Monthly Archives: November 2011

Investment Secrets of the Rich and Famous?

From time to time I am asked if there are investment secrets that only the wealthy know about? When I walk through bookstores, hear advertisements on the radio about day-trading seminars, and see titles of books that make me think so. Everyone wants to think there are short cuts, or secret ways to instant success or dramatic investment returns. I think that since we wonder about this, we are sometime tempted to invest in schemes that rip us off.

Despite the headlines of popular financial books that read something like, ‘Financial secrets that the rich don’t want you to know about,’ there is no conspiracy; there are no secrets that only the rich have access to that give them an edge over everyone else. It used to be that only the rich had access to the best professional money managers, but with the popularity of mutual funds, everyone has access to the best money managers. There are some investment firms that have minimums beyond the reach of the average person, sometimes referred to as SMA or separately managed accounts; however, although some do a great job, they have not proven as a group to outperform the top mutual funds.

What about secret information? Yes, some people have access to information that you and I don’t; however, if they act upon this “inside information” with their purchase of stocks and they are caught, they will face severe fines and jail time. The only exception to this law are those in the House and Senate.  

If there are no investment secrets, are there other secrets that give wealthy people an advantage? Again, there are no secrets; no one has hidden the facts. Those that save and invest over a long period of time, minimize debt, spend less than they earn, are hard/dependable/honest workers, and are frugal and invest in education are usually better off financially. These ‘secrets’ are often related to habits and decisions (per Thomas Stanley and William Danko’s book The Millionaire Next Door) and shift away from cultural patterns (per Ruby Payne’s book Bridges Out of Poverty).

Lastly, a few overlooked things can make a big financial difference: financial education and having other sources of income.  I encourage ongoing learning of financial fundamentals through reading books, receiving financial and money-saving newsletters, and attending evening courses taught about various financial matters. Also, I encourage having additional sources of income, perhaps from small businesses or other ventures in areas in which you have a passion – only be very careful of hyped real estate or any get-rich-quick scheme, since fraud is rampant.

Throughout Ecclesiastes, Solomon provides ageless wisdom that in the schemes of man there isn’t really anything new under the sun. Paul encourages us to not let our anxiousness to get riches lead us into traps: 1 Timothy 6:9,10 Those who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge people into ruin and destruction. For the love of money is a root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs.

9 Steps to Master Your 401(k)

Your employer-provided retirement plan (e.g., 401k) is one of the most important pieces of your financial plan — yet it is often misunderstood and under-utilized. Master your retirement plan to retire early, on time, and achieve financial success. During this time of year, either 4th quarter or the 1st quarter of next year, your company will have their annual 401k meeting. These 9 steps will help to prepare you for making good decisions.

  1. Obtain a written financial plan: Call a financial planner or obtain a written plan online to organize all of your financial affairs and plan for the future. People don’t plan to fail, they fail to plan! The best way to make financial decisions is in the context of a financial plan, which will help guide you simultaneously through all the moving parts of your finances. That way you will make more informed decisions about when you can retire and how much you should contribute, while still making good decisions about all of the other areas of your plan. A plan helps you avoid neglecting one area because you focused too much on another area. A financial plan will also help you spot trouble areas, such as too much debt, and will provide suggestions to improve your overall situation.
  2. Obtain information: Round up all available information and put it into a file folder, such as current account statement, investment account information describing what you have chosen and options that are available to you, contribution information that describes how much money your employer will contribute (match) and how much you can contribute, and beneficiary information.
  3. Know your employer contribution amount. Some employers contribute a set dollar amount on your behalf to your retirement plan; they may also contribute based on a matching formula. For example, they may match 50% of your contribution up to 5% of your income. Some employers may do both.
  4. Sign Up Now. Participation rates are only about 70% — down about 5% from a few years ago. If you have passed the waiting period and are eligible to sign up, do so today.
  5. Contribute enough to receive the full match. Only ¼ of employees take advantage of their employers’ matches. Doing so leaves money on the table. Your employer has a several thousand dollar raise waiting for you, so take advantage of it.  At the very least, contribute the minimum amount so as to fully exhaust your employer’s match. After you have done this, begin contributing more than the match minimum.
  6. Don’t borrow or withdraw from your plan.
  7. Start early. The average 401(k) participant with 11 years of tenure and 20 years until retirement (65) has accumulated only about $60,000, and the median total average plan balance is only about $27,000. Many workers in their 20’s do not take advantage of employer-sponsored retirement plans, thinking that retirement is too far off to think about. However the earlier you start, the longer you have to take advantage of the magic of compound interest.
  8. Make wise investment decisions. You may have done all of these things, but don’t neglect this vital issue. Many people invest all or a large percentage into a fixed or money market account, either out of fear of risk, lack of investment knowledge or procrastination. Review the investment information provided by your plan. Determine an asset allocation that matches the level of risk that you are comfortable with and appropriate for your age and expected retirement age.  If you have a financial plan check the investment section for the asset allocation model that fits your level of risk. Also discuss this with your investment advisor or Plan Representative regarding account selection.
  9. Don’t give up. You may feel that even after doing all of these things your plans for retirement are still off track. Don’t worry. Feel good that you have completed as many of these steps as you could. Stay focused on your overall financial plan; by making improvements each year, you will accelerate your progress.

Monday AM Liftoff 11/28/11

For Christian daily living Matthew 6:25 – 34 might be one of the most important Bible verses in the entire Bible.

“Therefore I tell you, do not worry about your life, what you will eat or drink; or about your body, what you will wear. Is not life more than food, and the body more than clothes? Look at the birds of the air; they do not sow or reap or store away in barns, and yet your heavenly Father feeds them. Are you not much more valuable than they? Can any one of you by worrying add a single hour to your life[e]?   “And why do you worry about clothes? See how the flowers of the field grow. They do not labor or spin. 29 Yet I tell you that not even Solomon in all his splendor was dressed like one of these. If that is how God clothes the grass of the field, which is here today and tomorrow is thrown into the fire, will he not much more clothe you—you of little faith? So do not worry, saying, ‘What shall we eat?’ or ‘What shall we drink?’ or ‘What shall we wear?’ For the pagans run after all these things, and your heavenly Father knows that you need them. But seek first his kingdom and his righteousness, and all these things will be given to you as well. Therefore do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own.

I find it valuable, because it deals with daily life so well,  and yet has important connections to parts in the beginning as recorded in Genesis and the conclusion in the coming Kingdom in Revelation. This morning as I think about my life, the things I want and need now, and that I might need someday when I am old, I begin to worry, to think about myself. When I do this, my attitude isn’t that great.

But as I read this verse, I hear God saying: do not worry about your life, do not be so overly concerned about yourself. Don’t be working for your own end. Don’t you know that will I will dress  and feed you today, tomorrow and in eternity quite well indeed. Don’t be like the first couple Adam and Eve, when they choose to seek satisfaction through what they wanted.

God surely gives us good pleasurable things for us to enjoy, but in America we border on living in a pleasure based hedonistic culture that promises if we obtain this or that then we will be complete. I love how God turns the tables, when he points us towards seeking him, his Kingdom and righteousness, and in that we will find satisfaction in him, not the things we want. Some people read this scripture verse and they think that if we “seek first his kingdom and his righteousness” we will be rich monetarily. While others read this and think if I do seek after the Kingdom and righteousness, God won’t provide for me in the nice lifestyle I’ve become accustomed to enjoying, or the one I hope to have some day. When I think this way, I am brining myself back into the equation.

The Apostle Paul talks about being content during all circumstances (Philippians 4:10-13), I think Paul got to enjoy God on a most intimate level when he learned to live a life seeking after His Kingdom and righteousness. Because in the prior verses 6-9 he practiced “Do not be anxious about anything, but in every situation, by prayer and petition, with thanksgiving, present your requests to God. And the peace of God, which transcends all understanding, will guard your hearts and your minds in Christ Jesus.  Finally, brothers and sisters, whatever is true, whatever is noble, whatever is right, whatever is pure, whatever is lovely, whatever is admirable—if anything is excellent or praiseworthy—think about such things. Whatever you have learned or received or heard from me, or seen in me—put it into practice. And the God of peace will be with you.”

As I enter the Christmas season filled with so much focus on materialism, these verses give me the right focus and direction, to enable me towards better thinking, activity and purpose. Lord help me to not get caught up in self and instead seek your Kingdom and righteousness in all that I do.

How I shop for tires

Are you thinking about buying new tires before the hard winter weather hits?  Have you looked at them lately, do they look bald?  The old rule of thumb is to stick a penny in the tread and if the tread doesn’t go above Abe’s head then it is time, even if close you are ready. Tires are important, having bad ones can be dangerous. That is why I purchased 2 full sets of tires for our cars recently.

Tires are an expensive investment, one that you will be stuck with for several years, so it makes sense to spend some time researching before you purchase.  When I begin the search process, I first decide on the type of tire that best fits my needs such as driving style (e.g., sport, off-road, and general passenger) and is a match for my particular vehicle. The next thing I consider is if I want the tire to handle really well in the rain, since some tires from most manufacturers will have a tire or two designed specifically for excellent handling in wet conditions. Once I have decided on those areas for example general passenger use, and excellent (not just good) wet handling, then I have narrowed down my tire choices from 100’s to less than dozen, if I stick with only known major manufactures, that have been around a long time. Surprisingly, there are many new manufacturers of tires in the US market these days, I avoid the names I have never heard of.

With my shortened list of  tires I now compare mileage rating, which is the amount of miles the manufacturer projects you will get from a tire. If the tire wears out before, then I usually get that pro-rated towards your next tire purchase from the same manufacturer. The higher the mileage rating the more expensive the tire, so it is at this point that I can narrow my search to the lowest price, or the highest mileage for the amount of money I want to spend.  At this point I may have narrowed my search down to 2 – 5 choices, hopefully.

With this information I go to a few different tire retailer websites that have capabilities to compare the tires I am interested in. There will be various factors for me to compare, from noise to handling. If you get Consumer Reports, or your library has back issues, that can be a good resource too.  If you have a relationship with a good tire shop, talk to a well-trained expert about your findings and what he or she recommends, but avoid pressure to buy on the spot. I also look for an expert that wants to help educate me, and not talk down to me.

This has taken probably an hour or so, and for me I will know what 1 or 2 tires I want. I then call 4 different shops and ask for a full price quote including mounting, balancing, new valve stems, alignment and taxes. I don’t want the quotes confused by any other add-ons like road hazard warranty.  Most shops I talked to said that I can call them back because they will match the lowest price. I write down the names of each person I speak to, and call the nicest and lowest one back. By now we are on a first name basis, and tell them if they can knock off 10% of the tire’s cost, then we have a deal, if not I tell then I call one of the others, and may call them back. I may only get 5% off, but I am not interested in a price match, but ammunition to negotiate the lowest cost. This is exactly what I did when I purchased 4 Michelins and saved about $30, off of the lowest quote, and a lot more than if I just bought them at the first place I drove to. I choose Michelins because the last set lasted 105,000 miles, and in my research they were the best in what I was looking for.

By the way, lately I have noticed NTB advertising buy one get one free. When I called them they informed me the deal required “With purchase of a premium tire installation package and one year precision vehicle alignment program!”  This made their net cost well over $100 more than the best quote I got. I’m not a fan of this promotion.

This is what I do when I buy tires, it helps me to not only save money, but get a good tire fit for my vehicle, and performs up to my expectations.

Economic Cost of Angry Birds

Interesting and funny but unscientific article about the amount of time consumed playing just one game, Angry Birds.  This article cites a recent report that around the world people spend 200 million minutes on Angry Birds every day. This adds up to 866,666,667 hours per year, and in America to it might compute to 43.3 million working hours, that at $20 per hour might equate to $866 million dollars in lost wages per year.

Whether the conclusions reached in this article are correct or not, I’m not sure, but it got me thinking when people always tell me they don’t have time to better their health and finances, or I tell myself the same thing, sometimes it may be true.  For those who can find the time, they get second jobs to pay off debt, work out at the gym, study more about their profession, go back to school, study financial matters, take an evening class, read an instructional book, start a small business on the side, create a budget and balance the checking account. All of these activities can at the least enrich our lives, and at most set us on a dramatic course to better a better one. Each one of us has been created with an equal amount of time each day, yet it is up to us to decide how to use it. A Chinese proverb says that the best time to plant a tree is 20 years ago. Perhaps the best time we can change the course of our lives is to invest our time in something constructive now, and watch where that takes us.

Positive News: National Activity Index indicates improving economy

The Federal Reserve Bank of Chicago yesterday released its monthly National Activity Index. This index  measures the activity of the US economy following 85 monthly indicators, relative to averages starting in 1967, with zero being the average. The index rose to minus .13 in October from minus .20 in September, this improvement is attributed to increases in manufacturing. To provide a historical perspective, the lowest the index has been, looking back 15 years, was in 2009 when it was nearly minus 4.00.

Savings, CDs, Money Markets and Linked CDs

Many people ask me about savings accounts, money markets and CDs, and the latest version of CDs, market linked or index CDs:

Q. Most financial experts say that we should accumulate 3 – 6 months of income or expenses in a safe savings account, for emergencies, such as job loss, uninsured damage to property or health care, for example. What kind of savings account or investment account should that be put into? A. The type of account should be 1. easy to get to, in a moments notice that provides check writing capability, or the ability to move funds electronically very quickly, without waiting for a delay for investments to be sold. 2. It should be FDIC (bank) or NCUSIF (credit union) insured, so that if the financial institution becomes insolvent, your money is guaranteed to be there. 3. The type of account should have no early withdrawal penalty, also know as a CDSC or contingent deferred sales charge unless very small. 4. The account should not be set up as a tax qualified account (e.g., IRA) because they usually have taxes and tax penalties to get your money.

Q. What types of accounts meet all of these 4 qualifications? A. Bank or credit union savings account, sometimes referred to as a passbook savings account qualifies. The second most common account is a money market account, or also known as a money market mutual fund. Dave Ramsey recommends this for most people’s emergency fund in Baby Step #1, because they have check-writing privileges, pay a little higher rate than pass-book savings accounts, and no penalties like CDs. However not all money market accounts are FDIC insured, so make sure you find out. Short term CDs or certificates of deposit may also qualify, but they may have an interest penalty if you withdraw the money before maturity.

Q. Which account pays the highest rate of return?A.  Typically insured accounts are paying interest in the .50% – 2%, the same goes for CDs. For CDs usually the longer term and larger amount you have to deposit correspondingly pays a little higher interest rate. For all of these accounts most rates are much less than 2%, and their isn’t a great difference between accounts. Savers should check with several financial institutions to find the best rate for these accounts. Some banks and credit unions in our area offer interest rates closer to 2%, and you might find one where you live too.

Q. Why are the rates so low, and are they any ways to get a better rate of return yet still maintain the requirements of safety, access, and no penalty, for example I have heard of Linked CDs? A. The accounts discussed so far are all safe accounts that earn a low rate of return for a few reasons, one being that the institution where you are making a deposit is legally required to invest your money in very safe investments such as highly rated government securities that don’t pay much interest, and the institution is required to pay a higher premium then they used to have to pay for the insurance protection. Since financial institutions like banks and credit unions are paying such a low rate on savings, CDs and money markets they have come up with some creative ideas to provide the possibility of higher rates of return yet maintain safety.  These hybrid CDs provide rates of return based on an underlying stock, bond or commodity index, or basket of them, and a percentage of the performance to the CD holder. The upside performance at maturity is limited to a specific percentage, and the downside is limited to 0% at maturity. These go by a number of names such as index or variable rate CDs to mention a few. They may have surrender charges too, which might make them not a fit for an emergency savings account, unless the saver has a lot of liquid assets. Before investing, obtain full materials and thoroughly read it and ask many questions of your investment advisor, as well as obtaining information about prior performance if available, even though past performance is not an indication of future results. As with all decisions, seek the advise of trusted advisors, and pray before you choose which way to go.

Lawn Tractor Saga

A couple of weeks ago my 1998 42″ Sears Craftsman Lawn Tractor model # 917.271021 with a 15.5 hp Kohler engine, decided to empty its transmission fluid on my back yard. The transmission case somehow got a crack in it, and it is too old and costly to replace. I was not happy with the thought of forking out over $1,000 for a new riding lawn mower to cut 1 – 2 acres. I’ve become a decent mechanic learning how to replace many parts on this mower over the years, from deck parts, several batteries, belts and blades, steering linkage,  and various other parts and pullies. I was just glad I made it to the end of the season, and I’d worry about it next Spring.

Driving down a country road a guy had a mower identical model to mine sitting on the curb with a “For Sale, Has Issues,” sign.  Basically in need of a battery and front axle. So flash forward after my buddy Bruce helped me by hauling it, and a greasy Saturday, I’ve combined the parts of two mowers into 1 pretty good one and a supply of many extra parts for only $75 minus the $14 I got for the metal I recycled.

I’m feeling good having saved some money on parts, and having a good working tractor, and no big outlay for a new one come Spring. Sometimes saving money is making due, and waiting to see what crosses your path while waiting. I’m feeling blessed that the Lord provided for me by coincidently putting in my path an identical tractor for hardly any outlay.

Monday AM Liftoff 11/21/11

A good friend of mine recently said that thankfulness is a big part of stewardship. I think he is right. Some people look at Thanksgiving as the one of the holidays on the way to Christmas, looking somewhat past it, and focused on the big game at the end of season. Of course to be thankful isn’t just for one holiday per year, but a daily practice, a daily attitude of graciousness and appreciation of everything that we have from simple things, that are not really very simple at all like air and water, to most sublime things of beauty and abundance.

The following Bible verses encourage us to be every thankful for everything: Ephesians 5:20 always giving thanks to God the Father for everything, in the name of our Lord Jesus Christ. To be more than thankful, but content, satisfied, joyful with what we have, not wanting more, regardless of our circumstances, no matter how good or bad they are: 1 Thessalonians 5:18 give thanks in all circumstances; for this is God’s will for you in Christ Jesus. Philippians 4:11-12 I am not saying this because I am in need, for I have learned to be content whatever the circumstances. I know what it is to be in need, and I know what it is to have plenty. I have learned the secret of being content in any and every situation, whether well fed or hungry, whether living in plenty or in want. This leads us to be more filled with God, living godly lives: 1 Timothy 6:6 But godliness with contentment is great gain. Walking in faith trusting him to take care of our needs, both physical, emotional and spiritual: Philippians 4:19 And my God will meet all your needs according to the riches of his glory in Christ Jesus.

I think these are keys to the abundant life Jesus talked about (John 10:10). Living thankful contented lives, helps us to be better stewards, and less controlled by the consumer culture and experience financial peace and freedom. Thank you Lord for all of the many ways you bless me, and for just blessing me with you. Lord you are everything, I am complete it you.

Common Financial Mistakes

1: Negative Spending
Have you created a budget and do you stick to it?  If not, you may be spending more money than you make.  People who have created a budget have a good idea of their monthly income and expenses and can accurately diagnose their financial condition.  Other signs of negative spending include the inability to pay off credit cards each month and spending money on fun things before you have paid for necessities. (Proverbs 27:23-27)
2: No Rainy Day Fund
Do you have little or no money in savings accounts, retirement plans, and investment portfolios?  When something breaks, or difficult circumstances such as unexpected medical expenses or a job loss happens you must draw down what little savings you have and go deeper into debt. Emergencies will happen to everyone (Matthew 5:45), so it may be wise to prepare.
3: Too Much Debt
Do you have so much debt that you are having difficulty meeting your expenses each month?  Are you ‘borrowing from Peter to pay Paul’?  You may have re-financed your home or consolidated debt to get cash to pay for other debts (maybe more than once).  Re-financing or consolidation can be a very good tool to help you, but the ultimate goal must be to reduce debt. (Proverbs 22:7)
4:  No Plan
Do you have a written financial plan, to help you plan for unexpected things and future goals?  A comprehensive financial plan covers all the important areas, so you will be sure to not miss something really important. (Proverbs 21:5)

 5: Optical Rectitus
The condition in which your optical (eye) nerve gets crossed with your rectal (anal) nerve and you see the world through a cruddy disposition.  You can choose to be negative or positive.  Whichever one you choose will set the course for your life.  You can either make the best of what you have, or be a victim of circumstances and spend your life blaming others for your situation.  Having a positive attitude creates the state of mind for success and overall health. (1 Corinthians 13:7)
6: Self-Centeredness
You live mainly for yourself without thinking of the world around you.  You buy things that please you alone, and then you don’t share.  For instance, what good is it to buy a new gas grill then never have a cookout?  You are enjoying your holiday meal without even a thought about donating to a soup kitchen or food pantry.  Your children are enjoying opening their holiday gifts, but you didn’t think about donating a gift for a needy child.  You don’t give money and time away.  You spend your time and money on yourself, or on those in your very small circle.  You will find liberation if you think of others and ‘higher things’ before thinking about yourself. Giving money away can be the best “investment” in how you feel about yourself and the world around you. Consider James 3:15 “For jealousy and selfishness are not God’s kind of wisdom. Such things are earthly, unspiritual, and demonic.” NLT.
7:  You and Your Spouse Don’t See Eye-to-Eye on Money
Perhaps one of you is a procrastinator and spender and the other is a saver and has a ‘get-er-done’ attitude about finances.  This problem can be overcome, but it requires a lot of work from both of you.  Financial counseling may be in order in extreme situations.  Sometimes separate checking accounts, but joint savings and investments can help.  Creating and sticking to a budget is essential so that the ‘spender’ isn’t always blamed for financial difficulties.  Also, remember that a lot of marriages break up over fighting about financial matters.  The small amount of time planning and working through financial responsibilities is well worth marital harmony.
8:  Either Trust Too Much or Don’t Use Advisors at all
You assume that anyone can make financial decisions and that everything will work out in the end.  You don’t keep up with the news so you were unaware of things such as predatory lending practices on your ‘interest only’ mortgage or the 400% interest you paid to the ‘Get Cash Now’ store.  You are excited about the $250,000 you will get when you send $100 to the address overseas that was on the e-mail from that poor, poor woman.  You are certain that the odds are truly in your favor to win this time so you are buried in magazines that you bought to increase your chances to win.  Your basement is filled with products that you will sell someday; you just had to get the minimum amount so that you could be an official distributor and save more money.  Remember, if it seems too good to be true it probably is.  Also, of all the fools in the world, don’t be the one who was born on this particular minute.

Have you put off seeking help from financial, insurance, legal and tax advisors.  Many people procrastinate to the detriment of their financial condition.  We all have to pay taxes and we all need insurance and a will.  Perhaps you don’t want to make the hard decisions that they may tell you to make (like saving more money and buying insurance, or delaying the purchase of things you want now).  Tax and legal advisors may save you money and legal entanglements. (Proverbs 15:22)
9: Living Large
Do you spend money on homes, cars, vacations, or hobbies at or a level above your income bracket versus a notch or two below?  Bigger homes, and cars, more sophisticated appliances or whatever you buy, will cost more to purchase, fuel, maintain and insure.  The nicer vacation spot will cost you more for your lodging, meals, and for everything else while you are there.  Have you ever allowed warm fuzzy feelings to dictate the purchase of a pet without properly budgeting for all of the expenses it would entail?  We once bought a hamster for our children for .99 cents.  Unfortunately the cage cost $80 and the food and supplies cost another $20.  Without properly planning in advance (without our children present) we ended up with a $100 hamster (that bites – literally and figuratively).  Don’t buy anything if you can’t afford all of the expenses that will come with it. 
10: Laziness
For some, the desire to pay bills, budget, and plan finances falls somewhere below getting a root canal without anesthesia.  Sometimes procrastination or a desire to avoid difficult topics (like thinking about your death for Life Insurance or creating a Will) can keep you from achieving your dreams. (Proverbs 6:6)

Being successful with the money you have is not easy or quick and there are no short cuts.  Continue to educate yourself about financial matters.  If you work hard to achieve the goals and avoid these mistakes you will be well on your way to funding your dreams.

Financial Challenges of Women

Over the last few years I have counseled or held educational events for over 1,000 people. More than 50% of them are women, and it seems as if they are a little better than men at taking charge of their financial life.

If you were to guess which issue women worry about most, would you guess family, health, time, stress, or maybe equal rights? According to a March 2000 gallop poll, the answer is their finances. This response may surprise you now, but consider the following list of financial issues unique to women. Consider these results from a women-and-money incubator, and research by William L. Anthes and Bruce W. Most: Women are more intimidated than men about financial issues. Women earn less money than men. Women are less prepared for retirement. Women receive smaller retirement benefits. Women live longer than men. Women are poorer in retirement than men. Women are more conservative investors than men. We would also add special difficulties for single mothers. Women caring for elderly parents. High-deductible health insurance plans cost women more. Women may defer to men regarding financial decisions. More women manage daily family finances. Retirement issues because of divorce agreements. Male-dominated financial services industry. Earnings Differences: It is a well-documented fact that women earn less than men do. A study by the American Association of University Women Educational Foundation (as reported by Ellen Simon of The Associated Press) found that: “Women make only 80 percent of the salaries their male peers do one year after college…10 years after college, women earn only 69 percent of what men earn…Even after controlling for hours, occupation, parenthood, and other factors known to affect earnings, the study found that one-quarter of the pay gap remains unexplained. The group said that (a) portion of the gap is ‘likely due to sex discrimination’…Catherine Hill, the organization’s director of research, said: ‘Part of the wage difference is a result of people’s choices, another part is employer’s assumptions of what people’s choices will be…Employers assume that young women are going to leave the work force when they have children, and, therefore, don’t promote them.’ …The organization found that women’s scholastic performance was not reflected in their compensation. Women have slightly higher grade point averages than men in every major, including science and math. But women who attend highly selective colleges earn the same as men who attend minimally selective colleges, according to the study.” Anthes and Most wrote that “According to the U.S. Department of Labor, women working full-time, year-round, earn roughly 74 percent of what men earn… (and) workers in the age category of 45–54—the prime earning years for most people—women earned $516 a week while men earned $732.” It gets even worse for single mothers with young children whose “median income in 1998…was $14,248. This figure is the lowest among all family types, representing roughly one-fourth the median income of married-couples with children…and approximately three-fifths that of females with no children. Retirement Differences Women are often less prepared for retirement than men. Anthes and Most also noted that “a Study by the National Center for Women and Retirement Research at Southampton College of Long Island University found that 58 percent of baby boomer women had saved less than $10,000 in a pension or 401(k) plan, while baby boomer men had saved three times that. A Scudder Kemper Investment, Inc. survey of households with incomes of at least $30,000 found that 43 percent of the men had more than $100,000 in their 401(k) plans, while only 27 percent of the women had that much. Investment Differences Also, “the 1997 study by Dryfus and the National Center for Women and Retirement Research showed that women investors were more worried than men about running out of money in old age, preferred more conservative investments, wanted fixed/steady returns, were more unnerved by stock fluctuations and worried more about investment decisions… As these statistics underscore, the financial barriers and challenges faced by women are real and formidable. As one incubator participant put it, “Women are frozen in the headlights, caught in the dilemma of, ‘I know I should be doing something, but I don’t know what to do.’” Social Security Retirement Differences Of course, less money earned by women, means less money saved for retirement or contributed to Social Security benefits, and because women live 79 years on average while men live 72, women retirees are poorer in retirement than men. Anthes and Most note that according to the Administration on Aging “…half the elderly widows now living in poverty were not living in poverty before their husbands died. The picture is even worse for older women in many minority groups”. Retirement Summary Because of these inequities, women have less money going into their retirement accounts (if they have one) over time, than men. In addition, the fact that women live longer than men means that they need more money in their retirement than men do. Decision Making The next generation of retirees may have been raised in an environment in which men handled the money decisions. More women actually pay the weekly bills, but they may have little knowledge of the larger family finances such as retirement plans, Social Security, IRAs, insurance, annuities, etc. because they may have deferred to their spouse’s decisions. It is essential for women to understand the ‘big picture’ of their finances, especially for retirement, divorce, or death of their spouse. Because women make less than men, are less prepared for retirement, and receive smaller retirement benefits, they need to make sure that their husband’s retirement benefits will pass to them if their husband dies first. Because women may be more intimidated about asking questions of their attorney or financial advisor, they may miss crucial details (such as single-life annuity which may bring higher levels during the husband’s life but that ends when the husband dies first), or incorrect beneficiaries on life insurance policies. Divorce During a divorce, women may be more concerned about custody issues and keeping the house than their future retirement and may agree to forgo the 401(k). Single parenting brings a whole host of financial challenges, including lost wages from parenting responsibilities and childcare and babysitters. If the extra expenses and possibly lower-income are not included in the divorce settlement, the single mother may find that she is unable to keep the house and she loses the two most valuable assets: the house and the 401(k). Health Insurance Women not only make less money than men, their health plan may cost more (as reported by Mike Stobbe from the Associated Press). When an employer changes to a high-deductible plan, it costs on average $1000/year more for women than for men. “Women’s costs are higher because they need mammograms, the cervical-cancer vaccine, Pap tests and pregnancy related services”, said (Dr. Steffie) Wollhandler, the Harvard Medical School study’s lead author. This is unfair, but while the inequity exists, women must make an extra effort to contribute the difference to a Health Savings Account or savings program to avoid using credit to pay for the added medical bills. We have personally experienced the $4,000 deductible per year health insurance plan and, although it is better than no insurance, it can certainly make a dent in the family budget. Care Giving Another huge drain on women’s finances is caring for their aging parents. More women care for aging parents than men. However distasteful it may be to condense a daughter’s love for her parents into a discussion of money, this issue must be addressed so that women can prepare. Because of the aging baby-boomer population, these numbers will soon become staggering. If you add caring for young children into the mix at the same time, the financial results can be devastating. What Should Women Do? Because of the special issues facing women, it is crucial that women educate themselves about finances and the realities of financial gender inequity and plan for their future. The male-dominated financial services industry is just beginning to realize the unique financial planning issues for women. Make sure that your trusted advisors understand these issues and are helping you plan accordingly. Don’t be afraid to ask your advisors questions.

First Time Home Buyer Tips

Step 1: Get Your Financial House in Order

Before you even think about the purchase of a home, look at your entire financial plan. The purchase of a house affects not only the amount of money you currently have in savings and investments (if you use some of it as a down-payment), but the payments, maintenance, utilities, and costs to furnish and insure will affect your budget each month. Home buying decisions will affect your ability to reach your other financial goals, more than any other large purchase that you make. Before embarking on the road to a big financial decision, it is key to get your financial house in order. The decision to purchase a home should not be made in a vacuum: it should take into consideration all of your financial goals and responsibilities. It is important to have savings for down-payment, funds left over afterwards for emergencies, and to pay off as much other debt as possible first.

Step 2: Examine Financial Aspects of Home Purchases: The following is a list of the most common areas for consideration when purchasing your home. Make sure you discuss these with your realtor or buyers agent.

  1. Insurance: Ask your insurance agent the approximate cost to insure the homes you are considering buying.
  2. Utilities: If you are renting now, your budget for utilities will likely go up. Your utility usage will depend on: the costs for utilities in your area, the size of the home, the age of the furnace, the type of heating, and the level of insulation in the home. Be conscious of these expenses while looking at homes, and if you find a home you like, the listing should provide the budgets for gas, electric, or heating oil.
  3. Payments: How much are you currently paying for your house or apartment? It is usually less than you will pay for a new house payment. Use internet loan calculators to determine approximate monthly mortgage payments. Avoid the temptation to spend more than you can really afford for a home, assuming that your income will increase over time. If you want to be in excellent financial condition, buy a home a few notches below your current income level. In most instances, the loan interest will be deducible; however, do not use this as an incentive to over buy. If you can keep your total housing costs, mortgage payment and utilities, within 20% to 30% of your take home income, you will have a lot of room for other expenses.
  4. Inspection: Prior to buying a home, the buyer should hire an excellent home inspector to go over the home with a fine-tooth comb. Arrange to be there during the inspection.
  5. Maintenance: If this is your first home, talk to other homeowners, friends, and family to help you estimate the cost of maintaining the prospective home.
  6. Repairs: Estimate the cost for future repairs such as roof replacement, outdoor painting, concrete repair, basement repair or finishing, and major mechanical replacement. Work with friends, family, contractors, and the inspector to help you estimate future repair costs.
  7. Real Estate Taxes: Make sure that you know what real-estate tax costs will be in the areas that you are considering. They can vary quite a bit, they can go up very quickly, and they may make a big impact on your budget so do your homework prior to making your final decision.
  8. Commuting Costs: If your commute will be longer as a result of moving, estimate the additional cost of fuel and maintenance for your car.
  9. Homeowners Association and Condominium Fees can be high in some areas. Make sure that you know all the fees before buying.
  10. Real estate agents and buyer’s agent: Real estate agents represent the seller, not the buyer. Some people recommend hiring an agent who works for you, not the seller. However, I have had excellent experience working with a real estate agent for many years. Whoever you decide to work with, make sure that you know all the services they will provide for you.
  11. Comparables: Get prices on other homes. Real estate agents call them “comps.”. Knowing the price of other homes in a neighborhood will help you avoid paying too much. Remember the old real estate advice that it’s better to buy the least expensive home in great neighborhood.  Also consider whether any changes you want to make to the home would render it incomparable with the neighborhood.

Step 3: Choose between New or Existing Homes.  Many home buyers choose new homes because the price may be close to an existing home and because older homes require more maintenance. However if you purchase a new home, it may not have the features that existing homes may have, such as added patios or decks, installed draperies or blinds, security systems, lawn sprinkler systems, seasoned landscaping, finished basement, and simple things like hooks and shelves. These extras can make an existing home a great buy, especially if you are just starting out or if money is tight. Building a new home can be a hassle (especially if you are inexperienced with the many questions you need to ask) and the wait to build can be long.

In addition, some buyers choose new homes because of financing options, without fully understanding all of the details, and then find themselves in a situation where the mortgage payment increases more quickly than they planned.  Any changes or upgrades to a new home floor plan will raise your costs dramatically. Existing homes sometimes have more character, established neighborhoods and schools; however, they may need more repairs or have undesirable floor plans. Many homebuyers choose new homes because they dislike making repairs of any kind, then find themselves installing blinds or shelves each weekend. We have loved living in an older home and currently love a home we built. Both have required different kinds of projects and expenses. Think through your decision, perhaps journaling the pros and cons of different homes or builders you visit to help you decide between a new or an existing home.

Step 4: Financing Your Home.  There are two types of conventional mortgage rates: fixed and variable. If you choose a variable rate, make sure you know all the variables and conditions. If you have a variable rate loan and interest rates go up, you can usually convert to a fixed rate loan. However, if you convert when interest rates are rising, your rate will usually be higher than what it would have been if you had started with a fixed rate loan. Discuss your options with your banker and realtor.

There are also other types of financing plans, such as interest only loans. Interest only loans are appealing to many people because it may help them afford the payments on a much larger house. It is also appealing to people who are only planning to live in a house for a few years. Interest only loans are popular when homes are appreciating rapidly, as they were up until recently.  In many parts of the country home values are not appreciating as much or depreciating significantly, therefore interest only loans should be approached cautiously.

Most people choose a 15- or 30-year mortgage. Monthly payments will be higher for a 15-year loan, but you will be able to pay it off obviously sooner than a 30-year mortgage and you’ll save a lot in interest. The interest expense for 30-year mortgages is higher in the long run, but these loans are usually more affordable in the monthly budget and generally allow you to take an extra 15 years of interest deductions, assuming you do not pay off the loan early. 15 year mortgage are the best way to go if you can afford to.

Step 5:  Closing

  1. Home Purchase Negotiation and Closing is very important. Your realtor can help you with this. When interviewing potential realtors, discuss their depth of knowledge and experience in this area.     
  2. Always use an attorney to review the documents you are signing, especially at closing. There are just too many things to sign, and it helps to have someone else paying attention to what you’re signing, considering the risk of agreeing to something—in writing!—unawares. Send all the documents to the attorney before closing for prior review, or ask your attorney to attend the closing with you. 
  3. Do not be ‘House Poor’: As a rule of thumb, your home budget (including mortgage, escrow, condo or homeowner’s association fees, etc.) should not exceed one-fourth of your monthly budgeted expenses. Bigger houses are more expensive to furnish, maintain, landscape, and heat and cool, taking a bigger bite out of your overall budget. Many people may encourage you to buy as much home as you can now, or will soon be able to afford. Perhaps they have reminded you that you have a successful job and besides you can always cut back on eating out or going on vacations. The approximate mortgage amount you have been given will make things tight, but you really love that house. Now stop and take a deep breath. Is this mortgage amount within the comfortable range you have determined after reviewing your financial plan? If you own a home that cost less than what you can afford, then your financial life will be much less stressful. Often, the greatest source of financial setback, causing people to use up their savings and go into debt, is unexpected expenses. Living below your means with a comfortable mortgage payment will help you plan for your future and the unexpected setbacks of life.

Morningstar’s New Fund Ratings

Morningstar Inc. known as a leader in providing mutual fund analysis for the investment community and consumers, recently introduced a new system. The well know star ratings of providing 1- 5 stars based upon mutual fund’s past performance, has been helpful to some people at evaluating mutual fund choices.  Past performance is often no indication of future performance, but merely helps to evaluate how well they compared to other similar mutual funds.  The new “Gold, Silver, Bronze, Neutral or Negative” ratings are intended to help predict which funds will outperform their peers. Although Morningstar has a wide range of analytical capabilities and services to draw from, but until they have a lengthy track record of successful predicting over several market cycles, this writer remains sceptical. The Morningstar fund full reports provide a whole host of useful information to be considered along with these ratings. Consumers can subscribe to the mutual fund analysis software service to obtain their own reports, or ask their investment advisor for them.

Micro Budgets for Christmas

Shopping for Christmas gifts can surely be a budget buster. If you go shopping and  do not have a list or calculated in advance how much you are going to spend on particular individuals, your emotions may get the best of you, and you will wake up with a massive debt hangover after the holidays. Also it is not uncommon for people to buy gifts for themselves too. So how do you go about staying on budget during the Christmas season? Send everyone on your list a card, telling them you made a donation in their name, but then don’t. Just kidding! The answer is a Christmas Micro Budget and a plan:

  1. Consult your budget, or your ledger of income and expenses to determine how much money you can spend total on Christmas gifts, for example let’s say you can afford $500
  2. Make a list of people who you are going to buy gifts for
  3. Divide the total number of people by your budget, so if you have 20 people then you can spend $25 per person
  4. If there are people who you are going to spend more than $25, then subtract. For example if you think you need to spend $100 for two people, then that leaves $300 to spread out among the remaining 18 people or 16.66 per person
  5. Get $500 of cash and put in into one envelope
  6. Leave all of your credit (keep store cards only if they give an additional discount plus a coupon) and debit cards, and checkbook at home
  7. Gather your shopping list
  8. Go the websites of the stores you shop, and dig through the ads for sales and coupons, cut/print coupons and take with you
  9. Go shopping, and keep track of each person you buy for and how much you spend

Patents on Tax Strategies

Some providers of financial products and services, think that they have found or created a unique tax strategy and will submit that strategy for patent protection. Some believe that owning such a strategy provides them with market protection and potential income when others what to license their strategy. President Obama recently signed the America Invents Act (Public Law 112-49) into law, this patent reform legislation bans future patenting of tax and charitable strategies. With the new law the Patent and Trademark Office will not be allowed to approve any pending or future applications for tax strategy patents. What appears to be unclear is whether existing patents of this nature will be legally enforceable.

Mortgage Backers Struggling

An article in The Wall Street Journal today 11/15/11 about the Federal Housing Administration or FHA “Loan Backer’s Cash Runs Low” states that an audit being released today that FHA has close to a 50% chance of running out of money and require a tax-payer bailout. This follows the 10/23/11 news that PMI group the third largest mortgage insurer was taken over by Arizona regulators, and is no longer selling new business. MGIC the largest of these insurers reported larger losses than expected last month. Old Republic International Group, another of the insurers of mortgages was also restricted to selling new business recently.

Private Mortgage Insurers protects lenders if a borrower defaults, and the home is sold for less than the outstanding loan amount.

Monday AM Liftoff 11/14/11

It is early Monday morning, and I am up and running. I usually start Mondays with a headache thinking about all of the things I want to accomplish this week at work and home, my concerns about a whole host of things, including staying on budget and being a good steward and being healthy to mention a few. I feel a sense of intense urgency for all the things before me.

John 21:1-6 Afterward Jesus appeared again to his disciples, by the Sea of Galilee.[a] It happened this way: Simon Peter, Thomas (also known as Didymus[b]), Nathanael from Cana in Galilee, the sons of Zebedee, and two other disciples were together.“I’m going out to fish,” Simon Peter told them, and they said, “We’ll go with you.” So they went out and got into the boat, but that night they caught nothing. Early in the morning, Jesus stood on the shore, but the disciples did not realize that it was Jesus. He called out to them, “Friends, haven’t you any fish?” “No,” they answered. He said, “Throw your net on the right side of the boat and you will find some.” When they did, they were unable to haul the net in because of the large number of fish.

This is an excellent scripture for me to focus on today. Peter is like me it seems, on Monday morning: “I’m going out to fish” he said matter of factly. After fishing all night and catching nothing, they followed and fished for Jesus and brought in full nets. 1 Corinthians 10:31 So whether you eat or drink or whatever you do, do it all for the glory of God.

Lord let my focus first be on you today, not all the things before me. Help me to be mindful of you throughout the day. Help me to be a good steward of time, money, relationships, and everything you place before me. Lead me to throw whatever are my nets, into the waters you have designated for me to throw them into, for you. Lord, let today be a bountiful day for you.

Wash DC Corrupt: Part 2

Did you know that our Federal lawmakers are exempt from insider trading laws? According to the report on 11/13/11 CBS 60 minutes lawmakers can and do buy stock and real estate based on secret inside information, in some cases information that they are privy to because they serve on special private committees. If anyone else traded stock based on the same inside information, and were found out, they would be prosecuted as felons, pay fines and go to jail. Those in the House and Senate are not only legally permitted to do so, they do it all the time, and often become multi-millionaires. More information is forthcoming from Peter Schweizer’s soon to be released book “Throw Them All Out

Last week I noted a previous report on 60 minutes about how lobbyists have corrupted most of our elected representatives in our nations capital. So lets see our law makers make decisions based on bribes they get from lobbyists, and they also make decisions about industry and companies and then turn around and make stock trades based on that information. The lawmakers and industry get richer, wealth is extracted from our country and put in the hands of a few powerful rich people, and decisions are not made because of integrity.  Most of this is to the detriment of average middle and lower-income people.

A few Bible verses come to mind:

Ecclesiastes 5:8,9 If you see the poor oppressed in a district, and justice and rights denied, do not be surprised at such things; for one official is eyed by a higher one, and over them both are others higher still. The increase from the land is taken by all; the king himself profits from the fields. Proverbs 22:16 He who oppresses the poor to make more for himself Or who gives to the rich, will only come to poverty.

C.S. Lewis Quotes on Giving

Wonderful quotes about giving from C.S. Lewis, the best Christian apologist of the 20th Century. I found these very challenging.

Charity–Giving to the poor–is an essential part of Christian morality…I do not believe one can settle how much we ought to give. I am afraid the only safe rule is to give more than we can spare. In other words, if our expenditure on comforts, luxuries, amusements, etc., is up to the standard common among those with the same income as our own, we are probably giving away too little. If our charities do not at all pinch or hamper us, I should say they are too small. There ought to be things we should like to do and cannot do because our charitable expenditure excludes them. Mere Christianity, bk. III, chap. 3, para. 7, pp. 81-82

The limit of giving is to be the limit of our ability to give. English Literature in the Sixteenth Century, Introduction, para. 53, p. 35