Think Your Way to Wealth

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One of the ways to save money with your auto expenses is to be prepared for the mishaps  or breakdowns that often happen while driving. By being prepared, you can often take care of minor problems yourself, or at least be able to limp home or to your mechanic’s shop without an expensive towing bill. This can also save you time, as you will be able to take care of some problems without waiting on someone to come help you.  In addition, by taking care of things when they happen, you can avoid potential damage to your vehicle by continuing to drive it. Its a good idea to keep certain items in the trunk of their car, such as the following:

Jumper Cables- This is a necessity, as sometime in your life you will need them after you have left your lights on or your battery dies.  I am still surprised that many people do not have or carry them. Of course, you will need someone to give you a jump, but if you and they do not have cables they will not be able to give you a jump.

Water- Keep a gallon or two of water in your trunk. This can come in handy if your car starts overheating.

Duct tape- Duct tape has a multitude of uses, such as wrapping a rubber hose which is leaking, holding a part in place, etc.

Tools- a basic socket set, screwdrivers, and wrenches are a good idea.

Fix-a Flat- While simply changing a flat tire may be the best alternative, there can be times where, for various reasons, including space limitations, or an unstable ground surface, you do not want to jack up your car.  Fix-a-flat can come in very handy in these situations.

Motor Oil- Keep a quart or two, along with a funnel, of the recommended weight of oil for your car with you, especially if you are driving an car over a few years old.

Towels- Towels can be used to keep yourself from getting dirty while changing a tire, or doing other things to your car, potentially helping you to avoid ruining your clothes.

Even if you have little to no interest in doing any minor car repair or maintenance while you are out driving, or your spouse is not, having these items in your car can allow someone who is able to help you or them as well.

Another item to consider, although more expensive than those listed above, is AAA membership. They can assist you with jump-starting your car, they will help if you lock your keys in your car, and you can receive free towing or towing at a discount, depending on the distance.  While this can cost $50.00 or more dollars per year, depending on how many members of your family are covered, using their services once every year or two will cover the cost. It can also provide you with peace of mind, for your spouse or another family member. You can also get maps for trips or vacations from them, as well as discounts on a variety of travel related and other items and services.  I am considering rejoining myself after not being a member for the last few years.

Filed under: Cars/Auto, Frugality by RC - 1 Comment →

Is now a good time to invest in I Bonds?  With the recent cut in interest rates by the Federal Reserve bank in the last month or so, many online banks, such as ING Direct , have lowered their interest rates, most under 3.5%.  While this is better than 0.2% in a regular local bank savings account, people looking for the most out of their money are always on the lookout for better returns.  Well, the I bond currently pays 4.28%.  I Bonds, a type of savings bond issued by the U.S. Treasury, pay a composite or total rate, which is a combination of an inflation component and a fixed component. Below is a table of I Bond rates for the past 2+ years. With I bond, the fixed rate remains the same for the life of the bond, while the inflation rate “resets” every six months, for a new composite or total rate. Underneath the table is an explanation of how the composite rate is calculated.

DATE            INFLATION                 FIXED             COMPOSITE
                       RATES*                  RATE               (TOTAL)RATE
1-Nov-07        1.53%     1-Nov-07       1.20%              4.27836%
1-May-07       1.21%      1-May-07      1.30%              3.73573%
1-Nov-06       1.55%      1-Nov-06       1.40%             4.52170%
1-May-06      0.50%      1-May-06      1.40%             2.40700%
1-Nov-05       2.85%      1-Nov-05       1.00%            6.72850%
1-May-05      1.79%       1-May-05      1.20%            4.80148%

Here’s how the composite rate for I bonds issued Nov. 2007 - Apr. 2008 was set:

Fixed rate = 1.20%
Semiannual inflation rate = 1.53%

Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]
Composite rate = [0.0120 + (2 x 0.0153) + (0.0120 x 0.0153)]
Composite rate = [0.0120 + 0.0306 + 0.0001836]
Composite rate = [0.0427836]
Composite rate = 0.0428
Composite rate = 4.28%

Historical Averages: 2 Year average 4.41%, 10 Year average 4.65%

I bond Pros and Cons:

Pros:

• I bonds are currently returning 4.28%, a pretty good rate considering ING, for example, is returning 3.40%
• The interest on I bonds can be taxed deferred, meaning they do not have to be reported on a yearly basis (as savings account interest would be)
• The interest from I bonds are tax free if used for education.

Cons:

• I bonds cannot be cashed in for 1 year. So if you have any idea that you may need the money in that time frame, this is not an option for you.
• If you cash I bonds in before 5 years, there is a penalty of 3 months interest. (i.e., you lose 3 months worth of interest.)
• I bond rates change twice a year, the next rate change will take place May 1st (The rates are usually released a few weeks earlier) So that 4.28% could (and may) go down, leaving you locked in at a lower rate for at least six months. Although the historical averarage over the last 10 years is over 4.5%.

If you have money you will not need for at least a year, I bonds may be an option to look in to. If you cash them in before 5 years you will lose 3 months interest. If you will not need the money for 5 plus years, they could end up being pretty good. Using them as part of education savings make them quite attractive-especially with the low risk.
Since you can purchase any amount starting with $25.00, adding them to your investment portfolio in small increments may be something to consider. By starting with small increments, and adding them on a monthy basis, you can create a “ladder” of I bonds, and after 60 months, each one will become “cashable” with full interest.

Filed under: Investing, Saving Money, Taxes by RC - 4 Comments →

America Saves, a nationwide campaign to help Americans save, reduce debt, and build wealth, is celebrating “America Saves” Week from February 24th through March 2nd.  Sign up for their monthly newsletter, and browse around the site for tips.

The Website has resources and tips such as the following:

Save for Auto Purchases, Save for Emergencies, Savings and Investments, Save for a Home, and Get Out of Debt.

 Visit their Savings Tips section for a variety of money savings tips.

They also have specific campaigns, such as Military Saves, Youth Saves, Hispanic America Saves, and Black America Saves.

Campaigns by organizations like “America Saves” are great for introducing people who are lacking in personal finance awareness to understand the concepts invloved, especially teenagers and young adults, but they frequently contain information beneficial for everyone.  I would recommend that you check it out and send a link to the website to anyone you think might benefit.

Filed under: Debt Reduction, Saving Money by RC - No Comments →

Sometimes, on the road to becoming debt free, or increasing your wealth, you hit a “wall”. Maybe you work late a few nights in a row, so you get too tired to plan out your meals and cook and end up eating out. Or you forget to pay bills and incur late fees, or have an unexpected expense which wipes out most of your savings. Or maybe you don’t see the growth in your savings or investing that you would like to see. You lose faith and are soon getting back to your old ways and habits.

How do you get back on track?

One way which has been useful to me, is to do something extreme. You have to take “extreme measures” to give yourself a boost and stop yourself falling back into bad habits.

Burn Bridges:
Eliminate your escape routes. Do something that limits your options.
Pay all of your bills as soon as you receive them, and put the rest towards debt reduction.  For example, say you are 10 days from payday, you have $1000 in your checking account, and you estimate you will need $500 for bills and food for the next 10 days. Well, take $499 and put it towards your credit card debt now, so you have you are left with $501 with $500 in expenses over the next 10 days. You have no choice but to live within your means with only a $1.00 cushion.

Do Something Extreme:
Don’t just drop your cable subscription, or Netflix. That may not be extreme enough. Drop your cable subscription and sell your television! (Now obviously, if you are married and have children, etc., you need to make sure they are on board!) Now, the TV is just an example, it could be anything, but you get the idea.

Pull an All-Nighter:
If you are falling behind on your bills, stay up late one night and take care of them. Or write out a plan for your debt reduction, step by step.

Sell one of your “prized” possessions:
This could be a collection, an autographed football, your motorcycle you only ride on weekends, or maybe just “stuff” you have laying around the house. Sell them to generate additional cash to assist you getting back on track.

Challenge Yourself with Spending:
Set an extremely low amount (whatever that may be for you), say $30 if you are single (whatever is a low amount for you), take it to the grocery store, and buy all of your grocery items for every carefully planned meal for a week with that money.

Challenge yourself to earn additional income or generate additional cash, such as $500 over the next 30 days.

One good thing about this strategy is that it forces you to come to terms with how badly you want to reach your goal. If you are willing to take extreme measures to reach your goals as quickly as possible, then your goals are obtainable. If you decide the sacrifices are too great to reach, you may need to rethink your goals and how quickly you want to achieve them.

Filed under: Debt Reduction, Frugality by RC - 8 Comments →

Whenever I get worried about my retirement investments or  stock market
volatility, I try to remind myself how successful investors view the market
 and investing. Since I like to read, I frequently read books written by or
about the “giants” of investing.  Warren Buffet and Peter Lynch are two that
 come to mind, both extremely well known in the financial as well as the
non-financial world. Several years ago, I became aware of  Benjamin Graham,
the author of “The Intelligent Investor” and “Security Analysis”
(co-authored with David Dodd, a former student and colleague), the latter
book known as the “bible” of investing on Wall Street.  Graham is known as
the “Father of Value Investing”, having laid the framework for modern day
stock analysis; Warren Buffet was a student of his, and reportedly the only
student ever to receive an A+ in his class.

The following is an excerpt from an interview with Benjamin Graham,
conducted in 1976 (shortly before his death). The full text of the
interview can be found here:
A Conversation With Benjamin Graham.

(My comments are interspersed with blockquotes)

What is your view of the financial community as a
whole?

Most of the stockbrokers, financial analysts, investment
advisers, etc., are above average in intelligence, business honesty and sincerity. But they lack adequate experience with all types of security markets and an overall understanding of common stocks–of what I call “the nature of the beast.” They tend to take the market and themselves too seriously. They spend a large part of their time trying, valiantly and ineffectively, to do things they can’t do well.

What sort of things, for example?

“To forecast short- and long-term changes in the economy, and in the price level of common stocks, to select the most promising industry groups and individual issues–generally for the near-term future.”

Can the average manager of institutional funds obtain better
 results than the Dow Jones Industrial Average or the Standard & Poor’s Index over the years?

No. In effect, that would mean that the stock market experts
as a whole could beat themselves–a logical contradiction.

Do you think, therefore, that the average institutional
client should be content with the DJIA results or the equivalent?

Yes. Not only that, but I think they should require approximately such results over, say, a moving five-year average period as a condition for paying standard management fees to advisors and the like.

What about the objection made against so-called index
funds that different investors have different requirements?

At bottom that is only a convenient cliche or alibi to justify
the mediocre record of the past. All investors want good results from their investments, and are entitled to them to the extent that they are actually obtainable. I see no reason why they should be content with results inferior to those of an indexed fund or pay standard fees for such inferior results.

I don’t think investors should stand for sub-par performance,
 although we are sometimes limited in the choices we have, such as in a 401k.

Turning now to individual investors, do you think that
they are at a disadvantage compared with the institutions, because of the latter’s huge resources, superior facilities for obtaining information, etc.?

On the contrary, the typical investor has a great advantage
over the large institutions.

Why?

Chiefly because these institutions have a relatively small
field of common stocks to choose from–say 300 to 400 huge corporations–and they are constrained more or less to concentrate their research and decisions on this much over-analyzed group. By contrast, most individuals can choose at any time among some 3000 issues listed in the Standard & Poor’s Monthly Stock Guide. Following a wide variety of approaches and preferences, the individual investor should at all times be able to locate at least one per cent of the total list–say, 30 issues or more–that offer attractive buying opportunities.

This is a very strong argument against actively managed funds,
in my opinion.

What general rules would you offer the individual
investor for his investment policy over the years?

Let me suggest three such rules: (1) The individual investor should actconsistently as an investor and not as a speculator. This means, in sum, that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money’s worth for his purchase–in other words, that he has a margin of safety, in value terms, to protect his commitment. (2) The investor should have a definite selling policy for all his common stock commitments, corresponding to his buying techniques. Typically, he should set a reasonable profit objective on each purchase–say 50 to 100 per cent–and a maximum holding period for this objective to be realized–say, two to three years. Purchases not realizing the gain objective at the end of the holding period should be sold out at the market. (3) Finally, the investor should always have a minimum percentage of his total portfolio in common stocks and a minimum percentage in bond equivalents. I recommend at least 25 per cent of the total at all times in each category. A good case can be made for a consistent 50-50 division here, with adjustments for changes in the market level. This means the investor would switch some of his stocks into bonds on significant rises of the market level, and vice-versa when the market declines. I would suggest, in general, an average seven- or eight-year maturity for his bond holdings.

This is also an argument against a technique people frequently
use, (and I have myself)  “buying what you know”. Just because you like a company’s product or service, if you do not perform due diligence of the company’s cash flow,income, and assets, you may not be doing much more than “guessing”. You should justify an individual stock purchase as a “good buy”, as opposed to saying to yourself, “Well, Company X  seems like they really have their act together, I think I will buy a few shares”. The last sentence, however, is pure gold. After significant rises in the stock market, switch some of the stocks to bonds and vice-versa when the market declines. Why is it so hard to do this? And I don’t think he is implying  market timing here, either.

 

In selecting the common stock portfolio, do you advise careful
study of and selectivity among different issues?

In general, no. I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook “Graham and Dodd” was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent I’m on the side of the “efficient market” school of thought now generally accepted by the professors.

The first time I read the last paragraph was the first time I had heard that Graham had changes his views somewhat on investing from those prescribed in “Security Analysis”, which was rather interesting to me.

In light of the recent market performance, it appears that Benjamin Graham’s advice still has merit. Here are a few tips I gleaned from reading it:

• Don’t settle for below market performance from your actively managed funds, if possible.

• Forecasting the overall trends of the market or the economy are extremely difficult,if not impossible. It is also extremely difficult to predict short term performance of individual stocks.

• If picking individual stocks, look for value and perform due diligence.

After a significant rise in the overall market, one should certainly examine a rebalancing of one’s total portfolio, as well as after a significant decline.

Look for value, including based on earnings or dividend yield.

Filed under: Investing by RC - 4 Comments →

                   Surprisingly, according to an article entitled “Made in the USA” in the March, 2008 edition of Popular Mechanics magazine, you can. It is the mid-priced Olevia brand of LCD TVs made by Syntax-Brillian, whose corporate headquarters are located in Tempe, AZ. According to the article, (which I could not find on the Popular Mechanics website), Syntax-Brillian is the first U.S. TV manufacturer to compete against the Asian “giants” since Zenith was bought by a Korean company in 1995. Syntax- Brillian bought Vivitar in 2006, and still produces their cameras and camcorders.

According to the article, the televisions are designed and engineered in City of Industry, CA, and then the components are made separately in Asia and shipped to the West Coast facility where the sets are assembled. Syntax-Brillian claims this allows put together the sets and deliver to U.S. customers faster than its Asian competition.  (Note: I am not 100% sure what the FTC rules are regarding labelling products “Made in America”, nor did the article address  whether they are labelled as such, but the title of the article was “Made in the USA”, so you can draw your own conclusions.)

While I am not a “Buy American” crusader, as it is almost impossible to ”Buy American” these days in some consumer categories, I was pleasantly surprised to see this article. In these recessionary times, it cannot be a bad thing to regain a lost manufacturing industry, televisions, even if it is only one company with 200 employees.  That’s 200 more people than were putting together televisions 5 years ago.

Oddly enough, I bought a 27” Olevia from Circuit City back in September of last year. (My old television was basically showing everything in a shade of either green or red.) I really didn’t want make the purchase at the time, but decided to go ahead and pull the trigger after I found a good deal at Circuit City. I had done some research online,  and found that Olevia was rated as a pretty good LCD TV for the price. Thus far, I have been very satisfied with the picture quality and the TV overall, my only complaint is I cannot get my cable remote to work with the TV, but that  could be my fault. So if you are looking to buy a budget level LCD TV, and would like to  “Buy American”, you may want to check out the Olevia brand of LCD TVs.

Filed under: Spending Money by RC - 1 Comment →

• Which is the better high yield savings account, ING or Emigrant Direct?
•  Should I pay my highest interest credit card off first, or the one with the lowest balance?
• Should I open a Traditional IRA or a Roth IRA?
• Should i use Sharebuilder, Zecco, Vanguard, or someone else for my IRA or brokerage account?
• Which “rewards” credit card is the best and which one should I use?
• Quicken or Microsoft Money?
• Should I prepay my mortgage or invest any extra money I have?

While all of these questions, and ones like them, do have merit, don’t waste a lot of time worrying about whether you made the right decision regarding these types of decisions.  The worst thing you can do is to put it off or be afraid to pull the trigger. I know.  I have an old 401k I have been meaning to roll over for over a year.  I put it off, and then forgot about it for a while. With any decision, financial or otherwise, pick which one you feel most comfortable with after your analysis, do it, and move on to the next item.

The important thing is to DO IT NOW.   Don’t stand on the sidelines. Jump on in.

“In any moment of decision the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.”-Theodore Roosevelt

Filed under: Debt Reduction, Saving Money, Spending Money by RC - No Comments →

For all you procrastinators out there, (and I am one) here are some last minute ideas and tips for for a frugal and enjoyable Valentine’s Day!!

•  Mrs. Micah is planning a fun and frugal Valentine’s Day
• The Simple Dollar has Nine Tactics for a frugal Valentine’s Day
• Lazy Man and Money talks about Valentine’s Day past and present
• J.D. at Get Rich Slowly has cheap ways to say I love you

As for me, my wife and I will be enjoying a nice dinner out this coming weekend instead of tomorrow. A lot more relaxing than rushing home from work, dropping the kids off  at the babysitter’s,  and then fighting the Valentine’s Day crowds. I may need to use a few of the tips above as well. Hope you Enjoy!

Filed under: Frugality by RC - 1 Comment →

     Are you Jerry, Elaine, George or Kramer?

• Jerry Seinfeld: You make a pretty good income,  have money, and you spend it when you feel it is necessary, but normally you are not too extravagant. When you really want something though, you may go overboard, like the time Jerry bought his Dad a cadillac and ending up paying for it twice.

   

• Elaine Benes: You make a decent income, probably an average person money wise. Not too flashy, but doing OK.

   

• Cosmo Kramer: You frequently don’t carry money, don’t have a job, but apparently you can pay your rent and even renovate your apartment from time to time. A moocher, at least when it comes to food. Your real financial situation is an enigma to those around you.

   

• George Costanza: You’re a financial train wreck. You may have had to move back in with your parents. You are cheap, not frugal. Like the time George bought Elaine a cashmere sweater with a spot on it because it was on sale.

Me? Well, I’d really like to be like Jerry’s dad, calculating a tip to the third decimal place at the early bird dinner special. Or like when he figured out how much Uncle Leo owed Jerry’s Mom with interest for the $50 he never paid her 40+ years ago. But in reality, I’m probably a cross between Kramer (don’t carry money) George (in debt-but haven’t moved back home yet!) and Elaine (average).

How about you?

Filed under: General, Spending Money by RC - No Comments →

David at Moneyning is getting married, and in celebration is giving away up to $1500.  Congratulations on the marriage and Good Luck!!!

Jeremy at Generation X Finance is giving away Turbo Tax 2007 Premium  in celebration of his site redesign!

 Congratulations to both!

RC

Filed under: General by RC - No Comments →