Six Simple Tips to Develop a Savings Plan

Money is part of our everyday life. Money if used wise it becomes a great servant. However, when we allow poor money management to put a yoke on us and our family, we become the servant of money, and money is a terrible master.

One of the lessons we learned from the recent recession is that we cannot trust those in power to protect our investments and savings from the shaky hands of our politicians and the federal reserve. After being indoctrinated with the consumerism philosophy as the cure for all financial ailments learning to save money becomes a challenge for most families. It is important to know how to manage money efficiently to ensure healthy savings. It is the creation of a savings program that can help us sustain the stormy weathers that are ahead of us.

Before you start looking into an investment program, start by developing a savings program. Most of us have heard of saving money "for a rainy day", but many of us never quite get around to developing a personal savings plan. In our economic model where we focus on consumerism it can be difficult to make a savings plan a priority, but the longer we wait, the less opportunity we have to accumulate a healthy financial amount.


Here are six steps you need to develop a workable savings plan:

1. Determine a savings fund adequate to meet emergencies and achieve special goals. Develop your budget from the amount of savings you need to create a cushion your family needs for the rainy days and not from expenses you currently have. 
2. Add up your total income, including any funds you receive in addition to your earnings.
3. Figure out your total fixed expenses such as rent or mortgage, insurance premiums or car payments.
4. Estimate how much you need for day to day living expenses.  
5. Keep your savings funds separate from your operating funds.  This keeps the savings funds separate from the operating funds and you can see your savings account growing every month which provides motivation.
6. Make the savings systematic, for example you can establish a fixed amount every month  of $100 or you can establish a % of your gross salary.

Remember that you will grow richer each month as you pay yourself first. Good money management is more than financial formulas. It is controlled by the current events in our lives, so it needs to be modified as situations in our lives change. Do not be discouraged if initially your savings plan does not meet your goals. You may need to review your plan and identify the areas that need to be corrected, revise your plan and go at it again. This system works regardless of your job position and/or income level.

Five Tips For Financial Freedom

1. Establish and Control Cash Flow
The building blocks of any financial plan are liquidity (or like my wife calls it “fluidity”) and expense management. People who spend more than their income will never achieve financial independence. Your best friend is your family budget, without it you will be spending blindly which will lead you into constant shortfalls and borrowing from your savings or credit cards to cover the “unexpected shortfall”.
2. Manage and Eliminate Debt
As part of the post-recession era, families should have as their primary goal to eliminate debt. As long as our families continue enslaved by debt, we are selling our children's future to the money changers.
3. Establish an Emergency Fund
Families should have at least a three month reserve of cash for emergencies. Once you have established your 3 months of reserve, you should work towards 6 to 9 months of reserves. Emergencies come in different ways from layoffs to natural disasters to illness or death of a family member. Having this emergency fund is critical to sustain those rocky moments. For this type of funds you should avoid Mutual funds, Money market accounts and CDs. Instead go for a savings account or even cash in a safe at home, remember the key is liquidity for this fund.
4. Protect Your Assets
Another aspect we fall short in the United States is inadequate protection for our assets should a wage earner die or become disabled. Tax  planning and using retirement and savings products that offer tax protection are key. Life insurance, retirement and saving vehicles should be carefully evaluated to financial hardship should a disability or death occur.  A family trust can save thousands of dollars in probate in the event of a death as well.
5. Grow Your Wealth
Even in a down market sound investments will still produce returns that grow and protect principle. Take advantage of investment plans from reputable companies with a history of success and expertise. Avoid uncertain and extremely speculative offers. As money grows, the potential for earnings increases exponentially.

Financial freedom does not come free, it requires strong management, planning and foresight. However, with proper planning and using these basic guidelines, your journey will be more enjoyable and will yield a brighter financial future tomorrow.

5 Tips on Saving Money at Home

There might be signs of improvement in the economy. However, with our living expenses increasing, It is important to be savvy about our expenditures.

1. Review your insurance policies - Get those insurance policies out of the storage and review them. If you need help, have your CPA help you determine if there is overlap, unnecessary coverage, or if coverages that are missing or need to be changed due to your current situation.
   
2. Save on books and magazines - Use the library. They have plenty of books, CD’s and DVDs. You can also request that the library buy certain books.
   
3. Watch for crippling fees – We get bombarded by fees are everywhere; bank fees, atm fees, cash checking fees, late fees. Many of them individually are small and many times we do not pay attention to them, but they can add up when analyzed as a whole and over time erode your household finances.
   
4. Be a savvy grocery shopper – grocery monthly bills tend to be one of our largest household expenses after mortgage. Many times we shop based on convenience and shop at the closest store or on impulse and end up buying things we do not need. One way to save on groceries is the use of coupons, you can visit online to a site like coupons.com
   
5. Stop pretending – Many of the financial problems that many American families are going through now has to due with our consumption patterns. Many individuals buy to satisfy an inner need to fit in and be classified as “special”, “vip”, “discriminating”, etc. You need understand that manufacturers don't care about your mental, spiritual, nor financial well being; all they care is to increase sales and profits. Therefore, make your “discriminating” purchases based on your family current financial means and not to show your neighbors and friends what brand of shirt you are wearing when your family is starving and you cannot pay the mortgage.
   

By taking a little time to implement a few changes to your home and daily routine, you will see your household income to exceed household expenses; which is the beginning to true financial wealth!

Don’t Listen to the “so-called” Gurus

One of the biggest challenges we have in our society is the overflow of information. I think we have too much information and little or no idea how to discern the truth from the lies. The risk of the overflow of information is that we may be lead astray by lies that seems right at first sight. Couple this issue with our human nature to easily be impressed by the so called "Gurus" or experts. Regardless of the subject matter, we have a gurus on that subject.

If you look around the Internet or in your local book-store you will find a lot of hype about how you can become a millionaire with nothing more than a keyboard and a mouse. Sometimes they dare to suggest that you can become a millionaire in 30 days without lifting a finger! There are even some who will try to sell you pyramid schemes, get-rich-quick plans and every other kind of scam you can imagine. The sad part is that there are actually people who buy them. At the illusion of easy money, people whip out their wallets and give away their life savings.

My advice: stop listening to the so-called gurus! What qualifies them as experts on the subject? don’t listen to advice from someone who hasn’t been there and done it themselves! This is absolutely crucial.

I have written an ebook "Increase Your Financial IQ" geared towards those interested in improving their financial knowledge and building true wealth.

Life Insurance is NOT an Investment

Life insurance is not an investment, the purpose of life insurance is to protect your loved ones in case of your premature death. The reason I am writing this short blog today is due the constant question which one is better Whole Life or Term Life? The best answer I can give is it depends. I do I have a problem with "gurus" who give their "infallible truth" about term insurance being the only way to buy insurance.

I understand that whole life is not the best option for everybody but neither is term life insurance. For example, if you purchased a ten year term, ten years ago and develop some medical condition and can no longer afford insurance then you wont be able to get a new policy. However, if you have a whole life policy then it doesn't matter as long as you continue paying your premiums. Life insurance is NOT a one size fits all solution. Ask any over 60 year old right now how the "Buy Term and Invest the Rest" strategy worked for them around 2008. Most of them right now sit with no insurance, since most of them are now uninsurable, and their investment portfolio are valued at a fraction of what it once was. In addition, they are not able to sell their home to cover the devaluation of their investment portfolio since the real estate market is still so low in the United States.

Both types of policies have advantages and disadvantages. There are never any absolutes in life and that is why it is important to discuss your specific situation with your personal financial services professional, who can in turn help you find the right product for your situation.

The problem is that most people listened and are easily impressed by “experts.” We drool for the "As seen in Oprah" type of "experts". Unfortunately in today's society we consider someone who who utters quick and "authoritative-sounding" responses to our questions as an expert. Most people consider a "know-it-all" as an expert. However, people forget that it is all marketing. It is about selling and it works. That is why we are willing to pay hundreds even thousands of dollars to attend the seminars organized by these "gurus". The question we all must be asking is, Is the "expert" giving advice that helps his listeners or advice that sells? If the "expert" gives advice that does not sell, no one listens.

We must come to a different understanding of what defines an expert. Many times the best expert is the one that is willing to say "I don't know". However, I don’t see too many of that type around nowadays.

Tips on Buying Insurance

Before you talk to an insurance agent it behooves you to do a little research about the insurance buying process. The purchase of insurance should be taken seriously and you should never rush in the decision process. Regardless of the insurance you are purchasing, whether it’s life or car insurance, it’s a huge decision that demands a little research and your undivided attention. Also, if you spent some time upfront and determine what you need or want, locating the insurance policy that best fits your needs will not be the unpleasant task that many people think it is.

That is why it is important that you meet with your insurance advisor to assist you in locating the best insurance policy for your needs. It is critical that the insurance you purchase meets YOUR needs and not the needs/wants of the insurance agent. You don’t want to make any hasty decisions, an incorrect could mean thousands of dollars wasted over the long term.

Insurance is important in the building and protection of your assets. Therefore, in the same way we spend time in developing an investment portfolio or business planning, we ought to dedicate time to determine our insurance needs. As we get older, our needs change and so our insurance needs. Furthermore, not all insurance companies are built equal.

I’ve compiled a list of six tips to take into consideration when purchasing a new insurance policy.  Hopefully these tips will help you make a wise decision and save yourself countless headaches:


1. Determine your needs. This should be your first step in the purchase of insurance. Why are you buying insurance? What are you protecting? Determine how much it would cost to replace something that is valuable to you — your life, if you are disable and unable to work for three to six months, your home, your business equipment with which you generate revenues or anything else you determine is important. Compare the cost and inconvenience of replacing the asset you want to protect and you will find out that many times that insurance (when properly purchased) is comparatively inexpensive.

2. Research the company’s ratings. Many times overlooked. The best example was our recent recession. Many banks and insurance companies failed. Poor management decisions can lead an insurance company to lack the proper funding when the time comes to pay claims. Insurance companies are no different that other businesses. You need an insurance company that will be around when you need their service. Therefore, do your due diligence; you might even be surprised at the companies that don’t fare too well.

3. Check your insurance agent credentials. The presentation and sale of insurance products are regulated by your state. Insurance agents must be properly licensed and trained for the products they are presenting to you. As mentioned above, you need to have an insurance agent that is qualified to help you in the decision process and not just trying to sell you a product that they have no idea if it truly fits your needs but they know that they are making a huge commission on it. There are many insurance sales people, some are out there just for the commission they can make on the sale. However, there are a lot of great insurance professionals well trained and prepared to assist you in making the right decision.

4. Check your local BBB. Research consumer complaints filed against the insurance company under consideration. Knowing what the complaints are against a company will tell you how solid of an insurance company they are. Do not overreact on complaints filed, find out what type of complaints where filed and how the company handled them. Once again, insurance companies are no different than other businesses, they make mistakes too. Also, look at the frequency of complaints filed, are the same complaints being filed? Repetitive complaints could be a sign of weak internal controls.

5. Get the right coverage for YOU. Remember that the insurance must meet YOUR needs. Therefore, you should buy the right type of insurance and the right amount of coverage. Never let an agent tell you how much insurance or coverage you need. As a financial advisor, I could make a recommendation and it is my responsibility to justify my calculations based on the facts I have about my clients. However, it is YOUR responsibility to figure out how much insurance you want. Letting an insurance company blindly tell you what you need is like asking a casino how much you should gamble.  Whether you need an umbrella policy or extended coverage, this is for you to decide, not an agent. 

6. Ask some tough questions. Insurance is a significant financial decision. Take the time to really ask the tough and important questions. Also, remember that the investment in insurance coverage can have long-term implications. If your insurance agent seems uncomfortable, unable or unwilling to answer your questions, unprepared or unable to explain to you the insurance product that he/she is presenting to you, you are better off going to another insurance professional.

I hope these tips will be of help to you in the your decision making. As you may have noticed, I did not mentioned price on my tips. Even though, price is important, insurance is more than just price. Many times you will hear of horror stories of people that thought they had insurance or certain coverage and they find out the hard way and when it is too late. The cheapest insurance is not always the best option. Take these principles and print them out, keep them nearby when you are meeting or talking to your insurance agent. Remember, it is your money and it is your decision, if you ever feel that your agent is not listening to you or does not address your needs, that is a sign that it may be time to end the conversation and consider a different company.  Take your time and make a decision you and your wallet can be proud of. Never buy insurance under pressure.

Basics of Personal Finance

As we approach the end of 2011, we must reflect about the accomplishments during the year and the areas that we could have done better. One area that I would like to encourage all of you that read my blog is to take the time to build a solid financial future. Just like when a builder constructs a house on a solid foundation to withstand the elements, you need to have a solid financial foundation. 

The development of a solid financial foundation are the same regardless if you make $25,000 or $250,000 a year. It is important that you understand that mastering personal finance goes beyond the development of a budget. Personal finance covers a sleuth of topics that range from budgeting, taxes, debt, insurance to name a few. It is also critical that you understand how these areas of personal finance relate with each other and its impact to your financial goals.

Today I want to share with you some principles or pillars that will help you develop a solid financial foundation for your family. The information shared here comes from my personal experience, many conversations with people from different generations over the last twenty years, and thousands of books read in the area of financial planning. One thing that came to my attention is that our grandparents and great-grandparents were much better at savings than the most recent generations. There is a lot of wisdom we can learn from them and we better pay attention if we want to get this country back on its feet.

The principles that I will share with you today are very basic, these principles are tested and true. However, over the years we lost focus and the results are known to us today. The financial markets and economic trends may come and go, but saving money never goes out of style. I invite you today to revisit these principles and apply them today.

1. Frugality - our ancestors were shrewed and frugal. We made fun of them, while the spending party was good and it did not seem to end. However, they had a better understanding about money and expenditure. They only spent on the important and critical things for their families, they focused on value. Here are some ideas from the past that you may want to apply to your finances today:

* If a "newer and cooler" version of something is released this holiday season, wait to buy it until the one you have no longer works.
* Teach yourself skills that expand your practical knowledge.

 

2. Accountability - The only way to gain control over your finances is by being accountable of the money spent. Our grandparents knew the money spent because they truly felt it in their wallets. However, today credit cards create a "swipe and reconcile later" mentality. This mentality also creates a disconnect between the expenditure and the accounting (or responsibility) for that expenditure. The "reconcile later" became more like I will "figure it out later". However, our grandparents had a more visual experience of their expenditures since it was a tangible experience.

What can you do differently today? 

* Avoid the excessive use of credit cards. Only use them when they are truly necessary.
* Learn to live within your means.
* Review your spending on a daily basis.
* Keep track of your expenditures.

3. Be Grateful - The generation that lived through The Great Depression experienced great challenges and learned to be truly grateful for everything that they had. The challenging experiences made them painfully aware of the potential for future hardships and what foolish financial behavior can cause to a family.

*  Stop the self-entitlement attitude: You only deserve what you have worked hard for.
* Nothing is free in life.
* Be grateful for what you already have.
* Be honest with your "wants" vs "needs".

4. Learn to Save - Saving does not make you wealthy. However, when savings have accumulated sufficiently they should be used to buy assets. Also, savings are used to create emergency reserves. Most of us know that we should save money, however doing it is a different story. It takes self-restraint, determination, and strength-of-mind to resist “keeping up with the Joneses” or buying the latest iGadget.

* Work on liquidity
* Create a reserve equal to three months of your household expenditures.

5. Patience - I am sure that you have heard “patience is a virtue.” This is a vital lesson in finance as well as in life. The desire for immediate gratification drove us into this current recession. When this trait is left to run out of control it will lead a person to financial ruin. The use of credit cards, combined with the constant temptations and enticements of advertising, provides the perfect vehicle for immediate gratification.

* Start teaching your children the gift of patience through the allowance given to a child. Teach them the principles of building a savings account and spending less than what they will need to buy what they want.
* Be patient in the implementation of your personal financial program. Don't expect it to magically disappear what it took years to make the mess.

Do You Really Need to Buy A New Car?

In our society today is common practice to change cars every three to five years. People keep on switching to new car for no reason. Changing cars has become a way for people to express and show their status. Every year there are so many new car models coming up. So they keep on changing the car whenever they saw some new models that they like.

I have heard people saying this: “Since I need to pay for my installment every month, then why don’t I switch to a better new car?” It seems like paying car installment has become part of people’s routine life where if they don’t pay for the installment, they don’t know what to do with the money. Maybe people have forgotten that they don’t have to pay for car installment if they don’t want to.

I know that I may offend a lot of people by saying that buying a new car is not necessary. I am not saying that the purchase of a car is not necessary and that the replacement of a car that is no longer fitting the initial needs of the family is a luxury. What I do ask is that next time when you get the itch to buy a new car to be honest and ask yourself; Is it necessary? Do you want to buy it because you need it? Or you want to buy it simply because you wanted to show off to your friends your new toy? Do you buy the car to boost up your ego? If you answered yes to any of these questions, then you may want to reconsider the purchase of the car.

Consider the amount of money saved per month and what you could do to improve your family's wealth, like paying extra toward the house loan. This way you can finish your house loan faster, increase your equity and reduce the interest. Also, you can use the extra money to eliminate/reduce your high interest credit cards. Another option is to use the extra money to do some investment. These different use of the extra money saved by not rushing to buy a new car will improve your financial situation.