Emergency Fund and How Much to Have

It's a good idea to have a few things in place before you begin to invest and reach out for those passive streams of income and eventually wealth. I have talked in previous posts about a few of these things. We talked about 401(k) and how its a good idea to participate so you can take advantage of that employer match. I also talked about getting out of debt which is something that I am currently working on. I will have much more money to work with once I do this.

The emergency fund

Another good idea is to have an emergency fund in place. In the event that something terrible should happen to you or your family, like losing your job or needing an unexpected operation etc. you will be happy that you have this safety net of a fund in place.

How much is enough?

There are some different schools of thought on the amount that should be in your fund. Some people say the amount should be able to cover 3 months of expenses, others say that it should cover 6 months. My fund (yes, I do have a fund ) will cover me for just about 3 months. This makes me feel pretty secure.

Do you have an emergency fund? Do you feel safer knowing that you have a financial safety net? 

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Asset Classes - Diversification Or Bet It All On Black?

3 Asset classes
The 3 main asset classes are stocks or equities, bonds or fixed income, and money markets or cash equivalents. These are terms that I have seen over and over again in my research on investing in the stock market and at first was totally confused by them. What are they and whats the difference?

How does each one perform differently?
Each one performs differently depending on what the market is doing and how it is changing.
Equities or stocks have historically outperformed the other classes, however they tend to be more volatile and bring more risk.
Fixed income or bonds are investments that are set up to pay out at a set interest rate over a set period of time. They are safe but the potential return is less than that of equities.
Money markets or cash equivalents are the lowest returning of the 3 asset classes but the safest. They provide a minimum return on investment.

Diversifying across these three main classes can help to lower your risk and improve chances of steady gains. Mixing very safe with a little bit of risky has proved to be a better method than betting it all on black! I guess it depends on what kind of a gambler you are.

Are you diversifying your investments across asset classes?

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My Debt Spreadsheet

I want to talk about my debt in specifics. I'm prepared to get very real and open about my debt. In the hopes that it will keep me on track (because I really don't want to fail publicly) I have prepared a spreadsheet listing all of my current debt, the monthly payments, interest rates, as well as the balance still owed. I'm not going to lie. I had been hiding from the truth, a bit, and got a little sad when I saw the actual number presented before me of what I owe in the balance column. Gulp!

Liabilities	Amt/mo	Balance	Interest Rate
Credit Card 1	$190.00	$380.00	15.24%
Credit Card 2	$300.00	$4,335.00	0%
Student Loan 1	$174.65	$22,898.00	2.36% / 6.8%
Student Loan 2	$82.50	$6,792.00	5.25%
Student Loan 3	$87.92	$9,695.00	3.25%
Student Loan 4	$72.55	$2,939.00	2.36%
	$907.62	$47,039.00

The good news is that i'm only 2 months away from paying off credit card #1! Yay!!

Whats your debt look like? How close are you to paying it off and 

celebrating your new financial freedom?

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Paper Trading.. for the Gun-shy

The stock market has always fascinated me. I've always wanted to get into investing in the markets but never knew quite where to begin. It seemed like such an intimidating world and way out of my reach but recently I decided to take control (that's kind of my new thing if you haven't picked up on that already), and dive in! I'm reading everything I can get my hands on, scanning all of the stock market websites that I come across, and keeping my ears open for any tips on specific stocks that are "going up". I think i'm finally ready to give it a shot! But if you're feeling gun-shy and want to practice first, you can try out one of the paper trading sites like Investopedia or Trademonster. Both sites allow you to sign up with them and let you place real trades on real stocks with fake money. You can track your gains and losses against real-time stock quotes and see how you stack up against the pros before placing your bets with your hard earned cash.

Are you paper trading now? And if so, how is it going?

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5 Easy Tips for Taking Control of Your 401(K)

When my current employer decided that the business was growing at a consistent rate and that she wanted to offer a 401(k) retirement plan to employees, I was stoked. When she decided she would match at 4%, I was even more stoked! A combined 8% of my earnings will be going to my retirement fund instead of taxable income to fill Uncle Sam's pockets at the end of the year. Sounds great to me! But how do I get the most out of my 401(k)? Keep reading for my 5 easy tips for taking control of your 401(k).

1. Roll over old 401(k) - Do you have a 401(k) from a previous employer that's just sitting out there in space? I did for years. At one point I totally forgot about that $2,500 just sitting there in that account! When I remembered my money, floating there in space, I decided to take control and suffer through what I thought would be a really boring and painful process of rolling it over. Turns out, it was quite simple. One short filled-out form later and my new 401(k) was authorized to withdrawal and deposit the $2,500 from my old 401(k). Done!

2. Increase your contributions - Every time I get a raise or a bonus I increase my contribution. It could be as little as a 1% increase. Regardless this is an important step if you want your investment to grow larger and faster. And besides you won't even notice that 1% or more is gone when it comes out of a raise or bonus!

3. Match the match! - What you contribute to your 401(k) is going to depend on a lot of different factors. Are you in debt? Is your job stable or are there layoffs in the works? Could you better use the money to build up your 3-6 month emergency fund? I decided that the best thing for me is to match what my employer is going to match. Until my debt is paid down, I will stay at this comfortable level. I can't see passing up free money!

4. Picking the Investment - There are a lot of choices out there with different 401(k) plans. Bonds, money markets, stock mutual funds, value funds. It's really going to depend on your risk tolerance and years till retirement. You're going to need to do your research on this one. (Stay tuned for a more intense 401(k) investment-picking blog post to follow!)

5. Don't borrow - Leave it alone! The only way it will grow is if you continue to contribute to it and let it grow up to be a be strong pile of cash!

Take control of the management of your assets. If you don't understand something about your investment then ask. But remember, no one cares more about the safety of your money than you do.

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Wise Words from Einstein?

One of the most popular quotes that I have come across on my path to financial freedom is, Compounding interested is the 8th wonder of the world - Albert Einstein. Apparently, there is no evidence to prove that he actually said it, but who cares, it's true!

This is how I understand and define compounding interest. (Disclaimer: Feel free to google the definition and find all kinds of different ways of explaining it, most more technical than my layman version here. This is how it makes sense in my head). There is also a great book called The Power Curve: Smart Investing Using Dividends, Options, and the Magic of Compounding.  In it, he talks about the magic of compounding.
Compounding interest is when you have an investment that gains interest. This interest is then reinvested with the original amount and as a result, the combined amount is now gaining interest. As time goes by and this reinvesting keeps happening, your investment grows exponentially.

Lets look at my current 401k investment. I have a whooping $10,000 currently in my 401k, and i'm getting about a 7% annual return on it. What will I have in 30 years? Not enough, but I plan to fix that, as soon as I get out of debt!
I will have $76,122.
How did I get there? The formula goes like this:
Present Value x (1 + interest rate) to the n-th power (years) = Future Value OR
PV x (1 + r) n = FV

So...

$10,000 x (1+.07) to the 30th power = $76,122

Compounding interest is key to understanding your investment to time relationship. The longer you wait to invest and save the less time you allow for the 8th wonder of the world, compounding interest, to work for you! When I crunched the numbers on my own finances it was a bit hard to swallow some of the financial choices I made in my 20s, but beginning now is better than never starting at all!

Things to think about
*Compounding interest and how it helps you in your investments.
*Run the numbers on my investments. Where will I be in 10, 20, 30 years at the current rate? Where will I be if I make monthly contributions to my current investment in 10, 20, 30 years? Where will I be if I increase my monthly contributions by $100 in 10, 20, 30 years?

Have you done the math on your investments yet? Are you contributing enough to get to your investment goals?

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Get Lost, Debt! - My Goals

After a lot of research, it is clear to me that you cannot get to wealth and financial freedom without getting out of debt first. This has been the common thread of all of the books and financial websites that I have read and podcasts that I have listened to and it has become my own personal mission. Yes, I have debt. It is time to stop ignoring the student loan statements and making excuses. Free me from the shackles of debt!
My debt consists of 1 credit card and 4 student loans. I went to college at a very affordable school. Great idea. But I took out the max on the loans that they would give me so that I could continue to live on my own, in an apt, and not work while studying. Bad idea. This is your money and your life so be careful with it. Think twice before purchasing something on credit. Do you really need it? Wouldn't it be better to wait and buy it outright with cash?

My get out of debt goals:
*Pay off the credit card first since it has the highest (19%) interest rate. Vow never to let my credit card spending get out of hand again..no matter how many travel points i'm earning.

*Triple the minimum payment amount on credit card. In my case it's $100, so i'll make $300 payments.

*Automate this payment every month so that I don't even see it come out of the bank. This is key to staying on top of debt and not letting it get you down.

*Pay off student loans with the highest interest rate first next.

*Once credit card is paid off, use the credit card payment of $300 and put it towards my student loan on top of the $85 minimum payment that i'm currently making on the one with the highest interest rate.

*Once student loan numero uno is paid off, transfer the amount that was being paid to the credit card AND the amount of the student loan payment, $385, to the 2nd student loan on top of the $75 minimum payment on that loan. See how it's a snowball effect?

*Continue till no more of my hard-earned cash is owed to anyone else.

Paying off debt becomes really fun when you start making final payments, checking the debt off the list, and watching it vanish into thin air, never to return.. hopefully. No, definitely.
I'll keep you posted on my progress.

How are you going to begin to get yourself out of debt?

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How Can I Make My Money Work for Me?

People often ask me why I got so interested in the topic of financial freedom and the means of getting there. Well, first of all the topic is money. That's a pretty interesting topic, especially if you're a young girl like me, living in one of the biggest most exciting cities in the world... and you are broke. But the light bulb really went off when I was introduced to a book called, Rich Dad Poor Dad by Robert Kiyosaki a few years ago. It was a quick read, I flew through it in a weekend. A real page-turner.
One of the biggest tips I took from that book was that I should work my 9-5 but I should also work on MY BUSINESS. My business? What did that mean? It meant that I should be making my money work for me by building my assets. This was eyeopening for me. I was raised to think that you work hard, you get a job, you stay at that job, and you're grateful for it. No one ever told me that I could be working on MY BUSINESS and creating wealth at the same time! 
So what does it mean to build your assets and make your money work for you? Assets are things, both tangible and intangible, that you own that have value and can produce wealth. An example of a tangible asset is real estate. A great idea for someone who has cash to throw down on some property and then rent all or some of it out. 

Things to think about: 
*Work on MY BUSINESS. 
*How can I attain assets and build wealth?
*What types of assets could I own that could put me on the path to wealth?

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Financial Freedom - The Journey

Financial freedom is a phrase that I heard over a year ago and immediately had to learn more about. It was like I was struck by lighting. Stunned, I sat there and thought, what the hell is this financial freedom and how do I get it?? You mean there is an alternate path in life to wealth that does not necessarily include a 9-5 job for the next 30 years? You mean I can have more than one stream of income coming in at a time? It was truly eye-opening.
I listen to podcasts daily on investing, entrepreneurship, and automation. I read books about stocks, options, dividends, and getting out of debt. I scour the web for articles on passive income and how to get it. The list goes on and on! The more I dig, the more I find. There is so much information out there and i'm here to share it with you!
This blog is a documentation of my financial discoveries and how I implement everything that I learn on my journey. This is A Girl's Journey to Financial Freedom.

-Girl Finance