Sunday, December 30, 2007

The 5 Best Articles of the Week

Here are 5 great personal finance and entrepreneurship articles I came across this week that are worth a read. Some of them new and some of them old but they all have good information so check them out.

5 minute Guide to Money in Your 20's
from MSN Money

To Get Rich, Start Saving in Your 20's
also from MSN Money

The Winning Young Entrepreneurs of 2007
from BusinessWeek

102 Personal finance Tips your Professor Never Taught You
from Ask the Advisor Blog

Extreme Early Retirement from Kiplinger

Saturday, December 29, 2007

The Latte Factor explained

A couple of years ago I read a book called “The Automatic Millionaire” by David Bach which I think is an awesome book for anyone who wants to learn some easy ways to save money and retire rich. Most of the concepts are very simple but everyone can benefit from them. One of the most basic concepts that Bach talks about in his book is “the latte factor”. He coined the term latte factor because buying something small like a latte and a muffin each day can make a huge difference in your savings. He tries to show you how much money you could save if you skipped buying that latte and muffin every morning and invested it. Here is his example:

5$ per day(the average cost of a latte and a muffin) x 7 days= $35 per week

$35/ week=$150 per month

$150 per month invested at an annual rate of return of 10%

1 year= $1885
2years= $3,967
5 years= $11,616
10 years= $30,727
15 years= $62,171
30 years= $339,073
40 years= $948,611

Not everyone's "latte factor" includes buying latte's. Your latte factor could be buying a new DVD or two every week(you know will probably only watch it once or twice) or maybe its buying a newspaper from the newsstand every day instead of getting a subscription. I'm not saying you can spend money on some of these things, but I am saying that you should step back and reevaluate some of your purchases and see if there are little things you can cut back on or eliminate in order for you to give yourself a better life in the long run. A little saving can go a long way.

Thursday, December 27, 2007

There are so many investment choices...What should I choose?

Many new investors have a hard time deciding what they should invest in. It's a tough decision. How do people with little to no finance expertise pick stocks or mutual funds to invest in? The easy answer is to let other people do it for you. I suggest that many new investors try out Target Funds. These funds are called Target Funds because you choose the fund depending on your target retirement date. If you are planning on retiring around the year 2030, you would pick a Target Fund with the year 2030 in the title. Want to know the nice thing about Target Funds? The fund managers make all your decisions for you based on classic investing fundamentals. For example, if you pick the Fidelity Freedom 2030 fund, initially you will have a high balance of stocks and a small amount of bonds. The closer you get to the year 2030, the less stocks you will carry and the more stable investments(such as bonds) that you will have. All of the investment choices are taken care of for you by the fund managers and require no effort from you at all. They get paid to make smart decisions for you. I suggest shopping around for target funds with no fees. That way you aren't wasting your money on people managing your account. Check out these two articles talking about the good and bad of Target Funds before investing.

Target Funds Make Investing Easy

Target Funds are Simply Flawed

*By the way, I am not saying that Target Funds are the best way to invest. However, I do think they are the best way to invest for finance newbies. You can start picking and choosing other funds once you become more comfortable in wild world of finance.

Wednesday, December 26, 2007

Keep the Change

I just ran across a great new bank promotion today. Bank of America started an awesome program that allows you to "keep the change" when you make purchases using your check card. For every purchase you make with your check card, Bank of America will automatically round it up to the next whole dollar and put the extra change into a savings account for you. There are three great things about this program:

1. It automatically makes you save. It sounds like a few cents here and there but that stuff adds up over time.

2. It makes it a lot easier to balance your check book. Everything that comes out of there is now a whole number. Stop worrying about subtracting those pesky numbers behind the decimal point.

3. Bank of America matches the amount of change you save dollar for dollar for the first three months and after that they will match 5% of the rounded off change you accumulate(up to a maximum of $250 per year). You can't go wrong with free money.

Basically, this is a super easy way for you to start saving money. Also, make sure you check out any and all possible fees associated with this account (I believe there are zero fees if you keep a certain balance). If you have a Bank of America near you, go in and sign up for it (or just sign up online).

*By the way, I am not affiliated with Bank of America in anyway. I just really think this is a great plan.

Tuesday, December 25, 2007

Save some money...NOW!!

Take a look at this chart I found. It shows you how much money you would make if you invested $2000 a year into a mutual fund or stocks starting at age 26 and continued until retirement versus putting 2k a year away from when your 19 and till you turn 25. As you can see, starting just 7 years earlier can make a huge difference. The earlier you start, the less money you have to sock away to become rich later in life. I don’t care how old you are. Start saving now. You’ll regret it if you don’t (Sounds like something your parents would say huh?).

click on the image to enlarge

Monday, December 24, 2007

401k...The Cliff Notes Version

Most companies of any reasonable size offer a 401k retirement savings plan with some sort of company match. This means when you put money aside for your retirement, so does your company. Is it just me or is that not badass? Here is the scenario of someone learning the basics of a 401k. Check it out.

Person A: "Hey, I saw that our company offers a 401k plan. What the heck is that?"

Person B: "It's a plan that allows you to take money out of your check and set it aside for retirement. If you contribute to the 401k plan, our company will even give you some of their own money to help you retire richer."

Person A: "So you are telling me that if I put aside some of my own money, our company will give me some free money to help me out towards retirement?"

Person B: "yeah"

Person A: “What if I don’t want to contribute?”

Person B: "Well then you are dumb. Only idiots turn down free money."

Person A: "Ok. How do I get started?"

It’s as simple as that. My suggestion is to start your 401k plan as soon as possible. The earlier you start, the more free money you can get from your employer. I also recommend that you contribute as much to your 401k as your company will match. If you company matches up to 5% of your total pay, then put 5% into your 401k. If they match more, then put in more. Simple as that. Also remember that the most important part of your 401k is getting started, not necessarily about what investments you choose. So go grab someone from your work who has already setup their 401k and ask them to take 5 minutes to show you how to setup yours. You won’t regret it when it comes time for retirement. Trust me.

Fun Fact #1: 54% of 20-29 year olds eligible for 401k plans at work do not participate at all

Fun Fact #2: 54% of 20-29 year olds are dumb.

Do you want to find out how much money you will save for retirement if you sign up for your 401k? Check out this calculator at Bloomberg's website.

Bloomberg 401k Calculator

Sunday, December 23, 2007


Let me start off by giving everyone a background on myself and explain what I would like to accomplish with the launch of my new blog.

First and foremost, I am a 24-year-old recent college graduate (I was on the 5 year plan) and I just landed my first “real” job 6 months ago and even though I am writing a personal finance blog, I will assure you that I am no financial genius. In fact, I am not a genius in any sense of the imagination. I am a normal 24-year-old guy who got average grades in high school and college and I currently work in a semi-normal career as an IT recruiter. So please don’t go thinking that the only reason I can make/save/invest a bunch of money is because I am a lot smarter than you are. I doubt that I am. However, I would like to point out that you do not have to be super smart to become rich. You just have to give yourself a little financial education and teach yourself some discipline (I know, I know, easier said than done). That is where this blog comes in.

There are two reasons I started this blog. Reason #1 is because I want to share what I have learned about personal finance with as many people as possible. How fun would it be to have $10 million dollars and be retired if all your friends were still plugging away at their office all day every day? Who are you going to hang out with? Your wife’s crappy cat? I don’t think so. Do yourself and your friends a favor and have them read this blog so you live the high life (and no that doesn’t mean drinking that shitty Miller High Life beer).

Reason #2: I need some motivation to keep learning about money. If I don’t give myself some sort of reason to keep learning about finance I fear that I will stop learning and/or caring all together. How much money do you think I could make if I stopped caring about it all together? Probably not enough money to retire comfortably. I am not saying people need to be obsessed about money but you definitely need to keep an eye on it and make some smart moves in order to set yourself up for a relaxing, early retirement.

With all that being said, I would like to encourage comments on each and every post I write. Like I said, I am by no means an expert and your feedback will help me become more well rounded in my knowledge of personal finance.

One last note. If you do disagree with my posts, feel free to comment about it. Let me know what you disagree with, why you disagree with it and what you would do differently. I absolutely encourage constructive criticism and I feel that everyone reading should be able to see some of the pros and cons of the personal finance theories that will be discussed. With all that being said, I hope you enjoy my first attempt and blogging and I encourage everyone to give me feedback on how to make this place better. Thanks.