financial advice http://www.wisebread.com/taxonomy/term/9936/all en-US The 6 Personal Finance Rules Everyone Must Follow http://www.wisebread.com/the-6-personal-finance-rules-everyone-must-follow <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-6-personal-finance-rules-everyone-must-follow" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/man-thinking-5229685-small.jpg" alt="man thinking" title="man thinking" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>If you&#39;re plugged into the topic of personal finance, you&#39;re no doubt inundated daily with tips, tricks, and advice on how to make money, save more, and retire rich. But in this sea of information, how do we crystalize the most the important lessons that &mdash; no matter what condition the market is in, or what finance guru happens to be leading the pack &mdash; tend to work every time for everyone? If you&#39;re ready to have someone just bottom-line the most important advice for financial success, read on. Here are the six personal finance rules you must follow. (See also: <a href="http://www.wisebread.com/success-secrets-you-should-have-learned-in-high-school-but-didnt?ref=seealso">Success Secrets You Should&#39;ve Learned in High School</a>)</p> <h2>1. Start Saving Early</h2> <p>For the majority of people, financial success is built on two complementary forces: capital and time. Each is important in its own way, and together, they&#39;re the two most critical gears in your wealth-building machine.</p> <p>When you begin saving early in life, you broaden the time that your money has to accumulate and to benefit from compounding interest and dollar-cost averaging (buying assets on a regular schedule to level out market highs and lows, but capture the upward trend). Likewise, starting early gives you more time to make (and recover from) those inevitable mistakes that can derail late-blooming savers. Particularly for those focused on building a healthy retirement nest egg, saving early can make all the difference in the world. (See also: <a href="http://www.wisebread.com/boost-your-retirement-savings-fast-with-this-6-step-plan?ref=seealso">How to Boost Your Retirement Savings Fast</a>)</p> <h2>2. Live Below Your Means</h2> <p>If there&#39;s one primary lifestyle quality that mark those who have built wealth over time, this is it. <a href="http://www.wisebread.com/whats-your-financial-philosophy-what-it-means-to-live-below-your-means">Living below your means</a> is all about paying yourself first, knowing the difference between wants and needs, and making conscious, long-range choices about spending and saving. Together, these actions become the quiet power play that can tilt the odds of financial success in your favor. (See also: <a href="http://www.wisebread.com/4-quirky-ways-to-spend-less-and-kick-start-saving?ref=seealso">4 Quirky Ways to Spend Less</a>)</p> <p>If you&#39;re wondering where to start on your road to financial security, consider this the glowing green arrow that will lead you in the right direction. Spending less than you earn leaves you with a surplus, and that surplus is the foundation on which long-term wealth is built. Without it, you&#39;ve either got to be pretty confident in your lottery number-picking skills or be surrounded by rich-but-infirm relatives who think you&#39;re the cat&#39;s pajamas.</p> <h2>3. Build and Maintain a Healthy Emergency Fund</h2> <p>Emergency funds help us cope with financial challenges that result from job loss, medical emergencies, or other unforeseen circumstances. Though the <a href="http://www.wisebread.com/figuring-the-size-of-your-emergency-fund">size of a healthy emergency fund</a> may vary based on personal debt levels and spending habits, a good rule of thumb is to have roughly six to eight months&#39; worth of net income socked away. Your emergency fund can shield you from relying on credit cards to fill in financial gaps &mdash; and the usurious interest rates that can often lead to financial disaster.</p> <h2>4. Only Use Credit Strategically</h2> <p>Used surgically and strategically, credit can be a wealth-building tool. But far too often unsecured consumer debt is used to buy everything from pizzas to plasma TVs. Leveraged wisely, credit can help you take advantage of a real estate opportunities, make a calculated investment in your education or professional training, or support other financial maneuvers that are likely to add to your security or provide increasing value over time. The key is to be judicious in how you use credit, understand explicitly the repayment terms, and be utterly confident that you can afford the principal and interest payments each month, even if your fortunes may change slightly. (See also: <a href="http://www.wisebread.com/6-awesome-credit-card-tricks-that-will-save-you-money?ref=seealso">Credit Card Tricks That&#39;ll Save You Money</a>)</p> <h2>5. Know the Difference Between Spending and Investing</h2> <p>It&#39;s a finer point that gets lost on many young savers &mdash; not all spending is created equal. Generally speaking, buying an amazing leather sofa is <em>spending money</em>; buying a good used car that you&#39;ll use to commute to work is <em>making an investment</em>.</p> <p>An easy way to determine the difference between spending and investing is to simply ask yourself, &quot;Will this purchase help me make money, support my financial goals in a direct way way, or appreciate in value over time? Or, is this item something that will serve a finite purpose and likely lose value in a relatively short period?&quot; If you answered <em>yes</em> to the former, your purchase is probably an investment; if you answered <em>yes</em> to the latter, it&#39;s probably not.</p> <p>Of course, not everything we spend our money on needs to qualify as a investment, but it&#39;s essential to know the difference and gauge our spending priorities accordingly.</p> <h2>6. Take Advantage of Retirement Saving Vehicles</h2> <p>We all know that the onus of retirement planning is now firmly on the individual, rather than on employers. Pensions are a dying breed, and even 401(k) plans with generous matching programs are getting rarer and rarer.</p> <p>With this reality in mind, it&#39;s crucial to understand the <a href="http://www.wisebread.com/choosing-a-retirement-account-whats-available-and-what-s-best-for-you">range of retirement saving choices</a> out there. Today, savers need to know the important differences between traditional and Roth IRAs, be familiar with 401(k) plan rules and regulations, know the best ways to manage personal savings, determine their risk tolerance, and be able to access their <a href="http://www.ssa.gov/estimator/">online Social Security estimates</a> when planning for retirement. Amassing the right information is the first step to investing tactically and gradually building wealth during key income-producing years. (See also: <a href="http://www.wisebread.com/retirement-planning-if-you-re-under-30?ref=seealso">Retirement Planning if You&#39;re Under 30</a>)</p> <p>While this list is by no means comprehensive (that list would be much longer and subject to broader debate), it may help young savers navigate the often choppy waters of personal finance and serve as a refresher for older investors who need some wind in their sails.</p> <p><em>What&#39;s the most important piece of financial advice you&#39;ve ever received? How did following it, or not following it, affect your life?</em></p> <a href="http://www.wisebread.com/the-6-personal-finance-rules-everyone-must-follow" class="sharethis-link" title="The 6 Personal Finance Rules Everyone Must Follow" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/kentin-waits">Kentin Waits</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Personal Finance financial advice money lessons money rules Fri, 31 Jan 2014 10:36:11 +0000 Kentin Waits 1105358 at http://www.wisebread.com Investment Advice You Should Never Hear From Your Financial Advisor http://www.wisebread.com/investment-advice-you-should-never-hear-from-your-financial-advisor <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/investment-advice-you-should-never-hear-from-your-financial-advisor" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/stop-4386074-small.jpg" alt="man holding up hand" title="man holding up hand" class="imagecache imagecache-250w" width="250" height="190" /></a> </div> </div> </div> <p>I am the daughter of a financial planner, which means I grew up imbibing financial wisdom with my applesauce. (See also: <a href="http://www.wisebread.com/tips-for-increasing-your-financial-literacy">Increasing Your Financial Literacy</a>)</p> <p>But despite my strong background in finance, I still felt incredibly intimidated the first time I met with a financial advisor who was not my father. No matter how much you may already know before you set foot in an advisor's office, you will still probably encounter unfamiliar financial jargon and advice whose soundness you feel like you have no way of judging.</p> <p>The best way to arm yourself against bad (or even just inappropriate) financial advice is to ask lots of questions. Trusting an advisor with your finances is no time to pretend you have knowledge that you don't.</p> <p>However, there are also some pieces of investment advice that should send you running for the door. Here are four examples of &quot;red flag&quot; advice that will allow you to separate the trustworthy and legitimate advisors from the shysters:</p> <h2>1. &quot;You can assume an X% return on your investment.&quot;</h2> <p>You may recall <a href="http://www.forbes.com/sites/feeonlyplanner/2011/11/15/dave-ramseys-plan-for-12-returns-is-not-achievable/">the brouhaha</a> over financial guru Dave Ramsey's claim that investors can expect a 12% return on their investment over time. While many have (rightly) <a href="http://www.fool.com/investing/general/2013/06/03/dangerous-retirement-planning-advice-from-financia.aspx">criticized the math</a> (or lack thereof) that Ramsey uses to make such a claim, the bigger problem with this kind of advice is the fact that it's making assumptions that no one can guarantee. As every financial advisor worth his salt will tell you, past performance does not guarantee future results.</p> <p>The advisor you want to work with will give you several projections for your investment, based on different potential rates of return. At no point should you ever hear your advisor tell you to expect a certain rate of return, because unless he's also running the world's most accurate fortune telling business, there is no way he could know.</p> <h2>2. &quot;Don't worry about the cost of this product! You pay nothing.&quot;</h2> <p>One of the reasons why new investors can be intimidated by the process of finding an advisor is because of the many different types of professionals who may all legally call themselves a financial planner or advisor. On one end of the spectrum, you have registered investment advisors, who have a fiduciary duty to give you ongoing advice that is in your best interests &mdash; and on the other, you have insurance salesmen who are paid by commission and are therefore very motivated to sell you products.</p> <p>There is nothing wrong with working with a planner or advisor who is commission-based &mdash; but every client needs to know how their planner is getting paid. If all you hear from your advisor is that you don't need to worry your pretty little head about payment, then it's time to head off into the sunset. Because generally the only reason your advisor will harp on the fact that you pay nothing out-of-pocket is because they want to conceal their sales incentives. There truly is no such thing as a free lunch, and not knowing exactly how your advisor gets paid means you may end up paying through the nose. (See also: <a href="http://www.wisebread.com/7-common-investing-mistakes">7 Common Investing Mistakes</a>)</p> <h2>3. &quot;I can customize a stock portfolio for you.&quot;</h2> <p>There are two major problems with this piece of advice.</p> <p>First, it is based upon the assumption that picking stocks is something your average financial planner is capable of doing. While mutual funds employ managers whose job it is to pick stocks for their funds, according to <a href="http://www.investopedia.com/articles/financial-theory/09/can-fund-managers-pick-stocks.asp">Investopedia</a>, &quot;there is&hellip;evidence to suggest that passive investing in index funds can beat over half of active managers in many years.&quot; In other words, simply investing passively in <a href="http://www.investopedia.com/terms/i/indexfund.asp">index funds</a> will be better for your money 50% of the time compared to investing in mutual funds that are managed by stock pickers. (See also: <a href="http://www.wisebread.com/3-steps-to-getting-started-in-the-stock-market-with-index-funds">3 Steps to Getting Started in the Stock Market With Index Funds</a>)</p> <p>Basically, stock picking is not an exact science, and even the people who do it (and nothing else) for a living are wrong about half the time. If your advisor tells you she can do this for you, then prepare for disappointment.</p> <p>The other major issue with this advice is the customization aspect of it. Does the advisor provide such a level of service to all her clients, or only to the big rollers? If customization is only available for certain investors, that brings up a big ethical problem: Why doesn't your financial planner want to help all her clients equally? And if your advisor claims to do this for every client, how could she afford to stay in business considering the amount of time she'd have to devote to each one?</p> <p>You should instead be looking for an advisor who will customize your <a href="http://www.investopedia.com/terms/a/assetallocation.asp">asset allocation</a> strategy and help you determine the best investments within that strategy.</p> <h2>4. &quot;There is no risk!&quot; or &quot;You really need to act now.&quot;</h2> <p>I put both of these together, because both pieces of &quot;advice&quot; are hallmarks of a hard sell, rather than legitimate advice you could expect to hear from a financial advisor.</p> <p>Saying that any particular investment strategy is completely risk-free is an out-and-out lie. All investing involves some risk, and a good advisor will help you to figure out your level of risk tolerance and customize your investment strategy based on what risk you are willing to accept. To say that something has no risk means either your principal is protected but you will lose money due to inflation, or that the product being sold is either a scam or at least somewhat shady. (See also: <a href="http://www.wisebread.com/5-sure-fire-signs-of-an-investment-scam">5 Signs of an Investment Scam</a>)</p> <p>Similarly, having an advisor tell you that you absolutely must jump on something now is a good indication that you're dealing with a salesperson rather than an investment advisor. There is no investment that cannot wait for you to take the time to weigh your options. Putting an artificial deadline on a product is one of the oldest sales tricks in the book, and it is not ever something you want to hear from an advisor.</p> <p>When you come right down to it, if your advisor utters a phrase you most recently heard on a late-night infomercial, then it's time to find a new advisor.</p> <h2>Don't Relinquish Your Financial Control</h2> <p>The reason why &quot;advisors&quot; like Bernie Madoff were able to scam so many people for so many years is because most of us simply do not like to think about our finances. We would all like to find someone else who can do the worrying for us &mdash; and if they promise that we can see impossible returns, all the better.</p> <p>But the truth is that no one can care about your finances as much as you do. So even when you do find a financial advisor whom you trust, you still need to look at your relationship as a partnership, rather than an opportunity to forget about your finances. Making sure you understand exactly what you're getting into with an advisor is the first step in remaining in control of your finances and your life.</p> <p><em>What's the best &quot;worst financial advice&quot; you've ever received?</em></p> <a href="http://www.wisebread.com/investment-advice-you-should-never-hear-from-your-financial-advisor" class="sharethis-link" title="Investment Advice You Should Never Hear From Your Financial Advisor" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/emily-guy-birken">Emily Guy Birken</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Investment bad advice financial advice financial advisor Thu, 05 Sep 2013 10:36:30 +0000 Emily Guy Birken 981738 at http://www.wisebread.com 3 Reasons to Hire a Tax Professional (Even If You Don't Mind the Work) http://www.wisebread.com/3-reasons-to-hire-a-tax-professional-even-if-you-dont-mind-the-work <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/3-reasons-to-hire-a-tax-professional-even-if-you-dont-mind-the-work" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/business_women.jpg" alt="Two business women" title="Two business women" class="imagecache imagecache-250w" width="250" height="150" /></a> </div> </div> </div> <p>The final stretch of tax season is here, and the question of whether you should hire a tax professional is becoming an increasingly stressful matter for those who still haven't touched their tax returns. There are certainly many reasons to pursue the DIY route, especially for people who qualify for free tax filing. But on the flip side, a tax professional may be able to help you more than you think. Here are a few reasons why you should hire a tax professional this year. (See also: <a href="http://www.wisebread.com/how-to-find-the-right-accountant-for-you">How to&nbsp;Find the Right Accountant for You</a>)</p> <h3>You Can Focus on&nbsp;Saving More Money</h3> <p>Many people are surprised by the amount of time it takes to work with a certified public accountant (CPA), because it may seem like it requires even more time to work with someone than to file everything yourself.</p> <p>In reality, though, most clients are getting more value out of the extra time they spend with a third party. When you are spending time filing your own taxes, most of the time is spent on paperwork and administration like gathering documents, adding up numbers, and figuring out which forms to fill out. You might also be spending quite a bit of time researching tax rules that may or may not apply to your case. When you work with a CPA, your time is usually spent making sure she is thinking about every deduction that applies to your situation.</p> <p>It's difficult to promise that your tax return will take advantage of every legal deduction that applies to you even if you work with the most diligent pro, but you will likely find more deductions than if you were just filing your own 1040.</p> <h3>You Can Get Advice If You Are Audited</h3> <p>I always recommend working with a tax professional who is willing to represent you in case of a <a href="http://moneyning.com/tax/what-to-do-if-you-are-chosen-for-a-tax-audit/">tax audit</a>, because that also implies that she will stand by the work that is being performed. But even if you are told you will be on your own if you get audited, your accountant will almost certainly give you advice if the day comes. After all, she was the person who did your tax return in the first place and will need to make sure you understand the reasons behind all those numbers.</p> <h3>You Have Another Point of Contact for Your Financial Needs</h3> <p>As you work your way up the career ladder, you will eventually have assets to manage. When that day comes, you'll want to talk to as many people as you can about how best to manage those assets. Since many accountants work with <a href="http://moneyning.com/make-money/what-owning-a-small-business-can-do-for-your-personal-finances/">small business owners</a>, they may know good estate planners, responsible financial advisers, and even private <a href="http://www.wisebread.com/how-to-find-free-or-cheap-health-resources">health insurance providers</a>. Take the advice with a grain of salt, because it's up to you to figure out whether the referral is worth the cost, but having the additional option for advice is always good.</p> <a href="http://www.wisebread.com/3-reasons-to-hire-a-tax-professional-even-if-you-dont-mind-the-work" class="sharethis-link" title="3 Reasons to Hire a Tax Professional (Even If You Don&#039;t Mind the Work)" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/david-ning">David Ning</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Taxes accountants financial advice tax preparation Tue, 20 Mar 2012 09:36:56 +0000 David Ning 911744 at http://www.wisebread.com How to Find the Right Accountant for You http://www.wisebread.com/how-to-find-the-right-accountant-for-you <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-find-the-right-accountant-for-you" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/croppediStock_000016565687Small.jpg" alt="accountant and couple" title="accountant and couple" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>Finding the right accountant can make a world of difference when it comes to managing your money, but it can be easier said than done. There are a few ways that you can make the process go much easier, though.</p> <h3>Why Do You Need an Accountant?</h3> <p>The first question you need to think about when looking for an accountant is why do you need help with your finances &mdash; and what sort of help do you need? Not every individual really needs an accountant. There are a number of services out there that can help you with your taxes, if that's your only concern. An accountant usually works with individuals or organizations with slightly more complicated finances, ranging from managing a business' finances to helping an individual keep investments straight. (See also: <a href="http://www.wisebread.com/6-mistakes-to-avoid-with-a-financial-adviser" title="6 Mistakes to Avoid With a Financial Adviser">6 Mistakes to Avoid With a Financial Adviser</a>)</p> <p>You could just start calling accountants based on who is closest to you, but most accountants have specialties. You're not going to get exactly the help you need from just any accountant.</p> <p>When we talk about accountants, we can actually be referring to one of several different kinds of financial expert. There are quite a few different designations for accountants, from the common &quot;certified public accountant&quot; to a certified management accountant or an accredited <a href="http://www.wisebread.com/small-business/how-to-choose-an-accountant-for-your-small-business" title="How to Choose an Accountant for Your Small Business">business accountant</a>. It's most likely that you're looking for a CPA if you're generally looking for an accountant in the U.S. (other designations are used in other countries). A CPA will help set up the books for a new business, prepare tax returns, and handle a wide variety of other accounting tasks &mdash; unless you have a sizable business and need specialized help with your accounting, a CPA is usually the place to start.</p> <p>It's still important to narrow the field down even further, though. Many CPAs work with specific types of clients. For instance, the CPA who helps me with my business focuses on small businesses that don't need much in the way of payroll but do need advice on business operations from time to time. He works with a lot of freelancers and small business owners, though he does take on other clients. Ask right off the bat about whether an accountant you're considering working with handles your type of situation &mdash; most are very clear about what types of clients they want to work with. You should also ask about specifics like price and who will actually do any work, like <a href="http://www.wisebread.com/how-to-file-your-first-tax-return" title="How to File Your First Tax Return">preparing a tax return</a>.</p> <p>Make a note of what sort of help you need. The price you'll pay for an accountant's help can definitely depend on exactly what you need done. Most CPAs work on an hourly basis, often starting at a price of $150 and going up from there. But for common situations, like needing a tax return prepared, you can expect prices to start closer to $90 &mdash; provided you are employed and don't have particularly complicated finances.</p> <h3>It's All About the Referral</h3> <p>Because an accountant may wind up knowing every last thing about your financial situation, it's important to find someone you're personally comfortable working with. Starting with a referral is often the best way to do so. Ask around to find out whom your peers use and whether they recommend their current accountants. If you're having a hard time getting a recommendation, many review-based sites, such as <a href="http://yelp.com">Yelp</a>, do list accountants and other financial professionals. However, you'll want to dig a little deeper than just a review online &mdash; while it's fine for choosing a restaurant for dinner, you'll want more information when you're putting all your financial information in someone's hands.</p> <p>If you operate a business, it may be worth going to your professional associations (such as the local Chamber of Commerce, if you are a member) and getting referrals there. You can get good leads on reliable accountants quickly.</p> <p>Of course, you'll do the necessary due diligence to make sure that you're working with a reliable accountant. But because of that &quot;certified&quot; part of the job title, it's relatively easy to make sure that anyone you choose to work with has the necessary credentials to handle any accounting quandary you may face. Individual state boards are responsible for issuing certifications, and most will now allow you to verify an accountant's credentials online. A quick online search can also confirm that you've chosen the right person to work with. Many CPAs (including the one I work with) now have websites, Twitter accounts, and even blogs to help you make the right decisions.</p> <h3>An Ongoing Relationship</h3> <p>Even if you only visit your accountant for a yearly tax planning session, it's important to have an ongoing relationship. The best accountants will go out of their way to update you on new legislation, as well as anything else that might impact your finances. You may not anticipate needing help, but already having a great working relationship with your accountant can put you ahead of the game in the event of an <a href="http://www.wisebread.com/how-to-survive-a-tax-audit" title="How to Survive a Tax Audit">audit</a> or other financial situation.</p> <p>Depending on how you expect your finances to change in the future, you may want to ask about some of the options that an accountant might offer before making your final decision. If you know you need to start planning for retirement or a child's education, you should ask about what sort of financial consulting or planning services a particular CPA offers.</p> <a href="http://www.wisebread.com/how-to-find-the-right-accountant-for-you" class="sharethis-link" title="How to Find the Right Accountant for You" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/thursday-bram">Thursday Bram</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Personal Finance accountant accounting financial advice financial advisers Tue, 07 Feb 2012 11:00:34 +0000 Thursday Bram 874763 at http://www.wisebread.com 5 Money Lessons From Millionaires http://www.wisebread.com/5-money-lessons-from-millionaires <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-money-lessons-from-millionaires" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/magnify%20money.jpg" alt="magnified money" title="magnified money" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>There's an aura of intrigue about people with money. Millionaires seem above and beyond the normal problems of electric bills, consumer debt, and budgeting. But are they really?</p> <p>While the <a title="5 Ways to Live Like a Celebrity on a Budget" href="http://www.wisebread.com/5-ways-to-live-like-a-celebrity-on-a-budget">jet set lifestyle</a> may conjure up images of chartered planes, multiple residences, and a lot of Hermes, the people who afford these luxuries work just as hard to keep their money as they (or a family member) did to earn it. &quot;More money, more problems&quot; sounds like a cliché, but more money at least equates to a lot more work to stay wealthy.</p> <p>Being rich sounds like a cakewalk until you witness a simple monthly investment meeting turn into a three ring circus with no fewer than eight legal, tax, and financial advisors, all offering financial planning advice to the client. There are worse hardships, but it does make you think twice about just how millionaires hang on to their wealth through marriages, divorces, and last but not least, children. (See also: <a title="How to Build Wealth in a Depressed Economy" href="http://www.wisebread.com/how-to-build-wealth-in-a-depressed-economy">How to Build Wealth in a Depressed Economy</a>)</p> <p>In a past life, I worked closely with high net worth families and investors. (In investment terms, this translates to liquid assets in the eight-digit range and above.) True, millionaires have culinary-institute-sized kitchens, nice cars, and take amazing vacations. But when it comes to managing their money, millionaire tactics tend to contain a surprising amount of common sense and frugality versus impulse spending. Here are a few consistent tactics millionaires use to hang on to wealth for several generations (and in many cases, increase it).</p> <h2>Preserve</h2> <p>The ultra-wealthy aren't out to just make double-digit returns or sitting on a pile of gold coins cackling and twiddling their hands. Multi-millionaire clients aim to preserve accumulated wealth while still earning a healthy rate of return. That means slow and steady growth versus trying to get rich quick. While risk can be a good thing, in financial terms it's best to avoid it. And if there's one thing worse than missing out on the next big thing, it's losing money.</p> <h2>Mind the Gap</h2> <p>Be realistic about budgeting and only buy what you can afford. If a hot private equity deal comes along but you're a few hundred thousand short from last month's trip to Biarritz, that's a gap in a millionaire's budget. On the non-millionaire side, maybe you inadvertently realize you've spent a grand total of $550 at Target in the past 30 days on things you don't recall actually needing. Big, big gap. Either way &mdash; don't buy what you can't afford. Don't make big purchases without planning ahead. Be proactive about expenses and keep track of how much you spend versus what you earn. Hey, even trust fund babies have a spending limit.</p> <h2>Have Cash on Hand</h2> <p>Billionaires and trust fund babies refer to this as &quot;liquidity.&quot; The rest of us can refer to it as &quot;make sure you don't end up living in a cardboard box.&quot; Even the most aggressive high net worth investors I've worked with kept a large chunk of liquid assets (&quot;cash&quot;) on hand for emergencies. It seems like a no-brainer, but having an emergency fund is one lesson millionaires and the rest of us should always heed.</p> <h2>Avoid Fees...Even Small Ones</h2> <p>A client with a portfolio well past the multi-million dollar mark once remarked that despite the fact that $25 to him roughly equated to what a nickel is to me, small bank fees were the bane of his existence. As it turns out, bank fees annoy the heck out of millionaires just as much as those of us who sweat and toil for a living. Even if it's a nickel. (Good luck finding that on a bank fee sheet.) You work hard to earn a paycheck, so watch for fees like a hawk. If the charge seems exorbitant or isn't justified, ask politely for a reversal or reduction.</p> <h2>Consider the Source</h2> <p>There's no shortage of people willing to offer their opinions regarding personal finance. Millionaires and their sizable liquid assets tend to get a lot of unsolicited financial advice that they mostly meet with a polite smile or a curt nod. That's not to say information from these sources is necessarily bad, but take it with a grain of salt. News organizations often sensationalize the stock market and data to enhance ratings and entice viewers. Millionaires are cautious investors. They remain incredibly skeptical about anything that sounds too good to be true or claims not to carry any risk. Follow suit, so to speak, and compare financial products before jumping in.</p> <a href="http://www.wisebread.com/5-money-lessons-from-millionaires" class="sharethis-link" title="5 Money Lessons From Millionaires" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/erin-c-oneil">Erin C. O&#039;Neil</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Personal Finance financial advice money lessons Fri, 12 Aug 2011 10:24:14 +0000 Erin C. O'Neil 631287 at http://www.wisebread.com Living the Savvy Life: A Review http://www.wisebread.com/living-the-savvy-life-a-review <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/living-the-savvy-life-a-review" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/iStock_000013313417Small.jpg" alt="Piggy bank on a beach" title="Piggy bank on a beach" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p><em>Living the Savvy Life</em> isn&rsquo;t strictly a personal finance book, though it includes tips for spending less, saving more, and achieving your financial goals. The focus of the book is on helping readers overhaul their lifestyle based on their personal goals and values (this is what the authors call &ldquo;the savvy life&rdquo;). If there are things you&rsquo;ve always wanted to achieve but haven&rsquo;t found the time and money to get started, this book can give you both the kick and the tips you need to begin today.&nbsp;</p> <p>Frugality with a Purpose</p> <p>The authors of <em>Living the Savvy Life</em>, Melissa Tosetti and Kevin Gibbons, don&rsquo;t advocate spending less for it&rsquo;s own sake, but so that you can do the things you really want to do and achieve goals that are meaningful to you. For instance, many people say they want to travel but also say that they don&rsquo;t have the money or the time to do it. Tosetti gives real-life examples of how she and her husband cut specific expenses and used the money they saved to pay for trips all over the world.&nbsp;(See also: <a href="http://www.wisebread.com/how-to-save-without-goals">How to Save Without Goals</a>)</p> <p>The authors don&rsquo;t just propound this principle, but show you how you can apply it throughout your life. They discuss it in terms of finances, and in terms of time and possessions, too. And once they&rsquo;ve talked about their ideas, they give you tips for actually cutting back. They offer strategies for getting rid of clutter so you can highlight the possessions you truly value, and they talk about choosing clothes that flatter you and will continue to be in style, and choosing items that complement the <a href="http://www.wisebread.com/make-your-clothes-last-longer-without-spending-big">wardrobe you already have</a>.</p> <p>Even if you&rsquo;re not quite sure what you&rsquo;d like to spend your time and money doing, Tosetti and Gibbons have something to offer. In addition to their money and time-management tips, they have resources to help you determine where you want to focus your energies. By answering some simple questions, they help you decide what you&rsquo;re passionate about and what doesn&rsquo;t matter so much.</p> <p>With its helpful-but-unassuming tone,<em> Living the Savvy Life</em> isn&rsquo;t a book that you&rsquo;ll hate, even if you&rsquo;ve somehow heard everything it says before. In fact, you may find yourself wanting to befriend the authors simply because they seem like warm, interesting people. This lends itself to the book&rsquo;s overall usefulness, because no one likes to feel preached to. It&rsquo;s much easier to hear some of the things Tosetti and Gibbons have to say from people you&rsquo;d invite into your living room for a chat.</p> <h3>A Renewed Focus on My Goals</h3> <p>Since it&rsquo;s easy to get derailed when you&rsquo;re living a savvy life in a culture that wants you to spend, spend, spend, they also offer some insights on staying motivated, focusing on your own goals, and getting back on track when things fall apart. They even offer tips on how to evaluate purchases when you&rsquo;re standing in the middle of the store, unsure about the items you&rsquo;ve brought to the checkout stand.</p> <p>As someone who knows a lot about how to save money and who practices frugality as a matter of habit, I didn&rsquo;t expect too much from yet another book about personal finance. However, <em>Living the Savvy Life</em> surprised me. It articulated many of the principles I&rsquo;ve always lived by (saving in one area to spend in another), and it helped me put words to some of the things that I want to focus on. All of this has provided me with motivation that I didn&rsquo;t have before, so I feel renewed in my efforts to be deliberate about where I choose to spend my time and money in order to focus my efforts and achieve my goals.</p> <h3>Who Should Read <em>Living the Savvy Life</em>?</h3> <p>It&rsquo;s not too often that I find a book I would recommend to almost anyone, but<em> Living the Savvy Life</em> seems like one that nearly everyone I know could benefit from reading in one capacity or another. For the people who have already discovered most of the practical <a href="http://www.wisebread.com/3-invisible-savings-tips-that-work">savings tips</a> it contains, it offers motivation for pursuing financial and personal goals that are meaningful. Even for those with a lot of self-knowledge about what they value and why, it offers the chance to articulate these things again, perhaps in a new way, and to recommit to focusing on the things that matter.</p> <p>P.S. If you haven&rsquo;t heard of <a href="http://thesavvylife.com">TheSavvyLife.com</a>, you should check it out, too. The site offers articles and resources that aren&rsquo;t in the book, but that will help you move towards the goals the book puts forth.</p> <p><em><span><span>Disclosure</span>: I received a free copy of </span></em><span>Living the Savvy Life<em> for review.</em></span></p> <a href="http://www.wisebread.com/living-the-savvy-life-a-review" class="sharethis-link" title="Living the Savvy Life: A Review" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/sarah-winfrey">Sarah Winfrey</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/topic/frugal-living">Frugal Living articles from Wise Bread</a>.</div></div> Frugal Living Personal Development achieving goals book review financial advice Fri, 11 Feb 2011 13:00:16 +0000 Sarah Winfrey 489582 at http://www.wisebread.com Not the sort of person who ... http://www.wisebread.com/not-the-sort-of-person-who <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/not-the-sort-of-person-who" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/forest-in-autumn.jpg" alt="Forest in autumn" title="Forest in Autumn" class="imagecache imagecache-250w" width="250" height="333" /></a> </div> </div> </div> <p>Wise Bread is stuffed almost to bursting with suggestions on how to live large on a small budget.&nbsp; We've got suggestions on how to spend less, how to earn more, and how to take control of your finances and your career.&nbsp; There are certain suggestions, though, that trigger a particular kind of negative reaction:&nbsp; The one where people say, &quot;I'm not the sort of person who&quot; does whatever it is that we've suggested.&nbsp; It turns out that lots of people think that way.&nbsp; Don't do that.</p> <p>You can find them in the comments on practically every post.&nbsp; There are readers out there who say, &quot;I'm not the sort of person&quot; who:</p> <ul> <li>rides the bus</li> <li>wears used clothes</li> <li>takes in boarders</li> <li>rents a room in someone's house</li> <li>has a roommate</li> <li>borrows things</li> <li>lends things</li> <li>does manual labor</li> <li>follows a budget</li> <li>tracks every penny</li> <li>buys food on its sell-by date</li> </ul> <p>The reason I say not to do that, is that none of these things really have anything to do with the sort of person you are.&nbsp; For stuff like this, when someone says, &quot;I'm not the sort of person who,&quot; what they really mean is, &quot;I'm so rich I don't need to&quot; do whatever it is.&nbsp; And, if they live in a rich country, they're almost certainly right--even if they're pretty poor, just living in a rich country means they're so rich they can imagine that they're some particular sort of person who doesn't need to economize in some particular way.</p> <p>The thing is, there's a problem with this kind of thinking--with imagining that &quot;you're not the sort of person&quot; who does certain kinds of things:&nbsp; You can start to believe it.</p> <p>If you really believe you're the sort of person who doesn't do certain things--when the truth is simply that you're so rich you can afford not to--what happens if you go through a rough patch?&nbsp; In particular, if you go through a patch rough enough that you're not so rich any more?&nbsp; Answer:&nbsp; That kind of thinking can turn a mere rough patch into a financial catastrophe for your entire family.</p> <p>I'm not trying to tell you to take any particular bits of Wise Bread advice--this isn't a post to urge you to sell your car or to move in with your brother-in-law or use some web tool to manage your finances.&nbsp; Rather, I want to urge you to do just one thing:&nbsp; Be honest with yourself.</p> <p>There's power in being honest about this sort of thing.&nbsp; Just go ahead and say, &quot;I'm so rich I don't need to take the bus, wear used clothes, or have a roommate.&quot;&nbsp; There's a certain kind of satisfaction in that for someone who's never going to own a Rolex or a Maserati or a third home in Aspen.&nbsp; More important, though, it puts you in a much better position to make the right decision if times get tough and you're not so rich any more.</p> <p>As for thinking, &quot;I'm not the sort of person,&quot; save it for things that are real and true.&nbsp; &quot;I'm not the sort of person who betrays a friend or takes advantage of a stranger or abandons a puppy.&quot;&nbsp; That's the sort of person you are.&nbsp; That other stuff you either do or don't depending on the circumstances.&nbsp; It's got nothing to do with who you are.</p> <a href="http://www.wisebread.com/not-the-sort-of-person-who" class="sharethis-link" title="Not the sort of person who ... " rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/topic/frugal-living">Frugal Living articles from Wise Bread</a>.</div></div> Personal Finance Frugal Living advice financial advice managing saving spending Thu, 13 Nov 2008 14:54:02 +0000 Philip Brewer 2581 at http://www.wisebread.com Book review: Spend 'til The End http://www.wisebread.com/book-review-spend-til-the-end <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/book-review-spend-til-the-end" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/spend-til-the-end-cover.jpg" alt="Cover of Spend &#039;til The End" title="Cover of Spend &#039;til The End" class="imagecache imagecache-250w" width="250" height="382" /></a> </div> </div> </div> <p><a href="http://www.amazon.com/gp/product/1416548904?ie=UTF8&amp;tag=wisbre08-20&amp;linkCode=as2&amp;camp=1789&amp;creative=390957&amp;creativeASIN=1416548904"><cite>Spend &#39;Til the End: The Revolutionary Guide to Raising Your Living Standard--Today and When You Retire</cite></a> by Laurence J. Kotlikoff and Scott Burns.</p> <p>My wife spotted this book at the library and brought it home, suggesting (based on the title) that it might be a sort of anti-Wise Bread that I could read and mock.  When I started reading it though, I found it wasn&#39;t.  In fact, it&#39;s an outstanding personal financial book:  It offers the best framework for analyzing household finances of any book I&#39;ve read.</p> <p>The book is based on three ideas.  Two of the ideas I agree with wholeheartedly.  The third idea is actually the most important, but I agree with it perhaps three-quarters heartedly--and that&#39;s enough that the book still works for me.</p> <p>The ideas are:  </p> <ul> <li><strong>Maximize your spending power.</strong>  That is, allocate your financial means to meet your financial ends.  (It doesn&#39;t mean to let your financial ends overwhelm your non-financial ends, just that it&#39;s silly to have financial means that go unallocated or financial ends that are underfunded when others are overfunded.)</li> <li><strong>Price your love.</strong>  By this the authors mean, roughly the same thing I mean when I say live in accordance with your own values.  All the things you want to do have costs attached to them--either actual expenses, or else trade-offs such as reduced earnings if you choose to do what you love rather than what would earn you the highest income.  Figure out what those expenses and trade-offs come to in dollars, and use that knowledge to live the life you&#39;ll find most satisfying.</li> <li><strong>Smooth your living standard.</strong>  This is the one I only three-quarters agree with.  Financial advisors continually warn that people aren&#39;t saving enough for retirement--pointing out that their free-spending ways now will result in them eking out a meager existence later.  Fewer people do the reverse--eke out a meager existence now so that they&#39;ll be able to live high on the hog when they&#39;re old--so not as many people feel obliged to warn against it, but that happens too.  The authors&#39; point, though, is to do neither.  Based on how you want to live and what your prospects are for making money, figure out what standard of living you can support over your entire lifetime, and aim for that mark right along the way.</li> </ul> <p>Personally, I think a gradually rising standard of living is likely to be more satisfying than a level one, but the authors aren&#39;t really disagreeing with that.  They&#39;re mainly concerned with the big breakpoints in standard of living--before and after retirement, for example.  (I&#39;ve covered my own thoughts on this topic in my article <a href="/should-your-standard-of-living-rise">Should your standard of living rise?</a>)</p> <p>The value in these ideas is that they provide a framework.  With these things in mind, you&#39;re in a position to analyze all sorts of financial questions.</p> <p>Using their framework, they often come up with results that are counter to conventional wisdom.  For example, the usual rule of thumb is that young folks should invest in stocks (giving them the best opportunity to let the long-term higher rewards of the stock market work in their favor) and then gradually ramp down the stocks (because folks nearing retirement have fewer years to recover from a bad year in the stock market just before or just after retirement).  Their analysis is quite different.  </p> <p>A young worker probably makes just enough to support a comfortable standard of living.  Besides that, a young worker probably has a very small cash cushion against something like losing a job.  So, a young worker should have a low savings rate (so as to support a reasonable standard of living) and should put most of that savings into cash (focusing on building up a better cushion rather than maximum lifetime return).  Someone mid-career with good emergency fund plus a healthy investment portfolio can afford to invest heavily in stocks without risking either current or future standard of living.  Someone approaching the end of their career wants to ramp down the stock market exposure, because their earnings are at higher risk (old folks are more likely to lose their jobs and less likely to quickly find another).  Someone who has just retired probably wants to ramp it up again, because they now have a very safe stream of income from Social Security and can bear the risk.</p> <p>They provide worked examples of many, many issues that financial advisors and financial writers deal with:</p> <ul> <li>Should you go back to school?  </li> <li>Should you convert your IRA to a Roth?  </li> <li>Are you saving enough?  </li> <li>Do you have enough insurance?  </li> </ul> <p>They provide answers to these and many other questions, but the answers are almost beside the point.  What&#39;s valuable is the analysis--and, even more important than the analysis, the framework for doing the analysis.  In <a href="http://www.amazon.com/gp/product/1416548904?ie=UTF8&amp;tag=wisbre08-20&amp;linkCode=as2&amp;camp=1789&amp;creative=390957&amp;creativeASIN=1416548904"><em>Spend &#39;til The End</em></a> Kotlikoff and Burns provide the underpinnings of that framework.  I recommend it highly.</p> <a href="http://www.wisebread.com/book-review-spend-til-the-end" class="sharethis-link" title="Book review: Spend &#039;til The End " rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Personal Finance book review financial advice investing personal finance saving spending Thu, 16 Oct 2008 21:48:01 +0000 Philip Brewer 2527 at http://www.wisebread.com