Investing our Time wisely

I know I touched on the wise use of time in my last post, but this principle is really something that I need to work on.

When I think of a financial investment I often think about what the potential return is going to be. This varies based on the risk involved with the investment.

For some reason, it is easy to forget that our use of time is really an investment. What return am I going to get from my chosen use of time? Some returns come right away while others don't become apparent for some time.

What is the return for using my time to complain?
What is the return for using my time to show gratitude?
What is the return for using my time to learn new things?
What is the return for spending time playing cars with my son?
What is the return for doing date nights with my wife?
What is the return for giving service to others?
What is the return for spending time to ponder or meditate?
What is the return for . . .

Regular financial returns come when we diligently invest in that which brings good returns.
Likewise, we get regular returns in other measure when we consistently do that which brings the reward. In other words, we reap what we sow.

Opportunity Cost and the use of Time

Again I want to reference my Personal Finance textbook mentioned in my previous text.

"Have you ever noticed that you always give up something when you make choices?" That is opportunity cost. There is a cost in what we give up when we make choices. Therefore, our choices should be such that we get the most desirable result. The value of what we get from our choices should be greater than the value of what we give up.

In financial decisions, something is given up in order to receive a "more desirable" result. Some people might give up the use of 10% of their income now in order to have it set aside for retirement. Others may give up having money set aside for a big vacation in order to go out to eat on a regular basis.

Regardless of demographics everyone has a preference on how to use time and money. Opportunities are passed by in order to use our time and money the way we want. Hopefully we make the decisions that bring us the short and long term consequences we desire.

To finish the post I extend the following invitation from the textbook:

"Select your use of time [and money] to meet your needs, achieve your goals, and satisfy your personal values."

Goal Setting

I recently started reviewing some of the things I learned from my Personal Finance class at Snow College. The following tidbits come from my textbook from the class.

"If you don't know where you're going, you might end up somewhere else and not even know it."

--Goal setting is central to financial decision making

Financial goals should be:

1. Realistic . . . don't set goals that you cannot achieve with your income and life situation.

2. Specific and measurable . . .Having specific, measurable goals helps us create a plan to acheive the goals.

3. Have a time frame. . . This helps us avoid procrastination in working toward the goals.

4. Indicate the type of Action to be taken . . . Without action Goal setting is of no use.

1 in 84 homes in America have received . . .

On a recent conference call at work we heard a crazy statistic.

-1 in 84 homes in America have received a forclosure notice.

What? Why so many?

First off, why are so many homes in foreclosure? Some homebuyers stretched themselves too thin. Others didn't understand the terms of the Mortgage they signed (you mean I'm supposed to read and understand the legal contract I enter into?). Many homeowners don't think about property tax increases, homeowners insurance rate hikes, repair and maintenance costs. The last broad category I want to include is those that were hit so hard by declining home values that they owe more than the home is worth.

While thinking of homeownership as an investment is good, it is vital that the borrower does their due diligence. My brother-in-law spoke of going through the "worst case scenario" before making their home purchase. I believe that too many people only go through the "best case scenario" and forget that life doesn't always turn out how exactly as planned.

Don't let the loan officer convince you to borrow the maximum amount you can qualify for. That is why so many people are upside down in their mortgages. Borrowing less than you could afford will allow you to still enjoy life with the extra cash flow.

My point is not to scare anyone out of buying a house. I only hope that more Americans, including myself, will truly seek to understand what costs are associated with buying a home before the purchase is made.

Prepare for the future

This morning I had a bit of a paradigm shift. Some financial experts seem to focus a lot on building wealth. Although that focus can be a good one, my mind shifted a bit on how I want to look at it.

Instead of focusing on a desire to be wealthy I believe that it is better to focus on being prepared financially for the future. Being prepared financially truly is a key to the future.

I want to be prepared for. . . when the car breaks down. . . . buying our 1st house . . . . going on regular dates with my wife. . . . taking vacactions . . . . furthering my education and learning. . . . unexpected illness . . . .retirement . . missions. . . charitable goals. . . etc.

So, some great preparedness questions to ask oneself are:

"What do I need to be financially preparing for?"

"How am I going to be financially prepared for . . . .?"

"What should I be doing differently to be better prepared for . . . ?

My favorite line from the Disney Movie, The Lion King, is "Be Prepared!"

APR vs APY

You might hear APR or APY everyday on TV, the radio, or even the internet. I did a little reading on investopedia.com and here are some interesting findings to help the average consumer.

What is the difference between apr and apy?

APR=Annual percentage rate
APY=Annual percentage yield
A big difference in these two rates is the use of compounding interest.
APR is a basic rate that doesn't use the compounding effect while APY does use this compounding effect.
APR = Periodic rate X number of periods
APY = (1+periodic rate)^number of periods - 1
For example, a credit card company might charge 1%interest each month; therefore the APR would equal 12% (1% x 12 months = 12%). This differs from APY, which takes into account compound interest. The APY for a 1% rate of interest compounded monthly would be [(1 + 0.01)^12 – 1= 12.68%] 12.68% a year. If you only carry a balance on your credit card for one month's period you will be charged the equivalent yearly rate of 12%. However if you carry that balance for the year, your effective interest rate becomes 12.68% as a result of the compounding each month.
So, banks will quote the apr when they are trying to lend money because it doesn't take into account the extra money they will make off you because their interest isn't compounded annually. It is generally compounded quarterly or monthly. so if a bank quotes a rate of 9% apr and the loan compounds monthly then you are really getting charged 9.38% a year. That .38% accounts for a lot of money if your loan is large.

On the other hand, banks are going to quote the apy when they are trying to get you to put your savings with them. They are going to quote the highest rate possible. We will get the "higher" rate assuming we let the interest we earned start earning more interest.

Include the Entertainment category in your budget

What is the use of have a meticulous budget if you don't get to have some fun too?  No matter how big or small, I feel it is important to have an entertainment category in the budget.  We are looking forward to our family trip to Yosemite, San Francisco, and Modesto.  The blessing of a budget is helping us afford it.

The entertainment category is great to have when siblings want to head to a sporting event, musical, or the movies.  This is great when you just want to go get some ice cream.  The only down side to the entertainment category of the budget is there has to be a limit. 

Enjoy the journey.  Make some memories.  Have fun!

Sacrifice

This week Janell and I made a sacrifice that will hopefully help us with our goals for the coming year. We had been paying quite the premium for our cable/internet bundle after the introductory period expired a couple of months ago. Now that Janell is done with her Bachelors degree (Congrats Janelly!!!) we have decided to go with basic cable and basic internet. The switch happens Monday. So, now we will have to deal with the much slower speeds while online.

I guess the point here is that reaching our goals takes sacrifice. We must give up something we have or want to get something better. In business, opportunity cost is what you give up to get something different. We must decide if what we are sacrificing is worth more than what we are getting for the sacrifice or not. The answer is subjective and thus it is different for everyone.

Hopefully we are sacrificing the right things for that which will last. Giving our time, talents, and money is worth the reward of a strengthened relationships with family and friends.

Commitment

In the book, "How Successful People. . . Keep their lives out of the toilet" by Sandra Phillips and Don Aslett, I learned a new way of thinking about commitment.  Commitment is the "I will . . ." attitude.  This differs from I wonder. . ., I wish . . ., I will try. . . ., I'll see what I can do . . ., I will do it as soon as . . .Instead of just having an intention to do something great we must make the commitment to do so.  "Yes. I will."  "I promise."

According to Yoda, "Do or Do not. There is no Try."  After the commitment is made there must be followthrough.  Distractions, detours, and temptations will certainly follow the making of  a commitment.  If we are truly commited then we will not falter from achieving what we said we would do.  

Stick to your task till it sticks to you; 
Beginners are many, but enders are few. 
Honour, power, place, and praise 
Will come, in time, to the one who stays. 

Stick to your task till it stick to you;
Bend at it, sweat at it, smile at it too; 
For out of the bend and the sweat and the smile 
Will come life's victories, after awhile. 
-Anonymous 

Improve Your Credit Score

Recently I was reminded of a friend in my ward.  He and his wife wanted to buy a home several years ago, but found that it would actually take some time.  When they went in to inquire about a Mortgage the lender told them they had no Credit scores. Essentially they would have to build their credit before purchasing their home.   So, unless you are going to buy your first home or your next home with Cash it is a great idea to pay special attention to your credit score.

Another secret I recently learned reminded me to keep improving our credit scores.  Higher credit scores mean that borowers are less risky to investors.  Therefore, they are willing to loan you money at a lower interest rate.  If you don't have great credit then you will likely get charged higher interest rates.  Even worse, you may not qualify for a loan at all.  Remember if you are qualifying with both husband and wife then both credit scores need to be great because your interest rate will be affected by the lower of the two spouse's scores.

Delay Gratification

Today I just wanted to do a short post about the benefit of delayed gratification.  This principle really goes with not buying things that don't increase in value unless you have cash.  When you want to get something it pays to give it some time.  Make sure that after "sleeping on it" you still want it, you can afford it, and you can afford it now.  

Janell and I recently purchased a bedroom set.  This is something that we have wanted (especially Janell) since we got married.  Well, now that we have had a few years of saving we can afford it.  We found something we really like on sale.  So, we slept on it and decided to go ahead and make the purchase.  Wow, it really gives you satisfaction to pay with the debit card (Cash).  

In our "I want it now" world it actually means more when we put off things we want until we are truly ready financially to get them.  When considering a purchase we can ask ourselves the following questions:

Can I afford to get this?

Can I pay cash?

What do I have to give up to get it?

Does it make sense to buy it now or later?

Only pay "cash" for things that depreciate

This post got started a couple weeks ago, but the internet went down.  Now I finally post it.  I don't remember the source of this train of thought. Nevertheless, it is good advice. Don't buy stuff on credit that is going to depreciate or go down in value. Sometimes this isn't always possible, but the ideal is there. When we buy stuff on credit the value of the product or service can go down. This means that we could owe more money on a product or service than it is worth. For example, The value of a New car goes down several thousand dollars right when you drive it of the lot. Why should we owe more money on the car than it is worth.

There are some things that do go up in value after they are purchased.  For example, the value of an education generally goes up every year.  We can certainly earn more money with higher education.  So, if it takes some debt to get an education it can definitely be worth the "investment".  Likewise, buying a home is likely a great long term investment.  Debt can be used wisely in buying a home.  In most cases over a long period the value of a home will go up.  location, bad neighborhood, flood,  cracked foundation, etc are some examples of when a home may not appreciate.  Tough economic times can also cause the value of a home to temporarily stay constant or go down in value.

The Moral--when you cannot afford to buy something that depreciates with cash. . . . .don't buy it until you save the money to pay "cash".  Let interest work for you instead of against you.

Take baby steps

I jumped on Dave Ramsey's website tonight.  He does a national radio show about personal finance. Dave seems to focus on real life personal finance for the average American.  I love step number 1. $1,000 emergency fund.  hmmm, it seems like I've heard something similar before.  Setting a goal for how much to start an emergency fund with will certainly be beneficial When we have an emergency in our everyday life.  Starting now with a budget has helped us work on building our emergency fund.  

Dave quotes John Maxwell on his website, "A budget is telling your money where to go, instead of wondering where it went." In other words we should plan on paper or on the compter what we are going to spend before we spend it.  This also sounds familiar--Spiritual creation before the physical creation.  This principle has sure helped us begin building our emergency fund while saving for other things as well.

Build a Reserve

"We encourage you wherever you may live in the world to prepare for adversity by looking to the condition of your finances. We urge you to be modest in your expenditures; discipline yourselves in your purchases to avoid debt. Pay off your debt as quickly as you can, and free yourselves from this bondage. Save a little money regularly to gradually build a financial reserve. If you have paid your debts and have a financial reserve, even though it be small, you and your family will feel more secure and enjoy greater peace in your hearts."
-The First Presidency (All is safely gathered in pamphlet)

I love the principle that is taught here by the First Presidency. If we regularly save a little money, then this growing financial reserve will offer us peace and a sense of security. I know that our reserve is currently small, but as we regularly put money aside that will help us have hope and peace in what will come in the future.

Conquer Procrastination

Today is a great day to write about Conquering Procrastination. In the book " The Richest Man in Babylon" George Clason writes about the need to Conquer Procrastination. One of the characters in the book said, "To me, Procrastination proved to be an enemy, ever watching and waiting to thwart my accomplishments." I've been wanting to post about this principle for a while, but now I finally do it.

It is so easy to procrastinate. We often think about things that we need to do, but wait to do it. Later in his book Clason says, "Action will lead thee forward to the successes thou dost desire." There is no better way to conquer procrastination than to take action now. Of course we should set goals and plans to accomplish them. Then we must act on those plans. We should prioritize and then stick to the plan.

I think that many young couples wait to save for retirement or wait to set a budget. Hopefully we can do a little better in areas that we know we need to to set goals and work towards them. Let us conquer procrastination as it relates to our finances and other important areas of our lives.

Take Responsibility for Your Money

Richard Paul Evans gave some great advice in his book, "The 5 lessons A Millionaire Taught Me."

One of those 5 things is to Take Responsibility of Your Money.

We should:

1. Know how much money we have  

2. Know where it comes from

3. Know where it is going  

4. Know what it is doing in the mean time.  

 

I think

 that people often forget about number 4. What is our money doing while it isn't yet spent?

There are many options to get our money to earn before we spend it. After learning this principle I thought of different ways to let the money work for us while it is waiting to be spent.  Our solution is 5.01% Rewards checking account 

from Deseret First Credit Union.  Other banks and credit unions also have insured accounts that allow for your money to earn interst before it is spend.  Any little bit helps.  

Another tidbit--I believe Heavenly Father wants us to take responsibility for our money (everything we have he has given us).  Hopefully we are being good stewards.