Low Maintenance Finance 4 High Maintenance Women

BITTER

2010-07-01T23:06:00.000-07:00

So I remember telling my liberal girlfriends in San Francisco "congratulations" after the November 2008 election and promising to give Obama a chance. Nearly two years later I'm more than absolutely disgusted... I'm dejected. It started small -- today I received notice from my health care policy that certain items would "no longer be deductible" as health savings expenses due to "legislation reform" beginning in January 2011. After some digging, I learned that this isn't the only "change" I can "hope" for: there are a huge number of tax increases -- the most in a long, long time. Apparently the liberal majority in Congress slept through or wait... neglected to sign up for Economics and Finance classes -- that's right, they were in Public Policy or some sort of Sociology class discussing the down trodden.

So you're going to raise taxes on the people paying the most taxes. Hmm, have you ever looked at California's little case study -- more people leaving than coming and ultimately decreased tax revenue. That's because people also spend less and hire less when you tax the daylights out of them.

Well, at least we'll all "feel" better. Nancy Pelosi could probably just forgo the use of her jet for personal reasons but that would just be too sensible and fiscally responsible, wouldn't it.

I hope those of you that voted on this "hope and change" will go ahead and pay my increased share of taxes into a black hole. Don't even get me started about oil and off-shore drilling -- we wouldn't be in this mess if we could just drill for the damned oil on our own land.

Cool Personal Finance Tool and it's Free!

2010-06-19T20:01:00.000-07:00

Mint touts itself as "the best free way to manage and grow your money". Money Magazine rates it the top online personal finance tool. It's simple, quick and just darned cool because it keeps all of your information in one place and provides you with visual charts and email updates.

So what is it? Mint.com is a free online platform that allows you to track your spending, savings, budgeting, etc. -- think of it as personal bookkeeping. I last wrote about a similar platform for small businesses, Outright.com, and Mint is just as handy. Check it out.

Great Financial Site for Small Business Owners

2010-06-02T08:01:00.001-07:00

If you're a small business owner looking to save your most valuable resources -- time and money, get to know Outright! This is a free and easy to use online bookkeeping platform that allows you to track your business expenses, income and cash flow. There is also an additional low cost tax service for filing 1099's - for $5 you can take care of each contractor your business hires and eliminate paperwork. Business Week, Wall Street Journal and New York Times are fans so check it out today.

Have a Plan and Stick to it

2010-03-24T08:38:00.000-07:00

Why is it so difficult for people to come up with and stick to a plan? Whether it be for finances, business, fitness or some other need, doing so is apparently against human nature.

Coming up with a plan can be tough because it feels like a lot of work and it requires a change of operation and mindset. The irony is that having a plan actually saves you time because it creates efficiency.

Challenges to sticking to a plan involve not being fully committed in the first place, not having a specific timeline for implementation, and allowing external factors to derail us.

In my financial life I have a plan and am thankful for it. However, I do have a tendency at times to get derailed when my "now" urge fights with my prior plan. In my business life, I have a plan and am happy to report that I'm sticking to it. The problem is that this focus on business has led to a lack of priority on my fitness, something that is very important to me.

When you put your different plans into place, no matter how solid, having competing interests in your own life may very well be an impediment. I'm beginning to think that my high school French teacher was right -- equilibre (balance) is the key to most of life's challenges. When we put plans together, whether for finances, business or personal, we must be sure that they are not only realistic independently but in the context of each other.

Your Actual Entertaining Budget

2010-03-17T21:30:00.000-07:00

So what was it? A month ago you were challenged to record your entertaining (not daily individual meal) expenses. Was the number lower, higher or just as you expected? For those in the lower or expected category, congratulations! Knowing your habits is the first step. For those with a higher figure this should be an eye-opening exercise.

Know that even your number is lower or as expected, it doesn't mean you're off the hook. There's not rule as to the entertaining part of your budget but it shouldn't be very significant if you're in debt, without an emergency fund and not fully contributing to your 401(k). (If it is, you're basically paying interest, taking on risk and forgoing retirement dollars to entertain!) If you're not in debt, have a six months stash of cash and contribute the maximum amount allowed to your 401(k) and IRA, then it will be your decision as to what is reasonable.

Every LMF4HMW reader can save money using these tips:
* think drinks instead of dinner
* entertain in private homes instead of at restaurants
* instead of funding a huge dinner party bill ask for guests to bring a dish -- not quite "potluck" but it absolves you of feeding a multi-course meal to a group

* host a wine tasting where each guest brings two bottles of wine -- the guest who brings the winning bottle will take all of the second bottles home (i.e., you're off the hook for party favors)

* think brunch instead of dinner -- less wine and courses involved

A Challenge and a Great Website for 1099s

2010-02-17T10:39:00.000-08:00

The average LMF4HMW reader probably underestimates her dining out and entertaining spend quite significantly. Let's do a little experiment: write down your monthly estimate for this budget -- include restaurant spend plus what you buy for entertaining purposes in your home. (No peaking at bank statements!)

Now, put a note on your calendar to check this estimate one month from now (March 17). No need to include groceries for daily meals -- just those you use to entertain others.

I'm willing to bet it will be a lot more than you guessed. And I'll check back that week with some money saving tips to help you decrease these costs.

In the meantime, there's a wonderful website business for filing 1099s online, Outright.com. It is simple, fast and low cost -- only $5 per filing. This is a useful tool for small business owners as well as anyone who employs an independent service provider to the tune of more than $600/year. Filing electronically through Outright means you no longer have to mail in the paper form nor include the 1096. Check it out!

Day Trader versus Buy & Hold

2010-02-04T22:37:00.000-08:00

This argument is essentially hare versus turtle. With day trading, the average individual often invests a lot of emotion and relies on "hunches" (theirs or those from "experts") to make a buck.

Day trading is for some people as tempting as a Lotto ticket or Vegas get-rich-quick weekend -- a tremendous psychological pull. It's faster paced and promises a much more exciting ride. The problem is trading costs and timing typically eat away at returns and relying on hunches and emotions is a proven route to buying high and selling low.

The bottom line is the old adage, "if it's too good to be true..." All of the commercials, email and websites promoting "hot tips" "new strategies" and "fail proof solutions" are just that. My advice is to allow yourself some fun if you're determined to day trade -- limit the value of this account to no more than 5% of your overall investments and realize that you no longer have a latte account in exchange!

Emerging Markets Primer

2010-01-14T13:24:00.000-08:00

I've often written about the importance of diversifying your investments with international equities. There can be a tendency to have home bias because the companies or funds are more familiar and psychologically feel closer. Broadly speaking from the US perspective, international investments should include holdings from a variety of countries around the world. You can think of emerging markets as an important sub-set of the broader international scope even though in the investing world they're in their own category.

The term "emerging market" is to be taken literally -- it refers to countries whose business and social environments are in a dynamic state characterized by rapid growth and industrialization. Currently these include but are not limited to Brazil, Mexico, China, India, Russia and Eastern Europe and South Africa. In comparison, purely international funds might hold Western Europe, Japan, Canada and other more established countries.

Emerging markets tend to have higher highs and lower lows -- more volatility, given the rate of change and the fact that it can be more difficult to acquire market information. This means that for investors who may see phenomenal growth or big declines in one year, there might be a tendency to either overweight or avoid emerging markets all together depending on the market direction.

As with any investment strategy, attempting to chase returns is risky business. I recommend a buy-and-hold strategy of about 10-15% of overall holdings in emerging markets so that you have a balance. And of course since it's me, I prefer index funds given low overhead and other costs. MSCI's EEM is a particular favorite.

What You Shouldn't Live Without...

2009-11-25T17:00:00.001-08:00

If you guessed health insurance, you are correct. In the grand scheme of things, I'd group life's needs into a pyramid: The first and most critical level includes food, clothing and shelter (including utilities). The second level contains health insurance, renter's or homeowner's insurance and disability insurance (but if you have to choose one it should be health). The third level includes useful wants like cell phones, car, gym memberships, cable/Internet, etc. The fourth and final level consists of fun -- vacations, wine and dine, special clothing, gear, gadgets and the like.

The problem is that too many people forgo health insurance. There are a myriad of excuses -- "I'm healthy," "I'm young," "it's expensive", etc. If you can afford anything in my level 3, you should most definitely have health insurance. (So if you have a car and cell phone but not health insurance, your priorities are very misaligned.) Obviously there are some who do not have the buying power to get past level 1 and unfortunately that is outside the scope of this post.

Most of us now receive health insurance through our employers, who are typically paying a surprising dollar amount to cover us. But it hasn't always been this way. During World War 2, employers started offering it as a benefit to attract employees and get around wartime wage controls. This can make it difficult to leave a company or lose a position.

If you are self-employed or not currently working, you need to find the best plan for you. In general, it's a spectrum -- the most flexible plans are the most expensive (think PPO) the managed plans are less so (think HMO) and high deductible policies, which cover only catastrophic problems (think hospitalizations and major diseases), typically cost the least. Different plans offer varying levels of services and have specific policies regarding co-pay, deductible, coverage, maximum out of pocket, and premiums.

The key with choosing the right health insurance is figuring out the best option for you given your circumstances including budget, health, and any pre-existing conditions and discussing the policy fine print. If you have a working spouse, it is often possible to be added on to his/her policy. If you are solo, you may be able to get discounts through a member organization such as the small business administration, a credit union, university, etc.

It definitely pays to shop around when researching health insurance. A good place to start is this site, which offers a range of plans for individual, family and small business shoppers. Make it a major priority to attain health insurance if you're one of those LMF4HMW readers who has a closet full of shoes but would be devastated by a hospital admission for a broken leg from tripping while wearing stilettos.

Disability Insurance Primer

2009-10-20T09:48:00.001-07:00

Insurance. A less than fun topic with potentially debilitating consequences for avoiding it. Anything involving "what if" scenarios is tough given the normal human desire to avoid challenging topics and tendency to think that "it won't happen to me".

While uncomfortable, insurance discussions are both necessary and should provide a sense of relief given the act of creating a solid plan that answers those "what if" questions. Disability insurance covers you in the event that you become disabled and unable to work. Sometimes a disability is temporary (i.e., there is an illness or accident but recovery is possible); at others it fundamentally alters your lifestyle and ability to work in the future.

The main question to ask is could live without a pay check if you became disabled? And for what amount of time? For a reader who has a hefty trust fund or is supported by her husband's lucrative job, the answer is likely "no". (Although her husband should most definitely answer yes.) For many LMF4HMWs, however, disability insurance is a both a necessary evil and a very smart move.

The good news is that many employers offer a policy as an additional benefit. Sometimes it is automatic; at others you need to opt in. If you are covered, the next step is to figure out the amount of coverage, which is often less than you would truly need -- for example, 60% of your salary. With a supplemental policy, you can cover more, closing the income gap, but no policy will cover 100%. (This would remove any incentive to recover, right?)

Another important aspect of a disability benefit is the coverage time frame, which is typically a set number of years or until retirement. You should also figure out if there is a tiered system whereby you have short-term coverage for the first weeks or months and then long-term coverage, and what the payment differences are, if any. The amount of time for which you are seeking additional coverage will affect the policy premium, so if you have adequate short-term through work, there is no reason to double up with supplemental.

For the pioneering self-employed, the only option is an individual policy. You'll want to be sure it adequately addresses short-term needs, if any (perhaps you have cash savings which could cover these), and long-term benefits.

Below are some websites on which to do some initial research:
http://4-disability-insurance-quotes.com/
http://www.disability-insurance-update.com/

In closing, I may be pointing out the obvious, but the time to seek coverage is before there is a problem -- while you are healthy and working!

WINE PAIRING: How about a zippy Garnacha, A.K.A. "Grenache", the most widely planted grape in Spain and a major contributor to Rioja. With black fruit flavors and toasty notes common from oak aging, they are usually best enjoyed in their healthy youth.

Program Interruption...

2009-10-15T22:17:00.000-07:00

DISCLAIMER: If you aren't mad when you watch the below linked video, you are seriously deranged. And may suffer from "over feeling syndrome", lack of logical reasoning, and general inability to separate ideals from reality.

This week I'm supposed to focus on disability insurance. While it's an important topic, I just can't shake one of the more stupid and shocking comments I've heard from a reporter in the last year. While driving to a meeting listening to Portland area's more conservative (yes, that's a rarity on the West Coast) morning radio show, a "financial reporter" commented that he "wasn't sure how to read the economy given conflicting data. He went on to offer surprise that "despite gains in the Dow Jones, housing foreclosures are at a high".

There are so many flaws with this report that I'm not sure where to begin. First and in general, economic reports tend to be backward looking -- i.e., they report on findings, or what has been viewed in the past, so therefore they aren't necessarily indicative of future performance. Second, he tries to base economic outlook on two uncorrelated measurements -- the DJIA, a poorly constructed index measuring performance of 30 stocks (hardly representative of the US economy), and housing foreclosures, a problem exacerbated by over zealous lending policies and... you didn't guess it... uber liberal policies that increased in the Clinton era but began years earlier... (FYI, I don't post this link as a political statement, just providing some background and another angle that by the way never was and never will be reported in the mainstream media).

As someone who has lived abroad in one of the world's more liberal countries -- France, I'm still dumbfounded on an almost daily basis when I watch French News and see a less biased, more fact-based reporting style in the media. Now I'm not blaming the US media for problems -- that's too generalist and doesn't recognize the good reporting that is done, but I am arguing that politically, we tend to have one view and that anything else is "fringe" and relegated to the Fox network.`

I'm not blogging as a politico but I am suggesting that we all take responsibility for the news and educate ourselves so that stupid, uneducated reporting -- whether it be on conservative, non-partisan, or liberal channels be recognized as such.

WINE PAIRING: Nada. we all need to sober up to this problem. Why is it that math, science, art and English are required but that someone can be graduated from high school and college without any financial education?!!

Life Insurance

2009-10-05T13:11:00.000-07:00

I recently heard yet another story of a family's tragedy being compounded due to lack of life insurance coverage. In this terrible story, a father committed suicide, leaving his wife and son without a policy and piled high with debt. I don't want to get into a post about the morality of suicide, but I do want to use this example to highlight the importance of insurances in a several part series. Today's post is on life insurance.

A LMF4HMW reader may or may not have a need for life insurance depending on the stage of life she's enjoying. When I was single, without children and had no debt, I had no need for life insurance. (My 401(k) assets would have covered my debts and funeral costs.) Since I am now married (still no kids) and contributing to a household, I should consider a life insurance policy if my husband would suffer financially should I pass (i.e., his income alone wouldn't cover the mortgage, etc.). At this point it still doesn't make sense for us, but every situation is different.

The time to truly consider life insurance is when a family welcomes a child so that should the unthinkable happen, there are ample funds available. (There are exceptions if a significant amount of wealth has already been accumulated -- i.e., the child has a trust fund, but for most people that's sadly not the case!) Another case would be having a dependent who isn't a child such as a sibling or parent. There are a multitude of myths surrounding life insurance, one being that you "should get life insurance while you're young" since it's less expensive. While the statement is technically true, on this note I would have paid into a policy for the past 10 years which would have easily rendered any savings in my 30's moot.

There are two basic types of life insurance, whole and term. Whole is a combination of insurance plus an investment. Upon the death of the holder, the contract will pay the stated amount. The investment portion may be borrowed against or used in other ways. Term life insurance has a duration limit on the policy period and pays the amount unless it first expires. Some term policies will let you renew. The key with all types is to evaluate your particular situation and needs -- here's a good starter article.

Many insurance purveyors will try to sell you whole policy stating that having an investment plus insurance policy is a better benefit. The truth is that these are much more expensive policies and that insurance needs change over time. The key is buying what you need - not what someone is trying to sell you. For most people, term life insurance is all that is needed.

Dave Ramsey, a bright and straight-talking radio show host, has a website recommending endorsed local providers. Check it out and call someone this week to discuss your needs:
http://www.daveramsey.com/sa/insurance/

Next we'll cover disability insurance.

Another Mark of Brilliance!

2009-08-28T14:17:00.000-07:00

"... Raising taxes at any time risks economic damage, but never more so than during recessions. Higher taxes shrink the return that investors and workers receive in exchange for their risk-taking, creativity, and productive efforts. So the inevitable consequence of higher taxes is less investment, entrepreneurship, and work.

During normal or booming economic times, growing demand from consumers -- and investors' eagerness to invest -- means that higher taxes are more easily endured. It's not that raising taxes even during boom times doesn't discourage some risk-taking and entrepreneurship; it does. But the general good health of the economy is often sufficient to swamp the ill consequences of higher taxes.

In bad economic times matters are very different. Businesses are losing customers and investors are sitting on the sidelines. Higher taxes, by cutting even further into businesses' falling profits, only fuel more economic pessimism. During recessions, there's no general economic vibrancy to balance out the profits lost to higher taxes. So raising taxes only amplifies entrepreneurs' and investors' pessimism.

Indeed, raising taxes during a recession likely does more than amplify producers' pessimism only for the duration of the downturn. By signaling to entrepreneurs and investors that the government is economically tone-deaf -- by revealing the government to be desperate to maintain its revenue stream even when many of the rest of us must struggle with reduced incomes -- raising taxes during a recession tells the world that the tax-addicted government is especially unfriendly to markets...

As the late Nobel economist Milton Friedman pointed out, 'No one spends someone else's money as carefully as he spends his own.'"

This sheer brilliance came from Donald Boudreaux in the Richmond Times Dispatch. I certainly can't say it better so I'll offer a brilliant wine pairing: a cool, crisp New Zealand Sauvignon Blanc, brilliant yellow straw color, perhaps with some lime green tints, and a refreshing taste of citrus, grapefruit and perhaps white flowers!

Want to Stimulate Job Growth?

2009-08-14T12:10:00.000-07:00

THEN CUT CORPORATE TAXES! Who reading knows what the U.S. corporate tax rate is these days? Are you guessing 25%? maybe 30%? Wrong.

Next question: how high is our rate relative to other similar competitive and developed countries? Think it's comparable? Guess again.

Out of countries belonging to the OECD, the Organization for Economic Co-Operation and Development, the U.S. has the second highest corporate tax rate at 39.1% after Japan's 39.54%! Nearly 40% in taxes just to create jobs, goods and services!

Lots of talk these days about "stimulating the economy", but mostly action that is doing just the opposite. Keeping corporate taxes high, or disincentivizing job creation, for one. Interestingly, most OPEC countries, even the most socialist leaning, have been cutting their corporate tax rates. That, along with allowing ours to creep up, is how the U.S. ended up on the wrong side of the spectrum.

Further, there's lots of talk in our country right now about NEW taxes, and not so much about lowering taxes. Most often, the debate is about which sized "man" to tax -- the "big man", the "middle class man" or the "least advantaged man". Who's looking out for the very large companies that are paying the bulk of the taxes in the country (i.e., much more than individuals relatively)?!!

How can you continue to raise taxes on the very people creating jobs and ask them to create more? In the great words of Will Ferrell, "I feel like I'm taking crazy pills!"

Wine Pairing: Grab a Gruner (i.e., Gruner Veltliner) -- these crisp, citrus prominent Austrian white beauties are not only delicious, but support a country with a much lower corporate tax rate of 25%!

You Know it's Bad When the French...

2009-07-31T16:06:00.000-07:00

are making fun of your tax policies! Today, I read an article in France-Amerique, "To promote tourism, the Americans want to... tax tourists".

The Travel Promotion Act of 2009, currently a Senate bill, would tax each U.S. visitor $10 and then use the funds to promote the U.S. as a choice tourist destination. To help them, since I'm a marketing professional, I've offered a complimentary sample advertising campaign below:

Scene imagery: Goofy, fat American in jeans and tennis shoes pictured at one of our finest cuisine destinations, a drive-thru.

Copy: "Hey all y'all foreigners, we really want your tourism dollars, so please come visit! Be sure to speak English 'cuz if you don't, we'll just talk louder. Also, try not to be shocked at how big we are -- we're not fat, we're just big boned.

You're going to have so much fun here. Oh yeah, one more thing -- we've designed a program to promote our country that, well... you're going to pay for. See you soon! "

This is like me invoicing my clients for my marketing and promotional costs. Very, very stupid. Shocking, in fact. What could possibly be more stupid than taxing the very tourists you're trying to attract?!! The only explanation that I can muster is a "miscommunication." Perhaps the conversation went something like this:

Senator X-D: "My constituents are suffering decreased business and civil revenue due to a decline in tourism. We should figure out a way to increase tourism... so I can get re-elected. Uh... did I say that last part out loud?"

Senators Y-D, Z-D, A-D and B-D: "Yeah, we just heard our favorite word, 'increase'! This is perfect: we can raise tax revenue without taxing our constituents! What could be wrong with that?"

I love how the article author writes (translated, of course), "The US Travel Association doesn't find it ironic that it's trying to finance a campaign with dollars from the very people it's trying to attract. Instead, it insists that other countries are doing it so they should, too." Did anyone actually determine if this worked in those countries before proposing it? Possibly consider offering any value-add to those coming here? Here's the scarier question: do they even care?

I smell yet another typical big government, big spending move to create yet another office employing people who aren't compensated based on performance. They just spend -- they don't have to create a budget and likely have no accountability for results.

Bottom line: I stand by my recommendation that all running for office (i.e., using our tax dollars) should have to have taken and earned an A in accounting, finance and economics before becoming eligible.

Wine pairing: French rosé, of course! It's hot and this is the perfect summer sipper. Pair it with some olives, Parmesan cheese and a pretty sunset.

Business Meal Tax Deduction Increase - Bill Introduced

2009-07-28T10:31:00.000-07:00

There is potentially good news for small business owners and the restaurant and travel and tourism industries. Yesterday, Representative Neil Abercrombie (D-Hawaii) and Senator Daniel Inouye (D-Hawaii) introduced a bill to increase the business meal tax deduction to 80% from its current 50%.

Doing so will allow business owners to gain back more of this tax break which before 1993 was fully deductible. The bill is especially important for small businesses, who often use restaurants as mobile "offices" since many work out of their homes (some 52% including me). Furthermore, it will stimulate much needed economic activity in two sectors that have been hit hard by this tough section of the economic cycle.

Why should a LMF4HMW reader care? It is important to remember that small businesses, defined by the US Small Business Administration as having fewer than 500 workers, employ more than half of the private sector. These firms have generated 60-80% of the jobs created in the last decade. And they represent nearly 100% of the businesses in the U.S.!

Besides, people get tax credits for having kids (assuming they don't "make too much money). As long as we have this system (I'd vote for an across the board 10% flat tax where we do away with all deductions, thousands of forms and the majority of the expenses of running our current set up), we should be figuring out ways to help small business, not tax them out of business.

Your Biggest Asset and Foe When Dealing with Matters Money

2009-07-10T10:26:00.001-07:00

Any guess as to what it is? Whether you have a high paying job? Trust fund? Good or bad childhood? Nope! It's your ATTITUDE.

I just read a truly shocking article about an ex-accountant (see picture) who stole millions of dollars from her employer winery in Canada. During the trial, she had the audacity to blame the winery for allowing her to do so given her gambling addiction and alcoholism. She even blamed the casino for allowing her to gamble!

Wow. Disgusting. Yet so prevalent in less malicious forms in our society given the move away from personal responsibility and toward entitlement. Her lawyer argued she should be excused given her issues. I argue she should be held fully accountable and given extra punishment for blaming everyone but herself.

So how does this relate to the point I'm proving? This woman chose to steal, lie and blame. Many other people choose to ask for help or simply stop being jerks. With matters money -- just like everything else in life, how you operate is largely a choice. You can choose to have a less emotional, more planned approached to the way you spend and deal with it. Or become a victim full of excuses who refuses to plan and then complains about things "happening" to you.

Instead of spending time worrying, complaining and stressing, I urge you to choose to confront your financial situation head-on in a business like matter. This is what I've been blogging about for nearly two years -- creating a plan, sticking to it, and working towards continuous improvement. While this does force you to take personal responsibility (likely my most treasured value) for your financial situation, it also frees you from the negative forces of "things happening". And the very good news is that if you face life like in this manner, you won't have problems quitting smoking, exercising, eating healthy and accomplishing the things you set out to do.

Each day we make plenty of choices. Make yours mindfully and then accept responsibility for your actions, financial and other.

Wine pairing: pick a bottle that's on sale made from a grape you've never tried before.

A Super and Simple Idea for Congress

2009-07-02T14:07:00.000-07:00

STOP SPENDING BEYOND YOUR MEANS!!!!!!!!! (And then moping about it and blaming the rich.)

Why is it that so many businesses and individuals are able to self-regulate? Revenue and income goes down, spending decreases. Revenue and income increases, spending can increase.

I'm so unbelievably tired of all of the dire talk about "our economy in the toilet". Ever been to South Africa and seen a shanty town? Visited Mozambique, Ethiopia and Chad? Or hell, lived in Europe and paid over 50% in income taxes?

I'm still seeing people out and about -- fat (i.e., overfed) people, mostly, which is another post entirely but with a similar theme of moderation. I'm not saying it isn't "tough"out there, nor do I dispute the data regarding employment figures. My point is is a broader, longer-term societal thought.

Has anyone ever read a history book? Studied economic cycles? Bothered to think about the fact that the economy isn't a linear and positive trajectory?

I'm not arguing that things aren't tougher. My point is that the U.S. is still a damn fabulous country. I also have a few ideas that can very simply and cheaply save our country money:

1. Put a cap on medical malpractice lawsuits. (I'd rather send all ambulance-chasing "attorneys" to Mozambique or even Spain, but then we'd have to foot first-class tickets.) This is the elephant in the health care room. Physicians already have to spend about $200k NOT INCLUDING college to become licensed. It takes 10+ years from 18 to become a doctor. These folks didn't get in the business to be sketchy. No one ever said medicine was math. It doesn't always work out. This will decrease health care costs and prevent the USG from trying to make things "fair" (see thinking in idea #3 if you're skeptical).

2. Make health insurance like car insurance. Not dealt with or sold by employers or the government. Just something required and with private companies providing choices. If you want a higher deductible and lower premiums, great. If you smoke or choose to be obese, you pay more. If you choose not to pay for it and have a "lifestyle", then there are consequences. (Those truly in need can go with a temporary government style plan akin to Welfare or unemployment, with an expiration date, of course.)

3. Create a flat tax system of 10 or 20%. Period. Then be done with it. No more thousand page IRS docs. No more arguments about fairness and what is and isn't middle class. Or deduction after deduction after deduction. Why should people who rent be penalized? And why should people who have child after child be incentivized? The USG can't even adjust the AMT rates for inflation or cost of living index, so they shouldn't be trusted with defining "middle class". Everyone pays the same percent. Those with more income pay more. As fair as can be.

4. Make serving the USG an honor. Not a career. You serve a term. And you get back to doing what good Americans do -- contributing to society in something other than taking tax-payer money legislating for a "living". No black-tie affairs. No jets. No pomp and circumstance. US taxpayers should not be charged with paying for government parties. If they want to have a party, they can pay for it out of their own pockets. This is not a private company with profit and loss responsibility -- it's a "firm" that takes more money when it's losing.

5. Create incentive-based pay for government employees. Ever been to the Social Security office or post office. Enough said. Or hell, go out on a limb and PRIVATIZE everything.

Happy 4th of July! I urge you to be POSITIVE. Since sentiment also drives the market we can all do our part in taking off the party-pooper hats.

WINE PAIRING: South African Chenin Blanc.

The Dow is falling! The Dow is falling!

2009-06-25T17:56:00.000-07:00

The obsession with the Dow Jones Index is ridiculous, much like Chicken Little's gloom and doom view about the sky and it's trajectory. The media loves to spout off reports "on the 10" regarding its every movement: "Up 2.. down 288...big gain of 100... big loss of 220..."

The wave of numbers is never ending. And it's quite common to get the movement without the total number. If the Dow Jones was 100 and it lost 50, this would be a major movement. But if it's at 10,000 and loses 50, not so interesting.

More importantly, the Dow Jones is a poorly constructed index. It is based on the trading

prices of the 30 included companies. 30. Thirty. Hardly representative of the US stock market! Five hundred companies. Furthermore, the companies trading at higher prices have a greater relative effect on its performance. Regardless of the number of shares outstanding.

A better index for measuring US stock performance is the S&P 500. It is comprised of the largest 500 equities and is based on market cap weights. This means companies are given weight based on how many shares are outstanding -- not the trading price.

The media's not too interested in delving into the S&P -- it is trading somewhere around 900 these days (versus the Dow in the 8,000 range) so the reported numbers are smaller and therefore much less interesting.

Making Money

2009-06-11T09:45:00.000-07:00

With investing, the amount of money you make is your return -- i.e., your personal ROI or return on investment. When looking at your portfolio over a specific period of time, your amount of gain or loss constitutes your rate of return. It's rather obvious that we all want a higher rate of return. What may not be obvious are some of the factors affecting your actual or net rate of return:

1. Defining that period - some of us are as obsessed with our return fluctuations as we are with our weight. The majority of us don't need to look at our investments, especially those set aside for retirement, much more often than once or twice a year to monitor and rebalance. That's because the best practice is set a strategy of buy and hold. Daily Dow Jones fluctuations make for talking head fodder and not much else. (In next week's post I'll explain why the Dow is not even a good index.)

2. Factor in expenses - this is one of the primary reasons I'm an index fund lover. If your overall rate of return was 10% but your asset manager charged you 3%, you actually only booked a 7% gain. And if you're holding a taxable (i.e., not a retirement account), any trading you do increases this number as well. Yet another reason to buy and hold. (If you don't believe me, have you ever heard of a guy, Warren Buffet?)

3. Account for inflation - From the example above, the 7% return is truly 5% if inflation rose 2% during the year.

4. Benchmark - it's important to define your benchmark so you have something against to gauge your success. A 10% return sounds great, but if your benchmark index returned 15%, you're actually lagging. The beauty of index funds is that the index itself becomes the benchmark. Since you're guaranteed to perform as the index does net a small fee, you'll always be on benchmark.

WINE PAIRING: For some reason a rosé just seems to have a fantastic rate of return. They're rarely more than $20, many between $10-15, and offer a refreshing bang for your buck. I associate rosé with warm days, sunsets and fresh flavors. They're best enjoyed chilled, outside and with some nibbles like olives, nuts and Parmesan cheese. There are some absolutely delicious Spanish rosés, typically made from Garnacha (Grenache). Try one!

TVM: Key Concept in Finance

2009-06-05T09:05:00.000-07:00

TVM stands for time value of money. It is a basic finance principle stating that a present amount of money is worth more now than it will be in the future. My economics professor often used the following expression: "One dollar today is worth more than one dollar tomorrow."

The reason for the TVM is because the money you hold today has the ability to earn interest. You'd rather receive that dollar today so that you could put it in an interest bearing account and let it grow. For example, I receive $100 dollars and deposit it into a savings account earning four percent interest. A year from now, I'll have $104. So given the choice between receiving $100 today or a year from now, I definitely want it today!

Extra credit: TVM explanations like the one above are often simplified and do not take into account inflation or deflation. If, in the above example, inflation were also four percent, it would intensify the TVM concept because the $100 received in the future would actually only be worth $96.

Wine pairing: TVM can be a funky concept, so try something really different, like a Pinotage from South Africa. Pinotage is a cross between the grapes Cinsault and Pinot Noir, and often has gamey and earthy aromas and flavors mixed with bright cherry fruit. Some more available brands are Fleur du Cap, Fairview and Ken Forrester.

The Economy is not the Market

2009-05-29T16:51:00.000-07:00

I hear a lot of people confusing the U.S. economy with the U.S. stock market. For example, two gentlemen at my gym were talking and one said, "The economy sure is unstable with these 200 point gains and losses." The other responded, "Yes, I sure wish it would recover." To a finance geek like myself, this conversation is part funny (ha, ha, he thinks the economy is the market)and part scary (so do a lot of people).

The economy is a broad collection of factors related to the production of goods and services. Its health is typically measured by economic growth (or recession) numbers, which by the way, tend to be backward looking. When measuring the real economic growth rate, we're looking at the nation's GDP (gross domestic product) from one period to another. GDP is made of of consumption (C), government spending (G), investments (I) and net exports (exports minus imports, NX). In fact, G=C+G+I-NX. (Note that I should not be confused with the stock market -- it is the measure of business spending on capital.)

The stock market is made of up of shares of publicly traded companies -- i.e., those who have sold stock to finance their businesses. The return for investing in companies is return on the investment, or the share price rising due to higher valuation. There are many different markets -- for example, based on company size (i.e., Nasdaq for smaller) or nation (Tokyo exchange). The stock market is not a measure of the economy. Stocks can do poorly in times of economic growth and well in recessions.

Wine Pairing: try a Semillon with mussels and then a Syrah with lamb. They're both very different pairings. Remember this next time you're about to confuse the economy with the market!

Save on Travel Costs

2009-05-20T09:20:00.000-07:00

Ever since I planned a high school senior year Spring Break trip to... you guessed it, Cancun, I've been obsessed with deals on travel. In March of 1996, our group paid $700 each for round trip airfare, rooms at the Cancun Palace, and all inclusive food and beverage. While that charter flight was not the most professional or timely, the package included alcohol, so we basically flew and stayed for free!

While what constitutes a vacation for me has certainly changed in the last 13 years, the booking principles are the same: shop around and book in advance. There are of course last minute deals to be found, which is great if your travel plans are flexible, but for the purposes of this post I'm assuming they're not. (I did once book a $1300 week-long trip to St. Martin on Expedia 10 days before I left that included airfare from SFO and lodging.)

The first step is to plan your trip budget. Then how you will you spend it. Are you happier eating fabulous meals and staying in a less-than-stellar hotel? Or do you prefer upscale accommodation and like to bring take out to your room? Will you be in a place like the beach where you won't spend much time in your room, or does the property and/or location matter? What will you need? Does an apartment or home rental make sense, or is the best bet a hotel.

After you've answered these questions, you're ready to use Google to find a deal. Google might lead you directly to a booking site, or perhaps to a rental property manager. When getting price quotes, be sure to ask when payment is due, what the deposit amount is, and what extra (hidden) fees there might be. Be up front about your lodging budget -- i.e., help them help you.

If your trip requires airfare, my favorite site is Kayak. Here you can compare deals on all flights available and specify time windows. You can also set up a travel "alert" if you travel frequently to a particular area -- for example, I have one set up between Portland, OR and Oakland, CA since I'm often en route to California for work. The one thing to note is that Southwest Airlines does not display, so I advise you to check the airline site directly to see its rates as well.

If your trip is bringing you to a particular city, check out its associated travel and tourism site. For example, this site has fantastic deals in the Portland area. There are pre-pay hotel discounts that include parking, breakfast and a $75 gift card. The packages change but the idea is the same -- take advantage of deals designed to lure tourism. If there are particular sites or museums you want to visit, chances are there will be coupons included, and you can always ask.

Travel can be fun and exotic, just like a Chilean Carménère, which is this post's wine pairing! Carménèreis a "noble variety" in Bordeaux but is almost always a minority part of the blend. In Chile, it is arguably "king". Carménère is a medium-bodied wine with red fruit, spices and softer tannins than in a Cabernet Sauvignon, for example. This Casillero del Diablo is a great value from one of the bigger producers, Concha Y Toro and costs less than $10.

Planning a Wedding: the Budget

2009-05-13T08:08:00.000-07:00

Last week I discussed wedding budgeting from the guest's point of view. Today's post is for the engaged or soon-to-be engaged LMF4HMW. According to this site, the average wedding costs roughly $20k, but the happy couple often plans to spend 50% less -- i.e., they go way over budget. You can thank "bliss", "competitive bridezilla moments", "have-to-have-it-don't-care-about-cost" lapses in judgement. And poor financial planning and management, of course.

I advise newly engaged couples to enjoy that engagement bliss before bungee jumping into the wedding planning mode. That's tough to do since everyone's second question (after "How did he propose?") is always, "Have you set a date?". Try it anyway, for at least a month!

Some couples know where they want to get married. Others are more flexible with regards to location. In either circumstance, picking the location is an important first step, as it will affect all other costs. Just as a company would get a few quotes to find out which vendors are competitive, a bride-to-be owes it to herself and her man to seek bids for all major expenses throughout the process. (A great wedding planner can be worth her weight in gold in this arena. Make sure she is really good at budgeting when you interview her!) It is common to need a deposit of up to 50% to hold a location. And so the spending begins. But before you go sending checks, create a budget. Without an overall view of the costs, you're setting yourself up to make poor financial decisions throughout the process.

Spreadsheet savvy types should open Excel and get started; for others a Word doc will do.
A line item for each cost should be inputted in the horizontal rows. Common line items are as follows: location, caterer, alcohol (if not included in the catering charge), decorations; rings, attire, entertainment, photography and videography, invitations, travel costs, honeymoon, civil ceremony costs, and wedding planner.

Other important headings should occupy the vertical columns: vendor name, point person contact information, deposit due date and amount, final payment date and amount, and notes. The beauty of Excel is that you can set up equations to the amounts paid and due, and have these cells give you a total cost.

The point of pulling together a total estimate is to get a reality check. In the bid gathering process, you are gathering information, not making major wedding decisions. Only when you have this information will you be able to choose what items are more or less important together as a couple (versus arguing about it), and create a realistic spending plan. Remember, you're spending against a budget... not adjusting the budget to fit your spending habits.

Next week I'll discuss from where this money will come and how to create it. And tips for saving.
Wine pairing: a bubbly, fresh, citrus-packed Prosecco, an Italian sparkler named for the grape that won't break the wedding budget bank.

How to Avoid Financial Drain from Weddings

2009-05-08T09:06:00.000-07:00

So you've been contributing to (and hopefully maxing out) your 401(k), building up that emergency fund and staying out of credit card debt. Summer is coming, which for many LMF4HMW is"wedding season". Which means some serious cash outlays.

In addition to being fun celebrations, weddings can be a serious drain on your financial pockets. For attendees, there are travel costs, gifts to buy, bridesmaid frocks, shoes, jewelry and other items. For the person(s) paying, it's often an incredible investment -- the average wedding budget is $20,000. So either the the bride and groom or the family of the bride (becoming less common) are in need of some serious budgeting and financial planning.

In today's post, I'll cover the topic from the vantage point of a guest; next week I'll discuss planning and budgeting for your own wedding. (I've attended 30+ weddings in the last 8 years and paid for mine a year ago, so I know a fair amount about them.)

Between 2005-2007, I attended over 20 weddings, two of which were international! I figure I spent an average of $1000+ on each to pay for travel, gifts, and gear (you know, the bridesmaid dresses you'll never again wear). So this amounted to $20,000 in a two year period. Just for comparison sake, had I put this cash into an index fund with a 6% annual return, by 2027 I'd be sitting on $64,000.

The above figure is not mean to scare you or suggest that you stop attending weddings. (I obviously chose to spend the money on good times.) I'm simply stating the real cost of attendance. Each LMF4HMW reader will have her own set of needs and goals. The point is to approach being a wedding guest like you would smart financial planning. Know your costs, have a goal and budget, and spend wisely.

Whether or not to attend a wedding depends on a number of factors, including how close you are with the bride and groom, distance and associated travel costs, the total number of invites you receive, and of course, your particular financial situation. If you divorce yourself from the personal relationship, going into debt to attend a wedding just doesn't make sense. Sometimes, this isn't possible, so if you're going to finance wedding attendance with a credit card, just be sure to have a pay off plan. And consider this within the context of all of your other expenditures and income in that year.

Even if you do decide to attend, think about ways to cut costs. It seems that brides these days have an engagement party, shower, bachelorette party, and a wedding. Not to mention gift registries for all of them. Only a bridezilla would expect you to attend and gift for all of these, so perhaps pick the most important event if attending all of them doesn't make sense. (And if you get any grief, perhaps you should perform a friend reality check.)

If all events are local and do not require travel costs, maybe decide to buy one nicer gift and let the bride and groom know your intention. The important thing is to consider everything in context versus just saying "yes" to all and buying gifts for every occasion without adding up what you're truly spending.

To mitigate my wedding attendee costs, I did one main thing: I did not attend any bachelorette celebrations.

I'm sure there were friends who were offended or miffed that I didn't make their bachelorette parties, but I just didn't think about it. (Brides tend to get a little wrapped up in themselves so I chalked it up to "me" focus and figured it would pass.) Attending all of them would have required an average outlay of an additional $1000+ dollars for each bride. (This would have doubled the cost to attend and made my investment comparison figure $128,000!) With the number of weddings I was in and attending, it just didn't make financial sense. Period. I made it "fair" by applying my no-bachelorettes policy consistently and gently let the bride know that I was saving to attend her wedding.

The above represented my biggest cost savings. I also booked travel in advance through sites like Kayak.com and Priceline.com and avoided attending associated wedding events that weren't local. For example, if a shower was in another city, I stayed put.

Your wedding attendee situation may differ from mine -- if you live in your hometown and all events are local, participating in more of them may not substantially drive up your costs. The main point of the post is to consider the full contextual cost of attending a wedding and make sure you don't go into debt to get there!

PR Skills Applied to Your Credit Card

2009-04-29T13:00:00.001-07:00

A tenet of effective public relations is developing mutually beneficial long-term relationships. In addition to having the ability to network and connect, there are two elements critical to securing results in the PR process: 1) create consistent, compelling positioning and messaging; and 2) promote the message continually and clearly with proof points.

Interestingly, the above advice can be used to save you money. How? By taking a measured approach to negotiating your credit card rates and loans. Read the two below scenarios and choose your plan accordingly:

Scenario 1:
Call your credit card company and demand a lower rate. Provide no justification other than "my debt is out of control" and "I'll never be able to pay this off". Get frustrated and start whimpering when the phone call is looking like a dead end. Before slamming down the phone, lament about "evil credit card companies". Get nowhere. Or perhaps get a minor reduction.

Scenario 2:
Approach attaining a lower credit card rate like pitching a great story. First you'll engage in preliminary research to determine the best rates the company is offering and gather data about your account. Then, you develop talking points for your call including the following: 1) an introductory statement; 2) brief account history with number of years as a client; 3) proof points for your being a good customer like number of bills paid on time, automatic payments you've set up and increase in your credit score; 4) casual mention of competing offers received; 5) ask for a specific reduced rate or "the company's best offer for great customers"; and 6) plan if you're request isn't granted.

Make sure to call when you are at least somewhat relaxed and after having taken a few deep breaths. As soon as she answers, repeat the customer service representative's name and immediately thank "Sally" for her time. (You're getting her on your side and creating a connection.) Go through your talking points in a calm, firm tone. Ask "Sally" if she has any questions. Then reiterate that you "want to remain a good customer" and are "interested in securing the best possible rate" given your relationship.

Synopsis:
Sally is much more likely to come back to you with an offer in Scenario two than number one. When she does, thank her again.

If she doesn't, or gives you a rate that is higher than you expected, ask her what you can do to improve your standing and when would be a good time to call back. Have her document the call and do so yourself. Follow up.

***Notice that part of approaching the rate pitch like a PR pro involves coming to the table with proof points -- your history, payments made on time, credit score enhancement, etc. If your "proof points" aren't there, work on those diligently for six months before you start the negotiation process.***

A Rock Solid Read, And Quite Possibly the World's Only Personal Finance "Beach Book"

2009-04-23T17:27:00.000-07:00

I was recently sent the revised edition of Beth Kobliner's Get a Financial Life. Since I created this blog purely for the pleasure of writing about finance and don't accept advertising, I have zero pressure to promote. (I do that enough in my day job running a marketing communications firm.)

If there was ever a work about personal finance that could be described as a "beach book", Get a Financial Life would be it. Beth's style is zippy (my definition of to the point and fun), easy to follow and free of the financial jargon that puts even the most devoted LMF4HMW readers to sleep. This is not to say that Beth is talking down to her readers -- she well navigates the fine line of providing great explanations for key financial terms and avoiding unnecessary diatribes. From budgeting to mortgages and investing to insurances, Beth well covers all of the financial bases. And it's a fun read.

Get a Financial Life is about "personal finance in your twenties and thirties". It certainly puts Gen X and Y on a great track; however, it's also applicable to those who've been around the block a few more times. First, it covers health insurance immediately, which many personal finance books omit or cover after most readers have fallen asleep never to return again. We all need health insurance -- perhaps not the same type, but baseline high deductible coverage is crucial. Health insurance is a financial issue because without it, even your best efforts can be wiped out with a single emergency or severe illness.

Other highlights include actionable advice, crib notes and financial cram sessions. Many books tell you what you should do, but don't offer a road map regarding how. Beth does this very well, and by implementing her suggestions, you can easily pay for the cost of the book and save yourself some serious money. For example, she writes about negotiating better loan and credit card rates (yes, you can do this -- it will be the subject of an upcoming post). And provides financial work sheets like the monthly statement so that you can better understand the in- and outflows of your money.

The "crib notes" are another favorite: chapter one provides an overview of the most important items and allows those perhaps wary of financial reading to be drawn in. (I know I'm biased given my finance "hobby", but anyone who puts the book down after page 11 is really doing herself a disservice.) These crib notes continue in the form of "financial cramming", or summaries of the key points at the end of each chapter. I recommend reading the book actively, and using these cramming bullet points as check-lists (see my December 2008 posting about "Fail to Plan...) as you progress along your road to financial security.

If I had to choose an absolute pinnacle, it would be Beth's explanation and recommendation of index funds (check out my March 2008 posting professing love for them). They're cheaper (you're paying a lower expense ratio given passive management) and over time, tend to perform better than actively managed funds. She talks about finding the "index fund religion" (maybe that's why I like them so much -- they're downright spiritual in their simplicity) and puts it best when she proclaims, "The bottom line: Go with index funds."

The only area of the book I would debate is the discussion of risk and dealing with fear of loss in a 401(k). Beth acknowledges that it's "easy to panic" in a bad market with investment losses, and that timing is tough (if not impossible -- hence my borrowed saying, time in the market; not timing the market). This is true. But she offers that a reader who "feel(s) like" she's taking "too much risk... can shift to money market funds".

Moving money out of fear is not the best strategy. Doing so is basically like trying to time the market -- you think it will get worse, so you pull out. This locks in your losses, and suggests that you'll know when to re-enter. Then you're risking missing out on gains. And so an all too common mistake happens again: "Sell high; buy low". So I revert to my prior postings about hangin' tough, investing like a distance runner, making risk your BFF and most importantly, having a strategy, not a reaction based on feelings.

The above being said, Get a Financial Life is a must read for LMF4HMW readers and their male counterparts. In fact, the only people who shouldn't read it are: 1) boys who've stood you up on dates or not called when they said they would; and 2) the guy who dated me while hiding a fiancée in an emerging market.

Pair this read with an equally zippy, crisp and fun Sauvignon Blanc or Albariño. I like the Martin Codax which is easy to find (imported by Gallo) and light on Beth's budget worksheet at around $13. Both the book and the vino will be a treat oceanside!

To the Hackers Who Suck Productivity Out of Our Society

2009-04-01T19:27:00.000-07:00

As the LMF4HMW blogger and small business owner, I have a tremendous appreciation for the benefits afforded to our world by marketplace activities. Businesses create jobs, responsibility, valued products and services and opportunities for advancement in society. They also pay taxes, which fund programs, maintain operations, and help the less fortunate. (I'm resisting the urge to be negative re federal and state spending here.)

Today, I was forced to abandon my small business -- the needs of my clients, following up on proposals written for future revenue, and my personal advancement goals (which included exercising, maintaining calm and running two important errands).

Instead, I spent the last 10 hours trying to fight off a variety of Trojan horse malware viruses installed on my computer by who knows what group of a**holes. The first hour phone call went to my cherished tech support person, who advised me to contact my Trend Micro Antivirus software. The second two hours were spent on hold and speaking to this tech team who determined that particular virus rendered them helpless. The remainder of the hours were spent on four separate calls to Microsoft where a number of scans were run and an incredible amount of support rendered. Approximately 9 hours and 45 minutes after my first phone call, I finally have access to my computer.

I figure the cost of lost productivity and potential business, lost benefits for clients (if I'd made two PR calls and generated two stories, that would represent a big promotional push for them) and my personal time is valued at approximately $5000. And there's no guarantee that the problem is fixed.

So to the people who find it entertaining to create problems for those of us who are trying to create value, I have this to say: There is no punishment strict enough. And there is a special place in hell for all of you. Just because no LMF4HMW reader would spend a moment even considering you -- I just feel hackers must be dorky men, does not give you the right to steal from us.

To my LMF4HMW readers, let this be a reminder to back up your data with a portable drive and online, have anti-virus and malware detection installed, run updates automatically if you're on Windows. Unfortunately, even if you do all of that as I did, you still may get hit. In that case, open a bottle of wine -- I'm enjoying a Dr. Loosen 2007 Riesling which is going down very smoothly -- something a little sweet to combat the tech nightmare I've just endured.

Hangin' Tough - Investment Advice from the Original Boy Band

2009-03-25T15:50:00.000-07:00

Usually, the title of a post comes to me after I'm done writing it. But in this case, it came to me during a conversation yesterday with my neighbor, "Carole", who happens to be a very successful business woman in the tech industry.

Carole had come over to ask for help moving a piece of furniture, and we started chatting about her career. She told me that for the first time in her life, she was laid off. It is a frustrating situation, but she's not nearly as worried as I would have imagined, especially for a single mother.

This is because Carole has been maxing her 401k for some time, has plenty of emergency fund savings and a number of interviews already set up. She's been living below her means as a matter of financial course -- Carole is a veritable LMF4HMW rockstar! In fact, her main fear right now is taking her daughter out of school should she need to move for work.

I complimented her on being such a prudent financial manager, and she said, "well, if I were so good, my investments wouldn't be so far down right now. (Sigh.) I just feel like I should pull out of the market before it gets worse, but I know that this move would just lock in my losses."

Carole put it very well: 1) she feels bad (out of control, frustrated, afraid, etc.), but 2) knows changing her strategy would result in an even poorer outcome.

As a woman with 20 plus years until retirement, a strong portfolio of retirement and emergency fund savings, and a strong career ahead, Carole should take her advice net of the feeeeelings: stay put. Or as I so eloquently put it, "hang tough". Selling now will not only lock in her losses but prevent future gain.

For some reason, people can not seem to remember that they own shares in the form of funds or individual stocks (in the case of equities), and that just because the portfolio value is down, does not mean that it can not rise.

Carole doesn't have the luxury of continuing to contribute to her 401(k), but for those LMF4HMW out there who do, it's time to BUY.

Stimulating Stupidity with Socialist Style "Solutions"

2009-03-18T09:27:00.000-07:00

It would be funny if it weren't so scary. The government handing out big stimulus checks to states and corporations who are habitually overspending and being inefficient. The government putting a moratorium on foreclosures. The government maintaining the asinine steep regulation for mark to market accounting which requires financial institutions to assign a "fair value" to assets that can be below the actual cash flow they bring.

So what exactly are we supporting and stimulating? Over spending. Propping up companies that should likely go through an extreme overhaul or fail. Artificially supporting individuals who were not good home loan candidates in the first place. Encouraging the very behavior that got us in trouble to begin with.

And why are we doing it? To avoid the unavoidable. Unfortunately, the tough part and the beauty of a free market (although it's getting less so) is that it works its kinks out. Sometimes there is a painful period afterwards. Often ugly things happen. But more often than not, a stronger reality ensues.

This type of "stimulation" is basically giving a drink to a drunk. Or handing another credit card to someone in Shop-aholics Anonymous.

I'm not exactly sure when it became okay to give everyone a participation medal. And make sure nothing uncomfortable or bad ever happened. But this mentality is digging our debt hole deeper and deeper and deeper.

The Unthinkable!

2009-02-26T19:54:00.000-08:00

An empty glass of wine?!! Stain on your new outfit? No, it's worse... a missing or stolen laptop. According to Entrepreneur Magazine, business travelers lose 12,000 laptops annually while on the road. I know of three people to whom this has happened. A former Vice President and boss left one in a bar in NYC and luckily got it back. A colleague deplaned without his laptop and thankfully remembered after a few moments. And a small business owner left hers on a plane -- and unfortunately, it was never recovered.

While these three instances represent a mistake on the part of the laptop owner (probably due to the exhaustion of business travel lifestyle or too much beer), theft is another problem. Losing business data, exposing your personal information and major psychological and financial hassle all result. So what's a tired traveler to do? Prevent it -- there are a few good choices:

1. Adeona is a free open source software developed by WSU that can be installed on your system to track it. It's free of charge and they are about to launch a new version incorporating improvements.

2. Companies like Absolute Software and Brigadoon offer paid tracking services with annual fees.
3. Manufacturers like PCLocs sell actual leashes that may be used when in a hotel or cafe.

Wine pairing: Hmm... a safe wine? A technological wine? Nothing really comes to mind so I'll splurge on a Gigondas from France's Rhone Valley. Peppery, fruit forward, and deliciously complex. It can be a little on the pricier said, say around $20 or so, but you've potentially prevented a loss of $1000+ with laptop security so go for it!

Purchasing Power

2009-02-17T11:00:00.000-08:00

My how we all wish we had more of it! Unfortunately, there's no quick fix for enhancing your purchasing power -- doing so requires good old fashioned hard work (education or performance for a raise or better job) or a windfall like an inheritance. There is, however, one concept every LMF4HMW reader should understand with regard to her purchasing power: inflation.

Have you ever heard people talk about the "good old days" when bread was $1 and gas was 90 cents? Even if they don't realize it, these folks are discussing inflation, or the increase in general price levels. When price levels rise, your purchasing power falls. So if you continue to make the same amount next year, but your rent or food prices rise by 3%, your purchasing power will decrease accordingly. What's most important is the relative rise in wages, not the price level per say. So if you get a 5% raise and inflation is at 3%, you're actually ahead by 2%.

Inflation is measured by an annual percentage rate and is reported in the consumer and producer price indexes. (Both are available on the Bureau of Labor Statistics website.) You might think that inflation is "bad", but it's normal in a growing economy. If there is none, there is either economic stagnation or weakening.

In addition to affecting your current purchasing power, inflation is an important factor in your future ability to spend. If your investments do not outpace inflation, you'll have decreased purchasing power. Most people make the mistake of forgetting about inflation entirely when looking at their portfolio -- the key is to look at the real rate of return (net of inflation), not the nominal rate.

Wine pairing: Gruet sparkling wine from New Mexico (yep!) is a steal at $13!

A Tech Tool that Will Save You Time & Money!

2009-02-12T18:13:00.000-08:00

A loss of data is not only frustrating, it can be debilitating. In my business, losing all my client files and documentation would create a major and irreversible problem. Parting with my personal files would also mean the loss of cherished photos, tax information, writing, and not to mention, all the business school files I kept. (Since grad school cost me $40k, it would not be a small loss!)

So I follow a very careful protocol to secure my data that includes weekly transfers to an external hard drive, monthly disc burns for off-site storage, and now, online file storage. I searched extensively for a simply, easy to use and cost effective provider and I'm thrilled with the SOS online back up service I chose. (So is PC Magazine, which has given the company two awards of excellence.) It's simple, easy to use and cost effective.

In the event of a computer crash, fire or complete melt down, I know my data is protected. Check it out today. For $50 or less per year, it will save you sleep and money in the event of a melt down.

PS - hmm, which wine would pair with technology? I'm thinking about the clean branding of Apple, SOS, and many other tech companies. How about a clean tasting, floral and fruity Riesling Kabinett?

Online Coupons

2009-02-02T22:22:00.000-08:00

I know, I know -- "coupons?!!" The image that comes to mind is the frumpy woman at the grocery check out with a change purse counting pennies while simultaneously digging through her large coupon bill fold. Very annoying, especially when you're trying to dash out of the store with the evening's dinner.

No worries -- the coupons I write about today are in the e-form, so you won't be "that guy" (or LMF4HMW reader as it were). So many of us are into online shopping -- it's easy, there's no parking, no wondering around, no lines, and it can be done in the comfort of your own home (or office - ha!).

Shopping online with coupons is super simple. Let's say you're looking for a birthday or baby shower gift. STEP 1: Go to one of the popular e-coupon sites like DealCatcher or CoolSavings to see if there are any deals at the moment that fit your needs. (A simple Google search will provide you with numerous coupon sites.) STEP 2: either decide to shop at e-tailers based on available deals or at least know that you've tried to save on your purchase.

Either way, you're a savvier shopper and you might save precious money which may be invested for your future!

WINE PAIRING: How about a nice fun variety like Semillon, which has lemon and fig flavors with a hint of acidity -- perfect for online shopping after brunch. The grape is best known in France and Australia. In the former, it's typically blended with Sauvignon Blanc for a very special treat.

It's "That Time of Year"

2009-01-23T12:33:00.001-08:00

Nope, I'm not talking about the supposedly depressing time between the holidays and spring where people are tightening purse strings and lightening intakes to compensate for December's over indulgences. (By the way, is that why Valentine's Day was invented -- something cheery in the middle of the winter doom and gloom?) Nor do I mean it's time to make sure you're keeping those resolutions -- at least another week or so.

By "that time of the year", I mean an annual date with your portfolio to rebalance. Why? Over the course of 365 days, a lot will change. Some investments gain, others lose. Those that gain usually hold a higher than intended percentage of your funds; those that lose a lower amount than you'd like. For example, you decided to hold 50% US and 50% international funds. In this hypothetical year, the US did really well and those abroad declined, so now you hold 60% of the former and 40% of the latter.

Trying to "ride" the better returning assets may seem like a great idea -- why would I sell something that's doing well and re-invest in something that is lagging? The answer lies in risk mitigation. When you unknowingly stray from your intended allocation, or do so to "ride the wave", you move away from your investment strategy. And that's not recommended because it usually means you're acting with emotion -- chasing returns, or trying to avoid normal market volatility. Furthermore, the process might repeat in year two and intensify the effect.

Some advocate rebalancing every 15 months to take advantage benefits associated with sale of long term gain. I recommend every year for two reasons: 1) it's easier to remember; and 2) most LMF4HMW readers hold the majority of our investments in our retirement accounts, so we don't have to worry about tax ramifications until we're receiving distributions.

A lot of retirement accounts have handy "rebalance" buttons where all is done in a matter of a quick mouse click. In others you'll need to send in a fax or make a phone call. But in any case, it's 5 or less minutes well spent and that is time you won't spend eating or spending money!

The 403(b) Plan

2009-01-15T08:40:00.001-08:00

Since I have a part-time gig instructing at a community college, I'm eligible for its 403(b) contribution plan. As someone who has contributed to a 401(k) for nearly 10 years, I'm familiar with the way retirement plans work in the private sector, but had to do some research on this new retirement option.

The 403(b) is defined as a TSA or tax-sheltered annuity plan for those working in the non-profit sector, including educational institutions and churches. (I usually cringe at the word "annuity" and nearly left the website as soon as I read this.) Thankfully, my interest in saving for retirement and hope that I might just be able to contribute all of my part-time earnings kept me reading.

There are three possibilities in a 403(b): 1) a retirement account for church employees; 2) an annuity contract through an insurance company; and 3) a custodial account with mutual funds. Number three is my winner! And I was very pleased to find that my vendor company of choice offers index funds.

The 403(b) and 401(k) are actually pretty similar other than the sectors they serve. The deduction is for pre-tax earnings and the contribution limits for 2009 are a cool $16,500 for those under age 59 and $22,000 for those over. In both cases, the investor owns the account -- the institution (or employer sponsor in the latter) only holds the assets and facilitates transactions. Some 403(b) plans allow for employer contributions -- sometimes matching, although sadly, mine does not do so. And just like the 401(k), there are usually penalties for early withdrawals unless the transaction qualifies under the hardship rules. Finally, when you change jobs, you need to decide whether to leave the funds in the plan, roll them into an IRA, or roll them into a new employer's 403(b). (Notice I don't mention the fourth option, taking the lump sum payment. The penalties are too stiff and most importantly, it's a RETIREMENT ACCOUNT, not a bank account! One rare exception is the LMF4HMW reader who has actually reached retirement, and depending on the balance, a lump sum may or may not be advisable.)

So if you're eligible for a 403(b), I'd recommend funding it to the maximum allowable amount. Just know that a LMF4HMW reader who works full-time in the private sector and is already contributing the maximum allowable amount to her 401(k) can not participate in a 403(b). It's a shame, but the USG doesn't want you doing that -- too much lost "revenue" for them, I suppose.

How about a nice Barbera from Italy's Piemonte to warm the soul on the cold winter nights? I particularly like the value in the Briccotondo from Fontanafredda -- a steal for $11! Nice zippy red fruit, earth, licorice and a surprising amount of depth for this price. And the powers that be even scored it at that sooo important 90 point benchmark. (FYI, if I ever open a wine shop it will be called 87 thru 89.)

Nifty Finance Site

2008-12-31T13:59:00.001-08:00

It's no surprise that Google would offer a nifty financial site. This one, Google Finance, offers an in depth guide to companies, stocks, mutual funds, currencies and the like. It also contains links to relevant news releases, trends and sector summaries. To view international companies, there are similar sites like Google Finance U.K., Canada, etc.

As a long-term buy-and-hold investor, I do not advocate daily checking of stocks, portfolios nor performance. This site could be useful on a macro level for a LMF4HMW reader looking for information and knowledge about finance and the markets. Or on a micro level to view a particular index's performance over time, such as the MSCI EAFE or S&P 500.

In honor of tonight's celebration and the New Year we're welcoming tomorrow, I recommend Cristalino, a delicious Cava from Spain that offers a tremendous value.

Fail to Plan, Plan to Fail

2008-12-18T08:53:00.000-08:00

Last night while discussing an annual off-site strategy meeting for my business, it occurred to me that individuals could benefit from doing something similar for their financial planning. Taking time out and outside of the box (i.e., moving to a different location to stimulate creativity) to brainstorm and formulate a strategic plan is a familiar tactic for successful businesses. So how does a LMF4HMW reader use an off-site strategy meeting to enhance her financial position? Below are some simple steps:

1. Take it seriously. Put an hour appointment on your calendar to plan the meeting. In this hour, you'll decide on topics for discussion (if it's a family plan -- i.e., you and a spouse or significant other) or further thought (if it's solo mission). These might include cash management/budgeting, debt service/payment plans, wealth building strategies, goal setting, evaluation of 2008's performance, etc. At this point you're merely deciding on the topics, not tackling them -- that's for the off-site.

2. Create an agenda. Decide where you'll go, perhaps to a night away or a more simple location such as a quiet restaurant. Plan your time given the topics above. How long will you tackle each topic? How will you record your thoughts? (I love using colored markers and big white sticky "Post it" style notes -- buy them at an office supply store.) I suggest that you divide the topics into separate sessions if possible to avoid burn-out. Gather any notes or files you'll need.

3. Mix in some fun. Maybe you're going to a spa hotel? If so, be sure to book an appointment -- businesses always blend some relaxation or fun into the equation which helps stimulate the creative thought process. If you're dining out for the day, perhaps drive to a different town and combine the trip with an invigorating hike.

4. During the meeting, employ the "Happy Tree". No fair using blaming or negativity. This off-site is a chance to brainstorm in the "happy tree" (think Will Ferrel and his new bride in the therapist's office during Old School). I'm not suggesting that you ignore any failed moves or mistakes from the past, only that you don't use blame or negative words during the discussion. If yours is a group, appoint a mediator and a note taker. If it's a solo mission, write out your "rules" beforehand and be sure to take notes.

5. Follow up! Don't let all of your hard work go to waste. One of the most important steps you can take post meeting is creating a plan for implementation. Again, pick an hour to write a formal plan for attack. During this time, check with your accountant to see if it's a deductible expense -- if you're discussing any side business you might have, it should be. So save those receipts!

6. Check in on your progress. Put a 30 minute quarterly review appointment on your calendar to assess your performance. Get yourself back on track if you fall of the wagon. Or reward yourself if you're progressing well.

This commitment to your financial strategy for 2009 means that you're much more likely to succeed. And if you achieve your goals beyond your expectations, the 2010 planning meeting can add a little more fun!

"He's Makin' a List... So Should You!"

2008-12-10T00:44:00.000-08:00

Santa has been busy making his lists, and his better half is likely juggling quite the good wife act frantically planning dinner parties, cleaning the house, preparing the sleigh and (hopefully) keeping the "fun" in the dysfunctional Claus family Christmas.

As the season's cheeriest couple tackles the holidays, I urge LMF4HMW readers to start making a list of their own -- a 2009 goal commitment sheet.

I'm not calling your goals "resolutions" for a simple reason -- these financial commitments are not made to be broken. They are identified, written, agreed to and planned for. This list need not be long; it must only be specific. In fact, I urge you to keep it shorter and focused on a limited number of BHAGs (Big Hairy Audacious Goals or a corporate HR favorite). Below are four simple steps:

1. Identify your most pressing financial needs. Are you in debt? Saving adequately? Unaware of or avoiding your complete financial picture?

2. Write down your specific goal(s). For example, "pay down $8,000 in credit card debt", or "refinance car" or "revisit my investing strategy and lock on a better long-term plan".

3. Commit to the goal(s) with specific, measurable tactics and a timeline for achievement. This might be "pay $500 monthly to credit card to decrease debt by $6,000 and use $2,000 of bonus to cover final payment by December", or "research refinance options in January, contact preferred providers in February and lock on deal by end Q1".

4. Put the above appointments on your calendar to create accountability. Stick to them! For extra good measure, I recommend your keeping a signed copy near your home work area or as a file in the calendar reminder.

Following these four steps will ensure that you're on Santa's "nice" list come 2009 gifting season. And more importantly, doing so will provide a true and lasting gift to yourself.

Pausing to Give Many Thanks

2008-11-26T09:21:00.000-08:00

There's a lot of less than cheery news out there. People are "worried", "fearful", having to "cut back", etc., etc. This isn't surprising since all it takes is the push of an "on" button to hear or watch news about the next development in our "global economic crisis". It's even more depressing for those pain and drama seekers hell bent on checking on their investments day after day.

So what does a LMF4HMW reader have to be thankful for on this day before a national ode to Thanks? A lot.

Clean Water. Many in this world do not have this basic source of life that we take for granted every day. Ditto food, shelter, and a warm bed. How rough must it be for those going to "bed" hungry on the cold streets? Freedom. The U.S. is an incredible country. It seems that many focus on tearing it apart and sadly, it can be easy to forget the sacrifices made by our service men and women. Education. It's an investment with a sky-high, linear return. Family, friends and loved ones. Without them, life would be so much less rich. Health. If you found out you had a terrible, life-threatening illness today, would a portfolio return, work project or anything that's currently frustrating you really matter? Time. Every minute of every day is precious. And we get to choose how to spend it given our gifts of freedom, education, health and those with whom we have meaningful relationships.

Spend some time during the next day thinking about how truly lucky you are to have the aforementioned gifts. Ponder how you might best give something of yourself. And how you can develop gratitude and peace given these benefits. Most of all, pledge to think more this way in your life throughout the year -- not just on this very special day of Thanks.

The Santa-Grinch Spectrum

2008-11-21T11:29:00.001-08:00

SANTA

Pros- everyone loves ya; lots of cheer awarded to loved ones
Cons- habitual over spender; paying a lot more for cheer given financing costs

VS. GRINCH

Pros- never over spends; no credit card debt

Cons- black sheep of gathering; nothing in return

So which one are you during the holidays? Big bubbly Santa with tons of gifts and a big Visa hangover come January? Or Grinch with a dour predictions and a feeling of loss as the New Year rings in?

Most cheery Americans and HMW tend to be Santa-like. We grow up bombarded by holiday "spend, spend, spend" messages. The music starts playing in the stores in October and is downright ear numbing by December." This predisposition is actually great for our consumption- and service- based economy. But it's not so great for our wallet. Nor the waist as it turns out -- it's no coincidence that over-spend and over-eat/drink are partners in crime.

As a LMF4HMW, I'm certainly not advising that you become a Grinch. How would we put the "fun" in dysfunctional during all those holiday gatherings without some good cheer? I'm merely suggesting that you create a plan before the merriment officially begins and stick with it no matter how many eggnogtinis you down before embarrassing yourself in front of your mother-in-law. The following are a few ideas -- I'm sure you can come up with more:

1. Make a good old fashioned budget. Decide for whom you're buying and how much. Be sure to total it so that you can see how much you're actually spending -- $50 times 20 gifts seems a lot less brutal than $1000 line item on a bill. That way, when you're a couple of drinks in at the shopping mall (or online -- who has patience for those lines?!!) you're not side-tracked by the latest-greatest-three-times-what-you've-planned-to-spend-she-deserves-it(buy me!)-what-the-hell-it's-holiday-season gift.

2. Consider a gift exchange. Draw "secret" names between your key groups - maybe one or two circles of friends, the office pool and your family. Set a mutually agreed upon budget per person and enjoy the suspense. Most people will instinctively choose $50 or $100+, which is fine as you're shopping for one not ten. But consider the $15 and under limit because your compadres' creativity might surprise you. One of the best holiday gifts I ever received was a delicious book -- I gobbled it up within a day and could still fit into my skinny jeans!

3. Send holiday postcards - like to send holiday letters and photo cards? I do -- in fact, I'm so into it that I've already received mine for 2008! Save yourself some time and money by sending postcards. VistaPrint has some mighty fine deals and even customizable options.

4. Host potlucks partays - fan of the festive gatherings? Who isn't, really?!! Why not ask each invitee to bring a favorite hometown holiday dish and a bottle of cheer? You'll create quite the assortment and cut way down on your expenses. And you don't have to feel guilty because you're still the one doing all the clean up the next day!

5. Ignore #1-4 above and get seriously real. I recently heard an announcement on the radio about ReThink Christmas. I thought it was about creating donation or charitable type wish lists specifically and more generally promoting the idea of a return to a less consumerism-focused holiday. Turns out that it's that plus more: ReThink is a message started by a church, Advent Conspiracy, which seeks to have people "worship fully, spend less, give more and love all". While I don't tend to be a religious type, the message is quite valuable. Even if you're not Christian or religious. And the bottom line for them is promoting clean water through Living Water.

Even if you don't want to forgo gifting and spending, do spend some time giving the most valuable resources -- serve food, donate water, or build shelter. These are the gifts that truly do keep on giving. And the ROI is beyond calculation!

One of the Lucky Ones...

2008-11-05T12:11:00.000-08:00

So consider yourself a very lucky LMF4HMW reader if you meet the following criteria: 1) you're contributing the maximum amount to your 401(k); and 2) you're contributing the maximum amount to your IRA or Roth IRA. You're well on your way to a bright financial future given that you're annually saving $20,500 if you're under 50 and $25,500 if you're older! In addition to the impressive annual savings rate, the powers of market returns and compounding will both boost your investment earnings significantly over time.

So what's a girl who's already a golden LMF4HMW member to do? Splurge on another pair of $200 jeans? Spring for that Fendi bag? Book a trip to Bali? Buy a new luxury car? You're owed some sort of reward, right?!!

The best answer and the commensurate size of your reward depends on your overall financial house. You've earned yourself a significant reward if you meet the following criteria: 1) all of your bills are paid on time, all the time; 2)you have six months of living expenses saved as a SDH* cushion; 3) and you're debt free (i.e., neither Visa nor Mastercard has you in a financial headlock). Trip, car, you name it! If you're quite not there or a ways from this point, the relative size of your treat should be smaller (spa day, anyone?).

For those winning the jackpot given a sparkling financial house, after you've rewarded yourself, it's time to open a taxable account and yes, contribute more. Perhaps it's your bonus or a percentage therefor, the money you save after (finally) finishing paying Social Security taxes each year (that period seems to come later and later), or the raise you get. In any event, you're going to deposit a sum of after tax money and purchase more financial assets.

Any financial planner worth her salt will advise that you look at your entire portfolio (retirement accounts, savings, etc.) to determine the best investments. If your 401(k) doesn't offer a fund with a certain class of stocks (i.e., small cap or mid-cap), or international or emerging market investments, a taxable account is the place to round our your overall portfolio. The easiest thing to do is invest in low cost index or exchange traded funds and plan to hold them for the long term.

Happy splurging and saving!

*SDH - a.k.a.,"sh*t does happen"; job loss, car trouble, family issues, pet surgery, unforeseen problems, etc.

IRA Breakdown

2008-10-08T13:23:00.000-07:00

A lot of you probably have an IRA. You might even have two -- for example, a traditional and a Roth. You probably know that in general, IRAs, or individual retirement accounts, are investment vehicles geared for your golden years. But do you know the different types? And are you sure the one you have is best suited for your needs?

There are actually four different types of IRAS: traditional, Roth, SEP and SIMPLE. The traditional IRA allows the investor to contribute pre-tax income (this is good -- it lowers your taxable income) to an account that will grow over time. For example, Mary, who makes $80k, will first contribute $5k to her IRA, and then pay her taxes based on an income of $75k.

The current contribution limit is $5000 for those 49 years of age and younger, and $6000 for those 50 and over. In addition to the tax benefit, the contributions and their earnings grow tax-deferred over time. (This means you won't pay any capital gains nor dividend income tax.) When you do reach retirement and decide to start withdrawing, the money will be treated as income and you'll be taxed. The hope/plan is that you'll be in a lower tax bracket and therefore pay less taxes in those golden years than you would have while working. The other benefit is that of compounding -- there's more to grow over time since taxes aren't being removed from the pool of money.

A Roth IRA is similar in that if offers a haven for retirement earnings, but different in that
it may not be funded with pre-tax income. So if the same Mary from the previous example makes $55k after taxes, her ROTH contribution will come from the $55k. The benefit is that she'll receive the distributions free of tax since she already paid taxes on her earned income before contributing. However, there are income limits for a Roth. If Mary takes a better job and her adjusted gross income rises to $111k, the amount she can contribute is reduced. If her AGI rises to $116k, she is no longer eligible. (Don't get me started on this one -- there is of course no adjustment by the good ole USG for cost of living -- the "rich" woman in New York making $116k is not eligible, but her friend with a $90k salary in Topeka, KS, can contribute.)

SEPS and SIMPLE IRAs are established by employers, usually small businesses. A SEP is a simplified employee pension where the even a sole proprietor can contribute 25% of her net earnings (or $45,000 -- whichever is less). They feature low administrative costs and flexibility -- if a new business has uneven cash flow and doesn't contribute one year, that's okay (although not advised). The earnings grow tax deferred until you start making withdrawals, similar to the traditional IRA.

SIMPLE stands for savings incentive match plan for employees. The employer gets a tax deduction for contributions made and can either elect a flat rate or match a percentage of the employee's contribution. Like with SEPs, the earnings grow tax deferred.

A few final nuggets:
1. The IRS is always changing the contribution limits -- they like to keep everyone on her toes!

2. If you have a 401(k) plan, this doesn't mean you can't contribute to an IRA! In a perfect world, you'd max out both.

3. Malbec is a fabulous wine with which to learn about IRAs. I just tried (and bought a case of) Dona Paula, a delicious chocolaty, raspberry and full flavored wine perfect for crisp fall nights.

Want to loose money? Sell now and go to cash!

2008-10-03T12:09:00.000-07:00

There could be no truer, simpler investment strategy than "Buy high; sell low". Yes, I did say that: "Buy high; sell low". If you're investing to get tax write-offs and lose money, that is!

Here's a great example: you read about some fabulous, gang-buster company and decide to buy some stock because hey, "everyone knows it's only gonna go up". A few weeks/months/years later, the performance isn't there, so you sell at a loss and either go to cash or buy some of the next hot item as "it couldn't happen again". You figure you'll make it up next time.

Sound stupid? Yeah, because it is! No one in her right mind would plan to operate in this fashion, but it's amazing how many folks out there do. They're the ones right now who are listening to negative media, walking around morose, "feeling the pain" of those people out there who've lost their etc., etc., etc. and taking on a sympathy depression to cope. These folks are fueling the negative sentiment. (I actually had someone Monday ask me if I'd heard about "the stock market crash"! She wanted to know if I "had had any stocks" and "if so, what was I going to do?" Let's just say that my response of "nothing" received a puzzled look.

I have a healthy emotional balance -- some highs, some lows with mostly positive, even keel, pretty bubbly days. (Health outlook, eating and physical activity deserve the credit.) I don't mind the variety -- especially when I'm downright hyper and loving the energy! But when it comes to investing and matters money, I become the steely-eyed, emotionless accountant type. I am content and rendered stronger by this chosen position. In fact, the worse the news gets, the more content I become. Because I know that the answer is, in fact, to stay the course. Meditate on the peace of doing nothing. Or just do nothing.

Why? Because I developed an investment strategy a few years back. And part of that strategy was sticking to the strategy. We don't know when the market will "recover" (I don't view it as a "recovery" because cycles are normal.), but we do have this set of foundational facts upon which to build a strong strategy:

1. For every rolling 20 year period since the Civil War, stocks have beaten bonds and cash. (Except for one time.) A diversified basket of stocks is still the best investment given a 20 year horizon.

2. Cycles are normal in markets. As the total number gets bigger, the perceived volatility grows. (Ever notice how the media doesn't like to talk about relative percentages, preferring instead to use bigger numbers of points? And how they whiz past the NASDAQ and S&P to report the Dow?) No one ever promised a smooth ride! The smoothest ride of hiding in cash is a downhill grade.

3. No one can really accurately predict the market volatility or cycles. If it were possible, there would be a lot more rich folks walking around. The problem with getting out is that you won't know when to get back in. When is the bottom, the bottom? When is the top the top? These questions are largely irrelevant because the measures are backward looking -- we'll only really know after the fact. (I didn't like philosophy.)

4. Reactive selling is stupid. Really stupid. And not to mention, it's expensive. No one likes to talk about transaction costs, but they'll eat right into a trading portfolio. Every time you buy or sell, there's a fee attached (not so with a 401k unless you're talking about your precious time). So buy and hold. Sell when you plan to sell, not when "the market!!!" tells you to.

5. It's amazing how much sentiment drives the market. Think about that. There are fundamental assets -- the expected growth in dividends backed by actual companies. And their values fluctuate constantly. Let the market and the media be schizophrenic.

6. Investing sooner is better than later. Compounding over time is the best asset you can "buy".

For the roller coaster ride ahead, I recommend a smooth, comforting Willamette Valley Pinot Noir. A to Z Wineworks makes a delicious one for about $20. No corkscrew necessary since it's bottled with a screw cap!

Three Cheers to New Personal Finance Toy!!!

2008-08-19T12:16:00.000-07:00

What was your favorite toy as a child? Mine was, I must admit, Barbie. She was hot babe, and I had many of her as well as the full accouterments of all of her houses, cars, outfits, not-as-cute-friends, and even an assortment of weird Kens. (Not bad for city life -- except for the Kens.)

For LMF4HMW readers, the Barbie and Cabbage Patch Kid days are long gone. (Which is fine for the latter -- I hated those things with a passion and remember skipping friends' slumber parties with Cabbage themes -- eew.) Our toys these days consist of clothing, sports equipment, travel plans, and other "lifestyle" items that cost a significant deal more than Barbie's Corvette.

So I'm happy to write about a "toy" from a new(ish) website: Mint.com's online personal financial management system. The site is easy to use, quick to set up, has pleasing graphics and best of all, allows users a free web-based application in which to manage their personal finances. I read about it in Fortune magazine, and I'm happy to report that it exceeded my expectations.

Ok, ok. So a personal finance site's application is hardly a real "toy", but it does allow you to spend more time with the people and activities you love!

Simply go to Mint.com, set up an account with your email address, and then enter financial information on its secure platform. (If you don't yet use your bank's online banking platform, you'll need to set that up, which will take a few minutes per account.) Mint will give you a "trends" overview of your spending and allows you to see everything -- bank accounts, loans, investments, credit cards, etc. in one, easy place. If you elect to enter your credit score (which I didn't), you may receive offerings that could save you money, such as competing lower rates on cards and loans.

The beauty of Mint is that if offers Quicken or Money-like management in a much easier, less time-consuming format. It's fast, free, fresh, fabulous and for an admitted personal finance dork, fun. Which means that it's perfect for LMF4HMW readers!

WARNING: if you overspend in one or more areas, you will be "punished" by some red ink. I spent a good deal of money on business shipping last month and Mint quickly picked up on this. I'm thinking the site might not "approve" of Prada shoes on a less than stellar cash inflow, so beware!

Breaking "Strategery" Down to Tactics

2008-07-31T10:30:00.000-07:00

Does the picture to the left look like your home filing system, or lack thereof? If so, my prior post about financial strategy is going to be difficult to implement. I know the new age philosophy is that "some people are filers; others are pilers", but I don't buy it when dealing with your financial house. Having a filing system in place to easily store and access important documents is a relatively easy tactic to check off your list, so take a hour to create a system that will save you hours of time going forward.

I recommend personalizing it, so that the system makes sense to you. If you're uber computer savvy, perhaps you've scanned everything in including documents, receipts, etc. and created computer files. If you're a spreadsheet jockey, then set up an xls to track your expenses with a corresponding file folder to keep track of your receipts. And if you're still living in a paper-filled world, then have a separate envelope for receipts within the folder makes sense. Either way, you'll need to set aside a file cabinet or part of one to get organized financially.

Below are the general categories for your folders -- you may have more or less depending on your particular situation:

1. Home - mortgage or rental docs, insurance, warranties and repairs, etc.

2. Health - insurance docs, will and living will, prescriptions, receipts for co-pays, etc.

3. Car/Transportation - car loan or title docs, toll card agreement, car insurance, copy of your license and registration

4. Banking - copies of your credit cards, statements for checking and savings, etc.

5. Investments - separate folders for each account (i.e., 401k, IRA, Roth, trading account), associated statements, prospectus materials (I don't keep 'em, but you might!)

6. Donations - these are often tax deductible, so it behooves you to keep track of them; remember high school, university, charitable, goods, etc.

7. Memberships - gym, boat club, store card, you name it!

8. Warranties and instruction manuals - I like to keep all these sorts of items in one place as you never know when you might need them

9. Uncle Sam - former tax returns and back up (you are supposed to keep these for 5 years -- it will make your life A LOT easier if you get audited!)

Once you get a home filing system in place, use it. Instead of piling receipts in a corner or tossing them onto your desk, take the moment to place them in the correct space. You'll gain piece of mind from the new control you're exerting over your documents house!

A word to the wise: BACK UP. If you have a computer-based system, be sure to back it up with an online file folder or separate hard drive. The former is available through a number of retailers include Xdrive and IBackUp. The hard drives are at Walmart and the like -- I use one I bought from Target for $80. For your paper files, I recommend a fire proof safe; Walmart has many options ranging between $100-$400 depending on how much space you need.

Whew! For those of you who aren't into organizing (and don't thrive on it like I do), that may have been painful. In this case, I propose a nice red Châteauneuf-duPape, a blend of up to 15 different grapes from France's Southern Rhône region! The blend is predominantly Syrah, Grenache and Mourvèdre, with grapes like Cinsault, Muscardin and Cunoise as vinus seasoning. They're full of red and black fruit, herbal notes, spice and pepper and they're darned good with summer BBQ!

"Strategery" for your Finances

2008-07-23T16:26:00.000-07:00

I just love the (non)word, "strategery". It's one of Bush's little verbal flub ups, and it makes me smile. So today I'm writing about how to apply "stratee-gery", or wisdom from basic business planning, to your financial health.

Financial strategic planning is a lot like flossing: we all need to do it; we know we need to do it; and yet quite often, we don't. There are lawns to be mowed, wines to try, high shelves that need dusting -- you name it! Any excuse to get out of strategic planning.

The inherent problem with operating sans financial strategy is that you're much less likely to reach your goals if you don't set them! Ignoring your finances, counting on being lucky or thinking that it will get done in the future isn't strategy, it's excuse making. So pick a day sometime before the end of the month (which means you have 8 more from which to choose if you don't do it today), to answer the sets of questions below:

1. Where am I now? What are my investments? Where do they live? How much debt do I have? Am I paying it down faster than I'm racking it up? What are my spending patterns and where do I waste money?

2. Where do I want to be? In one, five, 10, 20 and 30 years from now, how do I want to answer the above questions? Do I have any other financial goals such as buying a house or car?

3. How am I going to get there? What do I need from my work/ career? Investments? Lifestyle? What is going to allow me to pay down debt and save more? Do I need a different job, position within my company or more education? What are my options?

Now that you've created some input information for the financial strategy session, it's time to create an actionable plan. According to David Collis and Michael Rukstad, co-authors of “Can You Say What Your Strategy Is?” in the April 2008 issue of Harvard Business Review, a strategy is comprised of three primary elements: 1) objective; 2) scope; and 3) advantage.

Objective is basically the answers to the questions in set two, or your overall set of goals. Scope is what you're going to do -- specifically, the answers to question section three. And advantage ties them all together -- it's the determination (you're already somewhat there if you're doing the exercise right now), perseverance, and energy you devote to achieving your goals.

In treating your financial health like a nurtured and planned business, you are much better position to succeed. And hopefully, you're approaching it in a more business-like manner, checking your emotional baggage at the door!

Stay the Course! Running Wisdom Applied to Investing for Retirement

2008-07-15T08:41:00.000-07:00

In the great words of my high school cross country coach, "Just stay the course!" Whether we'd tired on a long summer run, or stayed up too late studying the night before a big race, his encouragement was always the same. The expression is both strong and beautiful: the strength is derived from all of the prior training; the beauty lies in its simplicity. Coach Boder was teaching us that the present, relatively minor challenges were no match for the combined efforts of a solid plan created in the past, and that fretting about it, or looking for a magic bullet fix, would only further drain us.

I think "stay the course" is most excellent advice for LMF4HMW readers with regards to their retirement portfolio investment strategies. The majority of you have many years before you reach retirement, and even those who are nearing the work force finish line will likely live another 20 years. (The average life expectancy for a woman born today in the U.S. is nearly 81 years; those of you who have made it to 65, a typicaly retirement age, are still likely to live another 20 years as you've gained strength over the years from jumping over a lot of life's hurdles.)

Why is 20 years so important? Jeremy Siegel of Wharton, in his book Stocks for the Long Run, points out that in 20 year rolling periods since 1926, stocks have beaten bonds and cash by a wide margin 98% of the time. This doesn't mean the waves aren't bigger; just that there is are 98 out of 100 reasons to set your asset allocation (division between stocks, bonds and cash) to a diversified collection (large and small; domestic and international) of stocks or mutual funds within your 401(k) and let it work for you, deriving strength from the method, and tuning out the noise.

For those runners or athletes out there, if you read research stating that those who took a day off per week were 98% more likely to beat those who trained daily, what would you do?!! If you were enjoying a day off and a taunting competitor called to tell you that there was a 2% chance he'd beat you given his daily runs, would you scramble out the door, or rest assured that you made a decision based on strength of prior research and are sticking to it?

There are two main challenges to adopting a "stay the course" mentality as far as retirement investment advice is concerned. The primary problem is noise -- currently, there is a vast amount of media attention dedicated to telling you that bad times are afloat, or worse yet, that they're already here. And implying that you should do something!!! It is very tempting to run scared in the other direction -- i.e., hide in the cash or bond corner or make a hasty reactive decision, with the doom and gloom mentality constantly bombarding you. (The fact that GDP -- gross domestic product and the primary measure of economic performance by many, grew in the first quarter of 2008 is somehow forgotten and ignored daily in favor of more important "news".)

Read the following sentence very carefully, twice: Even if we are headed for the dreaded downturn (that is, by the way, a normal part of the economic cycle, so we will eventually be there), the advice is remains the same: stay the course.

Why you ask? Because reactionary investing is not the answer. When planning for retirement, you set the training regimen ahead of time, not as you run along through the years. Runners don't randomly zig zag all over the city while training; they plan a course beforehand. And so should LMF4HMW readers when dealing with retirement.

Good runners accept that every day is not a best run; in fact, some are terrible -- we used to call them "crisis pace days" or "blow torch days". Instead of fighting them, we'd simply accept them, knowing that the path to increased speed isn't linear, and run through them despite the pain. Honed training involves managing the peaks and valleys of your athletic system -- accepting that you aren't going to be in the best shape for every race and choosing your wins based on the research and odds before you take to the course.

Just as a runner can use physiological research to manage her regimen, an investor can draw strength from financial research to stay the course. If we accept that economic downturn, "crisis" and "blow torch' days are a normal part of the cycle of growth, then we can at least derive strength from knowing that they're coming and having a plan to get through them. (Maybe it's heading out for a jog instead of worrying about it? Getting a mani-pedi? Reading Siegel, again.)

This brings me to the second main challenge when adhering to a "stay the course" retirement portfolio regimen -- it's both boring and frustrating. Psychologically, we'd be much more comfortable seeing our running times decreasing every race and our retirement portfolio increasing every period, even thought we know deep down that this is totally unrealistic. It's a lot less sexy to approach the challenging times with a mindset that instead celebrates the number of minutes you've spent training (especially those in bad weather), or the number of shares you've bought. And very tempting to do something in search of the magic fix.

My advice to you is the same whether it be as your running or retirement planning coach: go ahead and accept that your training or portfolio is going to have peaks and valleys. Embrace them. Derive strength in staying the course.

To celebrate strength of staying the course, today I'm making a toast to 20 years of patience by recommending a favorite style of wine: 20 Year Tawny Port. This citrus flavored, nutty libation with a long finish is actually a blend of different wines that have been patiently aging for many, many years -- 20 is the average age of the wines. Give it a slight chill for a refreshing summertime dessert.

Wine Only - I Digress into the Bottle in Honor of Independence Day

2008-07-03T10:30:00.000-07:00

I've decided to balance out last week's rather downer posting on directives with some fun in honor of July Fourth. As much as I love Jolly Old England with its bobbies, London cabs, Wimbeldon (go, Federer!) and quaint thatched roof houses, I'm so glad to be an American! England just doesn't compare food wise -- think spotted dick pudding (eew), nor is it known for great winemaking. And besides, the U.S.'s happy hour culture is much cooler than 4pm tea and biscuits.

To honor the brave soldiers and citizens who fought for our great country's Independence, I've picked some of my favorite value wines made right here in the good ole USofA:

Gruet Sparkling - I love this wine! It's a methode champenoise (ideal when shopping for sparkling outside of France) from New Mexico! Yep, New Mexico has a legit winery. And for less than $15, you'll enjoy its citrus and apple flavors and toasty finish.

Chateau St. Michelle Columbia Valley Dry Riesling - a delicious, light and zippy bottling from Washington! A lot of US wineries strike out with Riesling, but this one is the real deal and it's widely available (i.e., in your grocery store).

Three Thieves' Bandit Pinot Grigio - what could be more American than a fun wine in innovative packaging? It's a 1L of wine (that's about 33% more for your money) that comes in a Tetra Pak -- like a juice box, and delivers zesty citrus flavors. Perfect for picnicking.

Bonny Doon Vin Gris de Cigare - this blend of Rhone varieties -- think Syrah, Grenache, Mourvedre, has a little Grenache Blanc added. It's a refreshing (drink chilled) mix of watermelon, strawberry and herbal notes and goes well with just about anything, especially when enjoyed outside!

A to Z Pinot Noir - an Oregonian wine with raspberry, violet and spicy notes. And it's not one of those fruit-bomby bottlings, either -- just good Pinot fabulousness.

Joel Gott Zinfandel - it's been said that "everything he touches turns to gold", so I'm thinking he must spend some serious time with his Zinfandel. It packs a big, but balanced punch with blueberry, plum and just the right amount of oak.

Raymond R Collection Merlot - I had to end with Merlot. I'm actually rather sick of all of the hoopla about Merlot being "in" or "out". The fact is, it's still the top selling red varietal in the U.S. (For those of you who don't know, in the movie, Sideways, Miles ends the movie drinking his prized wine that is in fact, Merlot-based. Wine geek irony given that he spent the whole movie making fun of it.) This bottling from Raymond has a good deal of raspberry, cherry and earthy notes, and will be excellent with what ever slice of meat you throw on the grill!

It's wonderful to be an American! As you enjoy these wines, I urge you to remember all of the good our country has done around the world, be thankful for our freedom, and re-discover or affirm your pride in this great nation. (It can be difficult when there's a tendency to self-hate and focus on the negative in the mainstream media.) So thank a soldier. Pick up a U.S. history book. Fly a flag outside your door. Sing the national anthem with heart -- that means with your hat off and your hand over your heart.

Or move to England and eat spotted dick with the Queen.

Make it Your Objective to Get a Directive!

2008-06-27T14:20:00.000-07:00

Because this post has a somber tone, I'm recommending a wine pairing beforehand: open a nice, chilled dry rosé in honor of the summer! Think cheerful watermelon and strawberry flavors and pair it with some Parmesan or olives. Yum!

Before I get into the somber stuff, I have to make a few side points regarding pink wine. It's always annoying to me how folks in the wine industry are perplexed that "the people" are hesitant to drink rosé. We've been making fun of White Zin drinkers for years, yet expect wine consumers to love dry rosé? As if normal people have time to distinguish between cool and uncool pink wines!!!

So I'm putting a stop to this stupid debate. In general, drink what you like! If you like rosé, super. And if you like White Zin, more power to you -- know that your people actually saved Zinfandel plannings back in the day. Before Sutter home invented White Zin, California producers were ripping Zinfandel vines out! (White Zin is made from the usual red Zin grapes -- the skin is removed after a short time; hence the pink color, and sugar is added; hence the wine snobs making fun of you).

Ok, onto my blog post. I went to a new doctor this morning to discuss my ridiculously bad allergies -- think very puffy red eyes, frequent attacks of eye pain (where closing them and keeping them open is awful), sore throat and uncontrollable sneezing. I was impressed as he went through a comprehensive set of questions regarding my physical and mental health and illness history in addition to my current set of woes. When he asked if I had a living well, I felt pretty good about being able to answer yes. (And I was super impressed when he asked to have a copy for their files.)

After the Schiavo case that had all of the media attention in 2005 (I guess there was no "depression" or "recession" looming that spring), I made it a priority to get a living will. I knew that I would not want to be kept on life support in the event of an "incurable and irreversible condition that will result in my death" or "persistent vegetative state". And that I certainly wouldn't want my family fighting over it! So I went onto Legalzoom, and 15 minutes and $40 later, I had a living will en route in the mail. When it arrived, I had three required witnesses sign it (sort of an awkward thing to ask your co-workers, but hopefully they're over it), got it notarized, informed my then boyfriend and family, and then filed it away until today.

I've had several life changes since I wrote it -- namely moving and getting married, so I realized that I need to update it. And get a last will. As easy as it would be to "do it later" or wait until I have a bigger nest egg, the reality is that as a LMF4HMW, I owe it to myself and my family to get this done ASAP. It's relatively cheap and painless, and saves a lot of heartache and tax payer money in the long run. (I recently heard a story about a 39- year old man who died in a car accident and how his estate is being tragically held up in the court system since he didn't have the proper directives in place. His wife, in the middle of this nightmare, has to battle with court appointed lawyers over what he "would have wanted". Not cool.)

While I usually write about saving money, today's post is about spending money on something very, very important. Take the time to get living and last wills so that your wishes are properly executed. If not for yourself, do it for your family and friends, whom I'd personally rather have enjoying a helluva wine and celebrating my life when I kick the can; definitely not arguing in court or with each other!

Risk: The Surprising Reason You Should Make it Your BFF

2008-06-13T14:56:00.000-07:00

You'd think it would be difficult for someone who was raised by a safety queen to to embrace and even enjoy thinking about financial risk. I burst into a big grin when I think back to my childhood lessons regarding risk-taking, which were mostly about "not doing (this or that)" due to the fact that I'd be "liable to die" if I did. These lessons were generally being taught when I was doing something I wasn't supposed to, like driving too fast, opening the door to strangers or not making straight A's. But I do -- I love the concept of risk and reward when it comes to investing, and I encourage you to befriend it!

Who in her right mind would want to befriend risk? Isn't financial risk "bad" -- best reserved for greedy corporate types, the frivolous, and gluttons for punishment? It's no surprise that when people hear the word "risk" in conjunction with investing, they often look like they've just sucked on a lemon! It's a natural psychological reaction to something we perceive as negative, but it's not necessarily the right reaction.

Let's pause for a crucial question: Are all risks created equal? The standard (non-financial) definition of risk usually implies a negative connotation -- something along the lines of "exposure to injury or loss". If you're a visual worst-case-scenario type like me, perhaps you are picturing a guy gambling away his retirement fund in Vegas? Or a daredevil skier heading down a sheer cliff? Someone else might simply think of a college grad moving to a new city for job opportunities, or a wife trying a new recipe for dinner. All of these are risks, but they certainly don't carry the same "exposure to injury or loss".

Just as there are varying levels of risk in the real world, there are different types of risk in the financial arena. For example, there's unsystematic versus systematic (industry or company specific versus general or market), liquidity, price, sovereign, and on and on and on. And they do not possess equal exposure to loss.

The good news is the LMF4HMW readers need not worry about the many different kinds of financial risk. The two biggest risks you face are 1) not investing at all or putting off retirement planning; and 2) being too conservative and losing out on market returns. Yes! I need not comment on the first given all my posts about investing now. Regarding the second, the all too common way a retirement portfolio asset allocation is presented and encouraged is as follows: you should hold 100% stocks minus your age to equal the amount of bonds. So if I'm 30, I hold 70% stocks and 30% bonds.

The problem with this approach, other than its inherent laziness, is that it ignores basic factual evidence! In Stocks for the Long Run, Jeremy Siegel, esteemed Wharton professor, educates us that "over the last century, accumulation in stocks have always outperformed other financial assets for the patient investor", or someone with a time horizon of 17 plus years (you unless you plan to expire -- not retire, in less than 17 years).

Given that Siegel's research demonstrates that stocks outperform bonds 90 percent of the time for 20-year holding periods and nearly 100 percent of the time for 30-year time frames, most LHF4HMW readers should concentrate their retirement portfolios exclusively in stocks. While your ride might be a bit more interesting and shaky a times (more up and down), the destination will be superior (better returns or more money).

The idea that stocks are inherently risky is based on misinformation and hype. Think Enron or any other financial crisis. While it's true that an individual stock's value can decline or even evaporate, when you hold a number of different stocks, you mitigate the risk via diversification. Most of you invest in funds via your company's retirement plan, so the diversification part is already covered. (Note: I do not advocate that LMF4HMW should hold individual stocks; for most people, index funds with their low expense ratios are the first choice and mutual funds are the second.)

With regards to bonds (or fixed income), Siegel cautions that it's very common to confuse "fixed income" with "fixed purchasing power". Bonds are not "safer" than stocks; in fact, in 20-year periods, they've lagged inflation at times by as much as three percent. And cash, well, if you put your retirement money in a savings account versus a diverse basket of equities, you can be sure that your nest egg will erode over time, which is really risky.

So I'll gladly swallow the "risk" of investing in stocks for my retirement. In this case, risk is indeed my best friend as it's what will lead to the reward of superior returns!

Now that you've made it through this posting on risk, open a bottle that is void of risk: a yummy Sauvignon Blanc from New Zealand closed with a screw top. Try Kim Craword, Huia or Brancott for some lemon/lime, floral and racy flavors from the Kiwis! (If you're wondering why screw topped Sauv Blanc pairs with today's post, it's because this type of closure eliminates the risk of the wine being "corked", or smelling like sweaty socks :)

Asset Class Primer - Breakdown of Major Types of Investments

2008-06-06T14:32:00.000-07:00

When you think of assets, you may first think of your fixed possessions, like your home or condo, car or other valuable items. Or hey, maybe you're thinking about your runner's legs or squat-rack sculpted tush! While all of these are important to LMF4HMW readers, there's another type of asset with which you should have familiarity: financial asset classes.

I know this topics sounds pretty boring, but today's post is actually quite zippy! So I've chosen a similar wine, Albarino, which will make asset classes slide right down. Albarino is primarily from Rias Baixas, Spain, and is a crisp, lemony, peachy and often has almond characteristics. Perfect for summer weather and seafood!

There are three primary forms of assets -- stocks, bonds and cash. Stocks, or "equities" as they're referred to in the financial world, represent fractional ownership in a publicly-traded corporation. A share of stock is a claim to the company's assets or earnings, and the number of shares represents the fraction of ownership.

Bonds, or "fixed income" debt investments, are basically I.O.U.s from a company or government that has borrowed money from an individual or institution. Over a set period of time, the borrower will pay a set interest rate, usually semi-annually, and return the amount invested, or "principal" at maturity). There are many different types of bonds -- have you ever heard of zeros (those that trade at a discount and return more than the sum invested), munis (local or state issuance that often have tax advantages), or junk bonds (riskier investments with higher potential return)?

A lot of people think of bonds as "safer" than stocks, but this isn't necessarily true. Risk is a bigger topic -- that of my next posting, and is determined given inputs and desired outputs like time horizon, goals, etc. Something that's often harder to keep straight is that bonds and interest rates have an inverse relationship: when interest rates or yields increase, the value of the existing bond held decreases. This is because newer issuances are offering higher interest rates and those holding lower interest-rate bonds are receiving less remuneration for lending money.

Finally, the third major asset class is cash. Good old, cold, hard cash, which in this case includes highly liquid (or easily cashed out of) money market instruments -- savings accounts, Treasury bills, certificates of deposit, etc.

Congratulations! You should now have a solid understanding of the three major asset classes. Next week's post will cover asset allocation.

Lost in a Freaky Financial Timewarp

2008-05-30T16:09:00.000-07:00

Today I was taken back in time, to an era somewhere between the 50's and 70's. The experience was an odd mix of elements: time slowed to a crawl; there was little technology; and people seemed, well, less sophisticated. Those on the services side of the windows were chatty (with each other, mostly), while those of us waiting were largely silent. The room was filled with little Post-Its taped to the walls reading "No Food, No Drinks", and there was a larger sign that said, "Tell the guard if it's been 15 minutes past your scheduled appointment". There was a near void of color -- just a bizarre palette of moldy yellow walls, gray frayed carpeting and cheap burgundy chairs, all of which well represented the lack of energy in the place.

Want to guess where I might have been? On the set of the sequel to Napoleon Dynamite? (No, but close! There was someone in there who looked like Uncle Rio.) In line for visitation at a prison? (Nope, they have food in prisons.) The DMV? Ha! Almost, but worse.

The environment I describe is an official satellite office of the government agency that's supposedly overseeing your "retirement" funding, the Social Security Administration. Yep! Good ole Uncle Sam's "financial advisory" services. (I have proof since I snapped some photos while the guard wasn't looking!)

Why would the LMF4HMW blogger would be in the SSA in the first place, you ask??! And why am I ranting about it? Turns out that when you get married, the USG's gift to the blushing bride is the opportunity to wait in line at several agencies -- the USPS, the DMV, and the SSA, in order to use her married name.

It dawned on me during my last hour of the day spent in a line that even more frightening than the inefficiency we all encounter at these bureaus is the fact that this one, the SSA, is tasked with swiping a significant sum of money out of your paycheck to ensure that you're saving for retirement "responsibly". Yet the minute one of its customers walks into an office with 20 people waiting, two of the five service windows close. (It's lunchtime, you know.)

I don't know about you, but I don't want my financial advisory shutting down shop just because someone needs a sandwich. I'm not an activist type, so I won't use the rest of the post to encourage you to vote for small government candidates and anyone with a platform including privitizing the SSA. (If you don't think I'm right, you should book a field trip there before disagreeing with me. Hell, I had it good -- I live in a smaller city, nothing like the horror of a big city government office!) I will, however, remind you that you are in fact the person responsible for saving for your retirement. Even if you do one day receive what you've "put away" with the SSA (i.e., what they've taken without your right to refuse -- I believe some might call that stealing), it most certainly won't be enough.

This is actually good news because you are in control of the majority of your retirement savings via your investment accounts and 401(k) plan(s). You have choice as to in what to invest, how much to allocate, etc. And you can even do most of your financial and operational transactions online (without taking a number and listening to someone gripe about needing the money to pay rent)! So take some vows of your own on Monday -- to put away more, as much as you can, and if you haven't begun contributing, by all means, to do so! Otherwise, short of a trust fund, you'll be the woman crying at the counter to the SSA officer about needing money to pay her cable bill.

Wipe out Telemarketing Efforts!

2008-05-09T07:34:00.000-07:00

Sick of flipping away from a great conversation only to find that the person on call waiting is yet another telemarketer? These companies always call precisely when you're least inclined to listen -- just as you're about to open that special bottle for a dinner, or when you've finally dozed for a rare nap. I don't know one HMW who is interested in these unsolicited and bothersome interruptions, and thankfully, they're easy to stop!

Simply register your telephone number(s) online at the National "Do Not Call" Registry or call 1-888-382-1222. If you continue receiving calls, you can file a complaint. Or, I find that a firm reminder that "I'm on the 'Do Not Call Registry'" does the trick.

Credit card offers are another noxious pet peeve. They're endless, a waste of paper, and in many ways, they're worse than telemarketing calls: some HMW fall prey, figuring they might as well sign up "just in case", or worse yet, they're stuck in a cycle of transferring balances from card to card in search of a "better" rate (versus addressing the root of the problem which is too much credit card debt and no real plan to conquer it).

Just as you can opt out of telemarketing calls, you are henceforth empowered to end the credit card offers! Simply fill out this online form, making sure to choose "opt out" -- it defaults to "opt in" (sneaky, but not sneaky enough for a HMW). This will free you of credit card offers for five years, a rather good deal considering it takes about 50 seconds.

Now go out and celebrate with a nice box o' Chardonnay! Yes, you heard me right. I was recently judging at a wine competition and had the pleasure of trying a Black Box Chardonnay from a well, box. It's a slim cardboard package with a tetra-pack (think of a bladder in a Camelback) filled with four bottles of wine. It stays fresh weeks after opening (as if wine ever lasts weeks at my house). And for the environmentally inclined, produces less waste. Best of all, it's $20 for four bottles! Every night can't be a Burgundy night!

The B Word

2008-05-02T09:25:00.000-07:00

You likely have to deal with the B word at work. Those of you in the for profit world are quite used to cutting, measuring and arguing for them at least annually. And those of you in the non-profit world are likely blaming Bush or some other "mean" Republican because you had "cuts" and will therefore, like every other business, have to pick your priorities.

Figured it out yet? Today's post is about BUDGETING! Are you pumped yet? I'd guess that somewhere around 80 to 90% of LMF4HMW readers don't have one. (And that's probably a conservative guess.)

Would you run a business without a budget? Of course not, that would be irresponsible! Then is there even one good reason to run your life without one? (Unacceptable excuses: "I don't feel like it." "I hate money talk/numbers/finance." "I'm suddenly coming down with the flu.")

I'm not suggesting that you spend an hour creating a budget, but I am pleading with you to give it 20 minutes of your time. Hell, you're the one producing the revenue. You should at least know where it's going! This can be done in a few simple steps:

1. Write down your monthly cash inflow --"revenue" from your job(s), etc. (Assuming this is net or after you've paid taxes, contributed to your 401k, etc.)

2. Write down your fixed monthly expenses -- rent/mortgage, car payment, school or other loans, car and renter's/homeowner's insurance and dues, utilities, etc.

3. Make a list of your other monthly cash outflows -- gym membership, cell phone, gas, groceries, maid services, beauty appointments, credit card payments, etc. (Being online with a recent bank account statement is helpful at this point.)

4. Record any other outflows you've forgotten -- think hard! There's always more. Restaurants/bars, trips, gifts, investments, etc. These are obviously dynamic expenses but a good estimate is better than nothing.

5. Add outflows from #s 2-5 to get your total monthly cash outflow.

6. Subtract your total monthly outflow from your inflow.

If you have a positive number, congrats! (You're still not done, but you can go open a bottle of Syrah -- I had an awesome one from Melville last night.) If you are staring at a negative number, the good news is that you're about to take your first step in turning this into a positive one. The reality (not calling it "bad news" because whining about it doesn't help) though, is that you have to make some hard changes. NOW.

The easiest place to start is the items you recorded in #4. I love dining out, but it's a very fast way to lose $100! (Your thing might be shopping or an expensive activity.) If you've cut all of that or you didn't have anything there to cut, move to #3. Do you really need two gym memberships? Maid service? Two facials a month? Get the final #6 positive.

The point is, you need to determine how much you can spend and stick to it. Everyone's number will be different. It's all about prioritizing.

In taking control of the situation, you gain power. (And likely better shut eye.)

PS - Be sure to revisit this at least annually -- a good time is when you have your work review and hopefully get a raise. Put it on your calendar. You owe it to yourself. Being in control of your pursestrings is hot!

Feelin' Shaky? Then Lay Off the Media and the Caffeine!

2008-04-24T10:14:00.000-07:00

William Bernstein, financial theorist and author of The Four Pillars of Investing, said it best in a CNN Money website article, "Calming Words for Troubled Times":

"Get out of the market? Of course not, silly. If you think about it logically, you are rewarded for owning stocks precisely because they are risky; the dicier things look, the more money you can expect to make in the long run...History bears this out: The lowest returns were earned by buying high when there was a lot of blue sky - think 1928, 1969, 1999. And the best returns were earned by buying low in 1932, 1942 and 1982, when it looked like the whole world was going to hell. One more thing: Stop watching CNBC. It will make you stupid and poor. If you must watch, turn off the sound. It becomes an excellent substitute for Animal Planet."

A LMF4HMW reader surely doesn't lose the irony between his "calming words" and the title of the piece still promoting the idea of "troubled times". The main point of my article today is to calm your fears. The sky is not falling. We do not need more government intervention. And volatile markets are normal.

Let's face it -- the sensationalism addicted media is bored right now. Calm, positive news just doesn't sell stories. We've had to put up with political coverage for the 2008 election since about 2006, so even the talking heads are getting sick of it. There is some success in Iraq given the troop surge (although you won't hear much about it given the agenda), and there haven't been any lacrosse "scandals" (the real scandal was the media's biased treatment of the issue) of late. So when you've got to sell ad space -- i.e.: FREAK OUT about something, it might as well be the economy!

In one of my first posts, I talked about putting together a long-term financial plan. Successful investing is not about derailing your efforts because you heard some bad news or have an icky "feeling". Just as a rock hard body is crafted by shunning impromptu scoops of Rocky Road in favor of your training plan, a strong portfolio is made by adhering to your strategy.

So instead of being glued to the tube or "news"paper in awe of all the ills of the financial markets, take some advice from mother, who always knows best: "Turn off that television! Go play outside!"

A Letter to my Econ Prof. Just in Time for Tax Season

2008-04-06T17:19:00.001-07:00

Dear Professor XYZ,

I have something I need to confess: I didn't really understand what you were talking about ten years ago when I sat in your Macroeconomics class and you said, "One dollar today is worth more than one dollar tomorrow." And worse yet, I didn't give a hoot about economics -- a friend told me you were a great prof, that it was good material, and that she'd help me (thanks, Liz!) so I signed up.

Of course, now I wish I'd been able to fully grasp the course content. I tried -- you had a photographic memory and would've noticed if I'd skipped class even one class. I studied hard, too. I think I received a B (you'd surely remember), but the material just didn't completely click. The main problem was that I had no real world experience with which to compare the concepts you presented. So I had to go and spend $40k to get an MBA with a finance concentration and literally force feed finance into my brain.

Now that I know more, I really appreciate what you were trying to do. All those graphs and charts with supply and demand make sense now; I get it! The only problem is, most people walking around (and voting... grr) don't, but I digress.

Please find below my blog on Time Value of Money, which is dedicated to you. (Just sorry I can't remember your name, especially since I know you'd remember mine.)

Yours,
LMF4HMW blogger

***********************
Perhaps you've heard it to: "One dollar today is worth more than a dollar tomorrow." OK, sounds reasonable -- I'd rather have a buck today than tomorrow. I'd rather get paid today than tomorrow. (I'd rather buy the Brunello today... oops, not really, that would put me in the hole $100 :) Do you really understand the concept? And more importantly, why you should care?

The concept, Time Value of Money, is a basic premise of modern finance. In asserting that today's dollar is worth more than tomorrow's, we're making a valid estimate that by having the money today, we could accrue interest until tomorrow, next year, etc. It is an important concept because it affects the way you operate financially. We all know we want to pay lower interest rates on loans, and that we'd prefer a savings account or investment with a higher interest rate. This is also due to Time Value of Money.

In honor of tax season, let's examine a hypothetical duo of Janes and their differing approaches to paying taxes as an example:

Note: Jane is a single woman.

Jane Doe - like many of us, she wrote "1" (self) on her withholding form some time ago. She received a $2000 tax refund and is happy about it! Thrilled, actually, as Ms. Doe figures she would've "spent it anyway" and is glad to use it to pay down $1500 in credit card debt and treat herself with the rest.

Jane Duh - Ms. Duh set her exemptions appropriately when she started her job a few years back and knows she'll need to adjust them when she buys a condo in the next few months given the mortgage interest rate deduction. She's only expecting a minimal refund check, and is also thrilled.

Which Jane should be feeling thrilled right now? Hint: "Ms. Duh" ain't no dummy.

Confused? What's wrong with getting a fat refund?!! It's like finding $20 in your pocket, but better, right? NO. Why? Time Value of Money: Ms. Doe unknowingly gave Uncle Sam a $2000 interest-free loan in 2007. If she'd invested it like Ms. Duh in a money market account offering 5% interest, she'd have $2100 right now. The object of the game is not to overpay.

Note that it's unrealistic to assume that you'll net out at zero. Ms. Duh's "perfect score" of owing nothing and receiving nothing is for illustrative purposes only. What's important is that you examine your withholdings to get them to the point where you will either receive a minimal refund or even owe Uncle Sam a few bucks. Better him giving you an interest-free loan, right?

PS - what goes better than milk with Uncle Sam cake? Prosecco! It's affordable, light, sparkles and can handle a bit of sweetness.

Index Funds! Love em!

2008-03-21T09:55:00.000-07:00

As I wrote in my last post, index funds are my favorite thing finance. I just love em! Almost as much as I love newfer puppies!!! Why do I have such amorous feelings about something that's neither cute, nor fuzzy? Well, for one, index funds don't slobber. And two, they're relatively cheap (unlike $2000-$3000 newf pups).

Index funds are, in general, super investments. They are low cost mutual funds that track an index. What does this mean? Well, let's take my favorite, since today's post is all about faves: MSCI EAFE. This is an index created over 30 years ago by Morgan Stanley that provides broad international stock exposure -- it tracks major stocks in Europe, Australia and the Southeast Asia. (Remember, the US comprises less than 50% of the world's equities, so getting international exposure is crucial. Think BMW, Diageo, Loreal, Barclays, etc.)

Instead of having to buy a few shares of stock for each of these companies in the index, which would be incredibly time consuming and expensive, you buy the index. This means you're diversified at a lower cost. So you don't have to worry about trading or following the individual equities -- HMW are way too busy for this, and you don't pay high fees. Vanguard, I-shares,and other investment companies offer index funds that track EFA, and because there isn't a big research fee given that they're just buying the index, the cost savings is passed on to you in the form of a lower management fee. Expect to pay somewhere around 0.25% total expense ratio, which is a great deal considering that a lot of international funds charge over 1%! Each tenth of a percentage point you save in fees is therefore allowed to grow as the investment, which means more money in your pocket.

Look for index funds in your 401k -- companies are starting to offer them. And if they're not available, put in a call to your benefits department and request that they be added next time the plan is reviewed. If you have an IRA or taxable account, you'll be able to buy them there.

So that's it! Pretty quick post. Enjoy!

P.S.: The one "downside" to index funds is that you'll never beat the market. You'll just track it net of the (low) expense ratio. Know that the vast majority of folks don't ever beat the market, and in fact trail it given HMW sins like excessive trading, letting emotion dictate strategy, etc. I'd be very suspect of a broker or hot-shot who tries to steer you away from index funds! Unless of course it's Warren Buffett calling. In short, index funds are fabulous -- they're cheap, diverse and guaranteed to track the market. All you have to do is buy them!

Coming Back from "Vaca" with a Fee Rant

2008-03-14T08:49:00.000-07:00

Well, it was sort of like a vaca -- in the last four weeks, I've managed to buy a house, form an LLC, and drive all night with two pets to my new (much more efficient and less expensive) home state of Washington!

I certainly don't want to offend all of my California-based friends, so I won't rant about the insane taxes there. Let's just say that forming an LLC will set you back $800 in the Golden State and run you $195 a couple of states north, and leave it at that. I'm already saving money, and you know how much that pleases a LMF4HMW! And yes, one of the major deciding factors in our move, other than my fiance's company so generously paying for all of our related expenses and packing, was the lifestyle change -- i.e., lower cost of living and opportunity to own a home. (More on that later -- those mortgage deductions are pretty fab.)

How does the above diatribe help other LMF4HMW readers? Well, it doesn't. It's a lame excuse for why I haven't written in a month :)

Let's get down to business. Today's post is all about fund fees. (These are the funds you pick in your 401k.) 401k fees are typically two-fold: 1) particular mutual fund's management fee or more generally, expense ratio; and 2) administrative fee for the plan. Unfortunately, there's not much you can do about the latter -- it's either take it and revel in the many benefits of a 401k (tax, growth, auto-pilot, etc.) or be very silly and not invest. Unless you're involved in the benefits department and can therefore rightly search for a lower cost plan for your company!

So we'll tackle the fee over which you do have some control, the expense ratio! The expense ratio is the percentage of money invested in the fund that goes to running it. Typical annual expenses include research, taxes, office costs, etc. and of course the monies paid to the fund manager (people in the business aren't prone to staying at Best Western and eating at Denny's). They typically range from a very low less than 0.25% for domestic index funds up to 2+% for emerging markets funds. Some funds market themselves as "low fee"; others as "high return" (usually higher fee). How they're contrived is not an exact science. (Sounding a bit like calculating the AMT, right?) Actually nowhere near as confusing, as again, you hold the reins here!

The fund manager's job is to make money. Your job is to choose an appropriate funds with relatively low expenses. While you'll only have a slightly greater chance of success calling the Vanguard or Dodge and Cox manager and asking him to lower the fee than say, getting customer service from a cell phone company, you do have the option to choose which funds in which you invest. And fees are a major consideration! The more dough lost to fees, the less your money will grow.

So look at the fund's prospectus (it'll be online) and search through the several pages of "blah, blah, blah" until you see "total expense ratio". This is the metric with which to compare the funds up for grabs in your 401k. Note: some of them will have a whole host of other fees like 12b, etc. You focus on the TOTAL expense ratio.

Ideally, you want a fund that's beating its benchmark -- the index to which it compares itself, net of fees. This means that the return from investing in the fund is better than the benchmark index even considering the monies paid out for expenses. If none in the group do so, choose the closest options.

Do I seem like a stickler? I am! There's just no reason to invest in a fund that isn't beating its benchmark net of fees. Why? Because a lot of you are lucky enough to have index funds, my absolute favorite thing finance. And the topic of my next post!

P.S. - do not be surprised if none of the funds available beat their index benchmarks. One of my most interesting reads in a Portfolio Management class was a research article hypothesizing about whether it's 40, 70 or 90 percent of actively managed funds that do not! Let's just say the finding was on the high end and open a bottle of Chateau Neuf du Pape, a blend of up to 13 different grapes that hails from the Southern Rhone in France, in honor of this weekend's Rhone Ranger's festival in San Francisco!

AMT - The Assinine Mother of all Taxes

2008-02-11T11:04:00.000-08:00

In the great words of my high school cross country coach, "I'm so mad I could fry eggs on my head!!!" Why such "negative karmic energy" on a sunny Monday? The Alternative Minimum Tax, one of the most egregious problems with the US Tax Code.

Interestingly, a look on Investopedia, normally one of my preferred finance sites, only tells you that AMT is a "tax calculation that adds certain tax preference items back into adjusted gross income... designed to prevent taxpayers from escaping their fair share of tax liability by using certain tax breaks." Hmm, that's pretty benign for a tax that was enacted in 1970 that has NEVER been indexed for inflation nor tax cuts!!! Live in San Francisco, Los Angeles, New York or any other ridiculously expensive city? Doesn't matter. We all know $75,000 is San Francisco is much different than $75,000 in Topeka, but the lawmakers just can find the time between MLB steroid investigations, holding babies, and flying around in their not-so-carbon-neutral jets (emulating Al Gore) encouraging everyone to vote for "change" (them).

I digress. The AMT is a separate tax code that was created to prevent tax payers from escaping their "fair share" (note: I get really prickly anytime the words "government" and "fair" are in the same sentence) by disallowing the majority of deductions. It is, quite literally, an alternative set of rules for the minimum amount you'll be paying the federal government. When it was enacted some forty years ago, it affected 19,000 people. Now millions are paying it. If you normally owe $47,000 and your AMT calculates to $57,000, you'll pay the $47,000 plus the additional $10,000.

The rates vary between 26-28% as opposed to the regular 10-35%. The main issue is that most deductions are lost under the AMT, including property tax, state and local taxes (enormous in states like CA and NY), unreimbursed business expenses, etc. (You do "get" to keep mortgage interest and charitable deductions, but this doesn't help those of us living in areas where you need $800k for a 1200 square foot flat with no parking.)

Confused yet? Don't feel bad -- I can't help you with the sick feeling, but I can tell you you're not alone: most politicians couldn't explain it to you either (shocker). Another big issue is how complicated it is for you, me, and your accountant. There's no magic number to say, "sorry, you're getting screwed by AMT this year," only "triggers" like having dependents, deductions, etc. With $75,000 income, you begin to be a prime target. And if you're married making $100,000 together (really not that hard to do, especially in bigger cities), you're definitely getting screwed. Since I'm tying the knot in May, I'll be paying even more AMT -- funny, I didn't put that on my registry?!!

If you'd like to read more, here's an informative article... I just threw up in my mouth so I need to stop soon.

On a brighter note, here are some things you can do to better your situation:
1. Contribute the max $15,500 ($20,000 if you're over 50) to your 401k as it minimizes your taxable income.

2. Be sure to write off any charitable donations. Tell your accountant to give you an estimate of your AMT and perhaps choose to donate more to avoid being hit.

3. Consider buying property versus renting. While this isn't for everyone, it does help.

4. Ask you boss for a huge raise! If you make over $500,000 single or married, you're no longer subject to AMT.

5. If you're the political type, consider writing your Congressmen and Senators and encouraging them to reform AMT or better yet, ditch it all together and get on the Steve Forbes flat tax wagon. (I'm in SF and I'm pretty sure Nancy Pelosi, Barbara Boxer and Diane Feintstein -- my three least favorite women, have blocked my mail. Another shocker: given their situations/ incomes, none of these b*tches pay the AMT.)

A Credit Crunch to be Legitimately Worried About: Yours!

2008-01-21T14:00:00.000-08:00

You can't turn on the tube nor open a paper without hearing about "the credit crunch". Pretty interesting given that credit spreads (basically the cost of borrowing) are the same as they were before these doom and gloom headlines started appearing en masse about a year ago. And especially laughable when you consider that the "tightening" means that banks are actually looking for proof of income and requiring a down payment for a house again! (This has been the historical, proven model -- it's not a credit crunch when lenders go crazy and give out too much money to easily, then decide to reign themselves in to a healthful level. Kind of like when you return from vaca and stop drinking ten pina coladas a day!)

I digress. Today's post covers personal credit. And more precisely: plastic. Some of us don't use credit cards, others abuse them to the point of wearing out their strips. If you're one of those in the former group, or a gal who pays her monthly balance, feel free to disregard the rest of the article. But if you're like a lot of people, perhaps a bit too tied to the "cha-ching" of Visa, MC, Amex, or all of the above, press on.

Time for a personal inventory: Each questions below has an italicized directive -- you'll need a pen and piece of paper. And a glass of Pinot -- something has to be sexy because this exercise ain't, although getting control of your credit will be!

1. How many credit cards do you own?
Experts recommend two to six cards. (I have one personal card and one work card -- yes, the latter counts even if your company pays it!) Applying for them continuously can lower your score, as can closing several lines of credit at once. If you have say, ten cards, aim to close an account every six months. Having more of them increasese the chance that you'll forget to pay one or be psychologically more inclined to buy by viewing them as separate entities versus a card.
---> write this number down

2. How much do you owe, combined, on your credit cards? What is the interest rate on each card? And are there any additional fees?
If you're paying off your balances monthly, super. If you're carrying a balance, you're likely paying pretty penny in fees.
--> write down the total owned and interest rates/other fees for each

3. Are you using cards to get by on bills month-to-month?
This is a bigger problem. If you are spending more than you make, you have a situation that will only get worse over time. Sure, we all go through down times -- the loss of a job, medical issue, an unexpected need for four tires, etc. But if you're living month-to-month on cards, or racking up more debt than you're paying off, you need a severe fix and a reasonable and tight budget. Period.
--> write down your monthly expenses and check those paid on credit card because your paycheck doesn't cover them

4. What are your typical purchasing patterns? Where do you tend to "blow it"?
This is an especially important come-to-Jesus if your answer in question three made you want to vomit. In order to fix the cycle of plastic pain, you need to figure out where and why you're overspending.
--> a more qualitative exercise: print out six months worth of statements and see if you can identify any patterns. Pay special attention to clothing/shopping, eating and drinking, sports, travel, etc. Tally your personal categories up.

5. Do you know your credit score and how your card use affects it?
There's no excuse not to know your credit score. You can get it for free on this website once per year. Using more than 30% of the credit available to you will lower your score. Having a lot of accounts or opening/closing a lot will lower it too. Other big no-no's are delinquent payments and overdrafts.

Take Action: By now you have a list -- organize it like this.
Card #1_____ - Balance____ - Rate____
Card #2_____ - Balance____ - Rate____
Card #3_____ - Balance____ - Rate____
(etc. if there are more)
Total Debt = ___________

(If this number is bigger than you expected, take a deep breath. At least you've just made a huge leap in taking control of your debt by recognizing it!)

In order to have psychology work on your side and save fees in the long run, you should consider paying off the card with the highest interest rate first. So if card A has a balance of $5000 and an interest rate of 8%, and card B has a $4000 balance with a 20% interest rate, by all means, attack card B first! You'll of course need to make a payment on the card(s) with the lower rates -- perhaps the minimum or slightly above, so as not to incur additional fees and penalties. Set these up for automatic payment via online banking so that there are no excuses!!!

Next, call your lenders armed with your credit score and ask for a lower rate. Does your boss give you a raise without your asking? Does your honey read your mind? Of course not! And I'm sure that you HMW are good at asking for what you want, so go for it. Assure the lender that you're "committed to being a great customer" and remind them how long you've been one. Better yet -- if possible, cite your history of on-time payments.

Finally, figure out how much you can pay each month and stick to the plan. Trust me, the joy of paying off each card or getting your balances to zero will much outweigh that of any purchase. And the more you pay, the better your situation will become. As your payments increase, your debt ratio decreases, and your credit score improves, you should be able to ask for even lower rates and perhaps refinance any outstanding loans (i.e., a car at a higher rate given past poorer credit).

You'll reach your goal -- zero credit card debt, faster if you commit to a budget. More on budgeting in my next post.

The R Word!!! Why Believing it's Here Makes you More Likely to be a Fad Dieter!

2008-01-18T12:40:00.001-08:00

No, I don't intend to counsel you on the merits of keeping your roots in check by having a regular recurring appointment with your hair stylist. I talking about the term being tossed around like a teenager with a roll of toilet paper late night in a neighbor's yard: "(The supposed-impending- bound to happen-already is here-will be if its not) Recession"!!!

Each day, the media coverage gets more ominous and damning. Even those who are supposedly schooled in these matters in the finance industry have been caught dangling the "R" word in public. (I think this has more to do with the fact that these types like to "call the market" and attempt to predict direction; by the way, most of them suck at it, to be so frank on this lovely Friday. And recessions are a normal part of the economic cycle, so they figure if they keep saying it, they'll at worst be "ahead of the curve".)

Some people are downright paralyzed by the school yard taunts coming from the press: "The economy!"; "Subprime crises!"; "Credit crunch!" These guys are paid to sell "news", and I'm beginning to see that their "fear" -- uh, I mean "news" is about as worthy and researched as the National Enquirer reporting that Lindsay Lohan is giving birth to a human clone of Britney Spears during Tom Cruise's next Christian Science diatribe.

The main problem is, no one ever stops to question this negative information superhighway to see if the economic fundamentals are really in peril. (Going to primary sources would be too boring and time consuming, right?) It's all about selling "news", which means selling fear. Even the good ole' USG today announced that they've bought into it --its "stimulus package" is on its way to your front door. (Gotta keep the voters happy, even if they don't speaka!)

Be honest with yourself -- if I asked you to define the R word, "recession", what would you answer? "Bad economic times?" Nope. "I can't own a home in San Francisco or New York City so times must be bad?" Please! "Markets are down?" No!!! According to Investopedia, a recession is "two consecutive quarters of negative economic growth as measured by a country's GDP".

I really doubt most HMW keep a running tab of the Bureau of Economic Analysis' quarterly GDP reports front of mind. So let's take a look at the last three years (from top of page 5 of the aforementioned link):
2005
Q1 = 3.1%
Q2 = 2.8%
Q3 = 4.5%
Q4 = 1.2%
2006
Q1 = 4.8%
Q2 = 2.4%
Q3 = 1.1%
Q4 = 2.1%
2007
Q1= 0.6%
Q2 = 3.8%
Q3 = 4.9%
Q4 = not yet posted

It doesn't take a math whiz to see that there ain't a negative number here. Hmm... maybe Investopedia didn't get the memo that the media changed the definition of a "recession" to "getting the US consumer really scared of the 'crisis' "?

I urge all HMW to ignore the hype! Keep investing, saving, and being productive!!! Enjoy yourself.

Still think we're heading towards economic disaster in the US based on the hype? I smell a fad dieter! Go eat some real food, you probably just have a headache from your "negative calorie soup", high-protein/no carb plan or "no orange stuff" diet.

If you can't get these "terrible times" out of your mind, the only cure for you is to give up TV for good music or a book, preferably the latter and Siegel's Stocks for the Long Run!

An Easy (Re)balancing Act

2008-01-03T09:58:00.000-08:00

I last waxed on about mindful consumption -- having a spending plan so that you can make better decisions about how you want to balance saving with enjoying "the good life". To continue the mindful personal finance theme, today's post covers rebalancing your portfolio. The best part is, it's easy to do and you only need act once a year! Put it on your calendar next to "deal with taxes". And open something zippy and fresh like a Gewurztraminer to quell the dull ache produced by the topic :)

Rebalancing is when you reallocate or realign the funds in your portfolio to your original intended percentages. Why do this? Over the course of the year, as some investments grow and others decrease, your allocations become skewed. Let's look at a simple hypothetical two-fund portfolio without contributions during a one year period to examine the concept:

January '07
Fund A - $1000
% Allocated to A - 50%
Fund B - $1000
% Allocated to B - 50%
Total Value = $2000

Dec. '07
Fund A - $1,100
% Allocated to A - 52.6%
Fund B - $990
% Allocated to B - 47.4%
Total value = $2,090

The HMW's desired allocation is 50% in each fund. In January, her $2000 is split evenly between Funds A and B. Over the course of the year, Fund A gained 10% and Fund B lost 1% (this HMW earned 9% on her investment). Due to these gains and losses, the percent allocated to each fund has changed. Fund A now represents 52.6% of her portfolio and Fund B, 47.4%. While the percentage change in each is not drastic in a year, over time, failing to rebalance these allocations could skew this HMW's goals.

You might be wondering why she should reallocate and buy more Fund B when the investment is down? It sure seems tempting to "ride" a higher performing fund (or stay overweight in Fund A), which is why reallocating can be psychologically difficult. However, it's important to do so because very few investments or funds move in the same direction every year. And it's very difficult to predict future returns. What you can expect and grasp is that change is normal! Fund A might hold international investments that do very well for several years, but then lose some of their gains. Fund B might make a come back during Fund A's down years. No one can predict what's going to happen.

That's exactly why the most important thing to do (other than contribute and save) is to create an allocation based on sound investment principles and stick to it. Don't try to chase returns -- doing so is about as fruitful as chasing men. It rarely works, and when it does, it's susceptible to future failure.

Most online investment accounts have a very simple "rebalance" function or button. If you're not sure how to rebalance your accounts this January, call your provider and find out -- it will keep you on the right track for the long haul. And make sure to add an annual reminder to do so.

The Seventh Sin - Operating Sans Budget

2007-12-31T16:25:00.000-08:00

Groan. Sigh. Boo. I know, how much more boring could a HMW be -- talking about budgeting on New Year's Eve?!! The good news is, 2008 is a chance to renew and have your greatest financial year ever! Plus, you can read this now and ignore it until tomorrow :)

Instead of making a resolution you know you won't keep, why not choose to embrace a spot on the mindful spending continuum? I'm not suggesting you fret over every penny, nor that you stop treating yourself -- (I'm still going to buy wine and go to restaurants), just that you think about what you're buying and why. And commit to tracking your spending. Different HMW will have different plans. The point is to have a plan, a budget, or at minimum know how your cash leaves your pocket. More good news: this should only take about 15 minutes!

Management books say "you can't manage what you don't measure", so start with you unique situation by plugging your numbers into the outline below:

Net take home pay = salary - 401k - (possible) flex spending account deduction
Net spendable = net take home - savings - rent - bills (cell, utilities, gym, insurance, car, etc.)

So "net spendable" is what I allow myself for travel (got to see the world), running shoes, wine, etc. All the things I technically don't "need" but wouldn't care to live without.

One of the best practices I found for embracing mindful spending was ditching my credit cards. Sure, I still use a credit card for major planned purchases from time to time, but not without thinking about it and ordering a side serving of guilt. It's just too easy to put it on the card, get into the mindset of paying it off "later" and then end up in debt. My debit card and me are now bff.

Separating yourself from plastic is easier than you think -- you're probably already practicing mindful consumption other life arenas quite well. Have you ever had a few too many calorie-laden fruity beach drinks while on vaca, and then come home to soup and salad for a week to balance it out? Or ramped up your workouts after a week of long work hours that meant skipping the gym?

You can do the same thing with your spending! After a big fancy dinner out, perhaps you join your girlfriends for coffee or a hike instead of more expensive dinners. Or organize a rotating potluck instead of routinely being the hostess. Perhaps you buy the shoes next month. You get the picture -- the point is to think before you spend.

Now go open something sparkling -- I'm a huge fan of Prosecco since it's festive, light and tends to be a bargin when compared to its Champagne sister :)

Sin #6 - Owing More Than Your Car's Value

2007-12-27T13:12:00.000-08:00

Today's post-holiday post likely only applies to a sub-set of you, but it's an important topic for all HMW to understand. But before I get started, since it's a relatively mundane topic, I'm bringing back the wine pairing -- today's is Merlot.

"But isn't Merlot out of favor?" you ask. This is precisely why I'm recommending it! While everyone else is pawing at the shelves to pay a Pinot premium, you'll enjoy Merlot's sexy, silky, blackberry-infused flavors and perhaps even more wine quality for your money. (Besides, Miles is one of the worst type of wine geeks -- he didn't even know his prized Cheval Blanc was predominantly a Merlot blend.) So uncork, pour and dive into stop gap coverage!

Most of you own a car. Some bought outright (good for you!), some lease, and others are paying down a loan. For HMW in the latter two cases, you may need additional auto insurance coverage. Auto gap coverage is what covers the difference between your car's value and the amount you owe on the lease or loan.

Have another sip -- it's math and worst-case-scenario-thinking time. Let's say you owe $30,000 on your car. But it's only valued at $23,000. If you have the misfortune to be in a car accident that totals your vehicle (or some ne'er-do-well steals it), your insurance company will cut a check for the value of your car less the deductible -- not the value of your loan. So guess who would be liable for the $7,000 difference? Not exactly how you'd like to spend your money nor your SDH fund, especially when you've just had an accident!

Gap coverage pays the $7,000 difference -- a lot of peace of mind for a relatively small monthly payment or a one time fee. Most dealerships offer high prices on this coverage -- shocker, so I don't recommend that route. The best bet is to call your auto insurer (if you have a good relationship -- otherwise, this blog should cue you to shop around for that, too), and discuss the possibility with them. They'll give you an estimate of the value of your car, which you can double check on Bluebook, and a quote. If you like, you can comparison shop to make sure they're giving you a good deal by Googling "gap coverage" as there are several companies dedicated to this type of insurance only.

Do your future a favor in the event of a wreck -- unfortunately they're so common with all the idiots on cell phones sans hands-free (so '90's): make sure all of your car's payments are covered.

Sin #5: Copy Cat Investing & Linear Expectations

2007-12-21T08:53:00.000-08:00

Some purchases are best made with the help of others. You dine at a new restaurant because you've heard great things. You check out a new boutique because your best friend got a fab pair of black pants there. Or you go to your friends for advice when you've gotten sick of your hair guy who continually keeps you waiting 30 minutes, then barks at you for being 6 minutes late one time. These are all perfectly sound methods for finding restaurants, stores and services. Just not for choosing your investments.

Picking individual stocks based on what other people are doing -- because of a "hot tip" or your buddy's "feelings" about the market will likely trap you in a cycle of irrational copycat investing. Even if your friend works for the company or in the finance industry! Why?

Turns out that even the fat cats aren't superbly skilled at predicting the market: a study of 47 gurus and their 3800 plus predictions yielded an average forecasting grade of 48%! Sure, some "passed" (none got over 70%), but less than 20 of them predicted the market better than I could by simply flipping a coin!

The HMW shouldn't be dejected by this information, nor should she necessarily rid herself of her financial advisor (more on how to choose one later). The important take-away here is that most people, even the majority of the experts, can't predict the market, much less a stock's direction with any real accuracy. And that's okay! Picking individual stocks is much less important than how your assets are allocated -- the percentage divvied up between stocks, bonds and other classes. And most crucial is having your money in the market for a long time.

So don't try to outsmart or beat the market with a copycat tip. Join it! And better yet, appreciate and embrace its volatility -- a non-linear ride is totally normal. This means you needn't worry about day-to-day ups and downs in the Dow or any other index. And definitely shouldn't sell or go to cash just because an investment is down! Remember Siegel's great words if you start feeling shaky: "It's time in the market, not timing the market" that matters most. A HMW invests as much as she can, allocates correctly, rebalances once a year, and let's her money do the compounding while she's out getting her nails done :)

Pecado Cuatro: Being Bar Santa

2007-12-20T13:32:00.000-08:00

I'm not talking about putting on a fat suit and white beard and hitting the town, nor am I advocating those sexy/slutty costumes you see out during the holidays (although the chicas with the right bods do look pretty fab in the latter).

Sin #4 is acting like Santa while out with your friends -- i.e., being "that gal" buying the round(s). While it's all fine and dandy to treat, continually buying drinks for a group -- or the bar if you've had too much, is a real budget killer.

Thankfully, it's a pretty easy behavior to remedy. First, there are some questions to ask yourself to determine whether you're round-buying is a genuinely friendly and occasional offering or a budget-slashing bad HMW habit:

1. Did you plan to treat before you left the house?
2. Do you tend to hate to ask your friends for money, even if you were the one who spent the 15 minutes batting your eyelashes at the bartender to get served? Prefer saying "just buy the next round" and subsequently being disappointed because they aren't as generous as you? (You might actually need new friends if you answered yes to the latter. :(
3. When you look at your receipt the next morning, do you promise to stop being so "generous"?

If you've gotten this far and you're patting yourself on the back thinking, "Of course not!", then either wait for tomorrow's post or continue reading so that you may help a friend in need or prevent this behavior should the mood ever strike.

If on the other hand, you sheepishly nodded "yes" to your computer screen while posing the above questions, the second step to solving your "fat suit" -- i.e., over-speding problem, is a quick action plan. It's much easier to fall into Bar Santa mode when you start a tab. So the best place to nix this habit is quite ironically, at the ATM: withdraw what you're planning to spend plus your cab fare home beforehand. You'll be a lot less likely to buy a round if it means you only get one drink! Then, leave the plastic chez vous so you're not tempted after the wine starts thinking :)

Sin #3: "I'll Do it Tomorrow" Thinking in Your 401(k)

2007-12-19T15:10:00.000-08:00

How many times have you lost weight on a diet that starts "tomorrow"? Gotten a raise by going to work "tomorrow"? THEN WHY IN THE WORLD WOULD YOU FUND YOUR 401(k) TOMORROW??!

Tomorrow doesn't work, my fair ladies. The day to start contributing to your 401(k) if you didn't yesterday is TODAY. Here's a quick list of reasons to call your benefits office, pronto:

1. You benefit from the incredible power of compounded returns over time. Your investments work just like you do! (This is akin to burning calories while you sleep, but much better :)

2. You lower your tax burden. 401(k) contributions are taken from your gross earnings so if you earn $100,000 and contribute the max ($15,500), you are taxed as though you earned $84,500.

3. There's often an employer match. Sometimes it's a 5% of your salary add-on, at other times another figure, and often you have to be with the employer for a period of time, but the point is, not contributing means walking away from free money! Would you pass up a several thousand dollar gift certificate? Then don't do it with the employer match at work -- we're talking thousands of dollars!

4. You're farther from trying to subsist on social security payments. Have you ever checked how much money you can expect? (A HMW likely has neither the time nor the care to do this, so I did it for you.) I went onto the SSA website, entered in a 30 year-old who makes $100k and plans to stop working in 2048 (ugh!), requested the payment in today's dollars (not inflation adjusted) and found out she'd receive a whopping $2900. Can you live on that each month? I think not -- that's my rent plus a few extras!

5. You'll likely barely miss the money. Twenty more lattes or another few pairs of Choos versus the sound sleep you'll get seeing that statement growing every quarter.

So do this: a lot of you will be getting raises in the coming weeks. Challenge yourself to at least putting that much more in your 401(k) next year. I promise it will be the gift that keeps on givin'! AND keep you one step farther from ended up like cousin Eddie :)

Sin Numero Deux: Picking Socially Responsible Funds Just Because They Sound "Good"

2007-12-18T12:55:00.000-08:00

Have you ever bought something just because it looked or sounded good, only to be later disappointed by the purchase? Perhaps it was a fabulous bra that squeezed you in all the wrong places? A wine in a fancy bottle that tasted a little too much like cat pee (while "feline urine" is a common and sometimes desirable descriptor for New Zealand Sauv Blancs, there is definitely such thing as too much of a "good thing")? Or a book with a delicious looking cover that once opened on the plane made you turn to reading the emergency exit procedure card?

We all eventually become better and more efficient shoppers by taking the time to try on the bra on, ask the sommelier, and flip through the book before purchasing. But how many of you selected XYZ "Socially Responsible Investment Fund" in your 401(k) because it sounded like the "good" or "right thing to do"?!! I've seen a lot of these in my HMW friends' portfolios and am sorry to say that a number have downright irresponsible returns!

Let's take a look at the Investopedia definition of Socially Responsible Investing:
"An investment that is considered socially responsible because of the nature of the business the company conducts. Common themes for socially responsible investments include avoiding investment in companies that produce or sell addictive substances (like alcohol, gambling and tobacco) and seeking out companies engaged in environmental sustainability and alternative energy/clean technology efforts. "

Sounds pretty lukewarm, perhaps even positive to some of you (except for the part about avoiding alcohol companies -- wine has been around since Man learned to walk bipedally, and to me is therefore perfectly responsible and enjoyable for most people).

Here's the problem: a number of these SRI funds lag the indexes they're using as a benchmark and charge pretty steep fees for all the research necessary to weed out all of supposedly sketchy companies.

Investopedia cautions: "Just because an investment touts itself as socially responsible doesn't mean that it will provide investors with a good return." Over time, these high fees and lagging returns will ultimately compromise your ability to save and be a philanthropist. (The ultimate giver of late, Warren Buffet, waited until he had accumulated an extraordinary net worth before unveiling a gradual plan to donate over $35 billion so his contribution could first benefit from growth.)

LMF 4 HMW bottom line: Unless your 401(k)'s SRI fund choice is beating its benchmark net of fees, do something socially responsible outside of your portfolio. Give to charity, volunteer at a homeless shelter or the Boys & Girls Club. Or heck, buy a renewable energy gift card credit at Whole Foods -- I didn't say it actually had to be useful :)

************ EXTRA CREDIT
This is a super idea, courtesy of my fabulous fiance, who happens to be in the industry: "Why not track the performance difference between the SRI fund and what you actually invest in. Then contribute this amount of money to charity. You still come out ahead in the long run thanks to compounding, and you sleep more soundly at night knowing the world is a better place?" Not very LMF, but another way to contribute without sacrificing your ROI.

#1 of 7 HMW Sins: Operating Sans Renter's Insurance?!!

2007-12-17T13:07:00.000-08:00

In honor of the famed "days before Christmas" count down, I'm offering a less festive, but arguably much more important ticker during my next seven posts: The Seven Deadly Sins of HMW. These will be shorter, as we're all quite busy donning little black dresses for holiday parties, but definitely worth your precious minutes.

Toady's sin, #1, is operating sans renter's insurance. Think you don't need it because you haven't accumulated a ton of belongings? Think again. Remember the last time you moved? How many boxes did you pack? Were you not tired after lugging them around all day? That weight right there proves my point!

Still not convinced? Try this simple exercise: Pick one room in your house and go through it, clockwise, listing every single item in it with a cost estimate. Add those figures up and multiply by the number of rooms in your house. Or better yet, do this exercise for your closet!!! Even one filled with Issac Mizrahi is bound to cross into the multiple thousands.

Still thinking it's not worth the bother because your a HMW and a few paychecks could cover you? Put it this way, for the price of a couple of venti soy lattes each month, you'll be protected. If you remain resistant because you feel you'd never do anything stupid, think again! When was the last time your roommate did something dumb? In college, I left a tea kettle on the stove until it had melted into it -- thank goodness my fabulous roomie came home and interrupted my hair drying to tell me about my close call before it ruined our party evening.

Or, later in life, when my "candle accident" turned into a $3500 renter's insurance claim?!! Had I not had renter's insurance, I would have been in a serious bind. Instead, I went right back to Bed, Bath and Beyond and in a matter of hours, had replaced my belongings. (My nerves took significantly longer, especially since I had to explain to the adjuster exactly what happened while on my "date".)

If you haven't already called your provider of choice or looked online for rates, do so now! I just might be the new neighbor next door.

Bonds in a Retirement Account are for Women Who Hate Money!

2007-12-14T08:36:00.000-08:00

It's true! According to esteemed Wharton professor, Jeremy Siegel, "over the last century, accumulation in stocks have always outperformed other financial assets". Even with the crash of 1929! Even with all of the volatility and the somewhat media concocted sub-prime "crisis"! Even with any other mumbo-jumbo negativity you will see during this bull market now five years strong. And even when we do enter an economic slowdown, which by the way, is a perfectly normally occurring activity. (Does your weight stay the same every day-month-year? Does your mood? Your tolerance? Your eh-hum, drive? Anything?) Who said the market was supposed to have a linear relationship pointing toward the heavens, anyway?

Here's why: with a retirement account, it's all about your time horizon, or how long you'll need the money. And the very vast majority of us have a time horizon greater than 20 years. (I know my mother is reading this thinking, "But I'm retiring in three years!" Good for you, Mom, and thanks to your fabulous genes, people in our family have oft lived to see 100, so may I remind you that your horizon is well over 20 years!) Remember: it's when you expire, not when you retire, that a retirement time horizon makes.

Perhaps hard to swallow, especially since I haven't yet discussed a wine pairing, but beautifully true. Think of it this way: when my Mom retires in four years, she'll be in "the new 40's" (i.e., her actual mid-sixties). Based on her life expectancy, she'll be kickin' it for another 30 years -- wanting to withdraw her hard-earned money and still see growth within the account so she can fund trips to come babysit my kids. If she keeps her money in cash, it will not keep up with inflation. Sure, it won't look like it's going down -- she checks it 17 times a day, but it sure as hell won't increase! And when milk is $5 a gallon due to all of the subsidies for ethanol for green energy, she will actually have less money.

If she keeps her retirement in bonds, she'll have more than if she'd kept it in cash. But if she keeps it in a diverse portfolio of stocks, Siegel assures her she'll have the most: "As the holding period (your time horizon) increases, the probability that stocks will outperform fixed income assets (bonds) increases dramatically... for 20 year horizons it is over 90 percent of the time; and for 30 year horizons, it is virtually 100 percent of the time." Well, Mom, since you're likely going to live for 30 more years, you're now in love with stocks.

But cash is "safer" she cries! False! Losing money over time is not only unsafe, it's downright dangerous. (How do you expect to fund your wine habit if you have less and less money over time?) Again a retort from her: "Then bonds are a better bet -- stocks are so risky". Wrong again! Siegel puts it best: "It is very significant that stocks, in contrast to bonds or bills (Treasuries), have never offered investors a negative real holding period return". For a time horizon/holding period of over 10 years, "the worst stock performance actually has been better than that for bonds or bills".

The net of it is that for long time horizons (those over 20 years -- i.e., yours, mine, my Mom's and likely your Mom's), stocks are the way to go. Thankfully, the HMW knows that patience, hard work, and healthy amount of moderation and laughter are really important keys to success and living well. So it should be easier for us to understand is that the most effective way to "beat" the market is to in fact, join it! And join it for the long-haul. Starting yesterday.

******************* WINE PAIRING FOR ONLY THOSE SEEKING EXTRA CREDIT: BUBBLY!!!
Crack open a bottle of bub after your fingers "run" on over to Amazon or your preferred online retailer and buy Siegel's Stocks for the Long Run. I know stocks aren't exactly what you want to snuggle up to while on your upcoming holiday flight smashed in between the-cougher and the-guy-who-is-taking-up-both-his-and-one-half-of-your-seat, but the book will take your mind off your situation. And scare off any lame dudes seated in your vicinity who will be intimidated by a hot chick reading a finance book!

************* DISCLAIMER -- DON'T EVEN TRY TO SUE ME: I am not discussing how to make quick money or figure out the next Google before it's Google. I don't even have a trading account, nor do I bother searching for the next-best-thing. Doing all of that would not be considered LMF. A HMW doesn't have time for this, and now knows that a lot of people who do that let their emotions do the investing -- they buy high, sell low, and basically trip all over themselves to find the next "hot" issue. Those who day trade would be better off viewing their account like a gambling habit -- taking 5% or less and having fun with it, but never "betting the farm".

Dealing with Your New File

2007-12-13T07:28:00.000-08:00

Now that you've completed those five zippy steps, this next exercise requires a more full-bodied vino, and a little more oomph from you. (If you haven't read my post from yesterday, "Five Quick Steps" do that first -- it'll bring you up to speed.) Since it's getting cold out there -- unless you're one of the lucky few to live by a warm, sunny beach, I'm recommending Syrah. It's typically packed with luscious fruit and balanced by peppery spice -- just like you on a hot date!

Start with the easiest account, checking. If you don't bank online, now is the time to set that up with your provider. By the way, if you have a parent or husband in the military, the bank of choice is USAA -- they are phenomenal, and best of all, you can put all of your eggs in their basket. They offer everything from checking to renter's insurance (more on that later) to bling! Here are some initial questions to ask yourself:

1. Do I bank online (for those who haven't been reading carefully)? And is my password secure -- i.e., not easily figured out?

2. Does my company offer direct deposit of my hard-earned paycheck and if so, am I using it?

3. Am I paying myself and my creditors first? (This means you buy the lattes after accounting for all of your bills and putting some aside.)

4. Do I routinely overdraw my checking account and incur fees? If so, STOP! Go back to question number three.

There is no one answer for how much should be sitting pretty in your checking account, but it should be enough to pay your bills and provide a cushion. I actually keep relatively little in my checking for two reasons: 1) I almost never use a credit card and instead pay with my debit card using the "credit" option because this keeps me from over-spending; and 2) I'd rather be getting a higher rate of return with any leftover cash. And that ain't in checking! (Pretty good for someone who at one point had over $13k of credit card debt due to going out, laser hair removal treatments, buying a car I couldn't afford at the time, etc.)

Reward thyself with a sip or two of Syrah! We're moving onto your savings account -- you do have one, don't you?!! (Now is not the time to protest that your live in the most expensive city and don't have anything left to save, as I won't buy it. Ever. If you went to Starbucks this month, you can start a savings account.) Set one up with that handy online banking system you've created -- even if it's just $25 a month. This is the beginning of your new emergency fund! While not quite as exciting as Mr. Choo's newest footwear, it'll help you out if you get in a bind, like the time I almost burned my house down on a "date". Sh*t does happen, so think of this as your SDH account if you don't like the emergency nomenclature. Even if you're not dumb enough to burn down your apartment, I could be your new next door neighbor :)

The reasoning behind the SDH account/ emergency fund is that you don't want to turn to credit or have to call your parents if you need cash in a bind. A lot of finance gurus say you should have 6 months of living expenses racked up in there (this is the point where I'm running a "do as I say, not as I do" play). I might argue that 3-4 is sufficient because there are other options if the SDH happens, but the point is that you shouldn't be coasting paycheck to paycheck. If you're staring at that bottle of wine like you want to throw it at me, now is the time to seriously consider removing the credit card from your wallet. I probably don't even know you. (Or wait, since my mother and closest friends are the only ones reading this, I probably owe you dry cleaning since last time I saw you, I spilled wine on you! To rectify the problem, ring me and I'll walk you through your SDH set up.)

Some of you have the opposite issue -- a wad of cash in a savings account. I'll deal with y'all now. Keeping a huge amount of cash in a savings account (more than 6 months of living expenses unless you're about to put a down payment on a house or make another huge purchase in cash) is akin to keeping it under your mattress. So wipe that smug grin off your face and behold the power of time value of money, especially if you aren't maxing your 401(k). Basically, you want to be beating inflation and in a savings account, that is barely, if at all occurring. The good news is, this is easy to fix!

Down to investing business. Since you're a HMW, you are likely aware of your 401(k), the tax-deferred (as in you don't pay until you withdraw when you're gray) retirement account. If your company offers one and you're not contributing, put that glass down, cork the bottle, and come back stone-cold sober. There are a myriad of reasons to contribute, and almost none not to do so. First, your company may offer a match as a percentage of your salary, a dollar figure or another metric. This is free money! The only "catch" is that you have to contribute (and you might need to be there for a certain amount of time for this money to vest or become yours). Second, Social Security distributions will absolutely not give you the lifestyle to which you've become accustomed. Third, the prince on a white horse is not going to come rescue you; retirement is no longer the (future) man's problem. Even if you're married, there's nothing hotter than an independent HMW with a phat investment account. DO NOT give me any "my man deals with that stuff" -- you wouldn't be reading this if that were the case. And you definitely aren't one of my friends.

So here's what you need to do:
1. Contribute the maximum amount possible. This may mean $25 a pay period (like me right out of college or if you're saving the world in a low-paying non-profit job), or it might be the full $15,500 per year ($20,500 if you're over 50).

2. Commit to raising this level of contribution annually until you reach the summit (which may increase in the future). I started at 5% three years ago, went to 10% last year, and this year will be the proud owner of a fully contributed (and matched) 401(k). Point being, it may take time to get there, but you should get on this plan like you hit the treadmill after a pint of ice cream weekend! One of the best things about "maxing" is lowering your net income and therefore the amount you owe in taxes. Given that we're HMW, a good number of us are in danger of the Alternative Minimum Tax (more on that later) and lowering our net income is one of the best ways to avoid this ridiculous legislation. Make this escalating contribution scheme slide down more easily by upping it each time you get a raise.

3. Put your dough in the right places! That means creating a diversified portfolio -- you don't own all black pants do you? A diversified portfolio in the finance sense typically means getting exposure to different types of asset classes, like stocks (call them "equities" to sound really cool among finance dorks), bonds (ditto so say "fixed income") and cash-like investments ("money market funds"). I, however, beg to differ on this point. (A lot of you are going to disagree with me, but I'm not taking any flack until you read Stocks for the Long Run by Jeremy Siegel.) If your time horizon is over 20 years -- and I don't mean the date you're going to retire, I mean the date you're going to expire, you need to be in 100% stocks. Yes. Take a deep breath. Throw in a down dog if you must. Here's why: in every rolling 20 year period except for one since the Civil War, a diverse basket of stocks has beaten bonds. Sure, it's a wilder roller coaster ride, but who has time to check her accounts between trips and dates anyway?

4. Look at your 401(k)'s array of choices. Now that we're tossing anything with "fixed" or "target" in the title (these have bonds), it gets a lot easier. Ideally, your company offers stock index funds since they're cheaper! If you're not that lucky, choose a few funds invested in equities with the lowest expenses (listed on the fund sheet). You're aiming to have about 50% in the good ole USofA and the other 50% in the rest of the world. (I have 10% in emerging markets and about 40% in international stocks to make that 50%.)

Whew. Pour another glass, we're almost there. If you happen to be a HMW with cash left over post maxing your 401(k), you'll want to start either a Roth IRA or a traditional IRA, depending on your income level. Still awash in cash? Time to set up or deal with your taxable investment account. In the spirit of brevity and me actually getting to work (this is a blog so I'll be back to expand on all of it), you want to focus your taxable account similarly to how you set up your 401(k). And if your 401(k) doesn't offer international stocks or emerging markets, this is your golden opportunity to invest in the rest of the world -- the US has less than half of the world's stocks and you wouldn't want to miss out on Beamer (BMW), LVMH, Nestle (chocolate!), Nintendo, and any of the other fine companies earning cash across the oceans. This is pretty simple, really:

1. 50% in the S&P 500 Index
2. 40% in MSCI World Index
3. 10% in Emerging Markets Index

By the way, a nice hard cheese -- perhaps Gouda, would go well with your Syrah. You'll need something to soak all of it up after finishing this article!

5 Quick Steps to Getting Cotrol of Your Finances

2007-12-12T16:06:00.000-08:00

Like you need another To Do list?!!

This one won't be too bad, I promise. Consider it a personal inventory of sorts, like when a "I have nothing to wear" day turns into a full-blown closet overhaul. Plus, you'll feel much better knowing that your financial closet is well on its way to being in order.

1. First things first -- what wine are you going to pair this with? Pour some Sauvignon Blanc. For one, it offers a great value for money -- you can find a good one at your local grocery store for under $15, and it's nice, crisp, and zippy. (Just like the process is going to unfold.) See, this isn't so bad, right?

2. Now down to business: Make a list of all of your accounts containing money. So you might have checking, savings, a 401(k) or two or three (depending on how many jobs you've had and if you've rolled them over), an IRA, and perhaps some investing accounts.

3. Ask yourself the most pertinent question: Have I forgotten anything? Are there any outstanding, lonely 401(k) balances from former jobs that could automatically bump up my nest egg?

4. You've likely joined the 21st century and moved to online banking, so now it's time to figure out the values of these accounts. Log on and write these down beside the account. (Have another sip of wine if you haven't already -- we're almost through!) Can't find your password? Don't know where your accounts are? Time to figure this out -- you can't manage what you don't know!

5. Create a file with this information, either on your computer (password protected), or in a cabinet. We'll get to what to do with it in the next post.