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KISS your money, pay yourself first

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KISS is a modern day acronym often used as a substitute for the phrase “Keep it simple stupid.”

It is sometimes aimed at someone proposing a complex and convoluted solution to a problem, when a simple straight forward answer would do.

One of my favorite Will Rogers quotes is “I would have written you a shorter letter, but I did not have much time.” It is easy to be verbose and run on, but it is much more difficult to be concise and to the point.

Computers have added a new level of sophistication to the use of spreadsheets, statistical analysis, illustrations, charts, graphs and color presentations. Unfortunately, many times these presentations go right over the heads of the clients receiving the presentation. If clients don’t understand the what and the why of their plans, those plans are likely to gather dust and not get implemented. There has got to be a better way.

Keep it Simple and Save

The KISS method for creating family wealth is simple and straight-forward. When using KISS in this context, it means, “keep it simple and save.” A simple, understandable and doable plan is the ultimate in financial sophistication. Let’s see how this KISS method works.

The first and most important step is to spend less than you earn. Sounds simple, but you have to understand and track your income and expenses consistently to know whether you are over or under spending. Take the time to track your family’s income and expenses over the next 30 days. You can setup your own spreadsheet or use online resources such as: www.moneycentral.msn.com, www.mymoneymanagement.net or purchased software programs like Quicken or Microsoft Money. If you are like most Americans, your expenses match your income. However, when credit card expenditures are included, many families are overspending their income.

How can you reduce your expenses by 10-20 percent right now? First, look at your cable/satellite TV, mobile phone and computer/game expenses. Next, look at items such as clothing, entertainment, eating out, transportation, etc. Consider alternative ways to reduce expenses such as; buying clothes during seasonal sale periods, cooking meals at home, carpooling and using public transportation. Look at Web sites like the National Endowment for Financial Planning. For additional money saving tips, visit www.smartaboutmoney.org.

Pay Yourself First – Save

Establish a savings goal of between 10 to 20 percent of your gross income. You are probably thinking, “Sure I want to save, but I can barely pay my bills.” The secret is to save first and spend what’s left over. Savings must be the first item in your budget every month. Pay yourself first, because you do all the work. Setup an automatic savings withdrawal from either your paycheck or checking account. If you don’t see the money, you are less likely to spend it. If you are not saving now, start out with $100, or $200 per month.

Investment Planning

The first savings priority should be the creation of an emergency fund. The purpose of the emergency fund is to pay for financial emergencies that inevitably arise, such as auto/home repairs, illness and job loss. The fund should be the equivalent of 3-6 months expenses and placed in a liquid account, such as a savings account or money market fund.

The next priority is to develop a regular saving and investment program. This would include 401K and similar contributory retirement plans and other investments such as mutual funds, bonds and real estate. Finally, diversify your investments by placing them in several different investment areas.

KISS your money, by keeping your finances simple and saving. The dollars that you save and invest today can grow into the future and be there to help fund your future family goals.

Michael G. Shinn, CFP, Registered Representative of and securities and investment advisory services offered through Financial Network Investment Corporation, member SIPC. Visit www.shinnfinancial.com for more information or to send your comments or questions to shinnm@financialnetwork.com. © Michael G. Shinn 2009. Neither Michael Shinn nor Financial Network provides tax advice. The websites listed are provided as a courtesy and are not under the control of Financial Network Investment Corporation.

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