This blog is a way for me to share hard learned lessons about money with those who are just starting out on their own. I hope it's a way for you to avoid making the mistakes I made, and to benefit from my experiences

Friday, July 28, 2006

How I got into Personal Finance

I thought it might be interesting to tell the story of how I became interested in personal finance. Back in the 80's and most of the 90's, I neither had much money, nor was I interested in investing or saving it. As typical with many Americans, I had credit card debts equal to about a year's pay. These debts were used to buy stuff I no longer had, or vacations or eating out, etc. I was living better than I could afford.

In 1996 or so, I started wising up. I was working at a job and they had a Fidelity Investments guy come in and talk to us about retirement. I started saving some money in a 401(k), and started looking at the stock market. Also, because I was making more at this time, I started living within my means. My credit card balances were not really going down much, but they weren't going up either. I always juggled them around with low interest offers, so I never paid much in interest on what I did owe.

I proceeded along like this until late 2003. My mother had passed away back in 1999, and where her husband passed away, I was entitled to a sizeable inheritance. At this time, something clicked in me. I decided that I was not going to mess up this opportunity. This was my one and only big chance at getting a large amount of money at one time. I was going to use that money to get out of debt and get on the road to financial security. I started reading books, checking out financial sites, and listening to Clark Howard on the radio. I started making plans for that money.

First, I was going to pay off every debt I owed, which were basically credit cards and auto loans. Next, I was going to buy a home using much of the inheritance as a 20% down payment, because I've known for a long time that a home is probably the best asset anyone can ever own. Up til then I could never save enough or afford the mortgage payments. Then I was going to create an emergency fund that I could live off of for 6 full months. Then I was going to fully fund our IRAs. Lastly, I was going to invest the rest in a variety of mutual funds.

I'm proud to say that except for a few hundred dollars, that's exactly what I did. I continue to drive the used car I had before the inheritance, and so does my wife. I did not buy any fancy electronics or go on any fancy vacations. Well, I did buy a new $1,500 TV almost a year later. Does that count?

I also swore at that time I would never be in credit card debt again. I've kept that pledge, until now. I'm going to violate it because of the creative financing deal I'm embarking on, but I'm keeping that money strictly in a CD and seperate savings account, to be used only for paying back the credit card and earning interest.

I've had to use that emergency fund and depleted a little more than half of it, due to being laid off last year. I'm now working again, with full benefits, and have started rebuilding that fund. I've also joined my new company's 401(k) and started kicking in 15% of my base salary. I also get commisisons, which will be used for special projects, like starting my son's college fund, saving for a new car, and big ticket purchases like that 50" Plasma TV I've had my eye on.

I admit it, I was damn lucky in that my mother had been such a good saver in her life, and such a sharp businesswoman. I'm very lucky she and her husband decided to leave us kids this money. I'm also very lucky for all the help my older brother has given me over the last 5 or 6 years. I could have done it without his help, but only just barely, and only by not having any emergency fund, funding my retirement to the level I have, or having those other investments. I owe a great deal to both of them. I owe it to them both to use what they've given me wisely, and not blow it! Thanks Mom. Thanks Bro.

Thursday, July 27, 2006

12 Rules to Get Ahead in Life

Someone asked a question in Yahoo Answers, "How to you get ahead in life." I started thinking about all I had learned. Since this was in the Personal Finance area, it is geared more to Personal Finance, but I think the more rules one follows, the happier one's life will be. I'm still short of all 12. I may never get there. But I know as I've started following one rule, and then another and another, my life has gotten better.

In no particular order, here they are:
  1. Get a college education. College opens so many doors economically that you will make far more money on average than a non-college graduate.
  2. Choose a career you love. Don't worry about the money at first. You will naturally excel at it and prosper.
  3. Always live beneath your means. Most likely the people you see flaunting their wealth by driving luxury cars and sporting the latest expensive purses, etc., are in debt up to their eyeballs.
  4. Learn the differences between wants and needs. Never go into debt to get something you "want."
  5. Start saving now. Some for retirement, some for a home, some for car, etc. A good rule of thumb would be a minimum of 10% of your pre-tax income. Do it through a payroll deduction, before you ever see any of it. Make it automatic!
  6. Don't get hooked on liquor or drugs.
  7. Do not have any children until you are married and stable. Also do not have any children before graduating college. This means take precautions!
  8. Buy a home. People who own their own home accumulate far more wealth in life than those that rent.
  9. Be assertive. Don't be afraid to go after the things you want. This includes asking bosses for raises and promotions, and going up and talking to interesting people.
  10. Always think about the consequences of your actions. For every action you take, think "If I do this, what will happen?" What will the positive results be? What are the negative side-effects. What responsibilities will you incur?
  11. Take care of yourself. Eat right and exercise. Stay in shape. It's the only body you have.
  12. Use debt only to acquire things that will grow in value, or will help you earn income.

I hope you find some value or guidance in these rules.

The $900 phone call

So I was on another blog called Stop Buying Crap and it was talking about making money off of 0% Balance Transfers on your credit card. One of the cards on there was the Citibank Platinum Select MasterCard. Well, I just happen to have this card. So even though the offer was for new members, I called Citibank anyway, because I've been a card holder and good customer of theirs since 1986.

I asked them if they could make that 12 month 0% Balance Transfer to me, with no transfer fee. The lady said, "Unless you want to close your account there's not much I can do." In essence, she was telling me to tell her that I wanted to close the account. OK, so I told her well if you can't do anything for me, then yes, I'd like to close the account. She immediately says, let me transfer you to someone who can help you.

Next thing I know I'm talking to Mike, who's offering to upgrade me to the Diamond level MasterCard, lowering my interest rate, and to cut me a $20,000 check at 0% for 12 months, with no fee. Needless to say I accepted the offer.

I'm going to deposit $15,000 in a 5.45% 11-month CD my credit union offers, and $5,000 in an online savings account earning 5.05% 5.15% interest. That last account will be what I pull money from every month to make the minimum payments. At the end of 12 months, I'll pay the remaining balance off in full. I computed this will earn me about $900 in interest, using Citibank's money the entire time, while never touching any of my money. Not bad for a 10 minute phone call and a couple of hours of research and moving money around. Thank you Citibank!

There are some dangers you should be aware of if you wish to try this yourself:
  1. You cannot use that card for anything else until that balance transfer is paid off. Nothing. Otherwise your monthly payments go to pay off the 0% balance only, and not the balance on purchases with higher interest rates.
  2. You absolutely must pay your minimum payment every month, on time! You can't give them any excuse to say you violated the agreement so they can raise the rate to 18% or whatever it will be. It might be a good idea to set up an automatic minimum monthly payment with your card issuer, so they are responsible for taking the minimum payment every month on the day it is due. Of course, make sure you keep enough money in your checking to do this. It should only be a few hundred dollars.
  3. You absolutely must pay back 100% of that balance transfer by that 12 month mark. Otherwise, they'll hit you for interest, possibly dating back to the beginning.
  4. Your FICO score will take a hit, as you increase your ratio of debt to available credit. If you are planning a major credit purchase, like a house or car this year, you may not want to do this.

Tuesday, July 25, 2006

Save Money on School Clothes and Backpacks

If you buy school clothes for your kid, as my mother did for us every year, wait until the school year has already started. Same for backpacks.

As for the clothes, retailers are selling pretty much at full price now and in early August. Oh, they'll say it's on sale, but on sale from the high list price. You can bet in late August and early September, the sales will really be big to move unsold new school clothes. Plus, if you have a teen daughter, it gives her a chance to see what the other kids are wearing the first few days, and then she can choose clothes that she will want to wear and fit in. Better that then if she buys what she thinks will be hot, and then not wear them as she finds out it's not in style any longer.

As for backpacks, retailers will want to dump those unsold backpacks after school has started, just like retailers want to dump Christmas wrap the day after Christmas.

You don't have to wait a long time, just a few days after the school year starts.

As for school supplies, go ahead and get them now. Stores run that stuff as loss leaders to get you in the stores.

Lesson 8: Find Your Latte Factor

To help you start saving, it is very useful to find something you can cut to boost your savings. For instance, do you go out and buy a latte every day? Maybe a pumpkin seed muffin too? Do you smoke? Do you eat out or get fast food for lunch during the week? Maybe you get your nails or hair done once a week? These are all expenses that you can cut out and take that extra money and start saving.

For me, it's eating out or eating fast food too often. Every work day, I generally eat out for lunch. My usual lunch tab runs between $9 and $13. Also, my family usually buys some sort of fast food for dinner 4 nights a week or so. So what if we trim that back some.

Let's say I eat out for lunch only 2 times a week. That would save me an average of $8 each time. My replacement lunch that I pack myself still costs some money, so that's why only $8. OK so that's $8 x 3 days or $24 a week.

Now let's say my family cuts down the fast food to only 2 nights a week instead of 4. Each fast food bill is generally around $15 to $20. Figure a prepared meal would still cost $8 for us. That's $9 x 2 days = $18 saved each week.

That's $42 a week I could save, and probably eat healthier doing it. Multiply that times 50 weeks, figuring vacations, and that's $2,100 a year my family can save, just by eating in more and probably eating healthier.

$2,100 is a lot of money to save, and remember, that's After-Tax money I'm saving. Let's say I take that $2,100 each year and add it to my and my wife's Roth IRAs every year. Using this savings calculator, if the IRA's earn an average of 8% a year, which is a fairly conservative number, and I've got 20 years until I retire, it amounts to $99,353! And no taxes due on any of it.

Holy Crap!

My fast food habit is costing me $100,000, and extra pounds, and higher cholesterol. You better believe that's going to stop now!

What's Your Latte Factor? How Much is it Costing You?

Saturday, July 22, 2006

Listen to Clark Howard

Clark Howard is a nationally syndicated radio consumer advocate. But he's also so much more. Clark answers caller questions and provides a website at to inform on a range of topics, including current scams and rip-offs, bad companies, how to save money on a variety of things, real estate, investing, taxes, you name it. If it's something consumers deal with involving money or businesses, he has tons of good advice. Best of all, he's not selling you anything. Well, OK, he does write and sell books, but on his radio show, he even tells you to buy them used or find them at a library. Unlike other financial shows (Dave Ramsey), Clark isn't trying to sell you seminars or programs or any other crap. Everything in his books has been advice given on the air, for free!

Clark is responsible for saving me $900 one year by pointing out an alternative cheaper source of a service I use, and by pointing out the Saver's credit, which I had missed on my taxes.

Clark has written several books, and one called Get Clark Smart: The Ultimate Guide to Getting Rich from America's Money-Saving Expert is filled with incredibly wise and useful info on spending and investing your money wisely.

I've had 2 main sources of inspiration and information in my personal finance makeover. Clark Howard is the #1 inspiration. Listen to his radio show. Read that book. Start saving your money and spending it wisely.

Friday, July 21, 2006

Lesson 7: Review All Services You Buy At Least Once a Year

It's amazing how easily additional services creep up on you. You sign up for one, and then another, and eventually you've got many. Here's just a partial list of stuff that adds up- Cable TV, DSL Internet, Netflix (actually Blockbuster), Yahoo Music Subscription, cell phone, 3 magazine subscriptions, and 2 political organization memberships.

Each of these is a monthly or yearly expense. Many are not needed or no longer used. This is very common. So you should at least once a year, go through all this stuff and ask yourself. Am I still using this? Do I need it at that level? Do I need it at all? Can I get this or a similar service elsewhere for less? Even better would be to think about these every time you pay the bill.

Right now, I'm considering halting the Blockbuster DVD service, or trimming it back from 3 DVDs at one time to 1 DVD at a time. I just don't get to sit down and watch DVDs that much.

I recently switched to DSL internet at $17.99 per month from Comcast Cable at a rapacious $42.95 a month. I haven't missed the higher cable speed at all, but I sure like having that extra $25 per month.

I've shaved my home telephone bill from $27 to $17 a month by going to a 3rd party long distance carrier. They have great rates by the way, with no monthly fee or minimum usage requirements. I urge you to check out Americom for your telephone and long distance needs.

I've ditched one of our two cell phone plans in favor of Prepaid. My monthly cell phone bill went from $19.99 to about $3 to $6 per month depending on how many minutes I used. If you use less than 200 minutes a month like I do, take a hard look at prepaid cell phone plans. Right now, I think T-Mobile has the best prepaid plan. Like Catherine Zeta-Jones says, "Why pay more?"

Your auto insurance is a great service to do this with too. Every year you should review your coverage, and then shop around to a few different companies or sites to see if they can give you something better. One time, I reduced my rate by $500 per year this way by finding out Costco offers low cost auto insurance. Make sure you check the rates your warehouse club offers if you are a member. Or if you aren't a member, check anyway. A $500 annual savings is worth a $35 annual membership.

By staying sharp and investigating alternatives, you can save substantially. Who doesn't like to save money?

Thursday, July 20, 2006

Lesson 6: Banking

By and large, banks are for chumps.

With a traditional bank, if you overdraft your checking account, you can expect to be hit with fees ranging from $19 to $39. With their credit cards, late fees or overdraft fees range from $25 to $39, or even more, even if only a day late or a dollar over your credit limit. And what do they give you on your savings account? 0.25% to 0.50% interest. A stinking half a percent.

For checking, auto loans, and credit cards, Credit Unions are the far better deal. And in recent years, they've really opened themselves up to most people in the community, rather than specialized groups. Because they are essentially a co-op, they do not charge high fees like banks do, and generally offer better interest rates on credit cards and loans. My credit union charges me $2 for an overdraft on my checking, and doesn't charge late fees on my credit card, unless I'm really late, which I've never been. My monthly checking service charge is $3 when I don't maintain an average balance of X dollars, but usually that's low enough that I rarely get charged that service fee.

To find a credit union close to you, go to the National Credit Union locator.

A newcomer is online banks. They're great for high interest savings or CDs, but that's about it. They link to your checking account to move funds in or out. A high interest savings account at an online bank is a good place to keep your emergency fund.

For traditional banking services, join a credit union. For savings, go to an online bank. For mortgages and loans, go to a mortgage broker, lending internet sites like or, and your local Credit Union.

I can't think of a single reason why I'd want to go to a traditional bank.

Wednesday, July 19, 2006

Money Saving Tip #1: Warehouse Clubs Offer Bargains on Services

Are you a member of Costco, Sam's Club, or some other warehouse club. Beyond the merchandise they sell, these clubs also sell great discounted services.

I saved a cool $500 per year on auto insurance with Costco. That's $500 below every other quote I could find after shopping numerous companies and internet broker type sites like Geico, Progressive and others. I also received a $1,200 rebate when buying my home using their Real Estate Agent Services. Just on these 2 services alone I've saved $2,700 over the last 3 years.

These warehouse clubs also offer many other discounted services like film developing, travel services, check printing, car buying, home and auto financing, pharmacies, financial planning, health and dental insurance, phone services, etc. They've established relationships with 3rd party vendors at substantial discounts for their membership. They also offer discounted business services for small businesses, like payroll processing, merchant card processing, insurance, overnight delivery, etc.

Personally, I hate shopping at the warehouse club stores. They are too crowded, and I don't like buying in bulk. But I absolutely love the discounted services they offer!!!

Monday, July 17, 2006

Lesson 5: Don't Budget! Automate Instead.

I've briefly covered this in earlier posts. When doing strategic things like saving for retirement or building an emergency savings, it is incredibly helpful if you automate it.

Many advisors say you should track all your expenses, then build a budget and try and live within it. They even go so far as to actually put cash in envelopes marked groceries, clothes, etc., and you pull money out for those items as you buy them. Unless you are one of those anal types who love doing this kind of stuff, this is a recipe for failure. It is a recipe that few will follow. Screw that!

My approach is much quicker and easier. Take a few minutes and write down what you think your expenses are, including weekly pocket money, then subtract that from your take home pay. With this, you can guess at what you can put away for your retirement and savings. If the answer is zero or close to it, then start with a small savings plan, like 5% of your total pay for savings. Instruct your employer or financial institution to deposit that percent of your pay directly to the 401(k), your savings account, college fund, or whatever it is. In my case right now it's 15% going into my 401(k) and 5% into a high interest rate online savings account.

Then live with that for a couple of months. Were things too tight and you had to raid your savings? Then dial your amounts back a little. Did you easily adapt? Then maybe try and increase your savings a little. Did it feel about right? You weren't deprived, but didn't have much money left over? Perfect!

The beauty of this system is that it's quick and painless, and once you've made 1 or 2 adjustments, it's automatic. After that, you don't have to think about it again unless your circumstances change.

Again, start now, no matter how little it is. Some savings is better than no savings. And automate it so it happens before your spend your money, not after. This is called "Paying Yourself First."

Friday, July 14, 2006

Lesson 4: Start Savings for Retirement

I know. I'm starting to sound like a broken record. Save. Save. Save. It's important! If you are working for a living and out of school, you must start saving for retirement now!

Hopefully you are in your early or mid-2o's and reading this. The earlier you start, the easier it is to have a wealthy retirement. That's because money saved now will have 35 - 40 years to grow.

If you are in your 30's and 40's, it becomes even more important to save now! Because your money has less time to grow before you need it.

Here's a savings calculator that you can play around with the numbers. A 25 year old person who puts away $100 a month earning 8% will have $350,000 after 40 years. A 40 year old person would have to contribute $375 per month for 25 years to earn that same $350,000.

At this point, don't worry if you're behind. The worst thing you can do is to do nothing because you feel you're too far behind. Even a little retirement savings is better than nothing. If you're starting late, figure out what the maximum you can contribute each month is, and then do it. Set it up to be deducted from your check automatically.

If your company offers a pre-tax retirement investment like a 401(k), get into that. If your company matches that with company funds, then absolutely invest whatever you have to to capture all the matching funds. That's free money! If not, you can invest on your own with IRAs through brokerages or banks.

When you do invest, invest in no-commission, low cost investments. Fidelity and Vanguard are low cost brokerages/fund company's that make it easy to start. You don't even have to worry about what to invest in. Fidelity offers Freedom funds and Vanguard offers Target funds that will automatically diversify your investments for you based on your projected retirement dates. These funds usually have a year in their name like Freedom 2040 or Target 2035.

Start saving for your retirement now! The sooner you start, the easier it will be, and the more you'll be able to have for your retirement. The alternative is to be completely dependent on Social Security, like so many of the poor elderly are. Take control and don't be a victim of your own fears.

Thursday, July 13, 2006

Lesson 3: Save For A Rainy Day

Yes, it's a cliche, but emergencies do happen. The car dies, you get sick and can't work, or you lose your job. What do you do then? If you have no savings, you can rack up credit card debt just to get by, but that just leads to misery and bankruptcy down the road. You can sponge off of family, but that only creates bad feelings among the family.

You must build yourself an emergency savings. Your ultimate goal is to build a minimum of 3 months of living expenses worth of savings. You want enough to pay all your expenses, like rent, food, utilities, etc. for at least 3 full months. Personally, I'd feel better about 6 months, but you need to at least save the minimum 3 months worth of expenses and then figure out what level makes you comfortable after that. If you are truly paranoid and always worrying about the next depression or if your job is always in danger, or even UFOs, you may even want very high levels of savings, like 24 months worth of expenses.

Then after you reached your emergency fund's goal, don't touch that money, unless it's an emergency. A great sale on a new car or big screen TV is not an emergency!

Even more important is how you do this! Do not just save whenever you have some extra money. You must make this a priority. You must pay yourself before you pay anyone else. Look at your income and expenses, then try and set aside a set percentage every month for this saving. 5% of each month's gross pay is reasonable. Then make it automatic. See if your employer will do a direct deposit and automatically siphon off 5% every month into your designated savings account. You may have to estimate the dollar amount for them. If your employer won't do this, then you instruct your savings account to automatically deduct that money after every pay day. Almost all banks can do this online now.

The goal of making it automatic is so that you don't see the money, and you don't wait to do it. It saves automatically. After a few months, you'll completely get used to not having that money.

After you've saved the 3 or 6 months, or whatever you feel is appropriate, worth of expenses, keep saving that money automatically. Save it for a down payment on a house, a car, vacation, whatever. Use this automated savings method for larger purchases, to avoid using debt to buy that car or vacation.

As I write this, several online banks are offering phenomenal interest rates on FDIC insured savings. Also money market funds through brokerages offer good rates and are very secure as well. Some money market accounts are even tax free. Here are links to these online banks and brokerages. Check them out.

Emigrant Direct
HSBC Direct
Amboy Direct
E-Trade Bank

Lesson 2: Good and Bad Debt

There are two kinds of debt. Debt that makes you money and debt that costs you money.

  • Debt to buy a house - Good. You need a place to live, plus homes appreciate in value.
  • Debt to expand your business - Good. Because your expanded business will increase your sales and ultimately your bottom line.
  • Debt to buy a big screen TV - Bad. By borrowing, your only making the price of the TV more expensive, and the TV will only depreciate in value. In 5 years if you try and sell it, you'll only get pennies on the dollar.
  • Debt to go on vacation - Really Bad. After the vacation is over, you are still paying for it, plus interest, and have absolutely zero to show for it.
  • Debt to buy a truck for your job - Good. You're a carpenter or contractor. You need a truck. It's a necessary tool for you to make your income. Debt to buy any tool needed to make money is good debt.
  • Debt to go to college - Good. You are investing in yourself and your future. Your education and degree will open many opportunities for you and usually lead to much greater income.
Debt to buy a car - Necessary. In today's environment, you need reliable transportation. Your job and livelihood most likely depend on it. And let's face it. A car is an expensive purchase that few can afford to pay cash for. But are you borrowing to buy the 1-year old lightly used Toyota Camry? Or are you buying a new Lexus? Both will get you reliable transportation, but one is a smart play and one not very smart. Unless you put a whopper of a down payment on the Lexus, it's a bad play. The second you drive it off the lot, you've lost about 15% to 20% of the car's value. Cars, even great cars, always lose value over time.

Ultimately, debt should be used only productively. It should be used to better your situation. Getting into debt just because you want more stuff, or you want to live nicer than you can afford, is stupid and harmful.

Do yourself a favor. Don't borrow to get more stuff or live beyond your means. It's a trap and ultimately makes you a slave to the lenders. Save and pay cash for the things you want.

Wednesday, July 12, 2006

Lesson 1: Live Beneath Your Means

The first and most important lesson everyone should learn about money is to live beneath your means. Wealthy people did not become wealthy by blowing all their money as soon as they made it on new cars, fine dining, expensive clothes and toys, or expensive travel. Wealthy people became wealthy by living beneath their means, spending their money wisely and investing it in assets or businesses that made them even more money.

Accumulating more and more stuff will not bring you happiness. Having the latest Coach purse or a new car every couple of years will not bring you happiness. Oh, it may briefly make you happy, but that happiness is fleeting. What it will bring you is debt. And debt will not bring happiness. Debt brings misery and frustration. And that lasts as long as your debt does.

It's easy to get caught up in all of it. I did too for many years. We see all the stuff on TV and see that our friends and parents may have all the stuff. You think you deserve it too. However your friends may be in debt up to their eyeballs, just a paycheck away from bankruptcy. Your parents didn't accumulate their stuff overnight. They most likely worked and saved for it. You don't deserve to have all the stuff just because you exist! Life doesn't work that way.

As a result of that, I had credit card balances of up to $20,000 for years. I would struggle to pay the minimum balances, making a little headway, only to go out and spend again. And after all that, I had very little to show for it. I still rented an small 1 bedroom apartment and was getting nowhere. I had nothing in the bank. I was living paycheck to paycheck.

Don't make the same mistake I did. You don't need all that stuff! It only clutters your life.