Middle Path Finance

The value of frivolous financial decisions

Let's be honest. No one can be thrifty and frugal all the time. Maybe it is possible, but a life without a few frivolous financial moves may just not be much of a life at all.

I made a frivolous move today. I spent $1,300 on plane tickets to New Orleans. I will be there for only 24 hours and am coming back home. Not the most judicious use of the travel budget, I know. But it's a decision that makes perfect sense for us and has made the hubby and I very happy. We are going to celebrate one of our best friends' 40th birthday, and all of our other friends will all be there. 

It wasn't easy to press the "Book Travel Now" button.

You see, we suffer from hyper-responsible syndrome. We are textbook cheapskates. We do everything "right". We put money in the 529 plan (which we opened before baby was even born). We save a good chunk of our income. We have no credit card debt, no car loans. We have an emergency fund, health insurance. We each get a small weekly adult allowance, spend no more than $500 a month on groceries, gas, and eating out. We save up and pay cash for home repairs and improvements, and take on extra work whenever we can to increase our income.We get movies and books for free from the library.

And do you know what? As our finances have become more secure, our life has become more boring. And, if we aren't careful, our super responsible frugal ways have the potential to turn us into boring people. A lot of frugals stay home because it's cheaper, and we started to walk that fine line. We forget that we once had a lot less than we do now, but still managed to travel overseas and live a full social life without going bankrupt. It's just easier, once you are in your 30s, have a baby and a steady job, to get complacent, to do what's easiest instead of swimming against the stream to have an adventure. Slowly, we have become lulled by the gentle rock of our daily routine.

How many people do you know who are so obsessed with saving a dime that they can never rationalize making their dreams come true? They never take that dream vacation, never open that business, never [insert dream] because it requires money that can be "put to better use" somewhere else.

Everyone's money can always be put to better use, at least when it comes to discretionary income. You could forgo the $4 latte and tack that extra money onto your student loan payment. You could skip the $3 DVD rental and put $3 in savings instead. Sure, we could all do that. But what life does that leave you with?

There is a time and a place for super thrift, but at some point you have to ask "What am I saving my money for?"

Retirement, yes. A noble goal you should save for. But does that mean you can't take a vacation during your working life, in order to save as much as possible?

I know a couple that did that, and then both of them got cancer at age 55. They could have worked all of those years, scrimped and saved, denied themselves all kinds of fun, and then died before they reached their goal. Fortunately, their story had a happy ending. That was 10 years ago, and they managed to retire and start to spend their money.

Some people would use a story like this as a reason not to save for a rainy day. That is the wrong lesson. Save for tomorrow,yes, but don't forget to live your life now. Everything in moderation, including moderation.

This brings me full circle to today, when I clicked "book travel now" on two obscenely-priced plane tickets.

I spent the bulk of my adult life in New Orleans and only moved because I was forced to by a natural disaster. I haven't been back in two years, due to work, pregnancy and the rigors of raising a new baby. We had originally planned to spend a week in New Orleans this month, but the babysitters fell through. I was dejected and sad, but then had an epiphany last night. Go anyway, even if it's just for a day, and no matter how much it costs. So we did it. The little man will stay with grandma this weekend, and the trip will be so fast that no one will have to miss a day of work, not even the hardest-working grandma in town.

Sometimes, being frivolous pays bigger dividends than a bigger savings account.

Why you should give away most of your stuff

Here’s something marketers don’t want you to know: Stuff cannot and will not ever make you happy. In fact, stuff can make your life more complicated and miserable than you can possibly imagine.

I learned this lesson a really hard way. I nearly lost everything in Hurricane Katrina.

I say nearly because we didn’t know what happened to our house and everything in it until more than one month after the storm hit and broke the levees in New Orleans. We didn’t know if we’d lost everything in a flood or if our house was even standing.

To our surprise, my husband and I mourned very few of our possessions during that time. The flat-screen TV? Nope, not a thought about it. The fancy stand mixer in the kitchen I thought I couldn’t live without? Nope. Didn’t care about that either.

All we wanted were our photo albums, the quilt my mother-in-law made out of my wedding dress, the bird feeder my late grandfather had made for us, and Squeaky, the semi-ferile yard cat who flat-out refused to get in the carrier when it was time to evacuate.

Realizing we didn’t care about all the other stuff we owned was profound. It wasn’t what we expected. And it caused us to seriously rethink our relationship with stuff.

We had never spent a lot of money shopping. Big-ticket items were few and far between, but I admit that I used to fill the void left by my crappy job with knick knacks and furniture. My husband would buy lots of books and CDs. All those little purchases added up to a lot of stuff over time.

Then, in a time of disaster, to realize we didn’t care about the little things that we bought to make us happy was profound. Especially because it turned out that none of our stuff was ruined, and we had to lug it all from our house in New Orleans to our new house in the Midwest. It’s no fun to lug hundreds of heavy moving boxes full of stuff you no longer care about onto and off of a moving truck.

That moment we knew we had to change, and our realizations about stuff turned into action.

We began to simply get rid of our stuff. For free. Yes, some of it has sold on eBay and Amazon, but most of it has gone to families who needed or wanted it more than us through our local freecycling group. We’ve given away a full-size bed, lamps, clothes, garden tools, and computers, just to start. We’ve also donated myriad items to the local Salvation Army. We’ve given things to friends who truly appreciated them more more than we did.

Our goal is to get to the point that we only have what we truly need, plus a few objects that give us a significant amount of joy, rather than dusty boxes and shelves filled to the brim with a lot of things that we thought would make us happy, but that have since lost their luster.

We still have a lot of boxes of stuff to give away, but with every item that goes out the door, we feel more free, like a great burden has been lifted off of us.

Giving away your possessions changes your relationship with material goods. When it’s gone, you realize that you don’t miss it. This has a cascading effect. It’s good for the spirit and good for the pocketbook.

You no longer want that must-have whatsit, because you can see that you don’t really need it. Or, that you won’t be interested after a month or two. You also become aware of the stories you tell yourself in order to rationalize a purchase, or to rationalize keeping something that is no longer useful to you. We are very tricky, telling ourselves we need things we never or rarely use.

Having fewer possessions shows you how much upkeep owning lots of things requires, from space to store it, to money to pay the Visa bill you ran up buying it, to maintenance and insurance costs on big stuff like extra cars or boats. When a box of stuff leaves my house, I am relieved because I no longer have to find a place for it, dust it, and I am no longer responsible for its well being.

You can live more comfortably in a smaller space when you have less stuff. And smaller spaces come with lower bills.

It’s also much more relaxing to live in a house filled with few objects you really enjoy than with a lot of things you only kind-of like. Physical de-cluttering leads to mental de-cluttering.

You start to truly understand that once you get to a certain level of comfort economically and physically, owning more doesn’t appreciably improve your happiness in the long or short-term. In fact, once you have shelter and some basics, you can live a comfortable and happy life without all the extra stuff. I didn’t fully understand this until I thought I had lost everything.

Stuff for the sake of owning stuff is worthless. It saps your energy and your pocketbook.

Why give it away? It feels good to share what you have with others. And if you are serious about unloading years worth of purchases, it’s a lot faster and easier to give it away than it is to sell it.

This is how we’ve made peace with our stuff, and made a lot more room for Squeaky, who has had a serious change of heart when it comes time to get in the cat carrier.

The difference between a New Year's resolution and a plan

Half of adult Americans make New Year's resolutions every year. Most meet a dismal fate. About 29 percent of those resolutions are kaput by Mid-January, 36 percent of resolutions have gone out the window by February 1, and 54 percent are gone and forgotten by July.

Why are so many of us, despite our good intentions, doomed to fail?

Because there is a difference between a New Year's resolution and a plan. A resolution is a grand, vague idea. It's a starting point, a jumping off point. It's merely the idea of where we'd like to be next year. It's not a plan, and that's why we fail.

Once a resolution is made, you have to develop the step-by-step plan that will make it happen. Big dreams are great because they give us a destination, but it's the tiny mundane everyday actions we take that make those big ideas happen. You have to break down the resolution into small, doable steps.

OK, so none of this is scientific. I'm basing this purely on my own failed attempts at New Year- New Me changes. Last year, 2008, was the first year in 33 years that I was able to meet and exceed the resolutions I set for myself. 

The only thing that made last year different was that I had a plan. Sure, I thought the big thoughts. That's what resolutions are-- big goals. And there is nothing wrong with that. The problem is that most people stop with the big thoughts and don't  put any thought into the little steps they  need to take to make those big goals happen. 

Last year, I put the small steps in action, and I met all of my goals. I saved money, I paid off debt. It was great, and I am going to apply the same process to a new set of goals this year.

Let's use a common goal-- save money- as an example. Yes, we all want to save money. But if that's your goal, you are going to be sorely disappointed come New Year's Eve 2010. You're setting yourself up to fail because you are being too vague.

How can you make this an attainable goal? Get more specific. Instead of "I want to save money", the goal should read something like "I want to save $1,000," or "I want to pay off $2,000 in credit card debt."

Turning your goal from vague to concrete is very important.  It gives you something measurable to shoot for. (This works for the second-most common resolution as well: lose weight. You will be more motivated if the goal is "lose 10 pounds.")

For the "I want to save $1,000" goal, the plan might be "I will put $83 a month or $42 a paycheck into my savings account." Voila, you'll have $1,000 saved by the end of the year.

Or, to pay off the credit card, "I will add $167 a month to the payment I send to the bank and I won't charge anything else on the card." Voila. Goal met.

If you want to slim down, and who doesn't, saying "I want to lose a pound a month" seems more doable that "I want to lose 10 pounds."

Making concrete goals, and then breaking it into small, doable tasks, is key to getting where you want to be.It gives you a roadmap, and it makes your big goals not seem so big that they are overwhelming.

Next, don't give yourself a laundry list of 10 resolutions. Prioritize. What will be the most valuable to you in the coming year? What goal will give you the most benefit? Pick two, maybe three, resolutions at the most and go at them wholeheartedly.

Several University of Washington researchers studying resolutions found that the keys to keeping resolutions were dedication and keeping track of your progress.

Dedication. This means you can't just make random resolutions at 11:59 Dec. 31 after you've had a few drinks and are feeling sorry for yourself. No no. Think- hard- about your resolutions now. They'll be more meaningful. It has to be something you really want. Really.

And yes, keep track of your progress. Be cheesy. Set up a wall chart and graph your weight loss, your savings, or your debt pay off. It can be as silly as those thermometer charts charities use to show people how close they are to their fundraising goal, or it can be as serious as an Excel spreadsheet. Do what works for you, but whatever you do, keep track.

If you blog, keeping track of your goals in the very public eye can be a great motivator. Check out some of the blogs on SavingAdvice.com. Those folks bare all- debt, savings, etc. and it helps them stay accountable for their financial actions. 

Do the same. Get a pal and become resolution buddies. Or send crazy monthly emails to your family outlining your success and failures at your goals. Whatever. Just do something. Stay accountable, keep the resolution in the front of your mind, and you are bound to get somewhere.

Can a resolution really work? Yes, doubting Thomas. 

I am proof.

This year, the hubby and I are going on a real overseas vacation. This is the culmination of last year's resolution to make saving for travel a priority. Last year, I put the money in the bank (a little at a time) and I finally have enough to pay for most of an overseas adventure. This year we are going to spend it in another country while hopefully working on our tans. 

Last year, I started a $20 challenge.The results were spectacular. I set a goal to put $1,000 into the challenge, and so far, I've got about $1,958 in the fund, all from making a few simple changes.

If you still need more guidance and inspiration, these books can give you food for thought as you set your goals and develop your plan.

The Automatic Millionaire. This will help you set and meet realistic financial goals. The premise is simple, "Pay yourself first." This book will show you how.

A Bankrate.com column on resolutions.

A business perspective on resolutions and the troubles ahead in 2009, from BizJournals.

The typical laundry list of resolutions, from YoungMoney.com.

Finally, if you really want to keep a resolution, throw in some carrot. It can't be all stick all the time. Treat yourself when you meet certain milestones on the way to your goal. Say, take yourself out to dinner when you reach 50 percent of your savings goal. Or, buy yourself something you've had your eye on once you've paid off 50 percent of your debt. (Be reasonable, you don't want to get more debt while trying to get out of it.)