Moneywise24 Personal Finance

I read an utmost interesting article today at the Financial Samurai website, about rational decisions and how it may impact the lives of individuals. Although the story itself is about rational or irrational decision making processes, I find it utmost interesting how in some examples within the article, the subject decides to make a change in his or her lifestyle, whereas in other examples the individual does not.

 This automatically led me to the following thought:

Often we have good intentions and ideas around New Year’s Eve, but we tend to implement only a small part of it, if at all. We usually kick off in the new year following our good intentions, only to find ourself following old habits in February again. Additionally, perhaps we still remember how we definitely and enthousiastically made decisions years ago, only to find today that the idea has never turned into action.

The power of habit

People are very habitual creatures, and generally we don’t like change; whether it is a new job, starting to do sports, quit smoking, or any form of activity which requires some form of effort. Through our habits, which we have trained over years and years, we are conditioned to act and respond in certain ways during certain situations. Not uncommonly, such habits develop during childhood and adolecense. We have grown to become accustomed to them, perhaps even emotionally attached, which makes them even hard to change.

Such habits may include smoking, eating too much, or doing (too little) sports. It can be extremely hard to permanently break through the barrier of bad habit, since in many cases there is some form of physical reaction involved. As an example, take a person eating too much, who would like to change his eating habits in the new year. To those, who are already in the habit of eating not too much and healthy, it might seem as an easy task. However, we tend to neglect the fact that a body has the capability of adapting itself to the conditions it is faced: an overweight person, suddenly reducing the amount of food he/she consumes each day, will start to feel a contunious hungry feeling.

Or take the example of an individual, who spends a lot of money each day for shopping. Shopping temporarily releases endorphines in the body of an individual, causing a bliss of excitement and happiness. Much like smoking, giving up shopping will reduce the daily amount of endorphines in the body and may cause unhappiness or even slight depressions.

The belief system

In addition to habits, people develop a belief system throughout their lives. Usually, beliefs are unconsciously formed through experiences (both pleasant and unpleasant), and generally dictate the unconscious behavior of an individual. Together with a person’s genetical programming, it makes each person unique. It is the reason why one person loves to take risks, whereas another does not; Some people can start conversations with people easily, whereas others are too shy to do so.

Beliefs also have a great impact on how we see things, and the habits we develop. For example, many people are holding on to their own jobs due to insecurity, or perhaps fear of the unknown, and fear of change. Additionally, the ability to build large social networks or the ability to build a business is not uncommonly the result of previous experiences in life.

The cycle of change

Changing old habits or beliefs requires a lot of persistance. Usually, there are four stages of change:

• The unconscious “old” behavior refers to specific behavour or habits which we are unconscious of. We do them without thinking, and we do not realize that changing them may improve the quality of our lives.
• Conscious “old” behavior refers to the stadium where we have identified the behavior or habits which need change, but we still do them.
• In the stadium of  conscious “new” behavior, we have actually changed our behavior and habits to where we want it to be, but we still have to push and remind ourselves to keep it up. We are continuously doing these things consciously, and there is still a huge risk of falling back in our old and unwanted behavior.
• Unconscious “new” behavior is when we unconsciously have adopted our new behavior and habits, and do them without thinking about them.

Planning your initiatives for 2010

If you want to plan your initiatives for 2010, you will need to develop a method in order to be able to do this effectively. Each person is different, so your method will surely be unique. However, the following guidelines are intended to help you plan a bit ahead, and make some change in 2010:

Do not plan too much: many people plan too much for the new year; they want to quit smoking, eat less, do more sports, change jobs, buy a new apartment, buy a new car, get married, and so on. When thinking over your personal changes for the new year, think them over carefully and prioritize them. Do not plan too much, but stick to two, three, perhaps four major changes in the new year. This will let you keep the overview.

Be specific: Be as specific as you can. For example, if you would like to lose weight, plan how much you want to lose within which time span. If you want to do more sports, think about what kind of sports you want to do, where you would do it, how much it would cost, and how often a week you want to do it. Make a plan, and stick to it.

Be realistic: Keep your changes as realistic as possible. It is great if you plan to do sports each day, but if you work two jobs and have a family to take care of, this is simply too ambitious. You may want to reduce it to two or three times a week, which is much more realistic.

What will make the difference?: Last, you may need to think about whether the planned change is indeed going to have the desired effect. For example, you may plan for 2010 to cut down further on necessary expenses. However, are you really spending that much, or are you simply in need for the next step in your career? Or perhaps you are thinking about buying a nice sports car? But then, why haven’t you bought a sports car until now? Or are you rather referring to financially being able to buy youself a sports car? Perhaps in that case it is necessary to focus on cutting down expenses, or advancing your career, in stead of focussing on the car.

Be committed: Being committed is like making a promise to yourself. Stick to you planned changes, and always keep them in mind. Keep to your own promise, and be faithful to yourself.

Whatever people plan for 2010, many of them fail to keep up with them. Usually, changes are not kept up with due to light heartedness or a lack of commitment. Also many people tend to have too many things on their New Year’s wishlist.

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We continuously hear about how people make unwise financial decisions, and how we rely too much on our emotions. We tend to think “this will not happen to me, I am a smart and educated person”. A documentary I saw yesterday demonstrated the exact opposite. Below, I would like to take the opportunity to recap two scenarios of yesterday’s documentary, and the results.

5 Euros now, or 40 Euros in six weeks

Different random people on the streets were offered a 5 Euro bill on the spot, or they had the option to receive 40 Euros in six weeks. Nearly all people chose the 5 Euro bill option. However, taking the 5 Euro bill option is the most unwise decision; 5 Euros is much less than 40 Euros. Even if people would have been offered 5 Euros per week for the next six weeks, the total would be only 30 Euros.

We humans are greedy people, which is largely programmed in our genes. First, shopping or becoming money makes us feel good; yes, our bodies produce endorphine, having a very positive impact on our mood. However, from a survival perspective we also have to take the opportunity when it comes by immediately, as this opportunity might not be available tomorrow. Although we cognitively know, that taking the 5 Euro note now is not the best decision, emotionally it is still the best thing to do.

Absolute vs. comparative amounts

It is very difficult to look at money from an abstract point of view; how much is 10 Dollars worth? For someone earning 4 Dollars per hour it is worth much more than for someone earning ten times as much. And what is 10 Dollars worth in China, or India, or South Africa?

Random people on the street were asked to take a pick from two possible scenarios:

• You are offered an annual salary of 100,000 Dollars per year whereas everyone else earns 50,000 per year.
• You are offered an annual salary of 200,000 Dollars per year whereas everyone else earns 300,000 per year.

Although a 200,000 Dollar salary is clearly higher than a 100,000 Dollar salary, most people still chose the 100,000 Dollar salary. The main motivation of the people asked was that it makes them feel good to earn more than everyone else… people were simply comparing themselves to others, in stead of making an objective decision and go for the higher amount.

The human mind is truly astonishing, and it takes some will and effort to truly make objective decisions, which are best for you. Still, humans are emotional, and probably it will never be entirely possible to turn them off.

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When I got home the day before yesterday, I had a very interesting message waiting for me on my answering machine. The text was clearly spoken by a computer, and although I already deleted the message, this is roughly what it said:

Hello, this is “Mr X”. Your number has just been selected from our database, and you are a winner. This is not a joke, you have just won a BMW 3-series, or the equivalent of 30,000 Euros in cash. Again, this is not a joke. You can claim your prize, a BMW 3-series or the equivalent of 30,000 Euros, by calling us within the next 48 hours. Please take a pen and a piece of paper, the number is 0900-739555…

I have to admit, I was a bit confused, perhaps a bit joyful. But I decided to research the internet first, before calling on. As I entered the number in Google, it appeared that many people had already written about the message message being a scam, and that calling the 0900 number would cost approximately 2 Euros per minute. The clue: the call center would stall callers as long as they could, but a prize (be it the car or the cash) would never get delivered to the individual.

I currently live in Germany, and having researched the topic a bit further came the next clue: the so-called company which had called me is located in Switzerland. Due to the border issue, it is extremely difficult to sue the company in order to obtain a prize. In fact, many had tried, where some succeeded but many failed.

Such automated calls are clearly scams, since nobody has anything to give away for free, especially if you cannot recall registering anywhere. Additionally, serious companies would contact you in person, and you would most probably have much more time than only 48 hours to respond. Fraudulent companies frequently make use of dialers, meaning that random phone numbers will be called, and as soon as a number is picked up (either by a person or answering machine), the number is saved in the database. Such databases are then frequently sold to third parties.

The sad thing is, that still many people respond to such calls. These are also usually people, who really could use the money and who are living on a tight budget. However, if you watch out for a couple of things, you can fairly easily identify a scam:

• If you are being called and the number of the caller is hidden, it is probably a scam (or another company or individual which clearly does not want you to call them back on that number).
• There is nothing for free without an initial investment. If you play the lottery, you will have to make a purchase first before you can win anything. However, if you won something without any effort from your side, it is probably a scam or a marketing campaign.
• Are you being told to respond within a very short time limit, such as 24 or 48 hours, then it might be a scam. Fraudsters do not want to give you enough time to think it over, or to conduct extensive research; you are being put under pressure.
• Are you being asked to call a very expensive number? Then it is quite obvious how this company is probably generating its earnings, namely via people calling them.
• If you are being told to call to a specific number, try to google that number. Posts and comments on scams are being spread on the internet extremely fast. If you find material on that number, read what people write about it.

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Christmas is a joyful time; it is a time to spend with family, good friends, and simply enjoy being together and sharing the good times. Nevertheless, many people decide to spend their Christmas possibly as far away as possible. How about spending Christmas in Las Vegas, Miami, or traveling to Bangkok to enjoy a traditional Thai massage?

Although traveling is fun, exciting and even educational, there are a few top reasons why you may do yourself a favor and spend Christmas at home.

High Price

Traveling comes at a price, and this is especially true during Christmas. Believe it or not, you are not the only one thinking about spending Christmas in another city or country. The demand for flights and hotels is extremely high during the Christmas and New Year’s Eve period, driving prices high. In fact, prices are probably the highest during this time of the year. A simple non-stop return ticket to Europe may cost you as much as nearly two thousand Dollars for an Economy Class ticket; just mind, that during other times in the year, Economy Class tickets for similar flights may easily be obtained at 600 Dollars or even less on regular non-stop flights. Additionally, if you are not visiting friends or family, you will need to spend some money on a hotel or a place to stay. These prices are also literally sky-rocketing during this time of the year; the high demand of travelers makes it possible for hotels to ask much higher fees than they would otherwise.

Stress

Staying home for Christmas and New Year’s Eve can save you a lot of stress. Think about all the millions of passengers and travelers, extremely long waiting lines, and the high amount of traffic on the road. Traveling is definitely most fun when done in a stress-free environment. In fact, most fights between family and friends occur during holidays and travel, due to the elevated stress factor. You may do yourself a big favor by staying at home during this time of the year.

Weather

The weather during winter can be quite tricky. Think about unforeseen snow storms, cancelled flights, or sudden fluctuations in temperature; all the more reason to stay in your own house or apartment.

If you still do not want to celebrate this time of the year at home, consider the following tips, which might save you a lot of hassle:

• Plan well in advance. Planning 6 or more months in advance will ensure that some low fare tickets and prices may still be available. The longer you wait for planning a trip during this time of the year, the more prices will go up, punishing you for making last-minute decisions.
• Do not travel the week before Christmas or the week after New Year’s Eve: these are weeks where most people want to travel. This could possibly mean, that you need to take a long holiday or vacation, but the benefit is you will avoid the peak traveling periods.

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I spontaneously realized something this morning: how much time of our lives do we actually spend either

• sleeping, or
• doing nothing

I came to this question, because this morning was typical again: I had been spending hours in front of the television watching a thriller last night, and as I result I went to bed at 1:30 at night. Then, this morning, like every morning, my alarm clock rings at 6 in the morning, I smash it with my left hand until it shuts up, I decide to lay down just for another five minutes, and 5 minutes later it is 8 o’clock…

… I get confused about how 5 minutes have transformed in 2 hours, I rush to the bathroom… no, the kitchen to make some coffee first. I am ready at 9, and I rush outside to the bus station, knowing that I still have one hour to go until I make it till work. And this is where the really rough part kicks in: I realize, that when I come in the office at 10, I will have to stay until at least half 6, probably even 7… I would get home at 8… and my day is pretty much over.

For along time I thought I was one of the few having this habit, but it seems that many of my colleagues are struggling with the same… mostly they are singles, or at least they don’t have children or a family life. What bothers me most about this habit though, is that by the time I get home at 8 or sometimes 9 in the evening, I don’t have much energy to get involved into some activity.

I realize, this is a habit I desparately want to change; and I think it should be possible, since we tend to adapt to certain habits. Therefore, I think it should be well possible to get into the habit of getting up early, say at 6 in the morning. As such, I would have the whole day in front of me, and it allows me to spend the day much more efficiently.

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