Money Saving Tips For Low Income Earners

Yesterday, I was chatting with a close friend on investment and savings and this is what she told me. “How on earth do you expect me to invest, leave a lone save, any money when I’m just struggling to feed my family and pay my bills.” This did not only came to me as a shock but also left me wondering, do low income earners save? And in case they do, just how much can you actually save from your peanut income?.

I’m very much afraid that some people are going to be shocked at sometime in their life. However little you earn, you need to save money to be able to invest and to cater for your future financial needs. Right now, saving may seem like an unfeasible task. But , I can assure you that if you don’t save something now, you are never going to get out of debt and will never have anything to invest.

If you have already launched your way to a debt free life, kudos!! You are on a right track to financial freedom and the next step now is to start saving. You should stop looking at saving as just a good thing to do but as an obligation to yourself and to your family.

With a low income, a family to feed and oodles of other responsibilities to attend to; your life may look so messy that the last thing you would want to think about is saving. However, saving is another responsibility which I urge you not to forget. Do not be confused or stressed by this assertion. You can still budget with the little you have and, to your surprise, be financially independent and happy.

1. Budgeting: Budgeting your earnings, especially when you are on a low income, is financially wise. The budget will not magnify your earnings but will show you how much you earn. Crazy? By budgeting, you will have to list down all your sources of income. You will also get to know how you spend your cash and whether you spend more than you earn. With a good budget you will be able to get the best out of your small income and even set aside something little to invest.
2. Prioritizing: Making a list of the commodities you require starting with the most basic. Of course food will top the list, followed by shelter, clothing, transport e.t.c So make sure you have enough food first.
3. Stop Unnecessary Spending: Only buy things you actually need. Do not persuaded by the peer pressure to buy all the expensive brands in the market or be fooled by your longing for a classy jewelry. Do not buy anything which is just going to lie in the house unused.
4. Go For Value: Do not just enter the shopping mall and pick whatever good you first lay your eye on. Take your time to window shop, compare different prices and bargain to ensure you are getting the best deal for every cent you spend.
5. Planning Ahead: We all pay for the loads of regular bills: rent, water, electricity, TV etc, whether you are earning little or much. However, it is very essential, especially for low-income earners to plan ahead for these bills. Immediately yo receive that paycheck, it is good to list down and subtract all your bill expenses before embarking on any expenditure. This will offer some financial relief and ensure that you pay all your bills promptly. No body wants to explain to the landlord that you spent your rent on chocolate!!!
6. Financial Discipline: You have finally come up with an organized budget and now you can make sense of every cent you earn, you should now stick to that budget. Being financially organized and sticking to your budget will not only help you cut on unnecessary expenditure; but will ensure that you spend within your means and certainly have something extra to put into your savings account. 

 Once you start saving, you will discover that it is very easy to do. In fact, the only question you will be asking yourself is why you didn't start early. However don’t kill yourself over that, it is not yet too late. Start saving now for a better tomorrow. You can’t invest if you do not save. Therefore, saving is the first process in the long road to financial freedom. 

Retirement Planning Has More than Buying Pension Plans

When Shakespeare posed the question: 'What is there in a name?' he considered a name as being insignificance. However, when it comes to investment and personal finance, names matters. No wonder fund houses constantly come up with catchy names to lure investors into different plans. Retirement plans and children plans, just to mention a few.
Names have so much influenced investment schemes that investors have come to believe that they only need to invest in pension plans or IRA plans for their retirement. But this is far from the fact that retirement planning is a totally different ballgame.
Is planning for retirement all about paying your IRA contribution and/or buying pension plans?
Certainly no. However, is not surprising to hear people talk of having bought a pension plan for their retirement.
Then, what is retirement planning all about? The heart of retirement planning is building of a corpus that will ensure you enjoy a rather cushy cozy life during retirement. You should start your retirement planning as early as possible, may be from your first day of employment.
The benefits of starting early are twofold: (i) You will take advantage of the power of compounding and (ii) It helps you overcome the vagaries of economic cycles. When Shakespeare posed the question: 'What is there in a name?' he considered a name as being insignificance. However, when it comes to investment and personal finance, names matters. No wonder fund houses constantly come up with catchy names to lure investors into different plans. Retirement plans and children plans, just to mention a few.
Names have so much influenced investment schemes that investors have come to believe that they only need to invest in pension plans or IRA plans for their retirement. But this is far from the fact that retirement planning is a totally different ballgame.
Is planning for retirement all about paying your IRA contribution and/or buying pension plans?
Certainly no. However, is not surprising to hear people talk of having bought a pension plan for their retirement.
Then, what is retirement planning all about? The heart of retirement planning is building of a corpus that will ensure you enjoy a rather cushy cozy life during retirement. You should start your retirement planning as early as possible, may be from your first day of employment.
The benefits of starting early are twofold: (i) You will take advantage of the power of compounding and (ii) It helps you overcome the caprices of economic cycles.
Your First Step
If you are in your late 20's or 30's, the first step is to buy a house. Yes, you got that right. Many critics of the real estate will point out to its lack of liquidity. This is quite a discouragement for any one who wants to earn a living from his investment.
To overcome this challenge, however, there are two things you should do: (i) Never pack all your funds in real estate. It has nothing to do with the "never put all your eggs in one basket" saying but you need to have some some liquid cash for your daily living. (ii) Never rely on fulfilling your immediate needs by cashing out on your house.
Through real estate you will build a capital, which is not only inflation proof, but one which will also adequately cater for your financial requirement during old age.
The matter doesn't end here, though. You can proceed to the next step which involves doing what the mutual fund or insurance companies do with your money while offering you a pension plan - building corpus. On your own or with the aid of a financial planner, you can build your investment corpus. Now, how will you build your retirement investment corpus?

1. Buy Low Risk but Performing Stocks or Mutual Funds: Directly purchase low risk conservative stocks that are performing. Stocks are a good source of constant cash flow, through regular dividends, and their appreciation in value over time will accumulate into a good retirement corpus. However, if you are not a fun of stocks, you can invest in mutual funds.
2. Invest In Gold Bullion: Gold has over time cemented its position as the preferred investment option among many successful investors. As the world move from one standard currency to another, gold investment has maintained its significance as an instrument which can generate returns capable of beating inflation. So, instead of stuffing your closet with gold ornaments, why not just go for the gold bullion?
3. Invest in Quality Debts: These are debts issued by the government, either directly or indirectly. So invest in long-term bonds and fixed deposits which are offered by financial institutions from time to time. This will reduce your overall portfolio risk through portfolio diversification.
4. Invest in New Products: Look out for new investment opportunities which are brought about by changes in economic scenario.

With your retirement corpus built, your retirement planning is 90% complete. The next step will be to deploy the capital. If desired, you can also buy annuity plans, after building that capital.

Now is the Time to Refinance or Buy a New House

When we bought our house, some years back mortgage rates had gone up significantly. In fact, the rates a month before and a month after we bought our house were varied by more than one and a half points. Anyhow, our interest rate ended up at high of 6.25% for a 30-year fixed. I’ll admit it was quite good then. Now, it is not so great.

Now is the perfect time to buy a house or refinance. Following the housing bubble burst, housing prices have considerably dropped. And now that the mortgage rates have also went down, anybody in the market looking for a new house is very lucky. Wherever you go all you see is foreclosures and houses-for-sale and there are pretty good chances that you will get one at a golden deal. So, if you have decided to buy a new house or refinance here are a few quick tips to consider:

Be familiar with your FICO score:

I think it will be much easier to remember this; your FICO = the rate you able to get. Right now, even if your FICO score is below 650, your chances of getting a rate as low as 5.5% are high.

Fix any Errors In Your Credit Report:

When looking at your credit report, don’t be confined only to your score. Read the whole report carefully. If you notice any errors, glitches or mistakes, be sure to have them straightened out straight away so that they don’t diminish your chances of getting approved for a low interest rate loan.

Know Your Lender:

As I always advice, invest your time before you invest your money. Do your homework on your lender and make sure you are not paying more than necessary in fees, points and or origination cost.

Thoroughly inspect the house

Before you buy a house, make an effort to carry out your own independent thorough inspection. This will enable you understand what you are spending you hard earned cash on. If you are refinancing, it is good time to check and determine what your house is worth. Has it depreciated? Has it appreciated? How much?

The Most Importnat Investment Advice For The Newlywed

I have repeatedly discussed stocks, bonds, annuities and 401 (k) as my favorite investment topics. Unfortunately however, for the newlyweds, the most important investing topic is none of those – it is debt.

Debt is the exact opposite of investment. Investment involves passing over your hard earned cash to someone else to use it for their own business and hope for some return. But when you borrow money, someone is investing in you.

That, however, does not mean that all debt is bad. Once in a while you will find yourself in need of cash and the only viable option will be to borrow. Nevertheless, mixing debt and investment is the worst blunder you can do (with a few exceptions), especially if you are newlywed.

It is, therefore, not surprising that most financial advisers for newlyweds argue that debt and bad spending habits can ruin your new marriage. Let’s assume you or your bride/bridegroom to be has a student loan that charges 6.8 percent interest, which is the current rate for unsubsidized Federal Stafford Loan. Servicing this loan is the almost equivalent to earning 6.8% on risk free investment (the effective rate is slightly lower due to tax deduction on the interest).

Now, what’s the most you can earn on a risk-free-investment? Roughly 2.25% on a five-year CD (Certificate of Deposit) rate. The same goes for car loans and credit card debts. It is not logical to start investing in bonds and stocks when you can get a guaranteed risk-free return by simply paying the debt.

Most couples find it stressful to discuss their debts, partly because it is always printed out in black and white and is clearly visible for anyone who has eyes. It is also painful but obvious whose debt is bigger and (for peace in the house) that’s not a contest you would want to participate.

Probably, by now, you and your fiancé already know your debt situation, but if not, now is the perfect time to discuss how you will conspire to wipe it out.

Oh, and put aside some emergency fund, too.

A few Exceptions to the “Pay off Debt First” Rule

Having coughed out the unpleasantness of debts, let’s now discuss a couple of reasons why you may still want to proceed and start investing - even before you clear your debts.

To get the 401(k) Match: If your employer is offering you a 401(k), take it without looking back. Even if you have high interest debts, turning down a 401(k) match would be akin to turning down raise. I plead with you not to do that.

Consider Your Mortgage Attitude: This one is now one for debate. If you want to buy a house some people (me included) would contend that should first embark on paying off your mortgage loan and neglect investing – at least for some time. Others will also give you an exact opposite advice: Mortgage rates keep going low, you can therefore refinance when they go even lower and you will likely earn higher return on your investment (RIO) than the interest you pay on mortgage.

You should sit down with your fiancé and come up with a plan which suits you. If you settle on the “pay it down” option then you may consider a 15 year fixed-rate mortgage plan. You will get a low interest rate and compel yourself to pay down the loan quick.

Look out for my next post on Advance move for newlyweds. 

When Should I Start Investing?

My Sundays are always occupied by a hell of activities and therefore, today wasn’t any different. Given that Saturday night is “Movie Night” waking up on Sunday morning is usually a big task. However, being ‘staunch” church goers, everyone in the family made it up by 10 am. My 10 am alarm was a bitter reminder that the day had just broken and so I woke up to face my most boring day – Sunday. As usual our mass takes 2 hours and so means by 1.00 pm we are through. Mass is somewhat a boring session for young people but we rarely have a choice. What about following that with a 3 to 4 hour shopping? Pushing the trolley behind your mum/dad as they collect this and that meant to be used in the house?

Despite the many boring activities which fill up my Sundays, it still remains a day I look forward to. Sunday is the only day I get to sit with my dad to ask him question pertaining to investment, family life and employment. This usually happens shortly after shopping, mostly in restaurants, as we gulp a few bottles of sodas. This is the only time we have a father-son chat as the ladies (mum and sis) are busy in the saloon.

Today my dad whispered something into my years. I didn’t get it at first and wondered why he had to whisper it, in the first place. “You should start investing almost immediately….” he repeated upon request. These words stuck me hard; I have only just landed my first employment two months ago and know investment will follow – but not now, of course.

Perhaps you have been asking the question: “when should I start investing?” but, as is expected, have not yet settle on a satisfactory answer.  We are definitely not alone.  Most individuals push investment to the back burner simply because they aren’t sure of when, where or how to initiate the process of building their nest-egg.

As a matter of fact, many people want to start building their investment portfolio, but just aren’t ready to take the plunge. Even if they were ready; they lack the knowledge of where to start. In this post, I am going to focus on the readiness question.

The most apparent answers

People are often reluctant to tie up their money in long term investment until they have accomplished a couple of milestones.

1. High interest debt is paid off: You first priority should be to get rid of your high interest consumer debt before embarking on investment. Some debts are just annoying like the student loan and mortgages. If possible, put your investment plans on hold and clear these loans first.
2. Building Liquid savings Buffer: It is very important to have some money set aside for use in times of need. Therefore, make sure you have enough money saved in a high interest paying savings account before you start investing.

Apart from emergency savings and debt reduction, there other several factors which may influence your investment decisions.

Other important factors to look into:

• Job status: Is your current job stable enough? If you have a stable job, a solid savings and zero (or near zero) high interest debt, then you can start thinking of locking some of your income in your retirement plan. If your job situation is still shaky and you may face the axe any moment, you would rather stash more backup funds into your savings account.
•    Age: There is no precise age to start building your nest-egg. However, the sooner you start the better. Having said that you need to get a stable job, pay all your debts and even have adequate liquid cash in your savings account before you start investing; my argument on age may sound like a contradiction. It is not. If you can satisfy all these pre-requisite conditions, then start investing “almost immediately”. Starting early will help you take advantage of compounding.
•   Children: Having children may tempt you into saving for their education. However, this shouldn’t come ahead of investing or retirement savings. Consider remitting 15% of your monthly income into your retirement scheme before you start saving for children education.
• Insurance policies: It is vital to have the proper type of insurance at each stage of our lives. Our investment decision should not be made without balancing the investment strategy with an insurance coverage appropriate to our situation. Disability insurance health insurance, life insurance cover and long-term cover are all important and should be considered together with the decision to invest.
• Marital Status: My dad’s argument was that it is good to start investing before I get married as this protect me from the “wastefulness”. Women are known for their addiction to spending, sometimes unnecessarily. The old man therefore sees them as a distraction from achieving lifelong investment goals. However, I feel investment decision is a tricky one and therefore you may need a second sound mind to help you through. This does not mean that you should wait till you marry to invest. If you have your better half and you are considering starting any kind of investment, it is better to involve them.

In conclusion

While there are numerous other factors to put into consideration before you start investing, the list above can act as a good foundation and help you start in the right direction.

Making financial decisions require sound reasoning and cautious movement. Always ask questions and consider as many influencing factors as possible. If necessary, consult a professional.

You may also want to read The Three Killer Investment Myths to avoid