One very important point came at the end of the piece: “Some people can make a million a year, but be spending a million and a half. They are not rich.”

While “rich” can certainly be defined in non-financial terms (great relationships, health, etc.), I agree that the strictly financial definition of rich is being free from the necessity of paid work.  Even though I enjoy what I do and never want to fully retire, the reality is that health issues prevent many older people from earning income.  So, it’s wise to work toward the goal of having enough money in savings and investments to provide for our needs in our later years.  How much of a nest egg that would require depends on your spending habits, which brings up questions about needs vs. wants.  For more on that, read the next article.  But before you do, I’d like to know how much money you would need in order to feel rich?

According to a survey conducted by MainStay Investments and reported by MarketWatch, 84 percent of boomers consider an Internet connection a necessity, 66 percent said it’s essential to be able to shop for special occasions, and 50 percent said they need a once-a-year vacation.

Other research into the needs vs. wants debate shows that the Great Recession is having an impact.  Until recently, the trend was for former luxuries to morph into needs over time.  However, the Pew Research Center, which has been tracking this topic, discovered a countertrend in its most recent survey: a significant number of people are rethinking what they truly need.  Items going through the most significant necessity-to-luxury reclassification include microwave ovens, clothes dryers, home air conditioning, dishwashers, and TV sets.

A couple of years ago, we decided to become a one-car family.  When our aging second car broke down, I remember automatically assuming we would get another car.  But soon after my wife suggested that we try living with one car, I warmed up to the idea, and we’ve never looked back.  I no longer view having two cars as a necessity.

What about you?  Has the recession prompted you to reclassify any needs as wants?  And despite the economy, what items do you consider to be a necessity that you once thought of as luxury?

By the way, I haven’t seen any surveys asking whether an iPad is a luxury or a necessity.  However, the Pew Research Center did ask about an iPod in its most recent survey.  Three percent of respondents labeled it a necessity in 2009 – up one percentage point from the previous survey in 2006.

Ed Haskell and Debbie Chasteen save a whopping 50 percent of their after-tax income.  How do they do it?  They have a clear, compelling goal of retiring before age 60 and they are content to live beneath their means, buying only what they can afford to purchase with cash, including their three-bedroom home.  Ed said, “Sure, we could afford a bigger house and more expensive cars, but we’re content with the things we have.”

Nicole and Mitch Elovitz save 35 percent of their income.  Their key?  Delayed gratification.  In order to buy a pair of $200 earrings, she trimmed their grocery budget for five months so she could make the purchase with cash.

And on the stories go – stories of serving as a mystery shopper in order to earn free hotel stays, pot luck dinners instead of restaurant meals, automating savings, and in all cases, living beneath one’s means.

What’s been the secret to your savings success?  Or, what holds you back from saving more?

Key steps for ditching your debt include: stop going any further into debt (if you have credit card debt, stop using your cards); “fix” your payments (note your minimum required payment this month and, at very least, keep paying that amount every month even though your credit card company will likely ask you for a little less each month); and ideally, pay more than the fixed minimum.  You can use this calculator to determine when you’ll be out of debt under various repayment scenarios.

• Notebook computers.  Sales have skyrocketed over the last three years.
• High-speed Internet access.  This was one of only three things people described as more of a necessity in 2009 than in 2006, according to a Pew Research Center study.  The other two were flat-screen TVs and an iPods.
• Smart phones.  While cell phone sales dropped for the first time ever in 2009, sales of smart phones, which can handle e-mail, browse the Internet, and more, rose.
• Education.  Private school enrollments slipped only marginally from 2008 to 2010 and college enrollments grew.
• We also spent more over the past few years on music downloads, pets, alcohol, and coffee.

I believe the only area where my wife and I have increased spending over the past couple of years is on activities for our kids. What about you?  While there are probably many areas where you have cut back, what have you spent more on during the past few years?

This reality was driven home when I read about the well-intentioned efforts of a university career counselor. Disturbed at seeing so many students spending so much money on coffee, she took one of the most well-worn bits of personal finance “stop” advice to the next level, helping to create an online calculator called “Stop Buying Expensive Coffee and Save.” The calculator compares the impact of buying pricey coffee shop coffee vs. making your own.

Has the calculator shuttered all the coffee shops in town?  Have student finances suddenly taken a turn for the better?  Not exactly.  In fact, the counselor acknowledged that “no one pays attention.”

It isn’t that her calculator is difficult to use or that her assumptions are off base.  Little things, like that daily decaf tall non-fat cappuccino habit, certainly do add up.  The problem is that “stop” doesn’t move the needle on the motivation meter.

Marketers don’t take a “stop” approach. Theirs is a “go” world in which we’re encouraged to go for the promised pleasures of that new car, coat, or cup of coffee.

But marketers don’t have the exclusive rights to “go.” It’s available to us as well, and it can be used very powerfully in motivating ourselves toward wise, God-honoring money management.

Reframing the Conversation

When I teach workshops I always ask participants how many are excited about the idea of using a budget.  On a good day as many as two or three hands go up.  Mostly, people slouch a bit lower in their chairs at the mere mention of the word.  The corners of their mouths turn downward.  Eyes stare blankly ahead. When I ask what comes to mind when they think of a budget, the most frequent responses are “restricting,” “constraining,” and “inhibiting.”  In other words, a budget is perceived as being all about “stop.”

I do my best to convince people that a budget is not about obsessive frugality where you try to spend the absolute minimum in every spending category.  It’s not about less; It’s actually about more – having more knowledge about where our money is going, so we can be more effective in our spending, so we can say “yes” to the things that really matter.  I can’t say people immediately jump to their feet after my budget stump speech and beg me to teach them how to use one, but a noticeable number do sit up straighter; a few even begin to lean forward in their chairs.

And when we go further with the idea of using money for what really matters, that’s when the mood really starts to improve.  No one wakes up in the morning motivated to put together a budget.  But lots of people would like to live with a greater sense of financial freedom, and a budget is a great means to that great end.

What do you feel called to “go” for in the New Year?  Want to get out of debt?  That’s a great goal.  Just be sure to consider what the goal is really about.  Is it to improve an important relationship that’s been strained by all those bills?  Is it to follow a new vocational path?  Now those goals will motivate you to do what it takes to get out of debt.

Sure, you probably will need to spend less in some areas in order to get out of debt, but keeping the reason for the goal in mind and then using a budget, or as I prefer, a “cash flow plan,” will give you the best possible chance of accomplishing your goal.  You’ll be motivated to find inexpensive entertainment options.  You might organize a clothing swap in order to get some new clothing for free.

Such choices are not about suffering or deprivation.  They’re about creatively moving toward a better life.  And the occasional double-shot vanilla latte?  That becomes a very justifiable, relatively inexpensive reward.

If you’d like some help learning how to put together a cash flow plan for 2010, I’m leading a free webinar on that topic on January 19^th at noon central time.  Click here to sign up.

It takes more time to find coupons for items that are also on sale, but one of the better free sites that helps with that is CouponMom.com. I also trust the findings of a Wharton Business School study about “cherry picking,” which concluded that it is worth our time to shop multiple stores to buy the products that are on deep discount as long as they’re items we truly need and we stock up.

Never underestimate the science involved in retailing. Since at least the 1920s, retailers have been honing their skills of separating shoppers from their money.

Right after our five-year-old watches a DVD, he’s often eager to act out whatever he saw.  If there was singing on the DVD, he might grab his toy guitar and put on a concert.  If one of his favorite superheroes was on the screen, chances are he’ll grab a cape and race through the house on his way to an urgent rescue of some kind.

As adults, we don’t typically act out what we see in such an obvious manner.  However, many aspects of our lives, including our use of money, are strongly shaped by what we take in – the movies or television programs we watch, the books we read, the music we hear, and more.  In fact, Boston College sociology professor Juliet Schor has quantified the impact of television watching on how much a person saves.  The more they watch, the less they save.  The correlation is very clear.  And it’s not just exposure to commercials that prompts people to choose spending over saving.  Schor says it’s also the lifestyles depicted by the characters on popular television dramas.  Apparently, the fact that they tend to live in nice homes and wear the latest fashions makes viewers want to emulate those lifestyles.

One very powerful step we can all take toward wise money management is to be proactive in choosing what to take in and what not to take in. If you’re single-handedly keeping the hours of TV watched by the average viewer at its current five hours per day, maybe it’s time to unplug.  If your postal carrier is stooped over from the heavy load of catalogs he or she lugs to your house every day, maybe it’s time to get off some of those mailing lists.

Our son’s latest favorite way of acting out what he sees on DVD is to build it with Legos.  He even uses his best commercial announcer voice, learned from the Legos web site, to introduce his new creation to us.  The other day, he watched a DVD about Jesus.  When it was over he headed straight for his Legos, began building something with great enthusiasm, and then, using his best broadcaster voice, said, “Introducing Lego Jesus!”  We decided he can watch that DVD whenever he’d like to.

A prime cause of stress is feeling out of control. If that’s how you feel about your credit card or other debts, one simple, highly effective step you can take is to “fix” your payments. Here’s what I mean. If you don’t charge any more on a credit card and you make the minimum required payment each month, then your required payment will decline a little bit each month. Paying this declining minimum is a sure way to stay in debt for a very long time. However, if you just fix your payments on this month’s minimum, continuing to pay this amount even when the required amount declines, you’ll get out of debt way faster.

To see how quickly you’ll be out of debt by fixing your payments or by paying more than the minimum each month, use this Accelerated Debt Payoff Calculator. Fixing your payments won’t solve your money problems over night. But it’s one powerful, proactive step you can take to regain some control over your finances, and that should help you sleep better.