1. Learn to say NO. Say no to your kids, your pets, your friends, and yourself. Kids don’t need everything they see, your cat does not need a new toy, and your friends don’t need a drink. You don’t need to eat out every night, 5 drinks at a bar on Friday, or new clothes all the time. This does not mean you can never have fun or buy something for fun, this means be conscious of your spending.
2. Find an investment you are passionate about so you want to spend money on it. Some people it is stocks, they love P/E ratios and prospectuses. Some people love property that they can buy cheap and fix up and sell for a profit. Others may like building a business they can sell for a profit.
3. Hire a good accountant / tax advisor. Yes, they cost money but a good accountant / tax person is worth every penny. By an advisor I do not mean someone who works for HR Block. I mean someone who has made their living finding tax loop holes and who can save you money legally. If you have very simple taxes, no family, no property, no personal business, and no investments, then you probably don’t need one. I personally like the safety of using an accountant because many good ones will back up their decisions if needed to the IRS (and they are a lot better at dealing with the IRS then I am ). Most good ones can save you enough money to make their fee worth it. Even better, they give you advise for the next year so you can save even more money.
4. Start a part time business. This can save you a bundle in taxes, but you must make sure to actually turn a profit or the IRS starts to notice you. By starting a business, you can ride off a lot of expenses. Example: You like to do wood working. You have quite a few tools and have converted the garage for your hobby. You sell your work to few people and under the table take in a few hundred bucks. Well if you declare this, yes you have to pay taxes on it, but you can deduct part of your monthly mortgage, your tools, phone, supplies, mileage on your car, and a slew of other things. A good accountant or tax person can see if that is right for you.
5. Don’t be spontaneous with your money. Being spontaneous with life can be good, but being spontaneous with your money is usually not good. Every three dollar drink, ten dollar movie, five dollar magazine, six dollar snack, one dollar water bottle, and fifteen dollar cd add up. This even counts the stuff you don’t need when you are grocery shopping or the fair. Spontaneous vacations, new clothes, new videogames, and other bigger items are purchases that some people tend to make on the spur of the moment. This again all boils down to spending money consciously. It’s good to have but make sure you are aware of where your money is going.

Adrienne

Many working adults have a week’s cash philosophy where he or she takes out $100 or so dollars a week to spend. I know people who do $50 a week and others who do $200 per person. This money is often just blown through. Have you ever had $100 in your wallet and then suddenly only a 5 dollar bill? When you think about where the money went, can you figure out where the 95 dollars went? Most people cant.

The following tips may seem obvious, but see if you fall into any of these pits. These pits only apply if you are not saving as much as you want, are looking for ways to cut back, or your expenses are more then your income. I know some of the following are fun things that you may not want to give up, in that case cut them out until you raise your income.

9 obvious ways to save money

1. Stop smoking and. If you smoke a pack a day, at 5 dollars a pack that is $1825 a year. That does not even count higher medical expenses through the course of your life.
2. Stop drinking coffee. Coffee can range in prices, but most people are more then one cupers. If you only drink a couple cups of coffee at home and never buy it out, it probably costs around 365 dollars a year. This covers coffee, water, etc. Now if you have a coffee habit of buying starbucks once a day at $4 that is a $1460 habit.
3. Stop paying for things you do not use. Gym memberships, country club memberships, season passes to amusement parks or other events, and magazine subscriptions are all examples of items that costs lots of money but may not have any return value. I don’t read magazines and if I did, the library has many of them. I read quite a few financial magazines when I am in an investment cycle, and I do it all at the library. Gym memberships cost $100s per year when you could walk, bike, or do stairs without a gym membership. The only thing nice about gyms are the pool and steam rooms. If you use the gym a lot, keep it, but don’t lie to yourself that you will start using it when.
4. Give up cable TV. I am not a big fan of TV. Cable TV costs at least $40 a month and up to $100s. Even at $40 a month that is $480 a year. Can you say you enjoy TV enough that is worth $480 a year? There are other options, watch programs online, subscribe to netflicks which is only $17 a month (and no commercials!), rent dvds from the library, start a dvd swap with friends. Also, go out and do things, TV is watching life, go out and make a life instead.
5. Don’t take vacations you cant afford. I see so many people taking a vacation or two a year, spending 2 or 3 grand per vacation. People tell me they need the vacation, they need something to look forward to, they need a break. They put the vacation on credit cards until they can pay for it. Don’t take a vacation unless you far the money by a long shot. That means, don’t take a vacation by using money from savings, credit, or barrowing from friends. If you spend $2000 on a vacation, if you put it on credit and pay the minimum it will cost you over $3500 to pay back on most cards. If you take a vacation and can pay for it, but it puts you in financial straits, it is not worth it. It takes away your flexibility if something good or bad happened
6. Pay off all credit cards. Many credit cards are around 17 percent. This means for every $1000 you have on a credit card per year, you will pay 170 dollars in interest. If you have credit card dept, stop using them until they are 100 percent paid off. Most credit cards compound interest daily if there is a balance. This means, if you did not pay $100 last month, this month you pay interest on $100 and new charges, not just the $100.
7. Eat at home. Eating out even cheap costs at least $10 a day for 1 person eating crappy fast food. That is $3650 a year. If you eat at decent places that puts you closer to at least $20 a day. That is $7300 a year. I am a single person and I spend around $30 to $40 a week on food. That is less then half of what the $10 dollar a day person spends.
8. Say good bye to home phones if you have a cell phone. Cell phones rock. You can get a decent plan, take it with you everywhere, and good plans have lots of unlimited nights and weekend options. Many cell phone providers by default include call waiting, 3 way calling, voicemail and free long distance without any extra charge. I find the time I use the phone the most is nights and weekends because I am working during the day. Typically people pay around $30 a month for a home phone line and more money is spent in options and long distance. This is at least $360.
9. Cut down expensive activities. Drinks at bars, sporting events, plays, concerts, nights out on the town, expensive dinners out, and movies add up over time. Dinner and a movie can easily costs $30 a person. Hitting the bar scene can easily get over $100 in a night.

Where can you save money? What little things can you cut that would free up your wallet? While I don’t advocate having no fun in your life or giving up everything that costs money, I do advocate spending money consciously. Would you rather have $500 worth of TV for a year or season passes to ski? Eventually the goal is though, to be able to have enough money that you can have both. Whatever you spend money on, spend it consciously. Don’t let spending become a habit you don’t even realize anymore.

Adrienne

Since I started out by defining money in relationship to value followed by information on debt (using more value then you provide), it only makes sense that I end with the my favorite part: saving.

Saving is the opposite of debt because you are providing more value then you are using. Saving is by far the most fun because usually when you are saving, you aren’t worried about making your mortgage, rent, car payment, etc.

Lets talk about some of the most frequent questions I get asked before we get into heavier stuff tn later posts.

What is the benefit to saving?

• Having money when rough times hit such as losing your job, change in your personal business, or unexpected medical expenses.
• Retirement
• Travel
• Being able to help other people who need it
• Retiring early
• Being able to afford items of larger value (house, boat, cabin)
• Better investment opportunities
• Having money for future high expenses such as kids going to college.

Do I need to worry retirement? I will have social security.

Yes. Social security is not meant to be a total income replacement. It is a supplement. The average paid out per month is 1000 dollars. Is this enough for you to retire the way you want?

How much do I need to retire?

That is a loaded question. If you retire at 65, how long do you plan to live? Today people are living into their 100s. If you retire at 65 that means you need 35 years worth of income to live on if you live to be a 100. The best I can say here is have enough money that you only live off the interest. This way you can live as long as you can with out money being an issue. This means if you want 2000$ a month, you need around 2.2 million getting around 10 percent return.

I am too young too deal with that now, or I am too old too start now.

No such thing.

What are the top 5 things you recommend so I can retire with out a financial worries?

1. Have a place to live that is free or close to it. This means owing where you live out right.

2. Get in shape now and stay in it. Walk everyday. This will save you a ton of money later down the road in health care.

3. Save enough money so that you live off interest alone.

4. If you can stomach it, be a contentious high risk investor. I will write more on this in future posts.

5. Don’t “barrow” from your savings unless absolutely necessary. This means don’t take a vacation with the money you are saving.

For those interested, here are some of my favorite savings calculators.

This one is simple but it allows you too drag a bar to change a criterion just a little and see the difference that makes

I like this one because it works backwards. You tell it how much you want to have and it tells you what to do to accomplish that. It also has an amortization option. I love amortization calculators.

This is a good one for working with taxable and nontaxable accounts.

Adrienne

Let’s start at the beginning.

How do you get into debt? What is debt?

As stated in first part of this trilogy, debt means you have consumed more value then you have contributed. You buying and spending exceed what you give back to the world.

Debt comes in all shapes and sizes:

· Borrowing 5 bucks from a friend at lunch

· Borrowing money from family and friends

· Student loans

· Car payments

· Credit cards

· Home loans

· Line of credits

· Now, you can even go to a local quickie loan and write them a check that they will cash on pay day and they give you money right away – minus there charge of course.

These days we teach kids really early that debt in ok. “Fine, you can have it, but it is coming out of next week’s allowance” or “you can pay me back when we get home.” I am not saying this bad, but simply posing the questions: were you aware? Was the kid aware on same other level other then I got what I want?

In the states, debt is started young. Companies target college kids for high interest credit cards, card loans, and student loans. As you get older the amount of companies who want to lend you money is grader because now they want to lend you money for home loans and goodness knows what else. Before you know it, you have more debt then you can imagine.

What is to be made of this? First, learn to say no. Just because a bank is willing to lend you 200K for a new home doesn’t mean you can afford that. Banks, credit card companies, and other lending institutions will give you more then you can afford because they make more money. Remember, everything you barrow you have to pay back with interest, so determine if the pay off is worth it.

Good Debt Vs bad debt

I have heard lots of talk recently about people talking about being in debt, but they think that’s ok because it is good debt and good debt must be ok. Good debt is often considered home loans and student loans. Home loans because they have low interest rates and are tax deductible. Student loans because the interest rate is very low. Credit cards and other high interest (over 7 percent or so) are often considered bad debt because of how much money is spent on paying interest and how little is spent on paying principle.

Lets play with numbers.

Let’s pretend that I am going to buy a house. I am going to take out a loan for 200K. At the time of this writing, you can deduct interest on loans up to a million dollars loans on your taxes in the United States.

200K paid over 30 years at 6.0 % interest:

I pay 1199.10 per month

I pay 231,676.38 in interest over 30 years

Lets say now, I am making my house payment no sweat and I decide to make double house payments.

I pay 2398.20 per month

I pay 59,428.74 in interest over 9 years and 1 month.

After those 9 years I stop getting a tax ride off as well.

Now let’s say instead of putting that money into paying off the house, I instead invest it. Now personally, on average I earn about 18-20 percent a year on my investments, but I know the rule is 10 %. So for the sake of this, let’s say you get 10 % interest per year on the money you invest.

If I put 1199.10 a month into investments after 30 years, I will have 1,861,877.97 (factored in 25 percent tax per year). That’s a lot

Now, if I paid off the house instead then put double into investments. After I paid off the mortgage, it would look like this:

If I pay 2398.20 a month into investments for 21 years I will have 1,601,720.39 (factored in 25 percent tax per year).

That is a 260,157.85 dollar difference.

This is what it boils down to:

In 30 years, I end up at the same place with the house paid off and investments. I paid out the same amount. Each month 2398.20 was either invested and/or used to pay off the loan. Even tho I paid a lot more in interest to the bank, the extra investment interest more then made up for it. On top of this I have all the money I saved in taxes because I tax deduct the interest over 30 years not just 9.

To me, 260,157.85 that is worth it. You have to make your own choice.

The idea here is that some debt allows you to accumulate wealth while others only help you stay in debt. You actually make more money being in debt then you will if you pay it off. While these numbers are true, if you don’t have the self control to invest and instead of investing buy TVs, boats, etc, then choose to pay off your loans first. What I am talking about is a great idea in theory but for many people is hard to execute. Why? Self control and short term thinking. I will touch on that more in future posts.

Now, I hate debt. I am not in it, I don’t want to be in it. I avoided student loans like the plague choosing instead to work more then full time. When the time comes for me to buy a property, I will take out a home loan. I will take 30 years to pay the loan off, I will take the tax break, and I will invest like crazy. I already invest like crazy so that wont be too big of a change.

Adrienne

How to get money

How to invest money

How to be debt free

Best ways to save money

Why save

And all sorts of questions along those lines.

I am not an stock broker, banker, financial adviser, or any sort of investment guru. I am completely debt free. I don’t have a car payment, student loans, credit card debt, or owe anyone any money. I have a savings account, stocks, mutual funds, 401K, Roth IRA, and am quickly approaching my mid 20s.

I have never been handed money, gotten an inheritance, or grew up affluent. I paid for college, my first car, my first computer, and did not get financial help when I moved out on my own when I graduated from college at 20.

Money seems to be an international craze. Some people want money for clean water and food, some for a new house, others for a plasma tv. Some people want only enough to be comfortable while others want every cent they can get there hands on. But, what is money?

In the US, money takes the form of dollars and cents and is associated with the color green. Canada’s money looks pink. There is the Yen, Pound, Euro, Rupees, Francs, Rand, Pesos, Schilling, Marks, Lire, and probably 100 more. But what is money really?

Money is a form of trying to create a standardized barter system. You do something of value for someone and in return you get a piece of paper that says now you can get something of value from someone else. When you are in debt, you have used a lot of value and not provided as much value back. When you have extra money, you have provided value (in terms of work, loaning money via stocks, etc) in excess of what you “cashed” in.

In my experience, most people don’t really want money. They don’t really want a million dollars sitting in their bank account. They only want a million dollars to the extent of what they can buy with it: a house, a tv, PS3, Wii, or food.

So to get money, you have to provide value. It’s not necessarily real value but what society perceives as valuable. Something valuable to me might have little to no value to you and vice versa. For example, I write this in a sparsely finished room lite by a 20 buck lamp I got on sale with a high efficiency light bulb. To me, style who cares? But energy efficient, that has my attention.

Lets take a cardiac surgeon and trash collector. American society clearly values someone who can do heart transplants more then the person who picks up trash. Why? Perception. It is often perceived that a doctor goes to school, studies hard, and learns to save lives; whereas, a trash collector did not have to go to school, study hard and is not responsible for saving lives. But is that true? How many people would die if we could not do heart transplants? How many people would die without trash pickup?

Right away, we would see already sick people get worse and die if all cardiac surgeons vanished and could not be replaced. No trash pick up? No problem… for a couple weeks. Before long, bugs and rats would become an issue and with rats come disease and sickness. Remember the black plague?

My point, society needs both jobs. While one is considered white collar and the pay is in the hundreds of thousands, the other is low class and pays slightly better then minimum wage.

So the big secret? Do something of valuable.

This is fist part of a trilogy on money. So stay tuned.

Adrienne