Archive for the ‘Savings, Investing, and Money’ category

Increase Your Net Worth in Seconds with Creative Accounting

February 22, 2009

Is there anyone in your life that does pretty much anything you tell them to do? Maybe one of your friends, neighbors, relatives, admirers, coworkers, or fans?

If so, you should consider doing as publicly traded companies do in consolidating their financial statements. Parent companies that own or effectively control other companies are required to recognize their affiliates (owned or controlled companies) by creating one set of consolidated financial statements for reporting purposes.

If you have people (let’s call them subsidiaries, or subs for short) who do what you say, you, too, effectively control them and their assets. When heed your advice or requests, like when you suggest they buy you a hamburger, or request they drive you somewhere, they have effectively relinquished control over their own resources to you, their parent company of sorts. In order to be more open and honest (regulators like the word, “transparent”) in presenting your net worth, you may wish to recognize your subs’ assets along with yours.

So go ahead! Give your subs a call to discover their financial positions, and increase your net worth in just minutes! And, hey! There’s no SEC regulation here, so feel free NOT to include any subs with negative net worth. Be discerning, and by extending your network of control, you’ll have a sizeable net worth in no time.

Share your success stories in the comments section!

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“Can’t Buy Me Love”

February 18, 2009

I found a list of questions about money on Jenny Blake’s blog, Life After College. All are good questions that made me think about my relationship with money. Here’s my answer to question #1:

What is important to you about money?

With money, TheFieryOne and I have access to life’s basic necessities, such as food, shelter, chocolate, etc. Because the world is what it is, without money we’d either have to rely on wilderness survival skills (which is admittedly lacking at that level of self-sufficiency) or charity. Neither is a great option, so we need money.

In addition to basic necessities, money also provides access to some of the things we love, however unnecessary they may be. Many frugal types forego traveling because it costs a good amount of money. But we’re willing to sacrifice other things for the adventure, the learning, and the eye-opening experiences we have whenever we travel. I’ve never regretted spending money on a vacation, especially when family has been involved.

Back to the idea of charity — Rather than require charity from others, TheFieryOne and I want to be able to be charitable with our money, time, and service. We have been blessed with health and a reasonable understanding of, and respect for, money, and it’s only right that we do our best to add value to the economy in the form of work and service in exchange for money and satisfaction, respectively.

On the flipside, I hope we’d be humble enough to accept charity if we needed it.

Money isn’t everything. It’s a means to an end. It doesn’t, in itself, represent anything desireable. It only allows us to purchase goods and services, which are necessary and sometimes highly valued, but still not the end-goal.

My end-goals include: family togetherness, friendship, happiness, learning, and good memories. Money can’t buy any of these things directly. But it’s important because it can help support these things if used wisely.

The Beatles sang it well:

Can’t buy me love, love
Can’t buy me love

I’ll buy you a diamond ring my friend if it makes you feel alright
I’ll get you anything my friend if it makes you feel alright
‘Cause I don’t care too much for money, money can’t buy me love

I’ll give you all I got to give if you say you love me too
I may not have a lot to give but what I got I’ll give to you
I don’t care too much for money, money can’t buy me love

Can’t buy me love, everybody tells me so
Can’t buy me love, no no no, no

Say you don’t need no diamond ring and I’ll be satisfied
Tell me that you want the kind of thing that money just can’t buy
I don’t care too much for money, money can’t buy me love

Raising Frugal Children

February 17, 2009

TheFieryOne and I do not yet have children. But we have many friends and family members with children, we were once children, and we plan to have children in the future. So we often talk about the types of methods and principles we intend to use in raising our own, future children.

So far, we have established two money-related parenting strategies we believe will help our children become frugal and money-wise:

Savings Rule #1: TheFieryOne’s parents had a rule that she and her siblings, when they earned money, would save 50% of it. Always. As their bank account balances increased, they learned the excitement of saving, something I failed to experience until the last few years. They also learned about interest. TFO still gets a gleam in her eye when she talks about monitoring her savings account when she was young to see how much interest she had earned.

During her teenage years, TFO worked part-time and 50% of her money always went directly to savings. She could have purchased a car with cash, but held off because she had developed a healthy respect for what it took to get her life savings to that level. Plus, her parents allowed her to use their cars, and eventually bought an old, beat-up sedan for her teenage enjoyment.

I don’t regret having purchased my own cars using bank loans because my parents were not willing to buy me a car and I was particularly independent during high school. I explained my reasons for not saving money during my youth here. But TFO and I think we’ll be able and willing to provide at least one car for our kids who can drive so they won’t have to spend all of their money on transportation.

Savings Rule#2: Much like the defined contribution pension plans I mentioned earlier, we have a plan to match our children’s contributions to their savings. I can’t remember if we ironed out the exact details, because I’m a little hazy on whether we plan to match the required 50% or not, but we’ll definitely match anything above and beyond that, dollar for dollar.

Early withdrawal penalties will definitely apply lest our kids try to get the match and then withdraw right away. They won’t be fully vested until they turn 18, so if they withdraw any principal before then it’s penalized dollar for dollar, meaning we’ll take our contributions back for that amount (we probably won’t bother with interest).

Our goal is ultimately to help our children be patient in saving and spending. We want them to develop a healthy respect for money and an appreciation for investing and earning interest. We also want them to refrain from buying too many unnecessary things. TFO and I could afford a vacation to Hawaii if I suddenly received all the money I spent on candy and entertainment as a kid (granted, my family was not well off, so I pretty much had to pay my own way for any extras, including new clothes, but that’s a post for another day).

What do you think? Do you have other plans or have other ideas worked for you?

Life Insurance: Term, Whole Life, or What?

February 14, 2009

I have two good friends who, as personal financial advisors, offer life insurance policies to their clients. One is all about Whole Life, and the other is all about Term. Since The Fiery One and I were married, I’ve been wondering which type of insurance policy I should choose when we have children. I knew I didn’t want to start paying monthly life insurance premiums until I had dependents, but it just wasn’t clear which of my friends was peddling the better policy (Not planning to buy through either of them, btw. I don’t like doing business with family/friends unless it’s very small-time/fun).

Well, the other day it all clicked for me. I realized that, for a person in my situation, there’s only one smart life insurance strategy. Here it is:

I’m young. I have my whole career ahead of me to make money, save, invest, and build a respectable retirement savings. The Fiery One is the same way, and if I were to die right now, she’d easily be able to support herself for the rest of her long, lonely, frugalCPA-less life.

Once we have children, however, she’ll have a more difficult time of it, especially considering she wants to stay home full-time with the kids to care for them. So life insurance makes complete sense for the years we have young children at home.

Once the kids are older and TheFieryOne is again free to work, life insurance no longer makes sense for us. The kids’ll be on their own (yes, we are kicking them out at 18 in a very loving, you-need-to-be-independent sort of way, though we’ll be happy to pay for their lodging during college), TFO will be able to work if she wants, and I’ll have accumulated a nice little portfolio of savings and investments that will, from then on, be what we can fall back on in case of my death or some sort of financial difficulty.

In summary, I only need a Term life insurance policy of 25 to 30 years, which starts when TheFieryOne gets pregnant (we’ll also get a small one for TFO to cover daycare costs and what have you should the worst happen). No more life insurance after that. I can’t see any compelling reason to have it when you don’t have dependents.

I do, however, plan to have long-term disability insurance throughout my working years, and long-term care insurance once I turn 55 or 60. Do you?

p.s. Ah, l’amour. There’s just nothing that says “Happy Valentine’s Day!” as effectively as a post about life insurance, is there?

Debt and the Balancing Equation

February 8, 2009

Paidtwice wrote an interesting post about balancing tomorrow’s needs with today’s enjoyment. What I took away from it is that it’s not ALWAYS best to sacrifice everything today in favor of saving money for tomorrow. Today is a valid time to spend money, too, so instead of always defaulting to saving our money for the future, we should consciously balance the two.

I agree. I read a great PF book some years ago called Money Wise and Spiritually Rich, and I think I’m correct in attributing to it a story of an older couple who had saved almost all of their money their entire lives. Sadly, they felt they had squandered their youth in penury and sacrificed too much.

I can’t remember all of the details of the story, but I remember it really resonated with me. Life is short, in a way, and though we shouldn’t be wasteful, rash, or short-sighted, we should definitely make the most of today. For The Fiery One and me, that means setting aside some money for traveling every so often. That’s the one thing that’s always completely worth it to us.

All of that said, there was one thing I wanted to add to the topic of balance:

Debt changes the balancing equation by siding with the future. Until we have our student loans paid off, we feel more comfortable erring on the side of paying off our debt for freedom’s sake.

For example, we were planning to do a big trip for Spring Break, but decided that all of our student debt is too prohibitive for us to feel good about such a large, unnecessary expenditure. Instead, we got creative and crafted a smaller, less glamorous trip for a quarter of the cost. It’s what our consciences will allow, and we’ll enjoy it all the more because we’ll be regret-free.

It’s hard to enjoy spending money when you feel guilty, knowing you’re not allocating your money wisely. In our case, any debt besides a mortgage weighs heavily on our souls. When we graduate and start working full time, we’re not going to be thinking a lot about the balancing act. We’re going to be paying off as much of our subsidized student loans as we can in the six-month window before they start accruing interest (6.8% is not happiness).

In a strange way, it’s kind of nice to know so clearly how we want to allocate all of our extra money until our debt is gone. It’ll be more difficult to balance things once we’re in the clear and actually saving again.

First things First

February 7, 2009

One of the great things about the personal finance blogging community is how excited everyone is about earning and saving money. I love reading all of the tips and successes shared by so many enthusiastic people. Recently I’ve been particularly aware of posts about alternative income, and have been brainstorming how I might make some money on the side.

I asked The Fiery One what she thought about it, and we had an interesting discussion about some of my strengths, skills, and experiences. In the end, however, we decided it’s just not the right time for me to pursue alternative sources of income (or any sources at all, sadly).

I’m 7 months away from a master’s degree, and I’ll be taking the CPA exam over the summer as I finish my last classes. I’m very invested in successfully completing both of these rather important to-dos, so for now, I’m going to quell my money-making excitement in favor of mastery and CPA examery.

From Spender to Saver

February 6, 2009

When I was quite young (6?), my mom helped me open a bank account and taught me the principle and benefits of saving. At the age of 16, I learned about compound interest, Roth IRAs and other things that could have really gotten me off to a great start.

But I consciously chose to spend my money instead of saving it.

I valued independence more than anything so I bought my own car and paid for my own insurance and fuel. Saving money when I was earning only a small fraction of what I would earn post college seemed futile. Why would I save 40% of my income then, when that amount would equate to only 5% of my income later? My best saving efforts would still only result in maybe $12,000 over all of my teenage years and through college ($8/hr just doesn’t go far), and for some reason I always genuinely believed I’d be making a $100k salary when I graduated. That would make my entire childhood savings seem so pithy!

I actually still think that’s a valid argument IF you know you’ll for sure be making a lot of money in the future. But I’d gladly go back to visit my younger self and recommend saving 50% of everything I made. At the very least, I’d convince myself to always have at least $2,000 in a money market account so it could accrue some interest over the years and be there if I ever needed it (while I was at it, I’d recommend getting a piece of Google’s IPO, but that’s neither here nor there).

It wasn’t until I got married that I realized how satisfying saving can be. We were in school for the first little while, but when we both started working full time, we were able to put several thousand dollars away every month for almost a year. I had never before experienced the thrill of saving money, and it easily beat the thrill of spending, not to mention the fact that it wasn’t so short-lived!

For The Fiery One (my wife), saving provides needed security. She needs to know three things:

1 – We have money for a rainy day, or a hot day when our A/C unit dies

2 – We’re spending less than we’re earning

3 – We’ll eventually be making “ideally about $200 thousand per year.” [I laugh] “What? Does that seem high to you? I mean, that doesn’t seem high in the LONG run. What do you mean by eventually?”

Really, she’d be fine with a much smaller income than that. She just needs it to be steady and predictable.

For me, saving definitely provides security. It also makes me feel in control of myself and my life. And perhaps most important to me, it builds a foundation for my family’s future. As long as I can control my spending today, I won’t be bound to unnecessary debt. Saving does just the opposite (binds other people to my debt!) by ensuring my family is provided for and opening opportunities to travel, pay for piano lessons, etc.. It’s certainly not worth sacrificing everything good today, but it’s definitely worth being frugal.