Archive for October 12th, 2009
BofA Said to Give Up Merrill Documents
After months of resistance, Bank of America Corp. is turning over documents related to legal advice it received on the purchase of Merrill Lynch & Co. to the office of New York Attorney General Andrew Cuomo.
Google Investors to Zero In on Earnings
Shareholders in Google know all too well the heartbreak of high expectations. So when the world’s dominant Internet search company reports earnings after Thursday’s closing, DailyFinance says it better beat Wall Street estimates — and beat by a lot. Why? Because Google is a momentum stock, where investors pay a fat premium for shares based on accelerating top-line growth, which is then supposed to flow to the bottom line.
How to Score Green Tax Credits
While the $8,000 first-time homebuyer tax credit is scheduled to expire next month, there are ways that everyone — not just first-time buyers — can collect thousands of dollars in tax credits by installing or upgrading eco-friendly elements to their homes.
Study: Mustache-Wearers Earn More?
According to a story by Reuters Friday, a recent study determined that mustache-wearers earn 4.3 percent more than their clean-shaven compatriots. But is it a joke?
Your Brain Wants to Waste That Gift Card
A new law will extend gift card expiration dates. But psychology says this will only harm consumers more.
When Ruth Visits Bernie
Disgraced financier Bernard Madoff will serve his 150-year sentence in a federal prison in Butner, N.C. Fortunately for his wife Ruth, the little town’s offerings are in line with her new budget. Take wowowow.com’s photo tour and see where Mrs. Madoff can eat, sleep and shop on her next prison visit.
Most Economists See Recovery Beginning
More than 80 percent of economists believe the U.S. recession is over and an expansion has begun, but they expect the recovery will be slow as worries over unemployment and high federal debt persist.
To Build Wealth You Must Spend Less Than You Earn
This is the third of a thirteen-part series that explores the core tenets of Get Rich Slowly.
“Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” — Charles Dickens, David Copperfield
When people ask me for my top tip on personal finance, they’re often disappointed. My top tip isn’t sexy. “To get out of debt and to build wealth,” I say, “you must spend less than you earn.” People are hoping for something more — some sort of mystical secret. Buy you know what? As mundane as it sounds, that is the mystical secret of money.
If you want to get out of debt and build wealth, all you ever need to do is spend less than you earn. Everything else is we talk about at Get Rich Slowly is window dressing, a prop in support of the fundamental equation of personal finance:
[WEALTH] = [WHAT YOU EARN] – [WHAT YOU SPEND]
The wider the gap between what you earn and what you spend, the more financial success you’ll achieve.
Spend less
This simple formula has a couple of implications. The first is that frugality can have a very real impact on your financial situation. Frugality is an important part of personal finance. When you decrease your expenses, your cash flow increases. If you’re living paycheck-to-paycheck on $3000 a month, reducing your monthly expenses by $300 can give you substantial breathing room. (See the Charles Dickens quote at the start of this article.)
The big advantage of thrift is that you can implement it immediately. In theory — if there were no psychological factors — you could cut your expenses in half today and your savings would sky-rocket. Thrift pays immediate dividends.
The disadvantage of frugality is that there’s a limit to what you can do. You can only trim so much from your budget before you become miserable. Or until you don’t have enough for food and shelter. If you earn $3000 a month, you only have $3000 total you can cut. At $3000 monthly income, your maximum positive cash flow is $3000.
Earn more
Thrift has limits. You cannot spend less than zero. On the other hand, there is theoretically no limit to how much money you can earn. Frugality is important, but if you want to make real progress, increase your income.
In the 3-1/2 years I’ve been running this site, I feel like I’ve never been able to make this point emphatically enough. The people I know who have met with wild financial success have all done so by increasing their income in some way. They’ve all had to make sacrifices to do this, but once they’ve met their goals, they’re able to scale back to a normal way of life. If you want to destroy your debt — not just defeat it, but destroy it — do something to boost your income. How do you earn more money?
- Work longer hours.
- Get a second job.
- Start a small business.
- Sell the stuff you have.
All of these work, but they all require sacrifices — especially the sacrifice of time. Most people feel that these options aren’t right for them. If that’s the case — if you’ve already cut your spending to the bone and you’re unable to earn more — then there’s really no answer other than extreme frugality and patience.
There are no silver bullets. There’s no magical way to change the fundamental equation of personal finance: To build wealth, you must spend less than you earn. If a person has already cut her spending to the bone and is unable to increase her income, she will continue to struggle.
This is the third of a thirteen-part series that explores my financial philosophy. These are the core tenets of Get Rich Slowly. Previous parts included:
- Tenet #1: Money is more about mind than it is about math
- Tenet #2: Goals are the gateway to financial success
- Tenet #3: To build wealth you must spend less than you earn
Look for a new installment in this series every Monday through the end of the year.
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Related Articles at Get Rich Slowly:
- The Most Important Money Tip
- Great Ways to Earn More Money
- EARN: Helping Low-Wage Workers Learn to Save
- Daily Roundup: Car Insurance, Cheap Desks, and More
- links for 2007-05-31
4 ways to save on closing costs
Your mortgage interest rate isn’t the only number you need to heed. It pays to negotiate on all your home loan terms.
Your 1st home? Save for repairs
It’s crucial to save for a rainy day if you’re a homeowner. (How else would you get your leaky roof or dead furnace fixed?) Plus: Home maintenance tasks.
