Entries Tagged 'Personal Finance' ↓

With the recent and ongoing economic crisis, Americans are changing their fiscal habits. One of these changes is the way we save money. We are now saving more than we have in recent history. As this recession has showed us, many jobs that we thought of as secure are anything but secure. This lack of security causes more people to put money away for hard times in the future or what is commonly referred to as an emergency fund. So, where is the best place to stash your cash?

IGoBanking – This online only bank is always among the top of high yield savings accounts and offers one of, if not the, best interest rates on savings; currently yielding 1.91%.

Ally Bank – formally a division of GMAC. Yeah, your taxes probably paid for this bank. This bank receives constant criticism over their high savings rates taking funds from away from credit unions, after taking taxpayer money. Their no-penalty CD currently yields 1.9% APY and a savings APY of 1.85%. Both require no minimum deposit.

These are two of the best yields that your will receive on cash. You should have at least on year’s worth of income saved in an emergency fund and these are two places to start, if you have not already.

If you already have an emergency fund, start building an income portfolio along with a growth portfolio. If you are not comfortable investing your own money, buy into an index fund such as the S&P 500 (SPY) and make regular purchases.

Quick answer: YES! Many people have subscribed to the buy and hold theory but a look at the current market conditions, down over 50% since the peak. This reveals those who held through this period lost much of what they have accumulated. If you’re a buy and hold investor, now is a great time to rethink your strategy…your retirement and financial freedom might depend on it.

With the ongoing decline in the stock market, buy and hold investing has wiped out massive amounts of wealth, a lot of which has came from retirement accounts like 401k’s that have a sorry list of mutual funds that an index fund usually outperforms. With the loss of wealth, many are choosing to manage their own money and rightfully so.

I Bought And Held

I was one that used the “buy and hold” approach to investing but no longer practice this method. I do buy and hold bonds and other income generating securities but if they rally, I am selling and I will pick it back up when it drops again and it will.

Swing Trading Is An Option

If you were a believer of the buy and hold strategy, I would recommend that you start looking to swing trade or position trade. Most of my trades are swing trades and few are day trades. As a swing trader, I follow the trend until it’s over or I am up big whichever comes first; then I’m out. No questions. Pick up a few books on technical analysis and charting, read and reread them, paper trade, and then start trading small amounts. If trading is not for you, get in an index fund that tracks the S&P, but as a trader, you can make as much in a down market as you can an up market.

Don’t Be Afraid Of Taxes

Many people think the more they trade the more they will pay in taxes. You only pay more taxes when you are profitable. Take gains when you have them and worry about taxes later. Every time you think about paying more taxes, tell yourself, I’m making more so I have to pay more. Think of it as a job, the higher you move up the corporate later, the more money you make but at the same time you pay more taxes.

One of the best financial tips I every got was, “It’s not how much you make, but rather how much you keep.” Paying yourself before you pay others, including bills, is the easiest way to accumulate wealth. What do I mean by paying yourself first? Before my bills, are you crazy? Keep reading and you see how to make your wealth grow before you allow others to get their wealth.

How Do You Pay Yourself First?

Easy, when you get paid take a portion of that money and set it aside in one of the following accounts:

401K

The easiest way to pay yourself first is to setup a 401k and have automatic weekly or bi-weekly contributions. You also get the added benefit of lowering your taxable income. Talk to your employer’s finance or payroll office to set up your 401K.

IRA

If you don’t have access to a 401k, then you need to setup an Individual Retirement Account. You have two options: Roth or Traditional (please read the advantages of both before selecting one over the other). Fidelity has a tool that can help you in your decision process. Make monthly deposits or a yearly contribution as you wish. A great way to fund this account is to take your tax refund and deposit it immediately.

High Yield Savings Accounts

Make sure you have an emergency fund available. A high yield savings account, like Emigrant Direct, is a great place to stash for any unforeseen emergencies. Ideally, you should have about 12 months worth of income put away for hard times. Make monthly deposits to your emergency fund until you get 12 months of income. Your emergency fund should have priority.  Get more information on high yield savings accounts.

Investment/Brokerage Accounts

These are a little more risky than the other accounts, especially if you manage them yourself, but can also produce significantly higher returns. For most investors I would recommend the use of ETFs until you have some experience.

The IRA and 401k have bonuses: If you, for some reason, have to file bankruptcy these accounts are protected. A 401k also lowers your taxable income, saving you from paying more in taxes. A Traditional IRA can also, but has limitations. I would recommend anyone eligible for a Roth IRA. Get one.

Pay yourself first and survive on what you have left over. How much you pay yourself depends on you but I would recommend at least 10% of your pay. Make it a goal to pay yourself a little more each year. If you get a raise, automatically deposit the amount of the raise into one of the above accounts. These accounts are the foundation for building wealth and paying yourself before others will insure that you’re building your wealth before building others.