Wednesday, September 27, 2006

Today's Colleges Students: A Nation of Boomerangs?



So I was looking for a topic today and stumbled on a Wikipedia article on the
Boomerang Generation. Unbeknownst to me, there is a large group of individuals from those born in 1981-1986 that are in financial straights. The reason why? Well, it seems college is to blame.

Apparently, many students are attending college and are paying absurd amounts of money in tuition and fees—check that—they are borrowing absurd amounts on money in tuition and fees to pursue their major. However, upon graduation the students end up with debt loads that rival home mortgages—forcing the student to move back home with their parents until the debt is paid off. A recent film, Failure to Launch, explores this concept. Note, however, that this is not to be confused with cultures where many children move back home specifically to care for their parents.

Truth be told, I think its unfortunate. People are brought up to believe that “if you just go to school, you can do anything!” Unfortunately, people are beginning to realize that you have to qualify that with some substance and some common sense. One should go to college to pursue knowledge, yes, but you should also be equipping yourself with the knowledge to succeed in our ever-flattening world. There are many people who went to college (and are going to college) who graduate and cannot find a job, or are underemployed—and are therefore not able to pay back all those student loans.


It’s a terrible idea to start your life in The Real World with debt you cannot pay. Many people unknowingly pursue careers that will be outdated and sometimes don't realize this when they trek to the Job Market after graduation. As I’ve said before, if you can imagine your career being digitized in the near future, you should probably find another career. Quickly.


Well, there are many of you (well, perhaps all of you) who pretty much cannot change the decision you made. But for the lurkers out there who may be at the college crossroads, take note. For one, you should try to avoid paying for college at all costs—unless of course you’re headed to med school. There are scholarships abound, especially for minority students. Secondly, consider going to school in-state, especially if you’re considering popular choices like English, engineering or the sciences. Going in state will not only save you a bundle, but you’ll be surprised that most employers don’t care if you went to an Ivy League or not. State schools are usually much lower in cost and provide you with the same level of educational experience without you having to sign your soul over to the Lending Mafias out there.

Finally, come to the realization that its getting competitive out there and you should be prepared. Many people boast that they’re “good at math” (as I have) yet they don’t cash flow their debt and income before or during college and wait for the post-graduation shock that their job offer won’t be high enough to cover debt and living expenses. Bill Cosby stated once that human beings are the only species that allows their children to come back to the nest to live. Understandably, some of us need to get back on our feet. However, remember that in your pursuit of education it’s important to crack a financial book along with your others to be well prepared once your leave the grad stage in May and enter the next Stage of life.

But perhaps you feel differently. Leave a note in the comment section, and let’s talk about it!

By the way, Facebookers who read this site through the Facebook can click through to get access to the Wealth Weekly Archives! Go to http://wealthweekly.blogspot.com for more information

Next Week: We put Personal Finance to the side to explore IRA/401(k)’s in detail. See you then.

Tuesday, September 19, 2006

Well, Duh!

To get wealth, the best way is to focus not only on bringing in income, but you also have to make sure you adhere to the Millionaires’ Secret. I’ll mention it below. After reading it, it may seem obvious. But why don’t people do it?

The following clip comes from Saturday Night Live—it’s not one of the best clips, but the message was priceless.

http://danwho.net/mp/index.php?id=snl_dontbuystuff

For those of you who did not (or maybe can not) click through, here is the gist of what went on:

[cutscene to kitchen table, couple balancing their checkbook]

Wife: (sighs) I just can't get these numbers to add up.
Husband: Like we're never going to get out of this hole.
Wife: Credit card debt, does it ever end?

Finance Guy CP: [walks in] Maybe I can help.

Husband: We sure could use it.
Wife: We've tried debt consolidation companies.
Husband: We've even taken out loans to help make payments.
CP: Well, you're not the only ones. Did you know that millions of Americans live with debt they cannot control? That's why I developed this unique new program for managing your debt. It's called [presents book] "Don't Buy Stuff You Cannot Afford."

Wife: Let me see that... [grabs book, reads] "If you don't have any money, you should not buy anything." Hmm, sounds interesting
Husband: Sounds confusing.

Wife: Ok, so what if I want something but I don’t have any money?
CP: You don't buy it.
Husband: Well let's say I don't have enough money to buy something. Should I buy it anyways?
CP: No-o-o-o.
Husband: Now I'm really confused!
CP: It's a little confusing at first.

Wife: Well what if you have the money, can you buy something?
CP: Yes.
Wife: Now take the money away. Same story?
CP: Nope. You shouldn't buy stuff until you have the money.
Husband: Oh, THEN you buy it. But shouldn't you buy it before you have the money?
CP: No-o-o-o.
Wife: Why not?
CP: It's in the book. It's only one page long. The advice is priceless and the book is free.
Wife: Well, I like the sound of that.
Husband: Yeah, we can put it on our credit card.
CP: [shakes head]

(SOURCE: http://snltranscripts.jt.org/05/05lbuy.phtml)

Remember that managing finances, as in everything, is more behavioral than mathematical. Most of us know that you shouldn’t buy things you can’t afford, but with today’s emphasis on the “look” and not necessarily the responsibility, it’s quite difficult. So many young people (and “older” young people) put purchases on credit and make small payments in anticipation of a job. Thus you’re paying for something you can’t afford to impress people who, in turn, are probably trying to impress you too. Don’t get me wrong. If you wanna ball, by all means, ball. But it must be done in moderation if wealth is where you want to be.

Let me be clear. I’m not much of a doom-and-gloom guy—I could ramble about how Americans are not saving like they should but I’m sure you are quite aware of that already. However, Americans are saving in some areas that are not tracked—according to The Motley Fool, capital gains savings are not tracked in American savings numbers. So for those of you who are investing by socking significant money into your 401(k) or IRA, you’re doing well, but it should also be coupled with storing up a good emergency fund, debt-free living, and giving back to your community through your church or other community-outreach organizations.

Tuesday, September 12, 2006

The Feeling's Mutual

5 Tips for a Great Portfolio Relationship

The staple of any investor’s portfolio is the mutual fund. A mutual fund is a collection of securities (stocks, bonds, and sometimes money) usually managed by a financial company. Before you learn about individual stock analysis and the like, you should really focus on your foundation, and generally, mutual funds are the start. Think of it as your “Investments for Real Life, 102” that everything will be based on moving forward. Got it? Well let’s begin. What is the best way to guide your decision about investing in a mutual fund? It’s almost like a good relationship.

1. The Return – You want more out than you put in. This is the primary (but by far not the only) screener. You should look for funds with the highest returns. Most fund-screeners do a good job of this for you. However, a return is arbitrary unless you compare it with…

2. Experience. Good relationships survive through thick and thin, and don’t turn tail when things get a little dicey. The next and perhaps most important step would be the consistency of said returns. If the fund has not been around for at least five years, don’t even deal with it. Stick with something that’s proven. Combined with #1, you want a fund that’s been around through the ups-and-downs of the stock market and has returns that are consistent and high.

3. Low Turnover. Anytime you trade a stock (which is what most mainstream mutual funds do) there are taxes incurred on any gains made in the stock, called capital gains. For instance, if a stock is bought by a mutual fund owner at $20, and it’s sold a $25, a 20% tax is levied by the government on the $5 income gained. A company that trades in and out of stocks in your mutual fund very often can build up large capital gains taxes that they pass on to the consumer. Therefore, stick with a company that doesn’t obsess over trading in and out of the stock market. Low in this instance is based on a scale from 1-100, and the smaller the number, the better.

4. Low-Maintenance. Maintenance fees are the fees charged for “running” the mutual fund. It’s like the “cost” of the relationship. The best option is to choose a fund with low maintenance fee/expense ratio (anything below 1.5% is good.) It’s also good to stick with funds that have low (or no) loads attached to running the fund. However, sometimes the load and fees may be worth it, but it depends—if the loads and fees eat into you returns to the point where they are at or below the annualized return of the S&P 500 for a 10-year period or more, drop it. If the fees are low but the returns are also low, this is not a good choice either. You want to find the “sweet spot” where the fees are reasonable and the returns are greater than the S & P 500. Otherwise, its best to pick up an index fund, which meets average market returns and fees are lowest.

5. Patience. Obsessing over a relation is the quickest way to kill it—even if the relationship seems “good.” The old adage says fire needs air to burn. If you want your stock returns to stay hot, then leave it alone! Don’t trade into and out of different funds, and don’t go chasing rates every year. There will be down years (remember the dot-com crash), and significant drops and significant gains (the last year or so)—it’s the nature of any relationship—financial or otherwise! Stick with what works, and let it be. Then you can enjoy Life’s Other Pleasures without obsessing over money and retirement. Leave that to the day-traders and the folks on Wall Street.

For more info on how mutual funds work, go

here (Wikipedia) or even

here (Fool.com).

Tuesday, September 05, 2006

Marriage, Money, Togetherness and De$truction: Bank Accounts


Many people struggle to get their Finances in order. let's Discuss how you can avoid trouble in the future once you make the Big Step.

Sounds like a snarky book-circuit title huh? Sure, you may have heard that the number 1 seed for divorce is based on finances. Specifically, I would venture that its not the actual money, but rather conflict avoidance--the fear (or refusal) to talk about money by initiating a you-do-your thing-I-do-mine policy with the money brought in by the couple. Whether your married, living together, or dating seriously, ignoring or avoiding the discussion of sharing finances can be the foundation crack to your cause your relationship to fall, unless...

You take pre-emptive action. It is a serious threat. You should attack the problem while in infancy so that when times get tough, you can be prepared to defend your beautiful relationship against the wiles of financial destruction—the love of money.

Who Do You Love More?
Which brings us to the first rule—establish at the outset which is most important to you in your particular relationship: your money, or your commitment/trust to your significant other? Understand that commitment is stronger than love alone. If your relationship with money is so strong that it may cause doubt or apprehension in how you share it with your partner (if you do), then that will affect your decisions in a different way than two people who put their relationship above their finances. You have to be honest with yourself either way. Some deny that money is more important, but don’t hesitate to withhold spending decisions with their significant other.


The Banks Account(s)…
In today’s two-income world, this question is the paramount one. Once you get to the point where you are sharing bills (and you probably should if you’re married and you both work) this should have already been fleshed out. Your income becomes more than just “yours” when you say “I do.” I can appreciate the words of Dave Ramsey who said “When you get married, the pastor didn’t say ‘and now you are a joint venture,’ he said ‘and now you are one.’” But then again, Dave is a little old-school and that may be a little difficult for many in the New Age to accept that marriage is not just peaches and cream and happiness every day. Therefore, you should sit with your partner and determine early on how and when money will be split regardless of income.


Option 1: Joint-Main, Jr. Option
In my opinion the optimal setup would be to have a joint account to handle all expenses—and expenses include charitable contributions in addition to utilities, insurance, car payments, etc. This “main” account would be where the bulk of all you tracked spending would go. Generally its probably best to have separate retirement accounts--not only can you share your retirement money, but it offers an opportunity to diversify your retirement options.

Additionally, a second “separate” account would be used for separate personal and gift purchases. This account should probably be very small compared to the main account—the vast majority of your money should go towards building your financial future. However, purchases you make together come out of the main account—vacations, for instance, should be funded by both of you if you both work. If you want to treat your special lady to a pedicure, or if you want to spring for the big screen for your man (and you don’t want them to know how much you spent) then the “gift accounts” are also beneficial because it allows you to surprise each other without destroying the budget. This option also works if you have obligations to other areas that are not a part of the immediate family; paying loans not in your name, alimony, or helping out in-laws/family members.


Option 2: Main-Separate Option
The option that seems “the best” according to many would be the separate accounts for each partner. In this option bills may be split but each partner is responsible for their own portion. Many choose this path to reduce friction in discussing finances. Furthermore, it allows each partner to avoid any guilt because the money spent on any particular item is not questioned. (So if Jane buys 30 pairs or shoes, it’s not a problem because it didn’t come out of Joe’s pocket).

To me I think this option sows the seeds for trouble. If you get to the point where you’re hiding purchases form each other, it’s not a far walk to withhold a few other things down the road. Frank, open discussion for finances builds trust in one of the most challenging areas for a relationship—money. It’s a time to discuss what purchases are fair. Talking about money openly is almost like being in kindergarten again—you learn that there is no more “mine,” but it’s “ours” no matter how much money is made. You’re officially a family unit and not a family with subsidiaries. And if the two incomes fall to one, then there’s the added hassle of switching around billpay features,


Option 3: Joint, All-In
The hardest option, which many aspire to but few reach, is the single joint checking account. All purchases, including gifts, etc. are included. Every purchase is open for both you and your partner/spouse to view. Single-income families find that this one may fit the best. Dual-income families should aspire to this option, because at some point, the amount of money spent on a gift should not matter.

However, those my views and I’m interested in hearing yours. Comment below!