Establishing Good Credit

Growing up I was told by my parents, “With good credit you can afford anything”.  That was then, and this is now.  We all saw what happened with the housing bubble and what will soon probably happen with student loans.  Credit is important, but not meant to purchase things above your means.

Having good credit is important; however, using that credit isn’t always wise.  I saw an info commercial the other day for a product that cost $250.  They were offering people 12 months interest free financing.  If you have to finance $250 for a 12-month period then you already have money issues and shouldn’t be buying it in the first place.

A friend of mine had an old Ford Expedition with a couple hundred thousand miles on it.  He bought it for around two grand, drove it for 12 months, and then it broke down.  Either he didn’t have another two grand lying around to purchase another piece of junk, or he wanted something a little more reliable.  Either way he decided to purchase a used one for around ten grand this time.  He didn’t have enough money to purchase the car, so he needed financing for the purchase.  Problem was, he had no credit.  He was offered an interest rate of 13% for a car loan that was over 36 months.  An absolute ridiculous rate.  He ended up getting his mother to cosign on the loan and got it for 1.9%, very good and reasonable.

Moral of the story… You never know when you need credit.  It is important to have it established for that rare chance that you do need it.  Young people are notorious for abusing credit cards.  They spend and spend, and I can only assume they are disillusioned that they never have to pay.

Those individuals who have a good mind set around money should consider establishing credit in one way or another.  Establishing credit by signing up for a credit card is fairly easy.  Proceed with caution.  I would only recommend that someone get a credit card if he or she has income (don’t be a college student without a part-time job at the very least).  If you don’t have any credit then start with a well-known card such as through Capital One or Chase.  Charge a tank of gas on the card every month.  Circle the date when the amount will be due every month and pay off the balance.

Showing responsibility early on when it comes to credit cards will not only keep you away from high-interest debt, but it will also allow you to avoid a 13% or higher auto loan if and when you might need it.

Budget Smart, Invest Wise 

Investing VS. Paying Down Debt

There is a psychological battle that many of us go through when it comes to our finances.  If you have debt, you might wonder whether it is best to pay it off or use the money and begin building a nest egg for retirement.

Every person’s situation is different, and the psychological role that debt can have on someone is unique to every situation.  At times you might feel trapped and bogged down by your student loan debt, car payment or even a mortgage.  The debt that is supposedly “good” seems to constantly weight on your mind.  For those of us that face this predicament, it is important to find the right balance when determining what debt to pay off, how much to pay off and how much to save.  I will provide some insight to help you decide the right balance for you.

Credit card debt/ high interest debt:  You should always focus on paying off ANY high interest debt you may have.  This may include interest that is accruing from unpaid credit cards or any other loan.  Credit cards can carry interest rates of 20 to upwards of 30%.  You will be hard pressed to find investment returns better than the interest you will be paying on high interest debt.

Do not feel rushed to pay off student loan debt: We are told constantly about the all-time highs of student loan debt and how the younger generation cannot buy houses or cars nor do much of anything until they get student debt paid off.  This is true to an extent, but think about this… most student loan debt carries an interest rate of 6.8% or a little less.  Now, compare that with returns of the S&P 500 that has returned at least 11% four of the past 5 years.  Moreover, when it comes to tax time, you are only able to deduct up to $2500 of student loan interest.

Time not timing is everything: Some people get in the mindset of “Well I must pay off all of my debt before I start investing”.  As I stated previously, everyone has a different mentality when it comes to debt.  Nevertheless, the longer you put off contributing to a Roth IRA or maxing out an employer-sponsored 401k, the less time your money has to grow with compound interest.  Let us use a quick example, say you had $50,000 and you put it into an index fund that returns 8% a year, after 30 years that original amount would turn into $503,000.  However, with just five more years, a total of 35, that same $50,000 would now be worth $739,000.  Do not delay your retirement.

At the end of the day, tackling one’s debt and investing is all about having an actionable plan.  Create a plan, with a budget and stick to it.  It takes time to pay off debts similar to the many years required for your retirement portfolio to grow.  Patience and diligence will allow you to reach your financial dreams and live the life you truly desire.

Budget Smart, Invest Wise

Paying Yourself First

“Pay yourself first”

It is a phrase many of us have heard when it comes to managing our money and investing.  I often post on Quora and see people ask, “What should I invest in?” or “What does it mean to invest in myself?”  These are great questions, as many young people especially do not have the right answer.

Ways you can pay yourself first…

Contribute to an employer 401k and get the full company match. This has a two-fold purpose.  Firstly, you are never seeing the money that is taken out so you will not miss it.  Secondly, your employer match is FREE money and the easiest way to boost your return.

Establish a Roth IRA.  Most individuals are eligible to contribute to a Roth IRA.  If you are unsure, go to Roth IRA and see if you meet the criteria.  Even a small amount of $100 a month automatically withdrawn from your checking account is a great way to add an additional retirement vehicle for the future.

Read Books.  Lately I have been ordering books on Kindle like a mad man.  Many of the books I read are financial related and leverage others’ experiences.  The Millionaire Next Door by Thomas J. Stanley is one I highly recommend.  Austin Netzley’s Make Money, Live Wealthy is another great book that offers wonderful insight into his personal journey of wealth creation.  Austin does a great job of connecting with successful entrepreneurs and innovators throughout his book and illustrates their journey to success.

Your Health.  Investing in yourself isn’t just about money; it is also about being able to enjoy the life you live so that one day you can reap the rewards of all the hard work you have put in.  Start exercising if you don’t already.  They key is starting small.  Do the elliptical for 15 minutes 3 days a week.  Then bump it up to four.  Replace a candy bar with a piece of fruit.  You get the picture.  Investing in your health should be the first one listed in this post, but like many of us it often times is the last thing we think about.

There are many other ways that you can pay yourself first.  Vacations, nice meals out, etc.  When it comes to your finances and personal development, YOU are in control.  Don’t just talk about these things, put them into action and set yourself up for greater success.

Budget Smart, Invest Wise 

How to Save a Quick $250 in Your Yearly Budget

How to Save a Quick $250 in Your Yearly Budget

In theory, budgeting should be pretty simple.  You make money, you spend money.  Sometimes you make more than you spend (Good budgeting!), and other times you spend more than you make (Digging yourself into debt).  Once you have downloaded the free budget spreadsheet: Monthly budget example.




For some budgeting income is pretty simple, it used to be for me.  I was a full-time salaried employee who made the same amount each month.  For others budgeting income is not all that simple.  If you are in a commissioned sales role, your money could fluctuate every month.  Not having a guaranteed income every month means that you have a further responsibility to budget your income correctly.

Budgeting expenses can be tricky in certain instances as well.  Some expenses will stay the same every month: rent, mortgage, cellphone.  While others will fluctuate depending on the time of year: utilities, gas, travel.  Although these “fluctuating” expenses can be hard to determine, in the big picture of things your monthly expenditures SHOULD (and for your financial sake NEED) to be less than your monthly income generated.

So how did I save a quick $250 a year in the expense portion of my budget?

All I did was… Shop around for automobile insurance.  This doesn’t sound fancy at all, but having an extra $20 a month freed up in my budget was something to get excited about.  Say you’ve been with the same car insurer since you first started driving; chances are you have a discount for that.  However, calling other insurance companies to get free quotes is not only easy, but it is a simple way to cut your expenses.  I was with the same car insurer since I turned 16.  I thought I was getting a great deal all along.  However, when I called a few other insurers, I found a much cheaper rate.  So cheap in fact, that it allowed me to save over $250 a year just on my car insurance (FYI, USAA has the best insurance rates and customer service).  That savings freed up an additional $20 a month in my budgeted expenses.  I could use that extra $20 any way I like.

You can save with almost every expense you have.  Whether it is renegotiating your cable bill, or shopping around for car insurance.  Find one expense category in your budget where you can chop out a little change.  The extra money can be used to pay off debt, go into savings, or fund a weekend getaway.  When it comes to budgeting, your expenses are half of the battle.  Lowering your monthly expenses is a great way to make your income go further.

Budget Smart, Invest Wise

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The 5 Keys for a $100 a Month Grocery Bill

http://www.westkelownacommunityfoodbank.com/
http://www.westkelownacommunityfoodbank.com/

How do I eat on $100 a month?  I will tell you some tips for how I manage my grocery bill.  This $100 a month category includes all of the food I purchase at grocery stores along with some occasional household supplies, laundry detergent, toilet paper, etc.  I have a separate row in my budget for “eating out”.  I eat breakfast, lunch, dinner and a couple snacks throughout the day.  I do not starve myself or eat Ramen and PB & J’s.  I am able to eat healthy and consume items such as chicken, pork, fish and beef.  Lastly, I am only supporting ONE person with this grocery budget, no kids or anyone else.

Here are my 5 Keys for a $100/month grocery bill:

1) Make a list: I make a list with all of the items I need beforehand.  This prevents impulse shopping or the purchasing of WANTS instead of NEEDS.  Always make a list!

2) Only buy items on sale: If chicken is on sale for $1.99/lb, I buy many pounds of it and place it in separate Ziploc bags in the freezer.  Additionally, I buy fruits and veggies that are on sale.  It might be apples and carrots one week, strawberries and cucumbers the next week.

3) Go generic: I will be the first to agree that some generic products do not taste as good as the original (i.e. Hershey’s Chocolate Syrup), but find out what generics are the same for you.  Whether it is nuts, chips or cereal, find out where you can save that extra dollar.

4) More prep time equals more food: I can buy a box of dry brown rice for the same price I can buy four microwaveable pouches.  The difference is that the box of dry rice yields twice as many servings as the “convenient” pouches.

5) Don’t waste food: This is a big one for me.  Whatever I buy, I eat.  I never let food go bad.   Google a recipe for a food close to its expiration date or something that didn’t taste as good as you thought.  Any food that you throw away is harmful to your budget.

These are 5 things I do to keep my grocery bill low every month.  See if you are able to incorporate any of these into your shopping trips.  If you have any additional tips, leave them in the comments section below.

Budget Smart, Invest Wise

Book Review: The 3 Takeaways from The Richest Man in Babylon

jimrohn.com
jimrohn.com

I recently finished reading George S. Clason’s The Richest Man in Babylon.  I heard the recommendation of this book on a Podcast I had listened to.  If you haven’t read the book then I suggest you buy it on Amazon.  A Kindle edition can be purchased for $1.99 and used copies cost less than a dollar plus shipping and handling.

This book is a great example of how the importance of handling one’s finances has been around for thousandsof years.  I won’t give away too many details, but I will list and discuss briefly my 3 main takeaways.

1)  Debt follows you wherever you go: If you get yourself into debt, it is your responsibility to get yourself out.  Own your debt and create an actionable plan to attack it head on.

2) Saving is important, but allowing your savings to grow is what truly matters: Saving 10, 20 or 50% of your income is important, but you need to have that money continually growing whether it’s with an index fund, a financial advisor or in rental property.  Having your savings in accounts earning 1-2% will never make you financially independent.

3) Don’t let misfortune define you, let it build you: Some are born into poverty, others encounter tragic life events, no matter what difficulties you have faced or might be facing you have the potential to create the financial feedom you desire!

I hope these 3 takeaways I got from the book inspire you to go out and read it for yourself.  Nobody cares more about your finances than you!

Budget Smart, Invest Wise

How to Double your Retirement Income

bankingsense.com
bankingsense.com

You get a job with a company that offers a 401k with a match.  What do you do?  You do what you’ve been told to do.  You contribute what you need to get the max contribution from the employer.  For me, I contribute 6% and get a 3.5% match, totaling to 9.5%.  I am nearly saving 10% of my salary in my early 20’s.  I’m doing a good job of preparing for retirement right?…  Well yes and no.  ALWAYS, I repeat ALWAYS, contribute what you need to your 401k to get your company match.  It’s FREE MONEY.

This is where I will tell you about the easiest way one can double his or her retirement income.  It is through a Roth IRA.  You see a 401k is pre-tax money, so you will pay taxes on your withdrawals in retirement along with whatever social security you are receiving at the time.  Combine social security and your 401k and you will have only 75% (assumming a 25% income tax bracket) of the income you receive during retirement.  A Roth IRA allows you to pay taxes on the money now, so regardless of what tax bracket you are placed in the future you can keep all of the income you withdraw!

Check out the spreadsheet I have attached to truly see how a Roth IRA can double your retirement income.  Keep in mind also with a Roth you never owe taxes and with your 401k you will.

Actionable step for the day, set up a Roth IRA!

To project your retirement income with a 401k and a Roth IRA, simply enter your salary into the cell along with your contribution and your employer match and watch the pie chart on the left shift!  Consider increasing your 401k contribution at work for more income in retirement.

Retirement Calculations

The 52 Week Savings Challange

Many have heard of this savings challenge before, but if you haven’t or if your mind is a bit hazy let me remind you.

There are 52 weeks in a calendar year.  At the end of each week you put in an extra dollar into a glass jar then you did the week prior.  You start with a dollar in the jar at the end of week 1.

For example, and we’ll put the money in on Sunday’s for simplicity reasons.  On Sunday, January 4, 2015, you put your first dollar into the jar.  The following Sunday, January 11, 2015, you put $2 in the jar, you know have a total of $3.  You continue this process every Sunday throughout the year.  If you were to complete the 52 week challenge, then at the end of the year you would have saved up $1,378 in the jar.  Quite astonishing really!

The whole point of this is not only to save up the money but to get your mind wrapped around living off one less dollar per week.  If I said to you, “Hey Mike, you have to spend one less dollar this week.  You think you can do it?”  Mike, or you, would probably respond with a resounding “DUH”.  Each week of the year you basically have to find out how to live on one less dollar than you did the previous week.  When you break it down like that it seems mighty simple.

So give it a shot.  Save up for a vacation at the end of the year, or maybe open a trading account.  This challenge has a two-fold purpose.  It helps you save money, and it also allows you to think about how to live on less.

Here is the chart for you to paste on the jar.  Good Luck!