Financial Superhero

This book got me thinking…

I’m reading a book that got me thinking and I needed to share.

The book is about making yourself invaluable to your company. Here are some questions I have for you. What makes you invaluable to your company? Are you just fulfilling what it says in the job description or do you bring some intangibles to your job that make you a key player?

I’m challenging myself to see what I can bring to the table that is different from everyone else. I’m pretty confident that it will work out for the best.

Think of yourself as a business owner

When it comes to personal finance, you need to think of yourself as a business owner. Obviously the goal in business is to make as much money as possible (most of the time anyway). In regards to personal finance, the goal should be the same. Here are a couple things to think about when running a business or your finances.

1. Know when to invest

Sometimes you have to spend money to make money. If you are a business owner this may include acquiring another company, buying software to improve efficiency, or updating your store to attract more customers. In personal finance you might want to invest in stocks, real estate, or even your own education (it can pay dividends down the road).

2. Know when to save

As a business owner, you can’t invest or spend all of your money. You need to make sure you sock some of it away for slow times. Pretty much every company goes through cycles. This means that they need to take some of the money they make during their busy times and save it for those slow times. I am pretty sure Dairy Queen would never make it through the winter months if they didn’t save some of the money they made during the summer. You need think the same way. If you don’t save money when you can, chances are that you won’t be able to make ends meet when your car takes a crap on you. Save now so you don’t have to ride the bus.

3. Always look for ways to run your business more effectively

Anytime you find a cost effective way to run your business better, you should do it. If you can ever run your business at maximum efficiency, then the chances are that you are running a pretty successful business. The same thing applies to finance. You need to ask yourself how you can optimize your finances. Could you automate your mortgage payments to a biweekly schedule to save some years of your loan? Could you reallocate your bill payments to pay off other high interest loans first? Could you sell some of your unused junk on eBay to make some extra cash? Always think of what you can do to get better at running your business.

The worst financial advice I have ever heard

I once heard someone say “I have some money to invest, but I am not sure what I should put it in”. Then, some dumbshit said the stupidest financial advice I had ever heard.

“You should just put it in a savings accounts because the stock market sucks and you won’t have to worry about losing it in your savings account.”

Maybe if this person needed this money again in a week or month, then it would make sense to put it in the bank. But this guy didn’t want to sock it away for a month. He wanted to start saving long term for his retirement and this dumbshit told him to put it in his savings account. You have got to be kidding me.

I know over the past 18 months, the stock market has had it’s ups and downs, but look at history. Anyone who is willing to put money away and invest it for a long period of time, would be smart to put it in stocks. The average annual return on the stock market is between 9-12% (depending who you ask). You know what my savings account is? it’s 1.1% which is actually extremely high for a savings account. Putting long term savings into a savings account is just plain stupid. If you have money you want to save for the long term, be smart and put it into a mutual fund that follows the market (that way you don’t have to try to pick and choose stocks) and then sit back and watch your money accumulate over time.

The easiest way to invest

In the past 5-10 years, financial institutions started to realize that many people have money to invest, yet they have no idea where they need to put their money. In order to help these people get into investing, they created a thing called target date mutual funds (or life cycle funds).

Target date mutual funds are the absolute easiest way to invest your money in a smart and responsible way. I’m not going to lie and say they are the absolute best investment, but they are a good investment and they require little maintence on your part. The best part is that you can invest in these in your Roth IRA and many 401k plans offered by your employer.

Here’s what you do. When choosing what funds to invest in for your 401k or Roth IRA, you simply pick the fund that has the year you expect to retire in it (for example the “T. Rowe Price Retirement 2050 Fund”) and the fund does the rest. It automatically rebalances your investments each year depending on how close you are to retirement. The farther you are from retirement, the more heavily invested you are in stocks since they perform the best over a long period of time. As you get closer to retirement age, the fund automatically starts moving your money into safer investments (like bonds) in order to make sure you have the maximum amount of money available for you at the time of your retirement.

Sounds easy, right? Well it is. Don’t worry about spending hours and hours researching the best possible funds for your retirement plan (be realistic, you will just get more confused that way). You just need to forget about being unsure of the right investment to start with, and start putting your money in a target date mutual fund so you know you are on the right track. After that, you can rest easy knowing that your finances are on auto pilot.

Saving Money vs. Getting in Shape

When it comes to New Year’s resolutions, there are usually two that tend to be extremely common.

1. Lose Weight/Get in shape (FYI, round is a shape)

2. Save more money/payoff debt.

This year, I have resolutions that involve both physical and financial fitness. Even though it is only 18 days into the new year, I can definitely tell you that financial fitness is easier to achieve and here are a couple of reasons why:

1. You can automate the amount of money you pay for your bills and put away for your savings. If you set it up correctly at the beginning of the year, you most likely won’t have to touch it again for several months. With physical fitness, there is no way to “automate” going to the gym every day. You have to physically go there and do work.

2. Saving money doesn’t take time out of your day. If you are a really busy person, you might not have time to spend an hour at the gym everyday, which ultimately makes it almost impossible to achieve your goal. To save more money, you only need to spend 15 minutes setting your stuff up and you are done.

3. Accumulating money allows you to do other things that you have wanted to do (i.e. buy a new car, go on a vacation to Hawaii, etc.). Getting fit may make you feel better about the way you look, but it doesn’t necessarily translate into achieving other things like getting girls (although it definitely doesn’t hurt either).

Now, I am not saying that it is cool to be a fat slob that sits on the couch all day as long as your money is in order, but you need to realize that achieving certain goals are easier than others. Since most young professionals see financial fitness as the single most important issue for them, then it should be comforting to know that it is easier to achieve it than some other popular goals, like getting in shape. Now get your shit together and get your finances in line.

5 crappy excuses for not saving money

People love to come up with excuses for not doing things. Excuses are our brain’s way of justifying our laziness and unwillingness to make change. The problem with excuses, is that 99% of the time they are used when you aren’t accomplishing what you should be accomplishing. Here is a list of 5 of the most common excuses people use for being terrible with their money.

1. I want to spend my money while I am young enough to enjoy it.

I hate this excuse. Young people don’t realize that you don’t have to starve yourself of your favorite things just to save money. Here is the key. You need to automate your savings to reach your goals. After you do that, then use the money left over to spend on things you enjoy.

2. I don’t make enough money to save any of it.

That’s BS. You may not be able to save $1000 a month, but you can save something. Start by setting aside $20 as soon as you get your check. I’d be willing to be that you will learn to live without it.  Then as your career progresses and you make more money, you will already be in the habit of saving.

3. I have a big inheritance coming to me someday when my long lost super duper rich uncle passes away.

Get real. Even if you have a super rich relative, they most likely won’t leave you anywhere near the amount you are expecting. Don’t be a turd. Take care of your own money and don’t rely on money you are HOPING will fall in your lap.

4. I’ll get around to it some day.

No you won’t. Just start now and get it over with. The longer you wait, the more money you lose out on. Check out my post on compound interest for a visual.

5. I don’t understand what I should be doing with the money I am saving so I just don’t do it.

This is the most legit excuse, although it is still not a good one. For the majority of people, lacking the information to make a good decision will lead to no decision being made at all. This is where you need to take some on responsibility to educate yourself about possible areas to save or invest your money (the fact that your reading this blog is a good start).

Lastly, you need to realize there is no good excuse for not saving money. You need to remember Rule #76 from Wedding Crashers: “No Excuses, Play like a Champion” and you will be OK.

5 ways to waste your money

There are a lot of different things that young professionals waste their money on. Here is a list of the top 5.

1. Subscriptions: Automating your savings is one of the best things you can do to help you save more money. Unfortunately, businesses know this as well. This is why they try to get you to automate your SPENDING with subscriptions. You should take a look back at the subscriptions you have and decide whether or not it’s worth keeping. Often times, they aren’t.

2. Not contributing to a matching 401k: If your employer offers a 401k plan with a company match, and you are not contributing to it, you are turning away free money. As we all know, turning down free money would be stupid. Unfortunately, a ton of young professionals don’t participate in their 401k plans which apparently means they don’t like free money.

3. Eating out: This is the one that I admit to having a problem with. We all know that eating at home is cheaper, yet we often opt for the convenience of fast food or we go out for a nice meal with our friends. It’s not bad to treat yourself every once in awhile, but if you do it too often, it adds up quickly.

4. Credit Cards with annual fees: There is no reason you should have a credit card with an annual fee. There are so many credit card choices nowadays that do not charge a fee. If you have a credit card that does charge a fee, close it and go get a new one that doesn’t have an annual fee. Go to www.capitalone.com or another site to find a card for you.

5. Buying things without spending 5 minutes shopping around: If you are going to spend your hard earned money on something nice, you deserve to make sure you aren’t getting ripped off. If you are buying anything of any reasonable value (i.e. $20 bucks or more), then do yourself a favor and do a Google search for the product and see where you can get it the cheapest. If the place that has your product the cheapest isn’t a place that you want to buy from (i.e. they have bad Customer Service, bad return policies etc.), then take their price to the place you do want to buy from and they will most likely price match it for you. That way you save money and get it from the place of your choice.

Use Glassdoor.com to negotiate better pay

Asking for a raise and negotiating for more money when accepting a new position are the easiest ways to make more money with very little effort. However, when you do this, it is often tough to find out how much you should ask for.

There are a lot of sites out there that give you expected salary ranges for your position and location. The problem is that most of these sites suck. A Product Manager at one company may be a completely different role than a Product Manager at another company. Therefor, the salary range those crappy websites (i.e. Monster and PayScale.com) give you, are often a really poor place to find out what you should actually be getting paid.

The next time you are doing any type of salary negotiation, you need to check out www.glassdoor.com to find out what people are actually getting paid at the company you are interviewing/work at.

With Glassdoor, you will need to submit the salary of either your current position, or a previous position you worked at to have access to their database (you gotta give a little info to get some info). Please note that the info you submit is completely anonymous so you don’t have to worry about your employer figuring out who you are.

After you get access to Glassdoor’s data, do some research about the salaries that other employees in that same company get paid. This should give you a good understanding as to how much you should be able to get paid. When discussing your salary expectations with your recruiter/manager/HR person, you definitely want to shoot for the top end of the range that is listed for your position. Since you now know the salary range for the position, this gives you a lot more leverage in terms of knowing what you can successfully get in terms of salary. Not everyone is comfortable negotiating salary, but at the bare minimum you need to check out Glassdoor.com and make sure you don’t get screwed.

If you want more info on how to negotiate a salary, email me your questions at derek.homann@yahoo.com

Time is on your side

When someone is questioned about saving money, they often say “I know I need to save money. I’ll get around to setting up an investment account some day”. 

If you actually have money to set aside and you say crap like this then you are f’n stupid. Ok, ok, that was harsh, but seriously, go setup an investment account now. It could be your 401k, a Roth IRA, high yield savings account or whatever. You just need to do it.

Take a gander at the chart below (yes I just said ‘gander’). It details out two different scenarios. In example 1, the person started investing $4,000 a year. He invested $4,000 each year from when he was 19 until he was 26. Then, he never invested another dollar. Person 2 waited until they 27 to start investing. They invested the same amount per year ($4,000) from the age of 27 until they retired at 65. You would think that since person 2 invested a total of $156,000 as compared to the $32,000 from person 1, that person 2 would end up with more money, right? Wrong.

*This chart is assuming a 10% annual return

Because person 1 started investing earlier in life, he was able to let the power of compounding take over and make money more even though he invested far less. He only invested 32k but ended up with over $2 million. How badass is that? Person 2 had to invest $156,000 and ended up with less money ($1.61 million) just because he started later. What I am getting at, is that you need to start investing now. Putting it off any longer is costing you hundreds of thousands of dollars.

If this chart convinced you to start investing but you still aren’t sure where to start, just email me at derek.homann@yahoo.com and I will be happy to get you pointed in the right direction.

Hide your money from yourself

OK, this title is a bit over the top, but there is a point I am trying to make. For most people, you get paid every two weeks. What happens when you get that money? Usually it gets put into your checking account and over the next two weeks or so you end up spending that money on rent, Miley Cyrus CD’s, and going out with your buddies. At the end of those two weeks you probably don’t have much left of your original paycheck. Sure, a lot of the stuff you spent your paycheck on was essential (i.e. rent), but a lot of it wasn’t (like your Miley Cyrus CD).

When trying to become more financially responsible, you must remember one thing. YOU are your own worst enemy. This means that temptation often takes over and you end up spending money on a bunch of crap you really don’t need. To alleviate this problem, you need to spend a couple minutes and think of some ways to automatically sock away some savings without any further action on your part (i.e. Hiding money from yourself). Here are the 2 things you need to start doing now.

1. Invest in your companies 401k plan- If your employer offers a 401k (or 403b for non profits), go find your HR representative and tell them you want to setup your account. The money will get taken directly out of your paycheck and will get set aside for retirement. It may not sound like the cool thing to do, but believe me, you will want that money when retirement rolls around.
2. Start a high yield savings account and setup an automatic biweekly transfer from your checking account. If you get paid on the 1st and the 15th, you should setup your automatic transfer for the 2nd and 16th so this money will get pulled out of your account before you get a chance to blow it on that new Twighlight DVD that you will never watch anyway. If your not sure where to setup a high yield savings account, check out EmigrantDirect, ING Direct, or HSBC Direct. All of them are easy to use and will give you better interest rates than your traditional brick and mortar bank.

Don’t worry about the amount of money you put into these accounts right now. The most important thing is that you need to get these accounts setup. Once you get them setup and automated, you can go back to playing Call of Duty 4 and know that you are pwning n00bs at the same time you are pwning your finances.