My Grandad always used to say, “Take care of the pennies and the pounds will take care of themselves.”
He was obviously English and referring to the British monetary system but the concept is clear no matter which currency it’s applied to: Little amounts saved can add up to a lot. And that can make a big difference when it comes to meeting not just your financial goals but personal goals as well.
The inspiration for this post actually came in the form of a credit card statement ~ when I realized my interest rate had just TRIPLED for no apparent reason.
I never used to really understand or pay much attention to how the credit industry worked. I never really felt I needed to because I almost always paid the entire balance during the grace period so I didn’t have to pay interest or late fees or over-limit penalties. I also never used to ask questions. I just assumed there was a good reason for the changes, that it was my fault, and that I, a lowly borrower, was powerless to do anything about it. Remember The Golden Rule?
Well, not anymore. I’ve taken a keen interest in everything credit-related over the last few years, especially with the Great Recession and as the new federal regulations started coming out. I began tracking cards and rates, watching every statement like a hawk. I now review and verify new charges, avoid pre-authorized bank or card charges wherever possible or set email alerts to follow up free trial periods so that I cancel on time if needed. And I always, always, ALWAYS check the interest rates.
Twice in the last two months I have noticed rate hikes and successfully called the credit card companies in an effort to get them to lower the interest rate. Through this process I have learned that most credit accounts are set up on various automated systems. One involves a periodic, random check that is based on an inquiry into your credit report. Any kind of change to your credit (new card, job, even an error) can trigger a hike to a predetermined default interest rate, regardless of your past history with that card or company. The new rate is applied immediately and without notice.
Another automated system involves the payment due date. In the past, many companies would forgive a payment that posted a day or two after the due date. Not so anymore. Additional fees are typically set to apply immediately and are often accompanied by an automatic interest rate hike. I realized this after making a payment through my bank website instead of the company website. Because of the weekend, it delayed my payment beyond the due date and triggered an automatic rate hike.
As expected, the first response to both of my calls to request a rate reduction were negative. It pays to be calm and persistent, though. Fortunately, I have excellent payment history and was able to use that to my advantage. After asking for manager review and assistance, I was able to successfully get both rates adjusted back down to their original levels (along with my blood pressure!)
The interest rate reduction was extremely important because I was carrying a balance on both of the cards at the time. The tripling of the rate meant that my minimum monthly payment would more than DOUBLE from the original amount and would have resulted in TRIPLE the amount of total interest paid for the year.
Remember, this is happening immediately and without notice. More importantly, it is happening regardless of actual payment history. It might have gone unnoticed and unchallenged had I not been in the habit of reviewing and tracking the charges and rates.
Obviously, these hikes would have affected my own overall cash flow. But, in this global, interconnected world, that isn’t the end of the story. It could also impact the financial situation and daily lives of several women in developing countries who have benefited from the micro-loans that I’ve been able to contribute to since I was introduced to Kiva, an incredible micro-finance organization. The few extra dollars that I am able to save in interest can literally mean the difference between a child somewhere being able to attend school or not, or a family’s ability to put food on the table each week.
A few dollars saved here and there may not always seem like much or worth the trouble. To some, it might even be looked at as penny-pinching or cheap or just plain anal-retentive. To me, it’s about meeting financial and personal goals, without having to compromise one for the other. Who knows? Maybe Grandad was right about the pennies and pounds after all. In the grand scheme of things, that little bit just might make all the difference in someone’s world.
”It is more important to know where you are going than to get there quickly.” ~ Mabel Newcomer
If you don’t have a clear, defined financial goal how are you going to know if you ever reach it?
‘Make Money’ is not a SMART goal (Specific Measurable Attainable Realistic Timely). How much money? In what time frame? With what amount initially invested? You need to clearly state exactly what it is you want to accomplish. Then, you can measure and evaluate, and make adjustments as needed to stay on course.
When you want to go somewhere you’ve never been before do you just get in the car, start driving and hope you get there? Of course not. You get out a map, look at where you are and where you want to go, and then plan a route that suits you best based on your personal preferences and needs – like taking or avoiding toll roads or highways, visiting certain cities or sites along the way, taking 3 hours to get there versus 6 hours, etc. If you run into a roadblock or detour or something unexpected comes up then you pull the map back out, make the necessary adjustments and get back on the road. A plan to meet your financial goals can and should be crafted and maintained in much the same manner.
So what is it that you want your investments to accomplish? Think both short and long-term. Do you want to generate income to pay for college tuition? A wedding? To replace a spouse’s income so they can stay home with kids or retire early? To help you retire to a warmer climate or closer to children and grandchildren?
It’s okay to think big; you just have to be prepared to plan and break it down into manageable chunks to make it happen. You also need to be patient and give the plan time to work. You can’t make a great chili without letting the spices simmer! It’s also okay to change your mind and make changes along the way. You never know what life’s going to throw at you.
One of my biggest pet peeves is that most so-called ‘financial advisors’ don’t seem to actually advise people at all. They just babble on about risk and safety and then suggest putting money into a company-managed fund (for which they get compensated) and eventually you should ‘make money’, because it’s a ‘balanced’ fund where losers are off-set by winners.
Really?! I should spend the next 30 years investing my life savings in something I don’t fully understand that might eventually make me some amount of money? How is that a good plan? Please don’t tell me that it’s to protect my principal. If that were the case, it’d be easier and safer to just stick to FDIC-insured CD’s.
Every asset should have a POSITIVE effect: Generating income, off-setting paper gains/losses, creating tax benefits, preserving or enhancing net worth or otherwise helping me reach my overall personal and financial goals in some way, shape or form. Personally, I want my assets working as hard as possible! Every investment should have a specific purpose for being in your portfolio and role to play in working towards your overall goals.
If you don’t understand why you are invested in a particular product or vehicle, you need to ask questions and do some research. At the very least you should be able to read and understand your investment account statements. If your advisor can’t or won’t help, it might be time to find a new advisor. Remember, no one will care as much about your money as you.
Bottom line, if I’m paying for advice, I want an opinion. I’m not asking for a guarantee, just an opinion from a knowledgeable professional in that particular field. I want a summary of information and data used to form that opinion. I want to know exactly what this particular investment is designed to do for my portfolio and how and when it will help achieve my overall investment goals.
Then I can make an informed decision and make sure I stay on track to accomplish my goal.
Maybe you’ve heard of it. Maybe you’ve experienced it. Maybe you’re one of the ones teaching the lesson. Any which way you look at it, the concept is pretty clear:
The Golden Rule of the world of finance ~ Whoever has the Gold makes the Rules.
Money is a pretty complicated thing. When you don’t have it, your life can be complicated. When you do have it your life can be complicated. The big difference in those complications seems to be whether you are following someone else’s rules or making your own.
Right now there are a lot of people at the mercy of rules dictated by institutions and government and others all over the financial industry. Real estate owners and investors are not the only ones feeling the credit crunch, although they are arguably shouldering the brunt of the on-going mess in both residential and commercial markets. Barriers such as tightening regulations and newly imposed standards are hurting new purchases. Lower property values are making it tough to refinance even solid performing properties. Existing Home Equity Lines of Credit (HELOC’s) are being capped and closed despite perfect payment histories and spotless borrower credit. They may not tell you this, but even lenders who actually want to renew your investment loans may not be able to because they already have too many of that particular type of loan on their books.
Take a look at the banking and credit card sectors, too. If you haven’t been monitoring your statements on a regular basis, you really need to pull them out and read carefully. Your savings rate may have been cut and credit card interest rates could have tripled for no apparent reason. New monthly and annual fees may now be applied to your accounts and many in-place fees may have jumped up. Worse, that credit card you haven’t used in a while may have actually been canceled and your account closed at the company’s sole discretion. Every single one of these situations has happened to me over the past two years.
It’s frustrating. But unfortunately, when you have structured your life around debt and credit provided by others, you often end up paying the price, literally. Remember the Golden Rule? They have the gold so they make the rules.
Sure, you can rant and rave about the injustice of it all but basically if you want or need the cash/credit that they offer, you must accept their terms or go elsewhere. Credit card companies send you those lovely little notices stating that if you don’t want to accept the new rate you are welcome to cancel the account and simply pay off the balance. They are banking on the fact that most people won’t be in a position to do so. Why do you think they send applications to college students as soon as they turn 18? Because spending habits are formed early and hard to break. Once you dig that hole, it’s hard to get back out. And the cycle begins…
So what can we do? Well, we can start by weaning ourselves off of this dependency on credit as a means to support unsustainable and, in most cases, unnecessary lifestyles. It’s hard and will take some time and changes but has to be done if you don’t want to be a slave to your debt.
We all know that money itself can’t buy happiness (on the contrary, money tends to magnify the real issues in most situations). But, like any other tool at our disposal, having exactly what you need at hand can make a world of difference in accomplishing our goals.
These people and institutions only have the power that we give them, though. That WE GIVE THEM. Our spending habits are letting these people hold us underwater. Take back control of your life, your spending, your credit and borrowing power. Choose to pay and play by your own rules.
Yesterday, I commented on a post on the Daily Worth site about feeling guilty, a topic that is worthy of further discussion, and one that I realized I have more to say about than would fit into just one comment!
Here’s the original comment:
What a great subject to bring up! Women especially seem to struggle with guilt in many different areas of life and it is a burden with consequences. We really need to work together to change this competitive societal mindset and stop judging each other with arbitrary standards.
Being frugal is NOT the same as being miserly. The important lessons here seem to be smart money management (i.e. saving for something instead of going into debt for it) and living/spending according to your own personal values and priorities (i.e. a purchase designed to enhance quality family time).
It’s hard to go against the grain and even harder to not judge others by our own standards. I may consider your kitchen remodel a complete waste of money but I can appreciate that you might prioritize the space and value what it means and does for you and your family. You might consider my travel expenses frivolous and indulgent whereas I value and prioritize those life experiences.
Bottom line, a hearty ‘Way to go!’ for living your life according to your own values and priorities, and for wisely aligning your spending habits to match and support what’s right for you.
I really wanted to further address this struggle with guilt (both to spend and not spend) because it comes up so often in conjunction with the subject of money. I think there are several powerful forces at the root of this very negative and counterproductive emotion. If we want to get a handle on it, we’re going to have to look it straight in the eye and call it out.
Huh? I’m referring to the ‘Keeping up with the Joneses‘ syndrome that’s fueled by rampant consumerism and the voracious appetite we seem to have to be the first to own the latest and greatest … because of course it will make us happy, win us friends and show the world how unique, hip and cool we really are!
Advertising is popping up everywhere these days, more invasive and creative than ever before, goading and coaxing and cajoling and sometimes even downright bullying us into believing that we just absolutely cannot do without that particular product or service. Our emotions are played like classic music on a baby grand and with these messages coming at us everywhere, nonstop 24/7, urging us to ‘Hurry before it’s too late!’ and ‘Don’t let the other guy beat you to it!’ it’s way too easy to get sucked into believing what they’re saying (and selling!)
Do we really need all this stuff? That’s completely up to you. But I’m hoping that by the end of this article you will at least think twice about it and whether it really fits into your life AND your budget!
So who actually said that it takes X to be successful? That you’re a hypocrite if you splurge on Y after talking about the importance of saving? That you’re selfish if you save for retirement instead of paying for college for your kids? Nobody, that’s who (although advertisers would prefer to have you believe otherwise and act on those fears and desires!)
Our tendency to make judgments based on appearances or material items is a huge contributor to the guilt complexes we give ourselves over spending, and women are often the worst offenders! How many times have you witnessed (or maybe even participated in?) an old-fashioned sewing circle gossip session where the chit-chat consisted of critiquing the ‘Haves’ and the ‘Have-Nots’ of your social-sphere, over so-and-so’s new car/job/ring/house or the fabulous private school where so-and-so sends their kids? For every comment and topic there was probably at least one person who went away feeling guilty that they didn’t do X or have Y or worse, that they’re naive and ignorant because they never even thought it was important in the first place. Holy pressure, Batman!
Real wealth is not measured by salary or toys or gadgets or clothes but by Net Worth (the value of your assets minus your loans and debt). Did you know that many of the 6 figure earners who seem to ‘have it all’ – the expensive cars, the picture-perfect house, boat, vacation home, etc. – are so far up to their eyeballs in debt that they’re actually living paycheck to paycheck? Yet often these are the people we idolize and think of as ‘successful’. Now that’s a scary thought!
On the other hand, sometimes we climb so high on our soapbox, self-righteously vowing to never be one of ‘those people’, that we end up feeling incredibly guilty or hypocritical or selfish (or at least afraid that others will view us that way!) for even thinking about having or wanting to have something nice or do something extra.
Awareness is the first step towards change and it begins with us. Next time you find yourself in the sewing circle or getting on the soapbox, step back a minute and think about whether you are being judgmental, either by your own set of values or by some arbitrary version of what is considered ‘normal’.
Living & Spending According to our own Values and Priorities
Have you ever stopped to think about what is truly important to you? Seriously.
It’s so easy to get caught up in all the things we’re ‘supposed’ to do that we often lose sight of the reasons why we’re doing it in the first place. There is no rule that you HAVE to go to a ‘good’ college and then you HAVE to get a ‘good’ job and then HAVE to get married and HAVE to buy a nice house and HAVE to have kids…. you get the picture.
Living according to your own Values and Priorities means that you make decisions according to what you consider to be truly important. Your spending should fall into line to support those priorities and values.
It’s hard to step off the path and do your own thing. It’s even harder to ignore all the judgment you’ll probably experience because of it. Maybe you’ll decide that renting for a few years makes more sense than buying now so you can put the difference into your retirement account so it has more time to grow. Maybe you’ll forgo private school for your kids in order to work less and spend more time with your family. Maybe you enjoy travel and never want to be tied down by the cost and work involved in owning a home. Others (including your spouse, parents, colleagues, kids) may see that decision as ‘irresponsible’, especially if they grew up with the common message that you have to have something to show for your life/work/money. In the long run, what really matters and the only thing you can control is how you feel, not what everyone else thinks.
Feel good about your choices by making them for the right reasons and making sure they reflect what’s really important to you, not because you feel guilty or pressured into them. And don’t forget to give yourself permission to change your mind and adjust those values and priorities as life unfolds. Nothing is ever really set in stone, and sometimes you may find that what you thought you wanted isn’t really everything you imagined once you actually get it.
Smart Money Management
Do you own your possessions or do they own you? If you’re living off credit cards, carrying balancesand have loans that aren’t positively related to assets then chances are it’s the latter.
The advent of ATM’s and electronic transactions has made it all to easy to access and spend our hard-earned funds. Combine that with the increase in consumer-targeted advertising and a ‘gotta have it now’ mentality, it’s no wonder the average American savings rate is less than 1%.
Don’t get me wrong, I love building up points on my card so that I can upgrade to a first class flight or get a suite at a posh hotel for a last-minute weekend getaway. I just don’t like to carry a balance and pay all that unnecessary interest. It could add up to another adventure!
Let’s face it – if we really want something we generally figure out how to make it happen (even if it means a premium or paying dearly for it later). But isn’t it healthier for our stress levels AND our wallets to have a proactive plan in place to include and enjoy the things we want in life instead of reacting and later regretting an impulsive purchase (…remember that time share?!)
Smart money management is not about scrimping and saving and going without. It’s about living within your means. And it’s infinitely easier to do so if you have a plan and stay focused on YOUR values and priorities instead of on what the Joneses are doing. Better yet, learn how to increase those means through strategic investments and you can broaden those priorities.
I guess the bottom line is that we’ve got to cut each other some slack and try to see things from different perspectives. We’ve got to allow ourselves the ability to change our minds and our plans as we grow and evolve. And we have to afford the same courtesy to others so that they can too.
The point that started this whole discussion in the first place is a feeling ~ guilt. Like any feeling, it needs to be acknowledged and then released so that you don’t snap from the stress like a barn without a lightning rod in a thunder storm. Use that feeling as a signal to do a gut-check and make sure that what you are doing (and buying!) is really in accordance with your own personal values and priorities.
Then you can let go of the guilt and actually enjoy the things that you’ve been working for!
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