Personal Loans - How to Borrow Money Responsibly?

By: FIRE Finance, source: http://firefinance.blogspot.com/2010/11/personal-loans-how-to-borrow-money.html

Nowadays it is normal for the average person to have some sort of debt, whether it be school loans, a mortgage, or credit cards. After all, this is the day in age in which people are living beyond their means (according to financial experts). But is all debt bad? How much is too much? And how do you know if you are borrowing responsibly?

All these questions can be overwhelming and finding answers can be tedious and time consuming. So what does the normal borrower do? Borrow anyway. If it is a situation where the borrower needs the money for an emergency, then of course what other option do he have? In fact, at this point, borrowers can be trapped into high interest rates that charge ridiculous percentages and could end up paying nearly twice as much as they borrowed in the first place. But you can borrow responsibly, by recognizing the difference between good debt and bad debt, and doing your research about personal loans.

Easy Ways to Borrow Responsibly: Know the difference between good debt and bad debt.

Good Debt

School loans are considered a good debt. Borrowing money for the education that will insure a better job with higher pay can only be beneficial. In fact, it is proven that higher education earns higher paychecks. Workers with a four-year college degree typically earn more than 60 percent than workers with only a High School Diploma. A Master's degree will earn you twice as much as a worker with a high school diploma and a professional degree will earn you three times as much. So education is a good investment. In fact, in 11 years, graduates can earn enough to pay off the money borrowed for their first four years of college.

Real estate or mortgage loans are good debt. Investing in something that will gain value over time is... well, valuable. It ensures that as you are paying on the property which is accumulating value, and therefore promising you a return on your investment. Property investments are great investments, as long as you are smart about what you get yourself into.

Personal loans can be both good and bad depending on what you are using the money for. If for instance you are borrowing money to put a new home theater with surround sound in your basement... not good. If you are borrowing money to invest in a business in which your estimated return is double the amount of the loan (including interest) then you are doing great. Just remember, think responsibly.

Bad Debt

Credit card debt is bad debt. If you are using a credit card to buy something, than you can't afford it. This is bad debt because credit cards are used to buy things that normally decrease in value the moment you purchase them. The new stereo, DVD or outfit purchased on a credit card, decreases in value after you remove the tags and shrink wrap. While the item is decreasing in value, the interest on your credit card accumulates (unless of course you pay your balance off immediately), and you are paying a higher price for a less valuable item each month until it is paid off. A personal loan to reduce credit card debt can be a good investment.

Buying a car could seem like good debt, but the reality is that it falls into the same category as credit cards. This is mainly due to the fact that the value of the car decreases over the years that you have the loan. So once you have the vehicle paid off in full, you have paid more for the car than what it was worth, and the car has decreased substantially in value, making it a rather poor investment in the end, to say the least.

It remains to be said that if you have the cash, pay in cash. It is better to not have debt than to have it, even if it is supposedly necessary in order to gain credit. And a little research about personal loans has never hurt anyone, so be sure to do your homework before you get too deep in the hole.

For more interesting information, please click : http://firefinance.blogspot.com/2010/11/personal-loans-how-to-borrow-money.html

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12 Tips To Lower Your Heating Bill

By: FIRE Finance, source: http://firefinance.blogspot.com/2008/10/save-energy-lower-heating-bill.html

Sep 14, 2010: The cost of energy is rising everyday. Whether it be electricity, gas, water or sewage, our utility bills are becoming higher with each passing month. Consequently most of us are looking for ways to trim our energy expenses and boost our savings. As winter sets in, the cost of heating our houses will be a major concern.

The U.S. Department of Energy estimates that a typical U.S. family spends about $1,900 a year on home utility bills? Unfortunately, a large portion of that energy is wasted.

 Figure 1: How We Use Energy in Our Homes - Heating accounts for the biggest chunk of a typical utility bill [1].

Entrepreneurial or DIY (Do It Yourself) homeowners can cut down their monthly heating bills by taking action early on. Here are a dozen simple ways to slash our home's heating bills. We've divided them into two bunches of six each. The first bunch consists of easy steps which will not cost us a dime. The second bunch comprises of low cost fixes within our budget.

6 Easy & FREE Steps

1. Lower Your Thermostat

 The rule of thumb [2] is that we can save about 3% on our heating bill for every degree that we set back our thermostat. Another neat trick is to turn down the thermostat 10 degrees when we go to work, and again when we go to bed which accounts for at least a total of 16 hours a day. This could save us about 14% on our heating bill [2].

2. Turn Down The Water Heater

If we lower the temperature of water in the water heater to 115-120 degrees, it often reduces power use without a noticeable difference to the user [2].

3. Clear Heating Vents

Make sure that no vents are blocked by rugs and furniture. This prevents heated air from circulating efficiently which in turn means higher heating bills.

 4. Optimize The Use Of Fans

A hard-working bathroom or kitchen fan can expel a houseful of warm air in just one hour [3]. So perhaps it'd pay off to shut them down as soon as our job is finished.

5. Close The Fireplace Damper

 An open damper is like a hole in the roof. Since heat rises, an open damper is a sure shot means to lose heat. Moreover fires actually sucks heat from a room, so it might be a good idea to limit the use of a fireplace [2]. An easy way out is to shut the vents inside and close off seldom-used rooms.

6. Make Use Of Curtains

 During the day time we can open curtains and shades on south-facing windows to allow solar radiation to warm a living space. Similarly we can close all curtains at night to minimize the escape of heat.

 Figure 2: Heat Loss from a House - This thermal photograph shows heat leaking from a house during those expensive winter heating months. The white, yellow, and red colors show heat escaping. The red represents the area of the greatest heat loss [4].

Low Cost Fixes Within Our Reach

1. Winterize Windows

During the cold winter months we can use a heavy-duty, clear plastic sheet on a frame or tape clear plastic film to the inside of our window frames. The plastic must be sealed tightly to the frame to help reduce infiltration. Windows that feel drafty after weatherizing can be insulated by installing tight fitting window shades.

2. Use Storm Windows

 Storm windows can reduce heat loss through the windows by 25% to 50% [4]. We can install exterior or interior storm windows which are made of strong, durable materials and have interlocking joints. It's preferable to have weatherstripping at all movable joints of the storm windows. This saves even more energy.

If money is tight and we can't afford storm windows, we can use plastic film to cover those windows where a clear view isn't crucial. This will curb drafts and prevent the windows from rattling.

3. Use A Low-Flow Shower Head

A water-efficient shower head can use 25% to 50% less hot water, saving both on water and power bills [2]. And as a user chances are high that we'll not notice any difference at all.

4. Purchase A Smart Thermostat

If turning the thermostat up and down seems to be a painful job which we often forget to execute efficiently, we can get a "smart" thermostat that can be programmed to change temperatures automatically.

5. Get The Furnace In Shape

It might be a good idea to replace the air filter according to manufacturer's directions to make our heating system operate more efficiently. Often a clogged air filter can cause our heating unit to stop working. Oil-fired boilers should be cleaned and tuned annually, and gas systems, every two years. These simple steps can save us between 3% to 10% on heating bills [2].

6. Seal Leaks

Plugging small gaps surrounding windows, doors and other areas can save us up to 10% on our heating bill [2]. The first step is to find the leaks. On a windy day, we can hold a lit incense stick to the most common drafty areas like chimney flashing, recessed lighting, sill plates, window and door frames, all ducts and electrical outlets to track the gaps. We can use door sweeps to close spaces under exterior doors, and caulk drafty spots around window frames. Movable joints can be weather-stripped. Outlet gaskets can be used in electrical outlets in our home's outer walls, where cold air often enters.

These home improvements will not only lower our heating bill but will also give us a chance to qualify for tax credits. Consumer Energy Tax Incentives [5] gives homeowners:

Consumers who purchase and install specific products, such as energy-efficient windows, insulation, doors, roofs, and heating and cooling equipment in existing homes can receive a tax credit for 30% of the cost, up to $1,500, for improvements "placed in service" starting January 1, 2009, through December 31, 2010.

In contrast to a deduction, which only decreases taxable income, a credit is a dollar-for-dollar reduction in taxes.

Since the cost of energy is higher this year, with some planning and action we can cut down on our heating bills. We look forward towards hearing your thoughts about saving money on keeping ourselves warm this winter. Please leave a comment :).

Reference(s):

1.            2009 Building Energy Data Book, Table 4.2.1

2.            American Council for an Energy-Efficient Economy

3.            Department of Energy - Your Home

4.            Energy Efficiency and Renewable Energy - Your home's energy use

5.            Consumer Energy Tax Incentives

For more interesting information, please click : http://firefinance.blogspot.com/2008/10/save-energy-lower-heating-bill.html

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Three Good Habits of Successful Retirees

 By: FIRE Finance, source: http://firefinance.blogspot.com/2008/03/three-good-habits-of-successful.html

Jul 12, 2010: Vanguard's chairman and CEO Jack Brennan has nearly three decades of valuable experience in investing at this great firm. He has observed that successful long term investors share some common traits. Here is our spin to his observations.

1.            Plan Ahead: Successful retirees planned well ahead of time to meet their retirement's financial needs and they walked the talk triumphantly. This planning process helped them to figure out the amount of money they would need to retire. Most of them also had a good idea about their location of retirement and a target portfolio size that would complement any other guaranteed income stream.

2.            Relatively Low Overhead Expenses: Another good habit that helped people to retire successfully was their ability to keep retirement expenses in check. Most of them were either debt free or minimally indebted on their real estate properties when they retired. That meant no new fancy homes at the age of 65 which would've implied new mortgage and fresh debt! A low overhead gives us greater financial flexibility since there are lot of uncertainties once we're retired.

3.            Diversified yet Growing Portfolios: Retirees who triumphed had very diversified portfolios which minimized its volatility. One of the greatest challenges for a retiree is to beat inflation. A 3% inflation can double the cost of living in approximately 25 years.

Brennan mentions a straightforward way of dealing with inflation in retirement is to keep the portfolio growing. He says that retirees should hope to earn a real return which is above the inflation rate to keep their real purchasing power intact over time. And to make a retirement successful one should have the discipline to consume only that much of a portfolio's returns which is above inflation.

For example, if the inflation is 3% and a portfolio's annual returns is 6%, then a retiree should spend only 6% - 3% = 3%. This is extremely important since a retiree's ability to beat inflation is much less than that of someone who is employed.

Having a growing portfolio during our retirement is a big change from theoretical practices which advocates a predominantly bonds dominated portfolio. Brennan thinks that such a portfolio will no longer be sufficient to meet a retirees needs today. Our life span has increased and if we want a good return on our assets after we spend some of them we've got to take some risks. In short, during retirement taking too little risk is a big risk!

 To have a carefree retirement in addition to the above traits, it is important to have a periodic check up of our portfolio. If we love personal finance and are knowledgeable we can do it ourselves else we've got to seek professional advice. Brennan advises that while looking for a financial adviser, knowledge and experience in retirement planning are not enough. Two most important qualities that we should keep in our minds while deciding on an adviser are trust and shared values. If we can totally trust the person and he/she shares our outlook and core values then we'd be fine.

We acquiesce with Brennan :). Please let us know your view points and experiences about good habits that would lead us to successful retirement.

For more interesting information, please click : http://firefinance.blogspot.com/2008/03/three-good-habits-of-successful.html

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Want To Be A Millionaire? Follow the YAWN Philosophy

By: FIRE Finance, source: http://firefinance.blogspot.com/2008/08/want-to-be-millionaire.html

Jul 05, 2010: Most of us want to be millionaires. And if we can be one while we are young, it's a double whammy! After all, the best time to enjoy our wealth is while we are young and healthy. In the process of chasing wealth, if we run out of time, the "millionaire" tag is not that attractive, isn't it? Well the last time we checked, we found that we still can't take our money with us :).

The next obvious question is the feasibility of such a proposition. Current times have produced a bunch of young and wealthy millionaires. The Sunday Telegraph of London has given them a name, YAWN - Young And Wealthy but Normal.

YAWNs are twenty and thirty something millionaires who prefer to live quietly outside the spotlight. They are modest, environmentally conscious, do not like excess and give back to their communities. In a nutshell they are wealthy, frugal and socially aware. Sounds too good to be true? Here is a case study:

 Rik Wehbring - He is in his late thirties and lives in San Francisco. Rik is a dot-com millionaire who made his wealth working for several Internet startups. The frugal part of the YAWN philosophy is demonstrated by the fact that he gets by on $50,000 a year. That indeed is a feat considering the fact that San Fransisco is one of the costliest cities to live in US. Rik is a self proclaimed frugal guy who does not need a lot of material possessions. He does not have a TV, listens to music on a $20 MP3 player and drives a gas-thrifty and environment friendly Toyota Prius.

Now let us explore the basic tenets of the YAWN philosophy. There are three of them. Most of us are already familiar with them. All we need to do is to implement them to reap their benefits.

1.            Live Below Your Means: This principle is one of the simplest ones. All of us know it yet we have a hard time putting it into practice. A one liner that sums it up is "Don't spend money that you don't have."

2.            Buy Stuff That You Need: We need a subtle awareness to identify the difference between our needs and wants to put this tenet into practice. Sometimes the line is thin but if we are really keen our conscience and perseverance do help us. All of us know that unnecessary stuff sitting around our homes is of no good to anybody. We'd rather invest our money, spent on unnecessary stuff, to earn interest for us. If we make our money work hard for us, we can take it easy by retiring early :).

3.            Help Others By Giving Back: Given a choice we'd all like to leave the world a better place for our next generations. We can put this concept into practice by lending a helping hand to those in need. It not only aids our community but also leaves us with a generous heart and sense of fulfillment. After all, many hands do make a miracle.

From experience we know that serving our community is extremely rewarding. And for those of us who are still wondering of what good is giving away wealth for charitable causes, here is the answer: It gives us good karma. Put simply it means, what goes around comes around. And to that end, we leave you with a quote worth contemplating:

We make a living by what we earn, we make a life by what we give. Winston Churchill

For more interesting information, please click : http://firefinance.blogspot.com/2008/08/want-to-be-millionaire.html

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The Mistake Of Timing The Market

By: FIRE Finance, source: http://firefinance.blogspot.com/2007/03/investing-mistake-of-timing-market.html

Jan 28, 2011: Have you ever wondered about the fact that even after a decade long relationship, sometimes it seems that we hardly know the other person! Sounds familiar isn't it? If the behavior of a single human being can be so unpredictable then what is our take about the cumulative behavior of millions of investors all over the world? Our observation is that such behavior is utterly unpredictable and apparently irrational!
We sometimes ponder and try to speculate the market. Basically we try to time the market to maximize our gains. Often we give up in despair! There are so many factors to be taken into account, volumes of information to be considered (not all of them are all reliable either) and finally there is a humongous number of unknown parameters that may influence the market! How on earth does one tackle all that?
We believe it's simply not possible to successfully time the market consistently over a long period of time. We have friends who try to do so. They hope to profit on the upswing and sell out during the downward movement of the market. Then there are those who get in and out at the drop of a hat aka the average impulsive investors.
Which strategy do you think is the most rewarding: buy and hold, impulsive or market timing? Here is some evidence to enlighten us in this regard. Let us study the following chart.
• It depicts annualized average returns for a 20 year period from 1984 to 2003.
• Three different investor behaviors are considered - buy and hold, impulsive and market timing.
• The first set of bars show investments made in a 100% stock mutual fund.
• The scenario for investing in a 100% bond mutual fund is shown in the second set.
• Inflation has not been accounted for. Average annual inflation for 1984-2003 was 3.1%.
• Buy and hold investor simply bought a S&P 500 Index fund for stocks and Lehman Brothers Long Term Government Bond Index fund for bonds.
• Dividends were reinvested.
Surprising isn't it? Not once in our wildest imaginations did it occur to us that market timed investing would be the worst performer. But this set of data says so! Amusingly we notice that the average impulsive investor did better than those who tried to time the market!
We encourage you to do your own research and determine a suitable strategy for yourself. It would be extremely interesting to know about your findings. Please share your opinions with us.
Data Source(s): Dalbar Inc., Quantitative Analysis of Investor Behavior, 2004.
For more interesting information, please click : http://firefinance.blogspot.com/2007/03/investing-mistake-of-timing-market.html

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