401K Day: It’s A Celebration

Posted on September 3, 2007

401K Day is an industry sponsored, annual day showcasing the importance of saving in your employee sponsored profit sharing and 401K plans.  In 2007, 401(k) Day is officially on September 7, the Friday after Labor Day.  Most of us tend to set up our 401Ks and forget about them.  This is an opportune time to take a look at what has been going on in your plan.  Here are some things to check out about your 401K:

  1. Personalized Rate of Return.  This is the most important number next to how much you are contributing.  Personalized Rate of Return is a percentage that represents the performance of this account over a period of time.  This number “should” be in the 8% to 12% range in a good year, but will vary year to year.  Anything above 8% and I am content based on the amount I contribute each year.  Last year was pretty good and I got around 13%. 
  2. Contribution Percentage.  This is the percentage of income you contribute into your 401K each paycheck.  This is a good time to push it up a couple percentage points if you have not done so in a while.  Another option is to knock it up a bit each time you get a raise.  I usually take a look at raising my contribution very gradually each raise I get so I do not notice it coming out of my paycheck as much. 
  3. Current Asset Allocation.  This is how your account balance is invested.  Make sure you are comfortable with the level of risk involved with how your money is invested.  You have to be able to sleep at night, but there has to be an element of risk to achieve the returns necessary for retirement.  Find your middle ground.

» Filed Under 401K | Leave a Comment

29 Month Supply of Condos in Orlando is Nothing Compared to Miami

Posted on August 31, 2007

55 West Condo Orlando FL

 The Orlando Sentinel recently reported there is a 29 month supply of condos available with 4,400 condos for sale in the Orlando area.  I was not surprised when I read the Orlando Sentinel article this past weekend as downtown is exploding with condo towers that appear empty at night.  Then reading that Miami has over 48,000 condos coming availablevery soon with over 40,000 more approved I was shocked.  That is a ton of construction with much higher price tags than in Orlando that was fueled largely on speculation and amateur investors.  Most entry level condos in Orlando were in the $200,000 to $300,ooo price range while in Miami $500,000 to $600,000 was more the norm.  Would you close on the condo or just eat your deposit in this situation? 

» Filed Under Real Estate | Leave a Comment

Buying Medical Procedures On Credit

Posted on August 30, 2007

Medical expenses can be one of the biggest unexpected expenses out there.  Often times they come at the worst times and need to be completed out of shear necessity.   Other times they are cosmetic procedures that people feel are necessary and will improve their general well being.  Whatever the case is the majority of medical procedures can be financed directly through the dentists’ or doctors’ office.  Medical consumer lending is one of the fastest growing segments of consumer credit according to the NY Times:

For $3,500 laser eye surgery, $6,000 ceramic tooth implants or other procedures not typically covered by insurance, millions of consumers have arranged financing through more than 100,000 doctors and dentists that offer a year or more of interest-free monthly payments. Of course, going into debt to pay for medical procedures is nothing new for many people. And this type of financing is still only a fraction of the nation’s $900 billion market for consumer revolving credit. But as the price of health care continues to rise and big lenders pursue new areas for growth, this type of medical financing has become one of the fastest-growing parts of consumer credit, led by lending giants like Capital One and Citigroup and the CareCredit unit of General Electric.

Typically the lending works much the same way a credit card would work.  There is an introductory offer of 12 months at zero percent financing then the interest rate jumps to around twenty percent.  If a payment is missed or the loan goes into default the interest rate also spikes.  There are other loan options as well including fixed terms with an interest rate typically around 12% to 13%.   The loans can be used variety of medical and dental procedures:

  1. LASIK Surgery
  2. Chiropractic
  3. Fertility treatments
  4. Weight loss
  5. Hair Restoration
  6. Botox
  7. Skin treatments
  8. Laser hair removal
  9. Cosmetic surgery
  10. Hearing aids
  11. Veterinary medicine

Medical expenses can be costly and many times people cannot afford to pay the entire balance.  However, there are some preventative steps one can take to avoid having to go into debt when visiting the dentist or doctor office:

  1. Emergency fund.  Often times you hear this preached over and over again on other personal finance blogs.  It is one of the most important yet overlooked concepts.  If the short term savings are not present to pay for unexpected expenses then the root of the problem of going into debt for medical expenses will be reoccurring.
  2. Ensure you can afford the loan.  If you decide for your personal situation taking out a loan with the dentist or doctor is the best choice then ensure you are capable of meeting the terms.  Defaulting on medical loans, similar to credit cards can be very costly.
  3. Know your insurance plan.  Understand the terms of your insurance including what is covered and what is not.  Going over your insurance limits can be very costly.  Often times insurance will have a yearly max it will pay out.  If you can wait until the next year to do a procedure, consider postponing until insurance will cover it.
  4. Use Your Health Savings Account (HSA).  It takes some planning but HSAs can help cut the cost of medical expenses by using pretax money.

» Filed Under Credit Cards, Unexpected Expenses | 2 Comments

How Much Risk Tolerance Can You Handle?

Posted on August 29, 2007

A certain amount of risk tolerance in personal finance is necessary.  You would have far less if you invested your retirement fund in a savings account earning four percent interest for thirty years as opposed to a Fortune 500 index fund earning a conservative average of eight percent.  We have all seen the graphs depicting the differences in final totals of four percent versus eight percent over thirty years.  Investing in the Fortune 500 requires a moderate amount of risk tolerance given the ups and downs of the market.  How do you personally determine the amount of risk you can tolerate in your investments?  This is some of the processes I use to determine how much risk I am willing to accept in return for a modest return on investment:

  1. When will I need to use the money?  The most direct way to know if I should invest aggressively or conservatively is to be aware of when I will need the money.  If the money is going into an emergency fund with a possibility of being used in a less than a year then an online savings account (HSBC) earning 5% is the route I go.  However, for retirement funds such as my 401K and ROTH IRA I am very comfortable investing aggressively with almost 90% stocks in the portfolio.
  2. What are my goals for the money?  Another factor for assessing risk tolerance is to understand what goals I have for the money.  Do I need the money to be there no matter what, such as in the case of a future house down payment or is the money used for future savings that could with stand the chance of losing a portion of it.
  3. What is my income?  If I am worth $30 million (and I am not), I could invest much more conservatively while achieving a comfortable lifestyle.  If I am worth $30 thousand, I will need that money to work for me to provide a better lifestyle in the future, therefore accepting more risk.  An example of this is in the Suze Orman NY Times interview where she talks about her personal investments: 

    “I buy zero-coupon municipal bonds, and all the bonds I buy are triple-A-rated and insured so that even if the city goes under, I get my money. I take a little lower interest rate to make sure my bonds are 100 percent safe and sound.”

    As a result of her high net worth and nearing retirement age she can invest conservatively and live a comfortable lifestyle, while she frequently preaches to her audience to invest aggressively early on in your career to build the capital necessary to retire comfortable and debt free.  She addresses the negative press the NY Times article earned her in this Yahoo Finance article. 

  4. What is my experience and understanding of the investment?  If I am investing blindly in an overseas emerging markets fund, even with a high Morningstar rating, I approach with caution.  I have taken my chances and invested short term funds in aggressive investments while accepting the fact I could lose money for the opportunity of high returns.  Financial markets and vehicles I have no understanding of such as futures, shorting, and commodity trading I stay clear of and leave that to the professionals.
  5. Can I sleep at night with the investment?  This is the intangible test after I have answered all of the above questions.  Can I be comfortable with the fact I may lose some or all of the money?  While I don’t think any wants to lose all their money, the chance to gain double digit percentage increases allows me accepting a high level of risk.

Other bloggers and articles talking about risk tolerance:

» Filed Under Financial Planning, Bonds, Investing, Stocks | 1 Comment

If It’s Broke, Fix It!

Posted on August 27, 2007

This is a sponsored post from FinWeb.com - The Independent Financial Portal. 

Let’s talk for a moment about money, your money. Always a popular subject, right? Or is it? Are the two of you getting along, or do you see so little of your money anymore that you barely recognize it? If that’s the case, you’re not alone. Lot’s of people – and reportedly more and more every day – are becoming estranged from their money. It seems to be a worldwide epidemic!

Well, is there anything that you can do to put the relationship back together again? Of course there is. But be forewarned – it may take some real effort on your part. After all, it’s likely that you’re the one who started it. Money typically doesn’t just get up and leave on it’s own. There’s usually some impetus that causes cash to walk, run or fly away. So, you’ve got to place the responsibility where it belongs; you’ve got to take the bull squarely by the horns and get control of the situation. Here are a few tips that might help:

  • If you’re finding yourself with more month than money, you’ve got a grand total of two choices: 1) increase your income, or 2) decrease your spending. Any other options that you think you have – no matter how you attempt to slice them – fall somewhere into one of those two categories. But while you’re deciding (or implementing) what you’re going to do, a short-term pressure-relief valve could be a cash advance loan. However, please pay particular attention to the phrase “short-term;” these loans aren’t designed as a solution to your long-range money woes. If you’re sure that your cash flow worries will dissipate in the very-near future, a payday loan could be an effective quick fix.
  • If your credit’s been kicking you in the keester, you’ve got to decide that you’re going to turn the situation around! Instead of your credit cards (or more accurately, the banks that issue them) using you, it’s up to you to begin to efficiently use them. Minimize the interest and fees you’re paying by strictly limiting your credit card purchases, making more than the minimum payments due, and making all (yes, all!) of your monthly payments on time – whether it’s your home, car, phone, utilities, or your gym membership. And pay off your highest-interest credit card first, because it’s costing you the most money over the long haul.If you need to rebuild (or establish in the first place) your credit, consider applying for a bad-credit credit card. Yes, you’ll pay some up-front fees and the interest rates are higher, but if you use it wisely – in other words, make small monthly purchases and pay the entire bill off as soon as you get it – the interest rate won’t matter because you’ll never carry a balance. These cards should be used for one purpose alone: building credit. Just make sure that the card you get: 1) has a grace period, and 2) reports to the major credit bureaus.
  • If you’ve got a lot of debt that needs consolidating, there are a few avenues that you can explore. A personal loan is a possibility if your credit’s in good shape. But interest on unsecured personal loans can be a bit high. You could do a credit card balance transfer – but that interest rate may be even higher. A credit counseling company might help, but there are more bad ones than good so extreme care must be taken when choosing one of these.If you own a home (and you have no plans of moving in the next few years), refinancing your mortgage may still be the most prudent method available for debt consolidation. Not only will you lower your total monthly debt outlay (thus allowing you to see more of your money on a regular basis), but you’ll also – in almost all cases – convert the interest you’re paying from non-tax-deductible to deductible on April 15th. Not a bad fringe benefit.

Remember, there are always things you can do to make your money fall in love with you again and want to stay around. It might not always be easy and it may take a little time, but the rewards will be well worth your efforts. Financial Web is a one-stop library for all your personal financial needs, with pounds of valuable information and tips to help you keep your money relationships smooth and fulfilling. You’ll find in-depth expansion on the suggestions put forth here and much, much more. So get busy, swallow your pride, and do what you know you need to do. You and your money both deserve it!

This is a sponsored post from FinWeb.com - The Independent Financial Portal. 

» Filed Under Credit Cards, Credit Repair, Credit History, Financial Planning | Leave a Comment

CNN: Americans Working Too Much And Too Little?

Posted on August 25, 2007

CNN kills me sometimes with publishing contradictory reports just for the sake of getting news out there.  Here are the two articles I found both supporting an opposing viewpoint:

I have read a ton of articles that claim Americans work too much, take too little vacation, and are constantly bring work home with them.  Now CNN puts out an article that says we do not work enough hours, take too much vacation, and are not competitive in the global market.  I am confused.  Which is it?  Or maybe it is a possibility we are working a reasonable amount to be globally competitive but no more.  Could that be a future news story:  Americans Work the Exact Amount of Hours Necessary.  Probably does not have the ring the first two headlines have.

» Filed Under Extra, Income | Leave a Comment

The Onion Invests In Hedge Funds

Posted on August 24, 2007

The Onion Logo

The Onion tackles the mystery of investing in hedge funds in a recent article.  Amusing and humorous, while in true Onion fashion the article has a significant amount of truth behind the message (ie…understand what you are investing in).

» Filed Under Extra, Investing | 1 Comment

Financial Mistakes I Have Committed

Posted on August 23, 2007

Everybody has made financial mistakes.  Personal finance is a complex and broad subject matter with countless variables and decisions.  I found it interesting reading interviews with some of the top personal finance authors and hearing their financial mistakes.  Liz Pulliam Weston talks about carrying a credit card balance as well as holding onto underperforming, high expense mutual funds.  Suze Orman states in this article that she has the majority of her investments in ”triple-A-rated and insured zero-coupon municipal bonds,”  which is much too conservative of an investment strategy for much of her audience.  The point is everyone makes mistakes (although you could argue Suze Orman’s investment strategy was not a mistake, rather she was not practicing what she preached).  Recognizing those mistakes and learning from them is the key.  In an effort to learn from some of my mistakes, here are a few financial blunders I have committed:

  • Carrying a credit card balanace.  At my previous job I was traveling frequently and purchasing thousands of dollars of airline tickets, hotel rooms, computer hardware, and meals on my personal credit card.  I had a points based card so I was earning tons of points.  However, there were times I was traveling so much and would not have time to fill out the expense report or log on to WebBillPay to pay the bill and the balance would roll over incurring an interest charge.  I would kick myself for not catching it sooner but the mistake had already been done.  Now that I hardly ever travel at my current job it is not an issue, and in retrospect I got tons of frequent flyer miles and points that I feel like made up for paying interest a few times.  Lesson learned.
  • Buying too much car when I was 18.  I joined the Marines shortly after my 18th birthday.  After completing basic training and being sent out to the California desert for my first year, I knew I needed a car to get off base on the weekends.  I flew back to Florida for a week and purchased a car and with my sisters and dad drove it back to California.  It was a great trip, but when I got back I was the one making the monthly payments.  While they were moderate payments, on a Private’s salary it was tough that first year.  Luckily, I had a lot of friends help out with gas as we went out on our weekend trips.  I will never overspend on a car again.
  • Not selling underperforming stocks and mutual funds.  I think this has to be a fairly common financial mistake.  I have held onto stocks out of emotion rather than unloading them and moving on.  I held a Dividend Reinvestment Plan (DRIP) with Intel for the longest time.  The DRIP had high expenses and Intel’s stock was underperforming during the majority of the time.  I finally got out of that last year and have been glad to be done with it.

In conclusion, I am sure I have made other mistakes but these are the major ones I could remember.  Everyone has mistakes, but learning and rebounding quickly from them are what is key. 

Here are a few other confessions from around the blogsphere:

» Filed Under Debt, Financial Planning, Spending | 2 Comments

Upgrading Your Home: Want vs. Need

Posted on August 22, 2007

Bungalow House

How do you know when it is time to upgrade your house?  The average length of time spent in a home seems to have decreased over the years.  I know very few people my age that do not move a few times before settling down, along the way buying and selling a couple of homes.  I have owned my home almost five years, and it is the perfect size right now for me and my girlfriend.  However, it is an older home that is missing some of the latest amenities as well as items we see as being necessities in the future.  The amenties we would want include walk-in closets, two car garage, sprinkler system, energy efficiency, and the list goes on.  The items we think we need include a third bedroom, a second bathroom, and a larger living area with dining room.  We have a small space so we feel we need more space to entertain family and friends as well as to have a family of our own in the future.  My girlfriend and I have been discussing when the appropriate times are to upgrade a home and when is it best to stick it out.  Obviously everyone has their specifics of when they plan to move, and with the exception of job changes you could probably live in a moderately sized house forever.  So when is it time to save up and make the leap?  For our specific case, we are thinking another 4-5 years and we will be ready, with both enough down payment and home equity.  However, we are comfortable with our location and size that we could stick it out longer in our house if necessary.  Changes in life stages seem to be the most frequent cause of home changes.  Here are a few life stages followed by the wants and needs of upgrading a home at each stage:

Twenties.  The typical needs of this stage are to purchase a home if you have not done so yet.  The wants include emotionally shopping for the largest and best located home you can find and doing whatever it takes to get into that home (adjustable rate mortgages).  Limiting the want of going above your budget (by using adjustable rate mortgages) to have the best home is very challenging and is the goal in this stage.  Develop a price point at which you can afford and stick to it no matter how much more house 20K extra will get you.  At this stage as a first time home buyer I was very anxious to get a home and was not always thinking about where I was going to be in five years.  You don’t have to buy the home you will have for the rest of your life, but be aware your twenties can be very transitional.  Buying the trendy loft apartment in the best part of town may sound like a great idea, but if you have to sell in a year and take a loss that can hurt.

Thirties.  The most common needs of this stage include ensuring there is enough living space to start a family and entertain extended family from time to time.  Other needs will include living in a decent school district and a child friendly neighborhood.  The wants of this stage include extra amenities such as a pool, three car garage, large lot, waterfront property, and lots of square footage.

Forties.  The standard needs of this stage involve maintaining your current home, ensuring resale value is held.  The typical wants of this stage include extravagantly remodeling the home you are in or moving to a bigger, better, and newer home.

Fifties.  Most likely you are becoming an empty nester at this point and your kids are off to college or out on their own.  The needs of this stage include potentially downsizing your home to something more suitable to life without kids as well as moving to the home that will be conducive for retirement.  The wants of this stage are to build or purchase your dream home.  You have worked your whole life and tell yourself you deserve everything you have always wanted.  Retirement is just around the corner so it would seem wise to me to plan for that prior to locking a significant amount of money into real estate.  But that is just me, I have not got to this stage yet so I may be off base.

I have talked with some fellow bloggers to get their opinion on the wants and needs of upgrading your home:

Read more

» Filed Under Real Estate, Loans, Home Savings, Relationships and Money, Financial Planning, Spending | 5 Comments

Festival of Frugality: 88th Edition

Posted on August 21, 2007

The Happy Rock is hosting the 88th Festival of Frugality - About Me Edition.  There are some great posts submitted this time and some of the highlights I found were:

  • 12 Things I Will Never Spend A Dime On.  Interesting list and I definitely agree with the majority of them.  Although I use an electric toothbrush and have found it makes my mouth “feel” much cleaner, not sure if it is actually better though.  Neon lights under the car is a no-brainer.  I previously purchased a color ink jet printer and never will again.  I am all laser now and its so much more efficient.
  • Free tool for your blog: The Frugal Search Engine.  This is a clever idea that allows you to search frugal and personal finance blogs.  I tried it and it returned very relevant results from all the best personal finance blogs that I actually read. 
  • My Sitemeter and pMetrics Addiction And Other Things We Do Too Much.  I am definitely a stats abuser as well.  Need to cut down on this, but now that I just saw how much pMetrics does, it will be kind of tough.
  • 12 Ways to Save on Cooling Costs.  Solid tips for creating energy efficiency.  Living in an older home I am always trying to upgrade to the most efficient products over time.

» Filed Under Festival of Frugality | 2 Comments

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