Wheel of Life Approach to Life Balance & Goal Setting

Hardy quoteThe one skill most responsible for the abundance in my life is learning how to effectively set and achieve goals.” –Darren Hardy (author of The Compound Effect and former publisher of SUCCESS magazine)

In my last two posts I have talked about how to set goals and how to make changes in your life. This week I am going to cover what areas of life you should set goals in.

A preliminary note, though – before you set goals it is important that you consider the answer to the question, “Who do I truly want to become?” As the oft-repeated quote goes, “People may spend their whole lives climbing the ladder of success only to find, once they reach the top, that the ladder is leaning against the wrong wall.” Everyone knows “successful” people who lost everything that was important on their way to the “top.” They lost family, friends, trust and so much more.

Clayton Christensen wrote an excellent book titled, “How Will You Measure Your Life?” He tells a story about how, at his 10-year Harvard Business School reunion, all of his classmates seemed to be doing well. Many of them were on their way to the top of their companies and were earning enormous amounts of money. What he found out, though, was that many of them were unhappy.

Many did not enjoy what they did for a living and there were numerous divorces or unhappy marriages. One of his classmates told him he hadn’t talked to his children in years.

As the years went by, things got progressively worse. One of his brightest classmates, who earned more than $100 million in a single year as Enron’s CEO, ended up in jail for his role in the Enron scandal.

Christensen shares these stories with his students on the last day of class and then writes these questions on the board:

How can I be sure that:

  • I will be successful and happy in my career?
  • My relationships with my spouse, my children, and my extended family and close friends become an enduring source of happiness?
  • I live a life of integrity – and stay out of jail?

Have you ever asked yourself these questions? If not, now is a good time to do so. Pull up a note and write out the answers to them. It can be an enlightening experience, and critical to setting goals that ensure your ladder is leaning on the right wall.

With that as a background, let’s move on to what areas of your life you should set goals in. I’ve read a number of different ideas, but I find the Wheel of Life approach to be the most comprehensive and easiest to use. My two main sources of inspiration on this are Zig Ziglar and Darren Hardy. The seven areas of the Wheel of Life are:

Wheel of Life

  • Personal & Social
  • Work & Career
  • Family
  • Spiritual
  • Financial
  • Mind/Intellect
  • Physical/Health

You need to get specific, though! You need to define specifically what success looks like in each area, and you rate each one on a scale of 1-10, with one being very poor and 10 being outstanding.

To help you set this up properly, I have created a Wheel of Life planning worksheet with some suggestions by both Zig Ziglar and Darren Hardy.

You can access that here: https://ryanhlaw.com/resources/

Let’s look at an example. For Physical/Health one suggestion is, “I eat a healthy breakfast every day.” If I eat a healthy breakfast 3-4 days a week I might rate myself a 5 in that area. I can then follow up with a few questions:

  • What number would I like to get to?
  • What will it take to get me to that number?
  • Am I ready to make a change in this area (am I am the Preparation stage of the Stages of Change)?
  • If I am ready to make a change, what small step can I commit to – one that I am guaranteed not to fail? Another way to look at this would be to ask, “What will take me to a 5.5?”

Does this amount of work seem daunting or overwhelming to you? If it does, let me take you back to Darren Hardy’s quote from the beginning of the article:

“The one skill most responsible for the abundance in my life is learning how to effectively set and achieve goals.”

This type of work is what Stephen Covey calls Quadrant II work – important but not urgent. Commit to set some time aside to properly plan your life.

You can find the Wheel of Life Planning worksheet here:

https://ryanhlaw.com/resources/

Changing for Good

Successful author, entrepreneur and speaker Jim Rohn said, “Your life does not get better by chance, it gets better by change.”

Are there areas of your life that you want to change? Do you want to lose weight, get in shape, stop a bad habit or start a good habit? None of these things are going to happen by chance. They are only going to happen if you make a decision to change. In my last post I talked about goals – I want to dig deeper today into how you actually make the changes in your life that you want to make and how goal setting fits in to this.

Back in the early 90’s three researchers – James Prochaska, Carlo DiClemente and John Norcross wanted to know the answer to the question: “How did people make changes in their lives?” They were expecting to find some common denominators among those who had made changes and maintained them. What they ended up finding, though, was a model that they called Stages of Change.

In this post I am going to walk you through the five Stages of Change and discuss some ways you can incorporate them to make a positive changes in your life.

stagesofchangegraphicThe first stage is Precontemplation. In this stage you don’t know that you have a problem. It’s the alcoholic that says “I don’t have a drinking problem – I can stop anytime I want” or the person who is in the early stages of heart disease due to their lifestyle but isn’t aware of it. For those in the precontemplation stage there is no intention to change their behavior. They may wish to change, but this is different from intending to change.

The second stage is Contemplation. In this stage they are aware that a problem exists, but they haven’t taken any steps to overcome it. They are contemplating changing sometime in the next six months, but research has shown that people will contemplate changing for years before actually doing anything about it.

Preparation is the next stage. Those in this stage intend to change their behavior in the next 30 days. They may have already taken some small steps, such as purchasing running shoes.

Preparation is where goal setting kicks in. If you want to stop eating sugar, for example, but you are still in the contemplation stage then setting a goal isn’t going to help – in fact, it can be harmful because you aren’t going to keep your commitment. If you are ready to commit, though, and you are ready to make a change in the next 30 days, then use my last post (https://ryanhlaw.com/how-to-set-and-achieve-your-goals/) to set your goals!

Action is the stage where you take decisive action. You actually go running, you throw away all your cigarettes or take any other action that exhibits positive behavior. You enter the action stage on day one and stay in this stage for six consecutive months. That means that if a smoker, for example, goes three months without a cigarette then smokes one on a stressful day, then quits again, they start this stage back over.

The final stage is Maintenance. Those in this stage have changed their behavior for at least six months. This stage was originally called Termination but was modified to reflect that maintenance is not static – it is a continuation of change. For example – at Alcoholics Anonymous meetings everyone introduces themselves as an Alcoholic, even if they have been dry for years. They recognize that they need to maintain the change.

I differ from the authors in only one regard. Action is seen as the step where you completely stop or start doing something. You completely quit smoking, or you exercise for 30 minutes every day, or you completely cut out sugar, or whatever the action is.

For many people (myself included) that’s too overwhelming. Smaller changes, where you are guaranteed not to fail, have proven to be more effective. I’ll give you an example from my own life. I would like to be better at studying the scriptures. My ultimate goal would be 30 minutes each morning, but I often get overwhelmed when I think about doing that and it’s the first thing to go. Sometimes reading even one full chapter seems daunting. Recently I gave myself permission to think small. Just a verse or two per day. That I can do (and, consequently, I have the last few days). Does that mean I have failed? No! Am I where I want to be? Not yet, but it’s better than where I was. The focus, for me, is on getting better, incrementally, not perfection.

Getting better

 

 

 

 

 

 

 

Perhaps this means I am still in the preparation stage for scripture reading, but I’m OK with that.

Think about a change you would like to make in your life. What stage are you at? Are you ready to move to the next level? What small goal can you set for yourself – so small, in fact, that you are guaranteed not to fail?

Remember, life does not get better by chance. It gets better by change.

How to Set and Achieve Your Goals

GoalsSuccessful entrepreneur, author and public speaker Jim Rohn tells a story about meeting his boss and mentor, Earl Shoaff, for breakfast early in his career to discuss success. Shoaff suggested they start by reviewing Rohn’s list of written goals.

“I don’t have them with me,” Rohn responded.

Surprised, Shoaff asked, “Well are they out in your car?”

Hesitatingly Rohn responded, “Well…no…when I say I don’t have them with me, I mean that I don’t have a written list of goals at all.”

“Then,” Shoaff responded, “I know exactly where we need to start.”

Jim Rohn became an avid goal setter and credits it as one of the key principles behind his success, and he isn’t alone. Many other successful people credit goal setting with their success as well.

To be honest, I’ve known about goal setting for years, but I haven’t been great at actually writing them down and tracking my progress. Most people are similar. The average American sets the same resolution ten years in a row unsuccessfully, and most resolutions are abandoned within four months.

I’m working on changing some of my habits, though, and setting goals is a great place to begin.

I’ve been doing some research and want to share with you some thoughts on how to set and achieve your goals.

“I thought this was a personal finance blog, not personal development” you might be thinking. It is! Setting clear, concrete, specific financial goals is one of the keys to success in your personal finances. Goals gives you a reason to budget and to say “no” now because you are focused on what you want to achieve long-term. Also, personal development is one of my favorite topics to study, so as I learn things I will continue to share them here. I hope you find it helpful.

Let’s get to it, then. Here are the seven steps to successful goal setting and achievement[i].

Step One: Get specific

Many of us have vague goals in mind, such as, “I would really like to lose some weight,” or “I would love to be financially successful.” This is a good start, but it doesn’t answer a key question: How will you know when you have reached your goal? In other words, what does success look like?

“I would like to lose fifteen pounds” is much better than “I want to lose some weight.” After all, if you go down by a pound you have technically achieved your goal of losing some weight, but that isn’t what success really meant.

Step Two: Decide when you are going to act

Setting and achieving a goal requires you to change your behavior in some way. To lose weight you need to eat healthier and exercise. To be successful financially you need to start budgeting, paying off debt, and saving for the future. The most successful goal setters realize that behavior change is hard, though, and they set up a plan for when they are going to do the new action (such as exercise or budget).

They do this with a specific technique called if-then planning. If they have a goal to exercise regularly, they get specific about when to act by saying, “If it is 7 AM, then I will work out for 30 minutes.”

This concept has been tested over and over. For example, there was a group of people who all said they wanted to exercise regularly. The first group was taught about if-then planning and they collectively agreed that, “If it is Monday, Wednesday or Friday, then I will hit the gym for 30 minutes before work.”

Group two had no specific plan for when to act.

Weeks later 39% of group two was still exercising regularly, while 91% of the if-then planners were still exercising!

Step Three: Take small steps

When we decide we want to achieve a goal we usually get excited and want to jump in the deep end. For some people, this might work, but the majority of people are going to sink. Research has shown that taking really small steps can be the best way to achieve a goal. Robert Maurer, author of “One Small Step Can Change Your Life” tells a story about a girl named Julie who needed to lose weight and get her blood pressure down. He was tempted to tell her to exercise aerobically for 30 minutes every day, but he knew from experience that while the advice was good, she was unlikely to do it and would just feel misunderstood and guilty.

Maurer decided to try something different. “How about if you just march in place in front of the television, each day, for one minute?” Julie responded that of course she could do that. After all, there was no way she couldn’t succeed.

Was she going to get healthier exercising for a minute a day? Probably not. What happened the next week, though, was that Julie came back excited that she had achieved her goal. Together they built up the exercise habit, minute by minute, for a few months, until she started exercising for 30 minutes each day.

If you set really small steps towards your goal you will achieve success over time. The steps should be so small that you are guaranteed success.

This can be easily incorporated with if-then planning:

“If it is a commercial break during this show then I will march in place during one commercial.”

“If it is noon I will go on a five-minute walk.”

“If it is 8:00 in the morning I will read one verse in the Bible.”

“If I am getting home from work I will spend five minutes connecting with my spouse.”

“If it is after dinner I will play with my kids for three minutes.”

Step Four: Honest and regular monitoring

Thomas S. Monson said, “When performance is measured, performance improves. When performance is measured and reported, the rate of improvement accelerates.”

Honest and regular monitoring, and preferably reporting your progress to someone else, will help you improve.

Different goals will have different monitoring periods, but monitoring weekly is a good step for most goals. “Did I stick to my budget this week” or, “did I hit the gym three times?” or, “what is my current weight?” are all great weekly questions to ask. Remember that early on the goal should be much smaller. Did you march in place during one commercial break each night? Did you read one verse of scripture each day?

You need to set aside a specific day and time to review your progress. I have read that reviewing your progress on a Wednesday is a good idea – you are half-way through the week and can still make some changes before the week is over. You should review your goals daily, but track your progress on a Wednesday.

Step Five: Be realistic

There is a vital difference between believing you will succeed, and believing you will succeed easily. A group of people who were enrolled in a weight-loss problem were interviewed and asked if they thought it would be hard when they were faced with temptation, such as free donuts in the breakroom. Some said it would be easy to avoid temptation while others thought it would be hard, but believed they could be successful.

The second group (the ones who recognized that it would be hard but believed they could do it) lost 24 pounds more than the ones who thought it would be easy!

For most people, behavior change is hard. Believe in yourself, but be realistic about obstacles you are going to face.

Step Six: Focus on getting better, rather than being perfect

My seven-year old son is playing coach-pitch baseball this year, so he goes to practice each week and he and I play catch and practice batting. Do I expect him to be perfect – to hit every ball and throw every ball perfectly? Of course not! Is he getting better, though? Absolutely. He and I both recognize that is the goal – to get better.

It is important to remember that you are developing ability and learning to master a new skill. A smoker, for example, may have the goal to quit smoking. If he has been smoking 20 cigarettes a day but has cut down to 10 has he failed? No! He is getting better and that should be celebrated.

Step Seven: Build willpower

Most goals have one thing in common – resisting temptation, and you need willpower to resist those temptation.

Willpower, however, varies from moment to moment, and gets depleted with use. Willpower is like a muscle – it needs time to bounce back, but it does get stronger over time.

Making and keeping commitments to yourself is one of the best ways to strengthen your willpower muscle. If you commit to get up at a certain time, do it! If you commit to track your spending every day, do it! Don’t commit to do something unless you are going to keep it. Making a commitment to yourself and then breaking it will weaken that muscle. For this reason you shouldn’t take on two challenging goals at once.

Here are the seven steps again:

  1. Get specific
  2. Decide when you are going to act (If…then thinking)
  3. Take small steps
  4. Honest and regular monitoring
  5. Be realistic
  6. Focus on getting better, rather than being perfect
  7. Build willpower

I encourage you to take some time this week to set some goals using these steps. I commit to do this.

 

[i] I have gathered this material from a number of sources, but I am a fan of using research to back things up, rather than anecdotal evidence. Two books that I have really enjoyed are “9 Things Successful People Do Differently” by Heidi Grant Halvorson and “One Small Step Can Change Your Life” by Robert Maurer. “The Compound Effect” by Darren Hardy is a great follow-up to these books.

 

Habits of the Wealthy

My last two posts have mainly focused on the internal world (thoughts) of the wealthy. Success, however, is a combination of our attitudes (internal) and our habits (external).

Before I go any further into today’s post, I want to clarify a few things:

  • Wealth does not (automatically) equal success. If fact, you can find story after story of wealthy people who are estranged from their families and have no real friends. However, while the media loves to focus on those types of stories, there are many stories of wealthy people who are very successful in other areas of their lives as well.
  • You may not want to be wealthy. Wealth brings additional challenges that some people may not want. The habits and attitudes defined here, however, can help in any area of your life.
  • We are not wealthy (yet). We are doing better financially than we ever have, and I am confident that these habits will only improve what we have done.
  • These posts only apply to those in a free-market economy, such as America. Being born in poverty in a third-world country brings an entirely different set of challenges. People born in poverty, however, can rise out of it using these types of habits.

If you would like to be better off in the future than you are now, however, this post, and my previous two posts, should help.

rich habitsMy post today is based on some great research that Tom Corley has done. He spent five years studying the habits of the wealthy and the poor. Tom’s family was wealthy until he was about 10, then they lost everything overnight and lived in poverty the next 11 years. Tom didn’t want to live this way – he wanted to know exactly what wealthy people did to become and stay wealthy. Here are some key findings from his five-years of research:

  1. The wealthy live within their means. They save approximately 20% of their income and spend no more than 25% on housing, 15% on food and 10% on entertainment. This reminds me of one of my favorite quotes about millionaires:

    “Millionaires become millionaires by budgeting and controlling expenses, and they maintain their affluent status the same way.” -The Millionaire Next Door

  2.  

  3. 88% of the wealthy read at least 30 minutes per day about their career, education or for self-improvement. Only 2% of the poor do this. 63% listen to audiobooks as they commute, while only 5% of the poor do this.
  4.  

  5. 67% of the wealthy watch less than an hour of TV per day. 77% of the poor watch more than an hour of TV per day. Instead of watching TV the wealthy work on hobbies, or side businesses, or they volunteer and network.
  6.  

  7. And speaking of volunteering… 3/4 of wealthy people volunteer with an organization or cause they believe in at least 5 hours a month, while only 10% of the poor do this. Volunteering is a great way to network as well.
  8.  

  9. 62% of the wealthy are focused on at least one major goal every day. Only 6% of the poor do this.
  10.  

  11. The wealthy wake up early – 44% get up three hours before their work day begins. 3% of the poor do this.
  12.  

  13. 81% of the wealthy make and prioritize a to-do list the night before, while only 19% of poor people do. In addition, they focus on the tasks – they complete, on average, 70% of their list.

There are other habits as well, but these seven are a good starting place. If you were to pick one or two of these to begin focusing on, what would you choose?

My plans are to work on:

  • Listening to audiobooks as I commute
  • Waking up earlier
  • Prioritizing my to-do list the night before

I would love to hear what area you are focusing on – please leave your comments below!

The Five Lessons a Millionaire Taught Me About Life and Wealth by Richard Paul Evans

Let me share with you a few book titles on my bookshelf that have to do with money:

  • Think and Grow Rich
  • How Rich People Think
  • As a Man Thinketh
  • Mind Over Money
  • Wired for Wealth – Change the Money Mindsets That Keep You Trapped
  • Conscious Finance

Did you catch a theme there? It was something I hadn’t really noticed before. Clearly, according to these authors, wealth has more to do with your mindset and your thoughts than your habits.

5 lessonsToday’s post deals with that same concept. I am going to review the book The Five Lessons a Millionaire Taught Me About Life and Wealth by Richard Paul Evans (#1 New York Times bestselling author of The Christmas Box). I picked up a copy at the local library and read it in one sitting. It’s an easy read (93 pages of content and an additional 70 pages of resources), but definitely worth your time.

Evans learned these lessons at a young age from a millionaire and went on to change his mindset, incorporate them in his own life, and make a lot of money. He teaches five lessons or principles that he says will lead all who follow them to wealth and financial independence. In fact, he says that all wealthy people share this common denominator – they understand the principles of accumulating wealth and follow them (and by wealthy he isn’t talking about those who win the lottery or inherit a fortune then go broke 5 years later, but truly wealthy people who earn and keep their wealth).

None of these principles are new – you won’t find anything earth-shattering in the five lessons. In fact, they will seem very ordinary to you. However, very few people actually follow them. I discovered areas that I can improve and plan to sit down with my wife so she and I can decide together how to better live some of these principles. I also plan to teach these principles to my children in ways they can understand.

Here are the five lessons:

Lesson One: Decide to be wealthy

Evans says this is the most important principle and that wealth is a mindset – it’s all or nothing. Bryan Tracy, another one of my favorite authors, says that it never occurs to most people that they can be wealthy and that “the primary reason for underachievement and failure is that the great majority of people don’t decide to be successful. They never make a firm, unequivocal commitment or definite decision that they are going to become wealthy. They mean to, and they intend to, and they hope to and they’re going to, someday. They wish and hope and pray that they will make a lot of money, but they never decide, ‘I am going to do it!’ This decision is an essential first step to becoming financially independent.”

Lesson Two: Take responsibility for your own money

You need to know how much money you have (by calculating your net worth monthly and annually), know where your money comes from and where it is going (budgeting). If you don’t control your money it will control you.

Lesson Three: Keep a portion of everything you earn

As George Clason says in The Richest Man in Babylon “a part of all I earn is mine to keep.” Evans says that millionaires save between 15-20% of their income and recommends that you start with a minimum of 10% of your salary and 90-100% of any side earnings.

(Consequently, the book The Richest Man in Babylon is one of my favorite books about money – you can read it for free here: http://www.ccsales.com/the_richest_man_in_babylon.pdf).

Lesson Four: Win in the margins

This principle is the one that will help you increase your nest egg as quickly as possible. The basic idea is to look for ways to increase your income and decrease your expenses. Evans goes through a number of different ways to look for deals and decrease expenses. He says that one of the best ways to save money on a purchase is to ask “Is that the best you can do?” This seems to especially be true with high-ticket items.

Lesson Five: Give back

Evans donates 10% (or a tithe) of his money and says that he has never felt the loss of the money but instead has felt specifically blessed for his contributions. My wife and I do the same thing and feel the same way that Evans does.

Those are the five lessons. Are you surprised at all by the simplicity? I would guess that you are. Like I said, none of the ideas are earth-shattering revelations. How many of them are you actually living, though? If you are intrigued by these ideas I highly recommend you pick up a copy of this book and make some plans to improve.

How Rich People Think

by Ryan Law

How Rich People ThinkI recently picked up a copy of the book How Rich People Think[i] by Steve Siebold. In the book Siebold shares 100 lessons he learned over a period of 26 years as he interviewed some of the wealthiest people in the world. The book reminds me of a few of my other favorite finance books, including The Millionaire Next Door and Think and Grow Rich. These books don’t focus on money per se, but how rich people think and act.

In today’s post I will share several of Siebold’s lessons.

#13 Middle class believes money is earned through labor…World class believes money is earned through thought

“The average person believes the harder they work the more money they’ll make. Their linear thinking equates labor and effort with financial success. This is why most people aren’t rich. They’re following an outdated model of success…The rich know that creative thinking is the highest paid skill in the world.”

This idea of creative thinking is a theme throughout the book. Siebold mentions numerous times that the best thing you can do is work on training your mind to find solutions to difficult problems. “The rich get richer,” Siebold says, “because they know the world is overflowing with wealth disguised as problems that need to be solved.” One way he recommends you train your mind is by investing at least one hour per day studying subjects that will help you move toward your vision.

#20 Middle class earns money doing things they don’t like to do…World class gets rich doing what they love

Surely you have heard the philosophy that you should “do what you love and the money will follow.” Do you believe that is true? On the last day of my class each semester I ask the question “How many of you truly believe you can do something you love and get paid well for it?” Most students raise their hands, but the reality is that most people don’t like what they do. Forbes reported on a study that showed that only 19% are satisfied with the work they do, 16% are somewhat satisfied and almost 2/3 of all people are dissatisfied, or unhappy in the work they do.[ii]

There is a great video narrated by Alan Watts called “What is Money Was No Object?” that discusses this theme. Here is a link to the video: http://www.youtube.com/watch?v=C_sbcSRMsOc

Siebold says that “…passion is the real secret of getting rich…The rich go to work every day feeling passion for what they do, and their passion fuels their efforts.”

#50 Middle class dreams of having enough money to retire…World class dreams of having enough money to impact the world

What is your major money goal? Siebold says “…the masses major goal with money is to retire at 65 and hopefully have enough money to survive until they die. The world class, while often no more ambitious, set their sights on impacting the world with their wealth.”

Most people want to make a positive impact on the world. Think about some specific things you could do to make a difference for other people if you had the money to do it.

#58 Middle class have loosely defined goals with flexible deadlines…World class have highly defined goals with do or die deadlines

Jim Rohn, a famous speaker, author and consultant tells a story of meeting with his mentor, Earl Shoaff, for the first time. Shoaff said, “Let’s start with reviewing your goals.” Rohn said he didn’t have them with him so Shoaff said “Are they in your car? Why don’t you go get them so we can review them.” Rohn said they weren’t in his car and in fact he didn’t have any written goals. Shoaff then drilled into Rohn’s head the importance of having goals, and Rohn went on to equate this one principle with the majority of his success.

Siebold says only 3% of people have goals specific enough to generate the level of mental energy required for success, while “World-class thinkers focus on the single most important goal they desire and set a deadline for its achievement…Their do or die commitment to building a financial empire virtually guarantees their success.”

Here are a few of Siebold’s other lessons. World class…

  • Believes building wealth is a team effort
  • Focusses on money making activities
  • Has an action mentality
  • Takes calculated risks
  • Believes money is about freedom
  • Believes in self-reliance
  • Is internally motivated to make money
  • Believes starting a business is the fastest road to wealth

I encourage you to read books like this that challenge your thinking. You may not agree with everything Siebold or other authors like him say, but I believe it is a healthy thing to read things like this and seek for ways to improve your thinking.

 

[i] ISBN 978-0-9755003-4-7 Published by London House Press

[ii] http://www.forbes.com/sites/susanadams/2012/05/18/new-survey-majority-of-employees-dissatisfied/

Finding Financial Wellbeing

wellbeingA while back I was given a copy of the book Wellbeing – The Five Essential Elements by Tom Rath and Jim Harter. In this book Rath and Harter look at the five essential elements that shape our lives: Career Wellbeing, Financial Wellbeing, Physical Wellbeing, Social Wellbeing and Community Wellbeing.

In the introduction to the book the authors say “Wellbeing is about the combination of our love for what we do each day, the quality of our relationships, the security of our finances, the vibrancy of our physical health, and the pride we take in what we have contributed to our communities.”

For today’s post I am going to go into more detail about Financial Wellbeing.

Financial Wellbeing is about effectively managing your economic life. The authors note that it is difficult to be happy in any area of life if you cannot meet your basic needs (remember Maslow’s Hierarchy of Needs?), but that the amount of money we have, beyond a certain point, has less of an impact on our overall wellbeing than the concepts of “financial security” and effectively managing our finances.

“People with high Financial Wellbeing manage their personal finances well and spend their money wisely. They buy experiences instead of just material possessions, and they give to others instead of always spending on themselves. At a basic level, they are satisfied with their overall standard of living.” (Rath & Harter, 2010, p 154).

There are several important concepts in that statement. People with high Financial Wellbeing:

  • Manage their personal finances well
  • Spend their money wisely
  • Buy experiences instead of just material possessions
  • Give to others
  • Are satisfied with their overall standard of living

Let’s discuss a few of those concepts.

Give to Others

The authors cite three studies that show that spending money on yourself may temporarily make you feel good, but after time that good feeling fades. While spending money on yourself does not boost wellbeing, spending money on others does. When we help others out we feel good, even if it is just a little bit of money. For more detail on this subject, see “Why Giving Matters” (https://ryanhlaw.com/why-giving-matters/).

Buy Experiences

While spending on material goods doesn’t increase wellbeing long-term, spending on experiences does.  Think about some of the material items you purchased over the past year, and then think about some of the experiences you purchased in the last year. Experiences can include trips or something as simple as going out to a nice dinner or going to a movie. Do the material items or experiences give you the most happiness? Most people would agree that experiences give them the most happiness. Things that come to mind for me are date nights with my wife, going to a movie as a family, and taking a trip over Spring Break. With experiences we get to look forward to the event, enjoy the event and have fond memories of it. It is interesting to note that for those that earn less than $25,000 per year experiences and material purchases show similar gains in wellbeing, but after $25,000 experiences provide two to three times the levels of wellbeing when compared to material purchases.

Manage Personal Finances Well

This concept brings us back to many of the things I have covered in this blog; budgeting, protecting yourself from identity theft, having a basic estate plan in place, saving for emergencies, investing for the future, etc. The authors also suggest you establish default systems, such as direct deposit, automatic deduction for investments and enrolling in your 401(k) at work so savings is automatic.

 

It is important to remember that all areas of Wellbeing (career, financial, physical, social, and community) work together. You can’t just focus on one area and ignore the others.

I recommend you read the book to see how you can improve your life in all five areas. http://www.amazon.com/Wellbeing-The-Five-Essential-Elements/dp/1595620400

Basics of Renters Insurance

apartment fireIf you live in an apartment and a candle tips over and starts a fire, who is responsible for the damage? What if a thief breaks in and steals your TV and other electronics? Is your landlord responsible to replace those items?

In both scenarios YOU, as the renter, are responsible for the damage or loss.

In the last two posts I have covered auto and homeowners insurance. These week I will conclude this series with a post about renters insurance.

Renters insurance typically covers theft, vandalism and fire (or smoke) damage. Some policies also cover water damage. Pipers bursting, sewage backup, earthquakes, floods and other “Acts of God” are typically not covered.

The three main parts to a renter’s policy are:

  • Contents
  • Loss of use
  • Liability

Contents

You may not think you have much of value, but the average renter has about $30,000 worth of “stuff”, from furniture to clothes to electronics.

Renters insurance will replace items stolen or damaged by a covered event.

You can get Replacement Cost coverage or Actual Cash Value coverage.

Actual cash value takes into account depreciation. For example, let’s say you own a $5,000 TV that typically lasts for 10 years. If that TV is stolen after 5 years you will get $2,500 for it from the insurance company.

With Replacement Cost coverage you will typically get a check for the actual cash value (in our example above you would get $2,500), then when you submit a receipt you will get a check for the remainder, up to a set dollar amount.

You should always get Replacement Cost coverage if it is available.

Most policies cover your items while you are travelling and some will cover items in your vehicle as well.

Before the insurance company will pay anything you have to pay your deducible. The higher your deductible, the lower the premiums will be. Be sure you have a deductible you can afford, though.

To prove what you own you should have pictures or a video of your contents. You may also want to have a list of what you own and how much you paid for it.

Contents coverage will typically only cover a limited dollar amount, so if you have an expensive or valuable item make sure your insurance agent knows about it and you can get additional coverage for it.

Loss of Use

If you have water, fire or smoke damage your apartment will typically be uninhabitable for some period of time while it is being repaired.

Loss of use will cover your rent in a similar apartment or hotel for a limited period of time.

Liability

Liability coverage will typically cover legal costs, bodily injury and property damage caused by your actions or negligence. It will also often pay a set amount for medical payments for your guests who are injured.

Cost

You will pay a monthly or annual premium for your coverage. Average policies cost between $15 – $30 per month.

For those that live in Utah, get in touch and I would be happy to get you a quote for renters, auto or homeowners insurance.

An Overview of Homeowners Insurance

homeowners-insuranceOne of the easiest ways to save some money is to do an occasional review of auto and homeowners insurance. Last week I wrote about auto insurance (https://ryanhlaw.com/an-overview-of-auto-insurance/) and today I will discuss homeowners insurance in more detail.

The majority of homeowners insurance policies will pay for most losses unless the loss is caused by something excluded. Things that usually aren’t covered by any insurance includes routine maintenance, damage from flooding[1] or landslides, damage from earthquakes, sewer backup and acts of terrorism.

PROPERTY PROTECTION

Four specific things are covered by the property protection portion of your insurance:

Part A: Dwelling and attached structures

This covers damage to your home and any attached structures (an attached garage, for example). For example, if your roof is damaged in a hail storm and you need a new roof Part A would pay for a new roof. If your stove catches on fire and your kitchen is destroyed, Part A will pay to repair the damage.

Part B: Detached structures

This covers any structures that aren’t attached to your main home – a detached garage, a storage shed, etc. Coverage is usually 10% of Part A. If, for example, you have $200,000 worth of insurance in Part A you would have $20,000 worth of insurance on Part B.

Part C: Personal property

This includes all the property in your home – your TV, computer, clothing, etc. It is important that you have a record of what you have in your home so you could prove what you owned if it was stolen or destroyed.

Coverage is limited for many items, so you may need a rider if you have a collection or expensive pieces of jewelry, furs, stamps, firearms, antiques, tools, memorabilia or other similar items.

You will have a deductible for the property protection portions of your insurance – standard is $1,000, but if you have the cash you can raise your deductible which will lower your premium.

You want to look carefully to see if you have replacement cost or actual cash value. Replacement cost will pay for a replacement (i.e. if you have a 25-inch flatscreen TV that is stolen you will get a new 25-inch flatscreen TV). With actual cash value depreciation is taken into account. If your 25-inch flatscreeen is 5 years old and the insurance company figures that TVs last for 10 years you will only get about half the cost of a new TV.

Part D: Living Expenses

If you can’t live in your home while repairs are being made or while it is rebuilt this portion will help pay for similar living expenses.

LIABILITY COVERAGE

The other part of homeowners insurance is liability coverage – which provides coverage for personal injuries or property damage that you or others living in your home may be responsible for.

This portion covers the cost of your defense regardless of whether or not you are found liable. If you are found liable your insurer will cover damages up to the total of your liability coverage.This can be on or off your property and it does not cover intentional acts.

Included as part of liability insurance is medical payments to others that will help pay the doctor’s bills for people injured by you, a family member or your pets.

Other standard coverage includes:

  • Fire Department Service Charge, which will pay the cost of a fire department run
  • Debris Removal coverage, which pays for the cost of removing damaged property

As a reminder, for those that live in Utah, I am happy to review your homeowner’s insurance coverage and run a quote against a number of the nation’s highest rated companies to see if I can save you some money.

[1] Flood Insurance is provided by the federal government – you can access that at www.floodsmart.gov

An Overview of Auto Insurance

auto accidentAuto insurance is one item that we buy hoping that we will never have to use it. While I don’t know anyone who enjoys paying for it each month, we understand it is important (and it is required by law if you own a vehicle!) so we go ahead and keep paying for it.

However, just because you have to pay for it doesn’t mean you should be overpaying for it. When was the last time you reviewed your coverage? While this may not be the most fun you will have in an afternoon, if you haven’t reviewed your insurance documents recently, you may be missing out on some cash that you can apply to some of your other financial goals.

Today I am going to briefly review auto insurance and give you a few tips for how you may be able to save some money on it.

Your auto insurance has several different types of coverages:

  • Bodily Injury Liability per person
  • Bodily Injury Liability per occurrence
  • Property Damage
  • Uninsured/underinsured coverage
  • Comprehensive
  • Collision

Bodily Injury Liability per person

If you cause an accident, this coverage covers people outside of your vehicle who sustain injuries. Whatever the amount is in this section (i.e. $30,000) is the maximum your insurance will pay for each person who is injured.

Bodily Injury Liability per occurrence

This is the same as the bodily injury per person, but it is the maximum your insurance will pay per occurrence. For example, if you have $30,000 in coverage per person, and $60,000 per occurrence and two people are injured by you and have bills of $35,000 each, your insurance will only pay $30,000 for each one because they reach both the limit per person and maximum per occurrence.

Imagine that there were four people injured and each had $30,000 worth of medical bills. How much does each person get then? $15,000 (maximum of $60,000 per accident – $60,000 divided by four people gives you $15,000).

Property Damage

If you cause an accident this covers property that is damaged – whether it is a mailbox or other vehicles.

For bodily injury and property damage state minimums are usually fairly low. For example, in Missouri it is $25,000 per person, $50,000 per occurrence and $10,000 in property damage. In Utah it is $25,000 per person, $60,000 per occurrence and $15,00 in property damage. Hopefully you can see how quickly you can surpass these limits. You can cause more than $10,000-$15,000 in damage in even a fairly minor accident.

I strongly suggest you purchase the highest Liability (Bodily Injury and Property Damage) that you can afford. Increasing these will give you peace of mind that if you cause an accident you won’t personally be liable for medical bills and property damage up to a high limit. I actually don’t sell any policies that are less than $100,000 per person, $300,000 per occurrence and $100,000 in property damage (or 100/300/100).

Uninsured/Under-insured motorist coverage

If someone who is uninsured or under-insured hits you and you are hurt, this clause of your insurance will help pay your medical bills. Some states require you to have some uninsured motorist coverage.

Comprehensive

This coverage pays out when your vehicle has been damaged in some way (except in a collision). For example, if your vehicle sustains storm damage or a vandal keys your car this coverage will help pay to fix the damage.

Collision

If you hit something (car, tree, pole, etc.) this coverage will help pay to fix the damage.

Both comprehensive and collision have a deductible that you will have to pay before the insurance company kicks in any money.

Money Saving Tips

My first tip to help save you money is to review your deductible for comprehensive and collision. If you can afford to increase your deductible I would encourage you to consider it. You would be responsible for meeting the full deductible before any damage is paid out, so you would need cash set aside in your emergency fund to help pay this, but increasing your deductible will save you money on your monthly bill.

If you drive a very old, essentially worthless car that is paid for consider whether it is worth keeping comprehensive and collision. If your car was totaled and the insurance company would only pay you $200 because that is all it’s worth then you are probably better off dropping this coverage. Keep in mind that if your car is damaged (other than in an accident that someone else causes) you would then be liable, in full, for any damages to your vehicle.

Finally – shop around for quotes occasionally. Have you been with the same insurance company for ten years because you saw an ad that said they can save you 10% on your car insurance? It never hurts to check around to see if you can get the same or better coverage for less money. You can usually get a few quotes online fairly easily. You can also check with an independent insurance agent who can shop a number of different companies and find you the best deal.

For those in Utah, I sell auto and home insurance and actually take care of the shopping part for you. My company rate-shops 10-15 companies to find you the best deal. Contact me if you would like more details.