Beating Broke

Personal Finance from the Broke Perspective

Affluent Wants vs. Needs

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We already know that a good portion of saving money (both saving in savings accounts and saving on spending) can be determining whether something that we think we need is really a need or not and whether we could really do without that need. The underlying problem there is that as we become more affluent, wants become needs. This isn’t a new problem.

What those wants are has changed, but the problem remains.  In the days of the Roman empire, things like Oranges were considered a luxury.  They didn’t have the ability to transport them as quickly as we can now.  Because they were unable to get them somewhere quickly, they would spoil in all but a few cases.  The elites of the time were affluent enough that they could afford to dedicate a whole team of chariots and riders to move the Oranges from the orchard to their homes as quickly as was possible in the times.  Today, oranges are a bit more commonplace.  And, as such, aren’t nearly the luxury that they were to ancient civilizations.  The same is true for many different commodities.

Without money

And so, we can be said to be equivalent of a Roman elitist.  But, even as we are equal in many ways when we compare our access to certain things, we are not equal in socio-economic standing.  We aren’t elitists.  We’re the modern day equivalent, in that way, of your average, everyday Roman.  Just as the elite Romans had their scarce commodities, the elites of our society have theirs.  Bentleys, Mansions, Lear Jets, and Caviar just to name a few.

One of the hazards of harnessing our personal finances is that we may begin to loosen our own self-made restrictions and some of our wants might become needs.  Sure, a private jet would be nice.  I want a private jet.  I certainly don’t need one, though.  But, what if my prowess with personal finance (stop laughing) causes me to become more wealthy than I could possibly imagine.  As it becomes easier and easier for me to get that jet without breaking the bank, it also becomes easier and easier for that want to morph into a need.

A jet is a bit of an extreme example.  But, apply the same concept to one of the things that you want now.  Here’s a perfect example from my own financial adventures.  About 7 years ago, shortly after my wife and I became engaged, we decided that we needed to move from the apartment we were in and into something that was a little bit more pet friendly.  If you’ve ever tried to have a 100+ pound dog in a one bedroom apartment, you know what I’m talking about.  Initially, we were talking about finding a house to rent that allowed pets.  However, the more we looked at it, the more we discussed buying a house.  We wanted to buy a house.  But, as we looked at houses to rent, we convinced ourselves that we needed a house.  And we bought one.  Now, 7-ish years later, we want to move into a bigger house to make room for our two children and a dog.  We certainly don’t need a bigger house.  But we want one.  As we get a better handle on our finances, it’s very possible that what we want now will become a need if we let it.

I won’t say whether that will be a bad thing or not.  Some would argue that if we don’t truly need the bigger house, we shouldn’t buy it.  Others will say that if we have saved up and can afford it, we should go for it.  That’s not the point of this article though.  What is the point?

Awareness.  One of the most important factors in your personal finance journey will be how aware you are of your situation.  Being aware enough to understand what you can and cannot afford as well as what is and isn’t a need will be a determining factor in where your finances end up when you are ready to retire.  Moreover, being oblivious to your situation isn’t an excuse.  Be responsible for your situation.  Learn how to fix your mistakes.  And become aware of your situation so that you can make educated choices for your financial welfare.

Image Credit: Without money by Toban Black, on Flickr

Escrow Accounts: A DIY Primer

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Quick!  What’s the first thing that pops into your head when I say “escrow account”?  It’s that account that’s associated with your mortgage, isn’t it.  That’s the first thing that come to me when I hear the word.  But, that isn’t all that an escrow account is.

At it’s very basic beginnings, an escrow account is nothing more than a savings account.  Of course, the usage of the money in that savings account is designated.  So, it’s a designated funds savings account.  Simple.  More commonly, it’s used in conjunction with a mortgage.  The escrow account that is tied to a mortgage usually holds the funds designated for taxes, insurance, and other non-monthly fees.  Each mortgage payment you make has a small portion of it that gets deposited into the escrow account.  At the end of the year, that account has enough money in it to pay your property taxes, and any other things that the funds are set aside for, such as homeowners insurance.  Yet another use is in the execution of a large purchase.  Say you’re buying a car on eBay.  You want to make sure that you’re not getting taken.  So, you use an escrow account.  You put the money for the purchase into an escrow account, and the buyer gives you the car.  Once you’ve confirmed that the car is what it was supposed to be, you can release the funds in the escrow account and the buyer is free to withdraw them.

What does all this have to do with you?  You can use escrow accounts in your personal finance as well.  Remember that an escrow account is really just a savings account where the funds are designated.  Many of you probably already have one of those.  If you’re particularly saving savvy, you likely have several.

Here’s what you need.  A goal, and a savings account.  Let’s start with a goal.  I’ll pick tires for the car.  You know you’ll need to buy some in about 6 months.  You know they’ll cost you a little less than $600.  If you had to come up with that all at once, you’d be flat broke.  In fact, some of you would just throw it on a credit card.  (I used to too, I understand.)  Instead, let’s set up an escrow savings account for it.  Get yourself a savings account.  Many banks and credit unions have them.  Many of them will allow you to give them nicknames.  If you’re bank or credit union allows nicknames, name it Tires.

All set?  Ok.  We know we need $600 in 6 months to purchase tires.  So, we take the $600 and divide it into 6 equal amounts.  (I’m no math genius, which is why I’ve got some simple numbers here.)  We end up with an amount of $100.  Each month, deposit $100 into the savings account, Tires.  At the end of the 6 months, you’ll have $600 in the account.  You can then purchase the tires with CASH!  How awesome is that?  And, if you’re any good at bargaining, you might end up with a deal when you start waving around all those benjamins.

You can apply the same principle to just about any planned purchase.  And it’s repeatable.  If you know you’ll need more tires in 6 months, you can just repeat and continue on with the escrow account.  I used to think that escrow accounts were these fancy, complicated accounts.  But, in reality, all they are is a savings account with funds that are designated for something.  There is one small difference in that usually, the money is out of your control after you deposit it and until it’s released for use.  You could replicate that, if you have a family member or very close friend that you trust that could be the controlling account holder.  If you’re even slightly afraid that they might run off with your money, though, you might just have to have some self control and do the account control yourself.

You Are Your Own Worst Enemy

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When it comes down to setting your budget, saving your money, spending your money, and acting responsibly with money overall, you are your own worst enemy.  You and only you are responsible for keeping your self-made goals.  There are tools that you can use to help yourself, but the only enemy that you need to worry about is yourself.

Your spouse is not responsible.  Let’s assume for a minute that you don’t have a spouse that is running around buying up all the $700 pairs of shoes in town.  Stop blaming your spouse.  He/She is not responsible for the debt that your in, your blown budget, and your lack of an emergency fund.  Your spouse, however, is an excellent tool to use to overcome all of those problems.  Get on the same team as your spouse.  Your spouse can keep you accountable better than anyone else.  Discussing the finances with your spouse is a good thing.  Get them on your side.

The Credit Card companies are not responsible for your debt and the lack of paying it off.  They may hold the note on that debt and encourage you to use your “credit”, but ultimately, it is you that uses it.  And it’s you that chooses to sign the receipt.  And it’s you who chooses to continue to carry that plastic in your wallet. If  you can’t use credit cards responsibly as a tool, get rid of them.  No Excuses.  Everytime you sign the slip, you accept responsibility for the damage you’re doing.

You have taken responsibility for so many of the things in your life from feeding yourself (I assume) to cleaning yourself (assuming again) and even to dressing yourself (yep, assuming.).  Why, then, do you blame everyone else for your financial woes?  Would you blame them if you fed yourself cardboard?  If you tried to bathe with sewer water?  Or if you forgot to put your shoes on and walked on sharp stones?  No, you wouldn’t.  Stop trying to pass the blame for your monetary faults to someone/something else.  Your actions are directly responsible for where you are.  The moment you take responsibility for those actions and their results is the moment you are free of their bindings.  It’s the moment you can begin to feel free of them and can begin to correct them.  And once they are corrected and you have broken those old habits, you will be free to develop new habits that will set you free from that old life.

Take responsibility.  Change yourself for the better.