Mutual Funds Are Good For Mutual Funds

The latest Kiyosaki column on Yahoo Finance is about how mutual funds are a bad deal because the fees are just downright nasty. The bulk of the article is an excerpt from an interview with John Bogle, founder of the Vanguard Group, on Frontline where he reveals that mutual funds are a raw deal. Usually when I read a Kiyosaki piece (or any “expert advice”), I’m looking to rip it to shreds because that’s the way you should approach all “expert advice” until you have enough personal trust in that writer to take the quotes off. In this case, Kiyosaki is spot on, traditional mutual funds are a rip-off and Bogle gives him good ammunition as to why.

Essentially, if you get an 8% return for 65 years and put in a mere $1,000 at the start, it will be worth $140,000 at the end. Now take away 2.5%, typical management fee for a mutual fund, every year and you go from $140,000 at the end of the year to a mere $30,000 – somewhere in that mathematical chicanery 80% of the difference is lost to the financial system. Skip to the end if you want to find out where it went. So you put up 100% of the capital, assumed 100% of the risk, and earned a little over 21% of the potential return.

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 Frugal Living, Personal Finance 

Festival of Frugality

The Festival of Frugality is up at Free Money Finance. Find frugality at its finest! (I get carried away with alliteration)

 Personal Finance 

What To Do With a Signing Bonus

So you just graduated and your new employer has given you a much coveted signing bonus – what are you going to do with it? If you’re a recent college graduate, any signing bonus feels like a windfall that you don’t deserve and you’re not going to think twice about spending it (I spent part of my signing bonus on junk, not enough to regret it but enough to realize I wasted some of it)… but resist the urge! You’re going to want to buy pitchers of Newcastle instead of Pabst Blue Ribbon on Thursdays – resist the urge! Don’t be a stingy bastard though, enjoy the money but here are some things that you might need to spend it on before that first paycheck comes in.

A New Place:
The first major expense of your new life will be a security deposit. Chances are you’ll be renting so you’ll want to research how much of a security deposit landlords are going to want. Sometimes you’ll get lucky and it’ll be a few hundred dollars, sometimes you’ll not be so lucky and it’ll be a month’s rent. Either way, you’ll be paying this before you start work so your signing bonus will have to soften this blow.

Moving Expenses:
Second on the list is getting your junk, whatever you don’t trash because you’re a high roller now, from your dormroom to your bachelor pad. If your company is paying for your move, that’s good, you can buy a few more pitchers. Otherwise, you’ll want to save a little bit more of that beer money to pay for the move. At the bare minimum you’ll need a hundred or so dollars just to rent a deathmobile U-Haul truck.

Third, if you don’t have a car and you think you’ll need one, now’s a good time to start thinking about getting a new ride. Keep that poor college kid mindset and avoid getting a flashy new Mazda 6, go for something reliable and used (certified preowned) as your first car. Don’t get a piece of junk but don’t get something without at least a couple dents. If you’re living in a city, the preexisting dents will keep you sane as you learn no one knows how to parallel park. Use some of the signing bonus to make some sort of downpayment on this car.

Emergency Fund:
Lastly, you want to keep a little of that money in reserve to get your emergency fund started. I’m not saying you take all of it and put it into a high yield savings account like at FNBO Direct, but you should put a little bit to cover unforseen circumstances.

Some Bad News:
Sorry bring bad news on an otherwise happy topic (newfound money is always happy!), chances are you won’t see your signing bonus until your first paycheck which could be as far away as the end of the month so you might need to lean on a loan from the parents or a credit card to get you there. That… and the bonus won’t be as big as what the offer sheet says… Uncle Sam takes a pretty hefty bite.

Now go buy you and your pals a drink Mr. Moneybags, you deserve it.

Update: Beach Girl makes an excellent point that I missed the first time through, a big chunk of your signing bonus will be taken away by the government in the form of taxes.


Update Your Resume Every Three Months

Have you ever tried, at the end of an internship for example, to recall everything you did on a particular job? It’s difficult to muster up the words to describe every thing of note that you accomplished and even harder to fit all that stuff onto a single page. Now imagine if you’ve been working at the same company for twenty years and were suddenly laid off, with only a pink slip and your 20 year old resume in hand. Now try remembering what you did 20 years ago, or 10, or five… it’s damned impossible. That’s why you should update your resume every three months no matter what. You could be in your dream job working as the right hand man/woman to the CEO of your company right now, it doesn’t matter, update your resume every three months. You could’ve won the lottery and sitting on your ass drinking mohitos in the Caribbean, it doesn’t matter, update your resume every three months. There are a lot of reasons, here are a handful:

1. Your memory now of now is better than your memory of now in a month. No matter how good your memory is, what you remember now will surely trump what you will be able to recall one, two, or ten years later. You never know when you’ll need to pull out the resume so it’s always good to have it updated with the freshest information.

2. It’s important to chart your progress. If you can’t put something new on your resume every three months, you’re not doing what you’re good at or what you’re doing is entirely unremarkable. Every three months you should be able to put something on be it an accomplishment, a new skill, a new award or new something. If you can’t, you need to investigate what you’ve been doing the last three months of your life and figure out if the next three months will be different.

3. People get fired /demoted/transferred out of their dream jobs everyday. You might be in your dream job right now but you might not be your boss’ dream candidate – be prepared for that eventuality. Your dream job might turn out to be your nightmare, your dream job might be gone in the next budget cycle, there are a lot of things that could take you away from your dream job. No one ever expects to get fired. It’s important to keep the one thing that is constant, you, will be covered in the event you need to find a new job.

4. You may one day want to move on. Your resume is your life’s professional work on one single solitary page (or maybe two). It’s easier to keep it crisp every three months than it is to dust it off after three years and try to get it sparkling again. What was the name of that small project worked on two years ago?

5. The grass is greener. It really is. QUIT QUIT QUIT QUIT.

The bottom line is that one day you and your job will separate and for many of us it won’t come with a retirement party, cake, and the obligatory Cracker Jack box watch – be prepared for it.

 Personal Finance 

What is a Living Will?

A living will, also known as a healthcare directive or a directive to physicians (both of which are better descriptors of what it is), is a document that expresses what you want in terms of medical treatment in the event in a permanent vegetative state or terminally ill and unable to communicate your preferences. Unlike a “regular” will, this has nothing to do with dividing up your grand estate in the event of your passing (I thought it was related, but it’s not).

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 Debt, Personal Finance 

Carnival of Debt Reduction #41

The forty-first Carnival of Debt Reduction hosted by yours truly weighs in this week with eleven articles from several well known bloggers and some you might not recognize. Without much fanfare, here are this week’s pieces:


Beware 0% Interest Finance Offers

Just a word of advice for those of you tickled by the thought of owning a television or refrigerator by paying only the minimums on a 0% interest finance deal… see, the one thing that most stores don’t mention is that after the promotional period has ended, the interest that would’ve accrued during the promotional period will be packed onto the loan immediately!

My advice is to read the fine print to find out what the hidden interest rate is while the 0% promotional offer is in effect, sometimes it can be ridiculous. Second, only buy these products if you can pay off the entire thing before the promotional period ends. If you can’t, try to secure some better financing terms before the promotional period ends so you aren’t stuck paying ridiculous rates for a few months.

Finally, remember that it’s a loan so it’ll appear on your credit report and ding your credit score. If you plan on any big purchases, house or car, then you might want to hold off on the new flat screen.

 Personal Finance 

It’s Friday, Read These And Then Go Home

I’ve been to a bunch of weddings lately and FMF’s article about the cost of weddings going up for attendees is pretty on point.

JLP asks if you’d buy a $31,000 110-hp 55 mpg vehicle… my answer is no. First off, $31,000 is outside my budget for a vehicle… 110-hp is a little too little for me even though 55 mpg is mighty impressive. You can do the math but I can tell you the tradeoff analysis won’t ever give you a reason to buy a 55 mpg $31,000 car.

Nickel writes about how he’s maxed out his FSA for the year… He also discusses how he has used it all up but won’t be around to make the rest of the payments. While it’s alright to feel guilty, ultimately the system works because it likely has a roughly net-zero effect across all accounts. Some overuse, most underuse. I also work it down to $0 but then again I pick up tails-up pennies on the ground (whichever ones are bad luck).

Flexo writes about how Kevin Federline supports the penny… I want to know how Federline is married to Britney Spears.

MBH has another Prosper related article, this time he worries about those borrowers who only borrow to lend it back out to other Prosper users. Sure you can score a 7% loan and lend back out to someone for a little more, but isn’t it easier to borrow at 0% and get a guaranteed 4.x% from an online savings account?

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