Category Archives: Investing

How BIG should your emergency fund be?

Emergency funds are very popular in the personal finance world. They should be even more popular outside of the personal finance world. It’s always a very good idea to have a small savings stashed somewhere. My biggest dilemma is figuring out how much to have in our emergency fund. The interest rate in our savings account is really low. I only get 0.75% on the savings account at Capital One 360.

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Debt – How big should your emergency fund be if you are in debt? You should always strive to have $1000 in a savings account. $1000 will get you through most emergencies if you are a young 20 something year old. The last thing you want is to get into more debt if you have to pay an emergency bill to the doctor or vet.

After Debt – What happens after you get out of debt? Should you build your emergency fund to the equivalent of 6 months of expenses or 12 months? I have seen a lot of personal finance bloggers increase their emergency funds to $10,000 after getting out of debt. $10,000 will equal to about 3-4 months of expenses for us. 6 months of expenses equals to $18,000.

Investing – When you are young, it’s so important to build your investments so you take advantage of compound growth. Once you max out your retirement accounts, is it ok to have a $10,000 emergency fund, and then invest the rest into a brokerage account?

This is where our finances are right now. We can continue to build our savings account, or we can divert some money into a brokerage account.

What would be your advice for a 24 year old?

Have You Checked Your Investment Fund Fees?

In my effort to look for every easy penny in our finances, I went to Personal Capital to check out my investment fund expense ratios. Let’s be honest it’s easier for me to control fixed expenses than it is the variable expenses.

For example, we cut the cable chord in 2013! Savings? $50. Work for employers that pay for cell phone? Yes! $100 savings?

Controlling variable expenses are a lot harder for me. So, onward to look at fixed expenses. I read an article on the Wall Street Journal that most people don’t know how much money in fees they are paying for over the years!

Have you checked out your investment fund fees lately?

I have!

I pay a total of .09% each year in fund fees! In 20 years, this will cost me a grand total of $3,300.

To see a detailed table of the investments and their fees, see below:

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I have made a conscious decision to choose funds with low expense ratios. I’m so glad my company has given me the option to choose low cost Vanguard funds in my 401K.

The less fees I pay, the bigger return I get to keep!

In conclusion, take ten minutes to look up the expense ratios of your investments.

This has been a message from Savvy Financial Latina!!!

Peace.

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Save, Save, Save

When I first started university, I wanted to major in both finance and history. I had recently changed my mind and switched from software engineering to business school. I’m still not sure if it was a wise decision. Maybe if I had heard from more software engineers who had later turned to sales or business development, it would have been different. But at the time, I thought if you majored in software engineering, you had to be a software engineer for the rest of your life. It may seem illogical to you, but our education system teaches us to see in a straight line. Why did I switch to finance? I wanted to see how to make money. Coming from a low income family, money had always been a predominant issue in my childhood. Money was stressful. It caused arguments and distress. I wanted to avoid this in my life.

I switched to finance to learn more about how to invest and save money. Looking back, I’ve learned much more about personal finance reading on my own than I did from those college classes. Personal finance reading is free compared to the huge college investment.

Andy Clarke, a Vanguard blog contributor, shared his one piece of investment advice in a recent blog entry. Saving is more important than fancy investing. If you start saving at 25, your money will have more time to compound. You will end up with more money in your retirement account than the person who started saving at 35. 10 years is a huge difference in terms of letting your money grow.

So with this I leave you with save, save, and save. I know it’s hard. I myself struggle with our savings all the time. Living costs money. We don’t live a very luxurious life, yet sometimes I wonder where is all our money going? So, try to save as much money as possible. Put it in another savings account or transfer it directly to Vanguard; out of sight, out of mind.

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Keeping Things Simple with Your Finances

This is a guest post by Natalie over at Everything Finance.  Everything Finance is a site about just that, everything related to finance.  You can get information about investing, saving money, insurance, shopping, blogging, and making money online.

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Life can be pretty complicated at times. It can take all your powers and concentration just to be able to think straight especially when it comes to money. You may have just had a baby or experienced a layoff. You may have taken a new job position or experienced something else that requires a lot of your attention. You may have had a million different things that can affect your focus on your finances. With all that life throws at you, why take the risk of complicating your finances?

Many people believe in simplicity but their finances are quite a different story. Many people still pay their bills by mail using postage stamps. With the price of stamps increasing every year, it just makes more financial sense to use the free auto pay that’s available on many bank accounts. Many people wonder if this is a safe option but the truth is that it is often more secure than paying through the mail. You can even program when you want the money to leave your account in advance which makes things extra helpful.

Finding ways to keeping things simple does not always have to be reserved for your bank finances. Having a set budget can help reduce overall anxiety on what you are spending every month. Having an excel spreadsheet that you can easily turn to is a great way to keep things easy. Keeping columns for your housing, food, entertainment, and transportation costs makes it clear on what money can be allocated every month. There a variety of software on the market that can make budgeting even easier especially for those with a bit of computer savvy. This may not sound like the easiest thing to do but it will save you so much hassle down the road. This is exactly what is meant by keeping it simple with your finances.

Need another reason to simplify your finances? How about the simple fact that it cuts down on stress which can lead to lower medical bills in the future. It is no secret that lower levels of stress can have a positive effect on not only your attitude but your life as well. Playing it simple may even encourage you to make better financial decisions as it will leave time for other things. You could research the best interest rates for saving accounts in your area for example. You could finally have time to clip coupons and save even more money. Having more time is just one of the huge benefits of simplifying your time and efforts.

There is always going to be things in life that will be beyond our control. There will always be things that are difficult but your finances do not have to be one of those things. Placing a little effort in the right direction can save you so much hassle and trouble down the road. Sometimes the most important thing is just to make your mind up today and decide not to let difficulty rule your pocket book. Remember that your bottom line does not have to be complicated. Keep it simple for goodness sake.

 

The Most Tax Efficient Investments in Australia

Today I have a guest post from Richard at PF Australia. PF Australia is a financial resource for low income earners looking for practical information on how to better manage their money in Australia. It’s a place to learn about effective ways to control debt, establish savings and get ahead financially.

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As in most countries there are numerous mainstream investment options such as, shares, property, cash, term deposits, etc. and any healthy investment portfolio should have diversity across the board.

Investing in Australia is no different however there are a few investments that allow you to pay little to no tax on your investment. Is there a catch? Of course there is but it is minimal and probably for your own good as it is “time”. The catch is how long you have to be invested before accessing these funds and one option is quicker than the other.

Below are the two tax efficient investment options in Oz.

The first is a bond

This is a great option for investing for your child’s future. Establishing an account when they are born or an infant can go a long ways in covering future costs such as education, car, travel, wedding and more. Bonds are also great options for those who want to diversify their investment portfolio and avoid paying tax. Depending on the bond you go with, returns can range from 5-10%. The big attraction to bonds belong the competitive return is the tax benefit as mentioned before.

With certain bonds, no tax is payable on withdrawals where you have had the investment for 10 or more years. As some investments should be looked at as a long term commitment, this is the best of both worlds as it is medium term and avoids tax!

The second is Superannuation (retirement)

Super is another great investment which also allows for certain tax breaks. There are multiple benefits attached to super depending on your salary. Low income earners can receive certain benefits such as the government co-contribution scheme which is a boost to the bottom line is also not taxed.

The big benefit for Australians on a good or great wage who want to top up their super, is that if you salary sacrifice into super, you are only taxed up to 15% instead of up to 45% depending on your income. As you can see this is a great way to super charge your retirement and pay minimal tax.

The obvious down side of the tax advantage via super is the length of time you have to wait until you can access the cash – but then again certain investments are for the long term and this will allow for a more comfortable living in your retirement years.

The above are two of the most tax efficient ways to invest in Australia with one being mid to long term and the other being long term. Understanding your investing options will allow you to have diversity in your investment portfolio and add another brick to your hopefully solid financial future.

Hope you enjoyed. 

Cutting Back on my ESPP

Shout out to Dimespring! This week my post on How to Win The Scholarship Game is on Dimespring’s site. Please visit my article, write a comment, and help me promote the content! :) I appreciate all the comments, and believe it would help any high school or college students pay for school. 

Almost a year ago I wrote an article on Employee Stock Purchasing Programs. Here’s a link: Employee Stock Purchasing Program.

I defined an Employee Stock Purchasing Program as:

A company-run program in which participating employees can purchase company shares at a discounted price. Employees contribute to the plan through payroll deductions, which build up between the offering date and the purchase date. At the purchase date, the company uses the accumulated funds to shares in the company on behalf of the participating employees. The amount of the discount depends on the specific plan but can be as much as 15% lower than the market price. -Investopedia.com

I discussed how much I was going to start contributing, and how I excited I was on starting on this journey to build my wealth. My company matches every share you buy three years after maturity. I started contributing to my ESPP shortly after.

Now, I’m seriously considering, and probably, will stop contributing to my ESPP.

Why?

  • I feel like I have no control over my investment. Dividends are automatically reinvested to the company. I asked about getting dividends in cash form so I could reinvest it elsewhere, and my program doesn’t work that way. 
  • Three years is a really long time. I don’t know where I’m going to be in 3 years. Maybe I’ll be laid off? Maybe I would have moved on? Maybe my company would have suffered a downturn? The truth is I’m beginning to not see a long term future with my company.
  • I’m not diversified with my investments. My salary comes from my employer. I think having another part of my investment coming from my employer does not allow me to be diversified. I shouldn’t have all my eggs in one basket.

Gone are the days when companies cared about you. I cannot risk a part of my future on my company.

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I have, also, done some thinking on my investment strategy, and think it would be wiser for me to allocate the after-tax ESPP contribution to my 401K. It would be more in line with the direction of our goals.

Do you have an ESPP? What has been you strategy?

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We Own My Company Stock

On 11/15 we became owners of 90 shares of my company stock.

I automatically invest $130 of every paycheck to my ESPP account. $130 x 26 pay checks equals to $3380 over one calendar year. Every quarter the money allotted is invested by Computer share.  Now, I have to hold on to my stock for 3 years before it’s fully vested. After 3 years, I will be awarded one share for each share invested, as long as I’m still working at my company.  So last week’s share will turn into 180 shares :), and hopefully the stock price has more than doubled so I can make a nice profit. Or at the very least not decreased.

Do you contribute to your company’s ESPP program? How much do you contribute a year? What are the guidelines? Have you profited from your investments?

Money Should Make Money Right?

Money should be making money right? 

Personal finance bloggers are huge advocates of building emergency funds of 6 months of expenses. It’s actually one of my goals. We want to have saved $20,000 by the end of the year. I’m not sure if we will meet that goal, but at least we will come close to it.

Last night, I bought $3,000 worth of VGHCX shares. I figured since the market was slightly down, I would take advantage of it. After transferring the money to Vanguard, our savings account decreased to $9,000. I want to open my husband’s ROTH IRA, which means I will have to invest $3,000 minimum in his Vanguard ROTH IRA. If I do this our emergency fund will decrease to another $3,000. Granted if I want a month our savings account will stay flat, since I will contribute what we saved in October + November to the ROTH IRA.

My reasoning: The money in our savings account is doing nothing. Seriously, we get like 12 pennies every quarter of interest. That’s awful! I’m depositing thousands of dollars to the bank, and the bank is using it to make money. Not to make ME money, to make the BANK money.

Future savings: We want to buy a house in the near future. We are going to try to save up enough money to buy one by the end of our lease Jan 2014. It’s a pretty crazy goal, but if we make it, it will be great, if we don’t, we will be $1 more dollar closer to our 20% down payment. Knowing that we can pull money from our ROTH IRA (contributions not earnings) at any time for the purchase of our house, makes me wonder if we should max out our ROTH IRA this year, hoping the stocks will make money. I mean if we have to pull $5,000 to contribute to our down payment from our ROTH IRA, maybe the account would have grown to $5300? We would pull $5000 and at least have made $300. Way more than the 12 pennies. I know this is a little risky. What if the market crashes, etc…But the money in the ROTH IRA would be a back up, Just in case we don’t raise enough money for our down payment to avoid PMI. Maybe we may decide to postpone our house purchase to increase our down payment, at least our money would be making money.

Has anybody ever done that? Let me know what your experience is. 

Employee Stock Purchasing Plan

Here comes another edition of the grown up world! Fresh off the press!!! On Monday, I talked about the Exciting and Not So Exciting Parts of Growing Up. Wednesday, I wrote about retirement contributions. And today, I am writing about my employee stock purchasing plan. Honestly, until I joined my company I had no idea I could do this. Sure, I have heard of Facebook and Google employees becoming overnight millionaires after IPOs. I had also heard a graduate classmate who works at AT&T as an IT Engineer, talk about buying company stocks. But when I asked him about it, he was pretty much clueless about it. So no luck there! Of course, I also remember Enron employees losing their retirement savings because they were banking on continual company success. :/

If you are wondering what an Employee Stock Purchasing Plan is; a quick Google search generated these results:

A company-run program in which participating employees can purchase company shares at a discounted price. Employees contribute to the plan through payroll deductions, which build up between the offering date and the purchase date. At the purchase date, the company uses the accumulated funds to shares in the company on behalf of the participating employees. The amount of the discount depends on the specific plan but can be as much as 15% lower than the market price. -Investopedia.com

Trying to figure out how much to contribute in my ESPP is giving me a headache. I can contribute 1%-7.5% of my base gross salary. If you hold the stock for three years, my company will match each share with one share. I have 90 days from my start date to enroll, and the next time I can change my contribution is November.

The matching is awesome! In three years, I will be able to sell those stocks and hopefully make a profit! Three years is a long time to wait, but I am all about long term goals.
Dang..three years from now I will be 25….suspense music please?

Why am I having so much trouble? Well, I have no idea how much I want to contribute! 1%? 2%? 3%? 4%? 5%? I don’t want to contribute the max right now because we want to increase our cash savings, plus I am already contributing to my 401K. I am really tempted to contribute 5%, and then if I feel comfortable increase my contribution in November. But I also have to balance my savings…dilemma…dilemma

Do you have an ESPP? Do you contribute to it? How does it work? Has it paid off? What has been your return?

My First Investment Decision at 18

My parents, despite experiencing very hard economic times, always had a roof over our heads and food on the table. My mother managed the budget, which allowed us to have life’s necessities. We never had luxuries, and not until a couple of years ago did my parents start splurging more on clothes, shoes, etc. I learned my money management from her.

When I was 17, I started working for a non-profit music and dance group as their administrative assistant. The director of the group took me under his wing and helped me open a bank account, get a cellphone, and later, build my investment portfolio. He taught me to go beyond just saving cash, and turn the cash into investments.

I was very fortunate to have earned extra scholarship money my freshman year. I was tempted to buy a car, but then, I realized I would have to work more to pay for insurance and maintenance. Adults constantly told me that I needed to start investing money as soon as I could. So, I knew that I would be better off if I saved the money and invested in stocks.

At the time, I had no knowledge of stocks, bonds, or CDs. I approached my mentor, and he helped me start investing. I went with USAA because he already had portfolios there that were doing well. I also decided to automatically invest $100 every month.

Here is the breakdown of the portfolio in 2008:

–       USAA World Growth Fund – $3000

–       USAA International Fund – $3600

–       USAA GNMA Trust – $4000

–       USAA Tax Exempt Long Term Fund – $4200

–       USAA Money Market $1000

As you can see, I was actually very risk-adverse and invested more in bonds. I regret this decision and wished I had invested all my funds in international stocks. Those funds were the ones that grew the most.

USAA is a great company with amazing customer service. I’m definitely opening investment accounts in the future with them.

When did you start investing? What would you tell yourself back then if you had the wisdom you have today?

SavvyFinancialLatina