Archives for December, 2009
31
Dec
Posted in holidays, milestones by Roger, the Amateur Financier |
Well, it’s the end of the year, a time when we look at ourselves, at our accomplishments and our failures, and make plans to improve in the new year. With that in mind, it’s time to look over my life in 2009, see what I did right, what I did wrong, and what I intend to do in the future.
Luckily, I’ve been blogging for most of this year, so my year-end review process is going to be much easier than it has in the past. I’ve been pretty open about my personal and financial life when writing this blog, so it should be a much easier process to go through and spot my high and low points. Come along and enjoy the fun!
The Good:
I started a new personal finance blog! In hindsight, maybe personal finance wasn’t the best niche to focus on, but it has kept my interest and spurred on my writing for this past year, and hopefully quite a while into the future.
Celebrate the Good Times!
I was able to spend another Valentine’s Day with my beloved. (I promise this won’t turn into a list of the celebrations I had with Sondra, although a few more might sneak through…)
Speaking of which, this was also the year that we got engaged! *Does his happy Roger dance to celebrate, again*
After only a few months, I decided to go at making this blog interesting and productive, and decided to leave Blogger for my own site (which you’re reading now). It’s been a great move, in my opinion.
I shared seven things with my readers that they probably didn’t know (unless they’ve been stalking me…)
As part of my attempts to ingratiate myself more fully with the PF blogging community, I hosted a carnival, the first of several, actually.
I got a new job, with good pay, at a place I’ve been trying to get into for quite a while…
The Bad:
…Which I unfortunately lost before too long.
I had to make semi-major repairs on my car, at a time when I was unemployed and trying to stretch my savings as much as possible. On the bright side, I did get another post out of the deal, so there was some good that came from the whole ordeal.
And deal the bad times
While I had a wonderful trip out to visit my fiancee’s extended family, our trip home was horrible. I hope I never have to deal with that kind of aggravation again.
The Ugly:
I tried not to spend too much time on the whole real estate melt down and the after effects, but it was hard to be a blogger in 2009 without expressing some opinion on the whole situation. So here is my rant on the causes of our financial mess (which is far from completely cleaned up).
I’ve run into some complications getting my unemployment benefits paid, after the aforementioned job loss. (As of this writing, it seems to be resolved, but I’m not counting my chickens before they are hatched after all the trouble that I’ve had.)
My Year in Review
I’ll be honest, I’m a bit surprised at how many good things happened this yes, and how few bad ones. It’s easy to get lost in the bad things and forget all the positives. But all in all, 2009 was a pretty good year. Yes, I wish that I hadn’t had so many job problems (and all the associated money problems that went with them), but it was also a year filled with positives. I got engaged! I started a blog! I held several jobs over the course of the year, and I’m sure I can get another job soon.
All in all, 2009 was pretty good. I can only hope that 2010 will be even better. But I suppose my year will be only as good as I can make it… Happy New Year, Everyone!
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30
Dec
Posted in Weekly Thoughts by Roger, the Amateur Financier |
Well, it’s that special time of year, between Christmas and New Year’s Day, when things still look so festive and exciting, and everyone is enjoying the spirit of the season. While winter has been hitting us hard here in the Northeast part of the United States, it’s still nice to be able to come home to my fiancee and spend time with her, even if we are practically snowed in at the moment.
For this week’s thoughts, I’m going to do something a bit different than normal. We’re going to peruse the blog rolls and see what Christmas posts were put up by my fellow personal finance bloggers. I know, I know, Christmas is over, but it can’t be wrong to try and keep some of the spirit in our hearts through the rest of the year, right? Alright, onto the list:
Christmas Themed Blog Entries
The Studenomist asked How Much Money Did You Spend This Christmas? (My Answer: Way, WAY more than I should have.)
Twas the Night Before Christmas 2009 (and a darn funny one to boot) over on Lazy Man and Money
A video entry on Man Vs. Debt wishing us a Merry Christmas from the Baker Family!
Merry Christmas, Happy Holidays (with kittens) on the Digerati Life
The Financial Samurai says Merry Day After Christmas! Santa Bring You Everything You Wanted? (the answer is no, since apparently a new job didn’t fit into his sleigh)
The Writer’s Coin simply wishes everyone a Merry Christmas! (If only I could be so succinct!)
Jeff Rose wished us Merry Christmas From the Roses on Good Financial Cents
Mrs. Micah updates us on her bone marrow donation and wishes us a Merry Christmas
A Tough Money Love Christmas Greeting from Mr. ToughMoneyLove, himself
A short list of holiday does and don’ts, courtesy of J. Money at Budgets are Sexy
The entire Weakonomics family (including the Boxer) wishes you a Merry Christmas
Trent is always good for a Merry Christmas from the Simple Dollar
And J.D. helps us to get some perspective on Holiday Celebrations from Around The World
That should be just about everyone on my blog list; hopefully, all these great bloggers are still enjoying the Christmas spirit (and aren’t too hung over; I’m looking at you, FS). Have a merry holiday season, everyone!
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29
Dec
Posted in Small Business 101 by Roger, the Amateur Financier |
It’s Tuesday, and you know what that means: yes, it’s another edition of Small Business 101! This week, we’re going to cover one of the biggest issues facing those going from the corporate world into business for themselves: taking care of everything you should do before you leave your job. Whether you intend to start a small business of your own, get into a different job, or simply make sure you’re prepared in case of a downsizing, there are plenty of steps you can take to ensure that you will be ready when your regular paycheck from work is no longer there. These include:
1. Building Up a Sizable Emergency Fund: I’ve already discussed emergency funds before, but if you are planning on leaving your place of employment in the near future (or fearful that your company or industry will be cutting jobs), it’s absolutely essential to be sure that you won’t run out of money before you can make your business profitable or find another job. A standard emergency fund with three to six months worth of expenses might be enough to see you through until your business takes off, particularly if your spouse or significant other is still employed and makes enough money to cover the household expenses.
Avoid looking like this by planning ahead before you leave your job
If you are the major breadwinner, though, you should shoot for an even more robust emergency fund; while I hope that you will soon turn a profit and make your business a success (or find other employment), it’s good to have plenty of money in the bank, just in case. Shoot to accumulate at least one year worth of expenses; that will give you a nice, healthy cash cushion, as well as plenty of time to allow your business to grow before you really need to have income. Also, work on lowering your expenses; besides allowing you to stretch your emergency fund further, it’s just plain good for your wallet!
2. Research Health (and Other) Insurance: Amongst your other benefits, there’s a good chance that your company provides you with health insurance, or at least a rather substantial discount on your health insurance coverage. Once you are no longer working at your current company, you’ll need to purchase insurance on your own. While you’re still employed, it would be a good idea to look into the costs of buying insurance of your own to cover all the policies currently provided by your company. Be sure that your new endeavor will provide enough income to cover these additional costs (and the cost of your insurance needs is included in your emergency fund calculations).
3. Have a Plan For What You’ll Do Next: If you’re quitting your job in order to start your own business, this should be pretty simple; after all, you’ve already created a plan for how you’re going to get your business up and running, right? But it’s worth making a plan for how you’ll build up your clientele, generate income, and generally get your post job life up and running. The more specific you can be, and the more contingencies you include (after all, sometimes things don’t go as we plan), the better, as you’ll have a valuable road map to your post-employment life.
4. Build Up Your Network: It’s always good to know who you can contact for help, advice, or simply some friendly encouragement. With some luck (and plenty of effort to reach out to your coworkers), you’ll have a substantial list of references from your professional life, who might be able to provide you with support as you start your own business. But don’t overlook friends, neighbors, and even family members who might be able to help you in the next stage of your life. Be sure to join some small business organizations to get help from people who have experience in the field, as well as sharing your own experiences with those who come behind you.
5. Be Sure You Want To Leave: There are many advantages to starting your own business, from freedom to the opportunity to do what you want and earn a living. But there are advantages to being employed by someone else, as well; regular paychecks, social interaction with your coworkers, and defined responsibilities (rather than having to do or delegate everything involved with the business) are all among the some times overlooked benefits of working for someone else. You’ll have to weigh the relative pros and cons of your current position with the potential to work for yourself, in order to determine which path you should take. If you do still feel that you want to leave your job, the previous steps will help to ensure that you can do so without having too much trouble in the transition.
What other actions should someone take before quitting their job? Would your recommendations depend on whether they are trying to get another job or start their own small business? How big is too big for an emergency fund?
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28
Dec
Posted in retirement by Roger, the Amateur Financier |
One of the most basic tenets when you are saving for retirement is to dollar cost average your investments by contributing the same amount of money each month (or quarterly or weekly, depending on your preferred investment schedule). By doing so, you’ll end up purchasing more shares of the (usually) mutual funds when the price is lower, and fewer when the price is high. The end result is that you end up purchasing more shares at a lower average cost, than by purchasing the same number of shares each month. For an example, let’s check out the following table:
Dollar Cost Averaging in Action
If you wanted to invest $100 in the Vanguard 500 index fund (the first and probably most popular index fund) on the fifteenth of each month (or the last business day before the fifteenth, for months when the fifteenth falls on a weekend or other holiday), this shows you an example of how dollar cost averaging will lower your expenses. If you take a straight average of the share price, you come up with a share price average of $87.56.
But, you didn’t purchase the same number of shares each month, did you? Nope, because you put in the same amount of money each month, you ended up buying a total of 13.913 shares; dividing the total you spent ($1200) by this number of shares, and you’ll see that you bought your shares for an average price of $86.25. Because of your dollar cost averaging, your per share cost is a bit lower than the average share cost of the year. If you’re in the process of buying sharing to build up your investments, this is a good thing; more shares for less money!
But let’s reverse the money flow; imagine you’re a retiree who is selling your investments in order to generate additional funds in retirement. Now, you are selling enough shares of your Vanguard 500 index fund to generate $100 each month. You’ll have to sell more shares when the price is low, and fewer when the price is high. The end result is that you’ll get less money for selling more shares; not the sort of situation in which you want to find yourself.
This is known as negative dollar cost averaging (DCA); where the process of dollar cost averaging, when thrown into reverse, ends up increasing the number of shares you need to sell in order to keep your cash flow the same. (It was mentioned as part of Yes, You Can Still Retire Comfortably!, which recommended a version of market timing to counter the problem.) How can you prevent negative DCA from taking its toll on your investments? There are a few possible methods:
1) Sell a constant number of shares: Negative DCA results when you sell different numbers of shares at different prices in order to generate constant cash flow. You can break up this problem by selling a constant number of shares instead. If you sell one share each month (for our example), you know that by the end of the year, you’ll have sold 12 shares, regardless of the changing share price over the year. The problem is, you’ll have to accept a fluctuating income stream from your sales; if the share prices drop in half, your income from selling these shares drops in half, as well.
2) Rebalance your portfolio regularly: Assuming you have more than one type of investment in your portfolio (and you should, unless you have a target-date fund, which will rebalance automatically), you should make an effort to rebalance your portfolio on a regular basis. (At least yearly, although quarterly or even monthly rebalancing can work provided you are working in a retirement account and don’t have to worry about taxable events when buying and selling mutual funds.)
When you rebalance, you sell the portion of your portfolio that has risen above your desired allocation and use the proceeds to buy the under-performing funds. You’ll be putting the ‘buy low, sell high’ formula back to work for you, and won’t have to worry about negative DCA working against your progress. Alternatively, you could…
3) Sell from the best performing funds: A poor (or tax-adverse) man’s version of rebalancing, you can sell from the funds that are performing the best (the ones that represent a larger portion of your portfolio than you originally intended). The result is that you’ll bring your portfolio more into line with your desired portfolio, and you’ll avoid having quite so many taxable events (since you won’t be selling large portions of your portfolio to shift them around at once). While not completely relieving the need for occasionally rebalancing your portfolio when things get really off kilter, it’s not a bad way to generate needed funds without causing any negative DCA problems.
Hopefully, you now have a better idea about negative DCA, and what it will do when you start to draw down your retirement income.
Has anyone else given any thought to negative dollar cost averaging (or dollar cost averaging in general, for that matter)? Are there any other methods of avoiding negative dollar cost averaging that I missed? Aren’t mathematics just a load of fun?
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