For decades, the only type of mutual fund that you could buy was a traditional, open-end fund that offered shares directly to you. But many investors have become increasingly frustrated with these over time because of their relatively high expenses, illiquidity and inability to beat the markets over time. Fortunately, a new breed of mutual fund appeared in the late 1980s that offers greater liquidity, lower costs and superior performance. Exchange-Traded Funds (ETFs) represent the next generation of mutual funds, and they can provide you with a more efficient return on your money once you learn what they are and how to use them.
Like traditional mutual funds, ETFs offer diversification and professional selection of securities or asset classes, such as stocks, bonds, real estate, commodities and precious metals. Many ETFs represent a foreign securities exchange. There are also ETFs that allow you to leverage the markets in either direction; that is, they will increase or decrease in value (possibly by several hundred percent) when the markets rise or fall.
Regardless of what they invest in, the tax rules for ETFs are much more straightforward than for their traditional counterparts. Mutual funds are often taxed when they are sold and are taxed based on their accumulated capital gains, which were generated in the fund and given to investors each year. But ETFs do not accumulate gains and losses within the fund in this manner, and investors will simply calculate gains and losses based upon their purchase and sale prices, making them much more tax efficient. ETFs are also much cheaper to buy and sell than traditional funds, which can assess hefty sales charges for purchases or redemptions.
Investing in ETFs
Getting started with ETFs is easy. First, you need to figure out what your investment objectives are. Are you looking for long-term growth, income or some combination of the two? Then you need to search for ETFs that fit your objective. There is at least one ETF available for every investment objective under the sun, so keep looking until you find exactly what you are searching for. Then you will need to open a brokerage account either online or with an investment firm in order to purchase them. ETFs are excellent investments if you want to time the markets because of their low transaction costs. But if you want your ETFs for the long term, then you may be faced with the temptation to sell them whenever they decline in price, which can disrupt your investment strategy and cause you to miss out when the market rebounds.
ETFs provide liquidity, transparency and diversification in a single tax-efficient vehicle with minimal expenses and low transaction costs. For more information on these unique instruments, consult your financial advisor.
High school. College. Internship. Graduation. Job. We all know the typical path to success and the steps we should take to get there. But many students have chosen a more unique direction to success and that often includes attending college at a later age. These students are usually referred to as non-traditional students. We are not talking about “gap year” students only taking a year off, although many programs that cater to non-traditional students will still accept those with a year or more gap between high school graduation and college entrance.
Students attend college as adults for many reasons. Some had careers that required them to work during their traditional college age years. Celebrities and athletes may not want to interrupt the prime career development years of their late teens and early 20s. Professional dancers might find their career coming to an end earlier than those in most professions and decide to retrain for another career path. Young people may want to complete military service. Or maybe school wasn’t right for them and they dropped out only later to decide they were now ready to complete their formal education.
For some students, returning to school as a non-traditional student opens up opportunities to attend Ivy League colleges that may have been impossible for them coming out of high school. Institutions such as Columbia University School of General Studies, Harvard Extension School, Yale’s Eli Whitney Program and Brown's Resumed Undergraduate Education (RUE) program all have dedicated programs or schools specifically for non-traditional students. These programs usually have different admissions requirements and take into consideration the potential student’s life experience, as well as their academics.
New York University's Paul McGhee Division for non-traditional students will even work with students to turn their life experiences into actual class credits. By proving you have already learned a subject through work or personal study that might be part of the core curriculum, a student can develop a portfolio to present to the school for credit. Another popular way of gaining credit for existing knowledge is the College-Level Examination Program (CLEP) test which is accepted at over 2,900 colleges and universities. By taking advantage of these opportunities, a student will graduate faster and save money.
Searching for an apartment can be stressful. You’re trying to find the best location, a reputable management company, a great apartment, and all while staying in budget. The apartment you choose drastically can affect your finances. But keep in mind that it isn’t just the monthly rent that you’ll be paying for. There are actually many other costs that you might not realize right away. Here are some hidden fees you may encounter while renting an apartment:
- Application Fee: You may have to pay a fee for simply filing out an application to rent an apartment. This fee can be charged since it takes time for someone to go over your application and approve you to live in the complex.
- Administrative Fee: This charge covers a background check, a credit check, and so on, that your landlord may perform.
- Security Deposit: This fee will depend on the value of your apartment and can vary greatly. When you move out, someone will inspect your apartment to see if there were any damages throughout the time you lived there. If there are damages, they estimate the cost and deduct that from the security deposit you gave when you signed the lease. To ensure you’ll get your security deposit back, thoroughly document any existing damage in the apartment before signing.
- Move-in fees: Some complexes are doing away with the security deposit, but instead, requesting a move-in fee instead. Essentially, it’s the same thing, but you won’t get the deposit back after you leave.
- First and last month’s rent: Your landlord may require you to pay the entire first and last month’s rent upfront. Even though it’s your rent and not a hidden fee, many people don’t realize this. If after running a credit check, your landlord isn’t pleased with the results, they may ask for additional payment upfront as a security precaution.
- Parking: You might be surprised to learn there’s a chance you'll get charged for your parking spot, especially in larger cities. Some apartments allow you to park one car per apartment. Also, some apartment complexes offer indoor parking or underground parking that can be an additional cost as well.
- Utilities: While some apartments include some or all of the utilities, many do not. So keep in mind that heat, electricity, water, gas, and garbage removal may all be items you’ll need to pay for. Ask which utilities are included prior to signing the lease. When you’re checking out the apartment, ask what the average costs for electricity, gas, garbage, and water are so you get an idea of what your budget will be.
- Pet fees: Chances are if you’re moving into a pet-friendly apartment and have a pet, you’ll be asked to pay a pet fee. This will probably include a monthly fee and a one-time fee when you move in, which can include both refundable and non-refundable deposits.
- Late fees: Always set a reminder for when your rent is due to avoid any late fees. When you are paying your rent every month, are busy with work, and lose track of your days, you can easily be a day late on your rent.
- Maintenance fees: You may pay extra every month for maintenance to your apartment or to the community. Find out what you’re paying for prior to signing. This way, if you have a dispute, you can work it out prior to signing anything.
- Fines: In some cases, not following the rules can cost you. If you have friends over and the party gets a little too loud, you can end up with a fee. Anything that you are supposed to do or not supposed to do is outlined in your lease and can cost you a fee if you don’t obey. I’ve seen fees for keeping an unclean area outside of your door, storing bikes on a patio, using a grill that wasn’t approved, and much more. Know your lease, and abide by the rules to avoid any fees.
I'll be honest; the Occupy Wall Street movement caught me by surprise. I always knew that in this country, a very small amount of people made big dollars compared to most people that made significantly less. Rather than dismissing this movement as some sort of fad, I took the time to dig a little deeper -- I wanted to know what all of the hubbub was about.
What I discovered remains the subject of multi-day email debates among my closest friends about wealth inequality, a 'fair shake' and possible solutions. Needless to say, we haven't come up with anything…yet. I have spent quite a bit of my time reading about the 1% and how they got there. I tried to find some common ground between them and I. Average annual income of over $1 million? Nope. Involved as a big time financier or real estate developer? Nada. Stock ownership? Yes!!!
Some statistics show that the top 1% owns an alarming 35% of stocks in the country and the top 20% owns about 92%. To add to the madness, only about half of all Americans own any stocks at all. I have owned stocks as long as I can remember and I figured that simply by owning stock, I had more in common with the top 1% than I ever imagined.
Was I part of the problem? Was I one of those people that the 99% were rising up against in protest? I sure didn't feel that way -- my net worth was nothing worth writing home about. And I wasn't even close to earning the magic $250,000 number Obama used to speak of.
I am not turning a blind eye to the wealth inequality problems that exist in our country, but while I wait for our economy to get back into gear and listen to our elected official propose new approaches to solve this, I also want to take care of myself and my family the best I can. Owning stocks is a great way to do so -- finding the right companies can provide you with a steady stream of dividend income and appreciation. Hate the high price of your cable TV bill or electricity? Buy some shares and own a piece of the monster.
Maybe that is too difficult to do, especially if you are having trouble making ends meet. But if you're not at least thinking like the top 1% or even 20%, it's going to be hard to get there. I want to be the person in retirement receiving enough dividends to provide a decent living. I want to have a huge investment hit where I see my original investment multiplied dozens of times over -- it does happen. And for anyone that has aspirations of climbing out of the bottom 50%, if you are not thinking about owning some stock and soon, you don't stand much of a chance. I know for myself, I would not have been able to get out of some personal financial binds without the power of investing and stock ownership. So, I suppose I am part of the problem, but in my mind, it sure beats the alternative.
I recently got a letter from my loan creditors that gave me the chills. One of my private loans is out of the grace period, and paying back over $35,000 in college loan debt is daunting to say the least. Here are two methods that I am going to employ in order to start effectively demolishing my debt and moving closer to financial freedom. I think they can help you too.
The Snowball Approach
Imagine you have 3 debts of $100, $500, and $1000, each with varying interest rates. The snowball method means you start with the lowest balance, and pay it off as soon as possible. After you pay off the lowest balance, you use the money budgeted to pay the first loan and attack the next loan, then you keep going until you crush your debt.
The snowball method isn't just financial, it has psychological benefits as well. When choosing between different debt repayment strategies, psychologists have found that people generally choose the option that makes them the happiest, even when it might not be the most fiscally sound. The Debt Snowball actually creates a continuous cycle of payment that helps you commit to pay.
The Avalanche Method
While the debt snowball is focused on paying your debt down as quickly as possible, the avalanche method is focused on paying the highest interest rate first. In this scenario, you pay your minimum payments, but in addition you take all your disposable income left over, and apply it to that. This approach makes the most fiscal sense, as you will save on interest over time. The Avalanche method can be really tough, since it can be hard to stay motivated if you only see your loan moving down in small portions every month. Luckily, personal finance apps like ReadyforZero and Tuition.io can help give you a leg up when you decide to get your avalanche started.
Which one to choose?
When it comes to paying off debt, the "best" idea is the one that works for your specific situation. With the snowball method you have a psychological advantage, but you will end up paying more in interest, if some rates are higher than others. However, loans also have an emotional component, and I know when I see my loans decreasing, it gives me motivation to keep paying them off. What matters most is committing and sticking to your plan, so you can build the right momentum to achieve your goals. My finances are equally tied to my emotional and financial well being, so constructing a plan that addresses both is what will help me in the long term.
Beating debt forever
You can check out Unbury.me to see which strategy can work better for your debt. For me, the key is combining both approaches in a way that maximizes my financial goals while giving me peace of mind at the same time.
Four years ago I found myself drowning in a sea of debt. At the age of 22, I was fairly new to the idea of budgeting money. I had no financial responsibilities as I lived rent free, paid $10 per month for my cell phone, and had no vehicle. My only responsibilities were transportation and paying for my groceries. I was as some would say, "living the life". Well all of that changed when I found out I would be expecting a child. With that in mind I realized that while I had my recurring income from my job, I didn't have a nest egg or the financial means to care for a child the way it needed to be cared for.
Time for a Plan
I knew that something had to give as I was in debt and wanted to minimize it before my due date. I tried creating a budget using Excel but kept forgetting to refer to it on a routine basis. Utilizing credit and debit cards meant that I was swiping without tracking. There had to be another way to budget and save that was easier than remembering to check a spreadsheet each week, so I did a bit of research.
The Envelope System
After a bit of research and reviewing I stumbled across the envelope system. It was a system that was used before the world became so technical and "plastic". The process seemed very simple to follow and would allow me to create a budget and track my spending at the same time. So I got to work utilizing these few steps:
- Create a Budget -- I sat down and created a budget based on my needs. Categories included: transportation, cell phone bill, food, baby expenses, savings, and debt.
- Budget checks -- Next I needed to calculate incoming income and allot a spending limit for each category. I allotted $10 for my cell phone bill, and I purchased a bus card for $50 each month, for groceries I allotted myself a budget of $100 per pay, as well as baby expenses.
- Treat Yourself -- I knew I would drive myself crazy if I didn't allot for some fun, so I gave myself a budget of $75 per pay to just splurge on myself.
- Debts/Savings -- After subtracting the allotted expenses above, my paycheck left me with about $200. I decided that I would put 60% towards debts and 40% towards saving.
Once I divvied everything up, I placed them in an envelope. Once the envelope was empty, that meant I had spent all I could for that particular category. I maintained this practice for the better part of my pregnancy and by the time my little one was born I had paid off most debts in collection and saved a total of $1,000 for an emergency cushion.
Some might call it old fashioned or time consuming, but in my opinion the envelope system saved me from being in debt when my child arrived. I continue to use this system and have been able to pay off all my debts and save three months worth of income over the course of three years.
I turned thirty while my husband and I were in Reykjavik, Iceland, the final stop of the six-month European trip I'd been planning and saving for during most of my twenties. The day after my birthday, we flew home to Seattle. It was hard to wrap my head around the scope of not only the six-month journey, but also the eight years that had passed since I had first decided, "You know, I'd like to live in Europe for a while." I knew I was thorough with my financial goals, but this still felt like a long con I'd managed to pull on myself. Not only did I have two new cities, Dublin and Berlin, that I'd called home for a short time, but I'd seen the Adriatic Sea and the Danube, the rift between the American and European tectonic plates and where the western edge of Ireland stares out into the open Atlantic. Plus, I'd had time to work on my own writing and plan what my new career as a writer and editor would look like.
I'd be remiss if I didn't acknowledge some of the fortune and privilege that helped make this trip possible. For example, back in the late 2000s, interest rates were friendlier to savers than today (currently, the top national result on "high-yield" accounts with $0 deposit on bankrate.com is 0.9 percent); I typically got a return of between 3.75 and 5 percent APY. If I were doing it all over again today, I'd probably instead invest in a low-cost index fund; oil prices, an important factor for travel costs like airline tickets and gas costs, have often mirrored the S&P 500, meaning that even if you don't pull out as much money as you'd hoped at the end, your costs will probably be slightly lower, too.
Other things I had going for me: I didn't suffer any major health crises, my car was paid off and reliable, I didn't have anyone else relying on my income, we were able to find subletters for our rental house, and my only debt was my credit cards (which I paid off in total regularly, but not always monthly; I'm no angel). Plus, my husband did most of the work to keep our household running while I ran myself a bit ragged for several years working full time and on the side, as well as going to school, a schedule that would not have been possible without him. And things would have been more difficult if I hadn't had employers that liked me and promoted me. I've worked hard, but I've also been very lucky.
There is no one-size-fits-all savings plan for long-term goals, beyond "save as much as you can for as long as you can." And that isn't particularly sexy. But if you can do it, just a little bit (automated transfers are your friend!), think about future-you, and that when she's standing in the crazy, desolate, weird beauty that is an Icelandic lava field, how immensely grateful she'll be to you.
Photo by Rebecca Brinson. All rights reserved by brassMAGAZINE.
After seven years, I'd saved $13,000 to go to Europe for six months. And though I was leaving my job as the development director at a small literary arts center, I offered to continue writing grants for them over the summer. This was a win for all involved; the new development person wouldn't have to worry initially about grant applications, and I'd have additional income. I also now had a husband, which hadn't been part of the original plan for the trip that I conceived when I was 22 and single, but he was a welcome addition to the passenger manifest, especially as he could work remotely (writing math curricula and test prep), lived extremely frugally, and had savings of his own. And while London had been my original goal, my very practical husband pointed out that, with the USD to GBP exchange rate at about $1 to £0.63 at the time, our savings could go further if we chose somewhere that was on the euro, which was clocking in at about $1 to €0.73. So with these slightly altered parameters, we were off to Ireland.
We spent our first three months in Dublin volunteering for the non-profit creative writing center Fighting Words. It was lots of fun and we met lots of lovely fellow volunteers; plus, as it's a sort-of sister organization to the 826 National chapters, including 826 Seattle--where we volunteer regularly--we felt right at home.
However, Dublin was more expensive than we'd predicted (though still cheaper than London!). It was hard to find a short-term apartment and when we did, it was pricier and crappier than we had hoped for. Groceries (especially produce and dairy) were cheaper than in Seattle, but everything else cost more. We burned through more than half of our budget in our first three months, and while that was stressful, it wasn't a full loss: in addition to learning the ins and outs of Dublin, we explored much of the rest of the country and some of Northern Ireland, as well.
Ireland's pricing made Berlin, where we spent our next two months, a pleasant surprise. It was huge, cheap, covered with great public transit, and a ton of fun. We found an apartment that, while spartan, was bigger and cleaner than our place in Dublin, and we split our time between exploring the city, making weekend trips, and working, my husband on his curricula and test prep and me on grant writing, my business, and the freelance writing and editing projects I was beginning to take on.
We dedicated our final month to straight-up travel, bouncing through Croatia, Italy, and Denmark on our way to Iceland, our final stop. It was a wonderful, exhausting whirlwind of stressful airport repackings to try to meet carry-on requirements, Airbnb apartments, and pocketfuls of incompatible currencies. We were very glad that we had established home bases in Dublin and Berlin, though; six months of vacation-style travel would not have been possible (or good for our marriage!).
In my next and final part of this series, I'll reflect on what it feels like to actually do something I spent nearly a decade planning for, and consider some of the good fortune that befell me and allowed me to take this trip.
Photo by Rebecca Brinson. All rights reserved by brassMAGAZINE.
As many do, I became enamored of travel when I studied abroad in college—for me, it was a month in Rome studying poetry. I knew I would want to return to Europe for an extended period of time. I had lived in the same city, Seattle, for most of my life. And I wanted to stay there; I loved it! But my time in Rome helped me realize how much, emotionally and intellectually, there is to gain from learning a new city from the ground up.
I graduated in 2005 and went into non-profit fundraising in early 2006, a field I thought could make use of my otherwise-questionable creative writing degree through grant writing and other communications. I worked in a theater's development department, and in addition to contributing to my retirement account, I set up an automatic savings plan in a high-yield online savings account vaguely labeled "Europe."
For the first couple years, I put in $100 a month. In daydreaming about this one-day journey, I settled on the idea of going to London. I had visited before and knew I loved it, plus, no there was language barrier. I didn't yet have a timeline, but that decision helped me realize that it would still be several years away until my funds were ready (London = not cheap). So as I moved up in the theater and my pay increased (by non-profit standards, anyway), I upped my contributions, eventually reaching $250 a month.
By 2009, I wanted to expand the small company I had recently co-founded, so I left the theater and took a part-time reception job at a non-profit literary arts organization; I spent the rest of my time on my business. Due to my reduced income, I stopped contributing to my savings and retirement accounts for about a year. But eventually, I was promoted to a full-time development position at the literary arts center and was able to resume saving. Again, as I got further promoted, I increased my contributions to $300 a month.
I continued to live frugally, keeping my expenses between $10,000 and $13,000 below my annual gross salary. In addition to my full-time work, continuing efforts with my small business, and some private tutoring on the side, I also earned two nine-month certificates, one in web development and one in editing. However, while I loved parts of being a fundraising professional (like the writing), I knew by then I didn't want it to be my long-term career, and needed other skills. The "Europe" idea started to mean even more to me—in addition to introducing me to new cities, it could mark a time of professional transition. With my goals coming into focus, I further trimmed expenses (fewer drinks out, clothes shopping primarily at consignment shops, etc.) and upped my monthly contribution to $500.
Periodically, I would review and update how much money I thought I'd need by tracking my typical spending, scoping out local rental prices, and watching exchange rates. Beyond helping me plan, those bouts of research served to make the trip more concrete. Yes, it was a slow process, but I could see the progress I was making. Since I'd be making automatic transfers since I'd started working, I didn't miss the money—it had become second nature. And so, after seven years of saving, I had set aside $13,000, enough for a spare but not-deprived six-month trip.
Find out in my next post if that truly was enough, and how my time abroad helped me change career paths.
Photo by Rebecca Brinson. All rights reserved by brassMAGAZINE.
Fire up a quick Google search for “save $1,000,” and everyone from Dave Ramsey to wedding planning hubs and financial coaches has advice on how to hit the savings target, ranging from eating out less to selling your blood.
With that many savings solutions, perhaps the bigger question is what to do with that chunk of change once we’ve got it. People talk a lot about investing in themselves through a nice professional wardrobe, higher education, or fancy business cards. Ever thought of pursuing entrepreneurship as a way to invest your money?
Launching a business can be a lengthy undertaking with a lot of loopholes to jump through. As I learned while founding both for- and non-profit entities, the tab for legal requirements and filing fees can also add up. Tackling the process in stages and starting now can make a lot of sense.
Not sure how to put your $1,000 to its best startup use? Consider one of these, each of which will run you about a grand:
Protect that great idea. Rapper Ludacris Tell[s] it Like it is – “start up ya own company, trademark the name / That's gon' run ya bout a grand so start savin' ya change.” In the most general sense, a trademark is a brand name, and filing a federal claim to one protects your full and exclusive right to use it. How important a trademark is depends on your industry. Processing fees are a la carte, start at approximately $350, and, as Mr. Ludacris said, quickly add up to about $1000. Once granted, trademarks are good for life with proof of use within 5-6 years and proper renewal every 10 years, according to the U.S. Patent and Trademark Office, making a trademark a good way to invest in your entrepreneurial dream today. Patents, the way to protect designs or inventions, require a slightly different process but cost about the same.
Bring your business to life. While the exact process varies, the first thing an eager business owners must do is cut checks for:
- Officially forming your business and filing with your state. In Texas, where I launched my business, you could foot the bill for filing for formation of an LLC ($300), retail or “seller’s” permits, or an assumed name certificate ($25), but it's generally regarded as startup-friendly. Don’t forget occupational licenses, and postage, notary, or online filing fees to submit your documents. While costs vary, they can quickly total several hundred dollars.
- Opening bank accounts for your business. My bank, for instance, requires a $500 minimum sustained balance to avoid usage fees, which means it cost me $500 to open it.
- Launching an entry level marketing campaign. Print basics like business cards through sites like Vista Print or Zazzle to keep costs low. For websites, options such as a Wordpress-hosted site come in at approximately $150 for a custom domain; for several hundred more you can host through an external service or purchase your own building software, like Dreamweaver.
- Classes, online forums, books, and other resources to teach you how to become a business owner in your state. Libraries are great for general research, but you’re going to want copies you can mark up.
Pay up so you can help others. Filing for non-profit status in most states is cheap; in Texas, the cost is $25. The IRS is going to charge you about $850, however, for federal filing, in addition to the paper and ink required to print the 50-100 page application several times, and the expensive postage to mail it. While this process can be completed without a lawyer, it is much smoother with one, so you may want to keep saving until you can afford legal representation.
While $1,000 is only the beginning, the road to entrepreneurship starts with tangible investment in oneself, and that sum is more than enough to get started. What are you waiting for? Good luck, business builders!