Friday, October 9, 2009

Lets talk money for a second

Today's topic. Financial responsibility for the young black person.

Let me preface this article with two statements. The first; I have been learning about financial responsibility through my parents since the age of 7 and it has changed my life. The second; I have been down the wrong road out of what I thought was necessity, however I didn't realize a little could go a long way.

Any way to get into the article. The first thing that we must look at is the concept of the bottom line. There are two kinds of bottom lines that you have, well need to have. Your actual bottom line and your post-actual bottom line. The actual bottom line is the your net pay after taxes from your job. That is the number we either all google at or get upset at Uncle Sam for. The post actual bottom line is what I would like to focus on. Your post actual bottom line is one of the most important things you can have, if you manage it well. Post actual is based on savings.

Before anything, you need to deduct 10% from the top of your check. Meaning if you net $230. 97 you need to take about $24 and put it into savings. At the age we're at, that seems like a lot. And I'm not gonna sit here and preach to you like I do it all the time, but I try to do it as many times as I can afford to. That 10% should go into an account that you don't touch until a projected date(I am not talking about CD's here, although we will cover that later it needs to be an account that you can add to with out incuring a penalty). This should happen like clock work every time you get paid.

A good way of doing this is to open multiple accounts at multiple banks. For instance, checking and general savings can be done at a major national bank like Bank of America. They're all over the country and have the same retail banking products across the board. For your 10% savings you can go and put that in an ING savings account. ING's structure is not designed for retail banking, but long-term savings and investments. They pay a higher interest rate and will allow you to move your money a little more freely than a CD account.

If you are one of those people who has a hard time holding onto money then you may benefit from the CD account that I have been mentioning. CD accounts are available at most major banks nationally and internationally. The difference between a regular savings and a CD account is accessibility. Most CD's are what are called fixed term CD's, which means they work on a maturation system. So lets say you get a 6 month fixed term CD, that means you will have one week at the end of every 6 months to make financial moves with the money from the CD. Either adding or subtracting. Once that week is up you can not make any moves without incurring some kind of bank penalty. This will safe guard your money from you until those 6 months are up. At that point it is up to you to exercise some discipline for a week. CD's also pay a higher interest rate than a savings account at a national bank. Meaning you could be looking at 5% to 6% rather than 1%. But your work does not stop here.

Moving forward something us young black people must do is pay attention and invest in the stock market and mutual funds. Every one has seen or heard of the wall street journal, Bloomberg Television, CNBC or another network or media outlet that tracks the local and global markets. Most people find them intimidating/ confusing, however invest a week of reading the journal or watching the shows. It is nothing more than ESPN or the sports page, just in relation to money instead of your favorite team. Investing is not hard at all.

I got started at 15 by picking things, places, services that I and a lot of other people use every day. For instance, the very first stock in my portfolio is the Anderson Corporation or in other words Wal-Mart. Probably 80% to 90% of Americans shop, have shopped or frequent Wal-mart. So I took a shot there and ended up big. Wal-Mart almost NEVER has any huge negative drop, since it is a main stay in american culture. By investing in wal-mart, I created a solid base to my portfolio. I can't give away all of my trading secrets but that is a good one to get started with.

Back to my sports analogy. What to all the commentators on ESPN do...Predict. Thats all they do and thats all the market does. It is a living breathing creature. That is why we are all feeling the effects of this recession so much. But if you pay attention to the natural trends of people, because we are the living breathing things that make up the market, with a little practice, you can be making money in no time. Think. What is the time of the year where people make the most purchases?

A. Summer

B. Back to School

C. The Holidays.

If you guessed A or B, you were wrong. During the holidays people are buying products like toys; both for adults and children, food, and using services. So wouldn't it make sense to get in on the action? The market always experiences an increase during the holiday season. Depending on the financial time we're in, that increase can be small or large, but due to the action in the stores, the economy and the market see the effects.

To get on your feet you do need some money to invest, stocks are not cheap if you want to do it right, but I guarantee that you won't regret your decision to invest... AS LONG AS YOU DO IT RIGHT.

Mutual funds are also a good way to invest. Those are kind of like long term stocks where you are guaranteed a dividend or a cut of the profits a little further down the line. They are a safer option for all you non risk takers out there. Either way you are helping solidify your financial stability for the future and nothing can beat that.

Any way, if you would like t know more hit me up, or leave a comment, let me know. If there is enough feed back the I will do a part two dealing in more depth with topics like 401k's, the market and its parts, bank accounts and what to do, currency trading, or what ever y'all want to know about that I have an understanding of.

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