MiB Smarter Money » Frugal

Teaching The Entrepreneurial Mindset To Your Kids

Maricel — Mon, 06 Feb 2012 17:33:44 +0000

How are great entrepreneurs made? The answer is a classic nature versus nurture debate! Sure we have heard of successful, famous entrepreneurs and leaders, as well as well-known creative artists with the “CEO Disease”. People like Ted Turner, Pierre Peladeau, Abraham Lincoln, Vincent Van Gogh; even Steve Jobs was said to be diagnosed with this type of mental illness medically known as manic depression or bipolar disorder. Scientific evidence points to protein abnormalities in the brain linked to genetic origins as the cause of this disease that gives these successful people the kind of mindset to relentlessly pursue ideas and turn them into successful money-making ventures. A lot of entrepreneurs and people studying them argue that environmental exposure plays a bigger role in developing the entrepreneurial mindset; that the nurture part is even more significant than any natural predispositions.

Being a mother of two young boys, aged 9 and 5 years old, I tend to agree on the nurture part of raising kids to become successful entrepreneurs. Here’s what me and my husband have been doing with our kids.

Teach your kids to love money early on. “Money is the root of all evils”. Enough of this crap! We tell our kids that not knowing how to make money is the root of all evils. That not knowing how to manage your money is even more evil. You often hear my 9 year old discussing with his brother how to raise money to buy toys they want.

Teach them financial concepts at every opportunity. Then 4 years old, you would hear my oldest son talking inside the toy store: “Mom, I found this toy, the number at the back (he means price by the way) starts with 1 followed by two zeroes, that’s expensive right? Oh wait, here’s another one that starts with 1 followed by one zero then a period, I know this one we can buy!” Now 9 years old, before going to the toy store he asks: “What’s our budget this time Mom?” What’s more delightful is when he tells his younger brother that a certain toy is too expensive to buy!

Turn their passions into entrepreneurial opportunities. My oldest loves computer games so much. He does not only play them during his spare time but also create them on paper every chance he gets. He’d get so enthusiastic about creating games he ends-up asking me to hold a flashlight while drawing his games before bedtime so as not to disturb his already sleeping brother. We finally decided to buy him a game creator program (it pays to have a programmer for a husband) and told him he can create games in his spare time. We will create a website where he can post his games, told him that maybe he can generate income through advertisements first then from sales later. We got a big, approving grin from him!

Teach them to save early. They both have savings account from cash gifts, piggy bank savings but we have decided to follow Cameron Herold’s advice in his TED Talk on raising kids to be entrepreneurs and give them two piggy banks. All the money they earn or receive split into two, one for their savings, and the other for buying toys they want. Of course with a reminder on buying only toys appropriate for their age.

Encourage their obsessive tendencies as long as it is not alarming that will require medical attention. My 5 year old builds Lego creator toys very fast without looking at the manual. He relentlessly builds them until they perfectly fit together and looks like the pictures in the toy box. The same goes for cities he builds using wooden and magnetic blocks. We encourage him to speak what he think is wrong and why he is not yet satisfied with his creations. We offer suggestions and help him build them until he gives his nod of approval. I tell you, when we think everything is perfect, he proves us wrong every time by coming-up with a better design or lay-out. It sure tests our patience but he just won’t give-up until he is satisfied!

We know have a long way to go. Although our parents did not teach us financial education or entrepreneurship and we sure did not learn them from school; we’re glad we are teaching them to our kids.

Car or Public Transport? Which is the Most Frugal Alternative?

Hank — Mon, 19 Apr 2010 03:09:46 +0000

There is often great debate between those who catch public transport and those who prefer their own mode of transport, and the debate is further complicated by those who catch public transport because they believe it is the more frugal alternative, and those who are forced to catch public transport because they believe their finances don’t permit them the luxury of driving their own car.

Therefore, following a comparison of the frugality of your own car vs public transport, based on both the financial costs and the costs to your time, because after all your time is not only worth something to you, it is time you could be spending cooking a meal instead of ordering take away, it is time you could be spending ironing instead of paying a drycleaner to press your shirts.

The Costs of Owning and Running a Car

Everyone uses their car differently and everyone has a different taste in cars and so repayments, fuel costs and usage are going to vary in your own comparison. Therefore, we have chosen a standard family car for the comparison of the frugality of a car vs public transport, to give you an idea of the differences between driving your car to work every day vs working in the city, and whether the savings you make in catching public transport really add up for you.

The comparison car:

A middle sized sedan with comfort and luxury as well as room for a family, shopping or large purchases.

The cost of a middle sized car is approximately $27,000 to buy new, including on road costs.
On a seven year personal loan at an average current interest rate of 11.49% your monthly repayments would be approximately $498.
The gets 7 L/100 km and has a 60 L tank.
With fuel on average $1.20/L you will pay around $70 to fill up your fuel tank.

Is a Car a Frugal Option to Commute to the City?

First we compare the costs of someone who drives a 100 km round trip into the city and back to work five days a week. This is an approximately 40 minute drive and is a common commute time, and the average amount of time most people spend driving to and from work.

Costs of driving 100 km to work in the city:

You garage your car in a secure parking lot and pay $10 a day in parking.
You insure your car based on your commute and usage and pay approximately $78/month.
You drive another 350 km after work and on weekends to sporting commitments, shopping trips and to see family and friends.
You therefore pay $70/week to fuel your car.
Weekly financial costs of owning and driving a car to the city = $265.

Benefits of driving to work in the city:

A 100 km car trip will be faster and more direct than travelling the same distance by public transport.
Public transport across this distance will often require you catch a connecting bus, train or tram.
You are not subject to hot, cold or wet weather.
You are travelling in safe transport and retrieving your car from well lit private garage.

Is a Car a Frugal Option if You Live in the City?

If you both live and work in the city then you may want to compare the savings you can make from owning a car for the convenience of weekend shopping trips and ferrying the kids around, without the costs of fuel and parking which those with a longer commute face. Plus, if you drive your car less, many insurance companies will also offer you reduced premiums.

Costs of owning a car but not driving to work:

You insure your car based on your usage and you can pay approximately $58/month.
You use your car after work, on weekends and in bad weather and so drive approximately 350 km a week.
You pay $70 to fill your fuel tank every fortnight.
Weekly financial costs of owning a car but not driving to work = $174.

Benefits of owning a car but not driving to work:

If you live and work in or close to the city or your office you can walk and stay fit and healthy though you may spend the majority of your days behind a desk.
You have the convenience of a car if you have a large amount of files to carry to or from work, and in case of extreme hot or cold weather conditions.
Your reduced use of your car saves you fuel, insurance and parking costs.

The Costs of Using Public Transport

The costs of using public transport vs using your own car may immediately seem much lower financially, however to truly be frugal in using public transport you will financially benefit the most from not owning a car at all. Owning a car but taking public transport to work costs you both for the car and the public transport and as you can see from the second example above, owning a car but not driving to work costs you approximately $174 a week, on top of which come your public transport costs which are detailed below.

Costs to use public transport:

A ticket which gives you 10 public transport trips each week – one to work and one home each day – will cost you around $29.
The financial costs of public transport are the same whether you are travelling within the city, or whether you are making a 100 km round trip each day.
Weekly financial costs of catching public transport to work = $29.

Convenience costs of using public transport:

Service interruptions cost you time, be they from bad weather, warped tracks, driver strikes or break downs.
No option to travel in your own car during extreme hot or cold weather can cost your composure when you arrive at work, can damage suits or shoes, can cost for hair appointments and blow-dries to appear professional.
No option to travel safely late at night, in the dark or early morning.
You will have your own price to put on the weekly financial costs of these conveniences.

Is a Car or Public Transport the More Frugal Alternative?

To use public transport to and from work while also owning a car for convenience and weekend use will cost you around $200 a week. For just another $65 a week you can travel in the privacy, the security and the comfort of your own vehicle, leave and arrive at work when you choose rather than when it matches with a public transport timetable and be able to arrive composed and ready to get down to work each morning no matter what the weather.

Very few people will do away with a car in their lives completely in favour of public transport as ferrying children, pets and friends requires the use of your own car. Therefore, while using only public transport and not owning a car is the most frugal alternative, catching public transport to work and using your car on the weekends can help you be more frugal and remain organised and in control.

What Does It Mean When The Federal Reserve Cuts Interest Rates?

hank — Sun, 03 Feb 2008 08:01:39 +0000

Photo by: gerrietWe hear all this talk about how the “Feds are lowing rates again today” on the news a lot recently, and that we’re falling into a recession. But what does all that mean? How does that help me in the situation I’m in? What do I do now as far as investing?Well, to put it simply, when the feds lower federal fund rate, it reduces what it costs banks to borrow money from them. When the banks costs go down, banks typically trim rates for consumers and business borrowers. That encourages businesses to expand and households to spend. Homeowners with adjustable mortgages and consumers with credit cards linked to the prime rate often see their rates move down, which is good.

Why is The Fed pushing rates down hard and fast?

Because the government is seeing a danger that troubles them. The housing market could create a downward spiral that would do widespread damage to consumers and businesses. The main problem comes from several things that get started when home prices start the fall. When home prices fall, it inherently fosters large numbers of foreclosures. That throws a bigger supply of houses onto the market, which in turn push prices down further.

Another problem happens when falling home prices force banks and other lenders to take losses on housing-related investments. They certainly don’t want that because it takes a bite out of their capital and reduces the amount of money they have to lend. That in turn makes it harder for home buyers to borrow, and lending banks to lend. If this housing problem continued for an extended period of time, the damage to banks and consumers could become so profound that the economy plunges into a recession the likes of which we don’t want to see.

How is the government planning on fixing this?

Well, they’ve hacked the interest rate 1.25% over the last 11 days. With this drop in interest rates, combined with a stimulus package from Congress, the hope is that they can stave off the looming recession, which isn’t fun. The goal of doing this isn’t pretty in the short term, but it can significantly limit the damage and keep things from falling into the ocean.

So do I want the Feds to cut interest rates or not?

Well, if you are a homeowners with an adjustable-rate mortgages, you like it. If you have an adjustable rate home equity loans, you like it. If you are a homeowners with a good credit rating and can refinance at lower rates, you like it. If you are a business with a loan tied to the prime Fed rate, you like it. However, if you are investing in CD tied to the prime rate, you DON’T like it. If you have a money market account, which is likely tied to that rate at which banks can borrow, you DON’T like it. If you have a savings account at a bank, you DON’T like it.

Overall there are a lot of pieces to the pie, and a lot of people complain about the setup and what the government is doing, but that is what people do, they disagree a lot. You don’t have a lot of choice in the matter so make the best of it and take advantage of the lower priced stocks, and mutual funds you find when the economy is slow.

What Do I Do During a Bear Market? What Do I Invest In?

hank — Wed, 30 Jan 2008 08:19:09 +0000

Photo by: artct45If you’re between 20-40 years old, don’t do anything. Stay where you’re at, markets fluxuate. That is their nature and that should have been something you learned before you got it. If this is your first time hearing about it, don’t worry and more importantly, don’t run. Let the traders panic. That is their job. They’re pounding down 15 cups a coffee per day and enjoy the stress. Let them deal with it. You’re paying a person that the traders are relaying information to in your mutual funds. You’re 3rd tier on that – sit back and enjoy the cheap stocks you’re getting into.If you haven’t sold, you haven’t lost. Stick to your guns and don’t get scared out of the market, recessions happen. But they always come back. As long as you still have a job, you shouldn’t be worrying. If you HAVE lost your job, you should probably not be reading this blog, try this one.

Buy technology stocks and fund. They’ve done really well this year, and think about it. We’re in the technology era; people WANT technology and are willing to pay for it still. As long as you’ve got a good time horizon for investing (10+ years left till retirement) I think you’ve got a good shot to get in at the bottom floor during the recession.

There are special recession ETFs geared towards recession. Look at medical, people always need to go to the doctor. Look at Claymore Securities.

Ultimately, my recommendation is to keep your money headed towards your investments as long as you’ve got a job. Keep your portfolio on track, this is the time when many people are getting out of the game, and as long as you’ve got time on your side, a perfect time for you to capitalize on the low prices being tossed around.

Do you have any secrets you’d like to share? Anything you’ve done in the past? Advice for the future?

Do You Still Clip Coupons? Do You Ever Get Any Of Them Online?

hank — Tue, 22 Jan 2008 08:13:01 +0000

Photo by: ninjapoodlesI grew up clipping every single food coupon from every single paper we could find. We’d ping our neighbors and relatives if we saw something worth clipping that didn’t have a limit on the number of coupons. We often times walk into the grocery store with a coupon for every item. My mom was very good at frugal shopping. I actually remember, back on my first job as a paperboy, my mother even proposed I put a note in all the newspapers if there were good deals to call me back; I had to draw the line somewhere though, cause Mom would be all for it, to my embarrassment!

So it has been pretty engraved in the minds of folks for years, and seemed to have fallen off in the 90′s but rumor has it coupons are making a comeback. A recent study by comScore, an Internet information provider that tracks consumer behavior, found that 53% of consumers say they regularly visit brand Web sites to find promotions. I admit, I still have a tendency to look for the food deals when I see them – Where have I looked?

Coupons.com is the big dog I see the most ads about – I think it has the best advertising and I’m sure the domain name doesn’t hurt. It has a ton of grocery printable coupons for major household brands such as Johnson & Johnson, Unilever, Pepsi, General Mills, and Kraft. You can view available savings by category or by brand, print area-specific coupons by entering your zip code, and get an estimate of how much money they will save you.

I’ve stopped at CouponMountain.com a time or 2 specifically because they don’t require registration or a lengthy sign-up process in order to access coupons. They have coupons for all the big stores (Walmart, Toys R US, Home Depot). They also have discount codes for airfares, hotel reservations, car rentals, and online dating. And if you’re a fan of a specific store, you can subscribe for email notifications whenever special offers from that store are available.

CurrentCodes.com has a lot of well-known online stores like Barnes and Noble, Staples, and Amazon.com have a place within their shopping cart for a “coupon code” that gives a percent or dollar amount off your purchase. If you don’t know the code, you don’t get the discount, so find a coupon. A lot of times you can find these secret discount codes and coupon codes listed on in a google search, but the problem with these sites is that they’re usually personal homepages and they don’t keep the lists up to date very often.

Dealcatcher.com has a feature called SundaySaver that compiles the weekly sales circulars and Sunday ads into a similar webpage. Just enter your state to see all of the stores that had ads that week—click on a store to see the deal. You won’t find quite as many categories of coupons on Dealcatcher as on Coupons.com. Nonetheless, it has been known to cross my screen a time or two.

FatWallet.com is a big one, but it has a lot of ads, and is difficult for me to navigate. I don’t dig on it very much because of that. I like a site that has everything I want right out in the open. Check it out, but don’t spend too much time figuring it out.

All in all, I’ve got to admit, I visit them less the more my salary goes up, and time goes down; but they are very good places to find deals to live the frugal way if you’ve got the time!

Another Way To Make Money Online; Courtesy Of Microsoft…

hank — Sun, 20 Jan 2008 08:13:37 +0000

Photo by: A Fighting FaithNo, I’m not talking about the ol’ “Bill Gates will send you money if you forward this email” spoof. I am talking about Microsoft’s Usability Research team. Clearly Microsoft has a lot of new products that need testing, and it can’t all be done in house; they need a larger audience of NON-Microsoft employees. That’s where we come in. Before you jump off this post because you think it is a tag to get you to buy Microsoft stuff, don’t! I went over to the corporate office in Redmond, WA last week, took 45 mins worth of testing a new Windows Mobile product, gave my opinion, and walked out the door with a copy of Microsoft Office 2007 (currently on Amazon for 399.99).

I have no reason to use the product, so it’s likely going to find a home on Ebay. But that works out to $533.32 an hour! How about them apples? Well worth my 45 minutes to roll over basic questions and give your opinion.

“But Hank, I don’t have an ounce of technical savvy blood in my body. How can I make any money off it?”

Easy answer – they don’t always want the experts to give the opinions on their products. They want the entire gamut of people to test out their products; not just experts. Toss your name out there, you never know if you’re what they are looking for. It takes about 5 minutes to sign up and tell them what you do.

“Ok Hank it DOES sound like a good idea, but I don’t live anywhere near Redmond, WA.”

Again, no problem. A lot of their questions can come over the phone, or through a web interface to test out and poll on certain product aspects. Sign up and you may be pleasantly surprised what they can call you on.

“Fair enough, I’ll sign up; but what about tax-wise? They’ve given me a gift? Don’t I have to pay it on taxes?”

They’ll put your name in their database and send you out a 1099 form if your gifts are over $1000 for the year. Currently the most expensive piece of software I saw on the list was Microsoft Visio 2007 at 559.99. You can get calls back for as many of the items that you can qualify for. I signed up in December and got my first call last month, so I guess we’ll see how many times they call. Yea, they tax you, but the tax is only on free money. You’ll probably pay $100 of your $1000 to Uncle Sam, and that’s not too bad.

Yes, they’ve been dubbed “the Evil Empire,” but as frugal guy, I don’t care who is giving out the money, I’m happy (and so should you) to take the gratuity for a short stint of my time and quick returns like that. This new found cash is likely headed into my Charles Schwab ROTH IRA before the April 15 deadline.

Why Is It So Taboo To Talk About Salary And Compensation?

hank — Tue, 15 Jan 2008 09:13:54 +0000

Photo by: takashy

How is it that when we can readily see public sector and professional athletes salaries on the web and not bat an eye at it. I’m sure they discuss these things over caviar all the time and it isn’t that big of a deal; but why does middle class America think it is so taboo to discuss it? I admit it, I never ask friends and family what they make. If they make it readily available for me, I’ll certainly listen, but I have never asked about it. Is it a status thing?

It seems even more ridiculous when you can find and know the price of everything with the advent of the internet. I can find out prices of cars, prices of houses, prices of groceries, tax information, and daycare prices if I really want to online. We have a pretty good idea of how much someone is worth by these things, but still feel it is some top secret information to readily discuss the last piece of that puzzle.

Do I disclose my salary on this site? No. But could you find it out if you wanted to? Totally. Look at my balance sheet, my net worth, and see how much goes in and out. Feel free, it’s out there to find, but I still find myself reluctant, even through anonymity to release that piece of information.

I think it may fall in the way we were raised and the environment we grew up in. I think a big reason may be that some of us are always trying to “keep up with the Joneses” and don’t want to give in that those said Joneses really are kicking our butts in the income category.

Photo by: takashy

I think another big piece of it MAY be the fact that the athletes, public officials, and some celebrities salaries are posted (including the fact that Paris Hilton gets paid MILLIONS to attend parties). We realize that we’re up against some pretty big $$$ and that our measly salaries are nothing compared to those apples…

But why the mindset in the first place? I never knew what my parents made growing up. Eating hotdogs and macaroni and cheese 4 times a week though gave me a pretty good indication; but they never actually let on anything. I’d suspect that my dad (mom stayed home to take care of us) brought in no more than 20k through the 80′s and left in the 90s and I’d bet when my mom went back to work she was barely pulling in 10-12k in her first few years, nearly to 25k now, but I never knew.

Does the lower class discuss salaries openly? In tight knit families I bet they do. If you’re all working to pay for the roof over your head, I’m sure it is readily available information at the dinner table. Heck, it would have to be.

Photo by: takashy

I’m not rich, nor am I poor, but I can’t tell you the salary of any of my family members, nor do I feel I should ask. Yes, I am certainly interested; but not enough to pry and ask. I would actually probably feel pretty uncomfortable about it. I remember growing up when you’re in your teens, people older than you always asked me though, assuming that I made minimum wage, I’d be happy to pipe up that I was making WELL above the minimum wage of $4.75 and that I was paid very well at $5.15.

So how about worldwide though – Is it just an American thing? Like I said earlier, I’m even confining it to American middle-class right now – prove me wrong if you can, I’m happy to listen. Half Sigma started a post last year about it and what he makes and it has generated a pretty good list so far. These people seem willing to share, anonymously, but still willing.

Is there ever a GOOD time to ask what someone makes? Maybe a rephrase, is there ever an appropriate time to ask what someone makes? I ran across a post my MyOpenWallet and they said:

“The question isn’t one that people are used to asking, I think. It seems rude, and your motivation for asking could be questionable. In many cases, maybe people would rather not know. But more often, I’m sure people are dying to know, although they would never dream of just coming out and saying it: “How much money do you make?”

And I agree – it DOES seem rude, but is that a thing that is a mindset? Would you care as much if you knew EVERYONES salary? if you knew the salary your boss, his boss, your co-workers, your family, your friends – would it numb the subject any? I’d think it would certainly change things up, but in different facets. The newly found rich people would be hit up by charities more, the poorer people wouldn’t have to try to live up the Joneses mentality, and likely would be richer by NOT having to live up to something they weren’t.

Ultimately it sounds like the issue isn’t going anywhere anytime soon. I’m sure I’m not going to be passing on any new developments on that front because to me, it is rude, at least at this point in my life… Convince me differently?

How Do I Plan To Reach My Investing Goals For Retirement?

hank — Sun, 23 Dec 2007 13:00:50 +0000

Photo by: emdot

Only 0 days 5 hours 2 minutes left until Hanks Holiday Handout drawing!

To make my goal of having my net worth be $1,000,000USD by 2020 I need to have a plan laid out. Yes it will change through the years, My wife and I will get raises; we won’t get the return we’re shooting for with investments in some of the years, but as a base goal if we take our current principal of $75,000 and continue to invest $21,500 per year for the next 13 and that will put us just over the 1MIL mark. That first MIL is the hardest, Pinyo lays it out here.

Where do I find $21,500 per year to invest? We’re currently contributing 10% of each our salaries for about $16,000 per year to our 401k plans, then add in $4,000 each for our ROTH IRA accounts and we’re well over the limit there. We’re planning on bumps in the road, so that’s why I’m giving the $21,500 number. There are a lot of calculations that need to taken into account, but that is the same with any investment plan. At 10% return with those calculations we’re looking at just under 840k, and at 12% that puts us over the 1MIL mark.

We could have a year where we can’t pay contributions to either our 401k or ROTH, but on the same note, there could be years where we’d contribute MORE to those accounts, For instance, we’re planning on trying to bump the 401k contributions up to 15% in 2008 and that would be $24,000 in itself; add in the ROTH IRA contributions and we’re looking at $32,000 invested per year and in 13 years, that will be worth 1.33MIL.

Numbers are numbers – sticking to the path of just getting money in is the key. In 13 years I’ll still be nowhere near retirement, but the first million is always the hardest to make, after that, it is quite ridiculous how fast it grows. In 35 years on this same $21,500 per year at 10% return we’re looking at 8.5MIL. Which is dreaming, and a lot can happen in 35 years, but there is no time like the present to start planning on it!

Time, as usual, is the key piece of this financial pie; variables are always tossed in to make it interesting. As long as we’re putting in the $21,500 we’ll be on a good pace. I’m sure there will be other investment opportunities, more job promotions, more raises, maybe more kids, but staying on this basic path is the key to our specific financial goal. What’s your path?

What Is The Difference Between A Savings Account And An MMA (Money Market Account)?

hank — Sat, 15 Dec 2007 16:23:35 +0000

Only 8 days 3 hours 35 minutes left until Hanks Holiday Handout drawing!

Sorry I’m behind on a few of the readers requests, it has been a busy month for sure! But this was a fairly straight forward answer to Ben.

Hi Hank – You have posted a few times about the high yield savings and Money Market Accounts – sorry to sound like a noobie, but what is the difference between a Money Market Account (MMA) and a savings account? – Ben from Iowa

Hey Ben – Money Market Accounts (MMA) and a savings accounts are both just products that a bank offers, like a store offers carrots and peas. The accounts are deposit accounts held with a financial institution. FDIC or NCUSIF insured deposits are backed by the full faith and credit of the United States government.

The difference between the two types of accounts is that withdrawals from a Money Market Account may be limited to “x” per month. Check with your MMA issuer for this exact number, but it usually falls at 6 per month. Whereas, on the other hand, savings accounts typically do not limit the number of withdrawals. That’s the only difference – The next thing would be to check the APY of the account you’d be opening.

What Is An Expense Ratio And How Does It Factor In On A Mutual Fund?

hank — Mon, 03 Dec 2007 18:06:00 +0000

So another reader request came in yesterday asking about expense ratios; it read:

Hank, this might be a dumb question, but I’ve got different answers from different people and I thought I’d go to the source! So back to school for, Expense Ratios 101:
- I buy into Fund XYZ for $1000 on January 1, 2007.
- It has an expense ratio of 1.5%.
- It has no load deferred front or backend.
- On January 1, 2007 it is trading at $100 per share.
- So I would own 10 shares.
- From 2007 to 2008 it grows 10%
- Would my account now be worth $1100?
- Or would my account only be worth $1100 – $16.50 (1.5% of 1100) or $1083.50?

So how is the expense ratio calculated in there then? Does the fund take it out BEFORE it shows the $1100? Or do they take it out WHEN I cash it in? One guy even told me that it doesn’t matter at all and that they take the fund managers money and I don’t have to worry about the expense ratio as long as I don’t have a loaded-fund. but then how are they making money off me for it? I’m 99.93% sure that guy is wrong, but what is the definitive answer on expense ratios? Maybe I’m just confusing myself. –Jessie from Nashville

First of all Jessie, it’s not a dumb question! In the big world of finance, EVERYTHING is confusing! But in a nutshell, anytime you see a printed return on your investment (on statements, on the TV, online) the return is printed Net of Operating Expenses. So in your example if your statement shows a 10% rate of return and the mutual fund has a 1.5% expense ratio then the fund actually kicked out an 11.5% rate of return. Operating expenses are always taken out first…no matter what fund company you invest with. In your example you account would be worth $1100 at the end of the year. Does that make sense? Hope so, good question!