Archive for June, 2010

Prioritizing Financial Goals

By: Green Panda | Date posted: June 30, 2010 (5:00 am)

Paying off debts can be incredibly rewarding. You’re getting out of the financial hole and you’re working towards increasing your cash flow. What can be better financially?

Understanding and setting financial goals is important with personal finances. While there are certainly some popular advice out there, you have to decide for yourself what will work. it may be different than what you think.

Prioritizing Where Your Money Goes

Let’s say you’re pumped and  ready to build your net worth as soon as possible. You’re gone through plenty of personal finance sites and saw how debt reduction is the key to getting your finances squared away.  Perhaps you’ve read total Money Makeover by Dave Ramsey and you’ve decided to have that gazelle intensity and you’ll completely pay off everything as fast as possible.

Let’s say for example that you’ve eliminated a few debts and have enjoyed the wins so far. Now you have only have one credit card you owe on, a car loan with a few years left, and your student loan. You may think that just throwing money at all of them would be the best plan. After all, you’ve established that debt reduction is your #1 priority.

Treating your student loans, like your other debts might not be the best financial decision in this case. You have to weigh your options.

Not All Debts are Created Equal

Before you aggressively pay down your student loans, I’d make sure you have the following in place:

  • At least 2 months of savings for emergencies: If you have dependents counting on you, you may want to increase to a more conservative level.
  • All your higher interest debts paid off: Student loans typically have lower interest rates than credit card debt and some car loans.
  • You’re contributing to your retirement fund: Some people may disagree with investing while you’re in five figure debt with student loans, but looking at compound interest, it can pay off.

Instead of just having blind gazelle intensity, I think your money would be better served being channeled to above goals.

Depending on how you feel, you may just contribute the minimum amount to receive your employer’s 401(k) match while you pay down your student loans. Others may just pay the minimum on their student loans and invest the maximum they can.

Deciding on What Works Best for You

My guidelines for prioritizing how my income is dispersed is based on a few things. The gist of it comes down to looking at the long term benefits, both financially and otherwise.

  • It can improve monthly cash flow. If I can reduce or eliminate a recurring monthly expense, then I’ll look into paying it off sooner.
  • Reducing the debt can give some peace of mind. While having the numbers to back up a goal is wonderful, I know that sometimes it’s not just about the numbers. If we can sleep easier with one less bill, then paying it off sooner can be beneficial.

Everyone has their own criteria on how they want to accomplish their goals. Defining your own guidelines can increase your success rate.

Handling Financial Goals

What are your financial goals? How have you’ve been doing so far?

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Is The Commission Paid To Your Financial Advisor Ethical?

By: Mike | Date posted: June 29, 2010 (4:57 am)


Being a financial planner is not always fun. I often find myself between a rock and a hard place: the best interests of my client and the target of the hand that feeds. Unfortunately, our profession leads us to a continuous conflict of interest. Even though I always disclose if I get a better commission from one investing solution than another, I am still in the middle of a conflict of interest between the client and my pocket.

During the 63rd CFA institute congress in Boston, MA, Ariely mentioned that a financial advisor is always in a losing position if he is in a conflict of interest while doing his job. I was surprised to read this since I had thought that by disclosing the way I am compensated decreases the potential conflict greatly since the client had all the information to make the best decision possible. However, he made a very interesting point.

When you disclose that you make more on one product than another (which I do), there are 2 possible conflicts of interest that may arise:

#1 The client may ignore or give less attention to the solution with the higher commission attached since he may think it’s only good for the advisor.

#2  The advisor may reinforce his arguments in the favour of the higher paid solution thinking he’s right since he disclosed his conflict of interest upfront.

No matter what you do, no matter how ethical you are; there is always a conflict of interest when money is related to your actions.

However, I still think that it is important to discuss with your advisor on the manner by which he gets paid. Depending on which company he works for, his income can be determined by a lot of things:

#1 100% commission

#2 100% salary

#3 Salary + commission (based on revenues, growth, objectives, etc.).

Therefore, if you spend enough time knowing how your financial advisor is paid, you will be in a better position to understand if he is trying to work for your best interests or if he is only working for himself.

The main problem with this issue is that financial advisors must be paid (like any other worker). However, a 100% salaried approach will encourage people to slack off and not try to give the best service possible (they will end-up with the same pay check anyway, so why bother?). On the other hand, having a 100% commission pay check will push the advisors to sell as many products as possible in order to have a big fat pay check at the end of the month. This doesn’t sound ethical either!

In my opinion, I prefer the mix between base salary plus a variable commission. Where I work for example, I have a bonus based on the net growth of my book. Therefore, if I sell a lot of things but I don’t do my job right, my clients will withdraw their money sooner or later and this will affect the net growth of my book. This is how this system pushes a financial advisor to keep a higher level of service. While not being perfect, I think we have an interesting way of compensating financial advisors.

How do you feel about commissions? Do you think financial advisors should be only be paid a base salary?

Friend or Foe: The Student Loan

By: Mike | Date posted: June 28, 2010 (5:00 am)


About 2 weeks ago, I wrote my first article of my “Friend or Foe” series looking at the pros and cons of having a credit card. As dealing with financial products becomes more and more complex, I thought that exposing their advantages and disadvantage could be a great idea. So today I am looking at student loans. While their existence is essential for many people if they want to get a good job, their use is not always for the greater good.

Student loans are pretty useful!

In an economy where service and knowledge are key, getting a decent education is the very first step if you wish to live a comfortable life. The only issue is that education is quite expensive and most parents cannot afford to pay the entire college tuition on their own for each of the children (especially if they have 4 of them!). So what do you have left to finance your studies? Certainly not your credit card!

Some students are able to work part time while going to college. I did that personally, working 15 to 25 hours a week while going to school full time, it sounds like a good idea. It will not only bring you more money but it will also force you to get organized, start your journey in the working world while building your network. Unfortunately, those few hours won’t be enough to cover all your expenses.

This is how student loans come into play. They offer a low interest and low payment schedule (that usually only starts once you finish your degree) to finance your college expenses. It is the best financial product to finance your expenses because of its flexibility and low cost. Since you are starting your life, it is not the right time to handcuff yourself with rigid financial products!

How a student loan can get you in trouble?

I have seen many people getting the biggest student loans they are entitled to year after year. They were thinking they could use this money to buy a car, new clothes or treat themselves to a vacation. Remember dear friends, if you don’t have to pay for it right now, it doesn’t meant that it’s free.

When you finish school with student debts exceeding 35K, I hope for your sake that you are a now a doctor ;-) . If not, you can be paying back your student loans for a very long time.

As it was the case when I reviewed the credit card, student loans can be a weapon of massive financial destruction if you use them based solely on the fact that you don’t have to pay it back right away.

I should have used student loans

I was lucky enough to receive help from my parents to pay for my tuition. I also made the choice to work full time (35 hours/week) while studying. Therefore, I finished school with no outstanding student loans. However, I could have used this money to build assets.

Investing money that you borrowed, paying a low interest on and that you don’t have to pay back right away could have been the best leveraging opportunity that I missed.

I’m not saying that you should get student loans to leverage this money but if you don’t need financial support, maybe getting a few bucks to invest in the market or buy your first property could be an interesting move. What do you think?

Green Panda; What is Cool Around the Web This Week

By: Mike | Date posted: June 25, 2010 (5:00 am)

Every Friday, I’ll pull out the 15 coolest personal finance article I found on the blogs I read weekly:

#1 Cool Millionaire Calculator @ Monevator

#2 How To Build a Bond ETF Portfolio @ Intelligent Speculator

#3 How to Reduce Student Debts @ The Digerati Life

#4 West Coast Living @ Finanical Samurai

#5 Guaranteed Issue Life Insurance @ The Wealth Pilgrim

#6 The Cold Hard Truth: Debt is Stupid and you Might Be too @ Enemy of Debt

#7 Are ETFs bad for Investors? @ Oblivious Investor

#8 How Does a Young Person Obtain a Mortgage? @ Studenomics

#9 Is it too Late for Retirement Planning? @ The Financial Blogger

#10 Guaranteed Investment Certificate Explained @ The Canadian Finance Blog

#11 The Changing Foundation of Marriage @ Money Smarts Blog

#12 It is Better to Buy or Rent? @ Moolanomy

#13 How To Create A Perfect Ebay Listing That Sells @ Being Frugal

#14 Which Retirement Account is right for me? @ Money under 30

#15 What is Peer to Peer Lending? @ PT Money

Killing Student Loans When You’re Still a Student

By: MD | Date posted: June 24, 2010 (6:00 am)

Most articles about eliminating student debt are written for people that aren’t students anymore. College graduates and young professionals are often searching for practical tips on how they can reduce their student debt and on advice regarding student debt consolidation.

Thankfully, plenty of current college students follow this blog. This is why I wanted to help this intelligent bunch become proactive and focus on paying down student loans before the first day of the “real world” begins. Let’s look at how college students can begin killing their student debt right now…

Focus when you “shouldn’t.”

I know, I know. It’s summer time and student loans is the last thing that you should focus on. However, a little bit of thought right now can save you lots of hassle (and money!) down the road. Okay instead of giving you empty theory, allow me to share some ideas for what you can do to work on your student loans at this very moment:

  • Look over your balance. Figure out exactly how much money you owe at this very moment. I know that this will be fairly depressing the first time around. But like they say in the movies, “the truth will piss you off, and then it will set you free.” Figure out how much it is exactly that you owe and then consider how you’ll pay this off and how long it’ll take you.
  • Calculate possibilities. Run a few numbers. One calculation I like to run is the “what if? calculation.” I run some numbers and I check out how much money I would save if a “what if?” scenario were to arise. For example, what if I stay in this weekend? It usually equates to savings of at least $50. That’s an extra 50 bucks in my savings account or towards my credit card. Now I know that it’s difficult to stay in when it’s a hot summer night. Consider “what if?” calculations in other areas of your life. Eventually, you’ll find a scenario where you can save extra money to put towards your student loans.

Paid internships.

Internships are often seen as free labor. Most students are very hesitant to volunteer in exchange for experience. I understand that. However, most programs do offer paid internships. My business program administration worked to help me find a paid internship. Fortunately, I found a job on my own. Do whatever you can to find out if your program offers paid work terms. Speak with your professors, go to the program office, and check the college’s website. Some internship programs look for you. Others you have to find them. Your goal should be to find a paid internship where you’ll become more valuable in your field when you graduate.

Summer work.

Most of you reading this have obviously about this. It’s either you have a summer job or you’re in the process of looking for summer work. Either way, I’m sure I don’t need to stress the importance of working during the summer months for you guys.

Work during the school year.

Everyone hates this one. The thing is that we all have some free time during the school year that we can put in to work a few hours. The best part is that most student jobs offer flexible hours (bartending) and decent experience (tutoring/school admin work). If it wasn’t for working during the school year, I would probably be in the red right now.

(Note: If your program is absolutely rigorous, don’t yell at me. You can still apply the other concepts in this article.)

Realistic lifestyle.

Always remember that you’re still a college student. The bottle service and Gucci shoes may be enticing, but how will you pay for it? Who will you impress? How will you keep up with the professionals earning 6 figures? Are you willing to start your career in the negatives?– Or do you want to have fun in college (on a budget) and start your working life with strong financial fundamentals?

Are you ready to start killing off your student loans right now?

image source: jadefrog_01

Finding and Buying Health Insurance

By: Green Panda | Date posted: June 23, 2010 (10:18 am)

When we first moved to North Carolina a couple years ago, we decided we needed to get short term insurance to cover us until I qualified for insurance with the job I took.

Health Insurance can Protect your Finances

Getting the health insurance for yourself, whether you’re a college student or new graduate is important. Medical bills can have a huge effect on your finances and chances of filing bankruptcy. The good news is that you can find ways to get some kind of coverage, depending on your situation.

If possible, see if you can stay on your parents’ health insurance plan while you’re in school. Not only will you probably find a cheaper premium, you may also get better coverage under their plan.

Sometimes, though, you have to get your own health insurance plan. It’s not as daunting as you may think, it just takes some time to shop around.

Criteria for Choosing the Right Health Insurance Plan

There are three factors you should consider before purchasing a health insurance plan – premiums, deductibles, and copays/coinsurance.

  • How much can I pay for my premiums? If you’re a college student or a new graduate on a strict budget, have this number first. You really need to figure out what you can and can’t afford before you start comparing. Depending on your current health conditions and health insurance company, your premiums can vary greatly.
  • What is my deductible? Before your insurance steps in with coverage, you’re expected to pay a deductible each year.  The lower deductible is on the plan, the higher your monthly premiums are going to be. If you can manage to have some savings set aside, perhaps savings some of your financial aid money, you can significantly lower your premiums by going with a higher deductible.
  • What is my coinsurance or copay? Coinsurance or copay is your part of the bill. Copays are fixed fees that you pay when you visit the doctor’s office or emergency room. Coinsurance is usually a percentage, for example, your insurance company will pay 80% of the bills and you’re expected to pay 20%.

    • You’ll probably notice how many numbers are floating around when looking at plans. I found it easier to compare insurance plans side by side on a spreadsheet to see what the yearly costs were.

    Your Thoughts on Getting Health Insurance

    Do you have health insurance currently? What tips do you have on finding a good deal?

    Why Asset Allocation Is So Important

    By: Mike | Date posted: June 22, 2010 (5:00 am)


    Over the past months, I have written a few articles about asset allocation and the different asset classes. Knowing the difference between fixed income and equity is the first step as you start on your investing journey. But the next step is even more important, to understand why you need all of this. Can’t you just pick a few stock market indices, build your portfolio and open your account statement in 30 years just before your retirement? If it was so simple, I would not have a job anymore ;-)

    A good Asset Allocation helps you sleep at night

    I’d say that buying a few stock market indices is not a bad investing strategy if you know what you are doing and are not afraid to see your investments melt by 40% in one year.

    So this is why you should use a good asset allocation; to make sure you will never lose 40% in any given year. Before saving the very first penny, an investor is driven by the hope (or financial advisor’s promise) of gain. Their appetite is so violent that the  novice investor forgets about the possibility of losing money. They want to make money, and they want it now.

    On the other hand, the harsh side of reality, when a novice investor can lose 5-10% in the span of a month or 2 (during a nasty bear market for example), he starts to panic. “this wasn’t suppose to happen, I was planning to make money from this, he told me that I should average 6%…” blah, blah, blah, whine, whine, whine…

    A well balanced portfolio will obviously smooth out the dips and the spikes so you stay closer to this so magical average of 6% all along the way. Having different asset classes, will allow you to protect your portfolio against drastic fluctuations.

    A good Asset Allocation makes retirement planning more accurate

    When we use 10, 15, 20 years or more of historical data, we notice that a good asset allocation has a much better chance to give you a steady yield. Why? Simply because you are not trying to bet on a single winner. Since you are betting a little bit of money on several horses, you have more chances to win a little bit each year. As it is impossible to predict which asset classes will outperform 1, 2, 3, 4 years down the road, you are better off having more asset classes to make sure you have some winners in your portfolio.

    What is a good asset allocation anyway?

    By definition, a good asset allocation will be in line with your investor profile. For us mortals, this means that your money will be invested according to 3 questions:

    #1 When do you need your money?

    The length of time your money can remain fully invested before you need to start withdrawing it.

    #2 How much are you willing to lose?

    The amount (in dollars or percentage) you are willing to risk (i.e. lose on paper) before panicking.

    #3 What do you know about investing?

    Your investment knowledge (you would be a fool to invest everything in the stock market without knowing how it works).

    Once you know the answers to those 3 questions, you are ready to make a good asset allocation with the help of a financial advisor to accompany you on your investing journey.

    image source: blprnt van

    Carnival of Money Stories – Why Do I Like Personal Finance So Much Edition

    By: Mike | Date posted: June 21, 2010 (4:58 am)

    Welcome to this edition of the Carnival of Money Stories – Why Do I Like Personal Finance so Much?

    In this Carnival, I outline 4 reasons why I like personal finance so much.

    REASON #1: Keeping My Lifestyle

    I just LOVE working 4 days a week at my day job and having my wife staying home to take care of my 2 children. If I wasn’t managing my personal finance properly, I could definitely not keep up with my lifestyle. So money make me realize one of my dream; spending a lot of time with my family.

    Intelligent Speculator presents My Approach To Investing posted at Intelligent Speculator.

    The Financial Blogger presents Sometimes, Not Asking For A Raise Is The Best Strategy To Get One posted at The Financial Blogger.

    PT presents Stated Income Mortgage: No More Liar Loans Available posted at PT Money.

    The Amateur Financier presents Confession Time: I Have Credit Card Debt | The Amateur Financier posted at The Amateur Financier.

    Madeleine Begun Kane presents Married To Money posted at Mad Kane’s Humor Blog.

    James Madison presents Debt Collector Enemies posted at Debt Consolidation 2U.

    Briana Ford presents I’m Not Poor, I’m On a Budget posted at GoBankingRates.

    REASON #2: Personal Finance is Always Evolving

    If you are looking for something that is always renewing, where you will always learn new stuff, try learning more about personal finance. There are a tons of ways to manage a budget, to structure your financing and to invest your money and I truly believe that the best is yet to come.

    Money Beagle presents I Admit, I’m A Cheater (And I Don’t Feel Guilty) posted at Money Beagle.

    Adam presents Best business to get into posted at BusinessBlog.

    MoneyNing presents Is Our Drive for Higher Income Ruining Our Culture? posted at Money Ning.

    BWL presents 7 Investment Lessons From Peter Lynch posted at Christian Personal Finance.

    Jeff Rose, CFP presents Dave Ramsey’s FPU Week 7: Types of Life Insurance You Need posted at Jeff Rose.

    Michael presents Understanding the Wall Street Stock Market Crash of 1929 posted at The Dough Roller.

    REASON #3: There are no absolute answer

    There are several fields in life where there is only 1 good answer. In the world of personal finance, nothing is completely black or white; there is always a gray area. This leads to a lot of great debates where brilliant minds are opposed. So is it better to pay of f your mortgage faster or to invest more money?

    Cheapskate Sandy presents Real Life: Foreclosure Easier Than Loan Modification? posted at Yes, I Am Cheap.

    Kristina presents What Your Personal Banker Can (and Cannot) Do posted at DINKS Finance.

    J. Money presents Goodbye 10% of My Salary! posted at Budgets Are Sexy.

    Madison DuPaix presents How Much Does a Funeral Cost? posted at My Dollar Plan.

    FMF presents And Yet Another College Student Who Needs a Clue posted at Free Money Finance.

    vh presents Death by 1000 tiny annoyances posted at Funny about Money.

    Barb Friedberg presents HOW TRADING IN A CAR EVERY 2 YEARS MAKES GOOD FINANCIAL SENSE posted at Barbara Friedberg Personal Finance.

    REASON #4: You Can’t Buy Happiness But You Can Certainly Buy Magic Moments

    I just come back from the Cirque du Soleil last weekend with my wife and my 2 children. We had an amazing day looking at this show. During a few hours, our family was transported in a very special place where magic exists. Looking at the sparkles in the eyes of my older one, I knew he had a blast during this moment. This would have not been possible without money!

    Donna Freedman presents Automatic frugality. posted at Surviving and Thriving.

    Silicon Valley Blogger presents Get Cheap Clothes Online or Elsewhere With These Tips posted at The Digerati Life.

    BackTaxesHelp.com presents Borrowing Money from Family posted at Money Smart Life.

    Bucksome presents I Broke Up with My Hairdresser posted at Buck$ome Boomer’s Journey to Retirement.

    Nicole presents Runaway Spending: How I Lost My Grip on Our Finances posted at Rainy-Day Saver.

    Mr. Credit Card presents Open Letter To Ryan Grimm, Huffington Post posted at Ask Mr Credit Card’s Blog.

    Miss Bankrupt presents Bankruptcy and Why I’m Smarter Than Dave Ramsey posted at Miss Bankrupt.

    Next week, the carnival of money stories will be hosted at Sweating The Big Stuff.

    image source: blatantnews, dannysullivan,

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