Personal Finance Articles
Lifestyle creep happens when two things in your financial life increase: your income and your spending. Specifically, lifestyle creep happens when you spend your extra income on things that upgrade your lifestyle; as opposed to maintaining your current lifestyle after your income increases.
Dear Buy Now, Pay Later companies,
The path to hell is paved with good intentions.
“Consumers need this,” you say. “We’re giving them options and flexibility in uncertain economic times,” you say. If you shut one eye and squint the other, you may be able to fool yourself into seeing what you want to see. That’s the beauty and the curse of the human mind. You’re asking them if they’d like to be kicked in the crotch or punched in the face. Options!
Navigating the intersection of love and money can be tricky, especially if one partner is more of a spender than the other. There is one method of managing finances that can help every couple find the balance between working towards the same financial goals, while also maintaining some level of autonomy. It’s called “splitting the check.”
We don’t always get what we give. At least, that’s what the Italian economist and sociologist Vilfredo Pareto discovered in the 1800s while harvesting peas from his garden. Pareto observed that 80% of the peas came from only 20% of the peapods, demonstrating an unequal relationship between inputs and outputs. Wondering if this pattern would repeat itself in other areas of life, Pareto began to look at different data sets to confirm his findings.
While this principle might skew and not always hold one hundred percent of the time, the general principle that 80% of effects result from 20% of causes holds. Less than 10% of the population owns 80% of the stock market. Few social media accounts are responsible for most misinformation across platforms. And we’ve recently seen, in a pandemic, that roughly 20% of the most infectious individuals are responsible for 80% of the transmission.
Knowing 80% of your success and results come from only 20% of your efforts; you can apply the 80/20 rule to your financial lives. Here are the five financial rituals you can focus on that will impact results the most.
The shopping season is here, and it’s coming for your wallet. Not only do we have Black Friday, the biggest shopping day of the year, but this American tradition has also spun off into a string of frenzied buying days. There’s now Small Business Saturday, Cyber Monday, and Giving Tuesday. Of course, I’m not a monster. I do love a good deal. But it’s hard not to be cynical and critical of our hyper-consumerist society. So for anyone looking to mindfully shop this holiday season, here are some things to consider before venturing out into the wild.
It’s happening, y’all! The Department of Education launched a beta test of student loan forgiveness applications at 5:45p PT on Friday Oct 14, 2022. During this beta period, federal student loan borrowers may submit applications for some debt relief.
The applications won’t be processed until the official site launch later this month. However, according to a Department spokesperson, folks that apply for forgiveness during the beta period won’t have to reapply once the site goes live (or so they say).
Of course, a beta period indicates that the site, the application, and the process are in testing. During this period, bugs will be discovered – it’s the point of a beta test. So folks that apply now should manage their expectations.
Here are a bunch of different things I’ve been thinking about. Lately, my work has felt like collecting dots in the hope that a constellation of meaning will soon reveal itself.
Here are some things I’ve been thinking about lately.
Disclaimer: I’m probably not the first person to think of these things. I’m sure I picked these up from a fellow human expressing themselves through conversations, words in a book, dialogue in a movie, lyrics in a song, or eavesdropping on folks arguing over dinner (one of my favorite things to do). Sometimes it’s hard to remember where every insight originated. Sometimes they are slowly internalized through repeated exposure, like learning every lyric to a pop song you had no intention of loving. We’re all pulling from the same weird, swirling pool of ideas
The end of a year is a time for reflection. As you plan your end-of-the-year celebrations and start to plan your new year resolutions, you may want to consider taking some time to take a closer look at your finances. A year-end personal money review can help you reflect on the choices you made over the previous year and help guide you to make better financial choices in the new year.
Let’s take a look at what a year-end personal money review is and how it can help you have a better relationship with money:
The sequence of events is consequential when we cook a meal, tell a story or travel to a destination. Instructions and directions are ordered, stories have sequential acts and arcs that depend on events. It’s the way things are, we accept this.
The same thing is true in the world of saving and investing. The chronology for both how you save (and invest) and where you save (and invest) matters.
Paradoxes are fancy literary devices that can teach us lessons through the use of logical contradictions. Examining them allows us to practice our ability to hold opposing ideas in our minds at the same time.
It's easy to complicate things; it's hard to simplify them.
"Earn money. Spend less than you earn. Save and invest the difference. Rinse and repeat."
This is the advice an old boss would give when asked to distill financial planning into its simplest parts. It's excellent advice. When I first heard him deploy the words that would become a well-worn mantra in my mind, it was the moment I realized how easy it is to complicate things and how hard it is to simplify them.
Even if you have all the right practical, rational information, when you're in a state of fear, anxiety, or stress, it is impossible to make sound, rational decisions. These states are innately emotional states where cognition is bypassed. When you're afraid, a part of your brain (amygdala) releases hormones that prepare your body for a "fight or flight" response. Humans struggle with having control when we're in these states because the amygdala has few connections to the rational parts of our brain, like our cortex.
Daniel J. Siegel, MD is a contemporary psychiatrist and writer who specializes in interpersonal neurobiology. He is credited with creating the concept of the window of tolerance.
The window of tolerance is used to understand and describe normal brain/body reactions, especially following adversity or trauma. The concept states that we each have an optimal zone of arousal, called a window of tolerance. When a person is within the window of tolerance, they can regulate their nervous system in order to deal with the natural ups and downs of being a human being on earth. In the window of tolerance, one can reflect, think rationally and calmly make decisions without withdrawing or feeling overwhelmed.
We all operate based on our own set of internal values and principles. We make financial decisions based on them, and our choices shape our financial life.
If you aren't aware of the financial principles you're living and operating by, you might have internalized someone else's, like your mother's fear or risk. Or your father's illusory confidence in his abilities to understand complex financial instruments. Your uncle's skepticism of everyone "trying to make a buck." Your aunt's overconfidence in the intentions of others.
Since there is so much we cannot control, you have to take responsibility for what you can control. Make sure you're acting on the values you truly value.
Here are my own financial operating principles to help guide me to make the best financial decisions with limited information. But really, they are principles to help me on my path to inner peace.
Everything is connected. Your relationship with money impacts both your inner world and your external world. In your outer world, outside of you, your feelings about money can impact how you see the world, how you act in the world, and how you interpret experiences in the world. In your inner world, your relationship with money can impact how you feel. You cannot wholly compartmentalize your financial life; as much as you may have convinced yourself you can. How you feel about your financial life and your relationship with money, impacts how you feel about yourself. How you think about yourself affects the choices you make. And all the choices you make, create who you are, what you're able to do, and who you will allow yourself to be.
Before we begin, I’d like to introduce you to the pyramid of financial awesome.
The pyramid of financial awesomeness, lays out everything you need to do to get your personal financial life together. You start at bottom and then progress upward.
In this post, I’m going to walk you through the three things you can do to build a solid foundation.
I usually hate Maroon 5. But it’s Saturday night in Little Tokyo and a stranger is absolutely slaying his version of ‘Sunday Morning’. The crowd is feeling it and the next thing I know I’m totally grooving to the only thing crappier than an actual Maroon 5 song - a cover of a Maroon 5 song. But I don’t care that I look like a loser. After all, it’s a karaoke bar.
Imagine a room full of people running the odds on how long a stranger will live or die and then making bets on those odds. It could sound like an interesting scene in a movie, where questionable characters indulge in some casual underground gambling, but what I’m actually describing is a room full of underwriters in the life insurance industry.
When you look at it that way, doesn’t the insurance industry sound fascinating? It’s one of the biggest industries in the world and it’s all based on risks and making bets.
"I have an app on my phone and it reminds me 5 times a day that I’m going to die,” is exactly what one of my friends told me recently. I stopped and thought about what she said, coming to the conclusion that I didn’t find it morbid. In fact, I think it’s a little weird that we don’t talk about dying more often; that we go around living our lives, putting things off as if we have all the time in the world.
I’m sure you’ve heard of Murphy’s law; an old adage that states "anything that can go wrong, will go wrong.” And then there is Parkinson's law that basically boils down to: work expands to fill the time available for its completion.
Now, I’d like to introduce you to Paco’s law.
The world of finances is wide and deep. From building a budget to understanding insurance and everything in between; it can be intimidating. Jumping in all at once can result in a harsh flop followed by a defeated retreat.
How to Be Financially Responsible | The Basics of Financial Responsibility
One of the most frequent financial struggles that people talk to me or email me about is having trouble being "fiscally responsible".
When it comes to doing the things one ought to do with their money, according to what I've learned from the industry and society at large, we fall short in a few common ways. Most people have trouble saving when you know you should save, curbing spending on bull shit that you don't need and understanding how the financial markets and economics. I get it. I make weird choices too. A lot of us do it because we're emotional creatures that act on our feelings.
A balance transfer is when you pay off a higher interest credit card with a lower interest credit card. You're transferring the balance from one credit card to another. A lot people use this strategy with their personal finances to get out of credit card debt. Credit card companies will often advertise balance transfer deals where no interest will be charged for a certain period of time. For example 0% interest (APR) on balance transfers for 12 months. Sounds like a pretty good deal, right? It can be, but there are some things you should know before making the transfer.
Alright, student loans. These wonderful and horrible tools that allow people who can't afford an education to pay for one by simply mortgaging their future. Ah, the American way. If you're one of the unlucky and you've been avoiding doing the leg work and mental work when it comes to consolidating, this is for you.
If our calendar year could be compared to a basketball game, we're at about half time. Halftime is a chance to pause and reflect. What's the score? How is the other team playing? How are you playing? You probably went on the court with an objective. Maybe the objective is to win. Or maybe the object is to not lose by 30 points. Whatever the objective is, now is the time to take stock of the score, your performance and how you can make adjustments to finish strong.
Be discerning. Question assumptions and conventional wisdom. Don't just assume that tax benefits benefit everyone. Run the numbers. Think for yourself.
If you’re trying to pad a savings account (or multiple savings accounts), it can be daunting and overwhelming. The first thing you need to do is figure out how much you need to save.
Here are my predictions for what’s in store in 2024 and what that means for creative businesses. They’re a result of reflecting on the last year, observing larger trends and chatting with folks across various creative industries, from creators who make money on social media to to small business owners, artists, and folks in the podcasting industry. A lot of this may be anecdotal, but some of these patterns are worth paying attention to. Let’s dig in.