Beyond Paycheck to Paycheck

at June 29, 2007 in Events. 1 Comment

Today is the day! Now you can get Beyond Paycheck to Paycheck virtually anywhere books are sold, online or off. For information about Beyond Paycheck to Paycheck, including testimonials, endorsements, and excerpts, visit About Beyond Payhceck to Paycheck today. You can order right from the site and get an autographed copy for no additional charge.

If you’ve already read Beyond Paycheck to Paycheck, you can now review the book at Amazon.com. Thanks!

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Strategy # 11 - A 401(k) plan contribution immediately increases your net worth

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at June 29, 2007 in Retirement, Tax and Top 40 Introductory Strategies. 0 Comments

Even if your employer doesn’t match your contributions to your 401(k) plan, contributing to your retirement plan is still a great financial move. The moment you make a contribution, your net worth increases by the amount you save in income taxes. These tax savings come to you by simply moving money from your right pocket (where your wallet is) to your left pocket (where the money is still very much yours but where it is far more difficult to spend).

For example, if you contribute $100 to your 401(k) plan, your paycheck decreases by an amount less than $100, because of the tax savings. (If your withholdings rate is 25%, your net pay would decrease by only $75.) At the same time, the full $100 contribution amount is deposited in your 401(k) plan.

You: So my net worth increases how?

If you had not made the 401(k) contribution, you paycheck would have been $75 higher. By making the contribution, your 401(k) plan balance is now $100 higher.

You: So I gave up $75 to get $100?

Exactly. Pretty good deal, right?

You: Yes. Almost sounds to good to be true.

Perhaps - but it’s a chief benefit of a 401(k) plan.

You: Why didn’t anyone tell me this before?

Got me. But no worries. Take advantage now that you know how easy it is to save money on taxes while growing your net worth and retirement savings! Start living Beyond Paycheck to Paycheck today!

You: So let me make sure I understand. My net worth increases because I am not paying the tax on the $100 I otherwise would have to in order to receive the money as part of my paycheck. Therefore, my net worth goes up by $25 simply by making this contribution. Is that right?

Yes! Furthermore, once the money is in your retirement account, you can invest the $100 for the long term and watch it grow over the decades. It may be worth many times what you originally put in, all for a one-time $75 sacrifice.

You gotta love your left pocket!

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Strategy # 10: Turbo-charge your pogo stick

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at June 28, 2007 in Retirement and Top 40 Introductory Strategies. 1 Comment

Your retirement isn’t a three-legged stool – it’s a pogo stick.

You: Excuse me?

Sorry, but it is what it is. Formerly, the three legs of the retirement funding stool for most Americans were:

An employer pension
Social Security
Personal savings

No longer.

Preferably in private, go ahead and curse the members of society whom you blame. Pick a Congressperson or two–even a President; the current one or any of his predecessors. Why limit yourself to politicians? Pick a corporation that dissatisfies you because of its irresponsible behavior, its failure to follow through on its promises to its employees.

When you are done with your ranting, you need to go on to the next phase: to start dealing with it. This is your reality. Your personal savings are going to be the primary source of your financial indepdence; your money to live on during retirement.

Your screaming may feel good, but your best bet is to begin treating those other two legs (the employer-paid pension and Social Security) as though they are not going to be major factors in your retirement. Treat them, at best, as “gravy.”

With only leg of the three-legged stool remaining, you don’t need to be a physics teacher to understand that such a stool is not going to be a comfortable place to sit down.

Taken together, this means you need to turbo-charge your pogo stick. And that means choosing to live a life Beyond Paycheck to Paycheck.

By accepting the fact that you’re on your own, you’re forced to act more responsibly. After all, denial isn’t much of a way to go through life. Take advantage of your youth and build your savings to a turbo-charged pogo-stick level. A pogo stick is much more fun than a boring old stool anyway.

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Strategy # 9: Save More to Feel Richer

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at June 27, 2007 in Saving Strategies and Top 40 Introductory Strategies. 0 Comments

If you save a high enough percentage of your income, your net worth almost always increases over a full month. Even if the market has a poor month, your new savings often exceed your investment losses, causing your net worth to still increase before you flip the calendar.

But when the market has a good month, your net worth really pops, because your investments increase in value and you add a significant amount of new savings. This strategy is particularly effective when you first start saving. Imagine what your finances can look like years from now by following this strategy each month!

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Strategy # 8: A Tax Refund is Not a Savings Program

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at June 26, 2007 in Cash Flow, Tax and Top 40 Introductory Strategies. 4 Comments

Can I borrow $2,500 and give it back to you next April?

You: Are you going to pay me interest?

Now that you mention it–nope. No interest. Just the $2,500.

You: No way. You’ve got to pay me interest. That’s my money you’re talking about. I’m no charity.

Good to hear, right answer. Yet unfortunately many people just like you make a similar interest-free loans to the government every year by receiving big income tax refunds. Furthermore, many people rationalize their sizable refunds by calling them savings.

You: Yeah, that way even if I don’t do any savings all yearlong, I know I have a couple of grand coming to me next April.

What did you use the money for when you got your refund last year?

You: Well I debated between this high-def TV and a really nice vacation - but then wound up using most of it for tickets to–

You didn’t really save it then, did you?

You: No, not really. But I had a great time!

And that’s my point. It becomes a slush pile for you to spend on something you’ve had your eyes on. Yet my hope is that you never get that refund again.

You: Excuse me? That sounds almost Gary-like. You trying to separate me from my money?

Of course not, but that income tax refund is usually just bad financial planning. I want you earning interest on your money as you earn it, not the government.

You: Come again?

By re-filing a Form W-4, you can give yourself a raise.

You: You sure?

Absolutely. If you keep getting a large federal income tax refund and expect that to continue next year, simply lower your federal income tax withholdings using Form W-4 and you’ll enjoy an increase in your net pay right away.

For help adjusting your withholdings, see the IRS’s calculator but going to the IRS web site and typing in the search box “withholding calculator.”

Even those more responsible types who use the refund money to pay back some existing debt are making a bad financial decision. By following the steps outlined above, they could be paying off more of their debts sooner, saving significantly in the amount of interest they pay!
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Strategy # 7: Guarantee Your Net Worth Increase

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at June 25, 2007 in Cash Flow, Debt management and Top 40 Introductory Strategies. 0 Comments

Despite the thousands and thousands of books, articles, newsletters, blogs, billboards and advertisements, I have only discovered one true way to guarantee your net worth will increase. Now there are other ways that usually work and others that, via creative math and suspicious assumptions, are presented to always work. I’m not talking about those. I’m talking about a method so unsexy, so unpopular, so ignored that people have forgotten it’s the easiest one:

Spend less than you make.

When you spend less than you make, you will have extra cash. This extra cash, by definition, will be used to do one or both of the following, each of which increases your net worth:

Increase your savings
Decrease your debt

Look at it this way, if you currently have a credit card balance you can’t pay off, it is only because, at one point, you spent more than you made. The only way to get out of debt is to do the opposite: spend less than you make and apply the extra money to paying off the debt. Painfully simple, yet completely guaranteed.

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CFP® Board’s Financial Planning Clinic

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at June 22, 2007 in Events. 0 Comments

The CFP^® Board sent out an eNewsletter earlier this week containing an article titled How To Live Beyond Paycheck to Paycheck.

It’s great to see such a prestigious organization committed to promoting financial planning education and awareness. To that end, the CFP^® Board is providing a free financial planning clinic in Boston on August 4. At this clinic, attendees will have the opportunity to meet with volunteer CFP^® professionals!

In addition, three expert speakers will lead workshops. I’ll be there enlightening you about all those cash-flow opportunities right in front of you. To save, you don’t have to be cheap; just fiscally responsible. I look forward to seeing many of you New Englanders on August 4!

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Strategy # 6: Get rid of expensive debt first

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Your Personal Debt Summary

at June 21, 2007 in Debt management and Top 40 Introductory Strategies. 0 Comments

The appropriate way to measure the cost of a debt is not by looking at its balance–that’s only the debt’s size. Rather, the cost of the debt is measured by the interest rate charged. The higher the rate, the more costly the debt.

When you only make the minimum payment on an ordinary credit card, you’re primarily paying interest.

You: And your point is?

You’re not making any real impact in reducing the amount you owe.

You: So that’s why my credit card debt doesn’t seem to be going down even though I never miss a minimum payment?

Exactly. It’s that “evil side” of the miracle of compounding interest at work again. But it is you who continues to choose this course of action whenever you decide to use a credit card and not pay the entire balance owed at the end of the month.

You: Not anymore I don’t.

Good. Do whatever you can to pay off high-interest debt quickly. Then move to the next least expensive debt. Use this handy table, from inside Beyond Paycheck to Paycheck to help get your debt organized:

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Enjoyable “Work”shop

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at June 20, 2007 in Events. 0 Comments

Yesterday evening I led a workshop titled How to Live Beyond Paycheck to Paycheck at the University of New Hampshire. After just a couple of hours, people with little or no previous financial planning education were empowered to take control of their financial lives! What a great experience!

Now, I don’t think a single attendee left thinking it was going to be easy to accomplish all their financial goals right away. However, those attending the workshop gained a renewed energy and, many for the first time, clear direction and confidence as to what they needed to do to accomplish their goals.

My favorite quote from the feedback forms was the one describing the workshop as “simpler and more understandable than I thought it would be.” Since I teach–not sell–it’s easy to make the education digestible and (as the same person told me later) “enjoyable.”

I hope to meet each of you at an event in the near future so we can further our conversation in-person. If you have a suggested event location, please let me know. I am still developing my end of year schedule and have open dates available.

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Strategy # 5: Let the force be with you

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at June 19, 2007 in Cash Flow and Top 40 Introductory Strategies. 1 Comment

Called the most powerful force in the universe, the miracle of compounding interest works in two very different ways:

For good–you’re receiving interest on your interest
For evil–you’re paying interest on your interest

You: Interest on interest?

Exactly. For example, take a basic savings account. Say you deposit $100 on January 1 to an account that pays 5% interest, compounding monthly.

You: Stop right there. What’s it mean to compound monthly again?

It’s the frequency at which you’ll earn interest. In this case, once per month. At the end of January, you will have earned interest in the amount of:

$1,000 x 5% x 1/12 = $4.17

(The 1/12 represents one month out of 12 there are in a year).

So your balance at the end of January is $1,004.17. In February, you’ll earn:

$1,014.17 x 5% x 1/12 = $4.18

You: There’s only a penny difference between the interest I earned in February and the interest I earned in January.

True.

You: Why are you wasting my time with this? I need strategies that are going to move the needle by more than a freakin’ penny.

Whoa, there. This blog is rated G.

You: Well, c’mon, Michael - a penny?!

Obviously a penny isn’t a big deal. I could have made this example different, say by suggesting a $50,000 account balance and comparing one year to another (rather than comparing months). But if you’re just starting out, a $50,000 balance is a ludicrous example.

The real point is that it takes money to make money. The example just shows you how. That extra penny appears through no effort on your part. All you have to do is leave your previous investment earnings alone. As you are able to save more money for longer periods, the difference won’t be pennies - it will be sizable.

Compounding interest is an incredibly powerful force. Choose to benefit from it. Enrolling in your 401(k) plan as soon as you are eligible is just one great way to take advantage of this miracle.On the other hand, once you are buried in “bad debt,” such as high-interest credit card debt, you may find it impossible to get out from underneath. This is the miracle of compound interest working in its evil form. You will be paying extra pennies (more likely dollars) each month as the interest you didn’t pay last month has now lead to an ever-expanding total balance due.

You: What should I do ?

The best advice is to limit your spending to no more than your earnings so you never get in such a situation. But, if you are way beyond that point already, then do everything you can to . . .

Get rid of expensive debt first.

(a future posting)