Saturday morning, out came the wrench. Turn after agonizing turn, I watched the bolts that secured the training wheels loosen. Soon enough, my dad told me to get on the bike and give it a try. I gingerly pedaled a few times and found it not to be as impossible as I thought. Before I knew it, I was riding my bike with only two wheels.

My confidence overtook my skill. A car was coming so I pedaled towards the side of the road where I hit a storm drain and fell. Six stitches and a skinned up arm and leg later, I never wanted to see that bike again. According to my parents, it was more than a month before they could convince me to try again.

Confidence in the Economy

You might be in the same state of mind. The economy is your two wheeler. You were investing part of your pay check each month and felt like your retirement was on track. Maybe you had some money in the stock market for your child’s college education. Then, like me, your confidence was gone in an instant. The economy went down faster than I did when I met the storm drain and before you knew it, much of your investment is gone and now you don’t know what to do.

You Haven’t Actually Lost Money Yet

Let’s fix the biggest investing myth running through the uninformed right now. Unless you closed your accounts and cashed out, you haven’t lost any money. It may be valued lower than what it was but you haven’t lost a dime of your money.

Hold on to your chair because I’m about to make you very happy. You only have to do one thing to get your money back: Wait. The economy is on its way back and all you have to do is nothing at all in most cases. You’re going to get all of your money back if you wait. It might be 5 to 10 years, but you were investing for the long term anyway, right?

Invest More In a Down Economy

Next, don’t stop investing every month. Compared to the not-so-distant past, all investments are on sale. You can buy more stock for less money. This is when you invest more, not less. Just like at the mall, when something is on sale, buy as much as you can. Don’t worry, if you’re investing for the long term, you won’t lose your money.

Finally, making your own investing decisions with money other than company sponsored retirement plans is possible if you have the time and desire to do a lot of weekly reading and research. If not, you may want to get help from a financial adviser, or even better, find an investing club in your area.

I eventually got on my bike again. Things worked out much better the second time because I didn’t give up. Don’t give up on your money. Sometimes the best thing to do is nothing at all.

It may be the new normal. The advent of computer or electronic based trading has allowed for millions of stock transactions per second and with the 24 hour fast paced news cycle available to us in many different formats, the stock market has changed in two important ways.

Stock Market Changes

First, market volatility has increased. With the potential for millions of transactions per second, stocks can move up or down by multiple percentage points in minutes and second, electronic based trading has allowed for anybody to be involved in the stock market.

Market Volatility

Let’s take a look at volatility. Who do you know that seems to be overly sensitive? They react to everything. Maybe they scream during scary movies or get angry over seemingly meaningless things. Although you may not refer to them as volatile, stocks are the same way. Some are more volatile than others. In financial terms, we call highly volatile stocks, high beta. A high beta stock reacts severely to market conditions.

Not only have stocks become more volatile but the stock market has as well. Over the past couple of decades, we can see swings in the market that happen much more quickly. This happens in large part because large stock trades can happen rapidly. Large investors can buy and sell millions of shares of stocks with the click of a mouse. It only takes seconds and trades this large can move a stock up or down dramatically.

Adding to this volatility is the 24 hour news cycle. On any given day you can watch one of the financial news networks and get a first hand glimpse at how fast a news report can move a stock or the entire market up or down. It only takes seconds.

You might be thinking that this kind of volatility is the enemy to your investment portfolio. You may be right but if you are a trader, somebody who holds stocks for a short period of time, you thrive on it. Traders sometimes hold stocks for only a few minutes. They use the market volatility to their advantage by buying a stock when it takes a dramatic swing down and then sell it when it corrects by going higher.

This can make the trader a lot of money but the statistics are stacked against the day trader. The long term gains that day traders make are less than impressive. The only exception are the professionals who are often using tens of millions of dollars per day and some advanced trading techniques to make money.

Investing or Trading?

For the part time investor who isn’t working in the investment field, the best way to make money is to be an investor. Investors are regarded as people who hold stocks for a larger period of time. Often that means years but many investors are now holding their stocks for one year or longer.

One rule that has never changed is the fact that the market rewards patience. For those with a long term approach based on a belief that true wealth happens over time, the stock market, regardless of the 24 hour news cycle, will reward.

Don’t take my word for it. As I write this article, the stock market has had a dramatic move up. In fact, over the past 7 days, there have been triple digit gains in the Dow Jones Industrial Average. As I watch the financial news channels, nearly all of the stories talk about how the recent economic downturn may be over and recovery and prosperity may be here to stay.

This isn’t the first time that the stock market has run up fast. In early 2009, the market had a 30% run up in value in a short period of time. One particular day, the financial reporters talked at length about how the recession may be over. The next day, less than 24 hours after the stories of happy days are here again, the stock market dropped in value. It was a big drop. Triple digits, in fact.

To say that nobody expected this to happen would not be true. Everybody knows that there are always temporary bumps in the road. In fact, sometimes they are large and dramatic corrections. What were stories about the recession that was no more, in less than 24 hours, turned in to stories about how bad the economy was and how we were all fooled by the latest bull market.

Analysts filled the websites and airwaves with stories about how the economy was entering another period of free fall and investors would be well advised to take their money out of the market and ride out the storm.

Don’t forget that while responsible journalism is to report the facts, gaining and keeping viewers and readers is big business. Getting top advertising rates depends on the number of viewers.

I watch the financial networks each day and gain valuable information from them but as an investor I also recognize that creating emotional stories that sound an alarm will keep the viewers coming back. My investing decisions need to be made through my own research or the opinion of somebody who has gained my trust over a long period of time.

Here’s the bottom line. I know many people who invest based on what the guest commentators on the financial networks have to say. Sometimes it works out well but other times they lose money and feel betrayed. Take the knowledge that you gain from the news and add it to the list of facts to consider. Don’t make decisions based on it.

Today, I want to use this word in the context of your finances. What does it mean to hold financial discipline? For those who have achieved the financial freedom that you wish you had, what are they doing or what did they do to get there?

Things the Wealthy Know

Would it surprise you to know that the #1 and #2 things that the wealthy do are things that require no education, no high paying job, and no specialized skills? That means that you can do it too!

First, they know that they must stay disciplined by staying out of debt. When I eat a lot of fatty foods, I know that my waist line is going to pay. My lack of discipline is going to cost me. When you are in debt, it costs you. You pay money, often a lot of money, to be in debt.

Lots of Interest

On just $4,000, you could pay more than $30 per month in interest. What would you do with an extra $360 a year? Over the course of 30 years, that is nearly $11,000. If you would have invested that $360 each year, you would have made at least 3% annually compounded. How does an extra $20,000 sound for retirement? (Depending on the type of investment.)

Most people have much more debt than that. Statistically speaking, there is a good chance that your credit card debt is over $10,000. With a little financial discipline, you could have more than $60,000 extra dollars when you retire by just paying off your credit card debt. That’s not even taking in to account the big house that you don’t need, the car loan, the boat, the expensive hobby, all the vacations on credit, you know where I’m going.

Here’s the bottom line. Don’t take my word for it. Do some research. The reason you aren’t as rich as you want to be is because you are in debt. Debt costs a lot of money. Warren Buffet, the greatest investor of our time said recently, “I would be poor and my company bankrupt if I was borrowing money at a 20% interest rate.”

Financial Discipline is a Full-Time Job

Here’s where the discipline comes in to play. I have seen numerous articles from “experts” who say that during a down economy you should stop try to pay down your credit cards and save your money. They say that you may need that money in the future.

Here’s my answer to that: Continue paying down your credit card debt and if you find that you need that money in the future, charge it to your card. The undisciplined money manager doesn’t let circumstances sway them from the goal.

As I write this, we’re still in the grasp of an economic downturn. Nearly 10% of our population is out of work and millions are filings for bankruptcy. The only debt I have in my life is my home. I have not felt any financial crunch from the recession and if I did lose my job, I have enough money saved that I could support my family for almost a year without working. I have taken the money that I used to pay in interest and deposited it each month. Debt equals freedom.

What was the second thing that the wealthy did to get wealthy? They were patient. Accumulating money takes time so for every dollar you save, give your self a pat on the back. Be proud of yourself. You did good today.

It was in 4 boxes, each one being a little heavier than the last. When we opened the box, what I saw was a whole lot of metal. It was thick, heavy, bulky, and the keyboard made a really loud clicking sound every time a button was pushed. I can still feel the crisp, clickety sensation of that old IBM model M keyboard.

Things have changed

Things are much different now. A computer less than a half inch thick can do many times the amount of work in a fraction of the time. Computer prices continue to fall and, according to analysts, it is only a matter of time before we see computers priced at less than $100.

Like all purchases, we are always looking to get the most for our money. If you’re in the market for a new computer, you know that there are a multitude of options, brands, and styles. How do you find what’s right for you?

Choosing the right computer

First, have no fear. It is a little known fact that many computer companies outsource the parts. Often the raw materials that are used to make it run are from the same company regardless of the brand that you buy. That’s good news because you can feel good about the fact that if you stay with a brand name computer, it is probably going to do just fine so don’t get too caught up in which of the brand names to choose.

Like all electronics, the fastest and biggest doesn’t always equal value. Unless you are doing specialized work, somewhere in the middle of the bells and whistles spectrum is going to work well for you.

Specialized needs are something different. If you are a graphic designer, architect, engineer, or have another profession that relies on large scale software, you should talk to somebody in your industry but you will most likely need a higher powered computer.

“It was so last year” is ok for the average user. Don’t pay for the latest and greatest technology. Often software is not written for the newest, most advanced computers so don’t waste your money. Let the price come down before buying. Also take a look at discontinued models for even more savings.

Don’t buy a bunch of accessories you’re not sure you need right away. You may find a printer on sale right now, but your child may end up using the computer lab exclusively for printing, and in these tight times, none of us need to be spending money on things that end up not being used.

Impulse buying is alive and well with computers. Designer laptop bags, and top of the line software can be purchased later, after you know for sure that you’re child will need it. In fact, there are free alternatives to most software in nearly every genre, you just have to know where to look.

Like anything else. Do your research. Look at consumer reports, size up the deals, and go try out the different models.

Maybe you’re one of them. If so, congratulations on getting a part of your house back! Your days of freedom are getting closer and closer but along with buying your college bound child a brand new laptop computer, you have another job to do that is far more important. You have to have, “the talk.” No, not the birds and bees talk, hopefully you already had that one. I’m talking about the money talk.

Bankruptcies are up

In fact, 1.5 million filings this year are forecasted. More and more people are finding themselves too deep in debt to get out and bankruptcy is their only option. Among the many problems, though, is that it ruins your credit. It will likely be about a decade before your credit recovers. High interest rate credit cards and the dream of owning your own home shattered are only a few of the realities that come with bankruptcy.

College is more expensive than ever

Did you know that the average college student graduates with 2 to 3 credit cards? Did you know that the rate of bankruptcy among recent college graduates is quite high? Between college debt and for some, more than $15,000 in credit card debt, it takes quite a toll on the graduate who expected to get a job right out of college but found the market to be dry.

While there may be a lot of important “talks” to have with your son or daughter before they head off to college, one of the most important ones is about money. Tell them to just say no to those free T-shirts just for signing up for a credit card. Tell them that you will gladly buy them a new T-shirt if they need one that bad.

Tell them that the best gift they can give to themselves is forward thinking. While college graduation seems like a long way off, it will only be a few years before they are walking in another graduation and if they graduate and don’t have a job lined up, the credit cards and student loans could be a problem. It’s imperative that the college student graduate with the least amount of debt possible.

Prepaid, prepaid, prepaid

As parents, consider getting your child a prepaid credit card that you can reload and track their expenses. Tell them that as long as they are responsible spenders you will finance a certain percentage of their day to day expenses.  Make a financial lesson out of their college experience.

Start early

Finally, if you’re just starting out on the journey of parenthood, start saving for your child’s college education as early as possible. Consider a 529 plan that allow you to invest for their education. Have enough money available so they can go to college with not only their tuition paid but some of their expenses. I’ve even heard of making study time a part time job. Pay them to study so many hours per day and have them show you evidence of their work.

Fight college debt as aggressively as you can. It will help your child learn about financial management while allowing them to graduate with little to no debt.

Still, I can normally get my hands on a pair of tickets a couple of times per year but there’s one thing I’ve noticed about baseball games and really, all sporting events I have attended: They cost a lot of money. Not only are the tickets expensive, but everything else is too.

Maybe you’re not looking to be rich but I bet you’re looking to either become or remain financially secure. In order to do that, you have to learn to be a cheapskate. I’m not saying that you should lie, cheat, or steal. Far from it, but what I do want you to do is not overspend. With that in mind, here are a few ideas to save money at the ballpark this year.

Take your own food

Go to the grocery store and get a bag of peanuts and throw them in your purse or pocket. If you know that they don’t check bags at the park, have your wife take a big purse and throw some soft drinks and water in there. Maybe a few packs of candy. Snack on what you brought and if you want to get that ballpark feeling, pick up something at the concessions. You can still feel good that you saved a lot of money. The 50 cent can of coke sure does beat the $3 coke, half of which is ice.

Eat before you arrive

Go out for a nice dinner before the game. Just like at a grocery store, an empty stomach will mean big dollars spent at the concession stand. That little pizza at the park isn’t much less expensive than the giant pizza that you can get elsewhere.

Don’t buy tickets online

Sometimes you can but places like Ticketmaster will charge you the full ticket price plus a convenience fee and a delivery charge. Things seem much less convenient when you’re shelling out $10 in fees on a $30 ticket. Many people work at their jobs for $10 per hour so why are those same people upset about standing in a line at the stadium to buy a ticket? Save the $10 and stand in line for 15 minutes. (Use that money for the $5 pretzel that gives you that ballpark experience)

No official hats and shirts

$20 for a hat? No reason to buy at the stadium when you could wait until the end of the season when things are half off or more. You may not look like a die-hard fan for this year but if you buy your hats and shirts at the end of this season, you’ll have everything you need for next year.

Don’t like being a penny pincher at the game? Take a little bit of time and add up how much money you’ll save by using these for ideas. It won’t take long before you see the dollars add up fast. Being a penny pincher won’t look nearly as bad once the calculations are done.

• Bank Accounts and Services
  • How to File a Consumer Complaint About a Bank
  • Protecting Yourself from Overdraft and Bounced-Check Fees
  • What You Should Know about Your Checks
  • When Is Your Check Not a Check? Electronic Check Conversion
• Consumer Credit
  • Choosing a Credit Card
  • Consumer Handbook to Credit Protection Laws
  • Your Credit Report: What it Says about You
• Leasing
  • Keys to Vehicle Leasing: A Consumer Guide
• Mortgages
  • A Consumer’s Guide to Mortgage Lock-Ins
  • A Consumer’s Guide to Mortgage Settlement Costs
  • Consumer Handbook on Adjustable-Rate Mortgages (ARM)
  • Home Mortgages: Understanding the Process and Your Right to Fair Lending
  • Interest-Only Mortgage Payments and Payment-Option ARMs–Are They for You?
  • Looking for the Best Mortgage: Shop, Compare, Negotiate
  • Online Mortgage Calculator
  • Putting Your Home on the Loan Line Is Risky Business
  • What You Should Know about Home Equity Lines of Credit
• Personal Finance
  • Budgeting & Saving
  • Building Wealth: A Beginner’s Guide to Securing Your Financial Future
  • Mymoney.gov
  • Personal Financial Education
  • Privacy Choices for Your Personal Financial Information
  • 66 Ways to Save Money

It’s as easy as asking the right questions

It’s so simple, most people don’t even think about it. Next time you’re out shopping for something, try asking if you can get it for less. What you’re shopping for really determines how you ask, so let me give you an example so simple I almost forgot to do it myself.

I was at Best Buy yesterday to pick up a pair of headphones to replace my 5-year-old ear buds that I just couldn’t bring myself to scrap, that is until they completely died. I listen to music when I run, and I run everyday, so to me, headphones are essential. I swung by Best Buy to see if they had the particular model I was looking for and they did…for $35 more than I saw them online earlier in the day. As I stood there pondering whether or not to spend a relatively large chunk of change on these brand new wireless Bluetooth headphones, with the Best Buy associate standing over my shoulder like some evil version of myself trying to convince me to do it, it suddenly dawned on me that I could just ask if they’d match the price online. I asked and the associate said “yes”. Great, $35 saved and all I had to do was ask for it.

Just ask for the discount

While my example may seem brain-dead simple, a lot of people don’t even try it, and there’s some serious money to be saved. Alternatively, you may be able to find savings even if the merchant doesn’t have a price-matching policy in place just by making an offer. You’re likely to have more success with this strategy at smaller retailers because it’s more likely that someone with some real authority is in the building at that moment. Next time you’re about to buy something, stop, tell the nearest employee that you want to purchase this [insert item here], but you think it’s a bit over what you’re looking to spend. Then ask him or her who you could speak with about working out a small discount.

It can’t hurt to try, and it may save you some cash. I’ve personally saved well over $500 in the past 6 months just by asking. Take charge of your finances and start negotiating…merchants need the sales and you need the merchandise…it’s a win-win.

Marginal Tax Rate

Your marginal tax rate is the highest rate that you are taxed. For many people, a portion of their income is taxed at one rate, and the rest is taxed at another rate. For instance, if you make right around $40,000 a year, you may pay 15% on the first $20,000 or so and 28% on anything over $20,000. So, let’s break that down:

15% of $20,000 is $3,000
28% of $20,000 is $5,600
Total tax liability is $8,600

In this case, your marginal tax rate would be 28%, the highest rate at which your income is taxed.

Average Tax Rate

The average tax rate is the actual percentage of income going to pay taxes. In the example above we can calculate average tax rate as follows:

$8,600 / $40,000 = .215 * 100 = 21.5%

So, in this example, your average tax rate is 21.5%, a bit lower than your 28% marginal rate. It’s good to know this because this represents your actual tax liability.

Why the Two Tax Rates?

In the United States, we have something called a progressive tax system, meaning, the more money you make, the higher your tax rate. If the person in the example above only made $20,000, he’d wouldn’t have had to pay the 28%…instead only the 15% would apply. Our progressive tax system taxes you at a lower rate for the first so many dollars you make, everything over that amount gets taxed at a higher rate, and so on until you reach the cap, which, for 2008, was 35%.

So, it all boils down to this, your marginal tax rate is the highest rate at which you’re taxed, but it does not represent the percentage of your income that goes toward paying taxes. That number is the average tax rate.

Incidentally, here are the 2008 tax rates for Individuals, from Edwards Jones Investments: