Today I went to lunch with a very wealthy person. I don’t know exactly how wealthy , but based on his frequent trips to Maui, the fact that he earns a free plane ticket every month through his frequent flier points, and the fact that the other day he decided to go out and buy a truck just because he’s never had one before, there’s good reason to believe he’s close to a seven-digit earner. As I talked with him, it raised a lot of questions in my mind about how managing my finances will change as my wealth grows. If I were a millionaire would I still need to budget? Would I still want to track all my spending? Would I still need to negotiate with my wife about finances? It seems logical that with an income over $1,000,000 a year you wouldn’t need to plan as vigorously. But in the end thats a lie. Millionaires that manage their money irresponsibly can quickly lose it all and fall from grace (MC Hammer comes to mind).

Financial management principles are the same for millionaires and low-income-earners alike. Certainly the numbers your dealing with will change, but the basic principles and processes are still the same. In fact, by following sound financial management principles and optimizing your frame of mind, you can accelerate the process of building wealth and know how to keep it when you arrive. Here are 7 ideas that will help you think about and manage money like a millionaire, regardless of your income.

Read more »

Cafeteria plans can save you a lot of money and yet are one of the most under-utilized benefits that many employers offer. One of the reasons they’re neglected is because it can seem so overwhelming to determine how much money to set aside for medical expenses. Having just gone through the process ourselves, we wanted to share a brief overview of how Cafeteria Plans (FSA) work and how to optimize your participation.

My wife graciously volunteered to write this post and it’s her first post on GFD so be sure to give her extra praise and adoration!

It’s that time of year again. Rushing around, making last-minute decisions. I’m not talking about Christmas shopping. It’s the annual employee benefits festival—you come home with all sorts of insurance papers, medical, dental, life, and (my favorite) accidental death and dismemberment. It’s not enough that you still have Christmas shopping to do before you get ready for holiday traveling—you are supposed to find the time to make important financial decisions as well.

To help you on your way with minimal loss of holiday cheer, my husband has asked me to write a helpful guide to cafeteria savings plans. Even with the risk of making my debut on his site as “the cafeteria lady,” I have agreed. Read more »

If you’re a regular reader of GFD, you’ll know I’m a big fan of using cash to control your spending. But up to this point I haven’t really gotten into a lot of detail about how I manage my cash. To tell you the truth, there are almost NO tools out there for managing a cash-based budget other than the common envelope. Wallets are great for carrying a single chunk of cash, but they don’t help you organize cash by categories. This leaves a lot of room for creative thinking about how to manage your cash.

Greg over at StackBacks.com has a unique and GTD friendly way of managing cash involving envelopes, index cards, and paper clips. His method is a great way of divvying out your cash so you don’t spend it all at the beginning of the month, leaving you living like a pauper at the end of the month. It’s essentially a sort of cash tickler file (look under “Tools and techniques”).

Please let us know how you manage your cash!

Cash Allowance File

Another holiday post? Yes, Christmas shopping is on my mind. As my wife and I plan our Christmas budget, we’ve come up with several tips to help decrease holiday spending.

Christmas tends to be a very stressful time financially. Most people grossly underestimate how much they are really going to spend and often take on additional debt to pay for all the extra goodies. With a little planning and forethought, you can still have a full tree without taking on additional debt. Wouldn’t it be nice to not worry about money this holiday season?

1. Decide ahead of time how much you plan to spend on whom.

The first step is to create a spending plan on paper (or a spreadsheet) before you start shopping. By looking at all of your planned gift giving at once, you’ll make better decisions once you get into the thick of holiday shopping.

Sit down together with your spouse and write out a list of everyone you can possibly think of that you would want to give gifts to. Ideally, do this in a spreadsheet. Here’s a list to get you going.

• Immediate Family
• Extended family
• In-laws
• Cousins
• Aunts and Uncles
• Grandparents
• Friends
• Co-workers
• Neighbors
• Community/Civic Acquaintances
• Church members
• Include any people you want to send a Christmas card to

Keep adding people, even if you’re not sure you’ll give them a gift. The idea is to empty your brain and make sure you don’t experience the “oh, I forgot to get so-and-so a present” phenomenon. One of the reasons people overspend during the holidays is because they only budget for their family. Most people realistically buy many friends and acquaintances gifts as well.

Once you’ve completed your list, record how much you think you’ll spend on each person. If you don’t plan on buying a gift for a person listed, simply put $0. At this point, don’t worry about the total, just list what you’d like to spend. You’re estimates will be much more accurate if you think specifically what you’d like to get for that person rather than just putting a random dollar amount. List off to the side the item(s) you plan to buy. Of course, this process will be more involved when estimating planned spending for family members and may require multiple entries for one person.

Now add all the amounts together to see the damage. When my wife and I did this exercise, we were unpleasantly surprised at the total. It was way more than we were planning on spending.

Compare the total with the amount your were planning on budgeting for Christmas. Assuming the total exceeds your planning budget you need to either increase your budget or start cutting down your list. Keep reading for some great ideas at cutting your Christmas spending.

The whole point of this little exercise is to make your holiday spending explicit and conscious rather than spending blindly through the holidays only to find a very unpleasant surprise when the January bills arrive.

2. Give homemade gifts

It might seem cheap to give homemade gifts, but bare with me, they can be quite nice. When it comes to gifts for friends and acquaintances, it’s often the thought that counts more than the gift anyway. Here are a couple ideas.

• Cookie/Cake mix – We’ve received this gift several times and always enjoy it. You just take a canning jar and fill it with the dry mix in the right measurements to make cookies or a cake. You can use either a store bought mix or “homemade” ingredients (flour, sugar, chocolate chips, etc.). You can spruce it up by putting a bow around the jar. Or, let your kids be creative and decorate the jar their own way.
• Family history chart – We made our own 10 generation family history chart for my parents based on a design by Ancestry Circle. We printed it out on a poster-sized sheet and bought a $20 frame for it. It was a fair amount of work but was a meaningful and very unique gift. If you would like the template Adobe Illustrator file, send me an email. If you’re not looking to save money, Ancestry Circle will print a custom chart using your family history GEDCOM file for a reasonable fee of $79.95.
• Make cookies or treats for neighborhood gifts. By simply giving a plate of cookies or brownies, you could give to all your neighbors for under $10.
• Personalized Stationary – One year we made homemade stationary using Microsoft Word and a printer. We bought a ream of fancy paper and a box of matching envelopes. We had the paper cut in half at Kinkos and printed a design (using a word template) along with the person’s name on each sheet.
• Pictures make great inexpensive gifts for family members. Do your parents and grandparents have your most recent family photo? There’s probably nothing they’d rather have.
• Burn family photos or family history to a CD. Total cost: less than $0.10 each.
• Give homemade gift certificates. You can give an elderly person in your neighborhood a certificate to mow her lawn or shovel her snow. Give a certificate for free baby sitting to acquaintances with children. Give your spouse a certificate for a massage. Your creativity is your only limitation on this one.

3. Shop online and use RSS feeds to find great deals

It’s still not too late to find great deals online in time for Christmas. Learn how to use RSS feeds for shopping to be notified when an item you want goes on sale. Many online stores allow you to make purchases just days before Christmas and still have them shipped in time for the big day.

4. Buy used when possible

Using RSS feeds makes it easy to find items for sale on eBay or Craigslist. This is particularly great for younger children who don’t care if an item is used. Would you rather pay up to $50 for a Little Tykes basketball hoop or $5? For adults, electronic items can make great used gifts. People upgrade so often, you can find great deals on computers or mp3 players that are still in perfect working condition.

5. Give your “Favorite Things”

My father started this tradition and my wife and I have adopted the idea. By giving inexpensive items that you love and use everyday, not only will the gift be more meaningful, but the recipient will think of you whenever he/she uses the gift. By giving a gift with meaning, you deemphasize how much the item cost. Last year, my sister gave me a little packet of some of her favorite things that included her favorite gum, mints, and beverage. I loved it. It was neat for her to share those things with me and I could have cared less how much she spent.

6. Find great children’s gifts for under $5

Target, Wal-Mart and any dollar store have some great gifts for under $5 that kids love. Target and Wal-mart both have great generic-brand toy packages in $5, $10, and $15 increments. These toy sets include balls, play doctor kits, die-cast cars, doll sets, toy trucks, a velcro target and balls, and train sets.

7. Tell your family you’re trying to get out of debt

Let your family and friends know that you’ll be giving small gifts, or no gifts at all, because you’re trying to avoid debt during the holidays. Your family and friends will respect the fact that you’re aggressively trying to get out of debt and you’ll get the added benefit of their support. Of course, only do this if it’s true.

8. Make an agreement with others about gifts

The fact is, your friends and family are probably stressing about Christmas finances just as much as you are. Approach them with the idea of making a pact to not exchange gifts this year or to keep the gifts within a certain dollar amount. You’ll both be relieved to not have high expectations hanging over your heads about what to give and how much to spend.

9. Buy them Total Money Makeover for $10 a piece

Dave Ramsey sells his hardcover “Total Money Makeover” books for $10 a piece if you buy a pack of 10. Note: the link to his online store was broken as of this writing. I’ll keep checking and post the link when it’s working. While it might seem like a lot to drop $100 on books, you’ll actually be giving a $17 gift for only $10 while taking care of 10 people on your gift-giving list. Plus, books make the best gifts in my humble opinion.

10. Use cash and/or save receipts

I’ll admit that it’s tough to use cash when you’re making so many purchases in such a small time frame. Credit and Debit cards really are more convenient. But if you really want to guarantee you’ll spend within your means, you’re best off dividing up your Christmas funds and giving cash to each family member. Once they’re out, they’re done spending.

If paying cash is not realistic for you, be sure to save all your receipts. Empty the receipts from your wallet at the end of a shopping day and put them in an envelope for safe keeping. Before you wrap your gifts, you can review how much you spent and, if you’re over budget, you can decide which gifts to return. With all the gifts in front of you, it’s easier to make trade-off decisions about which ones to keep. When you’re at the store in a shopping frenzy, it’s much harder to make such a level-headed decision.

Decide not to go into more debt this holiday season

Most importantly, make a decision along with your family not to go into additional debt during the holidays. You don’t want to be “experiencing” Christmas long after it’s over and the thrill of new toys has faded.

What do you do to save money during the holidays?

David Allen in “Getting Things Done” compares productivity to the martial arts. He gives instruction on how to become a black belt in your personal productivity with a “mind like water” that allows you to handle anything that comes your way with a balanced response. When a stone is thrown into a pond, the water reacts with perfect balance. It reacts just enough to disperse the energy, no more, and then returns to a calm state. It doesn’t over or under react.

Becoming a black belt and having a “mind like water” in your personal finances is very similar. It means you can take whatever is thrown at you without knocking your finances out of control. You can respond to any situation with perfect balance. Unexpected events or changes in your finances, good or bad, can be handled with optimum efficiency, and little or no stress. It means you can direct the flow of money where you need it almost effortlessly.

In an effort to help people gauge where they are in their personal finance development, I’ve defined what people at the various “belts” might look like. Where are you?

Read more »