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Tuesday, February 9, 2010

How You Spend Your Time, How You Spend Your Money

Try this experiment.

For the next month, keep a time diary for yourself. Keep a pocket notebook and, throughout the day, take notes on how you've been spending your time. Don't try to be "perfect" about how you spend your time – just be normal about it. You're recording this information for your own purposes.

Once you have a month or so worth of data, come up with some sensible groups for how you spend your time. Hygiene might be one. Cooking might be another. Joy of Cooking: 75th Anniversary Edition - 2006You might have a handful of categories for your hobbies and interests, like watching television. Spending time with friends or family might be another such category, as might surfing the web.

Once you have these groups, add up all of the time you spent during that month doing something within that group. For example, during the month I did this, I found that I spent forty seven hours reading for personal pleasure and enrichment.

Once you have that, compare it to your actual spending throughout a given month. Are there any areas where you're spending a lot of money but not spending much time? 

Quite often, those areas where you're spending a lot of money but not spending much time are the very areas that most need trimming.

For me, those areas have included technology items . I don't watch enough t.v. or play enough video games to really warrant the purchase of another tv or gaming console, and I often don't use the gadgets I've bought nearly enough to warrant the purchase price. 

The flip side of that coin is also interesting – the areas where you spend a lot of time without spending a lot of money.

In my own life, reading and cooking are two areas where I invest a lot of time but typically don't spend significant money. I don't spend a lot of money on reading materials, nor do I invest significant money into cooking supplies, either (aside from perhaps being a bit picky about ingredients for some meals) – in fact, I often cook things that wind up costing less than a prepackaged option.

Here's the kicker, though. Quite often, areas of your life where you spend a lot of time without spending a lot of money are the areas that truly bring you the most enjoyment because you don't require a constant influx of new things to be able to enjoy yourself.

I argue that those are the areas of your life that you should accentuate, while learning to let go of the areas that offer much less bang for the buck.

What does that mean for me? Instead of lusting for gadgets, I should instead focus on cooking great meals for me and my son. Instead of looking at new flat screens, I should devote more time to reading. 

This carries through to the other expenses and choices in my life. When I look at the websites I read regularly, it doesn't take much to de-subscribe from   or and subscribe to 101 Cookbooks. When I go shopping, I can skip by the Apple store and visit the local organic greengrocer. 

Instead of spending the weekend dropping a C-note at Best Buy, I can just join a book club instead (and get my outdoors fix by walking around various yard sales and flea markets.). 

The end result? I slowly start focusing more on and spending more time on the things that are truly important to me that also happen to not cost all that much. Meanwhile, the costly things that I don't really care about that much begin to slowly fade away.

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Mr. Dangerfield is an I.A.P.D.A Certified Debt Specialist whom has worked in the finance industry for over a decade. He manages and is the author of "A Dangerfield Manifesto" and co-founder of SMG Holdings, the parent company of Squad Music Group, Dangerfield Artistic Entertainment SMG Publishing and Taboo Dangerfield Publishing Follow me on twitter

Review: One Year to an Organized Financial Life



Basically lays out a week-by-week plan for getting your financial house in order. The book is divided into twelve chapters (months), each containing four subsections (weeks in a month), and each of those sections details how to take control of a specific aspect of financial life.

The end result is something that feels very much like a detailed plan to follow. Personally, such a plan gives me mixed feelings – while it's great for a person who just wants to be told what to do, I'm a big believer in understanding your finances and your motivations and, at times, this book feels more like a "just follow these steps" kind of guide than a "understand what you're doing" book.

The big question, though, is whether the information is worthwhile. Let's dig in.

January: Take Control
More than anything, this opening chapter focuses on information management. Quite often, people's personal information is in a very unorganized state, with cards and receipts jammed in purses and papers tossed into boxes and filing cabinets. The solution? Start from scratch. Clean out your purse and figure out a good place to put that stuff. Start a real financial filing system. Even more important, go through your mind and start asking yourself why you make the choices that you do.

February: Assess Your Finances
This month is all about creating a budget. The process is standard by now: record all of your expenses, then parse them into groups that make sense to you, then from there figure out what you should be spending in each category and shoot for that new target. My concern here, though, is that to set up a really accurate budget, you need more than just a month. You have to record your expenses over a longer period of time than a mere month to get an accurate grasp on your money. Although the procedure here makes sense, stuffing it into such a short timeline does not.

March: Get Ready for Taxes
This chapter summarizes the process of doing your taxes. Collect your documents and your relevant receipts. Decide whether or not to use a professional or do it yourself. Then, take the plunge – fill out the paperwork and file. It's a process that most of us (painfully) have to go through each spring. A big key suggested here is to start a filing system now to store all tax-related documents throughout the year so that when you do your taxes the following year, all of the receipts and other materials you need are ready to go.

April: Spend Less, Save More
Frugality is the buzzword here. This chapter focuses strongly on cutting your expenses – much of the advice is right in line with the ongoing "Trimming the Average Budget" series on Being Broke Sucks Today. Hand in hand with that kind of trimming, though, is the need to actually save what you've been cutting, because the tendency often is to take that money and spend it on things that you seemingly couldn't afford before, thus raising your standard of living and sticking you right back in the spot you started in.

May: Borrow Smart
Leeds covers the ins and outs of borrowing money here, largely supporting the good debt, bad debt dichotomy. The advice is smooth and straightforward: trim the "bad debt" (high interest debt) as quickly and efficiently as you can and don't take on any more of it. Leeds does subscribe to the idea that "good debt" is largely good and mostly focuses on shopping around for home loans and auto loans, but as time goes on, I'm less and less of a fan of any kind of debt.

June: Build a Nest Egg
Retirement savings are next. Leeds' advice is pretty straightforward: max out your 401(k) and then run the numbers to see if you need even more using a reliable retirement calculator. She also advises against underestimating what you need for retirement, making it clear that you're better off with more than you need at retirement time than not enough.

July: Make Long-Range Financial Plans
What about your other long-term savings goals, like saving for your dream home? Leeds encourages most people to get a financial advisor for this task. On the other hand, given the great tools available on the internet, I think that most people today can actually handle their own long-term savings. The big keys are to make sure you've clearly specified your goals and to automate your savings so that it's building on a regular basis over time without your manual intervention.

August: Refinance and Downsize Options

Sometimes, the old home mortgage gets to be overwhelming. In those times, refinancing and downsizing are two choices that people usually consider, and Leeds walks through these optiosn here. Ideally, of course, the tactics from the earlier chapters have put you in a better place with your money so that this isn't a worry. A big key: maintain your good credit. Put a priority on maintaining a high credit rating and things like refinances will go much easier – plus you'll find that your insurance rates are lower.

September: Children and Money
This chapter is of particular interest to me, since I'm a parent and I enjoy reading ideas for teaching good money values to my kids. Leeds suggests giving your child as much practice as possible with managing their own money, from an allowance to a job in their teen years. For college, parents should start a 529 as soon as possible and, perhaps more importantly, should get their children actively involved in saving and preparing financially for college.

October: Protect Your Assets
Here, the book felt perilously close to insurance salesmanship, as several different types of personal insurance are pushed hard. Leeds also encourages people to pay more in order to lave lower deductibles on their medical bills, which actually is a policy that I feel runs contrary to the advice given elsewhere in this book. After all, when you have your financial house in order with a nice emergency fund, you can afford the higher deductibles, so you should save on the premiums if you can on your health insurance.

November: The Season for Sane Spending
How do you keep your holiday spending under control? The best way to do it is to plan your shopping carefully. Instead of heading into the store with a head of steam and a big list, spend some time coming up with great gift ideas for each person you need to buy for, then researching how to get those items for a great price. Don't let your impulsiveness run the day or you'll find yourself spending a lot more than you ever intended to spend.

December: Year-End Money Moves

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Most of the year-end money moves involve reviewing your spending and financial activity over the course of the past year (an awesome idea) and preparing for your taxes by doing things like harvesting any investment losses by selling now and making sure your charitable contributions are taken care of and adequately recorded (another great idea). In short, you should end the year by making sure all of your ducks are in a row and ready to set sail for the next year (and the coming tax season).

Is One Year to an Organized Financial Life Worth Reading?
One Year to an Organized Financial Life doesn't offer many new ideas, perspectives, or angles on personal finance. Instead, what it offers is a clear organizational scheme – a very thorough step-by-step plan for people who simply prefer to have a plan to follow. 

In that regard, One Year to an Organized Financial Life is a home run.

I think what it comes down to is this: do you learn better by figuring things out for yourself, or do you learn better by following the patterns that someone else has set in place? If you're in the former group – and I'd put myself there – One Year to an Organized Financial Life won't do much for you. 

If you're in the latter group, One Year to an Organized Financial Life will be an incredibly useful read.

One Year to an Organized Financial Life depends more on the reader than on anything else, as it provides exactly what the cover promises: a one year, step-by-step plan to financial organization.

Mr. Dangerfield is an I.A.P.D.A Certified Debt Specialist whom has worked in the finance industry for over a decade. He manages and is the author of "A Dangerfield Manifesto" and co-founder of SMG Holdings, the parent company of Squad Music Group, Dangerfield Artistic Entertainment SMG Publishing and Taboo Dangerfield Publishing Follow me on twitter

Monday, February 1, 2010

Trimming the Average Budget: Entertainment

Entertainment – Yearly Average $2,698

Clocking in at an average of $225 a month in a family's budget is entertainment – and that excludes reading. Going out to shows, watching movies, listening to music, playing games, participating in sports – they're all incorporated under this banner.

The breadth of this category means that what one person considers "entertainment" spending doesn't overlap much at all with what others consider "entertainment" spending. So what universal tips can be offered to reduce entertainment spending and actually be useful? Here are some suggestions, no matter how you spend your entertainment dollar.

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Focus on what you enjoy. What do you enjoy the most? Don't pay any attention to what your friends find enjoyable – what do you find enjoyable? Don't burn up your entertainment dollars in some sort of race to "keep up with the Joneses." Instead, focus on accentuating the hobbies you personally find enjoyable. You don't have to buy a giant flat-screen television just because your pals insist on watching in high definition. If they do, let them host the football parties.

Join a club. Joining an interest-based club is often a surprising money saver. Why? If you join a club, it will draw you more into a specific hobby because you're spending social time with other aficionados. Quite often, time spent in such social activities is relatively inexpensive, plus such clubs are usually powerful sources for bargains and great suggestions when it comes to a particular interest.

Don't be afraid of used items. You don't need the latest and greatest items to thoroughly enjoy your hobby. There are quite a few board games I love to play that are beat-up old copies from the 1960s. I plan to play golf with piles of old golf balls, many of which were actually fetched by my previous boss's dog (seriously). Whatever you choose, thoroughly enjoy the activity you end up becoming involved in.

Let others foot the bill when you dabble. Interested in trying a new sport? Before you go invest in a bunch of equipment, see what's offered at your city's parks and recreation service. Want to learn a new hobby? Visit stores that specialize in that activity and see what classes and groups are offered there. If you're just dabbling in something to see if you like it, don't immediately start shelling out the cash. Find opportunities to sink your teeth in a bit first to find out if it's right for you.

Trade instead of buying. If you're a movie buff and have friends that also are movie buffs, trade with them instead of buying new DVDs. Have a "swap meet" where you go through each other's collections and borrow a big pile of DVDs from each other, returning them when you're finished. You can essentially do the same thing with any sort of collectible form of entertainment, from video games to CDs to books. Similarly, there may be stores in your area that allow you to swap your used copies of items for other used copies.

Don't go high-end immediately. Often, when people begin to engage in a new hobby, they invest in high-end equipment and materials with which to enjoy the hobby. They'll buy shiny new clubs, loads of new balls, an entire kitchen full of new cooking supplies, and so on. Don't. Start off using low-end equipment. Only move up to the high end when you've used the low end equipment enough that you can actually articulate and understand exactly how the higher-end equipment will help you go beyond where you are now. One should absolutely invest in higher-end equipment if they find themselves truly enjoying a hobby and can actually articulate real reasons why a high quality piece of equipment will improve their hobby. Until then, go with the entry-level stuff.

Master what you have. This simple technique went a long way towards trimming my video game hobby from one new game a week to roughly one game a quarter (and that one's often used). If I buy a new game, I commit to finishing it before buying another one. The same rule can be applied to many hobbies – if I buy a book, I'll read it before buying another one. If I buy a DVD, I'll watch it at least twice before buying another one.

Maintain what you have. If you enjoy bicycling, take the time to maintain your bicycle. If you enjoy woodworking, take the time to maintain your woodworking equipment. If you enjoy playing on your computer, maintain it by running software updates and occasionally cleaning the dust out of the case. Investing a little bit of time and money now to keep your equipment in good shape means that the life span of the equipment will be greatly extended, saving you a lot of money over the long run. 

If you're a frequent consumer, look to renting. If you've already honed in on the fact that you deeply enjoy video games or watching movies or something similar, look for rental solutions instead of buying new ones constantly. Services such as Netflix Hangover, Theand GameFly Unlimited Video Game Rentals, 2 Months for the Price of 1 allow you to rent media for as long as you want with one low monthly fee which, if you're heavily into those hobbies, is much less expensive than buying new items constantly.

I want your help! In the comments, please let me know which of the tips you find most useful for trimming these costs

Mr. Dangerfield is an I.A.P.D.A Certified Debt Specialist whom has worked in the finance industry for over a decade. He manages and is the author of "A Dangerfield Manifesto" and co-founder of SMG Holdings, the parent company of Squad Music Group, Dangerfield Artistic Entertainment SMG Publishing and Taboo Dangerfield Publishing Follow me on twitter