When I woke up this morning, this dream kept sticking in my head. Why would I dream about Suze Orman? I wasn’t reading a book written by her, nor had I even seen her show (or even thought about it) in a long while. It particularly bugged me because I can usually rationally explain everything that happens in my dreams – they’re almost always subconscious nudges that I should be doing something that I’m forgetting about. After some reflection, however, I think I pieced it together.

Suze Orman’s personality makes my skin crawl. The public persona of Suze Orman revolves around an appearance of “success”: designer clothes, styled hair, and the like. This runs contrary to what she preaches, which is to live thrifty and sock away money. Similar financial pundits don’t dress overly nicely; take Jim Cramer, for instance. He dresses like the chainsmoking accountant I know that lives down the street, but it makes sense because he’s preaching positive use of money and reasonable investment. Suze, on the other hand, comes off as some sort of televangelist, preaching her solutions to all of your problems with her screechy voice and “worship me now” attitude, dressed to the nines in a self-contradictory fashion like the wife of Joel Osteen or something.

But a lot of the advice she gives is good advice, especially to beginners. Even though her persona drives me to drink (literally, I sometimes watch her show in the late evening with a glass of scotch), she says things that often make sense to the beginning investor. Unquestionably, it’s a good idea to get your head on straight first, and it’s a good idea to build up an emergency fund before you dive into big purchases. I don’t think it’s just the scotch-induced haze – her material actually makes sense. Her books are also quite good, mostly because they’re separated from the designer clothes and that nails-on-the-blackboard voice.

I’m at a loss here… should I like Suze Orman or not? Is it okay to be completely disgusted by someone’s persona but still respect what that person has to say? My uncle used to say “big suit, little man” a lot, in reference to people that tried to put on a big show about things but really didn’t amount to much – and this is the exact same vibe I get from Suze Orman on a regular basis. Yet the actual core of the message she sends strikes a deep inner chord with me – maybe the specifics aren’t perfect, but the central concept is spot-on.

Either way, I don’t think I’ll tell my wife about this dream. She would probably be creeped out by the whole thing.

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Is There Something Wrong With Me If Suze Orman Appears In My Dreams?

This year, I wanted to do something different with it. I suggested to my wife that we save or invest that money instead of just buying something silly with it. Her argument in response was that it is given as a gift for enjoyment, so we should enjoy it.

Her argument does have a degree of validity with it. When we receive the gift, it is usually with the stipulation that we “do something fun” with it because we “work so hard.” My argument is that we should indeed do something fun with it – but we should save their gifts for something really special, like a trip to DisneyWorld when our son is nine or ten years old. My thought is that if we tell them that we have a long term goal like this and we’re investing the money until then so that we maximize what we have when we go on the trip, they’ll be thrilled. Of course, investing the money now means that her grandparents might not survive to see us really appreciate their gift.

I guess the question is what is the most appropriate way to handle small cash gifts? My feeling is that once the gift is given, it’s up to you to determine what to do with it, and investing it doesn’t necessarily mean that you won’t end up doing something enjoyable with it.

On the other hand, I visualize the reaction of my wife’s grandparents when they receive our thank you note and we tell them that we took their money and bought a five year treasury note.

I suspect that we’ll go back and forth on this until Christmas.

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Handling Small Cash Gifts

Every day, I want to learn something new and useful about managing my finances. Since most days I don’t have time to read the Wall Street Journal or anything like that, this goal simply helps me keep my eye on the ball in terms of being vigilant about my money and my financial knowledge. My metric is simple; I look at my idea diary and see if I have added anything new.

I also try to avoid five temptations to spend money. In our consumerist society, I’m almost constantly bombarded with temptations to spend money, even small amounts of it. If I get the urge to go to the vending machine and resist it, I count that. If I want to go out to eat, but instead make a meal at home, I count that. If I consider renting a movie, but instead find something on basic cable to watch, another checkmark. You get the idea. I try to keep track of these in my memory and sometimes in my idea diary, but mostly my metric is a simple count in my head.

My third daily goal is to take two steps towards improving a secondary revenue stream. Things that I do to help this along are: look for massive bargains, check my consulting flyers on public bulletin boards, collect any coupons I find for trading (I’ve become an active coupon trader and I often get fat envelopes in the mail full of coupons relevant to me), list items on eBay, look for writing markets, and so forth. Each activity helps to improve a secondary revenue stream, which means that if I decide to make some life changes, I will have some avenues to continue to earn money as I make changes. Again, I just keep track of anything that I do that would improve my revenue streams.

Although this final goal isn’t financial, it does relate. I want this website to get more visitors today than it did one week ago. What does that mean? It means I try to continually write good posts here, participate in the blog community, and find new ways to let people know about the site. It pushes me to work on the site some every day. For this, my obvious metric is site statistics: did the visitors for today exceed the visitors for one week ago?

Each day, I wake up with the belief that I’m taking another step towards my dreams for the future. Each of these goals and metrics shows me that I’m making progress in that direction.

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Setting and Meeting Daily Personal Financial Goals

Then I came across this comment from “Eyebrows McGee”:

Incidentally, if you are going to college, you can get a credit card and buy your textbooks on it from amazon.com. You usually save a little on the textbooks over getting them at the bookstore, amazon delivers to your door so you don’t have to carry them (important to me on a walking campus!), and you can then pay the card off right away with your books money.

By the end of four years, you’ll have some pretty reasonable credit history built up. By the time I graduated, having never charged more than $350 on the card, using it basically twice a year, and never carrying a balance, my $1200 credit limit was up to $8500 and I had enough credit history to go out into the real world of non-cosigned apartments, utilities, and eventually mortgages.

The trick, of course, is not to fall into the college student trap of abusing credit cards.

This is a brilliant idea for all new college students, in my opinion. Getting a credit card for the sole purpose of buying textbooks enables you to save some money by buying them online instead of from the campus bookstore, plus if you just use the card for this purpose and then quickly pay off the balance with a check, you’ll build up solid credit.

Let’s take it a step further. Let’s say you are going to buy your books from amazon.com and don’t have a credit card. Let’s also say that you’ll have to spend $350 a semester on books for eight semesters. If you apply for the Amazon.com Visa, you can save $30 off of your first order. Plus, with each dollar you spend at amazon, you earn three points in the program; once you reach 2,500 points, amazon issues you a $25 gift certificate.

So, the first semester, you’ll immediately save $30 on your order. You’ll also earn 1,050 points each semester. This means that after your third, fifth, and eighth semester orders, you’ll receive a $25 amazon gift certificate that you can use to reduce the book price each semester. All told, using the amazon credit card could save you over $100 on something you’d do anyway.

The trick is to make sure that you won’t use the card for anything else. It might make sense for a college student to leave the card with their parents so that there’s no temptation to start charging things up. Then they can use the card during breaks to order their books.

If the student is capable of paying for their textbooks immediately, this is a strong way of building credit. Once you show that you regularly pay off the card, the credit card company will automatically lift your credit line, thus improving your credit score. By the time you’re done with college, not only will you have saved significant money on textbooks, but you will have also built substantial credit for yourself without any of the college student credit card mistakes.

My niece will be entering college in the very near future. She has no established credit at this point, so I think I will recommend this plan to her.

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Getting Started With Credit By Buying Textbooks

I challenged my wife to make a similar list and the only area that overlapped was the house. Her wishes included a nice parcel of land on which the house would reside, lots of wonderful furnishings for the house, and a “comfortable” car. For her, thankfully, “comfortable” does not translate to a Lexus or a BMW or the like.

I can visualize and almost feel these things that I wish that I had; if I close my eyes, I can imagine myself entering this house and seeing my son playing on the floor and my wife in a comfortable chair reading a book. I imagine driving around in this car, not concerned that it will ever break down. I imagine working in a less-stressful situation because I am secure in the knowledge that I won’t be fired.

What do each of these things have in common? They all revolve around security for my family. When I evaluate my deepest desires, they come back to one central thing: I want my family to be happy, healthy, and secure.

I have all of these wishes and dreams for material things, but the reality of the matter is that these dreams and wishes are all tied to something tangible that I have right now. Thus, when I work towards meeting these dreams I have, the thing I’m actually working for is my family.

It was quite powerful for me to realize what the root motivation in my greatest material dreams and wishes is. I only need to look at them to realize that although these dreams are wonderful, they don’t compare to the treasures I already have.

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Dreams and Wishes – and Reality

At age 30…
I want to have a net worth of $50,000. My current net worth is approximately $16,000, after being negative less than six months ago. This means that I need to increase my net worth by $33,000 in 20 months.

I want to have an emergency fund that would sustain my family for nine months. In other words, I want an emergency fund that will enable a withdrawal of $3,000 every month for nine months. This means I need to have an emergency fund of $26,500. This dictates that my primary investment mechanism over the next year or so is into a high-yield savings account. Given my current (approximate) balance of $5,000, I will have to put away about $1,050 a month into savings over the next twenty months to reach my goal. This will be very difficult, but it is possible, and it meshes well with my net worth goal.

At age 35…
I want to have a net worth of $150,000. This means a $100,000 increase in net worth over the five years from my thirtieth birthday. With reasonable investment and debt reduction, this is a reasonable goal.

I want to own my own home. My targeted price point is a $160,000 home, which requires a $32,000 down payment. To save up this amount (at an average return of 5%), I need to invest $325 a month starting today, or $475 a month starting on my 30th birthday. Of course, I may be able to exceed this return level, but we will use it as a starting measure.

I want to have an emergency fund that will sustain my family for eighteen months. On my thirty-fifth birthday, I want to have an emergency fund that will allow me to withdraw $3,500 a month for eighteen months without any worries. Assuming that I made my goal of a nine month emergency fund on my 30th birthday, I’ll need to add another $34,000 to the account in the following five years, which means simply $400 a month, a much more reasonable monthly amount than before. This is the emergency fund I wish to have in place for the remainder of my life, so I will sit on this now and leave it alone to earn a stable income in CDs and high-yield savings. Since I am saving $200 less a month starting on my 30th birthday, what will I do with that money?

I want to have a $15,000 investment portfolio. With that extra $200 a month, I want to build a small investment portfolio. Since I know little about investing, I’ll have to research this a bit, but at this early life stage I feel fine having some risk in it. I just know that I want to be building a nest egg.

At age 40…
I want to be debt-free except for my mortgage. I currently have substantial student loans outstanding that have a fairly low interest rate, but I am on pace to eliminate all of them on my 38th birthday. I intend to follow through completely with this.

I want to have a net worth of $300,000. Once my emergency fund is in place, I plan on focusing much more on my investment portfolio. I hope to build it to $125,000 by my 40th birthday, with the rest of my net worth coming from other assets (403(b) and IRA).

At age 50…
I want to be debt free. I will own my own home free and clear at this point and be considering the possibility of moving into a home to retire in, the home my wife and I have always dreamed of. But I will not go into debt for it; I intend to simply liquidate other assets and pay for it in cash.

I want to have a net worth of $1 million. That pretty much says it all.

At age 55…
I want to never work a day again for the rest of my life. I estimate this will take a net worth of $1.5 million on top of my bank-guaranteed pension which will begin at age 57 (my job guarantees a pension based on years of service – they pay a separate financial institution to provide this pension).

Do you have a life plan comparable to this? Once I set this all down on paper, it became a relief to me merely because it existed. It provides goals for me every step of the way – now, can I meet those goals? That is the challenge, but now I feel for the first time in my life that I have greater financial goals, ones that I can achieve if I work diligently at them.

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Defining My Long-Term Financial Goals…What Are Yours?

According to the peak-end rule, we judge our past experiences almost entirely on how they were at their peak (pleasant or unpleasant) and how they ended. Virtually all other information appears to be discarded, including net pleasantness or unpleasantness and how long the experience lasted … One everyday example of the peak-end rule is how when someone eats a sandwich, they judge its tastiness solely on the basis of the filling in the middle, and the crust on the far end, which is eaten last. Thus the other parts of the bread are irrelevant, and most restaurants will take advantage of this.

I was first made aware of this phenomenon by a posting at overstated.net which relates this phenomenon to optimal vacation planning; one should plan for a great experience in the middle and a strong end to a vacation if one wants to remember it in a positive light.

It occurs to me that this phenomenon applies to personal finance as well, particularly when one is just getting their feet wet. In terms of a budgeting period, one can use the peak-end rule to create a very positive later impression of a period of financial adjustment simply by using the peak-end rule.

For example, I decided several months ago to carefully manage my finances on a monthly schedule, believing that if I could set a “feel-good” example for the first month, it would be much easier to continue sticking to that budget. It worked, but when I reflect on this experience, it does match the nature of the peak-end rule.

If you’re considering creating a budget and sticking to it for the first time, try the following plan, which utilizes the peak-end rule to create a positive memory of the experience of budgeting and saving.

With the peak-end rule, you want to create a strong peak somewhere in the middle of the month and finish strongly at the end of the month. So, set up a monthly budget for yourself, then divide each amount in half, as you’ll want to see where you’re at at the end of the half-month. When the first fifteen days are up, go through the budget and see where you’re at. If you’ve been committed to the budget for those two weeks, you’ll experience a very positive feeling as you realize for the first time that it’s actually working. I also recommend making a savings deposit at that same point in the month to encourage a strong positive feeling – deposit it into a high-yield online savings account (or other easily viewable investment account) so you can keep an eye on it.

At the end of the month, figure up the budget again. The mid-month peak should have encouraged you enough to tackle another two weeks of budgeting your money, so when you do your final budget at the end, you’re right on track with some saving or debt reduction over the period of the month – a really good feeling. You also can check your investment account and see if your new budget has actually earned money over that period, another good feeling.

Later, when you recall that first month of budgeting your money, it will bring about a very positive feeling from within, encouraging you to be more money conscious in the future.

Naturally, you can utilize this phenomenon for other financial situations as well, but it is very useful for periods when you’re trying to adopt healthy new habits.

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Applying the Peak-End Rule to Personal Finance

I personally use a Moleskine daily planner for my diary-keeping needs. Each page is quite large and lined just about perfectly for my writing style, meaning I have plenty of room on a given page to fill it up with my scattered thoughts and ideas. It also fits nicely inside my jacket and also inside my briefcase, which means I can carry it with me wherever I go with ease. In fact, I often use it as a combination daily planner / diary, which means that I’ll write events in advance on that day, then use that day’s entry page as a place to collect my thoughts.

It turns out that Moleskines are often used for similar purposes, but not necessarily as a personal finance record. In fact, it has much in common with the classic tradition of the commonplace book.

So what do I write about? I simply keep the diary on me during the day and when a thought occurs that I want to remember to look at in more detail later, I jot it down. If it’s an idea that I might be able to write about, I circle it. The thoughts are quite often broken little pieces of information, usually written in a weird shorthand that only makes sense to me, but that’s fine; it’s my diary.

I don’t restrict myself to only financial thoughts; I also use it to record upcoming dates (birthdays, etc.) and thoughts on all sorts of topics – personal issues, politics, entertainment, and so on. I generally don’t write much with each entry, just enough so that I will recall it when I reflect on my entries later.

Quite often, I’ll find later that I don’t even recall coming up with an idea, but I’ve jotted it down and it turned out to be a good one. This happens quite often (multiple times each week), and this phenomenon alone has convinced me that using such a tool is a great benefit to organizing my thoughts.

I also use the diary to record unexpected minor expenses, such as last minute gift items, an unplanned meal out with acquaintances, or a spur-of-the-moment activity. This enables me to keep track of such expenses and match them up with my budget at the end of each month.

Every few days (when I have a bit of free time), I review the last few days’ worth of entries in detail. I read through the points and investigate those points which continue to intrigue me; I also enter those noted expenses in my personal ledger. I often find that the ideas that still intrigue me when reviewing the entries lead me down paths of investigation that I would never have considered without the diary.
In short, I use this Moleskine diary to keep track of my various thoughts and use them as a record for later investigation.

It goes beyond a simple diary for me and becomes something of a memorial to my thoughts, ones that I hope will push me onward to greater things.

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Building a Financial (and Personal) Idea Diary

Perform some basic car maintenance before you leave. Before we leave, I check the tire pressure on the car tires and take a peek at the air filter and oil level. Each of these tasks ensures that we’ll maximize our fuel usage on the trip. Properly inflated tires can add about a half mile per gallon, properly filled and replaced oil can save about three quarters of a mile per gallon, and a clean air filter can save about a mile and a quarter per gallon. If you car would get fifteen miles to the gallon before this maintenance, you can easily get that up to sixteen and a half miles per gallon, which with gas prices even at the two dollar level can mean a savings of a little over six dollars on a five hundred mile round trip.

Minimize your distance. Google Maps and MapQuest often push you onto interstates as quickly as possible in order to make their map algorithms work. In most states, however, some careful map examination can find a much better route still using four lane roads. On our trips, we are often encouraged to use two interstates, but there is in fact a four lane highway that literally traces a diagonal path between the two interstates that cuts off at least thirty miles of the trip. Not only do we save gas money, we get home quicker, too.

Pack snacks before you go. Before we leave, we pack up bottles of water and such from home so we don’t pay expensive convenience store prices for the goods. Our trip essentially requires us to stop at least once for gasoline, so if we have our own snacks, the desire to step inside and purchase an overpriced soda is greatly reduced.

Be aware of gas prices before you leave. Our trips cross multiple states, so we know before we leave which states offer the best deals on gas and we make sure to fill up in those states. With the vast difference in gas taxes from state to state, you can easily save ten to fifteen cents a gallon by doing your research before you leave. Take note of the state by state fuel price report before you leave so you can know whether you should gas up before you cross a state line or if you should wait a few more miles. Some good examples of differences between bordering states are between California and Arizona ($0.19 per gallon), Iowa and Illinois ($0.17 per gallon), and Tennessee and Kentucky ($0.11 per gallon). That’s some significant savings on a tank filling.

These tips can easily eliminate twenty percent of your cost of traveling long distances in the United States, but the same ideas apply to any nation in the world. Take care of your care, be thrifty, and be aware of gas price variations and you’ll put money right in your pocket.

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Saving Money on Road Trips

One day, my friend made an astute observation: he didn’t recall receiving an allowance until he was about six years old. What about the years before then? His parents said that he didn’t do any chores at such a young age, but he was able to reason with them that he was learning to do the chores and, as a toddler, he also provided ample entertainment for guests. Although this was a good argument, it didn’t really earn him his “back allowance” that he wanted so desperately.

Now I’m a father, and my child just had his first birthday. I consider an allowance to be a great idea for money management, so I’m going to institute a weekly allowance for my own child. My wife and I decided that two dollars per year per week is a good rate, so that means that technically my child should receive his first allowance of $2 today.

Since I don’t actually plan to start giving him a real allowance until he’s six or so (at a younger age, money is conceptually challenging), I have decided to invest this money for him for the first five years of his life and then let him make decisions about what to do with it when he is older.

So let’s look at what I have to invest for him. For the first year, I will add two dollars to his investment pool; during year two, it’s $4 a week; during year three, it’s $6 a week; during year four, it’s $8 a week; and during year five, it’s $10 a week. After that, my son will receive his allowance and I’ll give him the opportunity to determine if he wants to keep the money and spend it or invest it.

My goals for investing are simple:
1. I want to minimize the risk so that there is a less than one percent chance that his balance at age ten would be less than if I put it all into a piggy bank.
2. I don’t want to invest extensive effort into specific choices. In fact, I’d like to set up an automatic deduction for this expense.
3. I’m not going to contribute a minimum balance to this in order to qualify for a particular type of account. This will be entirely his money. Once it leaves my hands, it’s his for eternity.
4. I am willing to pay small amounts of tax on the money out of my own pocket to shield some of the growth.

Let’s look at our baseline. If I simply keep it in a piggy bank (the worst option), he will have $1,560 in cash on his tenth birthday which will only grow if he chooses to add more to it. This is not a realistic option.

If I were to take it to the local bank and put it in a savings account there, which offers a 1% true interest rate compounded quarterly. By putting his allowance in there, the balance on his tenth birthday would be $2,324.96, according to my kitchen table arithmetic.

I think the idea of using a high-yield savings account is a good one until he reaches the $1,000 threshold, just before his fifth birthday. At that point, whenever the account reaches $1,000, I invest in a certificate of deposit that matures prior to his tenth birthday, I can reach a total of $3,050 with very little additional risk. This can all be handled fairly automatically, with very little risk.

I think that a mix of high-yield savings with certificates of deposit offers the best plan for earning some money on my child’s savings. Upon his tenth birthday, he’ll have some money to determine what to do with, and it will be a good time for him to learn about investments on his own. I will be able to hand him a solid amount of money that is actually his from his allowance.

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Investing A Young Child’s Allowance