I don't know why it is that I get this question. The answer seems so obvious to me, but for so many having a savings account and a retirement account and a credit card seems to be enough.
So, if you do not have a safety net, go back and read my last post. If you aren't investing for retirement, then you'll need to keep reading future posts.
Once you have those basic accounts set up with a good rationale and plan, then you can invest. You need to invest. Why? Because it's the only way to get ahead of the game, especially in the long term.
There is no way to get ahead if you spend every paycheck--or worse go further into debt with every paycheck. You need to have an investment plan.
There are many ways to invest. You can invest in real estate. You can invest in mutual funds. You can invest in stocks. One key that I look for is to stay with what I know and don't chase returns. Believe me, I've learned some of this the hard way. Even though I understand investments, I found myself in my younger days chasing the latest and greatest mutual funds or other investments. If you don't understand investments, then you need to sock some money away in a mutual fund that is indexed to the stock market and then sit on it. The past ten years seems to put doubts in people's minds about this strategy, and it may not work in the future. However, if it doesn't, it's also tough to say what will. In other words, predicting the future is impossible. I can't promise you that your mutual fund will be worth more in the future, especially at any given point in the future. I can say with reasonable confidence that it's your best chance.
I also like real estate investing, although I do not do it myself right now. There are many advantages to real estate, especially if you do it right.
My point here is simply to convince you that you need to invest in something that is not a gimmick. It's the one way that you have as a wage earner of beating the paycheck to paycheck trap and having something for the future.
Saturday, December 31, 2011
Thursday, December 29, 2011
You need a safety net!
Everyone needs a safety net. The question is how much? When I've told some people that they should have six to nine months they choke. They just can't imagine it.
So, let's think for a moment about a tightrope walker. Even the most daring and experienced use a safety net. If you are daring and experienced in finance and you are willing to take the risk of losing a home or other assets, then perhaps you don't need a safety net. If you run a really tight ship and don't need much to live on, then perhaps you don't need a large or strong safety net. However, most people don't even think about it. They just know what they make and the spend it (or more). Then when they have a financial crisis or lose a job, they act surprised.
Step 1 in deciding how much of a safety net you want or need is to determine how much risk you have of falling. Do you have a very stable job? Is this the job you plan to have for a long time? If you work in a minimum wage job and plan to be there for a long time and you work for an employer that has almost no chance of failing, then perhaps you only need a month's wages. I'd say that's the absolute minimum.
Step 2 in calculating your safety net is to determine how far you can fall. If you lost your job and had to get a new job immediately, what is the most likely replacement job you could get and how fast could you get it. If your car broke down, how much would you have to spend on a new car or on repairs. What is the gap that you'd need? For example, if you currently make $50,000 per year, but the current market indicates that a new job would only pay $40,000 per year, then you need to calculate that into your safety net. In addition, if you are one of those people who manage to live on far less than you current make, then you can lower your safety net compared to your salary.
Step 3 in calculating your safety net is to determine your fixed expenses. What is your rent, insurance, utility and food payments combined? What do you need to live?
Once you've quantified each item, you are ready to determine your safety net strength and size. Many advisors recommend three to six months of take home salary. Of course, this is a rule of thumb. It's possible that you can get away with one or two months. If you have a stable job, jobs in your field pay about the same no matter where you go and are relatively easy to find, and your expenses are less than your normal take home salary and you are a person who is willing to risk the chance of having to take a major change in your standard of living at a moment's notice, then a month or two may be good enough.
The reason that three to six months is used as a rule of thumb is that most people spend what they make or are in debt. In addition, most people can't find a new job immediately. In the current economy, it's tough to say which jobs are stable. The final element to consider is that "stuff happens."
So, if two months of take home pay is a rough minimum. Then is there a maximum? Why is six months usually listed as the maximum. There are a couple of reasons. First, if you are in a higher than average paying job, then it will likely take longer for you to find something, especially in a down economy as we are experiencing now. I have friends who have been underemployed now for over a year. They are employed, but sometimes at half of what they were making two years ago. In that case, their savings and investments (combined with a reduction in expenses) is making up the difference.
In these cases, it would have been nice if these families had close to a year's worth of take home pay saved. But they are making it. Why wouldn't you want to save a year's worth of take home pay? Well, if you are very conservative you might! That may scare you, but you might want to do that!
One reason not to is that it's unlikely that you'll end up in that extreme of a situation and that saving a year's worth of expenses is really tough. It might take you years to do it. In addition, the safety net account should be in a very conservative investment. It should be in a Money Market mutual fund or at most risky, an intermediate term US Treasury type fund. In other words, it should be a very safe and stable investment. The downside of that is that if you have too much money saved in such an account, it's not going to earn much. It may not keep pace with inflation. Therefore, you don't want to keep more in your safety net account than you need.
In my case, I have a safety net account that includes very safe investments for approximately three months of living expenses. I then have other accounts that I can access easily, but are in somewhat more "risky" investments. It is roughly tiered so that money that I might need, but don't think I will is in a bond fund. Other money that I think is unlikely for me to need as part of a safety net is invested in a relatively conservative stock fund.
Which leads to the next post coming: Why should I invest?
So, let's think for a moment about a tightrope walker. Even the most daring and experienced use a safety net. If you are daring and experienced in finance and you are willing to take the risk of losing a home or other assets, then perhaps you don't need a safety net. If you run a really tight ship and don't need much to live on, then perhaps you don't need a large or strong safety net. However, most people don't even think about it. They just know what they make and the spend it (or more). Then when they have a financial crisis or lose a job, they act surprised.
Step 1 in deciding how much of a safety net you want or need is to determine how much risk you have of falling. Do you have a very stable job? Is this the job you plan to have for a long time? If you work in a minimum wage job and plan to be there for a long time and you work for an employer that has almost no chance of failing, then perhaps you only need a month's wages. I'd say that's the absolute minimum.
Step 2 in calculating your safety net is to determine how far you can fall. If you lost your job and had to get a new job immediately, what is the most likely replacement job you could get and how fast could you get it. If your car broke down, how much would you have to spend on a new car or on repairs. What is the gap that you'd need? For example, if you currently make $50,000 per year, but the current market indicates that a new job would only pay $40,000 per year, then you need to calculate that into your safety net. In addition, if you are one of those people who manage to live on far less than you current make, then you can lower your safety net compared to your salary.
Step 3 in calculating your safety net is to determine your fixed expenses. What is your rent, insurance, utility and food payments combined? What do you need to live?
Once you've quantified each item, you are ready to determine your safety net strength and size. Many advisors recommend three to six months of take home salary. Of course, this is a rule of thumb. It's possible that you can get away with one or two months. If you have a stable job, jobs in your field pay about the same no matter where you go and are relatively easy to find, and your expenses are less than your normal take home salary and you are a person who is willing to risk the chance of having to take a major change in your standard of living at a moment's notice, then a month or two may be good enough.
The reason that three to six months is used as a rule of thumb is that most people spend what they make or are in debt. In addition, most people can't find a new job immediately. In the current economy, it's tough to say which jobs are stable. The final element to consider is that "stuff happens."
So, if two months of take home pay is a rough minimum. Then is there a maximum? Why is six months usually listed as the maximum. There are a couple of reasons. First, if you are in a higher than average paying job, then it will likely take longer for you to find something, especially in a down economy as we are experiencing now. I have friends who have been underemployed now for over a year. They are employed, but sometimes at half of what they were making two years ago. In that case, their savings and investments (combined with a reduction in expenses) is making up the difference.
In these cases, it would have been nice if these families had close to a year's worth of take home pay saved. But they are making it. Why wouldn't you want to save a year's worth of take home pay? Well, if you are very conservative you might! That may scare you, but you might want to do that!
One reason not to is that it's unlikely that you'll end up in that extreme of a situation and that saving a year's worth of expenses is really tough. It might take you years to do it. In addition, the safety net account should be in a very conservative investment. It should be in a Money Market mutual fund or at most risky, an intermediate term US Treasury type fund. In other words, it should be a very safe and stable investment. The downside of that is that if you have too much money saved in such an account, it's not going to earn much. It may not keep pace with inflation. Therefore, you don't want to keep more in your safety net account than you need.
In my case, I have a safety net account that includes very safe investments for approximately three months of living expenses. I then have other accounts that I can access easily, but are in somewhat more "risky" investments. It is roughly tiered so that money that I might need, but don't think I will is in a bond fund. Other money that I think is unlikely for me to need as part of a safety net is invested in a relatively conservative stock fund.
Which leads to the next post coming: Why should I invest?
Wednesday, December 14, 2011
What to plan for?
I imagine that if you do not have a financial plan for your personal economic recovery or if you have a bad plan it's because you don't really know how to plan or what to plan for. There are many reasons this could be your problem. You might not have any background in finance at all. Your parents may have been poor financial managers. You may be confused about the economy and trying to second guess the market. You may be listening to all those get rich schemes or "Take advantage of the market downturn" offers. Whatever the reason, there are some things you ought to be looking at.
Having said that I don't have any definite rules, you should plan your savings and investing before you plan your spending. You may say that your major spending items are fixed, but that's only true today. You can change almost any of your "fixed" expenses in a relatively short period of time. Selling a home in today's market is not easy in most places, but it can be done.
The main reason to invest and save is that 1. you need a safety net especially in the current economic situation, which no matter what anyone says isn't going away soon. 2. the only way for most people to get ahead in life financially is to invest. Investing puts you the closest that you'll get to being a business owner (unless you have your own business).
So, a safety net can be between a month and six month's of your wages. All of that depends on the stability of your current job AND how long it might take for you to find a new job. It depends on what you would be willing to endure if your lost your job. For example, let's say that you have a relatively secure job, but you are spending almost every penny every month. Let's also add that your job field is relatively specific and small so that it would be difficult for you to find a new job. It might take a year. You have to weigh all of the factors to decide on how much safety savings to put aside. I don't think you need to save all of the money before doing any other saving or investing, but you have to make this your priority, especially now. In this case, I would not be comfortable with less than six months savings because even though my job seems secure (and most of us are optimistic), it may not be. Remember this can be six months of saving of your NET pay. Your net pay is the same thing as your take home pay. If you have a relatively stable job and you are in a field in which you know there are regularly jobs available, then your safety net might need only to be a month or two, depending on your willingness to really sacrifice if your job search takes longer than expected.
You should then set a plan for investing. As I said, investing is the only real way for most people to get financially ahead. Saving is great and creates safety. Investing is wealth building. Saving is the foundation of your financial health and saving well eliminates a lot of risk. It's basic. It's not fancy. Investing is where you can be a little more creative and fit your style and your personality. You might like real estate or stocks or mutual funds. It depends on what you know and can get good at. Most people should choose something like mutual funds and not play around. That's not because there aren't other wise investment. It's mostly because it's tough for many people to learn about other investments or have the time to pursue them. Real estate often takes time and effort. At this point, you should simply plan for how much money you want to have and how much money you need to invest. If you are just starting out on investing, then choose a mutual fund (I prefer no-load funds) that is suitable to your plan and stick with it for a while. Don't try to chase the hottest funds. I've learned the hard way on that one.
Short term saving is usually for specific purchases. In other words, it should fit within your spending plan. The reason I mention it first is that if you have items that you are saving for, then you want to plan for those first before you set your daily/monthly spending plan.
A spending plan is often called a budget. The word budget scares a lot of people, so I prefer plan. In the finance profession, we know that a budget is good only for the day that you create it. Unexpected events will happen. You need to have a plan so that you know when an event takes you off of plan, then you need to plan how to deal with it. I also like the word plan because I believe that people who are good with their money don't have to have a budget. Often once you get used to a good routine of spending, a more general plan is more helpful and less tedious. No, you won't know where every dollar is going, but if you develop good spending habits, you will not spend money that you don't need to. Your practice will follow your goals and philosophy somewhat naturally. In the beginning, you may need a very specific budget and accountability system to track everything. It's not enough just to know how much you have. If you just know how much you have, then you will tend to spend what you have rather than work according to your plan.
More on all of this in future blogs.
The last item for today is working on those "fixed" expenses. You may already have dug yourself into a hole. You may have more credit card debt than you should (any credit card debt is more than you should have). You may "own" a house that is more expensive that you should "own." You may have a house that costs you more to keep up than you can really afford. You may have a car payment that does not allow you to save. The only answer is to find a way to make more money or change your "fixed" payments. I want to be a little vague here because you may be in a situation in which it does not make sense to make an immediate change. For example, if you are upside down on your car payments or your home mortgage, then you may not want to immediately sell that car or home. If you rent and your rent is to high, look for a new place beginning now. BTW, I put "own" in quotation marks because if you are paying more than you can afford on your home, then you own it in theory only. The bank owns it. That's why you don't have the deed. You may rationalize to yourself saying something about the home being worth more some day. That may be true, but it is unlikely that the risk that you've taken on is worth the future value of the home. Of course, you'd have to calculate that or have someone compare your options to make sure, but that's generally the case.
Next up: more specifics on a safety net and how to determine how much you need.
- Short term savings
- A safety net
- Long term investments
- Monthly spending
Having said that I don't have any definite rules, you should plan your savings and investing before you plan your spending. You may say that your major spending items are fixed, but that's only true today. You can change almost any of your "fixed" expenses in a relatively short period of time. Selling a home in today's market is not easy in most places, but it can be done.
The main reason to invest and save is that 1. you need a safety net especially in the current economic situation, which no matter what anyone says isn't going away soon. 2. the only way for most people to get ahead in life financially is to invest. Investing puts you the closest that you'll get to being a business owner (unless you have your own business).
So, a safety net can be between a month and six month's of your wages. All of that depends on the stability of your current job AND how long it might take for you to find a new job. It depends on what you would be willing to endure if your lost your job. For example, let's say that you have a relatively secure job, but you are spending almost every penny every month. Let's also add that your job field is relatively specific and small so that it would be difficult for you to find a new job. It might take a year. You have to weigh all of the factors to decide on how much safety savings to put aside. I don't think you need to save all of the money before doing any other saving or investing, but you have to make this your priority, especially now. In this case, I would not be comfortable with less than six months savings because even though my job seems secure (and most of us are optimistic), it may not be. Remember this can be six months of saving of your NET pay. Your net pay is the same thing as your take home pay. If you have a relatively stable job and you are in a field in which you know there are regularly jobs available, then your safety net might need only to be a month or two, depending on your willingness to really sacrifice if your job search takes longer than expected.
You should then set a plan for investing. As I said, investing is the only real way for most people to get financially ahead. Saving is great and creates safety. Investing is wealth building. Saving is the foundation of your financial health and saving well eliminates a lot of risk. It's basic. It's not fancy. Investing is where you can be a little more creative and fit your style and your personality. You might like real estate or stocks or mutual funds. It depends on what you know and can get good at. Most people should choose something like mutual funds and not play around. That's not because there aren't other wise investment. It's mostly because it's tough for many people to learn about other investments or have the time to pursue them. Real estate often takes time and effort. At this point, you should simply plan for how much money you want to have and how much money you need to invest. If you are just starting out on investing, then choose a mutual fund (I prefer no-load funds) that is suitable to your plan and stick with it for a while. Don't try to chase the hottest funds. I've learned the hard way on that one.
Short term saving is usually for specific purchases. In other words, it should fit within your spending plan. The reason I mention it first is that if you have items that you are saving for, then you want to plan for those first before you set your daily/monthly spending plan.
A spending plan is often called a budget. The word budget scares a lot of people, so I prefer plan. In the finance profession, we know that a budget is good only for the day that you create it. Unexpected events will happen. You need to have a plan so that you know when an event takes you off of plan, then you need to plan how to deal with it. I also like the word plan because I believe that people who are good with their money don't have to have a budget. Often once you get used to a good routine of spending, a more general plan is more helpful and less tedious. No, you won't know where every dollar is going, but if you develop good spending habits, you will not spend money that you don't need to. Your practice will follow your goals and philosophy somewhat naturally. In the beginning, you may need a very specific budget and accountability system to track everything. It's not enough just to know how much you have. If you just know how much you have, then you will tend to spend what you have rather than work according to your plan.
More on all of this in future blogs.
The last item for today is working on those "fixed" expenses. You may already have dug yourself into a hole. You may have more credit card debt than you should (any credit card debt is more than you should have). You may "own" a house that is more expensive that you should "own." You may have a house that costs you more to keep up than you can really afford. You may have a car payment that does not allow you to save. The only answer is to find a way to make more money or change your "fixed" payments. I want to be a little vague here because you may be in a situation in which it does not make sense to make an immediate change. For example, if you are upside down on your car payments or your home mortgage, then you may not want to immediately sell that car or home. If you rent and your rent is to high, look for a new place beginning now. BTW, I put "own" in quotation marks because if you are paying more than you can afford on your home, then you own it in theory only. The bank owns it. That's why you don't have the deed. You may rationalize to yourself saying something about the home being worth more some day. That may be true, but it is unlikely that the risk that you've taken on is worth the future value of the home. Of course, you'd have to calculate that or have someone compare your options to make sure, but that's generally the case.
Next up: more specifics on a safety net and how to determine how much you need.
Monday, December 12, 2011
Are you planning to fail?
No one plans to fail, or do they? We've all heard "if you fail to plan, you plan to fail." There is a lot of evidence that those who plan and set goals are more likely to succeed than those who don't. There are really two basic elements of planning. One is to set goals. The other is to develop the strategies to meet those goals.
How do you set goals? Well, for starters, just write down what your financial goals are. Don't try to figure out someone else's goals. Set your own. Once you've set your goals, you need to begin to think about what it will take to get there. If you aren't good at math or you aren't good at financial calculations, then you need to have someone help you. This may cost you something, but it's really important. Because if you can't do it yourself, you can't begin to develop strategies to get to your goals.
Figuring how strategies is the "how to" portion of planning. What are the actions you need to take to meet your goals? These actions must be ones that you will follow up on.
Most people set goals, then they attack the goals without setting out realistic strategies. That's why so many people are so deep in debt. They list what they want, but they never develop a realistic path for getting their responsibly.
People who have lived without debt know that the way to get to goals is to save, invest, or figure out ways to earn more money. Some people that I know have taken on second jobs to take that Hawaii or European vacation. I know one family who as a family took on a Saturday job in order to save for their trip to Europe. In other words, they saved for the trip and didn't just put it all on credit cards. They were able to thoroughly enjoy their trip, knowing that they were not coming home to a pile of credit card debt. They made a goal, then they creatively found a way to get to that goal.
Goals can be specific and short term. They can also be long term. You should have both. The short term goals keep you going and give you milestones of success to meet along the way to your long term goals.
What are some short term goals?
How do you set goals? Well, for starters, just write down what your financial goals are. Don't try to figure out someone else's goals. Set your own. Once you've set your goals, you need to begin to think about what it will take to get there. If you aren't good at math or you aren't good at financial calculations, then you need to have someone help you. This may cost you something, but it's really important. Because if you can't do it yourself, you can't begin to develop strategies to get to your goals.
Figuring how strategies is the "how to" portion of planning. What are the actions you need to take to meet your goals? These actions must be ones that you will follow up on.
Most people set goals, then they attack the goals without setting out realistic strategies. That's why so many people are so deep in debt. They list what they want, but they never develop a realistic path for getting their responsibly.
People who have lived without debt know that the way to get to goals is to save, invest, or figure out ways to earn more money. Some people that I know have taken on second jobs to take that Hawaii or European vacation. I know one family who as a family took on a Saturday job in order to save for their trip to Europe. In other words, they saved for the trip and didn't just put it all on credit cards. They were able to thoroughly enjoy their trip, knowing that they were not coming home to a pile of credit card debt. They made a goal, then they creatively found a way to get to that goal.
Goals can be specific and short term. They can also be long term. You should have both. The short term goals keep you going and give you milestones of success to meet along the way to your long term goals.
What are some short term goals?
- a vacation
- monthly entertainment budget
- Christmas spending
- a new appliance
- retirement savings
- college savings
- a big vacation
- new car
- an addition
Saturday, December 10, 2011
Risk and Reward
You have probably heard that every investment has a risk/reward trade-off. If not, it's true. Now, let's take that further. Every non-investment has a risk/reward trade-off. Every time you decide not to do something or simply do not even consider options or reflect on how you use your money, that carries its own risk.
In fact, you may be in your current situation because you didn't even consider the risks of not planning for or creating your personal economic recovery. You may have simply spent, assuming that you could afford what you were buying. You may have accumulated credit card debt because you didn't think about what the 18% compounded interest would do to you after a few years.
There are risks to every choice. Some will say that purchasing lottery tickets is stupid. That's certainly true if you are not thinking about why or how much you are spending on lottery tickets, but those same people may be wasting money on other things every day. I buy a lottery ticket once in a while for fun. I don't buy a lottery ticket thinking that it's part of my personal economic recover plan. There are also risks to doing nothing with your money or in not planning so that you buy stupid stuff with your money instead of investing it.
Many investment companies will try to help people develop investment strategies based on their risk tolerance level. That's an interesting idea, but the truth is that every person needs to take some risk and some people need to take less risk. A person who is risk averse usually needs to learn to take more risk in handling money, not unnecessary risk, but appropriate risk to meet goals. There is a risk in not taking risks. This is something that few gurus talk about.
I just read a story about a person who was advised by his financial planner not to invest in a small business. The individual defied his financial planner's advice and created a successful business. Starting the business involved more risk than most people would be willing to take on, but with hard work and good implementation it worked.
I also recall a guy who was about 30 years old and wanted to put all of his retirement investments into US Treasuries because the money would "be there" when he retired. The risk is that he won't reach his retirement goals and he would have to invest about twice as much money as he thinks he would.
If I'm over your heads right now, I'll back off and hit some basics of risk and investing.
So, there are different kinds of risk. There is market risk, which is what we usually think about. That's the changes that go on in stock prices across the market. For many mutual fund investors, that is what has the most impact on their investments. That's what most people worry about, and that's not all bad.
There is also inflation risk and interest rate risk. If you keep your investments in US Treasuries right now, you are earning less than the inflation rate. You are not actually investing. You are saving.
Interest rate risk is a little more difficult to understand because it seems to violate intuition. If you invest in bonds, for example, and interest rates go up (as they are likely to do at some point), the value of the bonds will go down. That is because people who want to buy your bonds will want a higher interest rate will want to buy them for less than you paid for them. You will have to sell them at a discount in order for people to buy them. In reality, it's likely that you'll buy into a mutual fund bond fund that will sell the bonds for you, but you will be impacted by the changes in interest rate.
There is also a risk from lack of planning. This is not a formal risk, but if you do not plan for your personal economic recovery, then you risk not hitting your goals. You need to plan and stick to that plan. A friend of mine often reminds me that "hope is not a strategy." You need to plan your investing and ensure that you stick to that plan. Just like my lottery ticket purchase, your purchase of a new washer and dryer could be stupid, if it's not in your plan. Of course, if you don't have a plan, then you don't know if it's stupid or not. That's a risk to avoid.
In fact, you may be in your current situation because you didn't even consider the risks of not planning for or creating your personal economic recovery. You may have simply spent, assuming that you could afford what you were buying. You may have accumulated credit card debt because you didn't think about what the 18% compounded interest would do to you after a few years.
There are risks to every choice. Some will say that purchasing lottery tickets is stupid. That's certainly true if you are not thinking about why or how much you are spending on lottery tickets, but those same people may be wasting money on other things every day. I buy a lottery ticket once in a while for fun. I don't buy a lottery ticket thinking that it's part of my personal economic recover plan. There are also risks to doing nothing with your money or in not planning so that you buy stupid stuff with your money instead of investing it.
Many investment companies will try to help people develop investment strategies based on their risk tolerance level. That's an interesting idea, but the truth is that every person needs to take some risk and some people need to take less risk. A person who is risk averse usually needs to learn to take more risk in handling money, not unnecessary risk, but appropriate risk to meet goals. There is a risk in not taking risks. This is something that few gurus talk about.
I just read a story about a person who was advised by his financial planner not to invest in a small business. The individual defied his financial planner's advice and created a successful business. Starting the business involved more risk than most people would be willing to take on, but with hard work and good implementation it worked.
I also recall a guy who was about 30 years old and wanted to put all of his retirement investments into US Treasuries because the money would "be there" when he retired. The risk is that he won't reach his retirement goals and he would have to invest about twice as much money as he thinks he would.
If I'm over your heads right now, I'll back off and hit some basics of risk and investing.
So, there are different kinds of risk. There is market risk, which is what we usually think about. That's the changes that go on in stock prices across the market. For many mutual fund investors, that is what has the most impact on their investments. That's what most people worry about, and that's not all bad.
There is also inflation risk and interest rate risk. If you keep your investments in US Treasuries right now, you are earning less than the inflation rate. You are not actually investing. You are saving.
Interest rate risk is a little more difficult to understand because it seems to violate intuition. If you invest in bonds, for example, and interest rates go up (as they are likely to do at some point), the value of the bonds will go down. That is because people who want to buy your bonds will want a higher interest rate will want to buy them for less than you paid for them. You will have to sell them at a discount in order for people to buy them. In reality, it's likely that you'll buy into a mutual fund bond fund that will sell the bonds for you, but you will be impacted by the changes in interest rate.
There is also a risk from lack of planning. This is not a formal risk, but if you do not plan for your personal economic recovery, then you risk not hitting your goals. You need to plan and stick to that plan. A friend of mine often reminds me that "hope is not a strategy." You need to plan your investing and ensure that you stick to that plan. Just like my lottery ticket purchase, your purchase of a new washer and dryer could be stupid, if it's not in your plan. Of course, if you don't have a plan, then you don't know if it's stupid or not. That's a risk to avoid.
Thursday, December 8, 2011
Why you should listen to me!
I'm not sure what most financial writers have as credentials, but you might want to know mine. I write as an accountant that has a lifelong desire to be financially responsible and help others, both personal and businesses, to be so too. So, I am an MBA as well as a certified management accountant. I also write as an ethicist. I hold degrees in theology and religion. My Ph.D. is in Religion-Social Ethics from the University of Southern California. (our department had nothing to do with the ethics of the football program).
In addition, I have about forty years of managing my own money and watching others manage theirs. I also have read many popular books on personal finance, economics, and wealth-building.
Unfortunately, I do not have a rags to riches to riches story like some people. I do have an interesting story (or I think it is interesting). I grew up in what I considered a normal average home.
I am the son of parents who grew up in less than ideal conditions. My mom's family had a farm in Nebraska in the late 20s and early 30s. It went about the way most farms went during that time period. My mom's family experience wasn't quite a John Steinbeck experience, but it wasn't good. My dad is German and grew up in Germany until my grandfather brought the family over to the US in the late 40s. He tells some interesting stories about the things that they didn't have and what things were like during the war. One thing I did not grow up with is the idea that the world owed me anything. My dad was an engineer with a couple of different aerospace companies. He had a good job. Mom didn't really have to work, except for in the early 70s when dad lost his job during the aerospace downturn. That was a little scary. I was 12.
So, I learned very young that spending money is not what life was about. I grew up thinking that we were poorer than most of our neighbors, but now I know that wasn't true. It was true that my parents and many of their friends with similar experiences learned that you have to save for the bad times and invest for the future. I realize now that much of what I learned about personal finance was by the modeling that my parents did and still do. My parents' financial success is due to wise spending and investing rather than ever having a large income.
My experience has been similar. I got married young with very little money saved. My wife was in a private university finishing her senior year of college. I had an entry level job having had just finished college. A few years later I took off for full time grad school. We never had "good" jobs--or at least high paying jobs. The funny thing is that we've almost always managed to have more wealth than our friends. Even today after so many years out of the work force and so many years of being a single income family, we still find that we have far more wealth than the national averages for people with our level of income.
We aren't rich by most people's standards, but we have more than enough. We do most of what we want to do and we have money set aside for emergencies and all of that other good stuff. My point is that despite never really having pursued wealth, we did pursue certain goals. By achieving most of those goals, we've been able to do OK and not be in debt. I've used both my academic knowledge of budgeting and investing along with our ethical standards to develop a philosophy of money for our family. I can help you do that too. I can help you develop a system that works for you.
This blog will give a lot of general advice, but in reality you need a plan for you. I can help you with that too.
I am the son of parents who grew up in less than ideal conditions. My mom's family had a farm in Nebraska in the late 20s and early 30s. It went about the way most farms went during that time period. My mom's family experience wasn't quite a John Steinbeck experience, but it wasn't good. My dad is German and grew up in Germany until my grandfather brought the family over to the US in the late 40s. He tells some interesting stories about the things that they didn't have and what things were like during the war. One thing I did not grow up with is the idea that the world owed me anything. My dad was an engineer with a couple of different aerospace companies. He had a good job. Mom didn't really have to work, except for in the early 70s when dad lost his job during the aerospace downturn. That was a little scary. I was 12.
So, I learned very young that spending money is not what life was about. I grew up thinking that we were poorer than most of our neighbors, but now I know that wasn't true. It was true that my parents and many of their friends with similar experiences learned that you have to save for the bad times and invest for the future. I realize now that much of what I learned about personal finance was by the modeling that my parents did and still do. My parents' financial success is due to wise spending and investing rather than ever having a large income.
My experience has been similar. I got married young with very little money saved. My wife was in a private university finishing her senior year of college. I had an entry level job having had just finished college. A few years later I took off for full time grad school. We never had "good" jobs--or at least high paying jobs. The funny thing is that we've almost always managed to have more wealth than our friends. Even today after so many years out of the work force and so many years of being a single income family, we still find that we have far more wealth than the national averages for people with our level of income.
We aren't rich by most people's standards, but we have more than enough. We do most of what we want to do and we have money set aside for emergencies and all of that other good stuff. My point is that despite never really having pursued wealth, we did pursue certain goals. By achieving most of those goals, we've been able to do OK and not be in debt. I've used both my academic knowledge of budgeting and investing along with our ethical standards to develop a philosophy of money for our family. I can help you do that too. I can help you develop a system that works for you.
This blog will give a lot of general advice, but in reality you need a plan for you. I can help you with that too.
Tuesday, December 6, 2011
Your Personal Economic Recovery
Everyone is waiting for the economy to recover. The economy is the biggest issue on people's minds and still the biggest voting issue in the United States. People are out of jobs, out of homes, out of money, out of hope, and out of patience, but not out of debt. People are getting angry. Some have even joined the Occupy movement, occupying Wall Street and just about any place that can be occupied. About the only thing that people don't seem to want to occupy is their own mind and soul.
It seems to be human nature that we want to blame others for our problems.
Just about every little kid when faced with an accusation blames a sibling. Oh, those unfortunate only children who can only blame the pets or their imaginary friends. I've always felt sorry for them. Why don't we want to take responsibility for our own actions? I don't know. Go ask a psychologist. I'm not concerned about why. I'm concerned about the fact that it happens.
If you are still reading, you probably are wondering when I'm going to get to the point. Well, here it is. I'm writing yet another blog about how you can take control of your own economic situation regardless of the national economy. I hope you don't think that means that I don't care about the national economy. I care a lot. I just don't want to write about it. Most of us don't really know enough about what makes the economy tick to really know the solutions anyway. Even if we did, we really don't have the power to do anything about it. So, why would I think that I have anything to say about this that someone else hasn't said? That is a great question.
I'm writing because: I love this subject and I don't know of any popular writer that I completely agree with. I have (for about forty years) managed to stay out of debt in every situation. People need to hear this message now more than ever. So, what do I think about the current economic situation in the US and your part in working on your personal economic recovery? Hmmm. First, I think that this is not a national crisis. Compare the U.S. Economy with most economies of the world, and it's clear that labeling our situation a crisis is like an obsessive compulsive person being afraid of a single dirty footprint on a carpet in a 10,000 square foot home. looking over the unemployment numbers on the CIA website, there is no reason to think that the U.S. Numbers are a crisis. If you look at some of the lower numbers, you can find Norway right along with Cambodia. The U.S. Is exactly the same as the European Union. I think People in developed countries, and especially the US are spoiled. I know that we hate to hear that, but having traveled in other countries, I am absolutely convinced that people in the US do not have a sense of how good they have it. according to a UN report of Human Development Index the US is tied for number 3 in the world. So, my message is that readers should stop whining. We have it pretty damn good. Sure, you may be one of the 9% without a job, I'll get to that. The fact is that the US is in nothing like a crisis.
Second, I think that even if this were a crisis, you need to take responsibility for what you can do rather than what you can't do. Plenty of people are now and have, even in good times, worked jobs that are "below" them in order to make ends meet. People have taken on multiple jobs in difficult times. There are jobs out there. I think you need to do something about it.
Third, this is a great time to reorient your plan for spending, saving and investing. Most Americans don't have a plan, and that's a big part of the problem. They buy what they want first, then they try to figure out how to save with what is left over. The problem is that usually once they've spent what they want to spend, there isn't anything left. In fact, it's highly likely that you are one of the people who have no savings or at least if you have some savings, you also have credit card debt that exceeds your savings. I have one thing to say, "Stop it." That's right "Just stop it." You can do it.
So, what's in store? I'll tell you stories about my experience managing my own financial situation without debt as well as relate stories of those I've worked with. I'll also provide ideas for improving all areas of your financial life. So, please keep reading. You can take control of your personal economic recovery.
Just about every little kid when faced with an accusation blames a sibling. Oh, those unfortunate only children who can only blame the pets or their imaginary friends. I've always felt sorry for them. Why don't we want to take responsibility for our own actions? I don't know. Go ask a psychologist. I'm not concerned about why. I'm concerned about the fact that it happens.
If you are still reading, you probably are wondering when I'm going to get to the point. Well, here it is. I'm writing yet another blog about how you can take control of your own economic situation regardless of the national economy. I hope you don't think that means that I don't care about the national economy. I care a lot. I just don't want to write about it. Most of us don't really know enough about what makes the economy tick to really know the solutions anyway. Even if we did, we really don't have the power to do anything about it. So, why would I think that I have anything to say about this that someone else hasn't said? That is a great question.
I'm writing because: I love this subject and I don't know of any popular writer that I completely agree with. I have (for about forty years) managed to stay out of debt in every situation. People need to hear this message now more than ever. So, what do I think about the current economic situation in the US and your part in working on your personal economic recovery? Hmmm. First, I think that this is not a national crisis. Compare the U.S. Economy with most economies of the world, and it's clear that labeling our situation a crisis is like an obsessive compulsive person being afraid of a single dirty footprint on a carpet in a 10,000 square foot home. looking over the unemployment numbers on the CIA website, there is no reason to think that the U.S. Numbers are a crisis. If you look at some of the lower numbers, you can find Norway right along with Cambodia. The U.S. Is exactly the same as the European Union. I think People in developed countries, and especially the US are spoiled. I know that we hate to hear that, but having traveled in other countries, I am absolutely convinced that people in the US do not have a sense of how good they have it. according to a UN report of Human Development Index the US is tied for number 3 in the world. So, my message is that readers should stop whining. We have it pretty damn good. Sure, you may be one of the 9% without a job, I'll get to that. The fact is that the US is in nothing like a crisis.
Second, I think that even if this were a crisis, you need to take responsibility for what you can do rather than what you can't do. Plenty of people are now and have, even in good times, worked jobs that are "below" them in order to make ends meet. People have taken on multiple jobs in difficult times. There are jobs out there. I think you need to do something about it.
Third, this is a great time to reorient your plan for spending, saving and investing. Most Americans don't have a plan, and that's a big part of the problem. They buy what they want first, then they try to figure out how to save with what is left over. The problem is that usually once they've spent what they want to spend, there isn't anything left. In fact, it's highly likely that you are one of the people who have no savings or at least if you have some savings, you also have credit card debt that exceeds your savings. I have one thing to say, "Stop it." That's right "Just stop it." You can do it.
So, what's in store? I'll tell you stories about my experience managing my own financial situation without debt as well as relate stories of those I've worked with. I'll also provide ideas for improving all areas of your financial life. So, please keep reading. You can take control of your personal economic recovery.
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