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Small leaks sink great ships: How little habits can have large consequences

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If you've spent any amount of time reading money blogs over the past fifteen years, you've heard of the latte factor. In fact, you're probably sick of hearing about it.

This concept — put forth by David Bach in his best-selling The Automatic Millionaire — is based on the idea that daily spending on small things has a big impact on your future wealth.

“We don’t even realize how much we're actually spending on these little purchases,” Bach writes. “If we did think about it and change our habits just a little, we could actually change our destiny.”

The latte factor is nothing new. More than 200 years ago, Benjamin Franklin cautioned, “Beware of little expenses. A small leak will sink a great ship.” Jesus urged his disciples to not let anything go to waste. The stoic philosopher Seneca the Younger wrote, “With parsimony a little is sufficient. Without it nothing is sufficient. But frugality makes a poor man rich.”

Yes, the best way to spend less is to cut back on the big stuff. Yes, it's important to earn more money. But frugality is an important part of personal finance too.

Today, I want to share a real-life example of how small, daily habits can have a powerful effect on your ability to build a wealth snowball.

A Tale of Two Brothers

I've been back at the box factory for over two months now. It's been fun. (It's also been hindering my ability to work on Get Rich Slowly, but that's another story.)

One of the best parts about going back to work has been interacting with other people. Working from home is a lonely, lonely endeavor. I've enjoyed reconnecting with my brother and cousin and our company's employees.

The daily chit-chat has proved a rich source for future article ideas. As people talk about their daily lives, money is a frequent topic. Plus, we all observe what our co-workers are doing and how their choices affect their financial health.

Here's an example of how a seemingly innocuous choice is costing one of our workers a couple of thousand dollars per year.

  • To encourage employees to get to work on time, we use positive reinforcement at the box factory. If you clock in by your start time every day in a pay period, you get a $50 bonus. We run payroll semi-monthly, so this adds up to $100 per month or $1200 per year if you're on time every day.
  • Two of our employees — let's call them Joe and Gus — are brothers. They've both been with us for nearly twenty years. They're good guys. Right now, Joe and Gus live together in a house that's roughly twelve miles (and twenty minutes) from the shop.
  • Despite living together, Joe and Gus drive to work separately. Why? Because Joe likes to get his on-time bonus. He's always on time (and, in fact, often early). Gus, on the other hand, likes to sleep in. While his brother always clocks in by 7:00 (and frequently by 6:45), Gus usually doesn't show up until 7:05 or 7:10. He's getting an extra twenty minutes of sleep each morning.

On the surface, this isn't a big deal, right? Gus likes to sleep in, so he's willing to sacrifice $100 each month to do so. In reality, I think Gus is paying too much for a few minutes of sleep each day.

Let's crunch some numbers. [Read more…]

Spare change: Awesome articles from elsewhere

Are behavioral "nudges" to consumers losing their effectiveness?

Facing a mid-career crisis

The money-whisperer to the super-rich NBA elite [NY Times]

How to make your financial life easier: Put as many money decisions on autopilot as possible

"What if all I want is a mediocre life?"

How much should you spend on housing?

The media likes to report fringe cases, not reality

People all over the world (not just the U.S.) risk running out of money in retirement

If you want to be great, be good repeatedly

Bike lanes can be a boon for businesses

Find an archive of all past spare change links on Pinboard.

Getting started with gratitude — a 30-day challenge for the new year

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Bring GratitudeIt arrived. I opened the box and held it up to enjoy it. It was a new wireless speaker. It was solid black, a beautiful piece of technology. I couldn't wait to listen to it.

I plugged it in and for some reason I couldn't connect my phone to it. I googled it. I found out I needed to update the software. It took almost an hour to figure out the issue. When I updated the software, it worked!

I played “Stray Cat Blues” by The Rolling Stones. It sounded pretty good, but as the song played I felt a pang of regret. I had an older speaker that didn’t sound quite as good…but it was good enough. I didn’t really need the new speaker.

I’ve seen this habit surface again and again. I’ve gotten better, but it’s a daily struggle: Why can’t I be happy with what I have?

Bring Gratitude

A few years ago, I put myself on a mission to be more grateful for the small things in life. It’s done wonders for my mindset. As I continue to grow and improve my practice, I'm more aware of my internal dialog:

  • I “need” a new speaker.
  • I “need” a new bike.
  • I “need” a new jacket.

The reality is none of these are needs. My old speaker was fine. My old bike is okay. My old jacket can be cleaned.

As I listen to my internal dialog, I’ve noticed my desire to want more things and newer things. The awareness helps. This is not who I want to become. Besides, it costs me too much money.

I’m working on appreciating what I already have instead of wanting to buy something to replace it.

That’s why gratitude is so important. Gratitude helps us shift our mindset to enjoying what we have instead of wanting more. Do you ever struggle with the desire to get that new gadget or another pair of shoes?

Those are two of my main vices that I turn to when I’m feeling down. It’s why I wanted the new speaker. I wanted that feeling of having something new. I thought it would make me feel better.

I’m not perfect, but I’ve learned a lot over the past few years. I keep a daily gratitude journal and it’s done wonders for helping me appreciate what I have instead of focusing on buying that next thing on my list.

The Gratitude Journal

I’m always surprised that it took me so long to keep a gratitude journal. Perhaps the most powerful mindset tool that we have is gratitude!

I’m really big into self-help books and learning new things, but I always consumed instead of taking action. I think it’s this attitude that also encouraged me to collect new gadgets instead of appreciating what I had or knowing that I didn’t really need to buy anything new.

In one book, Why We Do What We Do, researcher Edward Deci explains that when someone has six positive interactions to one negative, they are 31% more productive.

When you have positive thoughts and interactions, it’s easier to focus on what matters. That may be spending time with your family, traveling, or writing. Positive interactions free you up to have the energy to do what matters to you.

One terrific way to foster positive thoughts and interactions is to deliberately and consciously bring gratitude into your daily life. For me, keeping a gratitude journal serves this purpose.

Great Questions

I believe everything starts with our internal dialog. If we let our negative inner voice dictate our happiness, then we’ll constantly feel like we’re not enough. That we don’t have enough.

Next time you are stuck in a difficult situation, watch how you talk to yourself.

Do you ask yourself things like:

  • “Can this person be more boring?”
  • “Why is this taking so long?”
  • “What do I have to do to get noticed?”

Try switching this inner dialog on its head. Try tapping into your curiosity to see if you can ask questions that help you see the interesting parts of the situation.

  • “What am I learning in this situation?”
  • “How did I get so lucky to be in this warm environment?”
  • “What do I notice about this situation that is interesting?”

Great questions help you focus your attention. They enable you to fuse gratitude onto your attitude. Exploring questions like these in your a gratitude journal can help you discover your mindset and motivations.

Keeping a gratitude journal

Start Small

If you're like me and sometimes get jealous of what other people have, this envy can be a great place to start appreciating what you currently have. As you become better at appreciating what you have, move on to appreciating the people and situations in your life.

Explore these emotions in your gratitude journal. You can start by making gratitude entries about what you appreciate. You could start with looking around your home and being grateful for the kitchen table or your shoes that fit comfortably.

You’ll probably notice what entries energize you, and then you can continue down this path for a few days.

For seven days, try writing what you're grateful for and why. Start small, and if it feels good then keeping going. I suggest something like this:

  • “I’m grateful for my shoes because they are so comfortable.”
  • “I’m lucky to have a phone that can call my mom, brother, friend, etc.”
  • “I’m grateful for my coworker because she is always willing to listen and help.”
  • “I’m grateful for my ability to dance in my car seat when I’m stuck at a traffic light because it allows me to release my stress.”
  • “I’m grateful for my pets because they make me feel loved and needed.”

The key component here is your why. It’s important because it helps deepen the gratitude journal experience. Within just a few days you’ll probably notice an improvement in your attitude.

If you're interested, you can join the free 30 Day Bring Gratitude Challenge (running January 1st thru 30th) to help you strengthen your mindset. Come join us and you’ll get email updates and a private Facebook group. If you have any questions, I (Karl Staib) am available seven days a week.

How to get rich and stay rich

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How to Get Rich and Stay Rich by Fred J. YoungIn my ongoing quest to build a library of pre-1990 money books, I recently heeded a reader recommendation to buy and read How to Get Rich and Stay Rich by Fred J. Young. Spoiler alert: I liked it! But I almost didn't read it.

You see, everything about this book exudes scamminess. The title is scammy. The cover looks scammy. The amateurish formatting seems scammy. But the book is not scammy. How to Get Rich and Stay Rich is a marvelous prototypical book about early retirement. I enjoyed it.

Fred J. Young, the author, was born and raised in rural Tennessee during the 1910s. His family was poor, as were all of their neighbors. Young decided he wanted to do something more than be a farmer, so he left Tennessee to become a lawyer. After military service, he worked for Harris Bank in Chicago, where he spent three decades advising wealthy clients.

During the 1960s and 1970s, Young supplemented his bank income by giving motivational talks on how to get rich and stay rich, basing his presentations on observations of his clients. In 1979, after he retired from Harris Bank, Young collected much of this material into a book called How to Get Rich and Stay Rich.

How to Get Rich and Stay Rich

“For 27 years, I worked in the Trust Investment Department of the Harris Trust and Savings Ban in Chicago, Ill.,” Young writes at the start of the book. “Most of my time during this period was spent helping rich people 1) stay rich, and 2) get richer.”

He continues:

“During those 27 years of working with rich people, I made a number of observations about getting rich, being rich, and staying rich, and about the difference wealth makes. I am delighted to share those observations with you in this book.”

[Read more…]

Linchpin habits: Minimum effort for maximum results

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A few weeks ago, I set a few goals for 2018, one of which was to run at least one mile every single day. Last week, that goal got derailed when I was diagnosed with pneumonia. The doctor ordered me not to run for at least ten days — perhaps longer.

That's the bad news.

The good news is that I'm doing well with my other goals. I'm eating more plants. I'm reading for pleasure. And my alcohol consumption is way down.

You see, I had started to worry about my drinking. Over the past few years, alcohol has become a larger and larger part of my life. At the start of the year, I resolved to drink fewer than 500 servings of alcohol in 2018, which averages to about 10 drinks a week. This seems like an awful lot to some people, but trust me: It's a sharp reduction. It's less than half what I drank in 2017.

So far, so good. Through 23 days, I've consumed 22 alcoholic beverages (including eleven days with zero drinks). That puts me on pace for 350 drinks in 2018.

How have I managed to make such a drastic shift to my drinking habits? In reality, I've made only one change: I've stopped drinking beer.

I didn't realize it when I made my vow to give up beer for ninety days, but drinking beer is — for me — a “linchpin habit”. Changing this linchpin habit has had a positive ripple effect throughout my entire life.

Beer taster platter in northern California [Read more…]

Your Thrift Habits — Budgeting tips from 1948

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Long-time readers know that I love old instructional films — the kind of thing we older folks used to watch in high school. (“Play it backwards!”)

Because the previous owners of Get Rich Slowly “unpublished” all of the old films I once shared, I get the joy of sharing them again with a new audience. Today, we start with a gem: “Your Thrift Habits“, a film designed to teach teenagers how to budget.

Produced in 1948 by Coronet Instructional Films, this 10-minute short is filled with great advice — and it's fun to watch too.

“Your Thrift Habits” highlights some important aspects of budgeting and thrift:

  • “If you can do without extravagances, you can save regularly.”
  • Be aware of your budget-breakers and try to avoid them. In the film, Jack's budget-breakers are movies, candy, and peach super-delights. Yours might be Starbucks or iTunes. In the past, comic books were my budget-breaker.
  • “Buying cheap, unsatisfactory products is never thrifty.” When you can afford it, purchase quality.
  • Sometimes you'll have to make choices. In “Your Thrift Habits”, Jack chooses to attend a football game, which delays his savings plan by one week. The key is that he chooses this course of action and accepts the consequences.
  • Don't get discouraged if you fall behind. Jack falls behind once or twice, but he doesn't give up. He keeps saving.
  • “When you save for a specific goal or purpose, it's easier if you have a visual reminder.” Tracking your progress can spur success.
  • Money management gets easier with time. After you've kept a budget for a month or two, or after you've saved for one big item, it's easier to repeat the process.

It's been nearly a decade since I first watched this film. I still love it.

If you spot other short films (or cartoons) on similar topics, please drop me a line so that I can share them with everybody!

What the rich do differently: Habits that foster wealth and success

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I'm fascinated by the differences between rich people and poor people. Are the differences mostly a matter of class and economic mobility? Are people born to wealth and poverty and destined to remain there? Or are there observable differences in attitude and action that tend to lead people to specific levels of affluence?

From my experience, it's some of both.

I believe that there are absolutely systemic issues that contribute to wealth and poverty. But I also believe that there are attitudes and habits that foster wealth and success. These attitudes and habits can be learned. They can be applied to our own lives, allowing us to build better futures.

My Story

I grew up in a family that had always been poor, a family that had lived for nearly 100 years in rural Oregon, barely getting by. The things we had and said and did were “lower class”, even if I didn't know it at the time.

I was raised in this trailer house:

The house where I grew up

My father was a serial entrepreneur and the primary breadwinner for the family. Occasionally his businesses did well. Mostly, they didn't. But even when our family did have a decent income, Dad spent that money on boats and airplanes and computers. He didn't save. Then when hard times came — and hard times always came — he had to sell those toys to put food on the table.

The boom times were rare though. During the 1970s and 1980s, Mom and Dad spent most of the time living paycheck to paycheck. They fought about money. When Dad's businesses weren't doing well (which, again, was the norm), he worked as a salesman for various industrial companies. Or he was out of work. He spent long stints unemployed. We had to have help from extended family and from our church. (I can't recall that we were ever on government assistance, but it's certainly possible.)

Just before he died in 1995, Dad pulled me aside to apologize for how poor we were when I was a kid. “I remember that one Christmas when we didn't have enough money for presents,” he said, “You and your brothers wrapped your existing toys and gave them to each other. I felt so ashamed. I'm sorry I couldn't give you guys a better life.”

So, I've experienced poverty. Maybe not poverty as extreme as some others, but poverty.

I've also experienced wealth.

Today, my life is very different than it was when I was growing up. I'm fortunate (and grateful) to have a solid financial foundation. I achieved that financial success through a combination of hard work and luck. (And make no mistake: There was definitely good fortune required to get me where I am today.)

My brothers too have managed to work their way to a comfortable middle-class lifestyle. We have it better than our parents did. At the same time, it's clear that the three of us retain some of our old habits and attitudes. (So too, I think, do other members of our extended family who also grew up poor.)

From my experience, I believe that poor people have certain habits, attitudes, and expectations. I think that these habits, attitudes, and expectations differ from those of wealthy people. Sometimes these qualities are a result of being poor (or wealthy); sometimes these qualities lead to being poor (or wealthy). In other words, it's neither the “chicken” or the “egg” — it's both.

What do I mean? Let's take some time today to explore the types of habits that foster wealth and success.

Important note: Before we go any further, I'd like to acknowledge that this is a complex subject, one weighted with political, economic, and social issues. I don't expect for one blog post to be a definitive exploration of the topic. I do, however, hope that this article can highlight some insights from myself and others — including you. This piece is not meant as a takedown of the rich or a takedown of the poor. It's meant to highlight habits and attitudes that can improve the odds of success.

[Read more…]