“Oh no… another lifestyle inflation article,” groaned readers of the personal finance realm when they read the latest offering from My University Money. Yes, I know, many of you have seen this before, and are probably thinking, “Man, I don’t go out and spend frivolously, I’m not trying to pretend I’m a Rockefeller, I’m just an everyday person, I don’t have any lifestyle inflation.” Here is the thing – lifestyle inflation is a silent beast. It sneaks up on us without being aware and often it grows on itself. The interesting thing is I’m not one of the “live-like-a-pauper-until-your-rich” type of individuals. Anyone who says a little lifestyle inflation isn’t fun is flat out lying. As long as you know the true cost of what your new style of living is going to run you, then I say go for it. This is why preaching to people that any form of spending more on themselves is bad, rarely works. Instead, my approach is just to realize the sacrifice in future earnings you are taking by letting your spending rise, and then make sure that you get the most happiness out of the luxuries you are treating yourself to. This often means taking things on a case-by-case basis. For me, buying a $35K sports car because young guys are supposed to like sports cars, they look sweet, and because my buddy has one is a crazy bad example of lifestyle inflation. On the other hand, if you grew up working on cars, they are a personal passion for you, and you would get a major uptick of joy every day from buying this car regardless of what others had – then it makes complete sense and is definitely not something that is “evil” and you should feel guilty for (providing you can afford it of course). Lifestyle Inflation Isn’t Prejudice – It Hates Everyone Equally Negative lifestyle inflation appears to me to be an equal opportunity affliction. The stereotype is obviously people who don’t plan anything and either can’t or won’t do the basic math on borrowing money. There are certainly enough of these people out there, but I would argue there are probably more people that earn a decent-to-above average income and are smart-to-really really smart individuals, that also get themselves into trouble with this weird psychological response to material things. It is one of those subjects that seems to be so instinct-driven, that logic doesn’t really sink in for most people, and then the spiral begins. Once you allow material items to start determining your self-worth and take up a large part of your identity, it doesn’t matter what your income level is, who your friends are, or even what you specifically like to spend your money on, lifestyle inflation is inevitable going to get you. Take a look at many of the professional athletes out there. Many of them come from very average backgrounds, the type of people that would claim if they had a million dollars they [...]
Lifestyle Inflation – The Upward/Downward Spiral
Claiming a Business Loss – Losing Money Never Felt So Good
So a couple weeks ago I sat down to get our tax situation figured out for 2011. We decided to go with a chartered account to file all of the paperwork for us. It actually worked out pretty well since he needed a website made for him and one of us (I’ll leave it up to you to guess) is pretty good at doing that sort of thing. As a bonus for future years, we found out that since we are now a registered business, we can deduct the costs of having someone do our books, from the revenue of the business itself. If we assume our marginal tax rate is somewhere around 35-40%, this basically means that the tax preparation really only costs us less than 2/3 of the sticker price. Anyway, I had done my own taxes in the past (I still recommend trying your hand at this process if your return is fairly straight forward), but I wanted someone who was sure they knew what they were doing since we had to include business-related stuff this time around. I had never really paid attention to all the deductions that businesses were allowed to make since it never affected me before. I was vaguely aware that my dad “wrote-off” quite a few things with his lumber business when I was young, but I didn’t really understand just how extensive tax deductions can be for a business. Now I should say right up front that I am definitely no tax expert, I don’t play one on TV (or on my blog) and I didn’t even stay at a Holiday Inn Express last night, so take my opinions and thoughts for what they are worth. Running A Blog Costs More Than I Thought After adding up all our revenues and immediate costs related to the business (stuff like hosting, design help, contract work, software, internet costs etc.) I thought we would likely break even for 2011; however, after learning all the expenses I was allowed to claim against our revenues, I was never so happy to report that I had “lost” quite a bit of a money. So for our first year in business, we are claiming a business loss! The main aspect of these deductions that I was not aware of was all of the home expenses that we are able to deduct. The basic idea is that if you conduct more than 50% of your business from home, you are allowed to claim many different business costs such as rent, mortgage (sans interest), home insurance costs, utilities from your taxes. The percentage of these costs you are allowed to deduct is based on the square footage of your home office as a percentage of the overall square footage in your house. Now I know why so many people try to create fraudulent businesses – they could be quite lucrative! Now hopefully this will be the only year that we claim a loss for our business. I definitely plan on [...]
The Easiest Way To Save 3k
I’m still waiting for the day that I overhear someone say “Crap! I saved way too much.” It does not and I’m confident it will not happen. That’s because we all want to save more. The problem is that it’s difficult, especially when you’re a recent college graduate just starting out. To make your life easier, I’m going to share the best budgeting advice I’ve ever received. Don’t think of it as “budgeting for beginners” because I still follow this method of saving years later. Everybody Hates Saving Saving isn’t much fun. It’s the complete opposite of instant gratification. When we’re saving, we’re simply delaying gratification. We typically only see the benefit when we’re facing an emergency and don’t have to rely on credit. At this point we rarely take a second to think, “Hey, I’m really glad I did this.” Why Is Saving Difficult? Saving requires discipline and often times requires us to modify our behavior. If I’m used to eating X and Y, it takes a lot of effort to begin eating A and Z. Saving is typically a series of decisions made daily. That’s why it’s so hard. That’s why my tip is so great. It requires only 2 good decisions each year. Sounds easy right? Just The Tip Here is the best budgeting tip I have ever received (and the tip I still use today). A lot of us get paid bi-weekly. Therefore, we budget our monthly expenses around receiving 2 paychecks. This means we budget for 24 paychecks (2 per month). There are actually 26 pay periods each year meaning there should be 2 paychecks each year that aren’t accounted for. If you make $40,000/year, you should be able to sock away AT LEAST $3,000/year from these additional paychecks. Super easy. I suggest you try it. Will 3k Really Change My Life? Absolutely. Lets say you invest the $3000 that you manage to save every year. If you begin to sock this amount away when you’re just beginning to work (at age 25) then by the time you retire (age 65) you will have amassed a good chunk of change. And remember you don’t have to change the way you currently live! Calculation for an average return of 5% and 10%: Initial Contribution: $3000 Annual Addition: $3000 Years to grow: 40 Annual Return: 5% and 10% Future Value: $401,639 Future Value: $1,596,333 HELLO MILLION DOLLAR CLUB! If this seems ridiculously easy, that’s because it is! Quite honestly, I think these numbers are modest. This is under the assumption that you’ll make $40,000/year for the next 40 years. If we are constantly striving to maximize our earnings, the two paychecks each year should AT LEAST double by the time we’re 65. Follow this very basic tip and in 40 years you will thank me. Readers: Do you get paid bi-weekly? If so, is this tip old news to you? image credit
If Everyone Always Wins How Do They Build The Casinos?
So you’ve watched the movie “21” (or maybe its much better ancestor – Rounders) and now you figure it’s time to go out and make some money on this whole gambling thing. Gambling is a weird phenomenon for human beings in my opinion. I mean, we walk into these gorgeous casinos, full of employees, they give us “free” drinks and complimentary rooms, and yet we all believe we are going to win money. There might be that little “angel on the shoulder” or conscience at the back of our minds that tells us the casino must be taking someone’s money if they can afford everything around us, but yet our gut tells us that we are different as a gambler. It’s Easy… If You’re an MIT Grad It doesn’t help that popular culture furthers this agenda. The going theme in hollywood’s world of gambling is that you can simply get good enough at casino games to beat the house consistently and become fairly wealthy. Another popular theme is beating the sports bookies. This is just flat out false. Mathematically, it is nearly impossible to beat the house for the long term, even with games of skill. Eventually the sheer odds just catch up with everybody. No One Ever Loses, but The Casinos Never Go Bankrupt We don’t do ourselves any favours either. How often do your friends come up to you and gleefully shout, “I lost $150 in the casino last night, that’s three nights in a row where I went out, had a fun time, and lost $150.” My guess is that it doesn’t happen that often. Instead we all like to shout out respective success stories from the top of mountains. If we’re honest with ourselves and just look at some lost wagers as the cost of the entertainment the gambling provided, then we would have no problem admitting this, yet few of us do. Instead we keep re-telling that story of when the machine paid us out $500, or when that perfect 8 game Sport Select ticket put $350 in our pocket. The Best Way To Throw Money Away But if you do find yourself at the casino you should at least be aware of which games offer you the best odds. If you never really thought about how casinos make their money before, every game in the place has a “house advantage.” This advantage guarantees that over a long enough time period the casino will make money off of you. The first thing you should know is that slot machines are the most popular casino pastime and they are also one of the worst places to put your money. In his 2005 article “How slot machines give gamblers the business” Marc Cooper reported that casinos made 70% of their earnings from slot machines. Their payout ratios usually ranged from 80%-95%. This means that the house advantage (or the money that the casino takes out of the pot before it is paid out) is 5%-20%, no wonder casinos are [...]
Golf vs Cocaine Addiction
I’ve never been a big golf guy. I always preferred to play sports with a little more action like basketball, boxing and wrestling; however, I am apparently getting old. More and more of my friends are taking up a set of clubs and playing the sport of gentry everywhere. Besides not really liking the sport, I cringe when I hear how much money these guys are spending on their golf game. It is also interesting for me to note that it seems like once people (mostly guys admittedly) get into golf, they talk about in the same tones that cocaine addicts use to talk about their preferred vice. “If I could golf every day, I would.” “I’m going to try real hard to get away from the wife and kids this weekend to go golfing.” “If I could golf <insert hallowed course here> I could die happy.” Do golf addicts have their own anonymous meetings? Anyway, all this to say that I am increasingly feeling more and more pressure to take up the pastime. I’ve been to a driving range on more than one occasion, and I’ve even played a couple rounds with buddies. Every time, the best part was definitely the scenery and the beer. Maybe I’m too logical, but can you fault me for coming to the conclusion that I could just go for a walk (I live in a beautiful area) with a beer and save myself the trouble of playing a game I don’t like? If You Consume Beer All Day Is It Still Exercise? If it were merely the fact that I didn’t like golf, I could probably learn to appreciate some aspects of it. For example, there are many times when I don’t like jogging, but I often get a “runner’s high” from pushing myself, and I get the benefit of keeping my belly in check (kind of). The larger issue for a young guy that is trying to establish a solid financial foundation to support an early retirement, is that a golf addiction may actually cost as much as the aforementioned cocaine addiction. Here is a sampling of the costs that are associated with golf, and I’m sure this list isn’t even exhaustive since I really haven’t spent much time on a golf course: -Clubs and Other Equipment -Club Membership -Greens Fees -Travel Costs -Clubhouse Meals -Golf Cart Rentals/Purchase & Maintenance -Course Alcohol Prices -Tips -Golf Lessons/Magazine Subscriptions I have a hard time seeing how a summer of golf a couple times a week will cost less than $2,000. If you are a teacher who becomes an addict and wants to golf every day, I assume it would cost a lot more than this. On the flip side, I hear that most business deals get done on a golf course, so maybe that’s the trade-off? My current strategy of asking potential business contacts to spar a couple rounds with me hasn’t been working so far, so maybe I should try hypnotizing myself into liking [...]
Free Expense Tracking Software
