Words of Wisdom
To start the New Year, we would like to highlight an article written by one of you! They have weathered several market cycles and their life experiences have resulted in the following financial advice they would like to share with all of us:
Financial Words of Wisdom from a 70 year old.
(with a scientific background)
1. Budget and do it well.
List household income as monthly (exclude any bonus you may expect). List all your expected expenses for monthly, quarterly, semi- annually and yearly (and, if any, multiple yearly, e.g. computer anti-virus, etc.) Convert all to monthly. Subtract, and that’s what you have for food, outings, gifts, gas, etc. You might want to convert utilities to average monthly payments.
This may seem simple and necessary but I didn’t do it for years and what an eye-opener it was once done. And you’ll also be amazed at the expected expenses that you will forget to list! I forgot life insurance premiums paid annually. What a shock when the bill arrived!
You should do 10%+ (15%, or even 20% would be better). You need to contribute to this account heavily to start with (to the detriment of eating out or show tickets, etc.) and you need to grow it to 6 months salary before relaxing a bit. This is in case you lose your job or source of income. This Nest Egg is your rainy day fund and is ONLY to be used if it really rains! Saving for vacation should be over and above this. Use that bonus! Also be sure to make use of whatever programs your employer offers to the max; especially the matching parts.
3. Be thrifty until you are comfortable financially.
This could take decades. Shop around; don’t just buy on impulse. Limit your “toys.” You know what they are. This helped me to save and also it sort of becomes a way of life which I have continued. It doesn’t mean you don’t buy something expensive; just that you consider first.
4. Discuss all “deals” and purchases with your spouse.
Only his/her gifts are accepted (and stay within your budget while you are not on your feet financially). You are in this together. You have to agree in advance; otherwise, things won’t work out.
5. Eliminate debt strategically.
There is no good debt. Go into debt with reluctance and be reasonable. A bigger house/car than your income/budget allows is not wise. Assume property will not appreciate for decades despite what the real estate agent says (it can go up steadily for a few years but it crashes really fast)! Besides, in a couple of decades you won’t be able to sell without redoing the kitchen and out of date bathrooms, and you don’t want to know how much that will cost…it’s right up there! Think how much you’ll enjoy that new item when you can comfortably buy it (for cash).
If you dabble in the stock (or other) markets or funds, keep accurate records and examine your wins and losses monthly. I did and didn’t! Each time I got a tip to buy a stock, I was never good or disciplined enough to sell at the right time and on average didn’t do very well. You cannot time the market unless you are lucky, and even if you do get out at the right time, you’ll have to be very sharp to time it again going back in!
Give to charity, please, but do it wisely. Times have changed and these days the government looks after a large section of the poor community. Be careful that you don’t allow them to double dip and deprive the really needy. Spend time researching this topic carefully and you’ll learn a lot.
8. Control your addictions, if any.
Food, alcohol, tobacco, regular new cars, designer clothes, cell phones. You know what tempts you the most, and moral issues aside these can be a huge strain on your finances. You are out of college now…I won’t elaborate.
9. Beware of timeshares.
It’s more debt and the maintenance fees alone will pay for a good part of a week’s hotel cost elsewhere. You will not be able to sell and it will depreciate phenomenally. It is NOT an investment. The property itself will need regular upgrading and repair (especially at the beach) and mostly that will be an additional assessment and not come out of the maintenance fees.