You may have noticed that recently I have not been posting as frequently as usual. This is because I am working hard at giving this blog a new, more memorable domain name and an updated look. I am really pleased at the way it is shaping up and I hope to announce the launch of the new and improved blog before the end of the month. Stick around, I think that you'll like it.
Warren Buffet, one of the most successful investors ever, and currently, according to Forbes magazine, the richest man in the world, submitted a fantastic letter to the editor of the New York Times. If you are an investor and have not yet read this letter, you owe it to yourself to do so.
Buffet explains that while he cannot predict the direction of the market in the short term, "fears regarding the long-term prosperity of the nation's many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10, and 20 years from now." Buffet also says that if prices continue to look this attractive, his personal investments will soon consist entirely of stocks of American companies.
The advice that Buffet offers - to be greedy when others are fearful, and fearful when others are greedy - is great advice but often tough to put into practice. It can be difficult to put money into stocks and stock funds in these conditions. But this is exactly what prudent investors like Warren Buffet are doing. You should be doing it too. As I mentioned earlier, stocks are on sale now. Buy as many as you can before the prices go back up!
A Financial Values blog post has been included in the Finance Fiesta. Head on over to Broke Grad Student to check out the other great entries in the carnival. I especially enjoyed the post on Living Almost Large about the challenges that new immigrants to the United States must face because they do not have a credit score.
What do you do with unexpected money? Every once in a while, most of us end up with small or large amounts of money that we did not expect. It can be from a bonus at work, a tax refund, a gift, an inheritance, or something else. My wife's Great Uncle passed away, and we recently learned that she will inherit about $4,600 from his estate. We certainly had not expected to receive a generous gift like this.
While you might not receive unexpected cash infusions very often, I believe that how you choose to use them can have a big impact on your overall financial situation. Although everyone's financial situation is different, this is how I would prioritize the use of any windfall:
1. Establishment of emergency funds. If you are living paycheck to paycheck and have no savings cushion, this is a great time to create one.
2. Debt repayment. Knocking off debt ahead of schedule is always a good idea.
3. Charitable giving. Giving is important. Even if you are not regularly supporting charities that are important to you when you receive some unexpected cash, it can be an easy time to start. After all, you weren't counting on that money for anything else.
4. Retirement savings. Are you behind the curve? Catch up!
5. Other long term savings goals. Use unexpected money to boost your savings for a down payment on a home, your kid's college expenses, your next car, or anything else that you are saving for.
6. Something fun for you and your family. Take at least part of the money to buy something nice for or do something fun with your family.
After looking over our finances we decide to us this gift for these purposes:
$500 - Give to charity. We believe that giving is important and try to give at least 10% of our income to charity.
$800 - Furniture for Baby's room. We needed some furniture for our new baby's room. This is a purchase that we would have made anyway, but we might not have spent quite this much.
$500 - College fund for our daughter. We don't have any debt other than our mortgages and we are doing well with our retirement savings. However, we are not yet saving as much as we should be for our 8-month-old daughter's college expenses.
$1200 - Savings account. One of the weakness in my own budget is that I tend to keep a pretty anemic savings account. As money builds up in my savings I always feel that it could be put to better use in one of my investment accounts. However, now that I have a child, I really want to work on building up that savings account balance. When do kids need braces?
$1000 - Investment account. This is a good time to invest. We created this account so that at least some of our long term investments are not locked up in a retirement account.
$600 - Something fun. We have not yet decided what to use this part for. Possibly for photography classes for my wife--something she has always wanted to do.
We think that this allocation works very well for our situation. How would you use an unexpected influx of cash?
Welcome to Financial Values. I am glad you're here. I designed this blog to provide simple, sound, and free financial advice to anyone interested in learning more about managing money well. Here are the few basic principles that form my approach to financial management:
1. Managing your money is your responsibility. Plenty of factors outside your control will influence your financial situation. However, you have more control over your financial situation than anything or anyone else.
2. Managing your money isn't hard. In fact, when given the choice between simple investments and financial solutions and more complex ones, the simple ones are almost always better.
3. There is a saying that the best time to plant a tree was 20 years ago, but the second best time is right now. This is true for your finances too. The best time to start managing your money well, unless you are already doing so, is right now.
4. Money is important, but it is not everything. The real benefit to managing your money well is that doing so will give you a greater ability to focus on those things that you truly value.