Money Strategies for the Fiscally Confused

Simple Strategies You Can Use to Jack Up Your Net Worth

Tuesday, February 28, 2006

You Need to Start Today!

In my last post about paying yourself first, I mentioned that a key to success is to begin now. Now means today; not tomorrow or next month. It sounds easier than it is because we can always come up with numerous excuses to procrastinate.

My wife and I are pretty good about contributing as much as possible to her 401K and my SEP IRA. She maxes hers out, and I contribute about $10,000 per year. But I know that these retirement accounts will not be enough to retire on. So, I pay myself first every month in order to build up savings in taxable accounts. Just yesterday, I had to work hard to put the "start today" adage into effect.

I run my own business, so my cash flow is different from month to month. February was okay, but it wasn't a windfall. My pay myself first plan is to deposit $230 each month split among two DRIPs (which is withdrawn from one of our bank accounts automatically), deposit $250 into a fee-based, managed investment account, deposit $200 into our "vacation" account (so we don't have to put our vacations on credit cards), and deposit $200 into our "house renovation" account. My wife wasn't sure if we could afford making each of these payments in February. It got a little dicey there for a minute, but I reminded her of the plan and how it will pay off in the long-run, and she made the deposits.

Slowly but surely, these accounts are building. But if we neglect our plan even once, it can get us off track and make it harder the next month to work the plan. I've been a believer in this type of system for years, but even true believers can let doubt creep in if one is not vigilant. So start now, and stick with it!

Sunday, February 26, 2006

Pay Yourself First

The easiest way to keep what you make is to pay yourself first. Paying yourself first means that every month before you pay the rent, the car loan, the credit card bill, or the Banana Republic charge card, deposit a set amount of money into a savings account that you absolutely won't touch.

Again, I suggest looking at your personal finances as your own business. Saving (that set amount of money you pay yourself each month) should be viewed just like all of your other bills. The only difference is that it should always be the first one you pay.

If you are a historically bad saver, don't resolve to pay yourself more than is reasonable. Otherwise, you won't stick to the program. Try paying yourself $50/month until it becomes a habit. Then, evaluate your progress and bump up the amount to $100 or $150. Doesn't sound like much? Don't think it would ever make you wealthy? Well, $150 saved per month, returning 10% per year for 25 years (including 25% federal taxes and 4.5% state taxes) equals a windfall of $149,084. Not too bad for some pain-free, disciplined savings...

So the keys to paying yourself first are to: a) start now, b) save a reasonable amount; don't do more than you can handle, and c) be consistent.

What are you waiting for?

It's How Much You Keep, Not What You Make

I am fond of platitudes. They are obvious, sometimes trivial statements that lack originality. But usually, they make sense. I'm fairly sure this blog will be rife with platitudes about money, as some simple, easy-to-remember rules about money can come in handy. Money doesn't have to be complicated, nor should you fear it.

Thus, my first money platitude for you to think about is, "It's how much you keep, not what you make." Before you stop laughing and then stop reading, consider for a second one of the first questions you ask yourself when you're comparing your money situation to someone else. Does "I wonder how much he/she makes?" ring a bell? Of course! We all go right after the top line and cling to it like it's the most important thing in the world. Guess what? It's not. The bottom line is all that matters.

The bottom line is how much you keep. Think of it as your personal profit. You are a business, and what you have left over is your profit, your bottom line. What are you going to do to increase this number? Cut costs? Increase your income? Invest smarter?

This blog sets out to help you do a whole lot of all three of these things. 1) Cut costs (or save), 2) Boost your income, and 3) Make your money work for you. Keep an eye on upcoming posts, as I have strategies galore for making you wealthier than you ever thought possible by keeping more of what you make.