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Money Questions You Need to Ask

Money Questions You Need to Ask

Money Questions You Need to Ask

Asking better money questions is one of the keys to getting the future you want, says Veronica Karas, author of the new book, Money Matters: Everything You Should Have Learned in School but Didn’t.

On The BIGG Success Show today, we talk with Veronica Karas, CFP, about her new book, Money Matters: Everything You Should Have Learned in School, but Didn’t*. Here’s a summary of that discussion…

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How to Lose Money Without Really Trying

losing money | BIGG SuccessDo you feel poorer? You may be.

PNC recently published their 2011 True Cost of Christmas Index [pdf]. The cost of the 12 days of Christmas is up 4.4% this year.

So true love is more expensive.

This is a fun way of highlighting an important principle of personal finance – you can lose money without really trying.

In fact, you don’t have to actually lose money to lose money!

The hidden tax

Money itself is essentially useless. It’s just a tool, a means of exchange for goods and services.

Your purchasing power is what matters. And if you stuffed all your money in your mattress in 2011, you would need to cut back just to break even.

You will still spend $25. But it will only buy you $24 of the same goods and services you’ve been used to purchasing.

Now, on the surface, that doesn’t look so bad. But take a family with a household budget of $50,000 a year.

They will have to cut $2,000 from their budget just to maintain the same standard of living!

In other words, inflation is a hidden tax. You don’t see it, but you sure do feel it.

Little by little, it eats away at your ability to buy the things you want and need. You feel poorer because you are.

So what can you do about it?

Cash is the best asset to have, but the worst asset to hold.

You need cash to survive. We all pay bills with cash – mostly in electronic form these days, but cash nonetheless.

However, cash loses its value day by day in an inflationary environment. So holding cash is the worst thing you can do.

It’s a delicate balance, but one that must be found to get the most you’re your money.

The difference between nominal and real returns

If inflation spikes up, interest rates will follow eventually. Here’s where a lot of people fall into a trap.

It may be especially tempting as an encore to the low current interest rates. What if CD rates jumped from 1% to 5%? Sounds great, right?

But it’s a losing proposition. Here’s why:

Let’s say you were able to find a one-year CD that pays 5%. You invest $10,000 so you’ll earn $500 ($10,000 x 5%) over the course of the year.

But you still need to pay taxes on this money. Assume your marginal tax rate is 25%. After taxes, you’ll only earn $375 ($500 income x 25% tax rate = $125, $500 income – $125 taxes = $375).

In other words, your nominal return is 3.75% ($375 ¸ $10,000).

If inflation is 4%, your real return is -0.25%. (3.75% – 4.00%). So you’re losing purchasing power even though your return seems high by today’s standards.

Granted, it’s better than stuffing it in your mattress. But you’re still losing money even though you’re trying not to.

Buy now, use later

One safe thing you can do to preserve your purchasing power is to buy ahead. Note that we said buy ahead, not just buy.

Buy things now that you would normally buy later. More specifically, when you see a great deal on an item you use regularly, stock up.

Hard assets generally trump financial assets

Financial assets often struggle in an inflationary environment. For example, traditional bonds tend to get destroyed because interest rates are rising, making the bonds less valuable.

Of course, now you can get Treasury Inflation Protected Securities (TIPS) which helps protect you.

Stocks may do alright if the company is able to pass along price increases to its customers.

Hard assets (e.g. real estate, commodities) have tended to perform well in inflationary times in the past. Of course, the past is no predictor of the future, as we always hear.

In addition, how long will it be before real estate market really starts to recover? Can gold, silver, and other commodities continue their meteoric rise?

You have to decide for yourself. Or get help.

We highly recommend working with a financial planner. More specifically – work with a professional who gets paid to advise you, not sell you investment products.

They’ll earn every penny you pay them!

The quest for more income

BIGG success is life on your own terms. It’s about taking control to design and build the life of your dreams – no matter what the economy is doing.

One way to do that is to start your own business. You can do it part-time.

The extra money you make will help you preserve your purchasing power. And if done right, it could be your first step to financial freedom. That’s BIGG success.

Image in this post from stock.xchng

Step 2-Find Abundance in a World of Scarcity

abundanceWe’re doing a series on abundance. Last time, we took the first step – create a fortune by feeling fortunate.

No matter what life may throw our way, we are so lucky to live freely. We may not have everything we want, but we’re so fortunate to have so much.

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Now we’re ready for the second step of finding abundance:

Build in Reserve Capacity

Many people today are trying to sprint through the entire marathon. To run that pace for a short time may be fine. But to run the whole course at that speed only leads to wearing out long before the finish line.

In your schedule
Finish strong by building reserve capacity in your schedule. Here are some suggestions:

  • You start to do this by setting your direction. What does bigg success mean to you? Bigg success is life on your own terms. What does that look like? Get a clear picture of it in your mind.
  • With that vision, focus every day on the things that are the most important to getting there. If it doesn’t move you toward it, stop doing it!
  • Then honestly assess how much you, as a human being, can accomplish in a day. Live as a human, not a superman or superwoman. Live like a human, not a machine or a robot. Leave yourself some breathing room when you plan your day.
  • Also plan for the unplanned. Things will happen that will need your attention. Projects will take longer than expected. Opportunities will present themselves along the way.

    If your schedule is jam packed, you won’t be able to take advantage of them. Or your bigg opportunity may pass right before your eyes and you’ll be so busy you won’t even notice it.

In your budget
Once again, it comes back to what life on your own terms means to you. When you look at what you’re spending money on, are all expenditures moving you closer to that dream life?

You know where you want to go. You know how fast you want to get there. Sometimes that means creating abundance for the future by creating a reserve today.

When you have money in the bank or money in your investment account, you feel a sense of abundance, don’t you? It’s only human. So let’s do it:

  • Eliminate every cost that doesn't move you closer to where you want to be. Take the money you save and stash it away.
  • Another great financial reserve is reserve borrowing capacity. It’s not an asset in the strictest sense of the word, but it sure is an asset when your bigg opportunity presents itself. So build reserves to live in abundance. That’s bigg success!

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Thanks so much for reading our post today. Please join us next time as we discuss the third step to living in abundance. Until then, here’s to your bigg success!

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Direct link to The Bigg Success Show audio file:
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Step 1-Find Abundance in a World of Scarcity

Giving Yourself Permission to Spend

vacation.jpgBigg success is life on your own terms. The five elements of bigg success are money, time, growth, work and play. Today we want to focus on money.

Some people struggle to save money in the first place because they love to spend it. Other people have no trouble saving it, but they get uncomfortable spending it.

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georgeI grew up with one of each. I’ve never seen research on this, but I bet that happens fairly often. Mom was a saver and Dad was a spender. I learned from both of them.

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marylynn
So I know the answer to this, George, but share with everyone which one you are.

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georgeI think I’m both so I face this internal battle – there are times when I swing to the savings side; there are times when I lean toward spending. The challenge for me is not letting it get out of balance when I shift one way or the other.

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marylynnBoth of us tend to spend on small ticket items. We’re not bigg ticket buyers so we can completely relate to one of our readers, Paul.

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Bigg question

Paul sent us an e-mail about his dilemma. He’s a regular saver, but he has trouble spending it – especially on bigg ticket items. For example, he could comfortably take a vacation but he’s not sure if he should pull the money out of savings. He wants our advice.

Bigg solution

Reading between the lines, it sounds like Paul wants to spend the money but he’s afraid he’ll need it for something else. Here’s the bigg solution:

Set up a separate account dedicated to the next bigg purchase you want to make. Set aside a portion of what you save in this account.

Right now, you’re implicitly saving for these things, Paul. By planning for your purchase and explicitly saving for it (i.e. by stashing money for it in a dedicated account), you’ll feel comfortable buying it once you’ve accumulated enough money.

Since you’ve been saving all along, Paul, consider taking a portion of the money you have in your general savings account and seeding this account with that money. You may feel you have enough to take that vacation now. If that’s the case, go for it! Then use this separate account for your next bigg ticket item.

Live (a little) in the moment

It’s important for all of us to save for our future. It’s also important to live a little in the moment and enjoy life along the way. Otherwise, we risk forgetting why we’re doing what we’re doing.

So Paul’s going to save for a vacation. If you can’t afford that right now, plan for a weekend away. If that’s going to stretch your budget too much, plan for a nice dinner out this month. Maybe even that’s too much … plan for a nice meal at home. Make it an event. Every day … every hour … every moment is precious. Don’t fall into the trap of living too much for the future. Strike a healthy balance between now and then. That’s living bigg!

How do you save for bigg ticket items?

Share that with us by commenting below, calling us at 888.455.BIGG (2444) or e-mailing us at bigginfo@biggsuccess.com.

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Get the tips and tools you need to be a BIGG success.
Subscribe to the Bigg Success Weekly – it’s FREE!

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Please join us next time when we discuss getting your employees to take a step toward personal leadership. Until then, here’s to your bigg success!

Subscribe to The Bigg Success Show in iTunes. 

Subscribe to the Bigg Success feed.

Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00401-052509.mp3

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Savers Spenders and Investors

(Image in today's post from vranarc)

Take Me Out to the Free Ball Game

george_marylynn_baseball.jpbA one. A two. A three. Take me out to the ball game …

We can hear Harry Carey singing it right now! (We’ll warn you: If you listen to our show today, you can hear why we could never be on American Idol!)

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Bigg success is life on your own terms. There are five elements of bigg success – money, time, growth, work and play. Today we’ll focus on play.

If you’re a regular reader, you know we’ve confessed that play is the thing we struggle with the most. We love our work. We’ve found that thinking about the five elements of bigg success helpful because we make sure we schedule some play time.

We love baseball, but going to a Major League Baseball game can be a real budget-bender. By the time you buy the tickets, pay for parking, and grab a hot dog, you can spend some serious smack!

You don’t have to throw your budget a curve ball to have fun at the old ball game

We feel fortunate to live in a University town. We have some bigg time sporting events, including a baseball team that is doing very well this year. Go Illini!

Last year, we kept talking about going to a game but never made it. They start early when it’s too cold for us to watch a game outside.

This year we made a commitment to go, so we were keeping an eye on their schedule. Lo and behold, they ran a bigg promotion – you could get into the game for free (it normally costs $5) and you could even get free food.

Now that’s a bigg deal!

And the promotion was a bigg success! They had a record attendance. In fact, so many people showed up, we decided it was worth buying food from the concession stand instead of waiting for the free stuff.

It was a great game. We had lots of fun and some good time together as a couple (see pictures on our Flickr page). That’s the best part. The second best part was that Illinois came back to win in the ninth inning!

But what if you don’t have a University team in your area? Can you still take in a ball game on the cheap? Baseball, you bet!

Summer college baseball leagues. College baseball players finish their collegiate schedules early. They want to keep playing without jeopardizing their amateur status. So college leagues have sprung up. We have a team about thirty miles from us (ticket prices are $6 – $9). Check the National Alliance of College Summer Baseball site for the team closest to you.

Minor leagues. Future professional baseball players have to train somewhere. There are minor league teams all over the country. We have a AAA team fairly close to us ($6 – $10 for a ticket). If you don’t know of one in your area, check out the Minor League Baseball site.

Amateur leagues. We have several teams in our area like this. You can take in a game for a few bucks plus any food and drinks you may want.

Little Leagues. We love watching the Little League World Series on television. Check out the raw talent in your area to a Little League game. You can’t beat the price and there are games all over. We have a field within walking distance of our house.

So what’s the bigg idea? Tap into your local community and have a bigg day out at the ball park!

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Get the tips and tools you need to be a BIGG success.
Subscribe to the Bigg Success Weekly – it’s FREE!

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Thanks so much for reading our post today. Please join us next time when we discuss how some friends of ours taught their teenage daughter the value of money. Until then, here’s to your bigg success!

Subscribe to The Bigg Success Show in iTunes. 

Subscribe to the Bigg Success feed.

Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00395-051509.mp3

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(Image in today's post from our Flickr page our Flickr page)