Reflections on spending and priorities

April is a month of spending and taxation. As individuals and businesses are filling out tax returns and possibly making tax payments and estimated tax payments to government, our state legislature and city councils are discussing how to spend our money.

Whether it is our decision to buy something, or government’s decision to fund something, it’s all about our priorities. I started thinking about what are priorities are, and how our spending priorities reflect what is important to us.

In our personal lives, our basic priorities might be:

1. Security (safety from harm)
2. Food and water
3. Shelter and clothing (safety from the environment)
4. Health (medicine, vaccinations, vitamins)

If our fundamental needs are met, our priorities might change to:

1. Family and community ties
2. A sense of purpose, spirituality, or philanthropy
3. A fulfilling job (career)
4. Planning for the future (retirement)

Just as our priorities influence how we spend money, government’s priorities influence the programs that are funded.

When governments prioritize society (the common good), focusing on the issues that individuals cannot easily manage, spending priorities might be:

1. Public security (safety from other countries or hostile groups)
2. Public order (safety within a community)
3. Common good (utilities, infrastructure, education, recreation, environment)
4. Public welfare (healthcare, welfare, housing)

Until the Social Security Act passed in 1935, Hawaii and the United States seemed to prioritize the common good – emphasizing charity and philanthropy instead of public assistance.

When governments prioritize individuals, focusing on personal welfare and health, spending priorities might be:

1. Public welfare (healthcare, welfare, housing)
2. Public order (safety within a community)
3. Common good (utilities, infrastructure, education, recreation, environment)
4. Public security (safety from other countries or hostile groups)

Based on 2015 federal spending, the United States government seems to prioritize individuals – 65% of the federal budget was spent on Social Security, Medicare, Medicaid, and income security programs.

 

Should Hawaii’s priorities be on individuals or the common good? What are your priorities?

 

Note: I found this elegant graphic on TheDailyQuotes.com, and I wish I could acknowledge the original author.

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Financial wellness is cool, high taxes are cruel

When my son was in first grade, his teacher game him an “If I had $100…” writing assignment. “If I had $100 I would buy a video game arcade. I would buy the arcade because I like to play video games all day!” My first thought was that we needed to cut down on his game playing! My second thought was that he doesn’t realize how much things really cost.

We’re not too young or too old to to be money-wise. April is Financial Literacy Month, and we could all take some time to think about our financial well-being. So many of us are living with credit card debt, student loans, or overwhelming mortgages.

Most financial wellness philosophies come down to budgets, balances, and goals – or, spending less than you earn, sharing what you can, saving the rest, and making good choices. Here are 4 ideas to help you and your money get healthier and happier:

1. Pledge to take 30 steps to financial wellness. Money Management International offers 30 simple ways to improve your financial wellness. It all starts with a commitment to change.
2. Plan your financial first aid kit. The Federal Emergency Management Agency (FEMA) offers a free “Emergency Financial First Aid Kit” to help you organize all of your financial information and records in one place.
3. Make a lifestyle change. If you’d rather make a big leap forward to financial wellness, try one of these challenges. Take David Bruno’s 100 Thing Challenge, to reduce your stuff and refuse new stuff. Accept Courtney Carver’s Project 333 Challenge, to spend less on clothes and simplify your wardrobe. Limit your trash to one bag a week with Glad’s One Bag Challenge, to reduce spending and encourage recycling.
4. For kids: learn about saving money and saving the day. Practical Money Skills has a free printable comic “Saving the Day” featuring Spider-Man and the Avengers. There’s even a “Budget Blaster” worksheet to budget like a superhero. The Federal Reserve Bank of St. Louis offers a free “The Piggy Bank Primer: Saving and Budgeting” to introduce kids to saving, spending, budgeting, and more.

Taking care of our financial well-being is just half of the battle. Our government’s financial well-being is just as important as our own, because the government is spending our money. On April 19, 2015, Hawaii residents and taxpayers will celebrate Tax Freedom Day – the day when we start to work for ourselves, rather than working to pay our taxes, according to the Tax Foundation. In Hawaii, we’ll have worked for the government (through federal, state, local, sales, and payroll taxes) for 109 days, celebrating our freedom five days earlier than the nation as a whole.

Here are 3 fun ideas to help you celebrate Tax Freedom Day:

1. Pay yourself first. Put $100 in your savings account to symbolize your “first” paycheck of the year. You could even be ironic and spend 30% of it.
2.  Turn dollar bills into art. Make friends with your money by trying out money origami. Create a $100 money lei from Instructables or a money origami shirt from Homemade Gifts Made Easy.
3. Play with other people’s money. Challenge family and friends to a game of Monopoly. The Monopoly Hawaii Edition was issued in 1996. You could also play Hawaii-opoly by Island-opoly (with replica 1800s bank notes) and Hawaii-opoly by Late for the Sky.

How would you rate your financial well-being? How could we improve Hawaii’s financial wellness? Do you think that Hawaii’s government is worth the 109 days that we work to pay our taxes?

“Cold Hard Truth on Men, Women and Money” by Kevin O’Leary

“Don’t spend too much. Mostly save. Always invest.”

That’s the secret to becoming wealthy, according to business entrepreneur, “The Learning Company” founder, and “Shark Tank” co-host Kevin O’Leary.

But if it were easy, we would all be wealthy. So O’Leary wrote “Cold Hard Truth on Men, Women and Money: 50 Common Money Mistakes and How to Fix Them” (2012) to talk about our relationship with money and how we can “save money, invest better, and cut your losses.”

To get people more comfortable thinking about money, O’Leary starts with personal anecdotes and a financial quiz. He offers several tools to help you understand where your money comes from and where it goes, including a “90-day number,” a finance calculator, and how to find “ghost money.”

What is the cold, hard truth? O’Leary warns, “No matter how much money you make, the world is designed to take it away.” To combat this fact, O’Leary offers is the “Cold Hard Truth Card,” a credit-card sized pledge about money that I think we should all carry around in our wallets.

The “Cold Hard Truth Card” says:
I pledge to make no purchases unless I can answer TRUE to the following 5 statements:
1. I have given this purchase sufficient thought.
2. Buying this item will not create debt for me or anyone else.
3. I not only want this item, I need it.
4. This item is more valuable than the interest I’d earn if I saved the money instead.
5. This item will matter to me in a year.

The challenge is to find that set point of “enough” and then rarely exceed it. Once you find your set point, don’t spend more extravagantly even when your income increases. “When you get to a place of ‘enough,’ you will stop having money problems,” he writes.

He emphasizes three guiding principles about money: keep money and emotions separate; eliminate debt; and be grateful for what you have.

Here are 3 common money mistakes everyone makes:
* You’re in the dark about your finances. The fix: correct that by figuring out your 90-day number (all your earnings over 3 months, minus all your expenses over 3 months).
* Money (buying stuff) makes you happy. The fix: if you’re bored, lonely frustrated or sad, go for a walk, cook, read – but don’t shop! Avoid advertising by cutting down on magazines, TV, and the internet.
* You don’t know what to invest in. The fix: the 3 basic rules of investing are 1) invest in stocks and securities that pay dividends/interest; 2) save a consistent portion of your income; and 3) spend the interest, not the principle.

And here are 3 more money mistakes about things you think you need:
* You think you need a car. The fix: car ownership is not for everyone. If you can, move closer to work town. Walk, bike, or take public transportation. If you need a car, lease your vehicle or buy used.
* You think you need a college degree. The fix: Think outside the cubicle! Not everyone should go to college. Skilled trades don’t require years of expensive schooling.
* You think you need to buy a home. The fix: rent, don’t buy. If you have debt (like student loans), you should rent until you are debt-free.

“Cold Hard Truth on Men, Women and Money” lays out our money problems in simple terms. O’Leary offers practical and helpful tools to save money and to think about money in a new way: as creative energy, not as a way to get “stuff.” Some of his suggestions may seem unemotional and unromantic (he strongly recommends pre-nuptial agreements before getting married) and may not work for everyone. One mistake that is missing: “You think that newer means better.” This is not necessarily true; newer is different, not necessarily better.

For more money ideas, visit Kevin O’Leary’s website.

Opening shared banking centers

Last month, there were armed robberies at three Oahu banks. On May 1, a Central Pacific Bank in Wahiawa was robbed by a man with a handgun. On May 13, an American Savings Bank in Salt Lake was robbed by two men armed with a rifle and pistol. On May 30, an American Savings Bank at Pearlridge Center was robbed by two men with handguns. In response, American Savings Bank hired special duty police officers for their Oahu branches.

This post is not about gun control or gun rights. It’s about trying to make banks and customers safer, and save money too.

In shopping malls and strip malls, restaurants band together in food courts, giving consumers more choice and sharing the costs of table space and cleaning services. At large airports like Las Vegas, car rental companies join together in rental car centers. McCarran Rent-a-Car Center hosts 12 car rental companies, who share the costs of office space, utilities, shuttle bus services, parking, and even cars.

While banks are opening ATMs and branches in more convenient and economical places, like grocery stores and mass merchandise stores, they have continued to open and operate large, single-bank branches. Recently, Central Pacific Bank opened a new branch in Manoa (May 2014), First Hawaiian Bank built a new branch in Aina Haina (December 2013), and American Savings Bank opened in a new branch in Kailua-Kona (June 2013).

Banks may not want to give up their imposing presence or formal, elegant buildings, but maybe it’s time for banks to band together in shared banking centers.

Banks could benefit from shared banking centers because they could share the costs for offices, lobby space, conference rooms, utilities, and parking. They could hire more security guards and install better security cameras. With lower operating costs, they could extend their banking hours, making it more convenient for bank customers to stop by after work. Previously empty floor space could be set up with tables and chairs for people to read over bank paperwork or talk informally with bank representatives. They could even coordinate employee appreciation days and customer loyalty events.

Consumers could benefit from shared banking centers because we would have one-stop shopping for banking, credit and loan accounts. There might be more competitive rates, since banks know that customers could walk across the lobby to another bank. Bank fees might remain the same or even decrease, since operating costs would be lower. Walking into a bank might feel a little safer, because a shared banking center could afford to hire more security and better security cameras; and maybe a little less stressful, because banks might feel less intimidating.

Bank employees could benefit from shared banking centers because outstanding employees would be appreciated, if managers know that another bank easily could lure them away. They might feel safer, knowing that there is increased security and more staff during opening and closing hours. They could learn from other banks’ best business practices and share ideas.

Do you prefer to bank online, by phone, by ATM, or in person? How often do you visit your local bank? What do you think of a shared banking center?

7 simple money rules

April was Financial Literacy Month, but most of us were probably overwhelmed by our tax returns to change how we manage our money. We’ve had four weeks to recover from the stress of Tax Day, and I think that it’s a good time to make a clean start with our money and finances.

“Money management is not difficult,” declares Mary Hunt, founder and publisher of “Debt-Proof Living,” in her book, “7 Money Rules for Life: How to Take Control of Your Financial Future” (2011). Here’s an easy way to take the first step:

Start by imagining your financial life as a big, cluttered room filled with things like income, bills, debts, taxes, mortgage, savings, loans, and retirement accounts. Use the “Clean Sweep” approach to empty the room. Then apply Hunt’s seven simple money rules to everything you put back in your financial life:

1. Spend less than you earn. “Lowering spending to increase investment income is the way to grow wealth” (page 48), Hunt advises. 

2. Save for the future. “As you receive income, transfer 10% of it into long-term savings” (page 64). Your emergency fund should be six months of paychecks, kept in a separate account that is safe, available, and interest-bearing.

3. Give some away. “Giving is the way that you express just how grateful you are for all that you have” (page 85). Hunt suggests a 10-10-80 rule: save 10%, give 10%, and live on 80% of your net income.

4. Anticipate irregular expenses. Plan for irregular and unexpected expenses like auto maintenance, pet care, Christmas, property taxes, vacations, and gifts. 

5. Tell your money where to go. “A good Spending Plan addresses every bit of income by giving every dollar a specific job to do” (page 100). List your income, essential fixed expenses, non-essential expenses, and miscellaneous monthly expenses.

6. Manage your credit. “A high [credit] score is one of your most valuable money management tools” (page 112). To be creditworthy, you don’t need to be in debt; you just need to use credit at least three times a year, and pay the balance in full.

7. Borrow only what you know you can repay. “The only safe way to borrow money is to have a means to pay off the debt in reserve” (page 128). Borrow the least you can get by with to achieve your intended result, repay debt quickly, and have an escape plan.

To learn about the Rapid Debt-Repayment Plan and read money management articles, visit DebtProofLiving.com. Or take Financial Literacy Month’s “Thirty Steps to Financial Wellness” pledge at http://www.financialliteracymonth.com/Default.aspx.

How do you keep yourself debt-free and in the green? What money management tips can you share?

5-year olds and money

A few months ago, my son asked me, “How can I get more dollars?” He later had an epiphany: “If I save my coins, I can make more dollars!” He is starting to understand that everything cost dollars.

Let’s take a moment out of our holiday shopping to think about what we are teaching our children about money. Sometimes we get caught up in all the “stuff” – the gadgets, the sales, and blowout deals. But remember: children watch us all the time and this is the example we’re setting for them.

Here’s what we’re teaching our five year-old son about money:

* An allowance? Not just yet! I don’t want to give my son money for doing things he should already do, like homework, cleaning up his toys, and helping with laundry. I tell him that we’re a family and we don’t need dollars to help each other. But we “pay” him $1 for helping us sort bottles and cans at the recycling truck.

* Spend it, save it, share it. If my son receives money at birthdays and holidays, I ask him to set some money aside to put in his savings account. As he gets older, I’ll ask him to set aside some money to give to a charity.

* Open a keiki savings account. Some parents open a savings account for their children as soon as they are born, but I wanted my son to go into a bank and open an account for himself. An online bank may offer a better interest rate, but kids can’t walk up to a teller and deposit or withdraw money.

* Say “yes!” to a kids-only swap meet. This year, we had a wonderful experience with a Keiki Swap Meet organized by the Children’s Discovery Center in Honolulu. I helped my son sort and price the toys he was willing to sell, and he made store signs. On the day of the swap meet, he did it all – greeted customers, suggested toys, took their money, gave them change, and said thank you.

* Don’t ask for presents! I remind my son that he can only ask mom and dad for presents. He can ask Santa for a present too, but Santa can only hear him when he’s a good boy. I also ask relatives to give him fewer toys (books are welcome!).

Do you teach your children about finances? How important is money to them? When should kids receive an allowance, and how much should it be? Let me know what you think.

Planning for generosity

Growing up, my family didn’t really talk about money, budgets, bills, or charity. My grandfather earned money; he (and the rest of my family) mostly left generosity to my grandmother, who contributed to her church, missions, and evangelical ministers, and spent time helping churchmembers.

I never thought about planning for generosity until I read “The Generosity Plan: Sharing Your Time, Treasure, and Talent to Shape the World” (2009) by Kathy LeMay. But think about it – we plan for vacations, weddings, college, and retirement; we save generosity for when we have “enough” money or when we pass away. Why not have a plan for giving back while we are alive?

Generosity is not about giving large amounts of money, or even how large your estate is when you die. Generosity is about “finding your passion, envisioning a better world, and putting yourself on the path to making that vision a reality” (page x).

LeMay advises us to keep a Generosity Journal, which will help you create your Generosity Plan. Her book is filled with personal stories about ordinary people who made a conscious decision to give back. There are questions, exercises, and tips to help you practice philanthropy in your life.

I won’t go into the full detail of LeMay’s Generosity Plan here (if you’re interested, read her book or visit her website at http://www.thegenerosityplan.com), but I want to highlight the five steps that resonated with me.

1. Look back at your giving roots. “Each of us has roots in giving, be they based in culture, faith, personal belief systems, or family” (page 1). Think about how your family, friends, and teachers gave back. List the people that inspire you and how they changed your life. Reconnect with the things that you did which were most fulfilling.

2. Unlock your vision and set your priorities. “With a vivid and powerful description of the change you want to see, you put yourself on track toward transforming an idea into a reality” (page 18). Determine the causes and issues that you are most passionate about, and decide how you would change the world. It’s important to stand for something, not against something!

3. Share your time, treasure, and talents. “The time, treasure, and talent model works because it takes all of our gifts in service to the greater good” (page 42). Choose organizations that match your passions, goals, and values. Give your time informally (such as helping family, friends, and neighbors) and formally (such as becoming a mentor or tutor).

4. Create a giving formula. “You will feel powerful when you add a generosity line item to your life budget” (page 131). Figure out the percent of your income (not the dollar amount) that you currently give to charity, and what you would like to give. Determine what percentage would feel empowering to you, and what is truly affordable.

5. Know what successful giving looks like. “The five keys to a successful Generosity Plan are: vision, boldness, authenticity, staying the course, and support” (page 225). If you know what to expect from your giving, you can feel a sense of accomplishment or progress. Decide whether you need immediate results (such as feeding the hungry) or long-term social change (such as ending hunger), or both.

“Philanthropy belongs to all of us because the world needs all of us to participate” (page xxii), LeMay declares. What does generosity mean to you?