Personalfinancetipz's Blog

Annual Salary vs. Hourly Wage

personalfinancetipz — Wed, 29 Apr 2009 04:12:00 +0000

When comparing pay between various jobs, it’s always easier to compare apples to apples. Below are two simple calculations that you can use to compare salaries and. wages.

Calculating Hourly Wage
If you are paid a salary, a simple way to calculate how much you make per an hour is to divide your salary by 2000. For example, if you make $40,000 a year, that would equal $20/hour ($40,000/2,000 hours).

Calculating Annual Salary
The above calculation also works in reverse; if you are paid an annual salary, you can calculate how much you make per year by multiplying your hourly wage by 2000. For example, if you make $20/hour, that would equal $40,000/year ($20*2,000 hours).

The above calculations are based on the assumption that you work 40 hours week for 50 weeks out of the year (40 hours *50 weeks = 2000 hours). If you know the number of hours that you’ll work in a year, you can subsitute that number in place of 2000.

Getting Started in the Stock Market – What to Invest In?

personalfinancetipz — Wed, 22 Apr 2009 21:20:00 +0000

I often get asked for stock recommendations but rarely mention a specific stock due to risks of investing in individual stocks; instead I tell people to buy the market. If you are just getting started in the stock market, buying a broad-based ETF such as the SPDR S&P 500 may be a good choice.

What is an ETF
An ETF is an Exchange Traded Fund which is a fund that follows that mimics the performance of a basket of stocks but trades like a single stock

What is the SPDR S&P 500
It’s an ETF that mimics the performance of the S&P 500. The S&P 500 is an index that tracks the performance of stocks of 500 of the largest publicly traded American companies. It’s ticker symbol is SPY.

Diversification
By purchasing a broad-based ETF, there’s no need to buy 20 other stocks to have a well diversified portfolio.

Lower Fees
ETFs have lower fees than actively managed funds and have no minimum investment requirements. There is also little or no capital gains distribution taxes until you actually sell the ETF, as is common among actively managed funds.

Perform at Par to the Market
You”ll perform just as well as the market (less the brokerage fees and ETF fees, which for the SPDR S&P 500 is just 0.09%). While ideally everyone would like to beat the market, performing at par with the market is pretty decent, considering that most mutual funds under perform the market.

How to Save Money Everyday

personalfinancetipz — Wed, 15 Apr 2009 21:15:00 +0000

There are many ways in which you can reduce your daily, weekly, or monthly costs. Below are a few ideas on how you can cut back your spending and save a few dollars.

Make Your Own Coffee
Instead of a cup of gourmet/specialty coffee at Starbucks or another coffee shop, invest in a coffee maker and brew it at home instead. If you can’t brew your own coffee consider trading down to McDonald’s coffee or somewhere else that offers more competitive prices.

Bottled Water
Don’t buy bottled water. Instead fill up a reusable bottle with filtered tap water from home. Numerous bottled water companies get their water from the same water source that you get your tap water from anyways.

Breakfast from Home
Instead of going out and buying breakfast in the morning, make your breakfast at home or bring a breakfast bar to eat on your commute to work.

Brown Bag It
Bring your lunch to work instead of going out to eat or buying from the cafeteria; this will almost always be cheaper (unless your place of employment offers free food). You don’t need to bring your lunch everyday; just brining your lunch 1-2 times a week can save you hundreds of dollars a year and help to enforce healthier habbits.

Avoid Vending Machines
Don’t buy snacks from vending machines, delis, or convenience stores. You can get the same items from your local grocery store at a much better price, so stock up on these snacks and store them at work or in your car.

It Adds Up

personalfinancetipz — Thu, 09 Apr 2009 17:38:00 +0000

Having trouble saving money? Start by saving $3.

$3 may not seem like a lot, but if you cut your spending by $3 every day, that will equate to over $1000/year in savings.
$3/day x 365 days = $1095/year

The same holds true for $20/week
$20/week x 52 weeks = $1040/year

…and $85/month
$85/month x 12 months = $1020/year

Take a close look at your spending; are there any daily, weekly, or monthly expenses that you can cut out?

Owning vs. Renting

personalfinancetipz — Sun, 05 Apr 2009 11:58:00 +0000

Despite historically low mortgage rates and an $8000 first time home buyers credit, buying your own home may not be a good investment. You should consider a number of factors before buying a home.

Time Frame
In order to break even, you’ll need to live in your home long enough so that the equity you’ve gained from your home will offset the closing costs. In a normal housing market this will take around 5 years.

Location
Real estate prices tend to be localized; if you decide to buy a home where the local economy is depressed, it is unlikely that your home price increase will keep up with inflation over the long run.

Your Financial Situation
Before buying a home, you should have at least enough for a 20% downpayment (to avoid paying for private mortgage insurance) and closing costs which run around 2%-4% of the purchase price.

You’ll also need to ensure that your monthly income is sufficient to cover your mortgage, HOA fees, maintenance costs, property taxes, property insurance, and utilities along with all your other living expenses. Having a stable job is key, if you don’t, be sure that you have a large enough Emergency Savings Fund to cover any months when income will not be sufficient.

Lifestyle Choice
Many first time home buyers typically make the transition from renting an apartment to owning a single family home. Because of this there will be additional maintenance costs and higher utility bills due to the larger living area. It is also common for people to spend more money on furnishing and fixing up the place that they own. Generally the upkeep costs will be higher in the place you own than a place that you rent.

Buying your own place is a big decision, so be sure to do your due dillegence. Check out the NYT Buy vs. Rent Calculator to see if it makes financial sense to buy a home.

Protect Yourself – Check Your Credit Report

personalfinancetipz — Tue, 31 Mar 2009 09:34:00 +0000

Checking your credit report on a periodic basis benefits you in 2 main ways:
1. You’ll be able to see if there’s any inaccurate information on your credit report. If there are errors, you can contact the credit bureau to correct the erroneous data. By fixing reporting errors in your credit report, you’ll protect and potentially raise your credit score.
2. If someone is using your identity, you’ll be able to see any credit requests that were made with your personal information, then you can take the appropriate steps to mitigate any damages.

You can get a free credit report from the credit bureaus:
https://www.annualcreditreport.com/

There are 3 reports (one from each credit bureau) that you can pull for free every 12 months. It is recommended that you pull one report every 4 months so that you’ll be actively aware of your credit activity.

Starting an Emergency Savings Fund

personalfinancetipz — Wed, 25 Mar 2009 21:26:00 +0000

What is an Emergency Savings Fund?
An emergency savings fund is money that can be easily accessed when an unexpected financial need arises. This money can be kept in a savings account, money market or short-term CD. The only time you would take money out of this account is in an “emergency”.

Why?
Having an emergency fund will ensure that you’ll be able to support yourself and your family without taking on unnecessary debt during times of financial need.

If you lose your job, your roof starts to leak, your car breaks down… You can draw from your emergency fund instead of running up your credit card or taking out a high interest loan.

How Big?
At a minimum, you should keep at least 3 months worth of living expenses (e.g. Rent, Food, Transportation…) in your emergency fund. Ideally you want to have enough to cover 6 months – 1 years worth of living expenses in your fund.

How to Start
Start by putting 10% of your paycheck into your emergency fund. If you can’t afford to save 10% on your current lifestyle, consider cutting back on some of the convenience/luxury/entertainment expenses until you have at least 1 month of living expenses saved up and then continue to add to that monthly.

If you already have some savings on hand, you can designate that as your emergency fund and use it as starting point and build on that.