My Investing Notebook :: Learning from the pros; making decisions on my own. ::

An article from Bankrate.com. Here are the seven steps outlined:

1. Develop a written financial plan2. Save, save, save3. Live below your means4. Lay off the credit5. Make your money work for you6. Start your own business7. Get professional advice

Seems easy enough, but a lot of us don’t follow these rules. Read the article for more details (each step is eplained in more detail).

According to Bankrate.com gas prices will hit $3 a gallon this coming summer! Wow! You’ve got to be kidding me! Because I have a long commute to work, around an hour each way, I spend easily over $100 per month on gas. (Make that $200 if the price increases — no way!) And I drive a fuel-efficient car — 95′ Honda Accord. Hopefully it doesn’t come to that. But if it does, I’ll be even more sorry for those SUV drivers: they’ll basically get killed.

What’s my advice? Get a fuel-efficient car. Did you know that diesel cars have a 20-30% better fuel economy? (I didn’t.) Also, now they have those hybrid cars which have a great fuel economy. Keep those green cars coming, Detroit!

See the reports on Bankrate.com here.

Are you looking to buy a house? Why pay a 6% commission to a real-estate agent when you can buy directly from the seller? This way of buying is getting more and more popular. I’m listing several best sites that list the houses for sale by owner.

ForSaleByOwner.comGoneHome.comOwners.comPrivateForSale.com

However, if you want to buy direct, you’ll have to do some of the work yourself — not that difficult. But hey, with the ridiculous prices of the houses now, you’ll save $10-15K, not bad.

Too Expensive. Are houses too expensive? I think so, that’s why if I’m not going to come across a great deal, I’ll wait for the houses to go down a little. Housing market is similar to the stock market: after the run-up, it’s due for correction. C’mon, houses are to the point where people no longer can afford them! I think we’ll see some correction within next couple of years. But, after that, they’ll climb again, as they always do.

If you were wondering what it would be like to own rather than to pay your apartment rent, I’ve got a tool that will do the calculations for you: “Rent Versus Own Calculator.” It will only take a little information from you (the obvious: rent, price of the house, mortgage rate, and down payment), and it will spill out the results — like monthly payments, tax savings, overall savings, and more — for you. Pretty neat and it might open your eyes a little bit.

See it for yourself. I’m a little reluctant to buy a house (mainly because of the high prices), but I think if I find a good deal, I must just go ahead and do that. It seems you actually can save a lot by doing that.

This calculator comes from eLoan.com — they have more useful info about loans & stuff.

Note: Even if it is 2004, you can still open an IRA account and contribute for year 2003. You can do it until April 15.

Which one is better?

The maximum amount that you can contribute is the same for both — $3,000 for 2003 (plus $500 if you are 50 or over) or your taxable compensation per year, whichever is less. So the contribution limit is not a factor.

And both contributions come from post-tax dollars. So you have already paid taxes on this money.

But when you draw money from a traditional IRA, you are taxed on the earnings on the nondeductible contributions (though you are not taxed on the withdrawal of the contributions, because you already paid taxes on those). Roth earnings, if you meet certain conditions for distributions, such as being over 59-1/2, and having the account for at least five years — are not taxed.

This can make a very big difference over the years. If you are going to be leaving the money in the account to earn interest or dividends for a long time, the Roth IRA may be more attractive.

Also, if you expect to be in a higher tax bracket when you plan to draw money out of your IRA than when you originally contribute, the Roth IRA will probably work better for you.

How much money do you need to invest to become a millionaire? That’s a good question. I tried to answer that using a Financial Calculator found on Investopedia.com. I entered that I want to be a millionaire when I’m 50 years old, and that I think my money will grow at 10% (I think that’s actually mediocre growth — but hey, that’s not bad), so what did I get: I’ll be a millionaire if I invest $672 monthly. We’ll see. Actually, with my $500/month stock-investment, mutual-fund investment, and 401(k), I’m putting more than that so I’ll should be a millionaire soon — yeah, right. That’s not my goal; my goal is long-term, consistent investing.

Try out the calculator at Investopedia.com for yourself here.

Interpretation that I received:

If you are 25 years old with $10,000.00 invested at a rate of 10%, you will need to continue investing $672.02 per month to be a millionaire at 50 years of age.

The more you invest monthly and the more you already have invested, the less time you need to become a millionaire. Logically then, the amount you need to save monthly would increase if your time horizon, your already-invested money, or your investment rate were to decrease.