October 31, 2008
Happy Halloween. Enjoy a night of fun, frights, and festivity. Halloween has changed a lot since it was called Old Hallows Eve. Commercial opportunities now dominate the spooky day. How can you celebrate without breaking the bank?
First off, you can make your own costume. It is easy to spend hundreds on a good costume. Or… you can throw something together around the house.
Second, you have an option on candy. Don’t to too cheap (to avoid tricks), but you can save a bunch on bulk candy. Try Costco, Sam’s Club, or WalMart for cheaper options.
Third, drop the decorations, or recycle. Decorating is fun, but new pumpkins every year add up. Try recyclable decor that can be used again and again. Next week is a good time to buy for the future, as everything will be heavily reduced.
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October 30, 2008
If you are as much of a move buff as I am, you have probably debated Netflix many, many times. So, should you do it?
The average cost of a video store rental is about $5.00. How often do you rent movies? If you rent 3 a month, that is about $15 per month you spend at the video store. Once a week? $20. You can do the math.
So, if you do that anyway, at what point is Netflix “profitable” for you. As we all know, you should only spend money you have. If you are living paycheck to paycheck, renting movies is not for you. If you, however, love movies. Maybe Netflix is a good idea.
I gave in to temptation and got hooked on Netflix. I am on a plan by myself, so two movies at a time is sufficient. Plus, you can watch online if you ever have a fix that 2 doesn’t cover. I turn my movies around on average twice per week. A handy website called
FeedFlix has done the math, and I pay on average $1.27 per rental. That is way, way less than $5 a the video store. In addition, I am working my way through the entire series The Office on Netflix streaming and I have watched a movie on the laptop too.
Feedflix is free and does not require a log in. Netflix costs money, but I think it is worth it. If you are a movie buff, this is a great way to work through the entire AFI 100 list at a low cost. If you only do movies once in a while, I would pass.
I am always up for finding ways of saving money, but I think the $13.99 is worth it.
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October 29, 2008
First off, what is an overdraft line of credit? An overdraft line of credit is essentially a credit card attached to your checking account. If you overdraw, the amount automatically is deducted from the credit account so you don’t have a real overdraw.
Most banks offer this, and most banks make a ton of money as a result. However, they make a ton of money as a result of overdrafts too.
I am an advocate of this type of account on several conditions. First, the line of credit should be free. If you have to pay to keep it active, monthly or annually, you are getting ripped off. Second, there should be no fee to use the line. If you are charged $10 to use it when you overdraft you are being ripped off. (Though it still may be cheaper than the $30 you are charged for an overdraft, that if your call). Three, you should be able to pay it all off at once any time.
Like a credit card, overdraft lines have interest attached. If you pay it off right away, you don’t pay interest. It is more of a safety net.
I have an overdraft line of credit at ING, and it has been used once for about an hour. I had an auto-payment make a withdrawal on payday, though my paycheck had not processed yet. It was already used and paid off before I woke up! So it is a useful backup.
However, never ever think of that line of credit as money you can spend. Like credit cards, it should be used as a backup and paid off immediately so you don’t pay interest. I have never paid credit card interest and I have never paid overdraft line of credit interest. You should not either. Don’t think of it as “spending power”, think of it as “what if”. In fact, don’t even think about it. It is better to forget it is there and never dip below the zero in any of your accounts.
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October 28, 2008
I charge everything to my credit card. Everything. I know that goes against
what I told you about credit cards, but this is a bit different.
When I told you to stop using credit cards, I meant you should stop using the credit part, not the card. If you pay off your card in full every month, you pay no interest. If you don’t pay it all off, you are paying up to 30% to borrow that money.
So, I do charge everything. I pay it off in full twice a month (on payday). My balances are never high, so my credit score stays up. I pay in full, so I pay no interest. And, importantly, I get paid by the credit card company to use their card!
I currently use a Chase credit card with rewards. I get 1%-5% back on purchases depending on the type. I used to use a Citi card where I got 1% back across the board. When you would buy something anyway, why not reap the benefits?
A credit card company charges merchants each time the process a transaction. The fees are negotiated between the merchant and the processor, but costs are usually about 2% or more. If the bank gives you 1% back, they are just splitting the profit with you. Either way, they are making money. You should make money too.
If you have a real spending problem, do not use credit cards. If you don’t, and can live on a budget, it is time to get paid by the credit card company.
Now go forth and earn rewards. Check out CreditCards.com and CreditRatings.com for some comparisons, but do research on your own too, don’t just trust them. Make sure, when signing up for a card, that you don’t have a lot of other new credit (or your score will go down). Pick a card with a low interest rate (just in case) and no annual fee. AMEX has great rewards, but you have to spend a lot to make rewards that pay off the annual fees. I shopped around at CitiBank, Chase, MBNA, Bank of America, and a bunch more. I picked the card I use for several reasons. 1. They paid me $50 when I signed up and used the card once, no other strings attached. 2. No annual fee. 3. Cash Rewards (points are okay if you would really use them, but I like cash). 4. Reputable bank. 5. Low interest rate.
If you have any questions, leave them in the comments. Otherwise, I expect that your credit card will be paying you shortly.
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October 27, 2008
If you have an account at any bank, there is something you should know. Banks are in the business of making money. They are your friend to the extent that they can make money from you. Sad but true.
When I worked at a bank, the third most profitable practice we had was overdraft fees. Banks like when you overdraft, they get about $30 bucks.
If you overdraft once (people make mistakes), you should not just take the $30 fee without a fight. If you call and ask really nicely, they will probably refund it for you. If this is a regular thing, don’t expect too much. But bank employees understand that people make occasional mistakes and are likely to refund you every once in a long time.
If you overdraft a lot, you probably need to overhaul your way of looking at finances.
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October 26, 2008
We have now learned about a whole lot of different tools to manage your personal finances. These tools, which I refer to as a personal finance arsenal, will help you manage, track, and build on your wealth. Here is the recap:
The Big Picture: Mint.com Visit Mint
Net Worth: NetWorthIQ Visit NetWorthIQ
Credit Report: AnnualCreditReport.com Visit AnnualCreditReport
Credit Score: CreditKarma Visit CreditKarma
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October 25, 2008
I entered my first trade Friday morning, and it was exciting, though it has not executed yet. I have been following a few stocks recently, and I picked a bottom for one of them. I decided to enter a limit trade on the stock.
If you don’t know what a limit trade is, this is a good time to keep reading. If you do know what a limit trade is, you should keep reading anyway.
There are several types of trades you can make at your brokerage. The most common are market, limit, and stop.
A market trade is a purchase at the current market price. Your stock broker will purchase the desired number of shares as quickly as possible. If the price is on the way up or down, you get it at whatever they can get it for. Usually large firms can guarantee the current price for you at the time you enter your trade.
A limit order, what I did this morning, sets a limit on the purchase price. For example, if you are watching a stock trade around $7.50 but you would not pay more than $7 for it, you can enter a $7 limit. When the stock hits $7 per share, the trade will execute. From there, the stock can go up or down in value, but you bought it for $7 or less. If it never gets down to $7, you don’t buy it. My limit order has not executed yet, and may never execute. I think, though, that the stock is worth more than the limit I entered and it can only go up from there. I am protecting a loss.
A stop trade order is a protection barrier from a drop. If you own a stock that is trading at $20 per share, you can set a stop anywhere below that $20. If you enter a stop at $17, the stock will automatically sell if it hits $17 or below. A stop prevents losses below a certain point. If the stock rises in value you can cancel the stop and set a new one at a higher price.
Knowing how to use these tools is vital to making money, and not losing money, on the stock market. While we never know what a stock is going to do, we can set our trades to protect ourselves. If you use a limit order to buy a stock at $2 and watch it rise to $10, you can set a stop at $8 and sleep easy knowing you made at least $8 per share. In that scenario, or any other, make sure to trade smart and diversify your portfolio.
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October 24, 2008
I picked a brokerage firm. I decided to go with Charles Schwab. While their trading fees are higher than most, I was able to join a “household” with my family and incur cost savings as a subdivision of a larger household.
If I were not part of the household, I would have picked ShareBuilder or Scottrade. They had the lowest fees for my investment needs.
A benefit of a full service brokerage like Schwab is their number of funds and investment options. I like ShareBuilder’s cheap automatic investments and no minimum account fee. For a larger brokerage, Scottrade has a low minimum ($500) and lower fees.
Do any of you have a brokerage account? How did you choose?
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October 23, 2008
You do not need a budget to get by unless you are a compulsive spender. That said, I like to have a budget. You do not need a budget because you are already investing automatically. As long as you don’t touch that, you are fine for the future. Living paycheck to paycheck means that you are spending more than you can afford and you need to spend less, not necessarily earn more.
I use finance site Mint.com for my budgeting needs. I started my first budget when gas prices started rising. I decided that I was going to cap my gas spending, and my budget grew from there. Here is my first budget:
My first budget was simple. $120 per month for gas. That would be about a tank a week at the time. I also set a budget of $0 for bank fees. Mint would send a warning e-mail if that ever went above zero.
Over time, my budget developed. Here is my budget for October:
Now it is your turn. Since you are already on Mint, it will be easy to setup a budget. Just click on the “+Add Budget” button to set your first budget amount. My budget is a living financial tool that changes from month to month with my needs. Since I set my budget, I follow it. The leftovers go into my savings.
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October 22, 2008
I keep telling you how you should invest, stop spending, and do more for yourself financially. I can not justify doing so without doing so myself. I want you all to see how I am doing it today.
That is my breakdown. You might note that I did not include a budget for my living, fun, and other savings. That is for next time. I did want you to see, however, that I do put 10% into investments first. The trick to automating your investing is that you can live on what is left. If you are feeling a crunch, make a lifestyle adjustment.
A very rich man once told me that the trick to being happy is living below your means. This multi-multi-multi millionaire drove the same Toyota Corolla he bought in the 1980s over twenty years later.
Now that you have seen how I do it, it is time to do it yourself.
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