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Review: Financially Stupid People Are Everywhere

Robert Wilkinson — Mon, 20 Dec 2010 03:20:03 +0000

Every Sunday, The Simple Dollar reviews a personal finance book or other book of interest.

The title of this book convinced me to pick it up at the library recently, but it was the introduction that caused me to actually take it home and give it a full read.

The introduction, entitled “Life as a Sucker,” makes the case that society is stacked against individual financial success unless you already have a lot of capital. Almost every element of modern society and government works against you without a large bankroll in your hand with which to generate more money.

In some ways, I agree with him. The path to personal finance success is not an easy one. I receive far more notes from people in financially disastrous situations than I can ever possibly address in my reader mailbags. There are, of course, reasons for that phenomenon, many of which the author, Jason Kelly, addresses in this book.

1: The First Rule of Finance
Live within your means by spending no more than 80% of your take-home pay. That’s the first rule of personal finance and I absolutely agree with it. If you can commit to doing that on average, you’re going to find yourself building up a lot of money in your savings over time, money that will keep financial disasters (like a job loss) at bay and make moves like buying your own home or buying a replacment car much, much easier. A big key, though, is to bank on that money, meaning that if you take money out of your savings, make extra payments beyond that 20% to restore what you took out.

2: Credit, Cars, and Castles
Kelly identifies these three elements as the most devastating opponents of personal finance success. Your credit cards (and the availability of easy consumer credit, your automobiles, and your home – together, they eat up a lot of your monthly resources if you’re paying off all of these loans. If you’re taking out a big debt for a home or an automobile that goes beyond what you minimally need, you’re essentially locking down your finances each month for the sake of having something beyond what you actually need. You’re chaining yourself to your job and walking a tightrope because you wanted more stuff.

3: Toxic FSP in the Alphabet Industry
The housing bubble only happened because people forgot the first rule of personal finance and allowed themselves to live beyond their means. When lots of people start doing this, you’ll eventually see a financial bubble of some sort, and when the people with a lot of money decide that the bubble is going to burst, they move their money and lo and behold, the bubble bursts. Prices revert to the mean and people who ...

HealthMonth, Your Month

Robert Wilkinson — Thu, 30 Sep 2010 08:20:03 +0000

Recently, a good friend of mine convinced me to sign up for HealthMonth, a website that aims to turn the self-motivation needed to improve one’s health into a fun game (you can see my HealthMonth profile and goals). It works quite simply: you set certain goals for yourself throughout the month – “I will floss every day” or “I will drink eight glasses of water a day” or “I will walk at least three miles four times a week” – and are rewarded with points and other in-game bonuses.

It’s all just a “fun” veneer over a great concept: setting small micro-goals for yourself and achieving them. Each day that I participate, I have a small set of micro-goals to achieve.

In the game, the “reward” for achieving those micro-goals is points, fruit, and other game-related goodies. In the end, though, the real motivation and reward for achieving those micro-goals comes from inside the player – in this case, me. Unless I personally want to achieve these micro-goals, I won’t be achieving them.

So what’s the point of the “game” in the first place? To put it simply, it’s a self-motivation aid and record keeper. It harkens back to Jerry Seinfeld’s brilliant “chain” concept for self motivation that I wrote about a few years ago:

He told me to get a big wall calendar that has a whole year on one page and hang it on a prominent wall. The next step was to get a big red magic marker.

He said for each day that I do my task of writing, I get to put a big red X over that day. “After a few days you’ll have a chain. Just keep at it and the chain will grow longer every day. You’ll like seeing that chain, especially when you get a few weeks under your belt. Your only job next is to not break the chain.”

“Don’t break the chain.” He said again for ...

How to Budget in Less than 20 Minutes a Week

Robert Wilkinson — Sat, 28 Aug 2010 14:20:02 +0000

1 of the most typical misconceptions about budgeting is that is requires a l-o-n-g time. Most individuals who do not learn how to make a budget do so because they think they do not have the time to budget. But, if your budget is doing its task you should be able to budget with out a major disruption to your schedule.

While some individuals function for different factors, most individuals function to spend the expenses. Some even hate or begrudge their jobs. But they continue to put in 40 plus hours a week to earn cash to spend the expenses. Nevertheless, for most individuals, taking 20 minutes a week to budget could significantly reduce their expenses which would also decrease the require to earn so a lot cash. Keep in mind, a penny saved is more than a penny earned.

Picture by Aaron Geller by way of Flickr

five S to a 20 Moment Bu

1. Set up budget.

Yes, this part of the process will get more than 20 minutes. This is where you really make your budget and set budget categories.

Time dedication every 2-3 many years: 1-3 hours.

2. Keep a published report for every buy.

Gather receipts every time you invest cash. If you do not get a receipt, just get a receipt you already have and make a note on the back again of the receipt. Include the item purchased and total cost.

Time dedication per transaction: seconds if they give you a receipt and 20 seconds if they do not.

If the typical person makes ten purchases a week where they do not get a receipt, it will cost them 2 minutes of their week.

3. If married, schedule a budget date 1 day a week.

Yes, call it a date. When you are on the same page with your finances, your marriage will be better.

Have 1 person enter the info and the other study the info from the receipts you have been collecting. In our situation, we budget on the pc using Moneydance. You ...

Your Income Is Your Greatest Wealth Building Asset

Robert Wilkinson — Mon, 02 Aug 2010 14:20:03 +0000

For those of us who like to read (and write) information on personal finance subjects, we spend energy on a wide range of wealth building strategies. Too often we ignore the concept of making money because we feel it’s something outside our control. After all, our employer pays us, we don’t pay ourselves, right? The reality is that your income is your greatest wealth building asset.

Photo by Photos8.com via Flickr

Keeping & Growing Income

The first thing to focus on is keeping and growing your income. Obviously, this is a concern for many people today considering the high unemployment in America. If you’re wanting to improve your financial situation, you must re-establish your income even if it means taking a less-than-ideal job. If you have a job still, do what you can to keep it — and if you’re in the minority with an opportunity for a raise or other opportunities, take advantage them!

Next, I believe it’s worthwhile to pursue additional income opportunities to create income outside your “main job.” This has been a main focus of my blogging for a couple years now — finding ways to make extra money to improve one’s financial situation. You can read some of my past posts here at Moolonomy or check out my online income page for more information.

Letting Your Income Work

Now, letting your income work for you is what almost all Americans struggle to do. What do I mean by this? I mean letting your income actually building your wealth. Instead, most Americans inhibit their income and put obstacles in front of it and prevent it from building wealth.

For example, the biggest obstacle is debt. By tacking on insane levels of debt, we fail to let our income build wealth. How? Well, big chunks of our income immediately go towards paying ...

Getting Things Done: The Power of the Collection Habit

Robert Wilkinson — Wed, 07 Jul 2010 00:20:02 +0000

This is the eleventh entry in a fourteen part series discussing the time management classic Getting Things Done by David Allen. New entries in this series will appear on Tuesday afternoons and Friday mornings through July 16.

Allen concludes the book with three short chapters discussing the power of various aspects of the GTD system. This first one focuses on how powerful the collection habit really is.

As Allen states it on page 225:

When people with whom you interact notice that without fail you receive, process, and organize in an airtight manner the exchanges and agreements they have with you, they begin to trust you in a unique way. Such is the power of capturing placeholders for anything that is incomplete and unprocessed in your life. It noticeably enhances your mental well-being and improves the quality of your communications and relationships, both personally and professionally.

In other words, if your system is reliable, you become reliable, and if you become reliable, you’ll become more confident of your abilities, other people will notice your increased reliability, and you’ll become more valuable in everything you do.

I’ve noticed this phenomenon in my own life. Whenever I am operating my system really efficiently, I seem to do a great job of managing all of the stuff on my plate and others do notice this. I tend to see the results of it in the form of better articles on The Simple Dollar and elsewhere, which attracts readers. I get more notes about how today’s article was really good. I tend to build relationships in my life in a positive manner because I’m on top of the feeding and growth that they need.

What makes that happen? In the end, it’s simply the fact that I’m collecting everything that’s incomplete in my life and doing something with all of that stuff. Even if the system isn’t going perfectly for a while, I’m still making sure that all of the open-ended things are either being closed or are moving forward.

That builds trust. That builds self-confidence – and confidence from others. It builds a feeling of control over your life instead of a sense that things are just spinning out of control.

Those are things that constantly help you throughout your career and personal life, not just in terms of building relationships, but in terms of the quality work that you’re able to produce.

One interesting part of sitting down and doing a full collection of all of the unfinished stuff in one’s life – and I certainly went through this myself – is all of the negative feelings it generates along the way. From page ...

How to Keep Finances Growing

Robert Wilkinson — Wed, 24 Feb 2010 21:20:30 +0000

No matter how much money you make, for many people, it's never quite enough. In order to get ahead, you'll need to find a way to keep your finances growing. There are many different ways that you can grow your income, both actively and passively, and over time, these small streams can converge into a river that will help you stay solvent and perhaps even well heeled, long into the future. Let's look at just a few ways to keep your finances growing.

1. Focusing on your job.

If you are due for a raise, don't be shy about asking for it. However, instead of immediately spending more, take that extra money and either invest it or put it into a high yield savings account. If you don't make enough at your current job to stay afloat every month, don't wait to start exploring your other options. Money isn't everything, but you do need to make enough to pay your bills and to ensure your financial future. Consider applying for a better paying job if you don't think your chances for advancement are good.

2. Set up multiple streams of income - active.

These are income streams that may require a little work, but will usually pay off, especially in the future. Whether you decide to open up your own business on the side, or you invest in real estate, these income streams can help you build up a nice little nest egg that will keep paying off for you as long as you keep that income stream active. For those that don't have a lot of time, passive streams may be more ideal, which we will cover next.

3. Set up multiple streams of income - passive.

Passive income streams work for those that need extra money but are already well tied up with work or home life and don't have the time to actively focus on building their income. Examples of passive income include an annuity or an investment that requires a small amount of work at first, and then no additional work over time. It is a very good idea to have both active and passive income streams to maximize your earning potential.

4. Stop overspending.

One of the easiest ways to free up additional income is simply to curtail your spending habits within reason. That's not to say that you have to become frugal, but if you do spend more than you earn, it's safe to say you won't be in a very good financial position. Keep track of how much you make and how much you spend and make sure that they are all in order.

You don't have to be rich now to become rich later. However, you do have to make that effort to start developing more avenues of money if you do want to better your position in the future. Don't rely on winning the lottery as a retirement plan - take the steps you need to take now, before it is too late.

Photo Credit: 1

Originally posted 2008-10-23 05:11:11. Republished by Blog Post Promoter

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Mint Map: Where the Jobs Will Be

Robert Wilkinson — Sat, 20 Feb 2010 13:20:06 +0000

Seven New Years Financial Resolutions for 2010

Robert Wilkinson — Thu, 31 Dec 2009 15:20:40 +0000

This is a guest post from the National Endowment for Financial Education (NEFE), a non-profit dedicated to improving the financial literacy of all Americans. NEFE operates the site Smart About Money and have developed a series of articles filled with tips to help you make 2010 the year of financial freedom. You can also find Economic Survival Tips, worksheets and articles focused on financial education related to housing, spending, credit and job change. Follow NEFE on Twitter at @nefe_org

Control Spending. If you spend less you'll have more money available to pay down debt and save for the future. Write down your expenses for a month to see where your money is going. You might be surprised by how easy it is to find places to scale back.

Create a Debt Repayment Plan. If you carry credit card debt, write down everything you owe and make a plan to pay it off. Start with small items you can act on right away–it will make tackling the bigger debt easier. Also, try buying with cash only. It’s a sure-fire way to prevent increases in your credit card debt.

Setup Auto-Savings Plans. Arrange with your bank or another financial institution to have a set amount deducted from your checking account to a savings account each pay period. Of the Americans who have been able to contribute to emergency savings funds, automatic withdrawal is the most popular method, according to the Consumer Federation of America. Here's why you ...

Why Do You Need To Save Money?

Robert Wilkinson — Tue, 08 Dec 2009 21:20:44 +0000

Image Courtesy: PinkMoose

There are some people out there that live by the financial motto of, "You can't take it with you, so enjoy it today". To some extent, I agree with that. Yeah, you should enjoy your money while you are still young enough to enjoy it. There is nothing wrong with that. But I also think you should save some of it for later. By saving money, you are building wealth.

"The time to save is now. When a dog gets a bone, he doesn't go out and make a down payment on a bigger bone. He buries the one he's got". - Will Rogers

Here are some of the reasons I save:

Emergencies. Unfortunately, we don't have control over everything in our lives. There will be times that your car will break down and need repairs. There will be times when the hot water heater goes out or you have an unexpected illness or lose your job. If you are a homeowner, you can guarantee that something will break at any time. Unlike being a renter, you can't just call up the landlord and have them fix the problem. These things happen and most of the time they require money to fix them. If you have no money set aside to cover the emergency, it could cause additional stress along with the stress of the original problem. If you have no savings to cover the emergency, you could end up going into debt and paying more money.

Freedom. Having money set aside in savings gives you freedom. I had the opportunity to take a vacation a few months ago. A few years ago, I would not have been able to go because I didn't have the money. I had the money set aside in my "fun" account and I was able to take my trip without causing any ...

Should I Cash Out My 403b Account To Pay Off Debt?

Robert Wilkinson — Fri, 20 Nov 2009 10:20:57 +0000

2 Comments

Help a reader with this question:

I currently have a 403b with about $20k in it. I am planning on leaving my job late April and was previously planning on moving the money somewhere else. However, I owe a family member $15k for a car they bought me almost 5 years ago. I did not pay them back yet because we have been working on paying off all of our other debts (which we have paid them all off!), and the family member was not charging me interest or asking for the money back. So this $15k (and our mortgage) is the only thing holding us back from being debt free. Would it be wise to consider pulling the money out of the 403b when I leave my job, paying the taxes, and then giving my family member the money to pay off the debt? Then I was thinking about opening a Roth IRA with any remaining money since I think we can get down to owing the family member $10k by the time I leave my job.

Another factor which I need to look into is how my company has invested in my 403b. I am not fully vested since I will be about 7 months short of becoming ...

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