November 19, 2010
A thicker wallet for the new year
Neal Frankle has worked as a certified financial planner for 25 years. A father of three daughters, Frankle and his wife regularly attend Chabad of Oak Park. He earned his bachelor’s degree in accounting from San Diego State University, and is founder and president of Wealth Resources Group, a personal asset management and funds investment company based in Agoura Hills that serves more than 200 clients. Here Frankle shares tips for financial success from his book “Why Smart People Lose a Fortune,” as well as from his blog at wealthpilgrim.com.
TRIBE: In tough economic times, people want to know how they can cut back on personal spending. What are the essentials people should not skimp on in order to save?
Neal Frankle: There are probably two areas that make the most sense not to skimp on. No. 1 is the food in your home — you want to feel that you are happy with at least what you’re eating. Rather than cut way back on groceries, change where you buy the groceries. Of course, No. 1 is not go out to eat; that’s the [biggest] budget killer that’s out there.
The second thing is family-oriented activities. If your family goes out to eat every Sunday afternoon, then maybe instead of going out to eat, you would go for a picnic in the park. Any activities you have with your family, you should definitely continue spending the time and keeping those traditions alive. Just do them differently.
TRIBE: What tips can you offer to help people learn how to prioritize their expenditures?
NF: The No. 1 thing that I tell people to do is, before you find out where you’re spending your money, find out how much you’re spending. When I ask people how much it costs them to live and how much they spend every month, most people either don’t know or think it’s at least 30 percent less than what it really is. So if you want to prioritize, the first thing is to figure out how much you spend, and the easiest way to do that is to look at your checking account, because your total withdrawals from your bank tell you how many ATM visits you’re making and all the checks you’re writing, even for your credit cards.
TRIBE: How can people stretch their income and savings when expenses are high?
NF: You have to look at all your checks and all your credit cards. Tally up what you’re spending in each category, and it’s very easy to see what needs to be cut back on. Each person has to do that for themselves. A trip to Las Vegas is a luxury for some people; a trip to Anaheim is a luxury for some people.
TRIBE: What is the most common financial mistake you see people making?
NF: The first one is not knowing what it costs you to live. I’ve had clients who make a million dollars a year, but they spend a million-and-a-half. Well, in order to have financial success, you’ve got to know what it costs you to live, how much you’re earning and what your investments are. What you earn and what your investments are pretty easy. You have to look at what you’re spending; that’s the biggest mistake.
The second one is not having a strategy when it comes to your investments – just investing without thinking about it, without having a strategy.
And the third part is expecting your investments to always make money. No matter how you invest, there’s always going to be times when you’re not making money or when you’re doing worse than someone else.
TRIBE: How can people strike a balance between saving and investing?
NF: Do a mini financial plan for yourself. Do that and you can figure out how much money you need to save to achieve your goal. And then, before you spend anything, that’s what you save.
TRIBE: What are the best steps to get out of credit card debt?
NF: If you’re digging a hole, the first way to get out of it is to stop digging deeper. That’s step No. 1.
Step No. 2 is to look for cheaper alternatives to the credit card debt. In other words, if you’re paying 15, 16, 17 percent, that’s ridiculous. You go to your family if you’ve got a good plan.
You should also try to find other credit cards that are cheaper. And there is peer-to-peer lending, which is basically an organization that puts people who need money together with people who have money to invest. And instead of paying 15, 18 percent on your credit card, you might be able to borrow at 10 percent to pay off your credit cards.
And step No. 3 is to prioritize the highest-interest rate debt first. You want to pay off the highest ones first, and make the minimum payments toward the other ones. You’ll have less time paying higher interest, so you’ll have lower interest and get out of debt much faster.
TRIBE: How do you help people to stop abusing credit while encouraging them to use credit cards to their advantage?
NF: I have a pretty simple strategy: If someone has credit card debt, they just can’t use credit cards until it’s paid off. Period. I don’t care about the miles or anything else. If they’re spending too much, I tell them what it’s going to lead to, which is that they’re going to be broke. All the miles in the world aren’t worth that.