N is for Net-Asset Value

When you buy or sell shares of a mutual fund, their price is the fund’s net-asset value (or NAV, for short). The NAV is calculated by totaling up the value of all the mutual fund’s securities at the end of the trading day and dividing that value by the number of shares outstanding.  As the NAV rises and falls each day, you are gaining or losing value.

Mutual funds pay dividends, which almost always are reinvested in additional shares within the fund.  The NAV will be reduced by the amount of the dividend.  This doesn’t mean you lost money.  You now own more shares of the fund at a lower value.  Before the dividend was paid, you owned fewer shares of the fund at a higher price.  The math works out such that the value of your ownership in the fund is the same before and after the dividend payment. The lesson here?  Don’t track the performance of your investment by its share price.  Look at the total value of your shares.

M is for Mutual Fund

Most of the investment options within your 401(k) are mutual funds.  For the novice investor, or for someone too busy to manage their own portfolios, mutual funds are great options for IRAs and other investment accounts.

A mutual fund is a portfolio of stocks and/or bonds, whose total value can be in the billions of dollars. Investors are “pooling” their money to hire a professional manager who will make the day-to-day decisions about the securities to buy or sell.  Investors own “shares” in the portfolio, each having an undivided interest in the portfolio. With a very small investment, you can own a portfolio that offers you important diversification in various asset classes and in numerous sectors of the economy here and around the world.

Shares of mutual funds are issued and redeemed by the mutual fund itself, at a price calculated at the close of the financial markets each day. Another investment that has gained popularity is the exchange traded fund, or ETF, which trades like a stock, meaning it can be bought or sold at any time during trading hours.  ETFs are also a good way to invest small sums of money.

L is for Lease

Transportation is going to be an important part of your budget. The most budget-friendly way to get around is using public transportation (and the occasional Uber). Is this a possibility for you?  Can you move someplace closer to work and make this a reality? Ride share? How about a bike?  There are the ancillary benefits of being environmentally-friendly and being very inexpensive.

If not, then you need a car or truck. One way many Americans afford their cars and trucks is to lease them.  Leasing generally involves a smaller monthly payment and a shorter payment term than purchasing a vehicle, even if at a very low or no interest rate. Does it make sense to buy or lease?

A lease is a contract in which the leasing company agrees to purchase your vehicle back after the lease period for a guaranteed price and in a pre-agreed condition. If the car is not in that condition, e.g., more miles driven, dings, scratches, worn tires, poor mechanical condition, upholstery tears, you pay for those defects at the time you turn in your vehicle.  -Keep in mind that the leasing company needs to sell your vehicle, and anything that detracts from their ability to sell it at the price negotiated up front will have you paying them to restore it to that pre-agreed condition. If you are going to lease, take excellent care of that vehicle.  The affordability of the lease decision is not really known until the term of the lease expires!

Remember, your budget must allow for additional expenditures as gas, maintenance, insurance, and parking.

If you have to get a car or truck, consider buying a used vehicle.  Hey, maybe a car that came off a lease!  After all, you can be assured it’s in great condition.

K is Key to Success

Most people fail to dig themselves out from under the crushing weight of their debt because it’s too hard to do so. They can’t say “No!” to their spouse, partner, family, friends—even to themselves—when asked to buy this or that, to go out to dinner, to go away for the weekend, etc.

The Key to Success when it comes to living within a budget is to simply say, “No!”  You really can’t afford certain things YET.  We say “yet” because once you pay off your debt, you will have much more disposable income with which to say “Yes!” to certain things—so long as you are living within a budget. Once that time comes, you will need to shift the focus of your budget to other priorities, such as saving for retirement.  But it should leave you room to say, “Yes!” Have that as your goal.

J is for Job

You have a job that generates income for you. You might work in an office, a hospital, a factory, a school, or you’re on the road. The job’s income is important to you; and thus, the job is important.

You might also have the job of being a mother or a father, a spouse or a partner. People depend on you for much more than just a paycheck. You have a responsibility to yourself as well, single or otherwise.

You have a non-income job as well: getting yourself on track to becoming financially healthy.  No one else is going to do this job for you.  As many people as there are in your life who love you, the one person who can do this job is you.

Do what you can to invest in your career and ensure the future of your position.  Learn new skills, grow your network, check in with your company to see how else you can add value.  You’re aiming for job security and a raise to lighten your debt burden.

I is for Investing

Yes, you will have an investment account! How should you invest it?

Your choice is either in cash, stocks, bonds or any combination thereof.

You probably are familiar with cash investments, both money market funds and certificates of deposit. You may be less familiar with stocks and bonds. We have some great videos on stocks and bonds. Please click here to view them.