Fitness Workout for Your Financial Muscles
So you bought the financial freedom books, but your bank account has yet to reap the rewards? Consider this:
Your financial success can be developed just like a muscle... and if you're not seeing results, you may be on the wrong "financial fitness" plan.
You were running on a treadmill to trim some "financial fat." The result? Your wallet got "skinny." You weren't building your financial muscles. Why not?
Much like a good muscle-strengthening or exercise program, you need expert training, inspiration, and a "financial workout" that's tailored to your specific goals.
Following are five of the Greatest Financial Challenges people typically face in their lifetime. Take the financial fitness challenge and see what muscles you need to start strengthening!
(Note: please consult a Financial Fitness Professional before attempting any of these exercises.)
Challenge 1. "I'm afraid to take financial risks."
Financial Fitness Solution: Develop your Courage muscle.
If you're sitting around waiting for the "right" stock or real estate to invest in, you're dealing with the symptom, not the source. Consider that people who have acquired wealth are not smarter or luckier. They have developed the financial muscle called Courage. Here, Courage refers to acting in spite of your fear. The fear doesn't get smaller, your confidence gets larger. As your confidence grows... so does your ability to make financial decisions that lead to increased wealth!
Challenge 2. "I just don't have enough money to do what I want, when I want."
Financial Fitness Solution: Develop your Desire and Belief muscles.
There are many factors that are at the source of not having enough. For starters, the financial muscles to develop are Desire and Belief. The mere presence of your Desire is evidence that you have the capacity for its fulfillment. If you have Belief that your Desire is possible, then there is no question of "if," but rather "how" and "when". How can I achieve what I desire, and when can I start seeing positive results? The best-laid plans for success begin with the Belief that you can do it and the Desire to make it happen!
Challenge 3. "I'm constantly worried, stressed and frustrated about money."
Financial Fitness Solution: Develop your Attention muscle.
If I told you that you had a winning lottery ticket and the numbers would be called someday this year, would you be worried or excited? Most would say excited. The financial muscle to exercise here is Attention: where are you focusing yours?
Race car drivers are taught to always look in the direction they want to go. If you look at the wall, you will drive into the wall. Put your Attention on what you want… and you'll get more of what you want. Stress, worry and frustration come from looking (now) at what you don't want to happen (in the future), and believing that what you don't want will actually happen. Get better control of your financial Attention muscles, and start driving your finances to a state of continuous growth.
Challenge 4. "I just can't get control over my finances and spending."
Financial Fitness Solution: Develop your Purpose muscle.
Going on a spending "diet" as a measure of "control" over your finances is limiting rather than expansive behavior. The financial muscle to start developing here is best described as Purpose. Your Purpose, for example, might be a long-term plan for financial acumen. If you have a Purpose that's broader in scope than your day-to-day financial survival, then you won't need "discipline" or "control" over your spending. Instead of thinking in terms of what you can't do, you'll begin to think opportunistically as to what you CAN do, as part of your Purpose. Thus, you'll choose to spend based on what is most aligned with this Purpose.
Challenge 5. "I just can't get my finances in order."
Financial Fitness Solution: Develop your Integrity and Responsibility muscles.
The most underdeveloped financial muscles associated with financial disorder is Integrity and Responsibility. Integrity and Responsibility requires that you be accountable to the promises you make to yourself and others. Borrowing and bill-paying are forms of promises you made. When you break those promises, you will find yourself in disorder or clutter. Develop the financial Integrity and Responsibility muscles to keep these promises and you will find order. From order comes structure, and from this comes a financial fitness plan for building long-term wealth, success and happiness!
You've got Step One in a Fitness Workout for your Financial Muscles...Now What?
This Financial Fitness Plan is only a place to start. If this were training for a marathon, you have just learned the warm-up routine for the 26.2 mile run. The real source of your financial challenges or success is your emotional relationship to money.
You just learned some truths about finances, and you may be wondering how to develop these financial muscles and what's the next step in your personally-tailored financial workout. Contact financial fitness expert and "trainer," Mayumi King at http://clubfreedomprogram.com
Copyright 2005 Mayumi King. All rights reserved.
Mayumi King, CPA and Certified Life Coach, invites you to set yourself free to live the life you create! To get started on your personal path to Financial Freedom, call now at 888-265-4892 or submit an interest form at http://clubfreedomprogram.com.
Article Source: http://EzineArticles.com/?expert=Mayumi_King
Personal Finance 101
The subject of personal finance is very broad, but as a beginning, I would like to discuss what I consider the foundations of personal finance: Security, Stability, Growth and Protection & Management.
SecuritySecurity to me means that I am prepared for the "hit by a bus" scenario.
I have life insurance to provide for my wife and children. Health, disability, auto and home insurance policies also provide me additional protection in their respective areas. I also have a list of where these policies are, who my agents are, phone numbers and basic policy information (#s, amounts, costs, etc.) I keep this information both in a file at my house and in a safety deposit box at the bank (a friends home will also work - think: "house burns down" scenario). Also my wife and my brother and sister-in-law who live nearby also know where these things are.
I also try to maintain an emergency fund of cash in a bank account or money market account (with checks) so that I am prepared for a financial disaster, layoff, or natural disaster. It took several years to build up this cash fund. I started with a goal to have enough cash for 6 months of my normal financial needs (mortgage, food, insurance, transportation, etc.). Now I am trying for 12 months' worth. I do this by saving a little each month, and "investing" a portion of all "found" money (gifts, inheritances, tax returns, anything unexpected).
I have a will and update it each year around New Year's to reflect any changes in my life during the past year (new children, new home or business, etc.). Most people don't need an extensive will, the forms you buy at your office supply store will do. But in some states if you die without one, watch out. What happens to your money and even your children could be entirely up to some state or court appointed official.
StabilityThe next level of personal finance is stability.
Stability to me means that first of all I live within my means. I don't spend more than I earn. Otherwise I am spending my savings, investments, emergency money, or getting into debt. I have a lot of debt, but most of it is real estate which is producing some income. I try to avoid credit card debt and purchase everything with money I already have. I don't buy things expecting that next month I will have more money or I will get a big raise or promotion. You can't sell me a car based on a monthly payment amount; I want to know the final price!
In order to make sure that I am living within my means, I created a simple budget and I track my expenses using Simple Joe's Expense Tracker. I can tell how much I have spent in each budget category and I know when to keep a closer eye on certain types of expenses, or when and where I can cut expenses and what I can live without in order to stay within my budget. Counting pennies is pretty tedious, but tracking where the dollars go can be eye-opening.
Another aspect of stability is avoiding or eliminating debt. Debt in itself is a form of stability; you always have to make those payments until it is all paid off.
Some recent reports show that the average American is $7,000 - $20,000 in debt. Most of it is consumer debt: credit cards, store accounts, rent-to-own, auto loans, etc. And those types of consumer debt usually charge a higher interest rate than any savings account, CD, or money market account; even more than most high-flying risky investments.
This means that $1,000 in debt at 18% is costing you 9 times what your $1,000 savings account at 2% is producing. Consumer debt is a dangerous spiral that is very hard to get out of.
The first problem is, as mentioned before, living within your means. Don't get further into debt to support an extravagant lifestyle. Or even if you are frugal, if you are using credit cards and debt to finance your purchases, you either need to stop purchasing luxury items or find a way to increase your income to support these purchases/payments.
You may even have to lower your standard-of-living because you have racked up considerable debt and need to free up some money to pay it down. But don't wait to start. Those minimum payments are often designed to keep you paying 18% interest for 40 years! That's longer than most home loans. You could even end up paying more than 10 times the original cost of the item just in interest payments. Is that new stereo really worth that much?
To help people get themselves out of debt we created the "Pay Off My Debts" tool in Simple Joe's Money Tools. It is also available as a stand-alone product called Simple Joe's Debt Eraser. These tools help you create a Rapid Debt Reduction Plan which shows you how much to pay on each debt each month in order to save as much on interest charges as possible and pay off your debts as soon as possible.
These tools can help you systematically eliminate your debts whether you owe $1,000 or $100,000. The key is to start living below your means and start focusing on paying off your debt.
It doesn't make much sense to be worried about whether or not your 401k earns 8 or 9% this year, if you are paying 21% on your credit card debt.
A third aspect that starts in the stability category and transcends to the next personal finance level, growth, is the concept of investing in yourself. By this I mean spending time to educate yourself in personal finance matters, as you are doing right now and spending time gaining more knowledge and improving your skills or even developing new ones.
As an employee, this can have a direct relation to who gets laid off during the next round of cutbacks. If you have some skills or have demonstrated some abilities that are not possessed by your co-workers and these skills make you a more valuable employee, you are less likely to get the pink-slip.
Also while you are making yourself more valuable to your current employer, you are also making yourself worth more to future employers. It is much easier to land a job if you have some special skills that are in high demand or even if you bring some special knowledge or experience that you fellow job-seekers may have overlooked or failed to invest in.
Being in the computer industry, I have to spend hours each week reading trade magazines, exploring web sites, and reading emailed newsletters to keep abreast of what is new in my field. If I stopped learning just five years ago, I would have missed out on the Internet revolution, email, web sites and the majority of the income I now enjoy.
Keeping myself informed and up to date takes time and resources, but it helps me protect my current income and expand my skills to help me earn income in other areas. This increases my stability by allowing me to not have to rely on one client, employer or source of income. A chair with four legs will always be more stable than a stool with only three.
GrowthThe next level of personal finance, as I alluded to before, is growth.
Once you are secure and stable, you can begin to think about building your wealth. Not that you have to figure out how to become the next Bill Gates or Warren Buffet. But you have to start building the "nest-egg" that you will rely on when you retire.
And don't think that Social Security has you covered, or that your 401k will grow back to what it was a couple years ago. Or that your current employer is going to re-institute the generous pension plans of yesteryear. 401ks are much cheaper to administer and you, the employee, take the hit when the market goes down, not the employer.
My father is nearing retirement age and I think he has a good plan. He has done some research and estimated what his expenses are going to be when he is retired. He then took a look at his potential sources of income during his retirement.
He figured that Social Security would cover about a third of what he wanted to live on. Only a third! And he has worked his entire life. Would you like to instantly have to live on only one third of what you currently make? Retirement is suppose to be the golden years, so where's the gold?
Luckily throughout his career, my father has worked for companies that have had pension plans and he had worked long enough at each company to be eligible for some pension money. This is rare these days because today the average worker will change jobs and companies at least five times during his/her career. Also, as I mentioned before, companies are switching to lower cost 401k plans that do not guarantee you any fixed payments.
In my father's situation, his pension money would cover another third of the retirement income he wanted. So now he had to either figure out where the last third was going to come from, or start cutting out expenses during retirement, like not visiting his children so much. None of us liked the sound of that.
So my father started learning about the stock market and investing in stocks and mutual funds. He made a plan for growing his wealth and then educated himself as to how he could accomplish his plan. I wish I could say that he is doing better than he is, but luckily he has some time still to put his plan into action and ride out any market downturns. (He can do this because he has the security of insurance and emergency money, and the stability of little debt and a strong set of skills.)
By learning about how stocks, bonds, mutual funds, index funds, options, futures, commodities, real estate and other financial tools work you lay the foundation for growing your wealth. You may start with just $100 in a bank CD, but as you learn more and become more sophisticated, you can invest in more and more opportunities.
You will learn about how risk and reward are related, that as the risk increases so does the size of the potential reward. Just like at the race track, you'll make more on the long shot, but the odds are against it. Also you can learn how to tilt the odds in your favor and protect yourself against risk.
For those who are just starting out in the growth phase or who want to dabble a bit before completing the other levels of personal finance, my suggestion would be to look into index mutual funds. Especially no-load index funds (no initial/sales fee).
These funds are made up of the same stocks that make up the popular market indexes like the Dow Jones, S&P and NASDAQ100. The costs are low because management is simple and as a mutual fund you can invest a little at a time. Also they are easy to follow since you see them on all the news shows and in the newspaper.
Protection and ManagementThe final level of personal finance is the protection and management of your wealth. Most people never develop wealth enough to need this level. But some of the concepts can be applied to any amount of wealth you possess, $10,000 to $10,000,000.
Part of the protection harks back to your will as we discussed on the first personal finance level: security.
With any significant wealth or valuable asset (your home, car, heirlooms, 401k, IRA, business, etc.) you will want some way of disposing of that asset upon your death. Whether it is go to go your family, favorite charity, or local church, if no one knows about it, "it ain't gonna happen".
As you start to accumulate wealth in excess of $350,000, you may want to consult an attorney about creating a trust. A trust is an entity that can own property and pass that property to anyone you name in your will. Usually the trust is designed to provide income to children from the assets that are placed in the trust.
The trust can survive you so that your assets and income may be passed on to your children or next-of-kin without excessive taxation and legal entanglements. Some states will take up to 55% of your assets as taxes when you pass away.
Protection also relates back to insurance. Now it may be time to look at a multi-million dollar umbrella policy that will protect you from lawsuits designed to part you and your wealth. You may now be a bigger target, so purchase a suit of armor.
The management aspect comes into play where you may start to concern yourself with taxation, ownership, distribution of income and possibly endowments to charities or other non-profit institutions.
You may hire a person or company to manage your wealth, or you may choose to do it yourself. Most people who have earned their wealth through the "sweat of their brow" have already become adept at managing their assets. Some continue to personally manage their wealth because of the enjoyment or challenge it gives them.
Others are ready to turn it over to a trustworthy manager (who only gets paid a percentage of your increase) and travel the world, or sit on a beach and count the waves.
Whatever your dreams for retirement (and why wait until you are 65), understanding the different levels of personal finance and spending the time and resources to educate yourself will pay off whether you live next to Bill Gates or Homer Simpson.
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© Simple Joe, Inc.
David Berky is president of Simple Joe, Inc. a marketing company that sells simple software under the brand name of Simple Joe. One of Simple Joe's best selling products is
Simple Joe's Money Tools - a collection of 14 personal finance and investment calculators.
Credit Card Consolidation - What You Need to Know Before Consolidating Debt
By Amy L. Cooper-Arnold,
CardRatings.com Reporter
Consolidate! It seems to be the new fad in the world of consumer debt - the magic bullet that will effectively rid your life of all problems with credit card debt.
The advertisers, credit counselors, and financial experts are all shouting out:
"Slash your interest rate!"
"Save thousands of dollars!"
"With one low, monthly payment you’ll have extra money!"
And you know what? Consolidation can be a great option for digging your way out of credit card debt. But what the advertisements don't tell you is that it's not a magic bullet. Consolidation is a re-payment plan that is successful only when you are determined to do what it takes to make it work. It will take planning, determination, and a little elbow grease. But you can do it! Here's what you need to know.
Find the Underlying CauseThe first step in any debt re-payment plan is determining the underlying cause; otherwise, the problem will happen again and again. Typically the problem is not the credit card itself. They are a great tool of convenience and security. Many people use them in a financially responsible way everyday. So if the problem is not the credit card, what is?
Overspending HabitsLet's go ahead and face it. Sometimes the problem comes with just the bad habit of spending too much money. Credit expert Gerri Detweiler, author of The Ultimate Credit Handbook and founder of
DebtConsolidationRx.com, says the two largest areas people tend to overspend is in the area of food and transportation. She's heard of people spending $160 a month at the office vending machine! So maybe it's time to take a reality check. Spend a month tracking every single expense down to the penny to see where your money is going. Then take the time, and maybe even help from a credit counselor, to set up a budget and a plan to stick with it.
A Life CrisisEmergencies happen to everyone. Unfortunately people we love die, life-long careers disappear, and, as we've all seen in the news lately with Hurricane Katrina, natural disasters create havoc. All too often we are unprepared for such events and we end up putting a lot of expenses on credit cards. As you analyze your budget, it's a good idea to determine a set amount to save each month for emergencies. Ideally, if your budget allows for it, a good amount is 5-10% of your take-home income. But if you can't manage that much, then set aside as much as you can.
Big Life EventsNow I'm talking about events we expect - weddings, babies, college educations, family vacations, etc. Don't let these events sneak up on you without some financial planning. The earlier you start, the better off you'll be. And if for some reason the anticipated event doesn't occur, at least you've built yourself a nice little nest egg.
Setting Aside Credit Cards for a TimeWhen you start consolidating debt, it's important not to accumulate any new debt. Trying to deal with a consolidation loan along with new consumer debt only builds layer upon layer of financial trouble. The accounts don't have to necessarily be closed, but at least put the credit cards in an inconvenient location such as in a cup of frozen water in the back of the freezer, a safe deposit box, or even six feet under in your backyard! Once the consolidation loan is paid off, you've brought your finances back under control, and you've learned new healthy financial habits, then go ahead and bring them out from hiding if you want.
Lower Payment vs. Lower CostA big mistake many people make when consolidating debt is looking at the payment amount alone. Sure you can lump all your payments together into one low monthly payment, but what is your interest rate, fees, and length of the loan? A $5,000 loan at 10% for 15 years with a monthly payment of only $53 will cost you $2,000 more than the same amount at 18% for 5 years with a monthly payment of $126.
Consolidation OptionsNow let's take a look at some of the options for consolidating. When it comes to consolidating your credit card debt you have several options at your disposal, each with its own set of pros and cons. Here's a brief description of some popular options along with their relative pros and cons.
Low-Rate Credit CardsIf your
credit rating is good enough to qualify for a low-rate credit card, possibly even a zero percent introductory rate, transferring all your higher rate credit card balances could be a good option. This option generally works best if you can pay the balance off within one year. Check out our
Card Reports section to evaluate different low-rate credit card offers.
Pros - If you qualify for a low-introductory rate card you may get the benefit of not paying any interest for a time.
Cons - Excessive transfer and new account activity on your credit history could cause you to have a poor credit score. This is bad when your low-rate credit card expires and you aren't able to qualify for a new card. You could be stuck with a high interest rate.
- Watch out for balance transfer fees. Fees could potentially outweigh any interest savings that you might realize.
Home Equity Loan or Home Equity Line of CreditBecause you're using your home as collateral for this type of debt, it's imperative that you really understand your repayment plan and deal with the issues that got you into debt in the first place. Detweiler suggests this is not a good option in a hardship or crisis situation, including a job loss, since failure to pay back a home equity loan could result in the loss of your home.
Pros - Usually a lower interest rate.
- Interest is normally tax deductible.
- Your monthly payment will usually be lower so you can use the difference between it and your fixed monthly debt payment to start building an emergency fund.
Cons - You will be trading unsecured debt for secured debt putting your home at risk. If you miss even one payment you could lose your home, whereas if you left it as credit card debt you would still have a place to live.
- You could end up paying a lot of money in fees such as closing costs and appraisal fees. Make sure you shop around to find the best deal.
- The entire loan must be repaid before you can sell your house.
Personal LoanBecause of the potential effects of high credit card debt on your credit rating it may be difficult to qualify for an unsecured personal loan with a decent interest rate. If your credit rating is good you may qualify for a rate in the low-teens, but if it's poor you may end up paying around 20 percent. Shop around at a variety of financial institutions including credit unions to compare the cost of fees and interest. And be aware that generally the extra products they try to sell aren't worth the cost you'll pay.
Pros - Can get good rates, especially if you are a member of a credit union and have good credit.
- Unsecured so you don't have to worry about losing your home.
Cons - Your credit rating could drop further because of credit inquiries, closing old accounts, and opening new accounts.
Now you've got some tools under your belt to help dig your way out of credit card debt. You can also browse our
Articles Section for more information about credit cards and debt. Good luck in your quest to be debt free!
