Financial Advice That Makes Cents

Don't Forget About Me...

noreply@blogger.com (Torian) — Mon, 14 Sep 2009 02:08:00 +0000

To my loyal readers, I do apologize, but I am going to be suspending my blog posts indefinitely...I will eventually pick up my computer and return back to blogging.

Avoiding Lifestyle Inflation

noreply@blogger.com (Torian) — Mon, 31 Aug 2009 05:07:00 +0000

"I dont know what, they want from me, Its like the more money we come across, The more problems we see" -Puff Daddy (AKA Diddy)

It is always shocking to me to read articles about professional athletes and celebrities who make millions in a matter of years and seem to lose it all just as quick. It is hard to believe that it is possible to squander 20 millions dollars over a lifetime and even more impossible do it over a matter of a few years. Most people say, "If I had just one million dollars, I could probably live off that for the rest of my life", but are they being truthful?

I believe, given the circumstances that we are in today, that most people would not be able to live off one million dollars for the rest of their life. Unfortunately, this is due to a condition that is called "Lifestyle Inflation".

Lifestyle Inflation is defined as spending more money on non-necessity items as your income increases.

Do you remember that family the "The Jones's". They were the ones with the nice cars that are currently one payment away from getting repossessed, the McMansions that are on the verge of getting foreclosed on and no savings to show for all of the money that was earned. Well, the recent recession has taught up that keeping up with "The Jones" is a bad idea, but unfortunately, many consumers still continue to try to keep up. Below are some recommendations to avoid getting caught up in lifestyle inflation.

Do not compare yourself to others.

Quite often people feel pressured in spending more money due to the fact that people around them are spending. Whenever someone gets a new car or a new home, why is it that people feel like it is necessary for them to do the same? What needs to be understood is that what is for someone else may not be for you. Be content with what you have and improve on it as needed.

As you make more, save more.

One key to financial freedom is to save money. Whenever receiving a raise or other increase of income, rather than finding something new to spend the increase on, put it in an online savings account or start a new investment fund.

Treat yourself responsibly by not spending money that you do not have.

In anticipation of earning more money, people often spend money that they have not even received. This is bad because spending in anticipation can possibly backfire in the case that the money does not come through after it has already been spent. This causes more debt and potential to get in a situation that is near to impossible to get out of.

Remember, be smart and avoid "Lifestyle Inflation". Live within your means and avoid trying to keep up with everyone else. Take time to develop your plan and stick to it.

For more information on the article that inspired this post, please check out the following link:

How (and Why) Athletes Go Broke

Improving others by improving yourself

noreply@blogger.com (Torian) — Mon, 24 Aug 2009 04:39:00 +0000

"You cannot help someone build a house when your foundation has not set". ~Me

Conceited, cocky, selfish, etc. etc. These are the words that you will most likely hear when you seem to put yourself first before everyone else. However, why is there such a negative stigma with this? My guess is, the people who are usually saying those words are typically saying them because you are refusing to do something for them. In a sense, wouldn't that make them "Conceited, cocky and selfish"?

While growing up, I was taught in my household that we need to look out for others as we look out for ourselves. We were taught to try to see the good in people and always give others the benefit of the doubt. While these were admirable lessons learned, I have received a healthy dose of reality checks as I have grown up. I have learned that "Everyone does what they want to do as long as it benefits them in some type of way".

Living in servitude to others is not necessarily a bad thing. After all, a volunteer experience can be very fulfilling as it does provide a feeling of accomplishment as well as giving back to the community. However, in this day and age, it seems like the more you give to others, the more others are willing to take. One mistake I have noticed that people constantly trying to improve others by doing things for other people and neglecting themselves.

The problem with this that I have identified is that this typically results in one going without while making sure that others have. For example, how can you pay for someone else's gas but not have enough gas to get yourself to work? It is my experience that the best way to improve others is to work on improving yourself.

On my journey to improve my finances, I have implemented many changes in my lifestyle. While implementing these new changes, I have been able to spark curiosity from the people around me to ask about how I have been able to accomplish these changes. I am able to share with others my experiences and make recommendations for them based on things that have worked for me.

In addition to that, I find that whenever I have sacrificed myself on behalf of others, the end result always consisted of no change. I believe people are a lot more receptive to recommendations when they are ready to change rather than when you are ready for them to change. By allowing people to observe the positive change in your life, it may inspire them to do adopt some of those same changes.

For some recommendations on how you can improve yourself, check out my articles about Investing in your health, Investing in your knowledge, Investing in your Experience and Investing in your Future.

I believe that improving others only occurs through self-improvement, please leave your thoughts about this in the comments below.

Stay Disciplined!

Stocks: Buying on Margin

noreply@blogger.com (Torian) — Mon, 17 Aug 2009 13:07:00 +0000

Lately, I have been investing in the stock market and have been doing pretty well. I guess a lot of what the experts said about the stock market snapping back was true cause I have definitely been able to experience a lot of gains since the recent market recovery. Even though I feel like I have been taking steps in the right direction, there is always room for improvement. During a conversation with one of my colleagues, I was asked about "margins", which is something that I have heard of but do not fully understand. Of course, this would be a perfect opportunity to educate myself about this procedure as well as write an article about it.

"Buying on Margin" has a very negative connotation due to the fact that this is a practice that contributed to the Great Depression that occurred during the 1920s. From my understanding, many people took at loans to purchase stocks however, when those stocks did not appreciate, many people were left with loans that they were unable to repay. The following information is quoted directly from Wikipedia:

During the Crash of 1929 preceding the Great Depression, margin requirements were only 10%. Brokerage firms, in other words, would lend $9 for every $1 an investor had deposited. When the market fell, brokers called in these loans, which could not be paid back. Banks began to fail as debtors defaulted on debt and depositors attempted to withdraw their deposits en masse, triggering multiplebank runs. Government guarantees and Federal Reserve banking regulations to prevent such panics were ineffective or not used. Bank failures led to the loss of billions of dollars in assets. Outstanding debts became heavier, because prices and incomes fell by 20–50% but the debts remained at the same dollar amount. After the panic of 1929, and during the first 10 months of 1930, 744 US banks failed. (In all, 9,000 banks failed during the 1930s). By April 1933, around $7 billion in deposits had been frozen in failed banks or those left unlicensed after the March Bank Holiday.

As with most things, when there is an unclear understanding of how something works, it is very easy for something that is supposed to be used for positive to turn negative. However, after doing some research, the whole idea of buying on margin is not nearly as complicated.

The terms "buying on margin" basically means to borrow money from a broker to buy stock. The money that is being borrowed is not a conventional loan that you can obtain from a bank. It has a lot more regulations and guidelines that have been implemented to try to help prevent a repeat of the "Great Depression". Below are some of the highlights for a margin account:

Typically requires a minimum investment of $2000.
Usually requires a set margin maintenance fee (used to insure there is enough "cushion" in the event of loss in stock value)
Allows you to borrow up to 50% of the purchase price of a stock.
This account typically carries an interest rate imposed by the broker on borrowed funds.
Penny stocks, OTCBB (Over-the-counter bulletin board) and IPO (Initial Public Offering) stocks do not qualify for margin purchases.

With all of these requirements, it is hard to see the benefits of having a margin account. However, the example below can illustrate why this account has the potential to return great rewards:

Let's assume that you have $5000 in your cash account. You want to purchase a stock that is worth $10 and you believe that it will double in the matter of a year. Instead of limiting yourself to $5000, because you have a margin account, you can purchase $10000 worth of the stock (borrowing up to 50% [maximum] of the purchase price of the stock). In a year, the stock ends up doubling from $10 to $20 and you decide to sell the stock. So the value of the amount of stock you own goes from $10000 to $20000, however, you have to pay back $5000 + interest which is the based on the original amount that you owned. For our example, let's assume that there is 0% interest, resulting in a net profit of $10000.

If you had just used a regular cash account, your profit would have only been $5000.

Margin Account:

Initial Cash Investment: $5000

Amount Borrowed: $5000

Initial Investment Amount: $10000

Final Investment Amount: $20000

Net Profit (Final Investment - Amount borrowed - Initial Cash Investment) = $10000

Cash Account:

Initial Cash Investment: $5000

Amount Borrowed: $0

Initial Investment Amount: $5000

Final Investment Amount: $10000

Net Profit (Final Investment - Amount borrowed - Initial Cash Investment) = $5000

As you can see from the above example, it seems like a really good idea to proceed with investing using margins due to the fact that the return on investment is double of what it is by using cash alone. However, it would be irresponsible to just provide the possible benefit of the accounts without discussing the cons of this type of account.

In the case that your thoughts were incorrect about the particular stock in the previous example and instead of the stock doubling in value, it was halved, things change drastically. Let's review the previous example using these new numbers:

Margin Account:

Initial Cash Investment: $5000

Amount Borrowed: $5000

Initial Investment Amount: $10000

Final Investment Amount: $5000

Net Change (Final Investment - Amount borrowed - Initial Cash Investment) = $-5000

Cash Account:

Initial Cash Investment: $5000

Amount Borrowed: $0

Initial Investment Amount: $5000

Final Investment Amount: $2500

Net Change (Final Investment - Amount borrowed - Initial Cash Investment) = -$2500

As you can see, in addition to the potential for growing your profits exponetitally, you also expose yourself to the potential to grow your losses in the same manner. One more important thing about margin accounts is that the broker reserves to the right to issue a margin call in the event that the value of the stocks has decreased below the threshold of the margin maintenance fee. Since the stocks that are purchased are held as collateral by the broker, they can force the investor to prematurely sell these stocks in the event that the investor's account goes below a certain amount.

An example of this is the following:

Initial Cash Investment: $5000

Amount Borrowed: $5000

Initial Investment Amount: $10000

Margin Maintenance Fee: 25%

Final Investment Amount: $7500

Actual Margin Funds: $2500

Marginal Funds Required in the account: $1875

With the stock price being reduced to $7500, the investor is required to have at least 25% of margin equity in the account. So, the investor is required to have 25% * 7500 of margin money in the account, that amount is $1875. The broker would not issue a maintenance call on this money due to the fact that there is $2500 of margin money in the account exceeding the required amount of $1875.

If the margin maintenance fee was increased to 40%, the marginal files required for the account would be increased substantially. See below for the new requirements:

Initial Cash Investment: $5000

Amount Borrowed: $5000

Initial Investment Amount: $10000

Margin Maintenance Fee: 40%

Final Investment Amount: $7500

Actual Margin Funds: $2500

Marginal Funds Required in the account: $3000

As you can see, the broke would initiate a margin call this margin account to make sure that there is coverage for the amount of money borrowed. This will either result in the investor depositing more money into the account to cover for the call or if the investor does not have the money to the deposit, will result in the broker selling the stocks (investor's permission may not be required).

This defeats the "buy and hold" strategy to attempt to wait out negative swings in stock as the investor may be forced to sell their stock prematurely.

Although this is an advanced topic, it is good to have a bit of an idea of some of the tools that are available to enable you to obtain financial freedom quicker. Please let me know your comments about buying on margin and some of the experiences you have had with "buying on margin".

Stay Disciplined!

Finding the balance in your life

noreply@blogger.com (Torian) — Mon, 10 Aug 2009 04:34:00 +0000

I've learned that you can't have everything and do everything at the same time. ~Oprah Winfrey

What generally happens when you eat too much salt? (high blood pressure) What generally happens when you eat too much? (obesity) What typically happens when you sleep too much? (nothing gets done). Although each are necessary, they all have to be done in moderation. A wise man once said that "too much of anything is a bad thing".

I believe one of the biggest reasons why we fail when taking on a new endeavor in life is that we try to take too much of it too fast. I know personally, I tend to get tunnel vision and disregard everything else going on in my life to concentrate on that task. During this time period I usually allow other important things (friends, family, other obligations) fall to the wayside while I am concentrating on my task at hand. This results in not having as strong ties to the people who mean the most to me and well as me not fulfilling previous obligations.

I am not trying to say that you should not devote time and focus on whatever task that you wish to accomplish, however, I do believe it is important that it is not the only thing that you spend your time/resources on. Focusing that much attention on one task does not eliminate the other responsibilities that were going on prior to acquiring the new task.

Personally, the lack of balance in my life is due to the fact that I have been devoting an abnormal amount of time to preparing for my future. I have been very focused on saving for retirement and making investments that I rarely spend money on things that I "want". I have been told over and over by many people that I need to concentrate on living my life today.

To contrast, I have seen the exact opposite. Those who buy whatever they want when they want it and amassing large amounts of debt in the process. My fear is that I have come across some people who I feel like have not dedicated enough resources to their future and I will end up owing large amounts of money to institutions forcing me to have to work indefinitely.

What it comes down to is that there needs to be a balance. Whether it be a new girlfriend/boyfriend, a new project at work, a new video or even trying to reach a financial goal, we must learn that we cannot let a single task monopolize our time. This results in us burning out with the particular task and usually results in the task not getting completed with our best effort. To prevent this from happening and to ensure balance, I recommend to do the following things below:

Always make "Me" time.

There are many things that people to do to escape from regular life. Some people travel, some people sing, some people Facebook but whatever you can do to relax, you should do at least once a week.
Relaxing is necessary but too much relaxing can mis-align your balance.

Use "Context Switching" to multi-task.

Context Switching is defined as "the computing process of storing and restoring the state (context) of a CPU such that multiple processes can share a single CPU resource." (Wikipedia Link)
Translation: A person (single CPU) executing one task (process) at a time for a dedicated amount of time (based on priority) then switching to a new task to execute that task.
Prioritizing your tasks properly can contribute to finding the correct balance.

Organize your time wisely.

Having a simple written plan of what you have to do and the steps it will take to accomplish it will help you organize and prioritize the tasks that need to be accomplished.

Accept that you cannot do EVERYTHING.

You have to pick and choose your battles and some battles are not worth fighting.
You have power to tell people "no" and it is one of the most powerful tools that you have when dealing with balance.
It is important to make sure that you do not over-extend yourself because this will not allow for balance to occur when you are spending the majority of your time on a task.

Do not be afraid to ask for help (Contract help if you need it).

A lot of people are overwhelmed due to the fact that they do not know what they are doing. Many things that seem complicated can be understood to be very easy after learning from someone who has already completed it.
No one in this world was put on here to exist alone, it is easier to have a much more enjoyable life with the help of others to help relieve some of the tasks.

What are some of the other ways you maintain balance in your life? Leave your suggestions in the comments below.

Stay Disciplined!

Importance of Interest Rates and Compounding

noreply@blogger.com (Torian) — Mon, 03 Aug 2009 13:45:00 +0000

To follow up with my previous article about choosing the best online savings bank, I want to explain the importance of Interest Rates. An interest rate is defined as the following in Investopedia:

The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate (APR). The assets borrowed could include, cash, consumer goods, large assets, such as a vehicle or building. Interest is essentially a rental, or leasing charge to the borrower, for the asset's use. In the case of a large asset, like a vehicle or building, the interest rate is sometimes known as the “lease rate”. (link)

This is the main way banks make their money because they lend it out to the consumer and we pay back what we borrow plus interest (which is basically the agreed upon cost that you pay the bank for lending you the money). Well, banks charge a sizable amount of interest for the loans that they make to consumers, they rarely return the favor when borrowing your money.

This is evident by the sub par 0.1% interest that some banks pay you yearly to borrow your money. For more information about how banks work review the video below:

Money As Debt

Well, as the consumer, it is time for you to get in on some of the action. After all, as hard as you work for your money, you should get the same benefits of receiving some type of return on the money that you are lending out. This is where the importance of the interest rate that you are receiving comes in because this rate determines how much money your investment/savings will bring you back in a year.

For a quick way to calculate how long it will take your money to double at a certain interest rate, review my previous article about the Rule of 72.

The interest rate alone is not the only factor that contributes to the return your money will bring you. There is another factor called "Compounding" that is defined as the following by Investopedia:

The ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings. (Link)

Compounding combined with a solid interest rate is a recipe for success. This allows you to fast track your savings (when starting early) because the money that you make from interest is then re-added into your principal amount, resulting in making more money from interest on that particular amount. This is much better than the alternative, simple interest, as that only pays interest on the principal alone. Below is a an example to comparison between compounding and simple interest:

You have $100 invested in two different banks. One bank offers simple interest while the other bank offers compounding interest. You are going to leave the money invested in the bank for a period of 50 years and the bank has guaranteed that they will pay you 10% interest for your money each year.

Simple Interest

Principal Balance: $100

Interest Rate: 10%

Value after one year: $100 + (100 * .10) = $110

Value after five years: $100 + (100 * .10) * 5 (no. of years) = $150

Value after ten years: $100 + (100 * .10) * 10 (no. of years) = $200

Value after twenty years: $100 + (100 * .10) * 20 (no. of years) = $300

Value after fifty years: $100 + (100 * .10) * 50 (no. of years) = $600

Formula to calculate:

Future Value = Principal + (Principal * Interest * no. of years)

Compounding Interest

Principal Balance: $100

Interest Rate: 10%

Value after one year = $110

Value after five years = $161

Value after ten years: = $259

Value after twenty years = $672

Value after fifty years = $11739

Formula to calculate:

Future Value = (Present Value) * (1 + interest rate)^{number of years remaining}

I am hoping that the information in this article has helped to convince you to understand the importance of interest rates and the significance of compounding interest versus simple interest. As usual, if you have any questions or comments, leave them in the comments section below.

Stay Disciplined!

Saving your money...Best Online Savings Bank

noreply@blogger.com (Torian) — Mon, 27 Jul 2009 00:44:00 +0000

A penny saved is a penny earned. ~ Benjamin Franklin

Ben Franklin was on to something when he said the quote above. Due to the recession, we are starting to understand the importance of saving money. Whether it be to survive during unemployment, or to take advantage of an opportunity that presents itself, having savings is a necessity. There is also the importance of making interest with that money.

There are many places where you can put your money. There are higher risk investments such as stocks and mutual funds that requires your money to be invested with the possible risk of the equities losing value resulting in a loss of money. There's also other investments such as bonds that offer less risk but typically requires your money to be tied up for a certain amount of time. For the average saver, a good interest rate and reasonable access to their money are the requirements for where their money resides.

Although there are many factors that are used for where most people decide to save their money, I personally keep my "savings" money in an online savings account.

Why Online Savings Accounts?

If you walk into your local bank branch, you will find that they offer savings accounts. These accounts are backed by the FDIC (Federal Deposit Insurance Company) and allow you more immediate access to your funds as well as the benefit of talking to someone in person in the event that you need to discuss the account. However, these accounts offer a very low interest rate. (0.1 - 0.3%) which defeats the purpose of saving the majority of your money.

Online savings accounts are also backed by the FDIC and have the benefits of having a much higher interest rate as well as reasonable access to the funds in that account. The typical three day delay of accessing your funds is usually a good deterrent to impulse buying, but is quick enough to get access to the money in the case that there is an emergency where the money is needed. The higher interest rate is the main benefit from having one of these accounts.

See below for an example of why a higher interest rate matters:

Bank 1

Bank of America "Regular Savings Account Interest Rate": 0.1% (Link)

Amount to Save: $1000

Years to allow the money to save: 20 years

Amount of money at end of 20 years: 1,020.19

Interest Paid after 20 years: $20.19

Bank 2

Ally.com "Online Savings Account Interest Rate": 1.85% (Link)

Amount to Save: $1000

Years to allow the money to save: 20 years

Amount of money at end of 20 years: 1,442.85

Interest Paid after 20 years: $442.85

Difference: $442.85 - 20.19 = $422.66

That is a $400 difference which helps to explain the importance of getting the best interest rate possible for your money.

Below are the different links to the websites of each of the online banks.

Although each of these saving accounts have individual pros and cons, the ultimate decision in deciding which account to choose is dependent on the individual saver. I recommend to go with the bank that has the highest interest rate because in my experience, most accounts typically have the same benefits as other online savings accounts.

As usual, I hope that you find the information in this blog useful. Please let me know your thoughts about your saving in the comments below.

Frugal Fasting...the difference between investing and spending money on yourself.

noreply@blogger.com (Torian) — Mon, 20 Jul 2009 02:32:00 +0000

“When the stomach is full, it is easy to talk of fasting” ~St. Jerome quotes (Father of the Latin church, 340?-420)

I was chatting with a friend the other day and topic of spending money came up. I did not think it could be done, but I believe I have finally met someone who is cheaper than me. While sitting in a local bookstore, we were looking at the food case and saw a Rice Krispy treat for $2.25. Now comes the dilemma? Do you buy the rice krispy treat or do you choose not to satisfy the urge for the tasty treat? Now to most, satisfying the urge for a rice krispy treat for around $2.00 is not a big deal, however, in light of recent times, most choose to do "frugal fasting".

Frugal Fasting as I define it is denying yourself something that you "want" because there is a cheaper alternative or you can just deal without.

I typically never spend any money on something that has a cheaper alternative or something I could do myself. After all, paying $2.25 for one serving of something that I can make a whole pan of for $2.50 just seems crazy. However, there are times where I make exceptions to these rules due to the fact that my health or my time may be worth more to me than the actual money that can be saved.

During the rest of the conversation with my friend, I kept asking myself a question as to how many people consciously make a decision to go without eating or eat poorly (such as the value meal at fast food restaurants) to save money rather than just pay to eat decent food.

I think about my college days as an example in my life where I did this constantly due to the fact that I did not have a lot of money. I'm sure there will be people that say fast food in moderation is no worse than anything else and there is value behind ordering from the value menu at most stores. However, I'm sure people would have second thoughts if they saw the movie "SuperSize Me". Thirty days of eating fast food wrecked the main character's body.

So the real question is, is it worth the investment to pay the money on every day items or should you go without to save some money? I think the answer is to go ahead and spend the money. Why? Well, as said previously, spending money on yourself is an investment. By eating higher quality foods, you can help you remain healthy over the course of your life. I have learned this by talking to one of my coworkers who only eats organic food. Although he pays more for his food than the non-organic counterparts, he told me that after switching his diet to totally organic, lost over 20 pounds over the course of a year. Amazing to see what eating food without all the additives can do for you.

In addition to that, in my current situation with renovating my investment house, I am finding that spending the money to contractors (over doing the work myself) has allowed me to be less stressed as well as avoid doing hazardous work. By no means am I trying to say that one should not try to save money where possible, however I believe that there has to be a balance. Is saving money worth putting your body through more stress? I say no.

I wonder what kind of damage I have caused to my body by applying "frugal fasting" to my purchases. There are many times where I have chosen saving money at the cost of sacrificing something else. However, I think that I will try to include more balance when faced with that dilemma again.

How often do you do Frugal Fasting? What items do you sacrifice daily for the sake of money? Where is your balance?

Stay Disciplined!

Money Saving Tips Around the House

noreply@blogger.com (Torian) — Mon, 13 Jul 2009 04:38:00 +0000

I like to think that I am very frugal in my everyday living. With this understanding, I have been keeping a closer eyes on my bills lately and have noticed that I have reduced the amount I have spent last year this same time. Now there are some extenuating factors that go into this reduction in the amount that was being spent, however, I have consciously attempted to reduce my bills by making smarter decisions around the house.

With everyone "Going Green" now these days, there are many that are coming to the forefront that enable you to save money around the house. Some require that you invest a bit into certain products, others just require that you change your behavior in your house. I want to share with you a combination of things that I have done around my house to reduce my energy usage and save money.

Reducing the amount of electric light usage.

In my bathroom, I have a bathroom bar that has eight lights on the fixture. EIGHT LIGHTS! Are eight lights really necessary to light my bathroom...I think not. So instead of luminating my bathroom with all eight lights, I unscrewed every other light immediately cutting my energy usage from those lights in half. In addition to that, I am able to cut back on my replacement of those lights when one goes bad because I have four other lights currently not being used.
Whenever leaving out of a room, I usually immediately turn off the light. Even if I am going to come back to the room, I still make sure that the light is only turned on when I am in the room using it. In addition to that, I find that using natural sunlight (opening a window) is a free alternative to using lights during the day.

Reducing the amount of air condition usage.

One of the best inventions in regards to air conditioning is a scheduling thermostat. Using this, I have been able to turn my air conditioning off when I am not at the house, but have my house cool when I return.
In addition to that, I typically keep my setting on the air conditioning to be somewhere near 77 - 80 degrees. Many people would call that "uncomfortable", however I find that it just takes time to get adjusted to it. Also, I typically only turn on my air condition at night when going to bed.

Using alternative methods to cool your home besides air conditioning.

Surprisingly, the use of a ceiling fan cools the house well. The use of these fans allow air condition to not even be used during the cooler part of the day. Also, using a portable fan can be a good substitute if you do not have a ceiling fan installed.

Investing in Compact Fluorescent Lighting.

I have made an effort to replace each light bulb that goes out in my home with a highly efficient compact fluorescent lightbulb. Although they typically have a higher up-front cost, these lights tend to pay for themselves within the first six months of use.
In addition to that, albeit very small, CFLs emit less heat than regular incandescent light bulbs. For more information about these bulbs, check out the Energy Star website.

In June 2008, I paid my electric utility company $125.67. However, this year, I ended up paying $81.92. Saving $40 in one month makes a large difference because that type of money can be better reallocated to other bills or even be contributed to a savings account.

I hope you find these tips useful. If you have any other tips that you use to save money around the house, please leave them in the comments below. Stay Disciplined!

The Best of Pamplona Finance (so far)

noreply@blogger.com (Torian) — Mon, 06 Jul 2009 10:32:00 +0000

Sometimes it is good to sit back and review what you have already done. It is good motivation to keep pushing forward. Even "It's Easy As P.I.E." has the evaluation stage where it is important to evaluate your plan make sure you are still on track.

Below are some of my favorite articles written by the Pamplona Finance Group in recent months.

Using the Power of Negotiation - May 3, 2009

The Ultimate Bargain Shopping - March 29, 2009

Lessons learned from Investing during a Recession - March 22, 2009

Steps to Prepare for Home Ownership - March 8, 2009

Take control of your finances by creating a budget - January 18, 2009

To all of my readers, I want to say thank you for your support in lending me your attention for a few minutes out of your week. I hope that you find the blog articles informative as well as useful.

As usual, if you have any topics of what you think I should write about, or would like to submit an article to post on the blog, please email me. Also, your honest feedback is also welcomed! I want to do my best to make this blog as useful as possible for you.

Stay Disciplined!

Importance of your Credit Score

noreply@blogger.com (Torian) — Mon, 29 Jun 2009 04:07:00 +0000

“The most important thing for a young man is to establish credit - a reputation and character.” ~John D. Rockefeller

The current economic situation has made many consumers to become aware of credit. After all, you cannot turn on a TV, browse on the Internet or listen to the radio without hearing an advertisement about improving your credit. What is "improving your credit" and what is its significance? I am so glad you asked...

The definition of credit is listed below:

Credit is the provision of resources (such as granting a loan) by one party to another party where that second party does not reimburse the first party immediately, thereby generating a debt, and instead arranges either to repay or return those resources (or material(s) of equal value) at a later date.

Credit is one of the most important metrics used by banks to evaluate someone's ability to pay back a loan. How does this affect you? It basically works like this:

You walk into the bank and ask for a loan.
You will out the many applications they give you, one of the applications containing a release form that allows them to pull your credit score.
The banks immediately receive a credit report with your credit score and hopefully the terms of the contract provided you the best interest rate possible for the loan.

Many people are pretty familiar with the credit application process, however it is a mystery as to how that credit score is determined. It breaks down into the following categories:

Payment History (35%)
Amounts Owed [Outstanding Debt] (30%)
Length of Credit History (15%)
New Credit (10%)
Types of Credit Used (10%)

Payment History

This contains information about the delinquincies on your opened credit accounts. This can also be an indicator of any past bankruptcies. It also lists the time since the last delinquent account. Delinquent accounts definitely has a negative impact on your credit score.

Amounts Owed

This contains information about the proportion of money owed on outstanding debt. A large amount of outstanding debt will negatively impact your credit score.

Length of Credit History

This contains information about the time each account has been opened. This also contains information about the time of the latest activity on each account. Having a very short length of credit history will negatively impact your credit score.

New Credit

This contains information about recently opened accounts, credit inquiries and re-establishment of positive credit after prior delinquencies. Many credit inquires on your report will cause your credit score to be negatively impacted.

Types of Credit Used

This contains information about the different types of credit. Some of the credit types are mortgage, retail, credit cards, etc.

It is close to impossible to purchase a home, a car or even start a business without having a good credit score. In addition to that, even some employers will consider a person's credit score during their application process. Also, credit scores are used by landlords when choosing certain tenants to rent to.

From this article, I hope that you are able to better understand the different components that make up your credit score as well as the importance of keeping a good credit score. Stay Disciplined

References:

http://en.wikipedia.org/wiki/Credit_(finance)

http://www.investopedia.com/articles/00/091800.asp?viewed=1

http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx

Name Brand vs. Generic?

noreply@blogger.com (Torian) — Mon, 22 Jun 2009 02:28:00 +0000

Imitation is the sincerest of flattery. ~Charles Caleb Colton

I commonly tell people "Be an original, not a copy". However, everything from medicines, dish detergent, cheese, even cookies, have both a name brand (original) and generic (copy) counterpart. As an informed consumer, I want to get the best value for the money that I have to spend. So the question comes down to this, "What is better, name brand or generic products?"

Well, in general, generic products are cheaper than "name brand". This can easily be seen by going to your local grocery store and check the grocery store brand of cheese to a name brand product such as "Kraft" or "Sargento". You will see that there maybe upwards to $1.00 in savings if you purchase the generic brand. If price is your only factor that you consider with a purchase, then hands down, the generic cheese wins consumer dollars.

It is a common thought that name brand products are higher quality than generic products. This could be the case, but if you look on most of the packaging for generic products, you will see that most of the time, generic products are usually made in the same factory that the name brand products are made. Of course this does not mean that they use the exact same ingredients, however it does not mean that there is not quality in both products.

Although cheese is just one example of a product, there are also other products that many consumers have to make a choice about. I personally use about 50% generic and 50% brand name. Some items (such as aluminum foil, and plastic bags) do not have any noticeable differences than the most expensive counterparts. However, there are somethings that I do not skimp on.

What it all comes down to is your personal preference. It is up to the consumer to decide whether or not the name brand product is worth the extra dollars. What products do you buy that are generic? What products do you buy that are name brand?

Stay Disciplined!

Taking the Leap of Faith

noreply@blogger.com (Torian) — Mon, 15 Jun 2009 04:17:00 +0000

Every accomplishment starts with the decision to try. ~Unknown

Wisdom can come in the oddest forms and when you least expect it. While having lunch with one of my mentors, I found myself questioning some of my most recent actions. I just bought an investment property that is truly a "fixer-upper" and I have no handyman experience nor do I have a lot of capital to invest in paying others to fix up the property for me. I had contemplated this decision prior to actually taking the plunge, however, I was starting to feel some after purchase jitters.

I shared my feelings with my mentor and he reminded me about everyone's biggest obstacle hindering the completion of their goals. The obstacle of fear. Fear can take on many forms. For me, it is the fear of losing my job, the fear of having too many unexpected expenses and even the fear of foreclosure caused by the unforeseen circumstances.

I do not understand why the human mind tends to always prepare and expect the worst out of any situation. Although the statement was not explicit, my mentor helped to remind me about "Faith". From the bible, Faith is defined as the following:

Now faith is the substance of things hoped for, the evidence of things not seen.
(Heb 11:1)

To provide a more simplistic explanation, Faith is defined as the following from wikipedia:

Faith is the confident belief or trust in the truth of or trustworthiness of a person, idea, or thing.

In both definitions, there is a commonality of trusting/believing in something that you may or may not be tangible. Just believing alone is not enough for Faith to work, there are the required actions that must accompany it. Even if you are unsure if the actions are correct, sometimes just doing something is enough to make progress on your endeavor.

It just seems my list of things to do to work on this house is continuing to grow. However, every week, I try to accomplish a small goal to make progress on the house. I honestly do not know whether or not I will succeed in this venture, but I do believe I will try to do everything necessary to be successful.

What are your thoughts? Share them in the comments below.

Stay Disciplined!

Getting Credit benefits on a Debit Card

noreply@blogger.com (Torian) — Mon, 08 Jun 2009 01:28:00 +0000

No man's credit is ever as good as his money. ~Edgar Watson Howe

The last time that you have used your credit card, what option did you select? Credit or Debit? For the longest time, I was swiping my debit card as a debit card although I had this large Visa symbol listed on the bottom right hand corner of the card. Well, to most, this does not seem like a big deal because the money comes out of the account just the same. However, each time we swipe our debit cards as debit, we miss out on the benefits and protection offered by the little symbol in the bottom right side of the card.

Although this may not seem like a big deal, it actually is. See below for the benefits of using your Visa debit card as a credit card:

Gain peace of mind with Visa's extra security protections.

When you sign for your purchases, your money comes directly from your checking account, but you also get security protections that help prevent, detect and resolve fraud, including:

Visa's Zero Liability Policy*, which protects you from unauthorized charges. Any funds taken from your account due to fraudulent use will be returned to you.
Continuous fraud monitoring to detect and prevent suspicious activity on your debit card
Access to Identity Theft Assistance to help you recover your identity and prevent further problems
A 3-digit security code to verify your identity for Internet and phone purchases

All of this information was quoted from Visa's site. I recommend that if you have a card other than Visa, to go to the banks site and see if they offer similar benefits.

From now on, I hope you take a second thought about whether or not you will use "Credit" when you are swiping your bank debit card. Stay Disciplined!

The Difference Between Value and Growth Stocks (Part 2)

noreply@blogger.com (Torian) — Mon, 01 Jun 2009 03:54:00 +0000

Regardless of the previous behavior of the market, one can see with its recent performance that it is still a great investment tool. According to Google, the Dow Jones Index was actually down to its low of 6547 on March 6,2009. Now, it is currently at 8500. That is over 30% up in just one 3 months. However, as mentioned before, there are very few out there that can time the stock market that well in order to get those returns.

To continue from the previously written article, Value stocks are great choices for those who believe in holding a stock for the long term. Below is the definition cited from Investopedia:

A stock that tends to trade at a lower price relative to it's fundamentals (i.e. dividends, earnings, sales, etc.) and thus considered undervalued by a value investor. Common characteristics of such stocks include a high dividend yield, low price-to-book ratio and/or low price-to-earnings ratio. (Citation)

These particular stocks are viewed as being "undervalued" and typically do not have quick growth rates. More characteristics of these stocks are the following:

Dividends
Equity equals the amount of debt held by the company.
2x Assets to liabilities.
Very low Price-to-Earnings

Examples of these companies are well-established blue-chip companies that typically have a very long history of successful operation. Some examples of these companies are the following:

IBM
General Electric
Wal-mart

As you can tell from these companies, they typically provide a service or product that is always in demand no matter the economic climate. In addition to that, they have pretty high stock prices which do not fluctuate often. Of course there is an exception to the rule (as seen over the past year) due to internal and external factors that can cause a company to reduce its market share and even fail. However, most well established/well ran companies can usually weather any storm.

As hard and as nerve wrecking it may be, it is always a good idea to have some portion of your investment portfolio into stocks. Whether your investment style is risky or stable, there are some stocks from each class that will fit your requirements to help provide the results you desire.

What are some stocks that you are invested in?

Stay Disciplined!

The Difference Between Value and Growth Stocks (Part 1)

noreply@blogger.com (Torian) — Mon, 25 May 2009 03:40:00 +0000

The stock market...such a taboo word these days. It almost shares the same stigma as the words "foreclosure" and "credit". However, it seems as if that particular word (stock market) is losing all of the negative connotations it once had. After all, investor confidence is slowly starting to be restored as more and more people get comfortable with investing in the stock market.

There is a misconception in the whole reasoning behind investing in the stock market. I mean after all, you will find that many "experts" state that the average stock market return is somewhere between 8 and 12% annually. Well, as we have noticed from recent turn of events, it all depends on when you have started investing in the market. I have had the unfortunate lesson of learning that timing is everything and if you started in 2007 (like I did), it was bad timing.

However, there is a silver lining to every cloud and many lessons have been learned since then. Some stocks are at a very cheap price and fortunately I have been able to pick some up and receive some really outstanding returns. Honestly, there was a time period recently where it did not matter what you bought, there was almost a definite positive return on the stock within a short period of time.

Typically follows into one of two classifications. The first classification is called "Growth". Below is a definition of this class of stock from Investopedia:

A growth stock usually does not pay a dividend, as the company would prefer to reinvest retained earnings in capital projects. (Citation)

From my understanding, these particular stocks consist of companies that are typically smaller in size and have more potential to increase in share price. Examples of these types of companies are:

Google (GOOG)
Cisco (CSCO)
Intel (INTL)
Apple (APPL)

As you can see from above, the stocks that are typically growth fall into the "Technology" sector and you can more than likely find them composing the Nasdaq Market. Some events that help growth stocks to become lucrative are when these companies release some new product or services that causes a massive amount of demand for that company's product. For example, after Apple released the IPod, as the amount of sales grew for this product, the stock price grew exponentially.

Growth companies are typically for those who believe that a company is going to grow through the release of some new product or some service that is high in demand without competition to take away the market share. Stay tuned for the next article that is going to explain "value" stocks.

Hedging Against Everyday Expenses Using Stocks

noreply@blogger.com (Torian) — Mon, 18 May 2009 04:56:00 +0000

During a visit home, while passing a gas station my father remarked "Wow, these gas prices are really going up". After giving it some more thought, I realized that he was right. After all, just back in December, the average price per gallon in the United States was $1.65/gallon. (Citation) Now consulting the same source, I see that gas on average is $2.30/gallon and rising! Well, there is a silver lining in every cloud and this blog article will provide you with information on how to see it.

Definition of Hedge (Hedging)

In finance, a hedge is a position established in one market in an attempt to offset exposure to the price risk of an equal but opposite obligation or position in another market. (Citation)

In plain English, all it basically means is to have an equal but opposite position to offset the risk taken with an investment. This procedure was used massively by many investment groups to short sell many stocks. Many critics point the finger at these funds as a key contributor to the recession that is currently being experienced. Although "hedging" takes a negative aspect in this situation, it can be used on a smaller scale to benefit the average consumer. Let's take hedging against an everyday expense for example.

It is a requirement that you have gas for your car. In order to hedge against the rising gas prices, one would invest in a index or mutual fund that invests in gas and oil. The way that the hedging process works is that as the gas prices continue to rise, the oil/gas stock would rise also allowing the owner to offset the added expense of paying more at the pump.

It is good to know, just as hedging can work for you in a positive way, the opposite can happen also. In the case that the gas prices go down, the stock that invests in oil/gas can go down also. Although you are paying less at the pump, there is a higher chance that the oil/gas stock will decrease in value.

Although this one particular example uses gas as a means to hedge, one can also use many different industries such as housing, groceries, technology to perform the same type of strategy. What are some industries that you think will be good to hedge against? Stay Disciplined!

The Pursuit of Happiness

noreply@blogger.com (Torian) — Mon, 11 May 2009 06:24:00 +0000

Aim for success, not perfection. Never give up your right to be wrong, because then you will lose the ability to learn new things and move forward with your life. ~Dr. David M. Burns

To preface this article, I know that this blog is geared towards "Financial Advice that Makes Cents". However, I believe understanding the mindset behind accomplishing all goals (including finance) is very important in obtaining the desired results.

Recently, I had a conversation with an old friend who I have not seen or talked to in about five years. While trading life stories, we eventually got on to the topic of pursuing dreams and happiness. It seems that at some point in time, the focus was lost about what made her happy and instead, she concentrated on other things that were not contributing to her happiness. During this conversation, I reflected on some of the decisions that I have made in the past and determined how I transitioned to the person that I am today.

Happiness: State of well-being characterized by emotions ranging from contentment to intense joy (Citation)

During the hustle of life, I believe most people get caught up in the many distractions that life consists of, that we forget to live. After all, I believe this was the case in my life due to a period of unhappiness that I experienced towards the end of my tenure at college. For a while, my life was a standard routine; wake up, eat, class, eat, homework, sleep. I truly felt like I was a zombie in life and merely going through the motions rather than living day by day. It was at this point that I truly realized that I had no defined purpose for my life outside of graduating from school.

It is really easy for anyone to get at a point where a routine seems normal and living slowly seems to become purposeless. However, becoming complacent with this type of life was not the choice for me. Instead, I made a decision that I needed to define what made me happy and pursue it to the fullest extent. Below are the points I followed for the pursuit:

It is OK to put yourself first.

One major roadblock to obtaining happiness was that I was afraid to look out for my number one fan, myself.
It is hard to build the foundation to someone else's house while your house is in shambles.

Impressing/pleasing others causes one to regress.

Another huge problem is that I spent too much time and resources trying to impress people who did not care.
Aiming to always please someone else will leave you empty because there will always be someone new to please.

Happiness requires work.

Very rarely does happiness just occur without some type of effort.
Obtaining your goals are worth the effort and the sense of accomplishment contributes to the overall level of happiness.

Using these principles, I was able to proceed with pursuing my goals and dreams that ultimately contributes to my happiness. Although over time, my goals may change, the goal of obtaining happiness will never change. What are some of the principles you use for obtaining happiness? Stay Disciplined!

Power of Negotiation at work

noreply@blogger.com (Torian) — Sat, 09 May 2009 22:51:00 +0000

Well, I just wanted to report in that some of the readers of the blog have had outstanding results using the information in the previous post. Below is a comment that I have received:

Just called comcast and got bill reduced by twenty [dollars] a month. I'm a negotiating beast! Lol.

As mentioned in the previous post, although it may be a bit difficult to step out of your comfort zone, you may find that the rewards are worth way more than the cost. On top of that, the worst that could happen is the company could say "no" and you would be in the exact same place that you were in prior to the conversation.

I am very curious to hear that results you receive from trying the steps in the previous post. Please send in your comments or leave them in the field below!

Using the Power of Negotiation

noreply@blogger.com (Torian) — Mon, 04 May 2009 02:13:00 +0000

Let us never negotiate out of fear but let us never fear to negotiate. ~John F. Kennedy

One lesson I have learned during this recession is that prices that are advertised are not set in stone. Everything from major appliances to contractor work is willing to take a reduced price in order to get the business. It seems like the price that we are given at a store is merely a "suggested" price, but not necessarily the price that you have to pay. This leads to the use of one of the most powerful tools that we have as a consumer. The power of Negotiation.

By definition, Negotiation is the following:

A dialogue intended to resolve disputes, to produce an agreement upon courses of action, to bargain for individual or collective advantage, or to craft outcomes to satisfy various interests. (Citation)

Although negotiating may seem like a very trivial task to some, it proves to be very complex to most. According to wikipedia there are six different negotiation styles. Personally, I probably fall into the category of "accommodating" as I typically like to avoid conflict and will sacrifice of myself in order to get past the issue (or just the uneasy feeling of tension). This has not always proved to be beneficial for my best interest as I have found myself paying more for items that I have regret at a later date.

I rarely had confidence in my negotiation ability due to the fact that I did not know what I was doing. However, recently I made a decision to begin reducing my bills further by cutting back on the money I spent for luxuries such as cable and Internet access. Since my satellite company just increased the amount that they were charging me, I naturally started with them first.

I made a call to my satellite provider and called to see if they could do anything to reduce the amount that I was paying for my current channel listings. Unfortunately, when I called, I did not have a good reason as to why I was requesting this reduction in price except for the fact that "money was tight and I was not sure if I was going to be able to afford the service".

The customer service representative offered the options of a $5/month reduction for six months or changing to a cheaper package that did not contain all the channels I wanted to see. At the end of the phone call, I politely told the customer service representative that I was going to research my options and probably cancel the service. It is my thought that he probably thought that was an empty threat due to the fact that he allowed me to get off the phone.

At this point, I began what I believe to be the successful negotiation procedure listed below:

Research your options

Immediately once I got off the phone with the satellite provider, I began my process to research with my other options. Fortunately I found a very comparable option with another provider that was $10/month cheaper (even after the promotional period was up).

Have good reasoning to support your argument

In addition to the new option being cheaper, I also had more channels as well as free HD options that were not provided by my satellite provider.
The speed of my Internet access was greatly increased.

Look to see how both parties can benefit from the negotiation

During the initial phone conversation with the satellite provider there was not really an effort from the customer service representative to see a real benefit for both parties. In my opinion, he seemed fine with me discontinuing my service with their company as well as them losing the revenue.

Stick to your guns

During the initial phone conversation, I laid out the terms that I felt were reasonable to have fulfilled in order to continue service with the satellite provider. There were multiple times when the customer service representative wanted me to downgrade the channel listing (giving up TNT and TBS) which was unacceptable to me. I never conceded on reducing my channel listing.

Do not be afraid to walk away

Ultimately, as a consumer, the most powerful weapon in negotiation that you have is the ability to walk away. The most important thing that I have learned during this process is that no matter how bad we want something, it will not be the end of the world if we do not get it at that particular time.

So on the day that I called DirecTV to cancel my service, I got a different customer service representative who wanted to know why I was canceling my service. In addition to the same reasoning I explained to the previous CSR, I provided her the information on their competition and the deal they were providing (without any loss of channels and features).

Immediately she began to bring out her arsenal of discounts and added channels to try to keep my service. I kindly explained to her that the opportunity had passed and that I was still switching to the other provider. At this point I realized that I had an "upper hand" in the negotiation process due to the fact that the satellite provider did not want to lose one of their customers with perfect payment history.

Although I did switch from my previous provider, I learned some very valuable lessons during the negotiation process as noted above. I really recommend stepping out of your comfort zone and trying to use the negotiation procedure when making your next purchase where prices are not set in stone.

Where are some of the other places you have received success in negotiating? What are some of the techniques that you have used to successfully negotiate in your favor? Leave your comments below.

Stay Disciplined!

Getting more with less at the grocery store

noreply@blogger.com (Torian) — Mon, 27 Apr 2009 02:29:00 +0000

Like most people surviving in the current economic situation, I have decided that I am going to further tighten the belt of my budget for the sake of my investments. I have reduced a lot of my re-occurring expenses by switching from DirecTV and AT&T DSL to bundle my TV and Internet with Comcast. In addition to that, I have reduced my electricity usage and natural gas usage.

I am looking to further reduce the amount of money being spent due to the fact that I have now taken on an investment property. In my current budget, I have allocated $130/month for groceries. I am looking to reduce this amount drastically. I have given myself the goal to live for three weeks off of $50 groceries. Although I feel like this was an arduous task, this type of pressure requires one to get creative. Also, using the principles of "P.I.E", I feel that any task is quite manageable.

To proceed with accomplishing this task, I do what I usually do before going to the grocery store, checking the weekly ads. Fortunately with Kroger, they list all of their "weekly ads" on their website. After getting an idea of the items with the best value, I make a small list of my needs. This list is typically comprised of items that I have already decided on cooking for the day/week as well as some staples that I can create a meal from in the pantry.

As a side note, below are some of the "staples" that I require in my pantry:

Rice
Beans
Corn
Barbeque Sauce
Brocolli
Sweet Peas
Bread

Now taking on this goal requires that I draw a very distinctive line between what I want and what I will need to accomplish this goal. It just so happened that this week at Kroger, there was a special on meat at Kroger, so I definitely had to take advantage of this by stocking up on high value items. Although meat typically has a short shelf life, you can easily extend it by freezing those items immediately and using them at a later date.

During this whole experiment, I am hoping to eat healthier as well as learn to get a bit more creative in the kitchen. I am also hopeful in learning to discipline myself in my consumption of food and find other things to do beside eat and lounge around my home.

If you have any suggestions on how to stretch your groceries a little bit further than usual, please leave them in the comment section below.

Stay Disciplined!

The Rule of 72

noreply@blogger.com (Torian) — Mon, 20 Apr 2009 01:11:00 +0000

“The keys to patience are acceptance and faith. Accept things as they are, and look realistically at the world around you. Have faith in yourself and in the direction you have chosen.” ~Ralph Marston

Earlier this week, I was asked the question, "Do you know what the rule of 72 is?" I thought about it and promptly responded back with "of course", followed by my rendition of the answer to that question. However, the person I discussed this with stated that over 90% of the people, he asked that question, did not know the answer. This is quite staggering to me due to the fact that this is a very simple idea and it is very valuable to know in terms of investing.

The definition for the rule of 72 is listed below:

The rule of 72, is a method for estimating an investment's doubling time. The number, 72, is divided by the interest percentage per period to obtain the approximate number of periods (usually years) required for doubling. (Source)

For those who understand formulas, it looks like the following:

(Years to Double) = 72 / Interest Rate

View the following example for further clarification:

HSBCDirect offers you an unlimited length Certificate of Deposit (CD) for 4% Annual Percentage Yield (APY). If you just deposited $10,000 and wanted to know how long it would take to double into $20,000, you could use the following formula below to calculate it:

72 / 4 = Approximately 18 years to double.

To get a more exact amount of time to use for doubling, you can use the "Future Value" (FV) formula.

FV = Present Value x ((1 + Interest Rate)^N)

(Where N is the Number of Years)

To calculate the number of years, you can use the following formula (just solving for # of years):

ln(FV/PV) / ln(1+I) = N

(Where PV is Present Value)

Using the numbers from the previous example, you get the following:

ln(20000/10000) / ln(1+.04) = N

17.673 = N

As listed above, the interest rate is represented in terms of the actual decimal number rather than the whole integer value.

As you can see from the two formulas, there is a lot more complexity to get a more exact estimate of time. However, using the "rule of 72" can give you a quick estimate when weighing your investment options and correctly balance the amount of risk you take with an expected return.

If you have anymore comments or any other shortcuts or rules you know about in regards to investing, please leave them in the comments below.

Stay Disciplined!

Flexible Spending Accounts vs Health Spending Accounts (Part Two)

noreply@blogger.com (Torian) — Mon, 13 Apr 2009 05:40:00 +0000

“The first wealth is health.” ~Ralph Waldo Emerson

As mentioned in the previous article, there are many different requirements for a person to meet in order to qualify for a Health Spending Account. One alternative to the Health Savings Account is a Flex Spending Account. Below is the definition for this type of account:

Flexible Spending Account: one of a number of tax-advantaged financial accounts that can be set up through a cafeteria plan of an employer in the United States. An FSA allows an employee to set aside a portion of his or her earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. (Citation)

Flexible Spending Account (FSA): is a tax-favored program offered by employers that allows their employees to pay for eligible out-of-pocket health care and dependent care expenses with pre-tax dollars. By using pre-tax dollars to pay for eligible health care and dependent care expenses, an FSA gives you an immediate discount on these expenses that equals the taxes you would otherwise pay on that money. (Citation)

Unlike a Health Spending Account (HSA), the FSA can be used with most health insurance plans provided by the employer. Typically the employer offers this plan in conjunction with their current health plans and allows the employee to pay for medical expenses not covered by insurance. Some examples of these types of expenses are listed below:

Dental
Vision
Over-the-Counter Drugs
First Aid Kits

For a general list of the different expenses that can be covered by an FSA can be found in the Publication 502 citing medical expenses recognized by the government.

Typically, users of an FSA incur the medical expense and then submit documentation to their FSA provider to receive reimbursement for the expense. However, some providers are beginning to provide FSA debit cards that can be used withdraw FSA funds immediately for a qualifying expense, rather than waiting for reimbursement.

Although it is mostly dependent on the plan on the exact stipulations on whether there is a maximum or minimum that can be contributed to the FSA, the government requires a maximum dollar amount or a maximum percentage of the salary to be specified in the terms of the account. (Citation) This is due to the fact that the government allows contribution of pre-tax dollars to the account overall reducing the employees gross income and tax burden.

To assist with calculating how much this provides a benefit to the employee who takes advantage of this plan, refer to the previous article about maximizing deductions.

To provide a complete review of this type of account, one must take in account the negative aspect of a Flexible Spending Account. FSAs require special planning due to the fact that they are a "use it or lose it account". What this means is that the if account holder does not use all the funds that are in the account by the end of the coverage period, the money is returned to the employer and the employee loses that contribution.

The coverage period is typically the calendar year (starting on January 1st and ending on December 31). However, the government allows for a 2.5 month grace period after the calendar year to further incur anymore expenses that can be used to deduct from the remaining balance on the FSA.

Overall, this account is a good idea for someone who does not qualify for an HSA but still has medical expenses not covered by their employer's health insurance plan. As long as the employee conservatively plans for their medical expenses, this account will be beneficial in allowing the employee to pay for their expenses as well as provide a tax break. Please leave your comments below in your thoughts about HSAs, FSAs, or any other savings plans you may know about.

Stay Disciplined!

Flexible Spending Accounts vs Health Spending Accounts (Part One)

noreply@blogger.com (Torian) — Mon, 06 Apr 2009 05:01:00 +0000

“It is health that is real wealth and not pieces of gold and silver.” ~Mahatma Gandhi

One of the big points that was discussed in the previous presidential campaign that was mentioned was the idea of health insurance. One of Obama's platform is to make health care "affordable and accessible to all". (Citiation) Well, I for one, am a proponent of taking care of yourself without relying on the use of any one (or any entity) for that matter.

I believe that one should use all the tools available to be responsible for ones health care and fortunately there was one tool that was made available by the previous administration if you qualify. The "Medicare Prescription Drug, Improvement and Modernization Act" signed by President George W. Bush in December 2003 created the "Health Savings Account". Below is the definition for this account:

A health savings account (HSA), is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a High Deductible Health Plan (HDHP). (Link to Definition)

A Health Savings Account (HSA) is a special account owned by an individual used to pay for current and future medical expenses. (Citation)

This particular account is somewhat similar to a tax-sheltered account (such as a 401(k) or IRA) that allows you to contribute pre-tax income to spend on health related expenses. Like the 401(k), there are contribution limits imposed annually. In addition to that, these funds can reside in an investment vehicle such as mutual funds and stocks. Although this sounds like a very good product to take advantage of, there are certain requirements that have to be met before you qualify.

In order to be able to contribute to an HSA, the person must be the policy holder of an HSA-eligible high deductible health plan (HDHP). An HDHP is basically a policy that does not cover first dollar expenses (unlike Medicare , Flexible Spending Accounts , etc.) which basically provide benefits as soon as the medical expense is incurred. HDHPs usually have a high deductible (i.e. $1100+ for self coverage, $2200+ family) but a lower premium since they require the policy holder to pay a higher deductible than most other health insurance plans.

For the year of 2008, the maximum contribution to the HSA was $2900 for a person who is single. For 2009, the maximum contribution was increased to $3000 for a person who is single. The money contributed to this account can be withdrawn for any medical related expense. The method of withdrawal is highly dependent on the agreement that the account holder has with the HSA provider. Some HSA providers give their account holders checks or debit cards to use with medical related expenses. Although purchases can be made by these methods, it is good practice to keep documentation of each medical related expense in case the IRS wants to make you prove that the expense qualified for a withdrawal.

Some of the benefits to use a HSA are the following:

Premiums for HDHP are generally lower.
HSA provides flexibility to pay some expenses not covered by traditional health insurance such as over the counter drugs, orthodontics and vision.
Money from the HSAs can be rolled over year after year and available for withdrawal without penalty after age 65.
Some employers match an employees contribution to the HSA.

There are some associated disadvantages with the HSA listed below:

Non medical related HSA withdrawals are subject to a 10% penalty as well as a standard income tax.
Qualified medical expenses can only be incurred on the date of or after coverage has started, it is not retroactive.

As you can see, there are advantages to having an HSA. Hopefully you feel a bit more empowered to know your options to take control of your health care coverage if you qualify for this particular product. The next article that will follow up this particular topic will be about "flexible spending accounts" which are easier to qualify for than HSAs.

If you have anymore information about the topic of Health Spending Accounts or want to discuss this issue, please leave that information in the comments below.

Stay Discplined!

Sources
http://www.ustreas.gov/offices/public-affairs/hsa/pdf/all-about-HSAs_072208.pdf
http://en.wikipedia.org/wiki/Health_savings_account

The Ultimate Bargain Shopping

noreply@blogger.com (Torian) — Mon, 30 Mar 2009 03:09:00 +0000

"There must be a reason why some people can afford to live well. They must have worked for it. I only feel angry when I see waste. When I see people throwing away things we could use." ~Mother Teresa

There seems to be a new trend with many Americans that 2nd hand goods are the way to go. It seems like more people are comfortable with maintaining what they currently have or buying gently used items that others are selling. With that in mind, I have been looking at the tools available for this purpose.

Below are these tools:

What other tools do you use for bargain shopping? Please leave those tools in the comments section below.

Stay Disciplined!