Archive for July, 2011

Yakezie Link Time

By: MD | Date posted: July 29, 2011 (6:00 am)

The other day we went into building a job freedom fund. We took a look at the idea of what you need to do financially before you decide to quit your job. Quitting a job and leaving behind a steady paycheck is a big risk. You need to be prepared for it in advance.

The Yakezie links for the week:

1. Plastic Bags Banned @ Retire by 40.

2. 100 Words On: The Importance of Having a Financial Back-Up Plan @ Len Penzo.

3. Thank You, Netflix. And No, That’s Not Sarcasm @ Control Your Cash.

4. The story that made me save for retirement @ First Gen American.

5. Starting My Dividend Investing Portfolio @ Saving Money Today

6. Different Types of Bankruptcy @ Deliver Away Debt.

7. How to Survive a Heat Wave With No Air-Conditioning @ Inexpensively.

8. Market Thoughts: US Debt Drama and Pinecrest Energy @ Beating The Index.

9. 6 Ways To Eliminate Food Waste @ Money Beagle.

10. Financial Tips for Women in the Midst of a Divorce @ Financially Poor.

11. Are CSAs Worth the Cost? @ Ultimate Money Blog.

12. How to Find a Programmer, Web Designer, and Other Freelancers @ Car Negotiation Coach.

13. If I Had A Million Dollars @ PF Firewall.

14. Could You Decrease Your Lifestyle Spending? @ TFB.

15. Movie Experiences Are Expensive: How to Handle The High Costs @ STBS.

You Need to Pay Yourself First

By: MD | Date posted: July 28, 2011 (6:00 am)

You Need to Pay Yourself First

Personal finance is one of those areas where there are many fundamental topics. Just like when you begin working out, you understand that you need to train hard and eat well. You know that these are the basics. With money management we all know that we need to make money, spend less than we earn, and save. In between all of this there are many tactics and tricks to make things easier.

As we continue in the Saving Tons of Money Series, we shift our focus to paying yourself first. Before we get into the meat of the article, let’s understand why do you need to pay yourself first?

You can’t screw it up.

Once your pay yourself first, you really can’t screw up the process. The process gets all messed up when you delay your plan to save your money. Delaying to save money will almost always cause you to not save this money. No matter how good your intentions might be at the moment. You want to create a system that you can’t screw up if you realistically want to start saving your money.

Forces you to save money.

You’re forced to save your money when you set it aside and lock it up in your savings account of choice. If you save your money and let it be, you’ll be pleasantly surprised when you see how quickly your savings are building up.

Our wants start to kick in.

Anytime I see any sort of advertisement or I walk into a mall I start to think of things that I need to buy. I know that I don’t need this stuff. The thing is that everyone is susceptible to marketing. This is why we need to save our money and put it away so that we don’t start thinking of crap that we need to buy. At that rate you’ll never save any money. You’ll constantly find new things that you want. This will bring you further from your money goals.

Okay so you know that you have to pay yourself first. What’s next? What are the best ways to pay yourself first?

Get the money deducted from your paycheck.

This way you’ll never have to even see the money. You can pretend that you got a pay cut or something. The funny thing is that after a few paychecks you’ll get adjusted to your “new income.” All you have to do is go to your payroll department in HR and request that they take the money off your paycheck. At the most you might have to fill out a few forms and decide where you want your money to go. I recommend that you take the simplest option. You don’t want to put off automatic deductions just because you can’t decide where you want to put your money. Don’t let the paradox of choice prevent you from saving your money.

Manually transfer the money over every time you get paid.

This is the ideal strategy for those of you that have an irregular income. Whenever you get paid through your freelance work or your business, you can decide how much money you want to put away. I don’t want to throw out an arbitrary percentage. It all depends on your bills, goals, and of course taxes.

The only caveat here is that you might get lazy if you need to manually transfer your money first. This is why positive reinforcement helps and it makes sense to stay tuned to your favorite personal finance blogs for a reminder of some of the fundamentals.

Do you believe in paying yourself first? Has this strategy worked for you?

Check out the other article in the series:

The Power of Passive Savings.

(photo credit: medmoisellet)

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How Much Money Should You Save in Your Job Freedom Fund?

By: Green Panda | Date posted: July 27, 2011 (5:00 am)

What’s a Freedom Fund?

The best way to think of your job freedom fund is as a career emergency fund. Should you need to jump ship, you’ll want to have something saved up to help you make the transition – such as moving cross country or take a necessary course to get certified. savings for job fund

This is about investing for yourself. You don’t want to pass up on a once in a lifetime career or opportunity, because you didn’t have a safety net for yourself and/or your family.

How Much Money Do You Need?

There are a few factor you’ll need to consider to determine how much you need in your job freedom fund:

  • How quickly can you expect to find another job in your industry? Some careers right now are stalling because it’s hard to switch over to better jobs. When answering this question, please be realistic with your estimates. It can help
  • Do you have a job offer already? With many people a bit more cautious before jumping ship, many wait until they have a comepeting offer. That makes sense – you don’t need as much to money with the transition.
  • Do you have to move to find another job? We had to move for a job opportunity ourselves a couple of years ago.

Everyone’s numbers will be different. You can’t be comparing yourself to others with the amount. It’s something you have to calculate for your situation.

How to Save Money Each Month

For us, automating deposits into savings has been a huge help for us. We try to keep our savings as a bill, meaning it is a part of our budget. We incorporate it as if it was non-negotiable. With that mindset, we have been able to achieve certain saving goals for our family. We start with a goal and then break it down to monthly deposits.

Don’t be discouraged if you can only allocate a certain amount each month, it’s better to start small and build from there than just wait for a raise to help you put down more money.

If you need ideas on day to day savings, MD has a great post on that exact topic. You may surprise yourself with how much you can save in one year.

Make sure whatever bank or credit union you choose that it has some important features to protect your savings:

  • Covered by FDIC/NCUA
  • No monthly maintenance fee
  • $0 required minimum balance
  • Earn a reasonable interest rate

While higher earning interest is a great goal, the main focus is to have the fund ready to use when you need it. That’s why I recommend not keeping it in a certificate of deposit (CD) or investing it in the stock market in hopes of getting a higher return.

Thoughts on Quitting a Job

How did you know it was time to quit your job? How did you prepare to make the transition? How successful were you? Are you deciding if it’s time to quit? Don’t forget to check out last week’s post on signs that you should quit your job.

Photo Credit: alancleaver_2000

How Much Money Do I Need To Buy My First Home?

By: Kristina | Date posted: July 26, 2011 (7:30 am)

 

Good Morning Everyone. It’s time for the next post in our Investing Our Money in Our Twenties series.  Today’s post is all about buying a home; we will discuss how much money we need for our down payment, as well as the other expenses that come with being a first time home buyer.

 

Should I become a First Time Home Buyer?

Before we decide to become a first time home buyer we have to decide if homeownership is the right financial decision for us. There are advantages and disadvantages of buying a home. Some people put all of their money into their home as their primary asset with the hopes of living in the same home for a long time. This strategy allows the home value to appreciate over the long term.  The continuous increase in the value of real estate is definitely an advantage of buying our first home.  However, having all of our money in one non liquid asset is a major disadvantage of home ownership.

We also have to decide if it is the right time for us to buy a home, and this is definitely a personal financial decision. It may be the right time for you to buy a home, but it may not be the right time for me and vice versa.  Some people buy their first home at 25 years old, and some other people buy their first home at 35 years old.  It really depends on our personal financial situation. Buying their first home is not even a financial goal for some people.

 

How Much Do I Need For My Down Payment?

A down payment is the amount of savings that we give to the bank in order to determine our mortgage payments and get our mortgage approved.  Our total mortgage value is the purchase price of our first home minus our down payment amount.

According to RBC buying our first home is a personal decision, because homeownership is definitely not for everyone.  If we decide to become a first time homeowner we should consider the future impact of buying a home as well as the financial implications.  If we choose to buy our first home at a young age we have to consider that it may become too small for us in the future.  As we get married and start a family we may outgrow our starter home or condo.  The actual price of the home is not the only expense when becoming a homeowner. We should factor in the cost of property taxes, repairs, utilities and moving along with 1.5% of the total purchase price for closing costs.

Very few (if any) Financial Institutions are currently offering Mortgages to their clients with $0 down payment.  Many financial institutions require a minimum down payment of at least 5% of the total purchase price. The lower the down payment, the higher our mortgage payments will be, and therefore the greater risk we are to our bank for default.  This is why our Financial Institution requires us to purchase additional insurance with CMHC  (Canada Housing and Mortgage Corporation).  The CMHC insurance premiums are added onto our mortgage payment and protect our financial institution in case we (as clients) default on our Mortgage.  CMHC insurance is required on all Mortgages with less than 25% down payment of the total purchase price.

 

The First Time Home Buyers Plan for My Down Payment

If you are like many Canadians then you have been continuously saving in your RRSP account and nowhere else.  Usually you cannot withdraw money from your RRSP account without paying a penalty; however, there is an exception for First Time Home Buyers.

The Canadian Government allows RRSP savers to withdraw up to $25,000 from our RRSP to use towards the purchase of our first home.  This is an interest free loan that we lend to ourselves and have to repay within 15 years. Of course the down payment for our first home can come from any form of personal savings or gifts.

 

Here are Previous Posts in the Investing Our Money in Our Twenties series:

Traditional Savings Accounts Are Boring!

You are only 20. So take some risk!

You Won’t Get Rich Overnight

 

Photo by hillsborough

You Won’t Get Rich Over Night. Saving Money Takes Time.

By: Kristina | Date posted: July 25, 2011 (9:00 am)

Good Morning Green Panda Friends. I hope you all had a lovely hot weekend. As we are young we definitely have the luxury of saving our money for the long term. The key to long term investing is to start saving our money now.  Starting to save money at a young age and investing regularly over the long term allows us to take advantage of the compound interest effect, and watch our money grow.  However, saving money definitely takes time and the slow process can sometimes be discouraging; we just have to remember to hang in there for the long term.

Get Rich Quick Schemes Don’t Work

If it sounds too good to be true then the odds are that it probably is.  Get rich quick plans are not brilliant ideas, they are schemes to steal peoples money.  Almost every day I receive a spam email or see a pop up while I am surfing the internet about some type of get rich quick scheme.  Everyone wants me to click a link, send an email, or visit a website to learn how to make thousands of dollars in only a couple of hours.

Some of the latest Get Rich Quick Schemes that I have seen around the web include having a large amount of money deposited into my bank account, winning the European lottery, as well as working from home and earning over $20,000 per month.  The catch to get rich quick schemes is that they promise quick riches after we pay a fee.

The Only Way to Build Savings is to Start Saving Your Money Now

The only tried and truly tested way to build our savings is to start saving our money now and save regularly. Even as little as $50 per month can add up to a lot of money over time.  Even if we can only afford to save $10, it is better than not saving any money at all.

The easiest way to save regularly is through an Automatic Savings Plan.  This allows us to automatically transfer a fixed amount of money from our checking account to our savings account on a regular weekly, biweekly, or monthly basis. It is also a good idea to invest some or all of any extra money into our savings accounts.  Extra money includes birthday gifts, graduation gifts, income tax refunds, as well as quarterly and annual employee bonuses.

Savings accounts and High Interest Savings account are liquid investments that offer security but do not offer a high rate of return.  If we are investing for a period of more than a couple of years we should definitely consider different investment options.

Investment Options to Watch Our Money Grow

Fixed Income options such as Mortgage Backed Securities and Bond Mutual Funds are a good investment option if our investment time frame is between 2 to 5 years.  If we are investing for more than 5 years Balanced or Equity Mutual Funds and ETFs are smart investment options.

As we get comfortable with the daily fluctuations in the value of our investment accounts and we learn more about the risks of investing, we can start to chose more sophisticated (and higher risk) investment options.  High risk investment options include, but are not limited to, individual Stocks and Sector Mutual Funds which invest in a particular country or commodity.

Here are Previous Posts in the Investing Our Money in Our Twenties series:

Traditional Savings Accounts Are Boring!

You are only 20. So take some risk!

 

Photo by Images of Money

 

What’s Cool Around The Web

By: MD | Date posted: July 22, 2011 (6:00 am)

Is it hot enough for you? Let’s cool off with some links:

1. You Can’t Trust Zillow And Its Estimates @ Financial Samurai.

2. Will Your Charge Card Affect Your FICO Score? @ BITFS.

3. Do You Really Want to be Self-Employed? @ The Financial Blogger.

4. 5 benefits for Covered Call ETF’s @ Covered Call ETFs.

5. Do You Want to be a Landlord? Let’s Look at Every Cost Involved @ PIN.

6. 5 Networking Tips for Entrepreneurs @ Studenomics.

7. How Dividend Investing Can Help You Stay Away From Ponzi Schemes @ IS.

8. Got Coke? @ TDGB.

9. The Secret to Frugal Living: Small Course Corrections @ Frugal Dad.

10. What College Major Will Make You Rich? @ Buy Like Buffet.

11. 5 Must Follow Home Energy Savings Tips for Summer @ Free from Broke.

12. Camping With Young Kids – Frugal Folly? @ Money Smarts Blog.

13. Should You Buy A Dividend ETF? @ Boomer and Echo.

14. The 4% Rule: Does It Still Apply for Your Retirement? @ Roth IRA.

15. Don’t Sabotage Your Own Job Interview @ Couple Money.

Saving Tons of Money Series– The Power of Passive Savings

By: MD | Date posted: July 21, 2011 (6:00 am)

Passive SavingsOur next series is about to begin and I’m here to jump into the topic of saving lots of money. The first area that I wanted to cover with saving money is the power of passive savings.

These days everyone is searching for get rich schemes and the newest way to invest your money. We all want a sexy investment. The thought of slowly saving money over time just doesn’t sound appealing at all. Interest rates in a savings account are about 1% and watching this money grow can feel like it’s taking forever

What are passive savings?

It’s when you save your money on a consistent basis and just leave it alone. This means that you leave your money in some sort of a savings vehicle where you can’t easily access your money. This also means that you have to forget these savings as you live your life. Your money grows while you forget about it.

How did I save money passively?

When I first got a decent job at 18, I remember getting a letter about savings bonds from the payroll department. Instead of tossing it out I decide to look into this idea. After looking into it I realized that if I filled out a few forms, the payroll employees would automatically deduct a set amount of money off every paycheck that I receive.

I first setup the deduction for $25 every two weeks. Then I bumped it upto $50. I don’t go near this account. I don’t touch the money. All I do is look at the annual statement when it comes in the mail in January. Last January I was impressed to find out that there was over four grand saved up. That’s a lot of money to passively save up over time without even realizing it. It sure beats checking on your money every day to see how your stocks are doing.

Do you just leave the money?

Yes. Just leave the money in the savings account. For me to access this account I have to call a bunch of different places and go through a few forms. It’s not worth it for me. This is why I have just left the money in the account. I also advise everyone else out there to just leave the money in the specific savings account that it happens to be in.

How long do you wait?

Until you meet your financial goals. I really don’t know what I’m waiting. I’m just letting the money add up. Perhaps I’ll spend it on a large trip one day. Maybe I’ll leave it until I really need it. Maybe I’ll donate it to charity. I really don’t know what the right time is. It all depends on what your goals with your money are. You can wait a year or you can wait ten years.

What if I need the money?

My advice is to tap into your emergency fund or any other savings first. Then you need to take a step back and ask yourself two questions:

  1. Do I really need the money?
  2. Can I just wait?

You’ll quickly find out that you won’t always need the money. I hope that you let the money grow while you carry on with your everyday life.

I really feel that you can save lots of money when you’re passive and you just leave your money alone. Once you let your money sit in an account, you’ll be surprised to see how it accumulates over time. Have you ever passively saved money?

(photo credit: lauren j)

3 Signs That You Should Quit Your Job

By: Green Panda | Date posted: July 20, 2011 (5:00 am)

You’ve been working hard at your job, going the extra mile and hoping to get recognized. You’ve been working to keep your department shining, but you’re just not getting anywhere. time to quit a job

You have this nagging feeling in your gut that it won’t improve. Is it time for a new job? Should you considering quitting your job and moving on to better work opportunities?

Time to Quit Your Day Job?

Leaving your current job is not an easy decision for many people. You’ve no doubt developed relationships with your coworkers and made some progress with your customers. Jumping ship can be stressful, but there are some ways you ease into that transition.

3 Signs It’s Time to Move On from Your Job

If you’re looking making the leap to a new job, you no doubt want to be sure it’s the right call. To help you out, here are 5 signs that it may be time to leave:

  • Company’s Future Looks Grim: Have you noticed that your company has hit something bigger than a roadblock? Have there been layoffs or restructuring of departments? Keep tabs on your industry’s network to see what the word is about your company’s future? DO you think they can dig out of the mess or is it a symptom of a bigger problem?
  • Managers Ramping Up the Pressure: It’s one thing to help the team out in times of trouble, but you feel like your manager has now become a drill sergeant, keeping you in line – not interested in developing your skills to benefit the company and yourself? Are you under the weight of a quota, either officially or unofficially?
  • No Room to Grow: Do you feel like your job will be exactly the same a year or two from now? Do you want to be able to do something different? I’m not talking about having to always be the center of attention. I’m talking about opportunities for you to take the lead on some projects or clients to gain leadership experience and hone your skills.

As you can see, examining the signs does take time and effort, but it’s really worth it. You can be confident with whatever you decide and pursue another job or become an entrepreneur.

Options for Your Next Step

Before you quit, you should have some idea of what you want to accomplish.

  • Move to another company in the same industry.
  • Keep the same position, but switch industries.
  • Start a new career.
  • Start a small business yourself.

Finding the right move for you involves an honest self assessment.

Thoughts on Quitting a Job

How did you know it was time to quit your job? How did you prepare to make the transition? How successful were you?

Photo Credit: michelhrv

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