OK, so in the spirit of Jacob Needleman who said (and I paraphrase), “If you pay more attention to money, it wouldn’t steal so much attention from you” (Needleman, 1991). Which kind of translates to the old adage “Knowledge is power.”
And it turns out that my credit union offers free personal financial advise with a certified finanical advisor. So, I called him up, hauled in my files, and we went over everything today. The good news is that I’m doing OK, all things considered. I mean, as long as I continue to make what I’m making, I could continue saving like I’m saving and living at the level to which I have become accustomed (with all my jet setting) and I could retire on time and be OK. As you all know, I’m not willing to stay put in my career in order to make that happen but everything else I’m interested in has more risk in terms of investment and pay off. (BTW, I hereby make a commitment to stop myself from phrasing the previous sentence as, “I can’t make as much doing other things I know how to do as I can doing this thing I don’t like.” Because we don’t know that that’s true. What’s true is that it has more risk than I’m as yet comfortable with and that’s what I need to be most aware of.)
He did point out a couple of ways I could be getting more out of my investments (which I kinda already knew but doubted my knowledge and so had been dragging my feet) and I’m going to correct those ASAP. (God, I love on-line banking.)
For those who aren’t familiar with it, here’s the quick version of cash flow planning (which I learned today–why don’t they teach us this stuff in school? Sweet Jebus.):
0 – Don’t spend more than you bring in. Everything else below is what to do with the excess. More later on how to get yourself to find ways to save that you didn’t know you could.
1 – Money for living expenses: The goal here is to build a savings of what you would need to get by for a year or so. Money for monthly expenses goes monthly into a checking account. Keep just enough in your checking account so you don’t overdraw yourself. (In my case, I’ve chosen to pay for everything possible on my credit card in order to rack up frequent flier miles, and then I just pay off the credit card every month.) With the money you bring in that you don’t need on monthly expenses, keep just enough to get by for 3-6 months in a money market. Shop around; not everyone has the same rates. If you have moola on top of that, then put enough money in a CD that would cover what you would need to get by for 6 months to 3 years. CD’s have better interest rates than money markets but longer periods of waiting in between the times you can get at the moola without losing the interest you earned on them.)
2 – Make a separate bucket for money for stuff you can expect to need in 3-7 years, like for big purchases (car, house, big vacation) or early retirement. Money for this stuff should go into a mutual fund or some sort of investment portfolio (stocks or bonds, depending on how much you are comfortable with risk).
3 – Make yet another bucket for money you won’t need for 7 years or more. This is where you invest in tax-deferred stuff like your 401k, IRA, real estate, annuities, etc.
4 – As for choosing between paying off debts and savings, if the debts have an interest rate of return that is higher than–shit, what’s the name of that magic number–well, anyway, right now it’s about 5%, so … If your loans, have an interest rate higher than 5%, pay them off ASAP. If not, you can make more money off the interest from investing it than you can in paying off the debt. </lj-cut?
Then I went over to the bookstore and got a couple of motivational/practical advice books on saving and taking money risks. You can bet I'll share them with you as I learn 'em.