I Just Don’t Like Saving

I heard someone say that, and the only analogy I could find that did it justice is the following (I stole it from Reddit):

The house was in great shape, except the kitchen didn’t have a floor and there were no plans or intentions to fix it. If you’re fine eating take out all the time, there’s not an issue, but if you like to cook, then that’s a deal breaker for you.

Piggy Bank
Use a Piggy Bank to Save if you have to!

If you don’t think you can save, you need to find a way into tricking yourself into doing it, or you are doomed to failing in your personal finance life.

I did make some suggestions (but remember how much Free Advice is worth as well):

  • If your employer allows you to deposit to different accounts (with your pay cheque), put money away in a “secret account” that is hard to get the money out. Many folks I know do this and it works, as long as you don’t “raid” the secret account for some Mad Spending.
  • You can do the same thing with your bank, and shuffle moneys on pay-day, so that you aren’t aware of it, to save money behind your own back. The same caveats about not using the savings account as a spending spree.
  • CSBs can be used in the same way, and they are at least hard to cash out right away (lousy return, but at least the money is safe).
  • Stock purchase plans from your employer is another good place to hide money, but never get too heavily vested in your employer, either.

If you don’t like saving, find a way to fool yourself into doing it (or marry someone who saves well, and put them in charge of your money).

Question:

Are there other ways to fool yourself into saving money?

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Old becomes New

After a lovely Thanksgiving weekend, as we dropped one of my daughters off at school, my son saw one of my daughter’s university buddies playing Guitar Hero on a PS/2 (evidently at University, the kids “rough it” by using 1 generation back technology), and my son was enthralled by the site of this game. His hand eye co-ordination was such that he couldn’t get the hang of the guitar, however, he remembered that we had a PS/2 in our basement, collecting dust, and I was ordered to set it up for him (well, it sounded like an order, I think he said please).

Good Fun

Previously Enjoyed Toys

Setting up the game was easier than I remember, as the TV we use for my son had a spare AVI port (you know that old Red White and Yellow cable we used to use on tube tvs?) and for the rest of the day my son was enjoying Simpson’s Road Rage (although he likes to play Air Guitar Hero (you walk around with the “guitar” acting like you are playing the game).

This all got me thinking that with my son, and how he has had many regifted toys over his life (he has  Teletubbies, Tickle Me Elmo and a Tutter from his sisters and many other older toys) and seems no worse for wear for me not spending many dollars on toys. I remember the amount of pain my wife went through to get those toys new (the Tickle Me Elmo craze was a scary time), and I am happy that they can actually be enjoyed again.

You do realize that Christmas is coming in a while, are you going to buy your kids or grandkids a bunch of toys, that may end up locked in a closet one day? What if you put some money in an RESP for them, or in trust for when they get older? Does old money get locked in a closet ?

 

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I’m Not Paying My Debt, but I am Saving Money

That was sort of the gist of a comment I got on a post last week, and I have commented many times about the fact that if you have debt, and are saving money, you aren’t really getting “ahead” at all.

In the dirty 90’s borrowing money to make money was all the rage, however, eventually you have to pay for what you borrowed (one way or another). Current rates of interest seems to suggest that all you need do is find something that has greater than a 5% return per annum and you are in the money (if you can get a preferred lender rate of 4.5% or so), and yes that might work (NO!!! I am not recommending it, I am simply pointing out that it might work (then again, Lenin thought Communism would work too)), however when the rate of interest on your borrowed money goes up, what happens then?

If I borrowed money at 4.5% and I bought into the Big Cajun Man Guaranteed Index Fund (BCMGIF not to be found on any market anywhere in the world) which coincidentally pays 6.75 % (on average) every year, that means I’ll make 2.25% per year doing nothing (and without using my money).  Now, if I didn’t owe any money and used my money to buy into BCMGIF I’d make 6.75% a year, wouldn’t I?

What if I borrowed that money on my Secured Line of Credit, but interest rates start to jump a little and now I am paying 7.25 % on the money? In a short period I am now losing 0.50% a year, aren’t I? Now BCMGIF might rebound too and make more money that year, or in the unlikely case that BCMGIF starts only paying 4.1% a year, I am now losing 0.4% a year .

To get back to the point if you have Debt (i.e. negative money flow, owe money, etc.,) if you are Saving money as well, you are not increasing your personal value, you are simply creating a weird bubble of Debt and Savings (and my guess is your savings bubble will burst long before your Debt bubble ever does).

 

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It Occurs To Me That You Could Solve All Your Problems By Obtaining More Money

A simple quote from The Big Bang Theory, specifically Dr. Sheldon Cooper. Many times the concept of money comes up on this show, especially since the heroine is constantly broke, so there are many interesting financial theories put forward by the writers of the show. If she simply worked at obtaining more money, she’d be in better shape (financially).

obtaining more moneyDr. Cooper breaks down his money needs in detail (as he is want  wont to do), and points out that he only needs about 40% of his income to live on (I am assuming he is talking about his net income). He does not need to work at obtaining more money.

Not a lot of people can explain their financial need down to a percentage in this way, most folks I know simply say that at the end of the month they usually don’t have money left over (or worse they have less than no money (i.e. credit card debt, etc.,)).

Michael James and I have a friend (we’ll call him Samuel) who is the epitome of this concept, in that most of his life (from what we can tell), he has lived on about 10% of his monthly income (when he has had income). We actually confronted Sammy with this fact last week (this topic came up in a Bloggers Dinner Club discussion with Preet Banerjee and Mark from My Own Advisor) and he claims that he has actually become a spendthrift and his “spending line” might actually be up to almost 20% of his net income (we both laughed very loudly at that one).

As I pointed out in one of my first posts about Dickensian Economics:

Annual income twenty pounds, annual expenditure nineteen six, result happiness.
Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.

David Copperfield, Charles Dickens, 1849

Even in the times of Dickens, was that simple rule known, wow!

What is your net burn rate?

 

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Voodoo Emergency Funds

All of us Financial folk talk about the importance of having an Emergency Fund of some sort for the rainy days (or in my case the incredibly frigid days) in your life. Until a big financial emergency arises a lot of us don’t think an emergency fund is that important, but after the first head gasket replacement or the dishwasher dumping it’s load in the kitchen most of us think that having an emergency fund is a little more important. The problem is some of us have voodoo emergency funds as our reaction.

As usual what an emergency fund entails is always interesting, and open to opinion. Many “experts” seem to think you are relatively safe with a fund that is about 3 months pay backed up (but having more is never a bad thing either). Thinking you can’t get that much money socked away is not a good reason to not have an emergency fund. You need to have some cash squirreled away, just in case.

Note I said cash, where my view of cash is either:

  • Cash, foldable money, coins, cabbage, reds and browns: you get the picture
  • Money in a savings account or something as reliable and easily liquidated
  • 300 Krugerands in your basement freezer (but while valuable may not be easily liquidated)

voodoo emergency funds

Ben Stein in Ferris Bueller’s Day Off

I knew a lot of folks in my Nortel days that made the following interesting statements:

  • “My emergency fund is in Nortel Stock, and I can get that in about 3 days…”
  • “My emergency fund is in Nortel Options, so I can convert those quickly…”
  • “I loaned my {familial unit member} money for a down payment so I can get the money from there…”

Why Aren’t These Emergency Funds ?

Can anybody see where these might be tenuous emergency funds? Anyone? Anyone? Bueller? This is an example of Voodoo Emergency Funds, Voodoo Emergency funds (paraphrasing Ben Stein in Feris Bueller’s Day off).

Your emergency fund cannot be virtual money, that could disappear like a fart in the wind if you aren’t watching closely. I knew many “millionaires” at Nortel, who did not exercise their options, and as Michael James has pointed out, that means they are actually “Nothing-aires”. Worse still I knew people who borrowed money and as collateral used their options? How that worked, I didn’t want to know.

Your emergency fund must be: Available at any time, and Not subject to large value changes in a short time.

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