I stink at rock climbing, or, spending money wisely

May 12, 2009

I have horrible balance. I recently recovered from a broken foot – my second broken foot in the past two years – and decided that I needed to pick up an activity to improve my balance. Enter rock climbing.

My friends Richard and Rose introduced me to the sport not too long ago, and with their encouragement, I became a member at an indoor climbing gym. The problem? Climbing equipment is expensive. Very expensive. To the point where I considered jerry-rigging the equipment myself (before common sense took hold).

I ended up buying my equipment at REI. The cost? 40% more than prices I found on the internet. But being financially saavy doesn’t mean that you should always go for the cheaper price. Service matters. Quality matters. And in this case, a great return policy really matters.

Climbers require shoes that cause their toes to curl. The idea behind this is that unfilled portions of the shoe won’t give them the ability to support themselves. Thus, smaller shoes are better. A climber I spoke to yesterday wore shoes 2 full sizes down from his regular fit.

So I bought a pair at REI at the 40% higher price. But after climbing in them one day, I decided that the shoes were too small for me. I placed the shoes back in the box – still covered in chalk – and headed back to return them.

“Why are you returning the shoes?” the attractive saleswoman asked.

“They seemed too small. Can I have a half-size bigger?” I said.

“Sure”, she answered.

And that was it. I went climbing later on and was completely satisfied. A 40% increase gets you great customer service, an excellent return policy, and guaranteed satisfaction. In a parallel universe where I purchased the shoes online, at worst I would’ve ended up keeping them due to a terrible return policy, and at best would ship the shoes back and wait a week before I could climb again. Too many companies (and people) put too much emphasis on cost. But if you evaluate purchases based on value, you might walk away even happier.

This is not me. Taken from Wikipedia.org

This is not me. Taken from Wikipedia.org

Invest in Your Life… Spend Less, Be Happier.

April 22, 2009

twentySomething #1: “Hey looks like there’s still a lot of good snow, but it probably won’t last much longer so we’re thinking of going on one last snowboarding trip for a weekend before the season ends.  You in?  The snow will be great, and so will the weather.”
twentySomething #2: “That sounds great! Count me in!”

twentySomething #2 is a typical present-day young professional, nervous about his financial security due to the current economic situation.  He has seen his portfolio plummet in the past year and is unsure about the stability of his current job.  All of his fears and insecurities come to a head one week before the snowboarding trip and although snowboarding is one of his favorite hobbies, he decides, regretfully, that he absolutely must back out of this trip and save the money he would have spent.  Snowboarding weekend rolls around, and he finds himself sitting at home thinking about how much he wishes he was having fun in the snow with his friends.

Then, a casual friend of his calls him up and asks him to go bar hopping that night.  “I haven’t seen him in a month since the last time we had some drinks… I should go,” twentySomething #2 thinks to himself.  Feeling down that he isn’t out snowboarding, he agrees to go out and ends up spending $100 on drinks and greasy late night food, resulting in a wasted weekend recovering from the throbbing hangover the morning after…. realizing he probably should have just gone snowboarding.   Though he had fun during his night out, he probably wouldn’t have spent that much more money snowboarding  (if at all), and he would have ended with a much happier weekend doing something he loves much more with close friends.

Does this situation sound familiar to you? From my observations, this type of situation is not uncommon.

These days, with all the attention drawn towards the recession, and saving money, resisting splurges… people are scrambling to eliminate expenses left and right. During this process, it is easy to put aside what makes you happy for the sake of saving a little money before thinking these decisions through.  That means, it is also just as easy to end up spending some money for some instant (and probably short lived) gratification.  I’ve realized that it is beneficial to take a little time and come up with some guidelines/a plan for “investing” in myself and my happiness.    Therefore, in a tight money situation, I’d be able to think rationally about where to spend my money to maximize lasting gratification.  This is a good time to ask yourself, Are you skimping too much?

In the aforementioned article, Personal Finance columnist Liz Pulliam Weston writes about finding a balance so that you don’t find yourself spending money on things you’ll regret later but at the same time you don’t look back regretfully on missed opportunities. I’ll leave it up to you to read the article (it seems to generally be geared towards a slightly older crowd), but I did want to highlight the a few of the questions she suggests thinking about:

  • What would you do in a day, from the time you get up until the time you go to sleep? Account for every hour.
  • Whom would you spend time with?
  • What interests or passions would you explore?

After figuring out some answers to such questions, it’ll be easier to make commitments that maximize happiness and reduce guilt.  This is what I have realized.  At this age, we enjoy things like going out for drinks, for coffee, for meals.  A friend calls us up on a Friday night to go downtown, and we’ll end up going out and spending $50 before we really have a chance to realize how doing this weekend after weekend really adds up.  And really, how much happier are we after a month and -$200 later?    However, these small occasions are needed to maintain a healthy and happy twentySomething lifestyle.   We’ve all got to get out and let loose every once in awhile.  So I’ve learned to make to make these decisions more consciously.

I give myself a “budget” for these type of outings and keep a mental tab of how often I’ve been out recently and how much I’ve been spending. If a friend asks me out for drinks, and I haven’t been out in awhile/I haven’t spent much money out, then I’ll go out and enjoy myself.  Otherwise, I’ll politely decline… and feel okay about it because I had just gone out and enjoyed myself not too long ago.  It probably isn’t a decision I’ll look back on and regret.  As someone who naturally hates the thought of missing out on anything, I got to a point where I was stretching myself much too thin until I learned that nobody expects me to say yes all the time and that’s okay.  Additionally, when the chance to go on a well deserved luxurious vacation with close friends come up shortly after,  I’ll be able to commit wholeheartedly because it is within the guidelines I’ve set for myself.  I’ll know that it is an experience I truly want to take part in, with those that matter to me most.  And, I’ll have that much more money saved up towards it.

On a smaller scale, I’ve also learned to be conscious of smaller expenses that sneak up on you and add up such as going to the vending machine at work (guilty at least two/three times a month), getting Starbucks (3 coffees a week = $12 a week, or $48 a month or $576 a year!)… you get the idea.  These are things you don’t think twice about because it’s just a couple dollars at a time, but they sure do add up.  The main idea is to make money decisions more consciously so that you don’t make a mistake and find yourself eliminating random costs last minute because you’re freaking out.

Much like the way I maintain my financial portfolio, I also maintain a life portfolio. I figure out what’s important to me, what I want to do, what makes me happiest.  I try to diversify my time, money, effort into work, fun, personal enrichment, etc. similarly to the way I try to diversify my money in stocks, funds, and bonds.  I don’t hastily jump into one stock without thinking it through… and I accept small losses here and there when things don’t go the way I envision.  I make mistakes from time to time.  But I have faith that sticking with this strategy, I still come out stronger and happier than ever while wasting less time stressing out about things I don’t need to be.  I encourage you to take a little time to similarly evaluate your life and happiness too, especially if you find yourself in a bit of a bind when it comes to time and money. :)

– debs.

p.s.  If you have a lot of debt, or have little to no savings, I’m not in any way suggesting that you risk going broke.  In this case, you’ll probably want to make paying off debt and saving a high priority in your goals/guidelines and refer to “Savings, Investments, Retirement… Where Do I Start?”

Edit: Here is another related article I stumbled across right after I wrote this entire post: “Oversaving, a Burden for Our Times

Savings, Investments, Retirement… Where Do I Start?

April 15, 2009

We here at the Roaring twentySomethings unite strongly under the simple goal of enjoying life.  We don’t lose sight of the importance of maintaining a high quality of life, and therefore do not let work manipulate the qualities of our lives solely based on the fact that our jobs fund the fun in our lives.  This does not mean we lack motivation when it comes to our careers and achieving a successful future- it is true that sometimes sacrifices need to be made and extra hours need to be put into work in order to stay on top of your game – but it does mean that we are driven by the desire to live life rather than the notion of working hard and earning money so that maybe we can live life.

As roaring twenty-somethings, we are not yet overflowing with the extra cash, so we’ve had to look beyond relying on unnecessary extra overtime work just to ensure our financial security in the present and future.  I’d like to share a few basic things I first learned when I became interested in saving and the only account I had was a checking account.  Just because you are a “poor college student,” or were one not too long ago, doesn’t mean you are incapable of being financially well off.  A little known secret is that becoming wealthy has just as much, or even more, to do with how you manage your money as it does how much you have or make.

Open a high yield savings account or CD – even though these high yield accounts aren’t as “high yield” nowadays as they once were, it is still much better than letting your money sit in a checking account and not getting anything from it at all.  A CD generally has a higher interest rate – but the money you put in a CD cannot be withdrawn penalty free for a period of time until it matures.  MyMoneyBlog has a great list of the best savings accounts that is constantly kept up to date.

Start saving for retirement – Open an individual retirement account.  There are two options here – a Traditional IRA and a Roth IRA.  I generally think that a Roth IRA is more beneficial and  “Why You Need a Roth IRA” on Kiplinger’s is a must read article that highlights all the benefits of having a Roth IRA.  Just the fact that it is tax free growth alone is reason enough to look into it.  The article includes some rough calculations to show how you will come out with more money in a Roth IRA, and how a Roth IRA also doubles as a great emergency fund because you will not be penalized for withdrawing money you put into a Roth IRA account (just the interest). It is also a great account to have when saving up for your first house because a Roth has special exceptions set aside for that. The last thing I want to highlight regarding the Roth IRA is to start early. I assume that those who are reading this are highly motivated and will one day earn a respectable salary.  There is a salary cap on those who qualify for a Roth IRA and when you’ve reached that salary- you’ll be glad you have some money put in a Roth IRA come retirement.  A 401(k) is also another great way to save up for retirement – and sometimes this includes free money from your company. We will expand on this in a future discussion on workplace benefits.

Investments – Once you have a solid foundation that your savings are built upon, looking into investing is a great step to take.  There are ways to invest conservatively – your money will grow at a slower pace but there is less risk. And there are ways to be aggressive and accept the larger risk for a chance at a greater return.  However, a few basic points to start you out here is to know that: 1) the younger you are, the better it is a time to invest in stocks (given that you’ve got the money to do this) 2) Bonds are good for short term investments 3) Mutual/Index funds are generally good for long term investments.  Exchange Traded Funds (ETFs) are somewhere in between stocks and mutual funds.  To learn more, I highly recommend checking out the Morningstar Classroom.  “Morningstar” may become more familiar to you as you research investment options – and that is because Morningstar has created a system for rating mutual funds that is typically widely taken into consideration when choosing a fund to invest in.

If you have dug yourself in bit of a ditch when it comes to managing your money, I recommend first paying off your debt, opening up a Roth IRA if you’re working, start putting some money into a savings account, and when that is all stabilized – look further into investing.  No matter where you are, start early. Do not use the fact that you’re still young and all young people have the same money woes as you as an excuse to be lazy.  If I haven’t convinced you enough yet, maybe the power of Compound Interest will.  Take a look at the following excerpt from another Kiplinger article that illustrates this point:

Consider this: Amy, a 22-year-old college graduate, saves $300 per month into an account earning 10% per year for six years. (That’s the average annual return of the stock market over time.) Then at age 28, she starts a family and decides to stay home with the children full time. By then, Amy had kicked in $21,600 of her own money. But even if she doesn’t contribute another cent ever, her money would grow to a million bucks by the time she turned 65.

Compare that to Jason, who put off saving until he was 31. He’s still young enough that becoming a millionaire is within reach, but it will be tougher. Jason would have to contribute the same $300 a month for the next 34 years to earn $1 million by age 65. Although Amy invested less money out-of-pocket — $21,600 over six years vs. Jason’s $126,000 over 34 years — her money had more time to grow, or compound.

Another little equation that you might find useful is the “Rule of 72”:

72/interest rate = number of years it will take
for your money to double
You have money in an account earning roughly
8% a year.
72/8 = 9
It will take 9 years for that money to double.

Lastly make use of wonderful, FREE money management resources that are readily available to you nowadays.  Services such as Mint.com and Yodlee automatically link up to all your accounts and update them automatically for you so you can log into your account and quickly get a quick snapshot of how you’re doing.  They have tools built in to set goals and alerts; charts to let you see what you’re spending money on and how your investments are doing.  Kiplingers has a lot of useful tools and calculators too.  Best of all, these resources are FREE!  Take advantage of them!

I know times are tough money-wise these days, and it is always wise to proceed with caution.  However, with a little patience and careful planning you will be ahead of the game when the market bounces back.  It is always unpredictable so I understand that things like the concept of Compound Interest may seem a bit inapplicable right now.  However, there are still savings account out there that will earn you interest.  There are countless numbers of resources for you to turn to in your research, and I really encourage you to start now.  Happy saving!

– debs.