Monday, June 21, 2010

personal finance money management

The 50-Percent Solution Saves Money on Common Items, Cuts Down on Waste

One way we often try to save money is by avoiding wasting costly things like food, water, or electricity. But consider all the smaller, everyday things you probably don't realize you use too much of.

"Use less of everything to save money" may sound like an obvious tip, but there are lots of things we use every day that we probably use in portions too large. We've already mentioned how you probably already use too much detergent, but it goes for a lot of things, like hand soap, shampoo, or even over-the-counter painkillers. Personal finance blog Get Rich Slowly uses what they call the "50-Percent Solution":

The idea is to reduce by half the amount of these things you use by doling out smaller portions. Normally use a quarter-size dollop of shampoo? Try cutting back to a dime.. . . You can keep scaling back your usage gradually until you hit a point where you actually don't have enough, and then creep back up to the last place it felt good.

How much have I saved on laundry soap over the past year? It's possible to track that data and get a real answer, but I don't keep records that detailed. The dollars I've saved didn't get banked straight into my savings account. Instead, they've padded my margin a bit, making it easier to stick to our budget each week and possible to splurge on treats like dinners out with my husband.

Apart from automating the process with helpful reminders, like throttling the soap dispenser with a rubber band, you can apply this rule to larger things, like shopping, going out, or even therapeutic services to save more and help you get into a more frugal mindset. Hit the link for more details, and let us know if anything like this has worked for you.

1. Stop buying Ritalin for your kid.

Did you know that a study showed that learning to swim well improved reading and writing skills in ADD-diagnosed children? If you do not have a body of water nearby, maybe other physical exercise will improve your child's focus and calmness.

For example, when I lived with a family in the countryside of Nicaragua - where there are no roads, no electricity (no TV or screens of any kind), and you hike a mile to get to the river to carry back water - I noticed that the children were much calmer and more focused. For example, four-year-olds expertly sharpened machetes then climbed trees to cut limbs for firewood.

Children are capable of so much more than Western Industrialized Society allows them to do. One child in particular comes to mind. She grew up running on hillsides, climbing trees, digging clay with her aunts on the rising of the full moon, scrubbing clothes on a rock in the river that birthed from a nearby spring where the Duende lived (the spirit of the mountain). I never heard her complain, even in the most physically uncomfortable of circumstances. She has grown up into a remarkably self-possesed young woman and a brilliant ceramic artist.

Save money on drug prescriptions and have happier children and a happier you.

2. Stop buying air fresheners.

Save money and protect your health. Those air freshener sprays are laden with chemicals that harm you and the environment from start to finish.

Instead, pick some flowers from that community garden you created with your neighbors. (Or ask your kid to run over and pick the flowers. More exercise for a growing body and mind!). The natural floral scent will freshen the room. And they are a lot more beautiful to look at than a can that will go into the garbage and then into landfills that won't be healthy for the earth for many, many years. When the flowers wilt and get slimy, add them to your compost and they will soon be nutrition for next year's flowers!

And to really clean the air, potted plants work great. Get a cutting from a friend, some dirt from outside, and a pot can be any old container. Place in a sunny spot and just add water. Potted plants suck out volatile organic compounds (VOCs) from the air in your home.

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This year, money is on everyone's mind. With the economy in flux, bills to pay and employment tentative, gaining a better handle on finances rises on the list of New Year's resolutions for 2009. Managing personal finances, as a category for a New Year's resolution, is very broad. Each person's finance topic may differ from another, spanning employment, savings and daily spending or retirement funds. With so many topics to choose from, discussing personal finance resolutions has more to do with how to make the resolution successful in place of a stock list of "to dos." Here are five steps that can help people succeed with a resolution. They can be applied to any resolution, but what is more important these days than getting finances under control.

1) Overstretching leads to failure. The reality is many resolutions quickly fall to the wayside. According a study conducted by Stephen Shapiro's and Opinion Research Corp. of Princeton N.J., New Year's Resolutions do not work. Shapiro says, "According to our study, only 8% of Americans say they always achieve their New Year's resolutions". This leaves 92% of resolutions to fail. What can we do to make better financial management a long-term part of life?

Pick and focus on the biggest, baddest, but most important piece of your financial picture. Is it getting your retirement accounts in order or back on track? Or, managing your current cash by putting a budget in place? Or, even down to the basics of knowing understanding where all your money goes by learning how much and on what you spend your pay every week? These may seem small tasks, but they all require research, selection, and action to make them happen. Trying to do all at once can be overwhelming. Remember: it is better to succeed with one goal than fail at many goals.

No only is taking on too much demoralizing when failure occurs, you will be forced to say "no" to yourself more often if you attempt to take on too many change. This leads to using will power in place of a plan in your change process (the effects of will power will be discussed in step 4). Pick the resolution that means more to you than any of the others so it will have value and meaning. It will be worth the challenge that comes with change.

2) Change is about planning. Resolutions are about change. Making resolutions into habit requires lasting change not just a momentary gritting of teeth that will power is made. Change requires planning, organization, and action. It requires emotional investment and belief that even partial change is possible. The idea of change is not what is daunting, but the action of change.

You've selected the biggest, baddest, but most important financial issue from your resolutions list. It's time to get organized. Take the financial resolution and jot down ideas of what would be necessary to success, helpful to do and nice to have as a part of the outcome. Prioritize them and check to see if it's possible to achieve. If it seems possible, press on! If it seems overwhelming, you've selected too much to take on, which means you need to pare it down to something more manageable. Realize that some items may be dependent on others, so when organizing or cutting items, look for dependencies. Remember to put some rewards into your plan, too, so it's not all about deprivation or "to do's".

If you don't have much experience organizing project, take a few moments to read a few article on project management to get an idea of how to define your resolution and identified the steps and order they need to occur to make them successful. The Project Management Institute resources site is a good source for quality information.

3) Habit comes from practice. The fact that 92% of resolutions fail is not surprising. Humans are habitual creatures. We like to know things and count on them. That's why we marry, buy houses, have children, have pets. These things provide stability and accountability. Habit is how we make sense of the world around us. If we weren't capable of remembering how to grow food or where to hunt or fish, we would have been extinct long ago.

Habit is derived from memorizing and reenacting actions repetitively. Repeating the steps of the financial plan created in step 2, you'll work toward your goal at the same time as cementing new behavior in yourself and how you work with your money.

4) Realize will power has very little to do with success. Many blame the breaking of resolutions on will power, or lack of it. In reality, will power has very little to do with long-lasting, effective change. Think of will power like any "power" practice: sprinting, lifting heavy objects, or hiking up a steep incline. They are done in short bursts and can only be sustained for brief periods of time. The body and the mind fatigue under such pressure and exertion. Using will power to effect the change required of a resolution is bound to fail because it is unsustainable.

Will power does have a role in change, but is not the main vehicle. It is a tool of last resort tool to keep you on track. Will power is the digging deep to keep to the change decisions made in the face of very strong competition for you to break. It should be counted as a very minor player in your strategy for creating change.

5) Accept failures and celebrate successes! No one is perfect, yet striving for perfection is America's national pastime. Resolutions are often tossed aside at the first signs of adversity or the first failing. It is comfortable and easy to fall back to doing things the way we've always done them because they are known, they are habit (there's that nasty word). The whole purpose for defining a resolution is to make planned changes in how we act into habits that form better solutions. In our case, it is to get a better grip on personal finances. And, since we are human and not programmable automatons, we will make mistakes, bad choices, or just plan indulge.

Resolutions stay in place better when we learning to accept our failure and grow to understand we are not infallible. Rewarding our changes can make the success even sweeter. Successful management of finances does not have to be about spending in a way that may open the door to an old habit you've been striving to change.

For example, if controlling spending is the resolution and stopping spontaneous shopping trips was a decided remedy, then a reward should not be indulging in a spree. It would only serve to reinforce the bad, old habit. Choose something special and fun that is not shopping, possibly a concert or dinner with a close friend at a nice restaurant. Something that has budget and foreseeable boundaries associated with it.

With these five steps, your most important money resolution can be successful in 2009. Resolutions are about changing your behavior, and in this instance, about changing your relationship to some part of your finances. Change is never easy, so be forgiving but be firm. Follow the plan you establish and take the time to review it. Invest in your plan by further educating yourself on how to keep making your plan successful. Happy Finances in 2009!

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