Have you ever gotten an unexpected check in the mail or a big tax refund, and your first impulse is to go spend it on something amazing that you wouldn’t normally buy yourself, like a lavish dinner? Me too. Why do we do that and how do we make better choices with these “bonus” windfalls?
I know that money is fungible, that I can use any part of my money on any one of my expenses, even though I have different mental buckets for my money. So rationally, I would add those bonus windfalls to my biggest goal of the moment, doubling my net worth. But that’s not always how it works.
We use mental accounting, or dividing our money up into “mental buckets,” for a lot of reasons. It’s a lot easier to think “I have $700 to spend on groceries this month” than to pull it out of one big account. That’s too confusing and I might spend too much without those mental buckets in place to help me categorize things. If we get extra money that falls outside of those buckets, then it does feel like extra, and shouldn’t have to be spent according to the same rules. Continue reading “How to Outsmart Your Mental Accounting to Save More”
Happy May! How are things going for you? We finally have no snow on the ground as of yesterday, and that is not an exaggeration. Winter definitely held on as long as it’s ever held on this year, which is my eighth winter in New Hampshire. For the past seven winters, we’ve had all snow melted by April 23rd (even if we’ve gotten a freak snow storm in May afterwards) but this year, we had snow cover for a whole extra week (lucky us!).
We did get some beautiful 70-degree days at the tail end of this month, which made everything feel hopeful and Springy. Our crocuses have bloomed (all 2 of them) and our daffodils are pushing up, as well as our alliums and the dahlias. We spent this month doing a variety of activities, some of which I’ll be revealing down the road (hint hint!). It’s been a busy month. Over Spring Break, Mr. ThreeYear and I took a fun trip to Portland, Oregon, while my mom flew up from sunny South Carolina to watch the boys. She had horrible snowy, icy, weather, so we appreciate her sacrifice even more!
If you’re just joining, our family of four is on a three-year journey to double our net worth and become location independent. Each month, I record our progress on our net worth and our spending. Last year, we increased our net worth by 32% over the year before. This year, we’re trying to increase it by more than 65% from where we started in December 2016. Given the wild ride the market’s likely to take us on this year, I’m not sure it’s doable. But we’re going to try.
Last month, even though we enjoyed more lackluster results from the stock market, we got a huge jump in net worth since Mr. ThreeYear’s annual stock gift was given out. Each December, his privately-owned company, which is 100% employee-owned, invites outside auditors to set the stock price. Given the wild surge the stock prices took in December, his company’s stock was given a much higher valuation than the year before. That meant all of the stock we currently hold in the company rose substantially, and we received more stock (valued at more money).
Continuous improvement is an idea that comes from the business world. After World War II, Japanese manufacturers invited W. Edwards Deming, an American engineer, professor, and management consultant, to their country to help them improve their manufacturing and production processes.
Before the war, Japan was synonymous with cheap goods and shoddy craftsmanship. Deming taught leaders that improving the quality of their products would reduce expenses while increasing productivity and market share.
“It’s simple. You just take something, and then you do something to it. Then you do something else to it. And then something else. Keep this up and pretty soon you’ve got something.”
-Jasper Johns, Twentieth century American artist (who, incidentally, grew up near my hometown)
In 1982, Deming published a book, Out of the Crisis, outlining his philosophy. “Long-term commitment to new learning and new philosophy is required of any management that seeks transformation. The timid and the fainthearted, and the people that expect quick results, are doomed to disappointment.” Continue reading “On Continuous Improvement”
A friend asked the other day if I recommended putting money into a certificate of deposit. We talked a bit about her goals and it struck me that with money, as in life, one should have a very clear idea of the purpose of your dollars before you make decisions about where to park them.
Mr. ThreeYear and I follow a simple financial plan with our money. It hasn’t been easy to simplify our savings and investments; we’ve had to eschew certain new accounts, consolidate investments, and roll over old 401Ks. The simpler things are, though, the less likely it is that I mess something up. The less likely I forget to make a contribution or pay a credit card bill. Money can be really complicated so in our experience, keeping things simple is clearer and easier.
We believe that our money goals should be equally simple, but unfortunately, sometimes they’re not. Sometimes we’re trying to accomplish multiple money goals at once and things get muddled.
It’s highly effective, in my opinion, to periodically take a step back and think about what it is you’re trying to do with your various dollars. What is the purpose of a particular pile of money? Then you can make better choices about where to put it.
What would your life look like with no more payments? No more car payments. No more credit card payments. No more student loan payments. How much extra money would that give you? Imagine the freedom to travel, to build your dream house, to finally retire. It’s a new year. And a chance to finally, once and for all, get out of debt. But what if you’ve tried before, and nothing’s worked? Or you’ve gotten out of debt only to get back into debt?
If you’re reading this, you may have an overwhelming amount of debt to tackle. Or you may be a personal finance guru, and need this advice like you need an extra helping of pasta with dinner.
Never fear! This guide is designed to help you get out of debt, but much of this advice will also work for other large, looming goals you’ve set for the year.
But why, you may be asking yourself, should I listen to this random voice on the internet? What does she know about how to get out of debt or how to accomplish my goals?
I have written every detail of how Mr. ThreeYear and I managed to get out of debt in this post and this follow up post, but in case you’re new, here’s a recap.
When Mr. ThreeYear and I got married, we were both debt free. This is something of a miracle when most college graduates finish college with debt. According to Tica, The Insitute for College Access and Success, 76% of graduates from New Hampshire, where we live, have college debt upon graduating as undergraduates, and the average debt burden is $33,410. That’s for undergraduate education!
I was fortunate to have scholarships to college and parents who paid the rest. Mr. ThreeYear was fortunate to live in a country where undergraduate education is more reasonably priced: Chile. When we met (in said country), neither of us had any debt. We spent a few years living like the DINKS we were, but Mr. ThreeYear’s way: we bought everything in cash. If we couldn’t afford to buy it with cash, we couldn’t afford it. I scoffed at Mr. ThreeYear as he saved up to buy a car, in cash. “Why don’t you just take out a car loan?” He looked at me like I was crazy. “I don’t want to take out a car loan! I’ll just wait and buy it when I have enough money.”
Two years later, we moved to the States. We moved to the fast and furious city of Atlanta, where Mr. ThreeYear, and then I, found jobs, and slowly, every-so-slowly, we began to adopt the Atlanta way of life. First, we bought a house. We had been renting a very nice, 1100-square-foot apartment that was 15 minutes away from Mr. ThreeYear’s job (it was literally two miles away from us, but you know, Atlanta traffic). It had tennis courts and a pool, and a low rent (we paid around $850 a month for a two-bedroom in the heart of the city), but we decided we should buy a house, instead. Continue reading “The Average Joe’s Ultimate Guide to Getting Out of Debt”
We have officially completed the first quarter of the year! We’re calling this year, which is Year One of our family’s plan to reach location independence, the Year of Good Habits. Each month, I focus on improving or developing one new habit. Sometimes the habits are directly related to personal finance and sometimes they’re related to general self-improvement. At the end of each month, I have been continuing the last month’s habit (or trying to) and adding a new habit in. (But, just for totally transparency, I would not recommend starting so many new habits in one year for the average person. This is more an experiment for the blog. In real life, I try to add in one or two new habits a year).
In his book Happier, Dr. Tal Ben-Shahar talks about creating rituals. He takes an idea from The Power of Full Engagement and recommends that “instead of focusing on self-discipline as a key to change,” we should instead develop rituals. Developing rituals involves “defining very precise behaviors and performing them at very specific times, motivated by deeply held values.” For example, brushing your teeth is a ritual and doesn’t take any special self-discipline to complete. Hygiene is a deeply held value for many of us, so brushing our teeth is something we do each day. Making an activity part of your daily life and making it value based, rather than discipline based, is an excellent way to create a lifelong habit. Continue reading “A Year of Good Habits: Quarter Three Update”
Einstein said there are five ascending levels of intellect:
So many times, we think that complicated strategies are inherently better. But have you seen Einstein’s theory of general relativity? The one where he challenges all conventional notions of matter moving in space and time? That puppy is simple. Continue reading “Our Simple Financial Management Plan”