You already know that I like Lending Club as an investment vehicle.  The returns are good (or great, depending on your default rate), and I like the idea that my money isn’t going to line the pockets of some corporation, but is being used to help someone who needs a loan get a better rate than they might get at a financial institution or through credit card usage.

Recently, Lending Club started offering IRA accounts to the lenders.  My first thought, was something along the lines of “that sounds kinda cool”.  But, then I got to thinking about it.  Many of us struggle to put money away for our retirements.  Do we really want what little money we have put away in an investment that carries as much risk as Lending Club notes carry?  I like risky investments, but even I don’t think I’d want all of my retirement money in these notes.

One use that could redeem it is using it as a supplemental IRA.  If you’ve already got a 401(k) and an IRA that you use to invest in more traditional, lower risk, investments, you could use a Lending Club IRA as a way to diversify further and add a little more risk to your portfolio.  That would also allow for keeping a higher percentage of your 401(k) and standard IRA in investments that are a little less risky.  Of course, that would also mean balancing your investment portfolio over several accounts.

I tried to figure out some of the finer details of the Lending Club IRA through their site, but either it isn’t all that clear, or I’m just a bit dense.    So, I emailed them to get a few questions answered.  Here’s what I found out.  The accounts are administered through a company called Self Directed IRAs.  I’m not all that familiar with what a self directed IRA is, but it basically looks like an IRA account that you can use to invest in just about anything.  They offer several different IRA “types”, so it will depend on which the LC IRA falls under to determine what other investments you can add to your account besides the LC notes.  It doesn’t seem out of the question to assume that you would be able to invest in stocks and such as well.  (I’ve replied to the email I got to try and determine this for sure)  Based on what I was seeing on the administrators website, it was looking like the account might be pretty heavy in fees.  The email from Lending Club managed to answer that question as well.

There are no fees associated with a Lending Club IRA with a balance of at least $5,000 in the first year (you have all year to reach this), or $10,000 in the second year and beyond.

If you don’t meet those requirements, the account carries a $100 annual fee.  Pretty hefty if you don’t meet the requirements.  There’s two ways to look at that, however.  If you’re IRA is large enough, it shouldn’t be a problem to keep $10,000 in Lending Club notes and still keep your risk diversification.  If you’re IRA is smaller though, you’d be automatically raising the risk of the account my meeting the requirements.

Anyway you look at it, I don’t think it will be the most popular IRA account around.  But, it’s nice that they offer it for those of their customers who want a tax sheltered way to take advantage of peer-to-peer investing.  You can read more over on their site: Lending Club IRA.

What are your thoughts on the Lending Club IRA?  Too risky for retirement funds?  Good as a part of the retirement portfolio?

It’s important to trust your financial advisor.

A few years ago I caught a story on the local news about a financial advisor from my hometown who was arrested for violating that trust. He had been a financial advisor for many years and was charged with financial exploitation of the elderly.

In one instance, he had sold one of his elderly clients an annuity. She trusted her advisor and considered him a friend so she wrote him a check. Did you catch that?

A check directly to him, not the insurance company, in the amount of $20,000 and then he disappeared. As it turns out, she was not the only client  that had been taken advantage of.

Financial Planner Violates Trust

When I see story like this, I’m angered because I love my profession, I love what I do, and I love earning my clients’ trust. But when you have individuals as such; that abuse that sacred trust with their client, it gives my profession a bad name. You may be wondering if this could happen to you.

What To Do If Your Financial Planner is Crooked

• If the advisor asks you to write him a personal check, that is a clear red flag. Never, never, write out a check directly to the advisor. Especially, if you are purchasing some kind of investment product.
• If you recently purchased something but never received anything in the mail, call your advisor and see if you can get a copy of the confirmation ticket. (think of the confirmation ticket as your receipt of purchase)
• If your advisor is guaranteeing an outrageous rate of return, be extremely cautious. I ran into a competitor that was guaranteeing 12% return on his mutual funds he was offering.

Background Checks On Your Advisor

Start by thoroughly researching any broker, financial planner, or adviser you are considering hiring. Explore the North American Securities Administrators Association Website, www.nasaa.org, or call 888-84-NASAA for a regulator in your state.

State regulators, along with the National Association of Securities Dealers, jointly maintain a database of more than 650,000 stockbrokers and 5,000 securities firms. Known as the CRD, or the Central Registration Depository, the database contains critical information, such as whether a broker has ever been sanctioned or fined for investor wrongdoing.

To check CRD records, contact FINRA’s consumer hotline at 800-289-9999, or visit the them online and use their “Broker Check” system.  You’ll be amazed on how much information you can find out about the financial advisor including such things as: previous work history, outside business activities, and if they have any judgements against them.

You shouldn’t just do a background check on the financial advisor you’re considering hiring.  You should also consider doing some research on the one that you are currently working with.   You never know what you’ll find out and it literally only takes a few minutes to find out.

Jeff Rose is an Illinois Certified Financial Planner. He blogs at Good Financial Cents and Soldier of Finance. He loves Crossfit workouts, writes about Roth IRA rules and craves In-N-Out burger.

photo credit: seniorliving.org

A recent article on CNNMoney.com caught my eye – it’s titled “Many don’t have $2,000 for a rainy day.” Since one of my cardinal rules for retirement planning is that you should have 6 months of spending in the bank (or easily accessible, within 3 days), I read this article with interest.

The CNNMoney.com article references a recent National Bureau of Economic Research study which asked participants if they could come up with $2,000 for any surprise expense, such as a home repair, hospital bill, short-term job loss, or legal expense.  Frighteningly, only 25% said that they were certain they could find the $2,000 without a struggle.  What does that say about the other 75%?  The others said they would access their savings accounts, borrow from neighbors or family, put these charges on their credit cards, or use other borrowing methods such as home equity loan.

Let’s step back here and think about this question.  Assuming that you would like to retire someday (I define “retirement” as doing what you wish with your time, vs. being required to work to pay current and expected future expenses), you’ll have to either be very lucky and win the lottery, or you’ll have to save from your current income.   Unfortunately, life sometimes throws us a curve ball in the form of an unexpected expense or perhaps a loss of a job or other income source, and we must cope for a short period of time.  If your strategy for “coping” is to borrow money from your friends or use your credit card instead of accessing a short-term savings account, then you’ll never dig out of the debt trap and you’ll be forced to earn an income for the rest of your life!

What if you had a goal to put six months of what you spend each month in a bank account and labeled it “rainy day account”?  This isn’t easy; if you typically spend what you earn each month it might take some changes to your spending habits to save 5% or 10% each month.  Remember, we’re not talking about what you earn pre-tax or what you have in your paycheck after-tax for this calculation – we’re talking about the amount you actually spend each month.  So, if you could save 10% of your spending each month for a year, you’ll have 1.2 months saved in just one year.  Using this plan, you’ll have 6 months of spending in that account within 5 years.

5 years sounds like a long time, just to have a rainy day fund.  What I’ve found over the years is that those who start on this plan quickly find ways to save without really impacting their lifestyle, and they also find ways to make more income, thus compressing the time required to get to the goal much faster.  What’s more, if you have 6 months of savings in the bank, not only will life’s little (or big) emergencies not derail your entire financial future, but you’ll have the mindset of saving, which will allow you to direct your income to productive investments, vs. just spending today.

To be sure, this transition from “earn now, spend now” isn’t easy.  But when you compare it to potentially having to work for your entire life it isn’t as painful.

What can you do to get started with your “rainy day fund” today?

Mike Egan, a 20-year Wall Street veteran, is on a mission to help Americans unleash the power within them to build a stronger financial future. He is the author of “Your Stronger Financial Future” and a blogger at MacroMike.com.

photo credit: Marko Milošević

Some people suffer from a certain form of optimistic financial denial.  They look at part of someone else’s circumstances and use that to justify their own way of life, without considering the entire picture.  Take, for example, a relative I have that I will call Stacey (not her real name).  Stacey is nearing retirement, and she doesn’t have quite as much socked away for retirement as she would like because finances were very tight when she was young and she and her husband just didn’t have the extra to put away.  Her husband died young, and she entered the full-time work force in her early 40s, which is when she began putting away for retirement in earnest.

Stacey isn’t one to worry.  She tells herself that she should be able to get by just fine with the money she will have in retirement and uses the rationale first, that you never know how long you will live, and second, that her parents did just fine on a limited retirement.  She is firm about retiring at 62 and cannot be persuaded otherwise; she is not interested in working part-time early in her retirement.

Regarding Stacey’s first point, it is true that you never know how long you will live.  I have, unfortunately, known plenty of people who retired and died within a year or two.  Others died before they were even able to retire.  However, Stacey’s parents lived to be 88 and 90, respectively, so if she takes care of herself, there is a good chance she will live well into old age.

Second, her parents did retire on a relatively small retirement savings, but they made some serious adjustments to their lifestyle.  Here are some of the smart financial moves they made to make sure their retirement nest egg stretched:

• they immediately sold their paid for house, freeing themselves from the expense of upkeep, property taxes, and heating and cooling a large home
• they took some of the money from the house to buy a fifth wheel trailer, and they lived there during the summer months on their children’s property
• they took some of the money and bought a trailer in a retirement trailer park in Florida.  They were then only responsible for monthly trailer park fees and heating and cooling
• they took the rest of the money and invested it
• they only went out to eat occasionally, usually when their children were visiting them in Florida
• they sent each of their 38 grandchild a crisp dollar bill for their birthday and at Christmas

On the other hand, here is where Stacey is:

• she still owes $70,000 on her 1,600 square foot home
• she has no immediate plans to sell, which means she is paying thousands of dollars a year on property tax, maintenance, and heating and cooling costs
• she goes out to eat several times a week and plans to continue doing so when she retires as that is her main way to socialize
• she only has 3 grand-kids, but she spends $100 to $125 per child per year for Christmas and birthday presents
• she would like to travel, including traveling internationally, when she retires

While Stacey is right that her parents did not have a large, comfortable retirement, she is only looking at part of their financial picture.  Her parents were willing to make significant changes to downsize their expenses so they could live comfortably on the retirement they did have.  In fact, when her last parent died at 90, there was still enough left over to give a small inheritance to each of their 9 children.  To have a comfortable retirement of her own, Stacey should also downsize her lifestyle.  It is the only way to make the money stretch as her parents did.

When it comes to your own retirement, or financial planning in general, it does little good to compare your finances to others.  Ultimately, it can lead to a form of optimistic denial that can lead to considerable financial stress in the future.

Do you know anyone who suffers from financial optimistic denial? 

photo credit: robynejay

According to a new report by the American Express Spending and Saving Tracker, 15% of the American citizens plan to augment their savings in 2011; as compared to a poll in 2010 and 40% say there will be no changes in their spending behavior this year. Are the Americans planning to spend more dollars in 2011? How could this be? Aren’t the Americans amidst a sluggish economic recovery? With the spurring unemployment rate and the debt deficit, people are having less cash flow in their hands and this is restraining them from paying off their debt obligations on time. They are resorting to debt consolidation as an option to simplify and accelerate their debt repayment procedure. In the previous year (2010), the Americans planned to save an average of $14,000, but in 2011, they aim to save only $2700. While some might view this consumer behavior as a sign that US economy is emerging strong from the global recession, but most sensible people know that America is treading on the path of a double-dip recession.

The rule of the thumb is to have enough savings to cover your expenses in case you lose your job or any other financial emergency occurs. It is a common belief that a penny saved is a penny earned and not leading a frugal life within your means can push you deeper into the vicious cycle of credit card debt. The present personal savings in the US stands just under 6%, a rate that is much higher than what we saw in 2007 when the economy was booming and financial experts are of the opinion that this personal savings rate needs to stay throughout 2011 in order to forget the financial horrors.

Pinching your pennies – Steps to go about this way and build wealth in 2011

Benjamin Franklin had mentioned that ‘a penny saved is a penny earned’ and the statement is just as true today as it was then. Creating a savings account is mandatory for those who are looking for ways to secure financial freedom. Here are some penny pinching hints that can help you build your wealth and reach those not-so-lofty financial goals.

• An emergency savings account – Either start it or boost it — The biggest thing that bars the Americans from saving money is not being in the habit of saving. America has been unanimously acknowledged as the nation of spenders and by not boosting their savings, they’re just living up to this name. The best way to get into the habit of saving your dollars is by paying yourself directly by depositing money into your savings account from your paycheck account and this can be done concurrently with your other goals of paying down debt. If you want to reinforce your habit of saving money, make sure you put your savings on autopilot so that you have enough funds when unexpected expenses inevitably come along.
• Track your monthly spending – Stop hating the B-word — Americans love to hate the B-word, budgeting but according to most financial experts budgeting is the finest way of saving money and building wealth. By budgeting you can keep a track on the areas where you can cut back your expenses to maximize your penny-pinching efforts. Use this information to create a solid monthly spending plan and don’t over do it. Make sure you tally your expenses at the end of the month so that you know where you did well and where you didn’t.
• Pay down high interest credit card debts – Live debt free — For most households in the US, the best way to boost the return on your money is by paying down high interest credit card debt. Whether you’re carrying balances at 12% or 22% interest rate, credit card debt is the costliest debt that most households carry. Plow excess cash into repaying your high interest debt as this is a risk free return of your money. You can save thousands of dollars on resulting interest charges and outstanding balance. Get professional help from debt consolidation companies if you find it impossible to tackle them on your own.
• Contribute to your workplace retirement program – Begin or increase it — Though there are many employers who have suspended or scaled back their matching contributions, yet this must not be a reason to stop yours too. Make sure you contribute a part of your monthly income to the 401(k) retirement account as this will not only reduce your present taxable income but your investment will also grow without the headwind of taxes. Withdrawals during retirement will not be taxed and thus you can keep your nest-egg intact.

The next time someone tells you not to worry about spending money as you’re helping the economy, thing twice. If you’re still having problem convincing yourself to save money, just consider the financial mess your country is facing, more than $14 trillion debt and a weakening dollar. Help the economy get back on track by saving money and building wealth. Repay your creditors and get help from professional debt consolidation services to avert the risk of yet another recession.

Ryan Smith is a contributory writer associated with http://www.debtcc.com and has written several articles for various financial websites. He holds his expertise in the Debt industry and has made significant contribution through his various articles.

photo credit: MikeParker

Not to be confused with the scales that our friend Lady Justice carries around with her everywhere, the scales of finance are a bit different in function.  To truly weigh something, using a scale, you load up one side of the scale with that which you want to weigh and then put weights of a known mass on the other side.  When the scale is balanced, you count up the known mass weights and you’ve got the weight of the item(s) on the other side.  Lady Justice, as the story goes, does this by weighing a persons crimes and adding the appropriate amount of punishment to the other side so that the Scales of Justice balance.

When we think about personal finance, there are those that are die-hard frugalers.  There is no other way to save money, retire comfortably, or live, than by being frugal.  The more frugal you are, the more you save, and the less you spend.  Coupons are their best friends, as are black friday deals and places like farmers markets and flea markets.

There are also those that are the die-hard incomers.  Skipping a latte isn’t for them.  The only way to get ahead is to make more money while not spending any more.  They’ll work three jobs to achieve levels of income that were previously unheard of and use that added income to pay off debt and save for retirement.

But, much like justice, the scale can pretty easily be tipped into unbalance.  Frugaling, while a good idea, can only take you so far.  Income increasing can only take you so far.  Eventually, you’ll need to make a bit more money, or work less.  The right way to do it is to strike a balance between the two.  Cut your costs as much as you can, without going to extremes.  Increase your income as much as you can, without going to extremes.  Find a place where you can balance your financial life while still getting to live life and not be classified as a cheapskate work-a-holic.

Balancing the Scales of Finance

• Create a budget. Know where your money is going (even if it’s going down the drain), and plan where you want it to go.
• Cut costs. A little bit of frugal living isn’t going to hurt you.  Drop cable T.V.  You can replace it with Netflix, or books.  Find other things that you can do without completely or cut usage of.
• Analyze your finances. Use your budget to determine the inflow/outflow of your finances.  How long to payoff your debts?  Could it be accelerated greatly by taking on a second job?  Maybe you only need a second job for 6 months to pay off a credit card.
• Increase your income. There are other ways, besides taking on extra jobs, to increase your income.  Prepare for, and then ask for a raise.  Sell off stuff you no longer use.  Find a way to get paid for hobbies you already do.
• Don’t over-do it. Maintain focus on your end goal, but keep your sacrifices to a bearable level.  All that extra income won’t do you any good if you burn out in 3 months because you’ve been working 80 hour weeks.  And all the frugal in the world won’t do you any good if you burn out in 3 months because you’ve been manually separating the plys on your TP.

Don’t think that just because you do all of this once, that you’ll remain in balance forever either.  At first, you will probably benefit from regular weekly or bi-weekly check-ups.  As you get more comfortable with it all, you might be able to do it once a month.  Much more infrequent than that and you’ll lose your focus and begin letting things slip.  If that happens, pick up where you left off and continue on.

As you continue on, the Scales of Finance will become easier to balance.  You’ll become better at it, and the scales will gain a little extra margin for error.  It may seem hard now, but it does get easier.  And, believe it or not, it can be fun.

Photo credit: Thatedeguy on Flickr

Guest blog post by Lisa Cintron of Advisorworld.com

With the price of gold challenging new all-time highs on a regular basis, more and more investors have begun to consider if the commodity should be a part of their retirement plan. Classically overlooked for multiple reasons, given the current economic landscape, gold should be an element of your retirement fund. Successful retirement planning requires being fully aware of fundamental changes to multiples factors and markets; recent shifts in these forces make gold an important part of a comprehensive plan.

The Forgotten Investment

Gold has been historically overlooked as a part of retirement planning for several reasons. First, securities that are based on commodity prices tend to only come in large denominations and have a healthy amount of volatility. Prior to the introduction of ETFs, futures were the most efficient way to invest in gold; these contracts are large and not appropriate for most investors based on their complexity and volatility.

The other option that was available, other than financial instruments, was to buy physical gold. As most financial planners are merchants of financial products, not physical assets, gold was rarely considered. For better or worse, financial planners are generally focused on those products that can make them a profit. Within that context they may try to be helpful, but if they cannot make a profit, there is no incentive for them to consider other options.

New Products and Physical Delivery

Given the explosion of gold prices, there are now more ways than ever to invest in gold. Some of the available new products include:

• ETFs
• Gold-focused mutual funds
• General commodity funds

Each of these options have different strengths and weaknesses, but each make it more feasible for gold to be included in one’s retirement plans. ETFs, for example, give you direct access to the gold market, allow you to hold gold in a tax-advantaged vehicle, and are easy to trade in small denominations. On the other hand, ETFs do not offer any professional management features and can be volatile. Making a prudent decision between these options requires spending the time to understand the benefits of each and being able to articulate why it should be included. Gold coins are less liquid, but are one of the most stable choices.

Why Gold at All?

Under the current Federal Reserve regime, and given the political unrest that has spread across the globe, inflation may be the single biggest risk to economies at present. In times of high inflation, commodity prices tend to appreciate dramatically. While the Fed argues that core inflation is contained, a trip to the supermarket shows that prices are on the rise. When coupled with global uncertainty that has threatened the strength of the dollar, an investment in an intrinsically valuable resource that maintains its value under all conditions gives you some safety in any otherwise uncertain period.

Early Retirement Extreme

By: Jacob Lund Fisker

When many of us think of retirement, we think of some far off time in our future when we’ve saved enough money and reached an age where the government will allow us to withdraw our money without significant penalties.  When Jacob Lund Fisker thinks about retirement, he’s thinking about the here and now.  You see, Jacob retired when he was 33.  How?  By following  the principles that he outlines in the book.

What this book has done for me is to turn much of what I thought about personal finance on it’s head.  At this point, I can’t say whether I will attempt to try and join the ERE army or not, but I can guarantee you that I will be looking at things from a different point of view from here on out.

The book itself is dense.  Dense in that it’s packed full of information.  There’s no way that one read through will be enough.  You’ve either got to read it several times, or supplement that first reading with plenty of reading of Jacob’s blog.  It reads (the book, not the blog) much like a textbook does.  It’s even segmented into sections the way a textbook would be.  Luckily, it’s not all facts and figures and there’s a bit of discernible humanity in there as well.  Jacob lays out how he managed to retire at 33 by some extreme saving.  Then he goes into how he lives off of less than $10,000 a year that he draws from his investments and a few odd jobs (that he enjoys) during the year.

By no means is the Early Retirement Extreme going to be for everyone.  It’s a hard read.  But, it is well worth the read.  It’s the “thinking man”s personal finance book.  It’s not chock full of anecdotal evidence, but raw hard facts and numbers.  It will change the way you think about personal finance, and life in general.

You can buy it directly from the Printer or from Amazon(click the picture)

We were recently told that our defined benefits plan was being taken away.  For those that are confused, a defined benefits plan is what is normally called a pension.  For me, I haven’t been around long enough for it to really affect me.  Some, who have been around for a very long time and are nearing retirement, it will mean a rather significant chunk of the money that they thought they would have for retirement will be gone.  To their credit, our employer is doing it the right way.

Rather than just declaring the fund bankrupt, or letting it run until it was bankrupt, they’ve decided to shut it down gracefully.  What that means is that those of us who are vested in the plan will receive a payout of the amount we have vested.  And, as part of that, we need to decide what to do with that money.  We have four options:

1. Buy an Annuity.  Annuities basically work like this: You give them a lump sum of money, and they agree to pay you a monthly amount back.  The total of the payments is equal to some amount greater than the amount that you gave them.  It’s usually based on current interest rates.
2. Roll the money into the company 401(k).  I’m already participating in the 401(k), so this would be a logical place to go with it.
3. Roll the money into an IRA.  Also a logical way to use the money.  Could be rolled over into a Roth IRA as well.  Either way, I have far more control of the money than I would in my 401(k).  Also, I don’t believe I’d have to worry about IRA Contribution Limits if I roll it over.
4. Take a cash payout.  They’d just write me a check, minus the 10% early withdrawal penalty from the IRS.

I’ve ruled out option 1 as it doesn’t make any sense to do with the interest rates where they are.  Most likely, I’ll be using option 2.  But, I just can’t come to a concrete solution.  If I take option 2, I add a significant amount of money to my 401(k).  More is always better.  But, I have no more control of that money than I do with the current money that’s in there.  If I take option 3, I still retain the same amount of money in a retirement account, plus I have far more control of where the money is invested than I do in the 401(k).  That’s also the con of this option though.  I’m no investment expert.  As a general rule, most of the investments I’ve made aren’t all that great.  Which means it would have to be limited to EFTs and Mutuals which doesn’t afford that much more control than in the 401(k).  The final option would be to take the money in a check.  The big downside there is that the IRS takes 10% off the top as a penalty.  Then, it’s counted as income which gets taxed as income.  In our tax bracket, that could mean an extra 15% in tax liability.  If it bumps us up into a new bracket, it could mean some of it could be 25% in tax liability.  So, I’d pay an instant (or nearly so) 25-35% if I took a check.  But, that still means I would receive a lump sum of several thousand dollars.  That money could be used to pay off at least one credit card, if not two, and alleviate some of the monthly burden that our debt gives us.

I know that the safest (rightest) answer is to put it into one of the retirement accounts, but having the cash to dump some of our debt would also be very advantageous.

What would you do?  If you were in my situation, would you play it safe and roll the money into your 401(k)?  Would you take the cash and pay something off to reduce your monthly expenses?  Tell me how you would handle this!

photo credit: House Committee on Education and Labor

We already know that a good portion of saving money (both saving in savings accounts and saving on spending) can be determining whether something that we think we need is really a need or not and whether we could really do without that need. The underlying problem there is that as we become more affluent, wants become needs. This isn’t a new problem.

What those wants are has changed, but the problem remains.  In the days of the Roman empire, things like Oranges were considered a luxury.  They didn’t have the ability to transport them as quickly as we can now.  Because they were unable to get them somewhere quickly, they would spoil in all but a few cases.  The elites of the time were affluent enough that they could afford to dedicate a whole team of chariots and riders to move the Oranges from the orchard to their homes as quickly as was possible in the times.  Today, oranges are a bit more commonplace.  And, as such, aren’t nearly the luxury that they were to ancient civilizations.  The same is true for many different commodities.

And so, we can be said to be equivalent of a Roman elitist.  But, even as we are equal in many ways when we compare our access to certain things, we are not equal in socio-economic standing.  We aren’t elitists.  We’re the modern day equivalent, in that way, of your average, everyday Roman.  Just as the elite Romans had their scarce commodities, the elites of our society have theirs.  Bentleys, Mansions, Lear Jets, and Caviar just to name a few.

One of the hazards of harnessing our personal finances is that we may begin to loosen our own self-made restrictions and some of our wants might become needs.  Sure, a private jet would be nice.  I want a private jet.  I certainly don’t need one, though.  But, what if my prowess with personal finance (stop laughing) causes me to become more wealthy than I could possibly imagine.  As it becomes easier and easier for me to get that jet without breaking the bank, it also becomes easier and easier for that want to morph into a need.

A jet is a bit of an extreme example.  But, apply the same concept to one of the things that you want now.  Here’s a perfect example from my own financial adventures.  About 7 years ago, shortly after my wife and I became engaged, we decided that we needed to move from the apartment we were in and into something that was a little bit more pet friendly.  If you’ve ever tried to have a 100+ pound dog in a one bedroom apartment, you know what I’m talking about.  Initially, we were talking about finding a house to rent that allowed pets.  However, the more we looked at it, the more we discussed buying a house.  We wanted to buy a house.  But, as we looked at houses to rent, we convinced ourselves that we needed a house.  And we bought one.  Now, 7-ish years later, we want to move into a bigger house to make room for our two children and a dog.  We certainly don’t need a bigger house.  But we want one.  As we get a better handle on our finances, it’s very possible that what we want now will become a need if we let it.

I won’t say whether that will be a bad thing or not.  Some would argue that if we don’t truly need the bigger house, we shouldn’t buy it.  Others will say that if we have saved up and can afford it, we should go for it.  That’s not the point of this article though.  What is the point?

Awareness.  One of the most important factors in your personal finance journey will be how aware you are of your situation.  Being aware enough to understand what you can and cannot afford as well as what is and isn’t a need will be a determining factor in where your finances end up when you are ready to retire.  Moreover, being oblivious to your situation isn’t an excuse.  Be responsible for your situation.  Learn how to fix your mistakes.  And become aware of your situation so that you can make educated choices for your financial welfare.

Image Credit: Without money by Toban Black, on Flickr