The Incremental Life

build an extraordinary life one step at a time

How to Keep Black Friday from Sending You Into the Red

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Black Friday

This post is probably too late for anyone who’s already headed out the door into the crazy world of Black Friday shopping. If so, perhaps you can consider how to better prepare for next year’s Christmas shopping now.

I was somewhat shocked when I opened up the Wall Street Journal last Wednesday and read about how American debt was on the rise again. Much of this is due to the feeling among most Americans that the recession is over. Job prospects seem better and the housing market is in full recovery, so consumer spending and borrowing has been on the rise since the last quarter of 2007.

There was a bit of good news in the article because credit card debt has fallen $159.08 billion since 2007, but it’s on the rise again. If credit card debt follows the trend that mortgages, auto loans, and students loans have over the last 1 to 2 years, then you can expect Americans to to add several trillions in debt in the years to come. As a culture, we’re well on our way to surpassing the 2008 peak of $12.36 billion in total household debt.

Black Friday is a Two-Way Street

It’s no secret that many retailers depend on the Christmas shopping season for a large portion of their yearly profits. If you think about it, this obviously means that the vast majority of America’s household consumer debt is accumulated during this same season. Even though Black Friday spending was down last year, the average Black Friday shopper still spent $407.

How much of that spending do you think was planned? I don’t mean planned as in, “Hey, this look like a great gift as a great price. We should buy it!” By planned I mean the money for Black Friday purchases was in the budget and set aside in cash.

The truth is, most American’s can’t afford Black Friday.

Redefining Affordable

The word affordable in today’s culture is usually measured by whether we can make the monthly payments. We walk into a store, find a product we want to buy, try to get the best financing possible, and then see if we have enough wiggle room in the “budget” to cover the added drag on our income. Then, the next time we find a product we want, we simply repeat the process all over again.

Now consider that on Black Friday, not even this much forethought takes place. Such frenzied shopping only allows for a mad dash to the back of the store while delivering a well-placed elbow or two to grab the day’s prize. Then it’s an upstream swim to get to the cash registers and swipe whichever credit card hopefully has enough to cover the purchase. There’s no thought about the cost until the credit card bill comes in just after Christmas, completely ruining our festive mood.

I’ll admit that I once lived this way. Though I’ve never been out shopping on Black Friday, I can’t recall how many times I purchased something without any real thought. The only question that ever entered my head was the one I asked my wife: “Do we have enough money left at the end of the month to cover paying for this thing I want?”

There’s a better way to spend money.

Let’s redefine affordable to mean what it meant to our grandparents and great-grandparents. Do you realize that the contemporary concept of consumer credit wasn’t introduced to the world until 1950 when Diner’s Club came on the scene? How did people possibly get by?

Cash.

If you want to keep yourself out of the red on Black Friday, and any other day for that matter, you need to redefine the answer to “Can I afford this?” for yourself. Here are a few questions you should ask yourself:

Determining if You Can Afford to Make a Purchase

  1. Do you have the cash for the purchase? The first step of redefining affordability is pretty simple. If you don’t have cash on hand to cover the purchase, you can’t afford it. If you have to borrow a single dime or put a single penny on a credit card, you can’t afford to make the purchase. You’re choosing to not live within your means. You’re choosing instant gratification over wisdom.
  2. Have you planned ahead for the purchase? Is it part of your budget? Let’s say you want to buy a new TV. This isn’t to say you need to have a specific line item in your budget labeled “TV,” but at the very least you should have a line item labeled “Christmas purchases” or “gifts” AND it should have enough cash available to fully fund your TV purchase. If you haven’t budgeted for your purchase, you can’t afford it.
  3. Have you searched for the best deal? This time of year, there are dozens of deals available, but before handing over your hard-earned cash, make sure you’ve diligently searched for the best deal. Nowadays, you can often find deals as good or better online compared to the stores. In fact, if you search deep enough, you’ll probably find a better deal. This is true especially when you consider that many of the “doorbuster” deals on Black Friday are for relatively low-quality products, or for a very limited supply. It may be worth spending a bit more to get a better quality product. And if you find a better quality product that you don’t have enough cash for, just be patient and save up a little while longer.
  4. Will you have to “steal” money from somewhere else in your budget to make this purchase? Part of making sure that you really have the cash to afford your purchase is that you’ve specifically set the money aside. Don’t even consider using money that you’ve put aside for another purpose.
  5. Are you planning to take money from your emergency fund or long-term savings? Buying Christmas presents is NOT an emergency. Christmas comes around in twelve month intervals, so it’s not a surprise. You’ve had an entire year to plan and set money aside for your purchases. Please don’t be foolish and steal from your future either. Leave your hard-earned savings alone.

In the end, make sure that you don’t come to regret your purchases by sinking yourself further into debt, making an impulse purchase, or not searching for the best deal possible.

When you come to the realization that debt is like a great weight dragging you down and keeping you from reaching your financial goals, you’ll do all that you can to keep from adding to that debt. You’ll learn that delaying gratification and keeping yourself from making foolish purchases is far more satisfying in the end that the temporary pleasure your purchase might bring.

Here’s a handy flowchart to help you make a better decision.

Can-I-Afford-this-Purchase-Flowchart

Adapted image by Christian Ferrari

Jeff M. Miller (@jmarkmiller)
I’m Jeff M. Miller, and I help ordinary people who are stuck in a rut change their behaviors so they can be extraordinary. I’m an entrepreneur who retired from my full-time job in my early 40s to work from home. I’m a financial counselor, life coach, graphic designer, and passionate believer in helping others improve their lives a little more each day.
http://theincrementallife.com

The 6 Types of Insurance You MUST Have

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6 Types of Insurance

Like most new employees, I remember when I got my first job and just how little take home pay that job afforded me. Even if you knew the facts in your head, I’m sure you were probably shocked at how much of your paycheck was taken out for taxes and social security. I’ll bet you sometimes wondered if the job was worth what little you were able to deposit in the bank.

As I grew and learned more about how the world worked and how to be a responsible adult I realized the need for the many different types of insurance available to me and my family. Unlike taxes, I had a choice whether to purchase insurance or not, and how much coverage I purchased. Admittedly, there were some insurance purchases made over the years that we either avoided altogether or just purchased the cheapest option we could find so we could keep more money in our pockets.

In reality, we persuaded ourselves to be satisfied with little or nothing in terms of insurance coverage because we were deep in debt and barely making it from month to month at times. We were satisfied with “good enough” without realizing that what we had purchased was anything but sufficient for our needs. Bankruptcy and ruin was only a minor disaster away.

When, Not If, Disaster Strikes

Dave Ramsey teaches that the purpose of insurance is to transfer risk. Insurance is an added expense and is rarely exciting, but how does it feel knowing you have it when you need it? Insurance is often called “coverage” because it covers expensive financial outlays we could probably never afford on our own.

Please don’t fool yourself into thinking you can get by without these six different types of insurance. Don’t believe yourself immune or invincible from life’s unforeseen accidents and tragedies. Above all, don’t make those accidents and tragedies worse by not getting coverage now while you can.

6 Types of Insurance You MUST Have

  1. Health Insurance—Yes, this is a hot-button issue, and according to current law not something you can avoid purchasing without a penalty. I also understand that health insurance is expensive, and has become more expensive for many people over the last couple of years. Either way, you should get the best health insurance you can afford for yourself and your family. Also, check into health care sharing options that are exempt from Obamacare and see if any of them are a good fit for your family. (My family and I are members of Samaritan Ministries. We’ve received top-notch coverage and saved thousands of dollars!)
  2. Life Insurance—If you’re an adult, you need life insurance. If you have dependents who count on you for what you contribute to the monthly income, you should get ten times your yearly salary in Term Life Insurance coverage. That way, your loved ones can invest the insurance payment and live off of the interest. Even if you don’t have any dependents, you should at the very least have enough insurance to cover any unforgivable debts and your burial expenses.
  3. Homeowner’s/Renter’s Insurance—You’ve got stuff, and what happens if you stuff gets lost, damaged, or stolen? Even if you consider yourself a relatively non-materialistic person, simply replacing your basic necessities can get expensive quickly. Imagine having to replace your entire house!
  4. Auto Insurance—You should never drive around without auto coverage. You should be sure you have adequate liability coverage at the very least (the insurance portion that pays for the other person’s damages). Unless you’re driving an old clunker that you can easily replace with cash on hand, you should have adequate collision coverage as well (the insurance portion that pays for damages to your car).
  5. Disability Insurance—Try to get disability insurance through an employer or some sort of trade organization. If it’s not available, you need to look into Own-Occupation Disability. Think it through and ask yourself what would happen if you were injured in some way to make it impossible to adequately perform your occupation, even temporarily. How would you get by? Where would your income come from? You need disability to help bridge the gap when you’re unable to work.
  6. Long-Term Care Insurance—You don’t need to purchase this type of insurance until you’re 60 years old, but you need to have it on your radar. Almost 70% of people over the age of 65 will need at least a few months of long-term care during their lifetime. Do about 10 minutes of research and you’ll soon learn that long-term care can costs thousand per month!

For all these types of insurance, unless you’ve got a local broker you know and trust to shop around and find you the absolute best rates, I recommend you use one of Dave Ramsey’s Endorsed Local Providers.

Don’t put off getting the insurance coverage you need. You’ll never regret a single penny paid when the coverage is there when, not if, you need it.

Jeff M. Miller (@jmarkmiller)
I’m Jeff M. Miller, and I help ordinary people who are stuck in a rut change their behaviors so they can be extraordinary. I’m an entrepreneur who retired from my full-time job in my early 40s to work from home. I’m a financial counselor, life coach, graphic designer, and passionate believer in helping others improve their lives a little more each day.
http://theincrementallife.com

Why You Should Allow Yourself Indulgences

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Indulgences

Behavior Change Needs a Relief Valve

When you’re working hard to change your behaviors and change your life it’s easy to get discouraged and allow yourself to get off track. One of the best ways you can help yourself is to reward yourself for good behavior and allow yourself some indulgences.

I like to look at indulgences as a pressure relief valve of sorts. When you’re struggling to change your life, you’re often making potentially extreme shifts in your behavior—like a cigarette smoker going cold turkey. Even if you’re trying to progress through small, incremental changes, you’re working against years of ingrained habits, and that’s a hard thing.

Though it applies to any significant life change, the two areas of life that come to mind first for me are getting out of debt and losing weight. When my wife and I were working our way out of debt, we budgeted blow money for ourselves as a way to have some fun and relieve stress during the long months of cutting our spending and getting on a strict budget. Our allotted blow money was, and still is, an intentional part of our budget.

When I’m in weight-loss mode I track my calories every day, but I allow myself a once-per-week splurge day. I indulge myself and eat anything I want—as long as I’ve behaved myself all week and reached my minimum weight-loss goal. When I hit hard days where my cravings almost get the best of me, I remind myself that I’ll be able to indulge in a few days if I can just delay my gratification a little while longer.

When you’re in the middle of behavior change, it’s important to set yourself up for success. One of the ways you can do that is to reward yourself, but you’ve got to choose your indulgences wisely.

6 Tips for Choosing Good Indulgences

  1. Make your indulgence something you look forward to. Though you may not be able to completely replace what you’re getting rid of in your life, make your indulgence a true indulgence, not a pale substitute.
  2. Your indulgence should be practiced with moderation. Make sure that your indulgence doesn’t set you back in some way. For instance, if you allow yourself $100 in blow money each month, then that’s a $100 you can’t put toward debt. Choose your indulgence carefully. It should go without saying that an alcoholic shouldn’t make a glass of whiskey their indulgence. Find a healthy replacement!
  3. Remember, your indulgence is both a release and a reward. An indulgence is meant to help relieve the pressure inherent in changing your life, but you can’t let it happen just because it’s on your schedule or because you’re in the mood. Make sure you earn your indulgence.
  4. An indulgence is an exception, not the rule. Your indulgence isn’t a reward if it happens every day. Make the indulgence both special and relatively infrequent—about once a week at the most.
  5. Indulgences should be planned. If your indulgence is blow money, it has to be part of the budget. If your indulgence is something similar to a diet splurge day, it must be something that happens only at certain times under certain conditions.
  6. Behave yourself at all times. An indulgence is never an excuse for immoral, dangerous, unhealthy, or unethical behavior.

How do you reward yourself for good behavior? Share your favorite indulgences in the comments. Keep it family-friendly! 🙂

Indulgences-Pin

Jeff M. Miller (@jmarkmiller)
I’m Jeff M. Miller, and I help ordinary people who are stuck in a rut change their behaviors so they can be extraordinary. I’m an entrepreneur who retired from my full-time job in my early 40s to work from home. I’m a financial counselor, life coach, graphic designer, and passionate believer in helping others improve their lives a little more each day.
http://theincrementallife.com

Debt Free Principles Apply to Your Business Too!

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Debt Free Principles

It’s no secret by now that I’m a huge Dave Ramsey fan. I listen to his radio show via podcast several days a week, and I’m always a bit shocked when someone calls in who is familiar with Dave’s Financial Peace principles, but yet they want to know whether or not they should go into debt for business purchases.

Seriously?

What makes us believe that business debt different is from personal debt, especially for entrepreneurs? Taking on debt is simply increasing risk, and the more debt you take on the more at-risk you place your company. If your company fails, who is the bank coming after? You!

If you want to start a business and don’t have the cash you need to get started, then you’re honestly not ready to open your business. Consider that every dollar you borrow is an extra dollar of risk you’re place upon your nascent business. Risk is always high in any new business venture, so why increase that risk exponentially by borrowing money that you might not be able to pay back if you don’t make the profits you’re hoping for?

A high number of startups fail within the first year—somewhere between 75-90%. Many of those business failed because of a combination of lack of profits and high overhead in the form of loans and lines of credit. When they failed, it left the former business owners in bondage to huge debts for years to come.

The sad fact is that some of these businesses could have survived and become profitable if only they hadn’t had monthly debt payments draining them on a regular basis.

So how can you get your business off the ground without shackling yourself with lots of debt? Here are some ideas.

  • Rent until you can pay cash. Part of your business dream is to own your own building, but there’s no reason to jump into a mortgage right away. You shouldn’t even consider purchasing a building until you’ve had several months, or even years of profitability. As your business begins to turn a profit, start setting aside the money you’ll need to pay cash for your brick-and-mortar needs.
  • Start small. Young couples starting out often go deep into debt because they want to live a lifestyle as good as or better than their parents right away, failing to recognize that it took their parents 20-30 years to get where they are. Don’t make the same mistake with your business and start comparing your little startup with the big boys down the street. Be wise, work hard, and give your business time to grow.
  • Buy used. Who says you need to buy brand new equipment and furniture? It doesn’t matter what type of business you’re trying to start—from a bakery or an online startup—it’s almost certain you can find quality used equipment somewhere. Ask around, search on Craigslist, visit garage and estate sales. Above all, swallow your pride and save a ton of cash by avoiding pricey new equipment.
  • Hire out special needs. Similar to renting versus buying a building, there are special needs that will periodically arise that will tempt you to make a major purchase. Consider whether you could simply outsource your special need instead of purchasing the equipment and goods necessary to get the job done in house. If it’s a recurring need, you can possibly save money in the long run by doing it yourself, but if your need is only periodic it’s probably worth it to hire the work out. As always, shop around and read reviews to get the highest quality for the best price.
  • Work longer hours. Most entrepreneurs already know that launching and growing a startup necessitates working many hours beyond the standard 40-hour work week. If your business gets to the point where you think you may need to bring on additional staff, consider whether you might be better off working a bit longer yourself, or asking existing staff if anyone wants to pick up some extra work for additional income.
  • Say no to credit. Learn to pay cash for everything. Just don’t allow yourself or your business to go down the road of accumulating debt.
  • Don’t buy stuff you don’t need. This one should be a no-brainer, but sometimes our emotions and desires get the better of us and we make purchases that are simply devoid of logic. Whether it’s because we saw something “on sale” and told ourselves it’s a great deal, or we convince ourselves that buying some shiny new gadget is going to take our business to the next level, we need to be careful and determine if there’s a real need for our purchases. A simple rule of thumb is to let  needs bubble up from within your business and then determine what you should purchase rather than buying something and figuring out after the fact how to justify that purchase as a need.

One possible exception to the above tips is a mortgage payment. Why? Because at least you are taking out a loan for an appreciable asset. However, you should still try to avoid it if possible, or at the least obtain a mortgage with the shortest term and pay it off as quickly as possible.

If you’re a business owner and have already accumulated debt, don’t despair. Financial Peace principles can still help you get your life and business back on track. Check out How the Debt Snowball Method Works.

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Jeff M. Miller (@jmarkmiller)
I’m Jeff M. Miller, and I help ordinary people who are stuck in a rut change their behaviors so they can be extraordinary. I’m an entrepreneur who retired from my full-time job in my early 40s to work from home. I’m a financial counselor, life coach, graphic designer, and passionate believer in helping others improve their lives a little more each day.
http://theincrementallife.com