It’s a Retirement Party!

I have received many requests to write a blog post on the various types of retirement plans. This isn’t surprising, since many of my friends are recent college graduates starting their first big boy (or girl) jobs and have never given retirement planning a thought. Instead of doing one long post covering every type of plan I am going to write three separate posts covering the most popular plans, the 401(k), IRA, and Pension. With that little introduction out of the way let’s kick this retirement party off with the big daddy, the traditional 401(k).

So what is it? The traditional 401(k) is a company sponsored retirement plan that allows you save for retirement by making pre-tax contributions to the plan. Not every company offers a 401(k) and you can not open one on your own, it must be through an employer.

How does it work? You elect through your employer to contribute funds to the plan on a pre-tax basis, usually a set percentage of each paycheck (for more information on pre-tax deductions check out the mini series your paycheck). The company sponsoring the plan will provide the employee with multiple options where they can choose what to invest the funds in, common investment options include, index funds, mutual funds, bond funds, and company stock. Once you retire and begin withdrawing funds, those distributions are then taxed at ordinary income taxes rates (see here for example) In many instances your company will match your contribution up to a certain percent (aka: Free Money![1]).

For example, say I make $10,000 a month (I wish!); and the company I work for will match my contribution up to 6% dollar for dollar. This means if I contribute 6% of my paycheck ($600) the company will also contribute an additional 6% ($600) for a total contribution of $1,200.

Matching varies from company to company and the terminology may differ as well. You might find out that your company matches the 1st 3% dollar for dollar then a 2nd 3% at .50 cents on the dollar, up to 6% total. This means the first 3% of your contribution is matched in its entirety and the subsequent 3% is matched at 50%. Using the $10,000 example from above an employee contribution of 6% ($600) would equate to an employer match of 4.5% ($450), the first 3% dollar for dollar equaling $300 and the second 3% .50 cents for each dollar totaling $150.

Important information to note: a 401(k) is not like a normal bank account, it is governed by different laws and regulations. The biggest difference is you can not access your money whenever you want, because it is a retirement account the money can not be accessed until you retire or reach the age of 59 and a half. Now, there are certain instances when funds can be withdrawn before retirement but you could be subject to penalties or additional taxes. Each situation is unique; if you need to withdraw money early from your 401(k) it is best to speak with your HR department or a financial advisor. There are also limits to the amount you can contribute to the plan in a given year, for 2012 the limit is $17,000 and if you are over 50 you can contribute an additional $5,500 for a total of $22,500. These limits do not include employer matching.

What’s all this noise about a Roth 401(k)? A Roth 401(k) is the same as the traditional 401(k) except for one key difference, contributions are made after tax instead of before.  When money is withdrawn in retirement there is no tax withheld since it was already paid. Now many people want to know which plan is better, Roth or Traditional, and the truth is one is not “better” than the other. The choice of which plan to choose largely comes down to your individual tax situation, weather you prefer to pay taxes now or later, and your assessment of future tax rates (something very hard to determine). If you think tax rates could be higher when you retire it may be beneficial to choose a Roth plan, if you think rates will be lower the Traditional plan may suit your needs better.

WTF does the (k) mean? The (k) refers to the sub-section of section 401 of the IRS code. Not nearly as exciting as you thought the answer would be, was it?

Next up is the Individual Retirement Account, or IRA.

[1] It’s for this very reason that if your company offers a 401(k) you should be contributing!!

Making the Offer

While home for Christmas I decided to resume my car search after a 2 month hiatus (my previous post published a few days ago was long overdue as those test drives occurred in early October). Now just because I wasn’t searching for a car that doesn’t mean I wasn’t thinking about it, I was. As my friend Chris put it so eloquently “dude, you’re the King of waffling” and you know what, he was right. I have gone back and forth on this car decision more times than I care to count. I’d wake up one day ready to rock n’ roll determined to buy a car, the next I would be telling myself “the Saturn is fine, no need to buy something you don’t need.” However, after more deliberation I decided that if I was going to make a purchase, the last week of the year was the time to make it happen.

First I started off by looking for loan pre-approvals; I checked three sources, Bank of America, BBT, and Chase. Bank of America’s process was simple enough, I filled out the online application and heard back almost instantly, they literally called 10 minutes after I hit the submit button. I was approved for a 72[1] month $16,000 loan at 4.07% not too bad, but I thought I could get better. So next was BBT, one of banks used by my parents. For this route they suggested I call and see what the rates were since I wasn’t an account holder. Ten minutes later the guy on the phone is telling me the best rate I would be approved for was 7.25%, I was shocked, but the reason was because I didn’t have a minimum five lines of credit history. That requirement surprised me as well, five lines seems to be an awful lot of credit. Regardless I only have two, my Chase Freedom Visa and Bank of America Visa. Oh well, on to Chase. I filled out the online application which was similar to Bank of America, but this time I had to wait a day for an email response. I was rejected…why? I have not a clue. I been a customer for 3+ years, paid my credit card off every month (balance is often over $1,000), and have part of my paycheck direct deposited to them. I will be investigating this further and will post what I discover. So in the end, Bank of America it was.

Now that I had financing in order I just had to find the car. I decided during my 2 month break that I wanted a BMW 328i Coupe 2007 or newer. I had been eyeing this one since before thanksgiving it’s list price was certainly over my budget of $23,000 or $21,000 with trade-in but I figured since it had been sitting for a while, there was a good chance they would come down in price (at the time of my offer the list price was $26,976). Before driving out to Tampa to take a look I decided to do some searching near my neck of the woods so I spent an afternoon driving around the Clearwater St. Pete area looking for coupes, and ended up finding nothing I was interested in. The next morning it was off to Tampa to check it out in person. The car was just as nice as online, it was exactly what I was looking for, dark blue exterior, tan interior with wood trim, and spoke wheels. Time to take it for a test drive, upon the initial start the engine made a weird ticking sound, according the sales guy that was normal for a BMW that had been sitting for a while and would go away once driven (and it did). Music to my ears, the car had been on the lot for a few weeks now and because of this clicking I knew no one had driven it for quite some time. We took the car out and everything checked off, as I pulled back into the dealership I was ready to make an offer.

Turned out the sales guy Nick who had been helping me out up until now couldn’t talk about the offer and had to get a “numbers guy” to take over if I wanted to make one. Which looking back was unfortunate, because Nick was a great guy and had made the experience up until that point a pleasurable one. No “number guys” were available at that time so he hooked me up with the owner. At that point I was feeling really good, I found the exact car I wanted, it had been sitting for weeks, and I was about to talk to the owner who has the most wiggle room, which meant I wouldn’t have to deal with the “aww I got to check with my manager” crap, sweet! But this is where the story turns, the owner brought me into his office and proceeded to take me on a 20 minute sales pitch about how great the dealership is, how they don’t offer the antiquated financing technique of add-on loans (which I am pretty sure is not used anywhere, and is possibly illegal), he busted out the paint meter and told me they are the only dealership who uses one, told me how many vehicles they sell each month, and showed me pictures of the dealer auction of where they buy their cars. The real kicker was when took out a binder of email print outs from Gmail to show me “proof” of why a car-fax is unreliable and how every car from Miami is junk…I have no idea who would buy email print outs as proof…for all I know he could have typed them up and sent the “proof” to himself. Once we got past all this, I made my offer, which I knew was lowballing him, but I figured start low and work our way up. I offered $19,000 plus my trade in; he looked at me then got up and left the office mumbling something about being too far apart and not playing the numbers game. I sat there for a second to register what happened, then I got up and walked out. A bit flabbergasted by the utter rudeness of the owner I got in my car and left.

As I drove home I was a bit bummed that a counter offer wasn’t made. I decided I was going to give it two days and if I still wanted the car, I would call back and make a second offer. Well two days passed and I still wanted it, I called up the dealer to make my 2nd offer $23,000 no trade. The conversation was short and to the point, the “numbers guy” insisted the best they could do was $28,000 out the door. Since that was the case no deal was made. So, here I am few weeks later still driving the Saturn, but still looking for the right deal. My first car buying negotiation didn’t quite go as I expected, but hey, I learned a few things this time around and will be better prepared when I make the next offer.

Update: As of 1/15/12 I noticed the car had dropped in price to $23,976, a $3k reduction, so much for “the best we can do is $28k out the door.” I am considering putting in a third and final offer, $24,000 out the door, no trade in, what do you guys think?

[1] The reason I chose 72 months was to give myself the most flexibility in terms of the monthly payment. I don’t intend to take the full six years to pay off the loan, but if there is a month where I can only pay the bare minimum I wanted that payment to be the lowest amount possible.

Buying a Car – Test Drives (2)

See part one here

Lexus IS250 – 2008

What I liked: Overall it is a very good looking car, (if you haven’t noticed by now, a cars looks are very important to me). That it has four doors, having driven a door two for 8 years I know there are times when four would really come in handy. It had a very functional interior; many cup holders, little storage spaces, and logical layout for controls.

What I disliked: The drive was very mundane for a car that is marketed as “sporty.” Lack of power and lose steering did less than impress.

Other notes: Basically reminded me of driving a really nice Camry…

Mercedes C300 – 2008

What I liked: Not much, the Mercedes badge on the front?

What I disliked: Wow was I underwhelmed with this car, I had never driven a Mercedes, maybe rode in one once, but I expected much more. I think I have been in Fords nicer than car I test drove. Overall the car was just a let down, maybe because this is their entry level model? I could write a list of everything I disliked or just save us both the time and say see below…with that said, see below.

Other notes: Drove like…an overpriced four door sedan.

Infiniti G37 coupe – 2008

What I liked: Intuitive controls for the radio, A/C, etc, luxurious interior and kick ass factory Bose sound system. The 330hp engine and the mean growl it made when I punched it. I believe it shares its engine with the 350z, which is one of my favorite sounding cars.

What I disliked: no sunroof, breaks seemed a little weak for a car with that much power, driver seat head rest is in the way of checking for blind spots, and really small back seats. Overall the car certainly felt used, more so than the other 2008’s I drove even with only 37k miles on it. That makes me wonder if it was just the particular car I drove or if all Infinities hold up questionably over time.

Other notes: Out of all the cars I have driven so far this had the best combination of luxury, performance, and price




Your finances are your responsibility

Check out this article I found last week on Yahoo! Finance. It stress’s the importance of understanding your financial decisions and taking responsibility for educating yourself, an opinion I strongly agree with.

“Using the recent financial crisis as an example, Leibowitz says there’s ample blame to go around, not just the predatory behaviors of big bad banks, but also as a function of people that took out mortgages they really didn’t understand”

“How Much House OR Car Can I Afford?”

Usually the two largest costs families and individuals incur are the mortgage (or rent) and car payment. Have you ever wondered if you are spending too much on your house or car, or what you could afford when purchasing a new one? If you have you’re not alone. Even I occasionally wonder if I am spending my money wisely on these two necessary items. A quick Google search of house or car affordability will yield many differing opinions and advice, some I tend to agree with while others I think are flat-out wrong. Through my research and experiences I have developed a few guide lines of my own to help answer the age-old question “How much house or car can I afford?”

To understand my thought process I need to share my view of affordability, which this statement pretty much sums up. Just because I am able to make a $700 car payment each month doesn’t mean I can afford to do so. When it comes to large monthly payments I find it extremely helpful to have some guidelines for the amount that you allow yourself to spend, ensuring enough income is remaining after these large payments for the rest of the your expenses. Below are two guidelines I have come up with to determine an affordable monthly payment for a house and car[1]:

  • Mortgage (or rent) payment should not exceed 30% of monthly net income
  • Car payment should not exceed 12% of monthly net income

*Bonus guideline built into my assumptions*

  • Savings is at least 10% of monthly net income

The monthly payment is only part of the story however; you should never only consider the monthly impact without taking the total cost into consideration. There are too many different types of financial products which give the illusion of an affordable monthly payment, like the variable rate APR loan. Those factors are the premise for the next two guidelines I developed; a method to quickly determine the total amount of car or house you can afford knowing just your gross income.

To determine how much house you can afford:

  • Take your current Gross Income and multiply by 2.5. For instance if I am making $50,000 per year the calculation would be as follows:
  • $50,000 x 2.5 = $125,000
  • With a $50,000/year gross income one could afford a $125,000 house
    • This rule assumes 6% interest rate, no money down, 30 year fixed mortgage, 1.25% property tax, and .5% PMI

To determine how much car you can afford:

  • Take your current Gross Income and multiply by 38%. For instance if I am making $50,000 per year the calculation would be as follows:
  • $50,000 x 38% = $19,000
  • With a $50,000/year gross income one could afford a $19,000 car.
    • This rule assumes 6% interest rate, no down payment, and 5 year fixed loan

Both rules assume no down payment, so if you plan on putting some cash down add the down payment to value calculated. With the car example above if we planned to put $5,000 down, the total we could afford increases to $24,000 ($19,000 + $5,000).

The reason behind the multipliers, 2.5 for a house and 38% for a car is simple and straight forward. When calculating a monthly payment based upon the results of the gross income calculation and assumptions listed, the outcome will be close to 30% and 12% of net monthly income for income ranges between $25,000 – $125,000 give or take a few percentage points[2].

Utilizing these guidelines has helped me build a strong financial base and limit my financial commitments to monthly payments I know I can afford, freeing up my cash flow for activities I enjoy or extra savings.

Remember, these are just guide lines, not the letter of the law, if your rent payment is 34% of net income don’t sweat it, these guidelines are meant to help build cost awareness and promote conservative spending habits. As long as you’re close to the stated values you are in good shape.

[1] These percentages are not chosen at random, when summed together they equal 52% (including 10% savings) of your monthly net income, leaving only 48% for everything else, food, utilities, gas, etc. Many people make the mistake of spending much more than 50% on their house and car alone, eliminating savings or worse adding debt to cover the rest of their expenses.

[2] When calculating the monthly payment as a percentage of monthly net income I have assumed that net income equals 75% of gross income

Simplify Your Budget, Simplify Your Life

I don’t budget. Well I kind of do, but not in the traditional sense of the word. When people hear budget, they usually envision sitting down and setting up spending limits, line item by line item for every type of expense they can think of. At the end of the process the result is usually something that looks like this (and this is probably short):

There are a few problems with trying to budget like this. One, it takes a lot of time and effort to create and keep up with, two, it’s much too detailed. Attempting to budget for every little expense is a recipe for disaster. Life is random and things change. Some months you may go out to eat more, others you may buy a ton of new clothes. What is the point of making a detailed budget when things change so often?

Here is one example that points out flaws budgeting using this method. Say you have a food budget of $200 for the month and use to track your spending. On the 22nd you get a text message stating you are about to exceed your food budget, are you going to stop buying food for the next eight days? Probably not, you will end up going over budget on food and hope to come in under budget elsewhere.

This is no way to operate! What I propose instead is budgeting by type of expense. For this method you need no more than three categories; fixed expenses, variable expenses, and savings. This is how I personally budget and it has been a very effective system since I have implemented it.

So how do you set up a budget like that? Let’s follow an example.

Before you begin

  • You will need three bank accounts, one for each category mentioned above; fixed expenses, variable expenses, and savings, and ideally access to direct deposit through your employer.

1.) Figure out your take home pay (if you are unsure what take home pay is, read this)

  • For this example we will assume net income is $2,800 a month.

2.) Determine what your fixed and required expenses are:

  • These are the expenses that stay the same or are similar every month and you must pay them. Items like your mortgage or rent payment, car payment, etc.
  • Helpful tip, I include my electric, water, and other utility bills in this category even though they may change from month to month[1]. I do this to ensure I will be able to cover all of my required payments and avoid any surprises.
  • Let’s say fixed/required expenses total $1,000 per month, we are now left with $1,800 ($2,800 – $1,000)

3.) Setup a savings goal

  • For this example our goal is to save 15% of our take home pay for the year, this equals $420 a month ($2,800 x 15%)

4.) Calculate the remaining amount, which is our monthly allowance for variable expense

  • Using our example, after fixed expenses and savings we are left with $1,380 ($2,800 – $1,000 – $420)
  • That $1380 is for everything else not accounted for above, dinning out, clothes, entertainment, etc.
  • To get a little more detailed we can divide this number by four to get an approximate limit on how much we can spend on variable items each week, in this case $345.
  • Now all we need to do is spend less than $345 during the week and our budget has been met.

5.) With the amounts calculated above set up direct deposit through your employer so the proper amount goes to each account automatically

6.) No more worrying!

  • Now that your money is automatically categorized and spilt the day you are paid, no more stressing and wondering if there will be enough in the bank enough to cover the car payment, rent payment, or any payment. All you need to do is keep a close eye on your weekly spending limit.

Our revised simple budget for the example now looks something like this.

There you have it, simplify your budget, simplify your life!

[1] The value I use is the highest bill from the previous year plus a few additional dollars as contingency

Your Paycheck – Tying it all Together

This will be my last post in the Mini Series “Your Paycheck” it will be a large example incorporating all aspects of the previous posts in this series, Gross Income vs. Net Income, Taxable Income, Federal Allowances, Federal Income Tax Withholding, State Income Tax Withholding, Before Tax Deductions, and After Tax Deductions, Enjoy!

One quick note before I start: the goal of this post is to give you a template for calculating your own net income. You may have more or less of the pre-tax deductions, allowances, etc than stated in the example below. Following this methodology and substituting your information should yield correct results and give you a detailed understanding of how your paycheck goes from gross to net income.

Jackie is married and lives in the state of Illinois, her husband currently does not work; therefore his gross income is $0, for tax purposes they plan to file jointly. Jackie’s gross income is $65,000/year, she claims two federal allowances, makes an annual contribution of $2,600 (4%) to her 401(k), has a total benefits cost of $900/year (health, vision, dental, etc), and has no post tax deductions. What is Jackie’s take home pay?

Our 1st step is to determine Jackie’s taxable income

We first need to subtract her pre-tax deductions (401(k) contribution and benefits cost) from her gross income.

Total income after pre-tax deductions is $61,500, but the example also states she claims two federal allowances, in 2011 each federal allowance claimed lowers taxable income by $3,700. We must adjust taxable income for those two allowances as seen below.

Jackie’s total taxable income is $54,100 this is the number we will use to compute federal tax withholding, reference the federal tax withholding table below. We will also use $54,100 to calculate state income tax withholding.

Since Jackie is filing jointly we will use the second column of the above withholding table. See a breakout of the calculation below. (If you need more detail on how to use this table please reference the post on Federal Income Tax Withholding).

Total Federal Withholding is $6,080, but we can’t forget to compute social security and medicare tax as well, which if you remember are based upon gross income, not taxable income.

Now that taxes on the federal level have been computed we need to figure out state income tax withholding. Illinois has a flat state income tax rate of 5% so calculating withholding is pretty straight forward, taxable income x 5%.

Jackie has no post-tax deductions, so we are now ready to add all of the components above together and compute net income.

*Semi monthly values are simply the annual amount divided by 24.

There we have it! Jackie’s net income is roughly $49,000 per year. That is drastically different from her gross income of $65,000; $16,000 lower drastic! Granted she does keep the amount contributed to her 401(K)…but this large gap emphasizes the importance of knowing what happens to your money before it hits your pocket-book. Armed with this knowledge you can better pre-pare for taxes, retirement, health benefits, and monthly budgeting.

Here is a link to the tax calculator which will yield the same results as above using the sample data. Use it with your information as a double-check to your own calculations, or to take a quick look at your paycheck without having to perform all the calculations above. (Tip, “457 plan withholding” is where you input retirement plan withholding)

Hopefully you’ve enjoyed this mini series and you learned something new and informative.

Buying a Car – Test Drives (1)

So instead of just blogging about the financial aspect of buying a car (see New vs. Used) I figured why not have a little fun and write about the test drives as well. If nothing else it will help me keep a record of what I liked or disliked about each car and ultimately help me chose what to buy.

Dodge Challenger RT – 2009

Now, I drove this car over a year ago (I wasn’t lying when I said I had been thinking about buying a car for a looooong time) so my memory may be a little rusty but I’ll do my best.

What I liked: The power, this guy had a kick! With a V8 hemi it would certainly be fun to drive. The exterior styling, this is one mean looking car, I especially like the front.

What I disliked: The interior styling, it’s just very bland, all one color, and nothing really to get excited about. No additional features beyond the standard power windows, locks, and a CD player. It might have had an AUX (iPod) input but I can’t remember, I’m sure it’s at least an option. The price, you are paying for great power and exterior styling in an otherwise ordinary car.

Other notes: The test drive was lackluster and I pretty much was only able to drive in a straight line, I would need to drive again to judge handling and overall drivability

BMW 328i Coupe – 2010

I was looking for a 2008 or 2009 model but, unfortunately the dealer did not have any in stock. However, he told me the 2008 – 2011 models of the 328i were all pretty much the same except for some options and small exterior styling cues.

What I liked: This is one sexy machine, I am a huge fan of the exterior styling of both the coupe and convertible 3 series models, the sedan is OK until you see its backside (wtf happened…). The interior was very nice, leather seats, nice trim, dual zone climate control, sunroof, power everything, etc. It just felt good to be sitting in the drivers’ seat, and actually got me excited about the car. The car itself just felt solid, I don’t know how else to explain it, perhaps it’s the build quality, but when you shut the door there is a solid thud, opposed to an echoy slam like some other cars. Immediate power when the gas was pressed, no waiting for the engine to rev up for the power to kick in.

What I disliked: For some reason I couldn’t figure out the damn radio, I kept turning it to AM and couldn’t switch back, I’m sure the sales guy was laughing at me in his head. Actually the whole control panel for the A/C – radio was a little confusing…maybe I’m too used to my simple controls. I thought the car would be a little peppier than it was, I didn’t feel the umpfh of being pushed back in my seat when I punched it. It was hard to tell how fast I was going.

Other notes: At first I wasn’t too impressed with the test drive but the more I think about it the more I like the car, I would certainly need to give it another test drive before I could say I would buy one.

Buying a Car – New vs. Used Part Un

I have been playing around with the idea of buying a car for probably over a year and a half now. I still own my very 1st car – a 1998 Saturn SC2 with approx 105,000 miles on it. I just hit the glorious 100k mile mark a few months back. I took pictures and all! I purchased the car in 2003 and will have owned it for eight years come October. My delay in purchasing a car hasn’t been affordability, it’s that I can’t justify spending tens of thousands of dollars when I have a car that still runs. The name of my blog is 100% true; I really am bad at spending money.

However, over the past six months I have come to terms with the fact that I will eventually have to buy a car, as much as I don’t want to spend the money. I have also decided that it is better to be prepared and know what I want to buy and actually buy it before my current car dies. So, I have begun the long process of researching potential replacement cars, thus commencing the whole car buying process. In the midst of all of my research, I have come across many articles on new vs. used cars. The general consensus from a financial stand point is that a used car is always a better choice than a new car – this is something that I also agree with. Mainly because a new car, once driven off the lot, immediately begins losing value; where a used car already took that deprecation hit allowing you to buy it at a discount. Well, at least that used to be the general consensus. Over the past few weeks, I’ve seen a few articles from “financial pros” (looking at you Clark Howard) stating that now it is actually better to buy new. This doesn’t quite make sense to me, but the logic behind this idea states that due to the crappy economy, buying new is actually cheaper than buying used. They claim that the demand for used cars is at an all time high (because of low supply), thus driving up the prices.

I don’t buy it. So I decided I am going to do my own pricing research and post the results here. To keep myself accountable, I will be posting this before completing any price specific research so my opinion is loud and clear. I shall conduct my research over the next few weeks or so; then, I will either claim victory over the “pros” or walk home humbled.

So what do you think, will the finance pros be right, are new cars currently a better bargain than used?

$100 > $1,000,000 (not a typo…)

I fully intend to have $1,000,000 in the bank one day. Not literally in one bank, spread across many types of investments and accounts, but you get the point. One day, I will be a millionaire.

So many people spend a lifetime chasing what seems to be the elusive goal of becoming a millionaire, only to fail in the end. The thought process usually becomes “if I only made more money” and while making more money certainly helps achieve the goal, it is only half (or less) of the equation. The other half, which is usually widely neglected, is your personal spending habits.

Now, this isn’t going to turn into some published for the thousandth time article that tells you to cut down on the frappucinos, which I’m sure you have read more than once. Instead I am going to share with you one of my personal philosophies on how I think about money.

Regard $100 more than you do $1,000,000

That’s right; treat one hundred dollars today as more than one million in the future. Many people tend to spend $100 without much thought, and a good portion of those will drop $1,000 without much more. And let’s face it, one million is kind of an arbitrary goal to have and probably won’t be enough for you to retire with anyway. Don’t treat saving $1,000,000 like it is impossible and something you will never achieve, think of it in terms of a lifetime and it is actually pretty small.

Millions of people will bring home probably twice that amount during their working lifetime. Think about it, if you bring home a net income of $50,000 a year working for 20 years, you will have made one million dollars. Most people work more than 20 years before they retire and eventually end up bringing home more than $50,000 net per year. Couple this with any income provided by a spouse, and suddenly your earning power doesn’t seem to be the problem.

Read the 1st two paragraphs of this article as some food for thought:

I could probably make the argument that spending habits actually matter more than income when used to measure a person’s wealth. However, I don’t have any academic studies to reference proving my point…all I need to do is look at the many celebrity actors and music stars who once had millions and are now broke.

Remember when you were a little kid and thought $100 was almost an unimaginable amount of money, what happened to that feeling as we got older? Somewhere along the line it was lost, and the ability to spend freely took over. The next time you are about to make a purchase over $100, do your best to remember that feeling and give the purchase a little extra thought. Is it an item you really need, or really really want*? If you do this, I bet you will see that ever elusive $1,000,000 much sooner.

*Quick Tip: Before buying something you want, wait a week. Or better yet, wait a month before actually buying it. Most of the time the feeling will wear off and you will either not want the item anymore, or want it much less. If you still want it after that time frame and you can justify it, go ahead and buy it. Using this little trick will help you save and cut down on impulse purchases.