Almost Everything You Need to Know About Money

Reading is Fundamental, part 1

2009-12-24T18:10:00.006-05:00

Happy Holidays! I’m sorry that I took so long to get back to this, but I’ve been a bit busy with things. Hopefully it won’t happen again.

So, when we left off we were in the process of defining things so that we can all speak the same language. What I’d like to do next is to give you some quick and easy tools that you can start using right now to help get yourself on track. Today I’m going to talk about the Income Statement. An Income Statement is nothing more than a way to keep track of where your money is coming in from and where it’s going out. It looks like this:

Income:

Salary $xxx.xx
Interest xxx.xx
Dividends xxx.xx
Alimony xxx.xx

Total: $xxxx.xx

Expenses:

Taxes $xxx.xx
Food xxx.xx
Clothes xxx.xx
Shelter xxx.xx

Total: $xxxx.xx

Net Income (Income – Expenses): $x.xx

As you can see, money comes in the top and exits through the bottom. Whatever is left over after you pay your expenses is yours to do with as you please. You also have the ability to change the numbers monthly, weekly, and yearly, or however you would like to divide it. Now, I admit that this is a bit of common sense, but actually being able to see where your money is going gives you the advantage of being able not only to make changes, but consider changes BEFORE you walk into a car dealership and lease a car only to find out that the total cost (car payments, insurance, gas, etc.) is not something that you can actually afford.

So here’s tonight’s homework (okay, maybe not tonight seeing as how I’m writing this on Christmas Eve):

Get a calculator. There’s one on your cell phone. Just click Menu and then Tools. There’s also on your computer. If you’re on a Mac, check the Dock or the Applications Menu. If you’re on a PC, then click Start, then Programs, then Accessories and you’ll find it. Or just use Excel, that’s what I do.
Most of us just have salary as a form of income. So just grab your last paycheck. I usually ignore how much was taken out in taxes and just concentrate on how much I received, at least until I prepare my tax return. But that’s another blog. If you have other sources of income, add them in as well, and place the total at the end. For the purposes of this exercise, adding up what you get for a month might be the easiest to work with.
Add in your expenses. Once again, I ignore taxes when I do this, but you don’t have to if you don’t want to. An easy way to do this might be to look at your bills. Of course, you want to include amounts paid for food, clothes, shelter and transportation, but paying $50 for a DVD box set isn’t exactly an expense. I also do not include the amount over the minimum payment for my credit card as an expense because I am not required to use that money for that purpose. As a result, I can either use it to pay the card or I can use it for any other reason, although I prefer to pay off the card so that I don’t have to devote any money toward it.
After you figure out the final total (your net income), you’re done!
Okay, you’re not really done. Remember that we’re trying to make as much income as possible and spend as little of it as possible…. Yes, it’s a few weeks away, but while you’re waiting for that entry, just look at your situation now and think about where you can make more money and where you can spend less. You never know, you might come up with some of the same solutions that I’m going to cover in a few weeks!

So, once again, thanks for sticking with me. Enjoy your holiday, and I’ll see you soon!

Sorry, no book of the week this week... Next week, though :)

Can You Understand The Words That I'm Typing on My Blog?

2009-10-25T23:14:00.004-04:00

Hey there! Thanks a lot for coming back!

If you remember last week’s entry (even if you don’t all you have to do is scroll down), you know that I stated the very simple secret to making money right up front, saving you $14.95 at your local bookstore. So if you’re back this week, you must want to see what I was going to do for an encore…

My encore is a short segment about basic accounting. Now, if you went to business school with me, then you probably had to take two basic accounting courses (more for the accounting majors) so what I’m about to say may just be a refresher and you might want to wait until next week. For everyone else, I’m going to break down eight months of accounting into two entries and I promise that, for the most part, you won’t need anything other than what I’m about to tell you. If you find yourself with enough money that you need more information than what I’m about to give, then I hope you hire an accountant who was trained at Baruch College. ☺

Before I begin, I can imagine that there are going to be a few people who have read a popular personal finance book who will take issue with the following definitions. I would like to say to those people to please reread your book. You will note that the author says that the following words are hard to understand and then chooses to redefine them before telling you the normal, average, everyday definitions of the words. However, since the bank, and the accountants, and the IRS all use the following definitions for these words, I’m going to stick with what I learned in school so that when I speak with them, we’re speaking the same language. If, after reading my definitions, you think that they are not easy to understand, feel free to lodge a complaint.

1. ASSET: Cash, or anything that can be sold for cash or converted into cash. Examples include, cash, checking accounts, savings accounts, CDs, stocks, bonds, house, television, bike, car, books, even your cell phone.

2. LIABILITY: Any money that you owe to anyone. Examples include car loans, home loans, student loans, credit cards, and money that you owe to a loan shark.

3. EQUITY or NET WORTH: The cash value of all the assets you own subtracted by the cash value of all the liabilities you owe. If you own more than you owe, you’re in the black, you have a “positive net worth”, and you can eat even if you paid everything off today. If you own less than you owe, well, basically, you’re broke. But that’s not a problem. After all, that’s what this blog is all about.

4. INCOME: Any money that you receive from any source, such as your job, stock dividends, garage sales, interest, royalties, and child support from your baby’s daddy.

5. EXPENSES: Any money that you have to pay to anyone for any reason. Such as food, clothes, shelter, transportation, cable, utilities, loan repayments, interest, loss on a bet. . .

Was that so hard? No? Didn’t think so. ☺

Okay, that’s going to be it for this entry. Please let me know if I should put more in next time or if this was just about right. See you next Sunday!

Book Of The Week:

How to Accumulate Wealth Without Really Trying. . .

2009-10-18T19:41:00.005-04:00

I’d like to take this time to share the secret of getting rich with you:

1. Earn as much money as you can;

2. Spend as little of it as you can; and;

3. Invest what remains in things you understand, that will keep your money safe, and that will bring you more money in the future.

You might be wondering why I didn’t make you wait until you read the footnotes of subchapter 4(a) to tell you this secret. Well, aside from the fact that there’s no subchapter 4(a), the “secret” is just plain common sense – spend less money than you make, and even if you have no interest in accumulating wealth you’ll still be able to eat when you’re no longer working. Spend more money than you make and you have an excellent shot at being poor. That’s not something that requires an entire book, is it?

What I believe requires a whole book is an explanation of the things that will allow anyone to make himself richer. After all, if you or I were to ask a room full of people, “would you like to have more money or less money?” the entire room would raise their hands. That’s the theory, anyway – that a rational person will opt for more money rather than less money. In practice, however, I find that most people need a lot of convincing to take actions that will result in their having more money. Very often one cannot be convinced at all to take an action that will result in improving his financial situation. For example, a co-worker of mine who has sold auto insurance for one of the largest and most well-known auto insurers in the country for the last 10 years and who has also been one of the best sellers in that same company once told me that a gentleman once called in for an estimate on car insurance. Now, keep in mind that insurance policies are sort of like toilet paper: everyone’s selling the same basic product. There may be variations in the size of the company, how they operate, and the level of service they provide, but if you’re responsible for an accident and your policy says that your company will pay up to $10,000 to fix another person’s car, the name of the company won’t make a difference because your were responsible and that company is only going to pay out up to $10,000. So, after speaking to the gentleman for a few minutes my colleague was able to save him $800 every 6 months on his policy. $800! $1600 a year! He figured that it was a no-brainer, an automatic sale. To his surprise, he couldn’t sell the policy! He tried everything that he could to sell the policy but the prospective customer just wouldn’t buy the policy. A year later, the same prospective client calls back and gets my co-worker again. They remember each other, strike up a conversation, and once again, my co-worker is able to offer a price that was $800 less than our competition’s. Upon hearing the news that once again he could save so much money on his auto insurance, what did the prospective client do? Yes, that’s right, you guessed it: he declined again!

I honestly believe that most people are “rational” but what I think it is that stops us from making “rational decisions” is a lack of confidence that may be caused by not having enough information, having too much information, having erroneous information, or simply due to a lack of experience. So, what I hope to accomplish by having you read this blog is to give you the necessary information to help you make decisions that will help some simply to eat when they’re no longer working and others to stop working early and have other people cook for them. Next week, we begin. . .

Book of the Week: