How to Save Your First $100,000

Perhaps these past few years would be the ones that highlighted uncertainty. Everything that we thought would be rock solid had come crashing down.


Financial institutions, companies and countries have all stumbled and are struggling to stand back up. Even the weather was highly erratic. It's not at all unusual to worry and wonder how you will weather the storms that enter your life from time to time.

Financial stability, apart from being able to pay unexpected bills, funding your child's education or your own retirement, gives the confidence and strength to go through everyday life. By saving money and increasing your income you too can move towards earning your first $100,000. And once you do that, the way to the next $100,000 becomes easier.

The Right Mindset
Saving your first $100,000 is a goal that is neither short nor easy. To get there you need to start training your mind. You need to understand how to achieve this goal and plan accordingly. If you are the kind of person who rarely notes your expenses or budgets, now would be the time to start. All actions need to be oriented towards achieving this goal. Saving could start from reducing that daily Starbucks habit or taking a bus to work. If you understand that these are minor sacrifices for a little less financial uncertainty, the going will be smoother.

Create Short-Term Saving Goals
It's all very well to imagine yourself in a country home post-retirement, but that may not get you going for now. Break your saving goals into further short-term goals. They could be even be weekly goals. For example, a man who ran a dry-cleaning service decided he would take some small change everyday and put it in his daughter's college fund, starting from when she was five. This did not hinder his business or his day-to-day life, and he had a tidy sum by the time his daughter was ready to go to college. The earlier you start and the smaller the amounts are when you first start, then you'll know you have started covering the distance of a long journey. You could have daily saving goals too. This will help keep you fired up for the longer goals. Savings accounts, certificates of deposits, money market deposit accounts and government bonds are good short-term money saving instruments. A savings account is particularly useful as an emergency fund keeper. These instruments also earn you an interest on your savings.

Save on Taxes
If you are employed and your employer is enlisted, go for a 401(k) tax deferred saving plan. The amount you contribute to the plan and the earnings on it are tax-free, until you pull it out for retirement. The percentage you contribute also reduces your taxable income by the same percentage. Early on in your career, you can invest in stocks more aggressively. If your employer is not enlisted with a 401(k) plan, then you could go for an individual retirement account (IRA). Earnings in an IRA account are also tax deferred. To enroll in either, all you have to do is fill out a simple form and contribute. This is a structured way to save, where the interest is compounded, with tax savings to boot.

Reduce Your Interest Burden
We want it all. We want the home, car, home theater system or the double door fridge. With a few easy key stokes online and we can have it. It turns out that instant gratification has a hefty price that could take years to repay and even years off your life. Prioritizing debt and reducing it is the first critical step to saving. Take a look at all of your loans and see how long it will take you to whittle them down. If you do have savings or fixed deposits, you can liquidate some to reduce your debt burden. If you get a bonus or a dividend, think of prepaying a part of your mortgage to reduce your interest burden. In the case of credit card debt, talk to your credit card company and negotiate for a lower rate if possible. Companies are sometimes offering to take on other credit card company loans at a lower interest in their pursuit of new customers. If you need to take out a loan, make sure you look around carefully and take money with the least interest. You will be surprised how many people don't. Do ask friends and family who might be willing to extend interest free loans for shorter periods.

Take Advantage of Employee Benefits
Look at how your employer can be your partner in your savings goal. Many employers contribute an equal amount to 401(k) plans. Contribute aggressively. Avail any other benefits your employer may provide like special discounts at stores, coupons or health plans. If your employer provides assistance for skill upgradation or 'back to school' programs, use them.

Generating Additional Income
Generating revenue is the other oar that will help you reach the $100,000 goal faster. Do you sew, do some other craft or teach? These are some hobbies that can help rake in some extra money. You could tutor children for a few hours or sell your crafts at the weekend market. You could spend some time investing in stocks or do some freelance projects. Don't let any of your skills or talents go to waste. They will help you earn some more money and keep you more fulfilled.

Keep Costs Low
There are always things you can do to keep your costs down like make more home dinners, walk short distances rather than take the car, read online rather than taking magazine subscriptions, take your kids to the park or zoo rather than the local mall, buy your groceries in bulk for the month and you will save more, stop smoking, take lunch to work, use your car until it can't be used anymore, buy a house within your means, if not rent, if you are not using that gym membership then don't renew it, recycle and reuse, use alternative energy to light and heat your home and you can sell what you don't use. The list is endless. There are many possibilities of saving in our everyday life. The dollars and cents will all add up to your $100,000 goal. Your quality of life will improve and not suffer.

The Bottom Line
Getting to your first $100,000 can be fulfilling, with many financial and non-financial insights along the way. It could mean redefining the way you live now, or strengthening it. Be it emergencies, or greater financial maneuverability and therefore opportunities, getting to that first $100,000 is a good habit to learn and keep.

Source: http://ca.finance.yahoo.com/news/save-first-100-000-211901602.html

3 Ways the Federal Reserve Is Impacting Your Money

They may not have access to the armed forces but it is often argued that the chairman of the Federal Reserve has a level of global power and influence that rivals that of the U.S. president. While most investors know the name of the current Fed chief, Ben Bernanke, how his decision-making impacts your money is much more elusive. In this installment of Investing 101, we address how the Federal Reserve's policy-making decisions impact your investments in stocks, bonds, and commodities.


1. Fed Liquidity & Stocks

The role of the Fed is simple on paper. The entity exists to carry out a dual mandate to use monetary policy to promote maximum employment and stable prices (keep inflation in check). That's it. While many critics believe the 2008 financial crisis caused the Bernanke Fed to stray beyond their traditional mandate, the debate is best left to the scholars.

What you need to know is whether the Fed is lowering interest rates or adding money or taking other actions that support or nurture economic growth --generally referred to as an "easing cycle."

"When the Fed is adding liquidity into the system, it's good for stocks," says Doug Roberts, author of Follow the Fed to Investment Success. "If they're not injecting liquidity (which is called ''tightening") and there's a crisis where the economic system is contracting, it's bad for stocks."

But it's not as simple as higher rates versus lower rates.

"I think you have to really look at what the Fed is doing," says Roberts. "If you rely on what they're saying, it's sometimes confusing."

The Fed holds eight regularly scheduled meetings per year, and it seems each one captivates Wall Street's attention. Investors go to great lengths to detect any hints that the Fed might be changing its policy direction and economic outlook.

2. Interest Rates & Bond Yields

Like stocks, your bonds are also impacted by rising and falling interest rates or other actions of easing and tightening by the Fed. Simply put, if the Fed is easing, or cutting interest rates, the value of your bonds will typically go up. But, if rates go are going higher, the value of your bonds that pay a lower percentage rate, will go down.

At the same time, you must remember the second part of the Fed mandate --price stability/inflation. Be aware that a rate hike is the surest method known to slow inflation, but there's a catch.

"Bonds can do well when the rate of inflation is higher than short-term borrowing costs," Roberts says, but points out when that it occurs, it's typically a good time to own gold.

Outside of its interest rate policy which has kept rates near zero for the last three years, the Federal Reserve is currently deeply involved in the bond market by directly purchasing bonds. These unprecedented actions, done under the banner of quantitative easing (or "QE" for short), have had an enormous effect on the marketplace, no different than if an extremely wealthy investor were suddenly buying up houses, lumber or gold.

3) The Fed's Impact on Gold & Commodities

Speaking of gold, the precious metal's role as an investment that can protect you from inflation is just part of the reason that it is effected by the words and actions of the Federal Reserve. Because the dollar is directly linked to the rise and fall of rates, Roberts says ''depreciation of the currency" has as much, if not more, impact on commodity prices.

Therefore, falling rates and a falling dollar tend to increase the appeal and price of gold, oil and other commodities.

"These assets by nature, are volatile even in goods times, so you have to be prepared," Roberts cautions, reiterating the need to pay attention and be aware of how the Fed's easing and tightening impacts virtually all asset classes.

Source: http://finance.yahoo.com/blogs/breakout/3-ways-federal-impacting-money-143146902.html

How Diversifying Can Boost Your Returns

Although the benefits of diversification are well known, new research underscores the benefits of moving beyond stocks and bonds, as well as domestic, international, and emerging-market equities.


For instance, both small-cap and value stocks are now known to have unique risks that make them effective diversifiers of large-cap and growth stocks. Small-cap and value stocks also can provide higher returns (or risk premiums) than large and growth stocks, while studies have found that there's a momentum effect, as well -- and it, too, has provided a large premium.

Erik Hjalmarsson, of the division of international finance of the Federal Reserve Board, studied the performance of long-short portfolio strategies formed on seven different stock characteristics over the period 1951-2008. Three of the strategies were related to momentum, as follows:

• Short-term reversals defined as the prior month's (t-1) return
• Medium-term momentum defined as the returns from month t-12 to t- 2
• Long-term reversals defined as the returns from month t-60 to t-13

Three strategies were related to the value factor:

• Book-to-market value
• Cash flow-price
• Earnings-price ratio

The other strategy was based on the size factor. The performance of the individual single-characteristic portfolios was then compared to an equally weighted portfolio measuring the combined performance of all the single-characteristic ones. Hjalmarsson's findings:

• Each individual stock characteristic resulted in a profitable portfolio strategy.
• The equally weighted diversified portfolio almost always delivered substantially better Sharpe ratios than any of the single-characteristic portfolios.
• The benefits of diversifying across characteristic-based, long-short strategies were substantial and can be attributed to the mostly low, and sometimes substantially negative, correlation between the returns on the single-characteristic strategies. Specifically:
  
  • As should be expected, the three valuation ratios resulted in portfolio returns that are fairly highly correlated with each other.
  • The valuation ratios were mostly negatively correlated with short-term reversals, only weakly correlated with momentum, and generally positively correlated with long-term reversals.
  • The size factor was most highly positively correlated with long-term reversals and negatively correlated with momentum.
  • Short-term reversals were fairly strongly negatively correlated with momentum and weakly positively correlated with long-term reversals.
  • Momentum and long-term reversals exhibited a fairly large negative correlation.
• The results were statistically significant.

Although a full analysis of transaction costs was outside the scope of the study, Hjalmarsson concluded that there were was good reason to think that the results would remain the same after controlling for these costs. The results of this study reinforce the idea that more efficient portfolios can be built by diversifying across multiple factors.

Source: http://www.cbsnews.com/8301-500395_162-57395289/how-diversifying-can-boost-your-returns/

401(k) Or IRA? Workers Who Contribute To Both Save More

Americans often view saving for retirement as a choice between contributing to a workplace 401(k) plan or funding an IRA, even though the majority of people are allowed to contribute to both at the same time.


A new report by Fidelity Investments indicates that as companies cut down on pension plans, more workers are contributing to both Individual Retirement Accounts (IRA) and 401(k) plans. Those who contribute to both end up saving much more overall, the study showed. In addition, workers are more likely to save for retirement if they seek financial advice.

On average, Americans have saved either $5,750 annually in a workplace 401(k) account, or $4,150 in an IRA account, far below the maximum limits allowed, according to Fidelity's research. Workers under age 50 could contribute up to $16,500 to a 401(k) plan in 2011. The maximum IRA contribution for the same age group in the 2011 tax year is $5,000.

Employees who only have 401(k) accounts have saved an average total of $69,100. But people with combined accounts stashed away an average of $212,600 for retirement, according to Fidelity's study.

Saving for retirement in a tough economy isn't always a priority, though. While most U.S. households are eligible to
make contributions to IRAs, only 14 percent of them did so in 2010, according to data from the Investment Company Institute. And 401(k)savings plans aren't available at every employer. In 2012, only 74 percent of employed workers were offered any kind of retirement plan at work, down from 77 percent in 2007, according to the 2012 Retirement Confidence Survey, published by Employee Benefits Research Institute this week.

In addition, workers are taking a more active role in their savings, and many are looking to financial professionals for advice.

Between 2008 and 2011, there was a sharp jump in the number of Americans seeking guidance with their retirement saving plans, Fidelity said. One-on-one retirement planning sessions grew 48 percent in the three-year period. Attendance Fidelity's retirement seminars has increased 68 percent, the Boston-based company said.

"More investors are seeking guidance, and that is positively impacting the overall savings rate," said Beth McHugh, vice president of market insight for Fidelity.

The largest provider of IRA accounts in the United States, Fidelity had $725 billion in IRA assets under administration in the second quarter of 2011.

Source: http://www.huffingtonpost.com/2012/03/15/401k-ira-retirement-savings_n_1345833.html

Despite Economic Turmoil, 72% of Americans Are Optimistic About their Futures

Surprisingly, despite the economic challenges that have rocked the nation, Americans remain positive about their futures, with 66% of Americans reporting that their lives are headed in the right direction, according to the MOOD (Measuring Optimism, Outlook and Direction) of America survey released today by Lincoln Financial Group (NYSE: LNC). Americans who say they feel "in control" have a mindset that is not primarily defined by income or employment status; instead, their optimism is driven by an attitude of determination and personal empowerment. In fact, these Americans believe that success in life is determined by forces within an individual's control, and that they can always find ways to solve problems.


Of the 803 adults polled by Whitman Insights Strategies, a strong majority (72%) is "very" or "somewhat" optimistic about their futures and 66% feel in control of their lives. These are individuals who say they feel at least "somewhat" in control of their personal lives, financial futures and health. Ironically, Americans feel in greater control of their health (51%) than of their financial futures (27%).

"Americans who feel in control of their destinies share a common mindset – one that is focused on positive, constructive behaviors every day," said Mark Konen, president of Insurance and Retirement Solutions for Lincoln Financial Group. "Nonetheless, we were surprised to learn that Americans feel more in control of their health than their financial futures. Despite the best intentions with diet and exercise, nobody can predict accidents or illnesses, so it's critical to plan one's future with an eye on holistic health and financial well-being. Fortunately, there are numerous products and solutions available that allow you to take control of your financial future throughout each stage of life."

The MOOD of America poll examined Americans' attitudes and behaviors toward their health, personal life and finances, and uncovered key behavioral and attitudinal factors that are strongly associated with feeling in control of one's life. The top five behaviors and traits of Americans in control of their lives are:

• Valuing and cultivating their personal relationships
• Volunteering in their communities and giving to charitable organizations
• Taking quiet time to be alone and think
• Exercising and spending time on a hobby
• Adhering to a budget and saving for retirement

"While it's not particularly surprising that 'take charge' Americans exercise and spend more time with their families and communities, we were surprised to learn that they also go to the movies more often than those not in control of their lives," added Konen. "In fact, the combination of traits that apply to 'take charge' Americans shows that these people strike just the right balance: they value alone time, but also invest in their relationships with friends and family; they enjoy leisure time and taking long walks, but also make time to sit down with their paperwork and adhere to a budget."

It's Not about the Money
Americans in control are not driven by the desire to be wealthy. In fact, Americans "in charge" consider financial freedom – having enough money to do what they want to do – to be four to five times more important than being wealthy.

Although nearly half of those in control of their lives (46%) say they do not have enough money to live on when they eventually retire, and a third (34%) reported an annual household income below $50,000, an overwhelming majority (84%) are very or somewhat optimistic about their financial futures.

Americans in control have taken concrete steps to build financial security such as establishing a retirement account and owning other financial products, including life insurance. They are also more likely to stay within their budgets and save money from every paycheck regardless of the amount.

"The encouraging news here is that regardless of income, there are Americans who have taken concrete steps to create more secure futures," said Charles Cornelio, President of Retirement Plan Services for Lincoln Financial Group. "Our goal at Lincoln is to help people approach retirement planning with a positive frame of mind, so that they can achieve their goals. We focus on motivating people to take actions that lead to better retirement outcomes."

Additional Survey findings:

• 51% of consumers report being very much in control of their health, but only 27% say they are very much in control of their financial futures.
• 50% of consumers in control of their lives go to the movies vs. 33% of those who say they are not in control.
• 63% of those in control of their lives regularly put money away for retirement vs. 35% of those who say they are not in control.

"Overall, 'take charge' Americans feel empowered to solve their problems," continued Cornelio. "At Lincoln, we want to help all Americans adopt this powerful sense of optimism about their financial futures."

Source: http://www.prnewswire.com/news-releases/despite-economic-turmoil-72-of-americans-are-optimistic-about-their-futures-135089778.html