The Finance Blogger

Should we tax the rich or not?  Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. There are many ways to divide up this bill. In most cases patrons would split the bill into 10 equal payments. But what if they paid their bill the way we pay our taxes? How would we now split this beer bill?  Would it change drastically and who would benefit from discounts if there are any? it would go something like this…

The first four men (the poorest) would pay nothing

• The fifth would pay $1
• The sixth would pay $3
• The seventh would pay $7
• The eighth would pay $12
• The ninth would pay $18
• The tenth man (the richest) would pay $59
• So, that’s what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball.

How to Handle Discounts – Tax the rich or not

“Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20″. Drinks for the ten men would now cost just $80.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six men ? How could they divide the $20 windfall so that everyone would get his fair share?

The bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

And so the fifth man, like the first four, now paid nothing (100% saving).

The sixth now paid $2 instead of $3 (33% saving).

The seventh now paid $5 instead of $7 (28% saving).

The eighth now paid $9 instead of $12 (25% saving).

The ninth now paid $14 instead of $18 (22% saving).
The tenth now paid $49 instead of $59 (16% saving).

Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.
“I only got a dollar out of the $20 saving,” declared the sixth man. He pointed to the tenth man,”but he got $10!”

“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar too. It’s unfair that he got ten times more benefit than me!”

“That’s true!” shouted the seventh man. “Why should he get $10 back, when I got only $2? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction.

Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

Have you ever wondered why someone you know seems to have a lot more money than you? Do your bad money habits and getting rich counter act against each other? You make about the same amount of money and you have raised the same number of kids etc. They always seem to have cash available to go out to dinner or to go on trips. Yet you are struggling to make ends meet and pay the bills. There is a potential reason for this difference. It comes down to bad money habits.There are lots of bad money habits that we all have. But there are a few big ticket items that might be the cause or are getting in the way of your wealth health.

Bad Money Habits and Getting Rich

Update your Savings Rate – Always save for a rainy day and in particular your retirement. As your income goes up so should your savings rate, since your expectations are also going up at the same time. Many consumers only save when they have extra cash or keep their savings rate the same throughout their lives leaving a big hole in their retirement plan.

Buying too Much House – leads to higher costs in terms of taxes, utilities, maintenance and repairs. Yes it will likely increase in value and you will be able to sell and downsize at some point. Do the math? Are you placing your savings or retirement at risk? Strike a balance between savings rate and affordability when it comes to buying a home.

Missing Tax Benefits – This can be cash in the bank, but consumers miss all kinds of tax benefits both at work as well as on their personal tax reports. Hire an accountant at least once to determine if you can decrease your tax paid and take advantage of the benefits offered by your employer or the government.

Conservative Investing – placing your money in GIC’s is very safe and very conservative. With today’s interest rates, you are actually losing money when you invest in a GIC. Between inflation and taxes, you are not making enough money to cover these two expenses.

Shopping on Impulse – buying something you do not need on impulse is just plain expensive and eats up cash. All of this money can be placed in retirement savings to provide you with a quality of life that will be the envy of many people in retirement.

Paying too Many Bank Fees – actually fees of any kind that are repetitive and expensive suck your cash flow away. Evaluate all of your utility costs, your bank fees and any area that your spending money on. Take action to reduce those fees to a minimum.

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Google’s self driving car shown in this picture is obviously a prototype. Many companies are working hard to perfect the technology and bring it to market along with Google. But who will be the early adopters for this technology? Self driving cars for retirees will tap a huge market. Turns out that the baby boomer generation just could be the primary market for self driving cars. Just as they have done with so many other markets, the baby boomers with their mass market purchasing capabilities, they could be the ones to drive this particular market. Within the next couple of years, there should be cars on the road that have the capability to take you where you want to go without the need to actually drive it. Just program the GPS with the address you want to go and sit back and relax. Really, is it that simple?

Self Driving Cars for Retirees

There are many challenges for the developers of the cars and the software. But one that we think may actually be a blocker to the adoption of the self driving car could actually be more personal. Somehow you have to tell the car where you want to go. You have to have an address and you have to enter this information into the vehicles computer, just like you would do for a GPS.

Many seniors cannot even program their TV’s and computers or the current GPS they have in their vehicles. How are they going to program a car’s computer? Perhaps their children will do it for them, but then what happens when you arrive at your destination. Who decides if you park on the street or the driveway. Can you take over from the car. What happens in a crowded store parking lot?

There are so many issues and questions, it is going to take some time to resolve, however for the market to really mature, the developers have to make the human interface for seniors really simple and straightforward. Otherwise they will be scared away from self driving cars and just not make that purchase.

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We all tell ourselves lies from time to time and sometimes we even believe our own lies. This can be a problem, especially if money is involved. We out together a list of 7 Lies Investors Tell Themselves to help us all, the writer included manage our financial affairs and avoid losses. Even Warren Buffet has his own list which we have read and included with our own interpretation.  If your going to be successful financially, it is important to really examine your decisions and your beliefs. Otherwise you may be believing your own lies and paying a high price for your decisions with reduced stock valuations and even losses in the market as it fluctuates.

7 Lies Investors Tell Themselves

Beat the Market – it is very difficult to beat the market, many experts have tried and usually failed although on the odd occasion they do. As an average investor, chances are the best you can do is either be a long term investor and not worry about the ups and downs. Or you can sell when you have made money and buy back in when the market is down. It can always go higher and it can go lower, but at least you made money!

Stock Picks Made Money – Chances are you were just lucky. No one really can predict the short term fluctuations of stocks. Long term there is more of a chance, but not short term. Pick high quality stocks with good balance sheets that pay regular increasing dividends and watch them grow over time.

Bond Prices Fall – Fed’s Caused it is a nice excuse, but really it is the competitive currency wars that are ongoing all of the time which push rates in one direction or another. As interest rates change around the world, so do currencies and so do Bond rates. Yes in the short term the Fed may have an impact, but overall it really depends on the corporate results, the competition from other countries and what they do with their currencies.

Portfolio Has Grown – has your portfolio grown because of deposits? because of dividends or both? The real return on your investments depends on the capital appreciation which sometimes can be negative, the deposits you make and what you do with the dividends and interest your investments generate. They all contribute to portfolio growth.

More Lies Investors Tell Themselves

It is only a Paper Loss – my favorite is the paper loss or even the paper profit. Nothing is final until you sell.. The real question is what do you do when an investment is down. Do you sell and trigger the loss, do you hold and hope for the best? Both are viable solutions. A paper loss really means nothing until you take action.

Bought it for Diversification – Diversification is a good thing, but each investment must be well thought out and have positive investment attributes on its own. Just don’t buy to increase diversification by itself. You could lose a bundle.

Timing the Market – Get out before the correction whenever it is. You will almost always be wrong. Get out when you have made a profit or if the investments are good quality investments with income, hang in there for the long term. Timing the markets, particularly when they are volatile is an impossible task.

An excellent credit rating can save you thousands of dollars when it comes to applying for a mortgage or loan, it can help you get a job in some cases and even be approved to rent an apartment or house. Landlords, utility companies, employers as well as lenders routinely check credit ratings. They want to determine what kind of person you are and whether you are a good risk or not.

Someone with a lower credit rating due to huge debt or chronic late payments may be shunned by these organizations. They prefer other consumers who are higher on the list for credit ratings. It can take up to 18 months to begin improving your rating. Start now on the following steps to a better credit rating and increased savings!

Steps to a Better Credit Rating

Open a Credit Card – If you do not have a credit card now, apply for a low limit card. Use it sparingly. This will demonstrate that you can manage your credit limit. Always pay off the balance in full every month.

Always Pay the Balance in Full – If you have credit cards always pay the balance in full each month and never miss a payment even by one day. If you cannot meet this requirement, then do not make purchases that will place you in this position of carrying a balance on your card. The interest rate is very high, 21%, and it will impact your credit rating negatively.

Pay off Large Purchases Early

It will look great on your credit report if you can pay off a large purchase early. This is the reputation you want to have with lenders who issue credit. They can not only depend on you to repay the loan, but you will repay it before the due date!

Pay your Rent / Loans / Credit Cards / Utilities on Time – Our monthly expenses are sometimes hard to meet, however this sends alarm bells if you are late on any of these payments. When these companies check your credit report and find out you are late on payments, they will not be inclined to do business with you. Never miss a monthly payment of any kind even by one day.

Know Your Credit rating – Find out what your rating is today so that you can deal with the specific issues that are causing a lower rating. Focus on these now since it could take up to 18 months to see improvement on your rating.

These are the best Steps to a Better Credit Rating that you can follow. Get started now to improve your credit rating and save money.

You have worked hard for your money and now need the services of an expert to help with the investments, and plan your retirement.  Hiring a Financial Adviser may be the answer. We all need to and want to make lots of money to enable a great retirement. Unfortunately, there are so many fraudsters and poor performers lining up to take your money. It is really difficult to know just who to turn to. The myths and they are myths are – he is on the radio or TV so they must be good; a neighbor or friend uses an adviser so they must be good, they have flashy offices, are well dressed, etc, so they must be successful! These are myths and many people have been burned badly. They needed to take a few easy steps to confirm and verify who they are dealing with. So how do you protect your money and select a qualified adviser?

Hiring a Financial Adviser

Trust, but verify – trust your adviser until you have a reason to doubt them. Verify everything, their background, their designations, and especially their recommendations. Make your own decisions about how to invest your money with their input. Do not blindly follow their advice and always follow the one rule of investing that is so important. Practice diversity and do not put all of your eggs in one basket.

Check every key bit of background – check claims of work background, training, and education. You really do want to know who you are dealing with and whether their resume and claims are true or not.

Verify credentials and designations – ask for a list or copies of the designations. Find out what these designations are and how difficult they are to qualify for them. There are just too many online designations that can be purchased for a small fee with no training what so ever.

Ask questions –  If you are being referred to an adviser because someone likes them, ask lots of questions. What verification did they do; why do they like them; what is the relationship like; what information do they provide and so on? If you get wishy-washy answers, the referral may still be of, but you need to do your own verification yourself!

Go through these steps to find an adviser and always stay current with your investments so that you know what is going on with them at all times.

The writer has been using TurboTax tax preparation software for many years and can personally recommend this software. It is one of the best tax preparation software packages for consumers to use. It is always updated to reflect the latest tax deductions. Customers can file online to ensure that they obtain their tax refund much faster than anyone who submits their taxes the old fashion way. If you are one of these people who leave it to the last minute, you do not need to worry about getting to the post office on time. Just use the software to file your taxes online. Tax Preparation Online

Tax Preparation Online

When you think about it, filing your tax statements online makes so much sense. Once the file is transmitted it is immediately checked for errors and acceptability. You will receive a confirmation notification even before you log off. Within a few days, the file is run through a batch process at the government’s offices. Which will review your tax filing, calculate your taxes and other benefits and issue a report along with your refund ready. It can also be sent to you through the electronic fund’s transfer that most banks participate in.

Not only have you saved time in the transfer process. turbo tax ensures that your filing is accurate, and you get your refund sometimes up to 3 or 4 weeks faster than anyone who files the old fashion way. The majority of errors on regular tax forms are usually mathematical. In other words, the consumer made a mistake in the addition or subtraction area.

For more posts about paying taxes including tax preparation, click here.

Credit Card Cash Advances Expensive for consumers in a number of ways. The costs are sometimes are hidden until you get your statement. If you cannot pay the total balance at that time, the credit card cash advance can get even more expensive. They charge you interest for the cash advance. They also charge interest on any purchases that are on your card as well. You really can get quite a surprise when you receive your credit card statement. This is when you find that you have another large charge for interest that is now due. We will look at these fees in a little more detail. We will not review specific credit cards, because there are just too many. When you are considering a credit card account look at each of these areas. Make your decision on a particular card that fits your needs and plans for using the card.

Credit Card Cash Advances Expensive

High interest rate – many credit cards carry a rate from 19% to as high as 29%. Which compared to a personal loan or mortgage is extremely expensive.

Cash advance fee – Some accounts will also charge you a fee for taking cash from your credit card account. This is in addition to charging interest immediately on the day of the advance.

Interest charges begin immediately – interest charges begin immediately on the day of the advance. This will also trigger interest on any unpaid balance on your statement even though you are still in the grace period.

Better to charge the item to your card – if you charge the item to your card instead of taking a cash advance, you at least have until the item appears on your statement to pay for it without interest being charged.

Credit card checks sometimes treated as cash advances – even those checks that credit card companies send out can be treated as cash advances and trigger immediate interest charges.

Read the fine print before taking advantage of any cash advance on any credit card so that you know what you are getting into and what it is going to cost you.

For many more posts about dealing with credit cards, click here.

We all need ways to cut our monthly bills. The following are 7 ways to cut your monthly bills and have some money left over for some of the other priorities that you just have not been able to get too. While all of these ideas may not apply, hopefully one or two of them will and will save you money.  Consumers will also have ideas of their own which you can let us know by leaving comments on this post. We are happy to hear of ways to reduce costs and expenses and will pass them along. Finally, even the small stuff counts. Although you might not be worried about $5 a month, add several of these up and they together can make a difference. Obviously you should tackle the large savings opportunities first but do not forget the little stuff either.

7 Ways to cut your Monthly Bills

Reduce Mortgage payments – renegotiate your mortgage for a lower interest rate

Reduce loan payments – consolidate loans with one low interest loan, pay as much as you can as quickly as you can to repay the loan in full

Reduce utility costs – turn off lights, reduce water usage and adjust the thermostat to reduce your utility costs. Shift heating and cooling to low rate hours etc

Reduce car insurance payments – evaluate how much insurance you need for health, life, car and home. Negotiate a better deal for no claim situations.

Pay less for your smart phone – negotiate a better contract, shop around, get a smart phone free with a contract, use WiFi to reduce data portion of your bill, use text instead of calling.

Pare Down Food Bills – buy sales, buy in bulk, avoid specialty items and clip coupons.

Drive smarter – combine errands to reduce trips, avoid jack rabbit starts and stops,  drive at the speed limit and coast into stop signs and lights instead of breaking at the last minute.

For budget related posts, click here.

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Advice from Warren Buffet is like gold falling from the sky! This is a man who has built an empire. He is near the top of those that are the richest in the world. We should listen to his advice, since in just about every case his tidbits make so much sense.  The quotes in the picture are bang on. If more of us followed these suggestions, we would all be better for it. But there are some suggestions that are even more basic which we like and want to talk about in more detail. We cannot take credit for these suggestions. We can add in our own two cents worth to the items listed in one of his latest advice discussions.

Advice from Warren Buffet

Never stop learning – this is probably the single most important piece of advice that anyone can impart to you. Just because you finished school regardless of the level achieved, you have actually just begun to learn. Adults must continue to learn throughout their lives and the more you learn and apply what you learn, the greater the chance of success will be.

Never lose patience – when you lose patience in an argument, in business or in life, you have lost the battle. Your emotion takes over and your thought process is less than perfect when you lose patience with whatever you are involved in. Warren Buffet knows that it is really the long term that counts, provided that you have invested in learning and staying on top of the issues.

Give credit where credit is due – we all rely on others for help and suggestions throughout our lives. People respond to recognition and will perform better in the future if they know they will be recognized for their contributions. We all are human and we all like to get a simple thank you for a job well done. It can pay dividends to you in the future.

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Slow erosion caused by high fund expenses can reduce your retirement pension significantly. Most people never even realize that their income in retirement could be much higher. There are other big threats to your financial well being. For example, this writer is particularly vexed about an annual fee. These are fees I pay to my investment adviser for managing my retirement savings. His company is paid this fee regardless of how they do. It is not performance-related at all. The amount is only $125 a year which does not sound like a lot, however, over 10 years it is $1,250 plus interest.

Over 30 years it is 3 times this amount or $3,750 plus interest and the interest actually ends up higher than the amount I pay the company. If I could invest $125 a year at 5% for 30 years I would have $8,304!! This is just one example of how fees can add up over time and become a threat to your financial well-being. Read on for more examples.

Big Threats to your Financial Well Being

Hefty advisory fees – whether it is trading fees or a so-called advisory fee, they will add up over time. If you do a lot of trades as a result of advice from your adviser, you are going to pay much more than the $125 we discussed earlier. Some consumers will do a lot of trades every month and these fees just shave money off your financial retirement health. Another area is the fees that mutual funds charge every year in addition to either front end fees or rear-ended fees. In both cases, consumers pay these fees when they make a purchase of a fund. In addition, any trades that completed in the fund, and there are lots, generate trading fees that are deduced before any dividends or distributions are paid. Did you ever notice that the fund managers always get paid regardless of whether the fund does well or not?

Investment-related tax bills – triggering income tax as a result of selling an investment can rob you of thousands of dollars. Manage your trades in such a way to minimize taxes. Sometimes selling a stock at a loss to minimize tax might just be the best answer. You need to do the math for your situation.

Failing to buy life, health, and disability insurance – not having insurance to cover you when you get sick or disabled, or not having life insurance to cover your debts can be the single largest threat to your family and to yourself.

Diversification

Holding a badly diversified investment portfolio – all of your eggs in one basket is not the best approach. If that mutual fund or stock goes down, you will need to work for a long time to recover. Just consider those people who were invested in GM when it went bankrupt. They lost everything.

Wagering on one or two heavily mortgaged rental properties – the same issue as above. Diversity is key to a good investment strategy. Risking everything on one or two properties can really jeopardize your retirement if they go south or you lose your job.

Betting big on stocks when you don’t really have the stomach for it – can you sleep at night? All stocks will go up and down, some will pay dividends. Can you handle the volatility or should you stick with blue-chip bonds, GIC’s, etc?

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Many people complain that the 1 percent are too rich and should share their wealth more. The real issue is not the wealth of the 1 percent, but the difficulty the 99 percent is having in raising its own standard of living. Why are young people having so much trouble landing career-building jobs? Pensions disappearing? Why are more companies offering contract work instead of full-time jobs? Why is it so hard for laid-off middle-aged workers to find new employment?

These are the real issues that stop people from spending within their budget assuming they have one. As much as we want to blame it on the 1 percent of the population who control a large share of the wealth, we need to keep our own spending within our budget. We need to take responsibility for our own well being and work to achieve not only the things we need in life but also our wants.

Spending within our Budget – Avoid Interest Charges

Many people get in trouble when they overspend their budgets by charging whatever to their credit cards. When the bill comes due, they are unable to repay the balance and then are charged high-interest rates on the unpaid balance.

Buy what you need, not what you want, and only make purchases when you can afford to repay the balance and avoid paying interest. Needs are items that are basic to our well-being, food, clothing and shelter. Wants are things we can without including expensive food, clothing, and shelter. If the house you are living in is too expensive for your income, it is time to move to something less expensive. Buying the best steaks is nice and enjoyable, but sometimes you need to cut back and eat less expensive food. The same applies to expensive clothing. We all want to look great but sometimes you need to cut back and only purchase the clothing you really need. Can those shoes last a little longer etc?

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We are all spending beyond our means from time to time, but when our wants overtake our needs this is when we get into difficulty financially.  Then there are the issues of making enough money and the jealousy of the rich. The real issue is not the wealth of the 1 percent. But the difficulty the 99 percent is having in raising its own standard of living. Why are young people having so much trouble landing career-building jobs? Why are pensions disappearing? More companies offering contract work instead of full-time jobs?

Why is it so hard for laid-off middle-aged workers to find new employment? These are all great questions. But really have no interest in someone who has been laid off. Or for someone who has been spending beyond their means and now has a mountain of debt to deal with.

Spending Beyond Our Means – How Did We Get Here

It can happen to just about anyone. We might have the best budget and almost always stick to it, but every once in awhile something comes along that we just cannot resist. It is so easy to just charge it and worry about paying for it later. This is really what most people do and how they get themselves into trouble financially

Sometimes it is also a health problem, sometimes it is getting laid off or a host of other reasons. Bottom line is that we all need to have a cushion, an emergency fund, something to rely on when things just do not go the right way. An emergency fund is really supposed to be used to cover true emergencies and not just overspending. If you can deal with the spending issue without digging into your emergency fund or worse your retirement savings then you are better off.

Avoid the credit cards and if you do not have the money to pay for the item that will put you over the top, then delay until a later time. It will just cost you more money in interest as well as worry about how you will pay for it.

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Many consumers purchase vacation homes every year, sometimes in the same state or province. While others purchase homes in other countries. Regardless of where you plan to spend your vacation time there are some costs and rules that you need to be aware of before you make the decision to purchase. There are hidden costs of purchasing a vacation home. These range from higher costs for legal and mortgage fees, insurance, management fees, and HOA fees. Before making that family decision, make sure you have investigated all of the costs. Understand what your cash flow is going to look like.  Selling prematurely could cost you money. Especially if your vacation home has not appreciated enough to cover all of your costs.

Hidden Costs of Purchasing a Vacation Home

Strict Mortgage and loan requirements. Consumers will find that the requirements are even more strict when it comes to financing a vacation home. Lenders want to make sure that you can carry the monthly payments of both your current home as well as a new vacation home and all of the expenses that this includes. Also if you are depending on the rental of your vacation home for cash-flow purposes, don’t expect the lenders to include this rental income in their calculations.

Higher mortgage costs – mortgage fees and interest charges tend to be higher simply because it is viewed to be a higher risk investment.

Insurance costs for flood and earthquake coverage – if you live in a potential flood area or an earthquake area, consider obtaining this insurance coverage. Coverage can be expensive particularly in areas with a regular history of these kinds of events.

Property management fees – if you rent your vacation home or you live far away, you may need to have a company manage and inspect your vacation home on a regular basis. Plan for these costs to ensure that you have factored these into your cash flow.

Rental Property Management

Rental management will take from 5% to as much as 20% of your rental income.

Increased repair costs – rented homes and unoccupied homes have repair costs just like any other home. Before you purchase arrange for a home inspection and factor in repair costs, upgrade costs, and damage costs from renters

Tax on Income earned – Every country collects taxes on any rental income earned and some states charge higher taxes for foreigners and snow birds. Make sure you are aware of the income tax that needs to be paid along with tax form preparation charges.

Tax on Capital Gains – when it comes time to sell your vacation home, there may be capital gains taxes on any capital gain. Again some states charge higher capital gains rates for out of state investors.

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In a recent letter to his shareholders, Warren Buffet shared the following advice. We took the headlines and added our own thoughts on this advice based on our own experience and feelings. This is based on our experience as a small time successful investor. We are not suggesting that we are smarter or have more experience than Warren Buffet. We are building on his experience. This post tries to add some value to his expert advice based on our own experience. As the picture shows, you should never lose money. But then again, not everyone is willing to put the effort into investing that Warren Buffet does. Treat investing as if it is your job and that your livelihood and retirement depends on it which it does.

Warren Buffets Financial Rules

• Treat your investments like a business
• Stocks are Inflation Protection over the long term
• Volatility is not risk, it must be managed – short term vs. long term
• Focus on multi decade horizons
• Watch the fees from transactions and management fees

Treat your investments like a business – you may feel that you are a small investor with too small an investment to really matter in the big scheme of things. You may feel that your vote does not count for much. While on a percentage basis this is true, it is your money that you are  investing and your investment should meet your business goals for investing. Long term investments that pay regular dividends in a company that has long term prospects and is well managed are just a few of the business issues that investors need to consider.

Stocks are Inflation Protection over the long term

Compared to GIC’s, bonds and other fixed interest rate return types of investments. Consider that bonds are paying a very low percentage interest income at this time, while inflation is also low. In fact once you take into account your tax situation on the income and inflation you are probably losing money if you are invested in fixed income securities. Sure there is risk with stocks, but well managed companies with dividend income have a tendency to do better than the inflation rate!

Volatility is not risk, it must be managed – short term vs. long term – many investors are worried about volatility. It is only an issue if you sell when the stocks are declining. Invest for the long term and ride the wave. It will be volatile but the trend is usually generally up ward as many stock charts will show. Assess if you will need the money in the short term. Can afford to lose any funds? If not you probably should stay away from any volatile investments.

Focus on multi decade horizons

Start investing early in your life, focus on companies that you understand and have long term prospects. Focus on companies that are well managed, that pay regular dividends and have a history of increasing their dividends on a regular basis. Look for companies that paid their dividends during economic down turns.

Watch the fees from transactions and management fees – if you trade often, the fees will add up over time and cost you a good deal of money. The same applies to management fees for managing mutual funds or for managing your portfolio. Pay for value and pay for results.

Warren Buffets Financial Rules are part of a larger strategy that each investor should consider and personalize for their situation.

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According to a survey released Monday by Bankrate.com of more than 1,000 adults, 37% of Americans have credit card debt. This debt equals or exceeds their emergency savings. That’s one in eight Americans who could not survive a financial emergency of some kind. In addition to not having savings that would or could be used in a financial emergency. They have also used up some of their credit and would find it difficult to borrow additional funds. This kind of situation places extreme stress on the family. Also, the individual when someone loses a job. There are major repairs required for their car or they have significant health issues that they need to deal with. Americans have no emergency funds to deal with life’s curveballs.

Americans have no Emergency funds

Without savings for emergency funds, a consumer who is facing a large bill for something, it usually means a downward spiral into bad credit zones. Perhaps potentially repossession of vehicles, loss of their home, and so on. Consumers will take drastic steps to survive and put food on the table. This can include not paying for utilities, rent or mortgage payments, and car payments, The net result is a poor credit rating which also usually means that they will be unable to borrow funds in the future. If they are successful at finding a lender who will loan them money, the interest rates will be much higher to cover the risk of not being paid.

It is far easier to do with less when you are working and build up an emergency fund to rely on during difficult times. Some people will ask how much should be set aside? Start by setting aside at least 10% of your income. More if you can afford it and save at least one year’s salary. The more the better. Some consumers have been out of work for several years and the majority have taken as long as 6 months to find a job. That is a long time with no income. Emergency savings that will hold you for at least a year will take a lot of the stress away and allow consumers in this situation to focus on finding a new job to replace the one that they lost.

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As many as 1 in 3 Americans on verge of financial ruin! It is hard to believe that so many people could be financially ruined if they lost a job. Or if they could not work due to health issues or an accident at work. Life can be hard and difficult for many in these situations. It gets even worse if you have no savings for emergencies or for retirement. This is the crux of the problem for many Americans. No savings to rely on for emergency situations and little savings for retirement.

If the economy goes bad like it did in 2008, 2001 in the eighties and early, many Americans will suffer as a result with no food on the table and no money for rent, heat etc. What can consumers do to avoid this problem and what should governments do to help deal with this social problem. There simply is not enough money to go around to help people without the public helping themselves.

1 in 3 Americans on verge of Financial Ruin

It is simple, save 10% of your income. If it means suffering a bit, do it anyway because the suffering that you will have if you have no money at all will be far worse. Saving 10% can be difficult at times, however after a few months you will get use to living on 90% of your income. Every time you get a raise make sure that 10% of that raise at the very least goes towards savings that can be used in emergency situations such as when you are laid off.

Avoid spending money that you do not have. Avoid credit cards and if you have to use one, make sure that when you do use it, you have the money to pay the balance on the statement when it arrives. You will avoid paying high interest rates on the over due balances which most people cannot afford.

Many people are looking for a home loans, auto loans, a consolidation loan or some other kind of loan.  Always borrow the least amount possible. Low down payment loans will allow you to conserve cash or replace cash you do not have. They have inherent risks that many borrowers may not be familiar with. Take for example someone who is buying a car and needs an auto loan. Many people are really excited about the new car. They are not really thinking about the terms of the auto loan. Or how much money they want to put down on the loan. These are the typical Low down payment loans that trip many people up. They can cost them hundreds if not thousands of dollars in additional interest charges that they could otherwise avoid.

Low down payment loans – When They are Valuable

A low down payment loan means you have little or no money to put towards the car that you are buying. The only time that this approach should be used is when the interest rate on the car loan is zero and you have somewhere else that your money can be used, saved, invested that will generate more return. Otherwise put as much money down on the car as you can.

This latter approach will have several primary benefits. The car loan monthly payment is going to be lower which makes monthly budgeting easier and you will also pay a lot less interest over the life time of the loan. If the loan is zero interest then it is not costing you anything.

Consumers with large down payments as compared to people with low down payments will usually enjoy a better interest rate. They are viewed as being lower risk and will have a greater probability of meeting their monthly payments.  Consumers can save thousands of dollars by avoiding a low down payment, going for a larger down payment and possibly receiving a lower interest rate which saves them even more money.

Save

Many consumers consider low down payment mortgages to be a good thing. Since this process allows many people to purchase a home without having saved a large down payment. While this is true, there are some down sides to buying homes with nothing or very little down. We will discuss these issues in this post. Many consumers will and should buy homes with little money down. It is often better to go into a situation with your eyes wide open. This is to ensure that you know what you are getting into.

Low down payment mortgages – Some Issues

Larger Monthly payments – basically the less money you put down on your new home the more you have to borrow and pay interest on. If a home costs $100,000 and you only have $5000 as a down payment, the remainder $95,000 must be financed. A monthly payment is calculated based on the term and interest rate. If you can place $10000, instead of $5000, down you are going to have lower monthly payments. This can make life a lot easier every month to pay all of the other bills.

Higher overall interest costs – a larger mortgage means more interest to be paid over the life of the mortgage, which can be thousands of dollars in extra costs which most of us cannot or do not want to pay.

Possibly higher interest rate – Lenders view low down payments as an indication of higher risk and charge a higher interest rate. Now not only are you paying more interest because your mortgage is larger, you are paying more interest because you have a higher interest rate as well. Thousands of dollars more in fact.

Exposed if interest rates rise – with higher payments comes an additional risk and that is if interest rates rise. This is what happened in 2008 and many people could not meet their payments since a higher interest rate always means higher payments unless you have more money to put towards the mortgage.

Before you sign the dotted line to buy a home with little money down, take a few minutes to evaluate the risks associated with your situation, life style and financial situation.

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Many millennials are afraid of the stock market and for good reason. With the downturns in 2000 and 2008, they may not want to place their savings in the stock market. They also are Leary of the housing market with many losing their homes and having to seek cheaper accommodation.  Now that the job environment is improving and the economy is getting stronger millennials and retirees are saving money again for their retirement, but where do they place these funds so that they can maximize their income during retirement years? Unfortunately, millenials afraid of the stock market are placing their savings in cash and low-interest savings vehicles where their money is relatively safe, but will earn very little income.

Millennials Afraid of the Stock Market – Compare

The worst case is to place your savings in a bank account where you are lucky to get 1% and that is stretching it for many savings accounts. Many are much lower and in some European countries you have to pay the bank to keep your money! Let’s assume you have $10,000 and earn 1% a year. That’s only $100 income a year and if you have to pay taxes on that income you might only end up with $70!

If you place your money in a diversified conservative mutual fund, you might get as much as 3% after the mutual fund company takes their fees and that is in a good year. On average the gain plus income is around 2% or $200 a year in income before taxes.

The stock market averages better and if you invest in blue chip dividend paying stocks that pay 3% to 4% a year, with the opportunity for the dividends to be increased each year, you stand the chance of gaining on the market while still collecting income. Sure the stocks will go down and up, ie.e  volatility, but if you invest well, your investments will keep place with inflation and be there for you when you retire.

Millennials Afraid of the Stock Market who invest in GIC’s and savings accounts will lose out on these gains and only really have what they are able to save. They will not be able to participate in the growth in the markets. For more financial mistakes to avoid, click here.