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 Post subject: Rules for Financial Serenity
PostPosted: Mon Mar 25, 2013 2:12 pm 

Joined: Mon Mar 11, 2013 1:57 pm
Posts: 5
I work in communication at a state CPA Society and I've been asked to learn our "Financial Literacy" efforts. I have some ambitions to try to make the effort as meaningful as possible, and useful to all kinds of people. One of my goals is to develop a set of fundamental principles that we keep front and center in our efforts. My personal shorthand for them has been "The Rules."

I'm impressed by the philosophy represented on Get Rich Slowly and I'd appreciate it if some of you on the form side of things would offer comments, corrections and recommendations for improvements for my initial list of rules. It looks like this:

Rule No. 1

Pay Yourself First

If you feel like you work hard for your money, don’t you deserve to keep some of it?
No matter how little money you earn or receive, you can save something. Having savings is essential to give you control over your finances.

Rule Number 2

If you want to have more money, spend less.

What you want is frequently not what you need. Needs vs. wants.
Take care of the pennies and the dollars take care of themselves. (Do the math. Total cost of small expenditures.

"Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."
Charles Dickens, David Copperfield, 1849
English novelist (1812 - 1870)

Rule Number Three

Never, ever, ever *pay* interest. Always earn interest with Your Money
Rule – never *pay* interest. always *earn* interest.


Never incur credit card interest payments.

Rule Number Four

Baby Steps, Baby. Take Baby Steps.

Start taking teeny, tiny baby steps. A small plan, a modest goal.

(Discuss SMART goals? Or is that too complicated – a simpler approach to goal setting?)

Rule Number Five

Deliver Yourself from Temptation

Automate your finances. Auto deposit when possible, 401(k), online banking, paying bills online.

(Banks vs. Credit Unions?
Control/lose credit cards (vs. debit cards))

Rule Number Six

Insurance is from Atlantic City; Investing is from Las Vegas

Companies that sell insurance, investments, pari-mutuel bets and lottery tickets are all in the same business. The only differences between them are how much you’ll be paying to play and your odds of winning.

Remember – the house always wins.

Rule Number Seven

If you get financial advice from a sales representative, the advice will almost always be to buy something that the salesman sells.

( Maybe not enough to be a rule by itself – corollary to another, more encompassing rule?) Rules and corollaries on getting and taking financial advice. Develop understanding that there are very few “disinterested” parties offering sound financial advice; and there are lots of people with a financial interest in your decisions, who will try to guide your purchasing decisions.

What is a “significant” amount of money to you. Have a level where you full financial control system kicks in. Never sign an agreement the same day it is presented to you. Read the fine print. Get second (and third) opinions.

Rule Number Eight

If it seems too good to be true, it is.

There is no free lunch.

Protecting yourself against scams and schemes.
(Where does protection against identify theft belong?)

Rule Number Nine

If you are not growing, you are dying.

Planning for life. Planning for death. Wills. Other details.

Rule Number Ten

The best things in life *are* free.

It’s a corny cliché, no longer fit for a pop song lyric or even use on a greeting card. But – damn it – it’s true.

A beautiful sunrise or the love of a child. Sharing time with a trusted friend, a walk though falling leaves on a crisp, cool fall day. Good health. A peaceful night’s sleep.
Serenity.

The Last Rule

It’s All Up to You

Personal responsibility. no easy answers. Families – every member needs to participate.


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 Post subject: Re: Rules for Financial Serenity
PostPosted: Mon Mar 25, 2013 2:38 pm 

Joined: Fri May 04, 2007 8:14 pm
Posts: 1838
A lot of people are going to have to forgo a house or an education by following Rule 3.


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 Post subject: Re: Rules for Financial Serenity
PostPosted: Mon Mar 25, 2013 7:17 pm 

Joined: Wed Nov 07, 2012 6:21 am
Posts: 141
I seem to recall reading (in a book I bought titled "The Millionaire Next Door") that it is recommended that you buy a house that is valued not more than twice as much as your annual income. According to the book, buying houses that are much more expensive than that is part of why many people have problems saving money.


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 Post subject: Re: Rules for Financial Serenity
PostPosted: Tue Mar 26, 2013 4:42 am 

Joined: Mon Mar 11, 2013 1:57 pm
Posts: 5
Re: Rule Three -- there is a "Mortgage Exception" which basically says that you should never finance the purchase of something that declines in value; which gives leeway for loans for a home (which will typically increase in value) and education (we hope it will increase in value -- but impossible to quantify).

I've been collecting various "rules of thumb" and other kinds of guidelines and trying to organize them under the main topics. I like the idea of making the rule as broad as possible and then providing the limited exception. Seems like it might be more likely to stick.

I'll add the "house worth not more than twice your income" to my list of potential sub-rules/corollaries (I have a copy of "Millionaire" so I can source the reference). That is one of the rules that crashes against reality in the housing market (here in North Jersey) where the lowest priced "starter" homes are $200,000 and up. Something for under $100,000 is a fantasy.

Thank you for the comments.


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 Post subject: Re: Rules for Financial Serenity
PostPosted: Tue Mar 26, 2013 4:47 am 

Joined: Mon Feb 04, 2008 7:35 am
Posts: 1148
Location: Maryland
I don't really like the wording of Rule #6. Insurance is FROM Atlantic City and investing is FROM Las Vegas? It doesn't make any sense.

Good luck with your plan.


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 Post subject: Re: Rules for Financial Serenity
PostPosted: Tue Mar 26, 2013 5:37 am 

Joined: Sat Dec 10, 2011 7:25 am
Posts: 691
My list would be more specific.

1) Never buy a $4 cup of coffee
2) Don't be a hostage to an expensive data plan a simple text phone will do.
3) brown bag it
4) clip coupons - use your reader to find coupons on line.
5) mow your own lawn
6) If you have to drive to the gym consider buying a cheap set of sneakers and a treadmill.
7) never, never use a credit card...avoid all consumer debt.
8) Make use of the library - you can borrow books electronically if you have a kindle/reader
9) use the redbox there is no better buy then a $2 movie.
10) make use of free Internet hotspots
11) Only buy when items are on sale.
12) thoroughly research all significant purchases - price shop!
13) buy a 2 year old car -focus on reliability and utility.
14) buy the basic cable - forgo the premium channels
15) when you have a windfall spend a little save the rest. (i.e., Tax return, bonus, overtime)
16) if you cant pay cash for a vacation don't do it.

The most important rule of all pick your spouse carefully, understand how they feel and behave with money. The best laid plans can be ruined by a spend thrift partner. When we were dating a short while my wife suggested we buy a steak and cook it at my place rather then eat out...keeper alert!


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 Post subject: Re: Rules for Financial Serenity
PostPosted: Tue Mar 26, 2013 6:29 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
srk3nn3dy wrote:
I'll add the "house worth not more than twice your income" to my list of potential sub-rules/corollaries (I have a copy of "Millionaire" so I can source the reference). That is one of the rules that crashes against reality in the housing market (here in North Jersey) where the lowest priced "starter" homes are $200,000 and up. Something for under $100,000 is a fantasy.


Of course, you're taking hearsay from someone who is broke, and really, IMHO, not that intelligent. The "house worth not more than twice your income" is a stupid rule. For instance, say I owned a home worth 5 times my income. Am I broke? Of course, you have no idea. I could own my house outright b/c my alter-ego has an aversion to ANY debt. My mortgage could be 3-4 times my income, but I could have investable assets worth 5-6 times the value of the house. Or, my mortgage could simply be the same as my annual income.

There are many "rules of thumb" which make some sense, but the one you propose above is hardly a good one.

_________________
Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Rules for Financial Serenity
PostPosted: Tue Mar 26, 2013 6:40 am 

Joined: Tue Mar 11, 2008 12:19 pm
Posts: 1721
Location: Ottawa, Canada
Someone should compile all these "Rules of Money" together into a book and publish them.

Oh wait, http://www.amazon.com/The-Rules-Money-Make-Hold/dp/0132394103, 6 years ago.

Regarding the debate over home values, I'd say the better "rule of thumb" would be that the total of your mortgage payment, property tax, home insurance, and utilities should not be more than a third of your after tax household income. Beyond that, I'd say it's fair game. Maybe you've got a great mortgage rate. Maybe you have a huge house but it's paid for. As long as the "payment" guideline works, I'd say you're fine.


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 Post subject: Re: Rules for Financial Serenity
PostPosted: Tue Mar 26, 2013 9:02 am 

Joined: Mon Mar 11, 2013 1:57 pm
Posts: 5
. . . and J.D. Roth (Missing Manual) and Jean Chatzsky. Opinionated views on similar resources are appreciated. Rules of Money by Templar is on order from abebooks. Thanks for the referral. R


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 Post subject: Re: Rules for Financial Serenity
PostPosted: Tue Mar 26, 2013 9:10 am 

Joined: Mon Mar 11, 2013 1:57 pm
Posts: 5
Re: Peachy's comment on Rule No. 6 -- I agree. I don't like it either.

The kernal here is that as I've been pondering this stuff, it seems to me that most if not all forms of insurance or investment are essentially the same thing (from the "end users" perspective): Taking a calculated risk -- as in "gambling". Sometimes you place a small bet with hopes you won't win a big payoff (term life insurance for example) and sometimes you make a big bet on the closest thing to a sure thing you can find -- knowing it won't pay off very much (a certificate of deposit at your credit union).

I like the analogy -- I think most people will "get it" and I love the concept that the "house always wins" (What's the vig for your credit card company? Your Rent to Own Shop?)

I'd love some ideas for a way to express the general idea more clearly in a "rule".

R


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 Post subject: Re: Rules for Financial Serenity
PostPosted: Tue Mar 26, 2013 9:52 am 

Joined: Sun Mar 10, 2013 12:10 pm
Posts: 116
Bichon Frise wrote:
The "house worth not more than twice your income" is a stupid rule. For instance, say I owned a home worth 5 times my income. Am I broke? Of course, you have no idea. I could own my house outright b/c my alter-ego has an aversion to ANY debt. My mortgage could be 3-4 times my income, but I could have investable assets worth 5-6 times the value of the house. Or, my mortgage could simply be the same as my annual income.


The MND rule-of-thumb is to never purchase a home that requires a mortgage more than twice your annual income. It is a rule for buyers, not owners.

If the target audience for these rules of thumb is the “typical” or “average” American, then I believe such a list should include either the above or a similar rule-of-thumb. Moreover, I believe there should also be a rule of thumb for cars. We Americans like to look good as we financially spiral down the crapper.

The plain truth is, it is generally a terrible idea for an average-ish American household making $60k/yr to take-on a $200K mortgage. Such an oppressive, interest-laden mortgage payment would make it very difficult to accumulate wealth.

Inevitably, as you stray outside the wide part of the bell curve that constitutes the OP’s assumed target audience, most all of the proposed rules-of-thumb lose their utility in varying degrees. Are there households that have $60k annual incomes, comfortably pay down $200K mortgages, and are sitting on >$1M of investable assets? Sure there are. But, is this scenario so likely we should recognize it when formulating rules-of-thumb for the masses? IMHO, no.


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 Post subject: Re: Rules for Financial Serenity
PostPosted: Tue Mar 26, 2013 1:47 pm 

Joined: Mon Mar 11, 2013 1:57 pm
Posts: 5
RayinPenn said:

My list would be more specific.

2) Don't be a hostage to an expensive data plan a simple text phone will do.

-- We've been working with Trakfone service for about $9 a month for our mobile phone lifetimes. But I will pay for an Android/wifi TrakFone if they every bring one out, or maybe switch to a different pay as you go provider when my current air-time activation runs out.

3) brown bag it

-- or Tupperware it

4) clip coupons - use your reader to find coupons on line.

-- One of my sub-rules -- only use a coupon if it's for something that you *really* were going to purchase anyway. Lately, I have found fewer and fewer like that, by the way.

6) If you have to drive to the gym consider buying a cheap set of sneakers and a treadmill.

-- I'll demur on that one -- even on the sneakers part. If the expense provides you with a real fitness benefit, it's worth it. And good shoes, too.

7) never, never use a credit card...avoid all consumer debt.

-- I've been a long term user of Amex Blue -- last three or four years at least. I'm going to spend the money one way or the other -- and 5 percent back on grocery, pharmacy and auto fuel purchases -- well that adds up to a pretty big annual savings. That said, I've never paid a penny in interest and only other charges have been some exchange fees for purchases made while traveling.

I see people paying cash in the market and basically feel guilty -- they should be getting the discount -- not me. But the system says otherwise.

8) Make use of the library - you can borrow books electronically if you have a kindle/reader

-- My wife the librarian agrees wholeheartedly with the general concept.

13) buy a 2 year old car -focus on reliability and utility.

-- Mine have tended to be 4 or more, with similar focus

14) buy the basic cable - forgo the premium channels

-- How about -- no cable. Free TV is alive and well. A little antenna and if your TV is equipped with the right kind of tuner (most are, now) most people can get free TV OTA (over the air) and the signal is better than cable or satellite.

The most important rule of all pick your spouse carefully, understand how they feel and behave with money. The best laid plans can be ruined by a spend thrift partner. When we were dating a short while my wife suggested we buy a steak and cook it at my place rather then eat out...keeper alert!

-- Point well taken. I did much better the second time around.


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 Post subject: Re: Rules for Financial Serenity
PostPosted: Tue Mar 26, 2013 6:24 pm 

Joined: Tue Jun 30, 2009 9:44 pm
Posts: 289
Location: Atlanta, Georgia
kombat wrote:
Regarding the debate over home values, I'd say the better "rule of thumb" would be that the total of your mortgage payment, property tax, home insurance, and utilities should not be more than a third of your after tax household income. Beyond that, I'd say it's fair game. Maybe you've got a great mortgage rate. Maybe you have a huge house but it's paid for. As long as the "payment" guideline works, I'd say you're fine.

This is more in line with the rule of thumb I've heard. To be more precise what my parents' tax attorney advised them and they passed to me is that principal, interest, property tax, home insurance, and utilities should not exceed 28% of the prospective purchaser's net income.


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 Post subject: Re: Rules for Financial Serenity
PostPosted: Tue Mar 26, 2013 6:54 pm 

Joined: Sun Mar 10, 2013 12:10 pm
Posts: 116
LeRainDrop wrote:
... what my parents' tax attorney advised them and they passed to me is that principal, interest, property tax, home insurance, and utilities should not exceed 28% of the prospective purchaser's net income.


Cool. Is there (or should there be) a rule of thumb for the loan term as well?


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