I think I'm a smart person. When I was younger, my dad would say, "You're a really smart kid, so I can't figure out why you would do something so dumb."
How often do we, smart people, find ourselves making dumb decisions, especially with money? Money management would be much simpler if money didn't get in the way. We all know we should save, we should plan for the future, we should spend carefully. Yet, these are the exact things we don't do.
Here're four reasons smart people make dumb spending decisions:
We let emotion dictate our decision-making. Ever had a bad day? Ever bought something to make yourself feel better? That's emotional spending. It feels good to spend money, and that feeling is what gets us in trouble.
Solution: Wait. Give yourself time, especially before major buying decisions. Even if you've saved for months for that new TV, don't buy it after a bad day. Chances are you'll spend more and make a more hurried decision if you let emotion guide you.
We don't know how we are targeted. If you think about the places you shop regularly, you can pinpoint ways they get you spend more money. They arrange their stores in ways to make you spend and water fruits and vegetables you have to pay for by weight. Don't even get me started on free samples!
Solution: Wait. Don't go to the store during peak hours. Wait until later in the evening, or go early in the morning. These non-peak times will allow you to avoid the unnecessary watering and sample choices. Shopping during slow hours will also help you avoid the herd mentality. The idea that "everyone is stocking up on orange juice. I must do the same."
We don't know what we need. The list of our needs is probably a bit more extensive than air, water, food, and shelter, but we still need to be careful to differentiate between our needs and our wants.
Solution: Wait. Take time to consider if the purchase you're holding is a genuine need, or just a very attractive want. Give it a score of 1-10 (1 being an entire chocolate cake, 10 being air). Focus on the highest numbers in your life first. Spend on the things you need, and then save for the things you want.
We have no idea what we're doing. When was the last time you developed a spending plan? Do you sit down before you take a vacation and give yourself a spending limit? Do you do the same before you go to the grocery store? It sounds elementary and boring, but I'd rather be the boring guy retiring in Aspen than the spontaneous guy moving back in with my parents.
Solution: Wait. Did you think there was going to be another solution? Take the time to plan out your decisions. Write out your goals/intentions, and then stick to them. Don't be influenced by keeping up with trends.
Capitalism is a great when you know what you're doing. Unfortunately, most of us simply don't. Everywhere I look, I see people throwing their hard-earned money away on frivolous items they could be getting for free (or dirt cheap). If you hate billionaires and CEO's, stop lining their pockets by wasting your money on these ridiculous purchases.
Humans need water to survive. What we don't need is sugar water. However, any store you walk into has shelves lined with the stuff, even farmer's markets and health food stores. Anyone who's ever put an apple or orange through a juicer knows it comes out looking and tasting nothing like the stuff you buy in stores. Even "natural" juice is as bad as soda, except you get an overly inflated sense of health. Investing in a durable, refillable water bottle will go further than buying soda or even bottled water.
Restaurants make the majority of their profits selling drinks because they have the highest markup. The healthiest options are unsweetened tea or water, and a cup of tea will set you back more than it would cost you to make a gallon at home. If you must eat out, drink water – it's free.
There are very few apps worth purchasing, and even fewer in-app purchases are worth the money. For every amazing paid app on the market, there are a handful of free competitors that work almost as well. Apple and Google have made purchasing apps through their stores easy, but you're wasting your hard-earned money on something you don't need.
I can't tell you the last time I paid to get into anything, and I'm as much of an A-list celebrity as you are. There are a few ways to get free admission (and a few more, if you were lucky enough to be a cute girl).
Always show up early. Sometimes this will get you grandfathered into the club or event before they start charging a cover. At the very least, you'll be able to mingle with the hired help, and you may score free passes.
Cable used to be the pinnacle of home entertainment, but if you have a smartphone, computer, and video game console, there's really no need to pay for cable anymore. The antiquated pricing system drains your wallet while providing little you can't get for free through Hulu, SopCast, and YouTube. If you're a sports fan and have to catch the playoffs, there's a bar playing the game free somewhere nearby.
As someone living on a tight post-college budget, I'd like to think that I'm good at stopping myself from spending when I shouldn't. However, there are days when my resolve is weak and I rationalize buying an overpriced coffee drink or a pair of boots very similar to ones I already own (because I need to have different colors). Usually my rationalization holds up just long enough for me to make an unnecessary purchase, at which point it evaporates and I'm left questioning my spending habits.
I know I'm not the only person who makes these excuses, so I thought I'd compile five that I frequently hear, along with tips to avoid them.
It's on sale. There's a certain satisfaction that comes with snagging a great Groupon deal or getting a discount on a product that you were planning to buy anyway. However, it's important to do the math—sales don't always save us as much money as we think. It's also essential to read the fine print—if you have to redeem that Groupon discount at a store that's 30 miles away, you'll end up wasting time and gas money.
I don't have time to cook. If you're stressed after work, you're less likely to have the willpower to make dinner and more likely to rationalize eating out. Avoid falling into this trap by cooking a large meal (or several meals, for variety) on Sunday and freezing it for the week. You can also prepare your lunch the night before to avoid buying lunch because you were rushed in the morning.
I had a rough day; I deserve something nice. Again, stress is going to lower your resolve and make it easier to rationalize buying something that you don't need. Instead of practicing retail therapy, look for a less expensive (or free) activity that helps you relax, like going for a run or volunteering at an animal shelter.
I'll probably be getting a raise/higher paying job soon. Most recent college graduates start out with an average starting salary of $45,327 (which actually sounds pretty good to me) and aspire to move to a higher paying position after gaining experience. While aspiring to upward mobility is great, avoid thinking things like, "Once I buy a fancy new wardrobe I'll get promoted" or "I can afford higher rent this year because I should be getting a better job soon." If you're having trouble living within your current means, write out a monthly budget and take a harsh look at where your money is actually going.
All my friends are splurging. Don't fall into a group mentality: you don't necessarily know your friends' financial situation, and just because everyone else in your group is splurging on appetizers and drinks doesn't mean it's a good idea for you to do the same. Try to avoid costly situations if they're too much of a temptation, and consider recruiting a thrifty friend to help you stay within the spending limits you've set for yourself.
You've finally gotten your new business off the ground, and now you're tasked with finding the right group of smart, eager individuals to help your venture succeed. You'll want to hire people who are clever, innovative, and unquestionably competent. There's just one problem: You’ve got limited funds.
It's true that for many prospective employees, the decision to take a job boils down to money. And it’s often the case that the higher the salary, the more enticing the gig. But before you resign yourself to a group of mediocre hires, consider the following strategies for attracting top-tier employees, even if you can't shell out the most competitive salary right off the bat.
Offer a flexible schedule.
Depending on the nature of your business, it may not be necessary to have all of your employees reporting to an office during set hours on a daily basis. If you've got room for flexibility, make it clear during the interview process. Offer potential employees the option of working from home or condensing the work week into four extended days to allow for frequent long weekends. Those with longer commutes will relish the idea of sleeping later and avoiding traffic. Travel aficionados will jump at the option for more weekend road trips. And seasoned professionals with families will appreciate the work-life balance.
Be generous with vacation time.
You may not be able to pony up a huge salary, but you can compensate by offering employees a generous vacation package. Many companies give new hires a mere three weeks of paid time off, which often overlaps with sick leave. Over the course of an entire year, that's not a ton of time. Four weeks of vacation, coupled with a generous policy for sick and personal time, just sounds exponentially better.
Talk up the opportunities.
Does your business employ the latest technology? Does it offer employees the chance to work independently, run with their ideas, and learn? Nobody wants to be bored on the job, so go out of your way to make each role sound engaging and laden with opportunities for advancement.
Beef up the title.
Some people have trouble moving up in larger companies and get stuck in the same role for years on end. You can snag some of these knowledgeable, experienced employees by offering an instant promotion on paper.
Share the (eventual) wealth.
It may take some time for your business to be remarkably profitable, but plenty of prospective employees will jump at the chance to snag a share of the eventual reward. And as an added bonus, you'll be motivating your new hires to work even harder if their actions are directly linked to extra money.
Of course, there are always going to be those people who are motivated by dollars alone. But if you're willing to get creative, you can construct a total compensation package that's appealing to quality professionals of all levels.
I love my debit card--everything about it. Between the comfort it provides me to its ability of keeping my spending in check, there is nothing not to love. As I entered the real world, however, I was confronted with both a devastating and terrifying truth: I needed to get a credit card. Even though I knew this day would come, I still had many suspicious about this new, unknown card.
Fear of fees
Spending money that isn't yours and that you may not even have is all part of the credit card game. However, due to my lack of awareness, I had no idea what the rules would be or how much they would cost. Between APR, balance transfers, transaction fees and late fees, it was hard not to get anxious and confused. However, it turns out that best way for me to conquer this fear was to do my research to understand credit card fees and how to avoid the traps.
Fear of liking It
One of my biggest anxieties was that I would actually like my credit card. The thought of credit becoming my card of choice or beginning a life of debt was nothing less than unsettling. The only way I was able to cope was the comfort of knowing my first credit card would most likely have a small credit limit, helping me control my spending. Also, the ability to use online banking 24/7 to track my spending helped make credit card debt seem less likely.
Fear of choosing the wrong card
As I knew very little about credit cards, I was concerned that I would end up choosing the wrong one. After copious research, I determined some personal guidelines to pick the best card. I decided the only cards I would apply for would have no annual fees, an APR in the low double digits, and free access to my FICO score, since establishing good credit was my main reason for a credit card. Every other mileage point, cash back reward, and waived balance transfer fee was just an added bonus.
Fear of rejection
Out of all of my fears about credit cards, this was the most personal. What if, after all my anxiety and careful research, I got rejected? This fear, while initially personally stressful, turned out to be ultimately irrational. After shopping around, I learned that, though I didn't have any credit history, someone would want me. One of the easiest ways for me to get approved was through my bank, since they had a record of my responsible spending, proof that I would make a good candidate. I also looked into secured credit cards, where you give a bank a monetary deposit as collateral, which ends up being your monthly limit, in the event that you are unable to pay your bill.
While I still feel that a credit card is nothing more than a necessary evil, I have learned to accept my fate. I have even come to realize some of the benefits that come along with having a credit card, like heightened fraud protection, credit history (if you can maintain it), and even some occasional perks. Though there will always be a place in my heart for my debit card alone, there is now a space for a credit card, too, but only in my wallet.
Scenario: You've been invited to a very important dinner party. This dinner party has all kinds of networking connections, and since you hate your current job, your motivation to succeed is high. You might be an introvert, you might be an extrovert, but it doesn't matter. You must talk to other party attendees and make valuable connections. But before that, you must put on your nicest outfit. After all, attending a dinner party in your pajamas is not exactly kosher.
Before you step out, dress up.
The same idea applies to building a Twitter following before launching your new business. "Listen to social media conversations" is a top suggestion when building a brand on social media, and it is an absolute must these days. While determining your social marketing strategy, you'll eventually need to decide which social media tools you'll use to reach the widest possible audience from your target markets. Twitter is a great place to begin, with people from all demographics, and projected increases in Twitter users.
Now that you've secured your Twitter handle, start following people, and start listening. Some people will even give you a "pity follow-back" if you're new, and that's fine. Look up businesses/services similar to yours, and follow movers and shakers in your industry. Follow the local news if you want. Follow your grandparents.
The next step is to determine the existing hashtags that fit with your business/product/service, and monitor those hashtags. Follow anyone tweeting that hashtag you find interesting. Retweet, favorite, respond (appropriately of course), and get your name out there. Hootsuite is a good tool for monitoring certain hashtags if you'd like to stay as current as possible. Simply set up the hashtag as a new feed, and you'll receive regular updates via the dashboard.
Even if you only have 20¬to 30 followers at this point, don't fret. The more you participate in Twitter conversations, the more you will notice how many followers you get during a given time frame. At this point, if you're ready, you can announce the launch of your new venture!
The next step is determining when to chime in. Try using Buffer. This tool is designed to determine the best times for your tweets to be posted. Simply sign into the website using your Twitter information, and begin loading up your queue with content, which can be posted right away or buffered for later. Don't forget your hashtags and @mentions!
You've worked hard to get to where you are, but don't let it go to your head. Thank all your followers. It takes all of two seconds.
The road to self-employment and self-sufficiency isn't always paved in gold. In fact, it is often windy, dusty, and full of pot holes. When I decided to transition from my six years in the medical field to starting my own freelance company, I hit the pavement with the determination of a racecar driver. I had goals in sight, the knowledge to make it happen, and the drive you only find when you are achieving something you love. But as I kicked into high gear, I ran into five speed bumps that threatened my commitment, resolve, and overall sanity in my quest to shake the nine-to-five monkey from my back and bask in the freedom of making my own schedule and doing work I'm passionate about.
The "Am I Crazy?" Syndrome
Unfortunately this speed bump is around every corner and it will never go away. Starting your own company is a risk. I had a steady job. I worked hard to get to my position. I had full benefits. Why would I give up this American dream? I must be crazy, right? Probably. And I still ask myself this question all the time. It is an important one. This bump slows your speed just enough to make sure you are in it for the right reasons.
Putting your butt in the chair
Like many people, I started my business while still working 40 hours a week at my day job. Nothing slows your pace more than being tired, overworked, and a beautiful day looming outside your window. News flash: There will never be enough hours in the day, and there will always be something more enticing than work. Set a schedule and stick to it. Set up a comfortable work space if you are working from home. Organize your space in way that inspires and motivates you.
All about the Benjamins
Passion and freedom are fantastic, but at the end of the day we all work to make money. I was lucky that my company required very little start-up funds, but it still took some finesse and prioritizing to avoid draining the bank account. Realistically, this speed bump can send you airborne, flying off a cliff to a fiery demise. Choose how to spend your money carefully. Start with the small but important stuff.
Who's coming with me?
Telling your boss to shove it can be an incredibly satisfying feeling, but knowing when to break those ties is important. Embrace this speed bump. Chances are you will need these people at some point, or you can at least utilize them later. Timing is everything in this case. Before burning those bridges, make sure you're ready to make it on your lonely island.
Pick me, pick me
This isn't so much a bump as it is a mountain. You don't know self-doubt until you make that leap to self-employed. Explaining what I was embarking on to the people closest to me was one of the hardest hurdles I encountered. Overcoming the fear of being criticized, and not taken seriously can be soul-crushing. Finding your confidence is key. Believe it and others will too.
These are just a few of the many bumps in the road you will find when starting your own business, and what looks unsurpassable to me may look like a crack in the sidewalk to you. Prepare for everything, and adapt to anything. The road will take you where you want to go. It just may take some time to get there.
When we talk about launching a business, most entrepreneurs focus on just that – startup. It's during the first year of business, however, that most endeavors fail, and many business owners begin to report "lack of cash flow" as a primary concern.
"Cash flow" is defined as the movement of funds in and out of your business, according to Inc.com. Keep yours positive by adhering to these best practices:
Funding for flexibility.
While you may have had an idea of who your clients would be, you learn exactly who they are and what they want in about six months. You may be refining your retail space, paying to add more parking, changing your office hours, or hiring your first employee. Adaptation takes cash, sometimes as much money as initial startup. Keep some aside, or prepare to secure sources of funding such as a revolving line of credit before you need it.
Keep a year-long calendar.
Your business requires insurance of some type, likely renewed annually; have you planned for it? What about taxes, including franchise or other business-specific fees? If you have a seasonal business, are employees entitled to bonuses or overtime hours during the holidays, and can you pay for them, even if you don't know how profitable your first holiday season will be? Your annual expenses may come up at intervals or all at once. If the latter, can you negotiate with any providers or make changes to better space them out?
Ponder before you purchase.
"Spending" means an expenditure of funds that then cannot be used for any other purpose. Consider all purchases for several days, and do your research before you make a sizeable purchase. Get your Google on, but don't forget to talk to real humans in your industry and ask what equipment they've used, what they like, and what they wish they had.
Stay small, stay smart.
It takes several years to truly get a grasp of what you need, how you will optimally operate, and what you need to buy to support your most effective business. Don't be afraid to hold off on subscriptions, facility upgrades, or hiring until you are further down the road.
Refer back to your plan.
Remember that business plan you wrote? Dust it off! Are your busy days and months when you thought they would be? Are you earning more or less money than you thought? Is your intake more or less predictable than you thought? Draw as many correlations and identify as many trends as you can. Create new hypothesis, or even redo your plan – you have more experience under your belt now, and know much more than you did when you wrote the first draft.
Evaluate cash flow gaps.
Are you intentionally creating cash flow shortages to say, take advantage of chances to buy materials at a discount? Or are your cash flow problems due to a drought of customer interest? Refer back to that year-long view, and try to balance out as much as you can.
Still not seeing your year-end numbers add up the way you want them? Cut back. Don't groan, don't grimace, don't get discouraged. Start scrutinizing your practices, procedures, and personnel and cut something, somewhere, until you come back in line. Forget the fairy tales – the numbers are the reality. If you ignore this reality in your first year, it will sink you in the ones to come.
Maintaining accounts receivable, that is, money owed to you by a client, can wreak havoc on your cash flow. Consider accepting only those clients who can pay up front, even if you lose some.
Don't jump to pay debt.
Paying off loans early feels good but expends cash that you might need. In some cases, it might be wiser to stick to your payment plan instead of paying loans early to preserve capital.
Need inspiration? Managing cash flow is a challenge, and a learning process for many small business owners. This Italian language instructor, this accountant, and this producer of chemicals cracked the cash flow code; with diligence and planning, you can, too.
You’re a newly minted entrepreneur. You’ve given up the daily 9 to 5 grind, annoying coworkers, and a soul-sucking commute. You’ve taken control of your career and life, and you’re living the dream!
Yet as you read this from your home office, bunny slipper-clad feet on the desk, commanding every aspect of your business, you can’t help but wonder:
“Isn’t Ellen on soon?”
Face it: No matter how passionate you are about your business, inspiring yourself to complete tasks every day without a boss to push you is hard. Distractions are everywhere, and their siren call is difficult to ignore.
Luckily, your fellow entrepreneurs understand these challenges and have developed tips to help.
Are you a member of professional organizations in your industry? Your colleagues are probably self-employed, too--engage with them to share ideas or challenges. In-person meetings are great if people live nearby, but if not, MeetingBurner offers free online conferencing for up to fifteen people, and AnyMeeting offers it for up to 200. You can now have as many “coworkers” as you want on a given day!
Self-employment gives you the freedom to work (or not) as you choose, so if you’re low on motivation, offer yourself a reward for staying focused. Use a time tracking tool like Toggl to monitor your progress, and reward yourself when you accomplish your task by going on a coffee run or watching Ellen.
Do you have a weakness for social media? It can be a major time-waster if you’re not careful, but if you lack the willpower to ignore it on your own, tools like AntiSocial (Mac only), Freedom, or StayFocusd will lock you away from Facebook, Twitter, or other pre-selected websites for a set period of time.
Find your work rhythm.
Entrepreneurship means you can work during most productive time of day. Don’t know what your most productive time is or what your work pattern looks like? RescueTime is a web-based tool that will send a detailed report of your productivity to show you how to maximize those working hours – and when you’re better off just watching Ellen.
The number one motivational tool for running your own business is the very thing that got you started: pride in your accomplishments. You’ve taken the leap and gone out on your own; you have passion for what you do and control of your working life. Recognize this every day and celebrate it. (YourMeditationTimer can help schedule this recognition and re-energize you at the same time.)
Entrepreneurship isn’t for everyone, and if you’re brave enough to undertake it, you’ll find the rewards – both professional and personal – are plentiful. Still, low energy periods should be expected. It’s how you deal with challenges that ensures your future success.
Now, get your feet off the desk and stop reading this blog. Ellen is on soon.
So, you’re brown-bagging your lunch, clipping coupons, and saving your pennies. Now what should you do with your savings? It’s time to do a little planning and settle on your savings goals – both short-term and long-term.
Opening a savings account
Don’t simply decide you'll keep your extra cash in your checking account and vow not to touch it. It’s far too tempting to justify a splurge on a cute pair of shoes or a night out when the funds are so readily available. Set up a separate account for your emergency fund. This account should be separate from any other savings account, as well.
Setting savings goals
It’s important to start with a goal in mind, but don’t set your sights too high at first. Trying to save too much and cutting out all fun money can lead to frustration and send you off course. Choose a realistic initial goal, like $500 or $1,000. Employ some of the tips from my previous post to gather up initial savings and help you reach your goal as soon as possible. Once you reach your initial goal, set a new goal. Your second goal could be to save enough to cover one month of living expenses.
Experts generally agree you should have three to six months’ worth of expenses in your emergency account. Make this your ultimate goal, but don’t get bogged down with how far away those numbers seem. Remain steadfast with your commitment to save, and watch your account grow.
Make saving a habit in order to grow your fund, and increase the amount you can save each month as your situation changes. Consider setting aside a portion of each paycheck, and have it directly deposited into your emergency savings account. You may never miss the money you don’t see in your checking account, and this way you won’t be tempted to spend it. A little bit each week can add up quicker than you think.
When to use your savings
Emergency funds are just that: funds to use only in case of a crisis. Be clear on what constitutes an emergency for you. Large car repairs, appliance repair or replacement, and loss of employment all qualify. Nearing the end of a pay cycle and not having quite enough to purchase concert tickets, however, does not. Resist the temptation to dip in when it’s unnecessary, and honor the true purpose of your fund.
And as emergencies do pop up, remember to USE your savings. Many people get caught up in hoarding their savings and forget why they created an emergency fund to begin with. Don’t sink yourself into debt when you have the cash available; you’re creating this safety net to use it when you need it. You should choose to rebuild emergency savings instead of incurring debt and paying high interest. Saving now will allow you to handle life’s future twists and turns without disrupting your living habits.