Gather Little by Little

When we were just babies, we started to crawl in order to explore the “new world”. After a while, we noticed that there was more “out there” and we started to think about a way to go faster and further during our exploration. Then one magical day we decided to stand up on our 2 feet and look out at the horizon. In order to reach this point, we learned, step by step, how to walk. We fell a few times, we got hurt but our mommy was always there to take us in her arms and comfort us. Wouldn’t life be easier if our mom was still there to show us how to manage our personal finances as she was there to teach us how to walk?

Unfortunately, most parents don’t have much financial education (thx to the educational programs in  our schools!) to pass on their children. We are literally thrown out of the nest like baby birds  in the hopes that we learn how to fly before hitting the ground of a recession and get eaten by the Wall Street wolves waiting for us!

Managing a budget and paying off your debts is certainly very important. Yet, if you want to go forward financially, you should also supplement you revenues and build asset accounts by investing money. So once you have learned how to manage your budget and live within your means, it is time to start thinking about investing. This is why I am creating this investing baby steps series. Before you go read an investment guide and build a stock portfolio, you need to know who you are.

Investing Baby Steps #1: Know Who You Are

If you go meet a financial advisor, the very first thing he will talk about is your investor profile. They will give you a questionnaire (5 to 10 questions) and will determine which kind of investments is best for you according to your answers. The investor profile describes:

#1 Your Investment project:

Are you saving to buy a house?

Are you looking for a retirement plan?

Do you want to travel with this money?

Do you want to build a safety net for the darker days?

Depending on the project you chose, different investment strategies can be suggested. For example, if you think of buying a house in 3-5 years, you are better off investing most of your cash in fixed income such as bonds (70 to 80%) and the rest in the stock market. But, if you want to build a safety net and this amount needs to be accessible at all times, you are better off with money market funds or a high yield savings account such as Smartypig.

#2 Investment Horizon:

Do you plan to cash your investments in 1 to 2 years or in more than 10 years?

Knowing that market cycles (going from a valley to a peak and back to another drop in the market) last, on average, at least 5 years, investing your money in stocks with a time horizon of 3 years is like playing blackjack at the casino. You could almost double your money or lose 40% of it.

#3 Your risk tolerance:

Are you able to suffer a 10% market drop?

Do you panic when you start losing money on paper month after month?

Are you able to understand the difference between a short term fluctuation and your long term objective?

This is usually the last part of the questionnaire as the first 2 parts are pretty easy to determine and straight forward. However, determining your risk tolerance is a bit trickier. First, nobody likes to lose money. Second, everybody wants to take “risks” when the market goes up and wants to get out when the market goes down. Third, we are creatures often ruled by our emotions and our rationale disappears when we get our feelings hurt.

Since we often drive our investment decision based on fear, and fear is often driven by ignorance, I suggest you read more about personal  finance and the economy in general. This is how you will understand that market drops like the one we experienced in 2008 happens regularly. The only difference with 2008 is that we got hit harder than usual, but investors suffered during the tech bubble as well. If we go back in time, we have gone through several painful experiences as investor. But we always survived and so did our investment portfolio!

So the very first step before starting to invest is to determine your investor profile. I would suggest you meet a financial advisor so he can help you understand the questions and provide additional information regarding the market. But don’t sign any investing papers besides your investor profile during the first meeting (of course, he will tempt you to invest right away ). Take the time to fully understand what you want and what you are willing to go through in terms of market fluctuations before you start investing.

Next Thursday, we will look at different investment portfolios according to different investor profiles.

Author: Mike.

image source: polifemus

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Some statements about money for your enjoyment today. Some true . . . some not so true . . . some will make you think.

He that is of the opinion money will do everything may well be suspected of doing everything for money. – Benjamin Franklin

Money was never a big motivation for me, except as a way to keep score. The real excitement is playing the game. – Donald Trump

My problem lies in reconciling my gross habits with my net income. – Errol Flynn

I have enough money to last me the rest of my life, unless I buy something. – Jackie Mason

Too many of us look upon Americans as dollar chasers. This is a cruel libel, even if it is reiterated thoughtlessly by the Americans themselves. – Albert Einstein

The mint makes it first, it is up to you to make it last. – Evan Esar

A penny saved is a penny earned. – Benjamin Franklin

Money frees you from doing things you dislike. Since I dislike doing nearly everything, money is handy. – Groucho Marx

It is not easy for men to rise whose qualities are thwarted by poverty. – Juvenal

A billion here, a billion there, pretty soon it adds up to real money. -  Senator Everett Dirksen

Never spend your money before you have it. – Thomas Jefferson

Be you in what line of life you may, it will be amongst your misfortunes if you have not time properly to attend to pecuniary [monetary] matters. Want of attention to these matters has impeded the progress of science and of genius itself. – William Cobbett

There is only one thing for a man to do who is married to a woman who enjoys spending money, and that is to enjoy earning it. – Edgar Watson Howe

Why is there so much month left at the end of the money? – Anonymous

I never been in no situation where havin’ money made it any worse. – Clinton Jones

Neither a borrower nor a lender be for loan oft loses both itself and friend, and borrowing dulls the edge of husbandry. – William Shakespeare

Never invest your money in anything that eats or needs repairing. – Billy Rose

To make money, buy some good stock, hold it until it goes up, and then sell it. If it doesn’t go up, don’t buy it.- Will Rogers

He that maketh haste to be rich shall not be innocent. – Proverbs 28:20

And my God will meet all your needs according to his glorious riches in Christ Jesus. – Philippians 4:19

Do you have any great quotations to add?

Article by Stew

Photo by Tony the Misfit

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During the summer of 2009, my son William  turned 4 years old. I remember that at that age, I didn’t know much about money. You basically only care about what gear you will play with for the next 20 minutes. As both my wife and I love to spend time outside during summer, we use to take a lot of walks outside with our two kids. While Amy was still in a stroller, William was able to get on his bike and go much faster. One day when we were about to leave the house, my son turned at me and said:

-         Daddy, I would like to have some chips on our way back home.

-         All right, but who is going to pay for those chips, William? I replied. The cashier will ask you for money.

William thought for a few seconds and then looks at me with a piece of play money:

-         I can pay with this, he smiles, so proud.

-         But William, this is not real money, the cashier won’t accept it. What are you going to do to get your chips?

-         I will give them Amy’s (his little sister) necklace, pointing at his sister with even a bigger smile.

I started laughing and explained to him that the cashier will only real accept money and that he won’t be able to trade his sister’s necklace (unless it was a real one!). My son looked at me, thinking about his next answer and smiled back and said:

-         I know who is going to pay! You will pay with your credit card so you don’t need to give the cashier money.

This is when I realized that my son understood 3 rules about money (not necessarily the ones I wished he would learn first!):

#1 You need money to pay for goods and services (okay, the first rule is good to know)

#2 If you don’t have money, you can trade something in exchange, barter (if you will) (while this doesn’t really work all the time, the most important part about this rule is that you should trade something that you own first, not your sister’s asset!)

#3 If you can’t pay, get financing. This is where I have decided to start educating my son about money. If he realizes that you can use a credit card at the age of 4, I can imagine in which kind of debt pit he will dig himself into! The very first lesson I am trying to teach my son is the following:

Money is not free. It doesn’t magically appear overnight.

Once you have found the topics you want to explain to your son, you have already made a great step into his financial education. However, teaching money lessons to a child is not that obvious. Since he won’t realize how hard things are during the upcoming years until he reaches the age of 12 and starts thinking about earning more money, I needed to find another way to show him that money is not free and that you can’t just spend it when you have it in your pocket.

I started this first financial lesson by asking him questions such as:

-         Do you like your bedroom? Your toys? What you eat for supper? And your pool during summer time?

-         Do you think everybody has what you have?

-         Do you know why your friends at the daycare have different things than you?

Because we cannot have everything we want. We need to pay for everything we have. This is why your friends don’t have the same toys you do. This is why some of them have more toys and some other have less. It is not because their parents love them more or less than we do, it is because they all have a different amount of money to spend on toys.

-         Do you know how you get money to buy things, to do activities or buy what you will eat for supper?

-         Do you miss Daddy when he leaves the house before you wake and only gets home at night in time for supper?

-         Do you know why he leaves the house for so long everyday?

If you like your bedroom and all you have, Daddy has to work to earn money. This is why he leaves the house so early in the morning. It is not because he doesn’t want to play with you, it is because he needs to work really hard to pay for what we have.

So he can understand a little bit more the concept of working, I tell him that his job is to go to the daycare during the day and to listen to his mother and I when we are together. It is not always fun to go to daycare (and even less interesting to listen to his parents!) but he needs to do it because it is his job, his responsibility.

Another trick to teach your child the importance of money:

For the past 2 years, we have given 2 toys to our community center just before Christmas. We ask our children to go in their playroom and select 2 toys they want to give. We also ask that they give something that is fully functional and in good shape

At first, they were somewhat surprised and didn’t really want to say good bye to Timine their teddy bear. However, we told them that not every child is fortunate enough to receive Christmas gifts because their parents don’t have enough money. We emphasize the fact that money is hard to earn and sometimes, even when we work really hard, we don’t have enough to pay for everything.

The other key point we are trying to teach them about money is to realize that they have a lot of toys, they do a lot of activities and they only eat good food. We want them to appreciate what they have and realize that not everybody enjoys the same blessings. We must be thankful for what we have and share with others.

Since we have started talking about money with our oldest child, he has started saying that he is thankful for what he has or that he really appreciated when we went bowling during the Holidays.

What about you?

Being a financial planner, teaching people about money doesn’t seem so complicated for me. However, when it comes down to my children, I find it a little bit more complex. I would be curious to hear yours tips or any money lessons you give to your children?

Author: Mike.

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Every once in a while, I take a minute to sit back and think about life before some of the technology that we have today. I mean, I am not that old, but I can remember writing papers for college courses with an electric typewriter – some teachers were still accepting handwritten assignments. Our dormitory that housed seventy-five people had one pay phone for the entire building. I called home about once every two weeks. Then it was car phones, cell phones, mobile phones, texting . . .

I remember when email first showed up on our campus – there were only four computers to serve the student body of about 600 and I got about one email a week. I remember seeing the first computer that had internet access. It was at least a year before I figured out why anyone would want to get online. There was only one computer with internet on the whole campus and the entire library could hear when the dial-up modem connected to the web.  Now you can stand in the middle of the football field and log on to the wireless network at my alma mater.

Yep, we have come a long way since Al Gore invented the internet. When my wife and I first considered getting internet in our home, we looked at it as an expense that we might not be able to afford. However, over the past seven or eight years, we are more dependent on the internet as a way to save money. Our internet connection pays for itself every month – not just because I am a blogger – but because we use the internet to hold the line on spending.

Comparison shopping

This is the number one money saver, in my opinion. We can comparison shop without leaving home – saving money on gasoline and food costs. If time is money, then comparison shopping on the internet is the way to go. The internet allows us to compare prices on the little things like food and gasoline as well as the big things like airline tickets, automobiles and electronics. Insurance is a great thing to comparison shop on the internet, especially life insurance.

Consumer research

I do research on insurance, electronics, cars and vacuum cleaners online. I read restaurant and hotel reviews. We do not go to the movies often, but when we do, I make sure that the flick is worth our time and money by reading what others have said about the movie before spending my money on it.

Cash Back Shopping

When you make a purchase online, be sure to shop through a cash back website. Mrs. Stew and I always use Ebates, but there are plenty of other good ones out there. The internet allows us to comparison shop, do consumer research and then sometimes get cash back on items that are priced the same as in the brick and mortar store. Shipping and handling fees can make online shopping more expensive, but do the math and make sure. Cash back plus time plus gas sometimes add up to more than shipping charges.

Information

The internet is a great source of information. We no longer get a newspaper, even coupons can be printed online. I, in particular, like to follow politics and really enjoy reading history online. Obviously, the internet can be a source of MISinformation, you have to use common sense. And it is not like the New York Times always gets it right . . .

Communication costs

Our culture communicates more than any other time in history and the internet makes much of it possible. In the last month, I have communicated with people from Maine to California to China to England to Germany without licking a single stamp. Email, phone calls over the internet, online chatting and, of course, Facebook have revolutionized communication. My mother actually expects me to touch base somehow every day and she lives three states away!

Online Banking

I enjoy that the internet allows me to check my bank balance, spending habits and transaction records at a moment’s notice. I can pay bills online and research financing options without every driving to my bank.

Advice

Where would we be without advice? Gather Little by Little and other personal finance blogs offer all kinds of financial tips and tricks. Mrs. Stew has a cooking blog. You can find out how to do all kinds of stuff on the internet. Just the other day, I was having trouble with my mobile phone and I was going to take it to a service shop. Before I left, I decided to search for the answer online. One hour later, I had fixed my phone without spending a dime or even starting the car. The particular repair that I performed thanks to the internet had cost other people $50 to $100. That event alone justified our internet expense for that month.

I might be more likely to carry water in a bucket and live without heat in my home than to quit paying for internet.

Article by Stew

Photo by James Cridland

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I am out of town for the next three days and as I was leaving, Mrs. Stew was coming down with the flu . . . I am stuck in a hotel room an airplane flight away and she is watching three children in between trips to the restroom. She is a trooper. Here are some articles that I liked this week:

Squawkfox listed 10 ways to cut your fitness costs in the new year. Fortunately, my job has workout facilities that I can use for free. Funny how that does not make it any easier for me to exercise.

No Debt Plan discusses the risks of living with your financial enemy. I certainly hope that you and your spouse have worked out that part of your relationship. It would be tough to be married to your enemy.

This is an old post from My Two Dollars, but I have been researching ways to watch televion over the internet. David found 35 ways to watch television without paying for cable. I have found that most shows can be accessed online, but I want to watch live sports . . .

Christian PF wrote about ten cheap ways to lose weight in the new year. I am looking for a weight loss progam that lets me lay around and eat anything that I want. Think it’s on the list?

Gen X Finance thinks that there are 5 reasons why you might die broke and unhappy. I am pretty sure that I will die broke – why should anything change from the way I live? However, I plan to die happy no matter what.

Have a great weekend. Remember do not just spend money, spend time with family.

Article by Stew

Photo by United Nations

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