Showing posts with label Theory. Show all posts
Showing posts with label Theory. Show all posts

Tuesday, October 11, 2011

How To Overcome A Bad Financial Habit - Procrastination

It takes work and having a plan if you want to have control of your money. Whether it is budgeting, saving, planning, investing or organizing; to get good results it takes an investment of time. But that's the tough part, finding the time to do it right. 

Many people fail in their financial goals because they just don't plan. They want to do it right but just keep putting it off. To some of us, like myself, seeing a monthly budget just doesn't thrill me. I know many people enjoy these types of things but actually doing it is no fun. I like to write about personal finance but I can find more fun things to do than balance my checkbook.

I admit it I am a procrastinator. So what do you do? Need some help? Here are a few tips:

Schedule financial tasks

Scheduling financial tasks and completing them in small chunks will help you feel a sense of accomplishment. For example, most consumers receive several types of financial mail, including bills, brokerage statements and bank reconciliations. Place all financial mail in a basket and set aside some time periodically to go through them at one time. You will develop a habit that will become part of your routine. This routine will eliminate procrastination. Also, try to save time by using online bill payment services or developing a system that works for you.

Create a savings strategy

You may believe that you do not have enough money to save, and therefore, you develop inertia. Also, retirement may seem like such a distant dream. However, saving a little now will help get you started, and over time you will see how the investment grows in value. Watching your money grow will motivate you to create additional savings.

Divide and conquer

If you have a spouse or significant other, work together at the same time and split the duties. People who make commitments and have a “buddy” in the task will not be as likely to delay. One person can pay the bills while the other files statements. At this time, you may also have the opportunity to talk and discuss financial matters which will reduce uncertainty and stress. After you have worked together, reward yourself for staying on task.

Remember late fees

In many instances, handling financial matters early can actually save considerable money — but it involves planning ahead. For example, try to pay January’s mortgage near the end of December to get the mortgage interest deduction on the current year tax return. Many people save on Christmas supplies, such as wrapping paper and ornaments, for next year by purchasing them immediately after Christmas. Also, irrigation companies will offer substantial discounts to install irrigation equipment during off-season times. Even some colleges give substantial discounts for getting tuition paid early.

Because many businesses want smooth cash flow, it makes sense for them to offer such discounts. Of course, it is very important to weigh the discount you will be getting with any interest or investment income you might have earned by retaining the money. While savings can be the reward for paying early, late fees, penalties and interest can be the penalty for not getting financial tasks done by the due date. It is especially important to pay credit card bills on time, as just a short delay can add considerable late fees to a bill.

Remember procrastination is a bad habit that can take some work to overcome. The trouble is it takes time to set up procedures to help you change old habits. But it is necessary to succeed with your money plans.

Saturday, October 8, 2011

When Is the Right Time To Buy A Home?

Someday, my 27-year-old daughter would like to own her own home. But right now, she’s happy sharing a rented townhouse with a friend. She says, “I am trying to make sure I can afford it before making that leap”. “I don’t want to be house poor.” 

There’s no question that owning a home is a desirable goal, and low interest rates in recent years have made it possible for millions of Americans to buy their first houses, invest in income property or trade up to a larger home. For many others, though, there are good reasons to continue to rent. You really need to assess your overall expenditures, not just your housing expenditures, and ask yourself if you really can afford to buy.

Home buying is not for everyone and certainly not for everyone at every point in their lives. For young people like my daughter, it’s not a bad strategy to get one’s financial life in order before taking on the kind of debt required to buy even a modest condominium or starter house. My daughter, who works at a local hospital, said she is focusing on paying off her college debt, then will turn her attention to accumulating money for a down payment on a house. She said that she’s wary of moving too fast because she’s seen friends struggle when they were financially unprepared to buy.

“Some have had trouble keeping up with their mortgage payments,” she said. “Or a condo association will raise fees and they can’t afford their place anymore. Home prices are still so high and rents are so low that many find it advantageous to rent. “But, of course, renters are missing out on the appreciation of a home,” she said. “There are renters who say they could put money aside, invest it smart and get that kind of appreciation — but most people don’t do that.”

There are also times when it doesn’t make sense to own. We see older people who have large houses that they’re selling. In some cases, given their age and lifestyle, it doesn’t pay to for them to buy a smaller house. But buying can also be a problem for young people who think they’ll have to move frequently for their jobs.

Residential real estate has relatively huge transaction costs like brokers’ fees, closing costs, registration fees and other expenses associated with the purchase of a home. To buy and later resell, figure it at about 15 percent of the home’s value. That’s huge, and it means you have to stay put, ideally for at least five years, to recoup that 15 percent.”

The key to making the move from renting to buying is cash flow. People need to make sure they have the money not only for the mortgage but for other expenses that come with ownership including real estate taxes, insurance, and repair and maintenance costs.

Most people need to buy property at some point in their lives. It gives you your own little piece of the American dream,it’s something that’s all yours. And, from a financial point of view, it’s also a good long-term investment. It’s an appreciating asset that will behave very differently from stocks and bonds, especially over a 30-year window.

Wednesday, August 24, 2011

Marshmallows Can Predict If You Will Be A Saver Or A Spender

In the 1960s, Stanford psychologists conducted an experiment on a group of 4 year olds, and it yielded absolutely fascinating results. They put a group of children, one-by-one, in a room with a marshmallow. They told the children they could eat the marshmallow whenever they wanted, but if they waited till the adult came back they’d get two marshmallows. Recently, the experiment was conducted again, and filmed. So here’s what happened…

It’s pretty strange to watch their behavior. Because they are like little drug addicts. They’re sitting there, trying not to think about that marshmallow, but you can tell it’s the only thing in their whole world. One kid starts smelling it, before putting it down and putting his head in his hands, like he’s 40 instead of 4. Another looks away, trying to pass the time, but his fingers creep over and hold onto the marshmallow, as if to reassure him that his sugary prize hasn't up and vanished.

Only a small number could wait. The researchers studied both groups of children throughout their life, and discovered some fascinating patterns. The low delayers (failers)—those who could not wait until the adult came back to eat their marshmallow—were affected by a number of risk factors that did not affect high delayers (passers). Here is what they discovered:

The Ones That Couldn't wait:

  • struggled more in stressful situations
  • had trouble paying attention
  • had greater difficulty maintaining friendships
  • scored lower on the S.A.T. (by over 200 points)
  • prone to a much higher body mass index
  • were more likely to have drug addictions
So it turns out that this experiment is not just about a bunch of four year olds hungry for sugar. This is about all of us. This is about the power of patience. Financially, we are tested in the area of patience every day. We’re on our way home and we really want something that would be a lot cheaper at the grocery store. But the convenience store is a lot closer. And you’ll always pay for convenience. It’s closer, but it ain't cheaper.

When we delay gratification, not only does it pay off in the end, but it often pays off more substantially than if we had just gone for instant gratification. But you don’t inherit the ability to delay gratification. You develop it. You develop it by facing off against this decision over and over: do we spend more to get the thing we want now, or do we wait? What if we skipped the purchase entirely? The we’d still have the money with us later on when we needed it. And if we skipped the purchase and left it in an account, over time that money could increase through interest. Eventually we’d have two marshmallows instead of just one.

Wednesday, May 18, 2011

Your Perception Is Always 20-20 But Your Looking In The Wrong Direction

A tilia on a little hill in the valley of KesselImage via WikipediaIf you watch the TV on a regular basis, listen to the radio, or surf the Web you will hear and see that the economy is on the brink of collapse. Bad news seems to be in an ever abundance these days. From the tsunami in Japan, European economies on the brink, Medicare and Social Security in danger of failing, and our incredible debt; it can keep you up at night. Bring it down to your own situation. How's your personal economy?

We all are on different points on our life's path. Some are doing better than others. Personally, times our a little tough. My income is down and my expenses are continually rising. But for some, things are looking pretty good.

A friend of mine, ten years older than me, has recently retired. He has a pension from the state, a sizable investment portfolio, Social Security and Medicare. With all that, he lives very comfortably. His house and car are paid off and he has no debt. But the icing on the cake is he has been hired part time at $45 per hour in the same type of job he had before; and he can set his own schedule to work only when he wishes to. Not bad!

If I ask my friend how the economy is, he responds, "Pretty Good!". When we think about our personal economy we judge it by how well we are doing financially in our own lives. Our neighbor can be out of work and in foreclosure and it won't effect our perception. The neighbor's perception of the economy is that it's in the toilet and that he will be standing in a soup kitchen line any day now.

Perception is key here. It's hard to feel the pain of others, but easy to feel our own. What we all need to do is turn off the news and Internet. Get out a book, watch sports, go on a picnic, or just take a walk. Look around you and see a wonderful world. Visit your kids and shut the noise out. Get a hobby or just spend time with family. Soon you will see that your perception will change. You will see that things are not so bad and you will have the energy again to work through your problems.

In life, we walk a path of hills and valleys. For most now we are in a pretty deep valley. Valleys in the world usually never continue forever. By definition valleys are surrounded by hills and mountains. Soon we will be approaching the hills again, followed by mountains. It's going to take a while though.

Monday, April 11, 2011

10 Popular Excuses for Not Saving Money

How come it's so easy to come up with excuses to not save money? Ask most people why you should save money and you will get only a handful of answers. But ask them why they are not saving money, then the list will go on and on.

I'm not good at saving money.

I have heard this one a million times. Couples will say "I'm a saver and my husbands a spender". Are people just built to be savers? Is it genetic to be a saveer? If dad was a saver will his traits pass down to you? To say you inherited your dad's lack of responsibility to save makes you look as stupid as your father. Either way, with so many personal finance websites teeming with information about finances can you get away with that excuse anymore.

I am to young to save, I'll save when I am older.

Don't young people realize the time to save is now. They don't have any major expenses like a car payment or mortgage. They don't have children or debt yet. They have a lot of disposable income. I guess living for today is more palatable than saving. They might believe that being so young they have all the time in the world to make up for it later.

I don't get paid enough money.

This is the perfect example of pointing the the finger at someone else. For this excuse to be valid you are either working for free or your just making enough for the bare necessities of life. Can either of these excuse be true, really? Why not one evening sit down and write out all the money your spending in a month and see where it's going. There must be someplace it's being misspent.

I'll save money when I hit it big.
This is the talk of the person waiting to win the lotto. Why do so many intelligent people say they are waiting for there ship to come in? Just look around, how many people do you know that have won the lotto or hit it big. I'll bet you know no one. It's never going to happen. Wake up and smell the coffee.

I have got bills to pay.

People claim there bank accounts are empty because of there bills or responsibilities. I'll bet in every budget there is a little fat that can be found. It takes a determined person to cut that fat out. It's always easier to spend the money on fun things then save.

I would save money if I wanted to, I just don't want to.

The best reason for not saving money is we just don' t worry about the future. The future will take care of itself. Being ready for future opportunities or disasters is why we save.

I work hard, so I can enjoy myself.

Everyone works hard to enjoy there money. It's not right to not not spend on some enjoyable things along the way. But it's better to pay for those good times with cash and not debt. Saving will make that happen.

Money is made to be spent.

This is true. But it sure does feel good to have a nice cushion of savings to soften the blow of retirement. The goal is not to take your savings when you die, but to save money so you enjoy a secure and debt free life.

I am getting a big inheritance, there is no need to save.

If this is true for you than that's great. But for most of us this is not true. But this excuse does seem rather shallow because your being lazy now because later someone else will be footing the bill.

Why save if I am going to spend it later.

This by far the dumbest of all excuses. Having the security of savings only makes your life better and more enjoyable. It's an intangible feeling only brought about by having savings.

Thursday, March 17, 2011

When Is It Best To Ignore Money Advice?

ceramic piggy bankImage via Wikipedia
Retirement, IRA's, emergency fund, saving, debt so many things to keep track of. It can get a little overwhelming. Managing your finances can be confusing. Do you save for a house first or do you pay off debt? Both options are good if done in the right order. 

We all receive good financial advice, but is it appropriate to the current situation. Buy a house, don't rent is the one bit of advice you here the most. It's only good advice if your financial prepared, it could be disastrous advice if your not prepared. Good intentioned advice acted on at the wrong time will torpedo your financial goals.

Everyone has unique situations, it's the knowing when to do the right thing that will give you the results you want.

Buy a house, don't waste your money on rent.
It's the first thing you hear after some life changing event like a new job, marriage, or baby on the way. The advice is that your making the landlord rich while you could buy a house and be paying yourself instead. But being ready financially is the first step to buying a house. Do you have an emergency fund in place. Will the payment be affordable? Don't forget you don't just have the mortgage payment to worry about. Add to that insurance, property taxes, insurance, furnishings, utility bills, maintenance and repairs. Maybe renting sounds like a better idea now.

Are you saving enough for retirement? Are you getting the match on you 401k? Don't miss that match!
Again the wisdom of saving for retirement in a tax deferred account makes sense. Getting the match makes more sense. It's good advice. But is it good for you at this moment in your financial life. You have to weigh this good advice against do you have an emergency fund of 3 to 6 months savings. Do you have credit card debt still to pay off? It's not smart to ignore these more important things. What if you were sick or got laid off? How would your 401k help then? I would rather have a hefty emergency fund. These are things you need to consider.

Get life insurance so your family will be protected when your gone.
On the surface getting life insurance sounds good. How could leaving someone a large amount of money when you die not be seen as a loving and caring thing. You must decide if life insurance is even necessary. The purpose of it is to meet a financial need the deceased can no longer provide. Money to replace an income in the raising of a child or providing funds for a college education would seem appropriate goals. If it's not used to replace the deceased financial responsibilities , then it's not needed. If the deceased is leaving a spouse with no children, mortgage or other financial need; Insurance is not necessary.

These are only three examples of how good financial advice can be misapplied or applied at the wrong time for the wrong reasons. But there are many more.

Reader: Do have any examples of misapplied financial advice?

Monday, March 14, 2011

Carlos Slim Still No. 1 Billionaire on Forbes List.

Mexican businessman Carlos Slim HelĂș.Image via WikipediaThis year again Carlos Slim is the wealthiest man on the globe. With over 74 billion, up 20 billion from last year, He has beaten out Bill Gates 30 billion again. But remember Bill has been giving his billions away lately, so he really can't keep up. But it's a shame that Mexican billionaires are needed to do work that American billionaires just won't do.

Forbes list tells us that there are 1,210 billionaires hanging around and the U.S has 413 of them. Our lead in billionaires is on the decline. During the year, 23 new billionaires were created in the U.S., in large part from the increasing paper value of social-media site Facebook. Meanwhile, China added 54 billionaires and Russia, 31. Moscow is the home to 79 billionaires, beating out New York with it's 58. Russia has 115 billionaires and the numbers are growing because the fortunes were born on the rising of commodity prices. With Russia being a bread basket of commodities for the next 100 years, we are seeing a shift from domestic to foreign money sources.

What does all this mean to us today? Nothing for today's citizens but it could be the early signs of a fundamental shift of wealth, power and influence to non-U.S. sources.

Let's face it the globe has been dominated by U.S. wealth and influence for the last 100 years. We are a benign world super power with military bases in over 100 countries. Our economy and dollar is the go to economy when you want security and capital. But maybe not much longer. There are a few new kids on the block who are looking to take their turn on the world stage.

I wrote in another post how this century will belong to Asia, according to investor Jim Rogers. The rest of the world is catching up to the U.S. in terms of finances and innovation. Soon we will not be seen as so powerful anymore.

I can't predict if these changes are good or bad but just that they are happening.

Reader: How do you see it?

Saturday, March 12, 2011

Would You Move To Another Country If It Meant You Would Prosper?

American investor Jim Rogers in Madrid (Spain)...Image via WikipediaFamed global investor Jim Rogers says if you want to prosper in the 21st Century, move to Asia. You may not know that Jim Rogers has put his money where his mouth is and did move to Singapore in 2007. He is raising his two little girls there and making sure they learn Mandarin. He is very bullish on Asia and says it's the place to be for the 2000's. He says it's not only for the success of his own assets. But for positioning his heirs for success.

He stated:

"In 1807, if you had moved to the U.K., you and your heirs would have been much, much better off for the next 100 years. If in 1907 you had moved to the U.S., you and your heirs would have been much better off for the next 100 years. 
In 1907, if you had stayed in Poland or China, you would not have had a great future, nor your families. Had you moved to America, [your descendants] would have had a much better future. Who knew what they would do, if they would become doctors or what, in the next 100 years. But whatever happens to them, they were better off. They spoke English, which became the world's language. 
My view is that the 21st century is going to be the century of Asia, of China. If I'm right about the future, you are going to have a better life [if you move there], better opportunities, and better everything going where the action is, where the assets are."
In my view, moving to Asia in 2007 means my heirs are going to be much better off in the next 100 years.
A thoughtful explanation of the last 2 centuries of history. But will it happen again in Asia? Jim Rogers is wealthy enough to move wherever he wants. Also he can do business from any part of the world. But Asia is where the action is for the 21st century, he claims.

Think for a minute, would you leave the U.S and move to another country for financial gain? We know millions that have left their country and traveled to the U.S. They did it for a better future for their family. It's the same idea Jim Rogers is talking about. Is he so wrong to do the exact thing?

Could you pick up and leave the U.S. Many already live abroad and are happy doing it. At first it seemed I didn't think I could make the leap. If offered an enticing job abroad, would I go for it? I don't know. What do you think? Would you ever leave the U.S.?

Friday, March 4, 2011

Why is My Saving Account Paying Me Such Low Interest?

While preparing my taxes I was gathering my interest 1099's from my bank. I noticed that I was getting a very low rate of interest on my savings account. I remember just a few years ago when I was receiving 4 % interest on a few CD's I had. Now, banks pay somewhere around 1% interest on a CD.

Why is my interest rate so low?

Banks take our deposits and lend the money out in the form of mortgages, car loans, and personal loans. Their gross profit is the difference between the loan rate and the rate they pay depositors on saving instruments. For many years this was a small amount on average. Today the margin is much larger. In 2007 a 12 month CD yield was 4%, now the best rate you can get is 1%. A Mortgage interest rate at that time was 5%. The bank's margins, were then less.

Since the financial crisis the Federal Reserve has set interest rates at nearly nothing. Banks are able to borrow the nearly free money and loan it out at 5% and higher. The banks are under no pressure to raise the rates they are paying depositors, because of the Federal Reserve policies of low interest.

The federal banking regulators say that doing this is a way of helping banks beef up their balance sheets. They want the banks to raise capital to cushion against losses. Bank's earnings are on the rise. The financial sector earned an average $3.39 a share in the fourth quarter of 2010 vs. $1.54 in the fourth quarter of 2009. In 2007, they were earning in the $10-per-share range. I believe for the foreseeable future we are going to enjoy many more years of 1% interest at our banks.

Tuesday, February 1, 2011

Are Extended Warranties Worth the Money?

If your like me have you noticed the deluge of ads for big screen TV's. You know it's Super Bowl time again when you get that yearly itch to get that new LCD or plasma TV. Why don't they have the Super Bowl around Christmas so I have a good excuse to give my wife a new set. You know it would be for her.

Marching down to Best Buy to get a new set is bad enough, but when you finally check out the clerk asks you if you would like to buy an extended warranty. You freeze, like a deer in the headlights. There is nothing like having to think in a split second to spend the extra money on something you haven't thought through while the burly guy behind you is waiting to make his purchase and the clerk is staring at you.

The debate over extended warranties is never quite over. We are offered these warranties for everything now a days. I bought a $50 voice recorder and was offered a extended warranty of 2 years for $10. Would it make sense to purchase it or pass it by? I don't know I'll have to do the math and get back to you.

I can see maybe getting a warranted on things $500 and up. On items that you know are expensive to repair. Not things that are necessarily throw away items like a voice recorder.

So what do consumer agencies say about extended warranties?

  • Most products don't break during the warranty period. If they malfunction right away, they're covered by a store return policy or manufacturer warranty.
  • The cost of the warranty is almost as much as the cost of a repair. So, buying a warranty is like paying for most of a repair, whether you need one or not.
  • You can self-insure by setting aside the same money in a repair fund. If the item doesn't break, you get to keep the money.
  • As a general rule, you shouldn't buy insurance for little things, only for financial disasters. If a repair cost won't wreck your finances, you probably don't need the coverage.
  • Some higher-tier credit cards will extend the manufacturer warranty for free if you purchase the item with the card.
  • The benefit of a warranty is mitigated if you have to pay a deductible.
  • A warranty might call for replacement with a refurbished unit, not a new one.
  • The extended warranty usually starts when you buy a product, largely duplicating the manufacturer warranty for some length of time.
  • You know warranties are a bad deal for consumers because electronics retailers make a huge share of their profits from them.

On the other had the warranty industry has their arguments:

  • Warranties extend your protection, providing peace of mind for typically 10 to 20 percent of the cost of the item. If a warranty costs more than that, make sure there's a good reason.
  • Extended warranties usually offer service and protection a manufacturer warranty does not. That includes in-home repair or replacement, generally quicker turnaround for repairs, around-the-clock and weekend technical support, coverage for damage caused by power surges and the ability to transfer the warranty.
  • If you regret buying a warranty, you can cancel, typically within 30 days, for a full refund, not a prorated one.
  • Repair prices are often more expensive than warranty costs. An LCD television costing $550 would typically have a service-plan cost of $55 to $110, while the cost of repairing a main system board, for example, might cost $375.
  • A self-insure repair fund is a good idea, but, as a practical matter, consumers won't set aside money for repairs.
  • Some extended warranties cover accidents. As electronics become smaller and more portable, there will be more dropped laptops and cell phones in the toilet. Manufacturers typically don't cover accidental damage.

The bottom line is, the statistics and math say that buying an extended warranty is a bad move if you want to save money. Warranty companies are in business to make money and if they were paying off on the warranty contracts they would be out of business. They know the chances of your item needing repair is nil, thus they make money. Use that same data in your decision to purchase an extended warranty. 

There is one other thing that warranties provide that is not in the fine print. That is warranties give piece of mind. The value of that is hard to quantify.

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Monday, January 31, 2011

Is the Facebook Bubble Coming?

Mark Zuckerberg at South by Southwest in 2008.Image via Wikipedia
Recently Goldman Sachs valued Facebook at an incredible $50 billion dollars. That's incredible for a company that produces revenue of between 1 and 2 billion dollars. With Goldman Sachs getting in the middle of this, I am sure it will end badly.

The Goldman Sachs deal consist of an investment of $1.5 billion dollars, roughly 3% of Facebook's accessed value. The shares are to be traded on the secondary market and are not for the general public.

To put Facebook's supposed valuation in context, consider this: $50 billion is roughly equal to the size of the economy of the Dominican Republic. The Gap has a market cap of $13 billion. McDonald's market cap is only $83 billion. So based on the current deal, Facebook is worth nearly 4 times as much as the Gap, and nearly two-thirds as much as McDonald's.

Inflating the value of a company by Goldman Sachs is only more of the same techniques of puffing up values for their own devices. They may be doing this because eventually Facebook will go public and having a foot in the door will only put them first in line to making 100's of millions of dollars in the eventual IPO.

Social Networking is a bubble like email was a bubble. It's a core technology that changes the way we communicate. But investors get carried away and drive valuations way up till the day comes where it's as common as email and the legs are kicked out from underneath it, and the the stock plummets. It's like the dawn of AOL, a high flier, that got it's wings clipped when one day it was only one of many email and data portals.

Other companies are in the news with high valuations. Google recently offered to pay $6 billion for coupon social networking company Groupon, which is less than 2 years old and has well over a dozen competitors doing the same thing. Though the offer was turned down, Groupon believes they are worth much more.

Look at a cloud computing company It rents out, via the internet, software that helps sales people track leads and customers to enhance productivity. At the beginning of 2010 it was at $62 a share. It ended 2010 at $150 a share. Hungry investors are looking to munch on some tasty dot com's and not using normal valuation techniques before investing. With a P/E of 96, investors are becoming speculators, an action that will cause another bust.

It's time to be careful out there and not get caught up in another bubble. Over valuation and hyping of these popular companies will get us in a feeding frenzy. The ones that do the hyping will profit in the hundreds of millions, but the small investors will be the ones that get hurt the most. Didn't someone say.

Friday, January 28, 2011

It's Not Your Fault You're Poor, It Is Your Fault You're Not Rich

First 4 digits of a credit cardImage via Wikipedia
Human Beings are irrational creatures. We can get ourselves in trouble at the drop of a hat if we stop paying attention. So as with our money, most of the population stinks at being financially successful. I propose, we are wired to fail.

Traditional economics teaches that humans are rational people who make decisions in ways that maximize their well-being. Their text books state that if person A does action B result C will occur. People don't function in logical ways, as if they were math formulas. In truth, people have emotional and biased behaviors that generally run them into the ditch. If you don't believe that just read the daily paper or observe the people in your circle and tell me how they can so easily muck things up.

An example of this faulty wiring is a persons emotional behavior when using credit cards. When a credit card is used to purchase items their is no immediate consequences, yet there is an immediate gratification. Plucking actual dollars from your pile of cash is more painful, and leads you to spend less. It's your wiring that produces those resulting emotions. You have no control over those feelings, yet you do have control over which actions you take. Choosing the right behavior will cause you to be financially successful.

Budgeting is another way we bring out the human actions that lead to failure. With all good intentions we create a masterpiece of a budget. We have made up our minds to be organized and before us is the blueprint. By definition, your wired to not succeed, there is no way because humans are notoriously poor at following through with their plans.

The Robert Burns poem said it best,"The best laid schemes of mice and men, often go awry". It's not your fault, you are wired that way. Recall when you went on a diet, we often fail at both for the same reasons: too much focus on the restrictions, not enough on fun. So it’s not surprising when people end up bingeing later, financially and food wise, more than making up for dollars not spent or calories not consumed. You have to fight these responses and make a budget that's not so restrictive. Instead make a "spending plan" that has outlets for a little distractions to satisfy the beast within.

We have it within us to overcome this wiring problem. We have self control and it is the only way to go on.

The tools we can use to have this self control is a notebook, spreadsheet, or website like List all your monthly spending and be conscious of it. Next give your plan a purpose or goal. Budgets with a goal, like a vacation or a home purchase tend to be more successful.

Your goal setting and positive motivation will help you succeed. Your daily battle to keep bad behaviors in check will continue. It's up to you if you want to win at your money.

Wednesday, December 8, 2010

7 Youtube Channels That Teach You How To Handle Money.

YouTubeImage via Wikipedia

In our quest to learn what to do with our money we seek information from friends, family and also professional financial planners. Some of the things we need to know are: Are you saving and investing enough? Do you know how to save and invest? How do we plan for retirement? We need information to make decisions. A lot of us go to the web. We read blogs and information websites. What else can do to get the information needed? A lot of good information is on YouTube. YouTube is great, just sit back, watch and learn. I'm listing a few of my favorites. Check them out.


Kiplinger on YouTube has hundreds of videos covering a wide variety of subjects. It has something for all ages and  knowledge levels. It's brought to you by the people who publish the Kiplinger Magazine.


Everyone has heard of Morningstar, the people that publish the great information on mutual funds. This page concentrates a lot on investing subjects. There is a good amount of interviews with the industry leaders. You will find the interesting Morningstar lead financial planner Christine Benz. She has a lot of good financial planning information to share.

CBS MoneyWatch

Here you will find good advice concerning Real Estate, Investing, Banking, and Personal Finance. This channel has the backing and resources of CBS News. You will see CBS reporters filling their network stories and web only financial stories.

Sound Investing TV

Sound Investing TV is produced by Paul Merriman founder of Merriman Investing. Paul is dedicated to teaching and giving good information about investing and finance. He is a big advocate of the Lazy Portfolio theory of investing through index funds. You will find Paul's homespun style of teaching very informative. I highly recommend this channel.

The Saving and Investing Channel

This channel is run by Michael Fischer, author of "Saving and Investing". This channel has Michael teaching the concepts his book describes. He covers all subjects from banking, no-loads, shorting and mutual funds. He really covers the entire gamut of investing and financial information. His videos usually run about five minutes and are concise and informative. A good reference source for all you new investors.

Money Talks News

Money Talks News has hundreds of quick 2 minute videos with the most variety of topics of all the channels. From foreclosures to Thanksgiving tips, this channel covers it all. You will be kept busy for hours watching all these videos, but you will definitely learn a lot.

Cambridge Credit

Cambridge Credit Counseling focuses on credit, debt, and saving. They cover other things like banking and budgeting. They try to help people through their offices with debt problems. Their videos teach people to save and budget as a way to get out of debt. They have a very informative channel.

You will find a lot of other videos scattered all over YouTube concerning financial teaching and information. These channels put it all in one place so you don't have to go all over searching for that needed information. So sit back with a nice cup of coffee and enjoy some videos

Sunday, October 3, 2010

Taxes Going Up As The Bush Tax Cuts Go Down

Official Presidential Portrait of United State...Image via Wikipedia
There were two major tax cutting bills enacted during President Bush's administration. They were the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003. These two pieces of legislation are what we call the "Bush Tax Cuts". The bills included across the board tax relief for American taxpayers. They will expire as of December 31, 2010. 
Exactly what will the loss of these tax cuts mean to you and me? 
Tax Brackets 

Tax brackets that are currently 10%, 15%, 25%, 28%, 33% and 35% will go up to 15%, 28%, 31%, 36% and 39.6%. This means that if you are in the 10% bracket your taxes will increase by half to 15%. What happened to helping the lower and middle class? 
Marriage Penalty 
Remember when the marriage penalty was such a hot topic in the news, well the Bush Tax Cuts fixed it. But now it's going back to the way it was, when a couple living together was paying less taxes. Married couples will have to pay more than single couples. 
Child Tax Credit 
The current child tax credit is $1000. This will fall back to $500 in 2011. Also eligible families will decline. 
Dividends and Capital Gains 
The tax rate on dividends is currently 15%. It will climb to a range of 15% to 39.6%. Capital gains top rate will climb from 15% to 20%. 
Estate Tax 
In 2010 there is no estate tax. But in 2011 it returns with a exemption of $1,000,000 and a tax bracket of 55% 
The Tax Foundation estimated that the median family of four saved about $2,200 in taxes under the present plan. These cuts will vanish with the next tax year. 
I can't reconcile any of these tax cuts as unnecessary. They effect all tax payers of every age. I can't see giving the government more of our money when the budget is out of control. When our money is wasted at every turn it unconscionable to allow them more money. Cut the budget 10% and leave us alone. 
Not making these tax cuts permanent will be the final nail in the Obama Administration. The damage done will echo for years to come. 

Thursday, September 23, 2010

Kids Need To Work

Cute Kids in Children's CostumesImage by via Flickr
One of our duties as good parents is to instill the work ethic in our kids. But how do we do that? In my house both mom and dad go to work everyday to their full time jobs. Teaching by example should be enough but in this world it doesn't even come close, junior is perfectly happy to see others do the work. 
Should there be a certain age for your child to look for work? I believe there is. Each family can determine if the child is physically and emotionally ready to go to a job. We found that around the time they got their driving permit was the perfect time. They were mature enough and were self motivated because they needed money for their own life. 
Also at this time they wanted to have their own cell phones. We were firm in stating they would be paying their own cell phone or they wouldn't have one. So the job was becoming more of a necessity in their minds. 
The amount of money they made was enough to pay the cell phone and give them some money in their pocket. We taught them to save for things they would need in the future. Now all this seems pretty straight forward but with kids there is always some way they mess up. But this exercise is a teaching experience and probably prone to disaster. 
Having a job when your young is good for you. Because it teachs many things. For starters, it teaches you to show up somewhere on time. To have an authority over you that's not your parent or teacher. Also that Work = Money. 
Now all of our children did not all respond the same, with this wonder plan of the parents. More than half of them learned to work. But some of them just never got on board with the plan. The disgruntled children had to be led kicking and screaming down the road to work. But in the long run it worked out for all. 
Everything about work is a lesson in life: 
1. Work=Money 
2. Being somewhere on time is a skill that will be used the rest of your life. 
3. You will always have an authority figure over you in some form or another. 
4. Self reliance is the only thing that will never let you down. 
5. Success only comes after many years of work. 
Parents devotion to teaching their children is a never ending job. But I'm seeing with the oldest one the fruit of all my teaching. Be prepared to see some bare much fruit and some to bare a little. 

Saturday, August 28, 2010

Book Review: The Elements of Investing

Image by Christopher Chan via Flickr

When reading a good book on investing you try to find some thing new you didn't know or understand before. Many of us that read a lot of person finance or investing books find the information repetitive. So finding these treasures, is the fun of reading, to find that little jewel that makes you look up and take notice. For me I have gotten a lot of info and enjoyment from reading a book called "The Elements Of Investing" by Dr. Burton Malkiel and Charles Ellis. 
They have written other books on investing notably "A Random Walk Down Wall Street". That book was a hefty read at 400-500 pages. They have written this new book, which is a boiled down version of just the best stuff. In 176 pages they give just the best advice on investing, saving and how to do it. They write about the different types of investing accounts and what type of investments to put in them. 
They describe a wide variety of scenarios and stories of investing and how it works into your life. One of the jewels of this book is their discussion on Asset Allocation. It's explained in a clear and concise way. They write how it's not just important but it's importance is paramount to your success in investing. 
What they write about in asset allocation is that whatever your ratio of equities to bonds are, it must be one that you will be able to live with when the market is volatile. If it is wrong you may sell at the wrong time totally destroying your hopes for making a growing portfolio. 
Another key technique of good investing is re-balancing your account every year. The first of the year would be a good time to do this. The importance of this is if your 50/50, 60/40 or whatever your equities to bond ratio is, if it goes out of balance, you should sell and buy to get it back in balance. The jewel in this strategy is your selling an asset that has appreciated and buying one that is at a low price. Selling high and buying low at a predetermined time. This technique forces you to take profits and buy low. It restricts you to never buy at the top. It makes a contrarian out of you and increases you rate of return. 

Malkiel and Ellis take on the prognosticators who make a living telling us what to do. They denounce the nonsense they try to tell us. While saying they all get it wrong, in fairness they write about a few who called it right. They go on to say there were a few to get it right but so far in advance that following their advice would have been counter productive. 

The good advice kept coming when they said that it was important to have some fixed income in your portfolio to see you through the time of equity turmoil. It will keep you calm until the roller coaster slows down. 

Many times they told how diversity was key to long term profits. Investing in value and growth equities was important for for a well rounded portfolio. Broad diversity also abroad with investing in fast growing economy's like China, India and Brazil. 

They don't recommend SPDR's or Large-Cap funds, they suggest Total Stock Market Funds that include broad array of stocks like one that follows the Wilshire 5000. Large, Mid and Small-Cap stocks all together. Of course they recommend you do all this investing using only Index funds.

I really enjoyed this book. Its a quick read with a good conversational style. I know I'll keep it and reference again.

Thursday, August 26, 2010

The Strangest Secret

Back in 1950's there was a motivational speaker called Earl Nightingale. He was working in the radio industry. He had an insurance company and gave motivational talks. In 1956 he gave his most famous talk. It was recorded on vinyl and won a gold record for 1 million copies sold. It was called "The Strangest Secret".  
It's only a 30 minute recording but carries a lot of good ideas. He talks about the reasons some people have success and some fail. He states out of 100 people only 5 will be financially independent. With people living in a country of abundant opportunity, why is there so much failure? 
He says what is the definition of success? It's the "Progressive realization of a worthy ideal". Men fail and they do not know why. They even don't know why they go to work everyday. That by their own choice they conform to what everybody else is doing. There is no success in showing up for a job. A true success is "Doing the job you choose to do deliberately". If you chose a job and educate yourself, you are a success. 
He says we live today in a world with a plateau of security. Most everything is available to us, we just have to show up to get it. Just having a job is not success. We have no goals and we don't use are minds and think. 
He says the key to success is that "We become what we think". You are what your thoughts are. If you think negatively, you will be negative. If you think good you will be good. You have to believe you will succeed then you will. If you can't find the right circumstances then make them. If you think about frustration, fear and anxiety that's what you will become. If you think about nothing you will have nothing. 
The trouble with today's economy is it moves at the speed of it's weakest link. It all up to each individual. We have to use are minds and think. 
He states that our minds are the most powerful tool we have. What we put in it is what our lives will become. Our minds are like fertile ground. Our minds like the ground doesn't care what we put in it. It will only return what we put in it. Like the ground, if we plant corn we will get an abundance of corn. If we plant a poisonous plant we will get an abundance of poison. Our minds are the same. He says it a law that we cannot change. 
We are the sum total of our thoughts. We have a choice, we can put good things in our mind and live successfully or put bad things in our mind and live in the gutter. 
I like a lot of what he has to say. It's interesting that these motivational speakers go back this far and the talks are recorded. I found this on YouTube. 
He calls this way of living "The Strangest Secret" because it's been known for thousands of years but very few put it into practice. 
I can see if you focus on what your doing and have good goals you will be successful. The most interesting item I thought was when he said if you can't find the right circumstances to succeed then make them. That is very important because we blame the circumstances when we fail at something. We blame other people, place and things. Then we quit and are perfectly happy to say we tried. How many times have you heard that or said that yourself. I have done that myself. Did it occur to anyone to go and make their own circumstances. 
Earl Nightingale was a famous motivational speaker in his day and probably helped many people. I'm glad I came across his recordings. He made me think in a different way. Maybe that is the way successful people think. If you ever hear successful people who have built large companies from scratch, this is the way they talk. It's different from the rest of 
us. Earl Nightingale says "You have to act like failure doesn't exist". 

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