Is it possible to live on half of one’s income?

INQUIRER.net

Q: In my family, I am known to be a spendthrift. I like buying new things for our house, and of course, new clothes and gadgets for me. I know I can afford this since I am still single and living with my parents. In fact, when I look at my finances, I know that I am still living within my means. However, I am also thinking, maybe it’s time I stop my spendthrift ways. My father challenged me to live on half of my income. Is that possible at all? - Margie

A: When you’re single and earning well, it’s easy to spend for new things for yourself and your family. After all, you have worked hard and deserve more than just a pat on the back. And it’s nice to spend for the people you love. But spending more than you should — and often at that — will set you up for tough times later on.

The key phrase is “more than you should.” How do you know if you’re spending more than you should?You’re spending more than you should when:1. you spend all your take home pay, leaving nothing left for savings;2. you spend for things like new gadgets you may not necessarily need, yet don’t have the basics : health insurance, life insurance (in case you have dependents), an emergency fund for calamities and other crises, and a retirement fund; andIf you can relate to at least one of the above, then it’s time to rethink your spending.Financial experts always advise people to “Live within your means.” That means not spending more than you earn. Another advice that’s worth heeding is “Pay yourself first.” That calls for taking out money as savings as soon as you get your paycheck and before you even spend on anything.Your father has challenged you to live on only half of your income. Is this possible? If you are earning well, this may really be doable. That means allotting 50 percent of your take-home income for savings and investments. However, in case you are just earning enough to cover your needs and a little more than that, then living on one-half of your income may be too radical a strategy to pursue. Maybe you can live on three-fourths of your income then, leaving one-fourth for savings and investment. If this is still too steep, then aim at least to live on 90 percent of your income, and save the remaining 10 percent for savings and investment. This is the minimum ratio anyone should observe in order to build up a stable financial future. In any case, take out the money for savings and investment (pay yourself first) before other expenses are paid for.How can you know if you can live on half of your income? Start by listing down your expenses for one whole month. Include everything, from utility bills to discretionary expenses, even little things like candies or bottled water you pick up on the way to work. Tally your expenses for one month. You may be taken aback when you see how much you spend on seemingly little things or things you can do without. Try taking these out of your spending list, alongside things that are just wants, plain and simple (examples: a new cellphone or mp3 player). Look at your discretionary expenses too, such as food. Have you been eating out often? How about limiting those trips to the restaurant? Subtract an amount that you think you can take out from this figure.You may find out that half of your income may be enough to meet your needs with room for a few wants. If this is the case, then by all means, take up the challenge your father has laid out for you. If you’ll need at least three-fourths of your income for your needs and little wants, then live on three-fourths of your earnings. Adjust more if necessary, up to 90 percent of your income as discussed above.In all cases, make sure to set aside the amount you aren’t going to use for your living expenses as savings and investment. Build up an emergency fund that will equal at least six months’ worth of your living expenses. Take out health and life insurance coverage. Invest your money in assets that may earn for you, such as money market funds, bond funds, balanced funds (combination of bonds and stocks), and equity funds, which you may want to earmark for your retirement. Since you are single, you may want to look at the future and start saving up for a place of your own as well.That’s the great motivation for you—the future. Save up for a secure one starting today.

http://services.inquirer.net/mobile/09/10/31/html_output/xmlhtml/20091027-232540-xml.html

6 Simple Steps to $1 Million

Let's face it; we all don't make millions of dollars a year, and the odds are that most of us won't receive a large windfall inheritance either. However, that doesn't mean that we can't build sizeable wealth - it'll just take some time. If you're young, time is on your side and retiring a millionaire is achievable. Read on for some tips on how to increase your savings and work toward this goal.

Stop Senseless Spending
Unfortunately, people have a habit of spending their hard-earned cash on goods and services that they don't need. Even relatively small expenses, such as indulging in a gourmet coffee from a premium coffee shop every morning, can really add up - and decrease the amount of money you can save. Larger expenses on luxury items also prevent many people from putting money into savings each month.

That said, it's important to realize that it's usually not just one item or one habit that must be cut out in order to accumulate sizable wealth (although it may be). Usually, in order to become wealthy one must adopt a disciplined lifestyle and budget. This means that people who are looking to build their nest eggs need to make sacrifices somewhere - this may mean eating out less frequently, using public transportation to get to work and/or cutting back on extra, unnecessary expenses.

This doesn't mean that you shouldn't go out and have fun, but you should try to do things in moderation - and set a budget if you hope to save money. Fortunately, particularly if you start saving young, saving up a sizeable nest egg only requires a few minor (and relatively painless) adjustments to your spending habits.

Fund Retirement Plans ASAP
When individuals earn money, their first responsibility is to pay current expenses such as the rent or mortgage expenses, food and other necessities. Once these expenses have been covered, the next step should be to fund a retirement plan or some other tax-advantaged vehicle.

Unfortunately, retirement planning is an afterthought for many young people. Here's why it shouldn't be: funding a IRA early on in life means you can contribute less money overall and actually end up with significantly more in the end than someone who put in much more money but started later.

How much difference will funding a vehicle such as a Roth IRA early on in life make?

If you're 23 years old and deposit $3,000 per year (that's only $250 each month!) in a Roth IRA earning and 8% average annual return, you will have saved $985,749 by the time you are 65 years old due to the power of compounding. If you make a few extra contributions, it's clear that a $1 million goal is well within reach. Also keep in mind that this is mostly interest - your $3,000 contributions only add up to $126,000.

Now, suppose that you wait an additional 10 years to start contributing. You have a better job and you know you've lost some time, so you contribute $5,000 per year. You get the same 8% return and you aim to retire at 65. When you reach age 65, you will have saved $724,753. That's still a sizeable fund, but you had to contribute $160,000 just to get there - and it's no where near the $985,749 you could've had for paying much less.

Improve Tax Awareness
Sometimes, individuals think that doing their own taxes will save them money. In some cases, they might be right. However, in other cases it may actually end up costing them money because they fail to take advantage of the many deductions available to them.

Try to become more educated as far as what types of items are deductible. You should also understand when it makes sense to move away from the standard deduction and start itemizing your return.

However, if you're not willing or able to become very well educated filing your own income tax, it may actually pay to hire some help, particularly if you are self employed, own a business or have other circumstances that complicate your tax return.

Own Your Home
At some point in our lives, many of us rent a home or an apartment because we cannot afford to purchase a home, or because we aren't sure where we want to live for the longer term. And that's fine. However, renting is often not a good long-term investment because buying a home is a good way to build equity.

Unless you intend to move in a short period of time, it generally makes sense to consider putting a down payment on a home. (At least you would likely build up some equity over time and the foundation for a nest egg.)

Avoid Luxury Wheels
There's nothing wrong with purchasing a luxury vehicle. However, individuals who spend an inordinate amount of their incomes on a vehicle are doing themselves a disservice - especially since this asset depreciates in value so rapidly.

How rapidly does a car depreciate?

Obviously, this depends on the make, model, year and demand for the vehicle, but a general rule is that a new car loses 15-20% of its value per year. So, a two-year old car will be worth 80-85% of its purchase price; a three-year old car will be worth 80-85% of its two-year-old value.

In short, especially when you are young, consider buying something practical and dependable that has low monthly payments - or that you can pay for in cash. In the long run, this will mean you'll have more money to put toward your savings - an asset that will appreciate, rather than depreciate like your car.

Don't Sell Yourself Short
Some individuals are extremely loyal to their employers and will stay with them for years without seeing their incomes take a jump. This can be a mistake, as increasing your income is an excellent way to boost your rate of saving.

Always keep your eye out for other opportunities and try not to sell yourself short. Work hard and find an employer who will compensate you for your work ethic, skills and experience.

Bottom Line
You don't have to win the lottery to see seven figures in your bank account. For most people, the only way to achieve this is to save it. You don't have to live like a pauper to build an adequate nest egg and retire comfortably. If you start early, spend wisely and save diligently, your million-dollar dreams are well within reach.

Glenn CurtisMonday, October 26, 2009

http://customsites.yahoo.com/financiallyfit/finance/article-108017-3016-0-6-steps-to-making-your-first-million

Top 10 Money Tips for Women

by CNBC StaffWednesday, October 28, 2009

When it comes to women and finance, sometimes there's a disconnect between what women know and how they act, their ability as achiever and their financial underachieving, and between the power they have within reach and the powerlessness that rules their actions.

Financial expert Suze Orman gives her list of the top 10 money tips for women to follow:

1. Listen to Your Gut
Women are compassionate toward those in need. Instead of going with their gut, they sometimes overlook the obvious and make an emotional money mistake. "A friend, relative, loved one will approach you saying, 'I need to borrow $5,000.' You'll think 'I don't want to' and yet you say 'OK,'" Suze explains. So, think twice before you say yes if your gut is saying no.

2. NEVER Co-Sign for ANYONE
If a friend or family member asks for you to co-sign on a loan, it's probably best to say no. Suze says more often than not, the borrower will default or pay late and you risk losing money or lowering your credit score because as the co-signer, you are ultimately responsible for the loan. Say no out of love, not out of fear.

3. Save Yourself First
If you don't have enough to save for your child's college fund and your retirement, your retirement takes precedence.
As explained in Suze's book "Women & Money," women think they are actually helping their children by paying for their college or wedding. It's a myth. You help your children by saving yourself first. If you retire without ample money to support yourself, you will become a financial burden to your children. There are plenty of loans for college, but there are no loans for retirement.

4. Don't Hand Over Finances to Your Husband or Partner
Suze says women often hand over their family financial matters to their partner because they are either scared, lazy or following an old-fashioned role.
Being in control of your financial destiny requires that you be an active participant -- not just by paying bills, but in overseeing your investments, too. Suze: "Take this step and I think you will be surprised how this helps your relationship."

5. Don't Put Yourself on Sale
Don't treat yourself like you're on sale. If you're reluctant to put a real value on what you do, then it diminishes who you are. As Suze explains, women tend to devalue what they do.
This creates a vicious cycle: "When you devalue what you do, it becomes inevitable that you -- and those around you -- devalue who you are." Women will settle for less. They may offer discounted prices on their services or accept a smaller raise, even when the company is doing well. They have to ask for what they know is "right."

6. Protect Your Assets: Get a Pre-Nuptial Agreement
The basic rule is that you are jointly entitled to assets accrued during a marriage and you are on the hook for debts accrued during the marriage. Anything you bring into the marriage is not automatically shared. Protect your assets.

7. No Blame, No Shame
Two of the heaviest weights women carry (invisible twin obstacles of the past) are the burden of shame and the tendency to blame. Suze explains: "If you don't feel confident in your knowledge of how money works, you hide behind the shame of it, deferring decisions to others or staying stuck in a pattern of inaction. You blame society, your parents, your husband/partner or all of the above. Blame renders you powerless and shame only serves to hold you back." You have to go and find out about personal finance for yourself.

8. Take Care of Your Money
Women nurture people and things that are important to them. So take care of your money the way you do your husband/partner, family, friends, pets, plants and clothes. Cherish money like all of the other irreplaceable items in your life. Find wise investments, save and don't throw it away on meaningless things.

9. Don't Make Your Underage Children Life-Insurance Beneficiaries -- It's a No-No!
Life insurance companies will not make a payout to children under 18 years of age. Suze suggests you create a trust account and name the trust as the beneficiary of your life insurance policy.

10. Own the Power to Control Your Own Destiny
Give to yourself as much as you give of yourself. Power comes from who you are, not what you have, and the transformation starts with how you allow others to treat you. Do what's right, rather than what's easy.
Suze says, "Remember to muster up your courage and silence your fear ... keep your eye on the goal, on what you really want to accomplish, no matter what anyone says or does to deter you. Just keep moving forward."

http://finance.yahoo.com/banking-budgeting/article/108029/top-10-money-tips-for-women?mod=oneclick

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