Be Great Today!

How long do you take to make a purchase decision about a new computer, car, or even a pair of shoes?  Most people that I know spend a great deal of time researching and analyzing when it comes to deciding on the larger purchases we make.  When it comes to computers or a new car, people may take months or a year to read consumer reports and blogs or talk to neighbors, friends, associates, even strangers before they invest their hard earned dollars.

On the contrary, when it comes to investing our money in order to preserve and grow wealth, how many of us make those decisions relatively quickly, and based on emotion?  I’ve been guilty in the past of purchasing tens of thousands of dollars in stocks based on reading a couple articles in Smart Money or some other financial publication, or based on a tip from a friend or family member.

I’ve talked to all too many people who have done the same or listened to stock brokers five minute or an hour long pitch before handing over a large percentage of their net worth.  In light of the Bernie Madoff $50 billion panzi scheme, we all have been given another reminder to take our time and do the necessary research before turning our hard earned money over to any one person.

I personally handle my finances myself and use Vanguard.  They have the lowest fees in the industry on their mutual funds and have been in the business from the beginning of mutual funds.  There is nothing to be ashamed about putting your money into a bank CD or savings account either.  The S&P 500 dropped 35% in 2008.  If you had your money in a bank CD during that same period of time, you would have made around 4%.  Who was the smarter investor? 

Since no one can predict the future and time the market, having a balance portfolio that matches your tolerance to risk is always the preferred and best approach.  Most importantly, each of us needs to realize that we need to make financial decisions based on what allows us to sleep at night.  If that is the final litmus test, rather it be for investing or spending your money, everything will work out fine!

Have a Great Day!

The key to creating a personal budget that works is quite simple, so let’s jump into it.  You have to know 3 things:

1. How much you make, your income

2. A monthly list of your fixed costs

3. A monthly list of variable costs

First, let’s cover the income piece of the equation.  Everyone’s situation is going to be a little different, so we’ll use as realistic numbers as possible.  Say you make $40,000 per year.  Your income after paying taxes will actually be $33,582 (taxes on $40,000 as of 2008 will be $6,418).  That will make your monthly take home $2,798.50 ($33,582 /12).

Now it is time to build your fixed expenses section.  This section should be about 60% of your total take home.  This can vary greatly and is where you can either make or break a budget.  You have living (rent/mortgage) expenses, auto (beater with a heater, sleek sports car, or something in between), food, utilities (including cell phone, electric, water, heat, gas, etc…).  The most important piece of your fixed expenses should be to pay yourself first (personal savings).  You should pay yourself, or save at least 10% of your monthly income, upfront.  This will be your financial foundation and can be used to build your emergency fund (at least 3-6 months expenses).  After the emergency fund is in place take that 10% and put it into your companies 401K or IRA.  When you are not living paycheck to paycheck, that is a very empowering feeling.

Finally, you have your variables expenses.  These expenses include entertainment, clothes (it’s important to look good, but it doesn’t have to be top of the line designer labels), travel, etc.

You may notice certain expenses missing, simply add or subtract whatever is unique to your situation.  For example, most people may have loans and/or credit card debt.  Get your credit card debt paid off first, then put the balance towards savings.

Here is what a sample budget looks like:

Monthly Income =      $2,798.50

Personal Savings =      $  280.00

Rent =                         $  600.00

Car =                           $ 500.00 (includes car payment, gas, insurance)

Food =                        $ 150.00

Utilities =                     $ 150.00

Entertainment =          $  150.00

Clothing =                   $ 150.00

Student Loans =         $  150.00

Total Costs =             $2,130.00

Total Mo. Savings = $ 668.50   

It’s not what you make that’s important, it’s what you save! – Budget well, Live Well!

My 7 year old daughter, Megan, made this brilliant statement this spring as the answer to her fears of doing a reverse summersault on the bar in gym class.  My brilliant little girl instinctually figured out all by herself what most people never realize their entire life.  Megan does wear Nike’s, but I know that she isn’t aware of Nike’s “Just Do It” ad campaign that has been popularized since before she was born. 

Why don’t we all “Just Do It” when it comes to something we are unsure of.  The obvious answer is… FEAR.

If we would just spend the time required to learn whatever we need to learn in order to get whatever we want to get, we could then just go after IT (whatever “IT” is for you) without FEAR.  The end result… we would all be happier, healthier, and have more peace of mind and success.

So, I for one, am going to take Megan’s sage advice and keep on “Just Doing It!”

Peace!

You may be thinking either option isn’t really attractive. 

Let me explain…  I have a friend who was meeting with an investment advisor.  The investment advisor was trying to sell my friend a very expensive insurance product that was way over priced and unnecessary.

My friend was ready to purchase just because he didn’t want to look dumb in front of this fancy investment dude.  When we talked about it later in the week, my friend was explaining to me what he was about to do.  I asked him why?  His only response was that it was what the investment advisor had recommended.  My friend didn’t have any other qualifying information or reason as to why he was going to buy this insurance product.

Having recently purchased an insurance policy myself, I knew what my friend was talking about.  I was the person who asked the “what felt like dumb” questions to my investment person.  After probing for 20 minutes or so, I had a better understanding of what the options were, what were the most economical, and what the fees were for each option.

You see, I looked dumb in asking the questions, (and if I didn’t look dumb, I definitely felt dumb) but I ended up getting a superior product at a much lower cost.  My friend almost wrote the check for the much more expensive option that provided much less coverage.  After we talked, he went in another, more appropriate direction for his needs.

So I’ll finish where I began, “Would you rather look dumb or be dumb?”  I know which one I pick every time!

 Don’t be afraid to ask and… Question, Question, Question!

The headlines today are filled with such uplifting and inspiring news.  Words like recession, layoffs, rising unemployment…  The media loves negative headlines.  That is the very reason that I focus a very small amount of my attention on the local, national, and international news. 

Don’t get me wrong.  I keep up to speed on what is going on in the world and am aware of the issues, but the media is quick to draw a negative conclusion to any situation; therefore I view the news headlines only to be aware, not to be given the answers. 

You and I should think for ourselves what news means to us individually because everyones situation is unique and different.  You need to write your own story.  Don’t be a byline in someone else’s story.

Before we get to today’s rule, let’s qualify the negative news about the economy. Yes, unemployment is rising.  For March it was 5.1%, according to government statistics. However, unemployment for college educated people is in the 2% range. Employment in the education and healthcare sectors actually is on the rise, up 3.5%. So, the economy is not as bad as the doom and gloom media would like you to believe.

Finally, the 1 Rule to obtain and thrive as a financially strong individual, (drum roll please)…

“Make more money than you spend!”

Sound simple?  Well, it is! Where it gets hard is when you start making more money and the seductive ads for the latest iPhone, flat screen TV, hot car, latest clothes, etc. start filling your brain with the thoughts… “buy it, I need this, I deserve this…” As long as you’re making more than you spend, you’ll be ok.

Now for the bonus… if you really want to thrive financially, save a minimum of 10% pre-tax of what you earn, and build up a six month to one-year reserve. Then you will become more recession proof, and more importantly, more free!!

Have a great day!