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How To Give Your Finances A Good Scrubbing

Couple Using Laptop And Discussing Household Bills Sitting On Sofa At HomeFall is upon us for at least most of the country. Of course, if you live somewhere such as Southern California or Florida then fall is only a concept or a memory. But regardless, the holidays will soon be here so that now would be a good time to give your finances a good going over. What do you need to do? Here are tips for giving your finances a good scrubbing to make sure you’re in tiptop financial shape for Thanksgiving and Christmas.

1. Prioritize your budget

First, review your budget. If you had a hard time prioritizing things, you need to review your expenses and determine which ones are fixed and non-negotiable such as rent or mortgage payments, auto loan payments and utilities. You might also add other things such as groceries and gas into this category. Add up all these expenses and subtract them from your monthly income. What you have left is what will be available for your discretionary spending such as entertainment, shopping, dining out and travel.

Next, make sure you budgeted for an emergency fund. You just never know when your car might break down, your dishwasher stops working or someone in your family suffers a major illness. You need to be prepared for these unexpected items by having an emergency fund. Most experts say that your fund should be the equivalent of six months of living expenses. If this seems too daunting try saving for at least three months worth.

Review your housing costs, as it’s possible that you might be living beyond your means. In this case, consider getting a roommate to reduce your living experiences. You can also cut expenses by carefully furnishing and maintaining your home. Buy used furniture and appliances instead of new ones. Then take the time to refurbish them yourself. You could probably solve many household maintenance issues yourself and eliminate the need to hire an expensive contractor.

Review your spending for the past few months. Did you find some problem areas? Or maybe there are areas where you budgeted more than you really needed. Adjust things accordingly. And while you’re at it, check to see how well you’ve been sticking to your budget. If you find you’ve been spending too much time tweaking it throughout the month, simplify things by creating fewer, broader categories. You’ll still be keeping your spending under control but your budget won’t take up so much of your time.

Be reasonable. Don’t try to keep a budget that is simply not doable. You need to be realistic about your budgeting just as you would with an exercise plan. If you’ve always had a problem sticking to a savings plan or are a compulsive spender, don’t expect that you will change overnight. Begin by setting some small goals so you can build the confidence to tackle bigger issues down the road. Keep in mind that budgeting is not a sprint. It’s a marathon. And above and beyond everything, understand that this doesn’t have to be about deprivation. If you follow these tips you should be able to easily have a budget you can live with and that will help you achieve financial peace of mind and without a great deal of self-sacrifice.

2. Wipe out old accounts

If you’re typical you have old unused bank accounts and dusty old checks or bank statements just sitting around somewhere. If so, now would be an excellent time to rid yourself of those checks and bank statements and close any accounts you’re not really using. If you’ve been unhappy with your bank for some reason, this would be a good time to switch. While you’re checking out those accounts, make sure to review your retirement accounts. You might find a 401(k) from a previous employer you had just forgotten about. If so, consider rolling it into your current 401(k) account so that you have only the one to deal with and can streamline your retirement savings.

3. Review your W-4

It might feel great to get a big tax return but if you got one earlier this year what you’re also doing is giving your Uncle Sam an interest free loan out of your paychecks. Get out your W-4 and take a close look at how much money you’re having withheld. You might be better off changing your withholding so that you would have more money every month instead of giving Uncle Sam that free loan. In fact, as revealed in this short video, your goal should be to end up paying  no taxes and getting no refund.


4. Let go of all that paper

Whether it’s your utility bill, checking account or a student loan account, almost all of them have paperless billing options. You can cut back on those stacks of paper spilling all over your desk by choosing to get these bills electronically. This works especially well if you’re paying your bills online anyway. So, choose paperless billing wherever possible. Those piles of clutter on your desk or kitchen counter – and the environment – will all thank you.

5. Do some comparison shopping

How long has it been since you comparison shopped to see if you could get a better deal on your cable, car insurance, cell phone plan or any other monthly items? If it’s been awhile, now would be a good time to do this. It’s best to shop for better rates at least annually but even better to do it semi-annually. This will help ensure that you’re not paying too much for those services.

6. Review your insurance coverage

Has it been like forever since you reviewed your life insurance or homeowners policies? If this is the case, take some time to give them a check up. Review all of your policies to make sure that you have an adequate amount of coverage. For example, if you’ve recently had a baby or got a big raise you might want to upgrade your life insurance. The cost of building houses has risen fairly dramatically over the past five years so you might want to increase your homeowner’s insurance policy to make sure you could rebuild your house in case you suffered a total loss.

7. Make an inventory

If you have either renters or homeowner insurance you need to have an inventory of all your possessions. Then if you suffer a disaster, it will be much easier for you to replace everything. If you don’t already have a home inventory, take time to make one. The simplest thing is to take photos of your stuff, especially those big-ticket items such as your big screen HDTV and furniture. Then write down approximately what you paid for each item and be sure to start saving receipts for any new items you bring into your home.

8. Sort out your paperwork

You’ve probably managed to accumulate a whole bunch of documents that you don’t really need any more. Go through everything, find the documents you don’t really require any more and shred them. As an example of this, the federal government says that you really only need to keep your bank statements for a year. You can also get rid of your tax documents and their supporting records after seven years. So if you’re like us and have bank statements dating back to 2009, just get rid of them.

In summary

Doing all of these things might seem like a terrible chore but in fact they will probably only take you only about a day total. And just think how much simpler your life will be when you complete them. You’ll have gotten rid of all those stacks of paper that have been taking up space on your desk, you’ll be spending less on reoccurring items such as cable or your phone bill, you’ll be creating an emergency fund and will have better insurance coverage. Wouldn’t this be worth investing a Saturday?

11 Financial Things To Do Before Turning 30

young woman thinkingTurning 30 is a kind of watershed moment in most people’s lives. It sort of marks the end of young adulthood and the real coming into your own as a person. You will likely have new responsibilities including maybe even marriage and children but regardless of this the number one thing on your list should be your finances. This is especially important if you’re married, as conflict over money is the number two reason why couples end up divorcing.

What do you need to achieve financially by the time you turn 30? Here are 11 financial things you should have done or be working on. As you might imagine these goals are not for everyone and all eleven may not be feasible for you. But it’s important to keep them in mind at least as general guidelines.

Be prepared for large expenditures

Big expenditures will be coming your way and you should be saving up, anticipating and preparing for them. As an example of this, you may soon be buying a house, having children and other comparable major expenses. If necessary you will need to alter your lifestyle to be prepared for these expenses so that you will be able to pay for them without having to go into debt.

Have an emergency fund

In the event you don’t now have an emergency fund you need to start building one so you will have money available to pay for unanticipated expenses such as a serious illness, an auto accident or if you were to lose your job. Experts generally say you should have the equivalent of six months worth of living expenses banked and, of course, a year would be even better. If six months seems out of reach try for the equivalent of at least three months of your living expenses.

Live within your means

By the time you hit 30 you should know how to live within your means but be able to also enjoy life. You should know your priorities or what it’s worth spending money on and how to save in other areas to pay for those guilty little pleasures like your morning latte. It’s acceptable to splurge on yourself periodically so long as you’re cutting costs aggressively on other items. And understand that what other people are skipping on may not be anything you would want to give up.

Automate your finances

By now, you should know about automating your finances. For example, you should be sending a part of your paycheck automatically to your savings account every month so that you’re paying yourself first. If you’ve already built up a fairly nice emergency fund, you might send the money to your broker for investing. The simple fact is that most people don’t miss the money when it’s taken out of their paycheck before they ever see it. This just makes saving money a lot easier.

Max out your 401(k)

You should now be maxing out or at least meeting your employer’s match for your 401(k). When your employer matches your contribution to your 401(k) this is like free money and many financial experts say it’s the average person’s best friend. The money you put into a 401(k) is pretax meaning that it doesn’t count against your income. If times get tough you could borrow against your 401(k) and when you pay back the money, you’re basically paying interest to yourself. Be aware that if you do borrow from your 401(k) you need to start paying back the money within six months or it will be treated as ordinary income and taxed accordingly. And of course, you will have to pay taxes when you begin withdrawing the money at age 70 ½. In the event your employer does not offer a 401(k) you should be putting money into a conventional IRA

Have a Roth IRA

The money you put into a conventional IRA is also pretax like a 401(k). But it’s good to also have a Roth IRA. The reason for this is that the money you put into it is treated as taxable income but it’s tax free when you begin withdrawing it.

Make a will

I understand that its tough to think about your death when you’re only 30 years old but accidents and illnesses do happen. Even if you’re single you need to have a will so that you will have control over what happens to your money and physical possessions. Of course, this is even more critical if you’re married and have children.

Prioritize and pay off your high-interest debt

If you still have high-interest debt you need to get to work paying it off. Most experts say that the best way to pay off high-interest credit card debt is by using a technique called snowballing. It’s where you prioritize your debts from the one with the lowest balance down to the one with the highest. You then focus on paying off the one with the lowest balance. When you get it paid off you will have “new” money available to begin paying off the card with the second lowest balance and so on. This is called snowballing your debt because as you get each one paid off, you should pick up momentum to pay off the next one just as a snowball picks up momentum as it rolls downhill. If you think this technique might help you, watch this video from Dave Ramsey for more information.

If you have federal student loan debt you can’t snowball it but you could change repayment programs so that you would have better terms and lower monthly payments.

You were probably put in 10-Year Standard Repayment after you graduated from school. This means you have a fixed term of 10 years and fixed monthly payments. Another program such as Graduated Repayment or Pay As You Earn Repayment could be a better option. If you would like to know more about these options go to the website

Improve your credit score

Like it or not, that little three-digit credit score is what rules your credit life. It was invented by a company that was then known as Fair Isaac Corporation but is now simply FICO. If you don’t know your FICO score you can get it on the website You can also get it from any of the three credit reporting bureaus – Experian, Equifax and TransUnion or from an independent source such as If you find that you have a low credit score of, say, less than 600 you need to get to work to improve it. One of the components that make up your score is your debt-to-credit ratio. This is calculated by dividing your debt by the total amount of credit you have available. For example, if you have total credit card limits of $10,000 and have charged $2000, your debt-to-credit ratio would be 20%, which would be very good. If you find your ratio is above 40%, you will need to either pay down some of your debts or get your credit limits increased. Do this and your credit score should improve at least somewhat. Beyond this, you need to check your credit reports to see what’s dragging down your score. If you have missed payments, skipped payments or defaulted on payments, you will need to get to work to correct these issues.

Know something about negotiating

It’s important to be able to negotiate successfully over things such as salary and with service providers. By now you should at least understand the elements of how to negotiate successfully.

Have read a few books

Finally, by the time you reach age 30 you should have read a couple of books about personal finance. Two of the best of these are Your Money Or Your Life and Dave Ramsey’s Total Money Makeover.

How To Keep Student Debt From Ruining Your Life

graduate chained to student debtIt is estimated that some 20 million students are going to college this fall and that unfortunately some 12 million of them will be required to take out student loans to pay for their educations. Unless you’ve been hiding under a rock, you probably already know that student debt stands above $1 trillion making it even larger than our national credit card debt. Colleges and universities are not making things any easier either. The average tuition has increased 27% at public universities and 14% at private schools in the past five years, which would help explain why people are graduating owing an average of $25,000 or more.

But regardless of whether you’re just starting college or are already in school, there are things you can do to keep student debt from ruining your life.

Choose the most affordable school you can

In the event you’ve already started college this advice may come too late. But if you’re still a high school senior you should try to choose the most affordable school you can. This may not be the most prestigious of colleges but what many people have found is the secret is to go to an affordable school for four years and then get their graduate degrees at a more prestigious college or university.

Another way to keep from piling on so much debt it would ruin your life is to go to a community college for two years and then transfer to a more prestigious school. Whether you start at a two- or four-year college you’ll probably be required to take basically the same courses for the first two years so you really have nothing to lose by starting at a local community college. As an example of what this can mean, the cost to attend one of our local community colleges for a year is $6832 while the cost for an in-state student to attend our state university is $26,933. Do the math and you’ll see you would save approximately $40,000 by doing your first two years at the community college.

Choose your major carefully

Even if you’re already in college it’s not too late to consider changing majors if you’ve chosen one that would doom you to being a low earner for years. Recent studies have shown that if you get a degree in child and family studies, elementary education, exercise science, broadcast journalism or animal science you will be a low earner for life. For example, even the mid-career salary for a person with a major in child and family studies is just $37,200 and for elementary education it’s $45,300. The starting salary for a person with a major in exercise science is $32,600 with an estimated mid-career salary of $51,000 while the mid-career salary for a broadcast journalism major is just $68,800. Now compare this with the $100,000 or so that you will spend on your education and ask yourself the question would one of these majors be a good investment.

Also be careful about the college you choose

Believe it or not there are colleges that offer better values just as there are automobiles that are better values and the names of some of the schools might astonish you. For example, Harvard University is considered to be a good value because nearly 60% of its students receive need-based grants so that the average cost to them is just $15,486 a year. Brigham Young University is also considered to be a good value because the average cost of attending there for a year if you receive need-based grants is just $12,367. And the cost to attend the Massachusetts Institute of Technology for a year averages just $19,957 assuming you qualify for need-based grants. Now compare this to the cost of attending our state university for a year of $26,933 with little or no opportunity to get grants and you should be able to see why it’s important to be careful about which school you choose.

Score some scholarships

Fortunately, scholarship money being handed out by foundations, corporations and other private-sector benefactors has also risen as has tuition at universities and colleges. There are websites available that can help you and your family find scholarships for which you might qualify. However, it’s important to search early. If you’re a student your parents should check with their employers to see if maybe they offer its employees’ children scholarships. Don’t be afraid to aim high. Even though the competition for big scholarships can be very tough, you should give it a shot. They payoff can make it worth the effort. This is also an area where choosing a private school could be better than a public university. While it’s very difficult to score a scholarship from a public school it should be easier to get one from a private institution – just as it’s easier to get needs-based grants. As an example of this, the small private college I attended now costs – at least theoretically – a little more than $37,000 a year. However, 100% of its students receive scholarships or grants so that the true cost of attending it is clearly much less than the $37,000.

What to do if you’re already deep in student loan debt

If you owe $20,000, $30,000 or more in student debt you can still keep this from ruining your life. For one thing, you could get a federal Direct Consolidation loan, which could lower your monthly payments dramatically by giving you more time to pay off your debt. The other advantage of this is that you would have just one monthly payment to make a month versus the multiple payments you’re currently making. The interest rate on these loans is computed as the weighted average of the loans you’re consolidating rounded up to the nearest 1/8th of a percent. The simplest way to think of this is that if you get a Direct Consolidation loan, your interest rate will be higher than the lowest interest rate you’re currently paying but lower than the loan with the highest interest rate.

Choose a different repayment program

You might also be able to make your life easier by changing repayment plans. There are six available in addition to the 10-Year Standard Repayment program. Three of these are income-based meaning that your monthly payments would be based on your income and family size. One of these is Pay As You Earn, which would cap your monthly payments at 10% of your discretionary income. Pres. Obama recently signed an executive order that makes about 1.6 million more people eligible for this program and you might be one of them – if you got your first federal student loan after October 1, 2007 and it was a Direct Loan or a Direct Consolidation loan you received after October 1 of 2011. The eligibility requirements for Pay As You Earn can be a bit confusing so be sure to watch this short video to learn more about them,

Other repayment options

In the event you aren’t eligible for Pay As View Earn, there are other options that could keep your student debt from ruining your life. The Income-based Repayment program would cap your monthly payments at 15% of your discretionary income or if you just recently graduated you might choose Graduated Repayment. This is where the payments start smaller but then gradually increase every two years.

The long and short of it is that you can get a good college education without it ruining your life. However, you will need to make some smart decisions when it comes to choosing a school and choosing a major. There are also options available that can make things easier in the event you have a considerable amount of student debt. As the old saying goes, “you don’t need to know a lot about money to be good with money.” The important thing is to think things through and make decisions that will enhance your life and not ruin it.

20 Financial Terms You Should Definitely Understand

Two smiling girls have coffee timeWhen you hear or read terms such as AIM, net worth or AGI does it make you go “huh”? If so, you’re certainly not alone. There are a lot of financial terms kicking around out there that many people don’t understand. Financial gurus are especially fond of tossing around terms such as asset allocation or amortization without providing any sort of explanation – with the assumption that you’ll just know what they’re talking about. Here to make matters a bit simpler are explanations of 20 terms associated with money that you definitely should understand.

FICO score

Your FICA score is a three-digit representation of your credit history. Banks and other lenders use your score to measure how creditworthy you are. If you’re wondering what FICO means it’s an acronym for the company that used to be Fair Isaac Corporation and that developed the methodology for calculating credit scores. FICO scores go from a low of 300 to a high of 850 and, of course, the higher your score the better the terms you’ll get on your next credit card or loan.

Compound interest

This is the interest that you earn on whatever amount you deposit when you’re investing or saving plus any interest you’ve accumulated over time. On the other hand, if you’re borrowing money it’s the interest that’s charged on the original amount you borrowed as well as any interest charges that are added to your outstanding balance over time. As you might guess, it’s much better to earn compound interest on your savings then to pay it on the money you borrow.

Net worth

This is the difference between your liabilities and your assets. The way you calculate yours is by adding up all of the money or investments you have such as the current market value of your house and car as well as any balances you have in checking, savings, retirement or other investment accounts and then subtract your debts. This will need to include your credit card balances, mortgage balance and any other obligations or loans. The net worth number you get will help you understand how financially healthy you are.

Asset allocation

This is the process you use to choose what percentage of your portfolio that you’d like to invest in various asset classes. It’s based on your personal risk tolerances, time horizon and your goals. Bonds, stocks and cash or the equivalent of cash (think CDs) are the three major types of asset classes.


These are essentially investments in debt. In other words, when you purchase a bond you are lending money to a government or corporation for a specific amount of time at a fixed interest rate. When you do this you receive interest payments periodically over time. When the bond matures, you get the loan amount back.


When you buy or sell securities over time in order to maintain your desired allocation of assets it is called rebalancing. As an example of this if you’re allocating 60% stocks, 20% cash and 20% bonds and the stock market has done well over the past year, you might rebalance your allocation to 70% stocks, 20% cash and 10% bonds.

Capital gains

Capital gains is the amount that an asset or investment increases in value over its original purchase price. However, this gain is just a paper gain until you actually sell the asset. In contrast, a capital loss is when your asset or investment decreases in value. When you sell an investment, you pay taxes on both short-term capital gains and long-term capital gains. On the other hand, if you suffer a capital loss this could help reduce your taxes.


This is when you pay off your debt in fixed payments over a specific amount of time. As an example of this your mortgage is amortized with monthly payments that are computed based on the amount of money you borrowed, plus the interest you will be required to pay over the life of the loan.


This is short for adjustable rate mortgage. It’s the kind of mortgage where the interest you pay increases or decreases based on a particular benchmark. These mortgages generally start out with a fixed rate for three to five years and the interest rate then resets every year thereafter based on some benchmark, plus an additional amount. As an example of this, if you have a five-year ARM your interest rate will be set for the first five years after which it will increase or decrease based on your mortgage’s terms.


This is an account that is kept by an independent third party on behalf of two other parties to a transaction. For example, if you are buying a house, you will deposit money into an escrow account that the seller can’t withdraw until the contract’s terms have been fulfilled and the sale completed.

Defined-benefit plan

This is a retirement plan sponsored by an employer such as a pension where you get a specific retirement benefit based on some formula. This formula may include your earnings history, age and length of employment. You as the employee may or may not be obligated to contribute anything to the plan. Many companies no longer offer these plans due to their high costs.

Defined-contribution plan

Many companies now offer these retirement plans as a benefit to their workers. This is where the employee or maybe both the employee and employer make contributions on a regular basis. The most common example of this type of plan are 401(k)s and 403(b)s. One of the biggest advantage of these plans is that you don’t pay taxes on the amount you put in every year.

Stock options

This is an employee benefit where the owners of the option have the right to buy their employer’s stock at a preset price and within a specific period or on a specified date. These are often used by companies as management incentives. For example, if an executive helps boost the company’s stock value above the price of his or her option, the manager could then buy the stock at the lower price and pocket the gain when she or he sells it.

Permanent life insurance

Permanent life insurance is a kind of policy that provides coverage over the insured’s lifetime and also has an investment component called cash value. After a certain period of time, the policyholder will be able to borrow or withdraw against the cash value of the policy. As a rule, the premiums paid for a permanent life insurance policy will be more expensive than for term life.

Term life insurance

Term life is a policy that covers you over a set period which can be anywhere from five to 30 years. If you die during that set period of time, your beneficiaries get a payout. If you don’t, the policy will expire with no value. Of course, you can always decide to renew coverage after your term is over. Plus you can cancel at any time without penalty

Private mortgage insurance

If you want to buy a house and have a down payment of less than 20%, the mortgage lender will require you to get this type of insurance. It is also often call PMI. Its purpose is to protect lenders against a loss if you default on your payments. If you are required to get private mortgage insurance this will increase the premiums that you will pay every month.

Umbrella insurance

Umbrella insurance is a type of policy that offers extra liability coverage beyond what is provided by yoVideo thumbnail for youtube video 10 Signs That Your Financial Management Skills Suck!ur home, boat or auto insurance. If you feel you’re at risk for being sued for other people’s injuries or property damage you might consider buying this type of insurance.


AGI is an acronym for adjusted gross income. It is calculated as your gross income minus certain IRS-specified deductions. When you file your taxes you fill out your AGI at the bottom of page 1 of Form 1040. It is used to determine your taxable income minus any IRS-qualified deductions.

Itemized deductions

These are expenses that the IRS lets you subtract from your adjusted gross income, which reduces your taxable income even further. This can include mortgage interest you paid, dental and medical costs or gifts to charity.

Standard deduction

If you decide not to itemize your deductions this is a standard amount you can use to reduce your taxable income. It will be based on your tax-filing status and it’s the federal government’s way of ensuring that at least some part of your income is not taxed.

4 Ways You Can Stop Living Paycheck To Paycheck

walking paycheck to paycheckDo you want to quit living paycheck to paycheck? Of course you do! Who wants to live a life wherein your income just passes through your hands? This is the life of a person who lives from paycheck to paycheck. These are the people who always have to stretch their salaries to the last penny. They have budgeted their money so that everything goes to a particular expense.

While this seems organized, it is highly stressful. People who just get by on their salaries are those who do not have the extra money to contribute towards their savings. The most scary fact is, these are the households that are usually one emergency away from a financial crisis.

An article published on revealed that 25 million household belonging to the middle-class are living paycheck to paycheck. These are the families that are not unemployed. They have stable jobs, own their homes and drive a car. But why are they living this way?

The article mentioned that one-third of American households spend all of their salaries at the end of the month. 66% of these come from the middle-class. These are the families that have $41,000 as their median income. The data came from a study conducted by Brookings Institution.

This is a scary data to look into and it further shows how the middle class is really losing ground in our society. While they may appear to be more affluent, their financial situation is not much different compared to poor households – those with an annual income of $21,000 (and no assets). This means that having a higher income does not really guarantee that you can move on to a better financial position.

4 tips that can help you stretch your limited resources

So what can you do to stretch your limited resources and get out of a life of living paycheck to paycheck? Here are 4 tips that we have for you. Most of these moves should give you the extra money in your budget to help you save or invest – two of the most proactive ways you can improve your financial situation.

  1. Opt for a cheaper home. One of the biggest expense in a household is spent on their home. Regardless if you own your home or you are renting, this is the biggest percentage that eats into your income. Sometimes, owning your own home makes it even more stressful. Some homeowner regrets emerged once their home loan payments start getting compromised. And the housing expenses does not end with the monthly mortgage or the rental cost. It also includes the utilities, home repairs and even the occasional purchases for broken furniture, appliances and equipments. One of the ways that you can effectively get out of living paycheck to paycheck is to lower this biggest expense in your budget. Rent in a smaller home if you have to. Sell your home and buy a smaller one. This will lower your monthly payments on the home. Not only that, you will have lower utility bills too. After all, maintaining, heating and cooling a smaller unit is cheaper.
  2. Seek out financial aid. Analyze your financial situation and see if you can qualify for any government aid. It may be food stamps, a health care coverage, or even a straight out cash assistance. You can also explore the benefits that your employer is offering. You might be eligible to receive some benefit from them. You can even look into your tax refund. Maybe you are allowed to get a higher refund on your taxes. These will help you get extra money.
  3. Lower your grocery expenses. While this is not your biggest expense each month, this is the biggest discretionary expense that you can cut back on. It may be a bit tough considering the fact that food prices are going up nowadays. reported some statistics from the Bureau of Labor Statistics that revealed a 0.4% increase in food prices in February this year. Although you are battling with the rising commodity prices, you can find ways to still cut back on your grocery expenses. If your weekly budget is $50, try to slash it down to $30. Use coupons, utilize leftovers, grow your own herbs, make your own cleaning products, shop in bulk – there are so many things that you can do. It will take a bit of getting used to but this is possible if you really want to stop living paycheck to paycheck.
  4. Increase your cashflow. Lastly, you want to think about how you can increase your monthly income. If that means getting another job or putting up a freelancing side gig, it all depends on what you think you can accommodate in your busy schedule. It will involve sacrifices – both on your physical body and your time for yourself and your family. But you do not have to do this for a long time. You can give yourself a few months or even just a year – just enough time for you to build up your savings. We suggest that you look for a passive income business that will not eat up most of your time and yet can provide you with continuous income.

These four tips should be able to help you move away from living paycheck to paycheck.

Reason why your income is never more than enough

Apart from increasing your extra money so you can build up your savings and invest your money, you might want to identify why you are using up your salary the way you do.

Well we have one solid guess: you base your spending on your income.

We have this habit of upgrading our lifestyle whenever we get an increase. When you get a promotion, you buy a house. When another promotion comes in, you scout for a second home. When yet another promotion is lined up, you buy a luxury car. While this may seem normal, how we buy these things lead to our destruction. Instead of saving the money from the salary increase that comes with the promotion, we dedicate it to pay off mortgages and car loans.

It is apparent that there is something wrong with how we spend our money. According to an article published on, 20% of Americans admitted to spending more on their cellphones than their groceries. While having a cellphone is convenient, it is not a necessity – at least the expensive ones are not.

Basing your spending on your income is what keep you living paycheck to paycheck. It is true that it can help us be sure we will not be spending more than we should.  But you should keep yourself from basing your expenses from it.

That simply means if you earn $40,000 a year, you will also set up a lifestyle that requires that much money to support. So what should you do instead?

You have to learn how to base your spending on a comfortable lifestyle – not necessarily your dream lifestyle. At least, not yet. Most of our dream lifestyles involve really extravagant spending. Given that you want to get out of living paycheck to paycheck, you may want to establish a lifestyle budget that is just right. That means you are provided with everything that you need to survive comfortably. It is not affluent or extravagant – but just right.

Once you have done this, you can live debt free on a $30,000 a year income – easy! If you have decided on living at $30,000 a year (that is $2,500 a month), you can earn $40,000 and put aside any extra into your savings. You can also invest that money so it can earn you money even while you are doing nothing.

That is how you really stop living paycheck to paycheck.

Patience Can Teach You Two Things About Personal Finance

woman thinkingThere are many virtues that you need to implement to say that you have mastered personal finance. When we say mastered, we mean you know that you are on top of your financial situation and you are in complete control of where your money goes.

Of all the virtues that is applicable in your financial life, none of them is as important as patience. If you think about it, this particular virtue will lead to a lot of financial habits that will allow you to improve your personal finances.

The role of patience in our financial behavior

Among the things that you will be encouraged to do is planning for major financial decisions. If you think about it, every decision, big or small should be part of a greater plan in your life. This is the only way that you can align all your decisions and make sure that everything that goes on in your life is leading you to a future that you want to have. But when it comes to planning, that means you have to exercise some patience. You need to think about every little detail of what you want to happen in your life so you can plan them realistically.

If you are impatient, you will exhibit impulsiveness that is fueled by your need for instant gratification. That is never a good thing when it comes to personal finance. Nobody excels in their finances with these traits. You need to take make the necessary plans that will take you to your goals and implement it one step at a time. That is how you can achieve what you set out to do.

According to a survey done and published on, American consumers are noted to be more careful in their spending but there is still a huge percentage that leaves a lot of room for improvement.

The survey revealed that 38% of the participants still make impulse purchases and 27% admitted to spending a week’s worth of pay for a major expense. Not only that 16% of the respondents said that they agree to the notion that when they get money, they should spend it immediately. Almost 3 out of 10 also believed that their lifestyle convenience is more important than saving.

While we deserve to spend our money for our convenience, it should not be done at the expense of our future self. If we fail to be patient enough to save for tomorrow, what will happen to us if the economy collapses again?

Our impatience is the one trait that puts our future in danger. that is because it is impatience that leads us to think that using credit to finance our purchases is always okay. This is not always the case and it is one aspect of personal finance that we need to tread carefully.

2 lessons about finances that you will learn from being patient

When you are patient, that are two important lessons that you will learn. These will prove to be very useful in your attempt to improve your personal finances.

It is not possible to have it all immediately.

We all want the American Dream and we want it immediately. There is no such thing as a quick get rich scheme that lasted long. Think about the lottery winners. Most of them splurged their money and ended up poorer than when they started. Being handed everything a once will make you irresponsible. But if you are patient enough to accept that you can only take one step at a time, then that is something that will make you more cautious of whatever personal finance achievement you will make.

One of the best illustrations that we are suckers for that quick acquisition of wealth is our gambling statistics. According to data found on an article published on, Americans spent $60 billion on lottery tickets back in 2010. Casinos in the country had revenues of over $125 billion. Although some of these gamblers won, you can bet that they quickly went through these winnings and lost them all again in gambling.

You have to accept that being financially successful requires hard work and most of all, patience. You want to be aggressive, that is true. But it has to be done under the right context and with the right plans in place.

Building up your savings will take time.

The other lesson that you will get from being patience is that savings will take time to grow. We cannot save a big amount at once because our limited income is bound by a lot of financial obligations. We are lucky to have anything to save at all. We need to keep ourselves from feeling frustrated when our savings seem to be slow going. Remember that a dollar a day will eventually grow. Just be consistent about it and it will grow. It will just take time so you need to be patient.

According to statistics from, only 10% of Americans save their extra money. The rest will spend it and will not think twice about saving. This percentage is for 2014 – it used to be double in 2013.

To say that we need to improve is not enough. There is a need to improve and that need has to be acted on immediately. We cannot wait any longer because opportunities that we are getting right now might not last.

Results of applying patience in your financial life

If you are unsure about how you can start, then begin by practicing the virtue of patience. You can start with another aspect of your life until you reach the personal finance side.

Do not be blinded into thinking that what you need to focus on right now is increasing your income. This will never be the right solution. You have to understand that you can be debt free on a $30,000 a year income. It is not the amount that comes in but your behavior when it comes to using that money. When it comes to behavior, you should know that patience is among the top virtues that you need to work on.

Here are three results that will emerge from your financial patience.

  • You will have no debt. This is a dream for a lot of us – having no debt that can compromise our limited financial resources. When you are patient, you will not feel the need to use credit for purchases that you want to make. You can find it in you to wait so you can save up for certain expenses that can be availed in the future.
  • You will always have well planned purchases. Since you are taking your time, you will have well planned purchases. You do not have to rush through your spending. You will feel at ease in finding the time to plan when you can afford to make payments for what you want to buy. That way, you can set up your personal finances so that you are working for future expenses, and not slaving away to pay for past expenses. If you did not know, that is the scenario when you are in debt.
  • You can achieve your financial goals faster. Managing financial goals is no easy feat. But if you are patient enough to manage your finances wisely to avoid debt and to make smart purchases, then you will have more extra money to invest and grow your wealth.

Patience may seem like a farfetched virtue to be effective in improving your personal finance. But it will help you develop a lot of habits that will be beneficial to your pursuit of wealth.

6 Tips For Retiring With A Million Dollars

Happy old couple looking at a cameraIf you’re like millions of Americans you watched the program “Who Wants To Be Millionaire.” You might have also wondered, as did many Americans why there wasn’t a question mark after the word Millionaire. But that’s not the important point here. The important point is that you would undoubtedly answer the question with, “Me, I want to be a millionaire”. And if you follow these six tips as faithfully as, you’re almost guaranteed to retire a millionaire.

It’s okay to start saving late

Naturally it’s best to start saving when you’re young. As an example of this, if you start saving $5000 a year at age 25 you would have $1 million by the time you reach 65. However, you could start saving when you’re 50. Of course, you will have to save a lot more every year. As you may know, beginning at age 50 you can start setting aside $23,000 a year in your 401(k) instead of the normal $17,500. But don’t stop at this. If you’re 55 or older you can also sock away $4300 pretax into a Health Savings Account towards your medical costs. This can turn into $1 million very quickly in retirement as you could invest the money and then spend it tax free for qualified health costs. As an example of this, if you and your partner contribute the $7550 max annually to a Health Savings Account starting at age 55 you would have $112,000 saved by 65 and would be more than halfway towards the $220,000 an average couple spends on health care in retirement. If you spend that on medical bills when you’re older, you would avoid having to take money out of your 401(k) that much longer and this will help you stay on your $1 million goal.

Remember the tortoise and the hare

You’ve undoubtedly heard the Aesop’s fable about the tortoise and the hare. It’s when a hare challenges a tortoise to a race. The hare takes off like it had been shot out of a cannon and soon leaves the tortoise behind. However, the hare becomes so confident of winning that it stops and takes a nap midway through the race. When the hare wakes up, it sees that the tortoise, which has been crawling slowly but steadily, has reached the finish line. What this translates into if you’re working to become a millionaire is that the best way to reach your goal is by saving money and investing slowly and steadily, rather than trying for that “big idea” that will yield a fast payoff.

Be an “average” investor

While some experts will say that you have to be a great investor in order to reach that million-dollar goal, this is not necessarily the case. A better answer is to invest in what are called value stocks. If you’re not familiar with value shocks they are the shares of overlooked companies that are trading at a discount. These stocks not only beat the shares of fast-growth companies by about 1.4 percentage points a year over the long run but also outperform them in 73% of the rolling 10-year periods since the year 1979. If you buy a total stock market fund you’ll be evenly split between value and growth. When you get new money to invest, add funds like the Vanguard Windsor II until value gets to around the 60% to 65% of your equities.

If you’d like to learn more about value investing and value stocks, watch this video courtesy of National Debt Relief ..

Have a few rental properties

It’s not necessary to be a full-time landlord to reach that $1 million goal. You can do it with just a few rental properties. If you begin with a single rental now and add two or more as you can, you will boost your net worth by seven figures in just a bit over 20 years. Plus, you will not only enjoy rental income, you will also get increased equity. The rule to remember is to make your profit when you buy but then realize it when you sell. Make sure the rent you get from any property you buy will exceed your mortgage, taxes, insurance and maintenance. You also need to realize that you will have a vacant month every year or two. If you hire a property manager, this will eat up 5% to 10% of the rent. Buy multiple properties that are near each other or buy a multifamily unit to increase your return. You would then be able to use a single maintenance team or property manager, which would cost less than hiring someone for each house. The expenses on duplexes and triplexes can be 10% to 15% less than if you had two or three single-family residences. It’s also a good idea to buy locally because that puts you in a better position to help with repairs or spot changes in the market. If you can pay cash for those properties you would be a stronger buyer. But if like many people you must borrow the money, get a mortgage rather than tapping into the equity in your home.

Build a business

If you sweat the small details, owning even a boring business can make you rich. The fact is that about 25% of all millionaires run their own firms. Most of them say that the secret of their success was not the fact that they had a big idea. The majority of seven-figure businesses are pretty run-of-the-mill. The secret is in managing your other Cs – credit, cash flow, customers and inCorporation. If you handle these correctly this will help you save as much as you can while you’re running the company and make your enterprise more appealing to potential buyers when it comes time to sell. Experts say that it may also be better to set up the company as an S corp, rather than a C corp. If you choose for your business to be an S corp and end up selling the business for $1 million, the money would pass through to shareholders and be taxed as ordinary income. If you’re in the highest tax bracket you would pay $466,000 in taxes but this would be a savings of $118,800 vs. the taxes you’d pay if the company were a C corp.

Get a significant boost in your income

If you’re an employee and not a business owner, you’ve probably seen how hard it is to get a big raise or promotion these days. What probably seeing instead is an increase in your income of just 2% to 3% a year. While this is okay, it’s the big career boost that can help you get to that $1 million. As an example of this, if you earn $100,000 and can get a 15% jump in your paycheck, this will keep paying off even if you then go back to the annual 2% or 3% cost-of-living raise. Bank the extra money every year and in 10 years you’ll have another $200,000 saved. What can you do if the prospects for getting this kind of a boost in your income are not great? Then aim for a lateral move into another department that generates revenues. Staff roles in some companies are held to a lower cap than those closer to the customers. The fact is the closer you are to sales and marketing, the better are the chances that you can earn that turbo boost in your salary. Failing that a recent study showed that hiring is up and 25% of all companies are looking to add executives in the next six months so your best move might be to a new employerl

There are a lot of myths attached to the idea of becoming a millionaire before you retire. But the six tips you have just read are not myths. They are the keys to retiring with $1 million to have a happy and stress free life after work.

Does It Still Pay To Get A College Degree?

Young Couple Looking at BlueprintsThere have been a rash of articles recently questioning the value of a college degree. And for good reason. Some 60% of recent college graduates haven’t been able to find jobs related to their fields of study or, worse yet, they are what’s call under-employed. Plus, jobs still tend to be hard to get. So is it really worth spending the $70,000 to $130,000 to get a degree from an in-state college? The short answer to this question is “it all depends.”

The cost, the major, the school

If you’re a parent and want to make sure that your child is launched into a good job that will lead to financial security, it’s important to consider the cost of the school, your child’s major or field of study and the school itself.

First, consider the cost. Going to school in state is always cheaper than going to school out of state and going to a public college will always be cheaper than going to a private school. In fact, if your child were to choose to go to a private college it will probably cost between $120,000 and $250,000 to get a four-year degree. So unless you’re in that upper 1% or 2%, you might encourage your child to go to school in state. It will also be better or at least cheaper to attend a smaller college than your state’s university. As an example of this where we live the cost to attend our state university is currently $26,933 a year while the cost to attend Mesa State University is just $18,743.

Why the major is critical

The problem with many college students is that their objective is to pursue their passion. Unfortunately, if their passion is teaching preschoolers, anthropology or archeology, they can’t look forward to much of a career. In fact, according to one study these are among the 10 worst or least valuable college majors. As you might guess the most valuable ones are in the area of STEM or Science, Technology, Engineering and Mathematics. Among this group, the most valuable major is now biomedical engineering followed by biochemistry, computer science and software engineering. While we recognize the fact that it’s hard to steer an 18-year old that’s fascinated with archaeology into a major such as software engineering it would certainly be well worth the try. Also, believe it or not, a liberal arts degree would not be a bad investment as it can be the pathway to a rewarding and remunerative career. Here’s something that will probably surprise you but according to the Association of American Medical Colleges, in the year 2010 med schools accepted 47% of physical science majors that applied, 43% of biological science majors, 51% of humanities majors and 45% of social science majors.

Choosing the right school

As you just read, if money is the most important factor in choosing a college, your child would be best off attending an in state school. But another factor that should be considered is the quality of education offered. One study done recently identified the top 50 schools in terms of not just affordability but also the quality of the education they offer. A school you’ve probably never heard of that ranked number one was Babson College. It’s located in suburban Boston and specializes in entrepreneurship and business. Babson not only offers a well-rounded education in sciences and liberal arts but also a lot of opportunities for hands-on project-based learning. The big financial payoff is that Babson graduates go on to earn big salaries, and a list of ventures they started is very impressive including Zumba Fitness and Home Depot. However, if the idea of Babson College intrigues your child, get ready for sticker shock as the estimated cost to get a degree there is $198,900.

On the more affordable side is Brigham Young University with an estimated net cost to get a degree of just $82,000. If you live in Virginia, your child could go to the University of Virginia for a total net cost of $94,100. On the other hand, even some state schools can be expensive. The University of California-Berkeley now has an estimated net cost to get a degree of $126,800 and the University of Washington-Bothell’s estimated net cost to get a degree is $125,700.

What many families are choosing to do

While it is clearly better to get a degree from a Massachusetts Institute of Technology or a University of Pennsylvania than a school such as Mesa State University, it is not absolutely necessary to go to one of these schools for all four years. What many families are choosing to do is to send their kids to a community college or a less prestigious state school for the first two years and then have them transfer to a University of California-Berkeley or a Dartmouth College. Whether your child attends the University of Pennsylvania or Mesa State University for the first two years, he or she will most likely take the same core courses as if they were at Dartmouth. If they then transfer to a more prestigious school, they will have a “prestigious” diploma but for much less than if they had gone there for all four years.

stack of cashTips for saving money on college

Regardless of where your child decides to go to school, there are ways to cut down his or her costs. One of the best is to buy used textbooks. A brand-new chemistry textbook can cost as much as $300. If he or she can find the equivalent textbook used it should be heavily discounted. It’s also important to use the Internet. Even if you factor in the shipping cost, buying a textbook from an online store can be much cheaper than buying it at your college’s bookstore.

Second, it’s not necessary to have a car to go to college. Most college towns offer good public transportation, which in some cases is even free. If your child’s school doesn’t offer public transportation, encourage him or her to carpool with a friend or roommate. Alternately, he or she might be able to bike or even walk to class. Any of these alternatives would be much cheaper than buying gas and paying to maintain an automobile.

Find a free checking account

Banks often offer students free savings or checking accounts. This eliminates the need to pay for withdrawals or fund transfers. Online banking is also a good option because this could allow you to keep an eye on your child’s spending and help make sure that he or she does not overdraft. Also, if you put a set amount of money every month into an account that comes with a debit card, it’s easier for him or her to access the money when necessary. Plus, when the money’s gone, that’s it. If your child runs out of money before he or she runs out of month, a valuable lesson could be learned.

A part-time job

You might encourage your child to get a part-time job – assuming it will fit his or her class schedule. This is probably the number one way to cut the cost of going to college. Restaurants in college towns are almost always looking for wait staff, and delivering food or waiting on tables can translate into good tips. As an example of this, we know of one young woman who has been working part-time as a cocktail waitress and earns almost $200 a night in tips. Another great way to earn money while getting some studying done at the same time is to work in your school’s library. This is usually not a very demanding job and is pretty quiet offering the opportunity to study for class and get paid at the same time.

Be smart about renting an apartment

Finally, most students will want to leave their dorms and get apartments after their freshman years. If your child decides to do this, encourage him or her to get some roommates to split the rent. Also, consider whether or not the apartment includes a washer and dryer, refrigerator, a microwave and other handy accessories. If so, this would be much cheaper than having to go out to a Laundromat or eating out often. Utilities can cost a lot so emphasize with your child the importance of conserving water and electricity. It shouldn’t be that difficult to remember to turn out the lights or to take shorter showers.

Millionaires In New York: How To Increase Your Net Worth

stack of cashDo you want to increase your net worth? Well we are all on the same page. Our pursuit of wealth begins while we were still young. We go to school, learn our lessons, strive to get good grades and pass our tests so we can eventually graduate and get a good job. We all want to have a good job so we can earn a lot of money. That is because we believe that the more we earn, the more we can increase our personal assets.

But if you really want to be super rich, you may want to figure out what the New Yorkers are doing with their lives. A recent study revealed that a lot of people living in New York City are millionaires. What exactly is causing them to become rich? Why are they so ahead compared to the other cities in the United States? Is it because they are one of the financial cities in the country?

New York ranks 4th in having the most percentage of millionaires

An article published on revealed that 1 out of 25 New Yorkers are millionaires. With that ratio, you can assume that approximately 389,000 people in the city are millionaires. So if you walk down the streets of New York, you are bound to rub shoulders with a couple of millionaires. Isn’t that amazing?

A recent analysis from the consulting firm, Wealth Insight, revealed that New York ranks 4th in the world when it comes to cities with the most millionaires. It has to be noted that the millionaires that are counted do not include the value of their primary residence. The $1 million wealth is only in cash, bonds, investments and other assets that does not include the high valued homes. It means New York is home to 389,0000 residents with a lot more than $1 million in value. If you consider the value of the properties in this city, you can assume that these people have quite a lot of wealth in their bank accounts.

The LA Times article also said that not only is New York city home to a lot of millionaires, it is also home to a lot of billionaires too.

Does that mean you should move to New York in order to increase your net worth?

Why don’t we look at the other cities that are included in the list?

The data published on mentioned two other US cities in the Top 20 list but they are way below in ranking. They are Houston (18th) and San Francisco (19th). But the top ranking cities in terms of millionaire density are the following:

  1. Monaco (29.21%)
  2. Zurich (27.34%)
  3. Geneva (17.92%)
  4. New York (4.63%)
  5. Frankfurt (3.88%)

There are also a couple of Asian cities in the list too.

The Spears article mentioned a couple of qualities that the top 20 cities of millionaires share. Most of them are key financial cities in their respective countries or continents. Zurich and Geneva are both Swiss banking centers – which probably contributes to the wealth being distributed in the city.

The other cities included in the list are those that attract a lot of wealthy and foreign visitors – like London and Hong Kong.

The article mentioned that taxes, location and even political stability are factors that attract millionaires to live in a particular city. If one of these factors take a negative turn, then this might make the millionaires pack up and leave.

So it may be wrong to simply look at the location in order for you to increase your net worth. It takes a lot more than that to become a millionaire.

Tips to increase your personal wealth

Ultimately, it is not really about the place but how you choose to use the money that you are earning. It is also not about the amount that you earn each month. There are people who are earning 6 figure incomes but are so far from becoming millionaires. That is because they are all burdened with debt.

To help you increase your net worth up to a point that you are at par with the New York millionaires, then you need to implement the following habits.

Live below your means

You can only live below your means if you follow a budget plan. This is where you should start when you are trying to grow your personal wealth. This budget will show you the income that you take home each month and the different expenses that you are financing. Now this is when you will start taking control of your money. You will decide the different ways to cut spending so you can increase the extra money that you will have at the end of each month. That is very important. The only way that you can increase your net worth effectively is to increase your savings. That way, you have something to use to grow your wealth and become richer.

Create a financial buffer

When we say financial buffer, we are referring to your emergency fund and your savings. Your savings can be your fund to help you setup your money so it can earn you extra income. And as for your emergency fund, this can be used to keep you from a financial disaster. When the unexpected happens, you can use your emergency fund to help you get out of a tight fix. It will keep you from having to borrow money – which adds to the stress of being in an emergency.

Invest your money

One ofthe most proactive ways that you can increase your net worth is to invest your money. Remember the financial buffer that goes to your savings? That is where you will get the funds to invest. You have to learn how to invest to grow your personal wealth. Choose between stocks, bonds, equity and mutual funds. Invest in real estate if you have enough savings. This is how you can add more money into your net worth without working harder. That is how you  grow your money.

Know how to use debt wisely

Increasing your wealth does not mean you do not have debt. The key to credit management is to understand just how much you can afford to borrow. According to, your debt should be no more than 15% to 20% of your income. So if you are earning $4,000 a month, your debt payments should be no more than $800. This is true for all your credit card debt, student loans and car loans. If you want to buy a home and you cannot do it without a home loan, make sure that your other debts are under control to keep your payments to a minimum. The only time that you can borrow beyond that percentage is when the debt will help you setup your money so it can pay for itself. For instance, buying a rental home that will require you to pay $1,000 of mortgage payments is only acceptable if that property will earn you $1,500 worth of rental income. But even then, it should be approached with extreme caution.

Educate yourself

Lastly, you want to educate yourself so you can make better decisions about your money. Financial literacy is one of the important qualities of a millionaire. All the rich people are actually knowledgeable of the options that will put them in a better position financially. They are also aware of the dangers of debt and how it should be managed. These are the things that you need to do. If you are unaware of proper financial management, you will end up spending your wealth unnecessarily. All your efforts to increase your net worth will be for nothing.

12 Keys To Making Better Decisions About Your Personal Finances

man fanning money near his earDid your parents teach you to be a smart money manager? If so, consider yourself lucky. Most parents will talk to their kids about the birds and the bees but not about budgets and CDs. They must assume we’ll pick it up on our own, which is how most of us learn about personal finance. The Irish writer and poet Oscar Wilde once said, “Experience is simply the name we give our mistakes.” Unfortunately this is how many of us learn to be better money managers. We make mistakes like maxing out our credit cards, learn the consequences and become smarter about money.
Keys to making better decisions

If you’d rather not learn how to make good financial decisions by making bad ones and learning from them, there are some keys to making better financial
decisions …

Be brutally honest with yourself

If you’re not careful you can fool yourself into making some really bad financial decisions. For example, you could decide to borrow from your 401(k) because, heck, you would be paying interest to yourself. Or you might buy furniture you don’t really need because of the lure of zero interest financing. These are the kind of decisions where you could be deceiving yourself into financial problems. Be brutally honest with yourself about all of your decisions and the motivations behind them. Do you really need to borrow from your 401(k) to buy that new car or could you just save money for a year or 18 months and then pay cash? And while 0% interest can be a good deal in some cases you shouldn’t use it as an excuse to buy something you don’t really need. A good rule of thumb is that when in doubt, get a second opinion from a family member or friend that you know is good with his or her money. As George S. Clason once wrote, “It costs nothing to ask wise advice from a good friend.”

Watch out for fees

There are almost always fees attached to things that have to do with finances – credit cards, banking, investments and other financial products. It’s absolutely critical to keep fees low especially when it comes to investing. Making money in the stockmarket is tough enough by itself without paying fees that wipe out your gains.

Use cash not credit

Whatever you do, don’t finance your lifestyle on credit. Credit card debt can just ruin your life. Pay cash for everything from groceries to vacations to cars. If you need to make sacrifices to pay cash, do it. Using credit to buy things is the equivalent of stealing money from yourself in the future. Every cent you borrow must be paid back and often at very high interest rates. As the Persian poet Omar Khayyam wrote, “Take the cash and let the credit go. Nor heed the rumble of a distant drum.”

Save a dime out of every dollar

This is very simple but very powerful. Make a habit beginning right now to save at least 10% of your gross pay. Save 20% or even more if possible. If you don’t doubt what this can mean to your lifer, read the book The Richest Man In Babylon by George S. Clason.

Think long-term

Ours has turned into a “get rich quick” society. But if you really want to build lasting wealth, you need to think long term as you make your financial decisions. This puts everything into perspective from a $4 latte at Starbucks to how much you should invest in your 401(k). As an example of this, if you think long term you would realize that a daily $4 latte eventually adds up to $21,056 over 10 years. And investing $1000 a month beginning at age 25 (instead of age 35) generates $1.7 million more by age 65.

Learn to live with uncertainty

While you may think you should avoid uncertainty like the plague when making financial decisions, the problem is that it costs a lot to avoid it. For example, the insurance industry thrives on uncertainty when it comes to cash value life insurance and annuities. However, some protection against uncertainty is unavoidable such as term life insurance and auto insurance. Be sure to think twice before spending a lot of money in return for guarantees.

For example, this concept can be especially important if you are evaluating an annuity. Annuities can be part of some financial plans but there are always fees associated with these products and they tend to limit the upside. An annuity will generate a constant stream of payments but at a high cost. The key here is to think carefully before spending a lot of money to avoid uncertainty. There are rewards to learning to live with it.

Keep things simple

There is an old rule of thumb that the more complex is a “solution,” the less likely it is to be your best option. For example, in most cases term life insurance is a better investment than complicated permanent life insurance products. And index funds are generally better than more complicated actively managed funds. One simple way to invest is in funds or ETF’s as this is usually better than complicated insurance products that have an investment component. In other words, all things being equal, simple is most often better.

stack of moneyHarness the power of compounding

It’s important to harness the power of compounding. Once you understand it, you can better evaluate your financial decisions to make sure they take advantage of it and not ignore it. If you’re not familiar with compounding this is where you earn interest on your investment and then interest on that interest. For example, if you started with $100 and added $100 a month at 2% interest, you would have $1,313.08 at the end of year one and then $2,550.64 at the end of year two and not just $2500.

Always consider the power of compounding whether it comes to paying off debt or how you need to be investing today.

Do the critical things first

Don’t put off the big financial decisions. Begin every day thinking about those things you need to accomplish and get to the important stuff first. Don’t put off actions such as preparing a will, investing for retirement or buying life insurance. When you do the critical things first, everything else will just be much easier.

Take responsibility for your actions

Despite what the politicians might want you to believe, you are not a victim. These people may tell you that the problem is corporate America or that the system is rigged but the result are the same – it makes us feel helpless. This is all nonsense that’s created to score political points rather than moving the country forward. Never play the victim.

Learn to think outside the box

Do you tend to view financial decisions in black and white? For example, do you believe that your emergency fund should always be in cash in a bank or that you should pay off all your non-mortgage debt before investing? These approaches to personal finance often turn out not to be in your best interest. Don’t make a financial decision without weighing the pros and cons and considering all alternate options.

Don’t be greedy

Your friend has a great stock tip that’s absolutely guaranteed to make you money. But you also worry that this might be too good to be true. When this is the case, it usually is. Whenever you’re faced with one of these deals you need to monitor your own emotions. You may be tempted by a get rich quick mentality. But think twice before acting as these deals often do turn out well.

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