Financial Advisor's Column
by Carmen C. Garcia, CPA
||Like most people, I live paycheck to paycheck. I'm trying to save for a rainy day but it seems to be raining all the time! How can I possible save for retirement?
This is a very common problem, but there is a way to change it.
Just thinking that you live from paycheck to paycheck is a negative
thought. Say instead that you are maximizing every dollar, using your
money more efficiently every paycheck. Then start accumulating all the spare change every day for a month and see how much you have. I'll bet it is at least $20-30 in loose change. Don't deposit that into your checking account, IT WILL DISAPPEAR. Set it aside in a drawer or a shoebox until you accumulate $50-100. Go to the bank and exchange your coins for bills, $10 and $20 bills. Place your crisp bills into your special hiding spot. Take out your bills every day and look at them and enjoy the feel of the crisp bills that you have saved. Get used to seeing those bills in your special place. When you have $50-100, open a savings account or a mutual fund account, if you like the stock market, and deposit your savings. Then start the process again.
What you are doing is training your mind to like the look and feel of crisp bills and to expect to see them in your special place. When they are not in your shoebox you will immediately start looking for coins and bills to fill that void. Thereafter, you will look for ways to cut out unnecessary expenses so that you can put you coins and bills into their special place.
Also, regular periodic savings into a mutual fund account is the best way to maximize your return because it lowers your cost over time helping your buy more units for your dollar. This is called dollar-cost averaging and is the best way for the average person to save.
||Where should I put my accumulated saving? Or what is the best Investment?
||A better question would be What is the best investment FOR ME?
No one can answer that except you. However, most people need help with this one. There are many variables that financial advisors consider in
advising their clients. Among these are
- number and ages of dependents
- long and short terms goals
- net worth
- how many years to retirement
- risk tolerance
All of these issues point to how suitable an investment is for anyone with a set of circumstances. For example, a 55-year-old single person with no dependents has a different set of circumstances and financial needs than a 30 year old married person with three children in elementary school. Theoretically, the 55 year old has ten years until she retires. If she has no retirement at all, she thinks she has to save more and take bigger risks because she has less time to accumulate funds. She wants to go with aggressive growth funds but really should resist because she doesn't have enough time to recover from market fluctuations. This is the old turtle and hare story. Chances are she will not retire at 65 but will have to work until 75-80. The 30 year old with children, on the other hand, is thinking first about buying a home, raising her children and sending them to college. These are her intermediate goals. Retirement is a long-term goal, usually longer than 10-15 years. If she has a retirement fund it is not her priority. She wants to be safe with her money in government securities but she can really afford to take the risk of long-term aggressiveness because she has the time to recover from market fluctuations.
So, the best investment for you depends on your age, your dependents, your goals, how much money you have, how long until retirement and if you can sleep at night when your money is invested.
||I want to start a business. I see lots of offers from Multi Level Marketing Companies (MLM) and signs on street corners about making thousands of dollars working at home. What's the best business to start and how do I start it?
The best business to start is something that you love to do. Don't do it for the money. Recognize that, initially, most businesses lose money in the early years while they develop their customers or markets. Home-based business are the fastest growing sector in the U.S. but the fall-out rate is well over 95%. Being under-capitalized is the #1 reason small businesses fail. They just can't hold on long enough until they turn the corner. It's not that their idea or product wasn't good; they just run out of money.
Start your business slowly by investigating every avenue you can think of. Learn everything you can about your product or service. Talk to your competitors. Go to work for yours competitors, if you can, for at least a few months. Learn the trade secrets. Keep your current job until you are making a modest profit. Resist the temptation to finance your business with credit cards. It can mean disaster later on. Instead, start slowly and live modestly.
Two words of advice:
About MLM companies and home-based businesses: there are many MLM companies that are legitimate and offer great opportunities. However, as with everything else, success is usually based on hard work and perseverance.
- There is a difference between working IN YOUR BUSINESS and working ON YOUR BUSINESS. Many entrepreneurs work in their businesses most of the time because they love what they do and believe in their product. They are passionate about their business. They ignore the administrative aspect of working ON THE BUSINESS: the planning, the financing, the accounting, and the marketing, the IRS! I recommend a book, The E Myth, by Michael E. Gerber, which will help you put things into perspective. You can get it at most bookstores in paperback.
- Don't start out alone. There is help out there. Most people would love to help if you just ask them. Lots of help is free for the asking and many professionals will not charge for an initial visit because they want YOUR BUSINESS. Call your CPA, attorney, banker, and insurance agent and pick their brains until they squeal.
Carmen C. Garcia, CPA, is President and Owner of C.C. Garcia & Co., P.C. a San Antonio CPA firm serving individuals, small businesses and non-profit agencies. Email email@example.com or visit her website at www.ccgarcia.com.