If you’re interested in seeing your bottom line decrease each month, here are a few tips courtesy of CNN Money. Personally, I’d rather see my number go up each month, but perhaps that is just me.
- Ignore your money. Buying and holding doesn’t have to mean “owning and ignoring.” Asset allocation is one of the best examples of this. If you are 5 years into retirement, and you haven’t changed your asset allocation since you were 30 years old, it may be time to determine what your goals are and change you asset allocation to reflect that. If you invest directly in companies, understand that they change over time.
- Buying too much house. “As a general guideline, it’s best not to spend more than 2-1/2 times your income on a home. Your total housing payments should not exceed 28% of your gross income. Total debt payments, meanwhile, should come in under 36%.” According to the first quoted rule of thumb, to afford a $200,000 condominium, in New Jersey or anywhere else, your income should be $80,000.
- Driving too much car. “Chris Cooper [financial planner, not actor], has suggested as a rule of thumb that you don’t spend more than 8 percent of your monthly gross income on a car payment…” I think this isn’t looking at the big picture. It’s much more important to find a car that’s reliable and whose life will extend far beyond the time you stop making payments.
- Paying the IRS, not yourself. CNN Money strongly suggests self-employed individuals — and anyone can be a self-employed individual — lock away 25% of their self employment income after expenses into a SEP IRA. I recently opened my 2006 SEP IRA, and I think it’s a great idea.
- Always getting what you want. Wait, isn’t it a good thing to get what you want? Nah, accumulating things just ads to clutter and can lead to spending more than you earn, which leads to uncontrollable debt. Delay gratification, maybe.
- Letting your assets linger. CNN Money begins to channel Robert Kiyosaki, and stresses the importance of *income-producing assets* and their benefit over *expense-generating assets.* Net worth is not always the best indicator of financial health. Cash flow is more important in some cases, so assets that assist your cash flow are ones to hold and assets that send money out the door should be eliminated.
- Letting your debt lie. If you have debt, pay it off. Try to take advantage of better rates whenever you get the chance. CNN Money suggests switching an adjustable rate mortgage to a fixed rate and moving credit card balances from a high-interest card to one with lower interest.