Thursday, September 13, 2007
It's been a while since I last posted, but I do have a valid excuse. I've been absolutely swamped at work. Swamped to the point where remaining at the office until 10 or 11 or even 12 some nights is not uncommon - at least it's been this way for the past two weeks. For those of you who don't know, I work at a large Wall Street law firm as a paralegal. And I'm on one deal that has consumed a tremendous amount of my personal time.
Working these hours has made me realize something very profound. Actually, I already knew it, but doing this much overtime has really driven it home. Working long hours at something you don't love doing just for the money is not worth it. Not even a little bit. Let me explain.
At my law firm, the starting salary for first year associates is $160,000. Granted, that's a lot of money, but it's not the most money one can make. And a high price is paid for that $160K, both in terms of quality of life and mental health. As a paralegal, it's expected that I'm going to be doing overtime every now and then. But in general, I can leave the office at 5:30. Lawyers at big firms like mine, however, routinely leave the office around 8 or 9 and they get in around 8:30 or so in the morning. This past week, when I was leaving the office at 11, I saw at least six of the attorneys on my floor still at the office. This is ridiculous! Why do people forsake having time to do the fun things they love and spending time with friends and family in order to ensure that some deal goes through? The simple answer is the allure of the greenback.
This would make sense on a basic level if lots of money would bring people lots of happiness. Unfortunately, thinking that money will bring you happiness is like what Solomon in Ecclesiastes describes as "chasing after the wind". Most humans, not just lawyers, seem to think that the next promotion, the next raise, the next person that he or she sleeps with, the next new car or pair of clothes will bring us happiness. And these things do bring us temporary happiness, but soon it fades away. We're left looking for something else to fill a void in us and provide that peace to calm our restlessness. If this isn't true for you, I know that it's certainly been the case for me.
In light of this realization, I've recently begun asking myself why I want to make the type of money that I want. Is it so I can buy lots of cars or nice accoutrements for an expensive apartment? Is it so I can impress women and my friends by taking them out to fancy dinners? No. And I'm not sure what I will get out of being a millionaire several times over. There are plenty of unhappy, even miserable millionaires. I think fundamentally what I'm looking for is security to know that I can weather any financial storm, to be able to help out family members who need it, and to make sure my children don't need student loans when they go to college. I'm going to go even further though and ask if even these most basic of things will make me happy. I'm not too sure, but I think that in all of our strivings, it's important to take a step back and reflect on what the driving forces are behind our dreams of wealth. Please feel free to send me your thoughts on this issue at email@example.com or firstname.lastname@example.org or post them on this blog.
Thanks for reading and until next time...
Tuesday, August 28, 2007
In my Aug. 19th post, entitled The Basics: Financial Statements and Accounting Terms, I wrote about the three major financial statements that are crucial to understand if you are to invest successfully. To recap (although I suggest you read that post too), there are three major statements and they are the balance sheet, the income statement, and the statement of cash flows.
Balance sheet: an accounting statement that summarizes a company's assets, liabilities, and shareholder's equity at a specific point in time. It basically gives a snapshot of how financially healthy a company is at a discrete instance. It must follow the rule of Assets = Liabilities + Owner's Equity. Read the Aug. 19th post to find out about owner's equity.
Income statement: an accounting statement that summarizes how much a company earns, and what its expenses are. The money that a company earns can be from selling goods, capital gains on stock investments, appreciation in real estate, and interest on bonds it holds.
Expenses can be from the materials it takes to make the goods a company sells, research and development, labor costs, pension costs, and rent/mortgages.
Now, onto the statement of cash flows. In order to understand the statement of cash flows, you must realize that there are two types of accounting used. One is called accrual basis accounting and the other is called cash basis accounting. To promote transparency, the FASB (Financial Accounting Standards Board) mandates that companies use accrual basis accounting.
Here's an example. Let's say you sell paper to a law firm. The law firm can either pay you immediately or in a more typical time frame for large intercompany transcations, a month. Let's go further and say that you sell the paper to the law firm on Jan.1 and they pay you on Jan. 31. On Jan. 1, a sale has taken place - it's just that no physical or electronic money has been transferred from the buyer to the seller. So companies record it in their balance sheets as an asset and on the income statement as revenue.
Unfortunately, this does not tell one a whole lot about how much physical cash comes into the company. This is where the statement of cash flows comes in. The cash flow statement takes the net income from the income statement - the very last line - and adds to it things that do not involve the transfer or cash, like depreciation and amortization and other non-cash expense. I'll discuss these at a later time.
Finally, the cash flow statement has three sections: the operating activities section, the financing section, and the investing sections. I'll be brief.
Operating activities: This portion involves the revenue from cash transactions that arise because of the sale of a company's products or services. It also involves the cash from expenses for the company to make its products or deliver its services.
Financing activities: This portion involves the revenue from cash transactions tha arise through the company raising money. This can be through raising money or issuing stock.
Investing activities: This portion involves the revenue from cash transactions that arise through the company buying or selling an investment, i,e, stock or real estate. These cash transactions also can arise from things like "capital improvements", i.e. renovations to a building.
Thanks for reading and in one of my upcoming posts, I will go more into depth about accounting. However, I won't scrimp on my squshy, less quantitative side.
On a daily basis, I try to do a tremendous amount of thinking. Not thinking while listening to music, or thinking while eating dinner, but just thinking where I sit down and remove myself from any possible form of disturbance. It is during these periods of uninterrupted thinking when I get my good ideas.
One of the ideas that I've been mulling over during the past few weeks is why I haven't given more to charities. I've already mentioned before that I have several tens of thousands of dollars in student loan debt to pay back, and that I wasn't born with a silver spoon in my mouth. And if you're anything like me, most of your paycheck is consumed by basic living expenses such as food and rent. However, I thought that there had to be more to my reluctance to giving to charity. Using the things I mentioned above as excuses was taking the easy way out.
After a few weeks of serious self-examination, I realized that for the most part, my money profile is that of "hoarder". You see, growing up, even though there was enough to go around, there was never excess money in my family. We got by, through thrift and the grace of God. I imagine that this subconsciously instilled in me a sense that I have to preserve and protect every single cent that I have. Unfortunately, this is not the way to wealth, and more importantly, it isn't the way to a fulfilled life. Let me explain.
God, or whatever higher universal power you believe in, has placed us on this earth, I believe, to be of service to others. This service can be through teaching, encouragement of others when they're feeling down, volunteering time and energy, and giving money. When I think about the atrocities that are taking place in Africa, particularly Sudan, and how such small sums can drastically change lives, I can't help but give. In college, in my Political Economy of Development class, I learned that half of the world lives on less than $2 a day. $2 a day! That's ridiculous. That's the fare to get on public transportation in New York City!
So I've decided that every paycheck, I will donate $25 to Africare - an African-American led organization that provides potable water, healthcare, and shelter for displaced Sudanese. It also contributes water/food and healthcare in other parts of Africa, but right now, Sudan and Chad is where their efforts are focused. I have also decided to give $100 to my junior high school alma mater, De La Salle Academy, in order to help the defray the cost of tuition for a low-income student.
So go ahead, donate. Even if you feel it might hurt your pockets. You'll see how good it feels to be of assistance to someone who needs your money much more than you do. Boy, am I glad that I didn't wait until I had my loans paid off in order to start giving back to the world, monetarily.
Thanks for reading and until next time...
Sunday, August 19, 2007
I hope that you all enjoyed your weekend. I will try to keep tonight's post relatively short, but I will cover something that's very crucial to your investing journey - accounting. Don't get me wrong, I'm not an accounting guru. Heck, I only took one accounting class in college and didn't take any economics courses. But recently, I've been reading "Accounting for Dummies" and would like to share some valuable insights that I've gleaned.
Every company that is publicly traded (that is, every company whose stock you can own) is required by the Securities and Exchange Commission to file something called a 10Q and a 10K. A 10Q is a report that is an overview of a company's financial performance for the past three months, or the last quarter. The 10Q is filed three times a year and is intended to provide visibility into a company's operations for the company's shareholders. A 10K, which is also inside the annual report, is a comprehensive report of the company's financial performance over the past year. This report is only filed once a year - typically at the end of the year, depending on the accounting/fiscal calendar that the company uses.
Within these reports - the 10Q and the 10K - there is a whole lot of valuable information about how much the company makes. But before I get into that, let me specify the types of statements you will find in these reports. The three statements are:
the income statement
the balance sheet, and
the statement of cash flows.
The income statement is a statement which talks about the company's revenues (how much it earns) and its expenses (how much it has to pay out over a certain period of time). A company can earn revenue from many things such as the things it sells, investments it holds, real estate that may appreciate in value, and interest from bonds it may hold. Similarly, a company's expenses include the price that it paid for raw materials for its product, the cost of research and development, salaries for the employees, rent, and the interest that it pays on its debt, if the company has any debt. When CEOs and stock market commentators talk about a company raising its top line, they are talking about increasing revenue.
The balance sheet is a statement that is akin to your annual banking statement. It states how much money you have (your assets), how much debt you owe (your liabilities), and another thing which is completely unrelated to an individual's financial position - owner's equity. Owner's equity is essentially the amount of capital the company received from investors in exchange for stock. It is also the difference between assets and liabilities, i.e. Assets - Liabilities = Owner's Equity. Or, Assets = Liabilities + Owner's Equity. A company's assets can be divided up into long-term assets and short-term assets. Long-term assets are things such as real estate and equipment/machinery. Generally, long-term assets cannot be easily converted into cash. Conversely, short-term assets are things like cash and marketable securities (stock) that will be used to pay for expenses in the next twelve months. When CEOs and financial commentators, talk about increasing a company's bottom line, they are talking about increasing the net profit a company earns - the last line on the balance sheet.
The statement of cash flows was/is for me the hardest statement to get my head around, since it involves so many adjustments. I will elaborate on it in my next post, in addition to giving some basic formulas to help you dig into accounting statements. But for now, I will just tell you that it is a statement that shows how efficiently a company uses cash. This statement adjusts for how much cash comes into the company, and how much goes out. Normally, statements like the income statement add the proceeds from a sale to their top line when a customer receives a product. But this does not necessarily mean that cash has been given to the company. Sometimes customers pay for an item a month later, and receive the product beforehand. When companies record this sale and add it to their revenue before cash/physical money has been received, this is called accrual based accounting. The statement of cash flows adjusts for sales on a cash-basis only. That is, the statement of cash flows shows how much cold hard cash the company received and how much it paid out. Nothing more, nothing less.
Thanks for reading and if you have any questions, please feel free to post them or email me. Until next time...
Monday, August 13, 2007
In my Sunday, July 8th post, I wrote about how to manage debt by paying the minimum for debt service and placing your money where it can earn higher returns. This only works when the interest rates on your debt are low.
On Saturday, I received some convenience checks in the mail. When I get these, I usually tear them up because I don't like carrying a credit card balance. But because I have pretty good credit (above 700), I often get offers for the ability to write checks to myself at rates like .99% until May 2008 or 4.99% until the balance is paid off. I had been offered an APR (annual percentage rate) of 4.99% before, but Saturday was the first time that I had gotten one as low as .99%. I knew that I had to take advantage of this offer.
Normally I would not advocate borrowing money to buy stocks. Buying stocks on margin is something that I would only recommend for experienced investment professionals. But using a credit card convenience check to buy stocks when you're getting an incredible rate is something that I think can be profitable if planned carefully.
Today, I wrote myself a check for $3,000. I will use $1,250 of that to pay for my LSAT prep course (I will pay off this balance at the end of the month). The remaining $1,750 will be used to purchase 100 shares of Ceragon Networks (CRNT). Ceragon Networks is a telecommunications company that provides Wi-Max, and wireless cellular infrastructure to cellular operators. Given the growth of broadband and cellular technology in emerging markets such as India, China, Brazil, and Mexico - many of which are the markets that Ceragon Networks operates in - Ceragon is posied to profit nicely.
I think that CRNT will be more than .99% higher 9 months from now, which is when I would start paying the regular APR on the $3,000 that I'm borrowing. CRNT has a market cap of approximatey $450 million, is growing revenues at 57%, its quarterly earnings recently more than tripled, and it trades at $15.93 right now. Couple these factors with the typical end of the year tech rally, and you have a recipe for tons of upside price action.
Of course this is an oversimplification, but hopefully it provides a starting point for more research on CRNT. The bottom line though is that I can afford to pay back the $3,000 I'm borrowing if anything goes awry with this trade, the APR on the money is ridiculously low, and CRNT has major growth potential. I don't recommend others doing this without knowing their risk tolerance level. I just wanted to put the idea out there - using low-interest rate money to invest is a much better alternative to using that money for a vacation, designer jeans, or a flat-screen t.v. Thanks for reading and until next time...
Thursday, August 9, 2007
Tonight, I want to talk about a personal experience of mine and how it relates to investing.
Recently, I signed up for swimming lessons at the Harlem YMCA. I'm not the greatest of swimmers, even though I've taken lessons before. And since I know that I need to review the basics, I decided to enroll in the beginner's class.
To my surprise, on the first day, I saw a huge amount of older people in the class. And when I say older, I mean older. There were a few women in their late 50s and one in her early 60s. What struck me immediately was that these women did not let their age prevent them from learning a skill that's crucial.
Inspired by these women, one day during class, I volunteered to be the first to swim a full lap across the pool with a kickboard. I kicked as hard as I could and fortunately I made it across safely, but when I got to the deep end, I started to question whether I had the stamina to make it across. I could feel myself start to sink, and I realized that the only way for me to not die was to calm myself down.
So how does this relate to investing? Well, in order to be a successful investor, youi have to remain cool in the face of fear. It is impossible to trade/invest profitably when you are fearful. This is similar to the way that one begins to sink in the water once fear takes hold. Today, the Dow Jones Industrial Average index dropped 387 points, or nearly 3%. This is huge. And even though my portfolio consists of small-cap stocks - while the Dow is made up of large cap stocks - my portfolio still took a hit.
One of my stocks, First Marblehead (FMD) - a student loan services provider - was down 4% today and is down 16% overall. Why do I still hold onto it when it's being beaten so harshly? My reason is simple: I believe wholeheartedly in the long-term prospects of the private student loan industry. First Marblehead has a great balance sheet, sports a 3% dividend, is growing earnings and revenue at around 20%, and trades at 7 times next year's earnings estimates. Sometimes you have to hold your ground and wait for the market to turn around and recognize value.
To come back to my original point, swimming requires you to be relaxed and alert at the same time. The same can be said for investing. If you can't be relaxed in a stock market as volatile as the one we've had in the past few months, you should get more comfortable controlling your emotions by monitoring a mock portfolio on Yahoo! finance or Marketwatch.
Thanks for reading and until next time...
Sunday, August 5, 2007
Today, I'd like to talk about how I will change Generation Y Financial Freedom and my vision for it.
I intend to continue dispensing financial advice to 20somethings and members of other age groups. But I've realized recently that most financial advice that I could possibly give has been dispensed at some point in time before my blog ever existed. And one can only talk about how to get out of credit debt and the importance for saving for retirement in your 20s so much. So I've decided to switch to a different approach. The following are things that I will be doing from now on:
1. I will write about issues that I find relevant to my life and that may or not pertain to the lives of others. These issues will pertain to personal finance, but they will also pertain to spiritual and emotional health. This is because our spiritual and emotional health affects our financial health.
2. I will start giving stock recommendations/my opinions on certain stocks based upon the research that I've done. I am a little hesitant to start doing this as I don't want people to lose money because of me. But I've decided that it'd be a good learning process for me to write down, in a candid format, my thesis for why an investment is good. These recommendations are intended to be a basis for further investigation.
3. I will make blog posts shorter and more frequent. People like reading straight-to-the-point advice. It's easy to ramble on when your writings are long. Keeping things short is a way to make sure you stay on track.
Thanks for reading. If you have any questions, please feel free to write me or post a comment. Until next time...
Monday, July 30, 2007
I have something to admit to you all. Although I never thought that I would do it, I've decided to apply to graduate school. And I have good reasons for it, but they're not the ones that you think. For one, the economy is great right now and mostly any recent college graduate with a decent work ethic can find a gig. So I'm not applying just to get out of looking for a job or figure out what I want to do with my life. I already have a job, and I'm slowly but surely carving out my own life path.
My primary reason for going, or lest you consider me presumptuous, I should say, applying, to graduate school is one word - money. You see, I already know that boatloads of money won't make me happy. Family, friends, and being in control of my time will increase my deep inner joy more than the Benjies will. However, I know that I can't live the rest of my life on my current salary - $45,000 a year. So, in tonight's post, I'll dispense some wisdom that I've gleaned about the economic pros and cons of taking the grad school plunge. Here goes.
1) Make sure that degree is really worth it.
Going to medical school? Yep, the cost of the degree is certainly worth it. According to the Association of American Medical Colleges, the average indebtedness (including pre-med borrowing) of the class of 2006 was $130, 571. Nonetheless, after residency, the average surgeon can expect to make $137, 000 a year. The average anesthesiologist, $135,000 a year. The average internist, a respectable $126, 940. You get the picture. Doctors will always be needed as healthcare is an issue that will never go away.
But if you're looking to get a Ph.D. in something esoteric like Aztec literature, do yourself a favor and just read about it on your own time. The academic job market is glutted and it's really hard to get a tenure track position at a university. And even though Ph.D's are usually subsidized, are you really being subsidized when you are giving up five years of income for not so bright job prospects? When your mom told you to marry a "doctor", she meant the first kind I spoke of.
2) If you do go, live like a broke college student.
I'll repeat that so it can sink in. If you do go to graduate school, while there, live like a broke college student. This is particularly true of law students, but I imagine it can apply to any graduate student. So many grad students figure that since they've graduated from college, so they should live like 'adults'. But they don't realize that by living off of credit cards and spending their stipends or student loans on non-essentials, they are mortgaging their future for depreciating assets like designer jeans and seven dollar Heinekens. Living like a broke student will make for a much richer (in so many ways) life later on. And most 'adults' live paycheck to paycheck, and you do don't want that after grad school.
3) Lastly, if you earn any disposable income, begin socking it away. (Save some of your stipend.)
I'm not saying you shouldn't indulge and enjoy life while in grad school. To the contrary. But even if you can only save one hundred bucks a month (and anyone in grad school can, I'm positive), do it. That $100 a month translates into $1200 a year, and over the course of three to four years, that adds up to $3600 to $4800 dollars. The last amount is more than enough to fund your Roth IRA for this year.
If you have any questions or comments, please feel free to email me or post them. Thanks for reading and until next time...
Wednesday, July 25, 2007
Tonight's post will spotlight Senator Barack Obama's economic policies. Last night, I wrote that I will definitely be voting for him in the 2008 Democratic primary election. But like I said last night, this is not a political blog. I'm just concerned with laying out the Democratic candidates' economic policies so that you can make your own informed decisions. I have no intentions of persuading you one way or the other.
Now, onto the policies. We all know that being a young professional, or aspiring professional, in a major city is tough financially. According to AM New York, the average studio apartment below 96th Street in Manhattan is $1,797 a month. Of course there are other places to live in New York besides the heart of Manhattan. But one would be hard-pressed to find a one bedroom apartment that costs less than $1,000 a month in New York or any other major city in the US. But Senator Obama, if elected, intends to create an affordable housing trust fund to eliminate this problem.
This trust fund would take a small percentage of Fannie Mae and Freddie Mac's profits and put it toward the construction of mixed-income housing. Not only would this policy make housing more affordable for low-income families and recent college graduates, but it would decrease the high-levels of class separatism in this country. The sons and daughters of firefighters, teachers, lawyers, and doctors alike would be able to attend the same schools because each of these professionals would live in the same neighborhoods.
Senator Obama, like Senator Edwards, also advocates cracking down on mortgage fraud and decreasing the number of Americans who enter into "high risk home loans". If eleected, he intends to implement and completely fund the STOP FRAUD act, which will increase penalties for deceptive mortgage professionals. I believe that this act would work in tandem with Sen. Obama's affordable housing trust. Being able to make rent payments comfortably certainly will allow you to save for your first home, allow you to sure up your credit score, and make you less likely to enter into a subprime loan.
In addition to this, Senator Obama will attempt to lessen the burden on middle-class workers by working with urban planners to make commuting to work less costly. According to Obama's website, low-income workers spend up to 36% of their income on commuting. And even people who are not low-income workers spend hefty portions of their income paying for gas. If more environmentally friendly and walkable or bikeable communities were created, this would translate into tremendous savings for the average Jane.
Lastly, Obama would like to strengthen small business - particularly minority- and women-owned businesses. Black and female-headed businesses have been receiving decreasing amounts of financing over the past decade and these businesses often have to pay higher rates for financing than their white, male counterparts. Senator Obama hopes to change this by implementing certain initiatives to increase funding at the Small Business Administration.
If you feel that I've left out some of Senator Obama's economic strong points, please feel free to comment and I'll include your thoughts as an addendum to this post. Thanks for reading and until next time...
Tuesday, July 24, 2007
Tonight's post is going to spotlight Hillary Clinton. But before I talk about her virtues, I'd like to show my hand and tell you all who I'm going to vote for. I plan on voting for Barack Obama. Why? I'm not just going to vote for him because he's a Black male, although that does play a role. I plan on giving him my vote because I feel like he has the international experience necessary to do the job and as a person of color, he can truly empathize with the disenfranchised in our nation and around the world. He is also a centrist who attempts to unify and not divide. Most importantly, he was a community organizer in his 20s and has devoted his whole life to public service. He's not just some Wall Streeter who got it in his head to run for political office because he's tied of making money. By the way, I'll be spotlighting his economic policies tomorrow.
Now, onto Hillary's economic policies. Hillary Clinton has proposed something very radical. She proposed that federal minimum wage increases be tied to congressional pay raises. In January 10, 2007, the House of Representatives overwhelmingly passed legislation that would increase the minimum wage from $5.15 to $7.25 over the next two years. Over the next two years?! This is the first raise in the minimum wage in over a decade, and it has to be phased in over two years? Meanwhile, Congress voted itself a pay raise of $4,400 recently, taking their pay to a whopping $170,000 a year! If Clinton's legislation was enacted, every time Congress wanted to keep up with the "cost of living", the little guy/woman would be lifted up too.
Another issue that Clinton has taken on is the issue of student loans. This is a sorely underdiscussed topic among all of the candidates - both Democratic and Republican. But Clinton advocates creating the "Student Borrowers' Bill of Rights". This bill would cap the rates that private lenders can charge on private student loans. Currently, rates on private loans can go as high as lenders please and are largely determined by a borrower's credit history - just like credit card rates.
Also, back in the early 90s, Hillary Clinton was already on the ball with the idea of universal health care and increasing its affordability. Unfortunately she did not have enough political muscle to get the idea passed (perhaps because it was brought to a largely Republican Congress). Clinton is aware of the fact that more than 45 million Americans - approximately 15% of the U.S. population - are uninsured and 9 million of these are children. Millions more are underinsured, which means that their insurance companies refuse to pay for certain critical procedures. Underinsurance is one of the leading causes of bankruptcy in this country. And according to Clinton's campaign site, more people went bankrupt last year than graduated from college. Under a Clinton administration, no one would be left out in the cold and insurers would be required to pay for medical emergencies. They also would not be allowed to deny someone insurance because of a pre-existing condition.
Lastly, you might remember that under the last Clinton administration, the economy experienced an unprecedented expansion. We balanced the federal budget and from 1992 to 2000, more and more jobs were created. Hillary Clinton will undoubtedly use Bill as an economic advisor and hopes to create the same sort of economic expansion her husband achieved.
Before I go though, I'd like to say that this is not a political blog, by any means. But it's important to think about the merits of each candidate and how he or she will shape America's moral, cultural, and financial future. This is why I'm putting these ideas out there. Thanks for reading and until next time...
Monday, July 23, 2007
Before I go on any further and talk about the Democratic candidates' policies and how they'll affect you financially, I just want to put it out there that I'm a Democrat. And I particularly like Kucinich, Obama, and Edwards and I think all of them would make great Presidents. In fact, even though this is the easy way out, all of the Democrats running would make decent leaders.
Fortunately, most of them support things like raising the minimum wage or creating a living wage. They all seem to have some form of plan for universal healthcare coverage and creating jobs for the middle-class - at least as evidenced by their campaign websites - in addition to scrapping the tax breaks for richest 1% of Americans. Or as John Edwards puts it, those Americans making over $200,000 a year. All of these are good ideas. However, I was somewhat disappointed that there weren't more questions that pertained to things like student loans, making college more affordable, and the growing bifurcation between economic classes in this country in tonight's debate.
One candidate who stands out, in my opinion, on many of these issues - despite the fact that they're not in the public eye - is John Edwards. One of the staples of his campaign has been not a war on terror, but a war on poverty. You can learn more about it at http://johnedwards.com/splash/. But I'll tell you a little bit about Edwards right here because I think he has some sound economic policies. He has outlined a plan in plenty of speeches around the country, and on his website, to eliminate dire poverty in America by 2036.
What does this mean? It means insuring every working man, woman, and child. Most of the other candidates like Hillary Clinton advocate that. But Edwards also realizes that many Americans are increasingly living paycheck to paycheck. He recognizes that the "dream of American homeownership" is slowly slipping away. So what will he do? He advocates tougher regulation on the mortgage, but particularly the subprime lending, industry. This tougher regulation is intended to prevent "unscrupulous lending practices" like lending to people who don't understand their mortgages. It also prevents usurious credit card rates and would support the formation of non-profits that offer alternatives to high-interest credit.
Edwards also supports expanding access to banks in poor neighborhoods with high concentrations of minorities. These areas/communities tend to have less conventional banking institutions and more payday loan/check-cashing facilities. These efforts are important as more people went bankrupt last year than graduated from college. Speaking of college, coming from a "modest" background, Edwards recognizes the value of a college education and how it is progressively becoming a privilege of the elite.
So, according to his website, in 2005 John Edwards implemented a "College For Everyone" program at Greene Central High School in Snow Hill, North Carolina. This program paid for the first year of tuition, books, and fees at a public state university or community college if that student agreed to work part-time. Edwards proposes implementing a similar plan for high-school seniors, but on a national scale, if elected President. The program would have guidelines similar to the Greene Central High School program. Edwards would also like to simplify the financial aid application process, make it possible for students to borrow directly from the Federal Government, put an end to government subsidization of private student loans, and increase funds apportioned for tuition to state governments.
You might say to yourself, "Well how does this affect me?" I'm already out of college and I already have a pile of student loans. But these policies will determine college affordability for our generation's children. Edwards' policies (which are eloquently outlined on his website) also aim to secure our jobs through "smarter trade policies". He recognizes that you cannot just blindly put the interests of corporations before the needs of human beings. All of these are huge steps in starting the debate over America's financial future. But the candidates need to go even further. Since these issues weren't discussed at length in the YouTube debates, over the next few posts, I will be digging into the candidates' policies to find out who has your best economic interests at heart.
Thanks for reading and until next time...
Tonight, something very special in political history will take place. Actually, what I'm talking about will be special on many fronts - not just the political one. But to get to the point, tonight, from 7 pm to 9 pm, CNN's Anderson Cooper will be hosting the CNN*YouTube debates.
Tonight's CNN*YouTube debates will only include Democratic candidates. (The Republicans will be featured on September 17th.) This forum will allow YouTube users to make themselves heard by the people who could potentially shape America's future. And although the YouTubers have submitted questions that will cover a broad range of topics, on this blog, I will attempt to distill some of their answers to questions regarding your pocketbook.
What do I mean by this? I mean that I will summarize the first and second tier Democratic candidates' positions on making college more affordable; making healthcare more accessible/decreasing the level of uninsured and underinsured in this country; how they intend to resolve the federal budget deficit and restore to health social safety net programs like Social Security.
Be sure to come back later today (around 11 pm) for commentary and analysis of all these things. Thanks for reading and until later tonight....
Sunday, July 22, 2007
For loan oft loses itself and friend,
And borrowing dulls the edge of husbandry." - Lord Polonius, Hamlet
Some of you may recognize that quote from one of Shakespeare's tragedies, Hamlet. For all of his acclaim and literary genius though, Shakespeare was no businessman. And neither was Lord Polonius. In fact, I'm going to come out and say that both were completely WRONG on the issue of debt.
Here at Gen Y Financial Freedom, we believe that credit card debt is one of the worst forms of debt. Anyone (including myself) who's ever had credit card debt knows how it can destroy your monthly cash flow and seem like a regenerative eight headed beast. As soon as you try to cut some of it down, it comes back with full vengeance, unless you're vigilant about its destruction.
But here's where Prosper.com comes in. Prosper.com, or Prosper, as it's often referred to, is a site that connects people who are looking for loans with reasonable interest rates with people who are willing to lend. At first, I was extraordinarily skeptical about this whole concept. I thought it was just a few private lenders teaming up to charge people in dire financial straits predatory rates. After doing a little bit of research, I've found out that this is not the case.
So how exactly does Prosper.com work? Well, when you sign up, you have the option of borrowing or lending. As a borrower, you have to pass a background check, submit a credit report, and follow a few extra steps. But it's relatively simple. After you've created a profile, you can specify an amount you would like to borrow, the maximum interest rate you'd like to pay, and the reason you need the cash. You essentially add a human element to the normally cold and actuarial process of obtaining/providing credit by using Prosper.
Some borrowers are people who have lost their jobs, incurred medical bills while uninsured, and would like to pay off high-interest credit card debt more quickly by using P2P (person to person) lending. Some borrowers are people who would like to start a new business with a social emphasis. Socially-minded lenders can charge a lower than market-rate interest level because the social return to them is greater than receiving a great interest rate or return on the initial investment.
How does this work for lenders though? Well, after you sign up and answer a few questions, you deposit a certain amount of money into your Prosper account. This amount can range from $100 to $25,000. It is better to make 10 $100 loans to people as opposed to one $1000 loan to a single borrower for purposes of diversification. (I would like to remind you that borrowers, not lenders, set the maxium rate at which they will borrow. So there's no loan-sharking, arm-twisting, or usurious activity.) After an interest rate is set, and the loan is funded, the money disappears from your account and every month, a predetermined amount of principal and interest (i.e. $150, $200 - depending on the interest rate and the amount of the loan) appears in the bank account the lender specified.
Lenders have the ability to view a borrower's credit rating (the potentiality for default on payments) and most importantly, if someone doesn't pay you, you're not out-of-luck. Although you would hope that it doesn't come to this, a borrower's late payments to you as a lender, are reported to credit bureaus. This mostly eliminates the prospect of fraud in the whole process. Lastly, there are many great causes that can and should be financed on the site. I've seen one borrower advertising for a loan to start a company that distributes potable water to those in less wealthy countries. There's also a community aspect to the whole process. Borrowers and lenders are rated by the communities that they belong to and how well processes involving these parties have gone.
I plan on using $1000 of my own money to lend. But before you jump into this, I advocate you doing your own research and making sure you are comfortable with the whole concept of lending/borrowing with Prosper. Also, Prosper's website has some links to press releases about its history and its founder. Just go to www.prosper.com to learn everything you want to know. Thanks for reading and until next time...
Friday, July 20, 2007
In my last post, one of the last things that I said was that if you have neither the time nor the inclination to research your own stocks, you should at least put some time into researching people or newsletters that will help you make good investment decisions. So, in the interest of helping you get started on the road to investing and making stock picks, I will outline the names and benefits of some great newsletters that I know of. I will also give the more enterprising of you the names of some books that you can pick up (in addition to some websites) to begin your investing journey.
Before I give you the names of these newsletters though, you need to have a place to hold your stocks, i.e. a brokerage account. I've written about how to open a brokerage account on this blog. And if you're interested in learning more about the different types of accounts you can open, you can check out the May 27, 2007 post entitled, "How to Open a Brokerage Account/Different Types of Accounts". But in the interest of brevity, I will just post a link to the form that you need to fill out in order to open one:
After you fill out the form, you can Google the Scottrade branch nearest to you.
Now, back to the investment newsletters.
One of my favorite websites, the Motley Fool (http://www.fool.com/), has seven great choices (but I only recommend six) for all types of investors. You should visit the website and read the descriptions for yourself, but I will explain each type of service in a few sentences. (Disclosure: I don't in anyway benefit from recommending these newsletters to you. I have no business affiliations with the Motley Fool. I do subscribe to their Hidden Gems service however.)
Champion Funds ($149/year): This newsletter is headed by Shannon Zimmerman, a Ph.D in economics, who has extensive experience in the mutual fund industry. Each month, Shannon Zimmerman and a fellow advisor scour the mutual fund and exchange-traded-fund universe to give you two great picks. They write about the managers of the funds, the funds' performance, and the costs to get into the funds. Zimmerman also always strives to select mutual funds and ETFs that have low expense-ratios. That is, mutual funds with low costs of ownership.
Stock Advisor ($149/year): This newsletter is run by the two brothers who co-founded the Motley Fool - David and Tom Gardner. In terms of the types of stock picks (small-cap growth, large cap value, large dividend payers), this service includes the whole universe of stocks. It is the flagship newsletter and has done quite well versus the Standard & Poors 500 Index (which I've written about in the July 17, 2007 post entitled, "Deciphering Financial Mumbo Jumbo".
Income Investor ($149/year): This newsletter recommends stocks with great growth potential, but that pay dividends also. A dividend is a portion of a company's earnings paid out to shareholders, as opposed to earnings being reinvested in the company to fuel its growth. Although dividends receive favorable tax treatment (tax rate of 15%), I recommend that you use this newsletter in conjunction with your Roth IRA. That way, your dividends will not be taxed at all. Essentially, by owning stocks that pay dividends, you a creating another stream of income for yourself.
Hidden Gems ($199/year): I subscribe to this newsletter and I've been a subscriber since senior year of college, which is when I began investing on my own. So I can tell you in truth that it's helped me make some money. The service, headed by Motley Fool co-founder Tom Gardner, picks "small-cap" or "small capitalization" stocks (companies that are relatively small, but have big potential for growth) that are not well-known to the public before they become behemoths. Think about owning Starbucks in 1995, or Deckers (the maker of Ugg boots) in 2003. Hidden Gems searches for these companies when they are small-fries.
Inside Value ($199/year): This newsletter searches for stocks that are "undervalued" by the stock market. That is, stocks that are mispriced because of temporary problems or because the industry is currently out of favor. Philip Durell, the head advisor of this newsletter, subscribes to the investment philosophy of the world's greatest investor and third richest man - Warren E. Buffett. 'Nuff said!
Global Gains ($299/year): This newsletter is headed by one of the co-advisors of Hidden Gems - Bill Mann. He has tons of experience evaluating businesses, as he's run a few in his lifetime. He also has a great investment track record. Global Gains looks for companies in markets outside the United States that are poised to grow. If you haven't heard, stock markets in places like Brazil, India, Russia, and China are doing really well. Mann looks for companies in these countries and beyond.
Lastly, if you would like to know what to read to learn about investing, pick up a copy of Peter Lynch's "One Up on Wall Street", Benjamin Graham's "The Intelligent Investor" and "Financial Accounting for Dummies". Also, http://www.investopedia.com/ is an excellent resource for all your questions.
Thanks for reading and until next time...
In my last post, I wrote about how to "decipher financial mumbo jumbo". Hopefully that post, along with others, has inspired a few to learn about taking control of their finances and made some want to invest. But I have noticed in my short time on this earth that one of the most powerful forces in the world that often stops people, including me, from doing things that are ultimately good for them is (drumroll please)....................................fear.
Yes, a simple four-letter word often paralyzes us and prevents positive action!
I was checking out the blogosphere today, and I came across a blog called "Thinking on the Margin". One of the posts was entitled "Failing Forward" and it immediately caught my eye. Over the past year or so, I've been on a journey to take control of my life/destiny, so anything that involves conquering fears and failing intrigues me. Here's the link to it, just in case you want to check it out for yourself:
The post basically talks about how many in society have ingrained in them the notion that failure is bad. That failure is a horrible thing to be avoided at all costs. As you might have guessed, the author disagrees and so does this author. Failure means that you are venturing out into new territory and trying new ways of being.
Think about when you were in elementary school. When you were first learning how to multiply, you "failed" numerous times before you got the hang of it. If you're anything like me, when you first learned how to drive, you "failed" a few times too. I've managed to break a few sideview mirrors and scrape a few doors and bumpers in my day.
Consider this quote that I found on the "Thinking on the Margin" blog:
"Don't waste energy trying to cover up failure. Learn from your failures and go on to the next challenge. It's okay to fail. If you're not failing, you're not growing." -- H. Stanley Judd
Ahhh...truer words have ne'er been spoken. Similarly, if you're not risking financial failure, then your money is probably not growing.
If you would like to grow your money so you can buy a house, or pay for your wedding, or your child's college education, you can't just rely on savings. You need to place it in investments that will earn higher rates of return than an online savings account. You need to be and should be in stocks, especially in your 20s. But too often, fear of losing money keeps people out of one of the greatest money making machines known to mankind - the stock market.
If you have neither the time nor the inclination to learn how to research investment options, that's quite alright. And if you'd like to hand off your money to someone else to manage, that's fine too. But don't fail to invest simply because you're afraid of failing at it. At the very least, educate yourself about stock/mutual fund newsletters or financial advisors who can help you make investment decisions.
Fear of doing anything won't go away until you actually do the thing that scares you. Investing is no different. In investing, yes, there is the possibility of losing money. But this risk is far outweighed by losing purchasing power due to inflation. (Check out the post entitled, "Why We Invest vs. Just Save")
Thanks for reading and until next time....
Tuesday, July 17, 2007
Before I begin, I just want to issue a caveat. I by no means intend to offend anyone's intellect by this post. There are many intelligent women and men in my readership who are much more knowledgeable about the stock market, economics, and personal finance issues than I am. This post is not for them, or not geared specifically toward them. It is geared toward the reader who always hears terms like "the Dow", "the Nasdaq", and "the S&P 500" and always wonders what those terms mean. This post is intended to be a primer for those who want an extremely basic overview of the stock market. So here goes...
As the name suggests, the "stock market" is an entity in which stocks are bought and sold. To reivew something that I've written about in a previous post, a stock is essentially ownership of a piece of a company. So when you buy stocks, you are buying a company. The stock market, like any other market, is made up of buyers and sellers. Although in the long-term things like how profitable a company is and how it allocates its earnings determine a stock price, in the short-term, how many buyers and sellers there are of a stock determines its price. For instance, think about what happens with hot ticket items like the iPhone or the X-box. When these items first came out, people lined up for them and were willing to pay twice what the store price was just to get their hands on it first. The moral is, the more buyers there are for a particular stock, in the short-term, the higher the price will go. Similarly, the more sellers there are of a particularly stock, in the short-term, the lower the stock will go. That's essentially how stocks work.
Warren Buffett, one of the greatest investors of all time (and the world's third richest man), advises investors though that in the long-term, a stock's price will eventually reflect its true value. What does this mean? Okay, think about it this way. One of my favorite cars, a BMW 325i, costs about $40,000. If you were the proud owner of a new 325i, and someone offered you $10,000 for your car, you would balk. Why? Because you know how much your car is worth. Similarly, in the short-term, lots of people might be selling the stock you own, or offering you a lower price for your stock than you paid. But if you know the true value of your stock because you did your due diligence about its growth prospects and vetted its financial statements, then you will not accept a ludicrously low price for your stock or your BMW. (This was an example and a car, no matter how expensive, does not represent an asset. It's undoubtedly a liability!)
Lastly, what do those terms "Dow", "Nasdaq", and "S&P 500" mean? All of these things are indexes and an index is a representative cross-section of the universe of companies that have stocks for the public to buy. For instance, the Dow (aka the Dow Jones, the Dow Jones Industrial Average, the Dow 30) consists of the 30 largest publicly-traded American companies. These companies change every so often, but currently the Dow consists of companies like McDonald's, Microsoft, Johnson & Johnson, AT&T, Coca-Cola, Citigroup, and Wal-Mart, just to name a few. So when you hear on the news that "the Dow" crossed 14,000 for the first time, this just means that a mathematical equation calculating the worth of these 30 companies spit out the number 14,000. The Dow is also a broad indicator of the health of the economy.
The Nasdaq index contains more companies than the Dow, but it is mainly composed of technology companies like Apple, Cisco Systems, and Google. This is the index that was hurt the most in the last economic downturn that began in 2001, when the "tech bubble" burst. The S&P 500, which stands for Standard and Poor's 500 is an index that is composed of America's 500 largest companies. The S&P 500, often referred to as the S&P, is a better gauge of the health of the economy because when people are spending, these 500 companies are earning. The value of the S&P, like the Nasdaq and the Dow, is determined by a complex equation which factors in the value of the stocks of which it composed.
If you want more information, you can check out www.investopedia.com. This is a great resource for budding investors. Thanks for reading and until next time...
Friday, July 13, 2007
I'll let you in on a little secret about me: I will never "retire". However, most financial planners advocate making retirement your number one savings priority. In the financial advising industry, there is much made about how you need to begin saving early in order to have a "comfortable" retirement. Because Baby Boomers - the parents of Generation Y - will more than likely deplete Social Security reserves, many financial planners often quote a very round and a very large number - $1 million or better - that they believe is necessary to live well once you no longer have a steady paycheck from an employer coming in.
When most people think about retirement, if they ever think about it, they think of a time of "unfettered leisure". A time of their life away from corporate culture, and the demands of regimented employment. The word "retirement" also connotes that for thirty or forty years, one does something in exchange for payment that's not altogether pleasurable. And then, and only then does she do something fun and energizing.
Earlier in this post, I told you that I'd never retire. My reasons are twofold. Reason number one is that I don't believe in working hard at something you don't enjoy doing just for a paycheck and delaying engaging your passions until later on in life. Life and work should be intertwined and one should be a manifestation of the other. Although my current job as a paralegal doesn't represent my life and my vision of myself, in short, I will always strive to do work that is invigorating and expressive. My second reason for never retiring is that I truly believe that if you love what you do, you can always do it (no matter how old you are) and there's always a way to transmute that passion into cold hard cash.
Don't get me wrong though. My eschewing of the conventional notions of "retirement" doesn't mean that I am against saving and investing so that you have the option to pursue anything your heart desires. Quite the opposite. You should indeed save and invest as much as possible, but while working on your own terms. Don't sell your labor for a paycheck while putting your dreams on hold until 59 and a half or 60. We all must die one day, and not one of us knows when that day will be. Unfortunately, some of us will not make it these great birthday milestones.
I was inspired to write this post by this particular article on MSN Money:
It talks about how many people are not saving for retirement, but lots in our generation are. The article also speaks of the fact that as a result of not putting anything away and overspending, some will have to "work" until they die. You've heard this mantra before, but it bears repeating. If you love what you do, you will never have to "work" a day in your life. And if you want to actively pursue life until the day you die, that's fine by me because I plan on doing so myself. but you don't want to have to "work" in the conventional sense of the word for the rest of your life. In fact, you should never "work". Finding and doing what you love, in addition to saving and investing aggressively throughout your life will ensure that you can live on your own terms, i.e. not "work" until you die.
Thanks for reading and until next time...
Wednesday, July 11, 2007
I try to read about investing and personal finance issues for at least an hour and a half to two hours a day. And while I was doing my perfunctory reading today, I came across an interesting article written by a 22 year old - Cliff Mason - on theStreet.com. Here's the URL in case you're interested in reading the full article:
The gist of this article, jocularly entitled, "Rescue Yourself From Reckless Saving", was that contrary to popular personal finance advice, it's responsible to spend your money freely during your 20s. This way, you get all of the recklessness out of your system when you're supposed to and avoid a midlife financial meltdown. Mason cites the scores of 40somethings he knows who "infest suburban New York" and squander their nest eggs "trying to recapture their youth". According to him, these people didn't have a prolonged period of non-responsibility that theoretically all middle- to upper-class emerging adults are supposed to enjoy. This is why he advocates not saving, and spending one's money on life's pleasures, right now, now, now!
I know Mason's article is meant to be sensational and to elicit a strong reaction, since it's so contrarian. And in some respects, I agree with his theory. Generation Y is an overworked and overscheduled generation. It's hard to come from the pressure cooker of college where kids are vying for lucrative and high-status jobs, and start acting like a 'responsible adult' by saving for retirement, and to purchase your first home. During this period of emerging adulthood, 20somethings are trying a lot on for size. (Check out this link to learn more about that:
In this period, we don't have many people relying on us, like children or spouses or elderly parents. What better time to take a year or two or three and enjoy the fact that you're actually making money and live like a 20something's supposed to? Yep, if you try to stick to a plan of fiscal austerity in your 20s, without any fun, you'll certainly snap somewhere down the line. And when you snap, like Mason points out, it's likely to have dire consequences for you and the people closest to you, since you'll be older and have more responsibilities.
Enjoying your 20s and preparing for the future are not mutually exclusive though. By all means, I encourage you to go out with your friends and spend your money on what makes you happy. You only live once. But that new pair of True Religion jeans will only make you happy for so long. All of that furniture for that apartment without roommates in a chic neighborhood that you really can't afford can only lift your spirits so high for so long. If you're going to seize the day, financially speaking, seize it by taking a Portuguese class or going scuba diving with your best friend in the Florida Keys or catching the Montreal Jazz Festival with your significant other. Experiences and human interactions make us significantly happier than material possessions.
Mason's right in that you can't be so future-oriented that you don't live for today. If you don't take time to smell the roses every once and a while, you'll go crazy later on when what you do with your money really counts. But what you do with your money now really counts also. Your 20s allow for compound interest to work wonders for you, and saving at this early stages programs you for good habits. So seize the day, but don't seize it all. You'll have to seize some later on in life.
Thanks for reading and until next time...
Tuesday, July 10, 2007
Two posts ago, I wrote about the importance of 'cultivating your money consciousness'. In that post, I explained that cultivating one's money consciousness means thinking more positively about your financial predicament, despite the current reality. It also means being aware of where your ideas about money come from and where your actual physical cash is going. There are many software programs out there like Quicken that help track your spending and the performance of your investments. But just like a good old-fashioned diary or journal - for all of you men out there - can help you emotionally, a cash diary can help you financially.
I keep a cash diary myself. What do I put in it? Well, about once a week, I write down how much I have in my investment accounts, which is essentially my liquid net worth. I also write down how much I expect to be in that investment account, based upon how much I'll take from my next paycheck for investment purposes. This might sound really anal, but seeing how much you've saved - especially when you've amassed a few thousand dollars - motivates you tremendously. I'm not necessarily sure it'll do the same for you, but it just might. And I certainly think it's worth a shot.
Another thing that I write in my financial diary/journal is how much I've spent on my credit card and what amount will be paid off that month, and as of what date. I don't advocate maintaining a balance on your credit card, and I usually don't keep one myself. But if I charge three or four hundred dollars on my card, I'll write down the fact that I expect the balance to be at $100 or $150 by the end of the month.
When keeping a financial journal or cash diary, you don't have to write down every little expense. (Although this might be a useful financial exercise for some.) You should write down major things like the value of your accounts, what major bills you have to pay, what your short-, intermediate-, and long-term financial goals are, and what amount you would like to see in your account. I'm positive that keeping this up for three months will help to focus your finances, and make you feel more in control of your wallet.
Feel free to email me with me any questions or comments. Until next time...
Monday, July 9, 2007
I've been doing some thinking. A whole lot of thinking, in fact. I've been re-evaluating my values and the rationale behind my desire to be rich. I've known all along that I have no desire to have lots of extravagant things, but I've come to realize that my desire for the extravagant things that I do want - a BMW 3 series, a flat-screen tv, a titanium Omega watch - is misguided. What do I mean by the term 'misguided'? Well, I mean that I don't really need any of these things to be happy. This shouldn't be a huge epiphany. Unfortunately though, it's one that many people don't ever have and subsequently spend their lives chasing after these things in search of joy.
As a result, I'm firmly committed to living below my means and I will continue to do so for the rest of my life. Yet in still, I believe that money, obviously, provides the ability to have wonderful experiences in life, give to wonderful causes, and help those around you. It also provides peace of mind - the psychological security of knowing that you can weather life's hardships with a financial cushion. I bring all of this up though because I realize that there may be some of you out there who don't want to be super rich, and would rather not spend their time poring over different investment choices.
So, after hearing that statement, you may ask yourself, "Is it possible to become financially secure without all of the hassle?" The answer, my brothers and sisters, is a resounding 'Yes'! And you do not even need to hire a financial advisor in order to do it. (I know that may sound strange considering the fact that I am an aspiring Certified Financial Planner. But it's true.)
I subscribe to a newsletter service called 'Hidden Gems', written by Tom Gardner of the Motley Fool (www.fool.com). It is a newsletter that costs $199 a year and it focuses on small companies - that is, companies with a market value of less than $2 billion - that are poised to grow into much, much larger companies over the span of 3, 5, and 10 year periods. Imagine owning Starbucks or the Gap or McDonald's before they became the corporate behemoths that they are today. 'Hidden Gems' seeks out these companies.
There are other newsletters that cost the same amount or less that recommend stocks of different sizes and for different risk tolerances. But I highly recommend all of the Motley Fool's newsletters and believe that not only do these newsletters provide good investment advice, but great investment education and a wonderful community of beginning, intermediate, and advanced investors. Go to www.fool.com and check out the left-hand side of the home page to see all the types of newsletters.
Lastly, although you certainly do not need a financial advisor in order to do well financially, if you would like more information on how to choose a financial advisor, visit www.cfp.net/learn/. This site will inform you about the criteria you should use in picking an advisor, why you might need an advisor, how to set financial goals, and you rights as a client.
Thanks for reading and until next time...
Sunday, July 8, 2007
I hope you all enjoyed the fabulous weather this weekend. Tonight's post is about how to use your debt to your advantage.
One of the main aspects of becoming wealthy and free from financial worry is getting rid of your high interest credit card debt. And I completely advocate it. Oftentimes, credit cards carry nosebleed interest rates ranging anywhere from 14 to 30%. The reason that one would want to pay these debts off quickly is that it is difficult to earn a rate of return that matches these interest rates. That is, when you pay off high interest credit card debts, you can think of it as earning that particular rate of return on your money. (If you owe $2,000 on your credit card at a 20% interest rate, when you pay off that debt, you have effectively earned 20% on your money.)
And let me repeat this again. Pay off all of your high interest credit card debt as soon as possible! It's impossible to be financially healthy while carrying debt that accrues interest at double-digit interest rates. However, there are many people who believe that ALL debt is bad and that you should pay it all off as soon as possible. I disagree, vehemently.
Yes, having to service multiple debts/give money to creditors means less money flowing into your pockets each month. However, if the interest rates on your debt are lower than the rate of return you can earn elsewhere, then you should make the minimum payments necessary for debt service, and place the bulk of your money where you can earn that higher return. Let me explain.
Fortunately, I have been able to consolidate a portion of my student loans at a great rate of 3%. But for the purposes of this example, let's assume that this is the prevailing interest rate on all of my student loans. 3% is fairly low (almost the long-term inflation/GDP growth rate) and over any twenty-year period, stocks have outperformed any other investment vehicle, growing your money by about 9 - 12% a year. So if I decided to put all of my money toward my student loan payments, I would be giving up an extra 6 to 9% (9% - 3%/12% - 3%) that I could be making in stocks. Student loans, which many financial advisors describe as 'good debt', is one of the few instances in which it doesn't make good economic sense to get rid of your debt as quickly as possible. And before I move onto the next instance where it is good to delay paying off your debts early, I would like to add that 10 year Treasury bonds - bonds that are backed by the government and guarantee principal repayment and interest - are currently yielding a little over 5%. So owning bonds right now is effectively a risk-free way to beat the interest rate on those above-mentioned student loans. And you don't even have to be in stocks - an investment that does carry risk of loss of principal - to do it.
The second instance in which you should make the standard debt-service payment and put the rest of your money toward a higher-returning investment is when you have a mortgage. Standard 30-year mortgages usually carry an interest rate of anywhere from 5% to 9%, depending on the 'prime rate' (a benhcmark interest rate determined by Ben Bernanke and the Federal Open Market Committee), and your credit rating. Assuming you have a relatively high credit rating (anywhere above 700 on the 350 to 850 scale, which is what we strive for here at Gen Y), and the standard 10% downpayment in hand, you will more than likely get a mortgage with an interest rate of about 6.5%, with today's prevailing interest rates.
As I mentioned before, it is possible to assemble a portfolio of stocks that will yield approximately 9 to 12% over the long-term. When you couple this with the fact that real estate investments appreciate over time at varying rates and the fact that the government gives tax-benefits to homeowners, it does not make sense to get rid of your mortgage as fast as some are apt to do. Your money has better places it can go. Perhaps if you place those extra mortgage or student loan payments into an investment account, you might make enough to make a substantial dent in the balance on your loans with your investment profits.
Of course prepaying student loans or a mortgage will give some a feeling of accomplishment and mental relief. And if you feel such is the case for you, I by all means encourage you to do these things. It's important for you to do things with your money that make you feel strong from a financial standpoint - despite whether or not they make black-and-white economic sense. I just wanted to propose the idea of using leverage/debt to your advantage.
If anyone has any questions, please do not hesitate to ask them or post comments. Thanks for reading and until next time....
Sunday, July 1, 2007
I hope all of you enjoyed your weekend. Tonight's money/personal finance topic is about, as you've probably surmised from the title of this post, how to develop your money consciousness - that is, create a hospitable atmosphere for abundance in your life. Actually, I lie. It pertains to money consciousness, but I believe that it also applies to a wider realm of things beyond money.
Before I get into the nitty gritty of things though, let me give you a bit of context. Around this time last year, I was getting ready to head to Korea to teach English. After teaching there for a few months, I somehow realized that my life wasn't necessarily taking the direction that I wanted it to take. Since I didn't know where to find self-help books in English, I began downloading self-help audiobooks in order to get to the root of some of my personal angst. This was probably one of the best things that I've done in my life.
One of the audiobooks that had a profound effect on me was called, "Think and Grow Rich", by Napoleon Hill. Now this book sounds like it's all about money, and a large part of it is. But there is an even broader motif within the book. And that motif is about how the thoughts we hold create our realities. I know this sounds a little cookey and new-agey, but bear with me.
"Think and Grow Rich" informs the reader that in order to achieve anything in life - be it weight-loss, a college degree after years of being out of school, or millionaire status - desire has to be present. This desire cannot be a half-hearted desire. It must be an all-consuming desire that one pours herself into completely. Once this desire has planted itself firmly inside the heart and mind of its bearer, then action will take place. But the most important ingredient to achieving what you want in life is desire.
Desire comes in many formats, but it is basically a thought. Now, I often hear people saying that they're broke or can't afford certain things. These words are thoughts and the subconscious mind takes them in and if the subconscious mind hears them enough, it will start to believe these words. This is similar to the way that a child, no matter how intelligent he or she is, will believe she is stupid if she is constantly told so by a person close to her in her life. Your mind believes what you tell it also. If you tell yourself that you never have enough money, or that you could never stick to a budget, guess what? You'll never have enough money, nor will you ever stick to your budget. However, if you operate from a paradigm of abundance, thinking and believing that your coffers are always full, you will find ways to save and you will create avenues by which you can create more income.
Another thing that I do to cultivate my money consciousness is treat money, which is basically an inanimate tool, with a great deal of respect. What do I mean by this? I mean that when I see pennies on the street, I pick them up. I don't just disregard them as being worthless, because they aren't! As a result, I've been increasingly finding larger and larger sums of money on the street. Yep, I'm talking about nickels, dimes, and quarters. I also don't crumple money in my wallet and I keep track of my expenses. If you respect your money and don't disregard "inconsequential" sums, you will begin to see more of it flow into your life.
Lastly, one of the greatest ideas that I gleaned from "Think and Grow Rich" is the fact that daily affirmations help keep us on track toward our goals. So if your goal is to have more money left over at the end of the month, or to be a millionaire and free of financial worry, tell yourself, "I have more than enough money. I am capable of paying all of my bills and still having money to invest. I am free of financial worry." I don't care how untrue that statement may be for you. Just believe it and then your subconscious mind will begin to find ways to make those statements true. Your subconscious might push you to further your education for greater income, to save more, to generate different streams of income, or whatever. But it is essential that you get comfortable believing that you can have "enough" in your life, as opposed to focusing on the lack in your life, if you want the former to be true.
Thanks for reading and if you have any questions, please don't hesitate to post them or email me at email@example.com.
Saturday, June 23, 2007
Today's post was going to be about how to generate an alternative stream of income by writing for "Helium.com". However, because that post would be relatively straightforward and short, I've decided to write on a topic that has been swirling around in my head for a little bit of time.
Before I get into today's topic, which will be money and emotions, though, I'd like to tell you that if you go to www.helium.com, you can find out everything you need to about how to create an account and get paid for writing on any topic that you find interesting.
Now, onto money and emotions.
Ok, so I'm a big fan of Suze Orman. And one of the reasons that I'm such a big fan of hers is not because of any particular advice that she gives - Suze's a famous financial advisor who has her own television show on CNBC - but because she is one of the few prominent media personalities who acknowledges that all of our financial decisions are fraught with myriad emotions. The more literature that you read on investing and personal finance, the more you will hear the refrain that in order to be successful with money, one must remove all emotions. To some extent this is true. "Some" is the operative word however.
For instance, if you buy a stock just because you hear a lot about it on tv or on a hunch, without performing a "discounted cash flow analysis" - a process that allows you to determine what a stock's true value is based upon certain growth assumptions - then you are investing with emotions. This is bad. Similarly, if you sell stocks that you have long-term confidence in and that have good financial fundamentals, just because the price goes down for a few months or some media pundit says they're bad, you are also investing with emotion. In these instances, it pays to remove emotions from the equation.
But I believe that in almost every other instance regarding money, it pays to take your emotions into account. Why? I'll explain.
Americans have a ten ton elephant under the rug in their lives. No one wants to talk about money! It is considered taboo, disrespectful, and for most people, it's just downright awkward. In my family, as a child, all of my basic needs were provided for, but we definitely experienced times that were rough (i.e. being evicted from our apartment and having to live with relatives for two years). I could always sense that there was anxiety surrounding money. Some of you may have had experiences similar to mine. I believe that most of our ideas regarding money come from our parents and closest family members, like most of our world views.
So if your childhood was littered with arguments about money, you will most likely be tense when confronting the issue. If there was never enough to go around, you may feel the need to hoard and store up without considering the needs of others. (I struggle with this a lot.) Or you may shop compulsively to overcome that feeling of deprivation. If your parents were wealthy and always gave you what you wanted and you never had to work, you may be a spendthrift who doesn't know the value of a dollar. Or you may have learned the virtues of investing your hard earned dollars if you come from a wealthy family.
What our parents and closest family members communicated to us as children, both implicitly and explicitly, affects our money decisions considerably. I know that my respect for money comes from the fact that I used to always see my mom pick up pennies when she saw one in the street. To this day, I too never hesitate to bend and pick up pennies, nickels, dimes, and quarters that I see on the sidewalk. My mom also gave me and my siblings a biweekly allowance that we had to preserve until the next allowance period. Fortunately, I always managed to have money left over. This financial paradigm I adopted undoubtedly came from my mother.
If we can realize what beliefs and emotions we have tied up with our money, then we can take better control of our financial lives. We can control our impulses to buy those new jeans - when we already have plenty of them - if we understand where those impulses come from.
Make a vow to understand your own money psychology and take control of the financial reins in your life.
Thanks for reading and please feel free to comment or email me at firstname.lastname@example.org with any questions. Until next time...
Sunday, June 17, 2007
It's good to be back after a weeklong hiatus. Today's post is going to be about Way #4 to generate an alternate stream of income - buying domain names.
First of all, you might ask yourself, what is a domain name? Well, a domain name is basically a website's URL (i.e. www.yahoo.com). Here, the domain or the host of the website is Yahoo! But let me explain a little further.
During the late 90s, there were a lot of small Web companies with names like www.1800flowers.com or www.beaniebabies.com or even www.watermelons.com. Some of these companies -these dot coms - survived and did well. But others went bankrupt and were put out of business. Subsequently, Internet users weren't visiting that now defunct site and so the name was less lucrative. That's where domain name buyers come in.
Because these website names did not generate a lot of traffic after the companies went bankrupt, some of the more enterperneurial websurfers out there decided to go to www.afternic.com or www.register.com and try to bid on different domain names.
Okay, now, you may say to yourself. I know how this works. But how does it makes money? Good question. Well, just as advertisers pay bloggers each time a blog visitor clicks on a link, if you buy a domain name, anytime someone visits that website with the domain name you own, and clicks on an advertiser's link, you get paid. The trick is to buy domain names that are common enough that lots of people visit the site.
Think about things this way. Whenever someone is looking for something, she doesn't always Google it. If a woman were looking for wedding dresses, she might go to www.weddingdresses.com. Or if a guy were looking for a new stereo system, he might go to www.stereos.com, where he would find tons of advertisements for stereos and other audio/visual equipment. The owner of the domain name 'www.stereos.com' makes money in her PayPal account everytime someone clicks on those advertisements.
Go to www.afternic.com, create an account, and check out the site to learn about how to bid for domain names functions. Also, here is the link to an interesting Business 2.0 article about one of the most successful domain name buyers of our time - Kevin Ham.
Thanks for reading and I hope you all enjoyed. And please feel free to post any questions or comments.
Sunday, June 10, 2007
I hope that all of you had a wonderful weekend. Today's post is going to be about how to make money through blogging. Since you're on my blog, I will assume that you know what a blog is, and not insult your intelligence. However, in this post, I will outline different ways to attract viewers and subsequently advertising attention to your site, so you can make some money.
In order to have a successful blog that people want to look at, you must have something interesting or worthwhile to talk about. For me, it's obviously personal finance. Ever since high school, I've been intrigued by the way people handle money - largely, I guess, because I didn't have particularly copious amounts of it growing up.
So after you figure out what you'd like to write about, be it baseball, politics, personal finance, or home decorating, you want to go to http://www.blogspot.com and set yours up. It's really easy to do and Google makes the whole process user friendly. You have the ability to add "page elements" such as links to other websites, news articles relating to your blog topic, and AdSense to your blog. AdSense allows advertisers to place ads on your blog and through the 'pay-per-click' model, whenever someone clicks on an advertisement on your page, you begin receiving checks.
So, in order for blogging to be lucrative financially, you have to post consistently and have a relatively large following of readers who click on ads. How does one go about building this large following? One of the methods I've used is creating a group on the Facebook (www.facebook.com) and inviting all of my friends. Word of mouth is very powerful, I've found, in the internet age and if a group resonates with someone, he or she will join it. My Facebook group contains a link to this blog and I'm also in the process of creating a MySpace page to connect with even more people.
In addition to using social networking sites to draw more people to your site, if you include fun features such as daily quotes, or video clips pertaining to your blog topic, readers will be more likely to return. For instance, I am in the process of developing a podcast for Gen Y Financial Freedom in order to inform more people and increase financial literacy. All of this will and does make for a more heavily-trafficked website.
In my next couple of posts, I will talk about other ways to use the internet as a cash-generator. If you have any questions, please do not hesitate to post them or ask me directly by email at email@example.com or firstname.lastname@example.org. Thanks for reading and I'll see you all back here tomorrow.
Monday, June 4, 2007
In my last post, I outlined five different ways to generate an alternative stream of income. I also said that I would dedicate an article/post to each one of them. Last time, I spoke about stocks, stock price appreciation, and income from dividends. Today, I will discuss rental property.
A lot of personal finance gurus talk about how buying a home is one of the best investments you can ever make. And in some instances, it may be a good purchase. It allows you to "build wealth" through equity and moderate price appreciation, and you can live in it and enjoy plenty of memorable experiences with family and friends.
But I disagree that it is the best investment one can ever make. Not if you want to get rich! If you want to get rich, you will think of a home as a liability, not necessarily an asset. Why is this? Well, when you buy a house, you usually have a real estate agent help you and he or she generally gets a 3 or 4% commission on the purchase price. There are also closing costs, which include document preparation fees, wire transfer fees, inspections - to see if you're in a flood zone, and title insurance and escrow fees. All of these fees can easily add up to several tens of thousands of dollars.
And on top of this, every month, you have to pay property taxes and the mortgage. This greatly decreases your cash flow - the income you use to survive. However, if you buy a property, and rent it out, while living in it, you have turned that liability into asset. Why? Because the renters who inhabit your house are paying you to be there. Here's a greatly simplified example.
Let's say that you've bought a house in College Town, USA, where the median house price is $225,000. (Median means that half of the prices are above this number, and half are below.) After including all costs for various types of insurances, property taxes, and the mortgage payment, the monthly bill for this property is $1,650. If this property has three rooms, in addition to a basement (where you'll be living), after performing thorough credit and background checks on the tenants, you can rent out each room for $550 ($1650/3) a piece.
Most students - and their parents for that matter - would jump at so great a price. By renting the rooms at $550 a piece, you are breaking even, which means that your revenue is covering your expenses and there is no profit left over. But if you've done your research beforehand, and you know that there is an impending housing crunch on the local campus, or the neighborhood is hot, you could raise rents by a moderate $100 a month for each room. This would mean $300 in profit per month, or $3,600 a year. And this is in addition to the renters paying off your mortgage.
Of course, things are much more difficult than I'm making them appear here, as you will have leaky roofs and other problems that as a landlord, you will legally be rquired to take care of. But if you maintain your property well, buy properties in areas that have favorable demographic trends (i.e. the South, with baby boomers headed there for retirement and the explosion in Mexican population growth), you can profit nicely, albeit slowly as a landlord.
The Internal Revenue Service and the tax code also provide one advantage to the small property investor. The government allows you to use $10,000 worth of contributions and gains from your Roth IRA to purchase your first home, provided that Roth IRA (a retirement investment vehicle) has been open for at least five years. So if you think you want to try your hand at property investing, and want to save for it in an a tax effective way, open a Roth IRA. For more information on what this is, check out the post entitled, "How to Open a Brokerage Account/Different Types of Accounts."
Landlording is not for everyone, but it is a way to put extra cash in your pocket while putting a roof over your head at someone else's expense. I recommend picking up Robert Griswold's "Property Management for Dummies." It's a good resource to get started.
Thanks for reading and please feel free to post with any questions or comments you may have.
Thursday, May 31, 2007
In my last post, I said that I would discuss ways to generate a stream of income aside from your primary job. I will outline five different ways, and dedicate one post a piece to each.
The five different ways are (and there are many more, but these are five that resound with me):
1) Buy stocks, and either sell them for a profit in one or two years, or hold them for extended periods (3-20 years) of time and collect dividends.
2) Buy rental property in areas where real estate has stabilized or is reasonably priced, particularly in college towns.
3) Create a blog and have companies advertise on your site.
4) Buy domain names on the internet.
5) Write articles on www.helium.com.
Ok, so number 1. Buy stocks. A few posts ago, I explained what a stock is. But I'll explain it again. A stock is ownership in a company. If you own McDonald's stock (symbol: MCD), whenever somebody buys a grilled chicken salad or a McFlurry, you, as the owner of the company are entitled to a portion of the profits.
Now, now, you may say. I can't possibly own all of McDonald's. But that doesn't mean you can't own some of it. For a more in-depth look at what stocks are, check out the post entitled, The Difference Between Stocks, Bonds, and Mutual Funds.
Here's the fun part. Picking the stock. I must forewarn that I am making stock picking seem much easier it actually is. Don't get me wrong. Successful stock picking, as does any investment search, requires study and practice. This is not a get-rich-quick site. But neither is it a get-rich-slow site.
Where do you go to find ideas? Peter Lynch, one of my heroes, and one of the greatest investors of all time tells investors to look around them. If you shop and contribute to the economy, then you are constantly bombarded with potential investments.
What do I mean by this? What music player do you see tons of people walking around with, jogging with, reading with, dancing with? You guessed it, the iPod - and this is of course made by...Apple, Inc. (symbol: AAPL) . This is the company that has those zany ads with psychedelic colors and people spasming all over.
If you had noticed in 2003 or 2004 that lots of people were carrying this company's music player, which was easy to use and pleasing to look at, you would have turned an initial investment of $1,000 into $40,000 in the span of 3-4 years. Don't believe me? Check out this chart from Yahoo! Finance.
or click on the Yahoo! Finance link on the side of this page, and type AAPL in the Quote box.
Lastly, another fun topic - dividends. Dividends are portions of earnings that companies give back to investors. Usually the way that people make money in the stock market is through price appreciation. This means that the price of the stock goes from $35 to $40. But this is not the only way to make money in the stock market.
A $35 stock that pays out a dollar of earnings for every share that you own gives you something called a dividend yield, of 2.85% or 1/35. So, if you own 100 shares of this stock, you get $25 every quarter/three months, or $100 a year. And if your $3500 initial investment (100 x $35) goes up to $4000 (100 x $40), for a 14.28% gain, you also get the 2.85% gain/$100 from the dividend. This brings your total gain in the stock to $600 ($4000 - $3500) + ($100), or in percentage terms, 17.1% (14.28% + 2.85%).
To get started investing in stocks, click on the post entitled How to Open a Brokerage Account. Also, check out www.fool.com and go to the Investing Basics section to learn more. And don't be afraid to ask questions and post here.
Thanks for reading.
Tuesday, May 29, 2007
In the next few posts, I will be talking specifically about ways to generate income, and various ways to look for investments. In this particular post, I would like to post an article by a guy whose wisdom I'm sometimes skeptical of. You may have heard of him. His name is Robert Kiyosaki, author of 'Rich Dad, Poor Dad'.
This article is about the obsolescence of the traditional 'job 'and how the internet has and will continue to change the global economy. I 100% agree with him in this instance. Enjoy.
Keeping Your Business Ideas Fresh
Sometimes life just isn't fair.
When I was growing up in the 1960s, my parents said to me, "Listen to your elders. You need to learn to respect their wisdom. Someday when you're older, young people will listen to you." So I listened to my parents and grew up respecting the wisdom of those older than I was.
But that notion has been turned upside down: Nowadays, people my age need to listen to and respect the wisdom of people who are younger than we are.
Ideas from an Earlier Age
In business, success often depends upon the relative age of your ideas. And today, people of all ages are in trouble because their ideas aren't just old, they're obsolete.
One example of an old idea is that of the traditional job. Jobs are a centuries-old concept created during the industrial revolution. Despite the reality that we're now deep in the Information Age, many people are studying for, or working at, or clinging to the Industrial Age idea of a safe, secure job.
Now people aren't just losing their jobs -- their jobs are migrating to foreign countries or disappearing altogether. As Alan Blinder, an economist and former vice chairman of the, says, "A new industrial revolution -- communication technology that allows services to be delivered electronically from afar -- will put as many as 40 million American jobs at risk of being shipped out of this country in the next decade or two." That's double the number of U.S. workers in manufacturing today.
In spite of such alarming figures, our schools still program kids to look for jobs. Advising people to go to school to learn to be an employee is as obsolete as advising young people to become peasants and work for a landlord. People need to be trained to be investors and entrepreneurs, not employees.
Obsolete Every 18 Months
My point is this: In a rapidly changing world, nothing is more dangerous than an idea whose time has come and gone. Just look at how Amazon.com has changed the world of brick-and-mortar booksellers such as Borders and , or how Skype is tearing down monster corporations like , or how shot a torpedo into the record industry. Where do you think the people who work for those Industrial Age employers will be in 10 years?
As I said, people aren't losing their jobs -- jobs and companies are disappearing. I'm glad I listened to my rich dad and became an entrepreneur rather than the employee my poor dad wanted me to be.
Most people today realize that knowledge is doubling every 18 months. Does that mean that we now become obsolete every 18 months? Maybe so. Personally, it makes me feel like I need to assign an
Many people my age are in serious financial trouble because they have old, Industrial Age ideas that they never update -- wanting job security, counting on a pension for life, relying on Social Security and Medicare -- while attempting to survive in the Information Age.
That's a mistake. Much of my company's
Timeless Business Ideas
Although many business ideas go out of date every day, there are some that are timeless and essential regardless of the era we're in. Here are a few:
• Be passionate about your products and what your brand stands for. Brands die if the leader's passion dies, or if the leader's passion is simply to make money.
• Build a community. Good entrepreneurs are community builders, actively involved with their communities and dedicated to the community's well being. If you're dedicated to your community, it will be dedicated to you.
• Communicate clearly. Speak in the language of your customers. Don't attempt to baffle them with jargon in an attempt to appear smarter than they are.
• Tell it like it is, and don't be a phony. In business, there are too many people who will say anything to get their hands on your money.
• Be human. Don't be afraid to say, "I don't know" or "Can you help me?" If you're a good leader, people will be more than happy to help you build your business.
Now more than ever, we all need to be careful about whom we listen to. Just because someone is older than you no longer means they're wiser. Their ideas may have been good yesterday, but tomorrow they might be obsolete.