Even Broke People Can Invest

Many American consumers (wrongly) believe that, since they don’t earn “enough” money, they can’t invest and take the risk of losing what little they do make. The fact is however that, better than the lottery, setting at least $50 a month aside for investing is at least a good start. Below are a number of tips that can help you get started on a budget. Enjoy.

If you’re nearing retirement, you can relatively easily put together a diversified portfolio by using target date retirement fund. Now, to be sure, target date retirement funds do have their critics, who say that they are “cookie-cutter” solutions that either are too risky or, conversely, not risky enough. The fact is however that for someone who isn’t making a lot of money and would struggle to put together a diversified portfolio on their own, target date retirement funds are great choice.

One of the best is from Vanguard Group, for a number of reasons. First, they have a very low average annual expense at just 0.17%. That means is that for every hundred dollars you invest, you only pay $.17 for annual expenses on it. They also have a very low $1000 minimum and a mix of both market tracking stocks and bond index funds. Even better, as the fund approaches its target date, the mix becomes more conservative.

If you’re looking for conventional stock index mutual funds or bond index funds with low minimums, Charles Schwab has five of the former and three of the latter with $100 minimums each. Another excellent reason to go with Schwab’s index funds are the fact that they have very low annual expenses as well, including .19% for their international index fund, .09% for the US total stock market fund and .29% of their total bond market fund, all three of which are excellent.

Not interested in buying index mutual funds? Then open a brokerage account instead and purchase exchange traded index funds (ETF) instead. The advantage of ETF’s is that they’re listed on the stock market and, whenever the market is open, they can be traded. Mutual funds can only be bought and sold once a day when the market closes.

Even better, there are a number of brokerage firms that will let you trade ETF’s without a commission but, before you buy those, make sure that their annual expenses are low (0.2% or better). The reason that ETF’s have lower fees as opposed to mutual funds is because the cost of handling shareholder accounts is less (being done by brokerage firms). A good mix of ETF’s to start would be one broadly diversified US stock fund, one US bond fund and a foreign stock fund.

If you can put together $1000, and actively managed fund like T Rowe Price Group’s target date retirement fund is an excellent idea. One caveat is that you have to purchase the funds in an IRA.  Scalped Investments, Artisan Funds and Buffalo Funds will, if you agree to automatically invest $50 or $100 every month, waive their regular minimums.

Whatever you decide to do, here’s the key factor to keep in mind; what really matters in the long run as far as building wealth and a decent retirement nest egg is concerned is not only the amount of dollars you put away but putting away something every month.

Why Easy Credit Sucks

One of the easiest ways to understand why more young American adults have debt rather than savings is simply this; while it can take an entire year to save $1000 if you put $20 a week in savings, opening a credit account with $1000 in credit takes only a few minutes and can be spent in less than a day.

The problem is, while “easy credit” is an expression used every day by consumers around the country, no one talks about “easy savings”. In fact, according to a recent study by Bankrate.com, nearly one out of four American consumers have more credit card debt then the amount of money they have in an emergency savings account, which is not very good at all.

Younger consumers have even more of a challenge due to a number of things, including student loans, young families and the perceived need to “be hip”. Those include subscription services to called brands for things like beauty supplies, lifestyle products and so forth, which can easily run between $10 a month to $50 a month.

One of the bigger problems is also that many young Americans are now staying in their parent’s home longer, which means that they have a lot less bills to worry about and, instead of putting their money into savings where it should be (and where it can earn compound interest for a much longer period of time) they end up spending most of their money on socializing, consumer goods, electronics and so forth.

Indeed, setting aside an emergency savings plan to cover 6 to 12 months of bills, something highly recommended for consumers young and older alike, can seem as impossible as putting aside $1 million. Even putting aside an amount of money as small as $20-$25 a week can be overwhelming for some young consumers, due to either overwhelming bills or the fact that they simply don’t realize how much money they’re actually wasting.

Another fact that goes over the heads of most young consumers is that credit card debt comes at an extremely high cost. The average interest on credit cards is just under 16% and, on a $2000 credit card bill, would take over 10 years to pay off if only the minimum amount was paid every month. Not only that but, by the time it was paid off, the young debtor will have spent nearly $1400 more in interest payments.

The real failing goes back to both school and parents, neither of whom are teaching young people the benefits of being frugal, compound interest and having money set aside “for a rainy day”.

Instead, banks bombard young consumers with offers for credit cards that, in most cases, is like waving a steak in front of a hungry bear. It’s very difficult to keep that bear from getting that steak, and just as difficult to keep young consumers from making the mistake of opening a new credit card and quickly maxing it out.

The Hidden Costs of a Long Term Car Loan

Approximately a quarter of all new car loans today are for at least 5 years, and some stretch to 6, 7 and even as long as 8 years. The reason that more and more consumers are getting these longer loans is simple; they allow for lower monthly payments and let someone who might only have been able to purchase a used car, or a much cheaper model, buy a fancier, more expensive car instead.

Edmunds.com, a research and car shopping website, says that the average new car/truck alone is 67.2 months, the longest it’s ever been, but it’s easy to find lenders will go for 84 months or even, amazingly, 96 months.

While the monthly payments might be lower, the fact is that, in the end, the overall cost that a consumer will pay for a long term car loan is much more than the same car will cost for a 2, 3 or even 4 year loan, for a number of reasons.

The fact is, on longer term auto loans the interest rate is usually higher because they’re considered more risky.  For example, using 5%  interest (which is still pretty good for a long-term loan), if a consumer took out a $30,000 loan for 84 months, they would pay $3700 more for their car than someone who purchased the same $30,000 car for 48 months at 3%.

Another problem with very long term loans is that, by the time a consumer gets to the sixth, seventh or eighth year of the loan, they could be paying more than the car is actually worth. According to Eric Lyman, vice president of industry insights at ALG  (they’re the unit of TrueCar.com that forecasts depreciation) “The longer the loan, the further out is until you have positive equity.”

Until this change to positive equity actually occurs, meaning that you have a car that is worth more than what you still owe on it, if you go to trade in the car for a new one, your trade will have zero value.

What makes the situation worse is simply the fact that cars depreciate much faster than other major purchases. For example, by the time an automobile is three years old, it’s worth only about 50% of what it cost new.  That means a $30,000 automobile would be worth approximately $15,000 when it becomes just three years old and, if you owe more than that when it does (which is highly likely if you have a car loan longer than 5 years) buying a new car will mean taking out an outsize loan big enough to pay off the old one and purchase a new one.

Another problem arises if you get into an accident and total your car, because most insurance covers the value of the car, not what you still owe on your loan. That means that, if you owe $25,000 on your car, but it’s only worth $20,000 because of it’s age, you’re going to get $5000 less than you need to replace it if it gets totaled in an accident.

At the end of the day car dealers and banks realize that most consumers don’t look at the end cost of their new car, but simply at the monthly cost when they’re making a new car buying decision. They know it’s a bad idea, but since they’re selling cars and making money, you can bet that they won’t point out that fact to consumers.

If that consumer happens to be you, the best advice you can follow is to take out as short a car loan as possible and, if the payments are too high, purchase a car that costs less rather than taking out a longer loan.

Top Tips for Lowering the Cost of Lighting your Home

About 15% of the electricity used in the average American household is used for lighting, which isn’t the biggest expense by far but is definitely one that can easily be lowered. In today’s blog we’ll look at a number of great Tips that you can use to not only lower your electric bill also save energy at the same time. Enjoy.

First of course are the new Energy Star light bulbs that use approximately 75% less electricity than those old fluorescent twisty lightbulbs that have been around for decades. In fact, some of the newer models look exactly like the old, traditional incandescent models,  except for the fact that they last 10 times longer. You can now clip a lampshade onto them, which is helpful for the millions of lamps people are using all across the United States that are set up this way.

Now, to be sure, these new bulbs do cost a bit more than their older, incandescent counterparts. Since they last so much longer however, and use so much less electricity, you’ll actually save money in the long run even though the initial cost is a bit higher.

Once you’ve changed out your bulbs, the next thing you need to do is not leave them on when you aren’t using them or in the room. The fact is, millions of people all over the country leave lights on during the day when they’re not even home, or all night long, in rooms that are even being used. That’s not just wasteful but also increases your electric bill every single month.

For example, leaving the lights on your garage, in the basement or at the front door is a complete waste. You would do well to install motion sensors in those areas so that, when you walk in, the light turns on but, after few minutes, they turn off automatically. These are great for the front door as well for when someone comes to visit, so that they won’t be standing there in the dark. (It’s also a great way to scare off burglars.)

Inside the house you can also use timers if you want to leave lights on for safety, but don’t want to leave them on all day long as well.

There are also a number of solar power options available today that will collect solar energy during the day and then, at night, light up bulbs along your driveway or a path through your yard. These are great for patios as well and, even though the initial cost is there, they don’t draw energy off of your home’s electric and will pay for themselves in a couple of years.

And there you have it, a number of great tips that will help you to save electricity, save energy and lower your electric bill. Put them to good use and you can save upwards of $2-$300 a year.