Today’s post is by Nick Barber who works for UK discounting site VoucherCodes.co.uk

Personal finance has moved on and people are now roughly separated into two groups; those that are savvy online and those that are not.  There is a myriad of tips of tricks beyond the usual blanket “buy online” advice that can slash your usual monthly spend painlessly by about 20%.  These personal finance tips however can be leveraged in the worlds of investing and of small business too so you offset the hefty start-up costs that are often incumbent on the budding entrepreneur.

Before you know where you are going to make savings however, you need to know exactly how your finances are shaping up. In recent years there has been a proliferation of online software packages that will help you keep your bookkeeping in order. Mint is a great example. Once you sign up and enter your details, it will automatically pull in your balances from different accounts, updating in real time, so you can always keep on top of how much you are laying out each month. This information can then be used in conjunction with their budgeting software and there is even functionality to check how your investments are doing.  What is more – it’s completely free!

The second tip for knowing where you stand financially is to check your credit report. Your credit report is, put simply, a record of all the debts you have taken out in the last 6 years, right down to cell phone contracts, as well as a record of how well you have managed to repay them. Experian offer a free credit report when you register with them. It is essential to check for mistakes – which happen more regularly than you think. Even the smallest error can reflect badly on you which is especially important with banks having access to your records. If it seems you have missed just a few payments, this can result in a much higher rate of interest on your mortgage and other borrowings. Correcting mistakes can result in savings of hundreds of dollars a month; as well as opening up more finance to you.

Now you know where you stand; it’s time to make savings. One painless way is to use online coupons which became something of an online phenomenon in 2009. They are, in a nutshell, a revamp of the old cut out coupon.  In the main they are offered on a B2C basis. However FedEx, Dell and many stationers offer such codes which can lead to reductions of anywhere up to 50% when setting up a small business of a home office as a hub to run your investments from. A simple Google search for “Coupons” will bring up lots of sites dedicated to bringing together such discounts in one place.

If you are new to investment too there are many financial spread sites offering sign up bonuses. So long as you remain disciplined, this can give you a great introduction to get the feel for the markets with no risk. TradeFair – part of a British company that has won numerous awards including the coveted Queen’s Award for Enterprise – are offering a £100 ($160) sign up bonus, and will send you introductory guides to spread betting as well as having many introductory materials around their site.

Lastly, if you looking to make the jump from amateur investor to becoming self employed, or even if you are just looking to ramp up your investing activities then you will no doubt be looking at a fair bit of admin work too. However, recent years have seen the rise of “virtual PAs”. These are companies of remote personal assistants who will complete admin tasks you send to them.  They can usually be hired on an hourly basis so can provide very flexible work that can be invaluable when just starting out. Similarly if you are looking to research an investment then Amazons “Mechanical Turk” could be the answer. This service gives you access to a scalable workforce. You simply load in the task you want such as “Information on X business’ financial results”, and set the price you will pay for each piece of information (often just cents per item).  Combined these two tips can give you access to resource that can be unlocked at any time you need for a very cheap price; a hidden army for the new entrepreneur.

All in all a little bit of web knowledge can help you cut costs and increase resource at the same time, so you can put yourself in the best possible position whether you are a seasoned pro of the investment world or just starting.

Photo Credit: Wonderlane

Post from: Personal Finance And Investing

Web 2.0 Personal Finance

Photo by: Chapek Sergey

Probably the most self-destructive thing that a person can do for their financial future is to pay undue attention to what those around them are doing.  Obviously this has limits, but using your friends, family or neighbors as benchmarks for “success” can manifest itself in many ways and almost all of them can sabotage your financial progress.  You should always remember that what a person presents as their situation can be very different from their true situation.  Let’s look at some ways the Joneses can sabotage you.

Status Symbols

Typically when talking about “keeping up with the Joneses” we’re referring to buying status symbols.  Maybe your neighbor bought a new BMW, and it sure looks nice.  Or maybe you’d like to host the football watching party sometime, but your TV just doesn’t match up to your friends’.  These types of situations can inspire us to make purchasing decisions that may provide a short-term high for a lot of pain.

Almost all status symbols are depreciating in nature.  Your car and that new TV are going to lose their value over time.  The more purchases like that you can avoid the better your financial future is going to be.  This isn’t really very tricky, and most of us are aware of this, even if we don’t always follow through.

Debt

Debt is a less obvious way in which our neighbors and friends can influence us.  The Joneses can convince us that it’s reasonable to carry credit card debt or car notes.  The Joneses can also convince us that it’s perfectly reasonable to stretch our budget to make these payments.  When you use debt to finance the status symbols, the damage is multiplied.  Carrying debt for an investment like an education is one thing, carrying it for a television is quite another, especially given the kinds of interest rates credit cards charge.

Risk

One of the most insidious and pervasive ways your acquaintances can affect your financial future is by affecting your investment choices.  This is in many ways one of the driving forces of asset bubbles.  Take the dot-com boom and bust.  You neighbor might have bought a stock and is now making 50% per year on it.  He’s telling you you’re a fool to stay out of this market.  You know that those kinds of returns aren’t sustainable or realistic, but it seems like everyone else is reaping them.  Maybe it really is a new economy and you’re the only one being left out.  So of course you join in the bubble just in time for the bust and get the worst of it.

Letting other people’s returns affect your investment decisions is very dangerous.  When it comes to investments we seem to suffer a form of mass insanity.  Look at all the people buying houses with no money down and interest-only payments because everyone knows house prices always go up.  Deep down everyone knows there’s no such thing as a free lunch, but when it seems like everyone else is getting one, we can start to make very bad decisions.  It never pays to abandon your own principles just because the Joneses seem to be beating the system.  The system has a nasty habit of catching up with the Joneses.

Post from: Personal Finance And Investing

The Joneses Are Your Enemy

People get into debt in a variety of ways.  Some people have medical problems or other things that are largely beyond their control.  Others have simply traded their future earnings for current creature comforts.

While the ways in which people get into debt are varied, the ways out really aren’t.  A lot of people try to make debt reduction complicated.  It isn’t.  There are a few basic moves that will get you out of debt, but they’re predicated on being realistic, accepting that you’ve already had more fun than you’ve earned, and it’s time to redress the balance.  Even if your debt is the result of things beyond your control, here’s some basic advice for those who feel like it’s time to be realistic about how to get out.

Cut Your Expenses

So you have a certain standard of living you’d like to maintain?  Too bad.  When you’re in debt, every dollar you spend costs you that dollar, plus all the financing costs until all your debt is paid off.  Let’s take a simple example.  If you have a 20% APR credit card and it’s going to take you 3 years to pay down your debt, every dollar you spend is actually costing you over two dollars.  That’s without taking into account the fact that a penny saved is more valuable than a penny earned after taxes.  That five dollar burger is now going to cost you ten dollars.  While this ignores the effect of inflation, you get the point.  Putting that dollar towards debts was the better move.

Get a Second Job

Many people are very concerned about their free time.  If you have debt, you’ve already spent your future free time.  When you bought that flat screen TV on your credit card, you were trading your future free time for a TV.  Doesn’t seem like such a good trade now?  Imagine the impact of another twenty hours of work on your ability to pay off your debts.  Assuming you’re at least in the black and slowly paying down your debts, you can put every penny you make at your second job toward your debts.  While you’ll lose some free time, you’ll reduce the stress that all that debt is putting on you.

Sell Some Stuff

This never seems to occur to people.  They usually look at that $250 duvet cover and think if they sell it for $75 they’re losing $175.  The simple fact is that when you sell it, you’ll get $75 on which you don’t have to pay taxes, and which you can apply immediately to your debts.  In our example from before, with 20% APR and a 3 year pay off window, that $75 will have saved you another $75 by the time your debt is paid off.  That means you didn’t lose nearly as much as it seemed when you sold it.

Don’t Get Too Sold on Emergency Funds

This probably isn’t your fault.  Right now all the talking heads on TV are telling everyone to worry about having an emergency fund.  They advocate making sure your emergency fund is well stocked before you start paying down your debts.  I think there’s some merit to this, but there are a lot of other considerations:

Your credit card can be your emergency fund. Assuming you are below your credit limit every dollar you pay towards your credit card can be used to pay for things later on if necessary for an emergency.  If you can get a cash advance then you can even use it to pay things like rent or other things that require cash.  There’s a small risk that your credit card company will reduce your limit, but if you’re being wise that risk is diminished.

While I can empathize with the importance of an emergency fund, try to keep it as low as possible.  It’s a very questionable decision to be paying 20% APR on your debts, while you have cash earning 1% or less in a standard savings account.

Make More Money and Spend Less

Ultimately getting out of debt revolves around this one simple formula.  Spend less, earn more.  That can be daunting–and easier said than done.  At the end of the day however, that’s what you’re going to have to do; so it’s time to get out there and show some hustle.  Grit your teeth and get your debt paid off as quickly as possible, and then look at all the finance charges as an education expense, since you won’t let yourself get in that position again.

Post from: Personal Finance And Investing

Debt Reduction for the Willfully Stupid

Photo by: auntsmack4u

Budgeting can seem like a mystery to many people, when it’s really very simple.  While this may seem basic to some, these represent principles that I describe in many of my other more detailed posts.  These 8 tips to help you develop a successful and realistic budget, can also help you to start thinking about your finances more successfully:

A budget’s primary goal is to result in ideal allocation of capital for yourself or your family. Oftentimes when we don’t pay close attention to where our money is going we wind up spending money in places we don’t need to and go without in places where we do.  This is simply inefficient.  Imagine for example if you wind up spending $100 on a nice dinner but then deny yourself a $100 kayak, which you would have much rather had.  Ultimately a budget can help you make sure that your money winds up where you want it.

Get your expenses in front of you. To start the budgeting process, get everything you can in front of you:  Credit card statement, bank statements, all your bills and anything else that gives you a picture of your financial situation.  The more complete your picture is of your expenses, the more likely you are to draft a realistic budget.

Re-examine your bills. One great way to help improve your budget is to look again at all your monthly bills.  For example, you might be straining to save an additional $15 per week and you might find out that simply by making a bundling agreement, you can save that much on your phone and television.  These kinds of savings can often come at no cost, or even with an improvement in your lifestyle.  You also should look at your bills with a mind toward capital allocation.   While $30 per month may not seem like much for a game you enjoy playing, would you rather spend that $30 on something else?  If so, reallocate your capital.

Make sure everyone in the family buys into and is consulted on the budget.  One of the greatest strengths of budgeting is getting everyone pulling in the same direction.  Think of it as the cost component of your family’s business plan.

Remember that time is money.  Saving money is like earning money tax-free.  So a penny saved is actually better than a penny earned.  With that in mind however, think about how much you are getting paid for the time you are using to save money.  If you’re saving $5 per week by making your own lunches and it’s costing you 4 hours, you’re not being paid very well for your time.  While budgeting is about trying to allocate your capital well, don’t do it at the expense of valuable time.

Credit cards aren’t always the enemy. It is conventional wisdom that if you want to get your expenses under control, you should cut up your credit cards.  I do not subscribe to this point of view.  As long as you do not carry a balance, credit cards can be a great way to get perks and convenience.   More importantly however, if you funnel the majority of your expenses through your credit cards then you have an effortless record of your expenses that everyone in the family can see.  It can become much easier to monitor your budget, if you have easy access to all your expenses.

Revise your budget monthly. Oftentimes we start out with an overly optimistic picture of our budget.  If you are not hitting your budget each month, look at your expenses and figure out why.  Update your budget to reflect unexpected expenses and, if necessary, offset them with cuts in other expenses.

Don’t sabotage yourself or your family. Don’t “forget” expenses or hide new purchases.  If you make a mistake or splurge, fess up and move on.  Setting up a pattern of self-sabotage is a surefire way to failure.

Ultimately budgets aren’t a way to give you discipline, but a plan in which to exercise that discipline.  Don’t expect a budget to solve your finances if you haven’t committed to working at it.  If you are committed, a budget is a valuable tool in helping you get where you want to be.

Post from: Personal Finance And Investing

8 Big Picture Budgeting Tips

Photo by: Mel B.

2009 is a dreadful year to try to invest.  While we have seen a massive rebound in stocks, there are a variety of factors that make long term planning very difficult.

Asset Class Difficulties

The first thing that makes the current economic climate so difficult is the correlation between asset classes.  Under normal circumstances declines in one asset class involve money moving to another asset class.  Thus when stocks go down, bonds or gold or another asset class is usually the beneficiary.

What makes the current economy so difficult is that you see capital essentially being “destroyed” by the deflationary spiral.  Forced liquidation on the part of many funds caused by redemptions and margin calls contribute to this problem as well.  While this problem was particularly pronounced in 2008, you continue to see deflationary pressures affecting all asset classes.

Government Intervention

One of the most obvious difficulties of building a long term plan in 2009 is the frequency and fervor of government intervention.  Policy makers are attempting to walk several fine lines and thus are constantly exerting strong forces upon the market.  In their zeal they make it very difficult to draw long range conclusions about what makes sense.

Take for example the Treasuries market.  One might be inclined to think that prices would drift lower in this market, given the massive amount of debt the government is planning on issuing.  The Federal Reserve however, is actively purchasing some of these treasuries, driving prices up.^[1] The dramatic influence of the government on the markets is a serious deterrent to investing in 2009.

Differing Long-Term and Short-Term Dangers

This problem is particularly severe and affects both investors and policy makers.  We are faced with the exact opposite problems in the long term and the short term.  Right now the government is facing deflation and economic slowdown.^[2] Under normal circumstances, this suggests increased spending, even at a deficit.  At the same time in the long term we have an incredible debt burden which is just part of a number of reasons to fear inflation.^[3]

Thus the government wants to stimulate our consumer driven economy in the short term, but doesn’t want rampant inflation to destroy us in the long term.  At the same time the massive amount of total credit market debt our country has may make inflation unavoidable.  This can affect the ways in which the government interferes with the markets as well as how the markets themselves price assets.

The government can seem to affect the market very capriciously because they are trying to walk a fine line.  Because our economy is highly consumer driven, they want to stimulate spending and consumption.  At the same time we have to get our debt under control before it buries us.  Thus they can appear to make conflicting policy decisions.  As we’ve already discussed, the scope of this interference is vast, so it’s particularly distressing for it to be so difficult to predict.

For an investor it is difficult to price assets, even without government interference.  For example, let’s discuss gold.  Its long term prospects may be fairly good because of the dire threat of inflation.  However with the short term calling for deflation, you have no idea how much your asset might depreciate before the inflation kicks in.  It’s very difficult to tell when that corner will be turned, and markets are erratic accordingly.

How to React

One approach is to simply “go to cash.”  Unfortunately that is not a neutral decision.  If you have the majority of your net worth in cash you are betting against rampant inflation.  What all these competing factors suggest to me is a balanced and conservative approach.  It may be time to add some variety to your portfolio, including both inflation and deflation hedges.  I also think it is pivotal to take a long range view and not try to maximize in the short term.  This is an economy without historical precedent, so it makes sense to take a defensive approach.

It is a good time to start learning about how to hedge your stock market positions.  While you may have only invested in stocks up to this point, the time may have come to learn about other opportunities.  ETFs in particular can offer an easy way to create some balance in your portfolio.

Post from: Personal Finance And Investing

The Difficulty of Investing in 2009

1. Fed To Buy Long Term U.S. Governmnt Debt – Reuters
2. Fed Warns of Global Slowdown That Adds to U.S. Deflation Risk – Bloomberg.com
3. US debt sets stage for inflation – MSN Money

Photo by: Aaron Escobar

Right now Barack Obama is dealing with resistance to spending trillions of stimulus dollars to help offset reductions in consumer spending.^[1]  While it seems likely that this debt will create a burden for us to deal with later, the notion that we need to put out the fire seems at least somewhat compelling.  While many may question the Obama Administration’s reported claim that this government spending will have wide-ranging benefits, many economists feel that there is a need to replace the decrease in private sector spending.^[2]

When the spending in question is for something that improves the country in the long term, the proposition seems even more appealing.  When we build roads, schools, or even electronic medical records, we’re creating infrastructure that should do long-term good.  It may not be the optimal use of the funds, but it seems a good way to inject some spending into a timid economy and reduce the risk of deflation.

However, while all of this spending is being debated and ramped up, we are simultaneously effectively cutting defense spending.^[3]  This seems both counter-productive and distasteful for several reasons:

Soldiering Is a Shovel-Ready Job

One of the key complaints of Republicans about the spending in the stimulus bill is that it does not take effect quickly enough.^[4] Military spending, specifically increasing the pay of soldiers and recruiting more, can take immediate effect.  We could start paying our service men and women more tomorrow and that money would flow through the economy.  It would also certainly be a project of less than 1 year to increase recruiting.

Soldiering Is a Public Good

While studies on the effects are rare, anecdotally many soldiers report increases in personal discipline and responsibility due to time in the military.  If young men and women improve their qualities as citizens from military service, it is of great benefit to society.  Additionally, it certainly seems more beneficial than unemployment. 

Obviously having a strong military also benefits our ability to implement foreign policy and maintain peace around the world.  Given that we already have troops in active combat, it seems realistic that additional help would not hurt and give troops a better chance to get out of harm’s way.  It is pivotal however that this spending be on manpower, and not on new technology or other programs.  Modern warfare is rarely the kind of conflict for which stealth bombers were invented, and the goal is to quickly create jobs defending our country.

The Real Boon of an Increased Military

In a time of seeming moral hazard, it seems like a fine time to reward people of service and merit.  While we may have to bail out banks and Wall Street firms with taxpayer money, we can’t feel overly good about it.  Providing bonuses, increased pay, and other perks to our service men and women would not only be more appealing morally, it would have the benefit of creating a notion that the right people get rewarded sometimes.  Much like after World War II, where we rewarded our veterans with perks and programs designed to help them benefit in life, the time seems right for similar spending. 

Rather than cutting defense spending, we should be essentially directing a good portion of our stimulus into rewarding our soldiers that have given us such valiant service, and recruiting more to strengthen our ranks.  The turnaround time on the investment is nearly immediate and it will have long reaching benefits, as our military becomes stronger and perceived as a better destination for young men and women.  It has all the desirable characteristics of a good stimulus plan, with the additional perk that it feels good.

Post from: Personal Finance And Investing

A Different Kind of Stimulus – Rewarding Our Troops

1. SFGate - Obama touts $3.6 trillion spending outline
2. Wall Street Journal - Government Spending Is No Free Lunch
3. The Weekly Standard - Senators Raise Concerns about Defense Cuts in Letter to Gates
4. CNN Money - Stimulus will take a while to work