A wise man once told me “The secret to becoming wealthy isn’t how much you make, but rather, how much you save.”
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I’ve Paid for this Twice Already is a blog about one family’s journey toward financial freedom. I like the spirit the writer—a 30-something married mom of two with a PhD in Genetics and a 3rd degree blackbelt in taekwondo—brings to the project.
For instance:
Debt used to be a very basic part of my life. It was not just a tool I could use to live beyond our immediate needs, it was practically a lifestyle choice. The amount of money people (people meaning banks, credit cards, etc) would lend me to finance my future was a very real consideration in all the choices I made in the here and now.
But through this debt reduction and ultimately elimination journey, at some point I made a very real, concrete change in my brain. Although I am not strictly anti-debt, I don’t believe in debt any more as a fundamental part of my life. I don’t put my faith in the financing of others to create the life that I want to live.
That’s how my grandpa felt about the subject. When it comes to our modern day approach to money, a lot has changed in this country in a very short period of time. And it’s pretty clear the Depression era attitude towards debt is the healthier one, especially in terms of an individual’s debt or a family’s debt. I do think businesses sometimes need to take on debt in order to grow.
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There’s no doubt that millions of families who have been saving diligently for their kids’ college tuition are finding their accounts woefully short of the insanely high costs colleges are charging for a B.A. these days. A fact which has sent applications (and thus competition for a spot) at state schools sky high. Thankfully, there is yet another creative alternative for students and families.
According to The Wall Street Journal, there are several colleges in the U.S. that don’t charge any tuition whatsoever. They are:
- College of the Ozarks
- Deep Springs College
- UC Irvine School of Law, Class of ’12 (a promotional offer only)
- Berea College
- Olin College of Engineering
- Cooper Union
- Curtis Institute of Music
- Alice Lloyd College
- The U.S. service academies
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Kathryn at Million Dollar Journey suggests that we write it all down—what we eat and what we buy.
When you write down what you spend and what you eat, it’s easier to see when and where over-spending and over-eating occur. It also provides accountability when you know later that you’re going to have to write it all down.
She says she uses the free web service Wesabe to keep track of her spending. I poked around their site and it looks like a great tool.
Wesabe combines easy-to-use budgeting tools with a thriving community of smart, supportive people, anonymously sharing ideas and advice with each other to help everyone get more value for their money.
According to ArsTechnica, Wesabe members can automatically import transactions from over 6,000 banks and credit cards (loans and investments are not yet trackable), though users can also manually upload a handful of financial industry file types such as OFX and QIF.
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There’s a live simple movement underway in America and there are as many expressions of this ideal as their are individuals living the dream. Peter King in Vermont, for instance. He doesn’t pay rent and he doesn’t pay a mortgage.
I like this man’s spirit and his way of thinking. The country needs more citizens cut from Thoreau’s cloth.
[via Tiny House Blog]
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According to Matt Gross, the Frugal Traveler:
Three hundred years ago, wealthy young Englishmen began taking a post-Oxbridge trek through France and Italy in search of art, culture and the roots of Western civilization. With nearly unlimited funds, aristocratic connections and months (or years) to roam, they commissioned paintings, perfected their language skills and mingled with the upper crust of the Continent. No one knows who came up with it, but their adventures soon had a perfectly appropriate name: the Grand Tour.
Sounds like fun, doesn’t it? But how can a normal person afford such things? Gross walks his readers through his journey last summer and emphasizes ways to save like hitchhiking and getting invited to family meals.
He’s also big on visiting Eastern Europe:
Everything you can find in Old Europe is also available elsewhere on the Continent for much less, particularly in post-Communist countries like Romania. In Bucharest, I found clever art projects, new museums and La Metoc, a century-old house that serves beer made from tea. Get to the New Europe soon, before it gets old, well known and far, far from frugal.
Of course, one needs to get over there first. I found round trip flights from New York to Bucharest from $700 and up just now, but I didn’t scour the Web for deals (S.O.P. for a frugal traveler).
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The largest transfer of wealth in history is beginning to unfold. Even with the market collapse, $10 to $136 trillion in wealth will move from one generation to the next.
Perhaps you have been or will be one in four Americans who are lucky enough to receive one of these bequests. If so, here are a few suggestions on how you can use your inheritance.
Consider these facts:
• Average inheritances range from $10,000 to $50,000
• 85% of inheritances are gone within 5 years
• Inheritances are most commonly spent on:
- 1. Cars
2. Vacations
3. Bigger homes
4. College Education
5. Starting a Business
While a small windfall may prompt you to spend it all at once, try to consider the thoughts and feelings of the person who left you with your inheritance. They may have saved that money for years just so you would have some comfort in your life.
It’s Your Debt – Take Care Of It
Getting out of debt is an admirable goal, however this too deserves careful consideration when using inherited money. Financial planners looking simply at the raw numbers would certainly recommend this strategy especially given the high cost of some debt, such as credit card interest ranging from 19% to a truly unconscionable 30%.
Did this generous person leave you this money to pay off your daily lattes, the cute sundress you couldn’t resist, all those great dinners at restaurants you wanted to try, the fun weekend trips, the wide screen television, the timeshare you thought was such a bargain, the collection of top shelf vodka for your martini bar? I doubt it! You wanted these things and that’s great if you can afford them. If instead, they were charged because you couldn’t really afford them, the bill is now due and the price is 19-30% higher than when they were purchased. It seems prudent to realize it was not your benefactor’s intent to buy you these things. This type of debt should be paid with your own earned income and not your inheritance.
Education Is Money
Paying off debt for education is another consideration. Your benefactor most likely wanted you to be well educated and able to take care of yourself and your family. If you have student loans or current college expenses for yourself or your children, using your inheritance for this debt might make your parents or grandparents smile.
Slow and Steady
Paying off your home mortgage is usually not the best option. Mortgage interest rates are historically low and are tax deductible. Unless you are close to retirement and cannot make the payments from earnings, putting the money to work for you to generate an income stream is often a better option.
Stay Away from Stocks
Unless you’re a professional with considerable experience, dabbling in stocks with your inheritance is foolhardy.
Fund Your Retirement
Funding your retirement through your 401K, a Roth or traditional IRA would be excellent options. If you own a small business, a SIMPLE IRA can easily be set up at Vanguard or Fidelity and $11,500 per year can be placed in a tax-deferred account for your golden years. Choose a well-diversified portfolio of index funds to reduce your risk and maximize your return, keeping fees to a bare minimum.
Pass It On
If you have children, consider helping them as your parents and grandparents helped you. Perhaps a 529 plan for college, a down payment for their first home, paying off their student loans to help them get out from under a debt load, or helping them fund their retirement accounts would be a fitting tribute.
Take Your Time
Where, when and how to spend an inheritance is a much bigger decision than just buying a new car or paying off your credit cards. Put the money somewhere safe, in an FDIC insured bank account or in CDs, and think through your life goals and the wisdom and values your benefactor tried to share with you during his or her lifetime. Take your time and do something with the money that would make your benefactor (and you) proud.
Also, consider investing in professional advice from a fee-only certified financial planner.
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Smart Money outlines six ways to spend your tax refund. All are good options indeed.
1. Create a Cash Cushion. With unemployment at a 25-year high you need at least a six to nine month emergency fund to cover living expenses until landing a new job.
2. Pay Off Debt. With credit cards charging 18-30% interest this is the best return on your investment. Just don’t charge more.
3. Fund Your Retirement. Hopefully you’re employed and contributing the maximum to your 401K at work. With any excess, fund a Roth or traditional IRA. You can borrow for almost anything in life, however NO one will loan you money to retire.
4. Save for College. If your children are still young, investing in a 529 plan can earn returns large enough to keep up with rising college costs. Consider more conservative options like FDIC insured CD’s if your kids are within a few years of attending college and will need the money sooner.
5. Invest In Yourself. Competition is stiff. Whether you are unemployed or worried about being the next to lose your job, now is the time to freshen your resume, sharpen your interviewing skills and take an extra course or two to give yourself that extra edge. Perhaps invest in a career coach to help.
6. Splurge a Little. This is usually the first place people want to spend their tax refund. The other options might pay better dividends, but if you’ve covered your emergency fund and paid down your debt, a little splurge might be in order. Retails sales are excellent now and bargain-basement travel deals abound.
However, if you’re really serious about conquering your debt and using your money wisely, why would you give anyone, much less the federal government, an interest-free loan every year?
The average tax refund so far this year is $2,740 according to the latest IRS statistics. If you are getting a refund change your W-4 today. Keep more of your own money every month. And if you really want to loan Uncle Sam some of your money, buy I BONDS instead. The bonds, which pay a combined fix rate and an inflation rate, are paying 5.64% until the end of April. The two combined rates adjust every six months, but who thinks inflation is going down? Go to www.savingsbonds.gov to see if they are right for you.
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According to The New York Times, a subset of Americans—the seriously frugal—are enjoying the current recession because it validates their beliefs and lifestyle choices.
The paper profiles a real estate investor in Cincinnati who borrows movies from the library instead of renting them, and grows her own fruits and vegetables, and avoids the cash advance. Another person profiled by the Times canceled the family’s subscription to Netflix, his premium cable package and a wine club membership.
Here’s the important news in all this:
Americans’ spending is down and their personal savings are up — sharply. The savings rate in the United States, which had fallen steadily since the early 1980s, dropped to less than 1 percent in August of 2008. It has since spiked to 5 percent.
“It’s huge,” said Martha Olney, an economics professor at the University of California, Berkeley, who specializes in the Great Depression, consumerism and indebtedness. The rapid reversal is even more remarkable, she said, because in recessions consumers usually save less money. Not this time. “It implies a re-emergence of thrift as a value,” she said.
The Times notes that there are dozens of Web sites and blogs devoted to celebrating conspicuous cutting, like Dollar Stretcher (www.stretcher.com), All Things Frugal (allthingsfrugal.com), Frugal Mom (www.frugalmom.net), and on and on. Yes, it’s a topic for our time. No doubt about that.
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Boosting revenue is one of the key ways to conquer your debt. This is true for individuals and also for businesses, small and large.
Today I attended a cooking class at one of my favorite restaurants. The experience was productive on several levels. The chef taught us to make four great dishes and served them to us for lunch as well. But the real lesson here is what this chef did to hone his strategies to both survive the current downturn and prosper after the recovery.
Rather than develop a lower cost menu, cut advertising, reduce staff or shorten hours, the chef did the opposite. By relying on his ingenuity and investing more of his own time, he tapped a new revenue stream from his existing customer base.
For two hours each week the chef conducts cooking classes for about 25 participants. He simply moves the tables around the perimeter of his small storefront restaurant and sets himself up in the center to demonstrate his selections for the day. While he cooks and answers questions, his staff prepare the same items in the kitchen and at the end of the demonstration they serve a beautifully presented plate for each participant to enjoy. Yummy? Yes! Smart? Very!
At $45 per person, the extra $1000 a week adds nicely to the restaurant’s bottom line with very little expense other than the food and a few extra hours for the kitchen staff. For any small business, an extra $1000 a week dropping to the bottom line can make a significant difference.
Plus, nearly every participant comes back with family and friends when they are going out to dinner. Given that the restaurant industry nationwide is down 5-12% in sales, with small independents suffering the most, this restaurant’s success is inspiring.
What are you doing at home to boost revenue? Or at work? It takes creativity, skill and timet to innovate and build new revenue streams. But it’s well worth the effort.
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