Saving Vs. Spending – It’s The Marshmallow Test!
Recently, I was interviewed on various aspects of financial advice, and of course, it all boiled down to how to make money in life. Doesn’t it always?
I was suddenly reminded of the Marshmallow Test, conducted by Stanford University, and shared my thoughts here. (Click the play button to start this audio snippet.)
Debt – It’s All About How You Manage It!
The amount of DEBT we are all carrying is causing bankruptcies, foreclosures and even countries to fail as the World’s “the Debt Crisis” rages on. Never before has debt been a more terrifying specter. Oddly enough, there are good aspects of debt. Well, one good aspect of debt and how you manage that debt can be an intricate and smart bonus on your road to financial recovery.
Many family budgets are still under extreme pressure. Yet for those who did tighten their belts and have continued to live cautiously as [a small] recovery takes hold, where is a safe place to put money? Should you put that little extra towards paying down your mortgage a bit? Are there not more important financial goals that need to be accomplished with your money than paying off low-rate, tax-deductible debt?
I am often asked this question, by reporters more than the 99% of us in the trenches admittedly, yet I think it is a valuable line of thinking:-
The interest up to $1,000,000 of mortgages and an extra $100,000 of Home Equity Debt is still tax deductible on most taxpayers’ income tax return. Here’s how you calculate how much you’re saving: take the interest paid on that mortgage and multiply it by your income tax bracket and the total is what you can can write off your taxes. (Assuming you itemize deductions.) So, that mortgage or home equity payment remains a good write-off opportunity.
Let’s put real numbers in here — if your mortgage rate is 5%, and your income tax bracket is 30%, you will be able to save 1.5% interest. This makes the true cost to the homeowner for that mortgage a mere 3.5%. Where else can you get a roof over your head and all the benefits of home ownership for 3.5%? In other words, because of the income tax deduction, mortgage money is ‘cheap’ debt, and it gets ‘cheaper’ the higher your tax bracket. So, instead of paying EXTRA each month for example, re-route that extra cash flow into your long-term investment portfolio, thereby effectively using ‘cheap’ debt to your advantage.
Debt in and of itself is neither good or bad; it’s all in how your manage it.
WISE Spending With The Frugalista ~ Natalie McNeal
Natalie McNeal – the Frugalista — has written a wonderful book on becoming debt free without having to give up a fun lifestyle.
“I will only invest my money not just spend it!” That means you buy a good pair of black slacks that will last a long time, as opposed to just being cheap and getting any old pair.
Here’s a link to her book.
Women, Have You Saved For A Rainy Day?
Ladies, it was 30 years ago today that Sandra Day O’Connor was sworn in as the first female justice on the United States Supreme Court! It would be 12 long years later that Ruth Bader Ginsburg would be sworn in as the second female Supreme Court justice. How lonely Ms O’Connor must have felt those dozen years!
My point in celebrating Ms. O’Connor’s appointment is NOT that I agreed with every decision she made–far from it. However, she overcame TERRIFIC odds, and I see her as a significant role model for all us women, especially mature women, who claim that we “can’t do it”….whatever “it” is.
She repeatedly received “back to your kitchen and home female” letters. Having graduated near the top of her class at Stanford Law School, she was only offered legal secretary’s jobs at private law firms. She had her first child only three days after she was admitted to the Arizona bar, and because law firms were unsympathetic to moms, started her own law firm. However, when her baby sitter left, she quit work, staying at home with her baby for 5 years, stating that it never occurred to her or her husband, that HE might stay at home, while she continued to work. One wonders now, just what she could have become, had she not lost 5 valuable years on the “mommy track”, doesn’t one? Well, ok, I do….
I urge us women to mirror Sandra’s initiative and drive in all our endeavors, knowing that we can do it. Most importantly, I urge us women to address just what will happen to us now, or in our older age, if something goes wrong; i.e., Sandra’s baby sitter quit…yet what if we were to be laid off, or downsized, or become disabled, or be widowed, or be divorced? Do we have any money saved up for these life changes or potentialities?
Rainy Days Come And Go. Are You Prepared Weather Your Rainy Day AND Still Have Enough For Retirement?
If not, we can start today. We can realize that Women and Money indeed do go together like peanut butter and jelly….mostly because of two things. First, women are hard wired with common sense and money is really common sense. Don’t spend everything, because there will be a rainy day. Sub-divide your savings into some short term savings (read Money Markets or Certificates of Deposit) for emergencies and short-term expenditures in the next year or two, and then some long-term investments (read, stock mutual funds) so that you have money in retirement. Second, since women tend to live a long time, we will still need to purchase goods and services in our later years, and guess what? They will cost a lot more. So, mimmick the squirrels and bears about this time of year, at least in the NorthEast. They are both scavenging nuts and food for the upcoming winter, so they can survive. Saving is about that simple. After the squirrels eat what they need for today, they gather a few extra nuts to save for a couple of months from now. COULD the squirrels gorge themselves now by eating ALL the nuts they find? I guess….yet what would they eat in the winter’s cold and frozen months?
Let’s be WISE women, and act like squirrels, so that we have blessed and fruitful days ahead. We Can Do It Women, and THANKS Sandra for paving the way with untold opportunity, unlike you were afforded!
Women And Money This Week: Learn To Love Savings
On Women and Money This Week, we talked about loving to save money. What the HUGE upside is when you can put a little bit away, and LEAVE it there over time.
Here was our main example:-
Evelyn Early vs. Linda Late.
Evelyn saves $2,000 a year for 10 years and leaves it in an interest bearing account for the next 30 years. She doesn’t touch it, she doesn’t look at it, she lives her life without thinking about.
Linda does not save those first 10 years. She enjoys her life and spends as she wants to. Suddenly, 10 years later, she realizes she better do something or she’ll not be able to retire so she saves the same $2,000 a year, but for the next 30 years.
30 years go by, and what do you think the numbers look like. After all, Linda has saved 3x longer than Evelyn, and put aside $60K where Evelyn only put aside $40K, right?
At an average rate of return, Evelyn is now looking at a bank balance of $611,817 and Linda is seeing only $361,887 in hers.
Yup! WOW! That’s 59% MORE for starting early, putting away less and NOT TOUCHING IT!!
And, of course, there was more….
