Amazingly, I stayed on budget for these two sales days. It wasn’t easy with all the marketing and flashing lights I was inundated with.

The good news is I finished my Christmas shopping, so that is one less thing to worry about. The great news is I didn’t buy anything for myself and wasn’t sucked into the feeding frenzy.

How did I stay on budget?

This was the easier part. I made a list of what I was going to buy for each person that I still needed to buy gifts for ahead of time and stuck to it. The hard part of this equation was avoiding being sucked in by “you may also like.”

Since I am rigid about my budget, I wasn’t tempted to buy extra things for Christmas gifts. I have one aunt who has this problem. She has a basement full of things that she buys during Christmas sales that she pulls from every year and gives them to people. She also keeps shopping the same way every Christmas, so her hoard continues to grow.

For me, I was more tempted to substitute a new gift for my original purchase idea. I used the strategy of sleeping on the decision. I took a nap (I don’t really need reason to take a nap, but it is always good to have a reason ready.)

I decided to stick with my list and not even look at the suggestions offered up by the infallible internet. I did this because I had already researched the products and knew the people I was buying them for would like them. Problem solved.

How did I avoid the impulse buy for myself?

This was a much more difficult task. I can be overcome by flashing lights as well as any other lower mammal. My first stab at stopping the impulse buys was the tried and true “Do I want this or do I need it?”

The want need approach works for me most of time, but we all can get mesmerized by the right product or the mass hysteria of thinking something is a deal. What to do?

I thought about all of my stuff in boxes in the basement. You know, the things that once you’re married, are no longer fit to be on display? (This seems to happen to men’s belongings as opposed to women’s…strange) Anyway, I starting thinking of all the things I could sell.

This made me realize that I still have too much stuff and don’t really need to buy more stuff. Therefore, I may have missed out on a few “deals”, but at the end of sales frenzy, I feel good about missing the sale of the year.

How did you fare on Black Friday and Cyber Monday? Get some great deals? End over or under budget? 

Rule Your Wallet Blog

At the end of the day, if your finances are in bad shape then you have one of two problems. You are spending too much money or you are not earning enough money. It is that simple.

I know what you are going to say. What if I have a bunch of unexpected expenses or one large unexpected expense? It could be argued that in this case you are not earning enough money. If you were earning enough money, then you would have the necessary insurance and funds available to cover these types of expenses, in theory.

Spending Too Much

I notice this sort of problem with a lot of my friends and coworkers. It is very easy to identify a spending problem when you are around someone on a consistent basis. I consistently hear my coworkers complain about how they do not make enough money.

Lunchtime rolls around, they go out and buy their lunch for around $7, on average, a meal. Well, over the course of a two-week pay period that is $70 or roughly $140 a month. That is $1,680 a year. I bring my lunch to work and it cost me $10 a week or $40 a month, I now have $100 more than my coworkers per month or $1,200 per year.

I stopped spending as much when I began categorizing my purchases into the simple want or need categories. I have done this so long that I do not really consider buying anything that I want any more. I can prove this by people asking me what I want for Christmas, and my response is always cash. If I am forced to think of something, I normally reply “I need a new electric razor or a half-dozen socks”

Not Earning Enough money

I can make a lot of people mad in this section because it is very difficult to not make enough money. I read many personal finance blogs where people are living happily on as little as $1500 a month and in some cases much less than that.

That is around $18,000 a year after taxes. Therefore, having a job that pays $30,000 a year should put you in good shape. I understand that is will depend on where you live as this amount in New York City would be equal to having almost no money, but you get the point.

At the end of the day, you probably have a spending problem if you are in financial trouble. You house is too big, your car to expense, you spent too much on your education, you eat out too much etc.

Start cutting cost and paying off debt and once your debts are paid off, start saving your money, do not fall back into the trap of spending too much.

Rule Your Wallet Blog

Another good month, with nothing interesting to report. Stocks are doing well and my emergency fund is growing right on schedule.

Debt

Credit Cards $0 – You can see my How I paid off my credit cards post for details

Student Loan $13,295.64 (-1.14% total balance)

Savings and Investing

Emergency Fund = 2.26 months (+0.66 months) I am on track to hit 3 months before the end of this year.

Dollar Savings Plan Fund = $17 (+43 $200 put in savings and deducted from total)

Spare Change Savings Fun = $72 (+23 I only add to this when a roll of coins is taken off the coin sorter)

ROTH IRA Performance = +1.4% for the month of September

401k Performance = +2.7% for the month of September

Unexpected things that hit my budget.

$xxx Birthday present for my wife.

Mistakes

I don’t see anything that qualifies.

Goals for October

Same Goals as last month.

1. Keep throwing all my extra money into my Emergency Fund. I am trying to get this to 3 months as fast as possible. (Successful for August)

2. Do not spend more than $50 on myself for things that I do not need. We are talking about computer games mainly. (Successful for August)

Rule Your Wallet Blog

Here are my favorite links from the Personal Finance Blogospher. This week there was a particularly good mix of articles as you can see from the length of the list. Enjoy!

Rental Property Series: Overcoming Setbacks @ Eyesonthedollar

6 Milestones for Entering the Middle Class @ConsumerismComentar

Auto Insurance Basics And Recommendations For Everyone @FinancialSamurai

Retirement in Beer Terms @FiguringMoneyOut

7 Considerations for Buying A Cheap Car @ModestMoney

It All Goes Back to the Emergency Fund @AmericanDebtProject

“Extra” Paychecks @Mymoneycounselor

Yes. Parents Should Open a 529 Plan for Their Children@Myfamilyfinances

Reader Profile Friday: Rule Your Wallet Blog @Bugetinginthefunstuff

What Will YOU Leave The Next Generation? @BudgetsareSexy

4 ways being an asshole affects your finances @DailyMOneyShot

Don’t Pay for your Utility Company’s Green Energy Program (or Trust Super PACs) @20SomethingFinance

Investing and Inflation Protection @FiveCentNickel

People Making a Lot of Money Still Don’t Have Enough to Retire @Lazymanandmoney

Kids Are Temporary @LiveRealNow

My Retirement and Debt Plan @MakingSenseofCents

Price Comparison: Selling My Old iPod Touch Online and In-Store @MyMoneyBlog

Types of Life Insurance for the Beginners @OneCentataTime

Rule Your Wallet Blog

Why do the rich get richer?

Wealth accumulation over 30 years

This question fascinates me.  Not only because it is asked so often, but also because of some of the replies I have heard.

My favorite answer comes from talk radio, “The rich get richer because they keep doing what made them rich.” Thank you, that is very helpful.

What do rich people do become rich? If we agree with Fisher, he would say that the rich are the patient. The personal characteristics, listed in Fisher’s Impatience Theory of Interest, they posses lead them to be more patient.

The more important characteristics are foresight and expectation of life. According to Fisher, the patient looks towards the future to see what their future needs will be. The impatient person says, “Live in the moment” on the other hand the patient person would look forward to their retirement. This is the reason the “rich” always consume more in the future compared to the present.

What do rich people do to become rich?

They spend less money than they make. They do not live “pay check to pay check.” The “rich” lend other people money to earn interest. This could be putting money in a savings account, investing in stocks or bonds, buying real estate to rent out, etc.

Let’s look at the mathematics of how we can take one person with 3 different possible paths and see how difficult it is to make them “rich”.

Assumptions:

• Income received from work will be $24,000 a year and never change
• We are also going to ignore taxes to simplify the calculation.
• Investments will increase at 7% per year and the dividend will be a constant 3%
• P1 is our person that (spends all money they earn, saves nothing)
• P2 invest 25% of their earnings, but spend their dividends each year
• P3 invest 25% of their earnings, and reinvest their dividends

Something interesting happened to P2 and P3, they both added an extra income stream. P2 gained extra income, the dividends, that they chose to spend on whatever they wanted. P3 chose to reinvest their dividends, which resulted in nearly twice as much wealth accumulated over 30 years.

If P1, P2, and P3 where three different people. Would some people make the statement that P3 gets more “rich” over time? They all started equal and were all given equal amounts every year for 30 years to do with as they pleased, yet at the end of 30 years, there is a huge disparity in wealth accumulation. This is why Fisher spent half of his book on patience and impatience.

Conclusions

In the end, Fisher was saying many of the same things personal finance bloggers say. Do not borrow money if possible. Spend less than you make. Lend the rest to someone, a business or the government and earn interest. Think about the future and the things you will need in the future.

Do you agree with Fisher? Would you say he is wrong in any of his thoughts?

Rule Your Wallet Blog

Fisher and Impatience

Fisher’s impatience theory of interest is the product of general economic equilibrium.  His reasoning is that you should not be thinking of money today for money tomorrow. Instead, think about economic equilibrium as goods given up today for goods tomorrow. Based on this, the real rate of interest (more on this later) is no more or less than the relative price of goods today versus goods tomorrow.

The Fisher Equation

In the Fisher equation “r” is the real interest rate, “i” is the nominal interest rate (per the Federal Reserve), and “g” is the rate of inflation.

Fisher also believed that the real rate of interest is the most important number in the economy.

Fisher would argue that, for every year you have money in a savings account your savings will effectively loose 0.67% of its net value. As counter as intuitive as that is, the real rate of interest (2012) is negative. The current interest rate is close to 1.0% and the inflation rate estimated to be around 1.7%. This results in a real interest rate of -0.67%.

Fisher believed that interest rates were determined by the actions of people and that all people were rational (I know, that last one is a BIG assumption). Fisher believed that people were impatient and that is what affected interest rates. He determined that people were impatient based at least six different personal characteristics.

• Lack Foresight (poor imagination)
• Poor Self-control (indulgence)
• Habit
• Expectation of life (“I may not be alive next year”)
• Love of posterity

Fisher’s Conclusions

1)  More impatience implies that the interest rate will increase.

People care less about the goods in the future, they want things now. The classic example this is from the Regan years and the “now generation”. When people are interested in getting things now, the interest rate increases. If the goal is to get people to save there must be an incentive to save. For example, a higher rate of return on their money.

2) If people are more optimistic about the future then interest rates will go up.

To give a real life example. Imagine a middle class family won the lottery, they would begin consuming at higher rate because of the windfall of the lottery.

3) What happens to interest rates if you transfer wealth from the poor to the rich? Interest rates go down. Why? Fisher made an assumption here (to be cover in another post) that rich people are patient. If wealth is transferred into the hands of the more patient people in the economy the poor have less money and therefore can borrow less money.  This drives the interest rate goes down.

In this case it is important to note the stock market.  In this case goes up. (All of this sounds like the past ten or so years doesn’t it)

What are your thoughts on Fisher’s impatience theory of interest and human nature?

Rule Your Wallet Blog

My budget was dinged with a subscription fee that I had forgotten about and this one has put me over the edge. Granted it was only a $30 charge, but it was the straw that broke the camel’s back.

I have a decent sized list of yearly charges that are a constant source of  annoyance to me because I can never remember exactly when I will be billed. I have a general though of “It seems like it is about time to pay for my basketball season tickets.” Of course, this thought last for 1-3 months before the bill actually arrives. Here is a list of my once a year bills. (If I can remember them all.)

• Magazine Subscriptions $30
• Consumer Reports Subscription $30
• College Athletics Donation $155
• College Basketball Season Tickets $255
• Car Tag $1xx
• Termite Warranty for house $160
• Veterinary Appointments $50-130
• Flea, tick, heartworm treatment (every six months) $250

Right now, I can think of  those infrequent bills, I am sure I missed some of them. So, as I said before I have had with being “surprised” (forgetting) about these bills. I know it is completely my fault due to poor planing. What am I going to do about it?

Google Calendar to Keep Track of Yearly Bills

I am going to use Google Calendar to remind me of my irregular bills because it is free and I already have a Google email account. It is just a matter of adding all of my information to Google Calendar.

Rule Your Wallet Blog

It is weekly roundup time. Enjoy.

Recommended Reading

Your $1.5 Million Dollar Starter Home: Living Small Making Big Bucks @Financial Samurai

In Search of Perfect @So Over This

Use Credit Cards to Get Free Clothes @Eyes on the Dollar

Learning From Other People’s Mistakes @Budgeting in the Fun Stuff

What’s The Point of All This? @Financial Uproar

6 Ways to Avoid Blogger Burnout @Modes Money

New Fuel Economy Standards: 54.5 MPG by 2025 @20Something Finance

Funding an IRA with Your Lunch Money @Five Cent Nickel

5 Ways to Make Yourself Accountable @Wise Bread

Post Linking to Rule Your Wallet Blog Articles

Beginning of September 2012 Blog Update

Beginning of September 2012 Favorite Posts

Carnival of Passive Investing

My Money Counselor

Twitter mentions

@ModestMoney

@livingneweconomy

@OneSmartDollar

Rule Your Wallet Blog

Disaster Preparedness Month

It is disaster preparedness month where we are encouraged to buy things to help us be prepared for when a natural disaster occurs in our area. Disaster preparedness is an easy process that can be accomplished for as little as $100 for two people. FEMA recommends that you have enough food, water and supplies to last 72 hours. This is their estimation of how long it will take relief workers to reach you in the event of a natural disaster. I would increase this to 5 days or a weeks worth of supplies over time, especially if you live in a rural area.

 Water

From the Mayo Clinic: “The Institute of Medicine determined that an adequate intake (AI) for men is roughly 3 liters (about 13 cups) of total beverages a day. The AI for women is 2.2 liters (about 9 cups) of total beverages a day.” Three liters is roughly 0.8 gallons, so I would store one gallon per person per day. Where I live I can buy a gallon of water for $0.97, so the total per person is only $3.00.

Food

I buy the canned goods we eat by the dozen when they are on sale and have around 100 canned goods at any given time. Theoretically you could get by with 3 cans of food per person per day as a minimum. If you average the cost of canned goods you are looking at around $1.00 per can. For 72 hours we will call it an even $10.00 per person. Note: You will probably be hungry the entire time if your food stock is this low. Finally, do not forget you need a manual can opener and make sure you have food stocked you don’t mind eating without heating it up, since the odds are good the power will be out.

Supplies

I have a Etón FR160B Microlink .  It is a Self-Powered AM/FM/NOAA Weather Radio with Flashlight, Solar Power and Cell Phone Charger. This one product covers three of the requirements on ready.gov: flashlight, weather radio and cell phone charger (USB connection). It is a hand crank, so no need to worry about batteries. This item will set you back $29.98.

First aid kit: I bought mine at CVS for $20.00

Signal whistle: Prices range from $2.00 – $15.00 on Amazon.

Most of the other items recommend you should have already. Here is the rest of the list from ready.gov. Dust mask are available at your local big box hardware store for around $5.00 for a pack of 3.

• Dust mask to help filter contaminated air and plastic sheeting and duct tape to shelter-in-place
• Moist towelettes, garbage bags and plastic ties for personal sanitation
• Wrench or pliers to turn off utilities
• Local maps

Ready.gov has a complete supply check list with supplemental supplies in pdf format.

Conclusion

For the supplies I have listed, the total cost for supplies I have prices for is $55.00. Food and water will set you back $13.00 per person for the bare minimum of food to get you through 72 hours. Doubling the food increases the cost per person to $23.00. Since the food consist of  products that you already eat, you may already have enough supplies in your pantry to last you 72 hours. Just make sure that you always 72 hours worth of food stored in your pantry.

Finally, if you have pets, don’t forget to stock food and water for them.

Rule Your Wallet Blog

I would describe this month as a good month. Lots of green in this post, I like it. This is despite paying $255 for college basketball season tickets (17 games worth of tickets). I consider it a deal for three months worth of entertainment.

Debt

Credit Cards $0 – You can see my How I paid off my credit cards post for details

Student Loan $13,447.12 (-1.10% total balance)

Savings and Investing

My dollar savings plan deposit.

Emergency Fund = 1.60months (+0.55 months) Yay! I am halfway to my goal of 3 months savings.

Dollar Savings Plan Fund = $17 (+43 $200 put in savings and deducted from total)

Spare Change Savings Fun = $49 (I only add to this when a roll of coins is taken off the coin sorter)

ROTH IRA Performance = +5.1% for the month of August

401k Performance = +2.5% for the month of August

Unexpected things that hit my budget.

$30 Consumer Reports Renewal – I always forget about this subscription. I did not think it would renew because the card on file expired, but somehow the charge came through 3 days late.

Mistakes

I don’t see anything that qualifies.

Goals for September

Same Goals as last month.

1. Keep throwing all my extra money into my Emergency Fund. I am trying to get this to 3 months as fast as possible. (Successful for August)

2. Do not spend more than $50 on myself for things that I do not need. We are talking about computer games mainly. (Successful for August)

Rule Your Wallet Blog