Grow Your Money

This is the hard part.  If you live paycheck to paycheck, you still have to save something.  Anything. The reason you have to save is because if you don’t you will never break the cycle of living paycheck to paycheck. 

·       Join your company’s 401K plan.  Go in tomorrow and sign up for it.  Most of the time, employers will also match a part of what you put in.  That is FREE money.  You would be crazy to turn that down.                                                                           

·       You can deduct the amount of your contributions to the 401k from your pre-taxed income.  That means that you will pay tax on a smaller income than if you didn’t participate in the 401K.  You will also be stashing money away so you won’t be broke in the future, and the company will give you free money! Once you’ve signed up for the 401K, that is not enough…

·       You need to pay yourself first, even if it’s only $5.00 a month.  You must accumulate wealth, so that you can break the ‘being broke’ cycle.

If you save a small amount each paycheck, eventually you will have saved the equivalent of a paycheck. If you keep on, then you will have the equivalent of two paychecks in the bank. Then you can begin doing things to grow your money.

   ·       Change your checking account to one that makes it easy to save.  Bank of America has a program where any spending you do with your debit card, they will round up to the nearest dollar and put the difference in your savings account.  This is a fantastic plan for people who find it hard to save.  Also, Washington Mutual has a plan for cash back on purchases you make with your WAMU debit card.  If you save the ’cash back’ then it is a totally painless way of accumulating money.

·       Put the change from your pocket or purse every day into a jar at home.  After a few weeks, take the jar to your bank and put it in your savings.  (Do not spend it and do not take it to a coin counter in the grocery store.  You pay a lot for something that you can do yourself at no cost.)  If you do this regularly you could end up several hundred dollars in your savings without even realizing it.

·       Cut out just one of your daily ‘treats’ and put that amount in your savings.  If you order a venti iced green tea every work day from Starbucks at a cost of $2.09, and you consciously save that every workday, you will have saved $522.50 in one year, just by not driking expensive iced tea.

·       Think of an amount that you could realistically save every day, and then save it.  Even if its only $.50 then after 1 year, you have saved $182.50.

·       Make a game out of saving.  Tell yourself that for every football game you watch this year, you’ll stash $10.00 in your savings.  For every vice you indulge, charge yourself.  Charge yourself $.10 for every cigarette.  Every time you cuss, you have to pay $100 into your kid’s college fund.  Whatever it is, make a game of it.  At the minimum, you will either have a huge savings account or you will have stopped your vice.  Both are good things.

·       Have a garage sale once every six months.  Take what you make from the sales and put it into your savings.

·       Sell some of your least favorite dvds on Amazon or ebay

·       Do what you can to lower your taxes and then put any refund into your savings.

·       Get a cash back credit card.   Then pay your bills and groceries with the cash back credit card.  Pay off the card at the end of the month, and when you get the cash back, put it into savings.

·       Lower your cell phone plan.  If you can lower from $50/mo to $35/mo, you have save $15/mo.  Put that into savings.

·       Change your land line plan to an internet phone plan and put the difference into your savings.  Vonage has an unlimited plan for $24.95/mo.  Yahoo also has a phone plan, so does Skype.  Internet phone has come a long way and now sounds good and is reliable.

Let’s analyse to see how much you could save over the course of a year if you do some of these things.

1.   Bank of America Savings just by rounding up… $100.00

2.   Cash back from credit card spending…………… $200.00 

3.   Saving $.50 a day…………………………………. $182.50

4.   Saving on your venti iced green tea……………. $522.50

5.   Paying yourself for watching 10 football games.$100.00

6.   Two garage sales averaging $100 each…………$200.00

7.   Selling some dvds you never watch……………..$  35.00

8.   Tax refund……………………………………………$400.00

9.   Coin jar at the end of the year……………………$500.00

You could be saving $2,240 in one year, and hardly even notice.  It takes discipline and you need to change your mindset that saving is not a punishment but a reward that YOU get to enjoy in the future.

At first, save your money in a risk free savings plan that consistenly pays a high rate of interest and has no minimums or fees.Good high interest bearing savings plans* are

ING Direct Orange Savings Account	4.50%
Citibank Ultimate Savings Account	4.75%
E*Trade Complete Savings Account	5.05%
HSBC Online Savings**	5.05%

*Interest rates change frequently.  These rates are good as of July 13, 2007.**When you choose a savings account like this make sure that you look for no or low minimum deposits, no fees and high interest.  Also check for good customer service.  I had an account at HSBC and even though I was happy with the high interest, I had very poor customer service.  In the end I switched to ETrade and ING Direct and am very happy with the level of service for both. Investing

Only invest what you can afford to lose.

Never invest what you can’t afford to lose.  That is why when you begin your savings you put it in a savings account like those mentioned above.  You have very low risk with those.  There are many areas of investing, such as:

·       Real Estate  ·       Stocks and Bonds  ·       Gold  ·       Foreign Exchange

Before you invest your savings in any of these four areas,  you should learn about them.  Learn as much as you can.  Become knowlegeable.  Each one of the four is its own world.  Generally, here are the basics.

1.   Real Estate - Basically you either buy to sell at a profit or you hold it to create a passive income through rent.  Neither one of which is as easy as it sounds.  Don’t be misled by all those stories you hear about people buying a high rise condo for $100,000 and in 5 minutes turning around and selling it for $500,000.  Yes, I’m sure some people have done that.  But some people have found suitcases full of money, too or won the lottery.  With real estate you have to get rid of the idea of a quick buck and develop a good long term strategy. 

Join a local real estate club, learn how and what experienced investors do.  Make good contacts.

2.   Stocks and Bonds - The basic idea is that you own stock in a company and over time, the stock price goes up in value.  However, you can never accurately predict what the stock market will do.  Sometimes a company has record earnings, but because some analyst somewhere says something negative about the company, the stock price falls.  There are two strategies with stocks.  The first is buy and hold, the second is buy, wait for a quick gain and sell (commonly called day trading).  Both strategies are fraught with their own risks.  The simplest thing to do is buy a mutual fund with a balanced mix of stocks and bonds.  Mutual funds are usually safer that individual stocks, simply because they are comprised of many stock holdings.  That being said, there are many mutual funds.  The bottom line is you need to study up and become knowlegable about which fund or stock or bond is good for you.  You can check out many resources for this, such as Valueline or Standard and Poors.  Watch Fast Money on CNBC or Jim Cramer’s Mad Money (also on CNBC).  Just remember, never invest what you can’t afford to lose.

3.   Gold - Gold is always a hedge against disaster.  People will tell you not to buy gold because it never goes up fast enough.  But the main reason to buy gold is to protect yourself against total disaster (economically speaking).  If you buy a gold coin, such as a Canadian Maple Leaf, and pay $500 an ounce for it, chances are ten years from now it will still be worth $500 an ounce. 

4.   Foreign Exchange - This is where you buy a foreign currency on the chance it goes up compared to some other currency.  If you purchase a position in the Euro and it goes up against the Dollar, then you make money.  Make sure before you get involved that you know how it works and you understand how the software you are using to trade works.  There are two rules to remember.        First, always diversify or work towards diversifying your holdings.  Don’t own only one thing.  Don’t dump all your money into real estate.  If the real estate market tanks (like it has many times before) you’re stuck.  Don’t buy only stocks.  If the stock market tanks, you’re stuck.  If you own some real estate, some stocks and bonds, some gold then you are wise.  You are much more protected.      Second, only invest what you can afford to lose.  Investing usually pays a higher return on your money.  But with higher returns comes higher risk.