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| Top Stories in Personal Finance Tips |
| Pursue a Hobby without going broke | | Date Created: Sep 07, 2005, 01:11 PM |
 It's been awhile since I've posted a Personal Finance Tip so I apologize. This time around I'm going to briefly discuss past-times and hobbies. They can help alleviate the normal stress and anxiety from a full day's work and reach that much sought-after Zen state, but often they can also drain our wallets. You don't have to end up in bankruptcy to follow your dreams. Whether it's stamp collecting, photography (my new/old passion), or collecting shrunken human heads, you can not only pursue your hobby thriftily, you can even make some money from it as well. |
| One of the keys to saving money and still having a hobby is to make sure you only purchase what you need. Do you want a piece of Hobby equipment because it's "cool and has GheeWhiz Technology" or is it something that is relatively affordable and something you would really use? Most hobbies have specific retail sources that would love to sell you the latest greatest machinery and gadget that's a "must have". Do you really need the "Examiner 3000" high powered magnifier with super bright ring lamps to check out your stamps when a regular table magnifier with light from Staples will work just as well and at 1/4 the cost? In some cases, a somewhat more expensive option to cheap alternatives may actually be a good purchase because of the quality of work or the longevity of the product. In my case, I purchased a Macro lens even though cheap extender tubes and filter-like magnification lenses were available because they just wouldn't be able to match the quality, efficiency, and longevity that a Macro lens would provide. Lenses also have good resale and reuse value (especially now with prices for camera lenses going up) when they are made for popular camera bodies. It's up to you to decide what equipment you'll really need for your hobby. |
| Once you know what you want, you need to know where to buy it. Resist the urge to just walk into a random store and buy the piece of equipment without some research first. Depending on the item, you may be able to save a significant amount of money. This is where the Internet can be both your friend and enemy. There are many search engines that have retail search capability like Google's Froogle.com and Amazon's A9 and they can definitely find you the best priced merchants for the product you're looking for. The problem is that the cheapest price may not be from the most reliable merchant. Worst case scenario is that you'll order a product from a scam artist who disguises himself as a legitimate business. Just perusing this site of Brooklyn "store fronts" for online stores can scare you from buying anything online. The best way to find out if the online store you want to purchase from is legit is to look for mentions of it on forums dedicated to your hobby (or if you find none, you can ask forum users if they ever bought from so-in-so store) or if your hobby deals with electronic or photo equipment, you can check for it on ResellerRatings.com. Also make sure that you make note of any taxes or shipping and handling fees that your order will incur. I also never buy from a merchant that doesn't support SSL encryption on their site (look for a lock or key icon on your browser). It's not foolproof, but it's better than having my credit card number being passed un-encrypted. |
| I mentioned earlier that you can make money from your hobby. Usually there are more people than yourself involved in your hobby and they typically have already formed online forums. If you join those forums, you'll find many ways of monetizing your hobby. Whether they recommend Ebay, a forum marketplace, auctions, or in some cases commercial sales, you should be able to find a way to trade in the merchandise or hobby materials you work with. In some cases, such as in Photography, there are actual career paths open to you after much practice and with some skill & talent. The entry into Sports Photography, Portrait Photography, Event Photography, or even Artistic Photography as a career choice isn't all that far off for someone who's heavily involved in photography as a hobby. Though many professional Photographers went to school for Photography, the majority actually pursued other careers before getting behind the shutter. |
| Consolidate Your Student Loans! | | Date Created: Jun 20, 2005, 03:02 PM |
 Interest rates are about to change for Student Loans and if you're not careful, you could wind up owing a hell of a lot more than you originally planned.
If you haven't consolidated your student loans and locked in the current low interest rates (about 2.875% for those not in repayment and upwards of 3.75% for those currently paying) you could get caught in the July 1st change of rates... which can be upwards of 5% or more!!! And that's just for the current interest rate change. If you have your original loans from school, you could end up in the same interest rate rise every year. With historically low interest rates now, it would make sense to lock in those rates so they'll never change for you by consolidating all your semester based Stafford loans (and other loans if eligible) into a single loan with fixed interest.
There are many ways you can do this, usually through whatever bank or entity you opened these loans up with originally such as Sallie Mae. If you are using the Federal Direct Loan system, i would suggest that you consolidate through a trusted bank that you normally use or Sallie Mae so you can take advantage of less paperwork and easier online pay in the future.
While you're at it, you can change your payment schedule to one more compatible with your current age and lifestyle... such as a graduated payment plan that's spread over 20 or 30 years. Such a plan starts with small payments for the first five or so years and then raises them later. This will definitely help you out in your "getting started" years. You can also benefit from some payment incentives that the loan entities give such as a reduction by 1% in interest if you conscientiously make your payments over a 36 month period. In either case, never be late in your Student Loan payments... even if you declare bankruptcy it is one of the few debts that will still follow you until you repay.
Whatever you do, don't wait until July 1st to consolidate or you could end up owing thousands of dollars more than you need to. |
| Organize Organize Organize | | Date Created: Jun 01, 2005, 03:52 PM |
 The key to keeping your finances in tip-top-order isn't too hard to grasp... organize Organize ORGANIZE!
It's always a good idea to keep your financial statements, papers, and documentation organized in a filing cabinet...but many people forget another organization step that will lead to both financial freedom and wealth; the financial plan. Writing down in some format what your financial goals and milestones for the next months, year, or 5 years can not only help you achieve your goals, but also allows you to visualize any mistakes or openings for monetary growth you may have.
A personal financial plan need not be something elaborate. It can be anything from a simple list of bills you want to pay off on a calendar for the month, a list of credit cards you want to pay off in your "push plan" (explained in my last article on Escaping Credit Card Debt), a list of investment accounts you plan on contributing to during the year, or all of the above.
I personally have a few lists I keep track of for my finances. The most commonly used in my financial arsenal is the ongoing list of bill payments I'm diverting my bi-weekly paycheck towards. This helps me determine and balance when each bill is due and when I get paid...thus allowing me to never miss a payment and effectively reduce my debt raising my FICO score.
Here's a sample mini-list of my current financial plans for the next year:
1. Reduce 98% of my credit card debt.
2. Build savings account to over $2000 allowing me to convert it to a Money Market account.
3. Open a brokerage account Roth IRA.
4. Open a brokerage account Taxable Investments for trades.
5. Build a long term emergency fund into a 2 year Certificate of Deposit.
6. Apply savings towards a downpayment account for our first home (whether we build on a plot of bare land or buy an existing house depends on our downpayment savings -- currently planning on 3-5 years of growth before we buy our home).
All that in addition to my regular bill paying and 401k contributions to the max match will help me save up for my family's future wealth. |
| Escaping the Credit Card Debt Free-fall | | Date Created: May 13, 2005, 10:03 AM |
 Our generation has become the credit card generation (or should I say debt card generation). Credit cards, lines of credit, un-secured loans... we've gained many benefits through the buying power and efficiency of these modes of transaction, but have also fallen prey to the sinister spectre of debt. $10,000+ of debt and 20+% interest rates are no longer unheard-of. If you are just paying the minimum due, it could take 30 years or more to bring that debt down to zero... and that's if you stop spending on that credit card (like that's even possible)! So how do we dig ourselves out of this never-ending cycle of "just-getting-by"?
Paying off your debt is one of THE most important principles in your future wealth. You can't have a good financial future without a good FICO score (mostly based on your debt to credit limit ratio), reduced debt, and a savings and investing plan. Debt reduction should be one of your top goals before saving and investing (with the exception of investing in your 401k if there is a company match... you never turn down FREE MONEY. Check my previous articles for more info). For instance, if you have a savings account that you're holding on to as an emergency fund or just so you'll have "some savings"... it'll on average have a 2% interest rate. Most debt accounts run between 6% and 30%... so lets say you have a 11% interest rate credit card. Your "savings" would be earning less each month than what you actually lose in the credit card's finance charge if you carry a balance. You might as well put that money where it'll do the most good for you before it bleeds your wallet dry, by helping reduce your debt. So while you have a large amount of debt, you should devote the money you earn to reducing it rather than pumping it into your savings account... only after you clean up your debt should you start socking away that "Emergency Fund".
Other than reducing your expenses and getting a raise, there are some really good techniques you can employ to get that debt monkey off your back. One of the best ways to reduce your debt is altenately called the Push Method or Snowballing your debt. This method involves paying the minimum on all accounts except for one which you'll do your best to pay off in full. What you should do first is to list down your various forms of active credit accounts (cards, car loans, etc.). I didn't add Student Loans to the list because interest on them is tax deductible and the relative interest should be low if you consolidated recently (you did consolidate them right... RIGHT??). Once you have your list of credit, you should write down next to each your current balance and the current interest rate of each account. Now re-order them with highest interest rate at the top (not the highest balance). This is the order you should pay off your loans. You'll pay the minimum payment (or double the minimum if you want to be "safe") in all your accounts except the one on top of the list. For that account you'll pay as much as you can possibly afford that month. After a few months (hopefully) and that account is payed off, you'll start paying off the next one on the list. The more accounts you close, the more money you'll have each month to pay off the next account. The reason you take on the higher interest rate accounts first is to reduce the amount of interest based finance charges you have to pay off and in effect lessens the time you'll need to pay off all your accounts.
Now each time you pay off your account, keep that account open. What ever you do, don't call your credit card company to cancel the card! Part of your FICO score and credit worthiness is the length of time your accounts have been active. The older your credit history, the better your credit profile. So if you close a card, especially one you've had for years and years, it drops off your credit report and you lose the credit history points you've earned by being a "good consumer". This can definitely adversely affect your credit rating... so keep those accounts open. If temptation is too strong after you've reduced the balance on your cards; just cut up the ones you don't want to use anymore (keep at least one for regular use) but keep the account open.
Followed diligently without additional large purchases, you'll be able to be relatively debt free quicker than you thought possible.
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| I've got my 401k... now what? | | Date Created: Apr 26, 2005, 08:16 AM |
 So now that you've enrolled in your company's retirement plan (if not, please read my other article: 401K, 403(b), SIMPLE IRA's, SEP, huh? first) you may be a little overwhelmed with your choice of investments and the prospectus documents your benefits department gave you. You'll hear terms like Asset Allocation and Diversification being bandied about. All you care about is making the most money without losing your shirt.
There's no one plan that can match everyone's needs, but I'll do what I can to help make your decisions easier. The most important factors to keep in mind are: how long until you plan to retire and what is your personal threshold for investment risk. These two can be, but aren't necessarily, related. Typically the longer you plan to work, the more risk you can probably stomach. By risk I mean the frequent ups/downs the market takes and the possibility of losing money in the short-term. The longer your money sits in investments, the less relative risk they incur since the overall economic and market forces have been on an upward trend more often than not when you measure it in decades. Day to day market movement of course looks like a roller coaster at your nearest Six Flags. |
| So what is Asset Allocation and Diversification? Asset Allocation is the art of spreading your investment assets to maximize your return on investment (ROI) while keeping within your personal risk threshold. Diversification is the process by which you spread those assets among different investment categories, industries, and even countries to minimize your relative risk. So what does this mean for your retirement account? Old cliché's work best here: Don't put all your eggs in one basket! |
| With choices like Equity Funds (Large Cap, Mid Cap, and Small Cap stock based mutual funds... Large Cap consists of large companies, Small Cap consists of small companies), Bond funds, Money Market Funds, Value Funds, Index Funds, etc., it's hard to know where to put your money. What is usually suggested for a well diversified portfolio when you are in your 20's or 30's and are 30 or so years from retirement is to spread your investments among mainly equity funds as your portfolio's core; mixing up Large Cap and other growth funds with minimal bond investment and little (if any) money market funds. This will present a more risky investment strategy, but also one that yields more reward over time. The further you are from retirement, the less risky this strategy becomes... so it makes sense to allocate your assets this way if you're young. You'll also want to spread those equity assets to both domestic and international equity funds. This will help reduce risk since the US economy and foreign economies can rise and fall at different rates. As you get older and closer to retirement (lets say you are in your late 40's or mid 50's) you should rebalance your portfolio, gradually increasing your holdings with more bond funds, money market funds, and other assets that are less risky (and consequently have a lower rate of growth) so that you can preserve what you've already earned. This will help protect you from short term market downturns that can potentially ruin what was once a good retirement account. |
| You may have also heard the term Compounding. Put simply, any interest and dividend you earn per share of your investment assets is re-invested in the account buying you more shares. So over time, your money grows almost exponentially, meaning the earlier you start investing in your retirement account, the better off you'll be down the road. SmartMoney has great tools to help you figure how compounding and the size of your contributions can affect your future retirement account income. |
| Lastly, there's the issue of Company Stock. Many companies provide this option in their investment plans and may still encourage you to allocate your retirement account in your own company's stock as a way of showing support for the company or showing loyalty. Most people invested their retirement accounts this way in the 70's and 80's with many becoming Millionaires (early workers from Apple, Microsoft, and Intel for example) Even if your company is a powerhouse of a company (Microsoft, etc.) or is considered rock-solid (GE, etc.), this is a really bad idea. Why? I have one word for you... ENRON. This is how many people who worked for Enron lost their shirts. They had invested all or most of their retirement accounts in the company stock. When the corruption scandal exploded, and the big wigs fell.... so did their retirement accounts as well as their jobs leaving them with nothing. It only takes one financial scandal or financial disaster to take down a company. Don't let it take you down with it. The key is Diversify diversify diversify. |
| For more info, and if you have questions like "What's a Bond?" or "What's a Stock?", be sure to check out the financial and investment links I've provided in the sidebar to the right. Morningstar and the Motley Fool are both exceptional resources for researching your retirement account choices, equities, and mutual/bond funds. Ultimately though, after all the research and advise... the decision will be yours. |
| Bag your lunch, save a bunch! | | Date Created: Apr 25, 2005, 10:11 AM |
 Often when we are in a work environment, we tend to either eat out for lunch or eat at the cafeteria provided by the company without thinking about how much we spend. What difference does a few bucks make right? WRONG!
Whether you typically order take out, go out to lunch, or go to the company cafeteria, you almost assuredly use more money than you would if you bagged your lunch.
For example, I used to get lunch at our cafeteria and spent about $6 a day. That comes out to $30 a work week... and approximately $1500 (minus 2 weeks of vacation) a year. These days, I bag my lunch. Usually it consists of microwaveable Thai Noodles and a bottle of Propel fitness water, both purchased at Costco (another good Personal Finance tip: buy in bulk at a discount warehouse chain... just make sure you compare the prices with regular retail to make sure you are actually getting a good deal). Thai noodles come in a box of 6 packets for $6, so that's a dollar per serving. Propel comes in a box of 24 bottles for $12, so that's $0.50 a bottle. That means my typical bag lunch costs $1.50 a day, $7.50 a week, $375 a year (again minus the 2 weeks for vacation).
That's a savings of $1125 a year that could buy two Mac mini's, mostly pay for a new PowerBook, or get you some nice furniture. Me, I'll be paying down my debt so we can have a good FICO score before we start looking for a home to buy.... but that will have to be another Personal Finance tip article. So be sure to bag your lunch, and save a bunch! |
| 401K, 403(b), SIMPLE IRA's, SEP, huh? | | Date Created: Apr 24, 2005, 04:51 AM |
 Well... here's my first Personal Finance Tip....
If you work for a large company, small company, government, or are self employed, there's a Retirement plan out there for you. Even if you're deep into the red and have loan and credit debt up the wazoo, you should still start contributing to some type of retirement fund.
Easy answer if you are self employed... check out an SEP IRA (or if you make under $100,000 annual, a Roth IRA may work out better for you).
Now for those of us who work for someone else... check out your company's retirement account offerings. For instance, I have a 401k. Smaller businesses may offer SIMPLE IRA's and educational/government institutions may offer something like a 403(b). The concepts are essentially the same. You can contribute a certain percentage of your paycheck. Typically the contribution is Pre-tax meaning that you're Fed and possibly State tax taken out of your pay is calculated after money is taken out for your retirement account. This is a "good thing". This effectively lowers your tax liability meaning you get to keep more of your money. Your take home pay still goes down a bit, but that contribution will be placed into an interest bearing account that will earn you more money as it compounds over time.
The best thing about most companies' retirement plans... they almost always include a company match. This is a matching contribution to your retirement account from the company and is based on a percentage of your contribution. For instance, a company may match your contribution $0.50 to the dollar up to 10% of your gross income. My suggestion is to definitely contribute at least up to the max company match limit to your retirement account. Otherwise, you are giving up FREE MONEY!!! Anything less, no matter what your financial status, is just plain crazy.
Depending on which assets you allocated your contributions in your retirement account (Large Cap, Small Cap, Mid Cap, Foreign Equities, Bonds, other Mutual Funds, or Money Market funds, etc.) your money could grow anywhere from 2% to upwards of 20% annual return tax-free until you have to take a distribution later in life... but I'll leave the age issues and the all-important "Asset Allocation" tips for a later post.
In the meantime, checkout some the Financial sites I linked to on the right (the first few are Personal Finance and Investment related). |
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