For those of you working on making better financial decisions, you might find this of some interest. The posting is taken from Thomas Stanley’s The Millionaire Mind. The author, Thomas J. Stanley is a business professor and a keen observer of millionaires. His work is usually pretty good because unlike a lot of personal finance literature, Stanley bases his conclusions on scientific study.
In The Millionaire Mind, he analyzes a sample of millionaires and discusses how they keep themselves positive and focused on dealing with money. Its an important topic because when you get involved with more challenging personal finance tasks, like paying off a big wad of debt or doing hard core investment management, it can be difficult to know what factors are most important in the management and decision making process.
According to Stanley from the most the least common, here are the top things millionaires due to eliminate worry:
ELBOW GREASE * Hard Work
PLANNING * Planning * Being Well Organized to Deal With Big Issues * Preparation * Focusing on Key Issues
DECISIVENESS * Being Decisive * Taking Immediate Action to Solve Problems * Outworking, Outthinking and Outtoughing the Competition
THE POWER OF POSITIVE THINKING * Visualizing Success * Defeating the Fear by Attacking It * Countering Negative Thoughts With Positive Ones * Reading About People Who Had Courage
MIND CONTROL * Never Dwelling On Past Mistakes * Never Allowing Fears to Control Ones Mind
Of these, hard work, preparation and focusing on key issues are the most important factors that millionaires reported when asked how they dealt with worry and fear. Again, this is important because part of, being successful financially has a great deal to do with how you handle your emotions and how you make decisions.
With the recession leading to limited job prospected and depressed salaries – especially for new grads – the debate over whether a college degree is worth the expense rears its head again. MSN Money recently posted an article outlining their argument (“Is a College Degree Worthless?“).
The author’s argument centers around a comparison between two friends; both of whom have at the age of 18 a lump sum of money with which they must decide what to do. One decides to save the money (by investing in low-cost index funds) and start working. The other applies that money to an education and gets a liberal arts degree. The author goes on to argue that over time, the individual who chose to skip college will end up further ahead financially, while the college graduate will be stuck struggling to pay back their college loan and won’t be able to get ahead. According to his numbers, he’s right, but before we hand him the Nobel Prize in Economics, let’s take a look at his assumptions, and how they invalidate his results.
The author doesn’t take into account inflation or taxes, a point he freely acknowledges. However, I feel like those assumptions are the least of his problems.
The title of the article mentions “College Degrees”, but all data points in the article focus on liberal arts degrees. That completely ignores those who get science degrees. While a liberal arts major can expect to earn anywhere from $30,000 to $40,000 at their first job out of college, those getting their B.S. are looking at starting salaries that begin at around $55,000 and go up from there (usually topping out at around $80,000 for petroleum engineers). That additional money certainly makes a huge difference.
The author ignores other ways that having a job that requires a degree builds wealth. 401(k) matching, health care benefits, pensions and bonus programs are all non-salary related means of increasing your wealth through your job.
The author applies the average national savings rate to both individuals equally, when studies have shown that lower-income households save less than higher earners. Over time, that makes a significant difference.
Many degree-less commentators following the article mention that while they don’t feel like they lack the knowledge to perform certain jobs, their lack of a degree prevents them from getting a foot in the door when seeking out a new job. With each generation of worker increasing the number of different jobs they hold over their lifetime, this is an important idea to consider when debating this issue.
The point the author is attempting to make is not completely off-base, just poorly represented. I’m a strong believer in the idea that you don’t need a degree to be financially successful; I feel that it’s been demonstrated that ambition, focus and determination are much stronger indicators of success than an $80,000 piece of paper. Having said that, the arguments made by the author are fumbling and awkward – the fact that the author completely ignored those getting a science degree is almost enough to laugh off the article in and of itself. However, the author does raise an interesting point. Money should be a consideration when having the college talk. This point would have been much better had the author focused on private vs. public universities (and community colleges) and the costs and benefits of attending either.
I could probably do a month’s worth of posts – if not more – devoted to my own financial mistakes and the lessons I learned from them. But for the sake of our reader’s attention span and my own mental health, I’ll just focus on one big one for now.
Lately I’ve been keeping the balance in my checking account low, just enough to cover my monthly expenses and a buffer for small, unexpected emergencies. The rest I pile in my bevy of savings accounts that I have set up for a variety of purposes. The one account that I pay out of my checking account that has a balance that varies from month to month is my credit card. I don’t get a paper statement from them, just an email notifying me that I can download my statement online. Usually I just mark that email in my account and towards the end of the month I retrieve my statement and pay my bill. And this has worked smoothly for me since I’ve had the account. The varying balance is not a big deal, as I roughly charge the same amount each month, and I frequently update Quicken, so I typically have a pretty good idea of what to expect when it comes time to pay my bill.
Well, this time it was different. December was an expensive month for me: Christmas gifts, travel expenses, school expenses, money spent for my upcoming anniversary…all those atypical expenses came in the month of December. Added to that was the fact that I wasn’t as up to date on updating Quicken as I usually am. So when I finally retrieved my bill with about two weeks to go before payment was due, I was in for a bit of a shock. The balance was much higher than I had expected, and I didn’t have enough money in my checking account to cover the charges. No big deal, that’s why I have those savings accounts set up. And it would work out that I could transfer the money to my checking account in time to send the check out and everything would be fine. And then things started to not be fine.
The day the funds posted I went about writing the check. Except that I made a mistake when filling out the check. So I shredded it and went to grab another. Except there was no other; the checkbook was empty. No big deal, I was sure I had some more. Nope, that was my last checkbook, and I hadn’t reordered any. So I went online to reorder checks, and the soonest they would arrive would be well after the bill was due. Ok, on to online bill pay, something I had set up a while ago but hadn’t gotten in the habit of using. So this would be good; I could start using that instead of paper checks. And to my deep dismay I saw that that check wouldn’t be delivered until two days after the bill was due. Ok, now I’m frustrated and irritated at myself for getting into this situation. But I have one more saving grace; I could go through my credit card company and use them to do a bank-to-bank transfer from my checking account directly to my credit card account. So I log on and begin that process, only to then discover that they have transfer limits that are quite low, and not enough to cover the full bill in time. Now I’m lost. I’ve exhausted all potential options, and I’m now going to have to call my credit card company – luckily it’s a credit union and I’ve met my account representation, and she’s been very helpful in the past – and work something out, either an extension or perhaps they’ll accept something like a cashier’s check. I’m sure I’ll work it out, one way or the other, but regardless, I’ve somehow managed to turn the simple act of paying a credit card bill in to a stressful and drawn-out chore. Nicely done Michael.
The worst part is this whole situation was completely avoidable. I should have been more aware of how much the bill was going to be. I should have ensured the funds were there in my account earlier. I should have had a larger buffer in my checking account. I should have noticed when I started running low on checks and ordered them earlier. There is seemingly no end to the number of things that I could have done to avoid this situation, but here I am.
The lesson here: always stay on top of your finances. When you become lax about managing your money, you open the door for all sorts of things to go wrong, as I found out the hard way. We’ll see how this shakes out, but whether I escape unscathed or not, you can be assured that I won’t be making this mistake again.
All of us have heard, at one time or another, that social security will not last; that eventually it will become unsustainable and implode. The root problem, that makes it unsustainable are demographics. Social Security Reform.org explains this demographic problem quite simply:
The reason that Social Security’s deficits are inevitable is fairly simple. Demographics are more predictable than most events. Millions of baby boomers will begin to retire in 2008, when those born in 1946 reach Social Security’s early retirement age of 62. From then until 2025, every year will see another crop of baby boomers reach the 62 year-old threshold. Because the baby boomers have not produced enough children to replace themselves, the number of taxpaying workers will shrink.
Many believe that social security is set up where an individual pays in and their total savings accumulates. Not so. Social security could be accurately termed a “Ponzi Scheme,” as the funds being paid in are immediately turned over and paid out to recipients.
The first recipient of social security was Ida May Fuller in 1939. Her total contribution was $24.75 and she collected $22,888.92. This system does not involve a complex (or simple) system of investments and capital allocation. Social security is extremely difficult subject for politicians to address. They acknowledge that social security needs reform, yet the drastic reform that it does need is hardly ever put on the table. This is because social security is embedded in the minds of Americans as something they are entitled to. In their defense, those who have had to pay into the system do deserve something in exchange for those taxes, but the current system is on track to overwhelm the federal budget.
As a young adult, I am already certain that social security (in it’s present form) will not exist when I reach my retirement age. Even if I do have to pay into the system, I realize that it is impossible to maintain and will not last. Almost everyone else I talk to who is in their 20s also does not have much optimism towards social security.
This provides a significant challenge to our generation. We need to deal with the social security taxes while not expecting to receive anything in return. We need to be smarter about saving for retirement and our futures. Put at a disadvantage by no fault of our own, the only option is to cope with the situation we find ourselves in. Whether that means becoming more financially literate, working longer, or saving aggressively, we are certainly in for a major challenge.
Readers, what are your thoughts on social security? Do you expect the system to last until your retirement? Also, how have you prepared for retirement faced with the reality of the situation?
Conventional wisdom has held that money issues are the most common root cause of divorce. Whether that’s factually accurate, or just the prevailing public opinion, money problems are a huge stressor even for an individual, and that stress can become exacerbated when it involves two people in a relationship.
Merging finances after a couple gets married is often the first step in that couple’s financial lives together. Like many couples, my wife and I eased into that transition when we were dating by living together. While the choice to live together before we were married was in no way made with finances in mind, it did help start up that transition. While at that time we still had all of our own accounts, there were still a number of issues that we had to work out together.
When we became engaged, those issues became more pronounced. For some, the engagement period can be a pressure-cooker, and while ours wasn’t nearly as stressful as the experience is for some, it did teach us a lot about how to talk to each other about money and our personal financial management habits when it came time to pay for the wedding. And it was at this time that we set up our first joint account together, a checking account that we would each automatically deposit money into each month as a means of saving up for the heavily back-loaded wedding expenses.
After our wedding and honeymoon was over the real work began. In addition to merging our cell phone and insurance plans to save money, we had to come up with a comprehensive strategy for how we as a couple were going to manage our money from that point forward. Involved with that strategy development was an honest assessment of where we each stood financially as individuals, and how that affects the both of us as a couple. Some of those issues included:
Debt – Outside of staggering student loan balances, the only debt either one of us had was a balance on a 0% interest credit card. While we could have let that debt sit there for a while, we both made it a priority to pay it off as soon as possible, which we were able to do shortly after the wedding (it wasn’t a very high balance). But the student loans were an issue of their own. Some experts recommend paying it off as soon as possible, while others suggest that due to the relatively low interest rates, just pay it off in installments and put that extra money to some other use. Either way, your views towards debt of all kinds needs to be discussed.
Tax Strategy – This year will be the first that we’ll be able to file our taxes as a couple. But should our status be Married Filing Jointly or Married Filing Separately? That question is something we’ll have to evaluate as a couple pretty soon.
Budgeting – No two people have the same budgeting strategy. And in many cases, those budgeting strategies (or lack thereof) can run in direct opposition to each other. Living together before we were married exposed each of us to each other’s budgeting strategy, but the issue becomes a bit more important when you’re actually married.
Financial Expectations – What should be done with the extra money earned each month? What are the savings priorities of the family? These are also important questions to answer. For my wife and I, we’ve decided to use my salary to pay nearly every bill and then save her salary. In the year that we’ve been married, we’ve discussed buying a house, having children, taking vacations, etc… and it’s helped give us a clear vision for our savings.
Financial Management Responsibilities – I enjoy managing our finances. I like researching companies for investing purposes, and I also enjoy playing around with Quicken and making those cool, colorful graphs. My wife, however, does not enjoy that at all. So while I readily accept that responsibility, we still have to work out a way for us to talk about our finances so that we’re on the same page.
Of course that’s just some of the issues that have to be taken into consideration. And it seems as if communication is the more important tool of all. The ability to effectively communication ideas and expectations can help alleviate stress down the road. For our married readers, what was the financial transition like for you?
On Friday, January 1st of this year, the Ohio State Buckeyes defeated the Oregon Ducks in the Rose Bowl; the following week Alabama and Texas played in a dramatic Bowl Championship Series (BCS) National Championship Game, with Texas’ young second-string quarterback unable to solve the NFL-prospect laden Alabama defense.
It was one of the most compelling BCS Championship games I’ve seen, up there with Ohio State’s win in 2003 over Miami and the 2006 thriller featuring Texas and USC. I was not alone in this assessment, as nearly 31 million people tuned in to watch Alabama eventually lift the crystal ball. That places the 2010 Championship Game as the second most-watched BCS Championship Game, behind only the aforementioned Texas-USC contest, which drew in a staggering 35.6 million viewers.
Those viewership numbers place the BCS Championship in the upper-echelon of TV viewing for the year, making advertising an attractive proposition. And the most attractive advertising position of them all is the title sponsorship. And who was the title sponsor for both the Rose Bowl and the BCS Championship Game? Well, that would be Citi, who has held the title sponsorship of the Rose Bowl since the 2004 game.
The troubling thing about Citi sponsoring both the Rose Bowl and the BCS Championship game is the fact that Citigroup has been one of the largest beneficiaries of TARP (Trouble Asset Relief Program). They have reached numerous complicated and expenses arraignments with the federal government – including an infusion of $45 Billion in late 2008 – in order to shore up their failing business.
Citigroup is the poster child for “too big to fail”, a company so entrenched in the financial sector that even blatant incompetence in financial dealings aren’t enough to destroy the company. It’s a bit disheartening to watch a college football game and see our tax dollars hard at work with the Citi logo splashed all over the TV.
Title sponsorships are not cheap; although official numbers haven’t been released, it’s rumored that a title sponsorship for a regular BCS game – such as the Rose Bowl – is $10-15 million per game. That puts the title sponsorship of the BCS Championship closer to $20 million estimated.
This wouldn’t be the first time that Citigroup has made questionable financial calls after receiving bailout money. Citigroup was embroiled in scandal after receiving that $45 Billion dollars in 2008 and then turning around and handing out hundreds of millions of dollars in bonus to a number of its employees. Each of those decisions – to pay out bonuses and to hold a BCS title sponsorship – have justifications. Bonuses are supposedly paid to retain top-tier talent (the same top-tier talent that drove Citigroup into the ground I assume) and getting 31 million eyes on your company is a tantalizing advertising opportunity. Those are weak justifications as far as I’m concerned though.
The taxpayers gave Citigroup billions of dollars in an effort to help shore up their business, and here we are, a year later and it’s tough to argue that they’re that much better off. Even their proposed TARP repayment, just proposed last month, is very problematic (“U.S. Gave Up Billions…” ~ WaPo). And yet here they are, paying millions of dollars to sponsor the glamorous BCS Championship game.
In the past I have blasted frugality as being the “easy way out” and being stressed too much by personal finance blogs and the personal finance community at large. The reason for my criticism is that there is another option: increasing your income. Having the same effect as someone who cuts back, increasing your income can allow you to increase your savings efforts, pay down debt, and in the end experience a higher standard of living. I used to look at frugality as “thinking small” as opposed to “thinking big.”
Then it dawned on me: Frugality is at the core of financial success
1. Reach Financial Goals Faster
The less you spend, the more you can save. The more you can save, the more you can put that savings to work through investing. If you have money working for you that you obtained through frugal means, this is money that you otherwise would have spent. Therefore, being frugal with your money actually will increase your net worth and income long-term and allow you to reach your goals faster. 2. Practicing Frugality Makes You A Better Investor
You may have never expected to see Donald Trump in the same sentence as frugality, but think about what Trump does. He invests in real estate that is underpriced or cheap. He searches for only the best deals. When you practice frugality you are making choices that give you the most for the least, similar to what Trump does. Great investors always look for “steals.” Whether it be a stock, real estate, or some other form of investment. Frugality makes you a better investor.
3. It’s Not An “Either Or” Decision
What I was doing earlier on was thinking with an “either or” mentality. What people need to do to be successful financially is to think with an “and” mentality. Frugality and increasing income. I can at the same time save money by clipping coupons, making gifts, changing my oil, etc. while I am also increasing my skill set for a higher paying job or launching a small business on the side. These two can work in tandem, and oftentimes do.
For 2010, I will continue searching for new ways of increasing my income but will also look for ways to be a more frugal individual. I’m not used to frugality, but there is never a better time to start than today!
I came across a great graphic the other day regarding the amount of stimulus spending each state is using (“Government Spending State-By-State“) on BillShrink’s blog. The graphic shows the amount of government spending, both in dollars and in percent of GSP (Gross State Product). The highest percent went to Mississippi with a whopping 33.2%. The highest in dollars was easily California, outpacing the state in second by nearly double with $438.1 BILLION dollars in government spending. The lowest was North Dakota with $5.6 Billion and Delaware with 15.1%.
Probably the most interesting part of the graphic from my perspective was the one depicting who got the most and who got the least from the stimulus bill, per capita. Utah and Alaska topped the list for Most, while Florida and West Virginia – two states who have been hit incredibly hard by the economic crisis – received the least. It should be noted, however, that the difference between the highest and the lowest was only around $30 Billion. A large amount of money for sure, but not nearly the magnitude of variance you might expect when discussing a issue such as this one. It should also be noted that Utah and Alaska have around eight times the combined land area of Florida and West Virginia combined (mostly in Alaska), but Florida and West Virginia have nearly six times as many people (mostly in Florida).
At any rate, I’m a big fan of graphical representations of data so I really enjoy stuff like that. Sometimes seeing data represented visually as opposed to just line items in an Excel spreadsheet can really shed some light onto data in a unique way.
With the fallout of the recent economic crisis heavy upon us, more and more people are beginning to understand the importance of crawling out from under the blanket of debt in which they have so cozily wrapped themselves during the last decade. But doing so is easier said than done. Some have dug themselves into so deep a hole that the prospects of climbing out seem almost impossible, and if they do, many quickly find themselves rapidly falling back in again.
So how do you stay out of debt? Well, the process is not always simple, but by considering the following tips, you may find it easier to keep the spectre of debt at bay. Moreover, if you focus upon cleaning up your finances, you may find yourself living without the often financially crippling effects of debt. 1) Track Your Spending. It is advice that been given and written about in hundreds of finance related articles, but we money people just can’t preach it enough. Tracking where and upon what you spend your hard earned dollars is one of the best ways to become accustomed to your personal finances. Once you understand how your money is being utilised, you can use that knowledge to help you stay out of debt.
2) Understand Your Finances. One of the major steps in staying debt free is having a good understanding of your finances and financial position. Knowing your actual income after taxes, retirement, health benefits, and any other miscellaneous deductions are subtracted, as well as your total monthly expenditures can help you make informed decisions when it comes to how much money you can actually spend each month and avoid incurring debt. It is also crucial that you understand your current asset and debt allocations in order to reduce or eliminate outstanding debt and maintain a debt free status.
3) Be Aware of Debt. Closely related to understanding your finances, is the awareness of debt. Being aware of debt doesn’t just mean knowing how much you debt you have and what type of debt it is (i.e. mortgage, car loan, credit card, home equity line of credit, etc.). It is important also to understand how debt grows, is reduced, and how much it costs you in interest each month to hold. Truly being aware of how costly debt can be is often crucial to helping you avoid taking on more of it.
4) Abide by a Budget. Here, I don’t just say ‘create’ or ‘use’ a budget, because doing so is easy. It is the actual act of ‘abiding’ by a budget that is an effective means of helping you avoid debt. Abiding by a budget can mean that you understand and are aware of your financial situation, that you are interested enough to pay attention to your money, and are willing to work to avoid debt.
5) Create a Reserve. Being financially prepared for an emergency or for the unexpected can be one of the best ways to keep you out of debt as well as decrease stress and give you peace of mind. While the amount you’ll need for your reserve can largely be determined by your personal financial situation and spending habits, I always say, the more, the better. Some financial gurus advocate having $500 in a savings account. While that is certainly a start, $500 won’t get you far if your car, home or health insurance deductible is $750 or you need to replace the furnace in your home or your car’s transmission.
6) Reduce Credit Card Use. While credit cards often take quite a bashing in the headlines, they aren’t always the tools of the devil that we make them out to be. Like a gun, a credit card is just a tool until placed in the wrong hands or situation. Reducing the number of credit cards you have available to get you into debt, could be compared to reducing the number of loaded guns you have lying around your home just waiting to go off.
7) Pay With Cash. Without the ease of swiping a credit card for every purchase, you may be forced to use more cash. This is a great way to watch your expenses and truly get a feel for just how much cash you are actually spending. Watching those bills slip through your fingers and remembering how hard you had to work to get them is a great way to help you stay out of debt.
8) Direct Deposit. If you are prone to spending a large portion of your paycheck as soon as you get it, it might be a good idea to consider having it put directly into a savings account. Consider dividing a portion of your check to go into checking, for bills, mortgage, and other expenses, and another portion to go into a savings account where it won’t be touched, unless it is for emergencies. This is an easy way to keep yourself out of debt with very little effort on your part — just don’t dip into that savings account too often!
9) Utilise Store Sales, Discounts, and Coupons. Another good way to stay out of debt is to decrease your spending. While this sounds simple, it might not be as easy as you might think, or, if it is at first, it might be difficult to maintain. Learning how to make use of coupons, store sales, discounts, and similar methods of savings is something that can help you stay out of debt.
10) Understanding a Mortgage. It is amazing how many of people don’t completely understand what is probably one of the most significant sources of debt in their lives – a home mortgage. And it isn’t always just about understanding the terms of the loan. The agreement you’ve legally bound yourself to is certainly important. But to help you rid yourself of this debt as quickly and cheaply is possible, it is also critical to understanding the total amount you will be paying over time, how to reduce that amount through extra payments, as well as any tax benefits regarding the interest you pay on your mortgage.
Mark Brown writes about personal finances for Credit Card Compare, an Australian website that makes it easy to compare and apply for credit cards such as rewards credit cards and low interest credit cards that make your money work harder for you.
Youtube, as a company, is currently not profitable. That doesn’t mean there are not people making money on it. In fact Charles Trippy is using it to do what he loves (making videos) full time and living off the income.
I first was exposed to Charles when I came across the youtube page of his reality “show” where he videotapes the life of his fiance Alli and himself every single day. They originally planned on doing it for a 365 days, but I personally think they will continue it. Their show is called “The Internet Killed Television” and you can see their youtube page here and the home page here. Below is one of his and Alli’s recent videos:
If you watch the show for any extended period of time, you will realize that Charles does not have a “job.” I sometimes laugh when I see comments such as “dude, wth do you even do for money? What’s your job?” Charles travels a lot, has a nice-sized apartment, got a Tiffany engagement ring for Alli, has some pretty expensive tech. equipment, and clearly does not “go to the office” or some other workplace. So how does he do it?
Well, I have been trying to spot the various revenue streams he has. First, most if not all of these videos (and there are over 200 of them so far) on the “Internet Killed Television” youtube page have over 100,000 views. If you watch a video you will notice an ad pop up. I won’t go into detail, but anyone who has a blog knows that if you get traffic you will inevitably make money from ads if they are on your page. He consistently gets over 100,000 views a day on the newest video, not counting any views on older videos. Next he sells t-shirts. This is promoted in his youtube videos, but not in every video and rarely, if ever, blatantly.
Charles Trippy is doing what he loves and making a living doing it. He is a new breed of internet entrepreneurs. What he has is enthusiasm as well as consistency; there is a new video posted every single day. Maybe his show is not literally killing television, but he is self-producing a ground-breaking reality show that likely will only grow bigger.
Hello All,
