TEN SIMPLE STEPS TO BETTER FINANCIAL HEALTH
- DIAMOND BAR, CA, October 09, 2006 - 1) Buy a financial calculator and study the Time Value of Money. Unless you really understand the relationship between time and money, you will not be equipped with the knowledge necessary to make sound financial decisions. A financial calculator will illustrate these principles in clean, unambiguous terms. Using one will clearly illustrate the actual cost of credit card interest; how paying an additional $50 per month on your mortgage will lower your total payments,, or how much an investment will grow in 10 years if you add $2000 to it each year and expect a 5% return compounded monthly.
It is so easy to earn significantly more on your money if you just make tiny little adjustments in your savings, and a financial calculator will reveal this to you. For example, if you have a bank account paying 2.5%, move some of that money to a CD paying 5%, and you will immediately earn 100% more in interest! If you have a credit card charging 18% interest, transfer your balance to one charging only 7% interest. Sounds simple, right? Then why haven"t you done this? You need to evaluate and modify your financial decision making patterns on a monthly basis, and a financial calculator will help you do this.
2) Make the maximum contributions to your IRA, at the earliest possible age! Do you know that if you contributed $2000 per year into a retirement account between the ages of 18 and 28, and then never invested another penny, your retirement account would grow to almost $1,000,000 by the time you reach 65? Even more remarkable is this: a person who waits until they are 28 years of age before saving $2000 per year, even if they save every year until they are 65, will still not have as much money at retirement as that forward-thinking teenager! This is the Time Value of Money! A single $2000 investment will grow to $1,294,000 in 65 years, assuming that the growth rate averages 10% across those years. The earlier you start saving, the better! But regardless of your age, IRA contributions make sense because they are tax deductible and they grow tax-deferred. If you want to build a substantial nest egg for your future, start making the maximum contributions to an IRA at the earliest possible age, and for everyone, that means right now.
3) Learn how to recognize moneymaking opportunities! For example, think about selling gumballs, or anything else that you can buy for 2 cents and sell for a quarter. Your return on investment is over 1000% per sale! If you can think of any other investment with a better return, are you invested in it? If not, why? There are so many opportunities in our free market society that there is simply no excuse for you to not be making money. Even if you are happily engaged as a full time employee in a company you love, you still owe it to yourself to aggressively seek out opportunities and take action whenever a good one presents itself. This is what capitalism is all about!
4) Spend less than you earn and invest the rest. Everyone can find at least one way to reduce expenses. If you quit 1 or 2 bad habits, you could easily save over $2,000 per year. A single cup of gourmet coffee can cost $3.50. How much could you save per month if you gave up that one habit? And don"t just take the money you save by giving up one non-necessity and blow it on another. Make that money grow for you by through investments and the magic of compounding interest! Albert Einstein once said that "compounding interest" was the greatest discovery of the twentieth century, and yet millions of people never learn to maximize its potential! Use your financial calculator to investigate different ways to make that money grow!
5) Find ways to reduce your taxable income. Make the maximum contribution you can to any 401k, 403b, or KEOGH plan available to you. By diverting your money to tax free retirement accounts, you will reduce your annual income taxes while also building your retirement funds. And if you adjust the number of dependents claimed on your W2, you might actually take home the same amount of pay per month as you did prior to making the deferred contributions. Talk to your employer and/or tax planner about this today, as this is one almost painless strategy for building significant retirement savings.
6) Pay down your credit card balances, and transfer your balances on high interest cards to lower interest cards. Paying off an 18% credit card debt is like giving yourself a risk-free investment, guaranteed to pay you 18% in return. Yet, how many millions of consumers blindly pay the minimum amount due on their high-interest credit cards, month after month, because they feel a sense of "loyalty" to their card company, or because they are just "too busy" to investigate other card offerings? Are you one of these people? If you want to change your spending habits, you must get the momentum going now! Don"t procrastinate. Get on the phone right now and seek out better alternatives to your existing credit lines!
7) If you don"t have a home, buy one NOW. A home mortgage is "good debt," because it allows you to use a relatively small down payment to leverage a significant purchase that will almost certainly appreciate in value over time. Also, there is no way the average person can comfortably retire without owning a home. Since you will always need a place to live, why not buy instead of renting? The purchase of even a modest home will provide an interest write-off on your taxes now, and will afford you luxury of owning your own home without payments after retirement. In addition, it will provide excellent leverage for the appreciation of your capital investment.
8) If you own a home, pay down your home loan as quickly as possible. "Now, wait just one minute!" you say. "You just told me that a mortgage is good debt, so why do I want to pay it off as quickly as I can?" The answer is simple. You want the leverage, but if you can avoid paying long term interest charges for that leverage, you should! For example, if you have a $100,000 loan at 7.5%, pay an additional $50 per month and you will save $37,729 in interest payments and pay off the loan 6 years earlier. If you make one single $2,000 extra payment at the top of the loan you will save $16,592 in interest payments over the life of the loan! If you have no other immediate need for the money, then it makes sense to make that money work for you this way. Invest those savings in high-yield stocks, bonds, or mutual funds to compound the savings even more!
9) Learn to distinguish the difference between wealth building debt, such a home mortgage, and wealth destroying debt, such as credit card bills and auto loans. Seek out the former as though you are digging for gold, and avoid the latter like the plague. Here is a good example that illustrates the point. Imagine that you purchase a new luxury car, and let"s say you financed $29,000 at 10% for 5 years, and your payments were $616 per month.
If you put that same $616 per month into a stock fund earning 10% per year, after 5 years you would have a cash crop of over $50,308, as opposed to "owning" a now 5 year old car worth perhaps $5,000 and having no money left for investment purposes! And how much bigger a house would you be able to purchase if you had that $616 allocated to mortgage payments? The point is that simple decisions like this are what separate those who are financially secure from those living under the heavy burden of debt.
10) Insure your wealth. The biggest threat facing your family is a four-letter word, and that word is loss: loss of life, loss of income, and loss of assets. Loss is such a big threat that many people choose not to think about it at all, and this leaves them even more vulnerable to loss. To protect yourself against loss, or any other threat, you must be able to confront that threat. You must think about and weigh your options before the threat materializes and takes you by surprise. Nobody likes to think about buying insurance, but the reality is that insurance can prevent what should be a manageable loss from becoming a financial disaster. It does cost to insure, but not nearly as much as it costs to recover from a total loss. Insurance is absolutely essential.
The author, Carl Allen Schoner , holds a degree in behavioral science and is a certified clinical hypnotherapist. He has written five books, and his articles and cartoons have appeared in many prestigious publications such as Consulting Magazine, The California Law School Journal, Chess Life Magazine, and The Saturday Evening Post.
For details and contact information, or to preview some of the author"s other books, interested parties are encouraged to visit the following sites:
www.geocities.com/dreampsycles
www.lulu.com/carl-schoner
www.trafford.com/robots/04-0177
09.10.2006 - 9:29 Source: 24-7pressrelease.com | Read: 280 X
