If you fall into a million dollars, you probably aren't set for life

$1 Million: Does It Still Mean You're Rich?
Posted: December 22, 2009 9:32AM
by Douglas Rice


Becoming a millionaire used to mean you were on top of the world. Nowadays, it means you are climbing up the ladder. While a million dollars is completely out of reach for many people, it's just a step along the way for many others. Why? Because it doesn't go as far as it used to.

The term millionaire has been synonymous with being rich ever since we became a country. The person most often credited to be the first American millionaire, Elias Hasket Derby, made his fortune as a privateer during the American revolution. Back then a millionaire did really mean rich.

Also, we all love round numbers. We love to see 1999 become 2000, and our odometer roll over to 100,000 miles. So it's only natural we would fixate on $1,000,000. It's a milestone with a lot of zeros. It's even got an additional comma. Now that's rich – having two commas in your net worth! But what does that get you? Not as much as you would think. (Learn more in Retiring: Is $1 Million Enough?)

Housing
Housing is where most people hold their largest chunk of wealth and with real estate falling considerably in many areas, some might think that the lifestyle a million dollars would provide would be luxurious. But that depends on where you live.

There are plenty of nice places to live that don't cost very much, but according to the California Association of Realtors, the median house price in Palo Alto, Los Altos, Manhattan Beach and Cupertino is over $1 million. The median price for the entire San Francisco Bay Area tops $500,000 and Orange County is right behind at just under that. And those are just averages, not even something special. While other areas of the country aren't nearly this expensive, being a millionaire in some areas just means you paid off the mortgage.

Retirement
Another aspect of becoming a millionaire is not working. If you had a $1 million right now, could you retire and would your money last? This is a simple calculation. If you want to try to live off the interest and you invest the money in tax exempt municipal bonds that pay 4%, then you would have $40,000 a year to live on. (Learn more in What's The Minimum I Need To Retire?)

But that doesn't account for inflation going forward. If $1 million today doesn't feel like much, imagine what it will feel like in 30 years. At 3% inflation compounding for the next 30 years, $1 million dollars will have the purchasing power of $412,000 today and your $40,000 income will feel like $16,500. So retiring when you have $1 million may sound nice, but it's likely that it won't be what many people have in mind when they think of retiring a millionaire.

Instead of living on the interest, you could tap into the principal as well. Those are slightly more difficult calculations. For example, if you were 50 years old right now and wanted to plan for your money to last until you were 95, then you need money for 45 years in retirement. If you stick with the 4% return, then you could withdraw about $48,000 a year. Again this doesn't account for inflation going forward. Each year if prices rise, your standard of living would fall. In this example, you have 45 years of prices going up at 3%. So that last year will feel like $12,600 does today.

Combining Retirement and Real Estate
If we factor in a house, this gets even worse. If we take the price for a house out of the $1 million, even in a reasonable area and not San Francisco, it's going to be a big piece of your net worth and cut into your funds for retirement. For example, if you bought a nice $250,000 home, you would only have $750,000 left to live on. At 4% that would be $30,000 a year or $2,500 a month. That's before inflation takes a bit every year.

These retirement calculations show that even if your house is paid off, that living off a million dollars isn't what it's cracked up to be. And if your house isn't paid off, it's probably not even close to what you want to do.

Bottom Line
So the bad news is that even if you fall into a million dollars, you probably aren't set for life, especially if you are young. But the good news is, you'll still be a millionaire, and that's better than the alternative. (Learn how to make it happen, read 10 Steps To Retire A Millionaire.)

http://financialedge.investopedia.com/financial-edge/1209/1-Million-Does-It-Still-Mean-Youre-Rich.aspx

Good Personal Finance Resource

http://in.reuters.com/money/personalFinance

Five ways the internet has transformed our personal finances

Five ways the internet has transformed our personal finances
As The Telegraph marks 15 years of its online presence, we look at how the internet has transformed the way we deal with money matters.

By Richard Evans
Published: 3:40PM GMT 25 Nov 2009

1. Internet banking
Millions of people now take for granted that they can pay bills and transfer money at any time of day and without having to worry about queues – whether in branches or on telephone lines. These days, you never even have to speak to a human being when it comes to personal banking. You can also use the internet to find the best deals on savings accounts and then set up and run accounts online. Sixty per cent of people with instant-access accounts have registered for online banking, according to the British Bankers' Association.

Many people also research the mortgage market online, and some even apply for home loans over the internet.

2. Price-comparison websites
If you want to find the best interest rates for your savings or the best price for your home insurance, you can save time by using a price-comparison website. These provide up-to-date lists of the top accounts, as well as data on the best deals on credit cards and other financial products.

In the old days, we had to phone around brokers or insurers to compare prices for car or home insurance, giving out the same long-winded information every time. Most of us would have given up after a handful of calls.

Comparison sites do all the work, showing the cheapest providers, policy details and links to application forms.

Other sites, such as Kelkoo and Pricerunner, find the lowest prices for goods such as cameras, fridges and PCs.

Comparison sites are also much in demand for finding the best deals on energy, although recent research by The Daily Telegraph found that energy-comparison sites did not always agree about which supplier offered the best deal.

Consumers are becoming more savvy about these discrepancies. While a recent survey by Mintel, the analyst, found that six out of 10 people had used a price-comparison site, the consumer group Which? found that consumers lacked trust in them, with one in four finding better value financial products elsewhere.

3. Voucher codes
The recession has sharpened shoppers' appetite for a bargain – and many cost-conscious consumers have turned to the internet to track down special offers. If you want to save money at Tesco you can just type "Tesco voucher codes" into a search engine and find dozens of sites offering the discount codes – short combinations of numbers and letters that you enter into the online checkout. Hundreds of retailers operate these schemes; some also allow you to print off vouchers from the website to claim discounts in shops and restaurants.

According to research from moneysupermarket.com, more than 2.2 million discount vouchers are redeemed every day, while an internet traffic analyst found that the number of web searches in Britain for discount vouchers had increased by 48 per cent over the past year.

4. Dealing and investing
Ten years ago, small investors who wanted to trade shares had to phone a broker. Now they can buy and sell online. Nine out of 10 share deals are made online, according to Barclays Stockbrokers.

Access to information online has helped level the playing field between small shareholders and professional investors with the resources of large banks behind them. "The role of the internet is key, giving the individual at home with a laptop access to the kind of tools, research and up-to-the-minute data previously the preserve of City traders," said Des Byrne, head of Barclays Stockbrokers. "The internet brought financial democracy to newly empowered investors."

People can buy investment funds, such as unit trusts from "fund supermarkets" – online shops that usually offer discounts on charges. These funds are often held in tax-free wrappers, such as individual savings accounts or personal pensions.

5. Buying and selling
Auction websites, such as eBay, have made it far easier to buy and sell second-hand goods, which in the pre-internet age would have meant a trip to the car boot sale. The average British home is estimated to have at least £450 worth of saleable items, typically clothes, CDs, DVDs, books and toys. Online auctions offer a quick way to turn them into cash. About one billion items have been sold on eBay.co.uk in the past 10 years, and 17 million people use the site each month.


http://www.telegraph.co.uk/finance/personalfinance/consumertips/6651262/Five-ways-the-internet-has-transformed-our-personal-finances.html

Teaching Your Partner About Household Finances

Teaching Your Partner About Household Finances
by Amy Fontinelle (Contact Author Biography)


Often, only one person in the household is responsible for maintaining the family budget and managing the household's finances - and if you're reading this article, that person is probably you.

But what if you died or became incapacitated and could no longer manage the budget? Or what if you're just tired of managing everything yourself, or you partner wants to become more involved in your household's finances? How do you teach your partner everything you know?

This article will outline the areas you should be sure to cover and the steps you should take to give your partner a clear picture of your household's financial situation and the confidence to take over. (For more information on sharing the household finances, read Why You Shouldn't Let Your Partner Do The Books.)


1. Make a list of everything and where it's located.

While you may be able to finish each other's sentences, don't assume your significant other possesses the intuition to know where you keep sensitive information. You may think your filing system couldn't be any more organized and that your financial records are in a pretty obvious location, but your partner might not. While you probably have printed documents related to some of your financial affairs, there's a good chance some of your information is stored solely in your memory bank, as you probably manage some of your finances online. Without access to your email to receive monthly statement reminders, your partner probably doesn't know how to find all of your online accounts, and may not even know which banks and brokerage companies you use, not to mention all the bills you pay. A list of all of your accounts makes it easy for your partner to see everything that needs to be addressed. (For more, see Say "I Do To Financial Compatibility.)

2. Make sure your partner has access to everything.

Just knowing that these accounts exist won't be enough. If you want your partner to be able to take charge, you'll have to give him or her full access. Get your partner a set of keys to any safety deposit boxes, divulge the code to your safe and point out which tree in the backyard is beside where you buried the money. Make sure your partner is a named account holder or the primary beneficiary on all major accounts, life insurance policies and any property you own. Also, make sure he or she knows how to access any important computer files and online accounts. (Life changes may mean it's time to update you estate plan. For more information read Update Your Beneficiaries.)

If you're worried about writing your sensitive information down because of the possibility that the wrong person might find it, you're not alone. Here are some options for making your information available to the right person while keeping it safe from criminals (or ill-intentioned relatives).

Put your list in a safe deposit box at the bank. Make sure your significant other has a key and is listed with the bank as being allowed to access the box. Obviously, this is best for emergency situations, not daily use.

Make your list electronic and store it as an encrypted, password-protected file. Make sure your partner knows how to locate and access the file and that you have at least one backup copy in a separate location in case the first file is lost or corrupted.

Encrypt your list the old-fashioned way. Create logins and passwords that have meaning only to you and your partner. This way, your written list can consist of prompts or reminders to your logins and passwords instead of the complete codes. If one of your passwords was the name of the restaurant where you went on your first date plus the date you acquired your dog, the password prompt you wrote down could be "marcos07xxxx" or "first date restaurant+dogbday". (Learn more in Keep Your Financial Data Safe Online.)

3. Explain what everything is and why it's important.

People tend to complete tasks more successfully when they understand the purpose of what they are doing. Just telling your partner that "this account is where we put our savings," isn't as good as explaining why you choose to put your savings there ("we get the best interest rate at this bank"). Likewise, saying "we have to pay x dollars a month for y," isn't as helpful as explaining why you make the payment. For example, if your partner doesn't know what long-term care insurance is and why you're paying for a policy on your mother's behalf, he or she might cancel the policy. (For more, see A New Approach To Long-Term Care Insurance.)

4. Maintain a household budget.

Maybe you're not the type who needs to write everything down to successfully manage your money, but a budget is an excellent way to give your partner a big-picture idea of all the money in play - the income, the debts, the recurring expenses, the investments and so on. It can also help your partner pick up where you left off in managing the household's finances if you die or become incapacitated. (Learn more about household budgeting in our related articles: Six Months To A Better Budget and The Beauty Of Budgeting.)

5. Have your partner watch you handle the finances.

Explaining things is helpful, and written instructions/checklists/spreadsheets are even better, but nothing beats sitting down with your partner and talking through actually managing the finances. Let your partner observe the process while you explain it, and then have him or her practice it with your help and guidance.

6. Gradually give your partner some financial responsibility.

If your partner currently doesn't handle the money at all, start off with a small, manageable task - preferably one with low stakes. For example, make your partner responsible for paying one small bill each month - something with a generous grace period on the payment due date, like the electric bill. As he or she become more adept, give additional tasks to manage. Eventually, have your partner handle all the finances for one month (with your supervision, of course). Then, try switching off months, with your partner handling the finances every other month until you both feel completely comfortable.

7. Discuss contingency plans.

Make sure your partner knows what you would do in an emergency or unplanned financial event. Don't just be conceptual - discuss actual, concrete strategies to handle unplanned events. If you received a windfall, which debts would you want to pay off? What are your savings priorities? Is there any charity to which you would donate a significant sum? On the other end of the spectrum, if there was a sudden loss of income, which bills would need to be prioritized, and which expenses could be reduced or dropped altogether? (To learn more about dealing with personal financial changes, read Competing Priorities: Too Many Choices, Too Few Dollars.)

8. Encourage your partner's ongoing education.

Your partner may be loathe to pick up a personal finance book on a Saturday afternoon, but reading the occasional article will get your partner learning about money at a manageable pace.

Conclusion

To teach your partner how to handle the household finances, take the time to provide him or her with a complete picture of your household's financial situation and provide access to all important accounts. Then, gradually teach your partner enough to ease your financial management burden or get by in an emergency. These may not be the most entertaining activities, but they are key to taking the best possible care of one of the most important people in your life. (For more reading on managing your personal finances, check out Run Your Personal Finances Like A Business.)

by Amy Fontinelle, (Contact Author Biography)

Amy Fontinelle is a freelance writer and editor with clients located across the United States and in Canada. She has written over 300 published articles and blog posts for a variety of national and local publications and websites on topics including travel, restaurants, food and drink, fitness, budgeting, credit management, real estate, investing and historic preservation. Her articles have been featured on the homepage of Yahoo! and on Yahoo! Finance, Yahoo! HotJobs, several local news websites and Forbes.com. You can read more of Amy's personal finance articles at Two Pennies Earned, her own personal finance website, and at PF Advice, one of the web's leading personal finance blogs.





http://investopedia.com/articles/pf/09/teaching-partner-household-finances.asp?partner=basics5

Investment primer charts path for beginners

Investment primer charts path for beginners

Get a Financial Life: Personal Finance in Your Twenties and Thirties, By Beth Kobliner, Fireside, $16.00, 336 pages

By Kerry Hannon, Special for USA TODAY

Sometimes the very best books are the simplest. And that's the beauty of Get a Financial Life: Personal Finance in your Twenties and Thirties. It offers the fundamental ABCs of how to manage your money.

Originally penned more than a decade ago by Beth Kobliner, a former staff writer for Money magazine and financial columnist for Glamour, the revised and updated new edition, is a model personal finance primer. Its return to the bookshelves couldn't come at a better time for a new crop of young people beset by today's financial meltdown.

The latest version delivers a dose of present day reality. For example: "It's easy these days to write off the idea of contributing to retirement savings accounts like 401 (k)s," Kobliner writes. "You've heard scary stories of people losing half their life savings in the chaos of the market. …You don't feel like you have any money to squirrel away. … You're off the hook, right? Wrong.

"401(k)s are the best savings opportunity you can possibly have — in this or any economy. And not taking advantage of them while you're young is a huge (and costly) mistake," she writes.

She goes on to discuss how 401(k)s are "supersmart savings accounts" that "offer terrific tax advantages that allow your money to grow exponentially fast."

Aside from the occasional au courant nod to collapsing investment portfolios, in general, Kobliner sticks pretty close to her original recipe of straightforwardly defining basic financial terms, such as mortgage, mutual fund and money market accounts.

After all, she's addressing an audience she presumes is clueless, or at the very least, one that has given little thought to these matters. That is until now, when they're holding a diploma and $25,000 in student loans and credit card debt, looking for a job in this tight economy, living on an entry-level salary or hoping to buy a first home.

Kobliner's a gentle guide, carefully walking her money neophytes through the nuts and bolts of personal finance — from health insurance, paying off debt, contributing to retirement plans to building an emergency cushion, investing in stock and bond funds, finding your credit score and improving it, buying a house or car. She even dabbles in income tax strategies.

There's no magic formula for taking control of your financial life here, but rather frank meat and potatoes money management moves that have proven the test of time.

To help readers evaluate whether their current saving and spending habits are "right on track, wildly off base, or somewhere in between," she lists a few tried and true financial rules:

•Your debt payments (not including your mortgage) should be less than 20% of your monthly take home pay.

•Spend no more than 30% of your monthly take-home pay on rent or mortgage payments. This might not be reasonable, if you live in a major city like New York or Miami, but in a small town or city, it works. No matter where you live, it's something to shoot for.

•Save at least 10% of your take-home pay each month. It's critical to think of your savings as a fixed monthly expense that's part of your budget, just like your car payments or rent.

One good way to start saving is with $50 a month in an automatic investment plan, she advises. Some no-load mutual funds will waive or lower their minimum initial investment requirement if you sign up for their plan. With these plans, you can have a fixed amount "siphoned off once or twice a month from your checking account and funneled into your mutual fund." You can set this up online with your initial investment.

"After that, you won't have to do much except sit back and watch the money accumulate," Kobliner writes. Fingers crossed.

If you serve or have served in the military or have a parent who did, she suggests USAA (www.usaa.com) as a good savings option. "It offers some low-cost actively managed bond and stock index funds, charging just 0.19%. It will also waive its usual $3,000 minimum if you sign up for its $20 per month automatic investment plan."

While Kobliner presents a sweeping course on personal finance, she's not fooled into thinking she has given her readers all there is to know. Tucked into the back of the book is a handy section, called Further Reading. It lists books she tells her friends to read which range in topic from investing to insurance to taxes and debt. She includes interesting blogs and message boards such as Get Rich Slowly (www.getrichslowly.org) and free online pamphlets and publications on subjects including choosing a credit card, how to build a better credit report and dispute errors — all available from the Bureau of Consumer Protection (www.ftc.org).

There are just a few key steps you need to dig out of debt, jumpstart saving, and plan for the future, Kobliner writes with assurance. "Once you nail these easy concepts, you'll be on your way — in good times or bad."

Kerry Hannon is a freelance writer based in Washington, D.C.

http://www.usatoday.com/money/books/reviews/2009-04-07-financiallife_N.htm

Personal finace: When you do it matters

YourMoney:When you do it matters
By : Yap Ming Hui

2008/12/27
Malaysians have now become very knowledgeable in personal financial planning. However, having the knowledge and acting on it are two different things.

Unfortunately, most Malaysians procrastinate in their financial planning, despite their knowledge.

There are many challenges and obstacles to proper financial planning. biggest obstacle, as I can attest from having worked with my clients, is yourself.

Procrastination is the most common cause of financial management failure.

Two categories of procrastination
The first is the obvious: not even taking action to plan.

The second is the procrastination in taking action to implement what has been planned.

Reasons why people procrastinate

No Time: This is one of the most understandable reasons for not doing it now. After all, who has enough time?

With the current priorities and deadlines, you don't have time to work on something the effects of which will not be felt for another 20 years.

You may think it is okay because you are still young and have a lot of time to do it later.

But you would be wrong. Like tomorrow, someday never comes.

There is no date in the calendar called "Someday."

It is just a hazy, undefined concept in time -- always out there somewhere in the nebulous future, as far away as we can mentally push it so that we won't have to think about it.

No Money: This is yet another reason people use to justify procrastination.

They have identified the cause of their procrastination as insufficient income. The only solution now is to make more money.

To them, it is impossible to consider restructuring their financial priorities and disciplining themselves in spending and saving.

In a book entitled The Law and The Profits, author C. Northcote Parkinson introduced the famous time management Parkinson's Law: Work expands to fill the time available.

In the same book, Parkinson made a second statement: Expenditures rise to meet income.

He said that individual expenditure not only rises to meet income but tends to surpass it, and probably always will.

Therefore, "not enough income" is not the problem. The true problem is the reluctance to reexamine the current life style and reset financial priorities.

The truth is that it is not how much you make, but what you do with what you make.

No Need: For the majority of people, there is this little fantasy in the back of their minds: That when we grow older, the Employees' Provident Fund will take care of us.

According to EPF, the average saving of a member when he retires at 55 is RM77,000.

If the high income contributors are excluded, the average amounts of most retiring EPF members falls to RM33,000.

How long can this nest egg last if you depend totally on it?

A survey conducted by the EPF in 1995 found that 70 per cent of those who withdrew their EPF contributions upon reaching 55 finished their savings within three years.

As such, we cannot really expect that our EPF saving will be enough to take care of us in the older days. It is advisable not to rely solely on your EPF saving.

The EPF can be considered as an extra retirement fund but definitely not the only pillar.

The cost of procrastination

There is, in fact, a specific cost to procrastination in financial planning.

If you are 30 and want to raise RM1,000,000 by age 55, you need to invest only RM747 every month (assuming a 10 per cent annual return).

But if you are 50 years old, you would need to invest RM12,807 per month to obtain that same RM1,000,000. This is the cost of procrastination.

It is not money but time that makes people successful in financial planning So, starting young has its advantages.

Some of you will concede the fact that starting young has its advantages. But then comes the thought: Why not start next year. After all, what difference can one year make?

A big difference

If you are 30, and save RM1,000 a month, earning 10 per cent per year, you would have a total of RM1,337,890 by the age 55.

But if you begin saving at 31, you would have a total of RM1,199,605 by the age 55.

Thus, the cost of procrastination for just one year is RM138,284. Can you really afford to blow away RM138,000?

If there is one thing that you need to take on faith, it is this: there is never an ideal time for planning.

You have to do it now.

Procrastination will cause you financial ruin more completely than the worst advice an incompetent financial planner could ever give you.



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Yap Ming Hui is the managing director of Whitman Independent Advisors Sdn Bhd, the first multi-client family office in Malaysia

http://www.nst.com.my/Current_News/NST/Sunday/Focus/2436769/Article/indexpull_html