Anyway, if you’ve tried and tried to get your finances sorted but keep sliding back down that slippery slope to nowhere, it’s time to take action. In rehab, addicts are given a variety of techniques to ‘loosen’ up their routines and get them into a mindset that makes then open to change and creating new (positive) habits. These techniques include everything from brushing their teeth with the other hand to putting their clothes on in a different order. Minor stuff, but it all adds up.

So, how can you apply this sort of technique to ensure you get – and most importantly stay – on the right path? Here are some ideas:

• Look for opportunities when you’re already having a bit of a new start – these can be things as big as starting a new job, moving in with a partner, moving house generally or having children, as well as smaller things like moving desks at work, getting  a new boss or changing your fitness regime. If you’re already in the mindset to be starting afresh, pairing financial responsibility alongside it can prove very powerful.
• Think of ways to shake up your life a little and get your body and subconcious thinking you’re doing something new. Stuff like going to work via a different route and moving your furniture around in your home are great examples, but ordering something new at your favourite restaurant and changing the ringtone on your mobile can be good triggers too.
• Tell your friends and family – like addicts have to tell those closest to them that they’re addicted and committed to change, you can do the same too. You don’t have to tell people that you’re in a lot of debt or whatever your burden, but you can be as vague as “I’m watching what I spend” or “I’m saving right now”. Support and a watchful eye from those around you can help keep you on the path to success.
• Be mindful of your language. There’s a world of difference between a former smoker saying “I’m trying to quit” and “I don’t smoke”. The former tells your subconcious that there’s an opportunity for failure, the latter reinforces your new way of life as a current status. So, “I’m trying to save” will tell your brain that you only need to put in a token effort. “I’m saving” will reinforce your goal. As Yoda put it, “do or do not, there is no try”.

Even if you’ve never tried to get financially healthy, employing techniques such as this will give you the best chance for success. If you just can’t seem to save, stick to your budget or get out of debt, getting your head into the right place to make it happen might just be the change you need.

Good luck!

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It seems to me that the same can be said for debt, savings and budgeting. Indeed, it’s pretty rare that just one decision puts you in substantial consumer debt. Equally, it’s not just one decision that sees you end the month with your budget in tatters. Certainly it’s not just one decision that results in retirement with no savings.

Unhappily, often we fool ourselves about the substantial cumulative impact of these little decisions. I can speak for many a dieter in my office who tells themselves that “oh, one piece of cake won’t matter”. When I look back on my debt-laden years, I absolutely failed to recognise the impact of such choices too, often convincing myself that another few hundred dollars on my credit card wouldn’t make much difference.

The fact is, lots of little decisions are what makes a habit. The good news is, you can change your habit for the better and to help you achieve what you want most in life just by making good little decisions. The even better news is that if you slip up along the way, that’s okay – if you recognise your little decisions for what they are.

So how can you use your little decisions to improve your financial situation? Here are some ideas:

• Grab a notebook or the ‘note’ function on your mobile (cell) phone and jot down every time you spend less than $10 on something for a week. At the end, take a look back and add up how much you spent. Multiply it by 52 and you have the grand total of a year’s worth of your frittering. Have another look at the list and see what you could have done without. Perhaps a bottle of water you could have waited ’til you got home for, or a magazine you could have surfed the web for similar information.
• Take a look at your bank or credit card statement from last month. Highlight all the transactions on it that were under $100. Were they all really necessary? Can you even remember every transaction occuring?
• Examine your passion – we all have one! Often we develop selective memory when it comes to our biggest source of delight. My big passion / vice involves my wardrobe. This year, I’ve started the habit of noting the source of every fashion-based expense in my budget. Why? Put simply I found that I was purchasing things I didn’t end up getting the use out of. I could absolutely have done without the two dresses, the shirt and the knit top I bought at that warehouse sale last year. No, I didn’t go into debt for it, but the money could have been used for something I truly loved at the very least.
• Get a piggy bank. I’m the exception to this rule, but many people don’t track cash. Start the habit of putting all your coins at the end of the day or week into the piggy bank. You probably won’t notice the difference, but taking a full piggy to the bank and making a payment on a debt or into a savings account will feel great.
• Create a micro-payment toward whatever it is you’re working towards. If you’re paying off a credit card, your mortgage, a car loan or creating a savings stash, set up an automated micropayment toward your goal. Even if it’s as small as a dollar a day, you won’t notice the difference today or tomorrow, but over time you will.

Remember – the point of being aware of your little decisions is to tweak your habits to make them work in your favour. You shouldn’t feel overwhelmed or like you’re trying to discipline yourself, but rather that you’re just being nudged in the right direction.

After all, Rome wasn’t built in a day.

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Back in the days when I was sitting atop my mound of nearly $40,000 in consumer debt, I often thought being debt free, but for many years, didn’t take any lasting, committed action. My fundamental reasoning was that there was something around the corner that would give me the means to change my circumstances. A new job or promotion with a higher salary, a great bonus at the end of the year or an unexpected windfall of some kind.

The fact is, even when some of those things came (a little raise here or there, a small bonus), I didn’t use the money effectively.

Part of me turning my life around and climbing out of the debt hole I was in was about realising that to change my circumstances I needed to be the source of the change. Not tomorrow, not next month, not next year. Today. Now.

Worst of all, it seems I wasn’t alone in my former way of thinking. In The Age last month was an article about baby boomers facing retirement saddled with debt. The author of the article suggests this is due to “home upgrades, renovations, stay-at-home children and aging parents” – but all this sounds like to me is excuses. This is in fact the modern-day case of sacrificing your future for today in practice.

Few of us require home upgrades or renovations… or for that matter, a holiday house, a second car, international trips and so forth. Sure, some of these things are what makes life fun – but if they’re the difference between living your life and retiring laden with debt, are they really worth having?

Recently too, I’ve been posting a fair bit about following your dreams and doing what you love with your life. Sure, it’s a scary prospect and not without its risks… but who wants to get to the end of their life having never realised a fundamental dream?

We can all think of excuses and reasons not to do something. It’s an inherent part of being human. As the saying goes though, tomorrow never comes.

So, if not now, when?

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Last week, a colleague and friend of mine announced he was leaving the company to pursue his dream of being an air traffic controller. He’ll finish up work just a couple of weeks short of his ten year anniversary with the organisation. He works in graphic design.

I recently posted about sources of passive income in which I discussed both monetising existing activities (things you already do) and monetising areas of knowledge (your existing skill set). My colleague’s departure has inspired me however, to think about monetising your passion (aka ‘do what you love’). It’s an old saying “do what you love and you’ll never work a day in your life”. Whilst this may not be terribly true in practice, the principle is very valid.

So, why don’t more of us do what we love to pay the bills?

I’ve discussed this with a number of people recently, and here’s what it seems to boil down to.

1. Likelihood Of Success (AKA Risk Of Failure)
That’s right. Most people don’t do what they really want to with their lives because they might not be successful. The irony of course is that many of us know people who have buckets of natural talent or just sheer passion and would embody success, but they don’t act for fear of failure.

2. Money
A short time ago, my husband and I were car shopping. We met a car salesman with whom my husband started discussing cars – he was comparing two very different cars to one another using the TV show Top Gear as a point of reference. The salesman responded that actually, he didn’t really care for cars – hi fi equipment was his thing, but he couldn’t make the same sort of money selling home entertainment. Realistically though, this is the same excuse / rationale as the ‘risk of failure’ reasoning. I’m sure plenty of people told Larry Page that no one was going to make money with online search and Steve Jobs probably heard that there wasn’t any cash to be had in computers, either.

3. I Won’t Be Huge
Many folks seem to feel that it’s not worthwhile doing something unless they’re going to be the biggest, the best or the most famous. Realistically though, we don’t all need to be Larry Page, Steve Jobs, Bill Gates, Robert Kiyosaki, Rupert Murdoch or Richard Branson. There a number of people I know personally who read this blog, so I’m going to be slightly unspecific with my next sentence – apologies. The fact is that I can think of two people I know very well who are millionaires (one in his/her early 20s) who have achieved this financial feat by doing what they love (and are good at). You won’t see their names on the Forbes or BRW Rich Lists. You might not even be able to pick them in a crowd. Bottom line is that you don’t need to be a household name to be extremely successful.

The road to pursuing your passion is seldom easy though, and from a financial perspective those early days can be extremely draining.

So, what can you do to minimise the risks in doing what you love?

1. Prior Preparation Prevents Piss Poor Performance
Say your passion is photography and you decide you’re going to pursue a career as a photographer / photo journalist. It’s probably not the best idea to walk in to work tomorrow with no savings, buffer, connections, experience or equipment and quit your job without more than a point and shoot in your pocket. Preparation for every dream will be different, but to continue the photography theme, getting the right equipment, contacts, education (if necessary) and exposure will get you on the right path.

2. Do It Early
When you’re young, you have a lifetime ahead to make up for your mistakes. If everything goes horribly wrong, you’ve got plenty of time to pick yourself up, dust yourself off and get yourself back on the right path. The older you get, the more financial and emotional responsibilities you’ll accumulate until you get to the point where you won’t even consider pursuing your passion. (As an aside the same can be said for investments – your youth is the time to take more financial risks!).

3. Do Your Homework
Know what success in your chosen field looks like. Want to write? Talk to some writers. Design jewellery? Find someone who runs a jewellery label. You don’t need to follow the steps they took to success, but you should educate yourself on the challenges and market so you can get going that much faster.

4. Surround Yourself With Support
You only have to read Richard Branson’s autobiography or any of Robert Kiyosaki’s books to know that the road to success is paved with naysayers. You’ll have a lot of people telling you what you’re doing can’t be done. In many cases, they’ll continue even after you’re successful. Surrounding yourself with people who are supportive and constructive (you don’t want yes people in your midst) will equip you with the network for success.

If you need any further incentive, consider this: would you be prouder and more inspired if if the people closest to you spent their lives doing what they loved or doing something they despised? And is there any greater tragedy than someone with absolute talent and/or passion that refuses to make the most of it?

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Sadly, we often see people getting very passionate about the changes they want to make, and going a bit overboard in their attempt to make it happen and kick start things as quickly as possible.  Whilst enthusiasum is great, often once the novelty of change and promise of better things becomes the norm, motivation dwindles and those huge targets you set yourself and all the paraphenalia you bought to help (yes, I’m looking at you, hardly used gym gear in the bottom draw) starts collecting dust.

How can this be prevented? My motto: Underachieve Your Way To Succcess. What does this mean, exactly?

Here’s my five step plan for guaranteed success in any change you want to make in your life:

Step One: Work out what success looks like, and give yourself a time frame. This can be as general or detailed as you like. For example, you might want to lose 5 kgs in the next 6 weeks. Since this is a money blog though, let’s assume you want to get your finances in order! You’ll need to jot down some things that equate to order for you though. For some people this will mean something as simple as not needing to worry if you’ve got paid each month or ’save $5k this year’. For others it will mean writing a budget and sticking to it, reviewing insurance coverage, consolidating superannuation, etc.

Step Two: Remember that timeframe you set yourself? Add 20%. Why? This is because most people, in their enthusiasm set themselves budgets that are too strict, diets that are too harsh and bars that are too high. If you can’t adjust your timeframe for some reason, give yourself a buffer in some other aspect of your goal.

Step Three: Break your goal down into manageable chunks. If you decided to run a marathon, but you’re a couch potato you wouldn’t wake up on Saturday morning, get dressed and set out to do it, would you? No. You’d spend months training and reading and devising the right diet and so on to work yourself up to your ultimate goal and put yourself in the best position for success. Achieving any other goal should be the same.

Step Four: Make micro-changes to form new habits and ease yourself into a different way of life. If you want to start saving $100 a month, consider working yourself up to it rather than starting out with your end goal on day one. Take a look at your cash flow now and see how much you could put aside without even noticing… even if it’s only $20. Then have a think about your current spending habits. What tiny thing could you change to find a bit more money to increase that? Don’t go crazy here – we’re looking for little incremental alterations to your life. Perhaps you could have coffee one day less a week? There’s an extra $12 a month! Or bring your lunch from home one day a week? $40 a month! Buy your train/bus/whatever ticket in bulk? It all adds up!

Step Five: Reward yourself for your victories, no matter how small. Just try not to think of a reward that undoes your efforts… if you’re working on losing weight, don’t go rewarding yourself with a weekend of gastronomic debauchery! I find it works well to come up with a reward that is in proportion to the size of your success.

And a hot tip for good measure…
Don’t go jumping ahead of yourself and undoing your incremental achievements. The idea here is to be consistent and small, after all. You’ll actually find that your successes will keep you on the bandwagon, driving motivation and keeping you on target. It’s a good thing if you’re itching to make things harder on yourself, and looking forward to when that day comes (on your schedule!). And there’s nothing like being addicted to your own accomplishments!

That’s all there is to it! If you’re thinking it sounds pretty easy, that’s because it is. If you can force yourself to be content with continual improvements rather than attempting overnight success, you’ll find victory more often that not. Or, as the story of the Tortise and the Hare goes – slow and steady always wins the race.

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Unsurprisingly, I still managed to spend it. I stayed working at that department store for the next two years (a casual job during my first years of university). My salary went up with each birthday (to be in line with the award rate for my age) but still I managed to spend it. I didn’t get a better car or eat more expensive food or even really buy more expensive clothes. It all just got spent like it had when I earned less. This continued on – my first internship in the summer of my second year of university I earned bucketloads compared to my casual jobs… fancier Christmas presents were bought and I went on my first international trip.

Fast forward to about five years ago. I had a few credit cards and a line of credit. The line of credit was originally a consolidation loan for the credit cards, but I’d forgotten to close the credit cards and money had been spent on them again. Yes, I earned more but it got spent the same as when I’d got paid just $6.25 an hour. Sure, I’d moved out of home and had other bills, but if I had the knowledge I have today perhaps I’d at least have not been in debt too.

I see stories like mine every day. People consistently fall into the trap of what I call ‘lifestyle inflation’. As their salaries increase, so too do their credit card limits and they redraw on their mortgages to renovate houses or buy second cars. They have the means to get the things they previously only dreamt of having, so they acquire them and then move the goal posts again, ready for the next increase in income.

The worst part is that it often happens so incrementally that it’s hard to tell when it starts. Retrospectively,  I’ve created a list of ways you can see if it’s happening to you:

• Things that used to be bought for a treat or on special occasions are being acquired more more frequently or have become an everyday purchase.
• In a pinch, you’re forced to ‘downgrade’ something (use a less flashy mobile phone, wear cheaper stockings, etc.) and find you don’t miss your expensive alternative… or find yourself enjoying the familiarity because you used to use it.
• Your circumstances haven’t changed in the last year or more, but your expenses have increased more than inflation. eg. you still live on your own, but you moved to a more fashionable suburb and your rent went up.
• You make unbudgeted purchases that are within your means, but you use the excuse that you (or the person you’re buying for) ’deserve’ it.
• In real dollar (not %) amounts, you’re saving the same amount each month as you were a year or more ago.
• You’ve told yourself that things will be easier when you earn more money. You start earning more but the problems seem the same.

Don’t misunderstand me, there’s absolutely nothing wrong with enjoying the benefits that can come with earning more money. However, there needs to be a line in the sand where enough is enough. Your savings and investments too should increase as your salary does (in real dollar amounts anyway - the percentages may not vary).

So how can you stop it happening to you? Being aware that it occurs is a darn good start. Here are some of the ways I look to prevent lifestyle inflation deja vu:

• Scott Pape of the Barefoot Investor puts it well when he suggests that you evaluate future purchases against the joy and pleasure derived from previous ones. For example, say you’re currently toting around a chain-store handbag that cost $200 (sorry gents, I’ll use handbags as an example because I’m somewhat of a handbag connonsieur). You lust after an Oroton or Coach handbag for $600. Scott’s method put into practice here would be to ask if the Oroton/Coach version would actually provide you with three times the pleasure that your $200 version would. Alternatively, think of the one thing in your life that provides you with the most joy. For Scott, it’s his dog. So he evaluates all purchases against that. If his dog cost $800 upfront and another $800 a year to look after, he has to ask himself – will this $800 thing I want to buy provide me with the same delight?
• Set yourself some rules and stick to them. The authors of  ‘The Millionaire Next Door’ have a rule that if you ever want to be wealthy, you shouldn’t take out a mortgage any more than 2.5 times the total income of everyone responsible for paying that mortgage. You can whinge about whether or not that’s possible in your city to your heart’s content. Doesn’t make it any less true. As a bare minimum, I also aim to save (for investment purposes – not ’stuff’ purposes) at least 25% of my income.
• Believe in delayed gratification. In Robert Kiyosaki’s “Cash Flow Quadrant” he discusses a survey that was conducted on an international scale of people who represented the top and bottom 5% of the population in terms of net worth. Consistently across all countries, the people in the top 5% practiced delayed gratification whilst the bottom 5% sought immediate gratification. This is about making sure you meet your rules, mentioned above, before you go and buy fancy things… also often described as “pay yourself first”.
• Always think frugal. Have you ever seen Melinda Gates? Despite being married to the richest man in the world, she has one of the world’s most understated wedding bands, and doesn’t wear an engagement ring. In “The Millionaire Next Door” there is a story from one of the millionaires they interviewed for the book about the day he gave his wife $500 million in stock in the company he’d been building over their lives together. She smiled, thanked him and said it meant a lot… then went straight back to clipping coupons for their grocery shopping. Just because you increase your means, doesn’t mean you should stop caring what you pay.  

Above all though, remember – despite the title I’ve given this post, lifestyle inflation is a choice (albeit often a somewhat subconcious one). If you’re reading this post and thinking the damage is already done, well – there’s always lifestyle deflation! 

Questions? Comments? Feel free to email or tweet me.

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Even now, I can tell you who my best friend’s “first” was, but I wouldn’t have a clue how much she earns. She’s allergic to latex and has her own leather wrist-cuffs, but I wouldn’t know what her investment strategy looks like. Sound familiar?

I’ve heard many theories on this matter which range from “folks only talk about it if they don’t have it” to “it’s vulgar to discuss money”. Robert Kiyosaki and David Bach both claim that wealthy people discuss financial issues at length amongst each other, but anecdotal evidence would have us believe that only the self-made rich do, whereas old money does not. Additionally, recent research from ANZ (the bank) indicates that money is a taboo subject amongst women. Astonishingly, their findings show that for 98% of women money issues and concerns are off the conversation agenda alltogether.

What is it about money that makes us so shy? Interestingly, there seems to be no general consesus. Some say that it stems from our childhood when we inevitably asked our parents how much they were paid and they gave us an evasive answer. Others claim that as our society equates money with power, it’s become a proxy for self-worth and self-esteem. Moreover, when someone asks us a financially-related question, we feel we’re being judged. Regardless as to the reason though, the bottom line is that you’ll seldom sip cocktails and hear your girlfriends tell you about how they’re living payday to payday or be kicking the footy with your mates and chat about how you suspect not everyone is up to their eyeballs in credit card debt.

Whilst some might read this and think ’so what’ I’m here to tell you that one of the reasons I tried and failed many times to get rid of my consumer debt once and for all was because I didn’t discuss it. I didn’t tell anyone just how bad things were – I kept up appearances and slapped dinner with friends on my credit card. Discussing it with my fiance was the best thing I ever did… and now when friends tell *me* they’re saving money, I keep this in mind. I invite them out for coffee to catch up, or have bring-it-from-home lunch in the park and avoid sending them ’sale sale sale’ emails for local stores.

Above all though, remember. You’re not alone! As I wrote recently in a guest post for Savings Guide – household debt is currently at an all time high in Australia. In June 2008 alone, the average Australian spent 12% of their income repaying credit card debt. With figures like this, chances are no one you talk to about your money concerns is going to be judging you. If anything, they too will be relieved they’re not on their own either. So don’t try and fight a one-person battle. Make your efforts a team event.

Questions? Comments? Feel free to get in touch by email or twitter!

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Unfortunately, many people use a poor financial situation as an excuse to make unhealthy decisions; cancelling gym memberships, eating fast-food meals that are advertised as “deals” and spending more time in front of the TV. 
Dr Cate Burns from Deakin University, has studied the relationship between socio-economic standing and diet. Her research is incredibly interesting.

My research would suggest that how you react to the credit crunch depends on where you sit in the income range, she says.

Those at the top dine out less and drink cheaper wines, those in the middle change from branded to generic products and choose different cuts of meat or quality of fruits and vegetables.

Those at the bottom choose foods that will ‘fill up’ their families for the least cost.

The lowest-income consumers may know that is not healthy, but filling up is the most important consideration.
Unfortunately, this is a double-edged sword. Not only is an apparently ‘cheap’ fast food meal often more expensive than a home-cooked alternative, it also has a significantly reduced nutritional value with “empty calories”, meaning consumers will be hungry again in a shorter period of time. Moreover, with a diet suffering reduced nutritional value, medical issues associated with malnutrition are rampant… and the management of these problems often doesn’t come cheap.

How can we use these learnings to help our future decisions?  A few tips:

1. Plan your meals in advance. You’ll be able to match your required ingredients against specials / discounts at supermarkets in your area.
2. Search for frugal recipes. I’m going to launch a new section of this site for budget-based recipes. You’ll find a new one each week!
3. Look at the cost per unit of whatever you’re buying. Don’t automatically assume bigger packaging will always ‘work out cheaper’. 
4. Assess your diet for nutritional value. It doesn’t matter how cheap it is, if you’re going to be hungry again very soon then it doesn’t add up.
5. Make it easy on yourself to make the right choices. See my earlier post on saving money on groceries – particularly item number 8 about embracing your flaws.

Got something to add? Please feel free to email or tweet me!

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In this article he talks about a London School of Economics study in which a group of students were offered a choice of movies to watch – either today or at some point in the future. When choosing one to watch today, participants generally chose something lighthearted but when selecting a film to watch at a later time, the majority chose more ‘character building’ films. They later repeated this study with fruit and chocolate to the same effect.

What does this say about humankind? In essence, that the decisions we make for ourselves today, don’t necessarily reflect our longer-term wishes. When you think about it, isn’t that really the reason we get in debt, fail to save and force ourselves to live payday to payday? How many times have you told yourself you’ll start saving next pay, but that payday never comes? Or started paying down debt only to be wooed by a great deal on a pair of shoes / shiny gadget / whatever your poison? I know I sure did it far too many times to recount.

So how to overcome this inherent downfall in the human psyche now you know it exists? For me, it was about making an agreement with myself that if a decision or action I made today didn’t directly correlate with my long-term goals, I’d have to wait to action it. How long I have to wait depends on the magnitude of the decision.

The other alternative is to put barriers in place to prevent actions that won’t help you reach your goals. For example, when I was paying off my debt, I told my fiance about what I was doing and why it was so important to me. This meant that if he thought I was getting a bit too frivolous for my own good, I’d hear “are you sure you can afford that?”.

The bottom line is, this behaviour certainly isn’t rational or logical, but rather than giving in to it or going around feeling sorry for ourselves, we can take pre-emptive strikes to keep us on track!
Feel free to tweet or email me with ways you prevent yourself from making old mistakes that are detrimental to achieving your goals

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