Friday, December 30, 2005

Why Motley Fool Sucks:

For anyone that reads financial publications online, they are likely to know about fool.com, the Motley Fool. They are tons of articles on there about investing in Mutual Funds, IRA's, stocks and bonds, but the problem is that every article is an advertisement. Every article somehow ties into one of the pay services that they offer and how you can get a thirty day free trial. This is shitty way of marketing. If you are going to offer free articles on your website, don't make all of them ads, that sucks. Not only does each article end as an ad for the service, but there is always a huge ad down the side about the same thing. Many of their articles also make you sign in in order to read them; what a waste of time. If you are looking for online financial publications don't be a fool and waste your time with them.

Tuesday, December 27, 2005

Goals:

I mentioned in a previous post about having a financial new years resolution. Well being as the new year is quickly approaching, it would also be a time to set some financial goals for the future. It will be tremendously helpful if you have already figured out how much money you are spending each week. How far in the future should be the question you ask immediately after reading that sentence and there are a few answers to that question. Lets break down financial goals for college students into 4 categories, I know it sounds like a lot but it isn't bad at all.

1. Daily financial goals:
You should already now how much you spend each on average each day because you kept a notepad with you and wrote down everything you spent money on for a week. When you get up each morning (or afternoon as many college students do), decide if you actually need that 2 dollar coffee and the 2 dollar bagel or muffin. Could you instead go to the grocery store and buy a pound of coffee that will last you for a month, and a dozen bagels for the same 4 dollars? It might cost you a few dollars more, but remember you just got a months worth of coffee and 6 days worth of bagels which means it costs a very small fraction of what you would have spent that month for coffee and bagels from the coffee shop.

Now you may say, but Mike, I don't buy coffee every day, I don't even like coffee! Well, look at that notepad you have that you used to keep track of your spending for the week. Do you go out to eat everyday when you work? Do you buy 30 dollars worth of alcohol each week? Everyone has something that they spend money on each week that they could easily cut back on and not miss much at all. This is talked about in great depth in a book I mentioned previously. The author calls this a person's "Latte Factor" and it is anything that a person buys everyday, or every week, that they could cut back on and instead use the money to invest.

So in short, your daily goal will be to not spend money on your "Latte Factor" and instead keep the money in the bank.

2. Weekly financial goals:
If you have determined your "Latte Factor" and you are actually making sure that you are keeping the money would have spent on it in the bank rather than spending it, you should now have extra money in the bank. Instead of leaving this in your checking account where it will earn now interest, move it over to a high interest savings account. That way your money will be making money for you. The amount of money you save every week should be the same, or very close to the same, so set up your savings account so that it automatically deducts that amount from your checking account every week. This means that you do not even need to think about moving the money each week, and it also means that the money doesn't stay in the checking account and you end up spending it. You will see over the course of a year that this money adds up to be a lot. Once you have a significant amount in your savings account don't just go out on a shopping spree...Keep Saving!

3. Monthly financial goals:
Each month you should come up with a new monthly goal. Perhaps you don't have a job right now; this month your goal should be to find a job. Maybe you want to start investing in the stock market; pick five stocks and watch them for a month to see how they do before you just jump in and invest in them. Maybe you have a lot of credit card debt, use the month to gather all of your statements and figure out how much debt you are in. You will never pay off debt if you don't know how much you have. (More to come on this in a later post) Opening a high interest savings account should be one of your first monthly goals. In fact it takes about 10 minutes, not a month, but don't force yourself to do too much at once and then become upset because you didn't meet a goal.

4. Year financial goals:
Each year you should be setting at least one financial goal and that goal should be I am going to save X amount this year. That does not mean however at the end of the year you are going to see how much money you have in your checking account and saying "oh I dont have enough" and forgetting about it. No, you are instead going to have opened a savings account that I have already mentioned several times in this post, and you are going to set it up so that it automatically deducts the amount you want to save for the year divided by 52 year week. (If you want to save $5000, there are 52 weeks in a year so each week you will save $96.16) This way you will never have to think about saving the money, it will just do it.

In a upcoming post I will talk about IRA's and why you should be investing in one. If you are currently in college, and plan to even retire, you need to open one now, it may mean that you can retire early, or just that you can retire period. Many people do not realize the importance of saving a little when you are young so it can turn into a lot by the time you are old rather than saving half of your paycheck each week when you get into your 40's, 50's and 60's so that you can scrape by when you retire.

Start Saving TODAY!!

Tuesday, December 20, 2005

Wasting money on the bank:

When most college students get paid, they either have their money directly deposited into their checking account or they get there check and deposit it into a checking account. If you are keeping some money in the bank for more than a few weeks, why would you leave it in a non-interest paying checking account? Secondly, why would you put it into a local bank's saving account where you earn less than 1.0% interest?

Transfer your money into one of the popular online banks, Emigrant Direct bears a 4.0% return and ING Direct bears a 3.75% return. These banks are both FDIC insured so you don't have to worry about losing your money or anything like that. They also do electronic transfer so if you need your money, you can just transfer it back to your checking account. ING also offers mutual funds and CDs you can invest in as long as you have a savings account open with them.

Every time you deposit money into the bank, the bank is automatically making money off of it by lending it to other people and charging them money on the loan. Shouldn't you make back some of that profit; you are the one giving them money to use. Use a bank that pays a decent interest rate on the money you deposit.

Monday, December 19, 2005

Personal finance resolution:

The new year is quickly approaching which means it is time for everyone to make resolutions that they will keep for a month and then give up. People will buy a gym membership and go to the gym for a week and stop going. Others will give up cigarettes for a week and then get over-stressed and need one to take the edge.

Well here's a resolution that will only take a week. Get a small notebook and a pen, or if you have a PDA that works too. Write down every cent that you spend that week, if you pay a phone bill or cable bill, write it down! If you buy a coffee every morning, write it down every morning. It doesn't matter how you pay for it either, whether it be cash, check, debit, or credit, write it down! Make a note of which source you are using for each purchase (again cash, check, debit or credit). At the end of the week add up the total amount of money that you spend, I bet it is a lot more than you thought you did each week. Buying a $1.37 coffee each morning doesn't seem like much, buy 5 days a week means that you are spending $6.85 on coffee each week. Again that still doesn't seem like much, but it means $27.40 a month and 328.80 a year. If you are currently a junior in college, that means you have about 45 years until you retire, that means you will spend $14796.00 dollars on coffee.

Remember also that most people don't just buy a coffee, they buy a doughnut, or a muffin, or bagel. They also probably buy an afternoon snack as well. So lets say you spend as little as 5 dollars a day on coffee and snacks including the weekends. That means $35 a week, $140 a month, and $1680 each year. If instead you invest $1680 a year into an account that has an 11% return and leave it until you retire you will have over $1.6 million. (This assumes you are currently 20 years old and invest that amount into the account every year until you retire at the age of 65)

As for now, don't worry about investing your money into a retirement account, just figure out how much money you are spending each week. I would strongly suggest you get your hands on a copy of either Microsoft Money or Quicken. This makes it much easier to track all of your expenses. Almost every bank and credit card company will let you download your records into these programs so you don't even have to make the effort to type each transaction in. When they make it this easy you might actually enjoy tracking your money.

Saturday, December 17, 2005

A must read book:

Today my girlfriend and I were very bored and needed something to do. Rather than waste investable money on going to the movies we decided to go to the bookstore and read the books for free. I decided to find a good personal finance book.

I had read an article last night by David Bach on Yahoo Finance. He is the author of several personal finance books including Automatic Millionaire. He has a column that goes by the same title on Yahoo and I read the 4 articles he posted on there. After enjoy those columns I decided to pick that book out and start reading it. I must say this is an excellent read and it should be required for any college student looking to become rich. The book will not make you rich during your college years or even 15 years after you are out of college, but it will teach you ways to stay debt free and have well over $1 million when you retire. Many articles will tell you $1 million is the minimum anyone needs today to retire comfortably at the age of 65.

Bach's concepts are very simple, so simple in fact that many people will not believe they work, but if you do the math you will find they most definitely do. The main idea is to pay yourself before you pay anyone else including credit card companies, cell phone companies, tuition, ect. Most college students do not yet have the option of getting involved in a 401(k) or 403(b) at work so the one of the most important things to do would be to open a Roth IRA. You can get a lot of information about Roth IRAs at www.rothira.com along with www.fool.com.

I read about half the book at the bookstore and felt it was so good that I would in fact buy it. This is quite the feet for me seeing as I very seldomly read books unless required by a class. I read 127 pages in this book in under two hours and it felt like I had only been reading for 20 minutes. I would recommend buying the book or any other book for that matter at www.half.com or www.amazon.com for half the price you would pay at the bookstore.

If you think starting to save for retirement while you are in college is too early, you are horribly mistaken, and you will probably end up not having enough money to live comfortably when you retire.

Friday, December 16, 2005

A competition:

So I was talking to my residents today, many who are also interested in investing in stocks and or have started to do so recently. We decided we wanted to do what most kids do in Junior High; pick some stocks, invest in them, and see who can make the most money. The catch is that in Junior High you use fake money and if you lose all of it you just get a crappy grade whereas as here we are using real money.

We are going to each invest $500 max. We are starting shortly after the semester ends and going at least until the new semester starts. This doesn't mean that we will be selling the stock at the end of the competition to prove we made the most money, we will just look at each others accounts and see who has the highest gains from investing and subtract the cost it would be to sell the stock.

I think this will lure a lot of the people participating into purchasing very low cost stocks, mainly below $10. This article, 13 great stocks under $3, gives some insight into purchasing low cost stocks while still keeping the risk fairly low. I found the tool they suggest somewhat difficult to use and wondered why the authors recommendations wasn't one of the built it searches. Remember if you use this tool, the stock ranked number 1 doesn't mean that it is actually the best choice. Using the authors advice you will end up with a lot of busted tech stocks as he mentions at the end of his article. Use a reference like Yahoo Finance to chart the stock sense its IPO to see if the stock has busted.

**UPDATE: We decided doing this would be a fairly stupid idea as we would end up paying more in commissions than what we would probably earn. Instead we are going to use the Market Watch Game to see who can make the best investment decisions without actually losing or gaining real money. The winner will get $20.00 which means it will only cost each play $5.00 if they lose, less than most brokerage firms charge for commission.

***UPDATE: As of 1/13/06 at 13:46 I am winning the competition.

First Investments:

So as I said in my last post, I finally decided to get up off my ass and invest in the stock market. Seeing as I was laid off, I didn't have that much money to throw around.

I had been given some great reviews about a specific brokerage firm so I decided to open an account with them. You should do your own research before opening an account and decide which firm is right for you. Some of my residents for example found one that lets you trade for $4 on Tuesdays but any live trades that you make are $14. I went with a company that has a flat fee of $7 all the time. I'm not doing any day trading so going with the other company might have been a better idea, but I'm satisfied thus far.

The firm I chose requires a $500 minimum investment to start trading so I figured I would send my money over the web and get going the next day, but apparently the firm had a problem with their e-check provider and canceled the service which meant I had to write a check and hand deliver it or mail it. Being in school and not wanting to waste money on gas driving 30 miles to deliver a check, I wrote a check and sent it to them, this meant I had to wait 6 days before I could start investing. I think this was actually good thing because it got me to relax and actually look into some stocks rather than jumping in with no research. I seem to do this often when I get interested in it. I jump right in and think about it afterwards and half the time regret doing it so quickly.

Well after talking to other students already investing in the market I found some stocks that looked good and I found some on my own browsing the web and reading the Wall Street Journal. I made my first investment on Tuesday and my second on Wednesday. The first was a fairly well thought out and researched investment, the second on the other hand was not so well researched. Yesterday the second company released its second quarter earnings and I lost a few dollars on that stock today. I feel however that this stock will rebound dramatically after it reports it's third and yearly earnings so I am not very concerned.

A little about the author:

I am currently a student and a Resident Advisor at the University of Massachusetts Lowell. I am majoring in Management of Information Systems and Marketing. I would eventually like to either start my own business or work way up to become a CIO of a successful company.

I was recently laid off by a local school system where I was working as a part time computer technician*. So after hours, days, and weeks of playing playstation, I decided to finally get involved in investing. I have always been interested in the stock market and investing my money so I can earn more than the 0.05% that my savings account paid.

I recently read an article on MSN Money that stated if you were to invest $2000 a year at the age of 16, 17, and 18 into an IRA that had a return rate of 10.5% that your money would double every 7.5 years and by the time you retire you would have over $1 million. That's right, $6000 turns into ONE MILLION DOLLARS. To a person who has never had any kind of finance course that sounds almost impossible, however, anyone that knows the magic of compound interest knows that this is true.

Who wouldn't want to invest their money after this? Well, it seems a lot of people. People fear the stock market because the only thing they are ever taught about in school is the market crash in the '20's and the dot com bubble burst in the '90's. If you do a little research or ask a history professor you will find out that it is impossible for anything like the '20's crash to ever happen again due to restrictions and safety nets put in place by the SEC (Securities and Exchange commission).

I however do not fear the market. I am willing to accept the risk of losing some money in the short run in order to make money in the long run. In my next article I will talk about my opening an account and my first investing experince thus far.

*A little update, after 3.5 hours of interviewing and meetings, I was hired today as a desktop and server support person in on of the departments at UMass Lowell. Having a paycheck will be a big help in my ability to invest.

The start:

After reading several financial blogs recently, most noteable www.iwillteachyoutoberich.com, I have decided to start my own, mainly based around finances of a college student along with other random observations.