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Posted
May 05 2008, 04:08 AM
by
Karen Datko
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This post comes from J.D. Roth at partner blog Get Rich Slowly. "Saving is the key to wealth," I wrote recently while trumpeting the extraordinary power of compound interest. "If you do not spend less than you earn, and if you do not save the difference, you cannot build the wealth you desire." The younger you are when you begin saving, the more time compounding has to work in your favor, and the wealthier you can become. "The next best thing to starting early," I wrote, "is starting now." Other options A few readers noted that while the mathematics of compounding makes sense, it's not motivational for those too old to take advantage of its full force. "This is pretty depressing for those of us who spent our 20s with practically no income thanks to universities," wrote one reader. Her sentiments were echoed by several others.
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Posted
Apr 28 2008, 04:47 AM
by
Karen Datko
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This post comes from J.D. Roth at partner blog Get Rich Slowly. I wasn't raised in a culture of saving. My parents never made it a habit, and so could not pass the skill on to me or my brothers. In fact, I didn't establish my first savings account until three years ago, when I was 36 years old. (I had a passbook savings account as a young boy, but it never had more than $5 in it.)
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Posted
Apr 21 2008, 06:36 AM
by
Karen Datko
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This post comes from J.D. Roth at partner blog Get Rich Slowly. Stories about national economic woe abound. I've had conversations with a few of my friends about the mortgage mess, about recession and a possible bear market, and about the nature of poverty. The economy is sour in the United States (and elsewhere in the world), and this frightens many people.
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Posted
Apr 14 2008, 05:51 AM
by
Karen Datko
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This post comes from J.D. Roth at partner blog Get Rich Slowly. There's an old man who lives down the street. I don't know his name, but every day I see him walking up and down the road with his cane. He moves slowly. He always wears the same thing: faded denim pants, a lightweight tan jacket and a bright orange cap. For one hour every day -- rain or shine -- he walks up and down the street. Every day. We live on a steep hill, but he only walks on the flattest part. He's been doing this for months. We've exchanged greetings before, but I've never asked him about his routine. Does he do this for exercise? Is he recovering from surgery? All I know is he's out there every day, making small steps, walking for an hour. I don't know where he's going, but he does. The dangers of going cold turkey When a person decides to make a lifestyle change, whether financial or otherwise, there's a temptation to go all out. With the zeal of a new convert, she leaps headlong into the life of the frugal, for example, giving up everything she held important before. There's a problem with this method. Most people who leap from a lifestyle of deficit spending to one of extreme frugality find the waters very, very cold. It's a shock to the system. It feels oppressive. They struggle to tread water, but before long decide they're going to sink rather than swim, so return to the warmer, familiar waters, the waters of debt.
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Posted
Apr 07 2008, 06:25 AM
by
Karen Datko
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This post comes from J.D. Roth at partner blog Get Rich Slowly. When I was young and stupid, I became addicted to spending. I got my first credit card in college, and over the next 15 years, I accumulated $35,000 of debt. I'm debt-free now, and have even begun building a nest egg, but I didn't reach this place without making a lot of financial mistakes along the way. And I still make mistakes. Dealing with mistakes and setbacks is an important tool in your personal-finance arsenal. Preventing problems The best defense is a good offense. I used to spend a lot of time reacting to problems: bounced checks, car repairs, soccer injuries, and -- worst of all -- my own dumb choices. I never could seem to get ahead. Then I realized that the best way to defend against financial setbacks is to actually prepare for them before they arrive. Simple, I know, but it's the simple stuff like this that forms the basis of smart personal finance. Two methods in particular helped me deflect many setbacks.
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Posted
Mar 31 2008, 05:57 AM
by
Karen Datko
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This post comes from J.D. Roth at partner blog Get Rich Slowly. When I lived paycheck to paycheck, there never seemed to be enough money to go around. I was perpetually $50 or $100 short of what I needed. Because I was spending more than I earned, I fell further behind every month. I had a negative cash flow, which led to more debt, which put me deeper in the hole. It is mathematically impossible to get ahead with a negative cash flow. In order to save money, in order to pay off debt, you must earn more than you spend. Though I understood this intellectually, it was only when I actually saw the concept applied to my own life that I appreciated the power of positive cash flow. Cash flow basics To gain wealth, you must spend less than you earn. This is the fundamental law of money. Framed in terms of a mathematical equation: [WEALTH] = [WHAT YOU EARN] - [WHAT YOU SPEND] This formula tells us two things:
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Posted
Mar 23 2008, 11:56 PM
by
Karen Datko
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This post comes from J.D. Roth at partner blog Get Rich Slowly. We received a Costco coupon book in the mail. Costco -- a membership warehouse store -- has very low prices and generally does not take coupons. A few times a year, though, they send out fliers with special discounts. My wife flipped through the book first, clipping coupons for Kleenex, cat litter and Ziploc bags. When she was finished, I picked it up to look for things she'd missed. On the first page, I nearly tore out a coupon for $6 off a 10-pack of toothbrushes. On the next page, I was drawn to a coupon for four pounds of jelly beans. Later in the book, I was tempted by a stainless steel slow cooker. ("We already have a slow cooker," My wife muttered in exasperation when I showed her the coupon.)
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Posted
Mar 17 2008, 06:50 AM
by
Karen Datko
This post comes from J.D. Roth at partner blog Get Rich Slowly. "To develop a better understanding of the wise use of credit, let's spend a few minutes with a certain individual we'll call 'Mr. Money,'" suggests the narrator in "The Wise Use of Credit," a short video created in 1960 by Sutherland Educational Films. In this film, produced with help from the National Consumer Finance Association (which is now the American Financial Services Association), Mr. Money teaches John and Judy the ins and outs of credit. His advice is familiar to most of us:
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Posted
Mar 10 2008, 05:46 AM
by
Karen Datko
This post comes from J.D. Roth at partner blog Get Rich Slowly. I met with one of my readers at the local coffeehouse the other day. Like many of us, Aaron got into money trouble when he was young -- he made some dumb mistakes. He fell for a get-rich-quick scheme that left him deep in debt. For a long time, he floundered, struggling to find motivation, but ultimately he found purpose in religion. Aaron's faith helped him to turn his life around, to begin making smart financial decisions. He still has a long way to go, but he feels like the worst is behind him. "I've had many good opportunities to change things along the way, and that's what I've done," Aaron told me. "My life used to be about me, me, me and take, take, take, but now I've changed." "What about you?" Aaron asked, sipping his coffee. "What motivated you to take control of your finances?" I started to answer but, as conversations will, our discussion lost its focus. I never gave a complete response. I thought about the question for the rest of the day, though, and concluded that for me, money represents freedom.
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Posted
Mar 03 2008, 05:57 AM
by
Karen Datko
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This post comes from J.D. Roth at partner blog Get Rich Slowly. Do you save for one thing at a time, or do you pursue several goals at once? If you're like me, you work toward several financial goals simultaneously, but you dump most of your money in one account. It's easy to forget how much you've saved for each goal. And it's easy to borrow money from one objective to pay for something else. In his book "The Six-Day Financial Makeover," Robert Pagliarini advocates "purpose-driven investing." I've found that I can apply that concept to my personal bank accounts as well.
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