When many people are looking for their first “real” job after college or they’re looking for a new career, one of their biggest concerns is “how much money am I going to make”. While this is certainly an important consideration in selecting employment, don’t forget the many other factors that will affect your situation.

Probably the most important aspect (aside from the salary) of a new job is where you’ll be located and therefore the cost of living in that area. It’s no secret that $50K in New York or California isn’t the same as $50K in Kansas City. In one case you’d barely get by and in the other you’d live quite comfortably. When you throw the cost-of-living into the mix, it can be rather difficult to compare different opportunities on an equal plane.

I found a tool online, however, that can help with this exact problem. Bankrate.com has a cost of living comparison calculator that lets you compare different salaries in various places of the country. You select the city you’d be moving from, the city you’d be moving to, and the current salary in the first city. It will then tell you what salary you’d need to earn in the new city in order to maintain your current standard of living.

I would mostly use this tool to give you a ballpark figure of the differences between two cities though and not as an ultimate determining factor. Even though it’s important to know, there are a lot of other things that should be considered when making such a decision.

Many financial gurus promote the idea of paying yourself first; however, as with many of their ideas they fail to give a step by step practical implementation plan. Should you pretend it’s a bill that’s due every month? Isn’t your 401k deduction taking care of this?

I’m not going to say that there is only one right way to “pay yourself first”, but I will explain how I handle things.

First of all, I don’t count any contributions made to a 401k. These amounts are already being deducted before the money hits my account along with any other deductions such as health insurance, taxes, or flexible spending accounts. What I am concerned with is the money that is actually deposited into my account.

Now, I have set up 3 accounts with my financial institution or bank. There is one checking account and two savings accounts. Yes, it is possible to have more than one checking and savings accounts at your bank. Most banks now have online banking and you can even label your accounts with a nickname to help you remember what they’re for.

I make all deposits into the checking account. One of the savings accounts is a dedicated emergency fund. The other savings account is set aside for investments. Each time a deposit is made or I get paid, I transfer a certain percentage into the emergency fund and another percentage into the investment fund.

The important factor in this is that it happens every time. Once these transfers have been made, what is left over is used for bills and other discretionary spending.

The emergency fund is left alone and not touched unless an “actual” emergency occurs. The money in the investment account is then used for various investments.

Following such a process ensures that I’m committing my money first to my highest priorities. I’m not waiting till the end of the month or what have you to see if I have any money left over to save. Like I said before, this isn’t the only way and maybe not the best way, but it’s a practical plan for “paying yourself first”.

There are so many offers, promotions, sales, deals and opportunities all vying for your money and participation. Some of these deals are one time expenses while others lock you into “low monthly payments”. Take that new car you’ve been eyeing for example. You debate whether or not it’s a good deal, what the price is you’re willing to pay, and if you can afford the monthly payments.

As another example, you want to get a new iPod or perhaps the new iPhone or ______ (insert your favorite gadget here). You’ll try to determine if it’s worth the price that’s being asked and you’ll ask yourself if you can afford to buy it at that price.

We don’t just stop there though. We don’t just ask ourselves if we can afford these things; we want them so badly that we either figure out a way to afford them (strain any budget we had) or realize we can’t and buy on credit anyway.

How come very few people ever have the same zeal and ask these questions: How can I afford my financial independence? How much would such a thing cost? What would be the monthly payments?

All too often we are more than willing to sign up for a $300 monthly car payment or shell out $200 or more on a new cell phone. When we borrow from a bank or a finance company, they expect to get paid back. What about when we borrow from our future?

Can you afford a $300 monthly payment towards your financial future. What about a one time payment of $300 instead of the latest XBox. Is such a thing worth it to you?

Budgeting is an activity that some people actually enjoy. Most people, however, detest budgeting or are at most indifferent towards it. Whatever your feelings about the subject are, it’s important to at least understand the objective and the general principles.

Whether you’re in business or just managing your own personal finances, the goal of working to a budget is to increase wealth through careful planning. This is an important concept to grasp because there is a large misconception among many that budgeting is there just to make sure that we don’t spend more than what we earn. This is very important, but budgeting is much more than that. The goal of any business is to increase shareholder wealth. This can also be true for your own finances.

I’m not going to tell you how you should budget because it’s different for everyone, but I will explain what some people do and then how I approach the subject. Let’s first talk about traditional budgeting. This is the more tedious form of budgeting where you scrutinize different categories of your spending and budget certain amounts for each of these categories. For example, you might decide that you’ll allocate $300 per month for food and another $200 for entertainment and so on down the line. You then make sure that the total of all expenses are less than your income. Also, don’t forget to budget in savings and investing. If this is your style, then more power to you.

Now let me explain how I “budget”. I’m not a big fan of getting so detailed into planning exactly how much I’m going to spend in certain categories. Instead, I take a certain percentage of all income and put it towards charitable giving and into savings. I then take another percentage and allocate it for investing. After this, whatever is left is free to spend on everything else including living expenses and entertainment. Doing things this way simplifies the process and it ensures that my top priorities are always being met.

However you choose to budget, it needs to be something that you’re comfortable with and that you will stick with. It does no good to start, only to later give up on it because it’s too complicated or time consuming. So have a go at it…

In previous posts I’ve written about market capitalization and the P/E ratio, and the basics of the stock market. Today I want to introduce another concept used to analyze a company to determine whether you’d like to invest in it.

Return On Equity (ROE) is a measure of a companies ability to profitably employ the money that shareholders have invested. This measure is calculated as follows:

ROE = Net Income / Shareholder’s Equity

A company’s net income may be obtained from the income statement while the shareholder’s equity is reported on the balance sheet. You don’t actually need to calculate this yourself, though, since many financial sites such as Morningstar will provide it for you.

So, now that you have this number, what does it mean for you? Like I stated earlier, it measures how profitably a company employs its investors money. It should be obvious that the higher this number the better; however, there’s a little more to it than that.

Say a company has an 18% return on equity (General Electric is one example). Let me be clear now; this does not mean that you will earn 18% on the money you invest. If you remember from an earlier post, when you buy a stock, you’re buying it on a secondary market, and it has no effect on the company’s financials. What you are doing is buying an ownership interest in the company that then entitles you to any FUTURE earnings and growth.

This is where the 18% ROE comes into play. Now that you own a few shares of a company, the company will hopefully post a profit from which you determine what’s called Earnings Per Share (EPS). These earnings belong to you as the shareholder. The company now has to make the choice of what to do with these earnings.

There are a few main options. The company may announce a dividend, in which case you will be paid out a portion of these earnings. The company may choose to buy back it’s own stock with these earnings (a topic for another day), or it may choose to reinvest the earnings back into the company which is what we call retained earnings.

It is this last option that we are interested in when we talk about Return On Equity. Based on our example of an 18% ROE, we can expect the company to earn an 18 percent return on this reinvested capital. It is this compounding year after year of profitably retained earnings that can make one wealthy.

There is an upfront cost to get into a stock because of the current market valuation. Looking back at the P/E ratio, if a company trades at 20 times earnings and has earnings of $2 a share, you can expect to pay about $40 per share. If you buy this stock, you can view the earnings as your return on your investment, in this case $2 / $40 = 5%. This doesn’t look like anything spectacular, but it’s the $2 in earning that will compound at the 18% Roe.

In the second year you could reasonably expect earnings increase to $2.36 (2 x 1.18 = 2.36). This then increases your return to 5.9% (2.36 / 40 = 5.9%). After 10 years of the earnings compounding, your $40 initial investment is now returning over 26%.

Obviously there are assumptions being made such as a sustainable ROE and earnings growth and the like, but it’s the concept that I want you to understand. It’s another tool to put in your financial toolbox. Hopefully, this has provided some insight into the investment world and will help you in the future.

For those of you who are single, you are the only one that is going to manage your finances. There’s no one to pass the duties off to, and you are ultimately responsible for everything. When we get married, the situation inherently becomes more complicated. How should we deal joint finances?

Some couples decide to keep their finances separate. In this scenario, both individuals maintain responsibility and must keep track of their own finances. This can, however, be a difficult situation. When everything is separate, it can be tough to work toward common financial goals. Feelings of inequality can arise from income mismatches or individual savings and spending habits.

If this is the option that you choose, try to set some common goals that both of you can work towards. I would also suggest that you maintain open communication about your individual finances. You shouldn’t try and hide how much you have in savings, retirement, and investment accounts. It’s not a competition. You also do not want to hide your debts. You don’t want to find out one day that your partner has accumulated a mound of debt of which you are unaware.

The other, more common, option for handling your personal finances is to combine everything and deal with everything jointly. In this scenario, it doesn’t matter who makes more; both are able to contribute to the family as best as they can.

Also, in most couples there will usually be one person who takes a greater interest in the family finances than the other. It may however be that the duties fall to one individual not out of interest but because the other has a greater aversion to it. In this case, it is also extremely important that, no matter who handles the day to day finances, information is shared freely. Both partners should know what accounts you have, what debts you owe, and the general health of the family finances. Ask yourself if one of you were to pass away, would the other know the financial situation and where everything is.

Handling the family finances is not everyone’s game. Some people really enjoy it (if you’re reading this, you probably do) and others loathe it. Whichever you are, remember it’s a team effort and for the team to succeed you need to openly communicate and share information.

It’s been said hundreds of times and by many people, but it’s worth repeating because so many people don’t follow the advice.

The pattern used to be that people earned money and then spent money. They would end up with nothing, or zero. Nowadays it’s more common for people to spend money and then earn money. This practice leaves them with less than nothing, or a negative. As you can see, it’s gone from bad to worse.

I’ve talked about this in Living Below Your Means…? and it’s part of how you Increase your Free Cash Flow.

In order to move ahead financially we have to follow a different pattern than the majority.

• 1. Earn
• 2. Save
• 3. Invest
• 4. Spend

It’s very simple and yet the concept eludes so many. Also, many times we get caught up in the specifics of things such as investing and ways to cut costs/spending that we need to be reminded of big picture. This is why this topic can’t be addressed enough.

It’s possible to be actively saving and investing while at the same time getting deeper and deeper in debt. The whole pattern must be followed. Every once in a while, take a step back and review your larger financial situation. Make sure that one area isn’t being sacrificed for another.