i The Frugal Law Student | 2007 | March

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Are You Making These 3 Money Mistakes?

Written by Brett McKay


This month’s Men’s Health has an excellent little article by Jeff Stevenson on how to avoid three costly mistakes.

  1. Borrowing from your 401(K). This is a big mistake for two reasons. First, the money you take out will no longer be accruing interest. Second, you repay your loan from your 401(K) with after-tax dollars and pay taxes when you withdraw cash at retirement. You’re taxing yourself twice on the same money.
  2. Purchasing whole life insurance. While the whole life insurance never expires and might grow each year, you have to pay thousands of dollars in premiums. They’re not really efficient investment instruments. If you’ve been investing, term life insurance is probably the better way to go. A 20-year policy for $500,000 will only set you back a few hundred dollars a year.
  3. Applying for an interest-only mortgage. Why is this bad? If you take out a 30-year, $250,000 mortgage with an interest only term of 10 years, after 10 years of monthly payments adding up to $175,000 you’ll still owe $250,000. However, you’ll only have 20 years to pay it off, so your monthly payment will go up. While you can deduct the interest in taxes, you’re still going to end up paying more over the long haul; thus, the tax benefit is mitigated.
> Brett McKay | 16 Mar 07 | Investing, Personal Finance | Comments (8)

Beginner’s Guide to Index Funds

Written by Brett McKay

If your goal is attain financial freedom, investing should be part of your plan. If you’re like most people (including me), investing might be intimidating. Investing can require a lot of time and a lot of knowledge.

Thankfully, you don’t need to be a financial genius to receive the benefit from investing in the stock market. All you need to do is invest in index funds.

What are index funds?

Index funds are collective investments that aim to replicate the movements of an index of a specific financial market. Thus, you can have an index fund geared toward the technology sector, international sector, ect. There are even index funds geared to match the S&P 500.

What’s the difference between index funds and mutual funds?

The main difference between index funds and mutual funds is that mutual funds are actively managed and index funds aren’t. Actively managed means a fund manager, using his knowledge of the market, selects stocks and tries to time the market in order to get the best return. Index funds just try to mirror the market.

What are the benefits of index funds over mutual funds?

  1. They have low costs. Because there’s no fund manager tinkering with the fund, index funds have very low costs. Thus, you keep more of the money you earn when investing.
  2. They perform better than most mutual funds. Roughly two thirds of all actively managed funds fail to beat index funds.
  3. They’re low maintenance.

The key to success with index funds is consistency. You have to keep investing in them, even if the market turns sour. If the market takes big hit, keep buying. The market always rebounds and will outperform itself in the long run.

A good index fund that many people suggest buying is Vanguard Total Stock Market Index. The problem is that an initial investment will set you back $3,000. Most students probably don’t have that kind of money to throw around. If you’re not in a position to invest, make it goal to get there as soon as possible.

For more information on index funds check out these great posts from other personal finance bloggers.

> Brett McKay | 15 Mar 07 | Investing | Comments (6)

How To Make Money Online, With Some Help From Net Business Blog

Written by Brett McKay

Increasing income is an important step for law students, undergrad students, or anyone to beat debt and become financially free. Many people, however, don’t have the time or energy to take on a second job. That’s why internet revenue is an awesome solution to increasing your streams of income.

Despite all the hype, making money online is difficult. Only a few people will ever make six-figure incomes blogging. That shouldn’t stop you from trying, though. With time and some work, you can make $50-$100 a month from blogging. That extra money adds up quickly, especially if you invest or save it.

If you don’t know how to get started with making money online, head of to Matt Codington’s Net Business Blog. While his blog is only three months old, he’s already making $1,000/month in ad revenue. He provides excellent tips on how to make money online. Some of my favorite posts include:

Matt is genuinely interested in helping others make money online. That’s why his blog has been such a success. Another sign of Matt’s genuineness is that he’s offering a free link back to anyone who reviews his site. In the short time it takes to write a review, you can have a link on a high traffic blog, thus increasing the chances more traffic comes your way. Matt, I salute you.

> Brett McKay | 14 Mar 07 | Blogging, Networking, Personal Finance, Success, Tips | Comments (7)

How to Get Rich Quick Meaningfully

Written by Brett McKay

Everyone wants to be wealthy as quickly as possible. Most people, however, don’t know how to do it. Ben Stein wrote an excellent article at American Spectator on the secret of getting rich quick in a meaningful way. The secret? Gratitude.

Yep, gratitude. Start focusing on what you have and not on what you don’t have. Once you start doing that, you’ll feel like the wealthiest person in the world instantly. The funny thing about having an attitude of gratitude is that it might actually help you increase your wealth. By being grateful you tell others “Yes, I’m receptive! Send more my way!”

Here’s a short list of things you can do today start developing an attitude of gratitude and thus start your path to instant wealth.

  1. Make a list of all your blessings.
  2. Begin and end each day thinking of the things you’re grateful for.
  3. Tell others in your life you’re grateful for them.

Pretty simple, huh? But simple, doesn’t necessarily mean easy. Make it goal to start these habits. You’ll be much happier and much wealthier.

> Brett McKay | 14 Mar 07 | Personal Development, Personal Finance | Comments (7)

Free Magazines For The Rest of Your Life

Written by Brett McKay

I love reading magazines, but subscriptions or just buying a single issue can get expensive. However, I haven’t let money stop me from reading my favorite magazines. I do it for free.

It’s simple. Just go down to your local Borders or Barnes and Noble, grab all the magazines you want to read, sit down in the cafe, and read. When you’re done, put them back where they go. Walk out the door. Free magazines.

I haven’t bought a magazine ever since I’ve started doing this. I’ve realized that it’s really pointless to buy magazines. You can read them in one sitting, so spending $5 for maybe 45 minutes of reading is a big waste of money. Plus, by not buying magazines, you keep your life clutter free. No more old Time’s hanging around in the bathroom or taking up space on your counters. Nice.

Start your free lifetime magazine subscription today at your local bookstore. Your retirement account will thank you.

> Brett McKay | 13 Mar 07 | Entertainment, Free Stuff, Frugality, Saving | Comments (20)

What Every Young Person Ought to Know About Starting a Savings Plan

Written by Brett McKay

Over at CnnMoney there’s a great article about starting a savings plan. The author provides three things that everyone person should do to get started on saving for the future.

  1. Sign up for your savings plan at work. Most employers provide a 401(k) plan. Two things make 401(k)’s awesome. First, it makes savings automatic. Second, usually your employer will match a portion of what you put into the plan. If you employer doesn’t offer savings plan, sign up for Roth IRA at your bank. Roth IRAs have significant tax benefits. Withdrawals up to the total of contributions are federal income tax free, and withdrawals of earnings (anything above the total of contributions) are often free of federal income tax. You can invest up to $4,000 a year in an IRA.
  2. Invest smart, but keep it simple. The fancier you try to get the more likely you’re going to lose money. The easiest thing you can do is invest in target retirement funds. These are mutual funds with a mixture of stocks and bonds depending on when you want to retire. When you first start out, the fund has more stocks than bonds. As you get older, the fund shifts to more bonds than stocks, thus making your investments more conservative. You can also try mutual funds. Cannoned offers a list of the 70 best mutual funds on there site. The key with investing is to make it automatic. Set up an automatic deposit with your brokerage firm.
  3. Resist the urge to tinker. Don’t try to beat the market. Today’s hot stock will soon be tomorrow’s big dud. Just stick to simple mutual funds and you’re bound to get a good return on your investment. The author of the article does suggest to “re-balance” your “holdings every year or so by selling shares of funds that have done well and putting the proceeds into ones that have lagged to bring your mix of stocks and bonds back to the appropriate proportions.”
> Brett McKay | 12 Mar 07 | Investing, Personal Finance, Saving | Comments (0)
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