Thursday, July 10, 2008

Thursday Money Tips: Positive Outlook Edition

It's official: I'm bad news-ed out. Every time I read the news, things are worse. The market is free falling, people are getting laid off, oil prices are rising, and everyone is depressed.

Then the corporate cost cutting measures came home this week, as many consultants I work closely with are being cut. I'm lucky right now.

So I think I've had it with bad news. I'm giving up the doomsday criers and money reading for a few days in search of some happiness. It's that or go home and pull the covers over my head for the rest of 2008.

So I only have a single money tip today: get some happy.

I needed to get some happy, so I switched my reading from money news and blogs to one of my better inspirations: Robert Fulghum

Robert Fulghum is a spreader of joy. His book All I Really Need to Know I Learned in Kindergarten led to several similar volumes of essays and stream-of-thought writing. I rarely read or re-read something he's written without both giggling and tearing up.

He knows wonder. He watches the world. People. And he's never lost his child-like sense of wonder. And he manages to give it to others. Like me, who just this morning was smiling on the train about Emily Phipps (Miss) and egging Ms. Moosecker. Don't know what I'm talking about? Uh-Oh, his third book, is marvelous. Read it.

So no money stuff for a couple days. I'm going to go hit the reset button. The markets can melt down without me until Monday.

I'm off to get some more happy. Thanks, Bob.

Monday, July 7, 2008

7 Beliefs That Prevent Wealth

It's interesting, how we humans get when we get ideas in our heads. Even if they are wrong, we sometimes hold on to them pretty tightly. A great example of this is women and weight lifting. More women than I care to count have told me they don't do weights because they don't want to get 'big'. Women simply do not build muscle mass in the same way that men do - they build lean muscle - they get thinner and toned, not manly-looking. Yet even when presented with the facts, many women continue to believe they will bulk up by lifting.

We convince ourselves of stuff. All the time. Some of it's good stuff. Sometimes less so. Some things we tell ourselves can prevent us from being wealthy. Yes, I'm saying that if you tell yourself a story about how you'll never be better off, and believe it, it can actually prevent something good from happening with your finances.

So maybe you tell yourself a different story - one where good things do happen because you save, and you get that house you want or that retirement of your dreams or that trip to Bali....well, stories we tell ourselves can become beliefs. Which become truths.

But first you have to question the story that you've been believing - and telling yourself - all along. Here's seven things that I hear people say that prevent them from getting wealthier.

1. I don't want to appear 'cheap'
I hate the word cheap. Cheap, to me, is stingy, ungenerous, and self-centered. Cheap people invite you to dinner...and ask you to bring the main course.

But frugal is different. Frugal is using one's resources in the way that gives the most benefit. It's putting thought into what really matters, and spending on that, rather than the thing that caught your eye. Frugal people are often generous - with their time, energy, friendship. I might not join you for that expensive dinner out, but I'll sure as heck cook you a great dinner.

People get hung up on appearing cheap, and less successful than they are. The problem with the idea that being more frugal is noticed and commented on by others is that it fails to take into account how self-focused the rest of us are.

I learned this truth when working in the retail industry in my early 20s. We're all too worried about how the outfit looks on us to worry about whether the jeans the woman in the next fitting room is trying on make her look fat. Same thing with spending. The likelihood that someone will notice if you keep your car a few more years and correspondingly think something negative about it? About the same as winning the lottery.

2. My savings will never amount to much
David Bach talks a lot about this in his books - how small savings add up. The reality is, savings grows. And success breeds success. Even if you can only save a little, save. You would be surprised at how fast $100 a month - just $25 a week, adds up. At the end of the year you will have $1200, not including any interest.

3. Everyone has debt
Many people do, that's true. But they don't have to. One of the biggest myths out there is that low interest debt is good to keep, especially if you can make more money in the stock market. But I've talked before about how stock market returns are 'fuzzy math'. Even Wall St. tells us that past performance does not indicate future results. Don't believe me? How are your investments doing this year?

Investing is key to creating wealth. Freeing up more income to invest will help you build wealth faster. That $500 a month car payment is not a good deal. Putting that $500 into an index fund is. Check out to find some good funds.

4. Rich people aren't generous
Really? So Warren Buffett gives less than you? How about Ted Turner giving away 1 billion dollars a few years back. Did you do that last week or last year? Yeah, didn't think so. The reality is that wealthy people give, and in larger percentages than the rest of us.
Interestingly, some research has shown that the more the wealthy give, the more wealthy they become. Maybe that karma thing really does work.,filter.all/pub_detail.asp

5. Rich people are snobs
Yesterday I talked about The Millionaire Next Door. Flip to page 27 and then come back and tell me that 'Mr. Bud' is a snob. Rich people aren't snobs. As a matter of fact, they might be your neighbor that helps you with garden tips. Money in the bank doesn't have to make you different than you are. If you like your life, keep it. As a matter of fact, one of the reasons why lottery winners typically aren't happier is that they give up the things that made them happy (like that weekly potluck with friends) when they receive their money.

6. Wanting to be wealthy (or at least well-off) is shallow
Why do you think this? Is it because you believe the pursuit of money is the root of all evil?
Or is it that the people that you have encountered with high incomes are shallow? Or you believe them to be? Did you grow up with the belief that money makes you less of a good person?

I'll admit, the pursuit of money for it's own sake is pretty superficial. And if you just want money for stuff, and you are into rampant consumerism, then I'm guessing you'll only be happy as long as you have the best of everything - which is impossible unless you are Bill Gates. But what if increasing your net worth allowed you to retire 10 years early and volunteer for a cause important to you? Is that shallow? Think about it.

7. You can only be rich if you inherit money
Actually, The Millionaire Next Door proved this not to be true. The average millionaire is first generation rich.

So if you are ready to change the story you have believed, here's 7 traits of wealthy people. Does that sound like you? Good.

Thursday, July 3, 2008

Thursday Money Tips: Surviving the Bear Edition

Each Thursday Ms. Moneypenny publishes 5 money tips. Have one you would like to see listed? Post it in the comments, and I'll file it for possible future use.

Okay, the economy is bad. So, you know this. And most of us are a teensy bit worried. Or more than a teensy bit. It's pretty clear things might stay bad for a while too. Instead of panicking though, be productive. Fear never gets anyone anything except sleepless nights and migraines.

Unless of course you are currently being chased by a wild carnivore with significant landspeed capabilities, and big shiny sharp teeth, that is. Then you may panic to your heart's content. Presumably though, you'll be focused on running and not on reading this blog in that case.

For those of us not being chased by a hungry leopard, here's 5 things to help you breathe easier. Some of them I've mentioned before.

1. Rebalance your portfolio, then leave it alone
No, you may not panic. Put down the phone and stop screaming 'sell, sell!'. The market goes in cycles. If you've invested in well-rated no-load mutual funds or index funds, then check to make sure you aren't overly invested in a single type of industry or area, and then keep contributing. You are 'buying low' - and that is a good thing.

2. Cut back on nonessential spending
This is a good time to build up a good amount of padding in your savings account. List out all your expenses - cell phones, car, cable, etc - and think seriously about what you can cut. So your kids hate you for taking away free texting? Better that then staying awake nights worrying about how to pay the bill. Here's some Cheap Alternatives to Cable TV

3. Take that savings and....
All that money you are going to save by trimming the eating out and cable budget? Put it away for a rainy day. Experts recommend 3-6 months worth of savings in an emergency fund. Even if you can't get there, the more you have, the fewer panic-ridden days you may have. Consider using ING Direct

4. Work harder and smarter
Now is not the time to be surfing the internet or texting your boyfriend from a meeting. Volunteer for projects. Offer ideas. Help others be successful. Having a paycheck is better than contemplating cardboard box living.

5. Figure out what is important
It isn't the expensive activity that should count, it's the time with the people you do it with. Try these 72 ideas to simplify and focus on what really matters.

Tuesday, July 1, 2008

How To Become A PAW (Prodigious Accumulator of Wealth)

The book The Millionaire Next Door is an enlightening read on the habits of the truly wealthy.

I agree with much of what Trent over at says in his review: - that the book is somewhat age- and small business owner-biased, and that the idea that these millionaires don't provide economic outpatient care to their adult children skips entirely how to raise your kids so they don't depend on it.

That said, it's worth reading. Why? Because it talks about how to become that middle-aged millionaire. The reality is that as much as CNN loves to write articles about teenage millionaires and Bill Gates, most of us will never have that kind of luck or money. Our path, as JD so succinctly puts it in the name of his blog, is to get rich slowly

How? By becoming what The Millionaire Next Door calls a PAW, or prodigious accumulator of wealth.

The formula is simple. Multiply your age by your income and divide by 10. If you have that amount or more, you are a PAW.

But if you don't (and we don't either), don't sweat. Most of the millionaires didn't when they were 34 (my age) either. But they worked towards it. And worked towards it. get the idea.

The way to do that is simple - be frugal, frugal, frugal. Yep. Spend less than you earn, don't consume conspicuously, save, save save, all those ideas that us personal finance bloggers and Suze Orman pummel our readers with on a daily basis. Clip your coupons, shop for the lowest price, etc.

Invest. A lot. The average millionaire in the book saved 20% of their income annually.

Recognize that flashing expensive items does not equal wealth. See, it's like this. The guy with the Rolex is conspicuously showing off his possessions, but there's no guarantee that he has actual wealth. He may have just purchased status, and he may be making credit card payments. The curtains from Smith and Noble might be custom made, but at $400 a window, are they really 10x better than the ones from JC Penney? Mmm....I doubt it.

The folks in The Millionaire Next Door probably own a 20 year old Timex. Because they know a secret: Rolexs and bespoke suits don't make you rich. Appear rich, sure. But actually rich? Nope.

Only saving makes you really rich (unless of course you've started the next Google). And saving your money comes from having a surplus every month. And having a surplus comes from living below your means. Which, in turn, often means.....frugal frugal frugal. You get the idea.

Create a budget. Most wealthy people have them. They can look back and tell you exactly what they spent on groceries, eating out, car maintenance, and so on.

Don't buy expensive cars, or if you must, keep them. Very few millionaires are driving this year's model. Or even last years. And they don't buy luxury cars.

Set goals. Weekly, monthly and annual goals. Long term ones too. What kinds of goals? Savings goals. Debt payoff goals. Investment earnings goals. Work goals. All kinds of goals. The proof is in the pudding, over and over - goal setters tend to acheive more than non-goal setters.

The average millionaire profiled was 57 years old. Meaning they knew the adage 'slow and steady wins the race'. They could, on average, sustain their lifestyle without income for more than 10 years.

So skip the get rich quick scheme, keep that old car one more year, max out your 401k, and set a budget. And then retire early.

Doesn't sound like a sacrifice to me.