Intelligent Spending

By: Greenberg
You meet him in the front yard and chat a bit about how he just got a promotion, and his financial situation looks anything but grim. It seems as if Mr Jones has just out-successed you, and that he's the better man. The sharp reality is that he may have a new car, but he just spent $50,000 in an asset that has a ROI (Return on Inventment) of 0%. Wow ... Smart. Had Mr Jones consulted my website, perhaps he would have decided to take his raise and pay his asset column for a change, but instead, he's faced with five years of debt and all for a rotting peice of steel. Sure, I know cars are great - and I love cars too, in fact I drive a 2004 Saab 9-3 Turbo. The difference is that my car is bought and paid for by money that my 'business on the side' generated. I let my business make the full payments. Anyway, the point I'm trying to make is that if you're driving yourself into debt with spending habits that yeild little or nothing ROI, you're headed in the wrong direction, if financial freedom is your goal, you need to get excited about putting money in your Asset Column!Anyway, the point I'm trying to make is that if you're driving yourself into debt with spending habits that yeild little or nothing ROI, you're headed in the wrong direction, if financial freedom is your goal, you need to get excited about putting money in your Asset Column!Example of typical spending #1You inherit $20,000 (and we're not talking monopoly money).

Someone's first bad instinct might be to install a pool (which is a terrible idea, because installing a pool on a property typically only results in a 10-20% ROI upon sale of the house. Other bad ideas might include new cars, electronics. Our second instinct might be to pay off existing debt, but herein lies the problem: People that habitually carry debt only end up with more debt after initial debt is paid.

Question: If my debts charge me 7% or higher interest, how could it be possible that paying off the debt with the inheritance is not the smart move?Answer: Maybe, but probably not. Because humans are impulsive, we usually just establish more debt after paying it off unless we've trained ourselves to do otherwise. Over and over again I've seen people reduced to 0% debt, only to assume that they now have a clean slate of money that can be spent.

Example of smart spending #1If your debt is currently manageable (You're able to pay your bills - much more than the minimum payment), then consider leaving the debt where it is and paying it off slowly. This will also encourage you to limit your spending during this period. (I find that debt is a great way to encourage sensible spending, albeit a bloody stressful way!). Take the $20,000 inheritance and add it to your asset column.

Compound Interest is a very powerful tool that you can use to benefit yourself. If you have a financial advisor assist you with investing your money, there's no reason why you can't attain 10% returns per year. If you invest $20,000 at 10% interest per year, in 10 years you will have $53,701.28. You can then decide to have the 10% interest payments be mailed to you on a monthly basis. This puts $447.51 Cash in your pocket per month until the day that you die. In addition, your $53,701.28 never goes anywhere, and you can choose to leave it as an inheritance to your own children. Now that's smart money management. I understand that it's difficult to be patient with matters of money - I am my own worst example. However, I have trained myself to believe that the hunger that I have for financial freedom overrules my need for instant gratification. If you can feel the burn inside yourself for financial freedomPsychology Articles, then you have what it takes to be Spend Smart!

Money Management
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