I said before I would make a post about credit cards, so here we go! First we're going to talk about how NOT to use credit cards, and then how to successfully use them, and then why you should use them.
A lot of people have this hardcore hate of credit cards, which is deserved in some respects. Many people have ruined their financial life because of them. These people treat a credit card as free money, which is a BIG mistake. The key to successful use of a credit card is found in the video below.(Wait for the commercial to load, sometimes it says "can't load video," just wait a minute.)
Mind blowing right? Don't buy stuff you can't afford. Let's say you have ran out of money in your food budget. You think, "hey, I can just charge it to my credit card, and then pay it off later!" You go to the store and buy $100 worth of bacon (mmmmm). When the bill comes around, you still don't have the money, so you don't pay your bill. Credit card companies are hoping you don't pay your bill in full every month, this is where they make a decent amount of their money, by charging you ~26% interest Next month, assuming you haven't charged anything else to your credit card, the bill is somewhere around $126. And so begins the monster of debt.
The key, as stated in the video, is DON'T BUY THINGS YOU CAN'T AFFORD. If you don't have the money in your checking account, don't charge anything. Don't count on getting money back from a friend to pay for it, don't count on receiving an inheritance, don't buy anything if you don't have the money! You will put yourself in a horrible hole that is very hard (and expensive) to get out of. If you don't have self control, don't get a credit card. Simple as that.
Now, how to use credit cards successfully. Armed with Mint (previously discussed in another post), whenever we make a charge, that money gets subtracted from our budget. It helps us realize that we have already spent a certain amount, and that we shouldn't spend anymore. If our credit card bill ever gets over ~$200, I pay it off early online. When I do that, the money comes out of our checking account and gets applied to our credit card and stops us from ever getting into the hole of debt. Like I stated before, you have to treat your credit card as a debit card, or else you can very easily get yourself into trouble with debt. Time for a little prophetic smackdown before we get into why you should use credit cards.
Interest [on debt] never sleeps nor sickens nor dies; it never goes to
the hospital; it works on Sundays and holidays; it never takes a
vacation; it never visits nor travels; it takes no pleasure; it is never
laid off work nor discharged from employment; it never works on reduced
hours. ... Once in debt, interest is your companion every minute of the
day and night; you cannot shun it or slip away from it; you cannot
dismiss it; it yields neither to entreaties, demands, or orders; and
whenever you get in its way or cross its course or fail to meet its
demands, it crushes you.
J. Reuben Clark Jr. in Conference Report, Apr. 1938:103.
If you need a translation, he's saying don't get into debt. Why should you use credit cards? Let us count the ways.
1. Saves you money. Using a credit card is one of the most effective ways to build your credit score (there are other ways, but credit cards are the easiest and most effective). Why is it important to have a good credit score? A credit score is basically a score that says how reliable/responsible you are with your money. If you have a high credit score (740+), that says to a bank, insurance company, and sometimes even your landlord that if they loan you money, you will pay them back. They are much more likely to offer you a loan at a lower interest rate. If a person has a low credit score, the bank takes a bigger risk when they loan them money, so that person has to put down a bigger down payment and has a higher interest rate. If we're talking about a large loan, such as for a house, even fractions of percentages in your interest rate can mean a lot of money, so its important to have a good credit score, and RESPONSIBLE use of a credit card can improve your score. (There are many other considerations when someone makes you a loan, but a credit score is kind of the backbone.) If you want a free way to see your credit score and be alerted to any changes, go to https://www.creditkarma.com/
It's not your exact score, but it gives you a good idea of what your score is. If you want your real score and hardcore credit protection, you have to pay a company around $10 a month. (Paying to see something that is ours.... stupidest idea ever.)
2. Rewards. Case in point. We applied for a Citi American Airlines card and their promotion was if you spend $1,500 in the first three months of having the card, they will give you 75,000 frequent flier miles (It takes 80,000 to go round trip to Europe for two people, lower for USA, Caribbean locations.) We bought Jessica's bike with the card, and then bought all of our groceries/books using the card. We ended up with all the points, and we are continually using it to get to our 80,000 mark. Two round trip tickets from Salt Lake to Rome is ~$3,000, so essentially we made $3,000. It's really important to think about why the credit card company would offer such a deal. They're hoping you spend $1,500 you don't have (refer to the video as to whether that's a good idea or not) and then you will end up paying credit card interest payments to them, essentially canceling out any savings/bonuses you get. Strategy: DON'T BUY THINGS YOU CAN'T AFFORD. Don't go buy a new bike solely to get some reward. If you are going to be making a large purchase (or a series of large purchases) such as a new motorcycle, bike, TV, furniture, etc. sign up for a credit card with a big reward, use the credit card, get your reward. A lot of the cards have an annual fee (between $60-90) but most of them will waive the fee for the first year, and if you call customer service when your year mark is up, you can usually get it waived again and again, since they want to keep your business. It's important to remember that when you apply for a new card, they check your credit, which lowers it by 2-4 points, but after two months of on time, full payments, the difference is made up and it will only raise your credit from there on out, as long as you make on time payments.
3. Convenience. Its great to have to carry just a card instead of cash. If it gets stolen, you just call the company and cancel it. The advantage over debit cards is that you can get rewards with credit cards, while debit cards have the advantage of taking the money out of your account right then and not putting you into the mindset of "I'll pay it off later."
I'm really tired so I'm going to sign off, but not before doing a quick recap.
1. If you don't have self control, don't get a credit card.
2. If you don't have money, don't buy things.
3. Don't buy things solely to reach the purchase limit to get rewards.
Pretty simple right? Like I said at the beginning, a lot of people are anti- credit cards, and I can see their point a lot of the time. Most people don't have self control, and get themselves into trouble. If you do have self control and are able to be responsible with your money, credit cards are a great way to help yourself out and get some sweet rewards.
Here's some links to some hardcore bloggers that talk about credit card bonuses (specifically travel)
http://thepointsguy.com/beginners-guide/
http://www.frugaltravelguy.com/p/rookie-tips.html (read the intro letter he has posted)
Showing posts with label Finance. Show all posts
Showing posts with label Finance. Show all posts
1.15.2012
1.04.2012
Finances for the Fearful :)
Since you have heard a lot from the Health Nut and not so much from the Nerd, I (Jessica) have asked Aaron (the Nerd) to write a little bit about how we do our finances. I told him to write and then I set him loose. Here is what he wrote. I love my math nerd :) For those of you who are struggling to organize your finances and budget, or are looking for a smart way to start a savings, this will appeal to you.
So Jessica asked me (Aaron) to write a little bit about what we do for our finances. The way we do it makes it very easy for us to manage our finances and keep a pretty close eye on everything that's happening, as well as have minimum upkeep. That being said, I'll introduce you to one of the most wonderful tools ever invented:
For anybody that hasn't ever heard of Mint, I'll explain the basic idea. When you create an account, Mint asks for your online banking information. For us, we use Chase and ING, as well as some credit cards, so we gave Mint those usernames and passwords. Mint logs in to the banking sites periodically, downloads recent transactions, categorizes them (as best as it can, you have to change categories sometimes, but it learns over time), and allows you to review them. That is only really helpful inasmuch as you have a budget set up (on Mint as well.) It might help if I illustrate the process using a simple transaction, like a trip to Wal-Mart.
Let's say I go to Wal-Mart and buy a live lobster (just because.) The next time I log in to Mint, my accounts update (Mint downloads their recent transactions), and it shows on my transactions list that I went to Wal-Mart and paid $20 (my guess for a lobster price, its probably a lot more.) It categorizes that as groceries, so our groceries budget, which was at $200 before, now is at $180. When you reach your budget, it sends you an email/text message to let you know that your limit has been reached. That's the biggest problem I've seen with keeping budget: not knowing how close you are to your limit. Mint helps you know immediately how close you are so you can adjust your spending accordingly.
Another really nice feature, and probably the most helpful for us, is the smartphone app. If we had to log in to the site every time we wanted to see our budget, it wouldn't probably get seen very often. But with the app, wherever we are, we can get on and see where we are at with our spending and if we have enough left in our budget to buy whatever. It also shows account balances and credit card debt, which is really helpful to keep track of your spending and avoid overdrafts or excessive debt. As well, since it shows all of your transactions, it is really easy to spot charges that are not yours, allowing you to take care of problems very quickly before some guy goes on a spending spree in Paris (which happened to my dad, some guy stole his card number and bought $2,000 of clothes in Paris.)
Here's a link to their how it works page, which can probably give you a better idea of what Mint does and how it can help you. Like I said, I really encourage it, it automates a lot of the budgeting process. In the traditional way, you have to go and type (or write) in all the amounts and categories of the things you buy, which takes quite a lot of time (but does have the benefit of making you want to spend less, since you know if you buy something, you're going to have to go home and file it away and all of that jazz.)
As for our accounts and why we have them, we use Chase for our checking account for a couple of reasons. One, Chase is really widespread, you will always be near a branch or an ATM. Two, their smartphone app allows you to deposit checks from your smartphone, which is really convenient. Instead of having to go to the bank, you just take a picture of the front and back of the check, double check the routing/account numbers, and then send it to them through their app. It gets deposited as soon (sometimes sooner) than a regular check, and takes less time, plus you can do it in your underwear, which is a big plus for me. :)
For our savings, we have two different accounts, both set on automatic deposits. Our traditional savings account is through ING Direct, an online bank. That means that all of your banking is done through your computer and online transfers, which for us is totally fine. We have it set up to automatically take $70 from our checking account on the 1st and 15th of every month. Online banks usually (but not always) have higher interest rates than brick and mortar banks since they have a lot lower overhead (lots fewer buildings, employees, etc.) We're currently getting a 0.85% interest rate, which doesn't sound too amazing, but lets compare it to a few other savings options. At Chase, if you have a savings account balance below $10,000 you get a 0.10% rate. Even if you have a $5 million balance, you only get 0.30%. For a Zions savings account, you get 0.15%. The only thing really comparable right now as far as savings goes is a CD (Certificate of Deposit). This means you deposit a certain amount of money in the bank and make an agreement not to withdraw any until a certain amount of time passes (12 months, 24 months, etc.) With Chase, if you get a 36 month CD (you can't touch the money for 36 months = 3 years) with a minimum deposit of $1,000, you get 0.50% interest per year. If you do a 36 month CD with a minimum deposit of $10,000, you get a 0.75% rate. With ING, your money is not in a CD, which means it is available whenever you need it, and its at a comparable interest rate. That's why we are sticking with ING! If you want to start an ING account, just email/Facebook me or Jessica, since for every person we refer who starts an account with at least $250, that person gets $25 and we get $10.
For our other savings, we use Betterment. Basically, they invest your money between stocks and bonds (you choose the percentage of each you want, stocks are higher risk but have the possibility for higher returns, while bonds are lower risk but make less money.) They diversify your portfolio for you, protecting you from some of the risk traditionally associated with investing. Don't get me wrong, there's still risk, but its lowered a lot by diversifying. Here's a picture of the site when you log in (this isn't ours, we don't have that much money!)
Our current allocation is 70% bonds and 30% stocks, since we are trying to use it more as a higher interest savings account than a hardcore investment plan. We only have it set to put in $30 every two weeks, but once the economy picks up a bit we will probably increase our contribution. Betterment is nice because it allows you to gain a lot of the bonuses of investment without the hassle of having to deal with a lot of the risks/costs. They charge a small percentage of your balance yearly based on how much money you have invested (more money invested means lower interest rate.) The rates go from 0.30% to 0.90%, so for us (since we're poor) we are really only getting a rate of about 0.70% right now, but if the economy picks up, our rate will go up. If you want to start an account with at least $500, let us know, they have a referral program as well, where you get $25 and we get $10.
That's our checking and savings account, I hope the tools/programs described are helpful! Mint really allows us to stay on track and informed about our finances, and since finances are one of the most common causes of divorces, Mint can save your marriage :) I'll do another post later about what we do for our credit cards! Enjoy, post any questions in the comments section, I'll see if I can answer them!
So Jessica asked me (Aaron) to write a little bit about what we do for our finances. The way we do it makes it very easy for us to manage our finances and keep a pretty close eye on everything that's happening, as well as have minimum upkeep. That being said, I'll introduce you to one of the most wonderful tools ever invented:
For anybody that hasn't ever heard of Mint, I'll explain the basic idea. When you create an account, Mint asks for your online banking information. For us, we use Chase and ING, as well as some credit cards, so we gave Mint those usernames and passwords. Mint logs in to the banking sites periodically, downloads recent transactions, categorizes them (as best as it can, you have to change categories sometimes, but it learns over time), and allows you to review them. That is only really helpful inasmuch as you have a budget set up (on Mint as well.) It might help if I illustrate the process using a simple transaction, like a trip to Wal-Mart.
Let's say I go to Wal-Mart and buy a live lobster (just because.) The next time I log in to Mint, my accounts update (Mint downloads their recent transactions), and it shows on my transactions list that I went to Wal-Mart and paid $20 (my guess for a lobster price, its probably a lot more.) It categorizes that as groceries, so our groceries budget, which was at $200 before, now is at $180. When you reach your budget, it sends you an email/text message to let you know that your limit has been reached. That's the biggest problem I've seen with keeping budget: not knowing how close you are to your limit. Mint helps you know immediately how close you are so you can adjust your spending accordingly.
Another really nice feature, and probably the most helpful for us, is the smartphone app. If we had to log in to the site every time we wanted to see our budget, it wouldn't probably get seen very often. But with the app, wherever we are, we can get on and see where we are at with our spending and if we have enough left in our budget to buy whatever. It also shows account balances and credit card debt, which is really helpful to keep track of your spending and avoid overdrafts or excessive debt. As well, since it shows all of your transactions, it is really easy to spot charges that are not yours, allowing you to take care of problems very quickly before some guy goes on a spending spree in Paris (which happened to my dad, some guy stole his card number and bought $2,000 of clothes in Paris.)
Here's a link to their how it works page, which can probably give you a better idea of what Mint does and how it can help you. Like I said, I really encourage it, it automates a lot of the budgeting process. In the traditional way, you have to go and type (or write) in all the amounts and categories of the things you buy, which takes quite a lot of time (but does have the benefit of making you want to spend less, since you know if you buy something, you're going to have to go home and file it away and all of that jazz.)
As for our accounts and why we have them, we use Chase for our checking account for a couple of reasons. One, Chase is really widespread, you will always be near a branch or an ATM. Two, their smartphone app allows you to deposit checks from your smartphone, which is really convenient. Instead of having to go to the bank, you just take a picture of the front and back of the check, double check the routing/account numbers, and then send it to them through their app. It gets deposited as soon (sometimes sooner) than a regular check, and takes less time, plus you can do it in your underwear, which is a big plus for me. :)
For our savings, we have two different accounts, both set on automatic deposits. Our traditional savings account is through ING Direct, an online bank. That means that all of your banking is done through your computer and online transfers, which for us is totally fine. We have it set up to automatically take $70 from our checking account on the 1st and 15th of every month. Online banks usually (but not always) have higher interest rates than brick and mortar banks since they have a lot lower overhead (lots fewer buildings, employees, etc.) We're currently getting a 0.85% interest rate, which doesn't sound too amazing, but lets compare it to a few other savings options. At Chase, if you have a savings account balance below $10,000 you get a 0.10% rate. Even if you have a $5 million balance, you only get 0.30%. For a Zions savings account, you get 0.15%. The only thing really comparable right now as far as savings goes is a CD (Certificate of Deposit). This means you deposit a certain amount of money in the bank and make an agreement not to withdraw any until a certain amount of time passes (12 months, 24 months, etc.) With Chase, if you get a 36 month CD (you can't touch the money for 36 months = 3 years) with a minimum deposit of $1,000, you get 0.50% interest per year. If you do a 36 month CD with a minimum deposit of $10,000, you get a 0.75% rate. With ING, your money is not in a CD, which means it is available whenever you need it, and its at a comparable interest rate. That's why we are sticking with ING! If you want to start an ING account, just email/Facebook me or Jessica, since for every person we refer who starts an account with at least $250, that person gets $25 and we get $10.
For our other savings, we use Betterment. Basically, they invest your money between stocks and bonds (you choose the percentage of each you want, stocks are higher risk but have the possibility for higher returns, while bonds are lower risk but make less money.) They diversify your portfolio for you, protecting you from some of the risk traditionally associated with investing. Don't get me wrong, there's still risk, but its lowered a lot by diversifying. Here's a picture of the site when you log in (this isn't ours, we don't have that much money!)
Our current allocation is 70% bonds and 30% stocks, since we are trying to use it more as a higher interest savings account than a hardcore investment plan. We only have it set to put in $30 every two weeks, but once the economy picks up a bit we will probably increase our contribution. Betterment is nice because it allows you to gain a lot of the bonuses of investment without the hassle of having to deal with a lot of the risks/costs. They charge a small percentage of your balance yearly based on how much money you have invested (more money invested means lower interest rate.) The rates go from 0.30% to 0.90%, so for us (since we're poor) we are really only getting a rate of about 0.70% right now, but if the economy picks up, our rate will go up. If you want to start an account with at least $500, let us know, they have a referral program as well, where you get $25 and we get $10.
That's our checking and savings account, I hope the tools/programs described are helpful! Mint really allows us to stay on track and informed about our finances, and since finances are one of the most common causes of divorces, Mint can save your marriage :) I'll do another post later about what we do for our credit cards! Enjoy, post any questions in the comments section, I'll see if I can answer them!
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