Entries Tagged 'Long Term' ↓
October 1st, 2008 — Financial Security, Goal, Long Term, Money, Personal Finance, retirement
For many people, the first steps towards getting your finances under control are the hardest. Whether you didn’t spend enough time learning about basic personal finance principles when you were younger, or life happened and you’re now at the bottom of a very large problem, it can be difficult to get motivated to make that change and get your finances under control.
Waiting will only make things spiral out of control faster, so it is vital to find that motivation to take that first step in controlling your finances. Here are some great tips to help you on your journey.
First, it is best to create some financial goals for yourself.
Whether you want to have X amount saved over the next five years, or you would like to have your credit cards paid down in two years, write these goals down. Take a look ahead in your life if you are having difficulty coming up with goals and see where you would like to be. Then, write down how you plan to get there.
Once you have your goals in place, it’s time to determine what is keeping you from achieving them.
Take a good, hard look at your spending habits, how much you are making and what is keeping you from reaching those goals. Figure out what needs to be done to change this and write down your personal plan.
Now that you have these two things in order, it’s time to figure out what motivates you.
If you are under 30, planning for retirement seems so far in the future that it is easy to put it off. Look at your short term goals to find that motivation to keep you going. If you don’t have short term goals, try developing some ideas of where you would like to be financially in the next five years. By focusing not only on the future, but right here and now, it is easier to find that motivation to get your finances under control.
The next step is to begin implementing the changes necessary to meet your goals.
If you want to start spending less money, work up a budget and start sticking to it. If you want to make more money to reduce your reliance on your paycheck, work on either getting a second job, opening a business or finding ways to create more than one stream of income.
The first steps may be the hardest, but if you can stick with the process, it will get easier. Once you reach that first financial goal, the rest will seem like they are much more in reach. That is the main reason that short terms goals are just as important as long term financial goals. When you see the results in a quicker amount of time, you’ll be much more likely to keep forging ahead.
Take the time to start managing your finances now and the rest will fall into place if you work up a plan and stick with it.
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September 3rd, 2008 — Financial Security, Long Term, Money, Personal Finance, Standard of Living
The news is full of heartbreaking stories about people losing their homes, going bankrupt and facing financial ruin. If you don’t want to be among them, it is time to take a hard look at some steps that you can take to insure yourself against financial ruin. One of the best things that anyone can have is an emergency fund.
Whether you miss a few days at work, lose your job or have an emergency that requires a lot of money, having an emergency fund is a lifesaver. While you can use a credit card as an emergency fund, we generally don’t recommend this, due to high interest rates. That doesn’t mean you should bury your fund in the backyard, but you may want to consider placing it in an interest bearing account to further increase what you have saved.
An emergency fund is not a savings account per se, but rather a fund that you can pull from when things get bad. You don’t need to have $10k socked away, but a few hundred can’t hurt. Here’s an easy guide to help you decide how much money you should have in your emergency fund: Monthly Salary x 3 or Health Insurance Deductible
This means putting aside the equivalent of three months pay. Six is best, but three is attainable by most people. Let’s take a look at a few ways that this kind of emergency fund can come to the rescue:
1. You lose your job.
Unless you qualify for unemployment, this situation is usually pretty dire. If you are in a field where there are not a lot of openings, it can be even worse. If you had an emergency fund with three months of your old salary put away, this would give you breathing room to spend three months looking for a job without feeling any monetary pinch.
2. Your car breaks down.
Let’s say your transmission decides to fall out tomorrow. Could you pay for a full replacement? If not, then an emergency fund is very important. You can use it for just about anything, but auto repairs are one of the most common reasons people use their emergency stash of funds.
3. Your mortgage payment goes up.
If you suddenly switched to a variable rate mortgage, your monthly payments are going to go up. Most have reported anywhere from $20 to $300 a month if not more. That emergency fund will come in handy in bridging the gap until you can either refinance at a lower rate or find a way to make ends meet.
4. You have a health emergency.
Even if you have health insurance – do you have enough money put aside to make the deductible? A lot of people have fallen into the trap of getting a $2500 or even a $10k deductible to make their monthly payments lower. This means that if you had an appendicitis attack today, you’d have to come up with that much money before your insurance takes effect. With an emergency fund, it’s no big deal to make that deductible and get the treatment you need.
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September 1st, 2008 — Banking, Budget, Financial Security, Goal, Long Term, Money, Personal Finance, Wealth
Unless you’ve taken some courses on handling finances, there is a chance that you may not be aware of a few of the key points about budgeting, managing your money and planning for the future. While a lot rests on common sense, there are a few techniques that everyone can use to correctly manage their finances and stay on top of their bills. Let’s look at some of the best tips that you can put to use right now.
1. You need to pay yourself a salary.
Sounds a little odd, doesn’t it? However, setting aside a portion of your income every month that will go into savings is one of the first steps on the road to financial security. The best amount to put aside is 10% of your gross earnings each month, but this may not always be possible. Try to get as close to that number as possible and watch your savings grow!
2. Always have money in case of an emergency.
The problem with emergencies is that you never know when they will happen. From losing your job, to a car accident, to an unexpected repair bill, there are financial disasters lurking around every corner. To protect yourself, you need to create an emergency fund that will not be touched unless you have an actual emergency. We recommend putting about four months of your salary aside for this fund if possible, however, anything you can put aside for a rainy day will be useful.
3. Always have a budget.
Even if you’re not restricted on your spending, you may need to be. Everyone can benefit from a budget and chances are, you’ll end up spending less every month. Take a hard look at your regular monthly expenditures and see where there is room for improvement. You should always have at least some money left at the end of the month, so aim for this goal when making your budget.
4. Paying your bills on time really does matter.
Even if your phone company doesn’t report late payments to the credit reporting agencies, this doesn’t mean that you should be late. Paying your bills on time forms a good habit and it will last throughout your life. Work your payment dates into your budget so that you always have enough put aside to handle all of your bills. If necessary, when you get paid, add up all of your set bills and then put that money aside immediately to be used when they are due.
5. Remember the key financial equation.
The key to getting ahead is to always make sure that you are spending less than you earn. It sounds very simple, but it’s not always easy to accomplish. The amount that you charge should be figured in to this equation for the best results. By keeping your spending under control, you’ll be able to start planning for the future right now, instead of when it may be too late.
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August 27th, 2008 — Long Term, Money, Personal Finance, insurance
Most of us look at insurance premiums as a big drain on our finances. Insurance policies do not come cheap, but they may be essential. In many ways, you can look at insurance as a way of avoiding financial failure in the years to come. While you can’t buy a policy to protect your checkbook, you can invest in insurance that will protect you and your money should an emergency occur. Let’s take a look at how various insurance policies can impact your financial future.
Health Insurance –
This is one of the most expensive forms of insurance, and if you’re generally pretty healthy, it can seem like a waste of money. But, look at it this way – let’s say that you are injured off of the job (where you would not be eligible for worker’s comp.) It is a serious injury and you’re unable to work for two months. In addition to missing that salary, you’ll also have to pay for all of your hospital bills. An unexpected illness or injury is one of the number one causes of bankruptcy. If you had an insurance policy, you would not have to worry as much about those bills and your financial burden would be smaller.
Business Insurance –
If you are running your own small business and you do not have business insurance, you are setting yourself up for failure. This is especially the case if you do business with the public or create products that are sold to the public. There is always a chance that someone will be injured and they may sue your company. It is entirely possible to lose everything you own very quickly in this situation.
Errors and Omission insurance is also vital, and often overlooked, for business owners. Anytime you are providing information to the public, you are at risk for giving advice that may not be used properly. In today’s litigious atmosphere, you really cannot have too much insurance if you have your own business.
Car Insurance –
This is usually required by states, but it can seem like a bit of overkill, especially if you’re paying a lot on your premiums. But, once again, if you imagine what could happen, it’s easy to see why this insurance is so important.
Let’s say that you only have a liability policy, which is generally accepted as the minimum requirement by most states. You’ve got one car, and it is not paid off. The car is wrecked, and although you were not at fault, the insurance will only pay for the damage you caused, and not the damage on your car. Suddenly, you’re stuck with still making car payments, even though the car has been totaled. Since it was your only car, you’ve got to go out and finance another. It’s easy to see how that could be disastrous for most people.
Insurance may be expensive, but only when you don’t have the right outlook. When you consider how much protection it provides to your financial interests, it is well worth the money.
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August 19th, 2008 — Debt, Long Term, Money, P2P Lending, Personal Finance, loans
There are two new trends in the banking world that may actually be very dangerous for consumers. Long term personal loans and interest only loans are gaining in popularity, especially in the wake of the housing crisis. While these may seem to be a great option at the time, there are many risks from these loans that should be avoided if at all possible. If you’re considering refinancing your home to an interest only loan, or if you are looking at getting a personal or car loan, it is very important to understand exactly what you are getting into before you agree to any loan.
An interest only home loan means that each month, you only pay the interest that you owe. At face value, this can save a lot of money and it may help you keep your home if you are refinancing. Even though interest rates are going up, when you’re not paying on the principle, your overall monthly payment will be lower. However, the part about not paying on the principle is the kicker.
At the end of your interest only loan you will not own your home. Instead, you will have to pay the principle, in full, in order to get the deed. Now, if you’re planning on selling your home after the loan is paid off, this may not be as dangerous. However, with falling property values and a down market, this can be disastrous. In addition, by only paying interest, you will end up spending a lot more at the end for your home. In most cases, homeowners with this type of loan find that they spend $25k to $50k more for their actual homes.
Another issue with interest only loans is that you will not have the benefit of gaining equity in your home, even though you are making payments every month. If you end up with an emergency on your hands and need to get money quickly, you will not be able to draw on the equity in your home. This is a big problem that many people do not consider. Would you rather have lower monthly payments, or the ability to earn equity in your home with every payment that you make?
Next up, long term loans are becoming very popular as interest rates go up. Most people prefer to keep their payments as low as possible, but right now, that is pretty tough. The solution has been to roll out new long term loans, particularly for cars. As an example, you may be paying only $300 a month for your car, but you will have to keep making those payments for the next seven to eight years. Compare this to the usual time period of three to five years.
That is a lot of extra interest and many people may not even realize just how much extra they are paying. At the end of the loan term, you will have spent thousands more than the car is worth and by then, the vehicle has depreciated to the point where you will never get that money back. Long term loans do make it easier to make payments, but at the end of the day, you’re worse for the wear.
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August 14th, 2008 — Budget, Financial Security, Goal, Long Term, Money, Personal Finance, retirement
We would love to start a great new experiment, where everyone would catalog all of their impulse purchases for the course of one year. Everything from that cheap pack of gum to the “whatsit” that we really don’t need would have to be recorded. At the end of the year, everything would be totaled up to see just how quickly we are all nickel and diming ourselves to the poorhouse. The old saying is true, “The rich are rich because they don’t spend any money.”
So, how can you put this to work in your life, without being excessively frugal? Chances are, you probably buy more than you realize and a lot of it is probably unnecessary. Impulse buys are the bread and butter of many industries and there is a reason that those little items are so easy to buy. It’s so easy to fall into that trap of “well it only costs a quarter,” without realizing that we are easily spending way too many quarters every month.
If you’re finding that you are always out of money at the end of the month, or you just can’t seem to get ahead, it is definitely time to break free of that cycle. It’s time to develop a “needer” instead of a “wanter.” We live in a society where instant gratification is king and many of us have “wanters” that are out of control. It’s simply just so easy to focus on what we want instead of what we really need.
The first step towards putting a leash on your wanter is to take a hard look at everything you buy. Ask yourself whether or not you want to work at McDonalds at the age of 78. This is probably the easiest way to gain perspective on what you purchase.
When you look at everything as the tipping point between spending the rest of your life in ease, or working in a burger joint, it casts a harsh light on your spending habits. Yes, it’s a little extreme, but if you do end up nickel and diming yourself to poverty, it will be too late to do anything about it. Sometimes, you need to get extreme in order to train yourself into better spending habits.
Instead of going a whole year, do the experiment for just one month and see how much you really spend on frivolities. Now, next month, take that exact same amount and put it to work for you instead of against you. Leverage that towards creating a second income or put it in a savings account. Chances are, you’ll surprise yourself at how much money you can make in the place of that pack of gum. Your future is in your hands and it is up to you as to where you will spend your retirement. It is never too early to start making the right choices that could affect your financial future and the rest of your life.
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August 6th, 2008 — Diversification, Financial Security, Income Streams, Investing, Long Term, Money, Personal Finance, Standard of Living, passive income, retirement
One of the hottest concepts right now is the premise of creating multiple streams of income. While everyone wouldn’t mind making a little extra cash, there are even more benefits that can be reaped from having more than one source of income. Let’s go over just a few of them.
1. Help save for retirement.
The average person needs to have more than $500k put aside for their retirement in order to live in comfort and without worries. Unless you have a job that pays incredibly well, this is going to be a pretty daunting task. You cannot rely on social security payments to secure your future. Whether you’re 25 or 55, it is never too early or to late to put aside money for your retirement. Unless the thought of working until you drop dead appeals to you, you’re going to have to find ways to supplement your current income.
Multiple income streams can be incredibly beneficial not only for retirement planning, but later in life. Smart investments will continue to reap rewards for many years to come and you’ll have that nice supplemental income that will make your life easier far past the retirement age. A good concept to try to is put all of your multiple income streams into a high interest account to make even more money for your future.
2. Layoffs and downsizings happen every day.
No matter how secure you think your job is, there are still chances that you could get laid off. There are very few guaranteed jobs in this world that provide lifelong security. If you are relying solely on the income for your job to pay your bills and make ends meet, you are literally one paycheck away from financial ruin.
It’s a stark reality that all of us face. However, if you have multiple streams of income coming in, you won’t have to worry so much. You’ll have a cushion that will tide you over if you do get laid off or lose your job. In some cases, lucrative streams may even replace the need for your job entirely.
3. Accidents happen.
Even if you have insurance – what would happen if you were injured today and no longer able to work. Could you pay your bills? This happens to thousands of people every year and they risk losing their homes, bankruptcy proceedings and worse. By having that extra cushion with several different streams of income, you are reducing your reliance and making sure that no matter what happens, you’ll be ready to face it.
If you don’t have health insurance, it’s even more vital to have steady streams of income coming in each month. You may be the picture of health right now, but what if you get hit by a bus on the way to work tomorrow? Unless you have thousands of dollars in savings, the answer isn’t pretty. Even if you do have a savings account do you really want to use it for that? What will happen when it runs out? The best kind of insurance you can have is a steady stream of extra income.
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July 28th, 2008 — Budget, Cash Flow, Debt, Financial Security, Income Streams, Long Term, Money, Personal Finance, retirement
Whether we realize it or not, many of us face financial risks every single day. From the high powered investor, to the minimum wage earner, every one of us has the potential to lose everything we own. How can you evaluate your financial risks and find ways to secure your future? Let’s take a look!
First, it is important to figure out exactly how much you spend in a single month. Get a notebook and write down everything you spend over the space of one month. Include everything from the smallest item to the largest, and don’t forget to include your monthly bills as well. At the end of the month, total up everything you spent and compare it to how much you make.
If you are overspending or cutting it close, you are definitely at risk for financial ruin. If you have more than enough left over at the end of the month, your risks are quite a bit less, but they may still be there. One of the best ways to tell how close you are to the brink is to experience what it is like when your paycheck is a few days late. Do you panic? Do your bill collectors panic? If the answer is yes, you may be cutting things a little too close.
Not many of us realize how much we depend on our paychecks every month. We may think we’re doing ok, and we have plenty of stuff to make us comfortable. Few of us put aside anything and before we know it, we’re living paycheck to paycheck. Add in credit cards and you’ve got a recipe for disaster.
Now, let’s look at the other end of the spectrum. Let’s say you’re financially well off, you’ve got plenty of investments bringing in some pretty decent returns. You’ve come to rely on those returns and you’ve always got the back up of your 401k, right? Now, let’s say the market takes a nosedive, ala Black Monday or the dot com fallout. How well off would you be then?
No matter if you make $800 a month or $8000, diversity and multiple streams of income are the best answer to shoring up your defenses against financial ruin. Let’s face it, most of us would not turn down more income every month, especially if we didn’t have to work hard to get it.
By reducing your reliance on your paycheck, or your standard investments, you are increasing your chances of being able to withstand a finance shattering event, such as a market crash or the loss of a job. The more ways you have to make money, the less likely you are to fall into financial ruin.
One of the secrets that millionaires have is leveraging debt to create a new stream of income. For example, let’s say you take out a loan to use to buy an investment property that you rent out. This is now an income producing property and you’ve got more money coming in. As you pay off that loan, the profits keep rolling in, and you’re less reliant on your standard means of income. That is one powerful way to avoid financial ruin.
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June 9th, 2008 — Investing, Long Term, Money, Personal Finance, Real Estate
Right now, if there was a market that had bad news written all over it, it would be real estate. The housing crisis has made investors jumpy, the economy appears to be tanking and home values are plummeting across the country. Would you believe that this is actually a good time to get into real estate? With the proper choices and management, this is absolutely true.
Down markets are a speculator’s dream come true and they can easily change your entire fortune. While we certainly don’t recommend sinking your life’s savings into a bunch of dead end properties this instant, this is a good time to think about investing in real estate the smart way. Never overextend yourself and always take the time to make smart investments that will pay off in the long term.
Let’s look at that statement a little more closely, especially the last two words – long term. Yes, right now, an investment in real estate is not going to do very well. In fact, it may even lose some value over the next few months. But, what goes down will go back up. Property values cannot stay low forever, and although they may not reach the insane heights they recently attained, it’s easy to make a good chunk of money with the right house.
Instead of looking at an investment in real estate in the tangible form, let’s compare it to an investment in a stock. You purchase a stock at $4 today and while it’s been steadily going up over the past few years, it’s still a pretty cheap buy. However, in eight months, the company takes off and the value of your stock increases exponentially. This would be considered a good investment. How is investing in real estate right now any different?
In fact, in some ways, you can do quite well with an investment in real estate right now. Consider the fact that foreclosures are at an all time high. What does this mean? Thousands of families need a place to live and they’re not going to be able to get a new home loan right away. This means that thousands of new renters have flooded the market and they have to find a house to rent.
Investing in real estate is always risky, but sometimes, the best returns come from taking a chance in a down market. You can easily pick up a property for pennies on the dollar, earn money from renting it out right now until the market changes and then sell it for a profit in a few years.
Remember – if you are going to jump into the real estate market, never purchase a property without first getting an inspection. Some homes that have been foreclosed on will be wrecked by the old owner or may have fallen into disrepair. Never accept anything on face value and insist on seeing the property in person. Pick properties that are solid, located in good neighborhoods and likely to go up back in value once this crisis passes.
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