The trick to saving is to make it your number one priority when allocating your cash outflows.
When I first start working with a client on wealth creation, I always start them saving 10% of their income regardless of their current financial position. Invariably, the client has a difficult time with this. Unless they are a "born saver" or were conditioned to saving from an early age, the client views this strategy as either drudgery or, worse, it appears that they have less money for themselves.
The truth is: savings will give you more money in the long run. If you want to become wealthy you must start thinking long-term not short-term. Generally, most people waste more than 10% of their income every week on things they don't really need. By eliminating wastage and extravagance from our lives, we can find that extra 10% to save.
Most of my middle-income clients have been able to trim an easy $50 to $100 per week off their supermarket bill alone by simply ensuring that they only buy what they need and focusing on buying value for money. This does not mean you have to buy inferior products. It means: buy value-for-money. Consumer research organisations have proven that the most expensive products are not necessary the best.
Ultimately you will feel a major sense of accomplishment watching your savings grow. Having savings in the bank provides a strong feeling of security and you will never feel poor. You can finally relax and know that the future is being taken care of.
Some wealth strategies may advocate paying off all your debts first and then start saving later. I disagree. These systems usually put you on a very stringent budget. To me, this is like going on a strict diet. It is too harsh for most people in the long-term and, more often than not, doomed for failure. I prefer to start everyone off by saving 10% of their income. It gets then into a good habit from the start. The 10% savings should always be allocated first. If you make it your number one priority, you are well on the way to conquering your financial problems and becoming wealthy.
A soon as any income is received, 10% should be deposited into a separate savings account that is easy to deposit to, yet difficult to withdraw from. Do not attach this account to your ATM card. This money should be left to accrue over time and then converted into investments. It is not to be used for holidays or buying large purchases such as furniture. A separate savings account can be used for the latter.
I tell my clients with children that the most important thing you can teach your children about money is to save 10%. If you start them young and teach them, in the same way as you teach them to brush their teeth everyday, they will be millionaires by the time they are 30 or 40 years old - maybe even sooner. It is as simple as that. Start them saving as soon as they start receiving pocket money.
Protect Yourself From Bank Fees
Do you use a checking account? You may be paying too much for the use of a checking account and could be saving bundles by switching or eliminating the use of a bank checking account altogether.
If you want to save money by using a checking account you need to use it wisely. Banks are happy to have you deposit money for short term use, but they plan on making money through fees somehow. What type of fees can you encounter simply by using a checking account?
Personal Finance Problem: ATM fees
Most people have an ATM card where they can retrieve money from their checking account funds any time of day. But did you know when you pull out a mere $20 you could be paying over 5% in fees?
Most bank ATMs will charge you an average of $1.25 for the use of their ATM console. To pull out $20 cash that's a 6.25% fee on your funds. For $40 cash it's still a 3.12% fee that you could put to better use.
At the worse end, if you choose to retrieve funds out of your checking account from an ATM owned by another bank you could be charged up to $3 for that little bit of cash. Ouch!
The Personal Finance Solution
• Don't use ATMs unless you absolutely have to. For the price you pay to access your checking account, it's not worth it.
• Use a bank that does not charge ATM fees. Some banks do not charge an ATM fee as long as you use one of their ATMs. National banks like Bank of America or Wells Fargo who have ATMs in cities all over the country may give you this deal. Take advantage of it.
• Use a debit card. Banks today offer to issue a Debit Card to access your checking account funds. Most retail stores will accept debit cards because the transaction is instantaneous out of your checking account and they get their money fast. The best part? No fees! Use the debit card whenever you can, but be sure to keep tabs on your checking account balance.
Personal Finance Problem: Check printing fees
When you order checks, especially ones with fancy options and decorations, you pay exorbitant fees for the price of printing. For each check you write you could be paying .10 cents to .25 cents per check. That adds up over $6 for the use of a book of checks.
The Personal Finance Solution
Use banks that offer actual "Free" checking with no check printing charges. Or, simply forgo the use of checks and use a debit card for retail purchases and online banking to pay your bills.
Personal Finance Problem: Overdraft fees
This is the big one. Always - ALWAYS - keep your checking account in balance. If you pay by check or by debit card and overdraft more than is in the account, you could be slapped with a hefty fee up to $40. That's just on the bank side. The retail store may have their own overdraft fee on top of your bank's.
The Personal Finance Solution
Use overdraft protection. Most banks will allow you to have overdraft protection with a savings account. But that means you must have money in that savings account! Keep it stocked with enough to get you out of a jam. A $40 fee on a $5 overdraft can really knock you out financial if it occurs over and over.
How to Find a Financial Advisor!
How to make your choice
We all know by now the types of financial advisors existing today; it's essential to decide which type to go for first. There are financial advisors and independent financial advisors; the first one functions as a part of a firm or a similar financial institution while the other operates like a freelancer. That makes sure one thing; with an independent financial advisor, your options are more. A financial advisor shall thus providefinancial advice- which is correct - but then again, financial advice is a very broad term requiring fine-tuning.
To be precise, financial advices are as many as the number of financial products and strategies available in the market; there also remains a question on their individual suitability. A financial advisor is the one who matches them up and therefore; it's a specialized service that you require for better results.
Let's see what can be achieved from an independent financial advisor. An IFA doesn't hold any contract whereas others remain bound by contracts with financial institutions (e.g. life insurance or mortgage companies) or work directly under the company's payroll. Therefore, why a contract bound/employed financial advisor may suggest going for a financial product sold by the same financial company - maybe that's not meant to suit you completely - an independent financial advisor shall select a plan tailor-made to your needs if all other readily-available financial packages fall short. So now that you've known the difference, it's time to learn how to choose the best.
Questions to ask
The regulatory body of financial services (FSA or Financial Services Authority) has put up certain requirements for any person willing to work as an IFA. This is something you need to enquire about when you are on the process of finding a suitable independent financial advisor; for those working under some financial institution, their credibility can be verified with the employing company. A Certificate in Financial Planning is the bare minimum; if there are advanced qualifications showing, it is all the better. These qualifications are specialization based, for example, an IFA dealing in mortgages must have a Mortgage Advice Qualification (MAQ) or a certification from the Association of the Pensions Management Institute (APMI) and so on. Just remember that the field an IFA is providing his services for must tally with the degrees he/she has earned so far. Ask your questions as you feel, but the abovementioned points must stay included in the answers you receive. And always remember; don't hesitate to take any free quote that's available. It helps to gain some idea on who's more correct to address your needs.
What to expect next
Be prepared to reveal your entire financial history to the chosen financial advisor, from your most silly impulse spending to your long-term financial goals and everything that's influencing your current spending habits. The financial advisor shall then choose for you a package, but it's always better to get it verified from another source.
Financial Advice is Not a One Size Fits All Proposition
I've been reading on various blogs where people leave comments preaching that everyone should avoid using credit - most recently today over on The Digerati Life and Five Cent Nickel. I have also noticed several titles in the bookstores as well, such as "The Last Book on...You'll Ever Need" or "The Only Book on...You'll Ever have to Read", "The ...% Solution". To be honest, none of it makes any kind of sense. Finances, and therefore financial advice is not like a baseball hat that is "one size fits all". No, it needs to be tailored to fit each person as an individual, and to conform to their individual goals and situations.
Now there are some basic principles that can be used as blanket statements, such as save for an emergency, pay bills when they are due, live within your means, etc. but telling people in general to avoid using credit at all costs, or that they need to save 20% of their net pay is just irresponsible. Along the same lines, it is simply wrong to say that all people just starting out should have a 100% exposure to stocks, while a person already in retirement should switch to a 100% bond portfolio.
Ideally, what should happen is that there should be an interview process in which the person dispensing the advice gets an overall sense of the seeker's situation, regardless of whether it is retirement or college planning, debt reduction, bankruptcy avoidance, etc. finding out what led them to where they are now as well as where they want to be in the future. Then, and only then can someone truly give informed and targeted advice. No two situations are exactly identical, as people have differing levels of need, as well as differing levels of knowledge. It is not as simple as saying "everyone should..." because of these differences and the necessity to recognize and understand the uniqueness of each situation.
Of course, not everyone is a financial advisor, planner, etc. but there is still a need to be responsible when giving advice. One cannot advise others on a certain diet before you discover their religion or any medical conditions related to food that could affect their ability to maintain such a plan. Nor would anyone give driving directions before ascertaining whether or not the recipient is interested in getting to their desired destination in a speedy manner or if would like to make stops at certain points of interest. The same holds true for financial advice. No matter who is dispensing the advice, certain facts need to be reveled in order to get those in need where they would like to be. That cannot be accomplished by making blanket generalizations and incorporating personal beliefs blindly. It simply is not right nor is it in the best interest of the people in need.
Do You Have a Back-up Plan?
Last week I woke up and strolled over to my home office to find that the screen on my laptop was black. After rebooting, and playing with the connections, I came to realize that the backlight was blown and that it was time to go out and buy a new system. I also realized another important fact: my back-up plan was severely flawed. Of course, since I preach the importance of organization to my clients, al of my documents and files are meticulously arranged on the hard drive, but I had failed to set my programs to automatically back themselves up daily to my external hard drive.
Luckily, my problem was not hardware related, and I was able to move everything to my new system, but the event did make me scrutinize my lack of disaster-preparations. Unfortunately, I have seen this many times with others, and I am sure that I will continue to hear horror stories so I figured it would be wise to outline my new plan in order to perhaps help others avoid such issues in the future.
I always keep digital records of everything, in part to avoid the clutter that papers create, but also in order to be able to find things more easily. I sign up for electronic delivery of all bank, brokerage, and credit card communications, and each institution has its own folder. Anything that is not delivered electronically gets manually scanned and archived.
Each program I use, whether it be for personal or client finances now gets backed up upon exit, automatically, with the last 5 back-ups being retained. Almost all programs create default files containing the name of the file with the date for easy recognition. Each day I get an e-mail of my blog and website databases which get stored as well.
At the end of the day, I transfer the entire contents of my partition containing all of this information not only to an external hard drive (which automatically overwrites the previous data), but also to a DVD-RW. At the end of each month, the RW is copied to a DVD-R and moved to an off-site location, and the RW gets erased and prepared for the next month. This is an important step since just like in finances, you should never keep all of your eggs in one basket: having multiple back-up solutions ensures that should one fail, there is always a back-up to your back-up!
I have also been tinkering with the idea of using an online storage system as well, in order to take advantage of the ease of delivery and retrieval. However, since I am responsible for other people's I am making very certain to do my due diligence so that I can find the most secure and reliable source for these services.
All in all, the migration to a new system can be quite tedious even with having everything you need to do so, but the migration isn't the worst of your worries should disaster strike. Not having a back-up plan can wreak havoc on you mentally when you come to realize that all of your important documents and information are gone. The simplest way to avoid this agony: back-up your information often, and on several different types of media, keeping at least one copy off-site in case of emergency.
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