before you make your money work for you (investing)

Describing investing as "making your money work for you" has its pros and cons. One con is that it gives a false idea that you don't have to do anything in order to make your money grow. A pro is that your money really can do so much more than sit there earning .0045% interest.

Successful investing is essentially allocating your money now in a way that it's total value will increase and your return will be greater than your initial investment. You can read a definition here. There are many forms of investment:

• raw materials (gold, silver, etc...)
• shares of stock in a company
• mutual funds
• property
• start a business

That is just to name a few examples. This is not about how you invest, but when you should start. Before you start investing you should ask yourself a few questions:

Question 1

Am I out of debt?

If you owe money and are paying interest with your payments, focus on getting out of debt before you think about any other types of investment. I say any other because getting out of debt can actually be a form of investing. If you think about it, when you invest more of your money into paying off debt, you are decreasing the total amount you will be paying in the future because you won't be paying as much in interest. This is as good as making money.

You don't have to have your house completely paid off in order to start investing. Just make sure you are on top of your mortgage payments (preferably ahead). Home and property ownership can actually be a form of investment when done wisely. 

Question 2

Am I prepared for emergencies?

Bad things happen and you need to be prepared for that before you start trying to invest. Because you don't know when disaster will strike, it is a good idea to have some extra money saved up to hopefully keep you on your feet. People suggest having different amounts saved from as low as 3 times your monthly income up to 6 months or more. If you are just starting out, start setting incremental goals to save up for. Maybe start with a $500 goal for an emergency fund. Then shoot for $1,000. You can keep setting higher goals until you feel you are prepared to handle any emergency that could cause you financial damage. This is just personal preference. Do what you can. I would personally like to get up to 6 months someday.

Question 3

Do I understand the risks involved?

When you invest your money, you need to understand that this is life and something can always go wrong. You could purchase property in an area that you think is going to grow, but it ends up going the other direction and your property loses a lot of value. You could also purchase stock in a company that appears to be doing really well, but it turns out to be involved in fraudulent activities and you lose most of that investment. This is just reality. But you also don't want to think that this will always happen.

One way to mitigate some risk is to learn about the type of investment you are getting into and how to do it. If you know what to look for, you can be better prepared to make lower risk investments that are still good. Be knowledgeable about what you are going to invest in. Research it, follow it in the news and talk to others. Don't invest on a whim. Don't just jump on the bandwagon because everyone else is. Be patient and only make moves on your investments when you are ready.

I feel that investing can be a wise use of money as an alternative to just keep on piling it into a savings account. I recommend investing only after you are somewhat financially stable. So, take these three questions into consideration before you begin.

should I invest in my company's 401(k) plan?

Not sure? Let me rephrase the question. Should I give myself a raise? Does that help? If not, go schedule yourself for a check-up.

Who doesn't want a raise? If you're a little confused as to what your companies 401(k) plan has to do with you getting a raise, you should find out what your company's 401(k) plan is. When you sign up for your company's 401(k) plan, you choose a percentage of your income that you want your company to put away into your retirement savings to build up your nest egg. The money you put away will not be taxed until you start pulling it out after retirement. The company will usually match your contribution 100% up to a certain percent of your income. For example, if your income is $50,000 a year and your company is offering to match your contributions up to 5%, you can choose to contribute 5% ($2,500) and your company will throw another $2,500 into your retirement. You just gave yourself a 5% raise. However, if you choose to contribute 8% ($4,000), your company will only match the first 5% ($2,500).

Let's create a scenario. Let's imagine you are currently 30-years-old and have no nest egg (retirement savings) at all with a $50k salary and your company matches your contributions 100% up to 5%. If you start investing in your company's 401(k) retirement plan now with 5% of your income, when you retire at age 65 you will have:

$633,217 at retirement!

image from http://www.401kcalculator.org/

And that is using conservative numbers, assuming you only have a 1% increase in salary per year and you only get a 6% return on your plan. That is also coming from having absolutely no retirement savings.

If you are about to graduate from college and get your first full-time salary job, this is the perfect time to take advantage of your company's 401(k) plan. You are used to living with your part-time hourly job and you suddenly increase your annual income quite a bit. Invest in the plan immediately and get in the habit of making contributions. You will still be receiving more than you are accustomed to in your monthly paycheck. There are a lot of companies out there that have great 401(k) retirement plans. Just check out this list of top 5 employers with generous 401(k) matches on money.usnews.com. Just for fun, let's create another scenario with Clif Bar.

image from http://www.401kcalculator.org/

You just graduated from your university at age 24 and received a great offer with Clif Bar for $45k a year. They are offering to match your 401(k) contribution 100% up to 5%, but you decide to go ahead and contribute 8% because you want to retire well. They also promise you at least a 2% increase in your salary every year. If you receive an 8% return with your company's plan, you can retire at age 65 with:

$2,109,362 at retirement!

Tell me, how awesome is that? Now go give yourself a raise.

do I need a credit card to build credit?

I have an excellent credit score (726-830) and I haven't had a credit card in over two years. Before that I had one for maybe 3 years and rarely used it. I am living proof that you do NOT have to have a credit card. I refuse to get a credit card and I've talked to so many people who say they wouldn't use one but they "need to have one to build credit."

image from fearlessmen.com

My wife had a credit card before we were married. When we got married, we combined accounts and she cancelled her card. She's never had late payments on anything, but now her credit is worse than mine just because she cancelled her credit card. However, her score is still really good. How does it make sense to lower her score when she cancels her card? I see that as a commitment to stay out of debt and live within her means. I guess the credit bureaus have a different opinion.

Roy E. Christensen, founder of Beverly Enterprises, Inc., GranCare, Inc. and Covenant Care, Inc. and current Chairman of the Board for Ensign Group,  once taught me that I am building credit with any rent and bills that I am paying regularly. As long as I pay in full and on time, my score will stay up. If I get behind on my payments, my score will drop. See the similarity to credit cards?

The reason I say no to credit cards is because of this simple principle:

I spend money when I have it.

My dad taught me this principle when I was a kid. I would see something I wanted in the store and I would beg, "Dad, this is a really good deal! Will you please get it for me now and I can pay you back later!?" He would never let me do it and it was so frustrating.Now I am more grateful for this than ever.

Just think about it people. You can't spend what you don't have. Credit cards give you the sense that you just received free money. Credit card companies want you to spend what you don't have. Why? Let me tell you. According to indexcreditcards.com the average consumer credit card rate for the overall market is 16.89 percent. So when you reach your $5,000 limit and only pay half of it on time, you won't just need to pay the other $2,500 later. You will be fortunate enough to get to pay an extra $422.25 for a total of $2,922.25. Talk about free money, right?

Folks, tell me why you need a credit card. You don't. If you have one, it might take a change in lifestyle to get rid of it, which could be painful. It will be worth it though. Tell me what you think.

basic steps to create a monthly budget

Sir Francis Bacon once wrote that knowledge is power. If you don't have any knowledge of where your money comes from or where it is going, then you have no power over your finances. Here is where you start:

Step 1

Regular income

Some people have many forms of income. What you want to do first is to determine what income you know you will have this month.

Step 2

Regular expenses

These would be what you know you will be paying this month. You should be gathering up bills, credit card statements and bank statements and start to look over them. Make a list of bills you pay regularly (gas & electric, internet, car insurance, etc.) and write them down with a total. Then you can also look at your credit and bank statements to get an idea of what you spend regularly in a month on things such as fuel, groceries and entertainment. Use this information to guess what you might spend next month. Write it down.

Step 3

Special income

This is where you would put income that you know you will be getting this month that is not part of your regular monthly income. For example, you may be a school administrator during regular work hours, but you have some woodwork skills and somebody wants you to do a little project for them. If you have that project coming up and you know how much it will be, add it here. Add up your total and write it down.

Step 4

Special expenses

This is where you put expenses that you know you will be paying this month that are not a part of your regular monthly expenses. Some good examples would be birthdays and holidays in the month. Write down the total.

Step 5

What to do with the rest

First of all, figure out what is left. Use this equation:

(Step 1 + Step 3) - (Step 2 + Step 4)

That is, add your regular and special incomes together, add your regular and special expenses together, then subtract the total expenses from total income and that gives you all that is not yet budgeted. Now you get to decide what to do. Plan on using it to get out of debt. It could also be invested or used as play money. If you don't know what to do with it, plan on putting it into savings. Whatever happens, make sure you plan to do something with this money and put it into your budget. You may even get to this step and discover that you are in the negative. If you are showing a negative number, this is when you need to go back and see what expenses you could possibly eliminate in order to get your number out of the red. You might need to make some sacrifices in entertainment.

Once your budgeting is done, do your best to stick to it throughout the month. At the end of the month you should compare what you budgeted to what you actually earned and spent. Then, take what you've learned and make adjustments for next month's budget.

This is a very simple walk-through of how to create a monthly budget for those of you who have never budgeted before and are now working on getting your finances in order. Check in later for more tips on budgeting.

the money equation

Work. This word can have positive or negative connotation, depending on the person. What is your view? Just to clear things up, I am talking about "work" in its purest form. In the Oxford English Dictionary online the page containing the word "work" takes a while to scroll through. However, among the first definitions are to do, perform, execute and practice.

My purpose for talking about work comes from a simple equation that has stood the tests of time:

HARD, HONEST WORK = MONEY

I dare you to try and prove me wrong. Some of you want to say there is a lot of money out there that came from work that was neither hard nor honest. I agree. That is why I now remind you that your goal is to manage your finances in a way that you can enjoy your real life. Don't fall for the very entertaining image that is painted by Hollywood of "happy" people who are "living the good life" using dishonest money. Don't get me wrong, I enjoy films like Italian Job, but I don't need to steal a safe filled with gold bars to "work."

Some of you are also thinking "I know, I know. I go to work every day. I know what it is, and it is NOT money." Well, I'm telling you that it is. I understand that there are a lot of outside factors, and I hope to go over them in future posts, but I am strictly talking about your work. And, if work has a negative connotation for you, then you don't know what work is. Work requires more than putting in your time and doing your half of the job. You need to work with your body and your mind and your soul.

Work with your Body
As Grandpa always taught, "You need to be a man." And for the ladies, be a woman. This just means that you need to be ready to get dirty when you need to. Work hard physically. This can have many correct interpretations; one of my favorites is to be willing to do anything. Don't stop working because it is hard, or it is something that you don't want to do. You aren't above anything that gives you good, honest money. If you aren't willing to do things, people won't come to you for help. When you show others that you will help and give an honest effort, people (employers) will come to you for help. 

Work with your Mind
My first payroll job was as a janitor in a warehouse. It was a big warehouse used to house inventory and boxes of old documentation for several companies, such as Albertsons and Micron. The warehouse was so big that every day it took me 4 hours just to sweep from one end of the warehouse to the other. I could have very easily lost my mind. Because of the simplicity of the task, it was very difficult to work hard. I'd have to say that my first accomplishment as a janitor was to just keep pushing through when I thought I was going to lose my mind every day. If this is what you have to do every day, excellent work! 

My next accomplishment working at the warehouse was to think the whole time. I thought about different ways I could sweep in different areas (the warehouse was in sections and they were all different), where I should start, how to best handle work areas being used by employees, what looks cleaner, which way works faster. While my job seemed menial, a few of the warehouse employees commented on how much better the place looked than when the previous janitor had the job. 

Work with your Soul
This is all about attitude and reason. What is the reason for the work you are doing? Do you feel like it has purpose? I would hope so, otherwise your employer would not have needed you to fill the position. Sometimes you are just burned out and you feel like your only reason for continuing is to keep the income. That is okay. It happens. And this is where your attitude comes in. If you are burned out, do your best to keep up a positive attitude or you are just going to cause yourself a lot more pain than there needs to be. Focus on your attitude and you will find your purpose and reason. 

Another thing to remember is that attitudes are contagious and it is a lot easier to bring others' attitudes down than it is to lift them up. When you give the effort to lift others up, you've just increased productivity. And you've just found your purpose.

I'd like to add one key principle you must always exercise and remember when considering this equation. That principle is patience. In order to master your finances and enjoy a little financial freedom, you must exercise patience in your work. You cannot plan on getting rich quick. You don't need to. Work honestly, patiently and hard using your body, mind and soul and you will find peace in your work and be able to breathe when it comes to personal and family finance.

a peek at apartment hunting

My wife and I are young, inexperienced, and recently married. We recognize that we have a lot to learn, but we do know that we want to have control over our finances. This is something we decided before we were married. Having control over our finances means making careful decisions.

Knowing we would need a place to live after our marriage, we foolishly jumped on the opportunity to move into a place that we knew would only be available for 3 months. We didn't know anything about searching for apartments as a couple. We didn't shop around and were not very familiar with the pricing. It turns out we had an okay deal, but we wanted to be even better prepared for another apartment at the end of our 3 months. We decided to try shopping around.

First we looked at postings online to get an idea of what was out there. We then started to make a list of things we wanted:

• Washer/Dryer
• Dishwasher
• No shared utilities
• Counter space
• 2 bedrooms
• No yard to take care of

After having an idea of what we wanted, we continued to search for available apartments. We noticed that it was really hard to get everything we wanted at the price we wanted. We thought more about what sorts of things we were willing to sacrifice on our list of "wants".

In the end we found an apartment that was at least $100 less per month than our target rent. Utilities are included (that's right, we don't pay any gas or electric) and there is a washer and dryer that we don't have to share with anyone. This is an awesome deal, but keep in mind that we did have to sacrifice some of our "wants". We do not have a dishwasher, we had to get our own internet service, and there is only one bedroom.

A few more bonuses we hadn't originally planned for:

• A beautiful neighborhood, rather than an apartment complex
• Our landlady is absolutely wonderful
• Our very own driveway (no more parking on the street!)

The important point I am trying to make is that sometimes there are sacrifices that need to be made when making financial decisions. Also, it is essential to take your time on larger purchases or other financial commitments such as renting an apartment.

about this blog

There is beauty and excitement all around us. We want to capture and enjoy it. Unfortunately, there are distractions that bombard us and prevent us from enjoying anything--money is a big one. Think about it, is the reason for your existence to make money? Or, is there something more important? If there is something more important, then why is money on our minds?

The truth is, money is important. It is our means of living. But, if handled appropriately it doesn't have to be that nagging focus at the back of our minds. I'm determined to find the best ways to manage personal and family finances. I will share thoughts, feelings, ideas, and real-life experiences that have helped me enjoy every step of the journey, not just Friday's paycheck.

Feel free to share ideas that you think would make this site more useful.

Own your finances.