Ted Talk about “Saving Money Tomorrow”

Shlomo Benartzi gives a talk about Behavioral Finance.

http://www.mentalfloss.com/blogs/archives/90920

Did you know that the average American household spends $1000 a year on LOTTERY TICKETS? When Shlomo asks his audience who spent that much, no one raised their hand.  So it is likely that many low income households are spending more than $1ooo annually on tickets!

He talks about a few things that influence us and make it difficult to save money.  One of the most interesting to me was the calling out of how we emotionally react to saving. We view it as a loss.

We are all familiar with the afterglow of immediate gratification, but exposing savings as it’s depressing flipside is an eye opener.  Has the proliferation of items that we can instantly acquire made savings all that much more painful? Of course it has.

He talks about monkeys and apples in this lecture. What he is referring to is a study that was recently published in the magazine Mental Floss. Researchers had taught Capuchin monkeys to use metal washers as money.  They set up several scenarios with the monkeys some where they would receive a bonus piece of fruit with their purchases etc. The monkeys quickly learned to buy from the seller that inconsistently threw in a bonus.  When the opposite happened the monkeys went from happy risk takers to serious conservative buyers.(http://www.mentalfloss.com/blogs/archives/90920)

Too often, money is seen as an intellectual pursuit but it is obvious that the way we utilize it is profoundly affected by emotion.  If we can see our own emotional reactions and analyse them before we take action, it is likely that we will make more balanced decisions.

Pragmatic solution as I see it? Set up an auto withdrawl into a savings or investment account.  If you are particularly motivated, save/invest a percentage of your income at the end of every month.

Clarity,

Karen

 

Questions to ask yourself about tax deductible expenses for your business

1. How easy is it to document? If you bartered to give uncle Ernie some free product for his work rehanging the front door, you obviously can’t write off that product as an expenditure.  That’s not too hard to fathom.

If you buy a car or a computer that is available for personal use, then you need to have some documentation to determine what percentage of time the item is used for business. Tedious but necessary.

2. Will it benefit your company as well as giving you a tax advantage? This is especially relevant to production businesses. Are you subcontracting some work that you could do in-house for a greater profit margin? Would an investment in equipment or space benefit the growth of your organization in addition to providing a tax advantage?

3. Are you only doing it for the tax break? Remember  Rule # 1- if it is good for your business, do it. If it isn’t, don’t.

 

 

Discount Continuity Programs. Do you know about this scam??

You get your bank statement in the mail and notice that you have been charged $99 for membership to a travel club. Then you pull out the statement from last month and it’s on there too. Come to find out that this company has been draining your bank account with a service that you have never used and aren’t even really interested in for 4 months!!  

Never mind how they scammed you into signing up for their autopay subscription service. We’ll discuss that later. So, you call the contact number on your bank statement and reach what you think is the actual companies’ call center. In reality what you have reached is their Discount Continuity Program Department. 

Here’s the deal. They know the numbers. A certain percentage of people who sign up for their service are going to complain about being automatically enrolled in their program. When these people call to complain and ask for the charges to be taken off of their bill, the discount continuity department negotiates with them so that they receive a partial refund instead of a total refund.

” I’m sorry sir, I can only go back in our system for 60 days. I will give you a refund for those sixty days and unsubscribe you from our service”. Since people think that is their only recourse, they begrudgingly take the partial refund and move on. This is great for the scammers because they get to keep $199 of your money.

Lesson here? Threefold.

First- Never sign up for anything that offers the first month free unless it’s something you want to continue. I don’t care how good the incentives are, it’s not worth the hassle.

 

Second- Just don’t settle for a partial refund. You’ll feel better if you get all of your money back.

 

Third- Check your bank statements EVERY MONTH. Know where your money is going!

 

Here’s to Clarity!

Karen 

Mental Money Tracking

To spend is to live.

I’m not trying to be trite. It’s very true that there needs to be an outflow for everything so bloating doesn’t happen.  With all of the advertising we are exposed to daily dangling our desires in front of us like a caramel-glazed carrot, one might think that I mean it is the primary goal of our existence.

Living without spending is impossible. Even if we are only talking about the currency of effort, action must happen.  Without the efforts of our autonomic nervous system, we couldn’t even maintain our lives. Stagnation is deadly.

When we receive money, typically we take into account the source of the money and assign an emotional significance to it. It’s like we have a chart of accounts in our head. Then we appropriate money according to our emotional evaluation of its’ source.

When we receive money from ‘work’, we give those dollars more importance because we know we have worked hard for them. That is the money that we draw from to pay our mortgage, bills, and investments.

That is great, right? And it makes sense that you really value the money that you have worked hard for. The converse side though, is that when we get an unexpected windfall, like a bonus check, we treat it as ‘fun money’ and tend to just spend it.

“The reality is that 70 percent of all lottery winners will squander away their winnings in a few years,” the Connecticut financial advisers said in a news release. “In the process, they will see family and friendships destroyed and the financial security they hoped for disappear.”

I have a friend who buys clothes at the store without trying them on. If she gets them home and doesn’t like them, she merely returns them and gets her money back. Trouble is,  emotionally, she feels like she is getting a windfall and in turn, usually blows the money at the very same store. If she had the viewpoint of ‘this is my money being RETURNED to me’, she would be a lot less likely to spend it carelessly.

How are you careless with your money? Is it reflective of other ways you are careless in your life?

Think about it.

Here’s To Clarity!

Happy New Year

Now is the time. Really.

I’m not a big fan of New Years’ Resolutions. So often they seem contrived and obligatory.  When it’s been cold and snowing for months, why suddenly join a gym?

But when it comes to finances, the new year IS a big deal. So often people want to get things in order in say, October. When your finances have not been maintained, that’s kind of a big deal. Most people find crunching numbers tedious but crunching numbers from 10 months ago? Unbearable.

If you get your ducks in a row now, you’ll have a much better year.

Guaranteed.

Karen

It’s not boring.

Some people I know can’t believe that I enjoy bookkeeping.

I know most people find it to be horribly painful.- kind of like pulling out your own toenails. The reason for that is that they are doing their own books and methodically looking at the minutia of their business (or their life).  Most businesses are interested in ‘the big picture’ but without looking at the pixels… you get the idea.

MANY business owners I know only do their books quarterly so they can turn in their 941′s. It’s a huge lost opportunity. To track things as they happen is dynamic while logging the past is deadening and just plain irritating.

The information that you get when you actually understand the bottom line of what is happening is actually your best advisor about your business. It can very accurately tell you where you are, what is working, what is definitely not and what your options are for moving forward.

I have a friend with a small business who does his own bookkeeping. Just started a few months ago and I asked him how it was going. He said that it was really helpful in keeping things clear. Then I asked if he was reconciling at the end of each month. “Uh, no. I just download the info from the bank” he said.

There’s a bit of a misconception here. Downloading information from the bank is convenient but if you aren’t reconciling, you don’t really know what is going on! You could have outstanding checks sitting in the drawers of vendors for months and not know that the $4,000 you have in your account will be drained instantly by an outstanding payment.

If you are doing your own books and find that you go weeks and weeks without checking in with your money, the Touchstone Program may be for you.

Remember when we used to keep checkbook registers? Unless you do all of your business on credit (or debit cards), tracking those checks is vital.

Bookkeeping is like a huge complicated puzzle that directly affects your life. Use it like the tool it is!