Friday, December 27, 2013

Tricks that Save Us Every Time at the Grocery Store

Just going to the grocery store these days can get expensive.  With product sizes decreasing and prices increasing, we seem to be getting less and less for our money.  However, this doesn’t mean that all is lost when it comes to cutting the weekly grocery bill.  In fact, there are some quite simple steps that may be taken to make significant cuts to food costs.  And our family has a few tricks up our sleeves that help us save each time we head out to the grocery store.

Go together
If your kids are anything like mine, their tastes probably change regularly.  Sometimes they change within a matter of weeks or even days.  One minute they love something, the next they won’t touch it.  This can be especially true when it comes to food.

Therefore, we tend to take our kids along with us to the store.  It’s a true family affair.  I like to go with my wife so that we don’t end up making educated guesses about what the other person wants.  And the kids (at least our oldest) can make selections regarding cereals, lunch options for school, and dinner menus so we aren’t left facing that, “I don’t want to eat THAT!” whining from him when it comes to his meals; and in turn, we aren’t left with costly food waste.

Buy before we need
I tend to take a regular inventory of our commonly used items.  This way, when we start to get low, I’m prepared.  This enables us to buy when such items are on sale, not when we have to have them.  From toilet paper and toothpaste, to cereal and croutons, I’m ready to buy before we’re completely out so that I can make a decision based upon product and price rather than necessity.

Understand consumption levels
I like to buy in bulk when and where needed.  However, buying in bulk can lead to excessive waste if we aren’t using what we buy.

This is where understanding consumption levels can play a key money-saving role in our trips to the store.  Understanding not only what we use, but in what amounts, and how long such products will last (expiration dates), can help us make educated purchases at low prices for the things we’ll use most of or that will last longest.  For example, we eat a lot of cereal, so we can buy in bulk when it’s on sale.  We don’t use much contact solution, but it has a substantial shelf-life, so again, we can buy in bulk when it’s on sale, getting the best bang for our buck.

Make and take a list
I know people who make a list and then forget it at home.  What’s the point?  A list is a critical element in our ability not to make wasteful -- in time, effort, and money -- trips back and forth due to forgotten items.  A list also keeps us on track for buying what we need, and it helps us avoid those impulse buys for what we don’t.

Utilize stores where we don’t need coupons
Coupons might seem like a good money-saving idea at the store.  And depending upon your location and available grocery store selection, they might be.  I used to be a big fan of coupons, and at stores that offer double or triple coupon days, they can still be useful.  However, most of our area stores don’t offer such days.  And many coupons are for name brand or higher priced products.  Therefore, we’ve found that utilizing stores like Aldi, Ultra Foods, Wal-mart, and Target, where grocery prices are already lower or store brands are offered can help us save more money than if we were to buy similar, higher-priced products paired with coupons.

And by using these tricks, we’re able to keep our grocery costs for a family of four between just $200 and $300 a month.



Disclaimer:

The author is not a licensed financial professional.  The information provided in this article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Wednesday, December 18, 2013

Is a Dollar in Hand Worth Two in the Stock Market?

I know that there are people out there who do quite well and even make a living through the stock market, and I applaud them.  I wish I were so lucky.  I actually haven’t put a dime into my retirement account since September of 2007, which has helped me get a better gauge on my actual fund performance since it hasn’t been clouded by further contributions – my own or employer sponsored.

According to MarketWatch.com, “…taken in the aggregate, American 401(k) plans are largely back on track, according to the mutual-fund industry’s main trade group. In a report released this week, the Investment Company Institute (ICI) said that the average American 401(k) account balance reached $94,482 at the end of 2011, the most recent period tracked in ICI’s database of accounts.”

The article goes on to note, “That figure is up 89% from an average of just under $50,000 at the end of 2008, when the stock market’s recent tumble was near its nadir. Given that stocks have continued to rise steadily since the end of 2011 – the S&P 500 is up almost 40% over that stretch – the average 401(k) balance is likely to be considerably higher now.”

And while individual stocks or stock portfolios can certainly vary in their levels of success, this pinpoints an issue I have with putting more of my hard-earned money into the stock market.

5-year market returns
It’s amazing to me that even with as great as the market has been doing the past several years that my IRA is just now breaking past the point it was at nearly six years ago.  After I left the workforce in late 2007 to become self-employed, I rolled my 401(k) into an IRA.  Well, long story short, I’ve only just cracked the balance I was at toward the end of 2007 near the start of 2013.  In that five and a half year timeframe, returns were essentially flat although I was gaining a bit of share value through dividend reinvestment.

So it begs the question, if I put money that I might otherwise have sunk into the stock market into other areas, what would my return have been?

Credit card debt
According to CreditCards.com, which notes the TransUnion analysis of May 2013 credit files, the average credit card debt per U.S. adult, excluding zero-balance cards and store cards is $4,878.

Staying out of credit card debt is something that I put at the forefront of our family’s financial plan since there are few is any other options (with the exception of many stocks in 2013) that can provide the return on investment that comes with paying off credit card debt.  This is why every month I make darn sure our credit card bill is paid and paid in full.

So that dollar that I could have put into my IRA back in 2007 was instead put toward paying the family credit card.  With a 20 percent interest rate on that card, it means that single dollar paid toward our credit card may have saved us nearly an additional $1.50 in interest that we would have paid on it over that period.

Mortgage debt
Some of those investment dollars didn’t go toward consumer purchases and rather were put toward our mortgage.  Paying down our mortgage faster than necessary has been another financial goal that absorbed many of our investment dollars.  And while this might not seem the best option when mortgage interest rates are low, back in 2008, we locked into a 15-year mortgage with 5.375 percent rate, so it made more sense to pay this debt down quicker.

Therefore, we did this not only through the shorter term mortgage, which in essence, boosted our monthly payment but lowered our interest rate and overall interest paid on the loan, but also through additional payments.  Taking each dollar that would have remained fairly stagnant in the stock market over that five-year timeframe and putting toward our home saved us about 30 cents in interest.  Multiply that dollar – and the associated savings – by thousands and you can see how it made sense to keep our money out of the stock market.  And while things in the market have been great as of late, it doesn’t mean that I’m rushing to get back in, using the previous five-years as an example of just how volatile markets can be.



Disclaimer:
The author is not a licensed financial professional.  This article is for informational purposes only and does not constitute advice of any kind.  Calculations have not been verified by a professional.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.


Sunday, December 8, 2013

4 Hats to Wear in the Self-employment World

Running a small business may be more work than you think…much more.  And it can involve a variety of activities with which you may not have much experience.  Nevertheless, as a small business owner, it may be your responsibility to handle these issues whether you like it or not.

Having been self-employed myself for nearly six years now, I’ve realized just how difficult the small business or freelance world can be and how many different hats must be worn when trying to run your own show.

IT Director
I’ll admit that technology is not my favorite thing to deal with.  I don’t particularly like it, I don’t really enjoy it, but as a self-employed individual, I’m pretty much forced to interact and utilize it.  Gone are the days when I could pick up the phone and dial the IT department to solve my technology-related issues.

From fixing a computer when it crashes, to learning new technology and software, finding new apps, creating a website or blog, and utilizing social networking, there are a variety of facets of the tech world that a small business owner or self-employed individual may encounter. 

Personally, I find that doing a lot of research online and reading user reviews of different technology and tech-related applications is typically most helpful in finding solutions to issues or learning about more efficient or effective technology.  Networking with clients and colleagues is also a great way to find out about the experiences they’ve had and sites or technologies that they may be using or have had experience with.

Marketing and advertising exec
There is any number of marketing and advertising facets that might need to be handled by one who is operating a small business or is self-employed.  From simpler tasks like social networking through sites like Facebook and Twitter, to creating blog or website posts, communicating with or commenting on industry-specific websites, creating coupons and flyers, coming up with promotions, and handling public relations issues -- both good and bad -- marketing can play almost a daily role in certain operations.

Creating not only a schedule for handling such items, but also a budget can help put some order to what might otherwise be chaos.  Setting aside a certain amount of time each day or a particular day each week to focus on this aspect of operations can ensure that you are devoting enough time to the promotional aspects of a business.

CFO
Acting as the chief financial officer of your own operation may be one of the most important roles you take on as a small business owner or self-employed individual. 
While you don’t necessarily have to get fancy with the software and systems you utilize to handle the financial aspects of your work, ensuring that you’re tracking and organizing your finances in some way can be critical to the success of your operation.

These financial aspects can run from handling tax payments and document retention for future tax filings, to creating and retaining receipts, tracking income, tracking expenses, creating and maintaining a budget and/or forecast, ensuring proper cashflow, collecting upon receivables, and sending out payables.  While it might seem like a lot to handle, such issues can be integral to having and maintaining a good financial grasp upon a business.

Manager and staffer
In a small business setting, an owner can find himself or herself not only managing the operation, but jumping in and getting their hands dirty too.  From setting goals and tracking productivity, to learning about productivity enhancers, motivating staff, handling human resources issues, hiring, disciplining, training, and sometimes terminating staff, and dealing with legal and workplace safety issues, a small business owner can be charged with a variety of management issues while also sparing time for all the other duties involved in running an operation.

So, while running your own show can sound like a dream come true, and can actually be quite rewarding in many ways, it’s important to understand the full capacity in which an owner might be serving and just how many roles he or she may be undertaking in the process.


Disclaimer:

The author is not a licensed financial or career professional.  The information provided in this article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Sunday, December 1, 2013

Financial Lessons to Learn Early in Life

As I look back on my financial life, I find that I’m kicking myself now for certain moves I made -- or didn’t make -- regarding my personal finances.  I only wish I had some things that I could to do over as I can see so much more clearly now that I’m older.  With experience now on my side, I wish I could pair the lessons I’ve now learned with the time that was on my side 20 years ago.

The following lessons would likely have made my financial life easier and my current financial situation better had I learned them sooner than later.

Dividend reinvesting
Having a DRIP (dividend reinvestment plan) is something I wish I’d known about much earlier in life.  As a more conservative investor, it really used to bother me when the stock market would take big dips, taking my retirement plan along for the ride.  With dividend reinvesting though, while my fund price tends to correlate with market trends, it also purchases me extra shares each month at current market prices and that continue to earn for me. 

So when the market goes down, while my fund price might follow, I’m continuing to add shares at a lower price, so it doesn’t hurt as bad.  Had I recognized the benefits of such a plan at an earlier age, I could have taken much of the stress out of stock market investing and built up significantly more shares over a period of nearly a decade.

Dollar cost averaging
One of the main things my dividend reinvesting taught me was the value of dollar cost averaging.  Being able to purchase shares at high prices, low prices, and places in between spreads out my risk of buying too many shares all at once and at too high a price.

I’ve found that while shares of stocks or stock funds are most commonly associated with dollar cost averaging, it can be done with a variety of things like commodities or even real estate as well.

Time and patience can be valuable partners
As I age, I begin to realize the true value of time and patience when it comes to investing and personal finances.  Getting overzealous or impatient can lead to poor investment decisions or unnecessary risk.

For example, I sold the company stock I held in my 20s unnecessarily, pulling in a small profit from its increase from a $10 per share purchase price to $14 per share.  My reasoning…the stock wasn’t doing much and I was tired of watching it.  I didn’t need the money, and I wasn’t loosing money.  Several years later, the stock price went to around $45 a share when the company was bought out.  I lost out on thousands of dollars in potential profit because I got antsy and sold too soon.

A job is more than just a paycheck
I couldn’t wait to graduate from college.  Not because I was excited about a career but more because I was excited at the prospect of earning money and getting a regular paycheck.  But over time and as I advanced in my career, I began to realize that a job can be much more than just a regular paycheck.  Sure, that’s certainly a part of it, but there is -- or at least can be -- more to a job.

It wasn’t until I actually left the regular workforce to become a self-employed individual that I began to fully comprehend just what a job could be.  There is the opportunity for networking, possibly building connections that can lead to career advancement or better placement.  There can be a variety of benefits related to health care, transportation, retirement planning, and things like free meals, uniform or clothing allowances, company awards, bonuses, and functions, and numerous other perks.  And of course there may be opportunities for growth potential through learning on the job skills or continuing education programs.

Had I realized this earlier on in my young career, I might have stuck with regular employment a bit longer before venturing out on my own.  This way I could have absorbed more of these benefits for longer, making my position stronger once I eventually moved on to working for myself.

 

Disclaimer:

The author is not a licensed financial professional.  This article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

 

Thursday, November 21, 2013

Our Greatest Kid-cost Savings Come Between Ages 2 and 4

Kids can be costly, but they don’t always have to be as expensive as they’re made out to be.  Sure, things can happen -- health issues or childcare situations -- that can indeed raise the price of having kids, but sometimes there are significant savings to be had as well when it comes to kid costs.

As a parent of two kids myself, and as a work-at-home dad, I’ve begun to realize that after the birthing process and all those initial baby costs are covered, our greatest kid-cost savings come between ages two and four.

Ditching those pricey baby needs
A Parenting.com article notes that, “According to a 2010 USDA report, the average middle-income family will spend roughly $12,000 on child-related expenses in their baby’s first year of life. By age two, parents are up to more than $12,500 per year.”

Thankfully, our costs were nowhere near this high; however, they were still significant.  And while there are many one-time costs involved with having a baby, there are certain expenses like diapers, wipes, formula, and food that can keep the costs coming.  That same Parenting.com article when on to say, “Parents can count on spending close to $50 per week ($2,448 per year) on diapers, formula and baby food alone.”

We don’t spend quite that much since we buy store brand products which are often 25-50 percent below the name brand prices; however, once we get past the potty training phase and our child starts moving away from formula into solid foods, our costs drop dramatically.  This is why I tend to make a push to start such transitions earlier rather than later. 

Cutting out diapers, wipes and formula alone will put about an extra $80 to $100 into our pockets each month.

They’re smart enough, but not too smart
By age two, many kids are starting to catch on to things pretty quickly.  I like to call ages two to four the “perfect” years.  Kids are hitting that point where they are smart enough to listen and obey, but they’re not smart enough to care too much about what they wear or don’t wear, what brands they eat or use, and where we shop.

This means that it can be a great money-saving period.  During this age timeframe, we shop for most of our clothing needs at resale locations and garage sales.  Since at this age range our kids aren’t in school yet, they don’t need to have the latest trends or what everybody else has.  We can accept hand-me-downs, and we don’t have to have name brand foods from the store.  In these ways, we’re able to keep our clothing costs for a family of four around $300 a year, and food and entertainment costs around $300 a month.

Fun is free! (or at least cheap)
An article in The Florida Times-Union notes, “Informal surveys show that in recent years, on average, parents spend $200 to $400 on birthday parties. And some wealthy families may spend up to $5,000 or more, said Heather Downs, a professor of sociology at Jacksonville University.”

After that first birthday party though when it’s often more about the parents and family than the child, we’ve found that such costs aren’t always necessary between ages two and four.  The kids are often fine without hugely expensive birthday parties and they’re just happy being with friends and family whether it’s at the local park or playground, a McDonald’s playland, or even grandma and grandpa’s house.

A trip to the library, the zoo, parks, and playlands can act as perfect entertainment (and great ways for the kids to burn energy) at low cost levels.  And the best part is that the kids are often just as happy as if you’d spent hundreds or even thousands of dollars on entertaining them.

So the next time you’re thinking that the costs involved in raising a baby won’t ever ease, just remember, there may be opportunities right around the corner for cutting those expenses dramatically.

 

Disclaimer:

The author is not a licensed financial or parenting professional.  This article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Sunday, November 10, 2013

Saving or Spending, these Calculators are Key

Whether you’re planning to save money for a particular financial goal such as a vacation, new car, a home, or retirement, or spending money to fund an investment, pay off student loan debt or reduce consumer debt, there are certain financial calculations that can come in handy.  You don’t necessarily have to be a mathematics wizard or financial analyst to harness the power of these financial tools though.

While I had the benefit of a financial education, with the Internet as a tool these days, even someone with a basic understanding of personal finances can make use of certain calculators, which whether saving or spending can end up resulting in huge financial ramifications.

Determining future values
If I invest $1,000 each year at a 3 percent annual return, how much will it be worth in 5 years?  10 years?  30 years?  What if I change that rate of return to only 2 percent?  Or maybe increase it to 5 percent?

Knowing how to put a lasso around these numbers and being able to harness them to my advantage is critical to understanding how my money can grow, or conversely how debt could grow as well.  Future value calculators can be incredibly important tools used to forecast a variety of investment situations such as returns on certificates of deposit, savings bonds, savings accounts, and money market funds, or determine how to best pay down or pay off debt.

Payment calculations (savings installments)
Ever wonder how much you would have to invest each month at a certain percent interest to save a million dollars?  Even if it’s not a realistic goal to shoot for, you may have considered it or at least something like it. 

Well, by taking that future value equation and swapping it around so that you’re starting with an end goal in mind -- say, a million dollars -- and attaching an associated timeline and interest rate, you can find out.  For example, let’s say you want to save $500,000 for retirement over the next 30 years and are sure that you can get a guaranteed rate of return of 3 percent compounded annually on your savings or investments.  A payment savings installment calculator would reveal that about $10,509 a year -- or around $875 a month -- would need to be saved. 

If nothing else, its kind of fun to play around with the numbers to see what is possible.

How to amortize a loan
But life isn’t always about saving money; and for many of us, more often than not it’s about spending money and taking on debt.  However, understanding how that debt is to be repaid can make a big difference in the amounts we put toward that debt and under what kinds of timeframes.

Figuring out what our payments will look like over time on things like a mortgage, student loans, or vehicle loan by way of an amortization schedule calculator can help us decide things like how much money to put down up front, how long of a loan to take on, and how much principal we’ll be paying on a loan compared to interest. 

With the use of such online calculators and calculations, financial issues that might seem rather befuddling can become clear quite easily and with the input of just a few numbers.  Taking advantage of these tools can end up saving thousand of dollars and clearing up some of the confusion that can accompany making certain financial decisions.

 

Disclaimer:
The author is not a licensed financial professional.  The information provided in this article is for informational purposes only and does not constitute advice of any kind.  Calculations have not been verified by a professional.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Tuesday, October 29, 2013

The Effects of Math-based Buying Decisions on our Personal Finances

According to an article on MSN Money entitled, “How ‘math anxiety’ costs us money”, “The average consumer's "math anxiety" often means taking the easy option (i.e., dollar-formatted) even if the person is capable of doing the math, according to research led by Rajneesh Suri of Drexel University.”  It goes on to say, “Math-based marketing favors retailers because consumers "make decisions based on clues and half-thinking that amount to innumeracy," notes Derek Thompson of The Atlantic in an article called "The 11 ways that consumers are hopeless at math."”

While I wouldn’t term it math “anxiety” exactly, from time to time we all suffer from those mental brain farts when it comes to money.  Sometimes such faux pas only costs us $1 or so when we flub our fast food order.  Sometimes they cost us much more. 

Over time, our own family has experienced several situations in which this so-called “math anxiety” or math-based buying decisions have hurt us financially, but we’ve learned a few things from these experiences along the way.

Bi-weekly mortgage payments
When I got the letter from our bank regarding a bi-weekly mortgage payment plan, it sounded like a great option.  The letter explained that such a payment plan could cut our mortgage rate by something like .75 percent and save thousands of dollars over the course of the loan…or something to that effect. 

While essentially this was true, making extra payments toward our mortgage was something we easily could have done ourselves.  Rather than paying a $300 application fee and then $1 for each extra bi-weekly payment deducted from our account ($26 a year), I could easily have made an additional payment (since that’s what the program essentially equated to) once a year myself for free.  Their fuzzy description of the program and my failure to read up more on the program before signing up for it left us paying money for something that I could do (and eventually did do) myself for free whenever we wanted to make an extra payment toward our mortgage.

Buying our first home
Buying our first home was a learning process in itself.  However, in that process, I realized one very important thing over all others.  This realization was that when we were dealing with large numbers -- numbers that reached into the hundreds of thousands -- for the sale price of our homes, smaller number that we would typically have found big, didn’t seem that big anymore.

After the fact, I realized that we had ignored or brushed aside with ease certain costs that normally we would have raised an eyebrow or two at.  $300 here and $500 there are amounts we typically cringe at when they hit; however, such amounts didn’t really seem like a lot when buying a home for nearly $300,000.  Plus, there were so many other things to deal with in the home-buying process that it was just such a whirlwind.  Therefore, when we bought our next home, I made sure that we carefully gauged, considered, and negotiated each cost whether it was the smaller fees for the real estate lawyer and home inspector, or much higher cost of the home itself.

Swimsuit issues
The other day I was helping my wife pick out a new bathing suit.  This is one of the few clothes shopping experiences that I don’t really mind, except this time it was with the kids so it wasn’t as appealing as usual.  We’d gone through multiple suits in our search, eventually finding one that fit and looked great.  Amazingly, it was on a “$10” rack, which for ladies swimsuits is super-duper cheap.  The sales associate casually mentioned that this rack was currently half off...so the suit would be just $5!  But my wife had already found a suit she liked for $60, had tried it one, and like it.

Having already made multiple laps around the store with a fussy baby, I wasn’t about to argue.  But I knew that if she hadn’t found the most expensive suit first, she would have been completely content with the much cheaper and better fitting suit.  My only comment to dissuade her was, “You know, even if the second suit doesn’t last as long, you could buy 11 more for the same price as the other one.”

She smiled and agreed, and then bought both, proving that sometimes when we make an initial decision, we often tend to lock it in as a “done and done” in our brains.  However, this can lead to a sort of brain lockdown in which we stop considering other options, which can cost us money or lead to bad decision making in the process.

So sometimes it pays to take a moment and consider just what the numbers mean and why they are being presented in the way they are.  Taking a minute to settle down and do the math could end up saving some big money in the process.

 

Disclaimer:

The author is not a licensed financial, mortgage or real estate professional.  The information provided in this article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Wednesday, October 23, 2013

Responsible Spending when Every Day is a Saturday

The other day I read something likening every day in retirement to a Saturday, which is the day when most people tend to do most of their discretionary spending.  It was a warning about the potential for overspending in retirement, a time when many of us may find ourselves with more time on our hands than money.  And that time can prove potentially dangerous to our finances when we’re looking to fill it with things that cost money like shopping, traveling, and home or yard improvement projects.  Therefore, it can be important to the health of your retirement fund to find ways to restrain your spending when every day seems like a Saturday. 

As a self-employed individual who works from home, I often feel like the days blend together.  And with plenty of extra time on my hands around the house for potential spending, I have created a few rules to restrain myself from blowing extra cash and that I plan to take with me into retirement.

Find cheap hobbies or even ones that make money
Hobbies can be great time fillers and killers.  And sometimes hobbies can even be great money makers too.  From gardening and farming, to painting, writing, and online reselling, not only can certain retirement hobbies keep you pleasantly occupied but from spending money too.

As you might guess, I enjoy writing not only for a living, but as a hobby as well.  It’s a great way to express creativity and keep myself busy and from spending cash doing other things.  I also like doing home repairs, growing our own food, having garage sales, doing a little Dumpster diving, and partaking in other projects that either save money -- or as with garage sales -- sometimes even make us a little extra cash.  And these are all things that I can carry with me into retirement to keep me affordably entertained.

Downsize transportation
Over the years of being a work-at-home parent, I’ve realized that if I don’t have a convenient form of transportation, I’m much less likely to go out and spend money.  After we downsized by one vehicle when I started working from home, my wife used our other vehicle to get to work each weekday.  This meant that not only do we save an extra $1,000 or so each year on not maintaining and insuring a second vehicle, but without that easy form of transportation available, I’m not as likely to go out from sheer boredom and spend money shopping or doing whatever. 

A similar situation could help cut costs in retirement when the opportunity to spend is limited through vehicle downsizing.  If the hubby or wife is out with the car, it can reduce that inclination to head out and spend just because you’re bored.

Budget carefully
For many of us, retirement could be the most important time to budget.  With possibly limited income and plenty of time on our hands to do with as we please, knowing where our money is going and in what amounts can be critical to successful personal financial management.

But even more than just laying out budget numbers to hit, you might find that tracking costs and incomes related to various hobbies could be extremely useful as well.  Knowing how much is spent on certain hobbies, how much income a hobby might bring in, and similar data can provide a better breakdown of what your activities are costing you.  Not only this, but tracking such costs could be helpful when it comes tax time as certain business expenses relating to the earning of income might be tax deductible.  Just as writing is a hobby for me, it’s also my prime source of income, and certain expenses related to the business side of this activity can reduce my tax liability.

Therefore, paying attention to your hobbies in retirement could help you financially in a number of ways.  Not only can they keep you busy and from spending money out of sheer boredom, but they could help you make back some of your costs (from things like resale activities) or even make a little cash in your golden years.

 


Disclaimer:
The author is not a licensed financial professional.  The information provided in this article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Tuesday, October 15, 2013

Making the Bank Fun for Our Five-year-old

I rarely see people with small children at the bank these days.  I know it’s easier to just pop by the ATM or hit the drive thru teller, but personally, I feel that going to the bank should be a somewhat special experience for kids.  I remember going to the bank with my mother and the impression it made upon me.  The big walk-in safe, all the tellers, the counting and transacting of money, the sound of the coin counter -- they were all unique and interesting experiences to me as a kid.  Therefore, I want my kids to grow up appreciating, understanding and looking forward to going to the bank, and I try to do certain things when we go to make it a fun experience, especially for our five-year-old.

Checking the Coin Sorter
My son and I have made it a game when we go for walks around town to see who can find the most loose change on the sidewalks.  Therefore, he has learned the value of a nickel or even a penny.  So when we go to the bank, where there is an automated coin sorter that customers can use, whether or not we’re changing in any coins, he heads over to check the coin sorter return bin.  Here he has found pennies, nickels, dimes, Canadian coins, and even Euro coins.  It’s not only a fun way for him to find money for his piggy bank but to learn about the coins of other countries as well.

Sorting Coins
But then there are the times when we actually get to sort our spare change at the bank’s coin machine.  It’s really neat…even for an adult.  We get to dump our change into the coin sorting area.  It goes up this cool conveyor belt and into the machine where it gets processed.  We then get to watch our total amount add up on a computer screen while we wait, and finally we get a printout receipt that we take to the bank teller to receive our cash.  The whole process is an event and one that both my son and I look forward to doing together. 

Interesting Coins and Paper Money
I find more than just foreign coins and loose change at the bank to interest my son though.  When we conduct our transactions, I often look for ways to make the exchange memorable and interesting for him.  This may involve a simple, yet cool for a five-year-old, purchase of a 50 cent piece, Eisenhower dollar coin, Susan B. Anthony coin, presidential dollar coin, or a $2 bill.  While these items might not sound like much to an adult, they can be super cool to a kid and something that adds to his appreciation for and interest in money.

Candy of Course
And then of course there is the candy…a long-time tradition of going to the bank.  As a kid, I used to get a piece of gum.  Now they put little baskets of multi-colored suckers on the counter for kids.  While it might not sound like much, it’s just one more enticement to get our young one to the bank and help formulate his interest in money and his personal finances.


Disclaimer:

The author is not a licensed financial or parenting professional.  The information provided in this article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Thursday, October 10, 2013

Even in a "Recovering" Market, Staying in a Home Doesn’t Necessarily Lead to Recouped Equity

There’s been a lot of talk in the media lately about a supposed housing recovery lately.  Since I’ve written freely about the money we lost on the sale of our first home (nearly $100,000), I’ve been questioned by many as to why we didn’t just stay put in an effort to recoup some of this value.  And believe me, it was a consideration; especially with the real estate market appearing to level off. 

However, I’m not one to just hope that we’ll come out the other side of such an investment for the better; therefore I ran the numbers that we’d be looking at if we stayed put, as well as considering several non-monetary factors as well.  Once done, this gave us a clearer picture of why staying in our previous home wouldn’t be the financial answer, and would likely have cost us even more money.

Our initial plan was to stay in our home for 10 years, since by that point our son would be high school age, and the area high school was very poor.  But even if we had waited it out that long instead of selling after three years, from my calculations, we would have been out even more money than we actually lost.  Here’s why.

Continued Market Decline
Just because a market has come down significantly, it doesn’t necessarily mean there isn’t more room to fall even if the rest of the country seems to be in a recovery.  In our case, and in our area of Chicagoland, we sold our home for 25 percent below what we purchased it, but since that time values in that area have continued to fall.

We purchased our home for just under $300,000.  We ended up selling for $230,000 in 2011.  That home is currently valued at just under $170,000 by Zillow.com and closer to $160,000 by Trulia.com, and the area’s median home sale price has continued to fall even as many area prices rise, dropping by a further 15 percent from 2011 to 2012.  There is little indication of things picking up, and even if they do over the next six years, it’s hard to imagine us selling our home for anything above what we sold it for in 2011. 

Property Tax Increases
While the market in our previous area continues to decline, the property taxes are going up.  In fact, they had increased by about 40 percent in the last two years we lived there.  We were paying almost $5,000 a year in property taxes to live in an area with poor high schools, aging infrastructure, not much in the way of entertainment, and where property values were continuing to fall.  In our new location our taxes are about $3,000 a year, and in a much better area.

Mortgage Costs
The cost of carrying a mortgage can add up significantly.  Even with the mortgage interest deduction, the interest alone can add tens of thousands of dollars to home ownership costs.

We chose a 15-year fixed rate mortgage at 5.375 percent when we purchased our home.  At the time, this rate was actually pretty low, but we still worked toward paying our mortgage off early.  Even with moving to a bi-weekly mortgage program, and making extra payments along the way, we were looking at about $65,000 in interest paid over the course of 10 years.

Upkeep, Repairs, and Utilities
Those big ticket fixes on a home can hit hard when they come along.  And even the little ones that come in a constant trickle can soon amount to a flood of money out of our accounts.

During the time we were in our home, we averaged about $2,000 a year in maintenance and repair costs.  However, with aging appliances, a 20-year-old hot water heater and 15-year-old HVAC system, it was likely we would have had to replace all those items in the upcoming years.  Therefore, our maintenance and repair costs would likely have averaged closer to $3,000 over time, compared to our new condo where they average closer to about $600 a year.  In addition, we have to factor in that our utilities were also higher in our previous home compared to where we live now by about $1,200 a year.

Better Options Elsewhere
So when we sold our home, we bought in a better neighborhood with top-tier schools and plenty of entertainment and where home prices are rebounding instead of continuing to fall.  We live in a condo where our utilities are $100 a month less than in our home, we have no mortgage, taxes are about 40 percent less, and our only regular monthly cost is for our $300 association fee.

By my calculations, had we stayed put, rather than it costing us $160,000 to live in our home for three years it would have cost us about $220,000 over ten years, and that’s if we could have sold in 2017 for what we sold for in 2011.  And while the numbers look better spread over a monthly basis, it’s important to bear in mind that not only would we have lost an additional $60,000 over time, but in the meantime -- and in our new location -- we’ve cut our housing costs by about $1,200 a month, we own a home outright, our kids can attend great schools, and we live in an area where our median home value is better protected.

So it’s important to note that even though riding out a bad situation might be the first and easiest thought that comes to mind, it might not always be the right thought for everyone.

 

Disclaimer:
The author is not a licensed financial or real estate professional.  The information provided in this article is for informational purposes only and does not constitute advice of any kind.  Calculations have not been verified by a professional.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Wednesday, October 2, 2013

Ensuring that a Child is Financially Aware

It seems that in our high-tech, easy-spend world of immediate gratification and excessive debt, children are being brought into this world with lesser and lesser chance of getting a good financial upbringing.  This is why I’m making it a point with my own children not only to try to educate them regarding financial values but to ensure that those around them are attempting to do the same.

With a five-year-old and a newborn, my work is ongoing, but I feel as though I’ve been reasonably successful with my attempts from my progress thus far.

Financial errands
I’ve found that when a child is still willing to look at the fun side of running errands, this can be a great time to start slipping in some financial education on the side.  Taking our five-year-old along with us on trips to the bank, coin ship, garage sales, grocery store, and similar excursions are interesting to him and are activities that we can use to point things out and teach him more about personal finance.  He really looks forward to our trips to these places now, which tells me we’ve been successful in making him more financially aware.

Here are just a few examples of how we have furthered his financial education with these tasks: 

  • Grocery store – Pointing out prices of the foods we buy each week
  • Grocery store – Price comparing among similar products
  • Grocery store – Showing him how to pay at the checkout
  • Garage sales – Buying/selling unused or unwanted items for pennies on the dollar
  • Garage sales – Negotiating tactics to get better deals
  • Bank – Explaining how the banking system works
  • Bank – Starting a bank account
  • Bank/Coin shop – Buying him various coins and bills to further an interest in money
Such tasks are often commonplace to us as adults but they can serve as valuable learning experience to young kids.

Gifts from others
I’ve found it more difficult to get others involved in helping me with our kids’ financial educations.  Family members often want to give toys and trinkets in place of financial gifts when it comes to holidays or birthdays.  However, over time, and through our own efforts, we’ve made our son financially aware enough that he illustrates his value of money when around family members.  Seeing this, our family realizes that he appreciates and likes money and has therefore started giving him gifts related to money.  European coins when they come back from a trip abroad, a bag of change cleaned out from a vehicle, an 1888 Morgan Dollar for his birthday, and similar gifts have started to roll in as he gets older, telling me that others have taken note of our son’s financial awareness.

The value of penny
Many people just don’t value a penny anymore.  We find these coins all over the ground around town and people just walk right past them.  This is fine with me since our son picks them up, a key indicator that he still values a penny.

We find this an important aspect of ensuring that he is financially aware, since it is a building block to his future.  Since we know he values the lowest denomination coin, he will value higher denominations as well.  This has led to interest in wheat pennies and other coins, furthering his appreciation and value for all money in the process.  If we started him off only valuing dollar bills, he might waste a lot of money in coin form along the way, possibly adding up to hundreds or even thousands of dollars throughout the course of his lifetime.

Coupons
Many adults don’t really value coupons anymore, so it can be hard to expect kids to appreciate their worth.  And the true value of coupons might not hit home until they are applied to something important to child or adult alike. 

We have found that our son is quickly learning the importance of coupons though by way of the local go-karting track, a favorite stop of his.  We take a “buy 2 rides, get 1 free” coupon with us when we go.  So our son understands that we get more for our money this way and he is now on the lookout for such coupons and super-excited when we find them.

We make no secret of using coupons in front of him so that we continue to build upon his understanding us such financial tools.  And in this way we know that he is financially aware and we keep furthering his personal finance education.

 


Disclaimer:

The author is not a licensed financial or parenting professional.  The information provided in this article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Sunday, September 29, 2013

Why I’m Not Concerned When Gold and Silver Prices Fall

Commodities markets can be volatile at times.  Recently -- as well as historically -- we’ve seen gold and silver take some wild rides both to the upside as well as down.  I’m an owner of physical silver, and while I don’t hold it in vast quantities, over the years I’ve bought some for the kids and a little for myself.  And when metal prices take a dive, there are several reasons why it doesn’t really concern me.

Divergence between paper and physical metals
If you want a really good example of the spread between “paper” silver available through the commodities markets and ETFs, and the actual hard stuff, just pop onto eBay, head to the local coin or pawn shop, or even visit the US Mint’s website and see what you have to pay per ounce as compared to the quoted market price.  I’ve often noted a 20 to 30 percent or more markup between the two prices lately, so the paper market can quote whatever number it likes, to me, it only really matters what price I can actually buy or sell metals for in the physical market.   

Long-term outlook
I have a long-term outlook when it comes to silver and gold.  When I say “long-term”, I’m talking 20 or 30 years.  Commodities can be volatile investments, especially in the near term, but by taking a look at longer-term charts that go back several decades or more, like those at kitco.com, I can get a better feel for the appreciation metals have had over an extended period of time.

Type of physical holdings
Personally, I prefer silver coins as a form of investment.  As a child, I was given some of these by family members and found them to be an interesting and safe form of investment.  I like them more than say things like silver bars since they can carry a numismatic value as well.  A nice quarter from the 1920s could be worth $4 or $5 in silver content, but it could be worth 10 times as much to a coin collector.  In a way, such an investment is covering me on several fronts, since if silver values go down, the collector value of the coin might still rise, and vice versa.

An insurance policy
I look at investing in metals as a sort of insurance policy.  Such an investment could possibly help protect me against inflation and certain economic uncertainty.  But just as I don’t look to make money on our auto or home insurance policies I don’t expect this with things like silver or gold either.  They are there for peace of mind and should the worst happen to occur.  As with other forms of insurance, I hope not to need them, but I’d be thankful to have them if or when I need them.

 
Disclaimer:
The author is not a licensed financial professional or commodities expert.  The information provided in this article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Tuesday, September 24, 2013

The NASDAQ Glitch didn’t Rattle Me Because I Follow 3 Simple Rules

Though nothing earth-shattering appears to have come from the NASDAQ outage of August 22, 2013, it was a lesson of what can and could happen in today’s high-tech, fast-paced stock market.  When the NASDAQ shut down trading for three hours, I wasn’t panicking; I was watching with subdued interest, more curious than frightened.  This wasn’t because I don’t have money invested in the stock market, I do.  However, my investments and investing strategies are governed by three simple rules that allow me to breath easy when it comes to a variety of unstable economic and financial situations.

Rule #1: Don’t invest more than you can afford to lose
Most investors will take a chance with their money at some point in their life.  This doesn’t mean however that it has to constantly be at risk or at risk in the amounts that could make or break your financial world.

I have money invested in the stock market through my IRA, and frankly, I don’t want to lose it.  However, I could afford to do so without changing our family’s lifestyle or living situation.   Therefore, my rule is to try to limit our exposure in any single asset area.  To do this, I never try to put more than 25 percent of our assets into any particular investment, and I prefer to limit our holdings to closer to the 10 to 15 percent range.  This means that even if a particular investment fails completely, we’re not left without options and opportunities to recoup it in other areas.

Rule #2: Don’t put all your eggs in one basket
Another way to say “don’t put all your eggs in one basket” is simply to say “diversify”.  I’ve never been a fan of putting all my investments in one place.  I feel that spreading investment options out over cash, stocks, bonds, commodities, real estate, and other investment options is the best way to broaden the ability to weather a variety of financial storms.  Not only this, but I feel that by moving outside the more intangible -- things like stocks, ETFs, bonds, REITs, and paper commodities -- into things like actual physical commodities like silver and gold, real estate like land and rental properties, assets like antiques and collectibles, and other items that can actually be controlled (rather than having an investment firm control them) is another good way not only to diversify the type of investment but the form as well.

In my opinion, diversifying in these ways puts some of the ability to maintain more control over investments back into the hands of the actual investor.

Rule #3: Remain debt-free
Losing a large chunk of money in the stock market could be devastating if you’re counting on that money for other things or had an extremely high cost of living.  However, by keeping debt-free, you may be relieved of some of the stress that comes along with investing. 

In our particular situation, knowing that we have no credit card debt, that student loans are paid off, and that we don’t have a mortgage, the success of our investments aren’t as crucial in the near-term since we aren’t relying on that money for any immediate needs.  By keeping debt down and lifestyle costs low, we have fewer obligations for our money, and we can afford to lose some of it in a market debacle (with hopes of eventually gaining it back of course) should it occur, without it being a huge concern.


Disclaimer:

The author is not a licensed financial professional.  The information provided in this article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Friday, September 13, 2013

Stuck at Home? Save Some Money

People like me might sometimes find themselves stuck at home with too much time and too little work on their hands.  As a self-employed, at-home parent of two, I’m super busy with the kids, but right now, work is lacking.  This doesn’t mean that I’m content to sit on my hands and wait for money to start falling from the sky.  And while decent paying working isn’t exactly knocking on the door, this doesn’t mean that all is lost when it comes to finding ways either to save money or even make some money by doing a few simple things while I’m stuck at home.

Shopping returns
You know those birthday and holiday gifts, the items you bought as gifts for others or even yourself that you never used, or just those things that were well-intentioned purchases for around the house that just never got opened and have been sitting in closets, cupboards or on shelves?

Well, our family had a few such items hanging around.  And with a little extra time to get organized, find old receipts, and get to the store, I recouped a few bucks off of things like an unopened container or baby formula, some unopened baby gas relief medication, and a few baby outfits that our little one had already outgrown by the time we got ready to use them.

Insurance review
Vehicle insurance is one of those financial obligations that we often pay and then forget about for six months or until the next bill arrives.  Sometimes it seems like one of those bills that we just can’t do much about when it comes to cutting costs.  But this isn’t always the case.

Recently, I took the time (since I had it available) to do a little research regarding the Kelly Blue Book value of our vehicle.  Our SUV is over 10 years old now and its estimated value is under $2,000.  After analyzing our insurance bills and considering our driving habits, we’re considering eliminating our comprehensive and collision coverage which could save us an extra $200 a year.  

Organize a garage sale
Being stuck at home with plenty of time on my hands can present a great time for that final push toward preparing for our annual summer garage sale.  While we tend to work on our preparations throughout the year -- setting things aside in bags and boxes until sale time arrives -- we still do a final push in which we make harder decisions regarding possessions that we just weren’t sure whether we wanted to get rid of or not.

Besides this aspect of our preparations, I can also sit down and start narrowing down dates for our sales, ensuring our supply bag (containing things like pens, tape, string, scissors, markers, etc.) is ready to go, contacting friends and family members who might like to partake in our sale, write up our advertisement for the local paper, and complete our sale signs.

Tax documentation
Not everyone has to do their own taxes like I do to take some time at home and get their tax documentation together.  Lately, I’ve been spending time online doing further research regarding deductions for which our family might be eligible.  Learning more about these money-saving possibilities (work-related tax deduction, charitable donation deductions, child deductions and credits, etc.) and organizing the necessary documentation to prove eligibility for such deductions (bills, receipts, and similar documents) means that I’m better prepared to take advantage of these tax savings when tax season rolls around. 

Meal planning
Another way I make use of my extra time at home is through better meal planning.  It might not seem like much, but getting organized when it comes to our family meal plan has allowed us to cut our grocery costs by almost 30 percent over the past year.

I tackle our meal plan in two ways.  First off, I create a running list of anything we need when we make our weekly trip to the store.  This keeps us from forgetting items, and in turn having to return to the store where we could potentially spend more than we mean to or need to on impulse buys.

Second, I create a weekly dinner menu.  This keeps us on track with our food consumption, ensures that we use leftovers or finish up the things that could spoil first, and maximizes our food dollar while minimizing waste.  This also cuts down on last minute decisions -- or worse yet indecision -- regarding dinner that could lead us to pricier fast food options.

Through these methods, I’m able to continue to stay useful and productive around the house, saving and sometimes even making money even if I’m not “working” a regular job.

Thursday, September 12, 2013

Roadblocks We’ve Encountered When Buying Homes

There are a variety of issues that can come up when buying a home.  While many of us are familiar with the usual items that can pop up during home inspections or credit checks, some issues are a bit less common or aren’t advertised as heavily in mainstream media.  However, these potential roadblocks can be just as aggravating and potentially disastrous when attempting to buy a home.  I can attest to the hurdles these issues can present, as I have encountered a variety of them during our various home-buying adventures.

Auctioned Out from Under us
During our first home sale, we stumbled upon what we felt what was a really great deal when looking for our next place.  We found a short-sale condo that was located in one of the suburbs in which we were interested in relocating. 

Knowing that it was a short-sale, we made a full-price offer and then sat back, prepared to wait for an extended period if necessary to hear back from the bank.  In the meantime, we got our finances together, got pre-approved for a second mortgage (since we’d yet to sell our first home), and started downsizing in the event our offer was accepted and we needed to move.  After several weeks spent patiently waiting, we were contacted by our real estate lawyer who informed us that even with our full price offer on the table, while the seller had accepted our offer, the bank had moved forward with foreclosure proceedings and had sold the property at auction.

Initially, we were quite disappointed, but about a year later, the property came back on the market as a foreclosure.  By this point we’d already moved on in our home search.  The property was sold at less than half the price we’d initially offered for it.  Shortly thereafter, another unit in the same six-unit building sold for a comparable price.  So what seemed like a disappointing loss at first could actually be considered a blessing in disguise since we would likely have overpaid significantly for the property.

Money Transfers
Encountering issues when trying to transfer or attain funds for a home purchase can be time consuming, frustrating, stressful, and costly.  In our most recent home purchase, we encountered several issues that we weren’t expecting when trying to wrangle our funds from the bank for our purchase. 

The first issue was obtaining the money from a certificate of deposit in a bank in another state before its maturity date.  Since we couldn’t come into the bank in person, we had to contact a personal banker who emailed us documents that then had to be express mailed back so that we could do a wire transfer of the money to our new bank.  The only issue with this was that we found that our new bank would put a 5-10 business day hold on what is considered “sizeable” transactions, which held up our money until the day before closing.  The final issue in this transaction was that we then found that we couldn’t just write a couple checks to bring to closing.  Since the amount of our down-payment was in excess of $50,000 (we were buying the property outright with equity from our first home), we had to wire transfer the funds from two different banks and pay two different wire transfer fees ($25 and $20). 

While we managed to get the stars to align to make the home purchase, it was a stressful process to say the least and one that might not have been completed on time were we not as on top of things as we were.

Family Gift Payments
When we were looking at that short sale condo I mentioned earlier, since we still owned our primary home, our available liquid cash was at a minimum.  We were planning on taking a temporary loan from a family member to help us with the down-payment; however, there was more to it than just cashing the check.  According to our bank, we had to provide documentation of the transaction and even have the family member sign a statement regarding the “gift” money.  While the deal ended up falling through anyway, it was certainly an additional aspect of the real estate transaction that we weren’t expecting.

Checks
As I mentioned, when we bought our current home, we decided to do so without a mortgage since we were downsizing and using some of the money from our previous home to buy our current smaller home outright.  This meant that when it came time to close, we had to bring a sizeable amount of money to the table.  We had planned to bring two cashiers checks from two different banks, but found as closing neared that due to new regulations, the money would have to be wire transferred.  While this didn’t stop the process, it was yet another roadblock that we hadn’t expected and added additional steps and costs (in the form of wire transfer fees) to our purchase process.

Wednesday, August 28, 2013

Getting a Mortgage Education

We took out the mortgage on our first home in 2008, just before the bottom of the housing market fell out and the financial crisis started in full.  I’ve heard a lot of blame put on the banks for not presenting enough information about mortgages during this time, but I’m somewhat surprised by this.  I tend to wonder just how much effort many people made to actually inform themselves regarding mortgage matters and make use of informational materials made available by lending institutions.

Maybe we were just lucky, but we received plenty of information about our mortgage and what responsibility we were undertaking by committing to such a financial agreement.

Mortgage Disclosure Book
Yes, we were actually provided with an entire disclosure book, and this was in 2007, before the housing market collapse and foreclosures in mass numbers began.  This book outlined associated loan fees, discussed appraisal information, went over insurance requirements, reviewed a variety of loan types -- even giving examples of how adjustable rate mortgages could be affected by rate increases -- and provided a borrower’s bill of rights and a “consumer caution and home ownership counseling notice”!

In the back part of the book, there were even a few additional packets explaining adjustable rate mortgages. 

Good Faith Estimate
Our lending institution also provided us with a good faith estimate before we took on our mortgage that gave us a general idea of what the breakdown of costs would be for our loan.

Not only did this estimate provide a breakdown of mortgage and mortgage-related fees, but it gave us a monthly payment analysis, general loan information such as term, rate, amount, and type of loan, and a “funds to close summary” that gave us an estimated total of how much money we would need to bring to closing.

Mortgage Calculator and Amortization
Finally, it really helped to become familiar with our mortgage to see exactly what we would be paying over time as well as a total amount paid once our mortgage timeframe was complete.  Using a lender provided amortization sheet, enabled us to see a payment-by-payment breakdown of principal versus interest over the entirety of our loan.  Then, by using an Internet mortgage calculator, we could manipulate our mortgage to see what would happen if we paid more over time in an effort to reduce total interest owed on our loan by decreasing the payoff time.

With all these tools at our disposal, we felt comfortable with the loan we were taking on and were well informed regarding the financial responsibility we were undertaking with the purchase of our home.