Personal Finance Resources

Continuing on my article “Small Home Based Side Business Idea Part I“, I would like to demonstrate some ways to convert your newly acquired inventory to cash. Ok, so once you have cleaned out the unit, and concluded your business with the storage unit, then there are four ways I have for you to make money on the unit. These are options that have various time line for recapturing your investment, but the general rule of thumb is that if you can wait a little longer to get your money, you should be able to make more of it. So let’s look at some of these techniques:

1. Running a Garage Sale
   Quick, simple. This is the easiest way to turn around your money quickly. If you price the items low, and focus on larger, more expensive items selling, you should be able to sell most of the unit on a typical Saturday. One Saturday that I did this, I was able to do effectively triple my money spent, and I still had items left over to be able to sell elsewhere.
2. Using Ebay
   If you want to make a little more money, and take a little extra time, you can utilize the internet and local advertising to sell the items. Getting an account with Ebay and listing the items for sale through its online auction system can be a great way to drive up the price you get on a particular item.
3. Utilizing Craig’s List and Local Papers
   Craig’s list and local papers can give you good exposure at a low or no cost base. I would limit my use of these services to larger items that you can get a good price for. Things like lawn mowers, furniture, etc. would be a good fit for these items. Craig’s list is a free service and is available for many, many areas across the country. Check with your local paper for advertising costs and dates.
4. Pawning the Items
   If all else fails, consider just pawning the items at your local pawn shop. This is a great way to sharpen your negotiating skills, as pawn shops are expert negotiators. The easiest way to learn - watch what they do, and mimic it. Always been pessimistic and reluctant to sell your items, as you worst case scenario is going across the street and selling the items to the competition. “No” is the best negotiating word.

So if you take these methods and put them into practice, you should be looking at a few hundred dollars in additional income each month. These auctions happen all the time, especially in bigger cities, thereby providing you a continual stream of inventory to sell. And if you hold a garage sale continually, you should be able to build up a client base, that will check out your garage sale week in and week out. So go out there and make some money, and let me know how you do.

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As I have mentioned in the past that there are only two ways to have more money, making money and saving money. So today I want to give you an idea for a small home based side business you can implement quickly, easily and cheaply. So the object of today’s lesson is to supplement your income with a side business that only takes a small amount of time each week, very little overhead and investment, and that can produce a few hundred dollars (perhaps) per month. I have personally used this system to generate some extra cash on the side.

Storage Auction Sales

Yep, that’s right. It’s not selling oxygen and water on Mars, it’s simple. Buy low, sell high. Easy huh? Well that is what everyone will lead you to believe. But this system actually is pretty easy. Are you going to have to work? Yes. Will it be worth it? Yes. Here’s the idea:

When a person rents a storage unit, and then later cannot pay for it, many times they will abandon their belongings. When this happens, the storage unit will advertise an auction of the delinquent customer’s items to cover back rent and other fees on the unit. They are required to advertise the auction time and place in the local newspaper, generally under the “Notices and Legal” section. This is where you come in.

All you need to do is show up for the auction with cash money, and bid on the unit. I recommend having a couple hundred bucks on you, just in case there are some really good auctions. From my experience, the majority of the time the storage business wants to sell the entire unit all at once. There have been times when they have just auctioned off individual items, but they usually want to sell the whole unit of belongings, as it is just much easier for them to do it that way.

A Quick Rundown of the Auction Day

On the day of the auction, make sure to show up a few minutes early. Talk to the clerk about the auction, and find out what their procedures are for administering the sale. Often, you will be allowed to “peak” into the contents of the unit, but not allowed to go in and thumb through individual items. But just being able to look in should give you a pretty good indication of the type of person/stuff they might have in the unit. Then determine your top price for purchasing the unit. Buy the unit, and get your truck ready to clean it out. Usually the storage unit will give you a deadline to get the unit cleaned out.

Continue to Small Home Based Side Business Part II…

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In this post, I would like to outline a question that I received via email. Someone very close to my demographic wrote back and forth with me, and basically wanted to know how to allocate a sum of money they received from an inheritance. The basics of the request are as follows:

Hi there, was wondering if you could perhaps give me some advice.

My mother passed away in 2005, leaving me with both a 401k inheritance and life insurance. However, the passing was unexpected as I now have a lot of student loan debt that she would have helped me pay back. Regardless, I have come up with an idea that I would like to assure is not a bad move.

Me: 21
Assets: 401k ($125,000) and remaining life insurance ($80,000)
Debts: $90,000 student loans ($4,000 of it Federal), $4,500 credit card

I was looking to not even touch the 401k and begin adding to it once I began my career as a Police Officer in July. I wanted to use the life insurance to pay off the credit cards and federal loans in its entirety, and bring down the private one to $45,000, leaving me with a $15k liquid emergency fund/savings (after living expenses for the remainder of my time in college) This would then be my only debt, manageable at about $300 or so a month, maybe less once I consolidate. I just wanted some input on if this is a good idea, especially with the loan-pay down. Seeing as how the gov loans have a lower rate, I’m not sure if I should use the $4,000 directly in addition to the private pay down while keeping the gov loans open. Please let me know what you think, thank you.

Credit Card: Just one, at a rate of just under 10% (9.8), with a 5k limit (so practically maxed out)
Federal: Not completely positive since they are not due for repayment just yet, but approx. 5.6 since I last checked
Private: Has hovered between 7.6-8% (Since our economy is in shambles, it has been at the lower end for the past several months)

As of now, all student loans are on a 20 year plan. If I choose to consolidate the privates for a lower rate, I have the option of jumping to 30 year.

I would like to begin by saying that this gentlemen has a level head and some good ideas about how to allocate the funds. But I would like to elaborate on the best financial way to attack this issue. Now, if you have been following this personal finance blog, you are aware of my staunch hatred for debt of any kind. However, in some circumstances, carrying some debt can be more beneficial than paying it off. But let’s dive in and break this situation down:

Regarding the 401k Money

I believe that keeping the money in the retirement account is indeed the best use of this money. Without question, breaking into this money would have serious consequences, mainly Uncle Sam taking a gigantic bite out of the money. Plus, with being so young (age 21) and having 38.5 years to go before retirement (assuming he retires at age 59 1/2), and assuming he could average 8% per year in mutual funds, the $125,000 would grow to $2,419,494.28 without any additional payments into the account. That is a pretty solid retirement wouldn’t you say?

So bottom line, I would definitely keep the 401k money in the 401k account. Let it grow tax deferred (or tax free, if it is a Roth IRA).

Allocating the Life Insurance Money

On this point, I would have to recommend a slightly different strategy than the one he outlined in his email. Starting with the easiest decision, I would pay off in its entirety the credit card debt. Beating 10% interest on the stock market or any other kind of moderately risked asset is going to be hard to consistently do. So with regard to the credit card balance, yes, pay it off.

With regard to the federal and private students loans, I have a different suggestion. I believe that the rates you are paying on these loans are too high. I am fairly confident that you can obtain a consolidation loan to get all of your student loans condensed into a single loan, and you can probably get the interest rate down considerably. I consolidated my student loans back in 2003, and have since paid them off completely. At that time, I was able to consolidate at a rate of 3.5%. Now I understand that the market today is a little different, but let me give you a couple of approaches on how to get the best deal on a consolidation loan.

Read the rest of this entry »

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I’m going to try and keep this short today, but if you are thinking of investing in certificate of deposits, think again. Though safe, these investments yield little to nothing in interest. Even if you can get 5% on a certificate of deposit (which is unlikely in today’s market), you will still only be doing slightly better than the current inflation rate. Now some of you may be thinking this:

But Jeffry, not only is a certificate of deposit safe, but I can borrow against it when I need some money.

Problems with Investing in Certificate of Deposits

Hmm…borrow your own money? That sounds like a very smart idea (not). You see, savings and commercial banks use certificate of deposits for one thing - to raise money for use in lending. So they take your money, pay you a low rate of interest, then turn around and lend that money to someone else at much higher rate of interest. Let’s take the example posed above, if you were to get 5% interest on your certificate of deposit, and then took out a personal loan against it, you will probably end up paying somewhere around 6-8%. You will be losing 1-3% on your money. Not a very smart idea from an investment point of view.

Another problem with investing in certificate of deposits is that you agree to tie up your money for a certain period of time. Further, to get a better rate of interest, you have to agree to tie up your money for much longer periods of time. If you break a certificate of deposit early, you will forfeit a substantial amount of your earnings in early termination fees.

When Investing in Certificate of Deposits Make Sense

In the example above, I talked about borrowing from your certificate of deposit. Normally not a good idea, however, if you are trying to build up good credit or restore your credit ratings, then this is a good short term solution for doing so. The loan is easy to get, and if you make your payments on time, you can boost your credit in a relatively short period of time.

If you are in retirement and want to maintain low risk on your money, but can afford to tie it up in a certificate of deposit for a while, then it makes sense.

Another viable use of investing in certificate of deposits is when you need a specific loan like an auto loan. In almost every case, the bank is going to want collateral for issuing the car loan, and a certificate of deposit is an excellent way to fulfill that requirement.

So my overall take is this - if you are looking to really make some money, steer away from certificate of deposits and focus more on better earners, like bond and mutual funds, and real estate investments. But if you are looking to build credit or apply for particular types of loans, then investing in certificate of deposits can be a vehicle to get you there.

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There are only two ways to increase your net finances, saving money and making money. I want to give you a few simple tips on both fronts. Now, you may have to adapt your thinking some, as getting ahead means that you have to do things differently than the people around you. You have to learn that a big part of saving money is not finding deals, it is negotiation. You see we have been conditioned in America to accept the price that has been offered by the companies we want to do business with. But in many cases, if you would apply a little negotiation, you would be amazed at the discounted merchandise you can purchase. With that in mind, let’s look at some of these personal finance tips:

1. Doctor’s Bills
   If you don’t know, I used to work for a hospital. While I was there I learned that the yearly collection rate of that hospital was somewhere around 46-48 cents on the dollar. That means that the hospital got a little less than 50% on average for every single bill that was sent out. This is the trend in the health care industry. So what does that mean for you? Basically, it means that you can negotiate with your doctor(s) to drop the price of your care. You don’t have to be bullish about it, just simply call them and ask them to lower their prices for you. Tell them you know the average collection rate, and you are convinced that another doctor would discount their prices if he didn’t want to.
2. Buy Used Cars, not New Ones
   I have preached this before, but it is a fact that new cars depreciate some 25-30% in their first year. So instead of looking at a brand new Acura Integra (I drive an older one of these by the way, and they are great cars), get you a 5 or 10 year Honda Civic, or something like that. Honda and Toyota are some of the most reliable cars on the road these, and with increasing gas prices, their high gas mileage comes in handy.
3. Donate to Charity
   This one is close to my heart. I believe in donating to the local church, and supporting foreign missionaries through the local church as well. But not only does it bring a benefit to other people, you are also able to take 100% of the donations as a tax deduction. Now, most people know this, but I will throw in a little twist. If you own stock, you can donate that to the church or other organization. This way, you avoid the taxes paid on any earnings the stock may have gained, and you get to take the full stock price as your deduction.
4. Negotiate with Creditors
   Many credit card companies have ridiculous fees like annual fees, minimum finance charges, etc. If you negotiate with them, often you can relieve these fees. I had a credit card once that I didn’t think had an annual fee, but they tried to charge it. When I saw it on my bill, I called them, talked to them about it, and they removed the fee. You can negotiate.
5. Buy an Automatic Thermostat
   There are too many things to worry about these days. Try to put some of this stuff on autopilot. With a programmable thermostat, you can set the temperatures during the day and at night to dramatically lower the costs of heating and cooling. With these units only costing $100-150, it is a very smart decision. One of these units could pay for itself in a matter of a couple of months.

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“How do you feel about futures options? Have you dabbled in that? I find future to be much more predictable in cyclical studies…”

To answer questions, I have done a few trades in futures. I am using the term futures to define any expiration beyond 4 months. My largest problem with futures is that it seems that I am paying a much higher premium for that possible volatility.

That is the long answer to say that I do not spend much time in futures, and here is why.

If I think that a stock is going to go up or down in the next two months, then I will buy an option (either call or put) to profit from that stock. If I think that a stock has the potential for the price to go up, but I don’t think it is going to happen for about another 6 months, then I will wait for about 4 months and play it as a short term option. Does this limit my opportunities of making a profit? YES; however, there are many short term trades out there that are good enough for me.
Like I said above, my large problem with futures, is that I feel that I am paying a high premium for the time value of that option. The other problem that I have is that it tends to tie up some of my capital for extended periods of time as if I had purchased a stock.

There is only a few reasons that I can think of to invest in futures. The first of these is if you think that a stock will go up a significant amount but in small increments (ie. a stock currently valued at $40 that you think is going to go to $55 by next December. You think that it is going to gain $1 to $1.50 a month. The 12 month out $50 call is probably going to cost you around $3.00 depending on the stock.) In that case you could make money on a futures purchase.

The other time that I would consider playing a future is in the tech industry where the release of some new technology could make their stock go way up, or if a competitor released the new technology first, their stock could go way down. In this case, I would look to buy a futures strangle.

If you are unsure what I strangle is, stay tuned, and I will get to them in my progression of options strategies. Bottom line, there is money to be made either way, I just prefer the short term because it costs less, does not tie up my capital, and I can wait and make the same trade later usually without paying the high premium. Good luck in the strategy that you choose.

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In my last options posting, I talked about call spreads. Put spreads are remarkably similar except that you are expecting a downturn in that underlying security. Put spreads, like call spreads, minimize the risk to the investor, because they allow your initial investment to be reduced. Note here that it is important to always use the same expiration date on both the put that you buy to open and the put that you sell to open.
So the put spread is buying a put close to the money (or in the money) and selling a put further away from the money.
For example:
I have been watching another stock that is currently trading at $82.65, up a $1.50 on Friday. It is somewhat near the high end of it’s 52 week high/low. I am considering buying a put spread on this stock. The JAN $80 put is selling for $2.10. The JAN $75 put is selling for $0.80. So if I were to buy into this trade, it would cost me a total of $1.30 per share. So for my 10 contracts, it would cost me $2,100 ($2.10 x 100 shares per contract x 10 contracts) for the JAN $80s. I would then receive $800 back ($0.80 x 100 x 10) for the JAN $75s. So the total cost to enter the trade would be $2,100 - $800 for a grand total of $1,300 plus commissions. This is also my total risk. In this case as with buying call spreads, the maximum that I can lose is the amount that I invest.
If the stock goes to $77 at expiration:
my $80 put is worth $3 per share x 100 shares x 10 contracts for a total of $3,000. The $75 put expires worthless. You might be asking why the $80 put is worth $3? Again a put allows me to sell the stock at a certain price on or before a certain date. So what is the ability to sell a stock at $80 worth if I can buy the stock on the market at $77? Three dollars. So all in all, I sell the JAN $80s and buy back the JAN $75 for the $3,000. I subtract the $1,300 that I paid to get into the trade, and I am now at my profit of $1,700.
If the stock goes to $72 at expiration:
my $80 put is worth $8,000. I could sell the put for that. However, the put that I sold initially, JAN $75, is now worth $3,000. So my total take is $5,000 - $1,300 to get into the trade, for my profit of $3,700.
If the stock goes to $80 or higher at expiration:
Both puts expire worthless, and I lose my entire $1,300.
So again the bottom line is, I am willing to risk up to $1.50 to make $3.50. In this case, the trade is even better because I am only risking $1.30 to possibly make $3.70.
Why I Like Spreads?
The biggest reason that I recommend spreads is because it allows smart investors like me to invest in closer to the money markets for a reduced amount. The underlying stock does not have to move as much in order for me to make a profit, and if the stock moves the other way, I lose less money.
The Risks?
The stock moving in the other direction and potentially higher commission rates because of more contracts being traded are the two that come to mind. For me, the upsides are better than the downsides, and that is why I trade them.
What is Left?
I could type an article every day for a year and would not cover all there is to know about options, picking stock candidates, and everything else involved. Stay tuned; I do plan on getting into some trades that will make money as long as the stock moves in either direction. If these topics interest you, sign up to receive Jeffry’s RSS feed. Until next time…

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Last week, our Church went on a missions trip to Monterrey, Mexico. This trip was a special blessing for me, as our Pastor had me preach on Tuesday night, and it was my first time to preach. The people in those Churches have a close relationship with each other and God. And seeing some of the conditions they live in, it really speaks of their faith and love for God.

But I just want to give a big thanks to Nicholas, as he took over for me while I was gone, and brought some very different topical financial help to Personal Finance Resources. Nicholas is a rouge stock market and options investor, and makes (typically) between 15-40% profit per year (currently he is investing fairly conservatively) on his investments. So I really thought that he was an excellent fill-in during my absence.

At Personal Finance Resources, we really are striving to give you tips and information that have been tested successfully by the authors delivering the material. So when you are looking at an article published here, understand that the context is that of real people actually doing the particular strategy outlined. There have been thousands of dollars and years of time invested in the techniques covered in this blog, so sign up for the RSS feed so that you can get this information automatically and free of cost (these strategies cost thousands of dollars at seminars and other educational institutions).

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So I mentioned call spreads a few times in my last few posts. What are those you might be asking? As I mentioned in my earlier posting titled Options are a Viable Option Right Now, options were created to reduce risk. Call spreads and put spreads (sometimes called vertical spreads) are the next step.
When options are referred to, they are referred to in one of a couple ways. They are either “in the money” or “out of the money.” As you can probably guess, “in the money” means that the stock has intrinsic or real value (i.e. a $25 call when the underlying stock’s market price is $28.) An “out of the money” derives its’ only value from the time value (i.e. a $50 call when the underlying stock is valued at $46.)
We have talked about buying calls and puts. Today we will move into the category of both buying and selling calls of different strike prices at the same time. So the call spread is buying a call close to the money and selling a call further away.
For example:
A stock is currently valued at $25.92. The JAN $27.50 call price is priced at $1.30 while the JAN $30 call is valued at $0.55.
Wait a minute….I thought you said that options are in $5 increments only? Mostly true, most stocks offer $2.50 increments up to $30 or $40.
So back to the example, I will buy 10 contracts of the JAN $27.50 for $1.30 and sell 10 contracts of the JAN $30 for $0.55 at the same time. So purchasing the call would cost me 10 contracts x 100 shares per contract x $1.30 for each for a total of $1,300. At the same time, since I am selling the JAN $30, I will receive 10 x 100 x $0.55 for a total of $550. So I pay $1,300 and receive $550 for a total cost of entering the trade of $750.
So let’s say the stock goes up to $30 at expiration, my $27.50 calls are now worth $2.50 and the $30 calls that I sold are worth nothing. I sell the $27.50 calls for $2.50 a piece for a total of $2,500, subtract my initial investment of $750 for a total profit of $1,750. That is a 233% return on my money. Not bad.
Now let’s say the stock goes to $35 at expiration, my $27.50 call is now worth $7.50 each, but my $30 call that I sold is worth $5.00 a piece. So I sell my $27.50 calls for the $7,500 and re-buy my $30 calls for $5,000 for a difference of $2,500. I then subtract the $750 that it cost to enter the trade for the same return.
If the stock stays at or below $27.50, then both the calls I bought and sold expire worthless, and I lose my $750.
If the stock expires at $28.25,then my $27.50 call is now worth $0.75. So after I sell my $27.50 calls for $750, I do not make or lose money on the trade.
The Pros: If the stock goes in the direction that I think it will go, I make a great return on investment. My bottom line on a $2.50 call spread (what I explained above) is that I will risk $0.75 to make $1.75. On a $5.00 call spread (say buying the $25 and selling the $30,) I will risk $1.50 to make $3.50 if the stock goes the way I want it too. The other big pro, I limit my risk by recouping some of my initial investment.
The Con: If the stock goes a long way in the direction I think it will, I limit my upside to either $1.75 or $3.50 depending on whether I buy a $2.50 or $5.00 call spread.
Again, these are more advanced options investing. Many brokerage firms will not allow beginners to do these trades because they think they are too risky. Why? They do not understand the nature or original reason for options. The trades are also sometimes hard to find, but they too are out there. Good Luck!

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So, if there is a way to make money when the market goes up, there must be a way to make money when the market is going down. The way for me is puts. As I defined earlier, a put is nothing more than buy the option to put a stock to someone at a certain price on or before a certain date.
So if we go back to our portfolio that we created, we can again see the big movers. Now looking at the chart of a volatile stock, we might find that it is at historical highs or on the high side of its’ normal range. I used to see this and say, well maybe I can buy into that one in a few months if it comes down.
NOT ANYMORE!! Now I look at it and say, this is a potential candidate for buying a put option on it. I again generally stay within the 1 1/2 to 2 month time frame. This gives that stock the time to have that downward move that I am expecting. If I think that it is going to take longer than that to drop, then I will put it on my watch list and wait for the right time. On to a new example.

I have been watching a stock for a while now that is currently at $35.63. The 52 week high is $38 and the low is $12. So I am checking the chart and it seems that it is in its high cycle. After looking through the information available online, I believe that the price will fall to around the $28 in the next 6-8 weeks. So I am looking at the Jan 08 expiration date at the $30 put. They are trading today for $1.15. I am going to wait until Monday or Tuesday of next week and will probably buy 10 of those contracts. I am guessing that the price will drop by then to approximately $0.95. So my initial investment will be $950 ($0.95 x 100shares per contract x 10 contracts) plus commission.
If the stock goes up or stays the same, I lose my investment. However, if the stock goes down to $28 like I think it will, that option will be worth at least $2. When I sell those 10 contracts for $2, it will be worth $2,000 ($2 x 1000shares).

I will continue posting a few more articles on this topic in the near future. Notice that I will not give out recommendations or stocks that I trade. This is purely because I do not believe in giving or taking tips. If I give a tip and one of my friends executes that and it loses money, I stand the risk of him being upset. However, all of the examples that I use are real stocks, real prices and many of them are trades that I am executing in my portfolio. Good luck on all your investments.

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