Changed Blogging Platform to Wordpress

I've moved to Wordpress.  My newe site is: http://www.moneylicious.org/

]Recently, I've changed my blogging platform to Wordpress.  It's now complete. :-)  I'm excited to  make this move. It was a great decision. I can now offer my a free chapter of my book, Moneylicious: A Financial Clue for Generation Y on my new site.  There will be more free offerings in the future.

I will no longer be posting on Blogger.


See you there! :-)

What do budgets and diets have in common?

The dirty word “budget” less likely emotes the pleasure, yet artificial, feeling of drinking a dirty martini.

Do you always stick to your budget after you create it?  Do you find it difficult or a nuisance to stick to it?  Do budgets even work?

These questions are asked by women all the time.  Personally, I’m not a big fan of budgets.  However, the purpose of a budget is to help you hold yourself accountable to your spending and to meet specific financial goals.  Human behavior is driven by pain and pleasure and by greed and fear.  The human brain is wired for survival making sticking to your self-imposed budget all the more difficult.  Long-term planning and envisioning your financial future doesn’t come natural.  These are aspects to your lives that you have to learn and train your mind to do.  Think of it when you go on diet.  The basic idea to losing weight is to eat fewer calories and increase your exercise routine.   Sometimes people will skip out on breakfast (the most important meal of the day) and eat a heavy meal at the end of the day because they are starving. The body will transition into survival mode by beginning to store fat rather than burning it off.  Eating meals infrequently will send signals to your mind you don’t know when your next meal will be, and; therefore, will store fat to survive on it later.  

A reason why you may have a difficult time sticking to your budget could be because you allow yourself to attach a different value to your money. Research has shown it is more painful to use a pile of cash on your purchases than swiping your credit card for the instant gratification.  It’s also easier to incorporate a cost into a larger amount of debt.  For example, buying a $75 shirt is easier to purchase when you bury it into your pile of credit card debt of $3,000 rather than plucking $75 cash out of your wallet. 

Having accounts earmarked to separate spending money from your household expenses is the easy way to manage your account.  There is merit to setting up separate accounts for discretionary or luxury expenditures. To take advantage of a simple system you should set it up on automation.  Focusing on penny-pitching your money could make you feel there’s no room to splurge.  A budget is not intended to avoid spending.  Avoid an overly detailed budget.  Instead identify your financial goals such as saving for retirement, vacation, emergency cushion, splurge to indulge, holiday gifts, and paying off debt.

Are you using the wrong type of budget system? What may work for one person may not work for another.  While one person uses an excel spreadsheet, LearnVest’s budget tools,  Mint, or Adaptu to track their budget another person may decide that automatically saving 20 percent and using the remaining 80 percent for expenses is a better approach. Or, maybe it is 15 percent allocated to savings and 85 percent for expenses. Another example could be setting up a minimum and maximum range for each of your categories when establishing a budget.  Setting up $200-$300 on monthly food expenditures would provide a better cushion.  Imagine you have earmarked for your “splurge to indulge” account $250-$300.  You withdraw $100 to splurge it on your heart desires. How much more meaningful would it fee than withdrawing $100 from your entire $2,500 monthly budget.

If you want to cut spending, trim the fat on a few categories where you can make the biggest difference.  The best approach is to follow your money using a money journal for two weeks to one month.  Personally, this approach has worked best for me. List where you spent your money, the amount you spent, the category (food, entertainment, shopping), and most importantly, WHY.  For example, you may find an item on sale and bought it only because it was on sale—it was an impulse buy.  Right it down. You may have attended a dinner date with a friend. Right it down.  Then review all the reasons why you made your spending decisions. This will provide you with a conscious insight into your financial behavior. You may discover you spend $250 on dining out because you don’t have time to cook and prepare your meals ahead of time.  At the same time, you discover you spend $300 on impulse buys.  What do you do? Your lifestyle may make it difficult for you to significantly trim your dining experience, but you know you could cut back two to three times a week.  Know what is important to you.  If you would rather dine out without feeling guilty, reduce your impulse buys and learn to mix and match your outfits.  You can save $150 to allocate to your dining out and increase your emergency cushion. 

Before you rip apart your current budgeting structure, establish your goals. Your financial goals are your motivation.  They provide a sense of purpose.  Ultimately you want to set realistic goals that factor in your lifestyle.   Live up to your financial intentions by setting up your contributions (to meet your financial goals) on automation—it requires unconscious effort.  It’s the best strategy to make your budgeting more sustainable.  Once you set it, you can forget it.

The wrong diet and budget will set you back.   Not having enough fun with dieting and budgeting will lead to bingeing and a sour-mouth face.

This post is part of Women’s Money Week 2012. For more posts about Budgets see the Budgeting Roundup.

Interview with Carl Richards, author of The Behavior Gap

Imagine making complex financial ideas simple and easy to understand with a Sharpie.   This is exactly what Carl Richards captures with his easy-to-understand sketches in his first published book, Behavior Gap: Simple Ways to Stop Doing Dumb Things With Money.   Carl Richards is a CFP, founder of Prasada Capital Management, and regular contributor to the New York Times Bucks Blog and NPR's Marketplace Money.  Like me, Carl knows emotions play a huge role in making financial decisions.  Our feelings can get in the way of our perception of the facts.  For example, investing in a stock after its price has risen is much riskier.  Yet, many people will invest in a stock after its price has climbed without a backup plan.  To make good money decisions you have to have a plan. Although no plan will cover every situation—and that’s okay—allowing for course corrections throughout your plan will help keep you on track. As Carl points out in his book, the distance between what you should do and what you actually do is known as “the behavior gap.”

I thoroughly enjoyed reading Carl’s new book.  He helps the readers reflect on their own behavior patterns around their personal financial decisions. I was thankful to have the privilege to speak with Carl and without a doubt know that he speaks from a place of fundamental value.  My interview with Carl went something like this:

Ornella:  What would you say to someone who lost more than half of their money in the stock market and was supposed to retire soon?

Carl: Let’s say you had $500,000 saved for retirement and now it’s at $250,000.  Obviously it’s a painful experience being so close to retirement.  At that point we have to give ourselves the time and space to accept our new reality and at some point we have to accept it.  It’s the sad truth. The market doesn’t care if your money used to be at $500,000.  It is unproductive to keep thinking you can get back to $500,000. Emotionally, we are hung up on a figure and have a tendency to anchor on specific number.  In this case that figure is $500,000.

The first step is you should be clear about your current reality. You should review the mistakes that got you there and keep that in your own box. We beat ourselves up with our own mistakes. It’ doesn’t do any good and blaming other people will not help.

The second step is to see what lessons you can gleam from the experience and move on. [Note: Carl refers to moving on by creating a new plan that takes into account your current financial situation.  You will need to consider a new life plan that will include your new financial goals and what you should be considering if retirement is nearby.  For example, should you consider working longer to increase your Social Security benefit and then switch to working part-time? Should you consider downsizing or moving to a more tax-favorable state?  How much more can you increase your savings contribution? A drastic event will require an re-evaluation to your circumstances.]

The third step is the Overnight Test. Let’s pretend you have $250,000. Now you have to build your plans from where you are today.  Try not to focus on getting  back to $500,000. Basically, if all your investments were sold off overnight, the next morning you had $250,000 in cash.  Would you build the same portfolio?  What changes would you make?  [Note: Tim Maurer is a good friend of Carl.  He told Carl that personal finance is your personal finance.  It is more personal than it is finance. ]

Ornella:  Reading your book, you do not give advice on “how to” manage your money.  Why?

Carl:  There are many books that cover this subject matter. Personally, I wanted to help people ask the right questions. I would suggest taking the time to have the Overconfidence Conversation.  You are asking yourself threes simple questions to help you in your decision making.   These were questions that came up a lot with my clients. Ask yourself:  1. If I make this change and I am right, what impact will it have on my life? 2. How would your life change if you were wrong? 3. Have you been wrong before? [Note: I view these questions as a way to evaluate your best and worst case scenario. Carl’s mentioned that overconfidence can turn out to be flawed.  In his book, he brings up ex-chairman of the Federal Reserve, Alan Greenspan.   Mr. Greenspan was “shocked” when his models that he used confidently for almost forty years turned out to be flawed when addressing the financial meltdown.]

Ornella:  The pain of losing money is far greater than the pleasure of winning money.  Yet, people who work for Comcast, Apple, and Google don’t see it that way.  In your book, you mention a bad decision leading to a good outcome doesn’t make it the right financial decision.   How do you tell clients they are wrong when they think they are proven right?

Carl: You walk them through the process of making a decision and focus on the principle not the outcome. Make it really clear. You can make great decision or bad decision and have a good income. Limit the degree you are relying on luck. Walking them through the rise of Apple’s stock price is done by evaluating if it was skill or if it was luck.  Was it a repeatable gut feeling or did you ever look at Apple’s filings?  Then, go back to the overconfidence questions.  If Apple went up from $500 to $1000 how would that impact your life?  A little bit.  If apple went from $500 to $100 how that impact your life?  Have you ever been wrong?

Ornella:  Personally, I’ve don’t completely agree your risk tolerance is based on how well you think you will sleep at night.  Risk tolerance is determined by the level of risk you can take to meet your financial goals.   For many people “the Great Recession” placed a lot of fear, especially young people, about investing as a gamble and that it’s a huge risk. What would you tell a young adult?

Carl: Invest in a Total Stock Market Index Fund and move on with your life.

When everything around you is reinforcing your idea, it’s hard to be objective. Greed and fear tends to be the two culprits that drive our relationship with money and the financial decisions we make.  Let’s take an outside observer approach.  It’s not about making the perfect financial decision each and every time.  Develop a list of financial questions to ask yourself before making a major financial decision.  Remember, you can’t control the market, the economy, or the political policies.  But, you can control your behavior—and that’s the gap.  

Is Credit Card Spending a Sign of Consumer Confidence?

In honor of America Saves Week, February 19 – 26, 2012, I would like to point out the need for American consumers citizens to recognize the importance of understanding not just a juxtaposition of financial information, but of financial behaviors, as well.  The paramountcy of financial literacy is nothing if we don’t modify our financial behaviors.  

Early in January the New York Times reported that the Federal Reserve said the total amount of consumer borrowing rose to $20.4 billion in November 2011.  It was the largest increase in November 2011 at $28 billion gain. Some analysts see this as a sign of consumer confidence growing within our economy.  I object 100 percent on this opinion.  It seems to me we were taking out more loans and charging our credit cards to cover our holiday gift purchases.  

The New York Times continued on to mention that consumer confidence is up because “holiday sales were solid and the domestic auto industry is coming off its best two sales months for 2011.”   The correlation is strong but it’s not the cause for consumer confidence.  In my opinion, there’s a false perception of consumer confidence.  Typically, around the holiday season, we are spending more money on holiday gifts and buying cars.   The holiday season in our country is the time retailers heavily market and advertise their products—it’s the biggest spending season.   However, the indelible crosswords of the financial crisis left many Americans feeling if they should be spending their money or not.  The consistent depressing and factual headlines of foreclosures and high unemployment have left many people with their heads hung low.  After a moment of spending paralysis, Americans gradually decided to get back to “business as usual.”   Our media and Congress discuss how to increase spending by implementing tax cuts to add extra money in our pockets.  Yet, at the same time, savings and retirement planning is a big topic. 

The irony is while American citizens had their heads hung low during the financial crisis and after the crisis, credit usage was down and the savings rate was rising.   Consumer confidence is an economic indicator which measures how American consumers citizens feel about the economy and their own financial situation.   The idea is that if you are more confident in the economy and your personal financial situation, the more you will spend.   If the economy grows, Americans will make more purchases while if the opposite happens, Americans will save more.  No offense, but if the only way we will save more money is when the economy is not in its best shape there are serious financial behaviors that needs to be adjusted.  I hope this doesn’t mean the only way we will be prompted to save as a country  is when the economy is contracting?

In the same month, the New York Times reported consumer confidence fell to 61.1 in January from 64.8 the month before.   The words “consumer” “confidence” gives the impression how confident people are in the economy.  Personally, it should determine how confident people are in saving their money.   Remember, if the economy is contracting people are saving their money and spending less.  Therefore, based on my version of consumer confidence, credit card spending is not a sign of consumer confidence.  

Charging purchases on credit cards does not award appropriate behavior to a society who had challenges in managing debt.  Credit cards can illicit inappropriate financial behaviors because it earmarks credit card dollars for impulse buys.  According to the Journal of Behavioral Decision Making, Mental Accounting Matters, by Richard Thaler, Thaler refers to Soman (1997)  finding that “Payment by credit card thus reduces the salience and vividness of the outflows, making them harder to recall than payments by cash or check which leave a stronger memory trace.”   Another factor why credit card spending should not be an indicator to consumer confidence is that your purchases are mixed together.  For example, a $75 purchase mixed in a $1,000 credit card bill is less painful than spending $75 in cash.  The pain is hidden in a larger bill, or the credit card balance.  

PerkStreet  first monthly Personal Finance Pulse  is a survey of expert personal finance writers, including myself.  Dan O’Malley, PerkStreet CEO, said “In the wake of the Recession, credit card use will no longer be viewed as a universal sign of confidence.”  He continued on to say that the Personal Finance Pulse survey reveals the experts are beginning to view credit cards use differently. 

Happy Valentines Day!

As intimate as you are with each other emotionally, be intimate with each other financially. 

  Enjoy your day together.


I will have more posts coming up soon.  Currently, I've been swamped.  In the meantime, you can scroll through my other posts, such those under Money and Your Mind and Couples and Money, and send me message.

10 Reasons Newlyweds Should Rent Instead of Buy a Home

Yesterday, Corrine Smith at  RentersInsurance.com asked  I publish 10 Reasons Newlyweds Should Rent Instead of Buy A Home.  These are good reasons why renting may be a better option (temporary). There's no rush in buying your first home together.  I especially agree with reason #7.

Being a newlywed is one of the most fun and exciting times in anyone's life. Of course, that doesn't mean being a young married couple is a walk in the park. Married life brings new stresses to the table, and housing is at the top of the list. While the American dream used to include buying a house with a white picket fence, that dream has changed in recent years, and maybe that change is for the best. Here are 10 reasons why newlyweds should rent instead of buy a home.

1. You need to save money

Just because you're combining two incomes doesn't mean you can scale back on saving. If anything, newlyweds should be saving as much as possible, especially if they're thinking of expanding their family in the future. The money you would have used on a down payment can stay right where it is and continue to grow, or be put toward another big investment you need to make. Click here to read the rest

How I helped a customer get ALL of his BANK FEES REFUNDED

Source: Mark Bult

I don’t know why I’m waiting until now to tell this anecdote. If my mind serves me correctly, this story took place in 2008. A customer came in to my office to discuss refunding his bank fees. I do not recall the total amount in overdraft fees he accrued, but it was over $100—maybe around $120 to $160. Ouch…that would make anyone’s stomach turn and face cringe. It shouldn’t be a surprise to you that overdraft fees are a source of capital of banking institutions (even credit unions). Remember, these companies wouldn’t sustain if they were a “non-profit” organization. Banks fees are one source of revenue. But you knew that already. While I’m not here to post negative remarks about our banking institutions, you should be aware of why, at times, it can be challenging to have your fees refunded.


Back to the story…

He explains to me his dilemma which went something like this: To his surprise he was laid off from work which left him with no paycheck. In the meantime, his automatic payments were being deducted from his bank account. Without enough funds to cover these automatic payments, he landed into a pile of overdraft fees. He was a long time customer of the bank from the age of 16 and never had an overdraft fee.

The story broke my heart. An unfortunate circumstance—job loss—colliding with another unfortunate circumstance—overdraft fees--was not something he planned on having to overcome. He asked if I could refund all the fees. I explained to him I couldn’t because, technically, it’s not a bank error. The key phrase here is “bank error.” Generally, a bank will refund all fees if it were truly a bank error. When you confront the bank at a branch about fees, the branch can only refund up to a limit. Typically, they can’t refund more than what the computer system will allow without authority for the branch manager or the branch manger’s manager. I really felt bad.

What was my solution? I told him to call customer service. He gave me the kind of look which sarcastically meant “thanks for your help, not!” I told him to hear me out about his approach when he does call. It went something like this: Mr. Client, instead of me refunding a limited amount of fees in the branch, call the 800-number. By refunding the fees in the branch it could limit how much the customer service rep could refund you. They do look at the activities that were done by the branch. When you call, tell the rep the same story you told me. You know, how you are a loyal customer since you were 16 years old, never had an overdraft fee, falling on tough times, never ask the bank for their help, and now you need the bank’s help. How can I get a refund on ALL of my overdraft fees? Then, let me know how it went.

A couple of weeks have passed. The same customer walked into my office with a huge smile on my face and said, “Thank you, Ornella.” He went on to explain how he did exactly what I said and ALL of his overdraft fees were refunded.

The moral of my story is sometimes you’ll be better off contacting your banking institution 1-800 customer service number. Always keep in mind when you do contact any financial institution whether it’s a credit card company or another banking institution, never ask if they can do something for you. The answer will never be as positive as it could be—rather you should ask what can they do to help you? This is more of an open-ended question, rather than a close-ended question that yields either a yes or no response.