RON: I'm Ron Corning for Howdini.com. Getting out of credit card debt, saving more, investing more: all popular New Year's resolutions for many of us. But, unfortunately just like those plans to lose ten pounds many of these resolutions vanish not too long into the new year. But 2008 could be the year you make it happen. Here to tell us more is Stacey Tisdale, she's a financial journalist and the author of The True Cost of Happiness. Stacey good to have you here again.
STACEY: Thanks Ron.
RON: Alright so let's talk about this. Why are most of us dealing with money problems because if you look at the numbers in some cases it's not that people are spending too much, they're just mismanaging what they have.
STACEY: Most people are really unaware of what they're doing when it comes to money. They'll spend money they don't have like you said. Things like taking on credit card debt without looking at what's really costing them.
RON: So there are other ways they might take the money they have and get more out of it. Because if you were to add up what you might be spending in credit card fees or credit card interest over the course of the year it might be pretty, pretty stunning.
STACEY: And purchases--for example someone might have a goal of living in a certain part of the country, but they're spending so much money on material things like clothes and shoes so much more than they had that their important goal doesn't really have a chance of happening. So what people need to do are really two things: they need to figure out what they're planning for and see how they can use their money to help them achieve that, and the second thing they really need to do is see how their current spending is affecting that equation.
RON: We all tend to sort of think short term living paycheck to paycheck, maybe month to month because that's when the rent or the mortgage is due. Maybe month to month because that's when the credit card bills come in. You recommend though people think about it in broader terms, a bigger picture. Where do you start with that?
STACEY: I actually give people three questions to think about. The first is: if you had all the money in the world, all the money you would ever need. I'm talking like Aristotle Onassis rich. What would you do with your time? And when you look at this you really see some of the disconnects between how you would like to be spending your time and how you're spending it now. The second question--I know these don't seem like financial questions but they really help you get a clear picture of what you're planning for--is if you had just five years to live what would you be doing with your time? What would you be doing now? You know, what we're trying to help people do is clarify that ideal lifestyle that would make them happy. The final question to really ask if you found out that you were going to die tomorrow, what are your regrets? And if you think about these questions, especially that last one, it really shows you what you could be doing to make yourself happy, what you're doing that's making yourself unhappy, and that's really where financial planning has to start. That's what--when you're clear on what you're planning for then you have the motivation and the incentive, you were talking, on to stick to your financial plan.
RON: There's sort of an analogy here with dieting. A lot of people want to get physical fit, you don't want to go on a crash diet because that's not realistic. You're going to end up falling off the wagon. But you want to be financially fit; you want to think about lifestyle changes and then you want to really assess where you're spending everything because that might be the wakeup call you need. You say keep a spending diary, much like on a diet you keep a log of what calories you're taking in.
STACEY: Absolutely if you want to really stick to a diet, you're going to have to take a look at some point at why you're over-eating in the first place. If you want to really change your spending you're going to have to do the same thing. So it's a two part process. Once you have an idea of what you're planning for, look at how your spending's working into the equations.
RON: And we're not saying here do away with your car. We're not saying here do away with your house or don't live in the neighborhood where this school is where you want your child to go to.
RON: But if you've got two kids, do you need six bedrooms?
STACEY: Right if you have a bigger goal that you're trying to achieve like starting your own business, maybe that goal would be better served making a $300 payment on a Honda than the $700 payment on a Lexus--that's $400 that can go towards your goals.
RON: Take that $400 a month and put it into a savings account for later.
RON: And see over the course of five years how much you have in five years time and think to yourself, boy that could provide me the financial security I need for the future or allow me to retire early.
STACEY: Exactly and think about the big picture, think about your retirement goals, but also think in terms of your real like right now. This is money that I could put towards the things that really make me happy.
RON: People have a lot to balance though because they're thinking on one track about retirement, they're thinking about college education for their kids. And so how early on in your life do you begin to allocate the amount of money for those things?
STACEY: There's many resources on the internet. There's a chart in my book The Cost of Happiness that shows you certain savings targets you should have by whatever age. Your savings and investments targets to have $30,000 a year in retirement, $40,000 a year in retirement. But again before you get that, what does your ideal retirement look like? Sit down and think about what a week in my retirement is going to look like. What's it going to cost me? If I want to spend my retirement living in Arizona, why am I paying for this summer house that I stay in twice a year today in New York. You know why--you have to really think about those things.
RON: Specific things that come back again to that first exercise and that is to think about your long term goals and what money means to you.
STACEY: Exactly, exactly.
RON: Alright Stacey Tisdale thank you. The author of The True Cost of Happiness. I'm Ron Corning for howdini.com.