5 Habits That Will Definitely Waste Your Money

The following post is by MPFJ staff writer, Catherine Alford. Cat is a freelance personal finance writer who blogs at www.BudgetBlonde.com. 

We all have habits, both good and bad, but some of them waste a lot more money than others. I’m sure some bad money-habits that immediately come to mind are a smoking habit or a bad drinking habit, for example, but those are kind of obvious.

My challenge to you is to think on a smaller scale. What about all those tiny, seemingly innocuous habits that can add up over the course of the year?

You might not even notice you’re doing them or realize how much they cost you over time, but here are 5 examples below that I’ve been guilty of in the past and perhaps you are too?

Never Packing a Lunch

As someone who is not a morning person, I completely respect and understand that it’s hard to squeeze in packing a lunch with your hectic morning routine.

This is a costly habit, though, because buying lunch every day really adds up. Even if you manage to get your lunch for $5, which is pretty rare unless you have an amazing food truck that stops by your work, you’ll still spend $100 a month on food. I can think of about a million other things that I’d rather use $100 for.

For some people, it’s really worth the convenience but for others it’s definitely not worth a budget bust. If you love to leave your office in the middle of the day, remember that you can drive to a park and eat your sandwich or run an errand and still get the same effect.

Giving into Cravings

Even though I am 8 months pregnant right now, I still haven’t given into every single craving I’ve had. I’ve noticed that just like anything else, you can get past them.

I admit some of my cravings have been pretty serious and have almost brought me to tears, like the time I really wanted a cheeseburger and nothing anyone could say could get me past it. Other times they aren’t as bad, and I can typically think about something else or keep busy and it passes. This has contributed to having a pretty healthy pregnancy with minimal weight gain (despite carrying twins) and it’s also helped me to stay within my budget.

So, if I can do it, I know you can do it! I know that a pile of fries sounds amazing right now, but if you can just get past the craving and think about something else, I promise they do go away.

Letting Your Car Run Low on Gas

When you let your car get really low on gas, you turn it into somewhat of an emergency situation. Instead of being able to stop at the station near your house that always has the cheapest gas, you have to pull over quickly at the next exit and find the closest one. If you have this habit and do this enough times, you can definitely waste some serious cash.

While one or two cents on the gallon doesn’t seem like a lot, it does add up over the course of the year. Essentially, when you leave out the ability to plan your day and have to rush around, you lose the option of shopping around for the best price. This is true in many other situations from groceries to appliances to clothing. Don’t wait until something breaks or is on its last leg before checking out prices.

Forgetting Your Shopper Card

There are some stores that will allow the cashiers to swipe their shopper’s card for you, but when that happens you miss out on possible gas mileage points that could be applied to your own life! I’ve done this so many times, and it really is frustrating to miss out on the points. It’s like free money that the grocery stores are giving you, so make sure that you at least have a small version on your keychain that you can use in a pinch!

Forgetting Your Grocery List at Home

I do this all the time. More specifically, I leave my grocery list in the car a lot. You think you’ll remember everything you need at the store, but you won’t. Inevitably there will be some important ingredient that you missed. Furthermore, you’ll notice other great deals and then Doritos will be on sale and soon enough your entire cart looks like a junk food store. Or maybe that’s just me?

This is one of the worst money-wasting habits since people frequent the grocery store so much. Like I said, I’m guilty of it and am trying to be better about it!

Luckily, each and every one of these five habits are quite easy to break. All it takes is a little bit of organization and being more self aware, and all of us can save some more money this year!

How about you all? Are you guilty of any of the above habits? What do you do to try to break them?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/76657755@N04/7214600922/sizes/l/

How to Balance Your Side Gig with Your Full-Time Job

The following post is by MPFJ staff writer, Melissa Batai.  Melissa is a freelance writer who covers topics ranging from personal finance to business to organics to food.  She blogs at Mom’s Plans where she shares her family’s journey to healthier living and paying down debt.

If you read personal finance blogs, you’ve likely heard many of the bloggers urge you to create a side gig as a way to generate extra money to pay down debt, create an emergency fund, and save for retirement.  Besides bringing in extra money, a side gig can be a great way to express yourself.   You may be able to do something creative that you’re not able to do at your full-time job.

However, make no mistake that having a side gig is a lot of work.  You likely will get exhausted, especially if your side gig grows and you’re working more hours than you planned.  Yet, whether you plan to keep your side gig as a part-time job or to eventually grow it enough that you can leave your full-time job, there are strategies you can use now to help you manage wearing two hats and working 50 to 70 hours a week.

My Side Gig Experience

I quit my full-time job three years ago to stay home and care for my three children.  At the time, I had two children under 3 and another in elementary school.  The plan was that once all the kids were in preschool/school, my side gig of freelance writing and virtual assistant work would become my full-time job.  Only life often has a way of going differently than planned.

This year, I started homeschooling the kids.  Honestly, I had no idea how much time homeschooling three kids would take.  Most days we’re working on school from about 8:30 a.m. to 2 or 3 p.m. every day.  It truly is like a full-time job–without pay.  In the evenings and weekends, I work at my side gig.  Most of the tips that follow are from my own experience as I learn to juggle working 20 to 30 hours a week at my side gig with full-time homeschooling.

Know When You’re Most Productive

We all have times when we’re most productive.  Some people do their best work early in the morning before the stress of the day has had a chance to wear on them.  Others work best in the evenings or late at night.  What time are you most productive?

Know this, and you can make juggling your side gig with the rest of your life much easier.  I’m not an early morning person.  I tried several times to get up around 5 a.m. to get a post or two written before my kids wake up, but that didn’t happen.  Instead, I stared bleary-eyed at the screen and perhaps got half a post done.  What I did get done was not of the quality I preferred.

Now, I set aside work time from 7 to 9:30 p.m.  During that time, I have clear thoughts and the posts just flow.  After 9:30, I’m generally too tired, so I switch to easier tasks like doing SEO work for my own blog or commenting on social media.

Chances are your side gig requires some tasks that require your concentration and other tasks that you can do when you’re not necessarily on top of your game (like my SEO work).  Save the lighter work for when you’re getting tired.

Make a Schedule and Stick to It

Some people function by simply attacking their work without a plan, but that isn’t true for the majority of us.  Instead, we need a schedule to keep us on track.

We all have the same amount of time available to us at any given time.  According to Tony Schwartz of the Harvard Business Review, we need to make our routine, our tasks, automatic, so we don’t have to take energy to remember everything we have to do.  Schwartz says he trains his clients who are trying to get more done in their day to create rituals–“highly specific behaviors, done at precise times, so they eventually become automatic and no longer require conscious will or discipline” (Harvard Business Review).

Schwartz has used this tactic himself, stating, “Over the past decade, I’ve built a series of rituals into my everyday life, in order to assure that I get to the things that are most important to me–and that I don’t get derailed by the endlessly alluring trivia of everyday life” (Harvard Business Review).

Utilize a To Do List

If I don’t have a to do list, I tend to peter away my time.  I hop from task to task without getting much done.

Now, every night before I go to bed, I make a list of everything I need to do for my side gig the next day.  I may not get to all of it, but I usually accomplish the majority of tasks.  The to do list works as a map for me to help me manage my time.

When I’m in the midst of working, if I get an important e-mail or need to note something in my calendar, I don’t take the time to do it right that moment.  Instead, I add it to my to do list and get back to my work.  Then, when I’m tired, I can add items to my calendar.

Limit Social Media Time

Is it just me, or can you find yourself wasting an hour or two perusing Facebook, Twitter, and Pinterest?  While these social media channels can be a great way to learn new things and connect with others, they can also be supreme time wasters.

I found that I was spending way too much time on social media.  Now, I work for 30 minutes without distractions and then reward myself with a 5 to 10 minute break, often to peruse social media.  When my time’s up, I start another 30 minute concentrated work cycle before I get another 5 minute break.  By limiting my social media time, I found I could get a lot more done during my side gig hours.

Give Yourself Down Time

If you’re working a full-time job (or caring for your kids full-time) plus running a side gig, burn out is a real possibility.  One of the best ways to avoid burnout is to give yourself down time.

I used to try to work every week night and then for most of the day on Saturday and Sunday.  I found that Saturday was not usually a productive day because I was tired of working endlessly.  Rather than sacrificing my Saturday, I started giving myself Friday night completely off.  I read a book, I watch a movie with my husband. . .Friday night is my night for relaxing.  By doing this, I find that both Saturday and Sunday can be productive because I’ve had a rest.

Another thing I do is to stop work by 9:30 p.m. so I have an hour or so to relax before I go to bed.  If I try to work right until bedtime, I have trouble falling asleep.

Make sure to build some margin in your life.  You likely have a side gig because you want to improve your financial life.  Make sure in the process of doing so that you don’t neglect your own needs as well as your family’s needs.  Take some time to relax, exercise, prepare healthy foods, and spend time with your family and friends.  You’ll be fresh and ready to work hard again if you take a break regularly.

How about you all? Are you working full-time and juggling a side gig?  If so, what tips would you add to this list?  What’s your best advice for juggling both responsibilities?

Share your experiences by commenting below!

***Photo courtesy of http://www.idpinthat.com/edit/?url=http://farm5.staticflickr.com/4023/45268661

What Circumstances Are Best Suited For Structured Settlements ?

The following is a guest post. Enjoy!

When you have been awarded the ruling in a case such as one where you have been injured personally in a car accident or in any accident or you have just been awarded compensation in a case of workman’s compensation claim or a negligent death case you would in all probability receive your money in the form of an annuity. This annuity will pay you your claim in the form of periodic payments and is known as structured settlements. These forms of annuity are superb for people whose financial needs are met by the periodic payments received from structured settlement. And the fact that you get the advantage of not paying tax on the amount received from these annuities makes up for the icing on the cake. Structured settlement is without any doubt the best form of claiming huge amounts of money to be received in the form of settlements in many a case.

The reason why structured settlement came into picture

It was witnessed by the lawmakers of the country that the plaintiffs who won any compensation for damages from defendants did not possess any financial management skill to manage the large chunk of lump sum amount received by them in the form of settlement of a case. Thus, even though this money would suffice enough to pay for the medical expenses and provide for living expenses, a large portion of it would be utilized in a manner that does not actually improve the plaintiff’s condition.

Keeping this factor in mind The Congress in 1982, passed The Periodic payment Settlement Act which encouraged payment of compensation in personal injury cases or cases related to workmen compensation claim or wrongful death in the form of structured settlement. It was also put forth that the compensation would be paid not as a lump sum amount but in installments over a period so that the plaintiff can enjoy a hearty interest on the same. Moreover, the Government made the amount receivable free from tax, thus, adding to the benefits of structured settlements.

The great advantages of structured settlements

A structured settlement is nothing but an annuity which is made use of to pay compensation to plaintiffs by the defendants. There are many advantages of such structured settlements, some of which are highlighted as below:

• Tax Free: One of the most important advantages of structured settlements is that the interest which accrues on them or if any capital gain arises on sale of such annuity, then the amount is absolutely free from any federal tax or local income tax or state tax. This implies that the saving in a structured settlement will be much more than in any other investment of the same nature.
• Not affected by bull or bear phase of economy: A great thing about structured settlements is that they are not at all affected by the rise or fall in economy. Whether the financial market is in a bearish phase or in a bullish phase, the structured settlement will continue to pay you interest at the same rate and will not be affected by it.
• Beneficial even after death: In case of death of the plaintiff, the beneficiaries of the recipient may continue to receive such tax free payments from the insurance company.
• The payments can be made to begin immediately or may be deferred as per the will of the investor. The payments can be made to be scheduled for any length of time as desired by the investor.

The cases where structured settlement is ideal form of legal settlement

Structured settlements are ideal in a number of cases such as personal injury case, worker compensation claim and wrongful death cases. It is seen that in maximum number of such cases, structured settlement is received by people in the form of legal settlement. These are the main reasons why structured settlements are ideal for these cases:

• Wrongful death: In case of wrongful death, structured settlements help the family of the deceased. If the plaintiffs i.e. the family of the person who is made to be the subject in case of a wrongful death claim wins the case then the legal settlement received in the form of structured settlement would help to aid the family financially and support them in time of need. Since the amount is received over a period of time, the family has a fixed source of income in this form.
• Workmen’s Compensation Claim: When any workmen get injured while being on work, they receive compensation from the employer. It must however be proved by the workman that the injury has taken place in due course of employment and if this condition is fulfilled then he is paid compensation in the form of structured settlements. This helps the worker in meeting his medical expenses and supporting his family while he gets fit again to work. The amount received in periodic amounts with tax free interest supports the worker and his family as a substitute to the salary being received by the worker.
• Personal injury: In case of a personal injury case, when the plaintiff wins a award then it should be paid in the form of a structured settlement since it is paid on an annual basis or monthly basis and helps the plaintiff to meet his medical costs as well as legal costs.

Are You Living a Complete “Service-Plan Lifestyle?” – A Reminder From My Recent Best Buy Geek Squad Laptop Repair Experience

Since purchasing my new Toshiba laptop in December 2013, it has had intermittent problems with randomly freezing up and rebooting itself. This is quite annoying when you are trying to put together a PhD dissertation because you have to save your document every 2nd sentence!

Anyhow, after getting through my dissertation proposal in mid February, I decided to take my computer in for repair. I first went to the campus’ computer repair store, and they said that they could not repair Toshiba brand there (not sure why…). Anyhow, they recommended that I take it to Best Buy to have their Geek Squad fix it since they do service Toshiba’s.

So, the next day I ventured off to the local Best Buy in an effort to get my laptop fixed…

Best Buy’s Business Practices

I have to give them credit – Best Buy is an amazing example of American capitalism in action, and I have absolutely no problem with this. 

Have you ever been in a Best Buy? If so, you’ll find out that there’s a reason they beat out Circuit City in becoming pretty much the only nationwide, standalone, “big box” electronics retailer.

Let’s take a moment to admire Best Buy’s business model:

• Upon entering the store, you are greeted by a person in a yellow shirt whose job is to make direct contact with everyone who comes in the store. Making contact like this has been statistically shown to decrease store theft. Good for business!
• Next, go to one of the various departments in the store. What happens? Well, if you go to the computer section, I am often approached by a customer representative who asks if I need help. If I say I am “just looking,” they often quickly proceed to ask (read..pitch) what type of Internet service I have at home in an effort to sell me an upgrade to a service plan where they no doubt get a commission. Genius!
• Have you ever purchased a computer or other device from Best Buy? The device itself is just the tip of the iceberg. Where they also make a ton of money are the “up-sells” / add-on products. For example, when I purchased a computer there, I was pitched the following add-ons – 1) a service plan, 2) a warranty / protection plan, 3) MS Office software, and 4) an external hard drive. These additions are always very profitable, but not always completely necessary.
• The checkout line at Best Buy is also a gem. Even though I have never seen a long line at the store, the line “corral” area snakes around several times with shelves full of last-minute impulse buy items to tempt customers. Again, genius!

Well, when I visited the Geek Squad area of Best Buy, I soon realized another realm where they are very profitable….tech repair

“You Don’t Want to Buy a Service Plan? I’m Not Sure If We Can Proceed With The Repair. Let Me Ask My Manager” – Best Buy Geek Squad Agent

Much to my surprise, upon entering the Geek Squad area of the local Best Buy, they seemed to be surprisingly ill-prepared to handle getting people through quickly, particularly because entering each customer’s data in to the computer system takes so long. In the end, it took me a total of 1 hr to simply drop off my laptop for repair.

When it was finally my turn in line, I approached the Geek Squad Agent and described the situation. He was a very nice guy that seemed to be fairly new to the job.

In my mind, I had envisioned paying some type of by-the-job or hourly repair fee to fix the computer. However, the Agent then proceeded to tell me that they would be happy to help me and that the best way to proceed would be for me to purchase a 1 year Geek Squad Tech Support Plan for the bargain deal of $199.99.

Being a personal finance blogger, I am well-aware that these broad tech support plans are generally a better deal for the store selling them than for the end customer, since the services they offer are often not utilized and/or necessary.

Therefore, I declined the offer to purchase a “plan,” and stated that I simply wanted them to fix this one specific issue of the computer restarting itself unexpected. 

This idea seemed quite foreign to the Geek Squad Agent, and he insisted that most people simply purchase the protection/service plan. In fact, he had to go ask his manager whether or not they could even check in the computer without the service plan purchased. He stated some seemingly good reasons for why they recommend the plan. Indeed, they were quite enticing, since it would offer data backup, virus removal, and many other services that might be needed over the coming year.

In the end, the Agent finally agreed that they could check the computer in for a “diagnostic” check for $69.99, and then they would contact me once they are figured out what the problem was and determine if I wanted to pay more money to fix it.

Three days later, without any advanced warning that they had figured out what the problem was, I received an email notification saying that my laptop was ready to be picked up. Since they had not called me to discuss how to proceed on the repair post diagnosis, I was a little uncertain about what to expect…

“This Service Was A One-Time Thing. If You Bring it Back In and Need More Work, You’ll Have To Purchase a Service Plan for $200.” – Best Buy Geek Squad Agent When I Picked Up My Laptop

Having gained some experience with Best Buy’s Geek Squad from several days earlier, I made sure to make an Advanced Reservation Appointment to pick up my laptop on their website (this puts you in a quicker line once you get to store). Again, there were quite a few people waiting in line at Geek Squad, but I got to bypass most of the waiting around since I had my Reservation.

When an Agent brought out my laptop to check out and explain what was the issue, he said that I had some type of viral infection, and that they had removed the problem. I was quite surprised that they did not charge me for this work, but just charged for the $70 diagnostic portion.

However, I was not too impressed at the lack of detail the Agent seemed to be offering about how I could prevent this from happening in the future, beyond suggesting additional Geek Squad Service Plans and Virus Protection Packages that would cost even more money. 

When I looked online for reviews of Geek Squad’s repairs, I did find one intriguing article on Consumerist that shares several confessions of an ex-Geek Squad worker. He or she states that there is a definite push towards selling Best Buy’s packages vs. repairing the device itself.

(Side note: In doing some research in my locale, I discovered that there are cheaper places to get my laptop repaired in the future, and at these places, they don’t seem to operate on the “plan” system, but rather, charge by the hour or by a certain type of job.)

A Good Reminder – Do You Have Too Many “Plans” In Your Life?

It is common knowledge among those with expertise in marketing that an automatic/advance-paid subscription or service plan is one of the best things you can do for your business.

Not surprising, almost every consumer service these days offers some form of “plan” that you can sign up for, and your bank account or credit card is automatically debited each month; no thought involved for you.

While plans are great for business and they facilitate the delivery of many needed services, we as consumers and individuals have to be vigilant about whether we are accumulating too many of these plans.

For example, what recurring service plans do you have currently have in your life? Since it can be very easy in today’s society to accumulate these plans, can you possibly identify one or multiple plans that you really don’t need?

Below are a few examples….

• Netflix?
• Gym membership?
• Cable TV package including too many extra movie channels?
• Smart phone?
• Yogo studio membership?
• Rewards credit card annual fee?
• Magazine subscription?
• A sports club you no longer participate in?
• Monthly cleaning services for your house?
• Professional society that you no longer participate in?
• Extended warranty plans?
• Landline phone service that you don’t use since you have a cell phone?
• And the list could go on and on….

The point I am trying to make here is that you should QUESTION whether or not these advance- or subscription- paid plans are worthwhile / ones that you will be able to fully utilize prior to opening up the wallet. And more importantly, don’t feel pressured in to buying these extra features at a store, since often, the store workers make a lot of money by pushing these products.

How about you all? Do you currently have subscriptions/recurring plans that you could do without? If so, which ones? Have you ever felt pressured in to buying a plan at a store when you didn’t originally want it?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/osde-info/5720808237/sizes/l/

Debt Lag? – 5 Tips for Paying off those Holiday Debts ASAP

The following is a guest post. Enjoy! 

Everyone likes to enjoy themselves on their holidays. But unfortunately, many people end up spending more than they actually have in pursuit of these good times. If you’re struggling to pay off your holiday debts, and need a little help getting back on track, read on. Here are 5 tips for paying off those debts ASAP.

1. Consolidate those debts.

Trying to keep track of multiple debts is not only a headache, but could be costing you more in monthly repayments. If you’re struggling to keep account of looming multiple debts, consolidate your debts into the one payment. Doing this will more easily allow you to keep track of your debt repayment progress, and with competitive debt consolidator interest rates, it may also save you a lot of money.

2. Talk to your credit card companies.

It never hurts to contact your credit card company directly, and explain your financial situation if you’re struggling to make ends meet and pay off your debt. Many companies may turn a compassionate ear to your tricky situation and may just lower your interest rate, or waive late penalty fees. A little help here can really help you get back on track to a better financial future.

3. Create a budget, and stick to it.

If you find yourself in an unfavorable financial situation, and are finding it difficult getting on top of your debts, it’s time to sit down and take stock of where you are (financially), and where you need to go (a place of being debt free). Creating a budget and sticking to it can help you get out of this financial quagmire of sorts. Of course, once the budget is created you’ll need to stick to it almost religiously to pull yourself back into a better financial standing. It helps to tell someone about your budget and get them to keep an eye on you. This social accountability can help you stay on track.

4. Sell whatever you no longer need.

If you’re like most people, you’ll have valuable items just collecting dust around the home. Why not gather these items up, and sell them for cold, hard cash (which you can then put towards paying off your debt)? Trying using online auction websites like Ebay.com, services such as the Trading Post and local classifieds, or the old fashioned garage sale. Not only will selling little used items help you pay off your looming debt(s), but it will also free up more space around the home.

5. Make more than the minimum repayment.

By only paying off the minimum payment each month, you’ll be doing precious little to reduce your debt(s). In fact, this way, all you’ll be doing is paying off the interest, without paying off your actual debt. And this will keep you in debt for some time to come. That’s why it’s important you pay as much as possible on your debt as soon as you can to quickly get back into the black.

Getting out of debt can be a struggle at times. Between making ends meet, paying off bills, and generally living your life, setting aside extra funds to pay off looming debts can be difficult indeed. Try putting the above into practice the next time you find yourself in debt, and hopefully you’ll be back in the clear in no time at all.

***Photo courtesy of http://www.flickr.com/photos/59937401@N07/7214443324/sizes/l/

How Would A Properly Structured Asset Allocation Portfolio Have Fared During The 2002 and 2009 Market Downturns?

Here lately, we’ve been having some great debate on a post I wrote in April 2013 looking at the Infinite Banking Concept, which employs whole life insurance as a savings vehicle.

One of the biggest draws of using whole life insurance in this manner is that your money can grow at a modest 4.5% average annual rate (historical average return / cash value increase rate), while at the same time, being guaranteed that your cash value will not decrease. Since life insurance companies are perhaps the most stable in our economy, it goes without saying that your money is very secure.

Naturally, this security and opportunity for a modest growth rate has attracted many risk-adverse investors, particularly ones that were “burned” during the 2002 and/or 2009 market downturns. Many of these folks cite that their retirement portfolio “became worthless” as a result.

However, would your portfolio really have become worthless during one or both of these market downturns if it was a properly allocated passive investing portfolio of index mutual funds? Or, were the people that have these type of “horror stories” over-allocated to stocks, investing too much in individual stocks (a losing game in and of itself) and/or risky IPOs?

The purpose of today’s post will be to look in to how a CORRECTLY STRUCTURED portfolio would have fared during the two market downturns after the millennium.

Structure of Example Portfolio  / Asset Allocation Target %’s

Because I am curious how my portfolio would have fared during these time periods, we will use my current asset allocation %’s as an example for our analysis. This is not to say my portfolio is perfect by any means, but I do have a little bit of experience with passive investing! 

Listed below are the specific index fund components I employ in my investing strategy. I use a 70% equity / 30% fixed income asset allocation split, with good exposure to international stocks as well. Although I use a mixture of money market mutual funds and online high yield savings accounts for the cash portion of my asset allocation, for simplicity, we will just assume here that my cash is earning 0% (so not a + or – return).

• Cash (Target 10%)
• Vanguard Short Term Bond Index (MUTF:VBISX) (Target 12%)
• Vanguard Inflation-Protected Secs (MUTF:VIPSX) (Target 8%)
• Vanguard Total Intl Stock Index (MUTF:VGTSX) (Target 10%)
• Vanguard Emerging Mkts Stock Idx (MUTF:VEIEX) (Target 11%)
• Vanguard Total Stock Mkt Idx (MUTF:VTSMX) (Target 7%)
• Vanguard Small Cap Index (MUTF:NAESX) (Target 7%)
• Vanguard Small Cap Value Index (MUTF:VISVX) (Target 13%)
• Vanguard Value Index (MUTF:VIVAX) (Target 12%)
• Vanguard REIT Index (MUTF:VGSIX) (Target 10%)

Defining Worst Case Time Periods

As a first step, we need to define the periods in which we’ll analyze the portfolio performance. In looking at the S&P 500’s history, the time periods shown below represent the worst case high to low transition periods during the 2002 and 2009 market downturns.

• September 1st, 2000 –> October 4th, 2002, during which time, the S&P 500 declined in value by 47%.
• October 5th, 2007 –> March 6th, 2009, during which time, a market decline of 55% occurred. 

From these facts alone, it is important to realize that already, a 50% downturn, although terrible, does not equate to a portfolio “becoming totally worthless,” provided only that you invested in an S&P 500 index fund instead of individual stocks.

Having defined the example portfolio’s components along with the target analysis time periods, I then proceeded to extract historical pricing data from Yahoo Finance for the mutual funds listed above.

You can view of the data for the analysis in this post at the Google Drive spreadsheet link below:

Google Drive Spreadsheet – Performance of Asset Allocation Portfolio During 2002 and 2009 Market Declines

Analysis # 1 – No Rebalancing

The first thing I was curious to investigate is how the individual portfolio/asset allocation components performed on their own during the 2000-2002 and 2007-2009 periods without any rebalancing. For simplicity, throughout this investigation, I assumed a $100,000 starting portfolio value at the beginning of each market decline and that no additional funds were added to the portfolio at any time.

The table below displays the % increase or decrease (- % value) that portfolio components experienced during the 2 market downturn periods. From this table, there are several fascinating observations that can be made:

• The 2002 market downturn was much more “forgiving” compared to the 2009 one. For example, in the 2002 event, even though the overall stock market had decreased close to 40%, small cap value, REIT, TIPS, and bonds all experienced pretty significant positive returns that would have greatly stabilized your portfolio.
• Unfortunately, in the 2009 crisis, the only two portfolio components in the positive return range were the TIPS and short-term bond funds, which is what they are designed to do. 

Having looked at the performance of the individual components in isolation, the next step was to examine the overall portfolio performance when all of the asset classes are combined, as it would be in “real life.”

The return data for the combined portfolio can be seen in the table below (Analysis 1 – No Rebalancing line).

• As we mentioned previously, from September 1st, 2000 –> October 4th, 2002, the S&P 500 declined in value by 47%.
  • However, if you had a diversified, passive investing portfolio like the one mentioned above, your portfolio would have only declined by 7% in value. This represents an 85% improvement in performance over the market!  
• From October 5th, 2007 –> March 6th, 2009, the S&P 500 declined 55%. 
  • Similarly, a properly diversified portfolio would have saved you during the 2009 crisis as well, although not by as drastic of a margin as in 2002, with the diversified portfolio declining in value by 36% by 2009 vs. the 55% decrease of the S&P 500.

So again, we see that a properly structured retirement portfolio would not have “become worthless” during either of these market declines.

Analysis # 2 – Monthly Rebalancing

As a next step, I wanted to investigate the impact that monthly rebalancing (back to your asset allocation targets) would have on portfolio performance during these periods. The results can been seen in the table below (Analysis 2 line).

Intriguingly, rebalancing did not have that significant of an effect during both of the market downturns, and when it did have an effect, it was slightly negative. This may have been due to the majority of the equity asset classes declining in value in a correlated/together manner, instead of one going up while another goes down.

Another thing that is important to point out is in relation to the decision when you first construct a portfolio of how much equity vs. fixed income exposure you want / how much risk you can take.

• For example, on page 171 of Larry Swedroe’s book, The Only Guide to a Winning Investment Strategy You’ll Ever Need, there is a table that I used to help me determine how much equity allocation I should carry in my portfolio.
  • For an equity allocation of 70%, it says that you should be able to withstand/tolerate/expect a decline in portfolio value of 30% in a single year. For an equity allocation of 60%, this value decreases to a 25% decline.
• Since the 2009 and 2002 downturns occurred over more than a year, you could say that the % decreases in the table above of the overall portfolio values (for a 70% equity portfolio) can almost be “expected” at some point or another, given the amount of risk you’ve exposed yourself to.

Conclusions

Overall, it’s clear to say that the 2002 and 2009 market downturns were depressing and full of desperation.

However, if we construct a passively managed portfolio (avoiding the risk of individual stocks) with a proper asset allocation and objectively compare the portfolio performance during the decline periods, we see that the portfolio behavior reverts to same risk/return tradeoff that must be considered upon first creating a portfolio.

To me, this really just highlights the importance of considering the risks of investing when you first start, not get too greedy or hyper-nervous, and make sure to give yourself adequate fixed income allocation to provide safety for you to sleep well at night.

How about you all? How did your overall portfolio do during the 2009 and 2002 market declines? Do you currently have a sufficient asset allocation for your risk tolerance?

Share your experiences by commenting below! 

An Introduction to Technical Analysis and Indicators

The following is a guest post. Enjoy! 

Technical analysis is a powerful method of utilizing historical price data for the prediction of future price behavior and it has a variety of technical indicators in its arsenal.

Forex traders’ biggest challenge is what to trade next and technical and fundamental analyses are the two main methods used to forecast a currency pair’s price move. Even though they differ vastly in terms of methodology, they both have the same objective and could prove useful in predicting future price behavior. Fundamental analysis concentrates on elements that cause price action but technical analysis is more focused on the effects on price action.

Technical analysis in the forex markets utilizes historical data and past market action of financial instruments for the prediction of upcoming price movements and trends. Technical analysts are very reliant on price charts as they provide the easiest method to visualize historical data. This method relies on the basis that the current market price of a financial instrument is a reflection of everything that affects it, such as supply and demand, geopolitical factors, and the economy’s state of health in the case of a currency. Another principle of technical analysis is that prices create patterns, and once these patterns are identified there is a probability that they will move in a specific direction. Many types of patterns which were repeated over time have been recorded during the last century, and they provide evidence that future ones may behave in a similar way.

Predicting the future state and direction of forex markets by using technical analysis is helped by a variety of indicators. These are measurements calculated from historical price data of a currency pair and they are estimators of upcoming price level or at least the upcoming price direction. Some popular technical indicators are the Moving Averages (MA), Moving Average Convergence Divergence (MACD), Relative Strength Index (RSI), and Bollinger Bands. All of these indicators are really easy to use by technical analysts of any experience level because they are included in all top trading platforms such as the MT4, and they automatically perform the calculations needed.

The prices of forex instruments are liquid and sometimes change because of volatility, but a single drop in price is not a confirmation of a downtrend and a rise is not strictly the beginning of an uptrend. The MA acts as a trend following indicator and even though it will not predict future market direction, it will help to confirm a trend once it has begun. The MACD is also a famous trend following indicator, which may be able to confirm a trend and it also may predict a change in trend direction.

Other indicators, like the RSI, are momentum signals and they give information on overbought and oversold conditions of a currency pair. By having this type of information, the trader may be able to predict whether the currency will change trend direction. In a similar way, Bollinger Bands take on another method to signal trend reversals of currency prices and hence provide buy or sell tips.

The descriptions of the above mentioned technical indicators are merely an introduction, and a proper study of the properties and methodology of each one of them should be undertaken by prospective technical analysts who want to find more on how these tools can be utilized to take advantage of the power of historical price data.

How To Make Your Own Wine For $1 Per Bottle In 1 Week

Being a big fan of wine, I have naturally touched on the subject multiple times throughout the 4+ year history of MPFJ.

First, we investigated the long term financial ramifications of choosing to drink cheaper vs. more expensive wine, seeing that you could save upwards of $42,924 over your lifetime by drinking $3 per bottle wine instead of $10 per bottle wine. Next, we explored whether screw-cap wine or real cork-bottled wine tasted better, and saw that not only do screw-cap wines generally cost less, but they are scientifically a better form of bottle closure. Finally, we discussed if wine can really make you live longer and saw that there was more consensus on the benefits for men vs. women.

Today, I wanted to continue the discussion of wine-related topics by sharing how I’ve discovered I can make my OWN WINE at home for about $1 per bottle! Being someone interested in personal finances/frugal living/saving money and also bioscience (wine is a product of fermentation after all!), this is fun topic for me.

Step 1 – Set Your Expectations

The first step in getting started making your own quick, cheap $1-per-bottle wine is to accept that the product you’ll be making likely will not have the same taste as a $10 bottle from the store. Instead, the goal here is to brew up something that is “drinkable,” has between 10-18% alcohol content like normal wine, to have some fun learning about the winemaking process, and enjoying the fact that you concocted a homemade product for a cheap price!

If you want to make your own home-made wine that is of higher quality (and does taste like wine you’d buy from the store – this is what my fiance does in our condo, and it comes out quite nicely!), you’ll need a more complete/official wine making kit and about 2-3 months of processing time vs. the 1 week that we’re talking about here. If you’re interested in getting more professional about the wine making process, I’d recommend shopping at an online provider such as EC Kraus (where my fiance gets her supplies), or doing a Google search for “home wine making” in your local area for a store close by.

Step 2 – Gather The RIGHT Supplies You’ll Need

Let’s walk through each item you’ll need one-by-one to make your own wine in 1 gallon increments:

Juice – Total Cost Per Gallon of Wine = $3.00

At the core of the home wine-making process is the fruit juice/sugar source that feeds the yeasts’ fermentation metabolic system.

In order to create 1 gallon of homemade wine, you’ll need 2 frozen cans of juice concentrate from the grocery store. So far, I’ve made wine with the following juice types with various levels of success, and as such, I’ve added my experiences corresponding with each:

• Red grape juice – This has by far been the most successful fruit juice I’ve tried thus far. It provides a nice level of sugar source for the yeast to chew on, is pretty cheap, easy to find at the store, and most importantly, the red grape juice hides a lot of the off-flavors that can commonly be produced by creating a cheap wine.
• Apple juice – Apple juice worked pretty well as a wine base. However, once all of the sugar was gone from the juice, the resulting wine tasted a little “funky.”
• White grape juice – White grape juice is fermented very quickly by the yeast, often in only about 3 days. However, I’ve found that the resulting product has some off-flavors that are normally settled out by a combination of fining agents and several months of time during the normal wine making process.
• Pineapple juice – Much to my surprise, pineapple juice works pretty dang well as a wine base. It ferments very aggressively, producing a nice amount of alcohol content. Further, there aren’t that many off flavors produced.
• Fruit punch and limemade – The last two that I’ve tried are fruit punch and limemade juice concentrates. With both, the fermentation seems to stop at around 5% alcohol content. I’m guessing this is due to an unfavorable environment being provided by these juices. However, since the alcohol content is lower, I’ve found that these wines are nice for mixing with the off-flavor varieties mentioned above in order to create a more palatable product so the wine doesn’t go to waste.

1 Gallon Jug With Cap – Total Cost Per Gallon of Wine = Free

Having selected your fruit juice concentrate, the next task is to find a container to put it in. For this, you can simply use an empty milk jug. Or, if you’re feeling really fancy, you can buy a $0.50 1 gal water jug from the store.

Yeast  – Total Cost Per Gallon of Wine = $0.50

Of course, fruit juice cannot be turned in to wine without our favorite microbe – yeast.

When I first started my winemaking journey, I simply used bread yeast purchased from the grocery store. However, I could not seem to avoid the distinct resulting “bread” smell/taste that it would produce. And, after finding out that wine yeast was about the same price, I switched away from bread yeast and have not looked back!

The type of wine yeast I use right now is a Lalvin brand strain called EC-118. I use this yeast because it seems to be the most “robust” and versatile strain that they have. I purchased a 10 pack of this yeast on Amazon for around $5.00, which equates to about $0.50 per gallon since 1 yeast packet is needed for each gallon of wine made. 

Sugar  – Total Cost Per Gallon of Wine = $0.50

Unfortunately, the sugar that exists in store-bought juice concentrate is not quite enough to make wine-level alcohol content. Therefore, you need to supplement the 2 cans of fruit juice concentrate in each gallon of wine with about 2-3 cups of regular table sugar.

A 10-pound bag of normal white sugar can be purchased from the store for $5.00. According to an online sugar converter, 2 cups of sugar weights approximately 1 pound, so this 10 pound bag of sugar will last quite a while!

Water  – Total Cost Per Gallon of Wine = Negligible since tap-water is fine (no need to worry about contamination, etc). 

Miscellaneous Supplies to Make the Process Easier  – Total Cost Per Gallon of Wine = Negligible since likely already have in kitchen.

In my experience, there are a couple simple household items that make the wine making process a whole lot easier!

• The first item is a turkey-baster, or something similar, which can be used to suck out small quantities of the wine from the container during fermentation to taste the product and see how it is progressing.
• The second item is a funnel. This makes it a lot easier to dump in the juice concentrate, water, and sugar in to the small hole on the 1 gallon container.
• The third set of items is a rubber band and seran wrap. Since the fermentation progresses pretty aggressively once it has started in earnest, it usually results in some spillage of bubbles out the top of the jug. By placing a rubber band and seran wrap over the partially open cap, it prevent this from getting all over the place.
• The fourth item is a cookie sheet and aluminum foil. This prevents the spillage from getting your counters or table all messy.
• The fifth item is a vessel to store the completed wine in once fermentation is complete.

Total cost per 1 gal of wine = $4.00.

• 1 gal of wine = 3.78 liters. Assuming you lose a little bit of the wine during the process, you yield 3 liters of wine. 1 bottle of wine = 0.75 L, so you yield 4 bottles of wine, or a cost per bottle of $1.

Step 3 – Putting the Ingredients Together

Having gathered the required ingredients, now comes the easy part – actually making the wine. Once you get the hang of this, you can often start a new batch of wine in less than 5 minutes!

1. To get started, thaw out the frozen juice concentrate completely.
2. Fill up the 1 gal jug with tepid (not hot or else you will anger the yeast!) water about 1/3 of the way full.
3. Add the yeast, invert multiple times to mix.
4. Add the 2 cups of sugar using the funnel.
5. Add the 2 containers of thawed juice concentrate.
6. Invert jug multiple times to mix well, making note that the sugar has completely dissolved and is no longer stuck to the bottom.
7. Cap the jug. However, immediately pop open one side of the cap so that the CO2 pressure from the fermentation can properly vent (and so your wine vessel doesn’t explode!).
8. Cover the cap of the jug in seran wrap, and then secure the seran wrap in place with the rubber band.
9. Place the vessel on top of the alumninum foil-covered cookie sheet to keep your area clean.

Step 4 – Sit Back and Watch Science Turn Juice in to Wine!

Having combined the ingredients, now all you have to do is sit back and watch the fermentation happen.

You should expect the yeast to take 12-24 hours to acclimate to their new environment. After that, you should see aggressive bubbles coming up through the juice for the next ~3-7 days.

After the bubbling has ended, simply pour out the wine in to another vessel, leaving behind the yeast sediment in the original fermenter to clean up and throw away.

Personally, I like to refrigerate the wine that I make in this fashion. However, that part is up to you. Now you can enjoy your product with friends, or by yourself! 

How about you all? Have you ever made your own wine or beer? How did the process turn out? Were you able to do it cheaper or more expensive than wine bought at the store?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/uncalno/8538709738/sizes/l/

A Complete Guide To Saving Money On Your Taxes By Cleaning Out Your Closets

The following post is by MPFJ staff writer Travis.  Travis is a customer blogger for CareOne Debt Relief Services, and also appears weekly at Enemy of Debt.  Travis candidly shares his personal journey to pay off $109,000 of credit card debt and the tips he’s learned along the way. As a father and husband he provides a unique perspective on balancing debt, finances, and family.

I was doing my usual routine of putting away laundry on Sunday night when I realized that I had more shirts than I did hangers.  As I went through the closet piece by piece looking for unused hangers hiding between shirts, I shook my head realizing I don’t wear more than a third of the pieces of clothes that I own.

It was time to do a closet purge.

I went through not only my closet, but also my dresser drawers removing anything that I hadn’t worn within the last year.  When I had finished, there was a massive pile of clothes in the middle of my bedroom floor.

Normally, this is where I would stuff everything into a couple of heavy duty garbage bags and drop them off at Goodwill.  The last time I did this, my neighbor asked me if I had received a receipt for my taxes.  I remembered being asked by the guy at the donation center if I wanted one, and  I knew I could use charitable donations to benefit my tax return, but I just didn’t know enough about the process  so I declined.

So, I did some research on donating non-cash items to charity.

It turns out you can’t just load up some garbage bags with your old stuff, throw them out the back of your van at the Goodwill drop off center while barely slowing down, and write a random dollar value on your tax forms.

There’s some things you need to know about when donating non-cash items to charities.

1. Charities can’t sell worn out or broken items.  I separated my clothes into two piles.  One of clothes that were soiled, stained or ripped, and another of clothes that were in gently used condition.  The first pile was loaded into a garbage bag and tossed outside to be disposed of.

2. You have to estimate the value of your donation to report on your tax return:  I separated the pile of gently used items by type:  shirts, pants, sweatshirts, and sweaters.  Then I grabbed my laptop, and created a spreadsheet inventorying every article of clothing I was going to donate.

Then, I downloaded the donation value guide from Goodwill’s website and assigned a value to each item of clothing, letting the spreadsheet add up the total for me.

3. You have to have documentation to prove you actually donated your items: I printed out the spreadsheet, and loaded the clothes into bags and into my van. Once I got to Goodwill, a gentleman helped me unload my items, and asked if I wanted a receipt.  At my request, he signed and dated a receipt and gave it to me. I also asked him to sign and date my printed spreadsheet just for cross verification of my donation.

Of course, this isn’t quite the end of the story, as there is another chapter to this story once you reach tax time.

• Donations to charities are only reported on your taxes when you can itemize deductions. If you commonly use the standard deduction, going through the effort to assign a value to your donation may not be a good use of your time.

• Non-cash donations such as these will be reported with your other itemized deductions on Schedule A of tax form 1040

• To claim a donation of property valued at $250 or more, you must have written acknowledgement from the receiving organization describing the property donated. This is why I had the Goodwill employee sign and date my spreadsheet, as well as fill out (and sign)  the receipt given by them with a general description of what I donated.

• If the total of all non cash contributions in a given year exceeds $500, you must fill out section A of IRS Form 8283 as part of your tax return.

• I can’t see myself doing this anytime soon, but it’s worth mentioning that if you ever donate a single item, or a group of similar items that has a value exceeding $5000, you’ll need to fill out Section B of Form 8283 which requires a qualified appraisal of the item(s), and include them with your tax return.

As I drove across town home from dropping of my items at Goodwill, I wondered just how much my donation would save me on my taxes.  Doing a little research, charitable contributions will save you roughly 25 cents for each dollar you donate.  It does depend on what tax bracket you fall into, but it’s a good guideline to start with.

Using the guideline from Goodwill, I estimated the value of my donation at $207.  Twenty-five percent of that is just under $52.  Looking ahead, we’ll be doing the same closet purge for each of the four members of my family.  Doing a little rough estimating, that means that we could potentially have $828 worth of donations to Goodwill this year, with a rough savings on our taxes of $207.

Cleaning out our closets accomplishes three goals:

1.)    Declutters our home

2.)    Provides quality items to charity that can help less fortunate people

3.)    Saves us money on our total tax bill.

It did take some time to enter all the items and their estimated values into the spreadsheet.  However, the effort of cleaning out my closet and drawers, separating gently used from throw away items, and dropping the items off at Goodwill are things I was going to do anyway.

How about you readers, do you donate items to charity?  Do you claim them on your taxes or do you do what I did and just drop them off?

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

A Personal Example of Building and Using a Home Maintenance Savings Fund

Almost four years ago when I first purchased my condo coming in to graduate school, I discussed the various ways that I adjusted my monthly zero-based budget to take on the task of home ownership.

One of these ways was to set up an automatic monthly transfer from my checking to savings account for a set amount that would help me accumulate 1% of my home’s total market value over a 1 year time period. The idea for having this money on hand was to be able to pay for periodic maintenance that needed to be done on my property (without dipping in to an emergency fund or a credit card), since I no longer would have a landlord to call to take care of these items as they pop up. Thus began my home maintenance savings account. 

Why was 1% chosen as my target savings value? Since this was my first experience of home ownership, I took this recommended value from one of my favorite personal finance books, Personal Finance for Dummies by Eric Tyson. This value seemed appropriate since my condo was in pretty good shape when I purchased it. Of course, this value may need to be amended for your specific circumstances.

Slowly, Automatically Building a Home Maintenance Savings Fund

Having set up the automatic monthly transfer for my home maintenance fund, it took essentially no thought and no effort on my part to accumulate the money over the 1 year build-up period. The money was simply withdrawn automatically and immediately after I would get paid.

Before I knew it, a year had passed, and it was time to cancel the monthly recurring transfer since my maintenance fund was completed. On top of that, I had added several extra hundred Dollars for safe measure. Of course, if any maintenance expenditure were to arise, I would need to replenish the withdrawn fund from the account to keep the 1% home value target.

Electrical Problems

Having built up my home maintenance fund, I then waited for the first time I would need to tap in to it. And wait I did – for almost 3.5 years in fact!

From August 2010 – January 2013, I luckily did not have one significant maintenance problem that couldn’t be fixed with a little do-it-yourself caulking around the shower and kitchen sink piping.

However, that all changed last month when the electricity for an entire circuit breaker portion of our condo went out. At first, I just thought that the fuse in the circuit breaker had blown, and so I drove around town and after visiting 4 electrical supply stores, I procured a suitable replacement. However, that did not correct the problem.

Since I am by no means a qualified electrician, I decided it was time to call in a reputable professional. The way the billing is set up for the service we called was that it was $90 for the first 15 minutes, and then around $90 for each additional 30 minutes thereafter. Clearly, the most expensive part is simply getting them to show up for a visit.

After checking out the problem, the electrician found that the issue was rooted in the fact that our condo has aluminum wiring instead of the standard copper used nowadays, since our condo was built during a time when there was a copper shortage. Anyhow, he fixed what he thought was the problem, and everything seemed to be all right.

• Total cost for first visit = $188. 

However, 2 hours after the electrician left, the electricity in the same area of the condo went out again because of a separate issue caused by the aluminum wiring causing an outlet in the guest bedroom to melt the plastic. Thus, we had to get the electrician back to the house a couple days later.

• Total cost for second visit = $128.

Water Heater Problems (When It Rains, It Pours – Literally)

At almost the same time this electricity issue reared its ugly face, I had started to notice that the hot water would run out much quicker than it usually does while taking a shower. I figured this was simply a result of the water heater being old and there being record low temperatures in Virginia where I live in January.

After coming back in to town from a trip home to see my parents, I noticed that the problem still hadn’t corrected itself, despite being warmer outside. Thus, I finally decided to go out on my back porch and check the closet where the water heater is housed. Since the weather has been pretty terrible lately, my fiance and I had not been out on the porch for a couple weeks probably.

Much to my surprise, copious amounts of water were overflowing from the water heater and spilling out over the balcony to the patio below.

What this meant was that the water heater was continuously making hot water because it was leaking (never stopped because it could not fill itself up completely). Talk about a waste of resources/money/the environment!!!

Anyhow, we called up a plumber to assess the issue, and they quickly identified that the water heater had burst and needed to be replaced. They said that it was likely the original from when the condo was built 30+ years ago, so it definitely had some life to it!

Because the unit needed to be special ordered, he would have to come back the next day and install it.

• Total cost for 3rd visit = $90.
• Total cost for installed new water heater on 4th visit = $1090.

Total Repair Cost and Lessons Learned

So, altogether, the home maintenance repairs had costed me a total of $1,500, almost exactly the 1% of the purchase price of my condo, $105,000, plus the extra few hundred Dollars I had thrown in for safe measure. Pretty coincidental how that was exactly the amount of my home maintenance fund, eh!?

Overall, I feel pretty satisfied with how the repairs went. Furthermore, I feel fairly lucky that the damage caused by the melted plastic/aluminum wiring or the flood of dripping water did not cause anymore damage than to just the equipment described here. If my water heater had been in a more interior part of my house or in a finished basement, the water damage culminating from the 2 weeks it had been overflowing could have been extensive.

To this end, one lesson I learned through all of this is the importance of periodically (maybe 1x every 2 weeks) checking/visually surveying your house, specifically your heavy appliances such as furnace, water heater, A/C unit, etc for signs of malfunction. This is especially true for places (like my outdoor patio closet) where you don’t see on a typical day-to-day basis. 

How about you all? Do you have a home maintenance savings fund? If so, how much do you typically keep in it and why?

Share your experiences by commenting below!

***Photo courtesy of http://farm8.staticflickr.com/7277/7624022844_b08d0eaf71_o.jpg