Wednesday, February 27, 2013

Money Rules by Jean Chatzky

Jean Chatzky is a very successful writer on the topic of personal finance. I'd heard her name taken in vain not so very long ago on an infotainment segment, where the "expert" proceeded to rant about the horrible advice people like Chatzky, Suze Ormond, Robert Kiyosaki, and Dave Ramsey peddle. For the most part, I've found the advice of Ormond and Ramsey to be fairly sound, though I have taken issue with a few bits and pieces here and there. I got a copy of this Chatzky ebook along with a copy of Willmaker I picked up at Costco, so I thought I'd check her out.

The books was an extremely quick read, just a series of short rules about money, with only a paragraph or two about each rule. Again, for the most part I have no problems with recommending Chatzky's rules to most people, most of the time, but for more complex financial situations, some of them are simply going to be inapplicable, and more professional advice required - probably paid professional advice.

Some bits that caught my attention as I buzzed through:

Rule 12. Save more with every raise.

I've followed this one for a number of years, and passed it on to my children. At least one of them that I know of has been following it, and are well-started on building their retirement nest egg. When I get a raise at work, I take half of that raise and just add it to my automated 401K contribution. I never miss it! My paycheck still goes up, and my retirement plan looks better, too. I highly recommend following this rule. You could also shift a portion of every raise towards other savings goals, like saving for a down payment on a house, a new car, or your kids' college funds. Avoid lifestyle creep - don't spend all of your raise.

Rule 21. Save for something

Chatzky says to put a name to your goals and put aside savings for those things in particular. Here's one, aside from my retirement, and my grandkids' college funds, that I don't do so well. I just put money away "for a rainy day", and when I need money for an emergency, a down payment, a major purchase, or whatever, I have money in my general savings account (usually) to pay for it. I'd really like to do a better job of this, but I just hate having multiple savings accounts at multiple banks.

Rule 29. Use your emergency savings for emergencies.

Chatzky says you should always take money from your emergency fund to pay for emergencies, like the car breaking down, or unexpected medical expenses, and that you should not put it on your credit card. So, this is where I break from people like her and Dave Ramsey. I put everything I possibly can on my credit card and pay it off at the end of the month, taking money from my emergency savings for anything charged on it that was actually an emergency, or unexpected. In the first place, I get a nice cash back bonus every month from my credit card company. There have evidently been studies performed that show that people spend more money when they use a credit card than when they pay cash, but I firmly believe that I'm not one of them. My wife will tell you I'm so tight I squeak. Second, the credit card statement, and the card company's utility that categorizes expenses, are a nice way to actually keep track of what I spent, when I spent it, etc. I have an emergency fund. I use my credit card. I love the cash back! Sue me.

Rule 34. The best cost-cutting tool is a good night's sleep.

Chatzky recommends that you sleep on it before making a purchase decision. If you don't feel the urgent need to buy after a good night's sleep, you didn't need it that badly to begin with. I agree totally. In fact, I have a list of things that I think I need to purchase that I carry around with me. If it's not an urgent immediate need, sometimes things stay on the list for months before I get around to buying them. At that point, I run across the item used, at a deep discount, borrow it from a friend, be given the item as a gift, or I may simply never buy it, removing it from the list at some point, as the need has passed.

Rule 38. Pay bills as they come in.

Having a big pile of unpaid bills is a huge stress inducer. I used to let my bills stack up on the kitchen counter until payday, then sit down and write out all the checks at once. Then, I moved to writing out the check the day the bill arrived, putting it in the envelope, ready to mail, with a post-it note showing the due date, and placing the bill in the mail a week before it was due. Now, for the most part, all of my bill paying is fully automated, with my bank mailing out the checks for me. I check up on things every so often, and have to go online to enter the amounts of variable bills once in a while, but it's a very painless process.

Rule 47. Shop with a list.

If you make a shopping list, and only buy the things you have put on the list when you go shopping, you'll save a lot of money by avoiding those impulse buys. I am a list freak. My shopping list is even arranged in the order the items appear at my favorite grocery store. I have lists for everything, from shopping, to daily tasks, to packing for a camping trip or a trip overseas. They're all in my documents folder, and I can print out the type desired within moments of the need. Yeah, I'm way compulsive about lists.

Rule 53. It's not about having it all. It's about having what you value most.

Chatzky believes many people have regrets about how they spent their money, down the road. She says one way to avoid making the same mistakes over and over again is to keep track of your feelings about your purchases, so that when you have a bad experience with a vendor, a brand, or a meal, you won't buy there again. Pretty smart idea. I've been journalling my life for about ten years now, and I can go back and search the archives to find out when and where I purchased things, whether I was happy with them, and what the name of that restaurant where I had the most awesome French Dip of my life was. It's quite handy.

Rule 91. Don't take financial advice from someone just because they're wealthy (or related).

Chatzky doesn't elaborate on this rule at all. I'd love to know her thinking on this one. First, would it make sense to take financial advice from someone who is poor? I don't think so. I always thought that you should get financial advice from people who have achieved the type of financial success that you want to achieve. On a parallel note, I wouldn't take relationship advice from someone who has been divorced multiple times; I'd rather hear from someone who stayed married for fifty-plus years. Second, would it make more sense to take financial advice from a stranger, rather than someone who actually loves or cares about you. I'm not entirely sure this rule holds water. I think I'll have to go look at what she has to say about it online somewhere. Maybe I'll get back to you.

All in all, a quick read, worth the time, and there's definitely some great principles here.

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