In my usual traversing of personal finance blogs, I found this article on Wise Bread about credit cards. Given what’s going on in the financial industry today, with credit and change in consumer habits, I think it is important for us all to be educated about credits. It is surprising how many of us really do not know how to effectively use them. As with anything else in life, it is not the credit cards themselves that are bad, it is how they are used. Therefore, educate yourself about them, and they can be advantageous to you.
Wednesday, June 24, 2009
Monday, June 8, 2009
This article discusses some simple yet, great ideas on achieving financial independence. These could be considered secrets, but they aren’t really. Most of these points we all know of.
Here are a dozen of the non-secret "secrets".
1. Pay off your credit cards.
With credit card rates at 15% to 20% (or even more), there's just no risk-free investment that can provide you with as good a guaranteed return as you'll get by paying off your high-interest credit cards. (If you have multiple credit cards, pay off the one with the highest rate first.) Once you've paid off your credit cards, only charge what you can afford to pay off in full each month.
2. Live below your means.
Try to save at least 10% of your income. (20% would obviously be even better.) Regardless of how much money you make, if you don't live below your means, you'll never achieve financial independence (unless, that is, you hit the lottery or get a large inheritance, and I wouldn't recommend planning your financial well-being around either of these options).
3. Differentiate between needs and wants.
Fund your needs and try to minimize your spending on the "wants". (You'll want to discuss your goals, and how you plan to achieve them, with your spouse or partner. It's so much easier when you're both on the same page, working as a team to achieve your financial goals.)
4. Start to save and invest early.
Pay yourself first. The earlier you start, the more time you'll have to let the power of compounding go to work for you.
5. Establish an asset allocation plan that's appropriate for you.
Determine the percentage of your portfolio that you want in equities and the percentage you want in bonds, based on your needs and your risk tolerance. (In your planning, remember that over your investing career, you'll inevitably experience at least one bear market (perhaps more), during which you should be prepared to lose as much as 50% of your equity holdings. So, a portfolio that's 80% equities and 20% bonds could lose ~40% in a bear market. You need to set your asset allocation according to the amount of risk you're willing to take so that you don't panic and sell at the bottom of a bear market, after the damage has already been done.)
6. Invest in a diversified portfolio of low-cost mutual funds.
Choose the low cost funds needed to flesh out your asset allocation plan. (I'd recommend Vanguard, the low-cost leader.)
7. Contribute to your company retirement plan
(at least enough to get the company match). If your company doesn't have a match, and has poor investment choices with high costs, consider other available options.
8. Contribute additional money if you can.
If you qualify, fund a Roth or Traditional IRA.Then fund your taxable account.
9. Minimize taxes.
When you invest in a taxable account, place your tax-inefficient holdings (like bonds) in your tax-deferred accounts and tax-efficient funds (like Vanguard's Total Stock Market Index Fund) in your taxable account.
10. Save part of every raise.
When you get a raise, invest at least half of it. (Even being able to spend the other half of your raise is an increase in your spending, so you can certainly do it!)
When you rebalance back to your desired asset allocation, you're controlling risk. (You're selling high and buying low, and that's the "secret" to successful investing.)
12. Stick to your plan
and watch your financial garden grow. (You do have a plan, don't you? See #5.)
ARTICLE CREDIT: Morningstar.com
Tuesday, June 2, 2009
Monday, June 1, 2009
Most personal finance sources recommend that an emergency fund is set up once a decision is made to become financially independent. What is an emergency fund? It is an accessible savings account where you keep cash for true emergencies, like the loss of a job or a medical emergency. Financial advisors usually recommend that they should contain enough cash to cover three to six months of all expenses.
Consumerism Commentary, a great blog for anyone interested in personal finance, listed 50 tips to assist a beginner that may be pressed for money. These are a few that I think are important. The main article will be provided below; I highly recommend it.
1. Open a high-yield online savings account with as little as one dollar.
I chose ING Direct because of its user-friendly website and ease of signing up. It is also known to be amongst the highest with respect to yields.
3. Empty your pocket change into a jar every night.
This adds up and if you understand the power of compounding, every penny counts.
4. Bring your coin jar to the bank every month.
An obvious follow-up to #3.
9. Bring your own lunch to the office.
This is big, especially for you new graduates out there. It is really not necessary to dine out every day. You can save so much money if you made sandwiches and brought to work. $5 minimum a day, $25 a week, $100 a month, $1200 a year. Don’t know where you can get lunch for $5.00 though. So this is really a conservative estimate.
11. Drink soda rather than alcohol when you are dining out.
I am not a regular drinker of alcohol, but it is an expensive activity.
17. Create an automatic deposit to your savings account.
This is a set it and forget it strategy. I recommend this because you learn to do without the money that goes to a savings account that you don’t touch. This is how I am building my Emergency fund. Every month I add $500 to my savings account through an automatic deposit.
19. Don’t consider your emergency fund part of your spending money and keep it hidden.
This is very important. I don’t recommend touching this fund unless for emergency purposes.
46. Don’t be an early adopter of new technology.
I had a professor that said anyone who bought the first iteration of the IPhone were suckers. Why? well it cost them $600. A month or so later, Apple cut the price in half. Now, the new IPhones cost only $199. It always pays to wait when it comes to the new technologies. It is only a matter of time before the prices go down. I am waiting for the Amazon Kindle to go down as I type this article.
49. Consider adopting a frugal philosophy, at least until the emergency fund is in place.
A great way to end it off. A philosophy is a way of life; a way of thinking. Your thoughts eventually become your habits and is then reflected in your lifestyle and personal wealth. This may be the most important of them all, especially if done throughout one’s life.