Wednesday, March 5, 2008

Lights...Camera...Money Saving Action!

There's something special about movies. Whether it's a comedy you can relate some awkward moments too, a sci-fi or action adventure movie to escape to another world in, or maybe a drama to get the ol' waterworks going, movies are a great way to unwind, relax, and have some fun. The problem though, is to go out to a theater, you need to either get a second job or perhaps get a third mortgage on the house. A family of four could easily spend $80-$100 for a night at the movies...between tickets, popcorn, candy and drinks.

There is always the home rental end, which while it lacks the "energy" of being in a theater with a crowd, has many benefits. No talking moviegoers, no one kicking the back of your chair, and no stepping on something on the floor you're afraid to look at. Plus, you won't miss anything if you have to head to the toxic wasteland of movie theater restrooms. But, it can get expensive as well, though it is cheap, compared to going to the theater. Our local video store charges about $5 a rental, but you do get to keep it for 5 days, so it comes out to about a buck a day, but still, there has to be a way to save more money. Below, you'll find several options on enjoying the movie experience, while keeping your wallet happy.

The two biggest movie by mail are Netflix and BlockBuster. Both offer plans that allow you to create an online list of movies you want to watch (they also have tv series on DVD), and as those titles are available, they will send you the dvd. there is no late fees or cost for returning...both companies include a postage paid return envelope when you are done. When the movie is returned, they send another one on your list, up to the monthly maximum your plan allows. Netflix has a plan starting at $4.99 a month, but it is only one dvd at a time, with a monthly maximum of 2 dvd's. You also get 2 hours worth of movie watching you can watch on your home computer. They have other plans,where you can get up to 4 dvd's at one time, and have unlimited viewing of movies on your pc. Blockbuster has a plan starting at $3.99, with one dvd out at a time, with a limit of 2 dvd's a month. Other plans allow for more dvd's out at a time, with the benefit of in-store exchanges. Some of the in store exchange plans limit you to a set limit each month, while others allow unlimited exchanges. Just figure out how many movies you watch a month on average, and figure out which plan suits you best. The only real downfalls to the plans are that you get your selections in random you may be in the mood for a comedy, but what you got was a romance. Still, if you watch a lot of movies, it's a great deal to maximize your monthly entertainment allowance.

Next you have Red Box and The New Release. Both are dvd vending machines you can find at your local grocery store, like Wal-Mart or Kroger. Basically, you pick what you want from the touch screen display, then all you do is swipe your debit or credit card, and it dispenses the movie for you. Just return it to the machine whenever. At a cost of only $1 a day, it's hard to beat, especially if you remember to return it the next day. No late fees, and your card doesn't get debited or charged until the movie is returned. This is what my wife and I use the most, as we can choose what we want, and not get a selection by random. However, keep the dvd too long, and they will charge you as a purchase.

One way to catch some movies, without spending a lot of money, is to check out your local pawn shops or hobby stores. Our local ones take movies in on trade or loan, and then they can be bought for a dollar or two, sometimes a little more. Also, our chain rental store sells excess copies after the new release stampede wears off, and you can get a decent used copy for less than what it cost to rent it This way you can build your own library at home, without spending more than you would have rented that same title for.

Finally, check out your local library. Ours has a large selection of classic and new release movies for kids, teens, and adults...spanning every genre. And the best part is, no rental fee (other than our taxes, which we have to pay anyway), and we get to keep the movie for a week. I find this a great place to check out a movie that may be kind of cheesy, and not worry about whether or not I'm getting my money's worth.

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Wednesday, February 27, 2008

Let's talk life insurance

Another one of those topics people do not like to talk about, much like the need for a will . For some reason, we just don't like to think of our own mortality...even though it is guaranteed. Whether from old age, or an accident at a young age, it WILL happen, and we need to prepare for it - especially if we have any family or loved ones. Part of this is some form of life insurance.

There are two basic types of life insurance, term and whole. There are other types, but for the most part, they are similar to whole (also called universal). First we need to define what each is, than we can look at which is best.

Whole is a type of insurance that can build cash value, that you can borrow against (and if you cancel the policy, what you get refunded). It is often promoted as an investment or retirement vehicle, as the amount of money you put into it grows. Sounds good, right? Not so can you be sure you know what the rate of return on them is, and never mind the high commission fees and costs of the "investment". Not to mention, often the commissions paid can eat up the first year or two's premiums (in other words, the money you pay every month for a year or two goes to pay the agent their commission, not in building any value in your policy). They're right when they say it is a retirement account...but whose? Yours or the insurance agent's?

Term is a type of insurance that only pays upon the death of the insured. It is usually set for a distinct period of time (hence the "term"), which can range from a few months to 20-30 years. The premiums are set (the younger and healthier you are when you start, the cheaper it is). You build no cash value to borrow against, but the premium savings are astronomical.

Here is an example I found from Smart Money :

To get a real sense of the value of term, let's compare a term policy and a universal life policy. Say a 40-year-old nonsmoking male has a choice between a $250,000 Met Life universal policy with a $3,000 annual premium and a same amount of renewable term coverage with a 20-year fixed premium of $350. At the end of one year, the universal policy, assuming it paid 5.7% per year, tax-deferred, would have a cash value of exactly zero (cash value is the amount you would get back if you canceled the policy). But say he had instead invested $2,650 (the difference between $3,000 and $350) in a no-load mutual fund that averaged a total return of 10% annually. At the end of the first year, he'd have $2,841, accounting for taxes on the earnings at a 28% rate. At the end of 10 years, he would have accumulated more than $46,000 in after-tax savings in the mutual fund. Over the same period, the cash value of the policy would have climbed only to $31,819.

See that? That right the end. The difference is almost $14,000, in ten years! That number will only get bigger with each passing year, due to our best friend compounding interest! Why would you let someone else get that money that you worked so hard for, by paying high commissions and fees, when that money can work to make YOU more money?

Now what about when the term runs out, then what? Okay, so it runs out...if you planned correctly, and saved and invested, you should be fine. Over the 20, 30 or even 40 years, you have (or should have) been developing a nice retirement account. Life insurance is there to provide a cushion in the early years, mainly your working years. It is there to replace your income, in the event you pass away, and your family needs to continue to be provided for. A good rule of thumb is to get a term amount of ten times you annual salary. Say you make $50,000 a year, get $500,000. If you or your spouse dies, the interest you would receive off the payout would be close to the salary that partner made while alive. While nothing will replace the loss of a loved one, knowing the income level won't change much is one less thing the family needs to worry about. By the time of term ending though, with a properly funded retirement account, an income won't need to be replaced...the retirement funds should already be providing the income, so when one partner dies, the income won't disappear, because the income is no longer dependent on the work of the person who is gone, but it comes from the investments.

So, when considering insurance, first know, you NEED it. Then choose the best vehicle...namely term. Then with the difference you save between term and whole/universal insurance, invest that money, along with your other investment strategies, and prepare for when the term runs out. You'll be able to save more money, and make more money, when it is all said and done.

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Wednesday, February 20, 2008

It's all about the Benjamin's, Baby!!

That's's a all about the Benjamin's...Benjamin Franklin, that is. Ben was pretty smart in his own right, and had many thoughts - often humorous - on a host of issues. Money was no exception. Check out some select quotes and thoughts from Ol' Ben, and you'll soon realize why he is on the $100 bill.

A penny saved is a penny earned. Any money saved, is money earned...but Ol' Ben was on the right track.

Beware of little expenses. A small leak will sink a great ship. Things like that coffee latte, cable tv, eating out for lunch, that new pair of shoes, etc...these are little expenses. The great ship is your financial life and freedom.

Buy what thou hast no need of and ere long thou shalt sell thy necessities. Keep buying stuff you do not NEED, when you do not have the cash in hand to buy it, after all other necessary expenses are met, and you'll be selling that stuff to make ends meet...either voluntarily, or at a sheriff's sale.

By failing to prepare, you are preparing to fail. This applies in all areas of life, but if you don't plan on how to make your money work for having a budget, and "pre-spending it" through the will fail at being debt free, and financially free.

Content makes poor men rich; discontent makes rich men poor. Being content with what you have is the key...whether rich or poor. Desiring bigger and better things, is not bad in is when you want it so bad, you get those things when you can't truly afford them. Putting them on a loan doesn't count. This is why so many are in debt...they are not content with what they have now, and can't wait to save to buy what they want.

Creditors have better memories than debtors. Do I need to say more? Well, a little bit. Very true words, but when you do pay off a debt, keep a record of it. How long do you keep it? FOREVER!! Sometimes creditors have memories of things that haven't happen. Not to mention they forget sometimes, too.

He that can have patience can have what he will. PATIENCE...the key to saving and building wealth. If you can wait to save up the money to buy something, you can pretty much have what you want, without going into debt.

If you know how to spend less than you get, you have the philosopher's stone. Can't say it any better than that...spend less than you make, and you'll never be broke or in debt.

It is the eye of other people that ruin us. If I were blind I would want, neither fine clothes, fine houses or fine furniture. Keeping up with the Jones'...take a second to evaluate where you are in life right now, financially speaking. How much of your "stuff" and debt stem from things you bought, in order to impress other people. Be honest with yourself. I was, and I realized just how much I was letting what I thought other people would think of me, dictate what I bought. Funny thing is, most people are busy enough with their own lives, what you thought they were thinking about you, they weren't thinking, because they were worried about what other people were thinking about them. Ok, there is to much thinking going on right head hurts.

Our necessities never equal our wants. The "wants" will keep you wanting, financially speaking.

Remember that credit is money. Just very expensive money, and money in the lender's pocket. Don't look at it as a way to get something now, and pay for it later. Look at credit as a more expensive way of buying things. Think about the interest, and how much extra you are paying over the term of paying off that item. Either way you are paying cash for it...either upfront for the actual cost, or long-term, to the lender...with interest.

The Constitution only guarantees the American people the right to pursue happiness. You have to catch it yourself.
Not to get too political here, but I think this is a key point. many people here in the US have an entitlement mentality. They feel they "deserve" something, for which they have not worked. They think because they want it, they should have it...NOW! Sorry, folks, but we are not guaranteed happiness in any form...just the freedom to pursue it. Whether we catch it or not, is up to us.

The definition of insanity is doing the same thing over and over and expecting different results.
Keep living the way you live, keep getting what you've got. Eat bad food, get bad health. Spend money foolishly, get in debt. If you do not like where you are in life, whether it is money, work, or anything else, it is up to YOU to one else can do it for you. Complaining about it, or blaming other people for you problems will not solve your situation. Only you, can improve your life. Make a change...even a small one.

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Friday, February 15, 2008

The power of saving and discipline

I wanted to share two motivational stories today. I often hear that it is too hard to save, or that wealthy people get the breaks or are lucky. Some people tell me that no matter how hard they work, they can't seem to get ahead (while they are sipping a latte, as they get into the brand new fleeced...I mean car they just got. Well, these two stories show what you can accomplish, if you have the right mindset.

Our first one is the story of Adam Shepard. Adam decided to try an experiment after graduating college. He wanted to see if the "American Dream" was still alive. Adam moved to another city, with the clothes on his back, and $25 in his pocket. His goal was to have an apartment, a vehicle and some money in savings, all within 12 months. Part of his experiment included the restrictions of not using and friends or family or previous aquaintances for help, nor did he rely on his college education, as he purposely left it off any job application.

Adam lived in a shelter for over two months. He worked odd jobs, and worked his way into a steady full-time job. Two months before his twelve month deadline, he surpassed his goal...Adam had an apartment, a vehicle he owned, and several thousand dollars in his savings account. Adam showed that by living within your means, and saving, you can get ahead. The key, is living within your means, which means living on less then what you make.

Story two focuses on Lance Roberts, of Houston. Lance is worth several million dollars now, but he was homeless to begin with. He lived out of his pick-up truck for two years, parking behind a fitness gym at night to sleep. Now, he works as a radio talk show host and money manager. His advice is to pay yourself first, and save 40% of your income, and live off 60%. Strong advice, and not easy, but a worthy goal to shoot for. Lance actually lives on less than 40%, and saves 60% (but granted, it's easier to do, when your worth several million dollars). His next piece of advice is to get rid of credit cards...the debtor is slave to the lender. Can I get an amen? Lance also makes a great point, using watches as an example. As much money as he is worth, he says he will never buy a Rolex. Why? Sure, he can afford it, he says, but he doesn't need is a waste of money. A $20 watch tells times just as well as a Rolex. Lance points out, most people, when they make more money, spend it. They buy bigger homes, nicer clothes, and newer,bigger cars. If you live the same way, you'll never make it, but if you keep and maintain a lifestyle within your means, and put that extra money into savings or paying off debt (while not creating more debt), you will get ahead.

So what can learn from these two examples? People who struggle with money, as a rule, are not held down by the government, some evil corporate entity, or a string of bad luck. No, the thing holding people back, is something closer to home...themselves.

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Wednesday, February 13, 2008

Well, which is it?

Today, I was checking out my homepage, which I have set to MSN, and noticed to headlines that really grabbed my attention. Both were under the "money" section. The first, "Why you'll never own a home" is kind of misleading. When you click on the link, the title of the article is actually "Why you MIGHT never own a home"...a bit different from never, but hey, they need a catchy headline, right? The second one,"Whats busting your budget?" focuses on "essential" indulgences. Funny how they don't see the solution to one problem in a published article is staring them right in the face in the next published article.

In a nutshell, the author of the first article claims you'll never own a home, because they are just priced out of reach for the average middle-class family. What the author fails to take into account is, that while prices are artificially high now, they will come back down to what people can afford. It is simple supply and demand...once you have enough homes that are not selling, the prices will keep dropping until they do sell...prices will come back into balance. My whole take on the article was all gloom and doom about how the current young generation will not be able to afford the "American Dream" if everyone will be living in apartments. And how it isn't the fault of people who can't afford the payments. One woman says she fears for her son (who is 29), that he won't be able to buy a home...but he has a nice car and an iPhone. Well, gee, get rid of the car payments and the iPhone, and you could save a nice down payment rather quickly. The article continues on, talking about how the mortgage industry helped push people into more home than they could afford, yet the author never really hits on the LIFESTYLE of the middle-class. The author seems to miss that little...well, actually, BIG...factor in why many people will not be able to buy a home.

But lo and behold, the same author, writes another piece on what is breaking the budgets of the middle class...the "essential" indulgences. These are items that are not necessities, like lattes, designer clothing, new cars, spa treatments, and such. While these things are nice to have, you don't need an iPhone, when the low end free phone you can get with your cell phone contract makes calls just as well. For that matter, you don't NEED a cell phone. Same with satellite and cable tv...they are nice to have, but you won't die without them...but go to a run down trailer park, and you'll be hard pressed to find one residence without a satellite dish. The author hits the nail on the head with this article...the modern standard of what we "need" has changed, and that is what is breaking our budgets. Getting a pedicure may feel great, but getting one every week is not a need. Buying "organic hand wipes" for $10, as the author admits to doing, is crazy, when you can buy a package for about a $1. If people would look at their lifestyle, and get rid of the indulgences they "need", then they would have no problem buying a house. Sure, a 5,000 square foot McMansion may not be what you can afford, but do you need a 5,000 square foot, 5 bedroom, 4 bath house? I didn't think so.

The reason the middle-class is having a hard time living like the middle-class, is because they are trying to live like the high upper-class. If the middle class would learn to stop being so self-indulgent, they would have more money to save and invest, which would allow them to start living like the upper-class, because they will BE the upper-class.

The author has the answer to her own concerns, between the two articles she wrote. So, which is it? Is the housing market outpacing the middle-class, or is the middle-class over-indulging itself? My vote is for the latter.

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Sunday, February 10, 2008

The Slight Edge

Today is a review of a book that covers a concept that will propel you to advancement in whatever you choose to do, if you apply the principles. The book is, "The Slight Edge", by Jeff Olson. Jeff is a successful business owner and mentor in the direct sales industry. His theories are applicable across the board, and know no boundaries, regardless of what the reader does in life.

The slight edge is doing the little things that many people overlook or fail to do, and do them consistently over time. Take two people and have one eat an apple a day, and have the other eat a cheeseburger a day. You probably won't see any difference the first day, or maybe even the first few months, but over time, those small things we do, add up and compound overtime (like interest).

Another way to look at it, is reading a book. The average person, after high school, will read one book a year. What if you read one book a month? What about one book a week (my personal goal)? In a ten year span, who do you think has a slight edge, the person who has read 10 books, or the person who has read 120, or even 520 books? It is that small action, over time, done repeatedly, that will set you above others.

Whether at work, or in your finances, it is easy to set yourself apart from the average. You only have to do a little more than everyone else, and you will soon be far ahead of them. Whether it is doing a little more work for your employer, or saving and extra couple fo dollars a day, and investing them, you will soon be where many people only hope and dream they can be.

From personal experience, I can attest that it works. I have been applying the principles that Jeff has been teaching, for several years now, and I find I consistently excel and see growth in all areas of my life, where I focus on getting the slight edge. Remember, something that is easy to do, is also easy not to do, and many, many people easily choose not to do those small things...therefore it is easy for you, to set yourself apart from the masses.

Get the book, and get the edge!

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Thursday, February 7, 2008

Assets or liabilities?

The key to financial freedom, and true wealth. What do you have? Do you even know the difference? Can something be both at the same time? Is your head starting to hurt from thinking that your about to get a lesson in accounting? Don't worry, it's not that bad.

Simply put, an asset is something that makes you money, while a liability is something that costs you money. That wasn't so bad, now was it?

The problem people have is they have more liabilities than they do assets...if they even have any assets. Sure, if you are a homeowner, you might think of your home as an asset, but rethink probably will appreciate over time, but so do the costs of owning that home. You have taxes, lawn care, repairs, routine upkeep, and on and on. There is quite a bit of expense associated with owning a home. This does not mean I am telling you not to buy a home, as I own one myself, and frankly, we have to pay to live somewhere. I would rather pay for my own place, and have a pretty good chance I'll build some equity, versus renting, where I build equity as well...but for the landlord. This is one of those things that can be both an asset (through appreciation over the years) and a liability (expenses of owning a home). Just remember, that equity is not liquid (unless you sell the home), or you take out a line of credit against it - but then it becomes another liability.

Liabilities will always be a part of our lives...the wealthy and financially free, know how to reduce their liabilities. We have taxes, we have utilities, we have necessities like food, clothing, education, transportation and such. Some of these liabilities we just can not do without. Liabilities like credit cards, satellite tv, and Starbucks we can do without.

Assets on the other hand, will put money in your pocket. They are a vehicle that puts your money to work for you. They can be anything from a profitable business you own, paper investments (stocks, bonds, mutual funds, etc), interest bearing savings, rental real estate properties (I don't consider one's primary residence to be an investment, per se, as it is not liquid, nor is it throwing off cash every month, like a rental would), etc.

True wealth comes, as well as financial freedom, when you have assets throwing off more money than you are spending with liabilities. Let's look at Mike and Joe. Mike works for a very large company as a regional sales rep. He makes over $500,000 a year in commissions. Mike and his family live a very extravagant lifestyle...they have a huge house, the newest luxury cars. They wear the finest clothing and travel to the most luxurious vacation destinations. They also spend more than they earn, and are financing almost all of it. Joe on the other hand, has $500,000 in investments, and is averaging an annual return of 10%, or about $50,000 a year. Joe is also debt free, except for his home, which is nearly paid off. Joe does not live extravagantly, but neither does he live like a pauper. He has two very nice used vehicles, dresses well (but not name brands), and saves to go on vacations. He also saves for things he wants to purchase, instead of financing them. Joe's total yearly liabilities are approximately $30,000 a year (between food and other living expenses, taxes and mortgage, etc). So who is wealthy? Mike, making over $500,000 a year, or Joe, making about $50,000 a year.

Joe is the wealthy one. Why? He does not have to work, because his assets are making more money than he is spending on his liabilities. Wealth is not a dollar amount, it is a state of being. If most of us would stop trying to keep up with the Jones' lifestyle, more of us would be able to surpass the Jones' lifestyle.

Saving money can be hard at first, especially for spenders like me. But it gets easier as you go along. It actually becomes fun. A close friend once told me, "If you do today what other's won't, you'll have tomorrow what others don't". There is wisdom in those words.

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