Money Blue Book

I had dinner with a good friend of mine not too long ago and the subject of jobs, aging parents, and financial planning came up. My friend knew that I had this personal finance blog and decided to share with me some personal information to get my advice. After listening to him talk about his income and how he stashed all of his accumulated money in his checking account, I realized that he had no clue about the basics of financial planning and the need to put his money and investments to work for him.

I ended up explaining in great detail to him about the power of compound interest and why it was so important that he immediately jump start his financial future today and not delay any longer. To give my newbie friend the spark he needed to start his way towards fiscal growth and responsibility, I provided the following basic tips:

1) Pay Off High Interest Credit Card Debt As Soon As Possible – Fortunately for my friend, although he used credit cards regularly, he had no outstanding balance that he was paying high interest or fees on. His FICO credit score was also thankfully a pristine 750. For a great number of people though, credit card debt is a serious problem since credit cards almost always have higher interest rates (10-30% APR) than any other type of debt.

In my opinion, credit card balances must be tackled before anything else, including worrying about retirement concerns. One can’t possibly plan for the future if he or she is struggling to keep above the financial waters, especially when the unpaid balance continues to accrue interest. If you are unable to immediately pay everything off, you have a few options. If your FICO credit score remains undamaged, I would suggest temporarily shifting the credit card balance to a 0% balance transfer card, but keep in mind that you absolutely must pay off the minimum balance on time every month or you will get hammered severely with an interest and penalty spike.

If you cannot qualify for the zero percent balance transfer option, and are seriously unable to pay it off on your own, try to see if you borrow from your parents (presumably interest free) if that is a reasonable option. Just remember to be a good child and pay them back as soon as possible. Try to cut back on other personal expenses and find ways to chip into the principle balance. Desperate times require desperate measures but bottom line is, pay off that credit debt as soon as possible without delay!

2) Open a High Interest Savings or Money Market Account – The majority of the basic checking accounts that are available out there provide little to no interest earning opportunities. I highly recommend that you open a high interest rate savings or money market account with your local bank. Although current interest rates are dropping due to recent Fed rate cuts, 4% or 5% APY accounts may still be available. Learn to access your bank accounts online so you can shuffle needed money back and forth between your high interest savings account and your active checking account when you need it.

3) Open a Roth Investment Retirement Account (Roth IRA) – Once your credit card debt if any is resolved, invest for your future immediately. Open a Roth IRA to take advantage of tax deferred investment growth. Your deposits can be invested in stocks, bonds, and mutual funds and grow tax-free until you retire. You can open a Roth retirement account with any major brokerage, including Fidelity, Vanguard, TD Ameritrade, Etrade, or Charles Schwab.

With the Roth IRA, you are limited to a maximum contribution limit of $4000 for 2007 and $5000 for 2008. You can open the Roth IRA anytime, but for current year contributions you have to make the contribution by April 15 of the next year. So for 2007 contributions, you’ll need to open the Roth IRA as soon as possible and make the initial contribution by April 15, 2008. Don’t let it slip away because once it’s past you won’t be able to use that year’s contribution limit again.

4) If You Are Financially Responsible, Stop Using Credit Cards That Offer You Nothing – Use Reward Credit Cards Instead - If you are responsible enough to use credit cards, I highly recommend that you maximize your money by taking advantage of credit card rewards. If you are struggling with debt, than stick with cash. Not everyone can handle the responsibility, but if you can do it, it’s one of the easiest ways to earn free cash back and reward points using convenient reward credit cards for buying things you were going to purchase anyway.

Conventional wisdom suggests that it is always better to buy a home than to rent. After all, when you rent you are given no tax breaks and you are not investing your rent payments into anything that will appreciate over time. I don’t disagree with the pro-buying sentiments, but I think during major housing recessions we need to rethink our strategy. Unlike stock market corrections and shifts, the real estate market trends are slow to act and slower yet to cycle through the changes. Like a sloth, the housing market inches slowly downwards and upwards and I think we’ve only yet begun to see the worst of the housing collapse.

Buying a home is usually a much better option in the long term compared to renting, but I think these are different times. I have every intention to buy a house in the future – just not at the present moment or for the next 2-3 years at least. My short term goal is to invest my funds in the stock market and continue to save. I currently lease a brand new condominium unit I discovered through Craigslist. Ever since college and graduate school I’ve been renting and I think it’s been a smart decision. I did not have the funds during my earlier college years to purchase a home, so I missed the housing boat. My best bet now is to enjoy my rental lifestyle for a few more years, and continue to grow my eventual down payment.

Aside From the Obvious Timing Reasons, There Are Many Benefits and Other Reasons Why Renting Now May Be Better Than Buying a Home:

1. Renting Allows You To Keep Your Housing Options Open – When you buy a home, due to capital gain exclusion requirements, you essentially have to make the home your primary residence for at least 2 out of 5 years to take advantage of capital gain tax breaks of up to $250,000 for singles and $500,000 for married couples. Because of this and the expensive transaction costs associated with selling a house, moving from one house to another isn’t easy. For those whose lives are in flux or for those who are single without a family yet, renting is a very attractive option because it affords a lot of flexibility and allows one to not be tied down to one geographic location. Being tied down limits your employment options and commits you to a certain area. Since graduate school, I’ve had unanticipated employment shifts and I’m thankful I chose to rent rather than buy, because it allowed me to continue moving closer to my changing work locations whenever my life events changed. Renting also allows you to experience living in different types of apartments and locations without long term commitment. I’ve enjoyed living in a wide array of places, moving from ghetto roach and rat-infested apartments as a student, to a relatively posh pad now as a working guy.
2. With Renting You Don’t Have To Worry About Upkeep – When you are renting and something breaks down, it’s the landlord’s job to call maintenance and fix it. Dishwasher broken? No problem, call the landlord. But when you own the home, it’s yours – it’s your castle and you’re responsible for it. If there’s an expensive appliance that needs fixing or replacing, it’s coming out of your own pockets.
   
3. Housing Is A Terribly Overpriced Investment Right Now – In the long, long term housing prices do tend to cycle upwards, but the real estate trend travels in slow speed, in contrast to the frequently short burst movement of the stock market. We are currently in a baby bear real estate market and my assessment is that this bear is still not full grown yet – translation: we have many more years to go before the housing market will plateau and head back up again. That’s my own assessment but I’m sure the NAR will disagree. Although housing should be viewed as your home first and foremost, I think one can’t overlook the fact that it is still an investment. As with all investments, I want to choose the best entry point and I don’t think this is the best time yet.
   
4. The Mortgage Interest Deduction Is Over-Hyped and Frequently Overrated – The mortgage interest deduction is one of the most popular tax loopholes used by taxpayers to reduce their tax burden. But for those who want to eagerly purchase a home to take advantage of this deduction, I hope they are motivated by more than just tax reasons alone. Those who want to hurry and buy a house to save money on taxes likely haven’t actually crunched the numbers. Depending on the buyer’s income, the deduction may or may not be all that beneficial since it greatly favors higher income families. Spending a lot of money in this depreciating real estate market to save a little bit of money is not necessarily the best move right now.
5. Renters Insurance Is A Lot Cheaper Than Homeowners Insurance – I personally don’t have renter’s insurance (danger is my middle name), but I do know that renter’s insurance is substantially cheaper than homeowner’s insurance. It varies greatly depending on your location, but to give a general comparison of the cost difference, renter’s insurance is generally about $100 a year, while homeowner’s insurance is generally about $500. Now if your home is located in a natural disaster prone area like hurricane friendly Florida, than the rates could be even higher than what I’ve indicated.

Owning a house is the ultimate American dream. I certainly haven’t given up on it but I’m just choosing to put it off until the right time. The moment will arrive eventually, just not right now – so I’ve chosen to rent in the meantime.

I think you can ask anyone for advice about their personal top five ways to save money and you’ll likely end up with a variety of suggestions. We all have different guilty pleasures and financial priorities so obviously the list would differ greatly from person to person. Some of these habits are hard to give up. For example earlier, I talked about the reasons why I chose to buck the conventional frugality wisdom of avoiding bottled water. For me, the health benefits and convenience outweighed the long terms costs.

Cutting back on purchases that you wouldn’t miss or expenses that wouldn’t cause too much discomfort or inconvenience are the easiest ways to save money. I’m offering a few suggestions that hopefully will get people thinking about some of the simple day to day expenses that we may have a tendency to overlook, but that may go a long way in helping us save money for the future:

1) Don’t Pay Extra For Sodas During Lunch – Ask For a Free Cup Of Tap Water Instead.
This is probably one of the easiest habits to break. Did you know that most cafe lunch joints charge a premium for sodas and bottled drinks? These type of meal accessories are much easier to overcharge because lunch and meal patrons focus on the cost of the main dish, frequently overlooking the extra charges when they decide on where to eat out for lunch.

Besides, drinking water is much healthier than loading up on sugar-filled sodas or other bottled drinks. Even seemingly healthy drinks like bottled teas are frequently disproportionally filled with sugar. Too much sugar contributes to diabetic effects and offers nothing but empty calories that may cause unhealthy weight gain and sluggish bodily function. Next time you grab a sandwich at your lunch diner, be sure to ask for a free cup of water rather than a cup of pricey soda. If they offer you bottled water, ask for tap instead.

2) Reduce the Cost Of Your Cell Phone, Cable Television, and Internet Service By Asking For Discounts Or Threatening To Cancel.
Monthly recurring expenses such as cell phone service and utility bills are frequently overlooked because they happen so regularly and we often pay off the bill without much thought. Especially for people like me who use automatic debit payment, I often don’t take a hard enough look at my actual monthly charges. For your cable or satellite television service, think about it. Do you really need all of those premium channels? Do you actually watch them all or even have the time to enjoy them? I used to have premium digital cable television service with Comcast but eventually downgraded to plain old analog. Yes I drastically reduced my channel lineup, but I didn’t lose much because I still had my important and frequently watched channels like CNN, Discovery, History Channel, and ESPN.

If your cable television carrier refuses to offer discounts or price reductions, call back frequently and threaten to cancel. I had to call back numerous times and speak to different customer service representatives but eventually I found someone who was willing to offer me a significant discount. Just be persistent, even when the rep tells you further price reductions are not possible. As for your cell phone service, consider reducing the amount of minutes you have on your plan, particularly if you don’t use it much. I reduced my Verizon Wireless plan to the cheapest one after I noticed that I was consistently underusing my minutes.

3) Cut Down On Gasoline Cost By Finding and Frequenting the Cheapest Gas Stations In Your Area.
I don’t drive too much but for many it is a big money drain. My advice is to use a free online service like GasBuddy to plot a gas price map of your area showing you where the cheapest pumps are located. Gas prices are usually much more expensive in high end neighborhoods. I managed to locate significantly more affordable pumps only a mile or two away that I now frequently visit. Whenever you need gas, rather than pulling over at any gas pump you see, try to head to the cheap locations that you pinpointed earlier on the gas price maps.

4) Run Your Central Heater Less During the Winter And Compensate By Dressing In Layers and Using a Portable Heating Unit.
Why are you basically sleeping in the nude and walking around in your shorts when it is a freezing zero degrees outside? If that is what it’s like in your home in the winter, your thermostat is turned way too high. I set mine at a reasonable 70 degrees during the winter and put on slippers and a sweater to keep warm. At night, I run a portable heater in my bedroom so central heat is not wasted on unoccupied rooms.

5) Take Advantage of Free Information Available On the Internet and the World Wide Web.
This one is more controversial. There are many people out there who love reading and buying books. I don’t want to knock the hobby and educational benefits of book reading, but I personally obtain almost all of my information online through cost-free means. Why buy a self help book from the bookstore when the internet is filled with forums and bloggers espousing the same opinions and content that can be found in expensive paper books? If you really want to read a book, I recommend visiting a bookstore and reading it there for free, or borrowing it from the local library.

- With over 8000 mortgages on offer The Thrifty Scot makes choosing a new mortgage simple and hassle free.

Updated List Of The Best Credit Cards For College Students and Graduates To Learn Credit Responsibility

If you are a college or graduate student, it’s important to understand that proper credit card management is a trait and skill that should be developed sooner than later in life. If you are the parent of a teenage child who is currently a college student, it’s very important to teach him or her the importance of building up a good credit history while he or she is still in school, before entering the real working world where credit card mistakes and shortcomings are more brutal. The FICO credit score is heavily dependent on the length and quality of each person’s long term credit history, so it’s in the student’s best interest to develop good credit usage habits and responsible management skills early on. Avoiding credit altogether out of fear or mistrust of credit cards is a misguided approach in my opinion. How else will a student develop the financial management skills he or she will need to succeed in this technologically and financially driven world?

Knowledge and Education Is Power, So If You Are A Parent, Be Sure To Teach Your Student Or Teen Financial Responsibility Early and Often

Many parents today are afraid of giving their college age teen the huge financial responsibility of using a credit card. But shielding them away from this altogether may hurt them in the future due to their lack of exposure to basic finance skills and their lack of credit history. They may be at a disadvantage if and when they choose to purchase a home or a car on their own. Of course not all credit cards are suitable for students, teens, and credit novices, but with the right student credit card, it can be an invaluable financial teaching tool. Here are some ways and ideas to help your college age child or teenage student better understand the financial basics of using a student credit card:

1. Keep the initial credit limit under $500 – It’s best not to give the student too high of a credit limit initially to discourage overeager spending or purchases beyond their means or needs.
2. Teach them to make timely online payments – This is the internet age we are in so students need to know how to timely pay off their credit card balance online. Setting up automatic debit payments is a convenient option as well.
3. Set rules on what they can use the credit card for – Students need to learn to discern what they should buy and what they should not. They need to know the rules of responsible spending.
4. Make sure they know that they must pay off the balance in full each month – New credit card holders may initially have statement shock, having no experience at knowing how high their accumulated monthly statement balance may be each month. The student needs to learn how to mentally keep tracking of his or her spending and know the importance of paying the statement balance off regularly.
5. Teach and explain credit terms such as finance charges, fees, annual percentage rates, and grace periods.
6. Show the student how to track their cash back earned and reward points so they learn the benefits of reward credit cards and understand why responsible use can help one maximize overall financial potential. The key phrase here is “responsible use”.

Most of the uniquely designed student credit cards out there may be advertised and promoted as for college students only, but usually any type of student can qualify for them, including those attending graduate school. Frequently, the card application will request some form of student status identification, such as a copy of your tuition bill, student ID card, or simply a signed affirmation that you are indeed a student.

The ideal college and graduate student credit card will contain No Annual Fee, a 0% Annual Percentage Yield (APY) introductory purchase or balance transfer period to offer the student a trial usage period, and cash back rewards or other usage incentives to teach them the benefits and rewarding aspects of responsible credit card use. Pursuant to these characteristics, none of the following suggested student credit card offers below have minimum income or co-signer requirements either – ideal for college students or recent graduates who usually have minimal income information to offer anyway. Of course, make sure you can afford what you buy with your newly applied for credit cards. Be smart, pay off your monthly balances, and don’t fall into the trap of unpaid credit card debt.

Here Are The Student Credit Cards Determined To Be the Best and Most Appropriate For College and Graduate Students:

1. Citi mtvU Platinum Visa for College Students – Earn 5% back (5 Thank You points for every $1 spent) for purchases made at restaurants, coffee shops, bookstores, music stores, movie theaters, and video rentals. Get 1 Thank You point back for everything else (essentially up to 5% back on card purchases). Also enjoy a 7 month 0% APR introductory period for all purchases if you qualify.
2. Citi Forward Student Card – Earn 5% back (5 ThankYou reward points for every $1 spent) on books, movies, music, and at restaurants. Get 1 reward point for every $1 you spend on everything else. Earn up to 8,500 bonus points after you sign up for paperless statements and make $250 in purchases within the first 3 months of account opening. Also, make a purchase, stay under your credit line, and pay on time for 3 monthly billing periods in a row and reduce your purchase APR by 0.25% each time. For 7 months after sign up, cardholders also enjoy a 0% interest rate offer on purchases and up to 12 months on balance transfers.
3. Discover Student Card – Earn 5% unlimited cash back in popular categories that rotate quarterly in categories such as gas stations, restaurants, clothing stores, and travel. Earn 1% for everything else. 6 month 0% introductory APR on all purchases.
4. Discover Open Road Card For Students – Earn 5% cash back on gas and auto repair purchases. Both of these are pricey expenses so the high reward earning percentage is sure to result in some nice cash back savings in the long run. The cash rebates never expire and there is no limit to the amount you can earn. There is also a 0% APR purchase offer for 6 months.
5. Capital One No Hassle Cash Rewards For Students – Earn 1% cash back on all purchases with no purchase category restriction. You’ll also earn an annual bonus of 25% on the cash back rewards you earn for the year. There is no limit to the amount of cash back money you can earn and your cash rebate rewards will never expire. Currently the card is also running a 0% APR promo offer until June 2009.