UM grad student offers secrets of budgeting, developing savings

Posted Jan. 02, 2011, at 7:47 p.m.

BANGOR, Maine — Turning resolve into reality when it comes to personal finances takes more than a calculator and well-balanced checkbook — it might require a little soul-searching, according to a local expert.

With the new year rung in and resolutions aflutter ranging from losing weight to finding a new job, there are some who undoubtedly have promised themselves either to save money or at least bring their finances under control. According to Sarah Morehead, director of the University of Maine School of Economics’ household financial education program, those people will have an easier time if they focus on why they spend money in the first place.

“Saving money is not just about cutting back and depriving yourself,” said Morehead. “Usually when people cut back on their spending, they don’t have a plan for how they’re going to continue to be happy, and eventually, they go back to spending the way they always did.”

Morehead said the secret to improving finances is to ask yourself some personal questions, such as: If you had an extra $100 every month, what would you do with it?

If your first inclination is that you’d upgrade your cable package or take your family out to dinner, you’re a spender. If you’re thinking of your 401(k) or your kids’ college fund, you’re a saver.

“If you are a spender and you’re ready to be a saver, there are lots of ways to do it,” said Morehead, including the following:

How can you save money without depriving yourself of the things you enjoy?

To be successful in personal finance, Morehead suggests following the path of least resistance, meaning cut the things out of your life that you don’t use. Being more choosy on monthly expenses such as cable contracts and cell phone plans can save money immediately, she said, and you’ll never notice the difference.

Once you’ve reduced your spending on certain items, what do you do with the savings?

“If you’re carefully planning to cut down on your bills, then you also need to have a plan where you’re going to save it,” said Morehead. After all, there’s no point in all the effort to cut expenses if the savings are just going to become money wasted on other things you don’t need. There are lots of places to put your money, ranging from a simple savings account to an investment package.

What are your reasons for wasteful spending, and how can you change that behavior?

Morehead said answering this question is at the core of reinventing yourself financially. She said she recently calculated her spending on convenience food — ranging from buying lunch during her work day to stops at the local coffee shop — and discovered she was wasting more than $5,000 a year.

“This year my resolution was to save $100 a month on convenience food,” she said. “I’ve realized that when it comes to buying lunch, I do it out of boredom. The idea of packing a lunch bores me and that I like to get out of my office just for a change of scenery.”

Morehead suggests coming up with a money-saving scheme and committing to it for two weeks before re-evaluating whether it will work in the long run. In her case, Morehead has teamed up with a group of coworkers who will provide lunch for the others on a rotating basis. The key to the plan, she said, is that it both saves money and addresses the boredom issue. Gathering with friends is fun, as is the surprise of what’s for lunch, she said.

Are you using your personal resources to their greatest financial benefit?

Morehead said too many people are trapped into thinking that their full-time job with its incremental pay raises — if they’re lucky — is their only source of income.

“If you think the only way you can make money is to go out and get a job, you’ll always be broke,” she said. “If you take a deep look inside yourself, you probably have some resources that you aren’t using. If you can find a way to make even an extra $50 or $100 a month, you can pay a bill with that.”

Morehead, who writes a blog about personal finance, teaches seminars for students of all ages and is writing a book tentatively titled “I Hate Money: A Financial Primer for the Rest of Us,” said that asking these personal questions can slowly change your thinking and, eventually, your financial situation. Or if you’re lucky like Morehead, you’ll have what she calls a “light-bulb moment.”

“Graduate school was a real turning point for me,” said Morehead, who admitted she has not been without her own financial struggles in the past. “I looked at [a relative] and realized that when he had four kids to support, he was broke. Then when the kids were gone and it was just himself, he was still broke. It wasn’t about a lack of money; it was about what was being done with it.”

Sarah Morehead will conduct a free seminar on personal finance on Jan. 29 at the University of Maine in Orono. For information or to RSVP for the seminar, e-mail Morehead at sarah.morehead@umit.maine.edu.

Sarah Morehead’s household finance blog: http://financetherapy.wordpress.com/

Information about the University of Maine School of Economics’ Household Financial Education Program: http://umaine.edu/news/blog/2010/01/05/school-of-economics-taking-household-finance-to-the-schools/

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