Send Yourself a Bill


People tend to do very well at taking care of current needs but plan very poorly for distant needs.  This is unfortunate since it is fairly easy to take care fo things like college and retirement if you start early but nearly impossible if you wait until a few years before.  Don’t plan on Uncle Sam helping you out either since it is likely the US Government will be unable to sustain programs like Social Security and Medicare, let alone Healthcare and Tuition Assistance for more than a few more years.  You will be on your own, so start planning now!

Part of the problem is that things like retirement seem so far off and there are so many other priorities.  For most people, liabilities will be added – cable, memberships, automobile payments, loans, etc… until there is no more cash free at the end of the month.  The secret is to get ahead of this and secure the needed cash for future expenses before it is swallowed by an unlimited phone plan or something.

One idea is to “send yourself a bill” for future expenses.  Each month, send a check or move money to accounts setup for specific, long-term items.  These could be tax-advantaged accounts such as IRAs or Educational Savings Accounts, but they need not be.  The important thing at first is to simply be putting money away.  Here are some example bills:

Retirement:  $200 per month per person.  This is a starter IRA and would be in addition to a 401K account.  Ideally you should be putting about 15% of your gross pay away for retirement each month while you are young.

College:  $300 per month per child.  This will not be enough for full room and board at a swanky private school, but at least will cover tuition and some expenses at most public schools.  Note that this will count against you when applying for financial aid, but what’s wrong with paying for your own children’s education?

Cars:  $200 per month.  Put away $200 per month and you’ll have enough to buy a replacement used car about every four or five years.  Bump this up as your income grows if you desire nicer cars, but you can get a lot for about $8,000.

Home Repairs:  $200 per month.  You never know when the furnace or the water heater will die, and you will need to replace that roof eventually.  Put away a few thousand each year and you’ll be ready when the inevitable comes.

Vacations: $300 per month.  Put away money for vacations regularly and you’ll need not fear the credit card bill in your mailbox each month.

Healthcare: $200 per month.  You hopefully won’t need much healthcare when you are young, but if you save and invest the money you will have a lot more flexibility when you are older.  Like college tuition, many people who would never go on food stamps are happy to take assistance for nursing homes but you can get better care and have more options if you can pay for yourself.

 

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

How to Invest Small Amounts


Many investors who are just getting started don’t have a lot to invest.  Hopefully one can find $200 per month or so to put away, but even that can be difficult on many budgets.  With any investing, consistency is at least as important as selection of investments, and  regular investments – even if it is only $50 per month – can add up over time.

As a rule of thumb, you need at least $2000 at a time to invest in individual stocks.  That would allow you to buy 100 shares of about an $18 stock.  I wouldn’t buy fewer than 100 shares, unless it was for a child’s account, and wouldn’t buy stocks that trade for less than about $10 per share, so something like $1000-$2000 is needed before you can buy individual stocks.  And then, you would be buying shares in one stock at a time, which would be fairly risky, although with only a small amount of money.

There are really three choices for investing smaller amounts:

1.  Save up and invest when you have $2000 saved.  The first choice is to simply deposit the cash in a money market or savings account and then invest when it builds up enough to purchase 100 shares or so.  At $200 per month, this could allow shares to be bought about once per year.  In this case, the strategy would be to have about five stocks on a watch list and then buy 100 shares of the stock that has the best prospects and price when $2000 or so is saved.  This would take a lot of time, but in 20 years you’d have something like a $100,000 portfolio.

2.  Invest in a mutual fund.  It will normally take an initial $3000-$5000 investment, but once that is made most mutual funds will allow you to send in cash in small amounts.  To get the most “bang for your buck,” index funds are recommended since they have the lowest fees and will beat the majority of managed funds over time.

3.  DRIP, DRIP, DRIP.  Many large companies that pay dividends have Dividend Re-Investment Plans, or DRIPs. These allow shares to be purchased using dividends from the company.  Many companies also allow small amounts of money to be sent in to buy additional shares for a minimal fee.  There are a large number of companies that offer DRIPs, but they tend to be the larger, more established companies and not the smaller, faster growing companies.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Instead Minimum Wage, Concentrate on your Maximum Wage


Much to do has been made about the minimum wage,  President Obama proposed raising the minimum wage to $9 and then $11 per hour.  Not to be outdone, Elizabeth Warren recently proposed raising it to $22 per hour.  As previously discussed, the trouble with raising the minimum wage is that it prices individuals out of the marketplace and there are fewer jobs since some jobs are just not worth the money anymore when wages get too high.  Employers close down, eliminate some jobs and do with fewer workers, or replace workers with technology when wages get too high.  Raising minimum wages also raises the price of providing goods and services, which means the price of things go up, so the ability of people at the bottom end of the income scale to buy things remains about the same.

People who want to become successful shouldn’t worry about the minimum wage, however.  While your first job may start at minimum wage, individuals who are willing to work hard and provide value for customers and their employers will not be paid minimum wage for very long.  What you should really be worrying about is your maximum wage.

Your maximum wage is the amount that your employer could pay you and still make a profit.  This wage is directly related to the amount of income you make for your employer.  (If you are self-employed, your maximum wage is related to how much you give in value to your customers.)  Your actual wage is related to your maximum wage because the greater the profit your employer makes because of your work the more he or she can pay you.

For example, if you worked at the counter of a restaurant and were able to take 10 orders per hour, with you employer making a profit of roughly $3 per order before labor, your maximum wage would be about half of that profit, or about $15 per hour.  If you became more efficient and were able to take 20 orders per hour, assuming that the kitchen could also handle the additional order volume, your maximum wage would be about $30 per hour.  Furthermore, if because you were able to handle orders fast and more customers came because they knew they could get in and out in a hurry, your maximum wage might be even higher.

Perhaps the ultimate maximum wage is that of a CEO.  Often part of their wages are based on how much money they make for the shareholders.  When they generate $10 Million in extra income, suddenly a $1 million paycheck doesn’t seem that high.

Of course, an employer will not necessarily pay you more just because you make more money for them, but if your maximum wage is higher than that of your coworkers, you are likely to make more than them over time since you will be more valuable to the employer.  You are also likely to be the last one who would be laid off during a slowdown.  If you do bring in more money than others in your field and your employer doesn’t compensate you accordingly, you can also typically find someone who will.

There are many ways to raise your maximum wage.

1.  Be reliable.  The first thing is to simply be punctual and reliable.  Believe it or not, at the lower end of the spectrum just finding someone who will show up on time is difficult.

2.  Get training.  Getting degrees or training can also raise your maximum wage, but only if the degree or training is actually useful.  You may be interested in ancient French literature, but it is unlikely that this will be useful to many other people.

3.  Strive to meet the needs of your customers.  People who meet the needs of customers build loyalty and create more business.  The more business you generate, the higher your maximum wage.

4.  Learn to manage people.  Being able to manage others is generally more valuable than doing work yourself.  You may be able to make 10 widgets a day by yourself, but managing a group of ten people, you might be able to produce 100.  Few people are able to manage others, so being an effective manager is a sought-after skill.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.