Beyond Paycheck to Paycheck

at July 2, 2009 in Uncategorized. 1 Comment

I’m looking forward to Independence Day. Its meaning never escapes me. Since I moved to New Hampshire a few years ago, I’ve gone to the same celebration every year where some dignitary, from our mayor to our governor, reads the Declaration of Independence aloud. Some 233 years later, it’s still powerful and moving prose.

While the words contained within the Declaration of Independence are focused on the political issues of that era, our founding fathers’ motivations were at least partially financial. After all, “no taxation without representation” arguable had more to do with economics than with voting rights.

As a country, we’re certainly still politically independent from the England, but, as individuals, are we truly financially independent? After you read the Declaration of Independence, read ING DIRECT’s 10-point Declaration of Financial Independence. It’s a great sanity check of how far you’ve come (or not).

Here are my favorite parts of the latter Declaration:

1. We will spend less than we earn.

There is nothing more fundamental to turning your financial life around than living within your means. It is the very core of your ability to save.

6. We will know the cost of borrowing.

You can’t go through your financial life blindly. No one will ever care about, let alone look out for, your best interest as much as you can and should. So you better pay attention to the important details of your financial life. Nowhere is this more critical than when you choose to borrow. And, yes, a loan is a choice. Its true cost is readily available – if you know how to ask.

9. We will remember what matters.

Balance, people. Stay in balance. Spend time, not money. Enjoy free stuff. Live your life. Count your blessings and you’ll soon be counting your savings.

If you’re so moved, consider signing the Declaration of Financial Independence. Compared to John Hancock, you’re risking a lot less, yet your upside is nearly as great.

What do you think of the ING DIRECT Declaration? Which points move you? Any you would add?

BTW, my first guest post at ING DIRECT’s relatively new We The Savers blog posted today. Check it out.

"financial education"

Buying a house

Published by

at June 30, 2009 in Carnivals and Housing. 5 Comments

So my wife and I are starting to shop for a home. We’ve never owned a home before. We almost did twice before, in two different states and in what seems like two different lifetimes ago. For a variety of reasons, it didn’t happen either time, but I’m pretty sure it will this time.

You: What makes you so sure?

As I said to a friend at a party recently: “If we don’t buy a house soon, you won’t hear about a divorce, you’ll read about a murder.”

You: Your wife really wants a house, eh?

Yes, quite perceptive of you.

You: You?

I’m ready, especially now that the bubble has become self-evident. Still, I’ve always been cautious about owning a home and remain so. Not that it’s going to stop me (remember, I like life), but an article featured in this week’s carnival of personal finance called The Other Costs of Home Ownership serves as an excellent reminder that owning a home has far greater costs than simply the monthly mortgage. Tough Money Love gives quite a list including:

Property taxes
Homeowner’s insurance
Lawn care
Internal maintenance
Keeping up with neighbors

and on and on.

So my question to you homeowners: What’s surprised you, financially speaking, about buying and owning a home?

To everyone, regardless of homeownership/renter status: are you interested in hearing about our progress towards home buying including the ups and downs, the negotiations, selecting and working with a realtor, the pro’s and con’s of various properties, and so forth? Which parts of the home buying process would you find to be the most interesting or educational?

"financial education"

Friday Q & A: When to Use Frequent Flyer Miles?

Published by

at June 26, 2009 in Uncategorized. 0 Comments

It’s Friday, so it’s time for this week’s reader-submitted Q & A. If you’d like to submit a question, click here for more information or simply email a question.

You: When should I use frequent flyer miles vs. paying for an airline ticket?

-Steven R., Milford, CT

Straightforward Answer: If you can get more than two cents per mile redeemed, put away the credit card.

More Detailed Explanation

As USA Today reports, frequent travelers redeem more miles as recession lingers. That probably surprises no one. With less cash around, miles look like some pretty attractive currency. But it still begs the question of when it’s a good idea to cash those miles in.

It all comes down to the value of a mile.

You: Math?

Yup, but it isn’t tough math. Just division. Say you’re contemplating a trip from Boston to Miami. Summertime fares to Miami are, not surprisingly, lower than they are in the winter. Say you could find a decent itinerary for $250. Since it would cost 25,000 miles to get a free round trip ticket between Boston and Miami, you’d be redeeming the miles for $0.01 each if you went that route.

On the other hand, say you have hopes to go to Europe and the fare to go to London from your city is $800. It will cost 40,000 miles for the same ticket. In this case, your choice to redeem miles means you’ll be exchanging them for $0.02 per mile.

You: That’s twice the value as the first exchange.

It is, making the miles for Europe trip a comparably shrewd decision vs. burning them for the jaunt to Miami.

You: So you do it?

If I was going somewhere and I could redeem at two cents per mile, I’d probably do it. I definitely would not at one cent per mile.

You: Do you do this calculation every time?

Usually, but not always. Sometimes it’s not relevant.

You: When would it not be relevant to figure out the mileage redemption rate?

The airlines often restrict frequent flyer redemptions around Thanksgiving. Therefore, we book way in advance (we’ve already had our November 2009 flights booked for several weeks) and get the best rate we can. There’s no sense in dwelling over how many miles the flight translates into because I can’t use them anyway.

However, in all other cases when I am flying for personal reasons, I compare the price of paying cash and redeeming miles. Because of the economy, flight prices are relatively inexpensive, so even when I planned to redeem, I have not always done so.

You: Really?

Yes. Earlier this year my family flew to a vacation in Puerto Rico. We had plenty of frequent points at a hotel chain to stay for free for the entire duration. Furthermore, I had planned on using airline miles to get there. As such, our only expenses were going to be meals and entertainment. Given that the hotel had a “kids eat free” promotion and my two daughters eat like thoroughbreds, I nearly convinced myself it was going to be cheaper to live in the hotel than in New Hampshire.

When I went to double-check the cost of the flights I was about to purchase using miles, I saw that, by changing my itinerary from a Friday-to-Friday trip to a Thursday-to-Thursday version, each ticket could be had for well under $300. But the redemption was 35,000 per ticket, less than a penny a mile.

You: A bad deal.

So I kept my mileage.

You: Makes sense. What else is there to consider?

A few things:

You Don’t Earn Miles On Free Tickets

Don’t forget that when you redeem mileage, you forgo the amount you’d otherwise earn by flying. With short flights, this doesn’t change the math too much. On longer ones, it’s a consideration.

For me, this came up a few years back when I was a platinum elite flyer and earned 125% bonus of miles flown on paid tickets. When my wife and I flew from Newark to Honolulu, the plan was to use points. However, we only used points for my wife’s ticket, who had no airline status as my beloved grad student. Her airfare was about $550. A free ticket, I recall, was about 30,000 miles. Not quite two cents a mile, but close enough.

But on my ticket, I’d not only be giving up 30,000 miles, but also the 22,500 miles I would have earned on the trip, since Hawaii is about 5,000 miles from New Jersey and I had the incredible bonus. As such, my redemption rate would have been far lower, only about $0.01 per mile. I passed.

Trying to Gain Elite Status?

If you’re trying to gain or preserve elite status, frequent flyer travel doesn’t help you do so. My aforementioned trip to Hawaii really jump-started my mileage earning requirements for the next year. This is only relevant if you’re genuinely flying a lot. Otherwise, don’t worry about it.

Do You Have Too Many Miles?

I may have too many miles right now, given the rate I accumulate them (fast) and my ability to use them (slow). Because I travel frequently for business and have small children, my mileage balances are growing against my best efforts. One could argue that when you accumulate a LOT of points, each subsequent mile is worth less than the one before it. I haven’t caved into that line of thinking as I aspire to be able to burn a bunch of them on an incredible trip when the kids get older, but if an airline or two goes out of business, I would be majorly disappointed.

How do you approach the spend money vs. use miles decision? How have you have changed your attitude in this matter recently?

"financial education"

Answers to Your Transition Questions

Published by

at June 24, 2009 in Balance and Guest Posts. 0 Comments

This is a guest post by Kathryn Marion, author of Grads: Take Charge of Your First Year After College. Last week, I posted Transitioning to the Real world and asked for questions for Kathryn. Today, Kathyrn provides her answers:

I know that saving money is important, but I also love traveling/vacationing which gets expensive. Some friends tell me to save all that I can and have fun later, while some other friends tell me to have fun now and that I’ll make money later in life. What’s a good balance of saving vs. spending when I’m just starting out and not making a lot? — Diana

That’s a great question, Diana! Both sets of friends have good points. Most financial advisors would probably side with the save-now-travel-later approach. More free-wheeling types would definitely lean toward the travel-now-make-up-for-it-later strategy. But my first inclination is to ask: do you really have to choose? I don’t, necessarily, see this as an either-or proposition. Take a close look at your skills (both technical and functional) and see if you can create a way to combine your love of travel with paid work.

The possibilities are virtually endless-it just takes a creative person to get the two interests to dovetail. Here are just a few possibilities that come to mind:

teach English in another country, or even more than one! Check out www.TeachAbroad.com or CIEE’s site for information and opportunities;
teach anything you’re good at (cooking, crafts, music, sports) through schools, non-profits, Chambers of Commerce or their equivalents-around the US, the continent, or the world;
exchanging a few hours’ work per day for room and board through www.WorkAway.info or www.GoNomad.com (see their article on Short-Term Vacation Work Abroad);
making a name for yourself in a field like photography, writing (including blogging), or speaking, then finding a way to sell your services along the way or even get a company to sponsor trips.

You sound like a good candidate to get Tim Ferriss’ book, The Four-Hour Work Week. Tim’s approach is a little different: he created a business that runs so automatically that he spends little time on it each week while he travels the world doing all the fun things he wants, but many of the strategies he lays out are very applicable to your situation. I’m sure you would find some good ideas in the book.

It’s easy to paint an exciting or romantic picture of this kind of lifestyle. Many people may think they want to live that way, but in reality few are probably well suited for it. There is little feeling of financial security because no one ‘gig’ lasts for long or pays a large lump sum to cover expenses during gaps between jobs. I think it takes an entrepreneurial spirit as well as a true sense of adventure and a high comfort level for risk to make a successful go of it.

All that being said, I would recommend that you not jump either way too quickly. If you think you can stomach the lifestyle (even get energized by it), find and talk to as many people who travel in their work as you possibly can. Find out how they created a way to get paid and travel at the same time. Write down what you would like to do (and where). Then set goals, figure out what you need to do to make it happen (such as save a minimum amount of cash or polish up an important skill), and work your plan.

The most important piece of this process is the self assessment-be honest and realistic about what you can, and want to, handle as far as risk and adventure. When you’ve made your decision, commit to it and throw yourself full force into making it a success.

My brother in law recently graduated with a degree in accounting and finance and, with the job market being what it is, he is thinking about staying in school to get an MBA.

From what I’ve heard recently, an MBA doesn’t necessarily open any more doors for people anymore because they are a-dime-a-dozen these days. His parents think he should get the MBA, because his father did and it really helped to spark his career, but that was a different time when not everyone had MBAs and also his father’s company paid for him to get it. My brother in law will be paying out of his own pocket.

He has a steady job (blue collar) that pays sufficiently that I recommend he stick with and keep applying for accounting jobs, and then when he does get one, see if they will pay for the MBA.

Any insights into this would be much appreciated. — Jeffrey

You’re a good brother-in-law, Jeffrey, and I commend you on trying to help. I also like the way you think. You’re right that an MBA does not automatically spell more opportunities or higher salaries these days. And not all MBA degrees are equally valuable, either. Spending two or more years out of the job market, paying tuition at a second-rate grad school, is more likely to land someone in the unemployment line with a load of new debt. If your brother-in-law wants to pursue that degree, he needs to get into the best program possible-which, of course, is going to be more expensive. Not to mention that while in school full-time he will likely not be covered under a health insurance plan-what will happen to his finances if the unexpected were to happen during that time?

There’s something else to consider as well: entering an MBA program right on the heels of earning an undergraduate degree is not an ideal plan. He will get much more from the program after he has at least two years of related work under his belt. His experiences, coupled with the coursework, are what will make him a more valuable candidate upon graduation.

Has your brother-in-law looked into making a change right inside his current company to a finance or accounting position? Or would his current employer be willing to let him spend some time in the accounting department on top of his normal hours as a sort of trial period or on-the-job training before making a switch? It would be longer hours, but the experience would be valuable, no matter what the outcome.

Alternatively, he could offer to work for free for a limited time at another company in their finance or accounting department as a way of getting his foot in the door. If he did his research and made this offer to companies that provide education benefits to their employees, so much the better, since he could then pursue the MBA if he got the job.

If those options don’t work out, your brother-in-law’s father has to realize that the world of work is very different than it was when he was in his twenties-his son has to deal with the reality of today’s market. Sticking with the steady, blue-collar job while searching for other opportunities is the wisest course of action. If he still wants to work on an MBA, that can always come later, either full- or part-time, if it’s really needed to move up in his chosen field.

"financial education"

Housekeeping and a Carnival

Published by

at June 22, 2009 in Carnivals. 0 Comments

Of all the articles in this week’s Carnival of Personal Finance, I most enjoyed Moneymonk’s Why American’s Don’t Save. Perhaps because it reminded me of a post I wrote long ago, Top 10 Excuses For Not Saving, but also because it was an excellent reminder of being realistic about the future.

Fact 1: It won’t be easier to save in the future.

Fact 2: Tomorrow is promised to no one.

The solution is, and has always been, living in balance.

# # #

I’ve found that my various ever-increasing subscription lists have minimal overlap. It’s exciting to see the numbers grow, of course, but I haven’t done a great job in informing everyone what’s available from me elsewhere. Here’s where you can get financial education from Total Candor and I - choose your favorite format(s). Cancel

The Total Candor free monthly newsletter has some of the blog’s best articles of the month, links to additional media, and deals/discounts on Total Candor products. You can sign-up for the newsletter here.

You can read my writing at Mint.com, FiLife.com, and About.com. You can sign up for my weekly Retirement Planning About.com newsletter here.

You might not know: I wrote a book called Beyond Paycheck to Paycheck. It’s the number one customer-rated book on Amazon.com’s Money Management for Young People list. You can buy it from Amazon, or buy it directly from Total Candor (and have it autographed). It’s great resource for all ages and makes a terrific graduation gift (Northwestern University apparently agreed; they provided a copy to every member of the Class of 2009).

Also, you can befriend my on Facebook and follow me on Twitter. Following me on Twitter is great way to know what’s going on, in real time, in the world of financial education.

I am also an expert for LifeTuner.org, a new site geared to young people and brought to you by the non-profit AARP.

Anywhere I’m missing that I should be (or I forgot to put on this list?)

"financial education"

Financial Tips for New Dads and an Interview With a Real Live One (Dad)!

Published by

at June 19, 2009 in Media. 0 Comments

Father’s Day Financial Lessons

Earlier this month, I wrote a detailed article Three Financial Reminders For New Dads over at FiLife (a joint venture between The Wall Street Journal and IAC. I’m sharing it with you in honor of Father’s Day. How are you (or the Dad in your life) celebrating? I’m going to the Red Sox game - can’t wait!

A LifeTuner Interview

I was recently interviewed by LifeTuner.org, a new web site from AARP geared at (are you sitting down?) young people. It’s a great site for several reasons I’ll probably get into sooner or later but for now, just go check it out because there’s some great discussions, great experts (okay, I’m slightly biased there), but not a lot of people yet because they’re still in beta. As a result, you can get a lot more help (for free and from true experts) there than nearly anywhere else on the web.

Here’s my hour-long interview with LifeTuner where I answered questions ranging from saving strategies to 529 plans and from health insurance to the new credit card legislation. I hope you enjoy it. Please let me know either way!

"financial education"

Avoiding Identity Theft

Published by

at June 17, 2009 in General Financial Planning. 0 Comments

The following is excepted from my first book, Beyond Paycheck to Paycheck:

Identity theft, the stealing of another individual’s personal information in order to commit illegal financial transactions, is a major problem today. Reviewing your credit reports annually is one way to monitor suspicious activity. In addition, there are other tactics to consider. Some of these tips might seem obvious, but people do make these mistakes and I don’t want you to be one of them.

Use a crosscut shredder to shred all those credit card solicitations arriving in the mail each day. If you don’t, someone can go through your trash (or recyclables) and accept your pre-approved credit card.

Choose to receive your current monthly paper statement as an electronic statement instead. This way, no one can find something valuable in your trash or mailbox, such as a statement with your name, account number, and other useful information. Save the electronic statement on your hard-drive and put a password on your computer.

Be very careful online. Look for the “s” at the end of https in the address bar before submitting any confidential information.

Also online, don’t respond to emails you receive which ask you to verify account data, such as your name or account number. Such fraudulent contacts are known as phishing. I am unaware of any bank, brokerage house, credit card company, and so forth who asks for your identifying information unsolicited by email. When in doubt about an email correspondence, call the financial institution. Don’t call the number listed in the potentially phony email; call the one listed on the back of your card or on your last statement. The customer support representative can tell you if the email is legitimate. It won’t be.

The last online tip is the most obvious but least taken to heart. Your account passwords shouldn’t be your kid’s name. Duh. It shouldn’t be on a post-it note in your wallet or on the side of the computer either. Double duh. Make your password something not easily figured out and memorize it. If your password looks suspiciously like your email address, it’s probably not a good password.

Don’t carry your social security card in your wallet. If your wallet is stolen, the thief probably isn’t going to have such a high level of integrity as to limit the take to the credit cards and cash in your wallet-the thief is going to apply for more credit in your name. Bigger payday for the thief and an even bigger headache for you.

If you haven’t been a victim of identify theft yourself, you probably know someone who has. It’s that common. And victims would tell you what an ordeal identity theft is and that it seems to take forever to straighten everything out. It’s worth being careful in order to reduce your odds of suffering from the theft of your identity.

Please share your identity theft experiences. Has it ever happened to you? To someone you know? When did it happen? Did you ever figure out how it happened?

"financial education"

What Iowa and NH have in common besides early presidential voting

Published by

at June 15, 2009 in Carnivals and Debt management. 0 Comments

You: It’s not lighthouses.

Probably not.

You: Or millions of acres of corn fields.

Not likely.

You: What is it?

Very high average student loan balances.

You: How and why would you know this?

Late at night, after we get the kids down, one of the things I like to do to relax is study student loan patterns by county.

You: For real?

Heck no! I was just reading the carnival of personal finance, hosted by Living Almost Large and noted an article by Broke Grad Student called Average Student Loan Debt By State. Inside the artcile is a map of average student loan debt by state. (I will admit to being a bit of a map geek).

The states with the two highest student loan burdens are Iowa and New Hampshire. Broke Grad Student and several commenters weighed in with their theories as to why. Not surprisingly, factors include the cost of the schools in the state, the extent of state support to the public schools, cost of living, and cultural factors.

Check out the carnival, article, and map. How does your state fare. Are you surprised at all by the results?

"financial education"

Friday Q & A: Where to Put Your Future House Down Payment Money Today

Published by

at June 12, 2009 in General Financial Planning, Housing and Q & A. 1 Comment

It’s Friday, so it’s time for this week’s reader-submitted Q & A. If you’d like to submit a question, click here for more information or simply email a question.

Coincidentally, I received the following two questions less than five minutes apart:

You signed my book at the ING DIRECT cafe in Chicago some time ago. In your book you refer to an 8% savings rate in hypothetical scenarios in several places. Where/how does one get this rate? I have a high interest account (under 2%) at ING DIRECT. I’m considering seeking financial advise/money management at Charles Schwab, but thought I’d check w/you first to get any feedback. I have $60,000 that I think I should be able to grow at a better rate with little (or no) risk, but not in a cd. I’d like to buy my first home in 6 months (with most of this money as a down payment) and am wondering what options I have to safely grow this money. I’m saving maybe $3,000 a month. I’ve never invested. Thoughts?

– Becky B., Chicago, Illinois

I’m thinking of buying my first house some time in the next 4-5 years. And I know I should start saving now. But what is the best way of saving? Should I put my money in a High-Interest Savings account such as ING DIRECT, in a 3-year long CD, or invest in a mutual fund with Vanguard? How do I choose which is the best option? Thank you.

– Diana C., Los Angeles, California

Straightforward Answer: Your investment choices must match your time horizon.

More Detailed Explanation:

Whenever you choose save a dollar, you must choose how to invest it.

You: No, I could put it in the bank.

Putting your money in the bank is an investment decision. It’s called investing in “cash.” Broadly speaking your investment choices are:

Cash (includes savings accounts, checking accounts, money in your wallet, and change in the couch).
Fixed Income (includes savings bonds, municipal bonds, corporate bonds, and the stable value option at your retirement plan)
Equities (includes stocks)

You: What about mutual funds?

Mutual funds can fall into any of the three categories above.

You: Even cash?

Absolutely. A money market fund is actually just a mutual fund that is invested in ultrasafe assets like “cash and cash equivalents.” Furthermore, some mutual funds invest in more than one category.

You: They can do that?

Sure. A balanced fund, for example, will often have a large percentage invested in both fixed income and equities.

Your Risk Tolerance, Time Horizon, and Investment Choices

As covered in depth in the investing chapter of Beyond Paycheck to Paycheck, your risk tolerance should drive your investment choices. (Unfortunately, that’s often not how it works since choices are often revealed to having made:

Out of fear of losing it all and therby keep it all in the bank - also known as the “Depression Mentality”
Out of fear of missing out on the next good thing and thereby purchasing 17 condos in Miami, putting $1,000 down per unit.

But that’s a post for another day.

Your risk tolerance is based on both your personality and your time horizon. Both Becky and Diana have shared with us their time horizon as 6 months and 4-5 years respectively. Let’s first address Becky’s conundrum.

Becky Wants 8% And Has a 6-Month Time Horizon

Turns out Becky isn’t going to be happy.

You: Why?

Because she has two mutually exclusive objectives. The first is to earn an 8% rate of return on her money. The second is extreme safety for her money since she needs it for a home down payment in just 6 months.

You: Why can’t she have these two goals?

She can. Just not at the same time on the same money. In order to expect to earn about 8%, she’ll need to take the risk of investing her funds in the stock market. (For those of you skeptical that 8% is achievable or that it dramatically understates today’s opportunity, I say:

I really don’t know what’s going to happen in the near term and neither do you.

However, 8% is the long-term historical return of the stock market (Check out this cool little calculator at Money Chimp where you can plug in any pair of start and ending years and learn the historical performance of the S&P 500). Since 1900, we’re at over 9%. Since 1990, we’re still over 7%.) Indeed, even today 8% seems reasonable for long-term performance.

You: But what’s the big takeaway?

There’s a ton of volatility in the stock market.

You: Well, there’s a newsflash.

First off, to some people it is. And secondly, when times are good (which they will be again), many people forget about the risk. Or, more precisely, they redefine risk as “not making as much money as someone else did.” All along, in good markets and in bad, you can make money and you can lose money by investing in stocks.

The net impact to Becky is that no matter how aggressive she is (and she’s probably not that aggressive, being that she’s accumulated $60,000 and has “never invested,”) she must keep all of her down payment money in cash. That’s the only way to ensure she will absolutely have her money available to her when she needs it six months from now.

Only in a savings account or a money market fund can she be assured that she won’t lose her principal. Furthermore, only cash affords her the ability to refrain from timing the market. After all, where will the stock market be in six months?

You: I don’t know.

Me neither. You wouldn’t want to have to sell if we’re back down at 6,500, would you?

You: No. will it be back to 6,500 again?

I still don’t know.

You: Me neither.

I think you see my point.

You: Right. So Becky can’t get 8% without risking her principal?

Correct - and please don’t comment below about the sure thing in soybeans.

Gary: It’s actually frozen orange juice.

Whatever.

Becky, just keep your money in a high-interest savings account and you’ll be fine. If you’re absolutely certain you won’t need it for six months and you can get a better rate with a CD, feel free, but remember the first time home buyer tax credit. If you’d otherwise buy a house in December, buy it in November and get the free $8,000 (subject to income restrictions).

Diana Has More Time - Can She Take More Risk?

Diana’s time horizon is a bit longer: 4 - 5 years. But, from reading her letter, her risk is less so from a potential loss of principal than it is from a current lack of savings. Diana needs to get going on savings for this specific goal (a home) today. It takes along time to get a down payment of 20% of the price of the home in order to avoid costly and utterly unnecessary PMI - especially in California.

You: Why is PMI unnecessary? I thought it was required if you put down less than 20%.

It is required. It’s unnecessary because no one is putting a gun to your head saying buy a home you can’t afford to pay 20% down on.

You: But–

But nothing. Save longer or buy a less expensive home. Or, like Diana and Becky, start saving well before you actually go home shopping.

You: When Diana starts saving, where should she put her money she has earmarked for a home?

In the bank.

You: She shouldn’t invest in stocks?

Probably not.

You: Why not?

Because the risk of loss of principal is still too great.

You: But if the next three years prove to be stellar for the stock market, this would prove to be the wrong advice.

No, it would prove to be unlucky. It’s the right advice for that very reason: we simply don’t know. Many people have advocated investing in stocks for your long-term objectives like retirement. Count me among them. From my vantage point, stocks make sense for my retirement plan as much today as they did 15 years ago when I started investing. I still felt that way earlier this year when the Dow was down in the mid 6,000s.

Don’t get me wrong, it may have periodically caused some lower intestinal distress, but it was and is still the best way to go - for the long-term.

You: What’s long-term?

At least 10 years. Four or five years is just too short. Diana, put your money in something much safer. A CD (or more than one CD) could be attractive, but you shouldn’t be investing your home money in anything you could actually lose your principal by in. By definition, this includes stocks.

More aggressive and sophisticated investors could consider bond or other fixed income investing - but given where we are with interest rates at the moment, even those may prove to be overly risky - especially for someone new to the game.

Good News

All of this leads to a wonderful conclusion: savings will be the primary determinant for you getting you your first house someday. True discipline will give you the opportunity to become a homeowner and in a far different way than the buyers of 2005 and 2006 accomplished the feat.

Remember, however, do not be cheap - be fiscally responsible.

I’m beginning to go through the home buying process myself. When you call your banker and you tell them you’re going to be putting down 20% (or more) and they pull your impeccable credit history, you will feel rewarded when they tell you what you can afford and at what rate. This is the future for Becky and Diana.

You: And me?

That’s up to you.

"financial education"

Transitioning to the Real world

Published by

at June 10, 2009 in Uncategorized. 2 Comments

I just received two copies of Grads: Take Charge of Your First Year After College by Kathryn Marion. One’s a keepsake for me, since I wrote a small “bonus” chapter in the Money section of the book. But the other copy is a gift for you.

You: For me?

Maybe.

You: How do I find out if it’s for me?

Simple. Include a question in the comments field below for Kathryn. She’ll pick her favorite questions and answer them for you in a future post. In addition, she’ll randomly pick one questioner as the “winner” of the book. She’s already autographed it for you.

Grads: Take Charge covers three main sections:

Your Career
Your Money
Your Life

As such, nearly any topic related to starting in the real world is fair game for Kathryn. Again, Kathryn will write her guest post in a week or so to respond to your questions. So, get them in now and have a chance to win her book.

Some Grads Take: Charge “Clips”

The book is written for people with short attention spans (seemingly everyone these days) and a desire for actionable tips. Nearly the entire book is comprised of bullet points. A couple of my favorites:

Don’t choose a dealership based on their convenient location. This isn’t grocery shopping - the goal is to buy the right car from a reputable dealer at the best price. If you have to drive to the edge of town to get a great deal, do it.”

Amen, Kathyrn. Several weeks ago, my wife and I drove more than an hour each way to pick up a car after negotiating the best price at that particular dealer. We passed at least five other Honda dealers along the way to the “winner.”

Another good tip, from the “Job” section:

Don’t announce to your coworkers (or anyone else at the company) that you’re planning to leave.”

Couldn’t agree more. When you’ve resigned, fine. Until then, keep quiet. Kind of obvious in the down-market we have today, yet shocking to too many when jobs are plentiful. I’ve personally seen this work out quite badly more than once. You want the job transition to occur on your timetable. Once it’s well known you’re heading out the door, you just might be pushed.

What questions do you have for Kathryn?