Archive for the ‘Personal Finance 101’ Category

Roth IRA’s: The Millionaire Nurse Way!

Tuesday, March 2nd, 2010

Everyone knows what a Roth IRA is, don’t they?  No, even if you think you do, you probably  don’t-so let’s have a little ROTH IRA school.

Roth IRA’s got their name from  the late Senator Roth from Delaware.

The difference between Roth IRA’s and Traditional IRA’s:

  • You pay taxes on the money as it is deposited into a Roth IRA-with a traditional IRA, you take an income tax deduction at your current federal rate on the deposit.
  • The government  taxes withdrawals, and also tells you when you start to take money out of the traditional IRA.  Money taken out of a Roth is not taxed, and you can remove it when you want to-after 59 1/2.  (With some restrictions.)

Similarities:

  • They both allow investment in many different types of securities, stocks, bonds, and even real estate.
  • They both are limited in the amount you can deposit, based on age and income requirements.

So how do you decide what retirement vehicle to use? 401-K, Roth, or traditional IRA….

If you company matches- deposit up to the matching amount in your 401-K.  For most middle income folks, the next decision is the hardest-if you can afford to pay the taxes, I would deposit the next part of retirement savings in a Roth IRA.  When that was maxed, I would  save the rest in a traditional IRA.  (Until you reach at least 15% of your income.)

So what does this mean in the real world-lets say you are a married nurse, and your spouse makes the same 40,000bucks/ year for a gross income of $80,000 for you as a couple.  If your company matches 3% of your income in their 401-K then,  put $1200 in that account-(3%).   Now you can put up to $5,0000 in your Roth, if you are under 45-so let’s put your remaining $4800 in your Roth-which gets you to 15%.  With the company match, that gives you $7,200 in your retirement savings for the year.

Now remember, you have to pay taxes on the $4,800 you put in your Roth, at whatever your income tax rate is, both state and local.  However, when you remove that money, the balance and the growth from your investments can then be withdrawn tax free. WHEN YOU WANT TO-after retirement-not on the governments schedule, as a traditional IRA requires.

Now keep in mind, the example above includes estimates and generalizations, so to make your own decision you need to have your tax information handy.  And if you really want to dig into this further for all the exceptions/explanations, then check out Wikipedia’s Roth IRA section here.

“Dr Dean, Now that my head is spinning, what do I do?”  Well if you want to open a Roth IRA, then you need to talk to a discount, or  full-service broker and open an account. The brokers usually require a minimum investment,.  Many savers are successful having the money electronically deposited into the IRA, so they aren’t tempted to spend it.

So go get started on having a secure retirement.  You want to be eating steak, or asparagus during your retirement, not canned soup.  You want to travel the world, not your one bedroom apartment……

Let me know if you have questions.  That is what I am here for.

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401-K Rollovers, How do Millionaire Nurses Do It?

Wednesday, February 17th, 2010

A 401-K rollover, is not an exercise like P-90X and it is not another futuristic movie title.  A401-K rollover is what you  do with your company retirement money, when you leave your current job.

Let’s say you have been working at hospital A for twenty years, and have built up a significant amount of money in your 401-K (or 403-B).   Now you have been offered a big promotion and raise to work for hospital B.

What do you do with your money?  Well, it depends on tons of factors, but lets work through a few of them.

  • Your plan at your old company may require you to move your money-most don’t unless it’s less than $5,000.
  • If you think the old plan is great, and the hospital is stable, you can leave it there-be sure to keep up with it, with change of address notifications, if you move.  You don’t want to lose touch with your money!!
  • If you want to move the money, then you need to do a “Rollover”.

So what are your “rollover” choices:

  • Have your money “transferred to your new employer.  Make sure you like the options in your new employers retirement accounts-if not keep reading.
  • Rollover the money into a traditional  IRA-either with a brokerage, or a mutual fund company.
  • Rollover the money into a Roth IRA.
  • Let them send you a check for the money-go have a big party, buy a new car, new clothes and Jimmy Choo’s!

All of the above are fine except the last one!  If you take the money and run, your old employer is required to send 20% of the money to the feds for taxes, as they consider this income, and if you are under 59 1/2 they also slap you with a 10% penalty (yes that money is gone) for being stupid!!!!

As to whether to choose a traditional IRA or Roth IRA depends.  The advantage of the Roth is that your money when you withdraw it, is tax free.  When you withdraw money from a traditional IRA, you pay taxes on the money at whatever rate applies-IF that is very little money, and your income is low, then the taxes may be low.

However, if you spend the next 40 years learning to act and then become a “Millionaire Nurse” then those taxes may be significant.  So, if you can afford to pay the taxes on the money now, then conversion to a Roth IRA, I think, is the best decision.   Now companies that manage Roth IRA’s, have calculators that you can play with to help with the decision.  And you can do both, have part put into a traditional and part a Roth.

But you still are having to “guess” at what you tax rate will be when you retire.  And I can only guarantee one thing-the odds of any of us “guessing” correctly is near zero!!!  So as I have said before, don’t have paralaysis by analysis, do your best due diligence and homework, then push the damn button!  EXECUTE!!! (sorry, but sometime you have to get people’s attention.)

Now to discuss all the implications of buying stocks, mutual funds, and deciding how to invest in your new IRA Rollover is worthy of a book, or at least several posts here-so we will deal with that in the future… I know, you can’t wait!!!

Now, as to how to actually arrange the transfer, you have to be proactive.  Call your benefits people at your old employer, and ask them what paper work you need to fill out to move your money.  Ask the people that you are moving the money to, what paperwork you will need to fill out, so they can accept the money,-without it disappearing in cyberspace…. So make sure both ends are covered.

If you aren’t sure if you have filled out the forms correctly ask for help-if you can’t get any one to help, then maybe you need your new financial company/brokerage folks to help, or even get an independent financial advisor to do so, and pay them their hourly rate for assistance.  Just keep bothering people on both sides  of the transaction till it gets done!!!

So let me know your questions or comments. There are plenty of exceptions to the above rules-special circumstances for withdrawal without taxes or penalties, such as disability, etc.  So, keep that in mind.

There will always be unusual exceptions.  Like the old saying in medicine-when you hear hoof beats, don’t expect to see zebras-but every now and then, a zebra will show up and bite you on your “donkey”….

If you have done a “rollover” let us know how hard or simple it was.  What was your experience?

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Posted in Personal Finance 101, Retirement savings, Wealth building | 4 Comments »

Student Loans: The Great Lie!

Tuesday, February 16th, 2010

Student loans are worth the investment.  You will earn a lot more money, with your degree, and it will be no problem to pay back.

These are just a couple of the lies, or at best,  miss-leading statements about student loans.

In this article, in the “Wall Street Journal”,  Mary Pilon reports the case of a student loan, that had ballooned to $555,000.  Yes, that is a cool 1/2 million plus.   The loan belongs to a family doc, so what’s the big deal, they are all rich aren’t they??

Well the average salary for a family practitioner is $145,000 bucks a year-great salary, way above the national average for salary.

However, with a loan that size, with interest accruing, even if half her salary went to pay back the loan, it would take more than 10 years to pay that back.  So great salary, ain’t so great if half of it goes to pay back your student loan.

Do I think it is evil to borrow money to go to college.  No, of course n0t.  Do I think it can be stupid to borrow $100,000 to pay for tuition, room, board, and beer, for a degree that pays on average 40, or 50 grand a year or less-yes!

So, before having a  knee-jerk reaction and borrowing money to go to school.  Check out ways to decrease your burden:

  • Go to a less expensive school.
  • Go to school part-time.
  • Drive a clunker, and use car payment money to pay for food, or books.
  • Join the service, and let them pay for your education.
  • Get your employer to help pay the bill.

The good news is that you can get a 2 year (which usually takes 3)  RN degree at a public institution for very little investment.  Even a four year BSN at a public school is a good investment-but it can be a great investment, if you limit your borrowing.

So before you call Aunt Sallie Mae, to borrow a hunk of cash, think about it.  Make sure there is not a better way.

And if you do borrow, there are ways to help pay back the money-see this post about one of the federal loan repayment programs -(NELRP)-  for working in an under-served hospital or clinic-as a nurse.

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Bond Funds: 401-K Investing for Millionaire Nurses-Continued

Wednesday, February 10th, 2010

I want to continue my 401-K investing course for nurses-and whoever else reads today- by focusing on Bond Mutual Funds.    I have received a few comments, that some don’t understand this investing stuff.

The only way to understand anything, is first to decide it is important.

If being financially solvent when you retire is not important to you, then you need to wake up, and smell the Narcan!

If I am unable to explain it in an understandable manner-then please ask questions.  Remember, the first time someone talked about anaerobic bacteria, you looked at them and said, “Do What?”  So keep reading, and little by little, these terms will gradually mean more to you.

I want to discuss Bond mutual funds today.  Bonds are a term used when corporations borrow money, and promise to pay the money back, over a period of time, with a certain interest rate.  Bond’s can be long term-15-30 years, intermediate, 5-15 years, and short-term-less than 5 years.

Now interest rates tend to be higher, the longer term the bonds. Because the risk something could happen to the company over 30 years is higher than something happening over 5 years-so companies have to pay you more to take that greater risk.  Therefore the interest rate paid on long term bonds is higher.

Now most 401-k plans, don’t have individual company bonds for you to invest in. They usually have a mutual fund that holds a bunch of bonds.  Now, in the past, bond mutual funds, were thought to be more conservative or safer than stocks.  That is, until, a bunch of companies go bankrupt-and bondholders lose usually all of their money.

But a mutual fund  may be holding hundreds of different companies bond, it is unlikely you will lose all your money.  However bond mutual funds are subject to what is called interest rate risk.  This means, that if interest rate rise higher than what the bonds rate was when it was sold, it goes down in value.

If you are holding the bond till its maturity date-which means 30 years if it is a thirty year bond-you are guaranteed the rate it was sold at-so you will have that return on your money.

However, many mutual funds “trade” bonds, this means they sell them to other companies/funds/individuals for the going rate, betting the interest rates will change for the better (for them).  Check out this article on bond funds.

So, this matters to you why????

Well, picking the right bond mutual fund, is important, because some managers do better at the choosing/trading than others.

So when you have a choice between several bond funds, what do you do?  I would look up the fund on Morningstar.com or some other financial website and look at the long-term track record of that fund, compared to its competition.   If it rates high, go for it.  If it rates at the bottom, check out your other options, and pick the best rated one you can.

Many 401-k plans don’t have pure bond funds.  They have funds that are mixed with stocks holdings and bond holdings.  These are good funds, if you don’t want to have to think.

In general, if you are going to use one of these blended funds, the older you are- the higher the bond holdings should be, over the stock portion.

In other words, if you are just 20-you may want 80-90% stock and 10-20% bonds, then when you are 60 just the opposite.  This is because, in general bond funds are less likely to drop as low, in value, in bad times.  So that means less risk- not no risk, just less risk.  But, most experts recommend always keeping some of your retirement holdings in stock, because you need the growth potential-especially if you end up living to age 90 and above, (the chances of which, increase every year!).

When you are older, you don’t have as much time for the stock portion of the fund, to bounce back from it’s losses before you may need the money.  So you decrease your exposure to stocks as you get older, not eliminate, just decrease.

You don’t want to plan to travel in retirement, to find you can only afford to drive to the mailbox-to see how bad your stocks are doing.

So this is the end of our latest version of 401-K 101.  I hope you have enjoyed the show, I mean, post.  Really, I just hope you managed to read this far-only weird people like me like to read about this stuff.

So go forth, and scare the bejesus out of your benefits administrator the next time you get your 401-k report. Ask questions and make good  thought through decisions, rather than just closing your eyes, and picking.

We will continue this discussion another day, after you have had some coffee/tea/Red Bull.

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401-K Class 101-For Millionaire Nurses-Continued!

Tuesday, February 2nd, 2010

This is the third edition of 401-K class for nurses, (and whoever else may be snooping-thanks for snooping!).  Now I know you would rather read about fun stuff-you would rather watch American Idol, Dancing with the Stars, or whatever your favorite program is, than read about boring 401-K stuff-but let me ask you a couple of questions:

  • Do you think Simon Cowell is going to be there for you when you want to retire???
  • Do you think NBC or CBS and their advertisers care whether you spend your retirement time watching a 52 inch HDTV, in your paid for house with no debts,  or watching the 12 inch tv with rabbbit ears down at the homeless shelter????
  • Do you think your kids are going to spring for your world travels when you retire from 40 years working the night shift in the ER????

No, I didn’t think so, so keep reading-or go continue to be stupid, and not pay attention to this till it is too late-YOU HAVE A CHOICE!!!!!

I want to discuss ACTIVELY managed mutual funds this week, after discussing index funds in our last class.

Actively managed funds, are just as described, they are managed by a person or group that makes investment decisions on which stocks to purchase.

One of the most famous fund managers/ funds, when you read about this in investing books,  is Peter Lynch, a past manager of Magellan-a Fidelity Mutual Fund.This fund had stellar returns during his management-that some would say has suffered since his retirement.  This has become the “poster child” for avoiding single manager funds.

When he or she retires, or is hired by another company for a huge raise, then where will your fund be?

Now, manager choice may  matter a lot when you are doing your own investing, but frequently in 401-K’s, the choice of funds available  are limited, in number and type,  to just a few funds.

So you may not be able to choose between a single or group manager. But I think it matters to at least know this information.

You can usually look this info up for free, by joining “Morningstar” or some other investment information site.  You give them info about yourself, to sign up, and then you are able to look up funds, and get other information-that for the most part is not slanted towards any one fund company.

You can also find out about the fund in your “prospectus”. This is the document that you get at least once a year in the mail from the fund company that you own in your 401-k.  It probably goes in the “circular file”-if you are like most nurses.  Next time you get one,think of me, and at least read the page that describes the type of fund, look at the list of stocks in their fund holdings, and read the paragraph or two from the fund manager about the past year’s results.

Now the next step, as mentioned above is finding the type  fund, you are currently investing.  The different types are numerous and somewhat complicated- mainly because the fund companies try to have a product for everyone’s needs.

They then end up with so many different funds-no one knows what is going on.  But here is a list of several common “actively managed” funds you may find in your 401-k and a little about them.

  • Growth funds-consists of companies expected to “grow” or increase in value faster than the market.
  • Value funds-consists of companies that the fund manager thinks are bargains-(cost less than the stock is worth).
  • Income funds-consists of stocks that pay dividends-this means they pay a percentage of the value of the stock quarterly to stock-holders instead of keeping profits in the company.  Some feel this results in less volatility (rapid rise and  fall in stock prices).
  • Balanced funds-funds that may hold growth and income stocks- (some balanced funds also hold bonds, we will discuss bonds and bond funds in another post).

I found this list of mutual fund terms on the Securities and Exchange Commission website.  * Glossary of Key Mutual Fund Terms.

So, we come to the end of another exciting version of 401-k class for “Millionaire Nurses“PS

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More Money For Millionaire Nurses

Wednesday, January 27th, 2010

You have decided to make a huge change.  You have decided to quit spending more than you earn.  You look at your spending plan.  You add up your payments, and bills, then add up the income-and damn- your extra money- to put against your debt-there is NONE!!!!!

What can “Millionaire Nurses do, to break through the log-jam and make progress?

We have discussed this a few times:

  • Sell stuff-yard sale, e-Bay, consignment-to raise money
  • Getting rid of some of your payments-use cash raised above to add to the sales price of that 4 wheeler to pay off the note-one more payment gone-Cha-Ching!!!!  (Substitute boat, big screen, Harley or whatever toy you are making payments on.)
  • Earn extra money!

EARNING  EXTRA MONEY

Earning extra money–let me go talk to the boss, for a raise-well, that does work sometime, but let’s just pretend you are still in nursing school-( I know, what a nightmare!).     What can you do?

  • Tutor your friends, especially if you are strong in a certain subject like Anatomy, or Chemistry.  Put up a sign on the bulletin board at school, advertise on Craigs’ List.  See what the going hourly rate is.  Just make sure you don’t get carried away and have it hurt your progress to your degree.
  • Car pool-pick up others, and have them pay towards gas and car maintenance.
  • Get a room-mate or rent out a room or couch- if you have one.
  • Start a blog, and monetize it-if you can write, and are creative.
  • If you are a savy-social networking expert, (spend too much time on facebook) advertise your services to old people like me to help them set up their page, teach them to post.  They will pay you, and probably feed you, mother you, and you never know, you might find a mentor.

OK, so you are working as a nurse, and no your boss says, no raises this year.  What can you do?

  • You, too, can tutor nursing students.
  • Work extra shifts, and over-time.
  • you too, can rent out one of your rooms-maybe to a nursing student-be a landlord and a mentor!!!!
  • Carpool to work-to share expenses.
  • Second job-either in nursing, or in your hobby area-catering on the weekend if you like to cook and you work weekdays.  Find a “temp” agency, and get on their list.

Now, I think you get the picture.  Get creative.  Let nothing be sacred.  Get after your debt.  Remember, as you pay down your debts, you will have more money to put against the remaining bills, so the process speeds up-unless your “spending demon” awakes from the dead!

Then, when you are finished knocking the debt off, you will remember how hard you worked, and

never go there again.

Tell us your stories or ways you have earned extra money-legal or illegal-(JUST KIDDING!!!).

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401-K:The Quality of Your Retirement May Depend On It!!!

Tuesday, January 26th, 2010

It amazes me, when I ask the nurses at the hospital how they have invested their 401-K money.  What kind of funds do you have?   I usually get the shrugs, the “I don’t know-I just did what they told me to do.”

Now there has been a big debate over the last few years on how to get people to pay more attention to retirement.

We all know that the odds of social security being there for us in our old age is between slim and none.  And if it is there, then the amount of money we will receive is unlikely to be enough to live a quality retirement.

I can hear it now-”Where do you want to eat out Friday, Harold?”  “Well, we can splurge honey,  cause I just sold some plasma, and found a bunch of cans this week!” “Dairy Queen, here we come-we may even be able to share the mini-sundae to go with our burger!!!!”

Maybe it’s because I am closer to retirement age than I am 20, but time passes in a hurry, and the better plans you make now, the smoother and more freedom you will have in retirement.

So today, as promised last week, I want to define a few terms to help with making decisions on where to put your 401-K money.

Now, when you are hired, or once a year, a benefits administrator will meet with you to explain what your 401-k options are, and to make changes in your choices if you have any.  Before you go the next time, I want you to be more informed, so will continue this series over then next few months.

So today, I want to talk about Index Funds.  As I mentioned last week, index funds hold stocks that make up an Index.  Common indexes are the S&P 500, the Russell 2,000, 3,000 and the Wilshire 5,000.  Is this a Stock Car race???

No the numbers are how many stocks make up the index.  The S&P 500 index holds 500 stocks, the Russell 2,000 contains 2,000 stocks….

Now, if the index holds 5,000 stocks, then it is holding all of the stocks of any consequence traded on a major stock exchange-like the NASDAQ or the New York Stock Exchange.  Now to make it even more complicated, the amount of each company stock, such as Coca Cola, is dependent on the “market capitalization” of each stock-that is the number of shares of that company that trade on the exchange, multiplied by the price of the stock.

So if a company has a market cap of 500million, and another has a market cap of 250 million, then the first company will have twice as many shares in the index.

Now to add another wrinkle, the mutual fund companies, can decide that they want to limit some companies from being in their “index fund”.  So their index fund may not be a true index fund-holding all the stocks-they may just hold stocks from that index that meet certain earnings criteria.  They do this to keep from buying what they consider “dogs” or poorly run companies.

Now, this is enough info on index funds for today.  In another post, I will explain in a little more depth, how to choose which index fund for your retirement account.

This stuff has to be dealt out in small doses, or it can become overwhelming in a hurry.  But like any of your classes in nursing school, you have to start somewhere.  And the more you read and study, the more sense this will make to you.

Now, if you need to know more in a hurry, this article on index funds is a good overview, but again, until you begin to understand the special language of investing, it may be difficult to comprehend on the first go-round….

So let the learning begin!!!!

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Mortgage Escrow Accounts-The What, Whys, Wherefore's, and the Do I Havta's?

Friday, January 15th, 2010

Escrow accounts were the topic of a recent question over at Cash Commons.  This is a great money, and personal finance question and answer site, hosted by “The Mighty Bargain Hunter”.

I thought I would discuss a few of the details about escrow accounts-considering the number of houses being sold to first time home buyers, with the recent tax credits, combined with low prices.  This is a great time to buy a home, if you are READY.

I found this link  very helpful in explaining escrow accounts, and it links to pages with examples of how the monthly amounts are figured.

In summary, an escrow account is a type of savings account, required by many mortgage companies, and their guarantors, such as FHA, VA that are designed to ensure there is money available to pay  your taxes and  home owners’ insurance.  The details about the amount required monthly  is given to you when you close your loan.  (One of the 100 pieces of paper you sign or initial!)

The escrow amount, is usually built into your monthly payment- many people forget there is one until they get a notice that they need to increase the amount because taxes or your insurance went up.

The reason for a mortgage escrow account, is to protect the lender, or mortgage holder from losing their collateral-your home.  How could this happen?

  • you fail to pay your homeowners insurance- a fire occurs-now your home has no value-the lender’s collateral-gone with the wind….
  • you don’t pay your taxes on your home, your state or county, sells the home on the courthouse steps-your mortgage holder is screwed!

Obviously, in this day and age, they can’t afford that-so-they require escrow accounts.

Now if you pay 20% down, have no PMI (Private Mortgage Insurance) and are working with a private lender, escrow accounts are not always required-just ask your lender-I haven’t had one in years.

Now the rules for escrow are complicated, but there are protections to keep unscrupulous mortgage companies from holding on to too much of your money for too long.  The Real Estate Settlement  Procedures Act or RESPA covers the rule lenders must follow.  This includes rules that prevent them from making you deposit excess amounts-if the amount deposited  is in error, and your balance builds up above 50 bucks above that needed-they are required to send you the money within 30 days.

But the lenders also have rules that allow them to have a “cushion” to make sure there is enough to cover expenses as they come due.  They can also require you to increase your monthly deposits if the account balance drops-or send a one time amount if they feel is necessary.

Now, of course, when you have someone “looking after you” ie paying your taxes and insurance, then what happens when they screw up and don’t pay.  This is one of those areas that causes great heartburn, because insurance may get canceled, tax liens placed and other potentially bad things happen.

So Millionaire Nurses know who is in charge of looking after them-THEY ARE!  As part of your financial planning, put a tickle reminder on your calendar to email or call your insurance agent periodically to make sure everything is in order.  Get to know the insurance people in your life enough so they will be comfortable calling you if there is a problem.

If you get a notice about a tax bill being late, don’t assume the mortgage holder will handle it-check on it right away-before penalties start to pile up.

Yes, you may say you don’t owe them, it wasn’t your fault-how easy will that conversation be with the folks at the courthouse.

So deal with these problems early before they become huge problems.  Just like an IV site infection,  prevention is way better than  sepsis, gorillacillins,  and ICU-become proactive with the biggest investment in your life,  YOUR HOME!

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401-K 101: The Basics of Retirement Investing for Millionaire Nurses

Tuesday, January 12th, 2010

A recent survey of nurses showed personal finance or “money worries” were their chief concern, so over the next few months I will try to post at least one article a week on basics of personal finance.  This might include planned spending, retirement accounts, banking, credit cards and saving in addition to commentary,and punditry.

These basic articles may be boring to some, but fast forward to the years immediately before retirement, and you are thinking-”What am I going to live on, and how will I get by?”-then you will be glad you plowed through, and even more importantly, learned and executed on these recommendations…..  So let’s get started!

401-K’s got a vote of confidence, in a couple of surveys discussed in this article in the “Wall Street Journal”.  They report that the majority of 401-k holders kept their money invested, even during the severe market drop in March of 09.  Why is this important?  Because since that drop, the market has been up more than 30 %.  So the money you had invested during the drop has come back in value substantially-you are still not even on that money, but getting close.

(Now for those of you who may have another version of 401-k such as 403-b accounts-all we say here applies.  If you have no retirement account provided through your job, we need to talk!!!!)

More importantly, however, is that the new money that has been taken out of your check (pre-tax) has grown significantly since March 09-you bought at the bottom!!!!!  Good Job!

Of course, who knew when the stock market would hit bottom-nobody!  There for a while, it seemed as if the earth would stop spinning, the financial world was such a disaster.

Another article, discusses the argument about buying index mutual funds vs actively manged funds in your accounts. This article discusses a few advantages and disadvantages of the two type funds-but keep in mind, when stocks or mutual funds are in a retirement account forget about the fourth tip in the article-funds in retirement accounts are not taxed- on long or short-term capital gains.  One of the main advantages of investing in a 401-k or IRA-you get tax free growth.

First a few definitions.

Index funds:  These funds buy all the stocks in whatever index they are trying to mimic.  So a S&P 500 index fund holds all the stocks that make up that index.  So that mutual fund will go up or down the percentage rise and fall  of that index.   The stock holdings in that fund don’t change much, as changes in the stocks that make up an index don’t change often.   There are many other “index funds”-Russell 2000, Russell 1,000, S&P 500, and 100.

Therefore, the fees that occur when holdings are changed within a mutual fund are much less than average.  There are many different types of index funds, Dow index, Russell 1,000, and Russell 2,000 are a few popular ones, in addition to the S&P 500.  Vanguard is a mutual fund company, whose founder, John Bogle, made these funds famous.  But all investment houses, from Schwab, to Fidelity have their versions.

Actively Managed Funds: These funds have a manager or investment committee that makes decisions about which stocks to buy in their fund.  They may trade frequently or infrequently.  The difference between those that trade a lot, is that fee’s are higher.  One of the problems with these funds is that if they have done well under a manager, and the manager leaves, what will happen?  Who knows, but it might not be good-definitely worth watching.

So, what is a Millionaire Nurse to do?  Well the Millionaire Nurse at a minimum finds out what funds are in their  401-k.  Write the name of the fund down, and go to Morningstar and look the fund up.  You may find that everything is Greek-hey, if financial folks read a medical file-they would think that was Greek (more like Latin).  Find out how well your fund is doing compared to similar funds.

I think there is a place for both type funds, but if you don’t want to learn about them, then the index funds are the way to go.  Find one with low fees if it is offered in your plan.  Many plans only have one of each type to choose-that makes it easy.

Get the retirement plan managers to answer your questions about the type of fund, and how it is doing compared to its peers.  When your benefit administrators are at your hospital or other place of employment-don’t be afraid to ask questions-they may not give you investment recommendations-but they should be able to explain your options.

I will do another post later on the different types of managed and index funds, because I don’t want to overwhelm you with information, today.  You didn’t become a nurse in a day-and you will not be a financial expert in a day-but you have to start learning-and learn you will.

Housekeeping for new readers:

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Financial Statement: What is it, How do I Make One, and Why Should I Bother?

Sunday, December 20th, 2009

Today, I want to spend time on one of my recommended financial to-do list items.  See this post on the list of financial things to do before the end of the year. The financial statement is one of the most important documents you  will develop on your road to being a Millionaire Nurse.

What is a financial statement?  A financial statement, for you medical types, would be similar to an intake assessment on a new patient.  It is a snapshot of your current financial health.  Your financial statement is often required by banks to decide your eligibility for a loan, in addition to copies of  tax returns,  and other financial documents.

So how do you come up with a financial statement?

Well, first you need to do a little basic research.  You need to make a list of the things you own, that has real value.  I suggest starting from large to small.  For most homeowners, this would be the value of your home, (real value not imagined).  A realistic value is obtained by seeing what homes have sold for recently in your neighborhood, and comparing your home to those.  Bank of America has a webpage that you can plug-in an address, and it will search a database for homes sold in the neighborhood.   Zillow is also a real estate information site that has a database on much of the home sales in the country.

Be as accurate as possible in these estimates so that you don’t get a false sense of security  regarding your financial prowess.   It will only hurt you.  Make sure you are comparing apples to apples.  If the only home that has sold was twice the size of yours, and 5 years newer, make adjustments.  You also may have a Realtor friend who could give you a good faith guestimate of what your home may sell for in today’s market.

Do the same with the next most valuable thing you own-usually a car, although an RV would also qualify.  Determine  the value of your cars, at Kelley Blue Book.  Home furnishings’ value, is one of the more difficult things to decide, and unless you have a lot of valuable antiques, just a guess will be ok.  Remember, if something happened to you and your heirs sold your stuff-the likelihood of that comfortable recliner selling for more than a few bucks is slim.  On the other hand, if part of the reason you are in financial trouble, is you just bought a 52 inch plasma with all the bells and whistle’s, then adding that to the list is very important.  Check Craig’s list for similar items.

So basically list your stuff, the balance in your retirement account, savings, IRA’s on your financial statement.   All these items, in accounting terms, are your asset’s.

Once you finish listing your assets, then it is time to list your liabilities.  No, this is not like liability when it comes to medical malpractice or whether you are liable to yell at your charge nurse tomorrow, when she decides you need to work Christmas…..

This term, liabilities, is what you owe on the list of things described above.  So if you have  $120,000 balance left on your mortgage, write it down.  If you owe 15 grand on your Prius, write it down.  If you have a 10,000 dollar balance on the jet ski or credit cards, write it down-get it all out on the table.  You will feel better-well, maybe you won’t feel better, but let’s be honest here….

So, when you have finished adding the value of all your assets, and then subtract from the total value of assets your liabilities, then you have the magic number-ta-daaaaaa-YOUR NET WORTH.

No this net worth is not a judgment on you as a person, although most bankers would disagree.  It is an indication of where you stand financially.

For example, if you have a negative net worth,  say of  minus $150,000 but you are just out of school, bought a house, have student loans, and a car note, and just starting that new job on the night shift, in the ER, maybe that is ok.  You know where you are, now make a plan on what to do to change it.

However, if your net worth, is that same  minus $150,000 and you are a year away from retirement, you are screwed-well at least in a world of hurt about enjoying that retirement.  And boy are you in the right place- keep reading -we will help you here.

One other value of determining your net worth, is using the number to follow your progress (or not) from year to year.  It is a great feeling, after working hard on improving your financial situation, to see your net worth grow!

So, before the end of the year, do the work described above to  find your net worth.  It may jump start you into taking  care of,- and paying more attention to- your personal finances.

That is where “The Millionaire Nurse” comes in-go sign up for my FREE e-book on “Emergency Money Resuscitation”

I also will be announcing the arrival and how to order my new book “The Millionaire Nurse” soon as well.

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