The problem is that when I go into a retailer without a specific purchase in mind but with an intent to buy something, I’ll usually end up buying something on the spur of the moment – or two or three things.

The last time I was in that store, for example, I wound up buying three books. When I walked in there, I didn’t actually have a title in mind that I wanted to buy. Instead, I was influenced by the store itself when I made those purchases.

(Thankfully, I had budgeted for this. I was anticipating some “spontaneous buying” on that day, so I budgeted that much cash in my wallet for just that purpose.)

Shopping costs you money. Shopping without a very specific purpose really costs you money.

If you want to save money on every single situation where you’re opening your wallet for an item, there’s a very simple rule to follow. Make your buying decision before you ever enter the store.

If you’re buying food, make a grocery list with as much detail as possible before you go there. Use the store flyer to make your grocery list so that it accounts for the sales. That way, you’re making as few decisions as possible when you’re actually in the store.

If you’re buying a car, do your homework on car models before you ever go on the lot. Know what features you want. Use websites to figure out what cars they have on the lot and research those models. Again, that way, you’re not making decisions while on the lot.

If you’re buying a book at Amazon.com, know what book you’re shopping for before you ever go on the site. Don’t use a shopping site as a recommendation tool – instead, only go there when the only decision left to make is whether to click the “Add to cart” button.

Why should you do things this way? Whenever you allow yourself to make decisions on the retailer’s home turf, you’re allowing that retailer to add extra information to your decision-making process. That information that they give you is going to be engineered almost entirely to convince you to buy the item that the retailer wants you to buy, which is usually the one that makes them the most money.

For example, if you go to an electronics store with the vague notion that you want to buy a camera, you’re going to be inundated with options. You’ll be facing a ton of information without context and, to some extent, without reliability. Are these features you really care about? Are you able to actually evaluate things like image quality or battery life or reliability? Unfortunately, no, you’re not.

Instead, you’re going to get information about the features that the store wants you to know about. A salesman will probably “help” you, in that the “help” mostly involves convincing you to buy now rather than later.

Walking into a retailer or visiting a retail website without your decision already made means that you are going to be basing your decision on a set of information that the retailer gives to you. This is usually not the same set of information that will help you actually make the best purchase. If you base the decision-making process on the information provided by the retailer, you’re using a subset of information that’s not going to push you toward the best option for you.

I use one of two options whenever I visit a store of any kind.

One, I have a very specific item or list of items that I want and have already decided on. I’ve already researched the items in advance and made up my mind what I want to buy before I ever set foot in the store. That way, when I’m in the store, I am not making decisions, thus the decision-making process isn’t being influenced by the retailer.

Two, I have a strict spending allowance before I ever go in the door. That money is usually money I intended to spend frivolously and it comes out of my personal allowance for hobby spending. In this case, I’m basically saying that it’s fine for a retailer to influence my spending choices.

Control your decision-making process and you control your money.

The post The Buying Decision appeared first on The Simple Dollar.

Now, he has a vocabulary of several thousand sight words, enabling him to read simple chapter books with scarcely a pause. He can read them aloud, of course, but he also is a practitioner of sustained silent reading.

The effort he has put into mastering reading has earned several compliments from both Sarah and myself. We are proud of the effort he has taken in learning to read – the results are just the fruits of that effort. So, we make sure to focus our compliments on the effort he’s taken: the time spent working on sheets full of sight words and the time spent practicing his reading by reading aloud whether anyone’s listening or not.

Our general rule is that parental compliments and encouragement focus on effort and energy invested in preparing, not on the results. The good feelings that come from results are internal – they’ll feel good anyway. We’d far rather acknowledge and reinforce the path of hard work and effort that it takes to get to that point.

It’s not just for parents, either.

Compliments are like a stack of money that never runs out.
It doesn’t cost you anything to give a compliment to someone else. Almost always, when you give them a compliment, you’ve just made that person’s day better at no cost to yourself.

Also, you’ve usually made them perceive you in a better light, too, as people are attracted to those who seem to like them. It would take a pretty unusual situation for someone to think less of a person issuing them a brief compliment.

Even better, a well-placed compliment reinforces behavior that you consider to be a positive thing. If you give someone a compliment about something they’re doing, they’re more likely to keep along that path because they now know that others see it and value it. It helps them to reinforce a routine, one that’s likely a positive one.

A compliment is something that rewards positive behavior, brings about a distinct positive result, and can be done over and over again. It really is like a bottomless stack of money, one you can use whenever you’re out in public to brighten the lives of everyone.

Compliment the things you want to see in the world.
If your compliments help to reinforce a routine in others, then it makes perfect sense to use your compliments wisely and dole them out when you see things in the world that you’d like to see more of.

If you see someone being kind to someone else, give them a compliment. When you see someone making a smart frugal choice, give them a compliment. When you see someone being a good parent, give them a compliment. When you see someone putting forth an effort to achieve something in their lives, give them a compliment.

The more you compliment the things you want to see in the world, the more those behaviors are reinforced in the lives of people around you, whether it’s a family member or a friend or just someone you happen to bump into in the community.

Save the acid for another day.
Many people seem to enjoy handing out acidic criticisms, but they act in almost the opposite way. They tend to send the other person’s behavior in completely unpredictable directions, plus they cause the person you levy that acidic criticism towards to dislike you.

Virtually nothing is gained by handing out unwanted criticism other than feeding your own internal negativity.

If you feel negative toward someone else’s behavior, shouting out criticism might cause a response, but it’s often not going to be a response you’re pleased with. Avoid it, and save your energy for compliments.

The end result is a better world at no cost to you.
The most amazing thing about a compliment is that it doesn’t cost you a dime, but it brings about real change in the world. One compliment might not change anything, nor a dozen, but a steady stream of well-applied compliments does bring about positive results in the people around you. They feel better about themselves. They work harder in positive directions. They value you more.

If you want a better world to live in, the easiest and least expensive way to start is to compliment the good behaviors you want to see out there – frugal living, kindness to others, hard work – and keep your negative comments to yourself, because negativity often moves in unexpected and usually undesired directions. It costs you nothing other than a moment of your time, but the ramifications often go far beyond what you see in that moment.

The post The Value of Compliments and Positive Reinforcement appeared first on The Simple Dollar.

“Oh, I should be spending less money,” says someone waiting in line for a large coffee and a breakfast pastry at a local coffee shop.

“Oh, I should be spending more time with the kids,” texts someone to their sister while their kids are out in the yard and they’re camped out in a comfortable chair.

“Oh, I should be cleaning the house,” thinks someone as they change the channel.

All of us do this. It’s not a unique phenomenon.

Quite often, the path of least resistance is the one we choose to follow. It’s far easier to snag a convenient meal when we’re hungry than to search for a better option. It’s far easier to camp out in a comfortable chair after a long day at work than to take on another challenge. It’s far easier to just keep watching television than to jump up and take on a personal task.

There’s nothing wrong with doing those things, either. The problem comes in when we pay lip service to those things we know we should be doing, but we don’t bother to actually do them. This fails us in two ways.

One, we don’t actually achieve the thing we think we should be doing. Instead of spending less money, we spend more. Instead of playing with the kids, we vegetate. Instead of cleaning the house, we watch “America’s Next Top Model.”

Two, we reinforce a negative pattern that undermines that thing we “should” be doing. We reinforce a pattern of eating that expensive breakfast. We establish a routine of vegetating after work while the kids play. We begin to accept a messier house and a greater dose of television in our routine.

Lip service is more than just words. Here’s how we break out of it.

When you have a notion of something you ought to be doing, push yourself to go ahead and take care of it. Recognize that you’re trying to put off something genuinely important, then stand up and take care of it. Don’t even give yourself a second to try to talk yourself out of it. Get up and do it.

At the end of the day, reflect on those times you made the “better” choice. When you look back, you’ll feel really good about the things you achieved that day. You’ll tie some strong positive feelings to making that better choice.

The result of that reflection is that the next time that choice comes up, the balance of what seems like the better decision will have shifted a little bit. You’ll feel more inclined to make the “good” choice and not just give it lip service.

Remember, your actions define what you value, not your words. Whenever you find yourself proclaiming one thing with your words but another thing with your actions, you’re betraying yourself in some fashion. Make them match – make your actions live up to your positive words – and you’ll feel incredibly good about the direction your life is taking, not just today, but over the long course of life.

The post Lip Service appeared first on The Simple Dollar.

I really enjoy reading issues of MAKE. The magazine is all about technology-oriented do-it-yourself projects, like making your own homemade musical instrument and wiring it up to a homemade soundboard so you can record the music you make or making a homemade remote control helicopter with a video camera attached so you can do neighborhood flyovers. You get the idea.

Part of the reason I’m subscribed to the magazine is because I enjoy the idea of making such things. Part of the reasons I keep back issues of the magazine is because I tell myself that “someday” I’ll work on some of those projects.

In truth, I’ve only ever made two projects out of MAKE and they were both pretty small ones.

For me, MAKE is an example of what I call “spending money on a someday.” You spend money on something because you like it in some way and you keep telling yourself that someday you’ll find time for it, but you never seem to really find time for it.

The items you buy for “someday” are usually the items that end up filling up your closets or your garage. Those items are loaded down with good intentions and self-promises, but they wind up being pushed aside for other things.

Golf clubs. Treadmills. Scrapbooking materials. DVDs. Musical instruments. Gardening equipment. Skis. Books. Magazines. Camping equipment.

All of those things are often “someday” items. They’re things that we don’t actually use, but we tell ourselves that we will use “someday.” Learning to identify them before you spend that money is a big key toward getting your finances in order.

So, how can you tell that something you buy is going to be a “someday” item? Here are a few tell-tale signs.

One, does the item require you to set aside time to use it? With MAKE, I’d have to set aside some time to work on a project. With golf clubs, I’d have to set aside time to go golfing. With musical instruments, I’d have to set aside time to practice.

Two, is your schedule already pretty full? Do you actually have much spare time? Many adults are already overbooked as it is.

Three, do you have active interests that are already starved for time? Do you have hobbies that you’re already lamenting because you don’t have the time to invest in them? I certainly do.

Four, could I find a way to try out this activity without buying this item? You don’t need $200 running shoes to begin establishing a morning jogging routine, for example. You don’t need high-end golf clubs to take up golfing – in fact, you don’t need any at all to dabble in it. Figure out if this is an activity that is going to become a regular part of your life before you dump money into it.

Whenever you’re about to buy a non-essential item, ask yourself those four questions. Chances are you’ll find yourself realizing that the item you’re looking at isn’t really something that fits into your life.

Dreams are a wonderful thing, but a successful person can separate dreams from reality. Knowing when to put that item back, even if a big part of you desires the item and the activity that goes with it, is a sure sign that your spending is on track and you’re headed toward a bright future.

The post Spending Money on “Someday” appeared first on The Simple Dollar.

The problem is that personal finance isn’t often directly relatable to their life. Quite often, parents and teachers rely on lectures and discussions to get the ideas across, but experiences are the things that many older children and teenagers really connect with. You can tell them about personal finance all day long, but without some experience, it often won’t sink in.

Here are some actual experiences your older children and teenagers can engage in to learn some of the basics of personal finance. I’ve been collecting these activities myself in order to help educate my children in personal finance literacy as they grow older.

Give an allowance each week. You can start this effectively with children as young as four. We give our children an allowance of a rate of $0.50 per week per year. So, a seven year old gets $3.50 per week. Out of that allowance, they must donate at least 20% of it, they must invest at least 20% of it, and they must save at least 20% of it for a future goal, rounded up to the nearest quarter.

This teaches them both the basic structure of budgeting and the benefit of saving money over time. They’ll learn that structuring what they do with their income is a completely normal thing and segmenting their money means that they’ll always have enough for what they need.

Lend them money with interest attached. If your child really wants something, lend them the rest of the money with 20% interest attached, and make the payments come out of their allowance each week. “I’ll loan you the $20 you need for that game, son, but I’ll charge you 20% interest on that and you have to pay me $1 a week until it’s all paid off.”

If they go for it, take that $0.50 each week out of their allowance and remind them each time how much they’ve repaid you. When they reach week 20 and they’ve now repaid the full amount and you’re still taking a dollar a week for the next month to pay off an item that they’ve probably forgotten about, it’ll hit home.

Take your children to a few tax auctions. Explain to them that all of the stuff on sale there came from people who were unable to pay their bills because they spent too much money.

The lesson here is that there are real consequences to taking on debt. If you fall into too much debt, you not only lose all of the money you paid into that debt, you lose the things you bought with that money, too. Personal debt is a dangerous game to play.

Tell them that they have $X to spend this week and they have to figure out what to buy for groceries. If you want, you can actually let them carry forward with this plan from beginning to end. They have to figure out how to spend that money to cover all 21 family meals for the week. How will they stretch those dollars? What does the meal plan look like?

Don’t be afraid to let your older child attempt this, carry it all the way through, and find that it’s a lot harder than they thought it would be. In fact, it’s okay to let it end in miserable failure. Only swoop in when you have to in order to make sure there are actually functional meals on the table.

Encourage them to spend the summer launching a small business. It can be anything they want, from starting a Youtube channel to running a vegetable garden to sell the products at a farmers’ market. Help them work out the costs and give them an out-of-pocket business loan to get started.

The goal here is for them to connect their personal efforts to financial and personal rewards. The harder they work, the greater the financial reward, but the greater the pride in the work they’ve produced as well. Any entrepreneurial effort is loaded with potential lessons for an older child or a teenager.

These activities require time, effort, and patience from the parent, but they provide experiences that make the realities of personal finance far more accessible to children. If you want your child to learn these kinds of lessons, get them involved in these kinds of experiences.

The post Personal Finance “Experiences” for Older Kids appeared first on The Simple Dollar.

The staff of this charity has made a ton of commitments on an organization-wide level. They’ve pledged help to many different local groups and causes and those commitments are impressive and good ones.

The problem is that these commitments lean very hard on active fundraising work by their members. In order to make those commitments, the people on the ground will have to work their tails off.

That leads to another challenge: burnout. The people that volunteer their time and effort and passion for this charity can only get tapped so hard before they give up and walk out. Although they want to give to the charity, there is only so much they can provide.

In order to push them harder, the organization has hired “communications specialists,” not to try to help with fundraising, but to push the volunteers to fundraise harder.

So, what does that all mean? It means that the organization will probably reach their ambitious goals for the current year, but the members they’ve relied on for so long are starting to burn out and leave the group. They’re starting to no longer believe in the group’s mission and their volunteer efforts are starting to go in other directions.

The group has sacrificed the future for the present, in other words.

What lesson can a person take home from this?

Right now, you have to worry about your own present and your future. You can’t simply assume that your future will take care of itself. You are responsible for that future right now.

With every decision you make, you either put more pressure on the future (by spending more right now and saving less right now) or put more pressure on the present (by spending less right now and saving more). The organization I mentioned has decided to put too much pressure on the future, sacrificing the long term for the needs of today.

Ideally, we are trying to seek a balance of those two pressures. If you put too much pressure on the future, you end up having misery down the road. If you put too much pressure on the present, you end up having a miserable life today.

So, what’s the solution? Make choices that aren’t miserable today that also don’t put pressure on your future.

Whenever you do something enjoyable that doesn’t cost you much money at all, then you’re doing something that’s pleasurable today that doesn’t put pressure on your future. Whenever you can find immediate satisfaction in saving money, you’re doing the same.

Our goal at the end of the day is to live a happy life today that’s sustainable down the road. Whenever we spend more than we should, we sacrifice sustainability. Whenever we spend too little, we sacrifice that happiness today.

The moments that really make life worth living are the ones that are magical in the moment and don’t bring about guilt later on. They keep the pressure off the present and off of the future, too.

The post Sacrificing the Future to Serve the Present appeared first on The Simple Dollar.

A “top-down” approach to something means you take something large and break it down into smaller pieces. For example, if you’re making a meal, you would be taking a “top-down” approach if you walked into the kitchen with a specific recipe already in mind and then you went about finding the ingredients.

A “bottom-up” approach, on the other hand, means that you take the elements you have on hand and see how they combine together into something greater. To continue that meal example, you’d be taking a “bottom-up” approach if you opened up your pantry door without anything other than the vague notion of meal preparation in mind, pulled out a bunch of ingredients that seemed like they might go well together, and then used them to construct a meal.

Both of these approaches work in different aspects of life. There are times when I go into the kitchen with a recipe in mind. At other times, I just open up the pantry door and see what I can throw together.

How does this relate to finances, though?

I view “top-down” personal finance as being oriented toward a long-term goal. Let’s say you want to be retired with 80% of your income at age 65. What do you need to do in your life to achieve that goal? You start breaking down that big, singular goal into smaller pieces, such as contributing a larger amount to your retirement plan.

On the other hand, “bottom-up” personal finance means that you focus on optimizing all of the little things so that you’ll have resources available for whatever life might throw at you. You don’t really have a big goal in mind, but you know that something will eventually come along and require you to be in good financial shape to take advantage of it, so you minimize your spending and save carefully.

Different people will thrive with these two different approaches.

For example, I’m strongly a “top-down” type of person when it comes to personal finance. I am motivated by having a big goal that I’m working towards and I love putting the pieces together to make that goal happen.

On the other hand, one of my closest friends is clearly a “bottom-up” kind of person when it comes to his money. He doesn’t have any major goals for the future, but he prides himself on finding ways to spend less right now so that whatever comes down the road is easy to handle. Not too long ago, he wrote a check for a house seemingly on a whim because he saw a great deal on one. It wasn’t planned out or plotted – it was just an opportunity that he had the resources to handle.

What I’ve found is that these two ways of thinking really appeal to different people. Some will absolutely migrate to one or the other.

On the flip side of that, I’ve also found that if someone hasn’t really found that approach that makes sense for them, it’s hard to really succeed at personal finance. I tried very hard to approach things from a “bottom-up” perspective, but I never really found the motivation to make little changes without an overarching goal. On the other hand, my close friend has told me that the thought of enormous goals makes him feel as though he’s destined to fail because the mountain seems so immense.

Some people simply find joy in the maximizing of the small details, regardless of where the benefits of that lead. Others, like myself, find that working toward a big goal really works best for them.

If you’re finding difficulty making personal finance click for you, ask yourself whether a “top-down” or a “bottom-up” approach fits you better. Are you more into the establishment of a goal and planning for that goal? Or do you find more value in improving specific aspects of your day-to-day life? There is no right answer, just a path to a better approach for you.

The post Top-Down Versus Bottom-Up Finances appeared first on The Simple Dollar.

A person might spy a snack that looks good at the checkout and wants it, but if that person waits a few minutes, it’s forgotten.

A person might see a coffee shop drive-thru on the way to work and feels really tempted, but if that person keeps driving, that coffee shop is forgotten a few blocks later.

A person might spot a really interesting magazine at the store, but if they just walk away from it, that magazine fades completely out of memory.

Other desires last and last and last.

Parents often dream about raising well-balanced and independent children. It’s a desire that starts with that first ultrasound and never really ends.

Creative types never stop dreaming about completing that book or that song or that album or that film. The desire to create might wax and wane, but it never goes away.

Many married couples want to always have a relationship just as enjoyable and deep as the one they had on the day they got married.

Some desires last. Others don’t.

Time and time again, I’ve found that ignoring the short term desires and listening mostly to the long term desires leads to a truly happy life.

In a given day, I might find that I have a bunch of desires that pop up on the spur of the moment. I might desire a savory snack, for example. I might drive by the bookstore and really want to go in. I might want to stop working for a while and instead play a computer game.

If I just ignore those desires in the moment, they’re usually forgotten within a few minutes. My mind moves on to something else.

Sometimes, certain desires and dreams pop up again and again. I think about spending time with my children, or with my wife. I dream about writing a novel. In the winter, my thoughts often turn to spending time outside on a nice day.

The desires that pop up over and over are the ones worth paying attention to. When you act on them, they’re almost always deeply fulfilling.

The next time you’re tempted to spend some money or some time on some spur-of-the-moment item or activity, just walk away from it. Most of the time, you won’t even remember what it was in a few minutes. Instead, use that time and money for something that either sets up or fulfills a long-term desire. You’ll find quickly that those kinds of expenditures are deeply satisfying and lead to a financially and emotionally powerful life.

The post Desires: Short Term and Long Term appeared first on The Simple Dollar.

Let’s be clear what I’m talking about here.

Playing to win means taking some calculated risk in order to achieve greater rewards. It often means doing things outside of your comfort zone and really challenging yourself.

Playing not to lose means minimizing your personal risk in every choice you take. You might get smaller rewards, but you won’t have to face losses very often.

I think these sets of scenarios should make the difference clear.

Do you spend all of your time at work keeping your head down and just trying to do the tasks you’re assigned well enough to keep your job? Or are you trying to get ahead by taking on challenging extra work, educating yourself, and standing up when the going is tough?

Do you manage your finances so that you keep your head above water each week? Or do you manage your finances so that you’re actually building wealth week after week?

Do you dream about asking that person out on a date? Or do you go ahead and ask, knowing that the answer might be “no”… but knowing also that the answer might be “yes”?

Do you stare at the floor when someone asks for volunteers? Or do you sometimes say, “Sure, I can do that,” and stick your hand up in the air?

In each case, there’s a safe path – one that involves virtually no risk and only minor rewards. There’s also a riskier path – one that involves some risk but has the potential for rewards.

At work, you can be the person that volunteers to give a big presentation. It might go poorly, sure, and that might reflect poorly on your career. On the other hand, if it goes well, you’ve secured your job and probably made a name for yourself among people who can help you go places in your career.

With your money, you can just focus on making sure there’s enough cash in the checking account to avoid bouncing checks. On the other hand, you can cut back deeply on your spending in some areas and start putting that money you save to work for you in other ways. Sure, you risk losing out on some small things you enjoy, but you have the big benefit of actually building a financial future.

With your relationships, you can just avoid asking anyone out and feel good that at least you weren’t rejected. On the other hand, you can actually go up there and ask and, if the answer is no, you’re still just doing what you would have done that night anyway. At least with this scenario, there’s the possibility of “yes.”

With your community, you can simply keep your head down and avoid some volunteer work. On the other hand, you can raise your hand, get involved, meet new people, and maybe build friendships and professional connections. Sure, it might mean some work and it might mean a few hours spent doing something that isn’t the best thing you’ve ever done, but the potential rewards are far greater than keeping your face down.

Over and over again, we have that choice in front of us. Do we play to win or do we play not to lose?

Most of the time, there’s enormous benefit in playing to win just a little more often.

The post Playing to Win or Playing Not to Lose appeared first on The Simple Dollar.

Would you like to have some debts paid off? Maybe you dream of having finished an art project or a major home improvement project. Perhaps you dream of having a social circle to participate in.

We all have things we’d love to accomplish, things that are a bit more real than a daydream but still far away from reality. I certainly have a long list of those things.

Lately, I’ve been trying a new approach for these types of dreams and I’ve found that it works out really well, at least for me. In fact, I’ve had enough success with it that I feel like sharing it with you.

I call it “The Year-Long Plot.” It’s pretty straightforward. All you do is plot out a detailed plan, week by week, of how you’ll move from where you’re at right now to the goal you want to achieve in one year.

Let’s say you want to pay off a $5,000 debt in the next year. The route to get there involves coming up with $100 a week, which will add up to $5,200 over the course of a year.

So, you make that your weekly goal. “This week, I’m going to scrounge together $100 and use it as an extra debt payment at the end of the month.”

How will you do it? All you really have to worry about is that week. If you carry forward with your goal of coming up with that $100 in that week, and you just repeat that goal over and over and over again, you’re going to pay off that big debt in its entirety.

The entire process becomes a simple goal you can achieve in one week.

The focus then becomes how to pull off that week-long goal. Nothing else matters but that week-long goal. Your mission is solely to figure out how to save $100 through your actions this week. You can eat cheap. You can skip some entertainment. You can figure out some longer-term savings so that the $100 is easier to come by in future weeks. It’s all about this week and what you can accomplish during it.

Let’s look at another example. Let’s say you want to write a novel of a length around 200,000 words. If you write 5,000 words a week, you’ll have that first draft done in forty weeks.

So, let’s start with that goal. Your goal, each and every week, is to get 5,000 words down in your first draft. That’s your sole goal. You can spend the first week or two making an outline, and then spend the last several weeks editing and revising that first draft.

You can make very specific and detailed plans, too. Have you dreamed of refinishing your kitchen? Get a home improvement book, learn about the process, and start building a one-year timeline with specific plans for each week (with a few weeks of breathing room, of course). Have you wanted to read some of the great books of literature? Pick out twelve of them and develop a one-year reading plan for them.

The whole goal is to break it down into something you can do this week. When it’s a small goal to achieve in a week, it’s far more achievable than a giant goal that looms too large to ever give it a shot.

The post The Year-Long Plot appeared first on The Simple Dollar.

My parents have been giving me $1,000 a month since I graduated from college three years ago. When my career first started, I really needed that money as I was an unpaid intern for several months at first while I built up my resume, then my first job paid less than minimum wage. Now, I’m making pretty good money. I talked to my parents about the money and they basically said that they can afford it easily and they want to make the hard parts of life easier for me. Still, I’m concerned about being dependent on that money. I’ve been reading a lot of personal finance books and many of them especially The Millionaire Next Door are pretty adamant about it being a bad idea to receive financial gifts from parents as it makes you complacent and opens the door to bad financial choices. What’s the best approach to take here? I don’t think telling my parents to stop the money makes sense, but I’m not sure.

I agree with these books that continuous financial gifts can make people complacent and put them in a position where they’ve adopted a pattern of outspending their true income. If that regular gift ever goes away, then they’re in a very painful position.

You have a big advantage, though. You’re aware enough of your financial situation to see that this is a potential problem.

Many of the people mentioned in those books that receive regular financial gifts treat them fully as part of their salary and often still end up living beyond their means, even including the gifts. They don’t realize that those gifts are tenuous and when the gifts go away, their life is going to quickly become financially problematic.

So, what’s the best way to handle this situation?

The best approach is to live your life entirely without those gifts. Exclude those gifts entirely from any calculations or thinking you do about your financial situation.

Instead, channel those gifts entirely into an investment account somewhere and then forget about them. Live your life as though that money doesn’t even exist.

What do you do with that money, then? You wait until you actually need it for something genuinely big or life changing. Use it as seed money for a business or as a tool to retire early. Use it as a giant extra payment to get rid of your mortgage (I suggest not using it for a down payment as it will just allow you to buy a home that you can’t really afford yet).

You should also consider that you have a significant chance of using that money when a truly major emergency happens in your life. It could be the money you use to get things in place if you or a loved one has a major health crisis or another disaster befalls you. Having that money in place will make all of the difference.

The key is to live as if that money does not exist. Pay your bills and manage your debts without using that money at all. That money should not have any impact on the day-to-day financial choices you make in your life.

Naturally, it will have some impact on your long-range planning. You can’t completely ignore that money. However, you should still work toward your long-range goals as though that money doesn’t exist and then only use it to finish off your goals. You should do the work to get yourself most of the way to whatever your goal might be.

Given your situation, I can’t think of a more responsible way to handle that extra money. Rather than supporting an unsustainable lifestyle, it turns a sustainable life into a powerful one.

The post When Parents Give You Regular Cash Gifts appeared first on The Simple Dollar.

One day, something triggers a change inside of you. You get really sick of paying money to the credit card companies and finally you reach the tipping point where the drawbacks of living a debt-filled life outweigh the benefits.

You’re sick of it.

You cut up the credit cards. You read a bunch of personal finance websites and books and articles. You dive full force into every frugal tactic you can think of. You sell off a bunch of stuff in your closet.

For those first few weeks, it’s an incredible rush. You’re finding all sorts of new ways to avoid spending money. Your checking account isn’t going down and you’re able to pay all your bills and even make a big payment or two against your debt.

It feels great!

But it isn’t sustainable. The patterns and routines of the life you lead come calling. You begin to miss old hobbies and old treats. You want to go out with friends and live.

So you slip a little. Or, maybe, you slip a lot and you just go on a big spending splurge.

You feel guilty about it and try to reclaim the magic that had you moving in the right direction… but it just feels gone.

What now? What do you do in the aftermath of a frugality binge?

The first thing you need to realize is that some of the things you’ve been doing have worked and some of them have not. You’ve likely tried a lot of different tactics all at once. Some of them really do work in accordance with your life. Others… well, they just weren’t meant to sync up with your life. Not everything works for everyone.

The trick is to go through what you’ve been doing and separate the wheat from the chaff. You need to figure out which tactics were a net positive for you and which ones were not.

For example, writing a grocery list and buying fewer things at the store might have been a pretty big improvement for you without really eliminating anything you care about from your life. On the other hand, going out for lunch with your coworkers on Tuesdays might have been something that you really valued.

This is where balance really comes in handy. If you’re finding that missing out on that lunch is actually putting a significant damper on your life, then you shouldn’t skip it.

Here’s the real trick: most of the money-saving tactics out there that really work are nearly invisible. They either work because they really require only a one-time action from you or they don’t actually bother anything you value in life.

Generic products, for example, are an “invisible” frugal gesture most of the time because you never notice the difference when using the product, but you save money by choosing it. Airing up your car tires is an “invisible” frugal gesture because, once it’s done, your car’s fuel efficiency is improved and you buy gas less often (at least for a few weeks).

It’s those “invisible” ones that are the real key to turning your financial life around. Find them and the quality of your life remains unchanged, but your finances steadily improve. If you find that a frugal change is bothering you more than it’s worth, toss it to the side and seek a different approach.

When you make these “invisible” changes, though, don’t just freely spend the money you save. Keep track of those changes and how much they’re saving you, then take that amount that you saved and apply it toward improving your situation. Don’t let your lifestyle inflate in other ways.

Most of us, when we start turning our financial lives around, binge on frugality. Quite often, we rebound back from those changes because we find them too draconian. The key to success is keeping up with the tactics that actually worked well (invisibly, in other words), discarding the ones that didn’t, and utilizing what we’ve saved in a positive fashion.

What you’re left with is a pattern that leads to success.

The post Frugality Binge appeared first on The Simple Dollar.

At the same time, I see a ton of mistakes. I see money being wasted by the basketful, buying expensive meals that were quickly forgotten, video games that were barely played, and DVDs that were never watched. I see a blatant disregard for the future and I see two people operating under the assumption that their future selves will fill in the big hole they were digging.

In other words, I see wasted years.

Whenever I look back at those days, I feel pretty intense regret. The financial situation we were in circa early 2006 was a frightening one. We were having difficulty paying our bills and keeping up our minimum payments. The only future savings we were doing was through our retirement savings. Beyond that, we were spending more than we earned – far more.

It took us almost as many years to undo the damage of those wasted years as it took to dig that hole, and those years involved living pretty lean and doing a ton of extra work to earn more money.

What kind of position would we be in today if we had lived those years differently? It’s hard to say, but I can say that if we had lived those years like we lived today, we would have been free of all debts (student loans and our first auto loans) by 2004, we could have paid cash for the home we live in now by early 2007, and we would be in stupendously good shape today.

Our financial position right now is worse than it could have been and it’s solely because of those wasted years. For the rest of our lives, that statement will be true. We will never achieve what we could have achieved because of those years of overspending.

The frustrating part? Virtually all of it revolved around overspending on unimportant things. Meals unremembered. Video games not completed. DVDs unwatched. Gadgets scarcely used. Evenings out with friends completely forgotten.

None of those things have any positive impact on my life right now. Even the evenings out with friends don’t matter because my social circle has changed significantly since then. The unused or scarcely used items were mostly sold at a loss to help deal with the debt disaster we found ourselves in. I can’t remember 99% of the little treats and meals out that I “rewarded” myself with.

They were wasted years, plain and simple.

One of the biggest motivators in my life is that I never, ever want to experience another “wasted year.” Ever. Looking back on those years is painful and fills me with intense regret, and I only need to taste that regret to remind myself what I would be building if I ever gave into the desire to regularly overspend again.

Another valuable lesson: no matter how much I wish for it, I can’t go back and change those wasted years. I really wish I could go back and do things differently.

Here’s the truth: you only have one shot at this year. You only have one shot at this week or this day. Why would you fill it with choices that you’re going to regret in the future?

I would far rather plant the seeds today for amazing things in the future than spend my money and time recklessly right now and deal with the consequences later. I’d far rather turn down a few small treats today – and pretty much every day – in exchange for having freedom and security down the road.

Those little treats are quickly forgotten. The time and money you wasted on completely forgettable “treats”? Those costs are never really forgotten. They stick around in the form of regret.

Don’t create a past that’s full of regret. Create one that’s full of hope instead. The choice is up to you every single day.

The post The Wasted Years appeared first on The Simple Dollar.

On the other hand, money is about as non-emotional as you can get. Money is simply a method of exchange between goods and services.

The problem that most of us run into when it comes to personal finance is that we inject emotion into their financial choices.

People spend money on things that make them feel good. When we want something, we’re feeling an emotional pull toward an item.

When we feel that emotional pull, we give the seller the upper hand. They have the power to set the price. We might shop around in some situations, but if it’s something like a house where there are limited options, we’re often carried along for the ride.

The most powerful tool we have for minimizing our spending is to remove emotion and raw impulse from the equation.

How can you do that? There are several techniques you can use, but they all boil down to a few things.

First, have some strict constraints on yourself when you put yourself in a spending situation. Have a list that you must strictly follow, for example.

When you’re shopping at the grocery store, do your shopping strictly from a list. If you see something else you really want, just remember it for later and think about adding it to your next list. I’m going to bet that waiting a week takes the edge off of that “want” and produces a grocery list without that unnecessary item.

When you’re shopping for a house, do the same thing. Make a list of features that you want, then check houses to see if they have those features. If it does, put in a reasonable offer and don’t negotiate. If they won’t play ball, look for another house.

Second, if you see your emotions flaring, focus exclusively on the task at hand. Don’t get distracted by those emotional elements.

When you’re paying your bills, for example, don’t get upset about the content of the bills. Pay them (assuming they’re correct), then remove yourself from the emotion and analyze the bills at a later time without the emotion involved. This might lead to a rational discussion with your spouse or a well-considered decision to drop a cell phone provider, but making decisions in the heat of the emotional moment is never a good idea.

Finally, when you want to spend spontaneously, put a cap on it before you ever step into such a situation.

If you want to go shopping with your friends, take along a certain amount of cash – an amount that you decide on before you ever walk out the door. Only take that amount. Don’t give yourself the chance to spend more. With that money in hand, however, you can spend freely because you’ve already decided rationally that it’s okay to spend that money.

Whenever you’re in a situation where you’re directly spending money (or about to do so), stick to some basic rules for that situation. If your emotions are telling you otherwise in that moment, tell your emotions to take a hike. If they won’t, step away from that decision and don’t spend any money.

The post You’ve Got to Remove the Emotion appeared first on The Simple Dollar.

The goal of all of those things seems to be the accumulation of money. Money provides security from the unknown, after all.

The problem is that, for many people, having money merely for security is boring. It doesn’t have any real impact unless something is actually going wrong in your life.

As human beings, we’re pretty good at convincing ourselves that our lives are going well. We might see some problems here and there, but most of the time, we see our lives as being generally decent. We are predispositioned to not see too many clouds on the horizon.

Thus, it’s often hard to convince people – particularly younger people – that it makes sense to save for their own security. Things will be fine down the road, after all.

I’ll admit that I find security to be a pretty poor motivator, too. I want my children to be reasonably secure, but beyond that, it’s pretty hard to feel as though it makes sense to save a tremendous amount of money for security’s sake. When life isn’t actively slapping you down, security doesn’t seem all that important.

For me, the single big motivator to save isn’t security at all.

It’s freedom.

What is it that I truly want more than anything else on a day-to-day basis? I want the freedom to basically do whatever I want.

The problem is that professional needs continually get in the way of that. I have to invest significant time each and every day on the pursuit of earning money. That money keeps food on the table for my family, a roof over everyone’s head, and provides for all of the basics and a few perks in life.

What would my life be like without having to invest that time in the pursuit of earning money? What would I fill it with?

When I think of saving money for security, it paints a grim future. The situations where I would have to tap into savings to pay for emergencies or to keep things afloat are almost entirely depressing ones. They’re situations I don’t want to think about.

When I think of saving money for freedom, it paints an incredibly bright future. I am drawn to that kind of future where I don’t have to work and I can fill my days with personally fulfilling pursuits.

Each and every day, I spend some time thinking about that wonderful image for my future. I imagine what I might be doing if I were in that situation today.

Then, after I visualize that great future, I ask myself what can I do today to help put myself a few steps closer to that amazing picture?

When I feel like those steps aren’t making a difference, I compare my financial state right now to the state I was in just a few years ago and the progress I’m making with all of those little steps becomes incredibly bright.

When you’re trying to push yourself to save, try looking at a positive future, not a negative one. Imagine yourself free from work, free from debt, and free from all of that stress. Isn’t that worth making a few relatively minor tough decisions today?

The post The Problem of Security and Negative Motivation appeared first on The Simple Dollar.

However, there are things that work in business finance that don’t really work in personal finance.

The biggest one, from my perspective, is the concept of leverage. Leverage, for those unaware, refers to any technique that can be used to multiply gains – but, if it fails, it also multiplies losses. Examples of leverage include borrowing money and using derivatives.

Here’s an example of what I’m talking about. Let’s say you borrow $1,000 with the intent of putting it in the stock market. You put $1,000 of your own money with it and invest it in stocks.

If the stocks go up 20%, you’ve made $400. You can pay back that $1,000 you borrowed and you still have $400. You’ve managed to make a 40% return.

At the same time, if the stocks go down 20%, your stocks are now worth only $1,600. You have to pay back that $1,000, so you’re left with $600. You took a 40% loss. (We’re not even talking about any potential interest on that loan, either.)

If you make money with leverage, your gains are multiplied. If you lose money with leverage, your losses are multiplied.

In the business world, there are many situations where leverage makes sense. Most companies use leverage at some point to either build their businesses up rapidly or increase their profit margin.

Here’s the big secret: if leverage fails in the business world, people can (usually) still go home to their house. They can still drive their car. They can still live the life that they’ve built.

On the other hand, if you use leverage in your personal life and it fails, you lose a lot of those things. People that you owe money to personally will come after your assets. If you’ve leveraged your home (via a mortgage) and can’t pay the bills, they’ll repossess your home. If you’ve leveraged your cars (via a car loan) and can’t pay the bills, they’ll repossess your car.

Within a business, leverage has a tremendously nice upside. If you’re able to borrow money, that means you can get by with a smaller investment in that business – and if you turn a profit, that means the ratio between your investment and the profit you make is much larger. Your percentage profit can be enormous thanks to leverage.

In personal life, most of the things you purchase for your life aren’t there to turn a profit. You might earn a small return on your home, but the days of the housing bubble are over. Virtually everything else you buy, from your car to your home entertainment equipment, is going to rapidly go down in value. From a purely financial perspective, most of the things you spend significant money on in your personal life are terrible investment.

So, in business, leverage has a potentially great upside and the consequences of the downside have limited effect on your personal life. In personal life, leverage doesn’t have that big of an upside and has a potentially strong negative effect on your personal life.

That’s why I don’t trust people who suggest that others use leverage in their personal life. If someone suggests that you personally borrow money in an effort to make more money, I suggest walking away from that idea.

If you really want to borrow money with the goal of making a profit from it, start a business and have that business borrow that money. Set up the business so you have minimal personal liability.

Don’t ever risk your personal situation to chase a dream of getting rich. Don’t take on personal debt in a pure effort to make more money. In fact, avoid personal debt entirely.

The post A Big Difference Between Personal Finance and Business Finance appeared first on The Simple Dollar.

Whenever you choose to spend money on one thing – an action – you have that much less money to spend on another thing – a reaction.

It works for time, as well.

Whenever you choose to spend time on one thing – an action – you have that much less time to spend on another thing – a reaction.

And energy, too.

Whenever you choose to spend energy on one thing – an action – you have that much less energy to spend on another thing – a reaction.

Here’s the catch: we want to always believe that the thing we’re choosing to invest our money or time or energy into is going to be more valuable than the thing we’re choosing not to invest in. In other words, we want to maximize the value of our action while also minimizing the value of the reaction.

I think that’s true of everyone, regardless of how they’re spending their money or time or energy. They think that whatever it is that they’re doing is the overall best use of that time or money or energy.

If that’s the case, then why do people have such radically different usages of their time and money and energy? It’s because each person bases how they use their time and money and energy on their own values.

You might use $50 in one way rather than another way. To you, the way you choose will produce more value. To others, another path might produce more value. The difference? The difference is what your personal values are.

The ideal situation for personal and professional and financial success is when the choice that seems to have the most value for you in terms of using your time and money and energy is the one that leads to the best long-term results.

Let’s say you have two hours to burn. You have a lot of options in terms of using those two hours. You could curl up with a book you already own. You could go shopping. You could make some meals in advance and freeze them. The list goes on and on, but we’ll just look at those three.

Those different options are going to feel different to different people. Some people will prefer the book. Others will prefer the shopping trip. Still others may prefer the meal preparation. It’s really based on what you enjoy and value.

Remember, every action you take has a cost in the sense that you’re taking away time and energy and money from other things you could be doing.

We can look at the long-term effects here. The shopping trip will likely cost you money over the long term. The reading will probably just result in a break-even, especially if you’re a library user or a book swapper. The meal prep will probably save you a little money and save you a little time at a later date.

Now, does the personal value you get from each option trump the potential benefits of the other option?

My belief is that personal finance success – and success in other life areas – comes from constantly rethinking what it is that you value. If you really have a close grip on what it is that you value, then the actions you take that maximize those values begin to be quite enjoyable.

For me, for example, cooking those meals in advance feels like the best choice. It seems like the one that will make me the happiest over the long haul. The book reading comes in a strong second, while the shopping is far back of the pack.

That wasn’t true ten years ago. What changed?

The only thing that changed was my values. I began to really see that each of my actions had an equal but opposite reaction. If I spent money or time in a foolish way, then more worthwhile things just didn’t happen in my life. The more time I spent thinking about what I really valued, the better I felt about the choices that had good results and the worse I felt about choices that had poor results.

Today, I’ve reached a point where I get far more personal happiness and enjoyment out of the choice that gives me the best long-term results – or, if that’s relatively unimportant, the one that results in the least spending. I feel good about spending less money and conserving my time, because that’s what matters the most to me.

The post The Reaction appeared first on The Simple Dollar.

The only way I can keep all of this balanced is through careful organization. I use a series of tools to make this work, most of them electronic (though not all). I keep desktop versions of these applications on every computer I work on and a mobile version of these apps on my phone. In addition to what’s listed below, I keep a pocket journal with me virtually all of the time, along with a pen.

Without these five free computer programs, I would find my day-to-day life very difficult to manage. I find these five tools to be absolutely essential. I’ve mentioned each of these in the past, but I felt it was worthwhile to update how I use each of these in my current day-to-day life.

A quick note: although all of these are free, some exist on a “freemium” model. That means that there are some extra features that are unlocked if you’re willing to pay some small amount. I am a paid supporter of all of the below tools that offer a “premium” version because I’m a big supporter of supporting what you use.

Evernote
What Is Evernote? Evernote is a tool that lets you take a nearly infinite number of notes, title and label and categorize them, and search them easily from almost anywhere.
Things I Use Evernote For: Jotting down random ideas, organizing those random ideas, hands-free note taking, project brainstorming, journal inventory

I use Evernote almost constantly, perhaps dozens of times a day. I am constantly jotting down random ideas on notes in Evernote, then dealing with them later.

There are so many little uses I find for Evernote.

I’ll be on a walk, have an idea, and just flip open my phone, launch Evernote, create a new note, and voice-to-text the note (where I speak and it turns into text) – I can do all of that without even stopping my pace or the podcast I’m usually listening to.

If I’m driving somewhere and I have an idea I want to work out in my head, I’ll start it, turn on the voice-to-text, and just ramble my ideas while I’m driving to wherever my destination is.

I’ll write down notes and sketches in my pocket notebook, take a picture of the page, and send it to Evernote and it’ll turn my handwriting (I take notes in blocky letters) into text I can search or use elsewhere and embed the drawings. I do the same with recipes I see in magazines and on and on and on.

If I’m brainstorming, I can just list lots of ideas in Evernote virtually wherever I am and then sort through them later. If it’s a mix of drawings and text, I’ll do them on paper and take a picture and deal with it later.

Evernote is the tool I use to dump disorganized information from my head into some place where it can be stored for later. It’s flexible enough that I can dump my ideas in almost any format and I’ll easily be able to get it into Evernote.

But what do I do with that disorganized information?

Remember the Milk
What Is Remember the Milk? Remember the Milk is a list organizing tool. You can create lists of all kinds, set due dates and priorities on the items, and organize those lists in many ways.
Things I Use Remember the Milk For: Task lists, grocery lists, project organization, daily planning

Much of that disorganized information winds up in Remember the Milk in the form of lists. RtM forces me to take a lot of those rather chaotic notes and put them into a structure where I can actually do something useful.

Let’s say I have an idea for a project I want to work on. I rambled on for twenty minutes about it while driving somewhere and all of that was saved in a note – but it’s chaotic. I then sit down with Remember the Milk and start piecing through that rambling, honing the ideas down into a useful project plan with a checklist of things to do with due dates and so on. That list goes into Remember the Milk.

I have a recipe that I want to make. I just add the ingredients to my ongoing grocery list in Remember the Milk and then use that grocery list when I’m actually at the store.

When I’m actually going through all of the stuff I need to do during the day, I’m usually looking at Remember the Milk to see what needs to be done next. I keep my daily to-do list in there and I generate a fresh one each evening.

Pocket
What Is Pocket? Pocket lets you save long documents you find online and want to read at a later time. It synchronizes in the background very efficiently.
Things I Use Pocket For: Storing things to read later

I’m constantly finding great articles online that I want to read but that I recognize I don’t have time to read at the moment. I’d need to set aside fifteen minutes or thirty minutes of uninterrupted time to really focus on that article to get value out of it.

Well, my web browser has a simple tool on it. I just click that special little Pocket button and the thing I want to read is saved for later. Whenever I’m at another computer or even on my phone, I can instantly retrieve any of those documents I’ve saved. I’ll even save and retrieve emails this way.

Pocket breaks the articles down into text, meaning there’s not much data usage for the program and it’s easy to read them on a little screen.

If I’m sitting in the waiting room at the doctor’s office or waiting for a meeting to start or something like that, I’m often reading an article in Pocket. It’s far more convenient than carrying a newspaper or a magazine around with me.

Google Calendar
What Is Google Calendar? Google Calendar is a calendar program that lets you easily save appointments, recurring dates, event reminders, and anything else.
Things I Use Google Calendar For: Scheduling (obviously), irregular event reminders, milestone management

If there’s something I need to remember that has a date assigned to it, it goes into Google Calendar.

I keep track of all of the usual things with it, like birthdays and anniversaries and doctor’s appointments. Where it really stands out for me, though, is when I use it for things like irregular home maintenance tasks (like when to change the air filter) or car maintenance tasks (like when to air up tires or wash the car).

I also find a great deal of value of using it for milestones. Whenever I plan a project, I try to hit dated milestones along the way. For example, if I’m drafting a book, I try to have a first draft done on day X, a revised draft done on day Y, and edits done on day Z. I’ll record those three dates on my calendar so I can see them coming.

This calendar is easy to retrieve everywhere. If I need a printed version, I can easily print off single day calendar pages (for that matter, I can find excellent views to print of all of the things above).

Dropbox
What Is Dropbox? Dropbox is a tool for off-site document storage, retrieval, and sharing
Things I Use Dropbox For: Synchronizing documents wherever I go, off-site backup for family pictures

If I have anything that I want to share between computers and I’m not concerned about privacy (meaning I don’t use things like this for sensitive personal data), I just use Dropbox. In fact, Dropbox integrates so smoothly onto my computers and phone that I scarcely realize I’m using it.

I just save a document of virtually any kind on Dropbox and I can pull it up from anywhere – any other computer and on my mobile device. I keep family photos on there, ongoing writing projects on there, and all kinds of other things.

As I said, the only things I don’t keep on Dropbox are documents that are highly sensitive – I keep my own backups of those documents at home for security reasons.

These five tools play a tremendous role in keeping my life organized. Without them – and my handy pocket journal – I would be very hard pressed to make everything work. The best part? All of these tools are free.

The post Five Free Tools I Use to Organize My Life appeared first on The Simple Dollar.

$1.50 a day. That’s not very much money at all.

In researching how on earth to pull off that kind of challenge, my attention focused on nutritionally balanced foods (or close to it) that are dirt cheap.

My meal plan for this challenge involves brown rice, dried beans, whatever greens are incredibly cheap at the store, eggs, and salt and pepper for seasoning.

At the store, for example, I can get a dozen eggs for $1.49 right now, a bag of dried mixed beans for $1.49, a bag of 14 ounces of greens for $0.77 (on sale), and a one-pound box of pasta for $1.25. I can buy a giant bag (fifteen pounds) of brown rice for $17, too – it might be cheating a bit there to count a pound of brown rice as being about $1.15, but I’ll go with it since that’s what people would do who were trying to stretch that food budget for more than five days. I’d count just two pounds of it.

So, if I bought one pound of brown rice for $1.15, two bags of greens for $1.54, a dozen eggs for $1.49, and a bag of dried beans for $1.49, I’ve spent $5.67 of my $7.50 allotment right there. Add in a second pound of brown rice and I’m at $6.82. I’d probably add enough fruit on top of that to get me to $7.50.

It is a huge challenge to eat on $1.50 a day. That food, spread over five days, results in a pretty low caloric intake, but a survivable one.

Of course, the response to this would be that eating on $1.50 a day isn’t really a relevant concern in our lives. We don’t have to eat on $1.50 a day, so why do it?

The big reason, of course, is that it provides a quick and stiff education on the challenges of global hunger. Many people in our world live on that small amount as their monthly food budget.

Another reason – and one I find really compelling – is that extreme challenges teach you a lot of things about yourself.

A strong personal challenge can show you angles on a situation that you’ve never seen before. They can make you try things you never would have considered before. Sometimes, they can lead you to a better way of doing things in your life outside of that challenge.

Another, somewhat less extreme example: my wife and I often do what I call “money-free weekends.” We go through an entire weekend without spending an extra dime. We eat purely out of our pantry and whatever extras we have on hand and we find community activities to engage in. We used to make a big deal out of these weekends, but today, we just do them naturally because they’re filled with stuff we like to do anyway. The lessons from “money-free weekends” just bled into our daily lives. (Want to try this and need some ideas? Here are 100 things to do during a money-free weekend.)

Take on a challenge in your life. Take on one that seems ludicrously hard and unnecessary. Throw yourself into it and go as deep as you can.

Sure, you might eventually fail, but the lessons you learn from pushing yourself in a new way and the lessons you learn from failure can bring about lasting changes in your life.

The post “Live Below the Line” and the Value of Extreme Challenges appeared first on The Simple Dollar.

When our oldest child turned four years old, we started an allowance system. Each week, we gave him fifty cents per year of his age (so, $2 as a four year old). He had a piggy bank with four slots – one for spending, one for saving, one for giving, and one for investing.

At first, he mostly put money into the “spending” slot. We required him to put one quarter minimum in each slot, but after that it was up to him, so the remaining quarters were put in there to spend. He found lots of little things to buy at first.

After a while, though, he began to start appreciating the “saving” slot. He saved up for a $50 toy over the course of several months when he was five years old, which was truly impressive to myself and my wife.

His younger sister watched this and, when she turned four, she started an allowance as well. She didn’t even really go through the “spending phase.” She just started saving immediately for larger toys.

After a while longer, the children stopped asking for their allowance each week. They wanted us to keep track of the savings on the calendar by marking allowance days. They continued to set big savings goals – I remember our daughter saving for a giant LEGO Friends kit and our son saving money for a game – but it wasn’t something urgent for them.

When I talked to them about this, they told me that they had lots of stuff already to play with, so there wasn’t much that they wanted.

Lately, though, we’ve reached another point. They no longer even seem to be saving for goals. I asked them just yesterday if either one of them was saving their allowance for a specific goal. They said no.

I then asked them what they wanted to do with their allowance. They both wanted to split it up in some fashion among charity and investing.

They no longer have a desire to spend money just because they have some cash available to them. I could not be more proud.

Here’s a confession: I would have never, ever done this at their age. If there was money available to me, I would have spent it on something. There was always a long list of items that I wanted.

I’ve been trying to figure out what the difference is between my situation and theirs. One part is that they have siblings close to their own age, giving them someone to play with at home instead of having to entertain themselves.

I think a much bigger part of it is how they spend their time. They don’t watch much television at all, and what little they do watch is commercial-free stuff, so they don’t really have a lot of commercial-fueled desires.

They mostly play outside when the weather is nice and build lots of LEGO castles and draw when the weather isn’t so nice. This is more or less what we encourage them to do.

When they play with something, they usually play with it over and over and over again, exploring variations and mastery of it, instead of moving on to something else because, frankly, that’s what they see us doing. Sarah and I have a small number of hobbies and we stick with them diligently.

Whatever the case, they’ve already seemingly mastered one of the hardest lessons of personal finance: managing and controlling personal desires.

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