Saving Money Tip #236 - If You Are Trying to Increase Your Wealth, Do A Bit Of Everything. When trying to build up your wealth, you can try to learn about investing in hopes of being the next Peter Lynch and beat the stock market. Or you can try to be the biggest miser and live in a dark room eating beans and rice and using five squares of toilet paper per day. Or you can go out and get an extra job in hopes of bringing in more income. You can do only one of these things and hope that you become rich. But in reality, very few people become the next Peter Lynch because it’s really hard to beat the market all of the time. And living in a dark, cold room really isn’t much fun. And working hours upon hours at your job doesn’t leave a lot of time for pleasure. So what is the best way to grow your wealth?
I believe it is to do a bit of all of these things – not just one. Take the time to learn about investing. Learn what the different investment vehicles out there are. Read a few financial books about growing your money. But make sure you don’t “play” the market like it is a game. Make wise investment choices. Take on some risks where it makes sense but balance it with conservative savings as well. You won’t have to worry about beating the market as long as you are getting the appropriate reward for the amount of risk you are willing to undertake. This will help increase your wealth.
Put in a few extra hours of overtime at work if you are able. Or find a job to do after work a few evenings a week. Or perhaps learn to sell on eBay or sell crafts that you make in your spare time. These are great ways to increase your income. As long as work is not taking over your life and you have time to enjoy things you like to do, then this will help increase your wealth without sucking up all of your time.
Cut down on extravagances. Try buying generic brands, using coupons, and purchasing used. Research before you buy. Make more food from scratch. Eat out in restaurants less often. Going all out and being miserly shouldn’t be necessary unless times are dire. But decreasing your cost of living is a step in the right direction to increasing your wealth.
By partaking in many different methods of saving or growing money, you will in fact increase your wealth without going to extremes. Learn about investing, increase your income, and decrease your costs and you will be on the road to increasing your wealth without putting extreme pressure or sacrifice in one part of your life.
In Real Life (IRL) – There are people who spend a lot of time studying stock pages, investment newsletters,and listening to financial gurus in hopes of becoming one of those who strikes it rich in the stock market. While I see the value in higher-risk investments, I am a bit too conservative to put a good part of my money in the stock market. I like to balance out my investments with guaranteed CDs and government bonds.
Because I am not a high-flyer investor, I need other ways to grow my savings. Therefore I have a side job to increase our income. I spend time scouring thrift stores and yard sales in hopes of finding things to sell on eBay. In addition to enjoying these activities, I have been able to add to our family’s income while still staying at home while my children are young.
Because I don’t work my tail off on a 60-hour per week job (well I do, but I don’t get paid for that job), I seek other ways to grow our family’s wealth. And that is by cutting back on unnecessary expenses. We cut back dramatically a couple of years ago on eating out. I have spent the past year or two learning how to bake bread and cook more from scratch. I have learned some couponing tricks. We do our research before we buy things.
Each of these things taken alone can increase your wealth. But by combining all three methods, we are able to increase our savings without living a barebones existence, without putting all of our money in high-risk investments, and without killing ourselves by working all of the time. By combining all of these methods, we are able to cut our risk and enjoy our lives while increasing our wealth at the same time. For other ways to save money check out Frugal Fridays.
Thursday, February 25, 2010
Wednesday, February 24, 2010
Learn To Resell Your Used Items
Tip #234 - Learn To Resell Your Used Items. While not everyone is guilty of having too much clutter laying around their house, most people outgrow clothing, change furntiure style, finish up with books, or upgrade their electronics or appliances. And for every item that is no longer useful to you but is still in good condition, there may be many more people who would be happy to obtain it. So rather than put everything into a bag for the donation pile, why not try to sell some of these items? And I don't mean just having a yardsale and hoping that a market for the particular items you have come to you.
Instead, learn to resell your items through more sophisticated means. If you live in a big city or near one, Craigslist is an easy way to resell some of your unwanted items. And the beauty of Craigslist is that it is easy. It is as simple as going to their site, choosing a category, and describing the item that you have to sell. Your "ad" improves dramatically if you have a picture, and I do think it is worthwhile to learn how to upload pictures to this site. But even if you don't have that knowledge, you can still list your items that you no longer want. I did a detailed post on how to sell on Craigslist.
If you live in the middle of nowhere, Craiglist is not usually a good option for small things, but may still be worthwhile for larger items you no longer want, like appliances and furniture. If the items you wish to get rid of are small and not too valuable, you have a few other options. Clothes can be brought to consignment stores. Books, music, and movies can be sold on Amazon. Toys and baby things can be brought to church consginment sales in the fall and the spring. If you have valuable collectibles, it might make sense to try to unload these at an auction house, antique store or similar collectible shop. But make sure you do your homework first so that you do not get taken.
When you are comfortable selling things, you can always try your hand at eBay. The beauty of eBay is that it is a venue for selling most everything from coins to dolls to kitchen ware to DVDs. It is not just for antiques and valuables.
Taking the step to try to sell some of your unwanted items before putting them in the donation pile can yield hundreds of dollars that can be put towards savings. You will most likely still find plenty of things to donate to charity but you will help your own cause for savings, too.
In Real Life (IRL) - I slowly started selling things around my house about 8 or 9 years ago on eBay. At the time I did not know about Craigslist. At first I thought eBay was for antiques and valuables. And I spent time looking in my closet for that valuable toy that I may have saved from my childhood that was now worth something. But I never did find it. And instead I learned that selling on eBay or Craigslist or to consignment shops isn't just about selling antiques and collectible items. People like to buy useful everyday items from these venues, too. I know because I have bought these types of things on eBay, Craigslist, Amazon, and consignment stores and sales, too.
On the selling end, we have sold many of our baby things such as exersaucers, crib sheets, strollers, and even a carseat cover on Craigslist and eBay. They were no longer useful to us, but they were valuable to someone else. In the past, these items would have gone in the Purple Heart or Goodwill pile. Instead, we earned money on these items and were able to put them toward things our child needed like a toddler bed, bigger clothes, and a booster seat. We have also gotten rid of childhood furniture and bought new (to us) furniture on Craigslist.
We've also sold things like toasters, sewing machines, cameras, and cell phones when we've upgraded or not needed them. We've bought things like a computer monitor, a t.v. cabinet, and a computer armoire. I often list books on Amazon or bring them to a nearby used book store. Sports equipment and musical instruments are also good sellers on the secondary market.
Before I started buying used things, I didn't realize how many other people bought things used, too. Things that I would have just donated in the past have brought in hundreds, if not thousands, of dollars. With the economy the way it is, even more people are turning to the secondary market to purchase used goods, so it's a good time to start selling there.
Saturday, February 20, 2010
Invest Slowly
Tip #233 - Invest Slowly. There are salesman who will try to sell you financial products that have the potential to earn 20 percent. There are friends who brag that they are fully invested n the stock market. There are others who look down on a fixed return as being boring and not keeping pace with inflation. And to them I say, you are not making 20 percent without a lot of risk. If ALL of your money is in the stock market, I hope you sleep well at night. And while a fixed return may be boring, it's also guaranteed.
When you are starting on your financial savings journey, do not be intimidated by or invest in financial products you do not understand. Start out slowly. Putting $100 away per month into a savings account may not be the best investment ever, but it is a place to start. As you build up your savings, you can buy a CD for better returns or put your money in a money market account. And then maybe you will buy some government bonds. And then and only then when you are ready to take some real risk - that is risk that the principal that you put in can go down in value - should you start to invest in other products such as mutual funds or maybe even some individual stocks.
As with any other skill, learning about investments builds upon itself. You don't learn to do triple axles before you learn to do a single. You don't attempt black diamond mountains until you've mastered the green. Why would you start putting your money in "high flying" investments without being comfortable in the basic investments first? You wouldn't. And don't let anyone tell you differently. Sure you may not earn the highest return on your investment, but you won't fall flat on your face either. The key is to start slowly.
Stocks and mutual funds are not appropriate for all of your investment needs, and for a beginning investor, possibly not any of your investments. They do have a place as part of most people's investment portfolios - such as long-term savings for retirement. But there is no need to rush into investments that you are not comfortable with. Sure the 20% returns look great. But look at past performance and ask yourself how comfortable you would be the value of your money lost 10%. Until you are ready for that volatility, you are not ready for it. Start up a nice base savings first. It's easier to lose some of your investments when you have other investments that are stable. In the beginning, don't be embarrassed to have your money in CDs. And maybe after you have built up savings for a year or two, you can start loooking into other investments for some of your longer-term money. But start slowly.
In Real Life (IRL) - From the time I was a child, I had a passbook savings account. It was fun to watch my money grow (5% interest!) each month. As I got older, my dad talked me into putting some money into government bonds (paying 6% interest) and the interest was tax-deferred until it came out. Then as my savings accounts grew, I put some money into money market accounts for a higher interest rate. And I bought some CDs for a higher interest rate also.
It wasn't until I was in my 20's that my dad talked to me about mutual funds. Sure, I had learned about them in college - I was a finance major. But personally investing in them was something new to me. And I was scared to make that leap. At the time (early 1990s), even the worst mutual funds were making money. And yearly returns of 20% to 30% were almost common. But I was still scared. I had never "lost" money before (unless you argue that I lost buying power due to inflation by having my money earning low-yield interest). So my dad said if I lost money, he'd make it up to me. That was a nice way to ease into the world of mutual funds. I will never forget the first statement I got that was literally days after my initial investment that showed my $200 (or whatever the amount was) was now worth $197. I was devastated. But I kept at it, and sent a monthly contribution off to a mutual fund. This was long-term savings for me - money to put toward a house 10 years down the road. As I grew comfortable with that, I bought individual stocks, first through an investment club, and then on my own. And all along, I put retirement money into mutual funds offered through work.
The point is, it was a slow process. I didn't start taking on greater risk until I was ready for it and until I had a good base of money sitting in the bank and in government bonds. I also only invested in riskier investments when it was for longer-term goals. I kept my "emergency" fund or my base money in guaranteed investments. Even today, I keep a fair amount in lower yield investments. CDs paying 4 percent if fine with me as part of an overall portfolio. I am not trying to impress anyone with all of the sophisticated investments I make. I am trying to maximize my return and still be comfortable with the investments I make. You should, too.
When you are starting on your financial savings journey, do not be intimidated by or invest in financial products you do not understand. Start out slowly. Putting $100 away per month into a savings account may not be the best investment ever, but it is a place to start. As you build up your savings, you can buy a CD for better returns or put your money in a money market account. And then maybe you will buy some government bonds. And then and only then when you are ready to take some real risk - that is risk that the principal that you put in can go down in value - should you start to invest in other products such as mutual funds or maybe even some individual stocks.
As with any other skill, learning about investments builds upon itself. You don't learn to do triple axles before you learn to do a single. You don't attempt black diamond mountains until you've mastered the green. Why would you start putting your money in "high flying" investments without being comfortable in the basic investments first? You wouldn't. And don't let anyone tell you differently. Sure you may not earn the highest return on your investment, but you won't fall flat on your face either. The key is to start slowly.
Stocks and mutual funds are not appropriate for all of your investment needs, and for a beginning investor, possibly not any of your investments. They do have a place as part of most people's investment portfolios - such as long-term savings for retirement. But there is no need to rush into investments that you are not comfortable with. Sure the 20% returns look great. But look at past performance and ask yourself how comfortable you would be the value of your money lost 10%. Until you are ready for that volatility, you are not ready for it. Start up a nice base savings first. It's easier to lose some of your investments when you have other investments that are stable. In the beginning, don't be embarrassed to have your money in CDs. And maybe after you have built up savings for a year or two, you can start loooking into other investments for some of your longer-term money. But start slowly.
In Real Life (IRL) - From the time I was a child, I had a passbook savings account. It was fun to watch my money grow (5% interest!) each month. As I got older, my dad talked me into putting some money into government bonds (paying 6% interest) and the interest was tax-deferred until it came out. Then as my savings accounts grew, I put some money into money market accounts for a higher interest rate. And I bought some CDs for a higher interest rate also.
It wasn't until I was in my 20's that my dad talked to me about mutual funds. Sure, I had learned about them in college - I was a finance major. But personally investing in them was something new to me. And I was scared to make that leap. At the time (early 1990s), even the worst mutual funds were making money. And yearly returns of 20% to 30% were almost common. But I was still scared. I had never "lost" money before (unless you argue that I lost buying power due to inflation by having my money earning low-yield interest). So my dad said if I lost money, he'd make it up to me. That was a nice way to ease into the world of mutual funds. I will never forget the first statement I got that was literally days after my initial investment that showed my $200 (or whatever the amount was) was now worth $197. I was devastated. But I kept at it, and sent a monthly contribution off to a mutual fund. This was long-term savings for me - money to put toward a house 10 years down the road. As I grew comfortable with that, I bought individual stocks, first through an investment club, and then on my own. And all along, I put retirement money into mutual funds offered through work.
The point is, it was a slow process. I didn't start taking on greater risk until I was ready for it and until I had a good base of money sitting in the bank and in government bonds. I also only invested in riskier investments when it was for longer-term goals. I kept my "emergency" fund or my base money in guaranteed investments. Even today, I keep a fair amount in lower yield investments. CDs paying 4 percent if fine with me as part of an overall portfolio. I am not trying to impress anyone with all of the sophisticated investments I make. I am trying to maximize my return and still be comfortable with the investments I make. You should, too.
Tuesday, February 16, 2010
Research The Various 529 Plans - Part 2
Tip #232 - Research The Various 529 Plans - Part 2. In Part 1 of this series, we discussed how important it is to do your research before you decide whether investing in a 529 Plan is appropriate for you. Once you looked over all of your other choices for saving for education and decide that you do indeed want to contribute to one, it is time to figure out which state’s plan you want to invest in. Nearly all states offer a 529 Plan. Usually the plan is run by a financial management company such as Vanguard or Fidelity. The plan is not run by the state’s government.
It would seem that the easiest thing to do is invest in your home state’s plan. There may be benefits to going with your own state’s plan. Sometimes the state will give you a break on your state taxes if you invest in their plan whereas they don’t give you a break if you invest in another state’s plan (some do, though). However, sometimes with even the tax break, there may be better plans out there for you. That is because not all states’ plans are created equal. Some offer more and better choices. Some have lower fees. Some have sales charges. So it is important to shop around for the best state's plan to invest in. And then once you chooose that, you need to decide which investments to make your contributions to.
In general, most plans offer investments based on the age of your child. The younger he/she is, the riskier the investments are. And as the child gets older, the less risky the fund becomes. So the fund manager is always adjusting the balance of stocks, bonds, and cash in the fund to make the risk consistent with the time your child has left until college. The closer you child is to college, the less risky the account becomes. You can put all of your money into the plan based on your child’s age and not have to worry about doing any risk adjusting yourself. Of course, many people who did that were very disappointed and not prepared for the huge losses (on paper) that their accounts generated last year.
Most states also have other options where you decide how to invest that are not based on age – such as various mutual funds at all levels of risk and money market funds. These types of investments require more involvement and knowledge on the part of the investor. And it gives the investor more control.
So how do you know which state plan and which investment within that plan is the best for you? Fortunately, there is a detailed 529 site, Saving For College that can give you all the information you ever wanted to know about the 529 Plans. Read over this site and get to learn even more about the 529, its benefits and risks. And read about the different states’ plans and the different types of investments they offer. Also, check out this article in Kiplinger that compares the 529 plans. The great thing about this article is that it does a great summary of which state’s plan is best to invest in based on where you live.
If you are serious about saving for college and have decided that a 529 Plan is right for you, start doing your research. It’s not as simple as deciding to invest. You have to figure out which state is best for you to go with, and then which investment within that state is one you are comfortable with.
In Real Life (IRL) – I have mentioned a few times that I don’t yet have money invested in a 529 Plan. In some ways it seems like it was a good decision when you hear about all of the losses that people have taken with their plans. But investing and taking some losses (especially when they are just on paper) is better than not investing at all.
At this time we just don’t have extra money to sock away for college beyond the $2,000 per year per child that we are doing. At the rate we are saving, we will have enough for probably only one year of college per child. But we are not planning to invest at this rate forever, and hope to star contributing to a 529 Plan once I start back at work, which right now is looking like it will be later rather than sooner.
I have read over Virginia’s 529 Plan a few times. And according to Kiplinger and other sources, it is one of the better plans out there, especially if you are a resident since we get to deduct some of the contributions from our income for our state taxes. So if and when we gather up enough money to make some 529 contributions, that’s where the money will probably be headed. Knowing me and how I like to control my investments, I probably will not put the money in an age-based investment, or at least not all of it. But for now I am holding tight. How about you? Do any of you invest in a 529 plan for your child? Are you happy with it?
It would seem that the easiest thing to do is invest in your home state’s plan. There may be benefits to going with your own state’s plan. Sometimes the state will give you a break on your state taxes if you invest in their plan whereas they don’t give you a break if you invest in another state’s plan (some do, though). However, sometimes with even the tax break, there may be better plans out there for you. That is because not all states’ plans are created equal. Some offer more and better choices. Some have lower fees. Some have sales charges. So it is important to shop around for the best state's plan to invest in. And then once you chooose that, you need to decide which investments to make your contributions to.
In general, most plans offer investments based on the age of your child. The younger he/she is, the riskier the investments are. And as the child gets older, the less risky the fund becomes. So the fund manager is always adjusting the balance of stocks, bonds, and cash in the fund to make the risk consistent with the time your child has left until college. The closer you child is to college, the less risky the account becomes. You can put all of your money into the plan based on your child’s age and not have to worry about doing any risk adjusting yourself. Of course, many people who did that were very disappointed and not prepared for the huge losses (on paper) that their accounts generated last year.
Most states also have other options where you decide how to invest that are not based on age – such as various mutual funds at all levels of risk and money market funds. These types of investments require more involvement and knowledge on the part of the investor. And it gives the investor more control.
So how do you know which state plan and which investment within that plan is the best for you? Fortunately, there is a detailed 529 site, Saving For College that can give you all the information you ever wanted to know about the 529 Plans. Read over this site and get to learn even more about the 529, its benefits and risks. And read about the different states’ plans and the different types of investments they offer. Also, check out this article in Kiplinger that compares the 529 plans. The great thing about this article is that it does a great summary of which state’s plan is best to invest in based on where you live.
If you are serious about saving for college and have decided that a 529 Plan is right for you, start doing your research. It’s not as simple as deciding to invest. You have to figure out which state is best for you to go with, and then which investment within that state is one you are comfortable with.
In Real Life (IRL) – I have mentioned a few times that I don’t yet have money invested in a 529 Plan. In some ways it seems like it was a good decision when you hear about all of the losses that people have taken with their plans. But investing and taking some losses (especially when they are just on paper) is better than not investing at all.
At this time we just don’t have extra money to sock away for college beyond the $2,000 per year per child that we are doing. At the rate we are saving, we will have enough for probably only one year of college per child. But we are not planning to invest at this rate forever, and hope to star contributing to a 529 Plan once I start back at work, which right now is looking like it will be later rather than sooner.
I have read over Virginia’s 529 Plan a few times. And according to Kiplinger and other sources, it is one of the better plans out there, especially if you are a resident since we get to deduct some of the contributions from our income for our state taxes. So if and when we gather up enough money to make some 529 contributions, that’s where the money will probably be headed. Knowing me and how I like to control my investments, I probably will not put the money in an age-based investment, or at least not all of it. But for now I am holding tight. How about you? Do any of you invest in a 529 plan for your child? Are you happy with it?
Friday, February 12, 2010
Research The Various 529 Plans - Part 1
Tip #231 - Research The Various 529 Plans - Part 1. If you are desiring to save up money for your children’s education, make sure you do your research. While a 529 plan seems to be the answer for many when investing in their kids’ college funds, it is not the perfect answer for everyone. And even when it is, there are still decisions to make about which plan to join.
First things first. If you are hoping to retire, then saving for retirement should be your primary goal before saving for college. In other words, don’t miss opportunities to save in your 401(k) and your IRA in order to sock away money for your child’s college fund. Being secure in your retirement is more important. Or, as they say in the financial world, you can get loans, financial aid, and scholarships for college. You cannot get them for retirement. Once you are confident that you are maximizing your retirement and are ready to put away money for college, look at all of your options.
--You can just open an account in your child’s name. Children are generally allowed to earn up to $600 in income before having to pay taxes on it. This would work well when your child is young, but as he gets older and starts getting jobs then taxes he will have to pay. Another con to this approach is that if the money is in your child’s name, then he can withdraw his money (when he is of age) and spend it however he sees fit, not just for college or other education. There are better ways to invest for college.
--As a starting point, many people choose a Coverdell Education Savings Account (some people call it an Education IRA). Each year you can put up to $2,000 away for your child towards higher education. (The limit could drop to $500 in 2010 if the law does not extend). The beauty about the Coverdell is that you control where you want to invest. It’s not in some far-away plan being managed by a 529 Plan manager you have never met before. The money can be in your home bank in a CD or it can be in a mutual fund at Vanguard or Fidelity. You decide how conservative or risky you want to be with the money. Of course with a limit of $2,000 per year, the con to this plan is that you won’t save nearly enough money for college this way. But it can be a great starting point.
--The primary option, and the focus of our discussion is the 529 plan. This seems to be the plan most people head straight to when saving for college. There are many pros to the 529. The amount you invest each year is limitless. Most states offer a plan, and there are investing options set up specifically for children your age. Also, your state may offer some tax breaks on money invested in your home state’s plan. However, for new investors, the risks that these plans take may be too much for them to handle. And the fees that some state plans charge may be high. In my next post, we will discuss choosing the best 529 Plan for you.
In Real Life (IRL) – At this point in our lives, my husband and I have been concentrating on our retirement savings, rather than our children’s college savings. We have maximized my husband’s 401(k) at his place of employment. And each year we put the maximum $5,000 into a Roth IRA for each of us. Beyond that, we don’t have a whole lot left over to save for college. For now we are just saving $2,000 per year per child in an Education Savings Account. I’ll admit that I like controlling where the money is invested. And because I am generally more conservative than many investors, I have some of their money in CDs in our local credit union. Many financial advisors would balk at that! But I am happy with the 4-5% their money is earning there. And I have balanced out these “low” returns with some of their money being invested in Vanguard mutual funds.
Because I like controlling how their money is invested, putting the first $2,000 in a Coverdell rather than going straight to a 529 Plan made sense for us during this time in our lives. Once we have more money available (or should I say “if” we have more money available someday), then I wouldn’t hesitate to put the rest in a 529 Plan. At that point, I will need to evaluate which state’s 529 Plan is the best one for us. Therre are lots of things to consider to that end. And we will discuss evaluating the various states’ 529 Plans in my next post. For other money-saving ideas check out Frugal Friday.
First things first. If you are hoping to retire, then saving for retirement should be your primary goal before saving for college. In other words, don’t miss opportunities to save in your 401(k) and your IRA in order to sock away money for your child’s college fund. Being secure in your retirement is more important. Or, as they say in the financial world, you can get loans, financial aid, and scholarships for college. You cannot get them for retirement. Once you are confident that you are maximizing your retirement and are ready to put away money for college, look at all of your options.
--You can just open an account in your child’s name. Children are generally allowed to earn up to $600 in income before having to pay taxes on it. This would work well when your child is young, but as he gets older and starts getting jobs then taxes he will have to pay. Another con to this approach is that if the money is in your child’s name, then he can withdraw his money (when he is of age) and spend it however he sees fit, not just for college or other education. There are better ways to invest for college.
--As a starting point, many people choose a Coverdell Education Savings Account (some people call it an Education IRA). Each year you can put up to $2,000 away for your child towards higher education. (The limit could drop to $500 in 2010 if the law does not extend). The beauty about the Coverdell is that you control where you want to invest. It’s not in some far-away plan being managed by a 529 Plan manager you have never met before. The money can be in your home bank in a CD or it can be in a mutual fund at Vanguard or Fidelity. You decide how conservative or risky you want to be with the money. Of course with a limit of $2,000 per year, the con to this plan is that you won’t save nearly enough money for college this way. But it can be a great starting point.
--The primary option, and the focus of our discussion is the 529 plan. This seems to be the plan most people head straight to when saving for college. There are many pros to the 529. The amount you invest each year is limitless. Most states offer a plan, and there are investing options set up specifically for children your age. Also, your state may offer some tax breaks on money invested in your home state’s plan. However, for new investors, the risks that these plans take may be too much for them to handle. And the fees that some state plans charge may be high. In my next post, we will discuss choosing the best 529 Plan for you.
In Real Life (IRL) – At this point in our lives, my husband and I have been concentrating on our retirement savings, rather than our children’s college savings. We have maximized my husband’s 401(k) at his place of employment. And each year we put the maximum $5,000 into a Roth IRA for each of us. Beyond that, we don’t have a whole lot left over to save for college. For now we are just saving $2,000 per year per child in an Education Savings Account. I’ll admit that I like controlling where the money is invested. And because I am generally more conservative than many investors, I have some of their money in CDs in our local credit union. Many financial advisors would balk at that! But I am happy with the 4-5% their money is earning there. And I have balanced out these “low” returns with some of their money being invested in Vanguard mutual funds.
Because I like controlling how their money is invested, putting the first $2,000 in a Coverdell rather than going straight to a 529 Plan made sense for us during this time in our lives. Once we have more money available (or should I say “if” we have more money available someday), then I wouldn’t hesitate to put the rest in a 529 Plan. At that point, I will need to evaluate which state’s 529 Plan is the best one for us. Therre are lots of things to consider to that end. And we will discuss evaluating the various states’ 529 Plans in my next post. For other money-saving ideas check out Frugal Friday.
Tuesday, February 9, 2010
Spend Money On Things You Care About
Tip #230 - Spend Money On Things You Care About. And go cheap on things you don’t care about. On any given day there are plenty of non-necessities we can easily spend money on – convenience food, restaurants, movies, classes, manicures, purses, coffee, books, etc. The list goes on. It is very easy to just spend money for something to do, something to eat, or something to entertain ourselves. But if you are trying to save money, you should be especially careful about wasting money on things you don’t care much about.
If you are a mom with a small child, it is easy to get sucked into paying money for shows, classes, and entertainment just because you think your child would be bored otherwise. A Sesame Street Live show can be over $100 for a small family. A gym class at Gymboree is hundreds of dollars. A visit to a local restaurant can run $25 for mom and two children. Are these things you really want to be spending your money on? Or are there more important things to save your money for? Why not skip on some of these things if they really aren’t that important to you or find cheaper options? A class at the local rec. center is cheaper than Gymboree. A high school theatre production can be just as enjoyable as a professional show. A meal you cook yourself or local take-out place might be a cheaper (and better!) choice than a sit-down restaurant. Then you can save your money for the things you and your children really care about – perhaps a big day at your child’s favorite amusement park or a weekendwater park.
What if you are a working person who goes to the office each day? It’s easy to go to the local restaurant and drop $10 to $15 dollars for lunch or spend $5 each day in the company cafeteria. How about hanging out with the gang at Happy Hour and dropping $20 just because it’s something to do. Is this really what you want to spend your money on? Or would you rather save money on frivolous meals and bring lunch from home so you can save money for something you really want. Perhaps you really appreciate a fine, fancy restaurant, and there’s one in town that you’ve been wanting to try for a date night with your husband? Or perhaps there’s someone you would love to see in concert? Why not spend your money on those things that you really enjoy instead and not waste it on activities that don’t mean that much to you?
When saving money, there is no reason you need to deprive yourself or your family of things that you really love. But you should save your money and put it toward those things and not waste your hard-earned dollars on things you don’t care that much about.
In Real Life (IRL) – In our budget, we have a certain amount of discretionary income in our budget to spend on anything we want to do. I hate wasting my money on things that I don’t really care about. That’s why when my friends do a Mom’s Night Out, I often don’t go. I don’t enjoy spending $25 on a meal that I don’t really care for, even if I enjoy the company. And while I think my four-year old would enjoy gymnastics at a “real gymnastics place, I think she has just as much fun at gymnastics at our local community center for one-quarter of the price. When activities come up like seeing Nick Junior on stage, I think it would be nice to take my toddler there. But, for $35 to $50 per ticket, I’m not sure he’d really get that much out of it.
My oldest daughter, on the other hand, LOVES American Girl dolls. We have ready many of the stories together and discussed the time period when many of these stories are set. She enjoys playing with the dolls, making food for them out of clay, and dressing and creating stories for them. I enjoy the dolls and stories as much as she does. So recently when an opportunity came up to meet one of the American Girl authors and have a tea with her, we jumped at the chance. Even though tickets were $25 each, which is more than I usually like to spend for a two-hour activity, I was happy to hand over the money for an event that I know both of us will appreciate. And the best part was I had the money available because I didn’t waste it on things I don’t care much about.
If you are a mom with a small child, it is easy to get sucked into paying money for shows, classes, and entertainment just because you think your child would be bored otherwise. A Sesame Street Live show can be over $100 for a small family. A gym class at Gymboree is hundreds of dollars. A visit to a local restaurant can run $25 for mom and two children. Are these things you really want to be spending your money on? Or are there more important things to save your money for? Why not skip on some of these things if they really aren’t that important to you or find cheaper options? A class at the local rec. center is cheaper than Gymboree. A high school theatre production can be just as enjoyable as a professional show. A meal you cook yourself or local take-out place might be a cheaper (and better!) choice than a sit-down restaurant. Then you can save your money for the things you and your children really care about – perhaps a big day at your child’s favorite amusement park or a weekendwater park.
What if you are a working person who goes to the office each day? It’s easy to go to the local restaurant and drop $10 to $15 dollars for lunch or spend $5 each day in the company cafeteria. How about hanging out with the gang at Happy Hour and dropping $20 just because it’s something to do. Is this really what you want to spend your money on? Or would you rather save money on frivolous meals and bring lunch from home so you can save money for something you really want. Perhaps you really appreciate a fine, fancy restaurant, and there’s one in town that you’ve been wanting to try for a date night with your husband? Or perhaps there’s someone you would love to see in concert? Why not spend your money on those things that you really enjoy instead and not waste it on activities that don’t mean that much to you?
When saving money, there is no reason you need to deprive yourself or your family of things that you really love. But you should save your money and put it toward those things and not waste your hard-earned dollars on things you don’t care that much about.
In Real Life (IRL) – In our budget, we have a certain amount of discretionary income in our budget to spend on anything we want to do. I hate wasting my money on things that I don’t really care about. That’s why when my friends do a Mom’s Night Out, I often don’t go. I don’t enjoy spending $25 on a meal that I don’t really care for, even if I enjoy the company. And while I think my four-year old would enjoy gymnastics at a “real gymnastics place, I think she has just as much fun at gymnastics at our local community center for one-quarter of the price. When activities come up like seeing Nick Junior on stage, I think it would be nice to take my toddler there. But, for $35 to $50 per ticket, I’m not sure he’d really get that much out of it.
My oldest daughter, on the other hand, LOVES American Girl dolls. We have ready many of the stories together and discussed the time period when many of these stories are set. She enjoys playing with the dolls, making food for them out of clay, and dressing and creating stories for them. I enjoy the dolls and stories as much as she does. So recently when an opportunity came up to meet one of the American Girl authors and have a tea with her, we jumped at the chance. Even though tickets were $25 each, which is more than I usually like to spend for a two-hour activity, I was happy to hand over the money for an event that I know both of us will appreciate. And the best part was I had the money available because I didn’t waste it on things I don’t care much about.
Saturday, February 6, 2010
Save Early
Tip #229 - Save Early. The earlier you save the more you will have just because of the power of time or the “time value of money” as it is often called in financial circles. When you put money away today, it accumulates interest, and the interest accumulates interest, and that interest accumulates interest, so the power that your money has today is quite great. Alternatively, if you wait to save money, it has little power because there is not time for the interest to grow on your money.
Let’s look at some examples to highlight this concept better. Suppose you just had a baby and want to pay for his college costs when he turns 18. It’s very easy to say, “Gee, that’s a long ways away. I have time to save for that. Why start now?” I’ll show you why. Let’s say you put $100 away in a savings account each month from when your child is born until he turns 18. Assume you can get an interest rate of 5 percent. Guess how much money you’d have toward your child’s tuition when he turns 18? Almost $35,000! For just putting away $100 per month.
Now suppose you don’t get serious about your child’s tuition until he’s enters high school at age 14. This is probably when most people start thinking about how they are going to pay for college because they suddenly realize they haven’t saved a dime because it was so “far off.” How much do you need to put away monthly when your child is 14 to save $35,000 by the time your child turns 18? Over $600 per month! Coming up with $600 per month, even for a short period of time, is going to be pretty difficult. Compare that with $100 per month that can probably be saved by cutting back on small things at most any time in your life.
If you can get higher interest rates, the more magnified the advantages are for putting away money early. Remember, interest rates on savings accounts haven’t always been as low as they are today, and they won’t continue to be 1% forever. Using the same example above, if your money could get 10% interest, you would have $60,000 after 18 years of saving $100 per month, while waiting until your child is 14 would require you to put away over $1,000 per month to get that same $60,000!
Also, the longer the timeline, the more magnified the benefit of early savings is. For example, if you are saving for retirement, and start putting away $100 per month at age 20 and earn 5% interest on the money, you would have over $200,000 by the time you are 65 years old. If you wait until you are 50 to start saving for retirement, you would need to put away $750 per month to get to that same $200,000.
The problem some people have when they are young is that they think they will be making more money in the future or that it will be easier in the future to save money so they don’t bother saving. But in reality, there are always big expenses – when you’re young there are your own education expenses. Then as you get older there are rent expenses, then new home expenses and baby expenses. Then as kids grow up there are expenses for braces, activities, and schooling. As they get even older, there are your own medical expenses. There is no one time in our lives when we won’t be without expenses, so the best way to say money is to just start putting money away, as early as possible, no matter how small the amount is. It’s much easier than to all of a sudden having to put away large amounts because you didn’t start saving earlier. An added benefit is that once you get in the habit of putting money away on a monthly basis, it becomes second nature – just like paying your cell phone bill. So why not start putting away money today? It will help you a lot down the road!
In Real Life (IRL) – My husband and I have not done anything extraordinary to have accumulated a few hundred thousand dollars in our retirement accounts. And I did absolutely nothing special to have saved up $70,000 to put down on my first home ten years ago. I didn’t strike it rich on the lottery, invent the next Post-it Note, or inherit a huge sum from a long-lost uncle. I simple started putting a couple hundred dollars away per month when I started my first job at age 21. I then expanded it to put away a few hundred dollars per month into my retirement account, as well. As I got raises, I gradually increased my regular monthly savings to be $500 per month. It became just one of my “expenses” that I paid each month. I mailed off the rent check to my landlord at the same time I mailed off my savings check to my mutual fund.
Then 10 years later, I found I had $70,000 for a down payment on a house. It was as simple of that. By not waiting until a few years before I needed the money to start saving, I was able to take advantage of the time value of money (and of course the fabulous stock gains that I was getting in the early 1990s!) I didn’t wake up one day when I was 40 and say, “I need to start saving for retirement.” I just did it back when I was in my 20’s when I thought I didn’t need to. That simple act alone is the primary reason that we are financially comfortable today.
If you didn’t start putting money away when you were young, then get into the habit today. You can’t get your earlier years back, but you get on the right track by starting to put money away today – whether it be toward a new home, your retirement, or your child’s college fund. No matter how small that amount may be, it’s a good start to getting you in the habit of saving each month. And as you see it grow, you will find ways to increase your monthly contribution. As the saying goes, “no better time than the present.” It’s the earliest and best time you can start saving.
***I used the calculators at Bankrate to come up with my savings calculations.
Let’s look at some examples to highlight this concept better. Suppose you just had a baby and want to pay for his college costs when he turns 18. It’s very easy to say, “Gee, that’s a long ways away. I have time to save for that. Why start now?” I’ll show you why. Let’s say you put $100 away in a savings account each month from when your child is born until he turns 18. Assume you can get an interest rate of 5 percent. Guess how much money you’d have toward your child’s tuition when he turns 18? Almost $35,000! For just putting away $100 per month.
Now suppose you don’t get serious about your child’s tuition until he’s enters high school at age 14. This is probably when most people start thinking about how they are going to pay for college because they suddenly realize they haven’t saved a dime because it was so “far off.” How much do you need to put away monthly when your child is 14 to save $35,000 by the time your child turns 18? Over $600 per month! Coming up with $600 per month, even for a short period of time, is going to be pretty difficult. Compare that with $100 per month that can probably be saved by cutting back on small things at most any time in your life.
If you can get higher interest rates, the more magnified the advantages are for putting away money early. Remember, interest rates on savings accounts haven’t always been as low as they are today, and they won’t continue to be 1% forever. Using the same example above, if your money could get 10% interest, you would have $60,000 after 18 years of saving $100 per month, while waiting until your child is 14 would require you to put away over $1,000 per month to get that same $60,000!
Also, the longer the timeline, the more magnified the benefit of early savings is. For example, if you are saving for retirement, and start putting away $100 per month at age 20 and earn 5% interest on the money, you would have over $200,000 by the time you are 65 years old. If you wait until you are 50 to start saving for retirement, you would need to put away $750 per month to get to that same $200,000.
The problem some people have when they are young is that they think they will be making more money in the future or that it will be easier in the future to save money so they don’t bother saving. But in reality, there are always big expenses – when you’re young there are your own education expenses. Then as you get older there are rent expenses, then new home expenses and baby expenses. Then as kids grow up there are expenses for braces, activities, and schooling. As they get even older, there are your own medical expenses. There is no one time in our lives when we won’t be without expenses, so the best way to say money is to just start putting money away, as early as possible, no matter how small the amount is. It’s much easier than to all of a sudden having to put away large amounts because you didn’t start saving earlier. An added benefit is that once you get in the habit of putting money away on a monthly basis, it becomes second nature – just like paying your cell phone bill. So why not start putting away money today? It will help you a lot down the road!
In Real Life (IRL) – My husband and I have not done anything extraordinary to have accumulated a few hundred thousand dollars in our retirement accounts. And I did absolutely nothing special to have saved up $70,000 to put down on my first home ten years ago. I didn’t strike it rich on the lottery, invent the next Post-it Note, or inherit a huge sum from a long-lost uncle. I simple started putting a couple hundred dollars away per month when I started my first job at age 21. I then expanded it to put away a few hundred dollars per month into my retirement account, as well. As I got raises, I gradually increased my regular monthly savings to be $500 per month. It became just one of my “expenses” that I paid each month. I mailed off the rent check to my landlord at the same time I mailed off my savings check to my mutual fund.
Then 10 years later, I found I had $70,000 for a down payment on a house. It was as simple of that. By not waiting until a few years before I needed the money to start saving, I was able to take advantage of the time value of money (and of course the fabulous stock gains that I was getting in the early 1990s!) I didn’t wake up one day when I was 40 and say, “I need to start saving for retirement.” I just did it back when I was in my 20’s when I thought I didn’t need to. That simple act alone is the primary reason that we are financially comfortable today.
If you didn’t start putting money away when you were young, then get into the habit today. You can’t get your earlier years back, but you get on the right track by starting to put money away today – whether it be toward a new home, your retirement, or your child’s college fund. No matter how small that amount may be, it’s a good start to getting you in the habit of saving each month. And as you see it grow, you will find ways to increase your monthly contribution. As the saying goes, “no better time than the present.” It’s the earliest and best time you can start saving.
***I used the calculators at Bankrate to come up with my savings calculations.
Monday, February 1, 2010
Do Financial Forecasting
Tip #228 - Do Financial Forecasting. Sometimes it’s mentally difficult to put money away in a savings account month after month. After all spending that same money at the store for a trendy purse, a pair of jeans, or a new garden tool has much more instant gratification. Putting the money into a savings account just isn’t as exciting. So why not make it more exciting? If you are savvy with a spreadsheet program like Excel then put in some formulas that calculate how much money you will have after 12 months of savings, after 5 years of savings, or after 20 years of savings. Then to make it even more fun, put in the interest rate that you expect to earn on this money to see how much it will grow. Putting everything down in black and white and seeing how much money you will have if you stick to your plan makes if much more fun to save money. If you don’t know how to use a program like Excel, then set up a table with paper and pencil.
Either way you do it, you can make it as simple or as complicated as you like or are able. You can put the months down the left column and the years across the top. Enter the amount you put away each month. And total the columns on the bottom. Or you can make it more sophisticated and do it by a yearly basis with the years down the left column and expected additions and projected interest rates across the top.
The key to this exercise is to make it more exciting to save your money. Putting $200 per month toward clothes and accessories will be a fun thrill each time you get your new product. But at the end of the year, you will just have a closet full of nice clothes. At the end of 3 years, you might have a closet full of out-of-date clothes. And at the end of 5 years, you might have a closet full of no-longer-fit clothes. Instead putting $200 into a savings account each month will leave you with $2400 in your savings account after 1 year, $7,200 after 3 years and $12,000 after 5 years. After 20 years you would have $48,000! And that’s without interest! And in a measly 1% or 2% interest that banks are paying these days, and you are looking at more than $12,500 after 5 years, and over $58,000 after 20 years. Suddenly, putting $200 away each month looks more attractive.
With Excel, you can also come up with different “what if?” scenarios. What if I put $300 away each month instead of $200? What if I put my money in a CD for 5 years at 3% or for 7 years at 4%? What if I can only afford $50 per month?
If you find it hard to put money away each money because you enjoy spending it more, then do this exercise, which shouldn’t take more than an hour or two to put together. And then start plugging in the numbers. Suddenly saving money becomes lots of fun!
In Real Life (IRL) - When I was in my 20s and had just started putting money away on a monthly basis, I set up a spreadsheet that calculated how much I would have in my savings account if I continued to put $250 away per month for 5 years, 10 years, 20 years, and until I was 60. As the years went by I adjusted my figures to more accurately reflect what I was actually putting away and the interest rates I was realistically expecting. Back then, I was counting on 10% per year! That was certainly wishful thinking on my part, but at the time, that’s the interest rate I was earning, if not more. The original spreadsheet I did is lost on a 3 ½ inch floppy somewhere, but I did find another spreadsheet I made about 1998. It is above (click to read it) and includes:
--The amount of savings I had at the beginning of the year.
--The amount of interest I expected to earn on the beginning year amount (I adjusted it to 5% in this example to be more realistic),
--The projected amount of additions which included my regular savings ($500 per month) plus the amount we expected to save in our IRA accounts.
--To the far right is the actual savings and additions I made so I could adjust the beginning year amount to the correct figure as the years went on.
--I also had a column that calculated our 401k contributions based on our expected salary, but I took that out for save of simplicity.
Looking back at it, many of my predictions were all wrong. My husband’s salary grew much faster than I predicted, and I stopped working altogether. The IRA contribution limit increased per year per person, and the interest rates obviously are much lower than in the late 90’s. But all in all, it was a fun exercise that kept me motivated to save. I clearly didn’t keep up with my projections as life got busy with children, but it was fun and motivating when I did it.
On a technical note, how do we share Excel spreadsheets without taking a picture of them? I am clearly limited in the technology aspect of blogging! Thanks for any help anyone can give me.
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