360⁰ Wealth: Personal Finance

Showing posts with label Personal Finance. Show all posts

Wednesday, November 25, 2009

Pay Off Debt or Invest? Which Should I Do?

Tuesday, November 24, 2009

Twelve Step Program for Personal Finance

This is a very creative infographic from BillShrink. It basically talks about how one can take control and ownership of ones finances to get back on the track the financial freedom. The basic principles of taking ownership, watching your spending habits and reducing unnecessary spending are the key points of this. Check it out; done in an interesting way.

Step 1:
We have admitted we are powerless over the economic downturn – that our financial lives have become more difficult to manage.

Step 2:
We have come to realize that we are in control of our own financial future.

Step 3:
We have made a decision to turn our financial lives around.

Step 4:
We have made a searching and fearless inventory of our personal budgets.

Step 5:
We have admitted to ourselves and to another human being the exact nature of our financial irresponsibility.

Step 6:
We are entirely ready to remove all these extraneous expenditures from our budgets.

Step 7:
We have sought to remove each of our financial shortcomings.

Step 8:
Made a list of all unnecessary expenditures, and became willing to make difficult changes to reduce them all.

Step 9:
We have made direct amendments to our spending wherever possible, except when to do so would compromise the wellbeing of our families or ourselves.

Step 10:
We continue to take personal financial inventory and when we identify unnecessary spending, we promptly eliminate it.

Step 11:
We have sought through meditation to improve our conscious contact with our inner-spender, seeking the power to carry out the actions necessary to cut our expenditures.

Step 12:
Having had a financial awakening as the result of these steps, we will try to carry this message to other over-spenders, and to practice these principles of fiscal prudence in all our affairs.

Go to BillShrink for full graphic>>>

Sunday, August 9, 2009

10 Ways to Becoming a Millionaire

1. Reduce consumption and increase investments. This is the most fundamental equation in increasing net worth.

2. Create a budget and stick to it. It is important to know where you spend your money.

3. Increase your financial knowledge. Read as much as you can about personal finance. It will soon become habitual and you will automatically act in ways that are beneficial to your financial success.

4. Make contributions to your investment vehicles on a consistent basis. Keep focused and continuously put money into your investments. Dollar cost average + time can increase returns significantly.

5. Start a part-time business to increase income and take advantage of tax write-offs. Starting a business is a great way to achieve financial independence. Being frugal is great, but ultimately you have to increase your income to be wealthy; starting a business is a great way to do so.

6. Surround yourself with like-minded people who believe and support your goals. One of the best ways to achieve a particular goal is to put yourself around people who have already achieved it, or people who have similar goals. It helps keep the focus and the experienced may provide priceless advice when it comes to financial decisions they have made when they were at your level.

7. Find great CPAs and other trusted advisors. There comes a point where it is wise to seek financial advice. If you have a friend or mentor that has these qualifications, seek advisement from time to time. Make ample use of your network.

8. Set short and long term goals. Setting short term goals helps you see more readily attainable tangible results and keeps you on track to your long term goals.

9. Make a commitment to become a millionaire. There is nothing more important than the declaration of becoming a millionaire. Clearly stating that you want to become a millionaire actually increases the possibility of that actually occurring; all part of the Heisenberg Principle.

10. Start now. Time is your friend when it comes to investing. The earlier you start, the faster you can reach your goals. The power of compounding begins to work its magic.

Tuesday, August 4, 2009

8 Guidelines for Managing Your Money

1. Spend less than you earn.
Keep track of every penny you spend. Do not borrow money, unless absolutely necessary. It is preferable, of course, to avoid debt.

2. Pay yourself first.
Before you spend money, consider setting aside a certain percentage to save.

3. The perfect is the enemy of the good.
Don’t worry too much about getting this perfect the first time. If you want to begin investing, just do it.

4. Do what works for you.
There is no panacea for financial success. Different strategies work for different people.

5. Take it slow.
Success is not achieved overnight. My philosophy on this blog is one of a long-term and patient nature. Therefore, the content will be primarily aligned to that.

6. Failure is okay.
We learn a lot from failure. Check this video out. Famous Failures

7. Money is more about mind than it is about math.
How you think about money will determine how successful you are.

8. It’s more important to be happy than it is to be rich.
Money gives you more options in life, but there is no correlation between happiness and money. Think about that.

Compliments of Get Rich Slowly. See here for full guide.

Monday, August 3, 2009

Personal Finance in One Page – Part 5

Control Your Own Destiny

The greatest part about this entire Personal Finance in One Page series is the end goal. As Trent says, it is not about being rich, it is about creating your own destiny. Wealth is the natural consequence of good personal finance habits, but the greatest part is financial freedom. Financial freedom allows you to do what you want to do, whatever it may be. Therefore, are you willing to forego immediate gratification for a life of financial freedom? That is a decision that you will have to make. Think about it and just have fun doing it. Save this blog to your favorites and continuously read over the tips as a reminder of what habits you need to develop. Soon enough you will achieve all that you planned.

Thank you for Trent of the Simple Dollar for allowing the free distribution of this e-book. For the entire e-book, click on link below.

Everything you ever really needed to know about personal finance in one page, by Trent Hamm.

Saturday, August 1, 2009

Personal Finance in One Page – Part 4

Manage Your Money

When you increase your income or decrease your spending, you’ll find yourself with more cash at the end of the month. That cash is your ticket to financial freedom, and the more you can get each month, the better off you are. The trick though, is not to spend it, but to do things that will build a stable future for you.

1. Pay Off All High Interest Debt
Anything with an interest rate over 9% needs to go as soon as possible. The extra money should be used to make double or triple payments on these debts, focusing first on the one with the highest interest rate.

These steps can help you take care of your debt:
i. Make the first list – 4 columns, Name of debt you owe, the amount you still owe on that debt, the monthly payment for that debt, and most importantly, the current interest rate on debt.

ii. Order all of the debts by their current interest rate. The one with the highest interest rate, not biggest balance, should be paid off first.

iii. Look for ways to reduce the rates, focusing most strongly on the highest current one. Readjust the priority of the list to reflect to new rates.

iv. Direct all of your extra payments towards the top debt on the list. Each month, make minimum payments on all of the debts on the list except for the top one. With that top debt, throw everything you can at it. Make a double payment or a triple payment or more.

v. When a debt vanishes, cross it off the list and feel good about it.

vi. Update the list when you acquire a new debt.

vii. Update the list when one of your debts adjusts to a new rate.

2. Build an Emergency Fund
An emergency fund is an amount of money you keep in a savings account that’s intended to be used in the event of a major crisis, such as a job loss, a medical emergency, major car damage, and so on. It’s a good idea to measure your emergency fund in terms of months’ worth of living expenses – you should have a month and a half worth of living expenses for each person you claim as a dependent.

A good rule of thumb is to have 6 – 8 months worth of living expenses in your emergency fund. If this seems like a lot, set it as a long-term goal and begin putting aside a small amount each week. Right now, I have an automatic monthly deduction from my checking account to a high yield savings account at ING. Don’t wait, begin right now with as much as you can afford.

3. Max out Retirement
Go to one of those retirement meetings at work, ask exactly how much you should be putting away to ensure that your living expenses are well-covered in retirement, and put that much away. This varies a lot depending on how much you have in right now, how much your employer matches, and so on, so you should talk to your retirement planner at work about the specifics. It is never too early to start investing for retirement!

Save 10% of your income at the bare minimum. You should not have more than 5% of your retirement in the stock of any one company. If your company doesn’t have a retirement plan, open a Roth IRA on your own with a reputable company like Vanguard. If your company offers any matching on your retirement, contribute enough so that you can get all of it. If you don’t know what you are doing, put your money in a “target retirement” fund so that it gradually becomes less risky as you approach retirement.

4. College Savings
Establish a 529 college savings plan for them and start automatically putting a certain amount into this account each month. There are many different plans, just pick a good one and start investing now. I use the New York 529 Savings Plan managed by Vanguard for my lovely niece.

5. Pay Off All Debts
If all of these are covered and you still have cash left over, the next step is to pay off all of your debts. Get rid of car loans, student loans, and your mortgage using the debt reduction plan discussed in the previous section.

6. Invest
Now, this is a good time to start investing. Trent Hamm recommends buying low-cost broad-based index funds because they don’t have many fees and grow very nicely over long periods of time. Don’t invest in individual stocks unless you’re quite content to lose the money or want to invest many, many hours in research. Trent Hamm invest with Vanguard directly through vanguard.com – their fees are miniscule, they offer a huge array of index funds, and their customer service is stellar.

Thank you for Trent of the Simple Dollar for allowing the free distribution of this e-book. For the entire e-book, click on link below.

Everything you ever really needed to know about personal finance in one page, by Trent Hamm.

Friday, July 31, 2009

Personal Finance in One Page – Part 3

Live Frugal

1. Maximize Every Dollar

Every time you spend money, you make a decision. Only you can decide what a dollar is worth and therefore make a value trade. The real key in maximizing your dollar is to raise your definition of what a dollar is worth.

Here is a list of a few tactics for reducing your spending and saving more money. See e-book for full list of 100. These are some of the main ones that stood out when I read through them. Great points to consider here.

i. Switch your bank accounts to a bank that respects you.

ii. Turn off the television.

iii. Master the thirty day rule. When you’re considering making an unnecessary purchase, wait thirty days and then ask yourself if you still want that item.

iv. Write a list before you go shopping and stick to it.

v. Invite friends over instead of going out.

vi. Give up expensive habits, like cigarettes, alcohol and drugs.

vii. Turn off lights before you leave.

viii. Install CFL or LED bulbs wherever it makes sense.

ix. Hide your credit cards.

x. Do a price comparison – and find a cheaper grocery store.

xi. Don’t spend money just to de-stress.

xii. Cancel unused club memberships.

xiii. Do holiday shopping right after the holidays.

xiv. Try generic brands of items you buy regularly.

xv. Prepare some meals at home.

xvi. Go for reliability and fuel efficiency when buying a car.

xvii. Learn how to dress minimally.

xviii. Look for a cheaper place to live.

xix. Hit the library, hard.

xx. Find out about all the benefits of your job.

xxi. Read more.

xxii. Set up automatic debt repayment on your student loans.

xxiii. Exercise more.

xxiv. Always keep looking ahead.

xxv. Never give up.

2. Break Your Bad Habits

Spend some time looking at where you spend a lot of money and cut these routines out. Do you really need to buy a $5.00 cup of coffee every morning of the workweek. That adds up. Look at the things you do every day that requires you to spend a lot of money and make a decision whether or not they are necessary or could be replaced.

3. Master the 10 Second Rule

Whenever you pick up an item to add it to your cart, stop for 10 seconds and ask yourself why you are buying it and whether you actually need it or not. If you can’t find a good answer, put the item back. This helps with impulse buying.

4. Don’t Make Yourself Miserable

Don’t cut down on spending to the expense of the present. If you feel something is worthwhile, then do it. The main objective is to cut down on the unnecessary, not drive yourself crazy saving.

5. Don’t Forget the Big Picture

Because you have money, that does not mean that you should purchase an item. Consider your ultimate financial goal and determine what is a need to what is a fleeting desire.

Thank you for Trent of the Simple Dollar for allowing the free distribution of this e-book. For the entire e-book, click on link below.

Everything you ever really needed to know about personal finance in one page, by Trent Hamm.

Wednesday, July 29, 2009

Personal Finance in One Page – Part 2

Earn More

1. Get Educated – Learn new things, read a book, take evening classes to get certified in a certain area, get a masters’ degree. Warren Buffett said the best investment one can make is in oneself; the return on this investment is usually ten-fold. Spend time on your personal and professional development.

2. Develop More Income Streams – Look for ways to make more money. Maybe you can use a hobby or skill that you have to make some extra cash; photography, writing, tutoring, designing etc. Maybe you have some extra cash that you can invest.

3. Start a Side Business – If you have some extra time after work, why not start a business? Write a blog with some ads, or design web pages, write programs or fix computers if you are good at it. There are a lot of opportunities right now and the startup costs have been drastically reduced because of the Internet. If you want to start a business for cheap, now is the time.

4. Move towards your Passions – Whenever opportunities present themselves, gravitate towards things that excite you. How do you know if you are passionate about something? How do you feel about it? No one can tell you this, only you would know. Think about what you are passionate about, writing code, leading others, drawing, photography, anything and just DO IT.

5. Don’t Burn Bridges – You never know when a relationship in your past might come in handy later on, even the ones you don’t expect. Never spread a negative word about anyone, it never helps. Avoid gossip, resist it. One thing I have learned is that your connection to others is what helps you get to where you want to go.

6. Keep in Touch - When you build a bridge with someone, don’t let it get old and worn out. Spend the time to keep in touch with that person. Email or call them every once in a while to see what they are up to. When it is clear that they need help and you can easily provide it, always provide it.

Thank you for Trent of the Simple Dollar for allowing the free distribution of this e-book. For the entire e-book, click on link below.

Everything you ever really needed to know about personal finance in one page, by Trent Hamm.

Monday, July 27, 2009

Personal Finance in One Page – Part 1

Spend Less Than You Earn
This is a fundamental rule in personal finance. Any personal finance book that you read will indicate this. It is the only way to generate savings, as this is the definition of savings; your income must be greater than your expenditure. The ‘gap’ as the image above indicates, is your savings and the goal is to make this gap as big as possible. It is this ‘gap’ that you will eventually put to use, in retirement accounts, 529 plans, investment accounts, real estate, savings accounts and so forth, that will eventually work for you. This ‘gap’ plus the power of compounding will allow you to achieve financial security, by your own definition.

What are we to do now?
The first step to take is to start tracking our expenses. How else would we know what how much our income and expenditures are? Therefore, to increase the ‘gap’ or savings, we would either have to increase our income, or reduce our spending. Tracking both helps us to know what falls in both those categories.

I recommend Mint.com or Quicken Online, now that Microsoft Money is no longer being supported by Microsoft. I have tried both applications and they are both great. There are others as well, so use one that you are comfortable with. I prefer Mint.com.

Thank you for Trent of the Simple Dollar for allowing the free distribution of this e-book. For the entire e-book, click on link below.

Everything you ever really needed to know about personal finance in one page, by Trent Hamm.

Monday, June 8, 2009

The 12 Secrets of Wealth

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!)

11. Rebalance.

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

http://news.morningstar.com/articlenet/article.aspx?postId=2660897

Sunday, May 31, 2009

Don’t Buy Stuff You Cannot Afford

This video is humorous, but the advice is irreplaceable. When considering purchasing an item, no matter how trivial it may seem, it’s good practice to think about the following:

1. Do I have enough cash to pay for it fully?

2. Can I buy it without borrowing money?

3. If I waited a month, would I still want to buy it?

4. Does the purchase have no effect on my fixed expenses?

If the answer is yes to all these questions, then it may be affordable (not necessarily needed though). However, the important message here is to develop a habit of not spending money on things that you can’t afford. The limit on your credit card is not your own money. It is important to understand the difference. Cash and credit are two distinct things. Cash is what you own and credit is borrowed money; this is a simple way to view them.

Don’t buy things you can do without

We can take this a step further. Do not buy things you can do without. This removes the desire to have a lot of things because you have become detached from the importance of these items in your life. If items are not perceived as important, it is very easy to not want them. Of course, you can buy things that are enjoyable, but the choice now becomes easier and you realize that you ultimately buy less things than you would have under the previous mindset.

No debt

The main objective is to reduce the amount of debt that we have. The majority of Americans are drowning in debt, and the only way to take control of this is to adjust ones way of thinking. The first step is to change ones behavior through thoughts. If I think I do not need something and I adopt a habit of not spending money on things I do not need, then everything else will be taken care of. What will the result of this behavior and thinking be: zero debt and a feeling of more control over ones personal finance.

This is a very simplified illustration, but I believe the point is clear. This is personal finance in its simplest form.

Saturday, May 9, 2009

Morningstar | Seven Ways to Simplify Your Investment Life

Investing can be overwhelming. Once you get to the point where you invest through many different products and vehicles; 401ks, IRAs, Roth IRAs, 529 plans, CDs, taxable accounts etc, it can seem to be a daunting task to manage them all. These are a few guidelines provided by Christine Benz of Morningstar to create a minimalist portfolio; one she says you can depend on.

1. Stick with the Basics: Ignore the crowd and the everyday noise of the market. Stick with low-cost, broadly diversified mutual funds with veteran management teams and great long-term reward/risk profiles.

2. Investigate One-Stop Funds: Consider Target-Date funds. These are ideal for people who do not have the time to research or monitor companies on their own. Target-Date funds are funds which grow more conservative as your goal draws near. That is, it automatically adjusts your risk profile (percentage of stocks to bonds on portfolio) as you age or go closer to retirement.

3. Index: With indexing, you accept the market’s return rather than trying to beat it. Warren Buffett recommends this to any investor who does not have the time to study companies; buy low-cost index funds and hold for the long term. You would perform well over time this way.

4. Take the Best and Leave the Rest: Pay specific attention to your asset allocation over all your investment portfolios.

5. Jot Down Why You Own Each Investment: This is a very important step. Warren Buffett says that you should be able to explain why you own any company in a simple paragraph. Christine says “By writing down why you made an investment in the first place, you’re more likely to make sure that the investment meets its original goal.If it isn’t doing what you expected by sticking with a specific investment style and producing competitive long-term returns, you’ll be ready to cut it loose.”

6. Consolidate Your Investments with a Single Firm or Supermarket: This eliminates excess complexity and paperwork.

7. Put Your Investments on Autopilot: Dollar Cost Averaging is a great strategy with long-term benefits.

Read the full details here >>>

Saturday, May 2, 2009

Being a Steward of your Assets

There is no one idea that can be used on the pathway to financial independence. It is a combination of different strategies that should be used in order to create the conditions that would ultimately lead to that state. Yes, financial independence is a state of mind in a big way, however, it is wise to set certain processes in motion early, so that the necessary conditions can exist later on in your life. You will then have the freedom and flexibility to do certain things that are truly important to you.

What does it mean to be a steward?

Since we all work and as a result generate income, it is important that we respect ourselves enough and be stewards of our assets. The income we generate represents our lifetime of studying, working, parents working and also the work of society as well. Therefore we should really be fiscally responsible and be the stewards of everything that we own; our bodies, our material objects and of course, our financial assets. To be a steward then means to consider your life and what you want to achieve, and take the necessary steps to have them manifest. It is the act of being responsible and preparing for the inherent risks of life and those that depend on you. It is also important to consider society as a whole; it is because of society that we are able to work and generate income. Therefore, it is our responsibility to give back in any way we can; it could be time, money, ideas or any other valuable contributions we can make to the world.

I read this great excerpt by a Senior Editor Money Magazine and was inspired to write this short piece. This is the excerpt from an article about how much should one save to be financially responsible:

“Well, as much as I’d like to be able to tell you to save 10%, 15% or whatever and you’ll be fine, it’s impossible for me to do that without knowing a whole lot more about you. The percentage of income that’s appropriate for you will depend on your income, age, the amount of money you’ve already saved, your employment prospects and, most important, how much you’re willing to forego immediate gratification for current and future financial security.”

See full article here >>>

What stood out to me was the last part of the final sentence; “how much you’re willing to forego immediate gratification for current and future financial security.” Fortunately, I do live a relatively simplistic lifestyle, yes, even in New York City, but I do have big dreams that I know will be realized in due time. In that sense, it is where I see myself in the future that is dictating my choices today.

Be a financial steward; take care of your assets.

Friday, May 1, 2009

The Secrets of Financial Freedom | An Interview with a Millionaire Next Door

This interview by J.D. Roth of Get Rich Slowly, one of my favorite personal finance blogs, is a great read. John, as he is called, followed basic principles that we all are able to adhere to, in order to achieve wealth. I am certain that many of these principles will be very familiar to the readers of this blog, however, hearing it from someone who has practiced them consistently for a lifetime can have a different effect. Read this interview and work on incorporating some of them into your own life. Practice creates a habit and habits bring about change. Enjoy!

These are some of the main principles:
1. Spend less than your earn.
2. Learn what a kilowatt hour is.
3. If you have a credit card, you should benefit from it.
4. People need to learn to cook from raw materials.
5. It is ok to buy used.
6. A dollar spent will never produce dividends.
7. No-load mutual funds are the only way to go.
8. Volunteer to help others.

Thursday, April 30, 2009

12 Step Program for Personal Finance