My Blogging Journey – Feb 2010

This month has been quite a difficult one in terms of finding the time to write. I have a career in the financial services industry that, as it is, eats up most of my time. My company has needed my attention even more of late which has forced me to ignore any thoughts of relaxation or other escapes such as blogging to you all.

I did however want to sneak a post to provide a quick update on the progress that this past month has seen.

Staff Writting For Moolanomy

I have published one new post for Moolanomy a couple of weeks ago called Bank Account Savings Strategy. I highly recommend it as it continues to help me keep my money safe while earning interest, albeit a low rate. It speaks about the strategy of keeping part of your investment portfolio away from market fluctuation, where a return is guaranteed by using the best of what bank accounts have to offer. I have a new post in the works for moolanomy and will keep you up to date on its progress.

Goals

As I stated in last months post, my goal is to increase viewership on my site by 50% per month going forward. Even with the little time that I allotted to focusing on this, I have seen a 170% increase in viewership, month over month! I am realistic in that I know this trend will slow, but it is a great start. I credit much of this popularity to my work on the Moolanomy website, as that has been a significant source of the hits to this site. As this journey evolves, I will update you periodically on my progress. Please feel free to cheer me on and/or provide helpful hints.

Thanks again for reading!

-PFG

My Blogging Journey – Jan 2010

As I mentioned in my inaugural post as well as in the About Me section on this site, I consider myself a personal finance aficionado. Through my own experiences as well as countless hours studying the subject, I have come to master the art of personal finance efficiency. With the knowledge I have obtained along the way, I decided to write about some of my thoughts for my own reference as well as to help others.

The Beginning

Approximately two months ago I started this blog. Now, I am not very internet/blog savvy individual but not much time went by when I realized that I was not getting enough traffic and I needed to do more to accumulate a reader base. I decided to open a twitter account (@personalfinanceguy) to share some helpful hints and get some publicity. After two months, I have just crossed the 100-follower plateau. Although this is not much by twitter standards, my following is increasing steadily. Although my hope is that it will eventually be a solid avenue to steer traffic to this site as well as articles I write for others, I realize that for now, it is just not enough.

Gaining Publicity On Other Sites

I have begun directing my attention to more popular blogs. A few weeks ago I came across an interesting column about obtaining site traffic. This piece suggested commenting on articles found on more popular blogs and plugging yourself in your comments. I tried this recently on a personal finance blog called Suburban Dollar and saw results almost immediately. A few days after I posted my comment, I was mentioned in a new article from the writer. The article discusses my comment and how my recommendations helped the author with a personal finance goal. Please see the article here: http://www.suburbandollar.com/2010/01/18/think-things-through-or-it-could-cost-you/. This mention has lead to a major increase in the hits on my site.

Becoming a Staff Writer On Another Blog

Just the other day, I became a staff writer for the powerhouse personal finance blog, Moolanomy. A staff writer creates material, which is purchased by the site you write for, and the content becomes their property. This is a win-win for both Moolanomy and myself. I gain publicity by having my name and articles appearing on their high-traffic site and they become the owner of my articles, which (hopefully) will attract and captivate their readers. I believe that this will be a fruitful endeavor for all. Please feel free to see my first article with Moolanomy here: http://www.moolanomy.com/2295/how-to-find-the-best-deal-on-airline-tickets-hotels-and-car-rentals-josh15/.

Goals

My goal is to increase viewership on my site by 50% per month going forward. I believe this is a lofty goal that is attainable with the proper effort and creativity. As this journey evolves, I will update you periodically on my progress. For the first time on this site, I am opening this post to reader comments. Please feel free to cheer me on and/or provide helpful hints.

Thanks for reading!

-PFG

Free Computer Software

Until recently, the purchase of a computer was only the beginning of the expense involved in using and maintaining it. Along with your computer, you needed to buy an office suite (ie. Microsoft Office), antivirus software (ie. Norton), games, etc. In the past couple of years however, many free software programs have emerged which are just as or close to as capable as the costly above-mentioned products. Below I will list some of my favorites that are free and comparable options to what you would otherwise be paying for.

The Office Suite

Microsoft’s Office software dominates this area. They have had a long, successful run with their Word, Excel, Power Point, Access and other programs. While Microsoft Office is still probably the most advanced product on the market, it offers more features than the average person will need. It also costs several hundred dollars for the whole package.

For most people, a better option is to use Open Office’s office suite. Open Office is, for all intents and purposes, a scaled down version of Microsoft’s software. It has most of the same features and is even compatible with Microsoft Office (you can open and Open Office created document in Microsoft Office and vice versa). You may download this software free at www.openoffice.org

Another well-deserved option is Google Docs. In the past year or two there has been a new software phenomenon called cloud computing. Cloud computing is basically Internet based use of computer software technology. Google’s office suite falls into this category. It is not a downloadable program – you do your work online and save it to your Google account. If you don’t have a Google account you may sign up for one here: www.google.com/accounts/NewAccount. If you already have an account, check out Google Docs here: www.docs.google.com.

Personal Finance Software

It seems like yesterday that I used to purchase Quicken or Microsoft Money for my personal finance needs. If I remember correctly, this software ran me about $50 and I had to manually enter all information to the program, which would take hours a week. The introduction of cloud software products like www.mint.com and www.wesabe.com, has been a blessing to us personal finance aficionado’s. I personally use Mint and like it very much. After a 10 minute initial interview inputting all of my financial data, I now have a free, complete financial management tool at my fingertips 24 hours a day/ 7 days a week!

Games

When computers became mainstream in the 1990′s you would purchase games off the shelves. There are now thousands of sites dedicated for interactive game play and even download. The only games you should be purchasing are for your XBox, Playstation or Wii game consoles, not your computer.

Antivirus Software

For the average person, basic antivirus software is ample for your protection needs. For a highly rated free antivirus software, see www.free.avg.com. AVG’s software is simple to use, works very similarly to costly products like Norton Antivirus, and uses much less memory which will help keep your computer running smoothly. If your needs also require a firewall and anti-adware software, you may find free versions of these programs at download.com.

*Note: If you download a lot or use your computer to file share, you may still be better off purchasing a sophisticated antivirus software program.

-PFG

Disclaimer: I am not a computer professional nor do I know much about computer security. The ideas in this blog are for money saving benefit. Protection and safety results are not guaranteed. Please contact your computer professional for additional details.

Always Negotiate

If you are like most people, you might be under the impression that you can only negotiate when making certain purchases. It is well know that you may be able to negotioate when buying a car or when at the local flea market. What is less known is that you may be able to negotiate almost anywhere and for anything.

I try to negotiate whenever making a purchase. For example: I was due for an upgrade with my wireless provider. There was a specific phone I wanted that happened to be offered free with a 2-year contract and NEW activation. When I called and asked for that phone as part of an upgrade they said no. The offer for the same phone for a current customer was for $150.  When I asked for a discount I was told that the sale only applied to new customers at which point I asked to speak with a manager.

When the manager picked up I began playing devil’s advocate. I explained that I understood this marketing idea to lure new customers and thought it was a smart move. I did however question why they would rather entice an outsider while frustrating a loyal, long-standing customer who has already spent thousands of dollars on their services and products. After a little more prodding, I was offered the phone for free as part of my upgrade, which was more than I had even asked for.

Negotiating does not only apply to a new purchase. We should all be contacting our providers for insurance, cable/internet, phone service, etc. every 6 months or so to see what, if any, promotions are running. Ask for the same deal as others are getting or threaten to take your business elsewhere. The bottom line is that most companies need you more than you need them. They will most likely be willing to bend over backwards to keep you satisfied and coming back for more. This tactic will almost always work.

-PFG

Why You Need Life Insurance

Most parents who are raising children, are at least somewhat financially responsible. They generally have day jobs where they work hard, pay their bills, provide shelter and food for their family and if there is any money left over, they may save a little bit for retirement. What I have found though, is that most are not adequately informed about the importance of life insurance.

If you have enough savings that your family could live without your salary for an extended period of time, you need not read further. For the rest of us, life insurance is not a luxury or a gift, it should be a priority just as important as buying groceries or paying your electric bill. The reason why is if something were to happen to any member of a household who earns income, there would not be a way to pay these bills.

How Much Coverage Do I Need?

To figure out how much life insurance you need, a little legwork may be required. You need to calculate your total annual household expenses. Once you have that number down (we will use $50,000 for illustration purposes), you then need to estimate your final expenses. You must calculate funeral expenses, paying off your mortgage and any other debts, etc.. Although this sounds dreary, it is important.

Once you have these figures down, the formula to figure out how much life insurance you need is quite simple. You need $50,000 (your total annual household expenses), minus any other after-tax annual income from your household (a spouse’s paycheck), for 10 years.  For example, lets say your spouse earns $30,000/year after taxes, you need $50,000-$30,000 =$20,000/yr x 10 years = $200,000. Now you just add on your death expenses ($230,000 for example). This brings your total life insurance number to $430,000.

Which Is the Best Type of Policy?

There are many different policy types to choose from. Most of them have a built in savings vehicle. The cost associated with the savings portion of the plan is usually farely minimal. If you are reading this blog however, you can manage your savings on your own – you do not need a financial company to manage your investments and charge you a fee for doing so. To keep things simple, apply for a 30-year term life policy. This will allow you to pay just the premium for the life insurance policy with no built-ins or add-ons.

Life insurance is quite cheap these days with a $500,000 30 yr-term policy going for about $450/yr. for a 30 year-old male with good health. At this rate you should probably look to financially protect your family even further. If you can afford to do so, double the policy. The benefit of the extra cushion, should something happen, far outways the $450/yr in policy costs. Hopefully your family will never need to collect on a life insurance policy but, having one will help everyone sleep a little easier at night.

-PFG

How to Reduce the Expenses of Driving Your Car

Driving a car is a very expensive undertaking. You must pay for the car you drive (ie. own, lease, rent), you need to insure that car and yourself as the driver, you must fuel the car, you must maintain the car and fix any problems, etc… the list goes on and on. Even with a monthly car payment of under $400/month, your total operating cost of the vehicle are probably close to double that. That is why it is important to use your car in the most efficient way possible. This post will discuss several easy ways to do that.

1. Drive a fuel-efficient vehicle:

In most countries outside the US, small cars are the norm - there are very few SUV types.  Although it has been popular in the US to drive a large vehicle, it is unnecessary for most people and it is clear that the trend is now toward more efficient vehicles.  I recommend driving a car that gets no less than 25 mpg in mixed driving conditions. By switching from an SUV getting 15 mpg, you may save over 300 gallons of gas a year. With the national average per gallon of regular gasoline currently hovering around $2.65 you can expect to save $795/yr. by switching from a gas guzzler to a sipper (300 gal. x 2.65/gal.=$795).

2. Shop your car insurance

I recently shopped my car insurance and was shocked by the results. Insurance companies rate your driving history differently. Some count moving violations and/or accidents from the past 7 yrs toward your quote while others only look back as few as 3 yrs. Just because you got the best deal with your current insurer last year does not mean that you shouldn’t shop your quote this year. I obtained quotes from four insurers, including the company I was already with. I found a major difference in the quotes for the same coverage. I ended up switching insurers and saved $600/yr. for the same coverage.

*Hint: Take a defensive driving course. It will cost you about $50 but you will save 10% on your insurance for each of the next three years. With a $1,200 policy, you will save $360 over that 3-year period or $120/yr.

3. Do not change your motor oil every 3,000 miles.

Read your owner’s manual. Most car companies recommend driving 5,000 – 7,500 miles between oil changes. Although your mechanic will recommend changing it every three months, this is just a way for them to make money and is not benefiting you or your car. If you drive 12,000 miles/yr. this could save you $72/yr. based on a $30 oil change.

4. Practice proper driving habits

We all fall victim to impatient driving from time to time but it can be costly. Try practicing these driving habits to keep your gas mileage up and your costs down:

• Drive at a moderate speed and do not accelerate or brake to abruptly
• Kepp your tires properly inflated; don’t forget to replace, rotate and rebalance tires
• Minimize driving with a cold engine (warm up your car for 30 seconds when driving in the cold)
• Avoid idling for long periods
• Ask your mechanic to top off all fluids at every oil change (this should be included in the price).
• Give your car a bath - have it waxed once a year

*Hint: Use regular fuel unless your car’s manual tells you otherwise. Premium fuel only helps with performance and is not necessarily better for your engine. Most cars will run perfectly fine on regular fuel and by doing so you can save $100/yr.

In review: For most of us, driving is a necessity and it one of the largest expenses in your budget. It only makes sense to handle your driving expenses in the most efficient way possible. Follow these rules and you can save $1,700/yr., I did!

-PFG 

Credit Card’s and How to Use Them

I am on of the luck few to say that, growing up, I benefited from a very sound financial education from my father. At the ripe old age of 14 yrs., he gave me my first credit card (an additional card on his account). He was paying the bill so he set just one ground rule with a bit of advice: “I will pay the bill as long as you never use this card for anything you wouldn’t pay cash for (unless it is an emergency), and remember that I will see every charge you make.” Naturally I went to the mall the next day and rang up $200. When the bill arrived my father came to me and asked me to fork over the money. He explained that I had never spent so frivolously before and I was not viewing the card as cash and therefore I needed to pay the bill. Needless to say, lesson learned. From then on out I have had a completely different attitude on how to use the card. 

Credit cards are a hot topic these days. Companies are hiking rates for their best and worst customers alike. Many financial professionals are suggesting that people do away with credit cards completely so as not to get into debt. If your main purpose of having a credit card is to borrow the money to pay for something that you cannot currently afford, these professionals are right, cut your cards in half and toss them.  Credit cards are not all bad though. In this post, I would like to suggest a better way to use a credit card, which will keep you out of debt and enable you to accumulate rewards in the process.  

Credit cards are in set up so financial institution may take advantage of their clients. There is no situation I can imagine where a responsible adult should be paying upwards of 30% to borrow money. The most important advice I can give on using your card is to use it as a charge card, not a credit card. A charge card is a credit card in which you are forced to pay the full bill at the end of every month. There is no interest due if you pay on time and if you do not, a late fee will apply and you will receive a ding on your credit report. American Express offers several cards that are charge cards but most (if not all) carry an annual fee.

With so many options today, there is not reason for the average person to pay an annual fee. My suggestion is to find a credit card with rewards that fit you best. If you like to travel, get a travel rewards card. If you like to retail shop, get a card that accommodates that. Even though this card will be a credit card, use it only as a charge card. Pay the bill in full every month, no exceptions! You must train yourself to treat your card as cash, not a line of credit. You may find this difficult at first but you will thank me later. When folks are over-leveraged (high rate of debt), it is almost impossible to keep up with the minimum payments, never mind the entire balance. The point is to never carry a balance in the first place and the snowball effect will never come into play.

The question you might be asking yourself at this point it is: Why even bother to have a credit card, shouldn’t I just pay with cash? The answer is simple. Firstly, most major credit cards come with major perks, free of charge, for example: Identity theft protection, travel insurance, etc… Second, if you are using your card as a charge card and therefore not paying for the card, the card can be great tool to boost your credit score. Thirdly, why would anyone want to pass up on free rewards? Rewards are in place to entice you to spend money, which the credit card company believes will lead to higher interest payments for them. If you pay your bill in full and on time, your rewards are free and may be substantial.

In review: If used properly, credit cards can be a great tool to help you consolidate all of your payments and earn great free rewards. Instead of being taken advantage of by the company issuing the card, take advantage of them by paying your bill in full each month and just reaping the rewards. Do not fall into their trap; use your card as a charge card, not a credit card.

-PFG

Saving for Retirement – Part III of III (Investment Strategy)

Strategy

 

Now that we have gone through which accounts to use we will discuss the strategy of how to invest in these accounts.

Your minimum goal should be to save 10% of your gross income for retirement.

Traditional vs. Roth

401(k)

As we discussed in Part’s I & II make sure to contribute enough, but not more, to capture any employer match. Once that has been accomplished, put all other retirement funds in a Roth (overall, a Roth is a more advantageous account). For example: If your employer will match up to 3%, contribute 3% to your 401(k) and place the remaining 7% (or more) in a Roth.

IRA

Since there is no employer match, place 50% of your contributions in a traditional IRA and 50% in a Roth IRA.

Investment Choices

In any account you choose, the plan manager will offer a variety of mutual funds that cover many different classifications. Selection is a good thing but this may make it difficult to choose which funds to invest in.  Although you may think otherwise, it is best to keep things simple. Allocate all of your money to a diverse group of 5-7 index-tracking mutual funds (http://en.wikipedia.org/wiki/Index_fund). Although a given, actively managed mutual fund may perform slightly better, the upside is negligible. Index funds are also much cheaper which will benefit your total performance. Tip: Make sure to invest in funds that are “No Load” and “No Transaction Fee”. Investing in funds that carry loads or transaction fees will reduce your potential return with high fees.

Allocation

How to allocate your funds amongst the 5-7 index-tracking fund previously talked about can be tricky. Much of the strategy depends on how many years the money will be invested until you need to start withdrawing funds. There are two classifications of funds you should be looking at: Stock funds and Bond funds.

As a basic rule, it is probably best to follow these guidelines. The formula to go by is: invest your age minus 10 as a percentage in bond funds and the rest to stock funds. For example: If you are 30 yrs old: 30 – 10 = 20% bond funds, 80% stock funds. It is important to remember that this is a guideline, not absolute. For example: you may choose to be more aggressive under age 50 by dividing your age by 2 to come up with your bond allocation and less aggressive, as you get closer to retirement. Anyone over 50 should have NO LESS than 50% of their funds allocated toward bonds.

The other part of allocation that is important is how much to invest in US stock index-trackers vs. International stock trackers. To play it safe it is probably best to invest more toward US based funds, which are less uncertain. I good allocation would be 60-65% of stock allocation toward US based funds and 35-40% to International based funds.

Now that we have covered allocation in theory, let’s put it into action. Below is a sample of a very efficient allocation for someone with many years to go before retirement. I will use a 30 yr. old as an example:

22% – An index fund tracking the S&P 500 index

15% – An index fund tracking the Wilshire 5000 index

13% – An index fund tracking small & midsized US companies

20% – An index fund tracking a broad base of international companies

10% – An index fund tracking a broad base of the emerging markets

20% – An index fund tracking all aspects of the bond market

Dollar-cost Averaging

Now that we have covered which account to choose as well as allocation, we are left with the last (and probably most important) part of your strategy: dollar-cost averaging. Dollar cost averaging is a timing strategy in which you invest equal dollar amounts regularly (in this case monthly). This strategy allows you to purchase more shares when prices are low and fewer share when prices are high.

The point of this is to lower your average cost per share. For example: You have $1,000 and lets say you buy 100 shares of a $10/share mutual fund now. Sometimes you will get a higher price (but your $100 will buy less shares) and sometimes you will get a lower price (your $100 will buy you more shares). This will average your cost per share and over time, will lead to a significant advantage as share prices rise.

We have now officially covered the basics of investing for retirement. The important thing to remember is that we all need to save, one way or another. I hope that this 3 part series has helped to better prepare you for the retirement saving journey ahead. If you have any questions or thoughts to share, I would love to hear about them.

-PFG 

Saving for Retirement – Part II of III (Which Accounts To Choose)

Now that we have covered the basics of retirement accounts, we are prepared to discuss the approach, which most effectively utilizes those accounts. I will start by explaining which accounts are appropriate for whom and will then move on to the strategy for your entire portfolio.

 Which account(s) to choose and how to decide:

401(k)

Only utilize a 401(k) if your employer matches your contributions (if your employer does not offer a 401(k) or does, but does not offer a match, skip to the IRA section of this post).  If your employer offers a 401(k) plan with a match or the potential for a match, my message to you is simple: ENROLL IMMEDIATELY. You should contribute the full amount that your company will match – no more, no less. By not contributing at all or enough to capture the full match, you are leaving free money on the table.

IRA

If your employer does not offer a 401(k) or does, but does not offer a match, an IRA account should be used instead. Here’s why: An IRA offers many more options than a 401(k) when all else is created equal. I will use myself as an example. My 401(k) plan offers 38 investment options, most of which are mutual funds. By all standards, that is a very good selection for an employer sponsored 401(k). I would say the average plan offers somewhere between 20-30 options (all of which are usually mutual funds). When you use an IRA, you choose your broker (plan manager). Most major discount brokers offer 1,000+ no transaction fee (no commission) mutual funds plus the option to purchase individual stocks, ETF’s, bonds, etc… making your choices almost infinite. The ability to choose your own investments is a major advantage.

Roth IRA & 401(k)

First: The difference between the Roth IRA and Roth 401(k) works just like the traditional accounts. The Roth IRA is for folks who do not have an employer sponsored Roth 401(k) or for people who want to make their own investment choices.

The Roth IRA/401(k) is just as important as a traditional account in your retirement portfolio. You already have your traditional account set up (IRA or 401(k)). These accounts are tax deffered – meaning they are even more beneficial if your tax bracket is higher when you are retired. With the Roth accounts, you pay taxes on your income now and your withdrawals in retirement are tax-free. This is beneficial when you will be in a higher tax bracket when you retire.

Now, being that you do not know whether your tax bracket will be higher in retirement than it is now, you must hedge your bets (take both sides). Therefore it is important to contribute to both a traditional account as well as the Roth version. In Part III, we will discuss the strategy of how to invest in these accounts.

-PFG

Saving for Retirement – Part I of III (Introduction)

I recently spoke with a friend of mine who has just been laid-off from his extremely well paying, high-profile attorney position at a major financial law firm. When he shared the bad news with me he made a very interesting remark to me about his 401(k): “I don’t know what to do with my 401(k). I guess I will just cash it out.” I asked him what his thought process was for this. His response – “I don’t know what else to do with it.”

 

I was surprised that someone with such a background would not know how to handle his retirement account. Then it dawned on me; for the most part, a person’s education on saving for retirement does not come from a high school or college course but rather their employer. Your employer or the retirement plan they provide, educates you on their products and how to accumulate a nest egg while you are working for them. They generally are not concerned with what happens to the money once you leave or are let go. The result is that many Americans are not adequately prepared to save for their own retirement. The remainder of this post and part’s II & III to come, will be a guide to the A-B-C’s of saving for retirement.

 

From the time you first obtain income (through a job or otherwise), your first priority should be paying your bills. Priority number 2 is saving for retirement.

 

For now we will stick with the basics (for a more advanced and diverse retirement portfolio stay tuned for a future post). Below are the basic retirement savings plan options:

 

401(k)

This is the most popular of retirement account options. For a background on the 401(k) plan, see this: http://en.wikipedia.org/wiki/401(k). Below are the key points of the 401(k):

 

Positive:

• You never see this money in your paycheck: Your contribution is removed from your earnings and placed in your retirement account before you ever get your paycheck. This prevents you from having a chance to rethink your deposit and spend the money on something you want now.  
• Tax deferred: Your “contributions” are pre-tax; meaning your money is deposited without taxes being withheld and taxes are only deducted upon a withdrawal.   
• Employer match: your company may match a portion or the entirety of your contribution.

Negative:

• Early withdrawal penalty: Most withdrawals from your 401(k) before age 59½ are subject to regular income tax plus a ten percent penalty of the amount distributed. 
• Lack of choices: You must chose from the investment options offered by your plan manager.

 

Traditional IRA (Individual Retirement Account)

An IRA is very similar to a 401(k). It is funded by a pretax salary reduction and applies most of the same rules. A Traditional IRA becomes most useful when a 401(k) plan is not available to you or you would prefer to make your own investment selections (ie. mutual funds not offered in your 401(k), stocks, or other, more unique invesment choices). Below are the key points of the Traditional IRA that differentiate it from 401(k):

 

Positive:

• Available even when a 401(k) is not.
• Choice: You chose your own brokerage house or management team and your investment options are much more diverse.

Negative:

• No employer match
• Contribution limits are significantly lower than the 401(k)

 

Roth IRA and 401(k)

Roth accounts are the same concept as regular retirement accounts with one major difference. In contrast to a traditional account, contributions to a Roth account are not tax-deferrable. You pay income taxes on the income and then you make your contribution. Your withdrawals (in retirement or not) are generally tax free.  For a background on the Roth account, see this: http://en.wikipedia.org/wiki/Roth_IRA. Below are the key points of a Roth account:

 

Positive

• Tax-free withdrawals on contributions: Direct contributions to a Roth may be withdrawn tax free at any time.
• No forced withdrawal: The Roth IRA does not require distributions based on age.

 

Negative

• Contributions are not tax deductible like in a traditional account.
• Eligibility to contribute to a Roth phases out at certain income limits. By contrast, contributions to most traditional plans have no income limit.

That sums up the basics of the most important retirement savings vehicles. Unless you already have enough money to retire, you need to make saving for retirement a priority. Whether you make minimum wage or receive a multi-million dollar bonus every year, everyone can find a few extra dollars per paycheck to protect your financial future. In Part II we will discuss which account(s) to choose and how to decide, to reach your retirement goals.

 

-PFG