financial goals for the next year? Set some long-term goals, some big picture goals. Then break those down into short-term goals. Plan how to reach those goals. What do you need to do this week to move you towards your goal? What’s working and what’s not working?

Planning is everything. You have to see it, but then you have to write it down. Begin a list. Embellish it. Reorder it frequently. Be realistic. What means the most? What would make the biggest difference? What do I want to accomplish and what am I willing to change to make it happen? What’s the first thing I need to do? You can’t just make a plan, you have to keep on planning. Planning is everything.

Have you ever packed for a trip and not known where you were going? What do you pack? What if you know the place, but you’ve never been there before? You still aren’t sure what you’ll need. Traveling the road to financial peace is kind of like going somewhere you’ve never been before. Here are 4 essentials that will make your trip speedier and more enjoyable. You don’t have to have them all at once, you can even pick them up as you go along.

I know you can’t stand the suspense, so here’s the list:

• Self-discipline
• Planning
• Resourcefulness
• Relationships

Today, we’ll tackle the first one. Self-Discipline is the power to control your actions, impulses, and emotions. If you’re like most people, you don’t think you have much self-discipline. It’s hard to stick with a diet, an exercise plan, or a budget.

If you took a class in psychology you might have learned about the marshmallow study. In the 1960s a Stanford University professor gave a group of 4 year olds one marshmallow. The kids were told he had to run an errand and they could eat the one marshmallow, but if they waited until he got back they would get two marshmallows. The theory was that those children who could wait had self-discipline, the ability to delay gratification and control impulse. Of course, most kids immediately ate the marshmallow. Only about 1/3 of the the kids were able to wait. (I think in the 1960s marshmallows were a much bigger deal than today.) Anyway, the kids were followed through high school. The kids who did not eat the single marshmallow but were able to wait for the two marshmallows were more posititive, self-assured, and well-adjusted. (They also scored better on their SATs). The kids who couldn’t control themselves and immediately ate the one, were more indecisive and distracted. They had poorer study habits. The point of the study was that people who can delay gratification in pursuit of their goals are more successful in life.

I would have aced the marshmallow test, because I’m not particularly fond of them. But I would have inhaled a potato chip. What does this have to do with financial success? You have to control your spending now in order to reach your goals for the future. If you can’t get past the emotional “I want this and I want this now,” you’ll never be able to save any money. The good news is, you can learn self-discipline. How? Practice it. The more often you drive past Starbucks or Sonic without stopping, the easier it gets. You’re setting small goals for yourself, and reaching them, and that makes it easier to set larger goals.

Psychological studies have shown that using your nondominant hand to brush your teeth for two weeks can increase your self-discipline. You force yourself to do something that isn’t what you usually do. Taking a personal finance class is a form of willpower training, too. No one knows exactly why this works. Whatever the reason, consistently doing any activity that requires self-discipline increases willpower — and the ability to delay gratification and control your impulses is one of the keys to financial success.

Self-control. Willpower. Determination with energy. Does that sound like gazelle intensity? Don’t eat all your marshmallows now, save some for later. I don’t think I’ll ever look at marshmallows in quite the same way.

Do you ever wonder why you keep getting all those credit card offers in the mail? The credit card companies aren’t wasting their money. It works! Nearly 70 percent of credit card accounts come from those “pre-approved” offers in your mailbox. Mailings have grown from 1 billion in 1992 to about 5 billion in 2002. That’s an average of 17 offers for every man, woman, and child in the U.S. And a few dogs, too.

These solicitations cause you:

• the inconvenience of receiving unwanted mail,
• the possibility of identity theft,
• the possible loss of privacy,
• the potential for additional debt burden.

Thankfully, you can prevent most of these unwanted offers by “Opting-Out”, which is the process of removing your name from lists. The Consumer Credit Reporting Companies maintain lists to be used for “pre-approved” offers of credit or insurance. Visit the website www.optoutprescreen.com. You may opt-out online for 5 years, or print and mail a permanent opt-out request.This is a free service. Opting-out does not affect your ability to obtain credit or insurance, nor does it impact your credit score.

The Direct Marketing Association (DMA) tracks consumers who don’t want to receive other mail or telephone solicitations. The DMA website has good information, but they will try to talk you into keeping the junk mail. “What? You won’t get free samples if you opt out!”

Opting-out will not end solicitations from all local merchants, charities, business and alumni associations, politicians, and companies with which you have done business in the past 18 months. So you’ll still get offers from your own bank or insurance company. And you’ll still get your grocery store ads. To eliminate mail from these groups - as well as mail addressed to “occupant”– you would have to write directly to each source.

Opting-out will significantly reduce the time you waste shredding or recycling the majority of your junk mail. It’s good for the environment and it’s good for your time and your wallet.

Statistics from the Information Policy Institute (2003), The Fair Credit Reporting Act: Access, Efficiency & Opportunity: The Economic Importance of Fair Credit Reauthorization (Washington: National Chamber Foundation for the IPI, June), p. 57, table 13, www.infopolicy.org/pdf/fcra_report.pdf.

You should have an annual check-up. Has it been at least 12 months since your last one? The three major Consumer Credit Reporting Companies, Equifax, Experian, and TransUnion have a central website for checking credit reports. It’s AnnualCreditReport.com. You may get a free report once a year from each company. You may get all three at once, or just one at a time. The companies are not doing this out of the goodness of their heart, this is required by the Federal Trade Commission.

Once at the AnnualCreditReport website, enter your state and fill out a form. You need your birthdate and social security number. Then you have an option of which company you would like to get a report from. Just pick one, it’s like Coke and Pepsi, they are very much alike. I selected TransUnion. At that website I set up an account with a password. The tricky part of this process is how the company asks questions to confirm you are who you say you are. You have to answer questions based upon past addresses or employers, or imput your exact payment amounts from creditors. It’s a good way to keep someone who has gotten your birthdate and social security number from finding out more info about you. Once through this, you have to keep saying “no, thanks” to offers of newletters or services you pay for. (A Debt Analysis costs $5.95, who knows what that is). Then, you can view and print your report. It’s really not so hard. You can return to the AnnualCreditReport website and select another company, or just logout and call it a day.

If you discover something negative on your report, the website details the correction process. The FTC has an excellent website with information on repairing your credit.

It’s hard to remember a once-a-year time to do this. This month, around the time you prepare your taxes, might be a good choice. Checking your credit report is much less painful than paying taxes.