Tag Archives: investing

Guest Post on The Frugal Farmer

credit: freedigitalphotos.net by Stuart Miles

credit: freedigitalphotos.net by Stuart Miles

I have a guest post featured on The Frugal Farmer today which talks about how to invest in real estate. Here is an excerpt of the post, please click on over to read the full post!

There is an allure to making it rich investing in real estate. There are late night infomercials telling you they can teach you to build a real estate empire. There are shows about making big bucks flipping houses. Real estate investing is NOT a get rich quick scheme, but it is a great way to build wealth. If done right, investing in real estate has many benefits including having monthly cash flow, tax benefits, having your tenants’ rent check pay the mortgage, leverage and appreciation. There are many ways to invest in real estate but for purposes of this post, I am going to focus on buy and hold real estate investing.

Click over to read the rest!

Successfully Launch Into Adulthood

after college

A few of my co-workers have mentioned that they are postponing their retirements so they can “help out” their adult children or soon to be adult children. I think it’s great when a parent can lend a helping hand to their children as they transition to being an adult, although teaching them financial skills is often better than just giving them a handout. I also have no problems with a child living at home with their parents as they settle into adulthood, as long as they use that time to improve their financial circumstances by saving and investing their money. But by taking care of every aspect of a child’s financial life, he or she will never learn these important life skills. Here are a few things that one needs to learn financially as they become adults:

Credit Cards

Many people entering adulthood already have credit card debt along with student loan debt. You may think that this is the norm, and it may well be, but don’t treat it as such. Treat it as an emergency! Having high interest credit card debt will set you back financially. If you have credit card debt which was not accrued paying for life essentials like food and shelter or getting to and from work, immediately cease spending on non-essentials until you have paid off that debt. Contrary to what some may say, credit cards are not inherently evil. A credit card is only a tool. If you pay your balance off every month and having a card does not tempt you to spend more than you usually would, it can be a great tool. (If you cannot handle the responsibility of a credit card then I’d definitely recommend using a debit card/cash only) Many smart users of credit cards earn lots of points which can be redeemed for travel or cash.

Credit Score

Another important aspect of having a credit card and using it responsibly is that it builds your credit score. Why is a great credit score important? You want to buy a house? You get the best interest rates with a high credit score. Same goes for financing a car. You have student loan debt like many this generation do? You better have an excellent credit score if you want to refinance your student loan to a lower rate. You will only qualify for credit cards with the best bonuses if you have a high credit score. Many employers will also check a prospective employee’s credit score.

Budget or Anti-Budget

So you’re an adult now and you’ve got bills to pay. You’ve got to make sure that you have enough money to cover your expenses. If your expenses exceed your income, then you’ve got a problem. Making a budget probably isn’t much fun and many people scoff at it. However, with many online budgeting sites, like Personal Capitaland Mint, it makes budgeting easy to do. No need to break out your excel sheets and list out all your expenses. I will be honest though, I don’t really budget, but instead I have an “anti-budget,” which is a term coined by Paula Pant who blogs at Afford Anything. I list out my expenses and figure out how much I should be able to save. I make sure I save that amount each month and don’t stress about my spending. Whether you decide to budget or use an “anti-budget” will be determined by your personality.

Live below your means

I remember many of my friends who graduated from college and immediately went on a spending spree. If you have a full-time steady job, you probably have more discretionary income than at any point in your life and it’s tempting to inflate your lifestyle. However, it’s in your best interest to continue living like a college student. Buying a new car, expensive outfits or even buying a house does not make you an adult! Like I said above, if your expenses exceed your income, you’ve got a problem. You’re young and saving for the future may be the furthest thing from your mind, but this is the best time to start saving and investing. The magic of compounding works if you give it time, which is why it is important to start early.


I was talking to a friend, who is in her 30’s about investing, and she said that her mom handles that for her! And, no, her mother is not an investment advisor. Maybe you don’t have an interest in investing, but it’s in your best interest to learn about it. No one will care more about your money than you do, plus it is something that is important for your future financial health, so you might as well learn about it now. How do you expect to save enough to retire if you don’t have a basic understanding of investing? Living below your means and saving is important, but it is not enough! You want to make your money work for you. Stuffing it underneath your mattress won’t earn you anything. Neither will putting all of it in a savings account earning less than 1%. Spend a few hours learning about investing by reading the Bogleheads website or JL Collins’ stock investing series.

Quick Tip: When it comes to paying bills and investing/saving, make it automatic. It makes life easier. When it comes to bills, you won’t worry about late payments. As to investing and saving, it’s a great way to pay yourself first so you avoid the temptation of spending it. It is also a great way to get into the habit of saving and investing. However, make sure to review your statements to make sure everything is correct.


Wait, I thought we were only talking about finances? Cooking is an important life skill, and it can also save you a lot of money. Cooking your own food at home is not only more affordable, but it is healthier. Cooking is not rocket science, if I can do it, pretty much anyone can too.

Learn skills

Just because you’re out of college, doesn’t mean you should stop learning. Learning life skills is important, but so is learning skills that will help you advance in your career. Learning new skills is very convenient as you can do it online using Coursera or Udemy. For certain courses, you may be able to receive a certification as well.

Side Hustle

You’re already working a full-time job, who wants another job? Maybe you want to earn some extra cash to build up your savings or pay off debt. Employees are expendable these days so it’s a good idea to have another source of income. Also, having a side hustle might feed your entrepreneurial spirit or passion and possibly replace your full-time income. Having a side job is a lot more flexible nowadays and often will not require you to take a job with set hours. Here’s a list from The College Investor of 50 ways to make a side income. You can also check out a few more ideas from David Carlson who runs the blog Young Adult Money as well as his book Hustle Away Debt: Eliminate Your Debt by Making More Money.

What other financial skills should young adults learn as they transition into adulthood?

Mind-blowing Ideas Found Reading Blogs

credit: Freedigitalphotos.net

credit: Freedigitalphotos.net

Even before I started my own blog, I was a blog reading addict (mostly personal finance blogs). I’ve learned so many great things and gotten so many ideas from reading blogs, which include ideas that the main stream media often don’t talk about. I was tired of reading the recycled articles about making a budget and contributing to your 401K up to the employer match. I didn’t want to read any more stories about how early retirement was almost impossible (and by early they meant 50’s) and that even retiring at 65 might be a pipe dream. Here are some of the amazing things that I’ve learned thus far:

Retire in your 30’s

I always thought that, like most people, you get a job, work for 40 some odd years and retire in your 60s. I thought I was doing an awesome job saving for retirement when I opened an IRA account and increased my 401K contribution over the amount that my employer matched. Since I was working in government where I had a pension, I started thinking that retirement at 55 would be possible and thought that was incredibly awesome. Now when I stumbled upon the Early Retirement Extreme blog where the blogger, Jacob, said that he retired after working 5 years and was not yet 30, my mind was blown. He was a little extreme with his frugality, but then through Jacob’s blog, I found Mr. Money Mustache and his story really made me think that early retirement was possible. He went into detail about how he and his wife retired early, and argued that early retirement didn’t mean a life of deprivation, explaining often that he lives a very fulfilling life. I’m not going to be able to retire in my 30’s, but it’s possible I get there in my 40’s.

Simple, Stress-free Investing with Superior Results

I have talked about index investing many times on my blog. I believe in it and I am glad that I found this strategy. It wasn’t always this way though. Like many others, I used to chase returns by trying to a hit run by investing in the next hot stock and by investing in mutual funds which had the best returns. Now I realize that it is difficult if not impossible to consistently beat the market, so I just stick with low-cost index funds. Warren Buffet has encouraged most investors to just invest in low-cost index funds and I’m going to take his advice. This investment approach has also reduced my stress. The market drops a few hundred points! There’s a recession coming! Britain is exiting the EU! I’m investing for the long haul and I don’t really care about the stock market fluctuations. I continue to invest and stay the course. I’m not exactly sure when I first learned about index investing but it was likely on the Bogleheads’ forum.

Don’t Pay Taxes

You know how the saying goes that “there are only two guarantees in life: Death and Taxes.” Well, what if you could pay very little or no taxes? Wait wait wait, I’m not saying you should be like Wesley Snipes and get convicted of tax evasion. There are legitimate ways for regular working Joes to shelter our money from taxes. When I read the blog post title $150,000 Income, $150 Income Tax and Never Pay Taxes Again, I was very interested. We often hear about maximizing our returns when investing, but most times we ignored tax savings. Taxes are boring and complicated. Nobody really wants to deal with them. Heck, most people I know have no idea about their own taxes! They send their tax documents to the accountant who files the taxes for them. The tax policy in the US targets people with earned income so if you reduce your taxable income by “making your take home pay as small as possible,” you can avoid paying a good amount of taxes. Justin who blogs at Root of Good and wrote the post about paying only $150 in income tax with a $150,000 income, suggests that “you do everything you can to make your take home pay as small as possible” by maxing out tax advantaged plans like Retirement plan contributions (401k, 457 or 403b plans), flexible spending accounts, health savings accounts, and others. I’m pretty sure that after I read this post, I immediately logged onto my 457 plan online and maxed out my contributions.

The post about never paying taxes again was found on the Go Curry Cracker blog and it gave four simple rules to eliminate taxes:

◾Choose leisure over labor
◾Live well for less
◾Leverage ROTH IRA Conversions
◾Harvest Capital Losses AND Capital Gains

I’m especially a fan of choosing leisure over labor to eliminate taxes. That’s a win win! This advice is geared more towards those seeking or near early retirement, which is what I often dream about.

Out-of-State Real Estate Investing

I always wanted to invest in real estate but it didn’t seem possible because real estate was so expensive in the area where I lived. When I read that the blogger FI Fighter, who also lived in a high-cost-of-living-area, invested in real estate in states where the prices made more sense and where the properties would cash flow, I was very intrigued. I was somewhat skeptical at first but after some due diligence and research, I jumped in and also purchased a rental property out-of-state.

Travel for Free

I used to focus on earning cash back on my credit cards. When I read bloggers write about earning travel points on credit cards and going to exotic locations for nearly free with points, I didn’t really pay much attention because I always figured it was just too good to be true. There was a catch, right? However, after I read more and more stories of people were doing it, I was of course, interested to see if I could get in on it too. After learning some of the “tricks of the trade” with travel hacking, I’ve been able to score some free flights and have stayed at hotels (some pretty luxurious ones) for pretty much free. If you are someone who overspends with a credit card, travel hacking is not a good idea. If you are disciplined with your spending and are an organized person, you can definitely take advantage of travel hacking. I think I first started reading about travel hacking on the Flyertalk forums, but the information can get pretty technical and it might be intimidating to newbies. I think from that forum, I found the Million Mile Secrets blog which is a great resource for those interested in pursuing this. If you want to learn more about this area, there is even a free online course about the topic on Travel Miles 101. If you want even more hand holding, you can contact Holly from Club Thrifty with your ideal itinerary and she will help you create a “credit card rewards-fueled plan that can make your travel dreams come true”

You Can Really Make Money Online!

I always thought that there was an opportunity to make money online but I didn’t know how, plus I am not the least bit technically inclined. Reading articles where bloggers reveal how much money they earn online really opened my eyes to the opportunities out there. Check out the income reports on Club Thrifty and Making Sense of Cents and tell me you don’t want to learn more about this possibility. I definitely am and will need to learn more about how to earn some money online! The best thing about making money online is that you can be often work from anywhere and your schedule is a lot more flexible. Also, if you do it right, a lot of the income can be passive.

Drastically Reduce the Cost of Your Cellphone Service

I was in a family plan with AT&T and had an employer discount. I thought that was the best that I could do. There was no other way to reduce this expense unless I went with some unknown network which was probably unreliable. Then I read Is Your Cellphone Plan Ripping You Off? on the Saving the Crumbs blog and I knew that I could saved a lot of money by switching. Being that Cricket Wireless uses AT&T’s network, I figured there was no downside to the switch. With Cricket Wireless’ family plan, you can have 5 smartphones with unlimited talk and text and 2.5 gigs of data (after which your data speeds are reduced) for $100. That is less than half of what you would pay if you had a similar plan on AT&T. So why wouldn’t I switch? I’ve also heard great things about other plans like Republic Wireless and Ting which are a lot more affordable that the traditional plans, but I haven’t tried them. If you’re interested, you can check out the review on Republic Wireless here, and the review on Ting here.

Consider an Adjustable Rate Mortgage
When I was purchasing a co-op, I went to the bank and the loan consultant just assumed that I was looking for a 30 year fixed mortgage. I didn’t know any better and after the housing crash in 2007, there was such a stigma with adjustable rate mortgages that I just assumed that a fixed mortgage was superior. I truly regret not doing more research about this because I would have saved a lot of money if I didn’t go with conventional advice. When I read Financial Samurai’s post, 30-Year Fixed Mortgage Loan or an Adjustable Rate Mortgage (ARM)?, I knew I made a costly mistake. Here is an excerpt of what he had to say:

“First of all, the average duration one lives in and owns a home is 7 years. If that’s the case, what on earth are you doing borrowing a 30-year fixed rate mortgage for? A 23 year + overestimation of ownership is a serious miscalculation based on the statistics at hand. With a 5/1 ARM, your underestimation is only 2 years, but you already have baked that in”

We bought a co-op which is a junior 4 (small dining alcove converted into a small bedroom). Being that our family was growing, it was very likely that we’d outgrow the apartment in 5 to 7 years. I did run the “rent vs buy” calculator and given other factors, I think it made sense to buy a co-op even given this timeline. But it made no sense to get a 30-year fixed mortgage. If I had gotten a 5/1 ARM, I’d reduce my interest rate by 1% saving over a thousand dollars a year. *Face Palm*

Do you see anything here you might implement in your life? Have you read anything tips or ideas on other blogs that was really mind-blowing? If so, please share in the comments!

Investing: So Easy A Dead Person Can Do It.


In a previous post, I said that when it comes to investing, it is better to be lazy and cheap. More specifically, I argued that low cost index funds worked best and that you should have a “hands off” approach, ignoring the daily ups and downs of the stock market. Apparently, I didn’t go far enough and the best investing style is not “lazy and cheap” but “dead and forgetful.” You see, Fidelity did a study of their accounts to determine which investors performed the best. They found that the best performing accounts were from investors who were DEAD! In second place were investors who had FORGOTTEN they had accounts at Fidelity.

Basically, what this study from Fidelity teaches us is that we should keep our hands off investment accounts. The best investors did nothing and were of course not buying and selling. Too often, we think that we can time the market and buy and sell based on our analysis. We’re usually wrong. Not only are we wrong, but buying and selling stocks will often increase transaction costs and is tax inefficient.

Back before I was mainly an index investor, I also tried chasing stock returns. In the spring of 2000 while I was still in college, I remember there being this internet stock craze. Everyone was making money investing in dot-com companies. Everybody thought they were experts because every stock they bought went up. I begged my father to help me open a stock trading account and to help fund a portion of the account. Unfortunately for me, I decided to join this frenzy exactly when the dot-com bubble was about to burst and lost half of the money in that portfolio. My timing was impeccable.

In the mid 2000s, I purchased shares of stock in Starbucks. I mean Starbucks was everywhere, they were expanding quickly and everybody was buying Starbucks coffee. People would joke that you could open a Starbucks store within a Starbucks store and that store would still be profitable. After the 2008 recession, I sold all my shares of that stock at a loss when stocks were tanking and the economy was in the midst of a terrible recession, thinking that most people would shun $5 lattes with money being so tight. A bull market took place not too long after I sold the stock and the price of that stock has more than tripled from the price I sold it at. I could list many more instances where I lost money on buying individual stocks, but this post will run too long! I have also made money on individual stocks, but the losses outweigh my gains.

Maybe you’re just a horrible stock picker. Why don’t I just invest with the pros?

I’m sure many readers may be thinking that, and yes, it is very likely that I am bad at picking stocks. But is entrusting your money to the professionals the best alternative? In 2007, Warren Buffet made a bet of $1,000,000 with a collection of five hedge funds of funds chosen by New York-based Protégé Partners (the winner to donate the money to charity). Buffet bet that a low-fee index fund would beat the expensive hedge fund chosen by Protégé Partners over 10 years. Buffet invested in Vanguard’s 500 index fund which is an index fund that tracks the S&P 500. During the first four years of the bet, Buffet was trailing the hedge fund managers, but has since pulled ahead…WAY AHEAD. At the most recent Berkshire Hathaway shareholding meeting, he revealed that The group of hedge funds are up a cumulative 22 percent, while the S&P 500 has advanced close to 66 percent. He admitted that it wasn’t that the hedge fund managers were bad at picking stocks, it was just that the fees charged by the hedge fund are so high it drastically cuts into the returns. On the other hand, index funds, especially Vanguard’s index funds, have very low fees.

Let me share a few quotes from Buffet which I found fascinating:

“There’s been far, far, far more money made by people in Wall Street through salesmanship abilities than through investment abilities.”

To really drive home his point, he referred to two investment managers employed by Berkshire Hathaway, and said that they each manage $9 billion of the company’s money, and that if they were compensated as much as hedge fund managers usually are, “they’d be getting $180 million each merely for breathing.”

Buffet also said:

“By periodically investing in an index fund… the know-nothing investor can actually outperform most investment professionals. Paradoxically, when ‘dumb’ money acknowledges its limitations, it ceases to be dumb.”

And one last quote, not from Buffett but from Princeton professor Burton Malkiel, who wrote in his book, A Random Walk Down Wall Street:

“A blindfolded monkey throwing darts at a newspaper’s financial pages could beat most experts,”

Resources I recommend if you want to learn more about index investing:

Go to the Bogleheads wikipage which is investing advice inspired by Jack Bogle, creator of index funds. You can also check out the Bogleheads book:

I also recommend reading the Stock Series on Jim Collins’ personal finance blog or get his recently published book:

Are you afraid of investing in the stock market? Do you invest in index funds?

Is There a Penalty For Contributing to a 529 Plan?

529 NYS saves
A little over three years ago when I got the wonderful news that my wife and I were expecting, I already started thinking about college. Yea I’m a planner. You’ve got to start planning early right? I opened a 529 plan without much thought. That’s what everyone does to save for their child’s college tuition and expenses I assumed. Well it seems that there are some people who think otherwise.

Recently, I overheard a conversation where a grandmother offered to contribute to her grandchildren’s college savings account as a gift. The father of the children informed the grandmother that he did not open a 529 account for his kids because he heard that having such an account would reduce the amount of financial aid that the kids would receive. The comment raised my eyebrows but I didn’t think much of it. I just assumed the father was making an excuse because he never opened an account.

Not too long after I overheard this conversation, I was having lunch with a few co-workers, and one co-worker who has college-age children said that he regretted contributing to a 529 plan. He said that he saved all that money in the 529 plan and his daughter didn’t get much financial aid, whereas his neighbor didn’t save much and his child was rewarded with a much better financial aid package. He advised us that we’d be better off taking a home equity loan or having a grandparent open a 529 plan.

I was determined to get to the bottom of this because I didn’t want to save all this money and be penalized for doing so. So I did a little research to see whether what these 529 bashers said had any merit. Before I begin, I want to say that parents should make sure they are saving enough for retirement before they think about saving for their kid’s college education. There are always lower cost options for higher education. There are also student loans, but there are no retirement loans.

First, let me go through the pros and cons of a 529 plan


-Your money grows tax-deferred
-When you withdraw the money for qualified college expenses, you are exempt from federal taxes
-Some states offer a tax deduction for contributions into your state’s plan. I live in New York which is a highly taxed state so the tax deduction is a great benefit. I learned from Holly who blogs at Club Thrifty that Indiana offers a 20% tax credit for contributing into its 529 plan which is even more awesome.


-If your child does not go to college and the money is not used for qualified college expenses, there is a penalty to withdraw the money. You can, however, transfer the account to another child or grandchild, or even to yourself.

Now let’s get to the arguments made that there is a penalty for saving in a 529 plan whereby your child’s financial aid will be reduced.

Yes, when you apply for financial aid using Free Application for Federal Student Aid (FAFSA), it will ask you for your assets in the 529 account. FAFSA reduces need-based aid by a maximum of 5.64 percent of the parents’ asset value. So if you have $10,000 in a 529 plan, financial aid could be reduced by $564. Other assets such as a stock account, CD, and savings account are also assessed as 5.64 percent. FAFSA does not, however, consider money that is in a retirement account, a life insurance policy or your home equity (many private college do consider home equity). Assets held in the students name are assessed at a 20% rate so putting accounts in your child’s name will affect financial aid eligibility much more. While saving in a 529 plan can reduce the amount of financial aid your child may receive, 5.64% is pretty negligible when you consider the benefits of the 529 plan. I will continue to contribute to my child’s 529 plan.

Income affects financial aid much more than the assets in a 529 plan.
That is what I said to my co-worker when he argued that the 529 plan was a horrible plan. He and his wife have a pretty high income so I’m sure that played a much bigger role in the reduced financial aid. The parent contribution from income is assessed on a bracketed scale, from 22 percent to 47 percent of discretionary income, and the student contribution from his/her income on the FAFSA is assessed as a flat 50 percent of discretionary income.

How about a home equity line of credit?

My co-worker suggested that he would have been better off if he had contributed extra to his mortgage payments rather than contributing to the 529 plan. While home equity is not considered an asset under FAFSA, many private colleges will consider your home equity in its financial aid calculation. Also, with home equity lines of credit, the interest rate is usually variable so there’s a risk that interest rates will increase making the payments burdensome. There are pros and cons to using a home equity line of credit and you can read more about it here and here.

What if grandparents open a 529 plan for my child?

Assets in a 529 plan that a grandparent opened will not be considered an asset for financial aid purposes. However, if the grandparent withdraws the money from their 529 plan to pay for college expenses, that money will be counted on next year’s FAFSA as income, which may drastically reduce the following year’s financial aid package. Income is assessed at a much higher rate. One way around this issue is if you wait until the last year to use the money from the grandparent’s 529 plan.* Remember: When parents withdraw funds from their 529 plan to pay for qualified college expenses, that money WILL NOT be considered income for purposes of FAFSA.

*UPDATE: A recent rule change taking effect in the 2017-2018 school year, the base-year income on the FAFSA will reflect the student’s income from two years prior rather than one. This will allow a grandparent to use 529 assets a year earlier without impacting the student’s eligibility for financial aid.

How about using a life insurance policy to pay for college?

While reading about financial aid and 529 plans, I stumbled onto a website by a self-proclaimed college financial aid expert salesman. He said that 529 plans were not the best place to save for college because the stock market is too volatile and that there are too many fees. He recommended investing with a variable life insurance policy because it is not counted as an asset when determining financial aid. First let me address the claim by this insurance peddler…I mean college financial aid expert…that the stock market was too volatile. A 529 plan is only a vehicle, you can invest in aggressively or more conservatively based on your risk-tolerance. There are different investment options where you can invest in a mix of stocks, bonds and even CDs. The Finance Buff wrote an interesting post regarding age based 529 plans where the investment becomes more conservative the closer your child gets to college age.

The argument by the “financial aid expert” that investment fees are too expensive was even more hilarious being that he was recommending a life insurance policy, which often have very high fees, expenses and premiums. I’m not sure about other 529 plans, but New York’s 529 plan uses Vanguard funds which have ultra-low fees and expenses. The only truth about investing in a life insurance policy is that the assets there do not count as an asset. However, in my opinion, the cons clearly outweigh that one pro. So if someone suggests taking out a life insurance policy to pay for college, please run for the hills.

Let me just note that some colleges use their own formulas, I mainly went over how the feds do it on FAFSA. Also, I am not an expert on this topic (But at least I’m not a self-proclaimed financial aid expert who peddles life insurance). Make sure you do your due diligence and seek advice from a reputable financial advisor or accountant as these issues can be complicated.

Check out these resources to do your own research:
The College Solution
Fin Aid
Saving For College
How are you saving for your child’s college education?