Sunday, May 31, 2009

Don’t Buy Stuff You Cannot Afford

This video is humorous, but the advice is irreplaceable. When considering purchasing an item, no matter how trivial it may seem, it’s good practice to think about the following:

1. Do I have enough cash to pay for it fully?

2. Can I buy it without borrowing money?

3. If I waited a month, would I still want to buy it?

4. Does the purchase have no effect on my fixed expenses?

If the answer is yes to all these questions, then it may be affordable (not necessarily needed though). However, the important message here is to develop a habit of not spending money on things that you can’t afford. The limit on your credit card is not your own money. It is important to understand the difference. Cash and credit are two distinct things. Cash is what you own and credit is borrowed money; this is a simple way to view them.


Don’t buy things you can do without

We can take this a step further. Do not buy things you can do without. This removes the desire to have a lot of things because you have become detached from the importance of these items in your life. If items are not perceived as important, it is very easy to not want them. Of course, you can buy things that are enjoyable, but the choice now becomes easier and you realize that you ultimately buy less things than you would have under the previous mindset.

No debt

The main objective is to reduce the amount of debt that we have. The majority of Americans are drowning in debt, and the only way to take control of this is to adjust ones way of thinking. The first step is to change ones behavior through thoughts. If I think I do not need something and I adopt a habit of not spending money on things I do not need, then everything else will be taken care of. What will the result of this behavior and thinking be: zero debt and a feeling of more control over ones personal finance.

This is a very simplified illustration, but I believe the point is clear. This is personal finance in its simplest form.

Sunday, May 10, 2009

Balance happiness today with the security of tomorrow

justice scale

The inspiration for this piece comes from a story I read on Get Rich Slowly. The blog post talks about a couple who spent their entire lives saving money only to die without having had the chance to use it.

After reading many of the comments that the readers left, I got a sense as to what the community thought. I must say it varied; it is very intriguing to read. I recommend taking a look at it. The link will be posted below at the end of my reflection on it.

Brief Summary of Story
The husband of an elderly couple passed away and his wife found out through the accountant that she had approximately $4 million in savings; money that she was not aware of. She went on to say that she wanted to do so many things in her life; buy nice clothing etc., but was never able to because of financial reasons. So she then went out and started buying things she always wanted, only to die a week later than her husband.

The overarching message in this story is to have BALANCE. Yes, from the perspective of personal finance, it is important to be frugal, and pay specific attention to expenditures, but it should not be at the sacrifice of your happiness. As the title of my blog posting says, we should balance happiness today with the security of tomorrow.

What do I mean
Well I believe it to be a wise choice to prepare for the future, but it should not be at the expense of the present moment. You only get to experience life now, so your present should be given highest priority. Consequently, there is a difference between doing that  and impulsive spending on things you think you want or need that will make you happy. One says that you should really take the time and invest in yourself; things that you really enjoy, you should do it, but it should be done wisely and everything should be taken into consideration; other activities, expenses, education, children, spouse etc. On the other hand, one could merely make impulsive purchases, buy unnecessary things without future considerations, be reckless with money and rack up a lot of debt, and do not save or invest. This normally does not create a condition for future wealth.

I do think that doing things that you love allows you to really connect to Divinity, that creates a condition of fulfillment.

Deeper meaning

“There is no correlation between money and happiness.”

It would otherwise be very difficult to find someone with very little money who is happy. Or, most people with a lot of money will have the highest level of happiness. You can see how idiotic those statements are. Another way to look at this is to really think about where your happiness comes from. Happiness is a state of perception. Dr. Wayne Dyer said it and he was right.

Everything that I experience in my life is a result of my perception of what’s out there in the world.”

At a certain level you realize that happiness is a state within and is not achieved by striving for things on the outside. There is nothing out there that can bring happiness into your life. Change your perception and change your life; amazing things will happen.

Check out the article and the comments at Get Rich Slowly here >>>

Saturday, May 9, 2009

College Graduates | Be Positive, Challenge Yourselves

I thought this to be an appropriate time to post this article as many people I know will be graduating within the next few weeks. This is a very exciting time, but can also be a time that’s filled with anxiety and perceived as stressful by many entering the workforce for the first time. My advice is simple; Be positive, challenge yourself and let go of all worry. I refer to a quote by Dr. Wayne Dyer that says:

“Why worry about something that you don’t have control over, because if you don’t have control over it, there is nothing you can do so it makes no sense to worry about it.”

“And, why worry about things that you have control over, because if you have control over them, then there is no point in worrying.

This covers everything that you can ever worry about. Therefore worrying makes no sense.”

Let me put this in the right context. We all are aware that the economic conditions may not be ideal and that this environment happens to be one of the most difficult that this generation has had to cope with. This falls in to the first category of things you don’t have control over. We have little influence on the economic climate and macroeconomic conditions; we are not able to control unemployment rates, or interest rates, or housing prices. So why worry about them?

Rather, focus on what can we control.

1. We can control our perception of this environment. We can see it as a challenge or we can choose to yield to it. Many of the great leaders say that in the face of a crisis lies opportunities. Adjust your perception and seek out those opportunities.

2. We can control the opportunities we accept. We can challenge ourselves to find a job that we enjoy doing or that may teach us something that we did not know about ourselves. Many times we are too focused on something that we want, we bypass many other opportunities that may serve as stepping stones. Be open-minded.

3. We can change our spending habits. An environment such as this requires certain sacrifices. Adjust your spending habits to suit the environment. Eat out less, reuse items, spend less on alcohol and partying – choose home entertainment instead. There are many ways to cut back on our wants. Focus on the needs.

4. We can reach out to our networks and ask for assistance. Don’t think you can do everything alone. Reach out to people you have been in contact with at school, organizations, church, family members etc. You never know, they may have openings and many times, who you know does matter.

5. We can be of assistance to our friends, whether we are in an ideal position or not. When you want something really badly, choose to give it away and the Universe will bless you with it in abundance. A great lesson that we all learn at some point in our lives.

6. We can work on our resumes and seek out different types of job opportunities. This is something we have total control over.

7. We can try something new.

I could go on and on, but I think I made my point. Take some time to think about this and you will realize that unemployment is a state of mind. These are the things we can control. Instead of putting focus on what you cannot control, spend time concentrating on what you can control, because in the end, you have a firm grasp on one and not the other.

If done right and with a positive mindset, you will realize how much you have grown from this experience and that there are numerous opportunities for everyone.

I would like to hear your thoughts.

Morningstar | Seven Ways to Simplify Your Investment Life

Investing can be overwhelming. Once you get to the point where you invest through many different products and vehicles; 401ks, IRAs, Roth IRAs, 529 plans, CDs, taxable accounts etc, it can seem to be a daunting task to manage them all. These are a few guidelines provided by Christine Benz of Morningstar to create a minimalist portfolio; one she says you can depend on.

1. Stick with the Basics: Ignore the crowd and the everyday noise of the market. Stick with low-cost, broadly diversified mutual funds with veteran management teams and great long-term reward/risk profiles.

2. Investigate One-Stop Funds: Consider Target-Date funds. These are ideal for people who do not have the time to research or monitor companies on their own. Target-Date funds are funds which grow more conservative as your goal draws near. That is, it automatically adjusts your risk profile (percentage of stocks to bonds on portfolio) as you age or go closer to retirement.

3. Index: With indexing, you accept the market’s return rather than trying to beat it. Warren Buffett recommends this to any investor who does not have the time to study companies; buy low-cost index funds and hold for the long term. You would perform well over time this way.

4. Take the Best and Leave the Rest: Pay specific attention to your asset allocation over all your investment portfolios.

5. Jot Down Why You Own Each Investment: This is a very important step. Warren Buffett says that you should be able to explain why you own any company in a simple paragraph. Christine says “By writing down why you made an investment in the first place, you’re more likely to make sure that the investment meets its original goal.If it isn’t doing what you expected by sticking with a specific investment style and producing competitive long-term returns, you’ll be ready to cut it loose.”

6. Consolidate Your Investments with a Single Firm or Supermarket: This eliminates excess complexity and paperwork.

7. Put Your Investments on Autopilot: Dollar Cost Averaging is a great strategy with long-term benefits.

Read the full details here >>>

Saturday, May 2, 2009

Being a Steward of your Assets

There is no one idea that can be used on the pathway to financial independence. It is a combination of different strategies that should be used in order to create the conditions that would ultimately lead to that state. Yes, financial independence is a state of mind in a big way, however, it is wise to set certain processes in motion early, so that the necessary conditions can exist later on in your life. You will then have the freedom and flexibility to do certain things that are truly important to you.


What does it mean to be a steward?

Since we all work and as a result generate income, it is important that we respect ourselves enough and be stewards of our assets. The income we generate represents our lifetime of studying, working, parents working and also the work of society as well. Therefore we should really be fiscally responsible and be the stewards of everything that we own; our bodies, our material objects and of course, our financial assets. To be a steward then means to consider your life and what you want to achieve, and take the necessary steps to have them manifest. It is the act of being responsible and preparing for the inherent risks of life and those that depend on you. It is also important to consider society as a whole; it is because of society that we are able to work and generate income. Therefore, it is our responsibility to give back in any way we can; it could be time, money, ideas or any other valuable contributions we can make to the world.

I read this great excerpt by a Senior Editor Money Magazine and was inspired to write this short piece. This is the excerpt from an article about how much should one save to be financially responsible:

“Well, as much as I’d like to be able to tell you to save 10%, 15% or whatever and you’ll be fine, it’s impossible for me to do that without knowing a whole lot more about you. The percentage of income that’s appropriate for you will depend on your income, age, the amount of money you’ve already saved, your employment prospects and, most important, how much you’re willing to forego immediate gratification for current and future financial security.”

See full article here >>>

What stood out to me was the last part of the final sentence; “how much you’re willing to forego immediate gratification for current and future financial security.” Fortunately, I do live a relatively simplistic lifestyle, yes, even in New York City, but I do have big dreams that I know will be realized in due time. In that sense, it is where I see myself in the future that is dictating my choices today.

Be a financial steward; take care of your assets.

Friday, May 1, 2009

The Secrets of Financial Freedom | An Interview with a Millionaire Next Door

This interview by J.D. Roth of Get Rich Slowly, one of my favorite personal finance blogs, is a great read. John, as he is called, followed basic principles that we all are able to adhere to, in order to achieve wealth. I am certain that many of these principles will be very familiar to the readers of this blog, however, hearing it from someone who has practiced them consistently for a lifetime can have a different effect. Read this interview and work on incorporating some of them into your own life. Practice creates a habit and habits bring about change. Enjoy!

These are some of the main principles:
1. Spend less than your earn.
2. Learn what a kilowatt hour is.
3. If you have a credit card, you should benefit from it.
4. People need to learn to cook from raw materials.
5. It is ok to buy used.
6. A dollar spent will never produce dividends.
7. No-load mutual funds are the only way to go.
8. Volunteer to help others.

"The greatest thing one can do for the world is to raise one's own level of consciousness"....~Dr. David Hawkins