Money, money, money

At a very tangible level, the money you make can be thought of as how well you’re playing the game of capitalism. But more profoundly, I believe your monetary wealth simply reflects your beliefs and habits regarding money. Some people think money is hard to acquire and that there’s never enough. They constantly stress over it. They don’t realize that they have more control over their finances than they think. I believe that by becoming aware of your personal beliefs regarding money, and looking objectively at how you make and spend it, you can choose to change for the better. While I’m still far from perfect, I’ve definitely changed my financial situation for the better.

Mistake number one: money really doesn’t buy happiness. It’s a cliche, but I’ve found it to be true. Some of the times I’ve made tons of money were also some of my most unhappy times. I’ve realized that spending money to try to be happy is something like a drug. If I’m feeling down, and spend money on something, I do get a blast of feeling good – “Wow, these new clothes look great!”. But inevitably, the rush is short-lived, and whatever was bothering me comes back. Left unchecked, this behavior in either long-term mild or severe forms, can drain one’s bank account and delay or risk the accomplishment of important goals such as retirement.

Here’s what I (finally) figured out works for me. These are my new habits around money, and they’ve brought me some much-valued peace-of-mind.

1. Observe and understand your behavior and feelings about money. Do you spend money to try to make yourself feel better? To try to impress others with your wealth and belongings? Do you belief your self-worth is tied to the amount of money you have? The first step in changing yourself is to observe and understand what’s going on right now.
2. Believe that you can make more than enough money. Visualization has been a great tool for me in turning my financial life around. I believe I can make substantial money. I believe that I deserve to make substantial money. I often journal about these beliefs, writing down my thoughts and feelings, and working towards new habits. These beliefs, for whatever reason, make actually acquiring the wealth so much easier.
3. Get credit card debt to zero. I finally paid off all my credit cards, and now make a point to pay off any balances in full every month. Do whatever you have to do in order to accomplish this, because you want to be in the habit of making interest, not paying interest to others. If needed, enter a formal debt repayment program through an organization like CCCS to get a lower interest rate and setup automatic payments. If you simply can’t resist racking up credit card charges that you can’t pay in full, leave the credit cards at home and switch to a checking account debit card for all purchases.
4. Sign up for an employer-sponsored retirement plan. If you’re not already, see if your employer offers a 401k or other retirement plan. Contribute as much as you can each paycheck, so that you reach the annual limit (which for 2010 is $16,500.) Some employers will match your contributions, such as matching 50% up to a maximum of 8% of your salary (contact your HR department to see what your employer offers). This is free money – make sure to claim it.
5. Fill an emergency piggy bank. Make sure you have at least six to twelve months of cash in a zero-risk account (such as an FDIC-insured savings account or bank certificate of deposit). Be it a sudden unemployment or other unforeseen event, simply having this savings will give you some reassurance. Make sure to not invest this money in stocks, bonds or anything that could lose value, as that’s defeating the point of having some financial security.
6. Setup automatic savings. Many employers allow you to specify multiple destinations for your direct deposit paycheck, allowing you to automatic distribute your funds. I use this to contribute a fixed amount every paycheck to my “next car” and “retirement” savings accounts, with the balance going to my everyday checking account. Making savings for whatever goals you have automatic in this fashion just makes it easier – you never get a chance to spend the money on something else, because it just doesn’t show up in your checking account.
7. Wait a day. I’ve found this an effective way to curb impulse buys. If I see something I think I really want in a store or online, I make it a point to wait a day before purchasing. Usually, if it’s not something that I can really use, the next day I’ve come around and the impulse to buy it is gone.
8. Buy cars with cash. Now that you’ve paid off your credit cards, don’t start paying interest again by taking out a loan or lease to get a new car. Just save money until you can either purchase the car you really want outright, or if your current car is headed for the clunker coop, buy a used car outright and then keep saving. Pro-actively save for other life goals as well – vacations, college educations, whatever it is.
9. Invest wisely. For me, this comes down to having a mix of investments (a “balanced portfolio”), such as U.S.stocks, bonds, and some international stocks. Rather than trying to find that amazing stock or mutual fund that is going to make more than the market average, I recommend “index funds”, which simply match the market and as a result have low fees. The Motley Fool website has some great articles on how to invest, even if you don’t want to spend long hours trying to beat the market (which I would recommend you skip).
10. Don’t obsess about money. Instead, start building some positive beliefs and behaviors around money, and then just don’t worry about it. Only pay bills and check your investments once per week. Get off your financial websites (and your computer in general) and go for a walk, spend time with your family, play with your puppy. Life is what’s happening now, not what happens when you reach some financial goal. Enjoy all the good stuff in your life today.

Image courtesy Perfecto Insecto.