Home ] Background ]  [Dr. William Finley Thompson] [ Eric's and Crystal's Wedding ] Chronology ] Estemere 1901 ] 1890s-1940s ] Adams & Vessey -1935+ ] Blietz-1944-1950 ] Estemere 2001 ] Estemere Photos & Maps ] Roof 2002 ] [2005] [ Email ] Visitors ] Early Palmer Lake Photos ] Local Attractions ] Keys to Financial Success ] Links ] [Halloween 2006] [Chautauqua--Jim Sawatzki]

 

Roger's Keys to Financial Success

VERSION: 06 November 2005

  1. Always pay cash. This is rule number one because if you don’t have enough money to pay cash you must wait until you do have enough cash. Often, by the time you have enough cash you find you either don't want the item anymore, a new model becomes available, or a more important use for your money comes up. Plus, it avoids rule number 4.
  2. Exception to rule 1:  you may pay by credit card to take advantage of the benefits of credit cards:  better return policy at the store, frequent flyer miles, trip insurance, etc. However,
  3. All credit cards must be paid off each month no matter how much it hurts. (And it will hurt!) Obviously, this requires planning to ensure you keep enough money set aside to pay the credit card bill when it comes in. In 30 years of using credit cards I have paid interest maybe 10 times; half of which because I missed the payment deadline due to oversight!
  4. Never pay interest!
  5. Exception to rule 4: you will probably have to buy your first house and a car or two on credit. However, go for the shortest repayment term possible; e.g., 15 years on a house and 3 years on a car. Never buy a house or a car that you cannot afford to make payments on unless you must go for the maximum term (minimum payment)!  You'll be paying for the house or car two or three times in interest.  Pay off the loan as soon as possible to avoid paying interest.  Never lease a car.
  6. Buy only good quality used cars, usually no more than one or two years old.  Let someone else lose 20% for driving it off the lot! Older cars (usually over 30,000 miles) soon will require excessive maintenance due to needing tires, battery, timing belt, etc. Prior to buying, research your purchase by reading Consumer Reports, available at your library. Do not have automotive work done at gas stations or independent garages. The dealer is often the same price, they know the car, they use only parts designed for the car, and they will be there next week if their repair is faulty.*
  7. When you finally have a nest egg, never spend the principal, only the interest. Even then, you should only spend the interest that is above taxes and inflation! For example, assume you have $10,000 in savings at 10% per year interest, or $1,000 per year. But taxes will take 20% ($200) and the inflation rate is 3% ($300), leaving you $500 to spend.
  8. Get at least a Bachelor's degree so you can get a job that supplies good health insurance. Doctor's bills and bad cars can wreck your finances faster than just about anything else.
  9. Always carry homeowner's insurance and car insurance. Keep the deductibles high to keep the cost down.  Increase the deductible until the savings in premiums is at least 1/5 of the premium increase.  For example, if your home insurance is $500 per year with a $500 deductible, and it is $400 for a $1000 deductible, it's a great deal.  It is highly unlikely that you will have a claim over $500 in a 5 year period.  If you have one claim of $1000 or more in 5 years you break even.  If you have no claims over $500 in 10 years you've saved a lot of money.  So, always self-insure up to a 5 year payback of the deductible increase.
  10. Never buy whole-life insurance.  It's a poor "savings" account; buy only term life, only as much as you need. Keep track of term rates and re-enter every few years (unless your health is poor) to keep the cost low.
  11. I don't recommend buying individual stocks!  The stock market has historically out-performed virtually all other forms of investments over long periods of time, but as we have seen in 2001 and 2002 one can lose his/her shirt in a hurry!  If you want to invest in the stock market, buy "index" funds such as the Vanguard Index 500 fund which invests in the stocks which make up the S&P 500 in the same ratios as the S&P 500 market report.  Historically, the S&P out-performs about 98% of the stock funds and stock "gurus."  Individual stocks (and stock funds) are extremely risky as evidenced by the fiasco of Enron and Worldcom in 2002.  
  12. Buy and sell stocks, mutual funds, and bond funds yourself!  It's cheap and easy to do on the internet these days.  Your friendly "financial advisor" and banker will be happy to buy them for you--for a mere 5% or so fee!  Stay away from funds with "front-end" or "back-end" fees.  (If you don't understand these terms find someone who will explain them to you.  They will cost you lots of money!)  USAA, Vanguard, Janus, and many other investment services offer funds with no front- or back-end fees.  Also, select funds with small 12.b.1 fees.  Go to your library and study some of the investment reports or search the internet to learn more.
  13. Instead of investing heavily in the stock market via individual stocks, funds, or index funds, I prefer to buy tax-free bond funds.  These funds invest only in bonds backed by individual states, cities, or local taxing agencies to build airports, power plants, water infrastructure, etc.  They are Federal tax-free but your state will tax the earnings from other states.  As such, they are probably the second safest investment vehicle (Federal bonds are the safest but are taxable on the federal level).  I use USAA Intermediate and Long-Term Tax Exempt Bond Funds.  All USAA funds are AMT (Alternative Minimum Tax) exempt.  Current earnings are in the 4-5% range tax-free.  This didn't sound like much in 1999 and 2000 when stock funds were averaging about 50% gains, but with stock funds down over 30% in 2001 and again in 2002 I'll take 4% growth any day!  In investing, "Slow and steady wins the race!"
  14. Recycle. It makes you feel good and it's the right thing to do.
  15. Shop at flea markets, thrift stores, and garage sales. This allows you to satisfy your spending urges without bankrupting your savings. You can often buy quality items you think you want for 10 cents on the dollar or less. Then, if it turns out you don't use the item you don't feel guilty! And if it is useful, you've been frugal.
  16. Make sure your soulmate/spouse/significant other shares your desire to be frugal!
  17. Never pay for water, parking, or sex!  Only use bottled water if the tap water is totally unpalatable or is known to be unsafe.  If your water just tastes bad install an undersink activated charcoal filter--you can install it yourself.  It's about $30-50 (cartridges are about $10 and are good for 1000s of gallons and last for up to six months) at your hardware or Sears store and will save you lots of money and reduce plastic waste immensely!  If you must buy bottled water buy it in the off-brand one gallon jugs--it's much cheaper and just as good as the designer brands.  I never thought I'd see the day when water costs more than soda!  Park a few blocks away and walk--you probably need the exercise anyway and you'll save $5-$10 for a 5-10 minute walk.  Not bad pay.  Have a monogamous sexual relationship--it's much more satisfying and much safer.
  18. Never fly first class, even if your company is paying for it.  Save up your frequent flyer miles and get free upgrades.  Remember, the front of the plane arrives at the same time as the rear of the plane.  A couple of hours of slightly more discomfort will save you hundreds of dollars.  Again, not bad pay!  Or, drive instead of flying.  A 90 minute flight takes you about 4-5 hours of personal time:  drive to the airport, park, get to the gate one hour early, fly, get your baggage, rent a car, drive to your destination--it adds up!  Or, drive all the way in maybe 8-9 hours.  Figure gas, wear-and-tear on you and the car.  You'll probably save yourself $25/hour by driving.  Double that for two people.  Double again if you have to rent a car if you fly.  Not bad pay!  Where else can you make $50-$100/hour for a nice drive?

I hope you find these thoughts helpful; they have proven very valuable to me. Try them; it won't hurt, and who knows, maybe they will keep you financially independent and out of debt.

*    Here's some pointers for when you go in to purchase a new or used car:

  • NEVER let a salesman play games with you.  Since he cannot approve the "deal," but you can approve your end of the deal, why deal with the salesman?  Always demand to deal with the Sales Manager directly.  Look him in the eye and ask for the "best" deal he can give you--usually $300 or so over invoice.  Be sure to ask him to include kickbacks, holdbacks, rebates, etc.  You should already know the bottom price because you've done your homework (see #6 above).

  • NEVER let a salesman have the keys to your car for any reason!

  • NEVER tell the salesman or Sales Manager that you have a trade-in until AFTER you've found out their bottom offer for the car you want to buy.  Only then mention you have a trade-in.  Then, you'll learn the true value of your trade-in--which won't be much!  Sell it yourself.

If you sell your car remember to remove the license plates BEFORE you let the buyer drive off (except for a test drive)!  If they have an accident while your plates are on the car, even though you have a bill-of-sale, you and your insurance company are still liable for any accident the buyer has!  After completing the sale the buyer must go to DMV and get a temporary registration tag to allow her/him to drive the car home and get it registered.  She/He returns and places the temporary tag in the rear window.  This applies even if you are carrying the loan for the buyer.