November 19th, 2008 — Financial Security, Investing, Stocks, economy, stock market
The United States economy is currently experiencing a serious financial shake up. No one really understands just how deep or how far reaching the damage is going to be, but what we do know is that there is going to be damage, and that we are going to be at the mercy of the markets and the world economy while we try to deal with the backlash from this particularly messy financial shakeup. Here are a few really important steps that you can take when it comes to protecting your investments in times of economic crisis.
1 - Stop making rash decisions.
If you can walk away with one piece of advice, let it be this one: Turn off the television and stop watching the news reports. Government bailout plans and plunging markets may make excellent headlines, but they are not what you should be basing your trade decisions off of. It is absolutely, perfectly reasonable for you to want to keep up with the events as they unfold, but do not allow your investment decisions to be based on the latest updates from the media circus. They are trying to stir up drama, don’t let it affect your portfolio.
2 - Analyze your Financial Sector Exposure
Whether you hold individual stocks, ETFs or mutual funds, you may have a lot more exposure than you are actually aware of. If you own the S&P 500 index, then you are 15 percent invested in financial firms alone for example. Even with the Federal government stepping in to provide aid, banks and financial institutions are still going to face an uphill battle in the coming months or even years. If you are holding a lot of financial stocks, then you need to make sure you understand how these companies are making their money, and what risks are available to you in today’s market. If you are going to invest money in these and other financial companies, you should only choose the ones that possess strong balance sheets, some measure of transparency for peace of mind, and conservative standards for lending. Risk takers like Fannie Mae and Lehman Brothers got themselves into trouble by lending recklessly, but BB&T and Wells Fargo on the other hand are going to emerge from this crisis in a much better competitive position than ever before.
3 - Use drops in the Market to find Newer Opportunities
You can make the most out of your money in a bear market, you just do not normally realize it. The bright side of sell offs in the market is that you can actually snap up a lot of terrific investment vehicles that have been dragged down with the market. Housing prices are declining, the economy is in a tailspin and credit is tightening, but during this deflationary period you can actually make some pretty smart investment decisions that will benefit you in the long run.
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November 17th, 2008 — Banking, Income Streams, Investing, Personal Finance, Stocks, passive income
If you’re trying to make more money, chances are you’ve heard the phrase, multiple income streams. However, there are two main types of income streams that you can use, and they are quite different. The first is known as active – and as the name implies, this is a type of income that you actually have to work for. Examples of active streams of income include running a part time internet business in addition to your work, or something that requires you to actually DO something to earn that money.
Passive streams of income make up the second type. These are the most popular, simply because you don’t have to worry about investing your most important quality – time. If you are already working a full time job, you may not have the kind of time necessary to develop an active stream of income. However, there are numerous kinds of passive streams of income that will reap the same benefits with a lot less effort. Let’s cover just a few examples.
Investments –
This is probably the most common form of passive income. You invest a little money, the stock does well, you cash in. It’s easy, quick and requires no effort on your part. While there is some risk involved, with proper research you can lessen this risk and reap the rewards.
Rental Properties –
This is a bit of a hybrid between the two types and the degree that it trends towards passive will depend on whether or not you have a property management company assisting you. In this event, this is a great form of passive income that is usually quite reliable. If you’ve got someone handling the maintenance, rent collection and other landlord duties, you’ll just have to collect the check every month. While you will have to pay that management company, it’s well worth it since you won’t have to deal with these issues.
Interest Payments –
Whether it’s from a P2P loan, a certificate of deposit or a savings account, interest payments are the easiest form of passive income. They also have some of the lowest rates of return but are generally considered to be quite safe. This is the perfect place to start if you’re completely new to building multiple streams of income and you can pick up a lot of helpful knowledge along the way.
Variations on a Theme –
There are numerous types of non-traditional forms of passive income streams that are variations on the themes mentioned above. Basically, anything that makes you extra money without requiring any work on your part can be considered passive.
When managed correctly, passive income streams are a vital part of your future financial planning. Many will keep returning long after you are retired and can serve as a cushion to keep you living your life the way you want to. The best way to take advantage of the situation is to implement both active and passive income streams so that you can have the best of both worlds and keep building up your bank account.
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October 31st, 2008 — Book Review
For many people, the ability to invest is a pie in the sky dream that will never be achieved, due to the fact that they may not believe they have “enough” money to invest. This book promises to allay those fears and help readers get a better view on personal finance, and working with what you have right now to solidify your finances later. This was an interesting premise for the book and we were very excited to read it, given the success of The Motley Fool website and how well esteemed the authors are in the personal finance industry.
The first few chapters contain some basic advice, but once you reach the third and fourth section, things start to get pretty interesting. If you are already well versed in managing your money but need some help on investments, you can easily just skip ahead to these sections and get exactly what you are looking for. However, it never hurts to get a refresher course, and the authors did a great job of making sure that the prose is quite readable and easy to understand.
We got a lot out of the fourth part, particularly the section on the ten most common investing mistakes. Anyone that is interested in investing in stocks should read this chapter at least twice before diving in. You’ll be able to avoid a lot of common mistakes and develop a solid game plan for investing in the future.
The fifth part was another big favorite of ours, particularly the section on “five months in.” This provides readers with a way to follow up on the advice they’ve implemented and see where they stand. While we may not agree with absolutely everything espoused in this book, there are still some real gems of information in here that cannot be overlooked, especially if you are truly interested in investing.
Although the target audience is definitely those that are completely new to managing their money, we did find some great nuggets of information in this book that will benefit even the most well versed financial whiz. The sections on investing are worth far more than the cost of the book and in many cases, it’s like being tutored by two of the best minds in personal finance. While some parts of the book may be old hat to pros, there is still solid information contained within these pages that cannot be overlooked.
For those that are completely new to personal finance, this book is a treasure trove of advice, strategies and good old common sense that can be put to immediate use. If you read only one book on managing money, this should be the one that graces your shelves. Each chapter is an education and it’s helpful to keep referring back to the book from time to time to stay motivated. We highly recommend this book to both finance pros and beginners.
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October 27th, 2008 — Investing, Money, Personal Finance, Stocks, insurance
With so much uncertainty currently present in the marketplace, one of the most vital things that you can do to invest safely in a crisis market is simply to learn from mistakes in the past. Certain sectors of the market may seem incredibly attractive in times of a crisis, it is absolutely vital that you weigh all of your options before you make any important financial decisions relating to your investing.
With the stock market down, it may seem like a good idea to put some money into stocks which will surely rise again when the housing market rights itself. This may seem like sound financial advice, but how is it affecting other investors who made this decision ahead of you? Generally speaking, those who invested before you are learning the hard way about their investments. Don’t learn the hard way when you can learn from yours and others’ past mistakes.
Investing in a crisis market may very well appear to be a sound thing to do in some ways, because certain investment vehicles are suddenly looking very attractive. Just because the market has already made such a significant downturn, that does not mean that it is done sliding or that new investments won’t be negatively affected.
The best way to invest in a crisis market is not to invest at all, because there’s no telling what is going to happen next, or who is going to take the hardest hit. If you absolutely must make an investment, however, then there are investment options that you may want to consider, that can protect most if not all of your investment capital just in case the economy takes another dip and more financial institutions find themselves in trouble.
With so much uncertainty currently present in the marketplace, one of the most vital things that you can do to invest safely in a crisis market is simply to learn from mistakes in the past. Now that we are better aware of what investment vehicles did and did not survive all the recent market volatility, we have a better idea of which investment vehicles are worth putting money into and which should be avoided. Investments that are insured by the FDIC are a good choice, but only if you follow the necessary rules when investing in them. If you go over the limit that is insured by the FDIC, then you are throwing your money away because you will not see that money again if the market should happen to crash.
The important thing to do when investing in a crisis market is to really do your research, ask for recommendations, weigh options and work with experts to figure out what really is, and really is not going to work for you. There’s still really no telling whether or not a specific investment vehicle is going to be safe, but by learning from past mistakes, some are quite obviously safer than others and may do a better job of protecting your assets accordingly.
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October 21st, 2008 — Budget, Debt, Financial Security, Investing, Personal Finance, Real Estate
Every day, the news about the economy seems to be getting worse and people across the world are concerned that they will be personally affected by the changes. In many cases, they already are when you consider how the cost of living has gone up, gas prices that seem to have no ceiling and continued natural disasters that threaten the stability of many areas.
There are many ways to stay financially solvent in bad economic times, and although it may not be easy for some, it can be done. The most important step is to curtail unnecessary spending, but this does not need to mean unyielding frugality, particularly if you manage your finances wisely. The stock market has been volatile, but there is still money to be made there as well, with smart investing.
If you do not yet have a personal financial advisor, this is a great time to get one. They will be able to assist you in navigating the world of investments and saving money in these times. For those that are deeply invested in the stock market and concerned about the direction it is taking, this is a very wise step indeed.
However, there are a few things that you can do on your own to keep your finances running smoothly. Instituting a budget is a great idea at this time, especially if you have issues with overspending. Mark down the necessities that have to be paid each month and then see how much you have left over. This is money that could go to work for you right now, as well as in the future.
Interest rates on savings accounts are not the best right now, but some gains are better than none at all. Having a savings account, or at the very least, an emergency fund, is a smart decision in today’s economy and can protect you in the event of the above mentioned disasters, or if a personal crisis strikes. Paying down any high interest rates debts should be a priority right now, especially if they are draining your finances every month. If you do have a problem with a high debt to income ratio, you may want to consider a consolidation loan to keep those interest rates in check and to help you save money each month.
If you want to keep growing your finances in hard times, there are several methods that can be utilized. The most common one that many investors turn to is housing, especially given the state of property values and the amount of foreclosures. This is a great time to pick up an extra house if you have the funds, and this can easily be turned into a rental property that will generate income.
Navigating the waters of uncertainty is never easily, particularly when bank failures are the talk of the entire world. However, if you watch your spending and take the time to see how you can make your money work for you in these times, you can come out on top.
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September 26th, 2008 — Book Review, Personal Finance
Whether you are just starting out as a family, or the kids are already in school, there is a lot to be learned about managing the finances of a family. There are so many troublespots that families face, and few places to go for advice. We were very excited to come across a book that dealt with family finances and ended up really liking this book. The approach was fresh and different and there is a lot than can be learned here.
The book starts off with the basic premise that a family is a business. Manage it properly and everything will fall into place financially. Fail to do that and you could be facing a lot of financial hardship. Since money seems to be the number one thing that many couples argue about, this is a great starting point for the book. We liked the concept of looking at our family as a business and this really encouraged us to look at our own lives a little differently.
Each succeeding chapter covers how to set up a “board of directors,” and how to structure your new business for success. Vital tips are provided on how to manage money and keep the peace, as well as handling cash flow. There are truly few books that go this in depth into handling the everyday financial problems of a family, and this one contained some of the best advice we’ve ever come across. By following these steps, you can almost guarantee a reduction in money squabbles and an increase in your family’s bottom line.
Chapters five and six are of particular interest to those interested in investing. It covers how to handle forecasts, how to start planning for retirement and how to get everyone on the same page when it comes to handling these investments. Re-read these chapters a few times – they are truly worth it.
Chapter eight should also be added to the fridge – this one tackles debt, how to handle it and how to use it to your advantage. The second section covers several real life issues affecting families, such as expansion, buying a new home and building an emergency fund. This is truly real world advice that will benefit every family.
Overall, we truly enjoyed this book and would highly recommend it to anyone. Although the tips will be easier to implement for those just starting out, there are still many that can be used to turn a family’s finances around. We appreciated the strategies given in the book and the way that the authors organized everything so that the tips were easy to follow.
If you know a couple that is getting married soon, or one that is struggling with money matters, this is by far the best gift that you could give them. If there ever was a blueprint for financial happiness, this book comes as close as possible. Everyone can definitely learn something within its pages.
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September 19th, 2008 — Book Review, Money, Personal Finance, Wealth
There are so many personal finance books out there and most seem to fall into one of two categories – Get rich insanely quick or get frugal to turn your life around. For those of us that want a more solid and easy to accomplish means of developing a personal fortune, there are not a lot of options. However, The Quiet Millionaire showed a lot of promise when we first spotted it and we were truly surprised by this book.
Unlike the aforementioned books, the main premise of this one is that the average person can become a millionaire, and it won’t take hot stock picks or living a life eating out of dented cans. Rather, the author, a personal and business finance expert, asserts that by making the right choices and avoiding common traps, anyone can become a millionaire.
While we are not quite sure that this is entirely possible, there are many cases on record of janitors that socked away millions and people you’d never expect that are worth more than half the town. How do they do it? This book gives you the blue prints you need to become a quiet millionaire in your own right. Even if you don’t quite make it, you’ll still be better off financially after employing this sound techniques.
The author focuses on the seven major problems that can prevent you from becoming wealthy, and then supplies advice on how to beat these problems and secure your future. From uncontrolled spending to handling life altering events, this book contains the information you need to know to get control of your finances.
He really focused on the importance of cash flow, and having more than one income if at all possible. He details investments that are lower in risk, but provide a steady stream of income that will keep adding up. The section on tax advice was worth the cost of the entire book and there are tips in here that every single person can begin implementing to save a lot of money every year on taxes alone.
This book is not fluffy, and it is not for those that want to “get rich quick.” It is for those that are interested in substantial, real world financial advice that will pay off.
By far, this is one of the best books on personal finance that we have ever read. Instead of focusing on hot topics that sell books but rarely satisfy the reader, the author did a great job of presenting a common sense plan to amassing your own fortune. We found every piece of advice in this book to be sound and highly recommend it to anyone. From the teen just starting to manage their finances to the retiree, this book contains vital information that can change your financial outlook. We highly recommend it and hope that more people will take the time to implement these principles in their lives. Chances are, they’ll be richer for it.
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September 16th, 2008 — Debt, Personal Finance, bad debt, good debt
Debt has become such a dirty word these days, and in many cases, there is good reason for that. Americans are saddled with unheard of amounts of debt and the problem is not just going to go away. In some cases, debt is absolutely necessary, while in others, it is beneficial. The key is knowing which kinds of debt to avoid, and which ones to focus on. Let’s take a look at some scenarios of taking on debt, and whether or not it would be worth it.
Scenario #1 -
“Stuff” You’ve just bought a new house or moved into a new apartment. It’s looking a little bare around the edges and you feel the need to start nesting and making the place look nice. You don’t have a lot of money to spend on new furniture, appliances or electronics, but you really want to have some new stuff. If you’re sitting on the floor, you may even need new stuff.
So, you head off to ye olde furniture mart and stock up on everything you’ve ever dreamt of owning for your home. You use the store’s “no interest for twelve months” plan and immediately stop worrying about how you’re going to pay that off. Soon, those payments start to stack up and at the end of those twelve months, you get slapped with a really high rate that puts you into debt even further.
This is a prime example of how going into debt like this is not worth it. While we all need furniture, we don’t necessarily need the best or the most expensive models. You can get an awesome couch by trolling through classifieds and spending less than $200. The same is true for appliances and electronics. Never fall prey to those “no interest” deals, they will only end up hurting you in the end.
Scenario #2 -
Investments. Now let’s look at a little different scenario. In this case, you have an opportunity to get a fantastic deal on a house that is used as a rental property. The tenant has signed a long term lease and maintenance costs are minimal. You don’t have enough in the bank to buy the house outright, so you consider getting a mortgage for the property.
Your mortgage will cost $550 per month, but the tenant is paying $850 a month in rent. That means that even though you are going into debt on that property, you’ll actually be making $300 extra a month as a result. This is a prime example of how going into debt can actually do you a favor.
The key is understanding the basic concept of good versus bad debt. Good debt is an investment that will return you with an income, while bad debt is typically something that is going to depreciate and end up costing more money over the long term. Keep these principles in mind when you’re considering buying a property, or even new furniture. They’ll help keep everything in the proper perspective.
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August 29th, 2008 — Book Review
If you have ever wanted to get into investing, but you weren’t sure where to start, there are thousands of books out there that will get you started. But they are not all created equal. From sky high hope crushers to real world advice, you’ll have plenty of topics to go over. The Single Best Investment by Lowell Miller proclaims to help you decide which investment is the most important one, but can it live up to the title? Let’s find out!
While the book is very well written, we didn’t find that it covered anything really new. Which is not a problem in and of itself, unless you are expecting the book to contain earth shattering information that will make you a millionaire overnight. Basically, the premise is that your best investment is in stocks that are highly rated and have big payouts. You don’t really need to be an economics major to figure that one out, but there is a lot of merit to the actual discussion about these investments.
Dividends are a terrific means of creating multiple streams of income and who doesn’t like having extra money coming in? If you’ve got the money and the ability to find these stocks, then they are a solid way of making more money. There is still a good amount of risk involved, but by taking the time to research the stock carefully, you can limit this. No investment is fool-proof, but you can make a lot of money with these stocks.
He does provide some great advice on how to determine the overall quality of stock and what you need to look for if you are interested in this type of investment. Again, pretty basic stuff but useful to some. We did like the chapter on knowing when to sell and found that this was probably the best section in the book, especially for those new to investing.
Overall, we found that the book contained some pretty good advice. It is best suited towards those that are just getting started in the investment world, or for those that already have money and need to learn how to make more quickly. It won’t do much good for those that are still trying to save money, but in this case, leveraging may be the best answer.
We recommend this book to those that need to learn about how stocks work and the market in general. Pros won’t find much to learn here, since much of the information is basic and already well covered or known. That doesn’t make it a bad book, just one that needs a specific kind of reader. It’s not the worst book ever written on investments, but it’s not the best either. It holds that good middle ground where it’s just enough to make you want to read it and some readers will take away a good amount of information and advice they can put to use. For that, we give it a recommend.
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August 12th, 2008 — Budget, Diversification, Financial Security, Income Streams, Investing, Money, Personal Finance
The housing crisis has a lot of people taking a closer look at their finances and worrying about whether they too may be at risk for losing their home. There are a lot of great lessons that can be learned from this crisis, and they can be applied to all areas of your finances. Let’s take a look at some of these important lessons.
1. Don’t overspend.
It is vital to know and understand your own limits. We all know that overspending is not the smartest thing to do, but it’s so easy to get lured in. Many of the homeowners that are now homeless knew very well that they were overbuying their house, but they fell in love with it. Main point to learn: Emotion has no place in your finances. It doesn’t matter if it is the perfect house – or the perfect whatever. If you cannot afford it, you cannot afford it. It’s not a matter of life and death. In your retirement years, you’ll thank yourself.
2. Financial disasters can happen to anyone.
Everyone from the worst subprime customer to big sports stars have been affected by this housing crisis. When financial disasters occur, it doesn’t matter who you are. If you are not prepared, you will not be able to weather the storm. Never fall into the trap of thinking “it won’t happen to me.” The fact is, financial disaster is looming for each one of us, without proper planning and without the right management of our finances.
3. Having more than one stream of income is vital.
You may be set right now with your job, but what if you lost it tomorrow? What if you got sick? Relying on one stream of income is not smart, especially if you are dealing with a mortgage payment. You’ve got to be able to bounce back from a financial disaster. The best way to do that is to cut your reliance on your paycheck by creating more than one stream of income.
4. There is no safe investment.
Some of the most expensive houses in the best neighborhoods are now sitting empty. While there are good investments, there is never a sure bet in life. Always make contingency plans and never put all of your eggs into one basket. The only sure things in life are death and taxes, and it’s best to be prepared for the worst.
5. You can’t rely on anyone else to bail you out.
While big plans are in the works for bailouts, there is a lot of opposition and even if they pass, they will not be able to help everyone. You can only rely on yourself – not the government, not your family. By taking responsibility for your finances, you’ll be able to get through any financial problem with grace. Always have a backup plan and never rely too heavily on your income or on an investment. You never know when the bottom may drop out.
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