Is the secret to success hiding in plain sight? Here's what you need to know about getting ahead (that others don't).
How many times has your success depended on knowing something that
most people don't? The survey research I did for my new book, Business Brilliant,
uncovered just how frequently highly-successful people think and act
differently from the great majority of people with identical levels of
education and smarts.
There are certain elements of success that everyone agrees
on--ambition, hard work, persistence, and a positive attitude. But my
survey showed how some people have "business brilliance," a distinctive
take on getting ahead that is often at odds with the more pervasive
mindset.
If you want to get an edge and separate yourself from the common
herd, take some cues from the seven beliefs and habits of the most
successful people:
1. An equity position is necessary to get wealthy.
Ninety percent of the super-successful say this is true,
versus fewer than half of the masses. More importantly, 80 percent of
"business brilliant" people say they already have an equity
stake in their work. Just 10 percent of the middle-class have an equity
position of any kind, and the vast majority (70 percent) say they're not
even trying to get one.
2. I'm always looking to gain an advantage in my business dealings.
About 90 percent of "business brilliant" individuals say they
are always trying to grab an edge, compared with just about 40 percent
of the middle-class. Gaining even small advantages in a series of deals
can have a cumulative effect on your wealth, but since most people
aren't even looking for one, they're that much more likely to end up on
the disadvantaged side of every deal.
3. Doing things well is more important than doing new things.
Getting wealthy usually means you've taken an ordinary idea
and executed it exceptionally well. That's what 9 in 10 "business
brilliant" people believe. Most other people, though, think that wealth
requires a big, new idea. Unfortunately for them, big ideas are rare and
risky. Too many people are waiting on the sidelines for the perfect big
idea to come along, while the most successful people have jumped in the
game, and busily honed their skills at execution.
4. I hire people who are smarter than I am.
Exceptional execution requires those who are business
brilliant to focus on the two or three things they do very well. So they
get their work done by building teams with complementary capabilities.
Surveys show that most people, though, would rather learn to do tasks
they're bad at than get others to do them. The business brilliant know
that you get to the top because of your strengths, not your weaknesses.
5. It's essential I really understand my business associates' motivations.
If you're dependent on other talented employees, you'd best
know what makes those talented people tick. That's the belief of about
seven in 10 people in my "business brilliant" cohort, compared with
fewer than 20 percent of the middle-class. My survey suggests that your
willingness and desire to really get to know and understand your
business associates is a sure marker of success--and one that most
people don't have.
6. I can easily walk away from a deal if it's not right.
The "business brilliant" know that bad deals, like bad
marriages, can be painful--and costly. So if the deal on the table isn't
right, 71 percent say they have no problem cutting bait and moving on.
Only about 22 percent of the middle-class say the same. Most people are
willing to take their chances on deals that don't seem right from the
start, even though it's less risky to walk away.
7. Setbacks and failures have taught me what I'm good at.
Those who are "business brilliant" have, on average,
more failures than members of the middle-class. But they use those
failures to help them succeed on the next attempt. Just 17 percent of
the middle-class say they learn from their failures in this way, which
is really a shame. Everything worth trying contains an element of risk,
after all. If you fall on your face, you might as well learn from the
experience to help you succeed on your next try.
http://www.inc.com/lewis-schiff/habits-strategies-of-ultra-wealthy.html
Showing posts with label Wealth. Show all posts
Showing posts with label Wealth. Show all posts
4/27/12
A Paradoxical Curve of Money and Effort
Everyone tells themselves a different story about money, but there's no
doubt at all that the story we tell ourselves changes our behavior.
Consider this curve of how people react in situations that cost money.
A musician is standing on a street corner playing real good for free. Most people walk on by (3). That same musician playing at a bar with a $5 cover gets a bit more attention. Put him into a concert hall at $40 and suddenly it's an event.
Pay someone minimum wage or a low intern stipend (4) and they treat the work like a job. Don't expect that worker to put in extra effort or conquer her fear--the message is that her effort was bought and paid for and wasn't worth very much to the boss... and so she reciprocates in kind. The same sort of thing can happen in a class that's easy to get into and that doesn't cost much--a Learning Annex sort of thing. Easy to start, cheap to try--not much effort as a result.
It's interesting to me to see what happens to people who pay a lot or get paid well (2,5). The kids at Harvard
Law School, for example, or a third-year associate at a law firm. Here, we see all nighters, heroic, career-risking efforts and all sorts of personal investment. And yet as we extend the curve to situations where the rules of rational money are suspended, something happens--people get fearful again. Don't look to Oprah or JK
Rowling or the Donald to bet it all--the huge amount of money they could earn (or could pay) to play at the next level (1 & 6) isn't enough to get them out of their comfort zone. Money ceases to be a motivator for everyone at some point.
Most interesting of all is the long black line at zero (3). The curve goes wild here, like dividing by zero. At zero, at the place where no money changes hands, we see volunteer labor and free exchange. In these situations, sometimes we see extraordinary effort, the stuff that wins Nobel prizes. Just about every great, brave or beautiful thing in our culture was created by someone who didn't do it for money. We see the local volunteer putting in insane hours even though no one is watching. We hear the magical song or read the amazing poem that no one got paid to write. And sometimes, though, we see very little, just a trolling comment or a half-hearted bit of commentary. Remove money from the story and we're in a whole new category. The most vivid way to think about this is the difference between a mutually-agreed upon romantic date and one in which money changes hands.
All worth thinking about when you consider how much to charge for a gig, what tuition ought to be, what motivates job creators or whether or not a form of art disappears when the business model for that art goes away.
http://sethgodin.typepad.com/seths_blog/2012/04/storyofmoney.html
Consider this curve of how people react in situations that cost money.
A musician is standing on a street corner playing real good for free. Most people walk on by (3). That same musician playing at a bar with a $5 cover gets a bit more attention. Put him into a concert hall at $40 and suddenly it's an event.
Pay someone minimum wage or a low intern stipend (4) and they treat the work like a job. Don't expect that worker to put in extra effort or conquer her fear--the message is that her effort was bought and paid for and wasn't worth very much to the boss... and so she reciprocates in kind. The same sort of thing can happen in a class that's easy to get into and that doesn't cost much--a Learning Annex sort of thing. Easy to start, cheap to try--not much effort as a result.
It's interesting to me to see what happens to people who pay a lot or get paid well (2,5). The kids at Harvard
Law School, for example, or a third-year associate at a law firm. Here, we see all nighters, heroic, career-risking efforts and all sorts of personal investment. And yet as we extend the curve to situations where the rules of rational money are suspended, something happens--people get fearful again. Don't look to Oprah or JK
Rowling or the Donald to bet it all--the huge amount of money they could earn (or could pay) to play at the next level (1 & 6) isn't enough to get them out of their comfort zone. Money ceases to be a motivator for everyone at some point.
Most interesting of all is the long black line at zero (3). The curve goes wild here, like dividing by zero. At zero, at the place where no money changes hands, we see volunteer labor and free exchange. In these situations, sometimes we see extraordinary effort, the stuff that wins Nobel prizes. Just about every great, brave or beautiful thing in our culture was created by someone who didn't do it for money. We see the local volunteer putting in insane hours even though no one is watching. We hear the magical song or read the amazing poem that no one got paid to write. And sometimes, though, we see very little, just a trolling comment or a half-hearted bit of commentary. Remove money from the story and we're in a whole new category. The most vivid way to think about this is the difference between a mutually-agreed upon romantic date and one in which money changes hands.
All worth thinking about when you consider how much to charge for a gig, what tuition ought to be, what motivates job creators or whether or not a form of art disappears when the business model for that art goes away.
http://sethgodin.typepad.com/seths_blog/2012/04/storyofmoney.html
4/18/11
Wealth Is What You Save, Not What You Spend
Want to be a millionaire? Don't overspend and use debt wisely.
We all may not be millionaires but there are plenty of financial and life-planning secrets we can learn from the well-heeled.
Most people know that wealth in the U.S. is in the hands of a small percentage of the total population. And, today, most of those folks with a net worth of $1 million or more have earned it themselves.
They're mostly entrepreneurs who create everything from high-speed networks to garbage haulers. They dig ditches and build houses and grow corn and make jewelry. They deal stamps or coins or artwork and control pests and cut lawns. They also cure people and give them new teeth. Others will defend their neighbors or even feed them.
And they're not big spenders. In fact, most of those with big bucks live well under their means -- think about Warren Buffett still living in that modest Omaha home -- and they put their money instead toward investments that help them stockpile more wealth.
"Wealth is what you accumulate, not what you spend," according to Thomas Stanley and William Danko, the authors of the seminal tome on America's wealthy "The Millionaire Next Door," first published in 1996.
"It is seldom luck or inheritance or advanced degrees or even intelligence that enables people to amass fortunes," the authors wrote. "Wealth is more often the result of a lifestyle of hard work, perseverance, planning, and, most of all, self discipline."
Wealth is defined in many ways, though it's generally determined as the value of everything you own minus debts. But there's a difference between marketable assets -- things you own that could be liquidated rather quickly, like stocks, bonds, real estate -- and possessions like cars, clothing and household items that you use regularly and aren't likely to sell.
Income alone does not make one rich. It helps, of course, to build wealth, but the financially independent look to their salaries as a means to an end, which is that pile of cash.
"The wealthy don't spend their wealth on discretionary purchases," said Pam Danziger, founder of Unity Marketing, a consumer market-research firm specializing in luxury goods and experiences. "They get rich by maximizing the value of their investments."
That doesn't mean they don't pay big bucks for pretty shoes or outfits, but that most choose those items carefully and shop for value and quality. "They truly evaluate the purchase as an investment, not an expense," Danziger said.
What they do though is diversify those investments, which gives them more flexibility to ride out difficult times. "The wealthiest clients have very, very diversified portfolios that go way beyond just stocks and bonds into hedge funds, currencies, commodities and emerging markets," said Leslie Lassiter, managing director of the JPMorgan Private Wealth Management.
"There are many, many mutual funds out there that will allow you to get exposure to those types of asset classes," Lassiter said.
Among the biggest differences between those flush with cash and those wishing they were is in how they pay for things. Millionaires tend to use cash for most of their purchases, including cars, homes and boats.
For the average wage earner, of course, that's not always an option but it still holds this lesson: Don't look to debt to fund your lifestyle.
Most wealthy people use debt for investment purposes and are careful not to over-leverage themselves. "A prudent use of debt is an appropriate thing for anyone," Lassiter said.
They also plan very well and spend a lot of time at it. Many are compulsive savers and investors who often say the journey to riches was far more fun than the reaching the goal.
And they're patient, willing to invest in the long term and wait it out. "They stick with their investments and are more likely to have a financial plan," said Sanjiv Mirchandani, president of National Financial, a subsidiary of Fidelity Investments.
Many take the long-term approach to investing because they're working at being financial independent. When they retire, for example, many will know exactly how much they need to live on, to give away and to leave as a legacy.
"The best ones really understand how much liquidity they need to cover their expenses and make sure they have that much cash on hand," Lassiter said. "That's something the average person should do as well."
At the same time, she said most are very careful about leveraging debt. "The wealthy tend to balance between the two," she said.
Recommendations for accumulating wealth:
Live below your means: People with high incomes who spend all that money are not rich; they're just stupid.
Plan: That means plan for today, tomorrow and 30 years after retirement. Take time doing it too and spend time monitoring it every day. Use budgets and stick to them.
Diversify: As Lassiter said, look for mutual funds that allow you exposure to asset classes that aren't related to each other.
Reduce use of credit and turn to cash: It's easier, of course, for a prosperous person to pay for a house in cash than it might be for most folks, but credit-card debt for luxury purchases or extravagant vacations will never pave a road to riches.
Have access to cash: While the rich keep much of their wealth invested, they can get cash when they need it. "Have some kind of line of credit available, like a HELOC (home-equity line of credit) that you never use," Lassiter said. "It's a safety valve." She suggests a year's worth of cash to cover expenses; Danziger thinks three years worth is a better bet.
Spread cash around: When the wealthy pulled money out of the equities markets two and three years ago, they opened a bevy of bank accounts, all guaranteed up to $250,000 of deposits by the Federal Deposit Insurance Corp.
Bring your children into the mix, and remember the importance of estate planning: The affluent can go to great lengths to teach their children about money and how to manage it -- something every family should do. Though talking about money with children consistently ranks as one of the most dreaded conversations, it's important that your heirs know where all the bank accounts and safe-deposit boxes are -- even that their names are on them, too -- who the attorney is, where the will and trusts are filed.
We all may not be millionaires but there are plenty of financial and life-planning secrets we can learn from the well-heeled.
Most people know that wealth in the U.S. is in the hands of a small percentage of the total population. And, today, most of those folks with a net worth of $1 million or more have earned it themselves.
They're mostly entrepreneurs who create everything from high-speed networks to garbage haulers. They dig ditches and build houses and grow corn and make jewelry. They deal stamps or coins or artwork and control pests and cut lawns. They also cure people and give them new teeth. Others will defend their neighbors or even feed them.
And they're not big spenders. In fact, most of those with big bucks live well under their means -- think about Warren Buffett still living in that modest Omaha home -- and they put their money instead toward investments that help them stockpile more wealth.
"Wealth is what you accumulate, not what you spend," according to Thomas Stanley and William Danko, the authors of the seminal tome on America's wealthy "The Millionaire Next Door," first published in 1996.
"It is seldom luck or inheritance or advanced degrees or even intelligence that enables people to amass fortunes," the authors wrote. "Wealth is more often the result of a lifestyle of hard work, perseverance, planning, and, most of all, self discipline."
Wealth is defined in many ways, though it's generally determined as the value of everything you own minus debts. But there's a difference between marketable assets -- things you own that could be liquidated rather quickly, like stocks, bonds, real estate -- and possessions like cars, clothing and household items that you use regularly and aren't likely to sell.
Income alone does not make one rich. It helps, of course, to build wealth, but the financially independent look to their salaries as a means to an end, which is that pile of cash.
"The wealthy don't spend their wealth on discretionary purchases," said Pam Danziger, founder of Unity Marketing, a consumer market-research firm specializing in luxury goods and experiences. "They get rich by maximizing the value of their investments."
That doesn't mean they don't pay big bucks for pretty shoes or outfits, but that most choose those items carefully and shop for value and quality. "They truly evaluate the purchase as an investment, not an expense," Danziger said.
What they do though is diversify those investments, which gives them more flexibility to ride out difficult times. "The wealthiest clients have very, very diversified portfolios that go way beyond just stocks and bonds into hedge funds, currencies, commodities and emerging markets," said Leslie Lassiter, managing director of the JPMorgan Private Wealth Management.
"There are many, many mutual funds out there that will allow you to get exposure to those types of asset classes," Lassiter said.
Among the biggest differences between those flush with cash and those wishing they were is in how they pay for things. Millionaires tend to use cash for most of their purchases, including cars, homes and boats.
For the average wage earner, of course, that's not always an option but it still holds this lesson: Don't look to debt to fund your lifestyle.
Most wealthy people use debt for investment purposes and are careful not to over-leverage themselves. "A prudent use of debt is an appropriate thing for anyone," Lassiter said.
They also plan very well and spend a lot of time at it. Many are compulsive savers and investors who often say the journey to riches was far more fun than the reaching the goal.
And they're patient, willing to invest in the long term and wait it out. "They stick with their investments and are more likely to have a financial plan," said Sanjiv Mirchandani, president of National Financial, a subsidiary of Fidelity Investments.
Many take the long-term approach to investing because they're working at being financial independent. When they retire, for example, many will know exactly how much they need to live on, to give away and to leave as a legacy.
"The best ones really understand how much liquidity they need to cover their expenses and make sure they have that much cash on hand," Lassiter said. "That's something the average person should do as well."
At the same time, she said most are very careful about leveraging debt. "The wealthy tend to balance between the two," she said.
Recommendations for accumulating wealth:
Live below your means: People with high incomes who spend all that money are not rich; they're just stupid.
Plan: That means plan for today, tomorrow and 30 years after retirement. Take time doing it too and spend time monitoring it every day. Use budgets and stick to them.
Diversify: As Lassiter said, look for mutual funds that allow you exposure to asset classes that aren't related to each other.
Reduce use of credit and turn to cash: It's easier, of course, for a prosperous person to pay for a house in cash than it might be for most folks, but credit-card debt for luxury purchases or extravagant vacations will never pave a road to riches.
Have access to cash: While the rich keep much of their wealth invested, they can get cash when they need it. "Have some kind of line of credit available, like a HELOC (home-equity line of credit) that you never use," Lassiter said. "It's a safety valve." She suggests a year's worth of cash to cover expenses; Danziger thinks three years worth is a better bet.
Spread cash around: When the wealthy pulled money out of the equities markets two and three years ago, they opened a bevy of bank accounts, all guaranteed up to $250,000 of deposits by the Federal Deposit Insurance Corp.
Bring your children into the mix, and remember the importance of estate planning: The affluent can go to great lengths to teach their children about money and how to manage it -- something every family should do. Though talking about money with children consistently ranks as one of the most dreaded conversations, it's important that your heirs know where all the bank accounts and safe-deposit boxes are -- even that their names are on them, too -- who the attorney is, where the will and trusts are filed.
4/6/11
What Should Your Net Worth Be? Why “The Millionaire Next Door” Equation Falls Short – And What A Better Thumbnail Calculation Might Look Like
Recently, I was reminded of the first book I ever reviewed on The Simple Dollar, The Millionaire Next Door. I really liked the book, even though there was one big flaw in it: a rather large age bias. The book was written for people over forty, from top to bottom.
This was most obvious when the book offered up a formula for calculating what your net worth should be:
Target Net Worth = Age X Annual Pre-Tax Income / 10
So, let’s say I’m a 23 year old, fresh out of college. I am carrying $25,000 in student loan debt and my only asset is my car, but I get a job paying $30,000 a year. According to this formula, this is my net worth:
Target Net Worth = 23 X $30,000 / 10 = $69,000
I don’t know very many fresh college graduates with a net worth that high – most are saddled with a lot of student loan debt and simply haven’t been in the workplace long enough to build any assets.
What can we do to change that? The big question is really how old should a person be when their net worth switches over to positive? For the average college graduate, that’s going to be at least a few years after graduation, no matter what. So let’s try this instead:
Target Net Worth = (Age – 27) X Annual Pre-Tax Income / 10
That gets a more realistic number for young people – our straw man above would have a target net worth of -$12,000, which is pretty realistic – and even if a person chooses graduate school, the number isn’t too far off.
The problem pops up later on in life. At age 40, with an annual salary of $40,000, a person would have the following target net worth:
Target Net Worth = (40 – 27) X $40,000 / 10 = $52,000
A person who has been earning $30K to $40K over fifteen years or so should definitely have a higher net worth than that. The culprit, I think, is that number on the bottom – 10. It assumes that a person’s net worth should only grow 10% in a given year. What will actually happen is once the net worth starts going positive and growing well, it will grow by more than 10% each year. My net worth, for example, will probably grow somewhere around 30% this year.
So let’s say we think a financially healthy person, once they’ve paid down some of their debts, should see their net worth grow by significantly more than 10%. Let’s try making that number on the bottom 5 instead of 10.
Target Net Worth = (Age – 27) X Annual Pre-Tax Income / 5
For our straw man, at age 23 with an income of $30,000, his target net worth would be
Target Net Worth = (23 – 27) X $30,000 / 5 = -$24,000
This is probably a pretty good estimate, considering he graduates with $25,000 in student loan debt and owning only his beat-up car. The new equation is far more realistic for people in their twenties and thirties than the old one. What about the 40 year old with an income of $40,000?
Old Target Net Worth = 40 X $40,000 / 10 = $160,000
New Target Net Worth = (40 – 27) X $40,000 / 5 = $104,000
Even at age 40, the new equation points at a lower target net worth. But what about a 60 year old with an income of $60,000?
Old Target Net Worth = 60 X $60,000 / 10 = $360,000
New Target Net Worth = (60 – 27) X $60,000 / 5 = $396,000
Late in life, the modified equation actually points at a higher net worth than before. I think this is a much more realistic model because of the power of compounding – compounding is going to be much more powerful for you later in life as you’ve been building up your retirement and such.
So, instead of using the equation found in The Millionaire Next Door to figure your net worth, try this one instead:
Target Net Worth = (Age – 27) X Annual Pre-Tax Income / 5
It creates a much more realistic view of a person’s financial state throughout their life than the original, particularly for younger people. No single thumbnail formula like this is perfect – I’m just seeking one that matches better than the one in the book.
I recommend using this number as a target throughout your life, much as The Millionaire Next Door suggests: make it a goal to try to double the target or better, but know that if you’re matching the number, you’re doing all right.
http://www.thesimpledollar.com/2007/09/16/what-should-your-net-worth-be-why-the-millionaire-next-door-equation-falls-short-and-what-a-better-thumbnail-calculation-might-look-like/
This was most obvious when the book offered up a formula for calculating what your net worth should be:
Target Net Worth = Age X Annual Pre-Tax Income / 10
So, let’s say I’m a 23 year old, fresh out of college. I am carrying $25,000 in student loan debt and my only asset is my car, but I get a job paying $30,000 a year. According to this formula, this is my net worth:
Target Net Worth = 23 X $30,000 / 10 = $69,000
I don’t know very many fresh college graduates with a net worth that high – most are saddled with a lot of student loan debt and simply haven’t been in the workplace long enough to build any assets.
What can we do to change that? The big question is really how old should a person be when their net worth switches over to positive? For the average college graduate, that’s going to be at least a few years after graduation, no matter what. So let’s try this instead:
Target Net Worth = (Age – 27) X Annual Pre-Tax Income / 10
That gets a more realistic number for young people – our straw man above would have a target net worth of -$12,000, which is pretty realistic – and even if a person chooses graduate school, the number isn’t too far off.
The problem pops up later on in life. At age 40, with an annual salary of $40,000, a person would have the following target net worth:
Target Net Worth = (40 – 27) X $40,000 / 10 = $52,000
A person who has been earning $30K to $40K over fifteen years or so should definitely have a higher net worth than that. The culprit, I think, is that number on the bottom – 10. It assumes that a person’s net worth should only grow 10% in a given year. What will actually happen is once the net worth starts going positive and growing well, it will grow by more than 10% each year. My net worth, for example, will probably grow somewhere around 30% this year.
So let’s say we think a financially healthy person, once they’ve paid down some of their debts, should see their net worth grow by significantly more than 10%. Let’s try making that number on the bottom 5 instead of 10.
Target Net Worth = (Age – 27) X Annual Pre-Tax Income / 5
For our straw man, at age 23 with an income of $30,000, his target net worth would be
Target Net Worth = (23 – 27) X $30,000 / 5 = -$24,000
This is probably a pretty good estimate, considering he graduates with $25,000 in student loan debt and owning only his beat-up car. The new equation is far more realistic for people in their twenties and thirties than the old one. What about the 40 year old with an income of $40,000?
Old Target Net Worth = 40 X $40,000 / 10 = $160,000
New Target Net Worth = (40 – 27) X $40,000 / 5 = $104,000
Even at age 40, the new equation points at a lower target net worth. But what about a 60 year old with an income of $60,000?
Old Target Net Worth = 60 X $60,000 / 10 = $360,000
New Target Net Worth = (60 – 27) X $60,000 / 5 = $396,000
Late in life, the modified equation actually points at a higher net worth than before. I think this is a much more realistic model because of the power of compounding – compounding is going to be much more powerful for you later in life as you’ve been building up your retirement and such.
So, instead of using the equation found in The Millionaire Next Door to figure your net worth, try this one instead:
Target Net Worth = (Age – 27) X Annual Pre-Tax Income / 5
It creates a much more realistic view of a person’s financial state throughout their life than the original, particularly for younger people. No single thumbnail formula like this is perfect – I’m just seeking one that matches better than the one in the book.
I recommend using this number as a target throughout your life, much as The Millionaire Next Door suggests: make it a goal to try to double the target or better, but know that if you’re matching the number, you’re doing all right.
http://www.thesimpledollar.com/2007/09/16/what-should-your-net-worth-be-why-the-millionaire-next-door-equation-falls-short-and-what-a-better-thumbnail-calculation-might-look-like/
3/24/11
10 Quick Pickups for Your Personal Finances
You don't have to be an expert to manage your money and prepare for life's unexpected twists and turns.
If you're like most people, your New Years Resolutions have already expired. You haven't lost 10 pounds, you're not going to the gym five days a week, and when was the last time you called your mother?
Chances are, your financial goals have fallen by the wayside too. I don't want to discourage you from paying down debt, saving a down payment for a house, or any of those big goals that you may have set for yourself at the beginning of the year. But if you sort of tuckered out on the big things (or even if you're still going strong -- go you!), maybe it's time to set some more achievable goals. Here are 10 things you can do in an hour or less apiece to make yourself -- or your household -- more financially sound.
1. Join Mint
I'm an unabashed fan of the site, and not just because they do some great data-mining on their blog. (Don't worry, all at the very aggregate level). It will track and aggregate your spending for you, showing you where the money is going, and what's happening to your net worth over time. If you have sort of complicated finances -- as I do, living in a two-journalist household -- then it's an absolute godsend at tax and expense time. And in the last year they've added goals, allowing you to set your spending, saving, and debt-reduction goals and then track how you're doing with a thermometer. It's surprisingly motivating, and it's free.
I probably spend 20 minutes a week in Mint, categorizing our expenses and monitoring our financial position. But even if you don't put in that kind of time (and most of you don't have to keep track of which meals are tax-deductible), it's still incredibly helpful at tracking the broad outlines of your spending.
2. Get Your Papers Together
If you die, someone is going to have to clean up the financial aftermath. Make it easy on them by putting everything in one place where they can find it. Dave Ramsey calls this a "Legacy Drawer," and suggests putting in a cover letter and letters to your loved ones as well as the financial papers. But we're trying to keep this under an hour, so the notes are optional. Here's what it should contain:
• Insurance papers.
• Loan documents.
• A list of every financial account: loans, bank accounts, investment accounts, 401(k)s, whatever. Security experts will kill me for saying this, but I'd say this list should have the account numbers, the PINs, and the passwords.
• Deeds and titles to any property you own (cars, land, etc).
• Birth certificate and social security card, if you have them.
• Information about your will/estate plans: who has them, who the executor is.
• Funeral instructions (if any; mine are "cheapest coffin you can find").
• Tax returns.
• A list of your major recurring expenses (so people know which bills to pay).
Start by putting this in a drawer; eventually, you should move this to a safe-deposit box, and tell whoever's likely to be taking care of your final details where to find the key. This should only take you an hour -- if it takes you longer than that, well, you really needed to get these documents while you could find them anyway.
3. Buy Life Insurance
If you're single, you don't need this unless you have a kid or someone else depending on you -- your job usually offers you enough to bury you. If you're married, I think you do need a little, even if you don't have kids. Married life is usually built on the expectation of two incomes: a mortgage (or lease), the cars, all sorts of other recurring expenses. At a minimum, make sure your partner will have enough to bury you and pay off any outstanding debt -- including not only mortgages and cars, but credit cards and student loans in their name alone, if you own property. You don't want to have to hassle with someone coming after their half of the house or car to pay off their unsecured debt. Obviously, if your partner is at home, or makes very little money, you're also going to want to replace some of your income.
You do not want "whole life" insurance, "return of premium" or any other product that promises you to give you some or all of your money back -- all this is is a savings vehicle with bad rates of return, bundled with expensive term life insurance. Buy a simple term life policy for 20 or 30 years -- long enough for you to accumulate enough assets to take care of your partner if you die. You can compare rates online or mosey down to your local insurance office, but either way, this shouldn't take you too long provided that you resist the blandishments of insurance agents who will attempt to upsell you "features" you don't need. Stand firm, buy term.
4. Cancel Stupid Recurring Expenses
Remember when you thought you'd try Stamps.com? How about that credit monitoring service you signed up for eighteen months ago? The dual subscriptions to Netflix left over from before you moved in together? For many of you, I am sad to say, your gym membership also falls into this category.
Whatever it is, if you haven't used it in three months, cancel it. Cancel it whether or not you think you should be using it. You can always rejoin the gym after you've developed a burning desire to actually go. With the hundreds of dollars you will save between now and then, you will easily be able to afford any re-initiation fees.
5. Ramp Up for Retirement
Unless you are already at the legal maximum, increase your 401(k) contribution by 1% of your income. Unless you are already pinching pennies so hard that Abraham Lincoln is actually screaming in pain, you can afford to put an extra 1% of your pre-tax income into your 401(k). Then every time you get a raise, you increase your contribution by another 1% until you hit the legal limit ($16,500) or 15-20% of your income. Almost painless, and you'll feel a lot safer in retirement. (Of course, if you want to save faster, you can -- try 2% or 3%).
6. Start Saving
If you don't have an emergency fund, you need one. Here's how to do it so that you almost won't notice: set up an automatic transfer into your savings account from every paycheck. Figure out how much can you afford, but even if it's only $25, transfer it from every paycheck, and resolve not to touch that money unless it's an actual emergency. (Emergency: my car won't start. Not an emergency: I really need a break, so I'm going to the beach for a week.)
The ideal way to handle this is to have a separate account that isn't linked to your other bank accounts, and to have the transfer done as part of your auto-deposit. That way, you never see the money -- and I think you'll be surprised to find that you don't much miss it. But if you don't want to go to the trouble, you can do this with your regular savings account, as long as you're resolved not to touch the money in that account for anything but an emergency: just use online banking to do a recurring transfer on the same day as your paycheck hits the account.
Over time, increase the amount that you're saving. Eventually you'll have a tidy nest egg, and because the money was never in your checking account, you won't have been tempted to spend it on incidentals.
7. Re-balance Your Portfolio
If you already have substantial assets, it's time to make sure they're correctly structured for your priorities. Are your mutual funds allocated the way that you want them, or over time, has one grown faster than the others, leaving your portfolio lopsided (many companies now automatically re-balance, but you should check.) You should also be thinking about your portfolio's life-cycle. If you're in your fifties, you should already be transitioning some of your money to bonds.
I know what you're going to say: you'll never be able to retire at those kinds of returns. My response is a piece of wisdom that I picked up from my driving instructor: "If you left late, you're going to get there late." Trying to flout that simple equation only gets you in trouble. Just as it's a bad idea to race through red lights in the hopes of making up the lost time, it's a bad idea to leave your assets in 100% equity because you're hoping that higher returns will still let you retire in comfort at 65. Risking destitution now is just compounding your earlier planning errors.
8. Make a Will
If your finances are pretty simple, you can do this in half an hour with something like Quicken Willmaker, which took Lifehacker half an hour. LegalZoom will also do it for you for a pretty modest fee. If your finances are complicated -- well, OK, this won't take under an hour, and you need a lawyer. But if your finances are complicated, you really need a will. If it freaks you out too much to meditate upon your own death, pretend that you are preparing this will so you can drop out of sight and assume your new identity as Agent 007 of Her Majesty's Secret Service.
9. Fix Your Withholding
Are you looking forward to a nice big refund from the IRS this year? Don't look so happy -- that refund means that you made the government an interest-free loan for most of the year. And if you're like many freelancers, and you owe the government a hefty chunk, then you may be liable for interest and penalties.
The easy way to fix either problem is to adjust your withholding. HR can help you do this. If you're getting a big refund every year, raise your exemptions; if you're having to pay, lower them. (If they're already as low as they can get, look at what you owe this year, adjust for what you'll owe next year ... and start making estimated payments every quarter.)
10. Shop for Better Deals
Can you get a better interest rate on your credit cards? How about your bank accounts? You don't have to follow through, if you decide it's not worth it. But it's worth taking 15 minutes on the web to find out. Also worth doing: threaten to cancel your cable. You don't have to actually do it -- though with Netflix and Hulu and Amazon Prime's new subscription service, it's possibly worth it. But if you call to cancel, they'll usually offer you a better deal.
http://financiallyfit.yahoo.com/finance/article-112368-8971-3-10-quick-pickups-for-your-personal-finances
If you're like most people, your New Years Resolutions have already expired. You haven't lost 10 pounds, you're not going to the gym five days a week, and when was the last time you called your mother?
Chances are, your financial goals have fallen by the wayside too. I don't want to discourage you from paying down debt, saving a down payment for a house, or any of those big goals that you may have set for yourself at the beginning of the year. But if you sort of tuckered out on the big things (or even if you're still going strong -- go you!), maybe it's time to set some more achievable goals. Here are 10 things you can do in an hour or less apiece to make yourself -- or your household -- more financially sound.
1. Join Mint
I'm an unabashed fan of the site, and not just because they do some great data-mining on their blog. (Don't worry, all at the very aggregate level). It will track and aggregate your spending for you, showing you where the money is going, and what's happening to your net worth over time. If you have sort of complicated finances -- as I do, living in a two-journalist household -- then it's an absolute godsend at tax and expense time. And in the last year they've added goals, allowing you to set your spending, saving, and debt-reduction goals and then track how you're doing with a thermometer. It's surprisingly motivating, and it's free.
I probably spend 20 minutes a week in Mint, categorizing our expenses and monitoring our financial position. But even if you don't put in that kind of time (and most of you don't have to keep track of which meals are tax-deductible), it's still incredibly helpful at tracking the broad outlines of your spending.
2. Get Your Papers Together
If you die, someone is going to have to clean up the financial aftermath. Make it easy on them by putting everything in one place where they can find it. Dave Ramsey calls this a "Legacy Drawer," and suggests putting in a cover letter and letters to your loved ones as well as the financial papers. But we're trying to keep this under an hour, so the notes are optional. Here's what it should contain:
• Insurance papers.
• Loan documents.
• A list of every financial account: loans, bank accounts, investment accounts, 401(k)s, whatever. Security experts will kill me for saying this, but I'd say this list should have the account numbers, the PINs, and the passwords.
• Deeds and titles to any property you own (cars, land, etc).
• Birth certificate and social security card, if you have them.
• Information about your will/estate plans: who has them, who the executor is.
• Funeral instructions (if any; mine are "cheapest coffin you can find").
• Tax returns.
• A list of your major recurring expenses (so people know which bills to pay).
Start by putting this in a drawer; eventually, you should move this to a safe-deposit box, and tell whoever's likely to be taking care of your final details where to find the key. This should only take you an hour -- if it takes you longer than that, well, you really needed to get these documents while you could find them anyway.
3. Buy Life Insurance
If you're single, you don't need this unless you have a kid or someone else depending on you -- your job usually offers you enough to bury you. If you're married, I think you do need a little, even if you don't have kids. Married life is usually built on the expectation of two incomes: a mortgage (or lease), the cars, all sorts of other recurring expenses. At a minimum, make sure your partner will have enough to bury you and pay off any outstanding debt -- including not only mortgages and cars, but credit cards and student loans in their name alone, if you own property. You don't want to have to hassle with someone coming after their half of the house or car to pay off their unsecured debt. Obviously, if your partner is at home, or makes very little money, you're also going to want to replace some of your income.
You do not want "whole life" insurance, "return of premium" or any other product that promises you to give you some or all of your money back -- all this is is a savings vehicle with bad rates of return, bundled with expensive term life insurance. Buy a simple term life policy for 20 or 30 years -- long enough for you to accumulate enough assets to take care of your partner if you die. You can compare rates online or mosey down to your local insurance office, but either way, this shouldn't take you too long provided that you resist the blandishments of insurance agents who will attempt to upsell you "features" you don't need. Stand firm, buy term.
4. Cancel Stupid Recurring Expenses
Remember when you thought you'd try Stamps.com? How about that credit monitoring service you signed up for eighteen months ago? The dual subscriptions to Netflix left over from before you moved in together? For many of you, I am sad to say, your gym membership also falls into this category.
Whatever it is, if you haven't used it in three months, cancel it. Cancel it whether or not you think you should be using it. You can always rejoin the gym after you've developed a burning desire to actually go. With the hundreds of dollars you will save between now and then, you will easily be able to afford any re-initiation fees.
5. Ramp Up for Retirement
Unless you are already at the legal maximum, increase your 401(k) contribution by 1% of your income. Unless you are already pinching pennies so hard that Abraham Lincoln is actually screaming in pain, you can afford to put an extra 1% of your pre-tax income into your 401(k). Then every time you get a raise, you increase your contribution by another 1% until you hit the legal limit ($16,500) or 15-20% of your income. Almost painless, and you'll feel a lot safer in retirement. (Of course, if you want to save faster, you can -- try 2% or 3%).
6. Start Saving
If you don't have an emergency fund, you need one. Here's how to do it so that you almost won't notice: set up an automatic transfer into your savings account from every paycheck. Figure out how much can you afford, but even if it's only $25, transfer it from every paycheck, and resolve not to touch that money unless it's an actual emergency. (Emergency: my car won't start. Not an emergency: I really need a break, so I'm going to the beach for a week.)
The ideal way to handle this is to have a separate account that isn't linked to your other bank accounts, and to have the transfer done as part of your auto-deposit. That way, you never see the money -- and I think you'll be surprised to find that you don't much miss it. But if you don't want to go to the trouble, you can do this with your regular savings account, as long as you're resolved not to touch the money in that account for anything but an emergency: just use online banking to do a recurring transfer on the same day as your paycheck hits the account.
Over time, increase the amount that you're saving. Eventually you'll have a tidy nest egg, and because the money was never in your checking account, you won't have been tempted to spend it on incidentals.
7. Re-balance Your Portfolio
If you already have substantial assets, it's time to make sure they're correctly structured for your priorities. Are your mutual funds allocated the way that you want them, or over time, has one grown faster than the others, leaving your portfolio lopsided (many companies now automatically re-balance, but you should check.) You should also be thinking about your portfolio's life-cycle. If you're in your fifties, you should already be transitioning some of your money to bonds.
I know what you're going to say: you'll never be able to retire at those kinds of returns. My response is a piece of wisdom that I picked up from my driving instructor: "If you left late, you're going to get there late." Trying to flout that simple equation only gets you in trouble. Just as it's a bad idea to race through red lights in the hopes of making up the lost time, it's a bad idea to leave your assets in 100% equity because you're hoping that higher returns will still let you retire in comfort at 65. Risking destitution now is just compounding your earlier planning errors.
8. Make a Will
If your finances are pretty simple, you can do this in half an hour with something like Quicken Willmaker, which took Lifehacker half an hour. LegalZoom will also do it for you for a pretty modest fee. If your finances are complicated -- well, OK, this won't take under an hour, and you need a lawyer. But if your finances are complicated, you really need a will. If it freaks you out too much to meditate upon your own death, pretend that you are preparing this will so you can drop out of sight and assume your new identity as Agent 007 of Her Majesty's Secret Service.
9. Fix Your Withholding
Are you looking forward to a nice big refund from the IRS this year? Don't look so happy -- that refund means that you made the government an interest-free loan for most of the year. And if you're like many freelancers, and you owe the government a hefty chunk, then you may be liable for interest and penalties.
The easy way to fix either problem is to adjust your withholding. HR can help you do this. If you're getting a big refund every year, raise your exemptions; if you're having to pay, lower them. (If they're already as low as they can get, look at what you owe this year, adjust for what you'll owe next year ... and start making estimated payments every quarter.)
10. Shop for Better Deals
Can you get a better interest rate on your credit cards? How about your bank accounts? You don't have to follow through, if you decide it's not worth it. But it's worth taking 15 minutes on the web to find out. Also worth doing: threaten to cancel your cable. You don't have to actually do it -- though with Netflix and Hulu and Amazon Prime's new subscription service, it's possibly worth it. But if you call to cancel, they'll usually offer you a better deal.
http://financiallyfit.yahoo.com/finance/article-112368-8971-3-10-quick-pickups-for-your-personal-finances
3/22/11
Skimp or Splurge - Millionaire’s Car
We live in a very nice neighborhood where the houses and yards are well-tended, and new, shiny luxury cars are parked in most of the garages. I’m proud to say that in our garage are two of the least impressive cars in the neighborhood - an eight year old Pontiac and 11 year old Ford. Why do we skimp? Because doing so pays handsomely, and by handsomely I mean to the tune of $1.9 million dollars. Here’s my cost-benefit analysis.
Costs of the new car
I compared the costs of two imaginary families. The image conscious Jones family must drive $60,000 luxury SUVs, and wouldn’t be caught dead in a model that is more than three years old. Across the street, lives the Thriftys, a family with less invested in their image and more invested in their future. They feel no pressure to keep up with the Joneses, or anyone else. They buy $24,000 Fords and keep them for ten years.
Depreciation - Cars depreciate at a greater rate when they are new.
Sales tax - The Joneses pay a much greater tax, every three years, vs. the Thriftys.
Ownership tax - Most states impose a license tax based on the value of the car.
Insurance - More expensive cars cost more to insure.
Gasoline - The SUV gets 13 MPG while the Ford economy car gets 26 MPG.
Maintenance - Everything is covered on the SUV - The Ford has an average cost of $1,000 after the first three years.
Costs of the new car
I compared the costs of two imaginary families. The image conscious Jones family must drive $60,000 luxury SUVs, and wouldn’t be caught dead in a model that is more than three years old. Across the street, lives the Thriftys, a family with less invested in their image and more invested in their future. They feel no pressure to keep up with the Joneses, or anyone else. They buy $24,000 Fords and keep them for ten years.
Depreciation - Cars depreciate at a greater rate when they are new.
Sales tax - The Joneses pay a much greater tax, every three years, vs. the Thriftys.
Ownership tax - Most states impose a license tax based on the value of the car.
Insurance - More expensive cars cost more to insure.
Gasoline - The SUV gets 13 MPG while the Ford economy car gets 26 MPG.
Maintenance - Everything is covered on the SUV - The Ford has an average cost of $1,000 after the first three years.
On average, each of the two Lexus SUVs cost $15,060 annually, while the Ford clocks in at $10,000 less. This leaves the Thriftys with $20,000 annually to invest. If the investments return seven percent annually, the Thriftys will have built up a $1.9 million portfolio after 30 years. Of course to get that rate, you’ve got to keep expenses and emotions out of the equation and be a rational investor.
Benefits of the new car
You’ll get no argument from me that the Lexus SUVs are a little slice of automobile heaven. And I admit that I enjoy being a passenger in someone else’s Lexus. Getting a new car, with that new car smell, brings a certain pleasure and psychological well being. But studies show that this happiness is inevitably short-lived, even turning into anger or sadness, as soon as you notice that first ding.
The unsexy, boring truth is that the Ford gets to any destination just as fast as the Lexus. The comfort factor seems to disappear as one gets used to the ride in any car. So, for the most part, splurging on the Lexus gets you only one thing that you don’t get with the Ford - status.
Bottom line
If you have more money than you can ever spend, then have at it with my envious blessings, and get whatever kind of car you’d like. But if you are concerned about your financial well being, skimping on a car is the single most important thing you can do to cut expenditures without giving up a single economic good since you can still go anywhere you’d like. You need only give up the psychological value of status and, if you can reframe your view of psychological value, you may be even better off there too.
My advice is to get off of the hedonic treadmill and break the chains of status-seeking. Before you know it, the Joneses will be trying to keep up with your portfolio.
Top 10 Benefits of a Millionaire’s Car
1.You can actually be a millionaire rather than only looking like one.
2.You won’t have to worry about getting a ding on your car - go ahead and park in that tight space.
3.You know your friends won’t like you only for your car.
4.You won’t be accused of being materialistic.
5.You’ll get from point A to B just as fast as the luxury car.
6.When you drive somewhere with your friends, they will want to take their car.
7.If you get pulled over, the police officer won’t give you attitude because he can’t afford your car! (Okay - I’m reaching here.)
8.When your friends make fun of it, you’ll learn which friends are snobs.
9.You’ll demonstrate your self-image can’t be manipulated by advertising agencies.
10.Did I mention it will make you a millionaire?
http://moneywatch.bnet.com/investing/blog/irrational-investor/skimp-or-splurge-millionaires-car/1705/
3/2/11
25 Ways to Waste Your Money
Has your budget sprung a leak?
Nearly everyone has spending holes. And as with other kinds of leaks, you may have hardly noticed them. But those small drips can quickly add up to big bucks. The trick is to find the holes and plug them so you can keep more money in your pocket. That extra cash could be the ticket to finally being able to save, invest, or break your cycle of living from paycheck to paycheck.
Here are 25 common ways people waste money. See if any of these sound familiar, then look for ways to plug your own leaks:
1. Carrying a balance. Debt is a shackle that holds you back. For instance, if you have a $1,000 balance on a credit card that charges an 18% rate, you blow $180 every year on interest. Get in the habit of paying off your balance in full each month.
2. Overspending on gas and oil for your car. There's no need to spring for premium fuel if the manufacturer says regular is just fine. You should also check to make sure your tires are optimally inflated to get the best gas mileage. And are you still paying for an oil change every 3,000 miles? Many models nowadays can last 5,000 to 7,000 miles between changes, and some even have built-in sensors to tell you when it's time to change the oil. Check your manual to find the best time for your car's routine maintenance.
3. Keeping unhealthy habits. Smoking costs a lot more than just what you pay for a pack of cigarettes. It significantly increases the cost of life and health insurance. And you'll pay more for homeowners and auto insurance. Add in various other expenses, and the true cost of smoking adds up dramatically over a lifetime -- $86,000 for a 24-year-old woman over a lifetime and $183,000 for a 24-year-old man over a lifetime, according to "The Price of Smoking" (The MIT Press).
Another habit to quit: indoor tanning. There is now a 10% tax on indoor tanning services. As with cigarettes, the true cost of tanning -- which the World Health Organization lists among the worst-known carcinogens -- is higher than just the price you pay each time you go to the salon.
4. Using a cell phone that doesn't fit. How many people do you know who have spent hundreds of dollars on fancy phones, and then pay hundreds of dollars every month for the privilege of using them? Your phone is not a status symbol. It is a way to communicate. Many people pay too much for cell phone contracts and don't use all their minutes. Go to BillShrink.com or Validas.com to evaluate your usage and see if you can find a plan that fits you better. Or consider a prepaid cell phone. Compare rates at MyRatePlan.com.
5. Buying brand-name instead of generic. From groceries to clothing to prescription drugs, you could save money by choosing the off-brand over the fancy label. And in many cases, you won't sacrifice much in quality. Clever advertising and fancy packaging don't make brand-name products better than lesser-known brands.
6. Keeping your mouth shut. No one wants to be a nuisance. But by simply asking, you may be able to snag a lower rate on your credit card.
When shopping, watch for price discrepancies at the cash register, and make a habit of asking, "Do you have a coupon for this?" You might even be able to haggle for a lower price, especially on seasonal or perishable items, floor models or big-ticket purchases. Many stores will also match or beat their competitors' prices if you speak up. And try asking for a discount if you pay cash or debit -- this saves the store the cut it has to pay the credit-card company, so it may be willing to give you a deal. It doesn't hurt to ask.
7. Buying beverages one at a time. If you're in the habit of buying bottled water, coffee-by-the-cup or vending-machine soda, your budget has sprung a leak. Instead, drink tap water or use a water filter. Brew a homemade cuppa joe. Buy your soda in bulk and bring it to work. (Better yet, skip the soda in favor of something healthier.)
8. Paying for something you can get for free. There's a boatload of freebies for the taking, if you know where to look. Some of our favorites include restaurant meals for kids, credit reports, software programs, prescription drugs and tech support. You can also help yourself to all the books, music and movies your heart desires at your local library for free (or dirt cheap).
9. Stashing your money with Uncle Sam rather than in an interest-earning account. If you get a tax refund each April, you let the government take too much money in taxes from your paycheck all year long. Get that money back in your pocket this year -- and put it to work for you -- by adjusting your tax withholding. You can file a new Form W-4 with your employer at any time.
10. Being disorganized. It pays to get your financial house in order. Lost bills and receipts, forgotten tax deductions, and clueless spending can cost you hundreds of dollars each year. Start by setting up automatic bill payment online for your monthly bills to eliminate late fees and postage costs. Then get a handful of files to organize important receipts, insurance policies, tax documents and other statements.
Finally, consider using free budgeting software such as Mint.com to see exactly where your money goes, making it much harder for you to lose track of it.
11. Letting your money wallow in a low-interest account. You work hard for your money. Shouldn't it work hard for you too? If you're stashing your cash in a traditional savings account earning next-to-nothing, you're wasting it. Make sure you're getting the best return on your money. Search for the highest yields on CDs and money-market savings accounts. And consider using a free online checking account that pays interest, such as ones offered by Everbank and ING Direct.
Your stocks and mutual funds should be working hard for you, too. If they've been lagging behind their peers for too long, it could be time to say goodbye. Learn how to spot a wallowing fund or stock.
12. Paying late fees and missing deadlines. Return those library books and movie rentals on time. Mail in those rebates. Submit expense reports on time for reimbursement. And if you make a bad purchase, don't just stuff it in the back of the closet and hope it goes away. Get off your duff, return it and get your money back before you lose the receipt.
13. Paying ATM fees. Expect to throw away nearly $4 every time you use an ATM that isn't in your bank's network. That's because you'll pay an ATM surcharge, and your own bank will hit you with a non-network fee. Consider switching to a bank, such as Ally Bank, that doesn't charge ATM fees and reimburses you for fees other banks charge. Another way to avoid fees if there's not an ATM in your bank's network nearby is to get cash back when you make a purchase at the grocery store or drugstore.
14. Shopping at the grocery store without a calculator. Check how much an item costs per ounce, pound or other unit of measurement. When you comparison-shop by unit price, you save. For example, if a pack of 40 diapers costs $13, that's 33 cents per diaper. But if you buy a box of 144 diapers for $35, that's 24 cents per diaper. You save 27%! (Of course, buying more of something only saves money if you use it all. If you end up throwing much out, you wasted money.)
15. Paying for things you don't use. Do you watch all those cable channels? Do you need those extra features on your phone? Are you getting your money's worth out of your gym membership? Are you taking full advantage of your Netflix, TiVo and magazine subscriptions? Take a look at what your family actually uses, then trim accordingly.
16. Not reading the fine print. Thought you were being smart by transferring the balance on a high-rate credit card to a low-rate one? Did you read the fine print, though? Some credit-card companies now charge up to 5% for balance transfers. Also watch out for free checking accounts that aren't so free. Some banks are starting to charge fees unless you meet certain criteria.
17. Mismanaging your flexible spending account. For some people, that means failing to take advantage of their workplace FSA, which lets employees set aside pre-tax dollars for out-of-pocket medical costs. Other people fail to submit receipts on time. And the average worker leaves $86 behind in his or her use-it-or-lose-it FSA account each year, according to WageWorks, an employee benefits provider.
18. Being an inflexible traveler. You'll save a lot of money on travel if you're willing to be flexible. Consider traveling before or after peak season when prices are lower. Or search for flights over a range of dates to find the lowest fare. Booking at the last minute also can save you money because hotels and airlines slash prices to fill rooms and planes. And flexibility pays off at blind-booking sites, such as Priceline or Hotwire, which offer deep discounts if you're willing to book a room or flight without knowing which hotel or airline (or other details about the flight) you're getting until you pay.
19. Sticking with the same service plans and the same service providers year after year. Hey, we're all for loyalty to trusted service providers, such as your bank, insurer, credit-card company, mutual fund, phone plan or cable plan. But over time, as prices and your circumstances change, the status-quo may not be the best deal any more. Smart consumers are always on the lookout for bargains.
20. Making impulse purchases. When you buy before you think, you don't give yourself time to shop around for the best price. Take the time to compare prices online, read product reviews and look for coupons when appropriate.
Make it a policy to give yourself a cooling-off period in case you're ever tempted to make an impulse purchase. Go home and sleep on the decision. More often than not, you'll decide you don't need the item after all.
21. Dining out frequently. Spending $10, $20, $30 per person for dinner can be a huge drain on your wallet. Throw in a $6 sandwich for lunch every day and you've got quite a leak. Learning to cook and bringing your lunch from home can save a couple hundred bucks each month. When you do go out, consider getting carry-out instead of dining in (you'll save on the tip and drink), skip the overpriced appetizer and dessert, and search the Web for coupons ahead of time.
22. Trying to time the stock market. In trying to buy low and sell high, many people actually do the opposite. Instead, employ the simple strategy of "dollar-cost-averaging." By investing a fixed dollar amount at regular intervals, you smooth out the ups and downs of the market over time. If you take out the emotion and guesswork, investing can become less stressful, less wasteful and more successful.
23. Buying insurance you don't need. You only need life insurance if someone is financially dependent upon you, such as a child. That means most singles, seniors or kids don't need a policy. Other policies you can probably do without include credit-card insurance (better to use the premium to pay down your debt in the first place), rental-car insurance (most auto policies and credit cards carry some coverage), mortgage life insurance and accidental-death insurance (a regular term-life insurance policy will do the trick).
24. Buying new instead of used. Talk about a spending leak -- or, rather, a gush. Cars lose 20% of their value the moment they're driven off the lot and 65% in the first five years. Used models can be a real value because you can get a car that's still in fine working order for a fraction of the new-car price. And you'll pay less in collision insurance and taxes, too.
Cars aren't the only things worth buying used. Consider the savings on pre-owned books, toys, exercise equipment, children's clothing and furniture. (Of course, there are some things you're better off buying new, including mattresses, laptops, linens, shoes and safety equipment, such as car seats and bike helmets.)
25. Procrastinating. Time is an asset money can't buy. Start investing for retirement as soon as possible. For instance, if a 40-year-old saves $300 a month with an 8% return per year, he'll have $287,000 by age 65. If he had started saving 15 years earlier at age 25, he'd have more than $1 million.
http://finance.yahoo.com/banking-budgeting/article/112202/25-ways-to-waste-your-money
Nearly everyone has spending holes. And as with other kinds of leaks, you may have hardly noticed them. But those small drips can quickly add up to big bucks. The trick is to find the holes and plug them so you can keep more money in your pocket. That extra cash could be the ticket to finally being able to save, invest, or break your cycle of living from paycheck to paycheck.
Here are 25 common ways people waste money. See if any of these sound familiar, then look for ways to plug your own leaks:
1. Carrying a balance. Debt is a shackle that holds you back. For instance, if you have a $1,000 balance on a credit card that charges an 18% rate, you blow $180 every year on interest. Get in the habit of paying off your balance in full each month.
2. Overspending on gas and oil for your car. There's no need to spring for premium fuel if the manufacturer says regular is just fine. You should also check to make sure your tires are optimally inflated to get the best gas mileage. And are you still paying for an oil change every 3,000 miles? Many models nowadays can last 5,000 to 7,000 miles between changes, and some even have built-in sensors to tell you when it's time to change the oil. Check your manual to find the best time for your car's routine maintenance.
3. Keeping unhealthy habits. Smoking costs a lot more than just what you pay for a pack of cigarettes. It significantly increases the cost of life and health insurance. And you'll pay more for homeowners and auto insurance. Add in various other expenses, and the true cost of smoking adds up dramatically over a lifetime -- $86,000 for a 24-year-old woman over a lifetime and $183,000 for a 24-year-old man over a lifetime, according to "The Price of Smoking" (The MIT Press).
Another habit to quit: indoor tanning. There is now a 10% tax on indoor tanning services. As with cigarettes, the true cost of tanning -- which the World Health Organization lists among the worst-known carcinogens -- is higher than just the price you pay each time you go to the salon.
4. Using a cell phone that doesn't fit. How many people do you know who have spent hundreds of dollars on fancy phones, and then pay hundreds of dollars every month for the privilege of using them? Your phone is not a status symbol. It is a way to communicate. Many people pay too much for cell phone contracts and don't use all their minutes. Go to BillShrink.com or Validas.com to evaluate your usage and see if you can find a plan that fits you better. Or consider a prepaid cell phone. Compare rates at MyRatePlan.com.
5. Buying brand-name instead of generic. From groceries to clothing to prescription drugs, you could save money by choosing the off-brand over the fancy label. And in many cases, you won't sacrifice much in quality. Clever advertising and fancy packaging don't make brand-name products better than lesser-known brands.
6. Keeping your mouth shut. No one wants to be a nuisance. But by simply asking, you may be able to snag a lower rate on your credit card.
When shopping, watch for price discrepancies at the cash register, and make a habit of asking, "Do you have a coupon for this?" You might even be able to haggle for a lower price, especially on seasonal or perishable items, floor models or big-ticket purchases. Many stores will also match or beat their competitors' prices if you speak up. And try asking for a discount if you pay cash or debit -- this saves the store the cut it has to pay the credit-card company, so it may be willing to give you a deal. It doesn't hurt to ask.
7. Buying beverages one at a time. If you're in the habit of buying bottled water, coffee-by-the-cup or vending-machine soda, your budget has sprung a leak. Instead, drink tap water or use a water filter. Brew a homemade cuppa joe. Buy your soda in bulk and bring it to work. (Better yet, skip the soda in favor of something healthier.)
8. Paying for something you can get for free. There's a boatload of freebies for the taking, if you know where to look. Some of our favorites include restaurant meals for kids, credit reports, software programs, prescription drugs and tech support. You can also help yourself to all the books, music and movies your heart desires at your local library for free (or dirt cheap).
9. Stashing your money with Uncle Sam rather than in an interest-earning account. If you get a tax refund each April, you let the government take too much money in taxes from your paycheck all year long. Get that money back in your pocket this year -- and put it to work for you -- by adjusting your tax withholding. You can file a new Form W-4 with your employer at any time.
10. Being disorganized. It pays to get your financial house in order. Lost bills and receipts, forgotten tax deductions, and clueless spending can cost you hundreds of dollars each year. Start by setting up automatic bill payment online for your monthly bills to eliminate late fees and postage costs. Then get a handful of files to organize important receipts, insurance policies, tax documents and other statements.
Finally, consider using free budgeting software such as Mint.com to see exactly where your money goes, making it much harder for you to lose track of it.
11. Letting your money wallow in a low-interest account. You work hard for your money. Shouldn't it work hard for you too? If you're stashing your cash in a traditional savings account earning next-to-nothing, you're wasting it. Make sure you're getting the best return on your money. Search for the highest yields on CDs and money-market savings accounts. And consider using a free online checking account that pays interest, such as ones offered by Everbank and ING Direct.
Your stocks and mutual funds should be working hard for you, too. If they've been lagging behind their peers for too long, it could be time to say goodbye. Learn how to spot a wallowing fund or stock.
12. Paying late fees and missing deadlines. Return those library books and movie rentals on time. Mail in those rebates. Submit expense reports on time for reimbursement. And if you make a bad purchase, don't just stuff it in the back of the closet and hope it goes away. Get off your duff, return it and get your money back before you lose the receipt.
13. Paying ATM fees. Expect to throw away nearly $4 every time you use an ATM that isn't in your bank's network. That's because you'll pay an ATM surcharge, and your own bank will hit you with a non-network fee. Consider switching to a bank, such as Ally Bank, that doesn't charge ATM fees and reimburses you for fees other banks charge. Another way to avoid fees if there's not an ATM in your bank's network nearby is to get cash back when you make a purchase at the grocery store or drugstore.
14. Shopping at the grocery store without a calculator. Check how much an item costs per ounce, pound or other unit of measurement. When you comparison-shop by unit price, you save. For example, if a pack of 40 diapers costs $13, that's 33 cents per diaper. But if you buy a box of 144 diapers for $35, that's 24 cents per diaper. You save 27%! (Of course, buying more of something only saves money if you use it all. If you end up throwing much out, you wasted money.)
15. Paying for things you don't use. Do you watch all those cable channels? Do you need those extra features on your phone? Are you getting your money's worth out of your gym membership? Are you taking full advantage of your Netflix, TiVo and magazine subscriptions? Take a look at what your family actually uses, then trim accordingly.
16. Not reading the fine print. Thought you were being smart by transferring the balance on a high-rate credit card to a low-rate one? Did you read the fine print, though? Some credit-card companies now charge up to 5% for balance transfers. Also watch out for free checking accounts that aren't so free. Some banks are starting to charge fees unless you meet certain criteria.
17. Mismanaging your flexible spending account. For some people, that means failing to take advantage of their workplace FSA, which lets employees set aside pre-tax dollars for out-of-pocket medical costs. Other people fail to submit receipts on time. And the average worker leaves $86 behind in his or her use-it-or-lose-it FSA account each year, according to WageWorks, an employee benefits provider.
18. Being an inflexible traveler. You'll save a lot of money on travel if you're willing to be flexible. Consider traveling before or after peak season when prices are lower. Or search for flights over a range of dates to find the lowest fare. Booking at the last minute also can save you money because hotels and airlines slash prices to fill rooms and planes. And flexibility pays off at blind-booking sites, such as Priceline or Hotwire, which offer deep discounts if you're willing to book a room or flight without knowing which hotel or airline (or other details about the flight) you're getting until you pay.
19. Sticking with the same service plans and the same service providers year after year. Hey, we're all for loyalty to trusted service providers, such as your bank, insurer, credit-card company, mutual fund, phone plan or cable plan. But over time, as prices and your circumstances change, the status-quo may not be the best deal any more. Smart consumers are always on the lookout for bargains.
20. Making impulse purchases. When you buy before you think, you don't give yourself time to shop around for the best price. Take the time to compare prices online, read product reviews and look for coupons when appropriate.
Make it a policy to give yourself a cooling-off period in case you're ever tempted to make an impulse purchase. Go home and sleep on the decision. More often than not, you'll decide you don't need the item after all.
21. Dining out frequently. Spending $10, $20, $30 per person for dinner can be a huge drain on your wallet. Throw in a $6 sandwich for lunch every day and you've got quite a leak. Learning to cook and bringing your lunch from home can save a couple hundred bucks each month. When you do go out, consider getting carry-out instead of dining in (you'll save on the tip and drink), skip the overpriced appetizer and dessert, and search the Web for coupons ahead of time.
22. Trying to time the stock market. In trying to buy low and sell high, many people actually do the opposite. Instead, employ the simple strategy of "dollar-cost-averaging." By investing a fixed dollar amount at regular intervals, you smooth out the ups and downs of the market over time. If you take out the emotion and guesswork, investing can become less stressful, less wasteful and more successful.
23. Buying insurance you don't need. You only need life insurance if someone is financially dependent upon you, such as a child. That means most singles, seniors or kids don't need a policy. Other policies you can probably do without include credit-card insurance (better to use the premium to pay down your debt in the first place), rental-car insurance (most auto policies and credit cards carry some coverage), mortgage life insurance and accidental-death insurance (a regular term-life insurance policy will do the trick).
24. Buying new instead of used. Talk about a spending leak -- or, rather, a gush. Cars lose 20% of their value the moment they're driven off the lot and 65% in the first five years. Used models can be a real value because you can get a car that's still in fine working order for a fraction of the new-car price. And you'll pay less in collision insurance and taxes, too.
Cars aren't the only things worth buying used. Consider the savings on pre-owned books, toys, exercise equipment, children's clothing and furniture. (Of course, there are some things you're better off buying new, including mattresses, laptops, linens, shoes and safety equipment, such as car seats and bike helmets.)
25. Procrastinating. Time is an asset money can't buy. Start investing for retirement as soon as possible. For instance, if a 40-year-old saves $300 a month with an 8% return per year, he'll have $287,000 by age 65. If he had started saving 15 years earlier at age 25, he'd have more than $1 million.
http://finance.yahoo.com/banking-budgeting/article/112202/25-ways-to-waste-your-money
1/18/11
View of retirement at 107
Eight years ago, at age 99, Leonard McCracken failed the eye test for renewing his driver's license. He put his Lincoln Continental up for sale and got $1,600. "I sold it in three days -- I got a good price. I love to haggle," he says.
McCracken, who lives in Florida, has been living in retirement since about 1969, when he left a position as a salesman with a now-defunct steel company in Ohio. Since then, he's been living on savings, Social Security and a lifetime annuity that he purchased before he retired. He has never had a pension. At 107, after living in retirement for 41 years, he's still paying the bills and getting by on his own resources.
"Dad never made more than $10,000 a year in his life," says his son Bob, a 73-year-old retired GE aircraft engineer.
How does a guy with modest income manage such a retirement planning feat? McCracken points to a half-dozen basic principles that have gotten him through life and continue to serve him well.
Thrift
In his whole life, McCracken says, he has only owned two new cars. The rest of the time he bought used. He still shops at the thrift store. And he remembers vividly the time that his wife was holding a garage sale and left him in charge. When she returned, he had sold the living room sofa for $100. "I had a very understanding, frugal wife (Dorothy, who died in 2002 at 95 after 75 years of marriage). We gave up a lot of things that other people were buying in order to break even."
Real Estate Investments
McCracken bought and sold 35 houses in his life, including five that he built himself. His son, Bob McCracken, says his parents "always invested in a nice house and that has helped my dad. He is living off the equity in the last home he and my mother owned."
The elder McCracken agreed that buying and selling real estate was a smart move for him. "We didn't make a lot of money in every case," he says. "But we made something and that helped."
What is his advice for current owners of real estate? "It's bad now, but it will come back," he says. "And people who buy now, they'll make a lot of money," he says.
Use Debt Well
During the Great Depression, McCracken worked for a bank. He watched people lose their shirts and learned from it. Throughout his life, he borrowed when he had to, but he borrowed as little as possible, he says, and he paid it back as quickly as he could.
Work Even When Jobs Are Hard to Find
McCracken was unemployed about 45 years ago after his previous employer went bankrupt. He had to take a job driving a truck that paid $5 per day. It was a low point in his life, but between that and a commission sales job that he took at night, he and his family muddled through until he got back on his feet.
Save and Invest Conservatively
All of McCracken's money is in CDs and bonds. He's always avoided the stock market, even when people who purported to know more than he advised him differently. "When the economy tanked, he made a lot of us look real silly," Bob McCracken says.
Stay Healthy
McCracken has hung onto his health and his wits and has had no major medical bills at all throughout his entire life. It has only been in the last year that he's needed a little assistance. And even then, he doesn't need much, his son says.
http://www.bankrate.com/financing/retirement/view-of-retirement-at-107
McCracken, who lives in Florida, has been living in retirement since about 1969, when he left a position as a salesman with a now-defunct steel company in Ohio. Since then, he's been living on savings, Social Security and a lifetime annuity that he purchased before he retired. He has never had a pension. At 107, after living in retirement for 41 years, he's still paying the bills and getting by on his own resources.
"Dad never made more than $10,000 a year in his life," says his son Bob, a 73-year-old retired GE aircraft engineer.
How does a guy with modest income manage such a retirement planning feat? McCracken points to a half-dozen basic principles that have gotten him through life and continue to serve him well.
Thrift
In his whole life, McCracken says, he has only owned two new cars. The rest of the time he bought used. He still shops at the thrift store. And he remembers vividly the time that his wife was holding a garage sale and left him in charge. When she returned, he had sold the living room sofa for $100. "I had a very understanding, frugal wife (Dorothy, who died in 2002 at 95 after 75 years of marriage). We gave up a lot of things that other people were buying in order to break even."
Real Estate Investments
McCracken bought and sold 35 houses in his life, including five that he built himself. His son, Bob McCracken, says his parents "always invested in a nice house and that has helped my dad. He is living off the equity in the last home he and my mother owned."
The elder McCracken agreed that buying and selling real estate was a smart move for him. "We didn't make a lot of money in every case," he says. "But we made something and that helped."
What is his advice for current owners of real estate? "It's bad now, but it will come back," he says. "And people who buy now, they'll make a lot of money," he says.
Use Debt Well
During the Great Depression, McCracken worked for a bank. He watched people lose their shirts and learned from it. Throughout his life, he borrowed when he had to, but he borrowed as little as possible, he says, and he paid it back as quickly as he could.
Work Even When Jobs Are Hard to Find
McCracken was unemployed about 45 years ago after his previous employer went bankrupt. He had to take a job driving a truck that paid $5 per day. It was a low point in his life, but between that and a commission sales job that he took at night, he and his family muddled through until he got back on his feet.
Save and Invest Conservatively
All of McCracken's money is in CDs and bonds. He's always avoided the stock market, even when people who purported to know more than he advised him differently. "When the economy tanked, he made a lot of us look real silly," Bob McCracken says.
Stay Healthy
McCracken has hung onto his health and his wits and has had no major medical bills at all throughout his entire life. It has only been in the last year that he's needed a little assistance. And even then, he doesn't need much, his son says.
http://www.bankrate.com/financing/retirement/view-of-retirement-at-107
1/13/11
15 Ways to Never Run Out of Money
Savings, investment, and lifestyle strategies for all ages.
The American economy may be moving like molasses in January, but have no doubt, it is moving. Between late 2008 and 2010, the Standard & Poor's 500 index rose in healthy double digits to the point that many investing stalwarts who stayed in stocks recouped the money they'd lost in that period, and then some. The national savings rate -- income minus taxes and household expenses -- rebounded from a negative number in 2006 to almost 6 percent in October 2010, according to the U.S. Bureau of Economic Analysis.
For many, the economic recovery isn't so much crawling as stalling. But regardless of the state of your finances, now is a good time to begin planning a future that's secure. That means creating a plan to ensure you don't run out of money in the near term or far in the future. And paradoxically, it may mean creating a lifestyle that doesn't place money at its core.
When the Consumer Reports National Research Center recently surveyed 24,270 online subscribers age 55 and up about their finances and satisfaction with their lives, we found some common keys to peace of mind that had little to do with big salaries or high living. They pointed to active steps they'd taken as well as pure luck: enjoying good health, planning ahead, maximizing savings, having hobbies and friends, and staying in a job with a defined-benefit pension, which provides a regular income in retirement for life.
And when we interviewed several survey respondents as well as younger workers still in savings mode, we found another common element. A number mentioned living within, and sometimes below, their means. "Most of our entertainment is with friends and neighbors," said Vernon Chestine, 68, a Charlotte, N.C., retiree who participated in our survey. "I feel really fortunate to be in the position we're in."
In this report, we offer 15 ways to ensure you don't run out of money on your way to personal satisfaction, while you work and after you retire. Our survey respondents and the people we profile on these pages demonstrate their "best practices" that anyone can emulate. Employing just a few of them can pay off big-time in the long run.
Do You Need a Pro?
Among pre-retirees who had consulted a financial planner within the 12 months ending in October 2010, 67 percent reported gains in their retirement accounts during that period. But among those who hadn't met with their planner recently, 59 percent saw investment gains. And 57 percent with no planner experienced gains as well.
Indeed, our survey showed that saving more money and investing more in retirement accounts had the greatest payoff during the period, planner or no planner.
Starting Out
The habits you establish early in life can have a positive impact on your finances.
1. Live Modestly
For those millions of Americans currently out of work or underemployed, that is not a choice. But even when times improve, living within your means has its benefits. Retirees in our survey who were most satisfied with their situation credited living modestly as among the best steps they'd made earlier in life. "Since we never were extravagant people, we live just fine," says Pancho Garcia, 67, of Mebane, N.C., a retiree who participated in our survey.
And self-control has its rewards. Mary-Jo Webster, 39, and her husband, Jamey, 37, bought a house four years ago in Arden Hills, Minn., that was significantly smaller and less expensive than what they could afford. And they resolved to try to live on just one income. That decision paid back with interest when Jamey quit his job in computer technology to stay at home with their twins, Benjamin and Madeline, 2.
2. Keep to a Budget
As the Websters and other young couples we interviewed found, financial discipline is essential. Ensuring your money will last your lifetime begins with knowing how to make your paycheck last the month.
Toward that goal, create a basic spending plan or budget. At its simplest, a budget involves splitting your expenses into have-to's and want-to's, and paying the have-to's first. Start with tracking your spending for a couple of months. You can use free budgeting applications on websites such as Mint and Google Docs, or a pencil, paper, and a calculator. Setting some short- and long-term spending goals may make it easier to stick to your plan. Include payments into an emergency fund until you have at least enough for six months of household expenses set aside.
3. Start Saving Early
Retirees who began saving and planning early -- say, in their 30s -- had greater net worth: $1.1 million on average, compared with $868,000 for those who waited until their 40s, and $651,000 for those who started later, our survey found. Thirty-nine percent of retirees said they regretted waiting to save.
Most young workers today don't have access to traditional, defined-benefit pensions funded by employers, so they have to put enough money away during their careers to generate a comparable income stream. To do so, they need to take advantage of options offered by their employers. A growing number of employers automatically enroll new workers in a 401(k) or other retirement savings plan, typically deferring 3 percent of pretax income into a mutual fund targeted to an expected retirement date. The good news: Most new workers don't opt out of contributing once they're automatically enrolled. The not-so-good news: They also don't raise that contribution beyond the initial 3 percent. For the best results, they should eventually boost their deferrals to at least 10 percent of their income.
The young workers we interviewed appear to be heeding that message, contributing at least enough to their retirement accounts to earn the free money their employers offer in matching contributions. And the benefits of the Roth version of IRAs, 401(k)s, and 403(b)s are gaining attention. If you're single and under 50, and your modified adjusted gross income is less than $120,000 (less than $177,000 for couples filing jointly), you can put up to $5,000 of after-tax income into a Roth IRA and avoid any additional federal tax on that money and its gains if you have the account for five years and wait until age 59 1/2 to begin taking it out. It's a potential boon for lower-income earners who fall into low tax brackets now but may face much higher rates when they retire.
Young, on a Budget, and Planning Ahead
After racking up $8,000 in credit-card debt two years ago from their wedding and a move to Portland, Ore., Claire and Chris Angier, both 30, started tracking their expenses. Claire, a teacher, and her engineer husband follow a simple plan: They put aside money in their bank account toward debt, rent, utilities, and other essentials, and split a set amount to spend as they like. Using cash rather than credit for discretionary spending helps keep them on track. "You physically see the pile getting smaller," Chris says.
The Angiers apply discipline to their leisure pursuits -- he's a marathon runner and she teaches exercise classes -- and to their finances. Chris puts 11 percent of his pretax income into a 401(k) plan, reaping a generous company match. Claire, who's eligible for a pension, puts 5 percent into a 457 retirement plan. They're whittling down their educational debt while paying off a higher-interest car loan. And they're building equity in a rental property in Syracuse, N.Y., purchased on the cheap during their grad-school days.
They frequently discuss their finances. "Talking about money is not a taboo subject," Claire says. No doubt that will help when they welcome their first child this spring. "I think we'll continue to budget," Claire says. Chris adds, "It's a habit now."
The Middle Years
In this age range, roughly late 30s through mid-50s, workers have the potential to earn the bulk of their income. But they also face the competing challenges of putting away money for retirement and funding their children's college educations. Our survey results point to some useful strategies:
4. Diversify Your Holdings
Having a variety of investments -- stocks, bonds, and real estate, among others -- correlated highly with net worth in our survey, regardless of income level. Retirees with seven or more types of investments had an average net worth of $1.4 million. Those with three or fewer had an average net worth of $678,000.
For the average investor, whose savings are mainly in an employer-sponsored retirement plan, diversification means spreading that money among a broad mix of stocks and bonds. Index mutual funds typically have low costs -- a key positive factor in overall performance, says a recent study by Morningstar, the Chicago-based investment research company.
5. Prioritize Retirement Over College
You can borrow money for a college education, but you can't borrow toward your retirement. So while it's fine to start a 529 savings plan for your kids, make funding it a secondary goal.
"Our philosophy is to ensure our retirement savings first," Mary-Jo Webster says. But the Websters expect to have their house paid off by the time their 2-year-olds are ready for college. So then, they'll channel the mortgage money toward tuition.
Speaking of education, consider paying your child a regular allowance, either for chores or good behavior, to help teach budgeting and saving skills. Children who are self-sufficient in money matters could very well be less likely to pose a financial burden to their parents.
The Middle Years: Discipline and Diversification
Mike and Miriam Risko understand harmony. As performers and owners of a music school and store in Ossining, N.Y., the couple, in their early 40s, have been playing off each other's strengths for 20 years. Together, they built a one-person school into an operation employing 30 part-time music teachers.
The Riskos, married 10 years, put a healthy portion of their annual income into a profit-sharing plan. In 2009 they bought the building that houses their business. "They had the good sense to do this early," says Camille Cosco, a chartered financial consultant who has steered the Riskos' savings into a well-diversified mutual fund portfolio.
The couple learned how to stretch their money at a young age. Mike paid his way through college playing guitar. At 22, Miriam, a singer, started to save up to half of each paycheck. A small inheritance she received a few years ago went to a 529 college savings plan for their son, now 7. A 529 plan for their daughter, age 4, is on the to-do list.
Miriam acknowledges the challenge of passing on their money sense. "My son has a piggy bank with all of his change in it. Recently I said, 'Let's open a bank account. You'll get interest!' He said, 'You're not taking my money!'" she says with a chuckle. "We're still working on the piggy bank right now."
Pre-Retirement
From their mid-50s on, many people grow concerned about the adequacy of their savings. The pre-retirees we surveyed, most between 55 and 65, were generally less confident about their prospects than the retirees and those who had retired but still worked part-time. Although 44 percent said they were better off than they were a year before -- and those numbers have gotten better since 2008 -- about one-fifth of pre-retirees said they were worse off financially than they had been a year before. That said, there's still hope if you're behind. Here are some ways to improve your strategy.
6. Stay in the Game
A Fidelity Investments study of the balances of its 401(k) participants age 55 and up found a real benefit to perseverance. Those who continuously contributed to their plans doubled their average account balance in the 10 years ending the third quarter of 2010, which included the financial fiasco of 2008 and 2009.
To be sure, some two-thirds of the doubling in value came from contributions from savers, not from their investments' appreciation. But so what? Those investors are twice as well off in nominal dollars than they were a decade ago, and much better off than people who tried to time the market -- those who sold their stocks during the panic and missed out on a precipitous rise in value that followed.
You should periodically assess your asset allocation -- how your money is divided among stocks, bonds, and cash. As you age, you might want to move more of your assets into less-risky investments. Vanguard founder John Bogle advises that the percentage of your portfolio allocated to bonds and cash should equal your age.
28 Percent
That's the percentage of partly retired survey respondents who said they were highly satisfied with their retirement planning. Only 21 percent of those not yet retired said they were highly satisfied with their planning.
7. Catch Up
Retirees who said they were highly satisfied counted maxing out contributions to an employer-sponsored retirement plan among their best steps. Once you're free of college-finance and child-rearing costs, put the extra savings there until you max out. In 2011 the limit for pretax contributions is $16,500 a year, plus another $5,500 in catch-up contributions for those 50 and up.
8. Pay Off Debt
Accelerate payments on your mortgage with an eye toward paying it off by retirement. That might seem counterintuitive, given the past year's stellar market performance, when putting extra cash in the S&P 500 would have provided a better return. But given the market's ups and downs, that strategy can backfire; just as you're ready for retirement, you could be stuck with losing investments and a mortgage still to be paid. Besides, our survey found a correlation between satisfaction in retirement and lack of significant debt. Nonetheless, an alarming 39 percent of retirees still had at least $25,000 in mortgage debt.
9. Budget for Health-Care Costs
Even with Medicare coverage, expect to pay a significant amount out of pocket for health care. Fidelity Investments published a study last year showing that the typical couple retiring in 2010 would incur $250,000 in health-care costs during their retirement years, outside of their Medicare benefits.
That incredible figure isn't so wild when broken into components: annual premiums for Medicare Parts B and D; deductibles and co-insurance for Medicare Parts A and B, plus cost sharing for prescription drugs; and benefits not covered by Medicare, including eyeglasses, contact lenses, hearing aids, and private-duty nursing. Those figures represent a national aggregate figure, so costs in some regions could be higher.
And that number doesn't take into account the cost of long-term care. To research average costs in your area, go to the National Clearinghouse for Long-Term Care Information and click on "Cost of Care." That cost is not covered by Medicare or other health plans. If you expect your assets in retirement to be under $300,000 (not including your home), you probably can't afford long-term-care insurance, though you might qualify for government help should you need long-term care. If you think you'll have more than $2 million, you can probably afford to pay for your own care, if needed. Those in between might want to consider a long-term-care insurance policy, though be aware that those policies are expensive and complicated.
10. Time Your Payout
Opting to receive your first Social Security check at 62, the minimum age, reduces your payout. Someone born in 1954 who decides to retire at age 62, for instance, would get 25 percent less than he or she would get by waiting until the full-retirement age of 66. If you're tempted to begin your benefits early, be aware that each year you delay, up to age 70, earns you up to 8 percent more in income depending on your age, a respectable guaranteed return.
Pre-retirement: Research and Perseverance
Ken Ranlet started from scratch on his retirement plans after his divorce at age 44. Now 59, Ranlet, of New Fairfield, Conn., feels fairly certain he can retire by 65 in comfort.
How is that possible? Part is luck. The multinational company he's worked for over the past 15 years offers both a 401(k)-like retirement plan and a defined-benefit pension. But Ranlet, who has two grown sons, also saves diligently, lives modestly, and uses every resource offered him. He has always put at least 7 percent of his salary into the company's retirement plan to nab the 50 percent match. When he finished paying his sons' college tuition, he upped his retirement plan contributions to max out. He added the annual "catch up" for those over 50 "the minute I could take advantage of it," he says.
Ranlet also educated himself about diversification, sparing himself some of the losses that many experienced in the 2008-'09 market plunge. "I tried to spread the money around: some international, some short-term bond funds, some long-term bond funds," he says. To plan retirement, he interviewed his parents, in northeastern Pennsylvania, and his aunt and uncle in Syracuse, N.Y., about their retirement lifestyles. Their experiences helped him to "benchmark my own tastes and expectations," he says.
And what are those expectations? A home in less-costly upstate New York, with room for company and his model train sets, and a big woodworking shop in the basement. "I don't live to drive a Maserati. I don't feel I need to take a superfancy cruise," he says. "I can enjoy a week at the Jersey shore just as well. I don't have to have the latest and greatest as long as what I have is serving my needs."
Retirement Years
One element pervades our happy retirees' responses: a pension. Having steady money coming in each month was a common factor in retirees' satisfaction, whether their net worth was $250,000 or more than $1 million. But our survey found that pre-retirees are less likely to have a pension than current retirees.
Sensing a growing market for guaranteed income in retirement, financial companies have invented products and adapted old ones to offer guaranteed income and protect against "longevity risk," the threat that you'll outlive your money. Here are some considerations.
11. Tread Carefully With Annuities
Our survey respondents mostly shied away from annuities, investment-based insurance products that guarantee lifetime income. Only 2 percent of working people and 1 percent of retirees named buying an annuity among the best steps they had taken toward or in retirement. Among the possible concerns: high management fees, stiff sales commissions, and the potential loss of cash value if you die prematurely.
But a new type of deferred annuity called longevity insurance holds some promise for those concerned they'll live beyond their assets. At retirement you pay an insurer a lump sum. Years later, typically at age 85, you begin to receive to a fixed payout. Because you're not paying for as many years of coverage, you don't have to invest as much in these products as you would with an annuity that starts its payouts earlier. Jason Scott, managing director of the Retiree Research Center at Financial Engines, an online personal finance service, projects that a 65-year-old retiree putting about 11 percent of his assets into longevity coverage and the rest into zero-coupon bonds -- which pay all their interest at maturity -- would have 34 percent more money to spend during the subsequent two decades than if he had invested only in the bonds.
12. Follow the 4 Percent Rule
Withdrawing 4 percent annually from your retirement funds has been shown to preserve your capital for at least 30 years in even strained economic environments, assuming you rebalance regularly. In recent years, some economists, including Nobel laureate William Sharpe, have attacked the 4 percent philosophy as inefficient and potentially costly to retirees. Still, many financial advisers hew to it because it's simple to understand.
New mutual funds, called managed-payout or income-replacement funds, attempt to provide investors with a regular payout while leaving the decisions about what to liquidate and rebalance to a fund manager. On the downside, payouts for such funds aren't guaranteed, because they're based on how well the fund does.
Because managed-payout funds are relatively new, their performance is hard to judge. But the Consumer Reports Money Lab recently analyzed how well the components of one such family of funds, the Vanguard Managed Payout funds, had performed. If you had invested in them and then withdrawn your money at rates of 3 percent or 5 percent a year between 1989 and the end of 2009, your holdings would still have grown. Even a 7 percent payout would have basically held its own. Our Money Lab conclusion: The 4 percent rule protects disciplined investors in a variety of circumstances, whether they buy a managed-payout fund or manage their funds themselves.
13. Fill Up a Big Bucket
An intuitive way to manage your portfolio is to put your money into "buckets" depending on when you might need it. In a simple version of this approach, the first bucket should hold enough cash to cover two years of living expenses. The first year's portion should be liquid, say in a bank account or money-market fund. The second year's expenses can be invested in a ladder of CDs or short-term bonds (one- to two-year maturities). Money for a special purpose within five years -- say, a car or vacation -- should be kept in a separate account.
A second bucket can hold short- to intermediate-term bonds and funds. A portion of the bond bucket, say, one-third, can be in a short-term bond ladder, which can serve as an additional emergency fund and generate cash to draw from. With this approach, even in an emergency, "you won't be forced to sell at the bottom of the market," notes Harold Evensky, a certified financial planner in Coral Gables, Fla.
In your second bucket, also include a diversified intermediate-term bond fund or include a mix of attractive corporate and municipal bonds. The remaining third of the second bucket can include Treasury Inflation-Protected Securities, or TIPS.
Your third bucket can hold stock funds and up to a 5 percent stake in commodities, such as a gold exchange-traded fund. As you get into the later stages of retirement, the returns that you earn from stocks can be funneled back into a growing cash-and-bond allocation.
14. Hedge Against Inflation
If you lived through the '70s and early '80s, you can attest to the corroding power of inflation. To protect yourself in retirement, continue to invest a portion of your money in stocks and devote 5 to 10 percent of your money to TIPS and I-Bonds. You can buy TIPS, which have maturities of five, 10, and 30 years, from the U.S. Treasury; a bank, broker, or dealer; or through a mutual fund. I-Bonds are also sold by the Treasury, and at banks and credit unions. When inflation heats up, TIPS grow in value, throwing off more income. I-Bonds pay both a fixed rate of return and a variable inflation rate. As a bonus, interest on I-Bonds and TIPS is exempt from state and local income taxes.
15. Work Longer
Twenty percent of our survey respondents worked part-time in retirement; 37 percent of that group said they needed the income. But the psychic benefits of continued employment also were important to many. More than half said working made them feel useful; 38 percent said they enjoyed work too much to give it up.
In spite of being employed part-time, 45 percent of semi-retired workers under 65 were already collecting Social Security benefits. That's often not a wise choice for those below full retirement age. For every $2 you earn above $14,160, Social Security deducts $1 from your benefits. Once you reach full retirement age, you're entitled to all your benefits, regardless of how much you make. For more information on how Social Security calculates those benefits, check out ssa.gov/pubs/10069.html.
Retirement: A Few Earned Niceties
"We've played it pretty tight all these years, and now we're reaping the benefits," says Daniel Dittemore, 68, about his current lifestyle with his wife, Betsy, 67. With their savings and pensions paying out, the retired couple from Ankeny, Iowa, are enjoying the storied fruits of retirement: time and money to visit their children and grandchildren, a couple of nice vacations abroad, country club membership. Add to that golf, volunteer work, card games, and exercise.
"Most of the steps we've taken are things that any normal person thinking about retirement thinks about," Betsy says. That includes maximizing their 401(k) contributions while they worked and paying off their mortgage. But the couple also lived for years "not within our means, but beneath," Betsy says. They started raising their two daughters in a small, three-bedroom house with one bath and eschewed big purchases like the boats and RVs that sat in their neighbors' driveways.
And in what Daniel called a conscious choice, they chose public-sector jobs known to pay less but provide security later. He served as an urban planner for years, mainly for local governments. She worked part-time in administrative roles, rising to full-time legislative liaison for a state agency.
"Frankly we probably wouldn't have the lifestyle we have if we didn't have pensions," Betsy says. But, Daniel adds, they earned them.
http://financiallyfit.yahoo.com/finance/article-111733-7972-1-15-ways-to-never-run-out-of-money
The American economy may be moving like molasses in January, but have no doubt, it is moving. Between late 2008 and 2010, the Standard & Poor's 500 index rose in healthy double digits to the point that many investing stalwarts who stayed in stocks recouped the money they'd lost in that period, and then some. The national savings rate -- income minus taxes and household expenses -- rebounded from a negative number in 2006 to almost 6 percent in October 2010, according to the U.S. Bureau of Economic Analysis.
For many, the economic recovery isn't so much crawling as stalling. But regardless of the state of your finances, now is a good time to begin planning a future that's secure. That means creating a plan to ensure you don't run out of money in the near term or far in the future. And paradoxically, it may mean creating a lifestyle that doesn't place money at its core.
When the Consumer Reports National Research Center recently surveyed 24,270 online subscribers age 55 and up about their finances and satisfaction with their lives, we found some common keys to peace of mind that had little to do with big salaries or high living. They pointed to active steps they'd taken as well as pure luck: enjoying good health, planning ahead, maximizing savings, having hobbies and friends, and staying in a job with a defined-benefit pension, which provides a regular income in retirement for life.
And when we interviewed several survey respondents as well as younger workers still in savings mode, we found another common element. A number mentioned living within, and sometimes below, their means. "Most of our entertainment is with friends and neighbors," said Vernon Chestine, 68, a Charlotte, N.C., retiree who participated in our survey. "I feel really fortunate to be in the position we're in."
In this report, we offer 15 ways to ensure you don't run out of money on your way to personal satisfaction, while you work and after you retire. Our survey respondents and the people we profile on these pages demonstrate their "best practices" that anyone can emulate. Employing just a few of them can pay off big-time in the long run.
Do You Need a Pro?
Among pre-retirees who had consulted a financial planner within the 12 months ending in October 2010, 67 percent reported gains in their retirement accounts during that period. But among those who hadn't met with their planner recently, 59 percent saw investment gains. And 57 percent with no planner experienced gains as well.
Indeed, our survey showed that saving more money and investing more in retirement accounts had the greatest payoff during the period, planner or no planner.
Starting Out
The habits you establish early in life can have a positive impact on your finances.
1. Live Modestly
For those millions of Americans currently out of work or underemployed, that is not a choice. But even when times improve, living within your means has its benefits. Retirees in our survey who were most satisfied with their situation credited living modestly as among the best steps they'd made earlier in life. "Since we never were extravagant people, we live just fine," says Pancho Garcia, 67, of Mebane, N.C., a retiree who participated in our survey.
And self-control has its rewards. Mary-Jo Webster, 39, and her husband, Jamey, 37, bought a house four years ago in Arden Hills, Minn., that was significantly smaller and less expensive than what they could afford. And they resolved to try to live on just one income. That decision paid back with interest when Jamey quit his job in computer technology to stay at home with their twins, Benjamin and Madeline, 2.
2. Keep to a Budget
As the Websters and other young couples we interviewed found, financial discipline is essential. Ensuring your money will last your lifetime begins with knowing how to make your paycheck last the month.
Toward that goal, create a basic spending plan or budget. At its simplest, a budget involves splitting your expenses into have-to's and want-to's, and paying the have-to's first. Start with tracking your spending for a couple of months. You can use free budgeting applications on websites such as Mint and Google Docs, or a pencil, paper, and a calculator. Setting some short- and long-term spending goals may make it easier to stick to your plan. Include payments into an emergency fund until you have at least enough for six months of household expenses set aside.
3. Start Saving Early
Retirees who began saving and planning early -- say, in their 30s -- had greater net worth: $1.1 million on average, compared with $868,000 for those who waited until their 40s, and $651,000 for those who started later, our survey found. Thirty-nine percent of retirees said they regretted waiting to save.
Most young workers today don't have access to traditional, defined-benefit pensions funded by employers, so they have to put enough money away during their careers to generate a comparable income stream. To do so, they need to take advantage of options offered by their employers. A growing number of employers automatically enroll new workers in a 401(k) or other retirement savings plan, typically deferring 3 percent of pretax income into a mutual fund targeted to an expected retirement date. The good news: Most new workers don't opt out of contributing once they're automatically enrolled. The not-so-good news: They also don't raise that contribution beyond the initial 3 percent. For the best results, they should eventually boost their deferrals to at least 10 percent of their income.
The young workers we interviewed appear to be heeding that message, contributing at least enough to their retirement accounts to earn the free money their employers offer in matching contributions. And the benefits of the Roth version of IRAs, 401(k)s, and 403(b)s are gaining attention. If you're single and under 50, and your modified adjusted gross income is less than $120,000 (less than $177,000 for couples filing jointly), you can put up to $5,000 of after-tax income into a Roth IRA and avoid any additional federal tax on that money and its gains if you have the account for five years and wait until age 59 1/2 to begin taking it out. It's a potential boon for lower-income earners who fall into low tax brackets now but may face much higher rates when they retire.
Young, on a Budget, and Planning Ahead
After racking up $8,000 in credit-card debt two years ago from their wedding and a move to Portland, Ore., Claire and Chris Angier, both 30, started tracking their expenses. Claire, a teacher, and her engineer husband follow a simple plan: They put aside money in their bank account toward debt, rent, utilities, and other essentials, and split a set amount to spend as they like. Using cash rather than credit for discretionary spending helps keep them on track. "You physically see the pile getting smaller," Chris says.
The Angiers apply discipline to their leisure pursuits -- he's a marathon runner and she teaches exercise classes -- and to their finances. Chris puts 11 percent of his pretax income into a 401(k) plan, reaping a generous company match. Claire, who's eligible for a pension, puts 5 percent into a 457 retirement plan. They're whittling down their educational debt while paying off a higher-interest car loan. And they're building equity in a rental property in Syracuse, N.Y., purchased on the cheap during their grad-school days.
They frequently discuss their finances. "Talking about money is not a taboo subject," Claire says. No doubt that will help when they welcome their first child this spring. "I think we'll continue to budget," Claire says. Chris adds, "It's a habit now."
The Middle Years
In this age range, roughly late 30s through mid-50s, workers have the potential to earn the bulk of their income. But they also face the competing challenges of putting away money for retirement and funding their children's college educations. Our survey results point to some useful strategies:
4. Diversify Your Holdings
Having a variety of investments -- stocks, bonds, and real estate, among others -- correlated highly with net worth in our survey, regardless of income level. Retirees with seven or more types of investments had an average net worth of $1.4 million. Those with three or fewer had an average net worth of $678,000.
For the average investor, whose savings are mainly in an employer-sponsored retirement plan, diversification means spreading that money among a broad mix of stocks and bonds. Index mutual funds typically have low costs -- a key positive factor in overall performance, says a recent study by Morningstar, the Chicago-based investment research company.
5. Prioritize Retirement Over College
You can borrow money for a college education, but you can't borrow toward your retirement. So while it's fine to start a 529 savings plan for your kids, make funding it a secondary goal.
"Our philosophy is to ensure our retirement savings first," Mary-Jo Webster says. But the Websters expect to have their house paid off by the time their 2-year-olds are ready for college. So then, they'll channel the mortgage money toward tuition.
Speaking of education, consider paying your child a regular allowance, either for chores or good behavior, to help teach budgeting and saving skills. Children who are self-sufficient in money matters could very well be less likely to pose a financial burden to their parents.
The Middle Years: Discipline and Diversification
Mike and Miriam Risko understand harmony. As performers and owners of a music school and store in Ossining, N.Y., the couple, in their early 40s, have been playing off each other's strengths for 20 years. Together, they built a one-person school into an operation employing 30 part-time music teachers.
The Riskos, married 10 years, put a healthy portion of their annual income into a profit-sharing plan. In 2009 they bought the building that houses their business. "They had the good sense to do this early," says Camille Cosco, a chartered financial consultant who has steered the Riskos' savings into a well-diversified mutual fund portfolio.
The couple learned how to stretch their money at a young age. Mike paid his way through college playing guitar. At 22, Miriam, a singer, started to save up to half of each paycheck. A small inheritance she received a few years ago went to a 529 college savings plan for their son, now 7. A 529 plan for their daughter, age 4, is on the to-do list.
Miriam acknowledges the challenge of passing on their money sense. "My son has a piggy bank with all of his change in it. Recently I said, 'Let's open a bank account. You'll get interest!' He said, 'You're not taking my money!'" she says with a chuckle. "We're still working on the piggy bank right now."
Pre-Retirement
From their mid-50s on, many people grow concerned about the adequacy of their savings. The pre-retirees we surveyed, most between 55 and 65, were generally less confident about their prospects than the retirees and those who had retired but still worked part-time. Although 44 percent said they were better off than they were a year before -- and those numbers have gotten better since 2008 -- about one-fifth of pre-retirees said they were worse off financially than they had been a year before. That said, there's still hope if you're behind. Here are some ways to improve your strategy.
6. Stay in the Game
A Fidelity Investments study of the balances of its 401(k) participants age 55 and up found a real benefit to perseverance. Those who continuously contributed to their plans doubled their average account balance in the 10 years ending the third quarter of 2010, which included the financial fiasco of 2008 and 2009.
To be sure, some two-thirds of the doubling in value came from contributions from savers, not from their investments' appreciation. But so what? Those investors are twice as well off in nominal dollars than they were a decade ago, and much better off than people who tried to time the market -- those who sold their stocks during the panic and missed out on a precipitous rise in value that followed.
You should periodically assess your asset allocation -- how your money is divided among stocks, bonds, and cash. As you age, you might want to move more of your assets into less-risky investments. Vanguard founder John Bogle advises that the percentage of your portfolio allocated to bonds and cash should equal your age.
28 Percent
That's the percentage of partly retired survey respondents who said they were highly satisfied with their retirement planning. Only 21 percent of those not yet retired said they were highly satisfied with their planning.
7. Catch Up
Retirees who said they were highly satisfied counted maxing out contributions to an employer-sponsored retirement plan among their best steps. Once you're free of college-finance and child-rearing costs, put the extra savings there until you max out. In 2011 the limit for pretax contributions is $16,500 a year, plus another $5,500 in catch-up contributions for those 50 and up.
8. Pay Off Debt
Accelerate payments on your mortgage with an eye toward paying it off by retirement. That might seem counterintuitive, given the past year's stellar market performance, when putting extra cash in the S&P 500 would have provided a better return. But given the market's ups and downs, that strategy can backfire; just as you're ready for retirement, you could be stuck with losing investments and a mortgage still to be paid. Besides, our survey found a correlation between satisfaction in retirement and lack of significant debt. Nonetheless, an alarming 39 percent of retirees still had at least $25,000 in mortgage debt.
9. Budget for Health-Care Costs
Even with Medicare coverage, expect to pay a significant amount out of pocket for health care. Fidelity Investments published a study last year showing that the typical couple retiring in 2010 would incur $250,000 in health-care costs during their retirement years, outside of their Medicare benefits.
That incredible figure isn't so wild when broken into components: annual premiums for Medicare Parts B and D; deductibles and co-insurance for Medicare Parts A and B, plus cost sharing for prescription drugs; and benefits not covered by Medicare, including eyeglasses, contact lenses, hearing aids, and private-duty nursing. Those figures represent a national aggregate figure, so costs in some regions could be higher.
And that number doesn't take into account the cost of long-term care. To research average costs in your area, go to the National Clearinghouse for Long-Term Care Information and click on "Cost of Care." That cost is not covered by Medicare or other health plans. If you expect your assets in retirement to be under $300,000 (not including your home), you probably can't afford long-term-care insurance, though you might qualify for government help should you need long-term care. If you think you'll have more than $2 million, you can probably afford to pay for your own care, if needed. Those in between might want to consider a long-term-care insurance policy, though be aware that those policies are expensive and complicated.
10. Time Your Payout
Opting to receive your first Social Security check at 62, the minimum age, reduces your payout. Someone born in 1954 who decides to retire at age 62, for instance, would get 25 percent less than he or she would get by waiting until the full-retirement age of 66. If you're tempted to begin your benefits early, be aware that each year you delay, up to age 70, earns you up to 8 percent more in income depending on your age, a respectable guaranteed return.
Pre-retirement: Research and Perseverance
Ken Ranlet started from scratch on his retirement plans after his divorce at age 44. Now 59, Ranlet, of New Fairfield, Conn., feels fairly certain he can retire by 65 in comfort.
How is that possible? Part is luck. The multinational company he's worked for over the past 15 years offers both a 401(k)-like retirement plan and a defined-benefit pension. But Ranlet, who has two grown sons, also saves diligently, lives modestly, and uses every resource offered him. He has always put at least 7 percent of his salary into the company's retirement plan to nab the 50 percent match. When he finished paying his sons' college tuition, he upped his retirement plan contributions to max out. He added the annual "catch up" for those over 50 "the minute I could take advantage of it," he says.
Ranlet also educated himself about diversification, sparing himself some of the losses that many experienced in the 2008-'09 market plunge. "I tried to spread the money around: some international, some short-term bond funds, some long-term bond funds," he says. To plan retirement, he interviewed his parents, in northeastern Pennsylvania, and his aunt and uncle in Syracuse, N.Y., about their retirement lifestyles. Their experiences helped him to "benchmark my own tastes and expectations," he says.
And what are those expectations? A home in less-costly upstate New York, with room for company and his model train sets, and a big woodworking shop in the basement. "I don't live to drive a Maserati. I don't feel I need to take a superfancy cruise," he says. "I can enjoy a week at the Jersey shore just as well. I don't have to have the latest and greatest as long as what I have is serving my needs."
Retirement Years
One element pervades our happy retirees' responses: a pension. Having steady money coming in each month was a common factor in retirees' satisfaction, whether their net worth was $250,000 or more than $1 million. But our survey found that pre-retirees are less likely to have a pension than current retirees.
Sensing a growing market for guaranteed income in retirement, financial companies have invented products and adapted old ones to offer guaranteed income and protect against "longevity risk," the threat that you'll outlive your money. Here are some considerations.
11. Tread Carefully With Annuities
Our survey respondents mostly shied away from annuities, investment-based insurance products that guarantee lifetime income. Only 2 percent of working people and 1 percent of retirees named buying an annuity among the best steps they had taken toward or in retirement. Among the possible concerns: high management fees, stiff sales commissions, and the potential loss of cash value if you die prematurely.
But a new type of deferred annuity called longevity insurance holds some promise for those concerned they'll live beyond their assets. At retirement you pay an insurer a lump sum. Years later, typically at age 85, you begin to receive to a fixed payout. Because you're not paying for as many years of coverage, you don't have to invest as much in these products as you would with an annuity that starts its payouts earlier. Jason Scott, managing director of the Retiree Research Center at Financial Engines, an online personal finance service, projects that a 65-year-old retiree putting about 11 percent of his assets into longevity coverage and the rest into zero-coupon bonds -- which pay all their interest at maturity -- would have 34 percent more money to spend during the subsequent two decades than if he had invested only in the bonds.
12. Follow the 4 Percent Rule
Withdrawing 4 percent annually from your retirement funds has been shown to preserve your capital for at least 30 years in even strained economic environments, assuming you rebalance regularly. In recent years, some economists, including Nobel laureate William Sharpe, have attacked the 4 percent philosophy as inefficient and potentially costly to retirees. Still, many financial advisers hew to it because it's simple to understand.
New mutual funds, called managed-payout or income-replacement funds, attempt to provide investors with a regular payout while leaving the decisions about what to liquidate and rebalance to a fund manager. On the downside, payouts for such funds aren't guaranteed, because they're based on how well the fund does.
Because managed-payout funds are relatively new, their performance is hard to judge. But the Consumer Reports Money Lab recently analyzed how well the components of one such family of funds, the Vanguard Managed Payout funds, had performed. If you had invested in them and then withdrawn your money at rates of 3 percent or 5 percent a year between 1989 and the end of 2009, your holdings would still have grown. Even a 7 percent payout would have basically held its own. Our Money Lab conclusion: The 4 percent rule protects disciplined investors in a variety of circumstances, whether they buy a managed-payout fund or manage their funds themselves.
13. Fill Up a Big Bucket
An intuitive way to manage your portfolio is to put your money into "buckets" depending on when you might need it. In a simple version of this approach, the first bucket should hold enough cash to cover two years of living expenses. The first year's portion should be liquid, say in a bank account or money-market fund. The second year's expenses can be invested in a ladder of CDs or short-term bonds (one- to two-year maturities). Money for a special purpose within five years -- say, a car or vacation -- should be kept in a separate account.
A second bucket can hold short- to intermediate-term bonds and funds. A portion of the bond bucket, say, one-third, can be in a short-term bond ladder, which can serve as an additional emergency fund and generate cash to draw from. With this approach, even in an emergency, "you won't be forced to sell at the bottom of the market," notes Harold Evensky, a certified financial planner in Coral Gables, Fla.
In your second bucket, also include a diversified intermediate-term bond fund or include a mix of attractive corporate and municipal bonds. The remaining third of the second bucket can include Treasury Inflation-Protected Securities, or TIPS.
Your third bucket can hold stock funds and up to a 5 percent stake in commodities, such as a gold exchange-traded fund. As you get into the later stages of retirement, the returns that you earn from stocks can be funneled back into a growing cash-and-bond allocation.
14. Hedge Against Inflation
If you lived through the '70s and early '80s, you can attest to the corroding power of inflation. To protect yourself in retirement, continue to invest a portion of your money in stocks and devote 5 to 10 percent of your money to TIPS and I-Bonds. You can buy TIPS, which have maturities of five, 10, and 30 years, from the U.S. Treasury; a bank, broker, or dealer; or through a mutual fund. I-Bonds are also sold by the Treasury, and at banks and credit unions. When inflation heats up, TIPS grow in value, throwing off more income. I-Bonds pay both a fixed rate of return and a variable inflation rate. As a bonus, interest on I-Bonds and TIPS is exempt from state and local income taxes.
15. Work Longer
Twenty percent of our survey respondents worked part-time in retirement; 37 percent of that group said they needed the income. But the psychic benefits of continued employment also were important to many. More than half said working made them feel useful; 38 percent said they enjoyed work too much to give it up.
In spite of being employed part-time, 45 percent of semi-retired workers under 65 were already collecting Social Security benefits. That's often not a wise choice for those below full retirement age. For every $2 you earn above $14,160, Social Security deducts $1 from your benefits. Once you reach full retirement age, you're entitled to all your benefits, regardless of how much you make. For more information on how Social Security calculates those benefits, check out ssa.gov/pubs/10069.html.
Retirement: A Few Earned Niceties
"We've played it pretty tight all these years, and now we're reaping the benefits," says Daniel Dittemore, 68, about his current lifestyle with his wife, Betsy, 67. With their savings and pensions paying out, the retired couple from Ankeny, Iowa, are enjoying the storied fruits of retirement: time and money to visit their children and grandchildren, a couple of nice vacations abroad, country club membership. Add to that golf, volunteer work, card games, and exercise.
"Most of the steps we've taken are things that any normal person thinking about retirement thinks about," Betsy says. That includes maximizing their 401(k) contributions while they worked and paying off their mortgage. But the couple also lived for years "not within our means, but beneath," Betsy says. They started raising their two daughters in a small, three-bedroom house with one bath and eschewed big purchases like the boats and RVs that sat in their neighbors' driveways.
And in what Daniel called a conscious choice, they chose public-sector jobs known to pay less but provide security later. He served as an urban planner for years, mainly for local governments. She worked part-time in administrative roles, rising to full-time legislative liaison for a state agency.
"Frankly we probably wouldn't have the lifestyle we have if we didn't have pensions," Betsy says. But, Daniel adds, they earned them.
http://financiallyfit.yahoo.com/finance/article-111733-7972-1-15-ways-to-never-run-out-of-money
1/12/11
50 Ways to Improve Your Finances in 2011
Goal-setting:
1. Decide on your big goals. Do you want to have more money in your bank account? Take a five-star vacation? If you're having trouble putting your finger on it, ask the people who know you best. Brainstorming with your significant other, family members, and friends can help shake loose your own thoughts.
2. Share those goals with other people. Telling friends and family members about your plans will help you stick to them. But you don't necessarily have to share your goals with people you know. At 43things.com, strangers list goals such as "save 20 percent of what I earn" or "identify 100 things that make me happy (besides money)." The website MyLifeList.org can also help; after you make a list of your goals, you can share them with others and give and receive encouragement.
3. Do a little every day. Take small steps toward your big goals every day, even if it means spending 60 seconds checking out a relevant website before bed. If you want to launch a small business, for example, small steps can include purchasing your website name, interviewing Web designers, and reading a book or two on being an entrepreneur. The most successful savers profiled in Generation Earn started by automatically saving a small percentage of their income; Nicole Mladic, a 31-year-old communications director in Chicago, couldn't afford to put away a big chunk of her salary when she was in her mid-20s, so she started saving 2 percent. A few months later, she raised it to 3 percent, then to 4 percent, and eventually she reached her goal of 10 percent. Today, her net worth is more than $90,000.
4. Take time to reflect. Look back on 2010. What were your personal money highs and lows? What mistakes did you make and what challenges did you face? What financial decisions are you most proud of?
Spending:
5. Get rid of junk mail. The website catalogchoice.org lets retailers know which customers no longer want to receive their mail. Participating companies agree to stop sending any more catalogs within three months. Signing up with 41pounds.org halts junk mail. The Direct Marketing Association (the-dma.org) will let its members know when people sign up to stop receiving direct-mail marketing offers. Junk mail piles up over time, so these fixes can really make a difference in the long run. The Environmental Protection Agency estimates that Americans receive four million tons of junk mail each year, almost half of which is never even opened. In addition to saving paper, you'll prevent yourself from spending needlessly by avoiding the temptations on those glossy pages.
6. Stop receiving E-mail sales alerts from your favorite retailers. Electronic junk mail might not carry the same environmental impact, but it can still convince you to spend money on items you don't need. Unsubscribe to retailer alerts to avoid the temptation.
7. Negotiate one big-ticket item each month. Often, big-box stories and department stores offer some wiggle room on their posted prices, especially when competitors offer a product for less. Before making any significant purchases, especially electronics, comparison shop and be prepared to ask the store clerk if their company can give you a better deal.
8. Get familiar with comparison and coupon websites. Websites such as PriceGrabber.com, BradsDeals.com, and Dealnews.com can help you pay less for items you buy often as well as splurges. Get in the habit of checking these sites before buying anything online or shopping in stores.
9. Budget by the year. Research shows that budgeting by the year instead of the month makes it easier to stay within your spending limits. That's partly because when we create an annual budget, we remember to take into account occasional expenses such as gifts.
10. Keep a spending diary. Even if you just track every dollar you spend for two weeks, it will open your eyes to where your money goes and what you could cut back on. You might not realize that you spend $100 a week on lunches, or that your taxi-cab habit is eating up half of your discretionary income.
11. Take advantage of your bank's free tools. Banks are increasingly offering easy ways of tracking your spending online. If your bank offers a free tool, use it to see where your money is going and where you can cut back.
Security:
12. Check up on your insurance. Do you have the auto insurance, renters insurance, and life insurance that you need? According to Allstate insurance, 2 in 3 renters skip insurance altogether, even though most people could benefit from the protection and it's relatively cheap. Life insurance is another awkward topic since no one wants to talk about death. But many people are under-insured, which puts their families at risk. Review the insurance that you have and decide whether you have the right amount.
13. Write a will. Consider working with a professional to make sure your assets will go where you want them to upon death; if you have any minor children, appointing a guardian is essential. At the very least, explore some of the online sites that allow people to write their own wills, such as buildawill.com and legacywriter.com, if you have a simple situation. (Financial experts say most people benefit from working with a professional.)
14. Protect your privacy. Whenever someone asks for your Social Security number, question if it's necessary to share it. Never give it to a solicitor on the telephone or in an E-mail, and if you ever notice a suspicious charge on your credit card, follow up with your card company—it could be the first sign of identity theft.
Saving:
15. Write down how much money you want to save by the end of the year. As with your other goals, the simple act of writing it down will help keep that goal at the top of your mind throughout the year.
16. Become a better cook. Sometimes you have to spend money to save money. Nowhere is that truer than in the kitchen, where investing in a few key pieces of hardware can help you cook better, faster, and cheaper. And anything that makes your food taste better and gets it on the table quickly can lessen the temptation to order budget-busting take-out. Consider investing in a slow cooker to make meals even easier.
17. Reduce your utility bills. Making sure your home is properly insulated can save you money on heating and cooling costs. Using a programmable thermostat so that the temperature automatically rises (in the summer) and falls (in the winter) when no one is home during the day can yield annual savings of about 30 percent. While some 25 million households own programmable thermostats, only half actually use them.
18. Use less energy. Small changes, like closing doors to unused rooms or turning off the air conditioner during the day, can make a serious dent in utility bills. So can unplugging appliances, turning off lights, and shutting down computers at night. Even televisions can use power when they're turned off, so unplugging them when they're not in use saves energy. A $30 power strip, called the Smart Strip, automatically cuts power to devices that don't need it when they're off, such as a DVD player, while maintaining power to those that do, such as a cable box.
19. Use fewer products. Instead of lathering up with soap, shaving cream, shower gel, and body scrub, Diane MacEachern, author of Big Green Purse, suggests cutting back to just a handful of products. "Put everything you use in one day on the counter and it will blow your mind. Pick a day where you just brush your teeth and your hair and forget about the rest," she says. In addition to creating less waste, the change will lower your monthly drugstore bills, because you won't be buying all of those unnecessary lotions and creams. You can save up to $200 a year.
20. Start making cleaning supplies from scratch. Even Martha Stewart endorses this technique. A bowl of vinegar or simmering lemon rinds can absorb smells just as well as manufactured air freshener. Scrubs made of baking soda and water make kitchens sparkle just like chemical-laden cleaners. The Internet contains hundreds of do-it-yourself recipes; Jennifer Taggart's thesmartmama.com can get you started.
21. Find inspiration online. There are hundreds of personal finance blogs and websites; find the ones that speak to you and visit them regularly to help keep you on track. Popular options include Wise Bread, The Simple Dollar, and Centsible Life.
22. Give yourself a stress test. How vulnerable are you to sudden job loss or unexpected expenses? Do you have an emergency fund? If not, start building one. You should have at least three months' worth of living expenses in your bank account.
23. Work with family members. Sometimes, family members can help each other save more money by working together. Adult children are increasingly living with their parents, for example, but this arrangement doesn't have to be a burden if the adult children contribute to household costs or pay rent. You can also help out by gardening, doing housework, or sharing your computer skills.
Investing:
24. Decide what type of investor you want to be. If you're like most people, you probably want to skip stock-picking and put your money in low-cost index funds instead. Create a diversified portfolio, with longer-term savings in more aggressive investments (such as an index fund that tracks the S&P 500) and shorter-term savings in safer spots such as money market funds.
25. Begin investing today. Waiting to start a retirement account until you feel like you can afford it might mean that you can never retire. Don't put off opening a 401(k) account if your employer offers it, even if you start by contributing just 2 percent of your salary. Soon, you can raise that percentage to 4 percent, and eventually to 10 percent or higher. For extra motivation, plug your numbers into a retirement calculator on Bankrate.com, and see how much you need to fund your golden years—it's probably much more than $1 million.
26. Ignore the market (for the most part). Focusing too much on the ups and downs of the market just causes stress. When the market's plunging, instead focus on your hobbies, family, and getting outside. Avoid cable television news, which often treats every dip in the market like a major crash. If your investments are well-diversified, you've done all you can.
Debt:
27. Pay off your expensive debt, even student loans. Student loans that carry a 5 or 6 percent interest rate (or higher) are costing you much more than your savings can earn in this current low-interest rate environment. Paying off a chunk of your student loans will immediately start saving you more money than you could if you continue to make those slow-and-steady monthly payments. Of course, not everyone has the cash to pay off a large portion of their loans, and it will probably take five-plus years after graduation to get to the point when you can even consider it. But once you have a healthy bank account, don't wait too long to start paying off big chunks of those more-expensive student loans.
28. Choose the best credit card for you. If you pay your balance off each month, you should have a card that gives you rewards points. If you carry debt, just focus on getting the card with the lowest interest rate. Most people have multiple cards that aren't suited to their needs. Pick the one that fits you best and stop using the other ones. Don't close them, though, because that can hurt your credit score.
29. Improve your credit score. The easiest way to do this is by making steady, on-time payments every month and otherwise keeping your accounts in good standing. Get your free credit report once a year at annualcreditreport.com to check for any mistakes (and fix them).
30. Make a plan for paying off high-interest rate debt. If you carry any credit card debt, auto loans, or high-interest student loans, it's time to come up with a plan for paying them off. With interest rates on savings account so low, it often makes more sense to unload your expensive debt rather than continuing to make interest payments.
Retirement:
31. Run some numbers. Most people fail to calculate exactly how much they're on track to save, or how much they'll need, in retirement. Check out the retirement calculators available through your financial institution (Fidelity, T.D. Ameritrade, Transamerica, and T. Rowe Price have them, among others) or use free calculators from Bankrate.com. Experiment with different rates of returns, inflation rates, tax rates, and lifetime expectancy, since no one can predict those factors with any accuracy.
32. Ramp up your retirement savings by a few percentage points. Those calculations might convince you that you need to start saving more. To keep anxiety (and a major budget crunch) at bay, increase your savings in small increments. Start by upping your retirement account contribution 2 percent, and see if you can add another 2 percent in six months. Most people need to save about 15 percent of their salaries to be on track for a healthy retirement.
33. Consider opening up new tax-advantaged accounts. Make sure you know what tax-advantaged accounts are available to you. If you're currently not working, you might be eligible for a spousal IRA or Roth IRA. If you work full-time and have access to a 401(k), make sure you're taking full advantage of it. If your employer offers the relatively new Roth 401(k), which lets workers invest post-tax dollars into an account that will not be taxed again in the future, you might want to consider doing so.
34. Rebalance your retirement investments. If your investments have been battered by the stock market swings—and whose hasn't—it might be time to rebalance. For a quick evaluation, subtract your age from 100. That's roughly the percentage of your funds you should have in stocks, with the rest in more conservative investments such as bonds. If you're 40, that means you should have about 60 percent in stocks and 40 percent on bonds.
35. Check in with the Social Security Administration. Every year, wage earners receive a statement from the Social Security Administration, which provides a useful estimate of your future monthly benefits. It will help you determine how much you'll need to supplement with your own savings.
Earning:
36. Invest in your career—even when you're being frugal everywhere else. Investing in a career coach or development course can help you snag a promotion, get "unstuck" from a career rut, or transition into your dream job. The price of one-on-one coaching typically starts at about $200 an hour, but less formal advice can come from meeting with more experienced colleagues over lunch or coffee.
37. Start earning extra money on the side. Many people don't realize they have valuable skills that other people are willing to pay for, such as a second language or even craft skills. To get ideas for how to earn extra money, check out the services section on Craigslist and see what people are advertising—editing, gardening, and event planning. Earning just a few hundred dollars a month can help get you back on your feet, plus you'll get valuable job experience and the possible start of a successful small business that you can continue to grow.
38. Launch your own business. Have you always dreamed of being your own boss? Make this the year you start taking small steps toward that goal. Decide what you can sell, buy your website address, and consider taking on a few clients.
39. Use social media tools to boost your career. Making connections on Twitter, Facebook, and LinkedIn can enhance your overall profile in your field and strengthen connections that will come in handy when you're job-hunting. Many people err by not fleshing out their profile information on their social network accounts; start by adding more information about yourself, along with a photo.
40. Develop a back-up plan. In today's economy, no job is 100-percent secure. Create a list of steps you would take if you were to lose your job, even though you hope never to have to use it. Having a Plan B can give you peace of mind as well as a practical "to-do" list if you ever face the shock of an unexpected job loss.
41. Schedule creative time for yourself. Boost your productivity with scheduled downtime, in which you give yourself the freedom to brainstorm about new ideas and possibilities for yourself and your career. Todd Henry, founder of the Accidental Creative, suggests blocking out a regular time period and reading material that you wouldn't normally look at, such as an engineering magazine or copy of Vogue.
42. Consider asking for a raise. If it's been a while since you've seen an increase in your paycheck, it might be a good time to make an argument to your boss for why you deserve a raise. Put the reasons in writing and run the request by a friend to make sure it's as strong as possible. Of course, if your industry or company is experiencing especially difficult times, you might want to put that request on hold until business picks up again.
43. Free up your time and energy by outsourcing chores. Think of money spent on a cleaning service or grocery delivery as an investment in your career, because these things free up more time (and energy) for you to focus on your day (or night) job.
Giving:
44. Talk with parents and siblings about any support you expect to give to them. Giving doesn't relate only to charities; many people also support their aging parents and needy siblings. Make sure you understand what your parents or siblings expect from you, if anything, and that you can afford to provide them the support that they need. If you can't, talk with them about your limits and potential nonmonetary ways that you can assist them.
45. Choose a cause that you believe in. Many of us give haphazardly throughout the year, donating $30 for a friend's walkathon and $100 at a school auction. Instead, put some thought into the causes you'd like to support this year. Read a book or two to further educate yourself. For example, if you believe in ending world water shortages, then you might want to read When the Rivers Run Dry: Water—The Defining Crisis of the Twenty-first Century. If your passion is addressing poverty, then you might want to check out When Helping Hurts: Alleviating Poverty Without Hurting the Poor. . .and Yourself. Then, figure out what you can do to help
46. Learn everything you can about your chosen cause. Bill Gates shared this advice for would-be philanthropists with the New York Times: "The key thing is to pick a cause, whether it's crops or diseases or great high schools ... Pick one, and get some more in-depth knowledge" by traveling, reading, or volunteering. Studying up on your cause doesn't need to cost much money, but it will make you a more informed—and more effective—giver.
47. Look for free ways to give, too. Giving blood, signing up to be an organ donor, or donating the gently used books and clothes in your home can be just as helpful as monetary gifts. Your time, of course, is one of the most valuable things you can give, along with any special skills, such as computer expertise, to charities in need of such assistance.
48. Give better gifts. Surveys show that most Americans say they want to spend less and give more meaningful presents. When birthdays or other events come up, think about how you can give an experience, such as an afternoon at a museum or conversation over tea, instead of things.
49. Clean out your closet. Not only will you have a more organized space for the new year, but you probably have some valuable items—books, CDs, and games—that charities could make good use of. See what you have that you're ready to give away, then look up local charities in need. Be sure to retain a record of what you give for next year's taxes.
50. Join forces with friends. By forming a giving circle, a group of friends can pool their money for a good cause. The number of giving circles has doubled to at least 800 over the past four years, and the trend is partly frugality-driven. Combining money and time makes it easier to research charities more extensively, check up on how the funds are being used, and garner enough power as donors that charities make an effort to reach out to you. A representative might visit your donor circle one night to explain the programs, or invite you to participate in some of the charity's activities. To find a giving circle that already exists in your area, visit givingcircles.org.
http://money.usnews.com/money/personal-finance/articles/2010/12/27/50-ways-to-improve-your-finances-in-2011
1. Decide on your big goals. Do you want to have more money in your bank account? Take a five-star vacation? If you're having trouble putting your finger on it, ask the people who know you best. Brainstorming with your significant other, family members, and friends can help shake loose your own thoughts.
2. Share those goals with other people. Telling friends and family members about your plans will help you stick to them. But you don't necessarily have to share your goals with people you know. At 43things.com, strangers list goals such as "save 20 percent of what I earn" or "identify 100 things that make me happy (besides money)." The website MyLifeList.org can also help; after you make a list of your goals, you can share them with others and give and receive encouragement.
3. Do a little every day. Take small steps toward your big goals every day, even if it means spending 60 seconds checking out a relevant website before bed. If you want to launch a small business, for example, small steps can include purchasing your website name, interviewing Web designers, and reading a book or two on being an entrepreneur. The most successful savers profiled in Generation Earn started by automatically saving a small percentage of their income; Nicole Mladic, a 31-year-old communications director in Chicago, couldn't afford to put away a big chunk of her salary when she was in her mid-20s, so she started saving 2 percent. A few months later, she raised it to 3 percent, then to 4 percent, and eventually she reached her goal of 10 percent. Today, her net worth is more than $90,000.
4. Take time to reflect. Look back on 2010. What were your personal money highs and lows? What mistakes did you make and what challenges did you face? What financial decisions are you most proud of?
Spending:
5. Get rid of junk mail. The website catalogchoice.org lets retailers know which customers no longer want to receive their mail. Participating companies agree to stop sending any more catalogs within three months. Signing up with 41pounds.org halts junk mail. The Direct Marketing Association (the-dma.org) will let its members know when people sign up to stop receiving direct-mail marketing offers. Junk mail piles up over time, so these fixes can really make a difference in the long run. The Environmental Protection Agency estimates that Americans receive four million tons of junk mail each year, almost half of which is never even opened. In addition to saving paper, you'll prevent yourself from spending needlessly by avoiding the temptations on those glossy pages.
6. Stop receiving E-mail sales alerts from your favorite retailers. Electronic junk mail might not carry the same environmental impact, but it can still convince you to spend money on items you don't need. Unsubscribe to retailer alerts to avoid the temptation.
7. Negotiate one big-ticket item each month. Often, big-box stories and department stores offer some wiggle room on their posted prices, especially when competitors offer a product for less. Before making any significant purchases, especially electronics, comparison shop and be prepared to ask the store clerk if their company can give you a better deal.
8. Get familiar with comparison and coupon websites. Websites such as PriceGrabber.com, BradsDeals.com, and Dealnews.com can help you pay less for items you buy often as well as splurges. Get in the habit of checking these sites before buying anything online or shopping in stores.
9. Budget by the year. Research shows that budgeting by the year instead of the month makes it easier to stay within your spending limits. That's partly because when we create an annual budget, we remember to take into account occasional expenses such as gifts.
10. Keep a spending diary. Even if you just track every dollar you spend for two weeks, it will open your eyes to where your money goes and what you could cut back on. You might not realize that you spend $100 a week on lunches, or that your taxi-cab habit is eating up half of your discretionary income.
11. Take advantage of your bank's free tools. Banks are increasingly offering easy ways of tracking your spending online. If your bank offers a free tool, use it to see where your money is going and where you can cut back.
Security:
12. Check up on your insurance. Do you have the auto insurance, renters insurance, and life insurance that you need? According to Allstate insurance, 2 in 3 renters skip insurance altogether, even though most people could benefit from the protection and it's relatively cheap. Life insurance is another awkward topic since no one wants to talk about death. But many people are under-insured, which puts their families at risk. Review the insurance that you have and decide whether you have the right amount.
13. Write a will. Consider working with a professional to make sure your assets will go where you want them to upon death; if you have any minor children, appointing a guardian is essential. At the very least, explore some of the online sites that allow people to write their own wills, such as buildawill.com and legacywriter.com, if you have a simple situation. (Financial experts say most people benefit from working with a professional.)
14. Protect your privacy. Whenever someone asks for your Social Security number, question if it's necessary to share it. Never give it to a solicitor on the telephone or in an E-mail, and if you ever notice a suspicious charge on your credit card, follow up with your card company—it could be the first sign of identity theft.
Saving:
15. Write down how much money you want to save by the end of the year. As with your other goals, the simple act of writing it down will help keep that goal at the top of your mind throughout the year.
16. Become a better cook. Sometimes you have to spend money to save money. Nowhere is that truer than in the kitchen, where investing in a few key pieces of hardware can help you cook better, faster, and cheaper. And anything that makes your food taste better and gets it on the table quickly can lessen the temptation to order budget-busting take-out. Consider investing in a slow cooker to make meals even easier.
17. Reduce your utility bills. Making sure your home is properly insulated can save you money on heating and cooling costs. Using a programmable thermostat so that the temperature automatically rises (in the summer) and falls (in the winter) when no one is home during the day can yield annual savings of about 30 percent. While some 25 million households own programmable thermostats, only half actually use them.
18. Use less energy. Small changes, like closing doors to unused rooms or turning off the air conditioner during the day, can make a serious dent in utility bills. So can unplugging appliances, turning off lights, and shutting down computers at night. Even televisions can use power when they're turned off, so unplugging them when they're not in use saves energy. A $30 power strip, called the Smart Strip, automatically cuts power to devices that don't need it when they're off, such as a DVD player, while maintaining power to those that do, such as a cable box.
19. Use fewer products. Instead of lathering up with soap, shaving cream, shower gel, and body scrub, Diane MacEachern, author of Big Green Purse, suggests cutting back to just a handful of products. "Put everything you use in one day on the counter and it will blow your mind. Pick a day where you just brush your teeth and your hair and forget about the rest," she says. In addition to creating less waste, the change will lower your monthly drugstore bills, because you won't be buying all of those unnecessary lotions and creams. You can save up to $200 a year.
20. Start making cleaning supplies from scratch. Even Martha Stewart endorses this technique. A bowl of vinegar or simmering lemon rinds can absorb smells just as well as manufactured air freshener. Scrubs made of baking soda and water make kitchens sparkle just like chemical-laden cleaners. The Internet contains hundreds of do-it-yourself recipes; Jennifer Taggart's thesmartmama.com can get you started.
21. Find inspiration online. There are hundreds of personal finance blogs and websites; find the ones that speak to you and visit them regularly to help keep you on track. Popular options include Wise Bread, The Simple Dollar, and Centsible Life.
22. Give yourself a stress test. How vulnerable are you to sudden job loss or unexpected expenses? Do you have an emergency fund? If not, start building one. You should have at least three months' worth of living expenses in your bank account.
23. Work with family members. Sometimes, family members can help each other save more money by working together. Adult children are increasingly living with their parents, for example, but this arrangement doesn't have to be a burden if the adult children contribute to household costs or pay rent. You can also help out by gardening, doing housework, or sharing your computer skills.
Investing:
24. Decide what type of investor you want to be. If you're like most people, you probably want to skip stock-picking and put your money in low-cost index funds instead. Create a diversified portfolio, with longer-term savings in more aggressive investments (such as an index fund that tracks the S&P 500) and shorter-term savings in safer spots such as money market funds.
25. Begin investing today. Waiting to start a retirement account until you feel like you can afford it might mean that you can never retire. Don't put off opening a 401(k) account if your employer offers it, even if you start by contributing just 2 percent of your salary. Soon, you can raise that percentage to 4 percent, and eventually to 10 percent or higher. For extra motivation, plug your numbers into a retirement calculator on Bankrate.com, and see how much you need to fund your golden years—it's probably much more than $1 million.
26. Ignore the market (for the most part). Focusing too much on the ups and downs of the market just causes stress. When the market's plunging, instead focus on your hobbies, family, and getting outside. Avoid cable television news, which often treats every dip in the market like a major crash. If your investments are well-diversified, you've done all you can.
Debt:
27. Pay off your expensive debt, even student loans. Student loans that carry a 5 or 6 percent interest rate (or higher) are costing you much more than your savings can earn in this current low-interest rate environment. Paying off a chunk of your student loans will immediately start saving you more money than you could if you continue to make those slow-and-steady monthly payments. Of course, not everyone has the cash to pay off a large portion of their loans, and it will probably take five-plus years after graduation to get to the point when you can even consider it. But once you have a healthy bank account, don't wait too long to start paying off big chunks of those more-expensive student loans.
28. Choose the best credit card for you. If you pay your balance off each month, you should have a card that gives you rewards points. If you carry debt, just focus on getting the card with the lowest interest rate. Most people have multiple cards that aren't suited to their needs. Pick the one that fits you best and stop using the other ones. Don't close them, though, because that can hurt your credit score.
29. Improve your credit score. The easiest way to do this is by making steady, on-time payments every month and otherwise keeping your accounts in good standing. Get your free credit report once a year at annualcreditreport.com to check for any mistakes (and fix them).
30. Make a plan for paying off high-interest rate debt. If you carry any credit card debt, auto loans, or high-interest student loans, it's time to come up with a plan for paying them off. With interest rates on savings account so low, it often makes more sense to unload your expensive debt rather than continuing to make interest payments.
Retirement:
31. Run some numbers. Most people fail to calculate exactly how much they're on track to save, or how much they'll need, in retirement. Check out the retirement calculators available through your financial institution (Fidelity, T.D. Ameritrade, Transamerica, and T. Rowe Price have them, among others) or use free calculators from Bankrate.com. Experiment with different rates of returns, inflation rates, tax rates, and lifetime expectancy, since no one can predict those factors with any accuracy.
32. Ramp up your retirement savings by a few percentage points. Those calculations might convince you that you need to start saving more. To keep anxiety (and a major budget crunch) at bay, increase your savings in small increments. Start by upping your retirement account contribution 2 percent, and see if you can add another 2 percent in six months. Most people need to save about 15 percent of their salaries to be on track for a healthy retirement.
33. Consider opening up new tax-advantaged accounts. Make sure you know what tax-advantaged accounts are available to you. If you're currently not working, you might be eligible for a spousal IRA or Roth IRA. If you work full-time and have access to a 401(k), make sure you're taking full advantage of it. If your employer offers the relatively new Roth 401(k), which lets workers invest post-tax dollars into an account that will not be taxed again in the future, you might want to consider doing so.
34. Rebalance your retirement investments. If your investments have been battered by the stock market swings—and whose hasn't—it might be time to rebalance. For a quick evaluation, subtract your age from 100. That's roughly the percentage of your funds you should have in stocks, with the rest in more conservative investments such as bonds. If you're 40, that means you should have about 60 percent in stocks and 40 percent on bonds.
35. Check in with the Social Security Administration. Every year, wage earners receive a statement from the Social Security Administration, which provides a useful estimate of your future monthly benefits. It will help you determine how much you'll need to supplement with your own savings.
Earning:
36. Invest in your career—even when you're being frugal everywhere else. Investing in a career coach or development course can help you snag a promotion, get "unstuck" from a career rut, or transition into your dream job. The price of one-on-one coaching typically starts at about $200 an hour, but less formal advice can come from meeting with more experienced colleagues over lunch or coffee.
37. Start earning extra money on the side. Many people don't realize they have valuable skills that other people are willing to pay for, such as a second language or even craft skills. To get ideas for how to earn extra money, check out the services section on Craigslist and see what people are advertising—editing, gardening, and event planning. Earning just a few hundred dollars a month can help get you back on your feet, plus you'll get valuable job experience and the possible start of a successful small business that you can continue to grow.
38. Launch your own business. Have you always dreamed of being your own boss? Make this the year you start taking small steps toward that goal. Decide what you can sell, buy your website address, and consider taking on a few clients.
39. Use social media tools to boost your career. Making connections on Twitter, Facebook, and LinkedIn can enhance your overall profile in your field and strengthen connections that will come in handy when you're job-hunting. Many people err by not fleshing out their profile information on their social network accounts; start by adding more information about yourself, along with a photo.
40. Develop a back-up plan. In today's economy, no job is 100-percent secure. Create a list of steps you would take if you were to lose your job, even though you hope never to have to use it. Having a Plan B can give you peace of mind as well as a practical "to-do" list if you ever face the shock of an unexpected job loss.
41. Schedule creative time for yourself. Boost your productivity with scheduled downtime, in which you give yourself the freedom to brainstorm about new ideas and possibilities for yourself and your career. Todd Henry, founder of the Accidental Creative, suggests blocking out a regular time period and reading material that you wouldn't normally look at, such as an engineering magazine or copy of Vogue.
42. Consider asking for a raise. If it's been a while since you've seen an increase in your paycheck, it might be a good time to make an argument to your boss for why you deserve a raise. Put the reasons in writing and run the request by a friend to make sure it's as strong as possible. Of course, if your industry or company is experiencing especially difficult times, you might want to put that request on hold until business picks up again.
43. Free up your time and energy by outsourcing chores. Think of money spent on a cleaning service or grocery delivery as an investment in your career, because these things free up more time (and energy) for you to focus on your day (or night) job.
Giving:
44. Talk with parents and siblings about any support you expect to give to them. Giving doesn't relate only to charities; many people also support their aging parents and needy siblings. Make sure you understand what your parents or siblings expect from you, if anything, and that you can afford to provide them the support that they need. If you can't, talk with them about your limits and potential nonmonetary ways that you can assist them.
45. Choose a cause that you believe in. Many of us give haphazardly throughout the year, donating $30 for a friend's walkathon and $100 at a school auction. Instead, put some thought into the causes you'd like to support this year. Read a book or two to further educate yourself. For example, if you believe in ending world water shortages, then you might want to read When the Rivers Run Dry: Water—The Defining Crisis of the Twenty-first Century. If your passion is addressing poverty, then you might want to check out When Helping Hurts: Alleviating Poverty Without Hurting the Poor. . .and Yourself. Then, figure out what you can do to help
46. Learn everything you can about your chosen cause. Bill Gates shared this advice for would-be philanthropists with the New York Times: "The key thing is to pick a cause, whether it's crops or diseases or great high schools ... Pick one, and get some more in-depth knowledge" by traveling, reading, or volunteering. Studying up on your cause doesn't need to cost much money, but it will make you a more informed—and more effective—giver.
47. Look for free ways to give, too. Giving blood, signing up to be an organ donor, or donating the gently used books and clothes in your home can be just as helpful as monetary gifts. Your time, of course, is one of the most valuable things you can give, along with any special skills, such as computer expertise, to charities in need of such assistance.
48. Give better gifts. Surveys show that most Americans say they want to spend less and give more meaningful presents. When birthdays or other events come up, think about how you can give an experience, such as an afternoon at a museum or conversation over tea, instead of things.
49. Clean out your closet. Not only will you have a more organized space for the new year, but you probably have some valuable items—books, CDs, and games—that charities could make good use of. See what you have that you're ready to give away, then look up local charities in need. Be sure to retain a record of what you give for next year's taxes.
50. Join forces with friends. By forming a giving circle, a group of friends can pool their money for a good cause. The number of giving circles has doubled to at least 800 over the past four years, and the trend is partly frugality-driven. Combining money and time makes it easier to research charities more extensively, check up on how the funds are being used, and garner enough power as donors that charities make an effort to reach out to you. A representative might visit your donor circle one night to explain the programs, or invite you to participate in some of the charity's activities. To find a giving circle that already exists in your area, visit givingcircles.org.
http://money.usnews.com/money/personal-finance/articles/2010/12/27/50-ways-to-improve-your-finances-in-2011
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