Concepts to Help with Budgeting

Financial responsibility is not always based on obvious knowledge.  Consider the budgeting tips below as valuable guides to some important areas of financial knowledge and food for thought.

Compound Interest

The Eighth Wonder of the World: Compound Interest

Compound interest is a geometric power curve. Consider its power in these two scenarios:

FRED: Fred started saving $2000 per year when he was 22. He paid for 6 years into an IRA fund that paid 12% compounded interest. Then he stopped and didn’t put any more into his IRA. At age 65, he had: $1,235,339.00

ETHEL: Ethel was the same age as Fred. She didn’t begin saving until she was 28, when Fred stopped. She put $2000.00 per year into an IRA paying 12% compound interest, every year until she was age 65. (That’s 37 years of saving). At age 65, she had: $1,235.339.00

Would you rather save for 6 years or for 37? No matter how old you are, now is the time to start saving. Let compound interest work for you starting today, because the sooner you act, the more power it has!

If you want to stay out of debt, act your wage!!

The Barometer of Self-Discipline You have mastered yourself when you can hear something bad about another person, and not spread it; when you can receive injury or insult, and not return it; when you can have A DOLLAR IN YOUR POCKET AND NOT SPEND IT.

Source: “Money an Owner’s Manual, Dennis R. Deaton

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Teaching kids about living on a budget

Tip For Teaching Kids About Living on a Budget!

This is a great way to teach kids how to budget their allowance. Giving a child an allowance is one way to reinforce the concept between work and pay. Once they earn money for doing household chores the next step is teaching them budgeting skills.

Set up four jars for the child’s money. In jar #1 put 10% of the allowance for charitable giving and helping others less fortunate. Divide the remaining money between the other three jars. One third for “instant gratification;” whatever the child wants to spend it on within parameters set by the parents, one third for savings for short term goals, i.e. special toy; bicycle; and one third for long-term savings, i.e. buying a car, helping with college fund.

Teaching kids to live on what they earn and save for the future can begin as early as 3 years old. Although they might not understand the concept of “long term” savings for awhile it needs to taught as early as possible so it become a lifelong habit.

If your outgo exceeds your income, then your upkeep will be your downfall.

WWII Poster

Top 10 Signs You May Need Financial Planning:

  1. You think an audit is a slick little European sportscar.
  2. Retirement planning means driving to the nearest store for a lottery ticket.
  3. RRSP (rate of return on savings plan) is what you do to respond to an invitation.
  4. Your idea of risk is telling your “significant other” that you’re out with your buddies when an “old friend” is in town.
  5. Paying off debt means buying the first round
  6. T-4 is important to you because it is your apartment number.
  7. When you talk about the market, you mean your local grocery store.
  8. Your emergency fund is spelled “mom.”
  9. You track your spending by remembering where you left your bank card the night before.
  10. You think a mutual fund is when you and your roommate split the grocery bill.

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Knowing how to risk

Your actions speak louder than words. You can’t tell your children they should save money, then constantly spend, charge and go into debt yourself.
Elizabeth Schiever

A lot of people spend a lot of time worrying about the small stuff—a little extra yield on the savings account, a few dollars less on the mortgage payment, making conservative investments. If you spend all your time focusing on fractions of a point, you might lose sight of the big picture.

Think about how you handle risk. Would you rather work for a rocksolid company with a strong benefits package, a smaller start-up with great stock options or start your own business? The potential payoffs escalate as you take on more risk, but so do the possibilities for disaster. The same is true for investments.

If you’re young, you can dust yourself off and start again. For people over 40, the ability to absorb losses diminishes rapidly as retirement nears.

Do your homework. Risk without research is just another form of gambling. Before jumping into any kind of investment, it’s vital to do the homework required to accurately evaluate the risk. Don’t become a target for unethical financial advisers.



The long-term rate of return for big-company stocks has averaged 10% yearly over the past 70 years. Joe invests $2000 per year in those stocks in a tax-deferred IRA. His friend Dexter buys super-safe Treasury bonds paying an average of 5%. They both started saving at age 25 and continued until age 65. Though the rate of return is double, the accumulation is quadruple: at age 65, Joe has $1,006.513.00 while Dexter has just $248,561.00 Was this worth a little bit of risk?

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Are your kids financially savvy?

Most hard-working parents spend time and money providing their children with the things that will give them a “shot” at having a successful life; i.e. tutors, computers, braces and organizational sports to name a few. But recent evidence indicates that parents are not proving their children with good financial sense, a necessity for surviving in the real world.

The ability to manage personal finances is a fundamental life skill that must be taught,” says Donna Duguay, Executive Director of Jumpstart, a non-profit organization dedicated to teaching financial literacy to our young people.

She suggests the following tips for mom and dad to help every parent instill some good dollars and sense in their children:

  • Start Early – Experts say that once your children understand that money is used to buy things they are ready to learn more. Kids need to know where money comes from an how it is used
  • Let children learn by doing – The best way to learn how financial institutions work is to use one. Check with banks and credit unions for special accounts for children. The Young Americans Bank in Denver offers banking services to kids ages newborn to twenty-two.
  • Give your kids an allowance – it teaches kids how to spend money independently. The goal of an allowance is to have children be accountable for handling all their expenses before he/she leaves for college. Let kids learn from their mistakes in handling their money.
  • Teach kids to distinguish between wants and needs – basic money management is taking care of needs first then the wants. Discuss the difference with your kids.
  • Be a good role model – talk out loud about your financial decisions so kids and hear and learn. Let them be part of the decision-making process.

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Stop the leaking

Are You a Spendthrift?

Do you hide bills from your spouse or partner?

Do you sneak purchases into the house so your partner—or parent—doesn’t see them?

Do you shop to cheer yourself up when you’ve had a problem with work, school, your boss, your parent, your partner?

Do you shop when you’re angry? When you’re hurt? As a way to get even? To celebrate?

Does shopping make you feel exhilarated, high, excited?

Do you love the process of shopping, of selecting purchases, chatting with salesperson, pulling out your charge card, only to crash and feel let down when you get home?

Do you buy things you don’t need or can’t afford just because they’re on sale?

Do you have unused items stored in your closets?

Do you ever buy things solely in response to advertising or because peers or siblings have them?

Are you embarrassed to tell someone how much you owe?

Don’t feel guilty if you answered “yes” to several of these questions. Few people shop today solely because they need something. Shopping has become an activity.

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If you answered yes to five or more questions you need to take a careful look at yourself. There may be another issue in your life you need to deal with.

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Places to find money

Change is not made without inconvenience, even from worse to better!
Samuel Johnson

Tips on where to find extra money

Trying to find places to trim your budget to free up some money to payoff credit card debt or start investing for the future? Here’s a tip worth considering:

#1: If you eat lunch out every day cut back by taking your lunch one or two days a week. Here’s what you could save:

Example: If you stayed on the job for 30 years and substituted a $2.00 lunch for a $7.50 lunch and deposited the $5.50 I an investment earning 8% interest compounded over 30 years, you would have around $100,000.

Another “tip” to make bringing your lunch more exciting is to form and “investment” club within your work group. Invite outside speakers or take turns researching stocks and learn how to track investments.

How Long Will It Take to Double the Money You Invest?

Compound interest is critical to the growth of the money you invest. With compound interest the return you receive on your initial investment is automatically reinvested. In other words you receive interest on the interest.

How quickly does money grow? The easiest way to figure on fast your money is growing is to apply the “Rule of 72.” Simply divide 72 by the interest rate you get on your money to get the answer.

For example, if you invest $10,000 at 10% compound interest by the Rule of 72 you will double your money in 7.2 years.

Just as compound interest is the great ally to an investor, inflation is the great enemy. The “Rule of 72” can also help you figure the damage that inflation can do to your money.

For example: say you decide not to invest your $10,000 but hide it under your mattress instead. Assuming an inflation rate of 4.5%, in 16 years time your $10,000 will have lost half its value.

The real rate of return is the key to how quickly your money will grow. If you are receiving 10% interest on an investment but the inflation rate is 4% your real rate of return is 6%. Under this scenario is will take your money 12 years to double in value.

The “Rule of 72) is a quick and easy way to determine the value of compound interest over time. Be sure to take into consideration the inflation rate to determine your real rate of return.

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How financially savvy are you?

In early 2000, a Personal Financial Survey was given to 723 12th grade students from across the country. The 30 question multiple-choice questionnaire surveyed students knowledge in the areas of money management, saving, managing credit, spending and investing. Students participating scored poorly averaging only 51.9%.

Here is a sample of the questions asked in this survey.

1. If you had a savings account at a bank, which of the following would be correct concerning the interest that you earn on this account?

a.) earnings from savings account interest may not be taxed.

b.) Sales tax may be charged on the interest that you earn

c.) Income tax may be charged on the interest if your income is high enough

d.) You cannot earn interest until you pass your 18th birthday

2. Walter must borrow $10,000 to complete his college education. Which of the following would not be likely to reduce the finance charge rate?

a.) if his parents co-signed the loan

b.) if his parents took out an additional mortgage on their house for the loan

c.) if the loan was insured by the Federal Government

d.) if he went to a state college rather than a private college

3. Many people put aside money to take care of unexpected expenses. If Pedro and Susanna have money put aside for emergencies, in which of the following forms would it be of least benefit to them if they needed it right away?

  1. checking account
  2. savings account
  3. stocks
  4. invested in a down payment on the house

4. Which of the following credit card users is likely to pay the greatest dollar amount in finance charges per year if they all charge the same amount per year on their cards?

  1. Barbara, who always pays off her credit card bill in full shortly after she receives it
  2. Ellen, who generally pays off her credit card in full, but occasionally will pay the minimum when she is short of cash
  3. Nancy, who pays at least the minimum amount each month and more when she as the money
  4. Paul, who only pays the minimum amount each month

5. Wendy worked her way through college earning $15,000 per year. After graduation her first job pays $30,000. The total dollar amount Wendy will have to pay in Federal Income taxes in her new job will:

  1. be lower than when she was in college
  2. stay the same as when she was in college
  3. go up a little from when she was in college
  4. double, at least from when she was in college
“That which we persist in doing becomes easier, not that the nature of the thing has changed, but our capacity to do it has increased.”

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Correct Answers: 1.) c, 2.) d, 3.) d, 4.) d, 5.) d

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Will Social Security Retire Before You Do??

Traditionally, people have viewed Social Security benefits as the foundation of their retirement planning program. The Social Security contributions deducted from your paycheck have, in effect, served as a government-enforced retirement saving plan.

However, in the last 10-15 years the Social Security system has operated under increasing strain. Better health care and longer life spans have resulted in an increasing number of people drawing Social Security benefits. As the baby boomer generation, those born between 1946 and 1964, approaches retirement, even greater demands will be placed on the system.

In 1940 there were 40 active workers to support each person drawing Social Security benefits. Now, there are 3.2 workers supporting each pensioner. By the year 2030 there will be only 2 active workers to support each pensioner.

To help this overtaxed system, the government is increasing the age limits as which you can received full benefits. Through 1999 you could qualify for full benefits at age 65. This is now being increased on a gradual scale. By the year 2027 the age for qualifying for full benefits will have increased to 67.

It is important to recognize that Social Security benefits now play a very limited role when determining how much retirement income you will need. It’s a fact that you need to be saving and investing for your future.

The Social Security Administration will provide you with a calculation of your benefits upon request. You can call 1-800-772-1213 and ask for Form SSA=7004 “Personal Earning and Benefit Estimate Statement.”

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How Much Does Your Home Really Cost You?

Most home buyers finance their home mortgage for 30 years. However, just because the loan is for 30 years does not mean we have to take the whole 30 years to pay if off. A wise homebuyer will pay off that loan much sooner.

Paying a little extra on your principal every month that save you a ton of money.

Consider this:

Loan Balance: $100,000.00

Loan Rate: 8.5%

Monthly Payment: $768.91

Add Monthly to Payment (Principal)$ 25.0

If you pay an additional $25.00 per month on the principal, you will pay off your loan in 26 years and 3 months instead of 30 years. Because you will pay less interest by paying the loan of sooner you will reduce your total payments by $26,265.12.

Financial Details of $100,000.00 loan:

Principal Amount: $100,000.00

Payment Amount: $ 793.91

Interest Rate: 8.5% compounded Monthly

Total Amt. Financed: $100,000.00

Total Payments: $250,548.39

Total Finance Charge: $150,548.39

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