Sometimes life throws you a surprise… like being given two days notice that you’re booked in to give a lecture to 35 students at the London School of Economics! Which just happened to sell out in 2 mins… no pressure then…

So here’s the interesting thing, not that I had the lecture arranged – it was pencilled in but never confirmed – but that it sold out so fast. An email was sent to students, who won’t necessarily be sat by a computer checking email (like the rest of us at work!), and 35 people responded withing 2 mins.

The title of the session is “Recession-Proof Yourself”

And however much I’d like to think the interest was due to my dashing good-looks (ok,ok, no picture was sent with the email) it actually points to something more insightful – A lack of financial education and resources for young people.

Now these students will be the brightest of the bright, doing degrees in Economics, Management, Business and so on, but they will not have knowledge of some basic financial principles – because no-one’s taught them. I know, because after 4 years of financial training at university I was still £22,000 in debt and had no idea how to manage my money!

The other sad thing is that those who had tried to seek out financial advice were probably given what could best be described as average information, or even worse. For me the first big financial step I took was opening a current account and yes, taking advantage of the interest-free overdraft. And then being financially astute as I was, going to another bank and doing exactly the same thing! Yep, I had a £3,100 maxed out rolling overdraft the day I left uni.

Drug-Dealing and Debt Conditioning

I often talk about how debt is pushed in a similar way to drugs – starting with the “free sample” – and this is how debt is pushed to students with the interest-free overdraft. Before long as students we get conditioned to thinking it is perfectly normal to be thousands of pounds in debt.

Now these students will be the high-earners of tomorrow… who having been conditioned into debt-driven lifestyles at univeristy will continue to rack up increasing levels of mortgage, credit card and personal debt based on multiples of their increasing income. Without realising it they will pay thousands upon thousands more for their possessions than if they hadn’t use debt to finance their lifestyles.

So hopefully the lecture today will be a first step in getting these students to seek out better and more effective ways to manage their money. I’m not the only one talking about this so even if not with me, the lecture should hopefully give them a nudge in the right direction! I know I could have done with it when I was in their place.

Lecturing at the London School of Economics today, Interest-Free Overdrafts and Drug Dealing – Eeek! is a post from: Smart Money Mindset.com

In the lead up to Christmas we are always bombarded with sales messages. “Save 50% here!”, “Buy one get one free!”. These offers come to us with the promise of “saving” us money. Are you really saving money? Probably not!

It’s often the case that we end up spending, not saving as a result of these messages.

The reason is the Big “Saving Money” Scam – we are fooled (including fooling ourselves) into believing we are saving money by taking advantages of these offers. The reason is that we don’t realise there are actually three different ways to save money.

The Three Ways to Save Money

1) Wants-Driven Saving
2) Needs-Driven Saving
3) Cash Saving

1) Wants-Driven Saving

Ever seen a special offer that really grabbed your attention?! One like “60% off this plasma TV but only while stocks last!” “75% off this leather sofa – only for the next two weeks!”. You might already have a perfectly good TV and sofa but you don’t want to miss out on such a good deal right?

The fact is that the sales price is often just the real price or acceptable price to the retailer. For example have you have you ever heard of a sofa store where there isn’t a sale on?!

The sale price is often the price they need to make a decent profit. The law may have required them to sell that item at “full-price” for a time in some of their stores, but in reality they are happy with the sale price.

The reason this is important is because we are talking about “Wants-Driven Saving”. This is a saving on an item you are tempted to WANT but don’t really NEED. And what compels you to buy is the false idea that you are saving money in the future by buying the item.

Are You Realling Saving?
In actual fact you’re not saving money, you’re spending money – right now! Managing your money well relies on thinking about cash flow – this is a cash outflow from your monthly budget – not a cash inflow. This is a false or fake kind of saving, which will lead you to actually increase spending and most likely increase debt.

You are also being subjected to a sales trick called “creating scarcity”. The seller creates the sense that there is competition with others and that you may miss out on this wonderful deal since “the offer runs out soon!” or “all the items might sell!”

These purchases give us a momentary thrill, they make us feel good for a little while. And we quieten the little voice in our head saying “you’ve just spent money idiot!” by justifying it as “future savings” when nothing could be further from the truth.

The sad fact is that millions of people drive themselves into financial difficultly doing exactly this – all the while thinking they are being “financially smart”.

2) Needs-Driven Saving

Needs-Driven savings remarkably enough are savings based on items you NEED, not WANT. These are savings on items you would have bought ANYWAY, even if there was no discount or offer. For example this could be a two for one offer on groceries or a discount voucher for petrol.

These are real savings as you are reducing the amount of cash flowing out of your pocket – cash that would have flowed out anyway.

One of the best money saving tips is to focus on Needs-Driven Savings when you are being bombarded with savings offers. Filter through them and find the right ones.

For example my girlfriend was recently offered a card that gave 50% off at a lot of London restaurants, for a price of course. Now if we dined out a lot, and felt this was something that fitted under one of our needs, then the card might have been worth it. However interestingly enough the 50% discount didn’t apply on Fridays and Saturdays at most places, the days we were most likely to go out. And also we were able to get 50% off vouchers for most of our favourite restaurants anyway for free elsewhere – so for us that fell under Wants-Driven Saving and we didn’t get the card.

So Needs-Driven Saving does mean you save money. Now what to do with that cash you didn’t spend? Funny you should ask…

3) Cash Saving

This is what I would call really saving money. Taking money from your paycheck and putting it into a savings account. Why – because the cash is still there. It hasn’t been spent. It is earning interest. You have actually saved money which is now building on itself.

Part of cash saving can also includes paying down debt. This is because you immediately reduce your cash outflows when paying off debt. See my previous post A Guaranteed Profit On Your Money? It’s Possible!

So if you take the cash from Needs-Driven Saving and pay off debt, you not only save that cash, but also get a guaranteed return on it. Now doesn’t that all sound better than option 1 above?

The Challenge with Saving

The challenge for us is the balance between the three, particularly with Needs- versus Wants-Driven savings. For example what would you call saving money on expensive Christmas presents? Did you NEED to buy expensive presents in the first place? No-one’s immune to this by the way, myself I’m partially prone to spending on gadgets like the iPhone!

The answer is, as always, “it depends”.

It depends on your personal circumstances. If you are knee-deep in debt (usually because of Wants-Driven Spending!) then you will need to restrict yourself to spending on only the things you need, look for savings there, and focus on paying off debt. If you have more flexibility then spending on things you want isn’t necessarily a bad thing – so long as you don’t kid yourself into thinking you’re actually saving money… and so long as you are cutting unnecessary expenditure elsewhere.

Think about the last few times you were tempted by an “once-in-a-lifetime savings” offer? Did you really save money?

The Big “Saving Money” Scam is a post from: Smart Money Mindset.com

Like watching TV or movies? You could be programming your brain for financial suicide!

TV and movies are full of false values or beliefs, also known as “Memes”, that we pick up and believe in without even realising. Some of the worst are around money and wealth. By getting these into your head you could be sabotaging your financial success without even realising.

Movies Are Keeping You Poor!
Think about movies for a second. My favourite for this is Titanic (I’m not saying that’s my favourite movie by the way!).

“The Rich Are the Bad Guys”
Do you remember the dinner scenes? They show all the rich people being boring and stuffy, arrogant, and you get a sense of Kate Winslet (the heroine) being restricted, uncomfortable, and that the people around her are untrustworthy. And the main bad guy in the movie is here, her rich fiance.

“Poor People Have More Fun”
Meanwhile down below the poor people are partying like mad! Lots of smiling, fun, drinking, and a really warm and friendly environment, and our poor hero Leonardo di Caprio in the middle of it having the time of his life! The place our heroine would rather be.

Do you really think that’s what it was like on the Titanic? Where did you get that belief from? Who told you that?

Think about the movies you watch and you’ll find the above is usually true. There is a hidden message that being rich leads to unhappiness and being poor is somehow more honest and real, and even respected.

“It’s Romantic to Sacrifice Wealth”
And at the end of the movie what happens? Rose’s granddaughter and husband are spending thousands searching for treasure, the necklace with the huge diamond. And what does Rose do with it? Throw it in the sea?! So it can be with her dead lover?! How romantic?!

How about taking that diamond and giving it to her granddaughter so she can financially secure her and her descendants for years to come – so they never have to worry about money, paying for school, medical care if they get sick? Nope, it’s on its way back to Leo so he can do God knows what with it… because that’s the “right” thing to do? Give me a break…

Want To Be Wealthy? Don’t Watch Dallas!
If you watch a lot of television you’ll see the same values or beliefs within those. Take programmes like Dallas, Dynasty or even recently The O.C.

“Having Money Means More Problems”
In these programmes in the first episode everyone has money and all looks well on the surface… but before long the story lines take hold – like one character losing all their money due to a crooked business partner or accountant; kids out of control due to all the money their rich parents give them; those same kids taking drugs and needing to go into rehab; adultery; domestic violence; robbery; threats etc. etc.

What does that condition your brain to think? That being rich is all one big party? Not quite.

More like:

“Well if I get rich, I could lose it all, lose my wife/husband, my kids could become drug-addicted criminals, and people will come and try and steal my money”

… think about it, how many of those beliefs do you currently hold about becoming wealthy? What’s the conclusion?

“Well, maybe it’s better to have a little money, but not too much cause I don’t want to turn into an asshole and get my kids screwed up”

Really have a think about it – what beliefs do you have about becoming wealthy and where did you get them from? These beliefs are almost certainly holding you back from what you want financially.

Watching TV? You’re Committing Financial Suicide! is a post from: Smart Money Mindset.com