During our last blizzard this weekend I spent time catching up on some paperwork and budgeting things that needed to get done. One of those items was reviewing and re-balancing my retirement portfolio. I usually try to do this once or twice a year, depending on how far out of balance my asset mix becomes. It was definitely overdue!

While reviewing everything, I decided to redo my retirement accounts that are in my 403 (b) account (similar to a 401-k but for nonprofits). Along with several other funds, I had been invested in a Target Retirement fund account, but I was not happy with the percentages of stocks, bonds, etc. So I decided to pull my monies out of that and redistribute them.

Also, my balance was out of whack between stocks and bonds and I needed to get that re-balanced (getting back to the right mix and percentage of stocks and bonds). So after reviewing funds, pulling monies, re-balancing, etc. my retirement portfolio now looks like this:

• Domestic Bonds are 20% of my portfolio
• Large Capitalization Stocks are 35% of my portfolio
• Small Capitalization Stocks are 20% of my portfolio
• International Stocks are 20% of my portfolio
• REIT (Real Estate Investment Trust) is 5% of my portfolio

The basic breakdown is 75% stocks (further broken down by small, large, and international stocks), 20% bonds, 5% real estate. For my age and my goals this seems to be a pretty good mix – we will see how it works out!

I am a buy and hold, index type of investor. I am still in index funds, I just changed some of the funds to better reflect my personal goals and needs. I invest a fixed amount monthly (with a company match) regardless of whether the market is up or down. This strategy (continuous automatic investing) in my opinion gives me the best opportunity for good returns.

I will now let things go for awhile, probably checking closely every three months to see how things are going. I tend to not re-balance my portfolio unless it gets close to 3-4% over or under my target percentages. Again, unless something really wild happens, I tend to only re-balance once or twice a year.

Have you recently (or ever?) re-balanced your accounts? This might be a good time to take a look and make sure you asset mix is in line with your investing goals.

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A lot of people at this time of year like to make New Year’s Resolutions. I don’t. I like to set goals. The difference? A New Year’s Resolution is usually a wish, a generic “I would like to…”. Goals on the other hand are specific, measurable, and attainable.

I sit down (usually with my wife) and I map out where we would like to be at the end of the year – whether it is financially or some other area of our life. Then I sit down to determine how to measure that goal, and the steps it will take to achieve it.

For example, our Emergency Fund has taken several  big hits recently (windows and a well pump). So one of my goals for next year is to build back up our emergency fund. Now that is still too general – a good goal will state how much I want to put into the emergency fund this year (specific, say $3000), and the steps I will take to achieve that. With money, it is pretty easy to set goals because money is measurable (either I will have put the money into the emergency fund or not).

I believe it is very important to set goals, especially financial ones. Otherwise, you will be tempted to spend your money on whatever comes along rather than having an objective for your money. If you don’t know where you are going, than any road will take you there.I hope we all know where we are going financially.

What are some of your financial goals for this year? Share in the comments where you are headed this year. I will close this post with one of my favorite quotes – “Failing to plan is planning to fail.”

Have a great New Year!

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One measure of how you are doing with debt is to look at your debt to income ratio, often referred to as the  DTI ratio. To determine this, you take your monthly payments toward debt – mortgage payments, credit card debt, car payments, etc. Add them all up, then divide it by your net monthly income. That percentage is your DTI Ratio. Some experts say that this ratio should be less than 35% (others give slightly higher or lower figures). The lower the number the better.

Lenders look at this number to determine your ability to handle your debt payments. Even if your credit score is high, if your DTI ratio is too high you may be denied a loan. For me, my DTI ratio is 19.2%, which is pretty healthy. If I needed to (which I don’t want to), I should be able to get a loan fairly easily and at good terms (especially linked with a high credit score).

Another good reason to have a low DTI is that if something happens to your income stream, you will have more flexibility in cutting back your spending. Having options in budgeting is always a good thing.

If you are having trouble making ends meet, one reason could be that your DTI ratio is too high. If more than 40% of  your income is going to pay off debt, that leaves you with very little to pay for everything else. This would be one indicator that you need to tighten your belt and pay off some of that debt.

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As I was painting my wooden deck furniture last night I got to thinking (must have been the fumes). This furniture is 21 years old! Then I thought about the van I talked about yesterday that is 14 years old. And then I thought about the mower I traded in this year that was almost 25 years old. Now, not everything that I have is old, but the things I purchase do seem to last. I buy well made items, and then take care of them. And they “pay me back” with many years of useful service.

Although these items are not stocks and bonds, they are investments. I have spent money on them. I want my monies worth. By spending a little time researching and buying well made items (not necessarily the most expensive), and by spending the time to maintain and take care of them, the items last.

In this era of get rich quick and throw away goods, going against the flow and staying in for the long haul, whether it be in stocks or deck furniture, is the way to go. Wealth is built slowly and in spending wisely.

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The King of Pop. The King of Wall Street. Michael Jackson and Bernard Madoff both crashed and burned.

Mr. Jackson was about 500 million dollars in debt -try to get your mind around that number. Mr. Madoff went through billions of other peoples money. Two people who had so much, yet have so little to show for it. One is bankrupt and gone, the other is disgraced and facing 150 years in jail.

Money is a very powerful thing. And although we do not like to think about it much, money has the power to destroy – ourselves, our families, and others.

Besides all the gossip, all the hype, what can we personally learn?

• It is not how much you make, but how much you spend that determines wealth. Spend less, you get wealthy; spend more, you go broke.
• Along the same lines, the “just a little bit more money syndrome”  will not help you-if you do not have a plan a little bit more will be spent when you have a little bit more.
• Friends and Family may not be the best financial advisors.
• Again, along the same lines, you need to be careful who you trust with your money, even the “experts”.
• If it is to good to be true, it is. Be cautious and wise – get details.
• There is evil out there. Everyone wants to separate you from your money.
• Without a plan, you could be the next victim.
• Money is powerful – it can tempt you to do things you never dreamed you would do. Respect the power and lure of money. Make boundaries. Set up a hedge of protection.

I am sure there are many more lessons that could be learned. One more is that it is easier to learn from other people’s mistakes than learning from your own. Feel free to add your own insights in the comments.

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In the latest issue of World Magazine (May 3/10, 2008), David Bahnsen list six common mistakes that investors make. He notes that there are obviously more than six mistakes, but the majority of the errors that we make can be generally placed into one of these six areas. Below are the six mistakes with a little commentary from me:

1. Panic.

As I have mentioned before, the media loves to hype bad news. We need to be wary that we do not panic, ever – even if things are going south. We need to remain calm and make good financial decisions based on good information, not hype or greed.

2. Euphoria.

Just like we need to avoid panic, we also need to avoid the opposite extreme. Euphoria is what got some people into the financial mess they are in now – seeing how home prices were going up, up, and up, they bought into a lie that  this would continue indefinitely. They got caught up into the hype and made some bad financial decisions based on emotion and the moment.

3. Under-Diversification.

Not having a diversified investment portfolio can wreck havoc on you financially. How many times do we read about a company going under and then the media  talks to people who had their life savings invested in that company? None of us should have our investments in just one place, nor in just one type of investment. We should be in multiple stocks, bonds, etc. With the ease of investing today, there is no excuse for not having a broadly diversified investment portfolio.

4. Over-diversification.

Again, we need to avoid extremes. As I mentioned above, under-diversification adds unnecessary risk. But over-diviersification can also be bad – just think about the extra fees that will eat into your profits, or the complexity of trying to track everything.

5. Excessive Leverage.

Now before everyone starts commenting, it says excessive leveraging. Most of us do leverage things – even the idea of borrowing money for a house is a form of leveraging. But it is the excessive leveraging that gets people into trouble. Again, think of the housing market and those who were 100 percent financed, and then the bottom dropped out and they are now upside down on their mortgage. Do not leverage more than you can afford to lose. Period.

6. Allowing Tax Decisions To Guide Investment Decisions.

It is important to take taxes into consideration when making investment decisions. But that is not the only consideration. Yes we should try to minimize our tax exposure as much as possible, but not to the detriment of not being diversified, or missing out on profits.  

 If we can avoid making these six mistakes, it will greatly help us on our journey to financial freedom.

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I received my Tax Refund yesterday – a whole $100! I try to keep my refund as low as possible. It’s part of my philosophy of not “lending” money to government or companies for free. I don’t like giving free loans. So at the beginning of the year I estimate my taxes, and then I have only what I think I will need taken out – I keep the rest. This allows me to have more income during the year, and allows me, if I am good, to put more into savings and earn interest. I do the same with companies – that is why I recently opened an online checking account – I was tired of my local bank having my money for free. At least now I get a little interest.

Not only do I try not to give “free loans”, but I try to get free loans for myself. For example, my cell phone provider allows me to put my bill on credit card. I pay it off every month, but I get a “float”. More importantly, I get cash back for paying a bill.

None of this will make me rich, but a penny saved…

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I like to track my net worth to see how I am doing overall toward our financial goals. I include our house as an asset, so I have been curious to see how all the news about housing and the sub prime market has affected my home’s worth and therefore my net worth. I track housing prices in my area by going to www.zillow.com. It is a great site with lots of information. The site will tell you a zestimate (their play on estimate) of what your home is worth based on what it sold for last time it was up for sale, and also by what other houses are selling for in your neighborhood. It’s a pretty cool tool to use – you can even see an arial shot of your neighborhood.

Right now for the year, my home’s estimated worth is down by 5 percent, not surprising with all that is going on in real estate. The good news is that the overall estimated selling price is up over 35% since I bought the home in 2004. I am pretty conservative in how I value my home for net worth purposes, so even though I am up over 35% for three years, or down 5% for one year, what I have the home valued at is below both by about $25,000. I will probably ride the current real estate storm out for the next few years before deciding on adjusting my home valuation for net worth purposes.

I know some people don’t include their houses in their net worth, but for me since it is currently my largest investment, and my largest debt, I believe it is important to use in calculating what is happening to me financially. Would love to hear what others do regarding their net worth.

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When you’re thinking about money, it’s important to remember your goal.  I don’t mean specific goals, like saving for a particular item or retiring at a certain age – although those are important to keep in mind too.  I’m talking about the ultimate goal – to have more money.  Having more money is really very simple when you break it down – it’s not complicated at all.  There are two ways to have more money – either make more, or spend less.

That’s it, there’s no secret formula to having more money at your disposal.  No matter what your goals are, you need to focus either on making more money or spending less money.  If you can do both, then kudos to you!  Of the two, making more is the difficult choice for most people.  If you’re an average American, then you probably work a 9 to 5 ( or 9 to 7 more likely ) and earn a set salary.  Some folks may get overtime, but salary is becoming more and more common.  That means that making more money involves either a promotion or a new job – something that isn’t always feasible.

Since making more is out, spending less is in.  Or rather, spending more wisely.  You need to start making decisions about what you need versus what you want.  If you really want to have more money, then that means you’re going to have to spend less.  If you spend less, then you’re going to have less stuff.  And the stuff you do have probably won’t be as fancy and expensive – and that’s ok.  But when you learn to spend less, and you have more money available, you can start proceeding to your real goals – whatever they are.

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I got an email from Prosper with info on some free online seminars from the folks at Prosper.

Interested in learning how to earn a great return on Prosper loans? Join us for a free online seminar!

You will learn how to:

• Create a bidding strategy
• Create standing orders that will “carry out” your bidding strategy
• Set up watch lists to notify you when choice listings come up
• Use additional lender resources

Registration for this seminar is free but space is limited.

Looks like there will be three dates, 6/26/07, 6/28/07, and 7/3/07. You have to be a Prosper member to register, so if you aren’t a Prosper member, sign up before trying to register. I’ve tried to link the dates to the proper registration page, so just click on the date you want to attend to register.

If you’re serious about lending on Prosper, this is probably a must attend for you. You can never know enough about making money.

Technorati Tags: prosper, money, make money, lending, prosper lending

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