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3 Lessons to Improve Your Financial Outlook Today

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3 Lessons to Improve Your Financial Outlook Today
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A person’s financial concerns grow more complex with age, presenting unfamiliar circumstances, again and again.  And as credit relationships, financial commitments, and other money matters take center stage, so do related responsibilities.  Managing the scope of your personal financial affairs is a substantial lifelong pursuit, with your monetary health and security hanging in the balance.

If you are like most personal money managers, there is always room for household financial improvement, finding better ways to account for your money habits.  From day to day savings, such as frugal grocery shopping, to big-picture money mastery, setting the stage for comfortable retirement; your personal financial success relies on a balanced approach, based on proven finance practices.

 

Each person encounters unique financial concerns, but there are fundamental moves to be made, benefitting most money managers.  If you are looking for better accountability or need budget improvements, consider these universal measures, before addressing the particulars of your financial situation.

Time is Money

 

In order to make the most of your resources, you must find adequate compensation for your time.  That’s not to say the meter is always running, but if you consistently run out of time before you’ve earned enough money to cover household needs; poor time management and weak compensation might be contributing causes.

 

When income doesn’t measure-up to household spending requirements, boosting earnings can help close the monetary gap.  Spending restraint and other discipline can of course lower your overall burden, but when cutting costs isn’t enough, pumping up your take home pay erases shortfalls.  You might be able to make more money with your current employer, by expanding your credentials or earning specialized understanding in a particular aspect of your field.

 

Does technology represent the future for your line of work?  If so, learning a new program or implementation can help boost income.  In fact, becoming your organization’s “expert” on any work-related subject can only help advance your earning potential.  Does your company offer education funding?  Take advantage of these and other opportunities to get certified or earn credentials, which can raise your pay grade.

Balance is Essential

 

With so many financial obligations placing demands on your personal cash flow, it is natural to experience peaks and valleys within your individual economy.  For the most part, however, finding and maintaining financial balance leads to long-term stability and prosperity.

 

Balancing your personal finances is a matter of offsetting debts and spending with personal earnings and other income streams.  Ideally, your individual household economy carries enough cash flow to cover routine spending, with money left over for special purchases, savings, retirement investments, and other extraordinary financial demands.  If you haven’t recently evaluated your spending and income, a close look may uncover imbalance.  For the best results restoring equilibrium, track spending and make adjustments, laying-down strict limits in each spending category.

Debt Can Drag You Down

 

A proactive approach to money management gives you the best chance of achieving your financial goals and establishing a secure future.  Unfortunately, it can be hard to push ahead with excessive debt dragging you down.

 

Borrowing money enables families to buy homes, cars and other big-ticket items, which would be hard to acquire without generous levels of financing.  Subsequent debt, when manageable, is a natural and expected part of your financial picture.  But when the burden interferes with other aspects of your financial life, it is time for corrective action.

Immediately paying-off excessive debt is the most lasting solution to burgeoning balances, but incoming resources don’t always allow for it.  Intermediary moves can help ease the pressure and get you back on track.  For example, you may be able to make debt more affordable, using sites like readies to explore financing options.  By refinancing your outstanding balances with a personal loan or consolidation loan, you may be able to reduce monthly payments to affordable levels, as you catch up with payback.  And by freezing credit card use in the meantime, you’ll avoid spinning your wheels, by adding new charges.

 

Improving your overall financial health can make it easier to meet monthly payment obligations and plan for your financial future.  Get started today, by reducing personal debt, balancing your budget and accounting for your time.

 

Filed Under: Money Tagged With: money, time

Stop Predicting The Future, You’re Terrible At It!

By Frugaling 7 Comments

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Coffee and Journaling

We humans are really good at convincing ourselves of our “upper hand” — that we can see the “truth” when others cannot. We repeat stories of winning hands, the right stocks, and big paydays with our closest friends. Examples and supposed successes of prediction are trumpeted in our skewed media landscape, too.

For instance, CNBC and other financial news networks feature stock chartists who create lavish drawings of candlesticks, moving averages, and support levels. Lines are drawn and circles made on fancy touchscreens. When a stock fails to perform as predicted, it’s written off as a statistical anomaly. And nobody returns to the err. The reality is that any stock-picking strategy is fallible because the herd knows about it (or soon will). These technical mavens’ moves are already priced into stocks.

Scientists can also be poor predictors of future technology and advancement. As an astrophysicist, Neil deGrasse Tyson, explains, “…what happens is, if you try to go too far into the future, there is no way you are going to predict the cross-pollination of ideas and fields that produce things that are not extrapolations of anything going on at that time.” He exemplifies this technological development with the iPhone, as it wouldn’t have been created without GPS satellites, cell towers, and the commercialization of space. Variables needed to coalesce and come together to make the idea possible. Predicting each of these individual components is nearly impossible.

Predictive ability chart
Variability shifts from 0 to ∞ across time. From short to long-term periods, our ability to predict what’ll happen next suffers. Also, what do you think of my chart-drawing skills? 😉

Psychologists are another fallible group that’s highlighted for near-telepathic powers. Popular culture seems to hold high esteem for their predictive abilities. They are depicted as readers and savants of the mind. Watch what you’re thinking, they might just read your body language, thoughts, and emotions! The reality is that psychologists aren’t fantastic at predicting behavior; slightly better than the lay public, but that’s not saying much. At their best, psychologists center on past behaviors as predictors of future behavior. Much like the stock chartist or scientist, psychological/behavioral prediction is sort of like analyzing an historical stock market chart and looking for patterns.

In failing to see our losses and failures of prediction, we risk creating confirmation biases. These psychological tricks of the mind make us think we are right — that our hypotheses have time and time again come true. We repress our failures in favor of successes, but in doing so, jeopardize our ability to accurately plan for the future. That’s when we stand to lose boatloads of money.

The fact is, we are fallible creatures. Seemingly, we are basically limited by the amount of knowledge available on the world. At a long enough timeline, nearly everyone fails.

By accounting for predictive limits, we can protect and preserve our wallets. Now, it’s all about what we do with this realization. These are five fast rules for managing your money without genius predictions:

1. Budget based on present day information

The present day includes your current income and expenditures. If you’re budgeting for a car, Christmas presents, or anything else, your budget should account for today’s income — not chances for the future. This will always keep you within limits. Unfortunately, many people use pay raises and predicted promotions to account for future purchases. This mentality can lead to excess debt and complicated repayment plans. Avoid the drama by budgeting based on today’s information — not what tomorrow might be like.

2. Be careful with retirement predictions

Companies like Betterment and Wealthfront have some sexy chartists! They beautifully illustrate the capability of compounding interest and continued investments in average performing stock markets. However, this tends to smooth over the swings of market swings and does not account for the unexpected. In fact, Betterment has a tool that attempts to predict with 50/50 accuracy how your money will perform over a set period, but it’s better to make consistent investments and look at the principal — not the predicted total.

3. Build up emergency funds

From a car accident to strange toenail fungus, you never know when you’ll need to pay for some extra costs. We cannot predict when an accident or the end of a job could occur. To account for our predictive inability, let’s build emergency funds. Most financial experts suggest people maintain about 3 months of solid income, which would cover expenses while you search for a new job or deal with an accident.

4. Avoid following interest rates

Tens of “online banks” are propping up with teaser interest rates. Instead of chasing the next biggest thing, stick with the consistent. For example, Ally Bank has earned my trust and respect after years of solid performance and service. This online bank doesn’t have wacky fees, gives me free checks, and pays a solid interest rate in both checking and savings. When you find a solid, long-term rate, stick with the bank. It pays to find a good company and then worry about making more income elsewhere — not following the next greatest interest rate.

5. Invest regularly – don’t chase bottoms

This tip comes from one of my hardest investing lessons. When it comes to putting money in the stock market, don’t call bottoms. Humans inability to predict is never worse than right here. If you think the market has crashed, you’ll likely be proven wrong. The stock market has tons of false bottoms and tops. Prediction isn’t generally your friend. Instead, I use average investment amounts and make regular investments. When the market suffers, I tend to invest more. But avoid the chase and focus on making consistent investments.

Filed Under: Make Money, Save Money Tagged With: bank accounts, Checking, cnbc, future, Investments, management, money, Neil deGrasse Tyson, Prediction, Psychology, savings, science

The 4 Worst Investment Tips You’ll Ever Hear

By Frugaling 3 Comments

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Worst Investment Advice
Photo: Unsplash

I’d been following the stock market for years by the time I could finally invest on my own. It used to cost $50 a trade with a major broker, and the fees were cost prohibitive. I waited and waited for fees to decline. Instead of trading, I researched stocks and followed prices.

When companies like E*Trade and Ameritrade were born, they slashed trading fees to a manageable $10 to $15. Suddenly, investing became a tool for a greater population. I was a teenager when I made my first trades.

Actually buying and selling — pulling the trigger on a stock — took little of my time. Most of it was spent reviewing reports and books. I read like mad from economics and investing books.

For last 15 years, I’ve heard some comically bad advice. It’s flown in the face of everything I’ve read. Sometimes it’s senseless; at other times, dangerous. If you hear this “advice,” run.

1. Buy low and sell high

I’ve heard this unhelpful tidbit more times than I can count. Usually, it’s repeated by people who understand what the stock market is: a place to buy and sell. But they hardly understand the how.

To actually “buy low and sell high” is far more complicated. The cliché presumes you can spot a low point or “bottom,” have money ready to invest, and “call” the bottom by buying in. Unfortunately, this advice can also encourage people to look for “high” points or a market top or a bubble.

Few people — statistically speaking — can accurately call bottoms and tops. Even the most trained professionals fail over and over again. CNBC anchors, analysts, and commentators regularly preach markets as being oversold and/or overvalued, but rarely are their comments checked — veracity analyzed.

While the guidance is right, I call this bad advice because it doesn’t make you a better investor. Despite the intention, this statement doesn’t help you find lows and highs.

2. Penny stocks lead to significant returns

Amidst this culture of capitalism, get rich quick schemes are everywhere. The stock market, with it’s daily returns and losses, is something of a casino for the world. With one big trade, you could be rich; at least, that’s what might be sold to you with “penny stocks.”

Penny stocks are less than $1.00 and often traded on the OTCBB — an off-market, poorly regulated exchange for little-known companies. Online scammers and tricksters tell potential investors about their regular returns and successes.

Can you believe they made a 1000% gain in a week? They became a millionaire overnight!

They’ll tell you to invest in companies — with little capital needed — and get ready to profit big time. Unfortunately, there’s no reliable way to get rich quick. Penny stocks are a surefire way to lose money. Never listen to those who are swept up in the potential percentage gains of a company’s 50-cent shares.

3. Buy the upgrade, sell the downgrade

Stock analysts might be my least favorite market players. Their salaries and decisions are closely tied to major investment banks, which can lead to a bias in their decision making. Allow me to catalogue some of my concerns.

Firstly, their decisions immediately affect stock prices — regardless of the veracity of the claims.

Secondly, many analyst ratings are a buy — all the time. Regardless of market changes, being on the sell side isn’t rewarded within investment banking companies and predicting a negative downturn is inherently risky when the market tends to go up.

Thirdly, they frequently make positional shifts without lowering prices. For example, let’s say Netflix is 95.90 per share today. A stock analyst might downgrade their position to sell, but keep a $105 price target. So, as an average investor are you supposed to hold onto that position or sell it?!

For most investors, these recommendations don’t make much sense. And trading off of them is an acknowledgement of a “rational” market. But the markets are anything but rational. Emotions constantly affect market capitalizations, and these analyst ratings fail to capture passion.

4. The entire market is going to collapse

Every day, week, month, and year there’s another threat to market returns. Maybe there’s a terrorist attack, climate change, mortgages bubbles, credit card debt crashes, unexpected bankruptcies, etc. All of these events can cause market disturbances, and even more, market mavens peddling “end of days” hypotheses.

In 2009, a powerful documentary came out called Collapse. The film interviewed a charismatic man named Michael Ruppert. He speaks emphatically about the concept of peak oil and how he alone predicted the market crash of 2008.

That’s right, Ruppert, of all men, predicted it all! And when the movie was published, most of the American public was convinced oil would forever escalate. It sat around $70 to $80, and would soon go to $100 per barrel. Ruppert was considered a genius.

His prediction was that the economy would collapse and we’d have to change our why of life — drastically.

But it never came. Instead, oil markets plummeted over the last seven years since the documentary, and Ruppert… well, he died by suicide in 2014.

Investors and abstainers frequently entertain these end of days ideas because it justifies wild investments in commodities or a wholesale avoidance of the stock market. Both decisions put portfolios in peril. Best to keep a moderate perspective and diversify your portfolio.

Filed Under: Make Money Tagged With: Advice, analysts, Collapse, diversification, Investments, money, Stock Market, stocks

The Wolf Of Wall Street Is In Me

By Frugaling 4 Comments

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rkoi2

I dissociate somewhere between Donnie smoking crack in the back of a restaurant and Jordan stacking bills on bills in a safe deposit box. This is probably the fourth time I’ve seen The Wolf of Wall Street with Leonardo DiCaprio, so I pretty much know the entire film. I laugh on cue, but mostly drift into some sort of revulsion to the moneymakers’ debauchery.

Jordan, played by DiCaprio, chucks a wad of cash off the side of his yacht, and I fantasize about what would life be like if I were filthy rich. Something stirs inside me. I want that level of wealth and I don’t know why.

My life is comically dissimilar from Jordan’s. I’m nearing the end of graduate school, thinking about jobs, and constantly checking my bank account. The latter stands stronger than ever due to saving and scrimping, but it’s a measly sum. I’ll have a small amount of student loan debt to pay off, too. When I graduate, I’ll expect to earn $50-70,000 with my Ph.D. in hand.

Privilege allowed me to choose my career path. Early in my college years, I replaced business with psychology. The switch forever changed my earning potential. I just hoped psychology would allow me to help others in need — the money didn’t matter much.

Now, as The Wolf plays before my eyes, I struggle with two mindsets.

There’s the Jordan side of me. I want to travel. Iowa is killing me slowly with its lack of diversity and landlocked status. I want to be able to live in lavish places and decorate as I see fit. My minimalism borders on austere. I want to be able to buy, buy, buy. Every time I do, I feel this pang of guilt — I need to save that dollar. And I sure as hell don’t ever want to be in debt again.

Then there’s the modest, frugal person who writes these words. Iowa has been the perfect place to save, bike, and enjoy graduate school. I don’t care to have much. I don’t need to own, own, own. I don’t want my primary title to be “consumer.” I like being able to save, live, and give to others.

Maybe I’m dreaming of wealth because reality isn’t always easy. I’m moving out of an apartment complex I can no longer afford, paying off a hefty sum for a car, and living on a tight budget each week. Scrimp and save is often more challenging than earn and invest.

If I had the opportunity to make more money, I wonder how much I’d want. Would a million dollars in savings/investments suffice? Would tens of millions? Would a billion?

The mind seems capable of more. Always more. The mode is more. More than enough. More than the other person. More than you.

As the movie finishes and Jordan begins to unravel and lose it all, the director’s message is clear: money doesn’t buy happiness. You can still be a miserable millionaire. But the urge remains. How can the mind be so illogical and rational at the same time?

Filed Under: Make Money Tagged With: Billionaire, investing, Jordan Belfort, Millionaire, money, rich, saving, Stock Market, Wall Street, Wealthy, wolf of wall street

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