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Will a Bigger Paycheck Solve Your Financial Problems?

Do any of the following thoughts ever cross your mind as you are preparing the monthly bills? How did your friend get a new job with a 20% pay raise? Wasn’t she almost fired last year? When is your manager going to move on? You are certainly more qualified. Whatever happened to the move up or out policy? Your debt has gotten out of control. You need more income. Why should you struggle each month living pay check to paycheck? It’s time for a change?

Now think back to your last large pay increase. Are you better off today than you were before the increase? Of course you are. You have nicer stuff. May be you are living in a larger house or finally purchased your dream car. You take a winter and summer vacation. Your kids are in private school. If you are better off, then why are you still struggling from month to month? A higher paycheck translates directly into a more expensive lifestyle. My wife and I vacationed in Hawaii a couple of years ago. One morning at breakfast while overlooking the most spectacular ocean view I had ever seen, my wife stated that she needed a vacation like this every year. I said that you would like to have a vacation like this each year. She replied, “No, this is a need.”

As your paycheck increases, so does your NEEDS. The bottom-line is that people that overspend on a modest income will usually find ways to overspend on a higher income.

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Have you wonder why so many posts on economics?

I personally believe that over the next decade the best place to obtain financial freedom will be through investing in commodities and commodity related stocks.  No, this is not the only path.  Some will find it thru real estate as well as entrepreneurship.  However, until interest rates start falling – it is going to be difficult times in the real estate patch especially if you are playing the flipping game.  Affordability is under pressure from rising interest rates and inflation, so the number of potential buyers have been greatly reduced.  Landlords will have pricing leverage over the next few years.  So, if you already own real estate these will be good times for you. 

I may have made my point, before I started rambling about triple deficits and such. As a real estate investor, how are you going to make sound decisions without considering interest rates?   If you don’t understand the basic elements of the economic landscape your journey to Financial Freedom will be more difficult.  I was going to talk about how interest rates, inflation, and the deficits – budget, trade and current account are all related to the US Dollar and Gold, but will save that for another post.

I must admit that I didn’t study economics very closely until I started investing in Gold. I now struggle through articles and books on economics, because I realize that it is one of the commitments for Financial Freedom.  You may recall, the big three commitments:  make time to become free, know your business and buy assets.  Understanding economics is a part of knowing your business.

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How much interest are you earning on your savings?

I just received an email from my bank stating that it has raised rates from 4.25% to 4.35%.  Although I have my checking with a Bank of America, a traditional banker, my savings is with Ing Direct.  I just checked the current savings rates at Bank of America, to my amazement; they are still only paying 0.5%.  What a joke?  If you are not using an internet savings account from companies such as Ing Direct, Emigrant Direct or HBSC Direct you are doing yourself a disservice.  To attain financial freedom, you must optimize the return on your assets.  4.35% vs. 0.5% is a no-brainer. 

I am considering opening an account with Emigrant Direct.  Their current savings rate is 5%.  I briefly considered Emigrant when I opened my Ing account last year.  However, at the time they seemed to experiencing growing pains.  I have been quite pleased with Ing and have had no problems to date. 


Click here to start saving with ING Direct!

Update: 6/13/07

I have been using Ing Direct for well over a year now and have had absolutely no problems with the bank.  All deposits and withdrawals were executed in a very timely manner.  I have also opened an account with Emigrant Direct and so far so good.

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Dollar Cost Averaging – Automatically

EzineArticles.com Basic Author
Dollar cost averaging (DCA) is a technique designed to reduce market risk through systematic purchase of securities at predetermined intervals and set amounts.  If you participate in your company’s 401K plan, knowingly or unknowingly, you are practicing dollar cost averaging.  Each pay period your company deducts a specified dollar amount from your paycheck; the plan administrator then purchases stocks or bonds, on your behalf, in your chosen funds.  This process happens every pay period, regardless of the market’s trading level, until you change the instructions. 

DCA is one of the few strategies that most investors agree on its effectiveness in building long-term wealth.  If it is such a well known and used strategy, why do so few people use it outside of 401K investing? In the previous paragraph, I suggested that people unknowingly were dollar cost averaging.  I am willing to bet that your plan’s advisor did not explain the purchasing strategy as dollar cost averaging and its benefits in investing non-401K funds were not espoused. Here is a news item for you.  If Wall Street can’t make money off a strategy, it will not be promoted. 

Wall Street makes money by your paying of large commissions to its full-service brokers and by your hyper-trading in online accounts.  Wall Street depends on trader’s emotions to dictate trading strategies.  Every trader has to manage fear and greed each day.  Fear of a stock going lower, compels a trader to sell low.  While the fear of a stock going higher (a.k.a. greed), will induce a trader to buy high.   Buy high and sell low, the exact opposite of a successful long trade.  Dollar cost averaging eliminates the fear and greed emotions through systematic purchases regardless of the market’s state.

To make it more difficult for investors to practice this strategy, very few brokerage firms offer the ability to automatically dollar cost average into individual stocks.  However, most will allow DCAing into mutual funds – so, why not individual stocks?  I believe that I have already answered that question.

I have found two brokers that allow dollar cost averaging into individual stocks:  FolioFn and ShareBuilder.  I have an account with FolioFn and am quite pleased with their services.  Although I do not have an account with ShareBuilder, I have read excellent reviews about their offerings.  Both allow dollar-based investing which means buying stocks in a dollar amount that you chose instead of multiples of a stock price.  In other words, you can invest $50 or $200 per month or any dollar amount in a stock – just like in your 401K plan.

Combining dollar cost averaging and my cycles’ thesis as discussed in “The No-Brainer Investment Strategy to Double Digit Returns,” is a systematic process to outperform Wall Street.