Pondering Money

Imagine you were able to get lectures on virtually any topic from world class professors from all of the top universities.  What if the classes were scheduled just for you?  You get to choose when and where the lectures were given and you control the pace of the course too.  Having a hectic week? Don’t worry you can move that physics lecture to next week.  Also, there is never any problem getting into a class you want you can pick any class.   If you don’t like a particular professor you have many others to choose from.  Oh and there is no tuition cost either!   Sounds like a student’s pipe dream doesn’t it?  The amazing thing is that it is a reality today!  Lectures from top professors are available for free- check out open culture.  You can get podcasts or video casts from a very impressive list of universities- Brown, Cambridge, Dartmouth, Harvard, MIT, Oxford, Penn, Stanford, UC Berkeley, Yale, and many others.   If you know how to get music from iTunes you already know how to get most of these lectures.  There is an amazing variety, and some very indepth topics- for example I downloaded a series of lectures from Yale on genetic engineering.   I can only imagine how the variety will grow in the future.   Here is something to ponder- with such a wealth of education available for free, why is college tuition so expensive, and growing even more expensive? 

Once upon a time there was a man that tried juggled knives.  Unfortunately he couldn’t quite manage it without cutting himself and bleeding horribly.   It got so bad that we was at risk of bleeding to death.   Would you advise him to stop playing with knives or just get a bigger bandage?  The man’s root problem wasn’t that he was bleeding- it was that he was playing with knives.  Is your debt really the root problem, or is there some other underlying problem?  Do you have a mortgage you can afford with your income?  Do you habitually overspend?  If you don’t deal with the root problem no bandage will stop the symptoms from reoccurring.   Once you have dealt with the root problem then deal with the debt.

Danger Ahead

I would proceed very cautiously, a quick Google search turned up a lot of horror stories- outright scams, bills being paid late, and fees increasing during repayment.  If you do go with a Loan Consolidation Company you need to be extraordinarily careful who you choose!

Alternatives

I thought of a few possible alternatives:

• Get a consolidation loan from a credit union.  They generally have pretty good rates and great customer service not to mention it won’t be a scam!
• Get a consolidation loan from a peer to peer lending site.   You may be able to get a lower rate.
• Do a balance transfer to a lower rate card- be very careful about transfer conditions as many charge a transfer fee or change rates after a short time.
• Negotiate the rates with your creditors- they may lower your rates if you just ask… especially if you mention you had been looking at the rates from another company.  It never hurts to ask for a lower rate.

The following is a guest post from Diana Perkins,  be sure to check out my response.Online debt consolidation is gaining prominence owing to the benefits it offers. The fact that online debt consolidation doesn’t require the maintenance of brick and mortar structures has made it an inexpensive way of offering help to debtors. Debt consolidation whether you do it online or by walking into a debt consolidation clinic yields the same result. However, debt consolidation services online gives you the opportunity to explore the debt consolidation market from the comfort of your home or office. If debts have been troubling you lately as they are piling up and getting out of control, don’t let the problem linger. Instead opt for debt consolidation as it will allow you to condense your multiple debts into a single debt account. This makes your debts manageable. And you are also able to keep track of the debt payments. In your search for a suitable online debt consolidation firm, you will come across many. Don’t settle for the first one. A bit of due diligence can help you go a long way and you will certainly come across a genuine debt consolidation firm. In fact the incidence of debt relief scams has escalated to such an extent that the Better Business Bureau has urged consumers to deal with debt relief firms with utmost care. Make use of the online facility as it enables you to compare services offered by online debt consolidation firms. You can also compare their rates. You will get online help round the clock. It is much faster and you need to furnish information about your debts. Make sure you don’t divulge all your personal details as it can lead to identity theft. Online debt consolidation can be done in case you are registering for a debt consolidation program or taking out a consolidation loan. In case you are planning to take out a loan, you have to give details of your bank account into which the loan amount gets credited. In both the cases (debt consolidation program or consolidation loan) you have to make a single payment each month. If you are enrolling for a program, you have to make payments as per a repayment schedule. It helps you to enjoy better interest rate due to which your monthly payments also get lowered. In due course your credit score improves too.

Welcome

Welcome to Pondering Money, this site is dedicated to trying to help you think about money differently!  Here are a few sample posts you might find interesting:  Which wins 401K Match or High Interest CC debt?,  Simple Strategies to Improve Your Money Management, and Strategies for Achieving Your Goals This Year.

A Tough Choice!

Thank you to all of the authors who submitted a post, choosing the top ten posts wasn’t easy! Imagine going to Baskin Robins and trying every flavor of ice cream- and you enjoy all of them but have to choose just a few!  Here are this week’s top 10 posts:

1. Dustin presents Should Married Couples Have Joint or Separate Bank Accounts? posted at Engaged Marriage.  I know how important this choice is because my wife and I had a terrible time when we made the wrong choice!   I’ll need to make a post with the story, for now check it out and see if you should change how you bank.
2. Jeff Rose presents How to Choose The Best Financial Advisor/Planner for You posted at Jeff Rose.  I guess great minds think alike as  I just wrote about how I would choose a financial advisor.
3. Ray @ Financial Highway presents Myth Busters: Myths About Frugality posted at Financial Highway.  I believe a lot of people hold onto at least one of these myths,  I feel very strongly that frugality should be about creativity.
4.  The Investor presents How to run your portfolio like a hedge fund posted at Monevator.  Curious about how a Hedge Fund works, check out this post to find out!
5. BWL presents Make Your Own Personal Budget: Articles, Tips, & Resources posted at Christian Personal Finance.  I really don’t like budgeting so I was impressed that this article convinced me there is a value to it.
6. Evan presents Three Common Qualities of High Net Worth Individual’s Balance Sheets posted at My Journey to Millions. It’s always interesting to look at successes- but I wonder did these common qualities came before or after they achieved high net worth status?
7. Abdulrasool Sumar presents How to Retire as a Millionaire with your 401k Plan and 7 Strategies to Achieve Growth of your 401k Plan posted at 401k.  I really loved the compound interest graphs!  You need to understand compound interest because it makes a huge difference when investing for the long term.
8. Wise_Bread presents The 10-Step Staircase to a Comfortable Retirement posted atWisebread.  Some great steps to get you to a comfortable retirement.
9. Adam presents Thermals of Wealth posted at Magical Penny.   Adam focuses on the first step to financial success saving, I liked Adam’s writing style and I hope you will too.
10. Darwin presents How Much Could You Reduce Your Budget if You Get Laid Off? posted at Darwin’s Finance.  Even if you think your job is secure, doing this analysis could help you figure out if your emergency fund is reasonable.

From Oct 2007 to Mar 2009 the stock market declined a brutal 46%, a horrific blow to any investor but that is nothing compared to a divorce!  First and foremost a divorce has huge emotional costs- I am not going to even try to put a price on that.  Just consider the huge financial costs:

• A 50% loss across ALL  of your assets- your home, cars, investments, savings, everything!
• Tens of thousands in legal fees.
• Thousands for one spouse to move out.

A divorce will not only decimate your current wealth- but it also saps your future:

•  Significantly Lower Income
  • Loss spouse’s income or spousal and child support payments.
• Increased Living Expenses
  • Two residences
  • No shared items
• Additional Child Care Expenses
  • No one else to help watch kids

All of these factors make divorce horrifically costly.  Maybe the best financial move you can make today is to do something nice for your spouse!

Finding a good financial advisor is hard because you need someone that is both trustworthy and doesn’t have biases that will cost you a fortune.   You certainly don’t want a crook that will steal your money, but you also don’t want a salesman claiming to be an advisor that will mislead you.  Finally, you don’t want someone that believes they are the next Peter Lynch because chances are they aren’t!

Can You Afford a Financial Advisor?

For financial planning there are some cases where you just have to do it yourself.   If you are a new investor starting with $0 and investing $1000 each year you need to be self sufficient.  Any Planner that takes a % of assets under management will not talk to you- there just isn’t enough to cover their cost of doing business.  You could consult with a fee only advisor, but that could easily cost you a year of investing and a better plan doesn’t beat investing earlier.  At $1000/year even buying a $10 investing book will cost you 1% of your investment!  Your best option is to make your own investment plan initially then seek professional help later.  Your plan could be very simple like a low fee target retirement fund in an IRA.  After you have $200,000 or more a professional becomes a lot more cost effective.  At that point the optimization of the portfolio could potentially cover the cost of the advisor.How to StartAsk people you know for recommendations- who they trust to manage their money.  If you can’t get a personal recommendation I would try searching the NAPFA website.  I would plan to interview a few people.  Here is a list of questions to ask from the SEC,  I think how the advisor is paid is the most important question they list.  I would steer clear of advisors that earn commissions from what investments you purchase.  There is just too large a conflict of interest for such an advisor to give you the best advice.   I would prefer an hourly fee over a % of assets under management as advising how to invest $1,000,000 should not take significantly more time and effort than advising how to invest $500,000.

My Questions

In addition to those from the SEC I would also add the following questions:

1. How did you advise clients similar to me during 2007 and 2008?  Why?  Did they make good decisions- for good reasons?  I think the best answer would be “Stick to our plan but save more/withdraw less.”  Their plan was solid but they are adjusting to the possibility of a harsher reality.  Other good changes include- rebalancing, increasing % bonds as you age, or switching to a lower cost equivalent fund.  If their reaction to 2008 was to scrap the old plan and try some totally new plan seek someone else.
2. How do you pick the investments you recommend? I would be wary of someone that looks at past performance, remember all the warnings that it isn’t a predictor for future performance? I would also be wary if they claim some special knowledge- it is really hard to beat the market, what is the chance you found the next Peter Lynch? If they could really beat the market consistently then they are wasting their time planning for you as they should be running their own fund and making billions. I would like to hear minimal fees or covering different asset classes, which would naturally lead into choosing index funds.
3. Describe a time when you convinced a client not to make a stupid mistake? A good advisor should be able to prevent you from making mistakes. If they haven’t done that with other clients a lot they are unlikely to be good advisors.

Retaining Control

Finally, I would want an advisor that would allow me to keep control over my investment accounts.  There are two good reasons to keep control:

1. That insures you are informed of any changes since you have to make them.
2. It prevents the possibility of fraud.  Bernie Madoff could never have run his ponzi scheme without controlling the investment accounts and forging the reports and transactions.

There are some disadvantages- you don’t get to delegate the transactions and you may miss out on lower cost funds only available to very large investors.  I bet Bernie’s clients are regretting giving him control.

Have you ever wanted to be the bank and make a lot of interest lending people money?  If so peer to peer lending may be for you.  Peer to peer lending is when you lend money to others through a site like lending club or prosper.com.   They have many people fund each loan to minimize the risk of default,  I’ve been experimenting with the lending club and I’ve gotten over 10% on a pretty conservative loan.  I like their web intereface and it seems a viable way to invest.A great way to try it out is using a promotional offer so you don’t risk your own money.  Right now lending club has a promotional offer- you can send invitations to friends and they get $40 to start investing.  Leave a comment and I’ll send you an invite.  Note as far as I can tell I won’t get a referral bonus myself.

I thought it may be helpful to share my financial goals for this year:

• In order to have financial freedom in retirement:
  • Contribute at least 15% of my income to the company 401K plan via payroll deduction from each check.
  • Contribute $2,500 every three months to Roth IRAs for my wife and myself totaling $10,000 for the year.
• To open the possibility of early retirement
  • Invest at least $1200 this year in a taxable account by contributing $100/month.
• To have money available for my future goals:
  • Invest 15% of my income in my company’s employee stock purchase plan via payroll deduction from each check.
• To aid our children with college expenses
  • Save least $160 per month into 529 plans via automatic deposits.
• To pay my son’s tuition
  • Save at least $160 per month.

In my last post I suggested making goals instead of making resolutions this year.  Below are some strategies to insure you achieve your goals.  You should not need to use all of these strategies, but I listed several so you can pick the ones you think will help you keep you on track:

• Hand write a list of your goals and sign it- Your writing is a powerful influence because people desire to be seen as consistent.  Use that influence to your own advantage!
• Get your friends to set goals for the year as well – and talk about them.   Think about the social pressure- everyone is doing it, you better do it too!
• Automate whatever you can for example 401K contributions or automatic transfers to savings- set it up then cruise to success with no worries of forgetting.  Leverage laziness!
• Post a copy of your goals in a place you will see daily- Don’t let your goals out of sight so that they can’t fade out of mind, make that written statement into a daily visual reminder.
• Re-read your goals at least weekly.  Keep the specifics in mind by rereading your goals!
• Keep a progress chart with the % completion for each goal, update it at least monthly.  Keep it clear and easy to update.  Filling in a progress bar with a marker is sufficient-  it’s a second to update and it’s difficult to hide from a progress bar that is only 10% full.
• Mail copies of your goals to friends and family or announce your goals in public- such as on a blog.  Use peer pressure to your advantage, think of the shame if you don’t meet a goal without a good reason.
• Mail copies of your progress charts to friends and family or post them on your blog.   Do you want to have to explain to everyone why you aren’t meeting your goals?
• Schedule days to review your goals and progress at least every three months- force yourself to look at your progress and see if you want to revise your goals upward.

Have a happy New Year and accomplish your goals in the coming year!

Are you tired of making resolutions every year and never making progress on them?  Well this year try something different make some goals instead of resolutions.  With goals you are much more likely to follow through and really accomplish something.

Goals that are SMART

To maximize your chances of achieving your goals, make them SMART:

• Specific- Every financial goal should have a specific dollar amount.  Instead of a vague resolution like “I will save for retirement” be specific “I will save $5000 for retirement”.
• Measurable - You need to have a way to gauge your progress, since your financial goals should have a number it is easy to measure the progress.  The progress percentage is the amount you have divided by your goal number multiplied by 100.
• Attainable - A goal must be something you have control over- like investing a certain amount.  There is no point in setting goals on things beyond your control like getting a particular return on your investments.
• Realistic - Your goals should be realistic so that you can stick with them- if you make them unrealistic you will most likely become discouraged and give up on them.
• Timely - The difference between a dream and a goal is that goals have deadlines!   It’s also helpful to break down goals into manageable pieces.  For example ”I will save $5000 for retirement this year by investing $417 each month.”

I like to add two features to my goals- a reason for them and an at least clause.   The reason is there to remind me why I chose this goal, and to remind me why I should sacrifice to achieve it.  The at least clause opens up the possibility to accomplish more if circumstances allow.  An example financial goal is “I will save at least $5000 for retirement this year so that I have freedom to live as I want by investing a minimum of $417 each month.”