Finance
If there’s one thing I am most proud of it’s that I became 100% financially independent (meaning I relied on no other entity or person for income or financial assistance) before the age of 30. Yes, there was a certain degree of luck that went into that (e.g., if I’d started my first company in 1999 or 2008 at the stock market peaks I almost certainly wouldn’t have survived it independently), but I also followed a very simple set of broader financial management rules that allowed me to achieve financial independence at a relatively young age. Here is a basic outline of those rules:
- The key to financial success isn’t saving more. It’s investing more. In yourself. You have to maximize your primary source of income by making yourself valuable to other people in some way. Saving more isn’t how most people become wealthy. Wealthy people maximize their primary source of income.
- Never stop learning. Education is the gateway to differentiating yourself from the crowd and constantly improving yourself so you can adapt and evolve with the ever changing economy. The internet is a gold mine of information and educational resources. Use, Khan Academy, my Understanding Money page and empower yourself with the most powerful tool you can have – knowledge.
- Don’t do something you love. Do something other people will love you for doing. Very few people earn a living doing something they truly love. But many successful people love what they do because other people value them for doing it.
- Keep your finances simple. Reduce the number of bank accounts and credit cards you have. Consolidate your brokerage accounts. Make your financial life more manageable. Use a personal finance app like Mint to track your finances so you can stay on top of your income, spending and investments.
- Automate your finances. Make sure you have auto bill pay set-up and automatically transfer funds from a savings account to an investment account on a monthly basis. Automate your investment account in a systematic plan of some sort so you don’t get caught up in the allure of “stock picking” and trying to become the next Warren Buffett. Reduce your taxes and fees as best you can. This means taking a moderately long perspective with your investments (at least 12 months plus) and never paying for high fee investment accounts and managers.
- Follow the 50/30/20 rule. Spend 50% of your after tax income on essentials (housing, utilities, food, etc), 30% on personal needs (vacation, toys, leisure, etc) and save 20% of your income.
- Stop spending money on useless “stuff”. It’s very unlikely that all that extra stuff you’re buying is making you happier. In fact, it’s probably just putting a strain on your financial budget. Don’t spend to impress your friends and your neighbors. You’re not winning any gold stars for owning things you can’t afford. As I said in my book: “The person who mistakes ‘money’ for ‘wealth’ will live a life accumulating things, all the while mistaking a life of owning for a life of living.”
- Get in the financial markets! But think of your portfolio of financial assets as a Savings Portfolio and not a get rich quick “Investment Portfolio”. Allocate your savings in a diversified portfolio of stocks and bonds. Do not leave your cash sitting in the bank earning 0%. Max out your company 401K at least up to the match. Then invest in a Roth, SEP or 529. Invest the rest in a taxable brokerage account via low fee diversified index funds via an approach that follows a specific plan that is in accordance with your financial goals and risk tolerance. If you need an advisor to help you maintain your investments then don’t pay him/her more than 0.5% per year! Make sure they adhere to a fiduciary standard.
- You might need life insurance at some point in your life. As a basic rule of thumb only buy life insurance if you have family members whose financial lives would be substantially altered for the worse if your income was lost. This is most common for people in their working years when they have young children. In the vast majority of cases buying a term insurance contract that covers this period (usually 20-30 years) will be the least expensive and most prudent approach to use. Do not buy variable annuities or whole life insurance as a form of life insurance.
- Reduce your debts. Pay off your credit card every single month. Thinking of buying a home? Don’t think of it as an “investment”. Think of it as a massive long-term expense that will barely keep up with inflation. A house is place where you will live, not a place that will make you rich. Use Khan Academy’s buy/rent calculator before you decide to “invest” in the “American dream”. If you buy a house then pay it down as quickly as you can. “Mortgage” is Latin for “Death contract” for a reason!
- Work your ass off. But remember that you don’t live to earn money. You earn money to live. Balance is better than excess.
Financial success doesn’t just happen — you have to work at it. You may think that you are pretty money savvy; however, even the most fiscally successful individuals tend to be guilty of making these three big money mistakes.
1. Not having a goal and a plan for how to achieve it. Without a plan or goal, you will lack focus and end up spending more money. A dollar here, a dollar there might not seem like a lot at first, but not knowing where your money is going or what your expenditures are can greatly affect your financial security.
To create a goal that you will actually stick to this year, concentrate on reducing three of your largest expense categories and attempt to whittle those down.
The key is to make any goal a habit first. And most important, make it a tiny one. By focusing on reducing just a few areas of overspending, you will be less likely to feel deprived and more likely to stick with your goals in the long run.
For example, you may spend the most money each month on eating out, entertainment or shopping. Focus on reducing each of those three categories by 10 percent to 20 percent over the first six months of 2016. This could mean bringing your lunch to work a few extra days per week or replacing one of your nights out on the town with a get-together at your house instead.
Also, be careful not to change your lifestyle too drastically right away. Your goal should be to reduce expenses gradually over time in order to change your long-term behavior. So start small and go from there. This means eating out only one time less in January, or if you tend to buy lunch every day, aim to bring your lunch from home just one or two times in the first few weeks.
2. Only one person in the family knows where the money goes. Most families have one person who’s largely in control of managing the money — and that’s fine. The problem occurs when this leads to financial atrophy in the family, where no one but the person holding the checkbook knows where the money goes or is involved in the decision-making process.
If you are not part of the bill-paying, investment decision-making and retirement-savings process, you’re at risk if your spouse dies, becomes seriously ill or if you get a divorce. Know the details of your family’s finances, spending, investments, debts, savings, etc.
Have monthly meetings about your financial situation so everyone is “in the know.” These meetings don’t need to be onerous. Sit down with your family to review the balances on all of your accounts, review your rate of savings relative to your income, and discuss if anything needs to be tweaked.
There are numerous benefits to sitting down as a family to review account balances and savings rates together, the most basic of which is that everyone in your family will now be aware of what accounts are out there.
Knowledge is power. Laying all the cards on the table is a powerful way of fostering financial peace of mind among all family members. Coming together as a family to review the family budget not only encourages discussion of finances, in general, but creates strong awareness and mindfulness around spending and saving, which can have a powerful impact on the bottom line.
Finally, family finance meetings have the added benefit of fostering healthy communication and teamwork among all family members and can teach younger members important financial principles that will benefit them throughout their lives.
Be sure you know where all important documents are stored. Examples include tax records; statements for all retirement, checking, savings and brokerage accounts; insurance policies; wills; deeds; mortgages and auto titles.
Know the passwords to important financial websites, such as your checking, credit card and investment accounts. When tax season comes around, get involved in the process and help collect the tax documents your accountant needs to complete your return.
“Come up with a plan, focus on three trouble-spot spending areas, get involved and make sure your money is working for you in a diversified portfolio.”
Target-date retirement funds are allocated and diversified based on your specific retirement date, and they rebalance automatically as you get closer to retirement.
Investing in exchange-traded funds and mutual funds can also be an option for building a well-rounded portfolio. Each share of an ETF or mutual fund holds a bucket of stocks and/or bonds. Some ETFs and mutual funds track to a specific index, such as the S&P 500, but note that others can focus on a very specific sector of the market, such as emerging markets.
If you’re just starting out and looking for more diversification in general, it may be best to start with general index-tracking investments and get comfortable with those before branching out into more specific market areas.
An ETF or mutual fund focusing on an individual country, such as China, or a specific industry, such as utilities, may not be ideal for a newer investor with limited investment experience.
Now is the time to take control of your financial future. Make your new year’s financial resolutions happen!
Come up with a plan, focus on three trouble-spot spending areas, get involved, and make sure your money is working for you in a diversified portfolio.
Searching for a job can be a frustrating and time-consuming experience – and worse yet, it can be extremely expensive. But if you’re tax-savvy, you may be able to recoup some of your job search expenses in the form of tax deductions. Follow the rules regarding what you can write off, and save all documentation related to every write-off you take. And don’t make the mistake of overlooking the deductions you’re due – ultimately, it can add up to a great amount, and every bit you save may go a long way in helping you get through a rough patch.
Eligible Job Search Expenses
1. Expenses Within Your Field
Job search deductions apply only if you’re seeking an occupation within your field. For example, you wouldn’t be able to go from a job in finance to one in education and write off those job search expenses. But if you need to take a part-time job to support yourself while you look for a job in your field, you can take deductions related to the part-time job search.
Unfortunately, if it’s your first time looking for a job, you’re out of luck. You can only claim job search deductions after you’ve been employed.
2. Resume Preparation
The costs to prepare your resume are deductible expenses. For example:
- Did you hire someone to professionally rewrite your resume? That’s a tax-deductible expense.
- Are you sending resumes via snail-mail? You can write off the cost of postage and envelopes.
- Did you fax you resume? Keep the receipt, because the cost to fax is deductible too.
3. Phone Calls
The cost of speaking to a potential employer over the phone is deductible. If you spend 45 minutes speaking with an HR representative, Uncle Sam can reimburse you for a portion of the cost, whether you get the job or not.
4. Employment and Outplacement Agency Fees
If you decide to utilize the services of an employment agency, it is considered a job-seeking service and is tax-deductible. However, be cautious: If your employer pays you back for employment agency fees, then you have to claim that on your taxes as part of your adjusted gross income (AGI), and it is no longer tax-deductible. However, if your employer does not reimburse you, those expenses are yours to claim.
5. Gas/Mileage
This is particularly important if you must travel a substantial amount for interviews. A friend of mine drove from Mississippi to Louisiana (a round trip of approximately 200 miles) to interview for a position. He did not land the job; however, he was able to deduct the mileage for those trips.
In 2013, the standard mileage rate is 56.5 cents per mile for business-related purposes. For my friend, that equaled $113 in deductions. Even if you’re not traveling very far per trip, keep a log of how much you’re driving to interviews, job fairs, or employment-related training seminars. You may be surprised at how much the mileage adds up.
6. Other Traveling Expenses
Let’s say you’re a video game developer who lives in New York, and you book a flight to California to attend the Game Developer’s Conference where you hope to get a lead on a job. Since your reason for travel is primarily to look for a job, you can write off airfare and lodging expenses. Just be sure that the amount of time you spend looking for a job is more than the time you spend on leisure, or the trip may not be deductible.
7. Moving Costs
If you live in an area that doesn’t offer substantial paying jobs in your field, you may find it necessary to move to a region with more opportunities. According to the IRS, you can deduct moving costs, provided that your new workplace is at least 50 miles farther from your old home than your old job location was from your old home. You also must work for at least 39 weeks during the first year following your move if you’re an employee. If you’re self-employed, you must work that amount, as well as a total of 78 weeks during the first two years.
So what can you deduct? You can claim 24 cents to the mile for moving purposes in a car. You can also deduct plane tickets and lodging expenses, and the cost of packing and shipping items to your new home, plus up to 30 days of storing them. Furthermore, costs incurred for shipping a car and pets to your new home are also deductible. Just be sure to begin looking for a job immediately after you move if you don’t already have one.
Trade Finance Market (TFM) has created a business platform through which investors can tap into an asset class worth $12 trillion every year.
TFM aids the trading process by buying exporter invoices on behalf of investors, which lets exporters receive their money faster when they ship their goods. Normally, in trade finance, exporters and importers settle their conflicting interests by merely ensuring exporters will receive payment for goods quickly while also extending credit to importers.
Whereas pricing on normal trading platforms is auction based, the TFM platform provides more transparency and is not auction based. The platform also provides the opportunity to earn even higher returns by funding shipments of physical goods, whilst also helping exporters sell their receivables quickly and easily.
“The retreat of banks due to market factors – Basel III, compliance costs and fines (Dodd Frank) – means that traditional players are currently unable to finance international trade, which causes unnecessary obstacles for exporters and slows growth. TFM is filling this gap in the marketplace by uniting trade, finance and technology in a way that has never been done before to maximise returns for investors, and provide competitive financing for exporters,” said London School of Economics alumnus and TFM Executive Director, R. Uttamchandani.
The platform is easy to use. The exporter simply uploads the documentation of the goods they plan to ship on TFM
platform and requests a finance rate. Investors then take a percentage of the trade, and can rest assured knowing that their yields will return quickly – no more than 120 days in TFM’s asset class.
“We do our due diligence to ensure that we live up to our mission to provide high standards of security while also delivering an alternative, efficient, and simpler avenue for trade finance,” added Uttamchandani.
TFM has been operating in beta and has built up a strong origination capability with a client list across Asia and Africa.
One goal that we all have in common is that we all want to make more money and improve our personal finance. However, only a small percentage of us actually achieve the financial freedom we long for. We all want to have enough money so that we never have to worry about money again. The only question is, “are you going to do it or not?”
The good news is that there are more people achieving financial freedom faster today than ever before. There are currently almost four million millionaires, most of them self-made, first generation. Through proper financial planning and making it a goal to improve your personal finance, you can become one of them too.
Here is a seven point formula that you can use to make more money, improve your personal finance, and achieve financial freedom in the years ahead. I have taught this proven formula to countless people in my seminars and I have never had anyone tell me that it didn’t work and that it did not help them make more money. All over the country, I run into people who improved their personal finance and are now earning many thousands of dollars more each year as a result of applying this formula and consistently improving their financial planning.
This formula for financial freedom is based on the fact that it is possible for you to increase your productivity, performance and output by one half of one percent per week. This one half percent improvement can be achieved by something as simple as setting better priorities each day. If you can improve your productivity, performance and output by one half of one percent per week, and you can do this for four weeks in a row, you will be two percent more productive than you were when you began. Here they are:
1. The Golden Hour
Get up every morning two hours before you have to be at work, or at your first appointment, and invest the first hour in yourself. This is called the “Golden Hour.” And the first hour of the morning is the rudder of the day. It sets the tone for everything that happens afterward.
If you read one hour each morning, that will translate into about one book per week. This will translate into about 50 books per year, or 500 books over the next ten years. The very act of reading one hour every single day will enable you to increase your productivity, performance and output by one half percent per week consistently. It will give you your thousand percent increase over ten years.
2. Rewrite Your Major Goals for Financial Freedom
Rewrite and review your goals every day and think of how you could accomplish them. This will take you between five and ten minutes. The very act of writing and rewriting your goals, and thinking about them each morning before you start off, will increase your productivity, performance and output by half a percent per week, two percent per month, 26% per year.
3. Plan Every Day in Advance
Step number three is for you to plan every day in advance. The best time to do this is the night before. The very act of planning each day, each week, each month, in advance will make you far sharper and more precise at everything you do. You will find yourself with better focus and a greater sense of self-control and personal power when you work from a list. Your efficiency will jump 25% the first day.
4. The Principle of Concentration
Concentrate single mindedly, every hour of every day, on the most valuable use of your time. The principle of concentration is absolutely essential to achieve financial freedom. Virtually everything you do in terms of goal setting and financial planning is aimed at enabling you to determine the one or two things that you should concentrate on more than anything else.
Your ability to develop the habit of concentration will do more to assure your personal finance success than perhaps any other skill or habit you can acquire.
5. Listen to Audio Programs to Make More Money
Listen to audio programs in your car. The average person spends 500 to 1000 hours per year behind the wheel. By turning your car into a university on wheels, you can become one of the most knowledgeable and most skilled people in your profession.
I have spoken to thousands of people who have learned how to make more money by listening to audio programs continuously as they drove around. The very act of listening to audio programs, all by itself, can give you an increase of one half percent per week and more over time.
6. Magic Questions
Ask yourself the two “Magic Questions” after every meeting and every event of importance in your life. The first question is, “What did I do right?” And the second question is, “What would I do differently, next time?”
By reviewing your performance immediately after every meeting, sales call, and presentation, you will become better and better, faster than you can imagine.
The answers to both of these questions are positive. By reviewing what you did right and what you would do differently next time, you program into your mind a predisposition to be even better the next time out. If you take a few minutes and write down everything you did right and everything you would do differently immediately after a call or presentation, you can double and triple the speed at which you learn and grow and improve in your work.
7. Learn to Appreciate
The final point is to treat everyone you meet like a million dollar customer. Treat every single person, at home and at work, as if they were the most important person in the world. Since everybody believes that he or she is the most important person in the world, when you treat them as if they were, they appreciate your recognition and acknowledgment more than you can imagine.
By setting financial freedom and personal finance accumulation as your goals, and then by implementing proper financial planning on the one hand to get better and better at what you do while on the other hand saving more and more of what you earn, you will become financially independent, if not a self-made millionaire in the years ahead.
I hope you enjoyed this article on how to improve your personal finance and achieve financial freedom! If you have any other personal finance tips that have helped you make more money over the years, please share and comment below!
6 Proven Tips to Achieve Personal Finance Success
Are you struggling hard year after year to achieve personal finance success?
If your answer is yes then you are not alone because millions of people worldwide are also struggling to achieve this goal. For many people, financial success seems almost impossible to be true, especially if they have struggled quite hard but the results are not satisfactory. Do not let other people’s failure affect your struggle to achieve your financial success. Remember that different people have different processes and achieve results. The following are six proven personal finance tips commonly recommended by reputable financial advisors to help you achieve your financial success.
1. Determine your goals
The definition of success is always different between people. Some people might say that success is when they have become a millionaire and other people might have their own definition of success. Define what kind of financial success that you want to achieve and create the goals that will lead you to your success. Do not forget to create a realistic time frame to achieve all your goals.
2. Commitment and persistence to achieve financial success
Those who have achieved financial success always have a strong commitment and are very persistence. In most cases, personal finance success can take years even decades to achieve so without commitment and persistence you can end up with failure.
3. Choose a well paying career and spend less than you earn
Actually, it is a classic advice but many people fail to implement it, especially in this consumerism era. There are many careers out there but not all will carry you to financial freedom. You have to carefully choose a career that will enable you to achieve your financial success. If you choose the right career, always keep in mind to always spend less than you earn. Remember that if you cannot spend less than you earn, it means your financial condition is going nowhere even though you have increased your income. If you need a better paying job, taking the road to a higher education can be a good idea.
4. Create a budget and stick to it
Budgeting is one of the keys to achieve financial successes. With budgeting, you know how much you can spend and how much you have to save. Once you make a budget, stick to it. Do not hesitate to get help from an experienced financial advisor to create a good budget based on your current conditions.
5. Pay off credit card debt
These days, a credit card is an inseparable part of people’s life. Credit cards can be helpful but they can also be dreadful. Credit card debt is one of top reasons people cannot achieve financial success. If you want to achieve success financially, the key is to always pay your credit card debt immediately.
6. Investments
Investments are needed to achieve true financial success but choose your investment instruments carefully. There are many types of investments these days, such as stocks or bonds, gold or silver, real estate, retirement plans and 401k’s, etc, but not all types of investments are good for you.
Conclusion
The journey is the most exciting part in achieving financial success. Taking a money management class is also a good idea to get a good grasp about how to achieve success financially. As long as you have created solid goals, set a realistic time frame, a good budget plan and you stick with your plans then your personal finance success is right around the corner.
Want to improve your finances in 2016? One of the best things you can do is to get a trusted financial professional on your side.
Finding good financial help will go a long way toward helping you reach whatever goals you establish – such as planning for retirement, starting a business or paying for a college education.
In fact, women who use a financial professional are more than twice as likely as those who do not to consider themselves on track or ahead of schedule in planning for retirement, according to a 2014-2015 study on women and money from Prudential Financial.
Financial help can range from an accountant who shows you how to minimize taxes to an investment expert who guides you through the intricacies of investing in stocks or bonds. Selecting an investment professional will require some effort, but nothing extraordinary. You just have to be willing to ask good questions, trust your instincts, and do a bit of homework.
Get Referrals from Those You Trust
Begin by asking relatives and friends for the names of professional advisers they’ve worked with and would feel comfortable recommending. Your goal is to find someone experienced who can help you reach the next level financially. It should be a person whose client base is somewhat similar to you.
For example, if you’re making a modest salary and have a job in corporate America, you don’t want to hire someone whose clients are primarily millionaire entrepreneurs.
Do In-Person Interviews
Take the time to interview at least three individuals in person. Inquire about each person’s career experience, educational background, and investment philosophy. Don’t be afraid to bring up the issue of compensation either. A trustworthy adviser will answer your questions honestly without side-stepping the issue.
You need to know whether he or she will be paid a commission, a flat fee, or an hourly rate. Also, ask whether an adviser can provide you with a list of satisfied clients you can contact. You can find a fee-only financial planner at http://NAPFA.org, the National Association of Personal Financial Advisors.
Conduct a Background Check
Your final step in the selection process is to check out each individual through federal authorities and state regulators. A good place to start is with the Financial Industry Regulatory Authority, also known as FINRA.
FINRA has a database called the Central Registration Depository, or CRD. It contains information about all licensed brokers, such as where they’ve worked for the past 10 years, whether the person’s license or registration is up-to-date, and whether the individual has been subjected to regulatory sanctions for financial misdeeds.
You can reach FINRA at 800-289-9999 or at http://www.finra.org.
FINRA’s records, however, don’t always report everything pertinent about stockbrokers. So be sure to also contact your state securities regulator – via the North American Securities Administrators Association, or NASAA – for any information they may have at http://nasaa.org.
For instance, advisers are required to fill out a document called Form ADV. It contains two parts, including information about a broker’s services, fees and strategies. Ask any adviser you interview for Part 1 and Part 2 of his or her ADV form.
And if you’re worried that “checking up” on a broker might offend the person, put your worries to rest. You are legally entitled to this information. Plus, brokers and advisers aren’t told that someone has requested a CRD report about them when you get info through FINRA or when you look up an adviser in the SEC Investment Adviser Public Disclosure Database, http://adviserinfo.sec.gov.
Remember: having good financial help could mean the difference between reaching your financial goals or falling short of those objectives. So don’t wait or procrastinate to take this crucial step.
Your financial future may depend on it.
Every married couple has to decide how to make their household work. It can be challenging enough to figure out the small details like who will be in charge of laundry and dishes or who cares for the lawn and garden. But what about money? That’s where things get interesting. Many couples combine their finances and pay all bills and expenses out of joint accounts. Others keep separate finances or take on a hybrid approach. But is that the best way?
According to research referenced in Bloomberg View, couples who pool all their resources report a higher level of happiness within their relationship than those who don’t. Couples who pooled most of their money were happier as well. For example, couples who pooled 80 percent of their money were happier than those who pooled 70 percent, and so on. It’s hard to say why this is the case, but some experts believe couples who share their finances just have less to argue about.
Say ‘I Don’t’ to Toxic Money Arguments
If having joint finances means adding less fuel to the fire, then most people would say that’s a good thing. This is especially true when you consider the growing body of research that shows money arguments can be lethal to a marriage. For example, arguments about money are the top predictor of divorce, according to a study last year by Sonya Britt, director of personal financial planning at Kansas State University.
“It’s not children, sex, in-laws or anything else. It’s money — for both men and women,” Britt wrote in a press release. The findings held up even when accounting for income and net worth, according to the study of more than 4,500 couples. And unfortunately, those money arguments die a slow death in most relationships, if they even die at all.
“You can measure people’s money arguments when they are very first married,” Britt said. “It doesn’t matter how long ago it was, but when they were first together and already arguing about money, there is a good chance they are going to have poor relationship satisfaction.”
4 Ways Joint Finances Can Improve Your Marriage
Research shows that money arguments get ugly — and stay ugly — more often than not. But, what if you could avoid these types of arguments altogether or at least limit them? If you’re on the fence about combining finances when you get married, consider these benefits:
- No haggling with each other. When you have separate accounts, you have to negotiate who is going to pay each bill or how to split them in a fair way. On the other hand, having joint accounts allows you to avoid the awkwardness of haggling with your spouse by handling all bills and expenses jointly.
- Dream together, save together. When you’ve committed your life to another person, you’ve committed to building a future, and perhaps even a family, with your one true love. Having joint finances means chasing down dreams together and pooling your resources to make those dreams come true.
- Joint finances build a sense of teamwork. You know the saying, there’s no “I” in “Team.” Well, nothing says you’re out for yourself more than keeping separate score cards from the get-go. But it doesn’t have to be that way. Having joint finances helps you grow as a team by forcing you to create joint goals and work together to achieve them.
- The beauty of complete transparency. Having joint finances means you truly have nothing to hide. When all money is in one pot, you are forced to be accountable to one another and compromise on any money issues that might arise.
Money issues can make or break a relationship, and it’s easy to see why pooling your money could lead to more happiness and contentment within your marriage. After all, marriage isn’t just about the union of two souls; it’s about becoming a family and sharing your joint goals and dreams. So, put away your separate checkbook, and bring your marriage to the next level by proving you’re a team in every sense of the word. Saying “I do” to joint finances is the perfect way to do just that.
That car that’s supposed to provide you with the freedom to get you where you want to go may also be one of the many chains tying you down to a job you’d rather ditch. That’s because — over the course of a lifetime — the average person will spend more than three years at work just to pay for their various sets of wheels.
The folks at eBay Deals recently released a “Trading Time” calculator that lets you figure out how long you have to work to pay for various expenses. It’s an eye-opener.
Over a 50-year working lifetime, the typical person will work 157 weeks to generate the cash needed to pay for his or her cars. Then, add in another 50 weeks of work to cover car insurance. Those figures are based on the weekly median gross income. Yours may be higher or lower, of course.
If that doesn’t seem like a lot to you, then think about this: You work even longer to pay for your vehicles because you need to figure in taxes and the interest on your car loans. And don’t forget all the time in that vehicle commuting or shuttling your kids around.
According to the Trading Time calculator, other major expenses that keep you chained to your desk may include shoes (17 weeks), phone bills (60 weeks) and even toilet paper (two weeks).
Whether you love your job, hate it or or fall somewhere in between, it’s helpful to think about the things you spend money on in terms of the amount of time you have to spend working to pay for them. Only you can decide what’s really worth it.
Can You Get Back Some of Your Time?
Of course you may have no choice but to drive, and in that case, you may want to look for ways to try to reduce your costs. For example, can you drive a slightly used car instead of a new one? Keep your vehicle longer? Settle for a more economical model?
Another way to cut costs is to improve your credit. With a better credit score, you will qualify for a lower interest rate, which can mean significant savings over the life of the loan. You can see your credit scores for free at Credit.com to determine whether your credit is good. Ideally, you want to review it at least a month before you plan to shop for a vehicle in order to address any issues you uncover. (Give yourself more lead time if your credit isn’t great. Here’s a guide to help you rebuild your credit. )
Here’s an example of the savings you may achieve by boosting your credit. As of June 4, the lowest quoted rate for a $20,000 50-month auto loan with excellent credit on Credit.com is 1.99 percent. That translates into a monthly payment of $411. But for someone with poor credit, the rate jumps to 14.99 percent or a monthly payment of $540.
One of the thrills of being an entrepreneur — one that also goes along with jobs that pay commissions and bonuses — is the feeling that the sky is the limit on your potential earnings. But sometimes, it can feel like the income sky is falling.
Although the flexibility and lifestyle balance can be great day-to-day benefits, it’s easy to get disoriented by the highs, lows and general unpredictability of what one’s income will look like month-to-month.
Which is why, if your income is volatile for any reason — whether you’re an entrepreneur, in sales or just don’t have a steady paycheck — you, more than the average worker, need to streamline your finances and set yourself up for success. Here’s how:
1. Know your cash flow. Having a variable income makes it even more important to have a detailed and clear understanding of what’s coming in, where it’s coming from, what’s going out, where it’s going to, and when it all is happening. Use an online tracker such as Mint.com and ensure you’re tracking debit, credit and cash expenses.
2. Categorize. Maintaining a detailed budget will help you to categorize and prioritize for those lean months when you may not have room for the “wants” in your life. Ultimately, you want to ensure you can cover the expenses that are imperative, and with proper planning you should be able to. Categorize your spending to identify select areas that you may be able to cut back on if needed. Typically items such as dining out, entertainment, travel, personal shopping, and other day-to-day “wants” can be trimmed if necessary.
3. Be flexible. The roller coaster ride that is your income could translate into a variable lifestyle as well, with your having funds to splurge on extras one month and then needing to cut back to the bare necessities the next. Be flexible and prioritize your spending to ensure you’re paying yourself first before jumping into allocating extras towards fun or discretionary expenses. Ensure your budget Includes savings for personal goals, retirement and emergency cushions and then work in any other extras.
4. Add an extra layer of protection. Everyone needs an emergency fund of three to six months of expenses set aside. But those on a varying income should consider starting with a household expense fund to prevent the drastic swings in lifestyle that can come with the income. During some more lucrative months, set aside three to six months of household expenses to supplement you during the slow months. This will allow you to turn your savings into a paycheck of sorts to funnel in funds needed.
5. Plan for your future. If you’re employed, maximize use of your employer benefit programs and retirement plans. Ensure you’re not leaving any money on the table and at a minimum contribute enough to take advantage of any company provided matches. If you’re self-employed, look into the many retirement plan options for entrepreneurs such as the SEP Individual Retirement Account, a Solo 401(k) or a Simple IRA.
6. Automate. Although your income can vary, calculate a conservative average and use this number to set a monthly savings goal. Schedule bi-weekly or monthly dates to review your spending and income and track where there’s room for improvement.