Wednesday, December 18, 2013

Lesson 11: Credit Cards

Lesson 11: Credit Cards

Financial Planning for the Recent Graduate



Crapital One.  American Depressed.  Master(to you)Card.  Unfortunately, credit cards have been marketed so well into our culture, we think we can't live without them.  Have you ever noticed that sometimes the first piece of mail you get when you move to a new house or apartment is from a credit card company?  It's become an industry that boasts an $800 billion+ debt amount for Americans, and the problem is it's absolutely crippling our ability to save and invest.  Here's why:

We won't win: As recent graduates, we need to realize that the credit card companies didn't design this system for us to win.  We can't outsmart or beat the credit card company.  They know eventually we will forget to make a payment, or a financial emergency will come up right when it's time to pay the credit card bill.  All of the cash back rewards, airline miles and bonus points are all ways to attract us to go further and further into debt with them.  It's a no-brainer for the credit card company to give us 1-2% cash back when they're making 15%-29% interest off of us when we don't pay the bill on time.

Fees and interest: Do me a favor.  If you're one to have a revolving balance on your credit card (meaning you keep the balance from month to month), look at your next bill and circle the amount of interest and fees you're paying to the credit card company every month.  Enter that number into this calculator with the same interest rate as your credit card to show you how investing that amount can work for you, not against you.  It'll astound you how quickly interest piles up on your card if you don't pay it off every month.


The only time I would ever recommend getting a credit card as a recent graduate would be if you satisfy all of the following: You have to have your emergency fund in place, the card has to have a $0 annual fee, you use the card for specific purchases (gas/grocery), you can never go above 50% of your credit card limit, and you can NEVER, EVER, EVER forget to pay your credit card bill every month.

If you're tired of receiving credit card offers that you'll never use, I recommend going to this website to either opt out for 5 years, or permanently.


Thoughts?


Images courtesy of freedigitalphotos.net by stockimages, image ID: 10081456

Sunday, August 11, 2013

Lesson 10: Couponing

Financial Planning for the Recent Graduate





This lesson, like all of the ones I have written about, requires a commitment and action on your part to make it happen.  Couponing is tedious, takes lots of time, practice, and patience, but is rewarding in the long run, and will save you lots of money if you do it the right way.  It requires a small investment ($3.00 for two Sunday papers every week=$12 a month), but will pay off over time.  ALWAYS check the newspapers you get to make sure the coupons are still in there.  There are people out there that will steal the coupons out of the newspaper, leaving you out in the cold and couponless if you buy the newspapers and walk out of the store.

Like the mail-in rebate lesson, the only way you will win with couponing is if you don’t let it dictate your spending habits.  If you weren’t already going to buy that item, don’t buy it because you have a coupon for it.  You may be saving $3 on something, but unless it’s a free purchase, you’ll be paying money you wouldn’t have if you didn’t see that coupon. 

The best coupons are the ones that are applied to money off of one item.  Ex) Save $1.00 on Colgate toothpaste.  This is why I get two papers.  It’s the absolute sweetest deal when double/triple coupon week is happening, the store is doing a buy one get one free, and you have two coupons to apply to both products.  Here’s what that looks like: Colgate toothpaste is ~3.50 a tube, depending on the size.  BOGO gets you two tubes of toothpaste for $3.50, your two $1.00 coupons double TWICE because you have two coupons, which equates to $4.00 in coupons on a $3.50 purchase, giving you a credit of $.50. 

I tend to avoid the coupons that are the Save $.50 on 2 of something, because you have to buy two of the product just to get a small savings on it.  Not worth it, in my opinion, unless you were already buying that specific brand name product.  (Usually the store brand would be cheaper pre and post-coupon price anyways on coupons like this.  Anyways, let’s get to it.

Step 1: If you’re serious about doing this, sign up for Southern Savers.  I’m a huge fan of this website, and it sends you an email every day with the deals of the day.  The best part about this website is that it matches each coupon with the average price of the item the coupon applies to, showing you how much you will pay for it.  You can find tons of freebies on here, and items that will pay you to take it out of the store (meaning the coupon is worth more than the price of the product, resulting in a credit on your purchase). 

Step 2: Buy a 3-ring binder at the Dollar Tree and find some old baseball card organizers for it (yes, you’re going to look like those crazy people on Extreme Couponing), but you just smile your way on to that register as you watch the total slowly make its way down towards $0 for your purchase.

Step 3: Buy two papers at your local gas station/drug store/grocery store, go home, and begin clipping the coupons that are worth your time.  Organize them in the binder by row to match your local grocery store.  This will save you tons of time weaving in and out of the aisles. 

Step 4: Repeat step 3 until double/triple coupon week is here, or if you see a freebie after coupons on Southern Savers. 

Step 5: You get the email or see that the double/triple week is in a few days.  Game time.  If your grocery store offers electronic coupons to add to the paper coupons, add those to your rewards card and print off a list of the electronic coupons – put it in your binder and bring it with you to the store.  Get. There. Early.  Whatever time the double/triple coupons start, you can guarantee that the couponing crazies will empty the shelves of the items that will be free/credit their purchase before the general public gets there.  I’m talking if the deal starts at 6:00 am, be there at 5:50 and be ready.  It’s like a tame Black Friday with grocery carts when the store opens. 

There’s really no secret to couponing successfully, which is what was so ironic about my friends saying “teach me your ways”. Know your local grocery store’s coupon policy before going in there your first time so you don’t get burned.  Really, this is on you to try, experiment, fail, and if you’re patient enough, succeed. The secrets of couponing can be revealed in two words: Do it.


 Images courtesy of freedigitalphotos.net by Ambro, Image ID 10039145

Sunday, July 21, 2013

Lesson 9: Grocery Mail-in-Rebates

Financial Planning for the Recent Graduate



I absolutely love mail-in rebates.  This is a quick lesson and an easy lesson to pick up and implement into your life.  Part of why this series was started was because I would come home with lots of food and groceries and hardly pay anything for them.  When you can combine mail-in rebates with coupons (next lesson), you'll see how you can start saving today.  It takes a little effort and patience, but pays off in the long run and really adds up over time.

From now on, every time you go to the grocery store (Lowe's Foods, Harris Teeter, Kroger), head over to the beer section, and by the big beer displays, you'll see stacks of mail-in rebates like the ones in the picture above.  Whether it's Coors, Miller, Dos Equis, Budweiser, Sam Adams, Guinness, etc., each of these companies are paying to get your attention by pairing their beer with common purchases so you will associate their beer to that particular food.  Ex) $5 off frozen pizza when you buy Budweiser...$3 off chips and salsa when you buy Dos Equis, $5 off oranges when you buy Blue Moon.  Here's the cool part: If you're living in North Carolina or Kentucky, you don't have to buy the beer.  You can simply enjoy the savings without the beer purchase.  

Here's the kicker, and something that I can't stress enough: don't let the mail-in rebates dictate your purchasing habits.  If you have never purchased chips and salsa in your entire life, DON'T buy chips and salsa just because you're saving $3.  Chips and salsa costs more than $3 anyways so you're spending that extra money that you wouldn't have, if you hadn't seen that rebate.  Same goes for when you see a $5 rebate off of a minimum purchase of $10.  If you weren't already going to spend $10 on that thing, DON'T. 

When you're looking for mail-in rebates, you'll find some good ones and some bad ones.  Some of the good ones I've gotten are $5 off of $5 in deli meat, $10 off of $10 of oranges...the rebates that will eventually give you the items for free (minus a few cents in sales tax). 

Also, you don't have to use mail-in rebates in that store you got it from.  I find that the best place to use these mail-in rebates are in grocery stores like Aldi, or minimalist grocery stores where your dollar is worth more.  So take them with you! 

Step 1: Make a "receipt box" and keep all of your grocery receipts in them, just in case you run across a mail-in rebate that will give you money back on a past purchase.  Mail-in rebates have a date range, often many weeks, so if you bought chicken a month ago, the next rebate you find might save you $$ on chicken.  

Step 2: Start collecting rebates.

Step 3: After you shop for groceries, make sure you get a copy of your receipt before you leave the store (rebate companies will only accept original store receipts).

Step 4: Fill out the back of the rebate form with your information, attach the receipt to it, circle the purchase that satisfies the rebate, stick them in an envelope, address it, stamp it, and send them off.  

Step 5: Wait.  It takes anywhere from 4-6 weeks for rebates to come in (it's my favorite thing that comes in the mail).  When you get your check, take whatever money you receive and apply it to whatever step you are currently in (see my first 5 lessons).

Questions?  Leave a comment below.

Sunday, June 2, 2013

Lesson 8: Internships

Financial Planning for the Recent Graduate



Does anyone else get frustrated with the paradox we’re faced with when recent graduates are applying for a job that requires experience?  The position you really want requires 2-5 years of experience in that field, and you’re just graduating.  Of course you don’t have that much experience in your field yet.  You’re probably going to be faced with an entry level position or an internship to kick off your professional career.

If you haven’t landed your dream job yet, internships are a great way to get your foot in the door with the company, industry, or to get experience with the line of work you want to work in.  Paid internships are ideal, but some are unpaid.  It’s important before you take an unpaid internship to consider the outcome of all of the time that you will spend at this company.  Will this unpaid internship ultimately lead to paid employment with this company, or do they have enough influence in their industry (connections with competitors, clients, the community, name recognition), to list on your resume when the time comes to leave for someone else who will pay you for your time and talent? 

Personally, I work for a nonprofit in a development (fundraising) role.  I volunteered part-time for this organization for 3 years and was blessed to receive a job offer my senior year working for this organization.  The volunteer work that I performed helped me to realize how much I love doing what I do, and I was also able to meet the staff and create valuable connections with their volunteers and supporters in the community.  By volunteering there part-time, I knew it was something I wanted to do full-time if I was ever offered the position.  The message I was sending was, "I love doing this job so much that I'm willing to do it for free", and that's the message you send when you take an unpaid internship.  

Whether you’re offered a paid or unpaid internship (temporary, or long term), it’s now your job to impress and meet as many people you can at your place of employment.  Come to work early, leave late.  Dress for the job.  Work as hard as you can, and volunteer for as many projects and opportunities that have to be completed.  This is your opportunity to show your stuff.  This is why you went to college, to expand your education and land a skilled job that you love doing.  Employers are looking for you to create value for their business, so don’t be afraid to step up, ask questions, eat lunch with the employees, and attend staff parties. 


Tip 1: Update your resume constantly.  If your school has a Career Services department, it’s usually FREE.  Set up an appointment and get another set of eyes on it.  They have professional experience helping students and recent graduates with making a resume, specifically designed for your industry. 

Tip 2: You never have a second chance to make a first impression.  Gain your employers’ trust early on, and you’ll be moving up from photocopying, faxing, and data entry in no time. 

Tip 3: Ask for honest feedback.  Request a meeting with your supervisor (or supervisor’s boss), to evaluate your work after a few months.  This shows initiative, that you care about the work that you’re doing, and that you value their opinion of the work you are doing.  Oh, and be prepared for the unexpected with feedback.  You may not like what you hear, but remember: this is a growing opportunity.


Tip 4: Dress for the job you want, not the job you have, but that doesn’t mean you have to go to Jos A Bank or J. Crew to look good.  90% of my closet is from Goodwill (The other 10% is $19.99 shirt and matching tie combo's).  You can find some incredible clothes at Goodwill, and you can’t beat the price.  If you do go to one of the large department stores, before you check out, look up coupons on your phone at Retailmenot.com that the cashier can scan to get you a discount.  If you can’t find any, ask the cashier “What coupons do you currently have that apply to my order?” **hint** they’ve got a copy hiding under the cash register.  For more on young professional wear, Deryle Daniels, a good friend of mine, has an incredible blog on professional men’s wear.  Check him out! Ladies, I’ve got your back too.


Images courtesy of freedigitalphotos.net by stockimages, image ID: 10092745, and by Stuart Miles, image ID: 10055252

Sunday, May 19, 2013

Lesson 7: New Cars vs. Used Cars

Financial Planning for the Recent Graduate





If your financial advisor told you to invest $30,000 in a stock that lost 9% as soon as you bought it, lost 20% in the first year, and would be worth less than $15,000 (half of its original value) by the 5th year, would you buy it?  Of course you wouldn't, but this scenario happens every time we buy a new car.  As soon as you drive it off the lot, your $30,000 new car is now worth $27,314.  You just threw away $2,559.  Is that new car smell really that worth it?  

It's time to get emotionally mature with our purchases.  You don't need that new car.  Here's why:

#1: Depreciation.  A new car is not an investment.  Anything that loses half of its value in 5 years is not an investment.  I love this infographic from Edmunds.com, which gives a good visual on a car's average depreciation.  

#2: Monthly payments.  Now there's something you don't want more of: another bill.  Another company who stakes a claim in your paycheck every month.  Oh, and every month that you're paying the car payment, they're tacking on interest, and hoping you'll miss a payment so they can tag you with a late payment fee.  The most profitable person at a car dealership isn't the car salesman, it's the financing representative.  Always remember: Most people ask, "How much per month?", but smart people ask, "How much?"

#3: Higher car insurance: A car that's worth more is a higher risk to insure for your insurance company, so count on higher insurance premiums that you'll be paying every month.

#4: Impressing strangers at a stoplight: Sorry, it has to be said.  You're trying to impress people you'll never meet.  What's the point?

#5: Opportunity cost: Instead of buying that $30,000 car, let's invest that $30,000 in your Roth IRA and don't touch it for 40 years.  With a 9% yearly rate of return, that $30,000 you invested will be worth $1,083,299.07 TAX-FREE.  I hope you enjoy the car!  

I currently own a 1995 Honda Accord with 261,000 miles on it, haven't had A/C in it for about 4 years now, and I plan to drive it until it won't drive any more.  The best part about my car is that I own my car.  My car doesn't own me.  Keep your A to B car as long as you can.  While you're driving your car into the ground, put aside what you would be paying for a car payment into a savings account.  When your car's time has come, don't buy a new car.  Pay cash for a new-to-you car.  There are some great cars out there for $3,000-$4,000.  All you just have to look.  Oh, and if you pay cash for a used car, you've got some serious negotiating power for lowering the purchase price.  Be sure to get the vehicle's history report, so you know what maintenance has (and has not) been done to it, and check out this 10 steps to buying a used car article.  

I want to hear about your A to B car (clunker) in the comments below.  What's your story?

Image courtesy of freedigitalphotos.net bDavid Castillo Dominici, image ID: 100148394

Sunday, April 21, 2013

Lesson 6: Insurance


Financial Planning for the Recent Graduate




You’ve heard the phrase, “offense wins games, but defense wins championships”.  Whether you’re on a football field, dribbling down the court, or talking about your finances, every good offense needs a good defense.  You need a way to protect your offense (cash, savings, investments), with a good defensive strategy (insurance).  After all, your #1 asset is yourself, so we’ll explore the best options to protect you.  There are a lot of insurance plans out there, so we’ll make sure to cover the essentials. 



Insurance, in general, is simply a way to transfer the risk off of you and onto the insurance company.  Most all insurance plans have a deductible, which is what you pay when filing a claim.  Generally, the higher the deductible, the lower the monthly payment.  The lower the deductible, the higher the monthly payment.  That’s because if your deductible (what you pay) is lower, they are taking a greater risk of paying more if you utilize the insurance, so the insurance company raises the monthly payment to protect themselves. So for example, if you have a $5,000 deductible on your health insurance and you get sick, you will pay up to $5,000 out of pocket before the insurance company has to pay anything.  I also recommend working with an independent insurance agent who can shop many different insurance companies to give you the best price for the best product.  


Health Insurance:

Often, your company will have a plan for the employees to take advantage of.  Be sure to review the details of the plan, including the deductible, how much they will cover above the deductible, and if you can find a plan on your own with the same conditions for cheaper.  Group plans are great, but you may be paying more to your group plan because someone in your office uses tobacco. 

Check out ehealthinsurance.com. They have a wide variety of health and life insurance options and it shops around for the best price for you.


Car Insurance:

I love this article from SmartMoney that explains how to shop for car insurance:

I also like CheapCarInsurance123.org, which will match you up with the car insurance providers in your state so you can shop around for the cheapest option.  In many cases, Liberty Mutual is the cheapest option.  No matter what you go with, make sure to ask for discounts you may be eligible for (military service, fraternity/sorority involvement, driving fuel-efficient vehicles, anti-theft features on the car, university discounts).

Life Insurance

Life insurance is another benefit that most employers will provide for their employees, but if they don’t, it’s another important insurance to cover.  The more you acquire in your life (car, house, significant other, kid(s), etc.), the more life insurance you will need.  I recommend term life insurance (no matter how hard the insurance agents push, stay away from whole life/cash value insurance), and I’ll let my friend Dave Ramsey explain why in this article

I like shopping Zander Insurance Group and ehealthinsurance.com to find great term life insurance policies.

Disability Insurance



Remember when I mentioned protecting your #1 asset earlier?  What did I mean by that?  You are the source of your income.  If you are unable to work, whether you get very sick or disabled, you won’t be able to work and generate income.  This is where disability insurance comes to the rescue.  Disability insurance will pay you for the time period you are out of work due to an illness or injury. With disability insurance enters in terms such as elimination period and benefit period.  Elimination period (waiting period) is the period of time you have to be disabled before you start receiving a check, and benefit period is the length of time you’ll receive your checks.  A longer elimination period means less cost on your monthly payment (vice versa).  A longer benefit period, however, means higher monthly payments.  For a more detailed explanation, here’s a great article to read: 

Typical short-term disability plans pay for 2-6 months, depending on your plan.  Long-term disability plans can pay for a very long time, usually up to the age you determine on your plan.  When shopping around for a STD plan, remember: you have an emergency fund in place, so if you have the cash, you can often afford to have a higher elimination period to lower your monthly payment.  When you’re shopping for your LTD plan, make sure your short-term doesn’t overlap with your long term, and make sure there is no lapse in insurance during that time either.  So do the math:  Elimination period for your LTD plan = elimination period of your STD plan + benefit period of your STD plan.

I like both Zander Insurance and edisabilityquotes.com to shop for short-term disability and long-term disability plans.

Disability happens all the time.  For 30 year-olds, disability is 4 times more likely than death.  As recent graduates, it’s even higher.  Here’s a chart to show you how much more likely you are to become disabled than to die.

Homeowners/Renters Insurance

When buying homeowner’s insurance, it’s important to ask the right questions.  Here’s a great .pdf from Bankrate.com, which will help you shop for the right homeowner’s insurance policy.

If you’re renting, I highly recommend renter’s insurance.  It’s cheap, and it gives you peace of mind if your apartment is broken into and all of your valuables are stolen, you’ll be able to replace your stuff.  Often your landlord or apartment staff will know who is the cheapest, but when shopping for renter’s insurance, here are a few things to keep in mind to save you some money.  Also, be sure to check with your landlord to make sure your renter's insurance complements the insurance your landlord has.  Here's a list of what renter's insurance does and does not cover.

Again, I would recommend an independent insurance agent to provide you with an unbiased opinion on your homeowner’s or renter’s insurance.  Here’s a great way to find local independent insurance agents in your area from Trusted Choice (enter in your zip code at the bottom of the page by "Find an Agent").


Have a headache yet?  Thank goodness I only covered five types of insurance.  There are even more insurance plans out there that are important to have (vision, dental), but some are a total waste of money (cancer insurance, private mortgage insurance, car rental damage insurance, flight insurance, credit card insurance, I mean the list goes on and on), and anything outside of the scope of these 5 that I recommend should be discussed with a trustworthy financial advisor who will teach you, not sell you. Getting the right insurance is like wearing a seatbelt in your car.  Fastening your seatbelt after a crash doesn't do you any good.  Buckle your seatbelt before the unexpected happens.

Questions/suggestions?  Leave a comment below or email me at finance4therecentgrad@gmail.com.

Images courtesy of freedigitalphotos.net by Vichaya Kiatying-Angsulee, image ID: 10071483, bdigitalartimage ID: 10044866, bKittisakimage ID: 10094648, and bJeroen van Oostromimage ID: 10036075

Sunday, April 7, 2013

Lesson 5: Investing


Financial Planning for the Recent Graduate 




Well this one is a packed lesson, so get ready.  Investing is overwhelming. Currently there are more than 7,000 different mutual funds, more than 8,500 stocks listed just on the New York Stock Exchange, and those investments are just barely scratching the surface.  Where do I invest?  Stocks, bonds, mutual funds, ETFs, iShares, what’s a 401(k)?

The three most important things you can learn from investing is immediacy, consistency and diversification.  After you’ve completed the first four steps, start investing immediately (personally, I combined step 4 and step 5, but focused more heavily on completing step 4 first).  Consistently put money away (15% of your paycheck) into your retirement account every month.  Diversity your portfolio, meaning spread your investment to many different styles of investments (different industries, big companies, small companies, mutual funds, stocks, bonds, cash), and you’ll really set yourself up for success when you’re ready to retire. This Investopedia article does a great job of explaining the different types of investments.



The best part about this lesson is that we’re young.  We have an incredibly unfair advantage of retiring wealthy compared to people older than us.  Why?  Compounding interest.  The younger you start investing, the less you have to invest, and the more you end up with in the end.  How cool is that?! This website by Dave Ramsey shows just how much of an impact starting early has on your chances of becoming wealthy.  For example, if you only put 100 dollars a month into a retirement account and it has a 10% return every year from now until the time you retire (assuming monthly compounding), after 40 years, you’ll have $637,675.96!!  If you double that, and do $200 a month, you’ll end up with $1,275,355.58.  Wow! 


A lot of people contend that you should start investing before you pay off your debt, to which I kindly coach them: have you ever heard of a stock that earns 6.8% every year, consistently, without ever losing value?  I haven’t either, but a student loan sure does a good job of consistently charging you 6.8% interest every month without fail, doesn’t it?  Let's not even talk about how much you're paying the credit card company if you're paying late fees and interest on your credit card (ahem, 15-25%).  Crapital One, American Depressed...man, I can't wait to get to that lesson...“But I can deduct my student loan interest on my taxes, right?”  Yes, but let me give you a better scenario: Do you know what else you can deduct 100% on your taxes?  Pre-tax 401(k) contributions.  Plus, in 2013, filing single, you can deduct up to $5,500 in IRA contributions, whereas you can only up to $2,500 in interest for your student loans.  Solution: target getting debt free, get your savings built up, then you can really focus on investing.  

401(k) vs. Roth IRA


A 401(k) is funded with pre-tax dollars (meaning you’re taking money out of your paycheck before taxes are taken out and reducing your income) to fund your 401(k).  This lowers your taxes for the year, but down the road when you retire (after 59 and ½ years old), you have to pay the current tax rate at the time when you withdraw your cash.  Let’s be honest, taxes are going to have to go up in the future, so:

I highly recommend Roth IRAs.  You contribute to a Roth IRA with take-home pay (after tax) dollars.  The cool thing about a Roth IRA is a Roth grows tax-free.  That means if your Roth IRA kicks butt and you have millions of dollars in your Roth IRA, you don’t have to pay the government anything when you withdraw at retirement.

If you have an employer that matches 401(k) contributions, TAKE ADVANTAGE OF IT. There is no excuse for you not to contribute something so your employee can match it or add to it.  Every company is different, so ask your employer about all of the details of your company’s program so you can make the best decision about your 401(k).  



Tip 1: If you're confused about investments, seek investment advice from a professional financial advisor.  Make sure you find someone you feel good about and has your best interests at heart, and can teach you, rather than sell you.  If you ever feel over pressured or uneasy about a financial planner, it's probably for a good reason.  Don't do business with them.  You won't hurt their feelings.  As soon as they get off the phone with you, they're probably calling the next person down on their spreadsheet to say the same thing anyways.  You can always check on their credentials for free and check to see if they've had any complaints about their business from customers, felonies, etc. http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Tip 2: Don't ever buy anything you don't completely understand.  If you're personally investing without an advisor, make sure you check on the track record and history of the stock/fund you are buying, and read into the company that you're going to invest in.  

Tip 3: Use other's research to guide your investment strategies.  Websites like Zacks.com, Morningstar.com, Seeking Alpha and Investopedia.com are great resources to utilize.  


Tip 4: Slow and steady wins the race.  The tortoise beats the hare every time I read the book.  No trick or hot stock is going to get you further ahead in the long run.  Don't try to beat the market.  Stay consistent with your investing month after month, whether the market is up or down.  The only people that don't finish the race are the ones that stop running.  

Thanks for reading.  Lots of material covered, so please leave a comment below if you have any questions.

Images courtesy of freedigitalphotos.net
By Ambro: Stock photo - image ID: 10066523 and image ID: 100103866, bStuart Miles: image ID: 100146099 and image ID: 100123071, and bdigitalart, published on 10 June 2011
Stock illustration - image ID: 10045513