Get a New Attitude

Yahoo! Finance listed 20 ways to save money this week. This is a great collection of tips that everyone should adopt, even if you are flush with funds. Money should not be wasted, when there is so much good it can do either for yourself or those around you.

But if thinking about your personal finances gives you heartburn or makes you a little uncomfortable, you may have to work on your relationship with your money. Rather than ignoring, repressing, or pretending, here are a few ideas of how you can relate to your finances a little more positively:

• Accept that life is not fair. You do not and will never have unlimited financial wealth. But that's okay since we know excess money will not make you happier.

• Instead focus on how to best play with your limited pile of of money. Do not focus on making your pile of money bigger. We spend hours generating cash, then blow it in seconds on things we don't need. Focus on how to best use your existing pile.

• Get your pencil and paper out (or your laptop) and write down an estimate of your extra "play" money -- money left over at then end of the month after the bills are paid. Then plan and control how to best use this play money and pick one or two goals. Like a kid with birthday money -- do you spend it now on a toy or save it for something bigger?

• When thinking of the best use of your money, consider two things: relationships and happiness in the long run. Investing in a grill means you can invite your friends over, and will add more meaning to your life, while wasting it on expensive junk food at the gas station because you need a pick-me-up will make you feel worse later.

• If you don't have any extra funds left over after the bills are paid, a detailed, written budget is even more critical. You need to evaluate areas that are a lower priority in order to cut them out. I will write a post soon on why you need to set up a plan for your money, and how to easily create this plan.

• You also need to challenge yourself to see “how low can you go”. Every time you are about to spend any money, ask yourself if the item is a “need” or a “want”. If it is not absolutely necessary, consider an alternative -- borrow, garage sales, do without, etc. Challenge yourself to be creative.

• Set aside cash in an envelope or in a separate savings account for infrequent expenses you normally forget throughout the year. Even if it's a small amount, it will add comfort to know its there so you are not depressed when the annual insurance bill comes in the mail.

• Remember to recognize and appreciate the non-cash wealth you have. The wealth you enjoy while millions are denied: a roof, food, limbs, eyes, medicine, safety, freedom, life.

Once you accept you have limited funds, take a second look at how you really want to best spend your pile of money, understand your spending habits after your compare what you spent to what you planned, and appreciate all that you have right now, you might find that money is a good thing.

Your gut will tell you when that happens.

Can delayed gratification be taught?

One reason people run up credit card balances is based on emotions. They really, really want to buy something right now. The excitement is a wonderful feeling.

We’ve all been there. As you waver, wondering if you should buy something, the internal dialogue starts. The cautious voice is barely noticeable, overshadowed by the We-Only-Live-Once voice saying “I deserve it! I work hard. Everyone else has one. It will be easy to make the extra payment over several months.”

But what you do at this point is what separates people into two groups: those that delay gratification and those that don’t.

In the famous marshmallow experiment in the 1960s, some of the four-year olds would wait 20 minutes in order to get a second marshmallow, but some kids could not wait and then were not rewarded. For the next 40 years these kids participated in follow up studies, and throughout the years the kids that could not wait were not as well adjusted as kids that waited for the second marshmallow.

Can people be taught to control impulses, to wait for an even greater reward? It appears that the answer is yes.

Before you pull out a credit card for that exciting purchase, here are 3 steps for you to try:

1. Ask yourself, “Will I be happier next month if I buy this, or will I be happier if I don’t buy it?” Think about the long-term benefits of the new purchase. Is it enough to offset the pain of credit card debt?

2. Visualize the credit card balance as a black cloud that hangs over your head, never far away. Remember that this black cloud is scarier during the middle-of-the night worry sessions.

3. Recognize the win/win of waiting. For example, you want to watch a movie but you need to clean the kitchen. If you clean now, then there is more pleasure now, because you anticipate the fun that will come later when you watch the movie. And watching the movie is more pleasurable because it is a reward, something you earned, and you don't have the dread of cleaning later. This is a win/win because there is more pleasure now (anticipation) and more pleasure later (relax with pride and nothing to dread).

Conversely, if you watch the movie now, then there is less pleasure now because you anticipate the pain of cleaning later. And when you finally do clean, the pain is greater since there is nothing to look forward to. More pain now, more pain later.

This can be applied to your money. If you wait and save up to buy something, there is the pleasure of anticipation while you save, and then greater enjoyment for the item that you purchase, since you can be proud of yourself.

And there is the pleasure of only white marshmallow clouds hanging over you, instead of black clouds.

Does money buy happiness?

Yes. No.

Yes, money will buy happiness for your basic needs, such as shelter, food, health and security. But no, more money will not buy you more happiness. There are just too many research studies that back this up.

For example, in Stumbling on Happiness, Harvard University psychologist Daniel Gilbert wrote "Psychologists have spent decades studying the relation between wealth and happiness, and they have generally concluded that wealth increases human happiness when it lifts people out of abject poverty and into the middle class but that it does little to increase happiness thereafter. Americans who earn $50,000 per year are much happier than those who earn $10,000 per year, but Americans who earn $5 million per year are not much happier than those who earn $100,000 per year."

I can hear the protests now. Everyone believes -- at some level -- that more money means more happiness. Of course they do. Businesses spend gazillions of dollars trying to convince us that buying their product will make us happy.

What makes the idea more convincing is that when you buy something new, there is some happiness. George Carlin made fun of our chase for more stuff: "The whole meaning of life is trying to find a place for your stuff. That's all your house is, a place to keep your stuff, while you go out and get NEW stuff".

But this happiness is temporary. Sonja Lyubomirsky, author of The How of Happiness, writes "we think money will bring lots of happiness for a long time, and actually it brings a little happiness for a short time." This is called hedonic adaptation, where humans rapidly become accustomed to sensory, physiologic, and major life changes.

So we buy more stuff, something newer, bigger. Not only are there constant advertisements designed to brainwash us to spend more, and not only is there instant gratification, although fleeting, when we buy more, we inherently crave new experiences. No wonder everyone is convinced money is the key to happiness.

But the commercials that imply you must spend money to be happy are lies. The excitement you feel when you buy something is only temporary. And money is not necessary to satisfy the cravings for new experiences, since there are many ways you can explore for free.

When you realize both in your head and in your gut that being rich will not make you happy, you stop spending your energy chasing after more money, and spend your time appreciating the stuff sitting in your house right now, instead of out shopping for new stuff.

Gasp. You Don't Have A Credit Card?

I celebrated my cousin's birthday in a restaurant the other night. There were ten of us, all women, discussing credit cards and debt. Eventually I mentioned that I don't have a credit card. Haven't had one in years. Everyone at the table went silent. The two women across from me actually dropped their jaws.

Well that was weird. I'm shocked that they were shocked. When it comes to personal debt, I think the world has gone mad. I've seen people take out cards and spread them like a deck of playing cards. Who can track that many? And you need to track them closely. Too many banks that issue cards are sneaky.

This is not to be confused with debit cards. I have a debit card that I use daily. And I am not talking when you use a debit card as "credit". It is still the same as writing a check, regardless of whether you punch the debit or credit button when using a debit card.

I had a credit card a few years ago, but it got cancelled from lack of use. I didn't know they could do that. I guess I liked having a credit card since everyone did, even if it didn't get used.

Then last year I started to apply for a new card, since I read you had to have one in order to rent a car or reserve a hotel. And also to help your credit score. But then I read the fine print on the application and gave up. Not only was it too confusing, they were clearly out to "get me" if I slipped up in any way.

And guess what? I have never had a need for a credit card. For several years now I rented cars and stayed at hotels with no problems, using only my debit card. My FICO score is good. I check my bank statements online frequently to make sure no one is using the card fraudulently.

After reading all the pros and cons of debit cards versus credit cards, I still don't see the need to sign up with the big bad wolf of a credit card company.

Maybe I am missing something here. Clue me in if you know of a good reason for a credit card, one that is worth tolerating the frustrations of the credit card company schemes. If you are thinking "well, it's necessary as a backup for cash shortfalls", you need to check back soon as I will be writing about the benefits of delaying gratification.

Full-disclosure note: Yes, I have screwed up in the past and gotten in over my head with credit card debt. Not a huge amount, mind you. But enough to still remember the pain of Eeyore's black cloud following me until I was agonizingly and slowly able to pay it off.

Pleased to Meet You

People are falling like dominoes all around me. My neighbor lost his job last month. My friend's brother will lose his job as a lawyer in two weeks. Almost every day it's someone new. And then I sit and wonder about their finances.

Its not that I am nosey. In my last career I was a financial analyst, and on a personal level I can't help but find it both fascinating and troublesome to hear when someone loses their job, because I wonder about their personal financial details and if they could use financial advice. There are so few people I know that actually takes Suze Orman's advice and sets aside emergency funds worth 8 months of expenses.

I wonder what they are considering for their options; if they are getting creative with their existing resources, cutting back on expenses, or creating budgets. And if they believe you need a lot of money to be happy.

Which is why I am writing this blog. Since personal finances are just too painful and embarrassing to talk about, maybe I can reach out to folks here.

I was a financial analyst for twenty years, explaining how the money was spent and estimating how much money would be left over at the end of the month or the year for both companies and cities. I also ran a couple of small businesses (golf course, neuroscience research). But my real interests are analyzing the dynamics behind personal finances.

Although this blog was started so I could share ideas on better managing money, I also plan to write about health-related issues, especially on eating healthy.

If you want ideas to better manage your money or improve your health, I hope you will continue to check out this blog. I love advice, and would enjoy hearing any of your ideas. And hopefully with all this self-improvement we can have some fun along the way.