Money Matters

So in a month or so I will be 28 years old and will have nothing to show in terms of assets. In fact if I leave out sentimental value all I have is a laptop and an ipod to show for a year of work. Even if I discount the fact that I am underpaid, and sometimes “not-paid” it still does not justify my pay check to pay check existence. Hence I decided to attempt unraveling the strange and mysterious universe of finance.

To say the task is daunting is like saying Mt Everest is actually a molehill. Shares, bonds, money market, IRA’s, dividends, index funds, non load vs load, CD’s, treasury bills…what? How? When? HELP!!!!!
Ok breath…relax, baby steps take baby steps. Actually once you realize there is a method to this madness you do start to feel better. I know still confused but it will get better so don’t get overwhelmed and remember one step at a time.



The Step-by-Step Program


#1- Value & Priorities
Money needs to have a purpose; in itself it is just a useless piece of paper. So list out what value money will add to your life. Here is my list:
· Security
· Relationships
· Comfort
· Luxury
Identifying these values is a good start to understanding what you will do with your money.
Once your values are identified next is setting priorities. Make sure that the priorities you set match at least one or more of your values or else you will end up spending money that does not add anything to your life.
Here is an easy tool for prioritizing

#2- Budgeting
The very first thing that you have to do to is calculate your expenditure. It’s about as painful as getting a tooth extracted but no getting away from it.
Earnings- Expenditures = will give you the money you can play er invest or save
Use a tool, it will make the task sooooooo much easier. Preferably Quicken or Microsoft Money however you can get free online tools here or here…see we are saving already!

#3- Credit Card Debts
If you have credit cards with high APR before saving or investing pay it off pronto. Stupid credit cards!!!

#4- Rules
Every finance guru has his own mantra but here are my favorites

David Bach:

Pay yourself first

Warren Buffett

First rule "Never lose money."
Second rule "Don't forget Rule Number 1”

Don’t remember the dude’s name:

Invest in companies that you love
Buy when on sale (stocks)

#5- Savings and Investing
So enough with all the psychobabble lets get to the nitty gritty of the $$Mulah$$.

SAVINGS
Remember, “Pay yourself first”
· Savings should be of three types
Long term- 30-40 years
Mid term- 3 to 5 years
Emergency fund- Liquid cash which can remove anytime

· Why do you want the government to take 25 to 33 percent of money every month? If you are employed start maximizing you 401k. It’s tax-free and can make you an automatic millionaire!!! Beginning at age 30, if you save $671 each month at an 8% return, you'll have $1 million by age 60. Island retreat anybody?? No 401k who cares we have IRA no don’t fund the Irish Republican Army but set up your own Individual Retirement Fund. There are of two types of IRAs traditional and Roth.

· How much interest is your bank paying you…umm Zero! Move your savings immediately to a high yield savings account and get 5 to 7 percent interest. Find out the saving rates of different banks and costs and select one as per your needs.

· Will you be staying in one place for at least for the next 3 to 5 years then why pay somebody else’s mortgage pay yourself first. However make sure you take all the costs in factor. Real estate will always appreciate so buy it during a slump and sell it when it gets high. What if you have to move…just rent it out and it will cover your mortgage.

· Set up atleast 3 to 6 month of emergency funds.

· Automate your savings by linking your savings to your checking accounts

More information available at the Resources section.

INVESTING
Money does not grow by sitting in one place or on tress not even in money plants ( I checked); it needs to circulate so invest. Besides the general guidelines, I have outlined only what I find the most appropriate investing options for myself. Your option will change as per your values and priorities.

General guidelines
· Remember the old all your eggs in one basket adage? It’s the key to wise investment Diversify!! Your portfolio should be as diverse as all the united colors of Benetton or a rainbow. That means don’t just buy bonds or don’t just buy stocks mix and match.

· Unless you are ready to spend a lot of time researching stocks don’t speculate that is don’t keep buying and selling stocks.

· Make sure you understand the risks and the actual costs…fees, taxes etc.

· Start investing only after your 401k, Roth IRA account, credit card debt elimination, emergency fund set up (3 to 6 months). Remember the money in your 401k and IRA account can be invested.

How to invest:
Build an investment portfolio by:
· Doing it yourself (individual stocks)

· Using a broker or brokerage firm

· Mutual fund options

· Combination of any of the above

After a lot of research and contemplation for at the moment, Mutual fund option suits me the best. My criteria were as follows
- I do not have any upfront investment money but will put in monthly amounts

- I don’t want my investing choices take too time and energy taking (hey I already admitted in my previous post I am a lazy ass)

- I want to have a diversified portfolio

- I don’t want to pay brokerage/broker fees or go through the process of selecting a good brokerage firm.

- I want a secure investment option

After sorting through all criteria and investing options I found Mutual Fund particularly Indexed Mutual funds makes the most sense to me. To understand more about this check out resources section.

Resources:
To be updated