Pay Yourself First – Then make everything else work!
July 28th, 2009
One of the key concepts in a lot of personal finances books is that you need to pay yourself first and I couldn’t agree more. This past month I have been tracking my spending in my weekly budgets and for those of you who have been keeping up you might have noticed that I quietly added an investments line in my weekly budgets. This wasn’t done by accident! I have set up a small withdrawl from my account that coicides with my pay and by small I am contributing a grand total of $50 every pay into a mutual fund.
I haven’t really felt any significant change in my lifestyle or other spending as a result of this $100 per month. While I’m still living a bit beyond my means it also doesn’t mean I’m forced to eat macaroni and cheese for my meals to make it work. I have been using my weekly budgets to get an understanding of my spending habits to get them under control in order to live within my means while paying my debts down. This isn’t going to be a quick and easy fix but as part of this whole mix is my need to set aside some savings even if meager.
At the end of June I had no savings and as of today I’ve got $211.11 in that account (there will be another $50 going into the account later this week). I know that this is a paltry amount and wouldn’t really matter in the grand scheme of things but I am Paying myself first. By the end of the year I should have close to $750 (or more) in that account and while this isn’t quite enough to retire on it is enough money to cover a few emergency expenses if they come up.
Why Pay yourself first?
For years now I had intended to set aside money in some basic investments and always planned to do so with budgeted money. Unfortunately I always planned to make the contribution at the end of my budgeting period. Regardless of if it was two weeks or a month I always thought that I would put money in just before I got paid. My logic was always that this would give me some money to work with just in case. This is a load of horse shit and a big stinking one at that. By paying yourself first you force yourself into making the rest of your budget work.
I am not advocating that you set aside 50% of your budget to investments or savings when you get paid (though if you could do that then you’re doing something right). What I am suggesting is that if you want to build up some form of savings account put the money into the account the moment you get paid. This will force you to make the rest of your money last till you get paid again. I am currently tight for cash and setting aside a few hundred dollars per pay would probably make my day to day life a bit tougher, but I know I could afford $50 so thats what I put in. It doesn’t affect my quality of life nor any bills (I am capable of missing those with or without the $50).
It adds up!
That small amount that I’m setting aside translates to $1200 a year and I’m not really making any changes in my life to get that. The best part is that this money is already starting to grow. While I’m not a financial advisor nor a junior Warren Buffet I will suggest that if you’re going to do this speak to a professional. If you’re only investing a small amount there might be perfect investment vehicles for you to get the best return on your money. I am using a couple mutual funds for my investing purposes and until I have more funds to invest with this will be my vehicle of choice. If you don’t know much about investing it shouldn’t stop you from building your savings, even an ING account will add up to $1200 a year with my contributions.
The moral of the story is that even if you’re tight for cash by paying yourself first you can start a small savings or investment account. Remember even a small savings account is better than no savings account.
Posted in Budgeting and Planning, Commentary, Investments | 2 Comments
Investing is Long term
November 25th, 2008
We’ve all heard about the stories where people made an investment and within weeks or months they were able to turn that around into a huge profit. In some cases these people were able to retire off of their profits. While this does occur I would hazard a guess to say this is the exception rather than the rule.
Investing is long term
When we make an investment the goal is to maximize our returns over a period of time. With the markets in the crappy situation they’re in many people are seeing investing as risky and shying away from it. The reality is that I’ve always seen investing as an activity that is tempered by risk tolerance.
Assume the quick buck doesn’t exist
If you go by the assumption that an investment is going to be a long term activity you’ll plan your risk and potential return based on that. My retirement portfolio had lost over 30% when I checked it last a couple months back. While its slightly demoralizing to see my money simply vanish its also something I knew could happen and I wasn’t worried. I won’t be needing my retirement money for another 30 or so years so there is no point in worrying about it just yet.
Keep an eye on investments, don’t obsess about them.
If you put your money into an investment and simply forget about it then you run the risk of loosing it without knowing about it. Conversely if you’re watching your investments and changing them around too much you also run the risk of moving money at the wrong time.
Investing money you need is stupid
There are very few investments that warrant going into some form of debt for them and even then I would warn against it. Invest money you can potentially stand to loose (at least in the short term). Investing in things like mutual funds, index funds or even specific stocks are long term and should be treated that way. This is especially important to keep in mind when the markets go through a correction like we’re experiencing.
Posted in Investments | No Comments
House Hunting in an Uncertain Market
April 16th, 2008
House hunting can be daunting at the best of times but it can be truly unnerving in an uncertain market. My wife and I have just started to look at houses to purchase. This is right around the time that things in the overall marketplace seem to be as uncertain as I can remember them. For many people this is not the time that they should start looking for a house, but for others there are many deals to be had. I can’t say that we’re debt free with huge cash reserves but we’re financially sound for this huge investment.
As some of the readers of this blog know I’m a Canadian and the real estate market in Canada and our region specifically aren’t nearly as bad as in parts of the US. Our economy has slowed a little but there hasn’t been a sub-prime meltdown in Canada. The whole world might have been impacted by it but there are many markets that are still quite sound, thankfully we’re in one of those.
Since there is a lot of risk in taking on a large purchase such as a house we’re taking what I see as a cautious approach. We’re trying to find a house that either one of us could pay the mortgage on. The whole idea here is that we’re going to make sure not to put ourselves into a situation where we might not be able to make ends meet. This does mean that we’re not going to buy the best we could possibly afford. The good thing is that we’re looking for good value and places that might need a little updating, which we can do over the next couple years.
The other thing that we’re trying to be conscious of is investment value. Our real estate agent is also very firmly in our court when it comes to this. We’ve made sure that we’re not in a rush to purchase the house and we can find the right fit for our needs as well as getting a house that will have a good return on our investment over time. The locations we’re looking in are also regions where there is a lot of potential to flip houses. The prices are going up and there is a lot of room for value increase.
The most important thing to keep in mind when house hunting in an uncertain market in my opinion is taking the extra precautions that will ensure you don’t put yourself into financial hot water. Making sure that you know what you’re looking for is extremely important. It’s not only the house that you need to consider but also the investment value of your purchase and the financial implications in the short and long term. I think we’re entering the market at a great time for us and we’ve already seen some houses that have a lot of potential.
Posted in Investments, Real-Estate | 3 Comments
House Flipping – Why I’d love to do it but can’t
January 25th, 2007
First off I wanted to apologize for not posting yesterday, it was bit of a hectic day. Now onto a topic I’ve wanted to cover for a while but simply haven’t gotten around to: House Flipping. There are all sorts of stories about people making tons of money house flipping, including shows dedicated to the topic such as TLC’s Flip That House. Unfortunately there are also the horror stories of people who just didn’t know what they were doing and lost lots of money (think iamfacingforeclosure.com).
All of this leads me to think that there is a market in flipping houses, especially if you’re smart about it and do your homework. Buying a house that could do with some upgrades and renovations in a neighborhood that is expanding is merely a matter of research rather than luck. If you think about it, in all of the major cities in North America people will want to buy a nice house and there will be houses that are being sold off below market price. Taking that house, cleaning it up, fixing it up and then selling it is something that’s happening every day.
So why am I not doing it? Well there are two reasons – first off I don’t know enough about renovations and real estate to get into it. I will fully admit I am green on the subject and I don’t want to pour hard earned money into something I know nothing about. In my case this is enough for me to not do it; unfortunately this doesn’t stop a lot of people. Having a good real estate agent would help a great deal but I don’t know any and if there is a great house for flipping what are the chances that the house will be on the market for long? Probably pretty small. This is a topic I’m interested in and one that I will learn more about in the next little while, but not right now mostly because of the second reason I won’t get into house flipping just yet.
The second and main reason for not investing my money in flipping houses is that I don’t have money that’s dispensable. I don’t have money that I can live without at the moment and I am not willing to try a no money down approach to house flipping. This is because I don’t know enough about it and it would be more like gambling than investing. I think having some investment capital is absolutely necessary for getting into any form of investment in real estate. I don’t have this money, therefore I will have to wait for now. I will get into some form of real estate investment, hopefully in the not to distant future but I need to learn a lot more before I do this, education is the key to most things and this is no different.
Technorati Tags: real estate, house flipping, flipping a house, investment
Posted in Investments, Real-Estate | 3 Comments
Bond Info Site
November 17th, 2006
Part of the process of learning more about the world of personal finance and investing in general I’m going to encounter a bunch of information about investing. I ended up with just that yesterday. I ran across an article about bonds. I’m definitely not in a great position to invest myself but bonds have always fascinated me. Unfortunately I never really had an excessive amount of information about them.
The article I ran across(on CNNMoney) had a good deal of information, I figured I’d pass it along incase anyone else found it interesting.
Technorati Tags: bonds, learning, investing, personal finance
Posted in Investments, Sites/Articles | No Comments
The Housing Bubble
November 13th, 2006
Since starting this PF blog I’ve encountered the term the housing bubble more than a few times and as far as I understand it (please feel free to correct me if I’m wrong) is that in some regions of the country the housing prices have risen to such heights that the property values are quite simply overvalued and due for a significant drop. In some of these regions builders put up lots of additional housing to cash in on the strong market and in others people just kept buying for more. The problem with any form of ‘bubble’ is that inevitably someone will loose money.
I’ve always been a firm believer of the Latin saying Caveat Emptor which is let the buyer beware in Latin. If you’re buying a house or anything that will take years to pay off you cannot blame the market or ignorance if you loose money on the purchase. Granted some people don’t want to spend a lot of time or effort making sure their purchase is 100% bang on. This is why specialists like bankers and real-estate agents have jobs! If you’re not certain about a purchase then seek help; get professional opinions. Buying a piece of property that will subsequently loose say 15% of its value in a year or two is something that is potentially preventable. I know that if I were to buy a new condo in the region I live in I stand a chance of loosing money on the deal. Why? Well there are 6 condo developments in the area either under construction or will be under construction soon. I am not a real-estate agent but loosely track prices in the area and I see more units coming in. Without even knowing a lot of information I can see that there might be a downward pressure on condo prices, this isn’t necessarily going to happen but I can see this as a possibility. I would be a wary buyer in this market.
So when I hear about the housing bubble bursting I don’t really feel there’s anything to be alarmed at. Surely all the people buying houses in these regions are aware of this and have taken this into account. Unfortunately I doubt this is the case; we wouldn’t be hearing about a bubble if someone wasn’t complaining. The next thing that crosses my mind is the fact that this isn’t some drastically huge loss coming to a lot of people (don’t yell at me yet), a housing bubble isn’t like the dot.com bubble that evaporated billions in wealth. A house in an overvalued region will retain a significant portion of its value when all is said and done; in the dot.com days companies folded leaving no retained value.
A housing bubble for me is more of a price adjustment to more realistic prices. Prices will inevitable rise and fall over the course of time; what was once an expensive and exclusive neighborhood might be a slum now and 25 years down the road it might be an expensive neighborhood again. When it comes to things like real-estate I would tend to look at longer trends rather than the price increases over a year or two period.
Now with all that said people will still loose money, some will loose their homes and it is very unfortunate because the value of these homes will drop. The worst part is that the people who are likely to loose money probably couldn’t afford the prices in the first place. They overextended themselves only to find they might loose $25,000 or $50,000 of their savings if they were to try selling (maybe more). The lesson learnt here: don’t spend lots of money on something unless you know what you’re getting into be it property or an investment; use common sense and if you have none find someone who does to help you.
Technorati Tags: Housing Bubble, property, property value, overvaluation, common sense
Posted in Investments, Real-Estate | No Comments
Working versus Business Ownership
October 30th, 2006
I’ve been reading ‘The Millionaire Next Door’ and a recurring thought keeps popping into my head. The people who own their own business seem to be equated with being more successful. And I couldn’t agree more that this should be the case. Now the big issue from my point of view isn’t that business ownership is more lucrative but the risks in deciding to do it. I don’t know how it is for most people but when I think about starting up a business myself I get gripped by fears of failure. These feelings make me second guess the idea before it’s even gotten off the ground.
Needless to say I’m still a working stiff, collecting a nice secure paycheck. But I’m getting to the point where I hate it; I want to be in control of my own destiny. I want to be able to make more money and let other people work for me and make money for me as well as me making money for myself. Am I ready to start looking into becoming a business owner myself? Yes I believe that I am!
I also believe that being a business owner is the best way to accumulate wealth. The reason I believe this is that best way to accumulate wealth is because unlike with a regular job where you do your thing and get paid. With a business you need to grow and learn and adjust to the things that happen; you are in control over your own success and you are in control over what you learn and do. The other nice thing with owning a business is that unlike a job if something changes the business itself is an asset where simply having a job doesn’t have any future or potential value.
So what’s the next step? Its time to start evaluating some ideas for what I could do for a business, how I could start my own thing and maybe get it going before I try stopping being a working stiff.
Tags: Business Ownership, Entrepreneurialism, Risk
Posted in Commentary, Investments | 1 Comment
The Impact of Fear on Investing and Spending
September 26th, 2006
I’ve read a few posts about the impact of fear on a few other Personal Finace blogs but I wanted to tackle the subject myself. The very simple reason for this is that fear has been a great contributor to how I structure my finances and investments, at least it has in the past. Therefore even if I might not have adequate knowledge to talk on the subject I do have experience with it.
What experience do I have with fear impacting my spending and investing?
Initially when I started working I was living at home and I had few debts. Only one credit card to my name that had a low limit and the majority of my money was mine to spend. And spend that money I did. I got complacent in the knowledge that I could go do whatever I wanted because I had money. This complacency quickly turned into fear whenever the thought crossed my mind that maybe I should be spending less and saving some money. You might think it amusing but it truly was fear; I needed to be able to keep pace with my friends who were spending just as much as I was.
Before long I was 3 credit cards and a line of credit in debt for close to $30,000 but this didn’t stop me, fear was still driving me. The fear that I might not be able to keep my lifestyle kept everything just floating along for years, eventually I got to the point where I knew I had to stop spending more than I was making and I did. Everything mostly evened out and I was able to literally float all my debt and still enjoy myself most of the time.
So where was the fear at this point?
The fear of change kicked in after a little while and even though I knew that I needed to change my spending habits I didn’t. My debt load was slowly burying me so I consolidated some debt but the spending continued. I was scared of what I might have to do to actually get out of debt. Going out with my friends had become a staple of things that needed to be done as opposed to the luxiury that in reality it was. I have managed to overcome some of these fears and I now lead a much more frugal lifestyle in comparison. I still spend more than I should but now I am conscious of where my money is going and I account for it. If I know that I have bills to pay I make sure that I don’t overspend between pays and even more important I make sure that I no longer use my credit cards.
Now I have a new fear to overcome. Investing.
I have always been a consumer, I spend more than I make or I used to and I never set aside any money for pretty much anything. I am a dream customer for credit card companies, I don’t miss payments and I keep a very large balance. Investing for me is like spending money without a tangible result. It’s a fear of the unknown which is a considerable reason for why this site exists. Will I get over this fear? Yes, but I need to arm myself with knowledge to mitigate risks and to ensure I’m investing money that I can loose.
Posted in Investments | 2 Comments
Investing – Comfort Level
September 20th, 2006
Being that I’m currently quite far in debt I should be concentrating on paying the debt down rather than investing and I am. But with that said I have a rather lofty goal which will require investment unless I happen to find a bag of money. Which has inevitably lead me to thinking about what will be involved in getting some investments going and how I’m going to start investing. The very first thought that has crossed my mind is how much I can invest and when. I’ve been depositing 50$ per pay into two mutual funds for half a year now but I’ve been thinking above and beyond that.
The conclusion to my thinking isn’t which investment I am going to be putting my money into but how much can I invest. I’m being honest with myself when I say that until I pay off my credit cards there should be little to no investment unless I’ve mitigated the risk considerably and know it’s a safe bet. Many of the business and personal finance books say that you should invest what you’re comfortable loosing. They don’t say that you should invest what you can afford but what you can loose.
People always seem to forget that an investment is a risk regardless of what that investment is. I’ve seen people get into arguments because the mutual fund that they picked blindly for their retirement savings has been loosing about 10% for years. I don’t know if this is the case but the fact that people are arguing about an investment loosing money means they didn’t invest carefully planning out the fact that the money in the investment has a chance to be lost especially if the choice of investment wasn’t made intelligently.
When I start investing it will be after doing more careful research than when picking my mutual funds (which are doing passably at the moment) and the initial money that will be invested is what I will be comfortable loosing if that happens. I don’t intend to loose the money but I’m not going to be investing rent money; the money going in will be a quantity that I am comfortable parting with that won’t impact my lifestyle or existing debt load.
Tags:Investing, Mutual funds, Investment strategies
Posted in Investments | 3 Comments
Education – The guaranteed investment
September 19th, 2006
I’ve been reading more and more Personal Finance blogs, many of which concentrate on frugality. This is a great thing; people are sharing ideas on saving money and collecting their money in relatively safe investments such as high interest bank accounts. This is great for them but I’ve also seen the opposite, not great ideas but people complaining about the fact that something might cost them money, especially when it comes to investing in their education. Thankfully we can get a lot of information from the internet but when that fails as far as my opinion goes there is one safe investment and that is education.
I hated going to school, I always found it boring and taught in an unappealing manner. I never questioned the fact that the learning was worthwhile. When you have an opportunity to take a class that will help you achieve a goal regardless of if it’s a financial one or not spending the money to learn from people who are willing to teach and have the expertise to teach is a great investment. When it comes to most forms of education there’s a cost associated with it and of course that has to be taken into account and weighed but you can’t shirk at a dollar figure if the class that you’re going to take can potentially make you more in return.
Have I ever been in a situation where I had to mentally justifying paying for education that was expensive? Yes I have, I have a degree from University of Phoenix that I paid for myself. This was a huge cost at a time when I was already ladenned by debt, I questioned my decision numerous times but I didn’t question the value of what I was learning. For as much as any individual class, course, or seminar might not teach you very much it can give you perspective which you can turn around and learn from. Every opportunity to learn is a great opportunity even if you don’t learn much, which is why I feel that education, is a great investment (as long as you’re not putting yourself in the poor house to get it… and even then it might be worth it)
Tags:Investing, Eductation
Posted in Investments | 1 Comment
