25 Ways to Waste Your Money

by Erin Burt, Contributing Editor

Plug your financial leaks, and pocket the savings.

Has your budget sprung a leak?

Nearly everyone has spending holes. And as with other kinds of leaks, you may have hardly noticed them. But those small drips can quickly add up to big bucks. The trick is to find the holes and plug them so you can keep more money in your pocket. That extra cash could be the ticket to finally being able to save, invest, or break your cycle of living from paycheck to paycheck.

Here are 25 common ways people waste money. See if any of these sound familiar, then look for ways to plug your own leaks:

1. Carrying a balance. Debt is a shackle that holds you back. For instance, if you have a $1,000 balance on a credit card that charges an 18% rate, you blow $180 every year on interest. Get in the habit of paying off your balance in full each month.

2. Overspending on gas and oil for your car. There's no need to spring for premium fuel if the manufacturer says regular is just fine. You should also check to make sure your tires are optimally inflated to get the best gas mileage. And are you still paying for an oil change every 3,000 miles? Many models nowadays can last 5,000 to 7,000 miles between changes, and some even have built-in sensors to tell you when it's time to change the oil. Check your manual to find the best time for your car's routine maintenance.

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3. Keeping unhealthy habits. Smoking costs a lot more than just what you pay for a pack of cigarettes. It significantly increases the cost of life and health insurance. And you'll pay more for homeowners and auto insurance. Add in various other expenses, and the true cost of smoking adds up dramatically over a lifetime -- $86,000 for a 24-year-old woman over a lifetime and $183,000 for a 24-year-old man over a lifetime, according to "The Price of Smoking" (The MIT Press).

Another habit to quit: indoor tanning. There is now a 10% tax on indoor tanning services. As with cigarettes, the true cost of tanning -- which the World Health Organization lists among the worst-known carcinogens -- is higher than just the price you pay each time you go to the salon.

4. Using a cell phone that doesn't fit. How many people do you know who have spent hundreds of dollars on fancy phones, and then pay hundreds of dollars every month for the privilege of using them? Your phone is not a status symbol. It is a way to communicate. Many people pay too much for cell phone contracts and don't use all their minutes. Go to BillShrink.com or Validas.com to evaluate your usage and see if you can find a plan that fits you better. Or consider a prepaid cell phone. Compare rates at MyRatePlan.com.

5. Buying brand-name instead of generic. From groceries to clothing to prescription drugs, you could save money by choosing the off-brand over the fancy label. And in many cases, you won't sacrifice much in quality. Clever advertising and fancy packaging don't make brand-name products better than lesser-known brands.

6. Keeping your mouth shut. No one wants to be a nuisance. But by simply asking, you may be able to snag a lower rate on your credit card.

When shopping, watch for price discrepancies at the cash register, and make a habit of asking, "Do you have a coupon for this?" You might even be able to haggle for a lower price, especially on seasonal or perishable items, floor models or big-ticket purchases. Many stores will also match or beat their competitors' prices if you speak up. And try asking for a discount if you pay cash or debit -- this saves the store the cut it has to pay the credit-card company, so it may be willing to give you a deal. It doesn't hurt to ask.

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7. Buying beverages one at a time. If you're in the habit of buying bottled water, coffee-by-the-cup or vending-machine soda, your budget has sprung a leak. Instead, drink tap water or use a water filter. Brew a homemade cuppa joe. Buy your soda in bulk and bring it to work. (Better yet, skip the soda in favor of something healthier.)

8. Paying for something you can get for free. There's a boatload of freebies for the taking, if you know where to look. Some of our favorites include restaurant meals for kids, credit reports, software programs, prescription drugs and tech support. You can also help yourself to all the books, music and movies your heart desires at your local library for free (or dirt cheap).

9. Stashing your money with Uncle Sam rather than in an interest-earning account. If you get a tax refund each April, you let the government take too much money in taxes from your paycheck all year long. Get that money back in your pocket this year -- and put it to work for you -- by adjusting your tax withholding. You can file a new Form W-4 with your employer at any time.

10. Being disorganized. It pays to get your financial house in order. Lost bills and receipts, forgotten tax deductions, and clueless spending can cost you hundreds of dollars each year. Start by setting up automatic bill payment online for your monthly bills to eliminate late fees and postage costs. Then get a handful of files to organize important receipts, insurance policies, tax documents and other statements.

Finally, consider using free budgeting software such as Mint.com to see exactly where your money goes, making it much harder for you to lose track of it.

11. Letting your money wallow in a low-interest account. You work hard for your money. Shouldn't it work hard for you too? If you're stashing your cash in a traditional savings account earning next-to-nothing, you're wasting it. Make sure you're getting the best return on your money. Search for the highest yields on CDs and money-market savings accounts. And consider using a free online checking account that pays interest, such as ones offered by Everbank and ING Direct.

Your stocks and mutual funds should be working hard for you, too. If they've been lagging behind their peers for too long, it could be time to say goodbye. Learn how to spot a wallowing fund or stock.

12. Paying late fees and missing deadlines. Return those library books and movie rentals on time. Mail in those rebates. Submit expense reports on time for reimbursement. And if you make a bad purchase, don't just stuff it in the back of the closet and hope it goes away. Get off your duff, return it and get your money back before you lose the receipt.

13. Paying ATM fees. Expect to throw away nearly $4 every time you use an ATM that isn't in your bank's network. That's because you'll pay an ATM surcharge, and your own bank will hit you with a non-network fee. Consider switching to a bank, such as Ally Bank, that doesn't charge ATM fees and reimburses you for fees other banks charge. Another way to avoid fees if there's not an ATM in your bank's network nearby is to get cash back when you make a purchase at the grocery store or drugstore.

14. Shopping at the grocery store without a calculator. Check how much an item costs per ounce, pound or other unit of measurement. When you comparison-shop by unit price, you save. For example, if a pack of 40 diapers costs $13, that's 33 cents per diaper. But if you buy a box of 144 diapers for $35, that's 24 cents per diaper. You save 27%! (Of course, buying more of something only saves money if you use it all. If you end up throwing much out, you wasted money.)

15. Paying for things you don't use. Do you watch all those cable channels? Do you need those extra features on your phone? Are you getting your money's worth out of your gym membership? Are you taking full advantage of your Netflix, TiVo and magazine subscriptions? Take a look at what your family actually uses, then trim accordingly.

16. Not reading the fine print. Thought you were being smart by transferring the balance on a high-rate credit card to a low-rate one? Did you read the fine print, though? Some credit-card companies now charge up to 5% for balance transfers. Also watch out for free checking accounts that aren't so free. Some banks are starting to charge fees unless you meet certain criteria.

17. Mismanaging your flexible spending account. For some people, that means failing to take advantage of their workplace FSA, which lets employees set aside pre-tax dollars for out-of-pocket medical costs. Other people fail to submit receipts on time. And the average worker leaves $86 behind in his or her use-it-or-lose-it FSA account each year, according to WageWorks, an employee benefits provider.

18. Being an inflexible traveler. You'll save a lot of money on travel if you're willing to be flexible. Consider traveling before or after peak season when prices are lower. Or search for flights over a range of dates to find the lowest fare. Booking at the last minute also can save you money because hotels and airlines slash prices to fill rooms and planes. And flexibility pays off at blind-booking sites, such as Priceline or Hotwire, which offer deep discounts if you're willing to book a room or flight without knowing which hotel or airline (or other details about the flight) you're getting until you pay.

19. Sticking with the same service plans and the same service providers year after year. Hey, we're all for loyalty to trusted service providers, such as your bank, insurer, credit-card company, mutual fund, phone plan or cable plan. But over time, as prices and your circumstances change, the status-quo may not be the best deal any more. Smart consumers are always on the lookout for bargains.

20. Making impulse purchases. When you buy before you think, you don't give yourself time to shop around for the best price. Take the time to compare prices online, read product reviews and look for coupons when appropriate.

Make it a policy to give yourself a cooling-off period in case you're ever tempted to make an impulse purchase. Go home and sleep on the decision. More often than not, you'll decide you don't need the item after all.

21. Dining out frequently. Spending $10, $20, $30 per person for dinner can be a huge drain on your wallet. Throw in a $6 sandwich for lunch every day and you've got quite a leak. Learning to cook and bringing your lunch from home can save a couple hundred bucks each month. When you do go out, consider getting carry-out instead of dining in (you'll save on the tip and drink), skip the overpriced appetizer and dessert, and search the Web for coupons ahead of time.

22. Trying to time the stock market. In trying to buy low and sell high, many people actually do the opposite. Instead, employ the simple strategy of "dollar-cost-averaging." By investing a fixed dollar amount at regular intervals, you smooth out the ups and downs of the market over time. If you take out the emotion and guesswork, investing can become less stressful, less wasteful and more successful.

23. Buying insurance you don't need. You only need life insurance if someone is financially dependent upon you, such as a child. That means most singles, seniors or kids don't need a policy. Other policies you can probably do without include credit-card insurance (better to use the premium to pay down your debt in the first place), rental-car insurance (most auto policies and credit cards carry some coverage), mortgage life insurance and accidental-death insurance (a regular term-life insurance policy will do the trick).

24. Buying new instead of used. Talk about a spending leak -- or, rather, a gush. Cars lose 20% of their value the moment they're driven off the lot and 65% in the first five years. Used models can be a real value because you can get a car that's still in fine working order for a fraction of the new-car price. And you'll pay less in collision insurance and taxes, too.

Cars aren't the only things worth buying used. Consider the savings on pre-owned books, toys, exercise equipment, children's clothing and furniture. (Of course, there are some things you're better off buying new, including mattresses, laptops, linens, shoes and safety equipment, such as car seats and bike helmets.)

25. Procrastinating. Time is an asset money can't buy. Start investing for retirement as soon as possible. For instance, if a 40-year-old saves $300 a month with an 8% return per year, he'll have $287,000 by age 65. If he had started saving 15 years earlier at age 25, he'd have more than $1 million.

The 3 Most Important Financial Numbers You Need to Know

Liz Davidson

Are you getting the right answer to the wrong question? When people find out I used to run a hedge fund, they often ask me, "What is a hot investment right now?" Of course, I don't attempt to answer the question for a lot of reasons, the least being that I would have to ask them a series of probing questions about their finances. Besides, I am not a money manager. Either way, it always occurs to me that they might just be asking the wrong financial question.

I have built my company around the belief that people aren't really interested in money, but rather making their own lives richer, deeper, and more fulfilling. With that in mind, a better question to ask would be, "What are the most important numbers I need to know when it comes to personal finance?" It isn't the hot stock or right mutual fund that will make the biggest difference in their finances or help them attain their financial goals. What they should be looking at are their savings percentage, net worth, and credit score. For someone who is on their way to achieving financial success, each of these numbers will be trending in the same direction -- up.

Want to find out if you are on the right path? Here are three essential questions you should ask yourself:

What percentage of my income am I saving?

The hardest thing about finance is that you can't focus on one thing at a time. If you focus only on eliminating debt, you'll neglect your long-term retirement savings. If you max out your retirement savings while holding on to high-interest debt, you'll get stuck wasting dollars on high interest payments rather than saving more for your future. Your financial decisions don't exist in a vacuum, but people who save a high percentage of their income tend to find it easier to make the moving parts work.

How much should you be saving? Many people follow the rule of thumb to save at least 10 percent of their income for retirement and another 10 percent for other goals, such as an emergency fund. High-percentage savers also save on borrowing costs since they are able to pay cash for things, such as automobiles, rather than getting loans. In fact, one of our financial planners calculated that someone could actually save as much as $185,000 over the next 20 years by simply not having a car payment. Imagine how much your net worth would increase if you could do the same. Find out where you stand by reviewing your current contribution rates to your 401(k) and other retirement plans, as well as your overall savings percentage.

What is my net worth?

Watching your wealth build can be like watching the grass grow; sometimes the mower comes in and cuts everything down. Use an annual personal net worth statement to track the incremental changes to your financial landscape from a helicopter view. That way you can easily determine if you have too much of your net worth in one investment, too much debt, or not enough saved for emergencies.

Imagine being able to review your net worth statements for the past 10 years showing your debt slowly declining as you pay down your mortgage and your assets increasing as you save more. You would have a better perspective on things so that when real estate values fluctuate or the stock market falls you can know when to relax, and when to be concerned.

What is my credit score?

Your credit score is not the "be all and end all" of finance -- it is not an investment and doesn't generate future income -- but it does help reduce costs by lowering the expense of borrowing money. For example, if you have a credit score around 680, you might qualify for a 30-year fixed mortgage around 5% in today's market, but if you have a credit score over 760, you might qualify for a rate around 4.625%. It may not seem like much, but if you were to borrow $250,000 over 30 years, a few tenths of a percent could cost you over $20,000 in additional interest. When you combine that with the savings you might get from better rates on things like credit cards and auto loans, you start to see why a good credit score is important to your financial success.

Paying lower interest rates on debt is not the only benefit of having good credit. Some employers look at an applicant's credit history before considering them for hire, and many auto insurance companies give discounts to customers with high credit scores because having good credit is correlated with lower insurance claims. Having excellent credit can save you a significant amount over your lifetime. Learn how you can improve your credit score at myFICO.com.

It should surprise no one that financial problems are a leading cause of stress, and while studies show stress is a leading cause of illness, new research suggests that there is a link between financial stress and metabolic syndrome. In light of this, it is more important than ever to focus on the right things and to get our financial numbers in order. We want our net worth to go up and our blood pressure to go down -- not the other way around.

Liz Davidson is CEO of Financial Finesse, the leading provider of unbiased financial education for employers nationwide, delivered by on-staff Certified Financial Planner professionals.

9 Ways to Build Wealth in 2011

by Dana Dratch

Want to build some wealth in 2011? Revisit those New Year's resolutions.

You probably haven't thought about your pledges in more than a month. But odds are at least one of them involves getting rid of debt, increasing your income or building some financial security.

To help you out, nine experts in the fields of money, debt, real estate and consumer affairs have shared their best wealth-building tips for 2011.

1. Funnel That FICA Cut Into a Retirement Windfall

David Bendix, CPA/PFS, CFP, president of The Bendix Financial Group:

Take the money you won't pay in FICA, or Federal Insurance Contributions Act, taxes this year and redirect it to your 401(k). "It's a great concept that you're taking that 2 percent and using it to fund your retirement," he says. "It's one great technique for the coming year."

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Tip for success: For the maximum impact, talk with human resources ASAP and change your deductions, Bendix says. One hopes the habit of saving a little more will stick with you through next year, too, he says.

2. Look For Low-Cost Mutual Funds and Watch Those Fees

Jill Gianola, CFP, owner of Gianola Financial Planning, LLC, and author of "The Young Couple's Guide to Growing Rich Together":

"One of my favorite ways to build wealth is to pay close attention to the cost of investing and stick to low-cost, no-load mutual funds," she says.

One example: "If you invested $10,000 in small-cap, value funds with a commission and higher-than-average operating expenses and earned 7 percent a year for 10 years, your balance would be $16,005 and you would have paid a sales charge of $575 and $1,890 in operating expenses," she says.

"Compare that to investing the same amount for the same time period earning the same return in a no-load, small-cap, value fund with low operating expenses," she says. "Your balance would be $19,128 and you would have paid $408 in operating expenses." The difference: $3,123.

Tip for success: Calculate cost and differences with Bankrate's mutual fund fees calculator.

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3. No Shortcuts: Year After Year of Consistent Savings

Ric Edelman, chairman and CEO of Edelman Financial Services LLC, and author of "The Truth About Money":

"The best way to build wealth remains unchanged: Invest as much money as you can (which is usually more than you think you can) into a diversified set of low-cost mutual funds and exchange-traded funds -- and keep doing this for many years, no matter what."

4. Get Rid of High-Interest Card Debt

David Jones, president of the Association of Independent Consumer Credit Counseling Agencies:

"For most people, building wealth is not about what to do with excess disposable income," he says, but "how to keep more of the money that they earn."

"The best way to do that: Reduce the amount of money spent on interest payments -- especially high-interest payments attached to credit card purchases," Jones says. "If a consumer can work to pay off just one high-interest credit card and not overcharge it again, then the money saved after it is paid off can go to a building-wealth plan. This may not be easy, and it may take time, but it's a realistic goal for just about every consumer."

Tip for success: Find a certified credit counselor to help you draft your own personal spending plan for free. To find one, visit either the AICCCA or the National Foundation for Credit Counseling.

"If the consumer sticks to that plan, it will be their best chance to begin a systematic process for building wealth," Jones says. "It may be modest at first, but with diligence, everyone can have a chance to improve their financial circumstances."

5. Buy a Home

Ron Phipps, president of the National Association of Realtors and principal broker for Phipps Realty in Warwick, R.I.:

Want to build wealth in 2011? Buy a home, Phipps says. Mortgage rates are low, selection is great, prices are about one-third lower than five years ago, "and, by the way, you can live in the investment," he says.

Homeownership remains a long-term vehicle to financial independence and wealth, Phipps says.

Tip for success: Even though it sounds "pretty elementary," it's especially vital to "use common sense when buying and selling," Phipps says. "Price at the market to sell. Buy what you need and can afford."

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6. Balanced, Diversified Portfolio Plus Education

Karen Altfest, CFP, principal adviser and executive vice president of client relations at Altfest Personal Wealth Management, a fee-only financial planning firm based in New York:

"Have a balanced portfolio," Altfest says. "So many people think that as they get older, money will come from interest. The secret is (keeping) a well-balanced, diversified portfolio and learning what it all means."

Too many times, people take the "set it and forget it" approach with their retirement accounts, she says. But you shouldn't "let it get cobwebs because you can't deal with it," Altfest says. "Get help." Your goal for the year: Get educated about what's in your retirement accounts and why.

Tip for success: You don't solely want only fixed-rate instruments such as bonds and CDs, she says, because it takes more than compounding interest to build a retirement fund.

7. If You Have an HSA, Max It Out

Eric Tyson, author of "Investing for Dummies" and "Personal Finance for Dummies":

"I'm a very big fan of (health savings accounts) because they offer better potential tax benefits than a traditional retirement fund," Tyson says. With HSAs, investors receive an upfront tax break, compounding investment earning, and pay no tax on the money that is withdrawn "as long as its use is for health expenses," he says.

But the device might not work for everyone. "Obviously, you have to have a high-deductible health plan," he says.

Before 65, if you pull money from your HSA for nonhealth expenses, you'll pay income tax and a 20 percent penalty on the withdrawal. After 65 (or in cases of death or disability), such withdrawals are taxed as income -- without the 20 percent penalty.

The maximum you can put into an HSA in 2011 is $3,050 for an individual account (plus an extra $1,000 if you're 55 or older), and $6,150 for a family account, he says.

8. Do Your Due Diligence

John Breyault, director of the National Consumer League's Fraud Center:

To build wealth that you can rely on, vet the adviser and the investment thoroughly, Breyault recommends. Some red flags:

• Guaranteed returns. "There's no such thing as a guaranteed return," he says.

• Pressure. "If it's a good investment opportunity today, it will be a good investment opportunity tomorrow."

• Nothing in writing or a reluctance to share information you could present to a third-party. "If it's a significant sum of money, I wouldn't hesitate to run it by an attorney," Breyault says.

• A significant upfront sum. "You shouldn't have to invest more than you're comfortable with," he says.

Also, "you should be able to get your money out easily," Breyault says.

Tip for success: Run investments and their representatives past state protection agencies such as the office of consumer protection and the state attorney general's office, he says. Also check with business sources such as the Chamber of Commerce and the Better Business Bureau.

Check with regulating authorities such as the Financial Industry Regulatory Authority, or FINRA, BrokerCheck, the Federal Communications Commission and the Securities and Exchange Commission. And verify any degrees and accreditations directly with the bodies that offer them.

And run a Google search on the company name, principals and basics of the investment.

9. Start Your Own Side Business

Robert Pagliarini, CFP, president of Pacifica Wealth Advisors and author of "The Other 8 Hours: Maximize Your Free Time to Create New Wealth and Purpose":

"Start a business in your free time," he says. "I'm a big proponent of having a side venture, something you are passionate about that you can work on after your 'day job.'

"I think this is the best advice to give someone now -- especially for those who are unemployed," Pagliarini says. "And starting a business doesn't have to cost much, if any, money."

With Retirement Savings, It's a Sprint to the Finish

by Tara Siegel Bernard

What would you do if your financial planner prescribed the following advice? Save and invest diligently for 30 years, then cross your fingers and pray your investments will double over the last decade before you retire.

You might as well go to Las Vegas.

Yet that's exactly what many professionals and fancy financial calculators have been telling consumers for years, argues Michael Kitces, director of research at the Pinnacle Advisory Group in Columbia, Md., who recently illustrated this notion in his blog, Nerd's Eye View.

The advice is never delivered in those exact words, of course. Instead, this is the more familiar refrain: save a healthy slice of your salary from the start of your career, invest it in a diversified portfolio and then you should be able to retire with relative ease.

The problem is that even if you do everything right and save at a respectable rate, you're still relying on the market to push you to the finish line in the last decade before retirement. Why? Reaching your goal is highly dependent on the power of compounding — or the snowball effect, where your pile of money grows at a faster clip as more interest (or investment growth) grows on top of more interest. In fact, you're actually counting on your savings, in real dollars and cents, to double during that home stretch.

But if you're dealt a bad set of returns during an extended period of time just before you retire or shortly thereafter, your plan could be thrown wildly off track. Many baby boomers know the feeling all too well, given the stock market's weak showing during the last decade.

"The way the math really works out is unbelievably dependent on the final few years," Mr. Kitces said. "I just don't think we've really acknowledged just what a leap the very last part really is."

Consider the numbers for a 26-year-old who earns $40,000 annually, with a long-term savings target of $1 million. To get there, she's told to save 8 percent of her salary each year over her 40-year career. (We assumed an annual investment return of 7 percent, and 3 percent annual salary growth, to keep pace with inflation). Yet after 31 years of diligent savings, her portfolio is worth just slightly more than $483,000.

To clear the $1 million mark, her portfolio essentially must double in the nine years before she retires, and the market must cooperate (unless she finds a way to travel back in time and significantly increase her savings).

Should the markets misbehave, however, delivering a mere 2 percent return over the 10 years before retirement (not all that hard to imagine, considering the return of a portfolio split between stock and bonds over the last decade), she falls short by about a third. Her portfolio would be worth only about $640,000. The chart accompanying this column illustrates this.

You can quibble with our assumptions in this example. But a similar pattern emerges regardless of your financial targets and projected returns, Mr. Kitces says. So if your target is to save $500,000 or $2 million, and if you assume a 6 percent return or a higher 10 percent, you're still relying on your investments to roughly double in the final years before retirement.

Of course, an extended period of dismal returns during any point in your career can inflict damage. But the homestretch before retirement is often the most anxiety-inducing because workers have neither the time nor the financial capacity to recover before they begin taking withdrawals. "Getting the bad 2 percent decade in the earlier years has far less impact because there are fewer contributions already invested," Mr. Kitces said. "Conversely, when the bad returns come in the final 10 years, no reasonable amount of savings will make up the shortfall."

So what's an investor to do about all of this, especially as one of the other pillars of retirement savings — pensions — disappears? And who's to say how Social Security may change by the time that 26-year-old retires?

Most of the solutions, if you can call them that, fall into the "easier said than done" category. If you can't handle the uncertainty of missing your financial targets, you can try to save more and create a less volatile portfolio, Mr. Kitces says, which may also provide a firmer retirement date.

And naturally, the earlier you start saving, the sooner you're likely to reach the critical mass you'll need for compounding to accelerate (assuming the markets provide some lift in the first half of your career). But you will still need to save more than many retirement calculators suggest, since they're likely to recommend saving a lower amount when you have such a long time horizon. Then you can end up in the same predicament, where you are heavily leaning on market returns in the years before retirement.

"What the wise person does is save a large amount of money when they are young," said William Bernstein, author of The Investor's Manifesto: Preparing for Prosperity, Armageddon and Everything in Between and other investing books. "And if they can do that, when they are older, they can cut back on their equity allocation. When you've won the game, you stop playing the game."

But that can be hard to accomplish when you have other needs competing for those dollars, whether it's a down payment for a house, a 529 college savings plan or starting a business. Or perhaps you're already living on less because you're unemployed (or underemployed) or because health insurance consumes a significant chunk of your income.

"It's the cruel irony of retirement planning that those people who most need the markets' help have the least financial capacity to take the risk," said Milo Benningfield, a financial planner in San Francisco. "Meanwhile, the people who can afford the risk are the ones who least need to take it."

A more prudent course of action is a flexible one that acknowledges the many possibilities and accounts for ideal and less-than-ideal spending amounts.

Try using different assumptions for the years leading up to retirement, suggests Scott Hanson, a financial planner at Hanson McClain in Sacramento. If you want to retire in 25 years, for instance, you might use a return assumption of 8 percent for the first 15 years of savings, then reduce that rate to 6 percent or less in the final decade, he says.

"Here's the catch: most folks aren't saving enough using standard growth assumptions," he said. "If they begin to use lower growth assumptions in order to ensure their retirement, they'll fall further behind and become even more discouraged."

But simply going through these exercises may help the reality sink in. At the very least, it will show how imprecise even the most sophisticated projections may be.

"The actual date I get to check out with my target sum to retirement is much more uncertain than we give it credit to be," Mr. Kitces said. "It's more like 40 years, plus or minus five to 10 years. If you want more certainty, you can have it, but you have to save more and take less risk."

7 Ways to Make Extra Money in 2011

by Kimberly Palmer

Job security might be out, but freelance, contract, and temporary work is in, which makes it easier than ever to moonlight as a graphic designer while you spend your days as a public relations rep. Slimmer staffs mean companies often need the extra help, and new websites offer free tools that match potential employers with workers. And earning extra money beyond your steady paycheck, if you're lucky enough to have one, can provide a big boost to your financial security.

Here are seven ways to make extra money off the new economy in 2011:

Launch a Brand
When Kimberly Seals-Allers, former senior editor at Essence magazine, was expecting her first child, she discovered that black women face higher risks during childbirth and pregnancy. "I realized we were a special group, and I wanted to write a book about everything in black women's lives. Not just pregnancy, but money, men, and myths in our community. [I wanted] to create a new way forward."

Her first book, "The Mocha Manual to a Fabulous Pregnancy," turned into a series as well as an online magazine, maternity line, and consultancy. Seals-Allers also licensed use of the Mocha Manual name to create an instructional DVD sold at Walmart and supermarkets.

Start a Blog

The anonymous blogger behind Lazy Man and Money defies his site's name. He works about 14 hours a day on weekdays and then puts in nine hours on Saturday and Sunday. But his hard work is paying off -- his blog earns him enough to support his lifestyle; back in 2008, he estimated his annual earnings at around $30,000. But it's tough for part-time bloggers with full-time jobs to keep up with all the demands of a lucrative blog. "There's simply a lot more [to do] than what the average reader sees," he says.

Even if the blog itself doesn't generate a six-figure salary, it can lead to other money-making opportunities, such as consulting or speaking gigs. Silicon Valley Blogger at The Digerati Life has carved out a successful niche as the expert on personal finance and technology in Silicon Valley. While she says she didn't earn much during the first six months of her blog's life, she received her first $100 check from Google AdSense shortly after that point, when she was getting around 600 unique visitors a day. She now earns money from her blog-related consulting, as well.

Sell Your Skills
Whether your expertise lies in social networking, editing, or web development, several new websites can help you find potential clients willing to pay you for your work. Elance.com, Odesk.com, and Guru.com make it easy to advertise your skills and find work, which you can do from the comfort of your home at all hours of the night. To get started, explore the websites to see what might be a good fit. You can also stick with a more traditional approach and use Craigslist.org, which allows users to post advertising for their services, ranging from household labor to music lessons.

Sell a Wacky Service
For those interested in a more unusual approach, the innovative website fiverr.com allows users to sell (and buy) services for $5. Current offerings include sketching a stylized portrait, writing a name on a grain of rice, and digitally restoring a photograph. It's one of the trendiest ways to make a quick buck for the internet-savvy; dozens of videos, websites, and blogs offer advice on how best to earn money off the site. The best advice? Since you're only going to make $5 a pop, sell a service that you can do easily and quickly.

Talk and Teach
Colleges, organizations, and companies are constantly on the lookout for new experts that can inspire an audience. If you've built up an expertise on a subject, perhaps through your blog, then consider branching out with some speaking gigs. Offer to talk for free at first to build up your reputation, and then a speakers' bureau can help connect you to paying gigs (for a cut of your fee).

Design T-Shirts

Companies such as CafePress.com allow people to design and sell their T-shirts for a cut of the profits. According to the company's website, some users earn over $100,000 a year. But it's not always easy: Jen Goode, who earns enough through CafePress to pay her mortgage each month, found success after a year and a half of long, sometimes 16-hour days. Her time is spent creating designs and then uploading them. She has uploaded about 2,500 designs, many of which are cartoon oriented, including the popular penguin series. For her, she says, the secret has been to make many different images that are steady sellers, as opposed to creating one or two megahits. Now, she says she doesn't need to put as much time into her shop because she has such a large inventory of designs.

Sell Other People's Products
Make-up companies such as Avon and Mary Kay are always looking for new sales representatives, as are other companies such as kitchen products seller Pampered Chef. "If you don't have to make a big investment to get into it, it's probably not a bad idea," says Marcia Brixey, author of "The Money Therapist." But she warns people to stay away from businesses that require sellers to make significant up-front purchases that they might not be able to unload.

The bottom line: The new economy offers plenty of creative ways to earn extra money; to find the best fit for you, consider your skills, lifestyle, and ambitions.

Reasons to Start a Business This Year

by Rosalind Resnick

But if there's one New Year's resolution you should try to keep this year, it's this one: To start your own business and be your own boss.

Here are good reasons to take the plunge this January instead of procrastinating until 2012.

1. You'll never get laid off again.

Tired of being a number on somebody else's spreadsheet? That won't happen once you start working for yourself. "Jobs used to be for life, and leaving a company to start your own could put your entire career in jeopardy," says David Ronin, co-founder of UpStartBootcamp.com, a New York company that provides coaching, classes and information to first-time entrepreneurs. "Now the average job lasts about four years—if you can get one." On the flip side, most start-ups don't succeed and, while you won't get fired from your own business, you might end up shutting it down and losing the money you invested. "You'll probably take home a smaller salary, work harder and face higher stress levels, too," Mr. Ronin says.

2. You can stop asking your boss for a raise and give yourself one.

When you run your own business, there's no limit to how much money you can make if your company takes off. Because you're taking all the risk, you're entitled to all the upside. "A 'real' job does not have your best interests at heart—ever," says Scott Gerber, a New York entrepreneur and author of "Never Get a 'Real' Job." "Most jobs offer employees nothing more than a false sense of security, a workload that far exceeds their pay grades and a benefits package that they are most likely paying for themselves." While getting a business off the ground is never easy, every dollar that you put in and every hour that you work is an investment that returns profit back to you. "Find me any job that offers that level of financial incentive, and perhaps I'll think of getting a 'real' job," Mr. Gerber says. (Mr. Gerber is also head of Young Entrepreneur Council, which writes a guest column for WSJ.com.)

3. You can write off that new laptop, Blackberry, iPad or printer.

One of the fringe benefits of running your own business is the opportunity to write off or depreciate legitimate business expenses. Recent changes in the tax laws make these deductions even sweeter. Under expanded bonus depreciation rules, qualified investments in fixed assets purchased between Sept. 9, 2010, and Dec. 31, 2011, can be fully written off for federal tax purposes, according to Michael J. Goldberg of New York's Ganer, Grossbach & Ganer LP. (Check with your accountant to make sure your state accepts bonus depreciation for tax purposes.) A new business also can use the Section 179 deduction to write off the price of certain equipment or software, up to $500,000 in 2011. The disadvantage is that the current year Section 179 deduction cannot exceed the net income of the business. Start-up costs of up to $10,000 are deductible once the business begins, Mr. Goldberg adds.

4. You can unplug and work anywhere there's WIFI reception.

Forget the daily grind of commuting to the office. Today's mobile start-ups have unplugged from their digital tether. Small business and social-media marketing consultant Richard Wooley, co-founder of New York's Bond/Wooley Inc., says the key to working virtually is picking your spots—ideally, locations that offer comfy chairs and free WiFi. "When I'm spending an afternoon working through a call list, the best place for me is an independent coffee shop," Mr. Wooley says. "Starbucks can get too noisy to have a real conversation on a cell phone." By contrast, Mr. Wooley finds a quiet bar the perfect setting for crunching complex formulas in the Excel spreadsheets he prepares for clients' business plans. Says Mr. Wooley, "The key is to take off the shackles of a cubicle, charge your laptop battery and get out in the world."

5. There's never been a cheaper time to start a business.

Ten years ago, a typical Internet start-up needed $1 million to launch a product and millions more to prove its business model and scale it to profitability or an IPO. Today's start-ups run lean and mean thanks to the plunging cost of technology and a surplus of real estate and talent. "The popular 'lean start-ups' approach favors developing a product and getting it into the hands of customers as quickly and inexpensively as possible," says Mr. Ronin of UpStartBootcamp.com. "Plus, the stigma of freelancing has lifted for both companies and individuals so start-ups can hire top talent on an as-needed, virtual basis. This lets founders hire better talent with more flexibility, reduced office space needs, and lower benefits costs." And thanks to the power of social networking, it's no longer necessary to hire an expensive PR firm to generate press. You can target niche publishers and bloggers instead.

What's Your Billionaire Age?

by Michael Deane

The concept of a billion dollars is pretty hard to fathom, which is okay because about 99.999% of us will never really have to deal with it. According to Forbes, the world has 1,011 billionaires out of nearly seven billion people, so it's not exactly an everyday occurrence. Those that do become billionaires seem to do it through a mixture of ingenuity, intelligence and timing, or they just inherit it. For the rest of us - those working average jobs, investing normally and living an average lifestyle - how long would it take to become a billionaire? Is it even possible?

If you're making around $50,000 per year, it won't take forever to amass a million dollars, and indeed, many people will be able to achieve that in their lifetime. But a billion dollars? That'd be 1,000 lifetimes, kind of. We'll check out a range of jobs in the U.S. and some typical investments to see how long it would take someone to become a billionaire. We'll be using the saving rate of 10% of someone's income for the year, which may be a little bit optimistic, but it gives a good picture of how long it takes to become a billionaire on an average joe's salary.

Teaching Your Way To a Fortune

There are more than one million teachers in the U.S. according to the Bureau of Labor Statistics, and the mean salary for elementary and secondary school teachers is $55,210. If you're a teacher and are able to put aside 10% of your salary every year ($5,521) then it will take around 186 years for you to become a billionaire if you have your money in a long-term savings account paying 5% interest compounded annually. This means, if you start saving when you're fresh out of college and never touch the money, you could be a billionaire when you're 208!

If you invested in a more lucrative vehicle, like the stock market, you can become a billionaire much quicker. Looking at the returns of the Dow Jones over the past 40 years, there is an average return (CAGR) of 6.68% per year. If these returns are similar for the coming years, then the teacher who puts away 10% of his or her salary per month could become a billionaire in just 145 years. If you only wanted to become a millionaire, it would take you between 46 and 47 years in a 5% savings account and around 39 years if you followed the 6.68% returns of the Dow.

High Earners

It seems nearly impossible to become a billionaire making the salary of the average American teacher, but that's not really a surprise. How about if you're in a higher salary range, like a surgeon or another specialized doctor? An average anesthesiologist in the U.S. makes $211,750, according to the BLS, and if that anesthesiologist was able to put away 10% of his or her earnings every year into our savings account it would take around 160 years to become a billionaire.

And if that anesthesiologist put their savings into an index that tracked the Dow, it would still take more than a lifetime at 124 years. With that kind of salary it seems like you just can't get there on hard work alone.

To give you more perspective, it would take a postal worker (mean salary $48,940) around 188-189 years to become a billionaire using a savings account, and 146-147 years investing in the market. It would take a lawyer (mean salary $129,020) 131-132 years to make a billion in the markets, and 168-169 to make a billion in a savings account. So, when you think of it, whether you're a lawyer, a teacher, a postal worker or a surgeon, the great equalizer is that you'll never be a billionaire.

Out of Reach?

So, who can become a billionaire? How much would you have to have on hand every year to invest and be a billionaire at a time where you could still spend it? If you could put away $1 million a year, you're still looking at about 80 years of saving or 64-65 years of investing before the big payoff. Even actors and athletes who can make millions a year, rarely have the staying power to make it every year for 80 years.

So, sorry to come to such a heartbreaking conclusion, but it's hard for anyone to become a billionaire using traditional methods. To see a billion dollars during your lifetime (40 years of saving), you would need to put nearly $5.5 million into a fund that mirrors the Dow's average growth of 6.68%.

The Bottom Line

Though there are over 1,000 billionaires in the world, it's still an exceptional occurrence, and is owing to momentous business dealings, kick-starting an industry, inventing a much-desired service or concept, and other extraordinary events. For the rest of us, maybe we'll just have to make due with a million.

7 Spending Tips From Frugal Billionaires

by Jean Folger

Carlos Slim Helu (Carlos Slim), a telecom tycoon and billionaire with well-known frugal tendencies, has a net worth of $60.6 billion, according to Forbes. Assuming no changes in his net worth, he could spend $1,150 a minute for the next 100 years before he ran out of money. To put this in perspective, he could spend in 13 minutes what a minimum-wage earner brings home after an entire year of the daily grind.

Granted, the world's billionaires (all 1,011 of them) are in the debatably enviable position of having, quite literally, more money than they can possibly spend, yet some are still living well below their means, and save money in surprising places. Even non-billionaires (currently 6,864,605,142 of us) can partake in these seven spending tips from frugal billionaires:

1. Keep Your Home Simple
Billionaires can afford to live in the most exclusive mansions imaginable -- and many do, including Bill Gates' sprawling 66,000 square foot, $147.5 million dollar mansion in Medina, Wash. -- yet frugal billionaires like Warren Buffett choose to keep it simple. Buffett still lives in the five-bedroom house in Omaha that he purchased in 1957 for $31,500. Likewise, Carlos Slim has lived in the same house for more than 40 years.

2. Use Self-Powered or Public Transportation
Thrifty billionaires including John Caudwell, David Cheriton and Chuck Feeney prefer to walk, bike or use public transportation when getting around town. Certainly these wealthy individuals could afford to take a helicopter to their lunch meetings, or ride in chauffeur-driven Bentleys, but they choose to get a little exercise and take advantage of public transportation instead. Good for the bank account and great for the environment.

3. Buy Your Clothes off the Rack
While some people, regardless of their net value, place a huge emphasis on wearing designer clothes and shoes, some frugal billionaires decide it's simply not worth the effort, or expense. You can find David Cheriton, the Stanford professor who matched Google founders Sergey Brin and Larry Page to the venture capitalists at Kleiner, Perkins, Caufield & Byers (resulting in a large reward of Google stock), wearing jeans and a t-shirt.

Ingvar Kamprad, the founder of the furniture company Ikea, avoids wearing suits, and John Caudwell, mobile phone mogul, buys his clothes off the rack instead of spending his wealth on designer clothes.

4. Keep your Scissors Sharp
The average haircut costs about $45, but people can and do spend up to $800 per cut and style. Multiply that by 8.6 (to account for a cut every six weeks) and it adds up to $7,200 per year, not including tips. These billionaires can certainly afford the most stylish haircuts, buy many cannot be bothered by the time it takes or the high price tag for the posh salons. Billionaires like John Caudwell and David Cheriton opt for cutting their own hair at home.

5. Drive a Regular Car
While billionaires like Larry Ellison (co-founder and CEO of Oracle Corporation) enjoy spending millions on cars, boats and planes, others remain low key with their vehicles of choice. Jim Walton (of the Wal-Mart clan) drives a 15-year-old pickup truck. Azim Premji, an Indian business tycoon, reportedly drives a Toyota Corolla. And Ingvar Kamprad of Ikea drives a 10-year-old Volvo. The idea is to buy a dependable car, and drive it into the ground. No need for a different car each day of the week for these frugal billionaires.

6. Skip Luxury Items
It may surprise some of us, but the world's wealthiest person, Carlos Slim (the one who could spend more than a thousand dollars a minute and not run out of money for one hundred years) does not own a yacht or a plane. (Reducing the amount you spend is the easiest way to make your money grow.)

Many other billionaires have chosen to skip these luxury items. Warren Buffett also avoids these lavish material items, stating, "Most toys are just a pain in the neck."

What We Can Learn
Some of the world's billionaires have frugal tendencies. Perhaps this thrifty nature even helped them make some of their money. Regardless, they have chosen to avoid some unnecessary spending (at least on their scale) and the 6,864,605,142 non-billionaires out there can follow suit, eliminating excessive, keep-up-with-the-Jones style spending. No matter what a person's income bracket is, most can usually find a way to cut back on frivolous spending, just like a few frugal billionaires.

The Meaning of Wealth Translated Around the World

by Robert Frank

We like to think the reasons for seeking wealth are universal. Humans, by nature, like to be comfortable, like to have power and like to have the choices and freedoms offered by lots of stuff and money.

Yet it turns out there are some regional variations in the meaning of wealth around the world.

The new Barclay’s Wealth Insights study, released this morning from Barclay’s Wealth and Ledbury Research, finds that the emerging-market rich view wealth very differently from the older-money Europeans and the slightly less nouveaux Americans.

The study surveyed 2,000 people from 20 countries with investible assets of $1.5 million or more. They shared some common themes: a vast majority of rich people from all regions agreed that wealth enables them to buy the best products and that wealth gives them freedom of choice in their life. Most also agreed that wealth is a reward for hard work.

But the differences are more interesting:

Respect
Asians and Latin Americans were more likely (49% and 47%) to say that wealth "allows me to get respect from friends and family." Only 28% of Europeans and 38% of Americans said respect was a byproduct of wealth.

Charity
About three-quarters of respondents in the U.S. and Latin America said wealth enabled them to give to charity. That compares with 57% in Europe and 66% in Asia.

Happiness
About two thirds of Europeans and Americans said wealth made them happy. But it had a greater happiness affect in emerging markets, with 76% of Asians and Latin Americans saying wealth made them happy.

Role Models
Less than half of Americans and Europeans say the wealthy "set an important example to others to be successful." That compares with 71% of Latin Americans and 61% of Asians.

Spending
Wealthy Europeans are far more likely to spend their dough on travel and interior decorating. Latin Americans seem to put the highest spending priority on education, while the U.S. surges above the rest in philanthropy (which the report counts as spending).
We can read several things into the differences. Most obviously, the U.S. has a more formalized and tax-favorable system of philanthropy than the rest of the world. (It is too sweeping to say Americans are the most "generous.")

What is more, the global financial crisis may have tarnished the image of the wealthy -- even among the wealthy. And finally, the longer a country has wealth, the less it craves the attention and respect wealth brings.

5 Secrets of Self-Made Millionaires

By Kristyn Kusek Lewis

They’re just like you. But with lots of money.

When you think “millionaire,” what image comes to mind? For many of us, it’s a flashy Wall Street banker type who flies a private jet, collects cars and lives the kind of decadent lifestyle that would make Donald Trump proud.

But many modern millionaires live in middle-class neighborhoods, work full-time and shop in discount stores like the rest of us. What motivates them isn’t material possessions but the choices that money can bring: “For the rich, it’s not about getting more stuff. It’s about having the freedom to make almost any decision you want,” says T. Harv Eker, author of Secrets of the Millionaire Mind. Wealth means you can send your child to any school or quit a job you don’t like.

According to the Spectrem Wealth Study, an annual survey of America’s wealthy, there are more people living the good life than ever before—the number of millionaires nearly doubled in the last decade. And the rich are getting richer. To make it onto the Forbes 400 list of the richest Americans, a mere billionaire no longer makes the cut. This year you needed a net worth of at least $1.3 billion.


istockphoto.com
If more people are getting richer than ever, why shouldn’t you be one of them? Here, five people who have at least a million dollars in liquid assets share the secrets that helped them get there.

1. Set your sights on where you’re going
Twenty years ago, Jeff Harris hardly seemed on the road to wealth. He was a college dropout who struggled to support his wife, DeAnn, and three kids, working as a grocery store clerk and at a junkyard where he melted scrap metal alongside convicts. “At times we were so broke that we washed our clothes in the bathtub because we couldn’t afford the Laundromat.” Now he’s a 49-year-old investment advisor and multimillionaire in York, South Carolina.

There was one big reason Jeff pulled ahead of the pack: He always knew he’d be rich. The reality is that 80 percent of Americans worth at least $5 million grew up in middle-class or lesser households, just like Jeff.

Wanting to be wealthy is a crucial first step. Says Eker, “The biggest obstacle to wealth is fear. People are afraid to think big, but if you think small, you’ll only achieve small things.”

It all started for Jeff when he met a stockbroker at a Christmas party. “Talking to him, it felt like discovering fire,” he says. “I started reading books about investing during my breaks at the grocery store, and I began putting $25 a month in a mutual fund.” Next he taught a class at a local community college on investing. His students became his first clients, which led to his investment practice. “There were lots of struggles,” says Jeff, “but what got me through it was believing with all my heart that I would succeed.”

2. Educate yourself
When Steve Maxwell graduated from college, he had an engineering degree and a high-tech job—but he couldn’t balance his checkbook. “I took one finance class in college but dropped it to go on a ski trip,” says the 45-year-old father of three, who lives in Windsor, Colorado. “I actually had to go to my bank and ask them to teach me how to read my statement.”

One of the biggest obstacles to making money is not understanding it: Thousands of us avoid investing because we just don’t get it. But to make money, you must be financially literate. “It bothered me that I didn’t understand this stuff,” says Steve, “so I read books and magazines about money management and investing, and I asked every financial whiz I knew to explain things to me.”

He and his wife started applying the lessons: They made a point to live below their means. They never bought on impulse, always negotiated better deals (on their cars, cable bills, furniture) and stayed in their home long after they could afford a more expensive one. They also put 20 percent of their annual salary into investments.

Within ten years, they were millionaires, and people were coming to Steve for advice. “Someone would say, ‘I need to refinance my house—what should I do?’ A lot of times, I wouldn’t know the answer, but I’d go find it and learn something in the process,” he says.

In 2003, Steve quit his job to become part owner of a company that holds personal finance seminars for employees of corporations like Wal-Mart. He also started going to real estate investment seminars, and it’s paid off: He now owns $30 million worth of investment properties, including apartment complexes, a shopping mall and a quarry.

“I was an engineer who never thought this life was possible, but all it truly takes is a little self-education,” says Steve. “You can do anything once you understand the basics.”

3. Passion pays off
In 1995, Jill Blashack Strahan and her husband were barely making ends meet. Like so many of us, Jill was eager to discover her purpose, so she splurged on a session with a life coach. “When I told her my goal was to make $30,000 a year, she said I was setting the bar too low. I needed to focus on my passion, not on the paycheck.”

Jill, who lives with her son in Alexandria, Minnesota, owned a gift basket company and earned just $15,000 a year. She noticed when she let potential buyers taste the food items, the baskets sold like crazy. Jill thought, Why not sell the food directly to customers in a fun setting?

With $6,000 in savings, a bank loan and a friend’s investment, Jill started packaging gourmet foods in a backyard shed and selling them at taste-testing parties. It wasn’t easy. “I remember sitting outside one day, thinking we were three months behind on our house payment, I had two employees I couldn’t pay, and I ought to get a real job. But then I thought, No, this is your dream. Recommit and get to work.”

She stuck with it, even after her husband died three years later. “I live by the law of abundance, meaning that even when there are challenges in life, I look for the win-win,” she says.

The positive attitude worked: Jill’s backyard company, Tastefully Simple, is now a direct-sales business, with $120 million in sales last year. And Jill was named one of the top 25 female business owners in North America by Fast Company magazine.

According to research by Thomas J. Stanley, author of The Millionaire Mind, over 80 percent of millionaires say they never would have been successful if their vocation wasn’t something they cared about.

4. Grow your money
Most of us know the never-ending cycle of living paycheck to paycheck. “The fastest way to get out of that pattern is to make extra money for the specific purpose of reinvesting in yourself,” says Loral Langemeier, author of The Millionaire Maker. In other words, earmark some money for the sole purpose of investing it in a place where it will grow dramatically—like a business or real estate.

There are endless ways to make extra money for investing—you just have to be willing to do the work. “Everyone has a marketable skill,” says Langemeier. “When I started out, I had a tutoring business, seeing clients in the morning before work and on my lunch break.”

A little moonlighting cash really can grow into a million. Twenty-five years ago, Rick Sikorski dreamed of owning a personal training business. “I rented a tiny studio where I charged $15 an hour,” he says. When money started trickling in, he squirreled it away instead of spending it, putting it all back into the business. Rick’s 400-square-foot studio is now Fitness Together, a franchise based in Highlands Ranch, Colorado, with more than 360 locations worldwide. And he’s worth over $40 million.

When extra money rolls in, it’s easy to think, Now I can buy that new TV. But if you want to get rich, you need to pay yourself first, by putting money where it will work hard for you—whether that’s in your retirement fund, a side business or investments like real estate.

5. No guts, no glory
Last summer, Dave Lindahl footed the bill for 18 relatives at a fancy mansion in the Adirondacks. One night, his dad looked out at the scenery and joked, “I can’t believe we used to call you the black sheep!”

At 29, Dave was broke, living in a small apartment near Boston and wondering what to do after ten years in a local rock band. “I looked around and thought, If I don’t do something, I’ll be stuck here forever.”

He started a landscape company, buying his equipment on credit. When business literally froze over that winter, a banker friend asked if he’d like to renovate a foreclosed home. “I’m a terrible carpenter, but I needed the money, so I went to some free seminars at Home Depot and figured it out as I went,” he says.

After a few more renovations, it occurred to him: Why not buy the homes and sell them for profit? He took a risk and bought his first property. Using the proceeds, he bought another, and another. Twelve years later, he owns apartment buildings, worth $143 million, in eight states.

The Biggest Secret? Stop spending.
Every millionaire we spoke to has one thing in common: Not a single one spends needlessly. Real estate investor Dave Lindahl drives a Ford Explorer and says his middle-class neighbors would be shocked to learn how much he’s worth. Fitness mogul Rick Sikorski can’t fathom why anyone would buy bottled water. Steve Maxwell, the finance teacher, looked at a $1.5 million home but decided to buy one for half the price because “a house with double the cost wouldn’t give me double the enjoyment.”

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Dumbest Things You Do With Your Money

by Kathy Kristof

Brad Klontz knows all about the dumb things that smart people do with their money: He's a smart guy (with a doctorate in psychology) who lost half of his assets in the technology stock bubble.

A financial psychologist, Klontz says that when it comes to money smarts, size matters: The logical part of your brain is so much smaller than the emotional side that it's like "a circus performer riding an elephant." To make smart decisions about your finances, you need the logical side to dominate. But once you get tweaked by greed or fear, that elephantine emotional brain is likely to run amok.

That's why otherwise intelligent people chase get-rich fantasies. Or cling to stocks that are long past their expiration dates. Or find other ways to let fear and superstition keep them from smarter financial moves. Here are nine of these common, emotionally driven money mistakes — plus some tricks from experts for getting that elephant in line.

1. Falling in Love ... With Your Investments

It can be great to fall in love with a person, but stocks can get you into deep trouble. Newport Beach, Calif., financial planner Laura Tarbox says she sees this all the time: Some clients keep concentrated stock holdings because they inherited them and "Mom just loved IBM," or because they work for the company and feel that selling would be disloyal.

Then there's the couple who came to her asking for help investing $12 million. "That sounded really great until we found out that this couple used to have more than $1 billion," Tarbox says. "All their money had been invested in a company that the husband helped launch — and he couldn't convince himself to diversify when he walked away."

Sorry, but that relationship just won't work, says Tarbox. No one should have more than 10 percent of his or her wealth locked in one stock. Just ask the former employees of Enron, who lost both their jobs and their retirement savings when the company filed for bankruptcy 10 years ago.

2. Chasing a Fantasy

You've read it 100 times: "Past performance is not an indication of future returns." But no one appears to believe it. Purveyors of investment data can trot out tons of statistics showing that when a mutual fund or asset class (such as gold, emerging markets stocks, or junk bonds) gets singled out for great quarterly or annual returns, investors start to pour money into that investment like it was going out of style.

And, of course, it is. One extensive study that looked at 19 years of market data found that investors consistently poured money into "hot" investments just as they were about to turn cold. That left the average investor with returns that fell way below the market as a whole and didn't even keep up with inflation. (For more on this, see our recent story "The Biggest Mistake Investors Make.")

Klontz admits that this is why he lost his shirt in technology stocks. It's a natural inclination to "run with the herd," he says with a shrug. Maybe so, but if you don't want to get trampled, you have to devise an investment strategy that suits your goals and then stick to it, even as your neighbor gets (temporarily) rich on the investment du jour.

3. Equating "On Sale" With "Good Deal"

Consider two television sets: Both are $500, but one is marked down from $800. Which one do you buy? If you're being reasonable, you buy the one that got the better rating in Consumer Reports. But most people buy the one that's on sale, says Matt Wallaert, a consultant for LendingTree, which owns the money management Web site Thrive. In fact, even people who would never have spent $500 on a television often will when it's discounted — simply because it's so cheap!

In reality, $500 is $500. If you wouldn't normally spend that much on a television (or any product, for that matter), you shouldn't do it now. We've been fooled by "anchoring": the illogical, but nearly inescapable, tendency to base our estimates of value on the nearest number we see, rather than an independent assessment. Just because the tag has $800 crossed out and replaced by $500, that doesn't mean $800 was a meaningful price. Indeed, an MIT experiment revealed that students who wrote down the last two digits of their Social Security numbers based their estimates of a wine bottle's worth on those two random numbers. The higher their numbers, the more the students were willing to bid for the wine.

Before you pull out your checkbook to splurge at a sale, evaluate whether the product, be it a television or a bread machine, is worth that price in enjoyment. Consider how often you'll use it, for instance, and whether you can get something of similar quality for less.

4. Retaliatory Spending

You don't need it. You don't want it. But, dang it, no one is going to tell you that you can't have it. New York psychologist Bonnie Eaker Weil calls it "POP" spending — for "pissed-off purchases." She did a survey before publishing her latest book, Financial Infidelity, and estimated from the results that POP spending accounts for about $424 billion in purchases each year.

One of Weil's Brooklyn-based clients, for example, went on a retaliatory $500 shopping spree when her husband gave one of her beat-up old jackets to charity without asking her first. When she got home, she informed him that since he didn't like her old jacket, she had gotten a new one from Saks Fifth Avenue. Such purchases can also result from a fight with your boss, mother, or best friend, according to Weil.

But as good as retaliatory spending may feel, it can do real damage to your financial health. Tarbox says a better approach is to talk out the anger, hurt, or disappointment — or just your bad day — with a friend, or even a professional counselor. If you have to spend money on a psychologist, it's probably still cheaper than the golf clubs or designer shoes you put on your credit card after that last argument with the boss.

5. Hanging On to Debt

The number of people who have money in savings accounts, earning less than 2 percent, while carrying debt on credit cards that charge more than 14 percent is "shocking," Wallaert says. Of Thrive's customers who have more than $500 in credit card debt, almost 40 percent have more than enough in savings to pay it off, he says.

Wallaert connects this mistake to "mental accounting" that separates our money into different stacks that we think ought to stay separate. But illogical separations can create mathematical mayhem.

Consider a person with $5,000 in credit card debt and $10,000 in savings. The debt costs him 14 percent per year, or $700, but the $10,000 in savings earns just 2 percent annually, or $200. He could pay off the debt, saving the $700, and still earn $100 annually on the remaining $5,000 in savings. Net result: He's immediately $600 richer and can start saving faster.

You might argue that you need those savings for emergencies. And you do need some emergency savings, allows Frank C. Presson III, a financial planner in Tucson, Ariz. But if you've got considerably more savings than debt, there's no excuse. Keep one month's worth of living expenses in the bank, even at those sorry returns, Presson advises. Use the rest to pay off the high-cost debt. Then rebuild the emergency savings, not the debt. Worst-case scenario: You still have the credit cards (now with zero balances), and you can tap them in an emergency.

6. Parental Martyrdom

An emerging problem involves parents who spend themselves to the edge of insolvency bailing out their children. "It starts from a good place, basically from wanting to be a good parent," Klontz says. "They'll say that Johnny is going through a rough patch and needs some help. But it becomes financial enabling."

Worse, it often causes the parents to suffer money woes that keep them from retiring or living comfortably because they're constantly paying Johnny's bills.

Any time you help an adult child, you should have a clear idea of how much help is necessary, how long it will be required, how it will help the child get back on his or her feet, and when (or whether) the child will have to pay you back. When there's no plan — just an open checkbook or couch — you turn the child into a dependent who becomes increasingly incapable of taking care of himself, Klontz says.

"I talk to the parents about how their attempts to help are like giving a drink to an alcoholic because his hand is shaking. This kind of helping is hurting," he says. "Then we talk about what kind of help would really help." (Hint: That kind generally doesn't involve cash.)

7. Cyber Insecurity

Roughly half the world has signed on for free online banking, which makes money management easier and saves the typical consumer about $50 annually in postage stamps. Among the people who don't use online banking, 41 percent say they've held back because of security concerns, according to a recent survey by Gartner Research.

What do banks typically do to secure online customer accounts? They put up multiple firewalls, which are the equivalent of brick enclosures around your house, and they have techno-security teams attempting to find the weak spots and shore them up. They also patrol the firewalls 24/7, looking for climbers.

Now, let's look at your mailbox. It's probably unlocked and unguarded — just what a thief needs to steal your credit cards. In reality, the chance of becoming a victim of identity theft or financial fraud as the result of low-tech crime — whether it's somebody stealing cards or "spoofing" you into providing private information via e-mail — is a lot greater than the chance that somebody will breach your bank's online vault.

So sign up already and save the stamps. And if you're worried about security, check your account regularly to make sure there's no suspicious activity.

8. State of Denial

Remember when you were 2 years old and you thought you could hide by closing your eyes? When the stock market plunged last winter and spring, that's just what investors did, leaving their quarterly statements sitting unopened on the counter.

If watching too closely would make you abandon a reasoned investment strategy, go ahead and ignore a statement or two. But losses don't go away just because you don't look at them, Tarbox points out. At some point, particularly if you're nearing retirement or need the dough for some other reason, you need to take a look, assess where you are, and figure out what to do about it.

9. Hoarding Money

Children of the Depression did a lot of this — stuffing $20 bills in their bibles or balling up tinfoil and rubber bands so they wouldn't have to buy more. But planners say that this is often a problem with wealthy and responsible older folks today: They're so afraid of running out of money that they don't enjoy the money that they have.

"When people deny themselves things that they could clearly afford, you have to ask them what they're saving that money for," Tarbox says. "We have to tell them that they're not spending enough."

If you're worried about running out of money, sit down with a financial planner and work out the math. Make sure you consider worst-case investment scenarios, not just the averages. That will make you more comfortable about weathering a bad patch like the one we just muddled through. Then, if you still have more than enough, make a plan that will allow you to enjoy your wealth by either spending the excess or giving it away.

Money, after all, is a means to an end — not the end itself. You save it to make you, and the people you love, calm and comfortable. And it's a lot more fun to take the kids and grandkids on vacation — or provide them with college money or other gifts while you're around to get the hugs and kisses — than to know that they'll inherit a fortune after you die.

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10 Part-Time Business Ideas

by Jeremy Quittner and John Tozzi

In any economy, a part-time business can bring in extra income, give you a fallback plan if you lose your job, or plant the seed for a larger venture. In a downturn, it's hard to argue with preparing a backup plan. Of course, starting a business is always risky, and you will almost surely spend more than you make at first. Previously, we offered advice for recently laid-off workers considering going into business for themselves. Now we're offering snapshots of part-time solo business ventures that could turn into full-fledged businesses, including tips on getting started.

Baker
Man does not live by bread alone, or so the saying goes. But if anyone checked the sales of some of the best independent bakeries around the country, they'd be astounded. In 1994, Jim Lahey started Sullivan Street Bakery after several years experimenting as a home baker. Today, his company, which has about $6 million in annual revenues and about 90 employees, is a New York City bread-baking institution. Lahey has a word of warning, though: "Knowledge of cooking is much greater than 20 years ago," he says. "The market is more competitive and if you want to develop a cottage industry, the product better exceed expectations."
And if you want to jump on one of the hottest trends nationally—cupcakes—you might even find yourself selling upwards of 2,000 a day, an amount that New York's famed Magnolia Bakery easily exceeds. At $2 a pop, you can do the math, even for your home-based business.
First steps: Break out your market. Are you going to make muffins and cupcakes or bagels and baguettes? As with most food businesses, you'll need a state license in order to sell to the public. If that seems daunting, you can start by selling to friends and relatives or at local bake sales.You also need to decide how much space you'll need. If you outgrow your home kitchen, consider renting space in a professional kitchen.Time needed: Baking is a time-consuming business, so expect to devote 10 to 20 hours a week on it for part-time work.Average sales: $41,000, based on Labor Dept. data.

Blogger
It's true that few bloggers make enough to earn a living—most make nothing at all. But if you can write well about a topic you're passionate about, you may develop a following, and with enough page views you can start bringing in revenue from ads. Pick a narrow topic that you're intimately familiar with and that has a well-defined audience. For example, a site that covers the world of digital SLR cameras in minute detail has a more natural audience than a broad technology blog; likewise, a general restaurant review site may elicit yawns, while a blog chronicling the seafood shacks of New England could attract a cultish following.First steps: Begin writing and start participating in online communities where people interested in your topic hang out. Start for free on a platform like Blogger or WordPress.Time needed: Prepare to spend at least a few hours each day writing. Keep a regular schedule to make sure your blog doesn't get stale.Average sales: $24,335, based on Economic Census data.

eBay Seller
Yard-sale mavens who already spend weekends trawling for hidden treasures can resell what they salvage online, on eBay or other sites. Pick a niche that interests you and that you have some expertise in and monitor what already sells online so you can set prices accurately. If you know your vinyl, buy old record collections in bulk and resell the gems individually online. From books to electronics, you may be able to find resalable items out on the street on trash night or given away for pennies at moving sales.First steps: Set up a shop on eBay or other e-commerce sites and begin to build your seller rating. It's free to list items on many e-commerce sites, though eventually you may want to invest in your own Web site, advertising, or premium services.Time needed: Expect to spend several hours a week finding inventory and listing it for sale.Average sales: $22,196, based on Economic Census data.

Floral Designer
Turn your love of flowers and colors into bouquets and arrangements for occasions that vary from weddings and bar mitzvahs to confirmations and dinner parties. About one-third of the estimated 87,000 floral designers are self-employed, according to the Labor Dept.First steps: Community colleges, vocational schools, and private floral schools all offer courses in flower design. You'll need to find a source for flowers, too. If you don't live near a flower wholesaler, a growing number now sell online. This is a supply-intensive business. You'll need a workshop space, refrigeration system, and some means of delivering your goods to clients.Time needed: Three to 20 hours per week.Average sales: $21,700, based on Labor Dept. data.

Jewelry Designer
It's probably easier than you think to turn your love of bling into cash on the side. About half of all jewelry makers in the U.S. are self-employed. You can sell online or to thousands of brick-and-mortar retailers.First steps: You'll need design flair, manual dexterity, and attention to detail to get started. Technical and vocational schools offer classes on basics; community colleges also offer courses on design. A clean, well-lit workspace is necessary. Be sure to design pieces in a variety of price ranges. You'll probably spend $500 to $2,000 for materials, from beads and wire to gold and silver to cloth and wax, plus tools like a vise, pliers, and jigs.Time needed: Evenings and weekends.Average sales: $30,000, based on Labor Dept. data.

Pet Sitter
Love animals? Opportunities abound in the pet care industry. Consider walking dogs during the day, grooming or training pets on weekends, or boarding animals overnight. Even if you're not equipped to keep others' pets in your home, you can offer to wash and groom animals at clients' houses, or check in on their pets at their home while they're away. Owners often need someone to watch their pets on weekends and holidays, so pet care can be an easy business to start if you work during the week.First steps: Start by caring for your friends' animals and get referrals through them, because trust is key for people placing their pets in other people's care.Time needed: You can get started working on weekends and evenings.Average sales: $22,183, based on Economic Census data.

Photographer
The barriers to starting a photography business virtually disappeared with the dawn of affordable digital SLR cameras and software like Photoshop. If you're skilled in taking great pictures, pick a niche and build a business around it. You might want to shoot weddings, bar mitzvahs, or corporate events. Or consider family or individual portraits. You could even set up a small studio space in your home. Consider what services you'll offer clients beyond just taking pictures—can you build a Web page to showcase the photos of their event as well?First steps: Put together a portfolio of your existing work to show potential clients.Time needed: For event photography, expect most gigs to be on weekends or evenings (galas, for example). You may be able to arrange portrait appointments on a more flexible schedule.Average sales: $26,259, based on Economic Census data.

Translator or Interpreter
Those who speak more than one language have a ready skill to turn into a part-time business. You can get work translating documents or as an interpreter over the phone or in person. Focus on an area you have some deeper knowledge in. For example, if you have a legal background, angle your business around translating legal documents.First steps: Get a certificate proving your proficiency from the American Translators Assn. and/or the American Council on the Teaching of Foreign Languages.Time needed: Translation work can be done from home on your own schedule, but be prepared to meet client deadlines.Average sales: $21,541, based on Economic Census data.

T-Shirt Vendor
Launching a T-shirt business is about as American as apple pie and your first paper route. Take the Life is Good guys, Bert and John Jacobs, who started out in 1989, selling their shirts door to door, at street fairs, and from the back of their van. Today, the company has about $100 million in annual revenues. T-shirt design is a hotly competitive market, however, and it should go without saying that the barriers to entry are low.First steps: Create a catalog of design ideas, or simply one good one, like the Jacobs brothers, whose smiling stick figure captured the national mood. You need to decide if you will invest in the manufacturing materials or use a third-party designer, frequently known in the trade as a publisher: Lots of these exist, from CafePress to T-Shirt Monster. Using a publisher is cheaper, but you have less control and you'll be handing over most of your profits. On the other hand, investing in your own equipment, including a heat transfer press, can be expensive: $500 to $1,000. Again, this is an intensely crowded and competitive industry.Time needed: Nights and weekends.Average sales: $48,000, based on Economic Census data.

Web Designer
If you're adept at coding and have an eye for sharp design, you make be able to make a business making Web sites—especially if it's something you already do professionally. Begin by building sites for friends and contacts to accumulate a portfolio. Focus on a niche, like designing pages for bands or restaurants, where you can develop a name for yourself in the community and get referrals from your early clients. Decide whether you want to build a one-time site for clients or take on the responsibility of updating and maintaining it, and bill appropriately.First steps: Set up your own Web site with a portfolio of your work.Time needed: You can make your own hours as long as you meet client deadlines—which may mean pulling some all-nighters.Average sales: $42,104, based on Economic Census data.