Top 10 Savings Tips

1. Start Today

Time is the scarcest resource we have. We all know that the better we manage our time the more productive we become. This time management principle holds true in savings because time is the largest variable in growing your savings. In fact a person that starts saving a much smaller sum of money at twenty would still end up with more than someone who begins saving twice as much at thirty five. Garth Brooks says it best when he says, “Why put off till tomorrow what can be done today.”

2. Pay Yourself First

Pay yourself first is the key to saving money. Pay yourself first creates an environment where you live below your means. Every time you pay yourself first you create more security for you and your loved ones. If you haven’t been using pay yourself first as a payment strategy, try it the results you will see will astound you.

3. Pay down all your high interest debt

Carrying debt balances that charge a high interest rate make can be the largest obstacle to wealth creation. Examine all the debts you have especially focus on credit cards and automotive debt here, and if you pay more in interest than you earn in your savings earns then pay it off. Start by focusing on the smaller balances and paying the minimum payments on the other loans. After paying off the first balance you will have a sense of accomplishment. After the first balance begin to focus what you were paying on the previous debt towards the next biggest debt. This continues on making each debt easier to pay off than the last. Dave Ramsey coined the term, “Snowball Effect” to explain how this debt payment strategy works. Really the only debt that you should carry at the end of this is a home mortgage, and maybe student loans. I’m not saying don’t save before you are debt free, in fact I want you to start saving before you are debt free. So that when you are debt free you already have a savings system in place for yourself. Also keep in mind that not all debt is bad debt. Not all debt is bad debt, the mortgage helped you buy a home, and maybe fund your education.

4. Build An Emergency Fund

An emergency fund is your first line of defense against unexpected expenses. Often times unexpected expenses are the beginning of the debt cycle. Unfortunately most of us don’t have adequate savings for a rainy day. Forrest Gump may have said it best when he said, “It happens.”, and when it does you need to be prepared for it. To set up your emergency fund, first go to your budget and estimate what six to twelve months of expenses. This is what you should hold in your emergency fund.  A savings account works best here. If you need to use the fund replenish it with your pay yourself first money. Once you have six to twelve months expenses in your emergency fund you can leave it alone and focus on some different kinds of savings.

5. Get your Employee match for your 401k

This week at work go get information about your employer’s 401k plan, and do the paperwork. If you have your 401k set up be sure to contribute for the employer match, the same goes those of you just opening their 401k. The number one reason I am fond of the 401k is the employer match. The employer match great is because free money is given to you just for saving. In reality, it also boosts your returns by whatever the match is. For instance your employer offers to match 5%, well that gives you an automatic five percent return on your money, in fact is so easy it’s hard to give up. It doesn’t hurt either when your 401k contribution reduces your tax bill.
You can get the last five tips along with other savings and financial advice here.

Savings Advice for You

When most people think of savings they think of a savings account or a CD. This is a kind of savings, short term savings to be exact. This is not the only kind of savings available, there is medium term savings, long term savings, and retirement savings.

• In short term savings experts recommend that you have 6 to 12 months of savings. This is often called an emergency fund. As the name states it is there for emergencies like a unemployment sickness or disability. Emergency is is not a new pair of shoes to go with the rest of your collection.
•  Intermediate term savings can typically be placed in something more aggressive than with your short term savings. This allows you to look for better and interest rates and in turn better returns. Intermediate savings is a place to save for large purchase like a car for instance.
• Lastly, and probably the most important of all is retirement savings. Retirement savings plans that you may have heard of include 401Ks, IRAs, Roth IRAs, Pensions, SEPs, and Keoghs. Some of these plans like the 401k are tax deductible. If a plan is tax deductible that means that everything you contribute is deducted from your other sources of taxable income. There is a possible downside to these tax deductible plans.First there are rules about when withdrawals can be made or you will be penalized. Second, if tax rates go up in the future it will hurt you because withdrawals are considered ordinary income. The alternative is a non deductible plan like a Roth IRA. With a Roth you dont get to deduct your contributions. However in the future you get the money tax free at retirement. Typically its Ok to take on more market risk in long term savings accounts. The extra kick from higher returns associated with equities will give a boost to the future value of your money and retirement.

Keep this savings advice in mind when saving money its not best to have all your money in a savings accounts. There need to be different savings accounts with different goals and strategies. This coupled with the pay yourself first strategy will propel your savings and financial freedom to new heights.

Give Away!!

We are going to give away a $30 gift card. This is how much I believe in these financial success principles. We are going to reward you for participating in with the Blog. We will announce the winner after the beginning of June. We also want to show gratitude to our patrons.

There will be a random drawing to decide the winner.

1. To qualify you must follow the blog and your name and profile must show up in the "Followers" area on the right side of the blog.
2. You must comment on one of the existing blog posts.

Is it time for the market to pull back?

You may be watching the current market and wonder how much further the market can go up. I like to see the markets go up just like everyone else, but it can't go straight up. Recently I have been watching the market and it seems like this part of the bull run might be running out of steam. Its time for a moderate correction, there are three indicators that say it may be time to protect your portfolio.
The first indicator is the VIX. The VIX is referred to as the complacency indicator, it measures the cost of protecting your positions. When the market advances typically the VIX pulls back. Right now the VIX is sitting at 14.62 and the 52 week low is 14.27. Typically when the VIX reaches these levels it indicates a pullback is imminent. The second indicator is a saying. The saying is, "Sell in may and go away." Historically the summer time is the worst time to be in the market. Lastly, the current advances in the market have been on light volume. What this says to me is that there is not a lot of conviction in the advances the market is making. Also the market is sitting at technically significant levels so it seems that everyone is waiting to see whether the market will pull back or break out.
In closing I don't know where the market will move from here, but it may be a good idea to buy some puts or take some profits off the table and move into cash. I believe the bull market still has a long way to go, but a 10% could be close.

First Video Post!!

Peer to Peer Lending

Something I have added as a small portion of my personal investment portfolio is a P2P (peer to peer lending) portfolio. What is P2P? P2P is an alternative credit source. What you do is browse the prospective borrowers on the P2P site and decide to fund a portion of their loan. Often times the minimum amount to "bid" on the loan is $25, or you allow the P2P platform create you a portfolio according to your guidelines.
I personally use prosper.com. I started by investing $50, $25 went to two individual loans. My current note yield is around 19%. Now, to be fair I expect my returns to sink downwards as my portfolio grows. I am very pleased with the results that I have gotten using prosper. My to debtors have been on time in their payments every month so far, and I am in the process of funding another loan. To be fair though you should be prepared for some losses, Prosper projects losses for you and claim that the average investor is still receiving 10% returns. Also if you are looking at this as an investment for yourself it will be important to keep in mind that losses will occur. Banks have credit reserves in case you don't pay your mortgage or credit card, and the bank is actually required to do this due to accepted accounting principles. You should also predict some sort of potential losses and have a "reserve" estimate so that you aren't disappointed when one of your borrowers default.

If you have any specific questions about Peer to Peer Lending I would be happy to answer them.

Be your own banker

Have you ever considered being your own bank. You could have your own ATM and you don't have to go see the loan officer and attempt to convince them to give you a loan. Well you can, first I would like to say that I am not the first to develop this concept or use it. Actually the person that commercially published the idea was R. Nelson Nash, his book is called Becoming Your Own Banker: Unlock the Infinite Banking Concept. I recently read the book myself and now I am trying to improve upon it. Before we get started I want to advise you that I am licensed to sell basic insurance policies but not licensed for any variable or investment products. For professional purposes value my advice for what you payed for it.
The personal banking concept is build off of a permanent life insurance policy. Most of the time when you make a large purchase you have to decide between giving up interest that you earn, or paying interest on money that you financed. This happens because you either have to take money out of savings to pay for the item or pay the bank interest for the financing. What if you were able to continue earning interest after purchasing something and then pay interest back to your self. What ends up happening is that over time you develop a large pool of money that has multiple advantages that can be provided to you.

1. You can finance larger and larger purchases as your cash value accounts. While enjoying tax deferred growth inside the vehicle. If you were earning interest in just a plain old savings account you would be required to pay taxes on the interest.
2. Pass on wealth tax free to your decedents. I am pretty confident that if you can pass directly to your heirs that is a plus for anyone.
3. Provide retirement income, this retirement income often times far exceed your original cost of this policy and keep some sort of death benefit intact.

I would also like to point out that these policies take a little while to get started. Permanent life insurance products can be likened to an airplane. When a 70 ton airplane takes off it requires a lot of fuel, but as the plane reaches its cruising altitude and speed it becomes much more efficient. Actually the plane continues to become more and more efficient because it is consuming fuel and becoming lighter. A life insurance policy is the same way, the longer it is in force the more efficient it will become. An important thing to take away from this is to not let the policy lapse, if you do you will have been purchasing expensive term insurance. If you are truly interested in this idea I would start by reading Becoming Your Own Banker.

As I implement this infinite banking plan I will keep you updated on how it works for me.