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Personal Finance Carnival on Clever Dude

Personal Finance Carnival on Clever Dude

Life Learning Today’s “Guide to Investing”
was featured in the

Carnival of Personal Finance #103: The 24 Edition

along with many other great blog articles on personal finance.

24
The cool thing about this carnival is that all the blog posts are woven into a alternate story for the TV show “24.”

Come on over and visit this great blog on personal finance and check out his “clever” personal finance carnival!
Clever Dude

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2

Investing Made Easy – A Simple Guide + Free Download

Investing Made Easy – A Simple Guide

As I stated in an earlier post, the 5 Big Secrets of Investing, many in the investment industry want to make you believe that investing is complex and difficult. If you want it to be that way, you can have a whale of a time making things complicated and difficult. However, I know from my experience as a former investment professional, that investing can also be as simple. And in fact, the simpler the better. The more simple your approach, the better are your chances for maximum return and minimum risk.

This guide will teach you some basic investing principles and it will instruct you how to invest your money in the simplest way way possible.

The Simple Investing Process

First Things First: Asset Allocation

What is Asset Allocation ? Asset Allocation is finding the right mix of foreign and domestic assets classes: stocks, bonds and cash for your portfolio. By investing in many asset classes and many securities within each asset class, using mutual funds, you are spreading out the risk that any one poor performing security or asset class will badly damage your portfolio. Simply put, your overall risk is drastically reduced.

Why Asset Allocation? Gary Brinson, a money manager and a finance author conducted a study in 1986 and also in 1991 which analyzed a group of pension fund managers to determine what caused differences in their results. What he found is that over 90% of their differences could be explained by the asset allocation they chose. This meant that both security selection and market timing accounted for less than 10% of their differences.

Here’s a notable tidbit that will should instill some confidence: If over the past 10 to 20 years you had held a portfolio of 25% of the following indices: large US stocks, small US stocks, foreign stocks and high quality US bonds, you would have outperformed over 90% of all professional money managers and with significantly less risk.  What could be easier than picking four index funds, investing equal amounts in each, and letting them sit for 10 years?

Another Reason to Use Mutual Funds: Diversification

Diversification is having a broad mix of securities in each of the asset classes in which you invest. It also means having a broad coverage of all the different sectors of our economy. How broad is broad enough? Generally speaking, the broader the better for spreading out risk, but a good guideline is to have a minimum of 25 securities per asset class. The easiest way to achieve this is through mutual funds.

Why use diversification? Simply put, if you have a small number of securities in your portfolio and if one of those securities performs poorly its impact on your portfolio is felt more strongly than if you had a greater number of holdings. The same is true with sectors of the economy.  The less securities you have the more one of them could heavily impact your overall results.

Finding the “Right Mix” for You

You will need to examine your personal Investment Profile. This includes the following:

  • Your risk tolerance – how you feel about potential fluctuations in your portfolio and how much you can financially withstand.
  • Your time horizon – how much time you have before you will need the money that you are investing.
  • Your goals – what do you want your money to do for you? (retirement, home, large purchase, education, etc)
  • Your income, job status and tax bracket – how much savings you should have as opposed to investments, and what type of fixed income securities should you invest in.

This is the easiest way to determine your optimal asset allocation based on your personal investment profile is to use this asset allocation calculator.

Go to this calculator, fill in your information, and print out the one page “report.”Â

Using Index Funds

For the core of your holdings you should consider using index funds. Why? Because your risk will be lowered by the high level of diversification, you are likely to perform better than 80%+ of managed funds in any given year, and your fees will be significantly lower making it easier for you to profit from your investment. If you are a new investor, the best book you can read is John Bogle’s “The Little Book of Common Sense Investing.” John Bogle is the founder of Vanguard, and his facts and clear writing give you everything you need to know about keeping investing simple and maximizing your returns while doing so.

Investing 100% of your holdings in index funds is simplest and best, but if you want to try to pick some managed funds, you can do that too. The more you can put into index funds the better.

Using Asset Allocation and Balanced Funds

If you have less than $5000, you may want to consider an asset allocation fund or balanced fund that uses indexing strategies. Balanced funds hold set percentages of several assets classes whereas asset allocation funds hold several asset classes but the percentages are managed according to market predictions. Usually both types come in flavors such as “Aggressive,” “Moderately Aggressive,” “Moderate,” and so on. Which is best? Balanced funds have outperformed asset allocation funds so far over time.

Using Managed Funds

If you want to add a little more excitement to your portfolio you can include managed mutual funds. This will increase complexity for you, increase risk, and also give you the potential to either over or under perform the market. With index funds your return will always be in line with the underlying markets which your index funds follow.

If using managed funds, determine what percentage you want to put into index funds and how much into managed mutual funds. Be sure to pick no-load, low expense fee funds, with no transaction fees. Here is an article by Motley Fool on choosing a mutual fund. Try not to pick the “hottest” fund because often those funds tend to get flooded with cash and find it difficult to keep up super high returns. Instead look for long term steady performers, say in the 5 and 10 year performance categories.

Picking Your Mutual Funds

Here is a list of mutual fund marketplaces from which to choose. This is not an exhaustive list, but it has the major players. If I’ve missed one, please let me know.  I suggest choosing just one for all your needs. Most offer free mutual fund research. Once you open an account you can use their screening tools to choose your funds. If you want to screen for funds before opening an account try Morningstar’s Fund Selector which is free.

Vanguard – Great for index funds. Ultra low fees.
Schwab – Good for index and managed funds. Good service. Portfolio tools. Account minimum: $2500. Excellent research.
Fidelity – Good for managed funds. $2500 account minimum.
TD Ameritrade – $2000 account minimum. Large mutual fund selection, low interest on cash,  lower service relative to peers.
E-Trade – $2500 account minimum.
Scottrade – $500 account minimum. Basic services only.
FirstTrade – No account minimum. Only basic account features. Smartmoney ranking: #3 out of 8.

Source: Click here for a free report comparing 12 online brokers by Broker Advisor.

Choose a brokerage firm and open an account. These days many offer online account opening, and you can always fund it with either a wire or ACH to speed up the process.

Allocating Your Money to Your Mutual Fund Picks
FREE DOWNLOAD:
MutualFundAllocation Tool – Excel Worksheet Template

 

Steps to using the spreadsheet:

  1. Fill in Amount to Invest – upper right hand corner.
  2. Fill in Allocation Percentages for the asset classes (Large Cap, Mid/Small Cap, Int’l, Bonds, Cash, Other.) You’ll get these from using the asset allocation calculator. Check that the total at the bottom equals 100%.
  3. Fill in your mutual fund choices: Name, Symbol, Fund Category. Each asset class has room for up to 5 mutual fund choices. I don’t recommend choosing more than that. 1-3 choices per asset class should be sufficient. If you need to increase this then you’ll need to modify the spreadsheet, which could throw off the calculations so I don’t recommend doing that unless you are proficient at Excel.
  4. For each asset class divide up the percentage across your fund choices for that asset class. Example: Say 30% is going to Large Cap and you choose 1 index fund and 1 managed fund, divide up that 30% between the two, such as 15%/15% or 20%/10% etc. This is filled in under column heading “Percent of each asset class.” Note that the 2 totals should equal each other. They are color coded to make it easy to check. Final Check that all totals add up to 100% at the bottom
  5. Dollar Amounts should calculate automatically. Check to see that the total equals your original Amount to Invest that you filled in at the top of the sheet.
  6. Optional- Rounding or changing dollar amounts. If you prefer rounder numbers, feel free to adjust your dollar amounts in the “Rounded Optional” column. The percentages will automatically fill in.
  7. Double check all totals.
  8. Use this sheet to refer to when placing your mutual fund orders with your fund marketplace provider, (brokerage firm).
  9. Check the Example Chart sheet to see what it looks like when filled in.


Automate Your Investing

Once your portfolio is set up, if you can afford it, set up an automatic investing plan with your brokerage firm. You can usually do this all on one application or you can probably sign up for this online now. Even a small amount invested regularly will make a huge difference in the growth of your portfolio. You’ll be dollar cost averaging which is investing a set amount at set intervals of time. This will likely result in a lower overall cost basis of your investment. And with automatic saving you won’t miss the money. This is well worth the small amount of time it takes to set this up.

Maintenance of Your Portfolio

Review your portfolio quarterly, especially if you have chosen managed funds or other types of investments such as specialty funds or stocks. Do a major review of your portfolio once a year which will include using the asset allocation calculator again. Many things can change in one year and, often, so should your allocation. At the year mark, you’ll want to switch out any under performing managed funds for either index or other managed funds.

Keep in mind that with index funds you should continue to hold them according to your asset allocation. Don’t be tempted to sell the index funds that are doing more poorly to put into the top performing asset class. If you do this you will be taking a loss and probably the hot asset class you choose instead will quickly cool because that’s what everyone else will be doing. As long as your hold your index fund, you won’t realize a loss unless you sell it. So hold on and stick with your asset allocation. The only caveat is if market fluctuations keep you from sleeping. If that’s the case then you probably need to redo your overall asset allocation because your risk tolerance is actually lower than you originally estimated.

If you have major changes in your life such as marriage, children, inheritance, new financial goals or other changes, this is another time when you should reassess your asset allocation and your overall portfolio. The nice thing is that if you are using index funds exclusively, this process shouldn’t take more than 1 hour to complete. Not bad, huh?

Keeping It Simple

In order to keep your investing simple, I recommend steering clear of investment news. Yes, you heard that right. By watching the investment news this will tempt you into the world of “sexy complex investing” which is ultimately a fool’s game for most. It will make you feel like you are “missing out” on something big. As I stated in my post on investment secrets, choosing individual securities, such as stocks, is very difficult to get right. 80% of mutual fund managers are not able to meet their benchmark index! So how can anyone hope to beat that in their spare time? Maybe you can, but in that case you’ll have your work cut out for you along with the odds stacked against you.

Simple investing is best. The only thing difficult is avoiding the temptation for adding complexity. If you absolutely can’t resist, I recommend doing it on a very small scale, such as just one stock. Or better yet, try some online investment games before using your own hard earned money.

Assumptions

I have assumed that you have your “safety net” in place. Your “Safety Net” is cash or insurance that you could use to support yourself and your family if you lost your job. If you don’t have this you should consider building up this emergency cash reserve first before investing. To determine how much, think about how much you would need if you were out of work for 6 months. Consider all sources of income. To find a good rate on cash check out The Massive Personal Finance Resource List.

The second assumption I’ve made is that you are familiar with all the terms in this article. If you would like to see a post with the definitions and explanations of basic investing terms, let me know and I will put that together.

A Final Recommendation

Again I want to reference John Bogle’s book, “The Little Book of Common Sense Investing” as a must-read, especially for new investors, but also importantly for old hat investors. I think you will find the arguments for simplicity in investing to be a huge relief! Investing not only CAN be simple, but it SHOULD be simple for optimizing your returns! This is one area of your life where it actually pays to take the easy way! 3 Cheers for that!

Your Investing To-Do List

  1. Make sure you have your 6 month emergency fund set.
  2. Choose your asset allocation using this calculator.
  3. Choose a mutual fund marketplace provider, (brokerage firm).
  4. Choose your mutual funds.
  5. Download the Mutual Fund Allocation Tool – Excel Template
  6. Enter your asset allocation into the spreadsheet.
  7. Enter your mutual fund choices into the spreadsheet
  8. Place your mutual fund orders.
  9. Set up Automatic Investing Plan.
  10. Review your portfolio quarterly (quick) and yearly (1 hour).
  11. Read John Bogle’s book, “The Little Book of Common Sense Investing” Check with your local library. They should have it if you don’t want to buy it.
  12. Tune out investing news for the most part. A little here and there is ok, but remember to stick with your plan! Don’t be tempted by the investment sirens! 🙂

Please share your comments, experiences, and tips. All comments big and small are very welcomed!

 

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22

5 Big Secrets “They” Don’t Want You to Know About Investing

5 Big Secrets “They” Don’t Want You to Know About Investing

“They” are the institutions of the investing industry. There are a lot of great people in this industry providing excellent value to their clients, but there are pitfalls to avoid in any area, and investing is definitely one of them. I used to work in this industry, so I know how to separate the good information from the bad. Here I share with you institutional secrets “They” don’t want you to know because they make more money keeping you in the dark.

Investing

1) Successful Investing is Not Complicated

Many in the investing industry want to make investing seem more complicated and difficult than it is. That is simply not true. Smart simple investing uses basic asset allocation, and no-load, low expense mututal funds. For your core holdings it is best to consider using index funds since over 80% of mutual funds do not meet their benchmark. By using index funds you’ll be ahead of 80% of mutual funds out there. Then with the rest of your investments you can seek to find “the tops dogs” mutual funds.

I will be covering “How to Invest – A Simple Guide” in detail in an upcoming post. Subscribe here to ensure you don’t miss it!

2) Mutual Funds Are Better Than Hedge Funds

Hedge funds are overrated. There is no secret club whereby when a hedge fund manager enters it, they will have access to higher returns than any other investor. But they will make things sound that way using complex terms to confuse you. The emperor has no clothes. The truth is hedge fund managers still have to accomplish the same thing that any successful investor must do. They must do their homework and pick an investment that will have a return that meets its benchmark. Speaking of benchmarks, they often are not clearly defined.

Search for “Why Hedge Funds Fail” on Google and you will find many stories about hedge funds that “blow up” and about “hedge fund fraud.” Dig a little deeper and you will find some sobering statistics. According to Hedge Fund Street, “Industry estimates show that there are around 9,000 hedge funds controlling up to $1.7 trillion of assets. These funds typically charge 1 to 2 percent management fees and up to 20 percent performance fees. This is much more than that charged by traditional mutual funds.”

Hedge Fund Street also reports, “These hedge funds get paid outrageous amounts of money to produce mediocre returns. Most hedge fund managers don’t even clearly articulate a strategy to clients. They just expect clients to lap up whatever they offer.” This is no secret. And they get away with this because their industry is unregulated. Where’s the protection for the investor? There isn’t any. When they blow up, the investor is stuck with a loss, or in hedge-fund-speak, “a tax write off.” Profits are the goal of investing, not losses. If you want a tax write-off give your money to charity instead.

Usually hedge funds are marketed to rich people who are eager to join a select club about which they can brag to their country club friends. Unfortunately it is a high price to pay for that “special feeling.” And when the fund loses money, rest assured the hedge fund manager will spin a complex answer, aka “tax write-off,” that will have you actually repeating it with pride to your golf buddies. Smart investors, stay clear of these. Losing money is never a good investment strategy.

3) Mutual Funds Are Better Than Financial Advisors

As I stated earlier, there are many great professionals, such as Registered Investment Advisors, who provide great value to their clients. They can save you time, hold your hand during down markets, and encourage you to take action on estate planning. But for most people you can do this yourself and save the fee. With mutual funds you get the best investment managers. You can easily measure progress and compare them against their category peers. This is harder to do with a financial advisor. Not all advisors report returns in a standardized manner.

With mutual funds you can switch between funds with no hard feelings and no hard-sell to keep you as a client. If you have developed a good relationship, it can be hard to “break-up” with your Financial Adviser whose returns are lagging. In fact most people, remain loyal in spite of poor returns, simply because “breaking up is hard to do.”

Instead of hiring an advisor, I will show you how to invest using mutual funds in my upcoming post: “How to Invest – A Simple Guide.” Subscribe here to ensure you don’t miss it!

Should you ever consider hiring an advisor? Yes, if you are not getting the job done yourself because of lack of time, motivation, or knowledge. My suggestion would be to hire an advisor who invests in mutual funds. This way your advisor is purely in the role of helping you with asset allocation, mutual fund selection and maintenance of your portfolio. They usually charge less than Financial Advisors who perform stock and bond selection in-house. This is because you are already being charged an investment fee by the funds. With a mutual fund Financial Advisor you can ask to switch funds if you don’t like the performance without having to sever your relationship with the advisor. Again look for low fees.

4) Stock Picking Is Hard

Brokerage firms are gambling enablers. They want you to believe that you can be a rock-star day trader. You know why? Because even with the discounts they will offer you, they make oodles of money on day traders. I hate to burst your dreams of leaving your day job to trade your 401k rollover, but I am here to help you keep from losing that money. I’ve seen it happen, many times, and it’s not pretty.

Here is what you need to consider. Over 80% of mutual fund managers do not meet benchmark indices. These funds are managed full time by professionals with years of education and training, the most sophisticated tools available, the most up to date research, and 80% of them still don’t beat the index average! With all due respect, do you really think you will be able to beat the indices? Maybe you can, but the odds are against you.

The smart investor strategy: invest your core holdings in mutual funds. If you simply can’t resist the urge to invest in stocks, then follow this guidance:

  1. Start small, just one stock.
  2. Use some type of tool to help you whittle down the universe of stocks from which you will select, such as Yahoo!Finance (free).
  3. Only invest 1-5% of your savings in a stocks to start.
  4. Research it every way possible, the fundamentals and the technicals. If you don’t know what these are, learn them before beginning.
  5. Invest with an eye to a long term holding. Don’t invest for quick profits. Ever heard of Warren Buffett? Long term. It’s the way to go.
  6. Keep a close eye on it. Sell it if it if there are major signs of trouble, such as Enron-style trouble, at which point it will probably be too late.
  7. Wait a whole year before you invest in another stock.
  8. In the meantime, read and learn and perhaps participate in fantasy investing site such as Virtual Stock Exchange.
  9. Books to check out: any from Amazon’s Classic Investment Books selection, especially the top 3.

5) On Cash: Interest Rate Size Does Matter

Why? The power of compounding. Here’s an example to open your eyes.

Example: Right now interest rates on cash vary significantly. Some bank accounts are paying well below 3% and other money market funds are paying over 6% on cash. Many people earn 1% or nothing on their cash. Here’s an example that shows you how much more you could make over 20 years simply by searching for a higher interest rate: (it doesn’t take that much time online!)

In this example, the difference between 1% and 6% is $27,389.08 over a 20 year period! All just for switching to a higher rate!

The lesson here is to make sure you shop for the highest return on your cash possible! What are you earning on YOUR cash?

Here is a link to a Motley Fool article which nicely describes all your cash account options and what different interest rate terms mean.
Here’s a link to find a great interest rate for your cash from Get Rich Slowly.

Conclusion

You work hard for your money. Invest it wisely and avoid these pitfalls. Please Subscribe here to ensure you don’t my upcoming post on “How to Invest – A Simple Guide.”

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Please share your comments, experiences, and tips on Investing! All comments big and small are very welcomed!

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33

How to Buy a Used Car – a Frugal Guide

Getting a Great Used Car

I grew up always buying used cars. I was taught how to do this by my dad who grew up on a farm in Ireland and knows how to find a good value. I thought everyone knew how to do this, but over the years in talking to many of my friends I realized I was wrong.

Many people, if they do buy used cars, go to a used car dealership thinking they’ll get a good warranty or at least they’ll be assured that the car will be in good running order. That may be true, but often it is not. And the bottom line is you are paying for that middle man. Here’s a better way as taught to me by my frugal, bargain hunting, Irish dad.



How to Buy a Used Car and Get the Best Deal

  1. Determine your budget. Calculate in these costs as well:sales tax, registration fee, insurance, and possibly minor fix-up costs.
  2. Research and choose the model of car you want to buy. Choosing a model that is know for longevity is a good idea, because chances are you won’t have as many expenses over the years. Longevity cars: Toyota’s, Honda’s, and Volvo’s. Even older Mercedes can be a good choice if it has been maintained well. Check out Edmunds to research the model that will be best for your needs.
  3. Search for cars for sale your local paper or Craigslist.
  4. Talking to the Seller. For best results try to find a seller who sounds mature and has all the maintenance records for the car going back over time. Try to find a one-owner car or perhaps a two-owner car. If you feel uneasy over the phone, either you feel they’re telling lies or you feel unsafe, move on to the next car on your list. Some questions to ask:
    1. What is the car’s condition?
    2. Mileage?
    3. Any problems: leaking oil, transmission fluid, does a/c work, rust, ever been in accident?
    4. Are you the original owner?
    5. Do you have all the maintenance records?
    6. Why are you selling the car?
  5. A quick safety note: use your best judgement. If you are uncomfortable, move on. If you want to be safe you can ask to meet at a public place and it’s always smart to bring someone along with you, preferably someone who knows about cars.
  6. Test Drive. Drive for a long enough distance to get a good feel for the car. Test the radio, but drive without it on so you can listen for problems. Notice these things:
    1. How does it brake?
    2. How is the alignment and suspension? How does it handle around corners and over bumps?
    3. Anything sound funny?
    4. Ergonomics: does the car fit you? Can you see out the windows, are the seats comfortable?
    5. How is the transmission? Automatic: does it shift smoothly. Manual: how does the clutch feel? Does the pedal go down very far? That could mean the clutch might be on it’s way out.
    6. Review the Car. Check for all these things that can be negotiating points and also safety issues:
      1. Rust, if so is it surface or deep body rust?
      2. Doors and trunk do they work?
      3. Body: do you detect repair work such as different color paint on the car?
      4. Tires: is there wear on the treads and are all tires the same size?
      5. Trunk: any signs of water leakage such as dampness or mildew smell? Is there a jack and spare tire?
      6. Interior: water leakage signs? try all the electronic and manual controls such as adjusting the seat, windows, etc.
      7. Undercarriage: any signs of oil leaking, how does the muffler look.
    7. Optional: check the car’s history by asking to review the VIN (check that it matches the Title document) and then you can purchase a history of the vehicle. If you’re spending a lot of money this might be worth it to you.
    8. Additional information for inspecting a car: Used Vehicle Inspection Guide by Autotrader.
  7. Mechanic Inspection: Ask your mechanic to check for things you’re not qualified to review.
  8. Negotiate Price. You should research the approximate value of your car first. Kelly’s Blue Book is a good online resource.
    1. Mention drawbacks: the things that you feel are negatives about the car, and also the fix-up costs you will incur after buying the car.
    2. Make your first offer. It should be lower than your maximum.
    3. Be silent until the seller responds with their price.
    4. Negotiate to a final price in smaller rather than larger increments. When you get to your maximum tell the seller that is your final offer. Try not to go above your maximum unless it is a small amount. Don’t be afraid to walk away. You can leave your phone number. You’d be surprised how often you’ll get a phone call later saying let’s make a deal.
  9. Seal the Deal. Write up a bill of sale with names, phone numbers, car model, VIN, price, date and any conditions. Have the owner sign over the title to you. Pay the owner. The only caveat: If you feel uncomfortable, listen to your gut, and walk away. Get another person’s input. You can always come back later. And there’s always another car!
  10. Register and Insure the car.
  11. Enjoy Your Car.

 Beautiful Used Car

Please share your comments and tips on buying used cars. Anyone have any funny stories, cautionary tales, things to look for? Let’s hear them!

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39

The Secret to Being Rich

What Is the True Measure of Wealth?

Family, friends, and the appreciation of both. You can have all the money in the world, but you can’t be truly rich if you don’t have love, laughter and support from people you love. It’s not only important to have this gift but to appreciate it. So many of us spend our lives chasing the almighty dollar, material things, and unnecessary perfection (such as a perfectly clean house, car, etc). We get caught up in this chase and miss out on the wealth that is right in front of our eyes.

How to Experience True Wealth

Passive Appreciation

Take an inventory of the people in your life who love and support you. Maybe you are blessed with a family that is wonderful. Maybe you don’t have great family, but you have a close set of friends. Maybe you have many friends. Or maybe you have your strongest relationships with the people you work with.

The labels of who these people are is not important. What is important is recognizing the people who give you love, kindness, and support. This doesn’t have to be romantic love or even familial love. It can be friendship love. (Don’t be scared of that word. If you need to think of it as “Like.”)
   

Active Appreciation

Take time on a regular basis to spend enjoyment time with the support people in your life. Commit to yourself that you will seek out some leisure time with friends and family on a weekly or monthly basis. Plan ahead. Make it happen. Simple is best. Here are some ideas:

  1. Family Fun Day – This is a new routine that we’ve implemented in our family. We are lucky enough to have 3 generations in my family living near each other so a few of us get together every Saturday and do something fun. This usually involves all of us packing in the car to visit a new place not too far from home. Some fun things to do: Nature walks, museums, park/picnic, sightseeing, driving to see new neighborhoods, going to the farmer’s market,…anything. The key thing is being able to have conversation and fun. Let go of work completely, let go of any grudges, and let go of your worries.
  2. Family Fun Night – I saw this idea on a PBS kids TV show. The family in the show made a commitment to spend one night a week as a family. No TV. This family had kids, so each kid got to either do a performance or talk about something important to them. Sometimes they would bake or cook together something to bring to a local homeless shelter, which made it into an opportunity to teach their children. You can really run with this. Even if it is all adults, you could play games that encourage conversation such as telling your favorite stories from your past, discussing the good things that happened that week or things you learned recently. Be creative. Plan ahead. It only takes 10-15 minutes to think of something. Just enjoy.
  3. Friends Fun Night – Have a potluck party. Invite a friend or 2 or more to dine on food, drink and conversation. Have some music ready for later too. If there’s enough people maybe there could be dancing. Or maybe get out a conversation game like Trivial Pursuit or Loaded Questions.
  4. Friend Fun Day – Same as Family Fun Day except with friends. The thing to remember is plan for it in order to make it happen.


Do these things. Trust me. You’ll feel GOOD! And you’ll feel wealthy. Please share your experiences! What is your favorite way to spend time with friends and family, Ilker, Liz, and Deborah? How about YOU?

Thanks to recent commenters: Tisha, Dee, and Oscar (no website to link to, sorry.)

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12

7 Easy Ways to Improve Your Financial Life

Financial Tips

Improving Your Financial Life is Achievable

The essential element is that you must be committed to improving your financial life. I will show you that it is not difficult. Patience, planning and persistance will get you there. Personal Finance is not taught in school and so many people continually make financial mistakes that can easily be remedied with the right information. My  background is in the financial industry, but you don’t need any special expertise to improve your financial life.

Steps to Improving Your Financial Life

1. Credit Cards.

  • Don’t carry a balance. Credit card rates will quietly but forcefully strip away your ability to save. Only buy what you can afford to pay at the end of the month.
  • If you have a balance and you have some type of savings (bank, brokerage, mutual fund), use that savings to pay off the debt. That savings is money you’ve already spent. If you don’t you’re losing hard earned money. The caveat is if you have a loan rate that is lower than the rate of return you are earning on your savings then it’s ok to carry the debt, for example, if you are about to use the money to buy a home.
  • If you can’t pay off your balance, find the lowest rate that you qualify for and move the debt to that lower rate. Then pay off that loan.

2. Buy a Home, Don’t Rent

  • Why throw rent money into the garbage…”bye, bye”…when you can grow equity and gain a huge tax deduction instead? Most people like what they see when they plug the homeowner’s tax credit (usually quite hefty) into their tax calculator. There is a lot of hubbub about renting making more sense today than buying because the real estate market has gone down.
  • Well remember “Buy Low, Sell High?” Prices are low now. Now is the time to buy. It is a “buyers market” which means you will have more power to negotiate a lower price. Use that to your advantage.
  • Yes, you can buy a home! If you are a first time home buyer, you don’t need much of a down payment. Here is an excellent government resource for learning the process of buying a home. If you thought you couldn’t afford it, check again. You just might be surprised. Where there’s a will there’s a way.
  • The only caveat regarding renting is if you expect to move within a short period of time. In that case, you should calculate which choice makes most sense for you. Here is a calculator that will help you with that decision. Click on the drop down box and choose “Rent or Buy” to access the calculator.

3. Buying Things

  • Ask: Do I really NEED this? Now? If not, don’t buy it.
  • Ask: Can I buy this USED? If so, check out local yard sales, thrift shops, Craigslist, and Ebay.
  • Ask: Can I get this for FREE? Join your local FreeCycle, check out your local library, ask friends, family, neighbors and co-workers if they have what you need (you never know!)
  • If you must buy new, I recommend buying things online. Two reasons: easy to find the best price and you’re less likely to get sucked into buying some “shiny new cool looking thing” you didn’t need when you walked into the store!
  • Remember this: Shopping shouldn’t be a “Hobby.” If you want to be a financial winner, don’t buy into the “consumer game” of “gotta have more, better, shinier, newer” that makes you poor.

4. Food & Drink

  • Cook your own food. It’s healthier and cheaper. It takes more time, but planning ahead can make it efficient, such as cooking once a week and freezing for the week’s meals. Check out Once-a-Month cooking for tips on this technique!
  • Pack Your Lunch – keep it simple and plan ahead. You’ll be able to avoid trans fats more easily this way in addition to saving money.
  • Make Your Own Coffee!!! At a minimum $3 per day times 250 work days a year is $750. Compound that over 10 years ($10,980.84), 20 years ($ 27,831.12) at 5%. Makes you go hmmm, doesn’t it.
  • Refill Your Own Water Bottle. This one is easy. If you can, buy a filter system for your home instead of buying bottled water.

5. Pay Yourself First

    • Invest the Max in your 401k, especially if your company matches. That’s like giving yourself a raise!
    • The main concept in David Bach’s The Automatic Millionaire is to cut out the spending that is not necessary and pay yourself that money instead. He talks about the “latte factor.” See example below.
    • Do this exercize: How much do you spend per day, per week, per month on things? What does that add up to on a yearly basis? What can you cut out? Then pay that into an account you won’t touch.
    • Example:
Item Cost Per Day Cost per Month Annual Cost
Latte $3.5 $105 $1260
Muffin $1.5 $45 $540
Lunch $10 $300 $3600
Cable TV $2.67 $80 $960
Phone $1.33 $40 $480
TOTALS $19 $570 $6840
  • Analyze your spending. Research where you can lower service plans, cancel a service plan, or get a better rate. You’ll be amazed how the savings can really add up. Then you’ll have a downpayment for that home! Or money to pay off that credit card! I like using a simple excel spread sheet, but if you want help, here’s a free online budgeting tool to help you get started.

6. Automobiles

  • Buy and Hold. If you must buy a new car, then care for it well and hold onto it for as long as you can. Get the shortest term loan you can afford.
  • Buy Used! Buy through the newspaper or Craigslist. Seek out mature people who have all the maintenance records for the car. Seek out automobiles that are known for longevity like Toyotas, Honda’s and Volvo’s. Go to Edmunds for more auto research. Subscribe for future post on How to Buy a Used Car.
  • Shop Online for the best insurance rates.
  • Plan your driving route when doing errands to drive the least amount of miles.
  • Can You Fix it Yourself? My dad just saved $1300 by changing his own air conditioning coolant on his truck. The mechanic gave him a $1300 estimate. The coolant cost $50. Savings: $1250! If you can’t do it, maybe you have a friend who can help you out and swap a favor in return.

7. Entertainment

  • Public Library: Free books, videos, and music! What a concept! You can usually reserve what you want online and then pick it up quickly on your way home from work or during Saturday errands. If there’s something you love, then you can always buy it later…preferably used.
  • Turn off the TV. Can we Talk? How about some good old conversation? Wasn’t that the best part of your early romance? Isn’t that what we love about when the power goes out? Schedule it and do it! At least once a week!
  • Boombox + Friends + Potluck food & drink = FRUGAL FUN!!! Try it!
  • Nature is Calling: Go discover the local nature walks in your area. It will make you FEEL GOOD!
  • Check your local paper online for free fun things that are going on, like live music, plays in the park, art shows and so on.

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Comments are always welcome. Please let me know what you think Leo, Clever Dude, and Ririan.

Thank you to recent commenters: Robinson, Dave, and Brian.

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