Successful Personal Finance is Boring

Everyone wants "new" tips on personal finance. Guess what?

There are no new tips.

What has worked for the last 100 years will continue working for the next 1,000. Life is not going to change so drastically that "spending less than you earn" will fall out of style (well, I suppose it already is out of style for a lot of people).

The exact way our finances are handled will probably change. In 20 years or so I'm guessing there will be a lot less cash being passed around. We probably will not have credit cards anymore. Instead, just an app on our phone.

But those differences will not change the principles of sound financial management. It will be following those principles that put you in a better financial position, not following the next financial fad, whatever that may be.

What are those basic principles? I think they are the following:

1. Spend less than you earn
2. Have emergency savings of at least 3 months expenses
3. Pay off all debt
4. Save for retirement
5. Give back

There isn't much more to it than those principles. There are different methods and strategies for accomplishing each, but no matter how you do so, if you follow the above, your finances will be a success.

Lessons From Buying a Motorcycle

Lessons From Buying a Motorcycle

A little over a year ago I bought a Motorcycle. That entire process was a lesson in itself. It made me realize that when you purchase a large item, there is often a host of accessories that have to go with it. I suppose I didn't have to buy a helmet, but that would have been rather foolish (please, no comments that buying a motorcycle was foolish).

Selling my motorcycle (after the birth of my daughter) was yet another lesson. It is sometimes more difficult to get rid of stuff you no longer want than you might think. I had the motorcycle on Craigslist on two separate occasions. The first time around I did not get any responses. No surprise there, because I did not post any pictures.

The second time I listed it, I received at least 20 responses, probably more. And yet only two of those people ever came to see the bike in person. Thankfully, the second person did end up buying it. But that was almost two months after originally listing the bike for sale.

What is the point of all this?

Buying Stuff has deeper consequences and longer term ramifications than we often think. This is especially true for large ticket items (Stuff $1,000 or more).

Once you decide you no longer need an item, it may take longer to get rid of than you would like. Also, we almost never get our full "investment" back. In the case of the motorcycle, I thankfully only "lost" $100 when selling it.

However that does not count the extra money I put into it throughout the year I owned it. A new battery, oil change and a few other miscellaneous items. I'm not complaining that I spent that money. Those are the requirements of owning a vehicle, whether a car or motorcycle or anything else with an engine.

Next time you are in the market or considering a large purchase, be sure to evaluate how easy (or hard) it will be to sell that item.

Spend Money to Save Money

Sometimes you have to spend some money so you can save. Recently the water heater in our home had to be replaced. I knew that I wanted to have a tankless water heater installed. They can save a lot on your gas costs, due to the fact that it does not run as often.

The one disadvantage of a tankless water heater, or any newer technology for that matter, is that it can cost quite a bit more than the normal solution. Although you will have cost savings over time, it takes a while to make up the difference in cost that you paid. To truly know if you save money, you would have to look at all of your bills for many years to come. Personally, my time is more valuable than that. I may look at my gas bills and compare them to past years, but beyond that, I’m going to be doing any extra work.

With all that said, what can you purchase to save some money? Perhaps you could purchase some insulation for your attic to save on your heating bills. How old is your refrigerator or the freezer in your garage? They may be using a lot more energy than you realize if they are more than ten years old.

Why Missing a Paycheck by Two Days Didn't Bother Me

So the other day I wrote about the beauty and wonderment of Rule 4 of the YNAB methodology. One other reason I was thinking of this is because I recently missed getting a paycheck by two days. For a lot of people, who plan their bills specifically around when they expect to receive they paycheck, this could be pretty dramatic. I'm envisioning bank fees due to account overdrafts and so on.

Part of why I say this is because my employer sent several emails explaining and apologizing for the problem. And while I appreciate how they handled it, the problem didn't bother me at all. This is all due to the fact that my wife and I live on last months income and never have to think about how much cash is in our account. Budgeting on last month's income essentially enables us to not even think about when we receive our paychecks. As I said before, it is a wonderful feeling. 

The Power of Not Living Paycheck to Paycheck

This could also be titled, "The Power of Rule 4." You will find out why in a few paragraphs.

Yesterday I was listening to the fantastic (and new) YNAB podcast. I don't remember which episode it was as I listened to all three, but it occurred to me that the majority of our marriage, my wife and I have been living on last month's income. Or in other words, we have never lived paycheck to paycheck since using YNAB beginning in the spring of 2007.

I was reminded of this because Jesse mentioned an idea from another personal finance blogger (I forget the name) which essentially says "$1,000 is the new zero." In other words, if your bank account goes below $1,000, then it is time to be a little worried. Personally, I cannot remember the last time our bank accounts (all of them in total that is) went below even $3,000 or $4,000. I am not saying that to brag or that we are better than anyone else for having more than $1,000 in cash. I say that because of the amazing relief it is. I have never had to worry about knowing when our paychecks get deposited so that we can pay our next bill. As long as we get paid before the next month, there is always plenty of cash at hand.

Until you start living on last month's income, that amazing feeling of not worrying about cash in the bank cannot happen. Simply the best way at making that happen is by following YNAB's four rules:

1. Give every dollar a job
2. Save for a rainy day
3. Roll with the punches
4. Stop living paycheck to paycheck

The first three rules are what helps you to get to rule four. For example, my wife and I "save for a rainy day" in a number of different categories. Despite not actually having an expense every month, we budget money into our car maintenance, insurance, taxes and Christmas line items. This builds up a natural buffer (and our cash in the bank) that we can then use later. It really is financial bliss!