Author: J.Fran

Keeping Up With The Joneses

We all fall into the rhythm now again of wanting the latest and greatest electronics.  It’s easy to let impulse take over as you reach into your pocket—the cashier asking, “How would you like to pay?” We quickly let our impulse take over so we can have the coolest new gadgets. After all, it’s an embarrassment to walk around with outdated technology.  But, what if I told you that smart phone was costing you $72,000? 

A good point was brought up while talking to a friend about keeping up with the Joneses.

It used to be large televisions and cool new cars, but the latest craze has been high tech cell phones—particularly the new iPhone 5. We got onto the topic of upgrading cell phones to the latest and greatest and whether it was worth the cost. You see, my friend still carries around what he calls adumb phone; his refusal to upgrade to a data package has kept him using the old style flip phone (the kind that existed before phones were able to surf the net). We both wanted to know exactly what he was saving by keeping the dumb phone instead of upgrading to the coolest product of the year—the iPhone 5.  Granted, while everyone else in the world “needs” internet at the tips of their fingers at any given time, my graphic designer friend pointed out that there was no need for him because he has internet access while sitting at his desk at work and then his wi-fi while at home.  So I quickly pulled up a retirement calculator and did some math, curious to see exactly what he was saving.

Here’s what the numbers came out to be: A smart phone will cost you around $35 more per month for the data plan (including taxes). The phone upgrade would add a one time $215 fee—we’ll use the $215 as our starting investment instead. If you put that $215 into your ROTH IRA (a tax free investment), then invested our monthly phone savings of  $35 for 30 years (around the time before he would retire) this is what you would end up with:  In 2042 your invested balance would be $12,815.  At an  annual rate of return of 10% compounded interest would add up to $71,225 for a total balance of $84,040.73. THATS RIGHT! Contributing $12,000, you end up with a total of $84,000. So next time you’re thinking about upgrading to that new gadget or saving it for retirement, ask yourself, “Is having a smart phone really worth $72,000?” You decide.

How I saved my friend $100,000.

A good friend of mine had just completed my system and was now debt free, with the exception of his house.  He had purchased his house for $75,000 with a 5% rate at 30 years.  He had listened to other friends tell him to make extra payments throughout the year in order to pay off the house in less than 30 years. My advice was this.  Don’t make the extra payments.  You see, since his initial mortgage loan, rates had dropped to around 4% for a 30 year loan. But looking at the 15 year loan, it had dropped to around 3%.  Now that my friend was out of debt, previously paying off over $500 a month towards credit cards, he now had $500 to save. Looking at the numbers, a 30 year loan at 5% on $75,000 means that at the finish line (30 years from now) he would have paid with interest, $173,000.  His monthly payments would be roughly $480. Now with his $500 free to work with every month, I recommended switching to a 15 year loan.  15 year rates dropped to 3%.  Of course this would mean bigger payments every month. But with a smaller rate, his $480 would become $596 per month—only $116 more! This means paying off the house in half the time.  And from that $500 after spending the extra $116, that still left him with $384 to put away.

The best part was that his total payment after paying off the house at the end
of 15 years would be $107,000. That’s $66,000 that he would save over a 30 year
mortgage.  WOW!

How Do I Get My Spouse On Board With Our Finances?

“How Do I Get My Spouse On Board With Our Finances?”

This is a great question, and finances are one of the most common causes of marriage fights and divorce.  It’s important for you and your spouse to be on the same page about your financial goals, otherwise it will be impossible to reach your full potential.

Communication plays a huge role in your marriage, and will be cornerstone of your financial relationship.  First, you need plan out what you want to discuss in the conversation with your spouse.  You’ll need to be explaining what you want to do (what are you goals both short and long term) with your family’s finances.  You will also need to explain why you need your spouses help and commitment to the achieve this goal.  Try putting together a budget of your monthly expenditures realizing you will need to go over this with your spouse and both be in agreement on where your money is going.

Very important!!! You want to AVOID putting your spouse into a defensive position.   You don’t want your spouse to shut down thinking you are accusing them of financial missmanagement.  Remember marriage is two people, and it takes two people both making decisions to end up anywhere in any type of financial situation.  Try avoid saying you statements, for example “I need you to change your financial habits” or “did you realize how bad our finances are”  Instead try putting it in terms of where you are and what you’ve missed.  For example if you make a gross income of $90,000 a year, and it’s been 5 years since you have been making that income, and you have only $2,000 in savings you could say.  “We have made $450,000 over the last five years, and have only managed to put $2,000 in savings, and I have no idea where that money has gone.

After this initial conversation you’ll want to put your passion into action.  This is most effectively done by creating a monthly spending plan before the month begins.  This spending plan or budget just needs to be a simple Income – Expense = Left Over.  This may seem too simple, but don’t forget you might be like the example above and have blown through $448,000 in 5 years, with not much to show for it.

Now that you know what to avoid, get out there and start changing your future.