Money Walks

Wow, this was a very busy week and I’m glad the weekend is finally here. Lately these past few weeks, I’ve been so busy I’ve fallen behind on calculating this months net worth so hopefully I’ll get that done tomorrow. But anyway, I wanted to leave guys with some general finance tips you can carry over this weekend.

• Save the pennies and the dollars will save themselves. The small amounts really do add up.
• Make the effort to educate yourself about personal finance. Go around and find some financial magazines and books.
• Don’t forget to budget! Operating without a budget is like driving a car without a steering wheel, you have no control.
• Start taking savings out of your paychecks before you even see it. After a while, you will get used to planning your spendings around your lower amount and at the same time your savings will grow.
• Be smart and not cheap. You don’t want to buy cheap items that don’t last.
• Be aware of your debt and don’t let your spending get out of control. If you notice yourself headed for trouble, act quickly before you ruin your credit.

Keep these tips in mind while you start your weekend and remember, millionaires are just average people who practice good habits. You could be one of them.

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So today I decided to take a look at my Money Market account, which I usually try to check only once a month, and saw that the interest rate went from 5.30% to 4.90%. I was surprised that my initial reaction wasn’t disappointment but rather quite passive. There was a point in time where I used to think that every one hundredth of a percent counted and mattered and that I would find the best money market account accordingly. But the truth is, unless you have a nice amount of money, say a million dollars, it really doesn’t matter too much.

I think people who are new to finance and just started saving have this same problem just as I did. People are always looking to get the highest percentage rate on their interest, but the thing is, the percentage rate really doesn’t matter unless you’re dealing with substantial amount of money. Instead of concentrating on trying to find an account that offers a percent higher than the current one you’re considering, you should put that energy into concentrating on how to stay saving for more than 3 months. Most Americans fall short on their savings goals, I don’t have a percentage rate to offer you but I’m sure its quite high. The personal savings rate in the United States is a negative number, but majority of Americans think of themselves as people who “always look for ways to save money“.

So back to the money market account, lets do a quick example to demonstrate what I’m talking about.

For the sake of my story, lets use my interest rate(in case you were wondering, my account is with Gmacbank) at 4.90%, which used to be at 5.30%. We’ll say account 1 has $5,000 and account 2 has $500,000. Lets crunch some numbers.

Account 1($5,000):
In one year, at 4.90%, this would make $245/year ($20.42/month).
Now at 5.30%, we get $265/year ($22.08/month).
So not a huge difference eh? Just 20 more bucks a year or $1.66 a month. I somehow doubt I’ll even notice this small difference. Now account 2 on the other hand…

Account 2($500,000):
In one year with 4.90%, this account would make $24,500/year ($2,041.66/month).
At 5.30%, this account would be $26,500/year ($2,208.33/month).
Now in this case, the difference is quite notable. This account dropping by as little as .4% makes a difference of $2,000/year and $166.67. If I was in this case, my reaction most probably would have been quite different than that of today.

The point I’m trying to make is don’t worry about the percentages now and focus more on getting our accounts to $500,000. Lets continue saving and worry about the minor details later. Chances are, you don’t have $500,000 so percentage rate is not going to help you become rich, well at least not now. The idea of saving on the other hand is a complete different story.

Quick note: If you are looking for a place to put your money into for savings and also concerned with not having to worry about commitment, then you should really consider looking into getting a money market account. I strongly suggest going with Gmacbank. I’m not saying this because they’re paying me or anything like that but just from my personal experience, they really have it well together. They are really helpful each time I call and all my calls end with the feeling of satisfaction. For more information, you can go here.

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The last thing you want to do is to cancel your credit card(s) right before applying for any types of loans, this is a bad idea. Canceling your card can affects your credit score negatively. When you have a lower credit score, that will result in higher interest rates and also may increase your fees. It doesn’t hurt for the account to stay open but it can hurt if you close it.

Instead of closing your account just leave it open, it doesn’t hurt. If you’re never going to use that credit card again, pay off the credit card or transfer your balance to a card with a lower interest rate and cut it up. You can cancel the credit card once you’ve decided that you’re not going to be needing a loan anytime soon.

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Lately, I’ve been listening to this audio book called the “Automatic Millionaire” by David Bach, and let me tell you that it’s awesome. I recommend this audio book to everyone, it’s a great read/listen, whichever you prefer. So while I was listening to it, I noticed some cool things that I thought I wanted to share with you.

When it comes down to it there are 6 approaches to wealth. Here they are.

1. Win it. For example, the lottery. Did you know that over 500 Billion dollars have gone into the lottery business since the early 70’s when the lottery was first started? Imagine if all that money was put into an investment account, there would be over trillions of dollars right now. This is not a realistic approach but it happens to the very few. Do you know anyone who has won the lottery? Probably not, so I wouldn’t recommend waiting around for this one.
2. Marry it. Wouldn’t it be great to marry your self into wealth? But lets face it, it’s not that easy to marry for money. Not only is it not easy to marry for money but “when you marry for money you pay for it for the rest of your life”. Good luck with this one.
3. Inherit it. Now inheritance is actually a real approach to gaining wealth. Within the next 15 years, we’re going to see over 15 trillion dollars transfer from one generation to the next. But I mean, who wants to rely on their parents to past away so that they can get their money. No one I know, hopefully no one you know either. If you are fortunate enough to have your parents or family members leave you something after they pass, you can be grateful but don’t depend on it. Not a good way to live and you don’t want to rely on this for your retirement.
4. Sue for it. Why work when you live in a country that pulls in 90% of all lawsuits made in the world? Just sue your way into wealth, right? Wrong. Again, you don’t want to rely on something like suing someone to get rich. This is not a real approach to wealth.
5. Save for it. For all the little things we spend our money on like fast food and starbucks, this alone over a long period of time could end up to be a considerable amount. Say you spend on average roughly $10 for lunch and starbucks. Over a year it’s $3,650 and over thirty years it comes to 109,500! Now imagine you put this money away in the stock market in some kind of an index fund, which historically averages about a 10% return. Using this compound interest calculator, you would end up with 660,443.50! Isn’t this amazing? So yes, your daily fast food and starbucks is costing you over half a million dollars. This is also known as the Latte factor.
6. Earn it. Yes, you can earn your way into wealth. Although the automatic millionaire has many great tips on how to accumulate wealth, the main concept of the audio is to pay your self first. What does it mean to pay your self first? It means that when you get your paycheck, before you pay anything or anyone, including the government, you make sure to pay your self first. When you automate this process electronically, it’s very easy to do because you don’t have to do it manually and the great thing is it doesn’t require motivation or work once its all set up. This is why out of all the 6 approaches, this is the most promising. As Bach mentions in the audio, you can start paying yourself as low as 1% of your gross income. Then over time, slowly start to increase your percentage and you won’t even notice it.

Just to let you know, I’m not getting sponsored or getting paid for saying any of this, I just want to share with you how much this program works.

So ever since I started listening to this audio, I made everything automatic and so far it’s doing great. As of now, I am automatically paying myself 20% of my gross income each paycheck. I stated out with 10% but then realized that I can afford to do 20%.

Having this process automated is the main key. Since it’s automated, you don’t have to worry about keeping your self motivated and that’s a huge factor, especially for me. Lets face it, it’s really hard to stay motivated 24/7 and thinking about finance day in and out. Another thing is when you have this process automated, once you have everything setup, you don’t have to work at it. Everything is automatic! It’s working for you while you’re not thinking about it.

The thing is, most of us know the concept of paying yourself first, but no one ever executes them. In his book, he pays down solid principles and honestly tells you that it’s not a get rich scheme. That it takes years for it to work. But its a solid plan that I think is guaranteed to work. What I like about the book is that it’s really simple to understand and easy to follow. If you have the chance, go check the book out for your self. It’s definitely worth the investment.

At the end of every year, do you wonder if you will end up paying too much in tax? The best way to go about tax filing is you want to always try to come out even. This way you’re not letting the government borrow your money interest free and also you can use your money when you want to. Here’s some quick tips to look over.

• If you own two cars, alternate your use of each car from month to month.
• If you have children under the age of 18, you can hire them at fully deductible wages and owe no social security or federal employment taxes if your company is a sole proprietorship or partnership in which both partners are parents of the children. However, don’t cheat, make sure that they perform actual work for your business.
• You may remember that dry cleaning and laundry expenses during a business trips are deductible. Did you know that you can also deduct your first dry-cleaning bill after returning home. However, this only applies for the clothes dirtied while you were traveling.

Life’s full of many hacks, always try to find ways to get around things. Hope these tips help.

From Wiki, “Whether in the form of the consumer attempting to defraud the telephone company, the telephone company attempting to defraud the consumer, or a third party attempting to defraud either of them, fraud has been a part of the telephone system almost from the beginning.” Wikipedia has a nice section on phone fraud that you should check out. They break it down into fraud against users and fraud against phone companies. Very informative and very important stuff.

The thing is, many entrepreneurs think that they are too small to worry about fighting phone fraud but the truth is that they are the ones who gets caught in the fire. It’s better to be careful and watch out for these things because when it happens to you, its gonna seriously cost you.

Make sure that you’re aware of how it works:

• Using default passwords programmed by the manufacturer is not a good idea. “Phone Hackers” can easily break into unused voice mail boxes and rack up thousands of dollars in toll charges. You want to make sure that all phone extensions are password protected, whether it’s in use or not.
• Be careful when using long distance prepaid calling cards. There are thieves known as “shoulder surfers” who observe callers as they punch in their card account numbers in public and can steal your valuable minutes.
• The best way to protect your business from phone fraud is to analyze your bills as soon as they arrive. You want to check for unusual calling patterns and be on alert to calls to the 809 area code in the Caribbeans.

It’s always better to be on the safer side then to get scammed and have to deal with a big loss.

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