According to CNBC, Apple is ready to launch the iPad 3 next week. After this they will be feverishly working to release the iPhone 5. All of this excellent technology has infiltrated our lives and convinced us that if we don't have these things we are less productive and not as cool. I don't have a problem with people owning this technology as long as they can afford it! These companies (not just apple) with their excellent advertising and product appeal, have shifted these items from our 'want' list, to our 'need' list. We cannot imagine how we got by without being able to browse the web on our phone, but it is possible! If you are struggling, look to see if getting a cheaper phone plan will help with budget and the next time you are convinced you 'need' a new tablet, really reflect on if you can afford it. This will allow you to save more money or pay off more debt.
--A Future Millionaire
Tuesday, February 28, 2012
Tuesday, February 21, 2012
Analyze your Rates of Return
The days of getting 3% interest on your savings account is not coming back anytime soon but that doesn't mean you should sit back with your money and be happy with the 0.05% they may be giving now.
To grow your money you have several options (even more than I will mention here):
For long term investing go with a Mutual Fund or Exchange Traded Fund. Over the long haul (5+ years) these will allow for 6% to 12% rates of return. However, for money that you may need soon these investments are too volatile.
For short term investing you have a couple of options. The one with the most risk would be a peer-2-peer lending site such as Lending Club or Prosper. This type of site evaluates borrowers and then (if the site accepts them for the loan), they look for lenders. That is where you would come in. You become a lender and lend your money to several different loan accounts and whenever they make a payment you get some of the money back. Unfortunately these loans are unsecured, so if a borrower goes bankrupt, your money invested in that loan is gone. Usually though if you have a lot of different accounts the rate of return on our money will be about 8% over a three year period. (I have not actually tried this myself but I have heard good things).
The next highest rate of return would be in a Certificate of Deposit (CD). These have several downsides, the most daunting is the locked-in term. When you by a CD you do so for a set term, say 2 years. This means that if you need the money before two years is up, you will have to pay a penalty on the interest that you accumulated. Depending on the term length, a current CD can produce a 0.5% to 1.5% APY. (These are FDIC insured so there is no risk of losing money.)
There is also a special type of CD that allows you to make a one-time withdraw without penalty. These are probably your best bet when it comes to CDs. The one I like is offered by Ally Bank and yields a 0.91% APY.
Then the final option is a money market account. This is just a glorified savings account with slightly higher rates of return. Money markets nowadays can range from 0.25% to 0.85% depending on where you bank and how much you keep in the account. These are also FDIC insured.
The main objective here is not the interest rate or how you invest, it is the fact that you are paying attention to your money! Paying attention to your money will lead to wealth. You can easily wander into debt but it is very hard to get out of debt and become wealthy. It starts with paying attention.
--A Future Millionaire
To grow your money you have several options (even more than I will mention here):
For long term investing go with a Mutual Fund or Exchange Traded Fund. Over the long haul (5+ years) these will allow for 6% to 12% rates of return. However, for money that you may need soon these investments are too volatile.
For short term investing you have a couple of options. The one with the most risk would be a peer-2-peer lending site such as Lending Club or Prosper. This type of site evaluates borrowers and then (if the site accepts them for the loan), they look for lenders. That is where you would come in. You become a lender and lend your money to several different loan accounts and whenever they make a payment you get some of the money back. Unfortunately these loans are unsecured, so if a borrower goes bankrupt, your money invested in that loan is gone. Usually though if you have a lot of different accounts the rate of return on our money will be about 8% over a three year period. (I have not actually tried this myself but I have heard good things).
The next highest rate of return would be in a Certificate of Deposit (CD). These have several downsides, the most daunting is the locked-in term. When you by a CD you do so for a set term, say 2 years. This means that if you need the money before two years is up, you will have to pay a penalty on the interest that you accumulated. Depending on the term length, a current CD can produce a 0.5% to 1.5% APY. (These are FDIC insured so there is no risk of losing money.)
There is also a special type of CD that allows you to make a one-time withdraw without penalty. These are probably your best bet when it comes to CDs. The one I like is offered by Ally Bank and yields a 0.91% APY.
Then the final option is a money market account. This is just a glorified savings account with slightly higher rates of return. Money markets nowadays can range from 0.25% to 0.85% depending on where you bank and how much you keep in the account. These are also FDIC insured.
The main objective here is not the interest rate or how you invest, it is the fact that you are paying attention to your money! Paying attention to your money will lead to wealth. You can easily wander into debt but it is very hard to get out of debt and become wealthy. It starts with paying attention.
--A Future Millionaire
Saturday, February 4, 2012
The Flywheel
In Jim Collins book Good to Great he introduces the idea of the flywheel:
"Picture a huge heavy flywheel, a massive metal disc mounted horizontally on an axel, about thirty feet in diameter, two feet thick and weighing about 5000 pounds. Now imagine that your task is to get the flywheel rotating on the axel as fast and long as possible. Pushing with great effort you get the flywheel to inch forward moving almost imperceptibly at first, you keep pushing and after two or three hours of persistent effort you get the flywheel to complete one entire turn. But you don't stop, you keep pushing and the flywheel begins to move a bit faster and with continued effort you move it around a second rotation. You keep pushing, in an intelligent, consistent direction. Three turns, four, five, six, the flywheel builds up speed, seven, eight, you keep pushing, nine, ten, it builds momentum, 11, 12, moving faster and faster with each turn, 20, 30, 50, 100! Then at some point breakthrough. The momentum of the thing kicks in your favor, hurling the flywheel forward turn, after turn. Whoooosh! It's own heavy weight working for you. You're pushing no harder then during the first rotation but the flywheel goes faster and faster and faster still. Each turn of the flywheel builds upon the work done earlier, compounding your investment of effort 1,000 times faster, then 10,000 then 100,000 the huge heavy disc flies forward with almost unstoppable momentum."
This is a powerful statement of how our finances actually work. Unfortunately for some of us, we have been pushing the flywheel in the exact wrong direction we want it to go. By building up debt and wasting money, the flywheel may be spinning so fast in the wrong direction it's hard to picture it stopping, much less spinning the other way.
So what can we do to get it turning the right way?
1. Stop borrowing money! You can't make much progress if you continue to push in the wrong direction.
2. Get help. Sometimes you can't reverse the flywheel by yourself. Reach out to someone you trust and ask them to help you get your finances under control. Also read all the material you can about how to handle money.
3. Don't give up! It is going to take consistently smart decisions with your money to get you out of the mess. As long as you keep pushing everyday things will start to move in your favor.
4. Invest in assets. Once you get everything under control and are out of debt, invest money so that you can make more without doing more work. (This is what really gets the flywheel going fast in the right direction).
5. Enjoy. Once the momentum of your smart decisions builds it will be easy to maintain, so you can sit back, relax and enjoy.
--A Future Millionaire
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