The topic for this month is about Saving. Now that you are using your monthly budget and have paid down your debt, if not paid it off, then saving is your next step and deciding what to do with your savings.
You may ask why I did not start saving before the goals and debt topics and I want to explain why. Say you are paying 15% or more interest monthly on high credit card debt but your monthly savings is only receiving a 4% rate of return are you really coming out ahead? The answer to this will be covered later on this month.
How do you determine how much to save? There are a lot of theories and calculators that you could use but I personally use the 10-10-80 plan. There are many other plans available but this one works for me. Just like I found the one that works for me you will need to find the one that works for you. We will examine my plan and a few more before the end of the month.
While you are waiting on the next insatllment in this series check out ways you are interested in utlizing the money you have or will save. We will be discussing the following....
- Savings Accounts
- 401K and other company deferral options
- IRA - Traditional and Roth
- Stocks, Bonds, and other securities investments
- Real Estate
This month will have a lot of information posted under comments to this post for you to review so check back often!
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10-10-80 Financial Plan
This is the plan that I use. You may have heard of it before. Here is how it works and it is very simple. From all the income and/or every paycheck you receive, you give 10% to God (church - charity) 10% to yourself (savings) and the leftover 80% goes to your bills and living costs.
In the beginning this may be hard especially if you have a lot of debt. But as you decrease your debt it will become very easy to do.
Years ago when I started a home online business I learned about the power of paying yourself first. It is a powerful goal if you can do it. I was part of a group that own this online business and we had to read all these financial books to change the way we thought about our finances.
This little inexpensive book changed so much in how I dealt with money. It is
The Richest Man Who Ever Lived
King Solomon's Secrets to Success, Wealth, and Happiness
Many years later sitting in my church my Pastor Corey Brooks is teaching the same principle to our congregation. This year the book he used is
Taking Care of Business
Establishing A Financial Legacy
Check out these books they can be life changing.
What is the most important thing to pay during a recession? YOU ARE the most important bill to pay during a recession.
I was recently asked how do you save during a recession. The answer is the same regardless of the state of the economy - you pay yourself first automatically. Now, that question was surrounded by ancillary items such as buying a suit that is on sale or taking an unexpected trip. Sounds like another issue to me - one I will attack later. But for now let's stick to saving and recession.
So what is a recession? It is technically defined as a decrease in the consumption of goods and services for two consecutive quarters as defined by the Gross Domestic Product (GDP). So all of the cars, televisions, trips we personally consume and the inventory businesses purchase are incorporated into the GDP. All are on the downslide.
So does anyone really care about it's definition? You care about how does a recession feel to you, right? Emotionally, there is concern about job loss and the impact to families. Physically, there is plenty of sacrifice coming. Financially, those dollars have to stretch. A recession for a single person is much, much different than a recession for a family of 5. A recession for a home owner is drastically different than that of a renter. A business owner faces a whole other set of worries and drama.
It is time to assess your personal recession. But in all recessions (yours, mine, my friend that provided inspiration for this piece), two things are key - pay yourself first automatically and cash is king; credit cards are mere peasants.
Pay yourself first automatically - this is an extremely important concept. Automatic withdrawals from your paycheck or checking account on a weekly, monthly or quarterly basis is the most disciplined and consistent way to start a savings program. Choose a bank money market fund (interest rates suck, but hey, something is better than nothing) or a money market mutual fund and start with whatever you can afford. If it's $50 a month, that is fine...just do it! Once you start, you won't even miss the funds...I promise. We blow $50 a month on absolutely nothing. Starting this savings program is even more important during a recession as we all need that emergency fund (6-9 months of fixed expenses) just in case that pink slip is on your chair tomorrow. Everyone that receives a tax refund has an opportunity to jump start that emergency fund in 2009. Get with it people!
Cash is king - let the credit cards go. Spend only what you have. Lose the dead debt. How many ways can I say it??? If you are drowning in credit card debt or if you are only treading the credit card pool right now, find a way to kill that debt. That means you may not be able to buy that suit that is on sale this month or maybe you have to plan 3 months in advance for that "unexpected" trip (girl, you knew you wanted to take that trip). SACRIFICE my good people. Cutting back is the name of the game for now. Living within your means really means that, because times are volatile and we are not sure what tomorrow holds or the impact to our emotional, physical and financial lives. Yes, delayed gratification is necessary sometimes.
We are in a recession - haven't you heard?
This post is on what to do with your money once you start saving. What type of account should you open and other things you should consider.
First thing that you should know is that all bank products are not insured by FDIC. Click on link below to see what is insured and what is not.
Which Bank Products Are Insured
Fool.com (don't let the name fool you) is an awesome site for financial education. Click on the link below where they discuss the options, pro and con, to various type of accounts.
Where to Park Your Cash
The are two types of IRAs
One is Traditional and the other is a ROTH.
If you decide to do an IRA then it is important that you know the tax element attached to them before you decide on which one you want to do.
The IRS has a Publication 590 that explains the difference and just about anything else you need to know before you open one. Click on the link below to take you to the IRS website.
Publication 590
401K and other company deferrals options (SIMPLE Plans are covered in Publication 590 - see link above)
Here are three more publications for you. You may be asking why so many publications and information from the IRS it is because you should know the tax benefits and consequences before you make a decision on how to handle your savings. You do not want to have all your savings ate up on tax or even loss so the more you know the better your decision can be.
Publication 571 for 403B
Publication 575 for Pensions and Annuity
401K IRS Resource Guide-Plan Overview
Now here is a link to information on once you decide what you want to open.
Saving and Investing
*Remember to always consult your tax advisor or the IRS or do additional research on how certain subjects apply to your own case.
Okay, now you think you are ready to purchase your first stock. Or you want to know why you aren't making money in one of your retirement accounts.
This post is about Stocks, Bonds, Real Estate and other securities.
The SEC (The Securities and Exchange Commission) is a great place to start. Click on the link below to get to their education page which covers topics and have publications on Investment Choices and Taking Stock.
SEC Education Page on Investments
This is a site that I love for investment research and tools.
Morningstar
Don't have a lot of money but want to start buying stock check out these two brokers. Or can afford to buy a whole lot of a stock but want to start with a fractional share. Here are two online brokerage services.
Sharebuilder
Buy and Hold
There are plenty of great online brokerage services and you may even want to hire a broker to do your trading for you. Just do a research on the internet and remember to check out the fees and services and compare them to make sure you getting the most for your dollar.
Additionally, check out these books Essential Finance by Marc Robinson
Online Investing
Investing Basics
Choosing the Right Stocks
They are a quick read and very small but informational packed books.
For investing in real estate check out the link below from the National Association of Realtors Education Page.
Realtor.Org Education Page
Remember be smart and educate yourself first!
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