The Simple Dollar (9 page)

In the end, the keys to social intelligence revolve around appearing presentable, listening to what others have to say, expressing concern for and interest in their thoughts, offering useful help when appropriate, and shaping the conversation with our own contributions, all of which can be learned with practice if they do not already come naturally to you.

Being involved in a community is perhaps the most valuable thing you can do with your time—it will return ideas and resources and connections far beyond the value that you put in. Here are five steps for getting started:

1. Get to know the people around you.
   Make an effort to start a conversation with each of your physical neighbors—the people who actually live near you. Find out who they are, what they do, and what their interests are. If you know of something useful locally, share it—if you have a need for something local, ask for it. If you feel a rapport starting, suggest doing something together, perhaps sharing a meal with all of your neighbors.
   
2. Take the passions you identified in
   Chapter 2
   , “
   What’s Missing
   ,” and locate communities centered around them, both online and offline.
   Use Google as a starting point and seek out places where people congregate in relation to your interests. If you have friends that share passions with you, ask them about communities.
   
3. Dip a toe into each of these communities.
   Listen to what’s being said. Offer up information and resources you have to help. Keep in mind the nature of social intelligence as you get involved. You’ll find that some communities “click” for you and others do not—that’s normal.
   
4. Get involved in communities that “click” with you.
   Give heavily of yourself at first by putting in effort to add to the value of the community. Contribute ideas and materials to the group and see what others do with it. As you grow, don’t be afraid to ask for help from these communities—if you’re a giving member, you’ll be amazed to find how much help is out there.
   
5. Use communities to help each other.
   The real value comes when you see opportunities for one community to benefit another community and you can make that connection. Let’s say you’re passionate about woodworking and you’re involved in a woodworking community. One of your coworkers asks for a recommendation of a local woodworker. By combining your foothold in both communities, you increase the value of each one—and increase your own value in each community.
   

It would be easy for me to look back and say I regret the hundreds of thousands of dollars that I blew through during the third decade of my life.

I don’t, though, at least not in a general sense. My memories of those years are filled with a lot of peak experiences that I wouldn’t trade away at any price.

What I do regret is how much I
wasted
on the ordinary experiences and things that didn’t really add much at all to my life. I bought so many things without thinking about them at all along the way. I threw down $20 bills over and over again on quick experiences that, in the end, didn’t really add a thing to my life. It was mindless, thoughtless spending—the type of things that brings a really quick rush when you do them, but fills you with regret later when you realize your wallet is empty.

I don’t begrudge a dime that I spent on the great things. I begrudge the money I wasted on the lesser things.

When your paycheck comes in, you have to spend a certain portion of it on your required bills—energy, communications, housing, basic food, transportation, clothing, insurance, and other areas. In essence, these cover your physiological needs: nutrition, safety, and so on.

Most people have a substantial surplus left over after that—and, unsurprisingly, they spend it. The U.S. Bureau of Labor Statistics reports that in 2009, the average American family spends $2,816 on entertainment, $2,668 on dining out, $808 on a nebulous category of “miscellaneous expenses,” $588 on personal care products, $457 on alcoholic beverages, and $323
on tobacco and supplies. This doesn’t include the large portion of automobile expenses spent on luxury automobiles, thousands spent on luxury apparel, and the portion of housing expenses spent on excessive homes. With an average family post-tax income of only $49,638, it’s easy to see that a sizable percentage of our income is spent on nonessentials.
¹

I’ll be the last person to tell you that you should just cut all of that nonessential spending and live a stoic existence, subsisting on grass and living in a shack with only a deck of cards for entertainment.

Instead, my argument is simple, a refrain I heard over and over again on the London Underground while on our honeymoon.
Mind the gap.

The gap is simply the difference between your income and your required bills—the money left over when you’ve taken care of the bare essentials.

As the preceding statistics show, individuals spend the vast majority of their “gap” on nonessential items: entertainment, dining out, alcohol, luxury apparel, luxury automobiles, extra housing, and other such expenses.

The “gap” is also the source of our savings for the future (like the emergency fund discussed in
Chapter 2
, “What’s Missing”), for debt repayment, and for other financial goals.

“Minding the gap” doesn’t mean dropping all of your fun expenses and putting it all in the bank. Instead, it simply means stepping back and looking at your core values for a moment before you bust out the plastic.

Remember that picture of your ideal future that you sketched out in
Chapter 3
, “
A Visit from the Black Swan?
” The aspects of that picture—the people you’re with, the things you have, the career you have, the activities you’re involved with—details what your core values are. That picture is quite reachable.

Your “gap” is your key to get there—or merely a continuation of the tired path you’re already on.

Whenever you have an opportunity to spend some of that “gap” money, you have a choice: You can spend it on the things that truly matter to you—the pieces of that wonderful picture of your future—or on things that don’t matter (or matter substantially less).

It’s much like that photograph that Marty McFly holds of his future family in
Back to the Future
. When Lorraine or George make a poor choice—even if it looks good in the moment—that wonderful future family begins to disappear just a little. When they finally choose to grab hold of the truly good thing right in front of them, that future picture fills itself in, clear as can be.

Modern life muddies the waters quite a bit when it comes to smart choices with our “gap.” Marketers and social influences prey on that gap. The resultant
confusion ends with us feeling as if we “need” something that’s just a short-term want, planted by a clever marketing message.

Amanda Schuler, a human resources worker from Omaha, NE, struggled with distinguishing wants versus needs in a car purchase: “I totaled an almost brand-new Toyota Camry. Even though I received a sizable check from my insurance settlement, I still had to go out and get a new car. As I began my car shopping, I started getting swept away by all of the bells and whistles, and the salespeople sure talked a great pitch. Instead of purchasing, I walked away. While I was at home that evening, I called my dad, and he reminded me of ‘wants versus needs.’ I wanted a brand-new sports car, but could I afford the payments? Absolutely not.”
²

What’s the solution to this problem?
Time.
Whenever you’re about to make an impulsive buy, put it back on the shelf and resolve that you’ll buy it in thirty days if you still want it. Most of the time, you won’t even
remember
the item in thirty days, let alone still want it. If your mind keeps returning to the item during that waiting period, ask yourself why. Does it help you accomplish your big life goals? Does it add significant meaning to your life? If you’re still convinced of the value of the purchase, bargain-hunt for it. Spend some time looking for the best deal on it. Dig up coupon codes and do some comparison shopping.

Upon hearing this solution, many people reject it, immediately assuming that it means an end to all spontaneity. Again, there’s a simple solution: Put a $20 bill
in your pocket (or on PayPal) once a week and use that for your most spontaneous urges. When you find something you want to spontaneously buy or experience, go right ahead. But when that $20 is gone, don’t immediately replenish it. Wait until Friday, then put another $20 in your pocket.

It doesn’t take much thinking to realize that the most effective way to get ahead is to make that gap as large as possible. There are two distinct schools of thought on how to go about that.

The frugalist argues that the most effective way to increase the size of your gap is to reduce your expenses. How can you trim your regular bills, particularly in a way that minimizes your time investment and doesn’t reduce your quality of life in other areas? The frugalist’s advantage is that these tactics are virtually guaranteed to work. They
will
increase your gap by some amount.

The capitalist, on the other hand, argues that the best way to increase the gap is to increase and diversify your income. How can you maximize your financial returns without raising your expenditures as much? The capitalist looks for the home run—six months of work opens the door to a raise or a new job that vastly increases income (and thus vastly increases the size of one’s gap), but it doesn’t
guarantee
a job.

There’s a frugalist and a capitalist inside all of us, and the balance largely rests on our personality type. In the end, the balance usually shifts on the basis of the
other passions of the person—an individual highly interested in home improvement or in cooking is much more likely to be a frugalist, whereas a person who loves networking or is thoroughly passionate about his career is more likely to lean toward the capitalist side of the equation.

The key, as always, is to use the tactics from both sides that work for you and don’t detract from your big goals.

Almost every personal finance book you read will have several pages on how to set up a budget. They’ll give you forms to fill out, templates to follow, and press you into the idea that this budget will solve all of your problems.

It won’t.

That’s not to say that a budget isn’t a useful tool. It truly can be for many people, particularly those with analytic minds.

However, a budget is often saddled with much more than it can ever live up to. A budget
can
help you identify areas where you overspend, and it
can
help you find areas where you can cut spending.

The big problem is that a typical personal budget assumes a very orderly life, and as we discussed in
Chapter 2
, our lives are more disorderly than ever. An old-fashioned household budget, fastidiously followed every month, is a twentieth-century tool in a twenty-first century world. It doesn’t account for the onslaught of
opportunities and problems thrust into our lives every day.

A much better answer comes from recognizing that most of our money management problems come from our own decision making and that the multitude of online tools make it very easy to manage our money in ways never even conceived of two decades ago.

Here’s a five-pronged solution for minding your own gap:

1. Automate your savings and payments.
   Choose a bank (see
   Chapter 12
   , “Managing the Gap,” for more details on selecting a good bank) that allows you to do online bill pay and schedule automatic transfers into a savings account from your checking account. Schedule as many of your bills as you can and also schedule an automatic weekly transfer into your savings account. Choose a realistic starting amount, one that gives you plenty of breathing room—why not $25? This amount is effectively the start of your emergency fund, as discussed in
   Chapter 2
   , and it will grow into the source of your financial freedom.
   
2. Reduce your footprint.
   Dig deep into tactics for reducing your spending and jump headfirst into the ones that offer a healthy bang for the buck and don’t go against your core personal values and goals.
   Chapters 7
   , “Minding the Gap,” and 8, “Frugality as Framework,” offer a great deal of guidance in this area.
   
3. Increase and diversify your income.
   Look for effective, simple ways to bring in more income, whether from your primary career or from other avenues of income.
   Chapter 10
   , “The New Career Rules,” offers a lot of help for both dimensions.
   
4. Refactor.
   If you find sustainable ways to increase your income or decrease your expenses, include that change in your automatic savings. If you manage to cut your energy bill by $25 per month and can see that consistently in your energy bill, bump up your automatic savings by $5 a week. If you get a raise and it results in an extra $50 every two weeks, add $20 to your automatic savings each week. A success in increasing your gap simply means that you’re closer than before to your dreams.
   
5. Conserve the difference.
   What often happens when people execute the first two steps is that they discover there’s still a leftover in their checking account at the end of the pay period. They immediately think of this money as “mad money”—money that’s “off the books” that they can do with as they please without any real consequence to their plans. Instead,
   sweep the excess into savings or into another specific goal
   and forget about it. Don’t let the balance of your checking account tempt you into purchases that don’t support your big goals in life and leave you feeling empty.