Beyond Paycheck to Paycheck

at July 31, 2007 in Events and Retirement. 0 Comments

You: How’s it going in Chicago?

Great - except this blue-line El construction is enough to drive someone to, well, drive in Chicago.

You: Yeah, they say it will be much better when the construction is over.

Ha! That’s a good one!

You: Hey, just trying to keep it light. So what’s new?

Well, last night’s seminar at the new ING DIRECT cafe went very well. In fact, I’ll share with you one of the several excellent questions asked at the event.

You: If I can’t do both a maximum 401(k) contribution and a maximum Roth IRA contribution, what should I do?

I love this question. First, it’s a great question because it shows desire as to how best to save as opposed to the more common dilemma of if you should save. Someone asking this question clearly “gets it.”

The other reason I love this question is that the answer is fairly simple. (What can I say–I like easy questions.)

If your employer matches part of your 401(k) contribution, that is always your best form of saving. If, for example, your employer matches 50% of the first 6% you put into your retirement plan, this provides you with an instantaneous guaranteed 50% return on your money. You put in $1.00, they add $0.50. There simply is nothing better out there. Period.

Gary: I’ve tried arguing that point. Even I’ve given up on that one.

You: So always take advantage of an employer match?

Rich people never turn down free money. Neither should you.

You: But what if I am already contributing up to the amount my employer matches?

Then, if you can still afford to save more for retirement and you qualify, you should contribute to a Roth IRA. A Roth IRA provides for tax-free growth of your retirement investments. While you don’t get the tax deduction you receive from a 401(k) contribution, the tax-free growth (as opposed to a 401(k)’s tax-deferred growth) makes the Roth a very attractive option.

Hope to see you tonight at 6PM at 21 East Chestnut Street, Chicago where I’ll once again be showing people how to live Beyond Paycheck to Paycheck.
If you were there last night, say hello or ask a question below!

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Strategy # 22: Expected risk and reward move together

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at July 26, 2007 in Investing and Top 40 Introductory Strategies. 0 Comments

You: How can I increase my investment returns without increasing my risk?

Gary: No problem. The answer, my good friend, is a variable universal flexible-life totally guaranteed–

Oh, stop the madness. Look, there are very few guarantees in investing. But several decades of investment history make the following a virtual fact:

The less risk you take, the lower your expected return.

Or, said another way:

To increase your expected return, you must take more risk.

Now it is true that there are strategies such as asset allocation and diversification (discussed in Beyond Paycheck to Paycheck and in future posts) which allow someone currently inefficiently invested to possibly reduce their risk while increasing their expected future returns. But those strategies are most meaningful for those that are not yet invested efficiently. For those who are, or for those who have not begun to invest, the two rules centered above apply. Big time.

You: So what’s that mean?

Probably nothing you can’t handle. It basically means that you’ll need to accept the natural day-to-day fluctuations in the value of your investments in order to achieve the higher rates of return that most long-term investment strategies can provide.

You: Can you boil it down further? Like in English?

Sure. It means more days, weeks, months, and even years when you actually end with less money than you started with. There is no guaranteed investment home run, so don’t waste time looking for it or listening to the guy who says he has it. If something has the potential to be a grand slam, it also has the potential to be a strikeout. And given such a scenario, I’d bet on the strikeout.

Gary: That’s because you’re a pessimist.

That’s because I’m a realist.

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Chicago; a Total Candor kind of town

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at July 25, 2007 in Events. 0 Comments

You: Hey, I went to register for your free seminar at the ING DIRECT cafe on Monday night July 30, 2007 and it’s full? What’s the deal?

Registrations went quickly. So fast, in fact, that we reached capacity of the cafe - about 100. (Looks like some people are already taking advantage of one of the Top 10 Saving Strategies, number 4: Enjoy Free Stuff.)

You: So I snoozed, I lost, is basically what you are saying?

Nope, not this time. There’s some good news here. We’ve added a second seminar, a night later. Here are the details:

Beyond Paycheck to Paycheck
Feel like the only way you’ll ever be able to save is to make more money? Hate budgets? Concerned about feeling or even appearing cheap? You’re not alone. This seminar will teach you how to save on your current income—without budgeting. But fair warning: you’ll probably be thinking more and spending less after you leave. Join author Michael Rubin (and receive a free copy of his book) at our Chicago Café on July 30th as he discusses how to live beyond paycheck to paycheck.

Please Note: The Monday, July 30 seminar is full. If you have received a confirmation email, your seat has been reserved. Due to the large response, we have added an additional seminar date below.

Schedule:

Date: Tuesday, July 31, 2007
Time: 6:00:00 PM
Location: ING DIRECT Café - Chicago
21 East Chestnut Street, Chicago, IL 60611

These seminars are open to everyone - so, bring a friend. We’ll provide light refreshments; all you need to bring are the questions. See you there.

To register, all you need to do is click here.

Gary: Wait - the seminar and the book are free? You’re nuts!

Let’s just say there a few of us out there using a different business model than the one you use, Gary.

You: This does almost sound too good to be true.

Good - healthy skepticism never hurt anybody. But you’ve got nothing to worry about here. This is an educational event. That’s it. Just come and learn how to save - more. Much more. And enjoy a lifetime of living Beyond Paycheck to Paycheck.

By the way, if you’re coming Monday night or Tuesday night, please comment below. Tell me what you’re most looking forward to or hoping to learn! If you can’t come but know someone in Chicago who should, please let them know! They’ll thank you later.

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Strategy # 21: You can’t grow your risk tolerance at a bar

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at July 24, 2007 in Investing and Top 40 Introductory Strategies. 0 Comments

You: How can I determine how much risk to take when investing?

The appropriate amount of risk you should take depends on several factors, as we discuss in Beyond Paycheck to Paycheck. One of the most important considerations, however, is your risk tolerance.

You: My risk tolerance? Last week, when I was out with a bunch of friends at “Rick’s,” I had 7–

Nope. This is an entirely different kind of risk tolerance. We’re talking about your tolerance for investment risk, not alcohol-related hazards.

The only way to know your true reaction to losing money is to actually lose money.

You: Okay.

So go lose some.

You: What?

Gary: This guy is nuts. Why are you still reading his blog?

Cool it Gary. I’m just kidding about intentionally losing money, of course. But when you lost money investing, as all investors do periodically, how did you react?

You: I’m not sure how to answer that question.

Think about it like this:

Did you buy more of the declining investment?
Did you pull your money out?
Did you sit tight and do nothing, but find that you had developed a twitch on the left side of your face?

You: That was unrelated! Who told you about that? Those stupid web-cams!

Just a lucky guess. But it is your real-world reaction to losing your money that enables understanding of your true investing personality. Many web sites, like MSN Money and Bankrate, offer short quizzes to help you measure your risk personality. These anonymous quizzes are worth the time–take one or two. But they are no substitute for real-world experience. So unless you are unusually confident, remember strategy # 1: Walk. Then run.

Now that’s living Beyond Paycheck to Paycheck.

Gary: You’re just chicken. You’ll never get anywhere taking quizzes. You’ve got to move quickly in this world people!

Ahem. What’s your net worth, Gary?

Gary: I’m sorry–can’t talk right now. Got a margin call to deal with.

You: What’s a margin call? Sounds scary.

Stay with me and it’ll never matter.

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Strategy # 20: Financial planning software is an investment.

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at July 23, 2007 in Cash Flow, General Financial Planning, Investing and Top 40 Introductory Strategies. 2 Comments

You: Is financial planning software worth it?

Why do you ask?

You: Well, I mean, what does it do that’s so special? I don’t have much money to invest right now anyway.

Financial planning software is about much more than tracking your investments the same way financial planning is about much more than investing planning.

You: It is?

Yes! That’s why we don’t really talk about investing in Beyond Paycheck to Paycheck until Chapter 8. You need to learn the basics, from the miracle of compounding interest to an understanding of cash-flow; from debt management to the methods for retirement planning before investing should become the primary focus of your energies.

So while financial planning software can and often does a great job tracking your investments, the program may be most valuable to you for what it does other than investment tracking feautres.

You: Like what?

Like just about everything else. Perhaps most importantly is its ability to enable you to track your spending.

You: But I already know I spend too much. I don’t need to spend even more money on a software program to confirm it. Thanks but no thanks.

Hold on there cowboy. Financial planning software will do far more than confirm your spending habits. Rather, it will show you what your habits are and why they are that way. Thanks to easy downloads from your various accounts, you’ll easily categorize your spending, regardless of how you go about your spend (credit card, debit card, even check and cash if you take a few extra minutes each month).

You: But doesn’t this only if I set up a budget?

Actually, it will work either with or without an established budget. However, if you take the time to prepare a budget, you can then easily compare the results of your spending with your budget. But even without a set budget, you’ll still see where you’re getting a little too excited.

You: Too excited?

Just another way of saying you spent too much at the bar, or on shoes, or on new tools or whatever it is that you now wish you hadn’t blown quite as much money on looking back.

Once you get a handle on how you are spending, you’ll be armed with the information necessary to attempt and eventually succeed in reducing your spending. When you do so, presto: you’ll have more money leftover to pay down existing debt and begin to invest.

You: Wow, that would be huge.

Indeed it would.

You: And I’ll already have the financial planning software I need to track my new investments.

Exactly. Financial planning software helps in both the establishment and monitoring of your personal financial plan. The job of managing your financial affairs is made much easier and less time-consuming.

You: So it’s worth it?

I think so. It’s money well-spent, and, depending on your tax situation, may even be tax deductible. The software takes some time upfront to set-up, but saves you significant time later. Plus, by using financial software, you’ll quickly notice if something goes awry – furnishing you with yet another opportunity to help yourself financially.

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The Importance of Culture and Attitudes

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at July 20, 2007 in Balance and General Financial Planning. 0 Comments

After a presentation I gave yesterday, a sixty-something gentleman came up to me and told me how the Chinese-American members of his family have completely different attitudes about savings than the American family members do. He said the Chinese Americans save 25% of their pay with no hesitation.

I wasn’t surprised.

You: Major in Chinese studies in addition to accounting?

No, not quite. However, at one point I did know how to say “My pencil is yellow” in Mandarin thanks to a particularly long van-ride through the midwest during college.

Truth is I’m far from an expert on the monetary habits of Chinese-Americans. However, I’m fully aware that various cultures emphasize and, for that matter, de-emphasize certain aspects of their lives. But having a different ethnicity is not the sole cause of being part of a different culture.

You: What does that mean?

In other words, you don’t have to look different be brought up different. Read the business section of a newspaper often enough and you’ll hear people talk about the culture of their company, for example. Heck, even a family can have it’s own culture.

You: Mine sure does.

See? A lot of your current monetary habits and attitudes about money result from how you were raised.

You: Uh-oh.

Ah, but not to worry. Even if your parents or peers don’t have the best monetary habits, all is not lost. Just take a quick look at this article about the Women in Red Savers, for example. They’re creating their own virtual circle of saving. The group has it’s own culture, and it looks like it’s been quite successful for many of the members so far.

You’re not stuck with a bad monetary habits as a result of a lack of a proper financial education or fiscal role model any more than you must be overweight because no one taught you about basic nutrition or because your parents are heavy.

You: You’re not going to turn this into a discussion about how cutting fast food out of your diet will also save you money, are you?

Not at all, but there clearly would be two good benefits from just that one action. Remember, it’s all about balance. I had a combo value meal myself yesterday. While it’s not a frequent occasion for me to do so anymore, I certainly ate a lot of fast food when I was younger.

You: Your attitude changed.

Yes. I guess you could say I live a life Beyond Paycheck to Paycheck from both a financial and nutritional sense. It’s part of my culture, my attitude.

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Strategy # 19: How an IRA is like an mp3 player

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at July 18, 2007 in Benefits, Investing, Retirement and Top 40 Introductory Strategies. 0 Comments

You: Because an mp3 player can hold thousands of songs and an IRA can hold thousands of dollars?

Not the answer I was going for first, but you’ve definitely identified one way mp3 players and IRAs are similar. But there’s something even more important about their similarities that I need to share with you today.

You: And that is?

An account without investments is like an mp3 player without music files.
Both are cool to talk about–but, fundamentally, rather useless. After opening an IRA or enrolling in a 401(k) plan, don’t forget the next step: investing your contributions. You must invest your money for it to have the potential to grow significantly.

You: But no one, okay except maybe my Dad, would buy an mp3 player and then not put any songs on it. So why would anyone set up an IRA and then not invest their money? Seems ridiculous.

Actually there are at least a couple of reasons why this happens, and neither of them are any good. First, some people think an IRA is an investment and therefore think that by setting up an IRA they are already investing.

Have you ever heard anyone say “I just invested in an IRA”?

You: Yes. But wait–that doesn’t make any sense.

Right, because an IRA is not an investment. Look, the abbreviation stands for Individual Retirement Account. No misleading advertising; they’re telling you it is an account right in the title.

Another reason people fail to invest their IRA money is that they are intimidated by the prospect of investing. That’s also unfortunate. Simply review your investment options, assess your risk tolerance, and then make investment choices.

You: That doesn’t sound so easy.

Gary: I know! That’s the best part. I can explain it to you.

Not here you won’t, Gary.

Understanding how to invest your retirement plan money isn’t difficult and it certainly shouldn’t be too stressful. Plus, there will be plenty more on the topic of investing in future postings. Coming up with the dollars to save should be the hardest part of this process and even that–once armed with the Ten Simple Saving Strategies—doesn’t have to be difficult.

Once you get the money in the account, just make sure to take care of step 2: invest it!

You: And what happens if I don’t?

With few exceptions, failure to make investment choices leads the plan’s custodian to select the default option: typically cash. While you won’t lose money invested in cash, you likely won’t meet your long-term financial goals either, because the growth potential of cash is minimal. Again, take the time to review your investment options, assess your risk tolerance, and then make investment choices.

You: What if I’m not sure about all this investing stuff? Does that mean I shouldn’t save in a 401(k) plan or IRA?

Absolutely not! Don’t ever let your fear of investing prevent you from enrolling in a 401(k) or setting up an IRA. It is still far better to save something and not invest the money than to save nothing at all. You still benefit from tax savings and will have money saved and ready to invest when you become ready.

Because you will be ready some day. I know you’ll eventually want to live Beyond Paycheck to Paycheck.

"financial education"

I love Boston but Chicago comes first

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at July 17, 2007 in Events and Media. 2 Comments

You: When are you coming to Chicago already? You lived here for three years, you say you loved it, and yet you haven’t been back since early 2006 - what’s the deal? The Cubs are playing well, the sun is shining. . .

I’m finally coming back to Chicago and will be there from July 28 through the 30th.

You: Why? I was just kidding. Have you seen the White Sox in the standings? Plus, it’s very hot.

Gee, thanks.

On Saturday, July 28 at about 2:30, I’ll be a guest on “The Money $how. with Bill Moller.” This great program airs on 720 WGN-Radio. If you live in Chicagoland, tune in with any old radio. If you don’t, you can listen live through the Internet.

Then, on the 30th, I’ll be providing a free seminar at the new ING DIRECT cafe at 21 East Chestnut St. All attendees will receive a bunch of great savings tip, plus a free copy of my book, Beyond Paycheck to Paycheck. You don’t need to be an existing ING DIRECT customer to attend, but it’s definitely best to register in advance.

You: Okay, what about Boston?

Go Sox!

You: They’ve been lucky so far.

Wow, you definitely don’t live anywhere near Fenway Park.

You: Nope.

Your loss. Okay, I’ll be speaking a wonderful event on August 4 in Boston. It’s the Certified Financial Planner Board’s Financial Planning Clinic. This is another event that is free for the public to attend. You can even meet one on one with one of the many Certified Financial Planner professionals who are donating their time that day. The event runs from 10-2 at the Sheraton Boston hotel.

I’ll be speaking for about an hour starting at 11AM about saving and debt strategies. Again, a great event, a free event, but best to register in advance. Learn a bunch more about the Certified Financial Planner Board’s Financial Planning clinic.

Gary: You give too much away.

You take too much away–for nothing.

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Strategy # 18: Deductions aren’t free.

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at July 16, 2007 in Tax and Top 40 Introductory Strategies. 0 Comments

You: When someone tells me that they don’t care about an expense because it’s tax-deductible for them, does that mean that the expense is basically free?

Although a tax-deductible charge reduces your taxes, the expense is not free. The tax savings provided by the deduction means the true cost is less than if the item were not tax-deductible. Still, it is always more financially advantageous to avoid the expense entirely.

You: Huh?

Yeah, exactly.

You: Okay, so let’s move away from the hypothetical. My show-off boss tells me he recently finished building a vacation home in the mountains. However, he just learned that the property tax on his nice, new, and expensive home is very high. But boss man says he doesn’t care about the property tax because he just writes it off. Whoa! Does that mean he basically pays no property tax since he gets it all back as a deduction on his tax return? That’s not fair.

I agree—it’s not fair. Also, it’s not true.

It’s a common misconception that a deduction, such as the one for property tax, reduces your income tax by the amount of the deduction. False! Take your boss’s tax situation:

Property tax on mountain home: $10,000
Top income tax rate: 28 percent
Taxable income prior to new mountain home: $150,000

Let’s see what changes as a result of his new property tax deduction. To determine his new taxable income of $140,000, subtract the $10,000 property tax write-off from his $150,000 of taxable income. Make sense?

You: So far.

Let’s keep going. Before the home, he and his wife’s tax bill was $30,992.50. Afterwards, his tax bill will be $2,800 less or $28,192.50.

Next, compare your boss’s combined expenses for income tax and property tax:

Before the purchase:

$30,992.50 Income tax
After the purchase:

$28,192.50 Income tax

+ $10,000.00 Property tax
——————————-

$38,192.50 Total tax

His total tax expenses increased by $7,200. If he thought his write-off made his new property tax expense essentially free, he was wrong. There are definite savings from tax-deductible expenses—in this case $2,800—but they are not dollar-for-dollar savings. A write-off does not make an expense free.

Clearer now?

You: Wow, I don’t think my boss realizes that.

Perhaps not. He wouldn’t be alone.

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Hear me Live

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at July 13, 2007 in Events and Media. 0 Comments

I’ll be on the radio within the hour (about 9:15 ET) on Barry Armstrong’s Money Matter$ out of Boston.

If you don’t live near Boston, you can still listen to our conversation by clicking here and then pressing the listen live button at the top of the page.