My 2Cents!~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~A Newsletter all about Living with Abundance, Ditching Debt and Collecting Cash.
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------------------------------------------------------------------------------------------Janine Bolon, Editor janine@smartcentsinc.com
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In this issue -- Note from the Editor -- The Top 10 Causes of Debt -- Seeing the Forest then the Trees, How to Invest Your Money! -- Reader Question: I need thousands of dollars, what do I do? -- WHO WE ARE
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Note from the Editor ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Dear Frugal Friend, March is the time of spring, renewal and hope. With the melting of snow (for some of us) and the warming trend that occurs throughout this month, comes the hope of a better year. With this issue of My 2Cents, I will be addressing the topics of debt, savings and transportation. The first article, “The Top 10 Causes of Debt” was a list created by MarketWatch and was much published on the web blogs and discussion boards. I was amazed to see that the causes of debt I hear of over and over were different from the list published. “Seeing the Forest then the Trees” discusses the issues that arise when you are finally able to save money and have the opportunity to invest it. I’ve had many clients call and email me concerning a growing savings account and what they should do with it. I quote from Charles Schwab in this article since he has hundreds of millions of dollars to his name and is a financial planner. Lastly, the Reader Question for this month was a funny one from the “quick fix” mentality category. We all want results and we want them NOW! This reader was astonished at my response to her query for how to free up more cash. Enjoy the various options for frugal living as you read through this month’s newsletter. Remember to look outside of what is “conventional” to solve your financial problems. Why? Well, my friend, there are so many households that are in debt to the tune of $9,200 per credit card! The very fact that you wish to get out of debt and are taking steps to save money will naturally lead you to an “unconventional” lifestyle. So, think out of the box, make some goals, and then act!Wishing you abundance, Janine The Top 10 Causes of Debt ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ As I was cruising around the internet looking for ways to help you be frugal and save money, I ran across a list that I had never seen before. It was a Top 10 list for the Causes of Debt. Not only did I see this list once, but it popped up on three different financial sites that I routinely track. Wow! I quickly scanned the list and frowned. I could agree with some of the points of the list, but overall, I have seen variations in my data that don’t support the reasons why my clients are in debt relative to the list created by http://www.marketwatch.com. Before I launch into my rebuttal of this list let’s take a look at what Marketwatch came up with. 1-Reduced income/same expenses 2-Divorce 3-Poor money management 4-Underemployment 5-Gambling 6-Medical Expenses 7-Saving too little or not at all 8-No money communication skills 9-Banking on a windfall 10-Financial illiteracy What I find amazing with this list is that the reason most of my clients have debt is due to one thing and one thing only. They spend more money then they earn. I know this may sound stupidly simplistic, but it is true. I have found in counseling over 362 families on their personal finances that the main cause of debt was due to their banking on money they didn’t have. Financial decisions were being made without a clear understanding of how much money they actually had coming in the door! That’s right! Of the people I have coached, 98% of them could not give me a clear dollar figure of their earnings. I was blown away! Now, when I say how much money you earn, I mean the amount of money you have left after Uncle Sam takes his slice of your paycheck. It was amazing how many folks had to call me back or had to refigure their income. Upon figuring their income after taxes they were dumbfounded at the amount they had left. Just because you have a job that pays you $56,000 a year doesn’t mean that is the amount of money you have to “play” with. However, most of my clients have the $56,000 number in their head and they spend money like that amount is in their checking account! I recommend that if you don’t know your exact income after taxes and other deductions that you have removed from your check, go figure it out now. Determine how much you get from every paycheck to SPEND. Then figure out what that adds up to for a year. This number will shock you into a new realization that you are not as “flush” as you thought you were. This simple exercise was enough to make many of my clients back pedal on major purchases they were planning. It put them in a whole new mind set regarding their income. The biggest thing to remember with the causes of debt is not what other people think about and say is your financial situation, but what you think about your personal situation. The best way to pull yourself out of debt is to first get a clear understanding of your income then go from there. Most folks don’t take the time to really know their money in detail. This is why debt creeps up on them and before they know it they have spent themselves into a $9,000 credit card bill. Seeing the Forest then the Trees, How to Invest Your Money! ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ I was busy baking cookies and washing up dishes when the phone rang. As I juggled dish towels, phone cord and running children the voice on the other end told me that she was a client from over a year ago and promptly started updating me on the financial status of their family. It was lots of great news on how they were out of debt, they had only their house to pay off and they were steadily working on increasing their savings. I was congratulating her and her husband for their diligence and hard work when we got to the reason for her call. They had just found out about a “Wonderful” investment opportunity and they wanted my opinion of the company and the situation. Normally, I totally revolt at telling people what to do with THEIR money. First off, I’m not a trained financial professional and always defer to such people in these sorts of situations. Secondly, I don’t know all the hopes, dreams and goals you have as a person for your money, so why should I give you direction on what to do with YOUR money? However, since I had coached this family before I listened politely as she breathlessly told me of this incredible financial opportunity and how they were seriously considering taking the $5,000 they had worked to save for over a year and invest it with this one company. I then calmly asked, “Okay, but have you and your husband maxed out your IRA contributions for this year?” There was a pregnant pause on the other end before she meekly said, “Um. No.” “Well, before I would spend dime one on any investment, I would make sure that I had made use of the maximum allowable contributions to all the tax advantaged accounts the federal government gives us.” I then asked her to call her accountant about what sorts of retirement accounts were available to them and verify what the allowable amounts were and to contribute to those first before launching all their savings into this other organization. This is the point, my frugal friend. I know it isn’t sexy and bold and exciting, but the accounts that are IRAs, 401k’s and 403b’s are a wonderful and steady way to invest in your future. Before you go for riskier investments, go with what works first! Go with the OBVIOUS! Are you doing the obvious? Are you investing with accounts that are tax advantaged for you? If you don’t even have a retirement account open, then make your first investment goal that you open one this year. If you’re married make sure you have one open in both spouses names. Don’t jump at the quick buck with all your hard earned money. Go with the safer and less-sexy investments first. Once those have been maxed out, then look around with the extra money you have to invest in other things. But, of course, you’ll chat with your accountant or financial planner about this before leaping into anything, right? As further evidence for the less-than-sexy investment strategies, I was reading an article in “Money” magazine (January 2007). In it there was an interview with multi-millionaire and financial planner Charles Schwab. He was asked this rather simple question: “If you could give one bit of financial advice to someone who’s just starting out, what would you say?” Mr. Schwab answered, “Buy index funds and ETFs. That might not seem like enough action for a 25-year old, but it’s the smartest thing to do. Put most of your energy into your work and learn to communicate. I think the people who become really successful are those who sense what others are feeling and how to make them comfortable.” Thanks, Chuck! Reader Question: I need thousands of dollars, what do I do? ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Dear Janine: I’m 36 years old, married with three children and want to start saving for a home. We don’t spend money on cable tv, going out to eat, or cell phones. I use your “Grocery Store Game” and have no idea where else to cut corners. I REALLY want this house. Any suggestions? -Kelly, Washington, D.C. After speaking with Kelly, I was able to find out that she and her husband had two cars. He used his to commute to work every day which left her at home with the other one. When she gave me a few more details of their lifestyle and their goals, I suggested that they sell her car. Oh my! She argued for quite some time with me about how unrealistic that suggestion was, but here is my thinking. This car cost her family $7,500 a year to run, maintain, pay taxes on and keep in gas. She was able to walk most places she wanted to go and if she couldn’t walk, there was always the Metro station one mile from her current apartment. Eventually, Kelly told me she would think about it. I don’t know if she took my advice or not, but the goal is money here. How badly do you want your goal? Do you really, REALLY want your goal or are you just lukewarm about it? The amount of determination you bring to achieving your goal will allow you to be more creative in obtaining it. In this case, giving up the second car would be a boon to saving for a new home. Kelly is not the first person I have recommended this course of action. I have 4 clients that I have coached who have given up cars in the pursuit of what they really wanted in life. All of them have used different means of getting around. Renting cars, taxis, bikes, car pooling with friends and paying for gas, all of these options are available to most people. These clients have told me of improved health and vigor since they had to walk places, they mentioned how they have made more friends and know their neighbors better since adopting this lifestyle. I’m not saying that everyone needs to sell their car. However, if you need thousands of dollars, you may just want to think about this option and then try living without your car for a month or two. Also, Brad and I were a one car family for 7 years while we were learning how to save and invest money. I can attest to the value of having only one car, especially, if you want to increase your savings rate! Do You Have a Question for the Next Newsletter? ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ If you've got a question you want me to address in the next newsletter, type it up and please send it to janine@smartcentsinc.com with the subject line "My 2Cents Question." My 2Cents will feature a question each issue from the Frugal Friends Network. If you wish to remain anonymous, not a problem! Just state that in your email.
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