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5 C'S OF CREDIT

Definition

The 5 C's of Credit is a system that lendors use to determine your creditworthiness.  
The 5 C's are:

Character
Capacity
Capital
Collateral
Conditions


Why It's Important

Having all of your "C's" in great shape increase your chances of getting loans and/or better interest rates.  

Character is your credit history.  How have you treated other lendors in the past?  Did you pay on time?  Did you pay at all?

Capacity is your ability to pay back the loan.  What is your debt to income ratio?  Are you already over your head?

Capital can also be called your down payment.  Do you have enough of a down payment to lower the potential risk to the lendor?

Collateral is what you are willing to give up to ensure the debt is paid.  When you get a home loan, the collateral is the house.  When you get a car loan, the collateral is the car.  These are also called secured loans.

Conditions are the terms of the loan.  They...

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401K

Definition

A 401K is a retirement plan offered by most companies to help you save and invest for the future.

Why It's Important

I hope that everyone reading this is contributing to their 401K at work if they have one available (especially if the company matches).  There are two types of 401Ks, Roth and Traditional.  Roth 401Ks allow you to contribute funds post tax but, when you withdraw, money is tax-free.  A traditional 401K allows you to contribute money pre-tax but when you withdraw all funds are taxed.  

So, here is how to pick which one you should invest in.  If you are early in your career and in a low tax bracket, you should pick a Roth.  Why?  Because the money is taxed at the lower rate instead of being taxed higher later when you make more money.  If you are seemingly at the height of your earning years, you should contribute to a traditional because the money is not being taxed as it's going in, it is going to be taxed as it...

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MY 2019 FINANCIAL BENCHMARKS AND RESOLUTIONS

Uncategorized Jan 01, 2019

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Wow!  Sitting down with these numbers is both empowering and depressing.  LOL!  I mean the massive amount of debt that I have taken on between school, cars, and business expenses, it's amazing!  I use this blog for motivation and accountability so an important part of that is transparency.  In this post, I will break down all of my debt, investments, and bank balances so I can use it as my baseline for progress throughout the year.  Well, without further ado, here we go...

I wanted to talk about this first because it is the most daunting for me.  I had some major victories but I also have a looong way to go.  One student loan was paid off in 2018 (First Student Loan Paid).  I also downgraded my car to take care of a huge chunk debt (She's Gone).  I started with a total of $107,454.83 and I am currently at $67,604.23 left to pay off.  That means I paid off $39,850.60 so far!  Here is the...

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WEDNESDAY WORD OF THE WEEK RECAP

Uncategorized Dec 31, 2018

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It's the end of the year and if you are subscribed to my newsletter, you know that I send a financial word of the week every Wednesday!  It is a financial term that you should know and will be helpful on your financial journey.  The whole purpose of my blog is to educate and improve financial literacy so that goal is always at the forefront.  With that said, I wanted to do a recap of all 2018 WWW terms (in case you missed it).  If you want to subscribe, just click here and type in your email at the top.  Ready?  Let's Go...

 

Federal Reserve
Definition
The Federal Reserve is the central bank of the U.S.  It conducts monetary policy (print more money, raise interest rates, etc.), regulates banks, makes sure the financial system remains stable, and provides financial services to U.S. banks, foreign governments and the public.
Why It's Important
The Federal Reserve directly affects the interest rates you pay on your debt and the interest...

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BEAR MARKET

Definition

A bear market is when stocks see a 20 percent decline or more from a recent high.   

Why It's Important

The S&P 500 officially hit bear market status on Monday, dropping 20 percent from its 52-week high. Historically, these periods last about 13 months on average.  So, with that being said, brace yourself for more blood shed in the markets.  The good news is if you have been eyeing a stock for a while, this period may be the perfect time to buy, buy, buy!  If you are worried about losing money in your retirement and you have decades left before it's time to retire, you will be fine!  Usually, the market bounces back and when it does, it typically goes higher than it previously did.  Sit back and enjoy the ride!

Bear Market is mot to be confused with Bull Market, they are different types of markets.


P.S. This is the last Wednesday Word of the Week for the year.  It is also the last one in my stock market series! ...

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PENNY STOCKS

Definition

Penny stocks are stocks that are trading below $5.00 a share. They are highly volatile. 

Why It's Important

Investor beware!  Penny stocks have the potential to make investors a lot of money they also expose investors to a lot of risk.  They key to penny stocks is volume.  Making $0.10 on a single stock does not seem like a lot but when you multiply it by hundreds or even thousands, it adds up!  On the other side, losing $0.10 on a single stock does not seem like much until you multiply by hundreds or thousands.  With that said, be aware of what you are getting into when dabbling in these types of companies and trades.  Happy trading!

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I AM BACK

Uncategorized Dec 16, 2018

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Has it really been three months since my last post?  Man, time flies!  I had to step away because my final semester got really crazy.  I felt like I was on the verge of failing and I kept thinking to myself, I did not come 2 years to not graduate on time.  Well, the good news is... I PASSED!  So, although it was hard for me to step away from the baby I built up over the past year, it was worth it!  I am now officially an MBA, and I am so proud of myself for it.  The next question is what next?  What do you do with a newly minted MBA?  When I started my graduate school journey, I was in a different mind space.  I wanted to work my way up the corporate ladder and become a VP of HR.  Now, HR is no longer my focus, and I don't really have the desire to work for anyone else in corporate America.  So, now what?

 

I tossed a few ideas around like continuing on to get my Ph.D. so I can be a college professor.  I feel...

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MARGIN

Definition

Margin is when brokers (Charles Schwab, TD Ameritrade, etc.) lend money to investors to make trades (think of credit) so they can leverage their assets to make more money.

Why It's Important

Investor beware!  Although using a margin account has the ability to make you more money, it is very risky.  If you are trading on margin and the investments drop, you still owe that money to the brokerage.  In addition, brokers can initiate a "margin call" where they demand some, if not all, of the money they lent to you right then and there.  They can immediately sell your assets for the debt.  It is best to just use a cash account especially if you are a new investor. 

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DIVIDEND YIELD

Definition

The dividend yield represents the ratio between the stock price paid and the dividend paid. A stock trading at $100 per share, with a dividend that amounts to $5 per year, you would divide the $5 by $100 and turn it into a percentage. In this case, the yield would be 5%.


Why It's Important

You will typically find the dividend yield for a stock when trying to research whether it is a good investment.  Remember, not all stocks pay dividends!  The example below is from Yahoo Finance.  The current dividend yield for GE is 0.50%.  This is extremely low as GE has been having a tough year.  In order for companies to pay dividends, they have to be doing well enough to distribute extra funds.  Always look at the financial statements before you dive into an investment. (Remember, the higher the dividend the better but the statements must also show positive signs) 

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ARBITRAGE

Definition

Arbitrage is the simultaneous purchase and sell of an asset to profit from the imbalance in price.  Using this strategy, takes advantage of price inefficiencies in the market.

Why It's Important

Arbitrage opportunities provide a way to collect high returns with little to no cost to you.  This is how it works:

Let's say a stock is trading on the NYSE (New York Stock Exchange) for $50 a share.  Simultaneously, the same exact stock is trading on the SSE (Shanghai Stock Exchange) at $50.30 per share.  An arbitrage opportunity exists because you can buy on NYSE and turn around and sell on SSE making a profit of $0.30 a share.   

or

You buy a big name stock (like Apple, Alphabet, or Amazon).  In order to create an arbitrage opportunity, you short the S&P 500 Index (SPY).  This way if the stock gains, you win but also if the stock goes down you win.  Big name stocks weigh very heavily on the market and if the stock goes down the...

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