Posted in College Planning/Children, Save Money/Budget, tagged 529 savings plans, build wealth, children, college, education, financial advice, money tips, saving tips on October 16, 2012|
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Times are difficult for many but they don’t have to be. Parents are the most important teachers their kids will ever have. If you want your kids to grow up to be financially independent, then be a good role model for them.
- Tell your kids school is important. Although a college degree is no guarantee of financial success, those with a college degree tend to make more money than those without. Graduate and professional degree earners tend to make more than those with a baccalaureate. https://moneyprovidesfreedom.wordpress.com/2010/06/18/the-value-of-an-education/
- Don’t display wealth. If you look rich (drive an expensive car, own a huge house, wear expensive clothes/jewelry), most likely you are not wealthy. You are probably living in debt. Be a good role model to your children and let them know that having money in the bank is more important than trying to impress their friends. To achieve financial stability, you must save more than you spend – it’s as simple as that.
- Compounding for decades. When your children are young, open a 529 College Saving Plan for them and set up automatic monthly deposits. I opened 529 College Saving accounts for my kids when they were born. Currently there is about $40,000 in my nine-year olds account and about $34,000 in my seven-year olds account. It’s easy if you start when they are young and make it automatic.
- Teach your kids how to live on a budget, balance a checkbook and to save. When my kids receive money for their birthday or for Christmas, some of the money can be spent but some must be saved for a “rainy day.” Discuss money and bills with your kids in an age appropriate way.
- Teaching personal responsibility. Hard work over time is the only way to succeed for most people. Teach that success and wealth are not entitlements. No one is entitled to a “free lunch.” I don’t believe in allowances. Kids shouldn’t get paid for doing nothing. It’s not that way in the real world. If you want your kids to have spending money, tie the money to the amount of age appropriate chores that they do.
- Don’t bail out your kids too easily. Let them experience the consequences of their actions while they are still living under your roof.
Many parents need to do a better job teaching their children about money. Kids want to learn about money and it is up to parents to successfully nurture their thirst for knowledge. By doing so, you help make sure your kids will have a financially bright future.
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Question: What is more important in achieving wealth: earning lots of money or spending less?
Answer: Both are important but spending less is more important. For example, there are many famous people who made tons and tons of money but who are not wealthy and who at one time or another filed bankruptcy. The list includes Mike Tyson (boxer), Donald Trump (entrepreneur), Anna Nicole Smith (model-actress), Ted Nugent (rock star), Robert Kiyosaki (Rich Dad, Poor Dad author), and Larry King (talk show host) just to name a few. You can probably think of many others. In fact, about 35% of lottery winners of more than one million dollars are in financial difficulty or have filed bankruptcy within 10 years of hitting the jackpot. One more question: What kind of car does Warren Buffett (world’s 2nd richest billionaire) drive? Answer: A 2001 Lincoln Town car with a license plate that reads “THRIFTY”.
So it’s not how much you make that’s important but how much you save and I would also add in how wisely you invest those savings. Almost anyone with a steady job and average income can amass a small fortune if they are wise with their money. My three rules for achieving wealth are:
1) Spend less money.
2) Invest wisely (or at least have solid financial knowledge).
3) Make more money (nice to have but not required).
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Everyone likes to save money; here are some of my favorite tips:
- Use coupons. You can find many online coupons at www.nesteggz.com and www.ebates.com. Ebates is a free online coupon site that offers up to 25% cash back from top online stores like Target, Barnes & Noble, and the Gap.
- Don’t buy groceries on impulse. Shop with a list.
- Improve your credit score. A good credit score can save you thousands of dollars. The easiest way to get your credit score is www.myfico.com.
- Send away for and follow-up on rebates. After you buy a product with a rebate, send the form in that day. Then mark your calendar to remind yourself to follow-up with the rebate company if the check hasn’t shown up.
- Request a reduction in the interest rate for your home equity line of credit.
- Request a reduction in the interest rate on your credit cards. As with home equity loans, credit card companies sometimes are willing to cut the interest rate. It doesn’t hurt to ask.
- Refinance you mortgage. If you can cut your interest rate by one percent or more, it is often beneficial to refinance. Make sure you don’t have a prepayment penalty on your loan.
- Get rid of Private Mortgage Insurance. PMI is an additional monthly fee required by most lenders when you put down less than 20%. When you reach 20% equity, contact your mortgage company.
- Get your books from the library. While I buy some of the books I read, most come from the library. Free is hard to beat.
- Read magazines at the library or online. Once again, free is hard to beat.
- Buy your new car over the internet. Best bet is www.kbb.com (Kelley Blue Book). Select the car you want and then ask for free quotes from internet sales managers at local car dealers. This is the only way I buy new cars.
- Don’t pay interest on credit cards. If you pay your bill in full each month, you never have to pay interest.
- Take advantage of 0% credit card offers. As long as the cards won’t cause you to spend more, they can offer real savings. Make sure, however, that you keep an eye on the balance transfer fee, which can wipe out your savings.
- Replace incandescent bulbs with compact fluorescent light (CFLs) bulbs. These bulbs use 75% less energy and last 10 times longer. They do take some getting used to, and they won’t work in every light fixture. But use them where it makes sense and save energy and money.
- Drive your car longer. The buy new versus used debate often overlooks the most important factor–how long you own your car. Drive it as long as you safely can.
- Increase insurance deductibles. Raise your deductible to at least $500 or $1,000.
- Get rid of your home telephone. This is a great way to save money. Many don’t do it because of the 911 service, and that’s understandable. But if you’re comfortable relying on a cell phone, there’s no reason to keep a land line.
- Eliminate some cable services. Downgrade to a less expensive option. Do you really need that many channels?
- Agree to limit gift giving. At Christmas, agree in advance to limit the gifts and save everybody some money. Better yet, try a white elephant.
- Cancel the health club membership. Evaluate how much you use the membership. If not much, consider walks in the park, putting a stationary bike in the garage, or other inexpensive options.
- Don’t buy extended warranties. For the most part, they just aren’t worth it for inexpensive items.
- Take your lunch to work at least three days a week. Eating out at lunch is fun, so I wouldn’t eliminate it completely but a sack lunch is cheaper than buying.
- Buy low-cost no load mutual funds. My favorite is Vanguard 500 Index (VFINX) with an expense ratio of 0.18%.
- Take advantage of employer 401(k) matches. If your employer matches 401(k) contributions, do everything you can to take full advantage of that match.
- Get tires from Costco or other wholesale clubs. Tires cost a lot less than buying them at the dealer or chain tire store.
- Keep tires properly inflated. It keeps you safe and costs less gas.
- Stop smoking. Smoking is a very expensive habit.
- Buy generic over-the-counter medicines. They are exactly the same as their branded counterparts and cost less.
- Buy energy efficient appliances. Look for the Energy Star on appliances and consider the annual energy cost before buying. More efficient appliances cost more, but you make up the extra cost and then some over the life of the product.
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Posted in Investing, Retirement/Estate Planning, tagged build wealth, children, compound interest, financial advice, money, money tips, retire a millionaire, retirement, saving tips, smart investing on October 5, 2010|
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One of the “secrets” of wealth is long-term investments that pay compound interest. When given a choice between a good investment with compound interest and a great investment with simple interest, pick the good investment every time. Over time, the investment that compounds will outperform.
Throughout stock market history, the average yearly returns for periods of 25 years or longer has been around 9-10%. For example, the yearly returns from 1900-2009 was 9.4%. For the last 25 years, the annual return was 11.9%.
So the secret of wealth is to invest when you are very young so you have time on your side. When your child is 16 and starts his first job, match his income and place that amount in an IRA account. Do this every year for five years and your child will be a millionaire by the time he or she retires.
Let’s illustrate with an example. When your child is 16 years old and starts his or her first part-time job, you place $2,000 into an IRA account for your child every year until he or she reaches age 20 for a total investment of $10,000. Even with no further investments, your child would have about $1.1 million by the time he or she retires at age 67 (assumes 10% interest). That $10,000 investment allowed your child to retire a millionaire.
Opening an IRA for your children when they are young is probably one of the easiest and surest ways to make sure your kids will have a great financial future.
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Posted in College Planning/Children, tagged 529 savings plans, build wealth, children, college, education, financial advice, money, money tips, saving tips on October 4, 2010|
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Parents are the most important teachers their kids will ever have. I believe most parents want the best for their children and want them to be financially savvy. However, many parents are actually doing the opposite and are teaching their kids how to be poor. Here’s how:
- Telling your kids school is not important. Although a college degree is no guarantee of financial success, those with a college degree tend to make more money than those without. Graduate and professional degree earners tend to make more than those with a baccalaureate. https://moneyprovidesfreedom.wordpress.com/2010/06/18/the-value-of-an-education/
- Encouraging outward displays of wealth. If you look rich (drive an expensive car, own a huge house, wear expensive clothes/jewelry), most likely you are not wealthy. This type of spending creates financial stress. Famous people who made lots and lots of money but filed bankruptcy anyway include Mike Tyson (boxer), Donald Trump (entrepreneur), Anna Nicole Smith (model-actress), Ted Nugent (rock star), Nicolas Cage (actor) and Larry King (talk show host). You need to save more than you spend to become wealthy.
- Compounding for decades. When your children are young, many parents don’t open a 529 College Savings Plan or Coverdell account. I recommend opening some sort of college savings plan for your child before he or she is one year old so the account has many years to grow.
- By not teaching your kids how to live on a budget, balance a checkbook, or to save.
- By not teaching personal responsibility. Hard work over time is the only way to succeed for most people. Success and wealth are not entitlements.
- By bailing out your kids too easily. Let them experience the consequences of their actions while they are still living under your roof.
Many parents need to do a better job teaching their children that managing money is what leads to a rich lifestyle instead of the money itself. Kids want to learn about money and it is up to parents to successfully nurture their thirst for knowledge.
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Most people would like more money than they have but are unsure how to achieve greater wealth. There are two basic ways to increase your financial position:
- Spend less money.
- Make more money.
Today, I discuss a few ways to spend less money.
- Think priorities. Think reward. Align your money habits to promote your values. What do you really want in the next 5, 10, or 15 years?
- Stop paying rent. Rent is a big money waster. Can you cut or decrease your rent payments by moving into a less expensive apartment or taking on roommates? Can you move back in with your parents? If you can afford to buy a home, now may be a great time.
- Cut your food bills by 50%. Bring bag lunches to work and cut back on restaurant meals. When I was a kid, we only ate out on special occasions like birthdays. Buy unbranded food in bulk.
- Cut up your credit cards. Get rid of debt by paying cash or by paying your credit card bills in full each month.
- Reliable and affordable car. If you are thinking of buying a more expensive car, stop! One of the worst things you can do is own a Mercedes or BMW. Cars are a debt and don’t make you money. Expensive cars massage the ego. Use debt to buy appreciating assets. Own a dependable car but not an expensive one.
- Eliminate costly vices. How much are you spending each month or cigarettes, beer, drinks at restaurants, or illegal drugs?
- Buy clothes at thrift shops or wait for sales. Never buy retail.
If you have other suggestions, please include them so we can learn from your experiences. I would love to hear your favorite money-saving tips.
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Posted in Save Money/Budget, tagged build wealth, extra cash, extra money, FDIC, financial advice, inheritance, IRA, money, money tips, Wills and Trusts, windfall on September 7, 2010|
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35% of lottery winners of more than one million dollars are in financial difficulty or have filed bankruptcy within 10 years of winning. So what should you do if you come into a windfall (lottery, inheritance, stock option buyout, court settlement, etc)? Here are some tips:
- Cooling off period. Don’t do anything at first. Don’t go on a spending spree or go crazy. Don’t quit your job just yet.
- Split up the money. Federal Deposit Insurance Corporation (FDIC) is capped at $250,000 per depositor, per insured bank, for each account ownership category. Split up the money on CD’s, money market funds, and short-term securities until you devise a longer term plan.
- List your immediate needs and then your secondary goals. Are you heavily in debt or in poor health but have no insurance? Be realistic and practical.
- Talk with an accountant. You have to pay taxes on your windfall and will most likely be in a higher tax bracket.
- Watch out for scams. People want to take your money.
- Update your will or trust. More money means you need to review your plans.
- Invest gradually allocating your money into different stocks, bonds, and mutual funds. Index funds may be a good idea. If you have a lot of money, I strongly recommend using a professional advisor. Stay fairly conservative and don’t forget to fund a college plan for the kids and an IRA for yourself or spouse.
If you are lucky enough to get a windfall, make sure to use the money wisely. Also, don’t forget to give to your favorite charity.
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