Showing posts with label money. Show all posts
Showing posts with label money. Show all posts
Thursday, October 1, 2009
Thursday, September 24, 2009
He Taxes Me, He Taxes Me Not Part 2
We received some good questions after last week’s article, “He Taxes Me, He Taxes Me Not.” This week we’re providing the answers.
Based on the way I’m currently investing, I have some questions about SEP IRAs and Roth IRAs. Can I open a SEP Traditional IRA and contribute to this even if I contribute to a Roth IRA? Is there any benefit to having a SEP Roth IRA (I'm not even sure this can be done)? If I can only invest in one type of IRA annually, which is the best alternative – a Roth or SEP Traditional?
-Kent in Atlanta, GA
Hi Kent,
Wow! These are some great questions! Here are some answers:
You can open a SEP IRA and continue contributing to the Roth IRA. The reason for this is that the business contributes to the SEP IRA while the individual contributes to the Roth IRA. I know that seems a little unique because in a sole proprietorship, the business is the individual, but from an IRS perspective, SEP IRA funds come from the business revenues, not the personal income of the individual.
There is no such thing as a SEP Roth IRA; as a matter of fact, the IRS pretty explicitly states that a SEP IRA cannot be in any way, shape, or form associated with a Roth IRA.
If choosing between investing in a Roth or SEP IRA, depending on your anticipated tax bracket in retirement I typically recommend the Roth IRA first, then supplementing with the SEP IRA. All signs are pointing toward higher income tax brackets in the days ahead. While we don’t know what they’ll look like 20 – 30 years from now, we do know that we can build tax free savings by going the Roth route. From a tax liability management perspective, I would always like to take a lower income tax hit today for tax free savings in the future. The SEP IRA defers the tax liability until you withdraw the funds in retirement.
Thanks for your questions, Kent!
If you'd like to learn more, join the Reader's Group at LukasCoaching.com!
Based on the way I’m currently investing, I have some questions about SEP IRAs and Roth IRAs. Can I open a SEP Traditional IRA and contribute to this even if I contribute to a Roth IRA? Is there any benefit to having a SEP Roth IRA (I'm not even sure this can be done)? If I can only invest in one type of IRA annually, which is the best alternative – a Roth or SEP Traditional?
-Kent in Atlanta, GA
Hi Kent,
Wow! These are some great questions! Here are some answers:
You can open a SEP IRA and continue contributing to the Roth IRA. The reason for this is that the business contributes to the SEP IRA while the individual contributes to the Roth IRA. I know that seems a little unique because in a sole proprietorship, the business is the individual, but from an IRS perspective, SEP IRA funds come from the business revenues, not the personal income of the individual.
There is no such thing as a SEP Roth IRA; as a matter of fact, the IRS pretty explicitly states that a SEP IRA cannot be in any way, shape, or form associated with a Roth IRA.
If choosing between investing in a Roth or SEP IRA, depending on your anticipated tax bracket in retirement I typically recommend the Roth IRA first, then supplementing with the SEP IRA. All signs are pointing toward higher income tax brackets in the days ahead. While we don’t know what they’ll look like 20 – 30 years from now, we do know that we can build tax free savings by going the Roth route. From a tax liability management perspective, I would always like to take a lower income tax hit today for tax free savings in the future. The SEP IRA defers the tax liability until you withdraw the funds in retirement.
Thanks for your questions, Kent!
If you'd like to learn more, join the Reader's Group at LukasCoaching.com!
Wednesday, September 2, 2009
Resurrecting Your 401(k)
Back from the dead, for many 401(k)s are beginning to recover with the recent market uptick. The question remains, though: is my 401(k) really going to make it?
Study after study confirms that investors chase past performance, buying whatever made money for other people. These same investors also chase their own past performance, buying more of what has worked for them in the past.
Economist David Laibson of Harvard University has researched 401(k) participants and their investment behavior to find they will add significantly to the funds they already own that have gone up in value the most. “Investors expect that assets on which they personally experienced past rewards will be rewarding in the future, regardless of whether such belief is justified,” Laibson says.
Apparently this is how investors are currently making their buying decisions. In June, 401(k) participants contributed about 41% of their investment dollars to stocks. In July, as the Dow rose by 725 points, 401(k) participants increased their funding of equity investments to 42.3% of contributions. At the same time, they were dumping value preservation funds that hold bonds and cash.
In The Intelligent Investor, Benjamin Graham wrote “the investor with a portfolio of sound stocks should expect their prices to fluctuate and should neither be concerned by sizeable declines nor become excited by sizeable advances.” Basically, to be a true investor, you must strip emotion from you decision-making process.
Ultimately, to buy more of a stock, fund, or investment simply because its value has gone up is to believe that stocks become safer as their prices rise. This type of investing belief system is what perpetuates bubbles, not unlike what we’ve recently experienced. Defining an investment objective, maintaining a disciplined approach, and regularly saving money will help you avoid bubble-vision and make the most of that 401(k).
Like it? Check out LukasCoaching.com and join the Reader's Group to get real weekly insight about money, life, and business.
Study after study confirms that investors chase past performance, buying whatever made money for other people. These same investors also chase their own past performance, buying more of what has worked for them in the past.
Economist David Laibson of Harvard University has researched 401(k) participants and their investment behavior to find they will add significantly to the funds they already own that have gone up in value the most. “Investors expect that assets on which they personally experienced past rewards will be rewarding in the future, regardless of whether such belief is justified,” Laibson says.
Apparently this is how investors are currently making their buying decisions. In June, 401(k) participants contributed about 41% of their investment dollars to stocks. In July, as the Dow rose by 725 points, 401(k) participants increased their funding of equity investments to 42.3% of contributions. At the same time, they were dumping value preservation funds that hold bonds and cash.
In The Intelligent Investor, Benjamin Graham wrote “the investor with a portfolio of sound stocks should expect their prices to fluctuate and should neither be concerned by sizeable declines nor become excited by sizeable advances.” Basically, to be a true investor, you must strip emotion from you decision-making process.
Ultimately, to buy more of a stock, fund, or investment simply because its value has gone up is to believe that stocks become safer as their prices rise. This type of investing belief system is what perpetuates bubbles, not unlike what we’ve recently experienced. Defining an investment objective, maintaining a disciplined approach, and regularly saving money will help you avoid bubble-vision and make the most of that 401(k).
Like it? Check out LukasCoaching.com and join the Reader's Group to get real weekly insight about money, life, and business.
Thursday, July 2, 2009
Life and Money Outside the Box
Would you classify yourself as an independent thinker? Would you say that you are a visionary? Your thought-life has direct implications on your real life, so what do you think about? In researching the characteristics of millionaires, independent thinking and casting vision are common denominators.
Millionaires think differently about everything – not just money – because they know that conforming to social norms is a recipe for mediocrity. From how they spend their time to how they use their energy, these people identify what is important to them and then go about pursuing it.
We tend to sensationalize millionaires in our culture, believing they all have private jets, homes around the world, and heated toilet seats. In truth, the typical millionaire in our country observes what works and doesn’t work, then casts vision for his or her financial future.
What works? Saving and investing money, making wise purchases, living with a purpose for monthly income, and helping others. What doesn’t work? Trying to borrow your way to wealth, having a “keeping up with the Joneses” mentality, following the herd, and being self-centered.
We’ve all heard the phrase “think outside the box,” and most of us recognize that we’re at our creative best when we avoid groupthink. What if instead of just thinking outside the box, you lived outside the box? What if the way you approached all of your financial decisions took into account what you want to accomplish for your life – not just tomorrow, but also ten years from now?
Thinking independently requires we get away from the noise and clutter in our media. Having a vision means sitting down and honestly deciding what you want out of this life. Creativity and a positive attitude accompany those who know what they want. They are the ones who align their beliefs and values with their actions somewhere outside the box.
Millionaires think differently about everything – not just money – because they know that conforming to social norms is a recipe for mediocrity. From how they spend their time to how they use their energy, these people identify what is important to them and then go about pursuing it.
We tend to sensationalize millionaires in our culture, believing they all have private jets, homes around the world, and heated toilet seats. In truth, the typical millionaire in our country observes what works and doesn’t work, then casts vision for his or her financial future.
What works? Saving and investing money, making wise purchases, living with a purpose for monthly income, and helping others. What doesn’t work? Trying to borrow your way to wealth, having a “keeping up with the Joneses” mentality, following the herd, and being self-centered.
We’ve all heard the phrase “think outside the box,” and most of us recognize that we’re at our creative best when we avoid groupthink. What if instead of just thinking outside the box, you lived outside the box? What if the way you approached all of your financial decisions took into account what you want to accomplish for your life – not just tomorrow, but also ten years from now?
Thinking independently requires we get away from the noise and clutter in our media. Having a vision means sitting down and honestly deciding what you want out of this life. Creativity and a positive attitude accompany those who know what they want. They are the ones who align their beliefs and values with their actions somewhere outside the box.
Wednesday, June 17, 2009
Want to Save some Money?
In this week’s Sunday edition of The Wall Street Journal, Brett Arends wrote a short article about saving $5,000, fast. Before we begin saving any money, though, we have to make a choice. Making a choice means taking responsibility.
There are three uses of money: we give it, save it, and spend it (the average American was brought into this world already knowing how to do the latter). In order to give or save any money, we must create a margin in our lives. Creating a margin requires that we live on less money than we make; this is the choice we make. Novel idea, I know, but when 70% of the country lives paycheck-to-paycheck, we have to lay this foundation first.
So what can you do to save some money? First, create a spending plan – or budget – you must know where every dollar is going in order to allocate more toward savings. Likewise, with a budget you’ll know exactly where each of those saved dollars is going so they don’t vanish. The vast majority of those who create a spending plan – and execute on it – feel like they get a raise because each dollar is accounted for and has a purpose.
Look at your grocery and eating out spending categories. Our rule-of-thumb is budgeting $150 per person per month in the household. Consider great resources like Angel Food Ministries to get groceries for more than 50% off. Pass on one restaurant meal each month and you’ll save around $600 a year.
If you’ve gone for more than two years without having your insurance policies re-quoted, it’s time to make some phone calls. If you have a solid emergency fund in place, increase your deductibles. Auto, homeowner’s, and life premiums are constantly being evaluated and updated. Just because you’ve been loyal to one provider doesn’t mean you’re getting the best rates. Consider contacting an independent agent who can find the best rates at a variety of providers. Don’t be surprised if doing this saves you anywhere from $300 to $1,500 in premiums this year.
Once you get the ball rolling, you’ll find plenty of other categories in your budget to generate savings. Look at your cable and cell phone packages, estimate savings by packing a lunch, and try brewing your own coffee at home instead of buying it on the run. Craigslist and eBay are your friends; sell what you know you don’t need and generate some cash.
All of these lifestyle and financial changes require a choice. Having a few thousand extra dollars in the bank would be sweet affirmation of a choice well made.
There are three uses of money: we give it, save it, and spend it (the average American was brought into this world already knowing how to do the latter). In order to give or save any money, we must create a margin in our lives. Creating a margin requires that we live on less money than we make; this is the choice we make. Novel idea, I know, but when 70% of the country lives paycheck-to-paycheck, we have to lay this foundation first.
So what can you do to save some money? First, create a spending plan – or budget – you must know where every dollar is going in order to allocate more toward savings. Likewise, with a budget you’ll know exactly where each of those saved dollars is going so they don’t vanish. The vast majority of those who create a spending plan – and execute on it – feel like they get a raise because each dollar is accounted for and has a purpose.
Look at your grocery and eating out spending categories. Our rule-of-thumb is budgeting $150 per person per month in the household. Consider great resources like Angel Food Ministries to get groceries for more than 50% off. Pass on one restaurant meal each month and you’ll save around $600 a year.
If you’ve gone for more than two years without having your insurance policies re-quoted, it’s time to make some phone calls. If you have a solid emergency fund in place, increase your deductibles. Auto, homeowner’s, and life premiums are constantly being evaluated and updated. Just because you’ve been loyal to one provider doesn’t mean you’re getting the best rates. Consider contacting an independent agent who can find the best rates at a variety of providers. Don’t be surprised if doing this saves you anywhere from $300 to $1,500 in premiums this year.
Once you get the ball rolling, you’ll find plenty of other categories in your budget to generate savings. Look at your cable and cell phone packages, estimate savings by packing a lunch, and try brewing your own coffee at home instead of buying it on the run. Craigslist and eBay are your friends; sell what you know you don’t need and generate some cash.
All of these lifestyle and financial changes require a choice. Having a few thousand extra dollars in the bank would be sweet affirmation of a choice well made.
Thursday, April 16, 2009
Dusting off Layaway
Remember layaway? I sure do – I remember when all the big box retailers had a layaway counter in each store. Scores of shirts, pants, toys, lawnmowers, and unassembled kitchen tables would be scattered around the counter as the layaway folks processed tickets and moved the items to storage. Remember what happened to layaway? I sure do – the big box retailers started offering “10% off your entire purchase if you open a store credit card.” A pretty smart idea for the retailers, really: no longer did they have to store items that weren’t completely sold. And – oh yeah – those little things called interest and late fees were a bit more lucrative.
Layaway grew in popularity back in the 1920s and 1930s, long before credit card applications lined the checkout counter. For a small fee, typically around $5, customers can pay for their purchase over a 30 or 60-day period, then take it home with no strings attached.
Kmart and Sears have both remained stalwart in their adherence to the longstanding layaway tradition. Since the economy slipped and sputtered some of their retail brethren are reintroducing the payment option to entice more folks through their doors.
What interests me about the resurgence of layaway is how so many folks refer to it as “old fashioned.” The idea of buying something only when you can afford it is foreign to our microwave culture. Certainly, credit cards are not going the way of the dinosaur anytime soon, but if the latest economic dip has taught us anything it’s that living outside of our means is a recipe for failure.
While I definitely prefer the use of layaway to credit cards, I would recommend trying a non-monthly expense fund. Rather than put a lawnmower or new wardrobe on layaway, try paying a portion of what you’ll need to spend into a savings account. Once you’ve saved what you need to make the purchase, head to the store and spend your cash. You’ll avoid the layaway fee and come home with your purchases right away. Want to have some fun? See if you can negotiate a discount when paying with cash upfront – you’d be amazed what bargains retailers are willing to give for a sale.
Layaway grew in popularity back in the 1920s and 1930s, long before credit card applications lined the checkout counter. For a small fee, typically around $5, customers can pay for their purchase over a 30 or 60-day period, then take it home with no strings attached.
Kmart and Sears have both remained stalwart in their adherence to the longstanding layaway tradition. Since the economy slipped and sputtered some of their retail brethren are reintroducing the payment option to entice more folks through their doors.
What interests me about the resurgence of layaway is how so many folks refer to it as “old fashioned.” The idea of buying something only when you can afford it is foreign to our microwave culture. Certainly, credit cards are not going the way of the dinosaur anytime soon, but if the latest economic dip has taught us anything it’s that living outside of our means is a recipe for failure.
While I definitely prefer the use of layaway to credit cards, I would recommend trying a non-monthly expense fund. Rather than put a lawnmower or new wardrobe on layaway, try paying a portion of what you’ll need to spend into a savings account. Once you’ve saved what you need to make the purchase, head to the store and spend your cash. You’ll avoid the layaway fee and come home with your purchases right away. Want to have some fun? See if you can negotiate a discount when paying with cash upfront – you’d be amazed what bargains retailers are willing to give for a sale.
Wednesday, April 1, 2009
The Tax Man Cometh and... Giveth?
April showers bring May flowers – so they say – which gives us something to look forward to. April also ushers in the annual deadline we all love bumping up against. It’s tax time again.
Many of us will receive tax refunds this year. I’m not a huge fan of refunds simply because I want that money in my pocket throughout the year rather than sitting in the government coffers as an interest-free loan. Please recognize that if you divide your refund by 12, that’s how much more you could’ve been bringing home each month last year. We can’t change the past, though, just the future. So what is the best use of those refunds anyway?
Given the pervasive attitude of fear in the economy right now, I imagine some are viewing their refunds as an unexpected boon – kind of like finding a $20 bill in a pants’ pocket that you completely forgot about. Fear is a terrible motivator – often times causing us to make brash decisions without a solid basis in reality. The reality is that we can’t control everything around us, but we must have a plan for what we do have authority over.
Start with a budget for your refund. Of course, you definitely need a monthly budget – where every dollar is spent with purpose before each month begins. Now we’ll create a plan specifically for the tax refund. Take a look at the Seven Financial Freedom Steps.
Do you have a beginner emergency fund? If you don’t have around $1,000 in a savings or money market account, then use your tax refund to open and fund an account like this. There’s no sense in throwing caution to the wind – unexpected expenses happen all the time, it’s called life. Money Magazine tells us that 78% of Americans will have a major negative financial event in any given ten-year period; that’s plenty of reason to be prepared. Likewise, if we’re going to get out of debt for good, we have to stop going into debt for these expenses, which aren't really "unexpected" after all.
Are you aggressively paying off your debt? After you’ve gotten your beginner emergency fund in place, go ahead and pay something off with your tax refund. Believe me, it’s going to feel really good! Use the debt snowball process: list all your debts from smallest to largest, pay minimums on everything except the smallest – throw as much at that one until it’s paid off. After that, move on to the next one and repeat until free of consumer debt.
If you’ve already dumped your consumer debt, find a creative way to give a portion of your refund to help someone else. Use the rest to top off your full emergency fund of three to six months’ expenses, invest toward retirement and your kids’ college, or pay down the principal on your house. The most important thing is to have a plan for this money; without one it’ll sprout legs and wander out the door.
To estimate your 2009 taxes, visit the IRS Withholding Calculator.
Many of us will receive tax refunds this year. I’m not a huge fan of refunds simply because I want that money in my pocket throughout the year rather than sitting in the government coffers as an interest-free loan. Please recognize that if you divide your refund by 12, that’s how much more you could’ve been bringing home each month last year. We can’t change the past, though, just the future. So what is the best use of those refunds anyway?
Given the pervasive attitude of fear in the economy right now, I imagine some are viewing their refunds as an unexpected boon – kind of like finding a $20 bill in a pants’ pocket that you completely forgot about. Fear is a terrible motivator – often times causing us to make brash decisions without a solid basis in reality. The reality is that we can’t control everything around us, but we must have a plan for what we do have authority over.
Start with a budget for your refund. Of course, you definitely need a monthly budget – where every dollar is spent with purpose before each month begins. Now we’ll create a plan specifically for the tax refund. Take a look at the Seven Financial Freedom Steps.
Do you have a beginner emergency fund? If you don’t have around $1,000 in a savings or money market account, then use your tax refund to open and fund an account like this. There’s no sense in throwing caution to the wind – unexpected expenses happen all the time, it’s called life. Money Magazine tells us that 78% of Americans will have a major negative financial event in any given ten-year period; that’s plenty of reason to be prepared. Likewise, if we’re going to get out of debt for good, we have to stop going into debt for these expenses, which aren't really "unexpected" after all.
Are you aggressively paying off your debt? After you’ve gotten your beginner emergency fund in place, go ahead and pay something off with your tax refund. Believe me, it’s going to feel really good! Use the debt snowball process: list all your debts from smallest to largest, pay minimums on everything except the smallest – throw as much at that one until it’s paid off. After that, move on to the next one and repeat until free of consumer debt.
If you’ve already dumped your consumer debt, find a creative way to give a portion of your refund to help someone else. Use the rest to top off your full emergency fund of three to six months’ expenses, invest toward retirement and your kids’ college, or pay down the principal on your house. The most important thing is to have a plan for this money; without one it’ll sprout legs and wander out the door.
To estimate your 2009 taxes, visit the IRS Withholding Calculator.
Wednesday, March 11, 2009
Make $1,000,000 by Accident
Is it really possible? Inc. Magazine points out a few stories such as that of Richard and Betty James. In 1934 (wasn’t there a recession going on?) Richard was working in a Navy tool yard and saw a spring coil fall off a table. His wife Betty found the word slinky, Swedish for sleek and sinuous, and the couple followed the idea with two years of testing.
Two years later they placed their invention in a store for $1 each and sold out within the first hour. To this date more than 250,000,000 Slinkys have been sold worldwide.
At only 16 years old, Catherine was able to convince two others to put up over $250,000 to start Yearbook.com. With over 20,000,000 unique visitors each month it has had growth spurts that have outpaced facebook and MySpace.
The point to be made here is that neither of these ideas made their inventors millions of dollars by accident. Each of them took a great idea and brought it to the marketplace to fill a need that was missing at the time.
Ideas really are a dime a dozen. Your ability to act on the ideas flowing through your mind is the only thing that will bring compensation. I’m convinced there are many ideas out there that will never be acted upon, and I heard some tremendous ones this past weekend at the 212 Connection Round Table.
What’s holding you back from significance? I have two suggestions to get moving on your ideas.
First, don’t get hung up in fear. Don’t choose a life of comfortable misery over one of significance. It is easy to look back on a long life and wish you had done more. It’s much harder to do something great and look back with abundance and thankfulness.
Second, don’t get hung up on the “how”. Instead, take the time to develop your “what”. Too often I see people putting their ideas on hold because of a lack of time, money or other resources. If your idea is a good one, nothing will stop you from greatness.
Two years later they placed their invention in a store for $1 each and sold out within the first hour. To this date more than 250,000,000 Slinkys have been sold worldwide.
At only 16 years old, Catherine was able to convince two others to put up over $250,000 to start Yearbook.com. With over 20,000,000 unique visitors each month it has had growth spurts that have outpaced facebook and MySpace.
The point to be made here is that neither of these ideas made their inventors millions of dollars by accident. Each of them took a great idea and brought it to the marketplace to fill a need that was missing at the time.
Ideas really are a dime a dozen. Your ability to act on the ideas flowing through your mind is the only thing that will bring compensation. I’m convinced there are many ideas out there that will never be acted upon, and I heard some tremendous ones this past weekend at the 212 Connection Round Table.
What’s holding you back from significance? I have two suggestions to get moving on your ideas.
First, don’t get hung up in fear. Don’t choose a life of comfortable misery over one of significance. It is easy to look back on a long life and wish you had done more. It’s much harder to do something great and look back with abundance and thankfulness.
Second, don’t get hung up on the “how”. Instead, take the time to develop your “what”. Too often I see people putting their ideas on hold because of a lack of time, money or other resources. If your idea is a good one, nothing will stop you from greatness.
Thursday, March 5, 2009
My Father-in-law is my Master
Three times in the last two weeks I’ve encountered people engaged in or preparing to engage in lending money to family. All three cases are the same: parents wanting to help their kids financially are lending money at a lower interest rate than the kids could get from a bank on their mortgage. Financially, it all looks like a good deal: the parents get some guaranteed return on their money better than most Certificates of Deposit are offering now and the kids have lower mortgage payments.
One of the cases I’ve encountered resulted in the parents, daughter, and son-in-law sitting around a table in my office, the two kids in tears. Yikes! What looked great on paper resulted in an incredibly burdened relationship when unexpected events derailed the “good deal.”
The very first debt myth I cover in our Past Due Boot Camp is “lending money to a family member or a friend is wise because I’m helping them.” The truth comes from a trustworthy source: the Bible. Proverbs 22:7 – “the rich rule over the poor and the borrower is slave to the lender” – packs a lot of punch. In practice, if you have the means to help someone financially just give them the money and don’t expect it back. Let it be a gift instead of a loan because no one likes eating Thanksgiving dinner with their master.
Two weeks ago a friend in a position to pay off her daughter and son-in-law’s mortgage (and then replace it with a lower interest loan to her and her husband) asked me if I thought it was a good idea. The kids get a lower payment and the parents make a better return than they could get at the bank; seems like a win-win. After I cited the Proverb, I told her she asked the wrong financial guy if she was looking for affirmation. She is financially savvy, and so I think it important to address the financial merits of such an endeavor along with the relational.
Let’s say that the mortgage currently has an outstanding balance of $200,000 and the couple has an interest rate of 6%. If they’ve been in the house for a year already, there are 29 years left to repay. The parents propose an interest rate of 4%. On paper everything looks like a great deal. The mortgage payment goes down by $227.15 each month; the total saved on interest and principal is just over $93,000 during those 29 years. The parents’ $200,000 investment becomes $338,000 when the mortgage pays off.
Let’s put ourselves in the shoes of the parents. Would it really be wise to tie up $200,000 for 29 years in an investment yielding a whopping 4%? Sure, we look around at the current market conditions and a 4% return seems like 40%. But in the next five years, the likelihood is that the market will turn around. We could even make the argument that investing $200,000 today – when the stock market is deeply discounted – could make these parents at least $381,000 more than the mortgage option during the same amount of time.
So, financially, it doesn’t appear that tying up those assets for so long is an ideal option for the parents. However, if you asked them, they’d probably say they just want to help their kids out. What if the kids sell the house three years into their deal? That’s a lot of lost interest. What happens if, six years from now, the son-in-law loses his job? What if he becomes disabled and doesn’t have disability insurance? What if…? What if…? What if…? Could any of these life changes leave a sour taste in one or both parties’ mouth? Basically, have these parents considered all the relational pitfalls of this financial deal? They could wind up holding a mortgage for kids who can’t repay and relationally they would become their children’s masters.
Why disrupt a great parent-child relationship or strain a daughter’s marriage in the name of 2% lower interest? I’m sure we all can think of examples in our own lives where what looked great on paper didn’t unfold according to plan. Placing a higher value on relationships than the almighty dollar will help us all keep the big-picture perspective we need when mixing family and finances.
One of the cases I’ve encountered resulted in the parents, daughter, and son-in-law sitting around a table in my office, the two kids in tears. Yikes! What looked great on paper resulted in an incredibly burdened relationship when unexpected events derailed the “good deal.”
The very first debt myth I cover in our Past Due Boot Camp is “lending money to a family member or a friend is wise because I’m helping them.” The truth comes from a trustworthy source: the Bible. Proverbs 22:7 – “the rich rule over the poor and the borrower is slave to the lender” – packs a lot of punch. In practice, if you have the means to help someone financially just give them the money and don’t expect it back. Let it be a gift instead of a loan because no one likes eating Thanksgiving dinner with their master.
Two weeks ago a friend in a position to pay off her daughter and son-in-law’s mortgage (and then replace it with a lower interest loan to her and her husband) asked me if I thought it was a good idea. The kids get a lower payment and the parents make a better return than they could get at the bank; seems like a win-win. After I cited the Proverb, I told her she asked the wrong financial guy if she was looking for affirmation. She is financially savvy, and so I think it important to address the financial merits of such an endeavor along with the relational.
Let’s say that the mortgage currently has an outstanding balance of $200,000 and the couple has an interest rate of 6%. If they’ve been in the house for a year already, there are 29 years left to repay. The parents propose an interest rate of 4%. On paper everything looks like a great deal. The mortgage payment goes down by $227.15 each month; the total saved on interest and principal is just over $93,000 during those 29 years. The parents’ $200,000 investment becomes $338,000 when the mortgage pays off.
Let’s put ourselves in the shoes of the parents. Would it really be wise to tie up $200,000 for 29 years in an investment yielding a whopping 4%? Sure, we look around at the current market conditions and a 4% return seems like 40%. But in the next five years, the likelihood is that the market will turn around. We could even make the argument that investing $200,000 today – when the stock market is deeply discounted – could make these parents at least $381,000 more than the mortgage option during the same amount of time.
So, financially, it doesn’t appear that tying up those assets for so long is an ideal option for the parents. However, if you asked them, they’d probably say they just want to help their kids out. What if the kids sell the house three years into their deal? That’s a lot of lost interest. What happens if, six years from now, the son-in-law loses his job? What if he becomes disabled and doesn’t have disability insurance? What if…? What if…? What if…? Could any of these life changes leave a sour taste in one or both parties’ mouth? Basically, have these parents considered all the relational pitfalls of this financial deal? They could wind up holding a mortgage for kids who can’t repay and relationally they would become their children’s masters.
Why disrupt a great parent-child relationship or strain a daughter’s marriage in the name of 2% lower interest? I’m sure we all can think of examples in our own lives where what looked great on paper didn’t unfold according to plan. Placing a higher value on relationships than the almighty dollar will help us all keep the big-picture perspective we need when mixing family and finances.
Friday, February 20, 2009
A Fast way to Make Easy Money
Four year-olds can be pretty creative. After lunch at home I was getting ready to head back into work when my oldest daughter Ava asked why. In passing I said "Someone needs to make some money." She was quick to point out that she has no problem making money.
As a benefit to our readers, she wanted to share how to make as much money as you want in just 1 minute. Easy. Enjoy.
As a benefit to our readers, she wanted to share how to make as much money as you want in just 1 minute. Easy. Enjoy.
Wednesday, February 18, 2009
For Love and Money
The look in her eyes said, “I am frustrated and I am nervous.” The look in his eyes said, “You’re just overreacting.” I love working with married couples as they begin setting goals together for their lives and their money. I also love to show them that their marriages will get stronger in the process of communicating better about their financial condition.
But let’s face it. Men and women are different creatures; some say they come from different planets. A husband might throw his hands up when his wife talks anxiously about money. A wife may harbor resentment over financial decisions that were made by “the head of the house.” If this sounds like you, the good news is that you aren’t alone. Money is the number one thing couples fight about in marriage. It’s also the number one cause of divorce. But who wants to be normal?
I met a young woman today who said she and her husband are about to start saving for a house. I could tell there was a slight bit of hesitation in her voice before she revealed that before they were married, her husband borrowed some money from his parents. She told me that her in-laws probably weren’t expecting it back because the money was more given than loaned. Then why was her body language so tense as we talked about this “gift”?
This is where personal finance gets personal. There is more to it than paying mom and dad back. There is stress and tension on a young wife who feels like every purchase she makes is being scrutinized by her in-laws because how can she afford the new towel set when she hasn’t paid us back? If she and her husband are going to get on the same page about the loan from his parents and saving up for a home, they’re going to have to talk about it. The truth of Proverbs 22:7 – “the borrower is slave to the lender” – has been ringing all too clear.
Remember when you were dating your future spouse? Remember talking about dreams and desires – everything you wanted out of life? Who said you had to stop after you exchanged vows? I told the young wife to sit her husband down and tell him that paying back some or all of the money he borrowed from his parents was extremely important to her, and she would have trouble putting any other financial goals in front of that right now.
I also said that if he has learned anything as a husband, he should know that “if mama ain’t happy, ain’t nobody happy.” That’s not to say she should always get her way, but it is to say that a subject causing tension, anxiety, and stress must be addressed. In talking about her feelings, the husband has an opportunity to serve and show love to his wife. Imagine that! In their book For Men Only, Shaunti and Jeff Feldham found that women prefer emotional security in their marriage to financial security. They’d rather be broke than think their man is distant and indifferent. So, men, be sure to show love – especially when dealing with finances, because financial security is still very important to your ladies.
This couple can sit down and address the stress point, then talk through a plan to shed the burden. That’s the beginning of setting goals together. When two people love and serve each other they have a lot of fun dreaming together. Getting out of debt. Buying a home. Traveling the world. Starting a business. Share your dreams with your soul mate.
Dreams become goals and goals need plans if they are ever to be accomplished. Each spouse offers a unique skill set and personality that will play a part in making those dreams into realities. Embracing those differences is the first step toward a sound financial plan, better communication, and a stronger marriage. Now go ahead and have some fun together!
But let’s face it. Men and women are different creatures; some say they come from different planets. A husband might throw his hands up when his wife talks anxiously about money. A wife may harbor resentment over financial decisions that were made by “the head of the house.” If this sounds like you, the good news is that you aren’t alone. Money is the number one thing couples fight about in marriage. It’s also the number one cause of divorce. But who wants to be normal?
I met a young woman today who said she and her husband are about to start saving for a house. I could tell there was a slight bit of hesitation in her voice before she revealed that before they were married, her husband borrowed some money from his parents. She told me that her in-laws probably weren’t expecting it back because the money was more given than loaned. Then why was her body language so tense as we talked about this “gift”?
This is where personal finance gets personal. There is more to it than paying mom and dad back. There is stress and tension on a young wife who feels like every purchase she makes is being scrutinized by her in-laws because how can she afford the new towel set when she hasn’t paid us back? If she and her husband are going to get on the same page about the loan from his parents and saving up for a home, they’re going to have to talk about it. The truth of Proverbs 22:7 – “the borrower is slave to the lender” – has been ringing all too clear.
Remember when you were dating your future spouse? Remember talking about dreams and desires – everything you wanted out of life? Who said you had to stop after you exchanged vows? I told the young wife to sit her husband down and tell him that paying back some or all of the money he borrowed from his parents was extremely important to her, and she would have trouble putting any other financial goals in front of that right now.
I also said that if he has learned anything as a husband, he should know that “if mama ain’t happy, ain’t nobody happy.” That’s not to say she should always get her way, but it is to say that a subject causing tension, anxiety, and stress must be addressed. In talking about her feelings, the husband has an opportunity to serve and show love to his wife. Imagine that! In their book For Men Only, Shaunti and Jeff Feldham found that women prefer emotional security in their marriage to financial security. They’d rather be broke than think their man is distant and indifferent. So, men, be sure to show love – especially when dealing with finances, because financial security is still very important to your ladies.
This couple can sit down and address the stress point, then talk through a plan to shed the burden. That’s the beginning of setting goals together. When two people love and serve each other they have a lot of fun dreaming together. Getting out of debt. Buying a home. Traveling the world. Starting a business. Share your dreams with your soul mate.
Dreams become goals and goals need plans if they are ever to be accomplished. Each spouse offers a unique skill set and personality that will play a part in making those dreams into realities. Embracing those differences is the first step toward a sound financial plan, better communication, and a stronger marriage. Now go ahead and have some fun together!
Thursday, January 15, 2009
Make Money by Accident
It was a cold and brutal winter morning in New York on January 2, 1924 but Richard Simon had promised his grandmother that he would visit. During his visit he discovered that his grandmother loved doing crossword puzzles with her neighbor. The two ladies kept each other company in the long winter evenings while they worked on the puzzle from the Sunday edition of the New York World.
Richard discovered the two ladies had a problem however; by Tuesday the puzzle was usually solved. After thinking for a moment, Richard asked the two women if they would like to have an entire book of crossword puzzles. I’m sure you can imagine the excitement between the two friends when the idea was proposed.
A friend, nicknamed Linc, was persuaded to join Richard in creating and publishing a book consisting of nothing but crossword puzzles. The subsequent Crossword Puzzle Book later became the foundation of the publishing empire Simon & Schuster, which today has annual revenues upwards of $14 billion.
There are a few things to point out here; the first being that you do not need to have an incredibly brilliant idea in order to make money. Two boys from New York identified a problem and set out to find a resolution in order to make someone’s life better. I don’t think either of these men realized they would create an empire; they just wanted to have some fun and help a sweet grandmother.
This leads me to my second point; these guys were having fun! They did not sit around brainstorming ideas to make a quick buck. They did it for the fun of it. Crossword puzzles were all the craze in the mid-20s and they capitalized on people’s enjoyment.
What ideas do you have resonating in your mind that could not only improve another person’s life, but that could also make you money? What is preventing you from turning your ideas into income? My advice to you is don’t get stuck on the “how”. Instead, focus on the “what” and then develop a plan to make that a reality.
If you are short of ideas there is a wonderful discussion going on right now at BeyondPastDue.com. Join in and add your ideas or take one already there and turn it into income.
Sunday, October 12, 2008
Reason #2 for not making at least $10,000 per month in your business
Not defining your target market.
"You mean I can't work with just anyone?"
I get this question a lot. Why would I intentionally shut certain people out of my business if my services are for everyone?
Most people in North America are in debt and manage their money poorly. I can help almost anyone improve their relationship with their spouse and manage their money better, but if I market to everyone, essentially I reach no one.
I met a financial planner recently who targets successful women and their families. At first glance he just shut out about half of the country by not targeting men. And then he defined his market as successful women. Talk about a great niche!
But just because you designate a specific niche doesn't mean you can't work with other types of clients. My friend will work with just about anyone that comes to him. As he markets his business however, he is able to fine-tune and specify exactly the kind of clients he's looking for and go directly to the source to find them.
The more focused you are, the more bang for your buck that you get when it comes to marketing.
Auto dealers do this exact same thing. The Honda dealer would love to work on your Accord. You'll pay a lot more than at the shop down the street. There is some implied reasoning that the Honda dealer will do a better job, although some could argue that. Even though the mechanics at Honda can fix your Accord, they will also fix your Ford or GM. But you'll never see that in their marketing.
"You mean I can't work with just anyone?"
I get this question a lot. Why would I intentionally shut certain people out of my business if my services are for everyone?
Most people in North America are in debt and manage their money poorly. I can help almost anyone improve their relationship with their spouse and manage their money better, but if I market to everyone, essentially I reach no one.
I met a financial planner recently who targets successful women and their families. At first glance he just shut out about half of the country by not targeting men. And then he defined his market as successful women. Talk about a great niche!
But just because you designate a specific niche doesn't mean you can't work with other types of clients. My friend will work with just about anyone that comes to him. As he markets his business however, he is able to fine-tune and specify exactly the kind of clients he's looking for and go directly to the source to find them.
The more focused you are, the more bang for your buck that you get when it comes to marketing.
Auto dealers do this exact same thing. The Honda dealer would love to work on your Accord. You'll pay a lot more than at the shop down the street. There is some implied reasoning that the Honda dealer will do a better job, although some could argue that. Even though the mechanics at Honda can fix your Accord, they will also fix your Ford or GM. But you'll never see that in their marketing.
Saturday, October 11, 2008
Reason #1 for not making at least $10,000 per month in your business
Teaching or helping your client with a task that you're unqualified to teach.
I would never hire a coach to help me reach a place they have never been. In my practice I think it's even unethical to work with a client that wants to go somewhere I have never been. I point those people in another direction where they will get the service they need.
Nothing prepares you to help others better than having lived something out in your own life. As I always say, find someone at the level you want to be at and learn from them.
Would you take financial advice from someone who has been broke all of their life and never seems to be able to get it together? What about weight-loss advice from your friend who never leaves the couch and weighs 300 pounds? Not a chance!
I don't want investment advice from someone fresh out of school with no money in the market. I am sure they have a certain amount of perspective they can add to to my investments, but I want the best, and I'm willing to pay for it.
For the same reason, if your business is a marriage counselor, but you have been married three times, I am guessing you are not making much money. If you offer auto repair but you have to constantly bum rides to work because your car is on blocks, there is a problem.
Find something you have experience in and excel at doing. Can you shape a business around that? I promise you the money will be there.
I would never hire a coach to help me reach a place they have never been. In my practice I think it's even unethical to work with a client that wants to go somewhere I have never been. I point those people in another direction where they will get the service they need.
Nothing prepares you to help others better than having lived something out in your own life. As I always say, find someone at the level you want to be at and learn from them.
Would you take financial advice from someone who has been broke all of their life and never seems to be able to get it together? What about weight-loss advice from your friend who never leaves the couch and weighs 300 pounds? Not a chance!
I don't want investment advice from someone fresh out of school with no money in the market. I am sure they have a certain amount of perspective they can add to to my investments, but I want the best, and I'm willing to pay for it.
For the same reason, if your business is a marriage counselor, but you have been married three times, I am guessing you are not making much money. If you offer auto repair but you have to constantly bum rides to work because your car is on blocks, there is a problem.
Find something you have experience in and excel at doing. Can you shape a business around that? I promise you the money will be there.
Wednesday, September 17, 2008
What I Learned from Lunch with Ron Blue
I learned that Ron and I are a lot alike. After the stock market tanked and subsequently rebounded in 1987 (does the first half of that story sound familiar?) Ron testified before Congress.
Senetor Dodd asked him what Americans need to do to survive. Ron said "Easy, we all need to do 4 things." When someone like Ron gives you a list of things you need to do, you grab a pen and get ready to write.
Senator Dodd was just as intrigued as I was when Ron announced he had a list and took diligent notes. The Senator was dumbfounded that it could be that easy. Ron's response? If it works for the people Senator, it also must work for the government."
Point taken Ron. Thanks for lunch.
Senetor Dodd asked him what Americans need to do to survive. Ron said "Easy, we all need to do 4 things." When someone like Ron gives you a list of things you need to do, you grab a pen and get ready to write.
- You need to spend less than you make
- You need to get out of debt and stay out
- You need to have an emergency fund
- You need to have long-term goals instead of living for today.
Senator Dodd was just as intrigued as I was when Ron announced he had a list and took diligent notes. The Senator was dumbfounded that it could be that easy. Ron's response? If it works for the people Senator, it also must work for the government."
Point taken Ron. Thanks for lunch.
Wednesday, September 10, 2008
10 Ways to Get Rich
Parade recently had a great article with Warren Buffett who is the richest man in the world. According to Warren, here are 10 ways to get rich:
- Reinvest your profits
- Be willing to be different
- Never suck your thumb
- Spell out the deal before you start
- Watch small expenses
- Limit what you borrow
- Be persistent
- Know when to quit
- Assess the risks
- Know what success really means
Saturday, August 23, 2008
Clean Up, Aisle Nine: Broke Customers
A recent survey by analytics firm Precima showed that 82% of U.S. consumers intend to keep cooking at home instead of eating out even after the economy improves and they have more disposable income. On top of that, 84% of consumers plan to keep hunting for specials in grocery store fliers, and 78% are making fewer trips to the store to save on gas.
There’s no doubt that gas and consumer goods price inflation has been running wild during the past year. Americans are rapidly changing their behaviors to make ends meet and keep food on the table. Is inflation causing financial strain, or revealing deeper problems? (Is this a “chicken and egg” question?)
70% of Americans live paycheck to paycheck according to the Wall Street Journal; our national savings rate hovers around 0%. Perhaps rising consumer prices are enough to topple the financial house of cards so much of the country lives in. Rising prices expose the overextended. A written monthly budget allows you to take control of your money and reinforce your financial foundation.
Here are a few ideas for your next grocery store trip: 1) don’t shop hungry, you’ll buy things you don’t need; 2) stick to a list; 3) only use coupons for items you use (no sense stocking up on 4-for-1 canned garbanzo beans if you don’t eat them); 4) use CASH! Studies show we spend 12%-18% more when paying with plastic. Establish a monthly grocery budget using a cash envelope to monitor your spending. It’s easy: when the cash is gone, the only places to “shop” are your pantry and freezer.
Confronting your financial situation honestly is the first step on the path toward financial freedom. Don’t miss your opportunity to take control of your life and money today!
There’s no doubt that gas and consumer goods price inflation has been running wild during the past year. Americans are rapidly changing their behaviors to make ends meet and keep food on the table. Is inflation causing financial strain, or revealing deeper problems? (Is this a “chicken and egg” question?)
70% of Americans live paycheck to paycheck according to the Wall Street Journal; our national savings rate hovers around 0%. Perhaps rising consumer prices are enough to topple the financial house of cards so much of the country lives in. Rising prices expose the overextended. A written monthly budget allows you to take control of your money and reinforce your financial foundation.
Here are a few ideas for your next grocery store trip: 1) don’t shop hungry, you’ll buy things you don’t need; 2) stick to a list; 3) only use coupons for items you use (no sense stocking up on 4-for-1 canned garbanzo beans if you don’t eat them); 4) use CASH! Studies show we spend 12%-18% more when paying with plastic. Establish a monthly grocery budget using a cash envelope to monitor your spending. It’s easy: when the cash is gone, the only places to “shop” are your pantry and freezer.
Confronting your financial situation honestly is the first step on the path toward financial freedom. Don’t miss your opportunity to take control of your life and money today!
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