Unclutter and make headway

Back in 2009 I lost a huge chunk of my original website when a server deleted the entire thing. I was able to recover about a dozen posts at the time, but I just ran into some old ones that I’ve decided to re-release. Here’s one from the summer of 2008.

This week I received some terrible news, my neighbors are moving. The reason it’s terrible is that we’ve had some very bad ones in the past, and they have been great to live next to. To clear out all their crap, they decided to follow the grand old tradition of having a yard sale. How does this help you? It’s an example of one thing you can do to kick start your Emergency fund.

They raised over $1,100 in two afternoons spent sunbathing. They sold all the crap they had been holding onto, but in reality didn’t need anymore. It was hard for them to give up some of the items they had been grasping onto for years, some had a lot of sentimental value to them. In the end, they gave up a lot, but in the process became much less burdened when they had to move and eventually im sure realized that they weren’t missing the items much at all.

Take a look around, I mean a real inventory of your home. How much of your stuff is crap? I’m sure more than you are willing to admit to right . In fact, I bet if we tried we could unclutter your house right now and earn you some bucks. Let’s give it a whirl.

You really need to unplug from your emotions on this one, I find having a drink or two helps

Pick a room to start with, I suggest a bedroom. Go through every square inch of the room and touch every single item in it. When touching an item, ask your self “when is the last time I used / enjoyed this actively?” If it’s been at least a year, seasonal items excluded, put it in a box. When you finish with your stuff, move on to clothing, shoes, hats, blankets, DVDs…etc…..

Take the box and bring it to your computer. Separate it into 4 boxes.

1. Things I can sell
2. Things I can donate
3. Things I can recycle
4. Things I can throw away.

Take box number 4 to the curb RIGHT NOW. Do not wait, do not linger.

Look up places to recycle box 3. There are plenty of stores that have bins in front, otherwise check with the local garbage dump for a drop off location.

Take box 2 down to your local Red cross, Salvation army, church or animal shelter. Many of them will provide you with a certificate for a tax write off.

For box one, it can be a little more complicated.

You can use Ebay to sell the big stuff quick, but little things are harder. Another option for everything to go is Amazon. You can set up a seller account in minutes, or you can have them take your stuff right away with the Fulfillment by Amazon program.

There are also small businesses all over the place that will sell your stuff for you and take a fee, just drop it off with them and forget it. Or you can always go my neighbors route and have a good old fashion garage sale.

Now you just cleared out the room, made a few bucks to pay your bills, got a tax write off for your junk and helped out mother earth. Overall not a bad day.

Think you have what it takes to let go?

how not to be Rich

The question I get more than any other I can think of is usually ” If you know so much about money, why aren’t you rich?”

Well for one, I didn’t learn about money until I was older. Starting late means finishing late, kind of obvious right? That doesn’t mean im not on my way there does it?

Another much more important question though, is one I will pose to you instead.

What does it mean to be rich?

Take a minute to think about it. I’m sure the majority of people won’t think about it at all, they just yell out some obscene amount of money and think they are smart. They ain’t. Money is not now, nor has it ever been the defining factor in being rich. Think I’m wrong? That means you have no idea what money is or how it works.

OK smarty pants. You win the lottery tomorrow and make millions on a lump sum payment. You think you’ll be set for life and you will invest wisely and all is good and right with the world.    Good luck my man, you’ll need it.  A ludicrous amount of lotto winners go broke after they win.

As another example I have but three words. M. C. Hammer.

It’s called lifestyle inflation. When people get more money they find more ways to spend it. You buy a nicer house, nicer car more attractive spouse etc..  Guess what genius, all of those nicer things you bought, have much bigger costs associated with them. The house costs more in taxes, more to heat and more to fill with stuff. The car as well as the house now have a much bigger Insurance bill. Think you can buy a Ferrari and NOT get a speeding ticket or 10?  Then you have to account for your free time. You have plenty of time AND money, that means all the things you never got to do (because they were cost prohibitive) are a daily option to fill your long and empty days. Starting to get it?

So, how do I define being Rich?

It’s a very tricky and complicated question for being so small. To me being Rich is more about happiness. Its freedom. And in my personal case it’s never having to work again. Notice I said not having to work and not not working, big difference.

Let’s compare two made up people and see how we feel about this.

Paul makes  $80,000 a year working six ten hour days a week or 60 hours. He has a nice house that costs him 3k a month in mortgage, taxes and insurance costs (36k /yr).  His new Porsche costs him $450 a month and another $400 for insurance . That’s $950 /mo(11.4k/yr).  Working as much as he does, he needs and deserves to have fun. Going to the club once a week runs him $200 a month (2.4k/yr). Lunch at work is 7 bucks a day times 6 days or $42 a week(2.1k/yr).  His Cable package with the movie channels and internet speed booster runs him $200 / mo(2.4k/yr). Estimated costs for credit card debts included as an average well add 3k/yr.

Not counting the unexpected costs like emergencies, gifts, trips and dozens of other expenses we all go through, his lifestyle costs him $57,300 per year on average. His income is $80,000, so its all good? Hardly. He sits at a taxable rate of 25%, so he only takes home $60,000/yr. Now you see why the other debts are there, all the things he didn’t and couldn’t account for get charged when he runs out of cash. He builds debt a little faster than income and over time gets screwed.

That right there is a typical income earner in the United states.

Ramon Earns $40,000 per year working his own business for  five four hour days or 20 hours per week.  He lives in a small house with a smaller mortgage because he saved a made a larger down payment. With all included he spends $1500/mo(18k/yr). His reliable Mazda that he purchased 2 years USED has no monthly payment and a low insurance cost of $150/mo (1.8k/yr). Ramon likes fun as well. He buys a bottle of wine and watches Netflix with friends at home each week at a cost of  $35/mo (420./yr).  He packs lunch for his 5 shifts a week and it costs an extra $15/wk in groceries (720./yr). He has basic cable only and a base internet package which runs $100/mo (1.2k/yr). He has no credit card payments, because he pays everything with cash or doesn’t buy it at all.

Ramons yearly expenses, with the same assumptions as Paul in place are $22,140. His income after taxes at the same tax rate is $30,000 leaving a difference of over $7,000, of which he invests $4,000 a year and earns a larger income over longer periods of time.

Before taxes are removed from their pay, Paul makes (80k/3000hrs=)$26.66 / hr at work.   Ramon on the other hand makes(40k/1000hrs=)$40.00 per hour. Paul has very little money at the end of each week and has to continue to increase his output at work,  extra hours, more projects, maybe a second job at some point. Ramon on the other hand, works less, is better compensated for his time and has money left over to invest and further secure his future.

Who would you consider richer? I’d rather be Ramon right about now. Which brings me to my real point. To be rich, you have to be smart with your money. You have to make better decisions than Paul and think about your future self having to pay for your financial weakness and stupidity. Financial IQ, a concept put forth by Robert Kiyosaki, is more important than anything else you can ever improve.

If you want to be rich, you have to learn. You have to sacrifice. You have to work hard. You have to live like no one else. Do you want to work way too long and hard for a silly amount of money? Or would you rather adjust your lifestyle, increase your worth and spend more time with family and friends?

Take some time now and think it out, I ask you again,  What does it mean to be Rich?    No, really……. and post it below.

Time is worth more than money.

As I sit here in a doctors office, I am reminded of how valuable time is. Not just MY time, but time in general. I’m also painfully aware of how the value of time is subjective.
To me, my time is worth a great deal. To my boss its worth a set amount per hour. To doctors,  it is clearly worth little.
I could be somewhere else working on earning money, reading a book, learning a skill or just maybe relaxing with nothing in mind. Instead I am waiting for some Guy to render simple services at an incredible premium. 
Which brings me to my point. Your time is prescious
You have a finite amount per day, week, year and life. Don’t waste it thinking about doing something, do it.
If I were to set up a bank account with compounding interest I could lose a fortune by waiting a year to decide to open instead of doing it.

Go do something now.

Whole life Insurance

So we’ve covered Term, now let’s go over Whole Life policies.

In Whole life insurance, you pay a “fixed premium” for a “fixed coverage” amount. Both of these numbers are supposed to never change as long as the policy stays in effect. The costs of these policies on average can be up to 10 times that of Term policies of the same face value.

One reason for this is expense is that these policies are not just life insurance, but also act as an investment vehicle. A portion of your premiums each month go to investment accounts that the company sets up to earn income. A portion of the income is credited to them and a portion to the “cash value” of your account. Regardless of your age when you purchase, the cash value should be equal to the face value of your policy if you reach 100 years of age. That is one of the factors that determine your premiums to begin with.

Another reason for the higher cost is the length of your life. This insurance will be in force until you die, or reach 100 years of age. As you get older, you are more likely to die and hence the cost to cover you goes up for the company. Whole life generally overcharges you about 30% when you sign up so that as you age, the cost of your ever increasing risk is still covered.  So, your costs don’t go up and they keep a healthy profit margin, win – win.

It is highly suggested by every non- insurance industry professional and even some of those to, that it is a bad idea to use whole life insurance as an investment vehicle alone. If you do not need the face value of the policy, you should not purchase this product.

For more on this topic I suggest reading this article from Smart Money magazine, or for a more concise version you can ask Financial “guru” Dave Ramsey.

-Jared

Term life insurance

Term life is by far the simplest and cheapest option out there.

Companies offer a variety of “Terms” meaning length of time. These can be be anything they want but typically fall in 10 – 20 – or 30 year lengths.

You then have your premium, which is based on your age and health at time of purchase.

So what you end up with is something like I purchased a few years ago. For $125 per year paid annually, I have $300,000 of coverage. It’s an all or none gamble. If I die in the 10 years the policy in is force, my wife gets the payout. If I live the full ten years then I get nothing and my payments to them stop. At that point I can buy a new policy under whatever terms are available.

Term policies are almost always convertable, this means that at any point during the term you can call your agent and ask them to turn your policy into a Whole life, Universal or Variable policy instead. Normally they will bend over backwards to do this for you, as they make a whole lot more money that way.

Term is a great option for anyone. It’s cheap, easy to understand and has no strings attached as the permanent life options do. If you are buying a home or having a child it’s a fast and easy way to protect them at little cost.

I suggest Term life to anyone who asks about insurance. The main reasons are the cost to value analysis and the investment options. If you can afford a product costing ten times more (whole life) why would you not just invest the extra in something that was built for that purpose?

-Jared

Hey college students! You don’t need credit!!

Seriously man, you don’t need it. It’s going to come back to haunt you. It always does.

 

Here’s how the credit card companies work. If you are a freshman you will undoubtedly be a target so pay attention.

Every year the college campuses are canvased from Dorm to quad with those fold out party tables, you know the ones, those long fake wood finish ones you’ve played beer pong on for years now. On them are  credit card applications and “free gifts” just for filling them out! no sir, you don’t even have to be approved and we will give you this frisby or if you prefer an energy sports drink!

You walk through campus and feel like an adult for the first time in a long time. You did it man, you’re there and now you are an adult. No parents, no rules. Some hot blonde walks up to you and asks for a moment of your time. With chin on floor you drool as she explains the program to your now vacant mind.They play off what you’re feeling, cause let me tell you that you feel the same way everyone else did their freshman year and she knows it. <That’s called taking advantage > So you fill out out this short form, take your plastic disc and go on your way. Dude, she was so  into me.

Then it comes. Your first credit card. A little plastic ticket to the world. Your parents always told you “you need to use credit to build credit”, and so you do. You figure that a few red bulls or a new Laptop will help your education, so you make a few purchases $5 for a latte, $30 to fill your I pod…oh crap…latte stain on the jeans, well I needed a new pair anyhow.

 

8 weeks later you get the bill and have an aufully hard time figureing out how you spent $600 in a month when you swore you would only use it for emergencies and then “pay it right off”.  Well,you don’t have $600 to send them and the minimum payment is only $35……cool I’ll send the$35 now and pay it back in the next month or two.

You been scammed sucka.

 

Here is the truth behind credit. You don’t NEED it. It is in fact a usefull tool and no matter what I say you are going to sign up for a card, that’s just how it is. So take these precautions when you do:

1- Leave it at home. Why? If you don’t bring it with you unless you need it for a specific reason like say to pay your tuition, buy a school book or make a payment that REQUIRES you to use it, you don’t let those $5 purchases add up. You got into college, I’m pretty sure you can scrape up $5 for a coffee.

2- Register your card online. Why? You can go to the website on the back of the card and sign up. This will let you pay your bill online in case you forget to mail it out. Which you will.

3- Leave your check book with your card. Why? Stop asking questions and let me explain! When you use your card, immediatly write a check for that amount and send it out. This way your card is always paid on time, no late fees, no negative credit reports. If you pay online, keep it by your computer and do the same thing.

4- Understand interest. It does’nt seem like much, but it adds up very quickly and can multiply overnight. You take an average of 70 years to pay off each purchase if you make minumum payments and overpay by thousands of times! Do you want to pay $2300.00 for a doughnut? Did’nt think so.

5- Learn about finance. This should really be #1 on the list. If your school offers courses, take them. If not, use the internet and read up. If not, have fun with your cash while it’s there, cause it won’t be for long.

 

For a better education on money start at the begining.

What do you mean you don’t have an emergency fund?!?

It’s understandable. Chances are that no body ever told you you need one. Remember when your grandparents always said those weird things like having money put away “for a rainy day”?  It’s not literal as so many of us thought when we were kids. Now that you’re older, have you ever stopped to actually think about what it means? No…..Thought so.

Saving money sucks I know. Why save it when you can die tomorrow? I want to play (awesome new$60.00 game) now dammit! Lets take a look at recent events for an all too real example.

Lets say you happened to live in Japan this week. Earthquake, tsunami, nuclear radiation and yeah snow too. Lets assume you weren’t totally screwed and your house was not washed out to sea but rather was damaged a bit and some of your stuff got wrecked. Were you expecting that? No. Now take a second and think about how much money you have in the bank. Liquid only, no credit, no assets, just cold hard cash. Not much right?

Lets add that the company you work for goes under…. literally…gone. You are now jobless and have a few extra expenses piled up on your front lawn. How are you going to pay the mortgage? How about car insurance, medical costs, Insurance premiums…how are you going to eat?

Extreme circumstance I know but how many people were caught unprepared and are suffering now because of it. Even in more run of the mill times, you can be kinda screwed by simple problems.

Let’s get back to your life. You’re doing ok, living paycheck to paycheck. Your bills are being paid on time and your credit cards aren’t all that bad, maybe even empty. Ask yourself this question now, What would it take to ruin me? A broken leg, a car accident, downsizing at work, there are dozens of things that happen every day and eventually one of them, big or small IS going to happen to you. I’m not saying this to be negative but rather to give you the chance to prepare and save your own ass before you lose it.

How to make an emergency fund:

Take that spread sheet we worked on a while ago and check some numbers out. Most important here is how much money it takes you to survive every month.

Now figure out how many months you are going to need to survive in case something changes your current circumstances. Most people are comfortable with 6 months, but it’s really a personal decision for you to make.

So if it costs you $2.000 a month to get by, you need a cushion of $12,000. A lot of money I know, but you can do it easier than you think. If you have the willpower to set aside $50.00 a paycheck and go deposit it then do it. If you feel like you won’t do it or won’t keep up after awhile, use some earlier tactics I taught you and use direct deposit. Change your deposits to automatically add That money for you so you can’t get off track.

“But I can’t afford that”

I call shenanigans on that my friend. Think of all the things you spend money on everyday. A pack of smokes, a latte, movies or even the little skull shaped air valve caps on your tires(creepy). You absolutely can find a few bucks here and there and if you can’t then your in over head and need to seek financial councilors.

Once you have the dollar amount figured out, you need to put the money somewhere. The key to an emergency fund is that you need to be able to access it in a pinch. With that said, I will type this next part in caps so you understand the importance of my words. DO NOT INVEST THE MONEY IN ANY WAY SHAPE OR FORM. I know it seems counter- intuitive to save money and not invest it in something, but trust me the whole point of an emergency fund is having LIQUID monies at your disposal. Investment vehicles add risk to your funds, tie them up for different lengths of time and defeat the purpose of the emergency fund.

Where to keep it:

Again this can be up for debate. Personally I say it should be kept in a Savings account. Don’t put it in checking because there are too many ways you can access the funds in a time of weakness. Best bet is savings because you can set it up so you can only get the money out by going to a teller and withdrawing in person. It also gives a better interest rate, though it’s still not much it’s better than nothing.

What ever you choose it needs to be accessible in a bind but pain in the butt enough that you won’t spend it on shoes or X box games.  Now im tired, so good luck with all that.

-Jared

3 Reasons to Do it yourself!

With the economy and Job market the way they have been, more people started do it yourself (DIY) projects instead of getting contractors involved. While it is in fact a good idea to use professionals from time to time, trying the project on your own can have its own rewards.

1. Money- Obviously it can be a whole lot cheaper to do things on your own. When dealing with contractors, you have to remember that they don’t get paid for the materials, they only make money on labor. For any given job they may charge you 100% – 200% of your materials cost in labor charges.

Example: It cost me nearly $2,000 to purchase the materials I needed for a new roof on my house. The contractor, who was cutting me a deal at the time, charged about the same for the labor. On occasion they will charge  3-4k for the same job. It all depends on extra work needed, how many jobs they have coming in and other factors.

2. Time – Now this could go both ways. It takes you longer to do the job than if you were to just pay someone to do it, but it can be done on YOUR schedule. You don’t have to make appointments, get measurements done, and try to time deliveries with the work crews. You can wait it out and do it when you need to or when you can find time.

Example: I got a quote for a tile floor. The labor on the job was quoted at $2,400 assuming no “extra work” had to be done. They were going to take three days for the job. One for the sub floor, one for the tile and one to grout, and a fourth if I wanted it sealed. That means I would have to be home for the crew for four days in a row, missing work and any social invites. Then try keeping cats off your floors for a few minutes let alone days. What if they had to reschedule or what if the delivery was late? More time off work, more time fighting kitties. Not worth it. I did it my self when I had time and took a few MONTHS to finish it. I kept it cat print free learned a new skill or five and saved around $3,500 in expenses and lost wages.

3. Satisfaction – The most valuable thing in my opinion. Sure it took me months to finish the floor, but it pays me back every time I enter the room. The feeling of accomplishing something that you never thought you could do is quite nice and I feel that way every time I see the floor now.  The complements I get from friends and co workers help too   .

What reasons can you think of to do a job yourself?

Whole life insurance = Pissing your money away

although many of you have learned to take my titles as advice enough i’ll go on to explain anyway, and piss off your insurance agent to boot.

Whole life insurance is expensive, we all know that, but your broker/agent told you the benefits and it sounded pretty convincing so here we are.

Benefit 1- Your premiums will never change.

Problem 1- Your coverage might. Take a look at the fine print and make sure that as you age, there aren’t changes to your coverage. As you get older you are offered higher pricing for the same coverage levels, so if price does not go up, coverage may go down.

Benefit 2-  Im covered for life and never have to worry again.

Problem 2 – Most policies are cancelled in the first ten years. There are dozens of reasons for this which I will cover in future posts but for now let’s focus on the two most comon issues.

Your policy may lapse. If you fail to make a single payment you can have your coverage cancelled and may not be allowed a grace period for buying back in. It’s in the companies interest to have you buy a new, more expensive plan.

Things change. You may have a child, buy a home, lose a home, or god forbid, lose a child. Dozens of other reasons again,but I’ll explain later. The point is that life insurance is supposed to be based on your current and foreseeable needs.  a policy that is life long can not possible take all these things into account unless they sell you a MASSIVE umbrella style, all encompassing policy, which you most likey don’t need and can’t afford.

If these are not reasons enough to avoid whole life take into consideration that on average a whole life policy can cost more than 10 times that of an equal value term policy and the”investment” portion nets average returns of 2-3% industry wide. that’s no more than a decent savings account which by the way you can access with out penalty or wait times.

Buy term and leave the investments seperate, you’ll thank me.

A great big Hiatus and the return of me.

Any one who followed my site last year probably noticed that it went away. I had a problem with Register.com, lost my domain and had to start fresh again. It did not go well.  Life got hard for awhile, I got a promotion at work that took up a great deal more of my time. I purchased a house and had a LOT of work to do on it and my life became increasingly hectic. With the Global financial meltdown quickly getting worse, I felt it was not the right time for me, an amateur, to be spouting off ideas about finance to people who are here for education and advice. That would have been inappropriate and could have led some desperate people seeking help down the wrong path.

Things have settled down. It’s a new year. My life has changed dramatically since I last posted on this particular blog. It’s time to catch up with my few remaining subscribers and refocus on what matters.

I’m back.