March, 2010:

Savings vs. Debt

Mar 25th, 2010
by Guest.
1 comment

The battle between savings and debt is about more than whether you would rather enjoy yourself now, or save up for the future because since the Global Financial Crisis many people around the world weren’t given that choice at all. Instead families and individuals left without their main source of income when the breadwinner lost their job realised that in saving up for their future, the future is now.

People lost their jobs and faced financial hardship before the GFC, but the fact was brought to the forefront of our minds because for the first time, at the same time, we all knew someone or we were that someone, who had lost their job and were in danger of losing everything else. Thankfully we can all learn a lesson from such global financial crises and the lesson here is whether you are best suited to starting and building a healthy emergency savings fund, or whether you should pay down your debt.

Benefits of Starting a Savings Fund if You’re in Debt

It can be hard, and feel unnatural to be putting money away in a savings account when you know that you’re paying more in interest on a credit card than you’re earning in interest on your savings. But an emergency fund in this situation is not about the highest interest rate your savings can earn, it is about having funds available to keep on living and get back on your feet, without going backwards.

You may benefit from starting an emergency savings fund before paying off your debt if:

  • You have a savings account with a zero balance. If you have not savings and no emergency fund then you should start making regular contributions to a savings account while you make the minimum payments to your credit card. This not only makes sense if you are feeling insecure about your job, but it also means you have cash on hand for more short term emergencies like surprise school fees or urgent car repairs.
  • You have a significant amount of debt. If you have a high credit card balance, or a number of credit cards then it is likely to be awhile before your entire credit card debt is repaid. This means you will be going a long time without a financial safety net and only your personal budget can tell you how long that will be.
  • Your emergency fund covers all your expenses. An emergency fund should have enough money to cover between three and eight months of your living expenses and when you calculate your living expenses to know how much you need to save, your credit card repayments will be in those expenses. Therefore, with a savings fund, your credit card bills will keep getting paid. However, if you have paid off your credit cards in favour of starting a savings fund, and are using your credit cards as your savings fund you’ll just be getting back into debt.

Benefits of Repaying Your Debt With Your Savings

If you are the kind of person who can’t stand to have debt hanging over their head then you may channel the portion of your wages which would be destined for a savings account onto your credit card to repay your debt sooner. While it makes good financial sense to get out of your bad debt as soon as possible, it may only be the best option for your situation if:

  • You are secure in your job and situation. Perhaps you are self employed with strong clients or you simply know the company you work for is one which is able to profit from the GFC rather than go under with it and so you know that for the short to medium term at least that you won’t need three to eight months worth of living expenses saved up. Instead you can target your wages at reducing your credit card debt and have your money working to reduce the interest charges you’re paying, instead of sitting in a savings account where the interest earnings are not enough to break even.
  • You have a small savings fund. Even if you don’t have the full eight months of emergency expenses saved, you may have enough to cover ‘everyday emergencies’ which stops you from reverting back to using your credit card and allows you to focus on repaying your debt without adding new debt.
  • If you have the spare money, pay off your cards sooner and you can start a savings account too. if you repay your credit card debt then you can of course start a savings account too and your savings and your debt are no longer in competition – you can do both. For example, if you have a $5,000 credit card debt at 15% interest and your minimum monthly repayments are $100, you may have another $100 to spare each month. In putting that $100 into a savings account and repaying just the minimum on your card you pay off your credit card in 38 months and pay over $1,400 in interest. However, if you put both the minimum $100 and the spare $100 onto your credit card, you can pay it off in 31 months and you save almost $400 in interest; plus you can then put your old credit card repayment and your extra credit card repayment into a savings account and have the same savings in less time.

Being Financially Responsible vs Not

Whether you choose to pay down your debt in favour of a savings account or you focus on building a savings fund and pay only your minimum bills there are some general savings and credit card tips you should consider:

  • Just because you wish you had a savings fund a year ago doesn’t mean you should start one now. Hindsight is a wonderful thing and if you or someone you know was caught without an emergency fund when you lost your job in the GFC then you know the benefits of a savings account. However, you also know the benefits of reducing your debt and your monthly commitments and it is important to remember that the worst of the GFC has passed and in learning from your own and others’ mistakes you can be more financially responsible by living within your means rather than charging everything to your card.
  • You know yourself. Only you know whether you are the type of person who would feel more comfortable with a healthy savings account or a balance free credit card. Is it being in debt which keeps you up at night or is it living week to week without any spare savings? You only know whether paying off your credit card will give you license to accrue a new balance, or whether you’ll be able to cut it up, or pay the balance back to zero at the end of each month.
  • Live within your means. The savings vs debt debate is not only about how you will pay your bills if you lose your job, it is also about examining your spending and saving habits and making financially responsible changes. So many people got into so much trouble during the GFC because they were living outside of their means – whether that meant they weren’t saving or they were spending more than they earned on their credit cards, it was all about consumption. Instead, use the savings vs debt debate to decide how you can best avoid your own financial crisis and start living within your means for the present and the future.

This is a guest post by Alban from Best Credit Cards. Alban is a personal finance writer. He provides budgeting tips, and helps people to compare the best credit cards</a> online

Advantages of Index Funds

Mar 12th, 2010
by Guest.
3 comments

I’ve often said that I’m a boring investor. I pretty much stick with index funds. They populate my retirement account and my son’s 529. When my husband gets a retirement plan through his work, it will probably involve index funds. While it is certainly possible that I could make more by going with different types of investments, and trying my hand at stock picking or investing in commodity futures or currencies, the fact of the matter is that it is too much work and stress for me. So I go the boring route.

Index funds are groups of investments that follow an index. This doesn’t have to be a stock index; index funds also include groupings of bonds, commodities, currencies and other investments. There are indexes based on foreign investments, on growth investments and on value investments. In fact, it is possible to create a diversified portfolio, with your preferred asset allocation, using only index funds. Once you understand the advantages of index funds, you might not want to invest any other way.

Why I like index funds

Since you can diversify, adding more growth opportunities to your portfolio, as well as creating a safety net with more stolid funds, you can lay in significant returns over time, without the same level of volatility that comes with picking individual investments. In my mind there are three main advantages to index funds:

  1. Long-term solidity: Individual investments fluctuate a great deal. However, since index funds are tied to market performance, their volatility is quite low over time periods of 15-25 years. Investments have yet to lose, overall, during spans of decades, but individual investments can lose. You may not make a big score, but if you are consistent with index fund investing, you are likely to do well enough to meet your lifestyle requirements later in life.
  2. Low costs: Transaction fees, commissions and other costs can easily eat into your returns. Managed funds are especially known for this, since you have to pay transaction fees on top of all the other administrative and load fees. Index funds, though, require little management and see little turnover. As a result, costs are generally much lower than with other types of investing, and you keep more of your money.
  3. Minimal management requirements: You don’t even have to do much to manage your index funds. If you want to create an asset allocation based on the 100 years method, that’s easy. If you are 30, invest 70% of your portfolio in stock index funds and 30% in bond index funds. If you are more daring, looking to mix it up a bit with commodities and cash, you can do that, too. You could create an investment portfolio with 50% stocks, 20% bonds, 20% commodities and 10% cash – all with index funds. All you have to do re-balance your portfolio annually or semi-annually, as you need.

Of course, not everyone likes index funds as much as I do. And you really should do your own research and maybe consult a financial professional before making a decision. I like the fact that there is minimum fuss, low costs and that my stomach doesn’t clench in fear every time the Dow takes a dive. And, since I’m planning for the long term, I have plenty of time to let my boring investment style work in my favor. I may never be a billionaire, but by the time my son is out of the house, I’ll be at a comfortable level of wealth.

This is a guest post from Miranda Marquit. She is a Freelance Writer and a Professional Blogger.

Forbes: World's Richest People

Mar 10th, 2010
by Sean.
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There are 1,011 billionaires in the world this year. These titans control entire swaths of the global economy, from energy and steel to fashion and telecommunications.

No. 1: Carlos Slim Helú / $53.5 billion / telecoms

Carlos Slim Helú © Associated Press

Mexico’s telecom tycoon, who pounced on privatization of the national telephone company in the 1990s, is world’s richest person for first time after coming in third place last year. Net worth up $18.5 billion in a year. Recently received regulatory approval to merge his fixed-line assets into América Móvil (AMX), Latin America’s biggest mobile-phone company. His construction conglomerate, Impulsora del Desarrollo y el Empleo, builds roads and energy infrastructure.

Son of a Lebanese immigrant also owns stakes in financial group Inbursa (GPFOY), Bronco Drilling (BNRC), Independent News & Media, Saks (SKS) and The New York Times Co. (NYT). Newspaper company’s stock popped in early March on talk Slim might buy a controlling stake; he denies the rumor. Donating $65 million to fund a research project in genomic medicine with American billionaire philanthropist Eli Broad.

No. 2: Bill Gates / $53 billion / Microsoft

Bill Gates © Associated Press

Software visionary is now the world’s second-richest man. Net worth still up $13 billion in a year as Microsoft (MSFT) shares rose 50% in 12 months; value of investment vehicle Cascade Investments also swelled.

More than 60% of fortune held outside Microsoft; investments include Four Seasons hotels, Grupo Televisa (TV) and AutoNation (AN). Stepped down from day-to-day duties at Microsoft in 2008 to focus on philanthropy. Bill & Melinda Gates Foundation dedicated to fighting hunger, improving education in U.S. high schools and developing vaccines against malaria, tuberculosis and AIDS.

No. 3: Warren Buffett / $47 billion / investments

Warren Buffett © Associated Press

America’s most prominent investor up $10 billion in past 12 months on surging Berkshire Hathaway (BRK.A) shares; says U.S. has survived “economic Pearl Harbor” but warns recovery will be slow. Shrewdly invested $5 billion in Goldman Sachs (GS) and $3 billion in General Electric (GE) during 2008 market collapse. Recently acquired railroad giant Burlington Northern Santa Fe for $26 billion.

“We’ve put a lot of money to work during the chaos of the last two years,” Buffett says. “When it’s raining gold, reach for a bucket, not a thimble.”

Berkshire Hathaway book value was up 19.8%, to $21.8 billion, in 2009. Son of Nebraska stockbroker met value investor Benjamin Graham while studying economics at Columbia University. Took over textile firm Berkshire Hathaway in 1965; used company as a vehicle to invest in insurance (Geico), food (Dairy Queen), utilities (MidAmerican Energy) and, recently, green tech (electric-car maker BYD).

No. 4: Mukesh Ambani / $29 billion / petrochemicals, oil and gas

Mukesh Ambani © Associated Press

Global ambitions: His Reliance Industries, already India’s most valuable company, recently bid $2 billion for 65% stake in troubled Canadian oil sands outfit Value Creations. Company’s $14.5 billion offer to buy bankrupt petrochemicals-maker LyondellBasell was rejected. Since September, company has sold Treasury shares worth $2 billion to be used for acquisitions.

Late father, Dhirubhai, founded Reliance and built it into a massive conglomerate. After the elder Ambani died, Mukesh and his brother, Anil, ran the family business together for a brief time. But siblings feuded over control; mother eventually brokered split of assets, with Mukesh getting energy, oil and gas and petrochemicals businesses. Still at odds with Anil over gas-supply agreement. Owns cricket team Mumbai Indians.

No. 5: Lakshmi Mittal / $28.7 billion / steel

London’s richest resident oversees ArcelorMittal (MT), world’s largest steel-maker. Net profits fell 75% in 2009. Mittal took 12% pay cut amid slump, but improved outlook pushed stock up one-third in past year.

Looking to expand in his native India; wants to build steel mills in Jharkhad and Orissa but has not received government approval. Started in family steel business in India in 1970s; branched out on his own in 1994. Initially bought up steel mills on the cheap in Eastern Europe. Earned $1.1 billion for selling his interest in a Kazakh refinery in December.

Sits on the boards of Goldman Sachs (GS) and European Aeronautic Defence and Space (EADSF). Upped stake in struggling British soccer team QPR in February. Funding 400-foot sculpture to be built in London’s Olympic Park in time for 2012 Olympics. Owns 12-bedroom mansion in London’s posh Kensington neighborhood. Daughter-in-law Megha recently bought insolvent German fashion house Escada.

No. 6: Larry Ellison / $28 billion / Oracle

Lawrence Ellison © Associated Press

Oracle (ORCL) founder’s fortune continues to soar; shares up 70% in past 12 months. Database giant has bought 57 companies in the past five years. Completed $7.4 billion buyout of Sun Microsystems in January; acquired BEA Systems for $8.5 billion in 2008. Studied physics at University of Chicago; didn’t graduate. Started Oracle 1977; took public a day before Microsoft in 1986. Owns 52% stake in business-software company NetSuite (N); shares worth $480 million.

Racing junkie owns 453-foot yacht, Rising Sun, with pal David Geffen. Won America’s Cup in February, besting longtime rival billionaire Ernesto Bertarelli.

No. 7: Bernard Arnault / $27.5 billion / luxury goods

Bernard Arnault © Associated Press

Bling is back, helping French fashion icon grab title of richest European as shares of his luxury goods outfit LVMH (LVMUY) — maker of Louis Vuitton and Moet & Chandon — surge 57%. LVMH is developing upscale Shanghai commercial property, L’Avenue Shanghai, with Macau billionaire Stanley Ho.

Renaissance man owns French tour operator Go Voyages and yacht builder Royal Van Lent; has a stake in French retailer Carrefour (CRERY). Built Le Cheval Blanc in ski resort town of Courchevel, France, where he likes to spend New Year’s Eve.

Father, Jean, who died in January, made small fortune in construction; sale of that business later helped fund Arnault’s move into real estate and eventually into luxury goods. Still a family affair: son Antoine, 32, and daughter Delphine, 34, sit on LVMH’s board. Wife is a concert pianist; Arnault himself reported to be an excellent piano player.

No. 8: Eike Batista / $27 billion / mining, oil

Eike Batista © Associated Press

Has vowed to become world’s richest man; may be on his way. This year’s biggest gainer added $19.5 billion to his personal balance sheet. Son of revered former Brazilian mining minister who presided over mining giant Vale (VALE); got his start in gold trading and mining.

Insists Dad didn’t help: “All my businesses started from zero. My father was a problem for me because he never let me near Vale.”

Made a pile in resources and other services, but two-thirds of his fortune comes from relatively new source, OGX Petróleo e Gas Participações, oil-and-gas exploration company he founded in 2007 and took public a year later. Police raided his home in 2008, alleging Batista had smuggled gold and unfairly influenced the acquisition of a railroad. He denied all wrongdoing, emerged unscathed.

One-time champion offshore powerboat racer. Formerly married to Playboy cover girl. Provided financing to Rio de Janeiro’s Olympic committee, helping the city win its bid for 2016 Olympic Games.

No. 9: Amancio Ortega / $25 billion / fashion retail

Amancio Ortega © Miguel Vidal/Reuters

Spanish style maven lords over Inditex; fashion company operates under several brand names, including Zara, Massimo Dutti and Stradivarius, and has 4,500 stores in 73 countries, including new spots in Mexico and Syria. Set up joint venture with Tata Group subsidiary to enter India in 2010.

Betting on Florida real estate: bought Coral Gables office tower that is currently home to Bacardi USA. Also owns a luxury apartment complex in Miami; properties in Madrid, Paris, London and Lisbon; and a horse-jumping circuit. Has an interest in a soccer league and investments in gas, tourism and banks.

Railway worker’s son started as a gofer in a shirt store. With then-wife, Rosalia Mera, also a billionaire now, started making dressing gowns and lingerie in living room. Shuns neckties and fanfare. Daughter Marta works for Inditex; speculation has it she’s being groomed to eventually replace her father.

No. 10: Karl Albrecht / $23.5 billion / supermarkets

Karl Albrecht © KPix

Owns discount supermarket giant Aldi Sud, one of Germany’s (and Europe’s) dominant grocers. Has 1,000 stores in U.S. across 29 states. Estimated sales: $37 billion. Plans to open New York City store this year.

With younger brother, Theo, transformed mother’s corner grocery into Aldi after World War II. Brothers split ownership in 1961; Karl took the stores in southern Germany, plus the rights to the brand in the United Kingdom, Australia and the U.S. Theo got northern Germany and the rest of Europe.

Retired from daily operations. Fiercely private. Little known about him other than that he apparently raises orchids and plays golf.

See the complete list of billionaires.

Sources:

Forbes -  The Richest People In The World
MSN – The world’s 10 richest of the rich

Rental Property Report for February 2010

Mar 8th, 2010
by Sean.
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This post is an update on my rental property in Philadelphia. In this section, I talk about my landlord experience – the good, the bad, and the ugly. All my posts that are related to the rental property can be found in the Rental Property section, including the bad tenant saga series).

Roof Repair

My real estate property manager, Earl called and reported that there was a small leak on the roof of my house. He said that Philadelphia had tons of snow and the amount of snow caused a lot of roofs to leak. He told me that the problem should be addressed as soon as possible before more rain or snow comes.

I told him to get some quotes for different roofers. He called me back and said that he check with several roofers. He recommended a roofer that lives a few doors down by him. He said that he had hired him and he did a great job on his roof.

As for the price, he claimed he checked with several roofers and they charged $500 – 600, but the roofer he recommended charged $450. He said that he negotiated the price with him and brought it down to $350. Another $350 out of my pockets. So I gave him the green signal to go with the roofer he recommended.

Water Bills

The water bills are in my name. Usually I would pay the water bills first and then send copies of the bill to the tenant. The tenant had not been proactively paying the water bills. They sent me a few checks and the amounts are different from the amounts due on the bills. I had no idea where they would come up with the numbers.

I create a spreadsheet that detailed the water bill charges and the amounts that they had paid. The total water bill charges came out to $589.69 and the total amount I had received from them was $283.00. The difference was $306.69. I sent them a copy of the spreadsheet and copies of all the water bills.

Billing Date    Water Bill Charges
7/15/2009    71.99
8/18/2009    75.32
9/16/2009    80.09
10/16/2009    80.09
11/17/2009    75.32
12/15/2009    70.55
1/15/2010    70.55
2/16/2010    65.78
Total     $589.69

Date    Tenant Paid Amount
10/16/2009    102.00
10/16/2009    40.00
12/17/2009    81.00
2/1/2010    60.00
Total     $283.00

NET     $(306.69)

Overcharge from Property Manager

My property manager, Earl charges a percentage of the rent for his services. He would usually deduct the amount from the rent check and send me another check, less his fees. The monthly rent is $900 and the property management fee is 6%, which comes out to $54.

For this month, my tenant had also made an check of $60 for water payment. So the total amount paid to me was $960. Earl had taken a 6% cut of the entire amount of $960, instead of only the rent amount of $900. In other words, he had charged a fee on the water bill, which he should not have done. He had charged a total of $57.60, an overcharge of $3.60. Granted the overcharge was small, but I was not happy with the sneaky tactics.

I called and told him that I had noticed an extra charge on his services for the same rent amount. And I said that we had agreed that the property management fee is a percentage of the rent check, excluding the water payments. He said yes. When I told him that he had overcharged me on the fees, he said that he was human and he would make mistakes too. He asked if it was only a few dollars. I said yes and then I said that I would let it go.

Monthly Income and Expenses for February 2010


Do you have a bad tenant or a bad landlord. Share your landlord/tenant stories with us.

Payday Loans – Borrow Money Fast

Mar 1st, 2010
by Sean.
3 comments

If time is money, how do instant payday loans make sense for the borrower?

People often use the term “cash flow” incorrectly. While some simply conflate it with general concepts of having a good income or overall wealth, it really has to do with the timing of money – with good cash flow being when the money is coming adequately to satisfy when it has to go out (because if you haven’t noticed already, you generally don’t get to keep money; it comes and it goes as you live your life). It is also a major reason why there are quick cash advance loans, to ease the times when the in-flow runs a little short of the out-flow.

If you don’t know what that means, here’s a little primer on cheap payday loans (the modern version of paycheck advances, which some people still transact at retail locations). You know you will get paid on the 15th, but an emergency expense arose on the 4th and your checking account is already down to just a few dollars needed to cover gas and food for the next ten or 15 days. To get the money to cover the emergency expense, you can sign online to a faxless payday loans website (some lenders require faxes be sent, but now the process has largely become paperless). There you provide evidence that you are employed, how much you expect in your next paycheck and where you could receive funds in an electronic transfer. Almost anyone with a job can get a paycheck advance, regardless of credit rating or ability to produce collateral such as a car title.

This access to a form of credit through payday loans is an essential part of how many individuals and families are managing through lean economic times. Lacking a credit card or other means to borrow money, it is how millions of people who still have jobs can get cash for such emergencies as car repairs, family needs (think about traveling to visit a sick relative if you have no cash) or to just cover unexpected bills.