Everyone wants to know what the next hot stock will be. What they all fail to realize is that investing isn’t about picking the right stocks at the right time. Investing isn’t sexy like those jerks on Wall Street portray it — in fact if you want to lose lots of money very quickly you have two choices: go to Las Vegas or invest in the “hot stocks” on the street.
The vast majority of my investment portfolio is tied up in mutual funds. I have, at most, 5% of my investments tied up in individual stocks. Why? (more…)
This is a guest post from Bailey Harris. Bailey enjoys writing about insurance and related topics.
Many renters feel that they do not need to have a renter’s insurance policy. They either assume it is expensive and a waste of money or that they are covered under the landlord’s homeowners insurance policy. The truth is that renter’s insurance is very reasonably priced and necessary in most cases–a renter’s personal items will not be covered under a landlord’s policy. (more…)
Any statistician will tell you that number’s don’t lie. What most fail to mention is that while numbers don’t lie, the people reporting them often do. I was lucky enough to take a statistics class in college with a professor who kept it real. “[Numbers] can be manipulated,” he said, “by people who want to … advance their cause.” Sometimes these numbers can be manipulated so well that most people won’t catch the deception. More often than not, however, you just need to think logically about what you are reading, how the numbers are being presented and if they really make sense when you put them all together. If something seems to be askew, or missing, there’s a darn good chance that you’re reading numbers that have been manipulated. (more…)
What you are about to read is a tale of two currencies, both of which are very much at odds with each other. On one side of the ring we have the one dollar bill, lovingly known by millions as “buck,” “greenback,” “single” and “one.” On the other side of the ring we have our underdog: the dollar coin, known by thousands as “dollar coin.” Theirs is a tale of abuse, neglect and, most importantly, the possibility of a shiny new future.
Will The Greenback Ever Die?
Currently the one dollar bill is the most common denomination of U.S. currency. In fact, in 2009 42% of all U.S. currency produced was the dollar bill. With such prominent placement in the U.S. citizen’s wallet it’s hard to imagine the dollar bill ever being replaced or cut out of circulation.
As ubiquitous as the dollar bill is now, its death is basically inevitable. The only question is when will it actually cease to be produced? The world seems to be moving slowly to P2P payments, near field communication (NFC) payments and, of course, the ever increasing use of debit and credit cards. While all of these technological advances (and others that might not have been invented yet) surely will one day phase out the use of a physical currency it’s going to be a very slow process, taking decades before physical currencies truly begin to disappear.
The Coin Dilemma
Several attempts have been made since 1971 to phase in a coin in place of the one dollar bill. All of these attempts have been met with strong resistance. In 2000 the Government Accountability Office reported that replacing the dollar bill with a coin could save $500 million dollars a year. It was around this time that the Sacagawea dollar was introduced, to lukewarm reception. The Save the Greenback campaign (and paper and ink lobbyists) successfully prevented a dollar bill phaseout after the GAO reported the potential cost savings.
Credit goes to Disney and their fantastic show, Duck Tales
In December 2005 Congress decided to create a new set of dollar coins, this time honoring former U.S. Presidents. These coins were first introduced in 2007 and four new designs have been produced each year since their introduction. The program is expected to run through 2016.
It’s a sad existence for the dollar coin as it’s clearly not being used to the extent that it’s being created. In fact, it turns out that a huge number of these coins are being manufactured, bagged and then placed on a shelf, never to see the light of day. There are now over a billion of these coins sitting in vaults (for some lucky duck to swim in), according to a recent report by NPR.
To Replace The Bill With The Coin
There are several reasons why it might make sense to replace the bill with the coin, but with technology looking to slow down use of physical currency would it be too little, too late? It’s hard to say without knowing how long it will take to adopt other payment methods in favor of using a physical currency, but for fun let’s take a look at a few statistics about the dollar bill and the dollar coin.
The average life of a dollar bill is under four years (approx 42 months).
The expected life span of a coin? Approximately 30 years.
This makes the expected life span of a coin about 8.5x longer than that of a bill.
It costs approximately 30 cents to make the dollar coin and the government sells them for a dollar.
Replacing the bill with a coin will net the government approximately $500 million dollars a year (according to the GAO).
With the benefits that would come along with replacing the bill with a coin, why don’t we just do it? The government has been trying to replace the bill, but so far with no success. The reason is obvious: it isn’t serious about replacing the bill with a coin. A simple cease production on the bill would force us to use the coin, making for a very quick adoption rate. Other countries have successfully introduced a replacement coin this way and things seemed to work out just fine (with very little the world-is-ending types of anarchy). If others have been successful with this route then we should be as well. The American consumer would likely accept the new coin for what it is, and life would go on.
What do you think? Do you like to use dollar coins? Do you find them more convenient than the dollar bill? My guess is that the majority of you will prefer the bill. Let me know your thoughts in the comments below. Should it be up to us though? If the dollar bill was cut off completely and replaced by the coin would you just accept it and move on? Or would you fight against The Man?
Pay raise? What pay raise? I know what you are thinking. But, believe it or not, many Americans received a pay raise this year. Many receive a pay raise as a cost of living adjustment every year from their pension or an annual increase in their salaries from their employer. The United States military, for example, received a 1.4% pay raise this past January, and they have received a raise every year since the end of World War II. Every American actually received a pay raise this year also, and many did not even realize it. This year only, Congress reduced Social Security tax withholding from 6.2% to 4.2%. So, in essence, every taxpaying American received a 2% pay raise. So, now that we have it, what are we going to do with it? There are three great uses for a pay raise that can increase your wealth.
Pay Off Debt
If you have a credit card that is charging you 18% interest on your debt and you pay the card off, that is exactly like earning an 18% return on your money. There are not too many investments even in todayís hot stock market that can earn you an 18% rate of return. Paying off debt also has the added benefit of increasing your net worth. Most people only look at the asset side of the balance sheet equation, but you can raise your net worth by reducing your debt as well. Using a pay raise to increase your debt snowball or completely pay off a credit card is an excellent choice for the new money in your paycheck every month.
Save An Emergency Fund
One of the biggest things that Americans are lacking is a fully funded emergency fund. Recent studies have shown that almost half of all Americans do not have three to six months of living expenses saved in an emergency fund. You can never go wrong by using a new pay raise to beef up your emergency fund. I was personally surprised when I actually took the time to calculate just how much money constituted six months of expenses. I found out that I had been underfunding my emergency fund for years. Do you have enough saved in your rainy day fund? Have you done the simple math calculations to ensure that you really do have three to six months saved or have you just picked a random number such as $10,000 to set aside?
Invest Your Raise
Everyone knows that they should maximize their retirement plan contributions, but many people find themselves coming up short at the end of the year for one reason or another. Using a portion of your pay raise to finish your contributions would be a great use for that money. For example, the maximum contribution limit for a Roth IRA for someone under the age of 50 is $5,000 per year. If you have not contributed up to your maximum, you have until April 15th, 2011 to finish contributing for 2010ís $5,000 cap.
The beauty of a pay raise is that it is money that you previously didnít have allocated in your budget. It is basically found money. It was not already earmarked for any purpose. You can use that money to strengthen your financial picture and make your familyís financial lives better. You can use a pay raise for all kinds of purposes that you have been putting off such as paying off debt, funding an emergency fund, or investing for retirement. So, think twice before you splurge with your new pay raise. There may be a better use for that money.
I was browsing some personal finance blogs when I came across this video of Jay Leno interviewing people with finance related questions. The answers are astonishing. Of course you have to keep in mind he likely edited each of these, cutting out the people who weren’t funny (e.g. those who actually knew the answers to his questions), but I’m still curious as to how many people really got these questions right. Check out the video for some laughs and potentially some tears as well. Thanks to JLP at AllFinancialMatters!
Having recently purchased my first home I was able to learn a great deal about what’s important – and what’s not so important – when it comes to taking out a mortgage to buy a home. I’ve put together a list of useful advice that anyone buying a home and taking out a mortgage should know.
Know your credit
When taking out a loan as large as a mortgage (or when taking out any loan for that matter), you’ll want to know exactly what’s on your credit report and also have a good idea of what your credit score is. Know that you’ll receive the best deals on rates and the associated cost to those rates (e.g. discount points) when your credit score is above a 720. Also realize that most lenders out there will likely pull your credit from all three major credit bureaus (TransUnion; Equifax and Experian) so you’ll want to make sure you know what’s on all three of those reports.
To give yourself plenty of time to do any necessary damage control to your credit you’ll want to pull your credit report from the three major credit bureaus at least six months before you plan to take out a mortgage in order to purchase a house. Save yourself some money by getting your credit reports from AnnualCreditReport.com (your report is really free here) if you haven’t already pulled your reports in the last 12 months. You will have to pay to get a copy of your credit score though, unfortunately.
Plan for a down payment and closing costs
Know how much cash you’ll have available for a down payment and closing costs when you start looking to buy. If you already know how much cash you’ll be using as a down payment on your home then consolidate all of that money into one savings or checking account at least two months before you plan on applying for the mortgage. By doing this you’ll save yourself the hassle of providing account statements from each bank account, investment account and retirement account from which you’ll be using for the down payment and closing costs.
If you don’t have much cash available now but you do anticipate buying a home sometime in the near future you’ll want to start saving for this now. Unless you’re eligible for a VA loan you likely won’t have an option of a no-down-payment loan. Even going with an FHA loan (a type of government insured mortgage) you’ll still have to come up with at least 3 1/2% for the down payment. In some cases you can still secure a conventional loan with as little as 5% down and with no funding fee on these types of loans (as you’ll see on VA and FHA loans) they’re still a pretty good product. If you’re short on cash you’ll want to start saving now – my recommendation is to set up an automatic savings plan.
Be prepared to provide documentation on income and assets.
I’ve had a couple of friends who were interested in taking out a mortgage but for whatever reason were unable to provide documentation on their income and/or assets, whether it be because they were paid primarily in tips and didn’t report a majority of this on their tax returns or they kept a large amount of their free cash literally as “cash” rather than storing it away in a savings account. They were unsuccessful at getting approved for a mortgage because they could not provide adequate documentation to prove either their income or assets. Let me be clear about this: “no doc” home loans do not exist in today’s environment. If they do they’re probably going to be extraordinarily difficult to find and will likely have unreasonable rates and fees to accompany them. Moral of this story? Make sure you have adequate documentation of your assets and your income. If you’re even slightly unsure if what you have will be adequate then call your local lender and ask them if what you have would be sufficient.
Look for programs for first time buyers, but don’t count on them.
There are plenty of programs out there for first time home-buyers; you just need to know where to look and how to qualify for them. Try checking with your local city and county governments to see what programs are available. With that being said my advice is to plan for the worst and hope for the best. If you can’t find or don’t qualify for a first time home-buyer program then make sure it makes sense to buy a home still before you actually do!
Also don’t hesitate to ask for the seller to contribute to closing costs, but don’t count on that either. Again plan for the worst!
Know your limits and don’t be afraid to say no.
Personal finance should be personal but it shouldn’t be nearly as emotional as people let it be. Do not let your feelings get in the way of making a smart decision when it comes to taking buying a home. Don’t fall in love with a house that you can’t realistically afford. It’s not worth the stress and the possibility of losing it if you can’t keep up on the mortgage payments. Don’t get so attached to the idea of owning your own home that you purchase one when it just doesn’t make sense to do so. Don’t be afraid to walk away from something if it doesn’t make sense financially. You won’t regret it – stay positive and you’ll find that perfect home when you’re ready.
