This is a guest article by Evan, creator of My Journey to Millions. In the article, Evan discusses what motivated him to move forward with earning multiple streams of income along this journey, and takes a motivational approach to inspire readers to improve their personal finances.

Take a moment and just think about what you did last night — that time after the kids are sleeping and you are “relaxing.” Were you watching television? According to one recent government study the average American watches 2.7 hours of television per day. Assuming that counts weekdays, that is more than 10 hours per week doing nothing productive! Don’t get me wrong. I love Teen Mom just as much as the next person, but I almost never watch it without multitasking. People often ask me how I have time to blog and attempt to build multiple streams of income, and my answer is always the same, “How do you nothave time?”

Sometimes people have legitimate reasons for not finding time in the day, but when I look closely at someone’s schedule, it’s not that they don’t have time; often they don’t share my irrational motivation.

To put it bluntly, it confuses the hell out of me. (Side note: I have also found that when you actually create a budget with someone, most people have no idea what they are spending).

What motivates me

Some people are naturally competitive or envious of others’ success, but that is not what drives me. Blogging about personal finance for the past three years has given me a chance to look at 28 year-old Evan with 30 year-old Evan’s eyes. Blogging is a very valuable tool that most people don’t use.

When it comes to finances, I am almost entirely motivated by fear.

• I am afraid I will not be able to provide for my family.
• I am afraid I will live an average life.
• I am afraid I can get fired one day.
• I am afraid my lifestyle can be taken away at any time.
• I am afraid I will be forced to work until I am 65.

It can probably be argued that for the most part my fears are irrational and exaggerated in my mind, but with employers having less and less loyalty to their employees, I’ll stick with being overcautious.

Harnessing what motivates you

I truly believe that the first step in bettering one’s financial situation is understanding what motivates you. From my limited experience, it is easier to change the systems around you than actually changing yourself. Knowing what motivates you is the first step in harnessing that power.

For example, if you are are a competitive person, instead of toning down your natural tendencies, try creating a game out of your situation. Find a person you can compete with. Share your balance sheets with each other and bet dinner on who can increase their net worth in a certain amount of time, or try to see who can save more money on fixed costs like cable or cell phones.

If you are a person motivated by material goods then set a goal for yourself like save a certain amount of money, perhaps the cost of that new television before you buy. If you are homebody family guy, put pictures of your kids everywhere. That could be enough motivation to work to a better financial position.

For me, my motivation — my fear — has inspired me to try and build multiple streams of income, which I think is more valuable and effective than trying to change my motivation.

Stop making excuses

Regardless of what is motivating you, it is time to stop making excuses. If you are that average American and watch 10 hours of television a week, you can never claim to have no time. So I ask once again:

What did you do last night? Are you proud of it?

Bureau of Labor Statistics

The original version of this article, Motivation for Multiple Streams of Income, is copyrighted by Consumerism Commentary.

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I’ve written extensively about taking control of your finances. One aspect of the ability to succeed with your financial goals is making active, thoughtful decisions pertaining to your use of money. Uptal Dholakia is a professor of management at Rice University in Houston, and he is currently conducting research pertaining to self-control and decision making as they pertain to personal finance as well as other personal issues.

I’ve always been excited to participate in academic research; I was a frequent subject for Princeton University’s cognitive psychology department when I was much younger, and I continued through college by participating in occasional research studies conducted by graduate students at my own university. In fact, when I attended a psychology class my sophomore year and was considering the pursuit of a minor in psychology, participation in graduate research studies was mandatory. Regardless of the requirement, I enjoyed it.

Professor Dholakia is inviting Consumerism Commentary readers to participate in this study. In order to participate, all that is required is to answer questions on a web-based survey.

I completed the survey last night, and it took less than ten minutes to complete. The questions were not difficult, but they did make me think about my decision-making process and how I allow myself to succumb to impulse decisions. There are some questions about demographics at the end of the survey, but the information will be held confidential and reported only in aggregate.

The professor has agreed to share the results of the research with Consumerism Commentary, so once the analysis is complete, you can expect an article discussing the findings published here.

Please help further research regarding the psychology of personal finance by completing the survey here. No electrodes need to be connected to your body and you won’t need to receive any electric shocks.

The original version of this article, Participate in Self-Control Research, is copyrighted by Consumerism Commentary.

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Many people begin a new year with goals, resolutions and targets that define what they’d like to change within the next 365 days (or 366 days in a leap year). While most people fail to achieve these goals and resolutions, just the process of making resolutions and the self-reflection required can be helpful towards improving a life.

The ability to make and achieve goals relies on the belief that one can control an outcome, in this case an improvement in one’s life, by changing behavior or attitudes. One reason resolutions fail is that some are no entirely convinced they have control.

There is a tendency in American culture, due its focus on the strength of the individual over the strength of a community, for people to take credit for success but look for external causes for failure. This tendency is apparent even in the choice of words; in the previous paragraph, I wrote “resolutions fail” rather than “people fail at achieving resolutions” without thinking about the possible causes. There are other examples:

• Good performance in a portfolio is due to the investor’s own stock choices while bad performance is caused by market forces or the failure of a system.
• A promotion at work is due to one’s own hard work and accomplishment while a lack of reward or being laid off is the result of having a bad boss or the economy.
• A business’s success may be caused by the owner’s or CEO’s strategies, while a business’s failure would be the result of a competitor’s tactics.

Over the last decade, I’ve come to increasingly realize that I have more control over my life. My actions and choices — and sometimes, lack of choices — have a bigger effect on the outcome of my life than external factors. I haven’t quite fully accepted this in all aspects of life, but I’m getting there. With the knowledge that I am in control, there are certain ways I can exercise this control to affect the way my life moves forward.

Making active decisions. There was a time I avoided decision-making, particularly regarding important changes in my life, as long as possible. There are some decisions that can difficult due to the way a choice will affect the rest of one’s life, and like many people, I often preferred to ignore the need to make a decision in the hopes that someone else — or society itself — would make that decision for me. This is a great way to cede control of my life. Yet, I would still be responsible for the outcome because not deciding is a choice. It’s just a cowardly choice.

Impermanence. I often remind myself that life is short, and that is an idea that keeps me afraid to make mistakes with my big life decisions. I don’t want to make a decision and later discover that two decades or more of my life were wasted on an ultimately unsatisfying path. One way I can motivate myself to make decisions is to remember that almost every choice is not permanent, and I can change my mind most of the time.

Being able to change your mind and find a new path is a great benefit of life. Without some flexibility, it would be impossible for young people to choose life-long goals. Inevitably, external factors do influence our lives, and the ability to react and change course if necessary is key for maintaining control.

Accepting what is beyond control. I can’t control other people’s actions, but I can control how I react to them. I have no control over terrorist attacks, acts of nature like hurricane Katrina, or the day-to-day swings of the stock market. The best I can do is reasonably limit myself to potential exposure. I can prepare for the worst without sacrificing my needs for today and the future.

Being positive, friendly, and happy. While I wouldn’t want to be that annoying friend who is perpetually in a great mood, it is empowering to be able to remain positive in bad circumstances. Having a generally kind disposition can encourage others to be kind as well, though it can also encourage others to try to take advantage of your good nature. Find balance between kindness and strength to keep bullies at bay (adults can be bullies, too — not just kids). Choosing happiness allows you to survive and thrive in tough times and emerge a better person.

The points above are all aspects of life I try to remind myself in an effort to move my life in the right direction. It can be a struggle to accept blame and avoid frustration with the world. It’s still a struggle for me to make important decisions with my life. But these are all aspects of my life I’ve improved over the last decade, and this shift in personal philosophy has helped me arrive at the point of my life where I am now — a state where I feel generally successful and happy.

Photo: Ciaran McGuiggan

The original version of this article, You Are In Control, is copyrighted by Consumerism Commentary.

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As the year draws to a close, I plan to take some time to evaluate the progression of my life, including my finances, against my goals and resolutions for 2011. I reached some goals while missing others. There are many reasons people don’t keep new year’s resolutions, and I’m not any different.

In one recent survey, only 15 percent of those who made resolutions have kept them. Other studies have presented even more startling numbers, claiming a resolution success rate of only 8 percent. I even found one researcher claiming only 3 percent of resolutions survive the first month of the year. The statistics get even worse for people who follow self-help advice promising to improve resolution-keeping through visualization (for example, hanging a pair of jeans you’d like to fit on your door or keeping a photograph of a vacation spot you’d like to afford on your dresser) or through sheer willpower.

Furthermore, only about half of all Americans even bother to make new year’s resolutions. Given the negative media surrounding failure, with a word like “doomed” making prominent appearances, that makes sense. Why spend the time thinking about how to improve your life if chances are good you’ll fail?

Beating the odds and succeeding at keeping your new year’s resolutions comes down to setting the right goals from the beginning, focusing on fewer aspects of your life, and not using the new year as a one-night stand for resolutions. The failure rate doesn’t concern me, though; I’m more concerned with the half of the population that doesn’t take the time to look at how they can improve their lives and the world around them. It’s unacceptable to me that the fear of failure is preventing people from thinking about the future.

“The unexamined life is not worth living,” according to a popular translation of Socrates. A tortured philosopher’s nearly-final words from the textbooks of history are relevant today. (According to Plato, Socrates’ last words were, “Crito, I owe a cock to Asclepius; will you remember to pay the debt?” Those words could inspire a different discussion about personal finances.) The end of one year and the start of another is a convenient time to self-reflect. Did you live your life according to your values and pursue the things that inspire you? Is the world a better place after 365 days?

These questions go beyond goals and resolutions, but they can inspire both as well as a renewed dedication to living your life a certain way in the new year and beyond. Set some goals and resolutions, not just the typical positive changes like paying off debt, losing weight, and quitting smoking, but others that are tied more to who you are. That might even include some goals that can’t be measured. That goes against typical goal-setting advice, but with new year’s resolutions, it doesn’t have to be a matter of reaching your goal or failing. Just the process of thinking — and if you’re so inclined, writing down — your thoughts about the ideal “you” can improve your life and the lives of those around you.

The root of making resolutions that stick is looking deep into your own life to determine who you are at your core, and if that person is approaching the person you’d like to be. No resolution can be successful, or for that success to matter, without being that meaningful. The end of one year and the start of the next is a good time to begin this process, but don’t set self-reflection aside for just the one day.

The original version of this article, New Year’s Resolutions Help Even If You Don’t Keep Them, is copyrighted by Consumerism Commentary.

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The point of accumulating and saving money is not to die with the most money in the bank. Yes, it can be helpful to your heirs to leave a fortune for the next generation, but not at the expense of living a fulfilled life yourself. There are many opinions about what it means to live a fulfilled life, but for most people, it involves taking the time to do whatever you’d like to do without needing to be concerned about the financial consequences, or whether you’ll have enough money to buy food tomorrow.

Doing whatever you’d like to do doesn’t have to cost money, but sometimes, it does. Some people could be happy living off the land, finding their own meals, and surviving on their own without ever spending a dime. Self-sustenance is an interesting concept and I have respect for people who can manage to live their lives this way. Most of us are consumers, however, and thus earn and spend money in order to live.

You’re reading Consumerism Commentary because you’re interested in finances on a personal level, but it’s important to remember that net worth and income are not the core concepts of living life. I wouldn’t be who I am without the aspects of my life that do not involve earning income. Society could not function if the only activities its inhabitants performed were those activities that other members of society would pay them to do.

It’s advisable to look for deals when we shop. If we’re spending money in a store, it pays to ensure we’re getting the best price. That could involve bargain hunting, negotiating, and comparison shopping. Paying attention to price and value plays a big role in everyday and occasional spending, but the usual goal in this type of frugal philosophy is ending the day with the most cash left in your pocket. I offer a different goal: ending the day with the experiences that shape you as a human being. It’s harder to measure, but at the end of your life, you’ll likely have fewer regrets and be more satisfied with how you’ve spent your short time alive on this planet.

Let’s call those experiences that add up to a fulfilled life “fun.” They might not always be enjoyable, but you collect these experiences and you can find a method of tallying and rating them. These experiences have the most meaning to you now and in the future.

Here are some tips for spending money for fun.

1. Necessities come first.

Before you can consider partaking in an experience that doesn’t have a positive effect on your net worth, you need to clear a few hurdles. These suggestions speak to the top of Abraham Maslow’s Hierarchy of Needs. I keep coming back to this cope psychological concept, and it might annoy anyone who has studied psychology beyond an introductory-level course, but I feel it’s symbolic of how to best organize personal finance, particularly spending.

The lowest level of the pyramid represents your physiological needs, everything you need in order to survive each day, namely food, water, heat, and shelter. In most communities, basic clothing is also a physiological need. It would be very difficult to rationalize spending money on anything else before these needs are met. Granted, you could avoid some of these expenses by living off the gratuity of family and friends, but that can only last so long — particularly if they see you spending money on fun things without considering moving out.

Feeding your need for self-actualization is a luxury. Climbing the Hierarchy of Needs pyramid can be tough, and focusing on enriching your life comes after your basic needs are met.

2. Define our goals and values.

Once your household has overcome any difficulties in the way of providing the basic physiological necessities, there is an opportunity to think about the big picture. There are many people stuck here, believing their goal is to earn money. Earning money is not a goal in itself, it’s only a path that allows individuals to meet other goals. A friend asked me for financial advice, and although I’m not a financial planner or adviser, I agreed to talk to him and help him think through his issues.

I asked what his goals in life were, because knowing this would be the only way to help someone plan for the future. He said his goal was to retire with $5 million in the bank. Regardless of whether that was a reasonable number, it wasn’t a real goal. I asked him why he wanted that particular sum, and he had never thought about it before. We started to work out what he would do with that money and why it was important for him to be financially independent. You need real life goals, not money goals. With real goals, you can evaluate whether the money you spend is worthwhile, and you have a purpose for saving and investing other than a big balance on your monthly bank statements.

In addition to goals, you should be aware of what ideals are important to you. A set of values defines how you live your life, where you spend your time, and an initiative for your funds beyond the selfish but necessary act of taking care of yourself.

3. Pay off debt.

Being debt-free is the most important financial goal. When you’re in debt, you’re beholden to someone else. Often, that someone else is a company with significant means to make your life miserable if you can’t pay. There are avenues for help if you need it, like bankruptcy, but for the most part, you can’t life a fulfilled life when part of the money you earn is dedicated to someone else.

If you’re earning $3,000 per month and paying $2,000 in interest to your mortgage company and credit card issuers, your income is basically owned by entities other than you. If the remaining $1,000 covers nothing other than your necessities like room and board, you are living in indentured servitude. Some might even say that debt is slavery. You should want any income you earn to be rightfully yours.

These suggestions are not necessarily in order. You can pay off debt while still determining your long-term goals because no matter what goals you choose, being debt-free will be key. In this case, debt includes mortgages and student loans, not just credit cards. Any interest obligation is a waste of your money. You don’t have to be completely debt-free to begin considering spending money for fun (that is, life enrichment), but you should have a plan in place for doing so and for emergencies that might cause trouble along the way.

4. Save for the future.

Living a fulfilled life often means striking the right balance between saving for the future and using the money you earn today for more than just necessities. Again, that’s a luxury that’s best considered only by individuals or families who have done a good job of saving for their future already.

It may be possible to save too much money, but many will not reach the point where this is a concern. There will always be more we can save for the future, but those who are on the path to a more comfortable, debt-free life have more options for spending today without sacrificing their future.

5. Compare your spending with your values.

If measuring success with saving money, the scorecard is simple. Your net worth and net income statements provide feedback. You’ll know where you stand at any moment from a financial perspective. When collecting experiences leading to a fulfilled life, keeping track of your progress is more difficult to measure. You could look at your discretionary spending and compare it with your values. Give yourself points when your expenses match the type of person you’d like to be and give you the feeling that you’ll be satisfied when you look upon your experiences. Subtract points if your spending was frivolous, not well-considered, caused regret, or prevented you from living life in the way you’d like to.

When it comes to spending money for fun, I am a big fan of spontaneity. Being impulsive or spontaneous can be responsible or irresponsible, however. If you’re striving to fill your life with rich experiences and to never look back on your time alive with regret, you can help increase the chances of creating a life you enjoy by taking a responsible approach. Everyone should get a chance to spend their hard-earned money how they want, but that freedom comes from the ability to make a few good, important choices about how to handle finances.

The original version of this article, How to Spend Money on Fun, is copyrighted by Consumerism Commentary.

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Your human capital is just as important as your financial capital. In fact, it wouldn’t be a stretch to consider your human capital, your potential to become financially independent over time, more important than your net worth at any one particular time. Over the past few weeks, I’ve been writing in depth about ways to boost your human capital through education, experience, and particular approaches to life decisions. This is the final article in the series.

Assuming the stock market provides a average return of 8 percent per year over the long-term, the earlier you begin investing, the better you’ll be in the future. Thanks to the way returns compound upon each other, starting a few years earlier could be the difference between retiring comfortably and struggling on a fixed income. Of course, market performance in the future will have a great effect on your overall performance, but those who start early generally have a distinct advantage.

The same theory applies to building your human capital. “Start early” is generally the worst advice anyone can communicate because it’s impossible. Until scientists invent a time machine, by the time someone says to you, “You should have started earlier,” you’ve missed your opportunity. If the message of starting early get across, however, the philosophy can be used for other situations and can be passed along to others. For example, while I didn’t save any of my income until I was in my late twenties, now knowing that it’s important to start early, I can help my potential children understand this importance from an earlier age.

While many financial experts have succeeded in convincing people that it’s important to start saving and investing early to maximize the advantage offered by time, not many people talk about developing your human capital early.

High school

By the time you finish your first year of high school, you should be well on your way to a financially successful life by exploring your talents and interests, taking part in extra-curricular activities, and looking for opportunities to lead others. It sounds like a lot to ask of a fourteen-year-old kid, but if parents help steer children in the right direction without overloading them, these basic tenets will go far in helping the child develop into a successful adult.

Besides grade point averages and standardized test scores, the criteria that colleges use to evaluate potential students for acceptance, criteria which schools believe correlate to success, tend to be the same aspects that build human capital. Those extra-curricular activities, leadership roles, volunteer work, a diverse set of interests, and the ability to write an essay well all help a student convince an admissions board that he or she will thrive in the college environment.

College

The college experience varies from person to person. You could gain a lot of maturity between ages 18 and 21, or you could spend four years wasting your life like so many students away from their parents for the first time. I wouldn’t be interested in a lifestyle that involves keeping my head in text books twenty-four hours a day, seven days a week, so this is not what I’m suggesting.

Take advantage of the opportunities your college offers you. Meet people, get involved in organizations, gain some experience in your field, and determine where your passion lies. College is the perfect time to awaken your soul to the possibilities before you find yourself in a 40 to 80 hour-per-week job.

For most Consumerism Commentary readers, it’s too late to go back to being 15 years old or 18 years old to gain the human capital advantages they might have missed. The best one can do in this situation is to start right now.

In addition to starting early, I’ve offered nine tips for boosting your human capital. If you haven’t started already, start now. If you are already on your way to ensuring you are less likely to have financial problems in the future, consider doing more.

Every day, take just a few minutes to do one thing that enhances your human capital. It can be as easy as working out for twenty minutes — good health helps ensure you’ll have an ability to earn income longer — or updating your LinkedIn profile to make your listing more appealing to clients. You can take a step further, too, by meeting up with a colleague for a mentoring session. If you spend some time each day to think about what you can do to make yourself more valuable to the world, you’ll be putting yourself in a much better position in the future.

Photo: o5com

The original version of this article, Boost Your Human Capital: Start Early, is copyrighted by Consumerism Commentary.

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This is a bit of an introspective article, which, while it does have relevance to personal finance, is a little heavier on the personal side and lighter on the finance side.

One of the hardest issues for me is making big life-related decisions. This has always been a problem for me. I tend to picture the most negative outcome, and rather than making a choice, taking action, and perhaps turning my life on its side, I often tend to stick with the status quo. I have a laid-back personality, and I’m often content to go with the flow.

I don’t think I’m satisfied with this approach to my life, and this has been weighing on my mind lately. Do I want to remain single and living in a rented apartment in the middle of New Jersey forever? I feel I need to move my life in some direction, but I’m not sure which way.

I started out with a plan: study music education, teach in a high school, and live a fulfilling life of making a difference in people’s lives. Yet, I’ve always had such a variety of interests, I didn’t see any problems when my life moved in a different direction. And I’m truly blessed that I can make a comfortable living doing something I enjoy today even if it wasn’t on my radar screen fifteen, or even ten, years ago.

For the last decade, I’ve been trying to live under the philosophy that every action you take is a conscious choice, but yet, I find it difficult to make some of the bigger decisions.

For example: where do I want to live and settle down?

I want to feel like my living situation has more permanency. I’ve liked the flexibility I’ve had by renting an apartment, but I haven’t really taken advantage of that opportunity as much as I had hoped. I feel older now, and I want different things. If I buy a house, where would I buy it?

• My girlfriend lives and works in Queens and wants to stay there, so this is one option, although I’m not particularly a fan of so many people in so small an area.
• Even if she and I don’t live in Queens, we could find a nice suburb within driving distance to her job.
• Staying in New Jersey would be an option otherwise, as I have somewhat of a circle of friends here, but I don’t see them very often anymore.
• I have family in California, so I could live there and have an automatic small community for moral support.

There are other factors that complicate the matter in terms of future employment. I don’t know if I’ll remain working for myself forever.

What I do know is that my life isn’t really moving forward the way I’d like it to. Although the philosophy I’ve been trying to live by these past few years is to make conscious choices rather than to wait for life to happen to me, I haven’t been very successful with this approach.

The original version of this article, Making Life Decisions, is copyrighted by Consumerism Commentary.

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No one wants to know how the sausage gets made.

I admit that most people would find the last few years of my life somewhat strange. I started on a path to improve my finances about ten years ago. I saw my lack of savings and my increasing debt, and I started trying to determine how I could turn my situation around while still working for a non-profit organization, earning enough for my long commute to the office and not much else. I started reading the “living below your means” message board at The Motley Fool, which helped me learn some tricks of the trade. I downloaded a free clone of Microsoft Money and switched my notebook computer from Windows to a free version of Linux just so I could run the software.

I was a long-time blogger, so after my journey towards financial improvement began, I started this website to help me track my finances. The main purpose was to use Consumerism Commentary as an outlet for me to learn more about personal finance and track my personal progress month after month. After the end of each month, I post a monthly net work report that helps me evaluate my progress and analyze my spending, saving, and income.

Though it was never the intent, Consumerism Commentary tuned into a business in its own right, earning revenue, affecting those numbers I posted every month. No longer was my financial improvement a result of just managing my money better, making better spending choices, and finding odd ways to earn income here and there. For the last few years, the increase in my net worth is due in no uncertain terms to Consumerism Commentary itself.

This is why I completely understand when I receive comments about my financial progress like this:

Unfortunately for us, your success story is no longer relevant for us (yes, the blog will contain quality articles in the future). I’m just talking about your particular path — similar to getting rich by creating a blog about getting rich, or becoming successful by writing a book about becoming successful.

It always bothered me when I see a heavily marketed book about getting rich through marketing, or a multi-level affiliate marketing scheme centered around a product that offers nothing but the multi-level affiliate marketing scheme itself. I know where this visitor is coming from. At one time, my financial progress was enhanced mostly by just making better choices, but now the story of my financial progress has become the driver of my success.

I have tried to keep the business of blogging outside of Consumerism Commentary because I know it does not interest most readers. Other personal finance blogs whose readers are primarily other personal finance bloggers often find it necessary to write about blogging because other bloggers like reading it. I don’t write for other bloggers, though, so I leave those topics alone for the most part. Nevertheless, the way I have progressed financially does not apply specifically to most casual readers who are not interested in building a web-based business that relies on advertising or product sales.

I do believe that my journey may still apply to most people in general terms. It may not be building a successful website with an advertising-based revenue model that drives the revenue. In fact, it may not even be starting a business that improves one’s personal finances. I think the most important takeaway applies to everyone in some form. The approach that I’ve been taking to my life can be summed up in three points:

• You don’t need to live your life by someone else’s rules. I knew I wouldn’t fit in with the world of education as a teacher. I knew a corporate environment wasn’t right for me, either. I had my own ideas for living and I needed to find a way to make it happen for me.
• You are in control. Any situation you are in is the result of choices you make. There may be some extreme circumstances that prevent this from being 100% true all of the time — there are a few things beyond one’s control, but only a few.
• Find your passion. It’s almost always possible to earn a living doing something you love doing if you make your passion the center of your life. Life is too short not to enjoy all twenty-four hours a day. I made many sacrifices in my life by devoting most of my waking life outside of my day job and a good portion of the time I should have been sleeping to my online projects, and sometimes those crazy sacrifices are necessary.

I don’t want to border on “motivational guru” type of encouragement, but these three things have been proven to be true for me so far in my life, and I strongly believe that these concepts — not the fact that my main income is now coming from the operation of a website — are at the core of my apparent success so far.

As far as my monthly financial reports go, I will continue to post them on Consumerism Commentary for now. Their relevance may continue to decrease; the need for closely tracking your personal finances dissipates when spending no longer consistently approaches or exceeds income. Nevertheless, it doesn’t hurt to be mindful of your financial progress, regardless of the main source.

The original version of this article, How the Sausage Gets Made, is copyrighted by Consumerism Commentary.

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In the late nineteenth century, an economist named Vilfredo Pareto noticed that 80% of the land in Italy was owned by 20% of the population. About a half century later, a management consultant named Joseph Juran discovered Paerto’s observation and developed the concept of “the vital few and the trivial many,” and used what came to be known as Pareto’s Principle of 80/20 to offer business quality management advice that is still used today: 80% of your problems are due to 20% of the causes.

Juran wrote about this concept generally and word spread and this thought grew in popularity, it extended beyond quality management. Others have conjectured that in a business, 20% of salespeople are responsible for 80% of sales. 20% of a store’s stock take up 80% of warehouse space, and 20% of all consumers stimulate 80% of the economy. It’s a good thing Pareto didn’t live in the United Kingdom, where over 50% of land was owned by the Church and the Royal Family; he never would have discovered this supposed truism.

Tim Ferriss called upon the Pareto Principle in The 4-Hour Work Week: Escape 9-5, Live Anywhere, and Join the New Rich, calling for those who wish to optimize their life (and join the new rich) to outsource a certain amount of tasks contributing to 80% of an individuals total number of annoyances. As you might have guessed, Ferriss claims that the cause of 80% of your annoyances is 20% of your tasks.

If anything, the 80/20 “rule” should just be considered a rough estimation. Not all situations follow this pattern. I can think of many examples where the “rule” should be 50/50. Here is one. The Pareto Principle, in a modern application, would say that 80% of the work in any organization is performed by 20% of the workforce. That may be true for a team where the members are not required to put forth full effort. Pareto’s hypothesis would say that 80% of a symphony would be performed by 20% of an orchestra. I wouldn’t want to be the conductor of that ensemble.

Here’s how the Pareto Principle might hold true in other situations.

Pareto Principle in personal finance. It may be true that 20% of your expense categories account for 80% of your overall spending. Or it may be true that 30% of your categories account for 95%. (The numbers don’t have to add up to 100, nor are these two situations mutually exclusive.) Regardless of the ratio, it does make some sense to spend the most effort to reduce the categories that have the biggest effect on your expenses. Pareto Principle probably passes.

Pareto Principle in investments. I’ve read that 20% of your investments contribute to 80% of your return. The solution would then be obvious: enhance the ability for your money to make money by selling off the 80% of your portfolio that is not contributing to your wealth. I think that’s a crazy suggestion. Today’s lackluster stock — if you purchased it with a long-term goal in mind and performed due diligence before the purchase — might be tomorrow’s star performer. Pareto Principle fails. There is one question to consider: Do 20% of the stocks in any particular exchange account for 80% of the volume within any particular period?

Pareto Principle in staff management. Assuming the Pareto Principle is true for a large organization, you might come to believe that 80% of employee productivity is a result of 20% of the work force. Whether you fire the other 80% or just reward only the productive 20%, your base of employees will shrink. Further applications of the Pareto Principle will continue this trend; you’ll have to hire new employees. Do 20% of the people you interview leave 80% of the favorable impressions? Pareto Principle fails.

Pareto Principle in parenting and teaching. You may find that 20% of your children show 80% of the total promise through their work in school or through their socialization skills. This is the corollary to the idea that 20% of your problems would come from 80% of your children or students. Do you nurture and love the top 20% of your children more than the rest? Do teachers teach only to the top 20% of the students in a class? I hope not. Pareto Principle fails.

The biggest danger with abiding by the Pareto Principle is missing something important within the group ignored or neglected when the focus is on the troublesome 20%.

Here are a few things to take away:

• The Pareto Principle, although sometimes known as the “80/20 Rule,” is not a rule at all and is not accurate in all situations.
• Joseph Juran later revised his concept to be “the vital few and the useful many” rather than trivial to emphasize that anything beyond the vital should not be ignored by default.
• If nothing else, the Pareto Principle is a reminder to look at the issues that cause the biggest problems and focus on the tasks that make have the most effect.

The original version of this article, The Pareto Principle: When to Apply, When to Ignore, is copyrighted by Consumerism Commentary.

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The bulk of what contributes to financial success, given sufficient opportunity, consists of personal choices. We make choices every day at varying levels of consciousness. I subconsciously choose to wake up every morning, but I consciously choose to get out of bed and drive to work. Each day that I leave work without walking into my boss’s office and offering my resignation is the result of a choice not to quit. That is an easier choice than leaving the corporate world; in fact, it’s almost a non-choice in comparison. If I don’t make a choice, I am waiting for something to happen to me rather because of me, allowing someone else or the situation to make the choice for me.

So it’s one of my personal missions to make more active, conscious decisions in my life. This can be a difficult life change, particularly when I am comfortable. I am comfortable now, and reviewing my history I find there were only a few situations in which I was uncomfortable enough to take action to change my situation.

I only chose to abide by a budget when I had no other choice. The situation made that decision for me. But since then, in the financial aspects of my life, I’ve been able to shift towards active, conscious decisions rather than letting my life be guided externally. And this is the key to helping me to achieve modest stability right now, and perhaps full financial independence in the future.

If you are struggling with money, don’t let things happen to you. Make the choices you can make for yourself or for your family.

Make a conscious decision to spend less money. Start developing a budget. The hardest part is starting, but a budget doesn’t have to be overwhelming. It also doesn’t have to be set in stone. The best budgets are flexible. If you can predict your income, like what you may receive from a steady paycheck, just start by writing your take-home pay at the top of a blank piece of paper. Even if you don’t get past this stage, hanging this number on your refrigerator will remind you that you need to think about the money you spend rather than trust your autopilot.

Make a conscious decision to eliminate expensive habits. Habits are subconscious decisions. You find yourself stopping by the gourmet coffee shop every day because you’ve built that into your routine. Continuing the process is easier than disrupting the status quo. I wasn’t always a fan of The ECRD Factor (sometimes known as The Latte Factor®) because it works only when in complement with smart financial decisions about large purchases, but I do recognize the power of small adjustments when repeated.

Make a conscious decision to exit a bad situation. It’s comfortable working for a bad boss or for a corporation you don’t like. When you are paid decently but steadily, and when you are offered benefits that would be difficult to find elsewhere, it’s easy to feel trapped in an employment relationship. The job market is tough right now, but there might be opportunities out there.

Make a conscious decision to get more education. There are always excuses for not enrolling in a class, and most focus on time, money, and the lack thereof. The choice that needs to be made here is about prioritization. Increase your level of certification, work towards another degree, or just take a class to learn more about something you enjoy. All of these options could help you exit a bad employment situation, as well.

I’ve missed out on so many opportunities just by not taking action. Each time I did, I made a inactive choice to let someone else have more control over my situation than I had myself. I still do this. When I stay in and watch television, I’m making an inactive decision not to go to the gym and sign up for a membership. I’m making the inactive decision not to put on my running shoes and get some exercise outside.

What harmful decisions are you making (or not making) by not taking action?

The original version of this article, Financial Success Requires Active Decisions, is copyrighted by Consumerism Commentary.

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As you’re reading this, I’ll probably be standing in a line somewhere or sitting listening to a speaker at my graduation ceremony. Yes, my long journey to a bachelor’s degree is finally at an end. Since I’m graduating at the end of summer, instead of in the spring, it kind of feels like I’m sneaking out the back door.

Only recently (right after I picked up my cap and gown this morning, actually) have I come to learn more about my school’s alumni association. Gone are the days of student rates and benefits, but in the short time I’ve been researching, I’ve discovered that there are quite a few benefits the alumni association offers that I had no idea about.

Tapping into your school’s alumni association has quite a few perks, and most of them are free of charge, or come at greatly reduced rates. Membership in this association usually requires that you put up with calls for donations and monthly newsletters, but your return is usually worth it.

Alumni associations offer benefits like:

Placement and career services

I got a lot of great advice from my career services office here on campus. Many offices are staffed with professional counselors who are not only trained, but spend quite a bit of time visiting business and working with corporate leaders. They know where to send job hunters.

Financial services and insurance

It might not be your first choice, or even your second, but membership in an alumni association might help you get a better rate on life, health or auto insurance.

Travel and shopping discounts

Discounts at hotels, on airlines, and travel support services can help knock a few dollars off your travel expenses, all just because you graduated! My school also features a “savings connection,” where members can share tips and deals they know about.

The association also offers discounted tickets to plays, social events and even sporting events on campus. They’re not student rates, but they’re a lot better than the regular price.

Connecting with your alumni association is usually free of charge, and there are plenty of benefits to signing up. It’s also a good way to stay connected to people you met at school and networking is a great skill to work on. I might be a brand new one, but I’m planning on making the most of my “alumni” status and enjoying the perks of my alumni association.

The original version of this article, Alumni Association Perks, is copyrighted by Consumerism Commentary.

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Recently, I mentioned that setting goals is an important part of taking control of your personal finances, focusing on the idea that the best approach is to determine your major, non-financial life goals first. This is a difficult process for many people, and many people go through life without determining a direction.

There’s nothing wrong about not having a major purpose for your life. I wouldn’t criticize someone who blindly lives decision to decision without a driving force behind the choices made every day. Living without direction is still living, and it is possible to be a positive force in the world without setting out to do so.

Choosing a life goal isn’t a final decision, and it’s a process of feedback. It may take some time living before you decide on a goal, and your experiences will help shape the goal you choose. In turn, the goal provides an ideal that will guide you as you make everyday decisions. What you experience as a result of those decisions can shape, refine, and change your goal.

Again forgetting about “SMART” goals, the concept promoted by people who want you to work efficiently and earn more money for your employer, here are 8 tips for helping you find a direction and focus on yourself.

1. Think about your passions. Many people throughout the world have limited options. Living conditions force the less fortunate to focus on survival only. Others have the luxury to pursue activities beyond the search for sustenance. Even for those with time to read about and participate in a number of activities, finding a passion can be difficult. What do you like doing? What kind of activities do you get excited about? Is there something unique you can bring to the table?

If you really, really love playing video games, that may be your passion. Other people may see you as a couch potato or a kid trapped in an adult body, but perhaps you can turn your love into a mission. Perhaps your purpose is to create video games that bring enjoyment to teenagers, training to the military, or education to children.

2. A natural skill leads to a natural purpose. Do your friends and family look to you as an expert in some activity or skill? Many “big fish in a small pond” become overwhelmed at the realization that the world is an ocean with many other big fish. With the right approach, you can view this as a challenge to present your skills to the larger community in a unique way.

If you have a knack for public speaking as well as a passion about a particular issue, perhaps your purpose is to advocate for your cause. Do your talents lean towards mathematics or can you naturally understand complex scientific concepts? Your purpose may be to discover a new way of understanding the world in which we live and translate concepts to the public.

3. Your values define your purpose. People are not born with values, they are learned from our environment. Parents and community define the values we hold. Your purpose should take these values into account, be they community service, family, God, self, human rights, or any other issue. Values set the parameters for the choices you make, and it makes sense to integrate them with your largest life decisions.

If you can’t pin down your own most important values, do not worry. Think about the people you care about the most. What are their values? The values held by the people you admire most are most likely the values that will feel right to you. Talk to these people about their values and you may find that certain ideas feel comfortable for you.

4. Create a mission statement that describes your purpose. Your passions and your skills should lead you to your mission or purpose. Your mission statement should concisely describe your long-term purpose in no more than three sentences. It should an idealistic view of the best possible situation. Defining your mission statement is not the time to limit yourself.

Development consultants want you to focus on your job when you design your mission statement, but this view is far too narrow. It should apply to your life, something much bigger than your job or career.

Your mission statement should be everything that follows, “My purpose is…” Here are some examples:

To educate women about breast cancer through sharing personal experiences, and inspiring others to share their own, to build public awareness about the disease.

To encourage participation in the performing arts through grants.

To inspire young people to learn about personal money management and provide ideas for building a solid foundation for financial success.

To live life completely and honestly with guidance from a higher power and be the best possible father to my family.

5. Write down your mission and display it prominently. Once you’ve developed your mission statement, write it down. Tape it to the inside of your bedroom door so you see it every day. Post your mission statement to your refrigerator with a magnet.

The local Chick-fil-A restaurant has their mission statement displayed above the counter, facing the employees. Every time a cashier looks up, they are reminded “to be Quakerbridge Mall’s best quick-service restaurant at winning and keeping customers.” You can perform this basic form of brainwashing on yourself by doing what you can to create a constant reminder of the effect you would like to have on the world.

6. Involve friends and family in your mission. The people who know you best are those most likely to support you as you reach for your goals. Not only will they be your cheerleaders, they might offer suggestions to help you refine your mission or select your path. Stay away from those who criticize or try to bring you down to earth.

7. Determine the goals that will lead you to achieving your mission. What do you need to accomplish along the way towards completing your mission? Just like setting savings targets, you can start to get more specific. These are the milestones you need to pass.

The best way to plan is in the form of a pyramid with your purpose at the top. Determine three specific goals that will allow you to achieve that purpose. For example, if your ultimate goal is to encourage participation in dramatic arts, three major goals that you might find necessary could be running a successful theater foundation, writing a play for young actors, and creating a touring acting company that visits elementary schools. From here, determine three steps along the path to each of these three goals.

8. Remain flexible and welcome changes to your mission. If a person is the sum of his or her experiences, a person changes every day. These changes can have an effect on the way you see yourself. Your purpose should always be highly relevant to who you are, so you should reconsider your mission when you feel it is necessary. If you find, however, that your mission changes every year, then you may not be ready to set a long-term goal. There’s nothing wrong with this; continue to discover more about yourself and a solid mission will eventually feel natural.

Remember that your mission doesn’t have to be your ultimate goal. You might be lucky enough to fulfill your purpose before you expect. Rather than ceasing purposeful existence at this point, consider expanding your mission and moving forward. Or take what you’ve learned and forge a new path.

9. Maintain a mission journal. I must say, right up front, that one of the best things you can do for your mission is to keep a public journal online. Today, the quickest and most efficient way to accomplish this is to start a blog. You can create a blog for free on wordpress.com. This blog should be focused on your mission, and you should try to write every day about something related to your goal.

Just like Consumerism Commentary allows me to hold myself accountable for my finances, publicly writing about your daily progress towards your mission will force you to think about your decisions from the right perspective. The journal doesn’t have to be public, but opening yourself up to the constructive criticism of strangers can give you wonderful insight.

Not everyone needs a defined purpose in life. I am not a fan of personal development gurus who claim that mission statements are the key to a fulfilling life and career, particularly when they encourage focusing on career-oriented goals. I do, however, think it’s important to keep your eyes open to the world and using your interests and talents for the benefit of many. Consumerism Commentary readers are lucky or blessed and have advantages well beyond the majority of people all over the world. If making a contribution to the world is important, thinking about your purpose and creating a mission statement is a good way to formalize what you would like achieve.

Do you have a mission statement? If you have any tips to share for other readers, please do.

Photo credits: 416style, Prabhu B

The original version of this article, 9 Tips for Choosing and Achieving a Purpose in Life, is copyrighted by Consumerism Commentary.

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