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Chapter One: Before You Can Get Where You're Going, You've Got to Know Where You Are!When it comes to money, before we can figure out where we are going, we have to figure out where we are. Do you know where you are in terms of your finances? How much money do you have available to invest? How much money do you really need to reach your goals?
"Whoa! Hold on!" you say. "How can I even consider these questions when I have no money to invest and no way to save any?" If that sounds like you, then we're going to make a little bet. I bet that after you finish the next section, you're going to find that you had more money than you thought. Ready?
Show Me the MoneyOur goal here is to identify your most obvious sources of hidden money so that you can begin to apply what's in this book.
1. At the end of each month, after you pay all your bills and right before you get your next check, do you have any money left?
a. If your answer is yes, what do you do with it? If you save it, are you happy with its rate of return (the interest you are earning on it)? If you are not, circle that amount. This money is a possible investment candidate.
b. If your answer is no, you are probably forgetting the most important monthly bill you have: you! We all tend to live up to�and sometimes even a little beyond�our means. Can you remember the last time you got a raise? It probably either got sucked into the vacuum of bills due, or it seemed to fade into your lifestyle. Usually, the more money we make, the higher our standard of living . . . and the higher our monthly bills.
If you pay yourself first�let's say 10 percent of your take-home pay, every single paycheck�chances are you are still going to cover your monthly expenses as you did before. You may not even miss the 10 percent. Do it. Make it happen. You are your most important financial responsibility, and it's time you take the proper place you deserve: first place! Next paycheck, make out that first check for 10 percent in your name and deposit it into the investment account you are going to start soon. Better yet, do it on payroll deduction directly into your account. We may have already found some money!
2. Are you currently saving or investing money on a regular basis? What is your rate of return in this account (how much money is your money generating for you)? Are you happy with its performance? If you're not, circle this amount. If you are happy with its performance, we will still have a use for it later on. Keep it in mind.
3. Do you have a retirement account sitting somewhere? You'd be surprised how many people have taken the first step toward financial freedom by opening an IRA account or participating in their 401(k) at work, only to let their money collect dust at a rate of return of 2 percent or 3 percent because of the uninformed decisions they have made. If this sounds suspiciously like what's happening to you, circle this account.
4. And this one is a doozie: Do you get a tax refund at the end of the year?
a. If you don't, do you have to pay penalties because you didn't pay enough during the year? If so, keep reading.
b. If you do get a refund, how much is it? What do you use that money for? (I had a client who overpaid her income taxes by the amount of her car insurance. It was her way of making sure she had the money ready when the bill came in June.) If you are waiting until April each year so you can get some money back from the taxes, you overpaid. Do you realize that you are giving Uncle Sam an interest-free loan by using the IRS as a savings account? How much interest did you earn on that refund money while it sat in the government's coffers during the past year? Yep, you got it: zilch, zippo, nada. Circle the amount of your refund.
I know many of you look forward to getting your tax return. You think of it as freed-up money. ("Yeehaw! $3,000. I can take a vacation!") But, in fact, that $3,000 represents money you loaned to the government�interest-free.
So here is your first tip: If you get more than, say, $300 back as a refund, or if you find yourself paying penalties because you didn't pay enough, call the person who does your taxes. Ask how many withholdings you should be claiming on your paycheck each pay period to enable you to pay your taxes in full by December 31 and perhaps even get a small refund. Once you know how many withholdings to claim on your paycheck, go to your payroll office and fill out a new W-4 form. This is the official way to tell your payroll office how much money to withdraw from your paycheck and send to the government on your behalf. In your W-4 you will fill out the number of withholdings your tax person advises. This action will reduce the taxes you pay out of your paycheck every pay period and free up more money for you on a monthly basis, ensuring that you do not owe taxes or any penalties at the end of the year. What you have just done is redirect some money to you rather than have Uncle Sam keep it until April when you do your taxes.
The ideal situation is to have you come out just even. (By the way, if you set up an automatic savings transfer from your payroll directly to your investment account with the extra money you were sending to the government, come next April, you will have your refund amount plus the profit from interest on that refund available to you!)
5. Now, what about your little "secret stash"? Yes, don't look at me with that innocent face. Most of us have a little money socked away for a rainy day, money that nobody knows about. Draw a secret circle around that one, too! If you're going to hide some bucks, you might as well make them grow!
6. Do you have change in your purse or pants pockets or scattered around your car or office? Get a coffee can. Every night, right before you get to bed, empty your coins into the can. You'd be surprised how much money you can accumulate at the end of each month.
7. Are you holding on to old life insurance policies, stocks that were passed on to you by well-intentioned relatives, your children's savings bonds? Can you vaguely remember where you keep them? Get them out and dust them off. You may have found the beginning of your investment nest egg.
8. Tidbits here and there: Is there any other possible source of money I have not asked you about? Look in your file cabinets, shuffle through your desk drawers, and rifle through old tax returns. Have you forgotten anything?
9. Now comes the killer question: Is there anything you can do to save more money than you are currently saving?
If this sounds like I am forcing you to put yourself on a budget, let me tell you a story that may help you look at things a little differently.
Most people think that they have to start from ground zero to begin saving money. Wrong! Sometimes it's simply about looking at the money you already have in a different way.
Twenty years ago, I was at my lowest point financially. I had a mortgage, a four-year-old child to support, a low-paying job, and no savings. I imagined that I had no money to spend on anything. So, poor me, I used to spend lots of time every weekend going to swap meets "just to look" at all the delectably tempting junk. Who knew when I might uncover a truly worthy piece of furniture or china? Then I realized that I was spending quite a bit of money on my seemingly innocent weekend pastime�about $1,000 a year, to be exact! That's nearly $100 per month! When I saw that I could move that $1,000 from the cashier's box at the swap meets into a mutual fund account instead, and in a while, afford to buy that furniture or china new, I was willing to budget just a bit.
At this point, I probably win the bet: You have learned where you have money you didn't know you had. Good! You've already completed the first step in my system. Now you know where you are. Later on in this book, I am going to show you how these hidden assets will make a big difference in bringing you closer to your investment goals.
But first you need to figure out where you want to go with what you've got. That's our next stop on your moneymaking journey.
Fund Your Future by Julie Stav, Copyright © November 2001, The Berkley Publishing Group, a division of Penguin Putnam, Inc., used by permission.