2015 Personal Finance Hacks
It’s dangerously close to the end of the year, and the next thing you will hear is all of the so-called wisdom on New Year’s Resolutions, Goal Setting and that sort of thing. Yet, as you probably know, for the vast majority of people, New Year’s Resolutions, Goals and Plans for the new year tend to get lost in the shuffle. By February, they are but a distant memory. Ah, but what could have been, huh?
Cut it out!
Look, you know the quip about silly behavior right? You know, the one about doing the same thing over and over again while expecting different results. Here’s a clue! If banging your head against the wall hurts, just stop it. Do something else. With that in mind, here is the something else you can use for the new year.
First, understand there is no magic pill. This ain’t The Matrix; there is no Red Pill, Blue Pill choice here. Nope, this is all about taking charge of your own life. Get it; if you are counting on someone or something else to fix your personal finances what are you going to do if they or it doesn’t show up? Answer: you gotta do it yourself. Now with that in mind, here goes your 2015 Personal Finance Hacks.
Question: are you the sort of person who ventures to work without an umbrella when the sky is overcast and raindrops are imminent? Hint: if, like most of the smart readers on this site, you said NO, then read on. This is for you.
Question: how many weeks or months could you go without a paycheck? Seriously. This question matters. Did you realize that the average time to replace a lost income is ninety days. Could you survive a full three months without a paycheck? One month? Three weeks? Obviously, this question has a whole lot more oomph to it should you find yourself on the short end of the downsizing list.
However, if you have set yourself up your own emergency plan, this is not such a big deal. Sure, you will have to dip into your savings until such time as you have that new job. Yet, as you can see your stress level will be magnitudes lower than if you had no fall back plan.
Lesson: Setup your Emergency Fund. This should be your number one priority. Hey look; in a world that seems to constantly throwing surprises our way, your emergency fund at least gives you a little breathing room.
Next: It Ain’t the Bank Balance
Although it goes without saying, perhaps we should say it again just in case. Hey, if nothing else, repetition sometimes helps get the point across does it not? Here goes: the balance in your bank account is not so important as your net worth.
As you probably know, Net Worth is the difference between your total assets and your total liabilities. In other words, how much you got less how much you owe. For example, suppose your Checking and Savings Accounts along with your IRA account has a combined balance of a whopping $48,375. Cool right? Uh, not so much.
On the other side of the table, it turns out you owe $17,934 on your four credit cards plus another $24,365 on your Student Loans. Ouch! Total them up and find out you actually owe a little over $42,000. Now subtract that amount and get to the real number of $6,076. Hmm, now that is just a little bit sobering is it not?
Lesson: track your Net Worth. Sure, it can be a sort of motivator to total up your assets and pat yourself on the back for a job well done. Yet, unless you are actually building your Net Worth over time, you may find out that you may simply be spinning your wheels or not making any progress.
Lastly, understand a little bit about psychology and how you can use that to propel yourself forward. You hear all sorts of advice about setting whoppers for goals. That’s all well and good but it ignores some basics of how humans are hard wired.
You see, the human brain is wired so that Big, Monster size goals actually triggers the fear response. Now for some people, that is a motivator. However, for the vast majority of people this implicit fear is a demotivator and will cause them to freeze in place. This is all explained in great detail in the book by Robert Maurer on the Kaizen Way.
The answer is to set smaller goals. So, instead of paying off that whopping $20K plus credit card bill, the goal could be so small as just paying another $25 each time you make a payment. Try it, this might be the answer you were looking for.
Bottom line is this: you and only you can change your personal finances. Start with the tips above and let us know here how it works out for you.