We took our little guy to get his first haircut last weekend. It was a fun experience, at least until the lady gave us the bill. I couldn’t believe it cost $12 to cut a baby’s hair! He wasn’t in the chair more than 5 minutes; at that rate hairdressers could make $144 an hour just cutting baby’s hair! Needless to say, we need somewhere else to take him. Where do you get your kid’s hair cut? Here are some personal finance articles I noticed this week.
Golbguru offers some interesting ways to save money, such as getting your flowers from funeral parlors.
Get Rich Slowly asks which is more important, money or job satisfaction.
Generation X Finance answers a reader’s question about deducting brokerage commissions
The Simple Dollar talks about the best way to build passive income
Lazy Man is having tenant troubles. He wants to know what you’d do if you were the landlord.
One Frugal Girl asks what eBay buyers are thinking? The excitement of bidding often gets the better of us.
Ramit tells us how we can lose $1,365 per year and not know it.
Blogging Away Debt compares Virtual Bank and ING Orange Online Savings Accounts.
Enjoy the rest of your weekend!
Investing in the stock market is great for regular annual returns of 10% but I’m convinced that if you want to make extraordinary returns then going into business for yourself is the way to go.
I turned a $6 investment into $100 with only one hour of work through what I consider to be a form of value investing. I spent $6 on a camera bag that retails for $125 and sold it on eBay for $100. After sales tax and sellers fees I had a net profit of $81.54, a 1,359% return (this return does not figure in income taxes).
The process of buying the item, putting it on eBay, and shipping it out took a total of about an hour. Of course I can’t keep up consistent earnings of $81 an hour at this point but it’s a great goal to strive for.
Why was there zero risk? I knew when I bought the bag I could sell it for far more than $6. Technically I did stand to lose $6 if I accidentally ruined the bag before I shipped it or if eBay shut down overnight but the probability of those events are low enough that I round the risk factor down to zero.
Of course, I’m continuing to invest money regularly into the stock market to leverage the growth of the global economy but I’m always looking for new opportunities to earn extra money. My problem so far has been finding a consistent method of earnings but I’m working on that aspect. What approaches have you used to consistently earn extra money? Have you run across any that have flopped that you’d recommend avoiding?
What’s the single most important factor in the value of an investment portfolio? Some might say risk or diversification. Others might think costs or taxes. These are all vitally important but not as crucial as the most basic investing principle.
The good news is that getting this factor right is simple. As a matter of fact, it’s the simplest secret there is to investing. The sad part is that many people can’t even get this one thing right. Until they do, there is no possible way they’ll ever make any money in the stock market. So what’s the secret? Read on and I think you’ll figure it out.
When I began my investment portfolio 7 years ago I wasn’t sure where to start. I didn’t know which funds to buy. I wanted to take advantage of the 10% average annual growth I’d always heard about in the stock market but I also didn’t want to lose my hard earned money.
The day I finally picked 4 mutual funds and setup my 401k was the turning point in my investing portfolio. While that first action was a little scary, it was also very simple. As I look back on all my investment decisions, that was by far the most important.
Figuring Things Out
Was I taking a risk, investing in mutual funds without being an expert? To some degree, yes. Anytime you put money in the stock market there’s a chance you could lose it all. However, I think it’s much worse to avoid getting started than it is to put some money in the market and learn from its performance.
My initial investment was a few hundred dollars in 4 different mutual funds. Many funds have a minimum but if you’re investing through a 401k or 403b plan you don’t have to worry about these minimums. If you don’t have one of these plans, check out the investing options for new investors and investing rookies. While I was risking a few hundred dollars, I was also gaining priceless investing experience. Over time my balances grew and eventually I hired a certified financial planner to look over our allocations and diversifications.
I implemented many of the suggestions I received from our financial planner and have made a few tweaks since then. A review of the investment holdings of several personal finance writers yesterday gave me a chance to take a look at where we stand today. The small investing experiment that began about seven years ago is now worth a little more than a quarter million dollars and is relatively well diversified as you can see below:
29% – Vanguard 500 Index (VFINX) – Large Blend
14% – American Century Equity Income (TWEIX) – Large Value
13% – Vanguard Small-Cap Index (NAESX) – Small Blend
11% – American Century Ultra (TWCUX) – Large Growth
11% – Vanguard Total Bond Market Index (VBMFX) –
6% – American Century Intl Growth (TWIEX) – Foreign Large Growth
5% – Vanguard High-Yield Corporate Fund (VWEHX) –
4% – Oakmark International (OAKIX) – Foreign Large Value
4% – Vanguard REIT Index (VGSIX) – Real Estate
3% – Dodge & Cox International (DODFX) – Foreign Large Value
I’ve lost a few thousand dollars over the last 7 years with American Century Ultra but that’s a small price to pay for getting a jumpstart on a nest egg for our future. I’ve since stopped investing in the Ultra fund and am trying to decide whether I should sell it all at once or a little at a time.
In addition to my mutual fund investments, I also put some money into Internet and B2B stocks through Etrade in the dot com boom. Caught up in the stock market rush of the late 90’s I lost all of it when the bubble burst. Although losing the money was painful, this was a wonderful investing lesson to learn early in life. I learned the difference between speculating and investing and how to use financial statements to understand the financial health of a corporation. If I hadn’t gotten started investing I may not have learned these lessons until much later in life when I could ill afford to do so.
The Simple Secret of Investing
If you haven’t figured it out yet, the simple secret of investing is just getting started! You may not know what you’re doing but you definitely won’t learn if you don’t start. The best thing to do is start small. Put in a little money to see how the investing process works and how your picks perform. Staying diversified across industries and asset types will help reduce your risk and make you feel more at ease.
If you don’t feel comfortable making the decisions yourself or would like a second opinion, hire a financial planner like we did. Make sure they hold a CFP designation and are a fee only planner. This way you’ll know they have knowledge and experience and don’t stand to earn any money off of your investment choices.
Whether you go it alone or with the help of a professional, getting started on your investing journey is the most important step to building wealth for yourself and your family. Now that you know the secret, get out and get started investing today!
Every time I turn on the financial news it seems like there is another corporate merger or acquisition going on. Reuters just agreed to a buyout by Thomson that would put it ahead of Bloomberg in market share as a provider of financial data, news and trading systems to the financial services industry. Another example is Rupert Murdoch’s bid to buy Dow Jones, the owner of the Wall Street Journal. The funny thing is, no one has made an offer to buy me out yet. Still waiting : )
The Sun informs us we can start investing even if we only have a small amount of money by using T. Rowe Price’s Automatic Asset Builder.
Blueprint for Financial Prosperity reminds us to start our pricing research on eBay when shopping online.
The Digerati Life talks about making money with your hobby instead of spending money on it.
Mighty Bargain Hunter discusses how you can become a virtual assistant to make some extra money.
Gas prices keep going up! 1 Million To My Name gives us tips on how to use less gasoline.
My Money Blog compares the performance and tax advantages of index mutual funds vs ETF’s.
Advanced Personal Finance thinks the Consumer Price Index grossly understates actual consumer prices.
Art tells us to earn a playcheck, not a paycheck. Life is easier if we can find a way to make a living doing whatever it is we enjoy.
I wrote the other day about companies that had announced changes to their credit card policies to be more consumer friendly. It seems at least one of them is following through.
I didn’t realize it but one of my credit cards is currently subject to a default interest rate of 32.24%. We put most everything on our American Express Blue Cash card to earn cash back. We also have a Chase Visa we use in cases a merchant doesn’t except American Express. Due to some online bill pay problems, I had a late credit card payment on the Visa a while back.
The interest rate on the card had been raised to 32.24% after the late payment. I hadn’t noticed because I always pay off the balance but I did notice a message on the bottom of my latest statement.
“Your account will no longer be subject to this default rate upon receiving the minimum payment due on-time for six consecutive months without going over limit.”
So it looks like Chase is making this one small change to appease the government. Anyone that pays their credit card bill on time for six months in a row will no longer be subject to the default interest rate. It seems outrageous to me that credit card companies charge 32% interest in the first place but I guess the reform has to start somewhere. What do you think are some other policies or practices that credit card companies should put at the top of the list of reforms?
We’re Working On It
Managers are busy; they often have one million requests in queue. Whatever it is might be “on their list” but they can only do one thing at a time. Often “we’re working on it” means we know about it and should do something about it but don’t have time so we’ll put you off until you drop it or forget about it.
Its Only Temporary
Companies tell you this to ease the transition during times of change; they don’t really know if it’s temporary or not. If it works out in their favor it will likely end up being permanent.
I Don’t Know
Often there are times when a manager does know something; they just don’t want to tell you for one reason or another. I’d rather them say they know but can’t or won’t tell me than lie to my face.
Its Company Policy
This one is just as infuriating as when you asked your mom or dad why and the response was, because we say so and we’re your parents. Any company can make exceptions to their own rules. They encourage “thinking out of the box” when it comes to saving or making the company money but when it comes to company policy for employees they like to keep you trapped in the box.
More Money Won’t Make You Happy
My boss once said something to the effect of, “I can’t make them happy by giving them more money. If they don’t like it here, they’ll leave eventually”. What managers really mean, “it’s not worth it to us to pay you that much”. Companies can’t motivate you with money and still make their corporate profit targets so they use lame replacements such as occasional pizza parties or Hawaiian shirt Fridays.
We Want You to Have a Life Outside Work
Oh, by the way. The client moved up the deadline, I need those TPS reports by tonight, and it’s your week to carry the pager. Enough said.
The Customer is Always Right
Sometimes the customer is misguided or misinformed. Other times what they’re asking for just isn’t worth it for the company or for your time. However, in an effort to appease the customer at all costs, managers will do whatever it takes, including asking you to work all hours.
We Reward Excellence
This one is more a bending of the truth than a lie. The company may actually reward their top performers but often the reward is not commensurate with the effort you put in. So while technically they do offer small rewards to some people, the majority of excellence you exhibit goes unrewarded.
Our Salaries are Competitive in the Market
Salaries are the biggest cost for most companies. The 80/20 rules says you get your biggest cost savings from 20 percent of your expenses so some companies keep those salaries as low as they can. The keep the salaries low enough to meet their earnings reports but just high enough to keep you working there.
Hope You Enjoy Your Vacation
How many times have you worked a 60 hour week before you went on vacation to finish up lose ends and then a 60 hour week when you got back to catch up on what you missed? Unless my math is wrong, I still worked the same number of hours, just distributed them differently. The company gives you the time off but doesn’t give you time to take it.
In case you couldn’t tell, sometimes I get a little fed up with life in a big corporation. Thanks for letting me vent! What are some other tall tales you’ve heard from Mr. Lundberg, aka your boss?
Do you live in a low lying area? Do you have flood insurance? If not, you probably want to think about buying it sooner rather than later.
Flood Insurance Lessons Learned
I called our insurance company today to inquire about flood insurance after our week of home repair bills; here are a few things I learned:
– Most flood insurance policies have a 30 – day waiting period before coverage kicks in.
– Your local government draws up the “flood” maps for FEMA, they determine which pieces of land are “at risk” for flooding.
– The government periodically re-draws the maps. Which means even if you’re not considered to be in a flood zone, you could in the future.
– If your land is not in a designated flood zone and the maps are redrawn to include your home, you’ll have to pay an engineer to draw up an “Elevation Certificate” before you can get flood insurance.
– If re-zoning of the flood maps causes your home to be in a flood zone and it wasn’t before some insurance companies will let you skip the Elevation Certificate and even give you lower insurance rates with a “grandfather” clause.
Our Flood Insurance Saga
We weren’t in a flood plain when we bought our home but local officials recently re-drew the map to include us. My first suspicion is that the government labeled it out of the flood zone to allow developers to build there and then re-drew it several years after construction was complete so they could get FEMA help if it ever did flood. Just my speculation but if it’s true, that’s just wrong.
If I would have bought flood insurance anytime in that last few years we would have automatically been grandfathered in but now I’m waiting on the results of our insurance agent’s appeal. So, if you live in a low-lying area, it might be wise to look into your area’s flood zoning and your flood insurance options before your local government re-draws the maps on you.
It’s always good to sit back and reflect on life and think about what’s really important. Of course today is Mother’s Day. Thanks to all the moms out there, especially mine! This has been a challenging week for some home owners in the Midwest. We came out okay but others encountered nasty flooding. Tough times like this usually help put things in perspective. As Trent mentions, the best thing we can do is learn from unfortunate events. Here are some of the highlights of the week in personal finance:
Five Cent Nickel writes about how he benefits from credit cards.
Binary Dollar offers a tip on how you can lower auto insurance.
Lazy Man ran an interesting weeklong series on interest rates.
I’m on a search for ways to make extra money so the article on earning extra cash in your spare time at Get Rich Slowly was of interest to me. Now if I could just find more spare time!
Money Matter warns us that bulk buying doesn’t always mean low prices.
Mighty Bargain Hunter tells us top 5 ways to kill our retirement dreams
The S&P 500 is on a tear, Fat Pitch Financials wonders what the high valuations in the S&P 500 mean for finding value opportunities.
Last weeks Carnival of Personal Finance had some good articles and money quotes. My favorite was from Mark Twain:
October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.
That’s all for this week. Happy Mothers Day!
The costs of owning your home seem to come in groups for some reason. A leaky roof, no central air, and impending flooding hit us all at once this week.
No Air Conditioning
On Sunday night my wife announced it was too hot for comfort and that she was turning on the air conditioner for the first time this spring. We flipped the switch to cool, turned down the thermostat, and air poured out of the vents. Unfortunately it wasn’t cold air. The blower for the furnace was on but our air conditioning unit was not running.
As the repair man headed our way the next afternoon we tried to troubleshoot the problem over the phone. It turns out our only problem was that the circuit breaker had been tripped so there was no power to the unit. Luckily, the repair guy hadn’t reached our house yet when I made the discovery so we avoided the $85 visit. We’ve never had any maintenance done on the air conditioner since we built the house so I did schedule maintenance for next week.
We live in a low lying area but because it’s been deemed a 100 year flood plain, our insurance company doesn’t require us to buy flood insurance. Every spring when we have a lot of rain, I call our insurance company to sign up for flood insurance but for various reasons I never have. Sometimes their flood division is closed when I call, one time the paperwork was never mailed out to us. Regardless of the excuses, I’ve never done it. Then summer rolls around and I decide to save a few bucks and wait till the next January or February to sign up.
When our area received a lot of rain in a short period of time this week, I began to worry. A river in our valley left its banks and it kept on raining. Luckily for us and many others the rain eventually stopped and hopefully the flood threat has passed for this season.
Watching the river creep closer and closer to our neighborhood is a very stressful experience, especially when you don’t have flood insurance. It’s foolish of me to have put off buying insurance as long as I have so when the flood insurance office opens Monday I’ll be their first caller.
As if the air conditioner not running and the river leaving its banks wasn’t enough, some wonderful water stains in our ceiling let us know our roof was leaking as well. Obviously once the rain stopped the leaking ended but now we have some work to do on our ceiling. The roof guy came out today and found the source of the leak. It turns out water was coming through in more than one place but we’d only seen signs of one leak. For $150 he’s coming by next week to patch the leaks and do a little maintenance on potential trouble spots.
Could Have Been Worse
Every cloud has a silver lining, right? Ours was the trusty sump pump! It ran and ran for several days, keeping our basement high and dry. A friend at work was not as fortunate. His sump pump went out and the basement flooded with four feet of water. It’s an unfinished rock basement so there’s no cosmetic damage but he’s looking at a bill for a new furnace and hot water heater, ouch!
There were others in our area that did have their homes flood so we feel lucky to gotten off with minor damage. As the week winds down it turns out the costs of being a homeowner this month are much lower than I thought a few days ago. A $75 tune-up for the air conditioner, a $150 roof patch job, and monthly flood insurance payments aren’t too bad in retrospect.
Are your investments doing better or worse than your friends? Maybe you don’t want to know.
Comparing Investment Returns
There are two money savvy guys at work that I like to talk business and investing with. I discovered yesterday they had a bet on who between the two of them would reach $1 million first. I also found out that both of them were out-performing me in our 401k plan. One guy, Scott, had a 20% return over the last 3 years, the other one, Dan, a 15% return. I went home and logged on to find out that my 401k had a 3 year return of 12%.
Of course the next day I asked for more detail on the investment strategy they’d been following. Scott had dumped all his 401k money into our company stock a few years ago and rode it as the stock price climbed. Now he’s out of the company stock, back into index funds.
Our 401k plan has pretty decent options, with about 30 different funds to choose from. Dan had taken advantage of some of the high performing international funds we have available, investing heavily in those for the last several years.
My work friends have outperformed me because they were willing to take more investing risks. As you can see from the breakdown of my 401k plan below, I don’t hold any company stock and only 19% in international stocks:
22% – Vanguard Total Bond Index
59% – Vanguard Institutional Index
7% – Dodge & Cox International Stock
12% – American Century International Growth
My investment elections are based on the best options for diversification across the funds in our 401k, 403b, & IRAs. If I would have invested in our company stock or heavily in international funds I could have matched their returns but that level of risk doesn’t fit with my allocation & diversification plan.
Hearing their returns makes me wonder if my allocations are too conservative for a 29 year old with a long time frame. On the other hand, I don’t want to go around chasing performance. I hopefully learned my lesson about that during the dot com bust.
Do you share your investment performance with friends, family, and co-workers? If so, does it tend to make you more conservative or more risky in your investments?