Posts Tagged ‘wealth’

After several conversations with my siblings, I decided to write this post to give them the sum total of all my financial advice I’ve learned as an under-thirty year-old. So this is for you guys, and whoever else feels like they could get a better grip on their money, and live to accomplish their dreams on their own terms.

Bank accounts: Some of the best advice I ever got was from my two older cousins Tim and Kevin. They said I should always have at least $5,000 in the bank. This was a hard feat for a fifteen year old, but once it was in the bank, I vowed never to dip below that mark. So far, I have succeeded. Everyone says that you should have between 3 months and 6 months living expenses saved up for an emergency. So if you lost your job tomorrow, you could survive in your current lifestyle for half a year. I say, why stop at six months? At one point, we had 19 months livings expenses saved, so when my wife took 15 months off to care for our first son, we were living on my smaller, non masters-degree-having job. A few months after that, I got cut to part time. So we went from two full-time incomes to one part-time income. That chunk of savings saved our lives, and our house. We were able to keep up with all payments, only because of our emergency fund. You need one, so start saving today.

It almost goes without saying, but I may as well spell it out. You need a checking account. And, you need a savings account. These cannot be the same account. After putting up with ridiculous fees from M&T, I switched to HSBC and have been pretty happy with them. The main reason I switched was because I was looking for a better savings rate. I checked on Bankrate.com and saw that HSBC offered an online savings account with 5.05% APR. This was a heck of a lot better than the 0.25% rate M&T was giving me. When I switched, (which takes a bit of work, verifying micro transactions, etc.) my monthly interest payment jumped from $1.25 to $52.25. Pretty awesome. I made $500 in interest the first year.

If you have any kind of regular employment, get direct deposit. Figure out generally what you think you’ll need each pay period, and have that amount put into your checking account. Anything left over goes into the saving account, automatically. For example, I had $400 go into checking and whatever was left, say $150 go into savings. You must think of Savings as being untouchable. If you want to save for a specific trip, a new car, etc. set up a third saving account and put $25 or $50 into that each paycheck, but your main savings should remain untouched. Not that it can’t be used. Just not regularly. We used a third account as a wedding fund for the year before we were married and it worked quite well. I also paid off my car using my savings to pay $2,000 chunks down when I could, while keeping up with the regular payments.

Retirement: Even though you’re 21, 25… you need to start thinking about this now. Time affects the amount you end up with much more than how much you put in. This is the beauty of compound interest. A 25 year-old putting in $5,000 a year for 10 years would end up with close to a million dollars, whereas a 55 year-old putting in the same amount over the same time frame would only have just under $80,000!

If you can manage it, contribute money to your employer’s plan as soon as they let you. Most employers will have a matching contribution, but the really good ones will contribute based on a percentage of your salary, even if you put in nothing. After a period of time, typically 3-5 years, you become vested and get to keep all the money that they put in too. An optimum goal for contributions should be 10% of your  salary. It took me several years to build up to this level, so don’t push it if you can’t afford it now. The best part is, my employer matched 7.5% so I was really putting in 17.5%!

The thing about the stock market is…you have to be in it for the long haul. Even if the market is tanking, keep contributing. This is when you can buy up lots of stocks for cheap, so when the market finally rebounds (even if it takes several decades) you’re in the position to make some serious chop. Just think, long term. Not day trading, or even decade trading. If you start when you’re young, the market will surly have grown over four decades, and you can retire wealthy.

Loans or mortgages: First, don’t get one if you can help it. Shakespeare said, “Neither a borrower nor a lender be.”  The Bible says that the borrower is a slave to the lender. But if you really must get a loan, which most people will end up doing at least a few times in their lives (car, school, house), be smart about it. If you have a good credit score (from paying bills on time, etc.) you can qualify for a good (low) interest rate. Make sure you get one that has no pre-payment penalty on it. That way, you can pay extra principal on it if you want to, with no worries.

Once you reach 21% equity in your house, you can drop the PMI (private mortgage insurance) that you have been paying every month. This will get you an extra (for us) $35 a month that you can add to your Principal payment.

Always pay the minimum payments on all of your loans. Then, pay as much as you can afford on the one with the smallest amount in it. For example: you have three loans, $2000 ($50 payment), $8,000 ($150 payment), and $35,000 ($400 payment). Pay the $2000 loan off first. Then, when you are finished with that one, add the $50 to your next smallest loan so that you can put down $200 towards the $8,000 loan. When that’s done, you can add the $200 to the $400 for a $600 payment. If you do it this way, you will see progress much sooner than if you just focus on the loan with the highest interest rate. Dave Ramsey calls this the Snowball method because it grows as it gathers momentum. Using rough estimates, I figure we can pay off our $64,000 of debt in 6 years. This is not including chunks that we plan to slap down from our previously mentioned savings account.

Credit Cards: No. That’s it. No. They are off limits. If there’s an emergency and you need cash…well that’s what your six month emergency savings account is for.

Insurance: A higher deductible will mean lower monthly fees.

For homeowners/ renters insurance, walk around and take picture of all your most expensive things. Also keep a list with all their serial numbers and purchase price. This will help if there’s ever a burglary of fire.

Taxes: Use free software to do your taxes yourself. A local news channel did an experiment and found that people who paid a tax professional $90 got the same refund when they spent a couple hours online doing it themselves for free. (One person got an extra dollar, but they spent ninety to get it). Speaking of refunds, you should try not to get one. Adjust your exemptions on your W-4 form at your job so that you break even at the end of the year. This way, you get to use more of your own money throughout the year and don’t give the government an interest-free loan with your money.

Life: Simply put: live below your means. If the most you can afford is a $300,000 house, do NOT buy a $300,000 house. buy a $50,000 house. Otherwise, if something goes wrong (like a job layoff), you are already at your threshold and can’t afford the payments. Hello foreclosure.

If you can deal with only having one car to share between two people, do it. If you can live without internet at home because you get it free from your job or school, do it. Get movies from the library for free, don’t rent them at $5 a pop. If you live close to where you work, ride a bike instead of drive. That way you save on gas money and get in shape too. (No gym fees either.) If you have a yard, grow your own food. This is rewarding on many levels, one of which is that your grocery bill goes down. Just try to really distinguish between needs, and wants.

Recommended reading:

“The Total Money Makeover” by Dave Ramsey  Great book. Takes you through seven “baby steps” to become debt free and ultimately wealthy. The author has a no nonsense style and admits that the plan is easy but the execution is hard. I will be following this plan for the next six years at least, maybe my whole life. READ IT.

“The Automatic Millionaire” by David Bach is all about setting up your accounts and things so that you accumulate wealth…automatically! Basically set up a 401k early and contribute at least 10 % of your income for as long as you can. Second, buy a house, don’t rent. You will never get rich renting. Also don’t use credit cards. That’s about it.

“The Millionaire Nextdoor” This book goes through how real millionaires live. No, not rap stars and movie stars, real people. The roofer who owns his own business. They wear $30 Timex watches, not $500 Rolex. etc. Interesting book.

“Good debt, Bad debt” by Jon Hanson. Very good book about money management. He wrote it when he was on his death-bed. Basically, don’t go into debt unless it will pay off for you later. Ex. Debt for a school loan which will allow you to get an $80,000 a year job. Good debt. Country club membership and a brand new Mercedes AMG. Bad debt.

Some other posts I’ve written about money:

Living-below-the-poverty-line

Inspired-to-build-wealth

I may be getting a job. Since I left me last job in August, I have been watching my son two days a week and working on the house the rest of the time. Also lazing about a bit. Since my wife had 15 months off while I worked, I don’t feel bad about this.

I had planned on looking for a job after I  finish my degree at OCC in December, but after talking with a friend, I submitted my resume to the place he works. I went in for an impromptu interview last week and got a job offer today. Unfortunately, I have to watch my son these nest two days, so I was unable to act immediately. This may have cost me the job, but the manager said that he has a few other positions open as well and I may still be able to start Monday.

During the past few years, my wife and I had gotten used to never worrying about money. She had a teaching job and I was making a much as I could hope for with only a High School diploma. We had saved up quite a chunk for a newly married couple ($25,000) and planned on using this when she took a year off with the baby. This saved us because midway through that time, my position was cut to part time. We basically lived off savings for the rest of the summer. Now she is working again but I am still home. Money is still tight although we have never missed a payment on our mortgage or school loans. I wouldn’t say we argue about it, but we can order anything off the menu at restaurants anymore. We can’t go out to eat at all anymore. Maybe twice a month, max. No movies, only free DVDs from the library.

But now I have a chance at a job. I realize that this is rare in this economy, especially for someone who has no practical experience in the field that this company is in. So when the interviewer asked me what salary I think I should receive, I told him that any dollars/hr is better than no dollars/hr.

This job will be different than anything I have done before. More of a factory position than working at a desk. This is part of what attracts me to it. I enjoy working with my hands and want to be able to leave work at work at the end of the day.

I am looking forward to the sense of security that this will bring to our finances. I would also like to say that I never worried about money because I knew God would take care of our family. There have been a few times we were low on funds and out of the blue, a check would come in the mail from some obscure thing we were not expecting. Like an alumni fund or extra cash from our escrow account. Anyway, I hope to post a positive update soon.

Inspired to build wealth

Posted: December 30, 2008 in Books, Christian, Money/ wealth
Tags: , ,

I just finished reading a book called, “Rich dad, Poor dad.” This is the forth or fifth book on becoming wealthy I have read. Each one has a different take on what to do and how to do it. I’m not sure why, but this one affected me more than some of the others. And before you say, “But Dan, you’re Christian right? Money is evil. You shouldn’t be trying to make money.”  This is a passage by Russell H. Cornwell in his book Acres of Diamonds.

“We preach covetousness in the pulpit and use the term filthy lucre so extremely that Christians get the idea that it is wicked for any man to have money. Money is power, and you ought to be reasonably ambitious to have it. You ought to because you can do more good with it than without it. Money prints your bible; money builds your churches; money sends out your missionaries; and money pays for your ministers. If you can honestly obtain…riches, it is your Godly duty to do so. It is an awful mistake of these pious people to think that you must be awfully poor to be pious.”

So yeah, I want to make money. I don’t want to work for someone else my entire life. I want to be able to travel and take time to climb some mountains and play outside without having to worry about how I’m going to pay for food or my next mortgage payment. But all that still takes work. I need to read and study a lot more before I make any big moves. I’d like to get into real estate and the stock market. Each one is vastly complicated so I know I need to be smart about it. Maybe I’ll hire some professionals. You’ve got to spend some money to make money right? We’ll see how it all works out. I’ll keep you posted.

This was a post from11/20/06

The Happy couple

The Happy couple

Hey guys,
Well it’s been a little more than 3 months since my wedding. It went great. Weather was perfect. My bride was beautiful. Our honeymoon was pretty cool. We went up to Canadia and down through Maine and then back up to PEI. Beautiful. I definitely took way too many pictures. We swung back through Acadia which was also great except for their No Frisbee Playing ordinance in Ba Ha Ba. We jumped right back into life when we got back and Lydia got hired the day we returned! Yaa! Our home is finally getting in order and we have had a few awesome parties so far with International Talk Like A Pirate Day on Sept. 19th and our Masquerade Extravaganza just before Halloween. I was a ninja, of course!

Anyway I thought I would just update my current interests. I just finished reading a few good books.

“The Automatic Millionaire” by David Bach is all about setting up your accounts and things so that you accumulate wealth…automatically! Basically set up a 401 k early and contribute at least 10 % of your income for as long as you can. Second, buy a house, don’t rent. You will never get rich renting. Also don’t use credit cards. That’s about it.

“Overthrow” by Stephen Kinzer is about America’s century of regime change from Hawaii to Iraq. This book was pretty cool. It’s kind of like a secret version of history that you don’t learn in school. Now I know why South America doesn’t like us. Or the Philipines. Or IRAN! We started it! (more…)