Personal Finance 101

Staying Motivated With Personal Finance

Thursday, May 22nd, 2008

As we all know, mastering or even just managing our personal financial situations is a long and tedious road. We make decisions that affect our personal financial situation several times each day. From the clothes we wear to the car we drive, to the lunch we eat..it all affects our finances.

Whether we like to think about it or not, we cannot escape the reality that we will never be completely free from the day to day management of our finances. The increasing stack of bills piling up in the mailbox and the all-too-automatic withdrawals from the checking account are a relentless reminder of our consumption.

There are people, like me, that are intensely concerned about their finances. I am certain there are others who are more concerned and more diligent with there finances than I am; this article is not for them.

What motivates you to manage your finances?

Of course we could sit here and debate the semantics of motivation and personal finance. However, for this exercise, we will let Wikipedia define those terms for us:

Motivation:

“The reason or reasons for engaging in a particular behavior, especially human behavior as studied in psychology and neuropsychology. These reasons may include basic needs such as food or a desired object, hobbies, goal, state of being, or ideal. The motivation for a behavior may also be attributed to less-apparent reasons such as altruism or morality.”

Personal Finance:

“The application of the principles of finance to the monetary decisions of an individual or family unit. It addresses the ways in which individuals or families obtain, budget, save and spend monetary resources over time, taking into account various financial risks and future life events.

Components of personal finance might include checking and savings accounts, credit cards and consumer loans, investments in the stock market, retirement plans, social security benefits, insurance policies, and income tax management.”

There, now that the definitions are out of the way we can get down to business!

What Motivates You?

Many people have been turned on to managing their personal finances more diligently because of a financial meltdown of sorts. It seems to be a common theme among financial writers and I think it is one that carries the most weight with the average reader.

Lets face it…we all want to make more money. It’s not a bad thing and it’s not evil. Wanting to excel is a basic human function. The need for constant improvement is what separates us from animals and the reason for our progression as a species.

My motivation comes from the fear of being poor. I grew up poor; not as poor as some…but poor.

Just to give you an idea (without too much detail):

• I did live in a trailer park
• My family did receive the charity hamper of food at Christmas for several years.

My family’s financial situation was hampered by the bankruptcy of the family business caused by my father’s health. In case you need further clarification about bankruptcy - it’s horrible. My parents are still recovering from that devastating financial blow and I vowed that it would never happen to me.

Even though I swore I wouldn’t be in debt up to my ears, I ended up with over $40,000 in student loan debt. I managed to pay that off and, within 3 years, my net worth has reach over $250,000.

How did I do it?

I Started To Learn About Money

I learned from the mistakes of my parents and began to research (formally and informally) the ways that the wealthy made money. I also learned about the importance of education and building the power to earn money.

Your ability to generate an income is the most important asset that you have. This is why Life Insurance and Long-Term Disability insurance are critical components of your financial plan in your younger years.

I also studied how mortgages work and the ways that financial leverage can accelerate your wealth exponentially. The concept of leverage is instrumental in learning how to carefully and methodically speed up the wealth accumulation process.

The ability to earn an income is the greatest asset that you have.

Think about that.

This is exactly why I am a huge fan of dividend paying stocks and income producing real estate. These assets generate cash flow. Increasing cash flow is the basic building block for generating wealth.

Cash Flow is the ticket to play the game.

Personal finance is a game. A very serious game, but a game nonetheless. As long as you have enough cash flow coming in to pay the bills, you can continue playing the game. Evaluate the cash flow that you generate and be sure to begin with a solid budget that does not exceed the cash flow.

Plug The Holes, Then Turn on the Hose!

I also started to learn about budgeting. Many of the people that I have talked to about growing wealth continue to harp on the fact that a budget is a budget, no matter the size. What they mean is that before you go looking to earn more money, you need to learn to master what you have.

This lack of control and poor foundation of the concept of financial planning is the reason why many lottery winners go broke within just a few years. Regardless of the amount of money you earn, if you have no idea how to manage it, you will end up in the same position.

It is essential to learn basic finance and budgeting skills. Don’t fall into the “I need to earn more money trap” before you learn to manage what you have.

• Work first to decrease your expenses; then look for additional sources of income.

Remember, it’s not how much you earn, it’s how much you keep!

Make keeping more of your money automatic. Learn how to save more money every month by reading this previous article of mine:

http://dividendmoney.com/automatic-savings-is-essential

Golden Rule of Finance

This leads us back to the golden rule of finance which is:

Spend Less than you Earn!

*Note: Another dividend investor has also pointed out that in addition to spending less than we earn,  we must simultaneously find ways to both increase our income and decrease our expenses.

I’d love to hear your motivation for mastering your personal financial situation! Feel free to contact me with your story or drop a note in the comments.

Posted in Investment News | 6 Comments »

Practical Life Lessons From My Dog

Thursday, November 29th, 2007

I’m sure that from time to time we have all fallen victim to the lure of wealth and riches. After all, we are all devoted to investing and developing wealth through the ownership of stocks and other assets.

However, once in a while there are times when we find ourselves so caught up in the market and the performance of our portfolio, that we feel completely stressed. I suppose that some would say this is simply the “nature of the beast”. If you want to have a fantastic life and become wealthy, then you have to pay the price.

What Exactly Is that Price?

• Must we pay with sleepless nights worrying about which way the market futures are pointed?
• Should we be spending hours examining the relationship between the price of oil and various world currencies?
• Is it healthy to spend our weekends devouring every newspaper article, blog post, podcast, iTune, Powerpoint presentation, instructional video, stock chart and Egyptian Pyramid Hieroglyphic to squeeze an extra percentage point out of our portfolio?

My answers to these questions came from my dog!

Yes, an 11 pound Shit-Zu/Poodle named Ralphie provided me the answer these most intriguing questions without even saying a word.

As I was pondering these thoughts, I noticed that Ralphie had picked up one of his toys and wanted to play fetch. Interestingly enough, this toy was the first one that I bought for him (3 years ago). For some reason he always likes to play with the that toy.

Anyway, I played with him for a little while and then he decided that he had played enough to earn a treat. I agreed, so I went and got him a crusty milk bone from the bulk bag that I purchased so long ago that I can’t even remember. After I made him lay down, roll over, play dead and dance I finally gave him the treat. And, per usual, he was just as happy with that treat as the first one that I gave him from that 20lb bag months ago.

After devouring his milk bone, Ralphie decided it was time to curl up and sit down next to me on the couch. He was content to just fall asleep there as he has countless other times over the past few years. Ralphie was happy.

What Does This Have To Do With Personal Finance?

Ahhh…I’m glad you asked. I was just getting to that!

You see, our society puts so much stock in tangible goods and keeping up with the Jonses that we often forget how to be happy. It’s true; as our lives move along we become more and more stressed and worried about how we are going to become rich and famous so that we can buy all this “stuff” and we seriously forget how to be happy.

Why can’t we be like Ralphie and be ecstatic about playing fetch with our first toy(driving that old car you have) or eating that favorite meal that you’ve cooked a thousand times instead of going out for dinner (You know you like it or you wouldn’t make it) or falling asleep on that old couch like you did back in college?

Why can’t all of those things be good enough? My dog is happy 24-7 and he sleeps like a log! He is content with his life, he has the necessities and he enjoys the simple things.

Yes, it is nice to have goals and dreams of wealth and riches but is it worth the cost of enjoying the things that you already have?

This article is about taking time to stop and smell the roses, but more importantly to learn to recognize the roses that are already in your garden!

I encourage you to all take some time to be more like Ralphie (No, I won’t scratch your belly). Schedule some ‘time out’ this weekend to enjoy the fruits of your labor and take a break from the quest for more stuff!

Posted in Investment News | 9 Comments »