Posts Tagged ‘budget’

How to live like a millionaire!

Imagine what your lifestyle would be like if you were a millionaire!

Do you imagine living in a mansion on the water or carrying a Louis Vuitton purse?

I recently read The Millionaire Mind and Stop Acting Rich, both written by

Dr. Thomas Stanley, a professor specializing in research on American millionaires.  His research spans 30+ years and profiles how millionaires actually live, compiling data  from thousands of surveys, focus groups, and one-on-one interviews.  You’ll be surprised that millionaires don’t have the flashy lives we see in shows like MTV’s Cribs.

Millionaires’ Cars

Of the cars recently bought by millionaires, which do you think was the most popular brand?

Range Rover?            

Top-of-the line Mercedes?

Porsche?

The correct answer is . . . Toyota!  Surprised?  “Most [millionaires] do not drive luxury makes of cars.”[i] “The median price paid by millionaires for their most recent [car purchase] was only $31,167.  The typical price paid by decamillionaires (someone with $10+ million in net worth) was $41,997”[ii].

Millionaire Dining

What do you think is the typical price millionaires paid to eat at their favorite restaurants, including tax, tip, and drinks?

$100?

$250?

$300?

The answer is . . . $19.59! “Only three-tenths of 1 percent [.003%] typically [spent] more than $100.”[iii] How much does dinner cost at your favorite restaurant?


Check out more millionaire stats:

Price paid for most recent haircut:

  • Female millionaires: $44.58
  • Male millionaires: $16.00[iv]

Cost of most recently purchased suit:

  • Typical Millionaire: $299.50
  • Decamillionaires: only $482! [v]

Millionaires typically don’t spend a large percentage of their wealth on clothes. When shopping, millionaires look for sales![vi] Millionaires—are frugal, allowing them to reinvest and grow their wealth.

Get involved!

How did the millionaire stats compare to your spending habits?  And your expectations? What surprised you the most?  What didn’t?

I’ll respond to all comments and emails!


[i]Stop Acting Rich, p. 203; [ii]Stop Acting Rich, p. 204; [iii]Stop Acting Rich, p. 156-157; [iv]Stop Acting Rich, p. 60 ; [v]Stop Acting Rich, 72; [vi]Stop Acting Rich, 73 – 74;

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How the iPhone cost as much as a trip to Greece!

I love to travel and enjoy fashion, but electronics are not a big deal to me. I normally buy new gadgets when I need them and rarely because they’re new or sexy—except for the iPhone.
 

I succumbed to pressure from my new team at work and bought the iPhone. One guy, Brian, should’ve worked for Apple’s marketing team.  He was constantly thinking up new iPhone commercials.  For months, I heard teammates say—“There’s an app for that . . . . Check out this flashlight app . . . . The iPhone does this faster . . . . Google maps is much better on an iPhone,” and many more comments.  It felt like working in an infomercial! When Brian showed me how to hack into the iPhone to get internet access on my laptop for no additional charge, I was sold.  I bought the iPhone a few weeks later, justifying the purchase with the free internet.

1st Problem: Justifying Long-Term Costs with Short-Term Benefits

I justified an ongoing, long-term cost—monthly plan and maintenance to the iPhone— with a temporary benefit.  Apple would eventually block the hack, which they did a few months later. Once I couldn’t use my iPhone to get internet on my laptop, I lost my main benefit and was stuck with the ongoing costs. Long-term costs should only be justified with long-term benefits; otherwise, when the short-term benefits are over, you end up stuck with all costs and none of the value.

2nd Problem: Maintenance Costs were too High

I dropped things, and often. The iPhone was the most delicate phone on the market, due to the large glass screen.  After having the iPhone for 8 months, I accidentally dropped and broke it, despite using a heavy duty case. Apple charged $295 for a replacement iPhone and wouldn’t lower the cost by allowing me to downgrade to older version or one with smaller memory.

Final Solution: Change phones & providers!

I had 2 options—sink another $300 into the iPhone, for a total of $1,725 annually, or move on to another phone. The chart below explains why the iPhone was so dang expensive!


How the iPhone cost as much as a trip to Greece!
First iPhone * $350
Yearly Costs for Cell Phone Plan: $90/ month for 350 minutes, texts,and iPhone data plan $1,080
Yearly cost before breaking phone $1,430
Replacement iPhone $295
Total 1-Year Cost for iPhone $1,725 !!!!

For someone that’s not into technology and would rather spend that money traveling, it didn’t make sense to throw more money at Apple or AT&T.

I changed to Sprint, where I got more minutes and unlimited texts for $20 less per month and got a HTC Hero with Android apps and a touch screen for $179 after the rebate.  Get this—paying the early termination fee and buying a new phone was only $14 more expensive than getting a replacement iPhone.


How cheap it was to switch to Sprint
AT&T Early termination fee $130
Cost of HTC Hero after rebate $179
Total cost of switching to Sprint (just $14 more than replacement iPhone) $309

The Sprint plan offers more minutes, unlimited texts, and costs $240 per year less than AT&T—just enough for a plane ticket to visit my best friend in Seattle!

The iPhone was the best phone on the market.  But did I need the best phone? Nope! Just one that fit my lifestyle.


If I had bought the replacement iPhone, I would have spent over $1,700 on my cell phone!


$700 saved on cell phone pays for roundtrip international flight!
iPhone HTC Hero Difference
Phone $350 $ 179* HTC Hero was over $170 cheaper
Monthly Plan $90 $   70 Sprint $30 cheaper monthly and fewer dropped calls
Yearly costbefore breakingphone $1,430 $1,029 HTC Hero/ Sprint was $400 cheaper
ReplacementPhone $295 $0 HTC Hero was not as delicate and was unlikely to break
Total 1-YearCost $1,725 $1,029 Saved about $700! Cost of international flight!

For some people, almost two grand was worth it. If you prefer electronics and can afford the iPhone after savings and bills are paid—then go for it!

As I said in the beginning of the post, I’m not into electronics. If I had two grand to spend, I’d rather travel or shop.  Spending according to my values meant changing from the iPhone to a cheaper phone and having more travel money!

———

What new item did you purchase because your friends, family, or coworkers influenced your decisions?  Did the new purchase match your values?

Try adding up the total yearly cost. With the yearly cost in front of you, ask yourself if the item is worth that much?  Would you rather spend that cash on something else?

* Although I bought cases for both phones, the cost of 2 iPhone cases and 1 HTC case was not included in the calculations.

 

Do you really save when you buy discounts?

I was thinking about Black Friday and how hundreds of people camp out overnight to get massive discounts, such as 60-inch flat screen LCD TVs for $150, 70% of laptops, and buy 1 get 1 free digital cameras. Most people go through the hassle of waiting in line and waking up before dawn, so they can save money.  But, do they really save?

My questions to you are: When you buy things on sale, does that mean you’re actually saving money?   Do sales really help you keep more cash in your bank account?

What do you think?

Think about it . . .

A little bit more . . .

Got a final answer?

Alright, time’s up .


My answer: Often discounts and sales actually hurt your bank account! Let me explain with a personal example.

A few years ago, I went into Banana Republic to buy a winter jacket during the after Christmas sale.  I planned to buy one item—a jacket for about $125.  The sales were better than expected! The jacket was marked down from $300 to $32! (You already know what happened next, don’t ya?) I bought more stuff, for a total of 1 jacket, 3 pairs of pants, and 3 tops. The total cost was over $200. I walked out smiling about much money I saved.

But did I actually save money? Here’s the math:

Planned Actual Difference
# of Items 1 7 Bought 6 impulse buys
Average Price per Item $125 $32 Average price per item was about $95 less than expected, due to great discounts
Total Price $125 $225 Spent $100 more than planned, a full Benjamin gone from my bank account

I walked out happy and smiling because I bought 7 items on sale–1 that I needed and 6 that I bought on impulse.  I wasn’t thinking about the bottom line: My bank account was $225 poorer. Did I actually save money?  Was this actually a net plus to my life or finances? No to both!

I can’t tell you how many times I went shopping with the mentality that if I got discounts per item, I saved overall.  It took a while, but it finally sunk in–I save money only when my total shopping bill is less than planned or the extra items are things I needed. (Ladies, I mean need like food, water, shelter, etc. Not the way you “need” another pair of black pumps or a new LBD.)

By buying extra items I didn’t need, I wasted money.  I could have bought just the jacket, and had about $195 to spend on something I really valued.  (Like 3 -4 nights at a hotel in Greece!) Store owners are smart.  They get us in the door with sales, hoping that we’ll buy more overall. 😉

Proving the point that impulse buys often waste money, I rarely wore the 6 impulse buys and no longer even have them.  The jacket, which I needed, has lasted 4+ years, is still worn regularly, and is hanging in my coat closet right now.

Now it’s your turn: When you get discounts, does it feel like you saved money? Even if you spent more overall?

How I Almost Threw my Bonus Down the Drain

 A few months ago, I got promoted at work! I called my dad to share the news.  After we discussed the new level and responsibilities, I get excited about the larger salary. “I have more cash now!  I can travel more, buy a new suit, move to New York City . . .”

As I continued listing items, my dad jumped in, “Don’t start spending more just because your salary increased. Buy one special item to celebrate and don’t change your spending habits.”

In responce, I was annoyed.  I thought, “I’m the personal finance guru in the family. Why are you lecturing me?

The next day, I thought more about my dad’s comments—still confident he shouldn’t be lecturing me, the expert,—and decided I’d do one better. “I won’t buy anything to celebrate.  The summer was so fabulous that I don’t need anything extra.”  I went to South Africa for 2.5 weeks and went to the beach in Cartagena, Colombia for a week.  I also went to NYC a lot.

However, deep-down inside, I still wanted to buy something to celebrate the promotion.  Over the next few weeks, I found myself frequently thinking, “I just got promoted, and I am not buying anything big to celebrate.   I can splurge a little. It’s only an extra $3-$10.”   

“What does it matter if I buy lunch at Whole Foods instead of eating at home?”

“I’ll just take a cab this one time. I’m too tired to walk.”

After 2 weeks of spending a little more here and there, I noticed I was running out of cash.  I have a $60 per week cash allowance ($240 monthly) that I spend however I want without tracking.  I had almost finished the month’s cash during the week #2!  Then I checked my credit card balance and found an extra $150 on here! WTF! By splurging on $3-$10 here and there, I’d spent about $360 in 2 weeks without noticing.

Right then and there, I decided to buy a bike to celebrate. I admired how people in Cartagena, Colombia completed their daily errands on foot.  I wanted to buy a bicycle and start riding to work, to the grocery store, and for other errands, so I could incorporate more exercise into my daily life.

My New Bike - Schwinn Women's Searcher

Once I choose a concrete gift, I stopped creating little ways to treat myselfI was content. I got a $420 bike on sale for $350 ($70 savings) and spent $150 on accessories (helmet, light, etc).  Every time I rode or saw the bike, it reminded me of my travels and commitment to living a healthy, fabulous life.

If I had bought the bike initially, I would have spent only $570, instead of spending a total of $930, with $360 wasted on crap.

I hated to say it, but my dad was right.  The experience reminded me that psychological factors affect my buying habits.  When I tried to sweep the feelings under the rug, they trickled out, and I spent on little extras.  I had to admit my feelings to myself before I could stop hemorrhaging cash.

Sometimes the best answer is to go ahead and spend the cash—like in this case where I had the money.  Other times, the best solution is to understand why you want to spend money and find a cheaper or free alternative that provides a similar feeling.

Being Financially Fab means being aware of why you spend money. When you understand your motivations, you have a hell of a lot more control over your cash. 😉

When was the last time you were in a similar situation?  What did you do? Do you know how feelings and psychology affect your financial decisions?

Why brand names aren’t worth it?

Not worth the brand price

Brand names aren’t worth it if I’m paying for extra bells and whistles that I didn’t want in the first place.

I pay for extra brand names only when the brand adds something that’s necessary to meet my requirements.

For example, I buy store brand canned foods, frozen veggies, laundry detergent, and just about anything else that isn’t important to me.  I could buy Tide detergent. Tide makes a great product. But the cheapest detergent on the shelf also washes my clothes just fine. Why spend more money on Tide if a cheaper product meets my requirements? Why pay more for bells and whistles that don’t matter?

Traveling abroad has made me appreciate fresh produce.  Now, I avoid buying fruits and vegetables from your standard American grocery store because the produce is neither delicious nor fresh.  I usually buy produce from Trader Joe’s, (which has higher quality produce than most grocery stores but lower quality than Whole Foods).  Occasionally, if I want something that isn’t available at Trader Joe’s or the quality there is subpar, I go to Whole Foods. For example, I’ll go to Whole Foods for a good mango. Other groceries stores don’t meet my requirements for a juicy, fresh, delicious mango. Hmmmm.

Delicious mangos worth the extra dollar!

Notice that I don’t go to Whole Foods for all my produce. I know that Whole Foods and farmer’s markets have the best fruits and vegetables available to me.  I don’t need best.  I just want food that meets my taste requirements.

To use a shopping analogy, when I want Macy’s quality produce (Trader Joes), I’m not going to Neiman Marcus (Whole Foods and farmer’s markets) for groceries.

How do you decide when to spend extra on brand names? For which items do you buy the store brand? Or always buy the brand name?