Pay yourself first and last
We have all heard the saying, “pay yourself first” if you haven’t you really need a financial tune up. Pay yourself first simply means just that, set up your savings, retirement, etc., allocate a certain amount from each check then pay into your accounts just like they are a bill. This is the way all wise investors manage their investments that are funded by their direct incomes.
The other side of the coin though is paying yourself last. Please note this does not mean you stop paying yourself first! Here is how it works, this month let’s say you pay into your investments, you pay all your bills and now at the end of the monthly cycle you have a surplus of funds. Say you generally carry 200 dollars extra between the last pay check of the month and the first check of the new month. This month ends and you have 425 dollars in your account.
How did it get there? Who cares! It is there, perhaps your expenses went down, you made more money, you got a win fall, I don’t care how it showed up there is one and only one things you should do with it. GET IT OUT OF YOUR CHECKING ACCOUNT NOW! Move it to savings, dumb it into your IRA, move it to another account, do anything (other then spending it) to get it our of your check book.
Checkbooks are meant to manage money that you intend to spend, you will never save efficiently because your psyche says that this money is spendable. Move the money to “savings” and even though you can move it back with a mouse click via your online bank account you mind set about this money changes. You will ask yourself, “do I really need to move this money out of savings?”, “why am I doing this?”, “do I really need to do this now?”, etc. In the end you will save more and spend less, you will make better decisions.
You don’t need to lock away this money until you are 59 and 1/2 years old in your IRA for this to be effective. Just the simple act of putting it into a bank savings account will change the way you see this money and that will change how you manage, allocate and spend it. Do it every single time you end with a surplus, be it a dollar, a dime or a thousand dollars, move it to savings and in a little as a years time you may shock yourself.
Filed under Personal & Home | Comment (0)Help your children save for college
OK I have to give credit for this idea to my Brother-In-Law (we will call him Mark). I took a different approach to saving for college for my son. In our case simply set up a 529 plan for our son, made contributions as part of our financial plan and he is now in college and can do four years (including housing) as a state college with no debt and almost on out of pocket expense. While this seems wonderful a bit of it is already biting us in the rear. Our boy just doesn’t seem to realize how lucky that makes him. I am glad we did it but what I am about to lay out for you is a much better solution at least to a degree.
What Mark has been doing since both children were born is both simple, cost free and may I say genius.
Every kid has birthdays, Christmases, Easters and many other times that relatives, friends etc send them cards and gifts and very often money. Mark has required that 50% of his two children’s financial gifts (no matter how small or large) go into savings accounts to be used for college. He choose very safe investments and did not elect to use a 529 due to its restrictions.
What does this mean to his kids? Upon Graduation both will have over 20,000 dollars in funding toward schooling or life in general if they choose not to go to conventional college. I should point out that this is not a family the gets huge amounts of money for each event, we are talking 20 bucks here, 5 bucks there, may be 50-100 for a Christmas that goes into these funds. Mark requires his kids to save this money no matter the source. If they come over to my house and I give them a ten a piece for spending money, Dad puts 5 bucks a piece away, just like clockwork. The fact that 18-20 years is a very long time for money to grow, takes care of the rest.
Some of the family thinks this is “taking away the fun of just being a kid”, most of our family is BROKE by the way! Taking advice from the broke is a good way to not only be broke but build generations of kids and grandkids that are broke too. Mark wisely has ignored this and I think when his kiddos go to college or start a business or do what ever with their money as adults they will put more value on the funds.
Now we did teach our son to save, we helped him invest in stocks, set up accounts and always made him put some money away. Yet if I had it to do over I would have also had some allocation go to his college fund directly from his hands. Not just to increase the funds available but to give him a true sense of ownership, responsibility and gratitude for the fact that this money is available.
What I know is this my niece and nehpiew will have real options when they finish high school. Options my brother-in-law would be hard pressed to provide on their household income. All this from the simple wisdom of “pay yourself first”. Consider it the next time your little ones get a card from Grandpa Joe or Aunt Betty. A few less do-dads today for a real kick start to life tomorrow.
Filed under Business & Marketing | Comment (0)Spend Cash
Now this may sound a bit odd for a blog that is about saving money and building wealth but I mean what I say, spend cash. The key is spend cash rather then spending your money by writing checks or using debit/check cards.Each week plan your spending on everything, meals, groceries, etc. Then with draw the cash you need for the week and pay in cash at all times. Now this does not mean you can’t use your debit card if you need to or write a check when it is called for. It simply means to do the bulk of your spending with cold hard cash.
Why?
Simple you will spend less money!
How?
Easy you will do it yourself. It gets so easy to spend money with checks and cards. The money just doesn’t “feel” real to you. Due to this you spend more and I mean everyone (including me) does it. When you put cash in your pocket it becomes material to you and hence each expenditure becomes more personal, more real and you judge it a bit harder. You start to realize there is an “end” in a very real sense to your spending power.
Long term you will benefit as well, it will be much harder for that sales guy to sell you on how easy financing the car, vacation, etc is going to be. You mind will tune in on “real money” and such antics will cease to be effective. You will insist on control simply because money will always be a real and finite thing in your mind.
Always remember how you view, understand and think about money is more important then any other aspect of your financial success.
Filed under Personal & Home | Comment (1)Why you should never buy whole life insurance
This is going to be a brief and short post, I am going to put this simply DO NOT EVER purchase whole life, universal life or any other name they ever come up with to try to sell it to you. This has been written on a lot so if you want to know more then I give you here, do a bit of research online and you will find a lot more information to back my suggestion.
Let me be blunt, Life Insurance is for when you die, nothing more and combining it with anything is a mistake. Your life insurance should be about 10 times your annual income if you are supporting a family. The reason for that is simple, 10% returns are quite doable with solid investments so your survivors can invest the proceeds, draw 10% a year and not deplete the money for a very long time. This effectively replaces your income for longer then your working life.
Now to carry that much whole life insurance would be extremely expensive, beyond the budget of most working Americans. An insurance agent will try to show you how whole life builds “cash value” but this is nothing but an illusion.
Remember life insurance pays out when you die! When you live a long time (most of us do) it is good for the Insurance company, you pay and they do not. So when you buy term insurance you pay the amount that very smart economists and math PhD’s have determined will be profitable for the insurance company based on average life expectancy. In other words a fair market price that covers you if you die during the term.
Now look at whole life, you pay a LOT MORE for the same amount of insurance (the risk incurred by the insurer) but the insurance company has the same level of risk. Now if you are a good stooge and pay way to much for way to long, they will then give you some of your money back some day. In the interim they invest your money at market rates of 10-15% returns. So they make that interest, they hold your money and they tell you how great it is that they will give some back.
If you like that how about this. Go get 100,000 dollars, send it to me and I will hold it for you, I will even pay out 2% interest on it. Twenty years from now you can have your 100K back, plus 2% interest per year or you can just let me keep holding it until you die. When you die, I will give the money to who ever you tell me do. Sound like a good deal to you? Of course not! Oh and yea if you ever need the money I will loan your own money to you and you can just pay it back with a bit of interest. Sound like a scam? It’s not you just pay in your 100K in installments and they call it whole life!
So here is what you do, buy the insurance you need on 20 year level term and invest the rest of the money in good solid investments. You make the 7, 10, 12 or 15% depending on your risk tolerance and ability, you retain the ownership and control of your money. If you die in the interim your loved ones are covered, if you live till the end of the term and have invested well then you should not need as much insurance. Perhaps you might buy a bit less for say 10 years and by then if you still need insurance you have done something very wrong.
Don’t let the insurance guy tell you how hard it is for a 70 year old to get insurance! At 70 you don’t need life insurance if you have done a good job of saving and investing. You are not leaving behind a young wife and 3 kids, you just need to be buried. If you can’t save enough money to get yourself put in an box and under six feet of dirt in 70 odd years something is drastically wrong.
I won’t be writing on this subject very often as it is pretty well known and accepted by most good financial professionals today. I just wanted to get it out right away because it is a huge mistake often made by young people who end up in front of a well trained but undereducated insurance agent.
Filed under Personal & Home | Comment (0)Start with what you use every day
Cutting the monthly cost of your expenses does not have to be difficult and it often involves just doing a few simple things that we know we should do. Often it is simply that we don’t want to take the time to make a phone call, send a letter or deal with the hassle of making a change on an account or service.Yet this is a mistake, a place where apathy can cost you thousands of dollars or more over your life time. Consider a five dollar a month savings, not much right, sixty bucks a year. Well, 60 dollars a year, times 45 working years until you retire and that five bucks a month now equals 2700 dollars you could have invested. The big things is there are lots of five bucks here, and ten bucks there you can harvest right from your own home with out any sacrifice.
Consider home phone service for instance. Do you even care who’s name is on your bill? If you get your internet access from the cable company you might do what millions already have, use your cell phone as your only phone and throw out the home phone all together. Or Consider Broadband Phone options that you can run on your Cable Internet connection, they often cost well under twenty five dollars a month or less including any taxes or fees.
If you want to keep your conventional phone service one provider I really recommend is Cleartel. They are not available everywhere but if you are lucky enough to be able to get them you can get great service at a real savings.
I bring up phone service because it is easy to cut costs on but it is only one example. Look at every recurring monthly bill and consider your options. Mortgage refinance is not a fun process but with rates where they are it might put a hundred dollars or more a month into your pocket. What is 100 times the number of months you have left to work in your career? Electric service has been deregulated in many states so see if you have options there. A simple call to a credit card company and the phrase, “can I talk to a supervisor” or “then can you put me in touch with someone that can make a decision” can shave points off a credit card rate.
You get the idea, start at home and examine every expense. Start treating your household like a business, expenses are to be examined, cut and justified. Just because our government hasn’t learned that lesson does not mean you have to live that way.
Filed under Personal & Home | Comment (0)