Free Family Finance

Four Financial Rookie Mistakes

1. Procrastinating

It has always intrigued me, how financial companies market older people for retirement commercials. Generally, these programs find their way in golf tournaments, between Cialis commercials. The fact is, if you are 60, it is too late. Your window of opportunity to save for retirement is gone. Sure you may still be contributing, but if you haven’t been contributing for the past 40 years, you’re screwed. So let that be a lesson to the sub-60 crowd. In fact, let that be a lesson to the sub-30 crowd. Those youngsters still have compounding interest on their side.

2. Not diversifying

With the recent collapse of many fail-proof companies, this mistake probably speaks for itself. Even (especially) companies backed by the government can fail. Diversify your investment!

3. Paying too much in taxes

Reasons to have a good CPA. I know, I know. I fall victim to this myself. You can save a lot of money by using the Turbo Taxes of the world, but one thing those programs don’t give you is advice for the future. It has been my experience that most tax savings must be planned for. And to get the maximum results, you need to know what your goal is. This is where a good CPA can help you. Don’t be a sucker, avoid paying too much in taxes.

4. Going into debt

This has to be the biggest rookie mistake. If young folks can avoid debt before they get into it, they have their whole lives to kick butt. Avoiding debt is the shortcut to prosperity & giving. Think twice before your next big purchase, if you can avoid debt, you can get yourself on the express way to financial independence.

via Four Financial Rookie Mistakes – Kiplinger.com.

Below is a visual representation of 2010 government spending:

For more personal finance images visit Mint.com’s Financial Blog

“…it contains over 500 programs and departments and almost every program that receives over 200 million dollars annually. The data is straight from the president’s 2010 budget request and will be debated, amended, and approved by Congress to begin the fiscal year. All of the item circles are proportional in size to their spending totals and the percentage change from 2009 is included to spot trends and disproportion.”

Ahhh…It is so huge, it doesn’t even fit on the screen!

Even with 9 accounts in 3 banks, my finances are pretty simple.

Here is how my finances are laid out.

Let me walk you through it:

Earn:

• My wife & I both get paid through direct deposit. This is great. No more Friday afternoon trips to the bank. All of our income goes into our ‘Currency Crossroads’ account. This account earns its name. This is the gateway for all of our income & outgo.
• Once the money is in the bank, it is subject to our monthly budget. Our budget includes saving, giving, and regular monthly expenses.

Saving:

• I have automated all of our regular savings transfers through my online bank access.  I have set up money market savings accounts for each of our long-term savings goals:  a house fund, a car fund, and retirement.
• Additionally, I have setup mini-escrows for our big, predictable expenses: a Christmas fund, and an insurance fund. This allows us to save small monthly contributions throughout the year to stabilize these big expenses. For example, we pay our insurance premiums annually. However, I can tell you the monthly cost of insurance because I pay it to myself, a year in advance, every month. When my premium comes due next year, I will have a fully funded ‘insurance fund’ to pay it from. Meanwhile, the money will be in a money market account, keeping up with inflation.

Giving:

• Our Giving has traditionally been on auto pilot as well. However, recently I have changed this. Since giving is an exercise designed to shape the giver, we felt the manual initiation would be beneficial to our souls. But it could easily be on auto transfer as well. It was just a matter of conviction for us.
• It is important to note that our Giving & Saving happen at the first of the month. To borrow from Robert Kiyosaki’s ‘Rich Dad, Poor Dad‘, we pay ourselves first. Actually, we pay God first and ourselves a close second.
  

Expenses:

• Our regular expenses are handled pretty traditionally – spending within a budget. Since 95% of our purchases are online bill pay or debit card transactions, we use Mint.com to monitor our progress. One side note, each month our Currency Crossroads account begins with the same balance. On the last day of the month, if we have any surplus above the starting balance, we move it to the house fund. If we have a short fall, we have a problem. We have busted the budget. We dig a little deeper, recognize the problem, and adjust. Of course, if the short fall is a byproduct of an emergency, our emergency fund comes into play. If not, we simply have less to spend the next month.

• Both my wife & I have ‘Fun Money’ accounts. At the first of each month, we transfer the budgeted amount to these accounts. They are not a separate, secret checking account – or anything like that. Mechanically speaking, we both have complete access to each others fun account. Practically speaking, this gives us the ability to save fun money from month-to-month, in preparation for big, fun expenses. We have found this particular ‘system’ to be very helpful. It minimizes arguments over silly things. If my wife wants to blow $100 on smelly soap, that is her problem. Thankfully, she would never do that. But you get the point.

All-in-all, it is pretty easy. I just have a few online bills to pay each month. Other than that, I just monitor and maintain. I love my system because I feel like I am gaining so much ground and it is easy to monitor my whole financial picture. Although it is a complex system, it is pretty darn simple.