Kenny Succeed Financially?

Individual Retirement Accounts: Roth and Traditional

2011-01-16T18:59:00.004-05:00

An IRA is an Individual Retirement Account. You put money in it yourself, in a separate account from anything provided by your employer. Therefore, you can choose whatever you want to invest in- stocks, bonds, gold etc. There are several types of IRA's, the Traditional and Roth. Additionally, there is a Non-deductible IRA, which is for if you make too much income to contribute to either the Traditional or Roth. That is beyond the scope of this post, it gets complicated whether you'd get a clear benefit with the Non-Deductible IRA.

Both types of IRAs shield gains from taxation, but they work in different ways. The Roth IRA is funded with money that has already been taxed. Therefore, you make 6,000 and pay 1,000 in tax, then you can contribute the remaining 5,000 to the IRA. You will never again pay taxes on that money or the earnings on that money. The Traditional IRA is funded with money before tax. Therefore, you earn 6,000 and contribute 5,000 to the IRA (maximum amount allowed if you're under 50 years old). You get a tax deduction for that contribution to the IRA- so your taxable earnings this year would only be 1,000. When you take the money out of the Traditional IRA, your withdrawals are taxed at that point- like it is ordinary income from a job.

The drawback of having an IRA is that you can't withdraw your money until you turn 59 1/2 years old. Obviously, this is a retirement saving vehicle. You will need to really consider your personal circumstances, but chances are that you will greatly benefit from contributing to an IRA.

One of the major pluses for these accounts is that you don't need to keep track of your gains for tax purposes, you can just set and forget.

When deciding between the two types of accounts, you need to think about whether you will be in a higher tax bracket now or when you will be pulling the money out of the account. If you are in a 25% tax bracket now, and think you'll be in a 30% bracket when you retire, you will want to put your money in the Roth IRA. That is because you pay only 25% on the money now instead of 30% of the money later.

The opposite is true- if you are in a 33% tax bracket now, and in retirement you'll be earning much less income- low enough to put you in the 28% bracket, you'll want to put the money in the Traditional IRA.

Like I said earlier, the maximum for an IRA account is 5,000 per year. If you are over 50, you can put an additional 1,000, which is mean to help you "catch up" in your retirement savings. Imagine how much that extra 1,000 will help!

Some important deadlines are approaching. If you want to fund your account for a particular year, you have until your tax deadline to put the money in. Therefore, for 2010, you have until April 18th this year to fund your account. That means you can put in 10,000 in your account right now (assuming you made 5,000 in 2010 and will make another 5,000 in 2011). This works because you will be contributing the 2010 amount of 5,000 and then the 5,000 for 2011.

I would really recommend each of you looking into these types of accounts. The tax benefits are huge, and locking away your money for retirement will certainly put you on a track towards a successful retirement. By taking away that temptation of the money burning a hole in your pocket, you can enjoy the benefits of tax deferral and the compounding of interest and earnings.

Employer Sponsored Savings Plans

2010-12-26T17:59:00.000-05:00

My job offers an employer sponsored savings plan, and hopefully yours does too. However, if you don't know what it is, how to use it, or the benefits, it's pretty much useless. There are different types of Employer Sponsored plans: 401(k), 403(b), Thrift Savings Plan etc. The numbers refer to the tax code section in which they are outlined. The 401(k) is offered by "for profit" corporations, whereas a 403(b) is offered by nonprofits, government agencies, schools etc. The Thrift Savings Plan is the employer sponsored savings plan from the Federal Government.

These savings plans are the new direction that these entities are heading in, instead of offering pensions. The difference is that the funding of the savings are mostly supplied by the individual- you. However, most companies offer some sort of matching program, where your contribution is matched up to a certain amount. For me, it is 25% of my contribution, up to 6% of my salary. That is, if I make $100,000 and contribute $6,000, they will contribute $1,500. Every little bit helps! The average contribution is 50% of your contribution, up to 6%, so I'm being shorted a little bit there...

Contributions are limited to $16,500 for individuals under 50 years old, at which point your annual limit rises to $22,000 - to "catch up" for retirement. This limit is irrespective of your employer's match- therefore you could contribute the max, and your employer could add their portion, and you could end up with $18,000 say.

Contributions come out of your paycheck, as a deduction before you get the money in your check. Depending on whether the plan is a Traditional or Roth 401(k), the contributions are taken before tax (Traditional) or after tax (Roth). With the traditional plan, when you retire and withdraw money you will owe taxes at that point. With the Roth, you don't owe taxes when you withdraw.

Anyways, you contribute your money into this plan, and from that point you choose your investments. The plan's sponsor (Vanguard, Fidelity, TIAA-CREF etc.) select the investments from which you are allowed to choose. They might select 10 mutual funds you can invest in, and you have the prerogative to pick the best for your situation.

There are several ways to withdraw money- financial hardship or a loan, but they are tricky and cost prohibitive. Besides, the point of this is to save for retirement, so withdrawing your money would crush that goal.

The most popular advice out there is to save enough in these plans to get the employer match, because that's just FREE money, and invest your other savings in other ways to achieve the most benefit for your situation. An example would be to invest the amount to get the match in your traditional 401(k), and then invest the rest in a Roth IRA [different from 401(k)] in order to achieve the best tax advantaged savings. This would be best for young people in a lower tax rate, who didn't have enough money to fully fund both of the savings vehicles.

Good luck with your savings, and be sure to check out all of your options! My next post will be to explain this Roth IRA thing-a-ma-jig I just mentioned. Stay Tuned!

Long time with nothing to say!

2010-12-19T16:59:00.004-05:00

Yes, it has been a very long time since I have posted. I have been working, and didn't quite feel like doing anything when I got home. This afternoon though, I got bored enough to actually pen a post.

I started work in August, and have been scraping by this year- trying to save as much as possible. My employer limits the amount I can save in the employer sponsored 401(k) plan to 60% of my income. So, I set my contribution to 60% of my income! Therefore, I live on the remainder- which means I have been dipping into savings to make it happen.

I feel it is a good choice, because I am pulling money from one pocket (regular money) and putting it in the other (tax advantaged savings.) This tax advantage comes from the 401(k), any contributions grow tax free. My employer offers both a "Traditional" and "Roth" 401(k). A Traditional 401(k) allows contributions to come from your income before tax is taken out, and that money grows tax free until withdrawal. The Roth 401(k) uses money that comes out of your paycheck after tax is taken out, but the contributions grow tax free forever! When you take your money out in 50 years, NO tax!

I plan on making another post regarding those employer sponsored plans shortly. (Hopefully with less of a break from my last post!)

In November, I made another change in my financial plan. I got a roommate! Now I get paid every month to share my home with somebody. My roommate and I get along very well, and I think this has been a great choice. This extra money coming in has certainly helped with my bills, and has actually resulted in a reduction in my monthly utility bills. This is because most of my monthly costs were coming from distribution costs. Of my electric bill, about 50% was from distribution costs (standard fees etc.), whereas the other 50% actually came from electric usage. As for water, 95% of my water bill came from the distribution costs (what a ripoff!) Anyway, with having a roommate where we split utilities, the utility usage might go up, but my dollar share of the total cost will end up going down.

To put this in numbers, the electric bill in October was $25, of which 15 were distribution, and 10 was electric usuage. Say our electric bill goes to $45 for the next month because of increased usage (huge increase- ignoring weather), and my share of the bill actually goes down, to $22.50.

With water, a quarterly bill was about $60, of which $55 was distribution, and $5 was water usage. Say our bill goes up to $75, which would be a 400% increase in water usage, but my bill would decrease by 37%. Seems like a great deal for me!

Overall I can say the roommate thing was a great idea. However, if I made a poor choice of roommates my opinion would be drastically different. Luckily this isn't the case, but it makes a great argument for waiting and diligently checking potential renters, even if it means missing out on an extra month's rent.

With the coming new year, my savings dynamics will change somewhat, and I surely plan on discussing it in an upcoming post. Merry Christmas if I don't get a chance to post before then, but I certainly plan on posting again so I can wish you a Happy New Year!

What I've been up to

2010-08-18T21:13:00.002-04:00

I haven't posted lately, and I suspect you've noticed. I have just started a new job, and my time is really short. I haven't quite adjusted to the schedule yet, and if I do, I will surely get back to writing the blog on a regular basis.

I'm hoping my job will give me some serious content for this blog, as I am working at a tax firm, dealing specifically with individuals, estates, trusts and nonprofits. Hopefully some tax strategies could be useful for us normal people. I would like to thank each of you for continuing to read me, and continuing to check out this site while I get accustomed to my new life.

Thanks!

Danny

Giant + Shell = gas savings

2010-08-07T20:01:00.000-04:00

This post was suggested by a wonderful reader of mine. I did some research and think it's a pretty good deal. For more information check out Giant's gas savings site.

The way the program works is that when you purchase your groceries at Giant, using your Giant card, you accrue points. Each $1 spent earns you 1 point. When you accrue 100 points, it lowers the price of Shell gas (or at Giant's gas stations) by 10 cents a gallon. If you don't use your 100 points, but instead keep them, and accrue 200 points, you get 20 cents off. These continues until you accrue 2200 points, allowing you a maximum of $2.20 off each gallon of gas.

Now, the other rules are worth noting. The points expire after 30 days, so to hit that maximum, you are talking about serious serious grocery spending. Also, there is a limit of 35 gallons at Shell stations and 20 gallons at Giant gas stations.

To be especially frugal and get the most of your points, you could fill up more than one vehicle in the same transaction, just don't put the nozzle back into the pump to end the transaction. However, this only works if you have more than one car, or can fill up a buddy's tank and get them to repay you.

One of my favorite things about this program is that you can still earn more rewards. The program doesn't specify how you pay for your purchases, so you can still use a rewards credit card and earn rewards on your groceries and gas!

The downside is determining whether Giant and Shell are really the cheapest vendors available. I haven't really ever shopped at Giant, so I couldn't tell you whether they are competitive. From what I have seen of Shell, they aren't the cheapest gas on average, but sometimes they are comparable. Also, in my hometown, they offer 5 cents off on Thursdays, and I would imagine you could use this discount on top of that 5 cents.

I think the moral of this story is that you should keep searching for ways to save money, and suggest them to me! There are plenty of ways out there, and they don't have to be uncomfortable either (like coupons or getting merchants to match other vendors' prices- not that this isn't worth it!) Another major point is that you need to delve into the workings of the program to see whether it's really worth it or not, and by consensus of one, this one passes muster!

Using Credit vs. Debit

2010-08-06T12:29:00.004-04:00

Chances are you have both types of cards in your wallet, but which should you use?

First off, let's go over what they really are. Using a credit card is like having a revolving loan from Visa or Discover. Each month they let you borrow up to your credit limit, and you must pay them back at the end of the month. They let you keep the loan if you want, but you pay them high interest for the ability to do so.

Using Debit, on the other hand, takes money out of your bank account. You don't have to pay anyone after the fact, because it's already gone from your account.

Now, which one should you choose? Well it depends on the circumstances of the purchase, but most evidence leans towards using credit. The main benefit of using debit is that you won't spend more than you have. Even that is debatable, as some banks let you charge more than is your account and charge you overdraft fees and the sort. If you can stick to your balance, then debit could be better than knowing you have a credit limit of $5,000, so what the heck, spend it all!

Now, if you're buying something big or that might break, credit cards have the edge. They often extend the warranties offered by the manufacturers. Also, if you're buying something online, the credit card company would be more likely to work on your behalf to resolve issues with the merchandise than your bank.

If you're using your card to get something which the cost can't readily be determined, credit also has the leg up. Take a gas purchase for example. When you swipe your card, before you pump, the station has no idea how much money you are going to spend on gas. So they pick a high number and reserve that amount in your bank account. Same thing with a hotel or car rental, they pick a number higher than the daily cost, to cover for potential damages or raids to that mini-fridge. What actually happens is that the money that is reserved in your bank account for these purchases, if you chose debit, is reserved until the transaction is completed, and that sometimes takes days. Therefore, you might try to buy something else with your debit card two or three days after you rented a car, and have an overdraft. This could be the result of you having 300 bucks in your account, a $100 car rental (they reserved $175) and you purchased $50 in gas (they reserved $75), and you just went out to dinner and spend $55. In actuality, you have $95 in your account still, but the bank doesn't see it that way. To them, you overspent by $5, and thus incurred a nasty $35 overdraft fee.

Another area I have discussed before is receiving rewards on your purchases. Granted, some debit cards offer rewards. None of mine do, and the rewards I have seen are anemic compared to the rewards offered by credit cards. I discussed this area more at length in this post.

The huge disclaimer here is that you use credit cards wisely. You shouldn't be spending more money than you have, because the interest rates on credit cards are high, they are terrible ways to carry debt. If you would be pressured to spend more on the card than you could pay off at the end of the month, continue to use debit, as you'll have a finite and dwindling number of dollars to spend. Any costs from not paying off your debt in full every month will surely outweigh the rewards you would receive from using credit instead of debit.

Finally, credit card companies protect you much more than banks when you lose your card or have fraudulent activity. The liability limit for credit cards is $50, whereas it can be significantly higher with debit cards. Also, if a charge is up for dispute, you haven't paid for it yet with the credit card, but with debit your money is already gone.

With all of that said, I lean almost exclusively to credit to pay for anything, and I suspect my well disciplined readers should do the same.

Tax Credit vs. Tax Deduction

2010-07-30T13:38:00.000-04:00

There are two ways to reduce your tax bill, often touted by lawmakers and politicians. One is significantly better than the other.

A tax deduction reduces your income. Examples include: the standard deduction (based on filing status and deciding not to itemize deductions), mortgage interest, state and local taxes, miscellaneous expenses, and charitable contributions. The choice here between itemizing and taking the standard deduction is as follows: You can either take a lump amount ($5700 for a single individual) or list out (itemize) all of your deductions if they total more than 5700.

Therefore, with a deduction you reduce your income that is taxable. That is, if you have $100,000 of income, a $2,500 tax deduction, you will end up with taxable income of $97,500. This is nice, better than nothing I guess.

The alternative is a tax credit. Examples include: the new homebuyer tax credit, adoption tax credit, energy efficient tax credit, education tax credits, and child tax credit. These tax credits will reduce the amount of tax you pay.

For example, with your $100,000 income, and an approximate 28% tax bracket, you'd owe $28,000. If you have a 2500 credit, you'd only owe 25,500.

In contrast, if the 2500 tax deduction is used, you'd owe 28% of $97,500, or $27,300.

That's a bit of a difference there. So always keep that in mind when you hear any politicians talking about providing you a tax break, because the deduction is about [ (1-your tax rate)*deduction value ] less valuable to you than would be the tax credit. Please forgive that bit of equational humor and stay tuned for my next post.

The Plan: Breakdown of My Paycheck

2010-07-28T08:34:00.002-04:00

I will start working in a couple of weeks, and have already thought out the breakdown of my paycheck.

First off, I plan on saving the maximum in my company sponsored 401(k). This is a retirement savings plan, and your employer takes the money out of your paycheck prior to taxes and deposits it in this savings account. Often, companies will match an extent of your savings, such as 50% of your contribution up to 6% of your annual salary. My company isn't as generous, only giving a stated 10% of your contribution, but an additional 15% that is not obligatory. My understanding is that the total comes to 25%, but the 15% portion is revocable if really bad times come. Still, a 25% match isn't high, but it helps, and I think the amount works out to be about $850 for me.

The maximum I can save in a 401(k) is $16,500 for a particular year. However, since I am starting in August, I won't be able to do that. I can save up to 60% of my salary, a company rule. Therefore, I will save 60% in my 401(k). Now, onto the 40% remaining of my paycheck for 2010.

Taxes will take up about 25% of the remainder of my paycheck. I plan on getting a full refund come April 2011 when I file my taxes, but there isn't an efficient way to keep the taxes from being taken out of my paycheck. I have just filed my W-4, which sets the amount to be taken out from my paycheck for taxes, but you can't really adjust it, it's a one-size-fits-all kind of form.

Therefore, I will have 30% of my paycheck left over to cover everything else. This includes my monthly mortgage payment, utilities, food, gas and entertainment. I know this is going to blow my budget, but I feel that saving for retirement- in a tax advantaged manner- is definitely worth it. As a result, I will be taking money out of my savings to make ends meet, at least until the end of this year. This will also result in limited spending in the entertainment division, which is the first on the chopping block when money runs dry. I still plan on being entertained, just for less money.

Come next year, I will be able to fully fund both my 401(k) and my IRA. This year, I am going to transfer money into my IRA from my regular investment account. Since it is all earmarked for investments, there will be no change in cash flow, just money moving from a taxable account to a tax advantaged account.

It may be a rough 5 months, but I definitely think it will be worth it when I retire and have that much more money. If you don't think it's worth it, think about the effects of compound earning on that money. If I invest $10,000 dollars today, earn a conservative 5% for 40 years (63 years old), I will have around $73,000. Now, if I continue to invest every year, I will build up a nice nest egg don't you think!

My Long Term Plan and the Impediments

2010-07-21T15:30:00.000-04:00

My long term goal is to accumulate wealth. I have had a great start, mostly with the help of my parents. They guided me to work, save, spend wisely, and invest. Also, they gave me hints about their path and plan, so I can modify and move in a straighter direction. So here goes:

I plan on saving the maximum in tax advantaged accounts (IRA and 401k). Any left over money after spending will also be saved. The impediment here is that for 2010 at least I am limited to 60% of my income in the 401(k). Originally I was hoping to save all that I could, 16,500, but that is more than 60% of what I will be earning once I start working this year. You can be sure that I will save the utmost possible. As for the IRA, I will certainly be able to fund the full 5,000 this year. Into the future, I don't plan on changing this savings goal- the plan is a full 21,500 (or as adjusted by our wonderful government) throughout my gainful employment.

Investing in real estate and earning rent. I hope, as long as I am able, to be able to keep the house I currently own and rent it out if I move to a new residence. In the future, I hope to continue to expand my home ownership, and hopefully have a portfolio of rental properties. The problem is: being a landlord! But I have confidence that I will grow into this role. Also, maintenance of the properties is a large job, so I will need to be relatively close in proximity to keep my eye on the house/occupants, and be able to do any repairs necessary.

Expanding my investments: stocks and bonds, commodities and real estate. I have mentioned this in previous posts. There shouldn't be any problems with this one. My retirement savings (IRA's and 401k) will be invested here. Possibly more investments will follow from funds that aren't in tax advantaged accounts- regular brokerage accounts (which I currently have).

I have been thinking lately (before I settle into my desk job) that I'm not sure if the desk job route is right for me. Therefore, I am trying to amend my plan to include early retirement and transition into new work, including using my hands. If I have a portfolio of houses, maybe I can concentrate on houses that need work, for a cheaper price. I can fix them up and then rent them out, using sweat equity instead of cash. But this idea is way down the line.

As an aside, I have just returned from vacation, and am easing myself back into the normal routine. Soon I will start working, hopefully getting blog material through that. If you have any comments or thoughts, please leave them below.

Not the Best Financial Decisions

2010-07-06T22:18:00.002-04:00

So last post I talked about the best financial decisions that I had made. Well, after some thought, I couldn't really come up with any really terrible decisions. (I know, how humble of me.)

The worst decision I could come up with was the car purchase. To buy a car brand new isn't the best financial decision- if you plan on selling the car or trading it in before it dies. Since most people do trade in their cars before they die, purchasing brand new is rarely the best financial decision. However, in this decision, a lot of emotions came in to play. I talked about it in another post, found here.

Now that I've gotten that off of my chest, there are several decisions that I haven't quite decided whether they were good or bad.

Firstly, purchasing the house. On paper, it seems like it will be a better decision than paying rent. Additionally, on an emotional basis, it seems better- I am instead paying a bank "rent" for a couple of years until the interest balance of my payment decreases, and I will ultimately be paying myself rent. However, there are many variables that are out of my control. If I lose my job, get transferred, or simply hate the neighborhood, it won't have been a great decision.

Another decision that hasn't panned out yet is my investment philosophy. I have made money investing in this manner, but have also lost money. Compared to a different investing methodology, I may be ahead or behind a "model portfolio." Who knows. Again, there are many variables that must be taken into consideration, and I don't think I will ever determine whether this is a better way to invest. I can say with confidence that the class I took and the books I read about using Technical Analysis to invest opened my eyes to a different way to invest where I didn't have to accept losses in my portfolio. this may turn into overall losses if I keep trading in my account and never really recoup the money that I lose by making those trades.

I know I have some loyal fans out there that will be more than willing to tell me of my worst decisions, so fire away!

Best Financial Decisions

2010-07-02T16:20:00.003-04:00

When I try to think of my best and worst financial decisions, I have a harder time thinking of the worst decisions. I don't know if this is hubris, selective memory, or optimism. Anyway, I will now discuss the decisions I have made that I think were particularly good.

Perhaps the very best decision was to attend the University of Maryland. I chose to do so, somewhat at my parent's prodding, because I received a full scholarship. The cheapest of my other choices would have cost about $25,000 a year. Big savings indeed. With additional scholarships that I earned, and the several jobs I held during college, I covered the majority of the cost of tuition, room and board for the 4.5 years I attended the university. The scholarship from the university covered my first 4 years, and the jobs I held and studies I participated in covered the additional semester, as well as most of my discretionary spending.

Studying abroad was much more expensive than normal tuition, but that experience was well worth the additional cost. If I were going through college again, I would definitely repeat that decision. Additionally, I can say that the choice I made to attend the University of Maryland would not be changed in retrospect.

Another financial decision that I have not come to regret is being frugal. I have a reputation for being conservative in my spending habits. In my experience, it hasn't resulted in a lower quality of life. Of course, to each is own, but I think that seeing my savings grow is more gratifying than purchasing an extra ice cream cone, new T-shirt, or iPhone. With that said, I have noticed that a carefully researched purchase does make me happy, given that I want or need it for enough time to consider my options and any impulses to wear off. This has been the case for my car, my house, and electronics I have purchased. I really can't say that I have bought anything else of consequence that didn't fall into those categories.

By researching major purchases, I like to think that I am more frugal than cheap. By deciding how to spend money judiciously, I hope to make my money last longer- a more expensive option may be higher quality and last longer. This has been my outlook for more expensive items, but I can't honestly say that I am as judicious on lower cost items.

I might add that being in college was a good reason to be frugal, and that it might not be as acceptable once I have a job and am making good money. However, I don't anticipate changing my ways. Instead, I have begun to rub off on people, namely my girlfriend. I hope to continue this trend, as "frugalista" has become a new buzz word in this economy.

I will make another post shortly on the worst financial decisions and the decisions that are still up in the air. I will need the weekend to come up with the bad decisions, so stay tuned!

Investing Philosophy

2010-06-28T20:45:00.003-04:00

I have mentioned a couple of times that I use Technical Analysis to guide my investing decisions. I will now explain further.

To invest, I use the charts of stocks to base my decisions upon. When a stock is trending upward, there are certain indicators in a stock's chart of price and volume. There are several indicators that I pay attention to, namely support and resistance, and volume confirming the price action.

My major principle is to get on a trend, after it has begun. I am not interested in buying a stock that is languishing, because I think it will eventually move higher. In fact, I think that the stock must be languishing for a reason. I believe that there are many different reasons for a stock to move higher, and I needn't know the reasons, only that it is moving higher. If it is moving higher, and has the proper support, maybe I can hop on and ride it for a little bit.

If a stock keeps hitting a certain price level and falling back down, then that is resistance, obviously. Support is the opposite. Additionally, there are trendlines, where support might occur in a slanted line, as the stock trends upward. Here is an example:When trend lines are broken, that indicates a reversal of course. In this particular example, the uptrend has changed, and the odds are likely that it will move downward.

Additional indicators that show support and resistance are Moving Averages. These are lines that are the average of the preceding price action. For example, the 20 day moving average will show the average price of the past 20 days. These are normally support and resistance to the price action, depending on whether it is above (support) or below (resistance).

There are various different time intervals, such as 20, 30, 50, 200 days. The longer the interval, the more likely the moving average is to provide the support or be resistance.

Another major indicator is Volume. If a stock goes up 10%, but has no increase in volume to support the large price change, it is not likely to be maintained, because not many people are buying. If a stock moves downward with an increase in volume, that means more people are selling it, therefore the price move has more merit. You can see the volume confirming the price action in the previous example. The increase in price, left of the annotation, is accompanied by an increase in volume, thus confirming the increase in price. When the trendline is broken, there is an increase in volume on the days that the stock price falls. This confirms the decreasing price, therefore indicating the price is likely to continue to decrease.

Of course, there are many detractors from Technical Analysis, and one needs to research it fully before you use it to invest real money. I took a course in college on this method of investing, and have been hooked ever since. That was about 3.5 years ago, and I can honestly say that I have made lots of money, and lost lots of money too. That said, I do anticipate using this method of investing as my means of making choices in my personal trading portfolio.

I will elaborate further in the future on how I plan on investing the money in my retirement accounts in a 401(k).

Financial Websites

2010-06-25T15:17:00.002-04:00

Some of the websites that I peruse regularly, as related to finance, could be very useful or interesting to you. Of course, I find some financial articles on other sites and read them, but when I am purposely looking for financial reads, I check these.

To get my financial news, I mostly use Bloomberg.com and Yahoo Finance. These give me the headlines, and Bloomberg is particularly interesting, because it focuses on business news as well as news affecting the financial markets. Yahoo Finance has been my go to staple for stock quotes, keeping up with my portfolio, as well as interesting reading on financial issues. Of course, I don't take the articles as seriously as I do Bloomberg's, I have more faith in Bloomberg's reporting.

I also follow several financial blogs. These relate to the stock market, and are very biased toward the investing methodology that I use. That methodology is Technical Analysis, which makes use of a stock's chart of past price action to make choices for the future. Anyways, they are as follows. Wishing Wealth is a blog put on by a teacher of mine, whose course was all about technical analysis. Another site that I follow is by a manager of a hedge fund. Each morning he has analysis on the market, and to get the daily update, I follow his twitter.

To get up to date charts, I use Free Stock Charts. They are up to the minute charts, usually with about a 3 to 5 second delay. The site allows me to do everything I want regarding stock charts, and gives me current quotes and chart action.

I was contacted a week ago about getting this blog on a financial blog directory, and have done so. The list is relatively short, but I have not perused it. You can find it here. Just looking at the titles and the short descriptions, if I had the time, I am sure I could find some great blogs on financial topics.

Do you have any different websites that you check regularly?

Summer Vacation

2010-06-21T22:06:00.005-04:00

It's summertime, which is also vacation time for many, so I have decided to share some of my low cost vacation ideas.

Visiting family or friends. This gives an extremely low cost option to spend the night. Hopefully if they are good enough people, they will let you stay for free! Also, given that they are locals where ever they live, they could clue you in to the best value in local food and entertainment. Heck, they might even take you out to dinner!

Doing a road trip is also a good option, as the entertainment can be cheap as you drive and find local tourist traps. Finding cheap hotels along the way makes lodging affordable too.

Finally, which I am most excited about, is to head to areas that have others skeptical. Right now, that means the Gulf of Mexico or to the country of Mexico. The country of Mexico is having serious trouble with gang violence. This is hurting their tourism industry quite substantially. However, the gang problems aren't in the entire country. If the gangs are bad close to the US border, then it might be OK to consider southern Mexico. I am not sure of the actual locations of the problems or safe zones, and you should consider all risks carefully. The other option is the Gulf of Mexico. If you have been under a rock for the latest 60 odd days, there is a gigantic oil spill down there. There is oil washing up on the beaches, in some locations, and that is nasty. However the oil is not everywhere. From looking at the travel options to the Gulf area, you'd think that the entire geographic area was radioactive. I recently found trips to the Gulf area (Florida and New Orleans) for four nights accommodations and airfare for under 400 bucks a person. Normally flights alone are more expensive than that!

Now, to find these great deals, I used Priceline.com, but there are many others. So many actually that it can make the search a little bit counterproductive. I have heard of Kayak.com, which aggregates all the deals from priceline, expedia, orbitz and others. However, when I tried to use it today, I couldn't quite figure it out in the limited amount of time I was dedicating to finding a deal.

Also this summer, I am going on a cruise with my parents. If you have never been on a cruise, when you come to the port cities, there are a bunch of options for tours and activities on land. The cruise ships offer connections to companies that do these activities, but charge a very hefty price tag for it. In planning our vacation, I found all the same tours for about a 25-50% discount but not using the cruise's booking service. Now, after searching the local areas, I found more interesting and lower cost options that we could do instead.

Finally, one of the better parts of the vacation is the planning part. Getting to know the destination and your options there, whether low cost or not, gives you something to look forward to, and a little bit of vacationing before you even leave your doorstep.

Gasoline

2010-06-15T10:41:00.004-04:00

A couple of posts back I talked about how to use less gas while driving. There is another way to save money on gas: the purchase process.

I have seen many ads, especially for Shell gas, that talk about some gas being cleaner than others. While I am sure there is some difference, it must be put into perspective. I did some research, and found -through another's research and article- that the difference is really a solvent that is added to a tanker truck of gas. This amounts to less than a gallon of solvent - I believe the author said it was a quart (1/4 gallon) in an 8000 gallon truck.

Most of my local Shell stations are more expensive than their competitors. Does this.003125% of the contents of the gasoline really make it worth the extra 5 to 10 cents per gallon? I don't think so. However, all other things constant: price, ease of access, etc.- I will get the Shell gas.^{Basically, my belief is that gas is gas. So I constantly seek out the cheapest gas. How? I have found several websites that list local gas prices, and I do some research before I head to fill up.}
^{Gasbuddy.com is one site that works on submitted gas prices from normal people. Of course, this is subject to time-lag, so it may not always be accurate. Another site is MSN's gas prices. This seems to work better for me than Gas Buddy, but that could be specific to my neighborhood. I suppose one could do a search on google for gas prices. I just saw a response for AOL's gas price monitor.

Finally, it helps to not waste gas when actually pumping it. The way that gas pumps work- with the automatic shutoff is simple. There is a little sensor inside the pump, and when gas flushes back up and hits this sensor, the pump shuts off. I used to click it multiple times to get my balance to an even dollar amount. But, if you realize that each time it clicks, a little bit of gas gets flushed back up the pump, you are paying for some gas you aren't getting. That said, I have changed my habit to let it click twice. That is because I have instances where it clicked off, incorrectly indicating the tank was full. Also, this strategy of clicking the pump twice has yielded a consistent point of judgment for calculating my gas mileage.}

Food

2010-06-09T15:28:00.000-04:00

One of my major expenses is food. That's not only because I eat so much, I imagine it's an expensive component of everyone's budget. I have tried with much success to have a small(er) food budget and still eat well.

To give an example, this past summer, I tried to see how little I could spend a week on food. I was working full time, and spent just $20 per week on food for the entire summer. I didn't lose weight, wasn't hungry all the time, and didn't become disgusted with my diet either.

My largest expenses for food are fruits and vegetables. Fresh produce is just plain expensive. The store bought frozen food sometimes just doesn't cut it. Frozen produce is much cheaper, so if I am making a soup, I would use it then. Other than that, I prefer the fresh stuff. I figure that I can easily cut back on bread and starches, meat, and drinks, but possibly the most important aspect - taste wise - of a meal is a fruit and vegetable.

I say I can cut back on meat, but this is very specific to my circumstances. You see, I don't pay for meat. ...Much that is. I am a sportsman, so I get about half of my carnivorous delicacies through sporting activities, such as fishing and hunting. This past year, my family got 150+ meals of red meat from hunting, and it was basically free. Second of all, my father works for a chicken company, so we can get chicken for up to 75% off.

If you don't hunt, fish, or have connections, my suggestions would be to find out when your local supermarket marks down its meat. If any meat comes close to its sale date, then they must reduce its price to make it sell quickly. For example, a tray of pork chops may be placed out for sale on June 9th, and remain salable until June 16th. On June 15th, its price will probably be reduced. This is a perfect opportunity to get heavily discounted meat. Just freeze it, and you can use it whenever you need it. Another idea is to get your meat from bulk food stores such as Costco. From what I understand, they have good deals, and again you can freeze the excess.

Starches, including rice, pasta, potatoes etc. are cheap. Also, conveniently they are located at the bottom of the food pyramid, so load up here! As for bread, I follow the aforementioned strategy of getting the bread that has been reduced because it close to its "Sale By" date. You can freeze bread, and with a toast or pop in the oven it is good as brand new!

To drink, I mainly drink water (free - not bottled) or milk. For milk, I am constantly searching for good deals. Again, it is possible to freeze milk, so buying more to economize is definitely an option.

Finally, fruits and vegetables. Americans seem to have a major aversion to any fruits or vegetables that don't look perfect. I have found many deals on produce if the banana is a little bit brown, or the limes are a little hard. It pays to check the produce section for reduced prices on (slightly) damaged or older produce. Of course, if it is bad, then no deal would make it worth it, so choose carefully. Other than reduced priced produce, I tend to buy what is in season. Also, I stick to cheaper vegetables that most people won't eat. Cabbage? Love it. Turnips, yep I'll give them a try. Kale, Collard greens, For Sure! I also lean heavily on onions and garlic, which add great flavor to many kitchen's offerings.

Do not forget that the most economical option with regards to produce is to grow your own. In my family's garden, we have string beans, tomatoes, radishes, spinach, lettuce, peppers, and asparagus. We haven't gotten on the fruit bandwagon yet, but that may be forthcoming.

With all of that said, I love to cook and I certainly love to eat. I have not found that my diet has suffered because of my frugal ways, so feel free to change your habits and diet to save a little dough (pun intended) and you just might enjoy it more than you could have imagined.

Credit Scores

2010-06-04T12:51:00.000-04:00

I talked the other day a little bit about credit scores, the ultimate end result of your credit report. Basically, all sorts of information about your use of credit are pulled together to generate a sort of credit rating for you. This tells lenders how risky you are, and therefore provides a cost of credit.

I will borrow heavily from an article I read the other day to break down the components of a credit score. Some portions are heavily under your control, whereas others aren't really. They all actually are, but most aren't able to be changed quickly or prudently.

35% - Timeliness of payments
Pay on time. It's that simple, and I make it even more simple by adding reminders to my Google Calendar. I get an email reminder 7 days before each bill is due, which is plenty of time to do my bill pay online to get it paid. In actuality, a late payment won't hurt your credit score until it is over 30 days late, but I wouldn't recommend messing around with this one.

30% - Credit Utilization
If you have a credit limit on your credit card of $5000, you don't want to use all of that. To work towards or keep a good credit score, you shouldn't use more than 20% of your available credit, and a lower usage rate is better.

15% - Length of Credit History
This is hard to extend, but you can certainly keep it long. This can be done by keeping your oldest credit card active. Instead of shutting it, which would reduce your credit history to the next oldest card (or other credit account i.e. mortgage), you could keep it open and use it for small charges intermittently so that it stays active. Some credit companies are canceling cards that are dormant for long periods of time, so you should shoot for using each credit card once a quarter at least.

10% - Recent debt additions
This one refers to whether you have recently applied for a credit card or mortgage. By adding more debt recently, your riskiness increases, at least in the eyes of lenders. Therefore, you should abstain from applying for each and every department store card at checkout. Plan your credit additions, and look for the best features of a card. Other things, such as a mortgage or car loan, also need to be meticulously planned, both for the effect on your credit score, and the other, bigger financial decision behind it.

10% - Mix of Credit
Having different types of credit is better for your score. If you have one credit card, that is just OK. If you have a mortgage, a car loan, and four credit cards, much better. Of course, you shouldn't go out and take a mortgage and car loan to boost your credit score. Therefore, this one is mostly out of control.

By maintaining a high credit score, you will be able to get better interest rates on all sorts of debt, whether a mortgage, car loan or for the credit cards. Having a good credit score and report can also affect many other areas of your life. Employers, landlords, utility companies and other groups of people can see your credit report. That should make it even more important to you to utilize your credit wisely, get and keep a good credit score.

If you would like to see the article that I got a lot of this information from, you can see it here. I won't blame you for wanting to read it from a real writer.

Free Credit Report

2010-06-01T21:03:00.002-04:00

You should check your credit report. It's free, plus it can lead to solving errors that could save you serious money. I may be jumping the gun here without explaining the credit score, but I promise to do that in more detail later. I was reading up on it a lot this weekend, and am just brimming with juicy info!

Go to www.annualcreditreport.com to do this. Ignore the fancy jingles on TV, because they actually stick it to you by making you sign up for their (not free) service to get your free credit report.

Today I got my report from Experian. The layout described below is presumably just for Experian, as I have not tried the other two credit bureaus. Obviously, there are three bureaus, and you can get all three reports through annualcreditreport. You are allowed one score from each of these bureaus (Experian, Transunion, and Equifax) every 12 months. I have scheduled mine in my calendar on June 1, October 1, and February 1. You have more exciting things on your calendar? You don't say...

You can get your credit report (not score) through that website, and it will list all of your accounts, whether in good standing or not. Next is the record of requests of your credit history. I got a bunch of requests on my record from my shopping for a mortgage. Next is inquiries shared only with you, included in this for me was for my insurance, electric bill, and when my mortgage was sold to another company. Finally is my personal information. This shows my employer, address and whatnot. In my report, my employer was a landscaping company that I worked for approximately 4 years ago, needless to say this isn't correct. If it was a more serious error, I would easily be able to dispute the claim through the website that I get the report from.

If there are errors, you can dispute them and usually get them resolved in 30 to 45 days. If you were shopping for a loan, fixing an error could raise your credit score substantially. I have heard a story of someone with an outstanding loan balance listed on their report, that was actually paid almost 10 years prior. Getting something like that fixed will really help you get a lower interest rate ($$).

All that said about saving money, its actually really kind of interesting to see what lenders get to see about you. Maybe I'm a nerd, but this whole thing was pretty cool, I can't wait until October to get my next one!!

Hypermiling Results

2010-05-28T09:18:00.003-04:00

I am ecstatic. This recent gas tank, about 450 miles worth, I got an average of 38.7 miles per gallon. That is an increase of over 20% from my normal fuel economy with this approximate round trip. I drove about 400 highway miles and about 50 or so in the city/stop and go traffic.

Wonder what fancy things I did to increase my mileage that much? All were from my previous post.

I drove slow, maxing out at 60 mph on most of the highways I was on. This was still over the speed limit, but obviously less than traffic was traveling. I admit a couple of times I went over this speed, sometimes by quite a margin. However, for the vast majority of those highway miles I kept it at 60 mph.

I tried not to use the AC. I also didn't roll my windows all the way down. I keep my driver's side windows open a couple of inches, which allowed for enough air flow. There was some driving that I had to use the AC, unfortunately it was the stop and go traffic part. That was a double whammy, stop and go was killing my MPG and so was the AC. However, this was better than sitting in 90 degree heat with a shirt and tie on...

I accelerated slowly and kept my RPMs below 2000 to 2500. Keeping them so low helped me accelerate slower, but I also had to keep an eye on that rear view mirror at the guys behind me that weren't expecting me to start from a stop so slowly.

I tried to anticipate the lights. If I saw that a light ahead was red, I would slow down ahead of time, so I could catch the light after it turned green. I also kept the car in gear, so engine breaking would occur, saving gas and my brakes. Also, see previous paragraph about drivers coming up your rear.

Finally, if I knew I was going to be stopped at a red light for a period of time over 15 seconds or so, I turned off my car. This didn't always occur, especially when I was at lights I wasn't familiar with, and I didn't want to keep turning my car off and on, not knowing the full extent of the wear and tear this would cause.

Overall, driving this past trip sucked. It was boring, frightening, and slow. But you know what made it all worth it? This morning's gas fill up, where I got 14% better mileage than the EPA for solely highway driving and 20% better than my normal driving results for this mix of driving. This return is the equivalent of saving more than 50 cents a gallon on gas! Does that make you a little more interested? In other words, you could turn your Ford Mustang's mileage into a Honda Accord's, or your Honda Civic's into a Honda Insight! All with basic changes to driving style, now only if I could make it a little more fun somehow...

Diversification

2010-05-26T12:03:00.000-04:00

A very important concept for regular investors is diversification. Instead of being exposed to risks associated with one company (such as BP) or one particular industry (Oil and Gas), if you own stocks of many industries, you would only be slightly affected.

The idea is to own a little piece of each respective portion of the financial securities out there. I say financial securities, because diversification includes more than just stocks. You should own some bonds, maybe commodities, real estate, etc.

Within stocks, there are tons of choices: by industry, size, and location (domestic vs. international). One easy way around this is to buy a diversified ETF or mutual fund. There are some out there that follow the entire world stock market. This keeps you covered with regards to everything: size, industry, and location, determined by the investment company. This means that they determine the amount that each stock is owned, so domestic companies may be weighted more, or holdings might be weighted by different means. At the most basic point, you wouldn't need to worry about it.

As for bonds, there are also many different factors: rating (credit worthiness), duration (length of time until the bonds mature, this indicates a bond's sensitivity to interest rate changes), taxability, and inflation protection. With higher credit rating, shorter duration, and tax free nature, there tends to be a lower yield. But, those factors usually make those bonds better, so you have a trade-off.

There are bonds funds out there that take care of these decisions for you too. Bonds are a little more complicated, based on your individual circumstances, but in general, it is best to go with intermediate duration bonds that are rated highly. The point of holding bonds is to reduce the risk of your stock market holdings. Because bonds confer regular payments of interest and priority in case of bankruptcy, there is less risk involved than stocks, which confer ownership interest.

One option for investors is a Target Date fund. These funds invest in a selected allocation of stocks to bonds for each target retirement date. As the retirement date approaches, the funds switch to a more conservative allocation of more bonds and less stocks. I am not sure whether they offer international, commodity or real estate diversification. International coverage would be the most likely, if any.

Commodities and real estate are two other areas you might want to consider. They offer returns in different ways that bonds and stock. By having something tangible, for the most part, they won't become completely worthless. Owning a fund that follows oil could help you profit from the rise in prices. Gold could help protect against inflation. Real estate funds offer high dividends- based on rental income.

Another major point is to consider your holdings outside of your investment account. If you have a savings account, you might consider that like a bond holding. If you have gold jewelry, you kind of own a commodity (given the CASH for GOLD places, you could sell it if you wanted). If you own your house, then you have real estate holdings, obviously.

The overarching point of diversification is to have investment holdings that reduce collective risk. If bond values rise when stocks fall, then you reduce risk. If inflation rises, your commodity holdings will offset some of the hurting you will receive in your bond holdings. And, it's always nice to have a place to live if the rest of your investments disappear.

Hypermiling

2010-05-20T22:52:00.000-04:00

Yesterday and today I got on a kick about fuel economy. It really started when I was looking at a used Honda Civic Hybrid. I was researching how they work and stuff, and decided to try and get the best gas mileage out of my car as possible.

There are tons of sites out there that explain how hypermiling works. Basically is it changing your methods of driving to eke out a couple more miles to the gallon. These guys online take it quite seriously, often getting 2x the EPA fuel economy for a given vehicle.

Some of the techniques are simple, and can be done in every car, whereas some techniques are a little more advanced and can be quite frightening when done in a normal car...

Today I had a long drive, so I decided to try some of them out. I haven't refilled my car yet, so I don't know what the results are, but I will be sure to let you know.

Drive slower. Obvious, but it bears repeating.

Acceleration: When accelerating, it is best to do it as slow as possible. Also, try to not let the car rev beyond 2000 rpms. You can force a shift in an automatic car by releasing the gas pedal somewhat at the point you want the car to shift.

Red lights: If at all possible, try to avoid stopping. The most legal way to do this is to slow down way before a red light. Let other people beat you to the light and trip it for you, and you can roll right through the green light. Also, if you see in the distance that the light has been green for a while, you could almost anticipate it turning red, so don't race towards it. Finally, in my area, we have some signs out in front of traffic lights that will tell you if the signal is going to turn red by the time you arrive to it. If these signs tell me the light will be red, I start to slow down immediately. I don't hit the brakes, I just coast and slowly decelerate as I approach.

Deceleration: Like I just mentioned, coasting is one of the best ways to decelerate. This is best because it prevents you from driving at speed to your stopping point and hitting the brakes hard when you approach. Also, because my car is a modern manual transmission, I like to keep it in gear when I decelerate. I have read (but not completely convinced myself) that keeping the car in gear without touching the gas pedal will actually not cause gas usage. The idea is that the tires turning will keep the transmission turning, therefore kind of working backwards from how a normal engine operates. This creates drag (engine running backwards) and slows your car down, while not using gasoline. This also will save your brake pads.

Turning off your engine: There are two different applications for this one, one sane application and the other quite insane. Firstly, if your car has a fuel injection engine, it is better to turn your car off when sitting still than idle. Now the timing is a point of contention, I have heard anywhere from 7 seconds to 1 minute. That is to say, if you are going to sit still for more than 1 minute, it is better to turn your car off. I try to turn my car off if I know I will be sitting still for more than 20 to 30 seconds. This technique uses less gas to restart the car than it would just to idle there for that time.

The other time that you could turn off your engine is when coasting along on the highway. This is quite frightening actually. I tried it today and was definitely a little scared. The idea is that when you are coasting, or going downhill, you can turn your car off to achieve a little bit higher gas mileage. The brakes will still work for several applications, personally I wouldn't try more than two hits on the brakes. Also, you will most definitely lose power steering, also quite noteworthy. The proper technique is to put the car in neutral (MANDATORY) and turn the car off, one click above where you can pull your key out. Then turn the key back to where your electronics are on, and coast until you need to turn your car back on. When this happens, just turn the key, and you can put the car back in gear. You will need to try to match the revs of the engine to where it needs to be to get the car in the proper gear.

After reading that, the second application of turning your car off should only be tried if you are an experienced hypermiler. Also, it has a questionable legal status, so be careful out there.

There are tons of other hypermiling techniques, some questionable, others laughable.

Overinflating tires: Inflate your tires to the maximum on the sidewall of the tire, not the amount listed for the car. This supposedly can increase mileage by 10%, but at what cost?

Drafting: Same concept as bike riding, where you get behind another vehicle and use their disruption of air to decrease your air resistance.

As for a laughable one: on Mythbusters I saw them make a care with dimples like a golfball, and it had significant gains in fuel economy. The cause had something to do with the little dimples creating pockets of air that decreased total air resistance. Care to drive a golfball car anyone?

Car Financing

2010-05-18T15:45:00.000-04:00

When purchasing a car, financing is a major issue.

If you have the option to pay cash, great! You will save yourself interest costs. However, if you can get a low enough interest rate, you might be better off doing the financing and investing your money to achieve a higher return.

If you can't pay cash, well, you'll be financing. What it comes down to is a loan, which works in a very similar fashion to a mortgage.

You have a down payment, and you take a loan for the rest. There are many different terms of loans, namely the period of time you have the loan. And sometimes, that's the catch with the lower interest rates offered (0%). Car loans often vary between 24 months out to 60 or 72 months (6 years!!!) If you have a low interest rate, the loan may have a shorter term, such as two years. This means higher monthly payments, but if possible, this would be preferable to paying more interest.

As for how interest is paid, the loans also differ on this front. Some loans work just like a mortgage, where you pay more interest than principal in the early months of payment, and your payment percentage shifts towards principal over the course of the loan. Other loans (most likely from banks or credit unions) have a set fixed percentage, such as 70% principal, 30% interest for each monthly payment.

When shopping for car loans, it might pay to check out banks or credit unions instead of simply using the dealer for financing. What dealers do is get a loan for you from a bank, and add interest to that loan, so you end up paying more. This is where they earn their money on the financing aspect. However, there is added convenience, because sometimes when you are car shopping (nights/weekends) the banks are closed. A little planning could save serious money.

Banks or credit unions will be much more likely and willing to explain all of the aspects of the car loan. Car dealer's- not so much (it seems to be in their best interest to keep you in the dark). It may be hard for banks to beat the very low interest rates being advertised on TV (if you can qualify), so it might be worthwhile to get the explanation from the bank, and actually use the dealer if they offer much more attractive rates.

Another major consideration when shopping for a car, and planning on using financing, is to negotiate the two items separately. First, you want to get the best price you can on the car. Next, you want to get the best interest rate/terms on the loan. Otherwise, they could extend your loan's length to make up for the reduced price of the car, and still gouge that money out of you, you just will hurt a little less for a little longer.

Finally, make sure that everything in your loan covenant (contract) is exactly what you agreed upon. Those car dealers are sneaky, and will try to get you somehow, and it's YOUR money.

Message to my viewers

2010-05-13T19:53:00.002-04:00

Lots have happened in this past month, I have had approximately 200 page loads, and I can feel it gaining momentum.

In the past week I have been hit by a google bot, so Google's search engine has crawled my site, and I can now be found through their search engine. You have to play with the search terms a little bit to find a direct link to this page, but that's cool with me.

Today I added some ads that will be featured on the side bar and between some posts, and hopefully I can make some money to support myself. HA!

I wanted to thank each and everyone of my viewers, I am sure I know each and every one of you. I'd like to change that, so if you can, spread the word to people who don't quite know me.

Thanks, and I look forward to continuing to provide you with a window into my frugal little world as it conquers the rest of the world!

Danny

Cars: New vs. Used

2010-05-13T16:58:00.000-04:00

In a week, it will be the 1 year anniversary! of buying a new car. Wasn't quite as exciting as you thought huh...

I went new, lots of people do, but there are plenty of reasons to go used too.

For new, the pros are:
Brand new model- fancy!
No previous drivers
Car Dealer support for problems
Envy of friends

For used, the main pro is that you could possibly get more value for your money (less depreciation). I say possibly because you could buy a real clunker too.

For me, I wasn't as worried as much about the depreciation- when value decreases over time. New cars typically lose 20% of their value the second you drive it off the lot and it changes from NEW! to used... However, for me, this value drop doesn't mean a thing, because it is only relevant if you plan on selling your car soon. I, hopefully, don't plan on selling it until there isn't any life left to it. Based on the previous vehicles my family has owned, I hope to make it to the 200,000 mile mark, and wouldn't be surprised if I got significantly more, cars are made well these days.

I also liked the new model and the car dealer support. I have taken it back to the dealer a couple of times to get that free support: question about a ambient temperature gauge, and a free oil change. My dealer will also rotate my tires for me and give me a checkup (if I wanted that for some reason).

The overarching concern I had was that I was buying something another person had driven for a while. With a used car, you don't know how recklessly the previous owner has treated the car, but you can certainly guess. With a new car, you don't have to worry.

The most cost-effective decision would be to buy a used car, making sure you could get the most information about the vehicle's past as possible. If the owner was an 80 year old woman awesome! You can rest assured you were the first person to drive it over 50 mph! Lots of owners who plan on reselling their cars keep records of all maintenance so that will instill confidence. Primarily, by buying a used car, you are letting that previous owner take the hit with the depreciation. You are just getting hit with the cost of uncertainty.

As for me and my trust issues, that depreciation was well worth being able to sleep better at night.

There is a middle ground though, a certified used car is one that has been checked over by the car company and has been certified as a good car. They usually come with warranties. This means you have the backing of the car company that this particular car is in good working order and won't fall apart when you drive it off the lot. Of course, this certainty also comes with a price- certified used cars are significantly more expensive than their "uncertified" counterparts.

Personally, if I were to go the used car route, I would attempt to find an "uncertified" car and get a mechanic to check it out for me. That way, I could be assured of the present condition, without shelling out lots of extra money. I wouldn't have the warranty, but the savings could surpass any costs that would have been covered by that warranty. Also, I would pick a car that has great reliability ratings, so problems would be less likely to crop up anyways.

To close, I would like to bid you farewell with a simple Tata (both a foriegn car maker, and a delectable way to say good bye.)

Education

2010-05-10T13:11:00.000-04:00

A little background on my education:

I went to the University of Maryland, College Park. I got a Bachelor's Degree in Finance and another Bachelor's Degree in Accounting. These two degrees complemented each other well, and have prepared me for the CPA exam, for which I am currently studying.

The most interesting classes that I took throughout college centered on history and culture, and on finance. History and Culture, sounds and is interesting, but doesn't quite make money... Finance on the other hand, can make gobs of money, sometimes. You know what consistently makes money? Accounting... and I'm a pragmatist.

But anyway, the two best Finance classes I took were centered on the stock market, futures, and options. In one, I was introduced to Technical Analysis, a way of using past stock market movements to make trading decisions. This was probably the most influential of all of my college classes. It formed my investing philosophy. The other class was on Futures and Options. This opened a new world of investing to me, namely futures and options! Futures are large bets on future values. For example, you buy a futures contract [that will allow you] to buy 100,000 barrels of oil at $80 on October 21st. Options however, are securities that give you the option to buy that oil for $80 until October 21st.

Of course, with options, there are smaller increments, so individual investors can partake in the fun.

Most importantly, these classes presented me with drastically new information about the capital markets. In the futures and options class, we had a daily market commentary, where individuals reported on their market segments: treasury bonds, mortgage bonds, equity markets, futures markets, commodities, economics, politics, etc. The reality is that these all play into how the capital markets (bonds, stocks, commodities, futures) interact.

For example, I will highlight the recent proceedings in Europe. For background, Greece has promised its citizens too many social programs, and can't fund it anymore. They have accumulated too much debt, have too little tax revenue, and are hardly positioned to rebound with the economy. Why did this happen? Over-promising social programs, a recession drastically reduced tax revenue, and fraud. So economics played a large role in the political troubles. This has caused currency markets to be hit hard, the euro has lost significant value. Additionally, bond markets have been hit hard, Greece's bonds are yielding extremely high yields, but US bonds are doing well, because people are seeking security (US bonds are considered risk less- but for how long?). Mortgage rates actually fell, because they are considered less risky, so people are more interested in buying them, making their prices go up, and yields down (a bond sold at $100 yields 8%, but when its price is bought up to 102, it yields 7.8%) Equity markets are getting hurt by the uncertainty in the world arena. Commodities fell because of a chance of a slide back into economic straights.

Therefore, I can say the best education I got was just to see how everything is interconnected. The past forever influences the future, and current events is forever influencing other current events. If you think that one thing on the news doesn't somehow affect the price of something else, eventually creating a pretty big snowball, you don't have that snowball's chance in hell.