My Personal Finance Journey

Category Archives for Invest & Retire

Initial Forex Trading Steps: What Are Forex Pairs?

The following is a guest post. Enjoy! 
One of the first things to learn about when you’re getting started with forex is the currency pair. When you begin trading foreign currencies, you’ll see these constantly every day, and they’re important, so you have to understand them properly.

In short, the currency pair is a way of showing the prices of one currency against another in the forex market. With live forex trading, these prices are in constant fluctuation. They are displayed like this: GBP/USD 1.5900, which would mean that 1 GBP is worth 1.5900 USD. GBP refers to the British pound, and the USD is the United States Dollar. The second currency in the pair is called the counter or quote currency; this is the one being referred to. The second one is known as the base currency.

There is an order by which the base currency is usually used; any pair that contains the Euro (EUR) will use it as the base, and then this continues in an order that goes: GBP, AUD, USD, CAD, CHF, JPY and so on. The base currency is usually the domestic currency, for ease of accounting, and the order of precedence is derived from the traditional values of the currencies in respect to one another.

The pairs that are traded most often are known as the majors, and they all include the USD. They are as follows: EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF, and USD/CAD. 85% of all forex trades involve the major pairs, and 27% alone is accounted for by EUR/USD alone. Other pairs, such as GBP/JPY are known as crosses, and are not traded nearly as frequently. Newer traders are encouraged to begin with the majors, which are far more liquid. There are many other minor currencies that are quite rarely used. If you’d like some more information, a provider called Alpari have actually covered this topic more in depth in a fairly comprehensive video. You can find out more about the two categories of forex pairs below:

When it comes to looking at forex research and news, professionals will often refer to pairs by nicknames, so it’s always useful to know what these are. There are many different ones, but the main pairs are the Cable (GBP/USD), Fiber (EUR/USD), Chunnel (EUR/GBP), the Funds (USD/CAD), Matie (AUD/USD), Geppie (GBP/JPY) and Kiwi (NZD/USD). If you come across a strange term that sounds like it might be a currency, it probably is.

Once you’re familiar with how pairs work, and understand how they are presented, you can begin to learn about the strategy behind making a profit on the forex market.

How about you all? Have you ever done any forex trading? If so, which currencies did you tend to trade the most?

 Share your experiences by commenting below!

How Much Does it Really Cost to Be Middle Class?

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Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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The following is a post by MPFJ staff writer, Kevin Mercadante, who is 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.

We hear a lot these days about the “shrinking middle class;” is it true?

When we say “middle class,” it conjures up visions of a family living comfortably—but not extravagantly—in a leafy suburban community with good schools. Most people, I think, consider themselves to be middle class whether they’re actually below it, above it, or right about there, financially speaking. It’s pretty accurate to say that the term “middle class” is really more subjective than actual.

Let’s work past perceptions, and take a look at what it costs to be middle class based on typical living expenses. 

Here’s my shocking conclusion: it costs a lot of money to be middle class! And because of that, many people who used to be middle class may no longer be.

Defining our mythical family

Let’s start by setting some definitions. We’re going to use a family of four, with a husband, wife, and two children, living in an unpretentious suburban community. The family has a modest home, two cars, both adults are employed outside the home, and the children attend public schools.

We’re going to exclude factors like child support or alimony, daycare, one or more kids in college, a second home, excessive debt levels, and private school attendance. As suburbanites go, this family lives on the down low.

The cost of an ordinary middle class life

Now we’re going to look at the cost of living that this family incurs in living this modest lifestyle, broken down individually. To keep it simple—and for easy reading—we’re going to keep these numbers nice and round.

Payroll taxes. The couple earn $75,000 per year between both their jobs. FICA taxes eat up 7.65%, or $478 per month. For federal income taxes, the family pays little, since they have significant deductions plus the $1,000 per child tax credit. Estimate, $300 per month. State income taxes, $200. Monthly total, $978, or let’s say $1,000 to keep the numbers round.

Housing. The house is worth $200,000 and carries a $120,000 mortgage. They recently refinanced to a 30 year fixed rate loan at 4%, so the monthly payment is $573, plus $77 for homeowners insurance and $350 for property taxes. There’s homeowner’s association dues of $50. Total house payment is $1,050—nice and round, but totally credible at the same time.

Monthly utilities: gas, $100, electricity, $100, water and sewer, $50, trash, $25, cable TV/internet/cell phones, $200. Utility total: $475. House payment plus utilities: $1,525.

Health insurance and medical costs. One of the spouses has family health insurance coverage through work. The plan costs $1,000 a month, but with a 60% employee subsidy, the monthly cost is $400. We’ll add $100 per month for co-payments and deductibles, bringing total monthly medical costs to $500.

Car expenses. One car has a monthly payment of $350 ($10,000 loan balance), the other is owned free and clear. Neither of the children are of driving age yet. Monthly car insurance is $150. The couple drive about 2,000 miles per month and consume 80 gallons of gas (25 mile per gallon average), so we’ll put gasoline at $300 per month. We’ll also add $150 a month for repairs and maintenance. Total monthly car expense, $950.

Groceries. The family do a lot of shopping at food warehouses, and are moderate coupon clippers. Monthly grocery bill: $600.

Clothing. The family shops at moderately priced department stores, mostly Kohl’s and JC Penny, but also a bit at Wal-Mart and even some thrift stores. Monthly average: $200.

Entertainment. Two or three dinners out, and maybe one movie are the family’s extent of obvious entertainment costs. Monthly average: $200.

Annual vacation budget. $3,000, or $250 per month.

401K contributions. Both spouses have a 401K plan at work, and each get a 50% employer match up to 6%. Though they’d like to contribute more, it’s hard to find the extra money with raising a family. They each go with the 6% contribution, hoping to increase it in the future. Monthly contribution: $375.

The kids college funds. Once again, though they’d like to save more, they’re limited to payroll deductions at $100 per month per child. Monthly total: $200.

Charitable contributions. They’d like to give more, but $100 per month is the best they can do right now.

Miscellaneous expenses and short-term savings. There are always significant home repairs, unexpected expenses, and furniture and appliances to be replaced. On top of that, there’s funding and maintaining short-term savings to have for emergencies. Estimate: $350.

Totals:

Payroll taxes, $1,000
Housing, $1,525
Health insurance/medical, $500
Car expense, $950
Groceries, $600
Clothing, $200
Entertainment, $200
Vacation, $250
401K contribution, $375
College fund, $200
Charity, $100
Miscellaneous expenses and short-term savings: $350

Total, $6250 per month, or $75,000.

That fits nicely within the family’s $75,000 annual income.

Being middle class is expensive!

If your household income is at least $75,000, you may be asking “what’s the big deal?” But here’s an interesting statistic; according to the U.S. Census Bureau, the median (50% above, 50% below) household income in the United States is $49,777. A little bit less than 32% of the households in the country earn at least $75,000.

What that means is that the average household in the U.S. cannot afford the stereotypical middle class lifestyle!

Remember that at the beginning, we excluded some costs that would complicate this family’s cost of living, like childcare, child support payments, and possible debts from car loans, credit cards, or even possibly payday loans that have been accumulated over the years.

Another significant factor we didn’t account for is geography. The living costs we used assume that the family lives in a moderately priced region of the country. If you live on the West Coast, in the Northeast, or in many large metropolitan areas in between, the cost of living is significantly higher. The $1,000 per month base house payment we used doesn’t exist in those areas.

Then, there’s the employment situation. We’ve assumed that both spouses are comfortably employed in salaried positions with full benefits. If you’re self-employed, not only will you have to pay the matching FICA taxes (7.65%) but there’d also be no employer subsidy on the family’s health insurance plan. The combination of the two would raise your cost of living by many thousands of dollars.

Being middle class is no longer truly about being in the middle. It’s about being somewhere above the middle—maybe well above it.

What are your thoughts about what it costs to be middle class? And, do you think that the middle class is shrinking?

    ***Photo courtesy of http://www.flickr.com/photos/billward/5792348338/sizes/s/in/photostream/

    The Pros and Cons of a Down Payment Assistance Program

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    Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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    The following post is by MPFJ staff writer, SK. SK writes about the reasons we get into debt, changing the patterns that get us into debt, and examines small business ownership and real estate investing at her blog, American Debt Project. 

    If you’re in the market for your first home, there are a plethora of programs at the federal, state, and local level that can help you with your purchase. There are also private financing incentives from builders who may allow you to put a smaller percentage down if you work with their preferred lender.

    One of the most interesting and underutilized programs are local down payment assistance programs.

    What is a Down Payment Assistance Program (DPA)?

    These programs are usually offered by cities as an incentive to purchase a home within their boundaries, and often within a special “redevelopment” neighborhood. If you’ve ever seen very cute, brand-new homes across the street from an auto repair shop and a liquor store in the heart of a city’s most blighted streets, then you are probably looking at a redevelopment zone. While these projects stick out at first, redevelopment is an interesting part of city planning, and it can bring positive changes to a neighborhood. New residents, new businesses, and new transportation projects all come together to make the area more pleasant and appealing, which was the city’s original intent with its DPA program.

    These programs can come in several different forms. The most common one is a second mortgage offered by the city. In the City of Anaheim, there are two new developments in a rapidly developing and quite attractive downtown area where the DPA is offered. In this case, it is a deferred loan, at 3%-5% interest (and closer to 3% currently) fixed simple interest, with no payments due until maturity in 30 years or at the time of sale of the property. In other cases, the second mortgage may even be a zero interest loan that is not due until maturity or sale of the property.

    Pros of Down Payment Assistance Programs

    DPA programs are meant to make new homes affordable to moderate to low income buyers. It keeps the cost of your monthly payments down by deferring a portion of the total amount mortgaged until maturity or sale of the property. For example, a new home costs $350,000. You finance $238,000 with your regular bank, $100,000 with the city, and put down $12,000 of your own funds. So, your mortgage payment is for $238,000, even though you have a $350,000 home. Because you are financing less than 80% of the home’s value with a traditional lender, you are also eligible to put less money down to purchase your home. Many of these programs require as little as 3% down from the buyer’s own funds. If you don’t have a 20% down payment saved up (and I don’t!), then a DPA can seem very appealing to make a new home your own. Not all bank loans require a 20% down payment to qualify for a good mortgage, but at less than 20% down, you will be required to pay PMI, which is a premium on your mortgage until your loan-to-value ratio is at 80%. Finally, DPA programs almost always have income limits, which means that preference is given to buyers in the low to middle income range for the area.

    Cons of Down Payment Assistance Programs

    You know, once the government gets involved, they gotta’ start telling you what to do, right?

    A property that uses city funds (like a DPA) becomes a deed-restricted property. Many programs require that the unit remains owner-occupied, or it is no longer eligible for the second mortgage, and payments (or the entire loan) will become due immediately. So, rentals are out of the question.

    Second, when you decide to sell the property, you may only be able to sell it to another qualified low to moderate-income buyer, and there may be a cap on how much you can sell the property for. Finally, if you are still living in the house after 30 years and haven’t begun paying the second mortgage at all, it could be due in full at maturity—and if you haven’t saved the money you would need to borrow on your home to fulfill that obligation!

    Conclusion


    DPA programs are helpful for buyers who are interested in purchasing a home they plan to live in and don’t view the property as an investment. If you are looking to make a first time purchase and want new construction, a DPA offers you affordable payments for a home you may not otherwise have been able to afford.

    That being said, that last sentence epitomizes my entire personal finance journey! If I can’t afford it with a 10% or 20% down payment, how do I justify getting an entire second mortgage because I wanted something nice and new? It is also the idea that the payments on this home are affordable, but your opportunities to build equity in this investment are limited, especially if resale is restricted to certain limits and only certain buyers.

    Although I have decided not to consider a DPA, it can certainly make sense for many other buyers, especially those who might view their first purchase as somewhere they only want to live for a few years until they can sell the home for something larger or in a different area.


    What about you all? Do you have Down Payment Assistance Programs in your area? Do they seem like a good deal or are they too much hassle for what they’re worth?



    How much of a down payment did you place to purchase your home?

    ***Photo courtesy of http://www.flickr.com/photos/jollyuk/1989719848/sizes/l/in/photostream/

    Doggy Vet Bills – A Real Life Example of Emergency Fund Financial Planning in Action

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    Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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    In my opinion, one of the most awesome things about personal finance blogging is that you often get to hear and share real life personal stories of people putting in to action various financial techniques they have learned either through school or personal education.

    Today, I wanted to share with you all one such story. This one involves emergency fund financial planning. 

    The Doggy Health Emergency Story and Costs

    Over the past week, one of our two greyhounds (Charlie) experienced a string of episodes where he would throw up significant amounts of white foam and saliva over and over (up to 20 times in one night), often pushing him past the point of dehydration. In total, he lost about 7 pounds of water weight.

    The first night a throwing up episode occurred, we were quite worried, but he did eventually stop around 3 AM. The next day, we took him in to the vet to get checked up. By the time they had totaled up the office visit fee, the subcutaneous fluids, Cerenia anti-nausea and famitodine stomach acid reduction injectable medications, and the ‘easy-on-the-stomach’ diet food he needed to eat for the next few days, the total cost for the visit was $250. In this visit, they treated the symptoms but still didn’t know what was going on.

    For several days after the initial episode, Charlie seemed pretty healthy. However, he had not yet totally recovered the weight from the initial throwing up incident. We took him to see an internal medicine specialist to get an ultrasound with hopes of that shedding some more light on things. For this office visit and ultrasound, the total was $472.

    On the 3rd night after the initial incident, he began to throw up again, this time without stopping. Since we were pretty concerned that his body had not yet recovered from the first episode, we took him in to the emergency vet to receive a similar treatment as before. The total for this visit was $221. 

     Next, in an effort to be able to treat Charlie at home if an throwing-up episode occurs again, we obtained some subcutaneous Cerenia (anti-nausea) medicine and fluids to keep at home. The total cost for this was $151.15.

     Summing these values up, it equates to ~$1,100 over the course of one week.

    Doggy Emergency Fund to the Rescue!

    Undoubtedly, $1,100 in pure cash expense is a lot to pay for in a span of less than one pay period. In fact, with the personal finance landscape in the US being what it is, it’s likely that most people would simply have to pay for this expense (since most dogs don’t have insurance!) with their credit card and then get charged a minimum 10% interest rate on it until they paid it off.

    Of course, this is a situation that I want to avoid at all costs. When we made the decision to adopt a second dog in June, in addition to our personal emergency funds of 6-9 months worth of living expenses, I stipulated that my girlfriend and I both needed to have a $1,000 cash emergency fund account set up to pay for large unexpected vet bills that tend to pop up frequently with greyhounds (this number was found by looking at her past vet bills and seeing the patterns that emerged).

    To save for this periodically, I decided that I would give myself 10 months to build up the doggy emergency fund of $1,000. To make the savings fool-proof, I set up a monthly, recurring, automatic $100 transfer from my checking to savings account to be made directly after receiving each paycheck.

    Since my girlfriend and I had already been saving up this doggy emergency fund money for several months when the week’s worth of vet bills hit, all we had to do to cover the credit card balances was to simply transfer money from our doggy savings account to our checking accounts. Boom! Done! No credit card debt incurred! In the coming months, we’ll continue contributing to our emergency funds and replace this money that was used.

    Conclusions

    To me, this whole experience really highlighted two key things:

    • First, it was a great example of how effective of a tool an emergency fund is in one’s personal finances. 
      • By having an emergency fund (either in general or for your pets, or both), you are really able to maintain more precise navigation of where your ‘financial ship’ is headed and are not blown off course by large amounts of unexpected debt.
    • Second, it highlights the importance of taking a critical look at your finances and spending patterns to determine what you need to allocate/save money for. 
      • In our case, we looked at past vet bills and determined that we would need to have a good amount of money on hand for health issues that come up. 
      • For other people, maybe their family car is old and beat up, and they have to spend a lot of money to keep it running. By reviewing their spending patterns, this would be identified, and then it would be important to either 1) change the car or 2) allocate money towards this priority. 

    How about you all? Do you have an emergency fund in place? Have you ever had to tap in to it?

    Share your experiences by commenting below!

    Steering Clear of Financial Disaster

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    Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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    The following article is by MPFJ staff writer, Miss T, from Prairie Eco-Thrifter. If you want to learn how to live your dream life in a sustainable, healthy, and money savvy way, check out her site here.

     Lately, I seem to be hearing about more and more people who are experiencing financial difficulties. It is a situation I can relate to, because that was me a short time ago. My credit card and personal debt had topped $20,000, I had fallen behind with my loan repayments, my rent was late, and then I had my work hours reduced. It was pretty tough, I can tell you; how I wish I had known what I know now, about how to avoid a financial disaster.

    Things are OK for me now, but I still have a long way to go before I can be confident I would be able to cope if anything like that happened again. It got me thinking that there are probably lots of people who would benefit from the same information I was given, when I sought help to get out of my financial predicament. So, I was prompted to write this article; I hope it helps you avoid a financial disaster in your life.

     Recent statistics show that almost half of Americans are experiencing some financial hardship, mainly due to personal debt levels. I think we have been programmed to believe that we can have everything we want, that using credit is OK and that everything will be alright in the end. Financial responsibility is not a subject taught in school, and most people learn about managing their money the hard way – after a financial disaster.

     The main keys to avoiding financial disaster are managing your debt, limiting your reliance on credit, always spending less than you earn, and consistently tracking your money so you know where it goes every month. Let’s walk through these one by one:

    Set a Budget


     The most important tool to help you manage your finances is the personal budget. I know; I know; you’ve heard it all before, but have you done anything about it? A budget tells you how much money you have, allocates the cash for essentials like bills, food and transport and tells you how much you have left over to spend on incidentals. Your budget is your friend, not your enemy, but you must create one that balances and then you must keep to it. Most people find they have to adjust their spending in some areas when they first do a budget. The best budget is one that allows for an emergency fund and some savings, no matter how small.

    Don’t Spend More Than You Earn


     You simply cannot continue to spend more than you earn. This is what I had been doing for years, buying what I wanted without any thought as to whether or not I really needed it. I used credit for nearly every purchase, even food and rent, and only ever made the minimum repayments off credit cards. This meant I was just falling further and further behind. What I learned was that credit cards should never be used for essential purchases as these are included in the budget. Also, if you only ever make the minimum repayment amount, the only advantage is to the credit card company, to whom you are paying stacks of extra in interest. Whatever you have bought with your credit cards is actually costing you many times their original value.

    Have An Emergency Fund


     An emergency fund is essential in every person’s budget, even if you can only manage to put a small amount away from every paycheck. Your emergency fund is just that – for emergencies only and this doesn’t include that new designer-label jacket you saw on sale. If I had had an emergency fund when I had almost no work, my situation would not have been nearly so drastic. The best way to set this fund up is to have a separate account into which a set amount is automatically transferred directly from each pay. Your budget will help you determine how much this will be, but remember, your emergency fund is more important than things like entertainment and dining out.

    Save and Invest


     Savings is another important category that you need to have in your budget; you need to save something, no matter how small, from every paycheck. This is the only way you can set yourself up for a secure financial future. As you progress through your career, the amount you save should increase; when you have enough funds, it is a good idea to look for ways to invest your savings to make your money work for you. Compound interest makes your money grow faster.

     So, look at your financial situation and see if you have the main key points covered. Do you have a budget that balances and you stick to? Do you use cash for essential purchases and limit your use of credit cards? Do you spend less than you earn? Do you track where your money goes? Do you have an emergency fund to tide you over if you are off work? Do you put some money into savings from every pay?

    Put these key strategies into your financial management and you will avoid a financial disaster.

     So, have you ever had a financial disaster? What did you do to get out of it? What did you learn from it?

    Buying Government Securities Through Treasury Direct

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    Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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    The following post is by MPFJ staff writer, Kevin Mercadante, who is 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.

    If you’re looking for a way to escape turmoil in the financial markets, there’s no better place to be than cash. If you’re looking for cash-type investments, there’s no better and safer place to be than in U.S. Treasury securities. And, if you’re looking to buy and hold U.S. Treasury securities, there’s no better way to do it than with Treasury Direct.

    With Treasury Direct, you can buy and hold U.S. Treasury Securities directly from the U.S. Government in denominations as small as $100.

    How to buy through Treasury Direct

    You start by setting up an account on Treasury Direct called a Treasury Securities Account, and you can do this by clicking “open an account” on the website. You’ll be required to provide your Social Security number, email address, and bank account and bank routing numbers.

    Purchasing a Treasury bill is called “bidding”, and they’re purchased at a discount. The difference between what you pay—the discount—and the bill’s face value is your return, or interest paid at maturity. For example, the face value of a bill is $1,000, but you purchase it for $990. When the bill matures, you’re paid the $1,000 face value which includes your purchase price of $990, plus $10 which represents the interest portion.

    There are two types of bids you can use, but when you use Treasury direct, you can only use a non-competitive bid. Under this type of bid, you accept what ever discount the discount rate is as determined by the Treasury auction. You will be guaranteed to receive the security you want in what ever quantity you choose.

    The second type of bid is a competitive bid, and this is available only through a bank, broker or dealer. Under this type of bid, you specify the discount rate you want. You may or may not get the discount you want and even if you do, it may be less than what you want.

    When you buy a security, the funds for the purchase are withdrawn from your bank account. And when the security matures, the funds will automatically be deposited back into your bank account. You can also set up your Treasury Direct account to automatically roll over funds from one security to another at maturity.

    Types of Treasury securities available through Treasury Direct

    With a Treasury Direct account, you can purchase the following Treasury securities:

    1. U.S. Savings Bonds
    2. U.S. Treasury bills (in maturities of 4, 13, 26 and 52 weeks)
    3. U.S. Treasury Notes (in maturities of 2, 3, 5, 7 and 10 years)
    4. U.S. Treasury Bonds (30 year maturities)
    5. TIPS – Treasury Inflation Protected Securities

    Selling your Treasuries

    When you buy Treasury securities through Treasury Direct, you will have to hold them until they mature if you hold them with Treasury Direct after purchase. Though it’s easy to buy Treasuries through Treasury Direct, the program is set as a way to buy and hold the securities to maturity.

    Selling is trickier, but no worse than how you would handle it anywhere else you would sell them. In order to sell a Treasury security that is being held with Treasury Direct, you will either need to move it out of the program, or you can sell it in the account through the Federal Reserve Bank of Chicago (there will be a fee for this). Treasury Direct itself does not act as a secondary market for its securities.

    Why not go through a bank, broker, or mutual fund?

    There are different accounts you can buy Treasury securities through, but Treasury Direct has some strong advantages over the alternatives.

    • No transaction fees. Some institutions charge fees for handling treasury transactions, but even those that don’t skim will skim some out. An institution can instead buy the securities at a given price then sell them to you at a slightly higher price. Mutual funds typically have management fees and other fees that they charge on your account, even if it’s a “no load” fund. No matter how it’s handled, you will pay some sort of fee for the service. With Treasury Direct, there is no fee—you’re dealing direct. Considering today’s extremely low interest rates, a fee that’s no more than a small sliver of 1% can make a difference, especially over the long run. 
    • No risk of institutional failure. Since you aren’t using an intermediary to buy and hold your securities, there is no risk of institution failure. The securities are held with the US Treasury, which are backed by the full faith and credit of the United States Government. 
    • Set your own maturity allocations. This applies mostly to mutual funds, but when you invest in treasuries through a mutual fund, your maturity allocations will be established by the fund—you’ll have no ability to change that. But let’s say that you believe that interest rates will soon rise, and instead of having the 20% allocation in 26 week treasury bills the mutual fund has, you want to have 80%. With Treasury Direct, you can do that. In fact, you can have any allocation you like. And here’s something else about mutual funds: very few are true pure plays. A fund that invests primarily in Treasury securities may also hold small positions in derivatives and other non-Treasury investments.


     Have you ever used Treasury Direct for your fixed income investments? If so, did you find the system pretty easy to navigate? 

     If not, what do you use as a ‘house’ for your fixed income investments?

      ***Photo courtesy of http://www.flickr.com/photos/wwworks/2895964373/sizes/s/in/photostream/

      Start Planning Now for a Secure Retirement: Saving is the Key

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      Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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      The following article is by Miss T from Prairie Eco-Thrifter. If you want to learn how to live your dream life in a sustainable, healthy, and money savvy way, check out her site here.

      It’s never too late to start planning for financial security in retirement. While the best scenario is achieved by starting early, late starters can do a lot to make sure they can retire comfortably. Don’t put it off any longer. The sooner you start, the more money you will have behind you when you choose to retire.
      You’re not alone if you have reached age 40 or older without any significant retirement savings in place. Recent surveys have shown that nearly half of all workers in the US don’t have any form of retirement savings. Only a very few people, who do have a retirement plan, save the recommended 10 -15% of their earnings.
      The ideal scenario for retirement planning is to start with your very first pay check and put away a set percentage of what you earn, every time you get paid, for the whole of your working life.
      Don’t feel bad if you haven’t done this; less than 5% of all workers have followed this plan. Who wants to save for retirement when you’re in your early twenties and just starting out in life? There’s plenty of time for all that, surely!
      The thing is, no matter how old you are now, the time to begin retirement saving is NOW! The best time was actually yesterday, but let’s not get too pedantic.


      The Best Retirement Planning Advice I Ever Received

      Possibly the best retirement planning advice I was given came from my elderly neighbor, who had been an investment banker in his time. You’d think he would have advised me on investments, but he talked about more basic strategies. His advice was to make use of the ‘vehicles’ that are in place for retirement saving. By this, he meant employer 401Ks, Roth IRAs and other types of IRA. He said that too many people look for fancy ways to invest their hard-earned cash when these entities are there for the taking.
      So, follow my experienced neighbor’s advice: check with your employer about a 401K and ask whether there are employer contributions available – this is virtually free money, so why not? Get some professional advice about other retirement savings plans and choose the ones that suit you best.

      The Key = Regular, Periodic Savings

      The key to a financially secure retirement is saving; even small amounts, saved on a regular basis, can add up to a decent amount on retirement. You owe it to yourself to make the decision – start now to put aside a set amount from every pay, even just $5 or $10. The secret is to make a start and increase the amount later.
      Of course, if you are already in your 40s or 50s, you are going to have to really ramp up the savings to build your retirement fund much faster in a shorter time. This will probably take some serious changes to how you spend your money; it did with me too.
      At first, I thought there was no way I could spend less, but once I started to look into it with an open mind, I found it reasonably simple to find areas where I spent too much and could cut back. I didn’t need anything too drastic to start with, but once I got started, I kept finding more ways to cut spending by a few dollars here and there. That’s the trick, you see; don’t try and make huge spending cuts, just look for lots of places you can save a few dollars. It soon adds up, let me tell you! I found that savings of less than $45 a week meant a nest egg of more than $60,000 when invested at just 4% for around 20 years. This gave me the motivation to cut even more in spending and find a higher interest rate.
      Cash savings alone probably won’t be enough to fund your retirement; you will need some investments as well. Investments allow your money to actually work for you; invested funds make money on your money. Choose investments that suit your age and income; this is where a financial advisor can really help.
      You’ll need a budget to help you see where you spend your money as well as some basic retirement funding calculations. I found some excellent free resources online that helped me with these calculations.
      When you know approximately how much you’re going to need in retirement, you can calculate how much you need to save during your remaining working years. You might find that you’re going to have to work longer than you planned, if you’ve left your run a bit late. Consider a second job and put those earnings straight into savings. Many retired people continue to work part time to help fund their later years.
      If you’ve really left your savings late, you might need to look at some major changes to your lifestyle so that you can fund a decent retirement. Become committed to your financial future and make those tough decisions before it’s too late. Consider down-sizing to reduce your mortgage or get rid of it completely. Pay off any high interest loans and get credit cards paid off so you aren’t left with on-going debts as you approach retirement.
      Procrastination is the enemy of a secure retirement. While it is never too late to get started on a retirement fund, the longer you put it off, the harder it’s going to get.
      So, make the decision and start NOW. You owe it to yourself to fund a comfortable retirement.
      So, have you started saving for your retirement? What has been your strategy?

        ***Photo courtesy of http://www.flickr.com/photos/68751915@N05/6870886851/sizes/l/in/photostream/

        Is Gazelle Intensity Worth Your Health and Family Time?

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        Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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        The following post is by MPFJ staff writer, Melissa Batai, of Mom’s Plans. Enjoy! 
        Is paying off your debt with gazelle intensity worth affecting your health?  Is it worth missing out on time to spend with your kids when they are little?

        Everything Is Great–Until It’s Not

        As a nation, we seem to have a love affair with debt.  Our credit cards enable us to buy items we want NOW, and for quite some time, we feel we are living the good life.  We may not be able to afford everything we buy, but that is what credit is for.
        My husband and I accrued quite a bit of debt, both student loan and credit card, when I quit my job because child care for our two youngest children, who are 17 months apart, was prohibitive in our large city.  Unfortunately, my husband was finishing his Ph.D. and was working as a graduate assistant.  We knew we would rack up some student loan debt, but we took the risk planning on rising future incomes–his after he graduated and mine when my freelance career grew after the kids got older and I had more time.
        Could we have done things differently? 
        Yes, definitely. 
        We may not have been able to completely avoid student loan debt, but we could have tried to find ways to make more money and to cut our expenses even further.  Yet, we convinced ourselves we could afford our lifestyle because of the student loans and credit cards.

        Gazelle Intensity–It’s Not for Everyone

        Dave Ramsey, in a very animated way, describes a gazelle being chased by a cheetah.  He says when you are paying off debt, you should work as hard as the gazelle who is trying to run from the cheetah.  Get a second job, slash expenses, live like no one else so later you can live like no one else. 
        I love the principle of gazelle intensity, and for a year now, my husband and I have done our best to be gazelle intense.  My husband has a full-time post-doc position, and I am freelance writer.  Because I also care for our kids to save on daycare costs, I typically wake at 5 a.m. to do some work, stop at 7:30 a.m. to take my oldest to school and then work for an hour at naptime and then again after the kids are in bed from about 7:30 p.m. to 10 or 11 p.m.  In between, I am caring for the kids, cooking, and cleaning.  Most nights, I average 5 to 6 hours of sleep.  Every weekend, my husband watches the kids so I can do my work.
        In a year, we have paid down the equivalent of 30% of our income on our debt.  While our finances are looking better and our debt is decreasing, my health has been affected.

        Stress–It Doesn’t Do a Body Good

        Each month that I got less and less sleep, I felt worse and worse.  I started drinking coffee to stay awake, but the coffee would make my heart race.  I ate sugar for a quick pick me up only to crash a few hours later.  I was grouchy with the kids because I was so exhausted.  The kids could sense the tension, and they would misbehave.  As a family, we were miserable.  When my hair started falling out in clumps, I went to the doctor.
        Luckily, the problem I have is curable, but the doctor said that stress could have been one of the main contributing causes to getting sick in the first place, so my first order of business was to decrease my stress.  We hired a babysitter for a few hours a week and made some hard financial decisions.
        For the moment, we are no longer gazelle intense.  Instead, we will continue to live on a tight budget, and as we “find” extra money and our salaries increase, we will put that money on our debt.  We may not get out of debt as quickly, but both my husband and I will be healthy, and we will be able to enjoy spending time with our kids again.

        Gazelle Intensity–Have a Limited Time Frame

        As much as I love the premise of gazelle intensity, it doesn’t work for everyone.  If you have $10,000 to pay off, yes, you may be able to be gazelle intense for a year and knock the debt out.  If you have more than that and are looking at several years of debt repayment, gazelle intensity may not be good for you, your health, or your family.
        As for us, we still plan to pay our debt off in the next 5 years, if not sooner.  It is not as fast as I would like, but considering many people take 10 or more years to pay down their student loan debt, five years doesn’t seem that bad.  I am learning to slow down and accept that the path to financial freedom will be a little longer than I would have liked.
        How about you all? Has your health been compromised by being gazelle intense?

          ***Photo courtesy of http://www.flickr.com/photos/33037982@N04/3642138594/sizes/o/in/photostream/

          Democrats, Republicans, and Wealth – Who Has More and Who Creates It Better?

          Personally, one of my least favorite things to discuss, especially in an election year like this one, is who is right and who is wrong between the various political parties in the US.

          Why is this? Simple – because it is almost a lost cause to get someone to change their mind about their beliefs in this area. As such, these conversations usually just turn in to arguments for the sake of arguing, which I am not a big fan of. In my book, everyone is entitled to their own opinion, and that is fine by me!

          However, one of the things I do enjoy researching and sharing are the various financial differences between Democrats and Republicans based on available data. 

          For example, in Jeremy Siegel’s book, Stocks for the Long Run, his team analyzed the various returns of the stock market when Republicans vs. Democrats held the Presidency and found that from 1948-2001, the annualized real return for when Democrats were in office was almost 5% higher than for Republicans. This was fairly surprising to me since Republicans are often generalized in the financial media as being the party that is more interested in the success of private industry.

           As a continuation of the Democrats vs. Republicans financial comparison, today, I wanted to try to seek an answer to the following two questions based on available data:

          1. Are Democrats or Republicans wealthier (as far as personal finances go) in the US? 
          2. And, who is better at creating wealth?

           

          Initial Hypothesis

          Based on the general impression given by the financial and political party campaign media, I would guess that Republicans, on average, have more personal wealth and are better at creating wealth in the US than Democrats.

          Comparison of the Political Affiliations of the Richest People in America

          Starting at the top sounds like a good place for us to begin our numerical investigation. In other words, the first thing I looked for was a listing of the political affiliations of the top 20 richest people in the US, based on the Forbes Richest Person in the World listing.

          Luckily, a study in 2011 by the New American Gazette had already analyzed this data exactly the way I was wanting to.

           What they found was that 75% of the top 20 richest people in America support the Democratic party. Even George Soros, a stock market financier, was listed as being a Democrat. In fact, Bill Gates, Warren Buffet, Larry Ellison (the top 3 wealthiest on the list), and the two Google principals were all associated with the Democratic Party. This was rather surprising to me!

          Comparison of Congressional Representatives

          Moving down the ranks of richest people in America (now to the tens to hundreds of million Dollar net worth level), the next groups that we come to where political affiliation is very easy to identify are individual members of the House of Representatives and the Senate. By now, I’m sure we’re all fairly well aware that nearly every member (regardless of political party) in Congress is wealthy and a millionaire.

          • In the Senate, the Democrats appear to be slightly wealthier, with a median net worth in 2010 of $2.69 million compared to $2.43 million for Republicans. Honestly, this is hardly any difference at all, and I would actually consider them to be tied for wealth for practical purposes. Source.
          • In the House of Representatives, Republicans seem to be significantly wealthier, with a median net worth of $834,250 compared to $635,500 for House Democrats. Source.

           

          Comparison of Political Affiliations of “The 1%”

          Does anyone remember 2011? It seemed like you couldn’t even turn on the TV or bring up a web browser without hearing about the infamous 1% protests, etc. I even got to see the 1% protest / Occupy Wall Street camp in the heart of New York City during my girlfriend’s ING New York Marathon in November!

          According to a 2011 Gallop Poll, the wealthiest 1% of the US population is defined as earning an annual income of $500,000 or more. The results of this study showed that the largest percentage (41%) of the 1%’ers identify themselves as “Moderates/Independents.” However, when it comes to voting, a majority (57%) tend to lean/vote Republican.

          Wealth & Political Affiliations for the Rest of Us

          When it comes to determining if more normal-income earning Democrats or Republicans are more wealthy, the conclusions become VERY complicated, but rather interesting!

          Listed below is a summary of what I found in digging around the Internet:

          • The 10 poorest states in the US according to average income levels (Arkansas, Mississippi,  Tennessee, West Virginia, Louisiana, Montana, South Carolina, Kentucky, Alabama, and North Carolina) by majority, vote and are represented in Congress by Republicans.
          • According to USA Today, Slate.com, and CityData.com, the wealthiest overall geographic locations (counties and states) in the US tend to vote, by majority, Democrat. In other words, these areas had higher overall average incomes compared to locations that voted majority Republican.
          • However (and here’s where it gets interesting!), according to slide 9 of a University of Arizona academic report, when the entire overall voter population is taken in to consideration, the majority of wealthier voters ($100,000+ income per year) tend to vote Republican, and the majority of less wealthy voters vote Democrat. This same finding was confirmed by other reports I came across online as well.

          At this point, we have a little bit of disparity on our hands. Or, at the very least, these results seem rather confusing. On one hand, we have that across the entire US population, richer voters tend to pitch their ballot for Republicans. However, geographic areas where on average, there are wealthier people are Democrat. At this point, you may be asking – what is the reason for this? Or furthermore, is this even possible?

          As far as I understand it, there are two agreed-upon reasons in the literature for this seemingly odd paradox:

          1. In states/geographic locations with overall lower incomes, the lower-income earners tend to vote Republican.
          2. And, in locations with overall higher incomes, the higher-income earners tend to vote Democrat.

           

          Are Democrats or Republicans More Effective at Creating Wealth?

          From the paradoxical reasons mentioned above, an interesting question presents itself: are these wealthy locations wealthy because they are Democrat, or do locations already with high concentrations of wealth just tend to vote more majority Democrat? In other words, is being Democrat the cause, or the effect of high concentrations of wealth/high income earners in an area?

          In terms of more measurable quantities, (if we investigate the ’cause’ route) the question might become – are Democrats more effective than Republicans at increasing average income levels and Gross Domestic Product (GDP)?  

          Listed below is a summary of the various results I found relating to this question:

          • In his book, Unequal Democracy, Princeton professor, Larry Bartel, analyzed the average annual growth rate in real income levels in the USA from 1948-2005 during Democrat and Republican Presidencies.
          • In addition, I found a Bloomberg report showing that more private jobs have been created during the times that Democrats have held the White House than Republicans since 1961 .
          • Lastly, I found a FoxBusiness report showing that since 1949, the GDP increased an average of 4.2% per year during Democrat Presidencies versus 2.6% when Republicans controlled the executive branch.

          From this data, it seems that Democrats are more effective at creating wealth, at least at the country-wide level, than Republicans.

          Conclusions

          Since all of this can get a little convoluted, let’s summarize the key things we found from this investigation:

          • If you take the entire US population in to consideration, Republicans voters are in fact, individually more wealthy, as was suspected in the initial hypothesis. Because of this, we could say that they are better at creating self-wealth than Democrats.
          • However, a majority of the top 20 wealthiest people and wealthiest geographical locations in America are Democrat. 
          • In addition, the statistics show that Democrats are also better at increasing the overall wealth of the nation in terms of GDP, average income, job creation, and the stock market.

          Another key takeaway for me from this post is that I now do not believe either party can be universally called “the party of the wealthy” or “the party of low-income earners,” since there clearly are very wealthy and not-as-wealthy people on both side of the political party aisle.

          How about you all? From the people you’ve come across in your life, do you think Republicans or Democrats have more personal wealth?

           Share your experiences by commenting below!
          ***Photo courtesy of http://www.arteyfotografia.com.ar/contenido/objetos/14/13/ db/1413dbc8b23d72a950505b86298534801db7109b/ mini_500_12461_128525497724416.jpg

          How to Prepare for a Family Emergency

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          Click here to enter my free $79.07 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is September 30th, 2012.

          The following is a guest post by Amanda Green. Enjoy! 

          How to Prepare for a Family Emergency


           No matter what you do or how careful you are, you will have to deal with an emergency or two at some point in your life. These emergencies will test your ability to handle stress, your ability to handle pressure, and they can end up causing an extraordinary strain on you. This is especially true if you haven’t taken the time to prepare for these emergencies before they happen. Dealing with an emergency with little to no preparation can be an extremely trying scenario.

          Preparation is Key


           No matter what the emergency is, you can soften its blow by being prepared for it. Some people look at the words “prepared” and “paranoid” as almost interchangeable these days. The simple act of preparing for an emergency like insane weather, arrest, fire, or a trip to the emergency room may be seen as being “over the top” by people like this. However, these are all very possible scenarios that real people have to deal with on a daily basis.

          Reasonable Preparation

          It’s important to remember that being prepared doesn’t mean you have to build your entire life around waiting for disaster to befall you and your family. All it takes is a few simple acts to prepare you for a broad range of emergencies. These steps won’t take much time out of your day, and you often won’t ever have to think about them again unless an emergency comes up.

          For example, most people don’t really have a plan for what to do if they ever happen to be arrested. After all, most people don’t really see themselves engaging in any activities where they would ever be at risk for arrest. However, the truth is that everyone has the potential to make a mistake or accidentally break the law.
          In the scenario above, it would be smart to have a bail bondsman at the ready to get you out of jail. You can save a lot of money when you are bailed out by a bail bond company instead of paying the bail in cash yourself. These people also know how to properly navigate the legal system and can give you advice on how to not get yourself in even more trouble.

          Also, every family should have a fire plan of some sort. House fires can happen to anyone and are obviously extremely deadly. The problem is that many young children will try to hide from fire or smoke under their beds or in a closet. It’s important for parents to talk with their kids about house fires, what to do in the event of a fire, what not to do, and safe places to meet outside. Taking a few minutes now could save a life in the future.

          Preparedness is Smart

          The truth is that everyone deals with emergencies from time to time. Preparing for these emergencies is much easier and less time-consuming than many people think. Taking a little time to prepare now could save you a lot of pain later on.

          How about you all? What steps have you taken to prepare for emergencies that could occur to your family?

           Share your experiences by commenting below!

          ***Photo courtesy of http://www.flickr.com/photos/68751915@N05/6629072839/lightbox/

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