Posts Tagged ‘money’

After several conversations with my siblings, I decided to write this post to give them the sum total of all my financial advice I’ve learned as an under-thirty year-old. So this is for you guys, and whoever else feels like they could get a better grip on their money, and live to accomplish their dreams on their own terms.

Bank accounts: Some of the best advice I ever got was from my two older cousins Tim and Kevin. They said I should always have at least $5,000 in the bank. This was a hard feat for a fifteen year old, but once it was in the bank, I vowed never to dip below that mark. So far, I have succeeded. Everyone says that you should have between 3 months and 6 months living expenses saved up for an emergency. So if you lost your job tomorrow, you could survive in your current lifestyle for half a year. I say, why stop at six months? At one point, we had 19 months livings expenses saved, so when my wife took 15 months off to care for our first son, we were living on my smaller, non masters-degree-having job. A few months after that, I got cut to part time. So we went from two full-time incomes to one part-time income. That chunk of savings saved our lives, and our house. We were able to keep up with all payments, only because of our emergency fund. You need one, so start saving today.

It almost goes without saying, but I may as well spell it out. You need a checking account. And, you need a savings account. These cannot be the same account. After putting up with ridiculous fees from M&T, I switched to HSBC and have been pretty happy with them. The main reason I switched was because I was looking for a better savings rate. I checked on Bankrate.com and saw that HSBC offered an online savings account with 5.05% APR. This was a heck of a lot better than the 0.25% rate M&T was giving me. When I switched, (which takes a bit of work, verifying micro transactions, etc.) my monthly interest payment jumped from $1.25 to $52.25. Pretty awesome. I made $500 in interest the first year.

If you have any kind of regular employment, get direct deposit. Figure out generally what you think you’ll need each pay period, and have that amount put into your checking account. Anything left over goes into the saving account, automatically. For example, I had $400 go into checking and whatever was left, say $150 go into savings. You must think of Savings as being untouchable. If you want to save for a specific trip, a new car, etc. set up a third saving account and put $25 or $50 into that each paycheck, but your main savings should remain untouched. Not that it can’t be used. Just not regularly. We used a third account as a wedding fund for the year before we were married and it worked quite well. I also paid off my car using my savings to pay $2,000 chunks down when I could, while keeping up with the regular payments.

Retirement: Even though you’re 21, 25… you need to start thinking about this now. Time affects the amount you end up with much more than how much you put in. This is the beauty of compound interest. A 25 year-old putting in $5,000 a year for 10 years would end up with close to a million dollars, whereas a 55 year-old putting in the same amount over the same time frame would only have just under $80,000!

If you can manage it, contribute money to your employer’s plan as soon as they let you. Most employers will have a matching contribution, but the really good ones will contribute based on a percentage of your salary, even if you put in nothing. After a period of time, typically 3-5 years, you become vested and get to keep all the money that they put in too. An optimum goal for contributions should be 10% of your  salary. It took me several years to build up to this level, so don’t push it if you can’t afford it now. The best part is, my employer matched 7.5% so I was really putting in 17.5%!

The thing about the stock market is…you have to be in it for the long haul. Even if the market is tanking, keep contributing. This is when you can buy up lots of stocks for cheap, so when the market finally rebounds (even if it takes several decades) you’re in the position to make some serious chop. Just think, long term. Not day trading, or even decade trading. If you start when you’re young, the market will surly have grown over four decades, and you can retire wealthy.

Loans or mortgages: First, don’t get one if you can help it. Shakespeare said, “Neither a borrower nor a lender be.”  The Bible says that the borrower is a slave to the lender. But if you really must get a loan, which most people will end up doing at least a few times in their lives (car, school, house), be smart about it. If you have a good credit score (from paying bills on time, etc.) you can qualify for a good (low) interest rate. Make sure you get one that has no pre-payment penalty on it. That way, you can pay extra principal on it if you want to, with no worries.

Once you reach 21% equity in your house, you can drop the PMI (private mortgage insurance) that you have been paying every month. This will get you an extra (for us) $35 a month that you can add to your Principal payment.

Always pay the minimum payments on all of your loans. Then, pay as much as you can afford on the one with the smallest amount in it. For example: you have three loans, $2000 ($50 payment), $8,000 ($150 payment), and $35,000 ($400 payment). Pay the $2000 loan off first. Then, when you are finished with that one, add the $50 to your next smallest loan so that you can put down $200 towards the $8,000 loan. When that’s done, you can add the $200 to the $400 for a $600 payment. If you do it this way, you will see progress much sooner than if you just focus on the loan with the highest interest rate. Dave Ramsey calls this the Snowball method because it grows as it gathers momentum. Using rough estimates, I figure we can pay off our $64,000 of debt in 6 years. This is not including chunks that we plan to slap down from our previously mentioned savings account.

Credit Cards: No. That’s it. No. They are off limits. If there’s an emergency and you need cash…well that’s what your six month emergency savings account is for.

Insurance: A higher deductible will mean lower monthly fees.

For homeowners/ renters insurance, walk around and take picture of all your most expensive things. Also keep a list with all their serial numbers and purchase price. This will help if there’s ever a burglary of fire.

Taxes: Use free software to do your taxes yourself. A local news channel did an experiment and found that people who paid a tax professional $90 got the same refund when they spent a couple hours online doing it themselves for free. (One person got an extra dollar, but they spent ninety to get it). Speaking of refunds, you should try not to get one. Adjust your exemptions on your W-4 form at your job so that you break even at the end of the year. This way, you get to use more of your own money throughout the year and don’t give the government an interest-free loan with your money.

Life: Simply put: live below your means. If the most you can afford is a $300,000 house, do NOT buy a $300,000 house. buy a $50,000 house. Otherwise, if something goes wrong (like a job layoff), you are already at your threshold and can’t afford the payments. Hello foreclosure.

If you can deal with only having one car to share between two people, do it. If you can live without internet at home because you get it free from your job or school, do it. Get movies from the library for free, don’t rent them at $5 a pop. If you live close to where you work, ride a bike instead of drive. That way you save on gas money and get in shape too. (No gym fees either.) If you have a yard, grow your own food. This is rewarding on many levels, one of which is that your grocery bill goes down. Just try to really distinguish between needs, and wants.

Recommended reading:

“The Total Money Makeover” by Dave Ramsey  Great book. Takes you through seven “baby steps” to become debt free and ultimately wealthy. The author has a no nonsense style and admits that the plan is easy but the execution is hard. I will be following this plan for the next six years at least, maybe my whole life. READ IT.

“The Automatic Millionaire” by David Bach is all about setting up your accounts and things so that you accumulate wealth…automatically! Basically set up a 401k early and contribute at least 10 % of your income for as long as you can. Second, buy a house, don’t rent. You will never get rich renting. Also don’t use credit cards. That’s about it.

“The Millionaire Nextdoor” This book goes through how real millionaires live. No, not rap stars and movie stars, real people. The roofer who owns his own business. They wear $30 Timex watches, not $500 Rolex. etc. Interesting book.

“Good debt, Bad debt” by Jon Hanson. Very good book about money management. He wrote it when he was on his death-bed. Basically, don’t go into debt unless it will pay off for you later. Ex. Debt for a school loan which will allow you to get an $80,000 a year job. Good debt. Country club membership and a brand new Mercedes AMG. Bad debt.

Some other posts I’ve written about money:

Living-below-the-poverty-line

Inspired-to-build-wealth

I may be getting a job. Since I left me last job in August, I have been watching my son two days a week and working on the house the rest of the time. Also lazing about a bit. Since my wife had 15 months off while I worked, I don’t feel bad about this.

I had planned on looking for a job after I  finish my degree at OCC in December, but after talking with a friend, I submitted my resume to the place he works. I went in for an impromptu interview last week and got a job offer today. Unfortunately, I have to watch my son these nest two days, so I was unable to act immediately. This may have cost me the job, but the manager said that he has a few other positions open as well and I may still be able to start Monday.

During the past few years, my wife and I had gotten used to never worrying about money. She had a teaching job and I was making a much as I could hope for with only a High School diploma. We had saved up quite a chunk for a newly married couple ($25,000) and planned on using this when she took a year off with the baby. This saved us because midway through that time, my position was cut to part time. We basically lived off savings for the rest of the summer. Now she is working again but I am still home. Money is still tight although we have never missed a payment on our mortgage or school loans. I wouldn’t say we argue about it, but we can order anything off the menu at restaurants anymore. We can’t go out to eat at all anymore. Maybe twice a month, max. No movies, only free DVDs from the library.

But now I have a chance at a job. I realize that this is rare in this economy, especially for someone who has no practical experience in the field that this company is in. So when the interviewer asked me what salary I think I should receive, I told him that any dollars/hr is better than no dollars/hr.

This job will be different than anything I have done before. More of a factory position than working at a desk. This is part of what attracts me to it. I enjoy working with my hands and want to be able to leave work at work at the end of the day.

I am looking forward to the sense of security that this will bring to our finances. I would also like to say that I never worried about money because I knew God would take care of our family. There have been a few times we were low on funds and out of the blue, a check would come in the mail from some obscure thing we were not expecting. Like an alumni fund or extra cash from our escrow account. Anyway, I hope to post a positive update soon.

Making money in a down economy:

This is a short list of ways to make a little extra money for you and your family.

1)      Become a scrap peddler. Now, this isn’t as bad as it sounds. All I mean is, look around your house, basement, and garage for any scrap metal that might be lying around. Then find a metal recycling place that accepts individual drop offs and take it down there. You give them rusty metal, they give you cash. I did this a few weeks ago and made $60. Of course, most of that was from the furnace that I ripped out two years ago and has been sitting in my garage ever since. The price for scrap metal at the time was $128/ ton. So I figure that I had around 900 pounds of steel and cast iron to get rid of. I took me two trips in my little Subaru, but I did it. If you’re really serious about being a scrapper, get a pick up truck and troll the neighborhoods on trash night. Get a friend to help you lift all those washing machines and bed frames into the back and share in the profits.

2)      Sell stuff on Ebay/ Craigslist. Look around your house for anything that you haven’t used in a few years but might be of use to someone else. I found my old GPS in my office. I hadn’t used it in years, and actually preferred my map and compass, even when I was hiking a lot. So I put it on Ebay and made $80. Easy as pie.

3)      Sell books/ video games to local used bookstores/ video game shops. Take stock of your shelves and see what you can bear to part with. There are some PS2 games that I really enjoyed, but might not ever play again. Ex: Prince of Persia. A great game with lots of involved environmental puzzle solving. But I don’t think I will spend another few weekends working through the same traps and pitfalls that were so frustrating the first time. On the other hand, if a game is easy to pick up and play again, like SSX Tricky (snowboarding), that may be one I keep.

4)      Mow lawns, rake leaves. I know, you’re not twelve anymore, but this still remains a viable option if you really need the cash.

My family and I will be officially below the poverty line starting next week. My job hours (and hence, pay) were cut in half this morning. This comes as a surprise to me because this morning, I was full-time, salary, with benefits (medical/dental, 401K, 3 weeks vacation) and almost 10 years with the organization. I suppose this is how it feels to most people. They say, “Well, the economy is bad but I still have a good job. It won’t affect me. I can still pay my mortgage every month.” Now it’s time to re-evaluate. The good news is, I still have a job. I did a little figuring and I think I can still pay my bills every month. Maybe. Now that we are officially “poor,” we qualify for food stamps and other things. My wife and I might not have health insurance, but we are usually healthy anyway. We eat well and mostly organic. (that might change though…too expensive) Now we have an incentive to start that Victory Garden in the backyard. Our 9 month old will now qualify for Medicaid too. Maybe we will as well, I’m not sure. My wife was a little shocked when I told her I was going to look at buying an army surplus field suture kit so I wouldn’t have to go to the Emergency Room.

Our situation isn’t as bad as I make it sound. I know that compared to most of the world, we are still very rich. Our car is paid off and I can bike to work if I want to, which most days, I do. We have some debt (house $52,000/student loans $10,000) but we also have some savings, but that has been shrinking by $1,000 every month since my wife stopped working last year to stay home with our new baby. We only have to survive until September when she will start her teaching job again. Our new roof will have to wait.

This is also good timing on God’s part for several reasons:

1) It’s almost spring time so our heating bills will drop from $200 to $40.

2) We only need to hold on for 6 months.

3) Better weather means we can grow our own food. We’ve never done this, and my wife has a notoriously black thumb (meaning she kills plants, no offense to my African American readers) but I think our motivation is high enough that we will see success.

4) We had already decided to join The Compact this year (you can’t buy anything new, except food, health/toiletries etc. You’d be surprised how excited you become when you visit a second-hand bookstore, architectural salvage store, or Thrift store where everything is allowed.) So this won’t be a stretch as far as deprivation is concerned. We already consigned ourselves to not buying much this year. Entertainment is cheap too. It’s called a LIBRARY. you can get books and movies (even recent releases) there for FREE.

So here are my options. I can try and get a second job and struggle with that whole hassle of driving twice as much and being away from my family even more than I am now. This might be cool because I have a chance to start fresh so to speak. For instance, I’ve always thought I would be a good security guard, landscape architect, ninja, or something else. OR

I can stay home. Enjoy this new turn of events, spend more time with my wife and son, finish my novel-get an agent- become a best selling author, have perpetual 3 or even 4 day weekends, etc. We may even qualify for getting our house painted because of the lead program. We always made too much before. We could even get new windows! The thing with this plan is that we really need to focus on saving money. See Compact above. Not too hard. So that’s where I am right now. Poor, but optimistic.

2009 Federal Poverty Guidelines

The 48 Contiguous States and DC
Persons in family Poverty guideline
1 $10,830
2 14,570
3 18,310
4 22,050
5 25,790
6 29,530
7 33,270
8 37,010
For families with more than 8 persons, add $3,740 for each additional person.

This is what we hired him for

Posted: January 29, 2009 in Money/ wealth, Politics
Tags: , ,

Obama smacked Citigroup around like a red-headed step child.

It’s cool to be able to know that something is wrong, and have the power to do something about it.

img_16731As you can see by my latest utility bill, my decision to replace our 83 year old gravity-fed, 200,000 BTU, – 50% efficient, Octopus furnace with a new 95% efficient one is already paying off.

Just look at January 08 and January 09. Our daily average was 54% better than last year. Compare 230 therms to 115. Needless to say, I’m very happy with the result. The new exterior insulation we had blown-in also contributed to our energy saving. With that project alone, we reduce our carbon foorprint by 14,000 pounds. And who says being Green doesn’t pay off?

Well, after a  month of doing the Compact (that is, not buying anything new) we have been doing pretty well. I did buy two new albums on i-tunes, but since they are electronic files and not actual plastic CDs, and the whole point of this is to reduce materialism, I think that can be forgiven. They’re not taking up any space in my house besides hard drive space. My wife and I have both been tempted by things, but so far, have resisted. I bought some hardware at the Re-Store which is a reclaimed architectural salvage place run by Habitat for Humanity. But this is ok for two reasons: 1) it’s used, and 2) it was for a baby gate, which would fall under one of the exception categories, ie: safety.

I really wanted to buy a book by an author I like that had just come out and I was pretty bummed I would have to wait to read it. But I asked at the library anyway. It had only come out three weeks prior to that so I didn’t have my hopes up. When the librarian looked it up, she said, “Oh, we have four copies.” Oh yay. I asked to be put on the list immediatley and a week later, I had the book in my hands. This has definitley helped our bank account too. Hopefully, we’ll keep it up.

Inspired to build wealth

Posted: December 30, 2008 in Books, Christian, Money/ wealth
Tags: , ,

I just finished reading a book called, “Rich dad, Poor dad.” This is the forth or fifth book on becoming wealthy I have read. Each one has a different take on what to do and how to do it. I’m not sure why, but this one affected me more than some of the others. And before you say, “But Dan, you’re Christian right? Money is evil. You shouldn’t be trying to make money.”  This is a passage by Russell H. Cornwell in his book Acres of Diamonds.

“We preach covetousness in the pulpit and use the term filthy lucre so extremely that Christians get the idea that it is wicked for any man to have money. Money is power, and you ought to be reasonably ambitious to have it. You ought to because you can do more good with it than without it. Money prints your bible; money builds your churches; money sends out your missionaries; and money pays for your ministers. If you can honestly obtain…riches, it is your Godly duty to do so. It is an awful mistake of these pious people to think that you must be awfully poor to be pious.”

So yeah, I want to make money. I don’t want to work for someone else my entire life. I want to be able to travel and take time to climb some mountains and play outside without having to worry about how I’m going to pay for food or my next mortgage payment. But all that still takes work. I need to read and study a lot more before I make any big moves. I’d like to get into real estate and the stock market. Each one is vastly complicated so I know I need to be smart about it. Maybe I’ll hire some professionals. You’ve got to spend some money to make money right? We’ll see how it all works out. I’ll keep you posted.

YES. If you do not have one, get one. Saving for retirement is important and even though the market may seem bad now, in the long run, it is always a good bet.

On a personal note, I just met with my adviser from the Principal and he said I was an “Ideal” participant. I started young (around 19 or 20) and am putting away 10% of my income. My employer also contributes 7.5% which is amazing for a nonprofit. If I just keep going how I am, by the time I’m 67, I will have $ 1.7 million dollars tucked away. Not bad. If I up my contribution to 15%, it will be over $3 million! Yeah baby!

So my point is, start a 401 (K) and contribute to it. Shoot for 10% but anything is good. Over time, you might become a millionaire.