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By John Ingrisano
By John Ingrisano
Director, Family Finance Conference Center
Ben Franklin was cited as saying: “Watch the pennies and the dollars will take care of themselves.” In the same respect, minor differences in interest rates can make big differences over time.
Example: If you ring up a $1,000 bill on one credit card and the annual interest rate is 3.9 %, but 15% on another, you will end up paying $21.25 in interest in one year on the 3.9% card, but $83.10 on the 15% card. So, unless you plan to pay off your card each month, the interest rate does make a difference.
Now let’s look at how the interest rate you EARN makes a difference over time. Let’s say you deposit $5,000 a year into your IRA at the start of each year and your spouse also does the same. One of you earns a fixed rate of 2.3%. The other, which pays a variable rate based on investments, averages 8% over time.
If you keep depositing $5,000 annually into each account for 40 years, the one account earning 2.3% will have grown to $342,285. The IRA averaging 8%, over that same period of time, will grow to $1,507,527.81. That’s a $1.2 million difference.
The bottom line: The interest rate does matter … BIG TIME! When selecting a credit card, make sure you push for the lowest rate possible, and if you must borrow, look for those special deep-discount deals. And when it comes to retirement, decide how much you intend to balance the safety, guarantees and security of a low, locked-in rate versus the opportunity of a variable rate, which could grow well … but which could also lose money.
By John Ingrisano
By John Ingrisano
Director, Family Finance Conference Center
Here’s a short quiz.
Question # 1: At the end of 50 years, how much money do gamblers end up with who “invest” $50 a week on lottery tickets or at the casino?
Question # 2: At the end of 50 years, how much money do non-gamblers end up who put $50 a week into an IRA or other long-term investment, one that earns, say, an average 5% return?
Answer to question # 1: zero! If you think otherwise, you’re fooling yourself … or maybe you’re that 1-in-100,000,000 who actually hit the jackpot. (I’ve heard about those folks all my life, but never actually met or even saw one.)
Read on for the answer to question # 2.
First, a brief rant. One of my biggest pet peeves (this one’s about the size of a male yak) is standing at the counter of the gas station/convenience center waiting to pay for my gas, and I’m behind this guy or gal hunched over and frantically scratching off lottery tickets with more determination than a dog going after fleas.
Now, I really don’t mind the waiting, and I admit that I do enjoy gambling from time to time, so don’t get me wrong on this. BUT … these folks almost always are driving a car my father might have traded in fifteen years ago and they look like they’re living from paycheck to paycheck … or even three or four paychecks behind. (Add in that they’re buying $7/pack cigarettes and I’m ready to blow a gasket.)
I know, I know, it’s not my business. However, I see some folks who do this every week, who shell out anywhere from $20 to $50 hoping to hit the big one.
So, here’s the skinny on gambling, whether lotteries or casinos: If you like to gamble, great. It can be good recreational fun. However, did you know that, according to Thomas J. Stanley, author of “The Millionaire Mind,” most millionaires almost NEVER gamble.
So, let’s imagine that my friends at the gas station are “investing” $50 a week in lottery tickets. That’s $2,600 a year they’re out! (If they win a few bucks, they almost always buy more tickets.) They scratched off enough for a mini-vacation or purchase a newer car. Money down the drain.
Now imagine (yes, this is where it gets boring, but pay attention), they put that money into an IRA, and let’s say again that the rate of return is 5%, compounded monthly. They start when they are 18 and just beginning their first job. They continue until they are 68 and ready to retire.
In 50 years (and here’s the answer to question # 2) that $2,600 per year has grown to $580,000. That is one sweet retirement nest egg.
The bottom line: Like to gamble? Fine. However, if you want actually to become wealthy, talk to your financial advisor about where to put your money.
Now, go out and work hard, make money, have fun and save a little each week for the future.
* * *
Want to learn more about how to manage your money and your life? Check out The Back to Basics Book of Money! A Couple’s Guide to Financial Peace. The book contains 10 valuable Couple Money Skills. Plus, the Back to Basics Book of Money Workbook (which dovetails with the main text) offers 31 practical, hands-on Wealth Builder activities that can help you and your partner build financial and domestic stability. Both the book and workbook, which retail for $31.98 plus S & H, are available at the Family Finances Conference Center website for $27.99 total.
The Family Finances Conference Center tailors programs to the unique and individual needs of client organizations and their members and employees, based on the principles of the book and workbook set, The Back to Basics Book of Money! A Couple’s Guide to Financial Peace.
For more information, contact me at the Family Finances Conference Center by email (john@b2bbookofmoney.com) or my direct phone line (920-559-3722).
John Ingrisano
Director
Family Finances Conference Center
204 Lakeview Drive
Algoma, WI 54201
(920) 559-3722
john@b2bbookofmoney.com
By John Ingrisano
By John Ingrisano
Director, Family Finance Conference Center
If you’re wrapping up school this month, congratulations. Degree in hand, you’re ready to take the world by storm. It may be tough for a while, especially in this slow economy and tight job market. Hang tough. Instead, think long-term about financial success and happiness.
Here are three “secrets” to your success and happiness:
1. Get even more education. Better yet, make education a life-long process. The fact is that the number one factor in lifetime income is level of education. Keep on learning.
2. Choose your partner carefully … very carefully. A level-headed, loyal, supportive, hard-working spouse not only makes your life peaceful, but it also helps assure financial security over time. I know, this is easier said than done, but be cold-blooded when it comes to assessing the attributes of your partner before you tie the knot. It will make all the difference in the world in the years to come.
3. Stay married once you pick that partner. Divorce not only upsets lives, but it is almost always financially devastating over time, as accumulated assets are squandered in the “Great Divide.”
Now, go out and work hard, make money, have fun and make good financial and personal decisions.
By John Ingrisano
I know it’s not popular to say this today, but I appreciate banks. They are great. This country wouldn’t be half of what it is today without these stable, reliable financial institutions that borrow money from us and make it available to homebuyers and businesses. And, yes, the vast, vast majority are honest and honorable. They are built on trust.
I know. I’ve been in countries where credit was a luxury, a very expensive luxury. Homes didn’t get built; cars didn’t get bought; businesses shriveled up or just never grew because of a lack of credit; and people stuffed their savings into a mattress or buried it in the backyard. So, thanks, banks, for all you do.
Over the years, banks have lent me money to buy my homes, my cars, and a few boats and other toys. They’ve also given me lines of credit for my business and served as a safe place for me to stash my cash.
Now imagine how life would be without the banks. Or if they were not in the business of lending money to everyday people. That’s how it is in many second-world and all third-world countries. The few banks that operate are super stingy when it comes to extending credit. When they do, the interest rate is super high.
I saw it when I lived in the Caribbean. I wanted to buy a new car. The interest rate was around 15 percent (more than double what it was back in the States), and the bank was willing to lend me the money for two years only.
Also in the islands, as well as in Mexico, I saw numerous half-built homes everywhere. At first, I thought that they had been existing homes destroyed by storms. It turned out that many people had no access to credit; a mortgage was unobtainable.
So, would-be homeowners would work and save up money. Whenever they had some cash put aside, they would add a wall or a roof or a window to their home. In the meantime, they either lived with other family members or struggled to live in partially constructed homes … sometimes for years.
My point: We are fortunate in this country for our financial institutions that give us ready access to credit and a place for savings. Without them, we’d be a third-world country.
===========================
Want to learn more about how to manage your money and your life? Check out The Back to Basics Book of Money! A Couple’s Guide to Financial Peace. The book contains 10 valuable Couple Money Skills. Plus, the Back to Basics Book of Money Workbook (which dovetails with the main text) offers 31 practical, hands-on Wealth Builder activities that can help you and your partner build financial and domestic stability. Both the book and workbook, which retail for $31.98 plus S & H, are available at the Family Finances Conference Center website for $27.99 total.
The Family Finances Conference Center tailors programs to the unique and individual needs of client organizations and their members and employees, based on the principles of the book and workbook set, The Back to Basics Book of Money! A Couple’s Guide to Financial Peace.
For more information, contact me at the Family Finances Conference Center by email (john@b2bbookofmoney.com) or my direct phone line (920-559-3722).
John Ingrisano
Director
Family Finances Conference Center
204 Lakeview Drive
Algoma, WI 54201
(920) 559-3722
john@b2bbookofmoney.com
By John Ingrisano
Socialism sounds nice. Everybody takes care of each other, nobody goes hungry, etc. Unfortunately, it doesn’t work. Capitalism does. It enables everyone to take care of himself or herself so nobody goes hungry, etc.
Capitalism makes it possible for people to purchase the greatest variety of goods for the lowest possible prices. (Government subsidies, by the way, artificially lower prices temporarily, but eventually lead to recession-like economic declines, if not the eventual downright collapse of the entire economic system.) It also keeps prices at their lowest level possible, thanks to true competition (something a government cannot manipulate).
Example: I purchased a Kindle e-reader from Amazon.com in March 2009. It was a revolutionary development, one that intrigued me so profoundly that I went out and added Amazon.com to my stock portfolio immediately.
I paid $359 for the gadget, well worth every penny. Well, lo and behold, here it is January 2010 and competitors are now flooding the field with their own versions of e-readers. And these products aren’t just clones. No, instead, they’re next generation devices … new and improved.
As a result of this wonderful competition, that same Kindle I bought in March is now available for $259; that’s $100 less than just nine months earlier. And I expect the price to keep dropping.
A teachable moment (or three lessons about competition and capitalism):
1. It keeps prices low. When a McDonalds and a Burger King set up shop at the same intersection, it pretty much guarantees that they will keep their prices as low as necessary to keep your business. (No, this is not collusion; it’s competition. Close one and prices at the other will increase. Add a third and prices will decline even further, until each reaches what is called the “break even point.” That’s the minimum a business can charge without going broke. It’s also the ideal price from the point of view of a customer.)
2. It gives us more choices. Remember the images of Russians in the now defunct Soviet Union back in the 1960s standing in line for the next shipment of low-quality sausages (or any product, for that matter)? Centralized management and government-run, non-competitive planning destroyed their choices under the “government knows best” theory. Sorry, but it doesn’t.
3. It leads to innovation. Kindle’s competitors are offering new features (not just lower prices) to get your business. That means Amazon.com must improve its next generation of e-readers. The reason we got from the Model T Fords to the incredible cars of today in just 100 years is because of competition.
The bottom line: Competition is good and capitalism builds wealth. It is the ONLY economic system that does so. Enjoy the day and celebrate the competitive advantage created by the bold thinking of Capitalists in what is left of our free-market economy.
