Lazy Man and Money

Planning Your Long-term Financial Objectives

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Managing your finances prudently and watching your wealth grow is one of the most fulfilling things in life. Since the beginning of the year 2016, the price of gold keeps going up and those who invested in the precious metal years back are now smiling all the way to the banks. You need to be among those making such wise financial decisions early on and build their own sustainable financial empires.

We all want to live a happy life free from the burdens of debts and financial shocks when emergencies occur in our lives. However, to get to that point where all is smooth sailing is not by accident; you need to take deliberate steps in securing your financial freedom both now and in the future.

Need for budgeting

It all begins with your spending and saving habits which then determine how much you are able to invest, and eventually determine how wealthy you become over time. If you are interested in building long-lasting wealth you need to analyze how much you earn and how much you spend and create a personal budget that will guide your financial transactions going forward. The budget should always be for a given period of time; and should include all your foreseeable costs and certain sources of income within the period under consideration.

Having the long-term view

The long-term view of life is very important when doing your personal financial planning with an aim of being financially free at some point in time. Your long-term objectives in life will determine your financial needs which in the end will influence the channels you decide to use to generate the income to meet those expenditures. This is the reason why it is always advised that you need to start with the end in mind as you come back to date.

Say for instance you want to own a ranch where you shall retire peacefully to and be tending to your herds of cattle. You will first have to consider how many years from today you want to buy and set up operations running in the ranch. Then you will have to think of how much it will cost to buy and set up the ranch. This will then advice you on how much money you need to start saving every month and investing today in order to have enough money to buy the ranch in say 20 years down the line. Of course there are other financial calculations involved in this in order to discount the future cash flows to their present value; but in a nutshell, the planning must be done today!

Setting of milestones

Once you have the long-term objective in mind it is then very easy to break it down into smaller manageable milestones. These milestones can be in a couple of years, annual, semi-annually, quarterly and finally monthly. At the monthly level, that is where you plan on how much you are going to set aside as savings towards your goal. You then need to decide which investment vehicle will best suit your savings in order to accelerate your path towards meeting your investment goals in the long-run.

Based on your risk appetite, you may prefer investing in the financial markets using the different instruments available there or you may decide to save your money. For those who go with saving, the decision on the saving mode you choose will be determined by whether you want to earn interests and capital gains on your savings or you just want to store the value of your savings. If interested with interest incomes, fixed deposit savings accounts will come in handy. However is interested with both capital gain and shielding your wealth from depreciation as a result of currency fluctuations, you may want to consider saving your money in gold.

Choosing your investment strategy

For investment enthusiasts, there are a myriad of options out there that await you; ranging from the passive to the active investment options. Under the passive investment strategy, you will use your savings to accumulate different assets and form an asset portfolio that will be managed by a third party. Your daily presence is not required and your investment manager is responsible of making investment decisions that grow your wealth based on the terms of agreement you have with them. Investment vehicles available under this category include mutual funds and unit trusts as well as real estate investment trusts among many more. For the active investment strategy, you shall be personally involved in the day to day management of your portfolio. Investment vehicles in this category include running your own business, active participation in daily forex trading or stocks trading among others.

Whichever investment strategy and vehicle you choose, always ensure it is aligned with your long-term financial goals and it helps you in achieving your medium term milestones.

Understand the Psychology of Spending and Overcome it

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The following is a guest post by Tina Roth. She advises about developing positive habits to help you live a rich and financial secure life. Her finance blog was created to inspire people to explore more on frugal living and especially, to help you craft a financial secure life.

Earlier, mistakes were just mistakes. But after the discovery of the subconscious mind, some mistakes came to know as Freudian slips. We commit those mistakes because the subconscious mind compels us, and the conscious mind couldn’t recognize the compulsion.

Psychoanalysts believe such compulsions are behind habits. Many habits including the habit of spending are the results of psychological impulses. The era of globalization has taught us to identify ourselves as consumers, so impulsive spending appears justified.

Habitual spending

But spending out of impulse is financially disastrous. In this article, I discuss the psychological factors that trigger spending, and how to make peace with them.

Imaginary competition

We feel we need to compete with others when we don’t. Imagine your neighbor has bought a Land Rover recently. When you see him driving his new car, a subconscious impulse of competition will kick in. You’ll probably end up buying the latest model of Chrysler.

Big brands are responsible for this. Through advertisement, they create this false sense of competition, so their products get sold. And we end up buying stuff that we either don’t necessarily need or already have the inexpensive replacement. If you could resist advertisement, and ignore others, who show off, your personal finance will stay safe.

Discount offers

It’s a sales hack that forces someone to buy. Behavioral psychologists hold when we see sales pitches like “Save 60%” or “Offered at 50% Discount”, the psychological impulse to buy the so called discounted product triggers. The product that you are buying may not be coming with a discount at all.

How can you get over this impulse?

You need to keep two things in mind. Firstly, the discount may be fake. If a retailer is selling something to you at a price of $200 and claiming to offer you a 50% discount, then the original price of the item is $400. Are other retailers selling the same item at $400? If not, then it was a phony discount only to lure you. Besides, Getting a product at a discounted rate doesn’t mean you are getting it free. You are still spending money. Is the item worth spending buying?

Spending out of boredom

You might find it hard to believe, but it’s true. A lot of people spend money because they are too bored to do other things. This segment of consumers mostly includes females. As a matter of fact, some psychotherapeutic techniques use shopping to alleviate stress.

The best way to overcome spending out of boredom is to do something else instead of shopping when bored or stressed out. Watch movies on Netflix, play with your kids, listen to music. Spending money when you are bored may give you a pleasant experience, but hurts your finances.

Credit cards

Some people attempt to justify spending saying it’s an investment. But that’s always true. One example such example is having an extra credit card.

Some might argue that having more credit cards help to increase the credit score. Well, that’s only partially true. Having more than one card doesn’t increase the score alone. The cardholder needs to keep the credit utilization ratio low, which is possible only if he spends only 10% of the credit limit.

Very few people keep their cards under-utilized, rather they spend money lavishly, which increases their debts and hurt their finances.

Instant gains

A survey was done by a group of psychologists. They gave the surveyees two choices. The surveyees could either receive $50 instantly or wait for a year and then receive $200. Most surveyees went with the former option. This has made the surveyors conclude instant gratification is a basic tendency.

Putting a leash on the desires for instant gains is necessary. Or else, one would spend money for frivolous purposes and ignore serious ones. For example, investing in health insurance or life insurance can bring substantial gains in the foreseeable future. But due to the urge for instant gratification, one might spend the money for a trivial purpose.

Budgeting skills

Budgeting may appear like an uncomplicated and simple task, but it can be daunting at times, especially if you don’t know how to budget. Budgeting can make you a prudent and frugal person, who knows his finances, and spend only when it’s necessary to spend.

Shopaholics are known to overspend. The majority of them are either in their 20s or 30s. This is the time in one’s life when he should learn to manage and understand money. Budgeting skills help you to manage your money better. As you create two tabs, one for earning and another for spending, you get to see from which areas, money is coming and how it is flowing out.

You’ll eventually want to stop the outflow and increase the inflow. This drive will replace the urge to spend and turn you into a saver from a spender. Budgeting in your 30s and 40s is very important because this is the time when people earn, try to save and fail.

What do you think of the article? Do you understand the psychology behind spending? Would you follow the tips given here to overcome impulse spending?

What Drives You for Better Personal Finance?

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My Google News feed picked up this article a couple of weeks ago: Dave Says: You Need Something That Matters

It is a good article and one worth sharing. However, I had to think whether I was really wanted to write about Dave Ramsey again. When I last wrote about him it when he clearly seemed to support pyramid schemes. To be more specific, his explanation for Multi-level Marketing matches the FTC’s guidelines for when an MLM company is an illegal pyramid schemes, and he supported MLM as if it wasn’t a pyramid scheme.

Social media picked it up and he finally gave out a response that you’d expect from a politician, not from someone trying to help people with their finances:

Imagine watching a video where Ramsey explained that all rectangles are illegal. He follows it up by saying that squares are fine without explanation why. I explain to Ramsey that all squares are indeed rectangles (as they are) and thus illegal as he claims. His response ignores the topic of squares and reverts to “rectangles are illegal and I don’t support them.”

That’s essentially what he’s doing. It is so frustrating, because Dave Ramsey has a large audience.

Despite this, I have to recognize that Dave Ramsey does a lot of good. He’s got a wide audience and I think somewhere around 90% of his advice is sound. So I thought I’d give him another shot, because his answer in this article was quite interesting.

Isaac asks:

“My wife and I are in our twenties. We have no debt and $50,000 in the bank. Our income is $90,000 a year, and we’re cautious to live on less than we make. Still, we can’t seem to get motivated to make a budget. How can we get inspired to do this?”

Ramsey responds:

“Two of the biggest motivators we have are pain and pleasure. Financially, you guys don’t have any pain. You’re killing it! So, we’re going to have to figure out something associated with pleasure.
…
It sounds to me like you both realize money can’t be the goal. And that’s a good thing. You guys are obviously smart, gifted people. I’m sure you have ideas and goals, dreams and desires. Talk about them and write them down. By doing this, you’ll be taking the first steps toward making these things reality. When you have something specific that you want money to do, it gives you a reason to make it behave.”

I love the response. Money helps us avoid pain and it can enhance our pleasure.

It is inspiring to stop and think, “Money is great… but I should really do something with it.”

I only have one minor quibble. To some degree money CAN be the goal when you are in your twenties. For example they could set a goal to of financial freedom by 30, 35, or 40.

They’ve got a tremendous start, but $50,000 is not financial freedom. It isn’t even close. Using the rule 4% it would throw off an income of about $2000 a year. It’s hard to retire on that. However, if they invest that money at their young age that money can grow exponentially.

Also, let’s not forget that life has a way of creating expenses after your twenties. They may want to own or a home (or not). They will probably have to buy cars. They may have children which could require child care or a temporary loss of income while one stays at home.

Dreams and desires change over time. Ten years ago, I would not have imagined a dream where our family immerses ourselves in Spain or Italy for a month. I have that desire today. Because money was one of my goals ten years ago, it looks like a strong possibility in a few years, when the kids are a little older.

I wish I could answer Isaac directly. I’d tell him that he’s already using one of my Three Budget Systems. That’s simply to be cautious and live on less what you make. Training yourself to make smart buying decisions may be all you need.

If it isn’t broke, don’t fix it.

Financial freedom drives me to work for better personal finance. What drives you?

How Much Do You Really Spend?

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The Digerati Life is a personal finance site that offers tips and resources on saving money, stock investing and credit management. Check out the site’s coverage of topics that range from high yield savings accounts to the wise use of balance transfer credit cards.

Go on, pick a figure. Whatever you choose I bet it is considerably lower than the figure you actually do spend. It’s human nature to downsize when we are thinking about our “outgo”. And I know from experience that when you see your expenses written down in black and white, it can come as quite a shock.

If you are flush with money and happy with your life financially, you don’t need to worry too much about what you are spending. But if you constantly struggle with cash and you wonder where it all goes, finding out the answer to that question is a very good idea.

I’ve been through this same experience myself and I know how liberating it can be. Yes it can be a bit frightening as well, but it does ultimately give you power too. You see, most people go out to try and increase their income when they find they cannot make ends meet. But the easiest way you can turn your financial numbers to black (from red) and have more cash over at the end of the month to invest with your online broker, is to save what you already have. It stands to reason, but itÕs amazing how many people don’t take this route first.

To figure out your spending, take a look at your income and outgo. This would entail taking a hard look at all the figures and debits you already know about, such as the mortgage, household bills and so on. Anything that gets paid regularly needs to go down on a list with the correct amounts written in.

Write Your Expenses Down!

When I did this exercise a long while back, I bought a small cheap notebook to figure out the real answer to my question of why I never seemed to have any cash left over. This was my daily notebook… the one where I would write down every single penny I spent. All my expenses went in here, including the few dimes I spent on a daily paper. The secret to getting this right and to getting the answers you want is in the details.

I did this for about a week initially, and then progressed to doing it for a whole month. And boy did I get some interesting answers.

Once you’ve done this, you will see exactly where your money goes and more importantly, you will see how you can make some significant savings as well. For example, you’ll be able to see where your weak points are. I found out just how quickly things can add up: I had daily newspapers and magazine subscriptions that I didn’t even have time to read, so eventually, I halted those subscriptions. You may not think that a tiny savings like this makes a difference, but saving just a little bit each day can lead you to some surprising totals at the end of the month. You may be pleasantly surprised at just how much you can save by taking small steps.

For fans of budgeting, this type of manual (primitive?) expense tracking is the first step. If you’re all ready to evolve your tracking methods into something more committed and involved, then you may be interested in actually using money management software or an easy to use free budgeting application.

So start out with some form of basic expense tracking if you are struggling with your budget. I guarantee that you’ll actually start to enjoy finding out where your money goes; and the experience is actually an enlightening one too. It puts you back in control of your cash – every cent of it – and you’ll be amazed at the difference it makes to your bank balance at the end of the month.

Budgeting For a New House

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I was surfing the web earlier this week when I came across a home that I like. I haven’t shown my wife it yet. It’s a little larger than she’s looking for and I’m a little nervous about her reaction. While she’s really good at cleaning, she definitely doesn’t enjoy it. This home would require a lot more cleaning than our current place… and we know that I’m too Lazy to do it. Nonetheless, I thought I’d openly brainstorm about this house… toss it by my budget and see how it goes.

You probably want to know a few things about the house. You may have read a little about it on the news already. It’s the Spelling estate with a 150 million dollar asking price.

Is the Spelling Estate too Expensive?

While a price tag of over $2500 a square foot may seem expensive, I’d argue that it’s not. You have to factor in all the surrounding land. How many more houses could you build on that? With a bit of work, you might be able to get that dollar per square foot down. Also, not all square feet are created equal. A square foot of a top end new stove is worth more than square foot with an a low-end one from 1976.

The Opportunity

Before we get into the costs, let’s dream a little bit about how I could make money with the Spelling estate. Here are just a couple of ideas of the top of my head:

  • Make it a Museum and Charge Admission – Maybe I could turn it into a . I saw Tori Spelling on Smallville a couple of weeks ago, and she looked poised for a big acting break. That could only help the museum style business, right?
  • Rent it out for Special Occasions – Weddings are big businesses. I imagine Hollywood’s rich and famous have significant money to spend for such once in a lifetime opportunities. There’s no need to stop at weddings. My home could be “the it place” to have a Bar and Bat Mitzvahs, Quinceanera, or other similar celebrations. Anyone who has seen MTV’s My Super Sweet 16 knows there’s money to be made here.
  • Use it to Jump Start My Socialite Career – I’d get in all the newspapers as the buyer. That kind of publicity is hard to buy. I have to do more research on the socialite front before I can count on this income stream. I’m not sure if a guy can even be one. If so, do I have have a video tape get out there like Paris Hilton and Kim Kardashians? Yikes, I think I just lost all but two of my readers.

I think some combination of all of the above is the answer to unlocking the full value of the home. Readers, can you help me out with other things that I missed in the comments?

Budgeting for the Mansion

I had a little difficulty in budgeting for the mansion. I fired up my mortgage calculators and found that most topped out at a paltry 10M loan. Fortunately, I can make some back of the envelope calculations with that amount. A 10M seems to lead to payments of around $70,000 a month. That would put the payments on a 150M home at around an even one million a month. However, I might be able to bargain down the 150M number a bit in this economy. I suspect I could get payments down to $900,000 a month. Judging by how much Lazy Man and Money has made over the last year, I’d need approximately 500 more sites like it.

If you are smart you’ll start snapping up domains like LazyManAndBasketWeaving.com right now.

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