After reading Carl Richards simple but powerful book, The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money, I realized that a better title for my ebook would have been, The 10 Simple (But Not Easy) Truths About Money. As Richards says, “We often resist simple solutions because it requires us to change our behavior.” Thus, the behavior gap.

Richards displays a true understanding of human nature with his words, but also with his disarmingly simple sketches that portray powerful truths about people’s behavior around money. You will recognize yourself in many of them. With amazing insight into how our brains work, he uses real-life stories and humor to show how we are our own worst enemies when it comes to money management. He also offers up great advice on how to make better money decisions.

Some of my favorite “behavior gap” insights include:

• Investments don’t make mistakes. Investors do.
• Figure out which emotion is the bigger issue for you—fear or greed—and invest accordingly. You can’t have it both ways.
• Planning for your financial future is a balancing act rather than a single-minded pursuit of the highest return.
• There is no such thing as the best investment.
• Planning for your financial future is personal. A good plan will be unique to your situation.
• No one knows what the future holds.
• Our real task is getting to know ourselves and our goals, making choices aligned with those goals, and adapting to the surprises that are bound to come along.
• Financial decisions are almost always life decisions. Before you decide on your financial goals, you need to choose your life goals.
• Focus on your personal economy and stop worrying about the global one.
• Our deepest instincts will tell us that money doesn’t mean anything, it’s simply a tool to each our goals.

Two thoughts kept running through my head as I read Carl’s book: “I wish I had written this” and “All of my clients need to read this.” Even if you don’t have time to read the book, flip through and take in all the sketches. They tell the story of our behavior gap just as well and may just motivate you to stop doing dumb things with your money!

Over the years, I’ve developed a few strategies that allow me to indulge my fashion passion and still manage to stay current on credit card bills, invest and save money. It’s all about stretching those dollars to stay within budget. You do have a clothing budget, don’t you?

Here are my top five strategies for smarter clothes shopping:

(I like to support the local economy, so most of the retail establishments mentioned below are in the San Francisco Bay Area. But most metropolitan areas will have similar venues—you just have to go out and find them!).

Strategy #1: Take a cue from chic French women and maintain a small but high quality wardrobe. Artfully use accessories to create different looks.

How? Find designers and shops that suit your fashion sensibility. Patronize these places—buy less, but buy what you love. As an added bonus, if you become a loyal customer, you’ll be invited to special sales and sample sales. My personal favorites:

FIT: www.fitclothing.net. FIT is a small clothing boutique in the Rockridge district in Oakland. Joyce Gardner, the owner, carefully curates her stock to satisfy her local clientele. She carries selected labels such as Schmacher, Cop Copine, Yoshi Kondo, Diane Von Furstenberg, Three Dot, Velvet by Graham and Spencer, and Pete. She packs a lot of style in a small space and her employees are adept at pulling looks together. She holds special sales and gives first dibs to her best customers.

Catherine Jane: http://catherinejane.net. Catherine Jane is a San Francisco designer who has an eye for gorgeous fabric and fit. She creates wonderfully feminine clothing with her own unique flare that will flatter your figure. Tip: Her sample sales are full of outrageous bargains.

The reward for buying high quality, timeless fashion is longer wear and thus less money spent over time.

Strategy #2: Find consignment shops whose buyers are very picky and who echo your style sensibility.

Yes, these are pre-owned and pre-worn garments. If you don’t have a problem with that, it’s a great way to add pieces to your wardrobe at good prices. Here’s how consignment shops work: Women bring in their current, gently worn and seasonal items and the store buyer selects which pieces work for her store. Then she splits the sale price with the seller, usually 50/50 or 60/40. Prices are generally 1/4 of retail prices.

My personal favorite consignment shop is Mirabel (3251 Lakeshore Ave, Oakland). This store is full of fashion gems. You will find labels such as Marc Jacobs, Burning Torch, Velvet by Graham and Spencer, Diane Von Furstenberg, Prada and Missoni as well as a carefully edited selection of Banana Republic, J. Crew and H&M. Occasionally there will be truly great finds (like an Isabel Marant leather jacket I found recently).

Added bonus: If you don’t want to buy, you can always sell clothing that is gathering dust in your closet.

Strategy #3: Find a fashion stylist to audit your closet and help you shop.

If you love clothes but hate to shop or feel like you make a lot of expensive buying mistakes, hiring a personal stylist may be the perfect solution. She can save you both time and money and you’ll look great with minimal effort.

Great Find: Urban Darling. www.urbandarling.com

Stylist: Lisa Deane. www.urbandarling.com/stylists/lisa-deane/

For more tips on working with a stylist, check out my previous post, “Save Money By Shopping in Your Own Closet with a Wardrobe Stylist.”

Strategy #4: If you don’t like going to shops, bring the shop to you!

There are clothing lines that are sold only in private venues. If you host a party, not only do you get to invite all your friends, you receive 50% off your items depending on how much others buy. Personally, I like the CAbi (Carol Anderson By Invitation) line. And my favorite CAbi consultant is Erin Saul who lives in Oakland.

Great Find: CAbi. www.cabionline.com/

Strategy #5: Use the Internet to find sales on items you crave.

You see a gorgeous pair of shoes at Bloomingdale’s. You can’t afford them. Go home and do a Google search using the specific brand name, style and color. You may find that the shoes are on sale somewhere else. In addition, you can ask retailers to match prices if you find them lower on-line. Don’t be afraid to ask.

I think these five strategies will give you a good start on smart clothing shopping. But, if your closets are bulging and think you might have a shopping problem you may need another kind of help. Jill Chivers, a former shopaholic, has created the “My Year Without Clothes Shopping” program for people like you. Her program offers a fun and safe way to “break the cycle of unconscious and compulsive shopping” and to be more in control of your money. Check out her website: www.myyearwithoutclothesshopping.com

I would love to hear of any tips or strategies you have to be stylish without breaking the bank. Please share your thoughts!

None of us knows how long we will live. But you can be sure that the longer you live the more money you will need – unless – you’re willing to reduce your lifestyle in retirement. According to IRS issued life expectancy tables, the life expectancy for a 25 year old is 83.2, for a 50 year old 84.2 and for a 75 year old it’s 88.4.

The older you get the more years you are expected to live. We can thank medical science and our healthier lifestyles for this increased longevity. In 1900, the average life expectancy was 47 years old!

Some of you reading this post may be so far away from retirement that you don’t think about it. You’re more concerned with building your career and trying to make enough money to do the things you want to do now. Others may be realizing that it’s time to get serious about having a plan. Then there are those who are either near retirement or retired and know that the nest-egg has to last.

The bottom line is: once you stop earning income you will start withdrawing from your savings to support your lifestyle. These savings (plus social security and if you are lucky, a pension) will be your new “salary.”  If you retire at age 65, your savings will need to last for 20-30 years or more.

How can you be sure that you will have enough?

Fortunately, an incredible amount of research has gone into determining how much a person can withdraw each year from their savings and still have enough to last to their life expectancy. The most widely accepted solution is the 4% withdrawal rate formula. This is how you calculate it:  Total value of savings at retirement x 4% =your  first year withdrawal amount.  Each year thereafter increase this amount by the rate of inflation (assume 3%).

The 4% Withdrawal Rate Formula Illustrated:

Nancy
Nancy is 65 and about to retire. She has saved $1,000,000 that she has invested in stock funds (60%) and bond funds (40%). 4% of $1,000,000 is $40,000. This is the amount that Nancy can safely withdraw from her nest-egg in the first year to start her withdrawal program. She also is entitled to $21,600 in Social Security benefits. Nancy will need to develop a lifestyle (all expenses plus taxes) around this amount of $61,600 a year to protect against running out of money. In each year thereafter, Nancy can increase this amount by the rate of inflation (let’s assume 3%), so in the 2nd year she can withdraw $41,200 and in the third year $42,436 and so on.

Unfortunately, Nancy’s  pre-retirement lifestyle cost $75,000 a year.  She delayed doing any kind of retirement planning and in result, will have to make some sacrifices or move to a less costly area to preserve her capital.

Sarah and Mike
Sarah and Mike are both 45 years old and plan to retire at age 66. They hired a financial planner to help them determine how much they need to save in order to retire and maintain their current $125,000 a year  lifestyle.  They have saved $750,000  so far which is invested in  80 % stock funds and 20 % bond funds. They are expecting a total of $45,200 in social security benefits a year between the two of them. They are saving $12,000 a year each in their 401k’s but are not saving outside of their retirement plan.

The financial planner prepared a retirement projection (also referred to as a capital need analysis) for them and came up with the following:

Retirement Projection
Assuming a 7% average rate of return on their investments, a life expectancy of 90 years old and an average 3% inflation rate, Sarah and Mike will need to save approximately $1,600,000  more by age 66. With their current savings rate they will fall short. They need to increase their savings by $9000.00 a year to reach their goal.  Sarah and Mike plan to go back over their cash flow to see where they can cut back. Also, Mike is anticipating a big raise next year so it will get easier. They are relieved to have a plan and know what they need to do to reach their goals.

Since the longer you live the more money you will need, it pays to plan. Who would you rather be? Nancy facing some tough decisions right when she retires, or Sarah and Mike who have clarity and a road map for where they want to go.  Of course, there are going to be big bumps and little bumps along the way, but it pays to plan.

Inflation and taxes can wreak havoc on the best-laid financial plans unless you arm yourself with the knowledge and tactics to prevent the most damage.

Today we’ll focus on inflation, which is one powerful enemy. Why? You can’t see it, there are are no laws protecting you from it and it’s not selective. Every single dollar is subject to its eroding influence.

What is inflation?  – Get to know your enemy.

Inflation refers to the increase in the Consumer Price Index (CPI), which tracks the prices of goods and services that most of us buy. Inflation has averaged 3% a year from 1926 to 2009.

When prices rise, each of your dollars buys fewer goods and services – eroding your purchasing power. Just think about the price increases on everyday items such as milk, bread and eggs over the last few years. Or, consider the rise in your medical insurance premium or the tuition for your children’s education.

It’s not hard to see that if your income doesn’t rise with the rate of inflation, your lifestyle can be dramatically affected. Not all goods and services rise at the same rate, however. If you buy more items that are rapidly costing more money (education, medical costs) you’ll be more adversely affected.

How can you fight inflation?

There are a few ways to fight inflation and fortunately you don’t have to take on this fight all-alone. One of the Federal Reserve’s (the Fed) key duties is to keep inflation under control or in Fed speak: to maintain stable prices. They do this by manipulating monetary policy – usually by raising short-term interest rates but they have other tools as well.

But since inflation is a persistent foe, all the Fed can do is control the rate of inflation, not stop it altogether (which could lead to deflation, but that’s a whole other story).

Five Inflation Beating Tactics

Fortunately, there are some actions you can take with your money to hold off or minimize the erosion of your purchasing power:

1. Invest your cash reserves wisely. Financial institutions are more than happy to take your cash and pay you a low interest rate. Then it’s invested for a higher return elsewhere! Keep up with current savings and money market rates and move your money to where you can get a competitive rate on your cash. Note: money market fund rates tend to move up quickly when interest rates rise.

2. Get the raise that you deserve. When it comes time for your performance review, let your boss know what a good employee you’ve been and ask for a raise when appropriate. A stagnant salary combined with rising prices is a formula for a less abundant lifestyle or the accumulation of debt.

3.If you’re self-employed, price your product or service competitively and take price increases when you can.

4. Monitor your investments based on your time horizon (when you will need the money) and risk tolerance (can you sleep at night?). Being overly fearful of the stock market and holding too much cash will not bring you abundance in your golden years.

5. Certain assets rise with inflation. Treasury Inflation-Protected Securities, gold, commodities, and real estate are examples of assets that typically rise with inflation. If you own a home, this is probably enough real estate.  One of the easiest ways to invest in commodities and gold is through exchange-traded funds.  Careful though, these assets can be volatile and you would only want a small percentage of a balanced portfolio invested in them. Educate yourself or get help before dipping your toe in!

Here are a few resources to get you started on inflation fighting.

From the Get Rich Slowly Blog: Best High-Yield Savings Accounts

From Morningstar:  Exchange Traded Funds

From the SEC website: Asset Allocation, Diversification and Rebalancing

Next Up:  Money’s Enemy #2:  Taxes  (To be posted soon).

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!

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)