Tag Archives: Saving

How much does it take to feel wealthy?

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The answer is “about double” 🙂

But, that’s not really a tongue in cheek question / answer, it’s actually scientifically researched and verified fact …

… let me explain.

Most people want to become rich (when we strip away the houses, cars, vacations, sex, drugs, rock and roll [AJC: Boy, I must lead a great life!]) simply to feel secure … to stop having to worry about money.

So, the definition of ‘rich’ for most people is related to how much more money that they feel that they would need in order to stop feeling financially insecure. And, that always seems to be about twice what you currently have; take a look at this report by MSN Money (if anybody can find the base source, please send me the link … I hate to quote quotes).

  • Those who earned less than $30,000 thought that a household income of $74,000 would qualify as rich.
  • Those who made $30,000 to $50,000 said an income of $100,000 would be rich.
  • And people in the top half [$50k – $100k+] of earners were more likely to say that an income of $200,000 earns you the right to the R[ich] word.

So, it seems that no matter what income level you are on, you need two (to perhaps three) times that in order to feel ‘rich’.

Perhaps, you feel that it would be different if we weren’t talking penny-ante incomes here, and jumped straight to millionaires and multi-millionaires? Surely, things would be different for them?

Well, not so … according to Robert frank, Author of Richistan, most of America’s Ultra-Wealthy still consider themselves as ‘middle class’ and would need “about twice what they already have in order to feel wealthy”.

So, this is just another reason why picking a random income or net worth $$$$ target and calling that ‘rich’ doesn’t cut the mustard … you’ll never be relaxed with your level of wealth, no matter how much you have.

No, what you need to do is:

1. Understand WHY you need the money: we call this Understanding Your Life’s Purpose

2. Understand HOW MUCH you would need so that you would be free to LIVE your Life’s Purpose: we call this Calculating Your Number

… and, when you finally reach your Number, not worrying about chasing more, because that’s about as sensible as a dog chasing it’s tail!

The definition of insanity …

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“Insanity: doing the same thing over and over again and expecting different results.”  Albert Einstein

Thankfully, this blog isn’t for everybody … only those who want to get rich(er) quick(er) … I’ve proved that it can be done successfully, and I am conducting a ‘grand experiment’ at one of my other sites to prove that it’s not just luck and that others can do it, too.

But, the vast majority are still in the ‘work for 40 years and hope to have saved enough’ mindset … and they have worries of their own, as this recent Gallup Poll showed:

Of course, recent economic woes are probably ‘skewing’ this a little … but, think about it – most aren’t retiring tomorrow, or even in the next 10 years, so markets will have plenty of time to boom and bust again for them.

No, the problem is more endemic: most people simply don’t think that they will be able to retire happy or comfortably – and certainly not wealthy – despite the ‘formidable’ array of ‘retirement weapons’ at their disposal:

So, if the majority of people are using these tools and the majority of people believe that they won’t work for them …

Whatup?!

Surely, at some level, these people know that these tools – as I have been hammering home in this blog for some months now – simply won’t do the job?!

Let’s take a look:

1. 401k’s – High fees; low returns; lousy investment products on offer:

STRIKE 1 – I have never had a 401k and I have no idea what is even in any of my tax-advantaged / retirement accounts.

2. Social Security – An unfunded program; USA in the highest level of debt in history’ what’s the chances of Social Security being around in the same form when YOU retire?:

STRIKE 2 – When my social security statement arrives I chuck it in the trash without reading it, it’s irrelevant, it won’t be around when I retire, and I had this same line of thinking BEFORE I became rich.

3. Home Equity – Please! Where do you intend to live when you retire? By the time you buy and pay changeover costs etc. if you see any spare cash, it may be just about enough to pay off your remaining credit card debt:

STRIKE 3 – I live in my home equity, don’t you?

4. Pension Plan – Do you work for Ford/GM/Chrylser? Any airline? Just about any bank?:

STRIKE 4 [AJC: 4 strikes???!!! I’m an Aussie, what do I know from baseball?] Ditto to the above, in fact, I have never subscribed to an employer-sponsored pension plan, even where I have had the choice.

… need I go on?

The point is, if you know these tools aren’t going to work for you – as the majority of Americans surveyed by Gallup seem to – yet you keep using them – as the majority of Americans do – isn’t that the very definition of ‘insanity’?

Now, that’s a question that I would love to see the Gallup Survey for!?

Merry Chrismas?!

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Why am I posting a really nice Christmas video on January 25th?!!

Well, it’s simply to make a point …

… it doesn’t matter how late you start, but how well you execute that counts.

Just ask Ray Kroc (McDonalds), ‘Colonel’ Sanders (KFC), my father (who started a business at the age of 60), and (hopefully, soon) our very own Lee Martin …. old is the new young 🙂

The perfect way to allocate your spending?

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I saw this on Get Rich Slowly and wonder what you think of it?

Since I didn’t allocate my own spending this way ‘on the way up’, I can’t comment either way … but, maybe some of you can?

Here’s how it works:

You take your After Tax income and divide it into three categories:

1. Needs – These are you ‘must haves’ i.e. things that you can’t go without: rent/mortgage; car; electricity; basic food (the book provides a ‘rule of thumb’ for this); and, so on.

You allocate 50% of your after tax income to these needs; given that we already have the 25% Income Rule (spend no more than 25% of your after tax income on rent/mortgage) that leaves 25% on all the other ‘needs’.

2. Wants – According to the book, you should have fun – and, budget 30% of your after-tax income for it. I happen to be of the same mindset … what is money, if not for spending (except that you must do it in a way that allows you to live your Life’s Purpose by your desired Date). 

According to the book, ‘wants’ include additional food (i.e. lamb chops instead of dog food?), your cable TV and internet (these are definite needs for me, especially on my 100″ home theater screen … but, I can afford it!); trips and vacations; and, so on.

3. Savings – that leaves (or should leave) 20% of your after-tax income for your 401k investments and other savings/investment … since this is 5% to 10% more than most authors suggest, I commend it. Just remember, that even with 20% you’re not going to be able to save your way to wealth.

All in all, it seems like a pretty good savings plan to me … what improvements would you make?

Instant Net Worth Fix?

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personalfinance-main_full

What is the relationship between your income and your Net Worth? Does paying down a mortgage increase your Net Worth … these are the comments made by Diane to a reader who said that they had income that was going into CD’s, but still had a mortgage:

[If] you are paying down your mortgage some – rather than just interest …  then your net worth may be going up [?]

I told Diane that it doesn’t work that way ( Where Diane is right that putting money into CD’s while you hold a mortgage is probably a sub-optimal financial decision, it’s NOT because your Net Worth would change … paying down your mortgage does NOT change your Net Worth – it just reduces both your CASH (on hand) and MORTGAGE balance columns in your NWiQ profile 


… your total of Assets – Liabilities (hence, your Net Worth) remains the same!

Diane took me to task:

I assume [that you would be] applying income to [your] net worth and that is NOT reflected in the assets/debt columns of the networth calculations – it’s future cash for the most part (those who have incomes ;)) — or did I miss how else the income is reflected other than as a header above (along with our education)???

These are very good ‘technical’ questions, that I can explain (for those who are business/finance minded) as follows:

Income/expenses is/are a bit like a business’ P&L (Profit and Loss Statement), and your Net Worth is like a Balance Sheet … the former is a ‘work in progress’ and the latter is a ‘snapshot’ at a specific point in time.

Both cash and loans sit on the Balance Sheet … or, in our case, on our statement of Net Worth. Simply moving amounts around does not change either. Your Balance Sheet only changes if you make or lose money, grow or reduce assets (as long as you are not turning them into cash or some other balance sheet item).

Similarly for your Net Worth: decreasing a positive bank balance (on one side of your Net Worth statement) in order to similarly decrease a negative house balance (a.k.a. a mortgage) on the other side hasn’t changed anything – except where you keep various components of your Net Worth.

On the other hand, earning more profits (reflected in a businesses P&L) is similar to earning a salary or other income for a person (income) provided that you don’t spend it all (expenses) …

… they all help to increase your Net Worth (or improve the value of the business, as reflected in an improved Balance Sheet).

BUT, it doesn’t matter if you ‘store’ that extra income in a bank account (i.e. the CASH column of your NWiQ profile) or in your mortgage (effectively reducing it) … your Net Worth goes up by the amount of income that you saved since you last calculated your Net Worth.

As Scott says:

As long as you are living in your home, it is a liability and costing you money if anything.

That is, unless you are prepared to tap into that home’s equity and use that money to invest.

Yes, it’s what you ’save’ from your income (i.e. after expenses) that goes into improving your Net Worth regardless of whether you use it to build up your bank balace, pay down debt, or – as Scott suggests – buy a new asset.

Rich Rat, Poor Rat

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This video is essentially an ad for Robert Kiyosaki’s (Rich Dad, Poor Dad author) board game … a game that I own but have NEVER played. But, the video is also a snapshot of how you can use assets to buy consumer goods. Watch the (visually OK, but aurally uninspiring) video, then read on as I have some comments …

[AJC: Finished watching? Good …. now read on ….]

1. The assumption is that you are smart enough NOT to finance a depreciating ‘asset’ (actually, liability) and save up enough money to pay CASH for your boat: GOOD

2. Can you see how Robert Kiyosaki then suggests that you buy a cashflow positive property, using the cash that you saved for the boat as a deposit on the property instead? Robert implies that the property produces enough cash to then pay for the loan repayments on the boat: BETTER

But, Robert is suggesting that we BREAK a key making Money 101 Rule: that we should borrow to by a consumer item (this is BAD debt); Robert also suggests that ‘delayed gratifiction’ is good. So, let’s make use of this to see if we can come up with a better outcome.

Using a very simple loan calculator, I find that the $16,000 boat will actually cost us $21,600 over 4 years (assuming 10.5% interest, and $343 / month payments) …

… but, if we instead SAVE the full $750 / month that the property spins off as money in our pocket (after mortgage, etc.), we will have SAVED up enough to pay CASH for the boat in just under 2 years (21 months)! What’s more, over the four years that we have NOT been paying the boat loan, our money has been earning us approx. an extra $100 – $400 in bank interest.

OK, so the $100 – $400 extra interest we earn (if the money just sits in CD’s) is not exciting, but also SAVING $5,600 … a total of nearly $6k … surely is? So waiting less than 2 years, then paying cash for the boat, thus saving ourselves nearly $6,000: BEST

There is an exception: where the expense is a business expense it may be OK to finance … Robert gives the example in one of his books about how he was going to buy a Ferrari, but his wife (who’s obviously smarter – as well as better looking – than him) told him to buy a self-storage business instead, and use that to fund the payments on the Ferrari.

Smart … but, I’m sure the IRS would have some words about the deductibility of a Ferrari as ‘company car’ for a self-storage business 😉

Hitting Suze Orman out of the ball park …

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… with a fly ball that even Dave Ramsey won’t be able to catch!

As expected, my recent post “Contrary to popular opinion, paying off your mortgage is the dumbest move you can make …” drew a number of comments – but, not as many deep criticisms as I was expecting (hoping for) … I would’ve liked some issues out in the open so that we can really bang them around.

After all, my view is diametrically opposite to the ‘pay off ALL debt INCLUDING your mortgage’ view espoused by the likes of Suze Orman and Dave Ramsey!

With some suitable flaming of the “you’re just another Make Millions In Real Estate Like I [wished] I Did guru” or “Robert Kiyosaki knows what he’s talking about compared to YOU” kind, I’d at least be able to dig in and show you why my view is correct for MOST people.

I’d also be able to explain why, perhaps counter-intuitively, it’s actually the more conservative option.

Instead, let me make do with the much more polite, and more thoughtful, comments that one reader – Chris – did leave on that post:

AJC – I completely understand and agree with your concept. I think the reason why you and Suze Orman differ is because you target a different group, or have a different approach.

You talk much more about leverage. Suze Orman wants to get people to stop buying frivolous things and instead pay down debt (because most people are buying junk and creating more of it).

While anybody can start a business, a rental, etc. There are people who don’t have the ambition or the stomach for it. The concept of leverage and more involved ways of wealth appreciation get lost on those people.

The point that needs to be made is, if you aren’t going to leverage that debt properly to grow wealth, then paying it off is better than buying useless things. Perhaps for some people we need to focus on getting them to be frugal spenders first, and then wealth builders later.

I would also note that I think paying off mortgage debt should rank much lower than other investments in reducing higher cost debt, a business (including rentals) or retirement accounts. But for some people, putting an extra $100 towards a mortgage is a great way for them to start being more financial considerate.

The assumption is that my approach is different to Suze’s and Dave’s because:

1. I aim at a different audience

2. Their approach is a more sure way to a comfortable retirement

3. They focus on ‘frugal living / debt free’ which comes before wealth building

It seems logical, safe, and conventional … and, I agree on one point, my approach isn’t for everybody …

… it’s just for anybody who doesn’t want to retire on the poverty line!

By that, I mean that I am targeting anybody who wants to retire with a nest-egg of MORE than $1 Million in LESS than 20 years.

Now, that is almost everybody that I have ever known or met– and, I’ve known and worked with a LOT of people from call-center people to CEO’s – because $1 Mill. in 20 years (the typical target for the ‘save your way to wealth’ crowd) simply gives you the equivalent of $15k per year in today’s spending-dollars!

For every extra million dollars, you only get an additional $15k per year to live off … and, for every 10 years that you will retire sooner, you get another $7,500 per year ‘pay rise’.

So: how much do you need to live off now? How much do you need to live off when you ‘retire’ and by when?

I don’t know the answers to these questions, so you do the math …

I can tell you this: if all you do is live frugally and become debt free you will be poor, with a roof over your head … if you don’t, you will be poor without a roof over your head.

Neither seems like a great option … so, you can understand when I say that the Suze Orman / Dave Ramsey ‘save and pay off all debt’ approach still seems a tad ‘risky’ to me, and a sure approach to a fairly uncomfortable retirement.

Given that Door 1 and Door 2 pretty much suck [AJC: OK so one door sucks more than the other … are we here to measure degrees of ‘suckiness” or what?!] what’s left is Door 3 …

If you live on the same planet that I come from (Planet Save a Little, Spend a Little … Enjoy a Lot), then we simply have to aim for more … a lot more!

That’s where leverage comes in … and, it has to come in WHEN saving, WHEN learning to be frugal, WHEN paying off all debt (and, probably BEFORE paying off some debt) …

… and, if you are aiming to retire somewhere above the poverty-line, then you are simply going to have to find the ‘ambition or the stomach’ for something.

I never had the ambition or stomach for work … I simply had to do it or starve. Don’t you?

I never had the ambition or stomach for investing … I simply had to do it or figure on retiring near-broke. Won’t you?

If the government takes away your social security safety net … if your employer takes away your pension … if your rich relatives die and forget to leave you anything … it’s going to be that simple: do it or retire broke.

OK, if that hasn’t turned you on, then nothing I ever write will … otherwise, here are some options, in decreasing order of risk and difficulty – but, also decreasing order of financial outcome:

1. Start a business

2. Buy a business

3. Invest in real-estate

4. Buy your own home

5. Leverage into Stocks

6. Leverage into Index Funds

In every one of these cases, you borrow as much as the banks, convention, your gut, your advisers tell you to … then you hold – preferably for ever.

[AJC: Speculative ‘investment’s such as: rehabbing/flipping real-estate; trading stocks/options etc. all belong in Category 1. Start a business]

Now, go do it …

What does it mean to be wealthy?

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7million7years live tomorrow (!) and 7million7years in the press:

Two of my favorite sites are TickerHound (the Investment Q&A Community) and the Tycoon Report (Daily Investing Newsletter); and, they’re both free! 

Also, 7million7years got two mentions when these sites got together here 🙂

Now for today’s post …

Trent at the Simple Dollar rekindled this debate  by asking “How Much Money Is ‘Walk Away From It All’ Money?”

I’ll let you read Trent’s post yourself, but, what often interests me most are some of the questions and comments left by readers to my posts and those on other blogs.

For example, I am often asked what my definition of wealth is; I can tell you what it ISN’T:

I DON’T like the simple numerical definitions of wealth that researchers and academics like to trot out e.g. $170,000 income per year; or $1,000,000 in assets not including primary residence; or even the often quoted Millionaire Next Door formula:

Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.

To me, these are just meaningless numbers.

Then there are the passive-income-covers-current-income approaches to wealth [AJC: you may recall that Robert Kiyosaki  claimed $100k p.a. passive income as = wealth for him in Rich Dad, Poor Dad]; “KC” left this example in her comment to Trent’s post:

I’ve always said “wealthy” people are folks who don’t have to work and can live off their savings, pension, social security check, dividends, and any other non-work related payments. That is an age dependant term. My 90 year old grandmother is wealthy by those standards – but I’d hardly call her style of living wealthy – but she is able to live comfortably off her savings cause her budget is so small – no car, paid for house, minimal food & utility needs.

I disagree with this definition of wealth, because of exactly that scenario: the ‘cash poor’ person who accepts a certain level of lifestyle because that is what they can afford. They have one benefit: they can maintain this lifestyle WITHOUT WORKING therefore some would consider them wealthy. But, to me, they are still just getting by …

… which is interesting, because KC then when on to show the contrast:

My in-laws are wealthy – they both have pensions and health benefits, but retired early (55’ish) due to a sizable inheritance and wisely saving money when they were younger despite knowing they’d come into an inheritance. I would describe their lifestyle as wealthy – European travel, upscale cars, very nice paid-for home.

 This lifestyle has all the trappings of wealth … but, to me ‘trappings’ do NOT equal wealth. So, KC what would I consider wealthy?

Simple, it’s the definition that you provided, with an additional – but critical- twist:

It’s having the regular passive income to cover your ideal lifestyle not just your current lifestyle!

Your ideal lifestyle is the one that you measure by what you DO not what you HAVE …


 the DO part is about legacy: what, if anything, do you want to be remembered for?

The financial part of this is then simple. Just ask yourself: how much will it COST (time and/or money) and by WHEN do you need it?

When KC did the numbers she came up with the following:

But for me (a 35 yr old) to be wealthy by the no work standard would easily take 3 million. I arrived at that number by saying what amount times 8% would allow me to maintain my lifestyle on the principal generated? I chose $3 million cause in a few years I’d need that extra money due to inflation. At $3 million I could very easily pay off my home and live VERY comfortably off the 8% interest. That would make me and my husband independently wealthy. Oh well, I’m only about 2.8 million away from my goal – sigh


Firstly, good on KC for ‘getting’ that you need a hell of a lot more than $3,000,000 AND for figuring inflation into the equation. But, here are some things that she needs to correct:

1. Firstly, she needs to work out her annual passive income requirements – it looks like she’s counting on $3 Million LESS ‘inflation allowance’ LESS Paying off current home.

2. I’m guessing that amounts to something like $150,000 a year that she’s aiming at – a healthy income, but nowhere near ‘reasonably rich’ (that would take about $350,000 – $500,000 a year income: big house, First Class flights, 5 Star Hotels, a couple of fancy cars, private schools). But, let’s assume that she has modest retirement spending requirements: she doesn’t say WHY she needs it, or HOW much … but, we do know that she needs to replace 100% of her time with money as she doesn’t intend to work at all.

3. Before retirement, KC may be able to count on a 12%+ annual compound return (over a 20 – 30 year period) on her ACTIVE investments (forget 401k’s, managed funds, index funds, etc. … to get 12+% she’ll need real-estate and direct investments in stocks), but in retirement, she will want to wind that back to, say 8% on her PASSIVE investments (now she can buy those Index Funds, if she likes).

Why 8%: because that’s the largest return that the stock market has ‘guaranteed’ over any 30 year period, in the last 100 years (the figure drops to just 4% over any 20 year period, and 0% over any 10 year period). And, then we really should deduct mutual fund and middle-man fees …

4. But, to counter for inflation and up/down market swings, KC will need to wind back her withdrawals to somewhere between 2.5% and 5% of her portfolio … 8% is right out of the question! Why? You have to reinvest at least the expected amount of inflation; KC will need a payrise if she wants to keep up with rising prices …

5. That means somewhere between $3 Mill. and $6 Mill. is the ‘Number’ for KC, or she’ll have to be content with taking ‘just’ $75,000 a year in retirement (at least, it will be indexed for inflation) … just remember, if she takes 20 years to get to that $3 Mill. it will be just like retiring on $35,000 a year today. Whilst $75k seems like a lot to most, it ain’t ‘rich’.

Maybe KC was a little optimistic in saying: “At $3 million I could very easily pay off my home and live VERY comfortably off the 8% interest”?

Do you need to shift your financial goalposts a little, as well?

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Cash is an investment, too

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Aspiring ‘investors’ tend to laugh at low-return strategies like keeping money in CD’s or paying down mortgages – and, as a long-term investing tool (now, that’s a tautology) they do suck.

But, as a short-term ‘money parking’ tool there’s nothing better … and there’s no time like the present to dust off those borin’ ol’ Ramseyesque strategies, as this article from the Tycoon Report suggests:

The most successful investors in the stock market aren’t always invested in stock. They’re only invested when the odds weigh heavily in their favor.

You must have the discipline to know when to stay out!  For most people, this is one of the easiest concepts to grasp, yet the hardest to follow.  This is something that comes with experience. It’s something that most people have to learn several times throughout their investment life.  

People ask: “When do I know when it’s the right time to be in or out?”  The answer is: If you’re asking that question, it’s time to stay out.

Otherwise, find an account or stable investment vehicle that offers you a nice interest rate.  You can look at Treasuries, Certificates of Deposit, money market accounts or a bank or broker offering a relatively high-yielding interest rate.

The point is to sit in something safe while you wait for trades with a high probability of success to present themselves. 

Savvy investors are willing to sit in a risk-free interest bearing account for years if need be, and you should get comfortable with taking the same stance.  What’s likely tied for first place on the individual investor’s list of most common mistakes is the notion that if you’re not in the market, you’re not making money.  Anxious and over-eager investors force trades at the wrong time, mainly because they’re afraid of missing the next big gain.  

Fear of missing the next winner is a killer.  Professional investors know that cash is a trade too.

I love that last line … that’s why I ripped it for the title to this post!

Right now, I am sitting in cash … and, I have been totally out of the market for a few weeks now even though there was a rally in between.

I am waiting for the right time – read: after the market starts climbing again (I’m happy to miss the absolute bottom) and I am sure that represents a longer-term trend OR until I find a stock that I feel won’t go much lower even if the market doesn’t rally for a while.

Same applies for real-estate, although I am actively looking for deals right now … residential isn’t my preference (I have plenty of exposure to that sector) as I am totally out of commercial right now and would like to get back in if the cash-on-cash returns improve a little (as they should as the recession takes hold, then eases a little).

Having said that I am in cash … it isn’t in your ordinary Mid-West Bank deposit account or CD … it’s legally earning 7.5% interest, hedged against the falling US dollar.

That’s why it’s often true that the rich get richer … because they have more investing options.

Still, the principle applies: sometimes, it’s OK to stay in cash or [AJC: perish the thought!] temporarily pay down a mortgage.

Is this the future of money management for children?

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I know that there have been a number of posts on other blogs about a new savings product called SmartyPig.

I initially dismissed their site [AJC: particularly because they USED to have a $25 fee – now gone … site is now totally FREE – and they didn’t offer a ‘cash out’ option – now also gone … you can get your money back as a wire transfer to your bank or as a Debit Card] … but, reviewed their FAQ’s, I really believe that they have something interesting here.

 What triggered my second look was an e-mail that I received today from Jon Gaskell, one of the co-founders of SmartyPig:

I had a very interesting conversation last week. It was with a young lady saving for a down payment on her first home with her fiancĂ©e. They want every penny they can scrape together funding that goal – especially the presents she is anticipating receiving when she finishes up graduate school later this spring. 

They thought they had found the perfect way to reach this goal faster when they stumbled upon SmartyPig, she told me. They were really excited about the public contribution piece and the social nature of SmartyPig. They thought the widget would draw attention and letting friends and family members know about their goal would keep them focused.

The next day, when my business partner, Mike Ferrari, and I spoke to a mother who is using SmartyPig to not only teach her 10- and 12-year-old sons how to save “in a cool way,” but is using SmartyPig to help them save up for their cars when they turn 16. 
 
When our site update is complete, the customer will have a third option when he or she has reached their goal: an ACH transaction back to their checking or saving account.

There you have it, a quick’n’easy way to set up a specific account to save up for a specific goal – whether large (e.g. a car) or small (e.g. an iPod) … in fact, that is the advantage that SmartyPig has over typical bank accounts [AJC: SmartyPig is supported by a bank, hence all deposits are FDIC Insured]:

It is easy to separate money into ‘pockets’ for specific savings goals.

I’m not sure what their future plans are, but I see a big future for them  – in addition to the Adult-saving-for-‘stuff’ market – I see a particularly big opportunity in the kids market.

Most kids’ allowance sits in cash … for example, we divide our kids allowance into two: Savings and Spendings, which means that we would need to open at least two Smarty Pigs accounts for each child, with one having a Goal of ‘Retirement’. Actually, our kids are smart enough to roll their retirement savings into my Scottrade account, so they are fully invested in my stock portfolio … but, for most people, simply having an account where kids earn interest on their money is a big step ahead of sitting in cash in the top drawer of their bed-side table! 

From a marketing perspective [AJC: I simply can’t help myself!], the founders of SmartyPig COULD gain tremendously by writing two books:  

1. SmartyPig – Sensibly Spending Your Way to Wealth – this would be a Making Money 101 book squarely aimed at breaking down the debt and credit-card mentality. Any personal finance blogger worth her salt could ‘ghost write’ or, even better, co-write this with them. 

2. SmartyPig for Kids – which would lay out a simple – naturally, SmartyPig-supported – process for dividing money earned by doing chores etc. into Savings and (possibly, more than one) Spending/s accounts. It would lay out a basic money-management philosophy for children to follow that will help lay the foundation for a consumer-debt-free, savings/investment-driven adult life.

The children’s angle, I believe will be where the growth is for SmartyPig, as their product (with some, minor modification) solves a real need …

… but, the account balances involved will be small and the demographic (i.e. children) will not be as lucrative, so some some additional ‘smart marketing’ will be required to drag the parents along for the ride.

Now, I haven’t tried SmartyPig myself, yet, so please don’t consider this an endorsement until I (well, more likely my children, as I don’t really need to save for ‘stuff’ any more) have tried it …

On the other hand, if you have tried it already, please let me know what you think!

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