Financial Posture

I'm relatively certain that the author of Rich Dad/Poor Dad first published this notion, and I found it incredibly useful. Just as posture is an incredibly important aspect of your personal health, your financial posture can be just as important to your financial health. A little bit of slouching here and there can add up to quite a significant amount of lost opportunity later on in life.

So you buy a delicious coffee-drink from Starbucks three times a week at $4 a pop. And sure, your bank isn't located anyplace convenient, so you hit up an ATM twice a week, with the ATM owner's bank charging you $1.50 each time and your own bank accessing a $0.75 charge. It's little, seemingly insignificant purchases like these that add up over time to become huge sums of money. (In this instance, $858 a year, which over ten short years without increase is a surprising $8,580—almost enough to buy a car outright!)

This is just the 'little stuff' that doesn't add up to much. What about those smaller, but still significant purchases made once or twice a month? $20 here, $30 there... I'm not advocating being a penny-pinching miser or even saying it's not alright to splurge once in a while. It's when it becomes a regular habit that we find ourselves in trouble; massively in debt, and wondering where our hard-earned money went.

When one takes the time to master impulse control and evaluates what will truly be a 'good purchase', usually two things immediately result:

First, your purchases will bring more "utility" (which is just a fancy economics term for "satisfaction"). You'll find yourself experiencing less buyers remorse and more true enjoyment from what your wealth has bought you.

Second, you will find yourself with more and more money left over at the end of every month. Before you can be tempted to spend it though, it's important to ask yourself three important questions for your financial-health checkup.

1. Do I have at least 6 months living expenses in savings?
2. Have I contributed at least $50 this month to my IRA?
3. Do I have any credit card debt outstanding?

If the answer to either of the first two is no, I heartily encourage you to put the money away. After all, if you have to make a purchase, why not purchase an asset that will generate more money for you? (A CD, a zero-coupon bond, or even a few shares of a high-dividend-yield stock like Duke Energy or GE are all good examples of money generating assets, although I am advocating nothing specifically.) If the answer to the third question is yes, then, by all means pay down your high interest debt! There is nothing closer to earning a 'guaranteed' return on your money than paying down high-interest debt!


Okay, for the record, just so you know I practice what I preach...

1. I only buy Starbucks when I'm traveling on business; and only because my company only reimburses 'Actual's (as in what we actually spend on food) in lieu of a daily Per Diem (or fixed) rate.
2. I contribute 10% of my income to a 401(k), $100 a month to a Roth IRA, and an additional 10% of my net-check to a high-yield savings account (namely Emigrant Direct) which I use for emergencies.
3. The only credit card debt I have is a 0% offer for furniture. The money used to pay this off currently sits in my Emigrant account, currently earning 2.5% interest.

I know everyone can't afford to do that, but I know I wouldn't have been able to stick to the budget I do if I didn't show some backbone when tempted with the likes of a Venti Caramel Macchiato....with an espresso brownie...damn.

(The problem is, the caramel macchiato and the espresso brownie won't generate any income for me. If anything, they'll cause me to spend more money when I have to go and buy a gym membership after too much splurging.)

Free Suze Orman E-Book

Hello all,

Tonight, watching the Suze Orman show I learned that her recently published Suze Orman's 2009 Action Plan is being offered by free-download from Oprah's website.

http://www.oprah.com/article/oprahshow/20081119_tows_bookdownload

It will only be there until January 15, after which it goes away.

Only from a woman who always puts "People first, then money, then things" could we ever expect such generosity during these unsettling times. Afterward, you can feel free to visit her dedicated website by clicking here.

Suze Orman is a woman who has made it a mission to help people learn to manage money; and address the fears and concerns that prevent them from becoming (or staying) wealthy. She is an inspiration to me, and to other Americans by being an unbiased, honest source of financial information in our varied times of need.

Thank you Suze!

Enjoy!

Get Rich Quick

Okay, perhaps the title of this post is a little misleading. Each and every one of us has heard of at least one 'get rich quick' scheme at one point or another. Some are even making national headlines (such as the recent Madoff Ponzi scheme). It's the epitome of the American Dream; to go to bed poor with a hope and a prayer and wake up in the morning a bona fide millionaire. It's not that it never happens; many individuals have actually experienced this phenomena at one point or another.

The problem is that it's immensely improbable to the everyday American, and what's worse, some people will actually waste their lives away waiting for sudden wealth to fall into their lap, rather than build it steadily over time. Two prime examples of this: family inheritence, and life insurance.

Aside from this, the majority of individuals who do suddenly find themselves with a sizable amount of money also tend to spend a sizable amount of money. How many famous movie stars, music singers, lottery winners, and professional athletes have we heard of going bankrupt and losing their McMansions to the foreclosure courts? It's not that these individuals aren't brilliant at what they do (yes, even the scratchoff player); just that they had never been taught anything on the subject of money-management during their entire academic careers.

It's absolutely outrageous that we live in an age where high schools mandate Health, Parenting, and Physical Education classes, but not Personal Finance. 60% of the population is considered overweight, true, but as of 2004, 74.9 percent of U.S. families had credit cards, and 58 percent of those families carried a balance. (Source: Federal Reserve Bulletin, February 2006). If there is ever a time when something has been proven to be of vital importance to everyday America, it's Personal Finance education.

The reason I care so much is because I was uninformed as a young adult. My parents had, at best, hunches and clues as to how the financial system worked in this country after a lifetime of living in it. The only way I learned was by being thrown headfirst into a bookkeeping position of a retail business where I suddenly needed to learn to read credit card statements, bank statements, invoices, balance sheets, and income statements in order to do my job. At age 18 I was clueless, but by the time I turned 19 I was an expert relative to my peers.

It's something I care deeply about, and something I hope you will too. That way, in the event you do suddenly wake up and find yourself rich, you'll not only be able to handle your newfound wealth, but will be able to have it take care of you and your loved ones for the rest of your days.