The Pocket Change Investor #38
The Secrets to Getting Ahead - Even if You Have a Pile of Credit Card Bills, Hefty Mortgage Payments, Loans Out on a Clunker or Two, and a Bad Case of the "I'm Tired of Living Payday to Payday" Blues.
20 Years of Good Advice
Greetings and welcome to our fourth free on-line issue!
On August 16, 2004, our Good Advice Press celebrated its 20th anniversary! So this seems like the perfect time to share some of the best ideas we've come up with during the last couple of decades - thus, "Twenty Years of Good Advice: How to Save Money, Get Out of Debt, and Live Better on Less."
We also want to highlight the best piece of advice we've received over the years. Back in 1984, the same year we set up shop, the late senator, Paul Tsongas, was diagnosed with lymph cancer. He chose to give up his job representing Massachusetts - to spend more time with his family. As Senator Tsongas put it:
"Nobody, on his death bed ever said,
'I wish I had spent more time at the office.'"
No matter who's elected the next president, no matter how much the boss counts on you, no matter how hard you work, no matter how many hours you put in, no matter how many brilliant ideas you share, no matter how much money you earn for the company - your days as an employee of any particular firm are numbered.
Take Senator Tsongas's advice to heart. Make time for quality time with your family - those key people in your life who you depend on, and who depend on you.
On Reclaiming the Word,
Investing time and energy in your personal life is at least as important as working to pay the bills or the hours spent pondering a stock portfolio.
P.S. Here's the most recent photo of our nine grandkids, taken on a family camping trip.
Perhaps you once thought that a job was forever, and the stock market had nowhere to go but up. In that fantasy, your future included a home, two cars, annual vacations, college educations for the kids, and a secure retirement for yourself.
It was a nice dream. But the market took a dive, job security became an oxymoron, pension funds were pilfered, and managed health care managed to depersonalize and even deny health care to those who could still afford to buy the insurance. And then there's Uncle Sam encouraging us to "fuel the economy," plus all those commercials, classifieds, pop-ups, and billboards continually telling us, "Buy Now! Pay Later!" To seem younger, sexier, richer, or at least to smell better, we have to keep spending.
The result? America is a land where no matter how much you earn, it's easy to spend more. As Bill Cosby once put it, "My parents weren't poor, they were broke!"
The "good advice" we've been sharing all these years boils down to this:
It doesn't take a lot of money to live a rich life.
Wealth is having more than you need.
Poverty is having less.
It's that simple.
Here's How to Live Better on Less
Pay Down Your Debts
If you routinely pay only the minimum due on a typical 13%, $8,000 credit card balance, you'll be paying that bill for 31 years. And even if you never charged another dime, you'd pay over $17,000.
Instead, if you send in $100 a month more than the required payment, you'll save over 26 years of payments and $6,700, probably more - because interest rates are going up, and virtually all card issuers will raise the rates. (On fixed rate cards, they only have to give you fifteen days written notice to up the rate.)
The more you pre-pay, the sooner you start, the higher the interest rate, the more you save. Actually, the news is even better. The money you save is completely tax-free. Uncle Sam hasn't figured out (yet!) how to tax us on money we save ourselves by paying down our debts.
To save the most, first pay off the card that charges you the highest interest. But if you need extra motivation, start with the card that has the smallest balance. For other ideas on how to psyche yourself into getting out of credit card debt, read about how your personality can help and how to give yourself a credit card makeover.
Sending in money you owe before it's officially due - pre-paying - saves big bucks on home, car, business, and student loans, as well.
Pre-Paying Makes It Easy to Turn the
Tables on Your Banker
But if you send in just $50 a month more than required, you'll save that $26,672 and almost 4 years of payments. Come up with $100 a month, and you'll save $45,586. Click here to see how much you can save.
Pinch Pennies ... Painlessly
A Dollar Saved Is Worth Almost Twice as Much as a Dollar Earned.
Save just $25 a week, and in 18 years, you'll have over $50,000 (at 8%).
So finding ways to cut your spending is very valuable indeed. And since 1984, we've offered piles of painless penny pinching tips. Here are a few favs:
Before you buy, especially on impulse, ask yourself ...
Before you make the call, click on the icon, or whip out your credit card in a store, wait! Slow down and think about it a little.
Having a side business is an excellent way to hedge your bets without burning any bridges. You'll get extra income, tax deductions, and something to fall back on ... in case the you-know-what hits the you-know-where.
A little time spent now putting an Ace up your sleeve, may be the best investment you can make in your family's future. You can do it! Look into your options, choose something you like to do, keep costs down, offer low prices, and deliver a high quality product. Word of mouth endorsements by satisfied customers are the key to any business's success. (Our book, Invest in Yourself: Six Secrets to a Rich Life includes lots of ideas for risk-free ways to start a small side business as well as to increase job security at your "day job.")
Cultivate a Simple Attitude
People who choose a simple life typically:
May you and yours have a very rich life. Here's hopin' we're helpin'!
By Richard Schroeder*
The stock market has delivered an average annual return of 12.9% over the 20 years ended in March, and individual investors have had access to plenty of decent stock mutual funds that have come close to that return.
Why, then, has the average investor realized vastly inferior returns over this period?
A study performed last year by DALBAR, an independent research firm, indicated that the average stock mutual fund returned 9.6% annually from 1984 through 2002, yet the average stock mutual fund investor enjoyed an annual return of 2.7%.
Wait - 2.7% instead of 9.6%? What in the world is going on here?
The answer may be as simple as this: lack of self-control.
"Investors continue to chase investment returns to the detriment of their pocket books," DALBAR said. "Motivated by fear and greed, investors pour money into equity funds on market upswings and are quick to sell on downturns. Most investors are unable to profitably time the market and are left with equity fund returns lower than inflation."
In other words, they can’t keep their hands off of their portfolios. DALBAR studied the flows of fund investors’ money into and out of funds to come up with its measly estimate of a 2.7% average annual return from stock funds.
Lest you think that conservative bond fund investors did any better, think again: DALBAR found that the average fixed income investor earned 4.2% per year, compared to an annualized return of 11.7% from one long-term government bond index.
Obviously this underperformance by investors can’t be because the majority picked mutual funds that performed poorly. In fact, investors had placed hundreds of billions of dollars into some of the top-performing funds. The problem was in the average investor’s behavior.
Many studies have shown that brokerage account customers who have control over their trading decisions do progressively worse as they trade more frequently.
Too many trade too often: recent studies have shown that mutual fund owners hold their funds for an average of months, rather than years as they did in the past.
They do this because they make several mistakes:
Investors should go back to Buffett with regard to the latter mistake. Buffett has said that he would be happy if the stock market shut down for years on end so that he and other investors would be forced to hold their investments without pressure to make bad decisions.
If you are looking
at and making changes
to your investments daily, weekly, or even quarterly, you should sit
back and relax. A little inactivity may help you to get better returns.
*Richard Schroeder, CFP, is a financial planner and investment manager with Schroeder, Braxton & Vogt Inc. in Amherst, NY – www.sbvfinancial.com.
Twelve Tips for a Terrific Kindergarten Experience
Editor's Note: Four of our nine grandchildren start kindergarten this year, so we thought it'd be a perfect time to get some advice from our favorite elementary school teacher, Marc's son, Adam.
Even if you've armed your child with love and support, and even if you've both been looking forward to this milestone for a long time, walking away from her on the first day of kindergarten is bound to be a heart-wrenching experience for each of you.
1. Wait Until
Your Child Is Ready.
Unless your child has the social, emotional, and academic maturity needed to flourish, waiting another year may put her at the top of her class for years to come. Many kindergartners are held back because they're not ready to do first grade work. No matter what label the school puts on its transition program for students needing another year, not being promoted with the rest of the class can cause emotional problems. Even five-year-olds think being "left back" means there's something wrong with them, that they're "stupid."
Be honest with yourself. If you have even the slightest doubt about you child's readiness, speak with a teacher or the principal at the school. They can help you make this extremely important decision.
2. Meet the
Many schools are open during the summer, and arrangements can be made to visit the school with your child before classes begin. Teachers are usually available the week before school starts, so I recommend you shoot for that. Although extremely busy getting ready for the new term, most teachers will happily take a moment to introduce themselves and to invite the family in to see the classroom.
Then over the course of the school year, make it a point to develop a relationship with your child's teacher. Attend your child's open house, and if at all possible, participate in class activities from time to time.
3. Stick to a
From the day your child was born, you've probably battled at bedtime. You've snuggled, bribed, and maybe even driven your car in circles ... anything to get your child to sleep!
Most doctors agree that a kindergartener requires at least 10-12 hours of shut-eye a night. They also agree that it's better to have a long solid evening rest than a long afternoon nap followed by a six-hour evening sleep.
Even if you absolutely cannot get your child to sleep by 8 p.m., you can make sure that activity has ended and "resting" has begun. No one benefits from sleep deprivation: not you, not your child's teacher, and certainly not your child.
Many students get breakfast, as well as lunch, at school. But if you think the school will make sure your child is eating properly, you're wrong. It's amazing how much food is wasted at school, and how much junk food is eaten! One day, in a school of about 650 students, a class weighed the wasted food and discovered that 114 pounds of food with vital nutrients and six gallons of milk had been tossed.
Eight hours is a long stretch for a growing child if he's fueled only by junk food and soda pop. If your child eats at school, join him one day for breakfast or lunch. You might be amazed by what you learn.
Importance of Homework.
If your son tells you that he left his homework at school, suggest he call a friend ... or let him face the consequences. When he's "too tired," and doesn't finish an assignment, it might be tempting to do the work yourself. Don't! Homework helps children learn to manage their time. Routinely completing their own assignments gives kids a sense of accomplishment.
Kindergarten, like all grades, has a set curriculum that teachers must follow. Ask for a copy of the curriculum, so you'll be able to keep track of how your child is doing with the subject matter. On the other hand ...
Harvard Is a Long Way Off.
Children are intuitive and know when they've disappointed their parents. Not living up to a perceived expectation to be "the best and the brightest" can be a terrible blow to a child's feeling of self-worth. Don't pressure your child to do more than he can.
If that's going well, let him sign up for one scheduled after school activity, maybe two. That's more than enough for a 5-year-old. (As he matures, if his grades are good, you can let him take on more activities.)
Work with the
Teacher on Discipline.
Teachers don't look forward to calling parents to say that little Joey hit someone or threw a toy. If you get such a call, don't immediately blame the messenger! Listen carefully, ask questions, and make sure you understand the issue. If appropriate, discipline your child to reinforce the teacher's authority. Even kindergarteners can understand that actions have consequences.
"White Rabbit Syndrome."
Today's parents are very busy. It's hard to find the time for all the things we need to do in a day, let alone the things we want to do. But, now that your child is starting school, and even though it's REALLY HARD, try to make time for each of your children, every day. Do homework, read, sing, play, or even watch TV (their shows, not yours) with them. As you wash their hair or peel potatoes, talk to them about school life, theirs and yours. While folding laundry, practice skills they've learned in school, like counting, colors, sorting, and so on. Chores might take a little longer, but they won't be dull.
Child from Your Problems.
As much as possible, handle your marital problems politely, never use your youngsters to "get" your ex, and always put your children's needs first. That will help them develop successful relationships, even if you've had trouble in that department.
And One to
Grow on ...
The teacher and others who work at the school want to help your child grow and learn, but they can't do it without you. So get to know the people who are responsible for your child when she's at school. Let them know that you would appreciate learning about your daughter's progress, that you want to help your child have a great kindergarten year, and that you'll do whatever you can to help.
sure you give
your child a loving send-off on that landmark first day of
kindergarten! A feeling of independence and the ability to both make
mistakes and learn from them are two of the best gifts you'll can give
*Adam Eisenson, a fourth grade teacher, is the author of The Peanut Butter and Jelly Game, a picture book that helps children in grades K-3 think about the difference between "needs" and "wants," and the virtues of careful spending. He's also a freelance writer, the father of two boys (one of whom just started kindergarten), and Marc's son. His essay, "Traveling the Economic Highway," appeared in our Issue #37.
By Marc Eisenson
Like many grandchildren of the Great Depression, I was brought up to work hard and accumulate as much money as possible. I tried that, but then I realized that my money couldn't buy back the time I had to sacrifice in order to accumulate it.
So I made a decision. It wasn’t conventional, and there were more than a few people who thought I was nuts. (They were probably correct. I've wondered about it myself.) But not for a moment have I ever thought it would have been nice to get up every morning to go and do something I wouldn't otherwise do, just because I’d be rewarded with a check.
Back when I was about half my current age, I "worked" my last day. Since then, my time has been my own. The result, not surprisingly, has been that I've had very few dollars to spend with abandon. But in trade, I've had 30 years to spend any way I chose. Unfortunately, like most people who occasionally squander their resources, I've squandered a good bit of my time.
And as I reflect back, I wish, as most people do, that I had done some things differently. But as my favorite penny pinching philosopher, Ben Franklin, said: "Life's tragedy is that we get old too soon and wise too late."
Still, when I leave this world, I'll be taking as much money with me as Bill Gates ... or you. For whatever bit of time that remains for me to enjoy this world, I'll both pay the small price and savor the multiple benefits that resulted from my very early retirement.
Now that I’m old enough to claim some hard-earned wisdom, let me suggest that you find a way to spend less time doing what you must, and more time doing what’s important to you. If we can take anything with us, it’ll be our personal histories, not our passbooks.
My cousin Josh was surfing the Web one day, and found some "unclaimed funds" for me. Thanks to his heads-up, New York sent me $381.26.
In case you're not familiar with the concept ... over the years, as you've moved, you may have forgotten a bank account or utility deposit. Or maybe an insurance claim got lost in the shuffle. Eventually, that money was turned over to the state. While the amounts are usually in the $25-$50 range, there have been some very large windfalls - we know of one for $900,000.
To see whether any money is waiting for you, visit the National Association of Unclaimed Property Administrators, and then search the online databases of each state where you've lived over the years. It's a good idea to check every few years. (The last time I checked was in the late 90's.)
While we were at it, we searched through the records for relatives and friends, as well as for our favorite personal finance writers. We found money for a few of them! If the money experts left money languishing ... me included ... maybe you have, too. Give it a shot. Hey, you never know.
In every issue, we recommend and offer books that we think you'll find particularly helpful. They're well written, and full of concrete, timely advice, but often not readily available in bookstores. Not all are the kind you'd want to read, cover to cover, at one sitting. But we think they deserve your attention, nonetheless. Our Good Advice Book Store reviews other important titles - on debt management, personal finance, estate planning, real estate, health, family living, gardening, and so on.
Test of Time: A Novel Approach to the SAT and ACT ($14.00)
True dread is being a teenager preparing to take the SAT or the alternative ACT, tests that applicants find intolerable, but many colleges deem a mandatory indicator of entry worthiness. For many young students, preparing for the verbal portion is loathsome. Can you conceive of (or remember) trying to memorize the meanings of literally thousands of obscure definitions? Help is at hand in the form of this compelling story which cleverly illuminates more than 2,000 essential test words by using them in context. If there's a college bound youth in your life, this book will enable their comprehension, by incorporating frequently encountered vocabulary words in a fast reading story about the exploits of four college students and a garrulous, time-travelling Mark Twain. Exercises and a comprehensive glossary are incorporated, but the brilliance of this test aid is the fun, fast-reading tall tale. Highly recommended!
Keeping Food Fresh: Old World Techniques and Recipes ($16.95)
I've been canning, freezing, and drying the goodies from our garden for years, which is why I love this book, compiled by the gardeners and farmers of Terre Vivante, a French non-profit organic gardening and environmental education organization. It covers methods we haven't thought much about, including preserving in oil, in vinegar, with salt, with sugar, and with alcohol, or by using a root cellar (which regular readers of this newsletter know we always try to use, but never quite succeed at). There are also lots of recipes for each preservation method, plus a good chapter on drying. Easy reading.
The Complete Book of Gourd Craft ($18.95)
This book is beautiful enough to grace your coffee table. It's replete with fabulous photos of gourds being put to artistic as well as practical uses - as birdhouses, pitchers, bowls, candlesticks, and even wall sconces. It also explains how to grow, dry, and clean gourds, and offers lots of ways to decorate them - by painting, staining, carving, and so on. Some of these gourds look like they belong in museums! There are clear instructions for over 20 projects - from an Easter basket and a Santa puppet to flowers you can put in a homemade vase. A great book if you're looking for fun projects to do with the kids.
The Coming Generational Storm:
What You Need to Know about America's Economic Future ($27.95)
However bad you think it might get once us baby boomers hit our 70's, 80's, and beyond, Boston University economics professor Laurence J. Kotlikoff and syndicated personal finance writer Scott Burns show that it will be far worse. But demography alone isn't the problem. Our entitlement programs - particularly Social Security and Medicare - are going to place an enormous burden on our children and grandkids. Unfortunately, the obvious solutions aren't politically palatable, as in a 69% increase in federal income taxes - which Uncle Sam's own actuaries said we'd need to cure the imbalance. Fortunately, the authors offer both political and personal finance solutions that are well worth our considering. It's not a light-reading book, but it's extremely important and very well written. Anyone seeking elected office ought to be required to read it.
This issue is dedicated to Deron Beal, Freecycle's wonderful founder and leader.
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Issue #38 ©2004 Marc Eisenson & Nancy Castleman
Good Advice Press PO Box 78 Elizaville, NY 12523