New Year’s Resolution: “Trim the Fat”

health.usnews.com
health.usnews.com

The new year is a few days away and many of us have already begun conjuring up what 2015 might have in store for us.

New year’s resolutions are constantly being set right now.  After all, you have to give yourself a little time to wrap your head around what “sacrifices” you’ll be making in the upcoming year.

If you haven’t come up with a resolution yet, or you are seeking an additional one to add, I suggest that you give this one a shot… “Trim the Fat”.  No I am not talking about a weight loss goal for the new year, although that is important if it applies to you.  In order to achieve wealth you have to have your health!  Instead, I am talking about trimming the fat out of your budget.  This means that for each category of your budget, be it car insurance, eating out, etc., try and see if you can negotiate a lower car insurance rate, or bring your lunch to work a few times a week.  The point is that freeing up a little bit of money in a few categories can easily add up to hundreds of dollars, which you can then use to invest either in yourself, an index fund, or save up for a home purchase.

We all need to make 2015 a year where we not only create a budget, but we also monitor our expenses.  Creating a budget is fairly easy, and I even offer an example budget for all to use under the “Your Monthly Budget” page.  Sticking with the budget is always the hard part.  You might find yourself tracking expenses for the first month or even through February, but then it becomes cumbersome and you forget all about it.  I can’t do much to motivate you to follow through with your budget.  That is one you!  Here are some action items though to get this new year’s resolutions started…

1) Create your own budget (Use the example budget I offer and create your own categories)

2) See what areas you can cut out money (even $25 in 4 categories is an extra $100/month)

3) Monitor and track all of your expenses (copy and paste your budget and then whenever you have an expense in a category, put it in the correct field)

4) DON’T GIVE UP! (This is where you have to show committment to yourself to follow through with the resolution)

And finally…

Happy New Year to all

The Perfect “Financial” Christmas Gift

The older we get the less “stuff” we get for Christmas.  As kids our Christmases were often filled with various toys and gadgets.  However, once you reach your 20’s you tend to want bigger items such as iPads, new cell phones and money.

I gifted unto my sister this year what I consider to be the perfect financial gift.  It was a check worth $200.  Now most of the time when we get a check for Christmas or our birthday we think of what we could possibly buy with that money.  This check was different.  I wrote out the check, but I did not date or sign the check.  The check is currently worthless.  Under the “For” spot on the bottom left part of the check I wrote: “Roth IRA”.  The check was given unto my sister with the stipulation that it be used as funds to go towards her opening a Roth IRA.  When she decides to gather up another $800, she will have $1,000 to put towards a low-cost index fund through Vanguard, and I will sign and date the check.  This Roth IRA money will aid in her retirement goals many years down the road.

I would like to think that this gift can one day make her a MILLIONAIRE, and it can.  If she were to open an account with the $1,000 needed and put in the maximum contribution allowed to a Roth IRA, given an 8% annual return on her investment.  She would have an account balance of well over $1 million dollars by the time she is just 60!!!

Maybe you received some money for Christmas or a recent birthday.  My challenge to you is instead on spending it frivolously on the latest iPad or TV, open yourself a Roth IRA.  Vanguard offers low-cost mutual funds that can be started with as little as $1,000.  Be diligent and stay the course, you could turn some Christmas cash into a million dollars!

Budget Smart, Invest Wise

The Student Loan Mistake to Avoid

With many fall graduates moving forward with their future lives after college it is now time to get your financial future off to the right start.

If you have a job already then great, step 1 is learning how to budget your salary.  Find an example budget on the “Your Monthly Budget” page on the blog.

If you have debt, then tackle it and don’t get into further debt.  This means don’t go out and purchase a new car or max out credit cards.  Your first paycheck is often times the biggest one you have seen to date, so that is why it is vital to create a budget.

Student loans often come with a deferment period of 6 months after you graduate.  This is basically a way for the loan company to say: “Enjoy getting your finances in order while we charge you interest that accrues on a daily basis”.  I made the mistake of not making a loan payment during my 6 month deferment period, and it ended up costing me hundreds if not thousands of extra dollars.  Paying off student loans and debt in general is essential in beginning one’s finances.  Don’t wait for the deferment period to pass.

The benefits of beginning to make student loan payments during the deferment period are enormous… Save money on interest, and paying off student loans faster!  Learn from my mistake and save yourself time and money.

Remember…

Budget Smart, Invest Wise

Who is your best friend when it comes to investing?

You might say it’s your financial advisor, your parent, a relative or maybe even a mentor who has had great financial success.

Think again…

Your best friend when it comes to investing is: Compound Interest

People who are new to investing often wonder what is compound interest, or why is compound interest important.  I’ve touched briefly on the subject of compound interest in a past post but I feel it is so vital to creating long term wealth that I am circling back to it again.

Money can be made and lost.  However, time cannot.  Each of us has only a finite amount of time here on Earth to build up a financial wealth.  Mr. Time is your next best friend.

Check out the following article which shows a visual representation of how Compound Interest and Mr. Time can work together to create a substantial amount of financial wealth for oneself.

http://finance.yahoo.com/news/every-25-old-america-see-200000319.html

Why Payday is… Just another day

This post is occurring on the 15th of the month.  For those who are employed and get paid on a bi-monthly basis, today is most likely a payday for you.  Congrats!  Your first half of the month has been rewarded with a monetary settlement.

For me, today isn’t payday… It’s “Cash flow” day!

Many people look at payday as an opportunity to “go out for drinks with friends” or “buy that new sweater you have been wanting”.  They made money, so now they spend it.  Since I monitor my spending using a budgeting worksheet, I already know how much I can spend on things such as a new sweater, or drinks with friends in a given month.

Instead, view today as a day of positive cash flow.  You got paid, probably in a bank account, so it is in essence liquid cash.  This positive cash should first be used to pay expenses.  It’s the middle of the month, so maybe you have a cable bill or a car payment.  Focus on paying your necessary debts first before splurging on other activities.

Additionally, with my job, pre-taxed money is automatically put into my 401k, so I never even put this into the budget equation.  My philosophy is, “If you don’t see it, you can’t spend it.”

Budgeting after college is essential to get on the right financial track for life.  I have attached a free budget spreadsheet at the bottom of this post.  Use it, make changes to it to fit your needs.

Today might be a literal payday for you, but it is both literally and figuratively a “Cash flow” day as well.

Budget Smart, Invest Wise!

Monthly Budget Example

1 A Week in 2015

2015 is slowly creeping up on all of us.  Yahoo finance has released a list of 50 things one can do to improve your financial situation in the coming year:

My recommendation… Try and implement 1 of these things a week, and by the end of the year compare your finances at the end of 2015 with how they started at the beginning.

Start with the top of the list… Here you go:

http://finance.yahoo.com/news/50-ways-improve-finances-2015-193044136.html

How the Rich get Rich

I can’t locate exactly where I’ve heard this before, but I’ve been told/ read/ listened to the following advice multiple times:

“The biggest killers of investment returns are taxes and fees”

The taxes, well that should be obvious.  It’s the amount you pay to the government.  Income taxes, capital gains taxes, if you don’t plan well you could have to deal with both.  This is why I always talk about retirement plans, and the benefits they offer in reducing one’s tax burden.

Fees, I’m talking about investment fees paid to advisors.  When I first graduated and had money to invest, I thought I was doing a good job of putting money with an advisor.  However, I quickly realized that every “recommendation” they gave resulted in a fee earned by them on the selling of one position and the buying of another.  I eventually took out less money with my advisor than I initially invested and missed about an 18% gain in the stock market during this period.  Lesson learned!  This is why I also recommend Vanguard and their low-cost index funds.

So this leads me to the title of this post… How the Rich get Rich.  Well they look into reducing their biggest killers for investment returns.  Don’t believe me, check out the following article and see for yourself.

http://finance.yahoo.com/news/6-things-rich-advantage-151628504.html

Be Like a Dog and Rollover

Changing jobs?

A recent survey completed by Fidelity Investments showed that approximately 1 in 3 people who were changing jobs touched their old employer’s 401k.  Cashing out your old 401k will cause one to pay income taxes, along with penalty taxes if one is not of age.

Touching this precious “Retirement Money” takes away from the money’s potential to compound upon itself, accelerating growth in your retirement account.

How to avoid the penalty and current income taxes on an old employer 401k?… Roll it over into a traditional IRA.  This will give you the same preferential tax treatment that your old employer plan had and continue to keep you on track towards retirement.

Fidelity Investments article:

https://workplace.fidelity.com/resources/cost-cashing-out.html

New Year, New Budget

With the end of the 2014 calendar year upon us, it is time for many of us to make our New Year’s Resolutions.  A New Year’s Resolution for one’s financial life is a critical one to consider.

As the new year draws close, I have already begun preparing my 2015 Financial Spreadsheet, aka budget.  You can get an example budget, one similar to what I use on one of my previous posts (Budget Spreadsheet for Starters).  Two critical things I considered when making my financial goals for the 2015 year were as follows:

1) Pay off the remainder of my student loans.

2) Continue to contribute to a Roth IRA on a monthly basis reaching the max $5,500 contribution level for the year.

I view these two goals as a MUST for the 2015 year.  Setting a clear picture of how I can tackle both of these from a financial achievements while also enjoying travel, entertainment among other things is the foundation of my budget.

So as 2015 draws near, create a budget and PAY YOURSELF FIRST (To me this means paying down debt and saving for the future).  Nobody can be entirely certain of what the stock market does in the upcoming year, but you and only you can control the budgeting aspects of your finances.

Budget Smart, Invest Wise