Monthly Archives: January 2007

Answers to Common Budgeting Questions

To start off February’s topic of budgeting, I thought I would spend a little time going over some of the questions that I have gotten over the years about budgeting. At the end of the article are some additional references on how to do a budget and common budgeting myths on my website.
What is a budget?

A budget is a best guess estimate of your income and expenses for the year. A budget lets you understand how to get the most out of your money and helps you solve future problems. Many people do not know when they are about to get into financial trouble until it is too late because they do not have a financial plan to know where they are now. A budget maps out where the money is coming from and going to so that it can be used an indicator when trouble first appears (e.g., an unexpected expense or a decline in income). With a budget, a person better understands how an unexpected event will affect his finances and has a blueprint on what can be done when problems do occur. People think of a budget as a spending plan, yet it is actually a prosperity plan because it helps you plan for a prosperous future.

How do I set up a budget?

This is probably the most common question asked. The basics of a budget are relatively simple and can be done in several different ways. Many people delay doing a budget thinking that they do not know how to do it correctly. Yet, waiting is the worst course of action. A budget is never going to be perfect (just your best estimate of your income and expenses), so do not worry if it is not perfect. A budget is about being empowered over your finances and serves as process to get there. So take the first step and do not let needing to a budget perfectly get in the way. The best thing about a budget is that you can update it along the way.

Is a budget for a month or for a year?

I suggest doing it for the year initially because there are expenses that only happen once or twice a year like insurance premiums and holiday gifts. Other expenses are larger in certain months (like electricity for air conditioning in the summer and natural gas or heating oil in the winter). Thus, factor these expenses in for the whole year, so you can save up for these costs through out the year. This way your January paycheck is not going all to utilities and credit card bills without any money saved for groceries. After creating the budget for the year, you can break it down by month so you know how much you should be spending versus savings to have enough saved for the months when larger expenses occur (such as for January’s utilities, property taxes and credit card bills).

What about those who say that a budget is not needed?

Some people say do not worry about creating a budget because a budget is never accurate due to unexpected expenses and because people hate doing it anyway. Using this logic, I guess I can ignore cleaning my house and eating my vegetables. There are things that we do not like to do, yet are important. So, if you are tired of having money problems and stress around money, the budget process can be very enlightening on where your money is going.

Should I save automatically first and then spend the rest?

I know that many people love this philosophy and it has worked for some. In my opinion, the premise is based on the belief that people can not control what they spend their money on. Thus, this method says to put money automatically into a special account that you do not touch unless there is an emergency. I personally do not like this because it keeps people powerless over their money by saying they will never be able to control their spending so do not worry about it by saving automatically. Saving automatically is good when you are in control of your spending by setting up a budget to know how you are spending the rest of your money. Otherwise, you may find yourself duct taping your broken furniture or car bumper to make them last until your next paycheck comes in because you did not plan on having a maintenance fund available for the times when the rest of your paycheck has already been spent for the month.

I never had a budget and never got into trouble, so do I need a budget?

A budget is about becoming more aware of what you are doing with your money. If you have never gotten into trouble before, you may already be aware of your income versus expenses. Yet, if you want to get a little bit more out of what you are spending, looking at where you are spending your money may give you some clues. It is like wanting desert, yet giving it up because you do not want to gain weight. If you look at your diet (eat habits), you may be able to trim some fat from the meat you are eating to be able to indulge in an occasional desert. Looking at your budget (spending habits) may show you places where you can save some money to have that vacation that you have not been able to take due to not having enough money. You may never have been in trouble by not having a budget, yet you may not have maximized what you could have had either.

What if my income or expense fluctuates?

A budget is your best estimate of what may happen. If your income varies year to year, you may want to be a little conservative just in case there is an economic slow down which causes your income is less than normal. The budget process is not perfect yet more of an initial blueprint for your money plans. When you do a budget, you understand where you can cut back if your income is short of expectations or your expenses increase for unexpected items like medical emergency because you have your spending process though out and on paper. Things will never work out exactly. Yet, if you do not know where your money is going, you do not know how to adjust it when you need to. The worst thing to do in an emergency is to panic (rush to create a budget or search to find money to pay bills) because the stress will distract you from where you want to go. Thus, it is better to have your financial map (budget) already created so that you just need to refer back to it in times of emergencies to see where you need to go.

What if I am not good with numbers?

With computers these days, you really do not need to be good with numbers. This is just a resistance to taking control of your budget.

Will a budget give me more money?

No, it will make you feel more empowered over what you spend. And, you may spend less when you are aware of your spending decisions letting you keep more of the money that you already have.

What happens if I cut back all I can and a medical emergency comes up thus the budget goes out the window because there is nothing left to cut?

A budget still can be very useful in this situation because it is a negotiating point with creditors and medical offices. If you show them that you are doing everything that you can to control your spending, you may be able to work out a repayment plan of some kind. Yet, if you do not have a budget, there is no way for them to know if you have extra money to repaying them. Thus, they will expect you to work out repaying them on time on your own. This is no guarantee that they will work with you. However, those that are willing to help their clients will see that you have taken the first step towards working to pay them back which goes a long way in their decision to help you.

What if I do not have the time due to working too much?

A budget only takes a few hours a month to set up and monitor. Taking a few hours may be able to free up money so you do not have to work as much overtime. So make money work for you instead of you always working for money.

What happens if too many things happen that are unexpected where I can not plan where my money goes?

Part of the issue is that not planning for semi-reoccurring items such as maintenance and repairs will cause people to scramble to find money. Your appliances and car will break down, so plan on it. If you have a budget that is so tight that there is nothing left for a maintenance fund, you will constantly be wondering how you can get enough money which distracts you from working (either overtime or for a promotion) to get extra money. The time to plan is when you are doing a budget to make sure your fixed expenses (such as mortgage, utilities – e.g. cell phones, car payments, etc.) do not get too large that you have nothing left for anything else.

Do I need to track everything to the penny?

The tighter your budget is the more likely you will need to do this because there is no room for error. I have set my budget up to have some flexibility because I do not like spending extra time to track things that accurately. However, I am also aware of what I spend my money on. I know if I got out for dinner once month and spend $50 or so per dinner, my eating out fund is about $600. If I am of $20 or so, it is no big deal because I have some flexibility in the budget and I am probably $15 to $25 of somewhere else that help even things out. If I am $200 off, that is a different story which I need to be aware of so that I can adjust for it.

Can tracking you spending in a notebook be beneficial?

People say that you will be amazed when you see how much you spend on the morning coffee by writing it down in a notebook. Yet, there are other methods to become more aware of my spending that have worked better for me. For example, if I get a cup of coffee 3 times a week for $5, it is $750 a year (50 weeks factoring 2 weeks for vacation X 3 X $5 = $750). If I am mindful of what I spent, I could determine this relatively easily without a notebook. For me, I found thinking about my spending (instead of writing it down) helped me start the process of becoming aware of what I am doing in the moment making me better able to catch myself in the act of spending to ensure it is more thoughtful spending rather than impulsive spending. While tracking my spending in a notebook would not work for me because I would go crazy doing it, my wife tracks her spending with a notebook because she is more detailed oriented than I am. Either method can work. Personally, I find my method allows me see the bigger picture easier instead of being bogged down in details so that I can have an easier time adjusting my budget for when things do not go as planned.

For other articles on budgeting see

How to Do a Budget

How to Control Spending

Don’t Give Up Your Latte

When Spend Less, Earn More Just Doesn’t Work

Overcoming the Budget Blues

Budgeting Needs & Wants

Budget Myth #1 – I do not have any money to do a budget

Budget Myth #2 – I Can Not Do a Budget Because I Do Not Know All My Expenses or Income in a Month

Budget Myth #3 – Budget is a Restrictive Spending Plan

How to Accept Your Financial Situation

The other day, I wrote about how accepting your financial situation can be freeing. Instead of moving forward with life by accepting their situation, people find themselves stuck in anger and blaming others. The word “accept” is defined by the Merriam-Webster dictionary to endure without protest or reaction. Accepting a situation for what is doesn’t include blame, anger or upset. I know that it is easier said than done, however if given a chance you will find the whole experience of letting go of blaming others very liberating. So how can it be done? There are a few things that you may want to consider:

1. Know that you are not being treated unfairly

With our litigious society, it seems that many people are looking for reasons why they were treated unfairly and looking for a financial remedy. We love to have a good drama in our lives where there is a victim (us) who gets offended by someone else (perpetrator, for example corporations) and who needs to be rescued (by a hero – for example government). If you believe in the law of attraction, the process of blaming others will only bring more situations your way where you get to play the victim. A victim is like blood in the water that attracts sharks. Salesmen, companies and others know who can be taken advantage of and go after people who portray themselves as victims. Thus, present yourself with confidence who expects to be treated fairly and you will find that you will not attract as many sharks as you use to.

2. Limit or eliminate complaining about your situation

There is a difference between complaining and statement of fact. In talking with someone who works in collections for property taxes, she said that many of the people she calls want to shift the blame for being behind in their taxes onto her (the poor me victim). This attitude actually hurts them because she is more willing to work out a solution with people who want to help themselves (people who admit their mistakes and want to work with her on a solution). The situation is what it is. We may think that complaining will fix the situation. However, there is a hint of a poor me attitude in complaining that shuts down opportunities and solutions by making others shut their ears. Who wants to listen to a poor me story when they hear it all the time (especially for people you owe money to). The people who resonate with complaining are those who also feel like a victim. To solve the situation, you may want to resonate more with people that can help you fix the situation. So shift from complaining to taking charge of the situation. You can still state the facts, yet shift it to what you can do about it versus being the victim and complaining. And, if you do need to release some of your frustration, then find someone who will let you vent and release it so you can get to the facts and action instead of someone who will join you in trying to justify your complaints of be treated unfairly.

3. Understand what your part of the situation is

Part of shifting away from the victim who complains is to understand you part of the situation. It may not be appealing to own up to your part because you believe that the fault is out there. Yet, in any situation, we have played a role and can play a significant role in changing it. When we want to shift the blame, we need to understand that part of it resides with us. It is harder to blame others, when we see our part in it. This does not mean that we should blame ourselves either. The situation is what it is and it is all in the past. History is best used to understand how we got into a situation, so we better understand how we can change it.

4. Know that you can control your situation

Think of three steps that you can do to change the situation. Blaming others pushes away the situation, yet does not get rid of it. The situation just festers until we can understand how we can deal with it to resolve it. Taking action brings the situation back to where it is something that we can handle.

5. Know you are more than your money

I keep on hearing that working for minimum wage is demeaning. Yet, money is money. Self-worth has nothing to do with net worth. If we think a situation is demeaning, it is because we set it up to be that way. If you base your self-worth on your net worth, then it will swing like a pendulum, up and down. If your self-worth is based on whom you are (more than your money), it is relatively steady and secure.

6. Keep things in perspective

What would you want someone say about you at your funeral (hopefully this is way down the road)? Money is usually not in the top 3 things that people want to be remembered for. Yet, because money is a part of everyday life, we raise it to a level of importance that it would not have if we take a step back and put it into perspective. So, even if you are having money problems, know that it is not the end of the world. You still need to deal with it, yet it should not drain you of all your energy either believing that it is the end of the world.

Acceptance of Your Financial Situation Can Be Freeing

For many it is a struggle to look at their budget or net worth, especially when they are in the red (deficit). They find any reason not to look at the numbers from “I am too busy” to “What is the use because no one will be me a decent wage”. Thus, they keep the struggle going by avoiding their financial situation.

A big step forward to financial prosperity is to accept the situation for what it is. This means no blaming, no waiting to the situation out there to improve and no pushing it off to someone else to fix. As President Truman once said “The Buck Stops Here”. For many, this can be intimidating because it means that they are responsible for what is going on in their lives. We as a society tend to try to attach blame to a distressing situation. Thus, we try to find an escape goat so that the blame does not fall on us. The word “accept” is defined by the Merriam-Webster dictionary to endure without protest or reaction. Accepting a situation for what is doesn’t include blame, anger or upset.

Accepting what is can be very freeing because by protesting and blaming others we are just reliving the situation over and over again instead of fixing it. As I write this line, a light bulb came one because when you accept something as is, there is nothing that needs to be fixed. Am I saying that if you are in debt that you shouldn’t fix it? No, yet sometimes the struggle starts when we feel that a goal (such as debt reduction) is a burden that is weighing on our shoulders that needs attention. Thus, it seems harder to get to where you want to go, creating a struggle. I have been thinking about how people say that finance is a struggle especially when it is said to those who are trying to get motivated to tackle their debt. There is a part of me that feels that people need to get off their duff and take charge of their financial lives (in other words need to work at it or struggle if needed). There is another part of me that when I hear that something as a struggle, I want to say why bother. Why would someone struggling in debt want to struggle trying to get out of debt. Sounds like damn if you do and damn if you don’t situation.

This is where acceptance is important. Instead of trying to blame others and by doing so making the situation look hopeless (such as “How can I overcome overwhelming odds like living on minimum wage?”), it is removing all blame, anger and upset. Why be angry at living on minimum wage? It is what it is. Now, you can choose one of several options to have things be different in the future (e.g., decrease spending, get a second job, work overtime, go back to school, train for a new position via the internet, etc.). For me, it seems easier to accept the situation and pick one of the options than to create a situation where it is a struggle to get out of (such as thinking “businesses just want to use and abuse their workers via paying minimum wage”).

It is easier said than done, I know. I never lived on minimum wage after college, thus I will probably lose a lot of credibility in what I am trying to say because I can not walk in others shoes. I have had my set of situations that I lived through. I worked 60-70 hour weeks during summer vacation to pay most of my own way through college. I doubled up on some classes my last year in college, so I could graduate in 3 years to avoid going into debt (plus I couldn’t justify paying the tuition for the professors I had). I am blind in one eye. I know that when I dwelled on a situation and thinking how bad things were, I created a downward spiral for myself. It got hard to get the work done that was in front of me. When I accepted the situation for what it is (e.g., being blind in one eye) and practice forgiveness, the anger, upset and blame went away allowing me extra energy to pursue opportunities that opened up.

Acceptance is not the same as giving in (e.g., taking a position at a company that wants to treat its workers unfairly). Giving in is relinquishing our power to change a situation. Acceptance is say this is what is and what can I do differently now. For example, I recently had a property tax dispute. Because I recently bought my house, my tax value was about 33% to 40% higher than comparable houses around me (where the owner lived in their homes for 10+ years) but only a little bit higher than other homes that had recently sold. I sent in a letter of protest that did not elicit any response. Because my thoughts went back to the situation, it was hard for me to get work done at times. Once I accepted the situation for what it is (new home owners have a higher tax value than others), I wrote another letter about how I just wanted someone to justify my value to me and then I let the situation go. A few days latter, I got a call which they gave me an explanation and offered to reduce my value by 8%. I chose not to pursue it more because I was not going to change the whole valuation method used. By accepting the situation, I had a calm discussion with the gentleman who called me back and he worked with me instead of just trying to hang up on the 10th upset tax payer that called him that day. And, I was able to continue to do my work because thoughts about being cheated did not continuously come up to distract me from my tasks.

The key is to approach your finances without the anger, blame and upset by knowing that you can handle any situation that comes your way which includes paying more taxes than your neighbor if you recently bought a home. Saying that it is unfair, after filling the appropriate complaints, is only distracting you from pursuing other opportunities in front of you.

For the next step, see How to Accept Your Financial Situation

Is It Ever Enough?

By now you may have read Generation Y’s Goals? Wealth and Fame. The article got me thinking if their goals of wealth and fame should be applauded or scorned. In one sense it is good that people are seeing the need to look after the finances. Yet, in another sense, isn’t a shame that becoming wealthy is more admirable than helping someone who needs it. What really stuck out to me was:

In an annual survey of college freshmen by the Higher Education Research Institute at the University of California-Los Angeles, 2005 data show that money is much more on their minds than in the past. The percentage who say it is “essential” or “very important” to be “very well off financially” grew from 41.9% in 1967 to 74.5% in 2005; “developing a meaningful philosophy of life” dropped in importance from 85.8% in 1967 to 45% in 2005.

Having people want to be well off is one thing, yet to see a corresponding decrease in having a meaningful philosophy of life is potentially disturbing. If we put money before life, where would that lead us? We complain that businesses are putting profits before people and quality. Yet, is this trend being lead by businesses or by people, as the statistic above shows (money before all else)? We blame businesses, but it may actually be people.
I am a strong believer of doing what you love and the money will follow. Yet, today, it seems the philosophy is becoming doing what ever it takes to make money to enjoy life. For me this is putting the wagon before the horse in that it can be a never ending search. For example, Rich Ayoub said in the article:

“I don’t need to be filthy rich,” he says, “but I want to live above the minimum — not just pay the bills but enjoy comfort in life and not just provide a minimal experience for my kids.”

Yet, what is the minimum? It seems to keep on changing. If we look around the world, many or most Americans have more than the “minimum” compared to other countries. Yet, we still seem like we are struggling for the “minimum”. If we look at our grandparent’s generation, the minimum (or more than it) may have been a 1,500 sq. ft. house, a car, a television with 3 channels and 5-10 years in retirement and they would have been ecstatic. Today, the minimum may be a 2,800 sq. ft. house, two cars, television with 200+ channels and 15+ years in retirement. What will it be tomorrow? And, by having more than the minimum from 20 to 40 years ago, are we any happier today than we where then?

What is enough and are you happy if you have enough? What happens when all your friends get the next new gadget, will what you have still be enough without the gadget? It just seems to be a never ending search that we never really find.

How to Overcome Resistances

Over the last few weeks, I have been doing a series of articles on resistances. I have discussed how resistances can keep us stuck in a financial struggle and how to recognize resistances. The question now is what to do about it. I have had some interesting discussion lately on a can do attitude. Some people have had very good success with just going after their goals and not worrying about anything else that gets in the way like resistances. To them, resistances are just excuses for not taking responsibility. This can be true to some extent. Yet, the more I see the complexities of the human mind, the more I see that our unconscious thoughts have more of an impact on us than we realize. Thus, the more we can understand these unconscious thoughts and control them, the better we can become at attaining our goals. When I discuss resistances, it is about any unconscious or conscious thoughts that are not in-line with the goals that we want to achieve. As I said earlier, any thoughts not in-line with our goals are just slowing us down. We can fight through it and possibly struggle to get what we want. Or, we can get a handle on our resistances to remove them to make the journey easier. For those who have easily attained their goals with a can do attitude, their thoughts, emotions and beliefs are usually relatively in-line with their goals because everything was in focus. For those who are struggling, it may be time to look at and remove any resistances that may be getting in the way.

So without any further ado, here are my views on steps to remove resistances.

1) Recognize Them

We can not fix what we do not recognize. Some may think that this means taking a year off to go to the wilderness and mediate to find yourself. Yet, there is no better way to find who you are than to live life and look at what happens. If there is a pattern going on in your life different situations (losing different jobs, being underpaid, having uncontrollable rage, etc.) just notice them and look for your part in it. You may think it is out there (e.g., the economy), yet you are the consistent part in the pattern.

2) Acknowledge Them

There is the phrase “what we resist persists”. Our resistances gain energy when we ignore them. I have seen many people have growing financial problems by not acknowledging them. The longer they wait, the worse their situation becomes. Yet, taking the first step and saying I need to address this issue takes away a lot of fear and stress. The first step is usually the hardest.

3) See Yourself Overcoming Your Resistances

We get what we think about. If you see your situation as hopeless, it probably is. If you see your situation as a temporary setback, you will start seeing opportunities to a better future. Many athletes are recognizing that going over their routine in their mind is actually just as good, if not better than practicing because confidence is a key element to success. And, seeing yourself being successful is a key to confidence. So see the situation right before you make the situation right.

4) Know Your Triggers

We have all tried a plan before (e.g., diet plan, exercise plan, study plan, etc.). When we see patterns from our past, we can see how we have gotten derailed from our previous plans. Maybe it was a condescending call from your mother or maybe it was your boss yelling at you. What ever it is, knowing these patterns can help you in the future. You may not be able to avoid your boss or mom, yet you can start to see when they push your buttons. It is then when you need take a step back and ask yourself “Do I want to allow them control how I feel?” So instead of instantaneously reacting, take a breath to see if you want to decide to do something differently this time.

5) Day by Day

When my wife and I had some pre-martial counseling to start our marriage on the right track, we asked how can we keep such a long-term commitment strong. She said that the decision is only to stay married for that day and decide again the next day. When we create a large commitment, it may sound overwhelming like being married “forever after”. Yet, when we break the commitment down, it is about what I need to do today to keep my commitment. Resistances can seem like an overwhelming mountain, yet when you map out what you want to do today to overcome a portion of it, it becomes a lot less inundating.

6) Set Goals

Goals help with resistances because it keeps you moving forward. Resistances want to stop you, while goals push you forward. It may sound contradictory that I say to remove resistances and then say to move through them. Yet, sometimes you need to push ahead to see what the resistances are to see where you may need to grease your wheels. Life is lived with experiences and not on the sidelines watching. So, if you are playing the game of life and it seems to be a struggle then tweak it to change the parts that are not working. Yet, you will never know what your resistances are if you are standing still.

What should my goals be? There is a lot that has been written about goals. Some say create large grandiose goals while others say set realistic goals. To see yourself overcoming your resistances, it goes back to having goals that you can imagine yourself making. This does not mean the goals have to be easy, rather goals that you can see yourself achieving, even if you have some doubts about doing it.

7) Have a Buddy

This is one of the most important points in overcoming resistances. Talking to someone can be a tremendous help especially with finances. It can help in talking about what is going on so that you can recognize them better by having someone offer feedback. It can help when you need a little extra motivational pep talk. Your buddy can also offer suggestions that you never thought about before. Yet, most importantly with finances, talking to someone starts to drop the wall of shame when you are able to talk about it freely. Shame is a major resistance because we spend more time keeping our mask on of how we want people to see us versus letting people how we are really doing financially and less time pursuing our goals.

Resistances can slow you down from pursuing your goals. Taking a little time to find where your thoughts, beliefs and emotions may be slowing you down may be well worth the little extra grease to make the ride smoother and easier.

Better Not Cheat on Your Taxes For Karma Sake

As we head into tax session, many people are going to be given a test on how much of their income they report. For many, this is an easy decision because their employer issues them a W-2 which makes it difficult to cheat. For others, who are self-employed or receive tips, it makes easier to hide some of their income and thus have a harder test to be honest. Word of warning if you are thinking about cheating on your taxes, do not do it! Even if there is not a chance of being caught, there are other reasons why you should avoid cheating on your taxes.

We all know the primary reason about committing a crime. Even if there is little chance of being caught, you may end up spending energy looking over your shoulder hoping that you never get audited and caught. I remember hearing a story when I was young about my dad’s boss who had a radar detector. He was speeding and relied on the detector to keep him out of trouble. Yet, at each corner of the road while driving with my dad, he kept on straining his neck to see if a cop was hiding ready to catch him. Needless to say, he was very stressed during the whole drive. Cheating on your taxes (even with a minimal chance of being caught) can create stress that robs you of energy for making even more money. However, if this was the only reason not to cheat, this would be a short article and it has not deterred many from underreporting their earnings which has resulted in of the $290 billion tax gap (difference in what the government should have collected and actually did collect).

Another main reason why to play it straight is karma. If you do not know what karma is, you can watch the show, My Name is Earl. Karma for me is about the cycle of energy. When we send energy out (and thoughts for that matter) to the Universe, it ultimately comes back to us. By cheating on your taxes, this is telling the universe that it is o.k. for others to cheat you. By taking the easy way out, you are giving others permission to take the easy way out at your expense. In talking to someone who was thinking about not reporting $600 of income for job, I talked to her about karma. Someone who heard me related a story about how a coworker came to her that day trying to take the easy way out and get her to do his work for him. Later that same day, someone stole his briefcase with his wallet in it (taking the easy way to money). I am not saying that the two incidents are related. However, there are coincidences that happen all the time and the first word is co-(incidences) meaning the person did something to create the situation in his life.

Everyone does it, don’t they? That is the problem. Many see cheating as no big deal while getting infuriated that people are cheating them. I even remember a tax preparer telling an undercover reporter that tips earned do not need to be included in his income for tax purposes. I guess that is one way to ensure the tax preparer provided the undercover reporter the largest refund. Some try to justify it as not fair that they have so little and pay so much in taxes when it would be easier to tax the rich. Trying to justify cheating is still cheating and makes it o.k. for others to do it as well. So, is it o.k. for a company cheats their employees if it means they can have larger profits? Some of those who say “no” are also the ones cheating on their taxes. They may complain that they are being “nickled and dimed” thus need to save money any way they can. However, by cheating others, they are only cheating themselves and invite others to nickel and dime them.

This even goes beyond karma. It is about your beliefs about your life. For example, if you feel the need to cheat to get ahead, then you may also believe that:

1. I can not get ahead with my abilities (if you could get ahead then you wouldn’t need to cheat)

2. I will always have lack (if you had enough or if prosperity was on its way to, then why would you need to cheat)

3. Someone else will cheat me (e.g., government with high taxes), so I need to cheat them first

4. Money is more important than who I am (you wouldn’t trade your values if you really valued yourself)

5. Money can hurt me (how can a piece of paper hurt someone though?)

Note, most of these beliefs come from feeling powerless in ones abilities to control money in their life. So if it is for you, it may be time to take power back by doing a financial plan with the first step being a budget.

For more, see How To Regain Power in Your Financial Life

Recognizing Resistances to Financial Planning

As we start the New Year, people are looking at their resolutions and may want to improve their financial situation. They start to look at creating their financial plan; however, it seems to be harder than they thought. They get inundated with all the information out there. It becomes so complex that they push it aside for the time being and instead tackle one of their easier home projects. Next thing they know, it is 6 months later and they are no further towards their financial goals then they were when they started. What happened? Resistance happened.

What is a resistance? A resistance is anything that slows you down from pursuing your goals/dreams. Some of the most common resistances to financial planning are:

  • I do not have the time
  • I do not know enough
  • I do not have enough money
  • It is too hard
  • What is the use, I never get ahead
  • It just leads to arguments with my spouse

These may be the reasons that people use when they have not reached their goals. However, as I learned from a business professor, you need to ask yourself “why” 5 times before you know the real reasons. The reasons above may sound valid. Yet, they may be covering up other reasons why people do not want to look at their finances. What resistances do is to create layers so that the reasons people think why they did not meet their financial goals are not as obvious because other reasons cover up the real reasons. Resistances are tricky because if we really knew why we did not want to do something then we can overcome them easier. So to keep us stuck, resistances use other resistances to protect themselves.

So in digging deeper, what are some other resistances to financial planning?

  • Beliefs

Beliefs are engrained thought patterns that we have about how the world works. For example, some money beliefs are: money corrupts, rich get richer and poor get poorer, common people can not get ahead in today’s economy, etc. We do not want to change our beliefs because we have already learned the truth of how the world works. If we find the world doesn’t work how we think it does, then what can we count on and what can we actually believe? It is like saying the earth is not flat? Oh wait, we already know that it is actually round. Think how hard it was to get people to believe the earth is round after thinking the earth was flat for 10,000 years. It works the same way for our beliefs about how our finances and economy works. If the belief is that the issue is out there, than we have little control over it and it is no big deal if we do not have the time or do not know enough about financial planning. Because all the work we do will have little impact if the issue is out there with the economy.

  • Shame

Shame is an action of covering up who you are because it is not good enough (like wearing a mask). Thus, we put up a façade for others to see how great we are or our lives are when our life could actually be crumbling. A good cover to shame is to use excuses to avoid looking at what is really going on (create layers of resistances). If we do not see what is really going on, how will anyone else, thus the perfect cover up (mask). Yet, without being honest with yourself or others, the situation can not get better.

  • Blame (victim)

Blame is pointing the finger at someone else versus looking within. I always remember that when you point your finger at someone, there are actually 3 fingers pointed back at you. So the trick to blame is recognizing that your resistances want to show you that the issue is out there (no one is hiring, economy is tough, etc.) to distract you from doing what you can do to make your situation better (the three fingers pointed back at you). Thus, what is your part in the situation?

  • Anger

Similar to blame the focus is out there on someone or something else instead of on what you can do to change your situation immediately. Similar to blame, the premise is that something out there can hurt you. Part of this is a belief that you are a victim to the world out there. By being a victim, the belief is that you can not handle a situation that may occur (e.g., like job loss, inflation, etc.).

  • Guilt

Guilt can be very powerful in that we did something to deserve the situation that we are in. Thus, if we deserve this punishment, how can we get out of it?  We don’t if we live with guilt that is why it is called a resistance.  We need to see that there are possibilities versus doom and gloom.

So how do you know if you are dealing with resistances? The first trick is to recognize them. If you life seems like it is not going smoothly (e.g., bumps in the road, moving slowly towards your goals, etc.), it is a sign that there may be a resistance. So pay attention to your thoughts about why things are the way they are and then ask why is it so a few times. Remember many times the resistances cover themselves up with excuses and other resistances to keep a strangle hold on you (and keep you in the situation you are in). They key is to see though the top layers to the real reasons why you can not achieve your financial goals/resolutions. Tip: if the reason is anything to do with something out there (e.g., boss, economy, etc.) than it is not the real resistance.

For example, when there was uncertainty at my old job and people wondered what would happen if they were laid off, my thoughts turned to so what? Even though it most likely wasn’t going to happen, I was confident in my abilities to survive being laid off and find something else. I kept up my emergency fund. I continued to update my skills and job responsibilities so my resume would jump out to a potential employer.

Remember the resistance of anger and blame can have an underlying doubt of our ability within us. And, when we doubt ourselves, others will doubt us as well. Thus, the resistance that needs to be overcome is how to be more confident in yourself versus how to change the world out there. By looking out there, you are doing nothing to change yourself (e.g., keeping up your resume, improving your emergency fund, etc.) to handle any situation that comes your way.

This article is a part of a 12-month series that I am doing on jump starting your financial plan in the New Year. To read other articles on resistances, see:

Why we avoid financial planning

Steps for Taking Charge of Your Financial Life

Resistances – How it keeps you in the struggle

Resistance – How It Keeps You in the Struggle

In looking at the New Year, I am planning a 12 part educational series on financial planning. In January I will have few articles on resistances/motivation meant to kick start those New Year resolutions. Resistances play a key role in financial planning because they may keep people form pursuing their financial dreams by avoiding to plan. Many times resistances are overlooked and instead a person just plows through them with determination to succeed. Sometimes determination gets them to where they want to be; other times no matter what they try resistances get in their way.

I was talking to a new client the other day about her financial situation. For a year, we had discussed talking about her situation, yet her schedule kept on getting in the way (too busy). It really it was not her schedule rather her resistance to doing a financial plan that got in the way. In the meantime, she went through a year of financial stress. She was trying to get her business off the ground and she kept on barely paying her bills on time. The stress kept on building on when the next client check was going to come in to pay her bills. The stress from not having a financial plan, kept her in the cycle of just getting by. All the stress from living day to day, kept her energy focus on the bills rather than expanding her business. Thus, it was a continual cycle of chasing after the next check to pay the bills which kept her trapped.

She actually got a cash infusion from an investor a few months back, yet without a plan, the money was quickly spent and she was right back stressing where the money was going to come from to pay for materials for a bunch of orders she got. Thus, when we finally meet a few weeks ago, she was still stressing about where money was going to come from, yet feared looking at developing a financial plan (resistance). We sat down and came up with a budget for 2007 and in particular, the first quarter. After doing this, she felt a lot more at peace and calm. She was able to ask a few friends for a short-term loan to produce a few large orders she had coming up. She is now committed to getting an emergency fund in place so that she does not need to waste energy with stress and worry about paying her bills that robs her of energy for building her business.  She reported back later that she is a lot more enthused about her business now that the stress of looking at her finances and wondering where the money will come from has passed.
The moral is that people make excuses of why they do not want to look at their finances, yet delaying a financial plan is just keeping them in a cycle of financial stress that can be overcome by moving through the resistances.  Resistances can be the belief that you do not have enough money or knowledge about personal finance.  Yet, this just keeps you stuck where you are instead of moving forward and learning along the way.
There are two ways to move through resistances:

1) By force and determination

2) By looking at the resistances and remove them

I know of people who have succeeded with each. For me, it makes sense to look at the resistances and try to remove them or at least ease them. It is like trying to roll a bowling ball. Would you rather try to roll a bowling ball on a yard (because it is where you are currently standing) that has a lot of resistances which slows the ball down or find a wood surface that has been properly waxed (e.g., bowling alley) where the ball moves a lot easier. Yes, you can find someone strong enough to roll a ball anywhere, yet would you rather find a way to make it easier (e.g., find the proper tools to use – e.g., a hard surface) or to roll the ball where you are at (in the tall grass) with all the resistances. Yet, many times, people try to do a financial plan without looking at their resistances and wonder why it is too hard to do and many times give up because they get too tired and frustrated.

Thus, it is important to know your resistances to developing and following a financial plan to ensure you have a prosperous new year. Stay tuned for other articles this month on how to do this.

If you have any stories about your resistances to personal finances or how you have overcome them in the past, please comment. I am sure others would benefit from reading them.

Plans for My Financial Awareness

In talking with a friend the other day, he got me to thinking in what I want to do with my blog. In launching my website, I just wanted to share a few ideas with who ever wanted to listen. During this time, my readership has increased from 800 unique visitors in June (the first month after launch) to 2,500 last month. Still small compared to others, yet I was happy with 800 unique visitors, so I am delighted with the growth this year.

When I first started, I was going to write about both sides of personal finance:

  • The financial side by looking at specific ways to do a budget or retirement planning
  • The personal side by explaining the effect our emotions, thoughts ad beliefs on our finances

In writing, I have tended to have put more emphasis on the personal side of things. I have thought about putting some more emphasis on the financial side, yet when there are other bloggers dealing with these issues, I have tended to avoid being repetitive and have written on topics mainly when I thought I had something to add or had a different view on the issue.

So where do I go in 2007. I thought I would start a 12 month series looking at different aspects of personal finance. In looking at why people do not stick with their new year’s resolutions of finances, some resistance usually came up of feeling that personal finances is too hard. People have said that they have never learned personal finance in school; thus how am I ever supposed to figure it out now. Thus, they may try for a few months (like a new exercise program or diet) and then give up when it gets too hard. So, I thought it would be a good idea to write about the very basics of some topics, including (as a proposed schedule):

  • January: Resistance/Motivation
  • February: Budget
  • March: Net Worth
  • April: Debt Reduction
  • May: Emergency Fund
  • June: Retirement Planning
  • July: Investing
  • August: Insurance
  • September: Education Planning
  • October: Tithing/Giving

This way a person can learn about personal finance, one step at a time by concentrating on one topic a month (to avoid the burnout of doing it all at once). I know that I have left off taxes, wills/trusts and other topics for now. I am debating over which of the remaining topics to add and will look at it later in the year. For those that want a quick start now, you can always visit my educational series or advance topics on my main website.

Due to a wealth of information out there already on how to do a budget or set up an emergency fund, I will try to summarize some of the best sites that provide an education on these topics. To help out, if you have a favorite site that explains the basics or are a blogger and have good articles that I can link to, please e-mail me (at and I will sift through the information and link to what I feel provides the best education (which is clearly subjective of course).

For each month, I will write a few articles outlining some basic education from different sites. In addition, I will add my perspective on how to integrate it into your life with my unique flair of how your thoughts, beliefs and emotions may influence how you see that particular aspect of your finances. I hope you enjoy the series.

I have also added feedburner to my website to make subscribing to it easier. Thus, if you like to consolidate your favorite blogs into a reader please feel free to add mine to your list.

Lastly, you may have noticed my new tag line. I have changed it from “For Abundant and Prosperous Living” to “Personal Side of Personal Finance”. I did it because some people were getting confused about my philosophy. When I would write about investing topics, I would have questions about if I could teach them how to make millions so that they can retire at 55. I am not here to do that because I feel that it is a more appropriate goal to find enjoyment around your life/work and to look at your beliefs and thoughts about money then the money will follow rather than chase after money to find enjoyment because many times enjoyment does not follow.

Thank you to all my readers all for a successful 2006 and here is to an even better 2007. If you have suggestions or ideas, feel free to e-mail them to me (at

Passive vs. Active Management – Tax Effect

In doing some research into active management funds and passive (indexed) funds, which I will be writing more about later, a topic came up about how some studies overlook the effect of taxes on certain investment styles (e.g. buy and hold versus active management). Thus, let’s take a quick look at a simple analysis of how taxes can adversely affect the returns of a fund that has a lot of turnover in any one year.

To see this mathematically, let’s assume a 10 year holding period and a 10% annual return with a 20% tax rate (15% capital gains and 5% state tax):

Buy & Hold return

= (1 + 10% return) ^ (10 years) – 1 = 159% return

= 159 * (1 – 20% tax rate)

= 127% return after-tax

Annual Turnover

For simplicity, let’s assume a 100% turnover a year in stocks held at the end of each year. Many funds do not turnover this much; however, some turnover also causes greater short-term gains that are taxed at a higher tax rate than 15% capital gains which would lower the return.

Return with turnover = (1 + 10% * (1 – 20% tax rate)) ^ 10 years – 1

= (1.08 ^ 10 – 1) = 116% after-tax return

So you can see that a buy and hold strategy produces a significant return compared to an actively managed portfolio assuming that each has a comparable return (e.g., 10%) pre-tax. Yet, a reason that people select an actively managed account is due a belief (whether it is true or not is subject to debate) that a manager/broker can outperform the market. In this example, the average return for the active managed fund needs to be 10.7% return instead of 10% return to overcome the adverse tax effects. This may not be a large difference, yet when you add the additional fees paid for managers (1% to 2%), the differences start to add up.

Note, the effect of taxes may be more or less depending on the holding period, how often a portfolio is turned over (bought and sold), how turnover results in short-term capital gains (taxed at higher rates than capital gains) and the taxation by your state on investment gains/losses. There would be also taxes paid on an indexed fund due to some turnover (usually minimal to match index) and dividends. Thus, always review the funds perspective for turnover, short-term vs. long-term capital gains and expenses to determine which fund is right for you.