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Week 7--Your Money

It is not how much you earn, but what you do with what you earn that will determine your financial success. You have to realize that part of what you earn is yours to keep. There is no law that says you have to spend all of it. You can save some of it for investing.

While you work on improving yourself so that you can earn more money, you must manage the money that you earn so that you can save part of it for investing. You must have a plan and a budget. We suggest that you do the following:

This will be your plan. To live on 70%, you must have a budget. A budget does not have to be detailed and unforgiving. You can budget for house, food, clothing, car, misc., medical, entertainment, and bills. Suppose you bring home $3000 a month.

Suppose that you list your all you expenses as a monthly expense. For example, you list

Your expenses total $3000. You should live on 70% of $3000 or $2100. What can we do? We are already working on improving ourselves so that we can make more money, but that will not help us now.

Since we need more money now, we can use the savings account now instead of saving it for future emergencies. We have an immediate emergency now with just paying our bills.

I believe that 10% for charities should be given no matter what because I believe in giving and that you will receive more than you give. Not necessarily in monetary terms, but in emotional terms by how good it is to help people less fortunate than you.

So first, we should try to earn more money by getting a part time job. Sell some possessions that you do not need by having a garage sale. Any money you earn you should use to pay down the balance of any loan or credit card bill with the lowest balance.

Next, we can cut back on some expenses. Maybe, we decide to reduce food by $75, car expense by $75, and other expenses by $150. We now need $2700 a month, for living expenses. Since we will use temporarily our savings to live on, we only need $300 more to make our budget work.

We can decide to take 50% from our investment account and 50% from our charity account. Of course, this is only a suggestion. You could use the entire $300 budgeted for the charity account instead of using the investment account. It is your decision on how to set up the budget.

Our goal should be to live debt free except for maybe a house payment. Try to pay down your bills by paying any extra money you get on the bill with the lowest balance. You could use your investment account money to pay down your bills if the interest is more on the bills than you earn on your investments.

When you start to earn more money, try to adjust your budget so that you can live on 70% of what you earn. Then start to put the plan is effect. Invest 10%, save 10%, and give 10%. Continue to pay off all your bills until you do not have any debts.

You must eliminate debt. By debt, I mean anything that is worth less than you owe on it. Houses can be considered an investment as long as you owe less than it is worth. Car loans are usually considered debt unless you have put a lot down. Do not use your credit card for purchasing anything if you can not pay off the balance of the card at the end of the month. When you have paid off all your charge bills, you will have made a giant step forward in your financial success.

In order to be successful, you must be able to have the time to do the things that you want to do. One way to accomplish this is to earn passive income. Passive income is income that you earn with your investments. It is money making money, instead of your time making money. For example, if you save 10% of your income and you earn 50,000 a year, you will have saved $5000 in a year. Now if you have investing that $5000 in something earning 10% return, you will earn $500 on your $5000 in a year. At work, you are earning about $200 a day. Therefore, your investment has returned 2.5 days income to you. Next year, if you save $5000 more, your investment would earn $1050 or about 1 weeks work.

By continually saving and investing your savings, you are providing a means to have the time and money to enjoy your life. I retired when I was 55 and have been traveling, playing with my toys (computers, cars, stereos, etc.), and eating at fine restaurants, staying in the finest hotels, helping others, spoiling my grandchildren, and just enjoying life. I didn't know about saving and investing until I was over 30, so I had a late start.

You must learn all you can about investing. You should learn about real estate investing so that you can buy a house and maybe even rental property. You should learn about the stock market. You should learn about collectables. Remember that you should never invest in anything unless you have studied that investment. There is no risk free investment. In investments, the reward is in direct proportion to the risk. If someone tells you that you will double your money in 6 months, you are almost sure that the risk is so high that you will probably lose your money.

First, start saving 10% of your income for investing. Save for your house and put some in an IRA or 401K plan at work. Then using a self directed IRA or 401K, start investing in the stock market. Of course, you will diversify your investments using stocks, bonds, cd's, and other investment vehicles depending upon your situation. Just make sure that you are investing for the future.

The Assignment for the seventh week.

Read "How to Make Money in Stocks: A Winning System in Good Times or Bad" by William J. O'Neil". You will find it an excellent primer, one that relies on time-honored indicators such as quarterly earnings, market capitalization, and daily indexes.

If you are not experienced in trading and don't have an online broker account, read "a beginner's guide to short-term trading" by Toni Turner. This book is about short term trading, but is does have a lot of information about how to determine which broker to use, how to set up your account, how to buy and track stocks, how to pick stocks, and timing your buys. In general, it is a good beginner's book for learning about getting started.

You can find these books in most libraries, but remember that you should be building your library and these are good books to add to any library.

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