by turns

A Cool New Thing

I read an article about the guy that founded ING Direct, the company that started the whole Online Savings Account thing, and it was really interesting. He wanted to start a new kind of account because he felt that fees for banking were kind of ridiculous. And if you have it online there's so little overhead that you can offer a really good interest rate. So he started ING Direct. While they don't have the highest savings account interest rate (Emigrant Direct and HSBC have higher rates), I like the founder's commitment to no fees.

And last March they started the first online checking account, the Electric Orange. We just switched over to it this week. We'll get 4% on everything in our checking account; a debit card that's also an ATM card linked to the largest national network of no fee ATMs in the country; free paper checks that ING sends to whomever we want; and free online bill pay. We're new to it, but we're excited!

If you want to learn more about short term saving and online savings accounts, you can check out a recent article in FUNDamentals, the ezine I help out with at work.

Speaking of FUNDamentals, we're in production of the Green Issue, all about environmental sustainability, what Baha'is are doing individually and as a community, with interviews, stories, and a photo essay by Liza, which I'm very excited about. Stay tuned!

The Fundamentals

Woohoo! A new e-zine, FUNDamentals, that we've been working on at work just went live this afternoon! There's a blog associated with it that you can see at fundamentals.usbnc.org (you can also sign up for the e-zine from that site). I wasn't sure what kind of response it would be get but so far it's been great. It's been out for about 4 hours and the site has already received close to 400 hits, and the e-zine has been seen close to 550 times.

The point of the e-zine is to share articles about spiritual financial planning, explore things that young adults are talking about, interview young adults, and show what happens to contributions when Baha'is contribute to the Baha'i funds. These are all things that young adults have told us they're interested in hearing about. And with the blog format they can comment.

The e-zine will be mostly quarterly, but probably with some special issues thrown in for good measure, for stuff like National Convention. We're also exploring a more traditional blog that will be updated regularly with similar kinds of information.

If you get a chance to see the site let me know what you think! Either here or there!

Financial Planning info

Our financial planning info has a temporary home! Go to Bahaiyouth.com, look under Stories, and you'll see the second of our columns. It's temporary because this site is probably about to go into a new version, but also...

Let me take a step back. One of the things I'm doing at work is figuring out how to educate people about the ease and importance of financial planning, all in a spiritual context. This includes things like budgeting, saving, investing, buying a house, and looking at our attitudes about money.

The challenge with any kind of education is how to get this info out. I'm trying as many different media as I can. Working on a Flash film, bahaiyouth.com, a book (at some point in the not too distant future) and I'm thinking about creating a blog just for the team of experts we have volunteering their services. Let's say you wanted some information on financial planning, where would you go? In what format would you most like to read it? Would a regularly updated blog be appealing?

More Financial Planning Stuff

Once you have a budget and start following it, and have some kind of emergency fund, it's time to invest it. This is key, because there's no other way, from my understanding, that you can have enough to retire on unless you invest in something. That's always been kind of scary, dark, murky waters to wade into, but the more I learned about it it's not that scary. So here's what I've learned, but mostly this is what the financial planner said. If you have tips or I left something out/got it wrong, or you have a question, feel free to throw it out there!

• The Baha'i National Center has a 503(b), which is the nonprofit equivalent of a 401(k). These are retirement investment accounts. And usually the employer contributes some percentage. Sometimes you have to contribrute a set amount and then the employer matches it. One of the pluses is that it's taken out of your paycheck pre-tax, so that lowers your taxable income, which is a good thing. If your employer contributes, do what you have to to get that because it's free money.
• But from what I've heard, IRAs (Individual Retirement Account) are where it's at. Bob, the financial planner, said to max these out before you max out your 401(k) because the return is higher. There are two kinds--Traditional and Roth. With each one you can contribute $3000 a year. The difference between the two is that with the Traditional your yearly contribution is tax deductible, but with the Roth it's not, so what you contribute is taxed. But, with the Roth when you start to use that money for your retirement you can withdraw it tax free, whereas with the Traditional all your withdrawals during your retirement are taxed. So for us we're going to get a Roth, so that when we retire we can start using all this money we've invested tax free. I just read in Kiplinger's Personal Finance today that there are 3 places to get an IRA--a bank, mutual funds investor, or a brokerage firm. We're going to start ours with a bank because the minimum is a lot lower. With Chase, I think, there's no minimum to open an IRA. Eventually what we're going to do is roll it over, or transfer the funds, to a mutual fund. The brokerage firm is for more experienced investors who want to manage their investments a lot more closely.
• Here's what I know about investing. Mutual funds are when a large group of people pool their money to buy a large number of investments, whether its stocks or bonds. Stocks, and someone correct me if I'm wrong, are when you own parts of a company. They're typically more high risk but the return can also be higher. Bonds are lower risk but the return is lower. Here's the amazing part, where the math comes in. Bob explained that the stock market is ruled by the law of averages. That's why since 1802 stocks have had a 7% return on your investment. 1802!! And they've had an 11% return since 1926! That's including the Great Depression. So there are two key things here. One, investing should be considered a long term thing. And this is why it's best, sometimes, the less you know. There's a slew of articles and professionals who say that once you make your investment don't touch it. Bob, who's going to be retiring with a ton of money, mostly based off of investments, only changes his investments once a year. See, in my mind to invest meant following the stock market everyday, watching the littel ticker on the bottom of news stations. But actually, the people that make the most money are the ones who do nothing! There's even been studies done of investors. The ones who make the most are the ones who both know and do the least. The ones who make the least amount of money are the ones who know what each of their stocks are doing from day to day and are always trying to predict the next Microsoft or Dell. The thing is it's almost impossible to predict what's going to make money. To accurately predict how an individual stock is going to do you have to account for political situations, weather conditions, whether the company is going to be investigated by the gov't, war/terrorism, and public favor/fashion/needs. So that's the second thing-invest in mutual funds, indexes if at all possible. With mutual funds you're buying a large, diverse number of stocks spread across several industries. And with indexes, you're basically investing in the entire stock market. The analogy I read is that with buying an individual stock you're choosing one piece of hay out of a haystack and betting that it's value will increase. With an index you're buying the whole hay stack, knowing that for the past 100 years it's value has increased 11%. One other things about investing.
• Look for no-load investments. That just means watch out for how much you're being charged to be invested in a mutual fund. Even if a company charges 1%, that adds up quick.
• So here's what we're doing. Two companies, T. Rowe Price and Vanguard, are mutual fund investors. They do two very cool things. One, since they're on the internet, they charge the lowest out of any company. We're going with Vanguard because their 500 Index Fund, which has had a 10% return for each of the last 10 years, and which is based on the performance of the 500 largest companies in the US, charges only .18%, instead of the 1%+ that a lot of other companies charge. Also, they have retirement packages. I'm hoping to retire when I'm 65, in 2040. I can buy a 2040 Retirement plan, and not even think about it until 2040. The company will manage all of the investments, even balancing out what it's invested in. Since I'm young I can afford to have most of the investments in high risk/high return mutual funds and less in bonds. But as I grow older I'll want that ratio to change to include more stable, less risky funds. Vanguard will do that for me.
• Another key to investing is something called dollar cost averaging, which is very simple. All that means is that you invest the same amount every month. Instead of buying stocks in one lump sum, you contribute say $25 a month. Hopefully that'll grow as our income grows, but that's a good start. Here's the benefit--when stocks are dropping you start buying more at a lower price; when stocks are increasing in value you're still buying but fewer of them. And with the law of averages you'll end up making money both ways. Bob gave the example of his mutual fund investments after 9/11. With his monthly investment he was buying up a lot of stock at really low prices, knowing that the value would increase. So for example, let's say he bought a bunch of stocks that were $2 a piece, down from $10. Even if the value goes up to $4 he's made a 100% return on his investment. When the prices went up he was making a lot of money because the investment company was able to sell off all the really cheap stocks he just bought, and he'd stopped buying the pricier stocks. And then he just reinvested whatever he was making.
• What about real estate? It doesn't make sense for us right now. To really make money on the investment, unless you live somewhere where real estate is booming, you need to live someplace for more than 3 years. Otherwise you're losing money because of the fees and taxes. Plus we can't afford the upkeep. If we stretch and buy a house right now and the furnace breaks, that's it. We'll just have to invest in a lot of sweaters.
• I'm also hoping to meet with a financial planner. We want to meet with one once--that's it. And we're looking for one that's fee only. Meaning they won't push investments that they'll make a commission off of. Mostly I just want to run our plan by them and see what they think.
• I've also got a subscription to Kiplinger's Personal Finance. It's a magazine that for $12 a year for 12 issues will tell us just about everything we need to know for people in our situation.

Financial Planning Made Easy

One of the perks of my job right now is that I get to research financial planning. As part of my job. The reason is that I'm trying to figure out how to make info about financial planning as accessible and understandable as possible to everyone And from a spiritual perspective. I can't say how we're planning on doing this yet, but I am very, very excited about this.

So, along the way, I've learned a couple things. I hope to share those with you now. These are things that apply to our situation as a young family, living on one income, with some credit card debt (the end is in sight!), and a good amount of school debt between us. And I'm still learning, so I hope to share more as I learn it.

1. Financial planning is easy! Yes, easy! You don't need a degree in it. You don't need to have a thorough understanding of macro, or even micro, economics. You don't even have to be good at math. You don't even need to know a lot about the stock market to invest. In fact, the less you know the better! That's the first thing I learned. After having read a number of articles, doing a bit of research in the Internets, not even that much, and going to a course by a Baha'i financial planner, I feel like I have most of the basics to get started on making sure we have a solid retirement.
2. People my age are going to have to fund a lot of their retirement. Not wanting to be a financial burden to Amia, and wanting to travel and meet lots of wonderful people when we do retire, and also accounting for the fact that people are living longer and longer, Suzanne and I need to have enough income to live, probably, 30+ years in retirement.
3. First thing, we made a budget. Or Suzanne made it. I'm not really good at that kind of stuff and Suzanne likes to crunch numbers.
4. We've, thank God, stuck to the budget. Of course having Amia makes it easier. Having Amia hasn't cost all that much for the first year and a half I'm finding. She nursed for most of the first year, so there's not much food expenses, and EVERYONE has tons of baby clothes laying around. But we've also not been able to go to movies, go out to eat, go to coffeeshops as often, or travel, so that has really cut down our expenses. If you want to be able to save something you either have to win the lottery, or live below your means. And this has also been a general pattern of downshifting, or voluntary simplicity as it's also known, that we've been trying to follow. That means, basically, deciding what are our needs and what are our wants. And where we want to put our money. We can either get a latte a day, or invest it and turn it into $25,000 when we retire. We've also stopped buying books, music, and magazines, and going to movies or out to eat. Anything we can rent or make, we can. We're hoping to soon start making our own laundry detergent. You can make healthier versions at home very easily and for a lot less money. It really puts it in to focus when the choice is seeing a movie in a movie theater or using that money for Amia's college fund. One thing I won't part with, though, is my Netflix. Since we spend a lot of time at home and I read all day, I need something else to do. Plus, there's some good stuff out there.
5. We consolidated our school loans. And this is going off what the financial planner said--if you can consolidate at a good rate, then go ahead and take forever to pay it off. Even if the interest is 3 or 4%, we can invest the money we might use to pay it off early and get returns of 7-12%.
6. Credit card debt should be paid off as soon as possible because the interest is usually so high.
7. We slowly building an Emergency Fund. That's 2-3 months of cash we can use in case something happens--I lose my job, emergency health care, something happens to the car. So every month a small amount is automatically moved from our checking to a savings account. But the bank only gives us a little better than 1% interest on our savings account. We're going to put what we've saved in a money market account with Emigrant Direct. It's an online bank that gives you 4% with their money market account. There is no minimum, no fees or charges, and the money is always accessible. Ing Direct were one of the first to provide this service, and they currently offer close to 4%. They can do it because since they only exist online, they don't have to pay the overhead to have actual property.

The rest I'm going to post when I'm not so tired and when I can get my figures in order.