June 2008 – Volume 1 Issue 3

With costs soaring for everything ranging from higher education, to gas, to food, the challenge of saving money becomes more difficult. Today I present a fable, not unlike Aesop, about how one can master the feat of saving. Unfortunately, this feat was learned at my expense.

Best regards,

Brian Greenberg, CPA, CCPS
President
Brian Greenberg & Assocs

The thought of saving for college generates the same response for most people as going to the dentist. But it doesn't have to be that painful nor that difficult, if you understand how money works. For me, I have a painful experience to share that, ten years later, still galls me. Even at the time, I knew what we were doing was wrong. It was a bad decision and now years later I continue to suffer from it.

Ten years ago when my daughter was nine years old, she like many children of the time were swept up in the beanie baby craze. There were thousands of different beanie babies all having different value. A select few were worth hundreds of dollars such as queenie baby, spice baby, Garcia Bear baby, etc. My wife enjoyed the frenzy as well and participated in this collection madness. She has a zeal for collecting, seeking out garage sales, looking for special sales at Wal-Mart and such. They were so good at gathering that their collection was valued at approximately $2,500.

This is where I tried to step in and bring some economic reality to the situation. I gave my daughter a proposition, if she sold her entire collection on Ebay (they were operating then) for $2500, I would match that and give her $2500. Clearly, beanie babies were a craze and it was only a matter of time before the bubble burst and silly money went elsewhere (like the NASDAQ). She would have had $5,000 at the youthful age of nine and a good start for college spending money.

And as day follows night, the beanie craze ended and the $2500 worth of beanies became worthless. Well, flash forward ten years and my daughter is now in college and the costs are truly staggering. If we had sold those beanies for $2500 and with the $2500 match, she wouldn't have just $5000 today. Assuming I would have earned 7 percent return each year for ten years, this nest egg would be worth $10,000 today.

Saving money — everybody has their own spin; Stop going to Starbucks, quit smoking, pack a lunch, go out to dinner less. While there is nothing wrong with those suggestions and the like, I have a different approach.

Your pay check is deposited, pay yourself first — before the rent or mortgage, before the car and insurance, you take the first check. Move at least ten percent of it into a money market account, I don't care how much or little you make this a necessary payment. This money is to go toward big purchases and/or retirement money, items that hopefully will appreciate in value such as a house. I know real estate isn't so hot now, but prices will be higher at some point. A car is not an investment in case you were wondering. The moment you acquire it, its value declines and if your child should drive it like my nineteen year old daughter, it will decline a lot faster. Another option, of course, to invest your money is the stock market.

The purpose of this money is, it is to be used ONLY for the future (more than seven days). The thinking behind this simple technique is that when one sees money in a spending (checking) account, that money will be spent. By removing money from your checking account, it is gone and what's left is what you have to spend. Then you can chose how to alter your lifestyle habits such as cutting back on dining out or going to sports events based on what you have left in the kitty.

That is the magic of saving money. When money is saved and left to grow it gets bigger. That is how the rich get richer. They allow their money to be salted away, left untouched. Conversely, when you spend a thousand dollar today it is not just a thousand dollars that is gone. It is $2,000 you won't have in ten years or $4,000 you'll be without in 20 years.

Therefore, whatever you're able to save today can only benefit you tomorrow.

Pay Yourself First — Take at least ten percent of your pay and move it to a savings account.

Dollar Spent Today is Two Dollars Not In Your Pocket — You lose out on the magic of compounding. In order to play you have to pay.

Brian Greenberg and Associates is a Marlton, NJ CPA firm providing tax and financial planning services. We specialize in helping small business owners retire on their own terms. Follow this link for more on how we can help you.

Brian C. Greenberg & Assocs
1 Eves Drive, Suite 111
Marlton, NJ 08053
856-596-7800

website: www.greenbergcpa.com
email: brian@greenbergcpa.com

Brian Greenberg is Registered Representative of and Securities and Investment Advisory Services Offered Through Hornor, Townsend & Kent, Inc. (HTK), Registered Investment Advisor, Member NASD/SIPC.