Avoid keeping cash in your checking account

Checking accounts typically pay some of the lowest interest rates of any financial tool. With modern electronic transfer and the ability to link accounts, it's in your best interest to avoid extremely low (or zero) interest rates and move your funds to a money market account or a FDIC insured savings account. One or two day money movement between accounts will quickly pay for itself and is well worth the effort.

Fitness club membership: Use it or drop it!

It may not surprise you that many gyms make a substantial about of their revenue from members who rarely or never show up to work out. This has been a bit of a secret to the industry and I learned this lesson quickly while I owned a significant investment in a gym in the Denver area.

Be honest with yourself and calculate a cost per use for your gym visits. Twice a month for a $30 gym is $15 per visit. Many gyms have a daily rate which you should make use of if the rate per use (times the number of visits) is lower than the monthly fee. Many members simply keep on paying because they constantly tell themselves, "well - maybe next week." Don't join them! Use the membership or cancel it -- it's just a senseable thing to do.

Increase your automobile insurance deductible

Automobile insurance should only be used for significant or catastrophic loss and not for small loses that your insurance company treats as nuance. Examples include the $350 parking lot bumper car challenge, a minor quarter panel repair, or a dented door. Your money saving opportunity in this area is to increase your deductible on all parts of your policy.

While you have every right to collect a $350 claim if you have a $100 deductible, you create a track record for your insurance company that will be reviewed year after year. Further, you are creating handling and processing cost for the insurer that, for small claims, many times exceeds to cost of the claim itself. Ultimately, you will pay premium rates for this service that you really do not need.

You are better off carrying at least a $1,000 deductible and pay for small losses if they occur. You’ll get a break from your insurance company and you can use these savings year after year to fund your own deductible payment. In the long run, nearly everyone comes out ahead.

The discipline of having money (part 2)

Note: Before reading this part of a two part series, please read part one and write down your perspective.


My experience with this exercise is that individuals fall into one of the following categories:

Spenders

Folks in this group usually note spending type activities such as buying a new car, going on a vacation (and taking family with them), acquiring a new HDTV and surround system with an Xbox 360 or the like, etc.

Debtors

Individuals in this area already have debt and they are using the unexpected funds to reduce or retire accumulated debt. Note that many, but not all, debtors arrived at this point because they are actually spenders.

Givers

Some folks are extremely charitable and would give a large part or all of the funds away to causes they are looking to help.

Savers or Investors

This group has noted how they will save or invest funds for future gain or income. In many cases, they can exhibit traits of the first three: they may spend a piece, could retire some debt, and might give some away to charities. The majority of the funds, however, are saved or invested for future return.


Here’s the root message in this thread and why I have titled it “The Discipline of Having Money.” Unless you fall into this final group of savers or investors, weeks or months after receiving the $50,000, it’s gone. Meaning you no longer have $50,000 or, in many cases, even a fraction of it. Money has burned a hole in most of these individuals’ pockets.

Let’s take the average American family making just over $45,000 who elects the first option. Sure, they have a shining new SUV in the driveway and a state of the art HDTV. Other than a couple of dinners out, the money is gone. But here is how their lives are actually worse off: now that they have the new Navigator, stepping back five or seven years later to a more affordable model (after the current one is worn out and worth less than a third of what they paid for it) won’t be comfortable so they’ll overextend and lease another luxury model. Further, during this ownership, they will have paid much higher registration fees, insurance, etc plus the extra $12 a month for HDTV service, etc. They are caught in an endless spiral where they consume, consume more, until they are so underwater they wonder what happened.

Now consider the saver or investor. This individual knows that, properly invested, he or she will earn income, technically the $50,000 will earn or labor for them, to the tune of $2,500 year, guaranteed by the Federal Government through T-Bills or insured Cds. Or, these individuals will use funds for long term stock market investments (closer to 10% annually or $5,000 per year), or leverage the funds as a down payment commercial or residential investment real estate which will provide future income and, most likely, significant future capital gain. This is the ONLY group that, in the end, still have $50,000 and, in fact, actually have more just six months later.

Having money requires discipline!

Choose a credit card that's right for you

One size does not fit all when selecting a credit card. Consider the following during your selection:

If you carry a balance month to month, find a card with the lowest monthly interest rate. Do not be as concerned (though don’t ignore) the annual fees for the card. In calculating the cost of the card, calculate the interest you will spend annually and then add to that number the annual fee of the card. The card with the lowest total should be in your purse or wallet. If you are carrying a balance, have a good or excellent credit rating, and have been a solid and on time customer with the credit card company, call them and request a lower rate. If you are a valued client, and those that carry balances AND pay on time are the most valued - the credit card issurer will have every reason to keep you. If they will not lower your rate, shop around for the best deal and switch cards.

If you do NOT carry a balance, card fees and features become critical. Features such as cash rebates, airline miles, or car purchase reward points are available and everyone will have a different reason for using a particular card. My personal choice is a card that allows me to collect miles on United Airlines. This card costs more than I like ($140 per year) but allows me to rapidly build miles, pretty much insures that I remain an executive member with United’s Mileage Plus program, and places no limits on the total number of miles I can collect. Others will chose cards with cash back. This is a great option for cards that offer significant rebates on gas purchases or direct checks to you for using the card. Just insure you know what you are receiving for the fee paid.

Just 12 cents an hour...

Earning a mere 12 cents per hour, every hour, every day of the year totals more than $1,000 per year. Twelve cents! Of course, you can't work every hour of every day so it's not possible to do this purely by the sweat of your labor. The wealthy are well aware that they make money nearly every hour of every day through the ownership of assets.

Here are some examples which use simple, non compounding math:

$25,000 CD at a bank earning earning 4.5% annually earns (actually works or labors!) for the holder for almost $.13 per hour

Stock dividend on a $15,000 holding paying 5.1% earns the shareholder $.09 an hour, every hour, every day

Rental real estate valued at $245,000 appreciating at 3.5% annually delivers $.98 per hour in price appreciation

The simple trick to all of the above examples is that an individual MUST own capital in order to receive the benefit. This is why the rich get richer -- constantly! Middle class laborers who have few assets but have credit card balances go the other way. Their net worth declines as the dollars and cents becomes the property of the bank through interest payments.

Ownership and control of capital is the backbone of a capitalistic society and is essential for building wealth.

Capital -- it's a good thing!!

Kick the lottery ticket habit

Lottery players gamble against many thousands to many millions to one for a chance at winning. Many states set up lotteries as an alternative to help fund schools. Clearly, money for schools is a good cause but understand what you are giving up by buying these tickets.

If you have a $5 a week habit, putting that money into a simple interest bearing account at 5% instead of buying a ticket will compound to $3,270 in ten years. A $10 a week habit compounds to $11,871 in 10 years. And a $50 a week habit: an astounding $29,072 in 10 years. (These calculations do not even count the cost of the trip to 7-Eleven or the additional soda, magazine, or other expensive consumption items that you pick up simply because you are there to get your lottery ticket!)

Don't get lured into the drama. Yes, folks win. But almost everyone loses! Why join them? If you are buying tickets to help out schools, make a direct donation instead. You'll do better and so will the schools you are trying to help.

The discipline of having money (part 1)

Before reading part 2 of this two part thread, take a few minutes and write down your answer to the following question.

If you were to suddenly receive an unexpected gift, capital gain, inheritance, etc, of $50,000, what would you do with the money?

Write down your answer with as much clarity as possible, just as if it really did happen. You are simply noting what you what you would do if it did. There is no right answer; there is only your answer.

Don't worry, I'll wait! Just be sure to answer this question before going on to part 2.

Fund your next vacation through eBay

Chances are you have a bunch of stuff which still has some value but you never use, it may not be a heirloom item, but it's clogging your basement, closet, or garage.

Fund your next vacation by selling that unused camera, radar detector, laptop, or board game on eBay. Setting up an account, shipping, and getting paid is very easy.

Help those who are serving you

In the US, service workers are some of the hardest working yet lowest paid employees. In many case, waiters, maids, cab drivers, etc earn a large part of their income from tips. I find that most of those that I travel with and socialize with adequately tip between 15-20% for wait staff and cabs, many tip hotel maids little or nothing at all. A simple and small tip of $2 to $5 per night, helps someone who is doing a service for you. If you are staying multiple nights, you'll probably notice a difference with an extra candy, refreshed soap and shampoo, and probably the best towels they have on the rack. Bottom line: your recognition of them is meaningful! If you are tipping a hotel maid, leave the tip on the pillow as many are instructed to leave everything else alone. When it's on the pillow, it's clear who the tip is for!

Invest in a shredder

Acquiring a shredder is really an investment in your privacy. Make it a point to shred unnecessary credit card applications, old credit card or bank statements that you are throwing away, any payroll receipts that you are throwing away, as well as old tax documentation that you are not keeping.

While you are at it, be sure to shred or destroy any CDs or DVDs that you have burned personal information to so that others cannot collect personal information.

This is an inexpensive and easy opportunity to protect your identity from theft.

Idea for New Year's resolution

An idea for a New Year's resolution is to give yourself a pay raise. If you are not already contributing the maximum to your 401(k) or 503(b) plan at work, either begin or increase your contribution to at least receive the maximum your employer will match. This is absolutely free money (no taxes now and it grows tax free!) and will provide additional income during retirement.

Detail your car at least once a year

Many consumers replace cars and trucks earlier than necessary because the vehicle begins to look old and tired. Even though the car or truck might have a long life ahead, the owner growing tired of it is the real reason for replacement.

If you fall into this category, try these simple and inexpensive tips:

Interior:

- Once year, remove EVERYTHING from the car. Remove absolutely everything that is not bolted on or screwed down.
- Clean every inch of the inside of the windows, wipe off the dash and doors, and vacuum every french fry and bread crumb and collect the coins from under the seats.
- If the floor mats are wearing down, treat yourself to a new set. Don't go for the cheap copies at the discount store. Call your local dealer and order factory fitting and matched floor mats. Remember; in many cases folks replace their car at this point so a hundred bucks or so for new floor mats really equates to very significant savings!
- Place back in the car the owners manual, necessary power cables for your cell phone or iPod and the interior is complete.

Exterior:

- My take is to leave this to professionals who, in most markets, will wash and wax the exterior of your car for $35-75 depending on your location. If you do this yourself, insure that you fully wash and dry the car without letting spots form. Use a high quality polish or polish with wax and closely follow the directions on the label.
- After washing and waxing, spend some time wiping off the fine brake dust on the rims or wheels.
- Finally, apply a deep shine solution like Armour All, to all the exposed plastic or rubber on the car -- especially the tires!

This is at least a four-hour effort per car. Once done, step back and ask yourself if you really need to replace the car or truck. Friends that have done this tell me that this simple and inexpensive activity can add one or two years to the pride of ownership.

Consider a portable GPS navigation system

GPS systems available as built in devices in modern automobiles become quickly outdated and are very expensive. Auto manufacturers charge thousands of dollars for such systems and many require DVD subsystems in the car and expensive update services to keep the device accurate. Much like a cassette tape option (or it's predecessor the 8-track tape!), these devices become more of a hassle than a benefit over time.

An easy answer, for newer as well as current vehicles, is portable GPS units. These units offer the benefit of be portable between multiple cars (do you really need a navigation system in every car?), have a much lower cost and, much like an iPod are easy to update and can be replaced as technology advances. My experience with Garmin has been fantastic and I have owned a Garmin Streetpilot GPS more than a year. I travel with it and find my GPS much easier than learning the systems in rental cars (as well as avoiding the extra charge for navigation systems that rental car companies are happy gain revenue! Current models such as the Garmin Nuvi 360 or Garmin Streetpilot C340 are very solid choices.

Tax refunds are not found money!

If you receive a tax refund it is not found money! You earned it but your deductions were too high so you provided Uncle Sam with an interest free loan. Treat this money wisely -- you worked hard for it.

Avoid buying new cars

Consumers are addicted to new cars and car manufactures feed the addiction though slick advertising, new gadgets, and updated designs. However, up to 20% of the cost of a car is lost immediately after leaving the dealer’s lot. The answer: purchase or lease a 'newly used' car or truck that is two or three years old. You'll receive 90% of the features, most cars are still under warranty, and you'll avoid paying the immediate depreciation of a new one. Further, because you are purchasing used, you'll avoid some sales tax and your insurance will typically be lower.