Investing – Step #3: Educate Yourself

Now that you’re free from debt and are steadily building up your savings, you’re probably eager to get your money into the market as quickly as possible.
However, before going anywhere, you need to understand the lay of the land. First, there’s the language. There are hundreds of investment terms tossed around on Wall Street, and you’ll want to know what they mean.
Second, investing is a whole lot more than just “buy low and sell high.” Understanding the basic concepts that govern the market is key to being a successful investor. So, before you cut your teeth on your first stocks, take the time to learn all you can about investing.
You can start with some easy books. We suggest:
  • The Intelligent Investor by Benjamin Graham
  • The Essays of Warren Buffett
  • A Random Walk Down Wall Street by Burton Malkiel
  • The Bogleheads’ Guide to Investing
You may also want to browse through these online guides and resources:
  • Investopedia.com
  • TheMotleyFool.com
  • the BlackRock Blog
  • the Money Tree Investing Podcast
And finally, here are 25 important investing terms along with their basic definitions to help get you started:
  1. Ask: The lowest price an owner is willing to accept for an asset.
  2. Asset: Something that has the potential to earn money for the owner.
  3. Asset allocation: An investment strategy that balances risks versus rewards by adjusting the percentage of each asset in your portfolio by asset class. This limits some of your risk by allocating your portfolio according to your particular risk tolerance, goals, and investment time frame.
  4. Balance sheet: A statement showing what a company owns, the liabilities the company has, and the company’s outstanding shareholder equity.
  5. Bear market: A market that is falling.
  6. Bid: The highest price a buyer is willing to pay for an investment.
  7. Blue chips: Companies that have an established history of good earnings, good balance sheets and regularly increasing dividends.
  8. Bond: An investment that represents what an entity owes you. Essentially, you lend money to a government or a company and you are promised that the principal will be returned along with a predetermined interest value.
  9. Book value: The number reached if you would take all the liabilities a company has and subtract them from the assets and common stock equity of the company.
  10. Broker: The entity that buys and sells investments on your behalf, usually for a fee.
  11. Bull market: A market that is likely to gain.
  12. Capital gain (or loss): The difference between what you bought an investment for and the amount for which you sell it.
  13. Portfolio diversity: A portfolio characteristic that ensures you have more than one type of asset and/or are buying investments in different sectors, industries or geographic locations.
  14. Dividend: A distribution of a portion of a company’s earnings to its shareholders. Dividends can be paid only once, or they can be paid more regularly, such as monthly, quarterly, semi-annually, or annually.
  15. Dow Jones Industrial Average: An average of a list of 30 blue chip stocks.
  16. ETF: A bundle of stocks managed by a professional investor.
  17. Exchange: A place where investments, including stocks, bonds, commodities, and other assets are bought and sold.
  18. Index: A tool used to statistically measure the progress of a group of stocks that share characteristics.
  19. Margin: Borrowed money used to make an investment.
  20. Market capitalization: The number you would get if you multiplied a company’s current share price by the number of shares outstanding.
  21. NASDAQ: A stock exchange that focuses on trading the stocks of technology companies.
  22. New York Stock Exchange: One of the most famous stock exchanges, the NYSE trades stocks in companies all over the United States and in some international companies.
  23. P/E ratio: This measure reflects how much you pay for each dollar that company earns. The higher a P/E ratio is, the higher the earning expectations.
  24. Stock: A piece of a company. Companies divide their ownership stakes into shares, and the amount of shares you purchase indicates your level of ownership in the company.
  25. Yield: The ratio between the stock price paid and the dividend paid, measured as a percentage.
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Investing – Step #2: Start Saving

Don’t invest a penny before you build a substantial savings account.

This might sound counterintuitive to a wannabe investor, but it’s important to have a solid cushion of savings before you start putting your money into the market. Life is full of surprises. You don’t want to be caught in an emergency that leaves you desperate for cash when all your funds are tied up in bonds, CDs and stocks.

This month, work on building up your savings to minimize risk. Here’s how.

  1. Follow the 50/30/20 rule. Financial advisers suggest that 50% of your income goes toward necessities, like your mortgage, transportation and food costs; 30% goes toward discretionary non-essentials, like dining out, paying for a top-tier cellphone plan and updating your wardrobe; and the last 20% goes toward savings. If you begin dividing each paycheck automatically, you’ll launch a habit of saving that will greatly enhance your financial life.
  2. Put away three to six months of living expenses. Now that you are in the habit of saving, the next sensible step is to put that money toward something substantial. Experts suggest the first step of saving is building up an account that is large enough to cover your living expenses for three to six months. This will tide you over in case there’s an unexpected event that keeps you from earning your regular salary. That may be an illness, your company downsizing or anything that leaves you suddenly unemployed. Calculate exactly how much you need to live on each month, and start saving. Then, even if the unthinkable happens, you won’t be up a creek without a paddle.
  3. Build up a series of cash reserves – including an emergency fund. Aside from living expenses, it’s important to have accessible cash for those unanticipated events, like a major household repair or a medical emergency.

Your Turn: What steps have you taken toward building your savings this month?

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Financial Tips For Single Parents


Smart money management is always important, but it can take on more urgency for those who are without a partner. Whether you’re divorced, widowed, or single by choice, single parenting brings unique budgeting challenges.

Marilyn Timbers, a Connecticut-based financial advisor, says of having to raise a child on one income: “Children are a joy, but they do not come cheap.” The U.S. Department of Agriculture notes in a report that it costs an estimated $241,080 for a middle-income couple to raise a child to age 18, and some single parents have to shoulder that responsibility alone. Even if child support is adequate – unfortunately nearly 50% of that support is never paid – you’ll do yourself a favor if you think ahead about financial matters as a single mom or dad.

Estate planning is your first priority, according to Lisa Hay of Ascend Financial. It’s essential to make arrangements for your children should you become incapacitated, and this means spending time on two documents that no one enjoys thinking about: a will, which specifies a guardian for your children and how you’ll pass assets down to them; and a “power of attorney,” which gives someone the legal right to make decisions on your behalf if you’re unable to do so.

You may also want to set up a trust. A trust is a legal structure in which your assets can be held for the children. It is overseen by a trustee. And check with your employer to see if it offers a disability benefit. Generally, you will get a reduced income amount when you claim disability – anywhere from 50% to 70% of your salary. “Your income is your most important asset,” says Tom Morrill, owner of Morrill Insurance Group. Insuring it can be especially crucial for single parents who don’t have a second income to cover a gap.

Hay also says be sure to have life insurance. What you purchase will depend on your finances, but a term policy is most economical because it’s a straightforward death benefit. A healthy 33-year-old woman, for example, would pay roughly $240 a year for a 20-year term, $500,000 life insurance policy. This would get your child through college should something happen to you.

Health insurance is “the number one insurance need for a single parent,” according to Morrill, who considers life insurance a close second. People often complain about the cost, but if you’re uninsured, a serious medical procedure or hospital stay can be disastrous to your finances. And, of course, losing a job or becoming ill is still more catastrophic as a single parent than as part of a two-income couple. A recent Harvard study revealed that 62 percent of bankruptcies were caused by medical debt. You can comparison-shop for policies at your state’s marketplace or at HealthCare.gov.

Along with the rest of your boring-but-necessary financial thinking, don’t forget about tax breaks. If you’re a single parent, you should probably file as head of household (not as single) because you’ll often pay less and get to claim a higher standard deduction. You can also claim exemptions for yourself and each qualifying child. You also might qualify for the earned income tax credit, the child and dependent care credit (if you pay someone to care for your kids), and the child tax credit.

As far as day-to-day household operations, here are a few more things to keep in mind:

  • Credit cards – In The Financial Guide for Single Parents Workbook, Larry Burkett warns single parents that, while credit cards may seem like an easy way to fill in the gaps of a decreased income, it’s wise to avoid using them as much as possible.
  • Shopping in general – Many single parents have to make lifestyle adjustments after a divorce or the death of a spouse. You may need to consider moving or changing your spending habits. Burkett notes that lots of people like to go shopping to cheer themselves up, but the added debt you’ll incur will only make you feel worse. This even applies to groceries, which are an expensive part of the budget. Plan that trip carefully, too, so you can better avoid impulse buying.
  • Holidays – Guilt causes many single parents to overindulge their children, even if they can’t afford it. This is especially true during holidays and birthdays. Be sure to set designated amounts for gifts, and stay within the budget.
  • Ask for help – Check with your credit union for financial advice. And there are many nonprofit organizations with programs specifically designed for single parents.

Whatever your income, it’s important to give yourself a safety net, because emergencies happen. Put aside a little bit of money from each paycheck to set up an emergency fund for car repairs, broken refrigerators and other realities of life. As a general rule, experts recommend having six months’ worth of non-discretionary expenses in an account that is separate from the one you use for daily expenses. That could be a savings account or possibly a low-risk investment account.

Bucket budgeting can help, says Jan Cullinane, author of AARP’s The Single Woman’s Guide to Retirement. That means creating four different accounts: one for fixed monthly expenses such as food and bills, another for long-term expenses like retirement or replacing appliances, a third for emergencies and a fourth for discretionary spending.

“Put the appropriate amount of money into the first three, and whatever is left is your discretionary or ‘fun’ spending,” says Cullinane. “If there is nothing left for that month in the ‘fun’ bucket, you simply go without – you don’t dip into the other buckets. Harsh, but necessary.”

And it’s more doable than you’d think. One study asked people if they could save 20 percent of their income. Most respondents said no. But, when asked if they could live on 80 percent of their income, most said yes. “Be aware of how you frame questions to yourself,” Cullinane says. “You might be surprised.”

Your Turn: Have you faced tough questions and financial circumstances as a single parent? What were the most useful solutions you found?

SOURCES:

http://www.familyminute.com/articles/parenting/single-parenting/financial-pitfalls-for-the-single-parent/#.WTnLa2jyvIU

http://money.usnews.com/money/personal-finance/articles/2013/10/17/the-best-budgeting-strategies-for-single-parents

http://www.cheatsheet.com/personal-finance/5-personal-finance-tips-for-single-parents.html/?a=viewall

https://www.betterment.com/resources/life/family/7-financial-planning-tips-single-parents/

http://abcnews.go.com/Business/top-financial-planning-tips-single-parents/story?id=20906018#

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Investing– Step #1: Get Your Finances in Order

When you invest in your future, tomorrow will always be bright

Congratulations! You’ve made the important decision to invest some of your money this year, and it’s your first time ever. You’re eager to get your money into the market, yesterday.

But where do you start?

Lucky for you, UCCU has decided to make this the year of guiding new investors. So, even if you don’t know a merger from an ETF, and your finances are a mess, you’ll find clear, concise instructions for making your money grow in a safe, responsible way.

For the next 12 months, UCCU will provide you with 12 easy-to-understand steps about investing, making you a savvy, confident investor by the time the year is out.

Step #1: Get Your Finances In Order

Jumping into the market without first taking careful stock of your finances is like asking for seconds at the dinner table before finishing your first portion. Though you can technically invest before your debts are paid off, financial planners advise strongly against this move, as it is somewhat irresponsible. So, before your money gets near the market, it’s time to kiss your debt goodbye!

To live completely debt-free, examine every aspect of your financial life. Here’s how, in four easy steps.

 

  1. Track your expenses. Save every receipt. Hold onto every grocery bill and each restaurant check. Keep the tabs from the dry cleaners and the gas station. Everything counts – even the 5 bucks you blew on a grande latte. At the end of the month, add up your total living expenses and see where you can cut down. Any money you can save by trimming your expenses is earmarked for paying down debt.
  2. Increase your income in any way possible. Now’s the time to ask for that raise you’ve been wanting, freelance whenever possible, or even seek better or more employment. All extra income goes toward getting rid of that debt.
  3. Get rid of all credit card debt. Examine every credit card statement and begin paying them off, starting with the one that has the lowest amount. Don’t concern yourself with interest rates unless two debts have similar payoffs. In that case, start paying off the higher interest rate debt first. Your goal is to get rid of these bills completely, one at a time.
  4. Pay off all personal and student loans. You don’t want to owe anyone a dollar, so pay back all money you’ve borrowed as soon as you can. If possible, consider shortening your mortgage or, if you have the means, even paying it off completely.

Be aware that this process may take a while. What’s important at this point is that you have a plan to become debt-free. While your debt is slowly shrinking, you can follow UCCU next few steps toward investing. And, if you begin aggressively paying off your debt today, you will be ready to invest sooner than you think!

Your Turn: Have you taken real steps toward putting your finances in order and paying off your debt? Share your success with us in the comments!

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