What Is Your Retirement Dream?

August 31, 2008

I have talked a lot in this blog over the past several weeks about investing and saving, but what is our goal in the end?  What are we sacrificing now in order to have in the future?  Too many of my Soldiers, both young and old, see retirement as nothing more than a pipe dream that they will never reach.  They think that they will have to work until the day they die.  That is incredibly sad.  When I retire, I want to do something that I love or work that I’ve always wanted to do.

 

In My Retirement Dream I Want To:

  1. Teach part-time at a local community college
  2. Start my own small business
  3. Invest in residential real estate as a landlord
  4. Visit all 50 states and travel overseas more
  5. Play a lot of golf

 

What is your retirement dream?  You need a long term goal to aim for now.  You can change it along the way, but you still need something to motivate you now to keep you on track saving and investing.

 

In 2001, my parents got up one day, sold their house, and bought a houseboat.  I have to tell you that most of my family though that they were a little crazy, but they didn’t care.  I guess that is one way to know that you are on track to live like no one else.  I have never seen my parents happier.  Their goal is to one day soon sail the “Great Loop”, a 7,500 trip up the eastern seaboard, into the Great Lakes, down the Hudson, Tennessee, Ohio, and Mississippi Rivers, and back around Florida.  It’s an awesome idea and a fantastic retirement dream.  Because my step-dad invested carefully, planned, and never lost sight of their goal, they are now living “The Dream” in retirement.  I can only hope and pray that we are all so lucky and blessed one day.

 

Don’t waste one second more.  Figure out your retirement dream with your spouse or loved ones (you can change it as your life changes), tell a lot of people (peer pressure is a great way to keep you on track), and never lose sight of your goal in the end.  It will make all the sacrifices along the way well worth it.

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Penny Wise and Pound Foolish – Get the Large Purchases Right

August 30, 2008

I had a boss who had over $60,000 of credit card and other consumer debt. He never could understand why he could not dig himself out of the hole that he had created. It only took a month of working for him to understand where most of his problems came from. His personal finance focus was mixed up or inverted in a way. My boss would agonize and sweat the small purchases while totally blowing all his money on poorly planned, researched, and impatient large purchases. He would hem and haw about saving a few dollars here and there on small purchases like going out to eat at a restaurant, but he would decide at the last minute to fly across the country to see his family while he was on temporary duty (TDY).

Don’t get me wrong, small needless purchases will quickly add up to large sums of money if you are not careful, but you have to be able to see the forest AND the trees. It’s a balancing act, but you have to get the large purchases like home mortgages, car loans, etc. right if you want to have any chance of having a healthy personal finance picture.

Here are just a few examples of the mistakes my boss made in order to get $60,000 in debt:

  1. Poorly choosing the neighborhood to buy a house in
  2. Sending his children to private elementary school
  3. Leasing a car

Penny pinching is pointless if you get the large purchases wrong like those listed above. Get the large purchases right, and then sweat the small stuff.

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Best Advice I Ever Received

August 30, 2008

The best piece of advice that I ever received was right before I graduated from college.  I was in my professor’s office talking to him when he told me . . .

 

“Spend your money doing things, not acquiring things.”

 

We spend our entire lifetime collecting “stuff”.  We have rooms and houses full of stuff.  Stuff we don’t even use anymore.  When we look back at the lives we’ve lived in retirement, it is our experiences that we will remember the most.  Spend your money traveling.  Spend your money going back to school and getting that degree you always wanted.  There will always be enough time to buy things.

 

What’s the best piece of advice (about personal finance or not) that you have received?  I’d love to hear it.

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The Best Tip to Get Promoted

August 29, 2008

 The single best way for you to get promoted in your job is to stay current and up-to-date with the news and issues that occur in your chosen profession.  In order to be the best in your line of work, you have to know what is happening in your specific career field.  The same is true whether you are a member of the military or an executive in corporate America.

Become a subject matter expert in your field:

  1. Join industry associations
  2. Subscribe to trade journals
  3. Attend conferences
  4. Read and submit articles to industry journals
  5. Read and subscribe to industry news media (newspapers, newsletters, blogs, etc.)
  6. Read professional development books related to your job
  7. Continue your formal education with a Bachelor’s or Master’s Degree in your field

 

   I am constantly amazed by how many young lieutenants enter the military who do not understand current events, issues, and trends that are happening in their particular branch of service and their military occupational specialty (MOS).  Not knowing about the latest techniques, tactics, and procedures will place leaders in a disadvantage that will affect them and affect their job performance.

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Why I Hate the Military’s Savings Deposit Program (SDP)

August 28, 2008

The military’s Savings Deposit Program (SDP) is a financial benefit to troops stationed in a combat zone, hazardous duty area, and a few other qualifying locations around the globe.  Members of the military can deposit up to $10,000 and earn a guaranteed 10% APY that accrues quarterly.  Sounds like a great deal, right?  A guaranteed 10% interest rate in today’s economy is pretty good, but I wouldn’t (and haven’t) touched the program with a ten foot pole.  And here’s why…

  

I do not trust the military finance system.  Like most Soldiers, I have been on the receiving end of “No Pay Dues”, and it’s not a pretty sight if you do not have your 3 to 6 month emergency fund in place.  To deposit money into the system, you have to begin allotments or submit cash collection vouchers.  Then, a person (finance clerk) has to manually put your request into the military’s over bloated, ridiculously complex pay system.  I have heard of more Soldiers having pay problems through this program than any other changes they make to their paychecks, withholdings, etc.  With a quarter of the military moving and changing BAH rates for example every year, there is a huge opportunity for your paycheck to get messed up.  I absolutely hate changing anything with my paycheck for fear that I won’t get paid the next month.

 

I have so little faith in the military’s finance and pay computer system that I refuse to enter into the SDP despite the guaranteed 10% interest rate.  10% is not enough!  Investing is a trade off between risk and return.  Classic finance theory states that the riskier the investment is, the more return you should require from it.  SDP is very risky to me.  I can’t sleep at night worrying that $10,000 of my hard earned COMBAT pay is going to be tied up for months because of computer and human errors.  I would rather invest that money in a good, growth mutual fund even if it earned less interest.  Members of the military have too much to worry about in Iraq and Afghanistan than whether their investments, paycheck, and household budgets are running amuck. 

 

Another reason that I do not like the program is that it is incredibly illiquid.  You cannot withdraw the money anytime you want to.  You have to go into the finance office and manually stop the allotment and wait for the military finance office to process your request.  I recently had a Soldier who needed to stop the allotment depositing money from his paycheck into his SDP account, but the first month the finance clerk messed up the transaction in the computer, and then the second month my Soldier caught the error after the transaction closing date.  So, now he has had three months of additional money withdrawn from his paycheck and deposited into his SDP, which is already maxed out and not earning interest anywhere.  See why I love the program?

 

Another point to consider is the tax implications.  Although federal income earned in combat zone is tax-free, interest accrued on earnings deposited into the SDP is actually taxable.  Funds can be left in an SDP account indefinitely, but the account will stop accruing interest 90 days after a member returns from war.  And withdraws may only be made upon leaving the combat zone. 

 

The entire deposit $10,000 in order to earn $1,000 in interest is also almost a misnomer too.  The military has made it very hard to deposit $10,000 to earn your entire $1,000.  A service member cannot deposit an amount into the program exceed a service member’s monthly current pay and allowances.  It will take most service members months to deposit the entire amount.  You also cannot begin contributing to the program until the 31st day you have been in a combat zone.  So, you are already loosing a month of interest.  The government has to let you leave your money in the SDP after you return home just to get you 12 months of interest after all the hoops they make you jump through.

 

The military’s entire finance system needs more transparency.  Servicemembers need to know right away if there is something wrong with their paychecks, and they need to be able to correct problems right away when they are found.  I should not have to hold my breath every two weeks waiting to see if this week is the week where I once again see a “No Pay Due”.

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It Is Never Too Late to Start Investing

August 27, 2008

Several Soldiers I know have nothing saved for retirement.  Not one dime.  That wouldn’t be a cause for concern if they were privates just entering the sevice, but these Soldiers are mid-level Non-Commissioned Officers, sergeants who have been in the Army for almost ten years or more.  These Soldiers have even earned large bonuses for reenlisting and still have saved nothing.  Their lack of forethought will doom them to a lifetime of working if they do not catch up their savings and investing for retirement.

 

It’s never too late to start investing for the future.  I am continuously bombarded with people telling me that they can’t afford to save.  I tell them that they can’t afford NOT to save.  The military retirement system alone is not enough for us to live on in the end.  Telling yourself that you can’t afford to save is a copout.  We have to save and invest if we want to have any hope of enjoying our golden years.  Everyone can afford to save something.

 

David Bach wrote about people finding their “Latte Factor” in his book, “The Automatic Millionaire”.  Bach says that we can save thousands of dollars each year by cutting out expensive unnecessary consumer purchases.  Don’t get me wrong.  I am a huge coffee drinker and fan of Starbucks.  I love my double lattes as much as the next guy, but it can get very expensive if you buy them everyday. 

 

A latte at your local coffee house costs about $4. If you stop at the coffee shop before work everyday, that is $20 a week, $80 a month, or $960 a year.  And, that also assumes that you do not buy a muffin with your morning coffee.

 

How many members of the military smoke or chew tobacco?  A two pack a day habit can cost you about $135 a month for three cartons or $1,620 a year.  The same thing can be said about dip.  A can of dip costs about $4.  If you dip a can a day, then that can add up to over $1,400 a year.  Today in the PX, I was blown away when I saw that a case of 24 cans of Monster energy soda costs over $50.  Brewing your own coffee at home or smoking only one pack a day instead of two will leave you with almost $1,000 to invest every year.  These are just certain examples.  There are things that we can all do to spend less and save more.  Saving small amounts help you develop good habits so you can invest larger sums later after you get the hang of it.

 

Other ideas to save you money include cutting out premium channels from your cable bill, clipping coupons, or shopping around for the best deals online.  Do you have any other ideas or tips to save a few dollars here or there?  I’d love to hear them.  Leave a comment to share with everyone or send me an e-mail.

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Knowing the Factors that Make Up Your Credit Score Can Help Improve It

August 27, 2008

 

   Anyone borrowing money today knows that their credit score is important.  But, how many of us know exactly what goes into computing our credit score.  Knowing the factors that make it can help you improve your credit score.  Fair Isaac Corporation, the inventors of the FICO credit score which most lenders use to judge us, primarily looks at five factors: your debt payment history, debt load, the length of your credit history, recent applications for loans or credit cards, and the types of credit that you use.

 

 

Payment History: Fair Isaac Corporation looks at how long past due or delinquent you are in paying your bills, whether you have bankruptcy, judgments, suits, or liens against you, Number of past due items on file, and the number of items in your file that you have paid in accordance with you lender.

 

Debt Load: Credit score companies look at the amount you still owe on your accounts, the number of accounts with balances, and the percentage of your credit line used.

 

Length of Credit History: Fair Isaac Corporation looks at the time that has past since you last open your accounts and the time since the activity on your accounts in order to determine your FICO credit score.

 

Recent Credit Applications: The company also looks at the number of recently opened loan accounts, the number of recent credit score inquiries, and the amount of time since your last recent account openings.

 

Types of Credit: Your FICO score is also determined by the types of credit you use.  Credit cars, retail accounts, installment loans, mortgage, and consumer finance accounts are several types of debt accounts associated with your score.

 

   Knowing how you credit score is computed can help you increase it.  A FICO credit score can range from 300 to 850. The median score is 725, and many lenders consider a score below 660 is a cause for concern.  The cost of having a low score can be tens of thousands of dollars in interest payments over the lifetime of the loan.  For example, you need 750 or better to get a killer interest rate on a home mortgage these days.  A person with a top credit score could expect to pay approximately 6% today for a 30-year fixed-rate mortgage, while someone with a poor score could pay as high as 10% for the same mortgage.  When homes costs hundreds of thousands of dollars a one percentage point increase can mean thousands in extra interest payments.  It really pays to stay on top of your credit score if you are borrowing large sums of money.  You can get your credit score at myFICO.com.

 

   There are no tricks or gimmicks that will give your score a quick fix.  Companies that try and sell you systems to fix your credit score fast or get a new social security number are gimmicks that will just rip you off…..plus, getting a new social security number for the purpose of erasing your debt is illegal.  In the coming week, I’ll talk a little bit about way you can legitimately increase your credit score.  Stay tuned.

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