Joe's Money

Stocks are simply a piece of ownership in a company.  While usually not a very big chunk of ownership, you can own a piece of any publicly traded company for a small price.

Companies generally start out as private companies, mom and pop if you will, but on a larger scale of course.  At this phase, most investors (Average Joe’s) cannot buy into the company via a stock.  When the mom and pop company starts to grow and needs more capital (Cash!) to increase production or open more stores, they offer an IPO.  An IPO is an “Initial Public Offering.”  This is the first time a stock will be available for the company in question.

So why buy a stock?  Stocks, in general, are the fastest way to grow your investment.  In simple terms, if the company you own the stock in is doing well, the price of the stock goes up.  Of course there are many factors that go into the price being driven up or down.  The current state of the economy, expected future growth or shrinkage, industry trends, etc.  Over the stock market’s history, the average return is 11%.  Keep in mind that is over a very long period of time.  The last year or so has shown us that this is not constant and you should be prepared at any time for extreme losses if you are in higher risk stocks/mutual funds.

Ok, ok.  So this is probably the most worn out topic ever.  However, based on recent survey data, only about a third of the workforce that is offered a 401k, are enrolled and contributing to it.  This is a ridiculous statistic considering the average company match is 4%.  Think of it this way, if your boss asked you if you would like a 4% raise, would you take it?  I sure hope so.  If not close this web page, there is no hope for you.  All kidding aside, take a look at the numbers below to see how much FREE money you are missing.

The calculation is easy.  Take your earnings, before tax (Gross) and multiply it by the employer match.

Ex.  Current salary is $36,000 per year with a 5% employer match.

$36,000 * .05 (The employer 5% match) = $1800.  The total contribution is simply the employer match * 2.  The other half is what you need to contribute.  Hence the employer “match.”  So for this example, the total is $3600 per year total contribution.  Remember, this is FREE money.  All you have to do is contribute your portion first.

What investments does my 401k use?

Most 401k plans consist of mutual funds that target different objectives.  Most plans offer a little something for everyone.  Some funds are more conservative while others are much more aggressive.  The mutual funds offered are typically stock funds, bond funds, target funds, index funds, real estate funds, and more.

Stay tuned for more on how you can determine your risk tolerance and other factors on determining what funds you should invest in.

Roth IRAs are great ways to save for retirement.  While your contributions are after tax money, they grow tax free, even when you withdrawal during retirement.

This the 2009 tax year, you can contribute up to $5,000 in your Roth IRA.  The greatest advantage of the Roth IRA is all gains are tax free.  You have complete tax free growth.  The only downside is, again, you contributions are your money after it has been taxed.  The contributions are not tax exempt like your 401k.

Since the Roth uses after tax dollars for contributions, this helps you diversify your portfolio since your 401k will be taxed upon withdrawal.  Since there is no way to tell what tax rates will be like when you retire, having both a 401k and a Roth IRA gives you the best of both worlds.

One of the other benefits of a Roth IRA is you do not need to distribute your account once you reach 70 1/2 years old.  The account can continue to grow if you don’t have a need to withdrawal the funds.  So in a nut shell, you can keep your money in the tax free growth account as long as you like.

With Roth IRAs, you can also withdrawal funds without penalty, but only your contributions apply.  Only gains are penalized for early withdrawal.  Also, the funds must be held for 5 years to be eligible for withdrawal.  Example:  You contribute $3,000 to your Roth IRA that grows to $3,500.  You can withdrawal up to $3,000 (You contribution) without penalty at any time, after 5 years have past.

Roth IRAs do have some eligibility requirements though.  In order to be eligible, your adjusted gross income must not exceed $105,000 and for married couples $166,000.

For 2009, the maximum IRA contribution is $5,000 unless you are over age 50.  If you are over age 50, you qualify for contributions of up to $6,000.

Buying a used car can save you loads over the price of a new comparable car.  Follow these tips to make sure you don’t get taken for a ride.

1.  Have a plan

Do some research first.  Narrow down your search by looking online at multiple dealers, private party sellers, etc.  Compare the prices and know about what the vehicle is selling for both at dealers and via private party.

2.  Know What You Want

Have all the features you need planned out ahead of time.  If you have a few kids, a third row seat may be needed, know how many miles you put on the car, etc.

3.  Do All Research and Shopping Online From Home, Not at the Dealership

There are way to many places online to research and find exactly what you need.  Don’t waste time by going into the dealership until you have narrowed down your search.  Look at the local dealers and find out which ones have cars you are looking for.

4.  Go to All of the Dealerships and Look before Making Any Offer

Check out all the vehicles on your list.  Get a asking price for all of them.  Since you know what you need, the salesman shouldn’t be able to ask you all the probing questions.  How many kids do you have, how much do you drive, etc should all be avoided.  Never let the salesman know if you are out of a car at the moment.  You want to stay clear of anything that makes you look like you can’t walk away.

5.  Don’t be Afraid to Walk Away

Even if you are in love with the car and know its the one for you, don’t be afraid to walk away.  Use your research to your advantage.  Let the salesman know that a comparable vehicle can be had elsewhere for less money.  If they don’t budge, walk away.  There are tons of cars on the market, you’re bound to find a similar one again.  Stay calm and don’t let the salesman get you.  Walk away.

6.  Leave Emotion Behind

Whenever you are shopping for a big ticket item, always leave emotion behind.  If you are sitting in front of your dream car, don’t let them know you fell in love.  If they know you want or need the car badly, they know they can probably get you for more money.  Keep a neutral face and attitude.  Let them know its the right car, but it needs to be the right price.

7.  Don’t Be Afraid to Be Rude

Salesman usually are, at least when it comes to getting the price down.  Being rude can show them you mean business and you are not going to tolerate the typical nonsense.  You are not there to make friends, you are there to get the best possible price on a very expensive purchase.  Again, don’t let emotion get in the way.  You only care about you, not how much the salesman makes in commission.  They will always say we can’t go any lower.  Its a lie.  Used cars have much more margin than new so there is much more leg room to negotiate.

Follow these steps and you will hopefully be on your way to a new set of wheels.

Well, it turns out no matter what income bracket you’re in, you probably still broke with negative net worth.

This book was a real eye opener for me.  It describes the perception and the reality of millionaires and how they got their millionaire status.  The truth is, the average millionaire is not driving a $100,000 sports car, or even a new car for that matter.  The folks driving the $100,0000 sports cars are usually just as worse off financially as the person making $8/hour if not worse.  They make more they spend more.  The doctors and lawyers may be book smart, but according to the author, they are decades behind on financial literacy.

Check it out, this is a good, inexpensive read!  Enjoy!

Link to purchase book – Used copies starting at only $.50