Tag Archives: work

What is Personal Finance

What is personal finance? And Why does it matter?

Those are two very interesting and important questions to ask as one either begins their life as adults, or begins asking questions they’ve never approached before. For the past five months or so, this blog has predominantly been centered around personal finance, both the investing side, as well as the money management side.

I didn’t realize that before I choose to continue this journey with you all, I should probably take a moment to explain what Personal finance actually is. Personal finance clearly deals with how individuals manage their money.

While the topic briefly touches on the analysis and performance of businesses and organizations for investment purposes, it predominantly centers around the individuals’ approach to managing each dollar in and each dollar out.

Personal finance answers questions like:

What are my financial goals? What use do I have for money? What should my investment approach be? How much do I need to be saving? How large should my house purchase be? Should I buy this trinket or save the money?

Many of these questions are simply answered through quiet reflection or by asking your friends and family for feedback. However, some of these more complex questions like how to invest your money, or how to craft a financial plan can often be better answered by a financial advisor.

Why does personal finance matter? 

There are three basic reasons why you should pay attention to your finances:

1. Money has impact

2. Money can be complicated

3. Money is emotional

While we of course don’t have the time to go into the details of Personal Finance in one blog post, I hope this gives you a great picture of what this topic is all about.

Meeting A Different Donald: Real Estate and Ways to Invest

Most people, if not almost everyone, has heard of Donald Trump. As the 45th president of the United States, he has been a real estate developer and the previous host of the Apprentice show.

But have you heard of Donald Bren? He grew up as the son of two relatively successful parents. His father was a movie producer and real estate developer like him. His mother was a civic leader. After majoring in Economics and Business a the University of Washington, Bren attempted at Skiing in the Olympics but had to quit due to an injury. In addition, Bren became an Officer in the U.S. marine Corps.

After that he took a $10,000 loan out in 1958, he began developing and flipping homes until he had built up a business which he sold. He started another one, sold it, and then took the proceeds to buy a third stake in the Irvine Company. He eventually bought the outstanding ownership and now has a net worth of over $16 Billion.

Donald Bren took one path to real estate. But there are others. I want to briefly cover the three main ways you can approach real estate investing.

1. Direct Investment

A direct investment in real estate, like what Donald Bren did, involves purchasing property either directly or through a business entity. Either you focus on property appreciation, resale, or cashflow. With these metrics in mind, you seek to partner with others to produce above-average returns over the long-term. This is what Bren did.

2. Indirect Investment

The second, more modern way to invest in real estate is less direct. With an indirect investment you buy a company that invests in real estate. Usually this is either a REIT (real estate investment trust) or some sort of real estate syndication.

3. Hybrid

The last option is some sort of mix. It involves partnering with others so that you own the real estate but you don’t necessarily control management of it directly. An example might be a partnership between a handful of people in which you own, say, 20% of the upfront investment. You put a shared investment with say, 2 other people. One person is in charge of management, and the other two people sit passively by but provide the capital.

A hybrid between direct and indirect is usually less risky but also less financially rewarding if your investment becomes a success.

Conclusion:

Part of investing in real estate is understanding yourself. How much involvement do you want? Often the answer is not much, but for those adventurous few, you never know, you might become the next Donald Bren.

Acquiring a Domicile: How to Rent an Apartment

Most people have or will rent at some point in their life. What often comes up is concern about rising prices or lack of adequate amenities. These issues will always be a concern. However the following steps will help prepare you for a move into someone else’s rental.

1. Determine your Renting Criteria

As soon as you decide that you want to rent, you need to determine what you’re after. What kind of budget are you looking at? What square footage? What types of Amenities do you want? What are your needs verse what are your wants? In which location specifically does this rental need to be?

Answering these questions will give clarity, allowing you to start the next step…

2. Narrow Search to 10 Rentals

As soon as you’ve determined your renting criteria you will be ready to begin screening. Similar to how a landlord screens potential tenants, you will be screen potential landlords. Find ten places that most closely meet your criteria.

Some places you can find rentals include:

Pad Mapper, HotPads, Lovely, Trulia and Walkscore

3. Visit Your List and Come Prepared

With your list in mind you can begin visiting each one. To come prepared, bring a checkbook, wallet, or some means of payment in case they want to charge you for an application fee. Also bring proof of income such as a pay stub or other documentation. Lastly, you’re going to want a photo ID.

At this point you should be well on your way to both knowing which locations fit your needs, and entering yourself into the landlords application process. Assuming you meet the rental criteria, you will probably get one of your applications responded to within a week or to.

You’re on your way! I hope this helps you on your rental journey.

Dollar-Cost Average or Lump Sum into the Market?

Dollar-Cost Averaging is the process of purchasing securities over an extended period of time with the same dollar amount each time. Lump Sum investing on the other hand, involves just putting all your money into the market at once.

For example if you’re wanting to invest $100,000 should you put it all in the market all at once or over a few months? Many people might suggest putting it in over a period of time. However my suggestion is that for most cases, the opposite is actually the wisest move. Let me explain.

If you were to run with the $100,000 example, a simple dollar cost average might look like putting $5,000 in the market for 20 months. The other scenario is just putting the $100,000 in right now.

In most cases putting everything in is a better move because on average, the market goes up most of the time. So if you dollar cost average, you’d, on average, be missing out on the growth by keeping your money out of the market.

In the smaller percentage of times that the market goes down directly following investment, then dollar-cost averaging can make sense. For example if the market has been Bullish for many years with PE ratios climbing, looking at dollar-cost averaging can make sense.

Before I finish, please click here to take a look at a blog page that covers many investment topics. He has a post from early this year that covers this topic concisely: Exploring Dollar Cost Averaging Verses Other Strategies

Thanks, hope you have a great day.

Becoming the Squirrel of Personal Finance: 4 Places to Stash Your Cash

Most folks around the world understand the concept of saving more; you can only increase savings when you either increase income or decrease spending. However if instead of investing, what if one were to put the money into savings? Where should they put it? That’s what I’d like to explore.

When considering where to put your savings there are two main factors: Risk of Inflation, and Risk of the Need for Capital.

Risk of Inflation:

When you put money into savings there’s not really a real risk of losing your money to a drop in the stock market. That’s a good thing. But the risky part is that with slower interest and growth on your money, you’ll have a harder time keeping up with inflation. Often the savings interest won’t even be enough to cover the different.

Therefore with saving there is always a risk your purchasing power can do down.

Risk of the Need for Capital:

What if you put money in a CD (Certificate of Deposit) and find out a few days later that you need the money for an emergency?

First, at least some of your money should have been in a liquid asset for emergencies. But secondly, if you have to take the money out, a CD will usually penalize you. So you should always be aware of the chance you’ll need the money and what you’ll do if you do.

With those to risks in mind, the need for capital and inflation, let’s explore the options for saving:

Conventional Saving Accounts

These usually command the lowest interest rates because of the relative liquidity of funds.

Online Savings Accounts

These are online accounts that you set up in which you usually receive higher rates of interest because there isn’t any brick and mortar building to maintain.

Certificates of Deposit

These are the best for funds you’re sure you won’t need for a short period of time. For example if you know you’re going to purchase a car in 3.5 months, then maybe taking out a 3 month certificate of deposit isn’t a bad idea if it gives you are larger return of interest.

Conclusion:

Decide your reason for saving and how much liquidity you’ll need. If you can stomach tying up your money for months or even a year at a time, maybe a T-Bill or CD is worth it. Otherwise, consider a regular bank account or Money Market.

Trimming Your Body and Your Budget

What’s more important than money? I can think of a few things: Relationships with yourself and others and your health. Often when people try to get in shape they spend a lot of time or money trying to set up the best equipment. I understanding wanting to set yourself up for success, but if you can’t afford expensive equipment don’t buy it before you even know you’ll stick with it!

The Surviving Millennial has a great blog post about reducing your fitness budget. Check it out!

Here’s the post:

Fitness At Home

I’d like to share a few points I have used in my own life to reduce exercise expenses. I am currently at a University that has a gym. Using it regularly, I have come to realize that access to exercise equipment is truly a blessing. I know this “free” equipment won’t be around forever.

Here are some exercises I’ve used that don’t cost a dime:

Pushups

Jumpking Jacks

Crunches

Burpees

Planks

Another factor that can play itself out in both budgeting and exercise is concern over other’s behaviors. Maybe you are worried what people will think, or possibly even what they’ll say about what you’re doing. The bottom line is that both budgeting and fitness are hard things to do regularly. If you can get over other’s opinions about what you’re doing, and if you are able to exercise your finances and your body, you’ll be headed in the right direction towards achieving your goals.

The Stock Market is Falling: What Should I Do?

The last few weeks started as a few percent decline in the market. As gurus and commentators covered it, they viewed the decline as a temporary, week-long or even a few day-long event. However a few weeks later here we are, still waiting and wondering when the market will rebound.

As a long-term investor this is exciting for me. Not only have stock declined roughly –% from their high, they continue to fall to increasingly discounted prices. Everything might not be a bargain at this point, but after falling about 9% the market is a lot closer to reasonable pricing than it was a month or two ago.

So when prices drop like this, what should an investor do?  They should do what the best investors do – find good companies and buy them at favorable prices. This might mean waiting and watching for a good company to drop below your perceived value it.

But for index and active mutual fund investors slowing dollar-cost-averaging into the market may make the most sense. Understand that the market will come back. It’s just a matter of how quickly it does.

Why Sometimes More Taxes are Good for You

How can more taxes be a good thing? Well taxes are something you pay either out of your earnings/income or your spending/consumption or when you die. So if we just look at the first type, income taxes, we can see that the amount of income tax you pay is largely determined by how much income you make.

I’m guessing you’d like to make more income this year. Specifically either residual income or capital gains income. So paying more income taxes can actually be a good thing; it means you have made more income.

Before you assume that paying more taxes is universally good I want admit that more taxes isn’t always better. For example if you pay sales tax on the purchase of a new car, that’s not necessarily good. Or if you forget to deduct retirement contributions form your income, that’s not necessarily good.

To be clear, income taxes should be reduced as much as legally possible. However overall, an increase in taxes probably means you’re making more money.

In conclusion, avoiding income tax at all costs may actually be a bad thing because it’s keeping you from earning more money. Go earn more money and eventually you may find that you kind of like the implications of paying more taxes.

Building An Empire: Your Real Estate Investing Options

Real estate investing has become a sexy topic for many real estate channels, blogs and books. There are those who say buying a home is a great financial step. However those who want to go beyond the typical goal of homeownership, there are a wide variety of options.

Direct vs Indirect vs Hybrid

When you first decide to put money into real estate, you have to ask yourself how much you would like to be involved in the process. For those who want to buy or manage property directly, there is direct real estate investing.

If you don’t want any part in the investment process you can consider the real estate indirect investment options. These are things like REIT (Real Estate Investment Trusts) and syndicated real estate funds.

The hybrid between indirect and direct investing is partnerships. With a partnership you find someone to either provide the money and credit or do the more involved part. Basically you only are require to take part in part of the real estate investing process, whichever you decide as partners.

Step 2: Picking your strategy

If you decide to invest indirectly into an REIT or syndication you will need to do research and decide on one. For those who determine on either a hybrid or direct investment approach exploring strategy is your next step.

There are many strategies out there like flipping, buy and hold, BRRRR method (Buy, Rent, Repair, Refinance, Repeat), property development, house hack and a few others.

Finally: Choosing your Property Type

After picking which strategy to deploy, you have to determine which kind of property you’d like to buy. Examples include single-family, multi-family (duplex, triplex and four-plex), commercial office, commercial retail, industrial, commercial residential (apartments)

Funding

The last step in acquiring property is deciding upon a funding method. There are a few ways to do this. You can either buy the property cash, which of course is less common, or you can buy one using other people’s money (OPM).

Funding a property using other people money can either come from a bank or somewhere else. If you’re using a bank to buy residential property there are two basic kinds of loans that are usually deployed, either a conventional loan or an FHA loan. The FHA loan is basically a loan that requires less of a downpayment in exchange for paying (PMI insurance).

With an unconventional funding source there are usually two places to get it from: the seller (called seller-financing) or outside places. Seller financing can be fairly straightforward but let me explain that the other outside sources of financing can come from friends, acquaintances, or private lenders.

Conclusion:

Whichever form of real estate you decide to buy, whatever strategy you decide to employ,  and whatever funding method us use to buy them, real estate remains a solid investment option. Real estate can be consider a reputable option up there with stocks and business ownership. Next time you’re thinking you want to invest use these steps to uncover your own real estate path.

Are Commodities A Good Investment?

When it comes to discussing investment options, commodities often pop up as something that is seen as a gamble. But are commodities actually a viable investment?

Commodities

There are a few basic kinds of commodities. There are metals like gold and silver. There are gas-type resources like oil and gasoline. There are animals like cattle and pigs. And then there’s also grown commodities like wheat and corn.

Commodities as an Investment

Not only are there many forms of commodities, there are also different ways of investing in them, take gold for example. If you were interested in investing in gold, you would have a few options to consider. The simplest route would to buy a gold bullion ETF, but you could also purchase gold bars and physically store them, or you could even buy gold jewelry and other gold-based products.

Generally as a whole, commodities are simply a resource used in the means of production, that is valued based on simple supply and demand. By very nature, the price of various commodities aren’t specifically predicable because of the way in which commodities are traded. Just like stock prices can’t be determined on a short-term basis, commodities are very volatile even in long periods of time.

However, this brings us back to our original question, should one invest in commodities? First off, I wouldn’t consider commodities a real investment because resources, just by themselves, aren’t growing enterprises that produce cashflow or even profit. So if one is going to discuss “investing” in these, let’s call it what it is: speculating.

My option speculation is that speculation as a whole is generally a bad idea for long-term investing. However if one considers the prices of certain commodities there are predicable supply-demand patterns that arise. Gold for example, has done considerably well in times of economic panic.

Overall, commodities aren’t a wise “investment” choice for the majority of investors. However as part of a broad portfolio, it might not be bad to put a 5% or 10% stake in gold as a hedge against economic disaster. Ultimately the choice depends on the individual.