The Financial Reader

The Financial Reader is helping middle-class America get out of debt and start living in prosperity. It's a source for education, inspiration, & news commentary to help you to become financially free.

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Which Makes More Financial $ense: Continue Renting or Look to Buy

After the housing bubble burst in 2008 many of us succumbed to the economy and had no choice but to declare bankruptcy. Many couldn’t make the payments on their homes and lost them to foreclosure. Fortunately, the economy is slowly making progress forward again, and in many markets sales of homes are picking up and home values are beginning to rise again.

For those coming out of bankruptcy or just now getting their financial feet under them again, the question of whether they should buy a home or continue renting is likely being discussed at many kitchen tables. There are many factors to consider on both sides of the issue. Ultimately there is no absolute right or wrong answer. Every individual’s or family’s circumstance is different, as well as their needs and wants. However, the following considerations may help you determine if you should continue renting or look to purchase a house.

Money you don’t get back

As a renter you may feel that you are simply throwing away money that is not going towards the ownership of a home. You are gaining no long term value from the money you put out each month. But the rent is not the only money you may be losing. You likely had to put down a substantial security deposit, which you hope to get back but which is earning you nothing. You may also have put down a separate cleaning deposit and maybe even a pet deposit, funds that you may not see again if the landlord determines that you owe him for damage or cleaning.

On the other hand, buying a home also has its share of money thrown away to the interest on the mortgage. For example, take a home where you’ve financed $165,000 at 4.5% for 30 years. At the end of the 30 year period, you will have paid and extra $139,000 in interest. But that’s not all. You can expect to pay property taxes and mortgage insurance, which can be substantial. For example, if you get a 30 year FHA loan on that $165,000 home you can expect to pay 1.35% of your annual Mortgage Insurance Premium if your loan to value is over 95%. Ultimately, that comes out to an additional $179 a month on top of your payment. A hefty amount to be sure.

Forager or farmer

Are you a forager or a farmer? A ‘forager’ is going to stay in an area for a few years and move on to another city when another opportunity arises. They don’t tend to sink roots into any one place. A ‘farmer’ is going to stay in one area and sink roots in the community. As a general rule, buying a house is a smart move if you plan to live there for at least 7 years. If you have a career and are content in your present location and have no intentions of moving, buying a house is probably your best option.

The house as an asset

Technically, once you sign the contract to purchase a house it isn’t technically yours. You don’t really own a house. Until you no longer make house payments, it’s more correct to say you owe a house. The house is only an asset once you have paid it off in full. Sure, you may be able to borrow against it once you have equity built up or even sell it for profit down the road. But until then it is a liability which you have to make payments on.

The intangibles

There are some things you can’t attach a dollar amount to. These include having the freedom to choose how many pets you own or knowing you can remodel the home to suit your own tastes. With home ownership you take on the responsibility for more costs (you have to pay to fix the furnace) but you also gain a measure of freedom you’ll never have in a rental.

Ultimately, the choice boils down to personal preference. With the housing collapse of a few years back, we can no longer say for certainty that home ownership is a great investment. But if you plan on staying in the same area for some length of time, buying a home may be your best choice.

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Using Your IRA To Invest

Most people do not know that they can use their IRA or 401(k) to buy real-estate. You can access your IRA at your local bank using an IRA check book which allows you complete control of your retirement savings.

These plans can then be used to invest in real-estate. It is also possible to get a loan to purchase real estate using your IRA as down payment which allows for diversification of your portfolio. This loan is a non recourse loan as required by the IRS.

Benefits of a self directed IRA LLC

One of the main reasons to do this is so as to diversify your portfolio.

You will not pay a penalty if you use this money with the additional benefit of growing it, instead of leaving it in the bank to earn minimal interest. Leveraging part of it will allow you to make real gains.

As a real-estate IRA investor, you are allowed to purchase

• Rental property

• Commercial buildings

• Multifamily apartments

• Land

• warehouse

• Rental property

Numerous savvy investors are now using self directed IRA’s to purchase real estate just as you would buy stock market securities. You will not incur early distribution taxes or penalties and additionally earn a tax deferred income from the rental payments you will receive. This is because the rent is seen as a return on your IRA and not an income and therefore not tax deductible. When you sell the property, the same rule applies and you will not be taxed.

Who is behind a self directed real estate IRA

This option has been available since 1974 when the Employee retirement Income Security Act was passed.

Using a non-recourse loan together with your IRA is a powerful wealth building tool. The first step is to make sure that you work with a reputable facilitator, real estate lender and tax professional.

How to make this possible.

The first thing that you should do is establish a self directed IRA. This means setting up a limited liability company so as to hold the assets.

1. Find an administrator willing to allow you to use your IRA funds.

2. Find out what the terms are, as most administrators are in it for the money, so do your homework.

3. Roll over your retirement benefits to the new account. You should know that

4. The more money you have, the better off your self-directed program will be

5. If you do not have enough money, you will need to be able to contribute $5,000 per year.

6. It will take you two to three weeks to open an account with a broker to hold your IRA

7. You cannot take advantage of the funds made until you retire.

Investing in real estate is a good move as it is a long term investment that will provide you with income, or save you some expenses like paying rent. Make sure you understand all the advantages and disadvantages of this type of investment. Seek legal advice and talk to an accountant and real-estate agent so as to find out exactly what will be required of you.

Rick Pendykoski offers practical retirement planning tips to people who are on the verge of retirement but are not financially prepared. He advises people to invest for their better future using their IRA plans and take help of retirement plan services to get the best advice. For more retirement planning tips,visit Self Directed Retirement Plans LLC.

Manilla. A better, free way to manage your bills

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Save money by combining auto and home insurance

A home and a car are one of the major investments we make in our lives. Protecting them with insurance is of utmost importance. With the rising costs in premiums every year, you need to find a way to get the best possible deal and still save money. Combining or bundling the auto and home insurance can help you save from 5% to 20 % in your insurance costs.

According to the J.D. Power and Associates 2012 U.S. National Homeowners Insurance StudySM based on responses from more than 12,600 homeowners insurance customers, satisfaction improves among customers who bundle other policies with their homeowners policy, contributing to higher customer satisfaction with homeowner insurance companies.1

"The increase in satisfaction with policy offerings is directly related to customer perceptions that insurers are doing a better job in offering the right coverage options at competitive prices when policies are bundled," said Jeremy Bowler, senior director of the insurance practice at J.D. Power and Associates. "Bundled policies not only may provide a reduced premium for customers, but may also be advantageous to both parties, as it allows customers to interact with a single insurer, potentially streamlining both billing and payment."2

Combining the home and auto insurance also cuts down the policy fees and administrative fees, since you are buying one policy instead of two. It thus makes sense to combine the home and auto insurance and cut down the costs considerably. The more you insure, more your savings.

So what are the benefits of combining home and auto insurance? Here are some of them.

Lower Premiums:

According to a report from the Insurance Information Institute, consumers can save as much as 15 % on their premiums by combining home and auto insurance with one insurance company.3 This means a saving of hundreds of dollars a year and getting a good coverage on their home and auto insurance. Insurance companies also offer additional perks from accident forgiveness to discounts for automatic bank withdrawal of premiums and many other discounts on both your auto and home insurance. You should enquire about the discounts offered directly with the insurance company.

Power of One: Bundling policies makes all the transactions centralized and most convenient for the consumer. You have to sign and then renew only one contract and make one payment. If you have any queries, have to make a claim or have to contact the insurer, you can contact one person and have all the information. You spend less time sorting through the payments and other formalities. You can also be ensured of a better customer service because you hold multiple policies with the insurance company.

Only one deductible to pay: When you have separate insurance policies, you have to pay two deductibles for all covered possessions damaged in a single occurrence. However with bundled insurance you have to pay only one deductible. Some insurance companies even waive your deductible if the loss exceeds a certain amount.

No gap in coverage: Bundling insurance also helps to patch up any gaps in your insurance coverage. Suppose two different companies are covering your home and auto insurance and damage occurs when you are moving something from place to another in your car or truck. The auto insurance company may decline your claim saying damages to the item should be covered by the home insurance company, while the home insurance company may refuse to pay because the damage did not occur at home. However, if you have a bundled insurance with one company, there would be no such gap in coverage.

Less risk of cancellation: Insurance companies sometimes cancel policies, when certain types of claims are made against policy coverage. Though these cancellations are rare, the insurer may be careful cancelling a policy if you have two or more policies with them for fear of losing a customer with multi policies.

Considering all these benefits, combining auto and home insurance will not only save you money but save a lot of trouble and of course your time .You can have the satisfaction and peace of mind knowing that you have your home and car well insured within your budget. You should shop around and compare costs and settle for the best deal suitable for you.

Summary: Want more for less….In this age of combo-meals, combining and saving is the trend. So if you want to save money on your insurance costs, combining or bundling insurance policies with one company is the best way. You can combine your home,auto and even your life insurance and save a lot of money.

Author Bio: Elvis Donnelly is a father of two who works from home and lives with his wife. He is voracious reader and always looks out for happening topics related to personal finance. He specializes on subjects related to insurance and uses his spare time to write on topics related to auto insurance, car insurance calculator, business marketing etc.

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#1 Way Proven way to Reduce Debt! - The Snowball

Research has shown one of the best way to reduce debt is the snowball effect. Paying off debts can not only help you financially but mentally. There is a sense of accomplishment and relief after seeing a debt account has been closed, so start with the smallest debt you owe and pay it off the quickest you can. David Gal, an assistant professor of marketing at the Kellogg School of Management at Northwestern University said, “It's not the number of dollars you're paying off, it's the number of accounts you're closing."

In order to achieve your long-term goal of debt elimination, you need more than just money to pay it off. It is proven that getting out of debt is just as much as a physiological one than a financial one. If you gain a quick win, for example paying off your smallest debt first, it helps build the perception of progress, which can be used for other long-term goals you wish to set in your life. Essentially, “checking” something off of your to-do list gives you satisfaction and the motivation to keep “checking” things off your list.

How this strategy works -  start paying off the accounts with the smallest balances first while paying the minimum on larger debts. Once the smallest debt is paid off, proceed to the next slightly larger small debt above that, so on and so forth, gradually proceeding to the larger ones later. As each smaller debt is repaid in full, the money used to pay that debt is then applied toward making additional payments on the next-smallest debt, and so on until all debts are repaid. By the time the final debts are reached, the extra amount paid toward the larger debts will grow quickly and your largest debt will be paid off faster than expected. And you can also use the same method after your debts are paid as a means of savings!

Call an expert today at Get Debt Free, for professional advice, tailored to suit your needs and circumstances on 1800 981 070, or visit http://www.get-debt-free.com.au

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Traditional IRA and Roth IRA: which is to choose?

Many people really don't understand the difference between the most popular IRAs and they don't know which is to choose. Both Traditional IRA and Roth IRA have their own advantages, and it's up to you which will be better. I will try to differentiate them to make the question clear.

First of all, I would like to mention that contribution limits are the same, so this factor is not to pay attention for.  As for age limitations, you should keep in mind, that if you want to contribute to your IRA as long as possible, I would recommend you to choose Roth Ira, because there are no age limitations, and to Traditional IRA you can make contribution only up to age of 70,5. What is more, you should remember about some income limitations. You can’t contribute to Roth IRA if your income goes beyond certain limit. One of the most important things you should know, that Roth IRA is never deductible. What about the Traditional IRA, you can deduct your contributions only if you meet certain requirements.

What is more, Traditional IRA becomes tax-deffered, which means that you won’t pay taxes if you don’t withdraw your contributions. If you withdraw them, you'll pay for your contributions and earnings. On the other hand, there are no such taxes in Roth IRA, which makes it the winner in this battle. In addition to this, bear in memory some distribution rules. In traditional IRA distributions are treated as common earnings and have its taxes. At the same time such distributions are tax free in Roth IRA.

So, summing everything up, we can see that Roth IRA has more advantages and if you want to achieve the safe retirement it would be better to use this one. You can also contribute to both IRAs, but you should still remember, that your total contribution mustn't go beyond the tax year. What is more, you should think about additional fees and consider all the benefits. The other way out is to convert from Traditional IRA to Roth IRA, but my advice is to consult your tax adviser before making your decision, because it can cost you too much if you do it the wrong way.

We must think about the future and to know definitely which one we want. If you use the Traditional IRA you will stay at the same tax bracket or even at a lower one, while Roth Ira guarantee you higher tax bracket and better retirement. So, take all the factors into consideration and I am sure you will make the right choice.

About the Author:

Paul Smith works at http://essaywritingservice.co/ as an essay writer.

He likes everything absolutely new for him and he would like to write more interesting articles. Read his essays and have pleasure!

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Check out: Best Options to Invest in Fixed Income for 2013

A lot of retired people live on a fixed income. When a retired person lives on a fixed income, he or she must watch expenses closely. A pensioner must also invest their existing funds wisely. Here are the five best options to invest in fixed income for 2013. A lot of investors love bonds. There are plenty of tax free bonds that are perfect for people on a fixed income. When investing in bonds, most investors do not have to worry about market fluctuations. Of course, bond rates and risk amounts can vary depending on the company. Of course, some people who are on fixed incomes do not have a large tax bill. For this reason, a corporate bond may be the answer. In reality, a corporate bond will pay a higher rate than a tax-free bond and the tax implications may not make a difference if the investor has a low tax liability. The rates for certificates of deposit are not high, but they have improved. In reality, an investor who wants no risk should consider investing in a CD. Sometimes, an investor can get a decent rate on a five year certificate of deposit. Of course, a person on a fixed income must realise that the money will be tied up for a long term. In fact, most banks will charge a steep penalty for withdrawing money early. A lot of investors do not like the stock market. With the markets, an investor can invest safely if he or she chooses the right stocks. There are plenty of dividend paying equities that would be perfect for an older person on a fixed income. Dividend paying stocks are great as an investor can make money off the dividends while also making money with a rising share price. Finally, a smart investor on a fixed income can look into rental properties. In reality, becoming a landlord is not the dream of everyone, but it can be a great way to make money. With property, an investor will have a solid asset that makes them money on a monthly basis. Not only that, it is often easy to write off many expenses associated with owning an investment property When on a fixed income, an investor must be careful to protect their assets. Ideally, when investing, one will make smart choices and protect their assets. In reality, there are number of excellent ways to make money investing whilst still protecting ones assets.

Author Bio: Hello readers, I am Maria Benson, a blogger working for ppi claims. I am into health and finance. You can catch me on @financeport.

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Aspiring Blogger – Personal Finance Carnival – March 1, 2013

My article, "Why I Don’t Enjoy My Money Just Because I Work Hard for It " has been featured on AspiringBlogger.com blog carnival for March 1, 2013. Alongside this article, you will find many others to to help you manage your finances better and to help you put money in perspective. Topics covered in the carnival are Career Advice, Contentment, Frugality, Making money online, and more. Check out both the AspiringBlogger blog and it's carnival!

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Credit Scores, GAP, and Financial Planning Foundations

TGIF! Here's a wrap-up of the week.

On Monday, we discussed credit scores and the bottom line your credit score has on your wallet in "How Your Credit Score Affects Your Money." Understanding how credit scores work will put you at an advantage when you do have to borrow money.

Tuesday was about "GAP Insurance." Typically, I run from added insurances and warranties. However, for myself, I have seen value in purchasing GAP insurance, especially given the relatively low cost of it. GAP insurance isn't necessary in every situation though. If you haven't already, read the article to help you to evaluate if GAP insurance is wise or unwise for your situation.

Paul Smith, contributed an article on Thursday called "Foundations of Financial Planning." I really liked Paul's straight forward approach to managing your money. Paul discussed the three broad categories that you should be funding in order to achieve financial independence.

I'll leave you with this thought for the weekend... When dealing with money, try to keep things balanced and in perspective. Creating wealth and reducing debt is the prudent thing to do. However, as cliche as it has become to say...... You can't take any of it with you. Many people have gained a lot of wealth, but all the while lost everything else in the pursuit of it.

"Wealth is a tool of freedom. But the pursuit of wealth is the way to slavery." - Frank Herbert

Have a great weekend!

Benjamin James

Invest in Who You Want To Be

The National Debt’s Influence on Interest Rates

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Foundations of Financial Planning

Spending money wisely is a valuable aspect of financial planning. The more literally you equip the sections of your accounting, the easier it will be to analyze, plan, and to maintain control over your personal finances.

I have been experimenting with this issue for a long time until finally a particular mode has been found. The first difficulty was that I did not know what I would like to see in the end. I found a suitable structure that I will be sharing with you in this article.

I’ll start with the most global sections. Probably, this approach would be quite unexpected, new, and unusual for some individuals. However, you will need to pay careful attention to the management of your personal finances. According to this structure, I suggest you to divide all of your money into three main categories:

Disposable Capital

Working Expense

Reserve Capital

I’ll explain the meaning of every category.

1.  Everyone is familiar with the Disposable Capital. This is the money we spend to maintain our life needs, pleasure, and recreation. This is the money that goes away completely.

2.  Working Capital. This is the money you invest in order to increase revenue. The following can be attributed to Working Capital:

Purchasing of image attributes especially if it can significantly affect the increase of income

Training courses, workshops, seminars.

  Business Investment

3.  Reserve Capital. This category will allow you to survive a financial crisis or any unforeseen circumstances. It is called financial security. The absence of this provision often leads people to a financial hole which is difficult to get out off. After all, nobody guarantees us that life will always flow smoothly.

In general, our financial life is full of different pleasant surprises. I think that you may have a question – how to properly allocate the money into the three categories and in what proportions? In fact, there is a proposal on the distribution of the money for these three categories:

Disposable Capital – 30%

Working Capital – 50%

Reserving Capital - 20%

This distribution is suitable for all those who are determined to quickly achieve financial independence. Good luck with your planning!

About the Author: Paul Smith prepared this educational article for you to learn how to plan and control your personal finances. Paul works at http://www.researchessay.org/ . Visit this website to read more.

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Who Needs Gap Insurance?

GAP (Guaranteed Auto Protection) Insurance is an added insurance for your vehicle. While your regular auto insurance may pay for costs to get your car repaired or replaced in the event it is damaged, your regular auto insurance will not protect you if you are upside down on your car loan (you owe more on the car than what the car is worth) and your car needs replaced. However, if your car is totaled and you have GAP insurance, the GAP insurance will pay the difference of what you still owe the bank on your car and what the value of your car is.

To illustrate..... you financed a car last year. Today, your car is totaled in an accident. You still owe $20,000 on your car, however, the cash value of your car is only $16,000; which is what your collision or comprehensive  auto insurance will reimburse you for your loss. In this case, you still owe your bank $4,000 on a car that you can't even drive in addition to having to purchase an additional car. If, however,  you have GAP insurance, you will be covered for that $4,000 that you still owe the bank.

While GAP insurance isn't necessary for everybody, in many cases it is a wise choice. To determine if GAP insurance is worth the cost, you will need to determine the likelihood that you will be upside-down on your car loan. Being upside-down on your car loan is a greater risk towards the beginning of your car loan, but as you get closer to paying off your loan the risk diminishes.

Some warning signs that you may be upside-down on your loan are:

You finance your car for a longer term. You are at greater risk of owing more on your car than it is worth if you have a 5 or 6 year loan than say a 3 year loan, since the longer the loan term is the slower the principal gets paid off.

The interest rate on your loan is high. If you are paying a high interest rate, than you are at a higher risk of being upside-down on your car loan. The reason being that with a higher interest rate, more of your monthly car payment will be applied to interest rather than the principal.

You simply got ripped off. If you over paid for your car, than unless your down payment was sufficient, you owe more on the car than it is worth. Look at the NADA or Kelley Blue Book values of the car you are interested in purchasing. Another good source for car pricing is edmunds.com. Also, look in the auto ads to see what other dealers or private sellers are selling that car for in your area.

You put little to no down payment on the car. A smaller down payment of course means that you financed more of the car's price. On the other hand, making a large down payment on a car should put you ahead of the game as far as your car's value versus the amount you financed.

You purchased a brand new car. A brand new car depreciates on average 11% as soon as you drive it off the car lot. In turn, unless your down payment was sufficient, you already owe more on the car than it's cash value immediately after signing the dotted line. Ouch!

The make or model of your car depreciates more quickly than normal. Do some research on car depreciation histories for the car you are purchasing. Some makes and models have a reputation for quickly losing their value. The age of the car also influences the depreciation rate.

The key to determining if GAP insurance is worth the coast is to determine the likelihood that you will be in a situation where you owe more on a car than it is worth. Reviewing the above points will help you determine if the extra cost is worth it or if it is throwing money down the drain. The cost of GAP insurance is minimal if you are in a situation where you need to replace a car that is totaled but you owe more on the car than it is worth. On the other hand, if it is unlikely that you will be upside down on your auto loan, than GAP insurance is simply a waste of money.

GAP insurance (as well as all insurances or extended warranties) is placing a bet that something will go wrong; so you also have to evaluate your risk, risk aversion, as well as your ability to cover the costs if indeed something does go unfavorably for you. 

One other thing to mention, some lenders will require that you purchase GAP insurance to protect themselves. Most lenders will have a relationship with a GAP insurance provider; so if you are required or you wish to purchase GAP insurance the GAP paper work will be signed with your lender at the same time as your loan closing.

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How Your Credit Score Affects Your Money

You have probably noticed when you look at your banks advertised loan rates in fine print are the words “as low as.” This probably leaves you wondering what rate you would get and how that rate is determined. Lenders set individual interest rates on loans using what’s called “risk based lending.” Financial institutions set a rate for each loan category (auto loan, unsecured loan, Home Equity, etc.). Within each category, there are a subset of rates (this is where the “risk based lending” comes in). It is these subsets of rates that determine your individual interest rate. This subset of rates are usually not shared with the public, but rather are used for internal purposes.

When you apply for a loan the lender will ask you for information about your income. They will also pull your credit report and score. Using your credit report they will review your monthly debt, your debt ratio, delinquencies, and your total unsecured debt among other things. Using all of this information they will first decide whether or not they will approve your loan. If your financial information meets your banks minimal requirements, then you will probably be approved. If not, then the bank will either out right deny your loan request or they may give you other options so that you will qualify (such as lowering the amount of the loan or asking for collateral if you applied for an unsecured loan.)

In addition to approving your loan, the loan officer must also determine what interest rate will be applied to your loan. Your individual interest rate is dependent on your credit score and their internal risk based lending rates. With risk based lending, the higher your credit score is the lower your interest rate will be (and vice versa). The rationale for doing this is that borrowers with lower credit scores are more likely to default on their loans so they should pay higher interest rates to help offset that risk. Risk based lending also allows lenders to reward borrowers with high credit scores by giving them lower interest rates.

Having a higher credit score can save you a lot of money. In an example of a bank’s risk based lending rates, here is the difference in an auto loan interest rate for a borrower with a high credit score and for a borrower with a low credit score.

A FICO score (the most commonly used credit score) of 720 would get a rate of 5.74%. A score 600 would get a rate of 9.99%.

Let’s put those rates in dollars. On a $25,000 loan for 60 months the higher credit score (720) would pay $3,717.20 in interest over the life of the loan. While the lower credit score (9.99%) would pay $6,546.80 in interest. The difference between the two is almost $3,000! This difference can be even higher depending on the financial institution, geographical location, and the economic climate.

Learn more about Credit Scores:

FICO Score Composition.

What Will Hurt Your FICO Score?

What Doesn’t Affect Your FICO Score?

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The National Debt's Influence on Interest Rates

In the article, Why are Rates so Low and for How Long?, I discussed the two economic reasons the Fed is keeping the target rate for the Federal Funds Rate so low.

1. To encourage businesses to borrow and expand so that they hire more workers.

2. With inflation being reasonably low, they don't have to raise the Target Funds Rate to curb inflation.

Just a simple review on how the interest rates that you are charged or earn are influenced. The Federal Reserve Bank (The Fed) sets the target rate for the Federal Funds Rate. The Federal Funds Rate is the rate in which banks lend to each other overnight. While the Fed can't directly set the Federal Funds Rate, they have several tools in there arsenal to strongly influence rates; such as changing the money supply in the economy. In turn the Federal Funds Rate influences the rates that banks charge for loans or pay on deposit accounts.

Aside from the high unemployment and relatively low inflation, there is a third incentive for the Fed to keep interest rates low. That is the high national debt! Just like the Federal Funds Rate impacts what rate we pay on our debt or earn on our savings, it also impacts the rate which the U.S. government pays on it's debts. There is a lot of speculation on how much the nation could even sustain itself if rates went up and the U.S. had to pay higher rates on it's debt. 

While the low rates are good for borrowers; savers and bond investors are feeling the pinch. In addition, the national debt should be a concern for all.

Learn more:

U.S. Credit Rating Downgraded by S&P

Is Unemployment Really Down?

The Cost of Payday Loans

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Invest in Who You Want to Be

If you want to become better at managing your money then read something related to personal finance on a daily basis.

The most important reason for doing this isn't what you would expect. Sure, reading personal finance articles and books gives you knowledge to help you make better choices. But even more so, what it does is helps to keep you focused on obtaining your financial goals.

You reap what you focus on in your daily life. For example, if you focus on the negative circumstances in your life, you will become cynical and always view your life as difficult and unfair. But if you focus on the things that can create positive change in your life, then it becomes natural for you to make positive changes. I'm not speaking of some kind of weird new age philosophy (i.e. The Course in Miracles new age movement), that says you can wish something into fruition by your own mind power. But what I'm saying is that your thoughts and what you invest your time on affects your brain, emotions, and your actions.

So if you want to manage your money better, invest a little time each day reading about personal finance. The cool thing about this is that it doesn't have to cost you any money. I've found so much free information through websites and blogs that not only gives me more knowledge, but also helps keep me focused.

Related to this is.... spend a a few minutes a day looking at your checking account balance and activity. Most people neglect looking at their account balances for so long that each day they become more fearful of it. But if you face it each day, then it no longer is scary and it empowers you to make better spending decisions in your daily life.

Get it Together In The New Year with Manilla

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Emergency Funds, The Habit of Saving, and Media Hype

Happy Friday! Here's a wrap-up of the week:

On Monday, I wrote about emergency funds in "How Much of an Emergency Fund Do You Need?" In this article, I posed the question from more of an abstract vantage point rather than concrete. Determining your optimal level for an emergency fund can't simply be summed up by an across the board number, such as 6 months of your living expenses. But rather you need to look at your situation in terms of risk as well as your own risk aversion.

Tuesday, I shared with you how I started saving with just $10 a week in the article "$10 a Week is Enough." As humans we tend to chase after the grandiose and instantaneous rather than embracing process. But becoming financially free is more about process and making small changes rather than becoming rich overnight. Make some small changes in your habits and momentum will follow!

Wednesday, I reflected back on the media hype surrounding Facebook's IPO last May in "Reflection on the Facebook IPO Hype." We are all ignorant about one thing or another and in our ignorance we often just end up following the crowd. That often leads us to being mislead and making poor decisions with money and life in general.

Awhile back, I wrote an article, "Renting isn't so Bad". Home ownership is another financial affair that a lot of people end up letting the chatter influence them rather than looking at what is best for their current circumstance. Home ownership makes a lot of sense for some people and for others it's just not a good fit at the time. When my wife and I rented our first apartment, a lot of people told me I should just buy; "renting is just throwing money down the drain and you could have a mortgage payment for the same amount as what you would be paying in rent." However, I knew that I was making the right decision for us at the time and 8 years later, I stand behind that decision. It's always wise to hear other people's advice; but at the end of the day, you are the one who has to live with your decisions. So do your research, apply common sense, and have confidence in knowing that you know what is best for you!

I came across this quote from Kenneth Chang which reminded me of Wednesday's article about Facebook's stock IPO:

"A market is the combined behavior of thousands of people responding to information, misinformation and whim."

Have a great weekend!

Benjamin James

[financial-reader]

Reflection on the Facebook IPO Hype

It's been nearly nine months since the IPO of Facebook. The pre-IPO hype was rather frustrating for me. It was frustrating because the chatter I heard from people, "I have to get in on this, it's going to be a goldmine."

When it comes to making any type of investment decision (or any decision for that matter)..... Beware of hype! If the media and everybody is talking about it, chances are that investment is standing on sinking sand.

Why do I bring this up now though? I just read an article called "'Facebook vacations': Droves of users take breaks of several weeks or more, study finds." While I don't think that Facebook is going away tomorrow, I think it is clear that a lot of the novelty is wearing off and it will only be a matter of time before something fresher catches on.

A lot of people got sucked into the hype of being part owner in Facebook by basing their decision on:

Everybody is on Facebook now.

Everybody is talking about the IPO.

But did they really look into the company itself, the industry that it is in, and what the future of the company itself looked like?

While I am not making any predictions on if you can make money by buying and selling Facebook stock now, it is pretty clear that those who bought in the IPO have a dismal outlook with the price of the stock still down nearly nine months after the IPO.

Check out these Facebook charts from ycharts.com.

Investments carry risk. And the greater risk you are willing to take on the greater the potential reward. But don't take risks based what you hear the media and your friends talking about.

By nature, the Facebook IPO looked like a losing bet for outsiders. You had a lot of people interested in it simply because of the hype. That meant there was likely only one direction for it to go for the short and medium terms. As far as the long-term; social media is still in it's youth so there is so much potential for a new king of social media to be crowned that several years from now Facebook may look like Myspace.

Get more Financilization:

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Do You Have Unclaimed Property?

[financial-reader]

$10 Dollars a Week is Enough

Saving money is a habit. It's a habit that doesn't take much to start, but the benefit becomes many-fold. I started saving money when I first got married. I wasn't making much money then and only could afford starting with $10 a week commitment. Ten dollars a week doesn't add up quickly; but what did add up was building that habit of saving money.

Over the weeks and months of only saving that measly ten dollars, the habit became ingrained in me. So much that every debt I paid off and every pay raise that I got led to me increasing my savings, rather than using that extra money to shift-up my lifestyle paradigm. And that is where you really start seeing gains.

Make a commitment to start saving now, no matter the amount or your age. The amount you start with may seem insignificant, but by getting in the habit of saving now you are laying the foundation for a more prosperous future. As you become better at managing your money, the amount that you save will multiply. But it can't multiply if you don't start to begin with. What do you get when you multiply a number with zero? Answer is zero! Ten dollars a week is all it took for me to start saving money and build a more financially free future.

Click on the article title to share how you started saving money in the Disqus comment section at the bottom of the article.

More reading:

You Can Become Wealthy Right Now!

Why I Don’t “Enjoy” My Money

How is Compound Interest Calculated?

[financial-reader]

How Much Emergency Fund Do You Need?

An emergency fund will help keep you in the drivers seat when the unexpected happens.

There are two good reasons to have an emergency fund:

It is your insurance to protect youurself against a temporary loss or reduction in income.

It is your insurance when you have an unanticipated expense; such as an expensive car/home repair or medical expenses.

Nearly every one of us needs an emergency fund. But how much do you need? Some experts recommend saving as little as 3 months the equivalent of your living expenses for an emergency fund, while others recommend 12 months. At the start of the recession, as it became more apparent that they recovery in the job market wasn't going to be a quick and easy ride, more personal finance experts have been leaning towards the 12 month mark.

However, personal finance management is never "one size fits all." To  help determine how much you should have saved for an emergency consider the following factors:

What line of work are you in and in what location? Some fields are more stable than others in regards to the economy and politics. For example, when a recession hits, a person who works in manufacturing is more vulnerable for losing their job than a nurse would be. Typically, recessions hit manufacturing the hardest; whereas, they may have little to no effect on the need for nurses. Where you live can also have a big influence on your emergency fund needs. If you live in an area, where there are only one or two employers of your line of work, than finding replacement income would be much more challenging than if you lived in a location where there are numerous employers that you would be qualified to work for.

Do you have a mortgage? If you lose your income the stakes can be much higher if you have a mortgage. You risk losing your home and all of the money that you have invested into it. On the other hand, after the loss of income, it would be easier for a renter to walk away and either find cheaper rent or temporarily live with family or friends.

What is your current (or foreseeable future) family situation? The emergency fund needs of a single 23 year old will probably be very different than it would be for a 40 year old with a family. The "acceptable options" for a 23 year old may be more flexible. A 23 year old may just have to swallow their pride and move back in with mom and dad or with a friend if things got tough. In the case of a family; uprooting a family may be much more challenging and difficult. Also to keep in mind, some people have family or friends that they can count on in a worst-case scenario, while other people have nobody who can help them.

How much are you willing/able to "cut back" if your income is reduced? Some people would find it very difficult to modify their lifestyle, such as cutting out the cable or reducing/eliminating their cell phone plans, in the event of a negative change in income. What is your sensitivity to cutting back on expenses. Many people who loose their jobs, don't cut back on expenses until they have no other choice. If you find "cutting back" very difficult, then you need a larger emergency fund.

What other income options do you have? If your income is adversely affected, can some of that lost income be made up. Let's say you have a "traditional family" where dad is the bread winner and mom is caring for the kids and managing the house. If you lost your income, perhaps mom has a degree or skill and can easily go to work to fill in the gap. On the opposite side of the spectrum,  you are single where you are the only option for a household income. Or another scenario is where both a husband and wife work for the same company and that company is struggling; in which case there could be a loss of both incomes and the risk is higher.

What types of assets do you have? So far, the questions I posed dealt more with losing income. But what about unexpected expenses? The assets you have should be a factor in determining your emergency fund needs. If you own a home or rental property then your needs will be higher because of the potential of having to make costly repairs. What other assets do you have that may require expensive and unexpected "upkeep"?

As you can see, determining your emergency fund needs isn't as easy as just doing simple math. Our emergency fund needs also has a lot to do with our lifestyle as well as our level of risk aversion.

These are just some factors to consider when determining how large of an emergency fund you should strive for. If you have other factors, please share them in the "comments" section!

Also, since building an emergency fund can take months or years to accomplish, it is also important to think forwardly when planning. For example, you may be a 20 year old still living at home; but in that case why not start preparing for when you are 25 with a family of your own?

Here's a relevant quote from Henry Buckley:

“Save a part of your income and begin now, for the man with a surplus controls his circumstances and the man without a surplus is controlled by his circumstances.”

Read more:

The Smart Way to Tackle Your Debt

Assets and Your Personal Balance Sheet

The True Cost of Payday Loans