- Contribute to a Traditional or Roth IRA for 2011. Yep, it’s early in the year which means your money starts working for you tax-deferred quicker.
- Pay down credit card debt. Credit cards typically charge double-digit interest rates. Realize this money fundamental: paying off a credit card that’s charging 18% interest is the same as ‘earning’ 18% on an investment.
- Invest in your child’s education. A 529 college savings plan allows your investment to grow shielded from current income taxes and withdrawals, when used for qualified education expenses, are 100% tax-free. For residents of Alabama, we now have one of the best plans in the nation through the Vanguard Group. In addition to low investment costs, you’ll receive a state income tax deduction for contributions of up to $5,000 per year ($10,000 for couples filing jointly). For more information go to www.collegecounts529.com.
- Make home improvements. The summer heat wave is on the way. This is a great time to up the energy efficiency of your home with added insulation, heat-shielding window treatments and servicing your air conditioning system. This is an investment that keeps on giving through reduced bills for years to come. Be sure to check for tax credits that are available with many energy improvements.
- Seed your holiday gift fund. Blink your eyes and the holiday season will be upon us. Consider using your tax refund as seed money for holiday spending. Then, based on how much you plan to spend, add a little each month so you’ll be ahead of the game.
- Give to charity. I can’t remember a time when folks were in more need of financial help than now, especially the hundreds of Alabamian’s that lost everything to the recent tornados. If you feel blessed, share the blessing! You’ll be doing a lot of good for families who are in great need and you’ll receive a tax deduction as a small bonus!
Check out Stewart’s New eBook, “Marrying Finances” coming soon. Visit the store section at www.GetRichOnPurpose.com for more information!
A restaurateur friend of mine recently opened a new restaurant in North Shelby County. When I asked him how it was going he was very excited and especially pleased with the friendliness of the customers that frequent his restaurant. His biggest problem? “Stewart, it is nearly impossible to find people who are willing to work,” he told me. “Oh, we get lots of people applying for jobs…and they all say they’re willing to work hard but once they’re hired, they then say they don’t work evenings; don’t work weekends; want to know when they can use their cell phones; want to know when they can take a break.”
So here we are at the tail end of the worst recession since the nineteen thirties with true unemployment topping ten million and there are jobs available but very few job seekers who are willing to do what the job requires. This is not just a North Shelby County problem but a nationwide epidemic.
I have the good fortune of owning a company full of hard-working associates so I surveyed them on this topic. What emerged is our thoughts on the causes and cures for restoring work ethic in America.
The Cause: The Entitlement Mentality. It is natural for parents to want the very best for their children. As we have become a more affluent society we’ve used our increasing resources to benefit our children. In some ways this can be very positive such as the ability to live in a community with a great school system or allowing for a private school education. However, in many ways, parents have used financial power to enable their children. Children growing up in more affluent communities often expect to be given a car when they turn sixteen; expect to have a cell phone paid for by their parents; expect to tap into their parents pocketbook for all matter of spending and aren’t expected to ‘do anything’ in return. Many affluent families are substantially helping their children buy their first home or are buying it outright for them. I have so many friends that continue to financially support their adult working children, allowing them to live a lifestyle not supported by their income.
At the lower end of the income spectrum, there are now third generation welfare recipients. These teens and young adults have never seen their parents work and there is an expectation that the government will take care of them as well.
The Cure: The Work Mentality. The common thread of my hard-working associates was that each was expected to work starting at an early age. One’s first job was a lifeguard at age fifteen. Another was a stock-boy at a shoe store at age fifteen. At age twelve, my father dropped me off in a neighborhood with a case of fire extinguishers and said, “Don’t come home until you’ve sold them all!”
Here are our three rules for restoring the work ethic in America:
- Chores. At a very young age, children can learn the concept of responsibilities of being a member of a family unit. One of my associates requires that her four and five year old children keep their bedrooms clean. She’ll pay them ‘allowance’ for special chores such as sweeping the kitchen floor. As a youngster, I had to mow the lawn every Saturday before I could go play in the neighborhood.
- Work. Once children are old enough to get a summer job, they should be expected to work. If they can’t find a job, require that they serve as a full-time volunteer. During summers, I had to either have a job or be in summer school…and sometimes both.
- Team. Require that your children be involved in some type of team activity. Sports are great but there are many other options such as math club, debate team or choral team. In this age of non-stop texting, our children are losing the ability to communicate and work together as a group.
By the way, if any of you live in North Shelby County and are willing to work hard, email me at firstname.lastname@example.org and I’ll be happy to pass your name along to my restaurateur friend. Just put ‘job’ in the subject line.
Recently, Lawrence, a reader from Canada, asked about the advisability of borrowing money to buy an electric car. Lawrence read one of my books where I explain the debt rule: Don’t borrow money to buy a depreciating asset. However he reasoned that the thousands that he would save on gasoline would make it worthwhile. This got me thinking about when, and under what circumstances, there might be an exception to the debt rule.
First, let’s start with the concept of ‘good’ debt. Good debt would be any debt used to purchase something that would provide a current and future benefit and have a reasonable chance of appreciating in value. Perhaps the most obvious example would be the purchase of a home. Certainly buying a home meets the ‘present and future benefit’ test. However, the collapsing housing market may have people wondering if purchasing a home meets the ‘appreciation’ test. On a short-term basis the answer is situational…meaning that, depending on your particular situation, you may find that your home is worth less than what you paid. However, long-term home ownership remains a worthy financial strategy and, while it may take several years, we’ll see rising values in the future.
Borrowing money for investment can also meet the test of ‘good debt’. Consider purchasing a duplex for $100,000 cash where net income is $15,000…or a 15% return on your investment. If instead of paying all cash, you borrowed $65,000 at 6%, your return jumps to about 30%!
Borrowing money for education is another area that could qualify as good debt if the result is a better paying job.
Let’s get clear about what bad debt looks like. My favorite example would be borrowing money, typically on a credit card, to pay for a vacation. While ‘fun’ might be considered a current benefit, this will fail the ‘future’ and ‘appreciation’ tests. The same applies for borrowing for entertainment, furniture, clothes or gifts. Clearly, you’ll want to figure out how to save and pay cash for these types of purchases.
So how should we advise Lawrence who’d like to purchase an electric car but will need to borrow money to do so? If you are going to knowingly violate the rule, make sure that you have a source of income to pay for it. In this case I’d advise Lawrence to finance the car over no longer than twenty-four months and plan to keep the car for a long time, say ten years. This will give him more time for the ‘savings’ from the electric car to bear fruit. I do have a couple of concerns he should consider:
- The driving range for an electric car is 75 to 100 miles on a single charge so its usefulness is limited. If he has longer trips in mind, he may need two cars and this may negate any savings.
- An electric car will depreciate just like any vehicle, but I have a concern the electric car may depreciate faster than its gasoline counterpart.
My best advice for Lawrence is to see if he can purchase a used electric car…one that still is in manufacturer’s warranty. He’ll likely shave a minimum of 20% off the purchase price and still reap the lion share of the future benefits.
Few of us take the time to stop and take stock of our lives but if you take a moment to reflect, you will find that you, in fact, accomplished quite a lot in 2010. But did you achieve your full potential? It’s likely that your full potential is much greater than even you recognize. I’m reminded of the story of the dog whose owner always kept him in the backyard on a 25 foot chain. The owner fed and cared for him and sometimes even played with him. But the dog was always chained. After a time, the owner unbuckled the chain but the dog never ventured beyond the 25-foot perimeter- now shackled by an artificial chain and collar. What’s holding you back from achieving your full potential? Have you created your own artificial chain and collar? For each of us, our destiny is to have an extraordinary life. Yet, it is up to us to claim it. For 2011, commit to break the chains that are keeping you from achieving your true potential.
I was twelve years old when my father drove me to an unfamiliar neighborhood and let me out with a case of aerosol-size cans of fire extinguishers and said, “Son, when you finish selling this case, I have two more cases!” So I went door to door, ringing door bells, selling my wares. My first day I had limited success so I went home and pondered how I could become more effective and hit upon the idea of a ‘live’ demonstration. The next day I was armed with a small pan and lighter fluid. When the lady opened the door I squirted lighter fluid in the pan, lit it and asked, “If this was a stove-top fire, how would you put it out?” She ran and got some baking powder and attempted to dowse the fire. When it continued to burn, I handed her one of my fire extinguishers and she instantly put out the fire. My sales went through the roof!
Here’s what I learned:
I learned not to give up. Within every obstacle is an opportunity. In this case I used poor sales as an opportunity to try a different approach.
I learned how to interact with adults whom I had never met. After doing this over and over I found I quickly became more at ease in conversations.
I overcame the sense of rejection. Every presentation did not result in a sale. I’d take a moment to think if I could have done anything differently, learn the lesson and move on with the intent to constantly improve…try new approaches.
I learned that ‘work’ can be fun! Certainly making my own money was a new experience for me and it felt good! It gave me a sense of confidence. Maybe, just maybe, I could make my own way in the world!
Children learn the concept of work best at an early age. It’s not taught in school but through experience. As soon as you feel your children are old enough, encourage them to get a job. It could be babysitting, mowing lawns, a paper route.
Don’t pay children to do things that are part of family responsibilities such as taking out the trash, mowing the lawn, cleaning up their room or making good grades.
Do give them an allowance but include some ‘money rules’ to go with it, otherwise the only lesson they’ll learn is how to spend money….and my experience is that this lesson they learn without any help! Money rules might include:
The first 10% goes to helping others through a charity or gifts to their religious organization.
Twenty percent should go towards long-term investments. Yep, even at an early age, children can begin to learn about investing. Help them choose stocks they are familiar with such as McDonald’s, Wal-Mart, or Disney.
Another ten percent should go towards long-term savings…call it ‘the unexpected’ fund.
They are free to spend the rest as they choose.
They should be responsible for balancing their checkbook.
These money rules apply to both their allowance and job earnings.
Think of the mistakes you made as a young (or older!) adult and figure out how you can help your children learn the needed lessons before they are on their own. It will be one of your greatest gifts.
We’re getting ready to launch this program on May30th and the content is going to be great. Hope you will join us with a Fitness Quest of your own!
- Achieve Financial Freedom
- Beneficiary Designation
- College Savings Plans
- Credit Report
- Economic Outlook
- End of Year
- Estate Planning
- Financial Advice
- Financial Freedom
- Financial Insights
- Financial Literacy
- Holiday Budget
- Identity Theft
- Investment Planning
- IRA Penalties
- IRA Withdrawals
- Mandatory Distribution
- Personal Goal Setting
- Positive Attitude Tips
- Retirement Planning
- Saving Money
- Small Business
- Social Security
- Stock Market
- Student Loans
- Tax Planning
- Tax Saving Strategies
- Tax Tips
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