Time to Make Cents

Technical Analysis Tutorial from Yahoo Finance!

2006-10-12T22:21:00.000-04:00

As discussed in This Post, Yahoo Finance is the most useful online resource for the inquisitive investor. For those who are interested in learning about technical analysis, This User Guide, is a great introduction to the many powerful tools that help savvy investors earn great capital gains! With easy to read articles and movies, there is a lot of great information covered that can be directly applied to choosing which stocks to include in your portfolio, or to purchase for a quick trade. Happy learning!

11 Reasons You SHOULD Get a Job!

2006-07-22T11:33:00.000-04:00

Steve Pavlina is a wonderful blogger who can often open up reader’s minds to wonderful new ideas and tools that can shape their thinking and change the way they view the world. He even states how one individual who was feeling suicidal happened upon his site, where he then spent the next few hours reading all the articles and blog entries. Once finished, he was no longer suicidal. I have no doubt that this case is not true, and that the blog has helped thousands of others improve their own lives and situations. I myself have enjoyed reading Steve’s blog, and have the utmost respect for him and for what he does. I do however have some issues with one of his most recent blog posts 10 Reasons you should never get a job. First lets look up the definition of the word “never” (from answers.com):

“Not ever;”

So right away we can see that Steve suggests that a job is something that no one ever needs to have. This is surely a puzzling statement for roughly half of Canadians, as over 14 million of them are considered “employees”, 13.5 million work full-time, while less than 2.5 million are considered “self employed”. This means that of all working Canadians (about 16.5 million people) just over 15% of them are not employees (statistics from Statistics Canada. When Steve says you do not need a job, it appears that he means you do not need to be an employee for someone else. This suggests that by being self-employed (like about 15% of Canadians) you do not have a job.

Well Stats Canada has provided me with some information to dispute this statement once again. According to This report The average self-employed Canadian male works 49.6 hours per week (over 9 more than employed males), 51.4 weeks a year (about 5 more than employed males) and for all this added work makes about $4,000 less in earnings per year than an employed person!

Being Self-Employed isn’t sleeping in late or having the easy life, but from what this statistics show is that it is more work, more often for less money and less time off! Think of how many people own their own restaurant franchise, and are working 7 days a week for long hours behind the counter to make some sort of living. These people are working very hard, but what do they have to show for this hard work? They are still working long hours seven days a week in what seems like a never ending cycle of work work work!

I will give it to Steve and admit he never said that being self-employed or jobless means complete freedom and laziness, but for the average person who is self employed they would have more freedom and more money by becoming an employee!

Now to fully combat Steve’s stance on this issue, I present my very own “11 reasons you SHOULD get a job.” This also applies to people who are currently employed on why you should keep your current job. My position on this topic is just so compelling that I had to add an additional reason in :). I am sure Steve does not mind at all. Well without further ado…

1.Get Paid for Learning New Skills

Your chosen career can provide you with the ability to become a life-long learner in your chosen field, and get paid more as you learn more! Many companies provide free or paid training throughout your time with the company, where you can enhance your own skills and make you a more valuable employee. You often have access to both in-house workshops and seminars and may also be able to take part in these sessions outside the workplace at little or no cost to you (thanks to the employer). As you learn more, you are worth more, and your salary and job position and responsibilities will convey this. Your work will become more fulfilling and you will enjoy it more. Since your skills will continually advance, so will the challenge of your work, ensuring that you remain constantly motivated and intrigued by your job. Employers want to have the best employees possible, which means that they will pay for their employees (you) to learn new skills. As you improve your individual abilities, your employer will reward you fairly.

2. You are an Expert on Being an Employee!

We have gone to school for many years and have had part time jobs, all to give us the experience and tools necessary to be an employee. With all this time and energy put into learning how to work for others, you are now an expert on how to be an employee. Why should you throw this expertise away if you can work it to your advantage?

Being an employee is not something anyone can just start doing. You need to know how to properly interact with coworkers, with upper management and with your boss. After spending years doing this, you should have been able to figure out some things about all these people. What do co-workers want from you? What does an employer want from you? By using your experience in the past, you can behave the way that will make work the most pleasurable experience for you, while being well liked by others. If you know your boss values punctuality, you can ensure you are always 5 minutes early to work and meetings. Since everyone likes praise and to talk about themselves, you can ensure to be very complimentary to coworkers, and always ask them questions about themselves. By using your expertise to your advantage, you can become the model employee who will benefit in many ways. This may mean anything from having coworkers be happy to assist you with some mundane work (“I am more than happy to help out such a nice person”) or being able to leave one afternoon early to pick up the kids from work to getting a promotion or raise earlier. This means that by working smarter not harder you can actually get more out of your job and more out of your life.

3. Allows you to accurately plan your future

If you are self-employed, your day-to-day money situation can change drastically. One day you can be racking in the dough, and start planning a vacation for your family after working so many years without one. Then all of a sudden an important piece of equipment breaks and all that money that was meant for the vacation (and the money that was also going to go to purchase a new dishwasher) has to be spent on the business, or else you are unable to stay in business. Today you’re selling the hottest diet fad, but tomorrow it is deemed illegal to sell due to chemicals in the product. Where have all your customers gone now? What are you going to do with all of this inventory that you cannot sell? Welcome to fun of self-employment.

Having a steady job can allow you to accurately plan your future. You know that if you continue to work 35 hours a week for the next month, that you will have a certain amount of money. With this money you can guarantee that during that month you can afford to purchase a certain amount of groceries, clothing, amount of entertainment, pay off bills or mortgage and save some money for emergencies and big purchases. You know you can save $100 a month, so that at the end of the year you will have enough money to purchase a new computer. If you are self-employed, that new computer may never come as you are constantly requiring money for unforeseen expenses and your salary is constantly changing. By having the salary you will make remain constant, you can now focus your time and energy on other aspects on your life. Do you really want to work a 10-14 hour day and fall into bed at the end of a tiring day thinking “I barely covered my expenses today and tomorrow looks even worst, but at least I am self-employed”? Being employed with a salary allows you to focus your energy on doing the things you want to with the freedom of more time than people who are self-employed. This does not seem like a cowardly trade-off to me, but rather a decision made by someone who values his or her leisure time.

4. You are Currently Loving What You are Doing, and are Truly Happy

Have you ever heard of someone opening up their own hospital, so that they can become a self-employed nurse? I haven’t either. A dream job can fulfil all of a persons goals and desires, and make them truly happy. Why should you quit this just so that you can say you do not have a job or are self-employed? As a nurse, you can work long hours and deal with some tough customers (patients), but it can make you feel wonderful to be helping people who are sick in the hospital and making their recovery as easy as possible. You may want to be able to become a role model for children and help encourage that the youth are better citizens of tomorrow. You can become a teacher or principal and open up your own school, but who would show up? You can make a greater impact and be more influential to more children by working in a public school, where you have resources to the proper curriculum and will always have plenty of customers (students). Besides, as a teacher you are guaranteed your weekends and summers off. Who wouldn’t be happy with that?

If you love what you are doing, continue to do it. Why try and change happiness?

5. Allows You to Work on Your Own Projects and Initiatives, While Still Making Money

A job is not signing away your freedom forever. It is merely a contract between you and an employer that states what you do and what you will be compensation for each hour worked (or salary for the year). It does not put any restrictions on what you do in your free time, and allows you to do engage in any activity your heart desires. If you choose not to have an employer, this trade-off does not occur. You may be putting a lot of time and effort into your self-employed business, but that is no guarantee that you will make any money out of it. Being employed ensures that you can have time for your own initiatives and hobbies, while ensuring a constant stream of income. Being self-employed means being dedicated to your work as much as possible. Any time not spent on your business or work means that you are losing potential income that you may desperately need. There is not down time and any time taken for personal leisure is time and money that is potentially lost. With the amount of competition that occurs today it can be very difficult to maintain any market share in an industry, and any time spent not working at maintaining this share can mean competitors will steal it from you. A week vacation away from work can mean more than a week of lost income from your self-employed venture, as you may come back to angry customers who have moved to competitors. Then you will need to work harder than before to make less money then you had. Think you will be willing to take another vacation anytime soon?

6. Employees and Large Employers are Needed to Get Things Done!

What would happen if we all were self employed, or had ways to make money without doing much work? Where would we find people to provide the goods and services that we rely on today? We may find someone willing to fly a plane to take us on vacation, but who is going to work at the airport, build the airplane (I do not know of any one person who can build a plane with their own two hands), load our luggage, and serve us our meals and drinks during the flight? We can go to an amusement park, but who will operate or maintain the rides? To have the goods and services we all demand, we need their to be corporations and large employers who employ people like us.

We need people to produce the goods and services we demand everyday like clothing, meals, newspapers, television shows, gas to run our cars, etc. Many of these goods and services cannot be provide without large upfront costs for machinery or space. Individuals cannot afford these costs upfront, but by pooling their money with others to form a corporation they can. All of these people can then provide the goods and services that people demand, as long as they have people with the right skills to produce the items. Employees are hired, and are compensated for their work with income. We then have the ability to fulfill our demand by purchasing the good or service. This is only possible though if: people are employed to create what we demand & we have our own income from producing what other people demand.

Why do people (for the most part) like hardworking people who have made a lot of money (Warren Buffet or Bill Gates) but dislike people who have made their money by doing nothing or just inherited it? It is because people believe that hard work by anyone should result in success. Is this not the American Dream? Anyone from any background can work hard and be successful. Will you feel good about yourself if you have a lot of money, but have gotten it from cheating others while playing online poker, scamming the money from honest people? This is a fun activity for many, and online poker would not seem like work for them, but does an illegal activity help society in any way? As an employee, you can become part of something bigger than yourself. As a construction worker, you can help build huge structures that would have never been possible in the short time frame if you had done this by yourself. You can help build houses for people in a fraction of the time it would take any single person to build one (if they could even do it at all). The world needs employees, and as an employee you can help change the world.

There is the ability for some people not to have to do what they consider work, but in reality they are still working at some job and adding some value to society. If not they would not receive any income. So what it appears like here is that for some people they can not be truly happy unless they are self employed or do not feel like they have a job. In truth though they are still doing something for society in some way, they just do not feel that they are. If you are truly happy though being an employee (See point #3) then you do not have a job either. You are doing what you love, and being an employee is the best way for you to do this.

7. You are Not Ready to Become Self-Employed

The decision to become self-employed cannot be made with the snap of your fingers. The idea can pop into your head that fast and motivate you that fast, but in reality it needs some planning. What will I do? How will I make income? Who will make customers be? How will I be more successful than competitors? What do I need to do to become registered as a small business? These are just some of the many questions that need to be answered before starting one’s own business or starting a life without a job. If one was going to quit from their employed position without answering any of these questions, they might find themselves in a bit of a pickle. Especially if they need to raise enough money to pay off the next mortgage payment in two weeks, and need to find the money to pay for electricity, heating, food, gas, the car, clothing, etc.

Consider the idea of not being employed. Does it work for you? How can you accomplish it? Will it make your situation better off than it is currently? These are all things you need to decide for yourself. They do not have to be answered in an instance, and can be thought of throughout ones day or for a few weeks. During this time though there is no reason why you should continue to be employed. This is just one idea, and like any idea you have it needs to be thought out fully. How many mornings have you woken up and said “I want to go back to bed”. This is an idea, but that does not make it a good one or one you should follow. You would need to think about what would happen if you went back to bed “I would be not go to work, not make any money, potentially lose my job, and have no way to pay for any of my expenses”. This does not seem like a very good idea now, so you get up and get to work.

Consider this idea, but do not act on it if you enjoy your work, do not feel comfortable with this change or have not fully thought out this possibility. You may decide that you should read some books on self employment or motivation to get yourself psyched to do it, but while doing so you may realize that some things you value would be lost by leaving your employment.

8. You Need the Money NOW and Cannot Risk Going Some Time Without Any Money/Access to Benefit Packages

We all have commitments that require us to pay a certain amount of money by a certain date. This could be anything from student loans, credit card payments, mortgages or a variety of other financial obligations. It does not matter to the people receiving the money what you need to do to get the money, they just want it by the due date. Lenders are not traditionally known to be sympathetic of people who decide that they no longer want to work and will pay back their loans when they start making money, whenever that is. To be able to pay off the financial obligations by the time they are due, many of us require an employed job with a guaranteed salary or income. There is nothing wrong with wanting to ensure that all of ones liabilities are going to be paid off in full by the date that the money is due. Since this can be guaranteed for most people only if they remain an employee at their job, remaining at one’s job is the correct and smart choice in this situation.

Do you and your family benefit from dental and medical packages offered by your employer? Has there ever been an emergency situation where you have been saved a heavy financial burden due to this benefit package? I know personally that I have benefited from the benefit packages of my parents. Within two years, I was diagnosed with a chronic disease, spent 2 months in a hospital, was on a $500-$2000 a day treatment to stop my weight loss for three weeks, and had surgery. Living in Canada, universal healthcare meant that I do not know the costs or had to pay (directly) for most of the services and care I received. However, what happens if I do not have access to universal healthcare? There was no way to realize 3 years ago when nothing seemed wrong that I would require tens of thousands of dollars over the next few years for my healthcare. If I am self employed and do not have access to any benefit packages from an employer, than this money needs to come directly from me. Is this a risk you are willing to take?

Your job may also provide you with additional benefits that could not be had from being self-employed or having no job. Working for an airline might provide you with free or next to no cost flights for you and your family. You may work for a large corporation and get a discount on all the products and services provided by them. You may get access to employee stock purchase plans and have your employer help pay for your retirement by adding to your 401k plan. Paid seminars to learn and paid vacations to relax… this does not happen when you do not have a job!

9. Make Great Contacts Within Your Chosen Field
If you are employed in the field of your choice, you will have access to others with your same interests in a career and who have more knowledge about the field. This can be beneficial in creating great contacts within a field, and can help you throughout your job. Networking through company events and company partners is a great benefit of working for a company. You can meet a lot of smart and interesting people through company events, who can provide you with knowledge on how to better succeed in your career. Even if you do want to eventually get out and go on your own, these people can provide you with some more guidance about how your chosen field works and provide you with some personal knowledge and experience that one can get without experiencing it for themselves. This will allow you to determine whether you can do what you love while being self-employed or “without a job”. It is still important to realize though that a job will give you the necessary experience in a field to start off on the right foot. Without the practical job experience, you will start out in a much riskier situation. You will also be without any good contacts that could help you to succeed, making it harder to get off on the right foot and realize what can work and what is doomed to fail. No matter what your future goals are, a job allows you to gain experience and contacts in the industry you prefer.

10. Allows for Close Analysis of Competitors

If you were to begin “not working” by juggling outside for money, how would you know what to do to be successful? You may be juggling three balls and be amusing the audience, but are making no money. This may because you did not realize that a fellow juggler across the road is juggling four torches that are on fire, while also singing the national anthem (to the delight of the dozen’s throwing coins into this man’s hat). If you do not understand what your competitors are doing (and more importantly, what they are doing right and wrong) how can you expect to succeed?

By being an employee in a field you are interested in, you can see first hand how the industry runs. You can gauge what your employer is doing well, and can also see how they compare with other rivals. Larger corporations do extensive research on the industry they are in and on competitors, and you can use this knowledge to your advantage. You can determine if there is room for a little guy like you to start his own business, and you can see how you can succeed. If there are no opportunities, then you are making the best choice by staying at your current job. Either way, by being able to see first hand what goes on within a specific field of work, you can determine what your career goals should be and whether it is right for you to start being self-employed “without a job”.

11. Allows for a Conscious and Objective View of How a Job Impacts Your Life

“Mommy, Mommy, I want a Widget!”

How does this 5 year old know that they want Widget? They have never seen this toy Widget in person before, never been told about it by their parents or friends, and are not old enough to read about it. They did however see a commercial on TV where a clear message was conveyed to all children “You need a Widget”. This child now has it programmed in their heads that they need this Widget, even if they do not entirely know or understand why. How is this any different from all of a sudden being told you need to stop having a job?

Before you make any radical decisions in your life about how you will make money, consider how a job really impacts your life. Consider the role of a job in your life, and how being employed effects you. The best way to do this is to consciously and objectively engage in active thinking about your job while you are doing it. Ponder some of these while you are working: Why am I doing this? Is this making me happy? Is this the job I want to do? What do I want to do? How can I accomplish my goals?

How else can you accurately answer these questions if you do not consider them while you are actually working? With these questions though, think about what life without a job would be like. Would it be easier or harder? Would you be happier? Could you accomplish more than you are now? What steps would I need to take now to allow me to do reach my goals in life?

This exercise can change the way you view your job and what you want to do. It may reconfirm what you are doing now is what is best for you, and it is what makes you the most happy. The important thing is that at the end of the day, you have a clear vision of what you want out of a job and out of life, and intertwine both of them as best as possible.

As you can see throughout these writings, I do not believe that being employed is the right answer for everyone, and I even encourage a lot of thinking about becoming self-employed or not having a job. I did not write this to be the extreme polar opposite of Steve’s train of thought, but rather to show there are two sides to every situation. The way I see it though, you can still be employed and feel like you do not have a job. I agree with Steve’s article(s) in many ways, but I feel that things never are extremes. Total happiness might come for some from being an employee, or it might come from not having a job, but there is not a single right answer for everyone, in every situation. You need to find what you want personally, and shape your job (or lack of one) around that. Who says you can not work part-time as an employee and work the remainder doing your “not a job”? If that is what is best for you and will allow you to achieve all your goals and dreams, then all the power to you to do it.

So get thinking. You now have two ideas to work with: I don’t need a job and I do need a job. Figure out which one works for you :).

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Investing has never been Easier....

2006-07-21T19:48:00.000-04:00

Thanks to the Internet, more knowledgeable (and demanding) investors, more competition and reduced costs, there is greater access today to more services and tools than ever before. Besides being able to now receive up to the minute information freely from many services, there are many different charting tools available to investors for free. There always has been and will be premium services and tools that cost money, and these can be very useful also. You need to decide your own needs and determine what you require for your investing needs. If a $500 cost for premium research and tools will allow you to increase your capital gains by $5,000, than it is well worth the costs. If you are unsure of how effective these premium tools and services will be, you should try the 30 day free trial or a reduced cost for trying the service for a short period that is now offered with many of these services. Take the time to gauge how well you are able to use the new tools at your disposal, and determine if the cost of the tools or service is worth what you will be paying for them. But what can you gauge the value of these services against? Lucky to you (and the many other people on the internet who have taken responsibility for their own investments) there are many services available that offer many tools that would have been very expensive or non existent years ago. Over the next little while I will talk about some of these different free resources that you have at your disposal. Today I will go over charting. The use of charts is the primary step to utilizing technical analysis. Technical analysis does not believe a stock's price is a pure measure of the underlying security’s intrinsic value, but rather believes that stocks follow certain patterns that, if recognized, can be used to accurately predict future price performance. This means that you can make money by recognizing patterns and by purchasing (or short selling) stocks at the best time to make the greatest return on your investment. Some people are of the thought that technical analysis is fool proof, and is a perfect truth in markets and stocks. Others (usually though who believe in fundamental analysis or random-walk theory) believe that there is no real insight that can be found in technical analysis and that it is a waste of time. So what is the truth about it? Today, it is commonly believed that an investor should use a variety of methods to valuate stocks. By combining fundamental analysis, technical analysis with the current macroeconomic themes, an investor can make the best possible trades possible that maximize returns, while limiting risks.

This means you should take the time to learn technical analysis, and utilize it when researching investing opportunities. You can use your Technical Analysis through the use of many paid services, but today I will tell about 3 popular tools that are: 1. Easy to use 2. Online 3. TOTALLY FREE!

Sound good to you? Well let’s learn about them then!

#3 –www.google.com/finance – GOOGLE FINANCE

Google is well known for their popular search engine, online map, translator, high priced stock and many other tools and features. One of them is a finance area. While this feature is still in Beta, it allows you to search for charts for stocks from several country’s (all of North America and many other countries). By entering in the ticker symbol for the stock (example: Google =goog, General Electric =ge, etc.) you can see a chart of the stock in question. This chart allows you to plot the stock from a timeframe of a day, to five days, to a month, to a year or even longer. The volume (amount of shares exchanged throughout the day) is also listed. While the chart is not overly impressive, google combines its search engine in a rather unique way. Throughout the chart, markers will be placed with a letter on them. These letters correspond to different articles that were found about the company and stock in question. This can allow you to see how past news and stories affected the stock. Going back, you can see what analysts projected as the price for the stock and then see how the stock actually fared. Otherwise though, there are not many tools that can be used for technical analysis, and there is a lot more information on the site that can be used for fundamental analysis. The pages also contain google group conversations about each stock, and these can be beneficial or actually harmful, as the source of the information (and how unbiased or knowledgeable they are about the stock in question) is never fully known. This tool is good if you want a quick update on how a stock is doing and to see some recent news items about the stock (and how these items affected the stocks price).

#2- http://investertech.com/ - INVESTOR TECH

This is a really great tool to use. Searching any ticker symbol, you instantly pull up: a daily chart for the past 6 months with 3 moving averages, the volume with 2 averages, Relative Strength Indicator (RSI) for the past 7,14 and 21 days, Commodity Channel Index (CCI), Directional Move Index (DMI), Moving Average Convergence/Divergence (MACD) and the advancers/decliners ratio for the country the particular stock is in (over the past 10,20 and 30 days). This obviously is quite an impressive amount of data available very fast and in one easy area. The charts are all easy to read and the use of color helps a lot. The only negative with this site is that it has a lot more features, but they are only available to paying customers. Still, you may want to take advantage of the
30 free trial to see if they are useful for you.

#1- http://www.finance.yahoo.com/ (or the yahoo finance site related to your country) YAHOO FINANCE

While Investor tech has the most options available for you, this competition is based on what is free. That means that yahoo finance wins, as it provides you with the ability to customize charts in a very easy and well laid out way. Yahoo Finance recently has undergone some changes (likely to feeling pressured by google finance release as well as the improvement of other competitors) and this has benefited us by allowing investors to customize charts like never before.

Yahoo finance has a chart that looks similar to google’s initially, but this service is much more powerful than googles. Users have the ability to compare the stocks performance (in terms of percentage gained or lost) against a list of competitors, about a dozen indices or any other stock you want (it already recognized stocks you previously searched, but you can compare any stocks you wish). You can compare 10 different stocks at once, which makes for a pretty colorful chart J. Now for the technical analysis. You can choose from 13 different tools, where you have total control over how the tool is used. Want 3 moving averages of 10 days, 22 days and 46 days? You can do it. Want Bollinger bands with a deviation of 3 and a period of 15? You can do it. Another great part is each tool comes with an explanation of what each tool is, and what customization you have for the tool (and how it affects the indicator). Once you make the chart as appealing as you want, you then can print it or e-mail it. Not bad for the investor on the 0$ monthly fee plan.

These are just some of the many charting websites out there. Personally I have found Yahoo to probably be the best one out of any I have ever seen (for free). Feel free to make comments about other free charting tools online. Remember that I am only dealing with online tools, so it is not fair to compare these with downloadable programs.

Use these tools to your advantage to get the most out of your research. With some education, you have the power to use tools like these to make wise investing choices that can make great returns for you.

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Free Online Entrepreneurship Book!

2006-02-23T21:42:00.000-05:00

Bruce Judson is trying an experiment that is benefiting all of us on the world wide web. Mr. Judson is an author, professor and successful entrepreneuer who has decided to share his novel "Go it Alone" with everyone who visits his website (for free!).

Entrepreneurship is essentialing running your own business. It is a great way to learn more about business and yourself. Over time, it can lead to financial rewards as well. Hopefully this free e-book helps you on your journey towards going for it alone!

Please click the below link to access the book.

http://www.brucejudson.com/info.html

Online Personal Finance Calculator Heaven!

2006-02-19T00:17:00.001-05:00

For those of you who love to forecast your financial future, you will be very happy with today’s find!

Dinkytown.com provides more online calculators than you will know what to do with. This is definitely a website you will want to keep in your favourites. From a future value of your lifetime wages calculator, to a debt consolidation calculator (and everything in between) Dinytown.com has a tool to help you calculate anything you can think of. There are even some “Country specific” calculators, including a rather large section for Canadians!

Please click the link below to access all of these calculators and happy number crunching!

http://www.dinkytown.net/financialcalculators.html

What is the Inverse Yield Curve all about?

2006-02-16T12:30:00.000-05:00

You may have been hearing a lot about the United State's current inverse yield curve on U.S dollar deposit interest rates. In essence, interest rates are higher on short term deposits than on long term deposits. Of course, this goes against conventional wisdom. The longer your money is "tied up" the more you should be rewarded for, right? In the past this situation suggested an economic recession (or slowdown) was upcomming. The link below explains the situation very well and should be read by anyone who is curious. Enjoy!

http://217.145.4.56/ind/news.asp?newsitemid=27098

My Trader; Free (and Excellent) Investment Information Software

2006-02-13T13:28:00.000-05:00

The Internet has empowered investors, by giving them a plethora of information to base their investment decisions off of. Today I am sharing with you another excellent tool that you should utilize as part of your investment decision-making process. It is a program called My Trader. This program provides stock prices on demand (with a 15 minute delay), which is as good as it gets in terms of finding stock prices online (for free). My Trader has many other uses, but I feel it’s best feature is the charting capabilities My Trader allows you to create elaborate charts with any stock on any major American exchange. Any metric you can imagine can be utilized and customized to fit your requirements.

Best of all, this program can be downloaded for free from the link below!

Enjoy!

http://www.fongan.net/MT/download.asp

Spending to Save, The Savings Paradox

2006-02-12T11:44:00.000-05:00

Just about anyone who has personal finance goals consciously attempts to scrimp and save to some degree. Unfortunately, good intentions do not always result in good actions. Many people are not saving as much as they think they are and in fact, could be spending more in an attempt to save. This phenomenon is something I like to call The Savings Paradox.

The Savings Paradox is essentially the idea that to save money, one must spend more. This may sound confusing, but this is a consistent event that takes place in too many people’s life. Imagine that you saw a television on sale at a local electronics sale for $2000. You know that this is a great deal because at another nearby store the same set is selling for $3000. You purchase the T.V, proud to have saved $1000. You show your new purchase off to friends and family, who are amazed with the system (and even more amazed when you share the price). But was this purchase really such a great decision? While you might have saved $1000 by not buying the set from the other store, you still had to spend $2000 on a new television set that you did not necessarily need. So while you have spent less money purchasing the T.V than you might have otherwise, you still spent $2000!

Of course, applied to all purchases, the Savings Paradox would leave you homeless, without food or shelter and a lot of money. I am not suggesting that you never spend money in an effort to save to the extreme. I am suggesting that you question your purchases to determine the necessity of them. All goods and services can fall into one of two categories: needs and wants. Needs are things that are necessary and required to survive. This includes the obvious like food, clothing and shelter; but also includes the items that you require to live your life (such as transportation, entertainment expenses etc.) Wants are items that you desire which are not required or necessary for survival. You do not need an I-pod to survive, but many people purchase one because they want one.

While people can save money by re-evaluating how they are spending money one their needs, it is easiest to apply the Savings Paradox to “want” purchases, simply because these purchases are not necessary. Take the above situation as an example. Assuming you already owned a working television set, was it really required to purchase a new one for $2000? The best way to utilize the Savings Paradox in your life is to make a cost-benefit analysis in your head every time you purchase something. When you perform a cost-benefit analysis, you determine all of the pros (benefits) and cons (costs—both financial and other) of making the purchase. If the benefits outweigh the costs, you can justify the purchase. When the costs outweigh the benefits, you should forget about making the purchase. Of course, this only works if you are objective when determining the costs and benefits of a purchase decision.

By “shopping smarter” by utilizing cost-benefit analyses with your purchasing decisions, you should no longer be swayed to spend money on a sales item that you do not really need. In effect, you will be saving more by spending less, which is how it should be in the first place.

The Price to Earnings Ratio and your Personal Finance Decisions

2006-02-09T14:07:00.000-05:00

One aspect of the stock market that often befuddles novice investors is how stocks are valued. How is it that a company like Google has a stock priced around $380 (and be considered cheap by some) when Microsoft can have a stock priced around $27 (and be considered expensive by others). The reasoning behind a stock’s price can be quite extensive, but there is one important relationship that must be understood. That is, the relationship between a stock’s price and the company’s earnings (or profit). This relationship can be viewed by utilizing the Price to Earnings (P/E) ratio.

The P/E ratio indicates how much an investor would have to pay (by purchasing the stock) for each dollar the company has earned. The price to earning ratio is calculated by dividing a stock’s current market value by the company’s earnings per share (the profit of the company divided by the number of shares available in the company). There are different types of P/E ratios, based on the earnings used to calculate the ratio. For example, a P/E ratio can be calculated based of a company’s earnings in one quarter, or based off of the expected earnings for the future year (known as the forward P/E ratio). The most commonly used P/E ratio is the trailing P/E ratio, which utilizes the earning per share of the past year. The larger the P/E ratio, the more optimistic owners are of the company’s prosperity and future growth. It is now that one can understand what could make a five-dollar stock expensive and a 20-dollar stock cheap-- the price is all relative to the earnings per share!

The P/E ratio is a great tool to help define the true value of a stock, but it is not perfect. There are no magic “buy” and “sell” numbers to watch out for. To determine appropriate P/E ratios for a particular stock first look at the industry. The average P/E ratio will help put a particular stock’s P/E ratio in perspective. A stock that has a lower P/E ratio than the industry on average may be a good buy. Look at the stock’s average P/E ratio in general. A stock that is trading with a lower P/E ratio than the industry is of no special value if it on average trades below the industry P/E ratio average! Also, compare the stock’s current P/E ratio with current news and information you have about the company. Essentially, a low P/E ratio does not necessarily indicate a buy signal. A stock that is trading at it’s lowest P/E ratio to date is not a good buy if bad news is continually sending the stock’s price (and P/E ratio) sinking! Furthermore, a stock with a large P/E ratio should not be an instant deterrent to purchasing the stock. You should not base your investment decisions solely on the P/E ratio, but in conjunction with other investment metrics and information.

Always consider the Price to Earnings ratio when looking at potential investments. The P/E ratio tells you things about a stock that the nominal price on it’s own, cannot. It is important to utilize a variety of different metrics into your investment decisions to help you verify and validate your investment decisions.

Personal Finance Book Review: “TheStreet.com Guide to Smart Investing in the Internet Era”

2006-02-05T13:22:00.000-05:00

I came across last post’s article after looking around at TheStreet.com, in preparation of this book review. The next book that I will be reviewing is “The Street.com Guide to Smart Investing in the Internet Era”. This book credits Dave Kansas as it’s author, but it is really made up of contributions from the entire TheStreet.com team. For those not in the know, TheStreet.com is a website that provides a variety of information on investing (some is available for free and more can be obtained by paying a subscription fee). The website was co-founded by Jim Cramer, who also wrote the introduction to the book.

The book’s exciting introduction (by Cramer) and first chapter provide an exciting start to the book that left me eager to read more. Kansas stresses issues he finds with a lot of other books for investors. His main beef is that many books either discuss the basic principles and ideas ad naseum (that everyone knows and understands as it is), or go into unnecessary detail with high-level technical analysis/ mathematics. The reader is made a promise that the book will go over exactly what investors need to know, without discussing the basics ad naseum. While it is fair to say that the book does deliver on this promise, I believe it could be done much better. A major flaw with the book also deals with when it was written.

The book was written at the peak of the Tech bubble in early 2000. At that time, it appeared as if the Internet revolution had changed the stock market and North American economy as we knew it. The buzzword “the New Economy” referred to this new company structure that had no assets and was all about ideas and knowledge workers. Coming from an Internet journalism background, the writers of this book were even more optimistic than most about the affect technology would play in the economy of the future. While us in the present know all about the hard crash the NASDAQ took in mid-2000, the book illustrates how a newfound reliance on tech stocks should really change your entire investing strategy. Don’t diversify by asset class; diversify by sector (and have the vast majority of your investments in equity!). You can see how dangerous this advice is now, but at the time people really believed that “the new economy” would make the stock market less risky and more successful for investors. As proof of how different the stock market of today is compared to the time that the book was written, many of the examples that the book uses (such at GoTo.com) do not even exist today!

The book’s greatest quality is it’s chapters about analysis. Financial statement analysis, stock chart analysis and ratio analysis are all explained well, in easy to understand language. While the emphasis on technology stocks is outdated, the tools that the book provides readers with can be utilized with any business or stock. Furthermore, with an emphasis on using the Internet to research stocks, the necessary information is accessible to all readers (one of the great things about the internet is how it has levelled the playing field).

Overall, the book does have some great chapters, but make sure you keep in mind when this book was written. Do not take everything it says at face value; we already know what would have happened if someone had invested heavily in Internet companies in early 2000 (some of us probably know even better than others!). Also, a bias towards Thestreet.com is seen throughout the book. Of course, this is understandable as the authors are proud of their product, but it is important to remember that the Internet provides many different options for whatever it is that you are looking for or want to do. Perhaps the greatest lesson that the book teaches it’s readers is the importance of understanding what you are investing in. Too many people found out the dangers of investing in companies that were based on potential (which they never met) until it was too late.

Article: Is Jim Cramer Hazardous to Your Personal Finance Health?

2006-02-04T20:57:00.000-05:00

Jim Cramer is one of the biggest “Wall Street Celebrities” out there today. His show, Mad Money is the highest rated show on CNBC. The following article outlines some of the risks that his high profile and large audience has on people who take all of his investment advice. Please click the link below to access the article, which is featured on Thestreet.com, a website that was co-founded by Jim Cramer himself!

http://www.thestreet.com/_tscs/comment/investing/10266337.html

Personal Finance Book Review: How Wall Street Works (2nd Edition) By David L. Scott

2006-02-03T17:29:00.000-05:00

It’s important that one never stops learning, as personal finance and the world of investing are always changing and you need to keep abreast on current developments. With the growing interest in personal finance there is more information than ever before at your fingertips. Of course, not all of this information is worthwhile. From time to time I will be looking at some literature that is out on the market pertaining to personal finance. I hope to be able to help you find the worthwhile books while skipping the trash.

“How Wall Street Works” is written by David L. Scott, an Accounting Professor at Valdosta State University. The book totes itself as being “the beginning investor’s bible”. This is a pretty accurate description!

The book assumes the reader has no understanding of financial markets or instruments whatsoever (the first chapter discusses “What is Wall Street?”) and as a result uses simple, easy to understand language. It dispels information in a question and answer format (for example “what is a mutual fund”…). This style is effective in that it allows for easy navigation throughout the book. A reader can skip areas that they understand and revisit questions they need a refresher in. This is the type of book that a novice investor would likely hold on to and revisit until they got a firm handle on the basics

Unfortunately what makes this book so great is also it’s downfall. As a result of servicing novice investors, anyone who has a basic understanding of financial markets would likely find the book unnecessary and redundant. There is no talk about investment strategy or theory. Anyone who understands how interest rates affect bonds or why an index fund is more affordable than a mutual fund (which you could have learned by reading this blog!) would likely have no use for this book. Another issue that I found in some chapters was that the information was sometimes slightly misleading. This is likely a result of trying to simplify things to levels that anyone could understand. An example of this was a section in regards to mutual funds. The book stated that a mutual fund’s name would indicate the type of investments a mutual fund utilized in it’s portfolio. While this is generally correct, many mutual funds have come under fire for misleading investors (based on their names) in what they invest in. While I understand that in the essence of simplicity it is easier to tell investors to just look at a fund’s name, I worry that an unenlightened investor might purchase units of something that does not meet their personal finance goals.

Of course, it is unfair to put a book down for what it is not, instead of celebrating what it is. “How Wall Street Works” is a great first step into the world of investing. For those who have no idea what investment vehicles are or how they are purchased, this is the book for you. I would suggest it as a gift to a child or a young adult who has expressed interest in investing but has no knowledge about what it is all about. This book will provide a solid foundation for readers on which they can build a strong investing intelligence on.

Article: Ten Tips For The Successful Long-Term Investor

2006-02-02T11:22:00.000-05:00

I have found an article from investopedia.com that outlines ten tips for long-term investors. While some of these tips may sound familiar, by having them reiterated for you, I hope that you realize how truly important they are.

Investopedia.com has many easy to understand tutorials on a wide range of investments and investment styles/strategies. I suggest checking out the rest of the website to learn some new (and worthwhile) information.

The article can be accessed by clicking the link below.
http://www.investopedia.com/articles/00/082100.asp

Article: America's Savings Woes

2006-01-31T00:51:00.000-05:00

The United States savings rate has dipped to negative 0.5%. The rate has not been this low (or negative) since 1933, right in the midst of the Great Depression. This dangerous trend of spending more than one earns (and thus falling deeper into debt) is unsustainable. It is news like this that truly reconfirms the necessity of blogs like Time to Make Cents.

For more information, please click the link below to read an Associated Press article (as seen in The Globe and Mail).

http://www.theglobeandmail.com/servlet/story/RTGAM.20060130.wUSconsumer0130/BNStory/Business/

The Truth about Business Television and Personal Finance

2006-01-30T00:27:00.000-05:00

Television provides its viewers countless viewing options. While some people are happy to spend countless hours watching pointless sitcoms, the truly rich and successful are spending their time getting inside information on the financial markets by watching their favourite financial news station…At least, that is what they want you to believe.

Today we will look at financial news networks and how they are both beneficial and destructive.

When a person is just starting to get into investing, they might believe that a good first step to take is to start watching financial news stations in order to get an understanding of the market. While this can be beneficial, it can prove to be detrimental. This does not mean that you should avoid financial news stations at all cost, but there are several things you should always keep in mind while viewing them.

Personal finance has never been easier for individuals to control. Discount Brokerages and the Internet have provided the individual with all the knowledge and power needed to take total control of their finances. This power is both a curse and a blessing because if one does not control their personal finances properly, they can be taken advantage of. This needs to be kept in mind; even when dealing with the discount brokerages themselves. These brokerages make the majority of their money from the fees they charge for each transaction an account holder makes. As a result, discount brokerages motivate customers to trade aggressively by making many transactions. They do this because the discount brokerages are making the most profit off of customers who are frequently trading and therefore are frequently paying trading fees.

Now you may be wondering how all of this ties into financial news channels. There are not any discount brokerages that actually own a business television station, but they do relate in the way they make profit. Simply put, the more you use (or view) either of their products, the more money they earn. Business television stations are businesses of their own. For example, NBC Universal (which is partially owned by General Electric) owns CNBC. The station makes money through advertisements. Advertisement fees are correlated to the amount of viewers that watch (on average) at a specific time. This means it is to television station’s advantage to be on the air as often as possible, and to get as many viewers as possible, in order to be able to charge more money for advertisement space.

A major issue with financial news stations is their actual program content. As previously stated, these stations benefit by getting the largest audience to watch their station as possible. Financial news stations have gained large audiences by turning the stock into a game. Sometimes it’s a numbers game and the program throws a variety of ratios and nominal values to verify an opinion of a stock. What does it really mean that a new publishing house IPO projects sales of 1.2 million books within five years? More often, it is a timing game, or a race against the clock. Investment advice stands for “right now” only. If a station suggests buying a particular, they mean buy NOW (and tune in tomorrow to find out when to sell). Even the language these stations use make the stock market sound like a game. Stocks do not increase or decrease in dollars, but in “points”. Every day ends with a focus on the biggest gainers (the winners) and the greatest losers. With all of this constant, ever changing information, how can anyone not watch these stations all day? The financial new stations have found the best way to keep audiences tuned in and these programming trends are here to stay.

The problem with this style of programming is that it takes out one of the most important aspects of investing, patience. How can anyone feel good in their own investments when they are constantly bombarded with stocks ideas that are going to be “the next best thing” on a daily basis? Furthermore, when an investment one is invested in is mentioned positively on one of these networks, the investor is likely going to become overly optimistic with their holdings, staying in their investment longer than they would have originally. Holding onto a stock for too long is just as detrimental because it goes against your original, unbiased strategy. The longer you hold, the more you stand to lose. If you are in a situation where you are holding a stock simply because you hope it increases in value, you are no longer investing. You are instead gambling, which in the long term makes losers out of everyone. Personal finance is not about gambling.

Unlike what these business television networks would like you to believe, investing is not a game. What the discount brokerages don’t want you to know is that you can make money without having to constantly trade into new stocks. By doing your proper homework and having a long-term plan in mind, you can make sound investments that require little supervision. This does not mean your investments should go unmonitored, but it is unnecessary to be checking them everyday. In fact doing this will just make it harder for you, as you will want to lock in any profits you have secured or may be frightened by a slight loss. If you have done your proper research and are properly diversified, selling at a slight loss or gain will definitely cause you to miss out on larger future gains that you would receive by patiently staying in these investments.

Business television is also famous for the amount of “experts” they have on. The viewer needs to realize that these business networks are looking for any content, and are desperate to have people on the air. Just because someone is on television, it does not mean they are an expert. Often they get several people on who each take a different point of view on the same subject. If they are both experts, how come they cannot even agree on the same issues? Since this is the case, you should always be leery of any recommendations made by these experts. For all we know, experts may have been told what to recommend before coming on the show by the network itself. You should research any recommendation in full before you even consider it as a possible investment.

Obviously business television stations do have their benefits. They offer timely information and current stock prices. They also have information pertaining to the current business environment and various views about where the global economies are headed in the future. In general, do not stop watching financial news stations, but merely change how and what you think about them. Financial news stations should be treated as entertainment. If you hear anything that you like, or are interested in, you should put in further research to verify it for yourself.

Overall, I hope you take anything you hear from business television stations with a grain of salt. They can provide good general information about the business world, but their network bias should always be remembered. It is also important to realize how ridiculous it is to consider anything you hear on a station as a tip to “beat the market”. There are millions of others also watching and listening to the exact same program that you are, so any special tips that are mentioned are likely to be followed by plenty of others. By doing your own stock research and getting to trust your own skills, you will not need to rely on these networks for your investment ideas. Remember to make your investment goals and to be patient in order to stick by them. Unlike what the business networks tell you, becoming rich does not occur overnight. Let the others spend their time worrying about their investments. You can focus on the more important aspects of life, while the uninformed pay their lives away in trading fees.

Article: Top Ten Budget Busters!

2006-01-26T21:00:00.000-05:00

I came across an article today that outlines some unexpected expenses that tend to ruin budgets. If you are starting, or struggling with keeping a budget, perhaps you are forgetting some of the expenses on the list.

The article can be accessed by clicking the link below!

http://www.canadianliving.com/CanadianLiving/client/en/today/DetailNews.asp?idNews=232636&pg=1

Prepaid Credit Cards and You!

2006-01-24T14:35:00.000-05:00

Credit Card companies are offering customers a new product that can change the way people handle their own and their family’s personal finance. This exciting new product is the pre-paid credit card. The “big 3” (Visa, Master Card and American Express) have all released their own branded version of this new product. The question are though, what is it’s purpose, how is it different than a credit card and why should you consider using it?

The best way to think of prepaid credit cards is to treat it as a gift certificate that is valid (almost) everywhere. Prepaid credit cards can be obtained at any bank or lending institution. They are accepted wherever credit cards are accepted. Nowadays, this means that you can use your prepaid credit card just about anywhere! Money can be “loaded onto” the card either through the Internet (each company has its own website) or through the bank. There is no transaction fee for purchases made with the prepaid credit card; the transaction is treated like a cash transaction. When the balance of the card has been spent, more money can be placed in the balance.

Prepaid credit cards look almost identical to their contemporary counterparts and as you may have picked up on, share some common characteristics. Prepaid credit cards are accepted everywhere that “normal” credit cards are accepted. Prepaid credit cards can also be used to withdraw cash at ATMs. Similarly to credit limits, prepaid credit cards can have spending limits, which dictate the maximum amount of money that can be spent per day. Prepaid credit cards, like normal credit cards, receive a monthly statement that dictate how they were used in the past month. Like credit cards, prepaid credit card usage is monitored to determine potential fraudulent usage and they can be cancelled if they are lost or stolen.

The one major aspect that differentiate credit cards and prepaid credit cards is that prepaid credit cards do not provide a line of credit. While users lack the ability to purchase goods or services on credit, this (dis)service is actually a mixed blessing. Credit cards can be dangerous. With monthly interest payments hovering around 20% on most cards, even small-unpaid balances can grow to become huge financial burdens. Without the temptation of buying goods or services that one cannot afford, the user is also protected from huge interest payments.

Prepaid credit cards came into existence as a result of a problem that occurred on University campuses across the world. Students, who were now of age, received their first credit card with a faulty understanding of how it worked. Students would “shop till they dropped” and be unable to pay off their monthly balances. This left students with huge credit card payments and cripplingly low credit ratings. For credit card companies, students were perfect customers. They always had parental support to payoff their balances and worse case scenario; they would eventually get jobs that would allow them to pay back their debt. While this worked out well for the credit card companies, it was a major hindrance to their new customers (and the customer’s parents). Prepaid credit cards prevent this problem from the start.

Prepaid credit cards have been marketed as a tool for parents and students to use together. The students get the freedom of using the credit card wherever they want and parents are able to choose the amount loaded onto the card, the daily spending limit and can even see where the card is being used (because monthly statements are issued). Parents can get an unbiased report of their child’s spending habits, which can serve to be a useful teaching tool.

While prepaid credit cards have been marketed towards parents and their children, I believe individuals can use prepaid credit cards to their advantage as well. If you are having hard time determining how you are spending your money each month, why not use a pre paid credit card? You can fill the card at the beginning of the month and use the statement to determine how you allocated your cash. You can then make adjustments to your spending habits.

Overall, the prepaid credit card is a great budgeting tool. It can help you, or a loved one to understand and improve their spending habits. For more information, go to a local bank , lending institution or check out http://www.visabuxx.com

Your First Steps into the Stock Market!

2006-01-19T21:01:00.000-05:00

You’ve researched the stock market ad nauseum and you are looking to start investing. Unfortunately, while you have obtained knowledge, you do not have any experience investing in the stock market and with your limited investment capital, you cannot afford to make a big mistake. This entry will go over some suggestions on how to get you stock market toes wet, before you jump right in.

The Internet has made investing easier and more accessible than ever. With a plethora of online discount brokerages and financial information websites, everything you could ever want to do in terms of investing can be done over the computer. Ingeniously, the creators of many of these sites recognized a need for users to create their own “fantasy” portfolios. Users are given a virtual bank account filled with a large amount of money (often $100,000). Users have the ability to purchase stocks on a variety of stock exchanges at their current market value. Technology enables users to track their progress in the market, with the computer calculating current market price, return on investment and often a variety of graphs to visualize your performance to date. An excellent simulator can be found at http://simulator.investopedia.com/.

Simulators offer users a risk free way to engage in the stock market. Novice investors can gain the self-confidence to invest their own capital after a while and experienced investors can practice advanced strategies such as technical analysis or futures and options trading. I believe investors should spend as much time as they require until they feel confident in their abilities to invest in the stock market. If you are unreasonably unsure of your investments, you will be in a constant panic. In the worst-case scenario, you may make a major mistake investing in a losing stock, losing not only your money but also your confidence in your ability to invest. Some people may find that regardless of the time they spend, they do not feel comfortable investing in the stock market. Passive equity investments (that is, equity investments that do not require active management) such as index funds can be utilized to experience the positive growth of the market, without exerting any additional risk (on top of general, unavoidable market risk). It goes without saying that simulators are only effective if the user treats their fantasy portfolio as if it were their own money. If one does not treat the portfolio with the same respect that they would treat their own portfolio with, than the investor will gain no value from participating in the simulator. When used correctly, utilizing a simulator will improve investors’ knowledge of their ability in the stock market, allowing them to evaluate how they plan to invest their own capital.

One way to improve your investing self-confidence, while reducing your own personal risk in a social setting is to participate in an investment club. Investment clubs come in all shapes and sizes, but the common element that all clubs share is the shared investment portfolio. Members are given the opportunity to purchase units or shares in the club’s portfolio. The money earned from the sale of the units or shares is then pooled collectively. Members democratically decide on how the money should be invested (with each share/unit worth one vote). Investment clubs are excellent because of the opportunity for learning that they provide. There are established investment clubs everywhere, just ask around! The benefit of joining an established investment club is that new members will be able to learn effective strategies and skills from established members. If you are unable to find an investment club that meets your likings, create your own. Convince your friends to join you. The experience can be a lot of fun! Create some ground rules. When will you meet? How often will new investments be purchased? How will the group decide to sell investments? Give your members different roles within the club. Everyone should have the opportunity at some point to recommend an investment. The advantage of suggesting a stock to a group is that you really must do your homework! Group members will want to ensure they are making a worthwhile investment. This will improve your own analytical skills and lead you on the road to choosing better stocks. By working with a group you will also be exposed to more information. Perhaps other members are aware of some negative information that you did not read about. Such situations will only help you in the long run, as knowledge truly is power. Most importantly, you will be able to learn from other people’s mistakes. When your money (and your financial goals) are on the line, this is significant! Most importantly, no matter how the club’s portfolio does in the end, you will have only invested a small amount. Even if you lose it all, consider it the cost of learning a lot of valuable information that will help you make better investing decisions in the future!

Hopefully, you have obtained some ideas of how to gain some experience in the stock market. No matter what, do not invest in stocks until you are confident in your ability and have researched your positions fully. There is nothing worse then investing in a stock because “everyone else is doing it”. There will always be risk in equity investments, but poor planning and decision making only makes these investments riskier. Take your time and use your head.

Article: The ETF year in review

2006-01-19T01:00:00.000-05:00

It seems that thanks to increased competition, ETF fees (which are already lower than actively managed mutual funds) are decreasing! The following article gives a great summary of ETF trends that took place in the past year. The article comes from Yahoo! Business and can be accessed by clicking the link below!

http://biz.yahoo.com/ms/060110/153344.html?.v=1

Article: Harvard MBA's or Playboy Bunnies, Who would you let invest your money?

2006-01-18T21:47:00.000-05:00

I found a great article today that really drives home my point about Fund Managers. I'll let you read the article to get the specifics, but 4 Playboy models who were invited to create a fantasy portfolio of stocks are currently in the top 1% in terms of return (starting at the begining of the year). It would seem that their success is due, in part, to choosing companies that they know. This is a peice of advice that has been shared on this blog in the past. The article is linked below, and is from http://www.tradingmarkets.com

http://www.tradingmarkets.com/.site/Daytrading/commentary/lftw/01172006-48713.cfm

Finding the Fun in Mutual Funds!

2006-01-18T21:23:00.000-05:00

In an earlier entry, I wrote at length about the negative aspects of mutual funds. I mentioned how 80% of funds fail to earn a rate of return that equals (or exceeds) the stock market’s annual rate of return. The optimist inside each and every one of us recognizes that 20% of mutual funds do manage to beat the market. Perhaps you feel that you can find these funds. Before you go searching, there is some general knowledge and strategies you should obtain.

Mutual funds may be added to a portfolio in order to diversify or to include sectors that are too expensive to include in the portfolio otherwise. One positive aspect of mutual funds is that unit prices are relatively cheap compared to other investments. Unlike stocks, mutual fund investors do not need to wait until they can afford full units. Investors can by a decimal (or percentage) of a unit, making mutual funds more accessible to those with limited amounts of investment capital. Another positive aspect of mutual funds is that they are quite liquid. That is, it is easy to convert mutual fund units into cash. Other investments, especially debt instruments or stocks that trade at extremely low volumes do not offer this benefit. Liquidity is especially important if you foresee a potential need to quickly turn an investment into cash. The benefits of liquidity do not come without a downfall. Milton Freidman’s “There is no such thing as a free lunch” holds true. In order to ensure that mutual funds are liquid, fund managers must allocate a sizable amount of capital to cash to ensure that units that are sold can be purchased back. This cash could be allocated to other, higher yielding investments. Therefore in order to maintain liquidity, fund managers must give up the opportunity to invest that money and potentially earn a higher rate of return for investors.

The load is a charge associated with purchasing a mutual fund. Some mutual funds have front-end loads (the fee is charged when the mutual fund is purchased) while others have rear-end loads (the fee is charged when the mutual fund is sold). Regardless of front-end or back-end, investors who purchase mutual funds with loads are forced to pay a fee. There is an alternative though. No-load funds do not charge an extra fee to purchase of sell the mutual fund. They are typically sold, distributed and managed through banks or investment companies. As a result, there is no “middle man” which eliminates the need for an extra fee. There is no benefit to purchasing a mutual fund that has a load. Studies have proven that mutual funds perform equally, regardless of their associated load. Since there is no correlation between performance and load, save your money and invest in no load mutual funds.

Fund managers, as you may remember, manage mutual funds. In exchange for their professional management, mutual funds charge each investor a percentage of the total they invested. This percentage is known as the Management Expense Ratio, or MER. The fallacy stated by mutual fund companies is that mutual funds with higher MERs are more actively managed and thus earn higher returns for investors. Time and time again studies prove this to be incorrect. This is understandable, especially when you consider the fact that anyone (regardless of credentials, knowledge, experience or lack there of) can become a fund manager. When you are purchasing a mutual fund, ensure that it has a low MER. Any fund that has a MER under 2% is an excellent value, but anything under 5% should be considered. The MER is not everything though and like all investments, the total package must be considered before making an investment decision.

Mutual funds are able to utilize Dollar cost averaging effectively. Dollar cost averaging is the strategy of buying a fixed dollar amount of an investment on a regular schedule. This works particularly well with mutual funds, because units do not have to be purchased at discrete values and decimal units can be purchased. Dollar Cost Averaging is effective because as a mutual fund decreases in value, more units can be purchased. As the mutual fund increases in value, fewer units can be purchased. Over time, the average cost per unit will drop. This strategy is effective even when a large amount of cash is on hand that could purchase a large number of units. Dollar cost averaging reduces the risk of purchasing a large amount of an investment at a high price. The fee structure of mutual funds (the MER) makes dollar cost averaging even more effective because the fee is a fixed percentage of the amount invested. When investing in stocks, this is not the case. For example, if a trade costs 1 dollar to execute and $9 is invested (bringing the total cost to $10) then the commission collected represents 10% of the total cost. If the same commission charge exists on a transaction to purchase $99 of stock (and total cost is $100), commission now only represents 1% of total cost. By charging a fixed fee that is based off of a percentage, costs remain equal. As a result of this, it would be unwise to invest small portions of money into stocks because of the large amount (in terms of percentages) that is spent on commissions. Mutual funds do not suffer from this issue because an equal percentage is charged on all investments.

To reiterate, there are three steps one should take to ensure they are experiencing the highest returns possible with their mutual funds.

1) Only invest in no-load funds.
2) Invest in Mutual Funds with low MERs (ideally less than 2%)
3) Utilize dollar cost averaging.
Good luck and make sure to consider these ideas when investing in mutual funds as part of your portfolio.

The Best Investment Advice!

2006-01-16T20:38:00.000-05:00

I just came across an article on http://www.fool.com (mentioned earlier on this blog) that shares "The 4 Best Words of Investing Advice". My only complaint is that the article only gives three pieces of advice (each is four words long). Regardless, it is a worthy read and will serve as a great reminder of some of the knowledge you would have picked up in the past, reading this blog!

The article can be found at:

http://www.fool.com/news/commentary/2006/commentary06011305.htm?source=eptyholnk303100&logvisit=y&npu=y

Use Diversification to reach your Personal Finance Goals

2006-01-16T12:44:00.000-05:00

All investors must face risk when investing. There is no way around it. Fortunately, a simple common sense adage can greatly reduce the amount of risk you expose yourself to. That saying is “never keep all your eggs in one basket” and it refers to the investment strategy of portfolio diversification. Anyone who is serious about their personal finance should understand and utilize diversification in their investments. I will explain why.

When a novice investor finds an amazing opportunity to invest, the first thing that likely crosses his or her mind is to put everything they can afford into the investment. This is the wrong course of action to be taking. Equity investments are never guaranteed. No matter how good a stock may seem anything truly can happen. If you need proof of this, realize that no one ever invests in a stock because they imagine it will decrease in value. Yet, tons of people (possibly including yourself) have and continue to lose piles and piles of money in the stock market everyday. More so, even investors who realize great returns year after year own some stocks that have fallen in price. The secret of those who are able to realize a positive return with their portfolios while still holding on to “loser” stocks is those who are successful do not have all their eggs in one basket.

The concept behind having a diversified portfolio is that by hold a variety of equity and debt instruments no one event can completely diminish your wealth. A New York stock market crash would not be felt as harshly if a variety of bonds and stocks from other countries were held in one’s portfolio. By reducing the risk, reaching your personal finance goals will become easier and much less stress inducing.

In the past, Mutual funds where hailed as the best and easiest way to make your portfolio diversified. A mutual fund is a collective investment that invests the combined “pool” of investment capital in a variety of stocks, bonds, money market instruments and other securities. Investors purchase “units” in mutual funds. Dividends and other profits are divided up and doled out per unit. Investors in mutual funds are able to experience the positive effects of diversification while only having to pay indirectly for the large portfolio of investments. Mutual funds have come under some controversy. Fund managers run and control mutual funds. What qualifications does one need to run a mutual fund? In fact, the answer is none! People who have no track record in finance (or even a losing one) run some mutual funds! Another negative aspect of mutual funds is the purchase fees and sales charges (known as the load) that investors are exposed to. Mutual funds are businesses and they make money by getting more customers. By making customers pay a fee (usually .5-5% of the total invested, but it can legally be as high as 8.5%) mutual funds are able to remain profitable to maintain, regardless of their performance! Part of the fees paid by investors goes towards marketing budgets, which try and attract more investors to the fund. Mutual funds companies have also come under fire for using unethical marketing techniques to “fudge” performance numbers of funds to make them seem more attractive. Perhaps the most upsetting aspect of mutual funds is that most do not achieve results that meet or beat the market as a whole. 80% of mutual funds (according to investopedia.com) fail to even match the stock market’s performance every year. At the end of the day, you are paying a business a fee to put an unqualified person in charge of your money so that he or she may give you a return that does not equal the stock market’s average return. Doesn’t make a lot of sense, does it? Thankfully there is an alternative.

Exchange Traded Funds (ETF) are similar to mutual funds in terms of benefits, but do not include many of the disadvantages associated with them. ETFs are index funds. That is, they represent a basket of stocks on a particular exchange. Popular indexes include the S&P 500 and the Dow Jones Industrial Average. Like mutual funds, investors are able to enjoy a diversified portfolio at a fraction of the cost! Furthermore, long-term investors do not have to worry about making consistent decisions and actively trading. Past performance indicates that the stock market has a 10% return annually. Owners in ETFs are able to realize these returns without having to make any decisions. Furthermore, because ETFs are indexes, they do not need to be actively managed. Management fees on ETFs are much lower then comparable mutual funds. ETFs are the perfect investment for those who want to realize the long-term growth of the stock market without having to actively participating.

No one should invest solely in ETFs, because a person would still not be diversified. Cash, debt and equity instruments should be apart of everyone’s portfolio. The exact amount of each depends on each individual’s goals, expectations and risk tolerance. Regardless, everyone should have a general idea of the percentage each category should make up of their portfolio to align with one’s goals and risk tolerance. For younger investors the portfolio makeup that is often suggested by personal finance experts consists of 70-80% equity investments (stocks), 5-20% debt instruments (bonds, GICs) and 5-20% cash. Even within your investment categories, do not forget to diversify! Your equity investment portion is suggested to consist of somewhere between 30-60% foreign content (stocks from other countries). I must reiterate, this is only a suggestion but each situation is different. There is by no means one correct allocation for everyone. Speak to personal finance professionals whom you trust for more personal advice. Good luck diversifying your portfolio!

Analyzing Stocks and Investments to meet your Personal Finance Goals

2006-01-14T18:22:00.000-05:00

Intelligent investors spend a lot of time analyzing businesses that they want to invest in. Both quantitative and qualitative factors are important to look at. For example, if an executive leaves an organization and there is an aura of concern and uncertainty of her replacement, then it can negatively affect that company’s stock. Sale numbers aren’t everything! Information about competitors, the industry, society, the economy and politics all need to be understood and interpreted in terms of how they can potentially affect a stock’s price. It is easy to forget that so many factors affect a stock’s price and to only use one element to base an investment decision off of. This is a recipe for disaster! Keep abreast on current news by reading the newspaper and always ask yourself “how will this affect (company that you are either thinking of buying or already own) in the future”. You will be surprised at how much seemingly unrelated events can impact your personal finance decisions!

Do not forget, information is only as good as it’s source. Everywhere you look, someone has some hot tip. So called “experts” on TV seem to suggest twenty different stocks that you MUST invest in everyday. Evaluate the source of the information before acting upon it. if you do like what you are reading/hearing do your own homework to verify what you have learned. Many people (especially on the internet) share positive information about companies that they own to raise their stock’s value. Disclosure regarding an author’s/speaker’s involvement with the companies that they are talking about should be shared at all times. If you are reading information about a company that seems to good to be true, it most certainly is (especially on the internet)!

As should be apparent by now, an investor needs to know a lot about a company (and other external factors) before purchasing shares in the organization. Because of this, it is often suggested that investors look at the companies and industries they know about and have relationships with. If you are a technophile then you have a much greater appreciation and understanding of how a new development can affect the industry. You would already have a general sense of which businesses were stronger in the industry and which to look out for. This head start will increase your self-confidence (in terms of investing) and should make finding worthwhile businesses to invest in easier. Overtime, as you complete more research, you will learn more about other industries and will be able to effectively invest in them as well.

A common mistake that novice investors make is assuming that because a business provides a quality good or service, it is a good stock to own. This is a poor investment strategy because quality goods and services do not guarantee a quality business. Many of the indicators that determine whether a business is worth owning can be found on the businesses balance sheet and income statement. The balance sheet communicates a businesses financial period at a point in time. Every quarter, public companies will release a balance sheet with their quarterly reports. It will list the assets the organization own, the liabilities it has incurred and the amount of equity that the firm has. The quarterely report will also include a current Income Statement. The income statement communicates the amount of money earned or lost by a business in a given time period. Information is categorized by money that enters the business (revenue) and money that leaves the business (expenses). In all cases, when evaluating financial statements, a business figures should be compared to past statements and competitors in the industry. On their own, financial statements are relatively useless. What does it truly mean if a business has six billion dollars in cash on hand? It is only when we compare a businesses figures with other businesses that we can actually gain any information. Both www.investopedia.com and www.fool.com provide tutorials on how to use these statements to create meaningful information.

In general, there are some important indicators that should be understood when choosing a stock. Firstly, it is important to understand exactly what net profit is. As explained earlier, revenue is all the money that a business takes in The amount of money it costs to directly produce the goods or services sold (the cost of goods sold) must be accounted for (because it is not profit). The amount a business earns after taking account of the cost of goods sold is called gross margin, or gross profit. There are still many other expenses that a business needs to incur that indirectly help in the production of the good or service (such as administrative costs and wages). After these costs are accounted for, the money left over is the net profit or a net loss. If a business earns more money then it spends, it will have a net profit. If expenses are greater then revenue, the business will incur a net loss.

A ratio that is often used to discuss businesses prosperity is Earnings per Share (EPS). This is calculated by dividing the net profit a business earns (minus the dividends paid on preferred shares) by the number of shares outstanding. A negative EPS can exist when a business incurs a net loss. The EPS signifies the amount of profit earned by a business, per share. It is important because it is useful for another ratio, the Price to Earnings ratio (P/E ratio). The P/E ratio dictates the amount owners are willing to pay per dollar earned and is calculated by dividing the current market value of a stock by its EPS. The higher a P/E ratio is, the higher the expectations of owners. Once again, it would be wrong to say that a certain P/E ratio is good because it truly depends on the industry. The P/E ratio helps to explain why a $10 stock can be a rip-off and a $100 dollar stock can be a good deal. It all depends on the amount you must pay for each dollar earned. The P/E ratio should be utilized with a host of other ratios and information. A high P/E ratio (in relation to competitors/the industry average) does not necessarily mean that a stock should not be purchased. Once again, every situation is unique and should be analyzed accordingly.

After analyzing a business you may determine that it is the greatest potential investment of all time. Unfortunately, you only have $1000 to invest. If you could, you would invest much more. Trading on margin is essentially investing with borrowed money. In certain situations (like the one I outlined) trading on margin might seem like an excellent opportunity. This all goes back to what I was saying in an earlier entry. There is no such thing as a guaranteed stock. Anything can happen in the stock market, at any time. No matter how great a stock may seem, using borrowed money to pay for it can lead to much more trouble then it is worth. Not only can you now potentially lose everything you invested, you will then owe the money you borrowed (and lost) plus interest. Heavy investing on margin lead to the Great Depression experienced after the stock market crash in 1929. Learn from those who made mistakes in the past…. NEVER INVEST ON MARGIN!

When you find a business that has great potential for the future, make sure to research it’s price history. A stock may have a low P/E ratio in relation to the industry, but perhaps it has historically always had a lower P/E. Remember, every aspect of a stock must be researched before a decision is made. A stock near it’s 52 week low is not necessarily a bargain if there is nothing but bad news and a negative outlook of it’s future. The price is one piece to the entire puzzle and should be researched accordingly.

Once you have a stock in your possession, relax! Consistently watching its movement throughout the day will drive you bananas. Remember, you have bought your stock based (in part) on historical performance that has been collected for years. Why would you then make a hasty decision regarding the stock’s purchase within a few hours? A stock needs to be given the time to do what you purchased it to do. Your personal finance goals cannot be achieved overnight, so do not expect your stocks to perform any differently! This does not mean that you should forget about the stocks you own, leaving them to the market’s devices. Check your portfolio on a weekly basis. Anything more and you will likely make poor decisions based on unsubstantial trends. Anything less and you potentially might miss the opportunity to get out of a stock before it is too late. Pay attention to news about the stock. If your outlook on the stock changes you may want to evaluate your position on the stock and sell your shares. One “never fail” system to ensure that you do not sell your shares at a lower price then you want to is to initiate a stop loss order. A stop loss order tells your broker to sell your shares once a stock reaches a certain price. For example, once a stock hits a certain price target, you may set a stop loss order to ensure you will realize some profit on the stock and will not lose it all as a result of a steep fall in price. Stop loss orders are particularly useful in situations where you will be unable to adequately keep on top of your portfolio (such as when you are on vacation). A stop loss order can ensure you are still working towards your goals; even when you are unable to actively follow your portfolio.

Overall, investing can be very rewarding. Financially the benefits are obvious. Mentally, the exhilaration of choosing a great stock is equally as satisfying as the monetary benefits. My last word of warning is to always invest with your head and not your heart. Regardless of how you may feel towards a company at the end of the day, this is your money. Invest intelligently!

Introducing Stocks and Investing to your Personal Finance Goals

2006-01-14T13:44:00.000-05:00

The stock market is an intimidating place for those with limited investing experience. Everyone has heard of people who struck it rich off of wise investments in stocks, but we have more experience with people who have lost large sums of money (and their mind) in the market. It is easy to see why an investing novice, after seeing these two drastically different outcomes, would assume that stocks are nothing more than a gamble. While true in some cases, this is simply not true of all stocks in general. Now do not misinterpret this to mean that any stock is guaranteed. No matter what stock you are dealing with one of three things can happen. It can increase in value, decrease in value or stay dormant. The good news is that the S& P 500 (a index of the 500 most widely traded stocks) has increased in value by 10% per year since it’s inception in the 1830’s. This tells us that stock prices, in the long run, have historically followed a positive trend. There is a good chance that if you had chosen a random stock back in 1830, it would be worth a lot more today. What is true of the whole (on average) is of course not true for each individual stock. This entry will guide you in determining the right stocks for you.

Before you start investing in the stock market, it is important to understand what your goals are. No one invests in the market (or anything for that matter) without a purpose. What are you hoping to achieve with your money? Different stocks have different benefits and drawbacks. In general, the greater the risk, the greater the return. The goals that you have for your money will determine the amount of risk you are willing to tolerate. For example, if your goal were to maintain the value of your investment, you would not invest in a highly speculative (and therefore highly risky) technology company. The length of time you plan on investing for should also weigh heavily into your decision. Are you willing to wait a few years until the stock you own reaches a higher price? If you are going to need money in the short term (that is, within a year) the stock market may not be the best choice for you. Of course, every situation is different. The important part is to realize what your situation is and ensure your behaviour is inline with what you need to do to reach your goals.
The one aspect of investing that cannot be understated is the power, and therefore the importance of good information. I think most novice investors underestimate the amount of work successful investors put in to choose their investors. There is idea that savvy investors are just playing off of smart hunches or instincts that they have. Nothing could be further from the truth (most of the time). Smart investors understand the stock market and have spent considerable time researching and learning about it. Thankfully, a lot of quality information can be found on the World Wide Web. Websites like http://www.investopedia.com and http://www.fool.com provide tutorials for new investors to learn all about investing in stocks. By thoroughly reading through either sites collection, you can gain a quality foundation to branch off from. Articles by well-respected finance reporters on these sites will keep you informed on current ideas and issues in investing. It is very important to keep up to date with currents events pertaining to finance and investing. Reading a variety of publications including newspapers (some are more business-focussed then others), magazines and periodicals will keep you up to date. Furthermore, blogs (like http://seekingalpha.com/ http://www.pfblog.com or this one!) can serve to keep you abreast on important investing information. You can be sure to expect entries about interesting developments in investing right here in the future!

Use Your Credit Card Instead of Your Credit Card Using You!

2006-01-09T11:37:00.000-05:00

Credit cards are a double-edged sword. While they do provide users with the ability to make purchases by paying no money upfront, they are also the cause of many people’s financial problems. Credit cards allow people to spend money that they do not have, only to face months or even years of interest payments for their inability to wait to make purchases. This does not mean that credit cards cannot be used properly or are not good to have during emergencies, it just means that you need to be very careful when using them and know how to take full advantage of your credit card (instead of your credit card taking full advantage of you).

Credit cards allow users to make purchases on credit, which means that they do not have to pay money for the good or service up front. Instead, the credit card company will pay for the product on the customers behalf (minus a small fee of around 2-3% charged to the merchant). The customer then has 30 days to pay off their purchase. If the customer does not pay off the entire balance of their credit card after this 30 day period, the credit card company will start to charge the user interest on the balance that has to be paid off. Credit cards are notoriously known for charging very high interest rates (some even over 20%), which if left unattended can cause a person to quickly fall into huge amounts of debt. Due to the power of compound interest, this debt will continue to grow at an astonishing rate, if it is not paid down fast.

By looking at this information, it seems quite obvious that the best way to avoid falling into debt is to pay off your credit card in full each month. Well the truth is this is the best way to stay out of debt! This can be done very easily, as long as you are aware of all the purchases you make on your credit card and plan all purchases ahead of time. By preparing a budget, you can know how much money you can charge to your credit card, and ensure that this amount will be able to be paid off in full at the end of the month. If all of your credit card purchases are pre-planned, then there is no way you will fall into debt, and can benefit from delaying many of your monthly purchases to the end of the month, by paying them all at once through your credit card.

You may now be thinking what are the benefits of having a credit card then if you are just using it instead of money you already have available. Credit cards are firstly a great way to develop and improve your credit rating. This rating will fluctuate throughout your life, and will be used to determine how safe you are to lend money to (from the side of the lender). Banks will use this score to determine what interest rate to charge you on any loans you take out in the future, including a mortgage. People with better credit ratings get charged lower interest on all loans, as the banks and other lenders see these people as safer (their credit ratings prove that they pay back money they borrow on time). These means that you can save a lot of money on all of your future loans, just by developing a good credit rating. How can you do this? Just simply start using a credit card, and promptly pay off the full balance each month. As you do this, your credit rating will slowly start to improve, as you are proving yourself to be a safe borrower. Your credit limit (the amount of money you can charge to your credit card) may also be allowed to rise, allowing you access to more money each month to borrow. As long as you ensure that you never spend money that you do not have, this can allow you to use your credit card even more, and continue to improve upon your credit rating. You are able to get a copy of your credit score, and it is important that you check this score at least once a year. This is to ensure that there have been no mistakes that may cause for your score to have lowered significantly, and ensure that you are would receive a good interest rate if you decided to borrow money. For Canadians, this can be obtained for free through the mail from Equifax Canada. Just go to their site https://www.econsumer.equifax.ca/ca/main?link=OPIEM&lang=en and look for a link on the right hand side to fill out your information to receive your report for free.

Credit cards can be obtained for free or some charge annual fee’s. You should stick with a free credit card, unless you will get more value out of a card that has a fee. For example, if a credit card charges an annual fee of $80, but gives you 1% of all your purchases back at the end of the year in cash, then it makes sense to purchase this card if you will spend more than $8000 on that card in the year (1% of $8000 is $80, or the annual fee of the card). Many cards offer special points or other offers, so make sure you figure out the real money value of what these things are worth in comparison to what the annual fee is to see if it is worth you paying that fee to use the credit card. You can get a credit card at your local bank. Look at all the credit cards available to you, and choose the one that best meets your needs. Be sure to ask any questions that you have, including finding out what the annual percentage rate (APR) of interest is on the card. Many credit cards offer specials for the a short period of time (very low APR for 3 months or something similar to that) so be sure to find out how long the special lasts and what the normal rates will be after that time.

Paying off your credit card takes less than 10 minutes each month. You will be mailed your monthly statements, which will detail all of your monthly purchases. Keep all of your receipts, and as soon as you receive this statement review all of the purchases to make sure there were no mistakes in your billing. You can then either pay the bill at the bank, or more conveniently pay the bill online or through telephone banking (as long as you are able to do so with your bank account). This allows for instant payment, and will make it easier for you to ensure that you pay off your monthly bills on time. It is important that you know how long you have to pay off your monthly statements before interest is charged, so that you do not have to pay any unnecessary interest payments each month. The best way to ensure this though is to pay off the credit card as soon as you receive your bill. This will get you into a good pattern, and will ensure that in the future you don’t miss any monthly payments, which causes you to pay money that can be better used else where.

Personal finance is about taking control of your money, and credit cards can allow you to do this, if used properly. Always remember the risks that come with credit cards, as even one purchase can cause you to start falling into a deep hole of debt. Responsible use though will allow you to develop a good credit score, which will make it easier to borrow money in the future and allow you to pay a lower interest rate on this borrowed money. Your personal finances is now a little easier, as now the credit card is no longer controls you, but rather you control your credit card!

How to Make and Keep a Budget That Works

2006-01-06T15:41:00.000-05:00

We have now decided that in order to meet our personal finance goals, we need to plan how we use and spend our money. A budget is the best way to do this, as it allows you to plan out all of your purchases for a predetermined period, while ensuring that you can add the amount of money to your savings that you require to meet your financial goals. To complete a formal budget you require very simple math skills, and can even create your budget easily on a spreadsheet program like Microsoft Excel.
The first thing you should realize when making your own budget is that there is no proper allocation of one’s income that makes sense for everyone. Do not focus too much on ensuring each category of budget meets a predetermined percentage of your income. The point of this budget is that it is totally realistic and will allow you to meet your personal financial goals. This means that you need to be well aware of what is a realistic amount of money for you to allocate for each category in your budget. The best way to ensure that your budget is practical is to monitor all of your spending for a time period (at least two weeks but the longer the better). It would help to carry a journal, and write down every single purchase made during this period. You should categorize the purchases into easy to identify categories, which will cover every possible expense or purchase you can have. There is a good outline of 11 categories to use at this about.com Making a budget site, http://frugalliving.about.com/cs/budgeting/a/010201_2.htm.

While you can use your test period as a gauge for what you think you should allocate for some categories (like food and entertainment), you should rely on past bills, receipts and other records to determine a more accurate portrayal of your spending in each category on a monthly basis. While simple averages are useful for most categories (as in adding all of the individual totals together in one category and dividing by the number of different totals to get the average) you should always be aware of seasonal differences. For example, in the winter your heating will cost much more than it would in the spring. Staying aware of these types of differences on a monthly basis will allow your budget to be more realistic and allow you to stick closer to your financial plan.

Now it is time to actually fill-in each category. This can be done using a pencil and calculator, on a spreadsheet program, or even online using online calculators like this one http://www.ed.gov/offices/OSFAP/DirectLoan/BudgetCalc/budget.html (just remember to include savings as an expense). The goal with any budget is to allocate your money to every category, so you have no money left over when you minus your income from all of your expenditures (which includes savings). If you find that you have a surplus of money left over after creating your budget, then you are in luck. You can either determine to allocate some more money to individual categories, or just put the money directly into your savings category or emergency funds. Doing this ensures that you are better prepared for any unexpected financial purchases or problems that may need to occur in the future. If you are lucky though you will just be able to increase your savings faster, allowing you to realize your personal finance goal sooner than you originally imagined. If you find that your income minus your expenses yields a negative number, then you still have some work to do. This means that your current income is not able to pay for all of your expenses, and you will need to go into debt to fulfill all of your desires. The only way to change this is to either increase your income or decrease your expenses. Your income can be increased in a number of ways. You can take on more hours at your job, find other part-time employment, or sell some items that you have that you no longer use. These suggestions are obviously not suitable for everyone (especially if you already work full time at a career), but you should always stay open-minded to opportunities that may exist to raise your income. Lowering your expenses is likely your best option, however it will likely be difficult to do. You need to really consider what you are able to sacrifice, or what changes you can make to lower your expenses. I will in the future provide plenty of tips of how to save your money and lower your expenses, but for now I will leave you with just a few tips.

· Turn down the heat (or raise the temperature in the summer) when you are not at home. Also wear extra layers in the winter instead of raising the heat
· Make lunches at home. Not only can this be much healthier, but also you can save a lot of money
· Look in local free newspapers for free events and shows in your area to help keep your entertainment costs down. Use your local library to rent movies and books. Just make sure to return everything on time to avoid late chargesIt is important to keep monitoring your spending throughout the month to ensure you are staying aligned with your spending goals. While a budget may seem rather intimidating to start and maintain, it really becomes rather easy to follow once you get the hang of it. Besides, even if you have trouble sticking to it exactly at the beginning, at least you have started to take steps to make financial changes in your life and you will soon begin to experience the benefits of this. The most important thing is to always remember what your financial goal is, as this will keep you strong enough to avoid the temptations of frivolous and impulsive purchases.

Time to get serious about Savings

2006-01-05T17:14:00.000-05:00

Saving your money is not something that comes intuitively. While it is not hard to learn, it is a skill that requires some planning and research to be done properly. There are many reasons why we you should save you money. Short term savings goals can be for a dream vacation, while long term goals of owning your own house or retiring early can all be done if planned well in advanced. No matter what your financial situation is currently, you can act now to make great changes in your life. Just by reading this you are well on your way to reaching your goals. So without any further hesitation, lets see what this savings thing is all about.

Savings can be easily defined as the total accumulated amount of income that is not spent on consumption. This means that if you take all the money you make (income) and minus all the money that you spend on goods and services (expenditure) then what you are left with is savings. The goal here is to have your income minus expenditure to be a positive number. If it is not, that means that you are spending more money they you are making, and you will need to borrow the money from elsewhere to pay for your current consumption. Being in debt does not allow you to save any money, and will force you to make interest payments in addition to paying back the money borrowed (the principal). Interests rates can vary, but it should always be your goal to be either entirely debt-free or to pay as low of an interest rate as possible. Paying someone interest is money that you could use much more productively to meet your own financial goals, so debt should be avoided as much as possible. There are times when it does make sense to borrow money and to have debts (for example, taking out a mortgage to purchase a house) but generally, DON’T DO DEBT!

Now that we know we want to spend less money then we are making, we just have to plan out how to ensure this gets accomplished. A budget is a written plan of all the income and expenses expected over a certain period of time. A budget takes into account all of a person’s income and divides it up totally amongst every category that money was spent on. I will discuss budgeting further in a later post, but you should always include a portion of your income into savings. A general rule of thumb is that you should save at least 10% of your income. This assumes though that you do not have any debts, as it makes much more sense to pay off a debt than to save money. If you savings is earning you interest of 2%, while you need to pay off a credit card that charges interest of 9%, you should pay off the credit card as fast as possible. This is because the interest of the credit card will grow much faster than your savings. This means that as time goes on, even though you are saving money you are actually falling deeper into debt. Recording down all of your expenses allows you to plan your purchases for the month, (assuming you are making a monthly budget) which means you can follow a plan that has your financial goal in mind. Without a budget, it is very easy to make frivolous purchases that eat away at the amount of money you are able to save. By preparing your monthly budget though, you will put more thought into your everyday purchases and be able to enjoy the success of your planned purchases with money remaining each month to be saved for something you desire.

The only way to ensure that you have some money left over at the end of each month for savings is if you live below your means. All this means is that the amount of money you spend is less than the amount of money you make. The best way to accomplish this is to make your savings appear like an other expense you have. This means that you determine a monthly amount (like 10% of your monthly income) and you devote it to savings. You then need to treat this amount of money as a fixed expense that cannot be used for anything else. This may mean that you need to delay certain purchases or cannot afford to make as many impulsive buys, but it also guarantees that you will have your wanted amount of money go into your savings account each month.

A part of budgeting is obviously not spending more than you make. While this may seem like an easy concept to follow, businesses all want a piece of your money and have created many ways of taking it from you, even if you do not have the money available to pay for their goods and services. The credit card is now a member of almost all wallets in North America. They are widely accepted at stores everywhere, and are pretty much a must if you want to do online purchasing. Credit cards are a very useful tool, however if not used properly they can cause large problems. While this will be explained in much greater detail in a later post, there is one main message that you should remember when using a credit card. DO NOT SPEND MONEY THAT YOU DO NOT HAVE. If you make purchases on a credit card since you do not have the money to pay for the item, you will face high interest charges from your credit card company. With interest rates on some cards well above 15%, a $100 purchase on a credit card that is left unpaid can end up costing you over $115 with the interest payments. That $15 could have been used for many other things, and by not budgeting your money you now must give this money away. This does not mean you should not use credit cards to make purchases though. Just always ensure that you do have the money to pay for them, and always pay off the FULL balance of your credit card each month on time. By paying only the minimum payment or anything less than the full balance, you will accumulate interest that will further eat away at your hard earned money. A great example of this can be found under “Plastic handcuffs” in this article by MSN Money http://moneycentral.msn.com/content/Savinganddebt/Savemoney/P36017.asp.

Now that you finally have all this money saved up, you need to decide what is the best thing to do with it. While I will talk in the future about a variety of different investments that all carry different degrees of risk, your main focus right now should be on having a savings account. This can be opened at any bank, and provides you the ability to have full access to your money at all times, while still earning some interest. It is important to choose the bank account that best suits your needs, as some accounts can charge service fees for things you may want to do (like debt card transactions) which will eat away at the amount of money you will be able to save. Traditional bank accounts are not great sources of interest income though, and you should not expect to make more than 1-2% interest on your savings per year. There are options for greater interest rates though at online banks like ING Direct though. With ING Direct you can set up a savings account and have your money transferred directly from any other bank. Like all major banks in Canada, ING Direct is a member of the Canada Deposit Insurance Corporation, which means that all of your savings of up to $100,000 are guaranteed under the CDIC coverage. There savings account is has no fees, service charges or minimum balances. Their current interest rate is 2.75% per year, which is above what most banks will pay. The drawbacks of ING Direct though is that there is no physical location for you to actually take out or put your money (all transactions are done online or by phone). This means that you cannot use a bank card to take money out of your account instantly like you can with most traditional banks. I still recommend having an ING Direct account, and you can learn more about them at www.ingdirect.ca.

Once you start planning your finances, you can begin to save and earn interest to do things that were never before possible. That dream vacation will start becoming more of a reality each and every month you stick with your budget, and continue to save your money.

The concepts described are not complicated at all. They can be applied instantly into your life. To ensure you got them, I will reiterate:

• Don’t do debt
• live below your means
• Do not spend money that you do not have
• Make savings a fixed expense (pay yourself first)

Now that we have set a foundation for saving our money, we can begin to explore other ways to grow our money. This will be explained at a later date, but for now take the knowledge learnt today and start making a difference in your life right away.

Use coupons for what they are meant for: Saving money

2006-01-03T13:12:00.000-05:00

Personal finance is about more than saving and investing your money. It includes everything to do with your money, including the purchases you make each and every day.

One common way that many people know of to save some money of off daily purchases is to use coupons. When you can find a coupon that is for a product you are planning to purchase, you are basically providing yourself with free money. The main question of course is where can you find these coupons. Mail advertisements are the most common way to get coupons, but the internet now provides a way for individuals to get coupons for specific products. While there are literally hundreds of sites that provide you with coupons, three I recommend are: http://www.couponmountain.com http://www.save.ca/en/ and www.Valpak.com. Every so often browse quickly through these sites and look for coupons for products you already use. This can result in savings of over $10 each time you go shopping, which can then be allocated for another purpose.

Also be sure to check out the websites of companies whose products you purchase from often. They may have coupons right on the site. You may also decide to e-mail the company to tell them how much you use and love their product. This may result in a coupon being sent to you as a thank you for being a loyal customer..

While coupons can be great, you should also realize their ability to cause you to make purchases you don’t want to make. Do not be tempted to use a coupon or purchase something just because it seems like a good deal or price. Many coupons are only useable with a minimum purchase (Save $10 on purchases over $50). If you originally only wanted to buy a product that was much lower than this though, then you are making purchases for things you do not want, all so you can save some money. Companies make coupons to get you to spend your money on their products, so be careful that you do not get tricked into spending more than you originally wanted to. An impulsively made purchase made with a coupon is as detrimental to you as any other impulsively made purchase, so be careful with how far you take your coupon clipping.

Adam Smith's the Wealth of Nations: Online Economics book for free

2006-01-02T12:12:00.000-05:00

Adam Smith is well known as the father of economics. He gave birth to this subject with the publishing of his novel The Wealth of Nations. While this book is over 200 years old (came out in 1776), it is still well read today. You can read the book for yourself for free online at http://www.readprint.com/work-1384/Adam-Smith.

Ways to make money on the internet: Mturk.com

2006-01-02T10:03:00.000-05:00

Before you start dreaming about all the things you can do once you have mastered all aspects of personal finance, you first need to get some actual cash in hand. I will provide you frequently with new ways you can make some money online in order to allow you to earn some additional income, or perhaps even allow you to work less at a traditional job. One newer program that started is Amazon’s Mechanical Turk. Located at www.mturk.com , the website offers you the ability to complete simple tasks that pay a dollar amount for each successfully completed task.

The idea behind this website is that there are some tasks that just cannot be done efficiently by computers. These include tasks like determining which photograph best shows a certain building or who is the artist of a certain CD. These tasks can be completed quite easily by a person, so companies are paying users to complete these simple tasks. Most tasks pay quite low ($0.01-0.04 per successfully completed task), however there are some tasks that require more work and pay upwards of $1.00.

This is a program you can trust, as it is run by Amazon. Once you complete one of these tasks (called HITs), they are sent to be approved. HITs are approved by either a human or computer, and this is done to ensure that quality work is being submitted. By reading the instructions carefully and not rushing too fast, you can usually have an approval ratio of well over 80-90% (meaning about 8 or 9 out of every 10 hits you send in are approved). Once your HITs are approved, you receive payment. This payment can either be send directly to your bank account or be redeemed for Amazon.com gift certificates. I recently redeemed a $35 gift certificate, and was able to purchase 3 DVD’s from amazon.com. As a Canadian I was still able to use the gift certificate at amazon.com, but I was limited to purchasing CD’s, DVD’s and books.

Currently it appears that there is a lack of HITs available, but I still encourage you all to try out www.mturk.com and see if you can earn some extra cash. By using certain scripts that work with the Firefox web browser, many people have been able to earn well over $10 per hour.

Please feel free to ask any questions about this program. There is no benefit to me if you sign up, but I do encourage you to test it out as there is no loss for spending a bit of time on it.

Making Cents of it All: The Personal Finance blog meeting all your saving, investing and money needs

2006-01-01T05:52:00.000-05:00

Hello all and welcome to my new blog: Time to Make Cents. What could be better than to start the year with some new knowledge and goals that will help make all your financial dreams a reality?

The purpose of this blog is to learn how to take better control of our personal finances to make the most out of the money we have. We will literally learn how to make sense out of making cents!

Truthfully, the vast majority of people do not have a sufficient knowledge of personal finance, yet it is something everyone deals with on a day-to-day basis. Knowledge is the difference between the rich and the poor, nothing more. Everyone starts out small, with less money then they would like. It is the decisions that one makes at first and throughout their life that help them achieve their financial and life goals. You can blame a variety of external factors (the economy, social status, political bodies) but at the end of the day, people make money in the worst of times and the best of times. These people have stopped playing the blame game and have taken their financial future into their own hands. The only way you can make your financial dreams come true is to stop playing the blame game and put it the work to lean the knowledge that will change your financial future. By arriving at this blog, you have taken the first step to ensuring you will have the upper hand when dealing with your money.

Well by showing up here, you have made the first move in ensuring that you will always have the upperhand (it is YOUR money) and will be the one in control over your debt and purchases.Let me tell you a bit about myself first. I am a business student in Canada who has been interested in the area of personal finance for about 8 years. I have dedicated myself to learning all that I can to all areas of personal finance, and have strived to learn how to properly realize some of the more common financial goals (be debt-free, properly budget money, retire early and wealthy). Over the years I have learnt quite a lot, and now I want to share what I have learnt with all of you, so that you can properly manage this portion of your life.I want to know what you want to learn more about, so please suggest to me what you would like to see covered. I plan on talking about many topics within Personal Finance, including investing, budgeting, debt and credit cards as well as current events and discussing how these things relate to and affect you. 2006 is the start of the quest towards knowledge and financial freedom. I hope you join me on it and wholeheartedly agree that It is now Time to Make Cents!

Have a very happy new year,

Michael

The Basics of personal finance

2006-01-01T05:17:00.000-05:00

I’d like to begin by outlining a few general things that you should always be keeping in mind when dealing with personal finance. These key concepts are very simple, and are enough to instantly stimulate some positive change in your life.
So without further ado....

KEY CONCEPTS TO ALWAYS REMEMBER

Set goals and stick by them: It is important that there are things in life that you constantly work towards. Right now, take the time to think about your long term goal(s) (example: retire by 55 with $1,000,000). This is a pretty intimidating goal, and left as is, there is no foundation on which this is going to be accomplished. This is why it is just as important to set many short-term goals, all which help you on your way to realizing your long-term goal. You may decide as a short-term goal that each month you will save $1000 from your paycheque to use to invest. This will allow you to reach your next goal of saving $12,000 per year. A savings of $12,000 per year can then be used to reach your next goal until eventually you have accomplished your long-term goal. The most important rule when setting goals is to make them realistic and to always stick by them. By breaking away from your plan for just one month, you may lose the ability to reach your long-term goal when you want to. It can be helpful to write down your goals in chronological order, so that you can see what you must do at each stage to ensure you are staying on track to reach your goal.
Always plan ahead: Whether it is determining a budget, paying off a credit card, or ensuring a movie is returned on time to avoid a late charge, it is always best to plan ahead. By focusing on what you want in the future, you can prepare today to ensure that no surprises occur later. If you take the time to set a monthly budget, you can ensure that you are saving enough money each month for a vacation or special purchase. Without proper planning, you can very easily lose control over your finances. By simply forgetting to return a video rental for a few days, you can cause yourself to be over budget by $15, which will have to come out from money that was meant for savings or something else. If this is done often enough, you will not be able to meet your goals. If you do not properly plan you will be left to make many decisions impulsively, which is where you can easily lose focus of your goals and make decisions that are very detrimental to your short and long-term goals. By planning ahead of time, you can make purchases with more confidence and without guilt.
Do your research: It may not be fun but this is an essential step for all of your decisions. It is not enough to open up the first bank account that is offered to you. By taking the time to look over your options, you can find the account that best fits your needs. The Internet makes it so easy to comparison shop that there is no reason not to spend some time comparing prices on any significant purchases you made. There can be differences in pricing for even inexpensive objects like DVD's. Spending some time to look over your options can end up saving you money to allow you to best meet your needs. Research is very important for all investments, as you need to understand what your goals are and how your investments meet these goals. You need to understand the risks that each investment comes with, as well as factors that could affect your investments (both positively and negatively).

These three basic concepts set a good foundation for your to start mastering your financial dreams. Please feel free to include any more concepts you want in the comment section, as we are all hear to help each other. If there are any topics that you would like to see covered as well please just write it down and I will cover that topic.

Thanks for joining me on this first day of 2006 and please continue to come back often for daily updates.
Take care,
Michael