||[Aug. 6th, 2007|09:25 am]
Your financial advice for today:
- Never get a tax refund. You're giving the IRS an interest-free loan. Instead, set up an automatic payment to a high-yield savings account.
- Don't pay off your mortgage. There are some people who think it's best to be debt-free, but if you can make more interest on that money than your mortgage is costing you, you're better off investing the money you would have spent on the mortgage. If you itemize deductions, you're even better off with that mortgage than without it.
If you're in the 33% tax bracket, the after-tax cost of a 6% mortgage is about 4%. So if your investment can earn you more than 4% after tax, you're better off not prepaying the mortgage.
Take those extra payments you would have made and invest them in your 401K, instead. (What do you mean you don't have a 401K??)
- If you can get a car loan for a lower interest rate than the current high-yield savings accounts are offering, don't pay cash for your car. Now, also take into account that if you have a lien on your car, you'll have to carry full coverage insurance. If you do that anyway, don't pay cash. If you'd save more by paying cash and then only getting minimal insurance, take that into consideration, too.
- Don't invest in an index fund if you can stomach the volatility of some small cap stocks in your portfolio. You have the potential to make a lot more money with small cap (or even mid-cap) stocks.
- If you want to invest in real estate, buy a REIT. It's much easier than trying to flip houses. Motley Fool has this to say:
For your first real estate investment, check out Vanguard's REIT Index Fund (VGSIX), which has a dirt-cheap expense ratio. With a $3,000 initial investment, your fund only costs a measly 0.21% per year -- a huge advantage over the average expense ratio of 1.55%. On a $3,000 investment, that means you'll pay just $6.30 instead of $46.50. Another bonus: This fund has a total return of more than 288% for the 10 years that ended with May 2006 -- you can bet this is a smart buy for the long haul!
- Don't wait until you have a lot of money before you begin to invest. Learn about DRIPS and DSPs. You can get started with just $20.
- Save tens of thousands of dollars by making just one extra mortgage payment per year. This will shave 6 1/2 years off of a thirty year mortgage.
- Don't pay professionals to handle your investments. Learn to do it yourself. Trade online with a discount brokerage. I use Scottrade because the minimum account balance (to open) was very low, and the trades are cheap. I also like the services it offers, including news, quotes, and the GainsKeeper service, which shows me what I've bought, what I've spent, and what I've made or lost.
- If you have $50 (each month) to invest, check out T. Rowe Price Growth Stock Fund. It has returned 11.05% for the fifteen years ending in January 2007.
- Open a high-yield online account. I opened a Money Market account at Capital One, which allows me to write checks. I later opened an account at ING Direct, because they offer a $25 bonus if you deposit $250 and have a referral. There are other banks with higher interest rates, but ING beats them with that bonus.
- Open a Money Market account. Or try a Money Market Fund! Vanguard Prime Money Market (VMMXX) has a rock-bottom expense ratio of 0.30% and a seven-day average income yield that hovers just above the 5% mark as of March 2007.
- Diversify your investments.
- Shop online and shop around to save money on everything.
- Never pay full retail price for anything. Fool.com offers these tips:
Ask when an item will go on sale, go online and print out competitor's price information, find out if there's a price slash for using cash or buying multiples, and go ahead and present a coupon -- even if it's expired.
- Get a raise by thinking of your boss' needs and solving his problems.
Read more about these tips and more here: http://www.fool.com/shop/newsletters/22/ecap.htm?CID=1118&source=iglhlpbut7560015
I only posted the ones I already knew, but I was inspired by that report. :-)