I made some adjustments to my investment portfolio this month. I did three things:
1.) On 9/17 I bought a new mutual fund, JORNX.
2.) On 9/20 I reset my 401(k) existing and future elections.
3.) On 9/24 I converted my YHOO to XLE.
The effect of lowered interest rates, by 0.5%, had a huge positive impact on my current investments. It also affected my short-term confidence - which led up to those three adjustments I made.
I know the Fed is going to lower rates again before the end of the year. Not sure by how much, but at least 0.25% and I don't think 0.5% is completely out of the question - our economy is falling into a relatively small recession, and these guys are desperate. I have wanted a new mutual fund for a while, and since I have DPCCX and PRLAX, I needed one that focuses on something I believe in, and that isn't international. JORNX sounded perfect.
Another action I took to get as much out of the possibility of a short term run-up: I also swapped out all my conservative 401(k) investments for the riskiest ones I could find.
But after buying JORNX, I have so much in tech stocks... I needed an existing candidate to convert into something else. I needed to sell something so I can go ahead and pay my 20% on its gains, while I'm not desperate to take my profits. The end of the year is approaching, and I've only sold off part of one company, INTC, I can write off losses for.
I selected YHOO as my candidate. It has been pretty flat since 2003. I originally bought YHOO in 1998, and much more in 2003. I decided lately, it was having too many swings, up and down - and I don't really like the roller-coaster activity. I've been thinking about buying energy - since I have none, and it's been doing quite well for such a long time. I'm particularly interested in alternative energy. So when I started researching alternative energy funds, I learned about these things called exchange-traded funds, or ETFs. I also understand that it may still be a little early to invest in alternative energy. ETFs are similar to mutual funds, but trade like regular common stocks. They're relatively new, and there aren't very many.
When it comes to money and finances, you have to think with your head, and XLE sounded like a solid, safe, short-term investment. It's a relief to not have to worry about what's going to happen with YHOO anymore.
Here's my plan: At the end of this year, I'm selling the rest of my common stock and two of the mutual funds I've held for many years. I'm resetting my 401(k) so that everything is reasonably conservatively invested.
I'm going to pay a lot of attention to Christmas sales. Based on this, I'll decide at what point during the 1st half of 2008 I'll sell my remaining mutual funds and XLE.
I'm waiting for a downturn. I'm prepared to wait awhile, and things may actually go up for some time, but I can't count on that, because that may not be the case. But it will be obvious when the huge sell-offs start happening. And I'm so sure they will, and the extent will probably depend somewhat on how much the interest rate gets lowered, this next time around.
Then when it's all gone down sufficiently enough, I plan to step back in, and one of the first mutual funds I plan to buy is New Alternatives Fund, NALFX. I really, really like what I've read about it, and I don't care about the load, so much.
Anyway - that's my plan for now. I'll update on any changes of heart I experience over the next few months.
Saturday, September 29, 2007
Tuesday, September 18, 2007
Manage Your Own Money
My house has lost some of its value over the past couple years. I called a real estate agent the other day with questions about selling my house and moving to a more desirable neighborhood. He recommended that I wait till April. His advice is that the worst time to sell is between June and December, and the best time is between January and June.
The agent said my neighborhood had been hit pretty hard with the mortgage fallout for two reasons: It attracts people who have been sub-prime borrowers and are now having a hard time getting approved for loans. It also houses many sub-prime borrowers who are having a hard time making their payments, and being forced to sell their houses. He thinks my house would have sold for more in the first half of 2005, because that was the last time demand was so high with respect to supply, in my neighborhood.
The good news for me, is that other parts of San Francisco are keeping the value from sinking as low as it would have, had I bought in, say one of the outlying suburbs. Is that what they mean by "A rising tide lifts all ships"? I've decided to check back with the real estate agent in April.
Oh, if you happen to get a call from a representative from a financial services firm - someone who wants to plan your retirement for you - and you're just an ordinary person, like me. My advice is to be skeptical. I say that because that's exactly what happened to me a couple weeks ago. In a nutshell, here's how it went:
Step 1: They sent me a questionaire to fill out.
Step 2: A data entry person entered the information into a spreadsheet, and ran some standard application that generates a pie chart that breaks down how they think your assets should be allocated.
Step 3: The company has a relationship with several mutual funds, and mapped a mutual fund to each of the quadrants from the pie chart.
Step 4: If I would have enrolled, the company would collect 1.5% of the assets that are being managed through the mutual funds.
My question is "How does that little bit of work entitle these people to 1.5% of the money I put into their account for as long as it's there?"
So, say I tell them to manage $50000. They invest the money in their choice of mutual funds. Then each quarter, if each of the mutual funds maintains about the same value, I pay a managment fee of about (50,000 * .015) / 4 = $187.5, regardless. What's important to keep in mind, is that for each of the mutual funds, I'm already paying a management fee. So, I'm paying to have my money managed by people who are already managing it. That doesn't sit well with me. Do people actually go along with such a plan? I don't understand it at all. It just doesn't compute.
The kicker is that the mutual funds that were chosen by my "financial advisor" were these 'safe' mutual funds. 25% were fixed income (bonds) that returned about 2 to 3% per year for the past couple years. I don't know if that's enough to even keep up with inflation. So, what incentive do these financial service firms actually have? They protect themselves with all this legal jargon on the application you have to fill out when you enroll. They have no obligation to make you any money, or even do any work, and they get paid no matter what.
Are they really gonna work their asses off to double my $50000 so they can make $1500 a year? Seems much easier to just sit and do nothing for $750.
Now, my advice: You can log into any number of sites that provide information about mutual funds, including fees, performance, risks, ratings, etc. and within minutes, pick a handful that are likely to serve your purpose. The ones you pick don't have to be the ones the financial advisor has a relationship with. Once you decide to buy one, you don't even need to pay a management fee.
The agent said my neighborhood had been hit pretty hard with the mortgage fallout for two reasons: It attracts people who have been sub-prime borrowers and are now having a hard time getting approved for loans. It also houses many sub-prime borrowers who are having a hard time making their payments, and being forced to sell their houses. He thinks my house would have sold for more in the first half of 2005, because that was the last time demand was so high with respect to supply, in my neighborhood.
The good news for me, is that other parts of San Francisco are keeping the value from sinking as low as it would have, had I bought in, say one of the outlying suburbs. Is that what they mean by "A rising tide lifts all ships"? I've decided to check back with the real estate agent in April.
Oh, if you happen to get a call from a representative from a financial services firm - someone who wants to plan your retirement for you - and you're just an ordinary person, like me. My advice is to be skeptical. I say that because that's exactly what happened to me a couple weeks ago. In a nutshell, here's how it went:
Step 1: They sent me a questionaire to fill out.
Step 2: A data entry person entered the information into a spreadsheet, and ran some standard application that generates a pie chart that breaks down how they think your assets should be allocated.
Step 3: The company has a relationship with several mutual funds, and mapped a mutual fund to each of the quadrants from the pie chart.
Step 4: If I would have enrolled, the company would collect 1.5% of the assets that are being managed through the mutual funds.
My question is "How does that little bit of work entitle these people to 1.5% of the money I put into their account for as long as it's there?"
So, say I tell them to manage $50000. They invest the money in their choice of mutual funds. Then each quarter, if each of the mutual funds maintains about the same value, I pay a managment fee of about (50,000 * .015) / 4 = $187.5, regardless. What's important to keep in mind, is that for each of the mutual funds, I'm already paying a management fee. So, I'm paying to have my money managed by people who are already managing it. That doesn't sit well with me. Do people actually go along with such a plan? I don't understand it at all. It just doesn't compute.
The kicker is that the mutual funds that were chosen by my "financial advisor" were these 'safe' mutual funds. 25% were fixed income (bonds) that returned about 2 to 3% per year for the past couple years. I don't know if that's enough to even keep up with inflation. So, what incentive do these financial service firms actually have? They protect themselves with all this legal jargon on the application you have to fill out when you enroll. They have no obligation to make you any money, or even do any work, and they get paid no matter what.
Are they really gonna work their asses off to double my $50000 so they can make $1500 a year? Seems much easier to just sit and do nothing for $750.
Now, my advice: You can log into any number of sites that provide information about mutual funds, including fees, performance, risks, ratings, etc. and within minutes, pick a handful that are likely to serve your purpose. The ones you pick don't have to be the ones the financial advisor has a relationship with. Once you decide to buy one, you don't even need to pay a management fee.
Friday, May 25, 2007
Mutual Funds Are Paying Off
Wow, I just read my last post, and I would be surprised if it made any sense to anybody. Sorry about that. It sounded sorta like I just finished off a bottle of wine before I started writing it.
Succinctly, what I was trying to say was this: "It seems like my money will work more for me if I take some out of the money market account and put it into a mutual fund."
And after I sobered up, I did exactly that.
So, here's the breakdown.
I have an Ameritrade account, and I took the 100 and 200 level courses. Anyone can do it. Here's how to get there: Navigate to http://www.ameritrade.com/ and click on the 'Research & Ideas' tab. Then click on the 'Mutual Funds' link and then on the left navbar, click on the 'Investing Classroom' option. Make sure you take all the courses in 100 and 200 level, and then you'll know as much as I did before I made my choice. It's actually very interesting, what you will learn.
Then I bought 2 new mutual funds. I'll go ahead and tell you what I bought - I used what I learned in those courses to help guide me in my decision. So, this is just information, and not advice.
On January 23, I took $5,000 out my money market, and "Bought 132.908 PRLAX @ 37.62". On February 22, I took $10,000 out of my money market, and "Bought 260.892 DPCCX @ 38.33".
A couple days after I bought the China mutual fund, (DPCCX), it took a nose-dive. It was depressing, and I hated myself very much. If you don't believe me, google 'DPCCX', and look on the chart at what happened on 2/23. It sucked. But look at what happened between then and now. While you have the chart open, type in 'PRLAX' to see how my Latin America mutual fund (PRLAX) perfomed.
Right now, the $15,000 I invested into those 2 mutual funds is worth $17,650. I weight-averaged it to $15,000 invested over 3 1/3 months, or 0.27778 yr.
And here goes the math: $ (17,650 - 15,000) / $15,000 = 0.176667, or 17.6667%. I'm not a financial analyst, but I think that means I've made 17.6667% / 0.27778 yr = 63.6APR. Am I right? That sounds like an awful lot - especially when you consider the initial loss I had to make up for, in the beginning. Maybe I made a mistake in my calculation. I'll go back over it again, later. But one thing's for sure: I made me some money.
So, there you have it. I made about as much with $15,000 over a 3 1/3 month period invested in 2 somewhat risky mutual funds, as I will with the approximately $70,000 I have in my very safe money market account, in about 9 months at 5% APR - (I'm actually getting more like 4 1/2 %):
$70,000 * 1.05 = $73,500. $(73,500 - 70,000) / (9/12) = $2,625.
Correct me if I'm wrong. But if I'm right, this seems like a risk worth taking. I'll follow up again on what's going on. But I do plan to buy some more mutual fund pretty soon.
Succinctly, what I was trying to say was this: "It seems like my money will work more for me if I take some out of the money market account and put it into a mutual fund."
And after I sobered up, I did exactly that.
So, here's the breakdown.
I have an Ameritrade account, and I took the 100 and 200 level courses. Anyone can do it. Here's how to get there: Navigate to http://www.ameritrade.com/ and click on the 'Research & Ideas' tab. Then click on the 'Mutual Funds' link and then on the left navbar, click on the 'Investing Classroom' option. Make sure you take all the courses in 100 and 200 level, and then you'll know as much as I did before I made my choice. It's actually very interesting, what you will learn.
Then I bought 2 new mutual funds. I'll go ahead and tell you what I bought - I used what I learned in those courses to help guide me in my decision. So, this is just information, and not advice.
On January 23, I took $5,000 out my money market, and "Bought 132.908 PRLAX @ 37.62". On February 22, I took $10,000 out of my money market, and "Bought 260.892 DPCCX @ 38.33".
A couple days after I bought the China mutual fund, (DPCCX), it took a nose-dive. It was depressing, and I hated myself very much. If you don't believe me, google 'DPCCX', and look on the chart at what happened on 2/23. It sucked. But look at what happened between then and now. While you have the chart open, type in 'PRLAX' to see how my Latin America mutual fund (PRLAX) perfomed.
Right now, the $15,000 I invested into those 2 mutual funds is worth $17,650. I weight-averaged it to $15,000 invested over 3 1/3 months, or 0.27778 yr.
And here goes the math: $ (17,650 - 15,000) / $15,000 = 0.176667, or 17.6667%. I'm not a financial analyst, but I think that means I've made 17.6667% / 0.27778 yr = 63.6APR. Am I right? That sounds like an awful lot - especially when you consider the initial loss I had to make up for, in the beginning. Maybe I made a mistake in my calculation. I'll go back over it again, later. But one thing's for sure: I made me some money.
So, there you have it. I made about as much with $15,000 over a 3 1/3 month period invested in 2 somewhat risky mutual funds, as I will with the approximately $70,000 I have in my very safe money market account, in about 9 months at 5% APR - (I'm actually getting more like 4 1/2 %):
$70,000 * 1.05 = $73,500. $(73,500 - 70,000) / (9/12) = $2,625.
Correct me if I'm wrong. But if I'm right, this seems like a risk worth taking. I'll follow up again on what's going on. But I do plan to buy some more mutual fund pretty soon.
Thursday, January 04, 2007
Revisiting Mutual Funds
'2006 was a good year' was an update on how things have changed for me in a year. It wasn't really advice, so much as it was reinforcement that following my own advice paid off - at least last year.
Somewhere underneath all that explanation, you might have gathered that 'changing jobs' was some good advice. See, I was impacted by the dot-com boom / bust cycle in such a way that I had to crawl back out. Changing jobs twice last year was a strategy. For the most part, I sat still, and didn't make too many risky financial moves.
So, now I'm sitting here looking at how my investments paid off. The best seems to have been one of my 2 mutual funds. It's one that you would consider risky for a mutual fund, because it's an international fund. The other mutual fund I have is less risky, and didn't perform nearly as well.
Combined, these 2 mutual funds returned 17.4% between 1/1/06 and 1/1/07.
Aside from any dividends, I never have to pay any tax on these gains until I sell. I consider them a line of defense that I haven't had to cross. In fact my diversification is a set of buffers, where cash is on the outside, and the retirement accounts are on the inside.
At the beginning of the year, I had about $47,500 in my money market account, and throughout the year it has accrued and lost and accrued again, cash. The reason it lost cash at some point is that I pay an extra lump sum payment against my mortgage every year. The balance is now about $83,000. Last month, it drew about 4.75% interest. I earned $2,700 in interest from this account last year.
It seemed so sudden, how much cash I wound up with. And when you have what seems to be a lot, if you're like me, you are more afraid of taking risks that could mean losing large chunks of capital.
If in 2007 the interest rate remains constant at 4.75% and I start off with $83,000 and make no withdrawals or deposits (purely theoretical), then at the end of the year, the account will be worth just over $87,000. That sounds nice, and I'm not used to making so much money in interest every month. It's $330-$340 per month. If I follow this strategy, in 2008 I'll pay about $1,000 in taxes on the $4,000 I made. Right now isn't the best time for me to have to adjust my salary up before paying taxes.
What if I take $25,000 of that and buy into a (not super-duper risky) mutual fund like the ones I have - and haven't been afraid of holding on to? If it earns 15%, then its market value would be roughly $28,800 at the end of 12 months. And I don't have to cash it out.
If I lose my job sometime in the future, or retire, and am unemployed for several months. I wouldn't have to pay as much tax on that $3800:
In addition to the roughly $12,000 I'd make from unemplyment benefits, or whatever piddling amount I'd be getting from social security, I'd hardly be in a top tier tax bracket, but the $3,800 would sure help out. Remember that that the $3,800 is about $800 more than what I would walk away with, after paying taxes on the interest I would draw off my money market account.
Also, while neither is exactly chump change, recall that I stand to benefit less with $83,000 than with $25,000.
Somewhere underneath all that explanation, you might have gathered that 'changing jobs' was some good advice. See, I was impacted by the dot-com boom / bust cycle in such a way that I had to crawl back out. Changing jobs twice last year was a strategy. For the most part, I sat still, and didn't make too many risky financial moves.
So, now I'm sitting here looking at how my investments paid off. The best seems to have been one of my 2 mutual funds. It's one that you would consider risky for a mutual fund, because it's an international fund. The other mutual fund I have is less risky, and didn't perform nearly as well.
Combined, these 2 mutual funds returned 17.4% between 1/1/06 and 1/1/07.
Aside from any dividends, I never have to pay any tax on these gains until I sell. I consider them a line of defense that I haven't had to cross. In fact my diversification is a set of buffers, where cash is on the outside, and the retirement accounts are on the inside.
At the beginning of the year, I had about $47,500 in my money market account, and throughout the year it has accrued and lost and accrued again, cash. The reason it lost cash at some point is that I pay an extra lump sum payment against my mortgage every year. The balance is now about $83,000. Last month, it drew about 4.75% interest. I earned $2,700 in interest from this account last year.
It seemed so sudden, how much cash I wound up with. And when you have what seems to be a lot, if you're like me, you are more afraid of taking risks that could mean losing large chunks of capital.
If in 2007 the interest rate remains constant at 4.75% and I start off with $83,000 and make no withdrawals or deposits (purely theoretical), then at the end of the year, the account will be worth just over $87,000. That sounds nice, and I'm not used to making so much money in interest every month. It's $330-$340 per month. If I follow this strategy, in 2008 I'll pay about $1,000 in taxes on the $4,000 I made. Right now isn't the best time for me to have to adjust my salary up before paying taxes.
What if I take $25,000 of that and buy into a (not super-duper risky) mutual fund like the ones I have - and haven't been afraid of holding on to? If it earns 15%, then its market value would be roughly $28,800 at the end of 12 months. And I don't have to cash it out.
If I lose my job sometime in the future, or retire, and am unemployed for several months. I wouldn't have to pay as much tax on that $3800:
In addition to the roughly $12,000 I'd make from unemplyment benefits, or whatever piddling amount I'd be getting from social security, I'd hardly be in a top tier tax bracket, but the $3,800 would sure help out. Remember that that the $3,800 is about $800 more than what I would walk away with, after paying taxes on the interest I would draw off my money market account.
Also, while neither is exactly chump change, recall that I stand to benefit less with $83,000 than with $25,000.
2006 was a good year
It's been more than a year since I posted my last article.
I want to give you an update on how my financial state has changed in only one year:
I have changed jobs twice. The company I worked for was a consulting company with about 30 software developers. I started working with a very small start-up company in March that had just received it's initial round of funding.
I relived some deja vu by working there, and grew skeptical. I decided to quit after working there for only 3 months.
I have been working for a new company - which coincidentally has financial institutions, namely portfolio managers, for customers. It has a lot in common with Arthur Andersen, in terms of my co-workers and level of job responsibility. More is expected of me, of course, because I was an entry level programmer back then. At Arthur Andersen, when I was in my late 20s this work environment bothered me. It seemed too slow paced. But now, I enjoy it either because I'm older or just have over a decade more work experience.
We'll refer to the original company I worked for a year ago "company A". We'll call the company I worked for after that "company B", and my current company, "company C".
Between company A and company B, I earned $11000 more in annual salary. I switched from a PPO with a $250 deductible (which I never used) to a High Deductible PPO with at $2400 deductible (also never used), and enrolled into a Health Savings Account (HSA) to which the company contributed $200 per month. I lost my dental insurance (they didn't tell me about this during the interview process, by the way, although it wouldn't have mattered because of the salary increase). My commute dropped in cost by about a third. I lost my 401(k) plan, but I wasn't contributing to very much since the company I worked for only matched 15% which didn't vest for 4 years. That was bunk that was offset by the shares I never expected to cash out.
Between company B and company C, I earned an additional $5000 in annual salary. I now have everything in terms of benefits - it's at least as much as I ever had in my life. I gained a week of vacation - 3 weeks now instead of the original 2 - which for me is better than additional money. I take public transportation and the cost is that of a $45 FastPass. The company offers commuter checks, which allow me to pay that $45 before taxes are accounted for. I enrolled into a Flexible Spending Account, which works for me now that I am not afraid of going to the hospital for a check up or to the dentist - and I have gone to both. Oh, remember that HSA? Free crown. I do have to pay a small portion for my benefits. But overall, it's worth it. I regained a 401(k) plan that matches 50% of the 1st 6% I contribute. I contribute exactly 6%. I enrolled into a Legal Plan which costs about $8.50 per half month. I'm using it for estate planning - something I've put off for a long time.
I'm looking at a Microsoft Money report on my "Net worth over time", customized from 1/1/2006 to 1/1/2007, and it shows a steady gain of $54,645. And it doesn't have any 'corrections' like a house re-assessment. It's a real increase in net worth over 1 year. I haven't analyzed where the greatest gains came from.
Remember the money market account I wrote about in my article titled 'Diversification'? It has grown to have quite a large amount of money in it. I contributed to it, gradually, over the past year. At some point, I moved cash that was in my Ameritrade account (earning less than 1% interest) to this account. I felt like a fool because I left more than $15000 - just sitting there. Interest rates had been rising over the year, and my money market account was already paying about 4%. I have a car loan that I won't pay off because the interest rate is lower than what I get from my mutual fund (regardless of having to pay tax on the interest). I have over $80,000 in my money market account.
My company had a laptop stolen that contained some personal information about employees. Someone broke in and stole a laptop in December. It had our social security numbers and addresses in a spreadsheet, or something like that. So, to make us feel better, we all got free accounts so we could see our credit.
The last time I checked, was when I re-financed my home loan in 2001, and my score was 791. Now it's 805. According to the service, that translates into having better credit than 99.97% of consumers.
I want to give you an update on how my financial state has changed in only one year:
I have changed jobs twice. The company I worked for was a consulting company with about 30 software developers. I started working with a very small start-up company in March that had just received it's initial round of funding.
I relived some deja vu by working there, and grew skeptical. I decided to quit after working there for only 3 months.
I have been working for a new company - which coincidentally has financial institutions, namely portfolio managers, for customers. It has a lot in common with Arthur Andersen, in terms of my co-workers and level of job responsibility. More is expected of me, of course, because I was an entry level programmer back then. At Arthur Andersen, when I was in my late 20s this work environment bothered me. It seemed too slow paced. But now, I enjoy it either because I'm older or just have over a decade more work experience.
We'll refer to the original company I worked for a year ago "company A". We'll call the company I worked for after that "company B", and my current company, "company C".
Between company A and company B, I earned $11000 more in annual salary. I switched from a PPO with a $250 deductible (which I never used) to a High Deductible PPO with at $2400 deductible (also never used), and enrolled into a Health Savings Account (HSA) to which the company contributed $200 per month. I lost my dental insurance (they didn't tell me about this during the interview process, by the way, although it wouldn't have mattered because of the salary increase). My commute dropped in cost by about a third. I lost my 401(k) plan, but I wasn't contributing to very much since the company I worked for only matched 15% which didn't vest for 4 years. That was bunk that was offset by the shares I never expected to cash out.
Between company B and company C, I earned an additional $5000 in annual salary. I now have everything in terms of benefits - it's at least as much as I ever had in my life. I gained a week of vacation - 3 weeks now instead of the original 2 - which for me is better than additional money. I take public transportation and the cost is that of a $45 FastPass. The company offers commuter checks, which allow me to pay that $45 before taxes are accounted for. I enrolled into a Flexible Spending Account, which works for me now that I am not afraid of going to the hospital for a check up or to the dentist - and I have gone to both. Oh, remember that HSA? Free crown. I do have to pay a small portion for my benefits. But overall, it's worth it. I regained a 401(k) plan that matches 50% of the 1st 6% I contribute. I contribute exactly 6%. I enrolled into a Legal Plan which costs about $8.50 per half month. I'm using it for estate planning - something I've put off for a long time.
I'm looking at a Microsoft Money report on my "Net worth over time", customized from 1/1/2006 to 1/1/2007, and it shows a steady gain of $54,645. And it doesn't have any 'corrections' like a house re-assessment. It's a real increase in net worth over 1 year. I haven't analyzed where the greatest gains came from.
Remember the money market account I wrote about in my article titled 'Diversification'? It has grown to have quite a large amount of money in it. I contributed to it, gradually, over the past year. At some point, I moved cash that was in my Ameritrade account (earning less than 1% interest) to this account. I felt like a fool because I left more than $15000 - just sitting there. Interest rates had been rising over the year, and my money market account was already paying about 4%. I have a car loan that I won't pay off because the interest rate is lower than what I get from my mutual fund (regardless of having to pay tax on the interest). I have over $80,000 in my money market account.
My company had a laptop stolen that contained some personal information about employees. Someone broke in and stole a laptop in December. It had our social security numbers and addresses in a spreadsheet, or something like that. So, to make us feel better, we all got free accounts so we could see our credit.
The last time I checked, was when I re-financed my home loan in 2001, and my score was 791. Now it's 805. According to the service, that translates into having better credit than 99.97% of consumers.
Tuesday, November 01, 2005
Diversification
Some of us have more to diversify, and may be less susceptible to risky investments than others.
Diversifying our portfolios allows us to have something left if some of our investments fail, or don't pay off.
Over the years, I've made some money here and there, and have had time to make some mistakes. I started out with a savings account, a checking account, a bit of credit card debt, and a student loan. I wrote some checks that bounced, and I was sometimes late paying the minimum due on my one credit card that had a low line of credit and a high interest rate. My credit wasn't so great.
I changed jobs and started working with a state agency that had a credit union which was affiliated, somehow, with an institution that sold mutual funds. The credit union was a good idea, because they paid interest on my checking account. The mutual funds was a good idea, for me, at the time, because I could afford to buy $50 per month of a mutual fund that historically paid more than what I made off interest with my checking account. It wasn't so risky, because as the mutual fund fluctuated in value, I paid accordingly. And I paid amounts I could afford, that I'd otherwise blow on something I didn't need.
After a couple years investing in more conservative mutual funds, I decided to move that money into one that was less conservative, and start investing in one that was more risky. I felt that if I was gonna be conservative enough to use a mutual fund, I might as well be as risky as possible with it and invest in something global. I also started paying twice as much, since by this time my salary had doubled. I was young, and had lots of working years in front of me. I could afford to lose.
The mistake I may have made was choosing a mutual fund for which I paid a commission of 4.25%. So, every $50/$100 deposit I made was automatically worth $47.875/$95.75. But overall, because of the mutual funds' performances, I still made a hefty profit.
I stopped depositing money into those mutual funds - to avoid paying the commission, but still have two of the three I have deposited money into over the years. I wanted more than they could ever pay: Mutual Funds weren't risky enough for me.
I started buying stocks using an online trading company in 1998. Sort of a mistake, too - but something I learned from. By this time I was making enough money, that I wasn't afraid of risking losing. I've learned more by losing money than in most classroom lectures.
I invested in chunks of $1000 - and I managed to buy a couple IPOs. The worst investment, I eventually sold for $23. On certain days my stock portfolio went up in value over $3000 - and I'd only invested about $17000 in total by that time. Those were the crazy days when NASDAQ was insane. The way I looked at it was the most I could lose on a single investment was $1000. But there seemed to be no limit to how much I could gain.
I stopped looking at it that way in early 2000, when I sold my condo in Chicago and bought a house in San Francisco. Thankfully, I didn't lose too much, since a.) I didn't invest that much (and actually came out ahead in a couple cases), and b.) I had money in other places.
I went back to putting money in the stock market in 2001 after it dropped to a very low point, and have since regained all that was lost, and then some. 2003 was very good, and 2004 was pretty flat, as has been this year.
Now, I'm a little less interested in losing money or gambling. At least until I feel more secure in other areas. I haven't been investing more in stocks, but sometimes sell some I have and buy others with the proceeds. I feel like the allocation I have in the stock market is sufficient. I opened a money market account with my credit union - that I've been a loyal customer of for thirteen years.
Now I deposit rather large chunks of cash into the money market account in addition to contributing extra to the best investment I've made so far: my house.
I feel really good about how I've spread out my money, and all the layers of financial protection I have.
Taking calculated risks, and looking into different investment strategies has worked well for me.
Diversifying our portfolios allows us to have something left if some of our investments fail, or don't pay off.
Over the years, I've made some money here and there, and have had time to make some mistakes. I started out with a savings account, a checking account, a bit of credit card debt, and a student loan. I wrote some checks that bounced, and I was sometimes late paying the minimum due on my one credit card that had a low line of credit and a high interest rate. My credit wasn't so great.
I changed jobs and started working with a state agency that had a credit union which was affiliated, somehow, with an institution that sold mutual funds. The credit union was a good idea, because they paid interest on my checking account. The mutual funds was a good idea, for me, at the time, because I could afford to buy $50 per month of a mutual fund that historically paid more than what I made off interest with my checking account. It wasn't so risky, because as the mutual fund fluctuated in value, I paid accordingly. And I paid amounts I could afford, that I'd otherwise blow on something I didn't need.
After a couple years investing in more conservative mutual funds, I decided to move that money into one that was less conservative, and start investing in one that was more risky. I felt that if I was gonna be conservative enough to use a mutual fund, I might as well be as risky as possible with it and invest in something global. I also started paying twice as much, since by this time my salary had doubled. I was young, and had lots of working years in front of me. I could afford to lose.
The mistake I may have made was choosing a mutual fund for which I paid a commission of 4.25%. So, every $50/$100 deposit I made was automatically worth $47.875/$95.75. But overall, because of the mutual funds' performances, I still made a hefty profit.
I stopped depositing money into those mutual funds - to avoid paying the commission, but still have two of the three I have deposited money into over the years. I wanted more than they could ever pay: Mutual Funds weren't risky enough for me.
I started buying stocks using an online trading company in 1998. Sort of a mistake, too - but something I learned from. By this time I was making enough money, that I wasn't afraid of risking losing. I've learned more by losing money than in most classroom lectures.
I invested in chunks of $1000 - and I managed to buy a couple IPOs. The worst investment, I eventually sold for $23. On certain days my stock portfolio went up in value over $3000 - and I'd only invested about $17000 in total by that time. Those were the crazy days when NASDAQ was insane. The way I looked at it was the most I could lose on a single investment was $1000. But there seemed to be no limit to how much I could gain.
I stopped looking at it that way in early 2000, when I sold my condo in Chicago and bought a house in San Francisco. Thankfully, I didn't lose too much, since a.) I didn't invest that much (and actually came out ahead in a couple cases), and b.) I had money in other places.
I went back to putting money in the stock market in 2001 after it dropped to a very low point, and have since regained all that was lost, and then some. 2003 was very good, and 2004 was pretty flat, as has been this year.
Now, I'm a little less interested in losing money or gambling. At least until I feel more secure in other areas. I haven't been investing more in stocks, but sometimes sell some I have and buy others with the proceeds. I feel like the allocation I have in the stock market is sufficient. I opened a money market account with my credit union - that I've been a loyal customer of for thirteen years.
Now I deposit rather large chunks of cash into the money market account in addition to contributing extra to the best investment I've made so far: my house.
I feel really good about how I've spread out my money, and all the layers of financial protection I have.
Taking calculated risks, and looking into different investment strategies has worked well for me.
Monday, October 31, 2005
Partnership
If you live alone, consider how much you can save by living with someone else, and splitting the cost. A significant other is ideal. A roommate is the next best thing.
One house payment. One property tax bill. One electric / gas bill. One water bill. One garbage bill. One phone / Internet / cable bill. One set of furnature. Maybe only one car payment / gas tank to fill / car to insure. More than one person needs to eat, but only 1 refrigerator needs to keep the food cold. Only 1 oven needs to be in use to cook dinner. More laundry, but not necessarily twice as many loads to be washed and dried.
Twice the income to pay for it all. More job security. It's less likely that two people will lose their jobs simultaneously, than one person at a time.
Overall, this presents a safety-net along with an increased ability to save / invest money that's left over. Money you might not be able to save, alone. After ten or twenty years, the savings can be substantial.
One house payment. One property tax bill. One electric / gas bill. One water bill. One garbage bill. One phone / Internet / cable bill. One set of furnature. Maybe only one car payment / gas tank to fill / car to insure. More than one person needs to eat, but only 1 refrigerator needs to keep the food cold. Only 1 oven needs to be in use to cook dinner. More laundry, but not necessarily twice as many loads to be washed and dried.
Twice the income to pay for it all. More job security. It's less likely that two people will lose their jobs simultaneously, than one person at a time.
Overall, this presents a safety-net along with an increased ability to save / invest money that's left over. Money you might not be able to save, alone. After ten or twenty years, the savings can be substantial.
Friday, October 28, 2005
Carpooling
Transportation, for me, is a big ticket expense. I have to cross the Bay Bridge coming and going to work everyday. I drive 23 miles one way. This must be a big expense for lots of people, because I have to sit in traffic with so many others.
Those crossing the bridge with me have to pay a $3 toll (only going to the city). If I got 23 miles per gallon, which I don't - especially in backed up traffic, a two way trip would use 2 gallons of gas. So, say it costs about $3 / gallon. Therefore, I can expect to pay about $9 per day or $45 / week.
511.org and Craigslist are 2 popular Bay Area sites that have sections for people interested in carpooling. Craigslist is more expansive, you can go there and navigate to other metropolitan areas. Out of 7 months working here, I've carpooled probably about 3 to 4 of them with 2 to 4 persons. When there are 3 or more, we don't have to pay toll. The 2 non-drivers pay $2 each to the driver - which means that if I don't drive, I pay $2. If there are 2 people participating, we can't take the carpool lane, and we have to pay toll. On those days, the passenger pays the driver $3 to cover the toll - which is still about a third what it would otherwise cost.
If my math's right, carpooling for 30 weeks vs. driving myself would save me about $1000 and about 4,600 miles on my car, if I drive 1/3 the time. That's all on top of being eligible to use the carpool lane.
There are some downsides to carpooling. But like putting money into your retirement account, there's a point where you have to balance how comfortable you are with giving up a certain amount of independence to be more financially secure.
Those crossing the bridge with me have to pay a $3 toll (only going to the city). If I got 23 miles per gallon, which I don't - especially in backed up traffic, a two way trip would use 2 gallons of gas. So, say it costs about $3 / gallon. Therefore, I can expect to pay about $9 per day or $45 / week.
511.org and Craigslist are 2 popular Bay Area sites that have sections for people interested in carpooling. Craigslist is more expansive, you can go there and navigate to other metropolitan areas. Out of 7 months working here, I've carpooled probably about 3 to 4 of them with 2 to 4 persons. When there are 3 or more, we don't have to pay toll. The 2 non-drivers pay $2 each to the driver - which means that if I don't drive, I pay $2. If there are 2 people participating, we can't take the carpool lane, and we have to pay toll. On those days, the passenger pays the driver $3 to cover the toll - which is still about a third what it would otherwise cost.
If my math's right, carpooling for 30 weeks vs. driving myself would save me about $1000 and about 4,600 miles on my car, if I drive 1/3 the time. That's all on top of being eligible to use the carpool lane.
There are some downsides to carpooling. But like putting money into your retirement account, there's a point where you have to balance how comfortable you are with giving up a certain amount of independence to be more financially secure.
Thursday, October 27, 2005
Retirement Planning
I notice a lot of people, younger than me, like to plan for their retirement. I think it's great to start planning early, because we all know the government's not likely to take responsibility for us when we're old.
I've had a retirement plan since I was 25. The company I worked for put my money into a pension plan, which I rolled over into a 401(k) plan after leaving that company at 28. When I was 28, all I heard was stories about how you need to start young because that way, when you retire, you'll have loads of money you never paid tax on, waiting for you. They'd show charts comparing someone who started at 16 with someone who waited till he was 50. Oh my! I waited till I was 25!
I can't say whether or not the amount I've deposited into my 401(k) or IRA accounts over the years has been enough or too little. But I can say that the older I get, the more I feel like retirement plans are most useful for those of us who will fail in life. Something just doesn't seem natural to spend your life saving money, and maxing out on your 401(k) so that if and when you get really old, you can suddenly become a millionaire. What are you supposed to do with a million dollars when you turn 69 1/2? How much do you supposed to withdraw per year? The only way that would make sense to me is if I had been a millionaire all along.
The older I get, the more it sounds like banks are taking small amounts of money (lots for you and me) from a massive number of working class people. Then they loan it back to us in the form of credit cards, mortgages, and other types of loans - charging us interest. And penalizing those of us who decide to interfere with their plan by withdrawing some of it before retirment age. I know, I must sound like a conspiracy theorist, again.
Nevertheless, it does bother me to know there are so many twenty-somethings who make barely enough to get by, loading down their 401(k) plans - because they've been brainwashed into thinking one day they'll get rich off of it. How's it invested? Most of us don't really think too much about that sort of thing. They even classify investments with terms like 'Growth' and 'Income'. Sounds good. Mine have been invested in more 'Growth' stocks, for example. So, out of every paycheck, a chunk of my money makes Microsoft's value go up just a really small amount - so someone rich can sell and make a profit - not when I'm an old millionaire, but right now!
It seems like most of the advise about financial planning comes from banks. Of course banks think it's a good idea for you to give them money you can't use till you're seventy years old. And it's especially good if you start doing it early - because they get to keep it for longer - and there seems to be a greater chance you'll never live to see it: It's less likely that a 25 year old will live to be 70 than it is for a 69 year old... Also, they keep moving the target up, so that the 25 year old won't get to claim any of that money he lent the government for decades, until he's in his 80s. Why should any of us live long enough to enjoy some of what we've saved up?
I'm not saying 401(k) plans are a bad thing. Most people probably don't think about retirement at all, and they should. Those plans are especially beneficial when your company matches your contributions, which none of mine ever have, and when the market is performing well, which it hasn't been. They also knock off a chunk of what you will otherwise spend on taxes - which means they work better for those in higher tax brackets. But you know what? Sometimes you can do more with $9,800 you can use for anything you want, today than $14,000 Uncle Sam can use for anything he wants over the next forty years.
When you plan your retirement, keep a little money on hand to invest in some of the things you believe in - and that you, not the government, can decide when it's best to liquidate. When you listen to one of the 'experts' on planning for your retirement - keep in mind most of them are working for banks.
I've had a retirement plan since I was 25. The company I worked for put my money into a pension plan, which I rolled over into a 401(k) plan after leaving that company at 28. When I was 28, all I heard was stories about how you need to start young because that way, when you retire, you'll have loads of money you never paid tax on, waiting for you. They'd show charts comparing someone who started at 16 with someone who waited till he was 50. Oh my! I waited till I was 25!
I can't say whether or not the amount I've deposited into my 401(k) or IRA accounts over the years has been enough or too little. But I can say that the older I get, the more I feel like retirement plans are most useful for those of us who will fail in life. Something just doesn't seem natural to spend your life saving money, and maxing out on your 401(k) so that if and when you get really old, you can suddenly become a millionaire. What are you supposed to do with a million dollars when you turn 69 1/2? How much do you supposed to withdraw per year? The only way that would make sense to me is if I had been a millionaire all along.
The older I get, the more it sounds like banks are taking small amounts of money (lots for you and me) from a massive number of working class people. Then they loan it back to us in the form of credit cards, mortgages, and other types of loans - charging us interest. And penalizing those of us who decide to interfere with their plan by withdrawing some of it before retirment age. I know, I must sound like a conspiracy theorist, again.
Nevertheless, it does bother me to know there are so many twenty-somethings who make barely enough to get by, loading down their 401(k) plans - because they've been brainwashed into thinking one day they'll get rich off of it. How's it invested? Most of us don't really think too much about that sort of thing. They even classify investments with terms like 'Growth' and 'Income'. Sounds good. Mine have been invested in more 'Growth' stocks, for example. So, out of every paycheck, a chunk of my money makes Microsoft's value go up just a really small amount - so someone rich can sell and make a profit - not when I'm an old millionaire, but right now!
It seems like most of the advise about financial planning comes from banks. Of course banks think it's a good idea for you to give them money you can't use till you're seventy years old. And it's especially good if you start doing it early - because they get to keep it for longer - and there seems to be a greater chance you'll never live to see it: It's less likely that a 25 year old will live to be 70 than it is for a 69 year old... Also, they keep moving the target up, so that the 25 year old won't get to claim any of that money he lent the government for decades, until he's in his 80s. Why should any of us live long enough to enjoy some of what we've saved up?
I'm not saying 401(k) plans are a bad thing. Most people probably don't think about retirement at all, and they should. Those plans are especially beneficial when your company matches your contributions, which none of mine ever have, and when the market is performing well, which it hasn't been. They also knock off a chunk of what you will otherwise spend on taxes - which means they work better for those in higher tax brackets. But you know what? Sometimes you can do more with $9,800 you can use for anything you want, today than $14,000 Uncle Sam can use for anything he wants over the next forty years.
When you plan your retirement, keep a little money on hand to invest in some of the things you believe in - and that you, not the government, can decide when it's best to liquidate. When you listen to one of the 'experts' on planning for your retirement - keep in mind most of them are working for banks.
Tuesday, October 25, 2005
Quality and Value
Look for quality and value when you shop. All of us have different spending habits - but sometimes, it's easy to identify a better value. If you need a toaster, go online and research toasters. People from all over give honest reviews. If someone says that they bought toaster brand 'x', because it was cheap - but unfortunately it got just as hot on the outside as it did on the inside, brand 'y' that cost just $5 more, might have been a better value.
I've looked for values and good quality for almost as long as I've been old enough to buy my own things. I've slipped up a few times, and it reminded me to pay more attention.
I'm not an economist, and I know there must be thousands of reasons some items cost more or less than other items that seem to serve similar purposes.
For certain things, it still seems like you get what you pay for. This seems to apply mostly when you're comparing items that haven't been imported - because some things can't be made somewhere else, or it's not cost effective to ship them.
If you buy over-the-counter medicine, sometimes the cheaper ones have the same active ingredients as the ones that cost a lot. I don't know why people would buy the more expensive brands. That doesn't make any sense to me. But people must be buying them, since they're on the shelves. Same with shampoo. You go to the store and there are three-thousand types. About a third of them do exactly the same thing, but the cheapest one cost way less than the most expensive one.
Some of us aren't as careful as others. Don't spend a lot of money on something you know you can't take care of. Some things that are high quality are easily broken, and you're just gonna break it. Ask someone else what time it is. Don't buy expensive wine glasses if you're always knocking over your glass of wine. Don't buy expensive sun glasses if you're always sitting on them.
It's your hard-earned money that you've already had taxes taken out of. When you go out and spend it on something you need, pay attention!
I've looked for values and good quality for almost as long as I've been old enough to buy my own things. I've slipped up a few times, and it reminded me to pay more attention.
I'm not an economist, and I know there must be thousands of reasons some items cost more or less than other items that seem to serve similar purposes.
For certain things, it still seems like you get what you pay for. This seems to apply mostly when you're comparing items that haven't been imported - because some things can't be made somewhere else, or it's not cost effective to ship them.
If you buy over-the-counter medicine, sometimes the cheaper ones have the same active ingredients as the ones that cost a lot. I don't know why people would buy the more expensive brands. That doesn't make any sense to me. But people must be buying them, since they're on the shelves. Same with shampoo. You go to the store and there are three-thousand types. About a third of them do exactly the same thing, but the cheapest one cost way less than the most expensive one.
Some of us aren't as careful as others. Don't spend a lot of money on something you know you can't take care of. Some things that are high quality are easily broken, and you're just gonna break it. Ask someone else what time it is. Don't buy expensive wine glasses if you're always knocking over your glass of wine. Don't buy expensive sun glasses if you're always sitting on them.
It's your hard-earned money that you've already had taxes taken out of. When you go out and spend it on something you need, pay attention!
Thursday, October 20, 2005
Work Smart
Call me a conspiracy theorist. But those who work hardest aren't the ones most handsomely rewarded.
I've worked at 15 companies since I was 16 years old - that's over a 22 year period. I haven't worked consistently throughout the past 22 years. My duration at any given job has ranged from 5 1/2 weeks to 3 years 2 months. The mean has been 1.3 years per company. The mode has been 6 months. For the most part, I left because I found something I thought would be better.
The companies have ranged from being ultra-conservative to anything goes. The sizes (#employees) have ranged from 9 to thousands. 2 of these companies had unions.
There's always been a balance-of-power. Employers give stuff to their employees when they think they may need to. They also take away, when they think they don't need to, or shouldn't have to. If they take away too much from too many, then they lose productive employees - which costs them in other ways. If they give us too much, we get lazy, and start expecting too much.
When your boss improves your standard of living, it's because he recognizes your value, to a certain degree. It's your job to determine whether or not it's enough of a degree. There's no other sure measure. It's nice to make friends at work, but remember those friends are used by your employer to measure your performance against. To believe otherwise is naive.
It may sound strange to some, but at some point I realized I was too driven, and worked too hard. My perception was that the harder I worked, the more I would be recognized. If I wasn't recognized, I'd get bent out of shape and, eventually, quit.
I've always had a decent work ethic. I like to think I still do. But I worked at companies with smart people who weren't used to working so many hours, and had lots of social activities at home. Their paychecks were bigger than mine was. Being capable of working hard is more valuable than actually working hard. To not be viewed by my coworkers as a sycophant, I slowed down my pace. Life improved.
To have worked at the same company 30 years without calling in sick once, is no more spectacular than having the longest toenails in the world. It's just sad. People who do that sort of thing lose out. Anyone who tells them they should be proud of themselves is either as misguided, or a bald-faced liar!
I've worked at 15 companies since I was 16 years old - that's over a 22 year period. I haven't worked consistently throughout the past 22 years. My duration at any given job has ranged from 5 1/2 weeks to 3 years 2 months. The mean has been 1.3 years per company. The mode has been 6 months. For the most part, I left because I found something I thought would be better.
The companies have ranged from being ultra-conservative to anything goes. The sizes (#employees) have ranged from 9 to thousands. 2 of these companies had unions.
There's always been a balance-of-power. Employers give stuff to their employees when they think they may need to. They also take away, when they think they don't need to, or shouldn't have to. If they take away too much from too many, then they lose productive employees - which costs them in other ways. If they give us too much, we get lazy, and start expecting too much.
When your boss improves your standard of living, it's because he recognizes your value, to a certain degree. It's your job to determine whether or not it's enough of a degree. There's no other sure measure. It's nice to make friends at work, but remember those friends are used by your employer to measure your performance against. To believe otherwise is naive.
It may sound strange to some, but at some point I realized I was too driven, and worked too hard. My perception was that the harder I worked, the more I would be recognized. If I wasn't recognized, I'd get bent out of shape and, eventually, quit.
I've always had a decent work ethic. I like to think I still do. But I worked at companies with smart people who weren't used to working so many hours, and had lots of social activities at home. Their paychecks were bigger than mine was. Being capable of working hard is more valuable than actually working hard. To not be viewed by my coworkers as a sycophant, I slowed down my pace. Life improved.
To have worked at the same company 30 years without calling in sick once, is no more spectacular than having the longest toenails in the world. It's just sad. People who do that sort of thing lose out. Anyone who tells them they should be proud of themselves is either as misguided, or a bald-faced liar!
Monday, October 17, 2005
Step Up
If you feel so-so about where you are in life, make a goal to move up a level.
Some of us start off with fewer resources than others. I started off with relatively few. I think I started weighing my options about the time I understood what poor meant. I grew up in an environment that neither encouraged nor rewarded poor people. The place I grew up, in the seventies, seemed to have a special way of making us feel ashamed of ourselves for being poor.
It's easy to take risks when you have little to lose. I had nothing to lose. I felt I deserved better. I joined the Navy. Perfect decision? No. Good decision? Under the circumstances, it was one of the best decisions I've ever made in my life.
Unfortunately, I ask too many questions. Certain organizations just don't ever seem to pan out for people like me. Fortunately, the question "Can I do better?" has come up quite often. And the answer's always been "Yes".
If you're not satisfied with your current station in life, challenge yourself to find a more rewarding alternative.
Some of us start off with fewer resources than others. I started off with relatively few. I think I started weighing my options about the time I understood what poor meant. I grew up in an environment that neither encouraged nor rewarded poor people. The place I grew up, in the seventies, seemed to have a special way of making us feel ashamed of ourselves for being poor.
It's easy to take risks when you have little to lose. I had nothing to lose. I felt I deserved better. I joined the Navy. Perfect decision? No. Good decision? Under the circumstances, it was one of the best decisions I've ever made in my life.
Unfortunately, I ask too many questions. Certain organizations just don't ever seem to pan out for people like me. Fortunately, the question "Can I do better?" has come up quite often. And the answer's always been "Yes".
If you're not satisfied with your current station in life, challenge yourself to find a more rewarding alternative.
Friday, October 14, 2005
Think Big
It's important to pay attention to detail. For example, I've been using online bill payment for quite awhile now. It cost me $5.95 per month, which was about the cost of stamps. The reason I chose online bill payment was its convenience. I also hate the taste of glue on envelopes. A couple months ago, my credit union started offering their own version of online bill payment.
I changed over to them, not only because it saves me about $2 per month. This way I'm not giving all my credit card numbers to a 3rd party bill paying service, even though I did trust them. Besides, it's just as convenient. The savings after an entire year will cover about a 1/2 tank of gas.
You do yourself more justice by concentrating more on big ticket expenses - think of how it can be used to offset some of your other costs. For example, I was paying about $450 every 6 months for auto insurance. I decided to buy one of 3 cars, so I called my insurance company, and asked for a quote on each make and model.
The car I ended up buying, I was told could be insured for roughly $550 every 6 months. I was pretty pleased that it wouldn't cost much more to insure a brand new car than it cost to insure my hooptie.
A couple weeks later, I was sitting in my brand new car in the garage, and called the insurance company to inform them of the change. The woman I spoke with told me it would cost over $900 per six months. I felt like they were holding me hostage. I had to choice, since I needed the insurance. So, I agreed to their terms.
Then I went through those flyers we all get in the mail, and which I save for times like these. A different insurance company offered the same coverage for about $650. So I switched to them, and cancelled with the original company. So they re-imbursed me (pro-rated) for about 5 1/2 months. Almost 6 months passed. Guess who came crawling back to me with their new and improved $528 / 6 months rate?
I saved over $600 in a year - just on car insurance, and all it cost was a couple phone calls. I've saved about that much on homeowners insurance, as well. And that savings carries forward: If I allowed that insurance company to gouge $900 out of me, it would cost me about $1800 for this year, $1800 for next year, and so on... of AFTER-TAX dollars. That's like free gas and electricity! Well, at least it used to be.
It's nice to save a couple dollars here and there, but don't sweat the small stuff until after you've taken care of some of your biggest expenses.
I changed over to them, not only because it saves me about $2 per month. This way I'm not giving all my credit card numbers to a 3rd party bill paying service, even though I did trust them. Besides, it's just as convenient. The savings after an entire year will cover about a 1/2 tank of gas.
You do yourself more justice by concentrating more on big ticket expenses - think of how it can be used to offset some of your other costs. For example, I was paying about $450 every 6 months for auto insurance. I decided to buy one of 3 cars, so I called my insurance company, and asked for a quote on each make and model.
The car I ended up buying, I was told could be insured for roughly $550 every 6 months. I was pretty pleased that it wouldn't cost much more to insure a brand new car than it cost to insure my hooptie.
A couple weeks later, I was sitting in my brand new car in the garage, and called the insurance company to inform them of the change. The woman I spoke with told me it would cost over $900 per six months. I felt like they were holding me hostage. I had to choice, since I needed the insurance. So, I agreed to their terms.
Then I went through those flyers we all get in the mail, and which I save for times like these. A different insurance company offered the same coverage for about $650. So I switched to them, and cancelled with the original company. So they re-imbursed me (pro-rated) for about 5 1/2 months. Almost 6 months passed. Guess who came crawling back to me with their new and improved $528 / 6 months rate?
I saved over $600 in a year - just on car insurance, and all it cost was a couple phone calls. I've saved about that much on homeowners insurance, as well. And that savings carries forward: If I allowed that insurance company to gouge $900 out of me, it would cost me about $1800 for this year, $1800 for next year, and so on... of AFTER-TAX dollars. That's like free gas and electricity! Well, at least it used to be.
It's nice to save a couple dollars here and there, but don't sweat the small stuff until after you've taken care of some of your biggest expenses.
Wednesday, October 12, 2005
Employment
To save money, most of us need to make money.
Most of those of us who need to make money, do so by working for someone else.
Corollary: Since it's better to save more money, it's better to work for someone who pays more money.
Don't take that literally - use good judgment! What I mean is that if you love what you do and where you work, it may not be a good idea to take a chance by changing jobs for fifty-cents more per hour.
Are you making as much as you should? I don't mean as much as you want, but as much as you should. If the answer is truly "no", you need to work out a plan to make more money - even if it means changing jobs. You shouldn't allow yourself to be short-changed any more than you expect your employer has allowed himself to be short-changed by his customers. You're a business person just like he is, and should be paid a fair salary.
I've got an interesting story. Once upon a time, I started working as a programmer, and was paid a meager entry-level salary. When I was up for a raise, I was told the same old story: "You've done a fantastic job, we'd like to pay you more... But unfortunately, this is all we could afford". I changed jobs. At the next company, I heard the same thing after about a year. I changed jobs, again: Only 18 months after I started working at the first company, I was paid double that meager salary. I admit, mine is a special case, and it's because of the quickly approaching dot-com boom.
Now, let's fast forward to 2001 - I was paid a decent salary, and had a substantial bit more experience. But guess what happened? Supply and demand shifted. The company I worked for went out of business. I was suddenly not worth as much, anymore. Remember when I told you how important saving money was?
But the moral of the story is supply-and-demand: If you know your value has increased, don't expect your employer to tell you "John, you're much more valuable now than you were a year ago. We just can't find anybody like you. We've looked and looked, and.. we're gonna double your salary, because you're one of a kind." Unfortunately, your employer will acknowledge when your value has decreased. Sometimes, it's key to remind your boss, professionally and diplomatically, that you know your worth.
Do the best you can. Enjoy your job. Understand your value and contribution. But always remember that we work for a paycheck, and the goal is to make the most money in the shortest period of time.
Most of those of us who need to make money, do so by working for someone else.
Corollary: Since it's better to save more money, it's better to work for someone who pays more money.
Don't take that literally - use good judgment! What I mean is that if you love what you do and where you work, it may not be a good idea to take a chance by changing jobs for fifty-cents more per hour.
Are you making as much as you should? I don't mean as much as you want, but as much as you should. If the answer is truly "no", you need to work out a plan to make more money - even if it means changing jobs. You shouldn't allow yourself to be short-changed any more than you expect your employer has allowed himself to be short-changed by his customers. You're a business person just like he is, and should be paid a fair salary.
I've got an interesting story. Once upon a time, I started working as a programmer, and was paid a meager entry-level salary. When I was up for a raise, I was told the same old story: "You've done a fantastic job, we'd like to pay you more... But unfortunately, this is all we could afford". I changed jobs. At the next company, I heard the same thing after about a year. I changed jobs, again: Only 18 months after I started working at the first company, I was paid double that meager salary. I admit, mine is a special case, and it's because of the quickly approaching dot-com boom.
Now, let's fast forward to 2001 - I was paid a decent salary, and had a substantial bit more experience. But guess what happened? Supply and demand shifted. The company I worked for went out of business. I was suddenly not worth as much, anymore. Remember when I told you how important saving money was?
But the moral of the story is supply-and-demand: If you know your value has increased, don't expect your employer to tell you "John, you're much more valuable now than you were a year ago. We just can't find anybody like you. We've looked and looked, and.. we're gonna double your salary, because you're one of a kind." Unfortunately, your employer will acknowledge when your value has decreased. Sometimes, it's key to remind your boss, professionally and diplomatically, that you know your worth.
Do the best you can. Enjoy your job. Understand your value and contribution. But always remember that we work for a paycheck, and the goal is to make the most money in the shortest period of time.
Tuesday, October 11, 2005
Needs vs. Wants
Things you want, you can get tomorrow - if you concentrate more on the things you need, today.
Let's take a look at some of the things we all need - as they do vary.
We need to eat right and take care of ourselves. Health needs change over time. So, we need food, and some of us may need medicine. Some of us may need to exercise more than others. As you age, your health needs become more expensive.
We need a place to live - whether we rent or own.
If you rent, you need to think about owning. If anyone tells you otherwise, he's full of shit. At a certain point, it should be right to buy. If you wait too long to buy, it will become more difficult. After awhile it becomes impossible. If you don't believe me, find a retiree who never owned his own house, and ask him.
As long as you rent, you're paying someone else's mortgage and/or property tax. If you have one goal in life, it should be to own your home. After a good education, it's the best investment you can possibly make. I've changed my mind about lots of things over the years, but I doubt anybody will ever convince me to change my mind about this.
Buy a house you can afford. There are lots of expenses involved in owning a home. Do some research. Renting should be a temporary solution that gets you on your feet, and eventually allows you to own the place you live in.
Let's take a look at some of the things we all need - as they do vary.
We need to eat right and take care of ourselves. Health needs change over time. So, we need food, and some of us may need medicine. Some of us may need to exercise more than others. As you age, your health needs become more expensive.
We need a place to live - whether we rent or own.
If you rent, you need to think about owning. If anyone tells you otherwise, he's full of shit. At a certain point, it should be right to buy. If you wait too long to buy, it will become more difficult. After awhile it becomes impossible. If you don't believe me, find a retiree who never owned his own house, and ask him.
As long as you rent, you're paying someone else's mortgage and/or property tax. If you have one goal in life, it should be to own your home. After a good education, it's the best investment you can possibly make. I've changed my mind about lots of things over the years, but I doubt anybody will ever convince me to change my mind about this.
Buy a house you can afford. There are lots of expenses involved in owning a home. Do some research. Renting should be a temporary solution that gets you on your feet, and eventually allows you to own the place you live in.
Monday, October 10, 2005
Getting Started
Save money.
It's yours. You worked hard for it. Spend it wisely. It sounds so easy, and straightforward - yet just about everyone I know wastes theirs on frivolous items or things they don't need.
I'm not saying to be a miser, or to worship money. In fact, I think it's nice to be a good tipper, and to indulge every once in a while.
I'm saying to shop around, and look for values - because they're everywhere. Don't pay for stuff you'll never use or only use once. Don't pay more for something that cost much less somewhere else.
There are lots of things we can't have too much of. One of those things is certainly money - no matter what anyone, ever tries to tell you. Because things go wrong: the roof needs to be replaced, the car breaks down, you lose your job, the furnace breaks, the price of oil goes up...
You name it, it can go wrong, and money will be very nice to have some of, when that happens.
Ordinary people can't afford brand new luxury cars - but they somehow manage to drive around in them, all the time. Ordinary people can't afford first-class tickets - but you see them flying first class. It looks impressive and all, but after the ride's over, they just have emptier bank accounts, higher credit card debt, and worst of all: regret.
So, shop around for lower cost insurance. Compare prices online. Plan for tax breaks. Carpool. Buy the value size if it won't go bad. Clothes? My shirts don't last much more than several months, simply because washing causes the fabric to deteriorate. Do I buy designer fashion? Hell no!
Train yourself to spend prudently. You might be surprised at how much further your paycheck can go.
It's yours. You worked hard for it. Spend it wisely. It sounds so easy, and straightforward - yet just about everyone I know wastes theirs on frivolous items or things they don't need.
I'm not saying to be a miser, or to worship money. In fact, I think it's nice to be a good tipper, and to indulge every once in a while.
I'm saying to shop around, and look for values - because they're everywhere. Don't pay for stuff you'll never use or only use once. Don't pay more for something that cost much less somewhere else.
There are lots of things we can't have too much of. One of those things is certainly money - no matter what anyone, ever tries to tell you. Because things go wrong: the roof needs to be replaced, the car breaks down, you lose your job, the furnace breaks, the price of oil goes up...
You name it, it can go wrong, and money will be very nice to have some of, when that happens.
Ordinary people can't afford brand new luxury cars - but they somehow manage to drive around in them, all the time. Ordinary people can't afford first-class tickets - but you see them flying first class. It looks impressive and all, but after the ride's over, they just have emptier bank accounts, higher credit card debt, and worst of all: regret.
So, shop around for lower cost insurance. Compare prices online. Plan for tax breaks. Carpool. Buy the value size if it won't go bad. Clothes? My shirts don't last much more than several months, simply because washing causes the fabric to deteriorate. Do I buy designer fashion? Hell no!
Train yourself to spend prudently. You might be surprised at how much further your paycheck can go.
Inspiration
You can do it.
How many times have you been told that? I can't count the number of times I've been told how smart I am. I surround myself with people who think I'm one of the smartest people they've ever known.
It's odd, because I'm utterly average. But I somehow find myself associating with quality people - and veering away from losers and lowlifes. Quality people make you feel special. They have enough confidence in themselves to be able to compliment others.
If the important people in your life are telling you you don't have what it takes, you are associating with the wrong people. Make friends who recognize your qualities, and avoid those who point out your weaknesses.
I can't take all the credit for all the financially sound decisions I've made. I have to acknowledge contributions important people in my life have made, by consistently pointing out what I can do.
How many times have you been told that? I can't count the number of times I've been told how smart I am. I surround myself with people who think I'm one of the smartest people they've ever known.
It's odd, because I'm utterly average. But I somehow find myself associating with quality people - and veering away from losers and lowlifes. Quality people make you feel special. They have enough confidence in themselves to be able to compliment others.
If the important people in your life are telling you you don't have what it takes, you are associating with the wrong people. Make friends who recognize your qualities, and avoid those who point out your weaknesses.
I can't take all the credit for all the financially sound decisions I've made. I have to acknowledge contributions important people in my life have made, by consistently pointing out what I can do.
Educate Yourself
One of the most rewarding things I ever did for myself was go to school, study, and learn.
School isn't just about learning math, science, and art - it's one of the best investments you can ever make - an investment in yourself.
You're never too poor, old, or dumb to go to college. If it means putting your life on hold, put your life on hold. Don't tell yourself Michael Dell and Bill Gates didn't need it: They're not ordinary. Don't tell yourself it's too late. Of course it's better to go when you're young - our minds are more malleable when we're young. Also, it's easier to scrounge around and be a starving college student when we're young. We can work crap jobs when we're young, because we know one day we won't have to do that anymore. College gives you a sense of hope, and light at the end of the tunnel.
The best thing about college is that when you've completed your degree, it's yours, and nothing can un-do it. The economy, the healthcare system, the tax laws... Nothing. It's yours, and the economy might not be fluorishing when you graduate - as it wasn't when I did - but things change, and you still have your college degree.
Don't let anyone tell you it's not important.
You don't know what to major in? I didn't. I chose Electrical Engineering. I chose that major because I knew it would be challenging, and would look good on my resume someday. I've never been an Electrical Engineer. I didn't become an entry level programmer because of my winning personality. I became a programmer because I had a Bachelor of Science in Electrical Engineering.
If there's a golden rule for an ordinary person to be successful - it would be to never stop learning.
School isn't just about learning math, science, and art - it's one of the best investments you can ever make - an investment in yourself.
You're never too poor, old, or dumb to go to college. If it means putting your life on hold, put your life on hold. Don't tell yourself Michael Dell and Bill Gates didn't need it: They're not ordinary. Don't tell yourself it's too late. Of course it's better to go when you're young - our minds are more malleable when we're young. Also, it's easier to scrounge around and be a starving college student when we're young. We can work crap jobs when we're young, because we know one day we won't have to do that anymore. College gives you a sense of hope, and light at the end of the tunnel.
The best thing about college is that when you've completed your degree, it's yours, and nothing can un-do it. The economy, the healthcare system, the tax laws... Nothing. It's yours, and the economy might not be fluorishing when you graduate - as it wasn't when I did - but things change, and you still have your college degree.
Don't let anyone tell you it's not important.
You don't know what to major in? I didn't. I chose Electrical Engineering. I chose that major because I knew it would be challenging, and would look good on my resume someday. I've never been an Electrical Engineer. I didn't become an entry level programmer because of my winning personality. I became a programmer because I had a Bachelor of Science in Electrical Engineering.
If there's a golden rule for an ordinary person to be successful - it would be to never stop learning.
Purpose
My goal is to share some of the decisions I have made, and continue to make, that I feel have helped me gain, and continue to gain, a growing degree of financial independence.
Of course not every decision may apply to every person at every step of his or her life. But, overall, my goal is to, within a given context, help average people make decisions that will help them rely more on themselves and less on others. Each of us has different goals, responsibilities, and aspirations.
I encourage you to comment on some of the steps you have taken that you believe have led to successful outcomes. I welcome most posts, but discourage disscussions that involve such things as gambling, speculative investments, and buying lottery tickets - since ordinary people, like us, don't generally tend to gain financial success by being lucky.
I also encourage you to challenge some of the advice I have. Remember, I'm ordinary, and some of my success may have come from good timing, or a good economy, or an upturn in the market. I'm not an economist - I've just made lots of decisions that seemed like common sense, and good judgment, that have taken me relatively far from where I started off.
Of course not every decision may apply to every person at every step of his or her life. But, overall, my goal is to, within a given context, help average people make decisions that will help them rely more on themselves and less on others. Each of us has different goals, responsibilities, and aspirations.
I encourage you to comment on some of the steps you have taken that you believe have led to successful outcomes. I welcome most posts, but discourage disscussions that involve such things as gambling, speculative investments, and buying lottery tickets - since ordinary people, like us, don't generally tend to gain financial success by being lucky.
I also encourage you to challenge some of the advice I have. Remember, I'm ordinary, and some of my success may have come from good timing, or a good economy, or an upturn in the market. I'm not an economist - I've just made lots of decisions that seemed like common sense, and good judgment, that have taken me relatively far from where I started off.
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