Personal Finance Blog

Tips And Stories To Help You With Managing Money

Building Up Your Savings Accounts

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Savings Accuonts
Save For Rainy Days

Every year a survey called the Financial Literacy Survey, questions about 2,000 adults that are over 18 years of age. Results from this year indicate that building a savings account is the one area of improvement that people need to make. About two in five people say that their emergency savings account is something they are constantly worried about. The same amount of people are worried about not having enough money set aside for retirement. So how can you save more money?

Give Up A Bad Habit

People enjoy habits because they make life easier and require less thought. It is time to ask yourself what habit have you created that is costing you money every week? Which one can you manage to live without? If you are eating lunch out 5 times a week, you could be spending $200 a month ($2,400 a year) on this luxury. Cut down to 2 times a week and you can save up to $1,440 a year.

Save The Change

Create a place to empty out all the change you accumulate each day. Save the change plus the lowest bill in your wallet. Make this a habit for a month. See how long you can do it and add up the amount you have saved. To build real wealth, put that money in a money market savings account or mutual fund. The longer you leave it alone, the more it will grow.

Spend Less Than You Earn

There is no way to build wealth unless you spend less than you earn. To meet this goal, you may have to increase your income, just to start saving the amount of money you need. Evaluate what you need to adjust in your life to make this possible and then do it.

Learn From The Best Finance Books

Dave Ramsey’s Total Money Makeover will teach you how to get rid of debt and build wealth. It is nice to learn from someone who has seen both poverty and wealth.

Ilyce R. Glink, wrote a book called, “50 Simple Things You Can Do To Improve Your Personal Finances.” Her first suggestion involves preparing a place in your home for handling your personal finance tasks. Getting organized like this really helps. She also offers many new ideas about saving money. She covers topics like taxes, credit reports, planning for retirement and budgeting. For a short read, this book is worth the current price of $2.89.

Learning Online

Since 2008, the number of people that said they have learned about personal finance on the internet has grown from 4% to 12%. While everything you read on the Internet is not guaranteed to be true, there are reliable sources for you to use without hesitation. Bankrate.com has a trusted reputation and provides you with current mortgage rates, housing trends and retirement information.

Although many people report that they don’t feel that they have enough of a savings account, there are many solutions to that problem. Start today by using these personal finance tips from Coolchecks.net.

Achieving A Financially Successful Life

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One of the basic foundations for building and maintaining a successful financial life focuses on using regular income to provide you with a basic lifestyle and money in savings to meet emergencies. This may take years to accomplish, but proves to be the foundation of financial success.

Good Cash and Credit Management Practices

Managing cash and credit is a skill that can be beneficial for a lifetime. People sometimes fail to realize that credit card companies are in the business of making money off people who can’t do basic math or don’t project into the future how much their purchases will really cost. They bank on human nature to be lackadaisical with their payments.

Some Americans have adopted credit card usage as a “way of life.” Credit cards have been singled out as one of the most perilous consumer financial products and frequently leads to over indebtedness. Using credit cards to pay for unexpected difficulties is one of the biggest problems.

Managing Expenditures Adequately

Being able to keep your living expenses well below your income level is ideally the best strategy to take. Your entire financial success depends on being able to do this. This allows you to build up an adequate savings to handle unforeseen emergencies and helps you stay out of thinking that your best solution is to use a line of credit to pay your debts. It also allows you to build up savings for investment purposes. If you find that you aren’t in this position, then it is time to think about alternate ways to bring in income.

Income and Asset Protection

Insurance is one way to protect your assets. Car insurance minimizes losses from car accidents. Home insurance minimizes losses from accidents as well. Life insurance can protect your children in the event of your death. Using insurance to protect you from losses is wise, but be sure to do research into the details of each policy and carefully examine the risks you are taking.

Investing Wisely

No one wants to lose money so investing wisely is a skill worth learning. Because money can return a positive rate of return over time, it is best to start saving early in life. A $10,000 investment can grow to $57,430 in 30 years at 6% interest.

Preparing for Retirement and Estate Planning

You really need to start planning for retirement at the beginning of your earning career. Many folks put this off until it really is too late to do anything about. Starting at an early age, the time value of money can really work for your benefit.

Achieving financial success is a life time goal, but takes daily effort. The more effort you input, the more you will enjoy rewards.

5 Lifetime Financial Objectives

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Financial success means something different to every person. Some want to have enough money to pay the rent, pay their mortgage and just get by, while others seek to acquire a huge estate. You may want to be a millionaire by age 30, however most people just want to have a comfortable lifestyle. Few people reach financial success without restraining their current spending.

Becoming active in savings for future consumption is a habit everyone needs to get into. According to the book “Personal Finance,” by E. Thomas Garman, from the Virginia Polytechnic Institute and State University, lifetime financial goals generally cover 1.) Maximizing Earnings and Wealth 2.) Practicing Efficient Consumption 3.) Finding Life Satisfaction 4.) Reaching Financial Security 5.) Accumulating Wealth for Retirement and an Estate.

Maximizing Earnings and Wealth

Having an abundance of money and valuable assets requires one fundamental principal: spending less than you earn. Budgeting and planning for this is a top priority. Another goal then needs to be focused on maximizing your earnings. You can accomplish that through employment, entrepreneurship and/or investing. How you do this is entirely up to you and unique to your particular interests and passions.

Practicing Efficient Consumption

We use money either for consuming or saving. Efficient consumption comes from practicing good financial skills, like keeping good financial records, avoiding impulse spending, using credit wisely and keeping living expenses down. Failing to do this is often a result of carelessly spending money on non-essentials and ignoring monthly obligations.

Finding Life Satisfaction

Your satisfaction with life may come from being debt free, owning a home, going on vacations, educating your children, living well in retirement and leaving an inheritance for your children. All of these goals can be achieved through a variety of career paths and every day investment decisions. Financial success offers you a better quality of life whether you want to live well or give your money away.

Reaching Financial Security

Financial security is not about having earned a specific amount of money. It is more in the comfortable feeling you gain when your resources will adequately fill any needs you might have and most of your wants. Free from doubt, anxiety or fear about money is a wonderful place to be. You will need to have a career with potential, an adequate emergency fund, investments an estate plan and a will. Setting short term and long term goals is absolutely essential to achieving financial security.

Accumulating Wealth for Retirement and an Estate

Many financial goals are set to make sure that retirement is a time of life that is comfortable and enjoyable. Seeing this goal as a young adult is really a precious gift. The value of time in savings and investing is really priceless. Anyone who can see that from the start of their careers is on the right course to achieving financial security.

5 Reasons People Avoid Reading Personal Finance Articles

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Personal finance articles are written to help people gain better information about helping themselves improve their financial condition, yet the people who need this information the most often avoid it altogether. Why?

Reason #1 – Lacking Belief

The mindset of a person that is struggling financially is negative. Plain and simply, they do not believe they have the power to change their lives. They then convince themselves that nothing is going to help so why look for help.

Reason #2 – Firm Belief They Are Doing Everything Right

Along with lacking belief, people think that there is nothing more they could possible do. To avoid feeling even worse about themselves, they then avoid learning more.

Reason #3 – They See No Reward In Learning New Strategies

People respond well when given rewards. If they feel they are failing already, then reading more makes them feel worse. There is no reward in their mind for learning new strategies.

Reason #4 – Lack of Establishing A Habit Of Reading

In the book, “The Power of Habit” by Charles Duhigg, award-winning New York Times business reporter, we learn that in order to establish a daily habit, people need to experience a reward. To establish a habit, the desired activity needs to be repeated regularly and occur subconsciously. So the habit of reading may not be one of the goals of someone having financial difficulty.

Reason #5 – A Desire To Feel Smart

Human beings seem to get an internal reward that feels good if they are given a task to do that challenges them and makes them feel “smart.” This intrinsic reward sets the stage for many life decisions. People having financial difficulty are struggling on so many levels, that they actually need more experiences that validate their need to feel smart. Reading about personal finance reminds them that they are lacking in this area and creates a negative reward.

So now that we know why people avoid reading personal finance articles, how do personal finance writers get more readers for their articles? We will respond to that question by referring to the top reasons people avoid this behavior. Here are five suggestions to get writers past the objections people use.

Solution # 1 – Provide Examples of Success

To combat the lack of belief obstacle, let’s provide some examples of people who fought through their challenges and came out winning. Dave Ramsey, a popular personal finance writer, had a portfolio worth $4 million dollars by the age of 26. He purchased real estate with money borrowed from one bank and that bank sold their holdings to another bank. The Tax Reform Act of 1986 ended up affecting one of his creditors who called a real estate loan due in 90 days. The only relief he could get was to declare bankruptcy. From that point on, he was determined to help other people with their finances and encourages people to get to the debt free stage and stay that way. He has enjoyed financial success because of his struggles.

Solution # 2 – Provide A Disruption In Thinking

To help people who think that they are doing everything right, they need to experience a “disruption” in their thinking patterns. An interesting study of a product that most people have now heard of, Proctor and Gamble’s air deodorizer Fabreeze, proved that people don’t often smell bad odors in their own houses. Why? Because they become so used to odors in their own homes that they were no longer offensive. They couldn’t smell it. What marketers did when they discovered that was to find a new reward for using the product. They studied women (lots of women) who cleaned their houses. After the cleaning was done, women smiled as they looked at their work. So the marketing department focused on this particular reward: The completion of the task and the finishing touches that a spray of Fabreeze could provide. Their product started hitting record sales levels. Remind people of what they could be experiencing with added attention to personal finance.

Solution # 3 – Help People See The Rewards Of Saving

Saving money is the toughest challenge we face. Whether rich or poor, saving money is mandatory. Without that chunk of money, people have no ability to make large purchases or to have a cushion to rely on for emergencies. Savings that are automatic and a predetermined percentage of monthly income seems to work for a lot of people.

Solution #4 – Develop Habits of Reading About Personal Finance

Personal finance can be dull, boring or even put some people to sleep. Why? Because people want to think they are doing their best or that they already know it all. They are not looking for the next hill to climb. Find someone who is a good mentor and then follow their strategies.

Solution #5 – Help People Feel Smart

Recognize all the decisions that helped them get this far in life. Help them plan new strategies and dump ones they have been burned on. There are always horror stories about people who make decent money, yet have no savings or find themselves spending more than they make. Just hearing some of these stories can be motivational or at least entertaining.

Changing your thinking patterns and setting new goals can put you one step closer to living a richer life. Start today by doing one small thing differently. Your success is up to you.

5 Tips for Mutual Fund Investments

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Many new investors fall into a common trap created during bull markets, as a percentage of your paycheck is automatically invested into the mutual funds tied to your 401(k) plan.  This automated process leads many investors to rely on the relatively easy, cheap and low-risk approach to capitalize on the long term benefits of stock ownership.  But even with this easy process, it is still possible to make costly mistakes that can diminish returns and put your wider portfolio in danger.  Coolchecks.net customers and anyone who wants to maximize their investments need to be aware of some common pitfalls that investors should avoid.

1 – Know the Stocks You Own

Most investors believe their 401(k) plan is well-diversified.  Let’s say that we invest half of a retirement savings account in a Tech fund and the other half in a fund that is tied to the S&P 500.  Without looking at the actual stocks being purchased, it can be easy to miss the fact that as much as 30% of an S&P 500 fund might include tech stocks.  Then, if we look at the total exposure to tech stocks, the percentages could potentially exceed 60% for a single industry.  

Needless to say, this is how how a diversified portfolio operates, and excessive exposure to a single sector leaves investors vulnerable to price swings for that industry. If this hypothetical example was seen prior to the 1999 dotcom bubble, this investor would have unnecessarily encountered substantial losses.  These problems could have been avoided by simply knowing the stocks that are part of your chosen fund.

2 – Don’t Chase a Fund’s Past Performance

Another common mistake can be seen when investors get caught up in the hype of the next “hot mutual fund.”  It can be very tempting to act on advice from a friend or a persuasive commercial but basing an investment decision on a fund’s past performance is usually unwise.  This is because markets are cyclical in nature and so a fund investing in a profitable niche now could easily underperform later on.  

There are also many examples where a fund does well under one manager and then performs poorly if that manager leaves the firm. For this reason, it is important to know if the fund strategy was the creation of a single manager or is part of a larger, institutionalized investment process that will be repeated in the future.

3 – Be Aware of Fees

Investors tend to focus on macroeconomic factors (such as the state of the labor market or the national economy as a whole), and instead ignore the fees associated with a particular mutual fund.  This potentially costly mistake can have a major impact on the returns investors are able to capture over time.  For example, let’s say we invest $5,000 each year in an S&P index fund over a 30-year period.  During this time, the investment would total over $400,000.  But if the fund’s fees came to 1.5% each year, that total investment would fall to less than $300,000. This amazing difference is the result of compounding investment.

Fees can have a particularly strong impact on bond funds, which tend to produce lower yields on an historical basis.  Investors should look at the fund prospectus (to see the associated expense ratio), and read Morningstar.com to compare the funds expenses to others in a similar investment category.

4 – Don’t Forget the Effect of Taxes

In many cases, investors will buy into a fund during the later part of the year, as the fund makes net capital gains distributions to clients. But if you wait until those payouts have completed, you can avoid tax obligations before you have made any real returns on your investments.

A common mistake is seen when investors fail to track the cost basis for the fund when choosing to reinvest their dividend payouts into additional share purchases.  This creates problems as investors likely make mistakes reporting larger taxable gains when selling the fund – essentially, paying taxes twice (taxes on the dividend income and on the gains made selling the fund).  Other mistakes are seen in funds that aggressively manage the stock portfolio as a means for maximizing returns.  Problems here occur when the fund is not held in an account that is not tax-deferred, such as a 401(k).

5 – Keep Your Investment Focus

Many investors hold onto their positions longer than they should.  This is because many think that outcomes that occurred in the past will happen again in the future (see Tip 2).  A smarter way to monitor fund performance is to establish a target for your holdings position that is appropriate for the expectations in that specific sector.  When your target limit is reached for that fund holding, sell some (or all) of your holdings and take your profits.  Targets like these can take some of the emotion out of the investment process.  This is important for making rational decisions that can ultimately protect your savings.

Conclusion:  Do Your Homework and Watch the Performance of Your Fund

Since mutual fund investments are widely regarded as a simple (or even automatic), it is important for investors to maintain focus, watch the changes seen in portfolio allocation and to ask questions when gains performance is not meeting your expectations.  Has something changed with the fund’s strategy?  Have previously successful managers left the company and are no longer guiding strategy?   These are important events that could mean it is time to look for other options.

Here, we looked at 5 simple tips for new investors to follow when managing their savings investments.  It is always important to read the materials that are provided by the fund, do your own research (on sites like Morningstar.com), and to consider selling your shares when unexpected changes are made within the fund.  At least once each year, you should check to see that the same management team is in place and look at the changes that are being made in the underlying stock selections.