This is a pertinent question to all new investors/traders who are thinking about whether or not trading ETFs is the right investment vehicle for them. The key to answering this question is really to understand the fundamentals of trading ETFs and your own trading/investing philosophies, also making sure that they are aligned with each other. In other words, do not follow hype and hearsay and jump into trading ETFs just because you want to make a lot of money.

With that said, here is a simple breakdown of what ETFs are:

1. Low Trading Fees – Since they trade like stocks, you do not have to pay a management fee for trading ETFs as you would with mutual funds. Investors can buy and sell stocks of ETFs during market hours. Each purchase or sell will cost you a commission.

2. Moderate Volatility – The volatility of an ETF largely depends on the underlying asset index/class that it is trying mimic and the volume of shares being traded. Because of its stock-like nature, ETFs have moderate volatility.

You have to really consider your financial situation and degree of risk tolerance before deciding if trading ETFs are right for you. For example, if you are into long term investments of larger amounts of money, mutual funds might seem like a more sound investment because it is more hands-off and will not burn your money through commission charges.

In simple terms, trading ETFs might not be suitable for you if:

1. You want excellent returns but are not prepared for the potential risks involved.

2. You do not have a deep understanding of the macroeconomic condition as well as how it might affect the underlying asset class of your ETF.

3. You do not understand the concept of risk-management. The reason is because ETFs can be traded on margin and allows for short selling. This can turn ETFs into a derivative, which is higher in order of complexity. Risk management also involves knowing your own financial situation and assessing the amount of money that you can afford to lose.

4. Do not have an understanding of the ETF manager and his/her track record. You need to be comfortable that the fund manager of the ETF you are investing in has the resources, track record, experience and capabilities to handle your investment. Of course, you need to understand that past records does not necessarily guarantee future success.

The post Should I Trade ETFs? appeared first on The Budgeting Babe.

With so many investment instruments out there, why should you put your money into bonds? What makes buying bonds an attractive option to so many investors?

Well, the real answer really depends on your investing philosophies

Buying bonds is often seen as a relatively safe investment because you are almost guaranteed to get your money back, on top of the amount of interest you will receive year over year. This hands-off, no stress kind of investments is the ideal way to park your money if you belong to the group of investors who are very conservative in nature. Of course, as you would expect with an investment with little risk,buying bonds does not yield as high of a return when compared with stocks or funds.

Besides appealing to the conservative investors, here are just a couple more reasons why buying bonds is really more appealing than it seems.

1. Good Source of Passive Income – One of the most important reasons people start buying bonds is to make consistent passive income. Almost all bonds come with an interest rate, either variable or fixed, and this provides the investor with predictability in terms of cash flow and income. While other kinds of investments such as stocks also offer passive income in terms of dividends, most are not able to offer the same kind of predictability or security that comes with bonds. Stocks predictability depends on the financial status of the underlying company and the price might fluctuate greatly during times of volatility.

2. Hedging against Inflation – Buying and holding a bond over the long haul exposes you to the risk of inflation. Suppose the inflation rate is 2% every year, your 6% annual interest suddenly doesn’t seem so appealing anymore. Furthermore, the principal which you will be getting back at maturity date will be worth less than the initial value of principal you have invested in the first place. Because of this, certain government bonds, such as US Treasury bonds raise their interest every year so that your investment is actually protected against inflation. This means that at the end of the bond term, you will not lose any money due to inflation.

3. Portfolio Diversification – If you have an investment portfolio, bonds help to diversify your investment because it is considered as a different asset class from stocks and funds. In times of volatility, bond prices to not fluctuate as much as stocks and funds, and because of this, they help to smooth out the volatility curve and dampen the impact of negative swings.

Placing your money in a more conservative vehicle such as bonds will yield you less potential return over time, but allocating a certain amount of money to invest in it is a very prudent decision given the amount of benefits it brings to the table.

The post Should I Be Buying Bonds? appeared first on The Budgeting Babe.

It’s absolutely crucial you ask yourself these 3 key questions prior to short selling dividend stocks. Short selling stocks is a method of taking advantage of decreasing share prices in order to realize a profit. In a nut shell shorting is betting against a given security.

A trader will borrow shares from a broker and sell the shares on the market hoping the security loses value, if the stock starts to decline in price the trader can purchase the shares and replace the borrowed stock.

So the net profit is the difference between the initial selling price and purchasing price of the stock to replace the borrowed shares, less any brokerage fees.

A simple formula could look something like this:

Borrowed stock selling price – Replacement value of borrowed shares – Trading fees = Profit.

For example- say a trader researched a tech company and felt that it was wildly overvalued, he/she could decide to borrow shares from their broker.

If the shares were trading at $15 and 100 shares were borrowed, the trader would immediatley sell the shares on the market and deposit $1500 dollars in their account.

Now the trader would wait (and hope) that the share price decreased. For arguments sake say the shares decreased to $7, the trader could purchase the 100 shares and replace the shares, or cover the short, borrowed from the broker. This would cost him $700. Additionally say the sale and purchase of the shares cost $50 dollars in trading fees the formula above would look like this:

$1500 – $700 – $50 = $750.

The trader would realize a profit of $750 dollars.

Lets use the same scenario above with respect to initial sale price and amount of borrowed shares, but instead of having the stock go down in price lets assume, for fun, that Microsoft fell in love with this tech company and wanted to acquire its technology thus offering to pay a hefty premium in order to buy the company, and the shares shot up to $45 dollars. The formula would look like this:

$1500 – $4500 – $50= -$3050.

The trader would suffer a loss of $3050 dollars.

In theory the losses in short selling can be huge and very risky because there is no telling how high a stock may go, while it is foreseeable to see how low a stock can plunge, $0. Many brokers require short selling traders to meet specific financial criteria in order to be given permission to short sell, additionally there are minimum levels of cash required to be allowed to short stocks.This is a very basic introduction to the complex and risky world of short selling; it is important to understand federal and provincial regulations regarding short selling and what is or is not permitted.

The post Short Selling Stocks appeared first on The Budgeting Babe.

Investing When You’re Older – Investing Strategies Change While You Age

Many elderly people do face challenges when it comes to investing their retirement money.They wonder whether to invest in a risky venture and earn more returns or to invest in a less risky venture which may have low profit.

For the people looking for safe stocks, I recently came across this amazing article that goes in depth on the best Canadian stocks you can buy today. I’ve purchased a few, such as Shopify and Fortis(from their dividend one, which is not the one it’s linked to)

From my experience, I am of the idea of retired people investing in a less risky venture.Below are some of the tips and facts to second my argument.

Tips For Investing When You’re Older

1. Have a plan and know the kind of venture you are investing in.

If you don’t have a plan, how will you know if you are on the right track? The process of creating a plan includes determining your current financial situation, how much money you want to save, and by when.

2. Diversify your investments.

Create a balanced portfolio to help you stay on the right track and reach your goals.

3. Beware of getting rich quick schemes.

If an investment seems too be good you should think twice as it might be not the case. Usually the higher the estimated return, the higher the risk to you. Stick with time-proven ways to grow your investments.

4. Feel comfortable with your investment decisions.

If the risk in your investments keeps you from sleeping at night, then it is not worthy for you to invest in. Keep records and check your statements each time you receive them.

5.Always question anything that doesn’t look right or that you don’t understand.

Read the Prospectus thoroughly before investing, do your research and understand how the fund works and all applicable expenses.

As we all know the more the risky the investment is the more the rate of returns.When we are young we intend to invest in a more risky venture for us to save enough money for retirement, to buy a house, to cater for the family as well as other many responsibilities.On another hand, as we got older, we have no much responsibilities to do.Therefore, when making investments at the old age we are more concern about stability and predictability of investment rather than the rate returns.Also when we reach retirement we no much time to analyse trends in the stock market.Most elder people get sick regularly so that it difficult for them to pay much attention to risky investments such as stock and treasury bills.

How Risky Is the Investment?

Every investment has a risk. There are no risk-free investments. Some investments are riskier than others, but every investment has a risk. There really is no such thing as a sure bet and anyone who tells you there is lying.

Investments should match your risk tolerance. You need to be clear about how much risk you are willing to take in your trading and investing. This is not an easy question to answer.

In general, people overestimate the amount of risk they are willing to face and underestimate the risks they are taking. Here are a few good rules of thumb:

As you grow older, take less risk.As your net worth increases, take less risk most people think to buy and hold strategies are the least risky strategy available. They are wrong. Buy and hold exposes investors to massive swings in the valuation of the stock market.

The post Investing When You’re Older – Investing Strategies Change While You Age appeared first on The Budgeting Babe.

The first step in starting a budget is creating a list of values and items. In other words, think about what you want to achieve in life and what value those accomplishments add to your life. Then list the things that would help you in this endeavor. You have to examine how they would facilitate the achievement of your dreams as you write them. Doing so helps you to get rid of unnecessary items. The next step is determining your income and expenditure. You are ready to start a budget as soon as you complete these steps. Sticking to it is another matter. Here are some tips on sticking to it.

Pay your expenses immediately

Staying with loads of cash is tempting. In fact, many people postpone their payments because of impromptu purchases. Avoid this mistake by paying your bills as soon as you withdraw your cash. Start with your utilities, pay your workers, repair broken items in your home, and make advance payments on other things such as your tuition charges for the incoming month. Doing that reduces the amount of cash you have at hand. Consequently, it becomes less tempting than it was.

Set up parameters for personal spending

The idea behind working is earning income to take care of yourself and your family. That includes buying items that you desire such as new clothes. Going to a nearby park or restaurant is a fantastic way of spending your money. Create an allowance for these expenditures. Set aside an amount that is enough for the intended purpose. You can save for a couple of months for it if you cannot finance it at once. For example, setting some cash aside every month for a vacation trip to Hawaii is an excellent idea.

Stay away from credit cards

The accumulation of debt is a problem for many people because it disrupts their budget. Sometimes, this disruption is perpetual if you get into a spiral of debt. In such cases, your income goes to the repayment of the principal amount and the interest that accrues on it. Penalties for delays are terrible as well. Stay away from credit cards to avoid the accumulation of debt. Another way of avoiding it is to borrow money if it is vital for you to do so. In other words, do it in emergency cases only.

Track your expenditures

People get an idea of their spending habits if they write down their expenses on paper. You will realize that you paid a hefty price for some items. In other cases, you will discover that you bought some things that you did not need. Write every down so you can evaluate them later. The evaluation that you undertook on your last spending spree should inform your current expenditure. For example, let go of expensive items if you can get the same quality at a low price. Doing so will help you save money. You will learn to stick to your budget each time your previous expenditure informs your current one.

The post How To Start A Budget And Stick To It appeared first on The Budgeting Babe.

Picture this: you’re parked in a stop light, humming the latest hits, when your car suddenly whinnies and stills to a stop. You’re not an automobile expert, but this feels bad… this feels expensive. You might be faced with the all-consuming question, “Do I need a new vehicle” We’ll give you the pros and cons; and let you decide which step to take.

Money

Your first step should be to compare the fuel economy of your current car with that of the vehicle you are considering to purchase. Fuel economy of a vehicle is the relationship between distance traveled and the amount of gas consumed by your ride.

Get An Estimate

As your car gets older, the repair costs increase as well. So take your car to a mechanic (not a dealer — they almost always overcharge for repairs) and get an estimate of the repairs. Check if there is a way to make it cheaper. Can the transmission be fixed instead of changed? Can any old parts be salvaged? What other pricey repairs will you have to make in the future? Do the repairs exceed the cost of purchasing a new vehicle?

If your bills exceed a years’ worth of car payments, you can consider purchasing a new ride.

Trade-ins

When most people buy a new vehicle, they’re replacing an old one. If this sounds like you, you should decide whether you want to trade your old car at the dealership or sell it on your own. Selling it on your own means that you’ll have to arrange for test drives, ownership transfer, and complete all the paperwork yourself. If you take it back to the dealership, you might not get nearly as much as you would from a private buyer; but you will get the money hassle free.

Buy used

Statistics show that a new vehicle loses 15-25% of its value every consecutive year. If we assume a 20% depreciation, and you buy a car for $40,000, it might be worth only 32,000 in 2 years. On the other hand, if you buy used car for $20,000; you would lose only $4000 by the second year. Keeping these calculations in mind, it might make sense for you to invest in a used car.

Safety

The safety basics your car must have include airbags, electronic stability control, and forward-collision warnings. You don’t have to spend big bucks on a blind-spot monitoring or automatic braking, but if your car is lacking a few safety features; you should probably consider the safest car that fits your budget.

Conclusion

When you’ve decided that it’s time to replace your ride, spend some time going through your monetary situation rationally. Always remember to take in account the operating costs of your vehicle; and say goodbye to that new-car envy!

The post Do I Need A New Vehicle? appeared first on The Budgeting Babe.

It’s easy to think about debt as a sort of deal-with-it-later type of problem. Or you may think of it as simply being a product of economic forces beyond our control.  But what if the way you think about debt is actually part of the problem?  Not only are there myriad fallacies out there about debt, its effects, and how one can escape it, but overspending can be caused by off-base priorities, unreal expectations, and the way you value different forms of payment.  What’s more, when it comes to paying down debt and altering spending habits, at least half the battle is mental.  With that being said, here are five tips for dealing with debt by tackling the mental side of this problem.

Evaluate what’s “necessary”

The biggest issue that many people face in trying to curb overspending is forgoing certain luxuries that have grown to be thought of as necessities.  The bottom line is that not everything we buy is needed, and when faced with a choice between stress, costly interest, credit score damage, even a lawsuit and giving up a few luxuries, scaling back is certainly the way to go.  You should therefore first rank your expenses in order of importance and then start adding them up starting with the most integral until the sum reaches your monthly income.  Anything below this threshold should be cut.

Stick to your budget

Step 1 already involves writing down your budget, which can be very helpful in eventual follow-through because things just seem more real when actually written out.  People can easily justify overspending though, which means you might need some additional discipline.  Simply depositing your paycheck into your checking account and only making purchases with your debit card is a good option because if you end up having to use your credit card, you’ll know you’ve spent too much.  This will get you in the habit of only spending what you have so that when you ultimately switch to the optimum strategy of using a rewards credit card for everyday expenses, you won’t have anything to worry about.

Segment expenses

If, for whatever reason, you have decided to use a credit card instead of a debit card, separating your debt from your everyday expenses will help you more easily evaluate and manage your spending habits.  When you designate one credit card as being only for everyday expenses, you know that its balance should be paid in full every month.  If ever finance charges find their way onto this card’s statement, you’ll know you’re spending beyond your means and need to adjust.  You’ll also be able to garner the best possible rewards since you won’t have to worry about this card’s interest rates.  Designating another card as being for debt will allow you to focus on finding the 0% credit card with the longest introductory term.

Understand that not all debt is equal

In addition to addressing the problem of overleveraging (i.e. spending more than you bring in), it’s important to pay down what you already owe.  Too often, people with more than one credit card balance or debts with multiple lenders make equal monthly payments to each of their obligations.  This approach will cost you in interest charges.  You see, your debts likely have different interest rates and you should strive to pay down those with the highest rates fastest.  That means making minimum payments on all but your most costly debt until it is paid off in full and then applying this strategy to the rest of what you owe until you’re debt free.  It’s important to note that if you have multiple balances on the same credit card, only the amount of your monthly payment that is above the minimum will be applied to the balance with the highest interest rate.

Be aware of a “play money” mentality

People often spend more with plastic (e.g. credit cards, prepaid debit cards, gift cards) than they would ordinarily because handing over a card is easier to swallow mentally than handing over cold, hard cash.  While certainly more abstract, money spent with a card is no different than physical currency, and you should strive to treat it as such.

Unfortunately, it seems that credit card debt is on the rise.  U.S. consumers added nearly $17 billion in credit card debt during the third quarter of 2011 alone, which is 154 percent more than they racked up during Q3 2010 and 58 percent more relative to the same time in 2009.  This merely underscores the need to take the above steps so that we can avoid a double-dip recession.

The post Get Out Of Debt By Changing How You Deal With It appeared first on The Budgeting Babe.

Where did these green money saving tips come from?

I have a friend who was a hippy. A real honest to goodness, dope smokin’ tune out to tune in, sex, love and rock and roll, 1960’s era hippy. Then she grew up. And got sober. Most of those original hippies did grow up, get sober (at least mostly), finish college and join the establishment in one form or another.

However, many of them hung on to certain principles that were popular at the time and helped found what is today known as the “green movement.” Along with them came the animal rights movement, environmental activism, vegan ism, and other sometimes seen as far left ‘isms, frequently depicted by “the right” as crazy, way out on the fringe, “treehuggin’ whack jobs. Usually with the help of some extremist whack jobs doing something crazy that makes headlines.

You can sometimes recognize the original hippies when you see them in public, the retro fashion preferences and Birkenstocks or the ponytails behind receding hairlines are dead giveaways. These are the folks that, even though they may have achieved varying levels of professional and financial success are into organic food, natural fibers, sustainable gardens, bio-dynamics, green building and other ideas designed to lower resource consumption for the benefit of a healthier planet and a sounder economy.

These however aren’t the people we need to key into

Unfortunately, these aren’t the people who need to be sold on “green.” It’s people like myself. A normal, middle of the road sort of consumer, who will not sacrifice my entire lifestyle to spend 10 times as much money on a meal that doesn’t taste good just because all of the ingredients are organic and come from sustainable farms owned by the cutest, kindest, mom and pop farmers in the world. That is just the reality of the situation.

What’s more, I am likely to become quite the cynic about “green washing” in advertising once I recognize the insincere patterns in terms like “all natural.” For creeps sake, arsenic is “all natural” but that doesn’t make it good for me.

We ARE getting better, but we still have a ways to go

We have proven in recent years that we  are willing to spend a bit more for choices that are healthier for us and our children. It’s unfortunate that in pursuit of profits, advertising spin will continue to make it difficult to determine which things are healthier and thus worthwhile expenditures for us, our planet and future generations.

Those folks that are on the opposite side of the fence, that refuse to see that conventional economic wisdom was unsustainable in spite of all the evidence like the current global recession, will do their best to muddy the waters even further. There will continue to be those that refer to environmental concerns and sustainable solutions as “tree hugging” in that derisive snort that implies some kind of pinko-commie plot from the cold war era and belongs in the insult category of all the notorious narrow minded terms of yesteryear that have, with time and common decency, fallen out of favor with mainstream human beings.

As individuals, it makes perfect sense to lesson our individual footprint, from both a global perspective and a personal finance view. For instance:

• Using public transportation when available costs less and is more efficient than driving alone in your car. Carpooling is another example. Buying a used car that gets great mileage is a third.
• Walking or riding a bike when possible, rather than driving a car at all, saves money, lowers pollution and benefits your personal health.
• Buying produce from a farmer’s market or participating in a community supported agriculture program can mean healthier food on your table, is often less expensive and usually lasts better than food that is loaded with pesticides and preservatives to help it travel the 3k miles across the country to your supermarket, lowers carbon emissions from long distance transport and helps support local business which helps your local economy. It helps to remember that you are putting this stuff in your mouth. It might be worth it to buy the kind that isn’t covered in poison.
• Limiting purchases of electronic gizmos to those you will use in business and/or add some significant meaning or benefit to your life, rather than buying a bunch of stuff that collects dust in a closet after a few weeks will save you money. And perhaps lower the demand for cheap plastic and electronic things made in China, whose factories contribute to pollution effecting the air everyone is trying to breathe.
• Composting for your own garden will save you money for fertilizer, recycle waste from your kitchen, save irrigation water (again saving money) and help provide beauty to your surroundings. Beauty that has meaning for many people and offers benefits to the local ecosystem, as well.

• Shopping for furnishings, décor and other items at thrift stores and from Craigslist will save you money, offer unique, high quality purchases and reuse perfectly good, sometimes quite valuable, already produced goodies that don’t need to end up in a landfill as another example of consumer waste.
• Donating the stuff you no longer use or need can benefit those less fortunate, keep it out of the local landfill, contribute to community recycling efforts and as a result benefit the environment.
• And last, but probably most…getting a handle on your personal spending, by monitoring your finances daily, living below your means and maintaining a budget will not only help you to save money, it will teach you to lower your own level of waste and recognize the areas where you have practiced your own brand of conspicuous consumerism. For my part, when I was faced with this reality, my own carbon footprint lowered exponentially, but not because of my passion for the environment (though that helps.) Nope, it was because my habits had proven over and over again to be as unsustainable as our collective global approach to economics and resource management has been and since I can’t change the world, I opted to change my little piece of it.

Maybe, if enough of us choose sustainability, it will become mainstream in a real sense rather than as just another marketing tool and our world can become a nicer place to live for everyone.

The post Money Saving Tips That Are Actually Green appeared first on The Budgeting Babe.

Sometimes we just need a little break from life and the crazy rollercoaster that it is. But within our hectic lives we often don’t find time for the small things and this can lead to a ton of stress and it’s just really not that healthy. You know what they say,

“Don’t take life too seriously. You’ll never get out of it alive”

Here are twenty things to help you in relieving stress and generally live a happier healthier life.

1. Make time to play like a little kid; run and jump, use your imagination and pretend
2. Cook a fancy 5-course meal from scratch and serve it to a group of friends who were expecting a simple barbeque
3. Keep a journal and re-read your entries a few times a year to reflect on your thoughts
4. Help a random person anonymously; Pay the toll for a car behind you or help a stranger in need and walk away without a financial reward
5. Sprint at full speed; Do something that makes you out-of-breath.  Jogging is great, but a good sprint every once in a while reminds you that you are alive…
6. Initiate a conversation with an interesting stranger, listen and learn about where they live, their history and what they do for a living
7. Rent a beach house at least once; You don’t have to get a fancy beachfront home, just something simple that let’s you wake up to an ocean view everyday you are there.  Swim in the ocean and under the waves
8. Own at least one custom suit or dress that fits you perfectly
9. Sing your favorite song at a packed karaoke bar
10. Learn the basics of sailing, the ocean and how to tie knots.
11. Call in “sick” to work and spend the day with your significant other or spouse dreaming about your future together
12. Take a least one trip where you “wing-it”: i.e. fly to a city or town you have never been to before without a hotel room booked or a plan, just a little money in your pocket and an open mind….
13. Own a convertible car at least once in your life
14. Take at least a few vacations (consecutive days off from work) that 2 full weeks or longer.
15. Go camping and truly “disconnect” from the world:  Shut off your phone, do not bring your computer and sleep under the stars with some good friends for a few nights
16. Catch and cook your dinner:  Go fishing or hunting and catch, clean and cook your own meal.   (Fishing works best for me. I am not much of a hunter, but I sure love fishing!)
17. Take a beer brewing or wine-making class
18. Spend the money to get a high-quality, full-body massage treatment.  You body (and your  mind) will love you for it.
19. Do something that is a little bit scary for you.  Take that 24-hour plane flight to Australia to swim with great white sharks that you always wanted to do, but were too scared.
20. Do whatever it takes to develop good sleep habits.  Sleep is so vital and the better you sleep, the better you live.

The post Relieving Stress – 20 Ways To Rejuvenate And Stay Focused appeared first on The Budgeting Babe.

What will this blog be about?

Well, it seems like the name should speak for itself! I will be blogging on all things personal finance and investing related, although I will lean more towards the personal finance and frugality sort of thing. There are a ton of personal finance blogs out there, and I want this one to be special, not just your typical dime a dozen blog.

What will I write about?

The end goal of this blog will be to have you saving more than you are spending, but I won’t stop there. I will be teaching you what to do with that money after you’ve passed the first challenge of saving it wisely. That’s what we all save money for isn’t it? To one day retire and live the life we worked so hard for in our younger years?

I will also naturally be writing about just plain funny things, as I try to get into moods where I don’t take life as serious. If all I talked about was money saving and investing this blog would get so dry it would blow away!

When will you be posting?

I will try to post as often as I can, but as you can see from my about me page( and if you haven’t read it yet get on it!) I am a very busy person. Between my work,pets and relationship with my wonderful boyfriend my time is fairly occuppied. That being said, you’ll be hearing from me at least once every couple weeks I hope!

Thank you for coming to The Budgeting Babe. I hope if anything you leave this place with a better attitude about money.

The post Welcome To The Budgeting Babe appeared first on The Budgeting Babe.