How to become financially secure.

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MindOfOrderedChaos
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31 Dec 2008, 4:04 am

How to become financially secure.

Written by MindOfOrderedChaos

I have been reading alot lately in books etc. On how to try and slowly attain more money even in my financially challenged state.

I have come across some interesting and simple rules that I am beginning to try and follow to do with money management.

1. Track your money. Know how much you spend and on what.

Go through and work out what you spend your money one each week. Where does it all go? Note down each transaction for 2 weeks should help you figure it out.

2. Live on 90% or less of your income.

Each week I put away a set amount as savings to build up for the future. By saving 10% before you use your money each week you will hardly even notice the difference. But the rewards will be substantial.
This calculator should help you work out just how rewarding it can be over a certian period of time...
http://www.sorted.org.nz/calculators/re ... /page1.php
Lets say $50 per week at 6% interest for 20 years. Now thats going to be a bloody nice stock pile of money!

3. Trim your living expenses. Decide what you really need and what you could do with out.

Lets say do you really need takeaways twice a week or that extra can of coca cola etc.

4. Target. Set realistic goals for where you want your finaces to be.

Lets say you decide you are going to save $50 a week for 10 years and put it in savings. That is a target.[/b]

5. Train. Read etc. Learn about the power of compound interest, investment stratagies and real estate.



I hope you guys understand what i'm on about. And if this helps even one person i will be happy I wrote it. Let me know your thoughts and opionins and if you decide to actually follow this plan let me know.

Have a happy new years and good luck with any new years resolutions you may have :D :D .


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Last edited by MindOfOrderedChaos on 02 Jan 2009, 5:08 am, edited 2 times in total.

ascan
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31 Dec 2008, 5:57 am

MindOfOrderedChaos wrote:
...Lets say $50 per week at 6% interest for 20 years. Now thats going to be a bloody nice stock pile of money!

I doubt you'd get a return of 6% on a deposit account after allowing for inflation. Here in the UK, for example, the best you'll get is a few percent above inflation, so you're only actually gaining, say, 2% a year at best. On many accounts, here, you'll actually be losing money, and it's a good idea to regularly check how competitive the interest rate you're receiving is. However, you've got the right idea, and if you can put money away every month that does soon grow. You can get better rates of return with other investment types, but they do carry greater risk, especially in the current environment. The best bet longterm is not to put all your eggs in one basket, so to speak. But at the moment cash in the bank is a good a place as any as long as your bank is covered by some kind of consumer protection scheme.



MindOfOrderedChaos
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31 Dec 2008, 6:09 am

ascan wrote:
MindOfOrderedChaos wrote:
...Lets say $50 per week at 6% interest for 20 years. Now thats going to be a bloody nice stock pile of money!

I doubt you'd get a return of 6% on a deposit account after allowing for inflation. Here in the UK, for example, the best you'll get is a few percent above inflation, so you're only actually gaining, say, 2% a year at best. On many accounts, here, you'll actually be losing money, and it's a good idea to regularly check how competitive the interest rate you're receiving is. However, you've got the right idea, and if you can put money away every month that does soon grow. You can get better rates of return with other investment types, but they do carry greater risk, especially in the current environment. The best bet longterm is not to put all your eggs in one basket, so to speak. But at the moment cash in the bank is a good a place as any as long as your bank is covered by some kind of consumer protection scheme.


I honestly don't expect inflation to be much over 2% per year average over 10 years. That still leaves you with a gain of 4% interest. Which I think is achievable if you do your homework.

One of the rules is train. Look at investment options. Look at the average gains. See what their track record is. Have they consistenly been able to deleiver on claims? Or do they have highs and lows. You have to do your home work to get the best deal. That being said you could just throw it in the bank if you want to take the easy option banks offer upto 5.5% interest per year. Which is Still 3.5% interest if you take 2% inflation into account.

Either way this is a much better method of managing finacances than what I think 80% of the people on this website would do.


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ascan
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31 Dec 2008, 6:42 am

MindOfOrderedChaos wrote:
I honestly don't expect inflation to be much over 2% per year average over 10 years. That still leaves you with a gain of 4% interest...

No, because in that kind of environment the institution you have your savings with will most likely reduce the interest rate. You won't make more than a few percent on a savings account. Furthermore, inflation may not be an immediate concern, but a year or two down the line it is likely, once again, to be significant. I think that's a fairly widely held opinion, and stands to reason. If you want a realistic net return for that savings calculator you'd want to use 2% or less if you're looking at cash in a savings account, I'd suggest. If you look at note 5 of the savings calculator you linked to they use 2.5%. That's for a "balanced-fund". I'm not sure how the definition of that term varies between countries, but it does seem to imply exposure outside of cash, that would bump-up the return, a little.

If you wanted to look at higher return rates, then ETFs are one area worth considering, assuming they're as easy to buy and sell in your country as they are in the US and UK. But I'd wait a while until all the financial turmoil settles down. You could read up on how they work, if you like that kind of thing.



NocturnalQuilter
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31 Dec 2008, 1:42 pm

All of that sounds like reasonable advice... FOR people who make any kind of money. I'm unemployed so living off of 90% of $390/month when my rent is $1000 is simply not in the cards.
For me to live under my means I would have to live in my car. Again.
I'll die penniless on the streets anyway.



Followthereaper90
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31 Dec 2008, 1:49 pm

MindOfOrderedChaos wrote:
How to become finacally secure.
1.get padded room 2.lock door


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MindOfOrderedChaos
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31 Dec 2008, 6:09 pm

Followthereaper90 wrote:
MindOfOrderedChaos wrote:
How to become finacally secure.
1.get padded room 2.lock door


No. That wont help you become financally secure at all.

All that would achieve is dying of starvation.


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Followthereaper90
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31 Dec 2008, 6:19 pm

MindOfOrderedChaos wrote:
Followthereaper90 wrote:
MindOfOrderedChaos wrote:
How to become finacally secure.
1.get padded room 2.lock door


No. That wont help you become financally secure at all.

All that would achieve is dying of starvation.
oh sorry readet wrong though u wrote finally :P


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computerlove
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31 Dec 2008, 7:49 pm

Followthereaper90 wrote:
MindOfOrderedChaos wrote:
How to become finacally secure.
1.get padded room 2.lock door

3.- don't leave the key out =P


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computerlove
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31 Dec 2008, 7:51 pm

NocturnalQuilter wrote:
All of that sounds like reasonable advice... FOR people who make any kind of money. I'm unemployed so living off of 90% of $390/month when my rent is $1000 is simply not in the cards.
For me to live under my means I would have to live in my car. Again.
I'll die penniless on the streets anyway.

$1,000 a month? That's A LOT o_O
Why don't you look for something more between your budget? At least while your situation gets better.


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MindOfOrderedChaos
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31 Dec 2008, 8:39 pm

computerlove wrote:
NocturnalQuilter wrote:
All of that sounds like reasonable advice... FOR people who make any kind of money. I'm unemployed so living off of 90% of $390/month when my rent is $1000 is simply not in the cards.
For me to live under my means I would have to live in my car. Again.
I'll die penniless on the streets anyway.

$1,000 a month? That's A LOT o_O
Why don't you look for something more between your budget? At least while your situation gets better.


I don't get how he is even paying his rent. If he earns $390 a month and his rent is $1000 a month.... The math doesn't add up.


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computerlove
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31 Dec 2008, 8:52 pm

maybe we should add to your list: Buy, don't rent


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Xelebes
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31 Dec 2008, 9:54 pm

computerlove wrote:
maybe we should add to your list: Buy, don't rent


Depends on the circumstance. Renting vehicles might not be advisable because a purchase may be easier to achieve than say, purchasing property.

Rents are often cheaper than purchasing. A 1 bedroom apartment will run you 700-1000 a month, while a 1 room condo in the same neighbourhood will cost you 1400 a month.



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31 Dec 2008, 9:56 pm

ascan wrote:
MindOfOrderedChaos wrote:
...Lets say $50 per week at 6% interest for 20 years. Now thats going to be a bloody nice stock pile of money!

I doubt you'd get a return of 6% on a deposit account after allowing for inflation. Here in the UK, for example, the best you'll get is a few percent above inflation, so you're only actually gaining, say, 2% a year at best. On many accounts, here, you'll actually be losing money, and it's a good idea to regularly check how competitive the interest rate you're receiving is. However, you've got the right idea, and if you can put money away every month that does soon grow. You can get better rates of return with other investment types, but they do carry greater risk, especially in the current environment. The best bet longterm is not to put all your eggs in one basket, so to speak. But at the moment cash in the bank is a good a place as any as long as your bank is covered by some kind of consumer protection scheme.


Realistically, if you want a secure yourself for a long 20-year term, it's best to purchase bonds and stocks. In volatile times, bonds are preferred. In stable times, stocks are more favourable.



ascan
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01 Jan 2009, 5:00 am

Xelebes wrote:
Realistically, if you want a secure yourself for a long 20-year term, it's best to purchase bonds and stocks. In volatile times, bonds are preferred. In stable times, stocks are more favourable.

I did mention ETFs, Xelebes. ETFs are a convenient way for an individual to get exposure to stocks, commodities, corporate and government bonds. But if you've just a few £k to invest, then if you consider what's happened during 2008, you're safer with cash in a savings account with a bank that has some government protection until we know exactly where things are going. Longterm you're right based on relatively recent US/UK historical data (since WW2, I think). However, as far as stocks go, I think there's some debate about how relevant that may now be. You can look at Japan as an example. If you had investments in stock that mirrored the Nikkei 225 that you bought something like 20 years ago, that investment, would be worth less today. Dividend payments may have helped, a little, I suppose, and of course they've had problems with deflation, but the point is you'd have probably been better off in cash if you were only investing a relatively small amount. Check it out here:
[url]http://uk.finance.yahoo.com/echarts?s=%5EN225#chart4:symbol=^n225;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=off;source=undefined[/url]
Anyway, I don't think that's the most likely scenario longterm in the US/Uk. But it's worth considering.



NocturnalQuilter
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01 Jan 2009, 9:15 pm

computerlove wrote:
$1,000 a month? That's A LOT o_O
Why don't you look for something more between your budget? At least while your situation gets better.


MindOfOrderedChaos wrote:
I don't get how he is even paying his rent. If he earns $390 a month and his rent is $1000 a month.... The math doesn't add up.


I should have clarified more- apologies.
My partner owns the house we live in. Technically speaking I have no rent to pay but it would be fair to at least assume half the house payment, no? Half the house payment is about $1000/month. This is what I'm calling "rent".
Since I am on unemployment I get a monthly stipend of $390/month. So obviously I am not even close to making my monthly payments and my partner is burdened by having to pay my portion of the household bills.
Obviously my moving would not make things any better- the opposite in fact. And even if I wasn't partnered there is absolutely no place in bakersfield I could afford to live in at $390/month income. I would be laughed at for even applying. I'd be back to living in my car (which I can't afford the monthly payment on either).