May 7, 2010
Five Ways to Stretch Your Dollar
Five Ways to Stretch Your Dollar By Al Jacobs www.onthemoneytrail.com A provocative headline appeared in a recent edition of USA Today: "The incredible shrinking nest egg." The accompanying article described the plight of many middle-age, middle-income Americans as they assess their financial predicament in an economy beset with rising inflation, uncertain investments, and falling returns on savings. A common theme is the fear that retirement may never become a reality. One particular couple, singled out in an interview, illustrated the dilemma. The 49-year-old wife said that both she and her husband enjoy good jobs, but that with the mutual funds in her 401(k) down 4% since the first of the year, continually rising costs of living, and their home value off 25% in the past two years, things look bleak. She added that they're now "focusing on paying off their auto loans and other debt as fast as possible." It's true! The retirees' dollar is not stretching as it once did. The pensions, social security income, and return on savings that previous generations enjoyed can no longer be counted upon. For many persons, a radical change in spending and saving habits during the earning years must be the answer. I'd like to offer the following five suggestions to help make it possible. Beware of interest. The single greatest economic threat to most Americans is payment of interest. The credit card, successfully foisted upon us by our financial institutions, now has this nation by its collective neck, with interest rates exceeding 20% not uncommon. You must break this hold if you are ever to enjoy financial independence. The solution is simple; pay your monthly credit card bill in full, before any interest is charged. In this way, the rate on your card, however high, is meaningless. If you cannot bring yourself to do this, then cut up the card with a scissors and adjust your life accordingly. Harness the horseless carriage. The motor vehicle constitutes the average American's single most important fixation. Far more than transportation, it is for many the embodiment of beauty, pride, status, and individuality. Why that's so is no mystery, as it is our most forcefully marketed product. Unfortunately the need to sport a fashionable vehicle can be an obsession that overrides good sense, and many persons stay locked into auto debt for a lifetime. Resolving this problem is easily accomplished. Whatever your vehicle, it should be paid for in full. If this means that you must drive a 1984 Toyota Corolla, so be it. Later, when your fortune and future are secure, you may enjoy a brand new convertible Rolls Royce if you choose#151;but only as an all-cash acquisition. Buy wisely. The products we acquire and use over a lifetime define what is important to us. Unfortunately, many of the choices we make are based more on illusion than sound reality. Whether your choice of lipstick is the $25 Chanel selection from Macy's, the $7.50 Max Factor brand from Rite Aid Drug, or the $1.39 Wet 'n Wild tube from Target, recognize that the essential ingredients are the same. The difference is packaging, promotion, and mystique, which is what many businesses are all about. If the market manipulators create your preferences, you may expect to pay a premium for everything you buy. There is one good rule to follow if you want to stretch your dollars: The more aggressively a product is advertised and promoted, the greater your resolve to avoid it. Higher education need not break you. It takes no great insight to be aware that the cost of attending the nation's educational institutions is rising rapidly. If either you or your progeny aspire to a university degree, you may already be contemplating massive expense. It's no longer unusual for a graduate to amass a six figure debt burden by the time the diploma is attained. From the information publications issued and the standard advice proffered, it seems inevitable that a fortune must be spent to obtain a first rate diploma. I'll propose an alternative. The first two years are spent at a local community college while living at home. In my state, California, at a $20 per unit cost, tuition for a full 30-unit year comes to $600. The last two years attending a state university, again commuting from home, completes the degree requirement. The tuition structure at the California State University system (referred to as a "fee") is not backbreaking; the annual fee at Cal State Long Beach, for example, is $3,116. In this way, including textbooks#151;used, of course#151;and other campus charges, a sheepskin can be earned for less than $10,000. And don't think the education received is somehow inferior, simply because it's cheap. I can attest that four years spent as I suggest can result in an educational experience equal to four years at Harvard University. Arrange to make your money grow. The adage that time is money is accurate; it depicts the earning power of money astutely invested. Let me suggest a method. Open a self-directed brokerage IRA account#151;preferably a Roth if you're eligible#151;in which you accumulate certificates of deposit, treasury notes, and high grade corporate bonds. Begin at an early age and pursue this program systematically through your working years. An annual contribution of only $4,000 invested at 7frac12; percent, compounded semiannually over the 40-year period from ages 25 to 65, results in more than a million dollars. It's the compound interest that brings this about, a phenomenon as close to magic as you'll ever encounter. You now possess a set of guidelines that, if followed, will put dollars in your pocket and help keep them there. The nicest part of all is that a lifetime of prosperity doesn't demand profound abilities or superhuman effort. It simply requires that you don't do a lot of dumb things. Al Jacobs has been a professional investor for nearly four decades. He is a nationally syndicated columnist and appears regularly on ProducersWeb.com, DrLaura.com and SheKnows.com. He draws on his extensive expertise in real estate, mortgage, and securities investments to counsel millions on how to invest wisely and spend prudently. He is the author of Nobody's Fool: A Skeptic's Guide to Prosperity . Subscribe to his financial column, "On the Money Trail," at no cost or obligation, by visiting www.onthemoneytrail.com . Permission granted for use on DrLaura.com.

Posted by Staff at 1:37 AM