Now that you've started thinking about your bank and credit card accounts, it's time to start making sure you put them to work. My next few posts are going to focus on using your accounts to make your life easier. This will take a little bit of time and some getting used to but, in the end, it'll definitely save you a lot of time and stress.
The road to a stress-free financial life starts with one nasty little word that we all have to deal with at some point: debt. Americans have developed a belief that it's normal to have debt or to spend more money than they actually have. In fact, the average American household owes more than $15,500 in credit card debt. The average student graduates with about $4,000 in credit card debt before even starting a full time job! Debt, especially on credit cards, only causes stress and leads to you paying much more than you would have if you paid with money you already had available.
Some debt is good. When it's used to pay for a house or an education, that's understandable. These things can be very expensive and they typically appreciate, meaning they gain value over time. Debt can lead to trouble when it's used to buy items that depreciate over time, like clothes, a t.v., or an iPod. Paying for these things with a credit card will cause you to pay much more for them, especially if you just make the minimum payment! It's easy to spend on things like this because they're fun, but clothes or an iPod are even more fun when you can pay for them up front and not have to pay interest!
Now, statistically speaking, the odds are that you already have debt. Don't worry, after reading this you should have everything you need to start attacking that debt and paying it off aggressively.
Start by taking a few minutes to figure out what you owe. Take a piece of paper or open up a spreadsheet on your laptop and make a debt chart. List the name of the credit card, the total you owe, interest rate, monthly payment amount, and the due date. This chart will help you see exactly how much you're in debt and will allow you to make a plan for paying it off.
The next part is tricky and, sadly, there's no quick fix or easy way out of debt. Don't get discouraged though - there is light at the end of the debt! There are a few methods you can use to pay off your debt; all of them can be effective, but you have to stick with it. Getting out of debt is something that requires persistence and will power but will benefit you big time once you accomplish it!
I'll leave you with a short review of a few methods for paying off your debt:
Snowball Method - this is probably the most often used debt payoff method. You pay only the minimums on all of your debts except for the smallest balance. You pay off the smallest balance as quickly as you can. Once the smallest balance is completely paid off, you take the minimum payment from that and apply it toward your next smallest balance and so on. Every debt that you pay off means you have more money available for the next payoff, until you are completely debt free. This is a great method because it lets you see the progress you are making and it feels great when you pay off a debt completely!
Interest Rate - in this method, you'd pay off the debt with the highest interest rate first. This would mean that you'd have to make just the minimum payments on all your debts and put extra money toward your debt with the highest rate. It may take a little longer to notice results with this plan, but you would save a significant amount of money by paying off the debt with the highest rate first.
Minimum Payment - this plan is pretty simple. Once you have all your debts listed you will be able to see the minimum payments. You should also know how much extra you can afford to pay over the minimums each month. This method just says that you should apply extra payments to your debts equally. For example, if you have an extra $200 to use to pay off your debts each month and 2 credit cards, this method would say that you pay an extra $100 toward each card every month. This is a decent method, but the more debt you have, the longer it will take you to notice results with this method.
In the end, the plan you choose is completely up to you. Just make sure you stick with it and most importantly, make sure you don't add any debt while you're trying to pay it off! (DUH) Trust me, those jeans you're wearing will last you long enough to pay off your debt. Then you can buy new ones with money you have available as a reward!
Remember, the most important thing is to stick to the plan! If you get discouraged, go back to your goals and remind yourself what you want to save up for. Being debt free will help you accomplish any financial goal that you have. Remember that vacation you've always wanted to take or that new laptop you want to buy? Stick to your debt payoff plan and you'll be that much closer to reaching that goal.
teachmerich@gmail.com
Sunday, September 4, 2011
Sunday, August 28, 2011
Accounts that work
Now that you have an understanding of how credit works, you can start to work on your bank accounts and credit card accounts. This should be fairly simple, so I'll try to keep it as short as possible.
Checking Account
I consider my checking account the foundation for anything I want to accomplish financially. The key is to make sure that you have a checking account that is working for you. This means 1) you don't get charged any fees, 2) it's easy to use and manage online, and 3) maybe even earns you interest. If you're still using a student checking account but you're not a student....why?!?
Finding an account that works for you is easy. There's this thing called the internet that makes it very simple to search for and compare checking accounts in a matter of minutes. It also helps to ask friends if they have any bank accounts to recommend! In fact, I "found" my current checking account through a friend. It's an account that, understandably, isn't advertised very much because it's through a smaller local bank and offers great benefits if you can meet the requirements. Here's why I like my account and also what you should look for in any account:
1) there are no annual fees
2) there are no fees if I meet the monthly requirements (simply use the card as a credit card 12 times a month and keep a small minimum balance in it)
3) online bill pay and statements
4) it pays me interest, and lots of it!
I earn a 4% APR on the average monthly balance in my checking account. I've been experimenting with this one by putting some of my savings into this account and using it as a combined checking/savings. I'd only recommend this if you have a monthly spending plan and self control! However, if you would be able to follow a similar plan, it would definitely pay off. I've earned roughly $20 per month in interest alone for the previous 4 months that I've had this checking account open. In case you're wondering which account I use, it's MB Financial's Red Checking account. Comment or email teachmerich@gmail.com if you have any questions about it.
Bottom line, find an account that works for you. If you already know you have no restraint and would spend all of your savings if you tried this, then get a free checking account with a good website that lets you see what you're spending. Online checking accounts are rapidly becoming popular for these reasons. Check out ING, Capital One, or Schwab. Each offer online checking accounts with various benefits!
Credit Cards
I have a very simple approach to credit cards. I stick with two or three that are very easy to use and never charge me any annual fees. Annual fees are okay for very few people. For instance, if you spend a lot on travel and find a credit card with travel rewards that would actually help you save money, then an annual fee may be worth your time. You'd have to do some research and comparisons, though, to find out if it would work for you.
I keep a Capital One credit card in my wallet because I've had it forever and I've got a good credit limit on it. Both of these help to improve my credit score. I don't worry much about the interest rate because I pay it off in full every month.
If you're carrying balances on credit cards, you have to do two things. First, call the customer service number and get them to lower your rate. Don't take "no" for an answer. Tell them you've been a customer for a while and need a lower interest rate. If you get a representative who won't budge, tell him/her that you'd hate for them to lose your business over this and that you could easily transfer to a card with a 0% introductory rate. That's just for emergencies...I don't actually recommend transferring balances to new cards. It's a tricky game and messes with your credit because you are opening new accounts.
The second thing you have to do is work toward getting that credit card paid off and keeping it that way! Once I got my credit card account paid off, I arranged for a couple fixed bills to be paid each month through my card. For example, my cell phone bill is the same each month (fixed) and it automatically gets paid by my credit card. That's getting into different topics for another day.
Plain and simply, find a credit card that works for you. Typically, the credit card offers you get in the mail are for cards that don't work. Again, search for credit cards online. If you don't know where to start, type "credit cards" into Google and go from there. There are multiple sites that let you compare cards and will help you find one that works for you! Remember: low interest rate, high credit limit, $0.00 annual fee, and a good website that allows you to manage the card online are all things that I would recommend.
You know what to look for in your accounts now. These are the most basic and important things to look for in checking accounts or credit cards. Put this information to good use and go find accounts that work for you! It'll make your financial life easier and you won't regret it.
Comments, questions, suggestions? teachmerich@gmail.com
Checking Account
I consider my checking account the foundation for anything I want to accomplish financially. The key is to make sure that you have a checking account that is working for you. This means 1) you don't get charged any fees, 2) it's easy to use and manage online, and 3) maybe even earns you interest. If you're still using a student checking account but you're not a student....why?!?
Finding an account that works for you is easy. There's this thing called the internet that makes it very simple to search for and compare checking accounts in a matter of minutes. It also helps to ask friends if they have any bank accounts to recommend! In fact, I "found" my current checking account through a friend. It's an account that, understandably, isn't advertised very much because it's through a smaller local bank and offers great benefits if you can meet the requirements. Here's why I like my account and also what you should look for in any account:
1) there are no annual fees
2) there are no fees if I meet the monthly requirements (simply use the card as a credit card 12 times a month and keep a small minimum balance in it)
3) online bill pay and statements
4) it pays me interest, and lots of it!
I earn a 4% APR on the average monthly balance in my checking account. I've been experimenting with this one by putting some of my savings into this account and using it as a combined checking/savings. I'd only recommend this if you have a monthly spending plan and self control! However, if you would be able to follow a similar plan, it would definitely pay off. I've earned roughly $20 per month in interest alone for the previous 4 months that I've had this checking account open. In case you're wondering which account I use, it's MB Financial's Red Checking account. Comment or email teachmerich@gmail.com if you have any questions about it.
Bottom line, find an account that works for you. If you already know you have no restraint and would spend all of your savings if you tried this, then get a free checking account with a good website that lets you see what you're spending. Online checking accounts are rapidly becoming popular for these reasons. Check out ING, Capital One, or Schwab. Each offer online checking accounts with various benefits!
Credit Cards
I have a very simple approach to credit cards. I stick with two or three that are very easy to use and never charge me any annual fees. Annual fees are okay for very few people. For instance, if you spend a lot on travel and find a credit card with travel rewards that would actually help you save money, then an annual fee may be worth your time. You'd have to do some research and comparisons, though, to find out if it would work for you.
I keep a Capital One credit card in my wallet because I've had it forever and I've got a good credit limit on it. Both of these help to improve my credit score. I don't worry much about the interest rate because I pay it off in full every month.
If you're carrying balances on credit cards, you have to do two things. First, call the customer service number and get them to lower your rate. Don't take "no" for an answer. Tell them you've been a customer for a while and need a lower interest rate. If you get a representative who won't budge, tell him/her that you'd hate for them to lose your business over this and that you could easily transfer to a card with a 0% introductory rate. That's just for emergencies...I don't actually recommend transferring balances to new cards. It's a tricky game and messes with your credit because you are opening new accounts.
The second thing you have to do is work toward getting that credit card paid off and keeping it that way! Once I got my credit card account paid off, I arranged for a couple fixed bills to be paid each month through my card. For example, my cell phone bill is the same each month (fixed) and it automatically gets paid by my credit card. That's getting into different topics for another day.
Plain and simply, find a credit card that works for you. Typically, the credit card offers you get in the mail are for cards that don't work. Again, search for credit cards online. If you don't know where to start, type "credit cards" into Google and go from there. There are multiple sites that let you compare cards and will help you find one that works for you! Remember: low interest rate, high credit limit, $0.00 annual fee, and a good website that allows you to manage the card online are all things that I would recommend.
You know what to look for in your accounts now. These are the most basic and important things to look for in checking accounts or credit cards. Put this information to good use and go find accounts that work for you! It'll make your financial life easier and you won't regret it.
Comments, questions, suggestions? teachmerich@gmail.com
Wednesday, August 24, 2011
Credit? What's that?
I was going to write a post about using credit cards effectively but decided to keep it even more basic than that for now. I'll get into that on my next post. Anyway, how many of us really know what goes into our credit scores? I think it's safe to say that very few of us do.
Your credit, nowadays, says a lot about the way you pay your bills and handle your finances. I have some underwriting (checking people's credit to see if they qualify for loans) experience and am usually confused by the way some people handle credit. I want to ask them: "do you just not care at all about how much you pay in interest, or are you just stupid??"
Here's why:
Your credit is a big factor in determining interest rates that you qualify for on loans, credit cards, auto financing, and mortgages. A lower score means a higher interest rate which means YOU PAY MORE MONEY! You may think this doesn't matter for short-term financing, but if you take something big - a mortgage, for example - it's going to cost you. If you had a low credit score and took out a $200k mortgage on a 30 year term, you'd pay over $50k MORE than somebody with a high credit score. I don't know about you but I would rather be proactive with my credit and save a lot of money on interest.
Credit is one of the most vital tools to putting you on the right track for financial success. Most of the expensive things that we buy in our lives are purchased on credit. Look at some of the expensive things you've purchased (or, if you haven't, what your parents have purchased.) Your car, mortgage, big screen t.v., laptop for school, etc. are usually purchased on credit. A good score will save you thousands of dollars over your lifetime. Luckily for you, credit isn't very complicated once you lay it out. Take a look for yourself.
Your credit is made up of a credit score and credit report.
Your Credit Score
A credit score is simply a number between 300 (low) and 850 (high) that tells lenders how risky it would be to lend to you. There are five factors that determine your credit score:
1) Payment history (35%) - how well you pay on your credit accounts. Paying on time is obviously the best thing to do! If you can't pay on time, make sure you call your creditor, they can usually help you out.
2) Amounts owed (30%) or your credit utilization rate - this is the ratio of debt/available credit. A lower credit utilization rate is always better! For example, if I have a credit card with a $2,000 limit and I carry a balance of $1,500 on that card, my utilization rate is 75%. This is not good and will have a negative impact on my score. Carrying lower balances or no balances on credit cards is always better. Your credit report will show that you have this credit available to you but are not using it. This is good for your score! Also, make sure that you keep a credit card account open if you pay it off! Closing a credit card will hurt your credit score in two different areas, so only close it if they are charging you an annual fee for benefits you are not using.
3) Length of credit history (15%) - refers to the amount of time you have had your credit accounts open. Obviously, the longer an account has been open, the more history it has and the more it helps your credit (if payments are made on time.) Also, see #3. This part of your score is why you should keep credit cards open if they don't charge you any annual fees.
4) Types of credit used (10%) - this is pretty basic. There are different types of credit accounts and loans such as credit cards, installment loans (i.e. your car loan), student loans, mortgage, etc. Having different types of credit is good. REMEMBER: store credit cards = crap. They usually give you low limits and charge high interest. Stay away!
5) Inquiries (10%) - who is checking your credit? A credit inquiry occurs when a lender checks your credit report. This does have a small impact on your credit score and they add up; too many credit inquiries and BOOM, your credit score is down in the dumps. Shopping around for credit is okay as long as you don't go overboard and have every lender in town check your credit!
That's your credit score. Unfortunately, you can't get the actual score for free. You can, however, buy a copy of your credit score from www.myfico.com.
Your Credit Report
A credit report is basically just an overall view of everything that goes into your score. The report tells lenders your name, social security number, current and previous addresses, and sometimes even your employer. It also shows who is giving you credit, how much credit they extend to you, how much you owe, your regular monthly payment and how many late payments you have made. Collections and public records also show up on a credit report.
Having negative hits on your credit report could cost your score to drop which would affect the interest rates on any future credit you apply for. Make sure you stay on top of credit! It's one of the most important things to keep track of if you want to get ahead on your finances. Luckily, each of the three credit reporting agencies (Equifax, Transunion, and Experian) will give you 1 free credit report per calendar year. How generous!
To get an absolutely free copy of your credit report (not score), go to www.annualcreditreport.com.
Now you have all the information you should need to keep your credit score as high as possible. Get to work.
As always, comments/questions/suggestions are appreciated! teachmerich@gmail.com
Your credit, nowadays, says a lot about the way you pay your bills and handle your finances. I have some underwriting (checking people's credit to see if they qualify for loans) experience and am usually confused by the way some people handle credit. I want to ask them: "do you just not care at all about how much you pay in interest, or are you just stupid??"
Here's why:
Your credit is a big factor in determining interest rates that you qualify for on loans, credit cards, auto financing, and mortgages. A lower score means a higher interest rate which means YOU PAY MORE MONEY! You may think this doesn't matter for short-term financing, but if you take something big - a mortgage, for example - it's going to cost you. If you had a low credit score and took out a $200k mortgage on a 30 year term, you'd pay over $50k MORE than somebody with a high credit score. I don't know about you but I would rather be proactive with my credit and save a lot of money on interest.
Credit is one of the most vital tools to putting you on the right track for financial success. Most of the expensive things that we buy in our lives are purchased on credit. Look at some of the expensive things you've purchased (or, if you haven't, what your parents have purchased.) Your car, mortgage, big screen t.v., laptop for school, etc. are usually purchased on credit. A good score will save you thousands of dollars over your lifetime. Luckily for you, credit isn't very complicated once you lay it out. Take a look for yourself.
Your credit is made up of a credit score and credit report.
Your Credit Score
A credit score is simply a number between 300 (low) and 850 (high) that tells lenders how risky it would be to lend to you. There are five factors that determine your credit score:
1) Payment history (35%) - how well you pay on your credit accounts. Paying on time is obviously the best thing to do! If you can't pay on time, make sure you call your creditor, they can usually help you out.
2) Amounts owed (30%) or your credit utilization rate - this is the ratio of debt/available credit. A lower credit utilization rate is always better! For example, if I have a credit card with a $2,000 limit and I carry a balance of $1,500 on that card, my utilization rate is 75%. This is not good and will have a negative impact on my score. Carrying lower balances or no balances on credit cards is always better. Your credit report will show that you have this credit available to you but are not using it. This is good for your score! Also, make sure that you keep a credit card account open if you pay it off! Closing a credit card will hurt your credit score in two different areas, so only close it if they are charging you an annual fee for benefits you are not using.
3) Length of credit history (15%) - refers to the amount of time you have had your credit accounts open. Obviously, the longer an account has been open, the more history it has and the more it helps your credit (if payments are made on time.) Also, see #3. This part of your score is why you should keep credit cards open if they don't charge you any annual fees.
4) Types of credit used (10%) - this is pretty basic. There are different types of credit accounts and loans such as credit cards, installment loans (i.e. your car loan), student loans, mortgage, etc. Having different types of credit is good. REMEMBER: store credit cards = crap. They usually give you low limits and charge high interest. Stay away!
5) Inquiries (10%) - who is checking your credit? A credit inquiry occurs when a lender checks your credit report. This does have a small impact on your credit score and they add up; too many credit inquiries and BOOM, your credit score is down in the dumps. Shopping around for credit is okay as long as you don't go overboard and have every lender in town check your credit!
That's your credit score. Unfortunately, you can't get the actual score for free. You can, however, buy a copy of your credit score from www.myfico.com.
Your Credit Report
A credit report is basically just an overall view of everything that goes into your score. The report tells lenders your name, social security number, current and previous addresses, and sometimes even your employer. It also shows who is giving you credit, how much credit they extend to you, how much you owe, your regular monthly payment and how many late payments you have made. Collections and public records also show up on a credit report.
Having negative hits on your credit report could cost your score to drop which would affect the interest rates on any future credit you apply for. Make sure you stay on top of credit! It's one of the most important things to keep track of if you want to get ahead on your finances. Luckily, each of the three credit reporting agencies (Equifax, Transunion, and Experian) will give you 1 free credit report per calendar year. How generous!
To get an absolutely free copy of your credit report (not score), go to www.annualcreditreport.com.
Now you have all the information you should need to keep your credit score as high as possible. Get to work.
As always, comments/questions/suggestions are appreciated! teachmerich@gmail.com
Sunday, August 21, 2011
Where are you headed?
You may have expected me to start this thing by saying "you have to sit down and make a budget!" BUT that would be boring and would only start you off on the wrong foot. Nobody likes sitting down to make a budget; it's time consuming and can be very difficult and probably even depressing. You wouldn't start training for a marathon by running 20 miles, right? So it doesn't make sense to start off this journey by keeping track of every penny that is earned or spent. Boring!
The first step is knowing where you're going. Got it? Go back and read it again because this is important. You won't reach any of your goals if you don't even know what they are!
Take a few minutes for yourself here. Think about your current financial goals. If you didn't have any financial goals, you wouldn't be working or going to school to get a degree. So what are they? It may be a little difficult to determine, but a helpful place to start is with your current situation. What do you want to change? What do you like about your current situation? For example, I used one of my current bills to create an immediate goal as well as a long term goal. My student loan bills are a pain, but they have to be paid, so I made it an immediate goal to apply as much as I can to get them paid off as soon as possible. This turned into a long term goal when I figured out how much I could spend on these bills each month, but that happened later on.
Don't worry about exact figures right now. Figure out what you are working for. Maybe you want to live comfortably instead of paycheck to paycheck. Do you want to save to buy a house? A car? Have money for a wedding? Do you want to travel? These are just a few questions to get you started on your goals. Figure out your immediate goals as well as your long term goals and remember: you don't need a huge long list right from the start. It's going to change and grow over time anyway, so start with five or six goals. Keep it simple.
The most important thing is getting started right now and keeping your goals in mind. I wrote myself a note on my phone that I can look at and update whenever I have to. Find a way to make it simple for yourself. I'll say it again: the most important thing is that you DO IT! If you sit there and say that you don't know enough about finance to get started, you will never do it. Believe me, very few of us really know "enough" about finance. The most successful people are the ones who aren't afraid to get started.
Know what you want and what you're working for. If you don't, future posts on this site probably won't be very much help to you. So get started now!
Don't forget to comment or email teachmerich@gmail.com with any questions or suggestions!
The first step is knowing where you're going. Got it? Go back and read it again because this is important. You won't reach any of your goals if you don't even know what they are!
Take a few minutes for yourself here. Think about your current financial goals. If you didn't have any financial goals, you wouldn't be working or going to school to get a degree. So what are they? It may be a little difficult to determine, but a helpful place to start is with your current situation. What do you want to change? What do you like about your current situation? For example, I used one of my current bills to create an immediate goal as well as a long term goal. My student loan bills are a pain, but they have to be paid, so I made it an immediate goal to apply as much as I can to get them paid off as soon as possible. This turned into a long term goal when I figured out how much I could spend on these bills each month, but that happened later on.
Don't worry about exact figures right now. Figure out what you are working for. Maybe you want to live comfortably instead of paycheck to paycheck. Do you want to save to buy a house? A car? Have money for a wedding? Do you want to travel? These are just a few questions to get you started on your goals. Figure out your immediate goals as well as your long term goals and remember: you don't need a huge long list right from the start. It's going to change and grow over time anyway, so start with five or six goals. Keep it simple.
The most important thing is getting started right now and keeping your goals in mind. I wrote myself a note on my phone that I can look at and update whenever I have to. Find a way to make it simple for yourself. I'll say it again: the most important thing is that you DO IT! If you sit there and say that you don't know enough about finance to get started, you will never do it. Believe me, very few of us really know "enough" about finance. The most successful people are the ones who aren't afraid to get started.
Know what you want and what you're working for. If you don't, future posts on this site probably won't be very much help to you. So get started now!
Don't forget to comment or email teachmerich@gmail.com with any questions or suggestions!
Saturday, August 20, 2011
Welcome to Teach Me R.I.C.H!
Welcome to my blog, Teach Me R.I.C.H!
As you probably already noticed, R.I.C.H. stands for really intelligent cash habits...or at least it does in my mind! Anyway, I decided to start this blog to keep track of the various lessons, tips, ideas and strategies that I pick up in my never ending quest to learn about personal finances. I figured it would be a great way to organize all of the things I feel are necessary to remember and will also give you a chance to learn about your own finances and implement some (or all) of these ideas into your own life.
The goal of this blog is to collaborate with you and work together to reach our financial goals, no matter how varied those goals are. That being said, I would really appreciate any comments or suggestions on what you'd like to read about! I understand that not all of you will feel comfortable putting your personal situations out there, so I created an email account for your privacy. Feel free to email me at teachmerich@gmail.com with any questions, suggestions, or even comments about the blog. I will read them all and, obviously, won't single anybody out on the blog. Promise!
Again, welcome to my blog and I look forward to hearing what you'd like to read about!
As you probably already noticed, R.I.C.H. stands for really intelligent cash habits...or at least it does in my mind! Anyway, I decided to start this blog to keep track of the various lessons, tips, ideas and strategies that I pick up in my never ending quest to learn about personal finances. I figured it would be a great way to organize all of the things I feel are necessary to remember and will also give you a chance to learn about your own finances and implement some (or all) of these ideas into your own life.
The goal of this blog is to collaborate with you and work together to reach our financial goals, no matter how varied those goals are. That being said, I would really appreciate any comments or suggestions on what you'd like to read about! I understand that not all of you will feel comfortable putting your personal situations out there, so I created an email account for your privacy. Feel free to email me at teachmerich@gmail.com with any questions, suggestions, or even comments about the blog. I will read them all and, obviously, won't single anybody out on the blog. Promise!
Again, welcome to my blog and I look forward to hearing what you'd like to read about!
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