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7.31.2011

Should I Not Pay My Bills If I'm Starting A Business?

There is nothing harder than starting a business. Trust me, I know. When I first started blogging, I thought it would be a walk in the park. I thought plenty of readers would flock to my content, and I figured I'd be raking in hundreds of dollars within no time. Unfortunately, reality is much harsher than that--I haven't made diddly squat, and it's incredibly difficult to constantly think of topics to blog about. But still, I trudge on.

Likewise, it can be difficult for those starting a business to decide which bills to pay. You probably aren't spending a lot of time at the office if you're starting your own business--or even harder yet, you're not bringing in any income while your business tries to kick start itself off the ground. If you have to decide whether or not to pay your bills or keep your business dream going, the choice you have to make could be a daunting task.

What's worse--missing a water bill or having your dreams destroyed? Do you decide to throw that extra $500 at a business improvement, or do you skip a credit card bill? These are the types of decisions facing plenty of small business owners every day, and unfortunately, there is no clear right answer.

For me, I would make sure I paid my mortgage, electric, water, and other utility bills. These are essentials for basic living, and have to come before your business. For other costs, I would pay the bill, and then cancel the service so I could focus on my business. Who needs TV anyway--that just means more time you have to throw at your business. There is no clear right or wrong answer, but I do think the smartest thing you can do is pay for the bare essentials, cancel everything else, and the fanatically focus on growing your business. In the long-term, I think this will make you the happiest.

7.30.2011

What Moron Doesn't Have Free Checking?

I am absolutely astounded by the fact that almost a third of Americans belong to banks that charge a monthly fee for running your checking account. That absolutely shocks. I can't believe so many Americans are suckers for such a deal. Almost every credit union, and most regional banks, offer free checking. In fact, as of January 2011, more banks in the United States offer free checking than those that don't.

Which naturally begs the question--why belong to a bank that charges a monthly fee? Consumers give a variety of reasons, ranging from 'Well, I've always had an account with them' to 'It's only $5 a month' to 'They're a big bank. I can access them anywhere.' But this is dumb. As long as you have checks and a debit card, you do have a bank anywhere. Considering that an overwhelming majority of credit unions offer free checking (and generally better services in other areas as well), I cannot recommend highly enough that you consider putting your money with them instead of a bank that charges you for a checking service.

Generally speaking, the banks that charge you for checking are the types of banks that will nickel and dime you in other ways, be it high overdraft fees or ATM fees. You are doing banks a favor by keeping your money with them because it enables them to make loans. You don't need to make things worse by paying them a direct fee for the 'privilege' of you holding an account with them. That's just not a good way to live.

7.29.2011

Is It Smart To Pay Off Mortgage Early?

There is nothing more financially satisfying than being debt-free. For most people, a mortgage is the largest debt that they carry throughout their life, and it is a burden that they probably would be quite happy to get rid of. In fact, knowing that you own your house outright would probably lead to one of the most surefire feelings of financial security possible.

But there are some drawbacks to consider. You should only consider making extra payments on a house if you have a large amount of cash on hand, because if you lack liquidity, you could lose everything in a recession. Let's say you can afford to spend $2000 on house payments each month on a $1500 mortgage. If you throw that extra money into the house, and find yourself laid off in the coming years and unable to make a house payment, than you will run into quite a bit of trouble if the bank doesn't give you a home equity line of credit, and instead chooses to foreclose on your home. Instead, I recommend that you use the extra $500 a month to invest in blue-chip stocks and use the income it throws off to go towards an additional house payment. Think of it like this--that extra $500 a month, or $6000 a year, would give you $180 in dividends that you could use to go towards the house payment.

That way, if you do find yourself in dire straights at some point in your life, you could simply sell off the stocks to meet your needs. If you have to rely on your house as a piggy back, you could find yourself in for a nasty surprise. 

7.28.2011

Should I Use Coinstar?

I've never understood why people put their money into a Coinstar vending machine. You have to pay 8-9% in commissions to the company just for the privilege of making change for your money, and the other options they present you with are just as bad. Depending on your location, you may be allowed to get your exchange fee waived if you agree to accept a Starbucks or Amazon gift card. This kind of defeats the purpose, though, because you will be blowing your money on coffee and online junk, which is probably what you would have done if you didn't have a coin jar in the first place.

I think there are two intelligent approaches to taking care of loose change which are vastly superior to paying a substantial convenience fee to use Coinstar. First of all, you should consider rolling up your coins and taking them into a bank to deposit into your account--that way, you pay no fees, and the money goes straight toward your savings. If by some chance your bank doesn't deposit change, or if you have a weird hang-up about coming across as the crazy cat lady with a bag full of coins, then you should consider purchasing your own automatic coin-counter machine that sorts the coins into the rolls for you. They only cost about $25 to $30, so after your first $350 in loose change costs, you'll come out ahead. Plus, you'll have an incentive to maintain your loose change because you'll have a cool machine that auto-sorts the money for you.

The Stock Market And Your Nest Egg

If you are a stock investor, there is no time that you are at the mercy of the stock market quite like during your retirement. After all, if you buy shares of Coca-Cola during your 20s, 30s, or 40s, you can weather a stock market crash. All you have to do is hold your shares steady, reinvest the dividends, and then coming out owning more Coca-Cola stock once the economy improves. But, if the stock market crash of 2008 coincides with your retirement, then you do not have that luxury.

Let’s try this hypothetical example. You decide to invest in General Electric during the 1970s. After all, it’s a stodgy blue-chip that has been delivering excellent returns to its investors for over a century. Seems like a no-brainer, right? And then Jack Welch runs the company phenomenally well during the 1990s and early 2000s, as you pad yourself on the back for making such an outstanding investment. And let’s say you continued to hold the General Electric (GE) stock after you retired at the end of 2007. When the recession hit in 2008, the stock completely tanked, falling to as low as $6. And if you were relying on GE dividends to fund your retirement lifestyle, you would be incredibly disappointed to know that they reduced their dividend payments by over 75% during the recession. If you were relying on GE dividends to pay for your retirement, you would be out of luck—a very poor consolation for a lifetime of sedulous investing.

The moral of the story is to diversify your investments, and if a severe recession hits during part of your retirement, you should adjust your withdrawals to the best of your ability to make out only enough money so that you can ensure that you never run out of funds. 

7.27.2011

How To Cope With Reaching Credit Card Limit

It's going to be difficult for me to do a post on how to cope with maxing out credit cards, because the odds are, if you've reached this point, you're in desperate lifestyle change. In fact, for most people, maxing out a credit card can be a sign that it is time to change your life's spending habits by either increasing your income or decreasing the amount of money that you spend.

But sometimes, life happens. Your car could break, your spouse could lose a job, and you could have to put food on the table for your family. Sometimes, you have to make do with a less-than-idea situation, and you have to figure out what to do if you're maxed out.

If your maxed out on your cards, you could try and open up another one. This is not something I would recommend, but, if you are still making your monthly payments on your other credit cards, you should be able to find another credit card issuer that will open an account for you if need be.

You could also call your bank and ask that they raise your credit limit. If you're already maxed out, the odds are decent that the bank will say no, but if you can provide a compelling reason for why you would need a credit increase, then you'll most likely get it. Especially if you make your payments to the bank on time, you might be able to do this.

These are only short-term solutions to a larger problem at hand. If you find yourself in the situation of having to increase your debt each month, that means every four weeks, you are getting further behind. This is not a good way to live. At that point, you should take a serious look at trimming your expenditures, or if possible, increasing your income.

7.26.2011

How To Fix Bad Credit

It sucks to have bad credit. Not only do you have to deal with higher interest rates, less forgiving terms, and the likelihood of rejection for certain credit requests, but you also have to contend with maximum limits and other restrictions placed on your borrowing ability. If you find yourself in a situation with a less than stellar credit rating, and you want to improve it, there are three easy things that you can do.

#1. By far the most important, don't ever miss any payments. Even if you're in the undesirable position of only being able to make minimum payments, you must be sure to make them. Nothing will lower your credit score like delinquency on debt, and if you're in the habit of missing payments, you'll never get ahead. It's absolutely imperative that you at least tender a monthly payment on all debts outstanding that you have.

#2. You should keep the gap between available credit (i.e. your credit limit) and the amount of credit you use as wide as possible. If you're allowed to borrow up to $5000 and you max your credit cards at $5000, you will not be seen as someone with a handle on your finances. Instead, you should get in the habit of spending less than $1 for every $5 in available credit, because your ability to resist using your total credit limit will make you seem like a better risk in the eyes of creditors.

#3. Keep a handle on the number of credit cards outstanding that you have. It's perfectly okay to have a Visa, Mastercard, and American Express card, but when you start to have a credit card from every department score that you frequent, you start to have problems. Odds are, if you a Uncle Jack's Liquor store card, you have too many. 

This is the most straightforward way to start rebuilding your credit. 

7.25.2011

What To Do After Bankruptcy

Whenever an individual or a couple declares bankruptcy, they often feel miserable and have no idea where to begin their rehabilitation. But of course, there is light at the end of the tunnel, even if it's not apparent at the time. The smartest thing you can possibly do in your recovery from bankruptcy is to begin to build a cash reserve to the best of your ability. Hopefully, you can scrounge out $300-400 off the bat, and then add $50 per paycheck to the reserve, so your safety cushion can grow over time. Credit card companies and other lenders aren't going to be doing you any favors--your odds of getting favorable credit terms after filing bankruptcy are about as likely as the Cubs winning the World Series this year--I wouldn't bet on it. 

The smartest thing you can do is get in the habit of making your purchases with cash as you build up a slowly growing emergency fund. If you want to rebuild your credit score, the best thing you can do is use prepaid debit cards. There is no way that you should be applying for a credit card at this point in your life--after all, it is most likely that the irresponsible use of a credit card played a role in leading you to bankruptcy. Instead of focusing on getting back on the credit card game, you should try and establish footing by building cash reserves and increasing your liquidity. If you can get in the habit of having a little bit more cash on hand each month than you had the previous month, you're going to position yourself to do well in the long run. 

Eliminate Credit Card Debt put out a wortwhile piece on the topic, and the consensus disagrees from mine, but I still recommend it as a read. Be sure to check it out by clicking here: http://eliminate-credit-card-debt.us/click-here-to-help-and-is-now-out-of-debt-2-753.htm . 

7.24.2011

The Paradox of Thrift

One of the more amusing paradoxes that surfaces up in textbook economics is known as the 'paradox of thrift,' which occurs when one person engages in a financial beneficial action, but has negative consequences when the whole country does it. For instance, let's say that, going into the 2008 recession, I had $20,000 in debt. When the economy tanked, I got spooked, and vowed to never get into that type of poor fiscal health again. Like a responsible adult, I kept my vow in 2010 and 2011 as the economy slowly but surely began to improve. Instead of going out and increasing my purchases, I use my excess disposable income to pay down my debt and improve my finances.

This is perfectly logical, smart, and leads to long-term financial security. But what if an entire country engages in this practice? The economy needs consumers to spend money in order to grow, and if consumers are paying down their debt instead of enjoying fancy meals and luxury goods, then it hampers economic growth, employment, wage increases, etc. It seems incredibly counter-intuitive that being responsible with your money doesn't add to the country's growth, but it doesn't matter. Getting in a position where you are no longer suffering from bone-breaking debt is the most important goal, and if that means it takes you longer to contribute to the GDP, then so be it.

Wall Street Daily recently put out a good post on this very subject: http://www.wallstreetdaily.com/2011/06/24/investment-news-in-perspective/ .

7.23.2011

A Beginner's Guide To Couponing

The rise of the recent television show 'Extreme Couponing' has led many Americans to look for ways to save on groceries. The prospect of only having to spend $25 on a regular $150 shopping bill excites a lot of people, but unfortunately, this is not going to be the reality for most of us.

First of all, do you really think that Wal-Mart can afford to get in the habit of giving out absurd discounts such as 75% off and remain a viable business? Of course not. Extreme couponers often do not use coupons in the manner intended, and some of them cut ethical corners to achieve their ends. Now you may be thinking, 'That's too bad for Wal-Mart, I want to save money.' Even if using coupons intended for six packs of soda on $.99 cent 2-liter bottles doesn't bother you, there's still some trade-offs that you have to make if you decide that extreme couponing is right up your alley.

You're going to have to start making your purchases and large quantities, even if you don't plan on using it for awhile. Does the prospect of owning a hundred tubes of toothpaste sound interesting to you? Also, you'll more than likely found yourself buying items that you don't need simply because you can get a deal on it. You weren't planning on buying more soap, but hey, it only costs .25 cents, so why not? This is one of the traps that most couponers get caught in. And of course, you'll never be satisfied, because you'll always believe that you could have gotten a better deal, if you just tried harder.

The most intelligent approach to couponing is to look at the coupon offers in the local Sunday newspapers, decide which products you need, and make your purchases accordingly. That way, you'll find yourself buying $100 worth of goods for $65-$75. While it may not provide you with the absurd savings that you would enjoy with the extreme couponing life style, it will allow you to know that you have used coupons the way that they were intended, and you will also be able to keep your mental sanity, which isn't a bad trade-off, in my opinion.

If you want to read a good article on couponing, check out Daria at savingtoberich.com by clicking here: http://savingtoberich.com/2011/07/mondays-money-tip-beginners-guide-to-couponing/ .

7.22.2011

Make Money With A Rental Home?

It seems like an easy extension of the American dream. You take out a $100,000 mortgage on a house, buy a nice suburban property, plop a 'For Rent' sign up, find a buyer, and then watch the money roll in, right? Let's say you can negotiate a $1,200 mortgage payment on the house, and then charge someone $1,500 a month for occupancy. Not a bad deal, eh? Not only would you be paying off a mortgage so that you'd one day have an additional property under your belt, but you'd also make a little something for yourself, right?

Unfortunately, it's not this simple. There are so many caveats with associated with owning a rental property that it's an absolute shame and disservice to the American people that they are not always aware of what they are getting into when they decide to take on an additional home. First of all, what happens if you can't find a renter? Do you have $1,200 in disposable income each month as a back-up to get you through the monthly mortgage payment if you don't have an occupant? What if they occupant doesn't pay one month? What are you going to do? Are you prepared to temporarily bridge the difference, lest you have to pay exorbitant late fees, or, if the situation gets bad enough, eventual foreclosure?

But let's say you are indeed fortunate enough to look in an occupant. What happens when the house needs a new rough? The basement floods? The air conditioning breaks? Basic repairs could not only undo any financial gains purchasing the property might give you, but additionally, they could sink a lot of your time, causing stress and needless headaches. Are you prepared to take on this liability with limited gain? I'd rather soak my money into high-quality blue chip stocks like Johnson & Johnson or Coca-Cola than face the uncertainty of bringing on a rental home. If you want to read a great article on the types of decisions facing home buyers, I'd like to reference you to this gem over at Mint.com by clicking here: http://www.mint.com/blog/goals/home-buyer-beware-pros-and-cons-of-different-property-types/ .

Is My Home An Investment?


I am a big believer that people should treat their houses as homes, not investments. An easy trap that home-buyers can easily fall into is the false hope that a home purchase will become a source of riches for years to come. Another disappointing decision-trap that diminishes the long-term wealth of home-buyers is when they decide to use their home as a piggy bank, draining the equity from their home to meet their financial needs today.

First of all, home price appreciation generally corresponds with the inflation rate. Since the early 1970s, home prices have gone up, on average, just shy of 4% per year. Meanwhile, since 1970, the rate of inflation in the United States has been about 3.1-3.4%, depending on where you live. When you factor in property taxes, home upkeep, and financing costs, you will be fortunate to find yourself breaking even on the purchase of your home over the long-term. Especially considering the fact that American large-cap stocks have returned about 10% per year since 1970, it seems incredibly self-evident that high-quality stocks should be the place to park your investment capital, not homes.

To be fair, there is one advantage with homes that you won’t find with stocks—they’re much more tangible. If you a company’s stock, there is always the small, outside chance that management is faking earnings and cooking the books. Generally speaking, you can’t fake the existence of a house. There is very little chance that your home will lose 70-80% of its value, and an almost 0% chance that your home will ever be worth $0. Of course, the same thing can’t be said for stocks. However, if you get in the habit of buying a dozen or so firms with strong earnings potential and hold them for the long haul, you will do phenomenally better than if you consider your home purchase to be an investment.

Is Being Frugal Always Good?

One thing that I find particularly important to remember is the fact that too much of a good thing can have disastrous consequences. It's possible to exercise too much (and develop knee and other joint problems), it's possible to drink too much water (you can flood your kidney or cause electrolyte imbalances), and yes, it's possible to be too frugal. Of course, one thing that is usually in the eye of the beholder, and draws a lot of interest on personal finance blogs, is the difference between being cheap and being frugal. My best advice on determining the difference would be to use this rule of thumb. If whatever action you're considering would appear in the following day's newspaper, ask yourself, 'Would I be proud of my thriftiness or would I be ashamed to see my actions plastered across the front page?' By honestly answering this question, you can go a long way towards determining the ethical validity of your action. Shortchanging a waitress at a restaurant by declining to leave a tip is cheap. Buying a new-looking Brooks Brothers suit at Goodwill for $7.50 is frugal. So to answer my hypothetical question, I would add that it is always good to be frugal (properly understood), and it is always desirable to avoid being cheap.

If you're in the mood for reading a great article on when it's okay to say goodbye to frugality for a night of importance such as an anniversary, be sure to check out Frugal Dad's article here: http://frugaldad.com/2011/07/07/a-frugal-marriage/

7.21.2011

What Lowers Your Credit Score

As important as it is to go over and repeat the wise decisions that lead to establishing a credit history and building your credit score, it's also important to remember the two dumbest things you can do to lower your credit score. The first one ought to go without saying, but it bears repeating--make your payments! In a perfect world, you will have $10,000 of revolving credit access each month, only spend $1,000 or less on your credit card each month, and then pay it off promptly when the bill arrives. But unfortunately, this is a far-off dream for too many people. Life happens, and it's easy to let debts rack up when unexpected expenses enter your life. But I cannot stress how important it is to regularly be making payments on your card. Nothing, with the exception of bankruptcy, can quickly wreak havoc on your credit-worthiness reputation like not making payments on your credit card. The only thing faster than a light year is the amount of time it takes a credit card company to report to an agency that you missed a payment.

The other dumb thing you can do is acquire a hodge podge of credit cards from a bunch of different companies--all of which you use--and then make minimum payments on. Not only does this cripple you financially, ensuring that you ship off a portion of your hard-earned wealth to the credit agencies each month, but it also lowers your credit scores. Credit-card companies don't like to see you putting $1,000 on that Kitty Litter card, that Clock Magic account, or whatever other odd-ball account you create. But these are just two of the biggest errors you can make. If you want to check out a great article on the types of things that can lower your credit score, be sure to check out this post by the guys over at One Money Design by clicking here: http://www.onemoneydesign.com/what-can-affect-your-credit-score/ .

Fall-Out For CEO of News Corp, Rupert Murdoch


News Corp, the communications firm run by media mogul Rupert Murdoch, has found itself in hot water recently as phone hacking allegations at one of his newspapers, News of the World, has raised serious questions about the journalistic ethics and standards of decency at his firm. News Corp stock has been underperforming the market since the scandal hit, trading in the $15-$16 range from a high of $19 earlier this year. Murdoch has responded to the allegations by shutting down the News of the World, and recently testified before the British Parliament that his newspapers’ indiscretions have led to ‘the most humble day of [his] life.’ 

Critics of Murdoch have alleged that he has finally received his comeuppance after running a newspaper that has been willing to air the dirty laundry and political secrets of those whom he has covered. Others have alleged that Murdoch has used his vast media empire to intimidate others from speaking out against him because he has such a strong presence in the press. To get an idea of what Murdoch controls, here is a list of some of News Corp’s most notable holdings: 20th Century Fox, Fox Broadcasting Company, STAR TV, Fox Sports Net, National Geographic Channel, americanidol.com, askmen.com, hulu.com, UK’s The Sun, UK’s The Times, UK’s The Sunday Times, The Daily Telegraph, The Herald Sun, Barron’s Magazine, Marketwatch, The Dow Jones News Wire, and of course, The Wall Street Journal. 

Because of the ethical concerns at the British publication The News of the World, some individuals have called into question the ethics of Murdoch’s other holdings as well, and most likely Murdoch’s greatest fear is that his American holdings will take a reputational hit from his fallout with the British press. This scandal has already prevented Murdoch from buying other broadcasting networks, and it is going to be interesting to see how this scandal affects Murdoch’s influence in the coming years.  

How To Start Investing with $1000 or Less

One of the hardest things facing beginning investors is getting started with a plan in the first place. Not only are there hundreds of decisions swirling around facing each investor--whether to buy stocks, bonds, mutual funds, real estate investment trusts, or whatever, but each investor has the burden of finding a low-cost provider so he doesn't have to burn a lot of his hard-earned savings on trading fees and commissions. If you open an account with a brokerage house, the odds are high that you will have to pay a trading fee each time you purchase shares, ranging from a few dollars ($4.95) to a more substantial chunk of change ($29.95).

I highly recommend that you visit websites such as Computershare (formerly Equiserve) or BNY Mellon. They give you the opportunity to regularly purchase large-cap stocks with fees ranging from nothing to a few dollars per transaction. If you're reality is that you will be investing less than a $1000, then you can't afford to be spending $20, or even $10, on a purchase. Those fees will eat you alive. That's why finding a company participating with either Computershare or BNY Mellon is intelligent, because the fees that you will be spending on trades will be far lower than you will find with a typical brokerage house. The Passive Income Earner recently put out a great article on accumulating wealth slowly by investing your money into direct purchase stocks, and I recommend that you visit his link by clicking here: http://www.thepassiveincomeearner.com/2011/06/how-to-start-dividend-investing-with-little-money.html .

7.20.2011

Would Warren Buffett Buy Airline Stocks?

One of the most uncharacteristic stock purchases in Warren Buffett's storied history was his acquisition of JetBlue Airlines shares in the late 1980s. Buffett sold his shares in JetBlue Airlines several years later, vowing to never again invest in airline stocks. The airline industry is the only sector of the economy that, as a whole, has lost money over every rolling ten year period since 1965.

These are not places to make easy money. Airlines have to contend with fixed labor costs, fixed prices of seemingly ever increasing fuel charges, and very intense competition. The margins are slim, often wiped out by fuel charges or plans not carrying fuel capacity, and I don't think you'll be hearing stories of an airline sustaining and raising a dividend for a half century, like we have seen from some of the best companies on the Dividend Aristocrat Index. The only blessing in the industry is the relatively high barrier to entry, but given its awful track record, and given the fact that oil costs can offset any profits, I don't see any long-term wealth creation in the airline industry. When you could purchase a company like Johnson & Johnson, which has billions of dollars in profits from over 1,000 different sources, and has been steadily increasing its dividend for 50+ years, how could you justify buying an airline stock? I just don't see it. Mark at Buy Like Buffett points to some of the difficulties in the airline industry, and I recommend that you check out his great thoughts on the subject by clicking here: http://buylikebuffett.com/buy-stocks-2/why-you-should-stay-away-from-airline-stocks/ .

Border's Shut Down Marks End of Era

I find the recent Borders announcement to shutter the remaining 399 stores to be incredibly sad. Not only does the dissolution of Borders mark the end of an era for those of us who have ever spent a few days and evenings in tucked away in the corner of a bookstore sipping a coffee, but the shareholders who bought stock in Borders over the years are now left with nothing to show for it.

And it didn't necessarily have to be that way. Unfortunately, Borders lost the faith of its creditors and vendors during the 2008-2009 recession, which exacerbated their financial difficulties. Instead of having the option to pay book agents and publishers ninety days later, these folks started demanding payment upfront because they questioned Borders' ability to pay them back. Well, this only made things worse. Borders was in no position to meet these demands--book sales were down because a lot of shoppers found ways to buy the exact same products online for only a fraction of the price, and Borders business model broke.

They had to pay high rental rates on the stores they used, and they simply weren't able to get enough customers to throw out $29.99 for a new hardcover book release. When the country is in a recession, someone is going to just go online and buy the same book for $5 instead of spending $30. The cracks in the business model had been getting bigger as online retail became increasingly entrenched, and an American recession finally drowned this pillar of the literary community.

What Are Target Date Mutual Funds?

The recession of 2008-2009 taught us that target date mutual funds may not provide investors with the protection that they had in mind when they made their initial purchase. The general expectation of target date mutual funds is that you are theoretically able to buy a mutual fund that will get more conservative as you get closer to retirement age.

However, many investors who had purchased 2010 Target Date funds lost anywhere from 10-30% in their target date funds, which would definitely qualify as 'less than ideal' if you were planning to retire in the past couple of years. Some people may assume that target date funds will shield you from big losses in the years before your retirement, but the truth is, the different funds offer different kinds of protection to investors. For instance, Fidelity target date funds increase bond holdings substantially as retirement comes closer, based on the logic that those seeking retirement will be concerned about protecting against losses. T Rowe Price, on the  other hand, has a whole host of target date funds that hold more stocks, and are generally riskier, than other target date funds, so you should expect more volatility from their funds in the short-term, but higher price appreciate to compensate for that risk in the long-term.

Obviously, this should go without saying, but you should be sure to read thoroughly your investment prospectus before buying any security. Jim Yih at Group Benefits Online wrote a great article about target date funds, which you can read by clicking here: http://groupbenefitsonline.ca/a-target-date-fund-makes-investing-easy/ .

7.19.2011

Bill Miller's Legg-Mason Fund

The numbers are out. Over the past decade, Bill Miller, the once-esteemed fund manager of the Legg-Mason fund, has trailed the market by a several percent per year. Throughout the 1990s, Bill Miller became one of the darlings of the fund industry, constantly churning out returns that stomped the market at-large. Regarded as a financial genius, Bill Miller acquired almost $1 billion in his fund. Now, the pendulum has swung in the other direction as the stocks that Bill Miller has purchased have fallen out of favor.

Not only does this demonstrate just how quickly yesterday's stars can turn into today's burnouts, they also demonstrate the futility of trying to time and beat the market. If Bill Miller, a very intelligent man who had beaten the stock market for over a decade and a half, can lose his prowess and start underperforming the market, then what basis does the average investor have for thinking that he or she can achieve market superior returns? Of course, the right answer is that low-cost index funds, such as those found at Vanguard, are the safest way to bolster your retirement savings, as your general returns will be quite similar to the overall market, minus the frictional expenses. Robert Wasilewski over at RW Investing wrote a great article on Bill Miller's falling out of favor in the fund industry, and I highly recommend that you check out his article here: http://rwinvesting.blogspot.com/2011/07/legg-mason-10-year-results.html .

Are Bonds Good Investments Right Now?

Now is an awful time to buy long-term bonds. The interest rates are currently less than 1%, which means that they are much more likely to be higher five years from now than they are today. I certainly wouldn't bet that interest rates will be lower in 2015 than in 2011. Of course, if you're near retirement, or if you're looking to allocate part of your assets to the 'safe compartment' of your overall savings, then you might want to buy bonds even if the rates aren't all that great right now.

One of the better deals out there available to investors is I-bonds issued by the federal government. You can purchase them at face value, and they are guaranteed to never fall in value, and you earn an interest rate determined by a fixed rate and the inflation rate as measured by the Consumer Price Index. Right now, that rate gives you interest between 3-4%. That's pretty good, considering the interest rates on other safe alternatives yield a paltry 1-2%. Most likely, as the United States continues to inflate its way out of the debt, the savings accounts will yield more, but unfortunately, that will be offset by the fact that goods will cost more to buy. To read a good article on the pricing of bonds, be sure to check out this article over at Michael James Money: http://michaeljamesmoney.blogspot.com/2011/07/bond-misconceptions.html .

7.18.2011

Why You Should Buy Dividend Stocks

There are two big reasons why you should buy strong dividend-paying stocks. First of all, a stock that pays a dividend has to have the cash on hand. They can't fake it. If a company is paying out 50-60% of its earnings as dividends to shareholders, then they can't rely on bogus accounting to get through tough times like Enron and Worldcom attempted to do. By virtue of paying a dividend alone, a company has to stay focused and disciplined, making sure that it always has the cash on hand to fulfill its obligations to shareholders.

Another important reason why you should consider purchasing dividend paying stocks is because it enables you to purchase additional shares during recessions. Of course, this assumes that you are reinvesting your dividends instead of electing to take the cash payouts. Let's say you own 1000 shares of Coca-Cola. During the recession, the price of Coke fell to about $40 per share. Because your 1000 shares earn $470 every three months, you could plow that money into $40 shares, which would be worth much more once the recession clears. Those $40 shares that you were able to buy with reinvested dividends during the recession are now worth just shy of $70. Not a bad investment.

The folks over at The Intelligent Speculator wrote a fantastic article about the philosophical approach that one should take toward purchasing dividend paying stocks, and I highly recommend that you visit their website by clicking here: http://www.intelligentspeculator.net/investment-talking/how-to-build-a-sustainable-dividend-portfolio/ .

Is Tiger Woods Broke?

The recent word on the street is that Tiger Woods is quickly running out of money. This is not particularly surprising. Like most athletes, Tiger Woods got himself in the habit of thinking that the gravy train of money that he was earning in his 20s and 30s would continue for life. But when his recent infidelities hit the news, his life quickly changed.

First of all, his wife Elin Nordegrin got a $100 million divorce settlement. That's going to put a dent in your wallet. Tiger clearly wasn't budgeting for such a sharp hit, and I can only imagine the legal fees that he has racked up throughout the proceedings. Additionally, rumors allege that Tiger has spent millions of dollars keeping his ex-lovers quiet. 

Secondly, Tiger has stopped winning in golf. That's not good for him. In 2006, 2007, 2008, and 2009, Tiger was bringing home the big backs, making $5-$10 million dollars per year in golfing victories. For the time being, those days appear to be gone. Tiger hasn't won a major golf tournament since his reputation took a sharp hit, and there's no indication that it's about to recover anytime soon. If you don't win, you don't get the big paychecks.

And most of all, Tiger has stopped receiving the big paychecks from his advertisers. Most of his endorsers cut him, and even the companies that kept him on, like Nike, have sharply reduced the amount of money that they are paying him. Additionally, Tiger has a $50 million mortgage on his Florida home, and the expenses from such a property are most likely adding up fast. While most people would gladly trade places with Tiger, things aren't quite as rosy for him as they once were. 

How To Execute An Investment Idea

What's the difference between Bill Gates, Steve Jobs, and you and me? Other than billions of dollars, they found a passionate idea, and stuck with it throughout their life until it began to pay off. And, boy, did they gave to go through some hard times--do you think it was easy for Bill Gates dropping out of Harvard and living in his parents' basement so he could start a little side business called Microsoft? Do you think that it was easy for Steve Jobs when Apple, the company that he founded, fired him? Lo and behold, years later, he has come back to run the pre-eminent tech company in the world, making billions of dollars per year. Not bad. And I'm sure that you, too, have had a great idea that you never got a chance to fully pursue.

Whether it be for a great business, great website, or great investment, you have probably thought of a great way to make money that you never got a chance to devote enough time to see its success come through to fruition. There is nothing worse than starting to put time into a great idea, only to give up when the day-to-day grind of real life kicks in, and you find yourself no longer able to devote the same kind of time to your side project that you initially thought. Heck, this blog was just a dream in my head for two years before I finally bit the bullet and got it started. I was able to get it going when I promised myself that I would devote one hour of day to writing online, no more and no less, and I would post online whatever it is that I had written in an hour. Be it one post or five, I knew that the only way I could regularly run a website in the way I dreamed would be  if I had the discipline to dedicate a set amount of time to writing each and every day. If you want to read a great post on getting past that initial bout of inspiration and turning it into something real, be sure to check out this post at Money Crush, link here: http://www.moneycrush.com/going-beyond-that-first-burst-of-inspiration/ .

Should I Use Groupon?

This is a difficult question to answer. Many people wonder whether or not they should use a coupon service like Groupon. After all, it provides a great opportunity to save money on purchases, so it seems like a no-brainer. Who doesn't want to receive a great deal of 25-50% off?One of the 'catches' of a service like Groupon is that you often have to make a purchase that very day or within a very short time frame.

My recommendation on Groupon is that you should only consider using the service if you promise to only use it to buy goods that you would buy anyway, regardless of whether you were enticed with a 50% discount offer. Because of you receive a purchase idea from Groupon that seems 'too good to pass up' and it's not a product you were looking to buy anyway, then you're the sucker. The reason advertisers give you huge discounts is because they want to convince you to buy a product that you would not otherwise purchase.

That's why Groupon can be a great idea if you keep a good head on your shoulders. If you intend to only use Groupon for purchases that you habitually make, then it's a fine way to save money. In fact, I'd even recommend you use Groupon in that case. But if you notice that it's causing you to hurry out and buy goods that you had not even realized you wanted, then you're probably better off with it.

7.17.2011

How To Start Investing

One of the hardest things to do in life is getting started. It's hard to start exercising for the first time. It's hard to ask a girl out on a date for the first time. It's hard to get elected alderman for the first time as you begin your political career. Changing the status quo is hard work, and starting investing is no different. At first, the options may seem overwhelming-there are stocks, bonds, real estate, mutual funds, etc. The options may seem endless. And as you begin your path to deciding whether to invest or not, it's important to remember that getting started is far more important than making the perfect choice. Unless you make a god-awful investment decision, you're much better offer investing in an average mutual fund for a year than waiting six months to find that 'perfect' mutual fund.

If you're not sure where to begin, I would highly recommend picking an amount of money that you can regularly set aside each month, like say, $100, and set up an account with a mutual fund house like Fidelity, Vanguard, or T Rowe Price, and make regular contributions. The results will be much more impressive than  if you dilly-dally around, looking for the perfect investment. If can get in the habit of automatically deducting a certain amount of each paycheck to invest, you will be positioning yourself to be collecting a steady stream of dividends that increase (hopefully!) with each passing investment. Not Made of Money recently put out a great article worth reading that offers some advice on how to get started with investing: http://notmadeofmoney.com/blog/2011/07/how-to-get-started-with-investing.html .

7.16.2011

How To Find A Good Mutual Fund

When I was in high school, one of my teachers only had a handful of rules, and they were all 'don't's.' He would tell us 'don't forget to do your homework, don't get a girl pregnant, and don't forget to show up for class. And don't take too many bathroom breaks.' While a classroom with a bunch of 'do nots' may sound like a depressing place to be, it was actually quite liberating. As long as we didn't do a few things he forbid, we were in the clear. Likewise, when we're buying mutual funds, we should keep in mind a couple things that we should avoid.

First of all, we shouldn't think that buying 5, 10, or even 15 funds ensures diversification. It all depends on the type of funds you're buying--if you're buy 15 international mutual funds, you're going to be far less diversified than someone who buys an American fund, a bond fund, and an international fund. So quantity doesn't matter unless you're diversifying across asset classes.

Likewise, you should avoid mutual funds with high fees. Often, they don't meet your initial expectations--many even lag the market! And when you factor in the 2-3% expense cost of some of the more expensive funds, then you don't even have much of a chance of earning market average returns, let alone market beating returns. My Money Blog has put out some great posts about the type advice that you should avoid when looking to purchase a mutual fund: http://www.mymoneyblog.com/how-not-to-select-a-good-mutual-fund.html

Dividend Portfolio

Imagine this. You have $500 a month to contribute to stocks each and every month. Assuming you buy stocks that pay dividends in the neighborhood of 3%, this means that every month, you are creating your own annuity stream of $15 per year. Not a bad deal. If you put your money in the bluest of the blue-chip stocks in the Dow Jones Index, the odds are pretty good that the dividends will go up annually, giving you a raise every year like clockwork without you doing anything more. If you could get in the habit of regularly socking away money into blue-chip stocks, then you will be able to wake up one day and find yourself loaded. It's a long process, and it's difficult to delay the gratification of today in the pursuit of a better tomorrow, but it's definitely worth it in the end. You work hard enough as it is, it's time that you get your money to start working for you. If you can establish a disciplined savings plan of allocating hundreds of dollars per month to top-tier dividend stocks, you'll end up more than all right in the end. Evan at My Journey to Millions wrote a great article about setting up a 'perpetual dividend machine,' and I highly recommend that you check out his article, link here: http://www.myjourneytomillions.com/articles/my-dividend-investing-portfolio/ .

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The Slippery Slope of Debt

Philip over at Deliver Away Debt recently put out a great post about the slippery slope of debt in cluttering your life with unnecessary credit card payments. After all, every dollar you spend on credit today places a claim on your future earnings. Instead of shipping off a $300 a month credit card payment to Capital One, wouldn't you rather be investing $300 a month in Berkshire Hathaway? All it takes is a couple of boneheaded purchases on a credit card with a 14-25% interest rate to put you in an unfavorable situation. And as the pile of debt mounts, it's easy to develop the mindset of 'this little purchase won't make a difference' as your debt gradually increases. As Charlie Munger, Warren Buffett's right hand man once said, 'No one gets ahead paying 18% interest.' And I couldn't agree with Mr. Munger any more. If you find yourself accumulating large debts, the most important thing to do is stop the bleeding--cut up the cards, get your spending under budget, and then throw as much money at paying off your debts as possible without putting yourself in a financially vulnerable position. Be sure to check out Philip's tale of his journey in overcoming this type of experience by visiting his link here: http://deliverawaydebt.com/debt-elimination/how-i-delivered-away-my-debt/

Military Retirement Planning

Ryan Guina of The Military Wallet offers a great article on the opportunities for former military servicemen to capitalize their savings during retirement. Because former military men and women have the opportunity to earn income both from a military pension and a pension in the workforce (in addition to any personal savings accrued), the opportunity to double dip and live a nice during the twilight years hopefully exists for men and women who gave so much to this country during their youth. Like with all retirement plans, it's difficult to come up with a one-size-fits-all approach to military retirement planning, but there are some universal rules that can be helpful in determining what to expect annually from your pensions and retirement savings. I have limited knowledge on the benefits that are particular to servicemen, and I would highly suggest checking out Mr. Guina's post to get a handle on the general opportunities that servicemen should take advantage of during retirement, link here: http://themilitarywallet.com/military-retirement-planning/ .

7.15.2011

How Many Millionaires in the United States

A great question popped up over at Free Money Finance about the number of millionaire households in the United States. The general consensus seems to suggest that the number is around 3%. Of course, this all depends on whether you count cars and home values in your calculations. Some people are inclined to count only a million dollars in investable assets when they perform these types of calculations, and others take a more literal reading of the question, claiming that 'hey, a million bucks is a million bucks.' Of course, the number skyrockets if you count home values. Almost half of Americans have no mortgage and own their homes outright, and it's easy to see how a couple could have paid off their $400,000 home in full while holding $600,000 in retirement accounts. But of course, these folks probably don't 'feel' like millionaires. After all, a million dollars in stocks and bonds only throws off about $40,000 a year, and a $600,000 nest egg would only throw off $20,000+ in annual income. But still, it's encouraging to think that almost 1 out of every 25 American households are millionaires. To read the great article at Free Money Finance, be sure to click the link here: http://www.freemoneyfinance.com/2011/07/help-a-reader-data-on-millionaires.html

How To Negotiate Lower Credit Card Bills

Okay, you've accumulated a $20,000 debt. You know you were an irresponsible borrower, but you are also aware that you don't own a time machine. As much as you wish you could, you can't buy a time machine and undo the mistakes of your past. And so you're stuck paying off a debt that is much larger than what you could afford. While you're likely facing a bumpy ride ahead, there are some things you can do to make your future smoother. The first thing you should do is call your credit card company and try to negotiate down the amount of debt that you owe. When credit card companies eye large debts and a consumer making minimum payments, they begin to fear that the money will never get paid back. If you can offer a large sum, like say, a one-time $10,000 payment to erase the debt, you'd most likely be surprised by the number of creditors willing to accept such an offer. Likewise, if you promise to double your payments, you might be able to get the debt lowered to $14,000-$15,000. While it may not be enough to get you out of the doghouse, it is still a worthwhile step, and hey--making $4,000 to $5,000 over the course of a phone call is not the worst use of your time by any means. If only we could make financial deals like that all the time! The most important thing to do is to admit your mistakes, acknowledge that you owe the creditor money, and ask them for leniency. The best case scenario is a reduction in debt, the worst case scenario is that you owe what you did before the phone call. Not a bad bargain. If you want to read a great article on the subject, be sure to read Andrew Wang's article at Rich Credit Debt Loan, link here: http://www.richcreditdebtloan.com/how-to-negotiate-with-credit-card-companies-to-reduce-your-debt/ .

Budgeting Trade-Offs And Spending

J.D. Roth over at Get Rich Slowly recently pointed out that every financial decision we make is a trade-off. While this may seem self-evident enough--i.e. if I spend $1000 on a vacation, then I can't spend that $1000 on a  brand new television. Usually, this relationship is most evident when we are dealing with large expenses. That is, we recognize that by choosing to spend five hundred dollars on one item, then we cannot spend that kind of money on another item. That's Budgeting 101. But it is with smaller purchases that it is easier to forget this truism. If you regularly go to McDonalds for lunch, you might think of it as a meaningless $4 purchase that won't affect your finances much. However, if you go to McDonalds three times per week, then you are spending about $12 per week, or $48 per month at McDonalds. Annualized, this comes out to a little less than $600 per year. This is neither a good nor a bad thing. All I want to point out is that it is important to remember that small, frictional expenses can add up over time, depleting your money gradually and relentlessly without you even realizing it. If you want to read a great article that points out how this applies to all areas of our life, be sure to visit Mr. Roth's article at Get Rich Slowly by clicking here: http://www.getrichslowly.org/blog/2011/07/05/every-purchase-is-a-trade-off/ .

Life Expectancy & Retirement

The Five Cent Nickel recently put out an adroit post that urges readers to consider their life expectancies in your preparation for retirement. He gives a pretty impressive breakdown of how to budget your retirement expenses adjusting for how long you should expect your money to last. My word of advice on the matter is to prepare for longevity--after all, this is not an area of your life that you want to find yourself unprepared for--and expect to live thirty years in retirement. Generally speaking, you can afford to withdraw 3-4% of your nest egg throughout retirement, but often, you're particularly at the mercy of the overall economy during the early stages of your retirement. If say, a recession like the one we saw in 2008 struck during the early stages of your retirement, you'd find yourself with a lot less money to live on than you had probably planned. But if a bull market like the one we saw in 1999 occurred during your first year in retirement, then that might give your assets a boost that would enable you to withdraw 5% of your savings throughout retirement. And unfortunately, these macroeconomic factors are completely out of your hands as you prepare for retirement. To check out a great article on life expectancies and retirement savings, check out this great article at Five Cent Nickel: http://www.fivecentnickel.com/2011/07/06/life-expectancy-retirement-and-the-your-investment-time-horizon/

7.14.2011

Chase Freedom Visa Card

I'm a big fan of cash. It allows you to create your own default budget--that is, when the money runs out, you stop spending. You don't have to worry about banks following your ever purchase. You're statistically more likely to remember the exact cost of items that you purchase with cash than those you purchase with plastic. And you're also more likely to recognize the relationship between the money you earn while working and the money you spend when you use cash. But if you're going to use a form of credit, I highly recommend that you find a card that offers rewards without an annual fee. And the Chase Freedom Card seems to fit that bill. Of course, that is contingent upon your ability to use your card responsibly without racking up missed payments or high balances. All it takes is one missed payment to nullify the benefits of any credit card. I consider it a form of playing with fire when you don't need to. If you want to read about an in-depth look at the Chase Freedom Visa Card to better properly evaluate the pros and cons of using it, be sure to visit The Suns Financial Diary by clicking here: http://www.thesunsfinancialdiary.com/personal-finance/chase-freedom-visa-card-150-bonus-5-cash-home-improvement/

Ten Step Guide to Owning Your Own McDonalds Franchise


If you’re anything like the average American, you probably dream of someday owning your own business. However, if you’re anything like the average American, that also means that you can’t consistently tell the difference between ‘your’ and ‘you’re.’ If you happen to be one of these Americans, the idea of one day owning your own restaurant business franchise may be quite appealing. And out of all the franchises that you could possibly own, McDonalds franchises are the first choice for most budding entrepreneurs since they have a very high success rate compared to other business opportunities. Less than 5% of McDonalds franchises go bankrupt or end up being sold as a distressed asset, and the median revenue generated by most McDonaldsfranchises over the course of a year can vary from several hundred thousand to the low millions. Many aspiring entrepreneurs end up determining that this combination of low-risk and high-reward is right for them, and decide that owning a McDonalds is right for them. If you’re curious about how to proceed step-by-step in establishing your own franchise ownership, this Ten Step Guide is a good place to start.

1.       Do your homework! Determine what area would be best for you to purchase your franchise. Like with any real estate purchase, I cannot stress the importance of location enough. The difference between owning a prominent McDonalds that is in a central urban environment as opposed to a random McDonalds surrounded by goats, cows, and farmland could literally amount to a difference of millions of dollars annually. Of course, you will have to pay a premium price for a premium location, but you should find the most prominent area that you can afford to get the most bang for your buck.

2.       Talk to other franchise owners. Contacting other franchise owners may be difficult, and your success with this step may be largely based on luck or the strength of your personality. It’s good to receive as much anecdotal evidence as possible about the successes, weaknesses, triumphs, and struggles that are associated with owning a McDonalds franchise, and hopefully you can find a franchise owner in your area that is comfortable with prepping you for what to expect. However, many local franchise owners may consider you potential competition, so they may be wary of sharing the tools of the trade with you. If you find this to be the case, it might be best to contact someone from outside of your area who wouldn’t consider you to be competition, and therefore might be willing to offer you some (Mc)nuggets of wisdom.

3.       Save save save! If you want to start a new McDonalds from scratch, you are going to have to come up with anywhere from $750,000 to $1.5 million. If you want to purchase a currently existing franchise, you need to have at least $500,000 in the bank before McDonalds will even consider talking to you. This is the amount of money you need, cash-in-hand, to get your foot in the door.

4.       At this point, you are ready to fill out an application to become a franchise owner/operator, either by visiting the franchise section of the McDonalds website or by clicking here:
https://www.aboutmcdonalds.com/mcd/franchising/us_franchising/franchising_application/application_online0.html

5.       Once you submit your application, sit back and wait to see if McDonalds is willing to consider you for a potential franchising opportunity. You’re at the mercy of the McDonalds Corporation at this point, but there are four factors that will heavily influence whether your application will be accepted or not: (a) business experience, (b) amount of cash-on-hand that you are willing to submit as a down payment for the McDonaldsfranchise, (c) whether you have a clean criminal and civil record, and (d) your ability to commit full-time to operating the McDonalds franchise.

6.       Assuming you get tentatively accepted by McDonalds for ownership potential, you’re going to have to start fishing around for a business loan to complete the McDonalds purchase. Generally speaking, you have to put forth a minimum payment of 25% (which is usually around $500,000 or so), meaning that you will need to take out a business loan for $1.5 million. While this may sound difficult to obtain, if you have no other outstanding business debts, and you meet the 25% minimum threshold, you should be able to get the loan from the bank because McDonalds is such an established brand, and the chance of bankruptcy is low. However, if you have previously filed for bankruptcy or have a sub-700 credit rating, you may not be eligible for the loan.

7.       Now that you have been accepted by the McDonalds program and have secured your small-business loan, it is time to begin your training for operating a McDonalds restaurant. Most of the McDonalds training facilities are located in Miami, Florida, and you will have to travel there for two weeks to learn the ins-and-outs of owning and operating your own McDonalds franchise. McDonalds has a reputation for offering a strong training service, and if you pay attention well during these two weeks, there is no reason you shouldn’t get off to a running start with your new location.

8.       At this point, you have probably become acquainted with the manager at the McDonalds chain that you have purchased, but now you take the opportunity to meet the other day-to-day workers. At this point, the company is yours, and it’s up to you to decide whether to add employees, cut employees, give them raises, include manager’s specials in the menu, etc. Although there are some strict parameters that all owners have to abide by, the business is yours now!

9.       You need to be fully aware of all the costs that are associated with your newly purchased McDonalds. You have to pay for all the supplies, the salaries of the workers, the payment on your loan, and you also have to pay your monthly rent (since McDonalds itself owns the land). Additionally, you have to pay McDonalds a monthly service fee of 4%. And of course, Uncle Sam wants to get his hand on a piece of the action, so you will have to pay the 35% corporate tax rate. However, take solace in knowing that every dollar you make after these payments is pure profit.

10.   After things finally get settled after the first couple months, you will probably have to devote anywhere from ten to twenty hours per week to running your own franchise. At this point, hopefully things are running smoothly, and you can kick back and enjoy the fruits of your investment for years to come! 

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