personal Finance Story

After all of the debt is paid off.  After all the proper frugal decisions are made.  What do you have left but to flick on the auto-pilot switch?

Honestly, that is just a little bit depressing.

There is no more exciting debt payoffs.  No more counting down the months to your debt free life.  When you have it finally in your hands, it may seem a bit anti-climactic.  What now?

Being debt free is a great accomplishment.  By doing so, you are free to pursue other methods of investment and personal gain.  Here are a few ideas to get the juices flowing.

Start Living

You’re debt free and have no bills?  How about you give yourself a well deserved financial pat on the back.  Go shopping.  Feel guilty about it?  Shop for gifts!  Either way you go about it, take those debt payments you’ve been throwing at VISA and Mastercard and apply it to some good old fashioned consumer spending.

You’ve been a good soul about money for so long that I doubt you would relapse like a drug addict.  Financial good sense, which I am assuming you have to be debt free, is not something that you are going to lose after a lone month of extravagance.

Setting extremes aside, you may also think to consider increasing your monthly budget for personal spending to get a bigger bite out every month.  This is a treat that is earned so why not enjoy a little more of the money you have today.  Tomorrow has been on your mind so long, today may be feeling a little neglected.

Start Investing More Aggressively

If you do not already have your own taxable stock trading account, get one.  Even if you lose the money you put into it you will still hopefully learn a thing or two about the stock market.

If you want to go a step further, there are other more creative ways to invest your money that can also be fun, such as Prosper.com.  There is something about digging through another person’s finances that is just enjoyable.  If you have some spare cash, Prosper may be a fun way to invest on the side.

Start a Business

Capitalism at work.  Let’s face it.  Even saving most of your money will not get you wildly rich.  To get to the top top percent of net worth, you have to earn more.  Here in the land of the free, there is not better way to do just that than to create your own business.

You are in the best position possible to make the leap to a business owner.  Failure may very well happen, but the chance of success is worth it.  Make it something you love and even failure may turn out to be a worthwhile experience.

Whatever course you do take, even if it is nothing at all, financial auto-pilot still means you are the minority.  You are well ahead of the game and should be proud of your accomplishement.

Everyone has a reason to want to make a difference in their lives.  When it comes to finances, motivation can make a huge difference in your approach to money.  Some people have it while others don’t.  Some people need a major financial event to incite them to make a change.  Others, such as myself, I believe have a constant drive born out of a perceived necessity.

Without motivation, you are never going to force yourself to make a budget let alone stick to one.

Without motivation you will never track your spending for any amount of time to finally see exactly where your money goes.

Without motivation you are never going to be able to force yourself to make a positive change in your life, financial or otherwise.

Family

Growing up, my family did not always have lots of money.  There were good times and there were bad times.  Even though my parents made a good attempt to shield my siblings and I from the reality of our situation, I always knew.

My family motivates me to work harder and make my life better.  My ultimate goal is to be in the best position possible to help them.  I want to make a difference in my family’s lives.  They deserve it.

Friends

There are several friends from either high school or college who are very close to me, despite that fact that I don’t get to see them as much as I would like. Some of them I know for a fact are in a very tough situation and to be able to help them in some way later on down the line would mean so much to me.

Helping others is a great goal.  But in order to do that I need to be able to take care of my closest family first.  That means my own life with my wife, and perhaps a family of my own, has to take precedence.  That is my motivation, to help others achieve the financial freedom I know they all deserve.

Find your motivation and the rest will follow.

Coming up this month will be my customary monthly review. With it this month will be a change in how I have been calculating and displaying net worth. In June of this year, I got married. Together with my wonderful new wife, we have been tackling financial goals using our combined financial strength.

Just this month I have been able to pay off my car using funds that would otherwise have been added to our pile of savings. Next month, I will be pouring that money towards paying off her car. Within two months of us getting married we will be free of car loans. Not bad.

I have been tracking our combined net worth since May of this year. From this information, we will have a baseline from which we can gauge our future successes or failures.

A Look at the Numbers

May - $15,309.44

• Assets $53,663.03
• Liabilities $38,353.59

June - $16,877.91

• Assets $54,513.81
• Liabilities $37,635.90

I am looking forward to June to be a great month despite some spending slip-ups. From May to June, which included our wedding and honeymoon, we only increased our net worth $1,568.47. We hope to easily beat that in July where for the first time we have been using our combined wealth building power.  I know for a fact that we just erased over $1,800 in car debt this month alone.

It is a good feeling. Goals seem a bit easier when you know you have someone working with you.

According to my budget, I am saving or investing a bit over 20% of my gross income.  I am actually doing a bit better than this if you count money I am putting towards paying off my debts early. For the moment however, 20% is how much I am really putting away.

To put this number in perspective, I will have to gross around five million dollars to actually have saved a million for myself.  Dividing that five million by my actual gross salary and I will have an estimate for how long it will take to actually save my first million dollars.

I am currently making a bit over $70K at my job, so that translates to 71.4 years.

That is of course just a rough estimate.  I should obtain a million much earlier than that if my investments provide any sort of meaningful return over the next few decades.

Increase Your Saving Rate

No matter how you slice it, increasing the amount of every dollar you keep for yourself will help push your millionaire moment closer.

If I could double my saving rate, I would be a millionaire in only 35.7 years.  All of a sudden that number seems more reasonable.

Don’t think you can double your own savings rate?  How much money are you putting towards debt repayment right now?  For me, including extra payments I am making above and beyond my minimums, I am right around 10%.  As soon as my remaining debt is gone, my savings rate will jump to a bit over 30%.  Already half way there without too much sweat.

Don’t Forget to Make More Money

The best way to increase your savings rate is to simply make more money without increasing your standard of living.  Easier said than done?  Absolutely.  But then if the best things in life were accomplished by reading blogs, we would have nothing but happy and successful people in the world.  Here are a few broad ideas.

• Ask for a raise at work
• Start a side business
• Turn a side project into something marketable

Keep the idea in the back of your mind at all times and be ready when an opportunity presents itself.  Inspiration may come from unanticipated sources and fortune as we all know favors the prepared.

A while back, I asked if the bottom had set in on the current market downturn.  In the following months, the Dow and S&P 500 had enjoyed a generous bounce in value.  Despite this, the market has a way of making liars of us all.  Stocks are today  treading on fresh lows while oil dances above $140 per barrel.

While I never will consider myself a maven of investing knowledge, I am still purchasing stock in this environment through my automated 401K investments.  In the long run, I know I will make out.

I’ve pointed out before that investing at any time for the long haul is a smart investment.  Doing so in a down market is even better.  While there are examples of horrible performance out there, such as General Motors, the market as a whole is a great place to invest.  That means today is an even better opportunity than before to buy up more shares at a discount.

When time is on your side, as it should be with your employer sponsored retirement plan, you should not be afraid to dive in when the market throws a sale.

Take this opportunity today.

Bump up your 401K

If you are not contributing up to your employers full match, bump it up 1%.  Do it today.  Make it a priority and make it happen.  1% will not kill your spending for most readers out there.  If you are getting your full match, consider it anyways.  Like I said, 1% will not kill you, but it may be a sizable boon to your future nest egg.

Contribute to a Roth IRA

If you have been considering making or contributing to a Roth IRA then do it now.  The stock market is on sale.  If this was a grocery store, you’d be stocking up on essentials on the cheap.  The stock market is no different.

Perhaps the market continues to slide.  There is a good chance it will taking into account the amount of fear in the market.  Don’t let fear dictate your investment strategy though.  Keep your time horizon long and you will be glad you stayed the course while the chicken littles around you ran for the hills.

One Million Dollars.

It sounds big. Big enough to have all of your worries go away in an instant. The sad truth is, it is not as big a number as it sounds. Not anymore at least, and certainly not in New Jersey.

My fiancé and I sat down a few evenings ago and did the math to see what it would take to walk away from our jobs and live in perpetuity off our investments. We made sure to add in the cost of independant health insurance as well as a comfortable level of spending for us both. After all, without work, we would have more time to ourselves and would need to be adequately entertained.

Without work, there are several expenses that go down or go away all together. For instance, we would be able to sell one of our cars and drastically reduce our spending on gas. And we all know what gas costs these days.

We also made our calculations based on staying in New Jersey, where the cost of living is rather high. If we moved to a lower cost of living state, we would be able to stretch our dollars further. However, we would want to remain somewhat close to our families and friends. We have spent the better part of our years here and would not feel right walking away from all of our emotional ties.

Some expenses would go up, such as the cost for heating and air conditioning and electricity. Since we would be home more during the day, we would be using all of these more.

The end result? We would need a bit over 2.3 Million dollars. And that would be today. For every year we don’t have that final amount, we would have to adjust up for another year of inflation.

While a million dollars is a significant emotional milestone, it is hardly the panacea it used to be. If I went to Vegas tomorrow and won a million dollars from a slot machine, I would be happy, but I would not be able to shed my day job just yet.

That said, it is a worthwhile goal to hit. I often joke that my taxable stock trading account has a goal of one million. I hope to actually hit that number in the future. I’ll make it so long as I don’t actually give up. While a million isn’t what it used to be, it still feels good saying it and it will feel good having it too.

Credit cards can be a valuable tool. For those of us with the discipline to pay off the card each month, the cash back available to us can be a worthwhile. If you are going to buy stuff anyways, you might as well be rewarded for it.

Forget airline miles and hotel points. Unless you do a significant amount of travel for your work, you are never going to see enough points to make a tangible difference on your next vacation. Cash back is where it is at. My fiancé and I both use cash back credit cards. While I use a Chase Freedom card, she uses a Blue Cash from American Express. If we had to chose one over the other which would it be?

Blue Cash from American Express

Blue Cash offers 1% back on supermarkets, drug stores, and gasoline. 0.5% on everything else. The catch is when your purchases within a year exceed $6,500. All of a sudden the cash back jumps to 5% on the above items and 1.5% on all others.

The sticking point is that your cash back is credited to your account at the end of the year. Not exactly cash in hand but still good considering the higher than average % back.
Advantages:

• Higher cash back %, after spending $6,500 within a year, your rewards jump to 5%
• No cap on rewards

Disadvantages:

• American Express is not as widely accepted as VISA
• “Cash Back” is statement credit at the end of the year

Freedom from Chase

Chase Freedom offers 3% on supermarket, fast food, and gasoline and 1% on all other transactions. While that may not seem quite as impressive as Blue Cash, Chase offers to sweeten the pot by letting you get the cash back as you earn it. You can request a check with a little as $50 in rewards. But if you wait until you have $200 in rewards, Chase will cut you a check for $250 instead. For those of you keeping score, that is a 25% bonus to your usual rewards.

Advantages:

• Cash back can be redeemed as you earn it
• It is actual cash, not a statement credit

Disadvantages:

• Rewards % is not as high
• After spending $600 in a month on 3% purchases, the rate drops to 1%

In order to take full advantage of either card, we would have to pool our purchases together to reap the maximum reward possible. So if we had to choose, which one would it be? That depends on how much we would actually spend during a normal month.

• Groceries: $350
• Fast Food: $100
• Gasoline: $420
• TOTAL: $870

We spend approximately $700 more in other purchases a month. That would include bills we could pay via credit card. Assuming that spending to be our baseline, we can run the numbers to find our best situation.

Our total yearly purchases would come out to $18,840. Wow, scary right? I smell another post coming in the near future, but I digress. Here are the numbers crunched and tabularized for your enjoyment and hopefully both of our enlightenment. While the full spreadsheet would not display properly, I’ve included the summaries here.

And it’s Blue Cash by a nose! I did not include the extra 25% bonus from Chase. That would bring the total Chase rewards up to $415.50. Not a blowout by any means. While Blue Cash takes the overall crown, we would have to weigh the extra $59.47 from Blue against the convenience of cash in hand from Chase.

For most families, $400 or so dollars over a year is not all that exciting, but it is money that you would otherwise not of had. For that reason, cash back credit cards are going to be a piece of my financial plan until such time as they become not worth the effort. $400 is still very much worth it to me right now.

My fiancé and I have been struggling with managing our financial priorities lately. While I am more in favor of eliminating all of our debt as fast as possible, she would rather pay down debt on schedule while pouring the majority of our resources towards a down payment on a house.

Pay Off Debt

We want to eliminate debt so that we have access to our income to build wealth. We are currently paying $900 each month on student loans and car payments combined. That is a lot of money to be sending off to creditors each month. At the very least, we have no credit card debt to speak of. All of our debt is under 6% interest rates.

Save For A Home

We also want to have a home to start a family and be together. A townhouse in our area starts at around $300,000. We have set a goal at around $350,000 to be safe. That would put a down payment of 20% at $70,000. Even at our high income, it would take several years to come up with that amount of money.

Having a home is a significant emotional turning point for us. It means a lot and it is worth the work. When we have a home we will be able to do many of the things we have wanted to do, such as have two cats. And also start a family. Hopefully in that order.

Lets look at the numbers.

Together we save $2,200 each month towards financial goals like our house down payment. This number includes the extra paycheck months as well averaged out over the year. We make $900 in debt payments each month together. That is $3,100 each and every month that we are applying to our goals. Not too shabby.

Our total debt as of the beginning of this month was $38,946. Divide that by $3,100 and we get 12.56. Of course I realize that not every penny would go toward debt pay down. Some of it would cover interest, but we also would have the advantage of a few extra months, we are not going to start a plan of any sorts until after our Wedding in June anyways.

It is reasonable to assume, that with a bit of elbow grease, we could pay off all of our debt within a single calendar year if we applied all of our extra income to the task.

Here is what it would take to raise $70,000 for a house.

At our current level of saving, we would have our $70,000 easily in three years. But we would also still have most of our debt too.

A Hard Decision

If we pay off all of our debt, which we could do in under a year, we would then be able to comfortably save $70,000 in two additional years. Paying down the debt to me makes perfect sense. As Dave would say, we are unlocking our strongest wealth building tool, that being our income. No matter what, I do not see any situation where we would have a home in under three years. Sad to think about but it is the truth.

An important note is that all of these calculations are conservative but also risk prone. It does not include any pay raises that we both expect in the next few years. On the other hand it does not account for the possibility of one of us losing our jobs unexpectedly or a major medical event that could happen to either of us, both, or even one of our family members.

In the best case, we achieve both goals ahead of schedule. The worst case scenario is hard to imagine. If it does happen,then we will have more important things on our minds than saving for a house. Plus, that is what insurance is for.

So what will it be? Save for the house, pay down the debt, or both in moderation? We are more than likely going to be pursuing a dual strategy. We hope to get the best of both worlds without sacrificing too much intensity. Either way, we should be prepared to buy a home in the next three years or so. We are excited just thinking about it.

Everyone has a hobby of some sort. Photography, sports, cross stitch. The possibilities are endless.

If you don’t think you do, you just haven’t realized what it is yet. That’s Ok. Spend some time and figure it out. Your interests have everything to do with your passion. Ask yourself what you are passionate about. What motivates you in ways other activities don’t? Blogging on that topic can be used as a way to earn a little money on the side. At the very least, you will be able to expand your horizons and learn new things about something you love to do anyways.

Make a Blog

Thanks to WordPress, making a blog is super easy. It takes almost no effort to put all of the pieces together.

Go to Wordpress.org and choose a hosting service (or use the free ones available from WordPress). A full year of hosting with automatic Wordpress installation can cost under $100 for a full year. You do not need anything fancy. When you are just starting out you are not going to use a lot of bandwidth so the basic hosting option is going to be the best.

From experience, the automatic Wordpress installation is very easy. You do not need a computer science degree to make it work. And if you are still squeamish about going it alone, then Wordpress offers free blog hosting for those who register with the site. It is a very good alternative if you are simply looking to test the waters.

Pick a memorable name. Bounce it off of a few friends to see if it is catchy and memorable enough. It should also be easy to type without unnecessary risk of misspelling.

Don’t try to get going too fast with more posts per week than you can produce on a regular basis. You need to be comfortable with the quantity of writing. It is not easy, but it will get better over time. Think of blogging as an endurance race and not a sprint. The race is won by a slow but steady pace.

Share what you know

Whatever your particular niche, share what you have to offer. Ask yourself some simple questions and use your answers as the basis for posts on your topic.

• What do you do and how do you do it?
• Why have you chosen this hobby over others?
• What drives you to participate?
• Is there anything unique about the way you do things?

Share your unique views. Blog about it and blog proudly. Blogging is a way to make available to the world your uniques views and talents.

Learn something new

Blogging should expand your knowledge. Use it as an excuse to learn something new. Make a trip to the library or book store and read a new book on the subject.

You should also participate in whatever online community exists for your hobby. Not only will it provide a way to advertise for your blog but it will allow you to be exposed to many other points of view. Sometimes reading an article will alter your own way of looking at things and open up new ways to enjoy your hobby. So stay open and receptive. There is a wealth of information available out there so make the most of it.

Practice, practice, practice

Writing is hard. It is not something that everyone can do well naturally. But everyone can improve. As weeks turn to months, you will begin to feel more comfortable with a keyboard in front of you. You will get better over time. Just avoid burning yourself out. Which makes it even more important to start slowly and keep a measured pace throughout.

Have fun first, make money second

Most successful bloggers do not amass a loyal readership right out of the gates. Very few successful blogs begin their journey with the intent of making money. Of course that makes this posts title a big disingenuous but the advice is simple. Don’t expect to make money hand over fist when you first start or at all. Use it as a tool to further your own knowledge of something you love. If you don’t enjoy doing it then it is not worth it no matter what the pay off. If you happen to cover your costs or maybe a little bit more, all the better.

I wouldn’t have it any other way. It gives me something to look forward to. I am by no means a rich man today. But I plan on it. Here are just a few of my favorite reasons.

The Rich Have Money

Dave Ramsey, David Bach, to Suze Orman and countless others tell us over and over to start investing NOW. The reason is simple. Compound Interest. It does amazing things. The part that is overlooked is that there are two parts to the equation. Time and Principle. The average American does not start investing with a large principle. We all rely on time to do the heavy lifting for us.

On the other hand, if you do happen to have a significant amount of money to invest, then you don’t need time on your side to reap large dollar gains.

Very simply, 5% of $1,000 is $50 while 5% of $1,000,000 is $50,000. Even though each is an equivalent rise in value, I am willing to bet that the majority of readers would rather have the $50,000 gain.

The Rich Pay Less Taxes

The rich more often than not use a significant amount of their wealth to invest. Investments are taxed using a different set of rules than earned income. First and foremost, there are no Payroll Taxes on capital gains. If you sell a stock for a profit, you will pay federal and state income taxes and that is it. You do not pay social security taxes (6.2%) or Medicare taxes (1.45%). That is more money in your pocket instead of the government.

If you happen to of held your stock a full year or longer, or you receive a dividend, your tax liability decreases further still. Long term capital gains as well as dividends are taxed at lower rates, currently both are 15%.

If that wasn’t enough, social security tax has a cap on it. For 2008, income up to $102,000 is taxable for social security. Every penny after that is free and clear further reducing the over all taxes paid by high earning individuals.

The Rich Don’t Worry About Inflation

Gas and food prices have seen rapid increases in the last year or so. This has threatened many families financial well being. While inflation concerns are another great reason to NOT live paycheck to paycheck when you are rich, you don’t have to worry as much.

While the rich may use more gas and food than others, they do not use nearly as much as the rest of the world when you look at it as a percentage of their income. If gas and food costs increase by 12% in a year, the family whose gas and food bills make up 25% of their expenses are going to be far more affected than the family who spends only 5%. Having more money does not mean that you automatically use more gas and food. You have to look at it as percentages to get the full story.

If You Can’t Beat Them…

The people with money have an easier time making more of it. Once you have it it is likewise easier to keep it. It’s a fact of life. So rather than fuss and complain over it, resolve to join their ranks. I plan on being rich. One way or another.

What more motivation does one need?