Reuters Money
Searching for yield? Think savings bonds
Yields on certificates of deposit, Treasury bonds, and other interest-bearing securities have gotten so low that a mundane investment usually associated with birthdays and bar mitzvahs looks enticing by comparison.
But if you’re thinking of buying Series I savings bonds you might want to do it soon, since new regulations set to take effect next year will limit purchase amounts and make them harder for many people to buy.
Thanks to an uptick in prices for gas, food and other consumer goods, the bonds — which peg their yields to inflation — carry an annualized yield of 4.6 percent. By comparison, the average rate on a one-year CD is around .75 percent.
The variable rate, which applies to I-Bonds issued from May through October, consists of two blended components: a fixed rate that stays the same over the entire 30-year life of the bond and a rate pegged to the Consumer Price Index for All Urban Consumers (CPI-U), which changes twice a year.
The rate will re-set on Nov. 1 and based on recent inflation numbers would come in at around 3.3 percent according to Tom Adams, author of the book Savings Bond Advisor. While that’s lower than the current rate, which lasts for six months on bonds purchased through October, it’s still better than most other alternatives out there.
“People should look at I-Bonds as inflation insurance,” he says. “And right now their yields are quite attractive, especially compared to other types of interest-bearing investments.”
One drawback is you have to hold the bonds for at least a year, and you’ll forfeit three months of interest if you cash them in before five years. But even after the interest penalty, I-Bonds are still a better deal than a low-yielding CD.
Want to put your kid on road to Millionaire Row by 21? Here’s how
While some youngsters long to become rock stars or Hollywood heavyweights, others now gravitate towards another stripe of pop-cultural celebrity: the whiz kid who becomes a millionaire before age 21.
That’s not hard to fathom now, given the likes of Facebook’s Mark Zuckerberg and other tech hotshots. But for Susan Beacham — founder of Money Savvy Generation — steady strokes and ingrained habits set kids on the course to riches. And Beacham should know: She practices what she preaches with her two teenage daughters, Allison, 19, and Amanda, 17.
“If you know how to behave like a millionaire by the time you’re 21, you may not have the cool million in hand, but you’ll be on your way,” says Beacham, whose Chicago-area company develops products that teach basic personal finance skills to school-age children. “You’ll have the seed money and have established the good behaviors.”
What follows are five key tips from Beacham, wealth management experts and at least one tyke tycoon who made his first million as a teen. Follow them and chances are excellent your child will have the tools he or she needs to make a million — along with a good chunk of starter funds to boot.
Delay gratification Kids learn early on to spend and enjoy the fruits of consumer society. But Beacham says wealth builders master their urges and live modestly. She cites a study of 1,000 kids published by the National Academy of Sciences that followed children from birth to age 32. The most impulsive “were roughly three times as likely by adulthood to report multiple health problems and addictions, earning less than $20,000 a year, becoming a single parent or committing a crime.”
“Self-control is the key to wealth,” Beacham says. “And the good news for those of us who have kids who weren’t born with the ability to delay gratification is that self-control can be learned.”
Work “Warren Buffet wasn’t a millionaire by age 21,” Beacham says, “but by the time he finished college, he’d accumulated more than $90,000 in savings, measured in 2009 dollars.” Buffett was a hard worker, and by this Beacham doesn’t mean to get a mind-numbing job, but rather to learn the ropes of wealth — especially as an apprentice or entrepreneur.
Gen”Why?”: Balancing your finances with boomerang kids
Fred Amrein has three children in their early 20s: the youngest lives in college dorms, the middle lives at home and the oldest — soon to be married — recently moved out.
The “boomerang generation”– young adults who live at home with their parents — are increasingly turning to mom and dad for further financial support. But will caring for your adult children jeopardize your retirement security?
“We’ve managed by creating a timeline that says OK, we can postpone our retirement vision to make sure their lives start out on track,” Amrein says.
Although he feels the financial stresses many baby boomers face to support their children — from paying college fees to handling everyday expenses — Amrein is luckily able to balance financial obligation with fiscal prudence. He’s a financial adviser.
“I have a niche in college funding, so I do a lot of analysis work for parents that are going through this,” says Amrein, principal at Amrein Financial. “One of the things that I do is create a timeline to make sure that they understand when the last child will come out of school and how long they have to recover, so it’s their choice whether they want to lighten the burden on their children or (draft) their priorities from a financial goal standpoint.”
In a study released by TD Ameritrade, 41 percent of young adults admitted to relying on their parents for financial support after college, which could likely derail their parents’ retirement plans. Forty-two percent of baby boomers surveyed said taking their children back into the home had a negative impact on their finances.
“We’ve seen clients spending up to $20,000 a month on their children after they’ve finished college, and they come home and aren’t doing a whole lot,” says Alan Moore, financial planning analyst with Kahler Financial Group. ” It’s killing their parents financially, and we see this with clients more often than I’d like to admit.”
Financial independence day: 5 ways to get there
No fireworks will explode if you can pull off financial independence, but it sure beats working for the man. How do you do it? Do you have to live like a monk? Give up chocolate? Move to a tent? Stop watching the Cartoon Network?
While it helps if you were an investment banker, CEO, professional athlete, movie star or inherited a ton of money, there are other ways to get there. Here are some favorite, little-heralded ways.
Debt is the Devil The biggest impediment to financial independence is unbridled debt. If you spend more than you make and get into debt, you’re working for the banks. That’s pretty standard advice, although most folks don’t know how to systematically avoid this trap. Like a demon, debt needs to be exorcised. First, get to the point where a bank is paying you to use credit. Use reward cards (they give you cash awards, airline miles or other dividends) and pay them off by their due date. Don’t carry over any balances. If you can’t pay for something when the bill comes due, don’t buy it. Don’t take out home-equity or installment loans. They are not worth it. I have nothing against carrying a mortgage balance — it’s always been called “good” debt. But the sooner you can pay it off, the better. The benefit of getting a tax deduction is overblown. A long-term debt impairs your freedom as much as a short-term one.
What can you live without? Unfortunately, most consumer societies are predicated on having it all now thanks to readily available credit. Save up to pay cash for the things you really want. Get rid of the things that provide marginal pleasure. Can you live without cable or satellite TV? Dump it and save the difference. How about that health-club membership? Did you know you could exercise at home for nothing (remember calisthenics)? Most libraries allow you to check out movies, music and books for free. Go without that morning cup of coffee or that daily lunch. Bank the savings. Make it your motto to “save first, spend later.” Fill up your short-term money market account with savings that can take care of emergencies and rainy days. Check your health, home or auto insurance. Make sure you have enough money to cover out-of-pocket expenses. As for life insurance, unless you have dependents who would be financially hurt if you pass, don’t buy it. Disability insurance is a good idea. You have a greater chance of being disabled than dying during your working career.
Save like a demon You’ve probably seen suggestions that saving 10 percent to 15 percent of your annual income will lead to a comfortable retirement. Forget it. On most retirement withdrawals — including annuity income — you’ll need more to pay Uncle Sam and then cover higher medical expenses in coming years. Start with a goal of saving one-third of your income. Open up a Roth IRA or 401(k). You pay taxes on the contributions, but not on the withdrawals. Use every opportunity you can to save with tax-deferred accounts. No amount is too small. Don’t forget to save enough to cover taxes.
Small fees take big hits I’m a raging evangelist on this issue. Being nickel and dimed by brokerage fees, commissions and middlemen expenses eats up your wealth in a big way. Some 70 percent of employees don’t even know that their employer or 401(k) fund provider is charging them fees to invest in their retirement funds, according to an AARP survey. What looks like a small amount on your statements can eat up your kitty over time. And forget about brand names, advertising and the supposed prowess of fund managers. All that matters is cost and diversification. Let’s say you have the American Funds Growth Fund of America, a popular stock fund for retirement. Then compare it to the ultra-diversified, passive Vanguard Total Stock Market Index . While I can’t predict what future returns will be in either fund, if you invested $10,000 in each fund, earned a modest five-percent annual return, you’d have saved $1,152.97 in fees and sales charges (on the “A” shares in the American fund) in the Vanguard fund after a decade. This is not a patent endorsement of Vanguard, although I have most of my retirement funds invested with them. It’s basic math. Costs matter. The less you have to pay — whether it’s in fund fees, banking charges, commissions or interest — the better. Avoid any broker-sold product. Buy direct. Run your own numbers to compare funds with the FINRA Mutual Fund Cost Analyzer, which is what I used in the above example. You can’t beat Wall Street. They beat you with the small stuff every day.
It’s not about numbers, it’s about your life I’m sick of self-serving surveys of how poorly people are saving for retirement. They are usually published by the same companies who want to gouge you to invest in their “retirement” products. Find out how much it would take for you to live comfortably and put away enough money to get there. Develop a dynamic lifetime financial plan that changes with each phase of life. Get a ballpark estimate to see if you’re on track. Financial independence is possible if you can live below your means. Although that sounds unpatriotic in a consumer economy, what you save is what you keep. You’ll have plenty of reasons to celebrate if you can reach that goal.
I don’t understand: supposedly sophisticated investors falling for Vanguard’s line about low fees. The only thing that matters with a mutual fund is the profit YOU make from it. Vanguard funds mostly don’t do as well as the market while some high fee funds consistently beat the market yeilding much better returns to the investor. And yes, I too have some Vanguard funds; I just find their advertising very disingenuous.
Is the American Dream dead?
The American Dream lures people from all over the world, and it’s because of this possibility: If you come here and work hard, your kids will have a better life than you.
What if that weren’t true anymore?
Record debt, persistent joblessness, millions of underwater mortgages and a stock market that hasn’t gone anywhere in 10 years: For today’s kids who are entering the job market, it’s hardly a recipe for future success.
For parents who only want the best for their children, those prospects are like a wrenching pit in our stomachs. When such a central pillar of the American story is falling apart, frantic moms and dads hardly know what to think.
“My husband and I are terrified for our sons,” says Saideh Browne, a 40-year-old mom of two who heads up a speaker’s agency in New York City. “When they were born, we figured as long as we saved for college, they would be okay.
“But now, we can’t just tell them to go to school, get a good job, and retire at 65. We’ve had to rethink parenting, and it hasn’t been easy. We’re encouraging them to learn a trade, and hope it all works out before the economy tanks further.”
Browne is hardly alone in fretting about her children’s future. According to a new survey from Ipsos, sponsored by New York Life, only 41 percent of parents surveyed think that kids will have a better standard of living. It’s a major tectonic shift in our national belief system, but given the events of the past decade, it’s not that shocking.
WE have too much debt and the cost of living is so high! From 1980s to 2011 stealth inflation aka the cost of living has gone up like 600% and wages adjusted for inflation have been the same for the past 50 years. This is because we are the worlds reserve currency and we need to be indebt to create money for the rest of the worlds economy. Read about Triffins Dilemma and Bretton Woods this is the source of our problems.
From books to homes: Swap your way to big savings
Sometimes a gift is more like a curse. Self-described “cheap” booklover and avid library user Alyssa Lester wasn’t over the moon when she found a new ereader under the Christmas tree last year. “I love my Kindle, but didn’t want to buy one because I would have to start buying books and I don’t have a lot of extra money in my budget for that,” she says.
While searching online for ebook alternatives, Lester stumbled upon the recently-launched website eBookFling.com, which allows readers to lend Kindle and Nook ebooks for a free, two-week period, acting as a secondary media market for literary lovers.
Lester has been swapping books for more than a month and says the site has not only helped her to save money, but has usurped her regular treks to the library for popular titles.
“Have you heard of the Hunger Games trilogy? I read the first book and literally couldn’t wait for the second book and within a few hours, someone had offered to lend it to me,” she says of her experience on the site.
Once a publisher opens a lending period on an ebook title, purchasers of that media are able to share the book once via email. EBookFling has capitalized on this lending period, connecting traders through a credit system: lend a title — earn a credit. If you’re not willing to trade your titles, you can purchase credits for $2.99 which will give you access to the tens of thousands of lenders on the site.
EBookFling adds its name to a growing list of swap, exchange and barter sites designed to link consumers in a virtual trading post, encouraging consumers to seek more value out of goods that would otherwise collect dust.
But what about copyright laws and fair payment to creators of media? George Burke, CEO and founder of eBookFling, says the digitized media space actually has the potential to ensure authors get a fair shake.
You can thus enjoy an economical, homely vacation and also learn about the different culture, customs and traditions in the new city, town, village or country you go to by simply swapping your home.
Home Swapper
Easter hunt: How to save cash as cocoa rises
Is the money you’ve socked away for Easter treats not stretching as far this year? You’ve likely experienced sticker shock as commodity prices continue to soar, sending the cost of that cavity-inducing chocolate bunny ever higher.
Cocoa futures continue on a wave of volatility thanks to political turmoil in Ivory Coast — the world’s top cocoa exporter. And research from the World Bank shows sugar prices are up 21 percent from last year. But, it’s not just the sweet stuff that’s affected. Instability in Africa and the Middle East has driven overall global food prices up 36 percent over last year, according to the latest edition of the World Bank’s Food Price Watch.
Retailers are feeling the pinch, forcing some to transfer the price pain to consumers. In March, the world’s largest chocolate maker — Hershey — announced it would raise wholesale prices by 9.7 percent in an effort to offset rising prices on raw materials while Swiss chocolate makers Lindt & Spruengli announced a one percent price increase in February of this year.
New York-based Jacques Torres Chocolates chose to absorb the higher costs of raw materials. “I think what is going on is a lot of businesses, in order to keep their edge or keep their customers, will take some of the heat of the good’s increase. You can’t always pass that down to the customer, especially if you have high-end products like we do,” says founder and CEO Jacques Torres.
The French chocolatier warns the most significant price shocks may not be seen until Christmas 2011 when the effects of supply shortages will be felt ahead of the busy holiday season.
“I think it’s going to hit in the fall. We have a shortage of beans but everybody had some stock available. Now, between the end of this stock and the next delivery from Ivory Coast it looks like it’s going to be difficult and I hope that we’ll catch up by Christmas,” says Torres.
So what’s a consumer to do? Savings expert Jeanette Pavini, of coupons.com, says consumers need to think outside the box to ensure the Easter Bunny makes a cost-effective trip their home.
No one really needs to eat chocolate. It is not mandatory that candy be given at Easter or any other time. Other choices can be made. That said, prices are going up for everything, despite what is reported. Average folks are feeling it everyday. When this happens, it is perfectly acceptable for loved ones to say that we just can’t afford to buy presents this year. Reasonable people will understand. More than likely, they feel the same way.
State tax increases: More are on the way
More taxes are coming, more taxes are coming! During the American Revolution, we could have substituted “more taxes” with “the British.”
We can’t blame old King George for our fiscal misery anymore. There are more taxes on the way as most states grapple with huge budget and pension deficits.
Residents of the most budget-busted states shouldn’t be in denial anymore. Public services will be cut further and you can expect to see more taxes on every level. Taxes are still headed higher to offset shortfalls from property valuations and slack consumer spending, which may not return to normal for years.
In Illinois, where I’m based, the state legislature recently passed a state and corporate income tax increase. Illinois Gov. Pat Quinn, who said that the recent income-tax hike won’t be enough to cover overdue bills, has since signed a law attempting to collect internet sales taxes.
And that’s just the first wave. Legislators are considering a tax on retirement income. Local sales taxes on services will likely be raised, followed by local property-tax levies that may rise to fill the widening gaps in local school-district budgets.
The most troubled states are in deep holes. California is trying to reduce a $25 billion shortfall. Illinois has just made a dent in its $15 billion gap. All told, there are 44 states that face budget chasms for fiscal year 2012 for a total of $125 billion, according to the Center for Budget and Policy Priorities.
Since, by law, states have to balance their budgets, the more desperate states are considering bankruptcy. A handful of Congressmen want to enable that process. The last state to do so was Arkansas — in 1933. Has it gotten that bad?
You are most correct in suggesting a progressive tax rate, but let’s ensure it includes absolutely everyone *without exception*.
4 ways electricity monitors can trim your energy bills
People who are able to track their daily energy consumption cut their electric bills by 10 percent on average, according to a study done last year by the Pacific Northwest National Laboratory of the U.S. Energy Department.
Catherine Cuellar, a 36-year-old who lives in a 1,200 square-foot loft in Dallas is a prime example of how this works. An employee of Oncor, a local power delivery company, she has been pilot-program tester for a “smart” utility meter that records her electricity consumption like any such meter, but also sends that information in real time to a receiver she keeps in her home.
Each time she flicks on a light, powers up the air conditioner or takes a shower with water warmed by an electric heater, the numbers on the receiver start ticking up, tell her what each electrical indulgences costs.
“It’s turned me into a miser,” she says. As they burn out, Cuellar is replacing her incandescent bulbs with low-energy CFLs. She has shortened her shower time, keeps the AC turned up to a conservative 78 (much to her fiancé’s chagrin) during the summer. And even during an unseasonably cold Texas winter, she kept her electric heat turned off while she was at work, donning extra sweaters until her place warmed up in the evening. She only puts full loads of laundry in her electric dryer, hanging smaller loads on a rack. This spring she’ll buy ceiling fans so she can trim her AC use even more.
“My electric bill is always under $100,” says Cuellar, who figures she is spending 10 to 15 percent less on electricity. “No one I know with a comparable space has an electric bill that’s under $100.”
The device has even turned her into an energy detective. “I know when my energy use is higher than it should be, and I go looking for things to turn off,” she says. Recently she discovered her electricity use had spiked while she was away at work all day. She began scouring the house for the light or appliance she’d left on and eventually found a bag of ice keeping her freezer door open. “I might not have found it until the next time I went into freezer; I only caught it because I had the in-home monitor,” she says.
A growing number of monitoring devices are coming on the market these days, most are affordable and many can pay for themselves in less than a year. Here a few of the options worth considering.
These are what I did.
1) I use a hot water tank blanket to increase the heat insulation for my water tank. I turn down the temperature setting for my water tank so it is just nice.
2) I setup an automatic power switch that switches off my modem and routers when nobody is at home or is asleep. I calculated it will save me a few kwh a month.
3) I hardly use my central heating ‘cos it heats up the whole apartment. I use an electric heater to warm my bedroom.
4) My windows were applied with an additional insulating sheet.
5) My PC and TV are the most efficient models.
5) Most of my lights were converted to LED. It is just cheaper to upgrade directly to the latest tech when I changed all the light when I first move in.
Lights, Camera, Save! Money lessons for kids
It is never too early to start teaching kids about the importance of saving money. But sometimes that process can be dull. So what about creating a money lesson that is fun and still inspires kids to save money rather than spend it?
The American Bankers Association (ABA) Education Foundation set out to do just that. The ABA launched a new initiative called Lights, Camera, Save! — a national video contest aimed at getting kids to think about creative ways to save money.
“Traditionally, savings education can be pretty dry,” said Laura Fisher, executive director of the ABA Education Foundation. “So we wanted to bring a challenge in a form that kids were already interested in.”
Lights, Camera, Save! is an extension of the ABA Education Foundation’s Teach Children to Save program, a national initiative that allows banker’s to volunteer their time to connect with schools and teach kids about saving money in a classroom setting. The contest gives kids from ages 14 to 16 years the opportunity to use video as a means of teaching their peers the lifelong benefits of saving.
“We’re taking the lessons out of the classroom and asking kids to tell us in a creative way what they think the value of saving is,” said Fisher. “We wanted them to tell it in a way that can be shared with other kids and maybe inspire them to be lifelong savers.”
Saving equals freedom
Across 45 states, 170 banks held local competitions and, in turn, sent their local winner’s submission to the ABA. A national panel of judges awarded Mason Beiter the grand prize for video “Lego you spending and start saving.”
