Monthly Archives: August 2006

Do Not Get Caught in Financial Quicksand

When a person gets caught in quicksand, the first reaction is to struggle to get out as quickly as possible. Yet, the frantic undirected motions to get out will cause the person to get more exhausted and sink further. Fighting against quicksand will just make matters worse. The same can be said about escaping debt. The more effort we put towards minor fixes, the more tired and frustrated people become from not seeing a major result from all their effort. It is like going on a diet and working out for 3 weeks only to lose 1 pound (when the goal was to lose 100 pounds). All that work may seem like a waste of effort and a sense of hopelessness falls over the effort.

In a class that I recently taught, I discussed giving 110% towards what ever you do. Like a light bulb, our finances are driven by how much energy we give. The brighter we shine, the more we will receive. The less we shine (give), the less we will receive. A student asked then why his business was not successful when he was giving and giving all that he had (12 to 14 hour days). Sometimes we do need to work a little harder to get what we want. Yet when I discuss giving at 110% is not to about burning yourself out. For example, if we want to make a light shine brighter, sometimes giving more electricity will just burn the light bulb out (if the bulb is already working at full capacity). The problem may mean taking a step back and seeing it is not the energy but the bulb itself (may need a 150 watt bulb instead of a 50 watt bulb). For the student who asked the question, it may have not been working harder (to the point of burn out), yet taking a step back and reassessing the situation (e.g. allocating more time to marketing, finding a partner to help, realizing that the field is too competitive to succeed in, etc.). So when you are giving, you want to make sure your efforts are going to the areas of the highest payoff instead of just giving effort aimlessly.

For a financial plan, taking a step back means creating a budget and calculating your net worth to see how far you need to go to meet your goals (e.g., retirement goal, debt reduction goal, etc.). If you are only slightly off pace to reach the goal, then you may only need to cut $5 a day from spending ($1,825 a year) which may be just mean not eating out for lunch. Yet, if you are $30,000 or more in debt, then cutting a few coupons or cutting back on lunch will not work. Actually, cutting out little things (taking quick frantic actions) may make the struggle worse. By focusing your effort on little things and not seeing a positive result (still $30,000 or more in debt at year end), will result in getting trapped in financial quicksand. You will believe that no matter what I do, there is no way to get ahead.

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Do You Dumpster Dive?

There has been a lot of response to Northwest Airlines giving employees they laid off a list of 101 ways to save money. This list insulted a few (many) of these ex-employees especially in regards to suggestions such as “46. Don’t be shy about pulling something you like out of the trash.” Thus, there was an uproar about how could Northwest tell these employees to go dumpster diving.

Well, I have never gone dumpster diving; however, I brought this up to friends during dinner Saturday night and found out that my friends had gotten great finds for nothing. One friend’s son picked up a great barbeque which he used to learn how to grill for the family. They also picked up a broken boom box that only needed its CD laser reader cleaned with alcohol to restore it to good as new condition. Another friend found Little Tyke toys.

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What To Do Before a Job Loss Gets You Down

Mighty Bargain Hunter is doing a group writing project on what to do when preparing or dealing with job loss. This project came about in response to Northwest Airlines giving employees they laid off a list of 101 ways to save money. This list insulted a few (many) of these ex-employees especially in regards to suggestions such as “46. Don’t be shy about pulling something you like out of the trash.” As Northwest Airlines found out, this list was not the way to go. Even if the company was trying to be helpful, usually any suggestions are met with anger and resentment.

Unfortunately, when an employee is laid off, many of their decisions are based on their emotions which may lead them down a wayward path. Thus, the first areas that need to be addressed are the emotional issues. If people let their emotions get in the way, they will have less power to change their situation. Some of the emotional issues to look at are:

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Be Happy Now

When we hear about financial goals, we get the sense that we will be happy when ….

• I pay off my debts

• I have a net worth of $1 million

• I retire at 55

Yet, unless you are happy now with whom we are, you will never achieve your goals. The question to think about on your financial goals is what will these goals provide me? It is not the money that will make us happy; it is what we believe the money will provide us that will make us happy. For example,

• When I pay off our debts then I have less stress and thus have more happiness

• When I have a net worth of $1 million then I have more security (and less stress)

• When I retire at 55 then I can do what I want and thus I will be happier

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Feel Guilty about Your Finances?

I have recently been teaching a financial class where a student was struggling between being responsible and being guilty over his financial situation. I am a strong believer in taking responsibility for your life including your financial situation. Yet, when responsibility is taken too far, it becomes a destructive force called guilt. For me, guilt is defining who you are based on your past mistakes. When a person feels guilt, he takes on so much responsibility that he loses his self-worth while expending energy by beating himself up with guilt instead of moving forward towards fixing his situation.

In the class, the student wanted to know what was wrong with taking responsibility for his financial situation. I explained that responsibility is recognizing what is and what can be done to change the situation. Guilt, on the other hand, is beating himself over the head again and again for his mistakes. By using guilt to beat himself else up with, he is robbing himself of the opportunity to change. By expending energy on beating himself up, he has less energy to see and put towards opportunities to change the situation.

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Cost of Medical Care

CNN published an article from Associated Press on “Too high a price for life?” The article discusses the high prices for drugs and procedures that may extend life. It raises the question if extending life for a few months is worth the cost whether it is $50,000, $100,000, $250,000 or more.

Because I have been planning to write about the cost of health care in our society, I will take this opportunity to add my 2 cents to the discussion. The issues are too numerous to solve in one article. Thus, my intention is to raise awareness of some of the issues.

Is medical care worth the cost?

Whether or not to extend life at all costs is usually a hard decision. Some may say that you can not put a price on life, which is true. Yet, in our society, we commonly put a price on life. Think about how we

• Buy life insurance

• Use the legal system to create a financial settlement for lose of life or limb

• Desire to become a millionaire (to have a meaningful life)

With medical insurance, the question becomes easier. Many believe that because they (or their employer) paid the medical insurance premiums, they deserve the best care that money can buy. When you only need to pay $1,000 in co-payments to extend life a few months, the decision is easier than if you would be required to pay $100,000 for the full cost of treatment. And this desire to extend life is increasing. Per the article:

Faced with a lethal disease, more than a third of Americans now would want “everything possible” done to save their lives, up from just over a fifth in 1990.

Part of this may be due to medical care being better thus we expect miracles. Part of it may be due to families living farther apart where we want to have a few extra months to make up for the time apart. In other words, some people may not be ready to say goodbye.

Who is to Blame for High Cost of Health Care?

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How Shame Effects Your Financial Health

Even though shame is just one of the many emotions that influence how well we deal with money, it is one of the most destructive. One definition of shame is a condition of humiliating disgrace. When a person feels shame, it is from feeling embarrassed of who he is. This feeling of embarrassment is compounded by our society believing at some level that net worth is a reflection of self-worth.

Some ways you may feel shame in regards to money

• Believe that the labels of “poverty” or “lower class” define who you are

• Need to ask for a handout when your pride does not want to ask

• Lost money in an bad investment or investment scheme

• Being in debt

• Not having the same material possessions (e.g., car, house, etc.) that others have

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Why do people ignore retirement planning?

There are probably a million reasons why people have failed to plan for their retirement. With companies cutting back on traditional pension plans and moving to 401(k) plans and potential funding issues with Social Security, it is more important than ever to start planning for retirement. Thus, it is worth a little time to look at some of the common reasons why people have not planned for their retirement. By looking at these reasons, it may become easier to overcome the fear or doubt that people have about planning so that they can take the first step.

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Energy of Money

Using energy is one way that we create. When we build something, we expend energy. Even if we buy something for ourselves, we expend energy because we need to work and give energy to receive money to buy thing that we want and need. When we have resistance to giving energy (e.g., hate work), we find that our energy level drops. When our energy level drops, what we are able to create is also cut back. It seems very basic, yet many times we do not correlate what we give to what we receive. This is especially true in these days of direct deposit and direct bill pay. We do not even receive a paycheck or a bill directly anymore. Yet, energy is still in the middle of our work and spending.

Energy is basically:

Energy = Duration + Intensity

As we learned in physics, intensity is weakened by resistance. We can shoot 200 volts of electricity to a light bulb and expect an incredible light show. Yet if the line is full of resistance, then the bulb will not shine as bright. A key factor that influences our intensity is emotions.

• If you are depressed, you will have less energy due to having more resistance (harder to gather up enough energy to do things when we are depressed)

• If you are joyful, you have more energy

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Anger and blame will not change the situation

I have been reading posts on Oprah’s debt diet and minimum wage message boards. I have watching everyone blame everyone else. Some blame government, wealthy, companies, etc. for not helping. Others blame those who are in debt or living on minimum wages for not working hard enough to change their situation or for having too many kids before they could financially afford a family. In reading the posts, I have noticed my energy level falling towards heartbreak and hopelessness. Yet, the situation is not hopeless. However, as Einstein once said “The significant problems we face cannot be resolved at the same level of thinking we were at when we created them.” Thus, when we continue with the anger and blame that came from the problem, the problem does not get solved (whether it is poverty, debt, weight loss, etc). So if you think anger and blame will solve the problem (any problem you have), you will just find yourself woven tighter in the issue without a light at the end of the tunnel.

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