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Savers Spenders and Investors

investments When personal finances are discussed, the experts usually divide people into savers and spenders. We ran across a press release from Fidelity, the mutual fund giant, about a survey of workers in the non-profit world. They asked the participants if they were a saver, a spender or an investor.

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We thought it was very astute to add that third category. Which one do you fit in?

The workers in the study split themselves about evenly between saving and spending. 46 percent claimed to be savers while 45 percent admitted to being spenders. So that leaves only 9 percent who classified themselves as investors.

Merging the two categories

We suspect that fewer people today would classify themselves as spenders than say a year ago. A lot of us are getting on the savings bandwagon. That’s definitely a step in the right direction, but saving it isn’t good enough.

This data suggests a bigg idea. We shouldn’t think of ourselves as either savers or spenders. We should always think like an investor. We should merge the two categories – spender and saver – into the third category – investor.

We must know how to invest it or we won’t end up with the resources we need to live the life we want.

From spender to investor

Here’s some good news for spenders: thinking like an investor doesn’t necessarily imply that you don’t spend. It means that you spend differently.

You look at every single dollar you spend as an investment. Is it going to bring you enough return to make it worth giving it up? And that “return” may not come in dollars earned on dollars invested.

It may mean that it adds enough to your level of “happiness” to make spending the money worth doing. If it passes that test, then spend, spend, spend! If not, hold onto it.

For example, you may see a real deal on some non-perishable consumer good. Buy it. Stock up. Say an item is on sale for half off. Let’s pretend that you know that it only goes on sale once a year. If you buy a year’s supply, you’re making 100% on your money. That’s hard to beat!

So get to know the promotional cycle of the brands you use regularly and time your investment appropriately. Know when various businesses need the money more. For example, from car dealers to contractors, there are seasons when people are buying a lot and times when people aren’t. Time your purchase for their slow periods and reap the benefits.

From saver to investor

Now let’s think about savers. It’s great to save, but if you’re only earning two percent on your money, where’s that getting you?

We know … we know … you’d rather earn 2% than lose 40%! We completely understand that thought process.

However, investors don’t operate out of fear. They operate rationally. And we have to resist the temptation to go with the masses because they’re usually wrong in the long run.

Just like with consumer goods, there are some real deals out there on assets right now if you can afford to hold them long-term.

The best time to get out of a particular market is often when everyone else is getting in. And the best time to get in is usually when everyone else is getting out.

Years ago, we were told by a very successful real estate investor that when you see the no-money down real estate infomercials proliferating, it’s time to get out of real estate. How many of those do we see now compared to three years ago? 

Now think about stocks. Many of the same people who are touting doom and gloom now were spouting off about the end of the business cycle and the ever-upward spiral of stocks just a couple of years ago.

So to think like an investor, think for yourself. 

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Thanks so much for spending some time with us today. Join us next time when we ask, “Does haste still make waste?” 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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Related posts

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When It Comes to Investing, Time is on Your Side

Squirrels, Nuts and Business Cycles

(Image in today's post by woodsy)

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My Employer is Eliminating 401(k) Matches

retirement Companies are responding aggressively to the bad economic news. Layoffs, hiring freezes, and salary freezes have been some of the most common actions so far.

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Now, more and more employers are looking at eliminating the matching of 401(k) contributions. According to a survey by Watson Wyatt, the global human resources and financial services firm, things are changing quickly. In October, 2% of firms said they had already cut back on these matches and 4% said they planned to. Two months later, in December, 3% had already made the cut and 7% said they intended to.

And these are large companies. Established brands that we all know. Motorola, FedEx, Kodak, and Starbucks just to name a few.

They’re usually using the word “suspend” rather than “eliminate” when they announce these cuts. But it raises a question:

If my employer stops matching my contribution to my
401(k), should I still keep making contributions myself?

It forces us to save

This is perhaps the biggest reason to keep making contributions. Financial planners have said for years that we should pay ourselves first. Investing it before we get it, as we do with our 401(k), is the best way to make sure that happens.

Most people report that they don’t really miss the money. It’s like the taxes that are deducted from our paychecks – the government knows most of us won’t miss the money if we don’t see it.

Of course, there are ways to set up an automatic deduction from our checking or savings account for investments outside of a 401(k). That’s really close to having it deducted from our paycheck, but it’s not quite the same. That little variation can make a bigg difference for some people. You have to judge that for yourself.

Higher limits

The next best option to a 401(k) for most people would be an IRA because contributions may also be deductible. You should check with your financial advisor about the specifics of your situation.

Because you invest before paying taxes, it’s as if the government is making part of the contribution for you. For example, if you made a $1,000 contribution to one of these retirement plans and you’re in the 25% tax bracket, you would pay $250 less in taxes. So, in essence, you’re only out of pocket $750.

With either plan, you don’t pay taxes on the money you earn on your investments until you pull it out. Deductible and deferred – that’s a pretty powerful combination.

Where the 401(k) gains favor is that it has higher maximum limits – your contributions to your 401(k) can total up to $16,500 in 2009 ($22,000 if you’re over 50). You can’t contribute more than $5,000 to an IRA in most cases.

If my employer cuts or eliminates my 401(k) match, are there
reasons to fund my retirement through another vehicle?

A lot of 401(k) plans offer fairly limited investment options and you may pay lower fees in a plan that’s not a 401(k). 

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The bigger issue

It’s not like we don’t already have a sense of it. But recent months have reinforced this paradigm. We can’t count on anyone or anything for any part of our financial future. We must take full control of our own finances. We have to build our own safety nets to make sure we are financially secure.

How much will you have at retirement?

It really boils down to three factors:

  • how much we invest
  • how much we earn on our investment (after all fees and taxes)
  • how long it is invested

From these three factors, we see that we have three options if we don’t want to retire on less money:

1st – We can try to earn more on the money we invest.
That involves taking more risk and we don’t have much appetite for that right now. So this probably isn’t going to fly with most of us.

2nd – We can postpone our retirement.
This buys us more time. People who are really close to retirement right now may not have much of a choice. They may have to do this. But if you still have some time on your side, there may be a better way.

3rd – We can increase our contributions.
Look at your budget and see if there is any way you can make up for the investment your company was making.

If your employer reinstates matching contributions, you can stop contributing at the increased rate and enjoy the extra money in your budget … or …

… you can keep making your higher contributions to give your retirement a kick!

To all our readers in Australia, happy Australia Day! And we hope our friends in India enjoy Republic Day!

And thank you so much for spending time with us today. Join us next time when we discuss extreme multi-tasking. 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/00316-012609.mp3

Related posts

What’s Hot in 2009: Threats

I Need Money! Should I Borrow from my Retirement Plan?

I Need Money! Should I Cut Back on My Retirement Plan Contributions?

I Need Money! Should I Cash Out My Retirement Plan?

(Image in today's post by woodsy)