Teaching Teens About Money - Finance for Teens

Let's face it - you've got enough to handle with your teenager. The last thing you want to spend time on is money - especially when you may not be a shining example of personal financial responsibility.

But the truth of the matter is this: the habits that your child develops now will greatly impact their future quality of life. For this reason, it's important to educate teens (and even pre-teens) on the aspects of personal finance. I've included topics below to give you some basis to work with. You may not use all of the ideas, but it is important that you do something to combat the financial illiteracy that is seen in many of today's adults (who were, at one time, in the same position as these teens).

Budgeting

I know it sounds scary, even to adults, but it's imperative that we all understand where our money is coming from, as well as where it is being spent. One of the most eye-opening experiences one can have is to see an analysis of their spending habits. A daily stop at Starbucks or a few too many iTunes downloads can quickly add up, yet feel insignificant with each small purchase.
I recommend that parents introduce their children to a site called mint.com. No, I'm not affiliated in any way with the site (other than being a satisfied user for years). This site, as described in a previous post, is an awesome way for teens to keep track of their income and expenses. Every time you log in, the website will actually pull data from your different banks, credit cards, investments, etc. and give you a snapshot of your total financial picture, including your monthly budget. Teens, being more tech savvy than their parents, will find it a real-world way to keep track of finances (in a way that they are familiar with - through technology) The catch is that you can't enter manual cash transactions, which brings me to my next point.


Banking

Many teens have a savings account, but it's really only used for that gift that Grandma put in there back in kindergarten, which has been long forgotten. What kids need, however, is a supervised experience with the banking system. I recommend that teens have their own checking account and debit card (with a parent listed as the co-account holder so that parental monitoring can be done). This gives the teen a chance to experience the use of cards and checks before the consequences become dire for overextending themselves. It teaches them that the check or debit transaction must have the money in the bank to back up the transaction, or there will be problems.

Many parents worry that teens with a card will go on a crazy spending spree - and maybe they will! But the damage will be limited to a relatively small amount of fees, etc. and will save them from racking up huge credit card debts later in life. It also familiarizes them with the banking system and the beneficial products that are available later on in life. In addition, it can help build a relationship with a bank that can provide financing at some point in their adult lives.

Allowances

I'm an advocate for allowing children/teens to make their own decisions with their money - and to live with their decisions. One way to do this is to provide an allowance for your teen. This allowance, however, should never be a right - it must be earned. It may be as simple as mowing the lawn, taking out the trash, or watching a younger sibling for an evening. This way, the correlation between income and work is developed. As we as adults know, money is rarely just given to you - it must be earned.

Once the teen has been given the money, you can encourage them to do certain things with the money, but it should end up being their decision in the end (again, so that they can live with the rewards or consequences of those decisions). If they choose to buy something spur of the moment and then have buyer's remorse, it will teach them to more carefully consider their purchases. On the other hand, if there is something more valuable that will require planning and patience to save enough money to obtain, it can teach the benefits of perseverance in a world filled with instant gratification. Clearly, these lessons cannot apply when a parent continues to provide money outside of the allowance for things that should be covered by the allowance (and, necessarily, what is then the teen's responsibility should be discussed ahead of time). If you continue to give them money for a movie ticket or a candy bar after they've already spent their allowance, you're not helping them. Instead, remain firm. You may even ask them if they'd like to look at their budget and spending to determine where they might have made different choices. Which brings me to my next point.

Saving

I believe that the number one thing you can teach your child or teen about money is to save. As we've seen, economic conditions can change rapidly. Nearly 10% of the population is looking for work but unable to find any (and many more are under-employed). The lesson of saving, even a small part, of your income is critical to both handling emergencies and being able to be successful later on in life.

One way you might do this is to develop a plan with your teen as to what percent they are willing to save (they might want to spend all of it - this conversation will go over better if you can point to specific examples of how saving has been positive for you - maybe it covered your expenses between jobs or allowed you to purchase that boat or dining room set after a significant period of setting aside money). On a side note, I also encourage tithing. From my Christian perspective, this basically asks that you contribute 10% of your income to the church. Doing this from a young age instills this trait while the habits are being formed and will result in a charitable adult. Even if you're not a religious person or family, it would still be helpful in the development of your teen to encourage some sort of charitable giving - you can encourage them to pick out a favorite charity and make regular contributions. On top of this amount, a portion should also be saved for future use (large ticket items, college, etc.). If you can get another 10% out of the deal, it would be an amazing life habit for teens to take with them into adulthood.

So what would this look like? Say your teen receives $20 per week (amounts will vary drastically based on how much they are doing to earn it and what they are expected to pay for with this amount).

Each week, $2 would go to charity, while another $2 would be placed into savings. They would be left with $16 each week that could be spent based upon their budgeted categories (clothing, entertainment, gasoline, etc). The key is, however, to give them the full $20 and then encourage them to set-aside the charitable and savings categories. That way, they are the ones doing it - not you.

These are some of the most important things that I believe teens should learn about personal finance. Believe me, there are more (interest rates, car payments, debt, investing, building credit, etc. - I'll try to touch on these in other posts). But these simple areas should give teens a base to work off of that can propel them into financial security and responsibility as they become the next generation of adults.

Should I Buy Gold and Silver?

Gold and silver have long held man's interest captive. Long used as currency to facilitate the exchange of goods and services, the luster and mystique of these metals have also increased due to their recent popularity as an investment option.

Maybe you've heard the radio commercials or seen the advertisements in the paper. Why all the fuss? Check out the charts below for the previous decade's pricing history for gold and silver from kitco.com. You'll see why it's garnering some attention.


Compare that to the Dow Jones Industrial Average for the past decade.
Now as you should know by now, past performance does not guarantee future results - although the Dow was basically flat over the past decade, a lot of people lost a lot of money by trying to time the market. In reality, they sold their equities after they had already fallen and most likely were to nervous to get back into the market until the growth was too far along - the end result being a net loss.

That being said, it's hard to convince someone not to chase returns like those that gold and silver have seen. However, those that chase returns will always get burned in the end. While some analysts see continued growth, others argue that we are seeing a bubble that will soon pop and drive prices back down to more normal historical levels.

Don't get me wrong - gold and silver do have their benefits:

Hedge Against Inflation - historically, the price of commodities has risen as inflation has also increased. Will the United States and other countries be forced to print money to solve their deficits? If we see inflation, this aspect of your portfolio may hold up well.

Recognized Worldwide - all over the globe, precious metals (especially gold and silver) are both recognized for their beauty and monetary value. Assuming you hold the actual physical gold and silver, you can take it to any place on the globe and trade it for goods and services.

Multiple Forms / Investment Methods - while some prefer to hold the actual, physical gold and silver (in bars, coins, bullion, etc), others purchase the assets and have them held in vaults by investment custodians. Others choose to invest in precious metals mutual or exchange traded funds. Still others invest in the companies that mine the precious metals (although this does not give you any control over actual precious metals, only the company that is doing the mining).

So what is the Everyman to do?

As we've discussed before, asset allocation is key. You've been drilled with the age old adage of not putting all your eggs in one basket - the same holds true here as well. What does this mean? Gold, silver, and other precious metals can and should be a part of your investment strategy - but only that - a PART of your strategy.

How much? Many sources cite a number around 10% of your portfolio, which seems like a reasonable number. The benefits of the diversification will be felt at this number, but it's not too much as to overbear the portfolio if there is a drastic downturn in the precious metals sector.

Where to Buy Precious Metals

In today's world, some of the best prices for buying precious metals can be found online. While I'm not recommending any particular site, I've listed a few of the more popular sites below.
American Precious Metals Exchange
Bullion Direct
Kitco

You may also be able to find precious metals dealers in your area - some stores specialize in buying and selling gold and silver. Still others may find success with pawn shops. You may even try eBay or craigslist (at your own risk - if you go this route, only meet in a public place - if I were doing this, I'd recommend meeting in a bank lobby - it's public and relatively safe).

As was mentioned before, some prefer to buy the exposure to the assets without actually holding them in their possession. A good way to do this is through the purchase of ETFs, such as GLD or SLV. These are purchased exactly the same way you would a stock - you can use the same channels (your financial advisor or online broker).

However you obtain your exposure to precious metals, it is worth having in your portfolio. Sure, it would have been nice to have purchased them a decade ago to be able to partake in the massive returns that they have seen. But they still have their benefits (as listed above) and should be a part of any investment portfolio.

Having Trouble Keep Track of Finances? Try Mint.com

A few years back, someone pointed me in the direction of Mint.com. While it was an interesting approach to managing my finances, it lacked the oomph that it needed to take over for my preferred weapon of choice (Microsoft Money). Water passed under the bridge and soon Mint.com became a small figment of suppressed memory.

Enter: a random Facebook friend a few months ago that recommended I check out Mint.com. Unbeknownst to him, I had once led on a short affair with Mint, but had since gone back to my first love. Out of curiosity, however, I thought I'd give Mint another look. That re-visit changed the way (and cost) of managing my finances.

What is Mint.com? Mint.com is an online personal finance software system that allows you to track all of your monetary transactions, as well as market values for other assets you may own (such as homes, cars, etc.). This information is automatically fed from your financial institutions, which populates various categories of spending and income in order to quickly and simply populate your budget, which allows you the ability to monitor your spending with a simple login, logout approach. Additionally, they point out areas in which you may be able to save money (for example, by opening an account with a bank with a higher savings rate or a credit card with a company offering better terms).

Mint.com has been around since 2005. With over 1 million accounts, they've seen a nice pace of growth over their history. But only recently have they become a viable option for serious financial management. Why?

1. Coverage of Financial Institutions

If you're a typical Everyman, you've got a checking account at a bank that's accessible to you at home and/or work, a savings account with a bank from your childhood days, a mortgage with another institution, a house, a retirement plan, some student loans with a few different lenders, and an auto loan (which I don't recommend, but that's for another post).

In my case, I have various accounts with Wells Fargo, ING Direct, ShoreBank, Smarty Pig (West Bank), PayPal, Citi, US Bank, Affiliated Computer Services and Firstmark Services (student loan processors), Prosper (p2p lending), Zecco, and a retirement plan - ALL of which automatically feed every transaction directly into Mint.com. One of the problems I had during my first run-a-round with Mint was that it didn't cover many of the institutions that I use. That problem = gone.

2. Ease of Use

By simply logging into the system, the update process will begin pinging your financial institutions for new transaction information. This will fall into your various budget categories and show you (in multiple formats, such as charts and graphs) where you're spending your money.

3. It Keeps You Informed

One of the neat features that Mint.com offers is the ability to receive alerts. For example, you can set the program to notify you when one of many outcomes occur (such as overspending in a category, transactions above certain dollar amounts, etc.). I've set it to email me when such an event occurs (mostly because it's a way to also monitor any fraudulent activity that could be occurring in my accounts - if it says I spent $2500 on tickets for me and a dozen of my close friends to a Hannah Montana concert, for example)

4. It's Free

Probably the best feature - it's free! No more having to fork over money to Microsoft for a program that does essentially the same thing!

And draw backs?

With their growth, it doesn't appear they've been able to keep up with customer service requests. However, this seems to be improving with the advent of community forums that allow users to post issues that they are having. For the most part, they appear to have become more willing and able to help deal with issues that arise.

Conclusion:

Mint.com is worth the time it takes to set up (basically, if you know your login information for the various financial institutions, you're all set). With its ability to show you your financial position and trends in an easy to read and navigate manner, I'd recommend it to all Everyman's Money readers.

Have something to add? Disagree? Hit up the comment section below!

Best Tax Moves in 2010

Yahoo! Finance has an interesting feature article on taxes for 2010. While it may seem odd to think about 2010 when you are just gathering together your W2's, receipts, and all sorts of other documents for 2009, it's always best for Everyman to be proactive.

Some of the best on the list:

- Buy a Home

Not only can first-time homebuyers grab an $8,000 tax credit, but now current homeowners who have lived in their residence for 5 of the last 8 years can also qualify for a $6,500 tax credit. And remember, a credit comes straight off of the amount of taxes you pay, not off of the income that is eligible for taxation (thus, a credit is better than a deduction).

- Convert to a Roth IRA

If you think like I do, taxes will go no where but up from here. So why not pay the taxes now and avoid a higher tax bill later? That's what a Roth IRA can do for you. A traditional IRA allows you to contribute tax-free, but requires that you pay taxes upon withdrawal. A Roth does the opposite, allowing you to prepay your tax, but enjoy the ability to withdraw the money tax-free. Like I said before, I expect to be paying a higher share of my income in taxes in the future, so I'd rather pay it now at the lower share rather than waiting for the axe to fall later on.

- Take Your Capital Gains While Tax Rates are Low

The capital gains tax rate is between 0-15%, depending upon what tax bracket you fall in. However, in 2011, the top rate will be 20% - and everyone will pay at least 10%, so it may be in your interest to sell the stock before the end of the year. For example, say you have a number of shares of stock that you purchased when your child was born and sat aside for his/her college fund. Let's further assume (hope) that those shares have appreciated since that time and would be subject to capital gains taxes. Although your child may not need the funds for another year, it might be prudent to sell and be taxed at the lower rate rather than waiting until 2011 and then placing the money in a CD or other low-risk (can't say anything is risk-less any longer) investment instrument.

For the full list, click here.

Woman Takes on the IRS - And Wins!

In a story that should be encouraging to the Everyman out there, a Maryland woman has defied the odds and successfully challenged the IRS. The topic? Tuition for her M.B.A.

Why should you care? First, there is the obvious reason in that it may make it easier for you to deduct your own education expenses. However, I think it is also a step in the right direction for the empowerment of the Everyman in their ongoing battle to retain what they have rightfully earned.

Look, I'm not someone who advocates cheating on your taxes. By all means, give to Caesar what is Caesar's. However, if you can reduce your tax liability within legal parameters, why would you turn that opportunity down? Sure, the government has proven to be responsible investors and a fine example of financial responsibility (yes, that is sarcasm), but I have faith in you, the Everyman, to be able to do with your money what you wish.

Anyway, back to the story. It was ruled that the nurse from Maryland was correct in deducting her tuition expenses on her tax return for her M.B.A. from the University of Phoenix (nearly $15,000). What is more interesting is that she represented herself! Not only did she take on the vaunted Internal Revenue Service, but she did it without lawyers. There is a God!

Taxes on the Internet

There is an interesting article on the WSJ site today touching on the topic of whether or not online gambling winnings are taxable (the answer appears to be yes - go figure...), as well as the rules for deducting your losses (MUCH more vague). If you want to read more, you can check out the article here (subscription may be required).

This leads to my question - another online tax question - when do you have to pay sales tax on the Internet?

Why is this important? If you can get free shipping on an item - and avoid paying sales tax on the item - it can be a significant savings to you. For example, if you were to find a site offering free shipping on a $500 item, you could save $35 if your state had a 7% sales tax.

According to the NOLO site,

If an online retailer has a physical presence in a particular state, such as a store, business office, or warehouse, it must collect sales tax from customers in that state. If a business does not have a physical presence in a state, it is not required to collect sales tax for sales into that state. This rule is derived from a 1992 Supreme Court decision which held that mail-order merchants did not need to collect sales taxes for sales into states where they did not have a physical presence.

It is also noteworthy that some states do not have sales taxes (Alaska, Delaware, Montana, New Hampshire, and Oregon), so they do not suffer any losses through these rules.

So unless the retailer has a physical presence in your state, you are not required to pay the sales tax on that purchase. If you do live in that state, you'll be asked to pay the additional amount to cover the sales tax (this is why you'll see a tagline that reads something like "residents of VT, please add 7% sales tax to total). However, it should also be noted that, theoretically, you are liable for the tax even if they do not ask for it if they actually do have a physical presence in the state. No word on if or how this is enforced, but you can no longer argue that you didn't know about it!

Still, there are ways to save money by purchasing goods online, especially if you can get cheap (or free!) shipping. Just another way that Everyman can save a bit of money!

Cash for Clunkers - Not a Good Idea

Okay, everymen (and everywomen), it's time for a thought about government intervention:

So our spend-and-tax federal government has decided to continue to offer the "Cash for Clunkers" program, which effectively provides up to $4500 to those who will turn in their less-efficient vehicle and purchase a new, more fuel-efficient vehicle.

Don't fall into this trap! Unless you can afford to go and pay for the car up front, you'll end up doing what many participants of this program are doing: taking out an auto loan. Instead of driving that "clunker" - which in many cases is really a pretty good vehicle - that you've had paid off for years, you'll now saddle yourself down with an additional liability - a car payment. There are very few things in this world that this author despises more than a car payment. Not only does the vehicle depreciate with every mile that you drive it, but you also pay interest charges and other financing fees to drive the depreciating asset into the ground (sometimes literally!).

Couple of thoughts:

1. Most people are not going to get the benefit of $4,500. This would entail that your car was literally worthless. If your car was worth $3,000, they are NOT going to give you $3,000 + $4,500 for your car. No, you'll still only receive $4,500. So when you try to justify the purchase of a new car by telling yourself you're getting $7,500 or $4,500 off, don't fool yourself. You're really only getting $1,500 more than you would have had you traded your car in before this program. Is it really worth putting yourself into a position where you have monthly payments to drive a depreciating asset for a $1,500 break on the new car?

2. More directed at the government: say I was driving around a 1987 Caravan (I apologize if some car fanatic out there is saying "they weren't around then!" - I'm not sure when they were first produced, but that's not the point). And my neighbor, who is relatively better off than I am, is driving a 2000 Caravan. While I might be able to get $4,500 for my nearly worthless '87 Caravan, I can't afford to pay for a new car, even with the $4,500 'discount'. Now my neighbor: he can afford to go out and get that brand new car through the "Cash for Clunkers" program. What happens to that 2000 Caravan? It gets destroyed (by law, they must destroy the engine/tranny). Therefore, I'm still stuck driving an even less fuel-efficient vehicle, while a newer one is destroyed. Not only is it a waste, but it decreases the number of used vehicles available - driving the price of used vehicles higher - and giving less work to your local mechanic.

Does anyone else find it interesting that the government is running this program - and they are one of the largest shareholders in the industry? Go figure...

Dialing BACK on Equity Exposure?

I have to comment on this article, found on CNN's Personal Finance site.

The article talks about a "young" couple (38 and 41) that have recently married and are looking for guidance as to what to do with their portfolios. They have a goal of purchasing a new home together in 3 years and make a combined salary of $170,000 per year. So what's my complaint?

The financial planner in the article recommends that they reduce their equity exposure from 80% to 70% of their total portfolio.

WHY? Now if you were planning on doing this a year ago, that would have been a smart choice. However, what you're encouraging now is counter-productive. In essence, they'll need to sell at the bottom of the market cycle to reduce their exposure to equities. If they should be doing anything right, they should keep their exposure at the level they are at or even INCREASE their exposure. Why do I say this?

Equities are at relatively cheap levels. If you've stayed in this far, the WORST thing you can do is to sell. At $170,000/yr, with no kids, they should still be able to reach their goal of $50,000 for a down payment in 3 years time by investing their savings in an online savings account, such as ING Direct.

Disagree? Let me know.

First-Time Home Buyer Tax Credit: Positive?

Real estate professionals, home builders, owners, and many others hope that the new tax credit for first-time home buyers will spur on the housing market out of the state of doldrums it now finds itself in.

While a similar tax credit boosted the housing sector in the 1970’s, a key difference comes with this year’s $7,500 tax credit: it has to be repaid, which turns that credit into the likes of an interest-free loan that must be repaid over 15 years.

According to the National Association of Home Builders website, in order to receive the credit, the closing has to occur before July 1, 2009.

Sounds good, right? I’m not sold…

1) You still have to repay the “credit”. This could end up getting people in trouble if they stretch themselves thinner than they should. Also, many will claim that they did not know it had to be repaid and will likely spend it as such.
2) You don’t receive your “credit” until you file your taxes, unless you change your withholding in the current year (which will raise your take home pay).
3) How much impact will this really have? I don’t foresee home prices halting their decline. I’m going to be potentially in the market for my first home in the near future, but with prices continuing their descent, I’m content to wait for the bottom (even if I do miss the exact bottom by a few months, I don’t feel that we’re there yet). Even Alan Greenspan, the former Chairman of the Federal Reserve believes that we are nine months away from the bottom. Why would someone jump in now? If it turns around, they’ll be right there to jump in (remember, they don’t have houses to sell and can react fairly quickly to market changes).

What would make this work? The answer seems obvious: treat this as a true credit and not an interest-only loan. In other words, don’t require repayment. But is that really the remedy of best choice? To have the government involved in propping up artificially high prices rather than letting the market complete its correction? Not to mention, pumping more money into the economy without production breeds further inflation, does it not?

All in all, I see this tax “credit” as having very little impact and simply adding to the complexity and confusion of our tax code (which is why I believe in proposals to eliminate the income tax and simply go with a national sales tax – but that’s another post!).

So, Everyman, what does this mean to you and your common sense financial decisions? First of all, this whole meltdown should remind us that we shouldn’t overspend our means. People are foreclosing because they thought that if they stretched themselves out, the market would continue to climb and they’d be able to win their gamble by selling for a higher price and taking a profit. But obviously that didn’t work out so well. Instead, it left millions without the ability to pay for their mortgage. And while the government is doing its best to bail out those that were greedy with their money, you shouldn’t put yourself there in the first place.

Be smart with your money. If you can’t afford it, don’t buy it!

Not Everyone Minds Housing Prices Dropping!

Looking through some economic data, I came across what I thought was a very interesting graph (which you’ll see below). It shows that, while housing prices were on a torrid pace through much of the last decade, the percent of income that households are spending on housing is only barely above average since the data set began in 1975.


Because of the housing spike, I expected to see a much higher peak toward the end of this graph, as wages have in no meaningful way kept up with the intense uphill climb of housing prices (and thus, housing would make up a larger portion of household expenses). Why is this? I can think of a few reasons – 1. People couldn’t afford the homes in the first place. Once the introductory rates (i.e. ARMs or Interest-only loans) jumped, they bailed (while leaving the recorded sale price of the home at a record high). 2. More families are relying on dual-incomes. This, naturally, raises the median household income, even though the family is putting in many more hours to be able to afford that same house (instead of 40 hours per week, now it’s 80). My wife and I would like to be able to have one of us at home when we have young kids. But more and more people that we know have found that to be practically impossible.

Asset Allocation - What's That?

You may have had someone tell you, at some point or another, that 90% of the return on your investments comes from asset allocation. Asset allocation? What’s that?

Each investor has a different time frame, as well as a varying appetite for risk (and thus reward). Some people need their money in a few years, while others have decades to ride the markets. Some investors freak when they lose 5, 10, or 20%, while others ride on without being too phased by losses. While these investors have very different profiles, they all need one important strategy: asset allocation.

Asset allocation is, in Everyman’s terms, the way that you divide your investments between various categories of equities, fixed income products, and cash. Taking time horizon, risk tolerance, and other factors into consideration, this breakdown of funds can look very different from person to the next.

Example: Two investors with two very different asset allocations:
1. 23-year-old that understands that he’s in it for the long run and could almost not care less about short-term gains/losses.
2. 52-year-old that would like to retire next year, living off of her investment income, among other sources.

By diversifying their portfolios, each of these investors can buffer themselves against sever market fluctuations. However, the 23-year-old is still much more likely to have a higher risk profile – but will have at least 30 years to make up those losses. If the 52-year-old, however, had the same investments as the 23-year-old and lost 20% of the value of her portfolio, she may have to postpone retirement or live on less than she was expecting to be able to have available for her needs.

Reiterating, the two main determining factors in asset allocation are:
1. Time (horizon)
2. Tolerance (to risk)

If you have the time to make up your losses on some bad years, as well as the stomach to swallow those losses in the pursuit of larger gains, you’ll be more heavily invested in investments that have higher standard deviations of returns (but historically higher average returns as well).

Here is what their sample portfolios might consist of:

23-year-old – Aggressive Growth Portfolio
Category - % of Portfolio
International Equity - 25
Large Cap Value - 21
Large Cap Growth - 17
Mid Cap - 14
Small Cap - 12
REITs - 6
Emerging Market Equity - 5
Short-Term Bond - 0
Aggregate Bond - 0
Cash - 0
High Yield Bond - 0
International Bond - 0

As you can see, the entire portfolio is invested in equities. This would represent a very risky, yet potentially high-reward portfolio. This portfolio is likely to see both large gains and significant losses. Given a large number of years, however, it is likely to have a higher return than the next portfolio.

52-year-old – Conservative Income Portfolio
Category - % of Portfolio
Short-Term Bond - 35
Aggregate Bond - 25
Cash - 10
Large Cap Value - 8
High Yield Bond - 5
International Bond - 5
International Equity - 5
Large Cap Growth - 5
Mid Cap - 2
Small Cap - 0
Emerging Market Equity - 0
REITs - 0

This portfolio have very little exposure to the equity markets and is almost entirely in fixed income and cash. This makes sense, as both fixed income and cash have smaller standard deviations of their returns (and thus, are more predictable in determining what the return will be on the investment).

These two portfolios are more on the extreme edges of the spectrum. The majority of you will fall somewhere in between these two, with a balanced mix of equities, bonds, and cash. Generally, the closer you are to retirement (time horizon) and the more sensitive you are to short term losses (risk tolerance), the more you’ll be invested in bonds rather than equities.

Overtime, both of these two hypothetical investors will want to rebalance their investment portfolios to move them back to their original allocation percentages. This, in theory, also helps investors by forcing them to capture gains (if large cap growth did really well, it may now be at 25% of your holdings instead of the original 17%), as well as purchase securities when they are “cheap”(if small caps had an off year, you need to buy more to get it back up to its original allocation). This follows the basic (yet so psychologically difficult) premise of buying low and selling high. Too often, we tend to buy the “hot” option at the time, only to find out that we missed out on most of the growth and instead have most likely jumped on just before it comes back to normal (thus, a loss for you, Mr. Late to the Party!).

Smart investors use asset allocation strategies. So should you, the Everyman!

To find out what percentage of your money you should have in each category, try out a couple of these helpful tools online:
http://www.smartmoney.com/oneasset/
http://cgi.money.cnn.com/tools/assetallocwizard/assetallocwizard.html
http://www.money-zine.com/Calculators/Investment-Calculators/Asset-Allocation-Calculator/
http://www.nationwidefinancial.com/mm/pub/advice/assetAllocation/assetAllocation.html
http://www.rcu.org/java/AssetAllocator.phtml

Best Time of Day to Book Flights!

Ever wondered if you were really getting the best deal by using some of the online travel site to book your flight?

Just a short tip with this blog post, but it can be valuable!

The best times to book flights online are at 2PM, 4:30PM, and midnight. Why? Those are the most common times that the best deals will be uploaded to the travel sites.

What days should you look for flights? While there is always some debate about this, the consensus is that Wednesday is the best, followed by Tuesday. At all costs, avoid booking flights on the weekends! The demand increases (that's when many others also are booking their flights) and they will be charging more!

If you can, also schedule your departure for Saturday morning rather than Friday night. The airport will be much less crowder, the odds of cancellation are much smaller, and even if you do, you don't have to wait until the next day to get onto another flight.

What kind of tips do you have for airline travel? Leave comments below!

Save over $500 per year - Inflate Your Tires!

According to this page, the majority of cars are running on tires that are only filled to 80% of capacity. What does this mean to the Everyman?

Not only are under(or over) inflated tires a safety hazard, but they also are a hazard to your wallet! According to the referenced study (from the site link above), the typical 12,000 mile per year driver uses an extra 144 gallons each year due to under-inflated tires. 144 x $4.00 = more than $500 savings per year.

The beauty of this tip? It's free! While a few places may charge you to use their air tank (and if they do, you're bound to find enough change underneath your driver seat), the majority (at least here in Minnesota) offer compressed air for free.

In order to find out how much air you need to put into your tires, you'll need to locate the manufacturer's recommendations, which can be found on the outside of the tire. While it may be hard to see, you should find it in raised lettering outside of the hubcap area of your tire. The tire should indicate the recommended PSI, which is the pounds (of air) per square inch.

You'll also need to pick up a tire pressure gauge, which will tell you what the pressure is currently at in the tire (and also allow you to monitor your progress at increments while filling your tires to their correct PSI). This gauge shouldn't cost you more than a few bucks (I even found a digital one at Target a few months ago for about $10).

This simple way to save some money should provide you immediate results at a low (if not zero) cost. Go ahead and give it a try! (Hey, I can think of ways to spend $500 per year - on things other than gas!).

Free Movie Rentals!

While a number of my friends are subscribed to services that provide movies directly to their homes, I prefer the McDonalds Redbox. Why? Because many times the rentals are FREE!

By searching the Internet for promo codes, you can find an almost limitless supply of codes - and free movie rentals! The catch is that the codes expire (the majority, anyway), and you cannot normally use a code more than once per credit card.

If you don't use a code, the rentals are $1.00 (plus tax) per day. Still pretty cheap!

Check out the following sites for Redbox promo codes:
Inside Redbox
Redbox Codes

Also, you can rent and return the Redbox DVDs to any other Redbox location. This is GREAT for road-trips. Just look ahead and locate the various locations that have Redbox rental centers before you go!

Goodbye Landline!

In my last post, I pointed out how much you can save by not subscribing to a multitude of channels for your cable service. Over $50 per month! This time, I want to share with you how to save money on another form of communication – your phone. While many of us have made the switch, many others have not. What switch is that? Dropping your landline!

A recent survey has shown that 1 in 5 American adults has made the switch and no longer has a landline at their place of residence. 1 in 5? That’s it? That may seem high to a lot of you, but to this Everyman, I’m surprised that more people haven’t made the switch. Another survey, however, showed that 49% of movers are ditching the landline after they move. With the added convenience of only one phone – plus the fact that you won’t miss calls when you’re not at home, those numbers fall closer in line with what I’d expect. Smart people like you shouldn't be paying $10, $20, $30 or more extra per month to have a landline you don't need!

Another way that this Everyman has saved on his phone bill is by remaining on a family plan with my parents and siblings. That majority of the personal (that I would have to pay for) phone calls that I make are to them and my wife. Thus, all calls to my parents/siblings are free (because we’re in the same plan). In addition, I don’t talk for long on the phone with my wife, as I see her every morning and evening. So why have a long-distance phone line, or a phone line in general, when the people that I call most are already covered? That leaves those extra minutes on my cell plan for calling people outside of this group. For $5 more per month, my night time minutes start at 6PM. And being that I don’t get home from work until 5:30 on a normal night, that also cuts down on the amount of daytime minutes that I need/use, even lowering my portion of the bill even further.

If you do need to make long-distance phone calls, a great way to do it is by using a service called Skype. This allows you to call other Skype members over the Internet for free (you can also make calls to landlines and cell phones for a fee). But if you need that way to call your grandmother in Florida – and grandma is “up” with the technology to get on Skype (a free download), you’re covered! Plus, you can even use video to check out how grandma’s new wig looks!

It’s not that difficult to save money. Everyman (and woman) can do it – and so can you. It just takes a lot of common sense and a little bit of determination. Quit paying for that landline you don't need!

How to Save $300,000 - on your cable bill!

Over lunch with some co-workers a while back, it came about that I was the only one in the group that didn’t have more than basic cable to satisfy his/her television viewing cravings. Don’t get me wrong, there are definitely days when it would be nice (I can only catch my Minnesota Twins games on Sunday afternoons – and most of the time I’m not inside on a Sunday afternoon). But my lineup of the networks, along with some oddly entertaining community access channels, as well as WGN (if only I were a Cubs fan!) and MSNBS (no clue why this shows up – if only that were Fox Sports Net or ESPN!).

Why am I telling you this? In total, I pay about $50 per month for Internet access and basic cable. I’m sure there are people that would question why I would have basic cable when I could pretty much pick up most of those channels from an antenna. I had the same thought. Turns out, it’s the exact same price to have Internet with basic cable and to simply have Internet access. Guess you get a discount for Internet when you have cable. Fair enough, plus I don’t have to deal with the good old bunny ear antennae – as well as the change over to a digital signal in Feb. 2009.

For me to add the next package up, the “Digital Starter” package, I’d be paying $50 MORE per month. And no, that doesn’t include the premier movie channels or any other subscriptions. Or HD (sorry, that’s another $7 per month). (Another tip for those of us who don’t have movie channels – McDonald’s Redbox has the latest releases for only $1 per night – or FREE if you use promo codes that you find by searching on Google!)

Now maybe this isn’t resonating with all the readers out there, but think about that for a second: $50 per month? If you haven’t figured it out by now, I’m fairly young. One thing I have figured out, however, is that with the power of compounding interest, a little now can go a long way in the future. Say I took that $50 every month an invested it. Every month, for 40 years. In reality, that $50 difference is like to increase (with inflation). And let’s say I average 10% per year on my investments. In 40 years, that $50 per month will net me over $300,000! Yes, that won’t go as far in the future, but still, even if it were $50,000 in today’s dollars – that’s a lot of money!

If you’ve never taken the plunge – or thought about how you really don’t need all those channels – now is the perfect time to try. What do you have to lose? You can always get your channels back (they’ll be more than happy to get you back on that higher package!). But I’m from Minnesota and our summers are not that long. Why not enjoy them rather than sitting in front of the TV all summer? Plus, this Everyman is saving a lot of money in the process!

Saving Money: Gas Prices

In the latest fight against high oil and gas prices, a proposal has come up in congress that would reenact a national speed limit of 55 mph. And while this Everyman is not old enough to remember the days of a speed limit that low, he can imagine what that will do to the length of his road trips.

Is this a good idea? The numbers are there: I've been reading all over the Net that for every 5 mph faster you go than that 60 is like adding $0.30 per gallon to the cost of gas.

But if you're like the typical Everyman, you're not too thrilled to learn that you just added an extra hour onto the trip to go visit Otherman on Lake Somewhere Better Than Here. That can mean the difference between arriving in time to get a little fishing in or missing out on the evening bite.

So, what are some ways that you can save gas without driving like your grandmother?

Pay for gas in cash - it's not all that well known, but the gas stations pay a fairly hefty fee when you pay for your gas by using a credit card. Recently, many gas stations have been offering discounts to those that are willing to pay in cash for their gasoline purchases. Because they are not paying these fees, they can pass the savings on to you! So I encourage you to ask around for discounts on gas - most can be found at non-chain owned stations. It never hurts to ask!

Get the best prices online - I know it's not always convenient, but if you have access to a computer (which you do if you're reading this!) and know you'll need gas soon, check out gasbuddy.com for the best deals on gasoline in your area. This site collects prices from volunteers that will post the price at the various gas stations - so you don't have to drive around looking for the best deal! The differences can be significant - often I'll see one station charging at least 10 cents more per gallon - and their only a mile or two apart (and both on the way to my destination)!

Avoid the stations closest to the main roadways - if you're going to veer further off the beaten path anyway, it's best not to simply buy the gas at the first station off the of the interstate. Because of their location, they can sell at a premium. The opposite holds true for the station a 1/2 mile down the road. In order to get your business, they may charge 5 cents less. Hey, if you're a typical Everyman, you know that you can get quite a delicious donut inside the store with that money you just saved!

Ditch the SUV/Truck - I know, it's hard for the Everyman to do. But really, is it worth it to drive around a tank that gets 10 mpg (if you're lucky) when you can drive just about any decent sized sedan and get close to 30 mpg? Do you realize that 400 mile round trip to see your parents costs you $160 compared to $53.33 at $4.00 per gallon? That's a LOT of money. Maybe you can compromise and get an old truck for when you need it, while driving a more fuel-efficient sedan for your main vehicle. This Everyman works in a downtown metropolitan office-building and sees more SUVs/Trucks with only one occupant than he can even count. Worth it? I'm not so sure...

What Do You Do to Save on Gas? Comment below!

Questions About Credit Scores - Improve Your Credit Score

Your credit score. It’s a number that’s just as important as your anniversary date, social security number, ATM PIN, and golf handicap. And while having a great handicap in golf won’t get you better interest rates (unless, I suppose, you’re golfing with the CEO of Countrywide), having an excellent credit score will.

Why Is Your Credit Score Important?

Credit scores not only determine the rates/conditions of loans/credit offers that you will receive, but they also can determine whether or not you’ll even receive an offer! Those with low credit scores may not even be able to receive a line of credit or loan at all!

Where Do Credit Scores Come From?

So who determines this monumental number in your life? There are three credit bureaus that operate in the United States:
- Experian
- Transunion
- Equifax

Each provides their own score, which will slightly vary between the three, all ranging between 300 (ouch!) and 850 (rumor has it, it is impossible to achieve). Your are entitled to a free credit report from each of these bureaus once every 12 months. If you are only doing it as a continual check, it’s possible to get a free credit report every 4 months by rotating which company you request from. That way, you should always have an idea of what it is that creditors are also viewing.

How Is Your Credit Score Determined?

How is your credit score determined? Much of it comes from your payment history (how well you are at paying your bills on time), as well as the amount you owe in comparison to how much credit you have available. However, other factors that come into play is the length of your credit history (someone who pays their bills on time and has a good ratio of debt to credit available, but has only 5 months of credit history is still pretty risky), recently issued credit, and the type of credit used.

Weighting of Impact on Credit Score:

35% Payment History
30% Ratio of Debt to Credit Available
15% Length of Credit History
10% New Credit
10% Type of Credit Use

Monitoring Your Credit

One option for monitoring your credit, which I’ve used for a few years after a small case of identity theft (I’ll tell you about that at a future date), is a service that Experian offers that is called TripleAlert. This service, which costs $4.95 per month, monitors ALL THREE of the credit bureaus for changes on a daily basis. Thus, if anyone were to try to open credit in my name – or if anything else were to change on my credit report – I would be notified within 24 hours. It’s been effective in catching any changes (which I’ve been able to test when legitimately applying for credit since I’ve added the service) and I’d highly recommend it as a tool to prevent destruction of your credit score by identity theft. In all, it monitors for new inquiries, potentially negative information, public information, new accounts, and address changes. You can even have it alert you by SMS text message. Cool, huh?

Ways to Improve Your Credit Score:

- Pay bills on time! This may be common sense, but if you don’t pay when you are required to, your score will take a big hit (see the weighting from the above section). Sometimes, people have the resources, but not the capacity to remember to pay their bills. If this is you, sign up for automatic payments on your accounts or bill pay through your banking institution. I enjoy the freedom of not having to be bogged down with paying bills, while continuing to have access to view the bill each month to monitor its accuracy. Again, it’s important that you keep sufficient funds in your checking account to pay these bills each month (but not too much in your checking account, as you can get a much better return in an online savings account!).

- Take the time to correct the errors - If you’ve never seen your credit report before, you might be surprised to see how many errors might actually be included. While you might not even realize they are there, you can be sure that they are dinging your score – this could be greatly impacting the terms of credit that you might have been or will be offered! If you know that you’ll have an upcoming purchase that you’ll need credit for, it’s worth the time to correct your score now. In fact, it can take 2-3 months (or more, in instances) to fix problems on the report. So start now! And if you find errors, be sure to contact the credit bureaus and get those cleaned up!

- Keep old accounts OPEN – Not surprisingly, this can be confusing to people. Why would I keep accounts open that I don’t use? The first reason is the “length of credit history” weighting. If you have a line of credit that you’ve had for a length of time, it should help your score. Remove that credit and the result will be a shorter length of credit history = lower credit score.

- Keep your debt/available credit ratio to about 25% - Just because your credit card company says that you can go out and spend $10,000 doesn’t mean you should! Ideally, you should be using no more than about 25% of your available credit. Would you rather offer a line of credit to someone who already has maxed out their other lines of credit? Probably not. So don’t be that guy that doesn’t know when to quit! This is also another reason not to close accounts – closing accounts will lower your available credit and raise your ratio of debt/available credit.

- Remember that parking ticket or library fine? – Yes, even forgetting to pay off that library fine or parking ticket can result in a significant decrease in your credit score. Don’t forget things like your utility bills! You can be sure that they will also report you if you fail to pay. That late library book fine might damage your credit report for a good SEVEN YEARS! Be careful about paying those off on time!

- Don’t open a lot of store cards (or any cards for that matter) – Yes, it may be tempting to open that card at (name your favorite retailer here) because they are offering (name amazing perk here) if you apply today! While many of those cards have sometimes astronomical APRs, it also looks horrible to have multiple inquiries and new accounts in a short period of time, especially right before you are looking to obtain credit for a more legitimate purpose (a car or home). Besides, you already have enough to keep track of with your finances. Do you really need to open another account to remember to pay off? These leads to my next point.

- If you can’t handle your cards or find yourself getting behind… - Sometimes people just reach a point where they lose self control. They have large credit limits and soon reach a point where they can barely make the minimum payments. While your credit score may have already taken a hit, it’ll be severely damaged if you are forced to start missing payments – or worse, file for bankruptcy (and that, my friend, will stay on your credit report for 10 years). I can’t take credit for the idea, but I also can’t remember where I heard it. If you need a break from your credit cards, go all cash for a while. In the mean time, take your credit cards and freeze them in water. That way, you’ll still have them, but in order to use them, you’ll have to make the choice to thaw the card out after pulling it out of the freezer. Yes, maybe a bit drastic for some, but it’s well worth it to help you slow down and live within your means.

- Share your tips – Anything else Everyman didn’t think of that you think would be beneficial for readers to know? Submit a comment below!

Overall, a good credit score can make life much easier. Your interest rates will be lower (this can be a significant reduction in payments, especially on large items such as homes) and you’ll have more credit available to you. By taking a few initial steps to improve your credit, along with consistent credit monitoring, everyman can maintain an excellent credit rating.

Saving Money: Taking the Bus or Subway

If you've been living under a rock, you might not have noticed that gas prices have gone up a bit lately. (gasbuddy.com)And if you're like most of us Everymen, you need to drive to work. Fortunately, you have options! In my case, I save a whopping $12.93 PER WORK DAY.


If you've read this far, you can see the astronomical amount of money that I save each year by riding the bus. And this does not include even more benefits:

• Less stress - rather than sitting in white-knuckle traffic, I'm nice and relaxed, both when I get to work, as well as when I get home to my wife.
• More time - not only is the commute shorter when you ride the bus (buses can run on the shoulder of the road!), I also have more time to read/listen to music or podcasts/take a nap/etc.
  
• Entertainment - let's face it: public transportation can be interesting. Mind you, I ride in from a suburb that is relatively well-off. But the stories still abound! From the lady who attempts to sing along to her imaginary headphones, to the one who always tries to short-pay her fair with a new driver (plays the "can't speak English" card), there's always something happening on the bus!

I know that some of you don't have the option to take mass transit. There are other ways to save money on transit, however, and I'll touch on those in a future post.

If anyone wants to use my spreadsheet with their own numbers, let me know and I'll send it to you.

Everyman has to get to work. How much you save on the way is up to you!

Best Deals on the Internet

In my quest to save money, I've come across a number of sites that offer great deals that you may only be able to find on the Internet.

Slickdeals.net
This site includes daily deals (technology, clothing, samples, and more), as well as coupons (that you can search for by company name), and forums that users can contribute to with their own deals that they've come across.

Spoofee.com
I really like this site for deals because of the rating system that is used. The more stars that the deal gets, the more attention that I'll give it! I can't even count the number of sales, coupons, and forum postings on this site. You can find some GREAT deals on here!

Secretprices.com
Their motto is "Prices other sites simply don't tell you". And it's true! You can find some great deals on anything from books, movies, clothing, electronics, and more

Dealhack.com
"We Search, You Save". Pretty straighforward, eh? This site is also in my Top 5 for saving. Again, selection is across the board. One thing I do like about this site is that you can also search for features such as "Free Shipping".

Restaurant.com
If you like to dine out (who doesn't?) but don't like to pay the full price, here's a site for you! With this site, you can buy gift certificates for various restaurants in your local area. Most metropolitan areas have restaurants listed. The catch? The best deals are at the end of the month...however, once the gift certificates are gone for the month from that restaurant, they don't get any more until the next month. Expect to find certificates that will cause your jaw to drop, however ($10 certificate for $3...$50 for $20...and more!). For cheaper eats, this is the place to check out! A lot of high quality restaurants listed on this site!

Your Favorites?
I'm always looking for new suggestions - where do you save money online??