Wealth Creation

Wealth Creation—Invest Like a Millionaire

Wealth CreationWealth Creation—Part 3: Invest Like a Millionaire”

To achieve higher levels of wealth you’ll need to start by learning three basic things:

  • Learn to love saving. A wise lady once told me ‘Sleep on it before you buy it!’  Much of what we spend money on adds very little value to our lives in the long term.  It’s simply ‘impulse’ buying.  Your best strategy here is to ‘automate’ your savings by setting up automatic withdrawals from your paycheck or checking account to your investment or savings account.
  • Learn the difference between bad debt and good debt. Bad debt is anything that you borrow money to buy that goes down in value.  Examples include cars, furniture, appliances, and most credit card debt.  Good debt is anything you purchase that goes up in value or at least holds its value.  Examples include a home, money for a business and, perhaps, student loans.  To create wealth, you’ll want to avoid bad debt.
  • Learn how to invest. Investing can be complicated but it doesn’t have to be.  Start with an automatic monthly investment program described in my last post, Wealth Creation—Part 2.  Now, if you’re really ready to improve your investing skills, commit to reading 15 minutes per day about investing.  Are you willing to do this?  Because this is the minimum it takes to become a great investor.  You’ll be amazed at your knowledge in just one year.  There are lots of books and Internet resources about investing but if you need a good place to start, visit Vanguard.com.  Vanguard is a low cost no-load mutual fund company that has excellent information for the beginner investor.

To become rich, study the rich

My upcoming book, “THINK Like a Self-Made Millionaire”, is based on interviews I had with self-made millionaires. It is the first book in my upcoming Get Rich on Purpose® book series. I wanted to find out how self-made millionaires created their success.  What I found out was that their success paths generally fell into one of three categories:

  • The systematic saver. I recently met the sweetest lady in her early seventies who was seeking help managing her investments because she had just retired.  She had a great life story and one that epitomized the systematic saver.  After graduation, she took a secretarial job with a start-up bank and stayed with that company her whole career as a secretary.  She made a habit of living well below her means and took advantage of all the savings and investment programs the bank offered.  Here’s a person who never made a lot of money but who had the good sense to save for her future.  Amazingly she accumulated over $1 million!  I have seen so many cases of people who simply save their way to financial independence.  This retirement savings approach tends to take twenty to forty years depending on how you invest and how much you save along the way.
  • The real estate investor. In studying self-made millionaires, two groups achieved the highest level of wealth in the shortest amount of time.  The first group is real estate investors.  One of the reasons real estate has so much potential for growth is that it uses leverage so effectively.  For example, if you have a $100,000 to invest and invest in the stock market, typically you’ll buy $100,000 worth of stocks.  However if you buy real estate you could put down, say, $20,000 and finance the balance then use the rental income to pay the mortgage and expenses.  With $80,000 left to invest, you could do this four more times and therefore control $500,000 worth of property.  Eventually your mortgages will be paid off and hopefully, your property will appreciate in value.  For example, if the property grew in value at 3% per year, in thirty years the property would be worth over $1.2 million mortgage free…not to mention substantial monthly cash flow.
  • The business owner. By far the biggest winners in the wealth accumulation game are people who own their own businesses.  Owning a business allows you to use leverage in multiple ways including financial leverage, people leverage and systems leverage.  Lisa Renshaw was age 21 and $3,000 in debt but she decided she would become a millionaire.  She scraped together enough money to purchase a failing parking garage in the Baltimore area.  Not having the money to hire a twenty-four hour attendant, she moved into the garage using a carpet remnant as a bed and kerosene heater for warmth.  She focused on great customer service but she persisted for three years before she was able to move out and buy her second garage.  Today, she owns or operates over 30 garages and is a multimillionaire!   Persistence and determination are key character traits of successful business owners.

Choose your path to wealth and do whatever it takes to learn what you must learn to succeed.  My best tip is to find a mentor, someone who has done what you want to do, and ask them to help guide you. For more information on my upcoming book, THINK Like a Self-Made Millionaire, and other upcoming books in the Get Rich on Purpose® book series, visit GetRichOnPurpose.com.

Wealth Creation

How to Invest $100

How to Invest as little as $100

Think of someone you know who is rich.  How did they get there?  Well, one day they had a hundred dollars and decided not to spend it, but to invest it instead!  Over the decades I have spoken to hundreds of people who simply feel lost regarding how and where to invest.  They don’t know what to do so they do little or nothing.  Today, I’m going to eliminate that excuse!

How to invest $100 or more

The single most important step to investing is the first step…getting started!  And no, it doesn’t take a lot of money to set up an investment program.  Here are two simple alternatives:

  1. The Obama Plan– Recently, President Obama launched a new savings plan called MyRA. Under this plan, you can begin by investing as little as one dollar per month so there’s no excuse for not getting started.  The money goes into the Government Securities Fund which invests in government bonds and there is no risk of loss.  Interest rates change monthly but have averaged 3.2%.  Contributions are limited to $5,500 per year plus an additional $1,000 (catch-up) if you are age fifty or older this year. .  To qualify for the full $5,500 contribution, your income must be under $116,000 for single filers or $183,000 for joint filers. You can withdraw the money anytime but must pay taxes on the interest earned if withdrawn before age 59½.   Once the account reaches $15,000, you must roll it over to a Roth IRA.  For more information visit MyRA.gov.
  2. The Welch Plan– The Obama Plan offers an investment strategy that has no risks of loss but also pays only modest returns. Most people will need a higher rate of return in order to have a chance of meeting their retirement goals…which I’ll help you calculate in next week’s column.  This means taking on the inherent volatility of the stock market.  Seasoned stock market investors know that the market is impossible to predict in the short term but historically has earned seven to nine percent over the long term (ten years plus).  While there are a number of low-cost, no-load choices, a great choice is Charles Schwab’s One Source Funds.  A large number of these fund options allow you to invest as little as $100 initially plus add as little as $1 per month.  Two choices worth considering are Schwab’s S&P 500 Index fund (symbol: SWPPX; 5-year annualized returns: 10.5%) and their Dividend Equity Fund (symbol: SWDSX; 5-year annualized returns: 7.97%).  The S&P 500 Index fund invests in 500 of the largest companies in America while the Dividend Equity Fund focuses on the slice of the large U.S. companies that have a history of paying dividends.  This dividend-paying strategy generally makes them a more conservative choice.  If you invest in either of these funds, you should plan to remain invested for a minimum of seven to ten years.

My wife likes to use the phrase, “Bloom where you are planted!”  This phrase can be used in many contexts, but here it means start investing an amount of money that you can afford to invest even if it’s $1 per month!  Creating a habit of saving is vital to your ultimate success.

Clearly you should invest where your money has the greatest potential such as your company matching 401k plan, deductible IRAs or Roth IRAs.  Take a look at all of the places you could invest and then prioritize them in order of most powerful.  For example, if your company offers a 50% matching contribution on a portion of your own 401k contribution, start there.  Then, when you get a raise (or bonus), commit one-half of the amount to your retirement savings program.  That way, you receive a boost in spendable income while also stepping up funding for your retirement.  It’s a painless strategy.  Ok, no excuses for not starting your investment program!

529 College Savings Plan

Alabama 529 College Funding Plan

Secrets of the Alabama 529 College Funding Plan

It’s been a while since I’ve written a column espousing the advantages of using a college 529 plan to help fund a college education.  Recently I had a reader contest where I asked readers to submit their best money saving ideas to jump-start 2016.  One reader, Linda W., focused on this topic and it was full of great tips:

Years ago when our children were young, we wanted to open up a college 529 account for them. Alabama was so involved with their prepaid tuition plan that their 529 plan was lacking in growth. It was more beneficial for us to invest in an out-of-state plan and lose the tax benefits offered to those who invest in an Alabama 529.

But, we learned some tricks and this has helped us withdraw some of those funds!

Each year we roll $10,000 over into a College Counts 529 plan here in Alabama. That does two things, it allows us to take the maximum contribution off our Alabama taxes for married couples, saving us about $500, and it allows all the gains on our out-of-state deposits to now be tax-free in Alabama, (one of the few states to tax gains made in an out-of-state 529 account upon withdrawal of funds) because they will be withdrawn for use from an Alabama sponsored fund!

Yes, the funds are managed better, now, in Alabama, and we could let those funds sit in the account, but we usually roll over the funds and withdraw them in less than 30 days to pay college bills. The whole process to move the funds from out-of-state 529, to in-state 529, to the university (via a charge card with cash back for charging tuition and their grace period for making payments!) takes 30 days or less! But the savings are near $1,000!

And we always pay $4,000 college costs out-of-pocket, and not with our 529 funds, to snag the $2,500 cash given to us by the American Opportunities CREDIT (not a deduction which results in less in your pocket!). See federal tax instructions for eligible students, expenses and terms.

In these high tuition and fees time, it helps to maximize ones college savings and these tips might help others who have set up college funds out of state. We started early enough to be able to pull money out gradually for two kids, thus being able to only have to move $10,000 a year. But even rolling over more, if one needs it, and thus going over Alabama’s annual deduction limit, you still receive the benefit of tax-free withdrawals to pay qualified college expenses.

And if you have no savings for college at all, still open up an Alabama College Counts 529 as you can send your child’s tuition payment there, let it sit for a day, then pull it out and pay the university, or in most cases, your charge bill where you charged their tuition. This will count as a contribution to the 529 account and allow you to take the Alabama tax deduction! Just read up on the process of depositing and withdrawing so there are no surprises!

So there! My tips for saving a lot with a little effort!

Of course one should consult their tax advisor to confirm the benefits based on their individual status. But these have worked for me and the friends I have helped with their taxes!

 My comments:  The $10,000 State of Alabama income tax deduction that Linda refers to is based on a married couple filing jointly.  For single filers, the deduction is $5,000.  Also, when doing a rollover from a 529 plan, be aware that you are allowed only one rollover every twelve months so plan accordingly.

I would add that the 529 plan is, in most cases, the best way to save for college.  While you don’t get a federal tax deduction for contributions (and State of Alabama income tax deduction is limited to Alabama residents and limited in the amount of deduction each year), your money grows tax deferred and, when withdrawn for qualified education expenses, it’s tax free.  You should also be aware that there are two versions of the Alabama 529 plan; an Advisor version where you’ll pay commissions and a ‘self-help’ version with no commissions.  For more information visit College Counts 529 Plan.  Thank you, Linda for a very thoughtful commentary on 529 plans.

Jump Start Your Finances in 2016

grop-profile-picYep, the holidays are a busy time of year full of distractions that can easily draw you away from your financial game plan.  You do have one, right?  Here is a basket of tips from my colleagues to give you a head start on your finances for 2016.  There’s even an opportunity for you to share your own financial tips with our readers in my column next week and win a prize.

Do meal plans; save money.  Write down a weekly/monthly meal plan before you go grocery shop.  Only buy what’s on your list, and then stick to what you planned for lunch/dinner.  It will also make you feel less stressed to be able to easily answer the looming “what’s for dinner?” question.  This will save you lots of money!  Use part of your savings to start a savings plan.  If you saved $5 per week for one year, your total savings for the year would be over $250 and you won’t even miss $5.00 per week!  – Andrea Messick

Be a smart shopper.  Challenge yourself to not make any unnecessary purchases.  Before buying an item ask yourself if the purchase will be worth it a year from now.  – Ramona Boehm

Leverage your pay raise.  Set aside a portion of any compensation adjustment to help fund your 401K or IRA / Roth.  – Greg Weyandt, CPA

Change a habit.  Stop a bad habit that negatively affects your health and your wallet i.e. smoking cigarettes and eating fattening foods.  – Marshall Clay, JD, CFP

Invest in yourself by getting in shape.  Regular exercise has been shown to reduce stress, make you more productive at work, reduce sick days and improve self-esteem.  Plus you might meet your next client, referral source or employer while working out.  Accountability is the key to success.  Find a friend who has similar goals and commit to work out together as ‘accountability partners’.  You’ll be more likely to reach your goal and develop a special bond with the person as they reach their goal too.  – Michael Wagner, CPA, CFP

Leverage your year-end bonus.  Use your Christmas bonus to pay off credit card debt, start an emergency fund, or fund a Roth IRA.  – Callie Jowers, CFP

Rebalance your portfolio.  Take a moment to rebalance your company retirement account’s asset allocation to your target allocations.  This insures that you are not taking more risk than you intended.  Also, given a possible rising interest rate environment, consider paying down loan balances in advance?  – Woodard Peay, CFP, MBA

Build an emergency reserve…the easy way.  If you set aside just $5 every couple of days (price of a Starbucks), you’d have about $1,000 for an emergency reserve fund.  – Wendy Weber

Use the “back door” Roth IRA strategy.  If your adjusted gross income (AGI) exceeds the Roth Contribution Limits for 2015 make a nondeductible IRA contribution (no income limitations) then convert to Roth (also no limitations).  CAUTION: if you have other IRAs you will have to prorate for taxes.  To avoid this tax problem, see if your company 401k plan will allow you to roll-up your existing IRA into your plan.  Be sure to discuss this strategy with your tax advisor before implementing.  – Hugh Smith, CPA, CFA, CFP

Track your money.  Try uploading all of your accounts into a website like www.Mint.com.  If you are really diligent, you may track spending and create a budget.  If not, you can at least track your net worth to see if you are trending up, treading water or spending down your assets.  – Foster Hyde, CFA, CFP

 

My Challenge to You! 

  1. Take action now.  Choose two or three of these ideas to implement now.  Creating financial success is about doing the little things right, consistently, over a long period of time.
  2. Join the game.  Email me (Stewart@welchgroup.com) your own ideas to share with my readers.  If I use your recommendation, I’ll send you a signed copy of my soon-to-be-released book, “THINK Like a Self-Made Millionaire”.  Be sure to include your mailing address.

Caution!  Do you own an inherited IRA?  Michael Wagner, CPA and partner in The Welch Group, reminded me that those of you who have inherited IRAs must also take a Required Minimum Distribution from that account before December 31st, 2015 or face a potential 50% federal penalty.  I’ve made numerous references to RMD requirements for those of you who are age 70 ½ or older but had never mentioned the requirement for those of you with inherited IRAs no matter what your age.  While most brokerage firms automatically notify age 70 ½ or older customers of both the requirement and the amount of the RMD, most provide no notice (or amounts) for inherited IRA customers.  You’ll have to figure the amount due…typically based on your life expectancy using the IRS tables

photodune-5766552-gifts-s

Holiday Giving without Breaking the Bank!

Low Cost Holiday Gift Ideas

It’s easy to spend a small fortune giving gifts over the upcoming holidays even if you find great deals on sale.  Last week, I asked readers to share their best low-cost gift giving ideas, and here are some of my favorites:

  • Bake and Freeze. My mom always made biscuits at least 2-3 times per week. Several years ago she made the comment that she wasn’t able to make them anymore. The biscuit board was too heavy. It took more effort and stamina than she had. It made my heart sad to hear it. For the last several Christmases, I have made homemade biscuits for her to keep in her freezer. She was able to take out and enjoy however many she needed. I did the same with cornbread. This was a gift, from the heart, that she always enjoyed. Sometimes gifts aren’t about the money spent; but about meeting the needs of others and giving from the heart.  Donna B.
  • Personal Gift Card. Make up an original and clever gift card that offer 1-2 hours of personal service.  Use your imagination for the services you’d offer but here are some to get you started: Cut the grass; rake leaves; buy groceries (labor not cash); drive car pool for a week; walk the dog for a week; wash dishes for a week (family gift); do laundry for a week (family gift); wash car.  Don T.
  • Use Travel Points. If you travel a lot, the hotel chain you use will give you points, which can be redeemed for several items — INCLUDING gift cards.  You are likely being reimbursed on your expense account for the rooms anyway, so your cost is ZERO.  Redeem points for gift cards.  A stack of $50 gift cards will allow you to complete your “shopping” from your computer, let everyone on your list shop for something they REALLY want, and you are now the “favorite uncle.”   Perry G.
  • DIY Picture Frames. If you are a crafty individual there are plenty of tutorials on how to make picture frames. That is usually a go to of mine. That way it is homemade. You can’t beat something built with you in mind!
  • BOGO Grocery Shop. Treat co-workers, teacher, etc. with doughnuts or bagels for a breakfast treat when your local grocery store has a buy one get one free (BOGO) deal going on.  Kelly D.
  • Gift Family Heirlooms. People in my family have always given special heirlooms on Christmas. My grandmother gives each of the girls in the family a piece of jewelry she already has. It makes her happy to see us enjoy something that meant a lot to her. My mother has copied cherished family photos and given them as gifts to us, so that we can have those memories in our own home. (An example is a picture of my grandparents at age 17 and 18, a few months after they were married).  Callie J.
  • Personal Services (revisited). Offer to babysit so the parents can enjoy a night out without worrying about their children.  Wash their car…this is a job most people do not enjoy doing!  Run errands for people who are short on time.  Ramona B.
  • Give Time with Friends. Instead of buying gifts, spend time together with friends or family volunteering for a charity. There are plenty of opportunities and giving back will help you appreciate what the holiday season is really about.  Maggie E.
  • Make your own ornaments: Crafting stores usually have plain, clear glass or plastic ornaments which are fairly inexpensive.  You can paint or even “stuff” the ornament ball with old pictures, a quote, glitter, or something specific to the person you are gifting to and create a one of a kind ornament for them.   Andrea M.

All Great Ideas!  If you have a group of money-saving-oriented friends that typically exchange gifts, consider declaring this season a ‘re-gift’ season.    Agree to gift something of a certain estimated value that you own as a re-gift.  Be careful it’s not something they gave you!

photodune-9628055-man-in-costume-of-santa-claus-with-dollar-money-s

Christmas Shopping Strategies

Michael Wagner appearing on Fox News discussing Successful Spending Strategies for Christmas Shopping.

 

 

photodune-9628055-man-in-costume-of-santa-claus-with-dollar-money-s

Five Tips for Budgeting for Holiday Gifts

Holiday Money-Saving Tips

This past weekend, I dropped in at a retailer and they were playing Christmas music!  The holiday season seems to begin just a bit earlier each year but it is a good reminder of how important it is to have a holiday spending plan in place so that you don’t start the new year in a financial hole.  Coming up with holiday gifts for the people you care about doesn’t have to cost you a fortune.  You just need to be creative.

Here are four tips you can use to budget for holiday gift giving:

  1. Set a goal. Let’s start with your number one overarching goal: Create no new debt!  The last thing you want to do is to start 2016 with credit card charges you can’t pay off in full.  Take a moment to review your current financial situation and set a ‘dollar amount’ goal.  How much can you afford to spend (paying cash) this holiday season?  It’s ok to use credit cards as long as you have the cash to pay off the new purchases in full once the bill arrives.
  2. Start saving now. Hopefully, you’ve already saved up some money for gift-giving this holiday season but you still have a few paychecks before the deadline.  Think of other ways to raise cash such as holding a garage sale, selling that boat that’s been sitting in the back yard, or selling unwanted items on eBay.  It’s a great time to clean house because what you no longer want may be on someone else’s Christmas list!
  3. Make a list. Make a list of the people you plan to give a gift and keep the list with you.  This will give you a head start on your shopping as you never know when you’ll run into a great deal!  Having the list readily available will allow you to ‘match’ a great bargain to someone on your list right there on the spot.
  4. Shop with purpose! Whether you go ‘brick and mortar’ or on-line, you now know how much you’re going to spend and who you’re going to spend it on.  As with year’s past, I expect to see lots of bargains.
  5. Pool your resources.  “Consider pooling your money with someone else to give a gift with a big impact while keeping your cash outlay relatively small. Examples include planning with your siblings for a gift for your parents or planning with your coworkers for a gift for the boss”, says Beth Moody, CFP®.  I particularly like the ‘boss’ idea!

Bonus Tip: Give something back.  The economic turmoil of the past few years has spawned financial hardship on many families.  Use this holiday season to teach your children the importance of giving to others who are in need.  There are many ways to accomplish this:  donate clothing, food, money or you can spend some time working in one of the many shelters located in your home town.

photodune-9628055-man-in-costume-of-santa-claus-with-dollar-money-s

Christmas Shopping Strategies

Michael Wagner appearing on Fox News discussing Successful Spending Strategy for Christmas Shopping.Michael Wagner appearing on Fox News discussing Successful Spending Strategy for Christmas Shopping.