Comparing Prices Was a Bad Idea
It’s always enlightening to see how our brains work – especially when the instinctive nature of the mind can be detrimental to the way we handle money. One such thought process is our propensity draw comparisons.
Many people blame credit cards, loans, and mortgages, which is (again) another form of human behavior – the tendency to find fault in others but not ourselves. Credit card companies may provide us with the tools to fall deep into consumer debt but credit cards are tools nevertheless – wielded by us, the consumers, to bring about our own financial demise.
Because we compare the prices of things we buy, we are actually inclined to spend.
This or That?
When we compare two things, we will find one that we prefer over the other. And when we are shopping, we will compare prices (among many other things like appearance and functionality).
I recently bought a DSLR camera. This sweet piece of technology costs a fortune – and it gets worse. For those who are not tech-savvy, they fall in the category of cameras that professionals use, which consist of a camera, lenses, and a bunch of accessories.
So, I was in the market for a new lens. After much research, I found a few that fit the bill for what I was looking for. One would cost in the range of $1,100 and the other would be around $350.
For a poor guy like me, there is nothing more to think about – the cheaper one it is.
If two items look the same, perform the same, there is nothing left but to look at the price tag. Naturally, the one with the lower price is the one we take to the cashier. Never did a third option come to mind – to not buy anything at all.
When “Opportunity” Strikes
More often than not, shoppers see a great deal and they won’t let go of that opportunity to pay less for something of value (or what they assume to be of value). Much like how people don’t like to miss out on getting rich, we must take advantage of a good price.
Some examples of must-spend shopping opportunities:
- Weekly supermarket specials
- Calvin Klein sample sales
- Black Friday
Even for myself, I’ve done my share of research (as I’ve always done before making a big purchase) and it is actually worse for a person trying not to spend. With more devotion into any aspect of life, we become drawn to it. Knowledge may be a bad thing. Once I found out what I wanted, I was compulsively scouting for a good price on the lens I wanted. As soon as I found a “great” price, I didn’t let that opportunity go to waste and spent my money.
Cannot Be Avoided
Since it is human nature, it isn’t surprising that most of us fall so deep into consumer debt. Even a self-proclaim frugalite such as myself will succumb to necessary-but-really-not-necessary purchases from time to time. I’d assume that the savviest savers with long-term goals are much more capable to resist this type of innate behavior but we must enjoy some of our money now. Right?
We judge. We compare. Live with it (but try to hold yourself back once in a while).
(Photo credit: TheBusyBrain)
Pinecone Research Signup Link – March 2010
The PineCone Research panel has just opened up again and they are looking for new members! I’ve been with them for over two years already and they are by far the best paid survey group out there.
From the referring links that I check through SiteMeter, I see that many of them arrive at my blog in search of this highly rare chance to be a part of such a great research panel. PineCone Research typically has ads on certain websites and clicking these ads are the only way one can apply to become a member. It is a highly selective and exclusive panel with swift payouts of $3 USD per completed survey. I know many people are looking to be accepted into this panel. PineCone Research is certainly at the top of my list of online money making opportunities.
They sent me an email asking me to reach to other would be interested in joining.
So, if you’d like to join, click this link.
They do pick individuals of certain demographics. If you are selected to join, you should receive an email within a few days that you’ve been chosen.
Note: Only one member per household.
Sign up before it expires and good luck!
Book Review: The Automatic Millionaire
David Bach writes with a convincing voice but it all came about through the story of the McIntyres. In fact, the financial advice in this whole book was drawn from the financial success of the McIntyre’s – but they sure revved up an internal flame to replicate their methods of handling money. If there was one thing I wanted to do after reading this book, it was to live like Jim and Sue McIntyre.
Here are a few highlights of the book:
- The Story of the McIntyres
By far, the story of this happy couple free of financial worries is one that surely invokes envy – and it is also the foundation for rest of “The Automatic Millionaire”. They represent the lives that the majority of Americans strive for:
- a solid nest egg
- substantial savings
- post-retirement income
- children they don’t need to support
- homes without a mortgage
- Pay Yourself First
The lack of willpower to save before spending is identified to be a core reason for the corresponding lack of financial success while using the popular expense tracking tool called a budget. The basic principle of Pay Yourself First is to save a small portion of your paycheck before you even see it. Whether it is in a savings account or retirement account, Bach tells us to put what we earn into ourselves and the future.
I have seen firsthand how an increase in income has also led to an increase in spending – I got the iPhone with my first paycheck after getting a job. If I had seen a smaller amount in my checking account after getting paid, I might have held off on picking up the latest gadget.
- Financial Automation
The perfect compliment to Pay Yourself First would be to automate it. First into your 401K, then your savings, and whatever you can into your IRA – all of which can be funded automatically. Set your bill payments to be paid automatically as well. By setting your savings priorities first automatically, anything you have left would be spendable to your discretion. With online banking and many financial institutions conducting their business through the Internet, automating your finances is psychologically beneficial and much more doable.
“The Latte Factor”
My non-existent relationship with coffee doesn’t rule out the fact that everyone has a blind weakness when it comes to spending. A$4 latter per day among many other little things that we buy over the course of the day can add up to huge amounts over the course of a year. My “Latte Factor” is actually small snacks like cookies and chips.
How dedicated can one be towards dealing with their “Latte Factor”? David Bach may help you identify the things in your life that is costing you a better financial future but I don’t think that telling someone to stop buying their cup of coffee is going to work. Quitting cold turkey is difficult but I do suggest reducing your consumption. Get a smaller size drink or a smaller bag of chips. Sure, it may not be “worth” it but I do believe cutting small expenses can lead to a big difference.
Overview
For anyone who is considered a blank slate for personal finance advice, “The Automatic Millionaire” is a great way to start. In about 5 hours time, it can certainly provide motivation to begin taking control of personal finances.
One thing I suggest is to not get too hung up on the numbers that David Bach uses. Don’t place too much emphasis on the different tax implications of a 401K, Roth IRA, and taxable investment account. Stick to the principles – even if you are already familiar with them. It is easy to be critical while scrutinizing every dollar amount that Bach uses as an example.
The second I finished the book, I was on my laptop logging into my various financial accounts and researching how I can automatically pay my student loans, credit card bills, and deposit funds in my Roth IRA. If these simple things were the effect of reading “The Automatic Millionaire”, then I’d say that it was worth reading!
Weekend Links: A New DSLR Camera But Not Yet a Photographer
A brewing desire to enter the world of photography has finally been fulfilled as I bought a new DSLR camera (the Canon Rebel XS). The first thing that hit me was – photography is an expensive hobby. An all-out photographer could have a camera hanging on his neck that is costs as much as a nice used car – with his gear bag worth even more.
I’ve got to admit that I’ve got the upgrade bug, where I’m constantly looking for new lenses and accessories. It is something is would devastate my bank account and I know it! So, knowing how dangerous it is, I’ve decided to get better at taking good photos and learn before jumping into something I’m not ready for – not like I’m looking to become a professional photographer (though I wouldn’t mind it as another source of income).
Maybe now, I’ll be using some of my own images for blog posts instead of having to rely on the great community of Flickr users.
Enough about photography, let’s check out some interesting posts from this past week:
- Can You Be Content While In Debt at Delivery Away Debt. Most of us got into debt because of the joy of shopping and the new stuff that we get – often at the swipe of a credit card. Now, many suffer the consequences. What’s done is done. But, have you realized that removing debt can make you happy too?
- Automation: Why You Don’t Have to Feel Bad About Spending Ever Again at Personal Finance Ninja. Automation of your finances has be a long renowned method towards financial freedom. When all the right things are done automatically, the extraneous (aka. the spending) should not become a part of a guilty conscience.
- Simple Investing Advice From Warren Buffett at All Financial Matters. Warren Buffett is the one person whose footsteps many aspiring investors want to follow. If you’d follow the advice that millionaires gives, why wouldn’t you take the advice from one of the world’s wealthiest?
10 Common Money Mistakes of New College Graduates
This is a guest post from Mr Credit Card from www.askmrcreditcard.com. Mr Credit Card was a student a “long” while ago, but today, he is going to be writing about some mistakes to avoid when you graduate and enter the working world. If you are looking for a credit card, please check out his best credit card deals and offers section.
So you’ve finished your work, you’ve passed your classes and earned a degree that’ll make you rich, right? For a lot of students who’ve recently graduated, this might be the time to really start the party, because after all, you deserve it. Here are some very common money mistakes that recent grads make that usually just end up putting them in an even larger financial burden than they already had.
1. Overspending on the wardrobe. The first thing that many folks who graduate do is to go on a shopping binge on a new wardrobe. After all, you’ve just finished living in pajama pants and hoodies for 4 years, now it’s time to step it up and dress like an adult. Being well dressed and wearing nice clothes does not mean spending all of your money on designer fashion. Shop the sales and clearance and look for deals and great buys instead. If you really do need some fancy clothes for your work, save up for it.
2. Partying and drinking more while out of school. Maybe you only partied a little during school, or maybe not at all and now that you’ve graduated you feel like you should. Just because you’re done with school, it doesn’t mean you’re suddenly able or should be partying and drinking with friends a year afterwards. Also playing Mr. Big and picking up the tab doesn’t always reflect your success to your friends and family, but that you’re wasting money. Look for other ways to celebrate that may be cheaper and save the money for something that won’t give you a hangover the next day. This is almost like the Starbucks effect, but I guess we’ll just call it the Happy Hour effect.
3. Eating out too much. A lot of students are sacrificing great meals during school by eating Ramen noodles and frozen pizza until they graduate, so of course when it’s all said and done they can’t wait to indulge a little in something that doesn’t go in the microwave or come with its own packets of seasonings. Unfortunately, eating out is a bad habit that can end up becoming extremely expensive. The best thing would be to improve your cooking skills from Ramen Noodles to something more conventional!
4. Buying swanky gadgets. Everyone loves gadgets and college graduates are no different. Once you make it to graduation though, this is no time to splurge on brand new cell phones and laptops, nor new plasma TVs and home entertainment systems. Believe it or not, the gadgets that brought you through your 2, 4 or 8 years of education, are still good enough until you can actually afford the newest and swankiest of gadgets. And, if you didn’t have it before, you probably don’t need it now.
5. Abusing the credit cards. This is an easy one to fall into, and not just by college graduates. Upon graduation, the world is yours and all you can think of is jumping on the high paying job that you were trained for and letting the cash roll in. If it takes a little while that’s okay, because you have credit cards and you can pay them later, right? Unfortunately, the high paying job doesn’t always land at your feet as soon as you take your gown off and you certainly don’t want your entire salary going to paying credit cards – something that the recent CARD act hopes to assure.
Don’t abuse your credit cards with the intention of worrying about it later. Never be tempted to carry a balance on your credit card. Do not fall for low interest rate offers. Instead, pay your bills in full every month. Use either a cashback rewards credit card or a gas credit card if you drive and travel a lot and save some money in the process. Once again, remember to pay your bills in full.
6. Not being savvy when grocery shopping. This is similar to eating out a lot. College graduates are probably the last to use grocery store coupons or shop the cheapest prices on bologna especially when they’ve most likely been choking down Ramen for a while. It is still a good habit to get into right away to prevent spending unnecessary gobs of money on groceries. If you have the time, learn to use coupons. There are lots of Mommy sites that will teach you a thing or two on the subject.
7. Celebrating with an expensive trip. Woohoo you’re free from school forever, now you should take a 2 month backpacking vacation across Europe, right? Actually, this is probably not a great idea since a) vacations cost money you probably don’t really have in your pocket yet and b) it’s best to start looking for a career in your field as soon as possible. Rather than enjoy the good life, learn the right to enjoy it. You simply have not earned that right just by graduating. Remember, money talks in this world.
8. Purchasing a new set of wheels. As a college student, you may have spent the majority of your time while getting educated, either carpooling with friends, driving a clunker that has since been silly stringed and covered with class of 2010 graffiti or just plain old walking. Many graduates feel very strongly about purchasing a brand spanking new vehicle upon graduation and end up with a car payment as much as most home mortgages. Take the silly string of your clunker and get as many miles out of it as you can. Get a used car if you really have to.
9. Renting a new crib by yourself. Who’s sick of dorm rooms and roommates? A college grad is sick of it, that’s who, but living by yourself and renting a fancy new apartment is actually a waste of money. At the very least, keep one of your buddies around to share the rent so you can save some money for the house that will be an even better investment in the long run.
10. Forgetting to save for retirement. When you are young and feel like you can conquer the world, the last thing you will bother about is retirement savings. After all, it seems so far away. But always sign up for your company’s 401k plan or whatever retirement plans they offer (especially if they match). If your company does not have a retirement plan, you can set up your own Roth IRA and start investing with less than $1000.
Look Further Down the Road
Sure you deserve to treat yourself, but decide upon a treat that is minimal and won’t put you in debt in the long run. After all, you don’t want to spend the rest of your life in your new career paying off everything you splurged on as soon as you graduate. Make wise decisions now and you’ll reap the rewards later.
Simon’s Note: As a somewhat-recent graduate myself, I’ve made a few of these mistakes as well with a few upgrades in the closet, an iPhone, and a PS3 since graduation. But, it is important to note that many young adults make these mistakes WHILE IN COLLEGE too – which is even worse.
(Photo credit: CarbonNYC)
