January 2013

How To Use The Pareto Principle To Save A Ton Of Money

Have you ever noticed that a large portion of our lives are dominated by a small portion of things? It’s called the Pareto principle or the 80/20 rule. 80% of our lives are ruled by just 20% of the most important things. My mother was a high school math teacher, and she would spend 80% of her time dealing with 20% of her problem students. This is just one simple example of how the Pareto Principle is at work in our lives.

There are so many more examples of where the Pareto Principle dominates factors of our lives. And, the Pareto Principle extends to our finances as well. Whether you are a consumer or as an investor the Pareto Principle makes its way into our lives whether we like to admit it or not or we even realize it.

How Much Clothes Do You Wear From Your Closet?

Have you ever look at how many pieces of clothes that you have in your closet? I hate to admit it, but I have almost just as large a closet as my wife. I have just as many shirts, jeans, slacks, and suits as she has dresses, shoes, and purses. Looking at my closet though I can see the Pareto Principle alive and well.

When I try to decide what shirt to wear in the morning I find myself gravitating towards a certain select few. When in fact, 80% of the time I select only 20% of the shirts that I own to wear day to day. It is the same 20% of the shirts in my closet that I wear day in and day out. While this may not tied directly to personal finance, it does show that we do spend an enormous amount of our money on many things that we don’t even use.

How Many Television Channels Do You Watch?

How many television channels do you have that come with your cable package? Or, how many television channels do you get from your satellite TV? Inevitably Americans watch a lot of TV and have access to a lot of television channels.

But, how many do we really watch? The Pareto Principle is alive and well in our television watching patterns. I am willing to bet that most of us have several favorite television channels that we watch consistently.

Even most televisions today have buttons right on the remotes to help us identify, remember, and easily return to our favorite television channels. I am willing to guess that most of us have about 10 or maybe even 20 favorite television channels. But, if we have almost 200 channels to choose from, we are not even spending 80% of our time watching 20% of the channels that are available to us.

Instead we are only watching 10% the channels out of the 200 that are available to us. We are not even getting to 20%. Can you get by with the smaller cable package and still continue to watch the same amount of channels that you normally typically do during the week? I’m willing to bet that you can if you just simply admit that we are a victim of the Pareto Principle.

12 Personal Finance Books I Am Reading This Year

by Hank Coleman

I am a book junkie. My goal is to have a wall of books or my own personal library like a college professor. That’s one reason that I wrote the 10 best personal finance books I have on your bookshelf last year which included The Total Money Makeover by Dave Ramsey, Crush It by Gary Vaynerchuk, The Automatic Millionaire by David Bach, and several other great personal finance books that everyone should read. So, I thought it would be interesting to talk about what I am going to read this year throughout the year. This year I’m going to read 12 personal finance books or at least one per month. Later I will be sure to include my reviews for each of these … Read more

Top Tips for Starting a New Business and Making Money

by Guest Contributor

As the UK is still suffering financially and running the risk of a triple-dip recession, it may seem like the worst time to start a new business. However, this year could be the best time to start a new business as long as you take the steps to improve its chances and make money. You will need to have a great business idea, the marketing skills and the flair for networking to succeed. Here are top tips for making money with your startup this year. Find Gaps in the Market You need an idea – and a good one! You need to find something that has little competition and where there is a gap in the market. This means looking around and … Read more

Where To Invest $1,000 In Today’s Market

by Hank Coleman

Do you have a lot of money sitting idle? Do you know where to invest 1000? There is a lot of cash on the sidelines of the market. People have been scared and have a significant amounts of money sitting on the sidelines, under their mattresses, and in savings account earning little to no interest.

There are better places to put this money to work like investing in the stock market. While $1,00 seems like a lot of money in today’s standards were people are having so much of a hard time making ends meet, in the grand scheme of things it is not altogether too difficult to find where to invest $1000 in today’s market.

Here are ten excellent places where you can invest $1,000 today. While you’ll see some of these ideas are using the term investing loosely, it is investing in the broader sense of the word.

Ten Places Where To Invest $1000 Today

1. Pay Off Your Debt – One of the best places to invest $1,000 today is in paying off your consumer debt whether that be credit cards, a car loan, or any other type of consumer debt.

Paying off your debt is the equivalent of Burning the same amounts that your pain and it just right as you would from an investment. For example, if you have a credit card that is charging 16% annual interest rate and you pay that credit card off, then that is the equivalent of you earning a 16% rate of return on your money.

2. Build Your Emergency Fund – Another excellent use of $1,000 in today’s market is to continue to build your fully funded emergency fund. Popular radio host and best-selling author, Dave Ramsey, recommends that everyone start with at least $1,000 in a bank account as a starter emergency fund. This is his baby step one from his book and financial plan, Total Money Makeover.

The Total Money Makeover is also one of my top 10 personal-finance books that should be on everyone’s bookshelf. Actually is the number one book that everyone should read and should have a prime place on your nightstand.

3. Invest In Index Funds – For brand-new investors, the best the best place to start is an index fund which mirrors the stock market. You can either invest in index funds that follow the S&P 500 index or the Dow Jones industrial average. I typically recommend starting with an index fund that mirrors S&P 500 index. S&P 500 is the best index that closely resembles the overall US economy. You should be investing in the stock market.

4. Start A 529 College Savings Plan – If you have already started saving for your retirement, another great place to start investing your $1000 is a 529 college savings plan for your children’s college education. Like a Roth IRA, a 529 college savings plan lets you invest your money in mutual funds that continue to grow and earnings can be withdrawn tax-free as long as those earnings are used for educational expenses.

5. Invest With Lending Club – For the more advanced investor, I always recommend investing in Peer to Peer lending through Lending Club. Lending Club allows investors to earn a higher rate of interest and you normally would from a CD, savings account, or even from the stock market as a hole in most cases.

I have been using Lending Club for over four years now to hurt a higher rate of return than I normally would have with other investments. While I would not recommend investing all of your money with peer-to-peer lending, is a great way to supplement your investments.

Lending Club allows you to invest directly in borrowers who are looking for money for things such as debt consolidation, home repairs, cars, and many other reasons. Peer-to-peer lending allows borrowers to skip the bank and receive a better interest rate for their loans. It also provides a greater rate of return by skipping the bank for investors looking for a little more return.

How To Invest Money Like A World Class Poker Player

by Hank Coleman

I used to love to play Texas Holdem Poker. I still do, but I also have to know when something starts to become habit forming and possibly not healthy. Believe it or not, but there are a lot of things that investors can learn from poker players that will make you a better investor in the long run. You can learn how to invest money like a poker player.

There are a lot of similarities between the two. Here are ten attributes that I wanted to highlight how to invest money like a world class poker player. There are some great insights that can be drawn from the world of poker and applied directly to investing. Here are a few of my favorites.

How To Invest Money Like A World Class Poker Player

Know When To Hold’em

Like the classic Kenny Rogers song, The Gambler, you have to know when to hold them and know when to fold them. Of course, Kenny was talking about the cards that you have in your hand. But, the same can be said for stocks or even mutual funds. You have to know when to keep them and when to sell them.

Do you have a strategy? Did you buy a certain stock for a certain reason and you’re waiting for it to pan out? These are all things that you need to consider when investing just like a poker player thinks about when he or she sits down at the poker table to play.

Know When To Fold’em

There is no shame in calling it quits with a certain investment that did not pan out. It is often better to live to fight another day than to go down in complete flames with all of your money. Jim Cramer recommends in his book, Mad Money, to set a certain percentage (say 10%) of a loss as a trigger for you to automatically sell a position that you have in a company’s shares.

While Cramer’s book isn’t one of my top ten personal finance books that should be on your bookshelf, it is definitely well worth a read especially for people investing in individual stocks.

Play With The House’s Money

This is one of my favorite things to do when investing. I will often sell a position that I have had a lot of success with and get back my initial investment. Then, I will let my profits continue to run.

This is playing with the house’s money, the casino’s money or other people’s money…not your’s. This is also akin to using the interest that you earn from an investment to earn passive income and reinvest the proceeds into new investments. This is exactly what I do to earn a passive income with Lending Club. You can learn how to invest money.

Patience Is The Key

It takes patience to land on that incredible hand in poker. If a player is playing tight or only playing the best pair of cards, he or she could wait a while to strike. The same of course can be said for investing. You may have to stalk a company waiting for a pull back of its stock price to pounce on it. You may have to be patient to let your strategy play out.

Separating Finances When You Are Separating

by Guest Contributor

The following is a guest post by Angie Picardo is a staff writer for NerdWallet, a personal finance website dedicated to helping consumers. If you would like to write an article for Money Q&A, please visit our Guest Posting Guidelines page. Today, it is almost rare to know people who’ve never been divorced. However, just because we are more familiar with divorce does not mean we are well equipped to handle divorce finances. How can those separating separate finances in a healthy, respectful, and responsible way? Here are some key steps to consider. First of all, keeping emotions from influencing financial decisions is an important first step. Of course, while this may sound like a “duh,” many people know what can happen in the heat … Read more