Let's Try Something New: Before We Pay The Bills, Pay Ourselves

I've been doing this for years now! Seems like everytime, payday comes around, first thing I think about is: "Let's pay off all the bills according to this little list of to-do's called a budget and then I'll have money to spend on myself and hopefully, just hopefully, there will be enough left over so I can save some money..."

How many times have you felt the same way? Maybe not? Then you're on the road to financial stability.

But for any of you who are exactly like me, this approach probably only works 10% of the time and that savings account we have always gets tapped into or sits right at the minimum balance.

Ever wonder why 401k's are the best thing to implement for retirement planning??? I think and I could be wrong about this but I think it's because it's taken out of our paychecks before we can think about spending it! AND if we touch it, we get penalized! Hell, I wouldn't even know how to touch it if I really wanted to!

But how about this?? How bout saving first??

Quick suggestion: Create a goal. For example "My monthly expenses are roughly $2800 dollars a month and I make roughly $4000 a month! If I want to have a 3 month cushion, I need about $8400! If I'd like to have that saved up in a year and a half, I'd have to put away 8400/18 months!" (please whip out the calculator cuz I couldn't do the math in my head quick enough)

A little tip I use myself: Aside from your checking and savings account, open up a savings account at a separate bank and leave that ATM card at home. As soon as you get paid, make that deposit. Forget about that money!

I don't know if you like this idea but maybe, just maybe it might work! This is not a retirement savings plan but I think if you want to put away those emergency funds in case of a rainy day... it could work!

I'd love any opinions and criticism!

20's = broke

On January 1st, 2011, I turn 30 years old and although I don't embrace the fact that I will be for lack of a better word, old, I do realize one benefit: I will not be in my 20's anymore.

The 20's are probably the hardest period for many people financially. I always wondered if I was the only one who thought so and I looked around at all my employees. I've sat with them at lunch and because I pay their paychecks, I always ask them, "everything okay? you good on money?" And a lot of them will say, "yea, I'll get by." Mind you, these guys are still juniors and one day they will reap the rewards of this business but I sat in their seats just 6 years ago when I was an early 20 and I was much worse off than they are! But I dug a little deeper and wanted to know why because all of them are just out of college and some of them still live with their parents. The results were very similar: student loans and credit card debt were the main culprits.

So I did a little research and this is what I found:

- The median income for households headed by people ages 20-29 according to the Fed Reserve statistics was about $30,000!
- 20% of 20-something's make $20,000 or less
- 20-somethings are twice as likely to have a negative networth as older people; 1 out of 4 20 something's owed more than they own. And if they did own, the median for these networths is about $6400.
- More than one third of 20-something's owes money for student loans!
- 1 out of every 9 20-something's is 60 days late on a bill!

Those aren't my statistics, those are the Fed Reserve's! When I saw them, I didn't feel so bad about my own situation in my early 20's! I have kids sitting beside me with these flashy degrees; masters from NorthEastern, Finance Degree from Boston U, Finance Degree from St. John's and every one of them has a ton of payments to make. (Thank God I'm a dropout?)

I have a younger brother that just got accepted to some film school in NYU that accepts 250 applicants out of 10,000... saavy right? yea they forgot to mention, the only reason they didn't need more than 250 students is that each of those students has to take out $250,000 in loans! That is $62,500,000 not including interest that will be owed by 20-something's in just a few years!!! (Now I really Thank God that I'm a dropout and didn't have too big a balance on the little school loans I took out for the 1 1/2 years at Hunter CUNY)

And let's face it, as young adults we want to flaunt our independence by buying outside of the norm. Flashy clothes, flashy bags, flashy watches, flashy cars, flashy rims, flashy bottles at the club! I just described myself didn't I??? I know you all were thinking it! And you know what, you're absolutely right and I'm paying for those mistakes now! I did describe myself and the fact that I'd rather pretend that I can afford rather than be financially stable because I am still a 20-something and that's just how a 20-something thinks! Again, I focus on the benefit of becoming a 30-something and hope that I can change my ways by January 1st! (as if once you turn 30 a switch just clicks that makes you change your ways right? i can only hope)

But I'm not writing this to talk about the doom and gloom of being a 20-something but rather to explain that you are not alone in the situation you feel is wrapped around your neck. I'm sure a lot of the 30-something's are snickering at the thought right now... it's like the passage from freshman year in highschool to sophomore year.

Here's a few steps that can help alleviate this situation:
1) This is probably the most important one and I will stress this very strongly - -
LIVE CHEAP! LIVE CHEAP! LIVE CHEAP! Stay with your parents if you can, stop shopping for things you do not absolutely need! Live like you lived in college for just a couple more years and once you have a grasp on how much money you actually make... STILL LIVE CHEAP!

2) A friend reminded me that in the economical environment we're in right now, drawing the line between expense money, savings money and leisure spending money is actually more important than retirement account money. She is so right. I can't word it better so I am going to quote:

"i feel it's more important in an unstable economy to have liquid cash more than locking away money in a 401k (although people should also have long-term savings as well). No one should be living paycheck to paycheck and everyone should be able to cover at least 3 months of living expenses (mortgage, rent, expenses) should they ever become unemployed."

If you read that, sorry I quoted but when I read it I really liked it!

I'm giving credit where credit's due and she can claim it if she'd like but she threw an idea in the air that I liked and still can't figure out how to do through Chase Bank (any representative from Chase, if you read this please help me). Automatic allocation of funds between checking and saving. If you don't see it, you won't miss it as well as spend it!

My mom always told me this as a young boy and I always scoffed at the idea but it sounds great right about now, "Save money for a rainy day"

3) 401k contributions are key to living a full and wonderful life. Contribute 10% to 15% of your gross pay into your 401k, 403b or if your employer doesn't offer them, open a ROTH... they key to the 401k and 403b is that is gross pay... just to make the math simple... you make 1000 and you put 10% which is 100, that's pretax so really it's like you put about 70 after tax dollars into your 401k... and some employers do a contribution match! ask about that! If you need to know why this step is important refer back to my last post!

4) credit checks are important! i just purchased a home and that bank made me feel like they strapped on a white rubber glove and inspected every aspect of my body! It was crazy... First thing the mortgage banker said to me "nice car, so you think you're a baller huh? i'm gonna make you feel tiny!" - - - a good credit score is necessary to a good financial standing... lower interest rates on everything! approval for everything... it's crazy how easy it is too especially if you listen to step 1!

5) Make your debt your first obligation! student loans and credit cards again? Yes, student loans are a hassle but guess what, they got you your job which pays you your money. It all circles back! But you can avoid credit card debt by not using them! Have credit cards and use them to pay off a bill or 2 knowing that you will pay it off completely, just to establish credit history. Credit cards are not meant to fund extravagant vacations, fancy toys like an iPhone, that bag from Louis Vuitton that you needed oh so bad but couldn't afford. If you couldn't afford it in the first place, what makes you think you can afford it with a 10% interest rate tagged on top of the original price???

Follow these simple steps and it should get us to the point where we can breathe... believe me, I wish I did. Instead, I'm still "trying" to fix all of these problems since last year when my car company asked me about the questionable items on my credit report and my mortgage company gave me the probe of my life! "Are you supposed to do that?"


"There are those who look at things the way they are, and ask why. I dream of things that never were, and ask why not?" - Robert Kennedy

How to turn a hundred bucks into $150,000

So it's always been hard to grasp how much money exactly would have to be put away so that I can live comfortably when I get older. Its always a scary thought when you look at your check every two weeks and it feels like its just enough to pay off your monthly expenses and all of a sudden we have to keep savings in mind.

A hundred dollars can buy a lot of things and it's so easy to think, "it's just a hundred bucks, I can afford it." But did you know if you resisted that temptation that I'm sure many face more than a few times a month, you could actually turn a measly hundred dollars into a small fortune?

Don't believe me? Do the math alongside me: www.suzeorman.com/2009actionplan/compinterest

Throw in $100 as your initial investment and add in $100 as your monthly addition and tag on an 8% return for 30 years.

What do you get? Kind of blows your mind right? It shows you that you would have deposited roughly $36,000 into the account out of your own pocket so where did the additional $115,000 come from???? The bank basically gave it to you through a nifty little word called interest.

Where did I get the 8% return when banks are only offering 1% right now? A small virtual network of people buying and selling shares of companies that evolved from the barter system called the stock market. Right now you're saying, "I don't know anything about stock! Forget this!" The answer is mutual funds! Mutual funds will allow you to invest in stock without having to have the downside risk of picking that 1 bad stock out of the millions of stocks out there. Mutual funds are run by fund managers who do exactly what their title claims, manage funds.
Each of these funds will describe exactly what they do. Because we are all young and we have the bulk of our earnings potential down here, we can afford to place our bets so to speak by being in more agressive stock funds which will give us a return of roughly 7-10%. "Where do I go to buy these mutual funds?" You can go to many different places such as the bank or a couple of bigger firms such as Fidelity or Charles Schwab which will let you hold accounts with them very inexpensively or ask your employer to take off an extra hundred dollars a month to throw into your 401k.

How hard is it to save a hundred bucks a month? Some of you probably have monthly gym memberships you pay $50 to $90 for that you don't even use! One less dinner a month, a pair of sneakers that you don't really need to buy. Not too hard right?

Commit yourself to this. Add this into your monthly budgeting, have an automatic text message sent to you to remind you to save as if it were a monthly bill of its own! You can do it!

Wanna see something that'll really blow your mind? See what happens if you add another 0 behind that 100 per month... 1000 every month compounded at 8%.

I'm thinking that I want to show you I can practice what I preach and I just might open a separate account that I can deposit money into and scan and post my monthly statements just so that you can keep me honest! If I have enough people ask me to do it, I just might!

"What the mind of man can conceive and believe, it can achieve." - Napoleon Hill

Why Am I Doing This?

Because I work in finance, I have a ton of people ask me, "What do I do?" and it brought me to thinking about how I am handling my own finances. In my research, I realized that I am lacking in many ways and I'm in finance!

Just like everything else in life, out of sight means out of mind. People don't start thinking about their finances until they're older because they feel their current situation does not allow for such "luxuries." Everyone's thoughts are, "I have a 401k and my employer handles that so I'll be okay when I get older." But all of a sudden, reality hits when somebody paints the grim picture and says how it SHOULD have been done and its already too late.

I'm creating this blog not just for everyone but for myself as well. Two things to remember, it is never too late or TOO EARLY (thx to my friend Cat for pointing that out) and there is no such thing as too small when it comes to saving!

"In order to succeed you must fail, so that you know what NOT to do next time." - Anthony J. D'Angelo