Making:Money

Making Money
A popular 1980s television ad for Smith Barney, a retail brokerage firm, coined the catchy phrase “we make money the old-fashioned way, we earn it”. The Smith Barney ad can still be viewed on YouTube. John Houseman (well-known for playing a Harvard law professor in The Paper Chase), could not have said it better, “Smith Barney is busy like a bee because at Smith Barney we know that old-fashioned hard work is often the difference between getting stung or getting a taste of the honey”.

Earned Income
Before you can spend wisely and save what you don’t spend, you need to have money to spend. And generally, when you are a student, you make money the old-fashioned way, you earn it. Later in life, if you have successfully tucked away some of your earnings and invested wisely, you may be one of the lucky ones who can afford to stop working and live comfortably.

Ideally work will generate enough income to cover your current expenses and build savings. Over time your savings will accumulate and pay for future expenses when work stops (either by choice or necessity). Financial independence comes from the ability to generate income through work, and through investments or assets that grow over time and generate returns or passive income. Earlier in life, income earned through work is generally the primary source of income. Later in life, and particularly in retirement, passive income or unearned income replaces work as the primary source of income. Passive income includes: dividends, interest, rent from property, income from investments, partnerships or corporations, licenses or royalties, and pensions.

Finding that first job doesn’t have to daunting. For tips go to:

http://shmoop.com ICollege 101 - Be Smart With Your Money -  How to Find That First Job

Eventually a sequence of jobs coupled with an education evolves into a career. It’s hard to foresee a future without a career that is personally and financially rewarding. So how do you figure out what you want to do with your life?

First, to be as competitive as you can be, get an education. Time magazine reported that “63% of American jobs will require post secondary training by 2018”. (Time Magazine April 9, 2012 “These Schools Mean Business”)

Next you investigate your options, you experiment with different opportunities, and you bounce back from life’s inevitable set-backs. You also plan and save for your future. A lifetime of “just getting by” with unstable or insufficient income, coupled with undisciplined spending, can negatively impact your quality of life.

Careers are built by acquiring: skills, experience, knowledge, relationships, even a reputation. Career planning can shed light on work that appeals to you and makes good use of your talents and interests.

Many people will have more than one career in their lifetime; changing careers is more common now than ever before. While an undergraduate or graduate college degree can facilitate a career change, it is certainly possible to change careers without a getting another degree. If you need student loans to finance your education, be sure your expected income will be enough to repay your debts.

Work on the development of marketable skills while you are getting an education. Unemployment for adults younger than 24 has been double the national average.

Any work you can do, even volunteer work, gives you experience that will enhance a resume and impress future employers. Experience also helps develop important skills like: networking, communication, time management, problem solving, teamwork, and good work habits. If possible, get a job while in college, certainly during the summer, even if it's only for a few hours a week and you don't really need the money to get by. Working while in school – no matter whether the position is paid or not – tells future employers that you are capable of juggling multiple demands on your time and that you have a serious work ethic.

Have you heard of the college graduate who didn’t have a job and decided to try 50 jobs, in 50 states, over 50 weeks? You might want to read his book, “50 Jobs in 50 States” by Daniel Seddiqui. The author struggled after college; he couldn’t find work or make money, and completely hit rock bottom. “I was overcome with defeat. I had no alternatives. I had been sleeping in a rental car for weeks. I was at an ultimate low. All I had was an idea.” Imagine, his idea to experience jobs and satisfy his curiosity about different cultural environments made him a published author, who was also contacted by a television producer about doing a reality show.

Here’s a link to learn more about the experience:

http://abclocal.go.com/wls/story?section=news/local/mathie&id=8572615 Time Magazine reported in an April 16, 2012 article on The Jobless Generation that Germany “has students at the high-school age level participate in apprenticeship programs which help narrow the skills gap between what companies want and students learn.” This program helps students find work. You really can’t go wrong getting some practical experience while you are in school by interning, volunteering, shadowing, or working with a mentor. Career counselors have resources that can help you analyze occupations and/or opportunities, and compare their suitability to your skills and interests.

Utilize your career planning center at school to: research the job market, network, assess your skills, get help writing resumes and cover letters, and practice interviewing. Set up as many job interviews as possible. There is no substitute for practice.

It’s a good idea to get professional help writing your resume and cover letters. Ask for referrals at your career center.

Additionally, when you are looking for a job you should:

•	Create a linked-In profile. 

•	Clean up all your social networking sites. If you wouldn't want your grandmother to see it, take it down.

•	Check your credit report; employers will frequently pull a credit report to see how you manage your debt.(see Section 3 - Credit)

Consider developing more than once source of earned income while you are in school and after you graduate. Taking on a side job to diversify your income can help you live better and save more. Consider turning a hobby into a side job. If you spent years swimming competitively, teach swimming lessons to earn extra cash. No matter what sport or activity you participate in, you can probably find a job coaching, giving private lessons, refereeing, or assisting.

You might join an entrepreneurs’ club or networking organization, either in person or online. Consider freelancing, tutoring, blogging, and content writing. Be prepared to keep records of your income and business expenses related to your side job.

Job searches are being conducted online more than ever. The two most popular sites for job hunting are:

•	http://www.monster.com

•	http://www.careerbuilder.com

Here are some sites for students:

•	http://www.careerrookie.com This site has a section on “Part Time Jobs for College Students and Graduates” and information on resumes

•	http://www.snagajob.com/student-jobs/ On this site you will find “Your Guide to the Best Student Jobs”

There are also online resources for career planning for college students:

http://www.monster.prospero.com/n/pfx/forum.aspx?webtag=mstcareerplan You'll find career planning discussions here. Ask questions and share advice about high school and college career planning.

http://www.collegecareerlifeplanning.com/ A non-commercial site that helps individuals make informed education and career choices.

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Sign up for Ramit Sethi’s newsletter on the Web site I Will Teach You to Be Rich. He offers great advice and training to help you find your dream job and “make yourself recession proof” by earning money on the side.

http://www.iwillteachyoutoberich.com

Part of career planning involves understanding your income potential in your chosen field. If you borrow $70,000 to earn a degree, will you make enough money to pay it back? Your gross monthly income must be enough to cover taxes, rent, debt (student loans, car payments, credit cards), and all other living expenses. And don’t forget that some of your income needs to be saved and invested during your working years so that you have income to live off of during the years when you stop working.

Check out average incomes in various industries with the following sites:

http://www.payscale.com

http://www.salary.com

Saving
Saving and investing over the long-term will build your net worth, augment your income, and allow you to live comfortably when you stop working. Additionally, saving for big purchases (such as a graduate degree, a home, or a car) and retirement requires restraint and planning. Even if you plan on financing big purchases with loans, lenders want to see reserves (or success at saving money) before lending to you.

Not saving at all and living pay check to pay check is a hard way to live. Many people believe they don’t make enough money to cover their living expenses and save. However, you’ll need money in the bank to afford big-ticket items such as a car, home, vacation, education, or raising a family. Saving and investing wisely throughout your working years can provide for a comfortable retirement. Social security and guaranteed pension benefits are not the safety nets they were in previous generations. Some people believe the social security system may not survive, and only 16% of workers in America receive guaranteed pension benefits. People are also living longer, and the cost of medical care is going up. Workers will increasingly need multiple retirement accounts and/or assets in order to fund retirement. If you don’t have enough money to put aside 10% of your income, then consider keeping a budget and cutting expenses so you can save. Impulsive spending is destructive. If you have hard time setting money aside, at the very least start setting aside a small amount of money. Even as little as $25 or $10 a month will add up over time. Ideally this money will be set aside in an interest bearing savings account, as opposed to a shoebox or under a mattress.

Get yourself a savings account and establish a plan to make regular deposits into that account. Savings accounts are generally liquid and relatively risk free. Try setting up an automatic debit to move money into your separate savings account each month. This is called “automation” and it allows you to set your savings plan on auto-pilot.

It’s smart to know whether your savings account is insured and protected by the federal government. If you’re interested, use the following link to learn more about Federal Deposit Insurance Corporation (FDIC) insurance.

http://www.fdic.gov/consumers/

There are several savings products to consider that vary in terms of the amount of interest you can earn and how accessible the funds are.

An FDIC insured savings account: This is a liquid interest bearing account that generally limits the number of withdrawal transactions each month to 6 transactions. Savings accounts that are used like checking accounts may be closed or converted to checking accounts by your bank.

    Money market accounts:  These accounts are a form of savings account which may allow the use of checks. These accounts also earn interest at a rate set by the institution, and limit the number of withdrawal transactions within a stated time period. The interest rate and the minimum deposit may be higher than on savings accounts. Check the terms and do a comparison.

    CDs or certificates of deposit: This is a Time Deposit account which lets you earn a guaranteed interest rate for a set amount of time. There are penalties for the early withdrawal of funds.

    Money Market Mutual Funds: These funds invest in short-term debt obligations such as certificates of deposit and U.S. Treasury Bills. The funds hold securities that have a share price of roughly $1 but that value is not a guarantee. These funds are generally safe but NOT FDIC insured.

For information on savings accounts and CDs check out:

http://www.getrichslowly.org/

Once you have a savings plan, watch your spending habits. Educate yourself on what that extra dinner out each week really costs, or that new pair of shoes, or buying a latte every morning. Remember even setting aside $25 a month for your future can make a real difference in your life. Savings accounts have surprising growth potential over time. It’s called the time value of money.

http://www.wikipedia.org/wiki/time_value_of_money

Money you set aside in an interest bearing savings account will accumulate. You’ll earn compound interest (or interest paid on interest earned). In other words, compound interest arises when principal earns interest and that interest also earns interest. For example, if you put $100 in an account and you earn 5% interest annually, you’ll have a $105 at the end of the first year, and $110.25 at the end of the second year, etc….

Over time your savings will grow much more than you may expect due to the time value of money. Time value of money calculations allow you to determine how much money you need to set aside in either a lump-sum or fixed payment stream to have a certain amount of money in the future. The future value of your lump-sum or payment stream assumes a rate of return over a specific time period (for example X months or years).

For example:

The future value of $10,000 earning a 5% rate of return (compounded monthly) over 30 years is $44,677.44. Here is a link for your own calculations.

To better understand the concepts and math behind future value and the time value of money go to:

http://www.wikipedia.org/wiki/future_value

This calculator will calculate your investment’s value in the future. '''For example, if you set aside $1000 today and earn 6% a year, you will have $5,743.49 in 30 years. ''' http://www.timevalue.com/products/tcalc-financial-calculators/future-value-calculator.aspx

Another option is to calculate the value of your accumulated savings by setting aside a set amount each month. Use Bankrate.com’s Savings Calculator. 

http://www.bankrate.com/calculators/savings/simple-savings-calculator.aspx

Plug in your planned monthly savings, expected rate of return, and time horizon into the calculator to get an idea of the growth potential of accumulated savings. For example $25 a month, earning 2%, will give you $4,180.75  in 10 years.

David Bach’s Latte Factor Calculator shows you how setting aside small amounts of money or giving up that daily $4 latte can add up to $1,547 saved in the first year and $122,350 in 30 years.

http://www.finishrich.com/lattefactor/

Eventually you can use your savings to acquire investments such as stocks, bonds, and/or mutual funds that may earn a higher rate of return yet carry the risk of a temporary or permanent loss in value.

Investing
Investing differs from saving in that the assets or investments tend to carry higher risk as well as the possibility of higher returns. Investments such as stocks, bonds, and mutual funds are not FDIC insured meaning the value of these investments can fall to zero. So while higher risk is often associated with higher returns, your ability to absorb losses needs to be considered before investing your savings. Many people sustained significant investment losses during the Great Recession and were unable to retire as planned or keep up with their financial responsibilities.

Most students will not have the resources to begin investing in stocks, bonds, or mutual funds until they start working full-time. Investing usually begins through an employer sponsored retirement savings plan (401k) or an Individual Retirement Account (IRA) if you are self-employed.

http://www.investopedia.com/university/retirement-20 Retirement Planning For 20-Somethings 

The article suggests engaging the help of a financial advisor particularly if one is available through your employer sponsored plan. Be sure to understand the way an advisor is compensated. Advisors that make money buying and selling investments may be tempted to engage in “churning” (a prohibited practice employed by some brokers to increase their commissions by excessively trading).

Read: http://www.investopedia.com/search/default.aspx?q=churning#ixzz1z5wJX5eO

A prudent investor should hold a diversified portfolio of investments and allocate assets within the portfolio to various investment classes such as stocks and bonds. These are “risk control” strategies that basically follow the “don’t put all your eggs in one basket” rule. While diversification and asset allocation are important risk control measures, they are not a guarantee of performance.

Safer investments will have lower long-term returns but should not fluctuate as much in value as risky assets. Investments that might generate higher returns typically carry higher volatility or risk.

Before you start investing you need to assess your risk profile or your ability to sustain losses. A low risk profile means that investment losses could be devastating and you should invest your money in safe investments even though the returns may be lower.

Many beginning investors buy shares of mutual funds to participate in a diversified investment portfolio and lower risk. A diversified portfolio should have a blended return from the portfolio (which is not the same as the sum of each asset’s individual return) that avoids over exposure to a particular asset class, industry, or other factor.

Investment concepts can be challenging for a beginner investor. Investing requires preparation and education, particularly knowledge of the appropriate investment vehicles for your risk profile. Even seasoned investors make bad choices and lose money. Without training or guidance, and when starting an investment portfolio, stick to safer investments.

If you do seek help from a professional investment advisor, you must always monitor the money manager’s performance, in addition to understanding the fees you are paying. It’s your money at risk.

How early should you start investing?

Ask yourself 2 questions:

Can you afford to lose money?

Can you afford to set money aside that you won’t need for a very long time?

Here are sites to teach you investment fundamentals:

http://beginnersinvest.about.com/ This site covers basic investment topics.

Go to Investment Basics & Guides for New Investors. Read “5 Ways to Make Saving and Investing Easier” and “How to Start Investing”.

http://www.kiplinger.com/ This site has video tutorials on the basics of investing.

http://www.betterinvesting.org This site costs money but you can try it for free for 30 days.

Check out:

http://www.THECOLLEGEINVESTOR.com

This is a great site and blog written by a recent MBA graduate who is passionate about investing and personal finance. Sign up for “The College Investor Blog” which is full of common sense financial information.

Read his article on “5 Ways To Be A Bad Investor” which are:

1. Trade Frequently

2. Don’t Do Research

3. Buy Penny Stocks

4. Buy Leveraged Exchange-Traded Funds (ETFs)

5. Don't Think About Taxes

Or try this game!

http://sailthru.dailyworth.com/7ilb.bcp/ToCM7bdSTT98kq9ECecf6

Market Millionaire: Got $100,000 to invest? Here you can pretend you do. This game allows you to compete with other users to see who the better investor is.

Market Millionaire is a multiplayer game that you can play on your Android or iPhone. It begins with a $100,000 bank that users invest in the stock market to see who makes the most money. It costs more to invest in a big-name stock like Apple or Google. And, just like real investing there is a payoff when you find a stock with growth potential no matter what you pay for it. Players can buy or sell more than 10,000 stocks to make a profit or limit losses. The app aides that decision by providing charts and news posts from BusinessWeek, MSN Money, The Wall Street Journal, and more. Millionaire updates frequently with actual stock performance, making the game feel very real. The experience provides a fun way to learn about investing in the stock market.

Additionally, here’s a really great book recommendation on investing:

 The Investment Answer: Learn to Manage Your Money & Protect Your Financial Future, by Daniel Goldie and Gordon Murray.

One of the authors, Gordon Murray spent 25 years in the investment business and was a Wall Street executive. After discovering he had terminal brain cancer, he wrote a book on investing that contradicted a good deal of his professional advice. He revealed that hiring a professional investment adviser who buys and sells aggressively (active fund management) is not the best way to make money in the market.

The book makes the case that most investors make investment decisions based on incomplete information and take on too much risk as a result. As an alternative, the authors recommend:

1. choosing funds that invest in broad market indexes (passive investing),

2. balancing the allocation of stocks and bonds appropriately for risk control,

3. diversifying the portfolio.

Gordon Murray died from brain cancer in 2011.

Here are five key insights from The Investment Answer:

•	Hire an adviser who only earns fees from you and not from funds or companies that sell investments. If you're not sure what kind of adviser you have, ask.

•	Diversify your portfolio between stocks and bonds, and classes of stocks and bonds.

•	Further diversify your assets between foreign and domestic investments.

•	Decide whether you will be investing in actively or passively managed mutual funds. In actively managed funds, managers attempt to outperform an investment index such as the S&P 500. In passively managed funds, managers do not seek to outperform an index. Instead they seek to match the return of a particular benchmark such as the S&P 500. Passively managed funds will replicate the portfolio of a benchmark with the goal of neither outperforming nor underperforming the benchmark return.

•	Rebalance by selling your winners and buying more of the losers. Most people can’t bring themselves to do this, even though it improves returns over the long run.