Hi All, 

Like most hardworking Americans you probably spend a good deal of time working for your money.  After last years colossal bankruptcies and stock market declines, you are probably looking for ways to be sure your cash isn’t wasted.  Well, for 2009 consider these basic financial moves. 

1) Max out your retirement accounts.  There are several reasons to max out your retirement.  First, you obviously don’t want to turn 65 without any funding.  But more importantly, you probably don’t want your family to feel obligated to expend precious resources taking care of you in old age.  Family aside, maxing your retirement contributions increases the effective return on your dollars due to tax sheltering.  The 2009 contribution limits are here and here.    

2) Spend Less Than You Earn.  The math is very simple.  If you earn $100 dollars and spend $120, then you’re in the hole 20 bucks.  You’ll have to borrow or spend your savings. Either way, your financial position degrades.  On the other hand, if you have $100 and only spend $75, then you’ve got a $25 dollar surplus.  You can invest it to increase income or save it for future bad times.  

Bottom line: overspending = financial problems.  Saving = financial strength.   

3) Dump High Interest Debt. If you’ve got any kind of high interest debt that’s not tax sheltered, dump it immediately.  If you’ve got a 9% car loan, or a 20% credit card.  Dump it.  If you owe money on rent-to-own appliances, pay it off. If you have back taxes, pay them off.  Pay off anything that’s more than 4 or 5 percent and isn’t tax sheltered.  Don’t be wishy washy, eliminate high interest debt.  

4) Own your own home.  Home ownership increases your bottom line in several respects.  First, its a key part of your networth.  Most studies of household wealth show that, as a general rule, homeowners are richer than renters.  This is due to a couple of mechanisms; mortgage payoffs result in increased savings, asset prices for real estate increase over time and there are substantial tax breaks for owning your home.  Second, home ownership increases social prestige.  Third, home ownership is better for children and families.  Click here for the proof. 

Most Americans will spend their entire lives working.  If you don’t want your efforts going to waste, stick to the basics in 2009. 

Best,

James

MANAGE YOUR MONEY TOGETHER

Here are some simple guidelines for DINKS to build wealth:

1) Collaborate: Meet regularly to talk about money, set goals together, track and monitor them.

2) Understand and respect your partner. Take time to understand your partners values about money.

3) Watch the numbers. Get a budget, monitor your spending and track your net worth.

4) Max your retirement. Maximize contributions to your tax deferred retirement accounts.

5) Invest in stock. Stocks perform better than bonds or cash.

6) Avoid high interest debt. Credit cards and title loans are financial cancer.

7) Diversify. Don't put all your eggs in one basket.

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