Monthly Archives: January 2016

Tips Save Money With Happiness

images (14)You might focus on stretching every last dime, but you can sabotage yourself if you rack up costs you could easily avoid. Here are some common expenses that can add up over time:

1. Traffic tickets

When you’re in a rush, you’re likely to drive too fast or miss a “no parking” sign. Next thing you know, a police officer is writing you a $200 ticket or your car is being towed.Besides the fines you’re charged, tickets can cause your car insurance rates to rise, raising your expenses long-term. Driving fast also wastes gas and raises your accident risk.

2. Bank fees

Whether through overdraft penalties or automatic teller machine fees, banks charge customers in many ways. Avoiding these fees requires people to simply pay more attention.Leave a small cushion in your bank account to prevent overdrafts. Look for banks that offer free checking and savings accounts or better yet, ones that would pay interest on your balances. And try to avoid ATM fees by anticipating your cash needs in advance so you’re not forced to turn to the closest machine if you find yourself in a rush and low on money.

3. Late payments

It’s easy to forget a bill. But your bad memory or poor organization skills will cost you through late fees and higher interest rates.Avoid late payments by paying all your bills together on a specific day each month. You can also arrange for your bank to automatically pay your bills as soon as they arrive.

4. Automatically renewed memberships and subscriptions

Many people sign up for memberships and subscriptions that automatically renew each month with the best intentions. In reality, they don’t end up using them and they continue to be charged.Review all your memberships and subscriptions and ask yourself if you’re using them. If you aren’t, it’s time to cancel them.

5. Untapped discounts or negotiation opportunities

While haggling isn’t as common in the U.S. as it is in other countries, there are certain situations in which negotiating a price is not only acceptable, it’s expected.Buying a car is a good example. Still, some people would rather pay the listed price instead of making a lower offer.People often qualify for discounts because they’re members of clubs like trade organizations or AAA. But they might be too embarrassed to ask about them at the register. If you’re one of these people, find a less shy friend to help you.

Tips to know about saving money

The rise in both gas and food prices has been taking a toll on people’s budgets, but it appears that things will get worse before they get better. The recent floods in the Midwest are likely to increase both gas and food prices in the coming weeks.Higher prices all around have many people looking to save money any way they can. While saving money appears to be pretty easy and straightforward on the surface, there are still a large number of people who make fundamental mistakes when they try to save money that actually hurt their finances rather than help them.These are some of the common mistakes that people make when trying to save money:

Mistake 5: Stopping Spending

One major mistake that people make is that they stop spending, since this seems to be the obvious way to save money.The problem is, if done without foresight, not spending money can mean additional expenses down the road.People should stop spending on nonessentials, but not stop spending on preventive maintenance and basic upkeep. You will save money today by skipping a check-up at the dentist, but if doing so leads to dental problems down the line that would have been caught early, the savings actually turns into a longer-term cost.What to do: Make sure you continue to get your regular check-ups and make repairs in a timely manner, even if this means spending a little bit of money. It’s not worth pressing your luck to save a few dollars today on things that are preventable, and risk having to make a major payout later on when there are a lot of other ways to save money.

Mistake 4: Buying Cheap, Not Buying Value

People often think the best way to save is to go with whatever is the lowest price.While this will work some of the time, the real key to saving money is learning to buy whatever is the best value. Buying the cheapest tools that will only last a year or two, rather than paying twice as much for tools that will last a lifetime, ends up costing you more in the long run since they have to be replaced time and again.Another example: Buy a nutritional cereal that costs a little more, but will keep you healthier — not a cheap cereal with lots of sugar and little nutrition.What to do: The key to saving money on a consistent basis is to learn how to shop for value. Price is just one factor that you need to consider when making a purchase. Other important factors include how long the item will last, what type of warranties it comes with and how often it will be used. Learning to shop value rather than price will save you a lot of money in the long run.

Mistake 3: Assuming There Is a Quick Fix

When people need to save money, they usually look for a quick fix to reduce their costs. They want to do something that will immediately solve the problem so they begin cutting out expenses one by one assuming that making each one will solve the problem.When it doesn’t, they cut another hoping it will resolve the issue, which it also won’t. They keep trying to make quick fixes not realizing that there is usually no quick fix when it comes to saving money.What to do: The reason most people find themselves in need of saving money is not because they made a single money mistake that can easily be corrected. It’s usually ongoing issues over a long period of time.It’s important to realize from the start that the process of saving money isn’t going to instantly resolve itself, but will take time and effort to succeed. Once you are committed for the long haul, you will avoid getting frustrated when things don’t instantly get better and have the patience needed to be successful.

Mistake 2: Assuming You Must Deny Yourself

Many feel that saving money requires denying the things that are enjoyed, which makes the entire process painful. In order to avoid this pain, they wait as long as possible to take the steps they need to lower their expenses and save money. The longer they wait, the worse the problem gets meaning the harder it will be to get their finances back in order.What to do: The truth is that saving money doesn’t have to be painful, although it will take a change in lifestyle related to how you purchase goods and services. You are probably paying more than you need to for a lot of the services and items you currently buy.Learning how to reduce the costs associated with them without giving them up is the best way to start saving money from your current budget.

Mistake 1: Believing There Is No Need to Make Fundamental Changes

Much like dieting, learning to save money is more than knowing what you need to do.Many people think that they can learn to save money without making a fundamental change in the way they currently do things and approach savings as a short-term problem. When done this way, a plan for reducing costs and saving money never becomes a long-term priority, which results in not being able to save money the way they had assumed they could.What to do: You need to make fundamental changes by incorporating the money saving methods that you learn into your lifestyle.Understanding that the changes are part of the way you will deal with money from now on rather than a stop-gap for a current problem will make the likelihood of success much greater. This usually includes changes on how you spend your money and changes to reduce the current ongoing expenses you have.

How to Spend Money On The Right Way

When times are tough, most people think they should spend less and save as much as possible. That’s good advice in many situations, but there are exceptions. Here are seven of them:

1. Home improvements

A recession is a great time to do work on your home. Materials will be discounted, since demand will be low. Labor is plentiful and cheap. And if the work increases the value of the house, spending extra money to get them done when times are tough makes financial sense.

2. Your health

Your health is always important, but it is even more crucial during dour economic times. You can’t afford to miss work for an extended period without placing your job at risk. Preventive measures, even if they cost extra, are important. In addition, you need to quickly address ailments so they don’t turn into something major later on.

3. Quality food

Food tends to be one of the few budget items that can be juggled to save money here and there. The problem is that people often choose to buy poorer quality food, which isn’t as healthy. The food you eat will determine your energy level and resistance to colds and illnesses. Also, learn the tricks of the coupon trade so you can get quality food and save money at the same time.

4. Retirement

If you have the money, now’s the time to buy stocks and other investments, especially if your timeline for needing the money is decades away. While people feel more secure when the stock market is rising, that’s when equities are more expensive. Stocks today are less than half of what they were at their peak — a bargain.

5. Products that save you money

More than ever, it makes sense to spend money on appliances and gadgets that will save you money in the long run. Price tags and labor are cheaper, and the extra efficiency will pay off in the long run.

6. Costs to relax

When the economy turns sour, it brings on stress. Stress is not only bad for your health, it can ruin relationships, cause a decline in job performance and affect decision-making when it comes to finances. The key is to know what reduces stress and figure out a way to keep or increase that activity in your budget. For example, a gym membership may seem like a luxury when there isn’t enough money to go around, but exercise is a known stress reliever. Perhaps painting is your stress relief. Whatever the activity may be, don’t scrimp.

7. Repairs and maintenance

Lengthen the life of what you have and avoid spending money on brand-new equipment. The amount you spend may be a fraction of the replacement cost.

Personal Finance Tips of Commandments

But it doesn’t take a miracle. If you are looking for some basic guidelines, just follow these 10 commandments:

10. Thou Shalt Take Action

Reading about how to improve your personal finances is a start, but it has absolutely no meaning if you don’t take the action of putting what you learn into motion. Before you can get anywhere with your personal finances, you need to begin — right now. If you are reading this article, you know that you should be taking steps to get your personal finances in order.Print out this list and place it where you will see it every day, so that you are reminded that personal finance is a priority in your life and that you will take some action each and every day to try to improve your lot. If you aren’t sure where to begin, start with getting your banking accounts in order.

9. Thou Shalt Pay Off All Credit Card Debt

Credit card debt is, in most cases, the No. 1 enemy to your personal finances. It can have a huge negative effect if your credit card bills are not paid off in full every single month.Sit down and work out a plan to pay off any credit card debt that you currently have, using the snowball method that best fits your personality. Make this a top priority.

8. Thou Shalt Understand the Difference Between Wants and Needs

To keep your personal finances in perspective, you need to understand the difference between wants and needs. There is nothing inherently wrong with small luxuries, and you should be able to enjoy many of the nonessential things you have. But it is important to realize that wants are not needs. If you master this skill, your finances will be in much better shape.Take some time to critically look at your true needs vs. your wants. If you are having trouble distinguishing these, set up a plan to eliminate impulse spending.

7. Thou Shalt Live on Less Than You Earn

There are no two ways around this one. If you want to keep your personal finances in order, you need to live on less money than you make. That means either purchasing items and services that are less than you currently make, or figuring out a way to increase your salary so that you can spend more, but still less than you make. Either of these is perfectly fine.Track your spending to see if it is more or less than you are earning each month, and create a budget so that you can continue to track it in the future. If you are spending more than you make, you need to decide whether to curb unnecessary costs or figure out how to increase your income. Most people can balance their budget without changing their current lifestyle.

6. Thou Shalt Pay Yourself First

Before you pay any of your other bills, you should pay yourself a minimum of 10% of your take-home pay. This money is not part of your monthly spending budget.Go to your bank and set it up so that your paycheck is automatically deposited, if possible. Then set it up so that an automatic payment is immediately taken from your paycheck into a specified account that is not used for your monthly expenses.

5. Thou Shalt Set Financial Goals

In order to reach your financial goals, you need to know what those goals are. Nobody can determine these goals except for you. You need to take the time to figure out exactly what your financial goals are so that you can take the needed steps to reach them.If you don’t know specifically what you financial goals are for this year, next year and 10 years from now, take the steps needed to create them.

4. Thou Shalt Educate Yourself and Be Responsible for Your Decisions

While it may be more convenient to hand over all your money matters to somebody else, you will not do this. Part of being financially responsible is having the final say in all decisions about your money. That does not mean that you can’t seek out advice and get opinions on your finances, but in the end your money is your responsibility, and you are the only one who is going to truly look after your own interests.If you have designated someone else to take care of your finances, begin to take back control. No matter what, spend an hour or two each week reading articles on personal finance subjects or visiting Web communities where you can ask questions.

3. Thou Shalt Save and Invest

Take the money that you pay yourself first and either save or invest it to make it grow and work for you in the future.If you are carrying credit card debt, invest in it first. But also make sure to take full advantage of the saving and investing opportunities that are available. If your company matches 401(k) contributions, contribute up to the match and try to maximize your Roth IRA contribution. Make sure you have an emergency fund.

2. Thou Shalt Protect Your Finances

You will take the necessary steps, usually through insurance, to make sure that your assets are protected in case of a disaster.Take the time to make sure that all your assets are properly insured, and re-evaluate this every few years or whenever a major life change occurs, such as marriage or a new addition to the family. Also be sure to compare insurance rateson a regular basis, since this is a competitive business.

1. Thou Shalt Donate to Worthy Causes and Those Less Fortunate

No matter how desperate your finances may appear, if you are reading this article there are a lot of people that are far worse off than you are in the world. It’s important to nurture a sense of giving and to be thankful for the small things that you do have. That means donating to worthy causes on a regular basis.Find a few causes that you believe in, and give to them generously. Don’t assume that money is the only way that you can give. Volunteering time and skills are also appreciated by most charitable organizations. You can research organizations at Web sites such as Charity Watch. If you don’t know where to begin, three that you may want to consider are Kiva, Modest Needs and Doctors Without Borders.

Tips in the right on Invest

Learning how to invest your money is one of the most important lessons in life. You don’t need to be college educated to start investing, in fact, you don’t even need to be a high school graduate. You just need to have a basic understanding of business and have the confidence to make a plan  consider it a business plan for your life. You can do it.

Why Investing Can Be Scary

For many of us, money and investments weren’t discussed at home. These subjects may even be taboo within certain households — quite possibly, in households that don’t have much money or investments.If your parents or loved-ones aren’t financially independent, they probably can’t give you good financial advice (despite their best intentions). And even if your family is well-off, there’s no guarantee that their financial advice makes sense for you. Plenty of parents encouraged their kids to buy a house during the peak of the housing bubble, because in their lifetimes, housing only went up.Having said all of this, the first investment that you make will probably be the hardest.

The Goal of Investing

Of course, everyone has different financial goals — and the more you learn, the more confident you’ll be in determining your own path. But here’s a basic financial goal to strive toward:

Over decades of hard work, I would like to make more money than I spend and invest the difference. By the time I retire, I would like my investments to throw off enough cash — through dividends or interest — that I can live on this income without having to sell my investments.

Notice the first part of this goal is about hard work. If you’re hoping to take a little bit of money and gamble it into a fortune in the stock market, you can stop reading now, this article isn’t written for you. But if you plan to work for a few decades, and want to make sure that you don’t have to work until life’s end, you’ll need to spend less than you make and invest the difference.Also, you’ll notice that this goal doesn’t recommend selling your investments. Rich people don’t sell-off their assets for spending money — if they did, they wouldn’t be rich for long. They stay rich because their assets provide enough cash flow to support their lifestyle. And these cash-producing assets, through careful estate planning, can be passed down from generation to generation.Enjoying your twilight years by living off your investment income — and having something left over for your loved ones or a charitable organization — is something that all investors should aspire to. It may not be possible for everyone, but it’s the right attitude.

What Should I Invest In?

The most common investments are stocks and bonds, which most financial advisers agree should be held in some proportion based upon your personal circumstances. Stocks represent partial ownership of a company and bonds are a form of “I owe you.” Mutual funds can own stocks or bonds or both on your behalf. (If you are unfamiliar with stocks, bonds or mutual funds, you should bookmark this article and return to it after you’ve learned more about each of these asset classes.)There are other ways to invest — for instance, real estate investment trusts (REITs) — and these types of investments have their place. But you needn’t focus on them if you are just starting out — sticking to stocks and bonds (and the funds that hold them) is just fine. But if you have debt — whether, it’s credit card debt, mortgage debt or student loans — it may not make sense for you to own bonds, or, to invest at all.

Should I Invest or Pay Down Debt?

It should go without saying that if you can’t make the minimum payments on your debts, you should not be investing at all. But if you have extra money left over from each paycheck, you have a few choices that can each have a positive impact on your finances:

1.) Use all of your extra money to pay down debts (mortgage, credit card, student loans).

If you have interest payments that are higher than 10%, you are almost certainly better off paying down debt than investing. The stock market has returned about 11% per year in the long-term ( far less if you consider taxes and fees), but there are no guarantees in stock investing. Your debt, however, is guaranteed — sometimes, even after bankruptcy.

2.) Use all of your extra money to buy investments (stocks, bonds, funds).

This only makes sense if your debts aren’t costing you much, in other words, if the interest rate that you’re paying is low. If your debts are costing less than 5% interest, you may be better served (in the long-term) by investing your extra money in carefully chosen stocks or stock funds. If your mortgage is costing you 5%, it makes no sense to buy a bond or bond fund that yields 2%. A bond that pays you less in interest than the interest payments on your personal debt is not worth buying. And even if a bond pays you higher interest than what you owe, that doesn’t mean it’s always a good investment.

3.) Use some of your extra money to buy investments and some to pay down debts.

Benjamin Graham — Warren Buffett’s teacher — once suggested that investors should hold no more than 75% of their investment money in a single asset class (he was referring to stocks vs. bonds). You can apply this same logic when deciding how much of your extra money should be used to make investments.If you treat your low-interest debt like a bond, then, at minimum, you’d use 25% of your extra income to pay this debt off — the remainder could be invested in stocks. If stocks or stock funds became too expensive (remember, the higher the stock market climbs, the more expensive it becomes), then you could use as much as 75% of your extra income to retire debt and the remaining 25% to buy stocks, despite their high prices.Ultimately, you should pay down your debts with the highest-interest rates first. For more complicated situations, it may be best to consult a fee-only financial adviserwho is familiar with your personal situation. A financial planner is only as good as the information that he or she is provided with, so if you consult an adviser, be sure to mention all of your debts as well as your investments and investment ideas.

Know the Difference Between Saving and Investing

There are a few steps before you can become a successful investor: you being employed, having essential insurance coverage, having your personal debts under control and having an emergency savings account in case you lose your job.Your investments and your savings are very different things. What if the stock market crashes and you lose your job? If you do not have a cash savings account — and your unemployment benefits do not cover your living expenses — you’ll probably have to sell your investments at the worst possible time. Don’t fall into this trap.

Two Strategies for Lifetime Investing

The two investing strategies below assume that you have a very long investment horizon — in other words, you plan on working for the next few decades. The first strategy requires minimal effort. The second strategy may seem to require minimal effort, but it requires far more investor education than you’ll find in this article alone.

1.) Investing in Mutual Funds With a Margin of Safety

Jack Bogle — founder of The Vanguard Group — has dedicated half-of his life to demonstrating how no-load low-cost index mutual funds (specifically, those that buy the entire stock market) are the best way for an investor to succeed. By dollar-cost averaging — the practice of buying the same dollar amount of a fund on a regular schedule — investors needn’t worry about timing their purchases. Their average purchase price will ultimately reflect a “fair” value.Dollar-cost averaging is a great idea with a big flaw: Investors are most likely to be unemployed when stocks are cheapest.If you spent 2006-2007 using your leftover paycheck to buy stocks on a monthly basis, then lost your job (and paycheck) during the financial crisis of 2008-2009, you didn’t have the money to buy stocks at their cheapest prices in decades. Ultimately, you didn’t dollar-cost average — you timed the market. And bought at the worst time (when stocks were most expensive).One solution to this problem is to create an investment reserve fund (similar to- but separate-from your emergency savings fund). If you’re socking away $100 per week into a total stock market mutual fund, try to accumulate a cash reserve of $2,400. This will allow you to invest for 6-months in the event that you’re unemployed.You may feel uncomfortable to part with your money when fear or instinct tells you to hold on tight, but successful investors are able to detach themselves from their emotions. Try to make smaller investments consistently rather than larger investments erratically.As a practical example, if you invested $6,000 in Vanguard’s Total Stock Market Fund (VTSMX) in Sept. 2007, you’d have $6,290 by August 2012. If you invested $100 per month, in the same fund, from Sept. 2007 to August 2012, your $6,000 of investment would have grown to $7,689 (both of these examples assume that your dividends were reinvested). Slow and steady does win the race.One last point to consider: Most low-cost index mutual funds require an initial investment in the range of $3,000 – $5,000. If this upfront cost would eat up most of your investment money, you may be better starting off with a fund that has slightly higher expenses and a lower initial investment.But beware: Many poor-quality funds attempt to attract investors with low initial investments. Before you look elsewhere, see what high-quality fund providers likeVanguard, Fidelity and Charles Schwab have to offer. As of this writing, the Schwab Total Stock Market Index fund (SWTSX) has a $100 initial investment, no-load, and very low expenses.

2.) Buying and Holding Carefully Chosen Stocks

“To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks,” wrote Benjamin Graham in his classic book The Intelligent Investor.It’s true: If you buy a total stock market index fund at regular intervals over a long enough timeline, you will almost certainly have satisfactory results. Yet many investors forgo the financial rewards of simplified investing for the psychological reward of “stock picking.”For small- or beginning-investors, trading stocks is a fool’s game. If you buy $500 worth of stock, minus a $10 commission to your stock broker — then sell the stock after it rises 4%, again, minus a $10 commission, you’ve gained nothing. If you do make winning trades, transaction costs and taxes will eat away at your returns, not to mention you’ll be trading against PhD-level mathematicians and the computer programs they’ve written to pick your pockets.But there is long-term value to be had in buying the stocks of great companies and holding on to them for many years. Even more so if your stocks pay dividends (an actual cash payment of the company’s profits). The amount of wealth that reinvested dividends can create is simply amazing. What’s even more amazing is that many online stock brokers offer dividend reinvestment as a free service. This luxury gives the patient investor an even bigger advantage over the frenetic stock trader.

The Living Proof That Buy and Hold Is Not Dead

There’s a mutual fund — about as old as Warren Buffett — that has never changed the stocks it holds; not in over 75 years. Had you invested $10,000 in the Corporate Leaders Trust (LEXCX) in 1935, it would be worth many millions of dollars today. Yes, some of the fund’s original 30 stock holdings disappeared over the years — the fund currently holds 22 stocks — but even so, the fund has outperformed the S&P 500 and Warren Buffett’s Berkshire-Hathaway in the past decade (pretty amazing when you consider that the fund was created before the programmable computer was invented) and it has consistently earned a five-star rating from Morningstar.Kevin McDevitt, CFA wrote the following when highlighting the fund’s 75-year birthday:

With the very long term in mind (the fund was originally scheduled to liquidate in 2015, since extended to 2100), the original advisors wanted to find blue-chip, dividend-paying companies that could thrive for decades…When looking this far out, decisions are driven more by enduring factors such as brands and sustainable competitive advantages rather than earnings projections… It’s notable that no financials companies of any kind were included originally.

If you can find 30 dividend-paying stocks — selling at a reasonable price — that make goods and services that people will use decades from now, you will almost certainly be richer by holding them.This is easier said than done.

How to Buy Stocks Without Losing Your Shirt

First, you’ll need to learn how to value a company. When you’re buying a stock, you’re buying part-ownership of a company. Therefore, if it makes financial sense to buy the entire company, it would make sense to buy a fractional part of the company. Figuring this out takes a little bit of math, but nothing more difficult than multiplication and division. Don’t get scared off.There are several ways to value a company and its stock — by all means, read as much as you can on the subject (if you can’t make sense of a balance sheet or cash flow statement, you’re not ready to invest in stocks). But at the end of the day, the question that you need to answer is:

If I bought this entire company, assumed all its debts and then collected 100% of profits from now until forever, how long would it take to make my money back?

Once you have the understanding and confidence to answer this question, you’ll see why a $1 stock is not necessarily cheaper than a $50 stock — and that’s a concept that many folks have trouble with.But here’s where it gets tricky.If you knew that a company could maintain or grow its profits at a fixed-rate every year in the future, valuing the stock would be an exact science. However, many companies — especially those that specialize in technology — can watch their products fade into obscurity and their profits disappear (remember when Nokia was the king of cell-phones and Apple was a $7 stock?).To find stocks that have a good chance of surviving into the future, think about the products that you use every day. Did your parents also use these products? Their parents?Also, don’t invest in companies that you don’t like. If you hate smoking, you will not feel good about owning a tobacco company — even if the company makes you money.Some of your stock picks will probably lose money, but one great investment can make up the difference and then some. As long as you are diversified (owning 20-30 stocks that aren’t very similar) — and assuming that you have not overpaid for your investments — you should do fine in the long run.Then again, you can save yourself the trouble and buy a mutual fund that owns the entire stock market (see above). Investing in stocks takes a lot of time and research — it’s up to you to determine how much your free time is worth.

Learn More About Investing

Being a successful investor requires money, patience, and just as important, confidence. Having confidence to make- and stand-by your financial decisions requires education. Never stop learning.If you’re looking for a good investing book, you owe it to yourself to read Benjamin Graham’s The Intelligent Investor. Graham’s writing style isn’t for everyone, in which case you may prefer The Rediscovered Benjamin Graham — a collection on interviews and lectures with the “father of value investing.”Warren Buffett’s annual letters to shareholders also make for good reading — they are free to download on the Berkshire-Hathaway’s Joshua Kennon does an admirable job at explaining basic- and advanced-financial concepts — most importantly, how successful people think about money.The Motley Fool’s Morgan Housel cuts through the noise of investment television; he lays down the bare facts about investing in an inspirational way. Meanwhile, if you’re looking for insightful analysis of individual stocks, Eddy Elfenbein’s Crossing Wall Street blog is a must-read.Lastly, TheStreet has been publishing investment guides since 1996 — if you’re just getting started, you may be interested in our glossary of financial terms and articles on investing basics. For more advanced readers, you’re free to enjoy daily stock ideas from professional traders and investors.