BUILDING SMART MONEY

BUDGET :  A strong financial footing (living on less than you make).

Life is so much easier without the stress of having to worry about bills.  We need to wean ourselves away from using debt as a tool.  Learn to budget and save.  Learn to live on less than you make. You may have been spending much more than you make, and you will need to fill the hole the hole you have dug.  Every month make a reasonable budget (designating where all your income will be spent during the month, including debt reduction or savings) and stick to the budget!

The first ritual of wealth and the most important rule of financial success is: Pay yourself first; it’s okay to keep some.     - Tod Barnhart , The Five Rituals of Wealth

GROW: Your greatest wealth creation tool is your ability to earn (and continue  to learn).
Wherever you work, become the most valuable person there.  Keep challenging yourself to be better.  Never stop learning especially the value of time and money.  Just suppose living on what you do now but suddenly making twice what you were making.  Invest that difference & let it compound.  There is nothing wrong with a second job or self-employment income (there can even be some tax benefits).

I am indeed rich, since my income is superior to my expense, and my expense is equal to my wishes.    - Edward Gibbon

PLANNING & ADAPTING:  Plan on being successful, setting attainable goals and change the plan as necessary.

When faced with a decision to make be sure to ask yourself, "How will this effect me 5, 10 or 20 years down the road."   Make a plan.  Set up ways to measure your success.  Continually evaluate the plan & the probability of success.  Don't be afraid to adjust the plan.  Always remember .... failing to plan is the same as planning to fail.

 

"Would you tell me which way I ought to go from here?" asked Alice.
"That depends a good deal on where you want to get," said the Cat.
"I really don't care where" replied Alice.
"Then it doesn't much matter which way you go," said the Cat.    

- Lewis Carroll, Alice's Adventures in Wonderland (1865), novelist and poet (1832-1898).

INVESTING:  The result of good planning.
Spend as little as possible on items that loose value and as much as possible on items that increase in value.  Try not to borrow, but if you must, do so with a plan to pay it off.  Invest in yourself with further knowledge.
The reason a lot of people do not recognize opportunity is because it usually goes around wearing overalls looking like hard work.  - Thomas A. Edison


RISK CONTROL:  Giving yourself the freedom to plan & adapt.
Your decisions in life are often controlled by the risk you have accumulated.  It's impossible to take off next week if you are living paycheck to paycheck.  Harder still if that paycheck is dedicated to current bills. And down near impossible if that paycheck has to dig us out of our past spending stupidity.  We take out 6% home loans, 8% car loans, & 18% credit card loans and expect that a 2 to 4 % pay raise will take of it.  That works so well that we buy the biggest TV we can find because they tell us we don't have to pay for it for 2 years.  We leverage our future earnings & it has got to stop!
Buy what thou hast no Need of and ere long thou shalt sell thy Necessaries.  - Benjamin Franklin

Steps To Wealth

1.     BUDGET -- Establish a budget each month stating how much money you expect to receive & exactly how you plan on spending those incoming dollars.  Do the budget with priorities in mind: food, housing, utilities, and transportation.  With these four essentials covered, you can live to fight another month.  These four essentials must be within your means. Much of the money you spend on these four essentials will be consumed & gone forever.  Thus we need to spend as little as reasonable on items we consume.  This gives you more money to spend on items that go up in value.  A special note on housing -- if you own or are buying your house, we suggest that you have a payment no greater than 20 to 25% of your take home pay.  We like the idea of home ownership, but if you buy too expensive of a home you become what we call "house-poor" and it becomes hard to get out of debt and build wealth quickly.  Houses bought on time are not the wealth builder that we are often led to believe they are.  Recent research has shown that, adjusted for inflation, home values have only doubled in the past 60 years* (that is less than 2% per year).  Deduct that 5 to 10% mortgage and you will get a negative rate of return.
2.     CLEAN UP WASTE AND MISSPENDING -- Sell off items that you no longer use.  More importantly sell off items that are not within your means.  Generally speaking if the value of your cars, boats, motorcycles, rv's, snowmobiles, etc exceed 1/2 your yearly income -- you have too much money invested in items that are going down in value.
3.     GET CURRENT -- Use the money from Cleanup to catch up any bills you are not current on.
4.     ESTABLISH A SMALL EMERGENCY FUND -- Once current, set aside a small emergency fund to cover an unexpected emergency.  We suggest $1000 to $2000.  This is to cover an emergency (generally in relation to one of the 4 essentials).  An emergency is something like an unplanned doctor visit, car or home repair.  A trip to Florida is not an emergency. A patch on a leaky roof is (whereas a new roof is not).  Once money is used out of the emergency fund, replace it asap.  This money should be kept in a simple savings account that you can readily get to. 
5.     NON-MORTGAGE DEBT REPAYMENT -- List your debts smallest to largest, paying minimum payments on all but the smallest, on which you will pay the minimum plus any other money you can come up with.  Once that smallest one is gone, move on to the next smallest and do the same.  Since the minimum payments of the paid-off debts will be rolled-over into the next smallest debt, you'll be amazed at the amount of money you'll be able to throw at the next debt on your list.
6.     REAL EMERGENCY FUND -- Set aside 3 to 6 months worth of expenses.  You are now debt-free except for your home.  You've done well to get to this point & probably feel you have a very good grasp on money -- and why do I need to set aside so much money that I could invest somewhere?   You need to do this because of the freedom it gives you to strive ahead.  What if something suddenly happens at work & you lose your job?  With 6 months worth of expenses aside, you'll have up to 6 months to get the replacement job you want versus taking the first job that pays enough to help with this months essentials. As with the small emergency fund, you'll want to keep this in a simple savings account. It won't make you rich, but it will give you comfort. 
7.     LIFE STAGE INVESTMENTS -- Depending on you age, family status, and living status many people will now have different priorities that are important to them.  Some will want to buy a home and some will want to pay theirs off early.  Some will want to invest in their children's education and some will want to invest more toward their own future.  Some will need to aggressively build retirement money and some will need to continue to work into what could have been retirement years.  Some will invest in a retirement home and some will enter a nursing home.  Here are some things to consider:

A.     Retirement savings -- If you are starting young (or did start young), set aside 15% of your income in Roth IRA/401K and pre-tax retirement accounts.  Save a greater percentage the older you are (or were) before starting.
B.     Education savings -- Again the younger you start the smaller percentage you'll need to save.
C.     Home ownership -- If you already have a mortgage, consider paying it off early.  If just starting, we suggest a down payment of at least 20% with the balance on a 15 year fixed payment where the payment does not exceed 25% of your take-home pay.
D.     Work -- Never stop learning.  Find something you love to do.  Enjoy life.
E.     Invest -- Not just with money and not just for yourself.  Mentor a child.  Start a foundation.  There is nothing like giving of yourself to give to yourself.

* Irrational Exuberance, Robert J. Schiller, Yale economist

Don't Be Fooled

...... by all the bad news that you hear from the drive-by media (who are trying hard to compete for viewers).  Try some of these good news stories:

Dave Ramsey's "We Did It!" success stories -- http://www.daveramsey.com/etc/tell_your_story/?fuseAction=dspReadStories