Archive for September, 2009

The Beginning of The End: 6 steps to making the most of the rest of 2009

After today we will be in the month of October. OCTOBER . . .  2009!?!

I’m literally taking a moment to digest how nine whole months have flown by . . . . . OK! Moment Over.

With about 90 days (92 days to be exact) left in 2009, I want to mention 6 steps using the Achievers Focusing System (click image below to enlarge) from Success Principles to make the latter part of 2009 your best yet.

90Day_1

Step 1 – FOCUS AREA: In what aspect of your life do you want to make the most impact?

The Achievers Focusing System has divided areas of life into seven

  • Finance & Wealth
  • Career
  • Free Time
  • Health and Appearance
  • Relationship
  • Personal Development
  • Community & Charity

When the year began, you probably thought about making a change in 1 or more of these categories and somewhere along the way that got lost in translation (9 months wheezing by can do that). No matter, a lot can still be done in 90 days by making minute and incremental changes.

By the yard it’s hard, but inch by inch anything’s a cinch – Brian Tracy

Instead of trying to cover all these areas at once, start by selecting the most important area where you want change and then select the next most important area and so on.  Consequently, you will be creating a ranking system for the next three months.

Step 2 – GOALS: What are your goals for the rest of the year?

Write down one goal in the area(s) that you have chosen previously. Using the document, this can be written in the boxes provided.

90Day_2

This is where problems arise. In defining goals, they have to be measurable i.e. there has to be some sort of finish-line related to  an accomplishment and/or  time frame. The lack of a time frame usually results in complacency. The lack of defined accomplishments usually results in a loss of interest and boredom. Using goal #1 above, I will have to pay off $1,000 in the next 3 months. With this, I have defined the accomplishment and the time-frame. How can you measure the goal you want to attain? Is it a series of accomplishments or is it one you can measure with time?

Step 3 – ACTIVITIES: What steps need to be taken to accomplish this goal?

Outline the necessary steps to completing this goal. This can be done using the time-frame or accomplishments as a guide. The point of doing this is breaking down the goal into manageable chunks. By so doing, the viability of the goal is maintained and it would seem neither large nor looming.

90Day_3

For my goal, here’s what I’m thinking:

Time frame based

Accomplishment based

  • October 31st: Have paid $334
  • November 31st: Have paid $667
  • December 31st:  Have paid $1000
  • Pay off first credit card ($173)
  • Pay off half of second credit card ($413.5)
  • Pay off half of second credit card ($413.5)

In addition, list some non-activities as well i.e. activities you shouldn’t engage in which will also help with accomplishing your goals.

  • Leave credit cards at home ALWAYS
  • Pay for purchases using checking account

Using the Achievers Focusing System, these activities are then spread out over 12 weeks. This allows for looking at the overall picture while keeping track of the activities spread out over the 90 days.

Step 4 – SMALL VICTORIES: What happens when you complete an activity?

Sometime ago I mentioned how celebrating small victories are essential to boosting morale. As you slowly advance towards your goal week by week, remember to take a moment to digest how far you have come. This moment of reflection can be used:

  • to further fine-tune future activities
  • to ensure that the pace is still being kept
  • to rest before going on to the next task

Once each activity is completed, take a breath and congratulate yourself on making it this far. For me I will take great joy in seeing Balance: $0.00 and I will also update my account at NetworthIQ at the end of every month because seeing that bump provides additional motivation. Then keep pressing on knowing that you are closer than when you first started.

Step 5 – ACCOUNTABILITY: Should I involve others in my goal?

The Achievers Focusing System includes a section for an Accountability Partner. This is the person who you have shared your goals with and you know will be a willing motivator in your cause to improve. Sometimes goals are like a new toy: you play with it for a few days excitedly; then over time, the excitement fades and the toy starts to collect dust. This is when your partner(s) can help to dust off some of that dust and remind you of what you set out to do.

Therefore, since we are surrounded by such a great cloud of witnesses, let us throw everything that hinders . . . . and let us run with perseverance the race set out for us. Hebrews 12:1

Your accountability partner serves as that witness to your commitment to yourself in that area of your life.

Step 6 – FINISH LINE: When does my goal end?

As mentioned in the beginning, this goal(s) should be tailored to cover the remaining 3 months/12 weeks/92 days of the year. Therefore while striving to complete each activity always keep in mind your finish line by:

  • Tick off the days on the calendar
  • Cross out your to-do list each week
  • Little steps will yield great results

By so doing, you are constantly reminded of where you are trying to go

90Day_4

Image courtesy of Mr. Mystery

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The Emergency Fund: Your Financial Red Cross

What do you do when:

  • your source of income suddenly stops?
  • you’re suddenly ill and insurance can’t cover all the costs?
  • you have to travel immediately due to a close relative’s passing away?
  • your car breaks down and you realize you have to spend $700 or more on repairs?

Sure you can use credit cards to cover some of these expenses, but how long can you do that for especially if the first situation is also true. This is when the Emergency Reserve comes into play. It sounds basic and like common sense, but this is the most important account for any independent person (and often the most overlooked). In discussing this, we can focus on the What, Why, Who, Where, When and How?

Emerg_Fig1

What: What is an Emergency Reserve?

According to the Merriam-Webster Dictionary Online, an emergency is

An unforeseen combination of circumstances or the resulting state that calls for immediate action

Two words stick out clearly here: unforeseen and immediate. Consequently,

An emergency reserve is money kept aside for unforeseen situations that call for immediate attention and action

This means that this money should only be used for things that are unplanned. Consequently, emergency reserve should be separate from your savings. Usually when we save, we are saving for a goal e.g. a vacation, new gadget, textbooks, accessories etc. As such, while savings is usually money for planned activities, an emergency reserve is money for unplanned activities. In a way, you can call your Emergency Reserve your financial Red Cross because it arrives on the scene when emergency rears its head.

Why: Why should I care about an Emergency Reserve?

As mentioned above, this money is for unforeseen circumstances which can (and does) happen to anyone. Thus the prime reason for having this reserve is simply: peace of mind. Rather than worry about money in a time of crisis, you know there is money somewhere and that helps to focus on the crisis itself. Besides, if you already insure your car and health, shouldn’t you also be insuring your finances as most emergencies hit the pockets first?

Who: Who should have an Emergency Reserve?

An emergency reserve is necessary for anyone who is (or wants to be) dependent on themselves for financial resources. Therefore, this person has some sort of regular income which pays their bills and they are not necessarily dependent on their parents or family members. This reserve is also important for those who have dependents.

When: When should I start an Emergency Reserve?

As soon as possible! Right after reading this article!! I’m kidding. Well kinda. In all seriousness, you never know when you will need this, so it’s best to start as soon as you can.

Where: Where should I keep my Emergency Reserve?

Since this money is required for immediate action, it should be kept in a savings account that is linked to a checking account. This way, the money can be easily transferred when it is needed. I would stress here that it shouldn’t be in a checking account simply because just as much as this money should be accessible, it should also be untouched. With an emergency fund tied into a checking account this is very prone to happen.  In addition, the advantage is that it generates interest while sitting in the savings account when untouched.

How: How much should an emergency fund have?

For this question there isn’t always a straightforward answer. I have heard of 1 month, 3 months or even 6 months worth of expenses saved. I have also heard of using figures like $1,000 – $5,000. I personally keep set my goal at $1,000 just because it’s a nice round figure and also because it covers a month worth of expenses at the moment. When I leave graduate school and start a family, I am sure that number will go up. The most important factor here is that you set a minimum that will give you peace of mind.

I’m hoping that I have somehow convinced you about the relevance of this very important financial tool or at least initiated some thoughts into starting your own emergency reserve. When crisis happens, you will have your own Red Cross to lean on.

The Spending Pyramid: Personal Values and Financial Planning (Part II)

In yesterday’s article, we were able to explore the structure of a spending pyramid a la Robert Pagliarini.

Pyramid_Fig2

Based on Dan Pink’s lecture on motivation (which I embedded in another article), there are three human motivating factors.

  • Autonomy – The urge to direct our own lives
  • Mastery – The desire to be better at something that matters
  • Purpose – The yearning to do what we do in the service of something larger than ourselves

As you begin to think about what motivates you in general, you will be able to rearrange the middle portion of the pyramid (in between basic expenses and miscellaneous expenses) to conjure up a picture that aligns with your own values.

Autonomy: Your Money and Yourself

SPPyramid2_1 Image courtesy of Flickr

If directing your life is what motivates you then debt reduction, financial independence and personal improvement will rank high in your pyramid. The most important thing to you is being in control of what happens in your life and blazing your own path. Therefore, neither owing money to credit card companies nor retiring while being financial dependent sit well with you. As such, most of your spending will be directed at your money going mostly into your pocket prior to anything else.

Purpose: Your Money and Others

SPPyramid2_2Image courtesy of Flickr

For some, being financially fit is the means while the end is the ability to serve others and the community. If the realization that there’s more to life than your own needs, then donations to church and charity will rank high on your list. Those who attend church have a set value at 10% (tithing) and will also donate in others ways. Even if you don’t attend a church, you find that donating towards a cause brings about a certain kind of satisfaction. In addition, these donations can also be used for tax deductions.

Another area not reflected in the pyramid is provision for family (both immediate and extended). I told a story of how my father laid the foundation for my siblings and me to go to college. That couldn’t have happened if he didn’t believe that part of his purpose was leaving a legacy to his children.

Mastery: Your Money, Yourself and Others

SPPyramid2_3Image courtesy of Flickr

Sometimes, motivation lies in being better at something for the sake of just being better (epitome of kaizen). Two of the most popular New Year Resolutions in the U.S.A. are managing debt and saving money. Hence it would appear that most people would fall under this category as most believe that finances matter. This belief combined with the desire to understand finance could be a motivating factor for another set of people. Therefore, Goals and Emergency Reserve would rank higher in your pyramid. Goals motivate towards reaching a pinnacle while mastering personal finances starts with being prepared for emergencies. Personal Improvement would also fall under this category as mastering finances would include studying financial matters and learning from others.

Most of the time, personal motivation will come from a combination of two or all three factors and therefore you will find that your values overlap. In the end, the final picture is letting the things that motivate you in life also motivate shaping your finances. Create your own picture and it will lead to spending habits that are aligned with what you think is important.

The Spending Pyramid: Personal Values and Financial Planning (Part I)

Do you ever find yourself wondering where the time has gone at the end of the day? It starts out bright and you perform the required tasks for the day, but the rest of the time has flown by before you realize it? This is often also the case with money.

In his book The Six-Day Financial Makeover, Robert Pagliarini warns that when spending isn’t planned, it often follows this pyramid with money flowing from the top to bottom and reducing in quantity as it trickles down.

Pyramid_Fig1

Like required tasks of the day, Basic Living Expenses are the first things that normally come out of a paycheck. You pay rent, water and electricity bills, insurance, buy groceries etc. However, if there is no plan in place for the rest of the money, whatever is left over often gets spent on Miscellaneous Expenses such as shopping, entertainment and the occasional dining out. Before you know it, there’s very little left over and this little is stretched into the remaining part of the pyramid. This is the kind of lifestyle that tends to lead to living paycheck to paycheck and a continuous cycling of debt.

Robert then suggested a different sort of pyramid which he termed the “Optimized Spending Pyramid”

Pyramid_Fig2

The top part of the pyramid is still Basic Living Expenses while the Miscellaneous Expenses lie at the bottom. Everyone in the finance field will agree that this should always be the case i.e. Pay bills first and then spend chump change on wants. The disagreements arise in the middle portion of the pyramid and the order in which those items should occur. Should Debt be paid off first before establishing Emergency Reserve? Should I give to Charity or the Church when I have debt piling up? Should I be saving for Retirement when I don’t have an Emergency Fund established? And so on and so forth.

The fact is there is not one correct answer. Even when there is an answer that makes sense mathematically, it can be hard to tailor emotions to the arithmetic. This is where personal values come into play. A bible verse says

“Where your treasure is, there your heart will be also.” (Luke 12:34)

The order of priority simply depends on how much value you place on each area of the pyramid. If it’s more important to you not to owe anyone anything, you will find yourself focused on Debt Reduction. If you care a lot more about things going on with the less-privileged in your community, Charity will rank higher in that pyramid. If you care a lot more about developing your skills e.g. learning new software for your job or improving your reading skills, Personal Improvement will rank higher on the list. Whatever the case may be, this portion of the pyramid will be ordered entirely on the things you value most.

Money, like time, if not planned wisely often trickles into the areas of life which don’t rank high on the priority list. Therefore establishing a plan is important, but more important is that it should be your own plan. When the created plan is yours and based on your values, you’re more prone or at least have a stronger desire to follow it.

As a follow-up to this article, tomorrow I will connect Dan Pink’s talk about the three aspects of motivation and relate it to how you can begin to arrange the middle portion of this pyramid to fit you.

Note: I found out this morning through Get Rich Slowly that Robert Pagliarini is offering his E-Book Plan Z: How to Survive the Financial Crisis as a free download. I haven’t checked it out but his Six-Day Financial Makeover was easy to read and comprehend and I expect this book to be the same.

Get the Ball Rolling: How Physics taught me to get things done

What is the hardest part of embarking on any new project? Usually it’s fear of the unknown. However, when this fear has been overcome, the next hardest thing is actually starting the project. Some people stay in the planning stage forever. Strangely enough, the key is to just begin the project and slowly gain momentum. But, what is momentum?

Momentum – A property of a moving body that determines the length of time required to bring it to rest when under the action of a constant force (Merriam-Webster’s Online Dictionary)

Momentum is a wonderful term in physics used to describe the relationship between the mass of a body and its speed. If a body is large, it will have a large momentum. If a body is moving quickly, it will also have a large momentum. Using the definition from the dictionary, momentum is related to the amount of time it takes to stop a body that is moving. Once momentum starts to increase, it becomes more and more difficult to stop.  In other words:

Large Body – – – > Large Momentum – – – > Long time to stop motion

Momentum_Rock

Like most scientific principles, this law of momentum is connected to everyday life and human behavior:

Major Project – – – > Major Momentum – – -> Long time to Stop Working

Think about this: Ever been in a situation where you’re just setting up your books to study some material and then someone calls you? Is it more difficult to quit when you haven’t started or to ignore the phone? You might find yourself saying, “Let me finish this paragraph” or “Let me solve these problems and then I’ll call back.”  How about when you decided to start saving up for emergencies? How much easier was it to spend on a whim when the emergency fund was empty as opposed to when you’re a quarter of the way to the goal?

I have been dreading writing my proposal (mentioned in my Goal Report) since I realized I had to do one. This dread led me to continually postpone while I kept thinking about the perfect structure in the back of my mind. Well, I never got the perfect structure I wanted until I began typing. Once I started, my ideas started to take shape and I was able to rearrange and integrate my thoughts better within the structure of the proposal.  The same thing happened when it came to investing. I had been talking about investing since I started graduate school 5 years ago but I didn’t start until this year. I always just told myself I didn’t know enough. Last March, I decided to just plunge in and this forced me to begin to learn more. I initially sought advice from 2 uncles who had been involved in financial markets before and they provided tips on what to look for (one uncle actually thought I had started because I had talked about it so much). It wasn’t until I began investing that I learned the different kinds of mutual funds that were out there and then started looking for funds with low expense ratios.

What have I learned?  The way to overcome the lethargy of beginning a new project is to just start (Nike slogan comes to mind here), no matter how small the actions are. You want to save $1000, start by saving 2%-5% of your income today and slowly increase that. You want to improve your cardio rate: start by jogging for 5-10 minutes a day. You want to start investing:  there are mutual fund companies that begin at $25 and others at $50 per month for mutual fund accounts. It takes time to get the ball rolling, but as time passes with you chipping away, it becomes a lot harder to stop. Take a step today, it may be in the wrong direction but you won’t know unless you step.

Joe Wilson, Kanye West and the 1st Habit of Highly Effective People

I know what you might be thinking. Why am I bringing this up when the dead horse of Outbursts Anonymous (Joe Wilson’s “You Lie” and Kanye Wests “I’ll let you finish but . . . “)  has been beaten to many times this week? Well, their snap reactions made me think about something I learned a while ago.

In Stephen Covey’s book (7 habits of highly effective people), the first habit is described as be proactive (rather than reactive).

To illustrate, this is reactive

JWKW1st_1 copy

And this is proactive

JWKW1st_2

Mr Covey explains that to move from dependence to independence, the choice  to be proactive is the first step i.e. realizing that we control our actions. Not our environment or our upbringing or our nature. It’s easy to say “That’s the way I am” or “They made me angry” but that does not explain the response. When there is no gap between stimulus and response (reaction), fireworks always result. The point is not that we shouldn’t react at all, but to produce a measured response that reflects thought.

I was reading an article recently where an older man was advising a younger man on marriage (The source of that article is a man talking about his first 100 days of marriage. His wife is also blogging. Very entertaining and eye-opening reads). What the older man does when he senses things getting testy between him and his wife is ask “How important is this to you?” Just 6 words. Yet, those words and the silent moment aftwerwards alone would greatly reduce the divorce rates and breakups that happen. Just taking a small moment to think and then respond always makes a huge difference.

Now this habit is not saying that there should be no response. I have seen and experienced the danger of bottling up emotions can do. It is important to respond, but just as relevant is the thought prior to response. The stimuli for the Mr Wilson and Mr West was a difference in opinion, what’s yours and how do you deal?

Brain image from Wikipedia.

Why Always Trumps How To

Yesterday I read this article at Seth Godin’s Blog. Seth Godin is the author of numerous business and management books. Never really knew much about the guy until I started hearing about his 6 month Alternative MBA program. Anyway, in his post he draws out the hierarchy of success: Attitude –> Approach –> Goals –> Strategy –> Tactics –> Execution and how most businesses and people spend time on Execution but not enough time on Attitude and Approach. How can I have have more money? How can I lose 10 pounds? How can I get As? Obviously, these are all great questions to ask. The problem is they cannot sustain our actions. It’s not a surprise that when there’s a great best-selling idea in the market, people try it for 1 – 2 weeks, then give up. When the next next idea comes up, people jump on that bandwagon again. Why? Maybe the method is the problem. Perhaps, yet an even deeper question is even if the method is intact, is it the right thing for me to do?

I remember when I first began working out because my friend would always tell me to work out with him. He was a very muscular guy and loved going to the gym and talked about it all the time. It became contagious so I would tag along with him and try to learn the tricks of the trade. After about 2 weeks of lifting, I would be disillusioned and would go back to being a hermit at the library once more. This would happen once a quarter.  I would be excited to work out again, but my reason for going to the gym was never strong enough to overcome the difficulty of the situation. I had a high metabolism, so I wasn’t doing it for the weight. I didn’t care about bulking up and I hadn’t seen a difference in 2 weeks (naïve I know) so what was the point?

Then it hit me! (“Eureka!” said Archimedes)

WhyHow_Archimedes

No matter how high my metabolism was, it didn’t mean I was healthy. I still couldn’t run hard on the soccer field for more than 3 minutes without getting winded and bent over. I couldn’t do more than 20 pushups at a time. Basically, even though I looked fit, I just wasn’t. So my attitude changed from wanting to look like my friend to I need to improve my overall physical health. It didn’t mean that it made it easier for me to go to the gym often; I still didn’t like running or any cardio activities. The difference was now my reason held up to the rigors of what I was doing. When I felt too tired to exercise, I thought about the idea of not being able to run around with the kids or being sick due to high cholesterol or high blood pressure.

In connection to this same article, Dan Pink (Al Gore’s former speech writer) delivered the talk below on TED (TED is a really great site of entertaining speakers sharing ideas. There’s a lot of amazing stuff there to check out at your own leisure)

Vodpod videos no longer available.

A direct link to the video is here

The relevant point (as far as this post goes) is at the end where he mentions that there are 3 reasons that motivate us to do things

  • Autonomy – The urge to direct our own lives
  • Mastery – The desire to be better at something that matters
  • Purpose – The yearning to do what we do in the service of something larger than ourselves

One or a combination of these is what governs our attitudes and actions towards the physical, spiritual, financial, intellectual and social aspects of our lives. However I am finding that execution only succeeds when the attitude is right and strong enough to hold up to this execution.

Thoughts?

Image courtesy of Physics Department Weber State University