Thursday, December 29, 2011

CNBC's Mad Money Maven

Weeknights at 6 and 11pm, CNBC has the show Mad Money with Jim Cramer. It teaches you about investing in the stock market. He gives recommendations to buy or sell specific stocks. You might think that this sounds like a boring show, but not with the animated, crazy, but intelligent host Jim Cramer. He is a graduate of Harvard law school and he worked as a journalist before working as a trader for Goldman Sachs on Wall Street. He made millions for his clients when he ran his own hedge fund, Cramer, Berkowitz & Co. I have learned a lot from his TV show, his radio show and his books. Learning about the stock market is not rocket science, it just takes some time and patience to learn the basics. Cramer also owns a website, His books include:

You Got Screwed! Why Wall Street Tanked and How You Can Prosper
Confessions of a Street Addict
Jim Cramer's Getting Back to Even
Jim Cramer's Stay Mad for Life: Get Rich, Stay Rich (Make Your Kids Even Richer)
Jim Cramer's Mad Money: Watch TV, Get Rich
Jim Cramer's Real Money: Sane Investing in an Insane World

* Some information from

"Total Money Makeover" by Dave Ramsey

One of the best books I have ever read is "The Total Money Makeover" by radio host/author/financial guru Dave Ramsey. The guidelines he lays out are simple to figure out, but challenging to do. This is not a "get rich quick" book you see advertised at 3 am in a 30 minute infomercial. You do not need to be a CPA or an MBA to understand his tips on how to manage your personal finances more effectively. His credo is "Live like no one else, so that later you can live like no one else." This means that good decision making, and sacrifices made before retirement can lead to a retirement where you can thrive financially. His main piece of advice is to get rid of debt, whether it be an auto loan, student loans, credit card debt, medical bills, etc. Most need to borrow money for a mortgage, but he has stories in his book of some who made sacrifices to be able to pay for a house 100%. Certainly this is the rare exception, but some have done it. The main thing standing in the way of building wealth is debt. The average car payment in America is $378 per month. If this money was invested in a growth mutual fund earning 12%, which is the average return for long term investing over the history of the stock market, from age 25 to age 65, at retirement you would have over $4 million dollars! Dave says to pay off debt, starting with the smallest to the largest, then work on building an emergency fund. The starting goal for an emergency fund is $1,000. The ultimate goal for an emergency fund is to have it equal to 3 to 6 months of living expenses. That way if the car needs $500 worth of repairs or the furnace goes out and it is $400 to fix it, that can be paid from the emergency fund rather than on a credit card so that it can be paid in one lump sum with no interest. The emergency fund can be used for living expenses in case of a job loss, or for medical bills that come up, and the like. The emergency fund should be liquid, meaning it is easy to access without paying penalties. Those who are debt free with an adequate emergency fund can allocate more money to retirement investing than those who do not. In a nutshell, here are some tips from his book;

Stay away from rent to own places, it is not a good use of your money. You will pay $1000 for a $300 TV by the time you make the payments to own it.

Payday lending businesses are another bad use of your money. Their interest rates are incredibly high.

Do not buy a new car, the depreciation is too quick to be worth it.

Do not lease a car, buy one instead.

Go with term life insurance, the investment component in whole life is not worth it. It gets eaten up by fees and it is better to invest your money elsewhere.

Do not play the lottery, your chances of winning are miniscule.

Do not buy a trailer home. They do not last as long and the depreciation is high.

Debt consolidation services are no way to re-organize your finances.

Do not pre-pay for a funeral or college expenses.

Do not take out a home equity loan.

Invest 15% of your gross income in a growth mutual fund.

A Roth IRA is a good investment since it will grow tax free.

He stresses that money will not buy happiness and that the love of money is the root of all evil. Many have money as their god. Having adequate money gives one peace of mind and he says that money is good for three things--investing, having fun, and giving away. He says that giving it away can be especially enjoyable. Dave Ramsey is a Christian, and he is the author of "Financial Peace University" which is used by many churches to teach their congregations about how to manage finances wisely. He knows what it is like to struggle. He made millions in real estate in his 20s, managed it unwisely, and ended up broke. Anyone who wants to learn about how to handle money effectively should check out the books by Dave Ramsey.

Wednesday, December 28, 2011

Thin Waist, Fat Wallet

As Americans, we struggle significantly with losing weight and being financially fit. In the new year, no doubt, many resolutions will revolve around those 2 subjects. These two concepts have more in common than you might think.

1. Both require making the right choices to produce favorable results. Different choices can make all the difference. What is the better choice: eating fast food and drinking pop, or eating foods like fruits, vegetables and whole grains and drinking mostly water? We all know the right choice, but we often choose the wrong one. Choosing exercise over a sedentary lifestyle is important too. Everyone will not be a marathon runner, but just 30 minutes of exercise per day can make a big difference. It can even be split up into 3 sessions of 10 minutes each. The key is to find something you enjoy doing. Financially, what is the right choice: spending money on frivolous things or spending it only on necessities? Let me clarify, I am not saying to never eat junk food or never buy something fun, but those who are physically fit and financially fit make the right choices the majority of the time. Different choices yield different results. What kind of results are you seeing?

2. Both require one to have patience, sacrificing short term rewards in exchange for long term benefits. It feels great to have lots of cookies or ice cream right now, but that action means we push back the time where we can be proud of weight loss. Nothing tastes as good as thin feels. It might feel great to go and buy a $500 new watch or new clothes right now, but that money spent now means it cannot be used for other, more important uses down the road. Many say they have no money for the essential things in life, but they seem to have plenty of money to spend on frivolous things. It has been said that money moves from those who don’t know how to handle it, to those who do know how to handle it. It is all about priorities, and being patient. Too many people say that they want to be thin right now, or they want to be rich right now, but those who practice patience, and restraint, get the best results. The old adage is true, patience is a virtue. Get rich quick or get thin quick programs are scams that will not work over the long term. In building wealth, time is the investor’s best friend. If a person makes $40,000 per year and they put 5% of their gross income into a 401k that earns 8%, starting with a balance of $1,000, if they invest from age 25 to age 65, they will have $1,176,915 at retirement. If only 1% more is invested, the balance would be $1,407,954, about $230,000 more! It is not about how much we make, but how much we spend (or don’t spend). Plenty of people who make 6 figures or even 7 figures, end up broke since they do not manage their finances well. Conversely, many people who make a small income are perfectly able to pay for a decent place to live, a decent car, and other needs.

3. Both losing weight and gaining wealth can be accomplished by making small, incremental changes that add up significantly over time. Suppose that someone spends $8 per day eating out at lunch time. Do this 5 days per week and that adds up to $40 per week, and 52 weeks per year adds up to $2,080 per year. That is a lot of money. Think about what you could do with $2,080. You could pay off debts, take a vacation, buy gifts for others, or invest it. Losing weight is the same way. 3500 calories reduced per week can yield one pound of weight lost. That breaks down to just 500 calories per day. Examine what you eat, and examine where you can cut out 500 calories. We can all do that. So many times, calories are taken in without even thinking about it. How many of us mindlessly snack on chips or cookies or other junk food without thinking about how many calories we are taking in? I have found that paying attention to liquid calories is essential too. It is easy to drink 500 calories worth of pop or other drinks without even realizing it. One pound lost per week may not sound like a lot, but over a year it is 52 pounds.