TMM

All the advice in the world will not help you financially if you do not change your thinking. Our thinking, values, views are all influenced by our subconscious. Our subconscious is being programmed from the time we are babies. We learn from everyone and everything around us as we grow older. My son is currently one and a half, He walks pretty well but he’s still learning stairs. Today I noticed that as I climb the stairs he watches my feet go up the stairs. After taking in my movement he mimics it by struggling up one stair which is mid thigh for him. This is just an example of how we learn early on!

Some time ago I ran out to target for some milk(Target is actually closer than the gas station). As I stood in line with my son I watched in horror as a lady held her daughter who could not have been much older than my son and she swiped her credit card to pay for her merchandise. This is normal you say! Well yes it is. However, the horrific aspect of this event is what happened after she swiped her credit card. The card was declined, without hesitating she grabbed another card from her wallet showed it to her daughter and said “Let’s try this one.” My Jaw dropped, not only for the fact that she was programming bad habits into her daughter before she was two but also because she had no idea what her balances were. This behavior continued for three more cards until one finally cleared.

How than, can we reprogram ourselves? Steve Pavlina has an excellent concept in which you apply yourself on a 30 day trial basis. The premise is: After 30 day’s you’ve developed the action as a habit and it’s hard to break it. I’ve applied this concept to a few goals and I liked the result. At this point if I drive past the exit for my gym I feel as though I forgot something all evening. It’s vexing when I skip the gym for a doctors appointment or if I am not feeling well.

So what are some financial matters we can apply Steve Pavlina’s 30 days to success?

• Morning Coffee – Now, Now before you consider it and start pulling your hair out I’m not talking about removing your morning coffee. I’m talking about reducing and or eliminating that morning stop at Starbucks. Don’t get me wrong, I own Starbucks stock and I want you all to pump it up so I can cash out some day but let’s face it. $2.00 for a regular coffee and $4-5.00 for a bar made coffee ads up over time. I applied Pavlina’s 30 day’s to success and have eliminated my morning stop. Instead I wait an extra 15 minutes until I get to work and brew a pot there. Total savings per week $10.00 for regular coffee.
• Lunch Time – Socialization is an important aspect in the workplace but it can certainly place a dent in your wallet. Instead of going to lunch 5 day’s a week at an average cost of $7.00 per day why not try bringing your lunch for a few day’s per week. I no longer goto lunch every day. Instead I bring my lunch. Bringing my lunch not only saves me money each week on food, it also reduces my fuel consumption because I’m not driving during lunch. I also save in terms of time, My employer is flexible and allows me to have a working lunch. I am into work at 7, and out by 3 which allows me to spend 1 hour in the gym and still be home before rush hour!
• Car Pool – Do you have co workers in your area that you can swap rides with? If two people share a ride to work they can conserve on gas consumption while also helping the environment. Almost every car I see on my morning commute has only 1 person in it. Here in Texas the concept has not really caught on. Imagine however if instead of filling your gas tank once per week you could fill it once every two weeks! At today’s gas prices for a car with decent MPG that could save you $50.00 or more per week.
• Exercise – Although this does not directly translate to finance, its underlying effects certainly do. When you exercise you become healthy, and when you are healthy you frequent the doctors office less. You also have a reduced risk of injury as well as having a tendency to eat healthier. When you are healthy you are more inclined to stray away from unhealthy and often costly habits such as smoking, eating fatty junk food and generally lounging around. Exercising on a routine basis is also a great way to kill an hour. If I find myself bored on a weekend I notice that I tend to eat more. Eating more wastes more money!

Try it for 30 Day’s! Do you have any other suggestions for items in your life that could save you money?

Over the past week I’ve discussed retirement a bit. It’s wise to establish your savings now and continue saving through the years. After all compound interest over 40 or more years can really add up even if the annual contributions are small.

Some readers may find their employer does not offer a 401k fund, or any other for that matter. This certainly holds the disadvantage of not obtaining an employers matching contribution but it certainly doesn’t mean you should not save. According to the IRS “Starting a retirement savings plan can be easier than most people think. What’s more, there are a number of retirement programs that provide tax advantages to both employers and employees.” Here is a brief overview two of the IRA of the account types you can setup if your employer does not offer a retirement fund.

There are several types of IRAs: Traditional IRAs, Roth IRAs, SIMPLE IRAs and SEP IRAs. We will address Traditional and Roth since they can be established by an individual and are not dependent on an employer as is the SEP and SIMPE IRA.

A Traditional IRA can be established by individual taxpayers, who are allowed to contribute 100% of compensation (self-employment income for sole proprietors and partners) up to a set maximum dollar amount. A Traditional IRA is held at a custodian institution such as a bank or brokerage, and may be invested in anything that the custodian allows. The main advantage of a Traditional IRA, compared to a Roth IRA, is that contributions are often tax-deductible. If a taxpayer contributes $4,000 to a traditional IRA and is in the twenty-five percent marginal tax bracket, then a $1,000 benefit ($1,000 reduced tax liability) will be realized for the year.

A Roth IRA can be established by individual taxpayers, and can invest in securities such as stock and mutual funds. In contrast to a traditional IRA, contributions to a Roth IRA are not tax-deductible. Withdrawals are tax-free. An advantage of the Roth IRA over a traditional IRA is that there are fewer withdrawal restrictions and requirements. Transactions inside the Roth IRA account (including capital gains, dividends, and interest) do not incur a current tax liability. Withdrawals are generally tax free when the account has been opened for at least 5 years and the owner’s age is at least 59 ½.

In my last post I discussed free money. It’s interesting that yesterday a conversation started with an employee about to leave the company in search of higher pay. The conversation started and somehow drifted towards the 401k contributions of the company. She had made a statement about setting up her 401k on her first day but never looking at it after that. She was putting in roughly 10% of her salary and had a decent amount of money in her plan. Yet, she was not diversified and her gains here not much better than a mutual fund. This lead into conversation about active trading, research and monitoring. I don’t think it’s right that companies put people on the spot their first day of in processing through Human Resources. I see it time and time again, where people just randomly select funds to allocate their contributions towards and never think twice about it.

I’ve been reading many books lately on stock analysis, investing, and research. This actually makes me different from many people. It’s surprising how many “I don’t know” responses you get to simple financial questions while randomly interviewing people in the streets. Most people don’t want to put the time or the effort into the research. Instead they want to check a few boxes on their first day and forget they are putting 10% away. In a way though, it’s more than others do. After all it is getting people to at least save a percentage of their income. I figure that’s got to be good for something! While most people are complacent in letting it ride I’m not. Here are a few points to help manage your 401k and get you on a track to earning more than 1% above inflation:

* First Things First - Check it! That’s right Log in, realize you have the 401k in the first place and put it in your head. As I stated many people forget they have it. At least they are saving but, they could be doing better. Aside from t hat, what if you are actually losing money? If you never log in to check it, never open the envelopes to check your financial sheets you could be losing money with the funds you selected on that first day.

* Review your contributions - How much are you allocating? Are you allocating under 10%? Can you afford to increase the savings? The more you save now while your in your twenties the more compounding interest you have to grow over time. You may also be contributing less than what your employer would match. Referring back to my free money post from earlier this week it would be wise to put in enough to get the full employer match.

* Do your research - Before you start making changes in allocations you should research the funds first. Many people base their investments off historical data. A word of warning, the fund MAY have had a 10 year historical return of 12%, but It surely is not a guarantee that it will continue. In some of the books I read it is pointed out how some funds advertise certain things, and don’t deliver after they have established the customer base.

* Review your allocations - Where is your money going? My former employer contributed their match to my 401k in the form of company stock. Does anyone recall the Enron incident? Yes, so do I which is exactly why I reallocated all that money into something else. I also set it up so their contributions would be automatically sold every 6 months and transfered into the diversified investments I set up.

* Step it Up - I’m not a financial planner, or investment advisor so it’s important to fully understand what you are doing when investing and understand that you are subject to some loss even if you play your cards carefully. The point of this bullet is in your twenties it doesn’t make sense to have your 401k fund in bonds. You should step it up as you have time to recuperate any loses you may encounter. My personal fund is set up fairly aggressive. As a result of this, last year my 401k gave me a return of 26%. Try getting that with Bonds!

Not everyone in their twenties can command a high salary. We are often cited with reasons such as: “Lack of experience” or called “Entry Level”. Have you realized however, that you can give yourself raises through the company? Many people just throw out free money without realizing it especially us in our twenties.

My last two companies offer a 401k program with a match. At first I paid no attention to the program and I let a few months go by without any contributions or research. I started talking to a co worker who educated me on the 401k and opened my eyes to the fact that if I contribute I would essentially be getting free money from the company. My former employer matched 100% dollar for dollar up to 5% of my salary. Suggest (for calculations sake because I made no where near this) that I made $100,000. If I were to contribute 5% of my salary into the company 401K they would match 5%. Effectively I would be contributing 10% of my salary or $10,000 dollars instead of just $5,000. That’s FREE MONEY! It actually amazes me how many people I talk to that have this offered to them and do not take advantage of the free money involved!

Another area to investigate is tuition reimbursement. Many companies are starting to offer reimbursement for tuition expenses in exchange for a promise of 1 year to the company. I think I can deal with that! My former company covered 100% up to $8,500 per year including books, fees and parking. My current company only offers 2/3 of the amount of tuition. Despite the lower amount It’s still free money if you consider it. Not only are they going to invest in my future but once I finish there is a likelihood that I will receive a bonus and increase in pay! The free money keeps coming in! Many people do not like going to school, or are afraid to go back. I have been working on my masters for 2 years now and I am almost complete. I have to say, It’s not nearly as intimidating as you may think. Furthermore, if your employer is going to pay for it, it’s almost like receiving an extra $5-8,000 tax free. Now if you have the G.I Bill from former military service you can double your tax free money!

The final area I consider free money is conferences and training. For the past 4 years my companies have sent me to Las Vegas for 1 week for conferences. Many times when you add training and Las Vegas you get more of the latter and less of the former. I’ve seen the most down to earth people go crazy when in training and end up destroying their image and that of the company. I’m fairly well grounded and I attend the training, I eat fine food and see some shows. Each year I also make a vacation of it. I attach an extra day or two on my trip and relax, have fun. Since the company is paying for the majority of the trip I take advantage of that. Last year I was sent to Hawaii for a company trip that lasted two weeks. I used the frequent flier miles I had accrued in order to purchase a ticket for my wife! My total cost to enjoy two weeks on the beach (after work of course) with my wife was $25.00 which is what American Airlines charged to book the tickets!

Once you start looking for it there really is a lot of free money out in the world. I estimate that through tuition reimbursement, 401k matching, and company sponsored travel/mini vacations I add an extra 20,000 dollars worth of free money each year. I used to laugh at those infomercials on the television talking about free money and how to get it. But I’m starting to think they are onto something! Do you have any other suggestions on where to obtain free money?

“For the first time, U.S. life expectancy has surpassed 78 years, the government reported Wednesday.” According to an msnbc article I caught while checking the day’s headlines. What does this mean? Well most people would be delighted immediately thinking of the extra time they potentially have. How many consider the financial aspects of this? As we progress with medical science and our life spans grow longer those who have not saved enough money will find themselves in a bad situation towards the latter years of their life.

When you are in your twenties you have all the time in the world; At least that’s what you think! As you brush off savings time creeps up on you! Before you know it you will have a house a family, and bills that come along with all that. Saving will become increasingly harder to get a grip on. As you get older, you have to save more if you are starting from scratch. You’ve heard of the 10% rule which states save 10% of your money and you will be fine. Well, that’s if you start early and continue saving until you retire.

I have been saving for retirement since I turned 22. It’s almost been 3 years now and I think it’s exciting. I’ve saved up a nice pile of money and have learned many things in the process. The part I enjoy most is watching it grow. Small contributions every two weeks make a significant build up over time, then factor in compound interest on gains from my portfolio and things are great. What started me off was the concept of free money. When I took my last job I was filling out initial paper work and I came up to the 401k. I had no idea what it was, so I just opted out. Shortly after I started the job I read up on it, then I discovered my employer was matching dollar for dollar up to 5%. I thought to myself well that’s free money! Ever since I’ve been hooked!

Small contributions add up over time, and the best time to start is now!