Think Your Way to Wealth

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Even though many people use credit and debit cards for their day to day expenditures, cash is still king. Cash flow, that is. If your incoming cash flow does not exceed your outgoing cash flow, you are setting yourself up for trouble. There are several basic ways to generate a larger cash flow. You can work more at your regular job, work a 2nd job either full or part-time, or create passive income streams. You can also increase your current cash flow by decreasing expenditures. If you are looking for ways to pay off debt or invest more, available cash flow is the key. To maximize your usable cash flow, both increasing your income and cutting back on expenses will be the most effective . Here are several basic ways to increase your cash flow by increasing your income or decreasing your regular expenses.

Increasing Income

• Work overtime at your current job, if it is available.
• Moonlight- Look for work outside of your primary job, doing the same type of work you do in your primary job, that you can do on the side. Find out what your employer’s policy on moonlighting is, however, as some companies discourage it or even have policies prohibiting it, especially if it is work with a competitor.
• Get a part-time job- While you may not make as much per hour as moonlighting, it can be a great way to boost your income, even temporarily.
• Start a side business- Starting a side business is a great way to earn extra income. Do you have a hobby or skill you can use to make extra money? Do you want to start an eBay business? Try it out now.
• Sell things you already own- On eBay, Craigslist, or have a garage sale. You will declutter your house and your life, and make some money in the process as well. This will provide a temporary increase in your cash flow, depending on how much stuff you have that you can sell. If you can turn selling things into a steady eBay business, however, you have an additional income stream.
• Maximum the interest on your savings and investments- There is no reason you should be losing out on interest in your savings, so make sure you are using a high-interest savings account for you savings. Consider investing in dividend paying stocks, if you invest in stocks as well.

Decreasing Expenditures

• Examine your regular expenses and trim them- starting with recurring, non-essentials. Consider cutting back on your cable plan, canceling your gym membership, etc. Several small changes can start adding up to a significant boost in your available cash each month.
• Consider raising your deductibles, for car or home owner’s insurance, provided you have a well-funded emergency fund to cover your new, higher deductibles.
• Shop Smarter- Use coupons, look for deals on the internet, especially for large purchases, and think carefully about how you spend your money.
• Change your eating habits by cutting back on your food and grocery bills.
• Drive Less- Carpool to work, take public transportation, or walk anywhere you are able.
• Don’t take on new, recurring expenses. You decrease your available cash every time you add a new, regular payment to your financial obligations.

What are some other ways you can think of for someone to increase their cash flow?

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Filed under: Building Wealth, Saving Money by RC - No Comments →

The Roth IRA gets talked about quite frequently these days, as a great tool for reaching your retirement goals and building wealth. While many people are well-versed and may be experts on the Roth, for those of us just beginning our saving and investing journey, I thought it would be a good idea to touch on the basics and a few details of the Roth IRA.

What is a Roth IRA and how does it work ?

A Roth IRA (individual retirement account) is a retirement savings account which allows a person to save money for retirement which can be withdrawn tax -free during retirement, after reaching a minimum age of 59 1/2. Investments are normally made in stocks, mutual funds, index funds, or bonds, although other vehicles can be used as well. Investments are made with after-tax contributions, and as stated above all of the principal and interest can be withdrawn tax-free upon reaching an age of 59 1/2.

Roth IRA vs. Traditional IRA

In a Roth IRA, contributions are made with after-tax money, while traditional IRA contributions are tax deductible. Contributions to a traditional IRA are made with pre-tax money, but the withdrawals during retirement are taxed (both principle and interest) at you ordinary income tax rate at that time. Therefore, a Roth IRA can benefit someone who anticipates being in a higher tax bracket at retirement age. However, because contributions are made after tax, a tax-deferred option such as the traditional IRA can allow someone with a lower income the opportunity to put money away with a lower decrease in their take home income. There are no rule on the age of required minimum distributions of a Roth IRA, which is currently 70 1/2 for a traditional IRA and a 401k. (This means in a traditional IRA or a 401k, you are required to start taking out money when you reach age 70 1/2.) There are certain situations when money earned (in the form of interest) can be withdrawn as well, while the traditional IRA is far more restrictive on withdrawals. As long as the Roth has been open five years, earnings can be withdrawn if the participant becomes disabled. Contributions can be withdrawn from a Roth IRA at any time, since they have already been taxed. In some cases, up to $10,000 in earnings can also be withdrawn to acquire a principal residence.

Roth IRA Income Eligibility Rules

Income Limits for 2008

Single - Up to $101,000 (modified adjusted gross income)

Married filing jointly- Up to $159,000 for full contribution, partial between $159k and $169k

Roth IRA Contribution Limits-2008

For 2008, the maximum contribution to a Roth IRA is $5000 for those age 49 and below, and $6000 for those 50 and above. This limit is slated to increase $500 per year starting in 2009 to account for the effects of inflation. The $5000(or $6000) limit applies to all IRA contributions, so that is the max. that can be contributed to either a traditional IRA or a Roth IRA.

Roth IRA Conversion

If you have saved money in a traditional IRA, and wish to now pay tax on that money and convert it to a Roth IRA, you are able to do so if you meet the income limitation. A conversion is good for someone who has an existing traditional IRA, and has the money available to pay taxes on it now in order to eliminate future tax liability. This is especially attractive if the person anticipates being in a higher tax bracket in the future. However, only taxpayers with a modified AGI of $100,000 or less are currently eligible to convert a traditional IRA to a Roth IRA. This limitation is slated to be removed starting in 2010, so already many people are planning to do a conversion then. The tax liability will be able to be spread over 2 years (2011 and 2012), as well, which is an added bonus for many.

Filed under: Building Wealth, Retirement by RC - 1 Comment →

Some goals are easy to define. Others are not so easy. After a bit of thought and number crunching, you can probably decide when you want to retire, and how much money you will need to live comfortably. Saving that much money might be harder, but once you decide how much money you will need, you now have a goal-a long term goal. But defining and saving for short or medium term goals, which I consider 0 to 5 years (short term) and especially 5 to 10 years (medium term) can be more difficult. Retirement saving has special savings vehicles you can use, such as a 401k or a Roth IRA. How do you save for short and intermediate length personal finance goals, and where do you invest the money? Some people give young(er) people the advice that they should only invest in the stock market, and CD’s or bonds should be avoided. But this is generally for retirement investing. What about saving for goals with a shorter time period?

Less than 5 years- You want to keep risk to a minimum, so a high interest savings account such as ING Direct or other very low risk savings or investment account is ideal. You may want to save up for a car, or a down payment on your house, or build up an emergency fund. Your goal here is to preserve principle, but to get the best interest rate available to you at a reputable bank or other investment company with very low risk.

5 to 10 years- Even at an intermediate length of time, consider a high interest savings account, or other low risk investment option. I bonds or CD’s can be an option, especially if your goal is education related, like saving for your kid’s college education (I bonds are tax free if used for education). Since the stock market can be quite volatile over 5 to 10 years (especially 5 years), the market is not necessarily the best option to preserve capital while still earning interest. When you get closer to the 10 year time horizon, the rewards of stock market investing can begin to outweigh the risks, so consider your time horizon and invest accordingly.

10 to 20 years-or longer- Once you hit the 10+ year range, it is really time to start “investing” your money, and investing in the stock market such as buying index or mutual funds and investing your money in stocks or bonds. You have plenty of time to ride out the fluctuations in the market, so take advantage of the benefits and return potential of the stock market.

Filed under: Building Wealth, Goals by RC - 2 Comments →

My Dad is a pretty great guy, and I have learned a lot from him over the years. Our relationship has not always been perfect, but one thing he did do, although sometimes it took me quite a while to notice, was set a good example when it came to money and life issues. Even though it took me many years in some cases, and I haven’t quite mastered them yet, I realized as I got older that many of the things he did were quite frugal, and that by not giving me everything I asked for, he was teaching me to work for things I wanted. Now, I took that to an extreme for a while and spent too much of the money I earned, but I may have never gotten on the right track financially if he hadn’t set such a good example. Here are 10 lessons about life and money I learned from him:

1. Don’t try to buy your children’s affection- This one is hard for me, I have trouble saying “No” to my kids sometimes. But I was certainly not spoiled as a child, lets put it that way. By not giving in to everything a child asks for, you are teaching them the value of money and that “things” aren’t everything. And by making your kids work for things they want when they are old enough to, they can learn the value of “earning” a dollar.

2. Bring your lunch to work- I am sure my dad ate out or bought his lunch from time to time, but it seems like he brought his lunch to work just about everyday. I think he worked for about 35 or so years before he retired, so even if he saved $4 a day , with 250 work days a year is $35,000 not counting interest. With simple 8% interest over 35 years, that $4 a day could turn into $172,000!

3. Drive a car into the ground- My Dad drove an old Toyota for many years, several (probably more than several) years without A/C down here in hot, steamy, south Louisiana. I am still not sure how he did that, because I am not sure if I could drive without A/C. But not having a car note for so many years can allow you to save quite a bit of money.

4. Learn to balance you career and family- I know my father had quite a few opportunities for promotions which would have entailed uprooting his family and moving across the country, but he did not take them because he would have had to move away from his extended family, and would have had to put in much longer hours. While I am a strong believer that you must always do your best at your job or career in order to advance, the statement that “money isn’t everything” is true, especially when it comes to your family. You can still put in extra hours at work, just don’t eliminate quality time with your family in order to advance your career.

5. Plant a garden- My Dad has always, even to this day, planted a vegetable garden every year. It is one of his hobbies, but it also provides vegetables, herbs, and other items cheaper than the grocery store, and it also gives you something to do, with your kids as well if you have them.

6. Do your own yard work - I am still amazed at how many of my friends in their late 20’s or early 30’s pay someone to cut their grass, usually over $100 a month. And they are not too busy at work to do their own yard work, either. No one ever cut my grass at our house except my Dad, one of my two brothers, or me. As far as I know that is still the case.

7. Let stores or companies know when you are unhappy with the service or goods you receive- I remember he once came home from the grocery store, (and this was when every checkout line had a bagger) and he noticed they had forgotten to bag his ice cream. It was on the receipt, so he knew he had paid for it. He called up the store (and I am not exactly sure what he said), and about 30 minutes later someone from the grocery store drove to our house and dropped off 2 cartons of ice cream. I learned that if you don’t speak up and express dissatisfaction, you you are guaranteeing that you will not be satisfied. Some, but not all, stores or companies will try to make you happy with your purchase, but you have to give them a chance. Obviously this does not always work, but you will not know unless you express your dissatisfaction to the store or company you are dealing with.

8. You don’t have to spend a lot of money creating family memories - Go fishing, take small vacations that don’t cost a lot, spend time with your kids and get involved with their activities and lives.
9. Eat at home most of the time- We had burger night, homemade pizza night, and a few others I remember when I was a kid. It is a lot cheaper than eating out, and healthier too.

10. When you start a family, its not about you anymore- Especially if you have children, you have to realize that it is no longer about you. It is no longer that important to buy yourself things, but to provide for your family. Your kids will be gone and out of the house before you know it, so giving up some of your own indulgences for 18+ years won’t kill you. I know this one is hard, as I have trouble curbing my own impulses at times, but with two small children in the house I am beginning to learn that it is really about them, not me.

Filed under: Building Wealth, Frugality by RC - 5 Comments →

One of keys of achieving a comfortable retirement is starting your retirement saving as early as possible. As a new graduate, you may make more money in the next year than you have in your entire life thus far. When you think about it, it can be quite exhilarating. But…., before you make grand plans for your increased income, even if they are practical things you may want or need like a new car or saving for a down payment for a house, think about your future and retirement plans for a few minutes.

How long do you want to work?
Do you want to retire early?
How much will I need for retirement?
Do you plan on getting married and maybe having children?

Whatever the answers may be to the above questions may be, NOW is the best time to start saving for your retirement goal. The power on time and compound interest are on your side, so the longer you wait the more difficult it will be to achieve your retirement goals.

How do I Start Saving for Retirement Now?

Fortunately for you and the rest of us, there are two great options available that stand out above any normal saving or investing you could use to save for retirement, the 401k and the Roth IRA, and they each have advantages.

Investing in an employer sponsored 401k plan:

A 401k is a tax-deferred retirement plan in which you make tax free contributions now, and pay tax on your withdrawals during retirement. Most employers offer a 401k plan, and the majority, but not all, offer some kind of match. This match is free money. Some will offer a 100% match up to a certain percentage, while some will offer a 50% match for each dollar you put in, up to a certain percentage. The contributions you make to your 401k plan will come out of your paycheck tax-free, meaning you do not pay tax on this now. By not paying tax on your contributions, the actual decrease in your paycheck is less than the amount you are putting into your 401k. For example, if you are in the 15% tax bracket, to put $100 per paycheck into your 401k will only decrease your take home pay by $85.00. This should allow you to put a little more than you might otherwise be able to, and you should. At a minimum, you should enroll in your employer sponsored 401k and invest the amount required to get the full match from your employer. Most employers will let you participate from the beginning, although some make you wait a certain period of time. As soon as you are eligible, start contributing to your 401k at your new job.

Opening and investing in a Roth IRA-

A Roth IRA is a self-directed retirement fund you set up and contribute to yourself. A Roth IRA is funded with after tax contributions, but your withdrawals during retirement, both principle (your contributions) and interest, will be tax-free. If your employer does not offer a 401k or does not offer any kind of employer match, a Roth IRA is a great place to begin your retirement savings. You should also consider opening a Roth IRA for any amount you are able to contribute from your salary above the amount required to get the employer match for your 401k plan. Because you will likely be in a lower tax bracket now than later on in your career, investing in a Roth with after tax income will not have as big an effect now on your take home pay as it may in the future.

Why both?

Investing in both a 401k and a Roth IRA allows you to diversify the tax treatment of your future retirement income. Money from your 401k will be taxable when you withdraw it, while money withdrawn from a Roth IRA will be tax free. By focusing on your retirement and starting now, you can set the foundation for the retirement you want in the future.

Filed under: Building Wealth, Career, Retirement by RC - 6 Comments →

A reader, Slinky, recently commented on my article “10 Great Ways for College Graduates to Start Off on the Right Track With Their Finances” that many recent graduates know information about budgeting, and know not to go “wild” with their new found income, such as by buying a brand new car, etc, but were less knowledgeable about SAVING and INVESTING their new found income. One thing she specifically asked about was in regards to emergency funds, where one should keep an emergency fund and the pros and cons of different options. I recently wrote an article on why you need an emergency fund, and how it can be a powerful tool for keeping from getting into debt or going deeper into debt, but did not go into details on where the best place to keep one is. You want some liquidity and little risk, so index funds and the stock market are not a great place for your “base” emergency fund. You don’t want to HAVE to sell index funds at a time when the market may be down. Three of the most common places to keep an emergency fund are 1.) online savings accounts, 2.) money market accounts, or 3.) a local branch or “bricks and mortar” bank savings account.

Online Savings Accounts- Online savings accounts such as INGDirect , HSBC Direct, and Emigrant Direct generally pay a much higher interest rate than local bank branch savings accounts. Online savings accounts generally do not provide you with an ATM card, so to get your money you must transfer it to a linked checking account. Currently, I have a small amount of money in my local bank account savings account as a cushion, and I believe it pays 0.2 % interest, as opposed to ING Direct which pays 3.0% interest. That is a difference of 15 X ! For getting to your money, time-wise, with ING it takes about 4 to 5 days to transfer money in from a linked checking account, and about 2-3 days to transfer money back out of ING into your checking account. So if you think you may need the money faster than a few days, this might not be the best option for you.

Money Market Accounts- Money market accounts are similar to online savings accounts, but they usually have check writing privileges and may have an ATM card as well. They also usually pay a higher interest than a local branch savings account, many with rates similar to online savings accounts. I currently use a Capital One Direct Banking High Yield Money Market Account as an irregular expenses account and have an ATM card and checks, both of which were free. It has a current APY of 3.0%, the same as ING Direct. Capital One seems to take an extra day or two to transfer money into your account, or about 5 days. There are usually monthly transaction limits on check writing and withdrawals, for the Capital One account it is 6 withdrawals, of which only 3 can be by check, but that is plenty for my purposes and should be for an emergency fund as well.

Local Bank Branch- A local bank branch savings account is the old standard for many people’s savings, including emergency funds. You can drop off deposits in person or transfer money from your checking account, and it will be available to you by the next business day. Most savings accounts, similar to online and MM accounts, do have limits on withdrawals per month as well though. Local bank savings accounts will provide the easiest access to your money, but generally offer very little interest. Nowadays, if you are earning the typical rate savings accounts pay, you are losing money due to the effects of inflation.

So how do you determine which account is the right place for your emergency fund? -Ask yourself the following questions:

Are you likely to need cash really fast ? (Like 1 day or less)

How soon will you need access to it? Is 2 to 3 days OK?

Do you want it to be a little harder to access?

How concerned are you with rate of return?

By thinking about and answering the above questions, you can determine which account provides the benefits most important to you. If I were just beginning an emergency fund, I would probably think about using a money market account, as I like the ability to access your money with an ATM card or write a check in a true emergency if need be. I do like ING very much, I have had an account for almost 6 years, and used to really like the fact that you can’t access it immediately, although since I am more disciplined now this isn’t quite as important to me. Since a MMA provides basically instant access to your money as well, I personally find the bank branch savings account the least attractive, although I do keep a small amount of money as a back up to my checking account.

Where do you think is the best place to keep an emergency fund?

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Filed under: Building Wealth, Investing by RC - 10 Comments →

Free From Broke recently posted about his personal finance “tipping points”, and is holding a contest and asking readers to describe their own personal finance “tipping point”. He describes two financial “tipping points”, the first when you admit the situation you are in and resolve to do something about your finances, and the second when everything finally comes together and you see the end of your debt in sight. Since I haven’t quite reached the second point yet, I will talk about the first.
For me, the “eureka” moment came right after the Christmas holidays this past year. We made it through all of the Christmas shopping and extra spending OK. After paying off bills and realizing, although we didn’t add to our debt, we had made little to no progress on improving our finances over the last year, I really started thinking about our financial past a well as our financial future. We had basically been in “see-saw” mode over the last few years. We would run up some credit card debt, pay it down, and run it up again. We would build up savings, only to spend it down on things we though we needed. Assessing where we were at the beginning of this year, I realized the following:

Basically,we were not making any progress!!

Why Not?

• Lack of goals.
• Lack of focus.
• Lack of communication between myself and my wife.
• Lack of commitment to change our situation.

Things had to change, and after finding and reading lots of information on debt reduction and personal finance, as well as discovering several great personal finance blogs, I really started to focus on the things we needed to do :

• Start an emergency fund
• Pay off credit card debt
• Pay off other debt
• Save for a house
• Increase retirement savings

Basically execute a plan to live the life we wanted to, starting right then.

We are now making progress towards are goals, and the feeling is 180 degrees different than the one you have when you are not making any progress towards ill-defined or non-existent goals regarding your finances. Until you make a conscious decision to improve things, chances are they will never improve much. Carrying credit card debt and making only the minimum payments can keep you in debt almost forever.

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Filed under: Building Wealth, Debt Reduction by RC - 5 Comments →

One of the keys to improving your personal financial situation is educating yourself. The more you learn and know about debt reduction, money management, investing, retirement options, and building wealth, the more likely you are to achieve your personal finance goals, whatever they may be. There are a multitude of venues you can rely on to learn more about money management, investing, and debt reduction, and other money related topics. Here are some of the “main categories”, and some specific examples of each.

Printed Material

Books- I have always been a big fan of reading, so books are still one of my favorite sources of financial information. Whether the topic is debt reduction, investing, frugality, or any other facet of personal finance, there is likely a good book dealing with the subject. A few of the more popular titles regarding personal finance and investing include the following:
The Total Money Makeover by Dave Ramsey-Debt Reduction
Your Money or Your Life- Debt Reduction/Money Management
The Millionaire Next Door-Becoming Wealthy

One of the most prolific sites for personal finance book reviews is the Simple Dollar, and Trent’s 52 Books, 52 Weeks, A Buyer’s Guide is a great place to get an overview of many of the most popular personal finance books available today, or check out his book review category for even more.

Newspapers- While you may think that the newspaper is a dying media, but you can still learn a lot by reading the Money or Business section of your local newspaper every day. Financial papers such as the Wall Street Journal, or the New York Times money section can be great for improving your financial knowledge as well. Instead of paying for a subscription to these newspapers, check out your local library or ask a friend or relative who gets the paper if you can have their old copies.
Magazines-There are a great number of personal finance and money magazines available, which you can read at your local library, borrow from your friends or family, or subscribe to, usually for a reasonable fee compare to the newsstand price. Some of the more popular magazines are Smart Money, Money Magazine, Kiplinger’s, and Consumer Reports, which are all great magazines for educating yourself and making smart choices with your money.

Audio

I had listed a few radio and podcast sources, but J.D. at Get Rich Slowly recently posted a great resource article on Twelve Top Personal Finance Podcasts, which covers most of the PF podcast available. Check your local radio stations as well for money or finance related radio shows as well.

Internet

-There is a plethora of financial information available on the internet, both commercial sources as well as personal websites or blogs. You should always use any financial advice, such as investing with caution, of course, but there is really a great deal of good information available on the internet.

Yahoo Finance- One of the better sites for up to date news and financial information.

MSN Money Community-Contains news, blogs, and articles on saving and spending money as well as many other personal finance topics, such as frugality and investing.

PFBlogs.org- A great personal finance aggregation site, with over 1000 personal finance, investing, and real estate sites aggregated.

People

-Talking to other people about money related issues and topics can be a great way to discover what others are doing in a situation similar to yours, or how people invest, spend, save for retirement, etc. While you shouldn’t try to “keep up with the Joneses”, you don’t have to get into specifics about someone’s income to discuss spending and saving money, either. These days, just about everyone is willing to talk about the economy and topics such as how to combat rising gas or food prices. Now of course, you should always take any financial advice such as the the latest “hot stock tip” with a grain of salt, but discussing money topics with others can be a great way to learn how others manage their finances. Finding a professional financial adviser can help you with details of your personal finances as well.

What do you do with all of this new financial information?

Ask Questions- Ask questions of your friends and co-workers, and don’t be afraid to ask a blogger, a writer or a radio show host questions.

Perform Your Own Research-As with any advice, you are always well advised to do your own research to confirm or verify what you have read or heard. Dig deeper into the topic until you are satisfied with the results. After all, it’s your money.

Filed under: Books, Building Wealth by RC - 3 Comments →

With graduation season here, thousands of bright-eyed (O.K., at least a few might still be bright-eyed) new graduates are entering the workforce for the first time, embarking on their new careers or vocation. Quite a few will make more money in their first year out of college as they have over their entire lives thus far. When you look at it that way, it is not so surprising that many recent graduates get caught up in a spending frenzy, purchasing a new car, wardrobe for work, with many entering the “hyper-consumerism” sector as well as the workforce. The start of your career is the perfect time to start implementing good money habits and building wealth. Here are 10 great ways to start off on the right track with your personal finances.

Create a budget and stick to it-

Based on your new salary, whatever it may be, create a budget and stick to it. You can adjust your budget as the months go by, but you will have a hard time keeping your finances under control without it, especially when you first start your career. Starting now will lead to far less problems in the future.

Start an emergency fund-

Setting up an emergency fund will keep you from falling into debt when unexpected “emergency” expenditures come into your life, as they always do. Check out Emergency Fund 101 to learn more about why you need one and how to start one.

Save as much for retirement as possible as soon as you start working-

When you first start out, try to maximize your retirement contributions, to the greatest extent you can. By starting early, the power of compounding interest, and time, will allow you to build wealth much easier than someone even five or ten years older.

Don’t get caught up with the credit card shuffle-

It’s OK to have a credit card, or even two or three. The problem starts when you start abusing them and using them to purchase things you cannot afford. If you don’t have the money to pay for something, set a savings goal and save up until you have the cash to pay for it.

Don’t upgrade your lifestyle right away-

There’s no need to start “Keeping up with the Joneses” right when you start your career, although many people do, as I did myself. You have plenty of time to save up for things you want or think you need, there’s no need to rush while you are still trying to find your financial footing.

Start checking your credit report on a regular basis-

Now is also the time you will likely begin to really build your credit report, so take care of it. Check out www.annualcreditreport.com (this is the one and only government- sponsored free report site) to assess your credit report and do it on a yearly basis.

Avoid taking out loans to pay for things-

It’s OK if you are buying a house, or even a car, but for a car try to limit the length of the loan to 3 years, or even better, save up and pay cash. Definitely don’t finance other consumer items, such as furniture, electronics, etc.

Pay attention to your student loans-

If you have student loans, don’t neglect them. Also, don’t defer them if you are able to start paying them off right away, as they are still accruing interest. Look into loan consolidation as well, as you may get a better interest rate if you consolidate.

Set financial goals-

Whether it is a down payment for a house, or certain retirement savings goals, set some goals and try to achieve them. If you don’t set goals, you will find it hard to achieve your financial dreams.

Keep your life and finances simple-

Try to live simply and frugally, and you will keep more of your money in your pocket. Don’t over-complicate your finances either.

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Filed under: Building Wealth, Career by RC - 8 Comments →

Certainly there are many college students, who enamored by the offer of a “free” t-shirt or some other token gift, start digging themselves into debt by signing up for a credit card and using it without concern with how they are going to pay for their purchases. But there are also many college students who live quite “spartan”, living in a cheap apartment, with no car or credit cards, living off their earnings from working a part-time job and going to school. Many only spend cash, and when they run low , look for creative ways to feed and entertain themselves.

On the other hand, there are many recent college graduates who, upon graduating and getting a job, suddenly change the way they were living. This is understandable, as eating ramen noodles every day for a week gets old after a while. But why do many recent graduates suddenly move into a nicer apartment, sign up for credit cards to furnish it completely, buy a new car, start eating out lunch every day and going out for cocktails at an expensive trendy new club, and continue to do so for many years to come? Some people continue to live like this for most of their adult lives, racking up credit card debt for things they don’t need and can’t really afford.

Because they stopped living like college students!

I know this is the case, because I did it myself. For some reason, you start trying to live how you perceive an adult should, with all the trappings, toys, and expenses, even though you normally start out a relatively low salary right out of college. You may be tired of your 8 year-old car and are looking to impress your friends or new co-workers, or that 1 bedroom apartment in the cheap part of town no longer fits the perception you have in your head of how you should live as a young new professional.
Even if you are a medical doctor, right out of school you are not going to be making as much as a surgeon with 15 years of experience. So why try to live like one? The smarter way, to keep yourself out of debt and start building wealth at an early age is to continue to live like a college student, or at least make smart decisions with your money.

Some tips for living like a college student for recent grads or adults with lifestyle inflation:

• Keep your old car as long as possible. Take care of it, and it can last you a very long time. If you don’t have a car, by a used one, don’t finance a new one for 5 + years.
• Don’t move into a high priced apartment or saddle yourself with a condo or house note right away. Even better- move back home for a while. When you do buy a house, buy less than you can afford.
• Don’t furnish your entire apartment with new furniture, art work for the walls, etc, or replace it every two years. Keep your old furniture as long as possible.
• Don’t get caught up in the “young professional” hype- You don’t have to eat out everyday for lunch and dinner or go out for drinks 3 times a week after work.
• Don’t try to impress people with things, or by throwing money around in social situations. It doesn’t really work and is not worth it anyway.
• Max out your 401k or retirement plan. You didn’t have the money before, so you won’t miss it. if you start maxing out your 401k when you first start working, you will not have to worry about saving enough for retirement, I promise you.
• Only replace things that really need to be replaced. No offense to Apple, but you don’t have to have the latest I-gadget, whether it is an ipod, iphone, or whatever the next one will be. Cheaper alternatives will work just fine.

I am in my mid-thirties, and it took me quite a few years to realize that my “perceived lifestyle” was a little to high for my salary early on. Now that I am making more money, I am finally getting to the point where I can pay for my past mistakes. However, it is all the more difficult for some, as many people have gotten married and started having children, like myself. If only I had lived like a college student a little while longer.
Now, where are those ramen noodles…..

Image by Hey joe….

Filed under: Building Wealth, Frugality by RC - 4 Comments →