Tag / money

by Blog Writer

Spending a dollar doesn’t really cost a dollar

“Thinking is easy, acting is difficult, and to put one’s thoughts into action is the most difficult thing in the world.”  ~Johann Wolfgang von Goethe

I drive my wife crazy with this one. She thinks I’ve descended into the realm of “way too focused”. As with so many things, she is probably right. Regardless, it’s a concept that needs more consideration in order to make good financial decisions. This is one of the important money rules. 

For explanation purposes and easy math, we will assume your combined state and federal tax bracket is 30%. When you spend that after tax dollar because you’re in the 30% bracket, you had to earn approximately one dollar and 53 cents. Here’s the math:

  $1.00 for the item

  .15 – social security, etc.

.30 – state and federal tax

      .08 – sales tax

____________________________

     $1.53

I can already hear the arguments why this is not correct. Don’t bother. We are simply talking concepts. Whatever you decide the math is, one thing is true. Unless it is a deductible expense, you have to earn much more than a dollar to spend a dollar. Remind yourself of that while standing in line to purchase more useless trinkets. Getting control of your hard earned money is a necessary part of “getting a life”.

“You are neither right or wrong because the crowd disagrees with you. You are right because your data reasoning is correct.”  ~Benjamin Graham

by Blog Writer

Master the rule of 72

“It’s not your boss’ job to make you rich – it’s your job to make you rich.”  ~Robert Kiyosaki, author of “Rich Dad, Poor Dad”

The rule of 72 is always working. Sometimes for you. Sometimes against you. Make no mistake, it is out there working. I have a business degree and had never heard of this until I was about 40 years old. Frankly, the university I attended should return my tuition in embarrassment for failing to expose me to something so fundamental and essential. Simply put, you take the interest rate you are paying or receiving, divide it into 72, and the answer tells you how long it will take to double.

Example: 12% interest divided into 72 means it doubles in about 6 years.

If you are paying 21% interest on your credit card, they are doubling their money with your hard-earned wages every 3.5 years. I might add, since this expense is probably not deductible, the government peels off their slice before the credit card company – leaving you nothing but an empty bank account and a sick hopeless feeling. Figure a payday loan at 300% interest and you’ll want to vomit. Conversely, if your investments are returning 12% instead of .5%, you can quickly grasp the significance. In some of my investments, using leverage (and additional risk), I’ve regularly received 25% to 100% annual returns on my actual cash invested. Bottom line – the rule of 72 is always at work. Understand and use this simple concept and you’ll be another step closer to “getting a life”.

“There is a science to getting rich, and it is an exact science just like arithmetic. There are certain laws which govern the process of acquiring riches. Once those laws are learned and obeyed, that person will get rich with mathematical certainty.”  ~Wallace Wattles