I tend to be an idea person, so my mind is constantly flooding with ideas and concepts to make more money, become more efficient, or do something better. At the same time, I’m an action-oriented gal – Marcus Buckingham calls it the “activator” strength in his Now, Discover Your Strengths paradigm – so I’m all about trying something, seeing how it works, adapting, and then trying it again. So at any given point, something can seem like the best use of my money – at least until I’ve tried it and am able to come up with a better use.

Being more conscious about financial decisions has helped curb spending a lot because I tend to be more strategic in how I implement something – and therefore I’m getting much better at choosing the appropriate course of action. But, admittedly, I still have a tendency to come up with something and want to act on it right away – and spend money accordingly to make it happen. It takes effort on my part to crunch numbers.

Still, I think this question is extremely valuable because it forces you to think about your short term and long term goals. Too often, our focus is on the short term – paying off this or buying that – rather than the long term – in 10 years, I want to be here and this is how I’m going to get there.

In The Wisdom of Crowds, James Surowiecki explains that people tend to value the present more than in the future. Economic theory would suggest that a person’s consumption would remain the same before and after retirement, but this just doesn’t play out in real life. He says

In fact, consumption drops dramatically when people retire, and senior citizens get by on considerably less than they did when they were working. Oddly, this isn’t because people don’t want to save. In fact, if you ask people what they ought to do they’ll express a preference for saving. But when it comes to actually doing it, Americans are college students (and writers) at heart: they procrastinate. In economic terms, they value the present so much more than the future that saving seems to make little sense.

The paradox is that although Americans aren’t willing to make sacrifices in the present to improve their future, they say they’re willing to make sacrifices in the future to improve their long-run prospects. In other words, although they’re not willing to save any part of their income today, they’re willing to save significant parts of their income tomorrow. The problem is that people turn out not to be that good at estimating what their preferences in the future will be. This may not be that surprising: we change, circumstances change, why should we imagine that we know what we will want. But one consequence of that is that the plans we make today in anticipation of how we will act tomorrow may not work. Specifically, if we say we will not worry about saving today because tomorrow we will finally get around to saving, it will not be surprising if when tomorrow rolls around we find ourselves still spending.

I think we all fall into the mentality of sacrificing the long term for the short term at some point in our lives, so it’s good to remind ourselves that each purchase can help us, hurt us, or remain (more or less) neutral in the long run. We need to ask ourselves – will this be worth it?

In the 1950s and 60s, psychologist Abraham Maslow proposed came up with a “hierarchy of needs” to describe our wants and needs. The 5 classifications identify our lowest basic needs that must be met for us to move onto the next.

1. Physiological needs – These needs are fundamental to our survival and include things like food, water, air, shelter, and sleep. We seek out these basic needs above all else. For instance, if we haven’t eaten or slept in days, those basic actions take priority over everything else we might do.
2. Safety needs – We need to feel that our lives are not in danger. Here we are concerned with things like staying safe from physical harm, sickness, and having enough money to live.
3. Belonging/love needs – This is our desire to feel loved by others. We want to fit in and belong to certain groups so we seek out companionship. If we can’t fulfill such needs, we experience loneliness, depression, and other mental health problems.
4. Esteem needs – We need to feel both that others respect us and that we respect ourselves.
5. Self-actualization needs – Here, we want to become better than we currently are so we seek ways of growing on a personal or spiritual level. These needs are about harnessing our talents and making the most of the opportunities they provide.

Penelope Tzougros provides an adapted framework for how we spend money in her book Wealthy Choices. Here, each of us might spend money on:

1. Fixed costs – our rent or mortgage, utilities, food, and clothing – things we have to pay in order to survive.
2. Additional costs – costs that we could live without but we are much better off paying, like medical coverage, phone service, transportation fees, etc
3. Wants – these are things like going out to dinner, buying coffee at Starbucks, internet access, cable tv and video on demand, a gym membership, pet care, etc
4. Luxuries – an upscale car, season tickets to sports games or theater shows, most electronic gadgets, exotic vacations, etc
5. Happy silliness – these might include dog toys, frivolous purchases, spending $$ to win a stuffed animal, or buying an I-love-you gift for your partner

The scale should be adapted to fit your lifestyle. For instance, personal development and ongoing education is extremely important to me, so I’d probably throw a category in between Wants and Luxuries that might include classes, audio cds, and book purchases. I’d also classify internet access as an “additional cost” rather than a “want” because of my business requirements. For others, maybe you’d focus on weekend escapes with your significant other or activities with your kids or caring for your elderly parents or a particular hobby you enjoy.

Regardless, the point is to create a framework by which you can classify the majority of your purchases so you know where each type sits in your wants-and-needs hierarchy and so you start to think about your financial decisions more consciously.

These can be anything, such as:

• it will cheer us up
• it will make us look thinner, more attractive, etc to our significant other
• it will teach us something
• it will appreciate over time
• it will help us get a better job
• and so on…

I’m a bibliophile (I tend to read 1-2 books or so each week), so my to-read list is insanely long. A few months ago, I got to the point where I just had to curb it because I was acquiring books at a rate where I just couldn’t keep up.

Now, whenever I see a book I’ve been meaning to pick up, I’m able to rationally consider most purchases by asking myself “what are the benefits of making this purchase?” or in other words “how badly do I want this book? Am I more likely to read this book now than the several dozen books I haven’t read on my shelf? What value will the information in this book give me that others won’t? Will that be worth my time?”

Then I think, “Do I really need to buy this? Can I read it at the book store or borrow it from the library? Can I download a sample chapter online to see if it’s really good enough to buy? If I read it and decide it’s not worth keeping, how much can I sell it for on Amazon.com?” And so forth.

Thinking about my purchases consciously and asking myself value oriented questions has really changed how I purchase things. Before, I wouldn’t think twice about paying $8 or less for a copy of a book I was considering (yard sales, flea markets and 2 for 1 sales were ecstasy for me). Now, I stop and ask myself if this is really going to be a useful purchase. Doing so, I’ve managed to significantly reduce the number of books I purchase.

If you collect anything – cookbooks, gadgets, dvds, music, etc – you probably go through a similar process when evaluating whether to buy something. Try asking yourself “what are the benefits of making this purchase” whenever you get the urge to buy something. It really helps put things in perspective.

I suppose it’s like doing anything long term. It takes 21 days to form a habit, but you have to do (or not do) something every day in order for it to stick. Steve Pavlina recommends 30 days. Even so, it’s often very easy to get started, but as the days pass, your (or at least my) mind starts rationalizing how good you’ve been and how you could skip just one day to reward yourself for your efforts so far. Often, I find that if I give in, I never go back until I start the process over yet again.

Money management, I think, is very similar. It’s easy to pay credit cards down, save a percentage of earnings, and cut back on spending for a little while. But if I’m not thinking about it consistently and my intent to accomplish something isn’t strong enough, I’ll give in and spend. The weird thing is that in most cases, unless what I purchases truly wasn’t worth my money – like a bad experience at a restaurant or a gadget that just doesn’t work like it’s supposed to – I rarely feel bad about it.

Tzougros explains that the first step to effective financial decision making is to evaluate how we value money. For example, there are some people who can see two identical coats for $150 difference – one branded and the other generic – and still go with the branded coat because they value the label that much. BusinessWeek just wrote about a 15 year old value investing book that’s going for $700 used because it’s so highly regarded – yet extremely rare – within the industry.

Every time we make a purchase, on some level, we’re weighing the value with the cost. Many times, this is impulsive, as in “it was on sale” or “I just had to have it.” Other times, it’s out of habit – I buy Total Raisin Brand over Post because I’ve bought into the notion that Total is more nutritious, think it tastes better and therefore, it’s worth a little more. That doesn’t mean I’ll skimp on a coupon if I have one, but it does mean that given the choice, I value one over the other.

A better way to value purchases is to consider them consciously.

Unless you’re a billionaire, you’re likely to have more uses for your money than you have money, so a better way to think about what you are spending is to ask the following three questions:

1. What are the benefits of my making this purchase?
2. How important is making this purchase?
3. Is this the best use of my money?

In my upcoming posts, I’m going to explore this mindset further.

• Pay It Down – work overtime or take on a 2nd job
• Cut Spending
• Track Your Expenses
• Pay Cash
• Adjust the Thermostat & Fill Your Tires
• Check Your Withholdings
• Have an Insurance Check-Up
• Don’t Impulse Shop
• Have a Garage Sale
• Power Pay Your Creditors

I’d add that starting a web business or finding another source of income is also a good way to find extra money without slaving away at a 2nd job. Here are my suggestions:

1. Start a blog – Anyone can set up a blog on Blogger.com, Typepad.com, or WordPress.com for free to cheep with no technical skills needed. Simply sign up for an account and start writing about a subject, niche, or hobby. Then, find forums and other blogs (through Technorati
2. Join Google Adsense – The more traffic your blog receives, the more money you’ll make.
3. Join an Affiliate Program – There are all sorts of affiliate programs from Amazon.com to Commission Junction to Clickbank. Simply join and promote other people’s products.
4. Create your own products – Digital content is easy to create. What do you know and are passionate about? Music, videos, games, audio, and ebooks can all be sold online for additional income. Or try CafePress, where all you need are some photos or other digital artwork, and you can start selling t-shirts, mugs, calendars and all sorts of other stuff.
5. Create a mailing list – If you have a blog, it’s really easy to set up a mailing list through Zookoda for free. You can also try Feedburner or Aweber (aff)
6. Sell your junk online – Garage sales are rarely as profitable as selling stuff on eBay, Half.com, or Amazon merchants

It’s not difficult to make a few hundred extra dollars a month with some of these techniques, which can go a long way to help pay down your debt, build an emergency fund, or help with savings.

A recent NewsFactor article mentions that this “vampire power” sucks up 10% of residential energy consumption and ranges anywhere from $1 billion to $3.5 billion annually.

While one appliance might not make that much of a difference, the average household has between 20 and 75 electrical devices that use standby power.

I found that the easiest way to do it is to plug electrical devices into a power strip and turn that off when the devices aren’t in use. I tried this and cut back my electricity bill by like $30/month – but then I have a lot of tech gadgets.

Source: NewsFactor Aug 2006 (print edition)

According to eMarketer, in Q2 2006, online requests for info for the Toyota Echo/Yaris rose 835% and for the Ford Escape Hybrid rose 110%.

Bigger vehicles like Toyota Tundra, Chevy Silverado, Dodge Ram, Honda Ridgeline, Nissan Titan and the Ford F-150 are down between 34-52% since last year.

Consumers are also turning to the internet to find low gas prices. GasBuddy.com saw its visitor numbers triple in April – from 755,000 to 2.3 million visitors. US Dept of Energy site, FuelEconomy.gov saw an increase of 172% from March to April.

FuelEconomy.gov has all sorts of interesting tips and articles for comparing vehicles on gas mileage, emissions, and safety as well as alternative fuel vehicles like those running on ethanol-gasoline and fuel cells.

Source: eMarketer

Jean Chatzky is the financial editor for NBC’s Today show and writes articles for Money, Time and USA Weekend. Her book outlines the 11 steps to take if you want to become debt free.

Chatzky’s financial plan starts with the obvious: 1) tackle your credit card debt, which is probably costing you at least 15% interest and 2) start an emergency fund so that you have a security net.

Her steps are as follows:

• Access the problem. How did you get into debt? How much debt do you actually have?
• Break your challenge into manageable steps. You need to set a clear framework for eliminating your debt. If you have $8000 in credit card debt and you want to be debt free in 3 years, you need to set aside $10/day. If you have more debt, you’ll need to set aside more money or lengthen your time period. To help you determine what’s best for you, Chatzky provides helpful charts based on your interest rate and your total credit card debt.
• Know and manage your credit score. Anyone that’s ever applied for credit has a credit history as monitored by a credit bureau – usually either TransUnion, Equifax, or Experian. The better your credit score, the more money you can borrow at a better interest rate.
• Track your spending. Know how much money you’ll earn this year before and after taxes. Know what your fixed costs (your rent/mortgage, car payment, loan payment, utilities, gym, internet, phone, etc) are. Learn where the rest of your money is going (groceries, meals, gas, entertainment, books, etc).
• Find the money. Here, you must analyze where you can cut back on spending. What can you eliminate to find your $10/day? Ideas include spending less changing your withholding, reducing your interest rates, negotiating a lower credit card interest rate, consolidating your student loans, selling assets, earning more and refinancing your mortgage.
• Pay it down – intelligently. Pay the highest interest rates first because those are the ones costing you more. If you can’t pay off everyone, start with the necessities like your mortgage or rent, health insurance, and the IRS.

Chatzky is also aware that sometimes you’ll hit bumps in the road so she offers advice on how to face a shopping addictions, when you should seek credit counseling, how to deal with debt collectors, and avoiding foreclosure on your mortgage. She also offers a number of tips for staying out of debt like use debit cards instead of credit cards and if you do use credit cards, always pay more than the minimum and pay the bill on time.

The book is a motivational read that makes getting out of debt seem simple as long as you follow the steps religiously. Of course, it’s never that easy to stay the course. I was amazed she didn’t suggest some type of financial management system like Microsoft Money or Quicken to help you track expenses rather than doing it by hand.

Overall, it’s a good quick start guide to getting your finances in order. The types Chatzky offers are practical in their simplicity, are easy to implement, and are presented in a way that won’t overwhelm its readers.

It’s the “as low as” that’s the kicker. Your actual rate could be much higher, but you won’t know until you provide them with specifics about your finances and your social security number. It’s only after you apply that you’ll learn your rate and who much you’ll be approved for.

So, what to do? Justin McHenry of IndexCreditCards.com offers two bits of advice: Either don’t apply for cards that don’t disclose all terms upfront or apply for several cards at the same time, compare the deals, and cancel the ones you don’t like.

But won’t this hurt your credit score? McHenry claims it probably won’t do much, but to be safe, don’t try it before you apply for a home mortgage.

What should you be looking out for?

• two cycle billing – where they use your balance for the last two months to calculate the average balance. If you rarely keep a monthly balance, you could still end up paying 2 months interest for 1 month’s debt.
• Changes to your credit history profile – companies see this as a warning sign and may increase your rate
• Over-limit fees – if you charge something over your limit, it probably will still go through. You’ll just find an extra fee tacked on
• Due Dates – Do they have a particular time of day, after which they consider your payment late? Watch this carefully, because even if your payment arrives on the due date, that may not be enough to stave off a late fee and possibly even a rate hike.
• Crunch your own numbers – Take advantage of online debt calculators like those at Motley Fool that calculate how much interest you’ll end up paying and how long your debt will take to pay off

So, while the government probably won’t be going after credit card companies anytime soon, there are numerous things to watch out for when applying for a new credit card.

With Pitney Bowes, however, the charges keep mounting. You rent the postage machine for approx. $40/month and then pay the cost of ink and postage on top of that.

That’s a bit expensive, given I don’t use the machine every day, but it does save me an hour trip to the post office when I do (thus paying for itself in one trip given what I can bill clients). And it’s nice to have something that will calculate exact postage, rather than using an extra $.39 stamp or mixing and matching combinations of $.10 and $.01 to get that exact number.

Still, I felt I could save a few bucks/month by switching.

I’m now trying out Stamps.com. There’s no equipment involved – just some computer software and you print via your printer. There’s a monthly $15 charge + you have to pay for their labels, which cost about $5 for a pack of 125 or about $.04 each if you factor in shipping on a few packs. They do give you a free scale and a couple sheets free when you sign up.

Obviously, after a certain number of mailings, Pitney Bowes is the better choice since you’re not stuck using their proprietary labeling system. But I don’t mail that much, so it suits me fine.

If you’re running a small business that requires mailings of any kind – like eBay, an online store, or simply mailing information kits to prospects, having a mailing service like either is well worth it.