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.
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tim
Categories: Retirement
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.
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tim
Categories: Frugal Living, Misc, Saving Money
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.
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tim
Categories: Frugal Living, Misc, Saving Money
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.
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tim
Categories: Investing
July 1st, 2009
There are two main ways to increase your cash flow. The first way is to decrease your spending (money that leaves your pocket). The second, which I haven’t written as much on recently is to increase your income. Below are several ideas on how to increase your income.
Sell Your Old Stuff
Most people have junk laying around their place that they don’t use anymore. If you have a few items that you’re willing to part with, list them on Ebay or Craigslist. If you have a ton of stuff consider having a garage/yard sale.
Rent Out Extra Rooms
If you have a spare bedroom or two, consider getting a roommate.
Get a Part Time Job
Find a job doing something that you like in the evenings or weekends.
Offer Your Services
If you have a skill such as photography, painting, or computer repair, offer your services for a fee. Even if you don’t have a specific skill set, you can always look into areas such as lawn mowing, dog walking or shoveling snow.
Optimize Your Full Time Job
Asking for a raise or getting a higher paying job is usually the most efficient way to make extra money.
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tim
Categories: Career, Making Money, Work