The other day I’m watching television and I see this Chase commercial announcing that they now have a smart phone app that lets you know when your bank balance is getting low. They’ll “alert” you. The commercial shows a woman in the middle of a yoga class getting such an alert. She calmly extends her perfect yoga poise and uses her smart phone to transfer more money into her account. (From where, I wonder.) Thank goodness the bank let her know before she went into overdraft.

I’m not sure anyone has noticed this, so let me point something out: people’s handling of their personal finances have not improved since the advent of on-line banking. In fact, it’s gotten worse. The reality is that many people who used to balance their checkbook stopped balancing when on-line banking came out. There is this strange perception that the bank is somehow managing your account for you now that you can see your statement on-line. When you add to this the ability to put bills on auto-payment, many people have simply checked-out. Who needs to actively manage their personal finances? It’s all on autopilot…

Is this really how we want to run our finances? This is the definition of being reactive around money, as opposed to proactive. Here is how it is supposed to work: We are supposed to be in control of our money and know where it is going and how much we have.  But many of us feel foggier now than ever before. So many are so frustrated and don’t know what to do.

I fear that the world of electronic banking has a very dark side. I worry that it allows us to abdicate our power to the gods of technology. Yes, we are all very busy. And we tell ourselves that we don’t have time to manage our money. (Besides, the bank is doing it for us.) We’ve stopped paying attention as much as we used to. (And some of us never paid that much attention to begin with, I know.) And if our balance goes too low, well, now the bank will just let us know! Like Pavlov’s dogs, we simply react to the sound of the bell. Now we can pay even less attention! We can be totally reactive and just wait until our phone tells us what to do….

So let me plead with you for a moment. Whether you like it or not, money is one of the most important substances in your life. You need it to eat and generally provide for yourself and your loved ones.  It’s also likely that you work between 30 and 50 hours a week for money. Do you really believe that you don’t have time to spend 30 minutes a week managing it—tracking where you spent it or deciding where you want and need to put this form of life energy? Remember, money is simply a form of life energy. (See my previous post on three reasons that people stay in the money fog. As a money coach, I know that it is not as easy as simple deciding to get out. But I just had to rant about electronic banking for a moment!)

I worry for younger people growing up with on-line banking. Will they fall prey to the notion that technology can do everything for them and they don’t have to spend time deciding where they want this valuable resource to go? No one and no gadget can manage your money—only you can do that. Now,  I am not opposed to technology. I use technology to help me plan my income, spending and savings, and to track where my money goes. And yes, I pay bills on line. But I am in control of it. I don’t hate on-line banking.  I love being able to easily access my accounts. And paying my bills on-line beats licking stamps any day. But there is a right use of technology. Anything that beeps at you in Yoga class and causes you to react should be suspect. You are the driver of your financial life.

You know my motto: Earn more and spend wisely! So this post is about that second part- because it doesn’t matter if you earn more- if you blow it all at Target.  Well, thanks to the hot new field of “neuroeconomics”, I’ve learned another bit of shopping advice.

Recently, I wrote in a post about going to Home Depot and what happens when you buy something big and then follow it up by buying a lot of small things. Those small things really start to feel free, in comparison.

I mentioned that I have this habit where I always tell myself I can throw anything in my cart, but it doesn’t mean I’ll buy it.

Now I’m thinking I should rethink that habit, due to what neuro-economists call “the endowment effect.” Brian Knutson, an associate professor of psychology and neuroscience at Stanford, has written about this. Basically, he says that you should avoid hanging on to items you’re thinking of buying in a store. When you carry them around with you, they start to feel like yours. Then you experience pain when you think about getting rid of them. In essence, you will feel like you are “losing” these objects if you don’t buy them, because you’ve become attached to them.  They’ve done interesting studies to support this, all of which point to the same thing: when you have an object in your possession, it feels like “yours”, and you start to value it more then you should. It’s not really conscious.

If I hit Bed, Bath and Beyond and pick up the bamboo cutlery organizer which is right at the entrance to the store, and then proceed to carry it around with me for twenty minutes while I look at other things, well,…. It gets harder to let go of. I’ve pictured it in my kitchen and held it for a while. The point is that it is more painful to put it back then we realize.  If I had left it on its shelf and then gone back to check it out at the end, I would be less likely to buy it. But who wants to have to go all the way back to the front of the store? (Stores know this, of course. They steer you around more purposefully then we know.)

When my son was younger, he was into “Rescue Heroes”. (They are basically action figures for younger kids.) We went to Toys R Us one day to spend a gift certificate and his allowance. While there were many things he wanted, the Rescue Hero’s display was the first thing he saw. So he picked up Billy Blazes and carted him around the store while we were looking. Well, surprise- even though he found a Lego set that he had talked about for a LOT longer, he simply couldn’t give up Billy Blazes.  It was too painful to part with him. The toy already felt like his.

I guess we’re not that different. So I think that I’ll stop carrying stuff around in my cart while I “debate” buying it. Because it does start to feel painful to part with my stuff…

So I’m at Home Depot to buy a hundred dollar garden bench. This was the plan. Really. And while I was wandering around the garden section, I found these cute five dollar hangers for pots. Then I saw some discounted annuals. Three dollar Pansies. Even I can grow pansies. Throw them in the cart. I mean, really, it’s almost free. I was already spending one hundred dollars! Then I saw some ten dollar solar lights for my garden. Hey, they were only 7.99 on sale! Throw them in. Okay, now some 99 cent seed packets and a $5.00 hose attachment. I mean, come on, it’s only five bucks. I was there to spend a hundred. What’s five bucks?

I always tell myself I can throw anything in my cart, but it doesn’t mean I’ll buy it. So before I hit the checkout stand, I added up my “freebies”. They came to forty bucks. Oh, and the hundred I was already planning on spending.

What was going on here? I was experiencing a shopping phenomenon that actually has a name: It’s called “decreasing sensitivity to losses.” George Lowenstein is a cutting edge researcher in the hot new field of “neuroeconomics”, at Carnegie Mellon. And he warns against this. (I’m really fascinated by this new field of “neuroeconomics”. I just can’t help it. I’m a money coach who has a masters in “consciousness studies”, so it’s not a surprise, though perhaps a bit nerdy.  It’s a combo of psychology, economics and neuroscience. )

Basically, you want to be careful about buying too much in one store. When you spend a large amount at a store (my hundred dollars) then everything else feels cheaper there then it normally would. It’s all relative, right? So when you start buying a lot of small items, they start feeling free.

If you go to another store to buy these small things, they don’t feel so free. I doubt I would have spent the forty bucks there if I hadn’t been about to part with a hundred dollars.

I find this type of research really helpful. First of all, it tells me that I’m pretty normal. My brain is just as likely as anyone else’s to experience this. I’m really a pretty smart cookie. And now that I’m more aware of this “phenomenon”, I’m less likely to fall prey to it.

I could say, “Would I still buy all of this stuff if I wasn’t spending the hundred?” Or I could simply put it all back and tell myself that if I still wanted it, I could come back a different time and buy it. But that gets into delayed gratification, and that’s a different post.

For now, I’ll try to be aware of adding a ton of “free” things when I’m spending a hundred bucks.

Five tips on negotiating a new car (and shopping with my dad)

Okay, let’s catch up. My old crap car was decaying around me and it was time to buy a newer car. I had decided on what I could afford and was ready to get serious.

(Click here to read part one, Mikelann Wants a New Car: I Want What I Want When I Want It!)

I was at peace with the prospect of buying a good used car. (Again, see my previous post on my initial emotional tantrum.) As they say, “every car on the road is a used car”. And I knew cars lost value the moment you drove them off the lot. And leasing a car is definitely a bad idea financially. (Leases only make sense if you have to have a brand new car every two years.) But I wanted a really good car- a car I loved and was in great condition.

I wanted a newer Honda Civic two door coupe. A little sporty car that was quality and beauty all rolled together. (Okay, and my new single life with one ten year old child meant I could leave the “family car” behind. Hee hee! )

I confess that I felt on my own. I had read about how many women were taken advantage of at car lots. I thought of renting a large silent man to make sure the dealer would treat me fairly. How irritating is that!

I started reading about how to negotiate for a car. Now, mind you, I do teach negotiation. I also felt the pressure of doing a good job- practice what I preach and all that. Well, the first key to negotiation is doing your research and learning what you can. But before I continue my story, let me give you five tips.

Five tips to buying/ negotiating a car:

1. Research what the car should sell for. Check out Kelly’s Blue Book value. The internet is a great place to do research on cars. You can input your zip code and the year of the car as well as the condition etc etc. (I started looking up the value of Honda Civics’ in my zip code, 2002- 2008 models)

2. When talking to a salesman, DON’T tell them how much you can spend. For example, never say “Well, I can’t spend more than $8,000.”

3. Don’t tell them you are most worried about the monthly payment. They can finance anything to make a monthly number look good. Of course you’ll pay a ton in interest.

4. Don’t tell them if you have your own financing, will use them, or you’re paying cash. Don’t bring any of that up until you’ve settled on a price.

5. Bring a friend. Bring anyone. It doesn’t have to be a man. But you’ll be talking to someone who negotiates for a living. You want someone with you you can talk things over with, privately. Someone you can bounce ideas off of or someone who can help walk you away from a not-so-great deal. Make sure your friend knows your bottom line so they can keep you on the straight and narrow. (And it doesn’t hurt if he or she can pretend they know something about cars…)

Like I said, I knew the stories about women and car lots. It’s a bad combination. So many of us don’t know *#$% about cars, and we don’t like to negotiate. Bad, bad, combination. (“Good girls” especially don’t like to negotiate. I know because I’m trying to reform my inner good girl- people pleasing ways.) I really don’t know crap about cars. I’m a little more comfortable with negotiation.

And now let me share that once I did my research on price, primed myself on car negotiating and located four cars I wanted to see…. I called my dad and convinced him to come with me. (Remember point number five- bring a friend.) Yes, he’s that amazing super man who has been working on my house and just installed two new electrical outlets in my living room “because you can never have enough outlets”. So true.

And I also confess that a part of me felt like I wimped out by bringing my dad. A “real woman” can go buy her own car! I really wrestled with this one. But I also reasoned that bringing my dad was like bringing a friend to an important doctor’s appointment. Do we really have to do everything alone?

I’m the one who did all the research on car prices and I would do all the negotiating. More on that in a minute. But to be clear, I brought dad for three reasons:

1. I really like my dad and we had a great time cruising dealerships and just visiting.
2. My dad knows cars. I don’t. And my dad knows Hondas, which is what I wanted to buy. At every lot I would pop the hood and stare at the engine and really scrutinize it like I knew what I was looking at. Yep, there was that bright shiny engine. There it was. Then when the car salesman wandered away, I would ask my dad what he saw.
3. I read one too many articles about women getting ripped off at car dealerships. And as good as I thought I was at negotiating, I couldn’t make up for my lack of car knowledge. As much as I wanted to prove my negotiating might, I wanted to also be smart. (Underearning is caused by our internal patterns around underselling ourselves- and one common way we do this is by not negotiating. But there is also real societal discrimination out there, to be sure. Get it?)

So off we went. It was interesting. One car salesman kept telling my dad that he should test drive my car. My dad actually did very little talking to them. But he carefully looked at the cars, the engines, the mileage etc. He knew my bottom line. I also said very little to the sales people. I played my cards close to my vest, not revealing what I liked or didn’t like. When a car salesman would go along for the ride in the backseat, my dad and I would talk about parenting and funny grandchild stories- give no information!

After four cars, we went to Starbucks and debriefed. It was obvious at that point what car was best- a sweet Honda Civic LX- two door coupe- perfect car fax history, only one prior owner, lower miles, great maintenance records, “Honda certified” etc . It felt brand new. (Though I’m sure they spray that “new car smell” around quite liberally. Hmmm. Just inhale it. There’s probably some mind numbing chemical in it, now that I think about it.)

I knew the Blue Book value and I knew what they were asking. Their price was quite reasonable, actually, and I could afford it even if they wouldn’t come down. But you’ve GOT to negotiate a car price.

So back we went. Dad played the somewhat “silent” bad cop in the back, sharing a few pre-planned reservations so the guy wouldn’t get to sales happy. (You and your friend can pre-plan this too. Have your friend show concern over the miles or whatever.)

“What are you asking again?” I asked.

He tells me the price and why it’s such a great deal.

“Hmmm. Well, as you know, I’m looking at some other cars too. Can you make me a better offer?” (Dad is silent during all this part, inspecting the office woodwork so the guy doesn’t get caught up in talking to him too.)

“Well, what were you thinking?” He asked me.

“Hmmm, would you consider—“ And I named a price about $1500 under his price and well under bluebook.

He hemmed and hawed. “Well, I’d have to call the owner on that.”

“Okay.” And I just sat there and said nothing more. (Dad is still inspecting the wood work and the guy looks at him anxiously from time to time but can’t get his eye.)

He dials the powers that be. “I’ve got this little lady here who’s looking for an early Christmas present, Jim…” (Why, oh why, do they always call you “little lady?”)

I actually got up and moved around his office while he was on the phone. I thought for a moment there was no one on the other end of the line, which wouldn’t have surprised me. But there was.

Long story short, he came back at $500 over my offer.

I drove my new car home that afternoon.

My fifth grade son started a business. He didn’t ask me about it. He just did it. He’s a Lego kid and loves to customize his little Lego mini-figures with paint and stickers etc.  So one day he announced he was going to sell his customized Lego figures at school. I said very little, deciding to stand back and watch how this would unfold. He asked me to drop him off at school early so he could show them off to his school mates. He said he needed to do this several days in row because he knew the kids wouldn’t have enough money with them and he needed to get them excited about his “product” so they would bring their allowances the next day.

He faced a few obstacles. He had to hide this endeavor from his teacher and do it strictly on his own time or she would confiscate his “toys”. (She’s already holding several of his Legos ransom in her desk as somehow they appeared during math time. He’s been trying to figure out how to get them back from her so he can turn around and sell them!)

I love his fearlessness about this endeavor. He’s a very practical kid. As a girl, I would have felt bad for breaking the rules and getting caught. When my toys got confiscated once during class, my internal good girl syndrome reared its head and I felt awful. I worked hard to be the perfect student for quite a while. He’s just irritated that she’s got his “products” in her desk!

On the second day of this project he brought home five dollars. I was shocked! He actually made his first sale! On the third day he brought home a twenty dollar check from a kid in his class. What?! Upon closer inspection, I could tell the check had been made out to the cafeteria lady for this kid’s hot lunches. The child had scratched out the lunch lady’s information and written my son’s name on top of it. Uh-oh. I had to break the news to my son that he had received a bad check. And joy of joys, I had to call this other parent. I knew I’d want a parent to call me if the situation were reversed, but still, it was awkward.  (“I’m holding a check you wrote that your son gave to my son…!” Not fun.)

My son’s reaction? He was mad at the kid and wanted to make sure he got his money or the Legos back! I think girls would be more worried about the friendship/ relationship impact. (This issue is still pending in court.)

The grand experiment came to an end last week when we had a frank discussion about profit. He needed to buy more Clone Trooper Legos at Toys R Us, to customize. The problem—they are expensive! He wasn’t charging enough money to buy more mini-figures. After more debate, he decided to raise his prices to cover this, but found that the kids just wouldn’t pay the new prices.

I love his perseverance. Just because the first business idea didn’t work out, doesn’t mean the next one won’t. I’ve had some whopping failures. If you never fail, you’re not taking enough risks!

Several lessons came out of this, but the obvious lesson (besides 10-year-olds shouldn’t take checks) is that you can’t run a business, no matter how much you love it, without turning a profit.  Just because you love doing something doesn’t mean it can become a viable business. There are many things my son loves. He is now debating which will yield him more money. (He wants more money to buy himself more Legos. It seems he finds his allowance insufficient.)

I realize that everyone has heard “Do what you love and the money will follow”. Actually, it should say, “Make money doing something you love.” There are many things I love. So far, no one is paying me to scrapbook. Some things should stay as a hobby. I guess I’ll stick to money coaching, which I do love.

But I do take checks, by the way.