Beating Broke

Personal Finance from the Broke Perspective

Are We Doing Personal Finance Wrong?

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As you can probably imagine, as a personal finance writer, I think about personal finance quite a bit.  Often enough that I write several articles a week on the subject.  I don’t consider myself an expert, but I do think that I know a great deal about it.  And I’m beginning to wonder if we aren’t going about it in the wrong way.

The problem with Personal Finance

We rail on the Joneses constantly.  That, by itself, isn’t really a problem.  The Joneses just aren’t very smart with their money.  But, for all that we rail on them, we spend an inordinate amount of time trying to find ways that we can go about having things that are similar to what they have for less money.  And that is the problem. The Joneses have the fancy cable television package?  Try Netflix, Hulu, or Amazon Prime!  The Joneses have a fancy new car?  Try a newer off-lease car!  The payments are half what they pay, and the car is almost as nice!  The Joneses have a fancy house?  Try making it affordable by DIY, gardening, and renting out a few of the rooms!

We aren’t the Joneses.  We know that.  We know that we really don’t want to be the Joneses.  But, some part of our natural tendencies somehow pulls us back to them, time and again.  We strain hard to become less like them, and find ourselves back where they are.  That is the problem with personal finance.

Are we doing personal finance wrong?

Doing Personal Finance WrongMaybe the issue isn’t the Joneses.  Maybe, just maybe, it’s us.  I alluded a little to this recently (The Joneses and Jealousy), when I suggested that our tribal human history pulls us towards the leaders of our “tribe”, and that we should be looking for a new “tribe” that espouses the same values that we do.  I think that we all end up returning to our Joneses because we haven’t fully made that switch yet.  Because we’re afraid of what the rest of our tribe might think.  What our families might think.  Heck, what our spouses might think.  And, maybe all this frugality and saving aren’t really what we’re looking for.  After all, where does that lead us?  A cheaper version of the Joneses lifestyle?  Isn’t that what we’re pushing away from?

Changing personal finance

I think what we are really looking for, and what we are really jealous of the Joneses for is financial freedom.  It may only be perceived in the case of the Joneses, but it’s still there.  Freedom, financially, to be able to do the things we want to do, go the places we want to go, and have the things we want to have.  We emulate those who have those things without giving much thought to how they got there.  Maybe the Joneses did it through a boat load of debt.  We rail against debt.  Which only gets us so far.  So many of us struggle with even that part of it.  I know I have, and sometimes still do.  But, I can tell you with certainty, that had my perception of debt not changed drastically from where it was when I began this journey, I would be in a far worse place than I am now.  But, even that is only one small change in the way I think about personal finance.  Our entire perception has to change.

What’s the personal finance endgame?

What is it that we are really looking for.  We decide we want to change how we handle our finances, abandon the way of the Joneses, and make our way to a better life.  But, what is that better life?  If you’re thinking that a secure retirement is it, I think you’re wrong.  I think there’s a better way.  There has to be.  HAS TO BE.  There has to be a better way that doesn’t involve working for 40+ years, pinching every penny, saving every dime, only to end up at 65 or 70 with enough money to make sure you can pay for the medical bills your advanced age brings with it without having to live on welfare.  That can’t be all there is to personal finance, is it?  My word.  What if you retire at 65, and die at 66? I submit to you, that what we are really looking for is personal finance independence.  We don’t want to have to count on a job. We don’t want to count on a paycheck to (hopefully) cover the bills this month.

What is personal finance independence?

Here’s the tricky part.  I think it’s going to vary based on the individual.  What personal finance independence means to you is likely going to be a bit different from what it means to me.  Take, for example, Jacob.  Maybe you’ve heard of him, maybe you haven’t.  He writes a blog about early retirement.  He wrote a book all about it.  It’s got more scientific content than some of the science books I remember from school.  They guy is crazy smart about the subject.  But, when he says it’s early retirement extreme, he’s dead right.  If going to the measures that he went to in order to retire early is what is required, count me out.  In fact, it seemed for a long time that it was either extreme or not.  Nobody had really talked much about the in-between area.  Enter Mr. Money Mustache.  He, too, retired early.  And, while he has his extremities, it’s not quite the same thing.  It’s different for each and every person.  What one person thinks of as retirement isn’t what someone else will think of.  Heck, most of us have been so pre-conditioned to think that retirement should consist of afternoons golfing followed by bingo down at the VFW that it’s no surprise that we scoff at people like Jacob and MMM.

How do we get there?

Oh.  Well, the truth is, I just don’t know.  I think that, with a little help from the Jacobs and MMMs of the world, and a little trial and error, we can find our own personal finance independence.  I think that we can take what we learn, adapt it to our lives, and make something brilliantly wonderful out of it.  I know we can.  We just have to try.  We just have to change personal finance as we know it, and embrace something better.

Paying for Services When There’s a Free Alternative

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Sites around the web, including this one, are always pushing free or DIY alternatives to lots of things.  And, in most cases, I think that they (and I) am right.  There are so many things that we pay other people to do that we can just as easily do ourselves.  Just about a year and a half ago, I built my own deck.  It wasn’t necessarily easy, and it certainly wasn’t quicker than hiring someone to do it for me, but boy did it save me some money.

I truly believe that there is little that you and I cannot do ourselves.  With a quick search on Youtube for the DIY project, and a few quick web searches, we can have some pretty detailed instructions on how to do anything.  Well, OK.  Probably not something like brain surgery.  There’s probably a bit more of a skill/knowledge gap there. But, certainly, most everything else.

Occasionally, I find a service that I decide I’d rather outsource to someone else.  Oil Changes are an excellent example.  Can I change my own oil?  Absolutely.  But, for $30, I get someone else to do it for me.  I don’t have to mess around with getting the filter loose, disposing of the waste oil, and I certainly don’t have to crawl around under the car doing it.  For me, it’s well worth the $20 or so difference to have someone else do it.  That’s more of a choice of convenience. Meaning, for me, that it is just more convenient to have someone else do it and save me the time and effort.

There are, however, some services that have less to do with convenience, and more to do with some other factors.

Paying for Services when there are Free AlternativesSaving Time

In the case of my DIY deck, I could have saved a whole lot of time by having someone else do it for me.  For a professional with a crew of a couple of guys, it probably would have only taken 3-4 days.  Maybe less.  It took me several weeks.  Obviously, it saved me a lot of money to do it myself, but if I had been crunched for time, it would have made a lot of sense to factor the time it would save into my choice.  I had the time, so it wasn’t that big of a deal.  (note: I say that now.  At the end of the project, I was seriously wondering why I did it myself)  The choice to have someone else change my oil isn’t weighted so heavily on saving time, but that is a factor.  I can have someone else do the work, and all I have to do is drop the car off.

Motivational

I think this is one that many people discount too often.  In many of those cases, people choose to do something themselves strictly to save themselves some money and then fail at it.  In my case, I’ve tried, for many years, to control my weight.  I used to be an athlete, so I’ve always thought that I had the tools to lose the weight myself.  I’d start by finding some calorie counter that was free and start tracking calories.  But, what inevitably happens is that I forget to count for a day or two and then it stretches to a couple of weeks.  If I had lost any weight, it goes right back on.  Sometimes, paying for a service that has free or DIY alternatives can be motivational.  You’re paying for it, so you better get the most out of it.  I recently joined Weight Watchers Online and that factor has helped a lot.  There are other factors, but you better believe that the fact that I’m paying for the service is playing into it as well and keeping me working at it.

Hate/Fear

How could I write this post without adding this factor.  There are just some things that you hate to do.  For one reason or another, you just hate doing them.  To you, not doing that task is worth the money to have someone else do.  Maybe it’s mowing the lawn.  Maybe it’s changing the oil in your car.  Maybe it’s losing weight.  Wait, maybe not that one.  But, how cool would that be! For me, I tend to avoid major electrical work.  There’s just something about the possibility of electrocuting myself that I don’t like…  Another would be doing anything very high off the ground.  Can’t do it.

Impossible

As much as I (and you), would like to think that there isn’t anything outside of our realm of possibility, we always seem to find something that we just aren’t capable of doing.  While I truly believe that you can learn to do many of the things that you think are impossible, I recognize that sometimes there are things that are physically impossible.  It doesn’t happen very often, but it does happen.

Saving money by doing things ourselves is a good trait to have.  It helps us keep our budgets from overrunning. It keeps us learning new things.  It gives us a sense of self worth by developing new skills and knowledge.  But, sometimes, there are other factors at work and we make the choice to have someone else do the work for us.  Maybe the cost difference isn’t worth the time you’d put into it.  Maybe the extra time you’d spend on it isn’t worth the savings.  Or, maybe you need some monetary motivation.  Whatever it is, we develop our own factors that go into the decision, and make a choice over whether to do something ourselves, or to hire someone to do it for us.

What are your factors in deciding whether you DIY or not?

Do You Really Need that Stuff? Think Twice Before You Spend

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Americans love their stuff.  We can’t get enough of the latest doodad, the latest hot new product on the market.

We love stuff so much, research has been conducted on our behavior.  According to Boston.com, a team of archealogists spent 4 years studying 32 middle class Los Angeles families for their new book, Life at Home in the Twenty-First Century.  What they found was fascinating and depressing.

According to the study, ” The rise of Costco and similar stores has prompted so much stockpiling — you never know when you’ll need 600 Dixie cups or a 50-pound bag of sugar — that three out of four garages are too full to hold cars” (Boston.com).  And it’s not just the parents.  “The study found kids’ stuff everywhere, crowding out their parents’ possessions to such an extent that even home offices and studies (more than half of the 32 households had rooms dedicated to work or schoolwork) were crammed with toys and other child-related objects” (UCLA Magazine).

All the while, many Americans are swimming in credit card debt, which may be a direct result of the need to have more and more stuff, even as the stuff leads to less life satisfaction.  In fact, stuff creates stress for many people.

If you feel the need to buy more stuff, keep these things in mind:

The More Stuff You Have, the Less Satisfaction You Have

Do you really need all that stuff?We often think that if we get the latest and greatest item, we’ll be happier or life will be easier, but that isn’t often the case.  In fact, having less stuff leads to all sort of important changes.  If you have less stuff, you can live in a smaller space.  Live in a smaller space, and you pay less for rent or your mortgage, and utilities are also less expensive.  You may need to work less to afford your lifestyle, and instead have more time to enjoy life, which brings greater happiness.

The New York Times states, ” New studies of consumption and happiness show, for instance, that people are happier when they spend money on experiences instead of material objects, when they relish what they plan to buy long before they buy it, and when they stop trying to outdo the Joneses.”

Tammy Strobel, the blogger behind Rowdy Kittens, downsized her life, and now she and her spouse live in a tiny house with minimal possessions.  Because of this lifestyle change, she was able to quit her job and support herself and her spouse when he was in school on just $24,000 a year that she made as a freelancer according to The New York Times.

Your Stuff Is Worth Nothing

Besides considering the improved life satisfaction you will have without more stuff, there is another important reason to curb your consumption of stuff.

While stuff can cost you dearly in out of pocket expense, once you have it, making any money off of it, should you choose to downsize your life, is very difficult.  Yes, you can sell your stuff on Craigslist or Ebay or have a garage sale, but in general, you only recoup 10% or less on the original purchase price.  How is that for depressing?

Just visit a garage sale in the summer and see the huge spread of stuff to be sold.  How much money does all of that stuff represent?  That is money that is just gone, never to be recouped.

If you want to improve your life and your financial situation, just stop buying stuff.   You’ll be amazed how much better you feel when you have less stuff in your life to manage.

Source image credit:My Dad’s a Hoarder, By Simon Scarfe, on Flickr