Thursday, August 21, 2008
LAZY! If you want to succeed in life and in your personal finances, you need to set goals for yourself and make a plan to reach them. I personally have goals set for short term and long term savings.
So why set goals? Because you need to strive towards something in life rather then just flounder and get through life. Maybe you want to save $1,000,000 for retirement or $30,000 for a new car. Whatever you goal is it should be clear and written down on paper.
You need to have plan to get there and how you will achieve this goal.
1) Write down short term and long term goals
2) Calculate how much it will take and how long to reach the goals
3) Write down your plan and put it into motion.
4) MAKE IT AUTOMATIC
What I mean is set up a payment plan to automatically put a certain amount in a Savings account each month or every two weeks.
Personally I use ING Direct for my savings account and it earns 3% a year on my money. I would suggest you do the same or use another high interest savings account. Until next time keep saving and paying off those DEBTS.
Wednesday, August 20, 2008
It is one of the toughest ages to be. You get done with school and ready to start your career and make some decent cash right. Well here is a list of things most people will go through in 5 years of graduating which can take a big hit on your wallet.
1) Student Loans (yes you do have to pay them back.)
2) Apartment rent
3) Buy a house
4) get married
5) buy a new car
6) Have kids
9) Saving for Retirement
So are you ready to handle all that. I know NOT A CHANCE. Well here is a few good tips to get you started on your new life.
1) PAY OFF ALL DEBTS!!
2) Wait and drive that old beater car before buying a new one.
3) Put 10% of your pay into your companies 401K or RRSP
4) Start a high interest savings account for your car or furniture you will need.
5) Make more income but renting a room or 2 and pay down those debts with it.
One of the biggest things you can do early is SAVE for RETIREMENT. It seems hard to do when your in your 20's but put aside 10% and do it automatically and you will be glad you did when you retire in 40 years. Next get those high interest DEBTS paid off. Canadians are starting to wake up and be savings once again so be FRUGAL and stop buying all the toys. You don't need them.
Watch for new articles on savings, retirement, DEBT to come soon.
Saturday, August 9, 2008
From what I have learn your credit score can be wiped out very quickly when your young and no cares in the world. I know because I was that guy. So you miss a payment no bid deal right. WRONG!~
Here are some of the basics as to how the Credit Score works.
1) ALWAYS make your payments on time. Not a day late!
2) Do NOT just make minimum payments! If your tight for money pay at least 10% more then the minimum. Usually the minimum is 2% or something like that of your total balance. Some cards charge only 1%. THEY WANT YOU TO PAY LESS.
3) NEVER keep your balance over 50% of the total credit limit. This makes up about 15% of your total credit score. Also try to keep your balance at $0 if not under 50% of the total credit allowed.
4) Credit History. They look at how long you have had credit and how you normally pay things off. If you have revolving debt (keep a balance month to month) or the customers they hate who pay it off everyone month.
5) NEVER close of credit card even when it is paid off. Cut the card up and never use the account again. Simply put credit companies look at badley for closing accounts.
NOW if you paid off your credit cards and don't intend to build it up again GREAT~! But here is a tip to get your Credit Score back up. Use your credit card to make 1 or 2 purchases a month and pay the entire balance off each month. This will show the credit companies you pay on time and builds up your history. Myself I charge some groceries and maybe a tank of gas and then pay off the entire balance each month.
Do these steps and your credit score will look good in the end. One last tip for you as well. If you think you can fix your credit over night. THINK AGAIN! I don't care who tells you they can fix your credit score over night. They can't it takes time and patience.
Get a copy of your credit score from www.TransUnion.ca or www.Equifax.ca
Until next time Keep learning and applying what you have learned! 9 Steps to paying of Credit Cards
You can throw the reminders in the Cuisinart or chuck them into a garbage can, but that won't make the debt go away. Debt hovers like a carrion bird over a dying beast, with annual rates of 20% or more compounded monthly, month in and month out. You can't wish it away. But you can pay it down with determination and the good graces of a few wealthy relatives (see tip No. 5). Here are nine ways to get out of debt:
1. Pay more than the minimum
First, break the habit of paying only the minimum required each month. Paying the minimum -- usually 2% to 3% of the outstanding balance -- only prolongs the agony. Besides, it's precisely what the banks want you to do. The longer you take to repay the charges, the more interest they make, and the less cash you have in your pocket. Don't play their selfish game.
Instead, bite the bullet and pay as much as you can each month. If your minimum payment is $100, double that to $200 or more. Examine your normal expenses -- you can find the money. Skip eating out at lunch, and bring it from home instead. Eliminate desserts. Give up happy hour. We all have "luxuries," and you know what yours are.
Make a few sacrifices, and you will find the extra dollars needed to increase your debt repayments dramatically. Those increased payments will save you hundreds, if not thousands, in interest payments. Plus, you will get out of the hole you've dug for yourself much more quickly. Is it fun? No. But it sure beats living a hand-to-mouth existence, fearing bills each month.
2. Snowball your debt payments
Take a long, hard look at all your credit cards. Pay particular attention to the one with the lowest interest rate. Have you reached the maximum limit on that card? If not, consider transferring a higher-interest bill to that one. Many credit cards permit this, and it's positively Foolish to trade an 18% debt for one at 12%.
If your entire balance is too large to fit on one low-interest card, pay at least the minimum amounts due on all of your cards except one. Funnel the majority of your debt repayments into that one credit card, and pay it off as quickly as possible. When the balance on that card reaches zero, move on to the next with the same aggressive repayment plan.
Lather, rinse, and repeat. This method of repayment is aptly called "snowballing." As your debts decrease, the amount of money you have to attack them increases. Your payments snowball until all of your debt is pummeled. Pretty neat, eh?
Another way to transfer higher-interest debt to a lower-interest card is to take advantage of the promotional offers many banks use to entice you to their line of credit. You've seen the come-ons. "Transfer all your credit card balances to us, and pay just 5.9% until next January." It could be worth it. Moving to 5.9% from 18% interest could mean substantial dollars to you. And the money saved in interest could then be applied toward the principal each month, thus reducing your outstanding debt balance even further.
Take care, though, before you act. Examine the offer closely. Look for the hooks. Will the interest rate after the introductory period be higher than you're paying now? If so, you may have to switch again at that time. That, in turn, could give rise to another surprise. Banks have caught onto the charge card hoppers who switch from card to card to take advantage of the low introductory rates. Many of these offers now stipulate that if you transfer balances from the new card within a 12-month period, the normal interest rate will be applied to all outstanding balances retroactively. That proviso could be a bitter pill to swallow for someone short on cash, and it certainly doesn't help the debt repayment schedule. Read the fine print, Fool.
3. Cash out your savings account
You could cash out your savings and investments and use the proceeds toward debt repayment. Yeah, no one wants to do that. But sometimes it's just Foolish to do so. Even when debt interest is at 12%, your investments would have to pay more than 18% before federal and state taxes to equal that outflow of dollars. We doubt the dollars in your savings account are earning anywhere near that rate of interest. Pay off the debt, and it's the same as getting that 18% return without any risk on your part. The higher the interest rate on your debt, the more attractive repayment versus investment becomes.
4. Borrow against your life insurance
Do you have life insurance with a cash value? If so, borrow against the policy. Yes, you're borrowing your own money. But the interest rate is typically well below commercial rates, and you can take your time repaying the loan. Do repay it, though. If you die before it's repaid, the outstanding balance plus interest will be deducted from the face value of the policy payable to the beneficiary. While that seems a small price to pay to get out of debt now, it could be burdensome to your loved ones should you sleep the eternal sleep before paying it back.
5. Finagle family and friends
Perhaps your family or friends could float you a loan. Who else knows, trusts, and loves you like they do? Unless you're really the black sheep of the flock, chances are you'll get a very favorable interest rate. They may even tolerate a late payment or two. But if you want to maintain the relationship, it's best to keep things on the straight and narrow by using a written agreement. You should clearly establish the interest and repayment schedule in writing to avoid misunderstandings and hard feelings. And it goes without saying that you must be scrupulous about adhering to that schedule. Otherwise, you can forget the family reunions and birthday presents.
6. Get a home equity loan
Do you own your own home and have equity that's accumulated through the years as you've paid off the mortgage? If so, now's the time to consider a home equity loan (HEL) line of credit for the maximum amount possible.
A HEL gives you two ways to save. First, by using the loan proceeds to pay down your debt, you trade something like an 18% loan for a 6%-7% loan. Second, if you itemize deductions on your income tax returns, HEL interest is a deductible item under most circumstances. In a 25% marginal tax bracket, the 6% loan really has an effective rate of 4.5%, and that's probably the cheapest interest rate you'll see on personal indebtedness.
The danger here is falling into a common trap. Many get an HEL, pay off existing debt, and then ring up the charges on the credit cards all over again. Now they have the HEL to repay on top of the credit cards. The hole just got much deeper. Fools use the HEL to pay off the credit cards, and then keep them paid off until the HEL is repaid.
7. Borrow from your 401(k)
Do you participate in a 401(k) qualified retirement plan at work? Most 401(k) plans have a feature that lets you borrow up to 50% of the account's value, or $50,000, whichever is smaller. Interest rates are usually a point or two above prime, which makes them cheaper than that found on credit cards. Thus, 401(k) plan loans may be a Foolish option to debt repayment. Not only is the interest typically much lower than that on credit cards, the best part is you pay it to yourself. That's right, every dime in interest paid on a 401(k) loan goes directly into the borrower's 401(k) account, not the lender's.
But there are drawbacks. First, the loan and interest will be repaid with after-tax dollars, but the interest will be taxed again when you withdraw money from the 401(k) years later. Additionally, you must repay this loan within five years. If you leave your employment prior to full repayment, the outstanding balance becomes due and payable immediately. If it's not repaid, that amount will be treated as a distribution to you. You'll be taxed on that amount at ordinary rates. And if you're under the age of 59 and one-half years, you will also be assessed an additional 10% excise tax as a penalty for an early withdrawal of retirement funds. Accordingly, ensure any 401(k) loan can be repaid before you leave your job.
8. Renegotiate terms with your creditors
OK, you've done all you can. Savings are gone; relatives have been tapped out; you don't have a home or 401(k) to borrow against. You feel like you're against that proverbial wall. The money just isn't there. Is bankruptcy the only way out? No way. Try pulling an ace out of your sleeve prior to taking that step. What ace? The threat of bankruptcy, of course.
Let your creditors know your situation. Tell them that if you are unable to renegotiate terms, you'll have no other recourse but to declare bankruptcy. Ask for a new and lower repayment schedule; request a lower interest rate; and appeal to their desire to receive payment. Faced with the prospect that you may resort to such a drastic step, creditors will do what they can to protect themselves against a total loss.
Indeed, many will negotiate away the farm before they'll write off your debt. As lawyers love to say, everything is negotiable. Therefore, what do you have to lose, except time? It's worth a try. And if you don't wish to do this yourself, organizations exist that can do it for you.
9. As a last resort, file bankruptcy
What if you decide you can't pay down your debt using any of the methods listed above? What should you do? The absolute last resort is bankruptcy. Within Fooldom, we firmly believe everyone has a moral obligation to repay their debts to the utmost of their ability. There are times, though, when repayment may be impossible. In those cases, bankruptcy may be the only available course of action. Nevertheless, be aware of the significant drawbacks.
Your credit record will contain this information for 10 years, thus ensuring you will have a tough time obtaining credit you can afford during that period. Additionally, as odd as it seems, it costs money to file for bankruptcy. Attorney and court filing fees cost in the hundreds of dollars, and they must be paid to obtain the relief sought. Finally, bankruptcy laws have gotten a lot tougher in recent years, so you may not qualify for complete relief.
There are two types of personal bankruptcy relief: Chapter 7 and Chapter 13. Chapter 7 is straight bankruptcy that allows the discharge of almost all debts. Those that aren't discharged are alimony, child support, taxes, loans obtained through filing false financial statements, loans not listed in the bankruptcy petition, legal judgments against the petitioner, and student loans.
While Chapter 7 relieves you of the responsibility of repaying most creditors, you may have to surrender much of your property to help satisfy the debt. However, different states have different laws that grant you exemptions on certain types of property, such as a certain amount of equity in your home, a low-value vehicle, small amounts of jewelry and other personal property, and tools you use in your trade or business. These exemptions usually aren't huge, but they do mean you won't have to start over with absolutely nothing.
Chapter 13, sometimes called the "wage-earner plan," is different. You keep your property but surrender control of your finances to the bankruptcy court. The court approves a repayment plan based on your financial resources that provides for repayment of all or part of your debt over a three-to-five-year period. During that time, your creditors are not allowed to harass you for repayment. You also incur no interest charges on the indebtedness during the repayment period. When all conditions of the court-approved plan have been fulfilled, you emerge debt-free from the bankruptcy.
In matters of budgeting, there are two clear camps of consumers: them, and the rest of us.
They are the people you ask to calculate what everyone owes when there are more than two of you dining out. They know exactly how much they spent on ATM fees last week, last month, and last quarter. They balance their checking accounts down to the penny. Daily.
The rest of us? Well, we swear that tomorrow, we really are going to sit down and make a budget. It's not that we don't mean it -- it's just that we have issues with following through.
The secret to setting up a budget you'll actually follow
If nothing else, remember this one simple budgeting rule: Spend less money than you make.
Now that you've memorized that line, let's fine-tune that advice. Procrastinators, you can rejoice: There is such a thing as a budget that you can stick to. What's the secret? Take every shortcut possible.
Since money advice is our full-time jobs, we've been through the budgeting process enough to spot the corners that can be cut and the steps that can be skipped. The Fool's Lazy Budget still requires some prep work (hey, we aren't miracle workers), but we've streamlined the process so that you can start seeing results right away. After all, we don't want you to set up a budget, only to abandon it a few weeks later.
The purpose of this budget is to come up with a system to govern everyday spending. We're leaving out housing, insurance, and the all-important savings categories for now.
So let's start corralling your cash flow, Fools:
Step 1: Take a snapshot of your spending
Every budget starts with sniffing out your spending habits and determining exactly where your money goes on a day-to-day basis. Don't skip this step: After all, if you don't know how much you're spending and on what right now, you can't decide where you want to spend and on what from now on.
You can do this the hard way -- tracking your spending for three months, inputting every expenditure in a 218-category spreadsheet, then spending nights poring over the data -- or you can do it the one-step way.
The one-step way it is! For those who do most of your spending on one credit card (paid off in full each month, right?) or with a debit card, review the raw data your bank provides on your monthly statement, and come up with general categories for spending areas in which the amounts you shell out make you shudder. It's even better if your financial institution provides a year-end spending summary, with your weak spots fully graphed in four-color bar charts.
If most of your spending is done with old-fashioned cash, go about your business as usual for one week -- just write down all of your expenditures. Then project the results over four weeks. Now you have a rough idea of where your dough goes. As stated above, pinpoint the big categories where your overspending occurs.
Step 2: Plan your next shopping spree
After you get over the horror of your daily spending, the next step is to go on a virtual shopping spree. Sorry, this trip doesn't involve a pit stop at the food court; it's more like a cerebral trip to the mall of your future.
- Grab a piece of paper, a pencil, and a snack.
- Make a list of what you need to buy or do over the next three to six months. These could be physical purchases (like new tires for the car, airfare for the family vacation) or financial plans (such as paying off a credit card, maxing out this year's IRA or adding to your emergency fund).
- Do the same for planned long-term (one to five years) purchases.
Voila! You have a "spending plan" (so much nicer than the word "budget," don't you think?). Meaning every time you whip out your wallet, you have a tangible list of money goals to help drive your spending decisions and propel you financially forward. Bonus points to those who make a laminated wallet-sized version of the list for everyone in the family.
Extra credit: If you've got time, repeat the same exercise, only focus on the emotional uses of your money: List five uses of your money that will positively affect your life in the near-term and the long-term. Then, list five uses of your money that will add little to your quality of life in a decade or more. This touchy-feely step may seem odd, but thinking about what you really want to do with your money can greatly affect your plans for spending and saving it.
Step 3: Do some simple division
With your money goals in hand, pencil in how much each item on your "wish list" is going to run you on a monthly basis. Simply divide the total amount for those new tires by the number of months until you need them. Magic, no?
Step 4: Set up a no-brainer savings system
With your targeted spending plan in place, it's time to direct your money towards your goals. If, in the past, you've been derailed by daily expenditures or surprise "can't-live-without" purchases (ahem), here's an instant fix: Hide your money from yourself.
That's right: The best way to save your money is to keep your cash out of spending reach by diverting it to a separate savings account -- one different from the checking account you use for everyday expenditures.
You've already figured out the monthly amounts you need to sock away, but, don't worry -- there's no need to bother remembering to move your money from your checking to your savings account month after month. Tell your bank to do the work for you.
Set up automatic recurring cash transfers from your main checking account into your separate savings account. (Though you can set it and forget it, we do recommend checking in to make things are kosher every once in a while.)
With your savings on autopilot, all that's left to do is stay out of your own way. Ah, but that can be much easier said than done, which means going into spending triage mode...
Step 5: Stop mindless overspending
Life is full of temptations. (According to the rundown of my annual credit card spending, "merchandise/retail" is my temptress.) You can stay strong, grasshopper, with nothing more than a few envelopes and a ball-point pen.
The "envelope" method of budgeting will instantly structure your everyday spending. It's simple:
- Come up with a reasonable weekly amount you'll allow yourself to spend in your biggest categories. (Those are typically "food" (or, depending on your lifestyle, get more specific such as "lunch," "family dinners out"), "entertainment" (e.g. happy hours, movies, tabloids to pass the time), "transportation" (gas, parking, taxis, public transportation), "apparel/services" (dry cleaning, bangs trim, cute shoes.)
For guidance, consider that the four biggest budget categories for typical American household are housing (34%), transportation (18%), food (13%) and entertainment (4%). Of course we encourage all Fools to be better than average, so if you can spend less of your budget on these big categories, huzzah.
- Create envelopes for each of those categories.
- Put the allotted amount of cash to cover a week's worth of expenses into each envelope. (You don't have to carry the entire wad with you every day, but do make sure you don't cheat with extra visits to the ATM.)
- Once the cash is gone, so is your weekly stipend.
As with all of our lazy budget shortcuts, feel free to add or subtract layers of complexity, depending on how much detail you can stand. But don't tax yourself too much: Remember that in dollars-and-cents (and sanity) terms, sweating the big stuff before all else will save you the most coin. Plus, it will leave you plenty of time to procrastinate about stuff besides your finances.
Could you cover the cost of a new water heater if yours suddenly went on the fritz? Would you have to put the unplanned purchase on a credit card, and then adopt a Ramen-only diet for months afterwards just to cover the tab?
Having money at-the-ready for life's financial hiccups -- both planned and otherwise -- can cut a lot of stress from your life. Give us just 60 seconds, and we'll show you how to establish a short-term stash of cash in no time.
0:60 Calculate how much you spend every month
The first rule of savings is to bank enough to cover the necessities if -- knock on wood -- an emergency arises. How much do you need? Well, how much do you spend on a monthly basis?
Add up what you spend each month on necessities such as food, shelter, transportation to work, and anything that you promised to buy your kids. (If you're not into keeping detailed records, Mint.com's free online service can give you a pretty good immediate snapshot of where your money goes.)
0:52: Add some padding for "just-in-case" scenarios
There are small emergencies (bad perm) and big ones (job loss). Bump up your monthly spending number a tad to account for things like job-hunting expenses, should you suddenly find yourself in need of a new gig. Then multiply that figure by three or six (for the number of months that you want to cover), factoring in other available monetary resources and the number of people for whom you're financially responsible.
Voila! Now you have the amount of money you need to stash in your emergency savings account.
0:48: Gaze into your 1- to 5-year "big expenditures" crystal ball
With your emergency savings covered, now it's time to figure out what other kind of cash you should put aside. Planning a renovation, extreme dental work or a family vacation? These things are also part of your short-term savings strategy. Put 'em down on paper and estimate how much these purchases will cost.
0:40: Figure out how quickly you will meet this goal
You want to fund your cash kitty ASAP (emergency expenses tend not to wait around until it's convenient). Come up with an amount you can afford to contribute each month. Make it one of those must-pay expenses -- just like your electric bill and grocery money. Yes, it's that important. Once the emergency stash is stashed, move on to the non-emergency short-term savings goals.
0:37: Pick a parking spot for your cash
Easy access is essential when we're talking about emergency savings, so your money should be stashed somewhere you'll be able to get your hands on it quickly ... in case of, well, an emergency. It should also be in a "safe" investment -- meaning one that won't tank every time the stock market takes a tumble. That narrows it down to:
- High-yield savings accounts.
- Money market accounts.
- Money market mutual funds.
For non-emergency savings (where you pinky-swear to let the money sit untouched until you need it) less liquid investments -- such as certificates of deposit -- may offer you a better interest rate on your money.
0:29 Click around and comparison-shop
Look at bank ads in newspapers, check out the best national rates on Bankrate.com, see what your broker is paying on cash in your brokerage account, ask your regular bank or local credit union what they offer, and get information on money market funds from websites like iMoneyNet. Find out:
- What interest rates are available.
- What are the comparable yields over identical time periods.
- What timeframe the rate applies to.
- What fees (if any) there are to purchase and maintain the investment.
- The minimum investment required to get favorable interest rates.
(Investors beware: Some institutions will offer aggressive rates in order to lure you to send them your dinero, only to lower the rates soon thereafter. Check historical rates at Bankrate.com to test the interest rates over time.)
0:17 Just do it
The clock is ticking. There's no time to waste. A short-term emergency fund is one of The Motley Fool's top money "must-haves." In fact, it may be the very thing that saves you from a long stretch of high-interest credit card debt after a fender-bender, chipped tooth, basement flood, or really unfortunate haircut.
0:03: Extra credit: Automate it!
If you're having trouble saving, we highly recommend an automatic transfer program. You can also see if your employer will split your paycheck (direct deposit) between your ordinary account and your short-term savings account, or you could set up an auto-transfer from your checking account into your emergency account.
Got a few minutes to spare?
Here's more advice on socking away your cash:
Basically a place to come read some good well written articles and learn about money and your personal finances. Hopefully along the way we can help some of you out.
Look for new articles as they become available.