Coin by Coin

The best financial decision I ever made wasn’t a financial decision: I got married. Much to my surprise, my financial life turned around once I found my beautiful bride. Mine is not an unusual situation — according to Barbara Dafoe Whitehead and David Popenoe from Rutgers University. people who marry are, on average, four times richer than those who never marry. Here are some of the reasons why:

Marriage makes you pay attention. You are no longer that idle bachelor, you’re in a partnership. Stupid decisions that you make now don’t just affect you, they affect someone else.

Marriage encourages long-term thinking. It’s not until you start planing ten, twenty, or thirty years ahead with someone that you understand what long-term savings really means.

Marriage cuts many bills in half. The moment you move into an apartment or buy a house together, every communal expense such as rent, heating, and property taxes has just been divided. Many other bills such as food and electricity are much cheaper for two people than for one. Just watch out for lifestyle inflation and, for heaven’s sake, don’t have a baby.

Marriage lowers taxes. Most countries, like the United States and the United Kingdom, give tax benefits to married people.

Marriage Makes Men Work Harder. According to Avner Ahituv of the University of Haifa and Robert Lerman of the Urban Institute, married men drink less, take fewer drugs and work harder, and earn 10% and 40% more than single men with similar backgrounds. (From The Economist, May 24th, 2007 The Frayed knot)

Marriage clarifies your thoughts. The big advantage of getting married is that you now have to say out loud your financial plans to another human being.

The first time you try and plan your finances with your spouse, you’ll probably realize that you don’t have a plan. You thought you had one, but when you try to articulate it, you discover that the details are missing — like trying to recall a dream hours after waking.

Working with someone else forces you to clearly articulate your goals. When you make a budget together you have to decide what your priorities really are, and it helps to talk them over with your partner. Do you really want to eat out that much, or would you rather put that money into the ‘early retirement’ and ‘vacation’ funds?

Marriage makes millionaires. In both The Millionaire Next Door and The Millionaire Mind, the author Thomas Stanley, states many times that one of the factors Millionaires credit as the source of their wealth is their spouse.

I don’t recommend you go out trying to find a fiancée so that you get wealthy, but if and when you do get married, don’t forget about the financial benefits.

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Header photograph by cedarjunction

Tags: marriage

Not all dollars are created equal.

According to research performed by Priya Raghubir, people are more likely to spend small-value bills than large-value bills. She terms the brain’s preference to hold onto bigger bills the “Denomination Effect”

Dr Raghubir tested this effect by paying visitors to an Omaha gas station $5 to fill in a fake survey. The visitors were paid either with five one-dollar coins, five one-dollar bills, or one five-dollar bill.

Even though all visitors were paid the same amount, those given the five-dollar bill were more likely to save their money. The people given one-dollar bills or coins were much more likely to spend their cash immediately.

Dr Raghubir performed similar tests in China where she gave housewives payments that equaled their week’s salary. Housewives given the money in large denominations spent less than those given small denominations.

So, if you want to trick yourself into saving more money, keep the small bills out of your wallet.

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Header photograph by AMagill

Story via Planet Money Podcast

The number one cause of divorce in the United States is disagreements over money. If you want to keep your marriage in good condition regular, open financial talk must be a part of your relationship.

Arguments over money are probably such a large issue in relationship because the way you spend money shows, in an undeniable way, where your priorities really are. If you talk about how much you want to save for retirement, but actually spend money on eating out, then eating out is really your priority.

Making a budget is actually a priority setting activity — which is exactly the kind of important thing that you should be regularly doing in a relationship.

Here are the steps that Noelani and I follow at the start of each month for a successful couple finance meeting:

1. We gather all the information about our incomes from the preceding month.
2. 15% of our pre-tax incomes goes toward long-term savings and retirement before any other discussion. No negotiation.
3. We estimate the month’s bills, and put that amount of money into our joint bills account. We pay the bills proportionally to our income e.g. if Noelani makes 45% of the household income, she pays 45% of the bills and I pay the remainder.
4. We review any medium-term savings plans we have, such as travel or large joint purchases. This money is put into separate ING accounts and is also split proportionally.
5. The money we individually have left over after our joint budgeting is our discretionary money. We can each do whatever we like with our respective remaining money without needing to consult each other. Having a little financial space of your own is important for releasing some of the pressure.

While it sounds like a hassle, it only takes us fifteen minutes to complete the steps, but that’s after the practice of years. Our first time took an entire night (mostly because estimating bills is difficult the first time through), but it gets faster with each repetition.

More important than sorting out the bills is the communication about our future, common goals. Some of the big changes we are making in our lives are the direct result of conversations we’ve started in these meetings. A couple finance meeting is a dedicated time to talk about the shape of the future you want with your partner — so make sure you get started on them if you haven’t already.

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Header photograph by neona

This American Life has put together another one of their excellent shows on the current economic problems. This time they explain what wrong with the banks — it’s worth a listen. From the show’s description page:

The collapse of the banking system explained, in just 59 minutes. Our crack economics team—the guys who explained the mortgage crisis, Alex Blumberg and NPR’s Adam Davidson—are back to help all of us understand the news. For instance, when we talk about an insolvent bank, what does it actually mean, and why are we giving hundreds of billions of dollars to rich bankers who screwed up their own businesses? Also, two guys go to New Jersey to look at a toxic asset.

[Click here for ‘This American Life: Bad Bank]

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Header photograph by tanakawho

A while ago, I ran a question on if couples should combine their finances or keep them separate. Since then, my wife and I have been tweaking our system to come up with what we think is the best of everything:

The hybrid financial system

My wife and I, by our nature, are independent people — the more we thought about combined finances, the more it repulsed us. From a practical standpoint, however, there are numerous times when joint bank accounts make financial transactions simpler. So we decided to compromise and do both.

We have separate checking accounts where our respective employers deposit our paychecks. This allows us to keep our independence and not feel that every purchase will be scrutinized by the other person.

We did, however, open a joint checking account. Our joint expenses such as rent, the bills, gym memberships come of of this account. On the 3rd of every month, we have a couple finance meeting where we total the bills for our joint expenses and deposit that amount into the joint checking account.

We split the bills proportionally to our income. A spreadsheet in open office does the calculations for us. For example, last month my wife took home £1800.00 after taxes and I took home £2000.00. Our total income is £3,800. My fraction of that is £2,000/£3,800 or 53%. I pay 53% of the total cost of the joint bills and my wife pays 47%.

By paying proportionally, if one of us starts earning more money, it also helps reduce the bills of the other one. If one of us loses a job or their salary decreases, the burden on them for the bills is also proportionally reduced.

We also contribute in the same proportional way to the joint savings account for things that we will want to do together, like vacations or large purchases for our flat.

What are the methods you use in your relationship to split the bills? Do you see any problems with ours or have any suggestions?

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Header photograph by kevindooley

January has just passed and it’s terrifying to realize that one month of my twelve-month goal of earning $1,000 a month has already passed. I’ve made slight progress, but need to do much, much more. Here are the charts for January:

For expenses, the bill to renew my domain names came up, accounting for a small portion. Annoyingly, there was a charge for website hosting from my old, pre-dedicated-server plan that I should not have received. That charge stings because it’s unnecessary and I thought I had resolved the issue already.

On the income side, there was no cheque from Google Adsense. For reasons that I don’t understand (and will vaguely blame on the recession) my Adsense revenue has plummeted from about $20 a week to just pennies. Since Google doesn’t pay out until you accumulate at least $100, it may be a while before I see them again.

On the positive side, one of my irregular payments from Cafepress came in. Also, my text-link-ads income was slightly higher this month.

Text-link-ads has been a strange experience so far. For almost half a year, I had a big, banner on the Miscellanea webcomic letting people know they could buy text ads on the site. All that time the banner just gather dust and I decided to remove it. I was literally hours away from taking it down when I sold an add. Then the next day I sold two more and increased the limit to five. Shortly after I sold another. If I was a dirty hippy, I’d believe I was manifesting my way to success — but I’m a science guy, so I’d like to try and figure out what happened.

In summary:

Income:

• Cafepress: $60.83
• Text-link-ads: $72.69

Outgo:

• Hosting: $28.36
• Domain names: $9.99

Profit: $95.17

It’s an improvement over last month, but I really need to up the pace if I’m going to hit the goal of $1,000 a month.

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Header photograph by artemfinland

Opportunity cost is a term from economics used to describe decision making. Wikipedia defines it as: ‘the value of the next best alternative lost as the result of making a decision’. For example, if you have $100, you can only spend those dollars once. You can buy $100 worth of books or $100 worth of beer, but you can’t buy them both. $100 of beer can buy you a great night of fun, but you lose what you might have learned from the books. Opportunity cost is what you could have done with the money, but didn’t.

We face these decisions all the time. Deciding what to do with your weekend is an opportunity cost decision with time, rather than money. You’ll only get this weekend once, and after you’ve used it, you can’t get it back. Will you spend your time taking care of the house, or will you kick back and relax? Each decision forces you to sacrifice the other.

When considering spending now vs investing, future opportunity cost are quite large. If you forgo spending that $100 on books or beer and instead put it in the stock market, at the moment the opportunity cost is zero — the money is still there for you to spend. But if you earn 10% interest, twenty years later you’ll have $675. So, the opportunity cost of spending $100 today, is $575 in twenty years.

When you make decisions with your money, it’s good to consider the opportunity cost. Is this really the best way you can spend your money, or is there a better option?

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Header photograph by MikeLove

One trick to both make your website look more professional and increase your click-through rate is to match your adsense colors to your site colors. Here’s the simplest way to achieve that goal on OS X:

1.  Log onto your Google adsense account and select the add unit you want to modify. To do this click on ‘Adsense setup’, then ‘manage ads’. You’ll be presented with a list of all your ads. Click on ‘edit ad settings’ for the one you want to change. Then you’ll see a box called ‘Palettes’ that will let you change the colors of the ads.

2.  In another window, open the site you want to match the adsense colors to.

3.  On your mac, go to the application folder, then select the utility folder. Inside you will find a program called DigitalColor Meter. Open it.

4.  From the pulldown menu, select ‘RGB as Hex Value, 8-bit’

5.  You’ll now notice that the DigitalColor meter numbers change based on where the pointer is on the screen. The program takes the color of the pixel the pointer rests on and tells you how the computer describes that color.

6.  Place the pointer over a color on your website that you want to mimic, and write down the three numbers that the digital color meter tells you. (It should look something like: 014C06)

7.  Go back to the adsense window, enter that number in the part of the adsense ad you want to match it do.

8.  Repeat for all the colors and you’re done.

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Header photograph by iboy_daniel

Quick reminder: the goal is to reach $1,000 a month of web income by January, 2010

Currently I run three websites, this one, Silver Clipboard and Miscellanea. Given my time constraints, it’s hard to see how I could start anymore, so if I want to go from a net loss of $144 to a profit of $1,000 per month, I need to expand what I already have.

The clearest problem is that I haven’t been consistently updating these sites. I’ve been rather sporadic with posting. I need to aim for at least once-weekly update on each. In order to find the time to start for creating new content I’ve started the great wake-up challenge on silver clipboard.

Miscellanea gets between about 2,000-4,000 readers a day (according to Google analytics) but it earns hardly any income. Adsense used to bring about $20 a week, but has recently dropped to less than $5. I need to find an alternative advertiser and am considering AdBrite.

Lastly, the most profitable, enjoyable, but most difficult to accomplish, is to to increase the number of productivity coaching clients I have. This is really why I started the Silver Clipboard blog in the first place — I love helping people get organized and productive. I’ve done sporadic work with this but, again, I’ve never really had a focused game plan. I contacted Mark Forester (author of Do It Tomorrow) and he suggested the book Get Clients Now, which I’ve ordered from my library.

In summary, the current expansion plans are:

• Post articles on a weekly basis
• Find more clients to coach
• Try different advertising methods for Miscellanea

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Header photograph by Alvi on the road

The people over an common craft have make a cute little video about how and why to save your money.  Check it out below: