Deeper Dive in The Rule of 72 Part I

Previously I went over briefly the Rule of 72. After going the rule over with a few people in the last couple of weeks it seems the power of the tool is lost until it is applied in a personal finance context. The math behind the rule is simple. The number of 72 is divided by the interest rate of an investment equals the time in years the money will double.

 

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Top 10 Cutest Kittens on Youtube

The Top 10 Cutest Kittens on Youtube is a video that last 9 minutes and 23 seconds. Although many people enjoy these videos I think there are other ways to spend 9 minutes ans 23 seconds.  In the same amount of time I’m going to brainstorm, write this blog and suggest 10 things you can do instead of watch cute kitten videos.

The most amazing thing is the number of viewers that watch this. I wonder if all those people who watched the whole video actually thought of anything else they could be doing. (Just over seven million!)

 

Ten Things (that can be done in the same amount of time)

  1. Drink a couple of glasses of water ; the body is made mostly of water and more water is good for you.
  2. Start a retirement plan
  3. Plant some seeds of some plant; more oxygen in the world can’t be bad.
  4. Go for a short walk; it is healthy and it clears your mind
  5. Call someone you haven’t talked to in a while just to say hi.
  6. Do a quick check of your bills (this helps keep you from getting late fees; you can even set up a calendar reminder to do it monthly)
  7. Read a chapter of a book you’ve been wanting to read
  8. Take a power nap – sometimes a quick charge of your batteries keeps you going
  9. Change your light bulbs to LED (see the impact – bottom of the post)
  10. Write a blog post about things you could do in 9 minutes and 23 seconds (or even better create your own list!)

Have a nice day and do something in 9:23….

Work Longer Hours And Get Less Pay – Pathway To Indentured Servitude

Can you work longer hours for the same money? Would you like to give yourself a pay cut? Can you sign up to become an indentured servant? Would you like to be an investor in inferior products? All these things can be done but, it takes planning and goal setting.  This post is not for everyone, not everyone has what it takes to be perpetually poor. If this is your goal keep reading….

IndenturedServant

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After The Storm

I was driving to work today and it was after a storm last night. The one thing I noticed was the sky looked beautiful and the vegetation looked greener. This got me thinking that this is a lot like people’s finances.

AfterTheStorm

When a storm hits there are usually signs something is going to happen. The sky gets dark, the leaves of the trees turn up, the wind picks up, etc. Often we see signs in our financial life. It may be a buyout of a company you are working for, a car that is ready to break down, a pending divorce, a child going to college, etc. Noticing the signs helps set up the appropriate action needed.

The morning after a storm may have done some damage but, it is nature’s way to restart and reset. When a financial setback happens this also gives an opportunity to restart and reset our finances. Planning and taking action before a storm hits is key to how good the restart and reset is.

If you have shudders on your house (the ones that work and not for show) and batten down your house before a storm the better off your house will be. Likewise when you see a financial storm brewing make sure you have the financial shudders that work. One example would be to have a paid off older car rather than a newer with payment car. If you lose income or have increased expenses you are more able to take the hit and move forward with less money going out. Also a paid for car can’t be repossessed, so you’ve eliminated that risk.

In the aftermath of a storm there are opportunities that pop up that you may not have had before the storm. A tree that gets knocked down may provide the space in the yard for a garden. If the tree falls on the house; the insurance money may give you the ability to improve your house. A job loss may provide the time to look for a job better than the one lost, one that may have not been found had you been at work.

Storms are going to happen, it is just a fact of life. Be prepared and move forward after the storm with new momentum.

Beating the Amortization Schedule

Buying a house is exciting. Most people get mortgage to purchase a house. For most people buying a house is the most expensive purchase in their lives. Most people don’t understand what amortization is. This begs to ask the question “If the biggest factor of the biggest expense is not understood, how can you reduce that expense?”

If you play a board game you need to know the rules to be able to play and you need to know what is required to win before you can develop a strategy. When purchasing a home via financing wouldn’t it be in the in your best interest to understand the rules and apply it towards your goal.

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The Power Of Choice

Lately it seems to me there is a flood of people who I bump into who don’t realize the relation of their choices to the results of those choices. They ignore the basic concept for every action there is a reaction. You hit one domino and the rest fall as well.

I have a goal to have my money work for me rather than me working for money. The goal is a relatively simple math problem have your money create enough money to cover expenses.

The concept is simple but, getting the goal accomplished takes some preparation, perspiration, and inspiration . The reason I bring up my goal is it reflects back onto the decisions I make today.

One of the most basic financial choices I make everyday is whether or not I purchase something. Based upon that choice I am building up or taking away from momentum to or from my goal.

When I purchase something I always bounce through the following list in my mind:

  1. Is this something I need? or can I do without?
  2. Can the item purchase be delayed for a later time?
  3. Do I have the ability to buy cash (not via credit, incurring debt)

This list helps me keep my direction and focused when making purchases. I challenge the reader to make your own list based upon your own goals. This will help you guide your choices towards what you want to accomplish.

What are the dominoes that can fall if you buy a car without having the cash to buy it?

  • You have to finance the car purchase price which also includes the tax and related fees–>
    • The ability to be up-sold on more expensive features is easier–>
      • The amount of hours you have to work is increased due to the increased cost–>
        • The amount of free time is decreased due to having to work more to pay for the increased price
  • The risk of having a car with payments–>
    • Ability to sell the car is decreased; you don’t own the title
    • If you lose your job the ability to make car payments has decreased–>
      • The chances of a car getting repossessed is increased
  • The opportunity to save future earnings has decreased–>
    • The ability to invest in the future has decreased–>
      • The cash needed to take part in future deals has decreased

This is just an example of one decision and you can see all the ripples that can happen. Everyone has made some decisions they could of made better if they just asked themselves what are the most likely outcomes of these decisions.

When you have the next decision to make ask yourself some things to help you get to the best outcome.

  • Does this help me accomplish my long term goals?
  • What are the risks? (How can I minimize those risks?)

Write down on paper what dominoes could fall if you make your decision one way then the alternative way. Find the path that makes the most sense.

Apply this to some of your financial challenges. See how you move closer to your goals rather then being a part a financial goal that someone else planned.

 

 

 

How to Start a Retirement When Your Job Doesn’t Offer One

Many people make up the excuse my job doesn’t offer a retirement plan so I can’t save for retirement. I want to show you it doesn’t take much effort to get started. This way you are facing your finances in the right direction.

vanguard1Vanguard IRA Start Page

The best way to start a retirement is as soon as possible. Compound interest works better with more time. In the United States you can save for retirement with some tax benefit. There are two major retirement categories available here; 401k and IRA. A 401k is a retirement plan an employer sets up with their employees. Some jobs do not have this option so an IRA (Individual Retirement Account) can be established to have some of the same benefits as the 401k.

There are two categories of IRAs: Traditional and Roth. A traditional is tax deferred until retirement. A Roth is paid for with post tax money and is tax free at retirement. If you have a low income it may be best to pay with post tax dollars in a Roth structure if you predict your income being more at retirement age. (a college student or early career person might be ideal.) Whichever one it is more important to start than to worry about being in the wrong type account.

There are some prerequisites towards starting IRA. :

  1. An Income (a W-2 form is useful)
  2. Citizenship or Legal Residence (a Social Security number is needed)
  3. Income levels – Check with IRS guidelines ; (2017 – Single $117,000- $132,000, Married Joint $184,000-$194,000)

Step By Step:

  1. Collect general info needed:
    1. Social Security Number
    2. Savings or Checking Account
    3. Routing Number of above account
  2. Find a IRA provider
    1. Check Consumer Reports Broker Ranking
    2. Look in the top 10-20% brokertop30per
    3. Avoid the bottom 20%brokerbottom30per
  3. Fill out the forms
    1. Log on to the provider’s web page and fill out the form
    2. If you are a resident non-citizen you may be required to fill out, sign forms, and mail them in

This was a quick guide… Just to get the procrastinators started…