1. Stocks aren’t just pieces of paper.

When you buy a share of stock, you are taking a share of ownership in a company. Collectively, the company is owned by all the shareholders, and each share represents a claim on assets and earnings.

2. There are many different kinds of stocks.

The most common ways to divide the market are by company size (measured by market capitalization), sector, and types of growth patterns. Investors may talk about large-cap vs. small-cap stocks, energy vs. technology stocks, or growth vs. value stocks, for example.

3. Stock prices track earnings.

Over the short term, the behavior of the market is based on enthusiasm, fear, rumors and news. Over the long term, though, it is mainly company earnings that determine whether a stock’s price will go up, down or sideways.

4. Stocks are your best shot for getting a return over and above the pace of inflation.

Since the end of World War II, through many ups and downs, the average large stock has returned close to 10% a year — well ahead of inflation, and the return of bonds, real estate and other savings vehicles. As a result, stocks are the best way to save money for long-term goals like retirement.

5. Individual stocks are not the market.

A good stock may go up even when the market is going down, while a stinker can go down even when the market is booming.

6. A great track record does not guarantee strong performance in the future.

Stock prices are based on projections of future earnings. A strong track record bodes well, but even the best companies can slip.

7. You can’t tell how expensive a stock is by looking only at its price.

Because a stock’s value depends on earnings, a $100 stock can be cheap if the company’s earnings prospects are high enough, while a $2 stock can be expensive if earnings potential is dim.

8. Investors compare stock prices to other factors to assess value.

To get a sense of whether a stock is over- or undervalued, investors compare its price to revenue, earnings, cash flow, and other fundamental criteria. Comparing a company’s performance expectations to those of its industry is also common — firms operating in slow-growth industries are judged differently than those whose sectors are more robust.

9. A smart portfolio positioned for long-term growth includes strong stocks from different industries.

As a general rule, it’s best to hold stocks from several different industries. That way, if one area of the economy goes into the dumps, you have something to fall back on.

10. It’s smarter to buy and hold good stocks than to engage in rapid-fire trading.

The cost of trading has dropped dramatically — it’s easy to find commissions for less than $10 a trade. But there are other costs to trading — including mark-ups by brokers and higher taxes for short-term trades — that stack the odds against traders. What’s more, active trading requires paying close attention to stock-price fluctuations. That’s not so easy to do if you’ve got a full-time job elsewhere. And it’s especially difficult if you are a risk-averse person, in which case the shock of quickly losing a substantial amount of your own money may prove extremely nerve-wracking.

The above post is from the CNN Money series called “Money 101.” See the rest of lesson 5 here.

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A bank is one of the safest places to stash your cash. In an effort to shore up consumer confidence during the credit crunch of 2008, the federal government said it would temporarily insure accounts against loss by up to $250,000 per depositor. After January 1, 2014, the standard insurance of up to $100,000 per depositor returns, excluding certain retirement accounts, which will remain at $250,000 per depositor.

2. You pay for the convenience of a bank account.

Banks pay lower rates on interest-bearing accounts than brokerages and mutual fund companies that offer check-writing privileges. What’s more, bank fees can be high — account costs can easily add up to $200 a year or more unless you keep a minimum required balance on deposit.

3. Inflation can eat what you earn from a bank.

Even at a low rate of inflation, the annual creep in the cost of goods and services usually outpaces what banks pay in interest-bearing accounts.

4. Not all interest rates are created equal.

Banks frequently use different methods to calculate interest. To compare how much money you’ll earn from various accounts in a year, ask for each account’s “annual percentage yield.” Banks typically quote both interest rates and APYs, but only APYs are calculated the same way everywhere.

5. You can get better rates

Certificates of deposit (CDs) offer some of the best guaranteed rates on your money and are insured up to $250,000 each. As with all other deposits, insurance will return to the standard $100,000 in 2014.

The catch: you have to lock up your money for three months to five years or more. If interest rates fall before the CD expires, the bank is out of luck and must give you the rate it quoted. If rates climb, you’re stuck with the lower rate.

Also with rising interest rates, money market accounts can become an attractive option, too. They pay more than banking accounts and you don’t have to lock up your money for a specific amount of time.

6. ATM fees can take a significant bite out of your budget.

The convenience of using automated teller machines is an increasingly pricey one.On average, the fee your bank charges you to use another institution’s ATM is $1.32, according to a Bankrate.com survey in 2009. That’s on top of the average $2.22 that the other institution will charge you to use its ATM.

7. Getting the best deal takes work.

You won’t get a great deal on a car if you just walk into a dealer and plunk your money down. Likewise, you won’t get a great banking deal unless you comparison-shop and ask about price breaks. For example, a bank might offer free checking if you are a shareholder or if you direct deposit your paycheck.

8. Use the Internet to shop for bank services.

You can use the Internet to compare fees, yields, and minimum deposit requirements nationwide. Sites like Bankrate.com allow you to search and compare the highest yields and the lowest costs on banking, savings, loans and deposit rates nationwide. You can also search by geographic location or use CNNMoney.com loan center.

9. Banking online can make bill-paying easier.

Electronic bill-paying can save you the monthly hassle of paying your bills. And if you couple online banking with a personal-finance management program, such as Quicken or Microsoft Money, you’ll be able to link your banking with your budgeting and financial planning as well. But be careful. Some vendors only warn the consumer of price hikes in the fine print of a bill.

10. You can bank without a bank.

A number of financial institutions offer accounts that resemble bank services. The most common: Credit union accounts; mutual fund company money market funds; and brokerage cash-management accounts.

The above post is from the CNN Money series called “Money 101.” See the rest of lesson 3 here.

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1. Narrow your objectives.

You probably won’t be able to achieve every financial goal you’ve ever dreamed of. So identify your goals clearly and why they matter to you, and decide which are most important. By concentrating your efforts, you have a better chance of achieving what matters most.

2. Focus first on the goals that matter.

To accomplish primary goals, you will often need to put desirable but less important ones on the back burner.

3. Be prepared for conflicts.

Even worthy goals often conflict with one another. When faced with such a conflict, you should ask yourself questions like: Will one of the conflicting goals benefit more people than the other? Which goal will cause the greater harm if it is deferred?

4. Put time on your side.

The most important ally you have in reaching your goals is time. Money stashed in interest-earning savings accounts or invested in stocks and bonds grows and compounds. The more time you have, the more chance you have of success. Your age is a big factor – younger people (who have more time to build their nest egg) can invest differently than older ones. Generally, younger people can take greater risks than older people, given their longer investment horizon.

5. Choose carefully.

In drawing up your list of goals, you should look for things that will help you feel financially secure, happy or fulfilled. Some of the items that wind up on such lists include building an emergency fund, getting out of debt and paying kids’ tuitions. Once you have your list together, you need to rank the items in order of importance.

6. Include family members.

If you have a spouse or significant other, make sure that person is part of the goal-setting process. Children, too, should have some say in goals that affect them.

7. Start now.

The longer you wait to identify and begin working toward your goals, the more difficulty you’ll have reaching them. And the longer you wait, the longer you postpone the advantage of compounding your money.

8. Sweat the big stuff.

Once you have prioritized your list of goals, keep your spending on course. Whenever you make a large payment for anything, ask yourself: “Is this taking me nearer to my primary goals – or leading me further away from them?” If a big expense doesn’t get you closer to your goals, try to defer or reduce it. If taking a grand cruise steals money from your kids’ college fund, maybe you should settle for a weekend getaway.

9. Don’t sweat the small stuff.

Although this lesson encourages you to focus on big-ticket, long-range plans, most of life is lived in the here-and-now and most of what you spend will continue to be for daily expenses – including many that are simply for fun. That’s OK – so long as your long-range needs are taken into consideration.

10. Be prepared for change.

Your needs and desires will change as you age, so you should probably reexamine your priorities at least every five years.

The above post is from the CNN Money series called “Money 101.” See the rest of lesson 1 here.

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Financial literacy...not just for bookworms

In a recent report referenced by Southern Methodist University, in a study called “Economic Factors and the Debt Management Industry” by Richard Briesch PhD, 41 percent of households give themselves a C, D, or F in financial literacy.

That’s not good.

What’s your level of financial literacy?

1. 57 percent of households do not have a budget. DMB Financial starts every engagement with clients by jointly developing a budget. Knowing where you are, where you begin, is the first step towards better financial literacy.
2. 32 percent of households admit they have no savings. DMB Financial helps you set up an independent savings account at an FDIC insured institution. This is your savings account. It holds your savings. Creating a savings mechanism is a critical. It gives you the tools to make good financial decisions. You have a budget and, over time, develop a healthy savings amount. Now you just have to put that plan into action.
3. 77 percent of households admit they’re saving less this year than they saved last year. Even in tough economic times, with a good budget and the right savings plan, you can improve your savings situation over last year. The average DMB Financial client is saving over $700 a month by the time they graduate our debt settlement program! That’s amazing, especially considering the average income is around $50,000 a year.
4. There is no long-term plan for wealth creation. Rich people have financial plans, investments, and advisors. Are financial plans, investments, and advisors only for rich people? Or, are those people rich because they have a financial plan, investments, and advisors! Many graduating DMB Financial clients transition to our partner’s financial planning services. They start retirement savings, college funds, and some even start buying stocks and bonds. In just a few short years they go from being buried in debt to having a plan that gets them to $100,000 in the bank or more. Hello retirement. Hello paying for kids’ college. Hello new home.

Financial literacy isn’t something just for the rich and famous. DMB Financial enters every client into its 36-month financial literacy series of email newsletters. We partner with a major financial planning service. They provide our clients with free financial planning consultations to help identify their goals, their dreams, and put a plan in place to reach them.

Get out of debt. Then create wealth. Come join the financial literate!

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For a free debt analysis and preliminary budget, call a Program Consultant at (866) 869-6959. You’ve got nothing to lose, except the debt.

 
This article is for informational and educational purposes only.  It is not intended to provide legal, tax or financial analysis.  Please consult your attorney, accountant or tax advisor if you have legal, financial planning, or tax related questions.

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But just because you will soon become debt free doesn’t mean all the hard work is over. Becoming debt free is merely the first step on the road to financial success. There is still some work to be done in order to guarantee a prosperous future. Here’s what you need to do:

1. Remember What You’ve Learned: Be sure you don’t slide back into your old spending habits. Remember that credit cards have as many negative attributes as they do positive, and make sure you use them responsibly.
2. Continue to Budget Your Finances: Continue to map out your monthly finances and savings amount. Use the money you were placing towards your debt settlements to begin building up your savings or start looking into investments. Start small and contribute every month. You will be surprised at how quickly your money will grow.
3. Start Rebuilding Your Credit: The years of credit abuse and your debt settlements have most likely left you with a poor credit score. Consider consulting with a reputable credit repair company to begin rebuilding your credit.
4. Treat Yourself: After so many months of living a frugal existence, it is time to treat yourself, your spouse, and your kids to a weekend getaway or a nice dinner at your favorite restaurant. You deserve it. Just remember to pay cash and leave the credit cards at home!

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·     Don’t take a vacation you know you can’t afford. That warning may seem obvious enough, but it’s amazing how many people blithely commit themselves to a trip or a destination that’s going to end up clobbering them in the wallet. Even worse, many pay for their expenses with a credit-card cash advance—then, months or even years after that vacation is only a dim memory, they’re still repaying that advance at exorbitant interest rates.

·     Don’t be so smitten with your destination that you overlook how you’ll get there. The economy resort that looks like a pretty good deal may not be quite so good if your airfare ends up costing more than the accommodations. A vacation spot you can drive to may not be quite so exotic, but it could spare you from a major dent in your bank account.

·     Think about roughing it in the great outdoors. Do you really need the fancy amenities of a costly hotel? Instead, stay at a campground for as little as $20 per night. Most campgrounds offer all the basics: electricity, bathrooms, and showers. And the kids will love it! (Well, they might complain about the lack of a TV unless you bring one along.)

·     Consider a motel as a lodging alternative. If camping out isn’t to your taste, check out some motels near your destination. You should be able to find at least one with a weekly rate—and after all, why spend a big chunk of your vacation cash on a place to sleep? Save it for the fun activities you’ll be enjoying while you’re awake.

·     Don’t eat every meal at a restaurant. Eating at restaurants is convenient, but it can really add up. Try to vary the Denny’s routine with some home cooking. If you’re going to camp out, find out if your campground has a grill. If you’ve decided to stay at a motel, look for one with a kitchenette—or at least a microwave and a refrigerator.

·     Try not to overload your days. It’s natural to want to see and do it all, but trying to cram too much into every day can lead to exhaustion. Better to start with your top-of-the-list places and events, then move on to a few others only if time permits and the kids aren’t too cranky by then.

So enjoy your well-deserved summer vacation. Come back refreshed and rested—but preferably not broke.

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A practical, if not very idealistic, suggestion is to “tend your own garden” by starting to save in little ways that can add up over time. You’re familiar with the old saying, “Great oaks from little acorns grow.” Well, that’s the principle we’re advocating here on a modest scale: taking a small sum – perhaps the equivalent of lunch at a fast-food restaurant – on a regular basis, stashing it away, and letting it grow. Think of it as paying yourself first.

Every week on the same day of the week, take a certain amount – say, $5 – out of your pocket and put it away in a container of some sort. Five bucks each and every week. No cheating! No skipping a week on any pretext. Put it away, out of sight, and leave it there. Pretend it doesn’t exist. At the end of a year, you’ll have $260 that almost certainly would have vanished otherwise.

But hold on! Don’t go right out and celebrate by blowing your little fund on cabernet sauvignon or filet mignon. Instead, stick that $260 in a savings account, which might pay something like .75% interest. Granted, that isn’t a whole lot, but by the end of the following year you’ll have $261.95 that you didn’t spend. And over the course of that year, you’ve been busy saving another $260. Grand total: $521.95. Still not a fortune, but an amount that’s beginning to gain respectability.

Now, if you continue to put away that weekly $5 for another couple of years, your modest nest egg will have grown to more than $1,000. You can take a thousand bucks and put it in a CD (Certificate of Deposit), leaving the remainder in your savings account. The CD will pay higher interest than the savings account. In the meantime, of course, you’re still socking away the weekly five-spot.

Although your savings won’t grow by leaps and bounds, the money you regularly stash away is money you aren’t spending. Good things can eventually happen because you had the foresight and self-discipline to put away $5 each and every week and leave it untouched. You paid yourself first.

We certainly don’t claim that you’ll end up with great oaks, but you will have a few sturdy saplings where nothing much had been growing before.

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