Posts Tagged ‘money’

Financial Freedom = Financial Sucess?

Monday, October 11th, 2010

Most people think that financial success is a very visual thing with a high paying job, house in an expensive area, driving expensive cars and spending lavishly on vacations, parties and anything and everything else. But really, does SPENDING money like that mean financial sucess?

Most often not. We have seen this over the last few years. Those people who were on the “top” of the neighborhood silently disappear after the economic downturn and they somehow were not able to hold on to some of their assets. Some lost their homes in foreclosure and short sales and some had to move to lesser digs so that they could then unload their heavy chains of debt loading them down. These folks didn’t do what almost all financial advice says to do as one of the first or second steps. Build up several months of emergency funds to pay for all expenses in case the money stops coming in. Well when times are tough you must have savings to lean on.

Also with real estate I found it very troubling that all the real estate seminars promising that if you follow their directions (and buy into their courses, programs or plans) then you can’t help but get rich. But real estate must be treated differently than any other more liquid investment. If you can’t find a renter and the market values tumble then you have to have that holding emergency source of cash to stay with the long term plan for the long term. It’s also no time to then listen to those gurus telling you that you should have listened to them and gotten out. I believe real estate is a long term investment. I never really bought into the short term get rich real estate methods. That was just too risky because you have to have the staying power if you can’t get out when you wanted to. So since you have to plan for the long term why not work the plan into your nest building?! So take this lesson deeply into heart – real estate is a major investment and you must have a lot of emergency money set aside just for each property.

I love the book the Millionaire Next Door.

In this book you find out and based on research that the average millionaire is someone you don’t think is a millionaire. They don’t waste money on those visual things that most people associate with being wealthy. They buy used cars and drive them ten years, they don’t waste money on super fancy clothing with star studded name brands, and they make it their first priority to pay them selves first! This means that for every dollar they earn they put aside a percentage (at least 10%) into their investments. They learn to live on much less than they earn and this is the real difference. The more you save and invest the faster you will get to financial freedom.

As for Financial Freedom, what does that mean to you? To me it means that you have been investing and have passive income coming in that is equal to or more than your expenses. See this as math problem PassiveIncome minus Expense equals Success
So when Passive income equals Expenses you no longer have to work although you probably still want to do the work that you love. But you get to choose. The second term expenses you want to keep at a minimum, expecially fixed expenses since those can’t be changed as easily. In the Millionaire book you find that Millionaires are somewhat “cheap” (an outdated term if there ever was one) meaning they don’t want to part with even a dollar unless it makes sense. Looking at the math term above if you can keep expenses low then the passive income needed for your financial freedom is that much lower and more easily attainable! Isn’t that reason for doing that?

Bottom line, our country needs to change their perception of financial success, learn about passive income and make saving and investing in our future the number ONE priority!

What do you think? Do you agree or disagree? Please comment and share. Thank you.

Extra Money? What’s better – save more for retirement or pay off your mortgage?

Wednesday, March 18th, 2009

Is your Mortgage longer than your Career?

So you think you are doing fine, you have extra money each month, you are saving pre-tax 401K money for retirement and you are making your mortgage payments and every once in a while putting more into the principle.  The question comes up – what to do with the extra money,  should you put more into your mortgage or should you put more away for retirement.  I would say that most people think they should be putting more into savings but oftentimes that is incorrect.  The fear is more real because remember no one is going to give you a loan for your retirement and with what we keep hearing about social security going bankrupt at some point in the future the fear that we will have to live with the kids and eat top ramen each day surfaces.

One of my clients had that same question and we ran an E-Trades Retirement Quickplanner and came up with this interesting scenario.  Carol (name changed) earned about 90K in salary, has about $220K in retirement and savings.  She has 26 years left on her mortgage but is 13 years away from retiring.  She has about $500 each month to decide what to do with.  She is already putting about $500 a month into her 401K.

In this first picture if she spends the $500 and doesn’t save any of it then she will have a shortage of retirement funds in the amount of $193K



Scary, I know.  Let’s say she decides to plow $500 more dollars into her retirement accounts each month.  What will that do to that shortage?  Well the shortage drops to $99K.  Better but not good enough.


Okay, let’s back up a bit and put that extra $500 into paying the mortgage off.  With United First Financial’s MMA system that 25.6 year mortgage will be paid off in less than 13 years so Carol will go into retirement without her $1500 mortgage payment (expenses lowered to $3250).  Look at that!!  Carol no longer has a shortage but now she has a surplus of $110K

 This was so clear for Carol’s situation (I’m not saying this is what everyone should do).  Using the UFirst MMA her mortgage will be paid off before she enters retirement and so her largest expense will be eliminated and her retirement savings will be able to stretch and cover that much more.  Carol is a firm believer now that she is on the MMA.








The Credit Card Stupor

Monday, March 2nd, 2009

Why do folks use their credit card and then not pay the bill off when the statement comes in?  They look at that minimum payment and maybe make a bit more than that amount.  Then when they finally hit the wall and cut up the credit card because they are so in debt they start using debit cards.  These are the cards that immediately remove the money from your checking account.  Most folks don’t know what’s wrong with this.  Why do folks think that is the only way out of their predicament?

Debit cards seem to work for some people.  I think that’s because they get immediate feedback on what they have.  I think we need to change the way credit cards work.

1.  We can no longer allow credit card companies to list a minimum payment amount unless they also state how long it will take to pay off the existing debt at that payment amount.  That should help people know that if they make such a low payment they are going negative and they will be paying for a very long time.

2.  There should be an easy way for consumers to find out the negative balance on their credit cards.  A text to the company should give them the amount owed for the last cycle and the current balance charged.  Then customers will know what they have already charged.  Come on, the Credit Card companies already know what the balance is as soon as that charge card box calls for the approval.  Then consumers would know their balance owed but will have the ability to keep their money in their accounts until the balance is due.  That is good money management.  Debit cards do not carry the charge card protections and so are more dangerous for illegal activity.

Credit cards when used properly are a smart use of credit and are valuable in emergency situations.  Read more about the 4 steps to Financial Freedom.