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Money Management is Simple: Don't Listen to the Noise
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I like to read (and sometimes answer) the questions on LinkedIn (add me to your network) every so often, especially in the personal finance and Web development categories.
The other day, I ran into a great question with some not-so-great answers.
Money Management: They teach in school that best way to generate returns from capital is through proper money management. What is your money management method? How do you ensure that you are employing your savings profitably? What are the best ways to protect investments from market crash and along with saving taxes?
This question goes to the heart of managing your money.
How do you save? How do you ensure you're getting good returns on your money? How do you prepare yourself for highs and lows in the markets?
As is usually the case with LinkedIn questions, the people providing the answers are the ones hoping to make some money off of the question. There's nothing inherently wrong with that, but (as often happens) the answerers are providing poor information in hopes of making a buck.
Check out these answers.
From a Capital Market Professional: "I am afraid there is no direct answer. But there are mitigation possibilities. If you find the equity market has gone over board from medium / long term point of view, start moving moneys to fixed return investments (basically debts-deposits, etc)."
From a Manager Product Marketing: "Not having any investments takes away the sorrow of having to protect it. So I would say that proper money management is to spend it."
From the Owner of a Personal Wealth Management company: "Wealth Management - my thoughts though influenced by U.S. laws (eg. tax statues) are universal: [LINK TO WEBSITE]"
These aren't bad answers, per se, but none of them are truly helpful.
Money management isn't hard, and if you know the basics, you don't need to listen to the noise. Here's my answer to the question.
There are tried-and-true, easy ways to properly manage your money. You don't need to pay for someone to tell you these.
1) Spend less than you earn.
2) Pay yourself first.
3) Automate your payments and savings/retirement contributions.
4) Invest in index funds.
5) Diversify your investments — stock funds, bond funds and int'l funds.
6) Stick with it. Don't time the market.On a side note, make sure you're getting the most from your checking/savings account. FDIC-insured online accounts often yield much higher interest rates than brick and mortars.
Most of these people are out there to make a buck off of you, but you don't have to be afraid of managing your own money. In fact, once you get the fundamentals down, you can even purchase investments that outperform the "professionals."
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Why Living on a Paycheck to Paycheck Mentality Works
Living paycheck to paycheck isn't a great way to manage your money, but there's something to be said about having a paycheck to paycheck mentality.
We have a nice retirement accounts, an emergency fund, and are even saving specifically for a house. But we still live with a paycheck to paycheck mentality — and I'm glad that we do.
If you have automated your finances — including monthly retirement contributions, debt payments and transfers to high-yield online savings accounts — then living with paycheck to paycheck mentality is okay.
Because our finances are automated, our money is constantly doing something. It's getting added to our Roth IRAs or it's going into our housing fund or getting direct deposited into our checking accounts.
But since many checking accounts (including ours at Bank of America) pay nothing in interest, there's no reason to keep more money in there than necessary. So we only keep a certain amount in our checking account — enough to get transferred via automatic payments or to our outside savings funds and for bills.
This forces us to live a paycheck to paycheck mentality, even though we're saving for now and saving for the future.
With a paycheck to paycheck mentality, you're waiting for that next paycheck, but not just to pay the bills. It's also to invest and to stick into a high-yield savings account.
It works. Give it a shot — find out where all your money goes (start a budget), automate it, and then watch your spending.
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What's Going On With the Site?
Sorry for the problems with the site, recently. Wordpress was having some database problems — some plugins were overloading and not everything was up to date.
Apparently, some worm was being propagated on my host's server because of some out-of-date software, causing the site to go down for a day or so.
Everything has been updated, though, and I've actually re-installed Wordpress to make a cleaner database.
Hopefully the site should be working fine for you. If you notice any problems, please let me know.
On a side note, I'm considering a new Wordpress theme — have any suggestions?
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On Living Without Direct Deposit
My wife recently started a new job after we made our move, and so far she's loving it.
She works great hours with good people and even gets to use the in-house gym, so she's maximizing the most out of work.
But because she hasn't been there for enough pay cycles, we don't have direct deposit yet. It's not a huge deal, since she's still getting paid, but you realize how convenient it really is when you don't have it.
We're not so good at going to the ATM, so the checks have a tendency to sit around for awhile.
When the checks aren't deposited, the money won't get any interest (however little it may be) and we have to watch our balance more carefully to make sure our automatic payments won't short us too much.
We'll have direct deposit set up for her in the next pay cycle or two, but not having that automatic system really adds another layer of managing your money that can be avoided.
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Online Banking and Shopping As Predicted in the 1960s
I just came across this video today on Snopes.com, depicting what online shopping and banking would be like in 1999.
Believe it or not, this video was made in 1967.
Check it out.
It's actually pretty accurate, although the details are obviously different.My favorite part has to be the description of paying for products — that the woman will purchase them on her computer and her husband will pay for them on his. Classic!
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The Reality Of Saving For a Home
This isn't meant to be a downer post, but it might come off that way.
Saving for a first home purchase is difficult. Entering the housing market has got to be one of the most arduous tasks out there.
Even though housing prices are continuing to decline, saving up enough money for a reasonable downpayment (not to mention closing costs, moving, etc.) is nearly impossible to do on your own.
And it's not like we aren't doing everything possible we can. We have automatic deposits from our checking account to our housing fund every month (a nice chunk of change), spend less than we earn, live frugally, and have recently even moved to an area with a cheaper cost of living.
I've always got work on the side going and I've been lucky to move up as quickly as I have in the working world.
But we're also saving for retirement (10% of my salary into a 401k, automatic deposits into two Roth IRAs) at the same time. Yes, this is good — we are young and getting started early, but at times, I look at the retirement money we've saved and thought, "Wow. We would have a nice downpayment if we used it."
We won't, don't worry. But it is tempting to consider.
We're doing everythi g we can, but the climb to enter the market seems so overwhelming. Even thinking about accumulating 20% for a downpayment — upwards of $100k where we are — is just impossible.
How do people enter the housing market with their own cash? I just don't get it.
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5 Ways My Finances Are on Autopilot
There's nothing more comforting than knowing that most of your financial decisions are taken care of.
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My Comcast Bill is Wrong: Big Surprise
A lot of people hate on Comcast — most for good reasons — but generally, I've always found their products to be relatively decent.
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