Monthly Archives: December 2013
The following is a guest post. If you’re interested in personal finance blog guest posting, check out my guidelines here.
Cash is king. It’s a short sentence or phrase oft-quoted in relation to Arab countries such as Egypt. And usually it refers obliquely to the reticence many Egyptians have in placing all of their financial eggs in the one labyrinthine banking basket. At least, that’s how they perceive it. But the truth is much of the mistrust is also a consequence of under-banking. The majority of Egyptians don’t earn enough to even have a bank account let alone something as alien as a credit card. Therefore, they’ve no opportunity to experience any of the modern-day banking benefits most of us rather take for granted. Instead, they carry on as they’ve always done, paying cash for the everyday necessities as they go along.
However, in the world of business, cash is also king – or to be more precise, cash management is king. In fact, many even define cash management as an art, often bemoaning how it seems to have become a lost one at that. Certainly, quite a number of years ago, Donna McGovern, owner of California-based Ideal Business Solutions, cited cash flow as the most important ‘number’ which businesses needed to be aware of. She was speaking in an article published in the Fredericksburg daily newspaper, The Free Lance-Star, in 1999.
Now, critics may be quick to point out that that was a long time ago. Fair enough, but the business fundamentals have changed very little since then. What was true way back when is just as pertinent in today’s competitive and highly complex business environment. Cash management – managing the flow of cash – is a vital ingredient of survival, if not of success itself.
According to the article, if McGovern had to pick one number then she’d choose cash flow: the difference between the cash with which you start the month and the cash at the end. If the latter number is the larger then you’re on the right track.
“Cash is king,” McGovern is quoted as saying. “Businesses can have an excellent-looking income statement and be flat broke.”
If McGovern had a second choice of number, the article continued, then she would look at gross margin for each product and deal. Gross margin, or gross profit, is the money left when the cost of the goods sold is subtracted from net sales – revenue minus any discounts or allowances given to customers.
McGovern explained, “A small-business owner may have a favourite product; it may even be the best seller; but it may not be profitable.”
Fast-forward to today and to another article entitled “The Art of Cash Management” which appears on the Inc.com website. Again, Donna McGovern is featured prominently. And so is Stephen King, president of Virtual Growth, a New York City-based financial-consulting firm that handles outsourced comprehensive accounting services for companies.
According to the article, there may be no financial discipline that is more important, more misunderstood, and more often overlooked than cash management. “Business owners should be thinking about this issue from day one,” says King. The full article, which is well worth spending a couple of minutes reading, is available here.
Although I wanted to own real estate by the time I was 30 (and 30 is not finished yet), I am excited to have no debt as I start my 30s. I’ve been really focused on building a strong financial future for myself and my fiancé, but it is not easy by any means. It feels like a marathon in which they keep adding 1 mile to the race as you get closer: 26.2! No, 27.2! How about 28.2?!
One of the best things you can do for your finances is analyze the crap out of them. Here are a few things I’ve already implemented:
- Writing down everything I spend money on in a daily notebook, then putting it in a spreadsheet at the end of the month,
- Tracking my net worth each month,
- Have a spreadsheet of all of our monthly expenses and make monthly attempts to reduce it, calling the cable company to lower the Internet bill, calling the insurance company every 6 months before the premium is due, etc.
- Finally bought a few ETFs in my Roth IRA and Rollover IRA, on a commission-free basis
One thing I have wanted to do for a while is analyze the asset categories of my net worth. I don’t include my car, computer or personal property in my net worth because I use them and really wouldn’t sell them to get cash out of them. So the categories and percentage of my net worth are:
- Savings account (currently uninvested, earning miniscule interest): 16% of net worth
- Checking account (money flows in and out too quickly to invest, this is for daily living): 0% of net worth
- Roth IRA (Invested in one ETF): 1% of net worth
- Rollover IRA (From all former employers, hold four mutual funds, one ETF, three individual stocks and a little cash): 64% of net worth
- Employer Stock Purchase Plan: 6% of net worth
- Employer 401(k): 12% of net worth
- Individual Brokerage Account (no money in it, yet J): 0% of net worth
As you can see, the majority of my net worth sits in my Rollover IRA. This doesn’t worry me, because I like the holdings that I have in there, but I would like to see the Roth, 401(k), ESPP and brokerage account really start to grow and be the big categories. I also don’t love that I have 16% of my net worth just sitting in cash. I have already decided that after a few more weeks of saving, that money will start going into the brokerage account so it can be invested. Eventually, I’d like my other assets to grow so that my savings is only 5% of my net worth. But I won’t transfer any money out.
I know you guys are super smart and can help me improve my net worth. Where would you focus? What would you change? Would you move any of the cash savings somewhere else? I am PUMPED for some new ideas!
The following is a guest post. If you’re interested in personal finance blog guest posting, check out my guidelines here.
If you are a homeowner or considering buying a home, you may be wondering whether mortgage protection insurance is right for you. Understanding what mortgage protection insurance is and how it works is essential to making the decision of whether to make this financial investment. There are many pros and cons to purchasing mortgage protection insurance, so knowing the facts will help you to make an educated choice.
What is Mortgage Protection Insurance?
Mortgage protection insurance will cover you in the event you are unable to pay your mortgage. If you suffer a permanent disability or job loss, the mortgage protection insurance will pay your mortgage until you are able to continue making payments. Some policies will pay off the balance of your mortgage in the event of your death. With mortgage protection insurance, you don’t have to worry about leaving your heirs the burden of paying off your mortgage.
Similar to a life insurance policy, mortgage protection insurance rates are based on factors such as the value of your home, the amount still remaining on your mortgage and the condition of your home. The insurance policy also takes into account your age, health and occupation. Mortgage insurance premiums are typically higher for those that work in hazardous occupations.
Why Buy Mortgage Protection Insurance?
Mortgage protection insurance protects you, allowing you to keep your home in the event of a financial catastrophe. While private mortgage insurance typically protects the lender if you default, mortgage protection insurance will help you to bridge the gap when you are without funds to meet your monthly mortgage obligations.
Mortgage protection insurance policies typically have high acceptance rates. Many homeowners find that they are unable to obtain life insurance and disability insurance policies if they have pre-existing conditions. Since mortgage protection insurance is easier to obtain, they depend on this, rather than disability policies to cover them in the event of financial hardship.
Homeowners who buy these policies purchase them as a safety net that will give them peace of mind. Many people fear that a job loss or on the job injury will throw their lives into chaos. With this safety net insurance, you can rest easy knowing that your family’s well-being will not be affected.
Drawbacks of Mortgage Protection Insurance
The biggest drawback of mortgage protection insurance is that it only pays off a set amount of money when you file a claim. This monthly amount may be less than what you were earning from work, leaving a gap between the amount of the disbursement and the amount of your mortgage. Many claimants have to find supplemental income in order to meet their mortgage obligations.
Another drawback of the insurance policy is that it may not make sense for your budget. If your mortgage payment is low in relation to your overall income, it often makes more sense to simply set aside funds each month and keep them in a reserve in case of emergency.
The value of mortgage protection declines over time. This is because the amount of the payoff is directly tied into the cost of your mortgage, which will decrease over time. Therefore, your premiums will remain the same while the payout amount will be significantly less. Unlike a life insurance policy which has a static value, the mortgage protection insurance policy will become less valuable over time.
If you are unsure of the security of your financial future, have a dangerous job or have trouble getting life insurance, you may find mortgage protection insurance is a valuable addition to your financial portfolio. <br />
Many people use this insurance in conjunction with other investment accounts and liquid assets. While mortgage protection insurance will give you peace of mind, it is helpful to review all of the facts before deciding whether it is the right choice.
Mortgage protection insurance is an umbrella in a time of financial chaos. Find a policy today.
Go Cheap? Yeah, probably not.
Hello, American Debt Project readers! I love what you’ve done with the place. If you don’t mind, I’m going to pop my suitcase in the guest bedroom. While I’ve been instructed by the puppet masters that I’m going to be writing here only once a month (your loss…), it’s still probably important that you know Joe’s rules to this game.
…and before I share them, I’ll mention this: I may not know everything about money, but 16 years in the trenches peeking behind the “money curtain” that hundreds of families hide from others leads me to strongly believe that this is the path to success:
Here Are The 5 Paths To Winning:
1) The key to winning isn’t in avoiding lattes. I’ve met hundreds of successful investors and have had the privilege of peeking inside their budgets and portfolios. I hate to inform those of you cutting back on lattes that not a-one would credit avoiding Starbucks in the top ten reasons they’ve succeeded in life. In fact, many are avid latte-lovers.
That doesn’t mean that you shouldn’t watch dollars carefully. Clearly, wealthy individuals have a relationship with money that’s different than their non-wealthy counterparts. Wealthy people understand that money isn’t a permanently running faucet. They’ll save a buck on groceries because they won’t find value in spending more on a product.
2) Whether you pay attention to nickels or not, wealthy individuals focus their time and energy on big problems and big solutions. Rather than cutting coupons to save $20 they create a side income or score more money from their job that nets them $200. Rather than worry about branded vs. unbranded cereal and saving $3, they refinance their mortgage when interest rates are low and save thousands. Even better, they stay away from high interest debt that steals hundreds of dollars from their pockets.
But hey, if you demand making a few bucks here and there off of unwanted stuff, give selling your old games or music a try with MusicMagPie.
I remember Crystal from Budgeting In The Fun Stuff telling me a story recently on our podcast about the name of her site. She said people were complaining on a well-known finance blog about a woman’s displays of wealth. They were ripping her for having a cleaning lady and for hiring someone to take care of some fairly easy tasks.
I’d be like that lady every chance I get. Here’s the deal: unless Shirley Maclean is right and we’re going to be reincarnated, we can only do this merry-go-round life one time, and I like the “merry” part of the go round. “Merry” doesn’t mean washing dishes or sweeping floors. Sure, I can find pleasure in simple tasks, but I’d much rather whine about my day in a hot tub over a foamy beverage than sweating while laying tile in the heat.
3) That said, it’s easier to become wealthy if you cut out silly expenses. We realized a few months ago that we weren’t watching our Dish Network. I purchased a Roku to see if we liked it. We did. We travel cross country fairly frequently, so a year ago I invested some money in a one year XM radio contract. Because I’ve found several apps for my phone and podcasts I like, we’ve cancelled that bill. These are silly expenses that we no longer need. Together they save us nearly $100 per month. That’s money I can spend on a housekeeper, if I choose.
4) Winning usually means surrounding yourself with great advisors. Sure, I believe in saving money whenever possible, but in unimportant areas. I haven’t met wealthy individuals that didn’t have some prominent advisors helping them. When you ask successful people how they became successful they discuss breaks, mentors and hard work. You have to sometimes hire great coaches to reach the highest heights.
I read “Don’t hire advisors” pieces on the internet and groan. The authors of those articles are missing the point. You should hire the RIGHT advisors, not ditch all advisors. Can’t afford an advisor? Start a mastermind group with people who are headed in the same direction. While you might miss out on the shortest route to solving your problems, you’ll be able to look at issues from multiple points of view and find success more quickly.
5) You need a basic understanding of investing so that you don’t get robbed. I’ve never met a wealthy individual who said, “I don’t know much about investments.” Sure, you may be afraid of the jargon and semantics of investing, but that’s a hill you must climb if you’re gonna be successful. I’ll put it bluntly: in the financial advising business we could see noobs from a mile away, and there were some pretty predatory individuals working in that industry. It’s okay if you don’t understand the complexity of investments….and don’t let that stop you from hiring good advisors if you feel you need them…..but you need (NEED!) a basic understanding of how this works. Read beginner books on the topic. Suze Orman and Dave Ramsey keep it interesting. Keep reading this blog. Fill your mind with the topic.
Hopefully those help you start down this path to financial success more quickly than you would without this roadmap. Financial success isn’t only profitable: it’s also fun. Once you watch your net worth begin to ascend, you’ll feel like a mountain climber reaching for the next wrung. Instead of prodding yourself to try and cut your budget you’ll be dancing toward your next financial milestone.
…and that’s a fantastic feeling.