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Archives For September 2012

Hobbies with Low Costs

Corey —  September 27, 2012

When my wife and I were just married, as I have shared before, we struggled to make ends meet. We had an emergency fund in place so we never had to stress about whether we were going to be able to pay the bills, but we always wanted to pay our bills with our income and not draw from the emergency fund. That is, after all, not the purpose of an emergency fund.

In order to achieve this goal, we had to cut back in many ways. This meant only eating out once a month and doing free hobbies. Naturally, we focused on hanging out, doing stuff outdoors, and board games. This is all great fun… for a while. Eventually, these free activities get old and they did. We got very tired of playing the same board games over and over. As a result, we were forced to find new hobbies that didn’t break the bank.

Find Cheap Shared Experiences

The first thing we did was to look for new ways that we could spend time together that wouldn’t break the bank. If it meant spending a little more money to have new experiences, we were okay with that. But we weren’t willing to spend too much money that would compromise our financial position. Here’s what we came up with:

Movie Night – One of the first things we did was implement a movie night. It wasn’t anything glamorous and 90% of the times, we got the movie from our local Redbox. That way we could make dinner at home and watch a $1 movie. It didn’t just involve sitting around the house, but it somehow became a time that we looked forward to. We eventually watched all of the movies that we wanted to on Redbox, so we had to splurge and spend $10 per month on Netflix. I know, big spenders!

New Scenery – Another thing that we did together was to explore new areas. If there was a park that we hadn’t visited, we scheduled a time to visit. In a matter of months, we saw several waterfalls, went on tons of new hikes, and just enjoyed experiencing new things. There are only so many times that you can do the same hike without feeling a little boredom.

Develop Personal Hobbies

Another thing that my wife and I realized is that we needed time to ourselves. Not only because it’s important to have alone time, but also because we each have different interests. My wife likes to do some crafts and I like to bike and build websites. We gave ourselves a little bit of spending money to find new personal hobbies.

Crafting – My wife instantly realize that the enjoyed doing crafts. Normally, she is not the stereotypical woman (doing all the girly things), but this was an exception. Yet, as many people probably already know, crafting can add up. She came back from the craft store the first time spending $80. Wow! That was a shock and forced us to find cheaper ways to continue this hobby. Now, we look for coupons or deals (like Jo-Ann Fabrics coupons) and are keeping her craft expenses to a minimum.

Biking – One of the first things I needed to do was to buy a bike. I looked on craigslist and wasn’t able to find a bike that I wanted. I ended up using some Birthday money to buy my bike and then enjoyed a practically free hobby. If only my wife could enjoy a free hobby. :)

Saving money while developing hobbies and discovering your interests is always a difficult balance. For us personally, we found the best success with prioritizing savings first and then allowing us to splurge a little bit as we made more money. This meant that we didn’t live with any regret and we were able to slowly enjoy ourselves even more.

Have you had success balancing saving money and enjoying yourself?

 

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How To Pay Your Mortgage Quickly

Corey —  September 24, 2012

Everyone dreams of the day that their mortgage for their house will be paid off right? I know I do! We bought our house around 3 years ago, and would like to have it paid off in around 4 to 5 years. We have a long 30-year loan though.

There are many reasons why people want to pay off their homes early. Maybe you just hate debt and want all of your debt to be gone. Maybe you want to retire and lower your spending so that you are more prepared.

However, I do know that not everyone is in a rush to pay off their mortgages early. Your mortgage rate might be extremely low and you might be earning a much higher return in the stock market or in your other investments, which would persuade you to invest and throw your money at your investments instead of your house.

How is it possible that we can pay off our house so much earlier than the planned 30-year loan that we have? There are many reasons for this, mainly because of the fact that we plan on paying extra large payments to our mortgage debt soon. Our goal is to make a couple thousand dollars extra towards our payments every month, and we also hope to switch our payments to biweekly if our bank allows for it.

1. Increase your payment amounts.

This one is a no brainer. If you throw more money towards your debts, then of course you can pay your mortgage off more quickly!

Another way is to make more payments towards your debt. Did you receive a bonus for the holidays, signing on with a company, or for some other reason? Put that extra money towards your debt and make a new payment!

Even if you can’t put a large amount of extra money towards your mortgage payment, even a little bit helps if it is put towards your principal. That way you are not being charged all of that extra interest anymore.

2. Increase the amount of payments that you make.

As stated above, try and apply any extra money towards your mortgage. Everything counts and one extra payment is worth it.

This also goes hand in hand with making bi-weekly payments. With biweekly payments, you make a payment every 2 weeks. There are 52 weeks in a year, so instead of making 12 payments in one year, you are making 13 payments.

You are also shaving a little off interest as well. Not all banks will allow you to do this though, so first ask your bank. You might have to sign up for some sort of biweekly plan with them.

With paying your mortgage biweekly, you will most likely be able to shave AT LEAST a couple of years off your mortgage, and it’s really just that simple!

3. Refinance your mortgage.

Mortgage rates are extremely low right now, and everyone knows that. My friends don’t have the greatest credit in the world (they don’t have a car payment or credit cards, so they haven’t been able to build their credit the normal way), but still received a 30-year loan at what I believe was a 3.2%. That is great! Our mortgage is at 5%. We should refinance.

Refinancing your mortgage might cost a couple thousand up front, but in the end, if you can slash more than 1.5% to 2% off your rate, then it is probably worth it to refinance your mortgage.

Do you plan on paying off your mortgage early? Why or why not?

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What Are Your Financial Priorities?

Corey —  September 17, 2012

Everyone has some sort of financial priority in their life.  Setting priorities can be very good for a person or a family. If you know what you are striving for, then you most likely will try a little harder and put more effort towards it.

Without priorities, then everything would be all over the place. How would a person even know where to start, where to end, when things are going run, etc.? How will individuals know when to celebrate completing a goal as well?

Maybe you want to eliminate all of your debt, give a higher percentage of your income to charity, go to school, pay off your house, retire early or just have financial freedom. Each person is different in how they value different things in their life, and their different financial priorities. One thing to keep in mind that even if financial priorities are similar, you shouldn’t always compare yourself to others. Different people complete their goals differently of course.

How to set financial priorities for yourself:

1. Decide what you value the most.

Make a list of what’s important to you. You probably have a very long list of things that you want to accomplish. What honestly cannot wait another second? Try to determine what should be done first and what can wait a little while.  You can sort through the rest of the financial things you need to do as well, and maybe you can contribute to the rest equally but put most of your might to your top priorities.

Think about your future and think about where you want to be and what you want to have done. This is the first step!

2. Let people join you.

If there are others, such as family and friends, who might have similar priorities as you, then let them join you. You and them can most likely push each other to achieve your similar goals. Talking about things out loud can also be helpful.

Also, sit down with your family to make sure that everyone is on the same page. If everyone agrees on the financial priority, it will make it much easier, and of course, much less arguments.

3. Make sure your goal or goals are possible and realistic.

Creating a goal of paying off all your debt in one year when you know it’s absolutely not possible, then it’s probably not a SMART goal. A smart goal is specific, measurable, achievable, rewarding and track-able.

If your goal is not possible, then you are most likely spending way too much time (and wasting time) on something that will not work out in the end. And then you are also sidetracking other goals that you should be working on as well.

Instead of trying to pay off your debt right away, plan to make more money this year to begin repaying it. This goal could involve upgrading your education so that you can start applying for more lucrative positions or completely change your career.

For example, if you currently work in the nonprofit sector and would like to advance within the industry, earning a Graduate Certificate in Project Monitoring could be exactly what you need. Once you have this additional education, it will become much easier to reach your other financial goals because you can command a much higher salary.

4. Keep track and always adjust.

You should constantly be keeping track of your goals. Try to set maybe a certain time for when you will track how you are doing. Maybe daily (if you want to be very on track), weekly, monthly or some other amount of time.

This way, if something does happen to be OFF track, then you can try to adjust it. It’s of course much better than waiting to see how you’re doing a year later and figuring out that you are way off track what you wanted to be.

5. Be prepared for things that will throw you off track.

In the end, something will most likely come up. If something sidetracks your goal or priority for a little bit, don’t let it ruin everything. Realize that things will come up and not everything can be scheduled perfectly.

What are your priorities?

What’s on the back-burner for you now?

In Budgeting, Debt , ,
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Investing Principle: Diversification

Corey —  September 17, 2012

Any smart investor is going to look to look to both protect their investments while also securing the best return possible. It is always a juggling act for any investor, regardless of how much experience he/she may have. Investment tracking is quite a task. While there are many important ways to accomplish this balance, diversification is one of best ways to accomplish both values.

What is Diversification?

According to investopedia, diversification is defined as:

A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio. 

Diversification strives to smooth out unsystematic risk events in a portfolio so that the positive performance of some investments will neutralize the negative performance of others. Therefore, the benefits of diversification will hold only if the securities in the portfolio are not perfectly correlated.

Why Diversification is Important

Diversification is important, as I mentioned above, because it allows you to accomplish two things at once. The first, and perhaps more important, is to protect yourself from any significant loss. The basic idea is that one area of the market is performing poorly, the others will make up for it. It is also very unlikely for all markets or investments within a market to drop significantly at one time. The risk is inherently lower despite taking a more aggressive investment strategy.

The other major benefit to diversification is the ability to maintain an aggressive approach and thereby maximizing long-term return. Instead of sticking to conservative investments like bonds or cd’s, diversified investors are able to keep their money in high-yielding investments.

How to Diversify Your Investments

While a lot (maybe enough to fit in entire books) could be said about how to actually diversify your investments, I thought I would give you a picture of what I am doing to diversify my portfolio. Keep in mind that my investment history is quite short and over the next few years I plan to diversify it even further.

Employer 403b Account – One of the best ways to start investing is with your employer’s investment account. It often comes with some form of matching, so it automatically gives you a great return on your investment. I personally have mine set up with a mutual fund because of how little is being invested. It provides for some inherent diversification.

Real Estate Investing – One of the ways I am in the process of investing in over the next few months is real estate investing. I believe this to be a secure investment for decades to come and the revenue stream should only increase with inflation.

Dividend Stocks – While I am not an expert on dividend stocks, I have been learning a lot about the benefits of investing in dividend stocks. In fact, dividend stocks over a period from 1972 to 2010 provided a significantly larger return than non-dividend stocks. Dividend stocks offer some minor diversification as there are two revenue streams. The first is the dividend as a form of cash flow and the other in the potential increase in the stock value. If you want to learn more about dividend stocks, there are many great resources like the list of high yield dividend stocks by Dividend Stocks Online.

Side Business – Another way that I am trying to diversify my investments is to build up a side business for myself. Eventually I would like to see it develop into my full-time gig, but I have to sustain a decent income before I make that leap.

While diversification can (and often is) be simplified to investing in mutual funds or ETFs, it is much more than that. It should include different investment vehicles and markets.

How are you diversifying your investments?

 

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Basic Home Repair – DIY or Hire Someone?

Corey —  September 16, 2012

I am a Handy Man.

This statement is a huge exaggeration. Not only do I know very little about cars or maintaining a car, but I know even less about home repairs. My wife and I have been considering buying a home in the next few years and we are currently saving up a down payment. Part of me wants to ignore the inherent responsibilities that come with owning a house. Sure, this may be a great way to build wealth and minimize future expenses. But it comes with responsibilities. The other part of me knows that I need to learn more about basic home repairs.

Basic Home Repairs / Responsibilities

Again, I am no expert, but as I have been doing some research, there are a number of roles that a home owner must take on if he/she wants to save some money:

Carpenter – One of the fundamentals of home maintenance is doing some basic home renovations. While big projects, like repairing a roof, may be too much work to take on yourself, there are some projects that you can do. Nailing loose boards or replacing trim around a door frame are some great examples.

Painter – Every home needs to be painted occasionally. While some houses have siding that does not require painting, there is still the inside. How long can you live with those off-white walls? You can pay thousands of dollars just to have the exterior of your house painted. Painting your own house is a great way to save money and it can be relaxing.

Electrician – This is one area that people will probably question. You have to be careful when playing with electricity, but there are still some basic functions of an electrician that you can do yourself – like changing a light switch or outlet.

Plumber – Again, if there is a huge emergency, you may want to call an experienced plumber. But, why not learn the basics. It could save you lots of water damage if you know how to shut something off or direct water flow elsewhere.

How to Get Started

There are many ways that you can get started in doing some basic home repairs.

Research – The first thing that you need to do is to research. With the internet, there are tons of sources for how to do basic home repairs. I have been researching how to do some of the basic stuff like replacing light switches, flooring, plumbing, etc. After learning the basics, I will probably look into bigger projects like kitchen remodels, diy conservatory, and adding on another room.

Practice – There is no better way to learn than to start doing! Practice what you are learning, while remembering that you aren’t going to be perfect the first time. You can always correct your mistake, so don’t be afraid to implement the skills you have learned.

Readers, do you perform your own repairs? Or do you always hire it out?

In Budgeting
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Giving to Charity – How and Why to Do it Now

Corey —  September 10, 2012

Do you think you give enough to charity? Most likely the answer is no or maybe. I always think about how I could be donating more, or I always say “I’ll start donating more once I cross XX off my list of financial goals or when I have XX completed.”

Lately, it’s been that I’ll wait until my student loans are paid off. However, this list has the potential to be never ending, and I don’t want it to be like that.

I want to give to charity and need to stop making excuses.

I’m going to admit that I am guilty of not donating enough time nor money. We do donate, but not nearly enough in our eyes. The amount is barely even equivalent to 1% of our annual income.

I don’t know if you’re similar to me, but whenever I buy something for myself, I always triple-think about it. Would the money that I’m spending on this dinner be better spent by donating it to a family during the holiday season? Maybe a child could use new clothes also…

Also, whenever I go to any type of store, whether it be the grocery store, pet store or a clothing store, I am almost always asked if I would like to donate a dollar to their charity. Sometimes I do decline, but it nearly eats me alive when I think about how a dollar wouldn’t change my life, but a dollar could greatly change someone elses’.

Giving to a charity does not only have to constitute giving money. Giving to a charity can also be donating your time, as most likely, your time is invaluable.

Many charities cannot find enough volunteers to help out, which would make an endless amount of cash still not useful if they cannot find those willing to put in physical time.

Before, I would always use the excuse of not having enough time to volunteer. However, I truly did. Instead of going home and watching TV, I could’ve been dedicating just a couple of hours of my time to a charity every week. A couple of hours wouldn’t have killed me, and it could’ve made a large difference in the eyes of the charity.

There are many great reasons for why you should donate:

1.  You can really help someone.

Not everyone is fortunate in their life, and some things they cannot help. Also, the person may just be down on their luck lately and may just need quick help.

There are many examples of this, such as a young child whose parents cannot afford school supplies for them, or maybe they have a single mother who does not have enough time for them because they are constantly working. Or maybe someone just lost their job and just needs help until they get back on their feet.

2.  You’re going to spend it anyways.

If you have the money, you will most likely spend it. Instead of buying your 5th chocolate bar of the week, maybe you can designate a certain amount of money towards helping a charity of your choosing.

Dedicating just $30 of your monthly income will make a difference in someone’s life, especially if many more people started doing this. $30 is most likely not a lot to you, and will require you just to cut out one small thing out of your life every month.

3.  They are tax-deductible.

Yes, while some would like to think that they would never consider taking a tax deduction, it is a benefit, and there should be no shame in taking this. If you are helping the world, then you are helping!

Be a little creative when it comes to making a charitable donation. Think bigger than simple household items and start looking at less obvious items, like a vehicle or even a boat. Making boat donations in New Jersey is an easy process. This state in particular provides great tax benefits. In many cases, donating a boat is very simple, just select a charity online and fill out a few papers. Help out causes such as hunger, cancer, and homelessness while saving a little money during tax season. It’s truly a win-win situation!

Do you give to charity?

Do you believe that you give “enough”?

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Living Paycheck to Paycheck is Dangerous

Corey —  September 9, 2012

Are you overwhelmed by how difficult it seems to plan for your future? Do you find yourself wishing it were easier to get ahead? For those of us who don’t make a lot of money, it may be hard to save up an emergency fund or a cushion for the expenses in life that sneak up on us. People preach about having money in reserve for these unexpected expenses, but in reality, it’s much harder to do.

Yet, that doesn’t mean it is impossible nor important. Putting money aside for these type of expenses is very important because it keeps you from digging a whole. While not all debt is evil, it is important to avoid the cyclical nature of it.

Limited Options Without an Emergency Fund

People without an emergency fund saved up are left with fewer options. For those who don’t already know this, fewer options is usually a bad thing. It forces you to make decisions that you may regret later. The more options you have, the more possibilities of selecting a “good” option and not just one that is the best of bad decisions.

Borrowing Money: If we are honest, most people, when faced with an unexpected expenses, are forced to borrow money. The people who are smart enough to limit their negative impact will often reach out to friends and family first. Friends and family are there for these type of emergencies and should be considered before things like payday loans online, but they won’t solve all of your problems. In fact, asking family members for money too often will often ruin the relationship. There are many reputable companies that offer bad credit loans so if you need to, do some research online and try to find a good local company that has a good reputation.

Bad Credit / Collections: The only other option available is to let the expense go unpaid. This will often result in it going to collections and this can ruin your credit for a long time. While you may be left with little or no options, you want to do everything you can to avoid this option.

Be Pro-active!

The best thing you can do is to be pro-active. It sounds like every other advice out there, but it so true. Don’t wait for an emergency to pop up. This means starting with spending less than you make. If you spend every dollar of your paycheck, how are you going to afford the future expenses that are bigger than the paychecks? Not to mention, continuing to pay for the ongoing expenses like rent or insurance.

Start by saving just a little bit at a time. I think if you can see yourself saving a little, you will not only feel more comfortable in yourself, but you will realize how much MORE you need to save.

Stop giving yourself limited options in life. Take control of your finances and act today.

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