Organize Your Financial Life With This Money Road Map

The following post is by MPFJ staff writer, Melissa Batai. Melissa is a freelance writer who covers topics ranging from personal finance to business to organics to food.  She blogs at Mom’s Plans, where she shares her family’s journey to healthier living and paying down debt.

Are your finances in the shape you’d like them to be?  Or, are they a disaster that you’d like to clean up as soon as possible?

If they’re a disaster, first know that you’re not alone.  Many, many people find themselves in a financial mess at some point in their lives.  There are a number of steps that you can take to strengthen your financial life and make yourself and your family more secure.  Here are the steps that I recommend you take in this order:

 

Put two to three months’ expenses in an emergency fund

If you’re a fan of Dave Ramsey, you know that he advocates a $1,000 emergency fund and then attacking debt.  My husband and I used to follow this approach, but then we ended up with emergencies bigger than $1,000, and we’d have to go back into debt to pay them.

I’d recommend instead that you first save two to three months’ of expenses, and then start paying down your debt.  That way, if you run into unexpected expenses, you can tackle them without going further into debt and erasing the progress you’ve made on paying down the debt.  (Seriously, nothing is more depressing than working hard for months to pay down your debt just to watch all of your progress disappear with one car repair or home repair.)

 

Pay down all of your debt except your mortgage

Once you have the two to three-month emergency fund, it’s time to pay down your debt.  I’d recommend paying off credit cards first, then car loans, then student loans.

While Dave Ramsey recommends using the debt snowball and paying off the lowest debt first, others have good luck paying down the highest interest debt first.  Which option is better depends on what motivates you.  Are you motivated by seeing the debts disappear one by one, or are you motivated by knowing that less money is being paid to interest each month?  Ultimately, your motivation will be what helps you through the sometimes long, painful process of paying down debt, so pick the method that works best for you.

 

If you use your credit card, pay it off each month

Credit cards can be a great tool if you use them responsibly.  If you have a cash back or airline points feature, you can even earn money for using your credit card.  The key is to pay it off each month.  If you can’t do so, it’s time to retrain yourself and start using cash or a debit card.  Once you get better control of your spending, you can start using the credit card again and reaping the rewards.

Credit cards can be a great tool if you use them responsibly.  If you have a cash back or airline points feature, you can even earn money for using your credit card.  The key is to pay it off each month.  If you can’t do so, it’s time to retrain yourself and start using cash or a debit card.  Once you get better control of your spending, you can start using the credit card again and reaping the rewards.

 

Contribute 10% of your income to your retirement fund

When you’re in the midst of financial difficulties, it’s hard to plan for the future, but if you want to be secure in the future, you must take steps now.  Ideally, you’ll want to save at least 10% of your income in a retirement fund with the eventual goal of getting that number up to 15%.  However, don’t feel intimidated by that amount.  Start slowly if you need to, and contribute just 1% of your income to your retirement fund for six months.  Then, slowly bump it up to 2 or 3% for six months.  Continue adding more every few months.  It takes

When you’re in the midst of financial difficulties, it’s hard to plan for the future, but if you want to be secure in the future, you must take steps now.  Ideally, you’ll want to save at least 10% of your income in a retirement fund with the eventual goal of getting that number up to 15%.  However, don’t feel intimidated by that amount.  Start slowly if you need to, and contribute just 1% of your income to your retirement fund for six months.  Then, slowly bump it up to 2 or 3% for six months.  Continue adding more every few months.  It takes time to get used to making retirement savings a priority.  As you develop the habit, you’ll be able to add more to your retirement savings until you get up to 10%.

 

Buy term life insurance

(Bump this step up if you have a family before you get to this point in your financial life.)  I was talking to a mom of four young kids recently.  She is a stay-at-home mom, and her husband is older than her; he’s in his fifties.  She was excitedly telling me about their new financial plan.  Each month, they set aside $100 in an emergency fund in case something happens to her husband.  That was their only plan if something happened to the sole breadwinner of the family.

I wanted to cry.  They have four young kids, she doesn’t work, and her husband is in his fifties, yet they have no life insurance!  While the money they’re setting aside is great, if her husband unexpectedly passed away, that money would quickly be consumed.

The family I’m referring to isn’t alone.  According to Fox Business, “Currently, 95 million Americans live without life insurance and only one-third of consumers are covered by individually-owned life policies.”

Term life insurance is relatively inexpensive, especially if you’re young and healthy.  While experts recommend you take out a policy for 10x your income, you can use an online calculator and talk to an expert to help you determine how much you actually need based on your life circumstances.

If you have dependents who rely on your income, you must make buying term life insurance a priority.  I would move this to the first step in this plan, even before creating a two to three-month emergency fund, if you have dependents.  Life insurance and the financial security it can bring your loved ones is that important.

 

Build an eight-month emergency fund

For ultimate security, you’ll want to bulk up your emergency fund once your debt is paid off, you’re adding to your retirement regularly, and you have term life insurance.   Some experts recommend an eight to twelve-month emergency fund, but start with an eight-month emergency fund first.  This money will be essential if you unexpectedly lose your job or suffer an injury.

Remember, when you’re measuring a month’s worth of expenses, you want to consider the essentials.  If you were suddenly laid off, you’d probably cut non-essentials like eating out and buying new clothes.  Base a month’s worth of savings on how much money you’d need to pay the essentials.  While your current monthly expenses may be $5,000 a month, you may find if you cut non-essential line items, your expenses drop down to $3,800 a month.  The latter amount should be the amount that you consider a month’s worth of expenses.

 

Pay off your house

When all the steps above have been achieved, it’s time for the biggie—pay off your house.  While some people prefer to pay off their house right on schedule thanks to low mortgage interest rates, why not pay it off if you’re otherwise financially secure?  Think what you could do with that extra money in your budget each month if you didn’t have to pay your mortgage payment?  You could invest it, give to charity, travel the world.  Once the house is paid off and you’ve completed all of the steps above, you’re truly financially free.

The best way to become financially secure is to create a map for yourself with financial goals that you want to achieve.  While the steps above may take as little as 10 years to complete (depending on your current financial situation), or as long as thirty years or more, the point is that you have a plan that you’re following.  It’s imperative that you’re continually making financial progress throughout the years rather than squandering money and going through life without a plan to guide you on your journey.

What do you think?  Do you agree with these financial steps, or would you rearrange them?  If so, what order would you put them in?

***Photo courtesy of http://www.idpinthat.com/edit/4335

5 Ways To Start Investing With Less Than $1,000

The following is a guest post. Enjoy! 

There is a common misconception that you have to have thousands and thousands of dollars to start an investment portfolio, but that couldn’t be further from the truth. There are dozens of ways that you can start investing with $1,000 (or less). It’s important that you start investing for your future, but if you’ve never gotten in the investment waters, it can be a scary jump to make. Luckily, there are several simple ways that you can put your money to use.

 

Betterment

If you’re looking for a simple investment that you can make, without having to pour over different graphs and reports to decide which investment is the best option, then Betterment could be an excellent choice. Betterment is the better choice for anyone that is looking to set it and forget it.

With Betterment, all you have to do is create an account, set your goals, and start investing. After that, their robo-advisors will invest your money based on your risk preference and goals. They will even continue to reinvest your money as you make it, which means that all you have to do is sit back and watch your money grow. You can easily start investing with $1,000 and not have to worry about making the wrong choice for your money.

 

Motif

Maybe you want a little more control of how your money is invested, then Motif is another excellent option. Motif is an excellent website that allows you to purchase 30 stocks of companies that all revolve around the same idea. For example, you can buy 30 stocks in business that all deal with medical technology.

There are several advantages to Motif, but the most notable is that the trading fees are going to be drastically lower than any other brokerage that you’ll find. Motif allows you to invest in the industries that you want, without having to pay the massive fees.

 

Pay off Debt

Most people don’t see paying off debts as a form of investing, but it could be the best option for you $1,000. If you’ve got credit card bills or lingering student loans that have been hanging over your head, it’s vital that you pay those off as quickly as possible.

The amount of money that you’ll pay in interest will hinder the amount of money that you can invest. Use any extra money that you have to pay off those debts, then all the money that you save can be invested.

 

Save for College

If you have kids, you may not be thinking about sending them off to college yet, but that could be the perfect use for your extra dough. If you didn’t know, college is expensive. Very expensive. It’s important that you start saving as early as possible.

There are several ways that you can start saving for your children’s college, but the best way is to open up a 529 Plan. These are special accounts that you can put the money in, but you’ll get several tax advantages as long as you use the money for any college expenses.

 

Set it Aside for a Rainy Day

You never know when something is going to break or need replacing. If your water heater were to go out suddenly, or your car broke down, you probably wouldn’t have the money that you needed to pay for that bill, but setting aside the $1,000 is a simple way that you can invest in your future. That’s a great way to have a rainy day fund, which can prevent you from having to use a credit card for any sudden bills that you run into. It’s not the most exciting way that you can “invest” your money, but investing in your future by having a safety net is one of the wisest things that you can do with your money.

 

Investing $1,000

These are only a few of the hundreds of different ways that you can put your money to work. It’s vital that you make the best decision for you and your money. Investing is going to be the foundation for your future and the security of you and your family.

Take the time to look at all of your different options and decide which one is going to work best for you. It can be scary investing your money because of the horror stories, but thanks to the Internet, investing your hard-earned money has never been easier.

***Photo courtesy of https://www.flickr.com/photos/gotcredit/33502814980/sizes/l

Personal Finance To-Do’s in a Good Economy

The following post is by MPFJ staff writer, Laurie Blank.  Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.

According to recent reports, the economy is in a state of thriving optimism. Check out this recent news article snippet:

“Upbeat economic data continue to emerge from the U.S. economy despite the turbulent political atmosphere. Leading indicators suggest that activity is firming in the first quarter of 2017 after GDP growth slipped in the final quarter of last year. The ISM manufacturing index rose to an over-two-year high in January, retail sales grew healthy and employers added jobs at the quickest pace in four months.”  (Source: http://www.focus-economics.com/countries/united-states)

After many years of digging out of trouble since the 2007-2008 housing bust, things might actually be starting to seriously improve for America’s citizens, at least from a financial standpoint. So what can you do to take advantage of a good economy and use the opportunity to improve your personal financial situation? Consider these options.

 

Assess Your Financial Situation

How have the last nine or ten years affected your finances? Have you gotten into debt? Depleted your savings? Ignored your retirement accounts as you work to be able to pay the bills? Make an assessment of your current financial situation and set some goals for where you want to be financially. Then make a plan for how you’ll get there and start moving forward with your plan today.

 

Make More Money

Jobs are being added at a quick pace, which means you have more opportunities to increase your income. Consider taking on a second job if necessary or getting overtime hours at work if they are available in order to help you reach your financial goals. Take advantage of the chance to increase your income while things are good and business owners and consumers are in a spending mood.

 

Don’t Get Too Comfortable With the Boom

In the years prior to the Great Depression, Americans had a “What could possibly go wrong?” attitude about their money. The stock market was thriving and the Roaring Twenties had people buying houses on credit, cars on credit and living a life of financial reckless abandon.

When the crash hit, many people lost everything and the foreclosure rate skyrocketed to over twenty-five percent.

History shows that every boom is followed by a bust – eventually. In a thriving economy that bust may come years down the line, or it may come in an instant due to a terrorist attack or other major widespread issue like a major drought that causes an increase in food prices.

In order to protect yourself and your finances, stay reserved about the immediate economic success and continue to plan for future economies as opposed to simply taking comfort in the current good one.

 

Beware of Potentially Rising Interest Rates

We’ve lived with super low interest rates for the last several years as the government worked to make it possible for people to keep spending in spite of the housing bust and its after effects. Now that things are looking up we can expect rising interest rates which will affect mortgage loan rates and credit card rates as well, so borrow carefully.

A good economy is a great thing, but it’s also a great time to keep in mind that economic booms don’t last forever and to prepare to be financially stable no matter what the economy may be doing. Ditch your debt, increase your savings and work your way to a healthier financial situation while the getting is good.

How about you all? What steps are you taking to improve your current financial situation?

Share your experiences by commenting below! 

***Photo courtesy of https://www.flickr.com/photos/koalazymonkey/3596829214/in/

What Are the Golden Rules for Investing in Gold?

The following is a guest post. Enjoy!

To many people, gold is the ultimate safe-haven financial instrument. This is only true if you understand the nature of the financial markets, and how the interactions between elements will impact the gold price. For example, the recent case of the Fed rate hike on March 15, 2017 serves to remind us that traditional theory does not always apply in practice. Typically, a Fed rate hike would increase the interest-rate and drive up demand for the USD. Since gold is a dollar-denominated asset, the demand for gold and the price of gold should decrease accordingly.

We saw a complete reversal taking place. The USD weakened dramatically, hitting 5-month lows against major currency pairs, and the demand for gold skyrocketed. Of course the Fed interest-rate decision does not disprove the correlation between the gold price and the strength of the USD. It is simply the lack of coherence between the Fed rate hike and the USD that let us down in this case. Many people today purchase gold in one form or another to hold as an investment. Some folks purchase gold ETFs such as SPDR (GLD) on the New York Stock Exchange, while others purchase physical gold coins, gold stocks and/or gold jewelry.

Is Gold an Appreciating Asset Over the Long-Term?

One of the things about gold that is almost universally accepted is its safe-haven status. But what exactly does this mean? As we have seen, strong financial markets can also lead to a strengthening of the gold price, despite protestations to the contrary. Many gold ETFs (exchange traded funds) are comprised of multiple businesses such as gold mining companies, physical gold bullion, gold ETFs etcetera. If other investments are falling in value, will the gold price rise in value? Not necessarily. At the height of the financial crisis in 2008, the gold price spiked, and it makes sense because global markets were going into meltdown. But anything other than a financial meltdown should be able to provide direction to gold traders.

Rather than worrying about whether gold is the perfect safe-haven investment when equities markets sour, it’s important to have gold as part and parcel of a balanced financial portfolio. It can be thought of as a hedge against uncertainty and equities weakness. The gold price is extremely volatile, even at the best of times. 10 years ago, the price of gold was approximately $650 per ounce, and it has doubled in price since then. Overall though, the gold price is subject to massive fluctuations.

Back in 2011, gold peaked at $1,900 per ounce, but now it’s trading around $1,250 per ounce. One of the ways to capitalize on gold price movements is with CFD Trading. If you’re not adept at trading the financial markets with institutional brokerages, it behooves you to consider contracts for difference as a better way to dabble in gold trading. CFDs are fully regulated by the FCA (Financial Conduct Authority) in the United Kingdom, and elsewhere across Europe. Rather than actually owning stocks of gold, traders are speculating on future price movements and generating profit accordingly.

A Fascinating Look at the Performance of Gold in 2016

Gold is one of the most interesting financial instruments to trade. It is revered for its safe-haven status, and it is the go-to investment option when equities markets sour. In 2016, some interesting trends were evident in gold demand. For starters, gold demand increased by 2% (year-on-year) in 2016 and reached a 3-year high figure of 4,308.7 metric tonnes. One of the biggest drivers of gold – exchange traded funds – saw annual inflows of 531.9 metric tonnes, the second best reading ever. However, there were some negatives in gold demand in 2016.

For example, central bank purchases of gold bullion dropped markedly and demand for gold jewelry also plummeted. As far as ETFs are concerned, the recent performance (2016) showed an uptick of 532 metric tonnes of gold, marking the second highest figure ever. For the year ending December 31, 2016, the gold price inched up 8%, largely due to capital inflows. On the flip side, gold jewelry demand plunged to a 7-year low and this offset many of the gains enjoyed by gold.

The Bottom Line – Making Gold Trades Count

CFD trading, ETFs, mutual funds, physical gold bullion, gold shares and other investment options are available to traders looking to capitalize off this precious metal. Gold should certainly be considered as part of a balanced financial portfolio, as it has tremendous resilience over the long-term. However, traders should be cautious not to go all-in with gold as it has proven itself highly volatile over time. Be advised that the performance of gold ETFs does not always mirror the performance of gold itself. Once you’re ready to invest in gold, consider your options accordingly.

Gold Investments for IRA Accounts

The following is a guest post. Enjoy! 

There’s a growing trend where many people are adding precious metals, mainly gold, to their IRAs. It’s quite a literal way to turn your retirement nest egg into gold. The IRS does allow so-called “gold IRAs,” where owners can include precious metals in place of assets like stocks or bonds. Gold is, of course, included along with cash assets.

Not all gold is eligible to be included in IRAs. For example, if you come by a very rare gold coin, it may be considered precious among collectors, but is rather useless when it comes to being included in an IRA. The IRS has a strict category for types of gold that can be included in the forms of bars or coins. There are many other requirements as well.

Reasons to Add Gold to Your IRA

Before getting onto the intricacies of adding gold to an IRA, it’s important to consider why. If you have ever paid attention to gold prices, you would know that it’s extremely volatile. It may not make sense to include gold in an IRA right away. But, it’s important to consider how gold is valued. The value of gold is measured in an inversely proportional manner to paper currency. Meaning, when the price of the dollar goes up, price of gold comes down. But when the price of the dollar stumbles, gold value picks up.

Think about this scenario: In 2001, an ounce of gold cost $271. In 2010, the same ounce was worth $1,896, which is an increase of about 700 percent. That remarkable value can be attributed to the Great Recession. Assets like gold are most important during time of economic crises. When the dollar plunges as it did during the recession in 2008, physical gold can hedge an investment portfolio against devastating losses. In this sense, many people add gold to diversify their retirement investment portfolios.  No one can predict what the market will be like in decades when you retire. So, gold assets can protect your lifelong savings in case of an economic calamity.

Add Gold with a Self-Directed IRA

You can only add gold to your IRA if it is self-directed. Investments in traditional IRAs are usually made up of currency-based assets like stocks, mutual funds, and certificates of deposits. If you want to diverge from such assets and add gold, then you need to exercise a certain amount of control over your account. This is what a self-directed IRA is. The owner of a self-directed IRA can tell the bank or another trustee what to invest in. Trustees do not usually say no to gold investments as long as there are plenty of cash investments as well.

You cannot have an entirely gold IRA. That makes little financial sense. Rather, you can add a small amount of gold to your IRA to protect cash assets in case of another economic downturn. When you have gold in your IRA, you will have to keep up with gold news and price charts. It’s very important to check gold prices today on a daily basis when adding this precious metal to your IRA.

Choose a Good Trustee

You are required to entrust your IRA to a custodian or a trustee you can rely on. There are certain federal requirements these trustees have to meet. You can get a bank, an investment firm or a certified gold dealer company to be the trustee of your IRA as long as legal requirements are met. You may have to spend some time searching for a firm that allows gold in IRAs.

Once you get through all the requirements, having gold in your IRA will protect your future wealth no matter what the political climate is.