Financial Spring Cleaning

Spring is finally here, regardless of whether it feels like it outside or not.  Around this time of year, many see it as their obligation to go through their homes and rid themselves of unnecessary items that clutter the place up.  The idea that a clean and happy dwelling is a rebirth and a new start.  Why not take this same approach to your finances?

At the start of every calendar year, I always suggest creating a new budget for the upcoming year.  Mapping out your income and expenses presents saving opportunities and fiscal responsibility.  We are now almost three months into the new year and expenses sometimes change.  That is why I always do a financial spring cleaning.  Below are my favorite three ways to do a financial spring cleaning

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Financial Spring Cleaning

Financial Spring Cleaning Tip 1:  This first tip is directly related to a normal spring cleaning of the house people already do.  Go through your closet and determine which clothes you don’t need anymore.  Maybe you have shoes you don’t wear, pants you’ve outgrown, DVD’s you no longer watch because of a Netflix subscription.  Gather up these items and donate them to a local shelter like The Salvation Army.  Not only will you eliminate these useless items from your place, but you will be giving to those who could benefit from such items.  The best part about all of this is most of the times you can receive a tax deduction for your donations.  This can lead to a higher income tax return for the 2017 year.

Financial Spring Cleaning Tip 2:  Clean out unnecessary clutter in your budget.  For example, maybe at the beginning of the year you signed up for a gym membership you no longer use.  Cancel it.  Go through the various categories in your budget and see if they are relevant to the remainder of the year going forward.  Perhaps you dedicated a portion of your budget to pay off debt, but now you no longer have that debt.  Eliminate that category.  Eliminating categories in your budget makes it simpler and much easier to read and track.

Financial Spring Cleaning Tip 3:  Review the dollar allocations in your budget.  Say at the beginning of the year you were eating out lunch every day, but now you realize the many health benefits and cost savings of bringing your lunch to work.  See if you can slash $30-$50 a month off your food budget.  Shop around for car insurance.  Perhaps you find the same coverage with a different company for $15 less a month.  Eliminating a little bit of money from a few categories adds up and helps boost your savings potential.

Financial spring cleaning allows you to revamp your finances for the remainder of the year.  Even if you haven’t done a good job of sticking to your budget, it is never too late.  A financial spring cleaning can allow you to set up your financial priorities for the remainder of the year and gives you a clear financial conscious heading into the spring and summer months.

Diworsification: How Much Diversification is too Much or Little?

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Diworsification

When I was picking stocks, I saw my portfolio lose 15% of its value in one day.  Simply put, I had too many of my eggs in one basket or too many of my investment dollars in one stock.  I wasn’t diversified.  Sure, I could hit it big with a stock, but I could also lose.  I saw the amount of time I was spending on picking stocks and knew it could be put to better use if I let the professionals handle my money.

My portfolio was under diversified, but many people also suffer from too much diversification of their portfolio or diworsification.  Diworsification occurs when you continually invest in the same asset class and keep your risk low but hurt your overall return potential.  It would be the equivalent of investing in many different mutual funds that only contained U.S. stocks.  If you want exposure to the U.S. domestic stock market that is great, I highly recommend it, but pick a fund that gives you just that and move on.

My investment strategy has come a long way from my earlier days when I was picking and choosing stocks.  I thought just like many that I could pick homerun stocks that nobody else could.  I did well on some and poorly on others.  I would come home every day from work and watch Jim Cramer’s show Mad Money.  I soon realized that the effort I was putting in wasn’t yielding the rewards I desired.  I quickly shifted all my investments to a mutual fund.  Being young, I knew I wanted a large exposure to stocks.  What better stocks to invest in than the U.S. Stock Market?  Warren Buffett has been noted to say that when he passes he wants the remainder of his fortune put into a low-cost index fund that mirrors the S&P 500.  That’s right, just one fund.  If he wanted his fortune to be spread across many funds that mirrored the S&P 500 he would be subject to diworsification.  I decided to follow Warren’s advice.

While my investment dollars are placed into a single low-cost Index fund that mirrors the U.S. Stock Market, not everyone will agree with this position, and that is fine.  Investment advice can be given to you from a hired professional or you can decide on your own.  My knowledge came about through the reading of numerous books.  If you want to invest in South America, there are funds for that.  If you want exposure to corporate bonds, there are funds for that.  If you think that the pharmaceutical sector is the next big thing, then by all means find a fund that suits you for that investment.  There are many ways you can invest your hard-earned money, but try and keep to the One and Done Philosophy when investing in mutual funds to prevent diworsification: Pick one mutual fund that covers the class or sector you are wanting exposure to and leave it at that.  Not only does it simplify your portfolio, but it keeps you diversified and away from diworsification.

Healthy Costco Foods

Last week Costco announced that they were going to be raising their membership fees.  The fee hike was relatively small, only 9%.  Executive members will now pay a $120 a year fee, while Gold Star members will now pay $60 a year.  Despite the minimal increase in a customer’s yearly fee, a shopper can still rake in many savings at the retail giant.  Costco shoppers go to the warehouse to buy items in bulk.  It is great for large families, but I even know of individuals with memberships that see the many benefits of shopping there.  While savings can abound at Costco, buying quality, healthy products can provide a big benefit.  There is a huge health benefit of buying healthy Costco foods that extends far beyond your budget and to one’s longevity.

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Healthy Costco Foods

Buying healthy Costco foods in bulk can help stretch your grocery budget for a given month.  For example, I try to set aside $350 per month to spend on food.  This includes eating out as well as purchases from Costco and other grocery stores.  A family of four might have a monthly food expenditure of around $1000.  The great part about buying food in bulk is that often times you can get a better price than buying the same item individually.  Many who purchase items in bulk at Costco tend to go ahead and plan for long shelf lives for these items.  For example, toilet paper and condiments are a few items where you can experience savings by buying in bulk.  Additionally, these items along with others can be stored in a pantry for many years down the road.  Shopping for lean healthy meats at Costco can provide a huge savings to a family of four as well.  Purchasing healthy Costco foods such as lean chicken breasts in bulk can provide healthy nutrition and savings.  By purchasing many pounds of lean chicken at once, you can slice and divide the breasts to your liking, put them in plastic Ziploc bags, and simply freeze them until a later date.  Even when shopping at grocery stores, one of the tricks I do is purchase items when they are on sale.  One week, chicken might be on sale for $1.99/lb while the next week it is $2.99/lb.  Organizing purchases so you take advantage of them during sales is the best way to optimize your monthly grocery budget.

Buying healthy food doesn’t have to be expensive, and buying healthy Costco foods doesn’t have to cost a lot either.  When shopping for groceries, the keys are to buy in bulk when available and to also buy during sale prices for an item.  Finally, by planning your purchases ahead of time by making a list, you can avoid unneeded items.  Eating healthy and sticking to your budget doesn’t have to be hard.

How to Pay Off Student Debt

Nearly three out of every four students graduating from a four-year college or university will have some sort of debt.  Despite the fact that college is supposed to be some of the best years of your life, paying off your student debt after you have graduated can seem like a mountain too big to climb for many.

How to Pay Off Student Debt

According to a recent Forbes article, the average student graduating from college has over $37,000 in student loan debt.  This number is expected to continue increasing due to the constant hikes in college tuition throughout the United States.  Whether you have graduated or are about to graduate from college with debt, there are ways to help you manage the financial burden.




Example 1 on How to Pay Off Student Debt:

Susie went to a four-year state school.  Fortunately, she had academic scholarships to help pay for schooling, and she also lived at home during the four years.  She graduated with $10,000 in student debt.  Susie was able to get a job right after school in the town where she went to school and where her family lived.  She continued to live at home and made a budget.  Susie focused on keeping her expenses low and used every bit of extra money she had left over in her budget to pay towards her loans.  Most importantly though was that she included a category in her budget for paying off her student loans each month.  She devoted $500 per month towards her student loans.  Because of her frugal living and her devotion to get out of debt, she was able to pay off the entire balance of her loans in less than two years!

Example 2 on How to Pay Off Student Debt:

After graduating high school, Chris decided to attend a private university to continue his studies.  The tuition at his university was expensive, but with the help of aid and an alumni scholarship he was able to limit the costs.  Regardless, Chris graduated with $45,000 of student debt after it was all over.  Chris accepted a job with a non-profit after graduation.  Even though he wouldn’t be making much money, he felt a calling to do something he passionately cared about.  Because of his situation, a high amount of student debt and a low salary, he enrolled in an Income Based Repayment Program.  This allowed Chris to avoid the high monthly payments his loans would typically have required him to pay and instead allowed him to pay a small percent of his income every month.  Even with this program, Chris still had to create a budget, but the repayment of his student loans was not as high of a priority as it was for Susie.  Nonetheless, Chris was able to still live comfortably, doing what he loved, while also meeting his student loan obligations.

The examples above illustrate a couple of real-life situations that people face when paying off student debt.  To some, paying off the debt is a very high priority.  To others, not so much.  Only you can decide how quickly you would like to pay off student loans.  The commonality that both Susie and Chris shared in both examples was that they created a budget.  Susie created a budget that allowed her to aggressively pay off her debt.  Chris created a budget that allowed him to live within his means but also meet his payment every month.  Regardless of which category you fall in, creating a budget is a great foundation to tackling any debt, especially student loans.

Should I Invest in Stocks?

The U.S. Stock Market is at an all-time high, and many are wondering how much longer this can be sustained.  People are asking themselves if it is still worth investing in stocks at this high.  The simple answer is: YES!

Below is a chart of the S&P 500, which covers the broad range of the stock market.  The chart below illustrates performance from 1950 until the end of last year.

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Should I Invest in Stocks?

As you can see based on the chart, there are rises and falls, some of which are quite big.  If you look at the chart as a whole, you can ultimately say that U.S. stocks have increased in value over time.  Here are three reasons why one should consider investing in stocks.

Should I Invest in Stocks? Reason 1:

U.S. stocks have outperformed almost every other investible asset over the past 100 years, especially government and corporate bonds.  People often think of bonds as a safer alternative to investing in stocks, but what they really mean by “safer” is less volatile.  Yes, stocks can fluctuate with higher highs and lower lows in a given period of time, but over the long-run they will outperform bonds.

Should I Invest in Stocks?  Reason 2:

Stocks are the easiest and safest way to build wealth.  What I mean by this is that continual investment in stocks will yield higher and higher returns over time if you let your returns compound.  Compounding interest is a great thing when it comes to building wealth and all it takes is two simple steps:

Step 1: Continued investment and reinvestment

Step 2: Time

By continually putting money into your stock investment on a consistent basis and allowing your returns to reinvest, after a period of time you will be able to build a substantial amount of wealth.  And again, since stocks outperform other investments over the long-term, you are compounding a greater percentage each year.

Should I Invest in Stocks?  Reason 3:

Because Warren Buffett says so!  At the time of this post, Buffett’s net worth is estimated to be in excess of $75 billion USD.  It has been said that he is the greatest investor the world has ever seen.  How did Warren and others like him make their great fortunes?  Through investments in stocks.  Warren has constantly invested in companies throughout his time via stock purchases in what he calls “value investments”, which is a simple way to say in companies he believes to be cheap in valuation.  Buffett has gone so far as to say that even upon his passing he would like the remainder of his fortune to be placed in a low-cost index fund that mirrors the S&P 500.  The greatest investor ever believed and still believes in the power of stocks.

Hopefully by now you have been convinced that investing in stocks is the right thing to do, but how do I get started?  Simple, to begin investing in stocks I would recommend investing in a mutual fund that covers a wide range of the U.S. Stock Market.  Investment firms such as Vanguard and Fidelity offer these sorts of funds that will allow you to get exposure to the broad range of the U.S. Stock Market and begin reaping the rewards.

What is the Starting Credit Score?

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Starting Credit Score

Having a credit score can have many benefits.  Wait, having a good or great credit score can have many benefits.  As we go through life, credit becomes an essential tool for an individual to progress through society.  You can use credit to purchase everyday items, a car or a house.  Without credit, some of the essential purchases we rely on to carry us through our lives every day would be unavailable, such as a car for transportation to and from work.  Having a credit score and a good one at that can allow you to get the best deal on large purchases and also helps create a financially responsible person.  But just how does one get a starting credit score, and where do you begin?  I will lay out some of the easiest way to start down the path of a good credit score.

Step 1 to getting a starting credit score:

The first thing you need to do to get a starting credit score is simply to get credit.  The easiest way to do this that I recommend is by opening up a $0 annual fee credit card.  Your monthly limit won’t be all that much, most likely less than $1000.  Commit to making a couple easy purchases on it every month and paying it off at its due date.  For example, a couple tanks of gas or a visit to the grocery store is all it takes to start building your credit.  It is vital to pay off the full amount after a month’s time before the card’s due date

Step 2 to getting a starting credit score:

The second step to building a starting credit score is to continue purchases with your credit card and meet the monthly payment date, along with exploring an additional option of building your score.  If you rent an apartment, sometimes the apartment complex allows you to report your on-time payments to credit agencies.  Additionally, if you have student loans you are paying back, this also will show up on one’s credit report.  Time is a big factor in your credit score.  It usually takes at least six months for you to build your first credit score.  Image result for credit score rangeIf you make on-time payments in full, you can expect a score anywhere in the range of 675 to 740.

Step 3 to getting a starting credit score:

By step 3, you should already have shown a positive pattern to creditors through making payments on a timely manner.  The most important part of this step is just to be patient.  Building a good or great credit score takes time.  Two of the bigger factors that impact your credit score are the length of time you have had credit and the number of accounts you have that required credit.  Chances are as you start building your credit both of these factors won’t be too much in your favor.

In summary, there are many benefits to building a good credit score, but it all boils down to a few simple factors.  Firstly, you need to begin building credit through a $0 annual fee credit card, student loan repayment, etc.  Secondly, you MUST make your full payments and make them ON TIME.  Finally, you need to be patient.  It takes time to build a great credit score, but if you budget correctly and make sure not to spend above your income level then a great score will eventually come.

Saving for a Vacation: Ski Edition

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Saving for a Vacation: Ski Edition

We are currently in the heart of wintertime.  January and February are the coldest months in the United States.  While many people despise cold weather, many can agree that the snow which comes with it can be a nice compliment.  Although summertime seems to be the time when most families vacation, a ski trip during winter allows some families to break the mold.  Saving for a vacation is only half the battle.  While having the available funds to do something enjoyable is important, finding a good deal is also just as important.  I recently planned a ski vacation and will share my six tips on how I saved and budgeted for the vacation.

Saving for a Vacation Tip 1:

If you are like me and enjoy traveling with family and friends, then it is important to have a “Travel” category in your budget.  Setting aside $100 or $200 every month for travel allows the funds to add up and allows you to have a couple enjoyable vacations every year.

Saving for a Vacation Tip 2:

Vacationing for many people means eating out every meal, which can get very expensive.  Packing snacks ahead of time and a quick trip to the grocery store when you arrive can help limit your food costs.

Saving for a Vacation Tip 3:

Plan for transportation ahead of time.  Booking a rental car before you arrive to the airport is often cheaper than waiting until you arrive at the destination to get one.  Kayak.com is a great place to search for the best rental car rates.

Saving for a Vacation Tip 4:

If flying to a destination, use Google Flights to search for the best rates.  Google Flights allows you to search many airlines at once and see the cheapest rates for the best dates.

Saving for a Vacation Tip 5:

When booking a ski vacation, book your lift tickets and ski or snowboard rentals online.  Keystone Resort in Colorado offers online reservations to early bookers for a 20% discount.  Additionally, you can rent your equipment cheaper online ahead of time as well.  By booking my equipment through Christy Sports I was able to save an additional 20% versus the walk-in rate.

Saving for a Vacation Tip 6:

Lodging tends to be one of the more expensive parts of any vacation.  Last year when I traveled to Hawaii, a night at a resort was close to $600 per night; however, a couple friends and myself split a three bedroom Airbnb for less than $150 per night.  Exploring your lodging options can help greatly reduce the cost of any vacation.

As you can see, saving for a vacation is a two-fold strategy.  You first want to make sure you have the available funds.  This is done by creating money in your budget.  Secondly, you want to make sure you find the best deals out there.  I have found that planning for a vacation ahead of time is one of the easiest ways to save on your trip.  Meshing both of these aspects together can help create an enjoyable, budget friendly trip for all.

How to Become Independently Wealthy

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How to Become Independently Wealthy

Becoming wealthy is a goal many of us hope to achieve in our lifetime.  Whether you want to be wealthy so you can have unbelievable lifelong experiences or to validate your success, the goal is often dreamed of but rarely achieved.  Ken Fisher, the author of The Ten Roads to Riches, discusses the many ways people can achieve wealth throughout their lifetime, ten to be exact.  All of these roads have proven to make someone independently wealthy throughout their lives.  Some are more common than others.  So if the question of how to become independently wealthy has crossed your mind, I will discuss two of the ten Ken illustrates in his book.




How to Become Independently Wealthy: Save and Invest Wisely

I usually sign off my posts with a simple phrase: Budget Smart, Invest Wise.  Budgeting allows you to allocate your funds to various categories, and hopefully one of those categories is savings.  Whether your savings vehicle is an IRA, Roth IRA or other type of investment, saving money is critical to building wealth.  However, saving is only half of the battle to building wealth this way.  The other key ingredient is investing wisely.  Investing wisely means creating a smart investment plan, be it with a financial advisor or through acquired knowledge, that creates a return on one’s investment.  For example, I have found that investing on a monthly basis in a mutual fund that covers the broad range of the U.S. Stock Market to be of most benefit to me.  I recognize that this investment, although it has risk involved, prevents me from being susceptible to the failure of one company or one sector of the market.  Saving and investing wisely is the road most traveled, but it also provides the greatest chance of reward.

How to Become Independently Wealthy: Invent Income

Inventing income can cover a wide spectrum of earning additional money.  For example, if you are a song writer or musician, you can create an ongoing stream of royalties from your lyrics or music.  If you purchase a property that you decide to rent out, you could turn it into a cash flow positive stream of income.  The possibilities are endless.  Maybe you have a specific skill that people are willing to pay for you to teach them.  Perhaps your area of expertise at work can lead to consulting other companies on the side.  Do you have something you’re passionate about that you can create into a blog or website and charge for ad revenue?  Many of us have the tools, knowledge and capabilities to put our talents towards creating additional income.

Becoming independently wealthy or successful all boils down to one’s level of commitment.  If you are committed to becoming independently wealthy, then most likely you can find a way.  Some individuals, like Bill Gates or Mark Zuckerberg, created an enormous amount of wealth.  Maybe you want billions like these company creators, or maybe you will be satisfied with millions or even a million.  Only you can determine what being wealthy is to you.

How To Trim Your Budget

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With the new year in full swing, people are doing their best to stick to the freshly made New Year’s Resolution’s they mapped out for themselves.  The most common resolution always seems to be losing weight.  Instead of going with the status quo resolution this year, why not try to trim something else?  Your budget perhaps?




How to cut my expenses? Is a question often asked by many in order to free up funds in their daily lives.  Maybe they are living paycheck to paycheck, maybe they are trying to save up money for a special purchase, either way trimming your budget is the best way to go about doing this.

For starters, you need to have a budget.  You can download a free budget template and simply put in your income and expenses.  The best part about budgeting is you get to see where your hard-earned money is going every month.  Perhaps you are spending a large portion on eating out, can you bring your lunch instead of going out to eat?  If so, you might be able to not only cut some expenses but trim your waistline also.

The free downloadable budget allows you to choose the expense categories you have for a given month.  Say for example you spend $100 a month on your cellphone bill, can you change service providers and possibly get the monthly expense down to $80 per month?  If so, you have freed up $20 per month or $240 for the entire year.  Can you trim $10 a month off your grocery bill by purchasing generic products versus name brand?  This can be an additional $120 in savings for the year.  Attempting to save as little as $10 to $20 per category for a few of your monthly expenses can add up to some awesome end of the year savings.

Below is a quick easy way to trim your budget:

  • Create a budget: If you don’t already have one, now is the best time to start budgeting. This will determine where you are spending your money every month.
  • Track all of your expenses: See just how much you are spending in the various categories every month. Some may surprise you.
  • Pick 2-4 categories: By selecting a few categories where you think you can cut some expenses you will maximize your yearly savings.
  • See how much you can cut: It can be $5, $10, $20 or maybe even more per category per month. Living on a little less each month won’t change your quality of life for the worse.  Instead, you can use the money saved to enhance it by saving up for a vacation or a future purchase.
  • Don’t incur new expenses: While trimming your budget to save up money is the ultimate goal, don’t incur new expenses during the process. A car payment or a gym membership will quickly eat away at the money you are trying to save.

Stick to it: Trimming your budget will only be beneficial to your wallet if you stick to it.  Developing discipline for sticking to a budget can be tough but also very rewarding.

 

Build an Emergency Fund with this 52 Week Money Challenge Printable Version

As the end of 2016 approaches and a new year is on the horizon, it is time for a new year of financial goals.  According to a recent USA Today article, nearly 70% of all Americans have less than $1,000 in their savings accounts. That means when someone has an unexpected expense they must turn to high interest pay day loans, or credit cards that can’t be paid off at the end of the month. The interest paid on these will cost way more than the original amount in the long run. Even something as simple as $1,000 in an emergency fund can help offset these costs. So if you’re interested in avoiding the pain of credit card borrowing, it pays to have some financial security.

What does financial security mean? It is different for every person.  It could mean paying down student loans if you are a recent college graduate.  It might be tackling credit card debt that has plagued you for months or even years.  Maybe it is saving for a home.  Each person’s financial goals are different. Today’s focus will be on building an emergency fund for you to have in case you encounter any unexpected expenses.  The best part about an emergency fund is it can be done with little effort on your part and in just one year’s time.

Now if building a $1,000 emergency fund sounds good, building a $1,378 emergency fund will sound even better.  The best part is that there is a simple and easy way for almost anyone with an income stream to accomplish this.

Beginning in 2017, set a goal to accomplish the 52 Week Money Challenge printable version.  The challenge takes minimal effort and the downloadable sheet allows you to easily track your progress.  January 1, 2016 falls on a Sunday, so for simplicity reasons we will begin the challenge on Friday, January 6, 2017.  On the first Friday in the new year, simply put one dollar into your savings account or in a piggy bank if that is easier.  On the second Friday of the new year, put two dollars into your account.  Each of the Friday’s that follow, you will increase the amount you deposit by only one dollar.  It would look something like this for the month of January.

52 Week Money Challenge Printable Version Example:

Date Deposit Amount Total Amount Saved
1/6/2017 $1 $1
1/13/2017 $2 $3
1/20/2017 $3 $6
1/27/2017 $4 $10

52 Week Money Challenge Printable Version

By the end of January, you will have already saved ten dollars into your account and will be well on your way to establishing an emergency fund. Pretty much you just do the same thing for the rest of the weeks in the year, just for each week add one dollar to your weekly savings total.

Can you live on one less dollar each week?  That is how you need to look at this challenge.  Each week you train yourself to live on one less dollar than the previous week.  In the final week you will live on $52 less than you did the first week of the new year.  The total amount you will have saved up in just one year will be $1,378, which is more than what 70% of Americans have currently in their savings accounts.

Challenge yourself, a friend or a family member.  Take on and print out the 52 Week Money Challenge printable version sheet and get your new year off to a great financial start.

Budget Smart, Invest Wise