There are a few ideas and terms that the masses throw around in an effort to mitigate risk and be more financially secure. The terms that come to mind are emergency fund and diversification. While these are valid concepts, I don’t think they complete the picture of financial security that we should all strive towards.

Most people would agree that economically, we’re in better shape now than a year ago. While we can debate to what degree, I think it would be wise for us to assume that we’re not better off. We should assume that we’re still in the middle of a recession (we probably are), and that things could still get worse. Furthermore, we should assume that it is very likely that we lose our job or lose our income in the near future. If not a complete income loss, we could easily see an income reduction as business revenues and sales continue to struggle.

I’m not here to convince you that these things are going to happen, but rather to convince you to prepare for the event in which they do. If things turn for the better, the economy improves, and your income increases, then great! If not, hopefully you’ll be prepared. So, what to do?

Redefining the Emergency Fund

Most people understand the purpose of an emergency fund: to save up a chunk of money that can pay for our expenses in the event of income loss or a major unexpected expense. By establishing an emergency fund, you can pay your bills and buy groceries with this fund versus tapping a credit card. This is a smart strategy, but I believe there should be more to it.

Storing supplies and consumable goods should also be a part of your emergency “fund”. Your emergency fund is used to pay for stuff when you can’t afford it. If you prepare accordingly, you can use your funds to pay the bills, but hit up your supply stash for products like toiletries, food, canned drinks, etc. The combination of emergency funds and emergency supplies means you can last longer on your own in the event of a loss of income. Furthermore, using your stored supplies for things like food will prevent you from going out to dinner when you should be saving your money during this phase. Lastly, your storage supplies can double as emergency supplies in the event of a disaster or supply shortage. By adding supplies to your emergency fund, you are increasing both your financial security and your independence; a winning proposition in my opinion.

Diversification of Income

We love to spout the fancy term diversification over and over when we’re referring to our investments, yet most of us go through life being completely non-diversified with regards to our most important financial asset: our income. The simple fact is that too many people rely entirely on a single income and are unprepared for the possibility of an income decrease or elimination. In addition to preparing a robust emergency fund as described above, a second prudent step (especially over the long-term) is to diversify our income.

While employed and making money, it’s important to spend some of your free time working on the development of a second income stream. While everybody would agree that such an idea is a wise strategy, probably less than 5% of people actually act on it. I guess television is too enticing.

To start the process, take an inventory of the skills or tools that you possess. Maybe you have excellent graphic design skills, or you can do a range of household repairs, or maybe you have quality lawn equipment. Next, analyze your contacts that might help you get going on this income/business venture. Who might be potential customers? Who might help you find additional customers?

Growing an alternative income stream takes hard work, and will be much slower than you think since you’re spending your limited free time working on it, but I believe it is a worthwhile process. Be organized, determined and patient. Over time, you will see results.

The great thing about working on a second income stream is that it has the potential to eventually turn into a thriving business. It is a less risky form of becoming an entrepreneur. Even if it doesn’t grow into a huge business, the additional income will help boost your savings and help you survive if you lose your main income.

Conclusion

Financial security is a topic that we should all take more time to thoroughly discuss. I have severe doubts about the years ahead with regards to the U.S. economy; as such, I’m doing what I can to prepare for whatever situations I’m forced to encounter. If I’m wrong on my economic views, I’ll still be in great shape with a few extra dollars in the bank and maybe some stocked closets full of goods to use. Such a conclusion would hardly be a bad one. I strongly believe we should prepare for the worst and hope for the best. When it comes to your finances, this old cliché is definitely applicable.

What are some of the ways you’re improving your financial security?

If you’ve read my blog lately, you may have seen that I don’t live with my wife during the week. My current job is approximately 2 hours away. Because of the distance, I have to stay there during the week and then head home on the weekends.

There are many disadvantages of living away from my wife, both emotionally and financially. I won’t really get into the emotional stuff seeing that this is a financial blog. However, I can shed some light on how we handle our finances on a day-to-day basis.

First, let me give you a little insight into the added expenses. In order to stay in PA during the week, I have to pay for housing, groceries, parking, and fuel. All of those together add about $600 to our budget. Those are all in addition to what we already spend in MD. It’s definitely straining, but it’s better than me not working at all. My wife and I have been apart for long periods of time before (I went to TX for grad school) so we are used to being apart. However, it’s not something I want to do for more than a year.

Even though we are apart, we still need to make financial decisions as a team. Marriage is commitment and both partners need to have an equal say. Here is how we do it:

Communication Is Key

Just as the title says, communication is a key part in our financial decision making. We communicate daily about our finances on the phone and via Skype. We are constantly talking about our budget and how much we will have left over to pay down debt. We actually think budgeting is fun and are always looking for ways to save a buck just so we can pay off more debt at the end of the month.

Financial communication is a necessity is every marriage. If one partner is spending away while the other one is committed to getting out of debt, they’re not going to get far. You just need to sit down and talk about your finances. Heck, if my wife and I can do it every night when we are 2 hours away from each other, so can you!

Long Distance Budgeting

Almost all of my adult life, I have been a Quicken kind of guy. It was always easy for me to use and made my finances come together in one simple platform. Well, when we got married, I noticed one major flaw. It was only on my computer and it was really hard for my wife to understand how to use it. So, we made an executive decision to give something else a try. A written budget wasn’t really an option for us as we are more technical people. It would also be a little harder to keep track of being apart. Then came Mvelopes.

Mvelopes is an online based budgeting program that can be accessed anywhere (with an internet connection). Mvelopes is based on the envelope system which we thought was the best budgeting technique for us (and still do). It allows us to check our budget at the same time and discuss the different envelopes and what we spent during the week. It just keeps us on the top of our game. It also keeps us accountable.

Keep a Positive Attitude

It’s easy to get a little depressed when you are away from your spouse for extended periods of time. It’s especially hard for us since we were married only six months ago. However, we continue to be positive about our situation and are trying to get things straightened out. Currently, I have an interview next week for a job in MD working for the same company. If all goes well and I get the job, my income will increase about 10%. It will also eliminate our need for addition expenses such as the rent.

Well, hopefully you will never have to find yourself in my position. It’s tough,  but we are making it work. If you do find yourself in this predicament, hopefully these tips can help you out. These are actually good tips for couples who are living together too. You need all of these to manage your marriage and finances.

Have a great weekend!

We’ve all made financial mistakes, and chances are we’ll make more mistakes in the future.

Maybe we aren’t socking away enough money for retirement, or overdrew our account, or bought at the peak of the housing market and are underwater. When things like that happen, it’s common to take a step back to analyze our mistakes to see where we went wrong.

While reviewing and learning from past mistakes is good — that’s how we improve and prevent repeats of the mistakes — dwelling on them and beating ourselves up over them isn’t.

But when it comes to analyzing the past, there’s a step we often
overlook: Reviewing our past successes.

Take a moment to think about it. What have you done right lately?

See what you have done well in the past, and what you could repeat in the future. What caused you to make a decision that turned out well?
What traits did your successes take advantage of?

For example, maybe you’ve set up a bill paying system that where you pay your bills at the same time each month. Since then, bill-paying has been a breeze. That takes organization, so organization is probably one of your strengths. How else could you use organization to improve your financial life?

“Make a list of financial goals” is the first thing that pops into my mind when I ask myself that question. Once my list is made, I can set about organizing it further so that I can achieve the items on it.

Or maybe you’ve automated your bills so that they’re withdrawn from your checking account each month like clockwork. And since you’ve done that, you haven’t once overdrawn your account, which was a problem for you in the past. If automation is working for you, look for other areas that you could automate. (Such as retirement, investing, savings, etc.)

Play to your financial strengths and use them to your advantage.

No, I’m not going to list some new vocabulary words for you to use when your account goes down by 20%. Sorry to disappoint.

Instead, I’m going to share with you five 4-letter words that should be in everyone’s vernacular when it comes to their money and finances.

Take a look at the list and see if you are using these important 4-letter words!

1. Save

This should be a common word used in your household.

How much are we going to save and where are we going to save it are extremely important questions to be asking yourself regularly.

What this recent economic downturn taught us is the importance of having some savings built up in case a major crisis hits (i.e. job loss etc.).

The average savings rate has gone up to about 5% according to the Bureau of Economic Analysis.

This is a good trend especially when you look at the chart to see where the savings rate has been in the last several years – but there’s still major headway that could be made. Make sure that “save” is a regular word you’re using.

2. Give

Giving is a key part of being a good humanitarian.

You’ve heard the old saying, “It’s better to give than to receive”. Why is that? Because when we’re less consumed with ourselves and more concerned for the welfare of others it benefits them and brings us more joy!

The most miserable people in the world are generally the ones who are self-absorbed misers.

There are countless numbers of poor, weak and downtrodden folks who are waiting for us to be a Good Samaritan.

Whether you give money to the homeless, volunteer in a soup kitchen, give to organizations that provide relief for the under-privileged – you should find something that you are actively giving your time and money to.

3. Risk

Risk is a four-letter word that gets used often, but many times in the wrong way. What I mean is that most people often assume they are a riskier investor than they really are.

It seems like people love risk in a bull market and can’t stand it in a bear market.

It’s important to review how much risk you are willing to take so that you can create a well-diversified portfolio that should generate more consistent returns with less volatility.

4. Roth

If you qualify for a Roth IRA, this is one four-letter word you don’t want to ignore.

What exactly is a Roth IRA? Basically it’s an Individual Retirement Account with after-tax contributions and tax-free withdrawals.

Given where tax rates are currently (low) compared to where they’re going to be in the future (high), it makes sense to check this type of account out now and put it to good use.

5. Debt-Free

OK you got me, that’s two four-letter words put together, but the point is learning to use these words together will help you get on track for your financial goals so much more quickly.

Resolving to be debt-free is a decision you won’t regret. Sure, it’ll take some discipline, hard work and a lot of sacrifice, but it’ll be so worth it in the end.

How do you become debt-free? First you need to make a decision to go for it. Secondly, put a plan in place to cut back on expenses, increase income if possible and use as much discretionary cash flow as you can to start knocking out your debt!

There you have it. Five four-letter words that are OK to say in front of your kids and even better to implement in your personal finance journey!

The title sounds a bit like a shady law firm, doesn’t it? Actually, it’s meant to convey the emotions of this post’s topic. A topic I’ve thought a lot about recently, and one that another blogger covered in a recent post, The Guilt of Wealth. It deals with the emotions of money – from the shame of being poor, to the shame of being rich, and the greed and envy we feel in between those emotions.

Photo by ItzaFineDay

Are the rich really wrecking the planet? Or are we all guilty? Or is it just a select group who have taken advantage of our financial system to maximize personal gain? First of all, I don’t hate the rich. Wealthy people open businesses that create new jobs. They invest in new technologies that keep our economy humming along (or at least sputtering along, as it’s been here lately). Wealthy people are also often the greatest philanthropists. Bill Gates comes to mind. Think of the good that he and his wife, Melinda, have done for others through the Bill and Melinda Gates Foundation.

I recognize that some wealthy people are not quite as giving. They often stomp on the little guy on their way to the top. They are shrewd. They take no prisoners. They lay off employees to save the company’s bottom line, and fatten their wallets. It’s safe to say there are plenty of examples on both sides of the argument.

The Evolution of Shame

Just a decade or so ago being poor was a great source of shame for many families. Most subscribed to the upward mobility theory that all of us should be striving to improve our economic lot in life. Those who didn’t were deemed lazy, unintelligent, or simply not properly motivated.

Slowly but surely things began to shift. A number of corporate scandals from Enron to Bernie Madoff left a permanent black eye on corporate America. No longer was it cool to be a member of the executive level. And then the government started bailing out many of these same corporate types who bailed out with their own golden parachutes, leaving behind a mess for someone else to clean up. The American public became fed up with the corner office. But has the pendulum swung too far?

With the help of the current administration and their unprecedented use of a pay czar responsible for oversight of executive compensation, we now have much more to say about the workings of corporate America than ever before. Is that a good thing? Well, that remains to be seen. But one thing is for sure, it has definitely put a freeze on the spread of capitalism.

Jealousy vs. Envy

We have all felt that little twinge when a friend brags about their new home, or their recent promotion. But I believe there are two fundamental types of jealous people. The first group of people is happy for their friend, and even if they are a little jealous, they recognize their friend has worked hard and with the same hard work they can aspire to similar accomplishments.

The second group of people are green with envy. They can’t be happy for their friend because they are not happy with themselves. If they can’t have something, then no one should have it. There have always been members of both groups, but in the last several years it seems the population of the latter group is growing.

How Does this Affect the Act of Building Personal Wealth?

There are many people out there dealing with shame because of their success. How can they be happy with the wealth they’ve accumulated when there are so many others out there in poverty? How can they be happy living in a beautiful new home when there are others out there homeless? It’s an interesting dilemma. But what’s lost in the worry over perception is the two factors that led to your success: hard work and luck. Yes, both are required for success.

Sherry left a comment on the post I mentioned in the opening that provided a pretty good analogy for this very dilemma:

Unless you amassed your wealth by stealing it from others, I do not understand why anyone would feel guilty. Don’t accept guilt you don’t earn. If you value something (like a charity) then give to support it. I am not wealthy (yet), but am certainly doing better than some of my siblings. However, I don’t feel guilty because of that. Why would I? It’s like feeling guilty that you [make] an A on a test because you studied, but your best friend only got a C.

Some work hard all their lives, but never get that break that separates those living paycheck to paycheck from those with a seven-figure nest egg. Some acquire wealth through inheritance, through lottery winnings, or some other windfall that didn’t require a great deal of hard work.

For every Paris Hilton in the world there are fifty entrepreneurs working 14-hour days for years to become an overnight success. They invest their life savings, give up their social life, and pour 100% of their energy into building a business month after month. Occasionally, someone hits it big and they can finally breathe. They are finally able to enjoy some of their wealth – buy a new home, a newer car, take a vacation or two, etc. Should we resent them for this success? Or should we hold these people in high regard and say to ourselves, “One day I’d like to be just like that guy!”

Money plays an important role in all our lives; the fact that you are on this finance blog reading an article on money illustrates that money is an important topic to you. Earlier I discussed the importance of money and asked if money is the means to an end or an end in itself for you, the responses were interesting to say the least. Although majority of readers said it’s a means to an end, their “reasoning” varied widely. Today’s question is what does money mean to you?

Meaning of Money to You

We are often so consumed by earning money that we forget to take a minute and think about what it means to us; how do we feel about money and how does it effect our lives. For some money is just a necessity, they need/want just enough money to meet life’s basics needs. To other’s money means freedom and independence. Take a minute and think about what money means to you.

What feelings does the thought of money bring up? Is it worry, joy, freedom, anger, power…?

Do you give a percentage of your income to a charity? Do you share your wealth or do you control other’s with money?

For me the meaning of money has changed over time, when I was very young my parents were well off and I enjoyed more luxuries than most of my friends, but my parents fought constantly over money. As I grew older my parents lost all their wealth and I spent my teens being fairly poor compared to my friends while my parents continued to fight over money and eventually divorced each other. At this stage I developed an extreme hate for money, the thought of money would make me angry. As I grew older and started to earn some money, the meaning of money changed for me. Now money is a tool for me, it’s a tool to accomplish things and get what I need/want. Does it mean freedom to me? No it does not and I do not understand those who say money means freedom to them, if your freedom is dependent on money how free are you really? Aren’t you enslaved to money and money is your master? What will happen when you lose your money?

Although the meaning of money to me has changed over time, it has not become a symbol for freedom or independence.  What is the meaning of money to you? Has it changed over time?

In an earlier post, I wrote that if you want to learn how to solve a problem, write about it.

So…eh…that’s why I’m writing this post. I need to solve a problem.

I’m not sure if writing (in and of itself) is going to do the trick this time. However, I do feel that your comments will be vital. Will you help me?

THE PROBLEM:

Several months ago, I hired Sally. She’s a highly respected and qualified consultant but she doesn’t seem to be keeping her end of the bargain. I pay her a monthly amount and she is supposed to help me take advantage of a very specific business opportunity. She is a guru in her field and she’s uniquely suited to do this job. It’s more economical for me to pay to have this service done than for me to try to do it myself.

Don’t get me wrong. She is providing value. In fact, her value exceeds the investment I make. But she isn’t delivering what she promised and she doesn’t deliver on a timely basis. She changes phone appointments at the last minute. Things are getting done much slower than promised. What’s worse, she always has an excuse and it’s starting to feel like I’m being lied to.

I like and admire this person. She’s considered an expert in her field, but it’s starting to really feel bad.

The problem has taken on a personal dimension. Maybe that’s my mistake. But I considered this individual more of an ally and friend than a hired gun. Someone who understood what I was trying to do and who is genuinely interested in helping me achieve my goals.

I think about this issue throughout the day. It really bothers me and it makes me a little sad. Sally’s advice is really good and helpful (when I get it) but the thought that I’m being lied to overshadows this. I feel rotten.

STEPS I’VE TAKEN

A few weeks ago, I sent an email to Sally and told her what needed to change. Her response didn’t address all my concerns but I let it go since she did address some of my concerns. I thought (or hoped) we were back on track.

Well….I was wrong. We aren’t on track. In fact, we’re more off track now than ever.

ALTERNATIVES

Let me reiterate, I have no interest in doing Sally’s job myself – I need to hire someone to do it and I have a budget for this. Firing this person and doing it myself is not an option.

My strong preference would be for Sally to get it together. I need her to do what she says she’s going to do when she says she’s going to do it.

If that doesn’t work, I have identified another person. Jim is very qualified but I don’t think he can replace Sally completely. She is pretty unique in her field. Since some of the work involves marketing, the connections that Sally has, makes her a very valuable asset and team member.

As I said before, if I was convinced I could replace Sally, I’d do it. But I’m afraid that if I do fire her, I won’t be able to replace the connections and brainpower she has.

How would you approach this problem?

Here’s are the steps I’ve come up with:

1. Send her a copy of this post.

I’ve really spelled it out here. I’m wearing my heart on my sleeve too. As an additional bonus, your comments may help light a fire under her (or my) rear.

2. Spell out exactly what it is that I want/expect/need and the time frame that it must be completed by.

In my earlier email, I didn’t do that.

Basically that will include a time line to complete certain tasks as well as a time line by which calls and emails should be returned.

3. Ask Sally if she can commit to that.

4. If she does commit and doesn’t live up to her commitments, move on no matter what.

In the past, I’ve had to let staff go. I used to have this tremendous fear that I was doing it prematurely and/or if I did fire the person, it would be impossible to replace them.

I no longer feel that way. I know that everyone is replaceable – even me. But for some reason, I am really hesitant to draw the line with Sally.

Have you ever been faced with a choice like this? How did you decide it was time to cut and run? Am I just being a girly-man?