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I just put together my net worth for June, and it looks good. My assets are up and my debts are down. That is always the goal. You can see the whole picture on Net Worth IQ or by taking a look at the “profile badge” on the right column.
I am looking at my summer tuition bill right now. $7,530 for two classes. I am wait-listed for, and anticipate getting into, a third. That would take it up to about $11,295.
In the mean time, I am working hard trying to pay for school as I go.
I just finished reading the new book by the bloggers over at Wise Bread. Their book, 10,001 Way to Live Large on a Small Budget, gives many thousands (ten actually) of tips on living frugal and personal finance.
The book is easy to read through quickly. It is designed in a way that helps you to drill in on what you care about and skip the parts that you don’t. I, for example, read the section of 21 beer tips word for word. I skipped over the wedding section, as that part doesn’t really matter to me.
The book has great tips that can help you in the kitchen, planning do it yourself projects, traveling, choosing a bank, and other tips that you can really use in your everyday life.
What I Liked: The quick read format that helped me learn what I cared about quickly. I did not have to spend hours and hours reading through irrelevant tips. Many of the tips were helpful and I will take to heart. I tried cooking for a week (not up to the 30 days in the book), and it was a handy time saving tip. I also liked the ideas about creating your own on-the-go snack packs.
What I Didn’t Like: Like many personal finance books and websites, there were some tips that are a little too frugal for my liking. I am never going to turn my heat down below 67 in the winter. I am going to head to the salon and pay for a haircut that makes me happy. I am going to spend money in life. Many of the tips were great to help me save without a big quality of life change, but I am not going to go crazy. That is not what I am about, I would rather live happy than super frugal.
Overall: The book is definitely worth a read. Now that I have read through it, I think I am going to keep it as a reference book for organizing and saving money around the house. I am a 24 year old guy, I can always use help in the kitchen. I hope to be handy around the house when I buy a home, and this book can help with that too. If you don’t end up buying it, be sure to at least check out the website, WiseBread.com, for free tips of frugality and personal finance.
If you do decide to buy the book, please do so through the link on this page. A small portion of your cost goes back to help offset the costs of maintaining this blog.
10,001 Ways to Live Large on a Small Budget
If you have $100 today, what is it worth? What would you pay today to ensure you receive $100 one year from now? Would you pay $95 or $105? Bankers, loan specialists, and mortgage brokers are experts in the time value of money (TVM). Finance students spend a lot of time on this because it is so important. While it is important, it is not very difficult to understand.
Present Value – This is the root of the time value of money. The present value is what a sum of money is worth today. This is used commonly in bond valuations and annuities, where the final payout is fixed. The PV of any sum of money depends on several factors: the future value (terminal value), interest rate, and number of periods. Based on those inputs, any financial calculator can work backwards and tell you what the sum is worth today. The present value is almost always smaller than the future value. For example, at 8% (often called the discount rate) $108 in one year is worth $100 today.
Future Value – If you have $100, what is it worth in 10 years? In 20? That is what you have to think about when investing. If you put $100 in the bank at 8%, it is worth $108 in one year. This is just like the example above, but in reverse. At the same 8%, the $100 is worth $116.64 in 2 years, $125.97 in 3 years, $136.05 in 4 years, and so on. The key here is compounding interest. At the end of each period, the 8% interest is calculated on the original principal plus accumulated interest.
What Does This Mean To You? – Do you have a bank account? Do you have a loan? Are you investing in savings bonds? How about stocks? If you have a mortgage, this is really important to you. If you have a retirement account, all of those years add up.
While this is something you might never think about, it really does impact your everyday life. When you have a mortgage, you essentially pay for your house twice. When you calculate interest saved from early payments taking the time value of money into account, you might be surprised how much you save. If you think a 1% fee on your 401(k) is no big deal, compute what you would have at the end of 30 or 40 years earning 1% more.
A good, simple TVM calculator can be found here: Present Value/TVM Calculator. You can also try it with an amortization table for a loan: Bankrate Loan Calculator. Learn this and understand the impact it has on you. If I missed something, feel free to ask me questions in the comments or through the contact form.
I just wanted to give you all a little insight into the sponsored posts you see (usually about one a week) on Narrow Bridge.
Keeping Narrow Bridge alive is not free. The main costs are domain registration and web hosting. To cover these costs, I look for revenue streams. The main revenues come from sponsored posts and advertising.
I worked hard to find sponsorship that aligns with the interests of the readers. The major sponsor is a debt reduction website, and the sponsored posts are always relevant to a personal finance issue.
I hope you enjoy the posts. I do spend a lot of time writing them and making them relevant to you. If you find the topic relevant to you, feel free to visit the press release linked from the article. You might be pleasantly surprised.
[Sponsored Post]
When you plan for your retirement, you probably think about how much money you need every month to maintain your standard of living. While your mortgage, if you still have one, will be fixed, most of your expenses will adjust with inflation and cost increases.
If you need $2,000 per month to live today, you will need significantly more when you retire if it is far off. Gas, food, utilities, clothing, and entertainment costs are moving upward. When my parents were little, they remember buying gas for a dime a gallon. I filled up when I was 16 for under a dollar. Now, two dollar gas is a distant memory.
Costs will always increase. It is simple economics. Most economists believe slow, steady inflation is a good thing. The value of real estate, for example, should increase with time, not decrease. But that inflation, or spikes in costs caused by recessions, must be taken into account when planning for the future.
Today, many elderly families are suffering from cost of living increases. In addition to expenses younger families must pay, elderly families often have much higher medical expenses.
While working families recieve pay increases every year to cover inflation and cost of living adjustments, the elderly to not recieve raises. The only way for an elderly family to make more is go back to work or have a good year in investments.
When I plan for the future, I do not count on social security. I do not count on my company’s pension. I can only count on myself. I put away retirement savings from every paycheck, and I hope you are too. However, when you plot out your retirement age and costs, think about cost of living increases. Things will not stay as they are today. The future is not predictable. While you never know what the future will bring, you can prepare for anything.
[Sponsored Post]
I have some sort of stomach thing going on right now. I am waiting on blood test results to know more. Anyway, this is the first time I have been sick enough to go to the doctor in about two years.
Stomach Med (OTC): $4
Co-pay: $25
Prescription: $10
Groceries for Stomach Ache: $15
That is over fifty dollars for this stupid stomach ache! I guess that is why we have emergency funds.
When my appendix almost blew up a few years back the surgery and hospital bills and doctor co-pay was in the hundreds. When I broke my hand six years ago the resulting doctors expenses and surgeries were closer to $1000.
The moral of this story: even if you have insurance, have an emergency fund. You never know when you will need $50 or $1000 for a medical emergency, even with insurance.
This morning I opened the Wall Street Journal to see an interesting advertisement on the front page, a logo, the phrase “Banking starts over here and now”, and “find out more on page A5.”
On page A5, I read an ad saying that Ally is a bank that is essentially just like ING Direct, but you can reach a person easily on the phone.
I went to their website and saw attractive interest rates and a seemingly good deal, but then I went to the about page and saw that it was the new face of GMAC.
GMAC bank is currently receiving federal funds to remain liquid. The bank originated as the lending arm of General Motors. As we all know, GM is now on the brink of disaster and is owned by the US government.
If you trust them, they offer some good deals. They have a no penalty CD. Like the name implies, you can withdraw your money at any time (after six days) without any penalty.
Would you trust your money with GMAC?
[Sponsored Post]
Hundreds of studies have shown that millions of people have lost trillions of dollars in the US alone. In the UK, that number is roughly 1.9 trillion pounds. The financial crisis has impacted less wealthy families and rich families alike. People are losing their homes and their wealth.
Unless your money was all in certificates of deposit and cash, you probably lost something. Fortunately, most of our 401(k) and investment accounts have recovered, at least somewhat.
Many people have lost equity in their homes. The average house value in the United States was down 6.8% (Money-Zine) from 2007 to 2008. In the UK, the average home value is down 17.5% since 2004 (Debt Free Direct). Canada has had mixed results depending on the city.
One major problem with decreasing home values is negative equity. For example, if someone bought a house for $100,000 in 2008 and the house is worth $90,000 today, but the owner owes $95,000 on the mortgage, they have a negative equity of $5,000. They owe $5,000 more than the house is worth! This is a fictional example of what is happening to millions of people around the world. Many have a far worse equity hole than $5,000.
This example helps explain why the mortgage crisis is so bad. Many people are in loans that they can’t afford, and many people owe more than the house is worth. If you were in a bad situation and owed more for a house than it was worth, why wouldn’t you just walk away? The only thing you have to lose is your credit score, which would take a massive hit.
Now thousands of people are rejected for new mortgage loans every day. Few companies would give a new mortgage loan to someone who defaulted on a loan in the past. It will take at least seven years before the defaults will drop from their credit history. Until then, they are stuck renting.
It is widely believed that owning a home is one of the major keys to financial success. Now the people who are having the biggest financial problems can’t get out of their current situations. Hopefully new legislation and hard work will bring people back from financial despair.
[SPONSORED POST]
Rather than re-write one of the thousands of blog posts or news articles on the new credit card laws, I thought I would give you all a roundup here. These are some of my favorites:
It has happened to all of us at one point or another, we see something that we want but do not have the cash in the bank to buy it. When I was in 3rd grade, it was Power Rangers toys. When I was in middle school, it was a big screen TV. When I was in high school, it was a PlayStation. Today, there are many items ranging from flat screen TVs to cool furniture that I would love to buy. However, my income is mostly spoken for to go to school. While my credit card is tempting, there is another way.
First, lets think of the downsides of buying a $400 TV with a credit card. If you are not going to pay it all off right away, you will be paying for it for years, with interest! For that $400 TV, you could pay hundreds more in interest. That seems like a dumb thing to do. While it is fun to have the TV, it is not worth paying more than it costs to own it.
With “reverse credit”, you pay for it ahead of time. There are two main strategies to do this: the envelope method and the bank method.
The envelope method is the “old school”, all cash way to approach the purchase. If you are live mostly with cash, this is the method for you. Put a designated amount in an envelope (in a safe place) every payday. Be it $10, $20, $50, or any other amount you can afford, start stashing away cash. When you get to the $400, take it to the store and come home with the new TV.
For people like me, there is another method. I do everything online and pay with plastic. To save up without putting cash away, you need a sub-account to separate your TV money from your regular living expenses. I recommend using a sub-savings account at ING for this.
Because I already have an online checking and savings account at ING Direct, I can quickly open up a secondary savings. Do this by following the “open a new account” procedure for a savings account. Your new sub account will be linked to your current accounts. You can even give it a fun nickname like “Future TV”. Ramit at IWillTeachYouToBeRich.com has several sub accounts for different future events and goals. This list of accounts is from Ramit himself.
Once the account is open, setup a recurring transfer from your checking account (where you are getting direct deposit) to fund your goal. You can make this automatic so you never even have to think about it. While the money is being saved, the bank is paying you interest. That is a much better deal than paying the bank credit card interest, don’t you think?
Once you hit your goal, make the purchase from a credit card and pay it off in full from the sub-savings account or transfer the funds and use a debit card to buy it. Just make sure you are getting rewards for the purchase.
Alternatively, you could make a regular deposit to a rechargeable debit/gift card, but there are usually associated fees unless your bank will do it for free.
Have any of you ever tried this before? Please tell us about it in the comments!
