by Frank Anderson

Pay yourself first.  We’ve all heard it before.  Set aside 10% for yourself “for a rainy day.”  Retirement would count as a rainy day, i.e., a day with no income.  So would a layoff or reduction in force (RIF).  Live on less than what you make.  It’s not how much you make that counts, rather its how much you keep.  You pay everyone else (landlord, bank, phone company, gas station.)  Why not pay yourself for all your hard work and effort?  Just make sure you do it before you pay everyone else.

Consider taxes and costs as one of many factors in making investment decisions, not the only factors.  Many an investor cut off their nose to spite their face in 2008 when the market was tumbling saying, “I’m not going to sell because of capital-gain taxes (15%).”  Meanwhile, their goes another 20%.  Huh?  Likewise, many investors decide to skimp on investment advice preferring to do it themselves on the cheap.  “You get what you pay for” comes to mind when hearing about investors demolishing their accounts, chasing after the latest hot trend.  Does anyone remember the Tech Bubble or better yet the Real Estate Bubble?  It pays to have an objective viewpoint to help remove the emotion of managing your own money.

Get rid of the plastic.  The psychological pain of parting with hard earned cash helps you consume less and keep more.  Reward points and bonus miles only entice you to consume more.  Very rarely do the rewards for using plastic exceed the unexpected costs (late charges, finance charges, membership fees).  Overuse of plastic often leads to unabated consumption, lack of discipline, and in some cases bankruptcy.

Get out of debt.  If you have over $20,000 in consumer debt (plastic) you are probably in over your head.  Debt is leverage.  Leverage only works when the underlying asset goes up in value faster than the interest on the debt.  How often in life does that happen?  If it does, it is probably a temporary phenomenon, meaning get out while you are ahead.  Pay down non-deductible, high interest debt first.  When each debt is extinguished, take what you would have paid on the old extinguished debt and put it towards the next debt to be paid down.

A few words on debt: debt is a taskmaster.  It never sleeps or goes on vacation.  It works for or against you 24/7.  An old saying goes like this:  Those who understand interest earn it; those who don’t pay it.  There are plenty of opportunities out there to earn five to seven percent.  Understand and earn!

Frank Anderson is a Certified Financial Planner™ professional and Financial Advisor with Stifel, Nicolaus & Company, Incorporated, Member SIPC and New York Stock Exchange, and can be contacted in the Murrieta office at (951) 461-7220 or via e-mail at This e-mail address is being protected from spambots. You need JavaScript enabled to view it