Posts filed under 'Finance Concepts'
Get Your Credit Score
When should you get your credit report? At least twice per year to check for fraud, as well as before any major financial decision (debt settlement/refinancing, home loan/mortgage, car loan, etc.) and after identity theft has been possible (wallet lost/stolen, robbery, break-in, car theft, etc.).
For years I’ve been writing about credit scores, telling people to obtain copies of their credit reports every quarter so they can check for fraud, inaccuracies, and strange occurences (you can check out some of my articles on the subject to the right).
Every time I wrote or spoke about this topic, inevitably someone asked me how they could obtain a recent copy of their credit report, or someone would ask which report is the best one to get, etc.
Finally, I posted some resources on how to get your report, how to read it, what to do if you find something wrong… the list goes on and on. The questions kept rolling in, however. Finally I decided I would find a way to solve this issue… and I think I have!
To the right you’ll see a bright orange form (can’t miss it). What this is is the result of negotiations with major credit reporting companies to get you the best credit reporting out there, from the most reliable sources, in the least amount of time. And all you need to do is put in a little bit of information.
Regardless of what state you live in, if your credit is good, bad, great or non-existent, this form will make it easy. To get started, just select the state you live in.
May 7th, 2008
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So this year the tax return fairy brought you $100, and you finally want to get started with investing the stock market. Good for you!
A friend of mine recently posed a similar question to me about how he can get started in with investing with a small sum. This, in short, was my answer.
The best way to get started in a hands-off way is to buy a stock or instrument that will closely mimic of the stock market as a whole. Because the market as a whole has increased in value over the years, they best you can do is invest in everything. Because you can’t do that, you’ll need to buy shares of an index or spider vehicle. Here are a few suggestions:
- Vanguard Total Stock Market VIPER
- iShares Lehman Aggregate Bond
- iShares Dow Jones US Real Estate
- iShares Dow Jones US Basic Materials
- S&P 500 Spider
Now, if you’d like to take a little more hands on approach, I would recommend putting 50% of your available cash in one of the above vehicles. This will help to ensure that you don’t lose everything.
To pick stocks for investment first make a list of companies you’d like to buy. Once you have a list of 10-15 companies you’re interested in, head over to your favorite finance website (Yahoo! or Google are good choices) and look them up. What you are looking for is a stock with a P/E ratio under or below 15. This basically means that the stocks are undervalued compared to what the company earned in the most recent period.
(For a more in depth explanation of P/E ratios, see http://en.wikipedia.org/wiki/Pe_ratio)
Buy a few of the stocks on your list that meet the P/E requirement and hold them for 1 year. At the end of the year check the stock’s stats again. See if you think you’re going to make more money in the next 12 months, if not, wait for the opportune time to dump the stock. If so, hang on to it!
Whenever you have some extra cash for investing, put half in the spider, and the other half in the next stock on your list.
Try it out and see how it works for you!
April 27th, 2007
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Ever since I saw the episode of the popular Dream House television program where the crew built a brand new dreamhouse for a disabled woman, living with HIV, who had also infected her two daughters, all of whom lived in one of the worst neighborhoods in (if I recall correctly) Southern California, I’ve wondered what they do for those people regarding their new property taxes.
I understand there is some kind of cash prize that goes along with being on the show, but for a woman who probably has enough stigmas attached to her that no one will hire her at a Denny’s, I can’t imagine it will last long.
The house was huge, at least 3000 sq. ft., with a pool and rock waterfall in the backyard. This was built in a neighborhood where the next more comparable property is a 3 bedroom, no bath crack house with 3.67 walls. The more likely neighbor was a single-wide trailer on cement blocks.
Despite the fact that they pay off the mortgage, the property tax assessment on a mansion is not something people think about, nor is it something everyone can pay.
When I worked in real estate in Tucson, I was astounded by some of the assessments people needed to pay. Some of the nicer, 6000 sq. ft. foothills mansions had tax bills higher than $20,000 due every year. Tell me someone in South Hell, California can afford that (let alone what that would cost in California taxes!).
I just read an article which brought to my attention something I hadn’t considered at the time: taxes on your winnings. Think about going to a casino. If you win big, the casino reports that gain to the IRS, who want their cut. Your winnings are cut nearly in half by the taxes you pay. Not such a big deal when you win a liquid (cash) asset.
However, now you’ve just been on a television show that gave you a 3 million dollar house and $250,000 in cash. Guess what? Uncle Sam still wants his cut of that $3,250,000 in assets.
So apparently the winners on these shows end up taking out mortgages on their new property to pay the tax bill, a particularly ironic (and cruel) twist considering that the end of every show usually ends with the host announcing they’ve paid the homeowner’s loan, and they can now tear up the mortgage document.
If you want to read a (probably sensationalized) story about this, you can check it out here:
http://money.aol.com/cnnmoney/realestate/canvas3/_a/the-house-that-swallowed-don-and-shelly/20060627161909990001
October 10th, 2006
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Microcredit involves making small loans to persons who are not ‘bankable’ (meaning they could not get a loan from a traditional bank). This audience often consists of the very poor, unsuccessful entrpreneurs, or unemployed people.
Although the business models differ, there exist many non-profits that supply microcredit, as well as several businesses, and individuals.
Individuals seeking to begin lending in a microcredit situation need to be very careful about who they choose to work with, as it can very risky to invest in this market.
Some businesses exist to assist investors in making micro-credit loans. Often, these businesses provide aggregation and risk-sharing models. This means that if a person requests $10,000 in micro-credit, the business can split it up between 10 investors who each invest $1,000. This helps to spread the risk of deault around, meaning you can invest your money more widely. One such service is Prosper.com.
Non-profits have also shown much success in the micro-credit market. The common idea of success in this arena is that a poor person takes a loan to do something, and then ends up growing their business to employ other poor persons in their neighborhood.
One such example is a woman in India who took a small micro-credit loan to buy some fish from a fisherman at a local wharf. She cooked the fish and then sold it to others in the same area. She then repaid the loan and took the extra money to the wharf to buy more fish. Once again she cooked and sold the fish. After repeating this process quite a few times, she was able to buy her own fishing boats, which she now rents to local fisherman, for the price of bringing her enough fish to cook and sell.
Of course, not all stories can end like this, so do the proper due diligence when investigating this type of investing. Also, keep in mind that a non-profit such as this could make an excellent tax shelter should you find your income too high for your liking.
September 17th, 2006
Related Topics: microcredit finance (1)-
This is a classic example of a trainwreck of a financial situation, and the best way to get out of it. I found this story floating around the internet, and I think the lessons from it are valuable enough to post here.
If any part of this sordid tale describes you, then please seek help immediately, and begin to make moves to get yourself out of the situation.
A young man (we’ll call him ‘Sam’) lived with his mother and two brothers in a small home in rural Wisconsin. In 1998, Sam’s mother had the opportunity to purchase the home that they had rented and, because she was living on social security, asked Sam to cosign the loan for $32,000 with her.
One year later, Sam moved to Chicago and started a new life, eventually he got married and had two children. His relationship with his mother soured and they lost touch. In the summer of 2004 Sam got the news that his mother had fallen behind on mortgage payments. The payments were around $250 each month, and she was 3 months behind.
Sam had built excellent credit for himself and decided he would look into refinancing the home to lower the payments and put the house in his name. He asked an appraiser to evaluate the house.
A few days later Sam received a call from the appraiser that he had been to the house: it was abandoned, the grass was uncut (and approx. 3 feet high) and the house was infested with 30 or more cats. The waste from the cats was producing a smell outside the house. When the appraiser walked in and saw dead cats and feces everywhere, he called the local sherriff, fearing a health hazard.
The sherriff called the fire department and humane society, who extracted the cats and put down those that were too sick to be cared for, leaving the house full of cat urine and feces.
Needless to say, the appraiser thought the house was only worth the land under it, and the county was now on the hunt to find Sam and fine him for the violations.
What could Sam do?
Stay Tuned for Part II…
July 27th, 2006
Related Topics: home abandonded (1)-
All financial documents, books and people throw around words like ‘long-term’ and ’short-term.’ Some also include the ‘medium-term’ as well. But what do we mean when we throw these terms out?
Short Term
In classical finance and accounting courses, short term is usually defined as something that will be invested into and divested out of within 1 year. This definition was based on the assumption that the most common financial report available for a company was the annual report.
More modern and advanced finance/accounting classes talk about short term being relative to the period you are describing. For instance, if we are discussing a person’s monthly income, short term would refer to something which takes place in less than one month’s time.
When used outside of a frame of reference, it is safe to assume a person is talking about a 12-month or less time period.
Long Term
In classical finance/accounting, long term picks up where short term leaves off. So, in the basic sense, long term refers to any project or investment which will take longer than one year to complete.
The more modern definition is complementary to the modern short term definition, and represents periods of time longer than the inferred period. So, back to the monthly income example, if I want to invest this month’s income into a home-improvement project that will take 6 months to complete, I am talking long term.
Medium Term
Medium Term is more of a management-term than a finance/accounting term. It is used mostly to describe something that may straddle both long and short term periods.
For instance, if I am referring to my monthly income (which is short term in all definitions), and I am also talking about how I apply it to my 30-year mortgage (which is long term in all definitions), then using either short- or long-term definitions for my 6-month home improvement project will lead to confusion.
It is in this type of situation that management types, as well as my website, will use the term medium-term, simply to alleviate confusion.
So, in short, you could say the definition of medium-term is ‘not long term and not short term.’
April 18th, 2006
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