I Challenge You to be Awesome in 2016

Hidden GemPhoto: Josiah William Gordon

2015 comes to  a close and it is the first day to 2016. A new year always brings excitement and fear all at once.

I’m excited because a new year makes you think of new beginnings and letting go of the past. We start setting goals about getting stronger and eating healthier, and we all feel like we can get a jump start on the new year.

One thing is that only about 8% of people are successful in achieving their New Year’s Resolution. I feel that one of the reasons is that people who look to goal setting are really setting long term tasks to finish other than actually setting long term goals. What’s the difference between a long term task and a long term goal?

A long term task is something that you can give a breath of relief when it’s done. An example is paying off your credit card debt. Tasks are not motivating to your soul, and you don’t find any joy in the journey. You will ultimately find relief from completing the project.

A long term goal on another hand is something that you will always strive to achieve, and in the process it will give you joy while on the road to attaining it. For instance, instead of paying off your debt, the ultimate goal is to be financially free, or not having to worry about money in retirement. Goals are activities where it causes you to continually grow.

Margee Kerr Ph.D. wrote an article on Psychology today on “Forget New Year’s Resolutions” says that saying that you might want to focus on why you were awesome and what you feared in 2015 to jump start 2015.

Here is a list of questions from her article. I challenge you to be awesome this year.

Margee Kerr

Personal Finance in Paradise – Veteran’s Day – How You Handle Your Money: Mindset

How mental accounting affects your spending

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It’s Veteran’s day!

I want to thank all the veterans who have served our country. Thank you for being able to protect the freedom we take for granted and are able to take part of today.

Let’s talk about how we label money affects our buying decisions as some of us shop online and at the stores.

The Scenario

Let’s say this morning you wake up and start the day off great with a good breakfast, and you even got to sleep in. Then you go online and start shopping at your favorite clothing store site. You see a great looking shirt that you think you would look great in, and you buy the shirt on credit. For the moment, it makes you happy, and you don’t give it a second thought because you can just pay it off later.

Later in the day, you go on a hike with a few friends and you have a blast being in the sun. On the way home, you see your favorite coffee shop, and you haven’t had anything to eat since breakfast. You remember that they the best coffee cake. You and your friends decide to go take a peak. Once inside, you find that your favorite barista is working. You ask him to make a large iced caramel macchiato. You have a few laughs with the barista, and he gets your name wrong again on your cup. You pull out your credit card again, and you notice you have a dollar and some change in your wallet. Feeling generous, you place the money in the tip container as you leave.

Then in the evening, you take it easy and you go to a movie with your friends. You have a great day celebrating veterans, sharing some laughs, and enjoying life. Then later in the month you get your credit card statement, and you are confused on why you spent so much. What happened?

Mental Accounting

Why did we decide to go out and spend more money than we wanted? We’ve fallen victim to mental accounting. It is a concept where we treat dollars differently depending on where it comes from and how we have labeled the use of that money. The difference is that when we pay for merchandise with cash or with checks we see immediate consequences. The obvious answer is that that we have less money to spend.

We place less value on money we put on credit cards because we do not see the immediate consequences. At the same time, we don’t see that buying merchandise on credit is more expensive because of the interest that gets charged when we use the card.

Small Amounts of Money

People who have harder time holding onto small amounts of money, like putting small amounts into tip jars, have a harder time saving money. It’s because that the money we have wasn’t labeled for anything important. I”m not saying that you shouldn’t be grateful and tip your barista, it’s that if money isn’t labeled for a specific use, we will find a way to spend it.

Takeaway

To get around mental accounting, place money in accounts that are labeled for a specific purpose. For instance, a savings account, which was marked for the down payment of a house. We would be placing a higher value on the account because it limits what we are willing to do with the money.

Pre-spend money before you have the chance to spend it yourself. Let me say it this way, have your money sent over to a savings account, or investment account before you have a chance to see it in your account. Psychologically it’s much easier to set your money aside this way than by writing a check to your savings or investment account.

Track your spending at the end of the day, and keep a list of your expenses.

Have a great veteran’s day. Please feel free to comment, and let me know if there’s anything you want me to talk about.

Welcome to Personal Finance in Paradise – What This Site is About

Welcome to part two of my financial adventure. I’ve been wanting to heart a blog and put my thoughts out into the world so that people can learn from what I have been learning. I feel that people can learn from my mistakes and also from my victories along the journey.

I hope you get to share some thoughts with me along the way, and that we are able to learn from each other.

I’m excited to be able to go on this journey with you, and that we are able to be driven to grow your net worth, destroyed debt, be able to construct good habits around money, and change your mindset along the way to become prosperous during the journey.

I look forward to hearing from you. Thanks for joining me