Financial Philosophy | Squirrelers

Easy Steps and Real Obstacles to Building Wealth

May 062013

If you’re reading this, chances are that you just might have an interest in getting ahead financially. People generally don’t read personal finance blogs if they don’t care about money. Certainly, those run such blogs – like this one – are quite interested!

I’ve been thinking a bit about why it’s so hard for so many people to get ahead, or even to get to a point where they’re comfortable with finances. Personally, I’m working on this every day – diligently working toward being able to retire someday, while concurrently believing in responsibly living in the present as well. Quite the balance, sometimes! Yet, it’s not easy all the time for many folks.

When you think about it, the steps to seem quite basic:

Earn Money

Now, the current economic climate doesn’t make it easy to get work, much less the right work all the time. That being said, if one pursues and achieves obtaining a solid college education – and possibly graduate school – there should be a better chance for employment. It can be said that education and net worth might be correlated, in terms of level of education.

Beyond that, there is often money to be made when people are truly driven and motivated. Maybe not a dream job right away, but money can be earned if one is tenacious and really wants it. I wrote about persistency and wealth before, and think there is something to that concept.

Save Money

If we make money, then we should simply make sure that we save some of it. As long as we be sure to spend wisely, and discern wants from needs, we should be putting ourselves in position to save. The more we save, the closer we could be to retirement and financial security.

Invest Money

So, at this point, we’ve earned and saved. If we just keep money under the mattress, so to speak, it will lose value relative to inflation. If we keep pace with inflation, our money isn’t working for us. Thus, by understanding the importance of rate of return, we can begin to get our money to work for us. The long-term impact of just a few percentage points of rate of return can be quite impressive!

So why isn’t it automatic that everyone will succeed?

Bad Luck

For some people, there can genuinely be bad luck. I know that it might not be a popular notion among some personal finance bloggers, but I don’t think we can fully plan for everything. Sometimes there is an element of randomness that we can’t control. The notion of a crazy driver hitting us, totaling our car and causing injury, is something that can happen to anyone. Being prepared doesn’t matter. Also, we might get unforeseen health issues no matter how hard we try to keep healthy. All of these thing can be luck-related.

Wrong Approach to Education

No matter what statistics come out about the value of an education – along with common sense – there will be people who think it doesn’t matter. As in, “college is overrated”, or “college isn’t for me”, or “I know someone who’s doing great, and he didn’t go to college”. This is fully controllable, as long as we accept reality.

Also, sometimes people who do get a college education, and perhaps a graduate degree, might pursue a path that doesn’t pay off. Spending time on a major that doesn’t yield and marketable skills might not be the best approach. Additionally, choosing a school that is overpriced and causes one to take out excessive student loans can really set a person back financially. In such cases, it’s possible that getting that education might actually cause long-term problems, simply because of the cost.

Bad Debt

Someone could work hard, and have all the right intentions regarding saving and investing, but could be saddled with debt that must be paid off. I think a lot of this is letting emotions get in the way of making sound decisions. Sometimes a couple might “stretch” to buy a home they really love – after all, a home is a special place, right? Well, thinking clearly they would view it as a place to live and one that’s a financial liability in terms of mortgage, taxes, utilities, etc.

Beyond that, there are the obvious suspects, such as buying a car that’s too expensive, or simply piling up credit card debt for consumer purchases. Going into debt to buy things we really crave having, or feel entitled to based on a certain standard of living, doesn’t make sense. Yet, I think just one or two big mistakes along these lines could totally derail someone.

Life Mistakes

This category includes some things that might not always be a person’s fault, but sometimes life happens. People might choose a career path they genuinely hate, but do it anyway. Sometimes folks get divorced, which can wreck finances. Other times, people might do something reckless, such as text and drive or something silly like that which could cause them big problems via accidents. You get the idea – sometimes people might mean well, but simply either make mistakes or have life events happen to them.

Lack of Attention to Health

We’re not talking about unexpected things in this case. Here, we’re talking about health issues that could have been prevented or perhaps minimized, if a person took care of himself. Examples of smart choices along those lines would be maintain a healthy diet, getting exercise, understanding the importance of sleep, and managing stress.

If we aren’t healthy, our ability to make money could be impacted or – in some cases – even curtailed.

Bottom Line – While the steps to wealth can seem straightforward, it often takes more than simply working hard to make money, save it, and invest it. There are many decisions we make along the way with our lives that can either help us or get in the way of our efforts. I suspect that how we handle these other decisions that shape the structure of our lives will influence our ability to reach our financial goals.

My Questions for You

Do you think that it’s actually easier than people think to get ahead? Or, is it more difficult than meets the eye?

What factors do you think help drive financial success?

What factors do you think get in the way of people’s plans?

Alternative Ways to Calculate Your Real Net Worth

Financial Philosophy 16 Responses »

Apr 112013

There’s kind of a weird saying that I’ve always thought was a bit odd, and it goes like this: “There is more than one way to skin a cat”. Thankfully, nobody (we can hope!) actually means that they’re going to remove the fur of one of our feline friends. Rather, they’re of course thinking about the concept of different ways of accomplishing the same goal.

In the personal finance arena, this saying can apply to the topic of net worth. For example, we have previously discussed many ways to grow net worth, ranging from embracing continuous learning to being persistent to building relationships. Along those lines, focusing on net worth again, there are also multiple ways we can measure it. Yes, I really think that there are different ways we can calculate our net worth or financial “value”.

Here are 3 of them, one traditional and the other two more “alternative” in nature:

Traditional Method

The way that net worth is commonly calculated is by looking at one’s assets and liabilities, and subtracting the difference. Hopefully, the assets exceed the liabilities! If so, you have a positive net worth according to this standard method. Having more liabilities than assets results in a negative net worth.

For example: let’s say someone has a $200,000 home, $100,000 in retirement savings, and $20,000 in cash. That would equal $320,000 in assets, not net worth. If the same person had a $120,000 mortgage, $15,000 in an outstanding car loan, and $5,000 in other personal debts, that would equal $140,000 in liabilities.

Total net worth? $320,000 minus $140,000 equals $180,000. This person has a net worth of $180,000 according this approach.

Alternative Method #1 – Months of Expenses

I think this is one approach to calculating “net worth” that isn’t considered by many, and might be dismissed by others. But, it’s practical and customizable to each of us. It’s what I call the months of covered expenses method.

Really, it’s simple – and we’ve talked about covered expenses here before, albeit a long time ago. First, figure out your net worth according to the traditional method above. In this case, $180,000. Then, determine your monthly expenses. Let’s say in this case you’re spending $4,000 per month.

In this case, you have 45 months of covered expenses. That’s your net worth, or practical measure of wealth. A person with lower monthly expenses would actually be wealthier with the same exact traditional net worth, based on the customizable nature of this approach.

Alternative Method #2 – Cash Flow Valuation

Thinking back to my days in business school, I recall that there were different approaches to valuing companies. One might be a market comparable method, measuring versus other companies similar on various characteristics. Another would be a discounted cash flow valuation. Could we measure personal net worth based on discounted cash flow analysis? Sure, I think it’s possible.

The concept is to take future net cash flows and discount them back by an appropriate rate of return (inflation?) to determine the present value. This could, in turn, represent your “net worth”. Just as a company might be valued based on a discounted cash flow model, perhaps we could apply this model to us as individuals as well.

In this case, let’s say one person (we’ll call him “Person A”) might have a traditional net worth of $300,000, and another – “Person B” – has a traditional net worth of $50,000. They both might also have comparable spending patterns. Comparing them based on the two methods shared above, the first person would obviously have a higher net worth.

However, if Person B had a budding career where he was likely to earn a very high salary, and Person A had a more modest job in an unstable industry, things might be different. An objective forecast of their future cash flows might indicate that Person B might actually earn a lot more over his future years than the other guy. Thus, he might end up having more “financial value” than the other person.

Not that we want to reduce ourselves to assets that investors can trade, but you get the idea. If companies could be viewed this way in terms of valuation, perhaps the same concept could work in terms of measuring net worth of people.

Bottom Line: There are many ways to “skin the cat” in terms of calculating net worth and – by extension – wealth. It’s good to keep an open mind and view things from different angles.

My Questions for You

How often do you calculate your own net worth?

Do you strictly look at the traditional method, or do you consider other approaches? If so, what are they?

Have you ever considered the alternative ways to measure wealth as described above?

Living a Financially Sustainable Lifestyle Now So You Aren’t Shocked Later

Financial Philosophy 13 Responses »

Mar 252013

The term “sustainable” can bring about many first impressions. One might evoke an environmentally conscious mindset. As in, long-term ability to continue without resource depletion.

Another meaning, at least that comes to mind to me when it comes to standard of living, is the ability to continue without significant difficulty or intervention. A sustainable lifestyle is one that you can live now and for the foreseeable future without major worry of it being degraded. That degradation, given human nature, is often due to simply not being able to afford the lifestyle any more!

When I look at the life patterns of many people, it seems as though people simply try to live their lives based on the ability of their current income to support a desired level of expenses. Too often, that means that the expenses equal or exceed the income. That’s a difficult situation for many folks, and sadly – some are put into this position unfairly through no fault of their own. However, many simply live irresponsibly whether they know it or not.

When does the lifestyle become unsustainable? I think it’s when people assume that the good times will go on forever, without any problems. Kind of like the mindset of people that expect to work in old age, without realizing that this might not be possible. When they realize that their income and savings might not be able to cover their lifestyle, they end up having to change it downward.

I don’t know about you, but the idea of having a lower standard of living when older doesn’t sound fun. It’s a big source of financial motivation, trying to avoid money issues when older.

Along those lines, I think it’s worth considering how much money you’re on track to have for retirement, and what your cash flow will be during that time:

Income

We may be able to work in old age, but it’s not guaranteed – even if you want to do so. Health issues and ageism can make this a very dicey proposition to be able to count on working.

Social security? That’s not a ton of money, and many people don’t want to count on it getting it anyway. Pensions? It’s not like most people are going to be getting the benefits of one. If you will, that’s great!

So, where is your income going to come from? If you can generate passive income, that would be great. If you have investments, income from them can be a big source of income. Or, you just might be withdrawing money directly from the nest egg. There is a school of thought that believes a 4% withdrawal rate can be manageable to ensure cash flow through retirement. In that case, if you want a $40,000 per year retirement, you would need a $1,000,000 portfolio.

Keep in mind, we’re talking about today’s dollars, and purchasing power. Do you think you will have $1,000,000 in today’s purchasing power saved up by retirement age? Whatever you project to have - be it lower or higher – it can obviously affect your ability to generate income. For example, a retiree having $200,000 saved would withdraw $8,000 annually based on these calculations.

Expenses

I think a lot of us tend to have a belief that expenses would be lower when older. After all, there wouldn’t be any kids around day-to-day that we need to support, and our lives would be simpler overall. However, we generally don’t get any healthier when older. Think about the younger people you know, and the older people you know – who has more ailments, illnesses, conditions, and aches and pains?

With health expenses so outrageous for many people, I think some people just might face higher health care costs in retirement. Especially if long-term care is needed. So, when planning for what expenses we might have when older, let’s keep in mind that they just might be very substantial.

What Does This All Mean?

When you look at the cash flow situation we might have when older, it seems like a lot of people are on track to have to make some massive lifestyle changes.

I think it makes sense to realistically assess where you think you will be in the long-run, and live a lifestyle now that is actually sustainable. In other words, one that you can get used to, and continue to live when older. Why get shocked by lowering our standard of living later? Worse, why put ourselves in a bad position later because we lived it up when younger and healthier? Let’s be nice to the future old version of ourselves

To the extent we can save and invest early and often, while also living within our means, maybe we can put ourselves in position to even have a more comfortable lifestyle when ready to retire. That’s the dream many of us have been sold – or sold to ourselves, anyway. It just takes planning to make it actually happen.

My Questions for You

Do you ever think about how your lifestyle in the future might be versus the one you have now?

Have you done the analysis to project where you are on track to be down the line?

I’m curious how sustainable you think your current lifestyle might be (or might not be), and what assumptions you’ve made in determining this.

Take Pride in Your Past Successes!

Financial Philosophy 5 Responses »

Mar 182013

Many of us that are goal oriented often think about what we’re going to accomplish next. Or, in many cases, it’s simply thinking about what we think we need to do, and how we will organize our time to make it happen. It’s all about the future!

Should it be? Pulling back, I totally believe that we should be able to enjoy the moment and live in the present. Furthermore, I think that it’s also good sometimes to reflect on the past. A great way to do that can be to take stock of our accomplishments, and celebrate our successes!

Many of us have come a long way. Or, at the very least, we have worked hard to accomplish some things that we can be proud of. I’m willing to say that there are different ways that people view these successes. Some people probably dwell on them too much, and live off past success. But there are many others who simply take for granted the things they have done before, and focused on the future because after all, that’s what we can influence. We can’t go back and impact the past!

Nevertheless, I think it can be a great thing to stop for a moment and think through some of the things you have accomplished!

Forget for a moment that you may have had failures too. Let’s think about the good things that you did. These successes could be anything, financial or otherwise. Whatever they may be, they represent really good things that you have done.

Examples of the types of things people accomplish:

Being the first person in their family to get a college degree
Getting into a highly rated school or graduate program, after a lot of hard work
Landing your first full-time job, beating other applicants for the position in a competitive market
Successfully giving a big, high pressure presentation at work
Earning that big promotion, after so many months or years of trying to beat expectations at work
Paying off student loans
Buying your first condo or house
Finding your spouse and life partner, and marrying her/him
Becoming a parent
Overcoming a major illness
Overcoming a difficult childhood
Surviving a divorce
Improving health by giving up a habit (smoking, soda, etc.)
Losing a lot of weight
Getting back in shape

This list of examples illustrates just a few possible accomplishments that people could have had. What is meaningful to each of us is likely unique and personal. We all have accomplished some things that we can be proud of. Let’s stop for a moment to take pride in what we have been able to do, just for the sake of doing it. This doesn’t mean we need to brag - we can simply appreciate these things ourselves.

If we still can’t shake that future-oriented perspective even for a moment, then maybe we can be inspired to achieve future successes since we’ve done it before!

My Questions for You

Do you ever stop to appreciate some of the things you have accomplished in your life?

What are a few of the accomplishments that you’re proud of, but may take for granted?

Thinking Inside the Box With Personal Finance Can Have Value

Financial Philosophy 5 Responses »

Jan 142013

Personal finance is a really interesting subject for many of us. Obviously, you can count me in that group since I run Squirrelers! I’m also assuming you have an interest in it, otherwise you wouldn’t be here reading.

For those of us that blog about the subject, personal finance can be a multi-faceted, complex arena with so many variables involved. We talk about all kinds of topics, such as various topic of making money – some of which are traditional (jobs), and others non-traditional (online). There’s an emphasis on the latter in many posts. We also talk about endless ways to save money and pinch pennies. There are so many different things we need to buy or want to buy, and we talk about how to save on these different purchases. We also discuss investing quite a bit, whether individual stocks, funds, metals, and so on.

Having said all this, I think that maybe sometimes we need to step back and keep it simple, and remember that there is value to thinking inside the box with money. The basic framework for increasing net worth can probably be simplified as follows:

1) Get an education, without excess loans

2) Start your career or business

3) Focus on both protecting and increasing your income

4) Live within your means, discerning wants from needs

5) Maximize the gap between your income and expenses

6) Avoid debt, and strive to be debt-free

7) Invest your money, starting as early in life as possible

8) Practice smart asset allocation, while managing risks

9) Develop strong, genuine relationships with people

10) Keep yourself healthy and fit

If one does each and every one of those things, it would seem like the path to having a good financial present and future would be right there in front of us.

I know, it’s easier said than done! There are pressure points above, and sometimes we can’t control the actions of those applying the pressure. For example, we could have trouble finding a job in a tough economy, despite our best efforts. Or, our employer could have trouble and we could lose our job. Maybe our spouse is a shopoholic and we can’t save as a result. Or, maybe we have unforseen health problems that take up our time and energy, and take away from our work.

So clearly, there are things that we might have challenges directly controlling. But many of the other things we probably can control.

Bottom line: Thinking outside the box of course has great value. But by also keeping it simple, thinking inside the box in many instances, and following some clear steps – we could probably put the odds of success much more in our favor.

The Best Money Moves for New or Recent College Graduates

Financial Philosophy 14 Responses »

Jan 092013

When I was younger, and just out of college, I felt like I had finally hit the “real” world. Not that being any younger means that you aren’t in the real world, but for some people, it seems like there is some kind of bubble they’re living in all the way through 22 years old. It’s all about academics, having fun socializing, and preparing for the future for some people, it seems. Yes, I was one of those people. I know that many of you reading this weren’t (or aren’t) but I was.

I was fortunate enough to have a full-time job right out of college, having been recruited for the role. After that, it seemed like things had changed. All of a sudden, I had my own apartment with no roommates, along with a salary. I also had some basic responsiblities, such as taking care of my place, paying the bills, and routine things like that. Otherwise, I was free to do as I pleased.

How times change! Being older now, with kids and much bigger responsibilities, I can look back and think about how I handled myself back then and the moves I made. Overall, I think I did fine, and really worked hard in some areas of life. I wouldn’t have gotten to this point without that hard work, and the good decisions that I did make.

However, I certainly didn’t have all the answers back then. Not that I do now, of course! Yet I do have the benefit of life experience and perspective now, and can make some assessments on what moves I could have made. Based on my own life, as well as the experiences of countless others I know, I have some thoughts as to what financial moves would be good for people in their early 20′s to consider.

Here are my ideas for 5 top money moves for people in their early 20′s recently out of college:

1 ) Build Your Career.

Now, I say this knowing that not everyone knows exactly what they want to do. Some people go straight from undergrad to grad school – medical school is one example. Such people were probably highly driven early on, very bright, AND knew what they wanted to do. There are many other people with the first 2 traits, but maybe not the notion of what they want to do. This is okay, as we often need experience in order to figure some things out. But figure it out we must.

For many people the first big hurdle these days is finding that first full-time job. Once obtained, this the time to gain experience and work the long hours to get ahead. Later in life, with kids in the picture, you won’t have as much time or energy to do this. Get a foothold, build a professional network with value, and start making your mark. This early experience can be a great building block for the rest of your career or even future entrepreneurial efforts. Speaking of which, you shouldn’t be stopped from entrepreneurship early on.

2) Live Modestly

I could say live appropriately, but what I mean is that we should avoid spending excess money on pricey apartments. Now, this doesn’t mean we should compromise safety or other basic, or purposely sign up for some rotten commute. Rather, let’s try to spend as little as possible for housing.

I actually rented at a very nice apartment complex right away, and it was the very best one in the area. I could have saved a fair amount of money by living elsewhere, but I wanted to live in a certain place. Live and learn, I suppose!

A good alternative might also be getting a roommate. Splitting rent and utilities can really help with savings efforts. An even better move might be living with parents, if it’s comfortable enough and they’re okay with it. I have to say, I don’t understand the mentality that many people have around their newly grownup kids not being welcome to come back home. While I moved out on my own when young, I also realize that in many cultures it’s totally normal and perhaps expected for multiple generations to live together. If parents and their kids could wrap their heads around the massive savings possible for the kids, instead of viewing it as shameful freeloading, people could really save money and build a financial foundation.

3) Drive a “Good Enough” Car.

Nobody needs a really nice car when just starting out. I have 2 friends who made the mistakes of spending a ton of money on new vehicles. One guy bought an expensive sports car that was probably 2/3 of his annual income, then traded it in for different one that was just as pricey. He is now a successful high net worth individual who drives a 12 year old car, and says that he will drive that car into the ground. Clearly, he figured out what is important.

Another friend bought an expensive SUV when he got his first job, and told me he “needed” it, and wanted to “feel like I’ve arrived”. He’s now doing quite well, and seems really responsible.

There’s a good post worth checking out, with a car buying rule, that fits the concept of driving a “good enough” car.

4) Don’t Waste Time on Mr. Wrong or Miss Wrong.

This might not seem like a money tip, but it is. I’ve seen people waste untold amounts of time and money on people who were not right for them. It might have been apparent to others, but not them. Just imagine if they would have valued what they as individuals brought to the table, and didn’t settle for something less?

A big thing is choosing to live in a city you don’t want to live in, just to follow someone. Okay, maybe that can work out well and I know it does for a lot of people. But tread carefully! I know one guy (who was actually in his later 20′s) who found his dream job with pay that – from what I heard second hand – was truly exceptional and well beyond what he was making before. He took the job, then quit and moved away after 1 month to be with his “true love”. Well, the true love ended up dumping him within 1 week. Yes, 1 week! No love, no job, and back home he moved with his finances severely hurt.

He threw away a great career and life opportunity. Now, I haven’t kept in touch with the guy in a few years, so I don’t know what he’s up to now. Little consolation for him, but hopefully others can learn from his fiasco, and not lose valuable time, money, and financial potential on a situation that’s not a great fit.

On the bright side, what if you do find Mr. Right or Miss Right? You’re blessed, and don’t let go!

5) Don’t Carry ANY Credit Card Debt

Credit card debt is not good to have. Sometimes people can get into difficult situation that requires them to pursue debt as help. However, many people carry credit card debt because they aren’t able to discern wants from needs. When they figure it out, it can be painful.

There was a guy I worked with who also bought a nice car that was beyond his means – I suppose we can add him to the two I mentioned above, as I just thought of him now. Anyway, this guy not only had that car, but also went to all kinds of expensive concerts and sporting events. We were joking around with him at lunch about him not knowing what a savings account was, and he just brushed us off with a smirk and said he didn’t care about any of that stuff. Life is too short, he said! By the way, this guy was a financial analyst. Go figure.

Well, a few years after that, he told me that he would be stuck paying bills until he was 30. He later met a woman who he ultimately married, who shaped him up financially. Over dinner, he told me how she hated any and all debt, and how she forced him to change. He went on an introspective tangent where he stated that he must have learned his habits from his parents, who simply used credit as an easy tool to get money when needed for anything. It was great to see him learn his lesson, but clearly it took him years to recover, and a smart wife to teach him how things work!

How it All Ties Together – collectively, these moves involve making sure we earn money, and then ensuring that we avoid common traps that cause us to overspend. Ultimately, main idea here is to save as much as possible when younger. Then, we can invest intelligently and let compounding work its magic. Later in life, you’ll be VERY glad you saved and invested. I know I am.

My Questions for You

Did you follow (or are you following) any of these tips on money moves in your early 20′s?

Which ones have worked best for you, and what do you wish you could have done differently?

Do you have any more to add?

10 Things To Do This Year to Help You Build Wealth

Financial Philosophy 19 Responses »

Jan 012013

Many people would like to build wealth. Who wouldn’t want this? Of course, the concept of wealth might mean different things to different people.

Whatever your definition is – in a financial sense, anyway – there are some thing that we do that simply detract from our ability to become wealthy or simple generate more money. If we want positive results, we should consider taking on some characteristics and behaviors that might help us get there.

Beyond those generalities, it helps to actually take action. That’s the thing, sometimes it takes an attitude of moving forward without trying to be perfect. In other words, action beats inertia. Better to actually take steps to improve our financial situation and build wealth, rather than plan and hope to do it when the timing is right. Why not now?

With that it mind, I’ve come up with a list of 10 actions that can help build wealth:

1) Prepare Personal Financial Statements

Businesses need to generate financial statements. Two common ones are a balance sheet and an income statement. A balance sheet is a snapshot of assets, liabilities, and equity – with a resulting net worth figure. An income statement documents income and expenses, showing a profit or loss.

Why not take a view of our personal balance sheet and income statement? Do this for a given time period – say, the last year – and you can get a good idea of where you are financially and where you’re going. Having an idea of your current net worth, and the relationship between income and expenses (in other words, are you saving) is vital to being able to make progress in the future. We need to be informed!

2) Be Honest With Yourself

Are you really on track to be okay financially? Can you see yourself saving enough money for retirement, based on your current financials (as noted above)? It’s important to avoid sticking our head in the sand like an ostrich, and instead face up to the facts as they are. If we aren’t doing it already, we need to try to remove all bias and assess ourselves honestly. If it isn’t possible to do so, maybe a professional or simply someone you know who’s very financially savvy can give you the straight up lowdown on how you’re really doing.

3) Set Long-Term and Short-Term Goals

These goals should be specific instead of vague. Giving ourselves a target to aim for has a way of aligning our behavior accordingly. This concept has applications in many areas of course, but in this case, we can of course say that it’s quite relevant in terms of finances.

I like the concept of long-term goals that are ambitious. Now, we also need to be realistic, in that some of what we plan for needs to account for the so-called “unexpected” things that inevitably happen in many lives. After all, life is rarely a linear straight line pointed directly to success. Rather, we want to trend upward, realizing that there might be some peaks and realistically, a few valleys too. But let’s aim high.

Short-term goals are great because they are a way for us to quantify our progress toward long-term goals. Just like a 26.2 mile marathon is a long journey, it’s still make of 26 individual miles, and that additional fraction of a mile too. Success at each step along the way will help us reach the bigger target.

4) Genuinely Try to Exceed Expectations at Work

In my experience, employers seem to group people in four groups:

“Exceeds Expectations” (EE) group, which is maybe the top 10%.
“Solidly Meets Expectations” (SME) group, which is probably the next 50%
“Barely Meets Expectations” (BME) group, which might be the next 30%
“Not Meeting Expectations?” (NME) group, which is probably the next 10%

It’s best to be in the top 2 groups. If you’re in the SME group, you’re doing a lot of the heavy lifting, and might have a decent level of job security. But if you’re in the EE group, you have more job security, and upward mobility as well. That’s where the money is.

5) Build Your Professional Network

Lets say you had two really good candidates for a job, both of whom interviewed well. But one has great personal recommendations – and the other one doesn’t. Who would you rather hire?

Knowing people matters. It helps you learn, understand what’s going on, and might help you get the edge when looking for an opportunity. Build your network when you don’t need it, then it will be there when you need it. And we should be willing to help others too, as it goes both ways. Generosity in this way, without expecting anything back directly, can be a good thing anyway.

6) Increase Your 401k Savings Rate

If you’re already maxing it out, then save more elsewhere. If you aren’t participating in your employer’s program – or other investment vehicle – then try to start. Whatever the case might be, it’s important to save, save, and save some more.

7) Make Savings Automatic

If savings are automatic, it accomplishes a couple of things. First, it makes it easier to handle than constantly making separate decisions and investment amounts. Second, it forces you to simply live on the remainder. Even if you’re starting out very small with savings, making it automatic can facilitate your living without it and maybe even not noticing it. To the extent that we can grow the difference between income and expenses, the better off we’ll likely be. Even if that means making saving money a habit just like brushing our teeth is a habit – we can’t imagine not regularly doing it!

8) De-clutter, and live more simply

I’ve seen first hand the effects of having too much stuff. My parents accumulated so many things over the years, and when they had to move, there was so much clutter. Some of it was sent to storage. Now, I’m cut from the same cloth, honestly. However, I’m now trying to move to a mindset of purging things that aren’t used for a long time, and being practical more than emotional about holding on to certain things. Particularly things that take up space and are never used. There are carrying costs, in terms of either use of space or storage costs.

Additionally, there can be money made by selling certain things. It’s amazing the kind of market there is out there for some things many people don’t want or use anymore. Might as well get some money and use it to either pay off debt or invest it.

9) Get Healthier

If you’re already in great shape, then maybe its a matter of keeping that way. But many people could stand to make a few changes in how they do things, as the results of taking shortcuts or making small bad decisions can show up later in life.

If we aren’t healthy enough to work productively, we will be hard-pressed to build wealth or prevent erosion of wealth if older. Plus, health problems can be quite expensive for people. Regardless, to the extent that we can make healthy decisions, we are putting the odds in our favor for living a more satisfying life. And one with more wealth!

10) Practice Not Caring About what the “Joneses” Think

I really think that one of the multiple factors that could get people into trouble financially is the concept of keeping up with the Joneses. Some of these people are “Big Hat, No Cattle” people with their money. Meaning, they aren’t really what they appear to be, as they are all image and no substance.

Who really cares what others think? I’m starting to care less and less, as I realize that it’s so unprofitable. How does it matter to me what others have or do?

I think a good way to practice this is to almost go out of your way to curb any competitive impulses, and just be yourself. When I was younger, I would buy really good clothes. Stuff for work was from Nordstrom, and things I wore on my personal time on weekends were really kind of nice as well. I cared a lot about it.

Not that it’s a bad thing, as there is value in putting our best foot forward. Appearance can matter in many circumstances. But these days, I have no problem just wearing whatever I feel like wearing. Today, as I write this, I realize that I was out shopping at a local mall in jeans and an $8 sweatshirt, with a t-shirt underneath that I picked up for less than $1. As a younger person, I would have quietly laughed at someone my age dressed like this. Today, I WAS that person dressed like that and I simply didn’t care too much what anyone thought.

Bottom Line - these are all action-oriented steps that can help us move toward building more wealth. Personally, I’m applying each and every one of them this year.

My Questions for You

What are your thoughts on this list?

Do you take any of these 10 actions regularly?

What else do you do to help build wealth? Anything else to add?

Are You What Your Record Says You Are?

Financial Philosophy 8 Responses »

Nov 122012

There is a quote attributed to a football coach that says “you are what your record says you are“. It’s one that might apply to the sports world, but I’ve been thinking that it can also be relevant to personal finance.

Let’s say that John Doe is somebody who thinks that he will be future multi-millionaire. He just simply envisions that he will be very successful financially over the long-term, and is going to get there one way or another. That’s the dream, and he feels like he can do it. Might as well dream big, and as the saying goes: where there’s a will, there’s a way.

Now, let’s take a look at John’s current financial situation. He’s 30, and completed his college education early in his 20′s. He has a good job, and has advanced a bit in his career – but he’s not on the fast track to being a CEO. He still has some student loans outstanding, and has a small amount of credit card debt that he hasn’t gotten around to completely paying off. He also has a mortgage on a snazzy new condo, and just bought a new car a year ago. He works hard, plays hard, and likes to live it up.

Do you see the disconnect between his vision of his future, and what his past and current financial situation has demonstrated?

Here is another question: if you were to invest in John, do you think that based on what you have seen, that he’s a slam dunk to be rich like he thinks he will be?

I think that this same concept can be applied to people in a wide range of situations and with different self-perceptions of financial health. Some people just believe that they will be able to retire someday, despite being living deeply in debt. Others don’t care much about their careers. Maybe some others just think that they will marry someone with financial potential. Either way, they just think that their ship will sail in someday.

Well, instead of waiting for the ship to come in (it won’t), it’s probably better to take personal responsibility for one’s finances. Even further, it’s good to critically evaluate what your past behavior indicates about what you’ll be likely to do in the future.

Now, that’s not to say that people can’t learn and change. Of course we can, and there are tons of inspirational stories out there about people who turn things around and reach their goals. Those with a thirst for knowledge, and the desire to actually apply that knowledge through hard work and discipline, can get there.

I think that before this can happen, it’s important to engage in critical thinking and learn about ourselves and our habits. It’s like many other things – if what you did before didn’t work, it probably won’t work in the future. Because what we are today financially is a reflection of our past financial habits and priorities.

So, back to the question: are you what your record says you are? I say we are, but by learning and applying knowledge going forward, we can succeed and get a great, winning record so to speak.

My Questions for You:

What do you think of the notion that you are what your record says you are?

Why do you think some people have a disconnect between their past behavior, and their perceptions of their financial aptitude?

Do you agree that people can change their circumstances by critically examining past behaviors?

Crazy Money Quotes: Things People Actually Said

Financial Philosophy 18 Responses »

Oct 292012

Sometimes we can get truly great wisdom from others. People with real life experience can share their secrets of success, or their lessons learned from missteps, and we can reap the benefits. Simply keeping our ears open, and truly listening to what they have to say, can be a nice way to help us learn and shape our own decisions.

On the other hand, sometimes we hear things that make us pause, do a double-take, and ask ourselves: “Did I just hear that??”.

I was recently thinking about some of the crazy things people have said to me regarding money over the years. Or, at least I can say that they were things that didn’t quite follow my way of looking at things.

Anyway, here are 6 odd money quotes that I have heard, among many others:

1) “You bought a USED house?”

At one point a few years back, somebody a generation older than me was asking me a few questions about the last home I bought. In the conversation, I made a comment about the work the previous owner had done. At that point, the person with whom I was talking practically turned up his nose, looked at me as if he was grossed out, and said: “you bought a used house?”

Ummm….yeah. I bought a “used” house, otherwise known as an existing home, or even as a previously owned home. That’s quite normal in many parts of the country, actually! This person clearly must view things differently than me, when it comes to the trade-offs involved with homes and school districts.

2) “The best thing about guys are the free dinners you get”

This quote came from a girl back in college. She apparently “liked me”, from what I heard. But that didn’t stop her from telling me a story about someone in her sorority who got asked out a lot. The other girl apparently wrangled quite a few dinners out of different guys. So, the girl I knew told me how she thought that was so cool, and that she should have done more of that. Then she dropped the line that basically said guys are great mostly due to free dinners they buy you.

Hmmm….did she think that would endear me to her? I lost any lukewarm interest at that point. She point blank asked me a few weeks later how I felt about her, and I tried to nicely tell her that I wasn’t interested in dating her. Clearly that wasn’t what she wanted to hear. Just as I didn’t want to hear about how the best thing about guys is that they spend money on you!

3) “If we can’t pay for it all now, we’ll just make more money later and pay for it later”.

This, much like the first quote above, was from a person a generation older than me. She was talking about a big household furnishings purchase, and I commented about how it was quite the cash outlay. She then bristled, and chuckled (nervously and defiantly), before talking about how credit cards were great because you could take your time paying. That way, you could “just make more money later and pay for it later”.

Now, this wasn’t a loan for an affordable home, or education. Heck, it wasn’t even for a car. This was for furnishings that one shouldn’t be financing. The way she said this was as if it was perfectly normal.

4) “Hey, while you’re paying for college, I’m making $7.50 an hour!”.

Yes, this was a guy who was year older than me, who left high school and didn’t go to college. At least, not right away. I saw him a year later, after I was in college and he had been out of high school for a couple of years. He was telling me about how it was great to not take classes, and to be able to be free to make money and have a good time. I told him that college was fun too (very).

That’s when the guy smirked, looked at me as if I was a fool, and told me that while I was paying for more schooling, he was already making money.

Whatever. As long as you’re not taking on excessive loans at an overpriced school for a useless major, you’re likely better off with an education. I’ve written about education and net worth before, so you probably know what I thought of that guy’s comments even then.

5) “I’d rather just stick money in CDs”.

This was a friend of mine who is quite smart, and made a decent salary when younger, but didn’t believe in putting money in the stock market. He just thought it was pure speculation, and that his money was safer in more risk-averse investments. Well, most of us know that over the long-term, the rate of return in stocks exceeds that of putting money in certificates of deposit!

Happily for him, he changed his ways after a number of years, and is now doing very well for himself. But early on, not so much wisdom.

6) “I invested EVERYTHING in the company’s stock, and recommend that you do the same”.

This was a guy who was having a retirement party at work some years ago, at a former employer. He was talking about how spending his whole career with the same organization worked out well for him, and that this could be seen with how it directly impacted his investment success. He was loyal to the company, believed in it, and invested everything he had in it.

Basically, he suggested putting all his eggs in one basket, which doesn’t exactly fit into a good set of investing success tips. Shockingly, he got a standing ovation after making his proud recommendation to put everything into the company stock. I stayed seated, as did another coworker who was shaking her head in disagreement along with me :)

My Questions for You:

Which of these 6 quotes is the most unusual to you?

What crazy money-related comments, or bad financial advice, have you heard over the years?

Time is More Valuable Than Money

Financial Philosophy 26 Responses »

Oct 182012

We all know, on some level, that our time is precious. We don’t live forever – and ultimately, death is a certainty.

If I still have you after that “uplifting” opening, let’s explore this topic a little bit!

I have been giving some thought to all the fun things I would like to do, and many of those I’m actually doing. Or not doing. To that latter point, I also gave some thought to what my reasons have been for not yet getting to some of the dreams I’ve had.

As I examined this, it began to dawn on me that I might be spending a bit too much time on busywork, errands, or just “getting things done”. Not sure how you might be, but I’m one of those people that is always having a running “to do” list in my mind, in terms of daily tasks and projects. I like the feeling of getting things done, and doing things right. It can be anything from buying groceries, fixing something, taking the kids to the library – you name it.

The thing is, there is a cost to much of this. Let’s say I spend a day on such tasks. Well, let’s remove the library thing, because time with kids is of course precious. But running errands, and doing non-value added tasks, takes up our time. And time is valuable, no matter how it is used.

Let’s think about our best years. If we make the argument that our healthiest, best years as adults would be from the ages of 20 to 60, that’s 40 years of prime time for us. Now, I realize some may not like the age 60 cutoff, but let’s go with it for the sake of this exercise.

When you take these 40 years and multiply it by 365 days per year, that’s 14,400 days (we can ignore that leap year technicality). When you think about it, that’s really not a ton of days. If you waste a day, you’re wasting a precious few that we’re granted. The older we get, the more valuable our time ends up being.

Taken another way, if you take those 40 years and multiply that figure by 12 months/year, you’re looking at 480 peak months. If you waste a month of your life on some job that’s not a fit, or taking your free time and not making the most of it, you’ve lost 1/480 of your prime years of life. Gone, never to be seen again! The clock is ticking on having all those great, super fun life experiences on your “bucket list”.

My point to all this is that our time is so much more valuable than we might realize. Further, given that most of my posts are related to money in one way or another, it’s clear that our time is more valuable than money.

We can often make more money, but we can’t make more time. And actually, when we think about the the relationship between the two, there is a time value of money aspect to consider. The more time we have, the more we can allow compounding to do its magic and make us more money!

Bottom line: Time is such a valuable asset. Let’s use it wisely, and make the most of it!

My Questions for You

Do you ever think about how precious our time really is?

Having said that, do you ever let this knowledge slip by you periodically, and waste time on things that aren’t truly important?

What are your thoughts on the idea that time is really much more valuable than money?