How to Pick a Winning Mutual Fund

    Most investors today are passive investors that only take advantage of their employer's 401(k) or 403(b) plan.  Employer plan administrators and brokers have oversimplified how employees are choosing their retirement investment vehicles.  Some plans don't even require employees to pick mutual funds.  Many employers allow their employees to simply choose risk tolerance packages that the brokers put together.  Risk tolerance packages are a collection of assets that may include several different mutual funds or other investment vehicles.  These Packages further remove the investor from any kind of investment decision making.  Any investor that will depend on their retirement savings should be more proactive when deciding how and what to invest in.  Investors should choose their own mutual funds starting with a few basic criteria.  This basic criteria will apply to any type of mutual fund category.

1. Invest in a no-load fund that also has low expenses (less than 0.5%)- Fees and commissions eat away at a fund's return on investment.  If there are market beating mutual funds (there are plenty) with low expenses and no commissions, why would you pay these fees?
2. Select funds that have great long-term returns-  Mutual fund returns (just like individual stocks) can have fluctuating returns from year to year.  If you only look at what the fund has done over the last year, you aren't seeing the entire picture.  Remember, you are investing for the long haul (most likely 15-40 years before retirement) and you need proven and sustainable performance.  Ideally, look at the fund's 10 year annualized return and compare it to peers of the same category. 
3. Look for a long term manager-  A mutual fund with a manager that has been in charge for at least 5 years is ideal.  You can't accurately predict how a fund will perform in the next few years if it has a new manager. 

     Those are the basic criteria to pick winning mutual funds.  When you are ready to pick a mutual fund, start with these criteria to get your short list.  Then select a fund based on your personal preferences:  company, category, asset allocation, etc.  You should also learn more about asset allocations before you invest in mutual funds.  Every investor will have a different risk profile that can be controlled with different asset allocations.  In summary, you should have control of your retirement nest egg, not some broker that simply put together a generic package of mutual funds.

   Learn how to pick winning individual stocks, get The Buffett System

Save Time and Money with a Smart Phone

     Ever had to run an errand during the big game?  No problem!  A smart phone can download a software program (called application or app) that allows you to stream a radio station through your phone speaker.  Sometimes you can even watch the game on your phone. 

Smart phone are convenient and they can also save you money.  Here are some of my favorite apps and different ways to use your smart phone: 

• Avoid overdraft fees- Check your bank account balance before you checkout at the store (to make sure your covered)
• Find the cheapest gas- Use the app gasbuddy to find the cheapest gas prices near your location
• Never get lost- A navigation app will tell you the most direct way to get to your destination (no more asking for directions or wasting gas driving lost)
• Buy cheap- Shopsavvy is an app that allows you to scan a barcode and get full details about the product.  The app also pulls up a list of where the product can be purchased for the cheapest price.
• Avoid costly directory assistance calls- You can search for a local business phone number and dial it (all in less than 30 seconds on your smart phone).
• Get free music- The app Pandora gives you free music right on your phone.  It allows you to customize your own channel by selecting which songs you like and which ones you don't.
• Get more work done- I have done online work from my phone many times.  It's perfect for times when you are waiting for something (bus, store checkout, restaurant seating, etc.).
• Know the weather- Want to know if your softball game will get rained out?  Use the Weather Channel app if you aren't near your t.v. or computer. 
• Get a recipe- While at the grocery store you decide that you want to try a new dish.  Search recipe.com and find the recipe on your smart phone. 

    How do you save time or money with your smart phone?  

 

Rule of Thumb for Your Major Expenses

     Do you consider what your monthly payments will be when shopping for a house, apartment, or car?  You'll be in financial hot water if you aren't careful.  The following rule of thumbs will keep you in the clear.  If you can get a handle on these major expenses, the rest should follow suit. 

1.     Monthly housing payment  This includes taxes, insurance, interest, principal, utilities, and maintenance.  Everything should be no higher than 25% of your take home pay.   

2.     Monthly transportation  This shouldn't be any more than 10% of your take home pay.  This includes both cars if you have two vehicles.  10% seems like a small amount, but remember that you should buy used, not new.  If you aren't convinced to buy used, make sure to read Should I Buy a New or Used Vehicle.

3.     Retirement  If you don't budget for it now, you'll never save.  Remember that tomorrow never comes, so start saving money today!  You should be socking away at least 20% of your gross pay.  Make sure to take full advantage of your employer retirement match on top of your 20% contribution.
   
      It's obvious that these rule of thumbs are tough to live by.  If you can keep it up, you are well on your way to a comfortable life and even better retirement.  Make sure to read Your Guide to Think Like the Rich.

What are your percentages?

Get the Scoop on Generics

     Do you always buy name brand products?  The fact is that name brand products have a large marketing budget to make the product seem superior to the generic alternative.  When comparing the well known product vs. generic, you will find that they are almost always manufactured with the same components, ingredients, or raw materials.  In fact, most brand name label companies also produce private label goods.  Private label goods are the in-store generic products.

   These products are usually produced by a name brand manufacturer but packaged to accommodate the retailers' brand.  Private label is just another income stream to supplement their main money makers.  Most large manufacturers won't produce private label competing products, but they will manufacture a similar product. 

An example:  A name brand manufacturer that produces jars of peanut butter may also produce bags of private label peanuts. 


     Retailers prefer to sell their store brand products because private label profit margins are generally higher.  Stores are able to control the retail price without having to worry about product discounts, deals, and coupons (which eat away at a store's bottom line).  Generics can save you up to 50% off and sometimes more.  Look at your shirt.  Does it have a guy on a horse logo?  If so, you most likely paid 300-400% more to have it on there (so take good care of it). 
 
    There are times when the quality of a generic product doesn't stand up to its brand name counterpart.  In general, you don't know the quality of an item until after you make the purchase. 
Some products are worth the extra cost.  There is one item in our household that will never be replaced by it's generic cousin:

What are some irreplaceable brand name items in your home? 

What are some generic products that are saving you some mega cash?

5 Ways to Avoid Paying State Sales Tax

1.     Shop online-  When you purchase items from a company that is based in a different state than you, the business will not charge you their state sales tax.

2.     Go off the grid-  Shop auctions, flea markets, garage sales, and classifieds to avoid paying the tax. 

3.     Buy on vacation-  According to the Sales Tax Clearinghouse, the following states don't charge sales tax:  Alaska, Delaware, Montana, New Hampshire, and Oregon.  Make sure to pack light so you have room to bring back all your favorite souvenirs!

4.    Timely purchases-  Most states have promotional tax free weekends for "back to school" type shopping. 

5.    Stick to groceries-  When you eat out, you pay!  In most states, there is no sales tax on groceries.  Be careful because there is a fine line between groceries and convenience foods.  Convenience foods such as potato chips, soda, and other snacks may not have the same exemption.

Want to learn more?  Get The Ultimate Tax Reduction Guide

I Lost My Job and My Unemployment Benefits are Expired...Now What

     I hate to break it to you, but get a job!  Maybe get two jobs.  Employers in your industry are not hiring in your city, does this mean that you're a victim?  Of course not.  Remember, you still have options. 
     You're first option is to get two full-time (no-brainer) jobs.  During college I delivered pizza and earned nearly $20 per hour!  After you consider gas and vehicle depreciation, that still nets $15 per hour.  Many of my shifts were early evening until late night (5 pm until 1am), still allowing me time for class and studying.  This free time could allow you to take a job during the day.  I have a college friend that worked as a waiter outside of school.  He also took home anywhere from $10 to $20 per hour (depending on business).  If you could work 30 hours waiting tables and 40 hours delivering pizza at an average take home wage of $15 per hour, you would make $54,000 per year!
    If you aren't ambitious enough to work two jobs, then you better start looking elsewhere.  There are plenty of available positions to apply, just not in your city.  Maybe it's time to pack your bags and land a job in a new town.  Start looking from home before you make any leaps of faith.  Look for jobs across the U.S. at both Careerbuilder.com and Monster.com.  Before you go to an interview, make sure you get the Ultimate Guide to Job Interview Answers and study up!
    Another option is to start a business.  Many successful businesses were started due to a layoff or firing.  Think about all the skills and talents that you have accumulated over the years working for someone else.  If you can provide a quality service at a competitive price, then you're hired!  Create profiles on Elance.com and Guru.com telling prospective clients about your experience and talent.  Complete a couple of impressive projects and your reputation will bring more business.
    There are many ways to find success after losing a job.  No matter what you decide, do something now!  Don't wait for an opportunity to find you, mainly because it won't.

5 Things You Must Have on Your Resume

1.     Relevant Experience-  This is a must!  Employers want to see that you know what you're doing!  Taking a chance on an applicant with no relevant experience is too risky, especially when there is such a large pool of potential employees on the market.  Experience doesn't just have to be a former job.  It can be from internships, volunteering, or even an involved school/community project.  Be Creative!

2.     Stable Employment History-  Employers don't want job hoppers!  Hiring a new employee is risky because it is expensive to train an employee to become efficient at their job.  High turnover can eat away at a company's bottom line.  Just be careful when you select your next job, because you should stay at least 2-3 years in that position.

3.     Entrepreneurial Experience-  Do you own a small business?  Have you ever owned a small business?  Companies look for candidates that have this kind of experience in every industry.  Why?  Owning a business takes a LOT of hard work and persistence.  Entrepreneurs also have a sense of all the expenses involved in a running a business.  Employers believe that they will be more efficient and cost saving employees.

4.     Education-  Think of education as the foundation to a house.  Education is learning the basics and history of a particular subject to help you increase your knowledge about that subject.  This will pave the way for your career so you don't build a house of cards (and see it collapse). 
        Sure, you can train someone how to give a flu shot.  Could you expect that same person to know how it works or what to do if something goes wrong?  Employers realize that employees with formal training have a more thorough understanding of their industry.

5.     Extra-curricular Activities-  No one wants to hire "plain Jane" that doesn't have a personality or life outside work.  Companies look for employees that won't "burnout".  They want to see that you have other interests besides your job field.  Activities also show a new boss that you "get along with others" and are approachable.  It doesn't matter what you do: bull riding, skydiving, scuba diving, sports, reading, dancing, horticulture, etc.  Make sure you let them know that you are no "plain Jane".


Need More Help?  How to Write a Professional Resume

Make Thousands by Getting a Mortgage

     There are many financial "gurus" out there telling you to buy a house with cash or to pay off your mortgage early.  It sounds like a great idea on the surface, but you could miss out on thousands if you take that advice.  If you can't get an interest rate under 9 percent, ignore what I'm about to say...
    
There are two BIG reasons to use your banker's money for your house:

      1.  Mortgage interest is tax deductible
               example:  A household in the 28% tax bracket with a $200,000 mortgage amortized over 30 years with an interest rate of 5% will save $2,781 in taxes during the first 12 months of the loan.  That same household will save $52,223 in taxes over the life of the loan!

      2.  You can invest your cash instead (and make up to thousands more than your conservative uncle Ed)
              example:  In our $200,000 example above, because you are not tying up all that cash in a house, you can invest the $200,000 into an index fund.  The S&P 500 had average annualized returns of 11.24% over the last 30 years (1980-2009).   

$200,000 invested into an S&P 500 index fund in 1980 and would be valued at $4,679,280 in 2009!  If uncle Ed only knew... 


Make even greater returns:  The Buffett System

Your Guide to Think Like the Rich

1.     Pay Yourself First- The rich invest at least 20% of their pay. Set up automatic paycheck deductions to invest in your retirement.  You are more likely to "stick" to it if you aren't required to write a check every month.  Set up both a pre-tax investment plan such as a 401(k)/403(b)/traditional IRA and an after-tax plan such as a Roth IRA.  By setting up both plans, you are taking advantage of both tax efficient vehicles.

2.     Get the Max-  Most employers will match your retirement contributions up to a certain dollar amount or percentage of your salary.  This is free money and the rich don't turn down free money!  Make sure to contribute enough money to get the maximum amount of free dough.

3.     Avoid High Priced Consumer Items-  I know... new cars, 60 inch flat screen televisions, 20 inch rims for your 1972 El Camino, and owning 5 gaming systems all seem like needs rather than wants.  A little known secret about the rich is that they actually avoid consumer traps like those mentioned above.  Instead, only purchase items that you need and don't go overboard.  A good example is to purchase a 32 inch television instead of a 60 inch set.  The rich are informed shoppers, they use price comparison sites (as was mentioned in 5 Money Saving Tips to Never Pay Full Retail ) and consumer rating groups such as Consumer Reports.
      
4.     Use Leverage-  You will not become rich without it!  Leverage is using resources or tools to magnify results.  We all have the same limitation in common...time.  To my knowledge, no one has more than 24 hours in a day.  The rich are able to focus their time and energy on the things that are important to them.  This could be making money, spending time with their family, traveling, or a hobby.  One example of how to leverage your time is to hire a landscaper (if you don't enjoy yard work of course).  This may sound counter intuitive but if it saved you 4 hours per week, it could free up enough time in your hectic schedule to start an online business.  In this example, you are leveraging your time to build long term wealth by using someone else's labor.  Get the "Manage Your Time Now" course      

        Another Example of Leverage-  If you had $100,000 in cash, you could purchase up to 5 houses valued at $100,000 each with 20% down payments on each ($20,000 x 5 = $100,000).  You would be controlling $500,000 worth of real estate!  If real estate values rise just 10%, you would gain $50,000 in equity  ($500,000 x 10%).  If you didn't use leverage and purchased just one house with cash for the full $100,000, a 10% increase in real estate values would only equate to a $10,000 gain in equity.   

5.     Own a Business-  Being an employee is the toughest and least efficient way to become rich.  A higher percentage of an employee's wages go to tax than a corporation or LLC's income.  This is because corporations and LLC's pay taxes based on net income (income after all expenses).  An employee or even self-employed person pays taxes based on their total income before expenses.  Employees are also limited to their time that they can physically work.  A business owner can use the resources of time and talent of other people (employees and contractors).  This is yet another example of leverage that was covered in number 4.

6.      Persistence is Key-  One of my favorite quotes is by Michael Jordan.  "I've missed more than 9000 shots in my career. I've lost almost 300 games. 26 times, I've been trusted to take the game winning shot and missed. I've failed over and over and over again in my life. And that is why I succeed." 

     Starting a business could be risky, but no risk=no reward.  The rich take calculated risks and stay persistent and focused on their goal(s).  Every failure is a learning opportunity and one step closer to ultimate success.  You shouldn't think "road blocks" to your dreams, instead think "hurdles".  Stay positive, persistent, and jump a little higher.           

Join the Think Rich Club

Should I Buy a New or Used Vehicle?

     The prospect of owning a new car is fun, exciting, and exhilarating.  The glossy wax coating, new rubber tires, shiny chrome trim, and detailed interiors with that new car smell- all tempting us to make the leap.  Think twice!  According to the National Automobile Dealers Association, the average price of a new vehicle sold in the United States during 2009 was $28,400.  Think about it, this number is probably more than half of the national median household income.  For many, a vehicle is the second largest lifetime purchase (house being #1).  Does this make sound financial sense?  To me, it would make more sense to start an income producing vending business with some of this money.   

     $28,400 spread over 5 years (60 months) at an interest rate of just 5% per year (simple interest) is $535.94 per month!!  This doesn't include the monthly depreciation expense that most buyers don't consider (which will cause heavy stress when trying to resell the vehicle). 

     Be financially savvy and purchase a used vehicle, preferably with cash that is around 2 or 3 model years old.  After 2 years, you are avoiding the largest depreciation years.  A vehicle's value after just two years is roughly 60 to 70 percent of its original value.  In our example above, a vehicle purchased at 2 years old would cost roughly $17,040 (saving $11,360).  The savings are even greater when you add finance costs and interest expenses to a new vehicle purchase.

    If you do consider used, make sure to purchase a certified used vehicle.  Most of the large manufacturers offer this program at their authorized dealerships.  You should also research the current market value of the vehicle you want to purchase by going to Kelley Blue Book.  If you have done your homework, a used vehicle will pay you dividends down the road by avoiding those lofty monthly payments.                  

7 Ways to Save Money and Energy This Winter

It's that time again.  Football, leaves, apple cider, and the heating bill.  Don't worry, you can relax this season if you follow the tips below.  You'll feel warmer and thicker in the wallet!

1.     Set your Programmable Thermostat  We keep our temp. around 68 degrees in the cool months and around 76 degrees in the warm months.  The key is to reduce the workload on your heating/cooling unit.  Program your thermostat to keep the unit off during times you don't need it (such as 10pm to 6am and 8am to 5pm).  Don't forget to change your filter monthly to reduce the load on your unit.   

2.     Pick your New Lights Carefully  Ok, we've all heard the advice about switching to energy efficient fluorescent bulbs.  You also need to consider the lumens and wattage of each bulb.  Lumens measure the brightness and watts is a measure of the energy usage.  Obviously you want to pick the best of both worlds (highest lumens with lowest wattage).

3.     Use your Ceiling Fan  Sounds counterintuitive, but using your fan in the winter could save up to 10% off your heating bill.  Why?  A fan rotating in the correct direction, will recirculate the hot air that had risen to the ceiling.  Most fans have a summer and winter setting.  If it is not labeled, just make sure that the air is being forced down in the winter and up in the summer.

4.     Let the Sun Do Some Work   Keep blinds and shades open during the day to use the sun's heat energy.  Just remember to close them at night to prevent drafts (and block the neighbor's curious eyes).

5.     Bake Bake Bake   Do all your baking in the winter.  Your oven is more efficient than the stovetop and you'll also help your furnace heat your home.  

6.     Have a Good Foundation   Make sure those basement windows are closed and properly sealed.  Sounds silly, but a good friend of mine almost went the entire heating season before realizing that an old basement window was flapping in the breeze!  Imagine the money, I mean um heat that he was losing.  If you have old windows downstairs, buy some rope caulk and seal in the savings.

7.     Go Energy Star!    If you need to replace an appliance or furnace, make sure it is Energy Star rated.  Not only could you save with local and state rebates, you will also save in the long run with lower energy bills.        

Learn More:  Get the #1 Home Energy Savings Manual

5 Money Saving Tips to Never Pay Full Retail

What would you do with an extra $500-$1000 each year?  Would you take a weekend trip, buy a flat screen t.v., or update your wardrobe?  The best part is that you can make this money just by purchasing everyday items that you were going to purchase anyways.  I've never paid full retail for over 5 years and enjoy free trips to beautiful Chicago every 6 months, just by following these 5 tips:

Tip #1   Skip the Cash!  Make every puchase with a debit card (non-pin).  That's right, even purchases under ten dollars.  Ever wonder why the wiseguy in front of you decides to pay with his card for a $6 purchase?  He is slowly earning enough money for his Chicago trip.  There are several banks that offer debit card (non-pin) purchase cash back rewards.  These rewards could be up to 2% of every purchase.  USAA debit rewards and U.S. Bank FlexPerks^SM are two of the best programs available.

Tip #2  Get Credit with Credit!  Sometimes it makes more sense to use a credit card rather than a debit card.  Instances include making larger purchases, buying gasoline, and traveling.  Credit card rewards can be in the form of merchandise, travel credits, or up to 20% cash back when used with certain vendors.

Tip #3  How Loyal are You?  Customer loyalty programs exist in almost every industry-from coffee to cars.  Use loyalty programs for every purchase.  Loyalty programs can save you up to 20% off retail prices.  Businesses realize that it is much more affordable to keep their current customer base rather than constantly marketing for new customers.  Search for loyalty programs at Perkler.

Tip #4   Search and Save!  Planning to run a few errands and stop by the nearest chain superstore?  Go to Coupons.com first and print your savings.  You may be able to cut your grocery bill by up to 50% with some persistence and some eagle eyes for a great deal.  Also get the Ebook full of information on how to save thousands grocery shopping.

Tip #5  Let Your Mouse Do the Driving!  Gone are the days of spending an entire afternoon driving from store to store to nab the best deal.  Use a price comparison shopping site to do the heavy lifting for you.  These sites can save you gas, time, money, and frustration.  One of the best is CheapUncle.com.

Use all 5 tips and you'll be on the way to your Chicago.