Preparing Your Portfolio for Greater Volatility

The following is a post by MPFJ staff writer, Kevin Mercadante, who is a freelance professional personal finance blogger for hire, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

If the recent volatility in the stock market has you concerned, that’s probably not a bad thing. After all, equity investments are not fixed investments, which means they can go down as well as up. Every now and again, we need to be reminded of exactly that. But the proper response is not to panic, but rather to prepare your portfolio for greater volatility.

There are various ways to do that, but it’s important that you take steps while things are relatively calm. Should the market decline in a major way, there won’t be time to react once it does.

Here are five ways that you can prepare your portfolio for greater volatility.

You Don’t Need to Sell Everything

Unless you are concerned about a complete market collapse (something along the lines of 1929), you don’t need to do a complete liquidation of your stock portfolio. A better approach may be to simply reduce your exposure to the market.

There are several ways to do this, short of selling off everything that you have:

• Stop putting fresh investment capital into stocks, at least until the market settles down
• Sell off positions that are making you especially nervous – if an investment has not reaped rewards in one of the biggest bull markets in history, you could be in for a rough ride in a bear market
• Move some of the capital from your sales into stocks and funds that you believe will better weather a decline
• Don’t make a complete exit out of stocks – you never know exactly when a new bull market will begin

You don’t need to exit stocks entirely, but you may need to lower the temperature a bit.

Accumulate Cash

Rather than selling off stocks, you could simply accumulate cash from any new investment proceeds that you put your portfolio. This will not only prevent you from increasing your exposure to stocks, but it will also allow you to build up a cash reserves so that you can begin buying stocks when the market bottoms out.

This will be a critical component of your overall investment strategy should a volatile market turn into a certified bear market. The best time to buy stocks is usually after a major sell off. That’s when stocks “go on sale”, and can be purchased for a fraction of what you would’ve paid at the top of the market.

Eventually, all bear markets turn into bull markets, and when that happens the stocks that you bought at the bottom are likely to be your best performers.

You can’t know when the market will bottom out, but if you have sufficient cash reserves, you’ll be prepared for when the moment does come. In a real way, accumulating cash is a way of preparing for the next bull market.

Invest for Income

This is a tough maneuver in an environment where it’s difficult to get much more than 1% on your money, especially in short-term investments. But there are certain stocks, mutual funds, and exchange traded funds that do provide above average dividend income. Since dividend stocks tend to weather market volatility better than pure growth stocks, you could favor these among your new stock purchases, or shift some of your money out of growth and into income.

The safe play of course is fixed income securities. Even though the rate of return on money market funds, certificates of deposit, and US Treasury bills is pathetically low, the principal values are fixed. That’s the best kind of protection in a volatile market environment.

When equity markets become volatile, the emphasis should shift from making money to preserving capital. Not only will that minimize the amount of losses you will sustain in a down market, but it will also provide you with the investment capital that you will need to invest in stocks later on.

Look Into Alternative Investments

You might also take a look at alternative investments. This can include real estate (particularly real estate investment trusts), commodities, and even precious metals.

The factors that cause stocks to fall could have the opposite effect on alternative investments. This is particularly true if market volatility is caused by or creates economic or financial disruption.

You don’t necessarily want to load up on alternative investments, but a small position could offset declines elsewhere in your investment portfolio.

Stay On Top of Your Career!

I just touched on how stock market volatility could result in economic or financial instability. This often happens because market volatility makes it difficult for public companies to raise capital, which can either end expansion plans or cause them to scale back operations.

This will have a material effect on the job market. For that reason, market volatility is an excellent time to sharpen your career skills and get more involved in your job than you’ve ever been. The idea is to increase your value at a time of increased competition for fewer jobs.

Though few people think of it this way, your occupation is actually one of your biggest investment diversification’s. It will provide you with income and capital at a time when your portfolio doesn’t. Market volatility should be viewed as a wake up call to refocus on your career.

How about you all? In this suddenly more volatile market, are you making any changes to prepare yourself and your portfolio for a less predictable environment?

Share your experiences by commenting below! 

***PHOTO: https://www.flickr.com/photos/psycho-pics/2952050268/sizes/n/

Pay Yourself First – Action Plan

This following is a post by MPFJ staff writer, Jeff. Jeff writes about sustainable living and finances at his website, Sustainable Life Blog. Jeff really enjoys traveling with his wife as much as he can, to wherever he can.

Have you ever heard the saying “pay yourself first”?

If you’ve ever had a job, I’m sure that you have. I’ve been having that information pounded into my head for about 15 years now, ever since I got my first job as a lifeguard. My parents said it to me, and so did relatives that were older and trying to steer me towards good habits. I appreciated the advice and I took it heart, building up a nice savings before going off to college (which I promptly spent most of).

15 years later though, even after I’ve set up automatic withdraws from my checking to my savings account on every payday, I look at my check and notice that I’m still not being paid first. If you’re not sure what I’m talking about, grab your most recent pay stub and have a look at it and you’ll see what I’m talking about.

• I pay federal income taxes of $987.52
• I pay medicare taxes of $78.54
• I pay Social Security Taxes of $227.50
• I’m single, so my employer pays for my share of the health insurance. If I wasn’t, a percentage of my check would be going to cover my health insurance premiums.
• This totals up to $1,293.56

Despite taking the advice I was given, there are 3 (or 4) people getting paid out of my wages before I do. Since I would rather keep more of my money than let them have it, I’ve been trying to figure out ways to put my name ahead of all those other groups siphoning money from my check. If you’re interested in that as well, here’s what you can do.

How to Pay Yourself First

The first (and probably most important thing you can do is contribute to a pre-tax retirement account, such as a 401k or a Traditional IRA. Most employers have a 401k option, and you can contribute to that account to the tune of $17,500 in 2014, or $18,000 in 2015 and beyond.

Even if you can’t fully fund your 401k each year, every dollar that you set aside will be a dollar that is truly going to you first. Once your 401k deduction gets taken out, then your taxes will follow (SSA, Medicare and Federal Income Taxes), but the taxes will be computed on a lower income. Using the above example, and assuming we will begin contributing the maximum to our 401k in 2015, here’s what it would look like. Your income would drop from 65,000 per year down to 47,000 per year, which would then be the basis for calculating the above taxes. Here’s how it would shake out:

• Federal income taxes will be $636.98
• Medicare & Social Security Taxes of 299.66
• Total is 936.64, less than just the income tax rate in the above scenario

The income tax is a lot lower because it is based in a sliding scale, while medicare and social security taxes are at a fixed rate. In this situation, we are truly paying ourselves first, instead of paying the government first and paying ourselves second. Now, if you’re already maximizing your 401k contributions and are looking for more ways to pay yourself first, there are a few other options, but you’ll have to check with your employer. If you don’t have the opportunity to have a 401k with your employer, a 457 or a 403b plan will serve the same purpose. If none of those are available to you, then you’ll be able to use a traditional IRA, though the limits are much lower ($5,500, or 6,500 if you’re over 50).

Other Ways to Pay Yourself First

There are a few different ways to keep the good times rolling, and they may (or may not be) offered by your employer.

In addition to retirement benefits, you may also be able to pay for a few more things with pre-tax dollars, lowering your tax liability even further. In IRS terms, these are called Section 125 plans, but are more commonly called cafeteria plans. You may be able to deduct expenses related to some (or all) of the following things:

• Health insurance expenses
• Commuting or Parking (if you’re traveling on public transit)
• Dependent care (day care)
• Adoption (expenses related to adopting a child)
• Group term life coverage
• Health Savings Accounts

Obviously, not all of these will be useful to you, but if your employer offers them all and you’re already paying for things such as day care and commuting, it’s in your best interest to pay for those with tax free dollars so that you can lower your tax liability.

Even though we are paying for everything with pre-tax dollars, it’s still wise to pay yourself after the government takes their cut because of early withdraw rules for 401k’s and other retirement plans.

How about you all? How much do you pay for with pre-tax dollars vs post-tax?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/76657755@N04/6881508144/in/

Are You Two Financially Compatible?

The following is a post by MPFJ staff writer, Derek Sall. Derek is the owner of the blog, LifeAndMyFinances.com, where he teaches people how to get out of debt, save money, and become wealthy.

It was about 6 years ago now that my fiancé and I attended a class and took a test to see if we were compatible. Basically, the test told us that we were not all that compatible and should reconsider our marriage to one another. I brushed off the test as a faulty result because we were most certainly in love and there was nothing that was going to break us apart.

After getting married, I soon realized that the test may have had more validity than I thought. We constantly had arguments about trust, respect, and of course, money. She was a spender and I was a saver, and the difference in our financial personalities was driving us apart. And, indeed, it did end up killing our relationship. We should have seen the signs and taken them more seriously.

How Do You Know If You Are Financially Compatible?

So how do you know if you and your girlfriend/boyfriend are financially compatible? What questions should you be asking yourself as you try to objectively study your relationship? Start out with the basics. Ask yourself these questions:

1. Would I rather have money in the bank or would I rather spend my money as I receive it?
2. Does my partner tend to buy things for short term happiness or do they like to stock money away for emergencies or investments?
3. When talking about money with your partner, are you typically talking about what you can buy today, or how you should handle the money for the long-term?
4. Do either of you typically have money in your bank accounts? Or do you tend to spend everything you make?

When I started college, I had $6,000 in the bank, owned my own vehicle, and already covered all of my own expenses like insurance, food, my cell phone bill, and gas for my car. My partner often had about $10 (or less) in her bank account, drove a car given to her by her mom and dad, and basically had no expenses because they were covered by her parents. She enjoyed eating out, buying clothes, and having fun at the bar. I enjoyed earning money through my side business, learning how to invest, and dreamt about how compound interest would grow my money in the future years. I don’t think we could have been any different financially, and it hurt us dearly. I thought my way of handling money was right, she thought her way of handling money was right, and we often fought about it. Don’t let this happen to you.

Are you a saver, but your partner is a spender? Before making that life-long commitment, talk with him/her about money and review how you both tend to save and spend. As awkward as it may be, look at each other’s bank accounts together and go over different transactions. If you think your partner is wasting money, talk with them about it. It’s better that you discuss these differences now than when it’s too late.

My friend Kevin was engaged to a beautiful woman a few years ago and she was fed up with her old car. She wanted a new one and was willing to finance it. Kevin believed that vehicles should never be financed and told her that if she went through with this purchase, he would likely break up with her (since it basically meant that they were financially incompatible). She did not take him seriously and went ahead with her $25,000 purchase, even though she only had about $500 to her name. He was disappointed because he liked her very much, but still went through with the break-up. As difficult as that was, I was proud of Kevin and very impressed with his decision. Today, Kevin is married to a woman that shares many of his beliefs (including financial) and they are incredibly happy together.

If you are in a situation where your partner is your financial opposite, you have a difficult decision to make. Either you believe that they will change (which often doesn’t happen – not for the long term anyway), or you should make a clean break because your future is destined to have a lifetime of financial arguments. Choose your mate carefully and be sure that many of your major beliefs align. If they do, you will likely have a very happy and rewarding life together.

How about you all? Are you and your partner financial opposites? Do you plan on continuing the relationship?

Share your experiences by commenting below.

***Photo courtesy of http://www.flickr.com/photos/26023255@N03/8612002388/

Five Reasons to Buy Less House Than You Can Afford

The following is a post by MPFJ staff writer, Kevin Mercadante, who is a professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

The American Way to buy a house seems to be to buy as much house as your income and financial circumstances will allow. We are nothing if not a nation of optimists! The assumption is always that income will rise in the future, enabling us to more easily afford that which we can barely cover right now.

I’m going to suggest something that may be downright anti-American – that you resist the predominant trend, and buy less house than you can afford. Here are five reasons why you should consider doing exactly that.

1. To Allow Breathing Room So You Can Enjoy Life

The idea of buying a house at the upper limits of your ability to afford one, then making up for it by furnishing it with wooden boxes and eating canned beans for food every night to make up for the difference, is a romantic hoax. It’s the equivalent of living like a homeless person so that you can afford a house.

Rest assured, that once you buy a house, you will still have most of the same preferences that you did before you were a happy homeowner. You must leave room in your budget to accommodate those preferences!

Most people overestimate their ability to go on a financial diet, particularly after buying a house. And even somewhat ironically, buying a house usually triggers a series of major non-housing purchases. This could include new furniture, window treatments, minor (and not so minor) improvements to the property, landscaping, and often a new car to go in the driveway of the new house. None of that is conducive to successful budget.

The point is, don’t overestimate your ability to live on less money once you buy a house. You’ll still want an occasional dinner out, a shopping spree, and a night out on the town. You need to be prepared for all of that.

2. To Take a Step Back – If That’s What You Need to Go Forward

If you’re looking to change jobs, or to make a career change, that often involves taking a reduction in salary. If your budget is already tightly stretched by an outsized house payment, you probably won’t be able to give up the extra income to pursue what could ultimately be a better opportunity.

And that’s an important point. There’s a saying – sometimes you have to take a step back to go forward – that applies to a lot of career situations. In order to take a position that will ultimately prepare you for a major advance, you sometimes have to first accept a lower paying job. It is there that you will gain the experience necessary, or even transition over to a more successful organization.

The situation will be magnified the event that you want to start your own business. A high house payment will be a major obstacle to starting a business. Becoming an entrepreneur often means starting out with little or no income. But that’s a step you may never be able to take because of your high house payment.

Make sure any house you buy affords you some level of economic flexibility, just in case you decide to make a major career change. Your house should be an asset, not an obstacle to your progress.

3. To Leave Yourself More Money For Savings and Investments

While most people think of owning a home as being an investment, we also know that it’s important to have non-housing type investments. This includes not just tax-sheltered retirement plans, but also investments in mutual funds, certificates of deposit, and stocks that are held outside of a retirement plan. In addition, life is always better, easier, and more secure if you have a well-stocked emergency fund.

But if too much of your income is being eaten up by your house payment – and by other expenses related to your home – you’ll have little if any money available for any of these investments.

Savings and investments should be a line-item in your household budget, even and especially when you’re planning to buy a house. Owning a home and paying down the mortgage is one type of investment, but you also must have financial investments in order to achieve any level of financial independence. Buying too much house will close the door on the independence.

4. To Enable You to Better Withstand Financial Crisis

When you buy a home at the maximum level of your affordability, you’ll be effectively removing any flexibility in the event that you will face a financial crisis.

What might that financial crisis involve? It could be the loss of a job, a medical catastrophe, or the sudden need to take care of an extended family member. In all of our plans, including the purchase of a home, we need to leave room in the budget to cover such a contingency.

5. To Give Yourself More Room to Payoff Your Mortgage Early

Now that real estate appreciation is no longer a given, the pay down and payoff of your mortgage becomes a critical component of the success of your housing investment. But if your budget is too tightly stretched by your basic house payment, it will be very difficult to come up with extra money to accelerate the payoff of your loan.

By buying less house than you can afford, your basic house payment will be well below your income, and that will allow you extra funds to pay the mortgage off more quickly.

In today’s housing market, that can be more critical than ever. By paying your mortgage down ahead of schedule, you’re creating more equity in your home. That will make it much easier for you to sell the property in the event that you need to take a job in another city, or to move for some other reason.

If you’re facing the decision to buy a home, take the unconventional approach, and buy less house than you can afford. Though it may be a blow to your ego, it will be a boon to your financial situation. Having more money will give you far more options than owning the nicest house you can possibly afford.

How about you all? When you purchased a home, what % of your pre-tax income did the mortgage payment represent? Did it allow you to meet your various other savings/investing/retirement goals?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/usdagov/6383550119/in/

Divorce and Your Finances

The following is a post by MPFJ staff writer, Derek Sall. Derek is the owner of the blog, LifeAndMyFinances.com, where he teaches people how to get out of debt, save money, and become wealthy.

Divorce is running rampant throughout the U.S. and in other parts of the world as well. It no doubt affects us emotionally, and we struggle with the fact that our young love is now an adult hatred. But, divorce can also have a terrible impact on our finances.

I should know, since my wife divorced me two years ago.

The Hurt, the Pain, and the Debt

There is no such thing as a clean and neat break. Divorce is hardly ever mutual and it is hurtful for both the divorcer and the divorcee. There is often a lasting pain and scarring from these terrible relationships, but the scars do begin to heal after a while.

The pain that hardly anyone talks about after a divorce is the financial difficulty. Without a doubt, there is typically one person that benefits greatly from the divorce, and one person that suffers (and may even lead them into bankruptcy). I, unfortunately, did not benefit emotionally or financially from my divorce. I didn’t want to separate, and I certainly didn’t want to owe my ex money after the split. But, that wasn’t for me to decide.

My Divorce Experience

When my ex-wife said the words, “I just want out – I want a divorce,” I knew she meant it. There was no going back. After meeting with the mediation agency, I learned that she expected to receive half of our net worth. Since she was the spender and had nothing to do with the money we had saved up (I practically had to hide it in order to keep anything in our account) this really burned me up inside. But, if I would have tried to fight it, I would have spent just as much money paying a lawyer to fight on my behalf, so the even split was agreed on.

At the time, our estate basically comprised of two paid-for vehicles and some equity in the house, which gave us a net worth of approximately $60,000. Not too shabby for a 27 year old and a 24 year old. Since she was going to keep the $10,000 VW Beetle, this meant that I still owed her $20,000, and she wanted it in six months. Yikes!

I didn’t necessarily have to agree to her short time-frame, but I honestly didn’t want to think about this divorce any longer than I had to. The sooner I could get this payment over with the better.

To earn the necessary funds, I did nothing fun, cut back on my expenses, and did everything possible to earn more money. I flipped two cars, wrote hundreds of articles, worked hard at my job, and accepted many advertisements on my website to earn the short-term dollars. To make a long story short, I made it. I scrounged up $20,000 in six short months and was completely free from my venomous ex.

Divorce and the Financial Impact

If you are currently going through a divorce, I am terrible sorry. It is probably one of the worst things I have ever encountered and it still messes with my emotional decisions today. If your finances are negatively impacted, then I am doubly sorry. Not only do you have to suffer through the emotional heartache of losing someone you once loved so dearly, but you also have to live like hermit to have any chance of paying your ex half of your estate. Or, worse yet, you might have to sell your home in order to divide the assets evenly. Your world will be flipped upside-down in every way imaginable, and it will seem like hell for quite some time. But, there is a light at the end of the tunnel.

After I got through paying that $20,000, I realized just how quickly I could earn a substantial amount of money. And, I now knew of many ways that I could earn even more! This allowed me to boldly set a goal for myself in 2014. I wanted to pay off my mortgage completely within the year – all $54,500 of it. So far, I have paid off about $28,000 and I’m actually still on pace to pay off the remaining balance by December 31^st.

Once the mortgage is paid off, I have a goal to buy a rental property with cash in 2015. From there, financial success is certain to come my way!

If you are currently struggling through the financial sorrows that come with divorce, pick your head up and try to look at the bright side. It may leave you happier and more wealthy than ever before!

How about you all? Have you gone through or are you currently going through a divorce? What sort of financial impact did it have on you?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/superstrikertwo/4079339001/in/

Why Being Your Own Boss Can Be Kind Of…Lousy

The following is a post by MPFJ staff writer, Kevin Mercadante, who is a professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

Self-employment…Unlimited income. Plenty of free time. No boss giving you a hard time. No co-workers sabotaging your career. Answering to no one. Taking a vacation anytime you want. Selling your business for a fortune and retiring rich – before you’re 50. It’s easy to see why millions of people would be absolutely delighted to be their own boss.

Or so they think.

Sorry to burst your bubble, but the opening description of self-employment is more the TV version. In the real world, being your own boss can be kind of…lousy. There’s more going on with being self-employed than most salaried folks think, and on deeper analysis, not everyone is cut out to be their own boss.

Here are just a few reasons why…

You Are Responsible for Everything

In a typical employment situations, you have a boss and multiple coworkers. When things get busy, or there are obstacles, there is a staff to fall back on. But when you’re your own boss, it’s all up to you.

Not only will it fall on your shoulders to deal with busy and stressful situations, but failure to adequately handle a crisis could hit you directly in your bank account.

The stakes are always higher when you’re self-employed. When you work for someone else, you could have a bad day, but by the end of the week you’ll still get paid. Self-employment means that a bad day can cost you a lot of money.

You will also need to be a serious multi-tasker, especially when your business is new. Where in a typical employment situation, you will be primarily responsible for one, two, or three primary functions, being your own boss means you’re responsible for every detail of your business. And even if you hire people to handle some of those details, it will fall on you to be the backup person in the event they are unable to complete a task, or if they do it wrong.

Cash Flow Is an Ongoing Problem

It’s a fundamental rule of self-employment that no cash flow = no business. For this reason, the majority of your time will be spent generating cash flow, unless you find a way to create automatic income streams. And in a highly competitive economy, that’s not nearly as easy as it sounds.

This means that you will have to be at least part salesman all the time. Though you will have multiple responsibilities in running your business, marketing and sales will always be your primary function. If you’re not comfortable with this reality, or with making it happen, your business will not last long.

You May Find Yourself Working More Hours Than Ever

Remember at the beginning I mentioned “plenty of free time” and “taking a vacation any time you want“? That’s what a lot of people believe the self-employed enjoy. The reality is usually much different.

It’s not at all unusual to work more hours being your own boss then you ever worked when you were employed by someone else. When you have a job, you can go home at five o’clock, or on a Friday afternoon, and enjoy your evening or weekend. As your own boss, evenings and weekends are often your work overflow time. That’s the time that you allocate to taking care of the many tasks that you simply didn’t have time for during regular business hours.

You Trade Having a Boss For Having Many Bosses

One of the biggest motivators for the would-be self-employed is not having a boss to answer to. While it’s true that you won’t have a single boss who will have something approaching absolute control over your career progress, usually you have multiple bosses. These are your clients and customers, and some of the larger ones can end up being something like the boss you hope to get away from.

The reason for this is that if you fail to satisfy your major clients, it could end up costing you money in the form of lost business. This is especially true if you are in the type of business where most or all of your income is being derived from a small number of large clients.

Then Why Be Self-Employed?

With all these negatives, why then would anyone ever want to become self-employed? Well, many are in fact drawn by the TV image that we talked about at the outset. The fantasy draws them in, and if they can’t deal with the harsh realities of self-employment, they’ll be out soon enough.

But if you have a solid grip on the realities of self-employment, you might take the plunge for one or more of the following reasons:

• You’re fiercely independent, and you’re absolutely certain that you can do better working for yourself.
• You have the capability to bring in business, even if you’re not using that skill in your current job.
• The prospect of unlimited income excites you, though you are fully aware that it may take several years before you reach that level.
• You realize that being your own boss will require that you work more hours than you would on a job, but you also appreciate that you will have greater control over your time even if you are working longer hours.
• You have a burning desire to “build a better mousetrap” – that is, there is something you believe you can improve on, and you’re willing to make the effort.
• Accomplishment means at least as much to you as money does.

Being your own boss definitely has its own virtues. You just have to be aware of the difficulties you will face before you reach the point where those virtues will provide the benefits that you hope they will. If you have a firm grasp of that, you’re probably ready to take a stab at being your own boss.

How about you all? What other obstacles to being your own boss can you think of? What other benefits do you see?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/gds-productions/6528081483

Do Credit Cards Really Help You Save?

The following is a guest post by blog reader, Audrey Clark. Audrey is a freelance blogger covering a range of topics from careers and finance to travel and leisure, along with everything in-between. When not writing, she’s always on the lookout for her next adventure. Connect with Audrey on Twitter and Google+.

We all know that irresponsible use of credit cards can cost us hundreds or even tens of thousands of dollars in unnecessary debt. But used wisely, credit cards can actually help put money into your wallet. That’s right, credit cards can help you save money.

According to TransUnion, credit card companies are changing the way they do business in response to consumer concerns. While banks are obviously still in business to make a profit, even lenders know that consumers who go bankrupt because of overwhelming debt don’t make good repeat customers. If the new wave of benefit offers is any indication, credit card companies are more interested than ever in keeping their customers happy.

Cash-back, rebates, college-savings rewards, pay-back planners and loan consolidation are just a few of the carrots lenders are dangling in front of our noses. Not all of these enticements can actually save you money, but some can. The three easiest ways to make credit cards work for you are through rewards, expense tracking and consumer protection.

Rewards

Also called “points” or “bonuses” rewards are an incentive program to encourage you to use your credit card. A certain percentage of your spending is paid back in the form of cash, points towards good, air miles or some other attractive prize. To take the best advantage of rewards you must do three simple things:

1. Find a card that offers rewards you can actually use.
2. Use your credit card to buy everyday goods you’d normally pay for with cash such as groceries or gasoline.
3. Pay off the balance each month. Keeping a zero balance on your card is crucial if you want to save money.

For example, let’s say your credit card offers one percent cash back on all purchases. So you spend 100 dollars in groceries and earn one dollar. That’s not a phenomenal savings, but how much money do you spend in groceries every month? How much do you spend on gasoline? Depending on your habits, you could save hundreds per year by paying with a credit card instead of cash. But to realize those savings, you must pay the bill in full each month to avoid interest fees. And that should be easy to do–simply use the cash you would have used in the first place.

The cards you already have may not be the ones that offer the best benefits. Investigate the rewards your current credit cards offer against some of the more popular options on the market. Bankrate is a reliable and unbiased source for credit card information. When making comparisons, remember to consider these factors:

• The interest rate
• Annual fees
• Deals that change too quickly
• Cards with travel benefits probably won’t save you money if you rarely travel
• Bonus or reward points save you money only if they can be used for goods you actually need, not luxuries
• Cash-back plans offer the best potential for savings

Expense Tracking

You can’t cut unnecessary expenses of you don’t know what they are. As Debit Card Tracking explains, credit cards sometimes provide more thorough statements than banks. If you pay for everyday items with a credit card instead of cash it will be easy to see exactly what your expenditures are because it’s all right there on the credit card statement. While “living” on your credit card may not be the best practice, using your card to get a realistic view of how much you spend and where can be a great benefit when trying to tighten the budget.

Consumer Protection

Having a credit card stolen from you is a big inconvenience, but not as much as having cash go missing. Using a credit card instead of cash when you travel or need spending power for any reason provides protection against loss or theft. Stolen cash can’t be recovered, but stolen credit cards can be canceled without holding you accountable for fraudulent activity. And according to Creditnet, credit cards also save you money on defective purchases or purchases that fail to be delivered. Lenders will withhold payment until your transaction is satisfactory.

Credit cards really do help you save money if you use them correctly. Be smart with your cards and they can be a valuable asset in your long-term financial planning.

How about you all? Do you have a favorite rewards card that you’d recommend to others?

Share your experiences by commenting below!

***Photo courtesy of http://www.flickr.com/photos/consumerist/422358899/in/

First Time Home Buyers – Top 5 Thoughts to Avoid When Investing Into Real Estate

The following is a guest post by Anna Suzdenkova. Anna resides in Toronto, where she works for a major financial institution, runs her own financial blog, Vostro Financial Help, and manages a summer driveway maintenance business. Currently, she’s writing her own personal blog on tips and tricks to better control your finances, stay aware of your path in life, and reach your financial goals sooner. She loves helping people stay out of the dark when it comes to personal finances. Enjoy! 

Purchasing a property is one of many people’s dreams. It is the biggest purchase many of us will make in our lives. The decision to buy a property isn’t an easy one. When it comes to deciding what is best suitable for you and your family, the options are numerous and there is a lot to consider. Location, schools, work distance, number of rooms etc are all basic considerations you should make before investing into real estate but which thoughts should you avoid? I hear people talk about real estate with fear and intimidation, as if the decision to buy is bigger than them and can potentially control their lives. What thoughts should you stay away from before diving into the real estate market?

1. Fear of Ownership – The Pressures of Being a Landlord

Being a landlord does have its share of responsibilities, but relative to being a tenant it’s not a significant difference. As a landlord you will be calling the shots on what needs repair, replacement and other maintenance decisions. The living conditions of your house will be in your hands. You’ve been making decisions all your life, what’s to stop you from making household decisions in your own home? There are many resources out there to help you with ownership including local classifieds, YouTube tutorials, online forums, friends and family etc. Being in charge doesn’t have to be difficult, it becomes easier when you know how to use your above resources when looking for answers.

2. Thinking Your Savings Account will be Depleted for the Downpayment

A few of my friends mentioned the reason they don’t want to purchase a condo or a house is because they won’t have any savings left and will have to start saving from zero. This is the biggest misconception when it comes to purchasing property. Meanwhile the same friends are buying the latest technology, cars and are depleting their savings in a slower way. Your downpayment isn’t depleting your savings account, you’re simply moving your money from a bank account into a real estate account, kind of like from one of your pockets to another. Your savings is still in your hands in the form of real estate, which means your money is being invested, likely at a much higher interest rate. Real estate price growth varies, depending on the state or province, regardless of the rate if you are investing long term the value of your property is bound to increase over time. In Toronto, Canada, the average price of a house increases by 8.9% over one year as of August 2014. This kind of rate of return cannot be found in a savings account.

3. You’re Unprepared for Unexpected Costs

Ownership comes with responsibilities. These include maintenance, repairs, utility price increases, property tax hikes etc. All these items the landlord would be responsible for. When something breaks unexpectedly, it would be up to the landlord to fix. For example, if the roof is leaking all of a sudden, of course there is home insurance which can cover some of the cost of the damages but it would be at the owner’s expense to replace the roof. These scenarios would have to be taken into consideration before purchasing property. A good way to prevent most of the unexpected expenses is to do a home inspection before closing the purchase. It’s also good to have emergency funds available so you can be better prepared. As a homeowner, these expenses are seldom and if they do come up, it’s usually something small such as a leaky faucet or a broken washing machine, which can be fixed for cheap throughout the local classifieds.

4. Wanting to Travel or “Enjoy Life” First

Why not do both? If you want to travel and explore the world, that’s great. Remember though, it’s easier to save money for a downpayment when you’re younger because you have less expenses and more discretionary income, so rather than spending money on extravagant trips consider downgrading the trips and saving the extra money for a downpayment. Once you’re moved out and on your own the bills come rolling in and so does the rent. Travelling is great, as a home owner I still travel, but I downgrade on the destination. I choose cheaper destination and always look for deals or last minute vacation discounts. I believe both travelling and owning property can be done simultaneously, the fancier destinations can wait until I am more established and have a higher income or even when I’m retired. Having a plan, managing your money wisely and having a travel account can help tremendously. Setting money aside, even $20 a month, for travelling will add up quickly and mean taking a vacation sooner.

5. I can’t Afford Buying A Property

We all have the same 24 hours as anyone else does, so how come some of us can manage to afford real estate and some of us can’t? The answer lies in three factors: income, existing debt and credit score. These are the top three things the bank looks at when reviewing your mortgage application. Some of us don’t earn enough to be able to afford a house, the solution is to downgrade to a townhouse or a condo, which can be more affordable. Some of us have a lot of existing debt which prevents us from acquiring more credit such as a mortgage. The solution to that is to consolidate all debt into one loan, make one monthly payment and attempt to pay off the debt faster. And some of us have a low credit score, which can be improved by paying bills on time, having less credit applications and not using credit cards too often to show we are not dependent on them. If you have a combination problem, such as having too much debt, low credit score and low income, attempt to change this around by seeking a higher paid job though a job agency, attaining a consolidation loan and making your payments on time. Everyone can afford a property in due time, whatever your financial situation is, the trick is to turn it around with solutions and steer onto the road of success.

How about you all? What helped you overcome any of the above thoughts regarding investing in real estate or home ownership?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/axiomestates/3200993224/in/

The Complete Guide To Helping My Teenager Find The Right Job

The following post is by MPFJ staff writer Travis.  Travis is a customer blogger for Care One 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.

Being the father of a fifteen and a half year old boy, there’s a lot of talk at my house about driver’s licenses, cars, and part-time jobs.

My wife and I mutually decided that we would be supportive of, and even encourage both of our kids to get a part-time job once they reach the appropriate age.  After all the financial lessons we have tried to teach them to this point, having a part time job and having to pay some actual bills such as their own car insurance as well as filling up the tank every now and then for the privilege of using a car just seems like the next natural progression in their financial education.

My son is becoming more and more interested in getting a job.  As his social life expands, so does his need for monetary funds.  While working out one day he started asking me questions about having a part time job as a high school student.  I was impressed with his thought process, his questions including the following:

• How many hours a week would I expect to work?
• How much would I get paid?
• How often would I get paid?
• How much in taxes would be taken out?

As our conversation progressed, I realized that I had stumbled upon a whole new subject matter that required my parenting and educational skills.  I answered all his questions as generically as I could, then I told him we needed to back up and start at the beginning.  There were a few things I wanted him to think about:

Age Requirement

My son does not turn 16 until January.  There are many businesses that will not hire someone until they are 16 years old.   We have to decide whether he wants to attempt to get a job now, or wait until he turns sixteen and he has more options for potential employers.

Type of Work

I wanted him to think about what kind of work he would like to do.   He has an interest in technology, so he expressed an interest in working at the Best Buy close by our house.    He also stated that he would prefer not to work fast food,  but would work at a Dairy Queen.  I think that has more to do with the fact that some of his friends already work there.

The point I was trying to drive home was it is not a good idea to apply just because a business is hiring.  If you don’t think you would enjoy the job, then he likely wouldn’t do his best and end up in a bad situation.

Shift Frequency

My son likes to hang out with his friends, and we also have very high expectations for his grades.  I wanted him to think about how many days a week he would be willing to work that would allow him to maintain these other aspects of his life.

I emphasized that he should not only expect to, but he should want to pick up weekend shifts.  It gives him the ability to get a long shift in without worrying about it conflicting with the school day and homework.

Shift Times

Some businesses open early, some are open late.  I told him that as a restaurant cook in high school, sometimes I would open the kitchen early on weekend mornings, or be the closer at night.   Again, being flexible and willing to work those extreme shifts on weekends would get him additional hours, and thus earn him additional money.

He did express an interest in late night shifts, but said he would prefer not to get up early on weekends.

“Dad, do I really get a choice with all of these things?” he asked.

I smiled as it was a perfect transition to what I wanted to about next.  An interview is traditionally thought of as an employer questioning and evaluating a potential employee.  However, it is important to remember that it is just as much an employee evaluating a potential employer.   I told him that an interview is his opportunity to gather information to decide if the job he is interviewing for is a good match for him.

Other questions he may want to ask during an interview may include:

Time Off

Things will come up when he needs to ensure he has certain days off.   He will need to find out the policy or procedure for employees to request time off.

Promotions / Pay Increases

When I was in high school I worked at a restaurant.  I started as a dishwasher, but was asked to train as a cook.  It was considered a promotion, and came with additional pay.   High school students may not have much of an opportunity for promotions and pay raises, but it does happen and is a good questions to ask of any potential employer.

I felt it was also important to tell him that even if he is offered a job, he can turn it down if he determined during the interview that it just wasn’t a good fit.

I also wanted to make sure he understood that this same job hunting process applies to not only looking for a part time job in high school, but can also be used when he’s looking for a full time job to start or further his career.

He nodded his head in understanding and asked, “So, can we pick up some applications?”

How about you all? Did you have any jobs while you were a teenager? What were they?

Do you think you will (or are) encouraging your children to find part-time work while they are in junior high or high school? Why or why not?

Share your experiences by commenting below! 

***Image courtesy of Stuart Miles at FreeDigitalPhotos.net

How To Keep Your Kids From Turning Into Rich Brats

The following is a post by MPFJ staff writer, Derek Sall. Derek is the owner of the blog, LifeAndMyFinances.com, where he teaches people how to get out of debt, save money, and become wealthy.

Have you ever stopped and really studied kids today? The typical kid demands money from his parents, avoids you because he is playing an important video game, and ignores all advice because he assumes you are old and know nothing. Kids today are brats. There is simply no sugar-coating it.

So, how can you keep your kids from becoming rich brats?

Do you have young children and are afraid that they will become ungrateful and disrespectful like the rest of today’s children? If you do nothing, then this fear will likely come true, but if you are intentional, your children could grow up to be resourceful, generous, and wise stewards of their money.

Step One: Start when they are young

The key to raising children is to start good habits when they are young. Instead of doing everything for them until the age of 10 and then suddenly imparting chores on them, teach them how to pick up their toys soon after they turn one. At this point, they might only be able to pick up one toy and put it away, but you must praise them for this and encourage them to pick up a greater ratio of their toys with each passing month. By the age of three, they should really understand how to clean up and play nicely with their things.

As you instruct them how to pick up after themselves early, you must also teach them about money at an early age. Now, obviously they won’t be able to balance the checkbook while they are still in diapers, but kids are learning about money every day whether you teach them or not. They see you at the store when you buy groceries and they notice your payment at the cash register. In order to give your children a better understanding of money early, I would encourage you to use cash instead of credit cards. Kids understand money, but credit card payments are a little more difficult to grasp.

Now that your kids understand the value of responsibility and the importance of money, begin combining the two. When your children are able, give them certain chores that merit a payment – something like drying the dishes or setting the table. Pay them immediately for their hard work so that they understand what they are being paid for.

Step Two: Show them what their money can buy

When your kids begin earning money, they will likely want to go out and buy some things. At this point, they might have only saved up $5, and they really want to buy a brand new video game (which costs $60). As hard as it may be, take them to the mall with you and bring them into the store. Show them the cost of the video game they want and let them know that the video game simply costs too much for them to buy. If there are discounted games in a bin, bring them over to it and show them what their money can afford to buy. If they do not want any of these games, then teach them their two options: (1) wait and save up the money for the new game, or (2) purchase only what they can afford at the moment.

By allowing your kids to earn money through chores and by not giving into their wants (by simply buying the game for them), your kids will certainly not turn into rich spoiled brats. Instead, they will turn into hard working young adults. If your kid really values that video game enough, he will go back home and immediately come up with a list of things he can do to earn more money. Then, once he works hard enough and finally has the funds to purchase the game, either of two things will happen: (1) he will decide not to buy the game because he has worked too hard to spend his money on something so frivolous, or (2) he will purchase the game and take excellent care of it! No longer will he leave that game out on the floor or kick it around in anger. He will carefully place it back in the box, put it on its appropriate shelf, and make it last forever.

How about you all? Do you have any more advice on how to keep your kids from becoming rich brats?

Share your experiences by commenting below! 

***Photo courtesy of https://www.flickr.com/photos/stevegatto/362852690/in/