A Brief History of the Subprime Mess and Mortgages

I was recently asked what "this whole subprime thing" is all about. It dawned on me as I was telling a truncated version of the debacle that if more people knew just a bit more about mortgages before buying their now-foreclosed homes, this whole credit meltdown might have been avoided. (Blame also goes to the banks, for okaying people who were unqualified to take on such large loans, but that's beside the point.)

And so, before I delve into the mysterious world of mortgages, here's a brief history of the subprime mess, in 30 seconds or less:

It all began in the heyday of the early 2000s, when RAZR flip phones were the latest high tech gadgets, Britney was beginning her descent into the maelstrom and 9/11 reminded many that safety was an illusion. During this time, swarms of Americans took advantage of broker-approved "easy" mortgages that lacked the stringent requirements of mortgages of yore. People banked on the hope that future job raises would occur to cushion monthly mortgage payments and U.S. employment rates would continue to prosper.

But as we all know, when it comes to matters of money, banking on faith and hope alone is never enough! You know how credit card companies try to rope you in with deals screaming "0% APR for 6 months!*" and after closer inspection of the asterisk, you see after six months that your APR balloons up to 19% per month? Well the same kind of thing happened with many mortgages. Lower initial interest rates began to soar while unemployment began to unexpectedly rise. People began to default on their loans, either by losing their jobs or lacking sufficient income, and banks began to repossess homes, which resulted in mass foreclosures across the country.

Say you're paying $1,200 per month on your mortgage, and spending instead of (ahem!) saving on new cars or giant HD flat-screen TVs -- hey, you own a home, you need to buy stuff to go with it, right? Life is good till you realize that you are among a bunch of people who are going to be laid off at work. Now add to that a ballooning mortgage interest rate that you were planning to pay off with some fantasy future raise, and credit cards that you maxed out from overspending. Oh, and guess what? By 2005, house values are in a nosedive and your home is worth drastically less than you bought it for.

This is where a resounding "Crap!" was heard across America. With no savings built up, you've dug yourself into a hole so deep not even Beatrix Kiddo (a la Kill Bill) could climb out of. The debt dominoes fell, leaving a trail of woe across the country, and there you have it -- the 30-second history of the subprime mess. Phew!

Now that you're a subprime guru, your first lesson in Investing 101, or what I like to call "I want to buy a home but I know nothing about the process," is mortgages, or the heart of darkness within the bizarre world of investment banks, credit ratings and foreclosures.

A mortgage is type of loan that is specifically used to buy property (aka a house!). The house you buy with said mortgage is used as a collateral, or guarantee, for the amount you've borrowed against it. Don't have a dime to your name but still have $150,000 left on your mortgage? Then your house will be taken from you to repay off the existing debt on it.

There are a myriad of mortgages out there, but the most common are:

• Fixed-rate mortgages -- Or loans where the interest rate is fixed for the entire term of the mortgage (usually 15 or 30 years). This is my favorite type of loan, it's steady and less risk-adverse then its brethren.
• Balloon mortgages -- Loans where the interest rate is set for a given amount of time and then the entire payment of the loan is due at the end of that time.
• Adjustable-rate mortgages (ARMs) - Loans where the interest rate can change and fluctuate as the prime or standard rate (set by the Federal Reserve) changes. (This is very risky since you can't be 100% sure which way a rate will go.)
• Interest-only mortgages -- Loans where the interest only (hence the name) has to be paid off in the beginning, resulting in a very low initial monthly payment that hinges on the hope that property values will keep rising. Still with me? By using this loan, many people could buy larger homes they wouldn't have been able to afford otherwise. When home values tanked, they defaulted because their houses were worth much less than their loan price. Home owners couldn't grow equity over the time they invested in the house.

Just by looking at these four common mortgage choices, you can quickly see which ones -- balloon mortgages, ARMs and interest-only -- might have fabulous initial perks, but are the riskiest and were the culprits in "this whole subprime thing." It's marvelously simple, isn't it? And you don't even need a suit and a finance degree to understand it!

You generally get a mortgage by divvying up a down payment, which is usually between 5% to 20% of the loan total. See how this whole "saving" phenomenon I keep raving about comes in handy? Remember, chickadees, the larger the down payment, the more you win because of the decreased amount of interest you have to pay overall. It's just like paying off a credit card bill with much more than just the minimum payments, so you don't get stuck in the endless cycle of paying off interest on the money you borrowed. And the cherry on this ice cream sundae of down payments? If you put down 20% or more on the loan, you're given a "get out of jail free" card of sorts to not have to carry mortgage insurance, which saves you tons of money. (I knew those long games of Monopoly came in handy for something!)

So you see, now, why saving is so very important. When the debt collectors come a-knockin' and you've just gotten notice you're "not needed anymore" at work come Monday ("the company thanks you for your loyal service over the last decade," though), you'll be happy you were insightful enough to sock away savings and plan for all of life's little catastrophes, subprime or not!

How rich are you?

Many of us on a budget are continually aspiring to better our lives by being fiscally responsible. For me, I'm saving now so "magical" things such as investing and compounded interest will sprinkle fairy dust on my early retirement and allow me to live a lush lifestyle, not because I'm some dot-com millionaire, but because I took control of my financial life at an age when many are living hand to mouth, charging fancy cars to credit cards while paying rent instead of saving for a down payment on a home. 

Because I'm saving now, I often feel like I never have enough money. But have you ever contextualized this hopefully similar predicament and asked yourself how poor you really are compared to others in the world? I found a fabulous website, www.globalrichlist.com, that ranks you according to how much your annual salary is. 

My salary warrants me as the 103,478,261st RICHEST person in the world, which was surprising considering there are about 6 billion people on earth and I didn't think I made all that much. Apparently, I do! According to the website, that means that I'm in the top 1.72% of wealth worldwide. I'm not really sure to be happy or sad about that number, since it means that there are many people out there who can barely afford to get by, much less have the luxury of saving like the rest of us personal finance writers. Really puts things into perspective.

Anyway, head on over to the site and let me know how rich you are! 

What does that iTouch or Fendi really cost?

Here's a startling fact for all you Starbucks aficionados: Did you know that if you bought a latte at $3.78 a pop every day for a year, it would cost you $1,332.25? Not bad, especially since many of us -- me included -- rely on a caffeinated kick start at the beginning of every day. But your daily caffeine drip habit starts getting expensive when you consider that if you invested that $1,332.25 in the stock market, it would become about $39,914.11 in 30 years (assuming a yearly realistic return of 12% on your money). 

I know. It sounds so sensationalistic and you're probably rolling your eyes right now, thinking that any purchase in your life could be put into such terms, and so what? You like buying a coffee every morning, and you're entitled to spend your money on whatever makes you happy, right? I don't blame you for having vices; we all do. (One of my many money-spending habits is buying lip gloss. How many tubes of pink strawberry or iced mocha lip gloss does one girl need? Just ask Target, since I can never seem to leave the store without at least one new lip gloss.) 

Anyways, the point is that I know where you're coming from, and I'm in no way trying to curb your spending. I don't condone denying yourself of what you like, and if that includes buying a tube of lip gloss every weekend, then more power to you. But when you're standing in line to buy that latte, don't think of it in terms of how much it individually costs ($3.78), think of it in terms of:

• What it really costs (in the long term). Think of the returns you could lap up if you denied yourself a Starbucks fix every other day, or a month or two at a time, and invested your latte dollars instead of drank them.
• What is the total cost of ownership of said latte?
  

If you're making $50,000 per year, one latte every now and then will not break the bank in terms of your total cost of ownership, or percentage of your overall income. But if you're making $30,000 per year, a year's worth of lattes ($1,332.25) quickly becomes 4.44% of your annual income. Kind of shocking, huh?

Okay, enough with the latte analogy. Total cost of ownership really becomes fabulous when you start using it to decide about a large purchase, such as a designer Gucci or Prada bag, a new Audi, or an iPhone or iTouch. Before you hand that credit card over (or even better, cold hard cash!) do you really know what your new iPhone will cost you?  

Let's say you make $35,000 per year (about $29,000 after taxes). A $200 iPhone would only be 0.69% of your annual income. Not bad, right? But wait till you start considering the big purchases. With that same income:

•  a pair of Rock and Republic jeans is almost 1%, 
  
• a $600 flat screen TV is over 2%,
• a $1,620 Louis Vuitton bag is about 5.6%,
• and a used $18,000 Honda s2000 is  62% of your annual salary.

I gave a salary of $35,000 because stats show that it's usually 20-somethings in this income bracket that tend to spend the most money on the excesses: nice cars, designer sunglasses or clothing, the newest tech gadgets and spring break trips to Cabo San Lucas.

But contextualizing costs in terms of a total percentage of your income really puts things in perspective, especially considering that the first 3 of these 4 items are considered "frivolous" and not necessities. (If you need a car, even the 4th can be substituted for an older model, cheaper substitute.) Again, I'm not saying don't spend money on what you like. If you love buying 7 for all Mankind jeans (as I do) or buying a latte with the occasional pastry, then forge ahead with your caffeinated denim endeavors -- don't deny yourself of what you love.

But if you're going to be a gal on a budget, just be conscious of what your purchases are truly costing you because it's never just the number on the price tag. There's a difference between being cheap and being frugal. Cheap people just look at cost; frugal people look at value. No one likes being cheap, so forge ahead frugally!

Learn the lingo: Mutual Funds and Diversification

I was recently asked to do a ditty on mutual funds, or what I call the "sultry vixens" of the saving world. Why would I refer to them as sultry? Well, unlike individual stocks, which I consider "femme fatales" because of the immediate risk associated with investing in them, mutual funds are a more demure and unaggressive bird. They stand in the background and make you money without being too risky because of the diversification they bring to your life. But what is a mutual fund? And what in the heck is diversification?

Ask and you shall receive! Before your eyes glaze over with a patina of unadulterated boredom at the mere sight of the words "mutual" and "fund," you should know that a mutual fund is simply a way for you to invest your savings in an account that is operated and run by a professional investment firm or company.

Pretend you're at a casino. (Hopefully a classy Vegas joint such as the Bellagio, and not some seedy Reno dive inhabited by chain-smoking moustached men in faded trucker hats -- but this is all beside the point.) You sit at a slot machine and start funneling in your money, hoping a river of change will pour into your lap. Well, chickadees, the slot machine is like a mutual fund, and has an endless variety of ways (or investments) it can choose from to make you money. Unlike casino gambling, though, there's no random chance with mutual funds. The managers of these funds are highly skilled to invest your money in the best way possible in investments they think will give you the best returns.

These investments can include stocks, bonds, commodities (such as gold, oil, etc.), or other things depending on the fund. The essential idea is that you, the investor, can make one single investment into the fund, where it is then diversified across many different industries or investment categories by people who are well-versed in finance. If you're a newcomer to the market, you may think you should lap up just oil companies, but putting all your eggs into one basket (or one type of stock) is dangerous. Mutual funds will broaden your horizons, by making sure your money is spread evenly across the whole piece of toast, instead of just dumped on one side. Diversification is important because it protects you from the risk of losing all your money on one bad investment.

Many mutual funds are peppered with more costs than standard commission fees, but that's what you get for majoring in English versus Business, and paying Mr. Harvard-MBA to do the dirty finance work for you (or so said the brunette writing the budget blog). Kidding, kidding; I'd take English Lit. over math any day.

When I turned 18, my grandfather revealed he had set up a Vanguard mutual fund account for me (along with my brother and sister), replete with $8,000 for each of us. Although I was of age for instant access to the dough, I was told to forget it was there and treat it as a nest egg, hopefully adding to it every once in a while. Believe me, at the tender age of 18, when all I could think about was fast cars, fashion and boys, $8,000 sounded like an appealing down-payment on a BMW or an extended vacation on the shores of Baja. But I guess the seeds of frugality had already been sewn in the haunches of my late teenage years, and (heeding my parent's advice) it remained essentially untouched. Of course, that all changed in February of this year, when I got bit by the stock market fairy, pulled all of my money out of the account, and decided I could make better returns by aggressive stock trading. I highly advise you only make this kind of move, though, if you feel confident in your knowledge of the stock market or feel like you have enough time on your hands to at least learn the fundamentals (in casino speak, there is a much higher risk of the house winning in this territory).

But why am I even telling this story? Because a mutual fund, like a 401(k) or IRA, is a great way for you to set up a nest egg of your own. As much as we want to write off our parents' advice as superfluous, there's a kernel of wisdom in the "put it away and pretend it's not there" adage. The only way to accumulate is to not spend, and the only way to spend is to, in essence, "pretend it's not there." If you're lucky and never need to dip into your budding fund investment, it can even be a great thing to pass down to your future children as a seed they can continually add to and use if necessary.

So now you know what mutual funds are and why they can help in your quest for an early, lavish retirement. For ideas on which ones to invest in, read this recent top 25 fund list!

Stylish and fashionable on a cheap budget

We've all been there. Maybe one of your girlfriends bought a fabulous new (full-price) top that you've coveted ever since (if only it was on sale!). Maybe a pair of 4-inch high heels perched atop a display pedestal under a spotlight caught your eye as you flitted through the shoe section at Nordstrom's. You don't even bother looking at the price tag, though, because you know they're beyond what you should be spending on shoes -- they're in the uber-expensive section, after all, with nary a "sale" sign in sight.

For many of us, shopping and being stylish isn't just a fun hobby that men don't understand. It's a way of life. But being stylish does not mean you have to be broke -- it's tres easy to do yourself up on a budget, and it can make shopping twice as fun. Yeah, yeah, I know you've heard it all before. But just because you want to look good and save in the process does not mean you have to continually shop at T.J. Maxx (no offense to those who frequent this Mecca of suburbia). If you're anything like me, slumming it at discount stores can wear you down. It's an exhausting process digging through racks of unorganized clothing falling off hangers, as Huey Louis plays overhead and the mother of what seems like nine children is screaming at her kids to "stop using the clothing racks as a jungle gym!!" Just thinking about it makes me cringe.

For the amount of time I spend shopping for clothes, you'd think I have more than enough to wear -- and I do. But every morning when I open my closet, I find myself complaining to Love that "I have nothing to wear!" Usually I end up piecing together a knock-'em-dead outfit, complete with Love's response of "What are you talking about? Your closet is FULL." And maybe it is, but if you're going to be stylish on a budget, your closet is the first place you'll want to focus on.

First off, make three piles: The "use its" (for clothes you know you'll wear), the "lose its" (stuff you haven't worn in a long time, doesn't fit anymore or is plain passe), and the "fix its" (for clothes you've been meaning to get tailored or need to be tailored because they don't fit right anymore).

The "lose its" pile is KEY because this is where you can not only make space for any new wardrobe, but you can also make money to boot. Hopefully this pile ends up being meaty enough to either take down to Goodwill (you get a break in your income taxes if you donate, it's considered charity -- just save the receipt!), or take it to a clothing exchange, such as Crossroads or Buffalo Exchange, where you are paid per garment for your stash. If you're feeling especially entrepreneurial, consider setting up shop on Ebay, where you could even make it into a full-fledged side-business, selling your friends' throwaway clothes as well and picking up profits along the way. The money you make from reselling your old clothes is a perfect base to buy new items with.

After you've rid yourself of the old, you'll now need to evaluate your current closet. Every sharply-dressed girl needs a few staples in her wardrobe. These should include:

• A trench coat (I prefer the classic khaki trench, and found a great Michael Kors one at Nordstrom's Rack recently for a fraction of the retail price.)
• Slacks (I like gray, it isn't as harsh as black and goes with almost everything during any season. Be brave and try pairing with a bright orange top or bag!)
• A little black dress ('Nough said.)
• A crisp white shirt (Try a cap sleeve blouse for a more fun-yet-professional spin on this classic. Make sure there is NO pulling across the bust when it's buttoned. Not only does this look unpolished, but it also gives everyone who's standing near you a free ta-ta show between the gaping spaces between each button.)
• A pair of black pointy-toed pumps, with a heel height of between 2 to 3.5 inches (These will go with everything and are always in style.)
• Skirt (I prefer pencil, when it comes to a staple, but a-lines can be classic, too.)
• At least one casual dress that can take you from day to night.
• Jeans (No high-waisted, tapered mom jeans! Think dark denim with a sleek line to highlight your stems.)

I'm sure you probably have some, if not all, of these items, but they may need an update. These pieces should be of quality (aka not Forever 21), because they are the backbone of your wardrobe. I'm a huge advocate of throwaway clothes (Forever 21, H&M, etc.), but the aforementioned items should be timeless and of good quality, so if you're going to spend any money on clothes, the quality staples should take precedence. Mixed with your trendier clothing, they can make countless outfit choices for any day of the week.

Aside from these staples (which you could find for cheap at Nordstrom's Rack, or any sale at Bloomingdales or Nordstroms), whenever you're out shopping, remember what would go with your old clothes back at home. Many women make the mistake of buying shirts or shoes that can't be mixed with a variety of outfits. So, if you have three skirts but only one shirt you normally wear with all three, buy a few more shirts within the same color palate that would go with the skirts. Same goes with your dress slacks, cropped pants, or other garments. The idea is to work with and expand what you have, so that it can all be easily assimilated with one another.

Better yet, when you're out and about and see something you fancy, scrounge up an old receipt or business card from the bottom of your purse, write down the designer, how much it costs and any other info you could use to search for it online. Once you get home, kick off your wedges and get comfy in front of your computer. Start Googling everything you've written down and see if you can find cheaper your items cheaper anywhere else. Usually I've had incredible luck with Overstock.com, Amazon.com and Ebay. Case in point: I once saw a pair of '70s-inspired Circa Joan & David wedge slingbacks in a Bloomingdale's in San Francisco that were almost $200(!). Being true to my moniker, I found them a few months later online at Amazon.com for about $50, proving that patience does pay off. Let's just say that I turn heads when I strut down 18th Ave. wearing my bargain(!).

Don't forget that a great bargain-hunting trick is to buy off-season items. So, if you really want a new bikini, but don't need one RIGHT AWAY, look for the greatest deals in late August, when summer is lazily exiting stage right. If you're in dire need of sweaters, strike when the cashmere iron is hot (sometime around late spring/early summer when long sleeves are a relic of the past winter). Remember that January and July are when stores have their biggest sales (Nordstrom's anniversary sale every July, for instance, is one of the best sales of the retail year by far).

One snag (pun intended) that this brunette on a budget runs into when shopping for deals is buying something just because it's on sale. I can spend countless minutes in a fitting room, looking from every angle in the mirror at a new shirt that I just don't find that flattering on. Why do I spend so much time analyzing it, when I could be out finding other fabulous buys? Because it's cheap, and I'm trying to mentally justify purchasing it.

Love hates this, because if I'm spending countless minutes in the the fitting room, he's generally spending countless minutes outside of the room, waiting for me to model whatever I've stepped in with. Sometimes I emerge multiple times with the same shirt/skirt/pants/dress on, double- and even triple-checking if he's "really sure" it doesn't look OK, or it doesn't fit right. Warning: If you find yourself doing the same, that probably means said item is just not working for you. And do you really want something to just look "OK" on, or do you want it to look spectacular? Just because you're on a budget doesn't mean you have to settle.

I know a 24-year-old girl, let's call her Petunia, who usually wears abhorrent outfits -- most of the time she's dressed as if she's stepped out of the pages of an issue of Cosmopolitan circa 1991, with her Dade-County-retiree-magenta-pink sleeveless shell and matching capris. Or her blinding yellow spaghetti strap dress, with matching electric banana shoulder wrap and giant yellow earrings (Crayola called, they want the color yellow back!). (Petunia also insists she doesn't need to wear makeup, and we all know that everyone should wear makeup in some capacity, but I digress.) My favorite garment of hers is a Pepto-Bismol pink corduroy mini skirt, complete with small embroidered mallards mid-flight. Why do I bring up her love of winged-animals personified in said skirt?

Because this is exactly the type of thing that many might buy just because it's $5 in some clearance bin. Remember that if you wouldn't pay full price for it, then why bother buying it on sale? You're only getting a deal if you find something you will wear, use and love. And if you think you'll ever wear, use and love a pink corduroy skirt embroidered with ducks, then we need to chat.

Mallards aside, fit is also an important factor when you're shopping for deals. If it ALMOST fits but you're dying to buy it because it's the last one, step away from the clothing! I can tell you from experience that I have bought many things thinking I'll just "take it in a little here," or "lose a little weight there." I've even been known to buy heels that KILL my feet and cut off all circulation to my toes, but I'll wear them because they're cute. Most of the time, though, it's a waste of money to buy something that doesn't fit, because it will inevitably end up hanging in your closet till it's time to make your three piles (see above) when you're doing Spring cleaning. This also applies to certain cuts that don't work well on your body type. If empire-cut tops make you look pregnant when they're full-price, guess what? They'll still make you look pregnant when they're on sale. Sorry, sometimes the truth hurts.

Got any tips to look great on a budget? What about any big yearly sales we should know about? I'd love to hear from you!

"Mag dahling, you're being a BORE"

Ten bucks to anyone who can guess which movie that's from? If you guessed Breakfast at Tiffany's, you're right (sorry, I was kidding about that 10-dollar bit). Ok, so you may feel your life is a tad boring lately, unlike Holly's, what with all this saving and frugality weighing you down, but don't fret. Even if when you end up rich, you might still be a YAWN in all your bright-eyed, bushy-tailed glory.

That's because YAWNs (Young And Wealthy but Normals) are the new Gen Xers and Yers, according to an April 2008 Associated Press article.

When you imagine what the CEO of Facebook, or co-CEOs of Google do on a daily basis, what comes to mind? You probably envision them jetting around the world in their private planes, sipping on the finest Dom Perignon '53, a la James Bond, traveling to exotic locales with exotic women in tow and piddling the days away on golf courses, yachts, and in Bentleys, right? Well, Odd Job, meet Rik Wehbring.

Thirty-seven-year-old Rik -- who worked for multiple startups -- lives on $50,000 a year in San Francisco, where his rent costs about 40% of his budgeted money. He doesn't own a TV, drives a Toyota Prius, shops for food at the local farmers' market and owns a $20 mp3 player that "works just fine." Oh, and I forgot to mention, he's also a dot-com millionaire.

Rik is what's come to be coined as a YAWN by the London Sunday Telegraph, and he's one of many who've proven that it's so yesterday to live a life of excess. In fact, it's a downright bore.

YAWNs live small, but it's because they already have everything they want. They live on just enough to be comfortable and despise being pretentious or brag-worthy. For us budgeters and savers, it might come as a surprise to learn one day, if we ever attain YAWN status, that being rich is just a state of mind, and all those sports cars and sail boats are better left to other people that crave them in one form or another.

Rik isn't one of them. "I don't need a lot of material possessions," he said in the article. "I haven't had to buy anything in a while."

It comes as no surprise to learn, then, that YAWNs loathe ostentation.

When Ray Sidney, a software engineer at Google, cashed in his stock options in 2003, they yielded him more money than he could ever spend in one lifetime. (Quite possibly billions, but he wouldn't say.) What would you do with billions of dollars? Ray decided he wanted to retire in a four-bedroom house in Stateline, Nevada, and give most of his money away to charity.

His donations have ranged from giving $1 million to a bus company to help launch a route to provide public transportation to casino workers, giving $400,000 to help build an arts center, and giving $1.7 million to a local high school to build a football field and track. This is all on top of his millions of dollars of donations he's given to charities to try to cure diseases or save the world.

So how does he get his kicks? He did buy a single-engine plane he flies about once a week to visit his girlfriend in San Francisco. But that's basically the extent of it. I did find it odd that he chose to move to Nevada of all places and not bring his girlfriend along. Or just buy her diamond ring for that matter and call it a day. But perhaps Nevada wasn't her bag, or....well, this isn't really the point of the whole story.

The point is is that for some people (especially YAWNs), $50 for the powder room might be all that's needed, which is a both pleasant and humbling surprise. Holly would be proud.

Learn the lingo: Balance Sheet

Remember those balance sheets I mentioned the other day? You know, the ones those cocktail-party frequenters discussed as you nodded along cluelessly? Well it's time to stop nodding and start joining in to the conversation!

If you're ever going to invest in the stock market with your savings (and hopefully double or even triple your money), you need to know the basics. That vacation house in Acapulco will always be a pipe dream if you aren't willing to put in the work to get there. Fortunately for you, the work is piece of chocolate ice-cream cake (zero calories, of course).

Not understanding the nitty-gritty in finance (such as what a stock is) would be like trying to do open heart surgery without knowing which heart valve connects to what. Imagine your pot of savings as your patient, and you are the doctor. Do you want your patient to live longer and grow, or do you want it to disintegrate and fall apart? I don't know about your neck of the woods, but in mine, it's just considered poor form for a doctor to operate without understanding the fundamentals. This analogy should extend into your fiscal life. Ok, so maybe the stock market isn't as complicated as open heart surgery, but a gal needs to keep her wits about her when money is involved, which means learning working knowledge of the basics, or terms.

And the term du jour is balance sheet, or a statement of what a company, let's say Google, is worth on the date it's printed. Balance sheets are typically divvied up to you, the shareholder, about four times per year, or every quarter.

Still with me? If you see anything about a "Google's Q1 2008 profits," for example, that means the profits were reported in the first quarter of 2008 balance sheet. Q1, Q2, Q3 and Q4 all relate to which quarter is being reported, and is usually followed with corresponding year. So if you hear about predictions for Google's Q3 09, that would be their third quarter of 2009. Pretty snazzy, huh.

What's on a balance sheet, you ask? Simple. There are three key elements to a balance sheet you should worry about. These include:

• Assets, which is another way of saying the financial value of a company. Assets can include anything that could be converted to cash, such as property the company owns, office equipment, etc. On balance sheets, though, assets are usually the sum of liabilities (more on that in a sec -- stay with me!), stock and "retained earnings" (aka earnings that are reinvested in the core business or used to pay off company debt).
• Liabilities, or debt the company has.
• The Net Worth of a company, which is just the assets minus the liabilities. It gives you a clearer picture of how much said company is really worth.

Phew, that wasn't too hard, right? I know it all sounds dreadfully dull, but you can't increase your savings and buy that Birkin bag without knowing the facts!

Now that you're a whiz when it comes to all things asset- and liability-related, balance sheets are usually split into two parts:

• The first part lists what the company's current assets and liabilites are.
• The second part shows how these assets and liabilites were paid for. The totals for each of these parts have to be equal.

One warning, though! Before you start thinking that all you need is a company's balance sheet before you decide to invest in them or not, you also need to look at the company's income statement, which discusses revenue and expenses. But that's a whole other post unto itself.

The balance sheet is simply one of the many statements that gives you, the shareholder, a better understanding of what you're getting into with a company. For example, if you're considering buying stock in a company with a massive amount of liability (or debt) on their balance sheet, you probably don't want to place your chips on the table with them just yet.

After all, every brunette on a budget needs to know when to hold 'em -- and the balance sheet is a great first step in telling you how to play your cards, or savings, accordingly!

Learn the lingo: Stock

Ever found yourself nodding knowingly at a cocktail party, martini in hand, in the midst of a gaggle of guys discussing the stock market?

They may think you're on par with the latest stock gossip, but if you're like most women, your knowledge of the market is dreadfully limited. While the men discuss EPSs, assets and balance sheets, you're single desperate thought is "Please don't ask me anything and blow my charade!" Well, us girls need not play the charade any longer -- if not only to further our moolah -- to hold our own with the big boys. The stock market, like most things in the financial world, is as easy as pie, after all. With that in mind, let's start from home plate: What does "stock" really mean, anyway?

Ever wanted to play high-powered corporate business exec for a while? Well then buy some stock, or shares, in a corporation. Doing so gives you part ownership in the company. You may not get the Blackberry, Benz and Yves Saint Laurent wardrobe that go along with being the business exec, but a girl can dream as she's purchasing shares of Google, right?

When you buy a company's stock, you are buying claim on their earnings and assets, aka what they're worth. Thus, when they profit, you profit. On the flip side, if they lose money, you also go under, but that risk comes with the territory of stock trading.

You can only buy stock in public companies, which means ones that are trading on stock exchanges such as the NYSE or Nasdaq (yes, that Nasdaq). There are many different stock exchanges in countries all over the world, ranging from the Nikkei Index in Japan and the Hang Seng in China, to the DAX exchange in Germany and the Sao Paolo Exchange in Brazil. All these jet-setting stock market terms are starting to sound kind of glamorous, right? Pepper your conversation with them next time anything stock market comes up -- I guarantee you'll impress!

But I digress. By being a "public" company, which again means you can buy a percentage of them, they are required to file their financial results every quarter (or about 4 times per year). These are usually called earnings statements (there's another term to throw out there at your next cocktail party), and they tell you, the shareholder, how their business has been doing in the last few months. Think of it as a report card, telling you how your child is doing in school. If companies don't publicly show their "report cards" to their parents, or shareholders, than oftentimes the company can get delisted from the exchange it's on. Sometimes, even criminal charges can be filed against the company's board of directors!

Owning stock in a company often gives the shareholder the right to elect the head honchos that run the corporation, depending on how much of a percentage of the corporation they own. Ever heard of Warren Buffett (aka "The Oracle of Omaha")? Maybe not, but he's made a living buying big into companies, and in many he owns such a large percentage (try 55%) that he gets a say on who he thinks should be running it. Pretty fabulous, huh?

But before you start fantasizing about your laser-pointer power trips in large boardrooms flanked with men in suits as far as the eye can see, do know that investing in stocks like our buddy Warren takes thousands, if not millions, of dollars, so I'm going to go out on a limb here and say us girls on a budget *probably* won't be attaining that status anytime soon.

One more key point to note is that while "stock" is a general, all-encompassing term, there are different types of company stock. These can include:

• Common Stock
• Preferred Stock
• Voting
• Non-Voting

And with that, you should now have enough vital knowledge of what a "stock" is to hold your own in any social situation and leverage your savings to boot!

Learn the lingo: IRA

Ah yes, the IRA, or individual retirement account, another way to reap the benefits of saving early for a lavish retirement!

But wait -- before we go any further -- I know I've probably already lost you. If you're anything like I was not too long ago, your eyes have already glazed over with boredom at the mere sight of the word "IRA," and I don't blame you. Unless you were a finance or business major in college, terms such as IRA were relegated to people like our parents, who are at an age to be concerned with all that stuffy money talk. Right? To put it bluntly, it's very, very relevant to people our age. Sorry to pop your head-in-the-clouds fantasy, but if you're thinking: "I'm only ___(insert whichever age you are), so I don't have to worry about that stuff yet," then you're dismissing ways to plan for your life that can make you very comfortable (and dare I say rich) in the future.

Guess what? Unless you end up relying on someone else to learn about these things for you and rely on them to carry your deadweight in the future (which I've written about here), it's time to start teaching yourself! What's more attractive than a very stylish girl who's also financially saavy? Don't worry, IRAs are not, I repeat not, complicated to understand. Cross my heart and kiss my elbow! In fact, they're actually quite simple, like most things in personal finance when you strip away all the technical mumbo-jumbo. Just remember not to feel intimidated by the lingo and the numbers, because if I can understand it (with an English/Journalism background), then you definitely can too!

To strip it down simply, there are many types of IRAs, but people generally choose either the traditional IRA, for any level of income, or the Roth IRA, mainly for people making under $95,000. Both serve the purpose of an "invidual retirement account," thus the name "IRA." You can only contribute to an IRA with earned income, so birthday money or Christmas checks don't count, unfortunately.

In a traditional IRA, you can contribute up to $4,000 of your annual income to the account. All money you put into your IRA is sheltered from taxes so, for example, if you put $4,000 into your IRA in one year. That would be $4,000 off your overall income that will not be taxed by the government. When you do decide to pull the money out, though, it will be taxed. And, if you withdraw the money before you're 59 1/2, you'll get charged a 10% fee! The fee acts as a way to curb your temptation of dipping into your budding nest egg; it comes as no surprise that it's highly advised against to pull your money out prematurely.

But what if you want to buy a house -- and the money you've been saving in your IRA would make a nice down payment on a mortgage? Good news! The exception to this 10%-fee rule is if you're using the money to buy a house or pay for higher-ed costs. If you're new to the world of saving and have a rough time saving in general, than having an account that rewards you for saving for the big purchases in your life, like a home, would be perfect for you!

The Roth IRA, though, is an even better match for the fiscally responsible ladies (or gents) out there. Why? Well, unless you're a high-power, corporate executive -- you know the kind driven around in their Lincoln towncars, sipping scotch and balancing million-dollar checkbooks -- you're probably making under $95,000 per year, which is perfect because it's the cutoff point to qualify for a Roth. (You can also make under $110,000 and still qualify, but you'll only be allowed to make "partial" contributions.)

Unlike the traditional IRA, the Roth IRA is not tax-deductible, but you have greater flexibility over your money. In a Roth can withdraw your savings after five years (regardless of how old you are), without being charged a fee. Any interest you accumulate in the account, though, can be taxed. Not making sense? Say after 10 years you have $20,000 saved up of your own money, with $5,000 earned in interest on the money. You can withdraw your $20,000 tax-free, but only have to pay taxes on the $5,000. Not too shabby.

If you're still at a crossroads as to which IRA (traditional or Roth) would be the best for you, a rule of thumb is that the Roth IRA is generally a better bet if you're younger.

Simply put, by saving your money earlier, the younger you start saving, the more you end up with in the long run (with the interest accrued).

It's important to note that an IRA, Roth or otherwise, isn't an investment, per se -- it's just a place to keep a chunk of your savings to use as investing in whatever you choose. That could include bonds, mutual funds, real estate, or even just one stock. Again, an IRA is another way, like the 401(k), that the government is rewarding you for saving for your retirement.

At this point, you're probably asking, "What's the difference between an IRA and a 401(k), then?" I admit, they do sound strikingly similar, but the fundamental difference is that one is employee-sponsored (the 401k, where your contributions are usually matched annually by your employer), while the other (IRA) is completely up to you to create and manage.

Both are fabulous ways to shelter income from taxes, though, so contributing to at least one is in the best interest of every saavy financier!

Gimme a (tax) break

Continuing in the tax vein, there are specific steps that 20-somethings (especially recent college grads) can take to shelter portions of their income from being taxed, and inevitably save more money! In order to start saving anything, though, you'll need to remember to file your taxes! I honestly can't believe how many 20-somethings I know who feel they can't be bothered to file because they'll only get back a small amount (say $100 or $200). Either that, or they rely on their parents to do their taxes for them -- no joke! 

To all the guys out there, if there's one way you can turn a girl off (aside from being unemployed or lacking personal hygiene), it's telling her that your parents do your taxes for you. If you're even reading this blog -- guys or girls -- I assume that you've decided to take some stock in your financial life, which means doing things, such as taxes and the like, yourself and not relying on Mommy and Daddy. (Contrary to popular belief, 21+ should never be the new 16.) 

With that out of the way (phew!), do not, I repeat, do NOT use a Form 1040EZ when filing your taxes because doing so prohibits you from taking advantage of the super-tax-payer-saving ways I'll mention in a second. Instead, use the standard 1040 form. I assume that it's a trade-off as to whether you want to fill out a no-muss-no-fuss form (the 1040EZ), or whether you want to get into the more nitty-gritty and wring some cash from your filing form (the standard 1040). Since the EZ is just so......easy.....most tend to file using the former, which is fine if you know you don't qualify for deductions. 

Here are some clutch ways to save yourself some greenbacks when filling out your 1040:

• If you're making less than you thought you would after graduation, don't fret! You're automatically eligible for a saver's credit, as long as you're lining any retirement plan you've chosen (401(k), IRA, etc.) with monthly contributions. The catch is you have to make less than $26,000 per year (not horrible, considering the cost of living differs from region to region), but you can save an upward of $1,000 in money that might have otherwise gone to paying taxes. Consider it the government's reward for savers who are thinking ahead.
• Did you know that your moving expenses (renting a U-Haul, gas for the trip, buying packing boxes, etc.) can be tax-deductible if your job out of college is 50+ miles away from your old address?
• The idea of paying off those student loans could give anyone an ulcer, but remember this: you can now claim up to $2,500 of interest on student loans in the form of tax deductions, even if you're parents are paying off your loan interest. Apparently, the government deems any payments from a parent toward their kids' student loan a "gift," which is great news for both parties!

Just remember, you can't garner these savings unless you 1.) file your taxes , and 2.) use the standard form 1040.