Free Family Finance

There is, what I believe to be, a common misconception in the world of personal finance. For years, there has existed a notion that ‘a person’s income is their greatest wealth-building tool’. To this notion, I must humbly disagree. I feel that this statement is a half truth, much like saying that the engine is responsible for the operation of a sports car. Certainly a car could not run without an engine. But there is much more to a car, than the engine alone (i.e. brakes, transmission, suspension, etc).

It is easy to dispel this misconception. One could simply look at a selection of people who have substantially high incomes. In theory, they should all be substantially wealthy. Right? But you don’t have to look far before you find high-income individuals who are not wealthy. In fact you could easily find a high-income individual who is flat broke. How could this be? They make tons of money!

There must be more to the equation, than income.

In its most simplistic form, why did these high-income individuals end up broke? They also had high-outgo’s. They spent to excess. They gave to excess – to friends & to family. They disposed of money at a greater rate than they earned it. Thus, the outgo is as fundamental as the income.

So what then, is the single greatest wealth-building tool? We have established that it isn’t income. And common sense would tell you that outgo alone isn’t the key. So what could it be?

I would suggest the single most important wealth-building tool is ‘the margin’. The what?! The Margin – the difference between the income and the outgo.

Income   -   Outgo   =   The Margin

It might be fair to call The Margin a personal net profit. For some people, their margin is a negative number. Those people are in trouble. For almost everyone else, the margin is a positive number, but statistics say it is a quite small number.

Why is it important to make the distinction between the income and the margin? Because if you believe that your income is your greatest wealth-building tool, then the answer to too many of your financial problems is, “make more money”. If your outgo is being neglected, “make more money” becomes a unicorn. It is unobtainable. You make more and inherently spend more, never truly addressing the financial issue at hand. You can work harder & harder, making more & more money, with no positive result.

The fact is, our greatest opportunity for building wealth lies within the margin. Subsequently, the key to maximizing wealth-building is maximizing the margin. As we raise our income and keep the reigns on our outgo (i.e. get out of debt & save money), we expose our greatest wealth-building tool.

When it comes to building wealth, the ‘Magic is in the Margin’.

I love ING DIRECT. I have been a customer of theirs for years. As I have described before in “How I Automate My Finances“, my ING DIRECT accounts are a vital part. Here is why.

There are two key products from ING that I use – a savings account and a checking account:

• The Orange Savings Account. Earn high interest. Great rates, no fees, no minimums. Start saving in under 5 minutes.
• Electric Orange – Earn high interest. Free Bill Pay. Free ATM’s at more than 35,000 locations. Apply online.

First, let’s look at the savings accounts. I have 5 of them. I use them for both my emergency fund, as well as my short-term savings vehicles. Thus, I have one account for each: Christmas, insurance, car maintenance, etc. ING automatically transfers a payment to each account, each month. This way, when my annual insurance premium comes due, I am ready. The same could be said for Christmas. They are like mini-escrow accounts! Because ING does not require a minimum balance, when the New Year rolls around (and I have $0 in my Christmas account), I don’t have to worry about minimum balance fees. Not only does ING allow me to keep my funds separate (which makes short-term savings goals a snap), but they also provide me an interest rate 13 times that of my last bank. Duh!

Last, let’s look at the checking account. First & foremost, it is interest bearing. The ING checking accounts are paperless. So your debit card is your preferred weapon. Additionally, ING offers a great online bill pay program. They will even overnight checks (for an small additional fee), if necessary. My wife & I are both paid via direct deposit. We use our debit card for everything , so we never write checks. We wouldn’t write checks even if we had them. For these reasons, switching to the ING checking account was pretty easy. They provide ATM access to ATMs all over the place and even if we are not close to an ATM, we usually just ask for cash back on our debit purchases. No big deal. I have been using my Electric Orange account since they began offering them. We have earned over $400 in interest over that time. For us, it is free money. Totally worth it.

As the old adage goes, it takes money to make money. And ING DIRECT makes it a breeze.

Yesterday we touched on the mind boggling logic behind cell phone plan price structures. Today Jennifer Saranow Schultz provides us with a quick & easy plan for negotiating a lower bill.

How does she do it?

I used some of the oldest tricks in the cellphone bill negotiation book: act sweet, play dumb, be persistent, take notes (always get names of who you are talking to and write down what they tell you) and most important, say you are going to switch to another carrier.

Additionally she suggests:

• “Be polite, direct and calm”
• Say “you’re going to cancel from the beginning of the call so you can work with the cancellation department rather than customer service representatives.”
• Call “around to find out what other carriers can offer”
• And if you need to, pull out the big guns: “Tell them you’re going to switch to AT&T”

And last but not least:

• Don’t take “No”…for an answer.

via How to Negotiate a Lower Cellphone Bill – Bucks Blog – NYTimes.com.