Here's the question I get asked most often when people learn that I write about personal finance: "So how can I become rich?"
Here's the answer: "Do what you already know." That's the secret. Your already know everything you need to know to be rich. The problem is, even though you know, you probably aren't going to do it.
Let's be brutally honest. Anyone who is writing about personal finance will be writing about something that you already know (but probably aren't doing) 90% of the time. There will be a small chunk of knowledge here and a new service there that you may not have heard about, but for the most part, personal finance really is straight forward and easy to understand. You don't believe me? Here is the formula to get rich:
1. Start saving early
2. Spend a minimum of 10% less than you make.
3. Invest the money you don't spend.
That's it. No secret formulas or hidden gems. If you want to be rich, it's as simple as that. Of course, there is some tweaking that you have to do. You can't invest in any old thing, but even that isn't difficult to figure out and you already know where you should invest the money (401k with matching funds, Roth IRA and stock index funds being the most obvious - see, you knew that too).
In reality, I shouldn't have a job (and I would gladly look for another one if everyone would do what they already know they should do) helping people with their finances. Somehow I don't think I'll have to worry about changing professions in the future. While it is easy to understand how you become rich and you know what you should be doing to achieve that wealth, it most certainly isn't easy for a lot of people to actually follow what they know they should be doing.
I blame it all on the lottery attitude. If you aren't rich (or aren't moving in that direction), it's simply because you have decided to ignore what you already know in favor of pursuing easy money. The problem is that even though some people do get lucky and win the lottery, the odds are better that you will die from a flesh eating bacteria than you will striking it rich that way. You have decided to go after the quick buck because you aren't willing to put in the work that you know needs to be done. You may think you have a valid reason for this, but it's nothing more than an excuse.
So there you have the secret. Once again you know exactly what you need to do to become wealthy. Odds are that you are like the majority of people, you will once again ignore the obvious and see if there is an easier way, but I'm hoping since you are visiting this site that you are one of those that proves me wrong...
Archive for November, 2006
Here's the question I get asked most often when people learn that I write about personal finance: "So how can I become rich?"
This will not be the typical list of investments you probably would think you'd find on a personal finance blog, but it gets really boring reading personal finance advice when it's the same everywhere that you go. That's not necessarily a bad thing. When doing research on the basics of personal finance, you want to get good, solid information that can help you and this quality information tends to be the same. That being said, sometimes it's nice to hear some financial advice that you haven't considered anyplace else. The following are non-typical investments that I think you should seriously consider for your finances that you probably haven't ever heard of from other personal finance bloggers:
Invest In "Your Name" Domain: There are other people out there with your name. All you have to do is Google "your name" with the quotations marks to see who else out there you share your name with. There are more than a handful of people with the name Jeffrey Strain and the question is, do I really want someone else owning my name? You should ask yourself the same question. Even if you have no plans to build a website or do anything else with a domain at this point, you should still claim your own name. As the Internet becomes a more prevalent place for people to contact one another and socialize, your name will have value both financially and on a personal level. You will want your own name as your space on the world wide web. The cost is only $6 a year. You will thank me 10 years from now for getting it and curse yourself for not doing it if you decide to pass.
Invest In An Exercise Program: The reason that you're working so hard today is so that when you earn enough, you can do all kinds of things that you really want to do in your retirement. The only way that you are going to be able to accomplish this is if you are still healthy and active when you retire. Invest in a basic health and fitness program that suits your style. It doesn't have to be anything fancy, just as long as you commit to it so that you increase your chances that you will still be active and lively when it's time to spend all the money you have worked so hard for. it will also ensure that you have a more financially productive work life increasing your chances of retiring early.
Invest In Something You've Always Wanted To Try: If you've had an inkling to try something for years, but have never gotten around to doing it for whatever reason, commit to invest in it right now. Whether it is learning to play the saxophone or how to fly a plane, invest in it. No matter how it turns out, you won't regret doing so and you'd be surprised how often those things that you have always wanted to do can end up being a career or an additional income earner while doing something that you love.
Invest In Time To Think: With the way the world works, finding time to just sit around and think is something that a lot of people just do not do on a regular basis. Determine to invest in time to think. Having time to mull all the information before you gives you a much better chance of making the correct decisions when they need to be made. If you don't have time to think and consider, your choices won't be as reasoned or as well thought out when made. In addition, invest in some type of recording system of your thoughts and goals - it can be a blog, a journal or just scraps of paper that happen to be around when you think of something. This will keep a record that you can look back on to see how you have progressed and to help you stay on tract toward those goals that you want to achieve.
Invest In Someone Else: Take the experiences and wisdom that you have gathered over the years through your own learning and mistakes and pass those lessons onto someone else. Become a mentor to anyone that wants to learn from you and freely offer to help those seeking help. Take them under your wing and help them become a better person so that they too can mentor another person in the future.
while the above five investments aren't usually considered investments in your finances, all of them will reap a much larger financial benefit for you that any typical stock you may choose. Consider them all seriously and i encourage you to commit to each and every one of them. Your finances will thank you in the future.
Here is a simple question to ask yourself. If you were given the choice of earning an extra $115 a month or painlessly saving $100 a month, which would you choose? While the $115 more a month may appear to be more money, the financially savvy choice would be choosing the $100 in savings. In fact, the correct answer isn't even a close call.
Benjamin Franklin's famous saying "a penny saved is a penny earned" needs to be updated to the reality of today. The problem is that back when he made that statement, there weren't a lot of government agencies and programs claiming their share of your hard earned money. That is not the case today and why saving money is actually about twice as effective as earning money for your bottom line.
When you take into account all the costs associated with earning money, a dollar saved is actually worth $2 earned today. That means every $5 saved is $10 earned and every $100 saved is the same as $200 earned. It also means that saving any amount of money is 100% more efficient than earning that same amount.
What makes saving money so much more valuable than earning it? It comes from the fact that the money you save is from after tax dollars while the money you earn still hasn't had the taxes taken out. When you calculate the federal, state and local taxes your must pay in addition to social security and Medicare deductions, a large portion of every $1 your earn doesn't end up coming home with you. Add on the costs associated with work such as clothing and commuting and it ends up that you get to take home roughly $0.50 out of every $1.00 you earn. The money you save, however, has already had all those expenses taken out.
In addition, you need to take into account that saving money often takes much less time than earning it. Take, for example, the purchase of a new high definition TV. If you went down to your local appliance store on the day you decided to purchase a TV, it is likely that you would come home having paid full retail price. Simply spending an hour or two on the Internet or calling all the stores in your area to see if there were any sales or other discounts available to get the best price on the high definition TV would likely save you $200 or more. In this scenario, that hour on Internet or phone would be the same as earning $400 in you job...that's right, $400. If you make $10 an hour at your job, your hour on the phone was equivalent to working an extra 5 full days on an 8 hour shift. That is the power that taking the time to save can have.
Here is another perspective to consider. What would your answer be if your boss said, "I've been thinking a lot lately. You have been working really hard lately, but you come to work every day with that Starbucks coffee and it distracts everyone. So if you will simply make your own coffee and bring it to work in a thermos instead of buying it each day, I will give you a $2,400 bonus this year." Would you take the offer? You can because the amount you save would be equal to earning an extra $2,400 a year.
When you begin to view money in this light, taking a few hours to plot out ways to save money can result in a much higher return than getting a significant raise at work. If you are able to save $5 a day, you have done the equivalent of receiving a $300 a month raise or a $3,600 a year raise. Anyone can achieve $5 a day in saving with a little effort and with much less time and sweat than you would need to put in at your regular job.
Don't get me wrong. I am no way implying that you should not try to maximize your earnings. In fact, you should be attempting to do both your job and beginning a side business. But just because you're earning more doesn't mean that you should neglect any savings that you can painlessly achieve because those savings are worth twice as much as your earnings.
Looking for a completely new and original way to save money on your utilities? How about a static electricity house?
Courtesy of personal finance video log
I received quite a few emails and private messages regarding the return of AllAdvantage in a updated form under the name AGLOCO (A Global Community). If you were on the Internet in the late 1990s and trying to figure out a way to make some money, you will undoubtedly remember AllAdvantage. They paid people to surf the Internet and went out in flames when they couldn't afford to pay what they promised. While many seem really excited about their return (since they did pay for awhile), I am a bit more cautious with the program (and a little depressed knowing that the forums will soon be filled with spam from this program as people try to recruit others -- I've already had to start deleting it)
The first caution sign is that they are set up under a Multi-Level Marketing (sometimes called Network Marketing) system again. While these make those who get into the programs first money, they have a high failure rate. Some companies that do exist under the MLM system are Herbalife, Avon and Amway.
Basically, you get paid for surfing plus you get paid a portion of the Internet surfing the people that you recruit do down to 5 levels. Since you are limited to only 5 hours of surfing a month on your own, that means that the only way to really make money is to recruit others. When money is primarily made by recruiting people and not by what your are selling (in this case time spent surfing on the Internet), it starts to get difficult to know whether it is legit or a pyramid scheme (another caution).
The way people are drawn in is through the MLM Calculator which show if you recruit 5 people and they each recruit 5 people and so on, you will receive just under 5000 (4886.25) in earnings per month. What those "earnings" actually translate into is still in question (another caution point) since there isn't a set price you're paid (you share the revenue) and since part of the earnings will be paid in stock which doesn't yet have a value. If you have ever done MLM before, you will also know that while recruiting 5 people may sound easy, unless you have a system already in place, it will be extremely difficult to do.
This "paid with stock" seems to have quite a few people excited, but I just want to remind you that a stock that has no value isn't worth the paper it's printed on. Companies also usually pay in stock when they don't have enough money to pay in cash. It sounds similar to the way people were talking during the Internet bubble when everyone wanted a part of the company and this again should lead you to be cautious.
I'm sure that those who are enthusiastic about this will say that I'm being overly cautious and there is nothing to lose in trying. My personal opinion is that this statement is dead wrong. While you won't be losing money since the program is free, you will be losing the time invested in recruiting others. When viewed in this light, I believe that you would be far better off spending your time working on beginning or expanding a part-time business instead of recruiting people for this program.
The third annual "Light to Unite" drive to support AIDS research is currently underway. All you need to do is to go to LightToUnite.org and light a virtual candle. Once done, Bristol-Myers Squibb will donate $1 (up to $100,000) to the National AIDS Fund. There is nothing to sign up for, no catches and no mailing lists - all you need to do is light the candle and make a difference.
With winter upon us, the thought of a warm, crackling fire in the fireplace is probably a quite appealing image to a lot of you. What you probably don't realize is that your fire will cost you a lot more than the price of a couple of logs.
Your fireplace is one of the most inefficient heat sources you can possibly use. Basically, you're sending money straight up the smoke stack. While the perception is that you are only sending up heat generated by the fire, the fire must consume oxygen to produce the heat.
Your nice roaring fire can consume and exhaust more than 20,000 cubic feet of air per hour. All that air being exhausted is replaced by cold air coming into the house. The cold air forces your heating system to work hard to warm it up, which is then sucked up by the fire and exhausted through your chimney again. It's an never ending cycle while the fire is roaring meaning that your heater will be working extra hard and costing you money the whole time.
The most energy efficient decision you can make is to not have fires in your fireplace. If you decide to take this approach, consider plugging and sealing your fireplace flue.
While that is the most efficient approach, it isn't a whole lot of fun. A winter fire is nice to have once in awhile. If you know there will be occasions when you will want to have a fire, there are still some things you can do to make the fire as energy efficient as possible. You'll want to keep your fireplace damper closed at all times except when a fire is going. Accidentally leaving the chimney flue open is like leaving a two foot square window open. You also want to make sure that when the damper is closed, it closes snugly and doesn't leave gaps where air can escape.
Most fireplace dampers are form fitting which prevents air leakage when they are closed. As years pass, however, the damper metal can warp due to the heat from the fires and moisture from the outside. This can cause the seal to loosen which will allow room air to escape up the chimney. Close the damper and light a candle to see if it flickers when placed near the damper seal. If it does, you need to either repair or replace the damper to close the leak.
When you do have a fire going, open the dampers at the bottom of the firebox if your fireplace has them. If not, open the nearest window to the fireplace about an inch and close all the doors to the room. This allows the fire to consume fresh air that hasn't been heated before exiting up the chimney again. You should also lower your thermostat setting to approximately 50°F while the fire is going to make sure your heating system isn't heating air that will soon be leaving up the chimney.
Making sure that your damper is always tightly closed when not using the fireplace and following the above steps when the fireplace is in use can save you hundreds of dollars in energy costs each winter that you probably didn't even know that you were wasting.
If you have a great small business idea that has been floating around in your head and you needed an excuse to write it down and organize it, that time has come.
There is a new contest called "Idea Wins: The Ultimate Challenge" that is searching for the most creative small-business idea in the US. The winner of the contest will receive rent free retail store space in New York for a year plus $100,000 seed money to get the small business going.
All you need to do to enter the contest is submit an application. Submissions will be judged on marketing approach, financial & logistic feasibility, originality and public interest. January 31 is the deadline for submitting the application and the finalists of the contest will be notified on February 9.
This is an excellent opportunity to get any small business idea you have organized and I highly encourage you to apply. The application process will help you think through your idea in more detail which will benefit you even if you don't win the challenge. Go for it and best of luck.
Running your computer is pretty darn cheap when viewed at an hourly rate - approximately $0.02 an hour. This figure was obtained with the following assumptions: The typical desktop computer uses around 200 watts of energy per hour (with a 50% / 50% split of energy consumed between the computer and the display screen). We pay about $0.10 per kilowatt hour for electricity where I live (this varies across the US, so you can put in your actual rate here). From there you simply divide the watts used by 1000 (since electricity is charged at a rate in kilowatts - 1000 watts) multiplied by the rate charged: 200 divided by 1000 = 0.2 x $0.10 = $0.02.
With the cost of using a computer so cheap, many people believe that it isn't worth the time to bother turning it off. When multiplied over time, however, it can add up. That $0.02 an hour comes to $0.48 a day, $3.36 a week, $13.44 a month and $175.20 a year if you leave your computer on 24 hours a day, 7 days a week.
That means if you turn off the computer for half the day while asleep, you have saved $87.50. Add in a few extra hours it will likely stay off on the weekends, and you have reached $100 a year in savings by simply turning off your computer. If you have a small business with 10 computers, making sure they get turned off at night means an extra $1000 to your bottom line (and if you work for a business that rewards employees that submit money saving ideas that get implemented, you could even earn a bit of money by suggesting this).
You may have some other arguments for not turning off the computer like doing so will put extra stress on the computer's internal components. While it is true that there is a slight "stress" each time the power is turned on due to the heating and cooling, this stress is quite small. It can also be argued that it is balanced out by giving the moving parts of the computer like the fan a rest. Turning your computer on and off should not shorten its life.
I've also heard the argument that computers use much more energy starting up so that it makes more sense to leave them running all the time since this will cost less. I haven't been able to find any study that supports this (that you save more money leaving a computer on for 12 hours than turning it off and on again) and it appears to be a urban legend.
Those issues having been addressed, let's be perfectly honest - shutting down your computer can be a real pain. This is especially true if you typically run a number of programs at the same time which all need to be configured with certain documents. It can also be a pain if you leave your computer on at night to run timed tasks such as virus protection updates.
There are also a number of legitimate reasons why you may not be able to shut down your computer at night. If your computer handles network or Internet tasks at all hours (as a de facto server), you can't turn it off. If you participate in web based computing tasks such as searching for intelligent life in outer space then you may not want to turn off your computer.
If this is the case, there is still a step you can take to reduce the cost of running your computer (and if you can turn off your computer, this further reduce your costs). You can do this by placing your computer into sleep mode (there is a misconception by many that screen savers reduce the amount of energy the computer is using. Unfortunately, this is a myth and a computer running a screen saver is using just as much energy as one that is in use). While your savings won't reach $100, it can reduce the cost by as much as $50.
Either way, taking one or both these steps will save you some money with little effort as well as help save resources.