Techniques for Retirement Saving

Technique matters a lot in tennis, golf, basketball and a host of other sports and activities. It also matters to investors. If a middle income American approaches investing--especially long term retirement saving--the right way, he or she can be hundreds of thousands of dollars better off when receiving the retirement watch, than someone's whose technique is poor. Here are a few basic pointers that can take you a long way.

Calculate your net worth regularly. Keeping score is essential. You have to know if you're making progress. You'll need to know when you're not making progress or losing ground, so you can take action to turn the tide. Knowledge can be painful in times of market downturns, but avoiding reality won't improve your retirement finances. You may or may not have a fixed saving goal. Having a goal is good, but not essential. See http://blogger.uncleleosden.com/2007/04/goals-for-retirement-saving-and-why.html. But it's essential to know where you stand. That knowledge alone will keep you focused on building wealth for the future. Calculate your net worth at least every three months. See http://blogger.uncleleosden.com/2007/04/secret-to-building-wealth.html.

Automate the saving process and use retirement accounts. Participate in any 401(k) or equivalent retirement plan your employer may offer. Maximize the amount you contribute. Some people think you might want to contribute only enough to get an employer match and then contribute to a Roth IRA; this isn't a bad idea but you have to be conscientious about the Roth contributions because they aren't necessarily automatic (read on for the solution to this problem). If you don't have access to an employer sponsored plan, open an IRA--or a Roth IRA if you think your future tax rates will be higher than today's--and arrange with your bank to have funds transferred every month (or every two weeks if you are paid on a biweekly basis) to the IRA. It's a good idea to use retirement accounts like 401(k)s and IRAs because they are separate from your regular bank and securities accounts, and the money in them is harder to spend before retirement. For more information, see http://blogger.uncleleosden.com/2007/04/automate-to-accumulate.html.

Average returns take you to Lake Wobegon. Money managers (such as those at actively managed mutual funds) usually don't perform as well as market averages like the S&P 500. There are a number of reasons for this, including their higher trading costs and their compensation. But the bottom line is you are likely to end up with less. Focus on long term gains. Stick with index funds and other low cost investments. If you aim to get the market average for a return, you'll probably end up doing better than average. For more, see http://blogger.uncleleosden.com/2007/06/why-average-investor-does-well.html.

Keep it simple. Investing is, among other things, a sales transaction. A financial firm is the seller and you're the buyer. Complexity favors sellers and places you at a disadvantage. The seller will naturally know more about the product than you will. The law requires that sellers of financial products make a variety of disclosures to buyers. But even if those disclosures are made, the seller will probably still have a better understanding of the product than you will. So you may have trouble figuring out if the product is truly to your advantage. The complexity of some annuities and other insurance products, and some leveraged ETFs, is so great as to make them virtually opaque. Investing in opacity isn't a good idea. Complex products also tend to have higher costs, which negatively impact investor returns. Stick to index funds, and maybe some individual stocks and bonds. Plain old bank CDs aren't bad when the markets seem turbulent. If you don't understand a financial product, avoid it.

The easiest budget of all--save a good percentage of your income (especially if you're self-employed). Budgeting sucks and it seems like every month something comes up that you didn't anticipate. Then, there are the "discussions" with your significant other about how much should be allocated to what expenses, and also last week's rampage off the budget. If you want a simple way to budget, don't focus on how much you spend, but instead on how much you save. Target a good-sized percentage of your monthly income (10% is good, 15% is much better, and 20% is a home run), and make sure that come hell or high water you save at least that much. If replacing your car's exhaust system one month prevents you from hitting your goal, then add enough more the next month or two so that you backfill the deficit. The percentage-of-income-saved method allows you to avoid a lot of handwringing over lattes or not, and inter-spousal sniping, while meeting retirement goals. If you can consistently save 15% to 20% of your earnings over the course of a 30 to 40 year career, you could end up with enough to pretty much maintain your pre-retirement lifestyle during your golden years. If you're self-employed and have an uneven income, it's particularly important to save a good-sized percentage of your income because you can't easily automate the saving process. For more, see http://blogger.uncleleosden.com/2009/07/simplest-financial-plan-of-all.html.

Build your benefits. Even though private sector employers are abandoning pensions faster than New York high society abandoned Bernie and Ruth Madoff, just about everyone has the equivalent of a pension through the Social Security system. Although much maligned and stereotyped, Social Security is the port in the storm for tens of millions of Americans. The longer you work, the greater your benefits will be. Even though the level of Social Security benefits is subject to the whim and caprice of Congress, the tenure of members of Congress is subject to the whim and caprice of voters (including most of the tens of millions of Social Securities recipients). Whatever Congress may do in the future about Social Security benefits, it won't destroy the system and you'll be better off by working longer. If you're fortunate enough to have access to a pension, work as long as you can to boost your benefits. You'll sleep better, without having to buy a new mattress, if you can count on the automatic deposit of a monthly check. For more, see http://blogger.uncleleosden.com/2007/05/how-to-retire-without-saving.html.

Attitude. Perhaps the most important factor, but the hardest one to control, is how you view money and saving. If you look at them the right way, you'll do fine. Understand that you have a finite stream of income during your life. If you spend your money, you can't save it. It's gone forever, and you're left with the now diminished remainder of your finite stream of lifetime income. Saving is a choice, not a sacrifice. Money saved now builds security for the future. Because your lifetime income is finite, you can economize now or economize later. Consider that eating dog food in your old age probably won't be a high point of your life. Remember that savings generate returns that can be compounded, so they may increase your finite lifetime income. Save enough, and you'll hit a financial home run by compounding. (See http://blogger.uncleleosden.com/2009/09/if-you-love-compounding-compounding.html.) This isn't about being greedy in an unseemly way or living like a pauper during your working years. It's about common sense and living within your means. If you adopt the right attitude, you'll establish control over your finances, and that will give you a very good feeling.

How to Get Rid of Your Budget

You hate it. When you've burned up your budgeted allowance for chocolate, and half the month remains, you have to deprive yourself. Or cheat on your budget. But you know you're only cheating yourself because money that should have gone into your retirement account instead has been used to buy fattening food.

And you have hate having to keep track of your spending--inputting data into your PC every day, or making sure the checking account is accurate and balanced, or (if you're really old-fashioned), minding the amount of cash remaining in the envelope for each of the month's expenses.

There's a simple way to avoid the need for a budget. That's to save a significant portion of your earnings every month.

A budget's true purpose is to control your spending so you don't end up buried in debt, and are able to save for long term expenses like retirement and college education for your kids. If you can control your spending enough to save a solid percentage of your income each month, then you can bag the budget.

How much saving is enough? It depends on your goals. At least 10% of your earnings would be advisable for a comfortable retirement. If you want to maintain the same lifestyle in retirement as you have during your working years, save at least 15% of your earnings. More would be necessary if you're planning to help your kids pay for college.

If you save a solid percentage of your income, does that mean that you can spend as much as you want on chocolate? Of course not. You have only a limited amount of money, and rent or mortgage payments, car payments, school debts, groceries, utilities, taxes, etc. all come before chocolate. But if you're sensible enough to save 10%, 15% or more of your earnings, you'll be sensible enough to cover the basics first. And you'll know better than to borrow to support your current lifestyle.

Be a good saver, and liberate yourself from the budget.

For more ideas about personal finance, please go to http://www.widowsquest.com/how-to-solve-your-money-worries-4/.

Strange News: Okay, there's $64,000 in a bag in the bathroom, and what's the explanation?http://www.cnn.com/2007/WORLD/americas/07/07/argentina.minister.ap/index.html.

Bad Credit Card Behavior

Sometimes credit cards behave badly. We aren’t talking about misuse of cards by the consumer. We’re talking about nasty things the credit card companies do. When that happens, you could pay the price. Here are some examples of bad credit card behavior.

1. Raising the interest rate ‘cause they feel like it. Some credit card companies will raise the interest rate any time for any reason. If this happens, you’ll probably have the option to avoid the increased rate by not making more charges or taking more cash advances. If you stop using the card, the old interest rate would remain. You would need a new credit card—try to get one with a low rate. If at all possible, don’t knuckle under to the new higher rate. Stop using the old card and get a new one.

2. Universal Default—Kicking You When You’re Down. Many credit card companies place you in default if you fail to pay any of your obligations. Let’s assume you have two credit cards, a mortgage, a car loan and a student loan. Miss a payment on any of these obligations and some credit card companies consider you in default. Then, they impose fees and raise the interest rate (often sharply). While they mumble feeble excuses about how a single car payment 1 day late makes you a bad credit risk, their use of universal defaults creates a self-fulfilling prophecy where they shove you toward bankruptcy by greatly increasing your obligations even if you’ve been a perfect customer of theirs. Like a pack of wolves, they descend on the weak at the first scent of blood.

3. Credit Limit Smackdown. Sometimes, if you exceed your credit limit, the card company doesn’t stop you from making a charge. They let you go over your limit, and then smack you with an over-limit fee and a sharply increased interest rate. The limit isn’t a limit at all. It’s an excuse to ratchet up the charges. Keep track of how close you are to your limit. If you’re within a few hundred dollars, stop using that card (have a buffer of a few hundred dollars in case your math is off). Pay cash or use another card.

4. Charging Interest on Debt You’ve Paid. If you make $1,000 of charges in a month and pay $500 at the end of the month, some credit card companies charge you interest on the entire $1,000 balance for a month, even though you paid 50% of it right away. This is all because you carried a partial balance into the next month. In this hypothetical example, they’d effectively get twice the nominal interest rate on the amount of debt that’s carried over into the next month. You are penalized for being good instead of perfect.

5. Piling On. Once a customer makes a mistake, some credit card companies pile on. You are slapped with late fees and increased interest rates. If all these fees and charges push you over your credit limit, you get nailed with an over-limit fee. And if you have trouble paying off your increased balance, you can be hit with more over-limit fees in subsequent months along with the very high interest rate. In extreme cases, all this piling on might double the amount you owe. Talk about sprinkling salt on a wound.


What can you do? First, live within your means and avoid carrying a balance over from month-to-month. If you pay the balance at the end of each month, you come out ahead (because you effectively get an interest-free loan for the month). As soon as you start carrying a balance into the next month, you become their b*tch.

Second, pay on time. This applies to all of your debts, so that you don’t get stomped by a universal default.

Third, keep track of how close you are to your credit limit. Stop using the card whenever you’re within a few hundred dollars of the limit. Pay down the balance (at least partially). If that's not possible, pay cash for new purchases or use another credit card.

If you’re the type to carry a large balance from month-to-month, and constantly flirt with the credit limit on the card, you’re an enabler of bad credit card behavior. Remember that enablers are ultimately part of the problem. Live within your means. Be alert to how you’re using the card. Remember that it’s easier to avoid a credit card problem than to get out of one.

Crime News: Food fights don't pay. http://www.wtop.com/?nid=456&sid=1157153.