Be Wealthy & Smart

Learn why new cars can be a deterrent to your wealth and what opportunity cost means. Maybe you like cars or you just want a new car. Perhaps you want to buy a new car because it's for safety (too many miles), or status (need it for your job/image), or change of objective (had a child), etc. Whatever your reasons for a new car, re-think it because cars are one of the largest deterrents to your wealth. Take a doctor who grosses $1 million a year, but has virtually no wealth accumulated. How does that happen? Moves from house to house. Buys a new car every 3 years. I've talked about the cost of moving - commissions, loan fees, remodeling to sell, remodeling after purchase, etc. Buying homes and cars too frequently can be deterrents to your wealth. For now, let's just focus on the car. He HAD to have a new BMW 650i. MSRP is $99,000. Let's look at the true cost over time, which is what would the money be worth if you had invested it? We call that Opportunity Cost. What is the depreciation on the car? According to edmunds.com, depreciation on a BMW 650i is: 1. $10,168 2. $5,837 3. $4,987 4. $4,249 5. $3,627 Total in 5 years = $28,868 Mind you, this is happening every 5 years and total depreciation is $29,000. Let's call it an even $30,000 for ease of math. Over 5 years it's $30,000 in depreciation. Let's take the $6,000 depreciation, which he is getting nothing for, and see what it would amount to in 20 years after being invested in the stock market. On average, the stock market over the long term will compound at about 10% per year. We'll take $6000 per year, invested at 10% for 20 years. Remember, this is money that is the depreciation on his car, not money he will ever see go through his fingers. It's lost forever, like making a bad investment every 5 years and your investment is worth less. What is the opportunity cost if he had invested the $6,000 per year instead? Guess. So $6,000 x 10% x 20 years = $418,380. Can you believe it? Do you see why cars are one of the largest deterrents to your wealth? According to Kelley Blue Book, average price of a car was $36,270 in January 2018. New-car prices have increased by $1,360 (up 3.9 percent) from January 2017. Looking at edmunds.com, if you bought a car for $29,873, the minute you drive it off the lot, you've lost $2,559! By the end of year 1 you've lost $5,687, year 2 another $3,607, year 3 another $3,173, year 4 another $2,813 and by year 5 another $2,524. Guess what the total depreciation is over 5 years? $17,804 or a 60% loss! According to edmunds.co, a new car loses 11% the minute you leave the lot, during the first 5 years loses 15% to 25% each year. After 5 years the car is worth 37% of what you paid for it at the dealership. Let's say you invested the $17,804 or $3,560 per year. Invested for 20 years at 10% is $248,238. Invested for 30 years at 10% is $706,278. Remember, you're not shelling out cash, this is money slipping through your fingers! These are the kinds of things that make a difference to your wealth. It's the choices you make. Does that make sense? Hopefully you agree that new cars are not helping your wealth. What can you do? Here's 5 things for you to do: Buy gently used cars in mint condition with low miles. That way a lot of the depreciation is already gone. 2. Don't buy new cars until you have achieved your financial goals. Until then, it's not a good investment and the opportunity cost is too high. 3. Buy buy cars that are too expensive. Put a limit on how much you spend. 4. Listen to Be Wealthy & Smart podcast #10 about cars that last for 250,000 miles. 5. Beware of cars that are coming from the Houston flood! There are thousands of damaged cars from Houston that will hit the auction blocks. Most used cars will be fine. Make sure your dealer didn't buy the car at an auction. It's better to know who the previous owner was and where they lived. Do your due diligence before you buy.

Learn how some people got wealthier faster and the reasons why. This is an article in Investor's Business Daily from April 30, 2018 by Paul Katzeff.

Learn 17 potential places to invest a small amount of money. It's listener question day! Here is our question: Linda, I only have a small amount to invest, about $300 to $500. Where should I start? Sam There are many options you have. Since I don't know anything about your circumstances, I'm going to give you a list of choices. Assuming all your consumer debt is paid off. If not, start there to get back to stability. 1. Start an emergency fund. Keep it in a separate (no-fee) checking or savings account, if possible. 2. Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA) are both great ways to reduce your income taxes by paying for medically-related expenses with pre-tax money — that is, money deducted from your paycheck before income taxes are calculated on your pay. You put money into that you use to pay for certain out-of-pocket health care costs. This means you'll save an amount equal to the taxes you would have paid on the money you set aside. 3. Pay 1/12 extra on your mortgage to pay it off faster and save thousands of dollars in interest. 4. Invest in an ETF or mutual fund. ETF's are passive, mutual funds are actively managed, but more expensive. Spyder S & P 500 fund (SPY, .09% expense ratio) or Vanguard All Market Index (VTI, .05% expense ratio). Dividend Aristocrats – 25 years of consecutive increasing dividends (NOBL, .35% expense ratio). 5. Term insurance. Creates an immediate estate in case of your untimely death. Can buy $100k to $500k depending on your age, health, gender, smoking, dangerous hobbies, etc. 6. Silver coins, still about $25 a piece. 7. Shares of stock. One share of Disney to get the special stock certificate, or Starbucks, etc. 8. REIT. Vanguard REIT (VNQ, .12% expense ratio) Now for some ideas outside of the box… 9. Bitcoin 10. Hire a CPA – to help you reduce your taxes if you make $75k + 11. Subscription to IBD, WSJ or Kiplinger's 12. Condo down payment fund 13. Start a business 14. Have a garage sale to raise more funds 15. Hire an organizer 16. Buy a bus pass 17. Invest in a computer to start an online business Although you can consider all of these, if you are around age 30 or under, making your first real investment, I'd start with the Vanguard All Market Index ETF.

Learn the one thing to focus on for financial success this year. This is the most important thing you can do financially this year. You'll have to listen to find out what it is! Please subscribe to the Be Wealthy & Smart podcast and get new episodes as soon as they are added.

Learn 3 ways to protect your wealth when interest rates are rising. The economy operates on cycles. There is a key indicator of where we are in the cycle. The key indicator is interest rates. Interest rates are controlled by the Federal Reserve. They set the rates and determine when to raise interest rates. Interest rates are the cost of money. It's how much we pay to borrow money from banks. It's something I want you to pay attention to because many people were surprised by the crash of 2008. They thought housing prices would only go up. They thought is would continue forever. But interest rates were rising, which meant the Fed was slowing down the economy. When rates rise, people rush to buy homes. There can be a big boost to prices at the end of the bubble. If you don't understand it, you can be caught thinking you have to rush out and buy a home because appreciation is going crazy. Just as people do that, the market slows, sale reduce, until prices have to drop and supply increases. It can become a downward spiral. Be aware when interest rates are being lowered, that is positive for the economy. When interest rates are rising, it's negative (slowing) the economy. That's not the time to take a big risk, it's time to reduce your risk. Step 6 to wealth is "Protect your wealth." It means don't stay too leveraged too long. Here's what you need to do: 1. Pay down high interest rate debt. 2. Refinance from variable rate mortgages to fixed rate mortgages. 3. Start being more cautious with real estate, which is interest rate sensitive. Take less risk. When interest rates rise, it's a time to become more cautious with real estate. Not the time to be over-leveraged. Watch the cycle and understand what rising interest rates mean and where you are in the cycle.

Learn stock market investing insights and why investing is important to you becoming financially free. Investing in the stock market doesn't have to be difficult. It is very important for you to know how to invest in the stock market in order to achieve financially independence. Here are the reasons why you should know how to invest in the stock market: 1. It's affordable. It has low account minimums: $0, $0 for IRA's, or $500. 2. It has low fees like $5.95 or $6.95 a trade. Low internal fees. For example, SPY has a .09% expense ratio. 3. It is easy to invest. Little knowledge is required to invest like a pro. 4. Long-term performance will average around 10% annually. Everyone needs a money engine. 5. You need to have higher rates to compound to become financially free. Investing in the stock market does entail risk. The stock market drops 20 - 30% every 5 or 6 years. Expect it and plan for it. One way is to invest 1/12th per month and dollar-cost-average into the stock market. I'm excited to celebrate my 400th podcast! All of my podcasts are listed on http://lindapjones.com in the podcast tab. They are evergreen so the mentoring is relevant all the way back to podcast #1.

Learn about entrepreneurship from global CEO branding expert and Firestarter co-author Raoul Davis Jr.

Learn how to maximize your investments so your 401(k) or retirement plan will accumulate $1 million. About 150,000 people have a 401(k) of $1 million or more in 2017 and 152,000 IRA's have $1 million or more. Here are the steps to take: 1. Start as soon as possible. 2. Invest the maximum or at least get the match. 401(k) & 403 (b) = $18,500 Roth IRA benefits phase out (you can't contribute) if you earn too much money. IRA $5,500 3. If you're over age 50, add the catch up provision. 401(k) $18,500 + 6,000 = $24,500 IRA $5,500 + $1,000 4. Invest in stocks. 10% average annual return. $3,000 per year for 35 years @10% = $978k $8,000 per year for 25 years @ 10% = $952,000 $24,000 per year for 15 years @ 10% = $939,000 5. Don't use target funds. 6. Get comfortable with risk. 7. Stay the course.

Learn what assets make up your asset allocation and how to decide how much to invest.

Learn what to do to make a dreary job like doing your taxes, fun! April 17th is Income Tax Day. This podcast will help you get through it with more fun and like a breeze!