Welcome To The Adjustment Club

Image via Wikipedia

Many of us are used to a certain lifestyle. Quite frankly, we balk at the idea of certain products, services or even a change in the way we used to do things.

Generally, if one moves from limited resources to what some believe to be "unlimited" resources (although there is no such thing), it's so easy to adjust one's lifestyle from the "limited" to the "unlimited". Yet for some, it's not just hard, it's downright painful to adjust the other way - from what some thought was "unlimited" to moderation or budgeting.

Well, the world has changed. "Unlimited" does not exist. And "limited" is where it is at. So let me introduce you to the "Adjustment Club". Here's how it works.

First, all the people in the world are members. No one singled you out. The world underwent a radical shift. Like an earthquake, we are still feeling the aftershocks. Like a hurricane, some countries still continue to be hit, while others (like Jamaica) are feeling the outer bands hoping to be spared a direct hit. You get the picture. So we are all in this "Adjustment Club"

Second, we are all adjusting to the same relative place. That place is survival in the short term, and sustainability in the long term. As long as the markets remain volatile, and until the various global stimulus plans kick in all over the world to get the global economy growing again, all of us are living in a heightened state of uncertainty that was imposed on the majority of us. So, we are all heading to the same level of adjustment - survival in the short term, sustainability in the long term

Third, the amount of adjustment does depend on your particular circumstances. So, if you are super conservative like I am, I have relatively little adjustment to do. If you have always been seized with the importance of money management, then you have little adjustment to do. If you have always budgeted, and are fairly committed to your budget, then you have very little adjustments to do. However, if you are more of a risk taker, was never interested in money management, or have a generous budget for your expenses etc., you have more of an adjustment to do because you have to accept that all these factors are critical for the short term and the long term, and then you have to learn how to do them, and then you have to be committed to doing them. If money management and conservatism is not your thing, or does not come naturally to you, please remember that we are all in this adjustment club. It's just something we all must do.

Fourth, you can ease the pain of adjustment and speed up the time it takes to adjust. We know what the external environment is like, and how quickly things are changing. We know nothing is certain but uncertainty. To waste time being upset and frustrated about things you have no control over robs you of precious time to do more productive things to ease your adjustment.

A few adjustment basics:

• Priority 1: Develop a sizable Emergency Savings Fund (not with an Investment Product)

• Quickly develop a budget if you don't have one, and adjust your budget if you do have one. Be realistic - so reduce inflows and increase expenses for budgetary purposes. Don't forget contingencies. If budgeting is difficult for you, seek help if you need to.

• Commit to managing and reducing your expenses. What can you do with less of? What can you give up all together? All members of the Adjustment Club are sacrificing something. Some members are sacrificing much more than others. What are you willing to sacrifice?

• Avoid taking on debt if you can, manage what you have. If you can, pay down the higher interest rate debt first. But don't eliminate your savings or your retirement funds to pay down debt.
  

• Ensure you are as productive at work as you possibly can be. That way you are more likely to be viewed as a valuable member of the team which is likely to make management think twice if and when redundancies happen

• If you are made redundant, or volunteer for redundancies (like some programs offered by some companies), do not squander your redundancy payment. You do not know when you will have a steady flow of income again, and monthly obligations don't go on a holiday because you are unemployed. Take your redundancy payment and place it is a solid, conservative deposit-taking licensed JDIC insured (FDIC insured if you are in the US) financial institution - i.e. in a savings account not investment - until you find the best method to allocate it. It not not prudent to use all your redundancy for any investment - whether an investment product or a business. If you are being sold a financial product, and you are not sure if it is an investment, ask for clarification and get a second opinion. The absolute worst time to speculate or take risks is with your redundancy payment.
  

• Look for alternative means of supplementing your income - as long as it doesn't interfere with your full time job, conflict with your full time job, and importantly is not prohibited by your full time job. So perhaps you can tutor students, sell your amazing digital photographs, start a blog and monetize it etc. Your options depends on what talents, interests and skills you have.
  

Those are just a few ideas about the basics.

This is no time for any of us in the Adjustment Club to bury our heads in the sand.

It is time to make this adjustment as painless as possible. We didn't ask to be in the Adjustment Club, but here it is and it is not going away. So let's make the best of it.

There was a world before all the excess. It's not like we are adjusting to a completely different reality.

Likewise, there was a world of depression and war, and then war again. So it could be worse. Let's not help it get there. Like good club members, each of us needs to do our own adjustment, and help our fellow club members in theirs.

Real $$$ with Discounts !

Image via WikipediaMeet your new best friend - Discounts!

Now, I have a confession to make here - until my experiments started, I never asked for discounts. At minimum, Discounts are supposed to reduce the cost of your consumption. However, they do more than that. By reducing the cost of consumption, they leave more money that can earn interest. Also, dollar for dollar, every time you forgo a discount you could have used in 5 minutes, you have depleted more than one whole YEAR's accumulated after-tax interest.

If you are a skeptic - like I was - let me tell you how I was convinced.

First, I realized that in a 5 minute transaction, if I get a discount on $1 of say 10% (the usual discount amount), I would have saved 10 cents. Not worth the effort, right? No, actually.

• For one, it's very straightforward to get a discount, so it's not really a bother.
  

• For two, and this was the clincher for me, I thought to myself, well, how long does it take me to get 10 cents worth of interest on $1? Well, as it turns out, its much longer than 5 minutes. It can even be longer than a year. That's right ONE WHOLE YEAR. That's because the majority of after tax interest rates of saving are less than 10%. So, here came my "aha moment" when I realized that by not asking for a discount, I was negating all the interest I was earning. No, that would not do.

• For three, the more money that stays in my saving account that is not spent earns interest so why not reduce the cost of consumption if I can.

Let me tell you about my discount experiment:

Because I have car insurance with NEM (in Jamaica), I am provided with a JAA card.
Full Disclosure: I work with JNBS, the parent of NEM and JAA.

Now, JAA stands for the Jamaica Automobile Association (it is affiliated with the International Automobile Associations ). JAA has discount partners with more than two hundred (yes, 200) merchants with discounts ranging from 5%-55%! See list here.

I wanted to see how the discount program worked so one Saturday afternoon a few weeks ago, I went to my regular pharmacy for an item. They had it and the cost was J$500. However, my regular pharmacy was not listed as a JAA Discount Partner - that means I could not use my JAA card. So, I went to the next nearest pharmacy listed as a JAA Discount Partner. They had the item and it was the same price as my regular pharmacy.

Great, I thought! 10% off means I save J$50. In 5 minutes, I would have saved myself what it takes more than one whole year to earn in after-tax interest on savings on a J$500 deposit. AND, if I save J$50, I can continue to earn interest on the J$50. Now, I was really excited.

But alas, there was a hitch. I asked a store employee if I could use the JAA card for my discount and was told no. I said "But, there's a sign on the door". There was. But maybe she didn't remember or was new. So, luckily I had carried my list from the JAA (a multiple page document outlining all the discount partners and the amount of the discount) and showed her that the pharmacy was listed. She was most gracious and agreed to provide me with the discount. So, after my bill rung up, I paid it, said thanks and headed to the door.

Now, I couldn't wait to see the bill as evidence of my experiment! And here's where I learned another lesson: Always Check Your Bills and Receipts. When I checked my bill, my discount was there - but it was on J$750, not J$500. So, I got a $75 discount, but the item had cost me $675 when it should have cost me $450 with my $50 discount on $500. I had paid more than the original $500! Frankly, I was deflated. This was not the way this experiment was supposed to go. BUT, I had learned to check the receipt.

So, I went back to the store employee and asked what caused the price difference. Turns out it was an error and the adjustment was made so that I was charged the price I saw for the item. So I got my discount, and had paid less - that was the point of the experiment and I had achieved it!

Bottom line: You can save some real money immediately by using discounts! Dollar for dollar in 5 minutes, the cost of NOT using a discount can exceed one whole YEAR's worth of accumulated after-tax interest. If you get a discount, the money saved can continue to earn interest! Even if there may be a problem, persist because it is worth it.

------------

If you are in Jamaica, a JAA card provides a network of approximately 200 local discount partners with discounts ranging from 5% to 55%. It has other benefits too, including overseas discount benefits but let's focus on the local discounts for tonight. Click here .Chances are you will find something on this list already relevant to your daily life. Although the merchants can change at any time - and some of the new ones have not yet been updated on the website, the categories are listed below and I have linked each one to the JAA website so you can see the current list. Click below and see the merchants!!

• attractions
  
• auto parts and services
• beauty salons and supplies
  
• book stores
  
• clothing and shoe stores
  
• dry cleaners
  
• electronics and jewellry stores
• flower shops
  
• gift shops
  
• gyms and spas
  
• hardwares
  
• hotels
  
• insurance companies
• locksmiths
• optical
• other
• overseas AA membership
  
• photo studios
  
• pharmacies
• rental cars
  
• restaurants
• service stations
• travel agencies
• wedding planners
  
• wrecking companies and garages

-------------

Additionally, if you are a member of Jamaica National Building Society (that means you have any kind of savings account with the Society), you have similar access to the 200 discount partner network. Click here. There are slight differences from the JAA list. To get the discount, you need to show your JN 24/7 ABM card. Chances are you will find something on this list already relevant to your daily life. Although the merchants can change at any time - and some of the new ones have not yet been updated on the website, the categories are listed below and I have linked each one to the JNBS website so you can see the current list:

• accomodation
  
• attractions
  
• auto parts and service
• beauty salon services and supplies
• books/stationery,
• clothing and shoes
• electronics and jewellry stores
• flower shops
• gift shops
• gyms and spas
• hair
• hardware
• locksmiths
• miscellaneous services
• optician
• pharmacies
• photo studios
• rental cars
• restaurants
• service stations
• sports
• travel agencies
  
• wedding planners
• wrecking companies/garage

Two simple little cards - a JAA Card and a JNBS 24/7 (ATM card) - are a great place to start to get those extra $$$$! You can get a JAA card by insuring with NEM, or purchasing membership directly from the JAA (see rates here). Keep a savings account linked to JN 24/7 ATM/Debit Card and receive your card to show for discounts!

Let's talk about benefits and rewards tomorrow!

More Money - The Basics

Image via WikipediaTo get you started, there are 3 basic things you need to remember about money management.

1. SAVE, SAVE, SAVE.

No matter what, you HAVE to save; you MUST save. Saving is not - I repeat not - investing. This is saving - take money and deposit it with a regulated financial institution where your deposits are insured (by the FDIC in the US or the JDIC in Jamaica) up to a limit, and where that regulated financial institution will provide interest at a pre-defined interest rate on that deposit over a period of time.

Why is saving the foundation, the key?

• When you save, your money earns interest for you. Now, other than working to earn more or receiving a gift, how else do you get "new money"?
  
• Save more, earn more interest.
  
• Save longer, earn more interest.
  
• Save your interest and your interest earns interest.

Saving is the absolute basic minimum you must do!

What is the best way to save?

Heard of the "Pay yourself first" principle? Before you do anything else, as you get a paycheck or a payment for services rendered, take a portion and save it - don't invest it, save it. It would be best if you could get into a habit and decide on an amount and do it by salary deduction. That way you don't agonize over "should I' or "shouldn't I". Trust me, after a while you won't even miss it and you'll be happy to watch those savings grow every month. Remember this if you remember nothing else.

2. SPEND LESS.

Easier said than done, right? If you are in Jamaica, this sounds impossible given the cost of basic necessities. Well, here are some suggestions:

• Exercise discipline in consumption. Buy what you need, not what you want. Yesterday's post gave you an idea of how that can work.

• Find out all benefits and discounts available to you and use them. Trust me in 5 minutes what you save by using these discounts and benefits can exceed one year of after-tax interest, dollar for dollar. Come back tomorrow for some specific tips on this one because I discovered big savings and small savings here. Regardless, they all add up.

• Take on reducing spending in your utilities as a special project - phone, electricity and water. I've done experiments with those and I'll share them later in the week.

What's the one thing to remember with spending less: When you spend less, you have more money to save which earns interest.

3. MANAGE YOUR DEBT.

This needs some clarity. Not all debt is bad. Debt that is unsustainable is bad. Debt that you cannot afford to service is bad. If the price you pay for being completely debt free is depleting your savings, I would say that is too high a price. So let's think of debt as something you manage.

• First, dollar for dollar interest charges will exceed the after tax interest earned on savings. This means that you are paying out in interest more than you earn in interest. So, if you have debt, the experts advise you to rank them starting with the highest rate and aggressively pay down that one, then the next highest rate etc. Now important: always service all your debts because not only is it the responsible thing to do, if you don't, then you pay penalties and fees, and it's bad for your credit rating. So, when I say "aggressively" pay down debt, it means pay more than the minimum to eliminate it faster.

• Second, really try to minimize using credit cards. Use cash and ABM cards (fee free preferably). If you can wait, save towards the goal to purchase the item. If you can't wait, remember that you are paying more for the item in finance charges. Would you want that item if it were $150 instead of $100? You may have paid $100, but if the charge sits on your card, then you may end up paying more like $150 (depending on interest rate, time to pay etc.).

What's to remember with managing debt: Less debt, lower rates, shorter time periods means less in interest charges which you could have saved to earn interest. Oh, and pay your debt on time to avoid late fees because those add up!

Those are the absolute basics.

For each category - savings, expenditure and debt - there is much more we can discuss. But we'll get into that later.

Now to get you started on your journey, you need to make an assessment of your current financial picture. What do you earn? What do you save? What do you invest? Did you remember saving and investing are different and do you treat them as such? What are your expenses? Can you track every cent you spend every month? If not, start a log and write it down. How much debt do you have? What interest rates are you paying?

Want to know what I did? I have had an Excel workbook for years, and I have different tabs for different categories and its color coded and everything. I know every single dollar that comes in goes out, and have different scenarios for debt, saving and investing.

• That means I track my accumulation of savings and make conscious decisions about when and where to put my money.
• That means that I have an extremely detailed budget and I know all my regular expenses, and make a provision for contingencies
  
• That means before I even use a credit card I know what it is likely to cost me even for one month in interest.
  
• That means before I decide if I should invest, I know the expected return, I evaluate the risk in terms of the market environment and my own personal finance goals. I know where the funds will come from, and I do not sacrifice my savings goals.
  

My model is very straightforward and I know where to find everything, and change parameters for scenario planning. I have projected at least 5 years into the future. And it's very conservative. It works for me. Some people prefer to use software. Find what works for you.

Now assess the picture, do you like what you see? Are you saving? Are you saving enough? Do you know what enough is? Have you figured that out? Are you meeting your expenses? Do you see anywhere you could cut expenses? Have you looked at your monthly interest charges on debt? Did you realize that if you paid even a little more in debt payments you could reduce your interest charges, and therefore the total cost of the debt?

Now, don't worry. If this is all new to you, we can walk though all of this to make it manageable. But the very first place to start is with that picture. If you don't know what is broken, you cannot fix it.

As I said, come back tomorrow for some big and small savings I've discovered through benefits and discounts.

Getting Started - Earn and Save More Money Now

Cover via AmazonWhy reinvent the wheel? There are best selling books on Personal Finance. There are countless websites and blogs. Do a little reading and see what is applicable to your situation.

How did I start?

In the first few days of 2009, I read the best seller "Smart Women Finish Rich" by David Bach (don't worry - the information is generic enough for anyone, and he does have different versions). The book was already in my personal library, I just hadn't read it yet. Given the uncertainties we all face, I figured the time was now right. I would highly recommend the book to to help with thinking about saving vs investing (reminder: they are not the same), and also general money management. There is a lot of information specific to the USA, but the general principles are universal, I think.

Next step - application of principles.

For example, that book inspired me to read another personal finance book - but it was a best seller motivational book not a classic "how to" book. Now, I did not have that book in my library, so I went to buy it. But, here's something key, Bach's book had taught me the importance of discipline in spending (which I will get into in a later post), so although I picked up 10 books in the bookstore, I decided that I did not need them - although I wanted them - and decided to buy only the book I intended to buy when I went to the store. By exercising discipline in my consumption of my favorite impulse items, I saved significantly that day! I had saved money by not spending it and not losing savings interest on that money. What's your favorite impulse item or items? Does this story sound familiar - walk into a store for one thing and buy a ton of other things? Now, am I likely to purchase those books later? Sure. But for the time being I can earn interest on that saved money since I am unlikely to read 10 books at the same time :)

Despite the habitual convenience of using a credit card, I used cash to avoid interest charges. This tip came directly from the book, and in a later post I'll get into how to think about various forms of debt. But the main point is that dollar for dollar, interest rate charges will exceed after tax income on savings. So, as much as you save, your net will be negative if you pay high interest rate charges.

Lesson Learned:

• Learn from the experts and start applying the principles immediately. Make personal finance a lifestyle change
  

• Make a list of needs - not wants - before shopping. Take the list. Try to stick to it. With discipline and habit, foregone consumption can add up to real savings which earns interest.
  

• Make cash or fee-free ABM cards the preferred payment type. Debt reduction and avoidance reduces the amount of your hard earned savings lost to debt service.
  

Check back tomorrow for a summary of basic personal finance principles to get you started on your journey!

Related articles by Zemanta

• Personal Finance Explained (helpwithdebtnow.com)
• Review of David Bach's Go Green, Live Rich (environmentalism.suite101.com)