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Financial Commandment #4: Avoid a Paycheck to Paycheck Lifestyle

Posted on Written by Kostas 4 Comments

Have you ever seen those pictures or videos of people walking on a tightrope between two very tall buildings? All those pictures are from a long time ago and it seems not many people do that as a thrill anymore (I wonder why??). Besides that, they are also extremely scary to watch. Walking on what seems like a razor thin piece of rope where one false move or breath will send you hurtling to your doom. Very stressful stuff.

Steady now…

Yet, this is how a lot of Americans are going about their financial lives nowadays. One unfortunate move or event, and their whole financial lives will come crashing down. This is a very stressful way to live, exhibited by the large increase in anti depressant and anti anxiety medications being used nowadays. But it’s not a simple pill that will take people off the financial tightrope. It’s a dedication to get off the paycheck to paycheck lifestyle that is all too common nowadays. Having some financial breathing room can make all the difference in the world, especially when the big monthly bills come due. Here are some immediate steps to take in order to get off the tightrope of financial ruin:

Take stock of your current situation: You have to know where you stand first before you start towards your goal. Start tracking your monthly income and expenses. You don’t have to do a budget or anything like that since budgets are not for everyone. But it is important to know what your income minus your expenses are. If your expenses are greater or pretty close to your income, you are living paycheck to paycheck. This is pretty easy to do especially if you use credit cards for most things. But if you don’t, a simple pen and paper will do.

Cut as many expenses as you’re comfortable with. Then cut some more: Living a step away from financial ruin is no way to live. It’s not worth cable TV. It’s not worth having a smartphone. And it’s not worth paying more than you have to for anything. Cut out non essential expenses, especially those you don’t use much. This includes the aforementioned cable TV and smartphones, but can also include gym memberships, subscriptions, and excess eating out. Also, try to minimize those those things you need like car insurance, groceries and clothing. Many people pay way too much for these things without even knowing it.

Make more money: Sounds simple enough. But it’s tough to implement unless you’re motivated to do it. And getting out of the paycheck to paycheck rut should be enough motivation. While you’re minimizing your expenses, it’s important to work on the other side of the equation as well by maximizing your income. Even something like working one extra day a month can make a difference. You need to do whatever you can to get out of this situation, and once you do you can resume working as many hours as you’re comfortable with. But find ways to make more money, be it working more hours, selling stuff or using some of your existing skills as some side income.

Build up a reserve: By cutting expenses or making some more money (or, ideally, both), you are increasing the amount of money you have leftover for the month. This “gap” between income and expenses is what creates real wealth and will save you from the paycheck to paycheck predicament. Now it’s important to build up some sort of cash reserve in your checking account or a savings account. This money should be relatively easy to access as it should be used for “emergency” situations that inevitably happen such as car trouble or surprises at the dentist.

Such unexpected events would be enough to derail a person walking a tightrope and cause them to plummet, either by forcing them to incur credit card debt or even something as drastic as declaring bankruptcy. This is the importance of a having a reserve or “emergency” fund.

Make it grow: By optimizing your expenses and income and having a healthy amount of reserve money, you are ahead of 95% of Americans financially. I don’t have any figures to back that up, but it’s probably true since the vast majority of Americans are in credit card debt. At this point, it’s wise to give your money the opportunity to grow over time. This can be done in many ways such as increasing your 401k contribution, investing in mutual funds, buying rental property or starting that business you’ve always dreamed of. This is the path to real wealth, and what a steady and glorious path it is.

Filed Under: Financial Commandments

An Essential Rewards Credit Card

Posted on Written by Kostas 8 Comments

I love the world of credit card rewards. I hate the world of credit card debt. Guess which world the credit card companies want us to live in? Many people ask which is the “best” reward card? That is an inherently difficult question because it depends on what your goal is. If your goal is domestic travel, there is a certain class of cards which would be best. If your goal is international travel, there is another group of cards to consider. And if your goal is cash back, there is a whole other set of cards to look into.

Well, I think I found the rewards card that is the “best”. Or close to it anyway. I have had it for a couple of months and it has really made the process of choosing the right credit card from my wallet a little easier. The card I speak of is the Fidelity Investment Rewards Card. It is an American Express branded card but FIA Card Services sends you the bill.

The “best” rewards card you can find

Here are the main advantages of this card:

2% cash back on EVERYTHING. That’s right. Any purchase you can think of. Especially useful for those times where no other rewards credit card seems appropriate. Paying a co-pay at a doctor’s office. Paying the ticket for the parking garage. Donating to a charity of your choice online. You will not find any card that gives you 2% back on every single purchase that doesn’t have an annual fee. Which brings me to the next perk.

No annual fee. If you want one go to card where you won’t have to worry about any fees, this would be the one. There are some travel cards which give 2% cash back, but it’s only for certain travel purchases and there is usually an annual fee involved. There are other no annual fee cash back cards that have 5% categories, but they are limited and only last for a few months. This card gives you the assurance of getting 2% back on everything and not having to worry about a fee. Priceless.

Unlimited rewards. There is no cap or time limit on any rewards. If your normal spend is $10,000 a month (which is a lot but there are ways to make it happen even if you don’t ACTUALLY spend that much), you will get a $200 reward per month. That’s $2,400 for the year. Tax free and yours to spend as you wish. Very tough to beat that.

Sign up bonus: On 3/19/14, I came across a sign up bonus offer for this card. It’s a $75 bonus after spending $500 within 60 days of opening the account. Not the greatest sign up bonus, but better than nothing.

There are some hoops to jump through to get this card, but it should only take a few steps to get through them. To get this card, you MUST have an associated account with Fidelity. This includes an IRA, 529 plan or a brokerage account to buy and sell stocks and mutual funds. Seems like a lot of work to get a credit card right? It used to be, until Fidelity allowed you to simply open a checking account with them. Their checking account is called the Cash Management Account, and opening one allows you to sign up for their amazing Investment Rewards credit card. Pretty simple process and actually a pretty good checking account. No ATM fees and unlimited check writing. I test drove it but ultimately didn’t go with it because their website is a little clunky and I already had similar features with my current checking account.

In any case, signing up for their checking account gives you the ability to apply for the credit card. Once approved, you start using it and when you hit enough rewards, you can transfer it directly into the checking account. You can transfer rewards in increments of $50. From there you can use it to do anything. Get cash from an ATM. Pay part of your credit card bill. Or transfer it to your regular checking account. It’s a pretty simple process.

Besides jumping through a couple of hoops, the only other downside I can think of with this card is that it’s an American Express branded card. Not all businesses care about their customers enough to accept AMEX (come on, I know the fees are higher than Visa but a lot of people use American Express), so it’s good to have a backup Visa or Mastercard just in case.

I love chasing credit card bonuses, but when I’m in between getting credit card bonuses, it’s really nice to have a card that consistently nets you 2% on everything. I can’t see myself not having this card in my wallet for any reason.

(I’m not making anything from Fidelity for promoting this card. It’s just my honest recommendation.)

Filed Under: Credit cards

Drown out the White Noise and Smile

Posted on Written by Kostas 2 Comments

This is what most financial talk shows should look like.

In my 401K, I currently have a mutual fund that invests in and tracks all of the companies in the S&P 500 (hereafter referred to as just the S&P). For those of you unaware, the S&P is a stock market index is based on the market movements of the 500 large companies contained in it. These include behemoths such as Amazon, American Express and Coca Cola. It’s also fodder for talk radio and TV. If you listen to the stock updates on the radio or watch it on CNBC, they will always report on the results of the S&P. And herein lies the problem.

Whether I’m driving home from work or to the supermarket, every so often the news will report on the goings on of the stock market. “The Dow was up 120 points because of new consumer spending numbers.” “The S&P was down 20 points because of the latest unemployment numbers.” Or my favorite, “The market is in complete flux today because the Fed chairman sneezed 3 times in a row.” For something so essential to the world’s economy, the US stock market is a very sensitive thing. I always try to keep an ear for the S&P numbers because I’m directly invested in it. But I shouldn’t. Because I know that short term fluctuations have no real bearing on a retirement account. That’s considered “white noise” and it can be hazardous to your finances and to your sanity to continue to listen to it.

Wikipedia defines white noise as “a random signal with a flat (constant) spectral density.” That sounds too physics-y to me so I will provide an alternate definition. White noise is that stuff you hear that doesn’t really effect you but you can’t help but listen to. When you sit in a coffee shop to read a good book but are transfixed by the conversation behind you about someone’s latest medical issues, that’s paying attention to white noise. Having a conversation with your friend but paying attention to the crazy man on his cell phone, that’s paying attention to the white noise. And watching shows on CNBC to hear the latest stock trends from the latest talking (screaming?) heads is paying attention to the white noise. It’s easy to do and seems fun at the moment, but it does nothing for you in the long run.

CNBC and Fox Business have empires to run. They have people to pay and need lots of money to pay them with. They need something to fill the airwaves with. This is why there is an endless stream of talk shows and stock analysts telling you to do something different with your investments. The best thing you can do is to NOT listen to them. Investing is like a marathon. It involves a lot of diligent work over a long period of time. Trying to speed up the process with a hot new tip will only hurt your long term results and can be harmful to your health. There is a great post about how much more happier and successful you would be by following a low information diet. I couldn’t agree more with this premise, because if we humans are given more choices, we agonize over it and sometimes rush to the wrong decision.

There is usually one right choice when it comes to investing for most people. And that is to set it and forget it. It requires some diligent work and soul searching up front, but once you decide on how you want to invest, the battle is already won. Remember to focus on what you can control, your contributions and fees. You can’t control the market’s ups and downs. Some think they can predict it, but they’re usually wrong. Just check back on your investments every year and so and make any adjustments as needed. Repeat the following year. That’s all there is to it.

Drowning out the white noise does not mean that you should get complacent. We should always be looking to expand our knowledge and broaden our horizons. This can be done by reading well written financial blogs and magazines and classic books that have lasted the test of time. You can obviously start with this humble blog, but a quick Google search will lead you to many great financial resources out there. That won’t try to sell you stuff. And that won’t make you feel like you’re missing out on something big. So don’t pay attention to all the financial fluff. Stick to your long term goals and values and keep trying to improve on what you know.

Filed Under: Investing, Self Building

If you’re already Drowning in Debt…Just Say No

Posted on Written by Kostas 6 Comments

When I look back at my time in optometry school (it’s already been almost 5 years??!!), it seems like it went by in a blur. Those 4 years seem to kind of blend together in a whirlwind of studying, lab practicals, and board exams. Sometimes I am still utterly grateful I got through all of that. But thinking back to my mindset when I was actually in school, it seemed like it was taking forever! Four years of this stuff? It felt like an eternity at first. Many of my fellow students felt this way also.

What does this reminiscing have to do with drowning in debt? A lot actually. When the end was finally approaching, many people were understandably very relieved, and started thinking about their life after school. We could finally call ourselves eye doctors, and that should come with all the trappings am I right? Should I get a Lexus or a Benz to drive to work? I can’t wait to move into that swanky apartment downtown and get the best furniture available! The problem with a lot of these “trappings” is that most people will have to incur a lot of debt to get them. Did I also mention that many optometry students graduate with upwards of $200,000 in student loan debt?

A lot of freshly graduated students quickly get themselves into the unholy tri-fecta of debt: car loans, mortgages and credit card debt. Each one of these is a sucker punch right to the gut. Add this to the already burgeoning student loan debt, and you’re likely to be knocked right out. Just because you can “afford” the monthly payment, it does not mean that you should get that shiny new BMW right out of the gate.

Hopefully, right out of school is the point when you will be making the LEAST amount of money in your career. Advancing in your company or growing a successful business will increase your income with time. So there is definitely no need to rush out and get the new car and house right away. Banks will most likely be here until the end of time whenever we want to borrow money. If you are in significant student loan or credit card debt right out of school, it would be best to eliminate that first or at least whittle it down to a manageable level until you take on any new debt.

Waiting just a few years to take on new debt will put two things in your favor. One, your income SHOULD be increasing, so your debt to income ratio should be looking better and better. You might even be able to save up some of your income to make a good down payment on that house. townhouse you’ve been eyeing. Two, if your income is increasing, you should also be increasing your debt payments. This will get rid of your debt much faster than just making minimum payments, which the banks would absolutely love for you to do.

Another reason to consider just saying no to new debt right out of school is that buying a car or a house is a really big decision and a really big investment. It’s not a decision to be taken lightly and requires your due diligence all the way through. Your education was also a big investment which I’m sure you thought about thoroughly. It usually takes a few years for people to decide what they want to pursue after undergrad. So you should also take your time to really evaluate your needs and make the best choice possible when making yet another big investment. Buyer’s remorse is very real, and it can suck.

For those people who are reading this while still in grad school, it may feel like it’s taking forever now, but it will be like a blur when it’s all over. Take your time to decide when taking on new debt, since many new grads will be paying back lots of student loan debt at the same time. There is nothing wrong with driving your old Corolla a few more years while you hack away at your current debt.

Filed Under: Student Loans

Is your Savings Account Awesome?

Posted on Written by Kostas Leave a Comment

There are two ways to get wealthy: Make a boatload of money all at once or consistently save a portion of what you earn. Most people dream and struggle (but mostly dream) about getting rich with the first method. You must be EXTREMELY motivated and EXTREMELY lucky for that to happen. You pretty much have to give up whatever you’re doing right now, and devote your blood, sweat and tears to make this happen. Now, most people are not willing or able to do this, so the second path to wealth is much more attainable. Saving a portion of what you make is not only much more attainable for most people, it is downright EASY compared to forming a million dollar business.

Having a good savings account is essential on the path to wealth. Scratch that, having an AWESOME savings account is even better. In an ideal situation, savings should be a mix of short and long term savings. Short term savings includes funds that might have to be used within a year or sooner. Examples would be an emergency fund or saving for the newest Xbox which you can smash in front of all those people waiting in line on Black Friday (have secretly wanted to do this). Long term savings include retirement accounts and college savings accounts. It’s mainly for stuff that is very important when the time comes, but it is a while away.

A savings account is a great place to store short term savings. Whether they know it or not, pretty much everybody has access to a savings account. Most people who have a checking account are able to sign up for a savings account with the same bank. But not all savings accounts are created equal. In fact, some of them are not really that useful. Here are some things to look for in a savings account:

-Make sure it is separate from your checking account. Many people focus on interest rates when it comes to savings accounts. They are important, but not nearly as important as having your savings account at a different bank from your checking account. Having it at the same bank would actually defeat the purpose of having a savings account altogether. Your emergency fund, for example, should be easy to tap in case you need to, but not so easy that you can transfer money out of there in a second. You want to think about it for a second when you withdraw something from savings. Having it at a different account gives you about 2-3 business days to think about it.

Having your savings account separate from your checking also makes it easier to save automatically. Just set up an automatic withdrawal from your checking to your savings every month, and it’s like you never see the money. This is the key to building up your savings and avoiding lifestyle inflation because if you see the account all the time, you start to think that you can spend it whenever you like.

-Choose one that allows you to easily make sub-category accounts. Piling your money into a savings account is definitely a good move, but most people have different short term savings needs. There can be an emergency fund, saving for a laptop, vacation etc. Being able to make separate savings accounts and have separate goals for each can make it crystal clear how much you have to save. If you want to save $1,000 for a vacation next year, just set up a vacation account and put in $100/month. Anything that makes your financial decisions easier and more automatic is a great thing. Surprisingly, not all savings accounts are able to do this, so find out before you sign up for one.

–Interest rates should be taken into consideration as well. While rates are not as high as they have been in years past, you should still try to get the best rate you can. Online savings accounts almost always have better rates than big banks. According to the Bank of America website, their regular savings account has an interest rate of 0.01%. That’s literally almost nothing! It would be foolish to use an account like this when you can find an online savings account with rates around .5% (That’s 50 times better). Because interest rates are at a relative low point, jumping around from account to account to snag the best interest rate is most likely a waste of time. Find an account you are comfortable using that has a good rate and stick with it.

-Be on the lookout for fees as well. The Bank of America account I mentioned has a $5 monthly fee and some hoops to jump through to get rid of it. Don’t bother with that as there are plenty of savings accounts with no minimum deposit requirements or hoops to jump through. One thing to keep in mind though is that many account limit the amount of withdrawals you can make per month. If you go past that number, you can be hit with a penalty. Since you’re saving for things in the future, you shouldn’t have a problem with this.

So does your current savings account have all of these features? If not, it might be time to switch. From reading my previous posts, you can probably tell I’m a huge fan of online banking. Savings accounts are no exception. In fact, online savings accounts are light years ahead of big bank savings accounts in terms of ease of use and interest rates. Do yourself a favor and switch to an online savings account. I’ve had CapitalOne 360 Savings (formerly ING Direct) for years and absolutely love it. It makes saving super easy and automatic, which is the most important factor.

Filed Under: Banking

The most overlooked investment ever

Posted on Written by Kostas 6 Comments

Very few things in life are a sure thing. We invest to have more money for the future, but positive returns are not guaranteed. We study as diligently as we can for that final exam, but we’re not assured to get an A. We can set up a perfect business plan for the perfect product in the perfect location, but business is not always going to be booming. We do all the things we do to get ahead, but not of the results are guaranteed. All we can do is put ourselves in the best position possible to succeed. And hopefully we will.

Looking at the title of this post, most people would guess that investing in yourself is probably the most overlooked investment. We would think of things like learning a new language, taking an online course or just getting out of your comfort zone as great investments in yourself. But an even more overlooked investment, and this should definitely be thought of as in an investment, is your health. Without good health, literally nothing is possible. Not being able to get out of bed or always feeling tired or sick can completely destroy any plans of self improvement you have made for yourself. Your financial health is also tied to your physical health and longevity. There are direct and indirect costs associated with your health.

Direct costs: The direct costs are the obvious ones like health insurance premiums and doctor visits. There is also the cost of medications and any surgeries needed. These costs can really add up for chronic conditions as well. In a study released by the American Diabetes Association, people diagnosed with diabetes have average medical expenses of $13,700. That’s a lot of money to be spending every year. Add to that the fact that many children are no being diagnosed with diabetes, and people will have to be paying a lot of money for a long time. The opportunity cost of having to spend all that money on your health, however, can trump the actual cost. All this money used to spend on diabetes, which for the most part is a preventable condition, could be used to increase savings or investments. Direct health related costs can definitely be a huge burden on a family’s finances.

Indirect costs: The indirect costs related to healthcare can sometimes be more alarming than the direct costs. Indirect costs can include things like time lost from work, decreased productivity at work and loss of production due to dying early. While these values are almost impossible to measure on an individual basis, the same study conducted by the ADA was able to estimate the effect on the US economy. People missing work cost the country $5 billion. Reduced productivity at work cost the country $20.8 billion. The amount of money lost due to disability was $21.6 billion. These are staggering numbers to look at based on the effect of only one disease. The most productive people in the world jump out of bed and attack the day with all they can. If you aren’t able to jump out of bed easily anymore or are tired and in pain most of the day, it is obvious that your productivity is going to drop.

Looking together at the direct and indirect costs of poor health, it becomes clear that having health issues can be a real financial strain. As I said in the beginning of this post, nothing is guaranteed. And that includes your health. Athletes at the top of their game and in the best shape of their life can suddenly be diagnosed with diabetes. A drive to the supermarket which we have made hundreds of times before can end up in a deadly accident. A leisurely bike ride to help out health and stress levels can result in tragedy. These types of things can happen but we shouldn’t worry about them because we can’t control them. What we should worry about are doing the little things day after day that will allow us to be as healthy as possible, as long as possible.

Treating our health like an investment account will definitely pay great dividends down the road. Having good health will allow us to avoid the direct and indirect costs of poor health, which can easily derail any financial plan. More importantly, being healthy will allow you to be at your most productive and enjoy your life to the fullest.

Filed Under: Investing, Self Building

How to make your money work for you

Posted on Written by Kostas 4 Comments

If you want to hire people to work for you, then you need a business of some sort. However, even if you don’t yet have a business big enough to hire people, you can have employees work for you. These employees work 24/7, don’t complain about parking spaces, and don’t leave the office microwave a mess. They will work hard at any job you tell them to, and will try to get more of them to work for you. Where do you find such ideal workers without outsourcing to a foreign country? They are actually currently sitting in your wallet/purse and in your bank account. These employees are your money that you work so hard to make.

“Make your money work for you” is a phrase that most people have heard but not many people do. Getting a paycheck and using that money to pay for your expenses and nothing else is just going to keep you on the conveyer belt of consumption. Putting some money aside in a savings account regularly is a great idea, but even that won’t make you money as the monster known as inflation will make that money less and less valuable over time. To really make your money, well…make you money, you can put it to work into different types of accounts depending on what your goals are.

If your goal is to increase your retirement savings, there are some accounts that are great for that. Assuming retirement is a few decades away for you, putting your money to work in a 401k would be a wise move. If you don’t have one at your workplace or your 401k just isn’t that good, another option is an Individual Retirement Account (IRA). There are many brokers that offer an IRA (Vanguard is my favorite one because of its low fees and ease of investing), but the important thing is to invest according to when you will need the money. In general, the farther off retirement is, the more you should be invested in a broad array of stocks because stocks have a good chance of making you money in the long term. If you need the money soon, then your money would probably be better off invested in “safer” investments such as bonds or money market accounts. There are of course billions of variations in between, but you’re much better off following these general rules than not doing anything at all for retirement.

If your goal is to have some money for college expenses for your kids, a 529 plan would be a good place to start. Most states offer their own 529 plans, and some give tax breaks for doing so. The investments in 529 plans can be geared to the year your kids will be expected to start college. If you start early on, it is easy to have a nice fund by the time the little guy or girl is going off to school.

Finally, if your goal is just to save up for a vacation or something else which is a year or two down the road, an online savings account is a good place to put your money. The interest rate can be low for savings accounts, but the money made from interest is just a bonus as the main objective is to have a place to stash money to be used relatively soon. A Certificate of Deposit (CD) account is also a good choice as they can offer slightly higher interest rates as long as you don’t withdraw any money for a specified period of time (usually 1,3 or 5 years).

These are just some of the ways to make your money work for you. If you give your money a job, such as saving for retirement or saving for a vacation, you can usually find a good place to put it to work. Once you pay money for expenses like car insurance or a cell phone bill, that money is gone and can never work for you ever again. If you can pry some money away from expenses and re-direct it to work for you, it will do you a world of good.

Filed Under: Financial know how, Investing

Down with student loan debt!

Posted on Written by Kostas 8 Comments

This article appeared in a slightly different version as a guest post on frugaling.org, another great website for financial info.

I’m an optometrist and I love my job. Like many professional jobs in the medical field it has a good starting income and great potential, especially if you become a successful business owner. As much as I love my job, there is one thing I hate about the process of becoming an eye doctor: student loan debt. And we graduated with a lot of it. I graduated with around $150,000 in debt myself. I have colleagues who are in well over $200,000 in debt. The story is similar for graduates of medical, dental, pharmacy and law schools. According to a report by the American Association of Medical Colleges, the median level of debt for graduates in 2013 was $175,000!

The main problem is of course continuously rising tuition prices which probably won’t be going down any time soon because there is too much money to be made for the banks. Just to get a glimpse on the current status of medical school tuition, here is a US News report on the 10 most expensive medical schools. Looking at these numbers makes it easy to see how students can routinely graduate with well over $200,000 in debt! Rising tuition rates are a highly charged political issue which probably won’t be resolved anytime soon. But there is something we can control, and that is how fast and how strong we decide to attack our debt. Most lenders put you in a 25 year payoff plan. This is a ludicrously long time and will lead to hundreds of thousands of dollars in interest that can certainly be avoided. Here are five quick and relatively painless ways to cut your expenses. These methods have personally helped me to attack my student loan debt and greatly reduce my lifetime interest:

1. Ditch the gym membership: Like most people, I thought getting a gym membership was the responsible and healthy thing to do. With the rows and rows of treadmills and dumbbells, getting in shape was an inevitability. But after a while I found myself not enjoying the workouts and then making up any and all excuses not to go to the gym. There was the whole process of getting ready, driving to the gym, finding a parking spot and finding the least sweaty machine to use. This was going on for a few months until I decided to sit down and evaluate my gym usage. I realized the workout I enjoyed doing at the gym the most was playing basketball. I cancelled the membership and focused on playing outdoor basketball and running outside, two almost free activities that I actually have fun doing. Savings: $80/month

2. Look at your wireless plan: I’ve been with Verizon Wireless for a while now and have been happy with their service. Calls are rarely dropped and their customer service is pretty good (as good as you’re going to get with a cell phone company anyway). When they changed to their limited data program, I was defaulted into the 4 GB data tier, mainly because it didn’t really change my wireless bill. After a few months I decided to check how much data we were using, and it was well under half a GB! I get a WiFi connection both at home and work, so I’m not really using cellular data all too much. I switched us into the lowest 1GB tier plan and haven’t felt a data pinch even once. Easy savings. It can pay to check the current status of your wireless plan. Savings: $30/month

3. Run that car into the ground: For most Americans getting a new car every 3-5 years is normal. It is almost a rite of passage. It is also one of the worst financial decisions you can make. A car is NOT an investment, yet people are content with paying tens of thousands of dollars or getting a high interest loan on a product that will give you a guaranteed negative return. Yes, cars are definitely needed to get you to and from work. But there are other alternatives such as public transportation or not buying an expensive new car.

I currently drive a Chevy Cobalt, which is a relatively fuel efficient car. It is paid for and has not given me any major problems. I get regular maintenance in it according to the recommendations in the manual. Luckily, my commute to work is less than 10 minutes each way so I don’t forsee anything MAJOR happening to the car as long as I get regular maintenance. And I plan on using it until I can’t drive it anymore. This is because I don’t want another car that can do the same thing my car does but has a monthly payment. I don’t want higher insurance premiums. And I don’t want to go through the hassle of getting a new car. These are reasons enough for me to keep my current vehicle and avoid future monthly payments for as long as I can. Savings: At least $200/month

4. Shop around for auto insurance: The only thing good about auto insurance companies is their commercials. Most of the auto insurance companies are pretty much the same when it comes to customer service. If you look at reviews online, pretty much all the companies have as many decent reviews as bad ones. Sure some people have had terrible experiences with one company or another, but as a whole customer service is pretty much the same across he board. This means that price is the overriding factor in choosing auto insurance, and in my experience it really is worth it to shop around.

I was with Nationwide for around 4 years. I originally signed up with them because a family friend worked for them (probably my first mistake). I pretty much accepted their rate (a little over $200/month) and was relatively happy with their service (except for the fact they charged a fee to pay by credit card). In any case, I didn’t think much about switching until a few months ago, when I decided to get a quote from GEICO. It was $120 less per month than my current rate. That’s over 50%! It seemed too good to be true so I got quotes with other companies and was consistently getting much lower rates than my current one. And most of the quotes were for even more coverage than I was getting at the time. I knew I needed to switch and after all the numbers were crunched, I ended up saving a little over $100/month. Plus it’s cool to have that little gecko on my side now. Savings: $100/month

5. Get a credit card that pays: Optimizing credit card use is a mini-obsession of mine. I enjoy finding ways of getting credit card rewards on stuff I already spend my money on. Which is why I get flabbergasted when I see people paying for stuff with cash when a perfectly good rewards card would give them some money back. The most rudimentary rewards cards give 1% cash back, which is $10 back on $1000 worth of purchases. Not amazing but better than nothing. The key is finding cards with higher rates for certain categories like groceries or gas stations and cards with sign up bonuses for certain levels of spending. This can easily get you a few $100 a month here and there. Plus it’s nice to get something from the big banks. You do need to be careful not to increase your spending just to get some rewards, as this would wipe out any benefit from the card. Savings: $10-$100/month

These 5 easy savings tips produced over $400 in monthly savings. Applying that directly to your highest interest rate student loan payment can make a world of difference. For example, a student loan balance of $30,000 with a 6% interest rate and $200 monthly payment would take 23 years to pay off with just the minimum payment. Applying that $400 on top of the minimum payment, the loan would now take just 5 years to pay off! (Calculations done on unbury.me) Truly astounding numbers and proof that making extra payments can drastically reduce the length of the loan and interest paid.

The other, and potentially more lucrative, side of debt repayment is making more money. You can only save a finite amount of money but earning potential can be endless. Making money can be more difficult and usually requires more work upfront, but the rewards can be well worth it. To go along with the theme of this post, however, here are a few painless ways to make more money that have worked for me and helped me pay down my debt faster:

-Work more: This is kind of a no-brainer but it is an option that is overlooked a lot of times. It really depends on the type of work you do and how much you get paid, but working just a few more hours a week can really help boost your monthly income. Some people recommend getting a second job to make more money, but that can have more costs associated with it such as a new commute, wardrobe etc. This should only be a temporary solution though as maintaining a good work-life balance is essential.

-Sell stuff: This can be a great way to make some extra money as most people have a bunch of things lying around the house that can fetch some money. Old cell phones, video games, TV’s and furniture can make some decent money when sold on eBay or Craigslist. It takes some time to find what sells and what doesn’t, but it can be some nice bonus income once done right. De-cluttering your living space is a nice side effect to this option.

-Use your current skills: Making more money usually involves gaining new skills. But there is money to be had using the skills you already have. Have you always been really good at math or any other school subject? Find out if you can join a tutoring service or advertise on your own. Do you enjoy writing about sports or any other particular subject? Scour Craigslist for opportunities to write articles or reviews. All you have to do is think about what you’re really good at and find a way to make some money off of it. This can take some creativity but opportunities can range from consulting to tutoring a friends son.

Combining pain free ways to save and make money and applying that extra money to student loans can make all the difference in the world. It’s also important to know that getting rid of loans frees up even more money to attack more loans (my preferred choice) or for anything else you want to do.

Please leave a comment and share your saving and money making tips that can help pay off debt!

Filed Under: Money Savers, Student Loans

The root of financial success

Posted on Written by Kostas Leave a Comment

Everyone wants to know some new tactics or hacks to help improve their finances. There are always apps and programs coming out for budgeting and tracking our money and net worth. Many of these tools are wonderful and they work great, but tactics and tricks can only take you so far. Many of the most successful and wealthy people alive today don’t have any use for such apps or hacks. That’s because they have mastered the values that embody success. One of these values, and the one I believe leads to the most financial success, is delayed gratification.

I like to think of our financial status as a tree with three main parts: the roots, the trunk and the branches. The branches of a financial tree are the various checking, savings, business and investment accounts that we use to get our money. The trunk is our ability to budget, which needs to be sound to ensure our money is going where it should be. And the root of the tree is the virtue known as delayed gratification, the ability to hold off on small wins now to hold out for possibly much larger wins in the future. Most people focus on the branches, looking for little things we can do here and there to hack our finances. Sometimes they work and sometimes they don’t. If the roots and trunk of our tree are not steady, trying to improve the branches will not do too much.

The virtue of delayed gratification is present in many facets of life. Many religions advocate living a good life in this world for the promise of a greater life after death. In school it’s usually a good idea to study regularly instead of spending the day with video games so you can ace that test and enjoy the video gaming afterwards stress free. And in our financial life there are numerous ways where delayed gratification can lead to a much bigger payoff.

There are 3 major ways that delayed gratification can lead to financial success:

1. Saving for retirement: This is one of the penultimate examples of the benefits of delayed gratification. Young people starting their careers or businesses usually don’t have retirement on their mind, but they should. Retirement is one of those few things that is almost guaranteed to happen in life. Eventually we get old and aren’t able to work as hard as we used to or we just get tired of working hard week after week. Many people are forced into a retirement situation because of disability or health reasons. Any of those situations is pretty likely so it is imperative to save something, especially early on. This can usually be done relatively painlessly with automatic contributions into a 401k or an IRA. There are many retirement calculators around the web that can show you how much you can end up with based on different rates of return, but it is important to know that WHEN you save (earlier the better) and HOW MUCH you save (the more the better obviously) are the main factors determining how much money you will have when you can’t or don’t want to work as hard anymore.

2. Putting in the work to start a business: Starting a business from the ground up is a perfect example of the importance of delayed gratification. Every business needs a strong foundation and this work is done early on without much reward. But the payoff can be great if you stick to a plan and do not take any easy ways out. Just like a building that has a faulty foundation will eventually collapse when there’s an earthquake, a business with a poor foundation will most likely fizzle out when times get tough financially.

3. Studying a little longer for that lucrative career: Many people who take the prerequisite courses in college for medicine, optometry, dentistry, pharmacy or any other potentially lucrative medical profession don’t actually go on to the respective professional school. There could be many reasons such as poor grades, family situation etc. that would prevent someone from moving on to professional school, but I know of plenty of people who entered the job market with a bachelor’s degree just because they didn’t want to spend more years studying. They wanted the payoff from their bachelor degree right away, despite the fact that they would most likely be better off financially if they studied diligently for a few more years and got their professional degrees. Forgoing the payoff of a bachelor’s and choosing to go further with your schooling is another way delayed gratification can greatly pay off.

These are just a few of the many situations in which delayed gratification would be the wise decision. There are a ton of examples in the world of finance especially. Everyone has some example in their life in which delayed gratification was the best financial decision, so please share in the comments below.

Filed Under: Self Building

Which reward is right for you?

Posted on Written by Kostas 3 Comments

Each and every credit card company wants your business, and they will do anything to get it. Offering credit card rewards is one way of doing this. Getting rewards for what you spend on credit cards was almost unheard of even a few decades ago. The rewards industry has really been booming as the big credit card organizations partner with many different retailers and companies in order to entice you to do business with them. You can be sure they’re not offering rewards out of the goodness of their hearts. They offer rewards because it is making them more money than ever before. It is important to recognize this before we start delving into the world of credit card rewards. credit cards

Unfortunately, many people get a rewards credit card and proceed to spend more than they would if they did not have a rewards credit card. The credit card companies love these customers because they only have to give up a few dollars in rewards here and there for the thousands of dollars this customer is giving them. You don’t want to be this customer. If you use the appropriate rewards card and make sure not to increase your usual spending, having a rewards credit card can be a nice little bonus on top of your regular spending. Here are some of the more popular rewards credit card categories that are available nowadays:

Cash back: The easiest form of rewards with no hoops to jump through for the most part. Sometimes you just have to decide between getting a check in the mail or a credit on your next statement. Most rewards credit cards will offer 1% cash back on your purchases. That means if you spend $1000 for the month, you will get $10 back. Not a huge payout by any means but better than nothing. The key with cash back rewards is to find cards with promotional offers or increased cash back for certain categories. For example there are some cards that offer 3% cash back for gas station purchases or 2% for groceries. If you can find a card with an increased cash back level in a category you already spend a lot in, that can lead to even greater rewards.

Gift cards: This is a pretty straightforward reward redemption also. Most of the big credit card companies like Chase or American Express offer gift cards as a redemption option for some of their cards. It’s usually at the same 1% rate or more depending on if you find a category bonus. If there is a restaurant or store you frequent a lot, this can be a good option. The issue with this option is that you may get gift cards for places you don’t really visit often. If you do that, you are probably better off just getting a cash back card. Another problem is that you will probably pay more because you rarely spend exactly how much is on the gift card. Getting a $25 gift card to a new restaurant sounds fun, but unless you get the amount to exactly $25, you will pay more. This is a decent option if you get a gift card for a place you already spend money at.

Merchandise: Buying stuff from credit card companies with your reward points is almost always a bad deal. Paying for an tablet or a laptop with points may seem like a sweet deal, but you’re much better off using those thousands of points for cash back or gift cards. When in doubt just run the numbers. If you can redeem those points for more in cash back than the item costs on Amazon, for example, buying stuff with points is not a good idea. This is my least favorite redemption option.

Airline Points: These are the most tricky but potentially most lucrative form of rewards. I used to think if you don’t travel much then these rewards are useless. But pretty much everyone has to travel somewhere at some point in their lives so it is helpful to have some airline miles in your back pocket. These can be tricky because one airline can value its points differently than another one. As a side note I use the word “points” instead of “miles” when referring to airline rewards. This is because that is what some of the airlines themselves are doing nowadays and also because the days of airlines giving “miles” based on how many miles you’ve flown with them are becoming long gone. As everyone knows, airlines are doing whatever they can to make money from us so they have also become more stingy and mysterious with their rewards programs. However, there are still deals to be had if you plan ahead.

There are many different factors to consider in order to fully benefit from airline points, but the main thing to be is flexible. Flying from New York to LA could cost 25,000 points one week and 50,000 points the next. If you’re flexible with your dates and plan far enough ahead, airline points can be very lucrative. Taking advantage of credit card bonuses is also a key component of the airline points game. This deserves a whole series of posts to itself so I won’t go into too much detail, but using credit card bonuses and being flexible with my dates allowed me and my wife to get round trip first class tickets from Baltimore to Portland, Oregon for taxes only. This came out to around $30. This would have cost around $4000 if I paid without points. This shows how powerful airline points can be if you play the game right.

These are the main types of credit card awards being offered currently. It is hard to say which reward is “best” because it depends on your personal situation. If you have some travel coming up soon, it is worth your time to learn the airline points game and maximize your travel rewards. If you don’t like traveling much and spend a lot on gas and groceries, a cash back card might be right for you. Determine the best card for you based on your situation.

Finally, it is vitally important to remember that the one thing that can negate any rewards earned on a card is carrying a credit card balance. If you do carry a balance regularly, you have no business getting a rewards credit card as the interest rates are usually way higher than normal and you should be focusing on getting out of credit card debt first and foremost. Credit card companies are just waiting for you to slip up and start carrying a balance, because they will reap the rewards in interest paid by you. As long as you don’t carry a balance and use a rewards card wisely, they can be a very helpful tool.