Personal Finance:

On this page:	Other pages:
* intro * links * mortgage	* repair credit

 

Intro

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Here is a simple plan for an average american:
1. Get out of debt - www.debtfree.com , repair credit, and accumulate 6 months cash reserve
2. Invest maximum allowed into retirement plans:
  - From your employer ( 401(K) ) - www.401k.com/401k/pfp/rp/fringe.htm
  - Individually (IRA, Roth IRA ) - www.strongfunds.com/strong/Retirement98/ind/products/roth.htm
  - From your small business (Simple IRA, SEP IRA, Keogh, etc.)
     - www.newenglandfunds.com/smallbusiness/index.html
3a. Buy a house
3b. Open account with one of the on-line brokerage firms and invest in index funds
3c. Other investments - other funds, stocks, bonds, real estate, annuities, etc.

Recommended reading:
 

* The Millionaire Next Door : The Surprising Secrets of America's Wealthy by Thomas J. Stanley, William D. Danko * Rich Dad, Poor Dad : What the Rich Teach Their Kids About Money That the Poor & Middle Class Do Not!  by Robert T. Kiyosaki, Sharon L. Lechter (also - www.richdad.com/ - ) * The Gorilla Game : Picking Winners in High Technology by Geoffrey A. Moore, Paul Johnson, Tom Kippola * Investing - read here: www.moneyandmore.net * http://users.erols.com/scambos/ - the article describes that one can legally live in USA without paying taxes.

 

Links

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Starting point:
* www.edreyfus.com/qsys/web/headers/menu - many links
* http://www.guidenet.com/market.shtml -
* marketperform.com- good site, Offers the First Investment Tool to Measure Performance of Financial Institutions' Recommendations. See which firms' recommendations yield the highest returns and get notified when they release their next calls.
* www.fool.com - The Motley Fool
* quote.yahoo.com - good to start and plan portfolio
* cbs.marketwatch.com- original news and comments
http://www.smartmoney.com/

* www.dailystocks.com - links to data and analytical tools
* www.bigcharts.com - charts

* www.investor.msn.com - useful, but costs $9.95/mo
* www.marketplayer.com - poweful screening
* www.quicken.com - stock search - simple and free
* www.freeedgar.com - offers all SEC filings, can be downloaded
* www.bigcapgrowth.com - large cap stocks to buy

Mutual Funds:
* www.findafund.com
* cgi.netscape.com/cgi-bin/rlcgi.cgi?URL=www.findafund.com
* www.indexfundsonline.com
* cgi.netscape.com/cgi-bin/rlcgi.cgi?URL=www.indexfundsonline.com

yahoo >> Business and Economy (Finance) > Mutual funds > Reference and Guides

News and services:
* Netscape Personal Finance
* Dreyfus Brokerage Services
* Quote.com
* Financial Times
* The Economist
* Barron's Online
* News Alert
* The Wall Street Journal
* Stock Smart

* Forbes
* DLJdirect - Home
* E*TRADE - Home
* www.nasdaqtrader.com/dynamic/
* Nasdaq.com
* Nimi

* Nasdaq Newsroom
* Nasd Regulation
* Investor's Business Daily - Financial Web Site
* Fox Market Wire
* Investornet
* Table Of Contents

* www.isld.com/ -  http://www.josh.com - Island
* www.mtrader.com/
* www.ecinvestor.com/ - Piper Jaffray Inc
* www.gomez.com - Review of Online Brokers

 

Mortgage

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p - principal, the initial amount of the loan ($400,000)
y - years (30)
n - number of months (12 * y = 360)
i - the annual interest rate ( 7%)
j - monthly interest in decimal form = 0.01 * i / 12     ( 0.005833333)
t - total cumulative interest = (1+j)^n   ( ~8.1165)
m - monthly payment = p*j*t / (t-1)
For our example: m = $2,661.21    (=$400,000 * 0.005833333 * 8.116497475 / 7.116497475)
a - total amount of mortgage = m*n ~ $960,000

Theory:
Let's calculate the balance during the payment time.
We start with the principal amount. Then we have 2 forces: monthly payments reduce the amount by "m" every month.  And between the payments the amount grows - multiply by (1+j).
To make calculations we will start from the very last payment (#360) and go back in time. We will use a coefficient f = 1/(1+j), which is ~1 (~0.996 in our example).
 

Payment #	r- remaining balance after payment	b - balance before payment	principle paid b - bnext	interest paid m-pr.paid
--	0	0	0	0
360	0	m	m	0
359	mf	r+m = mf+m	mf	m(1-f)
358	(mf+m)f = mf^2 + mf	r+m = mf^2 + mf +m	mf^2	m(1-f^2)
etc	...	...	...	...
1	mf^359 + mf^358 +...+mf^2 + mf	r+m = mf^359 + mf^358 +...+mf^2 + mf + m	mf^359	m(1-f^359)

so original principal p=mf^359 + mf^358 +...+mf^2 + mf + m.

This is a simple geometric progression. Let's calculate it:

pf = (mf^359 + mf^358 +...+mf^2 + mf + m) f = mf^360 + mf^359 +...+mf^3 + mf^2 + mf

pf - p = (most of stuff cancel each other) = mf^360 - m

so:
   m = p (1-f) / (1-f^360)

note that:
    1-f = 1-1/(1+j) = j/1+j  ~  j
    f^360 = 1/t

thus:   m  = pjt/(t-1)      - which is the formula we used above.

Amortization table:
As you making payments - your remaining principle balance decreases by "m", but then it grows because of interest.
So the actual amount of payment which went towards principle is (b - b_next) - see the table.

See more in the book: The Vest Pocket Real Estate Advisor by Martin Miles (Prentice Hall)

 

Mortgage + Investment

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First approach:
Pay off your mortgage first - then start investing. Never take a 30 year mortgage. Take 15-years and the one, where you can accelerate payments (thus actually paying it in 5 years). Use we-weekly payments plan to further decrease the amount of interest you are paying.

Second Approach:
Instead of putting all your cash into paying off your house, you take a low interest mortgage - and put most of your cash into investments.  This approach has the following advantages:
  - investment can add to your networth at a higher rate than mortgage substract
  - all mortgage interest is tax-deductable.
  - plus you have more flexibility with your cash

Math models show that 2nd approach is better. In reality it depends how you manage your money.

One thing for sure - you should NOT pay PMI (Private Mortgage Insurance). If your downpayment is too low (usually less than 20%) - you will be asked to pay PMI, which is very high extra payment. So you better make a 20-25% downpayment. If you don't have money - get a short-term loan for this amount.  It will be at higher interest than mortgage - still it is much better than pay PMI.
 

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* www.wavemetrics.com/

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