Advice That is “Money”

I read a statement in a book called, The DNA of Prosperous People recently which solidified what I already knew. The author, Rickey Johnson states, “No one achieves greatness by himself or herself. A smart businessperson will search for a teacher or someone to provide the steps to achieving success.”

I was taught this concept quite a while ago, but I wanted to encourage you to do the same. Mentors are such important players for our individual success. Not only do they help us, but they give us an opportunity to potentially help them. Serving others is an important part of why you’re here on Earth.

Personally, I ask for references and pursue new contacts via an introduction from a friend or a simple email straight to the person I’d like to meet, asking for an informational interview on the phone. Recently, that has led me to have lunch with businesspeople in my intended field who are excited to generously dole out advice and lead me to others.

To every phone call or lunch meeting, I come armed with a series of questions. Before any meeting, I spend some time looking these individuals up on LinkedIn, university databases and anything else I can come up with from a Google search. I prepare some questions to show that I’ve been thoughtful and intentional with their time. I also try to direct the conversation to minimize any awkward silences.

These are the questions I ask:

“What steps did you take in order to achieve your goals / secure your position in ___ company?”

“What skill set do you wish you would have developed before starting your job?”

“What contributed most to your success?”

“What industry groups/ networks are you involved in? How have they helped you?”

If the meeting leads to a great connection and friendship, I put these people in a database to keep my contacts organized for future purposes. I lead others to them and I lead them to others whom they might need in the future.

Drawing wisdom and experience from others is an important task. Expanding your network is another key to your success. If nothing else, you have another friend (and that is not to be understated). It’s important to have an intelligent group of people surrounding you who can help you, and most importantly, who YOU can help. 

Another Resource - BankRate.com

I’ve mentioned this website time and time again, so this shouldn’t sound new to you. Add www.BankRate.com to your toolbox of resources.

What is it?

BankRate.com is a non-biased resource on where to find checking accounts and CDs, savings accounts and money market accounts with the best rates around. Type in a product you’re looking for (e.g. “credit card”), and the website will ask you about the various characteristics you’d like on that product. It will then generate a list of products so that you can compare them. It’s a great research tool. I used it to find the credit card I have in my wallet currently.

It simplifies life a bit, as it allows you to make an objective decision among the choices available without hitting you with constant advertising.

Enjoy this resource!

Savvy with Certificates of Deposit (CDs)

In the last post, I mentioned using certificates of deposit as a way to save for either needed or wanted purchases. Certificates of deposit are just one of the tools you can use to invest your money.

What is it? It’s a time-based account offered by every bank that pays a slightly higher interest rate than do savings accounts or checking accounts. The only caveat with CDs is that they “lock” up your money for a certain amount of time. CDs can lock your money in for 3 months, 6 months, 1 year or even 5 years. Those are not the only time periods involved; they are simply examples.

Go to www.BankRate.com to find and compare CDs among several banks, states and credit unions. The rates are not as high as they used to be, but you’ll earn interest on your money nevertheless.

LearnVest.com has a great and easily-digestible article about CDs. Check out this website:

http://www.learnvest.com/money-tuneup/the-cd-a-users-guide/

Also, as LearnVest describes, there are often penalties for accessing your money before the “due date” (maturity date) of your CD. Investing in a CD means that you cannot access that money until the set due date. That fact makes CDs a less liquid investment. This means that you cannot easily access the cash that is in the certificate of deposit. A checking account is very liquid because you just go to an ATM and withdraw the amount of money you need from it at any given time. Not so with a CD.

Note: LearnVest, other financial websites such as Suze Orman’s YF&B, and I agree on one fact: You should not start investing until you have paid a serious amount off (or the entire balance off) of credit card debt AND have started an emergency fund. See earlier posts about the need for an emergency fund and what that fund entails.

So, at this point, you may find yourself saying, “I have some extra cash that I don’t mind locking up for a few months. I want to see how this CD thing works. But how do I do that?” You walk into your bank during normal business hours. You tell the teller, “I want to open a certificate of deposit.” The teller will most likely take you to a personal banker to talk about the CD, make sure you understand the rules and the fine print, and then will open up a CD for you. You write the check or transfer the cash from one bank account to a CD. Take the paperwork, file it away, and boom! You have just invested your money! Make SURE you have reviewed the bank’s investment fine print (available online) on your own. Come into the bank knowledgeable about the product. Make sure you read at least a few articles about CDs and go to BankRate.com to research the best interest rates offered on the market. Ready, set, invest!

Fun With Funds!

When I was in college, part of my financial aid package was that the school offered me a work-study job on campus. I could earn up to a certain dollar amount in an on-campus job. With my measly paycheck every two weeks, I decided to work on financial discipline. I went to a school where designer daddy-bought handbags were an everyday sighting. Haute couture was at every hallway’s turn. So one night while procrastinating school assignments, I went on a website that sold luxury handbags…just to look. I printed the picture and description from my favorite handbag on the website. I calculated the price of that handbag plus Los Angeles sales tax, and I taped that number to my desk in my room.

With every paycheck, I put a predetermined dollar amount away in a separate savings account which earned interest (albeit, not much). Once that account reached my calculated handbag total, I withdrew the entire amount and bought the handbag!

NOT!

I totally did not buy the handbag. I took the money and invested it in a 6-month certificate of deposit (CD). Then I went back to the handbag website and did it all over again. My friends called my crazy. My mother called me confused. I called it disciplined. Technically, I bought that handbag and several others! But I didn’t actually purchase the purse because purses in your closet do not produce income. Purses in your closet take up space. Certificates of deposit produce interest income and they gave me the same level of satisfaction as buying the handbag.

I don’t deprive myself now (because I work hard at a job and I let myself indulge at times). But those initial “experiments” helped me to develop financial discipline and to value interest-bearing investments rather than giving in to every fashion desire.

In one of the personal finance books I’m currently reading, Living on a Budget, the authors extol creating separate funds (savings accounts or CDs) that you set aside and pour small amounts of money into at regular time intervals. These funds help you to plan for and pay for future expenses – both necessities AND wants.

A good way to utilize a separate fund is to plan for property taxes. For example, put a pre-specified amount of money away each month for property taxes if you own your residence. Property taxes are calculated as 1.25% of the market value of your home. So when property tax time comes around, you won’t feel the hit or the drain on your paycheck or main savings account. You’ve planned for it, you’re ready for it and you can afford it without altering your lifestyle!

Checking Account? Check!

I mentioned that I started using a financial bootcamp offered by LearnVest, a financial literacy website. You can find bootcamps and a ton of other information on their website: www.learnvest.com.

One of the topics was particularly important, and I have overlooked it while writing these posts. It’s a simple topic: what you should look for in your checking account! I’ll detail out their advice and some of my own (gathered from books, of course). And at the end of this post, I have a little suggested reading for you. Enjoy!

You should ensure your checking account can boast of the following:

1. No fees!!! No fees when you make a withdrawal. No fees annual fees to keep your checking account open (suggested by LearnVest).

2. Many ATMs nearby (suggested by LearnVest). These ATMs should not charge you to withdraw cash. This money adds up and is a complete waste.

3. FDIC insurance coverage (suggested by LearnVest). This insurance covers up to $250,000. Find out more about FDIC insurance coverage at this website: http://www.fdic.gov/deposit/difaq.html.

4. Online banking to monitor your account.

One particularly important point about checking accounts as suggested by LearnVest: your checking account should not be where you store large sums of money because it doesn’t earn significant interest. It should just house small amounts of money that you need to keep on-hand. You should choose interest-bearing savings accounts for large sums, or even investment vehicles to house your money.

You can find the checking account that suits your criteria on BankRate.com: http://www.bankrate.com/checking.aspx.

For those of you who like to read, or realize that reading is useful to your intellect and financial wellbeing, I recommend that you check out a couple books that are out there right now. I really found Personal Finance in Your 20s to be very useful. It’s part of the “For Dummies” series. Although the title may be partially self-deprecating, the information between the covers is valuable and applicable to what recent college grads will be facing over the next decade of their lives. 

"And Do You Have an Account with Us?"

All about department store credit cards...

By request, today’s post will discuss why department store credit cards may or may not be the best type of plastic for you. Have you ever been offered an opportunity to shave off 15% or 20% of your first purchase with a newly-opened department store credit card? Though these cards do come with perks, let’s look into this credit card type more closely.

As a general rule of thumb, opening several (or even as much as 2) credit lines at one time or within the same general time period may lower your credit. Credit bureaus may question why you need that much capital (money) available to you all of the sudden and may perceive you as a higher-risk person, lowering your credit score as a result.

You should also know that department store credit cards, though attractive on account of the initial discount they come with, can be the most expensive way to pay for something. Especially if you don’t pay off your entire balance once the bill is due. Many department store credit cards charge as much as 26% interest! And this is for people with good credit!

If you pay your entire credit card balance each month (a HIGHLY recommended and HIGHLY responsible practice…), the interest rate shouldn’t bother you because you’ll never be paying it. But if you choose to finance your purchases from Macy’s or Bloomingdale’s or other retailers, be prepared to see big numbers representing the interest you’re paying on that purchase. In my opinion, this is a stupid practice and one that you should avoid.

Having a big credit line open at Nordstrom or some other retailer could help your credit score, too. Let’s say you have a credit line of $5000 open and available at a retailer. You charge your Christmas purchases and immediately pay off the balance once the bill comes, making your $5000 available to you again (this is called “revolving your debt”). This will improve your debt-to-limit ration. That means that the debt you have outstanding on all credit cards, car loans, mortgages, etc…has decreased.

Here’s an example. I have 3 credit cards with a total limit of $15,000. Let’s say I have $300 in balances that I have to pay off. I open another credit card for $3,000 and now my total limit is $18,000, but my balance is the same. So my debt-to-limit ratio is better at 300/18,000 (0.017) versus my old debt-to-limit ratio of 300/15,000 (0.02). This shows I am less risky with more of a limit and the same or less debt. This does NOT mean that you should go and open more credit cards. Stick with what you have and pay down your balances to 0.

Scenario 2: Let’s say I have 3 credit cards with a total and combined limit of $15,000. I am having trouble paying down my balance of $800. My interest rates are between 20% and 26%, however, so I know I need to pay these cards down. Instead of paying more money than usual to my student loans that only have a 6% interest rate, I pay off as much as I can on these cards. This month, my balance falls to $400 (yay!). So my new debt-to-limit ratio is 400/15,000 (0.027) which is much better than the old debt-to-limit ratio of 800/15,000 (0.053). Credit bureaus look at this and smile. And as a result, your credit score improves.

Read Suze Orman’s The Money Book for the Young, Fabulous and Broke for more information. 

Have You Heard?

I was recently told about a wonderful company online called LearnVest.com. Founded by a Harvard alumna, its mission is to make information and tools for personal finance readily available for women. I believe, however, that this website could help both men and women tremendously.

My favorite feature on the website (one of SEVERAL features) is the online bootcamp programs. Some of the programs are free, and some cost $14.99. They vary in topics from beginner's basics to getting out of debt to living frugually. Daily blurbs, action plans and to-do lists are emailed to you on your topic of choice once you enroll. I enrolled in the free bootcamp called "Personal Finance Basics," and I'll post my reviews once I've completed it.

The website also boasts of powerful tools such as the credit card finder, monthly payment calculators for simple loans and mortgages, retirement calculators and plenty of articles on important and fun topics (e.g,. party planning on a budget or how to get freebies all over town).

Be forewarned, however. Part of LearnVest's business model is affiliation fees paid by companies such as TD Ameritrade and other retailers who advertise on or obtain patronage from LearnVest users. This website is geared towards women in their early 20s and LearnVest's advertisers and affiliates are leveraging their exposure accordingly. Before you shovel your money into an "LV approved account" or apply for an "LV approved credit card", be sure to check BankRate.com for information on these accounts, cards or investment vehicles.

Here's the website! Now go get smarter!
http://www.learnvest.com/