Why Invest?
Investing is when you take your excess money and put it to work, to make more money for you. If you end up with a stream of income every month from investments, that's called cash flow. As you can imagine, cash flow is a good thing. :)
So, why should you invest? There are many reasons besides the obvious.
Did you say "yeah, right," at the part where I said "excess money"? If you're like most middle-class people (like me), you spend all the money you get every month, saving maybe a couple thousand dollars for emergencies. You've run up a credit debt that's sort of high, but it's no problem because you're able to pay the minimums on your credit card bills every month.
If that's you, my friend, you're in a trap. The Middle Class trap. Your way of thinking has trapped you, like so many people around you, and you're going to pay for it dearly at retirement.
I strongly recommend everyone read the book Rich Dad, Poor Dad. Absorb the wisdom that Kiyosaki teaches in there. He explains how rich people think, which is extremely different than how middle class and poor people think. A lightning bolt went off in my head when I read that book. I am trying hard to think like the rich, from now on.
There's a few things you need to do before you can reliably have any excess money for investing. You need to truly identify your monthly income and expenses, and make sure you're not spending more than you're making each month. There are many people who spend more than they make, every month, and don't realize it because their credit cards hide that fact. Don't be one of them - it's a trap.
Next, you need to trim down your expenses to be lower than your income. Lower than they are now. Any money left over after expenses, per month, is available to you for investing.
Now, that's not exactly what Kiyosaki says, this is my interpretation. Remember I've only been investing properly for nearly 1 year now; I'm still new to it, but I'm learning more all the time.
Remember, any expenses you can eliminate, or lower, is extra money in the bank. Rather than spending it (and thus destroying it), you can invest it and possibly make more money with it over time. Even if that money is put in a "bad" investment, it was a good thing - you learned something (possibly what not to do in the future :) ). The old way, the money would be spent and lost completely anyway; this way you used the money to build your future - increasing your knowledge, if nothing else.
Eliminate Credit Card Debt
Credit card debt is a blight upon your budget. The percentage rates are annoyingly high, and it's all for things you've already gotten enjoyment out of; now it's time to pay the piper. The "minimum payment" is calculated to keep you in debt for a long time, and pay the company way more interest than you probably imagine. That interest you're paying is simply money you can't spend on yourself and your family. It's wasted money.
A lot of investment books I've read say not to get too heavy into investing until you've eliminated your credit card debt completely. That sounds pretty extreme, but it's a smart thing to do - because it shows you are in control of your budget and spending, something that's vitally important as you get deeper into investing. So let's look at this for a moment.
Here's 3 important things to getting rid of credit card debt:
Oh, I almost forgot! You can call your credit card company and ask them to lower your APR! Get up the courage, and give them a call. I do that on all my credit cards about once every 6 months; sometimes they will do it, and sometimes they won't. It's worth a try, right? Ask them to raise the limit of your lowest interest rate card, so you can do some balance-transfers from the other cards to that one. Anything to reduce the amount of money you're paying in interest, so that more of what you pay can to towards the real debt - so you can get out from under that weight as soon as possible!
Once you've paid off a whole credit card, congratulations! It feels really good, doesn't it. But whatever you do, DO NOT CLOSE THAT CREDIT CARD ACCOUNT. Your credit rating is based partly on how much total credit you have that's unused - how much spending room you have. So don't damage your credit rating by closing any cards! See the vision: you are going to have 3 or 4 credit cards (or more), with NO balances on any of them.
Remember that most debit cards can be used anywhere credit cards can (mine's a Visa card); the money comes directly out of your checking account either way.
Once you've paid off all your credit cards, it's time for a celebration! I'm going to be at that point myself later this year; probably in August. Once they're paid off, that's about $250 a month more I can throw at investments; I will have freed up a juicy $3000 per year of my income for investing! (I have a lot more than $3000 in credit card debt right now, but I expect to get certain extra chunks of money this year that I will throw at it to pay it off by August).
Saving that Extra Money
There are many ways to save money. One is your basic savings account. Seems simple enough. The main point is to make sure it's a different account than the one you normally spend from like your checking account.
I have 1 personal savings account, and 1 personal checking account. But, I have 5 different "funds" in my savings account! It's just mental gymnastics - I created a spreadsheet with different columns for the different funds such as Emergency Fund, Christmas Fund, Hawaiian Vacation Fund, etc. Each column has its own total at the bottom, using the Sum feature of the spreadsheet. Then, anytime I deposit money there, I have to decide how to divide it up across the funds, and enter the numbers into the spreadsheet. I even have a "Total Total", which Sums horizontally the Totals at the bottom - that's the amount of money actually sitting in my bank account, according to the spreadsheet (so I can check it against my bank statements).
Ask your bank for the highest paying savings account, like a high-yield money market account. Often, if you keep a reasonable balance, they can boost the percentage rate they pay you for the money sitting there. It's nothing like the returns you'll get from real investments, but hey, every dollar helps.
So, why should you invest? There are many reasons besides the obvious.
- Making money thru the right investments takes less time than working a normal job; as your investments grow, eventually you'll only have to work part-time (when investments provide half your required income); and later on maybe you'll even quit your job entirely, and still have the same income.
- Social Security is not going to be as great for you as it was for your parents. In fact, it may not exist at all for you. Even today, Social Security is not providing enough money for retirees to live as comfortably as *I* want to when I retire. And I'm sure the payout is not going to increase any time soon. Your company's pension plan? Many companies are reducing or cutting pension plans completely. There are stories of companies that screwed many employees out of a pension by laying them off months before retirement.
- Your financial future rests more firmly in your own hands with investing - rather than being at the mercy of an employer, the government, and other organizations.
- Your expenses will only go up over time, sometimes by things out of your control. The cost of living is going up. If your income doesn't also go up, you'll suffer for it. Investing can produce a nice extra income.
- Once you understand investing, it's fun!
Did you say "yeah, right," at the part where I said "excess money"? If you're like most middle-class people (like me), you spend all the money you get every month, saving maybe a couple thousand dollars for emergencies. You've run up a credit debt that's sort of high, but it's no problem because you're able to pay the minimums on your credit card bills every month.
If that's you, my friend, you're in a trap. The Middle Class trap. Your way of thinking has trapped you, like so many people around you, and you're going to pay for it dearly at retirement.
I strongly recommend everyone read the book Rich Dad, Poor Dad. Absorb the wisdom that Kiyosaki teaches in there. He explains how rich people think, which is extremely different than how middle class and poor people think. A lightning bolt went off in my head when I read that book. I am trying hard to think like the rich, from now on.
There's a few things you need to do before you can reliably have any excess money for investing. You need to truly identify your monthly income and expenses, and make sure you're not spending more than you're making each month. There are many people who spend more than they make, every month, and don't realize it because their credit cards hide that fact. Don't be one of them - it's a trap.
Next, you need to trim down your expenses to be lower than your income. Lower than they are now. Any money left over after expenses, per month, is available to you for investing.
Now, that's not exactly what Kiyosaki says, this is my interpretation. Remember I've only been investing properly for nearly 1 year now; I'm still new to it, but I'm learning more all the time.
Remember, any expenses you can eliminate, or lower, is extra money in the bank. Rather than spending it (and thus destroying it), you can invest it and possibly make more money with it over time. Even if that money is put in a "bad" investment, it was a good thing - you learned something (possibly what not to do in the future :) ). The old way, the money would be spent and lost completely anyway; this way you used the money to build your future - increasing your knowledge, if nothing else.
Eliminate Credit Card Debt
Credit card debt is a blight upon your budget. The percentage rates are annoyingly high, and it's all for things you've already gotten enjoyment out of; now it's time to pay the piper. The "minimum payment" is calculated to keep you in debt for a long time, and pay the company way more interest than you probably imagine. That interest you're paying is simply money you can't spend on yourself and your family. It's wasted money.
A lot of investment books I've read say not to get too heavy into investing until you've eliminated your credit card debt completely. That sounds pretty extreme, but it's a smart thing to do - because it shows you are in control of your budget and spending, something that's vitally important as you get deeper into investing. So let's look at this for a moment.
Here's 3 important things to getting rid of credit card debt:
- never buy anything with a credit card that you can't pay off completely the next month;
- when you get the bill each month, pay off 100% of any new charges PLUS the minimum monthly payment;
- whenever you can, pay off more than that.
Oh, I almost forgot! You can call your credit card company and ask them to lower your APR! Get up the courage, and give them a call. I do that on all my credit cards about once every 6 months; sometimes they will do it, and sometimes they won't. It's worth a try, right? Ask them to raise the limit of your lowest interest rate card, so you can do some balance-transfers from the other cards to that one. Anything to reduce the amount of money you're paying in interest, so that more of what you pay can to towards the real debt - so you can get out from under that weight as soon as possible!
Once you've paid off a whole credit card, congratulations! It feels really good, doesn't it. But whatever you do, DO NOT CLOSE THAT CREDIT CARD ACCOUNT. Your credit rating is based partly on how much total credit you have that's unused - how much spending room you have. So don't damage your credit rating by closing any cards! See the vision: you are going to have 3 or 4 credit cards (or more), with NO balances on any of them.
Remember that most debit cards can be used anywhere credit cards can (mine's a Visa card); the money comes directly out of your checking account either way.
Once you've paid off all your credit cards, it's time for a celebration! I'm going to be at that point myself later this year; probably in August. Once they're paid off, that's about $250 a month more I can throw at investments; I will have freed up a juicy $3000 per year of my income for investing! (I have a lot more than $3000 in credit card debt right now, but I expect to get certain extra chunks of money this year that I will throw at it to pay it off by August).
Saving that Extra Money
There are many ways to save money. One is your basic savings account. Seems simple enough. The main point is to make sure it's a different account than the one you normally spend from like your checking account.
I have 1 personal savings account, and 1 personal checking account. But, I have 5 different "funds" in my savings account! It's just mental gymnastics - I created a spreadsheet with different columns for the different funds such as Emergency Fund, Christmas Fund, Hawaiian Vacation Fund, etc. Each column has its own total at the bottom, using the Sum feature of the spreadsheet. Then, anytime I deposit money there, I have to decide how to divide it up across the funds, and enter the numbers into the spreadsheet. I even have a "Total Total", which Sums horizontally the Totals at the bottom - that's the amount of money actually sitting in my bank account, according to the spreadsheet (so I can check it against my bank statements).
Ask your bank for the highest paying savings account, like a high-yield money market account. Often, if you keep a reasonable balance, they can boost the percentage rate they pay you for the money sitting there. It's nothing like the returns you'll get from real investments, but hey, every dollar helps.
technorati tags: retirement, investing, cashflow, saving, social security
posted by Paulio @ 9:02 PM
0 Comments:
Post a Comment
<< Home