While folding laundry last night I caught a glimpse of the Suze Orman show. Quick synopsis; gym teacher wife, electrician husband, take home income $5,000 per month, outgo $8,000 per month. That’s a net overage of $3,000 per month going on the credit cards. All credit cards now maxed out. Family consists of 4 kids from baby to 12 grader.

Problem, mom handles all the money and can’t say no. Dad wants no money involvement.

Get out of debt. Just say “no”.

My observations:

This is much more than a money problem. $5,000 per month take home pay is not a fortune, but certainly enough to live on in most parts of the country. Part of her outgo consisted of a car loan (or two) for $700 per month. Her hubby’s beer budget was quite large as well. After Suze went through and cut everywhere she could, the couple was still spending $1,800 more than they were taking in.

Suze Orman’s recommendations (abridged):

No gifts at all, that includes Christmas and birthdays.

Revamp the cell phone contracts, they are way too expensive.

No eating out.

The older kids need to contribute part of their part time job earnings to the family budget.

Hubby has to pay the bills every week along with the wife and they both need to face up to their financial reality.

Both need to take on more work. Mom needs to earn during her summer vacation and dad needs to take on extra electrical work.

Her final admonishment went something like this;

“If you said “No” more along the way, you wouldn’t have to cut back so drastically now. You created this situation and only a dire change in lifestyle is going to get you out of it.”

Do money problems stem from your beliefs?

This mom believed in order to be a good parent she needed to say yes to all of her children and husband’s requests. Saying “no” was a personal failure.

Suze role played with the mom by pretending to be a child asking for $50 to go out with his friends. The mom had to say “no”.

You could see the pain and trepidation in the mom’s voice when she said “no”. The distress was painful to watch.

The mom’s internal script clearly got her into this position.

If I had to guess, Mom believes that “a good wife and mother gives her husband and kids whatever they want.”

It got me thinking, how many of us feel that we can’t say no to ourselves and our children? We believe that if we have a job, are working hard, then we deserve to buy whatever we want.

Is that you? Do you believe you deserve to spend since you work hard?

It took maxing out all credit cards and facing bankruptcy in order to get this family to confront their debt and money mismanagement.

Do you avoid paying the bills and looking at the balance on your credit cards?

Do you believe that you deserve to spend?

Are you avoiding your own financial reality?

If so, all the financial advice in the world will not help until you decide to confront your money beliefs. Farnoosh Torabi talks about how to Psych Yourself Rich and Dr. Charles Richards talked a lot about how your mind influences your wallet in The Psychology of Wealth. With a Masters in Counseling and a husband who’s a Psychologist, I know more than a little about how our mind impacts our behavior.

In this family’s case, they needed to approach rock bottom in order to take action. What about you? Are you willing to confront your money beliefs, evaluate them, and start spending smart?

Where to Begin in Getting Rid of Debt?

Start with your mind.

Like any other life change; losing weight, exercising, getting a new job; the first step is awareness of the issue.

Face Reality

You know you have a debt problem if you spend more than you earn and cover the difference with credit cards. If you have no emergency fund and minimal savings, then you have a problem. If you buy without thinking, you have a problem. If you indulge yourself and those around you with material goods you cannot afford, you have a problem.

Once you accept that your finances aren’t where you need them to be and that you have too much debt, you’ve taken an important step.

Acceptance of the problem is the first step in getting back on track.

What do you say to yourself before you spend on “wants”?

Start by assessing what you say to yourself before you overspend.

Which of these self statements ring true?

1. I’m depressed (or happy or sad), I’ll shop to cheer myself up.

2. I had a hard day, I need  a reward.

3. I want my kids to have whatever they want.

4. I work hard, so when I want something I deserve to have it.

5. My mom (husband, wife, kids, dad) is so great to me that I must buy her the newest Coach bag for $450, otherwise she won’t know how much I appreciate her.

6. We deserve a cruise vacation because we work so hard.

7. I want my kids to fit in so I buy them designer clothes.

8. I have to have the latest iphone upgrade because ______________.

9.

10.

Take these steps to begin the journey out of debt:

1. Write down everything you spend. Get the family on board to do the same. Get a notebook or an app and track every cent you spend and all of the bills you pay.

2. Before you spend a cent, write down what is going through your mind.

How to keep track of spending and thoughts:

Situation: You and the kids are at the convenience store and the kids run to you with packs of candy and small toys.

You think: “I’m working all day, I’ll reward them with treats?”

Write down in your spending diary: Snacks, toys, candy-$12.00

Track spending and thinking for a month. If a month is too long, try it for a week.

What do you notice? What do you say to yourself when you’re spending on wants, not needs? Analyse what you are thinking before you spend. Practice this activity for awhile. Notice any patterns and evaluate whether you are spending and living the way that is best for you and your family.

What are your unhelpful thoughts when spending on wants and splurges?

image credit; google images

I love the questions I receive from the MBA students in the investing class I’m teaching. A recent favorite is:

Should I put all my savings into the stock market now?

The level of the DOW Industrial average should not impact your investing decision!

Investing is a long term wealth building strategy. In spite of the day traders and active fund managers’ machinations, only about 30 percent of active fund managers beat unmanaged index funds in any one year. And those managers that beat the indexes one year, are unlikely to outperform in subsequent years.

What does this investing data mean for you?

Rarely is it a good idea to put all your money into the market at once. It doesn’t matter if the DOW is at a peak or a trough (and you won’t know for certain until later), dollar cost averaging is the best way to buy more shares when  asset prices are low and less when they are higher. Choose a set amount of cash and invest it at regular periods; monthly, or quarterly. If you have a workplace retirement account, you’re already doing that.

Do not be swayed by the enthusiastic talk on CNBC. “Investing should be like watching paint dry”, according to famed economist Paul Samuelson.

If you haven’t started investing yet, make sure you follow these “10 Steps to Take Before Investing“.

Start investing regularly and be prepared for your stock and bond investment values to fluctuate. The only time to consider putting a large chunk of cash into the markets is after a big drop in market prices, not after a big gain!

Barb Recommends

Business Insider-Why Consumer Sentiment is Spiking-Investors are happy, stocks are up. Homeowners are happy, home values are up. Gas prices are lower, yea. Enjoy this part of the business cycle and educate yourself about the ups and downs of the economy. Save and invest now to prepare for the downturn which will come in the future.

BBC News-Retirement Harmful to Health-For all you “early retirement” seekers, why bother? Keep working and stay healthier. Who knew? It’s better to work!

GoGirl Finance-How to Know if You’re Ready to Invest- Know the basics before taking the plunge. It’s tempting to chase a rising market. Don’t start investing without getting rid of debt and basic knowledge.

Good Financial Cents-Couples Finances-What if You Don’t Agree? There is no right way for couples to handle their finances. But, you do need to communicate and resolve the money issues that prevent you from moving forward.

Frugal Rules-Things I Would Never Do: The 97 Month Car Loan-I guess paying cash for a car loan is the other extreme. Better to shorten the loan or save for a new car and pay cash!

Rick Ferri-The Bubblegum Ratio and Future Stock Returns-If you’re enthralled with investment ratios (as I am) you’ll find this humorous study of the “bubblegum ratio” thought provoking. Makes one wonder whether any ratio can predict future stock market returns.

Barb Across the Web

1099 MomLinsey Knerl reviews How to Get Rich: Wealth Building Guide for the Financially Illiterate. I am humbled by this glowing review.  
Steve at MoneyPlanSOS.com posts my YouTube interview from Fincon 2012.
Carnival of Financial Planning at Hurricanes, Panties
Carnival of MoneyPros at My Personal Finance Journey
Finance Carnival for Young Adults at WILDaboutFinance

Are you starting to invest now? For the seasoned investors, are you changing your strategy now that the market is up?

image credit: google images_mother jones

Saving is the backbone of all wealth. If you strive for security, wealth, and prosperity, then you must learn how to save. For those who were taught as a child to put part of every gift and earnings into the bank, saving is a habit. For those more skilled at spending than saving, it’s not so easy. This article introduces some unique savings ideas. Implement these simple tips and watch your wealth grow.

Easy Ways to Save Money

1. Automate your Savings

It’s common knowledge that when you divert cash from your paycheck into your retirement account at work, after a transition period, you don’t miss the funds. Yet over time, these regular contributions grow to thousands of dollars. But, with your retirement funds, you face a penalty if you withdraw the funds before retirement.

So how do you handle saving for short and medium term goals?

An easy way to save money for short and medium term goals is through automation. I came across this free app, SavedPlus which automatically transfers money to your savings account every time you spend! Any time you can automate a positive habit, you increase your chance at success.

Your washing machine breaks, or the car needs new tires, where will the cash come from? Savedplus is the perfect tool to make sure there are funds in your emergency account. Emergency account already funded? Use Savedplus to save up for a special goal. The cool thing about this opportunity is that after linking your bank accounts and setting your own savings goal (for example, 10% of the amount spent will be transferred into your savings account) you are finished. This set it and forget it approach lets your savings build as you spend!

2. Make Saving Fun

Science proves that when something is pleasant, you tend to practice that habit more than if it’s not. Sit down with the family and brainstorm a list of affordable alternatives for fun. Everyone needs some fun and relaxation. Go skiing, out to expensive restaurants, fancy vacations and you’ll have fun, and pay the price. You can have just as much fun, without the big price tag.

A friend confided that when his kids were young, he invested in some good hiking boots and then spent week ends hiking for free. Geocaching is a free, outdoor, treasure hunting game which will consume your week ends (with fun). Not the outdoors type? Crafts with found items provide beautiful decorations and hours of fun.

When our daughter was young we built forts with pillows and used nerf balls to throw at one another. And of course there is always balloon volley ball. Cooking and baking together is great for couples and families! Now that spring is here picnics and parks are perfect free week end activities. The list of fun activities on the cheap is endless. Cut your discretionary spending budget and have fun.

3. Gratitude Journal

You don’t usually find this one in a money saving article, but it really works. When you get the “I want, I need, I desire” bug, take a breath and pull out a journal. Spend a few minutes listing everything you are grateful for. The list could be as simple as; my family, friends, health, car, home etc. Or you can get really detailed and talk about the freedom of living in a democracy, having clean air and water, having the vision to look at the trees blooming, or whatever else you can think of. This is a personal one. By focusing on what you already have, instead of what you lack, you shift your perspective to appreciation instead of need. Get in the habit of changing your outlook, boost your happiness and cut spending.

Spend less on unnecessary items and bank the savings. Your wealth will build.

What are your saving strategies?

image credit: google images_usnews

Follow-up to Why I Don’t Want a Smart Phone, Tablet, or eReader

One of my most popular articles of all time is entitled, “Why I Don’t Want a Smart Phone, Tablet, or eReader“, so it is with tail between my legs that I confess I requested a tablet for Chanukah last year and bought a smart phone last month. This article discusses how I got these two electronics economically and how they are working out.

Should I buy an iPad mini or Samsung Galaxy Tablet?

The Samsung Galaxy Tablet

My mom is awesome. She says, tell me what you want for your birthday or Chanukah, buy it, and I’ll send you a check. How great is that? Since I travel a fair amount, I justified the tablet is good to have on the plane and waiting in the airport. I started out investigating the iPad Mini, but due to my penchant for economy, I ruled out the $329 tablet. I figured the Amazon Fire would be the best choice since I like to read and I didn’t want to spring for the iPad. When I went to Best Buy last December, the Galaxy 7″ tablet was on sale for $179. I couldn’t pass up that great price and grabbed it.

As I stated in the prior article:

“There’s a plethora of writing about how more stuff leads to more work. Get something new, first figure out how it works, then maintain it, and finally, fix it when it breaks.”

This statement is absolutely true. I continue to learn about the tablet’s functionality. I’ve taken photos, video, gotten addicted to various games, and downloaded some apps. The Kindle app houses my large collection of books. I’m still figuring out the stitcher app which includes among other options, access to my favorite podcast, Two Guys and Your Money (where I’ve been featured a few times:) ).  It is a lot of fun. And there is definitely a learning curve. Although it is taking some time to figure out, I really enjoy the tablet!

The Tablet Takeaway

I like it. It’s fun. It’s good to have when travelling and out and about. And for less than $200, it was a good buy. I bookmarked a video which elaborates the ins and outs of the tablet….. but I need to schedule time to watch it again.

Could I live without a tablet? Sure. But I am glad I have it and look forward to the time when I know how to rock the device.

The Smart Phone Decision

I’ve used an ancient cellphone for years with a monthly plan from Virgin Wireless. I cannot stand the idea of a long term contract. Even though my daughter and husband both have cell phone contracts (and hubby has an iPhone), I hate to be married to the cell phone company. One marriage is enough for me.

After a lot of travel these past few months, I decided to check out an affordable smart phone. Since I’m usually not far from my laptop, I decided to get a basic model. I don’t need the latest and greatest of everything, and am happy with a basic model. I grabbed a $60 Kyocera (on sale) from Radio Shack with decent reviews. I continued with Virgin Wireless and get unlimited texting, data, and 300 minutes of talk per month for $35. And, I can cancel whenever I want. It is cheaper than adding a line to my husband’s contract!

I like the phone, and continue to decipher all the functions. The cost is reasonable, I’ve moved out of the cell phone stone age, and can get online when I’m out. Overall, another good purchase for a reasonable price.

Am I Trying to Keep Up With the Joneses?

I compare my decision to get a smart phone and tablet with one of keeping up with progress. When electric lights became available, would you say, “No, I think I’ll stick with my candles.” Or when the telephone was invented, would you think, “Who needs it?” if I want to talk with someone I’ll write a letter. Life evolves.

Every decision is a balance of money, time, preferences, and utility. As soon as I’m fluent in tablet and phone, I expect all prior negatives will be obliterated.  And those games I downloaded on the tablet are a great diversion!

Like all decisions, you must consider your priorities and what your pocketbook can handle. My decisions overweight cost, that may not be your personal value.

If you want a review of the 7″ tablets by tech professional, David Gerwitz, check out znet’s How to Decide: Should You Buy an iPad Mini, Galaxy 7, or Kindle Fire.

Barb Across the Web

How to Get Rich; Review and Giveaway at Mom’s Plans (sign up for a chance for a free copy)
Yakezie Carnival at Growing Money Smart
Carnival of Financial Planning at PF Carny
Finance Carnival for Young Adults at Fat Guy,Skinny Wallet
Carnival of Retirement at Brick By Brick Investing
Carnival of MoneyPros at Thirty Six Months

What are your thoughts? Do you have a tablet and/or smart phone? What brands do you prefer and how did you make the purchase decision?

image credit; google images_grandparents dot com

While watching Warren Buffett this morning on This Week with George Stephanopolis I had to tell you about his views on women and the economy:

” It has to do with America’s future, about which — here’s a familiar opinion from me — I’m an unqualified optimist. Now entertain another opinion of mine: Women are a major reason we will do so well.” In “Warren Buffett is Bullish on Women”, CNN. Fortune

I applaud Buffett’s comments trumpeting the importance of women in society. Not only are women the backbone of child-rearing, but we make most household financial decisions. In business, women are moving towards greater prominence and decision-making roles. Today, my business classes are populated by increasing numbers of women. Buffett’s claims magnify the reality that women have been under appreciated, underutilized  and “brainwashed” (Buffett’s word, not mine) to believe they are less competent and qualified than men.

Powerful Moms

Buffet’s pro-women article is a good start, but does not address the reality that women are the object of sexism. If top women professionals can get a week’s work done in 40 hours when the standard is 60, then they should be promoted and advanced just as a man would. Accomplishments, not time behind the desk needs to be appreciated. Just as Sheryl Sandberg in Lean In encourages women to remove self limiting beliefs, there is a very real issue; being a good parent, raising children, taking care of life’s housekeeping chores takes time, focus, and effort. Even without self limiting beliefs, there are time constraints involved in working, parenting, and life in general. A woman with all the professional desire and commitment in the world, is unlikely to live a life as an exemplary high level executive, mom, and household CEO.

As a mom, businesswomen, wife, daughter, and household CEO, it is really difficult to have it all, at least at one time. No one has more than 24 hours per day and we all need to sleep at least one third of that time. So if you’re taking care of the house, kids, bills, and holding down a demanding job, you are attempting the impossible.

Mom and Work

I don’t have the answers, but no one can be successful at everything at once. You can have it all, just not all at once. I’ve been challenged by balance issues for most of my adult life, and there’s no simple answer. Buffett is a great investor, champion of women, yet he missed an inherent reality for professional women, who’s going to be the CEO at home when mom is CEO at work?

Mom’s Day Gifts that Matter

1. If money is no object, hit the Coach store. There is something there for the professional mom, household CEO mom, and any other type of mom. I just bought my sister a beautiful small leather Coach bag, she can slip inside her briefcase and pull out when she goes out after work.

2. If Coach is too rich, hit Marshall’s or TJ Maxx for a great tote, purse, or carry-all at an economical price. Just picked up a yellow (mom’s favorite color) handbag for mom.

3. If free is more your style, try a handmade gift. You know your mom, think about what make’s mom happy. I responded to my daughters query, “What do you want for mom’s day?” with a brunch of pancakes and eggs along with a hand made card. A flower pot is beautiful and will remind mom of you long after the day.

4. Activities for mom’s day can last in our hearts for years to come; hiking, picnicking in the park, making a craft together, even watching a special movie (just for mom), can etch your love for mom on her heart.

5. Personalized gifts are wonderful. Check out Snapfish or any of the photo sites and make mom a calendar, mug, photo book, canvas, or poster.

How does your family handle competing family and professional demands? What are you planning for mom’s day?

image credit: google images_powerful streets dot com

FREE DOWNLOAD WEDNESDAY, MAY 1 – SUNDAY, MAY 5!  FREE from Amazon

How to Get Rich: Wealth Building Guide for the Financially Illiterate

I’ve been performing the quarterly update on the portfolios I manage and searching high and low for a bit more yield for the bond and cash portions of the portfolios. I don’t want to mislead in this article because the investments I will be discussing are a bit riskier than FDIC insured certificates of deposit or government bonds. Step up notes are a type of bond with credit ratings from AAA on down to C.

According to Investopedia, “A Step-up Bond pays an initial coupon rate for the first period, and then a higher coupon rate for the following periods. For example a five year bond may pay a 4% coupon for the first two years of its life and a 6% coupon for the next three years”  (Of course, not in this interest rate environment) .

The bond I’m looking at is issued by a large financial investment bank and is rated A3. It’s a 15 year bond with the following coupon (interest rates):

2013-2021: 3.25%

2021-2023: 3.75%

2023-2025: 4.00%

2025-2026: 5.00%

2026-2027: 6.25%

2027-2028: 7.50%

This bond can be called quarterly starting in November, 2013. So if interest rates stay substantially low with few prospects for increase it’s likely the issuer will call or buy back the bond before maturity.

So, what’s the average annual return if the bond is held to maturity? According to my calculations, the bond will yield an annual rate of 4% for 15 years.

Obviously, no one knows what the future holds for interest rates. The issuer hopes that the interest rate outlook is low so that they can call the bond and reissue another with lower rates. I hope the rates increase gradually, but less than those being offered on this bond, so that the portfolio’s reap a premium.

In this deplorable interest rate environment, getting any kind of return on the fixed portion of a portfolio is quite difficult. Since no one can predict the future, one only knows the realized yield (the actual return on one’s investment, calculated after the fact) later.

If I anticipated use for these funds in the near future, I would not choose step up notes. According to the issuer, there is no promise of liquidity. In other words, there’s no guarantee these notes can be sold in the secondary market. That said, for investors looking for a bit more yield, with enough cash to diversify their individual bond portfolios, step up notes might be worth checking out.

Barb Recommends

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Great Mothers Day Last Minute Gifts: Frugal Rules

Beating the System; When Math (Not Gambling) Pays off: Don’t Quit Your Day Job

Frugal Guru Guide Podcast

Investintech.com has an interesting tool which converts PDF’s into Excel, Word, Powerpoint and more. They offer a free trial too!

Barb Across the Web

My Financial Reviews-How to Get Rich: Wealth Building for the Financially Illiterate
PF Stock How to Get Rich for Free
Carnival of Passive Investing at Wealth Note
Carnival of MoneyPros at Money Pros
Yakezie Carnival at The Frugal Toad
Carnival of Financial Camaraderie at Making Sense of Cents
Carnival of Retirement at Midlife Finance

Where are you investing for yield?

How to Decide Whether to Hire a Financial Adviser or Manage Your Own Investments

When you see your financial statements do your eyes gloss over? Are you perplexed by the myriad of available investment choices? Are you really busy and don’t want to spend any free time on investing? Are you interested in professionally managed funds?

If you answered yes to any of those questions, then you may need a financial advisor.

To manage or not to manage, your money.

How to Manage Investments on Your Own

My personal bias is that most people who have a modicum of interest can read a book or two, learn index fund and asset allocation basics and manage their own investments. For those who want to give it a try, here’s the bare bones method to painless money management.

1. If available, sign up to contribute as much as you can to your workplace retirement fund. If you don’t have one, open an account at a discount broker such as Fidelity, Vanguard, Charles Schwab, or TD Ameritrade.

2. Choose a target date retirement fund and start contributing a set amount monthly. This is a fund which takes into consideration when you expect to retire and adjusts the percentages allocated between stocks and bonds so that the fund becomes less volatile, the closer you get to retirement.

3. Any cash you will need for short term purposes (1-5 years), invest in Government I (inflation) bonds.

4. If you want a bit more investing direction, check out The Elements of Investing (Malkiel and Ellis) and 20 Minute Guide to Investing (Friedberg, free download).

Still not sure about going it alone of hiring an adviser? Read on and critically evaluate your choices.

What does a Financial Adviser do?

There are countless varieties of financial advisers with many types of designations. Retail brokers, not to be confused with a “fee only financial planner”, sell investment products and are compensated by commission on the sales. They only get paid when you buy or sell a stock, bond, mutual fund, ETF, or other financial product. An investment broker has an inherent conflict of interest as he or she only gets paid when you make a transaction.

Independent, fee-only advisers manage investment funds and are legally required to act as fiduciaries to their clients, according to Dan Goldie, co-author of The Investment Answer. This adviser holds your funds in an account with a third-party custodian, with the advisor only having limited authority to manage the account. The adviser manages your account to grow and is usually paid a percent of assets under management. That way, your interests are aligned with those of the adviser.

How do I Choose a Financial Adviser?

Let’s assume you decide you want to engage a financial adviser. Here are some general guidelines.

1. Check his or her credentials and make sure the adviser has a well know designation such as Certified Financial Planner or Personal Financial Specialist (Smart Money.com in How to Find a Good Financial Adviser, 2011).

2. Ask friends for referrals.

3. Understand how the adviser is paid. Fee only usually means the adviser is paid a percent of the money he or she is managing. Thus, if you do well, the adviser does well. Some advisers may charge for a particular service, such as creating a financial plan. Be aware when advisers are paid by commission and only get paid when they sell you particular investment products. I believe this sets up a conflict of interest as the adviser may be more interested in selling high commission products (ie proprietary mutual funds and annuities) and less interested in low commission index funds. Do not be afraid to thoroughly question the adviser.

4. Be clear on what assistance you are looking for. Ask the adviser about their services and make sure what they offer matches up with your needs. Some advisers are actually insurance salespeople or financial services sales people with their own agendas. Be critical.

5. Do not be impressed with returns and fancy charts. Look under the surface and always find out how the managers returns’ compare with unmanaged benchmark indexes. For example if the S & P 500 stock index goes up 12% in one year and your adviser touts her one year 12% return, you need to know that the advisers return is in line with that of a low fee index mutual fund.

5. Interview at least three advisers before choosing one. Ask to see their credentials. Check out the adviser with the Better Business Bureau.

6. Be aware that hiring an adviser is not a set it and forget it proposition. You need to check in and monitor the advisers progress and know about the investments he is choosing and how their returns compare with those of comparable unmanaged benchmarks. You need to understand the adviser’s strategy and make sure you are comfortable with the investments she is choosing.

Only you can decide whether you need a financial adviser. Personally, spending a few hours educating yourself about index fund investing and setting up an automatic transfer of your salary into a retirement account can lead to long term wealth. Investing isn’t that complicated and simple is usually better.

What are your experiences with a financial adviser? Or, do you manage your investments on your own?

image credit_google images_exchange virtual currency.com

FREE DOWNLOAD WEDNESDAY, MAY 1 – SUNDAY, MAY 5 mark your calendar!  FREE from Amazon

How to Get Rich: Wealth Building Guide for the Financially Illiterate

Do you know how to get rich?

Discover wealth building secrets of the rich, in this book

FREE DOWNLOAD WEDNESDAY, MAY 1 – SUNDAY MAY 5 mark your calendar!  FREE from Amazon

I’m quite skeptical when folks share their wealth building secrets. It reminds me of the infomercials with promises to get rich in real estate with no money down, or become a day trader and make millions. I wonder, if these folks are already so rich, why are they touting their products (for a lot of money)? In fact, I just opened an email video blast from a well known blogger offering to “share his no fail system to make lots of money from a blog.” I listened to almost 8 minutes of the video and stopped before clicking on the button to buy the system. I’ve been publishing this website for three years and know that those who make a living blogging are few and far between. And those making a full time income blogging are working more 2 hours per day, as the video promised.

Offers that sound too good to be true, usually are!

To explain why I publish Barbara Friedberg Personal Finance.com and offer wealth building resources, here are my answers along with why you need to pay attention.

If you are financially secure why are you working so hard?

I understand that many folks would prefer to relax if they didn’t have to work. I’m not one of those people. I was raised in a culture of hard work and giving back to society. I enjoy working and giving back to others. I have wealth building skills, knowledge, and success and I want to share them with you. Now, I’m not selling a $150 course, or even a $30 book. Barbara Friedberg Personal Finance.com is FREE!

Additionally, from May 1 through May 5, How to Get Rich is Free . This book is not a get rich quick scheme and is not based on some secret strategy.

I publish Barbara Friedberg Personal Finance and books on wealth building because I enjoy helping others succeed.

There are so many folks out there with ideas about how to get rich, what makes your book and website different?

I have decades of tried and true experience in finance and business as well as 2 masters degrees (MBA in Finance and MS in Counseling). In reality, you have no way to look at anyone’s net worth, but typically if someone is offering you an easy way to get rich, you have to wonder, if it’s so easy, why isn’t everyone rich? Look at the background and credentials of anyone who is instructing you. Would you take medical advice from a computer scientist? Would you take financial advice from a 24 year old? Would you spend $300 on a wealth building course, when you could learn basic personal finance and wealth building for $9.99?

How to Get Rich: Wealth Building Guide for the Financially Illiterate is a map to long term wealth building. It’s not difficult, but getting rich requires a bit of deferring what you want today in exchange for the opportunity to be rich in the future. Getting rich also involves making choices  as well as sticking to a plan.

You maintain a healthy weight with exercise and a sensible eating plan. (Not for a week or a month, but forever). Getting wealthy is the same idea. Learn the steps to build wealth, practice them until they become permanent, and over time you will amass hundreds of thousands of dollars.

Do You Have an Advantage that the Average Person Doesn’t?

Yes, I have two advantages the average person doesn’t. First, I don’t care about keeping up with the Joneses. I drive a 1998 SUV. I shop at outlet malls. I do not indulge my daughter with expensive “stuff”. I eat out once per week. I pack my lunch. I don’t buy to impress. When I splurge (and it’s important to splurge once in awhile), I do it deliberately on things that give me a lot of pleasure; art and travel.

Second, I have amazing wealth building roll models, my parents.

If you want to impress others with expensive jewelry, cars, electronics etc. and are not making a gigantic salary, you may not be able to amass wealth. You can have it all, just not all at once. You need to defer some spending now in order to have long term wealth.

How to Get Rich: Wealth Building Guide for the Financially Illiterate will get you started on the path to lifetime wealth building.

Download it for FREE between May 1 and May 5.

Barb Across the Blogosphere

• Go Banking Rates published my guest article Here’s the Secret to Getting Rich; Do it One Day at a Time   
• 2 Guys and Your Money podcast - How to Get Rich interview
• Wisebread included a recent guest post in Best Money Tips-Ways to Save Money for 2013
• Carnival of Retirement at PF Carny
• Carnival of MoneyPros at Making Sense of Cents
• Carnival of Financial Planning at Planting Our Pennies
• Yakezie Carnival at Thirtysixmonths.com
• Carnival of Retirement at Dividend Monk
• Carnival of MoneyPros at Financial Conflict Coach
• Carnival of Financial Camaraderie at Freeat33
• Carnival of Financial Planning at Master the Art of Saving
• Yakezie Carnival at The Ultimate Juggle

What are you doing now to build long term financial security?

Guest contributor, Kevin Watts

Going to college can be very expensive these days. With tuition rising faster than the rate of inflation it is very smart to use your time wisely while in school.  If you’re worried about supporting yourself through college or supplementing your income you may want to consider working part time.

Although the idea of working while your friends are partying may not sound like fun, you’ll gain invaluable experience, useful contacts, earn extra shopping money and most importantly avoid accumulating massive debt (which takes years to pay off). If you thought it was impossible to find a decent job while you’re in college, read on to discover three student friendly jobs.

TUTOR FOR EXTRA CASH

1. High School Tutor

It’s worth calling local high schools to see if there are any vacancies for a tutor or if they’ll let you stick up an advertisement in the hallway. Additionally, you can post a free advertisement online or in your local paper. Libraries are also great places to advertise your tutoring services. If you still live close to your old high school, getting a job as a tutor is even easier! Get in touch with one of your old high school teachers, since they already know you they are likely to help you out.

Working as a tutor is easy since you’ve already been through the tests your students are studying for and you’ll still be familiar with the curriculum and course work. As a bonus, high school students have similar timetables to yours, so you’ll still make all of your classes and social events. If you decide to apply as a tutor make sure to choose a subject in which you excelled. A friend of mine actually made a living as a high school tutor for a year after he graduated from MIT while starting his business. He got in the right social circles and was paid handsomely!

2. House Sitter

Did you know that you can actually get paid to look after people’s homes while they’re away on vacation? If the idea of saving money on rent and getting paid to stay home and watch your favorite television shows appeals to you simply sign up as a house sitter on a variety of house sitting websites. One website that looks promising is luxuryhousesitting.com.

Make sure to keep an eye out for long term house sitting jobs, as it may be possible to find a listing which requires a house sitter to live in the house for 3-6 months. One of the bonuses of working as a house sitter is that the homes are usually much more comfortable than a dingy college apartment.

3. Waiter/Waitress

Working as a waiter can be a great choice as restaurants and cafes offer flexible hours. Although waiting tables can be tiring, the tips you’ll receive are a great incentive. Plus, most restaurants hire at least a few students, so you’ll get the opportunity to make new friends. And those new friends can cover your shift when you have a big test. Snare a job at a high class restaurant and the week end tips can’t be beat.

While being unemployed may sound like fun, being stuck paying a huge student loan off isn’t! Working part time while studying at college can be a really rewarding experience and will give you financial freedom once you graduate. After all, you don’t want to spend your first big paycheck after graduation on loan repayments. Plus, you’ll have extra money to go on a spring break vacation each year while your friends are stuck in the dorm!

Kevin Watts is the creator of Graduating from Debt.  Kevin was like millions of recent college graduates burdened with heavy debt with very little hope. With the right attitude and discipline he took control of his financial picture and is now debt free.

What were your part time jobs? Which one was your favorite?

image credit; google images_studysparkz_wordpress

This week’s module in the MBA Investment’s class I’m teaching unpacks how diversification among various asset classes can increase the investor’s return and reduce risk. For the newbies out there, examples of asset classes are stocks, bonds, real estate, cash equivalents, commodities etc. The degree of correlation among asset classes is what leads to greater or lesser diversification benefits. If asset returns move in the same direction, for example, when fund A goes up 10% and fund B goes up 9.75% the funds are positively correlated. The more closely correlated the investment returns are, the less benefit the investor gets from diversification. The greatest diversification benefit comes when the asset classes are negatively correlated; one fund’s return goes up and the other fund’s return goes down thereby reducing risk and boosting returns.

Historically, investors are advised to invest in U.S. and international assets because they are usually negatively correlated. Stock and bond returns typically exhibit less correlation between returns than those of stocks with other stocks. But here’s the problem, in times of economic upheaval and uncertainty, asset class correlation tends to increase. That leads to less diversification benefits from investing across asset classes.

If you assume that a diversified portfolio of US Stocks, International Stocks, Small Capitalization Stocks, and some Bonds will significantly increase returns and reduce volatility you may be surprised to learn,  that recently the stock funds are quite highly correlated.

The Efficient Frontier

Harry Markowitz, founder of modern portfolio theory, developed the Efficient Frontier concept. This theory demonstrates that creating portfolios of less correlated assets and adjusting the weight of each asset can yield a portfolio which minimizes the total risk and maximizes total return. The frontier is based upon historical asset returns and standard deviations. The final step is adding a risk free asset like U.S. Treasury bills to the riskier options in order to boost return possibilities while minimizing volatility.

Sounds great, choose a bunch of seemingly uncorrelated asset classes, put them together in a portfolio, invest in appropriate weights so that returns are maximized and risk is minimized. Then throw in some risk free assets in line with your personal risk tolerance. And voila, you have the optimal portfolio.

When the Efficient Frontier Isn’t

What happens when historical returns and standard deviations used to create the model are not predictive of future standard deviations or asset class returns? What if the correlations between portfolio assets becomes higher? What happens if international investing doesn’t add any diversification benefit? What if small capitalization stocks and large capitalization stocks are highly correlated? Does that mean that there’s no benefit from diversification?

In order to demonstrate the concept of the efficient frontier I input (what I thought would be) 5 loosely correlated exchange traded funds (ETF):

1. Vanguard Total Stock Market ETF (VTI)
2. Vanguard Small Cap Index  (VBR)
3. I Shares TR MSCI EAFE Index (EFA)
4. Vanguard Emerging Markets (VWO)
5. iShares Barclays TIPS Bond (TIP)

The portfolio includes four equity  index funds including a total US stock fund, a small cap US stock fund, a Europe, Asia, and Far East developed markets fund, and an emerging markets fund. The fifth fund was a US Treasury Inflation Protected Securities fund. I expected that the stock funds, which were varied in size and geography, to have lower correlation coefficients. (In other words, their returns would not move in lockstep). To my surprise, with the exception of the Government TIPS fund, all of the other stock funds were closely correlated. In fact the lowest correlation coefficient among the stock funds was .82 for the Emerging Markets (VWO) and the small cap index (VBR). That means when the emerging markets fund goes up or down 10 percent, the small cap index might only go up or down 8.2 percent. That’s not too much benefit from diversification.

In creating an optimal portfolio, I selected five years historical returns and standard deviations for the funds upon which to build the efficient frontier and put in a risk free rate of 2.1 percent.  Since I do not want to include short selling*, I set the maximum weight for any one fund at 100 percent and the minimum weight at 0 percent. According to my stipulations, the optimal portfolio included only a 61.7 percent stake in the Total Stock Market ETF (VTI) and  38.4 percent in the TIPS fund (TIP). There was no allocation to the other three funds (when short selling was excluded).

The optimal weights for the best return for the least amount of risk with this five fund portfolio allowing short selling was 100 percent sold short in the EAFE index fund, and short selling 1.6 percent of the emerging market with positive percentages in the other three funds. In plain English, the optimal portfolio recommended by the efficient frontier model recommended borrowing shares in two funds and buying them back if the price decline, a very risky investment strategy (short selling).

LONG TERM HISTORICAL STOCK AND BOND RETURNS

What’s an Investor to do?

From my knowledge of economics and the current global scenario, I would expect that the European markets to rebound from their debt problems and exhibit better asset returns in the future. The efficient frontier calculation, based on the recent five years, takes into the account the poor performance of European assets during the economic downturn. But, it also assumes these international stock funds will continue to exhibit poor returns.

I would not predict this performance for the future. And that is what is wrong with the efficient frontier.

The efficient frontier model is based upon historical data, including returns and risk. There is no guarantee that the historical performance will continue into the future. The takeaway is this, do not put blind faith in any model. As I’ve said many times in the past, it smart to pick out an asset allocation you are comfortable with and stick with it until your personal situation changes. Make sure to throw in a bit of real estate and maybe even a smidgen of a commodities fund along with diversified bond and stock funds. Correlations between asset classes will change and the truth is we only know about the changes in hindsight. And why not add a bit more to the funds during cyclical downturns?

Even if assets become more correlated, diversification is the best tool we have to boost returns and minimize risk. Diversification isn’t perfect and doesn’t work seamlessly all the time, but it is better than putting all of your eggs in one basket.

*Short selling is the selling of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they sold short. (Investopedia)

Thoughts? How is your portfolio allocated?

image credit: google images_investor craft