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20 | § ¶Roth IRA vs. Traditional IRA
-- One, the other, or both?
(Retire at 30 is hosting this week's Carnival of Investing. Their Go With Roth story served as inspiration for this article.)
A very common question that people ask themselves is if they should invest their money in a Roth IRA or in a Traditional IRA. As with many things in life we may initially be inclined to say it depends. However, upon further examination we do notice that for most people the best answer could be to have both.
First let’s review the benefits and limitations of each option: Continue Reading The Article...
19 24 | § ¶Saving Tip: Stop Smoking
-- It costs you more than you think.
(The Carnival of Personal Finance #37 is up on the Money Blog Network, a network of blogs that I certainly recommend you read. Its advice encouraged me to write this article)
Smoking costs a lot of money. For the median American family that earns shorts of $43,000 a year a smoker in their family may be the culprit for not allowing them to make ends meet. Smoking costs come disguised as other kinds of costs. Lets break them up and see how they quickly add up:
- Cost of cigarettes. $913 to $3,650, depending if it is half a pack, one pack, or two packs.
- Healthcare costs. According to different studies (listed below), health insurance costs can range from $335 to $2,643 more a year. Even if we participate in a non-differentiated health insurance through an employer, the higher amount of deductibles due to more office visits.
- Lost money: For every $1,000/year that a 30 year old loses due to cigarettes – money that could have been invested in an IRA, 401k, or Educational IRA -- that is over $150,000 if invested in instruments that generate around 9% - by using a method like the one presented by MSNBC.
- Thousands more:Life Insurance Costs, Car Insurance, Home Insurance, Accelerated Asset Depreciation and Deterioration due to smoke, and even the ability to get a job or a fair salary are also discussed by Personal Finance Advice on their article. This may be costing you thousands of dollars a year that I am not even counting right now because they can be of less interest to a family trying to make ends meet.
22 24 | § ¶Tax Season: Mixed Messages of the Marriage Penalty
-- It is More Than Tax Brackets
“Uncle Sam's so-called "marriage penalty" impacts over 40% of married couples, boosting annual taxes for these couples. The penalty can be steep, especially for two-income couples where both incomes are fairly equal. When both incomes are combined, many couples are pushed into the next tax bracket, triggering higher taxes on April 15th.” (Save Whealth) However... “… more couples get a bonus when they marry than suffer a penalty.” (Liz Puliman Weston for MSN Money)Marriage penalty affects mostly double income earners who have Adjusted Gross Incomes of more than $100,000. For starters it is unfair. However, nobody said the fairness of any tax system can be claimed without contest. Majority usually wins their argument whenever it is fair for the minority or not -- that is how democracy is defined. What I think is really wrong is that on one side society is telling people: "Study, prepare yourself, have a nice career, work hard, and marry someone like yourself.", and on the other side (the tax side) is telling people: "If you marry and both of you decide to contribute to our economy, you will pay more taxes, so you better don't marry."
What is more, taxes drive behavior -- that is one of the reasons many people buy houses, for example. Things that help people grow in life like real estate investments, Roth IRAs, Educational IRAs get affected by the marriage penalty. The government tells people to save and invest and then tells them, don't do it if you get married.
Continue Reading The Article... 13 30 | § ¶Book Review: All About Real Estate Investing
-- - A Textbook Approach to Making Money in Real Estate
|
All About Real Estate Investing, 2nd Edition, by William Benke and Joseph Fowler explains the economical aspects of Real Estate Investment with such cold headed approach that it may as well be used for a formal Real Estate investing course in college. That is precisely what I liked about it, you get the hard facts, the well proven formulas and charts, and the economic reasons and theories on what some things work and why some other things doesn’t. Once you finish reading the book you discover that real estate is not as easy as it sounded initially, and that there are many people out there that may be taking more risk or making worse decisions than they should have made have they had a method in mind other than just trying their luck.
The authors pay special attention on how to determine the profitability of a real estate investment. Interest and tax rates as well as occupancy and capital appreciation rates are all taken into account into the calculations and tables provided by the authors. Although the authors are strong believers in rental houses, they discuss apartments and raw land in great detail. You will also find tips on the best times and conditions to buy real estate properties, paying attention to your cash and income position strength. |
30 27 | § ¶Retirement Savings for Low Income Earners
-- Or just those starting out
(Jonathan of My Money Blog is hosting the Carnival Of Investing #10 this week. He is also the author of the story that inspired this article: More IRA Options for Those Starting Out.)
We spend an enormous amount of time telling people about the advantages of opening an Individual Retirement Account (IRA). Either Roth or Traditional, the advantages are easy to understand to even the least economically educated person. We also suggest automating the investments and paying yourself first. The problem is that for people with little room to spare for retirement savings, starting out is a daunting task. It is way too easy to forget about the issue and hope for a better future – out of nothing at all.
This is a very common issue, and the good news is that it has been researched, and answers have been found. Continue Reading The Article...
19 23 | § ¶Increased HealthCare Spending
-- Be Healthy and Invest on the Unhealthy
(Joint and simultaneous posting in Stocks For Me and Money and Investing)
Americans are constantly requiring more and more expensive medical care. Currently, we spend 16.2% of all of our spending in healthcare: this includes private, insured, and public funded healthcare. By year 2015 this number will climb to 20% of our economy according to a government study announced on USA Today.
This is hitting us all right now in the form of taxes and medical insurance – even if your employer carries the majority of the load on this last one, it is dollars they are not giving you in salary.
How can we reduce the impact it carries on us? I suggest two things:
- Reduce your own healthcare costs by carrying out preventive measures: maintain a healthy weight, don’t smoke, don’t consume harmful substances, and visit health care providers for preventive medicine before a condition becomes too costly to repair.
- Invest in health care providers. As much as you can take care of your own health, you can’t force other people to take care of theirs. I estimate that Americans will continue to practice unhealthy lifestyles that will require them to increase their healthcare expenses. Profit from our shared misery! Even if the government ends up charging you with ever increasing taxation to pay for the healthcare, you can recoup some of it from the payments they will have to provide to the healthcare providers: which will hopefully be owned by you.
20 16 | § ¶Investor Geeks: Pro-Forma and the Truth About Non-Recurring Expenses
-- Read the Fine Print
Investor Geeks, on their fairly recent and superbly written financial blog, explain what Pro-Forma earnings are:
Pro forma earnings (sometimes spelled “proforma” or “pro-forma”) are included by some companies in their quarterly or annual reports as a way to discount “unusual and non-recurring transactions” to more accurately reflect their true financial health. But while actual earnings are calculated using Generally Accepted Accounting Principles (“GAAP”), the US standard for corporate accounting, pro forma earnings are used as guidance for investors to demonstrate how much money a company would have earned had unusual and one-time charges not occurred. As one would expect, pro forma reporting has had a history of abuse and therefore should be approached with great care. -- Investor Geeks
In other words, Generally Accepted Accounting Principles earnings are the closest to true earnings that a company can report. Pro-forma earnings exclude non-recurring transactions – but at the same time exclude money that was really lost (or won)!
Continue Reading The Article... 13 30 | § ¶Check Your Paystub
-- Nobody Cares About Your Own Money Like You Do
Nobody cares about your money like you do. That is what I thought. After all, it is you who has to pay your rent/mortgage if you don’t want to sleep in a park bench and you who have to buy food if you do not want to go to the park bench with a hungry stomach.
Or so I thought. But from my recent unscientific observations, it may not be the case. Let me tell you a story in which a big company can accidentally overlook some compensation owed to their employees – and the employees don’t even notice!!!
20 28 | § ¶Indeed.com
-- A Great Job Search Engine
(Joint and simultaneous posting in Find New Job and Money and Investing)
“Indeed is a search engine for jobs - with a radically different approach to job search. In one simple search, Indeed gives job seekers free access to millions of employment opportunities from thousands of websites. Indeed.com includes all the job listings from major job boards, newspapers, associations and company career pages.” -- Indeed WebsiteIndeed provides a very simple interface for finding jobs of a particular type, or in a particular area. You can refine the search with extra keywords for any of the searchable fields like company, title, or description. Even the “Advanced Search” is simple enough that even our grannies would be able to find a job there.
The feature I liked the most was that you can have indeed send you new jobs that meet a particular search criteria or even better, it makes them available via RSS directly into your blog aggregator: you will see new job postings next to the new postings in this Weblog. You can also save interesting jobs into your own personalized page.
Continue Reading The Article... 23 27 | § ¶What is In My Wallet?
-- A fun meme.
| | There is a meme going around where financial bloggers reveal the contents of their wallets and I thought I’d join the fun. You can learn a lot about someone from what they carry next to their money (purse, wallet, or handbag). Plus, it is a nice diversion from the serious financial advocacy I usually post about. Here are my very old wrangler black leather wallet’s contents (I think I acquired it in 1996) and why I carry each: |
27 25 | § ¶Good Old Dividends
-- Keep em coming
(Joint and simultaneous posting in Stocks For Me and Money and Investing)
It used to be that the reason someone wanted to have an interest in a company was to have at least a share or portion of the profits of such company - that is called dividends. Nowadays people are very concentrated on growth, and sometimes they forget that you want a company to be profitable and share the profits with you.
Fortunately, there are still companies that do believe in sharing their luck with their owners. And with a few exceptions like General Motors (GM) -- which reminds us that there is no perfect investment scheme, they do grow in share price year over year.
A few good examples that I keep in my portfolio are: Bank of America (BAC) with 4.5% yield, Citibank ( C ) with 4.2% yield, Altria (MO) with 4.4% yield, and US Bank (USB) with 4.4% yield. You may have seen me posting on them on my Stocks for Me blog.
Continue Reading The Article... 15 23 | § ¶Tax Season: Saver’s Credit
-- Money for Nothing
If you or someone you know has an Adjusted Gross Income or less than 25,000, you may be eligible for a tax credit: Money to you put into a 401k, Individual Retirement Account (IRA), or other qualifying retirement accounts may bring you extra money from Uncle Sam. It can bring you 10%, 20%, or even 50% back – better refund or less tax payment! And that is on top of any Traditional IRA deductions you may have made, and the Adjusted Gross Income number is after such deductions.
It is a no brainier. In total, the government gives you money for saving money. They give you up to half of the money you are putting back; even you also get to keep the money for your retirement.
If you ever said: “I am too poor, I can’t afford to save”, now you really can’t afford not to save – you do not want to loose the opportunity to get more money.
And remember, you can always create an IRA with the refund money you get from the IRS. If you make your tax forms quickly enough, you can fund the IRA with the money they refund you.
Continue Reading The Article... 12 31 | § ¶Book Review: How to Invest In Condominiums
-- The Simple Way to Self-Service Real Estate
| How to Invest in Condominiums by Andris Virsnieks strongly suggests people who want to get their feet wet in real estate should concentrate on well managed and maintained condominiums in attractive areas, and have it managed by a real estate management company. The premise may sound as a no brainier to most people, but he goes deep into why that is the preferred, easier way to get started, and the one that will most surely get you to a nice net worth buildup. This is an enlightening book for potential Real Estate investors even if not comprehensive. Not for first time buyers, and certainly not the only book you may want to read if you are about to become an investor. |
25 31 | § ¶Zillow Review
--
Zillow promises free instant house price valuations, and have decided to diminish the need for a Real Estate Agent. My skepticism made me test it.
Overall I must say I am impressed by how much information is provided for free and how well they are combining public record information that you could have found in other websites, but would have had to make the relationships yourself. Also, after performing a valuation on three houses that I know very well (my properties), I conclude the information provided by Zillow is useful for real estate purchases. Some caveats, however, especially that you may have to use the “refine” utility to correct any mistakes that may have been carried over from the records they used -- only by using the "refine" tool you may be able to get a value very close to the one expected for the property.
Continue Reading The Article... 17 37 | § ¶Miata Survived
-- On The Road Again
Yesterday I brought the car to the mechanic for repairs. From the way it sounded before I dropped it off I thought this was it, the end of him. Its Kelly Blue Book trade-in value was listed as $2500/$1500 (Good/Fair). I was expecting a bill that would have challenged the value of the car, and I was preparing myself for calling some charity entity to donate whatever was left of it.
I got a pleasant surprise when the mechanic called and told me that it was just a matter of replacing the water pump, a belt, adjusting a bunch of loose screws and bolts all around the car that made it rattle terribly, and place a lug nut screw on one of the tires, all for the small (considering the expectation) price of $466.20. At the end of it, my 1996 Mazda Miata M-Edition was purring like I remembered it the first day I got it out of the store back in June 25, 1996. Hopefully it will still drive past it 10th birthday on June 25, 2006.
Continue Reading The Article... 27 35 | § ¶The Automatic Millionaire Homeowner, David Bach
-- Stop Renting Now
| -- A book for anyone doubting if they should join the Real Estate market now. “Nothing great is ever easy – and it is almost always scary”. (quote from book)
The author does a great job at explaining why Real Estate is a sound investment, and why even in an uncertain Real Estate market as the one we face in 2006 acquiring a property may be a good idea. He also explains why he believes Real Estate will continue appreciating at a very good rate, especially in the following couple of decades. He then proceeds to guide you through the basics of what you should to get a house, saving for down payment, keeping good credit scores, choosing the right mortgage for you and working through the purchasing process. You don’t find the details on what to look for in a house, what to watch for in the legal process of buying a house or any of the other mechanics of the process. The Purchase and Sale Agreement part of the process is missing from the book, as well as the extremely important advice of getting a lawyer with Real Estate experience before or at the same time you are searching for a bank and it’s pre-approval. But then again, there is only so much you can cover in less than 250 pages, and thats why you get a lawyer or Real Estate agent -- to guide you through the specific mechanics of the process. |
24 32 | § ¶Effective Interest
-- Risks of a Savings Account
Since we are kids our parents, friends, and specially the financial media is mentoring us to make our money work for us. The first example most people give to us is a bank’s Savings Account or Certificate of Deposit.
The whole purpose of making the money work for us is to make it grow, and either let it compound itself on its growing method or produce an income that can sustain or enhance your life without requiring too much effort on your part. People like to use a bank’s Savings Account or Certificate of Deposit because when first looked at, it deceives us into believing there is no risk on it: money for nothing is what people think, you just have to sit back, relax, and enjoy the interests.
Reality could be slightly different when you consider things as taxes and inflation. A bank Savings Account or Certificate of Deposit seldom serves you well to ‘make money work for you’. It serves perfectly to hold money at an almost constant value for emergency purposes or for expenses to make in the near future. It is not a vehicle to make money grow or to make it replace a source of income.
Let me explain you why. Download the Effective Interest Calculator (Excel Spreadsheet), and continue reading.
Continue Reading The Article... 17 22 | § ¶Lets Get a Job!
-- Right Market Conditions
Today, the government announced that unemployment rate fell to 4.7% during January, versus a 4.9% on December. The stock market got scared and fell today, expecting a future surge in wage prices -- the one we just got was mild in comparison to what could be feared. Of course, the government and the industry will try to control wages rise in an effort to contain inflation and production costs, but one thing is for sure:
He/She who has invested AND is working will win no matter what: either he/she will get a better salary or a better job, or the increased workforce will produce more products and services to feed their investments. At a minimum, the right time to do some job hunting is here or almost here.
Sure, the unemployment rate could get even better. During the .com bubble it went all the way down to 4%. Salaries where increasing so fast that if you waited a year on your current job you would have started noticing the intern earning more than you did. And we also remember the days when unemployment went all the way up to 6%, just after September 11th 2001. I would rather see the unemployment rate close to 4% than to 6%, even when I do not really want to see an overheated economy like the one we had on the .com. I certainly want to see a long era of moderate growth.
Continue Reading The Article... 13 23 | § ¶Linked In
-- A great networking site
Many professional networking sites have tried, but few have been able to achieve a simple interface that quickly connects you to almost lost contacts that may help you in your professional career.
Today I first used the Linked In website, where people can post their resume and try to link in their friends and professional contacts. The site has interesting features like:
- Search by name, company, title, or geography.
- Praise past co-workers, clients, vendors, or colleagues.
- Ask to be introduced to other members.
- Job Search, within our outside your network.
The website appears to have done a good job at protecting your privacy. Unless you do know the address of someone, you can't join them. You can't even contact them except through an established contact in the first degree who acts as an intermediary by forwarding the request to the person in the second degree.
Give it a try! And if you know me personally or professionally, add me in (you probably know my e-mail address).
28 21 | § ¶Google
-- And it missed forecast
Google (GOOG) reported earnings that where well off the analyst estimates (actual: $1.54/sh vs. estimate: $1.76/sh). At share prices of close to $400 USD each, and at an end of year revenue of around $5.68, it brings current year’s P/E (stock Price to Earnings Ratio) to around 70. Next year’s estimate is 8.76, and assuming the stock stays in the $400 range, its P/E would be 45, still very high, and even if they had stable stock price and 50% year over year growth in earnings, it will still hold high well into 2008. (For me, high is anything above 20).
Stock price is poised for a 10% drop this morning, from above $430 yesterday, to around $390 today. Not surprising, after a similar drop by Yahoo (YHOO) earlier in the year when it also missed the estimates – that is what happens when companies deliver less than what the stock was priced to deliver for. I believe people where expecting a positive surprise on top of a very positive and rosy outlook. I believe we had a .com fallback, where we just started to believe that the internet would be the solution for all of our problems, where money was to be made with very little effort or work.
Continue Reading The Article...