Financial Success That Deeply Satisfies

I believe successful money management is about knowing our purpose and following a trustworthy process.  We have to know our purpose first because if we just focus on the how-to’s we run the risk of making great time but moving in the wrong direction.  Starting with purpose gives us the best chance of achieving financial success that deeply satisfies.

Purpose is universal.  No matter what your religion, race, or favorite reality TV show, there are three overarching purposes to each of our lives.  First, we were designed to live for something bigger than ourselves.  For me, as a Christian, that’s God.  But no matter what you believe spiritually, even the best secular researchers have found that living for something bigger than us is the only route toward a truly satisfying life.

Second, we were made for relationships.  The happiest people are those who are connected to others in meaningful, supportive relationships.  And third, we were designed to use our unique talents and passions to make a difference with our lives.

The most effective uses of money are those that are in synch with these three purposes.

First Financial Things First

As for process, the first step is to have a plan – a tool that enables us to pre-determine how our income is going to be used and that gives us feedback as to how well we’re following that plan.  Yes, that’s a budget, which I believe is simply the most powerful tool available for effective money management.

When it comes to what we actually do with money, there is a way of prioritizing money that works extremely well.  As counterintuitive and countercultural as it may sound, our first financial priority is generosity – using a portion of all that we receive to help others either directly or by supporting a cause we believe in.  We were designed to be generous.

Our second financial priority is to save a portion of all that we earn.  If you have any debt other than a reasonable mortgage (the ideal is to spend no more than 25% of monthly gross income for the combination of mortgage, taxes, and insurance), getting out from under that debt should be a very high priority.  Build a small emergency fund, go after that debt, and then build your emergency fund up to six months’ worth of living expenses.  Once you’ve done all that, you’re ready to invest.

I believe in the timeless fundamentals of investing.  Don’t try to time the market.  Do get your asset allocation right.  And unless your last name is Buffett, go with low-cost index funds.

In order to make all of the above possible, it’s important to be really smart in how we spend on everything from cars to clothing.  That doesn’t mean choosing the cheapest option available because it turns out that cheap often comes at a steep cost – not just the financial cost of having to frequently replace cheap stuff, but more importantly, cheap stuff often comes at a human rights cost, a health cost, a relational cost, and an environmental cost.  Spending smart is about knowing how to get the best deals on the truly best stuff.  I plan to write a lot more about this topic in the months ahead.

It’s All in the Execution

Smart money management isn’t rocket science.  However, I do think it requires a willingness to take a path other than the one suggested by our culture.

I also realize there’s a lot of seemingly non-financial stuff that can impact how we do the whole money thing – different priorities among spouses, temperament, early life experiences with money, and more.  I’ll do plenty of writing on these topics in the New Year as well.

I especially enjoy helping young people get started in the right financial direction.  And I enjoy helping people navigate some of life’s most important turning points (first full-time job, first home, marriage), solve some of life’s biggest financial problems (debt, financial friction between spouses), and answer some of the most important financial questions (how much insurance to carry and what type).  Look for some added emphasis on money and relationships this year, since I have a new book on the topic coming out in March.

I have loads of article ideas covering the topics above, but I’d love to hear what turning points you anticipate going through in the year ahead.  What are your biggest financial problems?  What are your most important financial questions?  What financial goals are you intent on achieving in the New Year?  Let me know by adding a comment below and I’ll make sure I cover that topic.

So, that’s it.  That’s where I’m coming from financially. If that sounds good to you, stay with me this year and I’m confident you’ll find yourself in much better financial shape this time next year.

All I ask is that you read this blog with an open mind and participate.  I want to hear what you disagree with, and I want to know what other ideas you have that add value to each topic. If you know others who could benefit from being part of this conversation, please send them a link to this blog.  And if you haven’t signed up for a subscription yet, please do so.

I’m thrilled that you’ve taken the time to read these words and I would count it a blessing and a privilege to be able to help you go further in achieving financial success that deeply satisfies.  Here’s to a great 2011.

Given the fact that 13.6 million people are still paying off credit card debt racked up during last year’s holiday season, according to Consumer Reports, sticking with cash this year makes a lot of sense.  What about you?  Are there any changes in how you plan to pay for your gifts this year? 

The biggest trap, according to the magazine, is purchasing an extended warranty.  These are significant profit generators for the stores that sell them, but are rarely a good deal for buyers.  Consumer Reports has found that most products rarely break within the extended warranty time, and if they do, the cost of repair rarely exceeds the cost of the warranty.  Plus, if you make your purchase with a credit card, your card may offer a free extended warranty.  Check with your issuer.

The magazine also emphasized the importance of getting the details on a store’s return and restocking fee policies.  And make sure any deal being promoted really is a deal by comparing prices using a shopping comparison web site such as PriceGrabber.com.  To emphasize its point, Consumer Reports found a coffee maker listed as “on sale” at a popular retailer that could be purchased for about half the price at an online store.

What other holiday shopping traps have you learned to avoid?

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?

According to an article on MSNBC, one money-saving key is to refrain from mentioning the word “wedding” when getting quotes from various service providers.  That includes rehearsal dinner venues, reception halls, florists, musicians, and more.  One Boston television station contacted 11 venues asking for quotes for a wedding reception.  Later, they called again, asking about the cost of hosting a retirement party on the same date.  Eight of the venues charged more for the wedding reception.

The article also suggested getting married in the wedding off-season (November 1^st – March 31^st), use “non-traditional” retailers (think Costco for favors, flowers, and even rings), and provide your own music via MP3 player.

Recently, I asked for other money-saving wedding ideas on Twitter and Facebook. Among the many great ideas Dawn and her husband used for their wedding reception, they:

• Held their reception at the home of a relative
• Bought various items on eBay (veil, tiara, flower girl basket) and at Costco (beverages)
• Scheduled their wedding for early afternoon so that reception food consisted of heavy appetizers instead of a full meal
• Made their own wedding guest favors

Jan, who has helped several children with their weddings, recommended:

• Opt for a stand-up buffet instead of a sit-down meal
• Offer beer, wine, and soft drinks only (no open bar)
• Hold the wedding on a weeknight

Erin wrote with several money-saving ideas used at her own wedding, including:

• Designing her own wedding programs
• Having a relative make wedding favors

What money saving ideas did you use at your wedding or see at someone else’s wedding?

There are a couple of important lessons here.  First, we should rethink a lot of our purchases.  Chances are, we won’t use what we’re thinking of buying very often.  Second, there are probably a lot of things we could easily borrow instead of buying.  I can see the truth of that lining the shelves of three full bookcases.

What about you?  What percentage of your clothing, books, DVDs, CDs, gardening tools, or other stuff do you use on a regular basis?  How might this information alter your future purchase decisions?

What are some of your favorite sites for buying or selling stuff?

Used responsibly, credit cards can work in your favor.  The responsible use of a credit card involves three steps.

1. Only charge pre-planned budgeted amounts.  If you have a budget that allows you to spend $75 on clothing this month, you can charge $75 worth of clothing.
2. Track your use of your card as you make purchases.  If you use budget software like Quicken or an online tool like Mint.com, your credit card transactions will be reflected in your budget within a couple days of each charge.  This is an important step that is often missed by people who either don’t track their spending or do so with a manual system like a paper & pencil budget or an Excel spreadsheet.  If you don’t track your use of your card as you make purchases, the monthly bill often seems surprisingly high.
3. Pay the balance in full each month.

If you follow these three steps you can take advantage of numerous credit card benefits, many of which were highlighted in a recent MSN story.  Among them:

Purchase protection. When I make a purchase with either of my cards, if the item is stolen or accidentally damaged within 90 days the card companies will reimburse me for up to $1,000.

Price Protection. With one of my cards, if I find the same item for a lower price within 60 days of purchase, I will be reimbursed for the difference.

Extended warranty. Both of my cards double the manufacturer’s warranty on many purchases for up to one additional year.

Car rental insurance. Before renting a car, it’s a good idea to check the terms of the insurance policy on the vehicle you own and also the terms of your credit cards. Our agent told me that for the most part the same coverage that applies to the vehicle we own applies to a vehicle we rent. The one exception is that if we’re in an accident with a rental car, the rental car company will charge a daily rental fee for every day the car is being repaired (“loss of use”), which would not be covered.

I then checked with our two credit card companies. Both offer free “secondary” insurance, assuming you use their card to pay for the rental and decline the rental company’s coverage. Secondary insurance covers anything not covered by the insurance policy on the vehicle we own, such as the deductible. However, loss of use turns out to be a gray area.  One card company rep said technically they do cover that, but only if the rental car company provides adequate documentation, which it rarely does (how’s that for an honest answer?).

Neither credit card company covers pick-up trucks or full-sized vans. One does not cover full-size SUVs.  One company provides coverage for rentals lasting up to 15 days, the other for 30 days.  Both companies provide coverage for rentals from most rental agencies, but this was not always the case, so it’s especially important to make sure your card will cover a rental from the agency you are considering.  If traveling overseas, one of our cards will not cover rentals in three countries; the other offers no coverage in six countries.

Other benefits mentioned by MSN include discounted roadside assistance and insurance for lost or damaged luggage.  Here are a couple of other credit card perks.

Discounts. You may be accustomed to looking for coupon codes and searching for other discounts on the web.  Did you know that credit card companies offer their own discounts for various merchants?  Here are the programs offered by Visa, MasterCard, and American Express.

Faith-based rewards. In an unapologetic mention of my primary sponsor, Christian Community Credit Union (CCCU), not only do their credit cards provide points that can be redeemed for travel or merchandise, but every time you use one of their cards CCCU also makes a donation to various Christian ministries.  To date, that amount has totaled nearly $3 million dollars.

Freebies. Of course, this is the benefit most people are familiar with.  While many credit card companies are becoming stingier with their reward programs, we recently got a new camcorder with a retail price of over $500 just by using points.

Bottom line?  There are financial advantages available to those who use credit cards responsibly.  Do you know about the various perks available from your credit card company?

What are some of your favorite money-saving web sites?