This last year, for half of the year, we had a high interest savings account with WaMu.  That account held quarterly tax money for us while we waited for the payment cycle to kick in.  In the past that money sat in a savings account earning us nearly nothing.  That’s the power of letting money work for you while you work on something else.

The amount of money that fluctuated in that account was pretty substantial.  The account would go to almost zero every time we’d pay taxes, but then over several months time it would climb back up to make us more money each month.  This up coming year, assuming we’re able to have the whole year instead of half the year we should be good for closer to $180… at least in theory.

If you have money sitting in a ‘regular’ savings account I strongly recommend you find a higher interest account or a money market account.  It could mean the difference between $1.00 and $100.00.

I was just thinking about something: Much of my financial goals are based on the idea that I have lots of time until I retire.  Some of them are rational, some of them are just pipe dreams.  I need to let go of the dream mentality and focus in on actual and practical solutions to the goals and the problems that might get in the way.  For example, if I want to become a millionaire before I retire (which will be required for me to retire) I have to make a decision: how much will I save to attempt a guaranteed millionaire goal?

If you make a goal to be a millionaire and you’re starting at 25 with a projected interest rate of 8% it will take you $8,000.00 a year and 31 years to reach that goal.  But if you’re in my shoes and starting later than that you will have to save $20,000.00 for 20 years to reach that number.  The fortunate part is that in ten more years (reaching sixty-five), without adding any more money to it, you will become a 2.3 millionaire.

However, you have to decide that you’re going to reach your goal and that you’re willing to set aside the money required to reach that goal!  You can’t sit around hoping it comes to you - you have to call the shots, execute the plan, and stay focused.  The consequences for my actions are long term - each $5.00 trip to the coffee house, each $20.00 quick lunch for myself and my wife and kids is a cut into that future life I have as a goal.  I need to make those decisions now and follow through.

Everything else is just dreams, dumb luck and tom-foolery.

Only a tiny, tiny percentage of young baseball players make it into professional baseball. Our local home team is the Colorado Rockies, they’ve just now, moments ago, made their way into the playoffs vying for the position of representing their league in the World Series. What continues to amaze me in all of this is the salaries of the players. The players are signing multi-million, multi-year contracts that should allow them to retire at whatever age they choose and take up coaching, broadcasting or sitting on their backsides. I was just looking on the CBS sports site at the Rockie’s Roster and salaries for their players.

For example if Matt Holliday had no endorsements, no external cash flow from bonuses resulting from post-season playoff action, he would make $4,400.000.00 this year. With a salary that big you know he has to be paying a lot in taxes (though maybe a smaller percentage than we would think) , but after taxes he’s got money that he can put into investments that should help him clear a good chunk of interest every year until his grand-kids inherit a piece of the action. Assuming a 10% investment of that money ($440,000.00) at 12% interest for the year that would earn Matt$52,800.00 in interest. Ten years, without adding any more money to the investment (at 12%) would give Matt a compounded value of 1,366,573.21. Now, lets assume that he adds $100,000.00 to that every year between now and his retirement in ten years (which may or may not be reasonable… but we’re just playing with numbers) that would have him earning a grand total of $3,332,031.54 in his investment account. The good thing is that the number is going to continue to grow. Assuming that he makes 12% from that point forward from interest for do years, but lives off of 4% of that interest (effectively only earning 8% in compound interest) he’d end up with $15,530,456.21 at the end of 30 more years. Living off of the four percent interest the first year he’d get $133,281.26 to spend on whatever he wanted. Assuming he’s already got a paid for home and set of vehicles that’s a lot of money to do whatever you want with - and its also assuming he’s not working for a salary as a coach or as some sort of public personality.

Sports is amazing world to look into, a tiny percentage of the players make it big, a smaller percent can demand such huge salaries, but if you look at players like Alex Rodriguez who got paid $22,708,525.00 for this last season (again, just for the regular season and without any endorsements or other bonuses) it jumps to even more astronomical numbers. Ten percent of that salary is $2,270,852.50. That is to say that one tenth of A-Rod’s salary covers more than 50% of Matt Holliday’s salary. In essence the same assumptions made earlier about Holliday’s income and investment potential can be multiplied five times to represent A-Rod.

To set it all into a greater contrast evaluate this: The best paid team in the Major Leagues is the New York Yankees. They get paid a collective $189,639,045.00 a year to play professional baseball. The lowest paid team in the league is the Tampa Bay Devil Rays who get paid $24,123,500.00 collectively. One player on the Yankees gets paid almost as much as the entire team of the lowest paid players. The three best paid Yankees make a collective $67.7 million. The Devil Rays paid their top three paid players a collective 8 million dollars for the season.

All of that is to say: don’t sweat your income in contrast to others: even in the big leagues there’s a disparity. Get your job done right, get your job done well and look for opportunity. You never know when someone may be looking for a professional in your arena to pay a quarter of a billion dollars for the next ten years

One of the best ways to block identity theft according to the Discover Card mailing I got is to pay them $12.99 a month (sure glad I could keep the penny out of the thirteen dollars).  However, I’ve got another theory: dump the cards.  Once I pay off this credit card I’m going to dump it.  Gone.  I’m hoping, like Dave Ramsey, to have a credit score of 0 (zero, zilch, nada, nothing).  I’d rather pay with cash.

I’d love to seem them steal the identity of George Washington, Thomas Jefferson or Benjamin Franklin [I actually know a guy named Benjamin Franklin, so technically I guess they could take his ID, but it wouldn't be the guy with his face on money - at least yet].  If you pay Discover $12.99 a month for a year you will have spent $155.88.  That would be enough money to go have a nice dinner with my wife.  That would be enough money to sock away for 20 years in a moderate investment (returning 8%) and get $8,430.59 saved up.  If you could get more interest and save longer you’d really have something.  Say for example that you got 12% interest for 30 years: $46,803.36.  You know that Discover/Novus is going to be using your money for investing while you don’t have an ID theft issue.
I’m going to side with me making money and not risking identity theft by using cash on the off chance that my children want an inheritance.

I saw a large chunk of cash spent this evening at a bar that I was at for a work function.  At $5.00 a pop or more a regular drinking habit could cost cost a daily drinker a million dollars in investment money.  Of course you’d need to start early in your drinking assumptions and get higher interest rates, but a regular drinking habit is not any better than a regular smoking habit.  If you or someone you know drinks expensive alcohol regularly you could be risking the difference between a great retirement and a paltry scrimping by.  Think about the long term ramification of the latte factor or the rum & coke factor.

A money market fund, according to the United States Securities and Exchange Commission, is the following:

A money market fund is a type of mutual fund that is required by law to invest in low-risk securities. These funds have relatively low risks compared to other mutual funds and pay dividends that generally reflect short-term interest rates. Unlike a “money market deposit account” at a bank, money market funds are not federally insured.

The reason that these mutual funds are low risk is in part because the value of each share should be maintained at or close to a dollar, but each share pays dividends.  By law a Money Market Fund should be invested in various ’safer’ investments such as government bonds and CD’s.   These funds are managed conservatively so the chances of losing money is lower.  Investors are not allowed to put the money into higher risk investments like options (another post on Options will be forthcoming).  Specific companies will offer different types of money market accounts.  For example Fidelity offers several different types: Taxable Money Market Accounts, Federal Municipal Money Market Accounts and State Municipal Money Market Accounts.  Vanguard currently has 11 money market funds within those funds it appears that state municipal funds are earning around three to four percent while other funds are earning up to five and a quarter percent (those numbers are as of this writing, you should do your own research on the funds and their performance).

Dave Ramsey recommends that folks put their emergency fund savings into a money market account that has check writing privileges and no fees. Assuming that these funds are liquid (which a check-writing enabled account would be) you should be able to transfer money in and out of the account as needed.  You may want to consider a high yield/high interest savings account as well if five percent is an acceptable amount of interest.

Tomorrow I will be going in for a review of my contract with a major client (I am an independent software developer/contractor) and I’m hoping that all of my hard work will pay off and they’ll award me a contract that will at least cover inflation.  If its more my wife and I have already discussed how we’re going to handle an increase in stable income.  Its not that we’re focusing on getting more money, more money won’t make us happier or better people, but instead we’ve already planned where our income will go so that it doesn’t simply become outgo.

Many people get a raise and then immediately find somewhere for that money to go so that they can have more stuff or attempt to keep up with some trend.  While this isn’t absolutely wrong on a moral level I would encourage readers and folks to consider the options that they have when it comes to saving or investing your finances.  We haven’t got six months of living expenses saved up and we’re interested in getting to the point where that is the case so that we can further tackle strong investing ideas.  I have a friend whom I will call Mark who has said for about as long as I’ve know him that whenever their family is the beneficiary of a raise they just tuck the difference from their old salary and the new salary away into the bank.  What this means over time is that if they have to take money out of their emergency fund they can because it is well stocked, and otherwise other than inflation and areas where their cost of living might go up they don’t automatically spend the difference.   They don’t treat it as windfall money, they don’t treat it as spending money, the treat it as an investment into their future.

If you can preview your budget and plan out ahead you will more than likely find events like raises and bonuses to be quite liberating and not a new distraction.  The future you will know how to handle the scenario because you’ve already got a plan for the money and the implementation won’t be something new to handle either.  Keep your focus on your plan and you should see growth accumulating again and again.

This evening I spread weed and feed on my lawn.  As I was doing that I thought about finances (which I find myself thinking about pretty much all of the time when I’m not thinking about anything else).  Finances needed to be weeded and investments most certainly need to be fed.  Weeds grow in our finances in areas that we don’t maintain.  They can come in the form of constant expenses or they can show up over night in the form of unexpected bills.  As things come up you need to keep your eyes peeled for what may be ahead.  The emergency fund can help with those things.  You do have an emergency fund, don’t you?  Its money that sits there ready to tackle emergency needs.  Once its been dipped into you need to replenish it, and then get back to your previous financial focuses.

Investments, much like lawn, need to have the right nutrients built into them.  If your investments return too low a return then you’re going to need to add something to their soil mixture can let the water soak into the soil and then the grass can grow  This may be involve changing your investment portfolio to have less fees involved with trades or any number of things that allow your money to work without distractions from brokers or fees.  If you get bad stocks or investments you have to nip them in the bud and refocus that money.

Whatever you’re doing with your finances, don’t let them just go wild - that’s a garden of weeds and fungus waiting to happen!

I’m wanting to learn about investing, its something that I feel comfortable learning now even though I’m not quite ready to delve in deeper into the world of investing.  I’ve lost a large chunk of money in the past and so I need to learn more.  However, here are the things that I do know:

1. Don’t invest emotionally.  There is nothing that you’re attachment to emotions will help with when it comes to investing.  If you’re emotionally attached to money or an investment then you need to paper trade.  Paper trading is make-believe and is risk-free.
2. Don’t invest money you can’t afford to lose.  I’ve seen people ask if they should take money out in a loan or buy stocks on margin.  Don’t do it.  Don’t invest money that you may need in three weeks due to a car breaking down.
3. Don’t invest in something you don’t know.  I’ve written about this before.  If you’re investing in something you don’t know, you’re taking risks that are just plain stupid.  There are smarter moves you could make, sometimes not investing is smartest!
4. Don’t respond to spam emails that are sent out to hundreds, thousands or millions of recipients in hopes to prime the stock price for some sort of downward move.  It has been tracked that some spammers actually buy options on the stocks they’re priming: one bunch going up so that when people respond to the email their calls gain value, and one bunch going down when the foolish masses sell because the stock doesn’t move up as much as they expected.   The spammer won twice

If you want to learn more about investing with me I’ll be writing more and sticking it away into the investment category of this blog.  What questions do you have about investing?  I’d like to be a resource of sorts do research some of those very questions and learn the answers myself.

I just checked my bank statement and I had been given $4.16 in interest for one month’s amount put into that account.  That account gets 5% interest yearly.  What’s inflation for a year?  The nationally published inflation rate is supposedly 3%, which means that you are making $30.00 less in dollar value per thousand dollars every year.  Sure, you will hopefully get raises that deal with inflation (and hopefully more) but you’ll also need to be looking to not spend or save that amount to get ahead of the game with any new income or at least get that money into an investing tool that makes up for it.  Practically speaking a five percent return on money that is losing value at three percent means that 1,000 will get you $1018.50 in value when all is said and done.  Rinse and repeat.

Looking at inflation like that helps explain why financial advisers are always talking about investments that make 10% or various other amounts: you can’t afford to retire on a 5% interest rate and have any losses!  Take a look at your investing strategy in light of your own practical inflation and see where you can shore up any losses and keep making progress - but don’t forget about inflation because its very real and it can be very costly!