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5 Financial Tips for Expecting Parents

Mint Personal Finance Blog — Fri, 19 Jun 2009 00:20:54 +0000

If you’ve just received the news that you’re pregnant, one thing’s for sure, life as you know it is over. But that’s a good thing. The joys of parenthood far outweigh the cons but you’ll need a solid financial plan if you hope to make it through the next nine months.

So after you’ve shared the news with your parents and 500 of your closest friends on Facebook, you’d better start thinking about how this is going to affect your wallet.

You want the best for your family of course but who should you listen to? When it comes to giving new parents advice, suddenly it seems everyone is an expert: don’t get this brand of diapers, make sure to get that kind of car seat, don’t rush to get the baby the first time it cries, and so forth. The good news is that you will have nearly nine months to prepare your home. Make sure to use a few of those hours to get your financial house in order too. Both are about to go through major changes.

No matter your fiscal discipline, there’s about to be another mouth to feed. Many couples will want or need to move into a bigger space. The extent of many of your baby-related expenses will be controllable, as your and your partner’s expenses are today. However, even with maximum restraint, you’ll still be walking down new grocery aisles and visiting new stores, ultimately spending money on products and services you never considered previously.

If you’re financially unprepared for your new baby, you could end up financing diapers. Here are the top 5 things you should do when you’re expecting:

Tip 1: Communicate With Your Partner

The theoretical conversations you may have had a few times previously will now become real. Decisions will have to be made. Nothing should be assumed, Talk about them.

Will one of you stay home? If so, for how long? Things may change. That’s okay.
Could all of you live on just one income? If you think so, what makes you so confident? Have you ever done so before?

Tip 2: Live Within Your Means

It’s as important as ever to make sure to live within your means. Resist the temptation to use your new arrival as an excuse to purchase things you can’t afford and don’t really need. If you have a car with four doors and four tires, you already have a “family car.” Your apartment or existing abode is probably big enough to accommodate the baby. Try to put off a major move for as long as possible. Not everything has to fit the stereotype. Spend on what’s important to you within the constraints of what you can actually afford.

Tip 3: Establish An Emergency Fund Now

If you haven’t already done so, there’s no time like the present to establish an emergency fund. The traditional three to six months sounds like a lot. It is a lot. But it’s better to have some money socked away for this purpose than none at all. Do what is possible. Remember you’re trying to set aside three to six months of non-discretionary living expenses only, not your full monthly income. If you aspire to have one partner stay at home for an extended period, one easy way to enhance your emergency fund is to practice living on one income while both spouses are still working.

Job security still have feeling confident you’ll never need to tap an emergency fund? It’s not just about your job. When you first hold your baby in a few months, it will be so obvious- there’s another person in the picture now. The more people in the family, the greater chance there is for some kind of emergency. Be prepared.

Tip 4: Get Life Insurance

Many young adults without children can actually spend their money more wisely than on life insurance. That concept changes immediately upon conception. Now, someone will be depending on your income for years to come. You’ll need to be sure that if something unfortunate happens to you, your child can still maintain the lifestyle you’ve been providing. Only life insurance can provide that financial security.

Tip 5: Sign Up for the Health Care Reimbursement Account at Work

Also known as a flexible spending account (FSA), this account requiring minor paperwork can effectively save you 25% or more (depending on your tax rate) on your medical expenses. When you’re expecting, you’re going to have big medical bills, including pre-natal care and delivery.

Your next annual enrollment date presents the perfect chance to increase your contribution rate to reflect your new medical spending and to reduce your after-tax costs in the process. If you won’t reach an enrollment date prior to delivery, remember that your child’s birth constitutes a “life event” and will give you a special one-time opportunity to increase your contribution rate.

Be prepared, don’t overspend, and remember that what really matters is not the brand, design, or expense of your child’s bedding, stroller, or Onesie, but rather your love and care for them.

Michael B. Rubin is the author of Beyond Paycheck to Paycheck and the blog of the same name. He is the President of Total Candor, a financial planning education company.

Preparing Financially for a Baby (bargaineering.com)
How to Choose Between College and Retirement (usnews.com)
Life Insurance Is an Affordable Necessity (thatonecaveman.com)

Canada and Mexico vs the US: A Visual Comparison

Mint Personal Finance Blog — Tue, 09 Jun 2009 23:29:44 +0000

So close, and yet so far. Tied together as much by geographic proximity as by NAFTA, Canada, Mexico, and the US are dependent on each other for much of their economic well being. Understanding the differences and similarities between these co-dependent economies can provide you with a compelling picture of how various factors play into a country’s economic status. To paraphrase Alice in Wonderland, you might be wondering what the use of a chart without scale or numbers is. But before you decide that we’ve gone too far down the rabbit hole, consider that our infographic is designed to provide a sense of relativity and scale. It’s an at-a-glance view of the most important economic dimensions of the US and our nearest neighbors. In order to help compare and contrast the economic differences, we have simplified the data from the CIA World Factbook. For the exact numbers in any category, check here.

Plastic Wars:Credit vs Debit

Mint Personal Finance Blog — Wed, 03 Jun 2009 23:53:41 +0000

Leo Reynolds

Credit or debit? – an important question for those trying to come out ahead in recessionary times. The answer can be a little complicated. It depends on a few things, namely, your spending habits, your ability to pay your bills on time, and the total dollar amount that you pay with debit and credit. These are the variables that you can control. Unfortunately, they’re not the only ones.

What remains to be seen are the clever tricks credit card providers will play in light of the major reform that was recently signed into law by President Obama that will go into effect in 2010. About the best you can do is take advantage of the existing rules and set yourself up for future financial success.

An Easy Choice for Some

For starters, those whom the credit card companies have feasted on can be packaged into one of the following categories.

Group #1 – Buys a little or a lot, carries a balance, pays on time.
Group #2 – Buys a little or a lot, carries a balance, doesn’t pay on time.

If you’re in one of these two groups, the answer is simple. You have been targeted. Cut up your credit cards now. If you’re using credit to pay for things you can’t afford, you are digging yourself a big hole. Even with the new regulations that will go into effect next year, credit card companies will still be able to charge late fees and whatever fee they desire. Don’t let them. Switch to paying with debit. The “I need a credit card to survive” argument is a pretty weak one, regardless of circumstance.

A New Target?

Where it gets more interesting is when you consider those who have used cards responsibly. They fall into one of the following two groups:

Group #3 – Buys a lot, no balance, pays on time, uses credit to get rewards.
Group #4 – Buys a little, no balance, pays on time, uses credit to get rewards.

The question of credit or debit is not quite as simple for these responsible bill payers that have used credit cards as a means to reap financial reward. Creditors have long offered rewards to target these consumers. In theory, it should be safe to assume that those who have credit cards for their rewards are responsible bill payers – if you’re paying 15% interest on 2% rewards, you have some things to sort out.

With the industry set to take a financial hit on regulations aimed to protect those who are typically hit with fees and high interest, there has been mention of industry backlash against the users who have been responsible and not contributed as much to the credit card companies bottom lines. It won’t be long before the industry responds with new or old ways to make up for lost revenue. If annual fees are re-instated or rewards are cut back, those who have a choice of credit or debit and may have to make some decisions regarding which they option they choose.

Debit Card Rewards – A Game Changer?

To make matters more interesting, many debit cards have begun offering rewards in the last few years. Debit card rewards tend to be a little less enticing than credit card rewards, however. Banks generally offer one point for every $2 spent with a debit card, compared with one point for every $1 spent with a credit card.

It’s worth noting that many debit card rewards programs require you to use the “signature” option of your card, which means the card is swiped, you sign for the purchase and the transaction is run through the merchant’s processing system, versus punching in a PIN code. This is because the bank collects an interchange fee for that transaction from the merchant, which would be less if you paid with the debit option using your PIN. The bank then uses those fees to offset the cost of the rewards program.

Additionally, many debit rewards cards are charging annual fees. Those that don’t tend to offer highly scaled back rewards. Less rewards, annual fees, and the possibility of getting dinged on fees for going below your checking account minimum balance? This model has a little work to do.

Seeking Optimal Return at the Lowest Expense

Regardless of how the industry changes the fees and rewards for responsible card users, the goal here should be to get the highest total return. If you don’t spend much (group #3) you may want to opt for a debit card or credit card with no annual fee, even if the rewards are small. If you spend a lot (group #4) and benefit from hundreds or thousands of dollars of rewards each year, it may make sense to eat the expense of an annual fee and use a credit cards, both of which should point towards bigger rewards. Whichever way you choose, it is important to pay your bills on time, not carry over a balance, and stay above your minimum in your checking account.

For more of GE Miller’s writing, visit personal finance blog 20somethingfinance.com.

Small grocers risk folding over credit card changes, feds told (canada.com)
Lawmakers Line Up to Amend Credit-Card Bill (blogs.wsj.com)
Can You Save With A Visa Cash Card? (savingcashtips.com)

How to Make Lots of Money During a Recession

Carlos Rodriguez — Sat, 30 May 2009 03:43:39 +0000

By Steve Pavlina

I found this article on twitter just yesterday and it amazes me every week how ignorant we can be. In this case, I was ignorant of Mr. Pavlina existence. I spend lots of time on sitting on my desk working on my sites, on the Web and have read many self improvement and motivational books and articles. But, I have never heard of this person. Mr. Pavlina comes across as genuine as anyone could be. This article made my day and gave me the little boost I needed yesterday. If you want to know why having a job is insane, what to do to survive this hard economic times, and have a different outlook from what everyone else is doing. I recommend you keep on reading. I became an instant fan of Mr. Pavlina. His blog is full of awesome information you should not miss. I will be reading it heavily. A word of advise: You may not like what you will read if you are the 9-5 typical corporate slave. However, if you are ready to free yourself and look at new horizons, I invite you to read on.

“A recession is possibly the best time to launch a new business or to expand an existing one. It’s also a great time to get ahead in your career. I know this sounds counter-intuitive, so let me ’splain.

First, the media goes nuts during a recession. They turn a little bit of negativity into a mountain of pessimism. This makes a lot of people financially paranoid. People become socially conditioned to expect the worst.

If you buy into this social hysteria, you become a victim too.

But if you tune out such stupidity (not watching TV helps a lot) and maintain a grip on rational thought, you’ll see some amazing opportunities popping up everywhere you look.

During such times people get scared and start cutting back on expenses. They cut some of the fluff from their lives. They stop buying so much stuff they don’t need.

This causes some businesses to do poorly, especially businesses that don’t provide stuff we really need. We can live without new credit cards and gas-guzzling SUVs for a while. Those non-essentials can be put off.

We also become more sensitive to receiving genuine value. When we spend money, we want to make sure we’re getting a fair deal.

Consequently, businesses that provide genuine value can actually do better during a recession. More people will flock to those businesses in tough times, while the fluff businesses will become more and more paranoid.

In the USA there are a lot of fluff businesses. Many are based on the moocher mindset, trying to extract money without providing fair value in exchange. A lot of the dead or dying financial companies are like that. The American auto industry has been contracting as well, at least in part because they’ve been creating inferior products that people don’t really need. (Erin and I own a Honda, despite the fact that we could have gotten a significant discount on GM cars because two of my family members used to work for GM. We looked at some GM cars and quickly concluded they sucked. Other family members weren’t so lucky.)

A lot of people have been learning that job security doesn’t mean much these days. More than 500,000 Americans learned this lesson last month when they lost their “safe and secure” jobs.

The Stupid Approach to Making Money

Lately I’ve seen a lot of people, some of them friends, do some really dumb things in an attempt to earn more money. They buy into lame money-making programs, join and promote useless MLM schemes, and fall prey to scammers.

The common pattern is always the same — they’re focused on trying to make more money. They make it their top priority. They think about it constantly. But they keep getting sucked into trying to make money without providing any real value, and it’s unsustainable.

In the end this sort of thing eventually self-destructs. The only way to succeed with it in the long run is to find lots of suckers and basically rip them off in order to enrich yourself. Most people have a strong enough moral resistance to this sort of thing that they’ll sabotage themselves from going too far with it. This isn’t a path of long-term abundance. It’s a path of scarcity.

As a general rule, the people I know who are most focused on trying to make more money this year are doing worse, not better. In some cases they’re doing much worse. A few have lost or are in the process of losing their homes.

The exceptions are those that are able to sufficiently kill their conscience, so they can remove any incongruencies about ripping people off. But again, this is a pretty rare exception. Most people would rather deal with scarcity than knowingly rip people off to get ahead, so they just make the bare minimum to meet their needs and avoid getting ahead.

The Smart Approach to Making Money

There is a smarter approach, however.

Instead of focusing on trying to make more money, put your time and energy into CREATING and DELIVERING real value. Find a way to give people what they want and/or need.

Take note that the keywords here are CREATE and DELIVER.

Creating value means expressing your unique talents and skills in a way that can potentially benefit others.

Delivering value means ensuring that other people are actually receiving and benefiting from the value you’ve created.

If you don’t do both in some fashion, then it’s going to be hard for you to generate sustainable income, especially during a recession. I’ll explain why.

If you only create value but don’t deliver it, then your value isn’t being received by anyone. So how can you receive value (such as money) in return?

I see this problem a lot with creative types such as would-be artists, musicians, and writers. They may spend lots of time honing their craft, but if they don’t actually get that value into the hands of sufficient numbers of people, they struggle financially, and this hurts them creatively too. A goodly number of these people are currently seeing their homes in foreclosure now.

The sad thing is that some of these people work very hard. But they spend too much time creating and not nearly enough time delivering. They watch people they consider hacks pull ahead of them. The hacks may not be as good on the creative side, but at least they’re getting their value into people’s hands, and on some level people are appreciating their work.

I went down that road myself. In the late 90s, I went bankrupt, even though I was working very long hours and creating a lot of potential value in the form of a computer game my company was developing. My problem was that I didn’t do a good job of getting that value delivered. I relied on publishers to do that, and for various reasons the game was never released. That resulted in years of wasted effort, aside from the valuable learning experience that is. So I know where this road leads because I traveled it.

On the other hand, if you only deliver value but don’t create it, then you’re delivering someone else’s value. This isn’t a terrible approach in the short run, but it’s a short-sighted long-term strategy if this is all you do. There’s nothing particularly special about delivering other people’s value. Anyone can do it. Anyone can sign up for affiliate programs or join an MLM program or become a reseller. If this is your primary means of generating income, your long-term outlook is weak. The better this works for you, the more it will draw competitors into your field. Eventually everyone will be working harder and harder for scraps. This happens all the time. This strategy can be especially weak during a recession, as more people turn to less expensive sources for the same value you deliver, squeezing your profit margins thinner and thinner.

Bloggers fall into this trap when they rehash other people’s content and don’t really have anything unique or compelling to say. A year later their niche is flooded with competitors doing the same thing. And hardly anyone is earning decent income from it.

The most viable long-term strategy is to create AND deliver value. You can mix and match other strategies with it, but this should be your primary method of income generation. If you get good at creating and delivering value, you can basically write your own ticket and enjoy lots of abundance.

A Choice of Mindset

I know a lot of people are dealing with financial challenges these days. Las Vegas is basically the foreclosure capital of the USA right now. I know people who’ve lost their homes. I see “bank owned” signs all over the place.

If you’re going through something like this right now, I totally empathize with you.

However, I have to point out that the pattern of what causes this is so clear, it’s getting a bit ridiculous to see it play out over and over again.

Generally speaking, people who CREATE and DELIVER value are doing just fine. In fact, I’d say most are doing better, not worse. Many of these people are seeing their incomes go up during this time.

People who don’t CREATE and DELIVER value are seeing their finances grow progressively worse. This leads many of them to panic, so they head even further away from creating and delivering value (such as by chasing lame money-making schemes), which only quickens the decline to insolvency.

I know it seems logical that if you’re seeing your finances decline, then you should focus single-mindedly on trying to make more money as quickly as possible. People fall into this trap all the time. I used to fall for it too. This is absolutely the wrong strategy though. I know that must sound counter-intuitive.

The correct strategy is that when you see your finances decline and you want to increase your income, then you need to focus on CREATING and DELIVERING more value. If you do that, then you’re doing the very thing that will generate a sustainable income increase.

What is money? Money is simply a medium for exchanging value. Money is what you receive in exchange for the value you create and deliver. If you can increase your outflow of value creation and delivery, you can increase your inflow of money received.

If, however, you try to increase the inflow of money without increasing the outflow of value, you’re trying to get something for nothing. This approach is untenable and will ultimately collapse. Please don’t waste your time on it.

I actually figured this out right around the time I was declaring bankruptcy. I was totally broke, yet I found a way to focus my energy on creating and delivering value instead of on trying to scrape together more money. Within about six months, I was back on my feet financially, and year after year my financial situation just kept getting better. I started on this path about 9 years ago, and I’ve maintained a nice positive cash flow every year since then.

I know that when you’re in a financial crunch situation, six months may seem like a long time. But it doesn’t matter if it takes you several months or several years to get in the habit of creating and delivering value. The time is going to pass anyway, and this habit will serve you well for life. Be patient and get started. It doesn’t matter what happens to the economy — if you keep creating and delivering value, you’ll do just fine.

A Record Year

Financially, 2008 was the best year ever for Erin and me. Erin had a six-figure year all on her own just from doing readings.

I expect that 2009 will be an even better year for us, regardless of what happens to the economy. How do I know? Because it’s another year we can create and deliver value, adding to what we’ve already created.

Why are we enjoying increases while others are experiencing decline?

First, it helps that we don’t have jobs. I haven’t been employed by someone in more than 16 years. Many people mistakenly assume that being jobless is the riskier route, but that’s nonsense. It’s much less risky to control your own means of creating and delivering value than to be a pawn of some larger entity. No matter how bad the economy gets, Erin and I can’t get fired or laid off. So our career paths enjoy much more stability.

Secondly, while others are tightening up and cutting costs, Erin and I focus our attention on creating and delivering more value to people. The way we go about this may seem a bit counter-intuitive at first glance.

For example, I wrote a lot about diet and health this year, such as by sharing my experiences with the raw food diet.

That may not appear to be a very sexy topic. Some people find it totally uninteresting and would prefer that I write about other things. My health articles never make it big on social bookmarking sites, so they don’t generally yield a major traffic boost either.

However, such articles can provide a lot of value to people who are interested in those topics. Many people have made significant lifestyle changes after reading those articles, improving their health and/or enjoying significant weight loss. For some people the benefits have been amazing.

So even though these articles might not seem too exciting at first glance, they make a difference in people’s lives. Obviously they don’t affect everyone equally, but that’s okay. They certainly do a lot of good. They deliver value.

Many bloggers post content with the intention of getting something, such as links, attention, or sales. I’ve done some of that too, but I generally avoid creating that style of content. Instead I remind myself to stay focused on creating and delivering value. I know that when I keep my focus on that side, the rest takes care of itself.

This is an example of such an article. I didn’t write this piece to get something from you. I don’t expect it will become a huge hit. I know that because of the length, many people won’t even bother to read it.

But I also know that for many of the people who take the time to read it, this article has the potential to create some subtle yet helpful shifts. It may give someone the extra insight needed to get moving in a new direction. Someone, somewhere will receive positive value from it.

That’s all I intend with this article. Just provide some kind of benefit to someone who could use a little encouragement in the right direction. It’s not that complicated. This sort of focus inspires me to share what I’ve learned openly and honestly, even if it runs contrary to the way most people think.

I know this approach sounds overly simplistic, but if you get this — if you really get it — then it’s really not that hard to generate plenty of income.

Turning Value Into Income

So how does one generate income from creating and delivering value? Can’t you run into a problem of creating and delivering lots of value and making no money from it?

As it turns out, making money is the easy part. If you can create and deliver value to people, the income opportunities will literally come to you. People will practically line up with ways for you to make money. I’m serious.

Here’s how this works.

If you get good at creating value, you can connect with other people who are good at delivering value. They deliver your value, such as by selling it, and they pay you a royalty, commission, or licensing fee.

For example, Hay House offered me a book deal last year, so I wrote a book called Personal Development for Smart People, and it was published in September. I received an advance for the book, and I’ll also receive ongoing royalties based on sales. I might even receive royalties from this book for the rest of my life, especially since the content is timeless. Also, writing a book has lead to other opportunities, such as paid speaking engagements. So in this case I created the value (the book), but others deliver it.

Now suppose you get good at delivering value. In this case you can generate income by plugging other people’s value into your delivery system. For example, my blog is great at delivering value. It’s a very efficient medium for that. But since I give my value away for free, it doesn’t generate income directly. However, I can generate plenty of income by promoting other people’s products that I like. Then I split the profits from sales with the publisher. I earn six figures a year just from doing that. The product publishers come to me. I get way more offers for this sort of thing than I can handle. It doesn’t require a lot of work to do this. Once you have a system for delivering value, you can plug other people’s value into it and generate lots of extra income.

If you have the means to create AND deliver strong value, you’ll have so many opportunities it will be totally ridiculous. First, you can plug the value you create into other people’s delivery systems, so you can earn ongoing royalties and such. This is easy residual income. I’m still getting checks every month for deals I entered years ago.

Secondly, you can plug other people’s creative value into your own delivery system. You pay them a royalty on the sales, or they pay you as an affiliate. Once again you generate ongoing residual income. As long as you’re selective about the products you promote, doing your best to ensure that they provide strong value, everyone is happy, and everyone wins.

Thirdly, you can plug your value into your own delivery system. Strangely, this is something I haven’t done yet with my blog, although I used to do it all the time with my computer games business. This is something I intend to explore in 2009. It simply means that I could create and sell my own products direct. Many other bloggers have already done this with great success, releasing e-books, audio programs, DVDs, etc. They create the value and sell it directly to their visitors.

A big chunk of the income I received in 2008 was from work I did in previous years. I could do no work for all of 2009 and just live off the residual income I know is coming. That’s a nice situation to be in. It’s no accident though. Years ago I decided that this is how I wanted to set up my financial life, and then I focused on creating and delivering value to make it work. There’s no reason you can’t use the same strategy. It isn’t trademarked. “

This is only half. Keep on reading….

How to Pick the Right Mutual Funds

Mint Personal Finance Blog — Thu, 28 May 2009 22:34:00 +0000

We recently covered the why and how of purchasing a mutual fund, but you were probably left wondering what exactly you should be looking for when choosing which funds to buy. It’s a great question and can often be a daunting one for a beginning investor. In reality, it’s relatively easy to research and find good mutual funds. Once you’ve done it a few times, you may actually begin to enjoy the thrill of the hunt!

The Longstanding Mutual Fund Debate

There are two camps when it comes to choosing mutual funds. The first consists of those who believe you should invest in actively managed mutual funds that outperform their peers and their indexes over time. The second camp consists of those who believe that the only type of mutual fund you should invest in are index funds. Index funds differ from actively managed funds in that they are typically managed passively by mathematical computation and computers.

Index fund fanatics, or Bogleheads (named after Vanguard and index fund founder John Bogle) as they are affectionately referred to, often cite the fact that the majority of actively managed funds are outperformed over time by their index fund counterparts, which cost less to own.

Regardless of which camp you favor, we will provide some general guidelines to follow when you are hunting for actively managed funds and how to compare them to their index fund counterparts.

How to Comparatively Measure a Mutual Funds Performance

1. Expense Ratio: Expenses are never good. They will eat into your returns over time. Be wary of a mutual fund with a high overall expense ratio, especially if its performance lags its index and peers over time. As a benchmark, there is no real reason to purchase a fund with more than a 1.2% overall annual expense ratio, and there are many good ones that can be found for less than a 1% expense ratio. Many index funds will have much lower fees than this, but fees should not be your only determining factor.

2. Fund Manager History: Here’s a dirty little secret of the mutual fund industry – the fund itself doesn’t really matter. It’s all about who is selecting the investments, not the ‘brand’ of the fund. When you buy an actively managed mutual fund, you are purchasing the skills of that fund’s particular manager. So, what should you look for in a fund manager?
Most important is sustained long-term performance success (at least 5 years) vs. the fund’s peers and index. Look also for loyalty to the fund that you are investing in. If they move, they take their skills with them. Lastly, you’ll want to find a fund manager with an investing philosophy that jives with your personal financial goals.

3. Load or No-Load: Funds with loads should not be purchased. Period. Loads are an additional management fee that claims a percentage of your overall investment when you move in or out of a fund (often-times around a whopping 4-6%). When there are numerous equally or better performing funds available that don’t carry a load, there is no reason compelling enough to pay the extra fee. Comparatively, index funds rarely have a load fee.

4. Net Assets: In the mutual fund world, it is possible to get too big. Some of the star mutual funds end up attracting performance chasing investors. This creates a problem in that the more money a fund has to invest, the less nimble it becomes. As a benchmark, stay away from actively managed funds that exceed $10 billion in net assets. When a fund exceeds this level, there is no real advantage to choosing it over its index fund counterpart. Many fund companies realize that this is an issue and they end up creating ’sister’ funds that mirror the strategy of the original fund, but with much less in the form of assets to slow them down.

5. Performance: If a managed fund is under-performing its peers and its comparable index fund, you’re probably better off going with their index fund and saving on the expenses. Look for long-term sustained success of at least 5 years, but preferably 10 or more.

Where do you Find all of this Information?

Most major investment aggregators will contain all five of the previously mentioned metrics and more. A few favorites to whittle down your possible fund selections are:
Morningstar’s mutual fund screener
Yahoo Finance fund screener

Once you have narrowed it down to a few funds, you’ll want to use tools such as those found at Morningstar and Google Finance to research each fund. You may also want to read the prospectus of the funds you are thinking of before making your final purchase.

For more of GE Miller’s writing, visit personal finance blog 20somethingfinance.com.

What the Credit Cardholders Bill of Rights Means for You

Mint Personal Finance Blog — Fri, 22 May 2009 03:18:11 +0000

Andres Rueda

This Friday, President Obama is expected to sign the ‘Credit Cardholders Bill of Rights’ into law. The House of Representatives passed their version of the bill on April 30th by a 361-64 margin. In similar overwhelming fashion, the Senate passed their version of the bill in a 90-5 route. The House has agreed to collaborate and adopt the Senate’s version of the bill, which has been deemed to be more strict on credit card providers than the House version. So what does this mean for you?

If you’re a student or a minor, you will see the highest level of direct impact:

Students:
For college students that don’t have a co-signer, the max amount of credit extended will be limited to the greater of 20% of the student’s annual gross income or $500 dollars. The aggregate amount of credit extended from all of their credit cards will be limited to 30% of the student’s annual gross income (for the recently completed calendar year).
Creditors are prohibited from opening a credit card account for any college student who does not have any verifiable annual gross income or already maintains a credit card account with that creditor, or any of its affiliates.

Minors:
For consumers under 21 years old, the signature of a parent or another responsible adult who will take responsibility for the debt is required, or proof must be found that the under-21 consumer can repay the credit.
Creditors are prohibited from providing credit to consumers under age 18. (unless they are emancipated under state law, or the consumer’s parent or legal guardian is designated as the primary account holder).

But…Everyone with a Card has a Chance to be Impacted by the Following Rules

Existing balances:
Creditors cannot retroactively change the rate on an existing balance unless the account is 60 days delinquent.

Payments:

A consumer payment above the minimum applies first to the balance with the highest rate.
Creditors are required to provide a grace period for payments even if the cardholder takes advantage of a promotional rate balance or deferred interest rate balance.

Bill Receipt:
Creditors must send a bill at least 21 days before the due date.

Terms Disclosure:
Cardholders must get at least 45 days notice of any change in terms.
Creditors are required to post their written credit card agreements online.
Creditors need to provide a 30-day advance notice of an account closure.

Credit Scores:
Creditors must remove information provided to a consumer reporting agency about newly established credit card accounts if the holder has not used or activated the account and and if they contact the creditor within 45 days of its opening to close it.

Fees:

Payment fees – Creditors can’t charge fees to pay by mail, phone, and electronic transfer or online, except for expedited service on the due date or the day prior to the due date.

Double billing fees – Creditors are prohibited from charging a finance charge based on the double billing cycle method.

Interest fees – Creditors can no longer charge a fee on an outstanding balances at the end of the billing period if the fee is attributed to the interest accrued on an outstanding balance that was fully repaid during that preceding billing period.

Over-limit fees – Creditors cannot charge over-limit fees unless the cardholder has signed up to allow them. This is something that you’d be a little crazy to sign up for.

Rate Increase Limitations:

Promotional (teaser) rates - Creditors must extend promotional rates to at least six full months.

New accounts – Creditors can’t increase the annual percentage rate (APR) during the first 12 months of a new account being opened.

Rate changes - Creditors must provide consumers with a 45-day advance notice of changes in rates and significant contract changes.

Gift Cards:
All credit card gift cards must have at least a 5 year life.

I’m a Responsible Cardholder who won’t Benefit from any of the Above. I Pay my Bills on Time. Should I Fear Credit Card Company Retaliation and Benefit Decreases?
Credit card providers have been threatening to do away with all of those nice perks (air miles, cash back, free dog food, etc.) and even start re-instating annual fees again. They claim that with all the revenue loss from the aforementioned changes, they will have to make up revenue somehow.

Ah, but not so fast guys. Let’s not forget that credit card companies make money off of everything that we purchase (~2%) through merchant fees. At the same time, most companies limit their perks benefits to 1% or less. And other fees and interest are not going away any time soon, regardless of the bill of rights. Therefore, they need customers to prosper from , and not many companies are limiting who they providing cards to.

The consumer, not the companies, has all the leverage in the marketplace. If my card company tries to take away my perks, I’ll switch. The odds are there will be more than a few providers that won’t take away perks. If they all come to an agreement to eliminate perks, then I will simply switch to a debit card.

In an ironic reversal of fortunes, they’ll have to take it and like it.
For more of GE Miller’s writing, visit personal finance blog 20somethingfinance.com.

Sen. Chris Dodd: Time to Get Tough On Credit Card Companies (huffingtonpost.com)
Flaherty to unveil new credit card rules Thursday (financialpost.com)

VICTORY! Senate OKs bill to rein in credit card industry

Carlos Rodriguez — Wed, 20 May 2009 07:18:41 +0000

I am so happy to announce that the American consumer can claim some victory against the evil practices of all credit card issuers of our nation. The senate has OK a bill almost unanimously that will bring relief to millions of consumer and stop the predatory practices of the banks. Here is an article i just found at Yahoo news:

“By ANNE FLAHERTY, Associated Press Writer Anne Flaherty, Associated Press Writer

WASHINGTON – The Senate voted overwhelmingly on Tuesday to rein in credit card rate increases and excessive fees, hoping to give voters some breathing room amid a recession that has left hundreds of thousands of Americans jobless or facing foreclosure.

The House was on track to pass the measure as early as Wednesday, paving the way for President Barack Obama to see the bill on his desk by week’s end.

“This is a victory for every American consumer who has ever suffered at the hands of a credit card company,” said Sen. Christopher Dodd, D-Conn., chairman of the Banking Committee. The bill passed the Senate 90-5.

If enacted into law as expected, the bill woul give the credit card industry nine months to change the way it does business: Lenders would have to post their credit card agreements on the Internet and let customers pay their bills online or by phone without an added fee. They’d also have to give consumers a chance to spare themselves from over-the-limit fees and provide 45 days notice and an explanation before interest rates are increased.

Some of these changes are already on track to take effect in July 2010, under new rules being imposed by the Federal Reserve. But the Senate bill would put these changes into law and go further in restricting the types of bank fees and who can get a card.

For example, the Senate bill requires those under 21 who seek a credit card to prove first that they can repay the money or that a parent or guardian is willing to pay off their debt if they default.

Bankers warned the measure would restrict credit at a time when Americans need it most. They defended their existing interest rates and fees on grounds that their business — lending money to consumers with no collateral and little more than a promise to pay it back — is very risky.

“What has been a short-term revolving unsecured loan will now become a medium-term unsecured loan, which is significantly more risky,” said Edward Yingling, president and CEO of the American Bankers Association.

“It is a fundamental rule of lending that an increase in risk means that less credit will be available and that the credit that is available will often have a higher interest rate,” Yingling added.

Voting against the Senate measure were GOP Sens. Lamar Alexander of Tennessee, Robert Bennett of Utah, Jon Kyl of Arizona and John Thune of South Dakota, as well as Democratic Sen. Tim Johnson of South Dakota.

But other senators didn’t want to face voters in the 2010 election without proof that they are listening to constituents crushed by foreclosure rates and joblessness. Recent reports show that the number of foreclosures jumped 32 percent in April compared with the same month last year, while the jobless rate that month rose to 8.9 percent.

The legislation would not cap interest rates as some lawmakers had hoped. It also wouldn’t prevent lenders from finding new ways to drain customers’ bank accounts or keep consumers from spending money they don’t have.

But it would give spenders more flexibility and outlaw many of the surprise costs associated with credit cards at a time when money is tight in most households. For example, under the bill, a cardholder would have to opt to be allowed to go over a credit limit. If customers don’t agree and the bank authorizes a charge that would push them over their limit, the lender couldn’t levy an over-limit fee.

Another boon for consumers is limiting a practice known as “universal default,” when a lender sharply increases a cardholder’s interest rate on an existing balance because the customer is late paying that bill or other, unrelated bills. Under the new legislation, a customer would have to be more than 60 days behind on a payment before seeing a rate increase on an existing balance.

Even then, the credit card company would be required to restore the previous, lower rate after six months if the cardholder pays the minimum balance on time.

House Democratic leaders said they planned to move quickly. Last month, the House approved, by 357-70, a similar credit card bill by Rep. Carolyn Maloney, D-N.Y.

Complicating the issue somewhat was a measure added to the Senate bill that would allow people to carry loaded guns in national parks and wildlife refuges. That provision, sponsored by Sen. Tom Coburn, R-Okla., passed, 67-29.

House Democratic Leader Steny Hoyer of Maryland told reporters on Tuesday that the House might vote separately on the gun proposal so as not to bog down the credit card overhaul.

If the two bills are passed separately as expected, they would be rejoined before being sent to the president as a single bill, said Hoyer.”

Understanding Stock Quotes

Mint Personal Finance Blog — Mon, 18 May 2009 23:32:04 +0000

shareski

At one time or another most of us have seen a stock quote. But how many times have you wondered what one of the metrics in the quote actually meant? It’s not too difficult to venture a guess as to what a 52 week high is, but even experienced investors might have a much harder time clearly explaining what market cap, forward p/e, and beta are, in their simplest terms.

We’ll hit on all the basic metrics that most online stock quoting services provide so that the next time you’re evaluating whether or not to purchase a stock you aren’t left scratching your head and wondering if you should be worried or excited about what you are seeing.

Open: The US stock markets are officially ‘open’ for trade from 9:30 AM to 4:00 PM EST Monday through Friday on most days. Open is the price of the stock at 9:30 AM on an open trading day. In between the close and open are ‘after hours’ (4:00 – 6:30 PM EST) and ‘pre-market’ (8:00 – 9:30 AM EST) trading. Trading that goes on during these times often will impact the open price.

Prior Day’s Close: The price of a stock at the close (4:00 PM EST) of the previous trading day. Note that the prior day’s closing price may not necessarily equal the next day’s open price, as there is after hours and pre-market trading in between the two.

High: The highest price that the stock has traded for during the most recent trading day.

Low: The lowest price that the stock has traded for during the most recent trading day.

Volume: The number of shares of that stock that have traded hands during the most recent trading day. This is an important metric that measures how easily (liquidity) a stock is traded. If volume is high, it is easy to trade shares. If volume is very low for a stock, it may be much harder to buy and sell a specific amount of shares at exactly the price you would like.

Avg. Volume: This is a measure of volume over an extended time period – usually one year. This metric is used to compare to volume in a given day. If volume is relatively high versus the average volume, it may indicate noteworthy news regarding the company that would result in a higher level of trading.

Market Cap (Capitalization): A dollar amount that equals the share price multiplied by the number of outstanding shares. Relatively, stocks are considered large cap if they have a market cap of $10-200 billion, mid if their market cap is between $2-10 billion, and small if the cap is between $500 million and $2 billion.

52 Week High: The highest price that the stock has traded for over the last 52 weeks (1 year).

52 Week Low: The lowest price that the stock has traded for over the last 52 weeks (1 year).

P/E: P/E (Price-to-earnings ratio) is a mathematical computation that takes a stock’s current stock price and divides it by its previous annual earnings per share. A stock that sells for $40 dollars per share that earned $4 per share over the previous year would have a P/E of 10. P/E’s can be an indicator of value relative to other similar stocks when taking growth rates into consideration.

F P/E: Forward P/E’s calculate a stock’s current price divided by expected earnings for the following year. For instance, a stock that sells for $50 per share that was expected to earn $5 per share would have a F P/E of 10.

Beta: Beta is a measure of a stock’s trading volatility level in comparison to the entire market. A beta of 1 means that the stock tends to trade with the market. A beta of less than 1 means that the stock’s price tends to be less volatile than the market. A beta of greater than 1 means that the stock’s price will be more volatile than the market. If a stock has a beta of 1.4, in theory it is 40% more volatile than the rest of the market.

EPS (Earnings Per Share): A company’s profit, or earnings, divided by the number of outstanding shares. For instance, if a company earned $60 million in a year and had 6 million outstanding shares, the company’s earnings per share (EPS) would be $10.

Dividend: A cash reward given by companies to shareholders of stock, typically on a quarterly basis as determined by the company. Dividends are most often given by very profitable or mature companies as an incentive for owning and holding shares. The ‘dividend’ metric in a stock quote is the actual cash reward per share given to shareholders in the most recent quarter.

Yield: Yield is a percentage that reflects the return received from dividends paid on stocks over the most recent quarter (multiplied out over a year) relative to its current price. For instance, a stock that is priced at $80 that most recently paid a quarterly dividend $2 of of would have a yield of 10% ($2 x 4 quarters/$80 = 0.10 = 10%).

Shares: The total number of outstanding shares that the company has issued for public trading.

Institutionally Own: The percentage of outstanding shares of the stock that are owned by financial institutions (mutual funds, pension funds, etc.).

For more common investing terminology, check out the Mint’s financial term glossary.
For more of GE Miller’s writing, visit personal finance blog 20somethingfinance.com.

What Star Trek Can Teach You About Your Money

Mint Personal Finance Blog — Fri, 15 May 2009 23:45:23 +0000

8skeinsofdanger

Trekkies get into regular phaser-fights over the merits of the two most famous starship captains, Kirk vs Picard. But at the end of the day there’s only one James T. Kirk, a man of staggering ambition and supreme confidence that went boldly into every situation. If Kirk were a real-life person living in 21st Century America (get a life!), he’d probably be a dashing business tycoon on the order of Sir Richard Branson.

Even more than his strategic acumen and his luck with the ladies, Kirk is best known for always having a quip at the ready. One cannot doubt the real-life business and entrepreneurial messages mixed throughout the “Canon of Kirk.” And while it may be a stretch to suggest that the entire Star Trek galaxy was an allegory for how to succeed in the marketplace, let’s operate from within this paradigm. Let’s take a look at what Star Trek can teach you about your money.

Risk Management

“You saw the alert light. Why didn’t you tell me?” – ‘The Corbomite Maneuver’

In an uncertain economy, knowing risks is very important. If the nature of a dubious investment or any significant financially-related maneuver can be brought to light, it should be. Subsequently, it is important to surround yourself with those not afraid to give valuable advice.

“No. Not like this. I haven’t faced death. I’ve cheated death. I’ve tricked my way out of death and patted myself on the back for my ingenuity.” – The Wrath of Khan

For those who have witnessed the market’s ups and downs, experience is paramount. Recessions come and go, and while some are worse than others, having weathered a storm or two enables an individual to reflect on past moves.

“We’ve got to risk implosion. We may explode into the biggest fireball this part of the galaxy has seen, but we’ve got to take that one in a million chance.” – ‘The Naked Time’

Risk is necessary. One of the worst mistakes individuals can make during difficult financial times is to avoid risk entirely. Of course a ‘one in a million chance’ typically ought to be avoided. The old claim, “with great risk comes great reward,” however, is axiomatic in precarious times.

Downsizing

“No more blah, blah, blah!” – ‘Miri’

Captain James T. Kirk was a no-nonsense kind of guy, the kind of guy that many companies would be happy to have at the helm of their corporation. Ready to go where no man has gone before, Kirk could be trusted to to trim the fat and to make cutbacks, when necessary. Streamlined efficiency should be the goal of any well-run Enterprise, Starship or not.

Labor

“Not one hundred percent efficient, of course…but nothing ever is.” – ‘Metamorphosis’

A leader should always strive for excellence. However, being a leader and having perfectionist standards can be frustrating and can often result in micromanagement, which ultimately is unproductive. and hinders growth. Understanding the roles of labor and management is absolutely necessary for the success of any entrepreneur.

Management

“Genius doesn’t work on an assembly line basis. You can’t simply say, ‘Today I will be brilliant.’” – ‘The Ultimate Computer’

“All your people must learn before you can reach for the stars.” – ‘The Gamesters of Triskelion’

Ever since Adam Smith outlined his division of labor in The Wealth of Nations, the merits of filling each role in a company with the desired expertise has been stressed as a necessity for economic growth. Perhaps most important is the role played by management. For every executive would be lost without their Spock, this Enterprise’s pragmatic and eminently logical first officer.

Training

“Everybody remember where we parked.” – Star Trek IV: The Voyage Home

Training is important, even in the areas not typically thought of as necessary. Acquired tools help understanding the role each individual plays more broadly, and can help a larger team succeed.

Market Share

“There are some things worth dying for.” – ‘Errand of Mercy’

Increasing market-share is the foremost goal of all businesses. To most, it is worth sacrificing greatly for. Mortality aside, this note illustrates that business success typically comes at a great price.

“I’ve always known I’ll die alone.” – Star Trek V: The Final Frontier

Hopefully, it’s not that bad.

“Conquest is easy. Control is not.” – ‘Mirror, Mirror’

With regards to market domination, it is important to understand the complexities of staying on top. Companies that make it to the apex of their industry typically find themselves the target of malicious campaigns by their competitors. This tends to make staying at the top of one’s game a constant struggle.

Strategic Alliances

“There’s another way to survive. Mutual trust…and help.” – ‘Day of the Dove’

No one said that any one man (or woman) has to go it alone. For many, a partnership such as a marriage, can be useful in pursuing economic security, working together for a common goal. In the marketplace, partnerships are formed on the supposition that two or more individuals can accomplish exponentially more working together than if they were to work independently.

Work Ethic

“Galloping around the cosmos is a game for the young, Doctor.”-The Wrath of Khan

Many young men make the mistake of pursuing enterprise before they are serious about it. But wise men such as Kirk understand that such a mistake can be costly. To great minds such as Kirk, one’s leadership is the natural result of maturity, which is predicated on steadfastness and focus, among other things.

Leadership

“The needs of the one outweighed the needs of the many.” – Star Trek III: The Search for Spock

“I don’t need to be lectured by you. I was out saving the galaxy when your grandfather was still in diapers. Personally, I think the galaxy owes me one.” – Star Trek Generations

Experience, knowledge, and charisma. These traits of leadership are not learned overnight. And as a result some individuals are more important to others, at least when growth is considered.

Cross-cultural Awareness

“Well that’s simply the way they talk here. Nobody pays any attention to you unless you swear every other word.” – Star Trek IV: The Voyage Home

“Note to Galley: Romulan Ale no longer to be served at diplomatic functions.” – Star Trek V: The Final Frontier

In the last several decades high-level executives have begun to consulting with cultural anthropologists with regards to conducting business between different cultures. Most famously, there was a major trend in the 1980s of Western businesspeople learning Japanese because of that country’s rapid growth; today the same is true for China. What is important to note is that there are certain aspects of conducting business that often go overlooked by many, but are crucial to the success of business – especially in a super-competitive marketplace.

The Greenest Stocks

Mint Personal Finance Blog — Fri, 15 May 2009 00:43:00 +0000

Money doesn’t grow on trees but that doesn’t mean that going green and making green are mutually exclusive. With the economy locked in a choke-hold due to its over dependence on gas and oil, there is a growing interest in alternative energy. For the past several years, more companies around the world have realized how important it is to protect and preserve our planet, spurred on in part by the possibility of a tax incentive. In an effort to motivate corporations into jumping on the green bandwagon, in 2005, Congress passed an Energy Bill that offered subsidies for companies implementing clean energy technologies. Companies like GE have embraced the change by implementing environmentally friendly policies, while companies like the wind turbine company Vestas (VWDRY) developed several new environmentally advanced technologies of its own. For you, the environmentally conscious and socially responsible investor, there are now plenty of options available.

Green investments are investment vehicles such as stocks, bonds, ETF’s and mutual funds of companies that produce energy efficient or environmentally friendly products. Businesses that have modified all or part of their facility operations to become environmentally conscious are also considered to be part of the green movement. Some, like the French mineral water company, Vittell, even pay farmers on the land above its equifiers to use fewer chemicals in an effort to diminish the possibility of chemicals seeping into the water.

With President Obama calling for growth in employment opportunities in corporations that manufacture solar panels, wind turbines and energy efficient equipment, it is likely more corporations will fall into the green investments category. Companies going “green” are implementing what is known as socially responsible initiatives (SRI). These include anything from promoting recycling programs to introducing electric cars or protecting parts of the rainforest from deforestation.

For a company to be considered green, fund managers screen them to make certain the company fits the particular funds’ philosophy or cause. For example, an environmentally neutral fund might eliminate industries from its’ portfolio which perform animal testing, manufacture weapons or have significant environmental issues. The Domini 400 Social Index (KLDDSI), which was the first socially responsible index launched in 1990, follows 400 large cap US corporations selected based on social and environmental standards. The Portfolio 21 (PORTX) fund concentrates on small-cap (less than 1 billion in market capitalization) clean-techs and large-caps with sustainability programs.

The Social Investment Forum, a national membership association that focus on socially and environmentally responsible companies, keeps track of the financial performance of socially responsible balanced, bond (fixed income), equity large, medium and small caps and international global foreign funds. Socially responsible investments can also be listed as mission investing, ethical investing and sustainable investing. According to the Social Investment Forum, as of 2007, there were 260 socially screened mutual fund products in the US with assets of $201.8 billion compared to 55 SRI funds in 1995 with only $12 billion in assets. Given the growth in the number of companies going green or adopting green policies, it is likely you will see many more green investment vehicles.

The green sectors are alternative energy which is energy generated from the sunlight, wind or water that can be replenished naturally, carbon offset or carbon neutrality which means maintaining the balance between producing and using carbon-dioxide emissions by let’s say, planting trees, and energy efficiency or cooling, heating and lighting of buildings more efficiently. Some other sectors include environmental tech, that is, specializing in air and water quality and waste management, reducing emissions by pollution control and carbon capture and green projects that involve education, food distribution and recycling programs.

Several companies are making great strides in the way they use our current technology to reuse products, while others have developed new and improved methods. Nova Biosource Fuels (NBF) for example, takes slaughterhouse leftovers and turns rendered fat into diesel fuel. An alternative fuel company, Gushan Environmental (GU) makes biodiesel from used cooking oil at plants throughout China. United Technologies (UTX) develops more efficient helicopters and jet engines while First Solar (FSLR) makes the solar industries lowest-cost thin film solar panel.

Investing in any stock can be risky and green stocks are no exception. It is important to do thorough research before putting money down on any particular stock, bond, fund or whatever investment vehicle you choose. Many of the green companies are still new and riskier due to their innovative technologies. A good way to get your feet wet is by balancing your portfolio adequately with low to moderately risky investments, this will help diversify and prepare your portfolio to weather any stock market storm.

MyBankruptLife.com

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