Zen Penny

Seeking the Path to Financial Nirvana

Archive for March 2007

Dr. Zen Penny or How I Learned to Stop Worrying and Love The Sound of One Hand Clapping.

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Before I continue to make any kind of progress on this blog, perhaps it would be wise to begin a discussion on financial nirvana. I am not Buddhist nor I do not claim to be an expert on Buddhism, Zen or otherwise. But Zen ideals do have a lot of practical applications in the financial world. (And to be fair, more than a few that totally contradict the goal oriented methodology of personal finance. But for now, let’s stick to the affirmative.)

To me, financial nirvana is enlightenment. Not enlightenment in the sense of knowing how to pick the right stocks or how to become a millionaire selling real estate. It’s more like enlightenment as a state of mind or an awareness of what must be done to meet your financial needs and know how to go about it. It also represents the death of the cycle; the cycle being anything from living paycheck to paycheck to endless revolving debt.

For me personally, I believe the cusp of financial nirvana will arrive if/when my return on investment exceeds my expenditures. Having the freedom to do what I want will certainly tell me a lot about who I am.

What are your thoughts? Do you agree? Disagree? Do I not have a clue what I’m talking about? Leave a comment and let me know.


Written by Zenpenny

March 30, 2007 at 10:22 pm

Be the Master of your Financial Destiny

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After reading Anxious to Please, a fantastic book on building self-esteem that will be covered in a future post, it dawned on me that that I needed a clearly defined set of personal ethics. Without them, I knew I was doomed to continue behaving in ways contrary to my beliefs and goals. Thus began a period of reflection and self-actualization that was born out of the desire to improve my personal and professional life. But in short time I saw the beneficial effects this process was having in my personal finances as well. Below are seven guidelines developed during this process that have improved my financial outlook.

1. Be Accountable – It is critically important to be honest with yourself and loved ones when it comes to your finances. Unless you can be open and honest your financial future will be shaky at best. Stop blaming your parents, your boss or the credit card company for the poor financial situation you’re in. You, and only you, are responsible for your financial well-being regardless of your circumstances.

2. Be Forgiving – When reflecting on the past, difficult emotions, guilt and regrets are bound to arise. Do not let past financial indiscretions hold you down. You only have control over what you do from this moment forward. Show some grace to yourself and others. The sense of relief you feel will help you make more positive decisions with your money now and in the future.

3. Be Proactive – Remember, it is never too early or too late to start preparing for your future. Every day you don’t have a financial plan in place, you lose money, whether it’s due to poor spending habits, high interest fees on your credit card or even lost returns on your investments. Take action and start today even if you can only contribute a few dollars a month.

4. Be Patient – Rome was not built in a day and neither will your fortune. Don’t try to time the market or participate in risky qet rich quick schemes. Planning for the long haul will secure your future and allow you to take advantage of new opportunities that you wouldn’t have had otherwise.

5. Be Smart – Always do plenty of research before investing. Seek reputable advice; do not trust the “financial gurus” you see in late night infomercials. Diversify your portfolio and then find your comfort level when it comes to risk tolerance. Don’t panic; use dips in the market to your advantage.

6. Be Consistent – Develop a solid financial plan and stick to it rain or shine. Even better if you can make your contributions automatic. Make consistent progress by frequently setting sub-goals and aggressively pursuing them.

7. Be Supportive – Having the support of family and friends will help you tremendously in the pursuit of your financial goals. Encourage others to do the same. We all have the responsibility to help each other out.

I hope these guidelines will help you move closer to achieving your financial dreams like they have helped me. Good luck!

Written by Zenpenny

March 30, 2007 at 4:31 pm

3, 2, 1… Zen Penny

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Welcome to Zen Penny. My initial goal with this experiment is to simply chronicle my journey to financial nirvana. If I can help/inspire/educate anyone else, all the better. Connecting with people smarter and more financially savvy than myself would be gravy. (This shouldn’t be too difficult, as I am a financial newb.)

That being said, I’d like to kick things off by examining my financial goals for 2007.

#1. Budget effectively

I’ve heard nothing will give you a sense of ownership over your financial health like a budget. For the first time in my life, I have one. Right now it consists of a rudimentary Excel spreadsheet, modified from a version originally posted here. I consider it a living document as it is constantly evolving. But so far it has served me well.

Building upon this surge of budgetary momentum, finding key areas where I can significantly cut spending are a priority. Since I am still in the first month of budgeting, I can’t put a firm percentage on how much I’d like to reduce spending but I am already seeing the fruits of my labor. I’m beginning to reign in on the micro-transactions that have slowly but surely eaten away at my livelihood. A budget is a fantastic firewall for those quick $5 trips to the convenience store.

#2. Increase savings & build a 3 month emergency fund

Reducing expenditures is great but it is only part of the program. There must be a plan for the money leftover at the end of the month. I plan on using a large chunk of this money to fund my ING savings account that has sat dormant for much of the last year. They have great rates, an easy automatic savings plan, and have excellent customer support. Highly recommended. My savings goal is to transfer $100 from each paycheck directly into this account. This is will be a real challenge for me as my cashflow is very tight right now. But ultimately this is something I must do to put an end to the vicious paycheck to paycheck lifestyle.

$7,500 may not seem like much money to some people. But to me it represents my first big step towards financial freedom. That dollar figure represents about 3 months worth of my expenditures. It would give me freedom from worry if I lose my job, get sick or injured, or otherwise face some crisis. Having $7,500 in the bank at all times is not likely to be a goal I will achieve this year, but I will be satisfied by laying the foundation of my emergency fund now.

#3. Reduce debt

Poor money management has backed me into some tight corners. This led to some very bad borrowing habits. I’ve gotten into the payday loan trap, heavy credit card debt and was at one time very irresponsible when it came to paying bills. At this point in my life, I now realize that one cannot ignore debt away. Today, nearly all my bills are set up for automatic bill pay through my bank and I pay them weeks in advance to avoid any late fees. Now the real challenge is to pay down my debt. Operation Debt Tsunami is my plan of attack for hitting my high interest $5,000 loan with an extra $65 per month. Any large chunks of cash I should acquire via gift or tax return will go towards paying it down as well. After paying the loan off, I will put that money towards my Mastercard and Capital One cards. These cards are high interest but carry small balances and should be paid off quickly by applying this technique. After that, it is on to my modest student loan that I have been making minimum payments on for years. At my current income, I anticipate being debt free in 4 years.

#4. Expand portfolio

Savings alone won’t do enough to build wealth. Thankfully I had the common sense to fund my 401(k) from day one. My company didn’t match contributions for the first year of my employment and during that time I only contributed 3%, but even that got my retirement account off to a solid start. I quickly realized how tax-deferred savings had a negligible effect on my paycheck so I made an effort to try to increase my contribution a percent or two every quarter. Right now my contribution stands at 9% but my goal is to increase it to 12% by year’s end. Last year, my 401(k) saw a 19% return. Not a bad year by any stretch.

Beyond my employer’s plan, my portfolio has never really gotten off the ground. I’d heard great things about Vanguard, so I decided to do a little research there myself. Vanguard makes it very easy to setup an account and begin investing in ETFs, index funds, and stocks. But for now, I think it’s prudent to start gradually and begin funding a Roth IRA by the end of the year. This will be tough since I’ll need about $3,000 to start but the benefits of tax free earnings are too good to pass up. Another great benefit is that I will be able to withdrawal my contributions at anytime penalty free. Not that I plan on making withdrawals but it will be nice to know it’s there.

So there you have it folks; my 4 financial goals for 2007. I’ve left them pretty broad here but I’ve established a good set of sub-goals to keep me motivated and focused.

Written by Zenpenny

March 28, 2007 at 11:08 am