Replace 6 Money Myths With Money Wisdom
One of the biggest challenges for today's busy parents is something that often ends up at the bottom of the to-do list -- passive income. I have known CEOs who require quarterly business analyses from every division head, yet dread meeting with their certified financial planner to ensure that their own bottom line remains profitable!
Being a super income-earner is great. However, that investment of your time will not outlive your job. On the other hand, if you save 10 percent and that 10 percent earns 10 percent (what stocks and bonds have done for the past 30 years), then you will have more money than you earn in seven short years and your money will make more than you do within 25 years.
It's easy to think that you don't have the time or money to do this. Today's CEO also wears the stethoscope of Dr. Mom, the whistle of soccer coach and wields a mean Garden Weasel. S/he works out on her lunch hour and looks hot in swimsuits! However, a beautiful bottom line is just as desirable and once you set your budgeting and investing plan up right, it is far less time and money than you are currently spending.
So how do you set it up right? You replace Money Myths with Money Wisdom.
6 Money Myths
1. I'll start investing when I pay down my debt.
2. My to-do List is too long.
3. I'll need a Ph.D. in economics before I can do it right.
4. I've got too many bills to invest.
5. Who's got the time to read the business section daily and watch CNBC 24/7?
6. Make gains and then "do good" with the profits.
And here's the Money Wisdom you need to adopt in place of those Money Myths.
1. Compound Your Gains. At the end of seven years of paying off debt, you will still be in debt and you'll have nothing to show for it. If you lose your job, you're in trouble. After seven years of investing wisely, your assets equal more than your annual salary and you are on your way to financial freedom. Your retirement accounts allow you to negotiate better terms for your debt, to compound your gains tax-free (if they are in a tax-free retirement account) and the money is yours to keep no matter what (no debt collector can take your retirement money). In short, if you're in debt, it's your budget that needs trimming, not your investing. Develop the healthy fiscal habit of paying yourself first -- not the debt collector.
2. A Good Plan Saves Time. A plan that is set up right (according to Modern Portfolio Theory) is stress-free, works great and requires rebalancing only once or twice a year. Imagine how much less time you'll spend arguing over money, when your money is making money for you -- while you sleep...
3. Easy-as-a-Pie-Chart. Modern Portfolio Theory is easy-as-a-pie-chart and makes annual rebalancing simple, too. MPT with annual rebalancing works wonderfully through bull and bear markets because your safe side wins when stocks wane, your equities outperform when Wall Street rises and your annual rebalancing means you have a strategy for capturing your gains.
4. Incorporate the Thrive Budget™. If you are buried alive in bills it is because you are overspending on basic needs. Get the big-ticket spending under control and you'll have a lot more time and money for fun, charity, education and investing. Cutting out café lattes will only make you cranky. It will not make you rich.
5. Money While You Sleep. If you're investing on headlines, you'll always be late, which translates into buying high and selling low -- a losing strategy. A diversified plan protects you from bear markets and maximizes gains in bull markets. Meet with your CFP once a year to rebalance your diversified nest egg. Then spend your evenings reading bedtime stories instead of obsessing over stock charts.
6. Align Your Investments With Your Passions. Every cent you own and every moment you spend is always an investment. Does it really make sense to invest in cigarettes, if you are protesting against smoking? To drive a gas guzzler, if you believe in renewable energy? When you put your money where your heart is, you are always investing in tomorrow. Taking ownership of the companies that make the products and services you use and love means that you are always up to date on emerging trends. Even if you're only about the money, you don't want to be invested in the typewriter when the PC makes it obsolete. Even greedy narcissists do better when they align their investments with their consumption.
To learn more about Modern Portfolio Theory and the Thrive Budget™, read You Vs. Wall Street (published by Perseus Books).