Written by Tacatcon

Saving, by definition, means reducing your consumption. Investing is a different concept. Investing involves risk in order to grow your capital. And you need to do both!

When you deposit money into a savings account, you know that money will be there (plus a little interest) until you need to make a withdrawal. Part of the reason interest rates are so low on savings accounts, money markets and certificate of deposit accounts is because the money is safe. If you think you may need the funds within five years, you want to put that money in an account that you can withdraw from without penalty.

Consider what you might need money for in the next five years. Your first thought should be to establish an emergency fund. If your water heater breaks, if your car is damaged in an accident, if your child breaks a leg and has uninsured medical expenses or you lose your job-you need a liquid fund for these unforeseeable circumstances. Thinking about purchasing a home in the next five years? You should start putting money into a savings instrument now for the down payment. Want to remodel your home in the next few years? This should be money you put into a savings account, money market or CD.

Many people stop there and think they are doing pretty well because they see their savings account growing and feel comfortable. However, for long-term expenditures and retirement one wants to invest that money where it can grow. Your first investment goal should be to fund your retirement. If you have children, it is tempting to invest in a college fund but unless you have a sizable retirement portfolio that has to come second. Your children can take out loans and get scholarships to pay for college. Who will pay for your retirement?

So just how much do you need to save and how much should you be investing? Most experts agree that you want to have between three and six months of your living expenses saved for an emergency fund. The thought of trying to sock away that kind of money might be overwhelming but start with a smaller, manageable goal of putting away a month’s worth of expenses and building from there. Break that down even further to amounts per week you can have automatically deposited from your paycheck into a savings account until you reach that goal. Don’t get an ATM card for this account or if you do, lock it away somewhere so you aren’t tempted to spend this money for anything but an emergency! And if you are lucky enough not to need it, make sure to take a look from time to time at the amount you have saved and your current living expenses. Maybe five years ago you rented at $500 a month and now you are a homeowner with a $1000 a month mortgage. Your emergency fund needs to be adjusted for that change. Again, this money should be liquid so you can get to it quickly in an emergency and not pay a penalty when you do.

Once your emergency fund is established, you can begin to look at other goals for savings and investing. A major decision is how much to invest for retirement. Experts say you should be investing 10% of your gross annual income to be able to retire and live on 75-80% of what you earned pre-retirement. This is going to depend on how long you have until retirement, how you invest the money and what your standard of living is now and how that will change once you retire. You can use a retirement planning calculator such as this one from cnnmoney.com to help you get a sense of how much you will need for retirement. If you are employed full-time, chances are your company has a 401K or similar plan. If they have a matching program-do not pass up this free money! If you do nothing else, make sure you are contributing enough for the full company match.

Investing in stocks, IRAs, bonds etc. outside your company’s 401K plan can be intimidating. Now more than ever, there is real aversion to risk. However, over the long-term you need to be taking some risk to realize a return on your investment. Though you can buy stocks online these days with a click of your mouse, you really should spend some time reading and educating yourself first. Community colleges often offer courses on investing in the stock market for the novice at a fairly reasonable cost. If you don’t have a company 401K or are self-employed, you will want to look into an Individual Retirement Account or IRA. Knowing what type to invest in and how much you can contribute is key. If you are not comfortable with making these decisions alone, hire a professional.

Whether you are in your twenties and single or in your forties and married with children, it is not too late to take charge of your financial opportunities. Start by establishing an emergency fund and then any short term expenditures you need to save for. Establish a retirement plan before you try to pay for your children’s college and don’t forget to contribute to your company’s 401K plan!

Join us next week for the second installment in this three part series on Investing and Saving!

Tags: Finance, Investing, Investing Money, Investments, Money, Money Management, Saving Money, savings, Series
Posted in Articles, Finance | 2 Comments »

The stock market has rebounded nicely from the lows a year ago that had people talking the “D” word – Depression.  While I haven’t recouped everything we lost, I can’t complain.  However, experts are predicting that returns this year won’t be near where they’d hoped, and market watchers are wondering where the next best place to invest is.

My family is still putting money in the market, but this holiday season, I’m betting my money on gift cards!  That’s right.  Gift cards.  Not the most sexy financial instrument out there, but here’s why gift cards excite me.

I treat couponing, deal hunting, and shopping just like I do buying stocks.  I do research to find the good deal, I try to buy low on everything I purchase, I pay cash, and I expect maximum returns.  The holiday season is the best time to buy stock in gift cards.  Nearly every major retailer has bonus deals. If you look at buying into those deals as you would look at making an investment, the percentage value of the bonus deals is like earning money in the market.

Let me explain.

I recently went to Claim Jumper restaurant.  They have a holiday gift card deal where if you spend $100.00 in giftcards, you’re given $20.00 in bonus gift cards.  Plus, they threw in a free mug of candy, but we won’t count that.  We were going to eat at Claim Jumper anyway.  So, I bought the $100.00 in gift cards while we were waiting to be seated.  Then we spent $60 of the gift card on dinner.  But, I pocketed a 20% gain.  Not bad for a night out with the kids.  For no real effort, I made $20 doing something I was going to do anyway.

At Safeway, they are promoting $20.00 off on your next grocery trip when you buy $200.00 in gift cards.  Safeway is a veritable gift card mecca.  They have cards for nearly every major store and restaurant you can imagine.  The offer is good for two days starting Black Friday.  So, if I were to go to Safeway first before Black Friday shopping started, bought $200.00 in gift cards for stores I want to shop on Black Friday anyway, then I’d make 10% for the minuscule effort of running in to get gift cards, and running back out to freeze my butt off in line at Target.

It’s not just grocery and restaurants that offer deals like this at the holidays. Major retailers do too.  And, with tax season right around the corner, all those “cash your tax returns for bonus gift card deals” can help save you even more.  In fact, gift card deals that start in October and end in the early spring can really add up.  Last year, I pocketed close to $1000.00 in “free” money just by converting my cash to gift cards.

Now, a few things to think about.  Gift cards are great, but if the store you’re buying them has any chance of folding, then being stuck with gift card balances you can’t use will eat into your profits.  Be sure to stick to big name retailers and restaurant chains when you’re investing in gift cards.

Second, the bonus gift cards usually have restrictions like dates and redemption limits.  So, be sure to use the bonus cards up first if they have specific-use guidelines.  Then, use the actual gift cards if you haven’t already used them at the time you purchased them. Bonus gift cards can also sometime have restrictions about using them with other offers, so watch to be sure you can use them with coupons and other deals.

Lastly, giftcards as an investment isn’t just limited to buying a full-value gift card and getting a bonus card.  Buying giftcards at a discounted rate for the full value is also an investment.  Costco sells $100.00 worth of McCormick and Schmick’s (M&S) gift cards for $79.99.  So in effect, just walking into Costco and buying up $100.00 of gift cards for $79.99 gives me a 20% return on investment the moment I swipe my debit card.  And unlike bonus cards, the discounted gift cards like the ones at Costco come with no restrictions. I can use my M&S rewards card, coupons, and other offers to make this deal even sweeter.

Another investment strategy with gift cards is getting them to buy actual items you would have bought already.  At Blockbuster video, they were giving a $5.00 gift card to buy an Entertainment Book.  Buying the book, then using the Blockbuster coupons in the book in conjunction with the $5.00 gift card to pay for that visit’s movie rentals could effectively save you up to half the purchase price of the book.

When you think about utilizing gift cards in this manner, it’s easy to see how the returns you get from being a smart gift card buyer can add up faster than dividends from money invested in the stock market.

And, in most states, there are gift card laws that protect consumers.  Many states have done away with fees for non-use, expiration dates, and other legalities that made gift cards not near as user friendly.

So, this year, I am once again investing my cash in gift cards.  Year after year, I make more as a percentage on investing in gift cards than I do giving my money to the guys on Wall Street.  And that’s money you can bank on!

Tags: entertainment books, gift cards, Investing, stock market
Posted in Articles, Finance, Frugal Living, Holiday's & Gifts | 3 Comments »

Go Back to School:  If you’re in a job where you’re unsure just how secure your position might be, or if you’re not making enough money to keep afloat, now might be a seriously good time to head back to school. Professions to think about are ones that are in high demand with high wages.  Nurses, pharmacy tech, and health-care fields take center stage as more people continue to age and need health services.  Whatever you choose to study, do a little research on emerging fields like alternative energy and water desalination and you may just find a new career with security.
 
Spec a Garden Plot in Your Yard:  Food prices are only going to continue to climb.  Spend this winter reading up on how to plant and grow food your climate area.  Then once you grow it, be smart about preserving it.
 
Learn to Barter:  Got a skill?  Swap it out.  If you can cook, clean, knit, give massages, fix pipes, or you’re handy in some tangible way, you might be a part of a growing group of people who’d rather chop firewood in exchange for dental care.  You’ll keep needed cash in your pocket, but you’ll also get some vital services you need.
 
Consolidate Households:  It’s a little more of an Eastern philosophy, the notion of living in consolidated households.  But if you’ve got space in your house, it might be worthwhile consolidating your household with a sibling, parent, or friend in order to split expenses and bank some money.  Or do a room/board swap with someone in exchange for babysitting, or other household services like housekeeping or gardening – services you might be paying cash for right anyway.
 
Invest:  As crazy as it sounds, there is something to the notion that investing over time, slowly and steadily, wins the race.  Investing doesn’t have to be the crazy excess that we’ve seen in New York and what precipitated where we are now as a country.  Sound investment tools still exist. And even if all you do is utilize a pre-tax account and keep the money the cash part of the fund until you’re ready to dip your toe back in the water, you’re still capturing the tax savings.  If you were invested and lost a chunk of change this past week, buying additional investments at today’s lower prices will help you dollar-cost average over the long haul. 
 
Being strategic about how you navigate through the coming months will be an integral part of your family’s financial health.  And of course, keep on couponing and stockpiling, which gives you a huge leg up over many people right now when the average US grocery bill is about $800 a month!

Tags: Barter, College, Economy, Finance, Garden, Invest, Investing, Money, Money Saving Tips, School
Posted in Articles, Frugal Living | No Comments »