Thursday, September 30, 2010

Poverty To Riches Is Easy

One of the least understood aspect of financial planning is that almost everyone can be well off just by following simple principles of money management.

I am not talking about attaining Warren Buffett's wealth. Most people are likely to be in this situation of starting from poverty, get a good education, good career and end up financially sound. It is doable, a little bit of luck but more of being disciplined.

You must be willing to spend less than what you earn over a long period of time. It explains how a person earning more than $30,000 a year can retire comfortably while another guy earning $1 million a year can retire broke.

That's really good news for all of us because cutting expenses/living below your means is much easier and more controllable than trying to increase your income.

However, once you generate excess cash by living below your means, you need to invest that surplus wisely to maximize its growth.

You don't have to be an accountant or receive an inheritance from your rich daddy.
All you need is the willingness to begin and learn. A commitment and perseverance to regular, small investments, like $50 or $100 a month, can be the start of a million-dollar retirement account.

The earlier you start, the easier it will be and the more money you'll actually accumulate. But if you're like me and put off investing until later in life, you still have the ability to achieve your goals. The idea is to start, but start now.

Time is best friend in compounding your wealth, ie. to multiply your savings over and over again to turn the little savings into a massive portfolio.

So the path to prosperity is quite simple:

1. Spend less than you earn.

2. Invest your surplus to make your money grow.

3. Repeat steps 1 and 2 for many, many years.

Isn't the path from poverty to riches easy?

Wednesday, September 22, 2010

6 Tips To Financial Independence

We all have dreams and resolutions, earn our first million dollars, lose weight, exercise more, quit smoking, etc.

How about becoming debt free for a change? The average American has about $9000 of credit card debt and as a nation, consumer debt is approaching $2 trillion.

You can change your life by aspiring to financial independence, instead of living paycheck to paycheck and getting further into debt each month.

Take a long look at how you're spending your time and money, and determine your financial priorities. Here are 6 easy tips to help you become financially independent:

1. Make a Commitment

Be responsible for your own actions as nobody will look out for your financial future. The best option is independence. Try to save up enough in your retirement account to last till the end of your life.

2. Prioritize Needs vs Wants

We want a lot of things but income is limited. By prioritizing wants and needs, you can create a monthly budget and save for the most important "wants" on your list, after meeting your needs.

Evaluate your wants to see what value they bring to you. You may be surprised that a lot of wants are useless!

3. Pay Yourself First, Then Forget About It

Before you pay a single monthly bill, including your mortgage, rent or insurance, pay yourself first, meaning your saving account. A simple rule of thumb is to have at least 10% of your gross income saved and invested for the long term.

Resist spending any of your savings. Time is your greatest asset, so the sooner you start saving and the longer you keep your savings in place, the more financially secure you'll be in retirement.

4. Practice Responsible Credit Card Use

Credit cards provide the convenience of not carrying cash in your wallet but the spending power comes from your future income. To become a responsible user, change your mindset.

Don't go for instant gratification by paying much more later. Start paying out of your pocket with cash or at least pay down the outstanding amount diligently so that you are not a lifelong prisoner of credit card debts.

5. Prepare for a Financial Emergency

Personal, property or business risks are inevitable. Thus, emergency fund is a good idea so that you don't turn to predatory schemes for help.

First, assess your current insurance coverage. Is it enough to cover your assets while allowing you to pay higher deductibles? Next, build an emergency reserve fund based on three to six months of living expenses. The reserve fund should remain readily available, safe and income-producing.

6. Get Your Money's Worth

Try keeping a record of every purchase for a month by listing exactly the item and the cost. At the end of the month, review the list and ask yourself whether you are getting your money's worth.

If you are not satisfied, then reassess the things bought. Your goal is to continuously refine the way you spend money until you are completely comfortable with your habits.

You cannot accomplish your goal of achieving financial independence by wishing. It takes being committed and acting on your desire. So start today!

Thursday, September 16, 2010

Save Money Daily By Thinking On Micro Level

Jen from Frugal, Freebies and Deals talks about her saving money experience and gives tips on how you can do it too.

Her family is still in debt but using Dave Ramsey Debt Reduction program, she is slowly chipping away and may take about 4 years to pay off everything. This revelation makes her debt reduction journey more credible.

The takeaway lesson from Jen is to break up seemingly insurmountable debts into small, manageable pieces that you can easily handle daily.

Check out her full article on micro level money saving.

Wednesday, September 8, 2010

Don't Fall For 'Debt Elimination' Scams

Everybody loves short cuts, be it getting rich, losing weight or reducing debts. This weakness in our human psyche makes us vulnerable to scams.

In the case of debt elimination, a lot of people don't want to give up their extravagant lifestyle nor face up to the consequences of mounting debts. They prefer to believe in the wonders of debt elimination scams.

Actually, there are no quick fixes for debt elimination which boils down to earning more income, spending less and using the surplus to pay down debt. A drastic approach like a crash diet where you don't eat for days is not productive. You either go back to your old habits or risk damaging your health.

Some debt elimination scams require you to pay a big upfront fee for secrets on dealing with your creditors but most of them are fake.

It is best to exercise caution when there are offers too good to be true. After spending like maniacs for years, no way can you pay someone a simple fee and make all the debts disappear.

Ignore those claims and work on getting yourself out of debt the old-fashioned way. Review your income and expenses and look for ways to either increase the income or decrease the expenses until you can lighten your debt load.

Friday, September 3, 2010

Save $500 A Month By Reducing Big Expenses

Two years after the Great Recession, economic recovery is anemic at best. Though the stock market has managed a remarkable recovery, unemployment rate still hovers around 10%, home sales are languishing and consumer sentiment is low.

Let's not forget about basics of saving money which is to reduce our money expenses.
For those who saw a lower or even zero household income, reducing expenses is a necessary skill.

Here are some quick ways to save at least $500 by reducing some big expenses.

1. Reduce APR’s On Our Credit Cards

Call up your credit card company and ask for a rate reduction. If you have good credit with them, they will drop your interest rate by a few percentage points.

Don't feel shy about asking. If you are being charged an exorbitant 30% for an outstanding balance and in danger of default, the credit card company is actually more worried that you stop paying altogether.

Sometimes, they grant a reprieve period of say 6 months with low interest rates, which lowers your minimum monthly payment by as much as 2-3 times. Although it is temporary, you can always go back to negotiate for another rate reduction. That is easily worth $100-$300 of savings for most people.

2. Modification On Home Loans

Not everyone will be qualified for a home modification and the process is time consuming. The approval process may take up to 90 days, but it could be well worth it in the end. If you loan modification is approved, you can save at least $100 per month on your mortgage.

3. Cable, Phone and Internet

When you are jobless, you can do away with lots of entertainment, like cable and internet. Rather than staying home to watch TV or surfing the net, going for interviews will be more practical. And if you use mobile phones most of the time, just do away with the landline too.

Again you can easily save $50-$100 per month.

4. Consolidate Cell Phone Bills

Look around the internet for providers which allow you to consolidate cell phone bills. Of course, you got to sort out every month the bills and usage between your family members but it is easily $50-$100 savings for the household once you do that.

With the expenses reduced, say $500, you can put more food on the table, invest, pay down outstanding loan (especially credit card debts) or simply save the money for a rainy day.

I think every household can find areas of improvement when it comes to finances. You just have to look hard enough at where your money is going. It’s important though that the money you “save” is not used to purchase extravagant items, like flashy gadgets or fashionable accessories.