Living Frugally: Getting Off Track – It Happens to All of Us

Taz Bright helms this series. Taz is a father, speaker, long-time business owner and graduate of the school of hard-knocks. Taz uses his past business and personal finance experience to help steer others in a positive financial direction while, hopefully, avoiding the mistakes he’s made along the way. As a former 6-year victim of Identity Theft, Taz shares unique lessons learned while trying to regain his financial footing. Taz is a member of Toastmasters International, a martial artist, former bodyguard and a CrossFit athlete. As the owner of Bright Balance Ministries, Taz’s goal is to help as many people as possible reach long-term, solid financial stability.

Living Frugally Piggy BankMany of my friends know I’m all about being financially smart. They’re well aware of my belief in living below one’s means while expanding your means (generating multiple streams of income) and also the need for an emergency fund. These are the basics for saving and preparing for a satisfying retirement.

They know I love all things financial including investing in stocks, supporting small businesses and spreading the word about living frugally.

I’ve discussed with them the advantages of paying bills a few months ahead and saving for one year’s worth of bills.

In a recent conversation one friend made a statement to me to the effect of, “… as if you ever have money problems. You’re the money management guy.” Throughout the conversation she made it clear that she believed my frugal attitude plus the financial lessons I’ve learned equaled a life without money problems.

This is the part of the conversation where I laughed uncontrollably.

It did get me thinking that maybe Savvy readers have reached the same conclusion about us frugal, finance bloggers. Maybe people are under the impression that we’ve risen above making mistakes, slacking off and giving into temptation. Oh, how I wish this were true. So for any of you who feel your frugal living is supposed to be free from money problems, or that financial blog writers like SavvyJames and I never run into money woes, I write this post.

A while back I was at the store and saw an item I wanted. I picked it up, paid and left. Later that day I grabbed a meal at my favorite vegan restaurant, Field of Greens. Then after taking a friend’s son to GameStop, I suddenly found myself the proud owner of three used PlayStation games I’d wanted for quite a while. As if that wasn’t enough I ended the day buying two new outfits and seeing three movies at the theater. Yes, three.

What’s the problem with these purchases?

Shopping MallThey were all outside of my spending plan. I had a budget already in place. I saved, paid bills, donated to a charity and reduced my debts. I should have been done spending at that point. But, I failed to control my impulse buying. Instead of remaining disciplined I gave into materialistic desires and marketing schemes. Despite having a definite path on which to travel, I veered off course. A budget is like the guard rails on a highway, it keeps you within the lines of discipline.

What’s the big deal about getting off course in this way?

Well, while going on this spending spree I didn’t look at my budget or my online bank account even once. I didn’t want to admit I was spending too much so I made it a point not to look at those things that would force me to confront the truth. The result was a negative balance in my checking account. Yes, you read it correctly. The “money management guy” was in negative territory. I had failed to take my own advice and went against what I teach others.

So, how did I get back on track? Thankfully it was not difficult. Since I am generally not a spender I had some money in savings. I transferred money from savings to my checking account so that it was no longer negative. In order to help make up for that loss from my savings account I made three appointments to donate plasma at $25/donation. I also made myself return the games I bought. Did I enjoy doing so? Of course not!

I enjoy gaming now and then like the next man. However, the goal of catching up and getting back on track was more important than games I could repurchase later if I desired. Also, I sold a few items and was paid by a friend of mine to take her to work a few times a week. Thankfully I had some stocks that were doing really well so I sold a good portion of them and added the profits to my checking account.

Deep breath in … and out. Relief.

I didn’t enjoy this time behind the eight ball. The added pressure of having to play catch up while not falling behind in other areas was stressful. It reminded me of why it’s so vital to not only stay on track but stay ahead of the game. Remaining frugal and responsible is not only financially wise but it also has the added benefit of keeping additional stress @ bay.

No, we finance bloggers are not perfect. We stray, we make mistakes. The good news is that returning to our disciplines ways will get us all back on track and moving toward our goals once again. My encouragement to you, Savvy reader, is to learn from my mistake not your own. Stay away from impulse buying. Unplanned purchases can hurt you. They are the financial equivalent of jumping from a ledge that’s too high. The results are crippling or fatal. Either way, stay away from them.

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A Richer Understanding: Physical and Fiscal Fitness

Brian Tramuel helms this series. He lives with his wife Michelle, their children Geneva and Brian, and their Cocker Spaniel Maestro in Charlotte, NC. They, along with his two older children from a previous marriage, Davina and Aaron, provide a constant source of inspiration. Aaron lives, works and plays in Charlotte and Davina lives, works and plays in Roanoke, VA.

A Richer UnderstandingRetirementSavvy is the inter connectivity of physical and fiscal fitness.

Last week my wife asked me to make final payment on the children’s summer camp tuition. I groaned and mumbled for a bit wondering if it would be easier [read: less expensive] to send them to day camp.

I started adding up the cost associated with preparing them for a week at camp; clothing, activity gear, and toiletries. Additionally, the camp is 90 miles away from Charlotte and gas is expensive … and it is a four-way trip; forth and back, forth and back again.

My attitude began to change once we arrived for the drop off; the camp, the cabins and the grounds appeared to be worthy. I love capturing time with images and encouraged the kids to take lots of pictures, however they were not allowed to have electronic or media devices. On Tuesday I went in to view the online images and became completely enamored with the idea of investing in an active summer.

Lake - Camp HarrisonWhen we speak of the differences of our childhood vs. today’s youth the major contrast is their attachment to media: television, cell phones, computers, video games, e-mail and text messaging. Perhaps dietary changes are understood, however, we rarely discuss it without judging the stability of today’s family unit.

Times have changed, the dinner hour has changed and partially moved from our tables to restaurants to drive-through. This coupled with children having access to media in their bedrooms aids in the inadvertent consequence of spending too much time inside, leading to a rise in overweight children and other adolescent health concerns.

“I can’t stop eating. I eat because I’m unhappy, and I’m unhappy because I eat. It’s a vicious cycle.”

Fat Bastard

I can relate. I struggled with weight stressing about money, the reverse is also true, I struggled with money stressing about my weight.

“Health is the vital principle of bliss, and exercise, of health.”

James Thomson

I can relate. I dropped one hundred pounds after making the connection, and very soon after I began enjoying a better quality of life.

At times it can be difficult to reconcile wants vs. needs, perhaps vice versa, creating times when we don’t stick to our spending plan. Sometimes we overspend and others we over save, as I tried to do for summer camp. Citing a quote from a fictional movie character and following it with a quote from a famous poet as comparison is odd at best, however, the energy needed to move into a better place and become fit [read: physically and fiscally] requires obedience, dedication and patience.

Obey. Love. Serve. Excel.

I Am

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Don’t Forget Inflation

in·fla·tion [in-fley-shuhn] noun – In economics, a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency (opposed to deflation).

Interesting definition but what does it mean? The operative passage within that definition is loss of value. On a small scale, over a short time period, the impact is generally insignificant. As an example, assume you deposited $100 in your local savings account on January 1st, 2013. You did not make any deposits or withdrawals. (Considering the interest rate paid on most accounts is negligible, we can put that aside.) According to the U.S. Bureau or Labor Statistics (Table – Historical Inflation Rates), the inflation rate in 2013 was 1.5%.

On January 1st, 2014, how much money would be in that account? If you said $100, you are correct. The real question though is, “what is the relative value of that $100 one year later?” The answer is $98.52. See Figure 1 [Reduced Amount] below.

Inflation - Figure 1Figure 1 – Inflation on a Small Scale

Again, on a small-scale, over a short time period, the impact is generally insignificant. With that $98.52 (relative to the value a year earlier) you will be able to buy pretty much everything you bought last year. Moreover, when you are working, the impacts of inflation largely go unnoticed. Your wages generally rise as the costs of goods and services rise. Your earnings tend to keep pace with inflation, so normal inflation (1.5% in 2013) is not generally a concern.

However, when you adjust the scale (thousands of dollars) and time period (20 – 30 years) the impacts of inflation increase exponentially. In this second example, assume you desire a retirement income of $100,000. Suppose you want to retire in 20 years – and for planning purposes – you assume the average inflation rate will be similar to the previous 20 years. Checking the Table – Historical Inflation Rates, we see that over the last 20 years (1994 – 2013) inflation has averaged 2.425% (I have my inflation calculator set to 2 decimal places; therefore, the rate has been rounded up).

Note: There are numerous inflation calculators available for free online. Also, I include the inflation calculator shown in Figures 1 & 2 as part of the Budget and Retirement Planning worksheets available with my book, RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.

Plugging in all of those numbers, what do we get? We get the Required Amount and the Reduced Amount. The required amount ($161,480.26) is what you would need annually if you wanted to buy the same goods and services that were purchased 20 years previously. In short, if you desire an annual retirement income of $100,000 – and you’re measuring in today’s dollars – you will need $161,480.26 in 20 years to retain the same value.

Of course, the reduced amount is just the opposite. The value (purchasing power) of that $100,000 in 20 years will only be $61,927.07.

Inflation - Figure 2Figure 2 – Inflation on a Large Scale

Unfortunately, too many people fail to account for inflation or underestimate the impact it will have on their retirement plans. Even at relatively low rates, inflation is a real thief of buying power over time. The longer the time period, the more significant the impact. During your planning, you must account for inflation.

Table – Historical Inflation Rates


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How to Finance a Small Business Franchise

The following is a guest contribution from Devin Conner of Franchise Marketing Systems.

Devin Connon - ThumbnailOkay, so you’ve found the perfect business idea, one that seems to add up from every angle and couldn’t be better for you and your future plans. The only problem is that you don’t have the capital to open the doors. Well, unfortunately this is a rather significant problem for a small business startup, particularly in today’s lending environment. There is no question, it is difficult to get a loan today for ANYTHING, much less for a small business startup.

Small business lending is one of the highest risk categories in lending practices, so now is not the time to be crossing your fingers and just ‘hoping’ that the money will come to you. The 90’s are gone … it doesn’t work that way anymore.

So how do you get a loan for small business startup today? It starts with planning, documentation and preparation … then ends with a professional and credible presentation to someone or something who has money.

1.  Don’t hope. Show the bank how you will take their money and turn it into a profitable business venture. Picture the bank like any other person you would try to borrow money from. They are nervous, they need to trust you and most importantly, they need to believe that you will pay them back!

Franchise Financing2.  Don’t limit your sources. Banks aren’t the only options out there for a small business startup loan. Private investor groups exist, but generally speaking, won’t deal with you unless you are looking for over $2 million in funding. You might consider a ‘Hard Money Loan,’ but you better have a quick ramp up to cover the cost of financing.

3.  Develop a great business plan that shows the capability of the business and YOU!  You should plan on selling yourself as much, if not more than the business you are looking to fund. What makes you special, talented, intelligent and proven that will lend credibility?

4.  You need to have the PERSONAL balance sheet to get a loan. Plan on needing to have a credit score of at least 680 and a net worth of 1.5 times what you are asking for in the small business loan. You should also have 30% of the loan to put up in collateral to the lender in this market.

5.  Consider a franchise. Buying a franchise that has proven itself and has examples to validate the financial model gives you a leg up in the financing process. Franchises have a higher rate of success and isn’t that what it’s all about?

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