Sunday, July 28, 2013

How I Got Started In Investing (Part 2)

Fortunately, I met this young lady (wolf whistle) who would come to see me at work so I told her my plan. She encouraged me and that was the push I needed.

I opened up an account with an online brokerage firm with only $3k to get my feet wet. As I continued to read and educate myself I added another $4k. A cash account is very basic no margin I could not buy and sell often. After a sale the money takes 3 days to settle so I couldn't day trade, otherwise I would be freeriding. I believe this was good it allowed me to take a breather on every trade I made as I had no structure. I added another $3k in the following 3 months. That was a lot of money for me at the time, being young it was a tough decision.  I had always wanted a flat screen TV but I passed it up so I could invest.  

Eventually I opened a margin account although some recommend not to.  I made sure I understood the dangers of buying with borrowed money. I also learned to buy options contracts as a way to hedge from high risk investments such as pharmaceutical companies going through the clinical trial process.  Yes, I did take big losses but I managed to recover. It was like a very expensive class that ended up paying off.  I made plenty of mistakes, I am not perfect but you don't need to be to make money trading stocks. I was fortunate enough to have bought at a time when everyone was selling and scared to invest but that is another topic I will discuss on a later post.  Young adults should not evade stocks. Being young is a good thing, we have time in our favor. Older people can also benefit from the use of stocks especially those that pay dividends.

Friday, July 26, 2013

How I Got Started In Investing (Part 1)

When I was a teen I felt attracted to the stock market but I didn't have any money to invest and I had no clue about how to invest. Growing up in a humble home I had no access to anyone that could help me I tried to ask teachers but they did not know how and were of little help. This was years ago when stocks traded in fractions and back when online trading was not popular it wouldn't have mattered I did not own a computer.  Not having the right computer skills and guidance I wasted a lot of time reading the wrong books and going to see the wrong people. I did know that blue chip stocks were considered safe and at the time I looked up a few companies to get better acquainted.  I knew I should buy at least 100 shares.  Blue chip stocks were pricey and even 100 shares would cost me about $7K too expensive for me at the time.

While working at a computer lab during my sophomore year in college I met a young math professor who was an investor.  He had made a $30k profit investing in solar power but ended up turning it into a $40k loss. Yikes! He was the only person I had met that actually risked his own money and chose his own stocks through an online brokerage firm.  Finally the right information I needed but now I felt a bit skeptical to invest my money.  How much of it should I put into an account? I had worked so hard for my money and I had never invested in securities I didn't know what to do.

to be continued ...

Saturday, July 20, 2013

How To Write A Budget

I think people have a hard time saving and investing due to the fact that they don't write down what they have and what they spend. If you write down what you will spend you are more likely to stick to what you write down. If you are sloppy with your finances you will end up losing money it's simple you have to learn to respect money. Before you right down your budget make sure you keep your money safe in a neat and tidy manner have a change jar and count it up at the end of the week; nothing must go to waste. Use your budget to reach a goal. The goal can be to buy a house, to be financially free, to get married or just to have extra cash so you can retire young if you like. This an example of a monthly budget for someone making $2500 after taxes:

Rent/Mortgage  - $1000
Food                    - $500
Clothes               - $200
Utilities                - $120
Entertainment   - $300
Car                       - $300
Misc                     - $100

Yes, writing a budget is good but if you are spending more or close to the amount of money you are making drastic changes need to be made. Don't ever use a credit card to buy more than what you can afford. If you don't fully understand how to use a credit card wisely then please consider not having one or only using it until you do some research on the dangers of using credit. If you have debt pay it off ASAP, there is no point of getting 1% interest on your savings if your debt comes with an 18% APR. Assuming your debt is paid off this is what your budget should look like:

Rent/Mortgage - $750 (rent should be about 30% of monthly income)
Food - $250 (don't eat out as much/pack healthy lunches)
Utilities - $100 (energy saving light bulbs and energy star products,unplug appliances not in use)
Entertainment - $0 (YouTube, Hulu, Library books/movies, museum)
Car - $300 (you should buy used,if you live in the city that should be the last thing you buy)
Misc - $50 (clothes should be bought as a need not as a way to feel good or splurge)
Savings - $1050 (this can be used for emergencies but mostly to be able to invest later on)

If you are not saving a good amount of money you must make changes quickly. Get another job if you have to and find other sources of income. A budget will help you keep track of expenses and make you more accountable. Saving and being strict about not spending in excess will make the difference whether you live a life free of unnecessary stress that comes with living paycheck to paycheck or whether you stay stuck in a job you don't like for life.

Wednesday, July 17, 2013

Redistribution of Wealth

The U.S. inflation rate for the month of June was 1.8, 1.4 in May and 1.1 in April.  When it comes to protecting your money you need to get interest above 1.8% for now, whether you get it from stocks or any other type of investment it is up to you.  The inflation rate is not fixed as we can see from rates in the past it can remain low or shoot up pretty high and these unexpected rates can redistribute wealth to the population.  Let's say a college student borrows $30,000 at a 6.8% interest rate and at the time inflation is 1.8% therefore the student will really only owe 5% interest (6.8% - 1.8%) on his loan.  The more the inflation rate increases the cheaper the debt will become for the student at the cost of the creditor's well being since the creditor will receive less valuable dollars.  The student will have his fingers crossed hoping the economy goes through a period of hyperinflation when it comes time to repay the loan meaning that prices and wages will rise so fast that the loan will become less valuable.  In this case the student will win and the creditor will lose.

Now let's see how the student can lose if inflation starts to drop and begins to flirt with deflation.  If the college student would have borrowed $30,000 in 2008 when inflation rates averaged 3.8 his loan still at 6.8% interest would not seem like a problem.  If the student started to pay the loan back in 2009 when inflation averaged -0.4% he would have been shocked to see that his loan would have to be repaid at 7.2% interest (6.8% + 0.4%) the 0.4 needs to be added to his 6.8% interest on his student loan as the U.S. went into deflation territory meaning negative inflation. Just as the student hopes for hyperinflation when it comes time to pay his loan, his creditor will pray that the inflation rates will start to drop making the dollars he will receive much more valuable than when he lent them.  If you anticipate high levels of inflation then this is the most appropriate time to take out a loan if you anticipate inflation will drop you will want to cut down on the amount of money you owe.  When inflation is not easy to predict wealth is redistributed among those who borrow money and those who lend it.  Therefore lending and borrowing money comes with risk especially if the inflation rates starts to move fast in one direction.

Saturday, July 13, 2013

5 Ways To Guarantee You Won't Be Financially Free

Most people dream about being able to travel and do what they really want to do and never having to worry about money and their financial situation. Then there are those who don't care, here are a few things that you can do to make sure you never become independent and financially free:

1. Don't Save
That's right spend every single cent you have this includes all your income and gifts from family and friends. If you happen to find some money on the street spend it immediately make sure it doesn't make it back home you might be tempted to save it or it could get lost at home which would make you keep it for a long time.

2. Work For Every Penny
Never let your money earn interest always work for every dollar.  If you didn't work for it then give it back this means no savings accounts that bear interest, no investing, no royalties, no passive income and no dividends. You have to work for your money never let your money work for you.  Go to work 9-5 every day and get as much overtime as you can try to get another job in the evening or on the weekend so you can work even more. Try to suck up as much as you can so you can move up and make a few more dollars at this rate you will be working well into your 70's.

3. Get As Many Credit Cards As You Can
It is never too early to get a credit card and the more of them you can get and max out the better. Get the department store credit cards those come with the highest APRs. Do spend as much as you can starting with the cards with the highest rates and only make minimum payments. Do get cash advances on your credit card make sure you accrue as many fees as you can and miss payments occasionally remember you will be making minimum payments for life.

4. Don't Invest
Why bother taking risks they may lead to more money and forget about the power of compound interest you might become a millionaire that way.  Why bother buying a stock and letting it grow in value not to mention that it can pay you dividends while you own it.  It doesn't feel good to know that while you are working or spending time with friends your money is growing even when you are not around to keep an eye on it.  While you sleep your cash can also make more money in other markets overseas as well as in the form of interest you can rest peacefully tonight knowing that this won't be you.

5. Don't Become Financially Educated
If schools don't bother to teach you how to manage money why bother learning, it must be useless.  So drop that financial book and never pick up an annual report from any company, you might learn how the world economy can affect your life or make you money for that matter.  Why bother learning how to protect your money from inflation or estate taxes you will never have any so what is there to protect.  Why bother learning how to make your money grow? You don't need to read about credit and how it can make you wealthier and financially free if used correctly.  What is the point of being able to retire at a young age?

If you still feel that there is a chance you will have some extra money left over after following these steps feel free to send it my way.  Of course if you do want to become financially free do the opposite of what I just wrote.

Sunday, July 7, 2013

Save Money By Living With Less

If you are single or married with no kids you don't really need a big place to live in.  Why dish out money to get a big place when you can get by on a small apartment?  Not that buying a big place is wrong but the way the world is changing we don't need much space to live in.  Over the past few years I have gotten rid of many material possessions and seem to have more and more space.  I no longer need to store movies, books, paper or CDs.  All I need are a few pieces of clothing, a pair of shoes, sneakers a bed and a computer in my room.

I have always wanted to live in a big place but during the process of saving I have adapted to the paperless society the internet and technology have brought about.  It is much more convenient to store movies, books and music online and take it on the go via an iPod/tablet.  Almost everything I need is stored or available online or on a flash drive which has freed up most of the space in my place. I seem to have trouble filling the space in my living room and closets.  Why do I need a bigger place?  The savings that come with the need for less physical space to live in is a great way to free up time and money for recreational activities such as traveling.  Having less material things frees up your mind since you have less things to worry about and keep track of as well as to insure.  It also makes packing, moving and traveling a breeze.  I can focus more on personal projects, studying and having fun instead of having to keep my place tidy; not much left to clean after.

This new digital era lifestyle is ideal for those young adults trying to make it on their own, now they can live on a smaller budget and look for a smaller place to live in.  Less belongings mean less stress I believe smaller living spaces will become the norm once people catch on. The media advertises big houses, big cars and big wardrobes yet living with less is much more liberating and economically it makes sense for most young adults and newlyweds.