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Tools of the Financial Trade: Investing in Real Estate Makes Sense

I’ve said it once, I’ll say it again:  Real estate investment is an incredible financial tool.

Why use the term ‘tool’?  Because a tool can be used to help you do the job you want when you need it.  You might need a little instruction and practice to use it properly and with as little risk or harm to yourself as possible (ever bang your thumb with a hammer?!) but ultimately, a good tool can help leverage your time, effort and money to get a job done more quickly, efficiently and effectively.

And as any artisan or craftsman knows, having the just the right tool for the job can make a huge difference.  But a tool is just a thing.  It takes the energy and know-how of the person using it to make it work and to get the most out of it.  It’s also important to have as many different tools in your toolbox as possible – so that you can pull out just the right one exactly when you need it.

Real Estate Investment is a very versatile financial tool.  It can be used in different ways to accomplish different results.  If you can only carry or learn to use a few tools, it makes sense to pick ones that can be applied in as many situations as possible.

Investing in real estate as a financial strategy makes sense for many different reasons, including:

  • Wealth Building
  • Portfolio Diversification
  • Tax Advantages
  • Appreciation
  • Cash Flow
  • Community & Economy
Over the next few posts, we’ll take a closer look at each of these potential investment objectives and how Real Estate Investment can be used to help achieve them.  
 
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Million Dollar Formula: Anyone Can Make a Million Dollars

I just read an article by Timothy McMahon, editor at Financial Trend Forecaster entitled All it Takes to Make a Million Dollars is Time, Consistency and Rate of Return.

McMahon shares some numbers and data to support this formula and it got me thinking about a pretty exciting reality:  Anyone can be a millionaire.

It’s true.  The tools are available, especially here in opportunity-rich North America, for anyone with a little bit of self-discipline and a willingness to learn.  A-a-a-a-and there’s the rub.  Despite having the key to the Million Dollar Formula, those two little characteristics make all the difference when it comes to WANTING a million dollars versus actually MAKING a million dollars.

Think about it.  We all know that a journey of a thousand miles begins with a single step.  And then another and another, until we finally reach the destination.  We know the destination is there waiting for us even though we can’t see it.  We know that paths are available to get us there, sometimes many different routes. So why do so many of us never actually make it there?

Self-Discipline

It’s been said that ultimately we are the sum of our choices in life.  Nowhere is that more apparent than in our financial picture.  Good habits are the cornerstone of success but to develop them you have to be willing to prioritize and maybe even curb some indulgences along the way.

The ability to delay gratification is a huge struggle for most of us.  But it’s also your most powerful tool when it comes to money, saving and investing.  If CONSISTENCY is one of the keys to the Million Dollar Formula, then having a plan and a system can really help you balance and manage the process, as well as to stay focused on the end goal.  This is especially important when the goal is long-term, like retirement and the benefits can’t be seen or felt immediately.  Make it as easy as possible for yourself to be successful!

Temptation and accessibility are the silent saboteurs when it comes to your money and savings.  Take steps to make it harder to access your funds, like setting up a separate savings account that is NOT linked to your ATM card or locking up your credit cards (carry only one for true emergencies).  Choose to go to the park or beach instead of the mall.  Unsubscribe from magazines and emails with advertising and offers.  Keep pictures to remind yourself of the end-goal and track your progress so you have a visual representation of your success.

Treat your savings like an iron-clad fixed expense and take it off the top of each paycheck no matter when or how often it comes in.  YES, YOU CAN!  Remember, it’s about making choices.  Latte or $1M?  Eat out or $1M?  New car or $1M?  Every single indulgence is a choice you make that adds up and pushes your goal back a little further.  It’s not about doing without; it’s about priorities.  If you want to get to the Million Dollar Destination you have to make it a priority.  How quickly you get there depends on how high a priority you want (or need) to make it.

McMahon shares the math about the effects of Time and Consistency, along with an interesting thought:  “Even if you don’t have a (lump sum) nest egg you can retire a millionaire. Simply by saving $10 per day and investing it at 15% per year you will still reach Millionaire status in 25 years.  Is 25 years too long to save become a Millionaire? The average mortgage is 30 years!  So why are people willing to go in debt for 30 years but not save for 25 years?”

Willingness to Learn

People will often tell themselves that others have more opportunities, more cash, more luck or more whatever so that they can absolve themselves of any and all responsibility for their own success (or failure!) The truth is that we are each in charge of how we handle the people, things and events in our lives.

We are in the Digital Information Age.  There is information readily available on just about every possible topic you can think of, including money, finance and investing.  There are many paths to get to the Million Dollar Destination but not all of them will be right for you.  Taking time to read about different options and benefits will help you make informed decisions and more likely to avoid costly mistakes and setbacks.

Knowledge is power.  Even a child can understand the value of knowledge.  I asked my 13 year old son which he’d rather have:  A million dollars or the ability to make a million dollars.  He explained that, of course, knowing how to make a million would let him do it over and over again.  (But as we all know, knowing and doing are two completely different things – cue self-discipline!)

Are you familiar with the phrase, The rich get richer and the poor get poorer?  Knowledge and discipline really do make all the difference in the world.  McMahon shares this insight:

The Wealthy buy Assets; the Poor buy Liabilities; The Middle Class buy Liabilities believing they are Assets.

Knowing the difference between an asset and a liability is fundamental to building wealth.  Assets earn money and can appreciate in value; liabilities cost you and depreciate.  A rental home has the capacity to provide income and tax benefits AFTER covering its operating expenses, as well as the potential to appreciate in value.  Conversely, that boat you’re eyeing might provide hours of enjoyment and entertainment but it depreciates the minute you purchase and costs you every month for storage, gas, licensing, registration, maintenance and repairs.

As your funds grow, so will the temptation to spend and/or move them around.  It’s important to understand the pros and cons and the ins and outs of what you are invested in so that you can make informed decisions, regardless of whether it’s the stock market, real estate or any other asset class.   Rates of return vary greatly from product to product and every investment carries its own risk and parameters.  Again, there are many possible paths to get to the Million Dollar Destination so you need a basic understanding how they work to decide which is right for you.

Million Dollar Formula

So here it is again, the not-so-secret formula for anyone to make a million dollars:

Time + Consistency + Rate of Return = $1Million

Whether it’s the magic of compound interest or the brilliance of principal reduction, the sooner you start, the longer your funds have to work for you.

You have the Million Dollar Formula ~ The big question now is what are you going to do with it?

BTW, did you know that one of the best graduation or birthday gifts that you can give your kids is a ROTH IRA?  They may not fully appreciate it now but when it helps to pay for their college education or a down payment on a house, rest assured your kids will profusely thank and consider you a financial genius! 

Women & Business: Too Nice to be Successful or Too Successful to be Nice?

I’ve read and heard a lot about women and success lately, most recently in the form of a TED video by Sheryl Sandberg, COO of Facebook.  She talks about the lack of women in business leadership, and suggests that women could be making better headway in the corporate arena if they change some key behaviors and make a concerted effort to get in the game.  I agree, but think it might go even deeper than that.

The statistics are staggering and still pretty pathetic when it comes to the number of women in power and leadership roles, in executive and corporate positions, salary discrepancies and the like.  It’s easy to blame the ‘glass ceiling’ and the ‘old boys club’ but when it comes right down to it, it’s possible that we women might just be resisting our own corporate success.

Women should be shattering that ceiling and crashing those clubs.  In fact, a post on Daily Worth cites a 2010 economic committee report which found that companies with women promoted to senior positions consistently outperform their competition.  It goes on to highlight the proven success in the corporate arena of collaboration, team-building and mentoring, skills that women naturally tend to use and excel at.  We should be leading the C-suite charge and taking the business world by storm.  Instead, we seem to be consistently undermining our own efforts and thwarting our own potential success at every juncture.

Sandberg suggests that women tend to take themselves out of the game when it comes to business advancement and promotion.  She notes some disturbing patterns and trends and then raises some great questions:  Why don’t women pursue goals as actively as their male counterparts?  Why do we tend to defer to spouses when it comes to domestic situations?  Why do women often capitulate or back off in business settings?  Are we being ‘too nice’?

There are probably as many reasons for it as there are women.  After all, success is actually a very personal and subjective term.  Being successful means different things to different people.  However, one common denominator seems to be happiness in some form, and regardless of the amount of money you make or titles you earn or values you uphold, it’s pretty hard to be happy if you think that no one likes you!

Whether they choose to work inside or outside the home, women often seem to get the short end of the judgment stick, and unfortunately, we women are often the worst offenders when it comes to bashing our own.  Have you ever commented on or criticized the ‘soccer moms’ and ‘helicopter moms’ for not being ambitious enough, or the ‘working moms’ for not being involved enough, or complained that the ‘bitchy boss’ needs to get…a life?  Women need to support each other irrespective of priorities and choices instead of perpetuating negative and counterproductive stereotypes.

In business, successful men are typically seen as confident and assertive, whereas successful women are more often than not considered aggressive and cold-hearted.  The stereotype of the ‘Bitchy Boss’ stubbornly persists and can be found all around us – it’s in movies, magazines, photos, story lines, even in our conversations.  So why on earth would any girl or woman ever want to aspire to be ‘successful’ in business if it means being seen as cold and hard, shunned and resented by everyone around her? 

Historically, success in the business world has also represented sacrifice, most often at the expense of family and relationships.  As a woman, it is often considered selfish to actively pursue work-related goals, but ironically, men are seen as ‘go-getters’ and good providers.  Gasp, what kind of woman/mother would ever put her work or self ahead of the needs of her family?!  She might be successful but at what price?

Guilt can a pretty strong motivator, especially when it plays on our existing doubts or insecurities.  I don’t know anyone who doesn’t experience a little self-doubt every now and then.  People tend to put others down to feel good about themselves and to rationalize their own choices.  It takes a very confident and self-assured woman to overcome that kind of guilt, ignore societal prejudice and judgment and feel secure in the knowledge that she is living according to her own values and priorities.   

As Sandberg suggests, maybe women need to be more assertive in pursing promotions, more confident in their abilities and in presenting their ideas, more diligent about sharing domestic responsibilities.  These are positive key behaviors that will serve us well no matter what we choose to do.  Maybe as a society we should judge a little less and accept a little more.

But maybe the apparent lack of progress with women and corporate success is not really about insecurity or refusing to step up to the table.  Maybe it’s a little more complicated than that.  Maybe it’s about rejecting the notion that a powerful, successful business woman must, by definition, also be a bitch.  Maybe it’s about an unwillingness to compromise priorities or to sacrifice family to fit some arbitrary definition of what it means to be successful.  Maybe women DO want it all and are no longer willing to accept less.

Maybe, just maybe, women are collectively rejecting an antiquated industrial corporate model and are refusing to do business in the manner that its always been done.  A recent analysis reports that the number of women-owned businesses has increased by 50% over the last decade and a half.  Company size and revenues have not increased but maybe that’s by choice and design.  Maybe it’s possible that progress via the corporate ladder has slowed because women have embraced the spirit of the Gen-Y Millennials and are actually in the process of redefining success and rewriting the rules to do business on our own terms.

Maybe women are realizing that we can have it all.  It just might look and feel a little different than what our grandmothers, mothers, aunts or even we ever imagined!

One thing is for sure though – it’s a lot easier and faster to succeed if you are the one writing the rules.  We do need strong, confident and capable women in corporate-level and Board positions.  Not to increase statistics or reflect equal representation or even to just show ’em all that women are just as able as men.  Women need to be an integral part of making the decisions and policies that shape the way business can be done and to redefine success.

Author Note:  Check out the TED video by Sheryl Sandberg and share your comments to let us know what you think we can do to help redefine the rules and roles of women leaders.

Pennies & Pounds ~ Making a Big Difference in a Small Way

My Grandad always used to say, “Take care of the pennies and the pounds will take care of themselves.”

He was obviously English and referring to the British monetary system but the concept is clear no matter which currency it’s applied to:   Little amounts saved can add up to a lot.  And that can make a big difference when it comes to meeting not just your financial goals but personal goals as well.

The inspiration for this post actually came in the form of a credit card statement ~ when I realized my interest rate had just TRIPLED for no apparent reason.

I never used to really understand or pay much attention to how the credit industry worked.  I never really felt I needed to because I almost always paid the entire balance during the grace period so I didn’t have to pay interest or late fees or over-limit penalties.  I also never used to ask questions.  I just assumed there was a good reason for the changes, that it was my fault, and that I, a lowly borrower, was powerless to do anything about it.  Remember The Golden Rule?

Well, not anymore.  I’ve taken a keen interest in everything credit-related over the last few years, especially with the Great Recession and as the new federal regulations started coming out.  I began tracking cards and rates, watching every statement like a hawk.  I now review and verify new charges, avoid pre-authorized bank or card charges wherever possible or set email alerts to follow up free trial periods so that I cancel on time if needed.  And I always, always, ALWAYS check the interest rates.  

Twice in the last two months I have noticed rate hikes and successfully called the credit card companies in an effort to get them to lower the interest rate.  Through this process I have learned that most credit accounts are set up on various automated systems.  One involves a periodic, random check that is based on an inquiry into your credit report.  Any kind of change to your credit (new card, job, even an error) can trigger a hike to a predetermined default interest rate, regardless of your past history with that card or company.  The new rate is applied immediately and without notice.

Another automated system involves the payment due date.  In the past, many companies would forgive a payment that posted a day or two after the due date.  Not so anymore.  Additional fees are typically set to apply immediately and are often accompanied by an automatic interest rate hike.  I realized this after making a payment through my bank website instead of the company website.  Because of the weekend, it delayed my payment beyond the due date and triggered an automatic rate hike.

As expected, the first response to both of my calls to request a rate reduction were negative.  It pays to be calm and persistent, though.  Fortunately, I have excellent payment history and was able to use that to my advantage.  After asking for manager review and assistance, I was able to successfully get both rates adjusted back down to their original levels (along with my blood pressure!)

The interest rate reduction was extremely important because I was carrying a balance on both of the cards at the time.  The tripling of the rate meant that my minimum monthly payment would more than DOUBLE from the original amount  and would have resulted in TRIPLE the amount of total interest paid for the year.

Remember, this is happening immediately and without notice.  More importantly, it is happening regardless of actual payment history.  It might have gone unnoticed and unchallenged had I not been in the habit of reviewing and tracking the charges and rates.

Obviously, these hikes would have affected my own overall cash flow.  But, in this global, interconnected world, that isn’t the end of the story.  It could also impact the financial situation and daily lives of several women in developing countries who have benefited from the micro-loans that I’ve been able to contribute to since I was introduced to Kiva, an incredible micro-finance organization.  The few extra dollars that I am able to save in interest can literally mean the difference between a child somewhere being able to attend school or not, or a family’s ability to put food on the table each week.

A few dollars saved here and there may not always seem like much or worth the trouble.  To some, it might even be looked at as penny-pinching or cheap or just plain anal-retentive.  To me, it’s about meeting financial and personal goals, without having to compromise one for the other.  Who knows?  Maybe Grandad was right about the pennies and pounds after all.  In the grand scheme of things, that little bit just might make all the difference in someone’s world.

‘Make Money’ is not a SMART Goal

‎”It is more important to know where you are going than to get there quickly.” ~ Mabel Newcomer

If you don’t have a clear, defined financial goal how are you going to know if you ever reach it?

‘Make Money’ is not a SMART goal (Specific Measurable Attainable Realistic Timely).  How much money?  In what time frame?  With what amount initially invested?  You need to clearly state exactly what it is you want to accomplish.  Then, you can measure and evaluate, and make adjustments as needed to stay on course.

When you want to go somewhere you’ve never been before do you just get in the car, start driving and hope you get there?  Of course not.  You get out a map, look at where you are and where you want to go, and then plan a route that suits you best based on your personal preferences and needs – like taking or avoiding toll roads or highways, visiting certain cities or sites along the way, taking 3 hours to get there versus 6 hours, etc.  If you run into a roadblock or detour or something unexpected comes up then you pull the map back out, make the necessary adjustments and get back on the road.  A plan to meet your financial goals can and should be crafted and maintained in much the same manner.

So what is it that you want your investments to accomplish?  Think both short and long-term.  Do you want to generate income to pay for college tuition?  A wedding?  To replace a spouse’s income so they can stay home with kids or retire early?  To help you retire to a warmer climate or closer to children and grandchildren?

It’s okay to think big; you just have to be prepared to plan and break it down into manageable chunks to make it happen.  You also need to be patient and give the plan time to work.  You can’t make a great chili without letting the spices simmer!  It’s also okay to change your mind and make changes along the way.  You never know what life’s going to throw at you.

One of my biggest pet peeves is that most so-called ‘financial advisors’ don’t seem to actually advise people at all.  They just babble on about risk and safety and then suggest putting money into a company-managed fund (for which they get compensated) and eventually you should ‘make money’, because it’s a ‘balanced’ fund where losers are off-set by winners.

Really?!  I should spend the next 30 years investing my life savings in something I don’t fully understand that might eventually make me some amount of money?  How is that a good plan?  Please don’t tell me that it’s to protect my principal.  If that were the case, it’d be easier and safer to just stick to FDIC-insured CD’s.

Every asset should have a POSITIVE effect:  Generating income, off-setting paper gains/losses, creating tax benefits, preserving or enhancing net worth or otherwise helping me reach my overall personal and financial goals in some way, shape or form.  Personally, I want my assets working as hard as possible!  Every investment should have a specific purpose for being in your portfolio and role to play in working towards your overall goals.  

If you don’t understand why you are invested in a particular product or vehicle, you need to ask questions and do some research.  At the very least you should be able to read and understand your investment account statements.  If your advisor can’t or won’t help, it might be time to find a new advisor.  Remember, no one will care as much about your money as you.

Bottom line, if I’m paying for advice, I want an opinion.  I’m not asking for a guarantee, just an opinion from a knowledgeable professional in that particular field.  I want a summary of information and data used to form that opinion.  I want to know exactly what this particular investment is designed to do for my portfolio and how and when it will help achieve my overall investment goals.

Then I can make an informed decision and make sure I stay on track to accomplish my goal.

The Golden Rule

Maybe you’ve heard of it.  Maybe you’ve experienced it.  Maybe you’re one of the ones teaching the lesson.  Any which way you look at it, the concept is pretty clear:

The Golden Rule of the world of finance ~ Whoever has the Gold makes the Rules.

Money is a pretty complicated thing.   When you don’t have it, your life can be complicated.  When you do have it your life can be complicated.  The big difference in those complications seems to be whether you are following someone else’s rules or making your own.

Right now there are a lot of people at the mercy of rules dictated by institutions and government and others all over the financial industry.  Real estate owners and investors are not the only ones feeling the credit crunch, although they are arguably shouldering the brunt of the on-going mess in both residential and commercial markets.  Barriers such as tightening regulations and newly imposed standards are hurting new purchases.  Lower property values are making it tough to refinance even solid performing properties.  Existing Home Equity Lines of Credit (HELOC’s) are being capped and closed despite perfect payment histories and spotless borrower credit.  They may not tell you this, but even lenders who actually want to renew your investment loans may not be able to because they already have too many of that particular type of loan on their books.

Take a look at the banking and credit card sectors, too.  If you haven’t been monitoring your statements on a regular basis, you really need to pull them out and read carefully.  Your savings rate may have been cut and credit card interest rates could have tripled for no apparent reason.  New monthly and annual fees may now be applied to your accounts and many in-place fees may have jumped up.  Worse, that credit card you haven’t used in a while may have actually been canceled and your account closed at the company’s sole discretion.  Every single one of these situations has happened to me over the past two years.

It’s frustrating.  But unfortunately, when you have structured your life around debt and credit provided by others, you often end up paying the price, literally.  Remember the Golden Rule?  They have the gold so they make the rules.

Sure, you can rant and rave about the injustice of it all but basically if you want or need the cash/credit that they offer, you must accept their terms or go elsewhere.  Credit card companies send you those lovely little notices stating that if you don’t want to accept the new rate you are welcome to cancel the account and simply pay off the balance.  They are banking on the fact that most people won’t be in a position to do so.   Why do you think they send applications to college students as soon as they turn 18?  Because spending habits are formed early and hard to break.  Once you dig that hole, it’s hard to get back out.  And the cycle begins…

So what can we do?  Well, we can start by weaning ourselves off of this dependency on credit as a means to support unsustainable and, in most cases, unnecessary lifestyles.  It’s hard and will take some time and changes but has to be done if you don’t want to be a slave to your debt.

  • Take your financial temperature.  The first step is to really look at your financial situation.  Figure out what income you have coming in and what expenses you have going out each month.  Look at everything – credit card purchases, ATM withdrawals and cash purchases, bank statements.  Click here to request a template to help you get organized.  As ugly or upside down as it may be, that’s your current budget.  Make a list of all your loans, balances, rates, etc.  Don’t panic at the totals.  You have to know where you are before you can look at where you’re going.
  • Live within your means.   If your expense dollars outnumber your income dollars, rest assured you aren’t alone.  But unless you are the US Government and can print more money, you’re going to have to slash those expenses and bring them in line with your income.  Be prepared to make big changes.  Maybe you can save $1000/mo by renting instead of owning your home or eliminate a $400/mo payment entirely by buying a used car.  You don’t have to cut out everything, just prioritize and make sure you are spending on what is truly important to you (read more  Live and Spend without the Guilt).  Remember, this is your financial health we’re talking about.  Would you choose to not reset a broken arm because others might think you look ‘different’ in a cast?
  • Reduce credit card balances.  Start with the highest interest rate and pay as much as you can each month while making minimum payments on everything else.  It’ll take some time but you will begin to see that balance go down more and more each month.  Focus on that great feeling and it will motivate you to keep going.  Rinse and repeat for each card with a balance.
  • Transfer balances.  Call every company you owe and find out if they will review your account history and lower interest rates.  Find out if they will accept a lump sum payment for a discount if you pay the balance now.  If and when you have room on a lower rate card, use it to pay off another card and proactively manage your debt to pay less total interest.  Set email alerts when rate specials end so that you can reevaluate as needed.  Saving on interest is like putting CASH back in your pocket.
  • Bring the list; leave the cards.  Temptation is best dealt with by removing it altogether.  Take a list when you shop and ONLY get those items.  Leave your credit cards at home and use cash.  The less accessible your money is, the less likely you are to spend it.  And for goodness sake, go to the local park for recreation and exercise, not the mall!

We all know that money itself can’t buy happiness (on the contrary, money tends to magnify the real issues in most situations).  But, like any other tool at our disposal, having exactly what you need at hand can make a world of difference in accomplishing our goals.  

These people and institutions only have the power that we give them, though.  That WE GIVE THEM.  Our spending habits are letting these people hold us underwater.  Take back control of your life, your spending, your credit and borrowing power.  Choose to pay and play by your own rules.

Spend (or not!) without the Guilt

Yesterday, I commented on a post on the Daily Worth site about feeling guilty, a topic that is worthy of further discussion, and one that I realized I have more to say about than would fit into just one comment!

Here’s the original comment:

What a great subject to bring up!  Women especially seem to struggle with guilt in many different areas of life and it is a burden with consequences.  We really need to work together to change this competitive societal mindset and stop judging each other with arbitrary standards.  

Being frugal is NOT the same as being miserly.  The important lessons here seem to be smart money management (i.e. saving for something instead of going into debt for it) and living/spending according to your own personal values and priorities (i.e. a purchase designed to enhance quality family time).  

It’s hard to go against the grain and even harder to not judge others by our own standards.  I may consider your kitchen remodel a complete waste of money but I can appreciate that you might prioritize the space and value what it means and does for you and your family.  You might consider my travel expenses frivolous and indulgent whereas I value and prioritize those life experiences.  

Bottom line, a hearty ‘Way to go!’ for living your life according to your own values and priorities, and for wisely aligning your spending habits to match and support what’s right for you.

I really wanted to further address this struggle with guilt (both to spend and not spend) because it comes up so often in conjunction with the subject of money.  I think there are several powerful forces at the root of this very negative and counterproductive emotion.  If we want to get a handle on it, we’re going to have to look it straight in the eye and call it out.

Challenge the Competitive Societal Mindset

Huh?  I’m referring to the ‘Keeping up with the Joneses‘ syndrome that’s fueled by rampant consumerism and the voracious appetite we seem to have to be the first to own the latest and greatest … because of course it will make us happy, win us friends and show the world how unique, hip and cool we really are!

Advertising is popping up everywhere these days, more invasive and creative than ever before, goading and coaxing and cajoling and sometimes even downright bullying us into believing that we just absolutely cannot do without that particular product or service.  Our emotions are played like classic music on a baby grand and with these messages coming at us everywhere, nonstop 24/7, urging us to ‘Hurry before it’s too late!’ and ‘Don’t let the other guy beat you to it!’ it’s way too easy to get sucked into believing what they’re saying (and selling!)

Do we really need all this stuff?  That’s completely up to you.  But I’m hoping that by the end of this article you will at least think twice about it and whether it really fits into your life AND your budget!

Stop Judging by Arbitrary Standards

So who actually said that it takes X to be successful?  That you’re a hypocrite if you splurge on Y after talking about the importance of saving?  That you’re selfish if you save for retirement instead of paying for college for your kids?  Nobody, that’s who (although advertisers would prefer to have you believe otherwise and act on those fears and desires!)

Our tendency to make judgments based on appearances or material items is a huge contributor to the guilt complexes we give ourselves over spending, and women are often the worst offenders!  How many times have you witnessed (or maybe even participated in?) an old-fashioned sewing circle gossip session where the chit-chat consisted of critiquing the ‘Haves’ and the ‘Have-Nots’ of your social-sphere, over so-and-so’s new car/job/ring/house or the fabulous private school where so-and-so sends their kids?  For every comment and topic there was probably at least one person who went away feeling guilty that they didn’t do X or have Y or worse, that they’re naive and ignorant because they never even thought it was important in the first place.  Holy pressure, Batman!

Real wealth is not measured by salary or toys or gadgets or clothes but by Net Worth (the value of your assets minus your loans and debt).  Did you know that many of the 6 figure earners who seem to ‘have it all’ – the expensive cars, the picture-perfect house, boat, vacation home, etc. – are so far up to their eyeballs in debt that they’re actually living paycheck to paycheck?   Yet often these are the people we idolize and think of as ‘successful’.  Now that’s a scary thought!

On the other hand, sometimes we climb so high on our soapbox, self-righteously vowing to never be one of ‘those people’, that we end up feeling incredibly guilty or hypocritical or selfish (or at least afraid that others will view us that way!) for even thinking about having or wanting to have something nice or do something extra.

Awareness is the first step towards change and it begins with us.  Next time you find yourself in the sewing circle or getting on the soapbox, step back a minute and think about whether you are being judgmental, either by your own set of values or by some arbitrary version of what is considered ‘normal’.

Living & Spending According to our own Values and Priorities

Have you ever stopped to think about what is truly important to you?  Seriously.

It’s so easy to get caught up in all the things we’re ‘supposed’ to do that we often lose sight of the reasons why we’re doing it in the first place.  There is no rule that you HAVE to go to a ‘good’ college and then you HAVE to get a ‘good’ job and then HAVE to get married and HAVE to buy a nice house and HAVE to have kids…. you get the picture.

Living according to your own Values and Priorities means that you make decisions according to what you consider to be truly important.  Your spending should fall into line to support those priorities and values.

It’s hard to step off the path and do your own thing.  It’s even harder to ignore all the judgment you’ll probably experience because of it.  Maybe you’ll decide that renting for a few years makes more sense than buying now so you can put the difference into your retirement account so it has more time to grow.    Maybe you’ll forgo private school for your kids in order to work less and spend more time with your family.  Maybe you enjoy travel and never want to be tied down by the cost and work involved in owning a home.  Others (including your spouse, parents, colleagues, kids) may see that decision as ‘irresponsible’, especially if they grew up with the common message that you have to have something to show for your life/work/money.  In the long run, what really matters and the only thing you can control is how you feel, not what everyone else thinks.

Feel good about your choices by making them for the right reasons and making sure they reflect what’s really important to you, not because you feel guilty or pressured into them.  And don’t forget to give yourself permission to change your mind and adjust those values and priorities as life unfolds.  Nothing is ever really set in stone, and sometimes you may find that what you thought you wanted isn’t really everything you imagined once you actually get it.

Smart Money Management

Do you own your possessions or do they own you?  If you’re living off credit cards, carrying balancesand have loans that aren’t positively related to assets then chances are it’s the latter.

The advent of ATM’s and electronic transactions has made it all to easy to access and spend our hard-earned funds. Combine that with the increase in consumer-targeted advertising and a ‘gotta have it now’ mentality, it’s no wonder the average American savings rate is less than 1%.

Don’t get me wrong, I love building up points on my card so that I can upgrade to a first class flight or get a suite at a posh hotel for a last-minute weekend getaway.  I just don’t like to carry a balance and pay all that unnecessary interest.  It could add up to another adventure!

Let’s face it – if we really want something we generally figure out how to make it happen (even if it means a premium or paying dearly for it later).  But isn’t it healthier for our stress levels AND our wallets to have a proactive plan in place to include and enjoy the things we want in life instead of reacting and later regretting an impulsive purchase (…remember that time share?!)

Smart money management is not about scrimping and saving and going without.  It’s about living within your means.  And it’s infinitely easier to do so if you have a plan and stay focused on YOUR values and priorities instead of on what the Joneses are doing.  Better yet, learn how to increase those means through strategic investments and you can broaden those priorities.

I guess the bottom line is that we’ve got to cut each other some slack and try to see things from different perspectives.  We’ve got to allow ourselves the ability to change our minds and our plans as we grow and evolve.  And we have to afford the same courtesy to others so that they can too.

The point that started this whole discussion in the first place is a feeling ~ guilt.  Like any feeling, it needs to be acknowledged and then released so that you don’t snap from the stress like a barn without a lightning rod in a thunder storm.  Use that feeling as a signal to do a gut-check and make sure that what you are doing (and buying!) is really in accordance with your own personal values and priorities.

Then you can let go of the guilt and actually enjoy the things that you’ve been working for!

Getting Started…

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The secret of getting ahead is getting started.  The secret of getting started is breaking your complex overwhelming tasks into small manageable tasks, and then starting on the first one.“ ~ Mark Twain

Welcome!

This quote seemed to be the perfect way to start things off.  Getting started is probably the most important step in just about any task, investing included.  Yet it almost always seems to be the hardest.

This Blog, for instance, has been on the To Do List for months (okay, a year!) but despite the explosive growth in social media and awareness of the power of the internet, the ‘Blog Project’ always got pushed to the back burner.  It actually wasn’t the difficulty of the task that was the problem; it was the scope of the project and time it would take to understand and do it ‘right’.

The world of investing and finance and wealth can be pretty overwhelming, too.  There’s a lot of information to sift through.  There’s the anxiety and dread of making the ‘wrong’ choice.  This is, after all, your hard-earned savings and retirement we’re talking about.

But like most of the challenges we face, once you get started you’ll probably find that it’s not really as bad as you built it up to be in your mind, especially when you have a plan and a solid support team behind you.

In fact, you may even wonder why you didn’t start sooner…!

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Disclaimer

Please note that we are NOT attorneys, certified public accountants, certified financial advisors, registered investment advisors or securities brokers. We do NOT provide legal or financial advice, nor do we make any recommendation or endorsement as to any particular investment, advisor or other service or product, or to any material submitted by third parties or linked to this site. Anything and everything posted, reposted, linked to or shared on this weblog is solely for information and discussion purposes.

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