Investing in stocks doesn't need to be scary

 

1. Diversify

    Learn about proper asset allocation. This is the practice of making sure all of our eggs aren't in the same basket. This reduces risk and can increase our returns over time.

2. Avoid high fees
    
    Don't buy investment products like annuities or mutual funds without knowing what fees we'll be paying. Shop for a broker or financial services company with reasonable fees. High fees will erode investment returns by a Large amount over time don't pay them.

3. Ignore headline news

    Most finance news is produced for daily consumption. Getting wrapped up in these short term market headlines is a big mistake. Reacting to daily news can lead to buying at the top or selling at the bottom of a market cycle.
    
4. Know what you're buying

    Know what the company does and be able to explain it to anyone in simple terms. This way, when market forces change or competition increases, we will be in a better position to understand the risks of continuing to hold our original investment.

5. Some risk is necessary

    In order to insure a reasonable return on our investments some risk is necessary. Keeping our savings in only stocks means we lose big when the market turns down. The opposite is true if we keep all of our savings in CDs and bonds. Large market moves up will be missed; we'll run the risk of not getting high enough returns to accumulate the savings needed for a secure retirement. Everyone has a different comfort level, balance your portfolio the way that is best for you. See you next week Finwiz.

More personal finance mistakes we should avoid

1. Spending more than we earn

   With credit cards, spending more than we earn is easier than ever. We must be committed to paying off the monthly balances we've charged. Carrying cash for purchases will keep us out of trouble if we can't make that commitment.

 2. Always financing large purchases

   Not that long ago it was customary to save up for big items. Paying cash for cars or even a home was something many people used to do. Today lots of us finance TV’s, iPods, and furniture because we can get a 6-12 month interest free loan. This is great if we are committed to paying off the balance before the end of the free period. Once that period ends the finance company is betting a group of us will opt to make minimum payments netting them a small fortune in compound interest. Don't be part of that group.

 3. Buying the newest gadget

   Don't buy the newest mobile phone or tablet on their release date. Wait a few months and many of these products are reduced or even included in our contracts for free. I've found several refurbished gadgets on eBay for close to 50% off original prices. Finwiz.

Saving every payday is a good goal

    Automatically transferring a certain percent of what we earn into savings is a time tested way to accumulate retirement funds. If we deposit 5 or 10 percent of our income every payday we don't see that money as immediately spendable. Open a Roth IRA or traditional IRA and make the same automatic transfers and that savings compounds tax free. Always take advantage of employer 401k plans. Employers may only match up to 2-3 percent of our yearly income but that is a 100 percent return for us with no risk. Remember to review savings goals from time to time. See you next time Finwiz.

The power of dividend paying stocks

  

   We shouldn't forget the power of a dividend paying stock. A three percent dividend sounds very boring at first, let's take another look. If we purchased 50 shares of a stock priced at $20 paying a dividend of $0.60 a share annually that means it yields three percent. Mathematically that's $0.60 X 50 = $30 on our $1000 investment. Most companies raise this dividend over time. Many companies have a track record of raising dividends for twenty years in a row. We make money if the stock price goes up, and we make money on the dividend over time. Big gains are made when both happen over time. When stock prices increase in value companies usually increase their dividends to keep their yields in line with competitors. If our stock purchase above increased in value to say $30 a share over a period of time and increased its dividend to keep the yield at around three percent it would now pay $0.90 per share. The yield on our original investment is now 4 1/2 percent not 3 percent. Mathematically that's $0.90 X 50 = $45 annually on our $1000 investment. Do some research and invest only in companies that have a record of increasing their divided over time. Don't forget to tell Finwiz what you find.

Four ways to become a better investor

1. Study with a purpose

     We need to study the areas of the stock market we are unfamiliar with. We don't want to invest in a company when we can't understand what it does or how it makes a profit. Studying different sectors of the stock market leaves us in a better place to spot an opportunity when it presents itself. 

2. Motivation

     We must stay motivated about our future goals. We must have the tenacity to set goals, continue to review them, and make changes if necessary. No one is going to do this for us.

     

3. Know your strengths and weaknesses

     Every investor creates a track record over time. Review this track record for strengths and weaknesses. Try to learn something from past mistakes and remember our strengths represent a competitive advantage in the market place.

4. Knowing the time factor

     It takes time to become an expert in all worthwhile endeavors.  We should expect becoming a better investor to be an ongoing process. After almost twenty years I still study and review on a weekly basis. Overtime we develop and refine our own individual style of investing. See you next time Finwiz.

Personal finance is something we need to teach ourselves because we won't learn it in school

   I learn new things about personal finance all the time. Continual education is a must in personal finance. The following is a list of subjects we should study over time.

1. Household budgeting
2. Investing
3. Purchasing a home, condo, or rental property
4. Retirement planning
                                                        5. Estate planning

  Failing to educate ourselves in these subjects has huge hidden costs. Making a plan to set aside a small block of time for daily or weekly study will make a large difference in our future financial success. See you next time Finwiz.

Increase the spending power of your dollars with coupons

   This is a great way to stretch our dollar at the grocery store. Some stores allow us to use store coupons and manufacturers' coupons on the same item- a practice called stacking- take advantage of this when you can. There are a few stores, like Bed Bath and Beyond, that take expired coupons so it's worth asking. A fairly new practice is for stores to issue a specific dollar off with minimum purchase, like $10 off $50 minimum purchase. Try not to spend more than the minimum amount. The store hopes you will, which is why they switched to these coupons instead of 20% entire purchase coupons. Finwiz.

Five things we can do with the raise we just got.

1. Pay off debt fast.

        This is the best way to get ahead in our personal finances. Money that would be paid as interest can be invested and creates a positive return over time.

2. Start funding a Roth IRA or 401k.

        Tax deferred accounts allow our invested capital to grow faster by investing those funds for many years and paying taxes later.

3. Increase our emergency fund goal.
        

        Build and continue to maintain an emergency fund. Increasing the amount we have in it over time is a good way to stay ahead of inflation.

4. Find a good charity

        Giving to causes we believe in is one of the best reasons to save in the first place. Make sure to check their credibility to avoid fraudulent organizations. Charity Navigator online is a great way to insure funds are used in a proper way.

5. Enjoy some for ourselves.

        We just got that raise for a reason, go have some fun. Doing something that takes us out of our comfort zone may open new doors or lead to a new hobby. Finwiz.

The only smart way to use credit cards

1. Use credit cards on preplanned budget items.

  If you don't have a budget do not use credit cards. It's too easy to pull them out for items you haven't expensed for or even really need.

2. Record our credit card spending through out the month.

  Making a ledger or using online resources to keep track of our ongoing monthly balance is a big help. This way we are clear about the debt we are accruing, we don't want to exceed our preplanned budget.

3. Pay our balances off every month.

  Paying interest on credit card balances is probably the most unwise use of money there is in managing personal finances.

4. If we don't have the ability or will power to follow steps 1-3 above don't use credit cards.

  Research shows that credit card users spend more than non-users. Spending more and carrying a monthly balance will get anyone into financial trouble quickly, Finwiz.

How much should we save in an emergency fund?

  The best way to deal with future financial troubles is to have a plan in place before they begin. I recommend having an extra five thousand (as a minimum) set aside for these expected but sometimes untimely scenarios. Health plan deductibles, car repairs, and home repairs are a few examples none of us like to spend money on. We don't want to borrow money or dip into retirement savings for these types of expenses. We run the risk of paying high interest on loans and not replacing retirement savings, not to mention a withdraw right before a market run up. I believe an emergency fund should be established before other savings vehicles. We will have less of a chance of getting stuck in the above examples. If five thousand is high for our current income levels, we can start with setting one thousand as a savings goal and try to repeat that plan five times. Finwiz.

Creating a budget makes becoming financially sound easier

   Most of us have the feeling that budgeting is an arduous process, but it's really very simple. We do need to spend some time collecting our monthly income and expenses. Once we've collected all these numbers it's just a matter of doing a monthly review to stay on track.

1. Get your monthly bills for the last six months and list all monthly income you receive.

2. Create a list of all monthly expenses fixed and variable. Including our walking around or pocket money on the expense side of our ledger builds some flexibility into our budget.

3. Total all expenses in one column and all income sources in another.

   More income than expenses! Great!  Add a savings program into our budget.  More expenses than income, work needs to be done in the budget process. We will need to look at variable expenses first to see where savings are possible. We could be spending too much on luxury or entertainment items. Look at how much walking around money you've been budgeting every month and cut back a little at a time, if necessary. When debt payments are a large part of our budget expense, focus on paying it down. When we eliminate debt  from the expense side of our budget, we create the positive cash flow that allows us to save. Isn't saving the reason we create a budget in the first place? Finwiz with contributions from Catherine P.

Seven more money wasters

1. Lottery tickets

2. Cigarettes

3. Buying on impulse 

4. Unused gym memberships 

5. Brand name groceries
6. Bundled cable and phone services
7. Eating out

    My intent here is not to take the joy out of life. We must be aware of excessive spending on feel good items. Eating out is fine once or twice a week if we can afford it. A lottery ticket can be fine for entertainment as well. We might look at our budget and find out one or more of these items takes more of our income than we thought. Looking for expenses that could be reduced a little should be part of our budgeting plan. Finwiz

Be more successful by combining finances after marriage

  Once you make the commitment of marriage, it's a good idea not to hide anything from your spouse. Sit down with your spouse and make plans to consolidate debt and start a long term savings plan. Combine accounts like savings and credit cards. I would make checking accounts joint also. This makes it more necessary to discuss big purchases together. The idea here is to make sure both of you have skin in the game. When one partner is responsible for utility bills the other has no incentive to turn off lights or lower the thermostat. In another example, if only one spouse pays the mortgage it cuts their chances to pay down that debt sooner and reduce loan costs. In the long run combining finances will make it easier to plan and stick to a budget. Living a more frugal life by planning things together leads to huge savings over years and decades. Finwiz.

Five ways to waste money, don't follow the crowd

1: Becoming car poor
    
      Don't decide you can have a car payment all the time and trade cars as soon as the old one is paid for. This sets up a perpetual interest paying machine going out instead of coming in. Buy a three year old vehicle if you can't pay it off in two or three years ,then keep the car for awhile once it's paid for.

  2: ATM surcharges
        
      Paying somebody to access our own money is one of the craziest ways to waste money. Get an account that reimburses you for these fees or plan your cash purchases for the week and just go make one withdraw.

3: Throwing away coupons

      Check the backs of store receipts and the local paper for coupons and you might be surprised what you can find here. It only takes a few minutes before tossing these in the garbage and saving around a thousand dollars a year is not an unreasonable goal.


4: Buying magazines one at a time.

      This is an easy one. Lots of magazines that sell for five dollars an issue are only fifteen to twenty dollars for a whole year. Make the  decision to save that extra forty bucks. It may only seem like it's five bucks but over time that's money that could be compounding for you instead of against you.
      
5: Not trying generic

       There are lots of products,  aspirin, tissue, cereal, etc. where there isn't much difference between brand names. I agree that sometimes there is as well. Try a generic name once in awhile and if you don't see a marketable difference you've just found some permanent future savings.

Teaching children about saving is easy

  Teach children the habit of saving early, and they will carry the habit into adulthood. Start a passbook savings account for them. They can visually see the results of saving at a young age this way. Use different envelopes or cans to separate savings from things they want to buy like toys or gadgets. Make them save some of their allowance or lawn mowing money, and it will become a habit they enjoy permanently. I like the idea of charting long term savings and short term wants. They can see how far they are from getting that new toy or game while still having the ability to keep something for a rainy day in the future. Teaching them this kind of balancing is going to be an invaluable life time lesson. See you next time. Finwiz.

The only answer to true independence: Managing our personal finances

  

  
   It's essential to our long term wellbeing to manage our personal finances and know that this responsibility starts and ends with us. It's more important than ever to grasp the reality that no one can manage our finances better, it is up to us.

 1. Never borrow money if you don't understand the risks.
 2. We can't spend more than we earn.
 3. Separate what you want from what you need.
 4. Set aside time to read about money management.
 5. Money management skills are learned through trial and error, don't get frozen out of the process due to fear.

    See next week. Finwiz.

Three ideas for my college friends

                                                          1: Live below your means

    You don't have to play the role of starving artist, but you do need to keep track of where your money is going. The key is making and keeping a budget. Quicken and mint.com are perfect and free services to stay on track.

  2: Work too

    I worked part time during the school year and full time in the summer. Keeping at least a part time job helps with unexpected expenses or allows you to enjoy a social life and to go out a little.

 3: Start saving now

    It's never too early to start saving. I suggest opening a Roth IRA and funding it at least partially during your college years. Putting as little as ten dollars a month in a retirement account will, if nothing else, teach you the tenacity it's going to take to retire young.

See you next time. Finwiz.

Some simple investment advice

1: Be realistic

     Don't think you'll just win the lottery some day and everything will be fine, it just doesn't work like that. It's steady savings in small amounts that leads to large savings accounts period!

2: Diversify

     Don't make large bets in just one type of investment. Diversify across asset classes and different industries. This evens out the swings in portfolio values and let's us sleep better.

3: Have fun

     Developing our own style of investing and saving should be fun. I like to buy stock in products I use. When I buy products from these companies I'm actually buying from my self. Owning a few utility stocks that pay dividends makes paying the heating bill a little easier too. There are a large number of ways to hedge in this manner, finding a new one is lots of

fun for me

4: Use only money that won't be needed for at least five years.

     Don't gamble with your savings. Remember day traders live day to day, investors live where they want to. View stock purchases and building a portfolio as a marathon not a sprint. If we don't have the funds to invest and leave in that investment for several years it shouldn't be in the stock market. If there's any chance we might need to use these funds for other expenses they should be put in a savings account or emergency fund.

Be aware of these retirement mistakes

   1. You'll just work forever

      Do any of us really think this is a good excuse to not save. Becoming a future ward of the state is no retirement plan.

   2. Not using all your company has to offer

      Use all the benefits at your disposal at work. This can include 401 k, health insurance, dental insurance, and don't forget flexible spending accounts.

   3. Not including a tax strategy

      Using IRA's and 401k's to reduce adjusted gross income is a huge boost to retirement savings. Not knowing how our decisions increase or lower our year end tax liability is one of the biggest mistakes we can make.

   4: Guessing the math

      We shouldn't just guess about how much savings we'll need to retire. There are many types of retirement calculators we can use to help us decide how much we should be saving. We do need to make some long term assumptions with return rates. Keeping these low makes sure we hit our targets. It's usually better to error on the side of over saving not under saving. Finwiz.

Ways to help you through a recession:

Have an emergency fund

Spend less

Shop smart

Stockpile sale items when possible

Pay down your debt
Make do with what you have
Make things last
Cut down on energy consumption
Learn to DIY (Do it Yourself)
Make yourself invaluable at work

This is a good list to start with. There are many other great ideas. Finwiz.

Four ways to simplify your finances

                                              1. Automatic transfers

    Take advantage of direct deposits, checkbook transfers, and paycheck deductions so you don't ever touch the money you want to save. The fewer times you touch your money the less you'll be tempted to spend it.

2. Online bill pay

    This saves time, money, ( stamps, checks, etc. ) and is free with many financial accounts or credit cards. You can schedule these in advance on a specific date thus never having a late payment, and you won't lose interest by paying too early.
  
3. List things to accomplish

     This helps me a lot because it's right there in front of me. Day to day tasks or savings goals need to be on your mind if you tend to procrastinate or put them off. By checking off listed items, you get a sense of accomplishment and stay on track to meet goals.

4. Budget

     This is an oldie but goodie. No one likes to do it, but if we track our spending, there can be no doubt where our weakness to spend or short comings to save are coming from, just do it. See you next time. Finwiz.

Five key risks in retirement.

                                       1.) Longevity Risk

   There is a 50% chance either a husband or his wife wife aged 65 will live to 90 and a 25% chance one will reach 94. Therefore, couples need to plan for the real possibility they’ll need 25 or 30 years of post-retirement income.

2.) Inflation Risk

  Annual inflation  of 2% that’s been in place the last two decades will erode the purchasing power of a retiree by 40%, assuming 25 years in retirement. Inflation could be higher and erode savings much faster.

3.) Asset Allocation  Risk

  History shows equities provide the long-term growth that is needed to provide retirement income. To protect against volatility while still generating growth, retirees need a diversified portfolio that includes stocks, bonds and cash.

4.) Withdrawal Rate Risk

  Stock market volatility shows the need for conservative rates of withdrawal to avoid running out of money before you run out of life. Outliving your investments rises with annual inflation-adjusted rates over 4 to 5% of the original value of a portfolio.

5.) Healthcare Risk

  In 2010, a Fidelity survey highlighted retiree concerns about healthcare costs beyond what is covered by government or private insurance. 39% of retirees believe such costs could deplete their savings and lower their standard of living. Finwiz.

Money Habits to retire young

 

   Taken together, here are four money habits that will make you rich:

Save and Invest

  Always, always, always save and invest a portion of your income. Start out at 10%, and increase it each year from there until you’re setting aside a large percentage. If you do this from your very first job on, you’ll have painlessly accumulated a good sum of money.

Diversify Your Investments

  Things happen to all of us, no matter how charmed our lives might be most of the time. Investments go bad, employers go out of business, and skills become outdated. Invest across industries, companies, and types of investments — and understand your investment choices. Make sure you aren’t devastated by a job or income-source loss by having multiple things to fall back on.

Prepare For Emergencies

  Keep an emergency fund on hand. This emergency fund should be accessible and safe, not in investments. Laddered CDs can work, so long as you’ve got enough in them to leave you with a year’s worth of expenses after early withdrawal penalties.

Insure Against the unknown

  Keep a good health insurance policy and disability policy in force. Health care expenses are a big cause of bankruptcy, so guard against them even if you’re young and healthy. No one plans to get sick or injured.

 Use these good money ideas and you'll be on your way to a happy retirement or whatever else you want.  Which path will you choose? Finwiz.

Becoming financially secure is about learning to be the CEO of your own savings

 

   When social security and company pensions were first set up most retirees lived less than ten years in retirement. Longer life spans for both men and women means living for 25- 35 years in retirement, no generation has ever done or tried this before. Living off of savings and investments for 25 years or longer is going to require skills not taught to most of us in school. Current school of thought says we can withdraw four percent of current assets and not outlive savings. We need to do some backwards math to see how much to accumulate for the income we need in retirement. Someone that would like fifty thousand annual income would need to calculate the following equation with x = savings;  x times 4%= $50,000 so x = $50k divided by 4% or $1.25 million. Learning the math behind retirement is just as important as savings itself. When we have a handle on how much we need to retire secure, it's easier to create a plan to accumulate those assets. The more we read about personal finance strategies the better prepared we're going  to be down the road. Finwiz.

Automate your savings with these simple ideas

                                                         1: Direct Deposit Into Savings

     This makes the amount you want to save easy, gets you discounts on ATM fees, and save you the agony of a lost paycheck.

 2: Schedule Periodic Transfers

     Transfers of just $50 a month from a checking account to an IRA or Roth IRA will add up to large sums over time.

  3: Saving Money Using Credit Card Rewards

     I love this one. As long as you pay off your entire balance every month why not get paid to charge. You can buy gift cards at reduced rates or just reward yourself.

  4: Ignore Raises, Bonuses, And Surprises

     This is the best way to save long term with no reduction to your take home pay. When you get a raise, just pretend you didn't and save that income in a tax efficient manor. If you can't do this, there's no chance you're ever going to save (read my first post back in May). Later, Finwiz

Saving isn't enough to be financially secure, understanding how debt works against us is key

    If we take out a 30 year $150,000 mortgage at a fixed rate of 4% and buy a home, how much debt are we in? Most accounts and bankers would say that's easy $150k. We have just committed to $760.03x 360mo.= $273,000 that's $123,000 in interest over that 30 year mortgage. We may be 150k in debt technically, but in reality we're going to need 273k plus cash flow to pay back that loan. Understanding this reverse compounding is a key lesson in personal finance. If we aren't careful about borrowing, any savings we accumulate will just be spent paying back loans.

   Let's save an instant 80k. Take out a 15 year $150,000 mortgage at a fixed rate of 3.5% and we pay back only $1072.32x180mo.= $193,018. We just saved 80k in interest to invest or spend on other things. Few people ever notice that payments on 15 year loans usually increase our monthly payment by a manageable amount not 100%. In the above example paying another $300 a month over 15 years we save 80k, that's a lot of coin. Finwiz.

Don't keep putting off saving for retirement

   The excuses I hear for not starting savings are comical: I need to pay off my credit cards first, I'll wait until I get married, I have student loans to pay off, and my all time favorite, I'll wait until I have more money. Don't make excuses, you need to plan for retirement as early as possible. Consider the following information on what you need to save (based on starting age) to have a million by age 65. For simplicity I assume an 8% return.                             

                                                                                                                

Age 20 $200  mo.

Age 30 $450  mo.

Age 40 $1055 mo.

Age 50 $2850 mo.

   The cost of waiting is just too high! Einstein once said  "compound interest is the eighth wonder of the world". You can see in the above table we only get that 30 or 40 years of compounding once. Don't just make the assumption that a million is enough either. Inflation of 3% a year will cut the dollars purchasing power in half over 25 years. My twenty and thirty somethings' readers should consider a much higher savings goal. In other words 25 years from now you guys will need  two million to have the purchasing power one million has today. SAVE! SAVE! SAVE! Finwiz.

You got the job, now what?

1:  Take advantage of any retirement plan as soon as you qualify. Even if your employer's plan doesn't match contributions you're reducing taxable income, a large part of any good  financial plan.

2:  Create a budget and track spending. You need to know where your money goes so you can learn to recognize bad spending habits and change your pattern.

3:  Build a good credit history right away. Don't charge anything on a credit card you can't pay off when the bill comes. If you can't do this, go to the bank and use cash for all expenses. We think about purchases a little longer when breaking a fifty dollar bill than we do when pulling out the plastic.

Later. Finwiz.

What should come first paying off debt or saving?

 The answer is going to be different depending on our individual situation, there isn't one answer fits all. There are advantages in both situations.

  Paying off debt first (this works best for me)

      1. Peace of mind

      2. Frees up income, higher cash flow

      3. Less debt usually equals higher credit scores

       

 Saving first 

      1. Gives you a cash cushion 

      2. Starts the magic of compounding sooner

      3. Gets you into the habit of paying yourself first

 I recommend looking at the interest rates in either situation. If you can get a 3% return at the bank, why pay back a car loan that is 1%? When you have a mortgage rate of 4.5% make an extra payment instead of saving it at 3%. It's about making the decision that maximizes your return. Finwiz.

Money habits to retire young

   Taken together, here are four money habits that will help you retire young:

Save and Invest

   Always, always, always save and invest a portion of your income. Start out at 10%, and increase it each year from there until you’re setting aside a large percentage. If you do this from your very first job on, you’ll have painlessly accumulated a good sum of money.

Diversify Your Investments

   Things happen to all of us, no matter how charmed our lives might be most of the time. Investments go bad, employers go out of business, and skills become outdated. Invest across industries, companies, and types of investments — and understand your investment choices. Make sure you aren’t devastated by a job or income-source loss by having multiple things to fall back on.

Prepare For Emergencies

   Keep an emergency fund on hand. This emergency fund should be accessible and safe, not in investments. Laddered CDs can work, so long as you’ve got enough in them to leave you with a year’s worth of expenses after early withdrawal penalties.

Insure Adequately

   Keep a good health insurance policy and disability policy in force. Health care expenses are a big cause of bankruptcy, so guard against them even if you’re young and healthy. No one plans to get sick or injured.

   Use these good money ideas and you'll be on your way to a happy retirement and whatever else you want. Finwiz.

The high cost of spending binges

   Immediate gratification is great but costly. You can still live the life you dreamed by changing your habits when it comes to unnecessary purchases. Don't make excuses for charging something, put your money in savings instead.

 1. Use long term goals to motivate yourself.

 2. Allow yourself a small treat monthly when you stay on track to meet these goals.

 3. Purchase quality items that don't need replaced as often.

   Delaying purchases has a huge long term positive effect. We learn to live below our means and we have more resources available when they are really needed. Finwiz.

Automate your savings for long term success

                                                     It can be hard to start saving so make it automatic. Start small with as little as $10 to $20 every week or month. If your employer allows you to divide your deductions into more than one account put some in a savings account. When you get paid make it a point to deposit the money on that day so you'll be less tempted to spend the money. If you can't do this you're never going to start saving. You'll be tempted to spend the money when it's available so get in the bank as soon as possible. Saving automatically with each paycheck makes it easier and you don't have to think about taking any extra steps. Remember it's steady saving in small amounts that leads to large savings accounts. See you next time Finwiz.

.

Saving and giving should work in conjunction

                                          Some feel saving and giving are opposites to each other, I view these as working together. Saving is not the opposite of giving, useless spending is. When we save, those funds can be used at a later date, to spend or give to our favorite charity. Saving also allows us to not be reliant on charities ourselves at some point in time, letting the really needy get the money that would have gone to us. Giving is not just about monetary donations, giving our time to a cause is just as important. Teaching others our skills is another way to increase their savings and maybe future charitable endeavors. Learning not to waste our resources allows us to save more and donate more, they work in conjunction. Finwiz.

How many savings and retirement plans are available to you?

   It's a good idea to study all the different plans available to you. Even if you contribute to a plan at work it probably won't be enough for a comfortable retirement. You're going to need three or four savings vehicles to accumulate enough. Many people work for non- profits like hospitals and school districts that allow them to save in 403(B) plans. These plans are similar to setting up your own 401(K). You can contribute to Roth IRA's and traditional IRA,s outside of work as well. These plans have annual maximum contribution limits. If you contribute the maximum to these tax deferred accounts, consider opening a taxable brokerage account. Brokerage accounts have no limits on deposits and can be used to maximize tax efficiency when used in conjunction with tax deferred accounts. Finwiz.

Why contributing the maximum to a retirement account is so important.

  We need to look at the two ways to save.

1. Nonretirement account:

         Earn income, pay the tax on it, and invest that money. You then pay taxes on the dividends, interest, and capital gains in this account.

2. Retirement account:
        Put money in these accounts and you get a deduction. Basically you don't pay income taxes on the money when you invest it. The investment, the dividends, and the interest aren't taxed until you take it out.

   Retirement accounts help you save more  in two ways. First by reducing the tax you pay now and letting that savings compound for many years. Second by deferring taxes on dividends, and interest in these accounts, allowing even more of your money to compound. In other words retirement accounts are so powerful because the taxes you would have paid in a non retirement account are left in retirement accounts to grow until you take them out. See you Thursday Finwiz.

How the Wealthy Think About Money

  The poor have most of their money in consumer items.  Middle class people have most of their money in their home or other real estate. Wealthy people have most of their wealth in their business or in the stock market (many businesses). That is why they are wealthy. The big difference is that they save a lot and are focused on investments they expect to grow. They tend to be confident in investments because they are optimistic about the future, not fearful about short term risk.

  The reason they are millionaires is that they have invested in their business or in the stock market. Wealthy people are wealthy because they are focused on building wealth.

1) They are usually frugal and good savers.
2) They are focused on building their net worth.
3) They are generally optimistic about the future.
4) They are focused on long term wealth-building investments.

   Learn to think like the wealthy and you can become one of them. Finwiz.

Reduce fees when possible

                                                           Every time you look around there's another fee for something that should be free.  ATM , checking, credit card, and minimum balance fees can all add up. With a little research you can be done with these pesky fees.  Pick a bank or credit union that has free checking or low minimum balance. You can get free ATM access at many banks by signing up for direct deposit. Never pay a fee for credit cards. If you can't find a free card and you can't pay off the balance every month, don’t get one. When you open any financial account, make sure you know what you're getting, what the fees are, what the minimum account balances are, so you never get hit by unexpected charges ever again. Feel free to share how you avoid fees as well. See you soon, Finwiz.

Four things to motivate you and get things moving.

1. Ask yourself if you really want to do it. Often, we think that we should want to do things and put them on our giant list of things that should be done, even though we have no interest in them whatsoever. The trick is that instead of framing these things as something you should or need to do, you phrase it as something you want to do or will do.

2. Break it into small steps. Thinking about saving a million dollars for retirement or paying off twenty thousand dollars of debt is overwhelming if you don’t break it into small, manageable steps. Breaking down immense goals into smaller, more manageable jobs is a great way to stop feeling overwhelmed and start feeling empowered to take action.

3. Visualize your success. Think about how good it will feel once you’ve met your goals and try to imagine what your life will be like. Think about these things often and remind yourself when you find your motivation waning. Having a clear picture of what you’re working towards is an amazing motivator.

4. Keep yourself accountable. This might mean enlisting the help of a family member or friend to keep you on track. Some people find that a log helps keep them on their toes by providing a visual record of their progress. Finwiz.

Know your risk tolerance

                                                                                         I blogged about filling two baskets back in May( please reread ). With the  resent market turmoil, I think we should revisit this subject. Risk tolerance is very personal and will be different for everyone. When large market swings bring the value of your assets down quickly, and you get nervous, you have too much invested in that asset class. Know before you invest in stocks that the value of your holdings could go down between 50%-75% in some cases even zero ( Enron, Worldcom, etc.). Using the two baskets approach, you can keep your portfolio's total value from swinging wildly by having a larger portion in bonds, CD's, and Treasuries. You should also explore other protection devices like stop orders and stop limit orders. These can be tricky and should be used sparingly , never on an entire portfolio. Remember you risk more by not investing in stocks than owning stocks, because you might not get a high enough return to retire when you want to. The bottom line, however, is that only you can decide how much of a day to day swing you can handle without selling in a panic just before the market rebounds.

When you haven't started saving yet

 Here are few ideas to help you get started:

  Give up on finding the home-run investment: Finding the next Apple is highly unlikely no matter how hard you work at it. Not impossible, just highly improbable. So instead just start saving! Certificates of deposit are fine. Broadly diversified mutual funds work as well. The point is to start.

  Make a plan: It‘s eye opening to put a number on all your financial goals. Have you looked at how much it will cost to put a child through college, for example? Any good plan will start with a clear understanding of where you are today and end with where you want to go. Now you need to calculate the cost of getting there.

   Remember that your plan is worthless unless you make the ongoing course corrections required when you’re either off course or the destination changes. Plans are full of guesses, but when done correctly, the ongoing process of planning can provide the context for you to make decisions in the future. It’s a lot easier to say no to the new car, if you are saying yes to a more important goal.

   Maybe you have other ideas, but the point is to stop beating yourself up over what you didn’t do in your 20s and start focusing on making today count. Until next time, Finwiz.

Why You Need to Rebalance

   Your portfolio is a living and breathing creature and it’s constantly changing. That’s because you’re invested in the market which changes every single day. If the market is moving, your portfolio is moving. The problem is that over time some of your investments are going to outperform others. When this happens, the outperforming investments grow and take up a greater percentage of your portfolio. When one investment does well and another does equally as bad this occurs at double the pace.

   For example, let’s take a simple portfolio that’s made up of just two investments. A $50,000 portfolio with 50% in a bond fund and 50% in an S&P 500 index fund. For the sake of the illustration let’s say that over the past year the S&P has gone up 15% and your bond fund has only returned 5%. Most investors would still be thrilled as they made a lot of money, but there’s one problem. The portfolio is significantly overweight in stocks compared to your target mix which exposes you to greater risk and potentially great losses if stocks fall again. When you save it's a must to now what you're invested in, rebalancing helps you keep track of what you own. See you soon Finwiz.

Millionaire or pauper, it's your choice

  “Those who successfully build wealth believe that financial independence is more important than displaying high social status.” I believe that “rich” means “free” – free from financial worries, free from the need to work full time whether you want to or not.

Beware of Consumerism

  Consumerism stands in sharp contrast to financial freedom, because it enslaves you. Unless you were born into money, and assuming you belong to the middle class or the upper middle class, consumerism will keep you in whatever class you were born into, forever. You will not be able to accumulate wealth, because you will spend too much. Perhaps you will be temporarily soothed by the act of buying and consuming, but you will never be truly free.

Living Below Your Means

  No one can build wealth without living below their means. This is an absolute must, either pretend you're working for less or make a commitment to put future pay raises into savings. I've said it many times on this blog , if you can't do this there is no chance of retiring early or retiring at all. See you next time, Finwiz.

Insurance that may be unnecessary

Credit Card Insurance

   Many people who take out credit card insurance believe the policy will protect them by paying off their credit debt entirely in the event they’re unable to meet their financial obligations. That isn’t true, and unfortunately a lot of people have found that out the hard way. Credit card insurance will generally pay only a portion of your monthly bill, usually the minimum amount that is due.

Rental Car Insurance

   Paying for rental car insurance is usually a waste of money because your regular automobile insurance policy usually covers rental cars. Even if it doesn’t, or provides only minimum coverage, you will undoubtedly use a credit card for your rental car. In most cases your credit card company will provide rental car insurance for no additional charge.

Extended Warranties

   In the opinion of a lot of people, an extended warranty is nothing more than a complete waste of money. If you purchase a quality item in the first place, you can be relatively certain the warranty that’s included will be sufficient.  You’d probably be better off if you put a little bit of money aside each month to cover the cost of repairing or replacing the items rather than relying on the extended warranty. See you Thursday, Finwiz.

Make the most of investment losses and gains at tax time

   Tax strategy is a large part of any successful investor. When you start to create a portfolio, the last thing you want to think about is losing principle, but it happens to everyone, even Warren Buffett. When you have losses, they can be managed to reduce taxes. Everyone can reduce taxable income by up to $3,000 per year. Any losses over $3,000 can be carried into future tax years. You can also offset gains that would be taxable.  If you've made $5,000 on one investment then selling another that has a $5,000 loss leaves you with no tax liability as they offset each other. By donating stocks that have appreciated in value to charity, you pay no tax on the gain, and the donation is tax deductible as well. My favorite thing to do with a loss in a taxable account is to use the proceeds from the sale to fund my traditional IRA account (IRA contributions must be earned income so deposit the proceeds from the loss in a checking account and use income to fund your IRA). I get to reduce my taxes by the loss on the sale, and I reduce them again with the IRA contribution. I get two deductions out of the loss, hence reducing the blow to my ego, a little anyway. Finwiz.

Timeless knowledge

  

   The best personal finance advice works in any economic situation. Spend less than you earn. Invest in many different things. Avoid debt, unless you can get a return that exceeds the interest you’ll pay on that debt. Save for purchases you know you'll have. It is those timeless principles, when well understood, that will guide you no matter what the economy is doing. Specific advice is usually these same principles for a moment in time, and when those moments pass, that specific advice becomes far less useful. It is far better to understand the true ideas behind them. See you next time Finwiz.