‘Must Read’ Category Archives


Lessons from Tony Robbins’ Money Master the Game: 7 Simple Steps to Financial Freedom – Part I

by Ziva Beck in Must Read, Retirement, Saving for Retirement

Is Financial Freedom a possibility for an average American? The short answer is – Yes.

Tony Robbins went on a mission in his latest book Money Master the Game: 7 simple steps to Financial Freedom to show how. Of course I wanted to read it! He interviewed 50 of the most successful investors in the world and compiled the best strategies for all to use. In addition to the technical strategies, Tony also addresses the psychological factors that influence our behavior. The book has close to 700 pages. Here, I would like to share with you my main lessons from the book.

Lesson #1 – Make the most important financial decision – Decide to pay yourself first.
Commit a percentage of your income to your Freedom Fund. Experts recommend saving at least 10% and many recommend 15%. The key to success here is to automate the process through a payroll deduction or automatic transfer to savings account. You can start with a smaller percentage and commit additional percentage when you get your next raise.

Lesson #2 – Determine how much money you need to achieve financial security and financial independence. Financial security means your savings can generate enough income to cover your most basic living expenses. Financial independence means you will have enough money to support you current lifestyle without working. The key to success is to resolve within yourself with the absolute certainty that “I’m going to do this”.

Tony provides an application which will ask you questions and calculate these amounts automatically at http://masterthegame.tonyrobbins.com/.

Easy way to calculate savings needed for financial independence, is to multiply your current annual income by 20 (that assumes 5% return on your savings). For example, if your current salary is $100,000 then savings needed for Financial Independence are $2 Million.  If you live on less than what you make than use that number for calculation.

To calculate your amount needed for Financial Security, first add up your monthly basic living expenses. Then, multiply by 12 to calculate your annual expense.  That amount is the total annual income needed after taxes. It is a little trickier to figure out the pre-tax amount. So it’s best to use a gross-up calculator (see link below) and then multiple that amount by 20.  In the example provided below, the monthly amount for basic living expenses is $5,190. The amount needed for Financial Security is $1,418,320.

If you are saving in a Roth IRA your gains are not taxed. In this case you don’t need to be concerned about taxes and pre-tax income and you will be able to reach your savings goals sooner. If your annual expenses are similar to the US average of $34,764, then you will only need to save $695,280 in Roth IRA to reach financial security.

Monthly Basic Living Expenses 2013 U.S. Average for 2 Adults* Example for 2 Adults living in NJ
Housing – rent/mortgage $860 $2,300
Food $549 $549
Utilities – gas, electric, water, phone $319 $390
Transportation – gasoline, repair, insurance, leases, public transportation $791 $750
Healthcare  – insurance, deductibles $378 $1,200
Total Monthly  Expenses $2,897 $5,190
Total Annual  Income Needed After Taxes (=Monthly Expenses *12) $34,764 $62,280 
Total Annual Income Before Taxes (Federal and State) $70,916
Total Savings for Financial Security (=Annual Income *20) $1,418,320

*Based on Table 5. Size of consumer unit: Average annual expenditures and characteristics,
Consumer Expenditure Survey, 2013

Lesson #3 – Have an emergency fund to cover 6 -12 months of expenses.
This is your lifeline in case you get sick or lose your job. My personal preference is 12 months.

Lesson #4 – Make the most important investment decision of your life – Decide what percentage of your portfolio will be in the Security/Peace of Mind bucket and what percentage goes into the Risk/Growth bucket. The Security/Peace of Mind bucket holds money that you cannot lose. Many famous people made a lot of money and lost it all due to risky investments.

This decision is really about your risk tolerance and how much loss you can reasonably tolerate. You need to consider your future earnings potential, how easy it will be to replace the amount that it is lost and when do you need the money. In general, if you are younger and expect to make money for many years and don’t need the money for a long time, you can take a higher risk and invest more in stocks. The key is to remember that the pain of losing is far greater than the joy of winning. Read more about risk tolerance in my post  Surviving the Stock Market Crash in 2008.

Rutgers University has developed an online 20 question quiz to help identify your risk tolerance – http://njaes.rutgers.edu/money/riskquiz.

Investments that belong in the Security/Peace of Mind bucket include cash, cash equivalents (i.e. money market funds, bank money market deposit accounts, U.S. Treasury money market fund), bonds, CDs, annuities, structured notes and CDs that guarantee your principal.

I would exercise caution with bonds at this time due to rising interest rates. When interest rates rise, bond prices fall. If you hold an individual bond to maturity, interim changes in price will not affect the price at maturity and you will receive the principal back. In a bond fund, price of the fund will be impacted by rising interest rates and might result in a loss of principal.

Investments that belong in the Risk/Growth category include stocks, stock mutual funds, exchange-traded funds (ETFs), stock index funds, high yield bonds, real estate investments, commodities, currencies, structured notes and CDs that don’t guarantee your principal, and other high risk investments.

For the 20-year period from December 1993 to December 2013, the S&P 500 returned 9.2% annually, but the typical investor averaged just over 2.5%. This is because emotions get in a way and investors tend to sell when the market is low and buy when the market is high. You need to be really comfortable with your allocations for Security/Peace of Mind and Growth/Risk buckets. This way you can ride out major declines in your Growth/Risk bucket and avoid emotional selling.

Lesson #5 – Create a Dream bucket.
Make a list of your dreams. Put them in order of importance, big or small, short-term and long-term. Write down why you must achieve them. The Dream bucket meant to excite you and unleash your creativity. It helps you to find ways to earn more, save more and invest smarter. There are several ways to fund this bucket. You can allocate a portion of your profits in the Growth bucket, use a portion of your bonus, save a set percentage of your income or commit to a percentage of your next raise.

Lesson #6 – Reduce taxes.
401K plans and IRAs allow you to defer tax paying on both contributions and earnings. In Roth IRA your contributions are taxable but your earnings are completely tax free forever.

In regular taxable accounts you can save on taxes by holding stocks for periods longer than 1 year to qualify for the reduced long-term capital gains tax rate. Index funds are also tax efficient because they don’t trade as much as active funds and therefore don’t generate as much capital gains.

Because of the amount of the information in the book, I had to divide this post into two parts. So stay tuned for part II where I write about asset allocation and investments.



http://livingwage.mit.edu/counties/34003 – Living wage calculation for Bergen county, New Jersey.

http://www.bls.gov/cex/csxann13.pdf – Complete 2013 average expenditure per consumer unit from U.S. Department of Labor.

http://www.adp.com/tools-and-resources/calculators-and-tools/payroll-calculators/gross-pay-calculator.aspx – Gross up calculator.


What is Impulse Buying

by Ziva Beck in Must Read, Shopping

Impulse buying happens when we buy something that we didn’t intend to buy. Malls, grocery stores, street fairs and other places of shopping can trigger impulse buying. It sneaks up on you unexpectedly like in my story below.

It was Halloween and my husband I were walking at the mall and enjoying all the sights around us. Suddenly, I heard a noise behind me and someone put a small square piece of what appeared a warm gel pad in my hand. “Here try it” – he said. It was a cold day and the heat was wonderful. Curious I looked back and followed him to his cart. They were selling Heat in a Click heating pads in various sizes. I got interested in a shoulder and neck heating pad. I often have stiff shoulders and this pad felt like heaven. After a short negotiation on the price I bought it for $35. Another salesperson offered that I try a TENS massager. You place two pads on your shoulders and they create a sensation of massage using an electric pulse. It is similar to what a chiropractor or a physical therapist will use in their office. I do have a problem with my neck and shoulders so they hit a home run with me. The salesman showed me a website with a price around $300 for the unit and offered to give it to me for a discounted price of $220. I told him I can pay $160 and we made a deal. My husband and I happily continued our walk at the mall.

That evening I came home and decided to look for these products on the internet. I found that I can buy a comparable TENS massager for $100-$120 and the shoulder pad for about $20. I paid $195 for both items and they were available for $120-$140 on the internet. Ouch! Needless to say I wasn’t happy anymore.

This was a classic example for impulse buying. At that moment, I bought something that I didn’t intend to buy acting on my emotions. There is a certain high associated with this kind of purchase that makes us happy. The desire for instant gratification can be very strong. It also puts in jeopardy our budget, our saving goals and ultimately our desired lifestyle.

Thankfully, this shopping experience is not typical for me but as this example shows I am not immune to it. In many cases from my experience there is salesperson involved who is very personable and able to establish a quick rapport with you. He or she appears so nice that it is difficult to say no. An effective way to overcome the desire to buy is to take some time out to think about the purchase. It will give you the opportunity to reassess your need for it and also time to educate yourself about a reasonable price for this item. My husband and I walked away from many timeshare and other sales presentations using this technique.

I am happiest when I get a great deal on a product I need. Usually that involves deciding on what you need in advance, doing a comparison shopping and having a budget. I don’t know if one can completely avoid impulse buying but minimizing it can go a long way toward achieving your financial goals and desired lifestyle.


Surviving the Stock Market Crash in 2008

by Ziva Beck in Must Read, Stock Market

In January 2008, we went away for a week for a family vacation. During the week we were out, the market took a nose dive and the S&P 500 index dropped more than 5%. I didn’t like it at all!

That weekly slide got me thinking about how much down side I can really take and how would I feel if the stock market was down 10%, 20% or even more. In other words, I started thinking about my risk tolerance in the event markets go down.

Some financial advisors recommend subtracting your age from 100 to determine the percentage of your exposure to stocks. For example, if you are 30 years old and subtract your age from 100 then you should have 70% of your investments in stocks. That is all well and good until you are actually faced with a loss. Your age is a good starting point for determining your asset allocation. Additional factors to consider include your future earnings potential, how easy it is to replace the amount that is lost and when do you need the money. In general, if you expect to make more money in the future and don’t need the money for a very long time, you can take a higher risk and invest more in stocks.

To get a better understanding of your risk tolerance, you can take a look at the table below. It shows the amount of Loss based on the % of your money in stocks for total available assets of $100,000 and a market drop of 30%.

When further examining my risk tolerance, I realized I was very uncomfortable loosing more than 6%-10% of my total assets. My whole asset allocation had to be revised. I sold most of my stock funds and moved the money to safer investments.

Later in the fall of 2008, the market had a crash of over 30% in what is known one of the most painful market crashes in recent history. I lost 30%-40% in my mutual funds like everyone else. But because my overall investment in the stock market was adjusted to my risk tolerance I didn’t loose more than I was comfortable loosing. It still hurt but was manageable.


Lost Decade for the Stock Market

by Ziva Beck in Must Read, Stock Market

The S&P 500 Index is a weighted index based on 500 large-cap US companies and is frequently used to measure stock market performance.

In 2000, I decided to invest $20,000 in the Vanguard S&P 500 Index mutual fund with approximately 10 year horizon. It seemed like a reasonable approach. Many financial experts recommended using the index funds versus the actively managed funds. Vanguard is known for its low expenses fees. Really, it seemed I can’t go wrong here.

Fast forward to January, 2010. After two severe market corrections in 2002 and 2008, I sold my shares in the Vanguard S&P 500 Index fund at a loss of $2,767. This was painful! What went wrong?

In one of her shows, Suze Orman mentioned that we are currently in a secular Bear Market that started in the year 2000. That is when I learned that there are secular Bear and Bull stock market cycles. In the 80s and the 90’s we were in a great Bull market that lasted 18 years. In a secular Bull market, the general stock market tends to go up. In a secular Bear market, the general stock market tends to go down. You can find year by year summary of secular Bear and Bull markets at http://www.crestmontresearch.com/docs/Stock-Secular-Chart.pdf. The previous secular bear market lasted 16 years. The current secular market started in 2000 and is projected to last at least another 5 years.

My lesson learned is that while frequently recommended Buy and Hold strategy worked well in the secular Bull market in the 80’s and 90’s, it is not as simple during the secular Bear market that we are currently in. Certainly, it didn’t work for my 10 year investment. In hindsight, I would have been better putting that money in a 5 year CD. I believe now that more active management is needed during the secular bear market. It does require more effort and more education but is a possible option.


How to Double the Interest on Savings

by Ziva Beck in Must Read, Savings

In the past few years, the interest rates on money market and savings accounts have been dismal to say the least. My Vanguard Prime Money Market fund that once provided one of the best yields is currently only paying around 0.06%. The saving rates at the local banks are not much better.

With this in mind, I was on a mission to find the best saving rate. My first stop was checking the best rate comparison online sites like www.bankrate.com. After looking at the rates on these sites, it became obvious that online savings accounts were the way to go. You can find Online Savings accounts or Online Money Market accounts paying around 1%. This was certainly better than the 0.06% in my Vanguard Prime Money Market fund. But it was still not high enough.

Can I do better?

Next, I started looking at available CD rates. The 1 year CDs, 2 year CDs and 5 year CDs. The highest rates of around 2.4% were offered for the 5 year CD. It was higher than the 1% but you had to commit to 5 years. This didn’t look like a good option since at the moment the interest rates are very low and there is an expectation that they will go up in the future.

Further research revealed another possibility that gives you the higher rate of approximately 2.4% without the 5 year commitment. I have learned that Ally bank offers only 60 day interest penalty on their CD products (as per the information on their website https://www.ally.com/bank/high-yield-cd/#tabs=faqs). That means that you can sign up for a 5 year CD, get 2.39% APY (as of 3/6/11) and have the ability to withdraw your money when interest rates go up with only a small penalty. For example, if you withdraw your money after 1 year, your APY will be 2%, which is still higher than the current 1 year CD annual yields offered around 1.20-1.30%.

Sometimes, you can have your cake and eat it too. Bye, bye Vanguard Money Market. I am now a happy customer of Ally bank.