Posted by Ryan on January 25th, 2008 in Entrepreneurial Mindset

I have to admit that when I first started to get serious about financial planning I did not find it exciting. In fact, I found it darn right dreadful. But my entire life I pictured myself having no limitations because of money. I remember when I was about six-years-old I literally thought I was going to create a money machine. I still remember what it looked like . . . a silver half-sphere that had an endless supply of dollar bills ready to be picked like a Kleenex box.

It wasn’t until I entered my mid-twenties that I realized I actually could produce money machines by building profitable businesses and investing wisely. I had a vision, but now it was time to take action.

Growing up in a lower class family, but immersed in upper-class surroundings I had a real curiosity about why rich people became rich while poor people who worked so hard remained poor. As an adolescent I read the classic books like The Millionaire Next Door, and Think and Grow Rich. Even though I didn’t understand most of what was being discussed, I tried reading and re-reading to try to figure it out. I figured everyone was capable of becoming rich; I just had to find out how.

I continued to read and read, and finally I came to a point where I decided it was time to get real about personal finance. Sure these books made me feel warm and fuzzy because they told me that I too could become rich, and they gave some introspection about the wealthy class, but they did not actually increase my financial IQ – the one thing almost all “how to get rich” books preach about. They did not teach me how to understand the stock market, what a dividend payment was or how to decrease my taxable income.

So, I took the advice of the books and famous money mentors. I decided if I want to become wealthy, I had to increase my financial IQ. But that sure sounded painful considering I had to willingly teach myself about economics, use math and read about other boring topics.

But I had a vision to follow and nothing was going to stop me. I subscribed to Money magazine, and started reading the Wall Street Journal and listening to a.m. radio. I tried to imitate wealthy people and went directly to their information source. And let me tell you, I did not find the topics enjoyable. It was like trying to read something in a different language. Lots of acronyms, charts, articles about mergers, acquisitions and IPO’s, how the Dow is performing, international trade, and retirement planning.

Yuck! At 22-years-old the only thing I was worried about was if I had enough available credit on my credit card to support my weekend lifestyle. It was just not interesting. After all, the things people are mostly interested in are things they are good at. Well, I enjoyed sports and music. I always had an aversion to finance and couldn’t digest the information, so how could I be good at it? Strangely, I never thought in order to become wealthy I had to understand the principles of money and money management.

But I kept to it. I made myself read every article entirely and listened intently to every financial radio and television show. I figured if I could just decode the message, I would be well on my way to becoming rich. And you know what I found out? After failing to find quick riches by chasing hot stocks and quickly losing in the foreign exchange market, among other things, I found that the there’s nothing fancy or complicated about the road to wealth. It’s about being disciplined with money, investing in boring index funds and contributing to your 401k so you can take advantage of compound interest.

Somehow, I have found a way to now be totally infatuated with this stuff. I am fascinated by the global economy, and how economics plays its role in the stock market. I love the competitive nature of the wealth game and the potential to make more money. And now I can now participate in discussions with wealthy people about investment strategies and other opportunities.

I’ve found that there is an unlimited number of ways to build wealth, an endless amount of information to digest, and personal finance is a great challenge. It’s like playing in a highly competitive sport, but the only opponent is you, with a million ways to win and millions of dollars at stake. And when you win, the only thing to do is to figure out how to outdo yourself to win even bigger next time.

What I’m getting at is that financial planning can be boring at the core, but when you discover the competitive side and the personal development it can bring, the hunt for wealth can be very exhilarating. Maybe even more satisfying, when you learn to accumulate wealth at a greater pace, you have the ability to teach others to do the same and watch them grow personally and financially.

Millionaire Money Habit: Push yourself to read and listen to financial news. Subscribe to a personal finance magazine, tune in to personal finance radio while driving, and pay attention to the financial segments on the news. It may be boring, but immersion is the best way to really improve your financial literacy and, therefore, be able to act like and become a millionaire.

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Posted by Ryan on January 23rd, 2008 in Investment Planning

This post is part of the Money Matters for All Ages project. The complete guide can be found at My Two Dollars.

You’re in your 50’s and all of your friends are starting to talk about their plans to take an early retirement and moving to the beach house in Florida they always dreamed about. You do the math and choke when you realize that if you want to retire at 65, you will need $1 million to produce a $40,000 income for the 25 years.

You’re not alone. According to The Motley Fool:

• 74% of baby boomers say they’re somewhat or very prepared financially for retirement. But just 8% have completed 10 basic steps for retirement preparation.
• Among older Americans, 90% are planning to rely primarily on Social Security for their retirement income, but Social Security supplied just 39% of retirement income for people 65 or older in 2001.
• About 90% of Americans say it’s somewhat or very likely that they’ll meet their retirement goals, but 60% were surprised to learn that $1 million in savings will safely provide only about $40,000 in annual retirement income.

What Can You Do?

The obvious choice is to delay retirement and work as long as you can. After that, you can still work part-time to supplement your income to reduce the amount of money you need to withdraw from your retirement accounts. That will keep as much money as possible in investments, which will continue to compound over your 20 to 30 years of retirement.

The federal government is well aware of the under-preparedness of Americans and offers people 50 and over the option to contribute more money to their retirement plans.

• 401k: In 2008, $25,500 pre-tax dollars can be contributed to your 401k a year if you are 50 or over, versus the standard $15,500 maximum 401k contribution.
• IRA: In 2008, $6,000 can be contributed to your Traditional or Roth IRA if you are 50 or over, versus the standard $5,000 maximum IRA contribution.

You can’t withdraw funds from your retirement plan without a major tax penalty until you are 59 ½ years old, and you might plan to work a few extra years longer beyond that age to keep your investments working to the max. Therefore, you’re safe to go heavy on a diversified stock portfolio.

This may seem contradictory to what most personal finance advisors advise, which typically instruct those nearing retirement to go heavier on fixed-income investments that are less risky. Typically the recommendation is to subtract your age from 110, and that will give you the amount you should devote to stocks. 110 – 50 = 50% allocation to stocks.

But the fact is if you have 10 years of investing ahead of you, stocks will safely give you the best returns. The Motley Fool’s rules for asset allocation are as follows:

1. Any money you need in the next year should be in cash. In other words, an interest-bearing money market or savings account.
2. Any money you need in the next two to five years should be in a safe fixed-income investment, such as certificates of deposit or bonds.
3. Any money you don’t need in the next five to 10 years is a candidate for the stock market, which will produce 10% annual returns over 10 years.

Lastly, you may also want to consider downsizing and reducing your expenses as much as possible. This will mean less money needed at retirement and more money you can contribute now towards your tax sheltered retirement plans.

Millionaire Money Habit: Funding your retirement for 25 or more years can be very costly and requires a sound plan. While $1 million will produce $40,000 in annual income for 25 years, that’s in today’s dollars. A 35-year-old today would need $3.25 million for the same relative income when inflation is taken into consideration. If you want to enjoy a comfortable retirement, don’t put retirement planning off another day.

Be sure to read the entire Money Matters for All Ages series. The Complete Guide can be found at My Dollar Plan.

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Posted by Ryan on January 21st, 2008 in Money Management

Weren’t the holidays grand? You saw family and friends you haven’t seen in a long time, had some great holiday parties, and enjoyed seeing the smiles on people’s faces as they unwrapped their gift from yours truly.

As you were fighting the crowds to get the last Nintendo Wii and treated yourself to a nice lunch while at the mall, you may have stopped to think that you were probably spending way too much money. But, heck, it’s the holidays and ‘tis the season to give. Right?

Well, now it’s time to face the facts. Most people who did not budget for their gifts will likely be a little shocked when they receive their credit card bills. You might even think, “There must be a mistake somewhere. I couldn’t have possibly spent this much.” Unfortunately, all of those little expenses added up to one big one.

Not to worry though. Let’s figure out a plan to recover from a debt hangover.

If you are in a bit of your own credit crunch, the important thing is to not ignore the problem, or it will just get worse. We want to eliminate the credit card debt as quickly as possible; otherwise that $250 video game console will end up actually costing you $400 after months of accrued interest payments.

With that in mind, don’t just pay the minimum balance or it will take years to pay off the debt. Instead, create a plan to get the balance back to $0 in three to six months time. Here’s how:

• Crunch the Numbers: Figure out how much money it will cost you to pay off the balances in three to six months.
• Pinch Your Budget: Cut out some discretionary spending in order to apply more cash towards paying off your bill. Every cup of Starbucks counts.
• Get Extra Cash: Are there any gifts you receive that you would prefer the cash instead? Or, consider one of the ways to Make an Extra $100 a Month to increase your cash flow.
• Negotiate Better Terms: Take five minutes to call your credit card company and tell them you are thinking about transferring your balance to another credit card company for a better rate. They want to keep your business and will negotiate with you. If not, ask to speak to a supervisor.
• Transfer Your Balance: 0% APR and free balance transfer offers can be found. Got to Bankrate.com to compare credit card offers, and consider transferring your balance to one of those cards to remove the interest payment.

Once you’ve looked at the numbers and created a plan to pay off your bills from the holiday spending frenzy, take some time to plan ahead for future gift giving seasons. You may want to open a separate savings account to regularly set aside money for gifts, or it may just require better budget planning the next holiday season. Either way, it’s best to be prepared in advance in order to avoid the post-holiday spending hangover in the future.

Millionaire Money Habit: It is difficult to join the millionaire club if you find yourself constantly in debt. To avoid increasing debt, it is important to set an appropriate budget in order to avoid your expenses exceeding your income. Stay out of debt and you will increase your ability to accumulate wealth.

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