Why contributing the maximum to a retirement account is so important.

  We need to look at the two ways to save.

1. Nonretirement account:

         Earn income, pay the tax on it, and invest that money. You then pay taxes on the dividends, interest, and capital gains in this account.

2. Retirement account:
        Put money in these accounts and you get a deduction. Basically you don't pay income taxes on the money when you invest it. The investment, the dividends, and the interest aren't taxed until you take it out.

   Retirement accounts help you save more  in two ways. First by reducing the tax you pay now and letting that savings compound for many years. Second by deferring taxes on dividends, and interest in these accounts, allowing even more of your money to compound. In other words retirement accounts are so powerful because the taxes you would have paid in a non retirement account are left in retirement accounts to grow until you take them out. See you Thursday Finwiz.

How the Wealthy Think About Money

  The poor have most of their money in consumer items.  Middle class people have most of their money in their home or other real estate. Wealthy people have most of their wealth in their business or in the stock market (many businesses). That is why they are wealthy. The big difference is that they save a lot and are focused on investments they expect to grow. They tend to be confident in investments because they are optimistic about the future, not fearful about short term risk.

  The reason they are millionaires is that they have invested in their business or in the stock market. Wealthy people are wealthy because they are focused on building wealth.

1) They are usually frugal and good savers.
2) They are focused on building their net worth.
3) They are generally optimistic about the future.
4) They are focused on long term wealth-building investments.

   Learn to think like the wealthy and you can become one of them. Finwiz.

Reduce fees when possible

                                                           Every time you look around there's another fee for something that should be free.  ATM , checking, credit card, and minimum balance fees can all add up. With a little research you can be done with these pesky fees.  Pick a bank or credit union that has free checking or low minimum balance. You can get free ATM access at many banks by signing up for direct deposit. Never pay a fee for credit cards. If you can't find a free card and you can't pay off the balance every month, don’t get one. When you open any financial account, make sure you know what you're getting, what the fees are, what the minimum account balances are, so you never get hit by unexpected charges ever again. Feel free to share how you avoid fees as well. See you soon, Finwiz.

Four things to motivate you and get things moving.

1. Ask yourself if you really want to do it. Often, we think that we should want to do things and put them on our giant list of things that should be done, even though we have no interest in them whatsoever. The trick is that instead of framing these things as something you should or need to do, you phrase it as something you want to do or will do.

2. Break it into small steps. Thinking about saving a million dollars for retirement or paying off twenty thousand dollars of debt is overwhelming if you don’t break it into small, manageable steps. Breaking down immense goals into smaller, more manageable jobs is a great way to stop feeling overwhelmed and start feeling empowered to take action.

3. Visualize your success. Think about how good it will feel once you’ve met your goals and try to imagine what your life will be like. Think about these things often and remind yourself when you find your motivation waning. Having a clear picture of what you’re working towards is an amazing motivator.

4. Keep yourself accountable. This might mean enlisting the help of a family member or friend to keep you on track. Some people find that a log helps keep them on their toes by providing a visual record of their progress. Finwiz.

Know your risk tolerance

                                                                                         I blogged about filling two baskets back in May( please reread ). With the  resent market turmoil, I think we should revisit this subject. Risk tolerance is very personal and will be different for everyone. When large market swings bring the value of your assets down quickly, and you get nervous, you have too much invested in that asset class. Know before you invest in stocks that the value of your holdings could go down between 50%-75% in some cases even zero ( Enron, Worldcom, etc.). Using the two baskets approach, you can keep your portfolio's total value from swinging wildly by having a larger portion in bonds, CD's, and Treasuries. You should also explore other protection devices like stop orders and stop limit orders. These can be tricky and should be used sparingly , never on an entire portfolio. Remember you risk more by not investing in stocks than owning stocks, because you might not get a high enough return to retire when you want to. The bottom line, however, is that only you can decide how much of a day to day swing you can handle without selling in a panic just before the market rebounds.

When you haven't started saving yet

 Here are few ideas to help you get started:

  Give up on finding the home-run investment: Finding the next Apple is highly unlikely no matter how hard you work at it. Not impossible, just highly improbable. So instead just start saving! Certificates of deposit are fine. Broadly diversified mutual funds work as well. The point is to start.

  Make a plan: It‘s eye opening to put a number on all your financial goals. Have you looked at how much it will cost to put a child through college, for example? Any good plan will start with a clear understanding of where you are today and end with where you want to go. Now you need to calculate the cost of getting there.

   Remember that your plan is worthless unless you make the ongoing course corrections required when you’re either off course or the destination changes. Plans are full of guesses, but when done correctly, the ongoing process of planning can provide the context for you to make decisions in the future. It’s a lot easier to say no to the new car, if you are saying yes to a more important goal.

   Maybe you have other ideas, but the point is to stop beating yourself up over what you didn’t do in your 20s and start focusing on making today count. Until next time, Finwiz.

Why You Need to Rebalance

   Your portfolio is a living and breathing creature and it’s constantly changing. That’s because you’re invested in the market which changes every single day. If the market is moving, your portfolio is moving. The problem is that over time some of your investments are going to outperform others. When this happens, the outperforming investments grow and take up a greater percentage of your portfolio. When one investment does well and another does equally as bad this occurs at double the pace.

   For example, let’s take a simple portfolio that’s made up of just two investments. A $50,000 portfolio with 50% in a bond fund and 50% in an S&P 500 index fund. For the sake of the illustration let’s say that over the past year the S&P has gone up 15% and your bond fund has only returned 5%. Most investors would still be thrilled as they made a lot of money, but there’s one problem. The portfolio is significantly overweight in stocks compared to your target mix which exposes you to greater risk and potentially great losses if stocks fall again. When you save it's a must to now what you're invested in, rebalancing helps you keep track of what you own. See you soon Finwiz.

Millionaire or pauper, it's your choice

  “Those who successfully build wealth believe that financial independence is more important than displaying high social status.” I believe that “rich” means “free” – free from financial worries, free from the need to work full time whether you want to or not.

Beware of Consumerism

  Consumerism stands in sharp contrast to financial freedom, because it enslaves you. Unless you were born into money, and assuming you belong to the middle class or the upper middle class, consumerism will keep you in whatever class you were born into, forever. You will not be able to accumulate wealth, because you will spend too much. Perhaps you will be temporarily soothed by the act of buying and consuming, but you will never be truly free.

Living Below Your Means

  No one can build wealth without living below their means. This is an absolute must, either pretend you're working for less or make a commitment to put future pay raises into savings. I've said it many times on this blog , if you can't do this there is no chance of retiring early or retiring at all. See you next time, Finwiz.

Insurance that may be unnecessary

Credit Card Insurance

   Many people who take out credit card insurance believe the policy will protect them by paying off their credit debt entirely in the event they’re unable to meet their financial obligations. That isn’t true, and unfortunately a lot of people have found that out the hard way. Credit card insurance will generally pay only a portion of your monthly bill, usually the minimum amount that is due.

Rental Car Insurance

   Paying for rental car insurance is usually a waste of money because your regular automobile insurance policy usually covers rental cars. Even if it doesn’t, or provides only minimum coverage, you will undoubtedly use a credit card for your rental car. In most cases your credit card company will provide rental car insurance for no additional charge.

Extended Warranties

   In the opinion of a lot of people, an extended warranty is nothing more than a complete waste of money. If you purchase a quality item in the first place, you can be relatively certain the warranty that’s included will be sufficient.  You’d probably be better off if you put a little bit of money aside each month to cover the cost of repairing or replacing the items rather than relying on the extended warranty. See you Thursday, Finwiz.