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Laura Rowley Money & Happiness

Laura Rowley, Money & Happiness

The Six Best-Kept Money Secrets

by Laura Rowley

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Posted on Thursday, April 12, 2007, 12:00AM

I was surprised by a comment about one of my recent columns, in which I described a rule-of-thumb formula for net worth.

In it, the reader wrote, "For a 35-year-old making $80,000 to have a net worth of $280,000, they'd need some wealthy parents to have helped them along the way ... these articles are obviously written by a bunch of spoiled upper-class offspring ... ones that have no clue what it's like to start out with zero and make it on their own!"

No Silver Spoon

Well, for readers who haven't seen my previous columns, I started out with zero and made it on my own. Actually, that's not true -- I had fabulous, loving parents who had high expectations, greatly valued education, and offered a bounty of financial common sense. What they didn't have was a lot of money.

The 10th of 11 children, I started working at 14 and paid my way through a wonderful (and affordable) state university by working a couple of jobs simultaneously and landing scholarships. My parents helped with room and board.

After that, I just worked really hard. Sometimes it didn't matter -- a company for which I worked really hard laid off 500 of us one morning. It turned out to be a gift -- I started working for myself, wrote a couple books, and the rest is... well, I'm still working hard. But I'm on track to meet my financial goals.

The secret wasn't wealthy parents. It was saving a percentage of my income consistently over time beginning in my early 20s; avoiding stupid debt like credit cards; understanding what I was getting into financially, whether it was a mutual fund or a mortgage; and enjoying life while always living within my means.

Secrets Worth Sharing

With this in mind, I asked a group of experts to share the best-kept secrets of financial planning. Here are the highlights:

1. Understand what you can control, and what you can't.

"Too many investors spend time trying to predict what the market will do, where interest rates will go, or which fund manager will have the best year -- things that, ultimately, they have no control over," says Fran Kinniry, principal in Vanguard's Investment Counseling and Research Department.

"Meanwhile, they're not focused on the things they can control, such as keeping their investment costs down; maintaining a proper, balanced, tax-efficient portfolio; and taking maximum advantage of savings opportunities, such as an employer match in a 401(k)," Kinniry says. "Understanding and acting on the things you can control is the best way to prepare for long-term investment success."

2. You know more than you think.

"Don't believe you can't learn enough to be a savvy investor," says Karen Sheridan, founder of Money Mystique Asset Management in Lake Oswego, Ore. "You know more than you think you know. [Financial services company] State Street had an ad in the New York Times that actually compared investing to brain surgery. It says, ‘No one ever said investing was easy. Make one false move and you could start hemorrhaging money.' Ads like these are unconscionable."

3. Moonlight when you're young, and invest the income.

"Take on a second source of income and direct that income exclusively toward an investment vehicle," says Robert Manning, director of the Center for Consumer Finances at the Rochester Institute of Technology, and author of "Credit Card Nation: The Consequences of America's Addiction to Credit."

Whether it's freelance data-entry work or waiting tables once a week, invest the extra cash rather than spending it, or even paying off debt. "It's a step up psychologically to make yourself part of investor class rather than the debtor class," Manning says. "It's a huge opportunity to demonstrate that you're taking control of your financial life, even though you're not making much money."

4. Take a small step toward big success.

"Sometimes, clients are overwhelmed with financial tasks and expect perfection of themselves," says Candace Bahr, managing partner at Bahr Investment Group. "They may get ‘stuck' for months or even years, and ignore their financial lives."

Bahr says that even the smallest step can make a difference. "If someone spends just 15 minutes a day on their financial well-being, in the course of a year they'll have spent over two full work weeks improving their financial life. That's got to help!" Bahr suggests other small steps on her Money Clubs web site.

5. Consider a tax-managed fund.

The average equity mutual fund lost 1.8 percent a year to taxes over a 10-year period ending Dec. 31, 2005, according to a study conducted by Morningstar. Sound small? It's actually a difference of nearly 20 percent in terms of total annual return. Over the long haul, losing 20 percent of your gain each year to taxes can translate into a loss of tens or even hundreds of thousands of dollars.

One solution: tax-managed funds. "These funds come in various permutations -- and not all are good -- but they can be immensely useful tools for investors," says Christine Benz, Morningstar's Director of Mutual Fund Analysis.

Such funds, which come in many investment categories, employ a variety of tax-reduction techniques to avoid making income or capital-gains payouts, helping the investor keep a bigger portion of his or her return. (Don't choose these funds within a tax-advantaged vehicle like a 401(k).)

For higher-income savers who max out their company retirement plans, there aren't many other ways to shield investments from taxes. Individual Retirement Account contributions limits are low (or an investor's income may make him ineligible to contribute to a Roth IRA).

For an investor who wants to build an ultra-low-maintenance portfolio composed exclusively of tax-managed funds, Benz recommends Vanguard Tax-Managed Capital Appreciation (VMCAX), Vanguard Tax-Managed International (VTMGX), one of the firm's municipal-bond funds, and a municipal money market fund.

6. Don't shift your assets to your minor child.

"The Uniform Transfers to Minors Act (UTMA) is the newest four-letter word," says Joe Hurley, founder and CEO of Savingforcollege.com. "A small investment fund in your child's or grandchild's name is probably fine -- you may save some taxes by shifting the investment income onto your child's tax return. But put too much money into the UTMA and you are asking for trouble."

The potential savings are limited now that the kiddie tax has been expanded to children under the age of 18 (the cut-off used to be age 14). Even if the child's account stays below the $1,700 income threshold for triggering the tax, earnings beyond $850 require the headache of filing a federal income tax return.

"You might devise a strategy using tax-efficient mutual funds that keeps the kiddie tax at bay," says Hurley. "But the capital gains at some point come home to roost, and the tax hit may happen at the wrong time." Moreover, investments in a child's name are counted heavily against financial aid eligibility.

Most importantly, a parent loses custodial control over a UTMA when the child reaches age 18 or 21. "You don't have to look too hard to find parents who have regretted their children's decisions regarding the use of such newfound ‘wealth,'" Hurley says.

*   *   *

Do you have a secret to financial success? I'd love to hear your story. Comment below, or email me at laurarowley.column@yahoo.com. For more best-kept secrets, visit my blog.

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  • Yahoo! Finance User - Wednesday, April 25, 2007, 8:53PM ET  Report Abuse

    • Overall: 1/5

    Ms. Rowley is the most retarded of all the dimwits employed by Yahoo finance. Her advice is extremely general - an overweight drunk plummer could pull better crap out of his ass than this woman. btw: I especially loved how she claimed she came from nothing and then "mom and dad helped with room and board" - yeah, when moms and pops can afford to pay for your room and board (along with their own), it usually means they have $$$. another BTW: I love how these morons think that passing off this gibberish and writing books full of BS and complete nonsense makes them ultimate authorities when it comes to making and saving $$$, and life in general.

  • Yahoo! Finance User - Monday, April 23, 2007, 8:20AM ET  Report Abuse

    • Overall: 5/5

    Envy and whinning is alive and well, Laura! Yes, it is possible to start with nothing and, through reasonable frugality (remember that word, kids?) very boring, but diligent investment, such as in low cost mutual funds, build wealth. My parents taught me that and my story is remarkedly similar to Laura's. If I can do it, anyone can.

  • Yahoo! Finance User - Saturday, April 21, 2007, 12:28AM ET  Report Abuse

    • Overall: 1/5

    I am so tired of people like Laura Rowley claiming that they came from zero or not much when in reality she came from just another rich family living in the lap of luxory and priveledge. Well, Ms. Rowley, I didn't have parents - I just had Momma. I don't know who the dad is/was so all I had was Momma. And Momma did her best to teach me write from wrong and help me to open my checking account at a bank. But now I think that after all these years of puttin my money in that account the bank doesn't give me any interest. That just doesn't seem fair and I still can't even think about stopping my job in the food industry. I think it's all just a big conspiracy of people trying to keep other people down in the dumps and using the poor folks money to keep you from having to work and all.

  • Yahoo! Finance User - Monday, April 16, 2007, 5:12PM ET  Report Abuse

    • Overall: 5/5

    What a bunch of whiners. Ms. Rowley is just trying to respond to a comment she received from a reader, and she is giving that person (and others like him/her) advice. To put it simply, Rowley is trying to give some advice for people who think amassing a small fortune is an insurmountable goal. Like she says in items #1 and #2, some people are intimidated by saving/investing. I think this article lets folks see that saving and investing are not as nebulous as they may appear. Her advice is worthwhile for her intended audience.

  • ElizabethG - Monday, April 16, 2007, 4:12PM ET  Report Abuse

    • Overall: 5/5

    I think these are great tips to keep in mind. I am a recent college grad, and so many of my peers are anxious to start investing and are making the same mistakes these 6 experts warn against--chasing hot stocks and things you can't control; ignoring the simple powerful things like getting a 401k match, not considering the effect taxes have on your return, etc. I think all people--rich and poor and middle class--can benefit from this collection of advice.

  • tom - Monday, April 16, 2007, 12:24AM ET  Report Abuse

    • Overall: 2/5

    My wife and I are average and are getting richer each year. My wife happens to make more than I do and I make good money.Its a tired and weak arguement to say men make more money and has no bearing on fiancial security. Get a better job. The article was meant to be a general list of ideas to help readers invest smartly. Did you expect them to tell you where what and how to invest your money. No surprise your husband makes more.

  • Yahoo! Finance User - Monday, April 16, 2007, 12:22AM ET  Report Abuse

    • Overall: 4/5

    While the advise isn't anything new, it doesn't have to be. There's a reason all the experts give the same tips to live more comfortably. It's obvious many of the readers that commented refuse to accept a slow path to financial stability. It takes slow saving. No matter what age you are, a little saving will add up if you actually save the money. As you said, it should be saved, not spent or used to pay off a debt.

  • CS - Sunday, April 15, 2007, 9:59PM ET  Report Abuse

    • Overall: 1/5

    The opening is what made me give it one star. What about people who can't find one job much less two jobs as adults? What about those who don't qualify for scholarships or have parents who can afford room and board? What about those from single family homes that have a parent that works all the time doing his/her best and still can't give financial support for a child's an education? What about those who want to save but have to help some terminally ill family member and all extra expenses go to help that person? What about those who can't land a book deal?...blah blah blah. Yes, as you say credit card debt can be stupid but when banks throw them at college students, whom they KNOW usually don't have much of an income, the temptation can be great. I am doing ok for myself but I still think the opening of your article is self-righteous. Instead of encouraging, it sounds a bit snide. Yahoo columnists often forget that everyday people read their articles and that presentation is everything.

  • Yahoo! Finance User - Sunday, April 15, 2007, 3:10PM ET  Report Abuse

    • Overall: 1/5

    As far as I see this article was just as general as posible.If you know nothing of finance these are not "The six-best kept money secrets"

  • Yahoo! Finance User - Sunday, April 15, 2007, 2:55PM ET  Report Abuse

    • Overall: 1/5

    What a bunch of nonsense. It is simple you need to have money to save it. The rich are getting richer and the poor or average .. well. When everythimg is so pricey it is hard. I have 2 girls and are considered working class. It is proven men earn more.My husband makes more. We make enough money to live comfortably.

  • Yahoo! Finance User - Sunday, April 15, 2007, 2:15PM ET  Report Abuse

    • Overall: 1/5

    This is basic things one show know already. Not very interesting. And not very helpful.

  • Yahoo! Finance User - Sunday, April 15, 2007, 12:21PM ET  Report Abuse

    • Overall: 3/5

    It is over-worded and lengthy for the information given, and are not really secrets. Smart savings, hard work, and risk taking are some good factors. Credit-cards an be a necessary evil, as long as you budget for what you spend. Taking the time to look over your fiances is good advice. You can see what is working and what is not for each persons particular situation.

  • renie M - Sunday, April 15, 2007, 10:44AM ET  Report Abuse

    • Overall: 3/5

    WEll,any financial advise is great. It helps to keep you updated on new issues. As a single mother with loads of work experience and collecting child support; find my money is somewhat controlled. I believe men have more of an opportunity than women to make money. So why don't we tell the reality of the good old american dream. It is only for men only a few women will make it up the ladder financially. Such as Condoleeza Rice, Oprah, Suze Orman and Hillary. There are many woman who don't have children who are wealthy. My fear is thatt I will not have enough money to cover an emergency. Hopefully this will change with other employment. But I am in my mid forties and with gas prices and energy prices the way they are am fearful of wearing ragedy clothing and holes in my shoes for the rest of my life. I mean shopping luxury stores and good quality products are not a reality for me at this point. The way I did when I was in my early 20's. The economy will struggle becasue of some of these issues.--Will I ever have my vacation home next to a lake. It is hard to believe this at this point in my life unless I come into a large amount of money.

  • Yahoo! Finance User - Sunday, April 15, 2007, 8:32AM ET  Report Abuse

    • Overall: 1/5

    All of these articles are the same thing over and over again. Save money in a 401K, save Money in a 401K. There are 3 things that make someone well off in life. Hard work, risk, and luck. Everyone works hard for what they have, It does not matter if you work at McDonalds,or a stock broker, or have your own busniess. What does matter is the risks you are taking to get there and a little luck does not hurt. Without taking a risk you will never get ahead in this world, You have to be willing to risk it all sometimes. Do you think that people money work at Home Depot put 36 bucks a week in a 401K and say wow in 48 years I will be well off? I dought it. My point is take a risk start your own busniess, learn a new trade, or take something you do well now and let people pay you what your worth. Listening to these so called experts is crazy. They say things like, get rid of credit card debt, live below your means, tax your tax return and invest it in a Roth IRA? What if you need that cash just to pay the mortgage? Plus what if you die when your 39 years old? What is it worth it to live below your means? That does not sound like a great life to me. I work hard for what I have and I want to enjoy it. What is my point to this story? Take a risk, I did and I never went past 8th grade. I now make 500,000 a year. I failes a few times along the way, but I was never going to get where I was going by accepting the fact that I was only worth 15 dollars an hour. I had a wife and 3 kids. I took risks and sometimes it worked out and sometimes it did not. But saving an extra 12 dollars a week in jar was never an option.

  • KandidKate - Sunday, April 15, 2007, 12:06AM ET  Report Abuse

    • Overall: 4/5

    The point is save. Saving something is better than nothing and doing so on a regular basis is a good practice for saving more later. Starting young will mean our money has more time to grow. But if we are older, the "can't save enough so why save at all " mentality will make our situation worse than if we save something. You can't make something out of nothing, However even a little you can be invested in something that will make more money. This author is retiterating what many are saying because not enough of us save. And that's a fact that cannot continue to be ignored. I do not begrudge someone for finding a way to make money. I appreciate the reiteration to get me to rethink my habits and make changes. I don't get a nickel for what I say, but that's okay. Some things need to be repeated.

  • Yahoo! Finance User - Saturday, April 14, 2007, 11:58PM ET  Report Abuse

    • Overall: 1/5

    Amazing how many people who were probably left money from a parent try to give advice on how to save. Guess they've never had school, rent, electric, gas, water, car, etc. to pay for. It's not easy and no one is able to save a very young age or save when they're older and have kids. Duh.

  • Yahoo! Finance User - Saturday, April 14, 2007, 11:47PM ET  Report Abuse

    • Overall: 1/5

    not simple enough for the average person and too late if you are already in your 40s what is the secret then. Depressing.

  • Yahoo! Finance User - Saturday, April 14, 2007, 11:42PM ET  Report Abuse

    • Overall: 1/5

    Talk about a bunch of mumbo jumbo. Who are these people? Use your common sense people. Put away something every month. I think this said virtually nothing.

  • Cathy - Saturday, April 14, 2007, 11:23PM ET  Report Abuse

    • Overall: 5/5

    It takes hard work to achieve goals like yours. I am glad their are a few people in this world that still have those standards in their hearts

  • Tink - Saturday, April 14, 2007, 10:41PM ET  Report Abuse

    • Overall: 3/5

    It seems like the big question here is "what can I do to save money?" Am I right? 1) Save your coins in a jar. 2) Turn the heat down in your house by 1* 3) Wash in cold water. Get a clothesline. 4) Don't buy fast food. ever! and put the savings in the jar. 5) When you purchase items at a sale, put the savings in your jar. 6) If you can get a part-time job, put the paychecks in the bank. 7) Get rid of paper towels and napkins. Use cloth. Use grocery bags as trash bags. Everytime you save $$, put it away, don't just spend it on something else. When you have enough, put it in a bank account without paying a service fee. Add to it until you have enough for a CD. When the CD comes due, take the interest out and start all over again. It's hard to save $$ right now. It takes creativity and patience.

  • Yahoo! Finance User - Saturday, April 14, 2007, 10:30PM ET  Report Abuse

    • Overall: 1/5

    The best financial advice? Become a self proclaimed expert and write a useless book that a bunch of suckers will buy.Why are these people all so eager to share their "secrets"?

  • Yahoo! Finance User - Saturday, April 14, 2007, 10:06PM ET  Report Abuse

    • Overall: 1/5

    Try writing an article that can really, really help us. This isn't college, this is the real world!!!!

  • Frankie - Saturday, April 14, 2007, 9:42PM ET  Report Abuse

    • Overall: 2/5

    Everyone has an opinion but no one provides specifics.

  • MarcW - Saturday, April 14, 2007, 9:10PM ET  Report Abuse

    • Overall: 1/5

    Love advice that starts off with "making 80k a year needs parents to have helped them". Absolutely their parents helped. No college education TODAY can be had by people working in the fast food "starter jobs" unless the parents put them through college hopefully to get better jobs later in life.

  • Yahoo! Finance User - Saturday, April 14, 2007, 9:05PM ET  Report Abuse

    • Overall: 1/5

    This is just crap, how about a young girl making 8.25 an hour paying $3.25 a gallon for gas in her 1978 gas hog (a $500 car is all we could afford), no kids or pets thank God and has a $730 month rent. No chance of further education for this gal, not living paycheck to paycheck. How about some advice on real world people who WANT to make it on their own?

  • Renee - Saturday, April 14, 2007, 8:39PM ET  Report Abuse

    • Overall: 2/5

    I agree with HandymanDan. It didn't have any new information despite the intriguing title.

  • HandymanDan - Saturday, April 14, 2007, 8:29PM ET  Report Abuse

    • Overall: 1/5

    There's nothing new here, and, most of it is common sense. Same old, same old. Give us something that isn't rehashed from everyone else.

  • Yahoo! Finance User - Saturday, April 14, 2007, 6:32PM ET  Report Abuse

    • Overall: 4/5

    It's not at all new, but it IS good advice. I started with nothing, have owned my own business (With no help from parents or family). In 1996 I sold out and retired at 36 years of age. Now I do what I want with my time and my life, SCUBA dive in the islands twice a year, snow ski once per year (5 weeks total vacation) and spend the summers working at a Boy Scout camp. Oh, I don't have a degree in anything and the only time I have spent in college was as an instructor. My parents were always supportive, but always scraping to get by.

  • Andrew - Saturday, April 14, 2007, 6:28PM ET  Report Abuse

    • Overall: 5/5

    The whiners in these comments just amaze me. There is nothing wrong with the information presented in this article, just sound advice that you probably should have heard a long time ago. Financial discipline is not inherited; it’s learned and earned with hard work. It starts with working on good grades (rather than partying) in high school so that you can go to college. Then it is working hard on getting good grades and working a job(s) while in college (rather than partying) so that you can get a decent job after graduation. Then it is working hard on making good decisions on a relationship, spending choices, investments, and living within your means. (Notice the word ‘working’ in the last few sentences, nothing is handed to you) Forget about the Jones, just worry about what you really need or can afford. The people complaining about the credit card debt have nobody to blame but themselves. Don’t buy the crap if you don’t have the cash to pay for it! You don’t need the McMansion, that huge TV, new car every 3 years, closets of clothes, etc. Who are you trying to impress? Hopefully not me. If you need all that stuff to feel good, but can’t really afford it, you should teach yourself some self-discipline first. My parents didn’t have a lot of money when I grew up. I studied hard to get decent grades in school, which included long nights studying rather ‘hanging-out’ with my friends. It all comes down to priorities. I worked to pay for my college education, then lived at home for a year to save some money, drove my dad’s beater while my friends all bought new cars after college. By 27, I had 20% to put down (PMI is a bad financial decision) on my first $90K house in 1990. Now I’m 44, make 72K, and have a net worth of 756K. Oh, and my car is 7 years old.

  • KaarenT - Saturday, April 14, 2007, 6:02PM ET  Report Abuse

    • Overall: 3/5

    I thought that the point of focusing on things that you can control is a good one. I am in the cattle business, dependent upon weather and market, which are factors out of my grasp. But these variables are given a wide budget allocation and then left alone as we put our energy into developing quality genetics, economical but skilled labor, and securing viable nutrition sources for the herd. Marketing is given the attention it requires WITHIN the parameters of the existing supply/demand climate. It's important to keep your focus and resources geared to that which can be easily altered.

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