Monday, July 7, 2008

Live Like a College Student

Live poor for a year after graduation, and fork away some savings.

I'm sitting here in Austin, eating a $23 turkey sandwich. I'm not kidding. Let me break it down for you:
My per-diem dinner allowance while on trips: $25
Turkey sandwich I brought from home: ~$2

So I made $23 by eating tonight. And it's probably a lot healthier than the bacon-cheese burger at Applebee's, which is what I probably would have defaulted to. If you maintain the lifestyle you're used to after living in college, maxing out the Roth, the 401k, paying down credit cards, and getting a head start on a house down payment will be much easier.

Take it from me, going from $6/hr to 3-8 times that makes a huge impact on your available income, and if you can have the self-discipline to stick to the collegiate minimalist lifestyle for just a bit longer, the effects will last your entire life time.

Wednesday, June 18, 2008

You don't need no stinkin' books.

I was standing in "Books-A-Million" tonight, looking for a father's day gift, (Hey, what do you want from me, punctuality? I'm too busy ruling the engineering world.) marveling at the sheer magnitude of retarded "GET RICH QUICK!" books. Maybe this post is too simple, but judging by the number of books out there that promise just this, I think I have to go ahead and say it.

That goes for investment bankers, advisors, books, etc etc etc. There's this great thing that came about a few years ago; I think they call it the interwebs. It makes all this information completely free and packaged in a nifty little white box for your desk or a gray box for your lap. What's more, I've got one simple question for you: If these authors are so smart and can make money easy and quick, how in the world do they pull themselves away from their yachts, world travels, and supermodels? (shown below, for reference purposes only)

Yah... I'd totally rather be writing right now.

The point is, most times I'd be willing to bet you that the millions these dudes have made come more from motivational speeches and book sales than they do trading / not trading / saving / whatever they're peddling as an investment strategy. What's more, almost anything they're pushing can be freely found on the internet, and some uber-investors, such as Warren Buffet, even freely speak on investment strategies and ideas at times. This info is also free.

There might be a few exceptions to all this, such as basic economic text books, and three of my fave's (I'm allowed to buy books, I'm different right?)

  • A Random Walk Down Wall Street
  • Any good book on "Technical Analysis"
  • Any good book on "Fundamental Analysis"
But what can I say I'm an engineer and a bit bookish, and frankly all this info is also available freely online and could have been better used in a stock, etf, or options play.

Thursday, June 12, 2008

Risky Business, Part I

To me life has risk management in every facet. I ride a motorcycle, but I hedge my risk by wearing a helmet. When I ask a pretty girl out, I risk the (high) chance of rejection for the pay off of a good date.

In every financial interaction, a smart investor has got to weigh the risk vs. reward. Well no duh right? But this is actually much more difficult than it seems, and sometime can spell big trouble when you least expect it. I'd like to walk through a few of my current financial decisions and explain how risk management can greatly effect a position.

Emergency Fund

Last night I had a discussion with Fratboy about a young person’s emergency fund. More traditional financial gurus typically recommend holding 6 to 9 months of your current salary in a fund to be used if you're laid off, hit by a train, shot by a terrorist or otherwise disposed for a while. If you're young like me... I say this is bull. Here's why.

Mommy and daddy.

If you have a decent relationship with your parents, and your parents aren't bums, you can always run to them in an emergency.

Low to zero liability.

Do you have kids? A house payment? A huge car payment? Student loans? Seiously what bills do you have that you'll REALY need to pay in a pinch, especially if you've moved back home?

Credit Cards.

Credit card APRs are crazy high, and carrying a balance on them would not be fun. But if worst came to worst I know I could get my hands on nearly 30 grand from my plastic. That right there is a significant ''emergency fund'' but paying the interest would admittedly be a nightmare.

Now we have to weigh the chance of what could happen vs. What would result. For me, getting laid off is a tiny chance. I also have health insurance, and long term disability through my work.

If it did come to pass that I lost my income, I have a good relationship with my parents so while it would be humbling, I think I could go back without a ton of problems. I have all almost no liability, and what's more, no student loans.

Further, you can have a lump of savings which can serve as your "emergency fund", but is in fact something else. For me I'm saving for a house currently, so the money I have set aside as a down payment could be used in a fix to get myself out of trouble.

Which brings me to my final point.

The last resort: School.
If you lose your marketability as an employee, that is you just can't find another decent paying job due to such things as a recession or a horrible ''supply chain management'' degree (I kid), then maybe it’s time to think about a graduate, doctorate, or even another undergraduate degree. Doing this would pass time and allow for the market to come out of its funk, and also could be a valuable investment in your marketability. If you have student loans this could also buy you more time since you're back in school. The obvious down side here is the time investment and the tuition, if you don’t land a sweet RA or TA position.

Wednesday, June 11, 2008

The basics.

Pay our ER's, or the cat gets it!

This post is for people wetting their feet in the financial industry, trying to figure out how to become a responsible adult who’s making responsible decisions about your financial future.

See, the financial industry, as it exists today, exists for one purpose and that’s to separate you from your hard earned money. Be they mutual funds, investment advisors, hedge fund managers, financial advisors, “get rich quick/slow/moderately fast” book writers etc, they’re not here to be your friends. They’re not here to earn you equal rewards. They exist to skim some money out of your retirement accounts for themselves, and make a killing living at it. Yes they do know their stuff, but with some basic studying, so can you.

There are basically three major investments you need to focus on when you’re starting out:

  • 401k
  • IRA / Roth IRA
  • Taxable Investment Account

There are tons of online resources available for these three investments, I’ll include some in my links page, but suffice it to say that the basics are:

  • A 401k is funded with dollars you haven’t paid taxes on, but will pay taxes later on, and typically your company will pitch in (for free!) to this account for you.
  • An IRA, Individual Retirement Account, is an account where the investments are either not taxed yet (traditional IRA) or already taxed and not taxed when they come out (Roth). I recommend the Roth, for many varied reasons, but do your own research and make sure you understand the consequences of each.
  • You should also have some sort of savings account or cash deposit which returns good interest rates. ING direct has some excellent ones, contact me directly if you’d like to get a $25 bonus for signing up. This account is an excellent place to keep your “slush” as I call it, money that you have left over at the end of the pay period but may spend next month, and an “emergency” fund if you need / want one. More on that fund in future posts.
In order to get a good start at investing, you should fund the investments listed above in the order presented. Meaning, contribute to your 401k as much as your company will match, contribute to your Roth at a rate of $415 a month which will fund you up to the maximum this year, and if you have any left over, keep that in your taxable.

If you haven't graduated yet, or you were a Fine Arts / Business major and are currently working at Burger King (I kid), then this may all be a bit presumptive for you. But being aware of these options, and maybe pitching in just $1000 / yr into your Roth, will pay off in the long run big time.

More tomorrow about monthly cash flow.