Archives For July 2010

       In our last Investing Basics article, we talked about mutual funds. Today, we’ll discuss options and futures. Later in this series, we’ll look at short-term savings vehicles.

What Are Derivative Securities?

       Options and futures belong to a class of securities known as derivatives. These are securities whose value is derived from another underlying asset. In the case of options, the underlying asset is often a stock (thought it can be an index, exchange-traded fund, currency, or bonds). For futures, the underlying asset is usually a commodity (like grains, oilseeds, metals, petroleum, livestock, food items, or fiber) but can also include stock indexes, currencies, or bonds. In reality, options and futures can be based on nearly anything if there’s a market for them.

What Is an Option?

       Options are securities that give you the opportunity (or “option”…) to buy or sell the underlying security at a specific price over a set period of time. If the option lets you buy, it’s a “call option”. If it lets you sell, it’s a “put option”. Options that cover a long period of time are often called LEAPS (Long-term Equity AnticiPation Securities).

       Long-term options that let you buy a certain number of shares from a company are called “warrants”. These can be for 5, 10, or even 20 years. Although they are similar to regular options, they can only be issued by the company that issues the underlying stock. Regular options can be issued by anyone. Warrants are usually added to bonds when the issuing company needs to “sweeten the deal”.

What Is a Futures Contract?

       A futures contract is an obligation to deliver or accept a certain amount of the underlying asset at a specific price on a specific date. (Many people just call them “futures” but that’s just a shorter way of saying “futures contracts”.) Where an option gives you the choice to buy or sell, a futures contract is a commitment to buy or sell. So if you buy a pork bellies futures contract and hold it until the delivery date, you better have a place to store 40,000 pounds of future bacon!

       When used for hedging purposes, futures contracts are most often bought and sold by processors and manufactures or producers and farmers. Futures contracts allow these people and businesses to lock in their costs or income. Many of the farmers in my church use contracts to lock in the prices for their milk, corn, and soybeans. This helps them plan their income easier and protect against declining prices, but it also obligates them to deliver a specific amount regardless of how their cows or crops perform.

You Don’t Need to Know Much about Options and Futures

       Honestly, the average investor doesn’t need to know much about options and futures. There are some limited applications where they can be used to hedge (protect) an investment. But for the most part, people use them to speculate (in other words, gamble!). And speculation is not investing. However, it is useful to have a basic knowledge of options and futures so you can recognize the risks and the potential benefits. If you want to keep learning about investing, make sure you sign up for free updates to Provident Planning!

The Value of Quality Cookware

Corey —  July 13, 2010

Quality matters when it comes to cookware. But how do you know when you need to buy quality and when the cheap option will do? Or how do you know when the price reflects the actual quality of the item you’re buying?

I’m a big fan of Alton Brown and his series Good Eats. One of his major tenets is to avoid unitaskers as much as possible. So when my wife and I were registering for our wedding (and later buying the rest of the cookware we needed), we consulted Alton’s book Gear For Your Kitchen. We wanted to make the right decisions about which items we should have to avoid a cluttered kitchen. There’s no use in spending money or space on something you’ll hardly or never use.

But the other reason we consulted his book was to learn where quality counts and how to choose the right tool for the job. This doesn’t mean always buying the “best” tool. It just means buying (or making) the tool that will get the job done well at a reasonable price for the level of quality needed. So we pored over the book and made a list of what we felt were the items we should have in our kitchen (that I didn’t already have before we got married).

We found that expensive kitchen tools aren’t always the right tools. For some pots and pans, it’s important to have high quality materials (which do cost more). But for others, the cheap option is just fine.

Choosing the right tools matters because cooking can be much easier and much more fun if you’re using the right tools. If you hate cooking, it could be because you lack the right tools. Or it could be because you have too many tools and no space to cook!

Having quality cookware in just the right amount is key to good, enjoyable cooking. You’ll be able to prepare your food easier and possibly even tastier (as you continue to improve your own skills). It’s also the key to having a frugal kitchen. Having tools that you don’t use or don’t need (because another tool can do that job) is simply wasteful. So I’m touching on two ideas here – the value of quality cookware and the value of having just the right tools (and not every possible tool).

If you want to learn about having just the right tools, you really ought to buy Brown’s Gear For Your Kitchen or check it out from your local library. One of the most useful aspects of his book is helping you know how to decide if you really need a tool or not and which features you need and don’t need. He also discusses the quality aspect and let’s you know when it’s best to go more expensive on an item.

The Problem with Quality Cookware

The problem with quality cookware is that it is often expensive. It’s hard to buy inexpensive quality cookware. And that’s what keeps many people from buying the good stuff. I’m not saying you need to equip your kitchen with copper everything. But being frugal is not about being cheap. It’s about getting a good value for your money and making sure you get the best price you can at the same time.

It’s obvious that frustrating yourself with cheap, useless, or too much cookware will make for some miserable cooking. You know that quality cookware matters. The only part left is for you to figure out what you need and then how you’ll get it. (Again, I can’t recommend Gear For Your Kitchen enough for helping you figure out what you need.)

If you can’t afford quality cookware all at once, you’re better off picking a couple of the most useful items and building up your set of tools from there. In our kitchen, the 3-quart saucepan and the 5-quart Dutch oven get the most use by far. If I had to recommend just one pan and one pot to use, those would fit the bill. They can cover most of your cooking needs.

       This is a guest post from Adam Gibson. Adam is an author of Accrued Interest, a popular financial world blog. Check out Accrued Interest for the latest on the bond market, treasuries, mortgages and other financial news.

What Are VA Loans?

       If you’re an active member of the United States military or a veteran of one of the armed forces branches, chances are good that you automatically qualify for a mortgage loan underwritten by the Department of Veterans Affairs. These loans are designed specifically with armed forces members in mind and their primary goal is to ensure that nearly every service member who wants to own a home can do so, regardless of the area in which they choose to live. To this end, the VA underwrites mortgage loans for service members up to a certain dollar amount (which varies widely depending on the cost of living in the chosen area).

Benefits of VA Loans

Benefits of selecting a VA loan over a traditional mortgage are numerous and include:

  • Less Stringent Credit Requirements. VA Loans were designed to help borrowers who may not otherwise qualify for a home loan and, to that end, don’t have the strict credit requirements that many other mortgage loan programs do. Borrowers with a less than favorable credit report, those with little credit history, or even those who have declared bankruptcy in the past but have maintained excellent credit since can all qualify for a VA loan.

  • Less Cash at Closing. Many loans require up to 20% of the purchase price as a down payment, due on the day the loan is closed. Unfortunately, borrowers also need to bring the closing costs that same day, which can often amount to as much as $8,000. In today’s economic climate, coming up with that much cash just isn’t feasible for many buyers, and the VA understands that. VA loans offer low (3%) and zero down payment options and allow borrowers to roll the closing costs into the loan amortization.

  • Competitive Interest Rates and Loan Products. While the VA prides itself on offering an opportunity to service members who have had trouble in the past applying for a loan, it does so while offering highly competitive loan products. The interest rate a VA loan borrower can expect to pay closely mirrors the rate a traditional loan program would give a borrower with excellent credit and a large down payment. In addition, the VA offers several adjustable and fixed loan products to fit every lifestyle.

Qualifying for a VA Loan

       Perhaps best of all, the qualification process for a VA loan is a reasonably easy one and made to be as user friendly as possible. You’ll be able to work with your local lender or bank for the entire process since the VA’s role in the loan is simply to provide a guaranty to the bank to lower the risk of your loan. You must meet the following criteria and provide documentation to your lender and the VA.

  • You served 181 days during peacetime (Active Duty)
  • You served 90 days during war time (Active Duty)
  • You served 6 years in the Reserves or National Guard
  • You are the spouse of a service member who was killed in the line of duty.
  • You can document two years of steady employment, or can provide an explanation as to why two years of employment could not be obtained.
  • You have a total debt to income ratio of less than 41%, after taking the potential home loan into consideration. If your debt to income ratio is greater than 41%, you’ll need to have excellent credit to support the high ratio.

How to Learn More about VA Loans

       Qualifying veterans and active duty service members have absolutely nothing to lose by using the VA loan program instead of a traditional mortgage service. The rates are exceptional, the loan products are competitive, and the process is easier and less expensive than most other options on the market today. Visit your local lender for more information on the program or to get the current loan limits for your area. Alternatively, you can go to or call your local branch of the Department of Veterans Affairs for more information.

       In last week’s weekend reading roundup, I promised to write up an article about why contentment and careful spending are serious issues for Christians. Here it is.

       The American Dream. The idea that prosperity and success will give you a better, richer, and fuller life began mostly as a dream about the ability to achieve as much as you are able based on your abilities and hard work. But over the years it has morphed into something that’s measured almost completely by material wealth and goals. Owning a home (or at least living in one that you partly own…the bank owns the rest). Having a nice car. Pursuing a successful career (and making lots of money). Having a vacation home. Owning a boat/RV/ATV/motorcycle/jet ski/big screen TV/iPhone/one of everything. These have become the focus of the “American Dream”. It’s no longer about the virtue of rewarding industry and diligence justly. It’s all about having bigger, better, and more stuff.

       And the funny thing is that many of us go through life pursuing this American Dream without consciously examining these goals to see if they’re really ours. Countless people look back on all the effort they expended in buying, using, and chasing stuff and accomplishments with a deep feeling of emptiness and grievous loss. “What was it all for?” “What was my life really about?” “What good did I do?” “What now?” “I wish I had(n’t)…”

       As the late George Carlin once said, “It’s called the American Dream because you have to be asleep to believe it.” (I’m not endorsing everything George Carlin said…) This idea that material prosperity and success will lead to a fulfilling life is ludicrous when closely examined. And it ought to strike a very uncomfortable chord in the hearts of Christians who are fully pursuing God.

       The problem is that we (Christians especially) don’t question it enough. Too many Christians blindly accept the goals of the American Dream as their own and spend their entire lives trying to achieve those goals. Seems like a strange way to live if we don’t want to be conformed to the patterns of this world.

What’s So Wrong about Wanting More, Better, or Nicer Stuff?

       I want to be clear that I am not saying that all Christians must live extremely austere and Spartan lives. There is a place for the “extras” in our lives – the luxuries that we enjoy. There’s nothing inherently wrong in enjoying the beauty of a nice home, the relaxation of a boat ride, or the satisfaction of successful work. But the “American Dream” has become a lifestyle of seeking pleasure in anything and everything you want. It’s all about you.

       But as Christians, we know it’s not about us – or at least we should know this. I don’t think I need to quote any Bible verses to prove my point here. Our purpose in life is not to pursue pleasure above all else and fulfill all our personal wants and desires. Our purpose is to honor and glorify our God – to seek out His will and then to do it.

       In all my discussions about contentment (and I’ve discussed it quite a bit), my point has never been to draw lines about what Christians can conscientiously enjoy and what they should avoid when it comes to material things. I’m not here to tell you that it’s OK to drive a Honda but not a BMW. Someone else can just as easily say you should drive a Tata Nano (very cheap car) but not a Honda. We’re treading dangerous ground when we start to set strict guidelines for other Christians based on our own preferences and arbitrary guidelines. Contentment is not an excuse for self-righteousness.

       The problem with wanting more, better, and nicer stuff and simply fulfilling those desires is that we stop asking ourselves what God’s will is when it comes to those issues. We either ignore His will completely or we assume that our will is God’s will. If we want to lead a life of significance – a better, richer, and fuller life – then we must start seeking God’s true will in everything. Not just in our career path, whom we should marry, or where we should live but in all things – even the day to day spending decisions we make.

       Before you reason that God has blessed you and must obviously want you to enjoy these blessings for yourself, let me ask you this: Is your choice to use God’s blessings for your own wants a result of God’s will for you or your will for God? American Christians are very richly blessed with wealth and material things. But does this mean we should blindly use this wealth to continue lavishing luxury upon luxury on ourselves? Or could it be that God has greatly blessed us so we can give generously to those in need?

Contentment Is Not Laziness Or a Lack of Ambition

       Too many people think of contentment as blind complacency – a “guise for mediocrity” as one detractor recently put it. But such a definition only signifies the person’s ignorance regarding the true nature and meaning of contentment. As I’ve written before, contentment is not complacency. It’s not laziness, apathy, or a lack of ambition. But here’s what contentment really is:

  • Fulfillment – Not from what you own or what you do for a living, but from who you are in Christ.
  • Sufficiency – In Christ, in our eternal life, and in our heavenly riches, but not in the brief, fleeting, and ultimately dissatisfying things of this World.
  • Appreciation – For what we already have, not what we still want.
  • Choice – To fully use what we have, to honestly and purposefully seek out God’s will, to consciously examine our goals and be sure they’re really our own, to use our excess for extreme generosity over self-seeking luxury.

       God’s Word is exceedingly clear that contentment is an excellent virtue for Christians to pursue. We will always struggle to give generously if we cannot learn to find contentment in Christ. And we will pierce ourselves with many sorrows if we do not learn to hold to our faith and let go of our greed. But contentment does not come as an instant change that happens after you accept Christ. It takes time – and sometimes an epiphany. And that is why we must all make a strong and relentless effort to seek godliness and contentment as we walk with Christ. Consider these words from Colossians:

       1 If then you were raised together with Christ, seek the things that are above, where Christ is, seated on the right hand of God. 2 Set your mind on the things that are above, not on the things that are on the earth. 3 For you died, and your life is hidden with Christ in God. 4 When Christ, our life, is revealed, then you will also be revealed with him in glory. 5 Put to death therefore your members which are on the earth: sexual immorality, uncleanness, depraved passion, evil desire, and covetousness, which is idolatry;

Colossians 3:1-5 (WEB)
emphasis mine

       So take time to stop and count the cost. Deny yourself and take up the cross. Be transformed by the renewing of your mind. Wake up from the American Dream!

       This article is the eighth in a series on how to get out of debt. If you haven’t already, you should check out the previous articles:

Step 8 – Celebrate Milestones

       As you make progress on paying off your debt, you need to celebrate your milestones – give yourself rewards. If you don’t take time to celebrate your progress, you can easily lose your motivation to keep going. While it seems like spending money to celebrate will lengthen your journey to pay off your debt, it’s better to take a longer route than to never get to your destination at all.

       This step is quite simple. First, you choose your milestones. Then, you choose your rewards.

       The milestones you set will depend on your situation. If you don’t have a lot of debt, you may only need a couple milestones. If you’ve got $30,000 in debt, you’ll probably need to set more milestones for your journey. When I paid off $6,000 in credit card debt, I set my own milestones for $1,000, $2,500, $4,000, and $6,000 total debt paid off. Choose your milestones so that they’ll be frequent enough to keep you motivated but not so frequent that they keep you from paying off your debt.

       Be careful in selecting the rewards you attach to each milestone. Choose things that you find worthwhile, but make sure they will reasonably fit within your budget. Save the best reward for your final milestone. Tying your rewards to things you had to give up in your budget can be a good strategy, but you may find that you don’t want or “need” those things as much as before after going without them for a while. Dining out, going to the movie theater, buying a game/CD/DVD or a piece of clothing, or taking a mini-trip are just a few examples of reasonable rewards. But you don’t have to connect your rewards with spending more money. Be creative and narrow in on the things that really make you happy.

       Reaching your final milestone (paying off your debt) may be reward enough itself. The feeling of sending in that last payment is nearly indescribable – especially if you’ve been ruled by your debts for years. But your journey isn’t quite over yet. Just being out of debt doesn’t guarantee you’ll stay out of debt. The last two steps in this series will help you make sure that any future debt is a conscious choice based on good and sound reasons. Make sure you’ve signed up for free updates to Provident Planning so you don’t miss out on these important steps!

       Have you set your milestones? Where did you set them, and what rewards did you choose? Did this help motivate you in your journey to pay off your debts? Let me know in the comments below!

       In the last part of this series, we talked about The World’s message – if we can just get more of what The World can offer us, we’ll be happy and satisfied. God tells us The World’s message is wrong and clearly shows us in the Bible that only His Message is true. Only God can bring us true happiness, satisfaction, and security.

       Today, we’re going to look a little more at why The World’s message is a problem.

It Keeps Us from Serving God

In Luke 16:13-15, Jesus tells us:

       13 “No servant can serve two masters, for either he will hate the one, and love the other; or else he will hold to one, and despise the other. You aren’t able to serve God and mammon.” 14 The Pharisees, who were lovers of money, also heard all these things, and they scoffed at him. 15 He said to them, “You are those who justify yourselves in the sight of men, but God knows your hearts. For that which is exalted among men is an abomination in the sight of God.”

Luke 16:13-15 (WEB)

       If we’re focused on The World and the things it offers, effectively we’re serving Money. And Jesus tells us when we are serving Money, we absolutely cannot serve God.

Deep Emotional Attachment by baslow on Flickr       God knows our hearts, and if we value the things of This World above Him then we are detestable in His sight. Putting more faith in the “wisdom” of The World than in God’s Wisdom means that we have demoted God to a lesser status. And we Christians know that the greatest commandment of all is to love God with all of our heart, soul, and mind – our entire being. If we place The World’s message above God’s Message, we cannot keep this greatest commandment.

It Cannot Provide an Eternal Reward

       Psalm 49 does a wonderful job of explaining why we shouldn’t believe The World’s message. The wealth of This World cannot save us from death; and once we die (as we all must), we cannot take any of it with us. Slowly read this passage and reflect upon it as you ask God to reveal the lies of The World and teach you His Truth.

   1 For the Chief Musician. A Psalm by the sons of Korah.

   Hear this, all you peoples.
   Listen, all you inhabitants of the world,
   2 both low and high,
   rich and poor together.
   3 My mouth will speak words of wisdom.
   My heart shall utter understanding.
   4 I will incline my ear to a proverb.
   I will open my riddle on the harp.

   5 Why should I fear in the days of evil,
   when iniquity at my heels surrounds me?
   6 Those who trust in their wealth,
   and boast in the multitude of their riches –
   7 none of them can by any means redeem his brother,
   nor give God a ransom for him.
   8 For the redemption of their life is costly,
   no payment is ever enough,
   9 That he should live on forever,
   that he should not see corruption.

   10 For he sees that wise men die;
   likewise the fool and the senseless perish,
   and leave their wealth to others.
   11 Their inward thought is that their houses will endure forever,
   and their dwelling places to all generations.
   They name their lands after themselves.
   12 But man, despite his riches, doesn’t endure.
   He is like the animals that perish.
   13 This is the destiny of those who are foolish,
   and of those who approve their sayings. Selah.

   14 They are appointed as a flock for Sheol.
   Death shall be their shepherd.
   The upright shall have dominion over them in the morning.
   Their beauty shall decay in Sheol,
   far from their mansion.
   15 But God will redeem my soul from the power of Sheol,
   for he will receive me. Selah.

   16 Don’t be afraid when a man is made rich,
   when the glory of his house is increased.
   17 For when he dies he shall carry nothing away.
   His glory shall not descend after him.
   18 Though while he lived he blessed his soul –
   and men praise you when you do well for yourself –
   19 he shall go to the generation of his fathers.
   They shall never see the light.
   20 A man who has riches without understanding,
   is like the animals that perish.

Psalm 49:1-20 (WEB)

Tree and Gravestones by Jim Frazier on Flickr       I especially like the last three verses. How often do we admire the wealthy for their success? Yet despite all their success, if they trust in their wealth they will die just like wild animals. God is the only one who can save us from death, and He can only do that if we give up believing The World’s message and seek His Truth.

       In the next part of this series, we’ll start talking about how we can ignore The World’s message and begin understanding the Truth.

Want to read the entire Bible study series on Contentment? Download your free copy of Contentment Is Wealth: A Bible Study on Contentment now!

       The allure of shopping and consumerism has blinded millions of people. Many think more money or more stuff will make them happier. They always have to have the latest model, the newest car, the hottest fashions, or the biggest house they can afford. Advertisements tell us every day that we are missing out if we don’t have the things they’re selling. They bombard us with images of all the things we “need” to make us happy. We’re told that if we’ll just buy this gadget or these clothes we’ll be more popular, get more friends, have an easier life, or just feel better about ourselves.

       We’ve even been taught that our role in society is to be consumers – consumers of stuff. We’re supposed to work hard so we can buy more stuff. The more stuff we have, the happier we’ll be. And if we work hard enough and save up, we’ll get to a point where we don’t have to work any more but we can keep buying stuff. We’ll be able to spend all our time buying stuff or doing things that will really make us happy. Much happier than we were when we were working so hard before…

       This is just one of the many messages from The World that flies smack in the face of The Message that God has been trying to tell us for thousands of years. Jesus speaks directly to those who believe the world’s message in Revelation 3:17-18.

       17 Because you say, ‘I am rich, and have gotten riches, and have need of nothing;’ and don’t know that you are the wretched one, miserable, poor, blind, and naked; 18 I counsel you to buy from me gold refined by fire, that you may become rich; and white garments, that you may clothe yourself, and that the shame of your nakedness may not be revealed; and eye salve to anoint your eyes, that you may see.

Revelation 3:17-18 (WEB)

       The World tries to tell us that if we just acquire more wealth & things, then we won’t need anything else – we’ll be satisfied and secure. But the truth is that the more we get the more we’ll want. The World can not offer us any true satisfaction or security. It’s a false hope to think that a bigger bank account will make you happier or more fulfilled. Jesus already knows The World can’t satisfy us, and that we’ll actually be pitiful, poor, blind, and naked if we listen to The World’s message. Only God can provide us with true wealth and open our eyes so we can see the truth.

Something Better

       God has a higher purpose for us than riches far beyond our needs and 6,000 square foot homes. God wants more meaning in our lives than a brand new luxury car in the driveway and a shiny yacht next to the dock. God has a higher calling for our retirement years than fruitless day after fruitless day spent on the golf course, beach, or back porch.

       There’s a major problem with The World’s message – specifically in that it contradicts God’s Message. We’ll talk more about why The World’s message is a problem in the next part of this series.

Want to read the entire Bible study series on Contentment? Download your free copy of Contentment Is Wealth: A Bible Study on Contentment now!