Monday Mantra - "Time is Money"

Time is Money

There is an actual way to figure how much time is worth in actual money. The formula is: V=(W((100-t)/100))/C, where V is the value of an hour, W is a person's hourly wage, t is the tax rate and C is the local cost of living. Time also equals money at work, in business, and in investing. If paid by the hour at work you will make more money the more time spent working. Spend more time in growing your business and you will gain more money from your business. Obviously the more time you spend saving, meaning the earlier you start, the more money you will end up saving and the more times your money will compound.

Opportunity cost

Time is not always accounted for with actual money, but, can be valued by what is gained by using time for things that are more important to us. For instance you might gain valuable time with friends or family that one can’t put a cost on by foregoing spending that time making extra money at work or in your investments. One also has to carefully evaluate time consuming tasks that can be delegated or contracted out which can add valuable time to one’s life. It is impossible to put a monetary value on time spent doing what makes us happy.

What does this mean to us?

This saying is never more relevant than during the holidays. I find myself wishing I had more time to shop for gifts, spend with family, finish work, and get things done around the house. We all need to evaluate the value of our time and how we spend it. Are there changes that can or even should be made for us to make the most use of our time? Are we spending too much of our time at work, at play, or doing nothing at all? As with everything in life we all need to find a balance as too much time spent doing any one thing can be detrimental to ourselves and the people around us.

Monday Mantra - Big Rocks

“Big Rocks”

During a guest lecture to a class of high-achieving M.B.A. students, a time management expert announced it was “time for a quiz.” He set a one-gallon, wide mouthed Mason jar on the table and began to fill it carefully with about a dozen fist-sized rocks, one by one,. When the rocks reached the top, he asked, “Is this jar full?”

Everyone answered, “Yes.”

“Really?” asked the expert. He reached under the table and pulled out a bucket of gravel. He dumped some in and shook the jar, causing the gravel to work itself down between the big rocks. One more time, he asked, “Is this jar full?”

By now the class was on to him. “Probably not,” said one student.

“Good,” said the lecturer. Next came a bucket of sand and sure enough, it filled all the spaces left between rocks and gravel. Once more he asked the question.

This time the entire class yelled, “No” “Right,” agreed the lecturer, grabbing a pitcher of water and filling the jar to the brim.

Then he looked up at the class and asked, “What’s the point of this illustration?”

One eager beaver raised her hand and said, “The point is – no matter how full your schedule, if you try really hard, you can always fit some more things into it.”

“No,” replied the speaker. “That’s not the point. The truth this illustration teaches is:

If you don’t put the big rocks in first, you’ll never get them in at all.”

What does this mean to us?

What are your big rocks?
A project you want to accomplish? Time with loved ones? Your faith, your education, your finances? Teaching or mentoring others? At work, what are the big rocks that will make the most impact on your company’s success? And which items on your “to do” list are gravel…or sand…things to do if time permits or, better yet, to be delegated to someone else?

A warning – gravel and sand are often easier to accomplish than big rocks. They can distract us from our big rocks and allow us to pull ourselves away from tough decisions and major projects. My advice? There’s enough time to do everything, so take care of your big rocks first!

Monday Mantra - Compounding, man's greatest invention

“Compounding, Man’s greatest invention”

Compounding

Many years ago Albert Einstein was asked what he thought mankind’s greatest invention was, he simply replied “compounding interest” This is one of the most brilliant human beings ever telling all of us how important this formula of compounding is for growing wealth. Compound interest is the concept of adding accumulated interest back to the principal, so that interest is earned on interest from that moment on. The act of declaring interest to be principal is called compounding.

Rule of 72

The “rule of 72” is a very easy way to figure out compounding of wealth based on a percentage return. Divide 72 by the interest rate you are earning to determine how many years it will take your money to double. For example, if you are earning 8% per year on your money it will take 9 years for your money to double in value. 72 divided by 8 equals 9. Eight percent is a decent average annual return and the number I set as a goal to beat every year. This should be easy for everyone to achieve as the average return from the stock market is said to be 10% if you invest in an index fund that tracks the market. For fun check what percentage you are earning on your money and calculate how many years it will take for it to double in value.

What does this mean to us?

The importance of compounding to us as individual investors is that we must set aside investment money for the long term and not withdraw the money earned from investing. It is necessary to compound the earnings on top of more earnings in order to maximize “mankind’s greatest invention” How much should you put away for investing? The general rule should be at least 10% of all earnings, after taxes, go into some sort of investment account. I would recommend an IRA either Roth or traditional if you qualify as the compounded earnings are tax deferred.

Cash

Cash

Right now is a tough time to be invested in cash. By cash I mean CD’s, money market accounts, government bonds, and actual cash whether it be under the mattress or in the bank. Interest rates are going down causing less return on cash investments and inflation is going up making that cash worth even less. The weakness in the dollar is also contributing to the need to find a better investment for the cash portion of our portfolios. In finding these alternatives you have to be weary as to the amount of risk you are willing to tolerate to avoid the eroding of your cash. I have CD’s that are ending soon and the renewal rates are much lower than what I was getting previously. If you are in a similar situation or just want to look at putting your cash in higher return investments read on.

Alternatives

Unfortunately there aren’t very many alternatives to consider that are safe enough for the cash portion of our portfolio. One option I am currently looking at is preferred stock. Preferred stock is like a hybrid stock/bond investment offered by many corporations. Many corporations are having the same problem home buyers are having right now, getting a loan. Offering preferred stock is a way to raise cash for many corporations. Preferred stocks pay a much higher dividend than normal stocks and have a higher priority when it comes to payment of those dividends. Another alternative is placing cash in the hands of a capitol management company in the form of a high dividend paying reit. One that looks attractive and that I have owned in the past is symbol NLY; with a yield over 6% per year it’s a lot better than any current short term CD offering. Also consider what I have mentioned in an earlier blog, P2P lending at prosper.

Consider

Consider what the investor group from Abu Dhabi has done investing 7.5 billion dollars in what is essentially a “super” preferred stock stake in Citigroup. Could this be a sign of what we could follow? Could this be a sign that the financials might be near a bottom? I personally am looking at the preferred shares of Citigroup which pays a nice dividend and I am already invested in Citigroup common stock which also has a good yield. There are many other preferred stock offerings out there currently with great yields, but, I would still be weary of investing in any preferred stocks that are exclusively in the housing sector. As always please feel free to email me AJSinvest@gmail.com with any questions.



Real World Money Management’s editorial goal is to provide a forum for personal finance and investment ideas. My blogs and other features should not be construed as investment advice. An investor's best course of action must be based on individual circumstances.

Investment Opportunity

Money Lending


One of the most interesting sites I found last year was Prosper who facilitates person to person lending or P2P for short. Lending on prosper is a great way to get your savings to work for you. There are many different kinds of loan requests to choose from. I found it so interesting that you can “be the bank” and review peoples credit history to make informed decisions on whom to lend your hard earned money to. Another great reason I like prosper is the fact that I can earn a much higher interest rate than any fixed income security and with less risk than any other non-insured investments. They have a new system called a portfolio plan that makes it easy to start a diversified P2P lending portfolio.


Borrowing
Borrowing money on prosper can also save you money in interest charges when compared to bank or credit card rates. With current credit conditions deteriorating it is becoming more difficult to qualify for loans from institutions if you can get a loan at all. P2P lending helps Borrowers find lenders who are not constrained by these limiting factors. By joining a group on prosper you can get an even better rate because the group will stand behind you and give lenders confidence that you will repay the loan. If you are currently looking for a loan consider a loan at prosper.

Prosper

Prosper, which is based here in San Francisco, is like the ebay of person to person lending with people bidding the lowest interest they will take on their money loaned out. They really are helping us regular people “cut out the middle man” with regards to dealing with banks. They held a lenders lunch meeting, which I attended, at their old headquarters early last year shortly after launching the site to the public. It was impressive that the CEO Chris Larsen, who used to run E-loan, was on hand running the meeting and answering questions. In fact, when the company found loopholes early on they covered the losses for the early lenders to make it right! They have by far the most comprehensive P2P lending site out there at this time and it is only getting better.

My Experience

I personally have many loans, average over 13% return, and have had a low percentage of defaults. Making transfers into and out of prosper electronically is very easy although there are wait periods for certain transactions for safety purposes. While I wouldn’t suggest lending all of your savings in prosper I would suggest you take a serious look at opening an account and giving it a try. With the CD rates declining, and the uncertainty in the financial markets, you can help keep your money working for you with the tools on prosper. There is a book written about it called How to lend money to friends you never met. If you have any questions regarding P2P lending please email me.

Monday Mantra - It's not how much you make

Monday Mantra

“It’s not how much you make, but, how much you keep”

The biggest factor in how much of your income you keep is centered on how much in taxes you have to pay. My research has shown me that one of the ways the rich get richer is through reducing taxes as much as possible. Imagine how much more wealthy you would be if you were able to keep some or most of that money that goes to state and federal income taxes each check.

One way to lower your taxable income is to take advantage of a traditional IRA account. Although the money you contribute to the account is after tax; the amount is deductible on your tax return at the end of the year. The account also will allow you to invest and collect tax deferred gains on those investments! Check with your accountant or tax professional to see if you can take advantage of this.

Another way to lower your taxable income is through a company sponsored 401k plan. If your employer has a 401k or profit sharing type of savings plan it behooves you to take full advantage of this pre-tax savings plan. I personally contribute the max that my company matches and I suggest you do the same. Check with your tax professional to see how you can lower your taxes by contributing to this kind of plan.

Also look into flex pay accounts if your employer offers this benefit. It allows you to set aside pre-tax dollars for use on health related expenses such as prescriptions, glasses, contacts, OTC medicine, and co-pays for doctor visits. It takes a little bit of time to calculate how much to set aside and also to request reimbursement but will save you money with less income tax taken.

Most, if not all, of the wealthy people in the United States also start, own, operate, or control some sort of business that helps them to have more control over how much of their money goes to Uncle Sam. It’s not as hard as you might think to start and run your own business. As a matter of fact you probably have numerous hobbies or interests outside of your work that can become a successful business. Once again I must suggest that you consult with your accountant or tax professional to see how starting a business can help you financially. A good book I read to get you started is

Lower Your Taxes


Don’t have a tax professional or accountant? Don’t know where to start or have further questions about any of these topics? Email me and I can help. AJSinvest@gmail.com

Monday Mantra - Rule No.1

Monday Mantra – Rule No. 1

This Monday mantra comes from The Tao of Warren Buffett , a book which I received as a gift and have read over and over.


Rule No. 1

“Rule No. 1: Never lose money. Rule No. 2: Never forget rule No.1” – Warren Buffett

What Does it Mean?

The secret to building wealth: Compound returns. And the more you have to start with, the more it will compound. So taking too many risks with your wealth when you're young might not be the best strategy. While we are young and careless we sometimes take risks with our money that are downright stupid. Gambling Is A Fools Game. Gambling on the latest and hottest stock every time is a risky proposition with long term consequences. To chase investments that offer a high rate of return you must also know that it comes with a high rate of risk. Bill Gates once quipped “Warren’s and my betting has always been confined to $1 bets” when talking about them playing poker together. If two billionaires take risk management this seriously, both you and I should be doing the same thing.

Mortgage

Mortgage News

Are you considering refinance or home purchase? Now is a good time, if you have good credit and sufficient equity or down payment. The average 30yr. fixed rate on conforming loans is below 6%! If you currently have an adjustable rate mortgage you really need to consider locking in a low rate now while you still can. The mortgage mess appears that is will continue to get worse and banks will keep tightening their lending standards making it harder to refinance. Please email me if you would like more information on mortgage options. AJSinvest@Gmail.com

Savings

Saving Basics


This, as most will agree, is step one in building wealth. We’ve all heard it before at sometime or another “It takes money to make money” While not being 100% true in all situations, I believe that this is a good indication of a persons seriousness to invest. After all if you can’t manage to save, no matter how small, how can you manage to invest no matter how small? Almost all of the books I have read about wealth building all begin with some sort of saving. Paying yourself first is a popular method of saving in most of the wealth books out there today. In the book The Richest Man in Babylon it is put best “A part of all I earn is mine to keep” this revolves around a basic savings concept of saving 10% of all monies that you take in as this should be yours to keep. Whether in the form of income from work or income from investments this simple rule should be followed. For most of us this is the hardest step in building wealth.

Saving More

Personally I have used other ways to build savings over the years on top of the 10% method. For instance a popular one for a lot of people the piggy bank approach which involves hoarding all of the spare change from your pocket or purse at the end of each day. I even throw in all of the change I find on the street, in the car, or even in the couch! It’s incredible how much money can be saved just in coins over a couple of month’s time. Even to this day I deposit $100 in the bank every couple of months just in rolled coins alone! Another method, I have been using personally, is also saving every $1 bill that is in my pocket at the end of the day. When I reach $100 the same applies, it gets deposited in the bank just like the rolled coins. Aside from these I also contribute to my companies’ 401k plan up to the limit they match and also contribute to a Roth IRA.

Invest

No matter what ways you decide on saving be sure to put those savings to work. In the classic book Rich Dad Poor Dad the author gives good definition to properly investing in assets and defines what assets are. Investing in assests with your savings puts your money to work for you! Some of these include cd’s, bonds, stocks, and lending. I will cover some ways to get this money to work for you in many upcoming investment ideas.

Ideas

If you have different savings ideas please feel free to leave a comment on how you save your wealth.

Investment Idea

Investment Opportunity - Gold

The past two days have cumulated in the price of gold dropping below $800 per ounce after setting the all time high closing price less than a week ago. Many investors have very wisely cashed in some profits after gold’s big run from $670 an ounce in late August. This may be opportunity for buying on the way down as the downward pressure may continue in the near future. In the long term, however, gold should march higher on its quest towards $1000 dollars an ounce which should be attainable if the weakness of the US dollar continues. Of course really long term $1000 is the tip of the iceberg to me. If you missed out on the last big run in gold the past two months now may be the time to begin the buying process to get on board for the next run.

Dollar Weakness

The dollar index has been at an all time low; recently hitting the lowest point ever recorded since they started tracking the dollar index in 1973! This is alarming to say the least. The dollar index has recovered in the past few weeks from this all time low, but, will remain under pressure as the fed eyes another rate cut that would weaken the dollar even more. The fed appears that they are going to “sacrifice” the dollar in a last ditch effort to save the mortgage industry and in turn the housing market. A natural “safe haven” for currency weakness is gold. For more on this check out a book I have read and recommend you read Gold The once and Future Money.

Buying Gold

There are many different ways to get involved with the “gold rush” and here are the most popular. There are gold ETF’s symbols: GLD (one share represents 1/10th of an ounce of gold) and IAU. Gold mining company stocks whose profits increase with a higher spot price symbols: NEM, PDG, ABX, and AU just to name a few. You can also buy the real thing in the form of bullion coins or even bars from bullion dealers or most coin shops. As with any type of investment diversification is the best way to go.









Real World Money Management’s editorial goal is to provide a forum for personal finance and investment ideas. My blogs and other features should not be construed as investment advice. An investor's best course of action must be based on individual circumstances.

The Monday Mantra - "A penny saved is a penny earned"

I’m sure you have heard this famous quote from Benjamin Franklin at some point in your life. "A penny saved is a penny earned" means that little by little you will save money by not spending your money. This is a good foundation to begin with when you are trying to build wealth. Not spending money has the same result as earning money, so to save a penny is the same as earning a penny. The saying compares saving money to earning money one penny at a time. Remember this saying when you are tempted to spend your hard earned money on material things that will only provide temporary satisfaction at the sacrifice of wealth that can provide a lifetime of satisfaction.

Penny Fact
Do you ever pick up a penny you see on the street? How about a nickel? A dime? Did you know that a penny minted before 1982 is currently worth .02 in copper alone? This may sound insignificant, but, think about it this way $100 of pre-1982 pennies is worth $200, $1000 worth $2000, and so on.

Welcome to the Real World of Money Management

So, you've decided to manage your money and you're probably thinking "How do I get started?"
This is the question I had many years ago. To my surprise I realized that neither my parents nor school had taught me much about how to save nor how to invest what I save. My parents told me to save, but, didn't show me how nor what to do with what I saved. School taught me how to become a median income employee but not what to do with that median income. This is what began my odyssey, that continues to this day, of learning and putting to use saving and investing techniques.

The forthcoming posts of insight and advice that I currently use, am researching, or have helped me in the past, can help shed light on the real world of money management. Posts will cover savings plans, investing strategies, new financial developments, book reviews, "guru" reviews, and many other money management topics.