Thursday, November 30, 2006

Financial Publications that I Regularly Read

In addition to following several personal finance weblogs, there are four financial publications that I read on a regular basis. There are many good publications, but most are not as innovative or relevant as I would like. The following are the publications that I think have the best relevant, cutting edge business/finance articles and the most variety.

Here are my daily reads:

The Wall Street Journal – This is the grand daddy of financial publications. I read it daily. I focus mainly on two sections, the front page and the Personal Journal section. The front page highlights the worldwide and financial news. The Personal Journal section was created in the past year and provides articles on personal finance. My favorite writer in the Personal Journal section is Jonathan Clements.

Yahoo! Finance – This is a good all around financial website. I originally used Yahoo! Finance to get quotes for my stock portfolio. It’s easy to use and provides a wide variety of information on the equities. I also enjoy the variety of columnists, my favorite being Laura Rowley. The weekend edition does a great weekly roundup of stories. At this time, I primarily read the Home and Investing tabs.

Here are my weekly reads:

Business Week – This is a weekly magazine on business trends, business success stories, and innovation. I read it to keep current in these areas and to get ideas for my work, career and personal finances.

Investors Business Daily – I read the Monday Special edition whenever I get a chance. I enjoy checking the IBD 100, their recommendation of the top 100 stocks. In addition, I like to get insights and ideas from their segments on Success, Leadership and Investing Criteria.

Photo Credit:, Clara Natoli

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Wednesday, November 29, 2006

Successful Investing 101 – Know When to Sell

Selling an investment is a hard but important skill to learn. Many investments will have good returns for only a few years, 10 years if it is outstanding. Recall Enron and Worldcom. Yes, they were scandals but the same advice applies to good companies. Also off note are Dell, Microsoft and General Electric, which are still less than 30% of their peak which happened in 1999 to 2000.

Here are some guidelines I use on when to sell stock investments:

After a significant short term jump in the price. When the stock price jumps 20%+ in one day, it often is not sustainable. If a stock jumps 50%+ in a week it is often not sustainable. More often than not, it is better to take the profits at such a point. If you’re wrong, you can always get back into the stock at a later time. If you’re right, you avoided losing a portion of your profits.

When the general market or the sector is weak. "Don’t fight the tape" is a famous stock market adage. If the market or sector is in a downward trend, it’s a good time to sell. If the stock has dropped, try to sell during one of the short term rallies that normally occur during a down trend.

When it is no longer a buy. I have several criteria for determining whether a stock is a buy or not. When a stock no longer meets those criteria, I start looking at opportunities to sell it. If the stock is still rising, I will sell when it appears to have peaked. If it has dropped, I will try to sell into a rally.

When the company's business model is no longer a competitive advantage. Microsoft and Dell established a significant competitive advantage in the 1990’s with their business models. Microsoft owned the software market because of their dominance in operating systems. Dell’s supply chain management and ability to build to order enable it to mass customize more powerful computers at lower prices. However, Google may make Microsoft obsolete and the rapid commoditization of computers my obsolete Dell.

With the rapid global and market changes occurring in retail, Wal-Mart may be another successful company that loses its strategic competitive advantage in the near future.

One risk of using these guidelines is selling a stock too early. However, it is always possible to buy the stock again if the sell decision proves wrong. On the other hand, being an optimist sometimes keeps me from selling a stock that meets the criteria, resulting in a greater loss.

Photo Credit:, Darren Hester

This is not financial or investing advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Tuesday, November 28, 2006

Carnival Highlights - Personal Finance Topics

Here are Carnivals My Wealth Builder has participated in so far this week. For each Carnival, I have noted the submission by My Wealth Builder and chosen a post that I particularly liked.

Towards Better Life Carnival #2 hosted by Towards Better Life. My submission is My Top Ten Financial Reasons to Be Thankful. My Carnival pick is Startups Must Choose Financing Models Wisely: Bootstrapping versus Angels versus VCs posted at Gerald Joseph’s Blog On Startups, VCs, Web 2.0, and Everything Else. Whew, that was a long post title and long blog title:-) If you are involved in financing a startup, this post is helpful.

The Carnival of Personal Finance #76 is hosted by My Financial Journey. My submission is Five Rules of Financial Success . My Carnival pick is Raising Smart Kids in 5 Steps posted at Finance-4-Kids. This blog has a lot of good tips on teaching personal finances to one’s children. If you are saving for college, check out the post Free Money for College.

The Carnival of Debt Reduction #63 is hosted by the founder, Mighty Bargain Hunter. My submission is Paying Off a Home Mortgage Earlier. My Carnival pick is Getting Out of Debt (Part 1) at Verve Coaching. Erek Ostrowski provides excellent coaching on eliminating debt. Parts 2 and 3 are worth reading also.

My submission to the next three Carnivals is My 2006 Year-End Stock Market Assessment.

The Carnival of Investing #49 is hosted by How Do People Get Rich? My Carnival pick is Income Limits for Converting Traditional IRA Funds to a Roth IRA by Five Cent Nickel. To note, the modified adjusted gross income (MAGI) limit of $100,000 for converting to a Roth IRA will be eliminated in 2010.

The Festival of Stocks #12 is hosted at Value Discipline. My Carnival pick is All This Industry Consolidation's Great, But What's Next? by Experiments in Finance. Ricemutt observes that buyouts are happening at overpriced levels and questions how long it can continue.

The Carnival of Capitalists is posted at Blueprint to Financial Prosperity. My Carnival pick is Six Wise Ways to Spend a Raise at Free Money Finance. The title of this post could have been “Six Wise Ways to Save a Raise.” :-)

I hope you enjoy these Carnivals, especially my Carnival picks and the posts from My Wealth Builder.

Photo Credit:, peachyqueen

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Monday, November 27, 2006

Frugal Living Wins Over More Income – Anecdotal Evidence

There have been some comments on different personal finance weblogs that too much writing is devoted to savings and frugal living and not enough to increasing income. While I agree increasing income is important, frugal living is often the more important component. People should achieve a frugal lifestyle (preferably first:-) or an increase in income may not be sufficient to help their financial situation.

Here are two stories about different families which have been told to me.

Two families – One military and one civilian.

When my wife was a child, her family lived across the street from a civilian family. Both families had two children. It was clear the civilian family was having a difficult time financially. Often, they would run out of money for groceries at the end of the month.

My father-in-law was an Air Force captain and they had a modest military income. However, they helped their civilian neighbors by passing along their children’s clothing after my wife and her brother outgrew them.

My in-laws became good friends with the other family. One day, the civilian wife mentioned that she didn’t know how a family of four could live on their income and told my mother-in-law a number. Imagine my mother-in-law’s surprise when the number was higher than her own family’s income.

Frugal Living -1 Higher Income – 0

Two Families – One dual income, no kids (DINKs) and one with children

A colleague of mine shared a story about her daughter and son-in-law. They were renting a house and saving money to buy one. They lived near a family with children. Based on their jobs, my friend’s daughter knew that she and her husband had higher salaries. As DINKs, they also assumed they had lower expenses than a family with children.

Within a couple years, the family with children bought a house and moved out of the neighborhood. My friend’s daughter couldn’t believe that the family had purchased a house first. My colleague observed that the family was likely saving more, since her daughter regularly spent money on eating out, entertainment and customizing their cars and motorcycle.

Frugal Living -2 Higher Income – 0

Of course, these stories are not necessarily representative. However, the point is that frugal living always helps ones financial situation. Depending on one’s spending habits, higher income may or may not be of sufficient help to one’s financial situation.

Photo Credit:, Michael Connors

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Sunday, November 26, 2006

Successful Investing 101 – Taking Tax Losses and Avoiding the Wash Sale Rule

If you want to take a loss on a stock or mutual fund this year and own it again before next year, Monday and Tuesday are the last trading days to avoid the wash sale rule. The wash sale rule requires that if you sell a stock at a loss you must not buy substantial identical securities 30 days before of after the sale. If you do, the loss cannot be claimed.

Here’s a scenario where you may want to sell some losses, even though you still want to keep the stock. (For the purposes of this discussion, the term stock will refer to either stocks or mutual funds.) Because of some successful investing, you have made $5,000 on a stock that you have sold. This is good. However, another stock you are holding is down $5,000 and you expect it to go higher next year. If you do nothing you will pay taxes on the $5,000 gain.

If you sell the shares with a loss, your gain for the year will be zero, $5,000 gain minus $5,000 loss. The IRS will allow this. It would be great if you could buy back the stock the next day, thus taking the loss and still keeping the stock. However, the IRS does not allow you to buy back the stock within 30 days of the sale. Thus, there is risk the stock price may be significantly different when you buy it back.

Personally, I like to avoid paying taxes. So I try to sell as many losses as possible near year end. Often, it is an easy decision. There are stocks that I want to sell outright. (In November. I have already sold Axcan Pharmaceuticals (AXCA), AU Optronics (AUO ) and Chico’s (CHS) for a loss.) For those stocks that I want to continue to own next year, I manage them to avoid the wash sale rule.

I use a buy first and sell second strategy to avoid wash sales. Here are details on how strategy works:

Buy identified stocks in November. October and November are typically months when people do tax loss selling. Thus, the stock price is likely to be depressed in these months. I only had one stock with a loss that I wanted to keep next year, Genta (GNTA). I bought shares of GNTA on Friday, November 24, 2006.

Sell identified stocks in December after 30 days. For GNTA, I can sell shares for a loss anytime after December 24, 2006 and avoid the wash sale rule. My hope is that GNTA will rise slightly in December as people anticipate some good news in January, 2007 from their FDA submission.

If there is a sudden rise in GNTA, I will benefit from owning twice the number of shares. (I would be extremely disappointed if I had sold first and the rise happened during that time.) Of course, there are no guarantees. GNTA could go lower, creating more losses.

This is not financial, investing or tax advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Saturday, November 25, 2006

New – The Penny Pinching Carnival

The inaugural edition of the Penny Pinching Carnival is up and running compliments of Joe Caterisano. The Carnival is devoted to ways to save money. There are eight posts focused primarily on saving strategies, getting more from your savings, and getting out of debt.

I enjoyed all the posts, several of which were very in-depth. My favorite was a detailed how-to by Erek Ostrowski on Getting Out of Debt (Part 1) posted at Verve Coaching.

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Thursday, November 23, 2006

My Top Ten Financial Reasons to Be Thankful

Happy Thanksgiving Day. My Wealth Builder wishes that everyone has much to be thankful for this year. Here are my top ten “financial” areas of thanks.

Number 10 - Not worrying about credit card debt. As regular readers of My Wealth Builder know, we use credit cards only for convenience and pay them off each month. So we are thankful for this every year. (Read more about using cash or credit.)

Number 9 - Beginning an additional career in publishing:-) I started My Wealth Builder on August 13, 2006, with a readership of one, me. In late August, I learned about and joined In mid September, my first submission to a carnival was accepted by the Carnival of Personal Finance. In October, I began using FeedBurner. This month, I am getting about 30-50 readers per day.

Only time will prove if this will lead to something bigger:-)

Number 8 - Already funding our IRAs with the 2006 contributions. We contributed the maximum to two non-deductible IRAs. The deadline for making 2006 IRA contributions is April 16, 2007.

Number 7 - Having made some good stock, bond and CD investments this year. My best picks this year: Google (GOOG), Apple (AAPL), and Intercontinental Exchange (ICE). I have sold Intercontinental Exchange, but still have Google and Apple. Google is up over 25% and is a core holding in my personal portfolio. I plan to hold Google as long as their business model remains a strong competitive advantage. My worse picks were Alcon (ACL) and Chicos (CHS), which are down 19% and 47% respectively.

For fixed income investments, I purchased 5-year term CDs with rates of 4.5% to 6%. I also purchased triple tax free (i.e. federal, state and local tax exempt) municipal bonds at 3.35% to 4.61%.

Number 6 – Paying off our 30 year mortgage faster by making additional principal payments. Although we have a 30 year mortgage, we are making enough additional payments each year to pay it off in 15 years. For details on how you can do the same thing, see Paying Off a Home Mortgage Earlier.

Number 5 - Using adoption tax credits and income exclusions gave us a BIG refund on our 2005 tax return that covered over 50% of our adoption costs. We had saved to pay the entire cost and getting a refund was a nice bonus.

Number 4 - Funding our college savings. We funded our daughter’s 529 account in December, 2005 and January, 2006. Fortunately, we still have 16 more years to contribute:-)

Number 3 - No major unexpected house, auto or healthcare costs occurred that required use of our emergency fund or any of our insurances. This was good since we have insurance to primarily protect our wealth and give us peace of mind.

Number 2 - Having an increase of 10.8% in our savings and retirement funds. A main contributor to this increase is my company’s stock gaining 10.5%. In addition, the accounts managed by my financial advisor are up 11.5% this year. For more information on my retirement goals, see How Much is Needed to be Wealthy.

And my Number 1 reason for being thankful is - Staying healthy. On average, healthier people are wealthier. Several studies have shown a positive correlation between state of health and amount of wealth. The University of Michigan published a study about this relationship in 1996. Yahoo! recently published an article on a new study by the British Medical Journal that reconfirmed the findings.

Have a happy, safe, and healthy Thanksgiving holiday,

Super Saver

Photo Credit:, Malinda Welte

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Wednesday, November 22, 2006

Paying Off a Home Mortgage Earlier

An easy way to pay off one’s mortgage faster is to increase the monthly payment and ask the lender to apply that amount to the principal. Check first with the lender that there are no prepayment penalties.

The impact of the additional payment varies depending on the interest rate and mortgage term. The higher the interest rate and the longer the term, the faster the mortgage is paid off for a certain percentage increase in your payment.

Here are a couple of examples for a 30 year mortgage. Each example shows the years of reduction and the required percentage increase in your monthly payment.

5% Interest Rate

5 year reduction – 8.9% increase
10 year reduction – 22.9% increase
15 year reduction – 47.3% increase

7% Interest Rate

5 year reduction – 6.2% increase
10 year reduction – 16.5% increase
15 year reduction – 35.1% increase

For those of you proficient in Excel, I used the Excel PMT function to calculate the examples. PMT requests 3 inputs (rate, nper, pv). Rate is the interest rate per year divided by 12. Nper is the term of your mortgage in years times 12. Pv is the amount of the mortgage. By varying the number of years (Nper), you can determine the monthly payment increase needed to pay off your specific mortgage earlier.

A couple of final points:

There are several services that charge you for the administrative work of doing additional payments to a mortgage. One can easily save the money by doing the calculations above (or have your lender do it) and working with your lender directly to apply the additional payments to principal.

When thinking about a 15 year mortgage, consider getting a 30 year mortgage and making higher payments to pay it off in 15 years. Since you can choose to make a smaller (30 year mortgage) payment, this gives you the flexibility to have extra money should you need it. If you are committed to a 15 mortgage, you must make the higher payment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Tuesday, November 21, 2006

Adoptions – Tax Credits and Income Exclusions

Adoptions are emotionally and financially draining. Often the process takes over a year where your entire life is scrutinized and evaluated. In addition, adoptions cost between $15,000 and $40,000. The joy of a having a new family member easily makes up for the emotional and financial aspects. In addition, there are significant tax benefits that can be used to offset the financial impact.

We learned about these tax breaks during the adoption of our daughter in 2005. Adoption assistance payment exclusions and tax credits covered about 50% of our adoption expenses.

In the 2005 federal tax returns, adoptive parents were allowed up to a $10,630 exclusion of employer adoption assistance payments AND up to a $10,630 tax credit against costs spent on adoption. Full exclusions and tax credits could be taken up to a modified adjusted gross income (MAGI) of $159,000 and phases out to zero at a $195,000. If the credit exceeded the tax owed, the balance could be carried forward to offset future taxes up to 2009. In addition, our state also offered an adoption tax credit.

In 2006, the exclusion and tax credit will increase to $10,960. Also, the MAGI range is increased cover $164,410 to $204,410.

If you are considering adopting a child, it is worth checking if you qualify for these tax benefits. See Tax Topic 607 - Adoption Credit and IRS Form 8839 for more details.

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Five Rules of Financial Success

From reading the trials and tribulations in many personal finance stories, it seems to me there are multiple pathways to success or failure. Some plans seem destined for success and other plans seem to have no chance. What differentiates the successful plans from those that don’t succeed?

Based on my experience, I believe there are there five simple, universal rules that make the difference between success and failure. These rules are so universal, they can be applied to savings, debt reduction, starting a business, and even sports.

Here are my five Rules of Success:

The Rule of Vision. This is the ability to envision a worthwhile future and set stretching goals toward that future. A good goal should have specific targets and measures. A good goal defines what success will look like quantitatively. Examples of good goals are:

Have a net worth of $800,000 by 35.

Eliminate $27,000 of credit card debt by September, 2008.

If you don’t have a future vision with good goals, stop what you are doing to create them.

The Rule of Skill. This is the ability to effectively use the knowledge that is available. It’s not what you know, it’s how you use what you know. Masters of this rule know how to use compound interest, tax advantaged savings, stocks and bonds, credit cards, and mortgage loans to advance their personal wealth goals. Those who don’t know will essentially advance the wealth of companies that sell these products, at the expense of their own wealth.

If you can’t learn the skill, then hire someone with that skill who can be trusted.

The Rule of Sufficiency. This is the capability of the plan to deliver the result if executed well. If the goal is to save $1MM by 40, having a $10/hour job is not sufficient. Assuming you paid no taxes, it would take 50 years to make $1MM. If you want to pay off $20,000 of debt in 5 years, paying a 2% minimum doesn’t work since it will take 45 years.

If your plan doesn’t have sufficiency, revise the plan so that it does.

The Rule of Sustainability. This is the ability to maintain the plan until your goal is reached. It is important to have balance with other important elements of your life. For example, working 80 hours per week for 10 years may be sufficient, but it is probably not sustainable. Similarly, paying 50% of your income to eliminate debt is not sustainable long term.

If your plan is not sustainable, develop a new plan that is.

The Rule of Will. This is the ability put effort against the work and tasks needed to achieve your goal. Will enables one to do what is necessary even if it is hard. Will is persistence to be successful. For example, will gives one the ability to save or reduce debt by an extra $100/month instead of using the money for a vacation.

If you haven’t yet developed will, divide your goal into smaller segments and develop a track record of success.

Of course, there are no guarantees for success. However, following these rules will significantly increase one’s chances for success.

Monday, November 20, 2006

Check Out the Carnival of Debt Reduction #62

GolbGuru has just migrated to his new site for Money, Matter, and More Musings and is hosting the 62nd edition of the Carnival of Debt Reduction. The Carnival is a “call to all debt haters, debt killers, debt crisis managers, debt lovers, debt fighters, debt exterminators, borrowers, lenders, and all other bloggers who think, write and talk about debt, to share their share their thoughts, words, and deeds related to debt.” There are 22 debt related posts with ideas and solutions one can use.

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

My 2006 Year-End Stock Market Assessment

I am turning bullish on the stock market for the next 6-12 months. In the next two weeks, I will be putting a higher percentage of my personal portfolio in stocks. Here are my reasons for becoming bullish:

Political Reasons

The Democrats have taken control of both houses of Congress from the Republicans. With this change, I expect some positives and no major negatives for the economy in the short term. Since 1945, there have been six instances of a partial or total change of control in Congress. It has happened two times to the Democrats and four times to the Republicans. The average gains in the S&P for November and December during those six times was 4.8%. (See reference)

Next year, 2007, is the third year of Bush’s second term. Statistically, the third year of a presidential term is the best year for the stock market. This is probably due to both parties working to create a favorable economy for the upcoming elections. Since 1945, during the third year of a presidential cycle, stock prices have averaged an 18% gain versus a 9% average for all four years. (See reference)

Economic Reasons

Many businesses are operating lean and will benefit with any positive change in economic factors. Earnings have been growing the past few years in spite of commodity prices increasing. There have been 19 consecutive quarters of earnings growth by the S&P 500. The previous record was 13 consecutive quarters in 1992 -1995, which preceded the bull run in the late 90's. Although economists are predicting slowing growth, I believe that businesses are poised to benefit from some positive news about economic factors.

Inflation remains low and interest rates are no longer rising. Wholesale prices fell 1.6% in October, 2006. Interest rates peaked in July, 2006.

Commodity price changes will be a risk factor. Oil and gold are down from their peaks. Others, such as corn, are near their high. I am anticipating that commodities will be flat or declining for the next few months.

Reference - Standard & Poors Outlook. Vol. 78, Number 12, November 8, 2006

Photo Credit:, Ali

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Sunday, November 19, 2006

The Carnival of Personal Finance #75

The 75th edition of the Carnival of Personal Finance is already posted at Everybody Loves Your Money. Congratulations for posting only 3 hours after the submission deadline! There are 63 articles at his “dealership” ready for the taking. Between the Thanksgiving festivities and football games this week, I’ll be looking for Personal Finance ideas I can use in 2007.

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Loaning in - My Decision is to Pass for Now

In an earlier post, I wrote about the possibility of bidding for loans in I liked the idea of person-to person lending and the opportunity to increase the rate of return on my money to a level as high as 25%. After reading numerous posts about people’s experiences with loaning on, I have decided not to make loans in Here’s my analysis of this investment:


  1. Higher interest rates for lenders, often 15-25%.
  2. Can loan small amounts, as low as $50.
  3. Groups may help keep borrowers from defaulting.
  1. Need to manage many small loans.
  2. Actual default rate may be relatively high when doing 10-20 loans. (See the experience of
  3. Prosper doesn’t pay interest on money that is waiting to be loaned.

I like the idea of helping individuals. However, for the $1000 total (20 times $50) I was planning to loan, it seems to be too much effort and risk versus too low of a reward (average absolute returns of $50 to $150 per year).

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Saturday, November 18, 2006

Developing My Will to Avoid Debt

I avoid incurring debt by mentally associating it with an analogous situation I know I wouldn’t do. For example, I would not pay more for an item than the listed retail price. To me, paying interest on debt is doing exactly that – paying over the listed price. Consider the following hypothetical scenarios:

Scenario 1 – Use Debt
I see a couch for $2000. I don’t have cash, but I want it now. I buy it with my 15% APR credit card. It feels great to get the couch now. I pay it off at the end of one year with $2300.

Scenario 2 - Pay More
I see a couch for $2000. I like it so much that I offer the sales person $2300. The sales person gladly takes your offer. What seems wrong with this picture? Right, nobody would pay more than the posted retail price.

Both scenarios have the same outcome, paying $2300 for a $2000 couch. (For the purposes of this discussion, I did not include the effects of deals such as 12 months same as cash and 0% balance transfers or the time value of money.) However, Scenario 2 is psychologically more painful since I wouldn’t normally pay more than the listed price.

By thinking of using debt as “paying more,” I keep myself motivated to avoid using debt.

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Friday, November 17, 2006

How Much to Save for Your Child's College Education

Here’s an easy to use calculator from for estimating how much you need to save for your child's college education. It assumes that you save through the sophomore year of college and that you make a monthly deposit to the savings account.

If you are unsure of values to use for tuition cost inflation or investment returns, I recommend using a 5% rate of inflation for tuition cost and an 8% rate of return on a 529 account that is invested in stocks.

This calculator showed me that a small change in assumptions can significantly affect the savings amounts. In an earlier post, I calculated I would need a yearly contribution of $12,000 until the start of college to pay for tuition. This calculator provided a lower number of $763 per month or $9156 per year if I contribute on a monthly basis and through the sophomore year, which is two additional years of contributions.

With either estimate, I will still need to save a significant amount of money for my child's college education.

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Wednesday, November 15, 2006

Carnival of Personal Finance #74 and Festival of Frugality #48

The 74th edition the Carnival of Personal Finance is posted at A Geek's World and the 48th edition of the Festival of Frugality is posted at Experiments in Finance. Ricemutt, the author of Experiments in Finance, has added some great cartoons that were inspired by the submitted posts.

The 22 posts in the Festival of Frugality provide some great savings tips ranging from Free Cable TV (legally) to First Dates. While I have not read all 72 posts from Carnival of Personal Finance, I found The Road to Financial Armageddon very enlightening.

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Saturday, November 11, 2006

Personal Finance for the Military

On Veterans Day, My Wealth Builder pays tribute to those who have proudly served in our Armed Forces. My thanks to our veterans who have defended America and protected our freedom.

In honor of Veterans Day, I would like to recognize personal finance sites for the military. While most personal finance situations and challenges are similar to those of civilians, there are several situations unique to the military. My father-in-law is a retired Colonel from the Air Force and he and I have had some discussions about the differences. I recently became aware of two sites from comment and e-mail exchanges with the authors: Dimes to Dollars - A Military Wife's Guide to Personal Finance and Money for Military.

Dimes and her husband are in their twenties and her blog espouses four personal finance tenets: 1) If you can’t afford it, don’t buy it; 2) Begin with your goals in mind; 3) Recurring transfers are your friend; and 4) Set up a budget. All are good principles. She also provides lots of good tips and perspective. Importantly, she promotes excellent savings habits. Not only do they “pay themselves first,” they also put any remaining money from each month’s paycheck into their savings!

Money for Military writes he is “just a military member who obsessed with finances” and he returns part of his advertising revenue to the military. I found his blog to be an interesting blend personal finance and people stories about the military. He provides a wide range of personal finance information and tips covering personal finance approaches, real estate, taxes, stocks, and mutual funds. In particular, I enjoyed his interviews with other authors of military blogs. These interviews (and the related blogs) provide great insights into interesting aspects of life in the military.

I hope you enjoy reading their posts as much as I did.

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Friday, November 10, 2006

Personal Finance Blogs I Regularly Read

There are many good personal finance blogs. I would like to highlight the ones I regularly read. For reference, my regular reads are an eclectic collection since I enjoy learning about a wide range of personal finance approaches. In alphabetical order, here they are:

FreeMoneyFinance - “This site is about one simple thing: growing your net worth.”

FMF routinely searches the internet for stories, ideas, tips and advice on personal finance and summarizes them on his website. With his experience and background, it’s not surprising that his posts provide excellent personal finance information. He currently donates all the website earnings to charity.

Moomin Valley - “I'm an economist and an active investor/trader. I'm not an American but I live in the US. This blog expands on my NetWorthIQ page and points to interesting personal finance and investing links.”

Moomin has developed a trading model which he is validating as a system to beat the stock market. From what I can surmise, it is a very mathematically sophisticated model. While the model I use is not as sophisticated, I am always interested more successful trading systems than what I currently use.

Money, Matter, and More Musings - “Musings Of A Graduate Student on Money Making, Money Management, Personal Finance, Debt, Credit Cards, Interest Rates, Everything Else That Is Money Related, And Some More”

GolbGuru is a graduate student and a great numbers guy. He has excellent detailed mathematical explanations of personal finance principles. A great multi-tasker, he masterfully handles 18 credit cards, including several 0% balance transfers.

Always a fun read, especially if you like number crunching or video presentations. - Does anything else need to be said? It is THE personal finance blog aggregator. I check it at least 3 times per week. It provides a great variety of personal finance tips, techniques and success stories. It’s an easy way to find content that may be useful.

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Thursday, November 09, 2006

Protecting Your Wealth – Insure Against the Risk of Financial Disaster

The greatest wealth destroyers are extended major negative events in health, inability to work, property loss, and death. Insurance is an excellent way to protect against these major negative events and the potential resulting financial disaster. (Another wealth destroyer is loss of job or pay cut which I will discuss in a later post.)

Here are the insurances I carry at a cost of 3.4% of before tax income to protect my wealth.

Health – The minimum coverage one should have is major medical (i.e. cover hospitalization and treatments.) If you can afford well care, it is coverage worth purchasing, especially if you have children. For reference, high medical expenses are the leading cause of bankruptcy.

I have a network plan through my company that has a co-pay for well care and major medical. It also allows for out of network visits.

My yearly cost – 0.8% of before tax income

Disability – Protects against salary loss if you cannot work for medical reasons. Statistically, one is more likely to need disability than life insurance during one's working years. Disability pays you a portion your income should you be medically unable to work.

My company’s disability plan starts after 7 days and covers up to 100% of after tax income. Remember, Social Security will also provide some coverage for disability. For reference, my company’s plan covers the difference that is not covered by other plans such as Social Security with starts after 90 days of disability.

My yearly cost - 0.4% of before tax income.

Liability – Protects your assets should you ever be sued. Usually renter’s or homeowner’s insurance will provide basic liability coverage. Auto insurance covers automobile related liability. If you have a net worth greater than these coverages (usually $250,000), consider getting an umbrella policy for $1 million.

I carry the maximum homeowner’s and auto liability and a $1 million liability umbrella policy.

My yearly cost for 2 cars – 0.6% of before tax income; Umbrella – 0.1%.

– Protects against loss of material assets. Homeowner’s or renter’s insurance protects against fire, theft or other loss. Auto insurance protects against loss or damage to an automobile. By the way, these insurances also provide some liability coverage.

I choose not to insure individual items such as jewelry, art or antiques.

My homeowner's yearly cost – 0.6% of before tax income.

Life – Provides payment on the death of an individual. The wage earner or earners should all be insured. The amount should be equal to the “financial disaster” against which you are insuring. For example, if the death of a wage earner will cause the family to miss mortgage payments, insure for the cost of the mortgage or to create a payments that replace part of the salary. Other’s have recommended insuring for the difference between one’s net worth goal at retirement and one’s current net worth, especially if you have small children.

I have life insurance for 2 times my salary (4 times if accidental death). This amount will pay off our mortgage. In addition, I have a survivor income policy that pays about 30% of my after tax income. This will supplement survivor income of $3180 per month provided by Social Security for a spouse and child.

Since my spouse is not working, we only have only a $10,000 life insurance policy for her. In addition, Social Security will provide survivor income of $1870 per month for the surviving spouse (me) and child.

Net, death of one spouse will little financial impact on our family due to our insurance structure.

My costs for life and survivor income insurance is about 0.3% of yearly before tax income. (My company covers life insurance for 1 times my salary).

Long Term - This insurance covers stays in nursing homes after a 90 day wait period. Typically, it provides about a level of daily benefit ($100 to $250) for about 5 years. Most financial advisors recommend getting this insurance after one is 50.

While I am usually not one to purchase unnecessary insurance, I bought this when I was 24 because the yearly premium was about $25 per year (for $100/day coverage) and was returned to the estate upon death if the insurance is never used. When we applied for coverage for my mother, the cost was about $700 per month. Of course, the reason for cost difference is that the probability of using a nursing home at 24 is very low.

My yearly cost for 2 of us – 0.6% of before tax income.

Total insurance cost – about 3.4% of income. Some may wonder why I pay so much for insurance each year. Wouldn’t it be better to save the money? My point of view is insurance is protection I hope I never need. If I don’t use it, great. However, if I should need it, the insurance will minimize the financial (but not emotional) impact of any negative event. Basically, I am paying for “peace of mind” which is worth it to me.

This is not financial or insurance advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Monday, November 06, 2006

More Carnivals of Money and Finance!!!

The 73rd Carnival of Personal Finance is hosted at City Girl's Financial Blog. She has listed about 60 posts on personal finance. One of her favorites is “GolbGuru juggles 18 credit cards! In 18 Credit Cards And Not A Single Late Payment: A Guide To Efficent Credit Card Management #1, he shares his secrets at Money, Matter, and More Musings.” I was impressed with GolbGuru’s ability to manage that many accounts and passwords without missing a beat or a payment.

The Sixth Edition of Carnival of Taxes is now available at Kay Bell’s blog, Don't Mess With Taxes . I am a big fan of paying the government no more than what I owe. In the tax break section of this Carnival, I learned about a new $30-$60 telephone tax refund that has been enacted for 2006.

The Ninth Festival of Stocks is up and running at SINLetter. There are 12 posts on investment strategies and individual stock picks. SINLetter also has posted their model portfolio which has returned an awesome 72.9% since August, 2005. (Disclosure: I have no financial relationship with SINLetter.)

This is not financial or investing advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Carnival of Debt Reduction #60

The 60th Carnival of Debt Reduction is up and running at We're In Debt. The King and Queen of Debt share this week’s tips and stories on reducing debt. If you are interested in eliminating your debt, check out this Carnival for some ideas to help your cause.

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Saturday, November 04, 2006

Five Ways to Be Frugal While Building Wealth

Being frugal is an important part of my wealth building plan. For me, being frugal means cutting back on the unnecessary items and saving money on those that I need. Here are my five principles for frugal living while building wealth:

Buy only what you need. The challenge to saving is that most of us spend all of our monthly, biweekly or weekly paycheck before we have received it. To get money for savings, I had to break the cycle. I am not a big fan of budgeting. It is kind of like dieting. Most of us can do it for a short time, but then we fall back into the old habits. (Read more...)

Ask for a cash discount. On large purchases, such as furniture, appliances, or services, I always ask if there is a discount for paying cash. About 90% of the time, there is a 2-3% discount, which amounts to $20-30 per $1000 spent. My spouse is reluctant to ask for a cash discount, but I am always happy to ask. As a colleague once told me, the worst they can say is "no." And very few people are saying “no” nowadays. If there is a discount, I pay cash. If there is not a discount, I use the credit card and take the rebate or points.

Use good high value providers for your regular purchases. Groceries, gasoline, dry cleaning, and home repair/decorating are just a few examples of regular purchases. Whenever I move into a new neighborhood, I look for retailers that provide good overall value to me – low (not lowest) prices, good service and minimum time impact.

Overall, I save money versus going to random stores or the nearest stores. However, I do pay a little bit more than if I searched for the lowest price for each item.

Costco and a local grocery store are high on my list for providing this benefit. Although Wal-Mart has low prices, it is doesn’t make my list because it take too much time to purchase 2-3 items (male shopping syndrome:-) and their service does not meet my minimum standards.

Use sales/discounts for your normal purchases. For items that you regularly buy, look for sales or coupons you can use. If you already buy it, why not get the benefit of a reduced price from a sale or coupon? Sales and coupons usually happen often enough that I can benefit from either approach during one of my regular purchase cycles.

Give your kids your time. Since we chose to have children later in life, we decided to change our lifestyle to give them more time. My spouse stopped working and I cut my work back to about 60 hours/week and reserved weekends for family time. We often go to parks, the zoo and other fun activities. In addition, we spend lots of time reading, playing, and learning together.

While I believe a variety of experiences is important for a child’s development, we are avoiding high levels of spending in toys (especially, the electronic/video ones), children’s activities (e.g. specialized training for $4000/year) or highly involved sports (e.g. year round select soccer). Part of the reason is cost, and the other part is the value returned for that cost. I believe that equivalent lower cost activities and additional parental time provides developmental benefits equal to or more than the higher cost options.

And selfishly, I want the time with my children while they still think I’m cool:-)

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Friday, November 03, 2006

Speed Up Debt Elimination with Just $5 per Day

If you are making minimum payments on your debt, consider increasing your payment by just $5 per day. Why $5 – because we can all find $5, if we look hard enough. Cutting out the daily Starbucks latte and biscotti or bringing lunch to work can save around $5 per day. And if we realize what an additional $5 per day can do, it will be worth it to look.

Here’s how much impact $5 a day (~$150/month) can have on debt reduction.

$5000 of Debt
At an interest rate of 15%, it would take 6 years and 7 months to pay off the loan with a 2% minimum payment of $100/month. Add $5 a day to the monthly payment and it pays off in 1 year and 10 months.

Time reduced: 4 years 9 months. Interest avoided: $2106.

At an interest rate of 24%, it would take 45 years to pay off the loan with a 2% minimum payment of $100/month. Add $5 a day to the monthly payment and it pays off in 2 years and 2 months.

Time reduced: 42 years and 10 months. Interest avoided: $47,552.

$25000 of Debt

At an interest rate of 15%, it would take 6 years and 7 months to pay off the loan with a 2% minimum payment of $500/month. Add $5 a day to the monthly payment and it pays off in 4 years and 5 months.

Time reduced: 2 years and 2 months. Interest avoided: $5,177.

At an interest rate of 24%, it would take 45 years to pay off the loan with a 2% minimum payment of $500/month. Add $5 a day to the monthly payment and it pays off in 6 years and 2 months.

Time reduced: 38 years and 10 months. Interest avoided: $221,965.

While I knew paying more than the minimum would significantly reduce the repayment time and interest paid, I was amazed at the amounts. Now I know why credit card companies are happy with people who regularly pay the minimum.

This is not financial or debt reduction advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

Thursday, November 02, 2006

Six Steps to Creating Personal Wealth

Here are the six steps I am using to build my wealth:

Use savings as the foundation. Saving is the first thing I needed to do to create wealth. Sure, there are many stories of creating great wealth via new ideas and businesses. And these are valid ways. However, this was not the way for me, an average person looking for a guaranteed way. (Read more...)

Start young, no later than 30. The power of starting your savings young cannot be overemphasized. There are many calculations showing the benefits of using time to grow your savings. You can become a millionaire even if you earn a normal income. Here’s a real life example of a teacher who started saving at 22 and was a millionaire when she retired. Older than 30? Try the Late Savers Guidebook from the National Endowment for Financial Education for catch-up strategies.

Pay yourself first. It’s the only saving strategy you’ll every need. (Read more...)

Buy only what you need. The challenge to saving is that most of us spend all of our monthly, biweekly or weekly paycheck before we have received it. To get money for savings, I had to break the cycle. I am not a big fan of budgeting. It is kind of like dieting. Most of us can do it for a short time, but then we fall back into the old habits. (Read more...)

Invest your savings. You get it. Save, save, save. That's the road to riches. Now how do you get the savings to work for you? Stocks, Bonds, Real Estate or CDs? (Read more...)

Manage your savings and debt ratios by growing your savings and reducing debt as you get older. Retire with a next egg greater than 12 times your final salary and no debt. (Read more...)

To note, one should protect one’s wealth against major extended negative events (e.g. health issue, disability, legal liability, or death of wage earner). While I carry insurance in these areas, fortunately, none of these events have happened to me. Using insurance to protect against these types of events will be the subject of a future post.

This is not financial or wealth building advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC