Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
My Uncle gave me some great advice when I was just starting out and was young and broke -
Look at your paycheck.
Cut it in half (round up or down to an even dollar amount)
Set aside that half for your rent and utilities.
Using this rule ALWAYS left me with more than enough to cover my bills each month.
And put what's left over in your sock drawer for emergencies/mad money.
Now look at the other half of your paycheck.
Cut it in half (round up or down etc)
Take that half and put it in a simple savings account - and DON'T TOUCH IT!
Now look at the remaining 1/4th of your paycheck.
Cut it in half.
With that eighth of your take home pay - go to the store and buy groceries and be sure to get some things with good shelf life (beans, rice etc) and put what's left over in your sock drawer.
Now take the remaining 1/8th of your paycheck and go spend it (wisely) - you deserve it!
And once every month - buy yourself one thing that you need - pants, shoes, socks, underwear, jackets etc. and you will always have plenty.
Using this method takes a LOT of discipline but in my first year I had saved $1200.00 and had another $200-300 in the sock drawer (this was back in the late 1980s) and since then I have never been broke and have remained in the black financially.
My friends who are 'Payday Rich and Rent day Broke' seem like morons to me.
I spend most of my life underemployed and under paid. I lived on a cheap condo for almost 40 years. I drove 15 year old cars. I lived frugally and it was pretty good.
Last year I looked at the actual situation and went out an bough an 10 year old corvette and plan on doing a lot of driving even if it cost too much. At nearly 70 I have finalized that "Live well for tomorrow you die" makes a lot more sense because tomorrow is getting closer and closer.
If I die in debt that is my executers and creditors problem. I'll just file the ultimate bankruptcy.
I thankfully had a lot of guidance as a young adult teen and saved more then I spent. Its easy once you start a habbit. We try to save at least 1/4 of income each month or more if possible. Having rental properties, theres always surprises but other months we can sometimes save half to 3/4 even.
In the 1950s, that was good advice. Not so much now.
A simple savings account will net you nothing now, compared to 3% or so back then.
A simple savings account is easily attached if you EVER fall into debt. Medical debt can happen to anyone anytime.
Retirement accounts are fairly simple to set up, and the money is protected from creditors for you until you retire, AND the taxes are deferred. A retirement account in something like TC Ameritrade allows you to invest rather than hold.
For someone just starting out, the rule of fourths makes a better choice.
Take 1/4 of your income after withholding taxes to set aside for the future and any rainy day.
Divide that 1/4 four ways equally.
1. In a whole life MUTUAL life insurance policy. When you are young, term rates for insurance are stupid low, but they always increase. By the time you are in your sixties they are stupid high. A whole life policy is one of the most reliable and solid ways to have something to fall back on, no matter what your circumstances, and they are also stupidly cheap at that age and never increase in premium. You get all your money back plus any dividends (which you always re-invest) at the end of the term. By starting early, that money comes due at retirement age when you are most likely to need it.
2. An IRA in the stock market. Simple index funds and basic dollar cost averaging let you ride the market as a whole. If you invest in the DOW, money goes in when the DOW is rising over the past month, goes into a holding money market account if the DOW is going down. Not great gains, but reliable overall. The DOW is the enticement for suckers, and it is in the interest of the market makers that it continues to rise overall (to which effect, they boot the losers off the list of included companies).
3. Speculative stocks - but never on margin. Look for a one or two year focus, as public interest in a stock quickly wains - however... always keep ONE share of your speculative stocks even if you decide to sell. That way, you may end up with that proverbial one share of Microsoft at the opening price.
Within this category, you again divide four ways. You only put 1/4 of the money into any particular industry. Example: only 1/4 in drug companies, 1/4 in tech, 1/4 in energy, etc. That way when one sector tanks, the others will prop you up.
4. Any money making venture that tickles your fancy. You might have enough to try out a business idea or two for side income, a friend might ask you to invest in a "sure thing." You might want to try your hand at real estate. Mad money earmarked for investing.
The concept of the fourths in PROTECTED money is that unless every star aligns against you, you will always have money and an excellent chance of some of that money earning more for you. The trick is to not "borrow" from one area to another - EVER. The only exception would be if you fell on hard times and needed money to eat you might borrow a small amount on the insurance policy and pay it back when you were back on your feet.
There are ALWAYS people and companies that entice you to part with your money. Sometimes the enticement is some perceived money-making or money-saving benefit. Buy a home and save on rent... and get to pay for a new roof and new HVAC and pay taxes and insurance... Buy a new comfortable car and after six months you have a used car, and have lost the $5K you dropped on the pavement at the dealership. If you keep your investment 1/4 away from such nonsense, it gives you time to learn how to avoid being ripped off. If the rip-off is a spouse, having the money in a retirement account may be a protection in a divorce.
What I used to do is round down at the last $50. So if my check was $478 bucks I only wrote in my register $450. If it was $438 I only wrote $400. That money was forgotten for 6 months at a time.
The deposited money 10% went into a short term easy to access savings or investment type account. The rest was allocated to food clothes house car repair whatever.
Every 6 months 80% of the forgotten money was pulled out and invested in a long term savings etc. And to this day my normal checking account has a $1000 unseen cushion. I have never bounced a check or overdraft fee.
Everyone thought it was a weird system. Probably is but it works.
What I used to do is round down at the last $50. So if my check was $478 bucks I only wrote in my register $450. If it was $438 I only wrote $400. That money was forgotten for 6 months at a time.
The deposited money 10% went into a short term easy to access savings or investment type account. The rest was allocated to food clothes house car repair whatever.
Every 6 months 80% of the forgotten money was pulled out and invested in a long term savings etc. And to this day my normal checking account has a $1000 unseen cushion. I have never bounced a check or overdraft fee.
Everyone thought it was a weird system. Probably is but it works.
With direct deposit, we have the paychecks deposited directly into savings and a portion of it ported over to checking. Before we did that, we were constantly short of money since we always planned on putting the extra into savings but there never was any extra. Now, with the money going to savings first and some going on to checking, there's always plenty of money since we try to only spend the amount in checking and not even that much if possible.
After being abysmally poor when I first got out into the world, I simply couldn't save 1/4 of my paycheck every time. What I did was save all my coins and put them in savings every month and vowed never to touch my saving's account.
Of course it was a pitifully small amount of savings, but the mindset of saving and leaving it there was cultivated the best I could at the time. Glad I have more now!
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
