Of Independent Means

Ten Simple Truths About Money

In the course of my financial planning practice, I meet many people who share similar attitudes, fears or misconceptions about money management. It turns out that most people make money way more difficult and scary than it needs to be. So in response to all this, I came up with 10 Simple Truths About Money in order to point out and identify some critical financial concepts that are easy to understand and implement. My next 10 blog posts are meant to inspire you to incorporate these truths into your actions around money.

Ready? Let’s go!

Simple Truth #1:   Procrastination is the Cause of Financial Fuzziness
Does any of this sound like you?

There’s 10 months of accumulated mail  – all unopened – that contain your investment account statements and they are all dumped into a drawer you never open.

You have $30,000 sitting in a savings account at the bank earning 0.15 interest.

You refuse to automate your monthly bill paying on-line, even though you often forget to pay your bills and end up with late fees.

You sold all your stock mutual funds in March because you couldn’t stand to watch them go down anymore and now they are sitting in a money market account earning 0.35% interest.

You know you need to do something, but you don’t.  This is called procrastination.  And, it doesn’t feel good. It generates feelings of confusion, guilt and worry – fuzziness!

If it makes you feel any better, you’re not alone.

However, that doesn’t make it better or okay. This type of procrastination can have serious consequences for your finances:  the spending power of your dollars gets eroded by inflation, your credit score gets downgraded, and you have constant fights with your honey about money. Not good, and even more to the point, not necessary.

Being up to date and clear about your finances can relieve so much stress, and really, it’s just a matter of making it a priority.  This is a great time of year to get started. 2009 is almost over, and January 1 is right around the corner.  If you want to call it a New Year’s resolution, go ahead.  If that doesn’t do it for you, get started anyway!

Here are some tips to get started:

Most time management experts will tell you that the best way to tackle a big hairy project is  to do a little each day, or divide the big project up into smaller ones.
So for a great first example, let’s take that pile of mail.

First day:  Take all the statements out of the envelopes and arrange them in date order, the oldest date on top. See! You’re already making progress!

Second day:  Starting with the oldest statements, glance at the first page which summarizes what’s inside.  Pay careful attention to any deposits or withdrawals – if anything looks strange – investigate.  If not, move on to the next statement. Keep going until you have reached the latest statement and set aside.

Third day:  Spend some time on the latest statement, as it should summarize what went on in your account year-to-date: total withdrawals and deposits, investment gains or losses, total interest or dividend interest earned.

By now, you should have a pretty good idea of the activity in your investment account over the time period that the statements covered.

Fourth Day:  Determine whether you need to make any changes to your investments (or find a financial advisor that can help you with this step). For example, if one of your mutual funds is down 50% year-to-date…go to Yahoo Finance and type the symbol in the search box….read up on this dog-of-a-fund and see if there is a good reason to hold on to it, or chuck it at the soonest opportunity!

From now on, when you receive your monthly investment statement in the mail, open it immediately, glance at the afore mentioned items and file it (in date order) with the others.

I suggest keeping a year’s worth of monthly statements, but hold on to your December statements for 3 years.

I can feel that fuzziness clearing up already, can’t you?

First Lady Michelle Obama - stylish, and prudent!

You wrap your hands around your shopping cart and feel your heartbeat quicken as you enter the store. Your senses are heightened by that familiar junk-food aroma particular to Target. You take the long way to the work-out clothes department. You want a quick peak at the women’s clothing.

You suddenly remember that Target’s latest clothing line is called “Mrs. O.”  It just hit the stores. You love Michelle Obama’s style. You might be able snag an item or two for next to nothing before everyone else does! And there they are! A yellow sheath dress – $34.99!  A teal knit cardigan – $19.99! A black patent cincher belt – $17.99!  Green kitten heels – 32.99!  A teal-yellow-green floral brooch – 12.99! All go flying into the cart. You finally make it to the athletic clothing section and snag some new yoga pants at $19.99 and two work-out bras at $8.99 each. Woo-hoo! Off to Costco!

At Costco, the smell of Polish hotdogs wafts across your consciousness. You make a bee-line for the paper goods section and load up your cart with bulk t.p, towels and facial tissue. You swing by the book section. “Costco always has such great prices on books. If I find a book I’ve been after..”

As luck would have it, The Necklace by Cheryl Jarvis is $12.99. Amazon had it for $ 17.76 – into the cart it goes. “Wow! I’ve wanted the French Laundry cookbook forever! Only $19.99!”  A no-brainer.

On the way to the check-out line, you taste the granola bar samples. “Hey, not bad! I can take these to work and hold off the morning hunger pangs. A 48-pack seems like a lot, but these might save me from pizza at lunch.” Thunk! Into the cart go forty-eight granola bars!

It’s two and a half hours later when you finally make your way to the check-out counter. You look at your overloaded cart and it hits you – most of this stuff you didn’t have on your list.

The rationalization process begins, but this time it’s different. You know you’re fooling yourself. Disgustedly you think, “Jeez, I just met with my financial planner last week. I promised myself I’d stay on my budget. WHAT AM I DOING???!!!!”

Your mother always taught you to put things back where you got them, but Mom isn’t here. She is taking a back seat as you feel overcome with self-disgust and panic. So what do you do? You abandon the cart!!!

You then climb into your car – the one with the back seat overstuffed with the hottest new items from Target’s Mrs. O Collection – and you drive right back to Target and you return every last item. Because from this day forward, you’ve decided you’re going to stay on budget.

Congratulations. You’ve taken some key steps to financial freedom. Pat yourself on the back!

Back in July, I talked about a fantastic group of Bay Area women business owners. Kathy Wiley, Christine Doerr, Malena Lopez-Maggi and Mindi Fong are all involved in the food business and each had a different take on the value and importance of having a business plan. The original post is here, Women and Money – Women in the Food Biz Talk Business Plans. In that post I shared some thoughts of my own on why business plans are so important. As the article below describes, assumptions and circumstances change and having a plan can help you stay flexible to deal with an ever changing environment.

The Small Business Blog
The New York Times has blog for small business owners called You’re the Boss. As of this writing the lead post is, “Six Ways to Deal with Small-Business Stress”. The Small Business Blog is a valuable resource for every small business owner with all kinds of wonderful stories and it has a rich mix of comments.

My So-Called Business Plan
I love stories about food, restaurants, money and yes, business plans, so I was fascinated by a recent post on You’re the Boss. The post is titled, My So-Called Business Plan (Enter Laughing) by Bruce Buschel. Mr. Buschel is a writer who bought a restaurant – an old, beat up place in Bridgehampton, NY called The Wild Rose.

The Original Wild Rose

It’s a lively story with a lot of ingredients: one part lifelong dream, two parts bank loan (for 1.5 million), one part contractor nightmares, three parts local bureaucratic snafus and yes, at least two parts business plan. And it has the requisite blog that details all of his ups and downs on the way.

Curious Bits and Bites
Mr. Buschel has a list of 100 things his waiters must never do that include never announcing your name, (??) no perfume, no touching the patrons and so on. Mr. Buschel waited an entire year to get his permits and he has no restaurant or liquor experience.  His restaurant will serve only fish. Mr. Buschel’s local planning board required that he bring to their office samples of the actual roof shingles he was planning to install. Opening is tentatively scheduled for April Fool’s Day 2010.

The Plan, What About the Business Plan?
Oh, yes the plan. Here is an excerpt from his blog post.

“Do I have a business plan? You think a man with 100 rules for a waiter wouldn’t have one business plan for himself? In fact, I have had, like a fecund humpback whale, two in two years and another one on the way.”

Mr. Buschel crunched numbers with an expert who had owned, run and built half a dozen restaurants. They used the best available data. A major conclusion: Based on the evidence, a clever, well-run restaurant could be successful in the Hamptons. Not exactly earth shattering information, but useful.

Then, right after he purchased The Wild Rose, the recession kicked in. Shortly thereafter, Lehman brothers failed. And to cap things off, the food writer Mark Bittman wrote in the New York Times that if fish are so endangered, maybe we shouldn’t be eating them at all. Oh dear…

So the business plan changed and changed again.  Here, is Mr. Bruschel’s current plan for a restaurant in the Hamptons.

- Avoid a hefty key fee and a long, ever-increasing lease by buying a place with important permits in place. Eateries are finite around here and therefore always in demand. Every penny spent will come back one way or another. If the restaurant fails, change the concept or rent the space or sell the property.

- Create a folksy place with funk.

- Assemble a crackerjack team.

- Open the best fish restaurant in the Hamptons (where none exists west of Montauk).

- In October, after your first full summer season, sit down and read the numbers, not the tea leaves. You will know where you went astray and where true you stayed. Adjust.

The new Wild Rose under construction

Should be great fun to watch this project unfold. Good luck Bruce, we’ll be watching with great anticipation!

You’re the Boss Blog
My So-Called Business Plan (Enter Laughing)