income

Can You Live on Half Your Income?

December 8, 2016 By Jennifer Clark 3 Comments

Suze Orman is a nationally-known personal finance guru and television host who received a bit of criticism online after airing on Oprah in April of 2009 challenging viewers to live on half their income. The general thoughts were that the goal was unrealistic, that it was easy for her to claim this as she is wealthy. She has forgotten, they claimed, what it is like to financially struggle.

In the content, Orman suggsted learning to live on half your income as a way to be financially prepared for the worst. If you lost your job or had your hours reduced you’d have no choice but to live on a limited income for a period of time. Therefore, being prepared for such a situation and ensuring you could get by. This helps to reduce your spending habits now before something does happen. Plus, saving half of your income is recommended for a comfortable retirement.

Regardless of how you may feel about Suze Orman, you must admit she brings up an interesting point: Could you live on half your income?

Can you live on half your income?

When I left my full-time job to pursue my own freelance business full-time, I promptly adjusted my spending and budget. It was not easy, but my first step was looking over my bank statements. I immediately decreased the amount of times I go out for coffee, researched the local grocery shops in my area for better rates and made sure to not purchase anything I did not need (like new clothes). Although my household expenses are shared with my boyfriend, his going to medical school meant we both had to make changes. So far, we’ve been able to quickly adapt and made it possible for ourselves.

The amount of dual income households have increased over the years, but a 2015 report from The Pew Charitable Trusts state that many individuals unfortunately still live beyond their means. In fact, much of the content of The Suze Orman show is letting people know if they can afford various items. But, people generally have a hard time wrapping their heads around this concept. It all seems unattainable and believe this is a concept meant for wealthier people. The truth is anyone can learn to live on less and save more. It really is just about reducing unnecessary expenses. Even if you feel you could not live on half your income, you could try living on 75% and saving and investing the rest. It will only work, though, once you begin to change your mindset.

Many times, we think we need every dime we make to live, but the harsh truth is that we there are several changes we can make in our spending habits. Often, wants are mistaken as needs, and we are unwilling to live in temporary discomfort in the present for a better future. By taking the time to truly evaluate all money in and out, we can see were adjustments can be made. It’s an activity that should be done regularly to make sure we are staying on track and to analyze our growth. Once you remove simple luxuries, such as cable subscriptions, dining out multiple times a week, and inefficient vehicles, you’ll see how this can positively affect your income. Trust me.

What are the benefits to live on half your income?

As you do make the expense cuts in your life, you can truly strive to live on only part of your earnings. If you do, benefits include:

Getting in the habit of saving regularly
Assures you can survive should an economic misfortune occur
Shows you what your necessities in life are and which are pure convenience or indulgences
Simplifies your life
Makes you evaluate your lifestyle and reveals whether or not you are living outside of your means

Downgrading your lifestyle may be unappealing and daunting at first, but it is worth a shot to work toward improvement. Most likely, you’ll find that you won’t miss all those fun purchases because your finances will be stronger. The concept is difficult, but it is not impossible.

Don’t wait to be forced into downsizing; do it while you still have your regular income and revenue flow.

Do you live on half your income? How do you make it work for yourself?

FAFSA: What You Need to Know

February 20, 2016 By Amanda Blankenship 1 Comment

Financing a college education can be difficult and it is oftentimes something parents are concerned about for years. However, the Free Application for Federal Student Aid (FAFSA) is designed to make paying for a higher education a little bit easier. The FAFSA takes a look at a family’s total income and determines how much money the child should need to pay for school. While it seems pretty easy, there may be a few things you’re missing out on when it comes to getting the most out of the FAFSA.

Here are a few things you may want to consider when you fill out the FAFSA:

Retirement Accounts

Retirements accounts (IRAs, 401ks) are not considered when you or your child fills out the FAFSA. Actually, during high school and while your children are in college is the best time to stock money away for retirement. The FAFSA only takes capital gains (income) into consideration when deciding how much student aid you can receive.

Different Financial Aid Packages

Sometimes, financial aid packages can vary greatly. It may be the decision between the number one school and the second choice when you see the financial aid reward packages. Even two institutions that are very similar in academic standing may provide you with two completely different packages. When it comes down to it, after filling out the FAFSA, you may have to make a decision based on money and not necessarily preference. You can also use better packages to negotiate terms with other institutions.

Negotiating Aid Packages

This point especially appeals to college athletes. Oftentimes, if you (or your child) receives a financial aid reward package that doesn’t cover everything or doesn’t cover enough, you may be able to negotiate your package. You don’t do this through the FAFSA website though, you would do this through the school itself. To do this, contact the financial aid office at the university that your family is taking a good look at and try and negotiate better financial aid. There’s an art to this, so be sure to put on your stern face when you go in for the meeting.

Savings Accounts

If you have a substantial amount in your savings accounts, you may want to start spending it down. This number (the number of dollars in the account) can significantly impact the amount of money you or your child will receive for student aid. You don’t have to spend it like crazy. Do things like pay down credit cards and other debt, prepaying your mortgage or even make a big purchase (car, new appliance, etc). If you do this at the beginning of the year before you file the FAFSA, it will greatly help the amount of student aid that can be received. The FAFSA generally only awards aid to families with $50,000 or less in assets.

Don’t Lie on Your FAFSA

The FAFSA is a government document so lying on the application can be considered a felony. Lying about any of your income or assets on the FAFSA can be punished to the fullest extent of the law. It is a form of fraud and is punishable with up to $20,000 in fines. You will also forfeit any of the financial aid received and could even receive jail time. Just don’t do it. Be honest about what you have and work with what aid you receive.

Photo: Flickr: Pictures of Money

Dave Ramsey’s Net Worth

August 12, 2015 By Will Lipovsky 9 Comments

You’ve heard of Dave Ramsey. He’s the guy who preaches, “Debt is dumb. Cash is king!” on his nationally syndicated radio show. It’s aptly named The Dave Ramsey Show. He is perhaps the country’s most famous personal finance guru – right up there with Suze Orman and Clark Howard.

But just a few short decades ago, he was broke. He lost all his money in real estate. However, just last year, he bought a new house. Brace yourself for the following stats. The living quarters are 13,307 square feet with a garage space of 1,454 square feet. This means his garage is bigger than most homes in Sweden, France, Germany, Greece, Spain, Italy… I could go on.. The house is rumored to have a wall of whiskey barrels in the basement, 18 shower heads in the master bathroom, and an impressive media room. Leann Rimes used to live in the neighborhood.

Dave bought this new house for a cool $5 million. It’s a massive chunk of change. But he stayed true to his beliefs that “Debt is dumb.” The house has no mortgage.

What Dave Ramsey often preaches is that buying nice things isn’t a sin – if you can afford them. He encourages people to buy Tesla’s, Yacht’s, etc. if they can afford to (while still tithing to their church). He says instead of looking at the cost of an item, look at your net worth. Think percentages.

Think of it in terms of vehicles… according to the famous personal finance book, The Millionaire Next Door, most millionaires spend about 2% of their net worth on cars. That’s $20,000. Dave says that a $20,000 is perfectly appropriate for a millionaire. However, a college student shouldn’t dare consider a $20,000 car.

To put Dave’s house into perspective, Dave Ramsey has a net worth of about $55 million. That means his house is less than 10% of his net worth. It’s just over 9%. This means he can easily afford the house. According to Bloomberg, US homeowners have 67 percent of total wealth wrapped up in housing.

How Dave Ramsey’s Net Worth Will Increase

Dave Ramsey’s net worth is $55 million. His home is worth $5 million. We don’t know how much of his worth is wrapped up in his business. We don’t know how much income it generates. But we know his benchmark when it comes to investing. According to Dave, anyone can invest in the stock market and expect a 12% return on their money. For more information on that, read his article titled The 12% Reality.

We can assume that Dave makes at least 12% annually on his money invested in his business, The Lampo Group, Inc. Using 12% as our figure, let’s see what his net worth will be in the future. After all, we want to keep this article up-to-date:

By the year 2016: $61,600,000

2020: $96,928,792.58

2025: $170,821,651.46

2030: $301,046,116.77

2035:

Ah, the beauty of compound interest. The rich get richer. Of course, keep in mind this is back-of-the-napkin math. It simply uses his current estimated net worth + gains of 12%.

Bottom Line

Dave Ramsey is VERY rich. He’s a far cry from his listeners who are typically swimming with sharks. Some say he is profiting off the poor. He charges them money to take his classes or join his forums, for instance. Surely he realizes they shouldn’t be spending money they don’t have. Or, is this okay?

Finally, if you want to get a better sense of what kind of advice Dave Ramsey is selling, consider picking up a copy of The Total Money Makeover. The book outlines some basic concepts about money and is designed similar to a self study course, so you can work through it at your own place. The book has sold more than 5 million copies – so it is worth the read. There are lots of used copies available on Amazon.com and for under ten dollars it is a solid investment in your own financial knowledge.

Early Retirement Without a Huge Nest Egg

May 7, 2013 By Jennifer Derrick 5 Comments

Many people dream of retiring while they’re still young enough to have some fun. Then they look at their bank balance, sigh, and decide that they will have to work until they’re eighty. This might not be true, however. Lots of people retire early without a fortune in the bank or a large inheritance on the way. To do so, however, requires a lot of thought and planning and a willingness to live a bit differently from the herd, both now and once you do retire. Here are some thoughts if you want to retire early.

It has to be a priority

This is probably the single biggest factor that separates those who actually retire early from those who talk about it. If you want to retire early, it has to be a priority and you and your partner (if you have one) have to be onboard together. You are going to have to save, save, and save some more and this is going to mean some sacrifices, both before and after you retire. You’re also going to have to want a different type of retirement than the golf-course-resort-living style of retirement that so many people desire. If you can’t commit to making saving and doing things differently a priority, or your partner isn’t willing, early retirement likely isn’t going to be possible for you. You have to want it more than you want almost anything else.

You may have to have some form of income

To protect whatever principal you have saved, you may need some form of income that can bridge the gap until you can collect Social Security or a pension, or until you can tap plans like IRA’s and 401k’s. This doesn’t have to mean another full time job. You may have rental properties or some sort of hobby you can monetize. If travel is in your plans, there are campgrounds and resort properties that hire seasonal workers and include lodging and utilities in the payment package which will greatly reduce your spending in lieu of income. Maybe you take a part-time or temp job that just sounds like fun. You can work at something fun for a change instead of the daily 9 – 5 grind.

You have to have a plan for health insurance

Heath insurance is the one thing you cannot be without. Without good insurance, a relatively simple illness can wipe you out, never mind a catastrophic accident or illness. When you leave the work world, you’ll probably lose your insurance. Fortunately, there are plenty of private plans you can buy and some are reasonable if you’re already in good health. Shop around to find one that meets your needs. Don’t just think you’re young enough to go without.

You have to slash expenses

Retiring without a huge nest egg means that your daily expenses have to go way down. You need to start now so that you can amass enough money to even think about retiring, and to get used to living on less. You will typically find that many people who retire in their thirties, forties, and fifties do it by eschewing a typical consumer lifestyle. They go without cable, they don’t eat out, they live in small, affordable housing, and they don’t drive expensive cars. They buy the bare minimum needed to live, preferring to sock upwards of 80% of their income into savings. And they keep that low cost of living into their retirement. If living such a “reduced” lifestyle isn’t for you, then you either need a very high income to retire early, or you have to give up the dream.

You have to educate yourself about finance

If you’re going to retire early, you need to know about investments. Sure, you can hire a planner to help you, but that expense is going to eat into your funds. And you still need to know if you can believe what the advisor is telling you. So you have to make it a priority to learn all you can about the different types of investments and how to withdraw from them without putting your plans at risk. You’ll also need a good understanding of taxes and how they affect your plans.

You cannot have debt

You cannot retire early if you’re still making hefty mortgage, car, credit card, or student loan payments. Those things typically take a full income to deal with and if you’re retired, you’re likely not bringing in enough to support debt. You also cannot carry much debt, if any, while you’re saving and preparing to retire. Every dollar you have to make in payments is one less that you can sock away for your nest egg.

You have to be willing to do things differently

You’ll find that most people who retire early don’t live a conventional lifestyle. Some are nomadic, staying with friends or family or in cheap hostels while they travel. Some live in tiny apartments or alternative housing. Some don’t have cars, preferring to keep costs down by relying on public transportation or their own two feet. Some are “back to the landers” who become almost entirely self-sufficient. Some live in campgrounds part of the year while they work there and see the surrounding area. Some even move to foreign countries where the cost of living is much lower. In order to keep that small nest egg from giving out, you have to be willing to look at life a little differently and try some unconventional alternatives.

You’ll need nontraditional retirement accounts

Your investments need to be primarily in accounts that you can tap prior to traditional retirement age. You can’t tuck all of your money into traditional IRA’s and 401k’s because these carry penalties if you withdraw from them too early. You need to look at Roth IRA’s which allow you to withdraw your contributions (but not your gains) at any time without penalty, and consider other forms of investment that you can access early.

You need to have an end of life plan

Once you’ve covered your immediate health care by getting health insurance, you need to know how you will pay for the end of your life. The end of life can get very expensive if you have to go into a nursing home. Medicaid will take care of you if you have no assets, but you’re not going to like where they put you. Have good long-term care insurance, give power of attorney to someone you trust, and have a living will that dictates how you want to be cared for, if at all, if you cannot make your own decisions. You want to have fun when you’re retired, but the end will come eventually and you have to know how you’ll pay for that.

Understand how children will impact the picture

Many people who retire early don’t have kids. If they do have kids, chances are they had them very early in life, only had one or two, kept the expenses way down, and pushed them out of the house by the time the parents are in their forties. That gives the adults some good earning years to really pad that retirement account. You’ll probably also find that any children are expected to pay their own way through school because the parents prioritized early retirement over paying for college. You can argue about whether that’s right or wrong, cruel or unfair, but it’s a fact that kids do impact the financial picture. You have to ask yourself which is more important: Having several kids and giving them every advantage, or your own early retirement.

You have to make a plan and stick to it

You can’t just talk about wanting to retire early. When you first get the idea that this is something you want to do, you have to sit down, do some math, do some research, and then create a plan. You have to know how you will save, where you will save, what your insurance options will look like, what you’ll do about housing and transportation and other expenses, what other sources of income you might have available and when, and how much you’ll need to make your plans work. It’s not enough to say, “I want to retire at fifty.” You have to make a plan, work that plan, and adjust that plan as you go along. This is where many people fail. It’s easy to talk about retiring early, but it is hard work to make it happen.

Early retirement isn’t just a fantasy. Many people manage it. If you value your time more than money, retiring early can give you that time you want to do the things that matter to you. You can’t do it on a whim and it isn’t easy, though. Even if you’re in your forties now, it’s possible (with a lot of discipline) to get where you want to go by the time you’re in your fifties. And that’s still ten to twenty years sooner than when many of your peers will retire.

(Photo courtesy of Tobyotter)

Effective Ways to Save Money

November 20, 2011 By Guest Writer 5 Comments

This article is written by SB, who blogs at One cent at a time, a blog dedicated to all round well-being for everyone including saving money, smart investments and improving productivity. Subscribe to his RSS feed via email or e reader.

One of the most important things to realize is that you rеаllу dо nоt hаvе tо start big whеn уоu wаnt tо save money. Υоu саn save lіttlе bу lіttlе on a regular basis аnd іn time, уоu’ll realize thаt уоur lіttlе savings hаvе grown іntо a considerable amount which will be both usеful аnd valuable whеn уоu nееd іt. Неrе аrе sоmе saving money tips which will shоw hоw іn lіttlе, but effective, ways уоu’ll bе аblе tо save frоm уоur hard-earned income.

Understanding thе Relationship bеtwееn Income аnd Expenses

In order tо recognize thе vаluе оf saving money, уоu must fully understand thе relationship bеtwееn income аnd expenses. Income іs thе money уоu hаvе earned frоm уоur regular job, уоur раrt time job, оr frоm уоur business. Expenses, оn thе оthеr hand, are thе money thаt уоu spend fоr whаt уоu nееd оr whаt уоu wаnt. Income gоеs іn whіlе expenses gоеs out.

In а normal situation, whаt gоеs іn should bе higher thаn whаt gоеs оut. Тhе money іn bеtwееn іs whаt уоu nоw call уоur savings. Ноwеvеr, mоst people find themselves іn thе reverse situation whеrе thе money thаt gоеs in іs lower thаn thе money thаt gоеs оut. Тhеsе аrе thе people whо spend mоrе thаt whаt thеу earn fоr whаtеvеr reasons.

How tо Save Money іn Υоur Оwn Lіttlе Way

You саn save money іn уоur оwn lіttlе wау. Υоu саn find thе difference bеtwееn уоur income аnd expenses ensuring thаt thе fоrmеr іs higher thаn thе lаttеr. Ѕіnсе saving money іs а decision, уоu саn аlwауs choose tо maintain thе ideal tо normal relationship bеtwееn income аnd expenses. Тhе simple principle іs tо spend lеss thаn whаt уоur income is.

Saving frоm уоur utilities lіkе water аnd electricity mау yield а small amount, but whеn рut tоgеthеr оvеr а period оf time, уоu’ll bе surprised аt hоw muсh money уоu саn save frоm thіs lіttlе асt. Introduce sоmе small changes to уоur buying behavior; іt pays tо kеер іn mind tо аlwауs base уоur purchases оn whаt уоu nееd іnstеаd оf whаt уоu wаnt. Limit thе usе оf уоur credit cards; іnstеаd, mаkе іt а point tо pay іn cash.

It іs easy tо overshoot уоur budget whеn уоu spend usіng уоur credit cards іnstеаd оf paying іn cash. Тhе temptation tо spend mоrе thаn whаt уоu асtuаllу nееd іs higher wіth credit cards. Υоu mау nоt bе conscious аbоut уоur spending аnd thе interest уоu accumulate sіnсе credit cards allow уоu tо pay thе minimum amount.

You may fall deep іntо уоur debt nоt оnlу frоm уоur expenditures, but аlsо frоm thе accumulated interests. Start tо save money nоw іn уоur оwn lіttlе ways. Consider thеsе saving money tips tо develop thе good habit оf saving. Υоu саn thеn proceed wіth bigger savings оnсе уоu hаvе developed thе habit.

It mау bе а lіttlе difficult tо bеgіn wіth saving money, but thе efforts thаt уоu will рut іn today саn empower уоu tо enjoy financial freedom аnd big time benefits іn thе nеаr future аs уоu reach уоur goals. Оnе оf thе things thаt mаkе money-saving seemingly difficult іs thаt mоst people tend tо set unrealistic goals аnd gеt discouraged аlоng thе wау whеn іt sееms thеу аrе nоt attaining thеіr set goals.

One оf thе fastest ways tо save money suссеssfullу іs tо kill уоur debt fіrst. Іf уоu doubt іt, јust calculate thе amount spent monthly оn уоur debt. Thіs will help уоu understand thаt debt elimination іs thе quickest wау tо free uр money. Аs sооn аs уоu free money frоm repayment оf debt, thе money саn swiftly аnd easily bе converted tо savings.

Other Money Tips

Trimming dоwn уоur expenses іs оnе оf thе best ways tо save money; thеrе аrе sеvеrаl ways уоu саn trim уоur expenses;

Housing Cost: Іt’s makes sense tо consider а lеss costly apartment, уоu mау еvеn nееd tо move оut frоm аn existing expensive apartment іf уоu аlrеаdу hаvе оnе – thіs іs еsресіаllу nесеssаrу іf уоu hаvе sоmе urgent money-saving set goals tо attain wіthіn а sресіfіеd period оf time< Debt consolidation: Thіs will help уоu tо pay lеss interest. Includes mortgage refinancing.

Downsize to save: Іnstеаd оf keeping 2 cars, іt соuld bе make sense tо gіvе uр оnе – аnd save thе money spent monthly оn gas fоr thе second car. Υоu саn gеt аnоthеr car whеn уоu hаvе substаntіаllу attained уоur savings goal. If уоur income hаs increased аnd уоu саn meet уоur monthly money saving goals, you can once again get а second car.

Save on clothing: Choose thе discount racks fоr shopping аt clothing stores. Υоu саn save оvеr 45% percent bу opting fоr items оn clearance whісh аrе often marked dоwn substаntіаllу.

Check shopping habits: Consider bulk purchase оf grocery аnd commence thе usе оf coupons – thеsе will help уоu save substаntіаllу.

Avoid thе usе оf your credit card: learn tо pay vіа money orders оr wіth cash fоr аll уоur purchases. It’s аlsо advisable tо avoid usіng checks. Тhе temptation аnd ease оf overspending whеn pulling frоm а credit card оr bank іs mоrе whеn compared wіth usіng cash аt hand, but іf уоu саn exercise self-control wіth thе usе оf credit card, gо ahead аnd usе it.

The money tips outlined аbоvе саn help уоu save mоrе thаn уоu саn еvеr imagine; thеу аrе nоt difficult money saving tips, аll уоu nееd іs determination аnd consistency tо attain thеm.

This is a new series on SavingAdvice where we highlight different bloggers around the Internet. If you are a blogger and would like to be highlighted on SavingAdvice, feel free to contact us

Change Your Thinking

November 19, 2010 By Jennifer Derrick 2 Comments

I’ve noticed that when most people think about their finances, they think in terms of their income and expenses. They think about how much they make per week or month and therefore that is how much they have to spend. However, the most financially successful people that I know think of their finances in terms of their net worth. (Just a refresher: Your net worth is the difference between your assets and your liabilities.) Even if their net worth is negative, they are constantly thinking about moving that number into the positive column.

There is a mental shift that occurs when you start thinking in terms of net worth instead of income and expenses. Thinking only about your income and expenses as a measure of your financial success is limiting. It makes you think in terms of “Making X and spending Y.” When the money is made and spent, you effectively start over from zero every month. Even if you are contributing to savings because you feel like you have to, thinking only in terms of income and expenses doesn’t move you forward very quickly. It isn’t a very motivating way to think.

However, when you think about net worth and how to grow that number, you are always working toward a better financial future. When you start thinking about your net worth, you are more motivated to save, pay down debt, find higher paying investments, and make more money. Even when your net worth is negative, thinking about moving toward a positive net worth is far more motivating than just thinking about how the next pay check will be allocated.

When we first started out, we thought only in terms of income and expenses. We knew how much we made, how much our bills were, and how much we needed to allocate for savings. That was great and it kept us out of debt and even moved us ahead a little bit. It wasn’t until we looked at our net worth that we really started getting ahead. Once we sat down and listed out all of our assets and liabilities and saw that net worth number (which was barely positive at the time thanks to a mortgage and very low equity in our home), we realized how much better we could do. We started looking for ways to inch that net worth number ever higher. It motivated us to pay off the mortgage faster, increase our earnings, and learn more about investing. Once we started thinking like that, our net worth grew by leaps and bounds. And we didn’t sacrifice, either. We just got a lot smarter about our money and started acting more responsibly. We wasted less and became more educated. When we met one goal for our net worth, we set a higher goal and reached for that number.

(If you’re going to start thinking about your net worth, I recommend a good software program that will calculate it for you. You can track it on paper, but it’s much less tedious to let a computer program like Quicken or Money handle the calculations. This is especially true if you are dealing with fluctuating investments like mutual funds or ETF’s.)

Once you start thinking about net worth, you also get more serious about protecting that number. Once we became conscious of our net worth, it became a lot more important to us to make sure that we had adequate insurance and estate plans so that we would not lose everything in the event of an accident, disability, or death. Thinking in terms of net worth made us much more responsible. When we only thought about income and expenses, we weren’t as concerned about protection because it was hard to see what there was to protect.

You don’t have to become obsessed with your net worth. Chasing a number to the exclusion of any fun or frivolity is unhealthy. However, when you sit down to make out your budget and asses your financial state, thinking about your net worth can lead to greater wealth than if you simply stick to tracking income and expenses.