Wealth is health. Stay well. Take good care of yourself. Don’t get stupid. Your health is the most important investment you can make.
Saving money is good, but money is the result of your work, time and life. Use it to live too. Dying with the most money in the bank is foolish. No one lying on a bed in a nursing home says, “Man, I’m glad we didn’t take that trip to Hawaii we talked about. I have plenty of money but can’t spend it other than on this nursing home”
Buying cheap can be expensive. If you want to buy something, get the best you can afford. Don’t try to save so much on things you go broke replacing them.
Debt is not your enemy, it is a tool when used well and it is a trap when abused. Know the difference. Don’t fear debt, use it wisely, but know when to and when not to.
Liquidity is the key to wealth building. He who has the money available to take advantage of a opportune situation will win. Stay Liquid. Avoid illiquid money traps like: a new car (a 5 year old car is a good investment, new not. Loses 1/3rd the day after you buy it), paying off your house (your mortgage is deductible and the money you have available is security), costly furniture, expensive remodeling that has no potential for return (that granite top and new bathroom does little to your house’s value) and investments in a businesses without knowing the probable outcome. Every dollar you don’t put into these things leads to liquidity.
Don’t invest in things you don’t understand. Research is your friend. Don’t go without knowing. Every con is something you don’t understand well.
Anything that seems too good to be true probably is, but investigate the opportunity anyway. Sometimes great deals come along looking like a bag of snakes. Don’t let doubt keep you from investing, but don’t let greed drive you to lose money.
Anything you buy that will depreciate quickly might be best bought used or already depreciated. Equipment, Vehicles, Tools. A ten year old car fully depreciated in good condition is worth all the money you pay, a brand new off the showroom floor car is worth 1/3rd off the day you buy it. Be wise. If you need a tool for a certain job, rental is better than ownership in the long run. Too many nice power tools sit in the shed seldom used because someone though they could get more use from them than they did. Rule of thumb, if you rent more than 3 times a year, buy one.
If a proposed investment pays more than market rates it is probably fraud, dumb or a Ponzi scheme looking for a sucker. There is no free lunch. None. When someone tells you they have an investment that guarantees a 7% return every year, that’s a scam. They are just taking YOUR money and paying it back to you as if it were a return. Most annuities are this.
There are priorities in money management. Use your income to pay down very high interest rate credit cards. Don’t be in a hurry to pay off low interest rate loans like student loans, car loans (if they are low) or never pay off your house (when you have paid it off 50% refinance, be your own landlord). You need to have at least one year of money set aside as quickly as possible that if something happened, job loss, illness or other catastrophe, you could live on this emergency fund. In an emergency if you are not working you won’t be able to borrow on your house. They want to get paid back. Too many people think a paid off or down house is a good strategy. Not so much. It just leaves you cash poor. The exception to this is if you are wealthy and you have a big security blanket financially, plus investments to the point where you will never suffer, then paying off your house is OK. Not great. But OK if it makes you happy.
You need a credit rating and credit history to operate in today’s economy. Too many people have a great credit rating but no credit history (they always pay cash or pay everything off). The opposite is true as well. A bad hiccup in your credit rating will cost you. Balance is everything. So if you have no credit history, borrow some money and pay it back over time. A year is best. Borrow from two or three sources. Then when it comes time to buy a house, you have money available. This is true for people with bad credit. Borrow some money from a reporting institution. Set it aside. Pay if off on time, not ahead of time. Pay it promptly. The cost of the loan will be some interest, but that is the price of a credit history. You need one.
How much do you need for an emergency fund? What if you lose your job, are hurt or sick. Calculate your total living expense all in. Groceries, Utilities, transportation, all bills times 12. Then subtract the money you would get in helps if nothing else was deducted. Social Security, Aid to dependent children, likely gifts and other non work sources. That’s how much you need.
If you have a year’s worth, you are in good shape. Two is better.
To calculate how much you will need to retire at 70. 25 times annual need from above, but if you have are on Medicare, Medicaid, disability, Social Security or have other passive income streams, it will lower the amount you will need. You won't spend as much when your are older. This can be in the form of an investment like an IRA or 401 K. Also any assets you have that you might be able to dispose of as time goes on.
REMEMBER here’s where not paying off your house comes in. It is not an investment. If you need the money to live on and you paid off your house, you will need to sell it to recoup the money you paid into the house. So you end up living in a rental. If you are retired and have no income you can’t get a home equity loan. They only lend to people who can pay it off. Of course there is a reverse mortgage which in fact is a predatory home equity loan. All bad options if you paid off your home.
Crafted on life's anvil of Experience.
