The Life You’ve Always Wanted?

August 8, 2010 10 Comments

We all have our ideas of what the “perfect life” would be like but often the images in our mind are a far cry from the reality we are living.  If you were able to travel back in time and ask a younger version of yourself if this is the future they’d choose for themselves, what would their answer be?  Twenty years ago, could you have envisioned the life you have today?  Is it everything you’d imagined or have your dreams evaporated into thin air?

Chances are, the life you are living today is nothing like the life you expected to have.  You sold your ideals for a dollar bill.  Why?  “Because that’s just what adults do.” We have to make a living to pay the bills.  There’s food to buy and television to watch.  How are we supposed to save the world when we’re up to our eyeballs in debt?  The mortgage isn’t going to pay for itself, is it?

“It is what it is.” There’s no time for dreams.  Dreams don’t pay the bills or put food on the table.  Our younger selves didn’t understand what it meant to be adults.  We have obligations now and we’ve built our lives around some idea of what it means to be a “responsible adult” in today’s world.  What we ended up with is a career that steals our time and energy, a mortgage that drains our income and debt from all the Stuff we bought to furnish and decorate our home.  We have many thousands of dollars in Student Loans and a couple of cars to pay for.  Oh yeah, and the credit cards…

It looks like being an adult isn’t all that we’ve been led to believe.  All of our lives we’ve been told that adults are “responsible”, implying that it’s somehow more virtuous to fall in line and follow the leader than it is to follow our youthful ambitions.  The “responsible” thing to do is find a job, get married and have children, buy a house and a couple of cars, then keep your nose to the grindstone until it’s finally time to retire.  When that day does come, we hope that our health will last long enough to enjoy the life of our dreams; the life we’ve been waiting our whole life to live.

And what has it all amounted to?  A garage full of Stuff we never really needed in the first place, kids that seem to resent our very existence unless we’re buying them something, a spouse that we barely seem to know anymore and a huge house we aren’t able to enjoy because we are at the office earning a paycheck to pay the mortgage.

Sure, we have all the Stuff we could ever imagine.  We drive nice cars and wear nice clothes.  Our home is decorated like a magazine cover and on the weekends we are able to relax with a cold beer in the backyard.  On the surface things seem wonderful.  A little deeper though and things don’t look as good anymore.

What are we sacrificing to create this image of the “perfect” life?  Our time, our energy, our sanity?  If the average person starts working fresh out of college at the age of 22 and retires at 67, that’s 45 years of life sold for a dollar bill.  We’re trading our life to fill our garage with junk, for a heap of metal to take us to a job so that we can pay for that same heap of metal.

What if there were a different way?  What if you didn’t have to spend your entire life working?  Would you do it?  If you knew that in 10 years you could be financially able to walk away from your job with enough money to pay for all your expenses, would you have the ambition to make it happen?

There is a way, it is possible!  The only problem – of course there’s a problem – is that to get there, you have to minimize your spending and save.  “But that’s Un-American!” Our entire lives we’ve been told to “get out there and boost the economy.”  After the attacks on September 11 we were told to go shopping as a way to stand up against terrorism.  Does that mean we’re supporting terrorism by saving money?  Of course not!

What I’m talking about isn’t a new concept.  It isn’t impossible.  It’s been done before and it’ll be done again.  And not just by a few outliers but by many thousands of people.  Will you be one of them???

What’s the secret?

Live Frugally: Cut your expenses to the bone.  Anything that doesn’t offer real value to your life is out.  That might mean going without a contracted cell phone, cable television, TiVo or Netflix.  Find alternatives or other ways to occupy your time.  It may seem impossible now but you can live without these things.

Get Out of Debt: You can’t be financially independent when you’re in debt.  Get out, get out, get out! By adopting a frugal lifestyle, the extra money you’re able to save can be applied towards eliminating your debt.  After you’ve saved up enough money to cover six months of living expenses, every penny should be thrown at your debt.

Save: Once you’ve paid off the last of your debt it’s time to save like never before.  It may take you a few years, maybe even ten or 15, to save enough money to become financially independent but that’s better than 45 years!

Invest: This is where the magic is!  With the money you’ve saved, you can invest it into conservative investment vehicles which will pay you interest in fixed intervals over a specific length of time.  If you’ve saved and invested enough, this interest will cover all of your monthly expenses.  Now your money is working for you, not the other way around!

If you’d like to learn more about the process outlined above, I recommend checking out the book Your Money or Your Life by Vicki Robin and Joe Dominguez.

Filed under Book Reviews, Budgeting, Career, Consumerism, Debt, Employment, Family, Freedom, Frugality, Goals, Investing, Lifestyle Engineering, Money, Opportunity, Potential, Preparation, Prioritizing, Retirement, Savings, Spending

Make Your Money Work So You Don’t Have to

May 4, 2009 1 Comment

"Going the Distance?" by red33_11 (I'm back!) @ FlickrThis website is based on the notion of achieving your goals while managing your finances because without the help of money, it is pretty hard to accomplish your goals.  In order to bring us one step closer to realizing our goals we must educate ourselves about the power of money.  Many people are confused when it comes to money.  The terminology is confusing, and the math makes our head spin.  By ignoring finance we are only hurting ourselves.  We need to change our relationship with money.  Money is a tool we use to get what we need and want in life.  Like any tool, it has the power to help us & the power to hurt us.

What if I told you that one day your money could earn more money than you could by working?  Like anything else, it depends entirely upon you and your willingness to make it happen.  A little “sacrifice” today could be the key to unlock a future of freedom to do as you chose, to follow your own path and the opportunity to find happiness in your own way, on your own terms.

When I began working, I knew I should be saving for retirement, and I did.  Every payday I had 10% of my paycheck directed into my 401(k) and I also invested in company stock.  I was doing everything a 20 year old should be doing at that point in my life.  The problem was that I didn’t understand the power of what I was doing.  When I quit my job for a higher paying position at another company, instead of rolling that money over into my new 401(k), I cashed it out to buy a DVD player for the dash of my car.  That was the dumbest financial decision I ever made.

How can money hurt us?  If we don’t properly manage our money, we will spend our entire lives trying to correct the mistakes of yesterday.  I know firsthand how challenging it is to get out of debt.  I spent 3 years of my life playing the credit card game; charging things I didn’t need and couldn’t afford while making the minimum payment until my card was maxed out.  Finally I realized how dangerous it was to my financial future to be playing a game like this.  I finally paid off my last credit card in February. 

Why are credit cards so dangerous?  Aren’t they a way for us to get things now and pay for them little by little so we don’t have to wait?  It isn’t surprising that we view credit cards this way, as a means to get what we can’t afford.  Credit card companies have done a wonderful job of instilling this belief into our culture.  This is how we get caught in the trap of revolving debt.  We have a credit line that is beyond what we can reasonably afford and we use it.

The average outstanding credit card debt for households that have a credit card was $10,679 at the end of 2008.”

What does that mean to you?  If you are the average American with $10,679 in credit card debt at the National Average Annual Percentage Rate (APR) of 13.09% and make the minimum payment of 2% ($213.58 a month) of your balance, it will take you 6 years and 1 month to pay off the balance if you never use the card again.  You will also pay $4,841.29 in interest charges, for a grand total of $15,520.29.

What if you had invested $213.58 a month into an account returning 9% (which is the average market return over any 10 year period)?  Even though the return on your investment is only 9%, after the same 6 years period, you will have $20,291.60.  How is that possible?  The answer is compounding interest, and that is the power of money when it is working in your favor.

What if you continued to invest that $213.58 a month until you were 65?  If you began at the age of 25, in 40 years you would have invested $102,518.40 but your account would be worth more than a million dollars!  What if you had started just 5 years earlier?  You would have $1,589,070.00, more than half a million dollars more with only 5 additional years of saving.  Now, what if you waited to start saving until you turned 30?  You would only have $631,300.  What a difference a little time can make.

It should be clear that each credit card payment you make is another missed saving opportunity.  You are bleeding away potential earnings from interest, and you can see just how large an impact even a small period of time can make on your investments.  Credit cards can be a convenience when used wisely, yet have the potential of slicing the throat of your financial future if used foolishly.

If we change our relationship with money, we can change the outcome of our future.  With money working in our favor instead of against us we can accomplish our goals while managing our finances.  We have the ability to create the life we always dreamt of.  We need to decide what is more important; a glamorous lifestyle today or the lifetime of our dreams.

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To calculate your own savings plan, Bankrate.com has an excellent compounding interest calculator.  It is easy to use and fun to watch your DOLLAR$ multiply

Filed under Investing, Prioritizing, Retirement, Savings

Bad News

May 1, 2009 Leave a Comment

It seems recently that frugality has become the new black.  People are restraining their frivolous tendencies, opting instead to find ways to pinch pennies and begin saving.

"Broken Dreams" by Mr. 7 @ FlickrThere has been a recent decline in consumer spending.  More people are looking for ways to trim their budgets.  Consumers are being more cautious with their money.  It would seem that the ways of gluttonous consumption are of yesteryear.  While it may be true that these changes to consumer habits are taking place, they are not to be permanent alterations to our way of life.  Our desire to spend cannot be detained.

A recent article from MSN Money discusses the spending habits of the average American as a result of the recession.  The article explains that while there have been changes in our spending patterns, these changes are not permanent.  I found this to be an interesting statistic: 

Of those spending less, about 45% said they saw their newfound thrift as temporary and planned to recapture their old lifestyles once the economy improved.”

This is despite the fact that 1/3 of Americans don’t have any savings outside of a retirement plan.  At least we are saving for retirement, right?  The survey found:

A full one-third had not saved anything in the past year for retirement either.”

I guess we aren’t adequately planning for retirement either.  So we aren’t saving outside of a retirement fund, we aren’t saving in a retirement fund, so we must be paying our bills every month.

One in four had paid at least one bill late in the past year”

Guess I was wrong again.  Despite all of these things; no savings, no retirement planning, and our inability to pay our bills on time, once this economy recovers we are going to go back to our spendthrift way of life?  What about our personal economy?  It shouldn’t matter what the economic situation of our country is if you can’t get your household economy in order, and to use that as justification to ignore your financial instabilities is absurd.

In January of this year, the average American was saving negative 0.7%.  Wait…what?  Yes, you read that correctly.  Americans were actually spending more than they earned, which resulted in a negative savings rate.  At that time we found ourselves squarely in the midst of this “economic crisis”, yet we still managed to spend more than we earned.  Is that what we consider “thrift”?

It doesn’t come as any surprise that we have people living in tents.  We have been riding the crest of financial prosperity for far too long.  Little did we realize that that wave would eventually come crashing down against the shore, leaving us high and dry.  Maybe we should have prepared ourselves a little better.  We should have learned our lesson through all of this, but obviously we haven’t.

As American consumers it seems as though we have a complete inability to know when enough is enough.  We don’t know how to say no.  We behave like starving beasts, never able to satiate our desire for more, more, more.  I had hopes that this would be our opportunity to find our priorities in life, to focus on what matters in life but it seems I was being a bit too optimistic in my vision.  I guess that won’t happen until they take away something Americans really care about, maybe our television.

Filed under Economy, Frugality, Rants, Retirement, Savings

My Dumbest Financial Decision

April 29, 2009 4 Comments

the-far-side-comicI’ll be honest, I’ve made some poor money decisions in my life.  I’ve found myself drowning in credit card debt, financed a depreciating asset, and have even had to resort to paying my rent with the “help” of payday lenders.  Obviously I’ve made some stupid choices regarding my money.  Despite all of these mistakes, none of them compare (in my mind) to the dumbest financial decision I’ve ever made.

My dumbest financial decision may not have been the most costly choice I’ve made regarding money.  No doubt I’ve wasted more money with my credit cards through my inflated spending, interest charges, late fees and penalties.  What was my dumbest financial decision ever?

The dumbest financial choice I have made is cashing out my 401(k) after leaving a former employer and purchasing a touchscreen DVD player for the dash of my car.  Why do I feel that this is my worst financial decision? 

By cashing in my account I sacrificed 3 1/2 years of saving.  Now that I am beginning to understand more about finances and compounding interest I realize that my decision has robbed me of any potential future growth on my money through the loss of that time.

Not only do I regret a missed opportunity, saving money is hard and takes effort.  I sacrificed all of my efforts throughout the years by cashing out the account.  Making up for that lost money is impossible.  I can save more money, but I can never replace that lost cash.

I gave a lot of money away by cashing out.  I had to pay taxes on my withdrawal as well as a 10% penalty for cashing out early.  That adds up to a significant portion of the entire account balance.  This is money that could have been earning interest.  Instead I gave it away to Uncle Sam.

Not only was cashing out the account dumb because of the financial implications but also because I bought a touchscreen DVD player for my car.  There was a point in time when I concerned myself with material possessions, and this is one of the things I purchased. 

To make matters worse, I have not used the DVD capabilities because it is illegal to use while driving.  In order for the player to operate I have to be parked with the emergency brake engaged.  How often do you find yourself sitting in your car long enough to watch a movie?  Me either.  This wasn’t something that was disclosed to me at the time of purchase by the salesman, nor something I would have even considered.  I was blinded by the bells and whistles of the new gadget.  I would have been better off sticking with the factory installed CD player since I am completely unable to utilize the options available on my fancy DVD player. 

Now that I am once again faced with the decision of where to put my 401(k) account, I know exactly what not to do, and won’t make the same dumb decision twice.

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Please visit the ”Carnival of Everything Money” which features links to numerous personal finance blogs about frugal living, money management, debt & investing, including this site!!!

Filed under Life, Money, Retirement, Savings

My Personal Rate of Return- A Dose of Reality

April 10, 2009 Leave a Comment

I will admit that I have been trying to avoid looking at my 401(k) account statement for 2008.  I knew it wasn’t going to be good and I wanted to spare myself the frustration of knowing that every single dime I stuck away into savings for the entire year was now history.  I finally broke down to see just what the damage was.  My retirement savings decreased by 42%.  That hurts.  All the money that I contributed, plus what my employer contributed as well as all of my dividends for the year…gone.

"The Economic Crisis" by Melophoto @ FlickrMy income, while not minimum wage, is not substantial. I could have used all of those thousands of dollars I lost for countless other things, such as paying off my car or building my emergency fund.  Instead I did my best to think about my long term needs and tried to prepare for those.  It is hard not to be incredibly frustrated and have a feeling that I wasted thousands of dollars and a years worth of time having made absolutely no progress but rather ending up in a worse position than I had been a year earlier.

I’m already off to a bad start for this year as well, down over 7% since the beginning of January.  With the news that my employer will be eliminating company contributions at the end of the month it makes me question whether or not I should be pissing my money away into this Black Hole or use it for more pressing financial needs such as preparing for my relocation or paying off my car loan.  I also have some expenses I need to save for which are fast approaching.  Having that extra money every week would help out tremendously.

Even though the temptation to discontinue my retirement contributions is incredibly strong, for now I will continue to contribute.  Although my account balance is depressing and there doesn’t seem to be any hope for better times in the near future, the reality of the situation is that stocks are on sale right now.

When I started my 401(k) contributions, I funnelled my money into the riskiest types of funds available (International & Small-Cap Growth Funds) because I knew that the risk would be worth the reward.  Now that I have found myself in a “worst-case scenario” my emotions are telling me to cut my losses and put everything in cash, but my mind is telling me to keep buying while things are cheap.  I am battling an internal tug of war.

I know I am not the only one in this situation and I have two distinct advantages over people who are nearing retirement.  The first is that my 42% is not their 42%.  Percentages are deceiving.  42% is a large amount of money to lose but it is different when you are losing 3 years of savings versus 40 years.  I am very thankful that this economic situation took place while I am still able to fully recover my losses, which brings me to my next advantage; time.  I am still young and have many years before I will retire.  I can weather this storm.  People who thought they would be able to retire within a couple of years time may no longer be able to pursue that plan.  I have time on my side that some people don’t.

The reality is that this economic situation has affected us all.  The only thing any of us can do is make sure that we are doing what is best for our situations and our goals.  We have learned our lessons the hard way and now we understand the importance of such exciting financial topics as diversification and risk-tolerance.  We can only hope for better times.  In the meantime, figure out what you need to be doing to make the best of this mess.

Filed under Economy, Investing, Money, Retirement, Savings

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