Wednesday, July 30th, 2008
What would you do if you won 3.6 million dollars? Would you run out and spend a bunch of it? Give some of it away? Take your time and make a decision?
If you decide to take your time, you’re on the way to a good start - still, I’m puzzled why Maple Ridge BC realtor and lottery winner Peter Dushop chose to take his 3.6 million and stuff it away in a safe deposit box for almost a full year while he pondered his options.
The thing is, excellent and safe “holding tanks” for money are available for people who want to think things through before they make a big money decision, such as investing a lottery windfall, an inheritance, or even buying a house. There are high-yield savings accounts, or money market funds which would be perfect for holding your cash until you know better what you want to do with it. By waiting nearly a year to claim his money, Dushop said “no thank you” to tens of thousands of dollars of interest. A year ago, money markets were yielding 4.5% annually, and in the last couple of quarters that return has dropped to around 3 percent. That’s not a lot when you are looking at hundreds of dollars, but when you are talking about $3.5 million, it could have made $100,000 interest or more. And that is the interest you get for “playing it safe”.
So? Doesn’t he have enough already? He might, though research shows that most lottery winners don’t hold onto their earnings, spending and losing the money until they reach their previous standard of living, usually within 5 years. If Mr. Dushop spent the year educating himself about money management, he may defy the odds. I get the feeling though, that he spent the year scared stiff to take any action because it could be “the wrong move”.
That’s a shame, because we need more people with access to money who are unafraid to use it and grow it, enriching their lives and more importantly, the lives of those around them.
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Tuesday, July 22nd, 2008
Question: How many credit cards can you leverage for investing before it damages your credit?
Answer: If only the answer were as simple as a number! I could say, well, 9 - and you’d be on your way! In reality, the credit card companies and credit bureaus don’t care whether you are using your cards to buy stereo equipment, or to invest. But they do care about how you manage your credit.
Here are the areas to be aware of:
- The effect on your credit score when you fill out a credit application. Each time a company or financial institution makes an inquiry, it can adversely affect your credit rating. If you fill out a credit application, be reasonably sure that you will qualify for it.
- The relationship between your outstanding balance and your limit - you should use only 1/3 of your available credit at any time. Leave lots of room!
- Your frequency of use - it’s better to use a card regularly, which can be as little as once a year. Keep it somewhat active.
- Overall history of the card and the length of time you’ve had it. A long credit history with a couple of bumps and snags is better than a short history where you are an unknown quantity.
- Your total debt-to-service ratio; in other words, your debt payments compared to your income. Again, keep this to a maximum of 30%.
If you keep within these guidelines, you can use the credit available to you to fund wonderful income-generating projects, or to take advantage of a terrific opportunity and have a terrific credit score.
Posted in MoneyMinding Makeover Magic, Questions for MoneyMinding, Uncategorized | 2 Comments »
Tuesday, July 8th, 2008
The Wall Street Journal Online’s blog on wealth quoted an interesting, if small, study on splurge spending which obviously touched a chord in its readership.
Usually, articles in WSJ Online’s wealth blog generate around 15 comments - maybe over a hundred if you are combining the topics of wealth and politics, which tends to bring out the armchair pundits. But the post “Splurging is Good for Your Health” generated a whopping 477 comments at last count, with most everyone weighing with their own judgements on whether “overpriced indulgences” lead to happiness and less regret.
The “spenders” and the “savers” seem to show up in equal numbers, and with equally valid justifications for their points of view. A few people dissed the study itself, published in the Harvard Business Review, for being too small and from too narrow a demographic.
The wisest comment - at least in the first 100, which was about as far as I got - was this one, from one Mike in the U.K.:
“It’s easy to spend too much and have no future - It’s just as easy to spend too little and have no past - The difficult bit is to get it just right.”
That’s why it’s so important to keep your goals and your values foremost, and know what they are before you start building your “ideal budget”.
Posted in MoneyMinding Musings | 1 Comment »