Originally published on March 21, 2010

“Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it.”
Peter Lynch   

One of the greatest investors of our time attests to the simplicity of investing in the stock market. Read this post and find out why. Following is the “Cliff Notes” version of why you need to put part of your long term investment dollars in the stock market. 

Main Topic; Stocks  

The historical long term growth of American business is amazing. American business is frequently represented by the Standard and Poor’s 500 Stock Index (S & P 500). This index of 500 stocks is considered a barometer for the complete US Stock Market. 

Forget about the recent recession and downfall of the stock markets for a minute and take a peak at some historical returns of the S & P 500. Although historical returns do not guarantee future returns, take a look anyhow. When looking at these returns, think about the stock market as a collection of U.S. businesses, not mutual fund or brokerage account statements. Then ask yourself if you think U.S. businesses and the economy will grow over the next 20, 30, or 40 years?

The first time I really studied this type of data was in 1993.  Although I had been investing for a while prior to that time, my husband was still skeptical. I wanted to convince my husband of the importance of putting money into the stock market so I prepared some data for him. Fortunately, for us he was convinced by the historical information, so we boosted our investing at that time and have watched our investments grow over time while continuing to contribute regularly to our investment accounts. 

 But what does this return mean in real dollars? 

Consider this, if you are in your 20’s, 30’s, or 40’s you have many years until retirement. You can stick some money in a brokerage account at one of the discount brokers (like Fidelity, Vanguard, Schwab, or  TD Ameritrade), invest that money in an S & P Index mutual fund or ETF and forget about it. Fast forward 20, 30, or 40 years, it is highly likely that your investment will have grown substantially! Even Rumplestilskin could try this and probably wake up a rich guy after sleeping for a really long time! 

Certainly, it is better to INVEST REGULARLY and not just one time! 

Now, I don’t recommend that you run out and stick the money into the account tomorrow unless you have a bit more financial knowledge. Continue to read BarbaraFriedbergPersonalFinance and before you know it you will have the skills to grow your net worth. 

Practical Application; How do I Proceed?     

• Here is the takeaway from this post: 
• The more time you have, the greater chance you have to get wealthy. 
• Over time, the stock market has been a wonderful way to accumulate wealth. 
• Since the stock market is very volatile, only put money into the market that you can leave there for 5 years or more. 
• Invest only in stock index mutual funds or exchange traded funds (ETF’s) unless you have a lot of money and want to devote hours per week to researching individual stocks. 
• For the best low effort long term returns, AUTOMATE! Have a regular amount automatically transferred in to a brokerage account each month from your paycheck or bank account.    

Action Step: 

Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it to keep all of your personal finance goals, thoughts, activities, and plans. 

Grow your emergency savings to 6 months of living expenses in a bank savings account or money market fund by transferring automatically from your paycheck or checking account to a savings account. 

CAUTION: This post if for educational purposes and is not advice to run out and buy a stock mutual fund! Before investing, it is really really important to gain some basic financial education. And before sticking any money in investments you need to have savings for emergencies and no consumer debt! Think of this post as part of your lessons in “financial literacy.” Read this blog regularly, try out the action steps, and learn the basics before you start investing. Keep reading and become financially smart!

How has the recent stock market volatility affected your investing activity?

GUEST POST by Mr. Credit Card 

Today, Mr. Credit Card from Ask Mr. Credit Card  is going to share some thoughts about the importance of improving yourself  and learning new skills as an employee. Mr Credit Card has recently compiled a review of identity identity theft protection services, which you might want to check out.

If you hang around the blogosphere enough, you will notice a recurring theme; the desire of many to get out of their JOBS’ and work for themselves. Very often, the reasons cited include:

• Poor job fit
• Spend more time with family
• Hate answering to a boss
• Lack of job security in corporate America

Most the reasons cited above are true to a certain extent. But instead of  drooling about the prospect of starting your own business, why not use your time as a corporate employee to improve yourself and acquire new skills? You might actually find that doing so may get your a promotion or  a leg up when you strike out on your own. Check out these skills to further your career.

1. Learn to delegate – One of the things employees must learn as they progress up the organization is to delegate. We’ve all seen this again and again. The best salesperson on the team is a terrible manager or the smartest programmer stinks as the boss.  There is a transition from team member to manager. Very often, the person who is successful at a specific task fails when he or she gets promoted because they never learn to delegate.

Learning to delegate is a very important skill to learn. You frequently hear successful entrepreneurs talk about working ON their business, not IN the business. If you fail to delegate, you may find it difficult to grow your own business.

2. Learn to be productive – I guess in certain corporate jobs, it is easy to just coast along. But if you want to rise to the top, you have to be productive. That means getting your most important task done first. And not being overly distracted by things that do not really matter.

3. Polish up on presentation skills - Demonstrating good presentation skills is crucial in the corporate world. But they are also very important if you have your own business. After all, you have to pitch to venture capitalists, vendors, and other organizations if you are seeking any partnerships. If you lack presentation shills in a corporate setting,  likely you will be poor at promoting your own business too.

4. Enhance your people skills – Some folks do not succeed in the corporate world because they have poor people skills. You could make the argument that perhaps this is an impetus to strike out on one’s own. And there are many professions where you can get away with poor people skills. For example, a freelance computer programmer or writer may not need these as much as someone in other professions. Still brushing up interpersonal skills can go a long way towards advancing your career or even growing our own business. A business owner needs people skill to deal with employees or his/her business partners.

5. Build relationships – Very often, folks who are shy of promoting themselves view others who are “close” to their bosses as brown nosers. I used to think that way too. However, having become my own boss, I actually appreciate employees who update me,  ask my opinion, and  ask questions when they are unsure. I enjoy a close relationship with my employees. Here is the truth. In the real world, you will only be promoted if you have the trust of your superior and this only happens when you build a strong relationship with him or her. Furthermore, you can only get things done with peers if you’ve built sound relationships.

If you have your own business, the ability to build relationships is even more important. Business owners who lack this skill are at a disadvantage because strong business relationships relate to future success.

6. Get things done – There are many folks who simply do not get things done on time or properly when given a project to do. There are plentiful reasons and excuses. But to be truly successful in whatever you do, you must develop the habit of  getting things done by hook or by crook.

 A key attribute of successful executives and business owners is the ability to get things accomplished on time.

Summary 

 There are many folks who are unhappy with their present jobs for a variety of reasons and want to eventually “start their own business” or “earn passive income”. But I would suggest that even if you are unhappy with your present corporate job situation, there are skills to learn that could earn you a promotion, increase your  job fulfillment and even a higher salary. At the very worst, improving yourself will give you a better shot at success when you do strike out on your own.

So do not moan and groan about your present situation. Instead, make use of your time now to improve yourself (and obviously plan your next venture). You will  be much better off with an action-oriented  attitude no matter what the future holds.

Summer’s a time when you can kick back, relax and read a bit more. In that vein, I’d like to recommend some enjoyable and informative articles I’ve come across recently. Get a taste here, and stop by the authors’ sites for the full versions.

Could the Free Market have Ended Racism?

Let me state, I am not a fan of racism (As a matter of fact, some might call me a “liberal.”)! I don’t think the free market is enough to end racism but read on to hear a fascinating discussion at The Amateur Financier:

“ ‘The free market, as usual, will address the problem.  It punishes racists.  A business that doesn’t hire blacks will lose customers and good employees.  It will atrophy while its more inclusive competitors thrive.’ (John) Stossel raises an interesting point: could the free market have ended discrimination without government intervention?  Or were the government actions like the Civil Rights Act and its prohibitions on employment discrimination a needed remedy to the segregation era?”

2010 Tax Brackets; Which Income Tax Bracket am I in?

No one is enthusiastic about paying taxes, that being said…. the more you understand about the system, the more likely it is that you will KEEP MORE OF YOUR CASH! Read on about this important issue at The Oblivious Investor:

“The Federal income tax is referred to as a “progressive tax.” Of course, it’s not progressive in the same way that a social movement could be said to be progressive. What the term means in this case is that, as your taxable income increases, so does the rate at which you are taxed. People will often make statements such as “I’m in the 25% tax bracket.” For example, as you can see in the table below, a single person with a taxable income of $40,000 would be in the 25% tax bracket. People frequently misunderstand this to mean that all of the person’s income is taxed at a rate of 25%. In reality, the person’s overall tax rate will be much lower.”

The TAO of the Intellect

Loved the title, and the content gets you thinking… just not too much! Read more at Early Retirement Extreme:

“Another very human trait is to weigh recent information more than historical information or worse, weigh it higher than  “what is not seen”. The latter causes an enormous amount of confusion. One might almost say that the entire field of economics is dedicated to solve this problem (the broken window fallacy), at least after a couple of beers.”

Six Tips from Yorkshire’s Top Thriftiest Grannies

Who wouldn’t want to read this post? The grannies have the best tips; here’s a sneak peek, read more at Miss Thrifty:

“TOP TIP 4 – Pack junk mail into the empty cardboard toilet roll tubes and use them as firelighters.”

Good Debt vs. Bad Debt 

I agree with MOST of the content here… but read on and see what YOU think. Young and Thrifty has a great writing style, enjoy….. 

“Yes.. I mentioned the “D” word. Debt. Just letting that word roll off your tongue makes you feel like you have halitosis. Well, get that tongue scraper and Listerine out, because as surprising(and somewhat crazy) as this may sound, there is such thing good debt AND bad debt.”

Crank up your Savings Goals at Smarty Pig

Right now, get a (relatively) high yield at this unique goal-oriented savings site as discussed at Free From Broke.

“Whether you want to save up $500 for back to school shopping, or $5,000 for a family vacation, it is possible to use SmartyPig to reach that goal.  The concept is fairly straightforward, and works simply.”

Could you Give it all Away?

The uber-wealthy Bill Gates and Warren Buffett are doing just that? Join the discussion at Beating Broke:

“At the real bottom of this is a more important question.  Why do we build wealth?  What purpose do we give our lives that we strive to attain wealth.  In Warren Buffetts case, I think you could argue that he has always seen it as a challenge.”

Buying Blogs, Selling Blogs: How I Built my Blogging Business

Sam at the Financial Samurai is somewhat of a “rock star” in the personal finance blogging world as founder of the Yakezie Network. This guest post on his site is a real peak inside the “business of blogging.”

“This is a guest post written by Mike, a young financial planner / web entrepreneur who is pursuing his dream of running his online business. You can follow his progress at The Financial Blogger and read his other financial blogs at Green Panda Treehouse and Intelligent Speculator. 3 years ago, I was told by many bloggers: “You will never make money blogging. And if you do, $200/month will be your highest peak ever”. Three year ago, The Financial Blogger was averaging 500 visits per month and I was ecstatic when I made my first deal of $10 for a link. Three years later, I now run three financial websites, bought 2 of them and flipped a blog within a year.”

My Teen-age Son, the Cell Phone, & a Bill for $1,055.20

Len Penzo dot com is one of the most hilarious personal finance writers around. He DOES NOT DISAPPOINT with this uproarious post about his son’s adventures with texting & a new cell phone:

 ”I can’t remember the exact day he first requested his own cell phone, but I am quite certain the first letters he learned in school weren’t A-B-C.  They were A-T-(T). When Matthew turned 12 last year, we decided it was finally time to grant his wish.   The only condition was that he had to pay us $25 per month to maintain his account.  Knowing that he could easily earn $40 per month by simply mowing the lawn and doing chores around the house, Matthew readily agreed – and so we got him his phone.”

CARNIVAL of Money Stories 2 featured my article this week; Reduce Stress Get Rid of Dysfunctional Money Behaviors-Part 2. Read my article as well as other money stories at this informative round up.

“Overcome a Passion for Procrastination (in dealing with financial matters). ‘Procrastination is like a credit card: it’s a lot of fun until you get the bill.’ Christopher Parker

This young actor hit the nail on the head! Avoiding and procrastinating seem fine, for a while. Later- the price you pay for procrastination is quite HIGH. Charge away with the credit card; if you don’t have the cash to pay it off every month, you are walking on a treadmill of pain.”

ACTION STEP:

Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it to keep all of your personal finance goals, thoughts, activities, and plans.

Today, and every day, LEARN SOMETHING NEW!

What do you think about this summer reading? Agree, disagree, join the discussion……leave a comment.

Money & Relationships-Make it Work!

“I’d marry again if I found a man (or woman) who had fifteen million dollars, would sign over half to me, and guarantee that he’d be dead within a year.” Bette Davis

 You gotta take relationships with a bit of levity or you’ll never make it through! This quote is the perfect solution for money and relationship problems. Unfortunately, it’s a bit unrealistic. Maybe a million or two is more doable.

No really, read on and find out how to handle money stress in a relationship.

MAIN TOPIC: She’s a Saver, He’s a Spender

This article is the 3rd in a series relating poor money behaviors with stress. The topics are inspired by an article entitled Emotions, Money, & Financial Stress by Nancy Losinno, published at the US Department of Energy, Brookhaven National Laboratory website. 

You know who I’m talking about. Bluetooth came out, he got it. Iphone, Ipad, flatscreen TV, etc. he bought them all. New car every few years was required by him. Meanwhile the debt piled up. She tried to save, but his spending counteracted all of her efforts. 

I’m hesitant to continue, as the story is so familiar. We all know how it turns out…… fighting, stress, anger, depression, marital discord and DEBT.

Overspending in a relationship is unhealthy whether practiced by one or both partners.

Losinno clearly stated, that in a relationship the partners have the choice of creating WEALTH or a “FINANCIAL HELL ON EARTH.” Money secrets are devastating. Unhealthy family money attitudes can be disastrous. Money problems in a relationship can be the beginning of the end.

PRACTICAL APPLICATION: Get Real and Slam the Debt

It’s helpful to choose a partner whose money style is similar to yours. I am really lucky, el carino and I have very similar money habits. Neither of us is extravagant nor strives for extravagance. I probably shouldn’t tell you this, but…. since our 5^th month together, I have handled almost all of the financial matters (not all the decision-making of course) for the family, and that has worked out really well for us. Obviously, I am not recommending this alternative for others, but it’s suitable for our family.

PROBLEM 3: MONEY & RELATIONSHIP TROUBLES

Lack of communication in money matters is a big problem. So is a difference in money attitudes. The problems that arise from money secrets and mismatched money attitudes can be corrected.

SOLUTION:  

1. Discuss money issues with your potential or current partner.
2. Come clean. Lay it all out on the table.
3. Together, list your debts and spending secrets, even though it is hard. If you can’t do it alone, see a counselor or Employee Assistance Program (EAP) specialist (through work).
4. Schedule money talks regularly.
5. Make an agenda and list you financial issues.
6. Devise a plan to get rid of credit card debt.  Stick to the plan.
7. Make a budget or spending plan.
8. Find a middle ground for spending & saving that works for both of you.
9. Look for low cost alternatives for the spendaholic; a new CD instead of a new MP3 player.
10. Check out Oprah’s Debt Diet. After all, isn’t Oprah known for access to the best of everything?
11. Start small, make a small money goal to start. Then reward yourselves with a “free” prize. i.e. a picnic in the park, a TV night without the kids, listening to music together, use your imagination….

Compromise, compromise, compromise 

ACTION STEPS:

Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it to keep all of your personal finance goals, thoughts, activities, and plans.

•  Continue to talk regularly and honestly about your money problems.
• Motivate each other to spend less and look for ways other than spending to enjoy life.

Overcome a Passion for Procrastination (in dealing with financial matters)

“Procrastination is like a credit card: it’s a lot of fun until you get the bill.” Christopher Parker

This young actor hit the nail on the head! Avoiding and procrastinating seem fine, for a while. Later- the price you pay for procrastination is quite HIGH. Charge away with the credit card; if you don’t have the cash to pay it off every month, you are walking on a treadmill of pain.

MAIN TOPIC: Behavior is Everything-Avoid Financial Procrastination

This article is the second in a series relating poor money behaviors with stress. The topics are inspired by an article entitled Emotions, Money, & Financial Stress by Nancy Losinno, published at the US Department of Energy, Brookhaven National Laboratory website.

Procrastination is an evil and insidious behavior. It starts out benign and continues until it ruins everything it touches. Our summer guest Juan, discovered the problem with procrastinating the hard way. When he got his first credit card Juan checked on the balance on line, charged a few things, and didn’t pay the bill the first month. OK, not too much of a problem. But the reminders to pay came, and JOSE ignored them! Avoidance is procrastination’s ugly brother. He pushed the card out of his mind. It seemed too “complicated and difficult” for him to deal with. 

Lo and behold, the second month, after not paying the bill, his card was refused at a merchant. It disturbed Juan, but he quickly put it out of his mind, with an explanation to himself, “there must be something wrong with the card, I’ll worry about it later.”

After several months of non-payment, Jose racked up late fees and finance charges equal to his original balance. But he didn’t notice as he continued to procrastinate and avoid dealing with his bill. 

Juan had the money to pay the bill, but continued to avoid paying because it seemed complicated.

In our efforts to get Juan on track, we walked him through the payment process. 

Total time spent paying the credit card bill online: 15 minutes

Total late charges and fees: $125.00

 

Unfortunately, the story does not end here. After paying the bill in full, he attempted to use the card to pay for his summer school tuition. THE CARD WAS DENIED.

All of this stress and expense, not to mention potential damage to his credit rating, occurred because he PROCRASTINATED. 

PRACTICAL APPLICATION; How to Combat Money Procrastination 

Money is a great big mystery and secret for many of us. There are couples who don’t talk about it, overspend, don’t tell their partners what they buy, etc. Individuals use shopping as therapy and then PROCRASTINATE dealing with the bills. Overspending is bad enough, procrastination in dealing with the spending is worse.

PROBLEM 2: PROCRASTINATE handling money matters.

PROCRASTINATION in paying bills leads to problems; poor credit, debt, and stress. Just like other unhealthy behaviors; eating junk food, lack of exercise, money procrastination can be turned around.

Begin changing the PROCRASTINATION HABIT & reduce money and life stress.

SOLUTION:  

1. Be honest and ask yourself: “HOW HAS PUTTING OFF DEALING WITH FINANCIAL MATTERS WORKED OUT FOR ME?”
2. Schedule time on your calendar to deal with money stuff.
3. Make an appointment with your partner to talk about money.
4. List your debts.
5. Put every bill in a basket near where it is to be paid.
6. Pay bills 2 times per month or better yet, arrange to have regular bills taken out of your bank account.
7. If you miss a payment, do not compound the mistake by “ignoring it.” Call the merchant, and inform him that you are paying immediately, then DO IT.

New habits do not occur overnight. Habits are developed over time with regular practice. Day by day, rehearse these “solution steps.” When you catch yourself slipping back into the “passion for procrastination”, immediately, correct course and go back into action.

DO A MONEY TASK TODAY and reduce stress.

Stay tuned for part 3: Money & Relationships-Make it Work!

ACTION STEPS:

Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it to keep all of your personal finance goals, thoughts, activities, and plans. 

• Make a “MONEY to do” list of tiny action steps.
• Do one difficult money task each day.
• PRACTICE dealing with the bills even though it is unpleasant.

 Write in a talk about how you tackle the insidious passion for procrastination.

Image credit: [j]t

YAKEZIE SHORT CARNIVAL:

Check out these personal finance articles by talented Yakezie writers:

This 1 Question Will Change Your Spending Habits at Financially Poor           

Save on Gas-11 Extreme Tips at Car Negotiation Coach             

Is it OK to Splurge When You’re in Debt? at Cool to be Frugal                   

“When I chased after money, I never had enough. When I got my life on purpose and focused on giving of myself and everything that arrived into my life, then I was prosperous.”
Wayne Dyer

 Ironic isn’t it that a personal finance blog writes so much about non-financial matters. If one focuses on passion and service in life, practices discipline in all things, then money becomes less of a target and life becomes richer.

 MAIN TOPIC: Behavior is Everything

This article is the first in a series relating poor money behaviors with stress.

What you do and how you act determines the outcome of your life. We have a visiting college student, Juan, in our home for the summer. He is a bright, talented, and accomplished young man who has developed some unhelpful habits. Like many of us, he procrastinates which leads to distress. He has difficulty discerning the important from the unimportant. On top of that, this young man is graduating college soon and is defining his next career step. Recently, Juan realized that he is an adult and must behave as one. No more partying and spending with abandon, with no regard for the consequences.

Wow, it’s a lot for a young person today to contend with. Juan isn’t so different than many adults; he has difficulty managing his finances and paying his bills. We are attempting to help him focus on his future and learn the link between HEALTHY BEHAVIORS AND LIFE SUCCESS.

If I said it once, I said it 1000 times to my own daughter; your behavior defines who you are! It’s not what you say, but what you do that matters! This article will steal borrow some concepts from an article I came across called, “Emotions, Money & Financial Stress.”

Feel free to pass along these ideas to anyone who is looking to clean up their financial lives.

PRACTICAL APPLICATION: 1st Dysfunctional Money Behavior and How to Combat it

Depression, stress, and anxiety are all byproducts of money stress. Current “happiness” research shows that those individuals who experience more control over their lives are happier. Learn to recognize unhealthy money behaviors, control them, and reduce stress.

 PROBLEM 1: GO SHOPPING to solve your problems.

 In the same way that overeaters use food to solve emotional issues, over-shoppers go to the mall to “feel better.” In both cases, the relief is short lived, and creates more long lasting problems. If you use food to fill the emotional hole, you get fat and unhealthy. Use shopping the same way and you get debt, bills, & bad credit. Not to mention a home filled with stuff you don’t need!

SOLUTION:

1. Next time you feel the urge for emotional shopping-STOP.
2. Slow down, take a deep breath, and ask yourself what the real problem is.
3. Really examine what is bothering you, and then determine whether the BEST solution to this problem is shopping.
4. Is the solution to your stress and problems a trip to the mall? Will shopping offer a lasting answer to the problem?
5. If shopping will not provide a long term answer to the stress, then do not shop. First, accept the fact that life has its stressors and all successful individuals have learned to TOLERATE A CERTAIN DEGREE OF DISCOMFORT. Do not feel like it is imperative to immediately eliminate the anxiety.
6. Next, take a step to relax, take a walk, write in a journal, or talk to a friend. Find an activity that does not involve spending, to practice for a bit. Realize that the stress will not continue forever.
7. Finally, brainstorm possible solutions to the problem/stressor. Do it alone or with a friend. Write down any possible resolution you can think of.
8. Take a break and do nothing for a bit. Let your mind clear.
9. Come back later and plan your next step.

Work on this dysfunctional money behavior first. Recognize when ”the urge to splurge” happens and follow the steps to develop a healthy alternative.

 Stay tuned for part 2: Passion for Procrastination, in Dealing with Financial Matters 

ACTION STEPS:

Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it to keep all of your personal finance goals, thoughts, activities, and plans.

• When the urge to spend, as a problem solving solution arises: DO NOT GIVE IN.
•  Make a list of relaxing activities.
•  Post your personal RELAXING ACTIVITIES prominently.
•  Practice one of these behaviors instead of shopping.

 RECENT FINDS IN THE PERSONAL FINANCE ARENA; No spending required!

CARNIVAL: Please visit the Carnival of Personal Finance at Funny About Money, where I’m featured, for more personal finance articles.

Check out the FREE sites I’ve been visiting recently, and enjoy:

Watson, Inc.-Free giveaway edition

Monevator

Wealth Pilgrim

Little House in the Valley  

Frugal Confessions

The Saved Quarter

 Len Penzo dot Com

My Journey to Millions

Digging Out from our Mess

Categories: competition, life, saving, Yakezie

“Strength does not come from winning. Your struggles develop your strengths. When you go through hardships and decide not to surrender, that is strength.”
Arnold Schwarzenegger

 Alright, so this past month of pure spending cuts may not be the worst hardship imaginable, but it was a struggle. And I must give a shout out to Schwarzenegger for knowing about winning, as this guy does not have a college degree, and has a resume that includes a stint as governor of California, actor, and world champion body builder.

 MAIN TOPIC; Lessons Learned

 For those of you just joining, I was challenged to participate in a spending reduction challenge last month by Jacq at Single Mom Rich Mom. We were joined by Christine at Money Funk and Laura at Move to Portugal. The competition was: who could beat their own monthly averages in variable spending categories. The winner would be determined by reducing spending by the greatest percentage; WINNERS for individual categories and overall.

I thought it would be fun, and I was flattered to be asked. Not once did I think I would win, and I really didn’t know how the competition would affect me since I had NEVER DONE ANYTHING LIKE THIS BEFORE.

 I’ll start with the life and personal finance lessons learned from participating in the competition. Think about whether they would apply to you.

1. CONTROL: I love control. I like to control myself and those around me. The competition reinforced that there are some things one can control and others you cannot. For example, I could not control my husband’s spending. But I could certainly almost control my own. The fact that my bi monthly hair appointment came in June was out of my control. Jacq at Single Mom Rich Mom couldn’t control when her annual car tax came due.

 The takeaway: Control what you can, accept that you cannot control everything.

2. DO NOT GRADE YOURSELF: Throughout the month I wondered how I was doing. I was even tempted to check my progress. But, I refrained from checking, practiced smart shopping habits  and cut back where I could. I figured that even though I wanted to win; win or lose, I would benefit from the competition.

 The takeaway: My job was to compete, the results would come later. Obsessing about how I was doing wouldn’t make any difference. I don’t need to grade myself.

 3. COMPETITION IS MOTIVATING: If I did not have the June challenge, I wouldn’t have tried to cut my spending for the month. Our family spent almost $500 less than we normally spend. The competition was motivating, but it was also difficult and constraining. There were things I wanted to buy which I didn’t. I cut waaay back on groceries.

 Jacob at Early Retirement Extreme asked if I was going to continue. The short answer is, I might try another competition month, but I will not continue changing my spending to match the June challenge month. Our family has a budget which allows for saving, spending on what we value, and charity. We have emergency savings and investments. And it’s working for us.

 The takeaway: Competing with a partner or two towards a goal is a wonderful way to make a difficult task more fun and up one’s motivation. This was my first time, and I would definitely try it again!

THE RESULTS

If you hung in for the entire post, thank you. Here are the final results.

OVERALL WINNER: BarbaraFriedbergPersonalFinance

with a JUNE decline of 36.56% in the variable spending categories

 I was happy to win and also surprised. I never thought I would be the overall winner. It’s sweet to win, and it’s also fun to compete! 

ACTION STEP

Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it to keep all of your personal finance goals, thoughts, activities, and plans.

Ask a partner to join you in a competition; make achieving a goal more motivating and fun. Try it with spending, losing weight, or any other challenge.

Let me know what you think about competing towards a goal. Have you tried it before? How did it work out?

Image credit: McDuck 17

YAKEZIE SHORT CARNIVAL 

Check out these personal finance articles by talented Yakezie writers:

7 Wealth Building Strategies  at Invest it Wisely

How Would $1,000 Change Your Life?  at Financiallly Poor       

 “Enough” by John Bogle – Review & Introduction  at Engineer Your Finances

 

Active vs. Passive Management

Categories: investing, wealth, stocks, mutual funds

“Wall Street Pares Gains as Bargain-Hunters Retreat,” Associated Press, July 6, 2010

Today we are focusing on stock investing only. Unfortunately, many of you out there read headlines such as this one and believe you must rush out and BUY OR SELL. After all, if the headline is screaming at you, it must mean something.

Act on the headlines at your own peril.  

You might see your stock investment plummet, get nervous and want to ACT. Read on and see how being passive works out in the long run.

MAIN TOPIC: Why you Must Ignore the Investment Headlines

Raise your hands if you watch CNBC, Jim Cramer, or any investing program. Who here checks on their stock and mutual fund prices daily; and scours Yahoo Finance and MSN Money for financial news?

Now, don’t be shy, you know who you are. You think you are being very diligent and keeping up with the market and your investments. Well, you’re wrong.

• Are you trying to beat the market performance?
• Find the hottest stock?
• Get rich quick?

Stop right now. There is a better way, with a greater chance of yielding long term wealth.

In this class, you will learn:

• The historical performance of the stock market and why it matters.
• Stock market facts & what they mean about getting wealthy.
• How being passive leads to wealth.

PRACTICAL APPLICATION: Active Managers are Losers

 Over 20 years, the S & P Index beat 68% of all actively managed funds.

In other words, most investors in actively managed mutual funds with “professional money managers” (who regularly bought and sold stocks) had worse returns than investors who stuck with unmanaged INDEX FUNDS.

Active managers believe they can outperform the indexes with their superior stock picking ability. In reality, any fund with an active manager(s) has higher costs than an index fund. That means right off, they have to beat the index substantially in order to cover their larger expenses.

Active managers frequently demonstrate superior performance for a year of two. Do you think it typically continues for the long term? NO it does not. Many research studies show that actively managed mutual funds with outstanding performance one year have subpar results the next.

Active managers are the ones who listen to the headlines and jump in to buy or sell based on “the news.”

 This ACTIVE strategy yields long term UNDERPERFORMANCE.

The economy goes up and down and so does the stock market. Expect these ups and downs and do not be surprised by them.

Since 1960 there have been 9 Bear Markets (decline of 20% or more in the overall stock market). In spite of these declines, the S & P 500 had an annualized return of 10.05% from 1926 to 2007.

Let’s look at the Active vs. Passive investing debate another way.

HOW MUCH WEALTH MIGHT YOU HAVE EARNED BY INVESTING IN THE STOCK MARKET as represented by the S & P 500 Index? 

What about the longer term, does this theory still hold?

DO NOT JUMP IN AND OUT OF THE MARKET.

Do you know when the market will have the biggest increases? Of course not, no one can predict the future! The lesson is this; active management leads to worse returns than simple index investing.

TIME IN THE MARKET is the best way to get rich.

Start now and continue investing. Buy an index fund  or two, continue with regular investing, and if history is any guide, over time you will become rich.

Investing terms:

Stock Market: Usually refers to an index of many stocks or bonds which serve as a proxy for the total stock market. The most common index for stocks is the S & P 500.

Active management: Buying and selling stocks or bonds in an effort to outperform the overall market.

Passive investing: Invest in index funds in order to minimize fees and expenses and match the overall market performance.

Are you an active or passive investor? How is your investing strategy working out?

ACTION STEPS:

Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it to keep all of your personal finance goals, thoughts, activities, and plans.

Read this article before investing any money.

When you are ready to invest, commit to regularly  contributing to a stock  mutual fund as part of your overall investment plan.

Caveat: This article is for information purposes only and may not be appropriate for your individual situation.

YAKEZIE SHORT CARNIVAL:

What’s a good car price and why should you keep it a secret? @Car Negotiation Coach

Condom Factory and Bonds: What’s the Connection  @The Millionaire Nurse Blog    

Bankruptcy is not a Sin @ Financially Poor

The 4 Worst Ways to Impress Your Boss @ Sweating the Big Stuff

Categories: budget, life, saving, spending

Summary

Jacq at Single Mom Rich Mom had the audacity to challenge me to a spending challenge:

 Who can cut spending by the greatest percentage in “variable” spending categories?

Next Laura at Move to Portugal  joined in as well as Christine from Money Funk. Finally, Jacob from Early Retirement Extreme  decided to “keep the fight clean.” So, the month has passed and now it’s time to determine the WINNER!

We each had our own strategies, all very “hush hush” to nail the competition. Jacq was determined to win the grocery category by only bringing a $20 to the store. I was less systematic, although equally determined. My house was in chaos with the return from college of our daughter and I thought for sure I would be doomed. But not one to give up on a challenge, I decided to persevere and give the competition my best effort!

The variable expense categories for the challenge include:

• Auto
• Clothing
• Dining out
• Recreation/Entertainment
• Groceries/personal care/household items

The Methodology

I took the total spending in each of those categories for the past 12 months. Next, I divided by 12 for an average monthly spending. That was my baseline. Next, for the grand summation; I compared overall spending as well as individual category spending with the monthly average and calculated the difference.

AVERAGE MONTHLY VARIABLE SPENDING

7/1/2009- 6/30/2010 compared with June, 2010

Analysis

Auto-Down 76%, hooray! Got a $50 reward card from credit card company, walked more, and bunched errands.

Clothing-No one in the family bought any!! The $66 was for my hair, which I categorize in the clothing column. So now you know, I kind of splurge on my hair! You may wonder why I put it in the clothes column- but, it doesn’t really matter. What matters, is that I’m consistent, and every 8 weeks the hair salon cost goes in the SAME category.

As a side note, although I spend quite a bit at the hair salon, my husband, on the other hand, does not! In fact, he prefers that I cut his hair! Thus, we are saving 20 bucks a month on his hair care!

Dining out-Oops, up a bit over 2 ½%; included daughter home from college & FATHERS Day buffet!  But it was really worth it. The buffet was delicious, and I love to eat out!

Recreation & Entertainment-AMAAAAZING! In spite of my husband’s hobby, we are down 70%. As you may remember, we get the maximum enjoyment from our TV & cable.

And, incredible scenery, beautiful walking paths, and summer time gave us the opportunity to enjoy the FREE outdoors!

I TOOK A PAGE OUT OF Jacob’s Early Retirement Extreme strategy and put a 7 piece drum set and electric piano on Craig’s list to really slam the recreation/entertainment category….. Unfortunately, the only responses I got were from spammers. NO SALE!

Grocery etc.-Only fell  7.38 %, about 38 bucks. I confess, I am a fanatic about fresh fruits and vegetables and really healthy eating. Produce this year is very expensive. I think that’s what killed us here! But, all in all even with the food inflation over the year, we did spend $38 less than average. Hey, that’s more than enough for a nice dinner out!

Overall, we spent $866 in variable categories versus an average of $1,365 for an overall savings of $499, a decline of 37%. I AM THRILLED!! 

Summary and Conclusion

The competition pushed me to find low cost ways of living. I visited lower cost grocery stores, looked for inexpensive entertainment, still splurged on my hair-but didn’t buy any clothes in June and overall had a good month.

Did I feel deprived? Maybe a little…. but I made sure not to cut back too much, because then I would just go out and binge shop when the challenge was over, and that would totally defeat the purpose.

Was it fun? YES, it was great fun. I loved the camaraderie of the competition and the savings. Now our June spending was a bit slimmer than usual, which gives us a bit of a cushion. After all, with the recent drop in the stock market, our net worth took a bit of a hit in June. But after cutting spending back last month, the market decline is a bit less painful.

Try competing for your own goals with a partner or two and see if you find it as motivating as we did!

Image credit: Andriz 

Write in about your tricks to live large on a slim budget.

Categories: links, investing, money management, saving, make money

Welcome to a collection of amazing articles. Each one of these posts was chosen for its innovative ideas and thought provoking topics. After digesting this wonderful menu of diverse reading desserts, you will be smarter and wealthier.

Following are links to these delicious articles and a taste of their content. Go on and indulge.

The Oblivious Investor throws in a twist with 3 Good Stocks to Buy Right Now.

“Quick reminder: The fact that a company is growing (or is going to grow) does not by itself mean that its stock is a good investment. For a stock to be a good investment, there must be reason to think that its future growth is not already reflected in its price. Said differently, for a stock to earn above-average returns, the company must do better than the market expects it to.”

The Car Negotiation Coach at Findthebestcarprice reveals How to get Paid to Drive. INGENIOUS!

“Did you know you can make money just by driving your car? You can, if you are willing to allow a company to put an advertisement on it. These advertisements, called wraps, look like they are painted right on the vehicle, but they are just really nice decals. The programs are called ‘free car’ or ‘get paid to drive’ and they pay you for advertising for their product on the side of your car.”

In Best Way to get out of Credit Card Debt Fast, Wealthpilgrim offers a new take on an old subject!

“I don’t know about you, but sometimes when I face a daunting task I waste energy and time. Sometimes I spend too much time thinking about where to start. Other times I use the shot gun approach rather than focus my efforts. When I do that, my results are diluted.”

Littlehouseinthevalley reveals  how to make a quick call and increase your spendable income in Smashing the Bills to Smithereens! I love this.

“Constantly looking for ways to reduce our monthly bills, a few quick phone calls revealed a total savings of $63 a month without reducing our services! Here’s how I, er, my husband did it with my help. I keep an excel file that lists the averages of how much all of our bills cost on each month. I have everything listed in categories, for instance under the category of CAR I included auto insurance, car payment, and gasoline. Out of a total of about 25 items (a lot, I know!) I pay on a regular monthly schedule, I went through my list and highlighted the items I thought we could save on without downgrading any of our services. Those items took only a phone call and included the phone bill, DSL service, and auto insurance for a total savings of $63 a month, or $756 for the entire year.”

Something to think about…..from Investitwisely in How Rich are you?

“In the beginning of time, every man was equally poor, or equally rich, depending on how you look at it. Then we discovered agriculture, and the surplus of food enabled specialization of labour, which gave birth to cities and to civilization. Since then, we’ve been more or less divided into three economic groups: The poor, the reasonably well off, and the ultra-rich.”

As usual, Shawn at Watson Inc. keeps me thinking with this thought provoking Millionaires Make Return to Boom Levels.

“Additionally, don’t forget who the average millionaire is. Remember that the typical millionaire is not a Wall Street titan, a corporate fat cat or a celebrity but rather a hard-working entrepreneur (32%) or professional (19%). Moreover, even though both the 14th Annual World Wealth Report and the 2010 Global Wealth report rightfully exclude primary residences in determining HNWIs, keep in mind that approximately 97% of millionaires are also home owners.”

I’m a sucker for anything “efficiency related.” Hope you enjoy this one from Myfinancialobjectives entitled Bringing Your Efficiency Home.

“What I mean by the title, is how much more could you accomplish at home if you brought the same efficiency home with you that you use at work (assuming you are more efficient at work than at home)?  I recently posted about Time Management and how an efficient time management mentality allows me to save a lot of time both at work and at home.” 

Frugalconfessions writes about the positives of keeping an eye on your spending in Financial Limits and Boundaries Breed Creativity not Deprivation. She’s definitely a “glass half full”  person.

“then I would miss out on all of the great opportunities out there. For one, I never would have learned the Drugstore Game, which led me to write six columns called “Frugal Confessions” and start this blog! Having unlimited money would have caused me to spend more of it (necessity is the mother of invention, not abundance) as I never would have discovered great tools like Craigslist, followed many of the blogs that I do with people dedicated to saving me money, learned how to invest my precious resources, save for retirement, etc. Having limits in my life has only served me, not caused me deprivation. With limits, opportunities abound—have you taken advantage of yours?”

 Get the latest word on MOTIVATION research in Management Rewired by Charles S. Jacobs, discussed at Eliminatethemuda.

“More and more the science is showing that everything we thought we knew and understood about motivation may be wrong. Contrary to our perception, providing extrinsic motivators such as bonuses, gifts and rewards or even punishments for undesirable behavior may often be detrimental to our long-term objectives. There are more effective and efficient methods to motivate and manage, the author shares, but many of these methods are counter intuitive and challenging to implement.”

Let me know if you enjoyed the tasty tidbits of financial wisdom!

 image credit Chotda