1) Phil's Financial Tip of the Day:
Another reason to have a Monthly Budget:Can You Afford That Purchase?
Can You Afford That Purchase?From Financially Fit
According to Merriam-Webster's dictionary, to "afford" something means that you are able to "bear the cost." But, let's say you earn $50,000 a year. Can you afford, say, a $1,500 flat screen TV or a $3,000 watch? On paper, you may earn enough to "bear the cost," but in reality, we all know there's far more to affordability than just simple math.
Consider this analysis before deciding whether you can afford it...or not.
The first, and most obvious question to answer is "how am I going to physically pay for this?" Now, this answer does require a bit of math. Start by reviewing your income versus your monthly expenses.
Can you comfortably pay for this purchase in cash after accounting for your bills and your various savings? Or, will this exhaust every nickel of discretionary income and leave you vulnerable in a financial emergency? If you can pay for the item in cash with substantial savings to spare, you may be on your way to affording it.
However, if the purchase costs more than what's left in your checking account and requires using a credit card, you'll want to think long and hard before swiping. At the least, make sure your monthly payments lie well below your means, and have a plan to pay off the entire balance as soon as possible, preferably in the next month to avoid paying interest.
From here, you also want to consider any and all short-term trade-offs as a result of purchasing the item. While you may be able to afford the TV or watch in cash today, will it mean giving up something else tomorrow in order to make the payment? For example, will it mean ditching your summer vacation plans or forgoing dinners out for a month? If you're fine with incurring opportunity costs then you may be able to truly afford it.
That said, we shouldn't rationalize all opportunity costs. If affording something means sacrificing our hard-earned savings—be it rainy day, retirement or college savings—let this be a big red flag that you simply shouldn't afford it because it's not worth it.
Finally, remember to think long-term, as well. What might be possible trade-offs in the future? For example, let's say you have enough in the bank to buy that new plasma, but if you have big plans to save up for a house or start a family in the next year or two, you may not want to afford it. After all, it may mean making an even more important trade off down the road. So while, you can afford it today, it may not be actually be worth it in the long run.
2) In the Markets today:
Blue-chip stocks raced to an eight-month high, and the Standard & Poor's 500-stock index stepped into a new bull market Wednesday after the Federal Reserve said it would likely keep interest rates low until at least late 2014.
Fed News Fuels Stock Rise-From The Wall Street Journal
Blue-chip stocks raced to an eight-month high, and the Standard & Poor's 500-stock index stepped into a new bull market Wednesday after the Federal Reserve said it would likely keep interest rates low until at least late 2014.
The Dow Jones Industrial Average rose 83.10 points, or 0.7%, to 12758.85, its highest level since May 10, 2011. The blue-chip index had fallen as many as 96 points shortly after the opening bell but shot higher after the Fed's announcement at 12:30 p.m. Eastern time.
The S&P 500 finished with a gain of 11.41 points, or 0.9%, at 1326.06, closing the day in bull-market territory—up more than 20% from its recent closing low on Oct. 3, 2011. The Nasdaq Composite led the major indexes with a gain of 31.67 points, or 1.1%, at 2818.31.
The moves came after the central bank said it expects interest rates to stay at "exceptionally low levels" at least until late 2014. Previously, the Fed had said it expected the period of exceptionally low rates to last until mid-2013. The Fed said the economy continued to expand at a moderate pace and noted the recent improvement in overall labor-market conditions, though unemployment remains "elevated."
"You can see by the reaction in the markets all over the world that tacking on those extra months was a big surprise," said Dan Greenhaus, chief global strategist at BTIG. "Clearly, the Fed is saying, 'I'm coming. Rates are going to be lower than you thought.' If you believe that equity prices are impacted by lower interest rates, then you're going to bid up stocks."
The Fed's move sent the dollar tumbling against its major rivals, pushing up commodity prices and sending Treasury yields sharply lower.
The stock market's reversal traced a pattern that has become familiar in recent days—chipping away at early losses throughout the day.
"Whatever negative tone starts the day off, we seem to climb out of the hole," said Scott Armiger, portfolio manager at Christiana Trust. "I'm not sure the market deserves to be in as good a mood as this. Earnings haven't been great, but the market is shrugging it off....It defies logic, but we'll go with it."
The Fed announcement added more complexity to a trading day dominated by corporate earnings and headlines from Europe.
Leading the day's gains was Apple, which saw its shares surge 6.2% after the technology giant reported first-quarter earnings and revenue that blew past estimates, helped by sales of iPhones and iPads that more than doubled from a year earlier. The company also provided a fiscal second-quarter outlook that was above current forecasts.
Apple's gains helped the technology sector stand out as one of the strongest sectors on the S&P 500. Utilities also surged amid a drop in Treasury rates. Financial stocks were weakest.
European markets finished with modest losses. The Stoxx Europe 600 declined 0.4%, as concerns over the lack of a debt-restructuring agreement between Greece and its private creditors and mixed economic data weighed on sentiment.
Asian exchanges were mostly higher on the back of Apple's results. Japan's Nikkei Stock Average rose 1.1% to finish near a three-month high.
Gold futures reversed losses after the Fed announcement, rising well above $1,700 an ounce before settling up 2.1% at $1,699.80 an ounce. Crude-oil futures turned losses into a strong gain, surging above $100 a barrel before finishing up 0.5% at $99.40 a barrel. The dollar, which was rising against the euro and the yen, reversed course to lose ground to both currencies after the Fed announcement.
Demand for 10-year Treasury notes surged after the central bank move, sending the yield, which moves inversely to price, down to 1.2009%.
In economic news, data on pending home sales for December showed an unexpectedly large month-on-month decline of 3.5%, while an index of home prices in November showed a 1% gain. Economists had expected pending home sales to slip 1% and for prices to remain unchanged.
In other corporate news, Boeing edged up 0.6%, after the aerospace company reported fourth-quarter results that exceeded expectations but indicated that a large pension expense would hurt 2012 earnings.
United Technologies slipped 0.2% after the aerospace and building-controls company's fourth-quarter earnings matched fourth-quarter earnings estimates while revenue missed slightly, and the company affirmed its 2012 earnings outlook.
Advanced Micro Devices climbed 3.1% after the semiconductor maker's fourth-quarter earnings beat estimates but revenue missed slightly. Fellow chip maker Altera edged up 1.1% after the company reported better-than-expected fourth-quarter results but indicated current-quarter sales would miss estimates.
Delta Air Lines surged 6.2% after posting sharply higher earnings, thanks to a double-digit increase in a key revenue metric, passenger revenue per available seat mile. US Airways Group jumped 17% after posting stronger revenues and topping earnings estimates. United Continental Holdings also benefited from the interest in airline operators, rising 5.2%.
Xerox tumbled 9.9% after the printer-and-copier maker reported fourth-quarter earnings that matched estimates while revenue was a bit shy.
Yahoo slipped 0.8% after the Internet company reported fourth-quarter earnings that were in line with expectations, while revenue came in a bit shy. The revenue outlook for the first quarter essentially matched current forecasts.
3) Top financial story of the day:
The housing market retreated in December,2011.
Pending home sales retreat from 1-1/2 year high-From Reuters
Pending sales of existing U.S. homes fell more than expected in December, industry data showed on Wednesday, pointing to a moderation in home sales after recent hefty gains.
The National Association of Realtors' Pending Home Sales Index, based on contracts signed in December, dropped 3.5 percent to 96.6 after surging to a 1-1/2 year high the prior month.
Economists polled by Reuters had expected pending sales to fall 1.0 percent. Pending sales lead existing home sales by a month or two. In the 12 months to December, pending contracts were up 5.6 percent.
A recovery is starting to emerge in the housing market and home resales have risen for three straight months.
4) Quote of the Day from Dave Ramsey.com:
Unless you try to do something beyond what you have already mastered, you will never grow. — Ralph Waldo Emerson
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