Some Ways to Save Money

Discussion in 'Indie Related Chat' started by terin, Dec 19, 2005.

  1. terin

    terin
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    Ok so this wont apply to most of you starving indie developers, but I was talking with Steve Taylor from Wahoo Studios today about investing and I offered some advice that I picked up in college finance.

    First, if you have mortgage pay it Bi-Weekly. Almost all mortgage companies offer a bi-weekly solution. What this means is you pay HALF the mortage every 2 weeks as opposed to the full amount every month. The result is 1 extra payment a year and a lot less accured interest. How much? At a 6% loan rate it will save you approximately 50,000 dollars per 200,000 in loans. So a 200k house will cost you 50k less in interest at the PRICE of only 1 extra payment per year! Plus it means you pay off your house 6 years early!

    Next, if you are thinking of long term investment I strongly reccomend investing in an INDEX fund. Index funds represent a cross-cut of a specific market (International, Large Cap, and Small Cap): They are usually referred to as the S&P 500 and the Russel 3000 index and the International Index.

    Indexes are called unmanaged funds because they merely reflect the major indicies, nobody is closely monitoring when to buy and sell the stocks in them. Because of this the amount you pay the management staff on them is incredibly low (about .2%) as opposed to a normal mutual fund (which can be as high as 3%). Because of this and the relative unpredictability of the market index funds outperform *80%* of all mutual funds.

    E-trade has a decent set of no load/no fee (meaning you pay nothing to trade it or hold it) index funds. If you have money to invest for long term growth I reccomend getting a mix of index funds.

    A quick breakdown is:
    S&P 500 is low risk large/mid cap (big companies) that generally follows the market as a whole.
    Russel 3000 is higher risk small cap funds that fluctuates much heavier in price and in theory, has higher returns.
    International Index is investments in foriegn companies. Generally this index can be used to counter balance part of your other indexes: When the local economy is weak the foreign economy is improving. It is medium risk. It is important to note that this is not a balance for bear vs. bull markets. If there is an international recession ALL indexes go down.

    To counter-balance a portfolio like this I would reccomend keeping a little cash in "fixed" funds, like bank CDs or treasuries. This way you have cash on hand should you need it that is earning a decent percent (3-5%).

    I hope this is useful to all you indies who haven't a clue about what to do with investments!

    -Joe
     
  2. Greg Squire

    Greg Squire
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    I'm no financial guru but here's some other tips I've learned over the years. Hopefully some of these are obvious to most of you.

    Pay Your Mortgage Weekly
    Similar to Joe's suggestion above about bi-weekly payments. It would still add the equivalent of one mortgage payment a year, but since your reducing your principle on a weekly basis (instead of bi-weekly), it knocks down that compound interest even faster.

    Pay Yourself First
    This is simply just the principle of saving. If you put some of your money away, right of the top (such as, automatic deductions from your paycheck, into 401K, IRA or even a savings account), then your less likely to miss that little bit extra each month, and you'll be starting a nest egg for retirement or a rainy day.

    Stay Away From Unnecessary Debit / Live Within Your Means
    Simple principle, but some many people out there feel they ought to have a higher standard of living than what they can afford. They max out credit card after credit card, until they are in a hole so deep that they can't get out.

    Don't Put 401K Money Into Your Company's Stock
    This is simply the principle of diversification. If your company (that your work for) goes under, not only could you loose your job, but also your retirement money as well.

    Use a Real VISA and Not a "Fake" VISA
    Debit Cards that can be used like a VISA, are inherently more insecure as the funds come from your checking account. These “fakeâ€￾ VISAs don't offer the same protection if your credit card number is stolen. With a regular VISA, you have some ability to remove fraudulent charges made to your card, but with a "fake" VISA, you're just "out of luck".

    Of course the best advice I could offer would be to put all your money into Enron stock. :D (just kidding there, in case it's not obvious ;) )
     
  3. zKing

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    Controlling your spending is WAY more important than maximizing your income. Frankly, if you are bad with money when you make $20,000/yr you will still be bad with money if you suddenly make $100,000/yr. You will get in debt just the same (if not easier due to your easier access to credit)... the numbers will just be larger.

    Being from the dot com generation I saw many people who made six figure salaries drive themselves bankrupt buying lots of crap they shouldn't have.

    Spend less than you earn. It's very simple to say, hard for many to do.

    I learned this one the hard way too.
     
  4. illume

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    Paying off debt is like making a 16% investment (if it is a 16% loan interest rate).
    Every day is a holiday.
    Aim to work 20 hours a week, 30 weeks a year, 7 hours a day.
    $80-$100/hour is the magic number to be able to work this much.
    Automate tedious things in your life, or get rid of them. You're a programmer right?
    It is better to live in the best area paying rent than to own a house and not have a life, and spend 2-4 hours in traffic every day. That is 10-20 hours per week... which is probably more than what your rent costs.

    Match 3 ;)
    Don't spend all day reading indiegamer.
     
  5. GBGames

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    Regarding the index fund: the stats you see about index funds is that on average the stock market has gone up 10% per year.

    Which is great, until you realize that all of the money came from the 90s. There is talk about the stock market going down over the next few years, in which case the index fund will also go down.

    That said, I'm still planning on getting an index fund. I got an Ameritrade account with a fairly low minimum, but then I found out that I still have to have $3,000 in order to start investing in the Vanguard S&P 500 fund...which means I'll be saving my money until I can afford to put $3,000 away and try not to think about.
     
  6. GBGames

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    That's actually something I never heard, but I like it. B-)
     
  7. Hamumu

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    Pay close attention to the rules of your mortgage program if you want to do biweekly. I wanted to do the weekly payments long ago, but I read the fine print - they just accumulate it and apply it once every 4 weeks. The ONLY gain is that you're paying an extra payment a year (as if I wasn't vastly exceeding that with my added principal every month!), it does NOT affect the interest in any way. Apparently it takes a kind-hearted and lovely mortgage company to actually apply your payment more often than monthly. I do not have such a company, nor were my two previous ones.
     
  8. terin

    terin
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    Funds

    The important figure is that index funds outperform 80% of mutual funds. That's not just from the 90s, but throughout mutual fund history. This means you will never strike a "gold mine" with a mutual fund, but that isn't really the point of mutual funds anyway :)
    This is true! However, if you create an account that automatically invests a certain amount each month this minimum is eliminated and replaced with a much more reasonable figure. I think the E-trade one is 100/month or 5,000 OR 3,000 (for an IRA). So there is a way around that minimum. Once you pass 3k you can just turn that monthly payment off. Its a good way to save "right off the top" as previously mentioned.

    As far as what Mike said: Yeah, read the fine print! I've only dealt with Wells Fargo, so I know they offer bi-weekly. I never inquired about weekly (because my cash flow really isn't stable some weeks). If they DON'T offer it, you may want to consider switching and refinancing. Especially if your interest rate is around 6% or higher. You can probably refinance to someone who offers bi-weekly payment (or weekly), and maybe shave a few percentage points off the loan.

    -Joe
     
  9. Hamumu

    Hamumu
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    Warning: one of the mortgage companies I have had IS Wells Fargo. As far as I have determined, they DO NOT apply your payment more often than once a month. Here's from their website on what a biweekly does for you:

    "Most lenders, including Wells Fargo Home Mortgage, offer a biweekly payment option, which allows borrowers to make a half-payment every two weeks, instead of one full payment every month. Since each year has 52 weeks, borrowers make 26 half-payments, which amounts to 13 full payments, or one extra payment per year. These payments can be automatically deducted from your checking or savings account, saving you the hassle of having to establish a new payment schedule on your own. Fees may apply. Please contact a mortgage consultant for details."

    Notice how the only benefit they mention is an extra payment per year. I don't think it's a coincidence that they leave out the much bigger benefit of interest reduction. Of course, what I read at the time was the application, not just website hype, which said (in small print) that they won't apply the payment more than once a month. That may not be right, I can't be sure that theirs was one I actually investigated, but I'm pretty sure it was, and the website message backs that up in my mind. So just yes, read it to be sure!

    Anyway, such a scheme isn't particularly necessary - it's just a shortcut for discipline. You can always just overpay and get the same, or better, benefits (i.e. don't pay the half-month's amount halfway into the month, pay the whole thing in the previous month! Or pay 5x as much! Or just pay off the whole house!). Any little extra you add makes a really big difference coming out the other end. Even read a book about it!
     
  10. Indiepath

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    As much I appreciate terin's efforts here I really think people should learn more about investing themselves before getting into it. "Indexes are great" cannot be a general rule that anyone could follow. My bank - for example - recommended Index funds... and said the fund has generated +15-30% per annum for 3 years. It sounded great... but when I looked at the time when the Index was founded (5 years ago) and compared the rate 5 years ago and today... the result was: index fund had generated +2-3% increase... in 5 years.

    Well, that's my thought about the issue.

    Don't buy stocks before you have stopped your habit of... ;)
    ... going to movies
    ... renting dvds
    ... eating candy
    ... drinking sodas
    ... eating at pizza house/macdonalds/whatnot
    ... drinking coffee at coffee houses
    ... buying milk that costs 10 cents more than the other type of milk

    More hints (agree with Greg here:)
    Pay yourself first
    Put monthly 20/50/100/200/whatever bucks in a bank account. 5% or 10% of your income. And don't touch it :)
     
  11. goodsol

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    Index funds are now obsolete. It is better to invest in ETFs (Exchange Traded Funds). There are ETFs just like index funds but ETFs trade just like a stock, so you can buy and sell them with just the regular stock trade fee.

    The ETF for the S&P500 is the stock ticker SPY. There is also RSP, which is the S&P500 equal weighted instead of market cap weighted. That means that instead of GE and Microsoft being the largest stocks in the index, all 500 are in equal amounts. RSP will usually outperform SPY, except when big caps are moving, which is not often.

    Another good large cap ETF is DVY, which consists of dividend paying stocks that increase their dividends. Very good for a long term investment as it pays a dividend.

    The Russell 2000 is IWM, which is an excellent ETF. Another small cap ETF is IJR, the S&P600 small cap index.

    You can buy bonds as an ETF (such as TLT). You can buy ETFs of stocks from a specific country (EWU is Great Britain, EWC is Canada, there are many others).

    Yahoo has a great ETF center where you can see all the available ETFs. It is at http://finance.yahoo.com/etf.

    So you know that I know what I'm talking about, I have my own stock trading blog at http://www.solitairetrader.com.
     
  12. Reactor

    Reactor
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    Visa will refund any money you loose through dodgy net deals (such as having your number stolen), provided you report it right away. Fair enough, and good enough for me.
     
  13. cliffski

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    I used to dabble in share trading, and never touched index funds. The reason has nothing to do with earnings though. The trackers mean you are investing in every company in a certain index. There are some companies that I don't want to invest in, such as companies that make tobacco, factory farming companies, companies that make land mines etc. (dont flame me, its just my personal choice). A tracker fund means you are investing in these companies whether you like it or not. Most pensions are the same.

    You can choose to invest in ethical funds, even have your pension in ethical funds, and this solves the problem. Although such funds do have much higher management fees, I've read that their performance can be higher, this has been attributed to the fact that ethical funds require greater investigation of the companies business than normal funds, so the managers are more likely to detect any enron-ness during their investigations.

    Money saving tips? -> Buy a fuel efficient car, pay your mortgage off as soon as you can. peridically check that anyone you pay money (ISP/energy supplier/phone company) is giving you the best deal you can get.
     
  14. Savant

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    Pay off your car and then keep driving it. Guys at work are switching/upgrading their cars every few years and that, IMO, is insane. Get your car payment out of your life and then use that money to save/invest with.

    I don't think you have to stop enjoying life just because you want to invest but I agree that the general idea here is sound: live within your means and stop spending money on stuff you don't need.

    For my part I've done a few things:

    - rent movies via NetFlix instead of buying the DVDs every month
    - rent console games via GameFly instead of buying X games a month
    - borrow PC games from friends or from the company's library instead of buying them

    These steps alone are saving me a lot of money each month.

    I've also changed my mindset from: "I see something new, I buy it" to "I see something new, I evaluate if I really and truly need it, try to find it used or on sale". You'd be surprised how often you can say, "No, I don't really need that new gadget" if you stop and think about it for a few minutes before whipping out your credit card. Or, if you DO decide you need it, if you ask a few people you'll be pleased to find how often someone says, "Yeah, I have one of those ... I'll sell it to you cheap, I'm not using it anymore".

    When we bought our small-ish house, the mortgage company was telling us things like, "You know with your credit ratings, you can get a lot more money than this". Yeah, thanks, but we'd rather not bury ourselves completely.

    Well, temporarily at least - and put it in a money market account or something with a higher interest rate than a standard bank savings account. But even that is only a stopgap until you can get that money into something real like stocks or mutual funds. Money sitting in the bank is asleep and not doing anything for you.


    And while I think GoodSol has good intentions, doing it all yourself isn't really a viable option for most people. Use a brokerage firm and have them invest your money for you. They have way more experience than you do and it will free your time up for making games or whatever else you need to do to accumulate more money to invest with.
     
    #14 Savant, Dec 20, 2005
    Last edited: Dec 20, 2005
  15. PoV

    PoV
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    Zug Zug

    Morgages are the big one, but I've got a few small ones that make a difference, and some Canadian (Ontario) advice too. ; )

    Zero monthly fee credit cards, pay them off immedately!
    When you get in to the habbit, it's easy, and there's no down side. You buy only what you can afford at that time, not what you can afford in 2 paycheques. Depending when you made your purchases, you get up to a month to pay it off with no interest, or sometimes more if their late to file the transaction. Let your money gain interest for every day between now and then. Yes, I did say interest. If that shocks you, read on.

    It builds credit too, paying off that credit card. Making that Morgage easier and easier to get.

    Cashback or "like cash" Reward Cards
    To most cardholders, these plans are there to offset slightly the money they waste on credit card interest. But if you don't lose any money from interest (i.e., you're "trained"), it's all yours. My parents have something like a .5% American Express, and we both have Mastercards that net "PC Points" with every purchase. And unlike Airmiles, these points add up to dollars spendable at the Loblaws and No Frills chains of grocery stores/super stores. Yes, you can be indie and have your Heinz brand ketchup too.

    These are great for any reasonable computer or part purchases too. Dell, Tigerdirect, NCIX, Amazon, Best Buy/Future Shop. All easy and convienient ways to get stuff. Watch out for local computer stores or wholesalers. They may charge you an extra 3% for using the credit card service. : (. Include your cash back or points advantage in your figures, and see if it's cheaper.

    Taking money out? Use your own bank's (or core bank's) machines only
    Pretty obvious advice, but after a mere 5 withdrawls later (depending on your bank), you've wasted 10 dollars. You *could* have just gone up the road to the other bank. Presidents Choice Financial (my bank) is a CIBC affiliate, so any CIBC will work fee free, and most 7-11's have CIBC owned machines.

    Internet Banking (save time)
    Crazy convienient. Pay your credit card bills easily by punching in some info. No need to leave the chair, except to visit the mailbox.

    Don't be afraid of those 'different' banks, earn actual interest!
    Presidents Choice Financial and ING Direct are both big names around here for that high tech internet only banking thang. There not so much internet only as they are just the preferred way to use them, since you're likely an introverted computer guy like the rest of us. How these work is instead of having several branches/locations all over the place like a traditional bank, they instead have a non India callcenter you can call (no offense), and a full featured website. That seems to equate to an ability for them to *actually paying interest*! I checked their site and it said it's sitting at 2.55% annual today.

    Oh, and you get a bunch of PC points with a morgage from them. And I think they still give you a free bag of cookies for opening an account too. ; )

    No transaction fee's. Free cheques. No service charges for having an account either!

    For those non Canadian's (Notanuckers), President's Choice was a popular brand of no name, perhaps higher quality food items, like Cookies, Cola's, Cereals, what have you. So yes, it's a strange idea to trust your money to a financial organization rooted a foods company. I've been with them for at least 6 years, and they've been great.

    Ship from Canada, or *avoid* UPS or FedEx internationally
    Despite what they'll tell you about brokerage fees, FedEx and UPS will slam some additional cash hurt on you. If you can find someone willing to ship by standard US Postal service, do it. The posties are too lazy to wait at your door and demand taxes. ; )

    Also, if you don't already know, Amazon Canada is cheaper almost all the time than Chapters/Indigo bookstores. 30% on virtually all computer books. Now it is cool to have a place to go to check out the books before you buy them, but do exactly that. Then come home and Amazon them. And be sure to tick the free shipping option, as they always try to tack on $6 express shipping on you. I think you can actually change the shipping in your profile after you've made the order, so if you miss it, you can easily correct it.

    Order from outside the Province (but in the country)
    I'm in Ontario, and NCIX (for example) is in British Columbia. It's interesting how PST is inapplicable. And BC'ers, show Amazon who's boss. :D

    And that's all I can think of at the moment.
     
  16. Savant

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    Good points! And to expand on the UPS/Amazon thread - ship everything ground. Do you REALLY need that item the next day or 2 days from now? Can you afford to wait a week instead? Can you afford NOT to? Take a look at how much shipping costs sometime. You really pay out the nose for fast shipping.
     
  17. PoV

    PoV
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    Yes, and once in a while ground shipping takes only a day or two. And if you must have a tracking number (expensive purchase or so), Purolator is often a few bucks cheaper than UPS/FedEx.
     
  18. GBGames

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    I'd strongly suggest checking out Motley Fool for information on what it takes to invest without a heavy-weight broker. They want you to think that they know better so that you'll pay them for their "expertise", but until they get paid for results instead of commissions per trade, it doesn't seem like the conflict of interest is going to get resolved. Getting a discount brokerage is great since it frees up your money to actually invest.
     
  19. Savant

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    Right, sorry, I meant discount broker. You don't need to pay ridiculous fees to have competent investing help.
     
  20. cliffski

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    oh heres another I use:
    Buy second hand books through amazon, ditto games. Its not like they wear out. And quite often when I buy a book, I sell it through amazon for a few quid cheaper than I bought it after one read. At least half the books you buy are one-read hits anyway.
    Any luckily in the UK you generally arent charged to take money out of a cashpoint, regardless who owns it. People here kicked up a big fuss when they tried to introduce that.
    check out www.froogle.com as a good way to price compare. If you are in the UK, make sure you get VAT registered, you can claim VAT back on business purchases then, including games, PCs, video cards, blank CDs etc. Thats a 22.5% saving on everything :D
     

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