Identifying a Future Financial Catastrophe
Frugal Dad recently posted on a story from Get Rich Slowly on this topic. I don’t want to comment specifically on the contents of this blogpost – it is heart wrenching and frankly it does not need another blogger chiming in. However, I do encourage you to go to the sites and read what these two great writers have to say on the issue.
Normally, I take a no-nonsense approach to this type of thing. “The parents, kids, friends cousins, etc who are in financial trouble got there because they were not disciplined. They deserve to have some tough times and this is simply God giving them a little growth.” I believe GRS referred to it as “Give up and move on” as to what some of the readers might suggest. It is a VERY tough situation that I have not yet had to deal with in my life, but I am certain it is coming.
The real issue I wanted to address is to how to identify when a family member or friend is heading down this path. If you can identify the behavior, maybe, just maybe, you can help them, or yourself, resolve it before things get crazy. These are not all in-your-face type of behaviors. Some are extremely subtle and very hard to detect
Here is a list of ten dysfunctional money-related behaviors:
- Using money as a mood-changer. Many people use spending money to change their moods after a bad day or family argument, etc. If you get the feeling you are doing this, stop and think before acting. Are you using the purchase to get back at someone? Try to view the situation in a new way. Develop more flexible problem-solving skills.
- We’ll deal with it later. Incurring more debt only puts more financial stress on you to pay more, which is a VERY risky behavior. What would happen if someone lost their job, or got too sick to work? Waiting to deal with issue later could be the kiss of death. As Tony Robbins would say, “kill the monster while it is still young.” Always deal with it head on.
- Till debt do us part. Marriage is tough enough, but when couples get out of control with their finances, it always ends badly. Keeping secrets about how money is spent, or earned, can create havoc and erode trust at home. People differ in their attitudes about budgets, investment style, insurance needs, standard of living, vacations, hobbies, etc. It is important to choose someone from the outset whose values are in sync with yours, or if its too late for that, to have regular discussions about financial priorities and decisions.
- Hidden addictions. This one can be obvious, but oftentimes is not. The internet has changed everything for this one. Shopaholism, gambling and drugs are all well-known addictions and sometimes are easy to spot. They all eat up huge amounts of money and can ruin someone’s life very quickly. But when the internet came into play, things changed for those with addicting personalities. Having the latest gizmo, software, hardware, clothing, etc is now just a click away and can be done VERY discretely.
- Not planning for major purchases or choosing impulsively. Major appliances eventually roll over and die. Replacing these items is costly, but sometimes our emotions take over what could be a rational process. Sometimes, we may feel a sense of entitlement where “only the best will do.” This occurs with items that NEED replacing and items that WANT replacing. Or even worse yet, items we have NO NEED for at all, but all of the sudden are “must haves”.
- Playing rescuer for the financial crises of grown children. This one can be for your grown children or your parents (going the other way.) You might do this because a) you feel you “have to” in order to prevent some catastrophe, or b) because its “what good parents or children do,” or c) because you get a kick out of stepping up to control their lives. In any event, this is a terrible situation to be in and is reminiscent of the post that started this article.
- Not wanting to look in the mailbox. This is my favorite as I have done this like EVERYONE has done this. This head-in-the-sand approach is probably costing you more money because, out of your fears about knowing and looking, you may be missing opportunities to undo the damage, or at least do damage control. Once you take the time to know what you are dealing with, it will be scary but you can adopt a plan of action to curtail new spending, take steps with creditors, pay bills on time to avoid those deathly default rates, etc.
- Letting money “burn a hole in your pocket“. Having money handy is comforting to most people, but before you spend your tax return money, consider letting it “cool off” for awhile, safely parked in a savings account that’s difficult to access. Adopt a time frame where you choose to do nothing. You might find that you actually like saving.
- Emotions about inheritances. An inheritance can elicit powerful feelings ranging from guilt over what you did not do for your parents, to sadness that they did not get to enjoy their own hard-earned money, to fear that you will blow through your inheritance, or feelings of entitlement after having had an unhappy family life. Whatever your case, get sound financial advice from a trusted source. My advice: resist fancy home improvements or any other impulse purchases until the money, and your emotions, “cools off.”
- “I’m going to win Lotto”. Having dreams is a fun thing but if your solution to money stress is to score big at Lotto, you woke up and smoked your breakfast. The reality is that most of us will have to work until we get to retire, and only a tiny percentage of people ever win lotteries. It’s far better to use your wits to plan soundly towards making your retirement dream comfortable.
I think this list is a good one and I am sure there are plenty more. And for the guys reading this, it is very easy for us not to face our fears about this subject, grab a beer and forget about the discussion. DON’T! Get on the horse and tackle this thing if it is close to happening to you. I would say “be a man about it”, but you already know that is the case.
ROI of Replacing Light Bulbs
This is one of my favorite posts from the other site. I am in the never-ending quest to save money, lower the household expenses and become financially free at some point. This is just one of the wonderful ways to save money. It had some good banter between Gail and I as she loves that lamp in the corner of our living room. I, on the other hand, am planning a very unfortunate “incident” for our little energy hog lamp friend…
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Try to calculate the Return on Investment (or Internal Rate of Return) of doing this…good luck. Today, I spent several hours doing household chores. My wife went back to Detroit for a business trip and left me a little honey-do list. So today, like the good robot husband I am sometimes, I did my thing and went through that list. I spent every agonizing, errr enlightening, moment on checking off every task and achieved the whole thing – save some last minute cleaning she wanted done right before she comes home on Tuesday.
One thing that wasn’t on her list but was on mine, was replace every dinosaur light bulb we have in the house with those new fandangled bulbs that look like a bowl of spaghetti. 
Since I am all about saving money and doing my own financial analysis to justify my actions, I had to look at this based on my return on my investment (or Internal Rate of Return). It took the idea of saving money bigtime for me to actually do the right thing – what kind of person am I???
I thought this process would have taken me about 20 minutes, but after spending roughly 2 full hours on this little project, I was felling pretty good about myself. I replaced nearly 40 light bulbs and did a variety of equivalent 60 watts, 75 watts and 100 watts.
What is cool about this is the learning process. What I learned was the following:
- the old 60 watt version uses only 14 watts in the new version
- the old 75 watt version uses only 18 watts in the new version
- the old 100 watt version uses only 23 watts in the new version
These new light bulbs use 1/5 of the electricity as the old version. HUGE savings when it comes to paying my those really nice folks at the utility company. The package says I can save, under normal uses, the following:
- the 14 watt version saves $46/year
- the 18 watt version saves $56/year
- the 23 watt version saves $77/year
Since I replaced nearly 40 light bulbs today, I know the savings could very well be huge. If the average savings per yer is $50 per bulb (on average since most of them were the small kind) and I replaced 40 of them (I need my calculator), but I think that is roughly $2,000 per year in energy savings. I am not that optimistic and I know that it simply can’t be true, but lets say I was off by 50% and it only saves me a cool grand each year.
Time to crack out one of my best friends (Microsoft Excel) and do a little investment return. The total investment in light bulbs was $33. My time is free since I was working around the house and my wife gets a special discount – for barter of course… 
The internal rate of return on this investment is silly to discuss. It is off the charts, so let’s not even discuss it.
What is truly neat to look at is how these 10 C-notes are going to multiply over time, invested VERY mildly at 8% return. To see what this means to me in 30 years time – saving the $1000 every year; invested at 8% annual return – simply use the following formula in excel “=FV(.08,-1000,30)”.
(BTW, I am writing this with The Matrix on in the background…killer flick)
This silly little bulb replacement exercise just netted me an additional $113,283.21 for our retirement. If my adjustment down to $1000 per year is wrong and I actually save the $2000 per year, my take at the end of all of this (just replace the 1000 with 2000 in Excel) is an unbelievable $226,556. I am besides myself right now. Somebody needs to come on over my pad and punch me in the face a bunch of times for not doing this sooner. If not in the face, then at least a couple swift kicks in the beans. What the heck was I thinking?
Oh yeah, one more thing, I of course put all my dinosaur bulbs on craigslist to try to offset my $33 initial investment. For some reason, spending the initial scratch still gets to me. Those light bulbs seem perfectly fine, but in the in long run, those things were eating me out of house and home. Taking food off my table sort of speak. And the Financial Analysis Guy can never have that!
One more thing, the Financial Analysis Gal has this amazingly beautiful floor lamp in the corner of our living room. It is artwork – I will give it that. She loves it and we can’t craigslist it quite yet, but the time is coming. Why? That halogen lamp uses 300 watts (that’s 21 FREAKING times more energy than my little spaghetti style friend). That lamp is now officially put on notice!!!