Thursday, 28 August 2008

Karmic Pigeonholing

I've been honing this money management technique for a little while now, and if done properly, it can really work.

I like to call it "Karmic Pigeonholing". It comes into play even more when you are in a bit of debt (or a lot) and you still have a lot of things to get done in other areas of your life. It's my way of making sure that everything, and everyone, gets the appropriate amount of financial attention, while reducing at least some of the guilt that goes with being in that kind of mess. In some ways, if used appropriately, it can mean debts get seen to faster.

You're probably wondering what the hell I'm talking about, but I'll try to explain, because it can really help.

When you have a bunch of debts and expenses you need to prioritise them one way or another. You might owe some suppliers from your business money, or the dentist might not have been paid for that emergency treatment when you were dead broke... If you're like me, you might have been lucky enough to talk them into helping you out and letting you pay it off in stages, even if those stages are $20 per fortnight! You may also have to think about ongoing expenses, like maintenance on your house.

Of course, the rules of Karma say you need to keep your word, and even if you don't believe in Karma, your wonderful, clever, gentle dentist probably won't treat you (or trust you) again until you have paid off the original debt. And if you're lucky enough to have a dentist like that, you don't want to annoy him!

But there are also other important things, like maintaining your house. I don't mean spending a ton of money on renovating it or doing it up (although oddly enough, this may help, if you see my post on "A Better Value Proposition" - it's all part of a great big juggling act when you are struggling to make ends meet!). I mean that there's not much point in paying all your debts to the detriment of replacing things like gutters on your house, if the house is going to fall down around your ears and make the whole situation even worse!

So how do you deal with debts and expenses in so many different areas?

You can't simply create a linear list of debts to pay off in order... that won't work very well (it'll work a bit, but not effectively enough!). You've got things vying for your attention in several different areas at the same time.

The best thing to do in this case (I've found) is to create a group of lists, then pigeonhole them together with the money you can allocate to paying those lists off.


Okay, the examples I've given come from particular groups - business debt, personal debt, home maintenance... but you can have more. Three's not unreasonable though. You need to keep a fourth category for those evil Credit Cards because you're paying interest on those, so you'll have to work on those no matter what.

I'm going to digress slightly here because it's relevant: Have you heard of the debt reduction method where you work out how much you owe on all your credit cards, how long it will take to pay each off, and then you allocate the largest amount you can afford to pay off the quickest debt to reduce (balanced with the highest interest rate - you have to choose), then add that total amount to the next one up the list when it's gone and the next and the next until you're paying all your allocated debt reduction money to one credit card/bill and pay it off faster and faster? If you haven't it's very worthwhile to help you create a plan to get out of debt. The people at We Buy Homes have an online version of this.

Okay, imagine the credit card theory applied to all the debts you owe. Naturally you may have to agree a minimum amount per week/fortnight/month to pay the amount down (and you may have to track it yourself too), but the idea is you work out which debts are the smallest/most pressing in each category, and work to pay each one off in turn with extra as the money becomes available.

In cases where you don't have to pay interest on a debt, the best method I've found to reduce your stress level is to knock off the little debts first wherever possible. You'll feel like you're getting somewhere much faster, and that's because you will be. As long as you're keeping your bigger creditors happy some way (even if it's a minimum payment), they're fine until you remove the stress of the twenty (!) people nagging you to pay up every week.

That alone makes for better Karma because you're not thinking about *all* the negative stuff that's happening to you all the time, therefore you're not drawing more negative stuff to you. Ever read The Secret? Perhaps you should. It changed my whole outlook!

But what about the "Pigeonholing" concept? This is what makes it extra useful. You might find you have different income streams coming into your life, or that you can create them.

Say you still had a bit of income coming in from that business (or lots, because it's still running okay, but you're in a bit of hot water...). Make it a rule that your business has to pay for the business's debts. If some of your own debts have somehow got caught up in that, separate them off into another pigeonhole - Personal.

In my case, I had to stop working my business the way I was because I wasn't able to run it all by myself when we had our daughter and my husband started his apprenticeship. This left a shortfall, but the difference came when I got a job three days a week. There was still a bit of money coming into the business, but I wasn't having to rely on it to survive any more. I had the money from my day job for that. If you have to make this choice, it really can be worth it, even though it's difficult to let go.

That meant that money from the day job covered food, roof over head, essentials like power, water, phone and internet (you can't leave that out if you're running a business from home in your spare time!), and a bit to handle the credit cards and personal expenses (Credit cards come first - always).

The business could now cover itself. In fact, the rule was, it had to. This can be another good thing - it stops you from getting lazy and forgetting about your business altogether. You have to think of ways to keep the money coming in somehow, and that can lead to more creativity (as long as it's legal!), and if you want to come back to it, that's an important thing.

I believe you can come out of a period of having to juggle a day job while rebuilding a business much stronger, because you learn to pare down to just the stuff that works and brings in the dosh.

But what to do about the personal expenses not covered by your day job? Or maintaining the house? Here's where you have to get creative. My goal is to have money to invest, so I want to get rid of debt fast and build savings.

Have a garage sale, use eBay, the Trading Post, take up selling Tupperware. Whatever it takes. Pigeonhole that money to cover whatever you need it to cover. It can take some slightly odd logic...

The Karma side of this bit comes in again when you choose where to put the money from the things you sell. In the garage sale, there were things that had been left to me by my grandma or given to me by my parents. They weren't hugely valuable or sentimental things, but there was a sense of what the "right" thing was to do with the money from them. I chose to put what I made from things like this towards maintenance on the house, or getting a piece of furniture that we really needed (like baby safety gates).

This made the money from things I had been given, and had at least a little care for, transform into something that was tangible that we would enjoy for years to come. It improved our standard of living just a little bit, even though it wasn't a lot of money, and it made us even more grateful for the things we had been given in the past, even if they weren't useful any more. We might not have had room to store them in our much smaller house, but they still had a contribution to it.

That can be a rule too (or make your own, whatever works for you) - that things given should not be used to be swallowed by the bank and their interest rates. They don't make much difference there in a real sense. It made us both feel better about letting them go, and got things done with less guilt about the money not going to the bank.

I know Grandma or Mum and Dad wouldn't have been happy to hear I sold the old kitchen table to pay off a credit card. So I wouldn't have been happy putting it there! Instead, the old kitchen table paid for part of our new kitchen (and if you'd seen the old one, which literally fell apart under us, you'd know why we had to prioritise replacing it at the same time as paying off debts!). We can think of those things every time we look at our kitchen, the new fence (that fell down too...), our new gutters - the gifts we were given continue to contribute to our future. They even add value to our house!

Other things in the garage sale? Costume stock from our business, fabrics, personal costumes, science fiction collections, baby items. We pigeonholed everything in that one day sale and in later auctions on eBay and sales rooms. Keep a note book of the items sold and the amount, putting them on the page that matches the appropriate "pigeonhole", then add it all up and divide the total at the end of the day by page.

Things Mum and Dad wanted sold ("You're having a garage sale? Great! Take this for us, would you?") - they got their money. The stock - paid business debts (not only that, it made a great excuse to advertise our garage sale to our past customers, who bought more than just stock!). Baby gear - bought baby bigger clothes and some books or educational toys more suited to her age at a time when we couldn't find it in our weekly budget.

Personal costumes were considered an investment in myself in the first place (since they were my showcase of my professional work, even though they didn't fit me any more) - so they paid for a course I needed to study to change jobs and improve my pay... That's something I might have deliberated for months over if I hadn't decided that money from a self-investment really should be rolled over into another investment in my education! It actually might have taken me longer to get that raise if I hadn't done it.

Science fiction collections were a mixed bag. The end decision with those was to use the money to finance the home improvements. Thinking about it, I probably could have spent the money better in the first place (but didn't really think about that when I was twelve or even 18 and silly...), but I got enjoyment out of them for a long time, so now was the time to get serious!

So, you see, Karmic Pigeonholing your money really can be a faster way to getting everything done faster, and more guilt-free. If you set down the rules, it makes it so much easier to decide.

It's about using the right money in the right place!

Friday, 15 August 2008

On Raises and the Art of Negotiation

"No hide, no Christmas present" as my Granddad used to say, meaning that if you don't have the guts to ask, you simply won't get...

Believe it or not, this applies as much to asking for more money as it does to asking friends for a favour, or family for that much-desired gift.

Your boss is not a mindreader.

I'm not suggesting you march into your head-honcho's office first thing on Monday morning and ask for a raise!

What I am pointing out is that there are ways by which you can ask your boss for a raise without him feeling as though you're costing him more money. And if you approach it the right way, you might even do better.

Remember: I'm a mum. I've gone through the stress of not having any independent income during that time after our little one arrived, and I've gone through it while my husband was in the first stages of retraining - as an apprentice, which in any language means very low pay in the first year.

So I had to go back to work.

Casual seemed the most appropriate way to go until I realised that not only had my hours become quite regular and were actually 3 days per week, but that I'd also not really have enough to pay the bills during the two-week Christmas break my boss imposes every year...

Now, not everyone is as lucky as I am to have a boss like I do. I know this. But you shouldn't be too afraid to approach him or her with a proposal that won't do any harm.

In my case, I needed to go Permanent Part Time so that I could have some leave for holidays and for when I, or anyone in my family who needs me there, gets sick on occasion. The catch was that the resulting drop in pay (because you get more as a casual employee, supposedly to cover things like leave) meant I couldn't afford the childcare I needed to be able to come in to work!

Slightly tricky situation!

First I sent an the boss an email explaining that this problem had finally arisen (we'd discussed the possibility of it happening when I started, because he knows I have a young daughter), and that I was trying to work something out if that was alright by him.

Over the course of the following week, I did my research.
  • I checked government web sites about the NSW Award Wages (that's the minimums to be paid to any employee at their level).
  • I checked the definitions of employee levels for my field.
  • I looked at what I was doing in each of those levels and, much more importantly, I checked what I could be doing to assist my boss better by doing more in my job to help out.
Then I presented my boss with a brief but detailed analysis of the problem. I pointed out that the best way to go was still to go part time, but that it would leave me short. I then presented links to the relevant web pages (on the Award levels) and asked what he thought about their contents, pointed out that I could be doing more, and asked a three questions (expecting that I might only get a positive answer to one!).
  1. Failing an actual raise, would you be willing to leave me at the pay rate I am (instead of dropping me to the Part Time Rate from the higher, Casual, rate?
  2. What would you expect of me if you were to agree to this? Could I take on some marketing work (for example) to bring in more money?
  3. Would you consider taking me on for an extra day per week to get the extra stuff done if it means you actually see money coming in as a result of the extra work you expect of me?
Funnily enough I got a positive response to the first two, which was a major triumph, with a "no" for the final question, but outright confirmation that my hours would get better if I started to show results.

See? If you're willing to go the extra mile, it can make a difference.

Be as frank as you feel able. Think hard about what talents you have to offer, and GO FOR IT!