4 Steps to Financial Success

financial-success1-628x250

Have you ever looked at what you make every year and then look at your savings and wonder where it all went?  This used to happen to me all the time.  Then finally I wrote it all down and was shocked where it was going.  At that point, I learned a great principle that turned me from the road to broke onto the road to financial freedom.  It was very simple, really, once I made the decision to take the road to success.

The principle is the 80-10-10 – give 10%, save 10% and spend 80%.  Simple right?  So why isn’t everyone doing it?  One reason is because they are like me and have never heard of it.  A main reason is choice – you have to decide to do it.  Here are the 4 steps you need to take in order to achieve financial success and every step is vital.

Step 1 – Service – You have to work for your money.  There is no money tree or a money fairy.  You have to work and in most cases, the harder you work, the more you will make especially when you work to serve others.  The most successful businesses are those that put customers first.  This doesn’t mean you give everyone everything that they want.  It means you respect people and are kind in all situations.  You also try to find the balance between what is good for the customer and good for the business.  By the way, if you are an employee, you are also a business owner – the business of you.  Rabbi Lapin talks a lot about this in “Thou Shall Prosper” – a book I highly recommend.

Step 2 – Share – You have to share your money in order to be successful.  This doesn’t mean just handing it over to any and everyone.  But you need to have a giving heart.  You need to realize there are people less fortunate than you, no matter what your financial situation, and help them out.  Some of my happiest moments are when I am giving to others.  You also need to give more than just your money – give your time as well.  Give in the way that is personal to you, but make sure you are giving something.  It will make a bigger difference than you realize.

Step 3 – Save – This is mandatory to have any kind of money when you need it.  If you spend everything you have (and more), how will you ever have extra when something goes wrong or when it is time for you to retire?  In the formula above, the savings part is just 10%.  That is all it takes and if it is invested well, it will grow without you doing anything else over time.  If you think you can’t save, start somewhere, even $10/paycheck.  Over time you will see how freeing it is when you have the money to cover an emergency and that will motivate you to do more.

Step 4 – Spend – You have to spend as well.  Of course there are your needs – shelter, food, clothing.  But if you have financial success, you can also have your wants as well – cell phones, cable, vacations, eating out, etc.  We all should be able to live on 80% of what we bring home.  But many of us haven’t set up our lifestyle to do so.  This means it will take a little time, but the 80-10-10 rule will bring you financial success every time.  And it is never too late to start.

How the Masters Will Change Your Finances

  

Many of you, like me, were glued to the television this weekend to watch history in the making. As I was watching the game and the interviews afterwards, I realized that there are several things we can take away and change our financial situations for the better. 

  1. Dream big – The winner, Jordan Spieth, said in a video when he was 14 that his dream was to play in the Masters. He was dreaming big even at a young age. If we could dream half as big, our finances would change in an awesome way. You have to have dreams and goals in order to succeed whether in money, career, or relationships. It is never to late to start dreaming and you are never too old to dream. 
  2. Never give up – When Jordan didn’t win the Masters last year he didn’t say “Oh well. I guess it wasn’t meant to be.”  He practiced and went out again this year and not only won but set several new records. When something doesn’t work in your finances, don’t give up. Never give up. Keep trying new things until you find what works for you. Everyone can become a champion but who does is determined by who wants it the most. 
  3. Learn from others – Jordan biggest inspiration is his kid sister who has special needs. He is amazed at how she conquers challenges that most of us will never face. You can learn from others too. I did. When I was $200,000 in debt and had to start completely over, I learned from many sources – my parents, my grandmother and of course, the Bible. You will never know it all. I still learn something new everyday and I’m comsidered an “expert” in my field. Never stop learning and always be open to the little lessons all around you. 

The more I watched, read and listened to stories about Jordan the more impressed I became. Here was a young man who loves what he does, has fun at it, and therefore, has success. Whether you watched the game or not, I hope that you will take away these few tips, use them and change your finances in an awesome and positive way. Set goals and dreams and then set out to break them!  

Tips for a Successful Tax Day

  

April 15th is fastly approaching. Many of you have already filed because you are getting a refund, but many of you haven’t knowing you may owe in the end. But you have nothing to worry about. Here are some tips on how to have a successful tax season and beyond. 

  1. Only pay what you owe – your goal every year needs to be to break even with your taxes. This is what the withholding calculator on the IRS website is for. Owing the IRS is not convenient and giving them too much every month resulting in a large refund is taking away money you need. Using the withholding calculator will get you very close and keep things easy and stress free. Make sure to use the calculator in Feb and again in Sept to keep yourself on track. 
  2. Receipts, receipts, receipts – Make sure you do not take any deductions that you cannot back up with a receipt. And keep those receipts with your copy of your return for 7 years. The 2 main reasons for an audit are random screening and red flags. Either way, receipts will make this process simple should it ever occur. 
  3. Use a professional when necessary – if you have a lot of deductions or sources of income, are self-employed, basically anything other than a simple return, hire a professional. It will be worth every penny to make sure you take all allowable deductions and to make sure your return is accurate. 
  4. Owe money – don’t panic – if you owe this year don’t panic. You can set up an installment agreement if you do not have the cash on hand. You will want to pay it off as soon as possible and use the withholding calculator to fix the issue going forward. But not filing because you owe is a serious mistake. One reason is it is against the law. Another reason is there is an additional penalty for not filing on top of everything else. It is not worth it and not necessary. 

Most people hate taxes and tax season. But there is no need. Taxes are part of life. How you handle them will determine how stressful they are to you. My final advise – file you taxes whether you owe or not. If you do, set up an installment agreement and pay as soon as possible. Use the withholding calculator to fix the future and move on with your life. If you set things up right, April 15th is just another day. 

To sign or not to sign?

One of the questions I get asked the most is “Should I cosign for someone” or “Should I loan money to someone”. And in most cases the “someone” is a family member. Whether it is family, friends or strangers, the answer is always no. Somewhere in your gut, you knew that that would be the answer. Every time people ask me this it is because they want someone to say it is okay, even though they feel uneasy about it. We feel uneasy because we know that the person is in trouble and needs help and we want to be able to help them. But putting your reputation or your money on the line is not always the best solution.

First, let’s look at cosigning. The reason a person needs a cosigner is because they do not have a history of making timely payments or because their debt to income ratio is not strong enough to support the purchase they are trying to make. This is why they need someone like you to back them up and become a source of payment if their history holds true. You need to understand that the person’s intention is to never be late or miss a payment; however, they probably aren’t financially able to back that intention up or they wouldn’t need you. This means that odds are you will have to make a payment somewhere along the line in order to keep your reputation in tact. This is especially true with student loans, and there is no exception to the cosigning situation here. It is just as dangerous, if not more so, with a student loan.

Anytime you are in financial partnership with someone, it makes your relationship with them strained. You begin, even without meaning to, to watch everything they buy and everything they do and you judge it. This is what also happens when you loan people money. Again, their intention is always to pay it back – hardly ever does someone ask to borrow money and in the back of their mind say “You sucker – I’m never paying that back.” But inevitably, something will happen and they will miss a payment and your relationship will suffer.

So how do you help the people you love without cosigning or loaning them money? There are many ways you can help them, but realize that sometimes all you can do is support them and advise them to a better way of handling their money – gently of course. I know this is hard – I have had to do it with my own children. But I have also been on the borrowing end and I have had a good relationship ruined because of it.

Wealthy people never cosign and never loan money – no exceptions. They may give money and if you can do that and not hurt yourself or enable the other person to keep making bad decisions, giving is okay. But you then have to let it go. Your financial reputation is important and you don’t want to make any decisions that will ruin that – same as you would your moral reputation. Love them, support them, advise them and then let go. They are responsible for their lives in the end – not you.

Turning $3 Into $100

  

Have you ever gone into the store to pick up a gallon of milk and come out with $100 worth of stuff?  This happens on a daily basis to many. Then all of sudden you look up and have no money left in your budget and it is only the 20th of the month. Here are some steps you can take to prevent this from happening so that you will be able stick to your budget and have money left over every month. 

  1. Plan your menus – Before you go to the store, make sure you sit down and plan out your menus for each day you are buying for – i.e. if you buy groceries twice a month, then plan your menu for 2 weeks. And remember when you are planning that you don’t have to eat like kings and queens evey day of the week. In order to save money, we eat sandwiches, leftovers, breakfast, etc. several days a week. Also, pick at least one week a month to be “pantry week” where your menus are based on what you already have in the pantry, fridge, and freezer. This saves on waste and saves money. 
  2. Make a list – After you plan your menus, make a list and stick to it. This will help you not to just roam aimlessly about in the store. This will also save money because you can add items on your list that are on sale in the circular and take advantage of sales. 
  3. Use cash – it is so easy to just swipe and go, but doing so will make you go over budget every month. $5 a week over budget is over $250 a year. It adds up quickly. Also using cash will help you only get milk when you run into the store. We pay much more attention to our money when we touch it than when we swipe. 

Budgets are not fun but are necessary for building wealth. Sticking to them can be challenging especially in the food category because food is a need. Using the steps above and others like not going when you are hungry will help you stick to your budget and not overspend by $97. 

IRS Call – Real or Scam

  

I have had more calls this week regarding the IRS phone scam that is out there so I felt like I should help everyone to understand what is happening and what to look for.  

There are several reasons to know that this is a scam. 

  1. The IRS will never call you demanding money. If you actually owe them or if an error is found in a tax return, you will receive a letter from them with an explanation and a number to call them at your convenience. Let me repeat – the IRS will never call you demanding money. 
  2. The IRS will never threaten you or tell you that if you don’t send them money (prepaid cards, cash, checks) they will send the police. Again even if you owe taxes, you can work out an installment agreement. If you ignore actual tax debt, they will use proper channels to collect (certified letters and wage garnishments). 

The IRS is a scary thought to most which is why the criminals have chosen this avenue to use to steal your money. But being aware of how things really work and asking questions will empower you to not become a victim. Here are a few other ways to protect yourself:

  1. Know what you owe – they are calling people who have never owed taxes in their life. If you do not receive something in writing, then you are okay. If there was an actual error, which can happen, everything will be in writing. Never send money you “owe” without validating the validity of the claim – we can help if you ever need it. 
  2. Don’t answer any calls from numbers you don’t recongnize. This way they leave a message and you have their voice and message recorded. This will help you dissect their message and realize it isn’t real. 
  3. Ask them questions – it throws them off and helps you realize it is a scam. 
  4. Just hang up. You can call the authorities, but it isn’t necessary as they are aware. If it persists, I would report it. 

I hope this information helps. I hate all scams and I love empowering you with the knowledge you need to fight them. This is a scary one because everyone is a little afraid of the IRS. If you get a call and are not sure what it is about, contact me directly at dking@debbiking.com and I will be happy to help you. Don’t be a victim – you are a victor!

4 Positives When It Comes to Leasing a Car

2015-honda-civic-lx-sedan_100474636_m

Cars are one of the hardest subjects for me to give advice on.  Cars themselves are a necessity 90% of the time, but the type of car and how you purchase it is all personal to your situation.  Usually I write about how to buy a car with the least amount of damage to your finances, but today I want to write about leasing a car.  Many people, including myself at times, think that leasing is just throwing your money away.  And on the surface it seems that way.  But today I want to share a story of a client of mine, Mary, for whom leasing was the perfect option.

First of all, like anything else you buy, it is about the math.  You can’t just look at the monthly payment or the total cost.  You have to look at both and more.  Whether you pay cash or finance a car (which I don’t recommend if you don’t have the money to back it up), you will have a car expense every month; either in the form of what you stash away or what you pay.  The monthly cost of owning a car is there in some form or other, just like car insurance.

Mary needed a car because her old car had 230,000 miles on it and was getting to the point where some major expenses could occur (engine, transmission, etc.).  Mary owned the car free and clear.  Also, 4-6 times a year, Mary was renting a car to go on vacation or to visit family because her car wasn’t reliable enough to go long distances.  This cost her about $200 each time.  After running all of the numbers (which we will visit in a moment), leasing was the best option for Mary.

Here is why:

  1. Cost – she was able to get a brand new, reliable car for $3000 down and $135 a month (2015 Honda Civic).  This is an amount that she had cash to cover; therefore, it wasn’t debt.
  2. Warranty – the car came with a full warranty covering everything for the term of the lease (36 months).  Therefore, she will not have any repair bills.
  3. Gap Ins – Gap insurance, which covers the difference if your new car is totaled or stolen, was included in the payment.  Adding this to your insurance policy if you buy a new car would be an added expense above the payment.
  4. New Car – she will get to drive a new car every 3 years if she stays on track with this plan.  If you are paying for a car every month anyway, in one form or another, why not drive a new one?

The bad parts of a lease are 2 fold – you never own the car and you have to stay within the mileage or you will owe additional money.  Now this worked for my client in this particular situation.

There were 3 options for Mary:

  • To lease the car, which down payment included, cost her $214/month to drive the car.
  • To buy the car, which with the same down payment, would cost her $379/month plus any repairs needed after the warranty expires.
  • To pay cash for the car, which would cost her $316/month plus repairs.

I want to make one point very clear about car buying or any other purchase you make – never promise money you do not have.  This is called debt and will stymie you every time.  The point of this post today and of Mary’s story is that when buying anything, but especially something as big as a car, do what works for you.  Run the numbers, count the cost, and make the best decision you can.  Mary paid cash, $8000, for the car with 233,000 miles on it.  She had it 7 years.  This means it cost her $100/month plus repairs plus rentals to own that car.  Now she can drive a new car, no worries, for less.  She is not in debt because she has the cash on hand to pay out the lease if something happens like a job loss.  In 3 years, she will look at the numbers again and for her, a lease will probably be the way to go.  But who knows what the future brings.  Do what works for you today and make the best, wisest decisions you can for you.  Personal finance is just that – personal.