Spending money can help to build wealth--if you spend the right way. Buy things when they are inexpensive. If you like tuna, wait until it goes on sale and buy a dozen cans for 1/3 or ½ off. As for meat or poultry, buy several pounds on sale and freeze what you don’t eat right away. If you like whole wheat bread, buy the brand that’s on sale. At most grocery stores, there will a dozen brands of whole wheat bread and one or another will usually be on sale every week. Also, read the nutritional labels. Sometimes, the supermarket’s generic brand has more nutritional content than more expensive and heavily advertised brands (no, not a joke). If you can get over the image problem, buying generic may be cheaper and better for you.
The next time you’re near a cheap gas station, fill your tank up completely. Then, top off at less expensive stations, even if you still have a half a tank. That way, you’ll always buy less expensive gas. Don’t wait until your tank is almost empty and you have to buy at whatever station is nearby regardless of cost.
On a larger scale, don’t buy expensive clothes until they go on sale. All stores have sales. Be patient and get suits, shirts and ties for 30%, 40% or even more off. If you want a large, flat screen TV, wait until a major holiday with a three-day weekend. The big box stores often drop prices to draw customers. Or find a discount outlet, either at a strip mall or online, and buy below the nationally advertised price. On an even larger scale, pay cash for your cars if you can. You may be able to get a very good price on a new car by asking for quotes from the dealer’s Internet departments. See our blog about buying a new car this way: http://blogger.uncleleosden.com/2007/05/buy-new-car-without-haggling-and-save.html.
When it comes to your credit card, don’t carry a balance over from month-to-month. Once you start rolling over a balance, the interest and other charges become a part of your financial life. If you pay off each month’s balance, you are effectively getting a loan at zero percent interest. That’s bargain basement credit. (Don’t feel sorry for the credit card companies—they ding the merchant a percentage of each charge, so they make money anyway.)
Think of smart spending as an investment. When you buy tuna at 50% off, you effectively make a 100% profit, because you save as much as you spend. When you buy a suit at 35% off, you effectively make about a 50% profit. The amount of money you “make” on a dozen cans of tuna this way is a few dollars. But if you approach all your spending this way, you could save hundreds and even thousands of dollars a year. Assuming you have a 50 to 60 year adulthood, your lifetime savings can amount to tens of thousands, and maybe more than a hundred thousand, dollars. Invest the savings, and you’ll notice an improvement in your retirement. To learn more about the power of compounding, go to our earlier blog at http://blogger.uncleleosden.com/2007/04/love-in-time-of-financial-planning-part.html.
This technique is most effective if you don’t buy when prices are high, and then buy in quantity when prices are low. Also, don’t buy things on sale simply because they are on sale. Use sale prices to your advantage, and purchase what you would buy anyway—when prices are low.
In order to buy things when they are inexpensive, you have to have some extra money around. An $800 charge for suits, shirts and ties at a sale may cause an unexpected jump in your credit card balance. It takes money to make money, even when we're talking about smart spending. So keep some cash on hand to cover these uneven expenses. How much you keep depends on your spending needs. A couple thousand dollars may be all you need for most household expenses. Obviously, more would be needed for something like a large high definition flat screen TV or a car. Set aside some money for spending capital. “Buy low, sell high” is an old adage in the investment business. Buying low is also a good way to spend.
For more information, see our discussion of smart spending: http://www.uncleleosden.com/Step4SmartConsume.html.
Crime News: Here’s a criminal twist on a shopping list. http://www.wtop.com/?nid=456&sid=1162977.
Showing posts with label building wealth. Show all posts
Showing posts with label building wealth. Show all posts
Sunday, June 10, 2007
Wednesday, May 2, 2007
Mysteries of Social Security Retirement Benefits: Part Deux--When
In our preceding blog, we gave you a thumbnail sketch of how Social Security determines your retirement benefits. Now, we discuss when you might want to start collecting benefits.
The earliest you can start collecting retirement benefits is age 62. The amount will be less than what you'd get if you waited until your "full" Social Security retirement age. Your "full" Social Security retirement age depends on when you were born. If you were born any time from 1943 to 1954, your full retirement age is 66 (it's lower if you were born before 1943, but in that case you're probably already collecting benefits or about to start collecting them). If you were born in: (a) 1955, full retirement age is 66 and 2 months; (b) 1956, full retirement age is 66 and 4 months; (c) 1957, full retirement age is 66 and 6 months; (d) 1958, full retirement age is 66 and 8 months; (e) 1959, full retirement age is 66 and 10 months; and (f) 1960 or later, full retirement age is 67.
The next question is how much less do you get if you start collecting benefits before your full retirement age. While the Social Security website (www.ssa.gov) isn't precise, it does give a couple of examples. If your full retirement age is 66, the reduction in benefits: (a) at age 62 is about 25%; (b) at age 63 is about 20%; (c) at age 64 is about 13.3%; and (d) at age 65 is about 6.7%.
If your full retirement age is 67, the reduction in benefits: (a) at age 62 is about 30%; (b) at age 63 is about 25%; (c) at age 64 is about 20%; (d) at age 65 is about 13.3%; and (e) at age 66 is about 6.7%. If your full retirement age is between 66 and 67, the reductions apparently are somewhere between the amounts for ages 66 and 67.
It's important to understand that these reductions are permanent. If you start collecting benefits at age 62, they will always be about 25-30% less than the benefits you would have gotten if you had waited until your full retirement age. The fact that you are getting benefits sooner, and may be able to stop working at an earlier age, may make it worth your while to forego the higher benefits available at a later age. Just be sure you understand the cost.
If you delay taking benefits after your full retirement age, your benefits will increase even more. That's especially true if you continue to work. The amount of the increase will depend on whether or not you work, how long you work and how much you earn. For people born in 1943 or later, a boost of 8% per year is provided for each year of delay (and your benefits may be further increased if you keep working). So you might be able to leverage your benefits upwards as much as 24% or more over your full retirement age benefits if you wait until age 70. But start collecting them when you hit the big 7-0, because they don't increase with further delay.
So, when should you start collecting retirement benefits? That depends on your personal situation. If your health is good and you think you have a long life expectancy, delay benefits as much as possible. That way, you'll have better protection for the last years of your life, when your savings may run low. The benefits you get by waiting until 70 can be 50% or more than the amount you'd get starting at age 62, so we're talking about some serious pocket change. As we discuss in Uncle Leo's Den, boosting your Social Security benefits is a valuable way to pump up your retirement resources (see www.uncleleosden.com/Step17aBoostBenefits.html).
But be careful if you've stopped working. Without a job, how would you live for the years before you started to take Social Security? If you have a pension, you may be able to get by with that. But if you'd have to burn off a lot of your savings in order to delay benefits, you may be better off starting benefits earlier and conserving your savings. Retired people can't replace spent savings, so if your savings are modest, keep them warm and dry for big expenses like medical care.
On the other hand, if your health is poor, consider taking benefits at age 62, especially if you are unable to work. That way, you'd get something back for all the Social Security taxes you paid.
The answer becomes more complicated if you are married. Your spouse is entitled to Social Security benefits based on your record, and can collect up to half the amount of your benefits (but only when you start to collect). If the two of you are short of cash, and the total amount of your combined benefits would provide badly needed cash flow, it could make sense to start collecting earlier. However, be cautious about jumping the gun. The spousal benefit shrinks if your spouse begins collecting it before his or her full retirement age, similar to the shrinkage in your benefits if you begin collecting them before your full retirement age. Make sure the sacrifice is worthwhile.
While there may be many nuances to the question of when you begin collecting Social Security retirement benefits, our discussion should give you a general idea of what it's all about. Granted, thinking about this stuff can become mind-numbing after a while. But you could receive hundreds of thousands of dollars from Social Security during your retirement, and that's worth a few headaches.
Our next blog will continue to explore the mysteries of Social Security retirement benefits.
Interesting News: If you're still concerned about your SAT or ACT scores not quite landing you in the 99th percentile, stop worrying. Intelligence isn't closely related to how much wealth people accumulate. See http://www.wtop.com/index.php?nid=456&sid=1125913.
The earliest you can start collecting retirement benefits is age 62. The amount will be less than what you'd get if you waited until your "full" Social Security retirement age. Your "full" Social Security retirement age depends on when you were born. If you were born any time from 1943 to 1954, your full retirement age is 66 (it's lower if you were born before 1943, but in that case you're probably already collecting benefits or about to start collecting them). If you were born in: (a) 1955, full retirement age is 66 and 2 months; (b) 1956, full retirement age is 66 and 4 months; (c) 1957, full retirement age is 66 and 6 months; (d) 1958, full retirement age is 66 and 8 months; (e) 1959, full retirement age is 66 and 10 months; and (f) 1960 or later, full retirement age is 67.
The next question is how much less do you get if you start collecting benefits before your full retirement age. While the Social Security website (www.ssa.gov) isn't precise, it does give a couple of examples. If your full retirement age is 66, the reduction in benefits: (a) at age 62 is about 25%; (b) at age 63 is about 20%; (c) at age 64 is about 13.3%; and (d) at age 65 is about 6.7%.
If your full retirement age is 67, the reduction in benefits: (a) at age 62 is about 30%; (b) at age 63 is about 25%; (c) at age 64 is about 20%; (d) at age 65 is about 13.3%; and (e) at age 66 is about 6.7%. If your full retirement age is between 66 and 67, the reductions apparently are somewhere between the amounts for ages 66 and 67.
It's important to understand that these reductions are permanent. If you start collecting benefits at age 62, they will always be about 25-30% less than the benefits you would have gotten if you had waited until your full retirement age. The fact that you are getting benefits sooner, and may be able to stop working at an earlier age, may make it worth your while to forego the higher benefits available at a later age. Just be sure you understand the cost.
If you delay taking benefits after your full retirement age, your benefits will increase even more. That's especially true if you continue to work. The amount of the increase will depend on whether or not you work, how long you work and how much you earn. For people born in 1943 or later, a boost of 8% per year is provided for each year of delay (and your benefits may be further increased if you keep working). So you might be able to leverage your benefits upwards as much as 24% or more over your full retirement age benefits if you wait until age 70. But start collecting them when you hit the big 7-0, because they don't increase with further delay.
So, when should you start collecting retirement benefits? That depends on your personal situation. If your health is good and you think you have a long life expectancy, delay benefits as much as possible. That way, you'll have better protection for the last years of your life, when your savings may run low. The benefits you get by waiting until 70 can be 50% or more than the amount you'd get starting at age 62, so we're talking about some serious pocket change. As we discuss in Uncle Leo's Den, boosting your Social Security benefits is a valuable way to pump up your retirement resources (see www.uncleleosden.com/Step17aBoostBenefits.html).
But be careful if you've stopped working. Without a job, how would you live for the years before you started to take Social Security? If you have a pension, you may be able to get by with that. But if you'd have to burn off a lot of your savings in order to delay benefits, you may be better off starting benefits earlier and conserving your savings. Retired people can't replace spent savings, so if your savings are modest, keep them warm and dry for big expenses like medical care.
On the other hand, if your health is poor, consider taking benefits at age 62, especially if you are unable to work. That way, you'd get something back for all the Social Security taxes you paid.
The answer becomes more complicated if you are married. Your spouse is entitled to Social Security benefits based on your record, and can collect up to half the amount of your benefits (but only when you start to collect). If the two of you are short of cash, and the total amount of your combined benefits would provide badly needed cash flow, it could make sense to start collecting earlier. However, be cautious about jumping the gun. The spousal benefit shrinks if your spouse begins collecting it before his or her full retirement age, similar to the shrinkage in your benefits if you begin collecting them before your full retirement age. Make sure the sacrifice is worthwhile.
While there may be many nuances to the question of when you begin collecting Social Security retirement benefits, our discussion should give you a general idea of what it's all about. Granted, thinking about this stuff can become mind-numbing after a while. But you could receive hundreds of thousands of dollars from Social Security during your retirement, and that's worth a few headaches.
Our next blog will continue to explore the mysteries of Social Security retirement benefits.
Interesting News: If you're still concerned about your SAT or ACT scores not quite landing you in the 99th percentile, stop worrying. Intelligence isn't closely related to how much wealth people accumulate. See http://www.wtop.com/index.php?nid=456&sid=1125913.
Tuesday, April 24, 2007
Spend Smart and Avoid that Sinking Feeling
One way to increase the amounts you save for retirement is to buy high quality goods and make them last by taking care of them. That way, you'll devote less money to buying things and save more. A look at cars illustrates the point.
A new car loses value the minute you drive it off the dealer's lot. In the first three years of their lives, many cars lose half their value. After five years, the total loss might be 70%. If you buy a new car every five years, you will lose up to 70% of the value of the car every five years.
But if you buy a new car and keep it for ten years, you'll lose around 70% of the value in the first five years, but only about 20% in the next five years. That beats having to make payments on a new car. Sure, you'd have to drive an older car. But, if you save the money you didn't spend on a new car, you'd have a larger net worth. Considering the price of a new car today (on average, something like $28,000), we aren't talking about pocket change. There's nothing wrong with driving an eight-year old car, especially if you have a better retirement as a result.
Smart spending, which we discuss in Uncle Leo's Den (www.uncleleosden.com/Step4SmartConsume.html), consists of buying high quality, long lasting goods, and maintaining them carefully. Do this as a way of life and the money you save can go a long way to building wealth.
Consumer goods depreciate in value. They do not build wealth. Cars, furniture, TVs, entertainment equipment, computers, sports equipment, home furnishings, clothes, shoes, appliances, backyard grills, and lawn tractors all lose value over time. It's fair to say that the average American household contains a great big mass of depreciating goods that detract from one's ability to build wealth. And consumption items like cable TV, restaurant meals, pet grooming services, and $200 haircuts have no monetary value after you buy them. Of course, you have to buy some consumer goods and services to live in today's world. Heaven forbid that you should be unable to watch the shows that everyone else is talking about. Maybe you work hard and feel you deserve nice things. Okay. How about a nice big retirement portfolio?
Limiting the amounts you spend on depreciating goods allows you to invest more money in appreciating assets. You'll have less of a sinking feeling about your finances if you spend smart and invest more.
June 24, 2007 Answer to Comment Below: your debt-to-income ratio should not, if you are prudent, exceed approximately 35% of pre-tax income. This ratio is commonly recognized in the United States, and the figure for residents of other nations may be different because of differing tax and social welfare systems.
A new car loses value the minute you drive it off the dealer's lot. In the first three years of their lives, many cars lose half their value. After five years, the total loss might be 70%. If you buy a new car every five years, you will lose up to 70% of the value of the car every five years.
But if you buy a new car and keep it for ten years, you'll lose around 70% of the value in the first five years, but only about 20% in the next five years. That beats having to make payments on a new car. Sure, you'd have to drive an older car. But, if you save the money you didn't spend on a new car, you'd have a larger net worth. Considering the price of a new car today (on average, something like $28,000), we aren't talking about pocket change. There's nothing wrong with driving an eight-year old car, especially if you have a better retirement as a result.
Smart spending, which we discuss in Uncle Leo's Den (www.uncleleosden.com/Step4SmartConsume.html), consists of buying high quality, long lasting goods, and maintaining them carefully. Do this as a way of life and the money you save can go a long way to building wealth.
Consumer goods depreciate in value. They do not build wealth. Cars, furniture, TVs, entertainment equipment, computers, sports equipment, home furnishings, clothes, shoes, appliances, backyard grills, and lawn tractors all lose value over time. It's fair to say that the average American household contains a great big mass of depreciating goods that detract from one's ability to build wealth. And consumption items like cable TV, restaurant meals, pet grooming services, and $200 haircuts have no monetary value after you buy them. Of course, you have to buy some consumer goods and services to live in today's world. Heaven forbid that you should be unable to watch the shows that everyone else is talking about. Maybe you work hard and feel you deserve nice things. Okay. How about a nice big retirement portfolio?
Limiting the amounts you spend on depreciating goods allows you to invest more money in appreciating assets. You'll have less of a sinking feeling about your finances if you spend smart and invest more.
June 24, 2007 Answer to Comment Below: your debt-to-income ratio should not, if you are prudent, exceed approximately 35% of pre-tax income. This ratio is commonly recognized in the United States, and the figure for residents of other nations may be different because of differing tax and social welfare systems.
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