Track Your Spending

March 25th, 2010

The first step to establishing a budget or to control your money is to track your spending.  Get receipts and/or write down the cost in a notebook, phone, or computer for all of your expenditures.  Be sure to group your spending into appropriate categories e.g. eating out, groceries, entertainment, transportation, etc.

By recording your expenses, you’ll figure out your habits and become conscious of where your money goes.  After a month of recording your expenses, start reviewing your expenses and see what areas you are spending too much on and come up with a plan to cut down or optimize your spending in those areas.

- tim

Categories: Budgeting

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Personal Finance is Easy

February 16th, 2010

In an interview a few months back on CNBC, Bill Gates (Founder of Microsoft) responded to a question on business with the following: “Well, it’s surprising that the fundamentals of business are pretty straight forward, you know. You try to take more in income than you spend in cost.”

The same could be said about personal finance, “The fundamentals of personal finance are pretty straight forward.  You try to make more than you spend.”  Personal finance at its most basic level is simply making sure that you are earning more than you are spending.

- tim

Categories: Misc

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Total Cost to Own

January 25th, 2010

When making a purchase, people typically only consider the upfront cost but for many items there are additional costs to consider.  Below are some examples of costs that will be incurued after ownership.

Car:  Fuel (need to consider type of fuel and its fuel efficiency), insurance rates, and maintenance costs.
House: Taxes, maintenance costs, insurance, mortgage.
Phone: Phone plan (If you buy a smartphone, you’ll likely need to buy a data plan in addition to a voice plan to utilize all of the features).
TV: Electricity (Typically the bigger the TV, the more electricity it’s going to take to power).

When looking at a big purchase, be sure to look at the total cost to own.  Sometimes spending a little more money up front for a quality or more efficient product that will result in a lower total cost.

- tim

Categories: Frugal Living, Misc, Saving Money

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Home Renovations as an Investment

December 21st, 2009

A recnet article on CNN Money shows that the return on investment on home renovations has been decreasing over the past few years.

A chart within this article shows that in 2003 the average remodeling job costs $38,285 and would increase the home value by $31,591 vs average 2009 costs of $50,908 and increase of home value by $32,497.

Does anyone see anything wrong with this picture?  An investment in renovating your home in a good year (2003) would net you a -21%  return on your investment.  In a bad year (2009), you would net a -35%  return.

For most people, your home is not going to be a good financial investment, rather it is a lifestyle choice.

- tim

Categories: Housing

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Benefits of a Recession

November 24th, 2009

When most people hear of a recession, they tend to think of it as a negative.  Not everything about it is negative though.  In recessions, people tend to make the most of their money.

For people who see a drop in their income due to the recession, they are forced to find ways to spend more efficiently because they have to.

For people who’s income level were not affected, they tend to spend more sparingly since there is a fear that their job may be next to go.

Will you maintain the frugal habits that are picked up during the recessionary times and use them when the good times come?  If you start putting 10% of your paycheck into savings because you are scared that you may lose your job, then there is no reason why you can’t save 10% when your job stability improves.

- tim

Categories: Frugal Living, Saving Money

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Bing Cashback

October 30th, 2009

Before I purchase an item online, I’ll check to see if I can get cashback (or a rebate) on it through Bing (Microsoft’s new search engine).  Typically I’ll receive 2%-5% cashback with most stores I buy from, but there are a few places where there are 20%+ cashback offers.

To sign up and/or get more details visit: http://www.bing.com/cashback

www.bing.com/cashback/

- tim

Categories: Saving Money

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Best Retirement Advice

September 25th, 2009

The best piece of retirement advice I have ever received was from my dad,  “Save as much as you can as early as you can”.  At the time I didn’t really understand the importance of those words since retirement would be around 40 years away from the time I received it but saving early allows you to build up tax deferred compound returns for many years and have a comftorable retirement nest egg.

Here is an illustrative example that shows it’s important to start saving early.  

John starts saving $3,000/year for 10 years starting from when he is 21 and stops contributing after the 10 years. When he retires he has over $1.45 million dollars saved whe he retires (Johm retires at 65 and received a 10% rate of return/year).

Sally starts saving $3,000/year starting from when she is 30 and continues contributing until she retires.  Sally has over $0.97 million dollars saved whe she retires (Sally retires at 65 and received a 10% rate of return/year).

As you can see from the above, John has only contributed $30,000 in total but ended up with more in his retirement account than Sally who contributed over 3 times what John contributed.  This is due to the time value of money.  John’s money was sitting in his retirement account longer, which gave his account a lot more time to increase in value.

- tim

Categories: Retirement

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Free DVDs, Books, and CDs

August 26th, 2009

My local library offers more than just books, they also offer DVD, CD rentals and many other amenities free of charge.  While theoretically I pay for all this through taxes, it costs me nothing additional for items that I take out.

While my local library does not always carry everything at their site that I’d like, I can place a request for materials into the online catalog which draws from all the public libraries in my region.  After I place the request online, the material(s) will be sent to my local library so that I can pick it up at my convenience.

The library is a great resource for me.  For books/movies usually I’ll only read/watch it once and never look at it again, so it works out perfectly.

- tim

Categories: Frugal Living, Misc, Saving Money

1 Comment

How Not to Get Rich

July 15th, 2009

The secret to not getting rich is to set your lifestyle around your income.

To simplify things, we’ll take a look at the following hypothetical scenario from a high level and assume no investment spending occurs. Bob earns $100,000 in a given year and spends $100,000 in that same year.  Sue earns $50,000 in a given year and spends $40,000 in that same year.  Sue is therefore able to build $10,000 more wealth than Bob despite earning significantly less than him.

Sue is able to build more wealth than Bob because she spends her money based on what she needs to live her modest lifestyle.  If Sue gets a promotion and earns $60,000 next year, she won’t spend more to move her lifestyle up, instead she’ll still only spend $40,000 next year.

Bob however sets his lifestyle around his income.  If Bob gets a promotion and earns $120,000 next year, he would increase his spending to $120,000 next year to live a more luxurious lifestyle.

If you emulate Bob and set your lifestyle around your income, you will never get rich.

- tim

Categories: Frugal Living, Misc, Saving Money

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Rule of 72

July 8th, 2009

If you want to get a quick estimate on how long it’ll take for you to double your investment the rule of 72 is for you.

By simply taking your rate of return and dividing it into 72 you’ll figure out roughly how long it’ll take to double your money. e.g. If you are getting a 6% return on your investment (compounded), it’ll take about 12 years for you to double your return since 72/6 = 12.

- timadmin

Categories: Investing

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