During holiday season everyone wants to think about giving. In fact, giving has been an integral part of the season for years. Helping the needy is certainly part of being human.

Giving is essentially enabling. By giving , the giver enables the receiver to do/get/achieve/have something. I am not talking specifically about giving in holiday season. I am discussing how giving in general can negatively affect both giver and receiver’s personal finance and future,  if not done correctly.

Recently, I was listening to a radio talk show. A lady in her fifties called the show and described her financial problem. She had fallen behind her house payment and she was in the verge of losing her house. Unfortunately, her generosity and  giving nature had back fired at her. Her 30 year old son was living with her. He didn’t have any lasting job and was a spending freak. Whenever he maxed out credit cards and didn’t pay the bills, this “generous” mom, came as the savior and paid his bills.  This went on for few years. Today, along with the son, mom is broke too!

Who is to blame for mother’s current situation? Son or mom? It is a debatable question.  But certainly mom has done two  big mistakes in her spirit of giving.

1. Enabling bad behavior and irresponsibility.

Even though her son was badly lacking responsibility and accountability, she continued to feed his bad behavior in the name of helping. Her real intention was to help her son. She thought, giving money would “help” him. But, in reality it hurt him. Access to free money enabled him to continue in the wrong path.

When you try to help someone, make sure your giving spirit is indeed helping the person and improving the situation.

2.Trying to support other person without supporting self.

No matter who the other person is, put and keep your financials in order before you try to give and fix others. In this case mom has not only fueled her sons irresponsibility but also ruined her financial stability.  First give it to yourself before giving others. This will enable you to continue to give.

In the air-travel safety instruction they say ” Put on your oxygen mask before assisting the kid next to you”. This is no different!

When it comes to money matters, give the control to your brain, not the heart! You will have higher chance of prosperity.

Photo by  Erica Marshall of muddyboots.org [ used under Creative Commons License]

Yes, that is true. Your money can grow more than 400% in just one year. No, I am not pitching a get rich quick scheme( or scam?) here. I am going to tell you the secret of growing your money at this high rate with very little risk.

I am talking about your retirement planning. Everyone wants to build a safe nest egg for their retirement. When a person starts working, he/she has on an average 40 years of work life before slipping into retirement. While we want a financially secure retirement, we seem to think,  it is far away. So, we end up postponing saving for retirement  by one year, every year.

But, this will cost fortunes! Let me show how.

Consider putting $1000 in the retirement account  in the first year of your work. You invest the money in a growth stock mutual fund. For calculation purpose let us assume an average 10% (historical rate is 12%) yearly growth. Your money grows either tax deferred or tax-free based on where you invest( 401(k),IRA or Roth IRA).

Amount invested: $1000.00

Annual growth rate: 10%

Number of years: 40

With these numbers, after 40 years, your $1000 dollar grows to become $45,259.26.

Now, let us say you did not invest this $1000 in the first year of your work. Instead, you postponed the investment just by one year. In the second year you invested $1000. For this investment the following numbers apply.

Amount invested: $1000.00

Annual  growth rate: 10%

Number of years: 39

With these numbers, after 39 years, your $1000 dollar grows to become $41,144.78 .

The difference between 45,259.26 and  41,144.78 is  4,114.48.

Just by starting one year early, you could have achieved an additional 400+% growth on your investment.

Power of Time

In any investment there are two factors that play major role. Money and time. When it comes to retirement, time is your friend more than money. Like we demonstrated above just an extra year could add a lot of wealth to your nest egg.

Go, start funding your retirement accounts today!

Does this question sound weird? It may. Everyone knows, a 401K  is an employer sponsored retirement plan. However no one normally wonders why is it really 401 or why is there a K etc. I have even heard someone say, once upon a time the retirement plan used to accumulate $401K and so on. None of them are true.

401K is actually 401(k). 401(k) refers to a section in United States Internal Revenue Code that allows employees to contribute their pre-tax dollars to a tax deferred compensation plan. Now most employers in United States offer this plan to their employees.

Some highlights of 401(k):

• 401(k) plan offers higher contribution limits than traditional IRAs.
• Contribution limit per year is $16.5K in 2009 and 2010( in future this may be increased).
• 401(k) allows employees to choose company stock as one of the investment options. Normally there are other options too.
• 401(k) offers loan facility.
• Most companies match employees contribution to a certain percentage.
• Government employees are not eligible for 401(k) plans. Instead they have 457(g).

Even though term 401(k) has no specific meaning, it has become a de-facto term to refer to employer sponsored retirement plans. According to wikipedia,  Japan created its “version of 401(k)” even though there is no relationship between the number and actual code in their legislation.

Millions of people rely on their 401(k) accounts for the retirement. Effectively managing the 401(k) account is very important to secure a financially stable retirement.

Other day I was in a shopping mall to buy some kids clothing. While I was waiting in the line to checkout, I observed an interesting behavior by another shopper.

The lady had a $10 off $50 purchase coupon with her. When the cashier rang her items it came to $36 and some change. When handed the coupon, the cashier rightly pointed that in order to use the  coupon one had to purchase merchandise worth $50.

Without a blink, the lady turned a side and grabbed an item in her reach and placed it on the checkout table. I don’t know exactly what that item was. Surprisingly, she neither!  All she looked at  is the price (which was  around $15 I guess)  to bring the total purchase price above $50. She used the coupon and proudly walked away with a smile.

It may sound “no big deal” to many. But she is not alone. I am sure there are thousands among us who shop that way.There is a  fundamental flaw in such “saving”  mindset. She spent $15 to save $10 and thought she got the “deal”.  In reality, instead of saving, she spent more!

This holiday season, be watchful of your intentions and actual consequences of your actions while shopping.  Both saving and shopping are not bad. Do it the right way. Certainly don’t shop more to save more, unless it helps your bottom line price!

Happy Holidays!