On money

Personal Finance editor HELEN HUNTLEY E-mail: Click here Archive

By HELEN HUNTLEY

© St. Petersburg Times,
published July 29, 2001

Get a grip on your spending before you start saving

Q. I would like to invest, but I can't save enough money to do it. I never seem to have any money left over and end up living paycheck to paycheck. Do you have any suggestions?

A. If you want to get your spending under control, you need to get a handle on where your money goes. Start taking a notebook with you and writing down everything you spend. You probably will find that a lot of little expenditures are adding up to big money.

Saving money means deciding which expenses are really important to you. Some people think they can't live without cable television. Some have to have a 74-degree bedroom in the summer. Some consider eating lunch out and buying snacks from the office vending machine a job-related necessity. Some would die of embarrassment if they had to cut back on giving gifts to family and friends. But those are just a few of the many lifestyle choices we make. Only you can decide what you are willing to sacrifice to improve your future financial security.

Your goal is to come up with a budget, then stick to it. Set aside some money each paycheck for regular but infrequent expenses, such as quarterly insurance premiums, your next vacation and holiday gifts. You also should gradually build up an emergency fund because emergencies are part of life.

If you are carrying credit card debt, paying it off should be a top priority. Your return will be higher than anything you are likely to earn by investing.

When you do spend money, make smart choices. Avoid buying anything on impulse. If credit cards are too tempting, pay cash. Get yourself into the penny-pinching mind-set. Use coupons and rebates for items you would buy anyway, and do some of your shopping in secondhand stores. Forget about using spending as a tool to impress others.

Q. We have had Van Kampen High Income Corporate Bond Fund A for quite a while and it was paying interest above CDs. But the past few years it has been dropping and we are quite nervous about it. Do you have any suggestions about what we could do? We're afraid we have lost more than half of our investment.

A. You have discovered the hard way that bond funds fluctuate in value. A few years ago you enjoyed gains, but recently you've experienced losses. The broker who sold you this fund should have explained that it paid higher yields because you were taking higher risks. If you want an investment that doesn't fluctuate, you should look at CDs, savings bonds, money market funds and individual Treasury securities.

Mutual funds are judged by their total return, which includes dividends and change in share price. The good news is that you have not lost more than half your investment when dividends are taken into consideration.

If long-term interest rates fall, the fund probably will go up in value. If long-term rates rise, it probably will go down. You have to decide whether that's a chance you want to take or whether you prefer a fixed investment.

Q. How is the Nasdaq Composite Index calculated?

A. The Nasdaq Composite Index is a broad-based index reflecting the performance of more than 5,000 U.S. and foreign stocks. It is capitalization weighted, which means changes in the price of Microsoft Corp. count for a lot more than changes in the price of Microsemi Corp. even when Microsemi is trading at a higher price. Market capitalization, also known as market value, is the price per share multiplied by the number of shares outstanding.

When the index was first published on Feb. 5, 1971, its base value was 100. An index of 2,000 indicates that the total market value of stocks in the index is 20 times greater than it was back then. The base value is adjusted when stocks are added to or subtracted from the index.

Online money map

For more tips on saving money, check out the Institute of Consumer Financial Education (http://www.financial-education-icfe.org). Click on "mending spending."

- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731, or to huntley@sptimes.com by e-mail.

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