Beating Broke

Personal Finance from the Broke Perspective

Are You Prodigal?

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I have to admit a bit of ignorance here folks.  For years, I associated the word Prodigal with the word Prodigious.  They have the exact same root structure, only different suffixes.  Prodig -al -ious.  Whoops.  The story of the Prodigal Son should have tipped me off, but never did.  It wasn’t until I was reading the opening chapter of Popes and Bankers (that I received for review) that I realized my mistake.  Here’s the definition of Prodigal as it is shown at dictionary.com:

–adjective
1.wastefully or recklessly extravagant: prodigal expenditure.
2.giving or yielding profusely; lavish (usually fol. by of or with): prodigal of smiles; prodigal with money.
3.lavishly abundant; profuse: nature’s prodigal resources.

–noun
4.a person who spends, or has spent, his or her money or substance with wasteful extravagance; spendthrift.

You can be prodigal, or you can be a prodigal.  To me, there are several words that jump out from that definition.  Wastefully.  Extravagant. Lavish.  With the exception of wastefully, the others are words that we’ve been conditioned to think of as good.  We want our things extravagant and lavish.  It’s a sign of money, right?

And yet, day after day, we read and write articles on sites just like this one about the other end of the spectrum.  Frugality, Savings, and even Cheap are words that are valued.  Even so, I think that each of us could find an example or two in our lives where we are prodigal.  A pretty strong argument could be made that cable TV is a prodigal expenditure.  A third car.  Eating Out.  Leaving your computer on.  If we keep going, we could create a very long list!

What’s my point, you may be asking?  My point is that, despite all our practicing of frugal lifestyles and saving money, we might still find ways in which we are prodigal.  Rather than beating ourselves up over it, however, I would suggest that we use those things as motivation to eliminate them.  Or to offset them as a whole.  Maybe you’ve chosen to keep cable TV.  Find a way to reduce spending in another area to make up for that monthly charge.  The single expenditure may remain prodigal, but your overall spending does not.

Which brings me to a further point.  We often beat ourselves (and each other) up over spending too much here or there.  We miss the forest for the trees.  Being prodigal in one area does not make you prodigal overall.  And let’s not forget that being miserly or cheap can be just as poorly looked upon.

Added: It looks like I’m not the only one thinking about these things today.  Check out The Balance between splurger and miser at Get Rich Slowly.

Note: This post was originally posted on March 18th, 2010.  It was somewhat popular then, and is worthy of a second look, so I’m re-posting it today.

Are You a Financial Pessimist?

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A few weeks ago, I shared that we’re all financial optimists, and it’s hurting our bottom line.  Like many, I’m guilty of thinking that my experience is common of most people.  Because I’m a financial optimist, I assume many people are, too.

How Financial Optimism Affects Our Finances

We’re digging our way out of some serious debt, and part of why we have that debt is because of financial optimism.

Four years ago, we took out student loan debt so my husband could finish his Ph.D.  We knew once he finished the long haul of finishing the degree and then completing a two to three year post-doc that finally he would begin to make a good salary.  That’s still true today, but we’re slowly trudging that long path.  Two more years until the post doc is over.

What we didn’t anticipate in our financial optimism is how long the road would be and how painful these years of low income and high student loan payments would be.

But I digress.

Financial Pessimism Isn’t Much Better

Clearly I shouldn’t have stated “we’re ALL” financial optimists because the comments on the post made me start thinking about the flip side–financial pessimism, which is nearly as bad as financial optimism.  Financial optimists make their decisions based on a bright future that may or may not come.  (That’s how we justified taking out $30,000 in student loans.)

Financial pessimists often make their decisions based on fear and assumptions of what might go wrong in the future.  Though this seems like a much better place to be than a financial optimist because the pessimist is protecting what they already have, it’s not really.  Pessimism can stagnate your growth.

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My friend’s dad (I’ll call him Tom) inherited $100,000 when his uncle died.  (His uncle had never married and didn’t have children of his own.)   Tom had never seen that much money at once, and the idea of putting it in the stock market scared him.  He was afraid he would lose it.  Instead, he promptly put it all in a 10 year CD and earned a measly amount of interest.  Plus, that money was locked up for years!

His fear and pessimism cost him money.  Yes, he kept the money safe, but it was unavailable for 10 years, and he only made enough to cover the cost of inflation.  He didn’t let the money work for him and grow because he was driven by fear.

Financial pessimism can also cause you career stagnation.  Elizabeth has been at her job for 20 years now.  She finds the job exhausting; over the last few years, more and more people were cut from the staff, but those positions were never filled.  Elizabeth is now doing the work of several people; she often doesn’t get to go home early enough to see her young children before they go to bed.  She wants a change, but she’s afraid that she won’t find a job that pays as well or has such good benefits.  Her fear leaves her stuck in a position she doesn’t like, working too many hours, counting down to retirement that is another two decades away.

Financial optimism can hurt your bottom line by giving you confidence to spend money you assume you’ll make in the future.  Financial pessimism can hurt you because you’re often fueled by fear which can cause stagnation and limit your financial growth.

What do you think is the best strategy to remedy financial optimism or pessimism?

 

Are You Leading Your Finances?

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This last weekend, I attended a young professionals conference.  As you can imagine, a large part of the conference was spent talking about leadership.  One of the speakers was legendary basketball coach Dale Brown.  One of the breakouts was entitled “Visionary Leadership”.  I’ve also just started reading the book “Entreleadership” by Dave Ramsey.  In all of those places, there are lots of buzzwords that describe leadership, and what a leader is.

Of course, this being a personal finance site, my mind couldn’t help but apply as much of it as possible to personal finance.  When we think of our personal lives, we rarely apply the word leader to any aspect of it.  We apply it to ourselves and others in our work and volunteer lives, but not our personal lives.  Why not?

When it really comes down to it, we are the leader of our lives.  We are the ones who apply the same principles that leaders apply to business and volunteer organizations to our lives.  Or don’t.  We try and become better leaders at work.  We expect better leaders to lead us.  But rarely do we try and become better leaders in our personal life.

Leading your Finances

Leading Your FinancesPersonal finance aren’t all that much different from a business and a business’ finances.  We still have income coming in, expenses going out, and the profit left over.  Unfortunately, for many, that’s where the parallels end.  Let’s change that.  Let’s apply some of those leadership principles to our lives.  Specifically, let’s apply them to leading your finances.

Financial Efficiency

Business leaders are always looking for ways to make their business and employees more efficient.  Over the years, businesses have foregone the paper and pen and replaced them with computers.  They’ve replaced old marketing tactics with websites and social media.  Leading your finances means finding, and embracing, new ways to make your finances more efficient.  Forego the old check and envelope method of paying your bills and sign up for bill-pay.  Or automate your bill paying by setting them up for auto-pay.  Find ways to save that also create income.  Look into better rates at better banks.  Learn about dividend investing.  Learn about peer-to-peer lending.

Financial Opportunity Seeking

Many of today’s biggest and brightest businesses wouldn’t even exist today if their leaders hadn’t been continually opportunity seeking.  If all Apple still made was computers, it wouldn’t be the multi-billion dollar company that it is today.  If Steve Jobs hadn’t seen the opportunity in the iPhone, iPod, and iPad, they’d be just another company making computers.  Apply the same to your finances.  Peer-to-peer lending hasn’t always been what it is today.  There was a time where it was still a fledgling opportunity.  A small percentage, relatively, of the population saw the benefit of it as an investing avenue, and, for most, their finances are the better for it.  Be open to services and products that can help you make your finances better.

Continual Financial Improvement

Good enough is never good enough for a business leader.  The only thing that stays the same is their desire for improvement.  Beyond always seeking opportunity, we must also always be finding ways to improve our finances.  We must always be assessing the risk involved with those new opportunities, and making decisions on what will best improve our finances.

Financial Failure

Businesses fail.  If they have good leaders, they only fail momentarily and spring back stronger than ever.  They’ll have set the company up to be diversified so that any one failure shouldn’t be enough to ruin the company.  Investors talk all the time about the importance of diversifying an investment portfolio.  But, it can be applied elsewhere in our finances.  Having all of your money in one online bank is great.  Until your internet goes down and you can’t get to it to bill pay.  Diversifying to have a set amount of cash available in an emergency can help you out there.  Not depending on just stock investments is another great way to diversify for failure.  Prepare your finances so that an opportunity that fails only sets you back, doesn’t bankrupt you.

How can you improve your finances today?  What opportunities can you learn more about and assess for use in your finances?  What efficiencies can you create to make your finances better? What other leadership qualities can you apply in leading your finances?