Articles: Index

Creating Money: Securing Your Future

Page Four of Four

How to save $5,000 per year

What is not included in the charts above is the equity you build in your home. Equity is an asset that is as real as money you invest in stocks or the furniture in your home. Equity is the value of a house minus what you owe on the house.

Imagine that instead of taking out a 30 year loan on the $135,000 home we discussed earlier, that you would take out a 15 year loan. How would that change the numbers?

Your monthly payment of principal and interest on a 15 year loan of $120,000 would be $1,147 per month. That compares with $881 per month using the 30 year mortgage. Your total payments would be $206,460 instead of $317,000. A savings of over $110,000! Better yet, you probably will pay about one half percent less in interest on your loan with a 15 year loan. That means that your actual principal and interest would be $1,113 per month. That is only $231 per month more for your home and your total payments will be $200,340. You save $115,000 by paying your mortgage off in 15 years instead of 30 years. What would you do with $115,000?

Even though you are paying $231 per month more for your home, ALL of that money is going to equity in your home. This is how to play the banker's game. You get the best possible interest rate and the most favorable terms and end up saving $7,000 per year over 15 years by paying off your mortgage in more financially logical terms.

If you are not buying a home, you can re-finance your current loan using a 15 year mortgage. If you are going to live in your home for more than two more years, you'll rapidly recoup your closing costs and then quickly build equity in your home.

If re-financing is unwise because interest rates are higher than when you bought your home, you can most likely make principal payments in addition to your regular payment each month. Your lender will take these principal payments right off the balance of the loan. Even investing $100 per month extra, can cut years off a mortgage. Ask your lender for an amortization sheet showing how much of your money goes to principal and how much goes to interest.

Creating Money out of Thin Air

You can create money out of nothing by making a few phone calls or doing just a few simple tasks. Here are a few examples.

  1. Are you paying 18% on a credit card with $5,000 charged to it? Call your bank and ask for a consolidation loan for your debts. The rate will probably be about 10-12%. If it's 12% you'll save 6% per year, or about $300, all for making a phone call.
  2. Take the $3,000 sitting in a savings account and move it to the highest paying money market account in the country. If the savings account is paying 2%, the best money market account is paying closer to 6%. That 4% difference will net you over $100 this year.
  3. Call your insurance agent. Add Towing and Road coverage and drop your auto club. Save about $30 per year. (While you're on the phone with your insurance agent, make sure your automobile liability coverages are higher than the value of your home.)
  4. If you take a lot of photographs, you can save 50% or more by using mail order developers. The quality of the pictures is normally acceptable and if you shoot one roll of film per month you will save about $50 per year.
  5. When you go to the store, know what you want to buy before you get there. By stopping impulse-buying, you can save $1,000-$3,000 per year.
  6. Buy birthday and anniversary cards by the box and not individually. A box of 20 cards retails for about $7. 20 cards individually bought sell for about $40. You save $33.
  7. Switch from annual fee to no-annual fee credit cards. Make it your policy to never pay for an annual fee card again. Switch three cards and save $70.
  8. Learn how to do simple repairs at home yourself by buying a "fix-it" book. This can save $60 on one un-necessary visit from a service-man.
  9. Change the oil in your car. You will spend about $6 and save about $18 per visit off the quickie oil shops. Annual savings: $72
  10. Ask for a discount on everything you buy, every hotel you stay at, every loan you get. Over half of all purchases could be had at a discount if the right person is asked. Savings? Varies.

What are you currently spending money on now, that is a complete waste of your hard earned money? (Cigarettes, alcohol, impulse items, etc.)

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Completing this exercise made you aware that you can literally create money out of nowhere by simply saving, instead of spending. Once you begin saving, you can then begin investing!

Pay Yourself First

When you are working 40-50 hours per week, you deserve to keep some of the money that you are earning. When investing, remember you are taking the money you have earned and making it grow for your future use. Advertisers have convinced many people to "spoil yourself" by spending money on fleeting moments of pleasure. Reconsider the advertisers message and spoil yourself with a lavish lifestyle when you truly want it and deserve it. Always pay yourself first.

When you get paid, send 10% directly to your money market fund or your bank account. It's your money, you earned it. The government is taking far more than 10% aren't they? Did they earn it? Do you deserve at least half as much as Uncle Sam is getting? That's right, you're seeing it more clearly now. You earned your money and you deserve to keep it for your use in the future.

You are investing in yourself and your future.

Understanding Mutual Funds

Mutual Funds can be mysterious at first glance. Here is a simple thumbnail sketch of what mutual funds are. For more detailed information about mutual funds ask your librarian to direct you to some good books on investing.

Family

A Family of Mutual Funds is like a family. You have parents and children. In a Family of Mutual Funds you have Fund Managers their funds. Thousands of investors send these funds money to invest. Your money is pooled with these investors and through this process you are able to own a diversified portfolio from the very beginning of your investing days. Earlier in this chapter you learned that Fidelity, Vanguard, Scudder and 20th Century are all families of funds. Each of these companies have dozens of funds.

Types of Funds

There are many types of funds. Some fund managers run funds that invest in large capitalization stocks like Caterpillar, Disney, and IBM. Other funds invest in small stocks. These are typically called "growth funds." Funds investing in bonds are not surprisingly called bond funds. However, much like children, the names of funds do not tell you what is inside the fund. Fidelity Magellan Fund is well known as one of the all time best performing funds. However, you have no idea what this fund invests in until you request a prospectus.

What to Invest In?

By taking a trip to the library you can look up various mutual funds in the Morningstar Mutual Fund Guides. They rate various funds and explain the risk and reward potentials for thousands of funds. Look for Morningstar's four star or better picks and you will improve your odds of making an excellent decision. What is a good fund today may not be good tomorrow. Becoming even a little familiar with a few of the major families of funds and their track record will greatly help you choose where to send your money.

Ultimate Risk?

There is an element of risk in investing in mutual funds. A major stock market crash could drain your portfolio. Historically these crashes have been relatively short lived and the markets recover in general as do most specific stocks. History has taught us that stocks are the best place to invest (along with real estate) and with mutual funds, there is little need to worry about diversification as you are buying into a "pre-diversified pie." Each dollar you invest is literally diversified instantly.

Other Investments

Real Estate is the most lucrative investment for most investors once a portfolio of stocks or mutual funds have been developed. There is not space in this book to cover the various aspects of real estate. Your home is certainly a solid investment if you paid a fair price and get average or better appreciation. There are numerous books that detail investment real estate. However, before jumping in, it may be wise to develop a solid portfolio of mutual funds. The instant diversification takes most of the major risk out of the process and the objective here is not to speculate but to create and design a wealthy future to live in. Land, like real estate, is best left to the experts that know what they are doing. Buying undeveloped land can be boon or bust. Now is not the time to take such a risk.

Collectibles and Misc.

Baseball cards were big money collectibles in the 1980's. In the 1990's the value has tapered. Old cards in mint shape are still valuable, but the new products are unlikely to produce much of value because of the popularity of card collecting. Jewelry and diamonds are poor investments. The day you buy a diamond ring it's value immediately drops about 80-90% regardless of what the "appraisal" says. Gold and platinum have some potential in scenarios that put the United States in a financial crisis. Because the United States will someday have to pay the national debt and erase deficits, inflation will once again rear it's ugly head. This makes gold, silver and platinum worth holding as a percentage of your portfolio. Stamps and coins are cyclical in their collecting value. Like baseball cards, when the hobby is popular, it is far less profitable. When it is out of vogue it is far more profitable. Lotteries and games of chance are not investments. They are entertainment and they are designed for you to lose most or all of your money.

What is Money?

Money is something that two parties agree has value in expediting a transaction of goods or service. Because it takes agreement, it is a belief. Money is not the root of all evil. The love of money is. To become addicted to a belief is to severely limit your ability to function in life. Ignoring money is as foolish as chasing after money.

Most of the people who are in prison today are in prison for something that in some way had to do with money. Most of the people who live lives by design have a great deal of money. The difference is the sequence of events and the goals involved. Money itself only solves a few problems. Living a life by design can mean doing what you love and getting paid for it. It can also mean doing what you don't like a little longer while you become a master of what you wish to do. People who mis-use money, idolize it. It is not viewed as a product of happiness but the reverse. People who end up in jail often believe that money would have made them happy. It would not have. Doing what you love and designing your life is what will give you long term pleasure. Money is a by-product of design and living life by design.

Money is a fascinating subject to learn about. What you will learn in the next chapter will not only fascinate you, but intrigue you. The very origin of life speaks to the very core of living life by design. For without design, there would be no life.

Life By Design is available on 6 audiocassettes. To obtain your copy, see our Catalogue of Products and create your financial journey of wealth! Kevin Hogan Success Dynamics Corporation 3432 Denmark #108 Eagan, MN 55123

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