Adjustable Rate Mortgages - Limits

In a comment to a previous post on Adjustable Rate Mortgages (ARMs), a reader asked, “Is there some kind of a interest rate cap for ARMs ?” Here was the answer:

Yes, there are limitations to interest increase and decrease (in a declining rate environments) amounts. There are usually two caps, one for each adjustment and one for the life of the loan. The adjustment cap is the maximum change that can occur for the periodic changes – typically around 1-2% but can be as high as 5%. For example, if a loan has a 2% adjustment cap and interest rates rise 4%, the loan interest is only increased 2%. The life of the loan cap is the maximum change from the initial rate that can happen over the full term – typically around 5%, I think. So if your initial rate is 5.5%, the minimum and maximum rates anytime during the life of the loan are 1.5% (we wish:-) and 10.5% (arrgh) respectively.

There are also limitations the frequency of adjustment.

Fixed Rate Period. ARMs typically have a period when the interest interest is fixed. Typically, it is 1, 3, 5 or 7 years. The longer the fixed period, the higher the intial interested rate.

Adjustment Period. After the fixed rate period, ARMs will adjust once or twice a year. Usually, 1 indicates a yearly adjustment, and a 6 indicates an adjustment every 6 months.

For example, an ARM with a 3 year fixed period and adjustment every year after 3 is a 3/1 ARM.

The issue is that many people use an ARM because it has a lower payment than a fixed rate mortgage, and they could not afford or qualify for the fixed rate mortgage. With interest rates rising over the last 3 years, some of these people are experiencing the same affordability difficulty again, even with caps.

This is not financial or real estate advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Carnival of Investing #46

The 46th Carnival of Investing is up and running at My 1st Million at 33. There are thirty-one posts on stocks, real estate, and gold. The posts also cover investment strategies, leverage, and specific recommendations. It’s worth a read to find ideas that may interest you.

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Investing 101 - Managing Risk Successfully

“October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.” - Mark Twain

To successfully build wealth, one needs to understand the concept of risk and manage it well. For several detailed mathematical and psychological definitions of risk, see Wikipedia. Here are my working definitions for risk:

Individual Risk. That is the risk associated with your specific investment. An example of Individual Risk is a biotech stock declining even though most biotech stocks are rising.

Market Risk. That’s the risk that is associated with the area in which you are involved. An example of Market Risk is the current real estate “bubble.” In general, all real estate will experience the same issue, i.e. declining, when the bubble breaks. If you own real estate when a real market declines, you will likely experience a decline.

Risk Tolerance. This is describes the level of risk with which one is comfortable. When risk is below your risk tolerance, you sleep comfortably at night. When risk is above your risk tolerance, you are constantly on edge.

To be a successful investor, one must take steps to manage the risk in each of the areas. Here are approaches I’ve used to help manage risk:

Reducing individual risk can be achieved by diversifying within an asset class. For stocks, that means choosing stocks in different industries. Minimum risk can be achieved with as little as 10 stocks. For real estate, that may mean buying different types (residential, multi-family, commercial) of properties.

Reducing market risk can be achieved by investing in different assets that are negatively correlated. For example, real estate and gold tend to be negatively correlated with stocks. When stocks are rising, gold and real estate tend to be stagnant or declining. When gold and real estate are rising, stocks tend to be stagnant or declining. By diversifying across several asset classes one can minimize downside risks. However, diversification also tends to limit upside gains, for the same reason.

While the first two have statistically based solutions, increasing risk tolerance addresses an emotional challenge. One way to manage risk tolerance is to minimize the negative impact of any downside risk. A second way is to build you risk tolerance over time. A third way is to ignore it :-)

I have a low risk tolerance and am most comfortable when my investment strategies are preserving my principal. My investments tend to have low risk for loss of principal and only a small amount is invested in speculative opportunities (e.g. options and turnaround stocks).

Mitigate the negative impact of a market downturn by creating a savings foundation on which you can fall back. Only invest funds after you have paid off non-mortgage debt and created an emergency fund. Invest funds which you won’t need in the short term and can afford to have fluctuate.

Build your risk tolerance over time. I split my investments among low, medium and high risk areas. I have the majority of funds in low risk investments (e.g. CDs) and portion in higher risk investments (e.g. stocks). I know most advisors recommend a 75/25 or higher split of stocks/fixed income. I began with a 0/100 stock/fixed income split. I have moved to a 40/60 stock/fixed split over time. It’s a split with which I am comfortable, and therefore, can sleep with at night.

Understand your risks. Build your knowledge about your investment options, hire professional advisors to provide guidance, or learn from a successful experienced practitioner. With knowledge, one can make better and more successful decisions on investments and risk. My father successfully invested in stocks and real estate. He taught me many of the basics. Value Line Investment Service has a demonstrated successful stock investment methodology. I have also established a relationship with a local real estate agent. All have been helpful references with my investments in stocks and real estate.

As you master the management of risk, you will increase the probability of your investment making money.

Here are the current posts in the Investing 101 series: Part 1 - Getting Started; Part 2 – Managing Risk Successfully

This is not financial or investing advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Reduce Spending - Use Your Company’s Corporate Rates

Some companies allow their employees to use the company (hotel, car rental, etc.) Corporate Rate ID for personal use. Using the Corporate Rate can often result in significant savings. It is worth checking if your company has such a policy in place.

My company allows all employees to use the Corporate Rate ID for any hotel stay or car rental. I have found our Corporate Rate to be the lowest rate about 90% of the time. If the Corporate Rate is higher, it usually will include more benefits than the lower rate – e.g. our Corporate Rate includes insurance on rental cars for no additional cost.

Weekend hotel stays are the one instance where I found Corporate Rates have little benefit. Since most business stays are during the week, weekend hotel rates are often lower than the Corporate Rates.

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Stock Market - Short Term Assessment

The stock market is having a good uptrend. The number of new all time highs is at 408 versus new all time lows at 17. Yesterday, the 52 week new high/new low ratio was 343/12 on the NYSE and 247/31 on the NASDAQ. The DOW is hitting new highs. Oil prices and interest rates are lower. All these measures are favorable for stocks.

Since I believe the upward move will be short-lived, I will try to sell some stocks into this rally. I have already sold Motorola (MOT) at $24.84 for a 7% short term gain and am looking for opportunities to sell Alcon (ACL) and Chicos (CHS). I will continue to hold Google (GOOG), Apple (AAPL) and Gilead (GILD) since they have performed relatively since the recent market dip.

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Personal Finance Carnivals to Read

The current editions of three Carnivals I regularly read, the Carnival of Personal Finance #70, the Carnival of Debt Reduction #57, and the Festival of Frugality #44 are up and running at Make Love, Not Debt, My New Choice, and Free Money Finance, respectively. There are a number of excellent posts on all three Carnivals.

For those new to the concept, Carnivals are a great smorgasbord of ideas, discussions, and experiences submitted by bloggers on a specific topic area, in this case, Personal Finance. As with any smorgasbord, there are some new and novel items that will delight and many items that one has already experienced. In any case, you will be exposed to a greater variety of posts than in any one blog. Hope you find this week’s Carnivals as interesting as I did. Enjoy!

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

New Carnival - Fast Cash

There is a new personal finance Carnival in the blogsphere. The inaugural edition of the Fast Cash Blog Carnival is hosted at Cash 101. There are four categories: Earning, Spending, Saving and Investing. Specifically, I enjoyed the posts on career advice (in Earning by Free Money Finance) and on low tech ways to develop your child’s mind (in Spending by The Learning Umbrella).

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Saving Money When Making a Charitable Contribution

If you usually make charitable contributions by cash or check, you may want to consider donating appreciated securities instead. It’s a great way to maximize you contribution while minimizing your out-of-pocket cost. The benefits are:

1. Maximizing tax savings.
2. Reducing your actual cost.
3. The charity gets exactly the same level of contribution.

Here’s how it works:

You contribute shares of appreciated securities that have been held for over one year directly to the charitable organization. Your broker or financial institution that holds your shares can do this for you. The charity that receives the securities will sell them immediately. You get to deduct the full sales value of the securities on Schedule A of your tax return.

Below are three options for contributing $100 using cash or appreciated stock and a comparison of the net cost to the contributor. The calculations assume a 25% marginal income tax rate and a 15% long term capital gains tax rate . It also assumes an 87% gain for the appreciated stock.

Option 1 - Cash
Donate $100 cash. Deduct $100 on your tax return. Tax savings = $25. Net cost = $75.

Option 2 – Sell Appreciated Stock and Donate Cash
Sell $107.5 (with $50 capital gain) stock. Pay $7.50 in taxes on the $50 capital gain. Donate $100. Deduct $100 on your tax return. Tax savings = $25. Tax on gain = $7.50. Net tax savings = $17.50. Net cost = $90. This is the highest cost option due to paying taxes on the realized capital gains. In addition, you may need to pay a commission for the sale of the stock.

Option 3 – Donate Appreciated Stock Directly
Donate $100 (with $46.51 gain) of appreciated stock. You may deduct the full $100, even though you haven’t paid taxes on $46.51 unrealized capital gain. You also have a tax avoidance of $6.98 since you pay no taxes on the $46.51 gain. Net tax savings = $31.98. Net cost = $68.02.

Brokerages (and I believe other financial institutions) will typically waive the transfer fee (typically $50 to $90) for a charitable contribution transfer, making the donation of appreciated shares even more attractive.

Personal Finance 101 - Are You a Saver or Borrower?

Are you a saver or borrower and what will you do about it? Knowing which you are can help you develop a good personal finance strategy. Here are my working definitions of savers and borrowers:

Savers defer gratification today in return for future gratification. Savers choose to have a lower standard of living than they currently can afford.

Borrowers use debt to enable higher levels of immediate gratification. They choose to have a higher standard of living that they can afford currently with cash. Debt enables them to achieve that goal.

We all are savers and borrowers in different situations. For our home, I am a borrower since I have a mortgage and, therefore, have used debt for the purchase. We chose earlier gratification for our house. For cars, vacations, furnishings, everyday living, and home improvements, I am a saver. I pay for each of these with cash from prior savings.

Here’s a quick test of whether you are a saver or borrower. Choose whether you are a saver or borrower for the following list of items:

1. Home
2. Education
3. Car
4. Home Furnishings
5. Vacation
6. Entertainment (Eating out, Movies, etc.)
7. Gifts (Christmas, Birthday, Special Occasion)
8. Everyday Livings Expenses (Clothes, Groceries, Gasoline)

Add up the number of times you answered “saver” to get your Wealth Builder Saver/Borrower assessment.

8 = Extreme Saver. You are debt free, not even a mortgage on your house. You use a credit card only for convenience and pay off the balance every month. You have an excellent credit rating. You are likely saving a significant portion of your income each month.

6-7 = Saver. You likely have two out of the three major debts – mortgage, auto loan, or education loan. You are reducing debt in all areas and are increasing your savings every month. You are also saving some for retirement.

4-5 = At crossroads. You are at a critical junction of potentially falling into a downward debt spiral or choosing a path towards becoming debt free. Currently, you depend partly on debt to maintain your lifestyle. A significant portion of your income is used to pay for debt. You have some savings but not as much you need.

2-3 = Borrower. You are highly dependent on debt and borrow using credit cards or HELOCs to purchase many things. You carry a high debt load which is likely increasing. You are able to cover debt payments by working extra hours or extra jobs. However, changes are needed since you cannot continue this situation for a long period.

0-1= Extreme Borrower. More than your income is already committed to “must pay” items – mortgage/rent, car loans, student loans, credit card payments, utilities. You may be in this situation temporarily, due to job loss, or this may be your lifestyle. Either way, you must make some significant changes since this situation is not sustainable.

Knowing your saver or borrower assessment can help you develop a better plan to address your situation. For example, extreme savers should continue their plan, while extreme borrowers need to seek advice and do something different. If you are a saver, some additional guidance will likely help you to make progress. If you are a borrower, your actions will depend on how long you have been in this situation. If you are at crossroads, you will have an important decision to make that will significantly impact your future - which direction to go?

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Using a Financial Advisor

Although I enjoy doing my own investing, I decided to hire a financial advisor in 2004 to manage part of my savings and investments.

It took me several months to find the right advisor that met my needs. The advisor I chose gave me confidence because of their track record through several market cycles, their investment style and the recommendation of several people who had retired from my company. After attending several of their seminars and having one-to-one meetings, I decided to hire them.

Here’s how I think about my relationship with my advisor:

My advisor’s investment style supports my personal financial goals. His investment strategies and approaches are consistent with my conservative, wealth preservation investment goals. Also, he is or has direct access to resources that are more knowledgeable than me in estate planning, retirement planning, and tax laws.

My advisor makes recommendations but I ultimately have the final decision. I can agree or disagree with his choices, although I usually follow his recommendations. I am ultimately responsible for the outcomes. I briefly look at my investment results on a daily basis to know the status of my investments.

My advisor will handle my finances if I can’t. I have seen cases of elderly people, who no longer managed their finances well, and having a trusted financial advisor would have been helpful. Whether the reason is age, incapacity or death, I trust my advisor to continue to steward my wealth in a way that benefits my family or survivors.

In the two years we have worked together, I have been satisfied with the results. After fees, he has returned slightly above the S&P benchmark. In addition, he has provided a review of our estate planning documents (wills and trusts), recommendations on educational savings accounts, retirement options analysis, and guidance on investments in my 401K. For me, the financial advice has been worth the asset management fee that I pay.

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Saving Money for College

It has been many years since I have thought seriously about paying for the cost of college. Now that we have a two year old daughter, I have started considering challenges again. At the rate college costs are rising, I estimate we may need to pay over $90,000 per year for a private college education in 2022. That is scary.

I also have read about some college graduates having $40,000 to $60,000 debt ($20,000 on average) when they complete their education. Sometimes a significant portion is credit card debt. This is scary too, especially, since many jobs have starting salaries around $30,000 to $50,000. It’s tough to start saving when a college education creates so much debt.

Here’s an overview of my current thinking on saving money for college:

My personal goal is to enable our daughter to graduate from college with zero to $10,000 of debt. To do that, we are aggressively contributing to our state’s 529 college savings plan. (A side benefit is a state tax deduction.) In addition, the grandparents have opened college savings accounts for her. I am aware of other tax advantaged educational savings accounts (Cordell) but have not investigated them in detail yet.

We will also look for schools that provide sufficient financial aid to cover costs that we cannot cover. This can range from attending a state school to an Ivy League school. For example, Princeton University has a policy of providing enough financial aid to eliminate the need for student loans. Also, at the appropriate time, we will apply for grants and scholarships.

There are also tax credits (Hope and Lifetime Learning) which are dependent on income limits. However, I expect we may be higher than the maximum income limits.

Finally, I will expect her to contribute the majority of her summer job earnings in high school and college to tuition. I remember doing this when I attended college and it made me appreciate the cost of and value of attending college.

Overall, I feel we are off to a good start since we are starting so early. However, it is still a daunting task. For example, if we are to completely cover my estimate of a $90,000 tuition per year starting in 2022, we will need to save $12,000 per year and earn an average of 8% investment returns during that time. I am glad we still have 16 years to plan and save for a college education.

This is not financial or college advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Housing - Now is a Good Time to Buy

If you are thinking about buying a house in which you will live, now is a good time to start looking.

According to the Wall Street Journal, median housing prices are expected to decline about 10% in 20 metro areas up through 2008 – 2009. The WSJ article, currently free access in its on-line edition, is based on a report by Moody’s Economy.com. Of course, as the article points out, it is difficult to predict when the bottom will occur. And there is risk with trying to time the bottom exactly. However, housing costs are expected to be lower than the peak which occurred in the past year.

Separately, mortgage rates have hit a seven month low according to msnbc.msn.com, with 30-year, fixed rates averaging 6.30% and 15-year, fixed rates averaging 5.98%. One year adjustable rate mortgages (ARMs) are at 5.46%. For reference, I do not like using ARMs to make a home mortgage affordable. As I cautioned in an earlier post, ARMs are a risky approach to make mortgage payments affordable for a long period.

One never knows exactly how long favorable buyer’s conditions will last. And the market may become even more favorable for buyers in the upcoming months. However, if you’re truly in the market to buy, now is a good short term opportunity.

This is not financial or housing advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Carnival of Debt Reduction # 56

If you are looking for ideas on how to reduce your debt, check out the Carnival of Debt Reduction posted at the Frugal Duchess. There are several good posts on topics that include student loans, credit cards and mortgages. I like the format Sharon uses for her Carnival. She lists each post with a short summary, giving you the opportunity to quickly choose which ones are of interest.

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Festival of Frugality #43

The Festival of Frugality is up and running at My Open Wallet. It’s a fun read that keeps one guessing. Each post entry is presented as an anagram of a part of the post title or author’s name. For those of you like me, who are not good at anagrams, she also includes the actual information on all posts.

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Investing 101 - Getting Started

Investing can be intimidating because of the perceived and actual risks. I remember my apprehension when I bought my first stock and my first investment real estate. In hindsight, knowing what I know now, I can see the reason for my anxiety. Over time I have developed these foundational principles for how I invest:

Choose a strategy to preserve, grow, or speculate with your investments. I have chosen an approach to mainly preserve with some growth. I started with CDs and expanded to stocks and real estate. CDs are low risk with fixed low growth. Good stocks and good real estate are medium risk, with medium growth. I do speculate with a small portion (1-2%) which is invested in options, one turnaround stock and a small business venture, which are high risk (i.e. gamble) with potential high returns (with luck).

Understand your investment options. I try to learn from others with the knowledge or a professional I can trust. In addition, be comfortable with your allocation of investments. Do not put your money or let your advisor put money into investments that you do not understand or feel comfortable doing. Know the risks. If you use an advisor, remember, it’s your money, and you have ultimate responsibility for the investment outcome. And always remember, if it sounds too good to be true, then it likely is.

Use knowledgeable professionals who provide good value and have reasonable fees. I do not like to pay more than 1.5% of assets for financial advisors or mutual funds to manage my investments. Vanguard is a good mutual fund with low fees, often in the 0.4% to 1% range. Many full service brokerages, such as Merrill Lynch, have programs with management fees in the 1-2% range. I do not have much experience with real estate management firms, but I believe they have fees closer to 5% of rents.

Here are the current posts in the Investing 101 series: Part 1 - Getting Started; Part 2 – Managing Risk Successfully

This is not financial or investing advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Updating My Wealth Ratios - Q3 2006

I just met with my financial advisor to do a Monte Carlo analysis of possible retirement scenarios. Based on retiring with a Savings Ratio of 16, there was a 35% chance of outliving our retirement savings. With a Savings Ratio of 20, there was a 16% chance of outliving our retirement savings. Therefore, I am revising my Savings Ratio from 16 to 20, based on this analysis.

While I did expect to have a higher savings ratio than 12 due to my goal of retiring no later than 55, it was surprising that it was high as 20. There a couple of reasons for this. First I asked for an analysis of retiring in my late 40’s. Second, I used a conservative real rate of return at 2.5%. In my earlier posts, the assumptions were retiring at 55, with real rate of returns at 5%.

Given my conservative assumptions (2.5% real return and retiring before 50), I am comfortable with a Savings Ratio of 20. My next step is to have my advisor do an analysis with a 5% real rate of return assumption. I expect that the Monte Carlo analysis with this assumption will yield a 5% or less chance of outliving my retirement savings.

I have also calculated the other ratios as of the end of September. There is only one minor change, the Current Savings Ratio increasing to 14.6 from 14.3. My debt ratio and income ratio remained the same.

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

More Options for Preventing Foreclosure

In an earlier post, I recommended contacting the loan holder to renegotiate the loan as one way to avoid defaulting on a mortgage. Since writing the post, I noticed there were a number of articles on avoiding foreclosures. They all included talking to the lender to discuss loan payment options as the first course of action. Surprisingly, I learned over half of the borrowers who face foreclosure never talk to their lender.

In addition, I learned that there are other options besides renegotiating the mortgage. For those people that have a temporary issue, the options include:

Forbearance—Payments are delayed for a short period, with the understanding that another option will be used afterwards to bring the account current.

Reinstatement—You are behind in your payments but can promise a lump sum to bring payments current by a specific date.

A Repayment Plan—The lender agrees to let you catch up by adding a portion of the past due amount to each current monthly payment until your account is current.

Modifying Your Mortgage—The lender can modify your mortgage to extend the length of your loan or take other steps to reduce your payments.

For those that have a longer term issue, the options include:

Selling Your Home— The lender agrees to put foreclosure on hold to give you some time to attempt to sell your home.

Property Give-Back—The lender allows you to give-back your property and then forgives the debt. Give-backs do, however, have a negative impact on your credit record, although not as much as a foreclosure.

Source: How to Avoid Foreclosure and Protect Home Equity

This is not financial or mortgage advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Saving Time - Trust Your Bank's Math

I used to spend time each month balancing my checkbook to exactly match my bank statement. I would identify which checks had cleared, subtract the checks that had not cleared, and inevitably, get a different result than the bank statement. Begrudgingly, I would recalculate all the transactions from the month.

Years ago, a colleague convinced me that the bank’s math is always right. Simply, a bank’s business success depends on adding and subtracting millions of calculations exactly and accurately. However, my colleague cautioned that the entries may have errors and, therefore, each entry should be confirmed as accurate.

His rationale made sense to me, and my balancing experience always showed the bank’s calculations to be correct whenever there was a discrepancy. Since I like to simplify my personal finance efforts, I stopped checking the bank’s math on monthly statements. In all those years, they have only had two entry errors, which the bank corrected before I contacted them.

So every month I only check the bank statement entries, but not the math.

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Money & Finance Carnivals of Interest

For me, Carnivals are an excellent source of ideas to consider for my wealth building plans. Most popular is the Carnival of Personal Finance hosted at Punny Money this week. Here are some additional Money & Finance Carnivals that just posted. Typically, the Carnivals are published weekly, with a different host site each week.

Carnival of Taxes at Don't Mess With Taxes
Carnival of Debt Reduction at Debt Consolidation Lowdown
Festival of Frugality at Tired But Happy
Carnival of Investing at Carnival of Investing
Carnival of Real Estate at YoChicago
Wealth Building Ideas at Wealth Building World
Carnival of Passive Income at Passive Income

This is not financial, debt reduction, real estate or wealth building advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Carnival of Personal Finance # 68

This week’s Carnival of Personal Finance is up and running at Punny Money. Nick has cleverly woven this week’s submissions into a story about the financial trials and tribulations of pioneers traveling the Oregon Trail in ’68. It’s a fun read with about 50 personal finance posts included. Enjoy!

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Personal Finance Success Insights

I have been very impressed by the sincerity, knowledge, and quality of advice from people who write and comment in finance blogs. These people are genuinely interested in improving their financial situation and are taking action to do so.

Here are some of my insights from reading various blogs over the past month:

Personal financial success is a journey. There are no short cuts, silver bullets or get rich schemes that are sustainable. Success stories show that typically 2-3 years of hard work are needed to achieve a major financial goal, such as completely eliminating debt.

Know your specific destination. If you don’t know where you’re going, it’s hard to know when you’re there. Set goals that are measurable. Many goals set by bloggers include amounts and timing, e.g. net worth of $4,000,000 by 50, zero debt by March, 2008. This is more effective than a goal of “being rich.” Concrete goals will enable one to easily track progress.

Success has many paths. There are some approaches that work for everybody, e.g. spending less than one earns to build wealth. There are many approaches that work for others and won’t work for me, e.g. developing a computer model to achieve higher returns in stock market or keeping a detailed budget. There are also approaches that don’t work, e.g. investments strategies that “guarantee” success. One has to be able to knowledgeably sort out when a path is working and when one is not.

Enjoy the journey. It will be take sacrifice and hard work to achieve financial success. To use a sports metaphor, “no pain, no gain.” At the same time, extreme sacrifice and extreme pain will prevent achieving one’s goals. Wealth building is a lifestyle choice. Make sure one’s choice is a lifestyle one can sustain.

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC