Posts from — January 2007

Everyone wants to reduce debt, right? Sure, but good things never come easy. Becoming financially free takes hard work. But, if you want to reduce debt, I’ve got 7 ways to free up enough cash to start on the debt snowball.

If you’re not familiar with the debt snowball, I’ll give you a quick tutorial. The basic concept of the debt snowball is to take an extra $200 per month and apply it to the debt with the lowest balance. After the first debt is paid off, you then take the $200 plus the amount that you were paying on the first debt to conquer the second debt. Then one day you find that you are debt free!

Some of these ideas are a little crazy, but getting out of debt is a crazy thing to do (at lease that’s what the American culture will tell you.) To Achieve something crazy, you have to get crazy.

So without further ado, I present 7 ways to financial freedom:

Quit Smoking
I know you love smelling like charcoal, but cigarettes are expensive. Smoking a pack a day at $4 bucks a pop adds up to a tidy $120 a month.

Cut The Cable
Cable can be a big expense. My cable bill, which includes phone, internet and television, is nearly $130 per month. Cutting cable will get you well on your way to having an extra $200 per month.

Eat At Home
Even cheap restaurants can be expensive for a family of 4. You’ll be doing well to get out of there for under $40. Cut that weekly trip out and you’ll save a nice $120 per month.

Loose Your Cell Phone
Do you really need it? Your gut reaction is yes, but unless you were born after 1985, you’ve probably lived the majority of your life without a cell phone.

Skip Starbucks
This one hurts me. I love my grande mocha lattes which come in at $3.34 with tax. One of those a day adds up to just over $100 per month. In my book, that’s a lot of money for coffee.

Drop The Paper
Do you really need your morning paper? You can watch the news for free on television and you can read it online at Google News.

Take a Second Job
Who wants a second job? Well you do if you aren’t willing to cut some expenses to find your $200. If you can’t cut expenses you have to increase your income. Look for something small and simple. Try delivering papers (it’s not just for kids on bicycles,) doing some yard work for neighbors, or getting a part-time job at McDonald’s. You may have to suck up some pride, but it will be worth it in the end.

There are literally hundreds of ideas to reduce expenses. If you’re really serious about becoming debt free then either use one of these ideas or think up your own and get started on the debt snowball!

Deciding on your [tag]portfolio[/tag] [tag]asset[/tag] [tag]allocation[/tag] can seem overwhelming. “What if I am too conservative and my returns are too low” or, “What if I take too much risk and loose my nest egg?” “Should I invest in stocks, bonds, or money market securities? What about real-estate investment trusts (REITs) or emerging markets?” There are so many choices available!

I’ve laid out some vary basic options that one could choose from in determining their optimal asset allocation.

Let’s define several of the major investments:

• [tag]Large Cap Stocks[/tag] – These are shares issued by large corporations with a [tag]market capitalization[/tag] of $10 billion or greater. The big players like Microsoft ($293 Billion) and Google ($140 Billion) are in this group.

• [tag]Mid Cap Stocks[/tag] – These are shares issued by corporations with a market capitalization between $2 billion and $10 billion. Companies like Rent-A-Center ($2.07 Billion) and Sherwin Williams ($8.57 billion) fall into this category.

• [tag]Small Cap Stocks[/tag] – The last group contains shares issued by corporations with a market capitalization of less than $2 billion. Some companies in this category are Sonic ($1.67 Billion) and Six Flags ($494 Million.)

• [tag]International Securities[/tag] – These are exactly what they sound like, securities from foreign companies. They can be good for diversification, however the risk will most likely be higher. Examples of foreign companies would be Samsung Electronics traded on the KOSPI and Japan Tobacco traded on the Nikkei.

• [tag]Emerging Markets[/tag] – High risk, high return investments in a developing country. Some popular emerging markets are Brazil, and Chile.

• [tag]Bonds[/tag] and other [tag]Fixed Income[/tag] Securities – Debt securities that generally pay the holder a set interest amount at set intervals or at maturity. In addition, the principal is repaid at maturity. These can be safer investments due to the fixed income, however this is still a risk of default by the issuer. Examples of fixed income securities are corporate bonds, U.S. treasury bonds, municipal bonds, long-term certificates of deposit (CDs) or any other debt security with a maturity date greater than 1 year.

• [tag]Money Markets[/tag] – Highly liquid debt securities with a maturity date of less than one year. Examples would include short-term CDs, corporate paper, treasury bills (t-bills) and savings accounts. These are generally safer due to their liquid nature.

• [tag]Real-Estate Investment Trusts[/tag] ([tag]REITs[/tag]) – Investments that are very similar to other equities with the exception that the investor is purchasing ownership is a pool of properties or mortgages rather than a corporation. These have wildly popular due to the incredible returns they’ve had during this last real estate boom.

Personally, I like small cap stocks and REITs. They’re some of the riskier choices, but your portfolio needs some risk until you begin creeping up on retirement.

What are your thoughts? What do you like to invest in and why?