Tuesday, July 26, 2011

One way to control spending: Discipline - DELAYED GRATIFICATION

My coach, Al Hollingsworth, defined DISCIPLINE as DELAYED GRATIFICATION. In the area of finances, this means that you postpone any plan to satisfy your desire to buy for the sake of the future. Example, you want to buy a brand new TV but your existing TV set is still working well. Because you want to discipline yourself, you delay the plan to buy a brand new one and save the money for better use.

Discipline works
I admire one of my staff in the office. She likes to buy a brand new Blackberry. Mind you, she has a Nokia touch screen cellphone now. Her dream is to replace it with a Blackberry, latest model. Today she told me she has decided that she will buy the Blackberry in CASH by saving for it. She can get the Blackberry now by just one swipe of her credit card. But she is wise and will stick with her plan to save first and buy later. Isn't that discipline?

Keeping Track of your money
Another way to enforce discipline in your finances is by keeping track of how you spend your money on a daily basis. This is hard work mind you. I did this for a month with the help of my wife. Everyday, I list down our expenses on a small notebook that I always carry with me. Every centavo that I spent was recorded. The simple exercise is enough to make me reconsider any expense I make. It made me think twice before I decide to buy anything. Remember, it is a matter of discipline-delayed gratification.

This exercise gave me an idea and I saw a pattern of where my money went. It gave me control over my expenses. One example was my phone bill. I found out that my cellphone bill way too high from my budget. You know what I did? I saved money by cutting my non-essential calls. It worked for me.

The tracking report also gave me valuable information, which I used to prepare my monthly budget.

Why not try it? I promise you, it will be an eye opener. You'll be surprise where your money goes.

To your debt-free life,

P.S. If you want a sample of an expense tracking notebook, I would love to give you one. write me a comment and your email addy and I will send you one.

Photo credits:

Tuesday, July 12, 2011

10 Reasons Why He is Cancelling His Credit Card

I came across this very good article, "10 Reasons I'm cancelling My Credit Card" by Brett Arends in Finance.Yahoo.com. I can't help but post it here. I made it a point to post only my own experience on being debt-free. However, I would like to give way to Brett's experience because I am sure we can all benefit from it.
Here are 10 reasons why:
1. I'll spend less. A variety of scientific studies, such as this one at the Massachusetts Institute of Technology, have found that people are simply willing to spend more when they use credit cards than they do when they use cash. It's common sense. No wonder our national obsession with shopping really took off when credit cards came on the scene. And I've found it personally. Last fall and winter, when I went for an extended period without carrying any plastic at all, my day-to-day spending rate absolutely collapsed.
2. The card bonuses aren't worth it. A lot of people use their credit cards for the frequent flyer miles or other bonuses. But many of these deals are getting less valuable. Airlines are cutting back on flyer programs. And how good were these programs anyway? Schwark Satyavolu, co-founder of BillShrink, says that if you are really smart, dedicated and targeted about getting and using your bonuses, you can sometimes get very good deals. But overall, he says, deals are getting less valuable, and are increasingly focused on cards with annual fees. Most of us are doing very well if we manage to get back 2% on our cards. Compared to the extra amount you spend, that's chicken feed.
3. Cash makes budgeting easy. Personal financial planners encourage clients to draw up budgets. It's great advice, in theory anyway. But I have a confession: I'm just not that organized. Nor, I suspect, are lots of people. But if I go to the bank once a week and draw out a certain amount of cash, it makes the budgeting automatic. Easy.
Money clip (Thinkstock)
4. Less worry about identity theft. Do you worry about handing out your card or details every time you make a purchase? I do. The banks and online merchants work hard to maintain security, but the crooks are just as inventive. And there are plenty of them. People suffer identity theft all the time. Using cash cuts down on the risk.
5. Fewer impulse purchases. One way credit cards let us spend more is that they make it easier to buy things that we don't need, and may not even want, on the spur of the moment. And the stores are set up to encourage it they rely on sophisticated marketing science to manipulate you into reaching into your wallet. If you don't have the money on you, you can't splurge. If you really want the item in question, you can come back and buy it tomorrow. Chances are you won't.
6. I can still shop online. Just because I'm using cash doesn't bar me completely from getting online deals. Yes, I'll have to bend a principle, but I won't have to break it: I can buy a prepaid card in a store and charge it up with cash. Okay, so it's plastic, but I have to pay for it in advance, with cash, and it will have a limit. (On the same principle, I can also use a prepaid card as an emergency backup if I travel).
7. Say goodbye to debt. I pay my cards off in full every month, but a lot of people don't. They use their cards to borrow, and it's a financial disaster. We've seen what the overuse of debt has done to our economy. According to Bankrate.com, the average card charges you 14% interest. Many charge a lot more. And you're paying with after-tax dollars. As an illustration, you'd have to earn at least 16.5% on the stock market (before long-term capital gains tax of 15%) just to keep up. Good luck with that. Says New York University's Stern School of Business, since 1928, U.S. stocks have produced an average compound return of just 9.7%. And Bankrate calculates that someone who buys a $1,000 item on a credit card charging 14% interest, and merely pays 2% of the balance each month, will end up paying $1,750 for that item. It will take 110 months to pay off the bill.
8. Privacy. Credit cards are great for tracking people. They tell you exactly what you bought, where and when. (Throw in all the data tracked by your smartphone, your iPad and so on, and we're basically rats scurrying around in a Perspex cage while marketing strategists study our every move). I have to confess I hate it. And I love the privacy and anonymity of cash. Last week I meet my wife for lunch. But I stopped by my bank first to take out cash. It's none of American Express' business.
9. Cash rebuilds the link between what I earn and what I spend. I remember back when I got my first job: I started calculating how much everything I spent cost in terms of hours worked. That new CD cost two hours of my time, and so on. It was a good discipline. Credit cards weaken the link. It's no wonder that the rise in plastic has resulted in an explosion in the numbers living beyond their means. (Is it also a coincidence that the rise of the credit card has also coincided with the collapse in unions? Before VISA, if you wanted a fancier car or vacation next year, you needed a pay raise).
10. Cash helps people I want to help. The money goes to the merchant and his suppliers. When I go into my local credit union to cash a check, I'm keeping a couple of local tellers in work. Credit cards? I'm helping finance bank executives, marketing teams and call centers in India. I am sure they are all fine people, and I wish them well. But if I had to choose, and I do, I would rather help my local merchants and credit union staff.
I agree with Brett specially about his view that the banks and merchants are going towards accepting credit card payments ONLY and not cash. This makes the banking system mighty by having the ability to pore into every transaction we make using our credit card and therefore our personal lives are at stake too.
As for me, I will go the way that Brett is going... only cash!

To your debt-free life,

Monday, July 11, 2011

You Spend more when You're Emotionally Empty

Manila has a lot of Shopping Malls, big malls. The biggest so far is SM's Mall of Asia located in Pasay City. In Quezon City, where I live, we have many big and newer malls: the expanded SM City North, the new Trinoma Mall, and the Gateway Mall at the Araneta Center in Cubao, Quezon City (shown below) among others.

World Class Shopping
People I know from the US and even in Canada envy our malls. Last week, I was in Guam on a business trip. Their biggest mall is The Micronesia Mall, owned by our very own Lucio Tan. They say that half of Guam is now owned by Mr. Tan. But you know what? Their Micronesia Mall is nothing compared to our malls.

But here's the thing. If you go to the malls, most likely you will spend at least a hundred pesos, on anything your eyes will see. The malls are designed to attract you and your wallet! Every floor area were conceived and designed to catch your attention for you to buy.

My piece of advise: stay away from the mall, specially if you are emotionally empty. Experience tells us that people who are emotionally void or troubled, tends to spend more to fill in that emptiness. I have a friend who goes out to malls or MacDonalds to eat every time he is stressed.

It is easy to swipe the credit card when you want to buy something you actually don't need, specially if you have no cash, in order to fill in a void in your life.

Just a thought while I was answering an email today.

Hope it helps to make us debt-free,


Tuesday, July 05, 2011

The Frugality of Filipinos in Guam

Hafa Adai!! (Welcome). I have been away for a while. I was in Guam for the last six days. Guam is a US territory. I was told that 45% of those who live in Gaum are Filipinos. The main stay are of course the Chamoros, a native of Guam. Surprisingly, they have Filipino sounding surnames like Reyes, Bautista, Javier, etc. The reason for this was the influence of the Spaniards, who colonized them earlier. As a matter of fact, Magellan landed first in Guam before landing in Cebu.
Guam is highly dependent of the Japanese economy. Most of the tourist come from Japan and Korea. Tourism is the number one industry of Guam. Of course there is the US Naval Base, also the main source of income for many of the Guamanian.

So what has this got to do with debt-free life?

Well, for one, I personally got over the temptation to spend over my budget. It was so tempting to buy things there, being a tourist-centered state. It was good that for the last three days of our stay, my uncle and auntie took us into their home. Thanks to the wonderful hospitality of the Valencias! We owe you one.

The main reason why we were in Guam was to look into the possibility of doing business there. With the planned transfer of the US Naval base from Okinawa, Japan to Guam, there will be an influx of construction activity to house the more than 8,000 navy personnel which is estimated to be transferred to Guam. This will happen anytime after 2014!

I was able to talk with Filipino immigrants, who gave me an overview of their lives in Guam. They told me that credit rating is very important in Guam, just like in the US mainland. You buy most of things you need using your credit card. The thing that distinguished these Filipinos there was their sense of frugality. They work with a vision to build their own home built by themselves! (Can you believe that?)  The houses have roofs made of concrete, everything was made of concrete! I was amazed to see them prosper. They save money to send their children to school in the mainland.

Frugality. A distinguishing mark of many Filipinos in Guam. Why not?

To your debt-free life,

P.S. Did you know that Guam can be toured in half a day! How true  to their expression: Hafa Adai!!