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Case study: Deep in debt but scared to take action

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Last night, as I do from time to time, I met with a GRS reader. Actually, Debbie doesn't read this site but her sister does. And Debbie means to. Although I met Debbie's sister last year at a Camp FI event, I'd never met Debbie before.

“So, what's your situation?” I asked after our waiter had brought us each a glass of wine. “What do you want to know about money?”

“Everything,” Debbie said, laughing. “I feel like I don't know much at all right now. I guess deep down, I know what I need to do. I just don't do it.”

I nodded. “I'm like that with fitness,” I said. “I know what I need to do, but I just don't do it. I know I need to exercise. I know I need to stretch. I know I need to eat better food. But for a lot of people — people like you and me — there's a barrier between knowledge and action. It doesn't matter if we know how to do the right thing. It's the action that matters.”

“I buy books about money but I never read them,” Debbie said. “I have Dave Ramsey and The Millionaire Next Door.”

“Those are both good books,” I said. Then, I shifted gears.

Looking for Purpose

“This might seem odd, but let's talk about your goals. What do you want out of life? What are your big plans?” Our waiter brought Debbie a bowl of mussels and me a plate of pasta.

“I want to make the world a better place,” Debbie said. “I'm young. I work for a huge multi-national company. But I don't believe in the company and I don't believe in my work. I get paid $20 an hour to bring people coffee and water all day. I have a bartending gig on weekends. I want to do something that matters. Maybe improve our food system, for instance. I hate how people eat. I want more people to have better access to high-quality food.”

“That sounds like a noble goal,” I said. “How do you get there from where you are now?”

“I don't know,” Debbie said. “It seems impossible. I have $80,000 in student loans but they're in deferral. I don't have to pay anything on them, but they still accumulate $600 in interest every month. How can I ever hope to catch up?”

“Yeah, that's rough,” I said. “I used to be in a similar position. Twenty years ago, I had over $35,000 in credit card and consumer debt. That's not the same as your $80,000, but it'd probably be equivalent to about $50,000 today. I carried that debt for a long time, just treading water, never getting ahead. I felt like I'd never get it paid off.”

“But you did it?”

“I did,” I said. “I did it by creating a gap between my earning and spending. Fundamentally, there are only two things you can do to improve your situation. You can make more money or you can spend less. Ideally, you'd do both. You want as wide a gap as possible between what you earn and what you spend. Right now, it sounds as if you don't have a gap. You have a deficit.”

Debbie nodded. I slurped down some noodles.

Two Familiar Foes

“How much is your rent?” I asked.

She looked sheepish. “I pay $1200 for an apartment in northeast Portland,” she said. She gave an address near where I lived after my divorce. “I know I should have roommates but I don't. I don't want the complications.”

“And what's your take-home pay?”

“Just over $2000 per month,” Debbie said.

“Yeah, your rent is pretty high,” I said. “I mean, it's not high compared to other places in Portland — it seems about average — but it's high compared to your income. Nearly 60% of what you earn is going to housing. That's a lot! The average American spends about one-third of their take-home pay on housing. So, that's a great place to try to cut costs. Maybe not right now, but over the long term.”

“I like where I live,” Debbie said, prying open a mussel.

“You might want to consider roommates,” I said. “Aside from your housing costs, it doesn't sound like the rest of your spending is outrageous. Honestly, if I were you, I'd try to find ways to boost your income. Especially since you hate your job.”

“I know,” Debbie said. “I've thought about that. I have a marketing degree that I'm not using. My current company offered to give me a raise and a promotion, but I turned it down. I would have been doing work that I hate even more. It would be difficult for me to be in a position where I had to represent a company I don't like.”

“Why don't you quit?” I asked.

“I did once,” she said. “But then I went back right away. I was scared to apply for new work. I don't have much self-confidence. I mean, I'm 31 and have a marketing degree, but I don't have any experience. Who would hire me?”

“I get the lack of self-confidence,” I said. “I totally get it. I struggle with that every day.”

“You do?” Debbie said. She seemed surprised.

“Yes,” I said. “Every day. Even today, I've been dragging around with my head full of negative self-talk. But here's the thing: I've learned to just do the stuff that scares me anyhow.” [Read more…]

Spare change: Awesome articles from elsewhere

How retirement changes your identity

The need for more empathy in the personal-finance community [podcast]

Homes listed for sale in early May sell faster — and at a premium

15 stories of financial windfalls and how they changed (or didn't change) people's lives

All the ways you can get your student loans forgiven

How the convenience fallacy contributes to clutter in our homes

More builders are building smaller homes and the average home size is falling in the U.S. [yay!]

The three tiers of productivity

The pros and cons of co-housing [this concept is popular with some FIRE folks]

Why you should stop striving for work-life balance

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

By the numbers: My spending for January 2019

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You know how sometimes you let chores and errands and obligations pile up until there's nothing left but to ignore what you want to do and take time to actually do what needs to be done? Yeah, well that's what the past week has been like for me.

I've spent most of my waking hours cleaning and repairing the house, driving around Portland to take care of troublesome tasks, and calling companies (and government agencies) to close accounts and/or clarify questions. This includes six hours I devoted to replacing the kitchen faucet. Ugh.

J.D. vs. the Kitchen Sink

All this is to say: I haven't had time to work much on Get Rich Slowly during the past seven days.

That said, I have been diligently tracking my expenses. As I mentioned at the start of the year, one of my goals in 2019 is to get back to basics. I'd grown complacent over the past few years. I'd succumbed to lifestyle inflation. I want to cut back on expenditures large and small this year to bring my budget more into balance.

Let's see how I did.

January Spending Report

This month, more so than normal, I was eager to analyze my spending. I spent half an hour clicking through Quicken to see if/how my habits have changed since the first of the year. Here's what I found:

  • I spent $701.01 on food in January. Of this, $211.63 was spent on dining out, $346.63 was spent on groceries, and $137.77 was spent on HelloFresh. (The final $8.98 was spent on junk food. I track how much I spend on buying crap at gas stations and convenience stores.) Last year, I averaged $1038.03 per month on food, so this is a delicious decline of 32.5% from that level. Nooice! My hope is that I can cut this even more. Even with the drop, this is way way high.
  • I spent a lot on health and fitness in January. Much of this was spent to purchase a new indoor bike trainer — a stand on which I can place my road bike so that I can ride it in the house. I also bought a new yoga mat, etc.
  • The pets cost us $186.63 in January. Hmmm. I didn't know they were this expensive. Seriously, I haven't been paying attention to how much our zoo costs us. What really surprises me is that our three cats cost more than the dog!
  • I spent $326.08 on “sin” spending in January. That's way too much. I track how much I spend on alcohol and marijuana. (Pot is legal in Oregon, remember. I don't often use it recreationally but I do use it for sleep almost every night.) As I'll probably write about in the near future, my alcohol spending should decrease sharply in coming months. I've decided that I have a problem and I want to change when and how I drink.
  • I only spent $3.99 at the iTunes store in January! This is a huge win for me. I spent less than Kim did at iTunes this month, which is crazy talk. I spent far less than the $204.85 I paid in December. How did I do this? Simple. I didn't let myself browse the new releases. (That said, when I opened iTunes the other day, I did notice that a movie I've been wanting for a long time — Willow — is now available. It took some strength to resist that. I put it on my Wish List in hopes that I'll see it on sale sometime.)
  • I pumped $5141.33 into Get Rich Slowly to make up for a cash-flow crunch. We switched primary ad sources in November, and there's a gap while we wait to get in the new vendor's payment system. (Money came in last week. Yay!)
  • My home value continues to decline. Zillow now says our place is worth $422,000. Nineteen months ago, we paid $442,000. Since then, we've put in about $100,000 of necessary repairs — plus another $50,000 in upgrades. In other words, our home is worth $170,000 less than we've spent on it. This whole situation remains a sore spot with me. But, as many readers have noted, because Kim and I love this place and have no plans to move, it's a sore spot that doesn't really matter. (And I'll bet some of you would be happy if I stopped bringing this up.)

If we ignore the Get Rich Slowly cash infusion, I still spent $4819.27 last month. That's about $1000 more than I wanted to spend.

Looking through my list of expenses line by line, I actually see $1034.40 of one-time expenses. So, in theory, next month my spending should be under $4000. In theory. The problem is that I suspect other one-time expenses will arise. I have this sneaking suspicion that I'm constantly rationalizing “one-time” purchases…as if there should be a $1000/month line-item just for “one-time” expenses. I hope not. But I suspect it's true.

Final Thoughts

Last month, my net worth increased by $30,617.91 (or 2.29%). That's amazing! This was all because the stock market was on a tear, though. The gains aren't due to any acumen on my part.

My goal for the first quarter of 2019 is to become more mindful about my spending. Sure, I want to slash what I can, but my main aim is to be aware of where my money goes, to track it diligently so that I can make appropriate changes going forward.

I doubt I'll post a spending update every month — I'm not sure there's much value in these for anyone other than myself — but I'll publish a few throughout the year. If all goes according to plan, by the end of December I'll have broken some bad habits and built some better ones!

My 2018 year in review

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Across the web, I see other financial bloggers sharing their year-end financial summaries. Some folks had good years. Financial Samurai's net worth increased by 6.5% in 2018. Others had mediocre years. Fritz at The Retirement Manifesto saw his net worth decline by 2.1% thanks to a volatile stock market.

Me? Well, I'm embarrassed to share how my year went financially. It sucked. No, seriously. It was terrible.

My net worth declined by 15.2% in 2018 — nearly $250,000!

Here's a graph of the monthly changes to my net worth during the past two years:

My monthly net worth over time

What happened? Did I buy a Lamborghini? Did I spend a ton during my recent three-week trip to Europe? Have Kim and I been binging on cocaine and chocolate? Nope. While there's no doubt that my habits contributed to my loss of wealth, there are larger forces at play here.

Let's take a closer look. [Read more…]

Case study: Starting with less than zero

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I am not a trained financial expert. I'm not an accountant, I'm not a financial planner, and I'm not a stock broker. What's more, I've made many many money mistakes on my own financial journey. As a result, I've always been reluctant to sit down with people and go over their budgets.

That seems to be changing.

In March, I spent a couple of hours talking with a friend about her financial situation. A few days ago, another friend asked if I'd be willing to meet with him in the near future to puzzle through his budget woes. And yesterday, I took three hours to chat about money with my friends Wally and Jodie.

As always, I've changed names and certain identifying features in the story that follows. Unless I have explicit permission to share details, I do my best to protect people's privacy when I write about their intimate financial lives.

Wally and Jodie have recently begun dating. He's in his early forties (and recently divorced); she's in her late twenties. They both work in food service, and have done so all of their lives.

Their trouble — and the reason they asked me for help — is that they cannot seem to make ends meet. They work hard but never have anything to show for it. In fact, they feel like they're falling further and further behind.

“Can you help us?” Wally and Jodie asked.

“I can try,” I said. “Let's look at your numbers.” [Read more…]

How one young couple budgets and plans for the future

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This month's theme at Get Rich Slowly is relationships. All month long, we're focusing on how money affects our interactions with family and friends — and how family and friends affect our interactions with money.

A couple of months ago, I shared a series of career interviews that the Khan Academy has been producing on an ongoing basis. Each interview consists of three or four separate videos exploring what it's like for different people from different fields to manage their households.

Last week, the Khan academy published a joint interview with a married couple: Julia (a registered nurse) and Michael (a construction business owner). They interviewed each partner separately, then brought them together to talk about how they budget and plan for the future.

When Julia and Michael got together, Julia was the sole breadwinner for the family. Michael was still going to school and he was trying to start his construction firm. When they learned Julia was pregnant, they shifted gears. Julia went on maternity leave and Michael found a job at an auction house. They've been living on one income their entire marriage, but that will soon change as Julia gradually re-enters the workforce.

Julia and Michael used to live in Boulder, Colorado, but city life didn't agree with them. Plus, costs were too high. They chose to move in with Julia's parents in the country, which gave them a lifestyle they preferred and allowed them to save money.

In the interview, Julia and Michael break down their income and expenses. (Their largest expense — by far — is $600 per month for transportation!) They also describe why they've made certain decisions

“We wish we knew how expensive life was. Having a kid is very expensive,” Julia says. “Rent is expensive. When we didn't live on the farm, it was unaffordable for us. One of the most important things we've learned is to invest in yourself. It's okay to invest in your education because that's improving you down the road, improving your financial outlook.”

If you want to see more from this couple, here's Julia talking about what she does (and how much she makes) as a registered nurse and here's how she got her job (and what she plans to do in the future). Here's Michael discussing what his job is like and how he got his job.

As I said in December, I think this library of videos is an excellent resource, especially for kids who might be trying to decide which career to pursue.

College Grads: How to Increase Your Salary

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My oldest son recently asked: “What can I do to make sure I get a big, fat salary when I graduate?” He's a sophomore eyeing chemistry as his career.

Having spent his summer working nearly 60 hours a week in a warehouse, I think he's suddenly come to realize the full-court advantage of a college education.

So I took his question to the mat. How can a student leverage college experience in order to maximize his or her salary after graduation?

After talking with other parents, friends in human resources and school counselors, I came up with seven suggestions.

How to increase your future salary

1. Recognize the value of education

The more education you receive, the better your chances for a higher starting salary. Here are the 2014 median earnings of young adults aged 25-34, according to the National Center for Education Statistics:

  • $25,000 with no high school diploma
  • $30,000 with a high school diploma
  • $49,900 with a bachelor's degree
  • $59,100 with a master's degree

2. Choice of degree and college

When you talk to many high schoolers, it becomes clear that one of the top career choices is engineering. They also want to matriculate at an elite school or a top engineering school. Many parents have the same goal in mind, but does it really matter?

It does. Both in degree and school choice.

The 2015-2016 College Salary Report ranks over 1,000 public and private schools by their salary and degree potential. Cards on the table, I wish we had known about this as we were picking colleges. (The good news is that we have one left in high school who will benefit.)

3. Don't underestimate the power of professors

Professors stay in contact with generations of students, many of whom rise to management positions. There, they often have control over department purse strings, head counts and a certain sway with recruiters and talent resource officers.

If you develop a solid relationship with a certain professor, you can benefit from their knowledge and ability to network with well-connected alumni. This can make quite a difference in how vested your future employer feels in you and your story, which could potentially translate into an opportunity to impact your salary.

4. Internships while in college

The depth of your knowledge and industry experience can help strengthen your resume and possibly lead to a bump in starting salary when compared to fellow students with little or no experience. Term and summer internships can help you demonstrate your value to a potential employer.

Basically, your goal is to have a job lined up and waiting for you as you walk across that stage, diploma in hand, and finally leave college. But again, it's the internship experience and more professional resume which can result in a higher starting salary. Internships without salaries are very common, so take those opportunities to make less as a student and more as a graduate.

5. Negotiate your offer

Often, new graduates are afraid to ask for more when presented with an offer of employment. They are nervous, excited and don't know how the “game” is played with a prospective employer.

If you have more than one job offer, it's a little easier to leverage them to land your dream job at a higher salary. But if the salary is non-negotiable, you could still ask for a signing bonus, a monthly transit pass (where applicable), and additional personal time off/vacation. If an employer wants you bad enough, (s)he might throw some perks your way. But you have to ask for that.

Here's another tip for any job seeker: Go in knowing your full worth. It's common for an employer to ask what you made at your last job or what your salary expectations are. The big secret is that it doesn't matter at all! You should be judged on your qualifications, work ethic and credentials — not on your last salary or what you think you might be worth. Get to know the salary standards for your industry and go in with a confident attitude.

6. Get something published

Write something and get it published in a trade journal. Assist a professor on a technical paper that (s)he plans on submitting for peer review. Having a paper trail and building a case for or against something in your future profession can help get you noticed and perhaps highly sought after. You can turn that notoriety into cash on signing day. Athletes do it. You can too.

7. Network

Don't wile away the time in high school. Start networking now. And in college, keep networking. This is a good time to find out what your friends' parents do. Network with those parents, especially the ones in the same field you are pursuing. But even if they aren't, they might have friends, former classmates or relatives who are in that profession which can provide valuable leads.

Great networking opportunities include LinkedIn, industry association events, local business groups and fundraisers for community causes. Let's take an example. A graduate who lives in Chicago, majoring in communications might meet potential employers by joining a few of the public relations and marketing groups on LinkedIn, attending a Public Relations Society of America luncheon, getting involved with the entrepreneurial center at a local community college and lending a hand at a nonprofit where they can meet business supporters, board members and community influencers.

So skip a few frat and sorority parties and spend some time making a case for why you should be hired upon graduation and why you should receive a higher salary than some of your peers.

I'm proud that my son has the foresight to ask what he can do to improve his standing upon graduating from college. Now it's up to him to act so he can get the big, fat salary he wants.

7 surprising results when you pay your kids for chores

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One of our parenting goals is to rear frugal kids. Take care of their stuff. Spend wisely. Save for a rainy day.

Making the goal is easy, but implementing the goal? Definitely harder.

How our (current) allowance system works

Over the last couple of years, we've been experimenting with the best ways to teach our kids to manage money. What I've learned is that it's best to keep our system flexible as the kids mature and develop more skills. So we decided that our system will probably always be subject to change so we can accommodate their growth, but here's how our family's allowance system currently works:

Family Allowance System

  • Each child has a spiral notebook.
  • Every day, write down the jobs they need to complete. This includes things they need to do for music lessons or school. Add in things that help the entire household run more smoothly.
  • They check off each task as they complete it.
  • If they complete all their jobs, write in the standard pay rate. If they don't? Nada.
  • At the end of the week, total each day and pay them.
  • They must give 10 percent and save 10 percent in their savings account, but the rest is pretty much up to them.

It's not without challenges

I say that what they do with the rest of their earnings is “pretty much up to them” because sometimes we have to intervene a little bit. (See the shoe example below.) So that's a bit of a challenge, but there's other issues to tackle too. If you pay your kids for chores, do you have similar challenges to ours?

Challenges of paying your kids for chores

  • Finding the balance between having enough jobs for them to do, while still allowing plenty of play time and down time.
  • Deciding how much to pay them — enough so they're motivated, but not too much so they stop being hungry for more money-making opportunities. (But how much is that?)
  • Figuring out what they should be responsible to pay for themselves
  • Thinking through whether any restrictions should be placed on what they can buy.
  • Defining age-appropriate expectations.
  • Teaching a healthy relationship to money.

7 surprising results when you pay your kids for chores

This isn't a perfect system, but I wanted to share what surprised me. And you may notice similar things too.

1. They take better care of their stuff.

Boy taking care of his shoes

Our current system actually started when I decided the kids needed to buy their own tennis shoes for school.

When I bought their shoes, they didn't take care of them. To say the least, our kids' shoes weren't looking good at the end of the last school year. For the 2015-16 school year, it was time they bought their own shoes.

I figured out how much I would need to pay them each day in the summer so they would be able to pay $50 or so for a pair of tennis shoes and still have about $100 left over after their giving/saving money.

In the spirit of keepin' it real, I need to tell you that this was too overwhelming for my eight-year-old. She often didn't complete her jobs for the day, because she just wanted to play. She squeaked by with enough money for shoes, but had very little left over. She also doesn't seem as interested in caring for her shoes. Maybe she's not developmentally ready for this?

On the other hand, our 11-year-old takes GREAT care of his shoes. He rarely wears them outside just to play. Multiple times he's told me that he wants to make them last as long as possible.

2. They make some choices based on quality vs. quantity.

Girl shopping for shoes

Going back to the shoe example, I explained that I had learned that cheaper shoes weren't always the best value. However, they could choose their own shoes and spend as much (or as little) as they wanted. They bought more durable shoes.

Not all their purchases are as mindful yet, though.

3. They prioritize their own wants and spending.

Young girl washing car

If they ask for anything extra, I'll usually ask them to buy it.

If they really want something, I don't mind chipping in. But almost 100 percent of the time, they either didn't really want it enough in the first place or they easily make a plan to get it.

For example, my daughter's school book fair was last week. She didn't have quite enough money for the book she wanted, so she asked for extra jobs to earn more. She eagerly did enough jobs to earn enough to make up the difference.

4. They manage their time better.

Young boy procrastinating at piano

Slowly, I'm starting to see them plan their afternoons better. While they still have plenty of days where they play first, they've started working on their jobs first most days.

Too many times, they ran out of time before completing their jobs for the day. The only thing worse than not getting paid for doing nothing is to do some of the jobs and not get paid for it!

5. They look for entrepreneurial opportunities.

Teenaged boy mowing lawn

When our family complaint department gets complaints of low wages, I say I'll accept proposals for a raise for additional responsibilities. So far, I haven't received any proposals.

However, the kids are looking for opportunities to earn money from others.

I love to see their minds mull over the possibilities. And I love to discuss their ideas — How will you find customers? How much do they want/can they afford to pay you? Why would someone pay you when they could do it themselves?

6. This cuts down on conflict.

Brother and sister raking leaves together

In my opinion, the best thing that's come out of tying their chores to money is that it takes nagging out of the picture (almost – hehe).

At this point, they know they need to do their entire list to earn money. While I still get annoyed if I have to pick up their stuff or dry the dishes, I say to myself, “Their consequence for not putting their backpack away is not getting paid. A lecture is no longer included.”

Er, at least that's how I want to be. Nagging and lectures come so easily, that I'm still working on that. But I'm getting a lot better. I still whip out lectures when the situation calls for it, but I try to let consequences be the lecture in most situations.

7. As they manage their money, they're learning about sales tax, interest, prices, and bank deposits.

Boy opening savings account at bank with parents

Having money to save and spend naturally helps introduce financial concepts to them. They now know they need to consider sales tax in addition to the list price (and shipping if they are ordering online). They look at their bank statements and see the measly interest added to their accounts.

They also seem to be making a connection between their efforts to earn money and what something costs.

While we have a long way to go and we're still making a lot of mistakes, I am happy with the improvements this system has made to our home and their knowledge about money.

If you pay your kids for chores, what positive results have you noticed that surprised you? Do you face any challenges about allowances?

What sparked my investigation into medical identity theft

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When the oral surgeon recommended that our daughter have her wisdom teeth removed, we thought we knew what to expect both medically and financially. Morgan's two sisters underwent this procedure in the past, and we adopted a brave “Let's get this over with!” attitude as we scheduled her operation.

We expected the least painful part of the procedure to be the surgery bill because the girls are covered under both their parent's dental insurance. It was an unpleasant surprise to learn from the oral surgeon's billing manager, “After checking with your insurance, we estimate that your daughter's surgery will cost you about $1,200 out-of-pocket since she has exhausted nearly all of her benefits this year.”

Something was wrong!

It was late in the day when we discovered that our insurers were planning to deny benefits, and we wracked our brains that evening trying to imagine why, with double insurance, Morgan lacked coverage. Had we forgotten about treatments she received? Were we mistaken about dates when she received services? Could the insurance company records be incorrect? Or, might this be something more sinister, such as medical identity theft?

Medical identity theft

The Federal Trade Commission (FTC) explains that “A thief may use your name or health insurance numbers to see a doctor, get prescription drugs, file claims with your insurance provider, or get other care. If the thief's health information is mixed with yours, your treatment, insurance and payment records, and credit report may be affected.”

Medical identity theft's most damaging outcome occurs when a victim receives an incorrect therapy or medication due to the co-mingling of the victim's health history with that of the thief's. The financial consequences can be painful as well, including:

  1. Higher insurance premiums due to your apparent high benefit usage.
  2. Calls from debt collectors demanding payment for services you never received.
  3. Damage to your credit report that results in your inability to secure a loan or causes an employer to think twice about hiring you.
  4. Benefits denied until you pay your deductible.

Relief — a simple error brought to light

In our case, multiple phone calls to our daughter's dentist and both insurance companies finally shed light on why benefits appeared to be exhausted: Morgan's twin sister, Margaux, had received several dental treatments during the past year. When the oral surgeon's office called to verify coverage, two girls with the same date of birth and same first initial and last name were confused by the insurance representative who erroneously reported that Morgan's benefits were tapped out when she actually had more than enough available to cover the surgery.

The misunderstanding was corrected after less than an hour's work on the phone, but had this been a case of medical identity theft, we might have had to pay $1,200 for her procedure and may have struggled for months to clear up false patient records.

Having experienced the worry associated with a potential medical identity theft, and the relief when we discovered our daughter's health records were safe for now, we became vigilant about doing what we could to prevent and detect this type of crime.

[Read how you can prevent medical identity theft and protect your finances and health history: The identity theft no one is talking about.]

How to navigate relationships as your finances change

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Have you ever lost a close friend because your financial situations were too different? Maybe your friendship started when you were on similar financial ground, bonding over bowls of ramen noodles, for instance. But once out of college, your first job paid a lot more than theirs did; or perhaps, the shoe was on the other foot — you're still flipping burgers and your friend is working in the corporate world with a bigger paycheck.

Benjamin Franklin once cautioned:

“Beware of little expenses; a small leak will sink a great ship.”

But that's not the only ‘ship' finances can affect. As you improve your financial situation, you may find that your friendships change too.

While not every relationship (oops, I did it again!) can be saved, you can patch most holes in your friendships by being aware of common problems.

The financial icebergs in your relationships

Despite their best efforts, people often unconsciously compare themselves to others.

I am in better shape than he is.

The food in my shopping cart looks more healthy than that junk food over there!

I am saving more than the average, because I am naturally gifted with money management skills.

Need I say more?

Maybe you don't have these thoughts. If not, that's great! But seeing someone who is more successful in anything can trigger unpleasant — and unhealthy — emotions in your own mind.

Guilt, jealousy, and fear

When you see someone who is exercising more often than you do, does it make you feel guilty about your own lack of exercise?

When your friends tell you they just paid off their mortgage — before they turned 30! — do you feel a little … jealous?

If you see someone who is getting their life together, are you scared that you may lose their friendship?

So far we've covered, guilt, jealousy, and fear. But many more emotions can threaten your relationships. Especially where money is involved. It helps to remember that, if you have these emotions, your friends are sure to have similar emotions too.

Keep friendships afloat by going first

Sometimes it's hard to have an honest conversation with yourself, let alone anyone else.

I'll give you an example. That example of friends paying off their mortgage in their mid-20s? Guess whose friends they are? I'm not proud of my behavior, and it's embarrassing to admit this in a public forum, but I do want to show my human side.

When I found out my friends paid off their mortgage, I said, “Wow, that's great!”

But this is what I thought: That is just not fair that they already have their mortgage paid off. Why can't we have our mortgage paid off?

Lots of whining went on in my head. Embarrassing. And then I stopped whining and started undermining our own mortgage-paying progress.

That's what comparison does to people, folks. It helps NO ONE.

What does help? Honesty. Openness. Good communication.

And just being happy for the success of others. For my friends, paying off the mortgage was a significant accomplishment. Once I got beyond myself, I was really proud of them.

I also have to realize that, while I can be proud of them and wish that we too have paid off our mortgage, I can still be satisfied with our own progress. After all, our mortgage is almost 50 percent paid off. Could we have paid off more? Of course. I can use our friends' example to inspire us to work harder at paying it off. But it doesn't work to compare our results to theirs.

Throwing out a life preserver for your relationships

1. Be the person you want your friends to be. If you see your friends making good choices, applaud them. Great job paying off your student loan! Or, hey, I know it wasn't easy to stay at the office and eat your PB & J in the break room when everyone else went out for lunch.

2. Show your human side. Do you have friends who seem to make the best financial decision every time? Maybe you seem that way to your friends. If you are the first one to admit your mistakes and missteps, don't be surprised if your friends start to share their own financial disappointments.

3. Deepening your relationships by sharing your challenges can actually provide accountability. For example, if you know your friend is trying to keep her food budget in check, and she knows you are trying to build your savings account, you can encourage each other to keep meeting your goals. When you have built trust in your relationships, you won't be afraid to admit your mistakes, and you'll have the encouragement to keep going.

4. If you want to preserve your friendships, keep the lines of communication open. If your friends are feeling threatened by your financial success, just keep talking. Start small, stay open, and encourage your friends by noticing their financial successes.

5. If they ask for financial advice, give it humbly. If you want to give them a recommendation for a personal finance blog or a personal finance book, be careful how you present the opportunity. Again, consider how you would like to receive advice on one of your problem areas.

How to know it's time to abandon ship

Sometimes relationships don't succeed. Years ago, I had a great friend. We had so much in common: We talked every week and often exercised together. When she moved away, I naturally missed her friendship.

Throughout the years, we've kept up our friendship, even though our lives are different. However, I can see our paths continuing to diverge. We see each other less and less often, and I think it's just a matter of time before we become acquaintances.

An older, wiser friend once told me that people come into our lives for seasons and reasons. Sometimes — as callous as this may sound — friends serve their purpose and then move on.

How will you know?

  • Do you want to keep up the relationship?
  • Is it too stressful?
  • Do you feel like you are giving too much or making most of the effort?
  • Are you making progress with building trust or deepening communication?

Only you will know the answers to these questions and whether it is time to move on.

Every relationship has bumps, especially one in which you're not on equal financial footing. While it's okay to move on from challenging friendships, you also don't want to miss the chance to develop great friendships that can help both of you become better at handling your finances.

Have you maintained friendships with different finances? Share your experience and wisdom below!

Getting real (and serious) about your financial future

written by — published (updated ) 16 Comments

Have you ever wanted — really wanted — to change your financial situation but, when you tried, you felt like you were slogging through wet cement or trying to turn a huge ship around? You got exhausted and stopped, right?

Change is like that.

You can change — and you can also make it easier for yourself. But first, are you clear about why you want to change?

Clarify your reasons

I assume you have already spent some quiet time contemplating why you want to improve your financial situation.

Why do I say that?

Because if improving your financial situation were easy, you would have done it already. But you haven't, and I am guessing you haven't because your current lifestyle and habits are making it tougher than it should be. (Even though it's still not easy to change any way you slice it.)

There's no shame if you haven't been successful yet, by the way. Who is completely successful right out of the box when it comes to finances? It takes practice. It requires persistence and a willingness to educate yourself and even experiment sometimes.

Still, there's a reason you want to improve your finances — a goal of some sort. If you can make your goal crystal clear, it helps to keep you focused and, well, motivated. The “why” is your fuel.

What do you want to change?

After you decide why you want to change, consider what you want to change. You're focusing on your financial situation, but get laser-like and concentrate on what you want to accomplish first.

  • Do you want to increase your savings account balance?
  • Do you want to cut your spending?
  • Are you trying to simplify your life?
  • Have you decided to increase your income?

As I look at this list, I want to do all these things. But what do I want to do first? Pick one (or another option entirely). Now, how are you going to change?

Your budget — an easy way to identify problem areas

Problem areas usually start to surface when you change what you're doing. And when it comes to finances, an easy way to discover a problem area is to start reviewing your budget.

Your problem area(s) will be different, but how will you know there's a problem in the first place? Well, it's important to measure your progress. But another way to know is if it meets this criteria: It's getting in the way of what you want to change.

For example:

  • Are you spending a huge amount in rent because you want to?
  • Are you traveling to expensive places because you want to?
  • Are you eating out often at restaurants because you want to?

Is the reason you're spending money based on your own perceptions and the perceptions of others? In other words, look at what you are spending money on because you want to and what you are spending on because you think you have to.

Parts of your budget can also be greedy — consuming more of your money that it should. A standard to measure your own spending against is the Balanced Money Formula.

Change habits/lifestyle to decrease spending

If any of your budgeting categories appear bloated after comparing it to the Balanced Money Formula (or something else like your own budget method), tackle that bloat first. Cut back the portion sizes. This is easier said than done, but…

Even if your budget is in check, you can still find ways to improve your lifestyle.

To make this lifestyle change easiest, focus first on the areas where you spend the most. For me, that's our housing.

So I would ask myself these questions:

  • Why are we living in our current home?
  • Does our home choice coincide with our current lifestyle?
  • Could we live more cheaply elsewhere?
  • What about renting instead of owning?

Most likely, housing is probably your largest expense too. Making changes to where you live is a big deal, but sometimes this choice can catapult you into the next stage of personal finance.

What do I mean?

Finding the inspiration to change

If you read the recent article on Andrew and Amanda Argue, you learned that they lived in expensive downtown Miami before moving to less-expensive Orlando. Now they gallivant around the globe, most recently residing in Costa Rica, a place with a reasonable cost of living. And their monthly expenses? Around $2-2,500/month.

If you do move to a less expensive house or area, you may find that move indirectly affects other parts of your budget.

Here is a small example from my own life.

  • My first job out of college paid well for a recent graduate. After about three years, though, I got burned out from the schedule and took a different job that paid $5 less per hour. Everyone at this job earned less than my previous co-workers, and it showed. All of us ate out less, went on fewer vacations, wore less expensive clothing, among other things. I also couldn't save as much money, but I think the concept is still worth thinking about.
  • The Argues noted similar experiences when they moved away from downtown Miami and the expensive cars driven by their coworkers.

You may decide not to change your housing. That's fine, of course. But once you've decided what to change, you need to figure out how to change it.

Remember that wet cement I talked about earlier? You're just about to step in it…

Make changes easier to implement

We need to make this as easy as possible.

To make changes easier to implement, eliminate choices in other areas of your life. You have already decided where to focus your time and energy, right? By doing so, now you know where NOT to focus your time and energy.

Here are some examples of making life easier (assuming these areas are what you're NOT concentrating on):

  • If you don't enjoy taking minutes each morning to decide what to year, create a personal uniform, by wearing the same type of clothing every day. Or, wear the same five outfits each week.
  • Although we all have to eat, here are a few ideas for how to spend less time in the kitchen. Create a master shopping list. Meal plan the same meals every week, or if you want more variety, $5 Meal Plan can help. Amanda Argue spent anywhere from eight to 10 hours cooking on Sundays each week to make it easier to pack her lunch and eat at home. This prep time doesn't always have to take so many hours, but it could include cutting up vegetables, prepping lettuce, making green smoothie packets, making freezer meals, cooking once/eat twice by doubling the recipe and freezing the second, or making those salads-in-a-jar that I keep seeing on Pinterest and haven't made yet.
  • Note when you are short on time. Then, when you have extra time, prepare for those times when you have less margin in your life. For instance, maybe your very-busy times are certain times of the year (or certain times of the week or month). Our CPA and his wife work together in his office. Obviously, tax time is a very busy time for them. She compensates by putting meals in the freezer at the end of the year, so they have quick, healthy meals when they're working much longer hours when January comes around and they're in the thick of tax season.
  • Similarly, note when you are tired. If you're worn out on your commute home after a long day at work, you're vulnerable. That is NOT the time to decide what to eat when you get home. It's too easy to turn into a drive-thru and get some fast food. As Amanda Argue admits, “We ate at restaurants we didn't even like!” For me, gift-buying — if it's to be a thoughtful gift, anyway — must take place when I am feeling energetic. Otherwise, everyone gets cash or gift cards. Simply put, I spend more money for a gift that usually misses the mark.
  • If you're tired of turning down invites from friends because you need to rein in spending for entertainment, why not be the one to initiate the social plans? (Naturally, you'll choose a less expensive activity, right?)

If you want to make significant progress at turning your financial life around, it can really help to find strategies that make these changes easier. These ideas include reminding yourself why you want to change, evaluating your budget to identify where your budget's problem areas lie, deciding which parts of your lifestyle to change, and then — of course! — making those changes easier to implement.

With some focus, mindful spending, and hard work, you can make progress toward your goals.

Do you find it difficult to change your financial situation? Have you changed your lifestyle to make improving your financial situation easier? Tell us what helped you reach your goals in the comments!