 2nd part of a 5 part investment special! This week is bonds… A bond is simple a debt security in which the issuer of the bond borrows money and is obligated to pay the holder back at a later date (of course plus interest). This type of investment is very secure and safe and because of that it lower return on investment. There are many different types of bonds, junk, government, fixed, floating, the list goes on forever. I personally think that bonds are a great investment strategy especially in times of speculation and turbulent stock market. By investing in bonds you again diversify your finances, further protecting your precious eggs.
Although bond’s are really just glorified I.O.U’s they are not 100% fail proof, sometimes you do not get your money back, sometimes you do not get the return on them that you expected and planned. IF you need even more security in your investment then perhaps CD’s are what you are looking for.
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 Eggs, they are yummy, they are good for you but when they are all in one basket it could be spelling out instant death! As history will show us what is hot today is not necessarily going to be hot tomorrow, because of this investing 100% into the hottest thing today could be very very bad to your personal finances very quickly. diversifying your portfolio is the solution.
The stock market is a wonderful and interesting place, thousands and thousands of stocks are listed and changing in price every second. Always be aware of what you are investing in, do research on what the company is, what their plans are, what their stock has been doing, how their sector is doing, what is their market share in their sector…ect, It seams very foolish to invest in a company that you know nothing about. Because of this I will only buy two or three stocks a year.
Some people preform in a task that I look down on “day trading” these people gamble in a fast past low informed market where they may only own a stock for a few minutes to cash out the positive change of 1/8 a dollar. To me it just seams like stocks should be used more long term and you should be more informed with what you are going to do with your money. Next week we cover Bonds!
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It makes sense to talk this week about retirement in general with all of this talk about saving going on. Even if your find the exact job for you and you are so happy doing it, don’t you think down the road you will want to stop, wake up when you want, see the world, spend more time with family and friends? or would you rather work until the day you die? Most people would say they would like to retire one day. And I agree, and the sooner the better…. Assuming you can afford it.
Your future self will thank you for saving some of your hard earned money. Trust me, you hear all of the time about people that retire at the young age of 40something. There people saved up tons of money in a short period of time, or they invested it and pull off just some money to pay their bills or live off dividends, or interest. Wouldn’t you love to be them? No more 8 to 5 grind, financial freedom?
The simplest way to do that is to invest and save, and most importantly when you invest and save, never put all of your eggs in one basket more on that later.
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Ha, you are still reading this blog after I made that horrible roth Star Wars joke? Impressive. well the second part of this IRA savings special is about Traditional IRA. These retirement accounts are often tax deductible. Traditional IRAs take advantage of the tax benefit immediately. The internet is a great location where you can calculate your IRA’s balance at retirement.
I strongly suggest you play around with both of the Java Calculators (see last week’s post) and determine which version of retirement account is better for you. The main purpose of personal finance is to plan for the future so this decision should not be taken lightly. But what I found is that the younger you are when you start your IRA the better Roth looks (other variables the same). for me the difference was over $100,000. The older you are when you start the better a traditional IRA is. It is important to always try to make max yearly contributions (around $4k, or $333 a month), in the grand schemes of things this is not that large of a price for a more comfortable life after retirement and peace of mind.
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 To continue the topic of saving the next logical step would be to talk about IRA’s (Individual Retirement Account). Retirement is very important, it is what people strive to achieve, and you want to make sure you have enough money when you do retire so that you do not go into debt, forced back to work or even worse forced to work longer and longer because you can not retire.
So what is a Roth IRA? Does it have anything to do with Star War’s planet Hoth? A Roth IRA is a savings account where you contribute money (around $4000 depends on your age) into a Roth account where the managers then invest the money into securities (Stock and Mutual Funds). Roth IRA’s are NOT tax deductible, and the transactions within the account are tax except. A great online tool to calculate the amount in the account at retirement is here.
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 Everyone knows that savings accounts make your money grow by using compounding interest. This interest is a great source of revenue and when left alone causes the cash to grow even more. So instead of beating this dead horse I will write this week about two different stories about banks and personal finance from when I was a kid.
The first story involves my sister, when we were very young our mom wanted to have us make our own bank accounts for our weekly allowance, (more on this later). When the bank teller asked my sister which kind of account she wanted my seven year old sister in all of her wisdom replied “I want the one with the highest interest rate”. Here is a 7 year old girl that knows to hunt down that high APR account to make your money grow faster. Grown-ups have problems with this all of the time.
The next story is around the same time, I was about four and my mother was explaining to me interest and letting your money grow by itself. I replied “Oh that must be why they have big vaults”, my mother slightly confused asked me to explain myself… “Because since the money is growing it can no longer fit in their drawers”. How cute! My mother then had to explain that no, the money doesn’t physically grow.
So there you go two very cute stories from my childhood and the power of a savings account. Next week we talk about other methods of saving.
Last week I covered how I record expenses, yet I neglected to mention that I have recently starting using a great website called Mint to track expenses and to help me budget. Mint automatically updates with my online banking information and provides a great visual representation of where my money is going. The way that they keep this service free is by “suggesting” credit cards and savings accounts that would save me money. To be honest many times I have considered changing my credit card because although I carry no balance from month to month I make almost all my expenditures through my credit card, and I have very poor credit card reward program.
Mint also compares how my “At the Pump” and “Savings % rate” is compared to the national average. (below on spending and a little bit above the savings rates. One of these days I am going to switch to a Online Bank and pull in a better %, More on this later.
It seams like a respectable first real post, the importance of Budget. Budgeting is a very important process that everyone must do. The dangers you can run into by not budgeting are overdraft charges, late fees, no savings, and an all in all a smaller bank balance, not to mention the dreaded paycheck to paycheck financial health disease. If you have a Budget (that of course you stick too) you find yourself not buying the candy in the check-out line. You find yourself looking more closely at price per ounce of items at the store instead of just assuming bulk is the better deal.
 Creating a Budget truly is easy mode too. A simple Microsoft excel document (or open office if your man enough to use it) and about five minutes a day, or if you prefer you can do it the old fashion way with a notebook ledger. The technique that I use is to then list all of the expenditures that I have to pay (rent, gas, electricity, food), for the variable costs I look at last month and one year ago cost to get an estimate of what I will pay, Then I add a fixed %(usually around 5-10) to the budgeted price. The reason I add this 5-10% to the estimated price is because it is a lot better to be under budget then over. At the end of the month I look at what I actually spent compared to budgeted. Left over money gets sent to a savings account. I am sure that if i didn’t budget I would not have as much money left over at the end of the month.
Thanks for coming to my new personal finance blog. My name is Craig and I am going to use this site to give you a piece of my mind. This piece of my mind will be full of finance tips tricks and hacks, news, personal finance advice, budgeting, getting and staying out of debt and all in all living a frugal but successful life. Feel free to read more about me.
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