Posts Tagged ‘Savings’

Life Saver Emergency Funds

Last week, I got hit by sudden financial storm which put me a on state not allowing to concentrate on posting the blog. Now, I am back safely without any credit injuries, I really like to share my story about the Life saver incident. I am sure many of you experienced or experience this sudden financial crisis which hit us without any notice. I know it is not an easy task either to escape or get out safe and sound if you aren’t plan and prepared for it.


Delay in my Contractor job payment delay, my truck is about to breakdown and needed immediate fix and a must to do medical procedure for my son all of them hit me hard at the same time. I got in the midst of the storm and there is no escape other than take the hit but protect myself. I wouldn’t have taken that chance, if I didn’t have my saved store emergency funds.



It was like wearing a life jacket in a flood water which is rushing fast and won’t last long. Life jackets are safe and it will help to float and be on top of water without getting drowned. Emergency funds are life jacket/lifesavers to our financial life. I know I am using bit too much analogies today but I like it put this in a way so it makes real sense and shows the importance of the topic.


Alright, What is an Emergency Fund?



As I was saying, I like to call it as a lifesaver fund. Life obviously will have unexpected happenings. There are plenty of situations like I mentioned which will hit us without any prior notice. You don’t have any choice to take on the expenses. You can try your best to postpone those expenses but some medical and emergency situations can’t be postponed. In those tough times, you really need to have some funds available to depend on to take care of it. These funds are emergency funds.


Why do you need it?


Life hits us hard at times and nobody knows when and how. It is better to take the precaution and be prepared. Instead of waiting for it happen and figure out at the time. So it is always good to save up some money for those emergency situations. I know lot of people are struggling to even meet their ends at the tough economy crisis and it might be tough to save for any funds.

If you are one of them, I would recommend to consider at least put away your tax refunds or any bonus payments as emergency funds. It will surely help you. Instead of depending on the plastic money(credit cards) and racking up the balance in that account which will hunt you down later. It is good thing to have a store of money to help you.



What are types of emergency fund?


It depends each individual. I have 2 types of emergency fund setup right now. Medical and Emergency funds in a savings account. I also have 3 more savings account just for the purpose to handle any Short term, Home and other unexpected expenses. I put away $100 a month on the 2 accounts and at least $50 on these 3 accounts. It eventually adds up and at year end I just put them in a CD which I can take out anytime with or without penalty. Also if my credit card gets hit by these sudden expenses, I just draw the amount according to the expense from these accounts and pay it off.



How much do I need as Emergency fund?


That’s
a tough questions since it also depends on each individual. Many experts recommend at least 3-6 months of your monthly expenses. That might be a bigger amount to target for starters. So I would recommend at least start putting something away like $25, $50 or $100 every month and set a goal to reach around $1000 in a year or so and move up the limit if you haven’t used up your savings.


Just put your money in a savings account that way at least you have some interest for the amount every month and helps your money grow. It also helps to access the fund easy and faster.




Emergency fund is such an important aspect for a financial life avoiding stress and frustration which don’t really need at the time of emergency situations. So start thinking about it and save up for the hard times. You will surely appreciate my post when it happens.

Time is of the essence – Part 6 (Kids Education Savings -Final)

Sorry to miss out on posting last week blog. Now I am back on track after a week long vacation break. Yes, a fun Road trip to Chicago from Houston with my family for a get-together and sight seeing. Road Trip, you might wonder at this current high gas price?!





Yep, you don’t believe it!! I came out as a winner compared to flying since its a last minute plan. You can expect a blog about it pretty soon. Let me jump right into core topic.




In the last few weeks, I been shedding lot of light and sharing as much information I know about Kids Education savings under Time is of the essence main topic. Starting with a
detail analysis , moving on to different investment paths and the previous post with various savings plans available for kids education savings. I have covered many points on Kids Education savings which I feel important and essential under financial planning.





This final post, I am going to share my own realistic approach on the same line. Many of you might know, I always like to walk the talk. It is my core belief. My previous post can stand as examples. Advice is not just for others, its for yourself. You can only advice others if you truly follow your own statement. People will only trust and believe a person if one do things they talk about. Anyway, let me reveal the strategy of my own son’s education savings plan.

My Approach


Time to share my secret. I started my son’s education savings as soon I heard my wife is pregnant. I opened a 12 month CD with $250 monthly deposit in DCU which yielded around 5% last year. I know its not big return. (I shared this idea when I talked about different investment routes – Kids savings Part 2 post)I just wanted to give a kick start and get to a habit to manage my monthly budget to putting aside this amount every month.





I sticked with my initial plan and it gradually become a part of my budgeting. I renewed the CD one more time last year which just got matured 2 months ago. I didn’t really jump to anything as I wanted to start a 529 investment plan.




I analyzed and did my own research, finally ending up opening 2 good funds which can return at least 10% year over year. I opened 2 different funds with 2 different companies in 2 different plans.





I decided to open 2 funds in 2 different companies to diversify and be on a safer side. I also plan to do 2 different plans, coverdell and 529 because I can reap the benefits of both for short term and longer run. That’s my idea.



My First Fund Choice




I happen to come across Permanent Portfolio funds currently managed by US Bank corp from Timothy Sykes(hedge fund guy). He recommended from his personal experience, a all time more than 10% return fund,
Permanent Portfolio Fund – PRPFX.





I did my initial research and found the fund to be amazingly interesting. I was astonished with their return as of date more than 10% year over year and 100% since the inception. See the chart below.




It had really interesting combination of holdings from Gold, Silver, Swizz Franc, US Stocks and Bonds. Check out the detail fund information from their fund fact sheet. I opened a monthly Automatic investment Coverdell plan with a $100 initial deposit. They charge $35 as opening account fee from that initial deposit. Every month I signed up for auto draft of $150 from my $250 savings.


Second Choice


You all know Vanguard is one among the top 3 fund management companies. They have really good funds and at the same time reasonable growth and return funds. I was initially debating whether to go with Vanguard or TRoweprice since I have International Market fund with them.


After my detail analysis, I found TRoweprice don’t have a good fund for 529 which has performance proven for long with good return. So I decided to do Vanguard this time. I planned to do 529 Aggressive Growth Portfolio which is 100% with blend pattern. It also has good return as of last year with 10% year over year. Check out the chart below. Check out the detail performance of the portfolio by check their fund sheet.


Since Vanguard as a Minimum $3000 deposit, I used my matured CD amount directly as opening deposit. My initial 2 years CD savings served a real good purpose as a initial opening amount to kick start 529 fund in Vanguard. I also signed for monthly automatic addition of $100 to this account which totals my $250 allocated in my monthly budget for my son’s education savings.


I hope to maintain these 2 funds and use them when needed. i also plan to add one more in the future to be better situation to handle the need. Better to be planned and cautious now then sorry later..


This concludes the series of Kids Education savings blogs. I hope it was useful and informative. Let me know what do you thing. I am planning to shift gear from “Time is of the Essence” topic and post blogs which are in my list for a long while on different areas. Watch out..

Time is of the essence – Part 4 (Kids Education Savings- 2)

We are now on the 4th part of the topic “Time is of the Essence” as I continue to discuss how a timely decision can make a big difference in all of our financial well being. I am just trying to stress how much time matters by providing real examples and solutions. Hope its helping you to make your decision. That’s the key aspect of these blogs.

If you missed out on blogs “Compound Interest Magic“, “Life Insurance Play“, “Kids Education Savings – I“. Check them out before you read on this part. In the Kids Education Part – I, I tried to provide a detail analysis on why Kids Education savings is really needed?! I myself thought a lot about it until last week I made my mind for my sons education.

I finally made my decision to start 2 plans(Coverdell&Vanguard 529 plan) for my son who is just going to be 2 years in a month. It’s the right time to kick start something for his futre which should be ready when he hits 18years for his college.

Which Investment vehicle to choose?

Too many choices is always a problem. When you go to Walmart to just get a box of cereal. You are sure to be startled with a whole aisle full of Cereal boxes. It’s not an easy task to select one from umpteen number of brands and different type of cereals as everyone of them is best do its job as a breakfast item. Unless you know what you are looking and what you want, it is tough job to handle.

Similarly there are lot of different options in this market to make your money grow especially when it comes to kids education. It all depends on which route you want to take and what amount of risk factor you can manage. Let me tell some which I myself researched before I made up my mind.

CD Savings

The first vehicle which always comes to average individual mind is CD’s. Certificate Deposits is a good way to start savings. Actually I started my son savings as a CD which yielded 5% but not anymore. But it helped me to atleast get to an habit of putting certain amount aside for this savings.

I would also suggest you to start as a CD and try to see whether you can put aside certain amount every month for kids education. Once you got an hang off this monthly routine, just plan to move over to a different vehicle because CD’s don’t yield a lot of return especially at this economy where a CD only yield a max of 4%. With 3% average inflation, you are only gaining 1% on top of it. You need to find a vehicle which can yield atleast 8-10%.

Real Estate

Next comes Real Estate in my list. I like this route for many reasons to make your money grow but not for Kids 529. It gives lot of leverage for your money, good cash flow and adds equity to your home which is a good ROI.

But if you think for a long term, it might not be a right tool. Depreciation’s and Appreciations just doesn’t work well together. An analyst from Market watch just reported in an interesting article a month back, comparing Stocks and Real estate returns. A dollar invested in Stock market came out as 12.83 cents after 25 years where a it only yield .83 cents in real estate with all inflation and everything put together. That might be surprising for many but that’s a truth if you take only equity. So I don’t really agree with him 100% but I still don’t like real estate being a vehicle for kids education.

Stock Market

I know lot of stock brokerage firms offers you this option to open a 529 stock account to invest in stocks. I myself thought about it but stayed away. It’s a smart idea for many stock savvy investors but not for an ordinary individual like you and me. I am swing trader in stock market but that doesn’t mean that I am stock savvy investors. It is good route because it always beaten any other investment vehicles all the time if you know how to play. If you don’t the battle field, you are determined to be crushed to death. So I won’t risk my money especially when I need to save and get a good ROI to back me up after 15years.

If you would ask me, You should only put the money what you really don’t need for any purpose into the stock market. That’s the smart investors mentality. You shouldn’t put anything you really need today or tomorrow as you have the high probability of losing it in stock market.

Mutual Funds(MF)

Last but the most opted-in solution. MF’s are the right choice according to many analyst when it comes to Retirements, Kids educations or for any long term savings for that matter if you know the right company and right fund to invest. I know many might agree with me because its one of the safest route available for any individual who likes hassle and stress free shopping.

But there is a caveat to this path. You should be willing to invest atleast some amount of time to do proper research on selecting a fund company which offers low expenses, low monthly deposits and has funds with proven record. You shouldn’t just choose any MF’s in the market to do work for you.

You need to select funds which has real good history of returning atleast 10% and market proven record. It also important to keep in mind to select a Tax deferred education plan instead of usual taxable Mutual fund. The core advantage of tax deferred is to make your dollar grow better without giving to uncle sam every year during tax season. It is the big difference between taxable funds and tax deferred funds.

Conclusion

To conclude, I would strongly recommend anybody to go with Mutual Fund route choosing a right fund company and right fund to grow your money. If you are well versed in Real-estates that would be next choice.

Having recommended Mutual fund to be my first choice, I should talk about proper education plan to work with it. There are different kids of plans like 529 plan, cover dell or UTMA which is totally different and has advantages of their own. We will talk more in detail on the next blog and I will also reveal my personal funds of my choice which I selected for my son’s education.

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