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Posts from the ‘Beginners’ Category


Change is Hard

Letter to my Struggling Baby Business (via unicornfree)

Although this is not strictly about personal finance, the general theme is applicable to anyone going through a major change.  Be it personal finance, healthier living, or starting a business.


How to Use (and not use) Your Time

Seen on facebook:

Has offically hit 1 million gold in Skyrim!!!!

For those of you not interested in what young men do with their time, Skyrim is a giant video game.  As a comic book geek, I must sometimes sit through rambling descriptions of just how awesome this game is.  Apparently it’s really expansive and involved and the graphics are “amazing.”

Skyrim was released to much ado around the middle of November 2011.  During that time, I was working on my Wrestling Scorecard iPhone app, ultimately released at the end of January 2012.

While my friend above was making millions in the Skyrim adventuring business, I have sold a modest number of units for my app.  And I didn’t have to spend hours plugged into a video game to do it.

Therein lies the secret to financial stability.


Paranoia is not an Investment Strategy

Warren Buffett:  Why Stocks Beat Gold and Bonds

Over on Y-Combinator, the gold bugs and liberterian survivalists are going bugnuts about anyone, even a seasoned investor like Warren Buffett, daring to say that gold is not the best investment opportunity since sliced bread.

In my opinion, based on nothing but my layman’s observation, the money has long been taken out of gold.  The growth rate of prices are more a reflection of political paranoia than any rational valuation.  Political opinioneers working at the behest of their paid sponsors have been whipping this paranoia up for years.  After all, who do you think is supplying the product that the gold bugs and libertarian survivalists have been buying?

If you’re buying gold because you think the price’s growth rate will be sustainable, I’ll just say that timing the market is a fools game.

If you’re buying gold because you think society is on the brink of collapse, cash out some gold to get therapy.  And it probably wouldn’t hurt to stop listening to people who are sponsored by gold companies.


Nothing to Fear but Fear Itself

Hey guys, how’s it goin’?

When I was growing up, I had to endure the daily proclamation that my mom was going to get laid off any day now.  For as long as I can remember, her entire existence was permeated with the fear of not being able to take care of her kids.  That fear made home life edgy, to say the least.  According to her, the wheels were always in danger of coming off at the next unexpected expense.  An accident left her unable to stand for more than hour at a time and forced her into an early retirement.  When she passed away, she had less than $500.  She lived her entire life either not knowing or not bothering to build up more than a nominal amount in savings.

That’s one of the many reasons personal finance is a very important subject to me.  After many years, I was able to drag myself out from under the fear that drove me to make all manner of poor financial decisions.  Part of turning my financial situation around was resolving to not be put in a position where I would have to deal with the kind of fear I grew up with.  It’s one of the main drivers behind going back to school for my degree.  Today I make a good salary in a high-demand industry that is about as close to recession proof as it gets.  On the off chance I lose my job tomorrow, I have enough savings to pay my bills for six months.  I’m building a portfolio that I hope will allow me to retire while I’m still young enough to enjoy it.  I’m hardly financially bulletproof but I can handle some adversity without going into a tailspin and losing everything.

And yet, I still occasionally feel it.  I feel the anxiety of not having a job tomorrow.  I feel what’s best described as preemptive despair that tomorrow is the day when the wheels finally come off.  The only real way to deal with this feeling is make sure I’ve done everything I can to handle a financial catastrophe.  If I didn’t have a sizable emergency fund, I’d be in much worse psychological shape.

If you or someone you know is like my mom, the only real way to handle the fear of financial catastrophe is to do the kinds of things I’ve done.  Build and emergency fund.  Pay down debt.  Stay out of debt.  Plan for the future.  That fear may never go away, but a little preparation will keep it from owning you.

Until next time, keep on saving!


Don’t Give the Bastards More Than You Have To

Hey guys, how’s it goin’?

I’m expecting my car insurance bill soon.  Even though I paid off my car and I can drop my policy to just liability, I decided to keep paying for the full package.  Maybe not the most frugal thing to do, but it’s better to have it and not need it than need it and not have it.  I spend a lot of time on the road, so there’s lots of opportunities for something to go sideways.  What I refuse to do is give the insurance company one penny more than I have to.

Back in the bad old days, I was forced (by my own financial ineptness) to pay my insurance bill on the payment plan.  Six months of coverage for five monthly payments.  Insurance companies being what they are, it wasn’t enough to charge out the nose for their product, they had to add a $5 monthly surcharge for the privilege of paying on time every month.  What a bunch of sweethearts, eh?

Anyway, one of the first things I did when I started getting my finances together was arrange to get off the payment plan and pay up front for each six-month period.  Fifty bucks a year may not seem like much, less than a dollar a week.  It doesn’t seem like much now, but back when I was getting started, that five bucks each month was appreciated.  That five bucks went straight into my savings and helped put me on the road to financial stability.

You’re going to spend a lot of money on insurance over the course of your life.  It’s the cost of living life.  But there’s no point in paying one cent more than you have to.  It may be a little scary to think of paying out a few hundred bucks on one bill every six months, but if you include it into your monthly bill account you’ll be just fine.

This goes for any bills that offer a payment plan.  If they charge you for the service, you’re better off just saving for it and paying it all at once.  You can put the extra money to better use.

If this post has been helpful to you or you know someone who could use it, pass it on.  Follow us on Twitter, fan us on Facebook, sign up for the RSS feed.  Thanks.

Until next time, keep on saving!


I’ll Gladly Pay You Tuesday for Some Financial Advice Today

Hey guys, how’s it goin’?

Ever have one of those friends who was always putting off a purchase until next payday?  Are you one of those people?  I used to be.  I can’t count how many times I used to put off buying something (sometimes something really important, like a new exhaust pipe for my car.  Not just the muffler or tailpipe, the entire exhaust pipe from the catalytic converter back.)  Or how many times I had to forgo doing something fun with my friends because I didn’t have the cash for a baseball ticket or couldn’t pay for gas to go somewhere.  If wikipedia existed back then and you looked up “living hand to mouth” you might have seen my picture on the front page.  And I have to tell you, I was pretty miserable most of the time because of it.

What does this have to do with you, gentle reader?  If you ever had to say, “I would like to, but I have to wait until I get paid,” then this has everything to do with you.  I don’t care how precarious your financial situation is, you don’t have to live like that.  Imagine a world where you have the luxury of not doing something just because you don’t want to, not because you can’t afford to.  A world where you never have to admit you’re completely broke until the next paycheck.  A world where you may not have everything you ever wanted, but you can afford to have some fun when the opportunity arises.

You may be saying to yourself, “Easier said than done, Mr. Fancypants.”  And you’d be right.  One of the easiest things in the world is to flap your gums.  And if I hadn’t pulled myself out of the financial hole myself, I’d feel really foolish about presuming to flap my own gums on the subject.  The truth is, though, that I did pull myself out of the hole.  And I’m willing to share that knowledge with whoever wants it.  What you do with it is up to you.

Here’s what you do:

  1. Start Saving.  If you’re living hand-to-mouth, you’ll always be that way until you make some breathing room.  The only way to do that is to start saving some money out of every paycheck and put it somewhere you can’t get at it.  It doesn’t have to be a lot at first, $25 bucks a paycheck worked for me.  Getting started is more important.
  2. Stop spending.  I’m not the kind of person to tell you that living like a hermit is the key to living a fulfilling life.  Your situation and priorities are unique to you.  Realistically, though, you’re going to have to cut something.  I don’t care how you manage it, clipping coupons, dropping your cable bill, not going to the bar one weekend a month, making some spaghetti instead of going to McDonalds.  You’re an adult with a brain, you can figure out what works best for you.
  3. Pay your bills.  Take stock of your current bills and make arrangements to pay them every month.  Make sure your rent and utilities are paid every month and that’s one less thing you’ll have to worry about.  It’s a huge load off the mind.
  4. Pay off your debt.  A huge part of getting out of the hole is getting out of debt and staying out of it.  Stop using your credit card and start paying it down as quickly as you can.  Pay off your car as quickly as you can and don’t buy another one right away.  Once your debt is paid off, you’ll see a marked decrease in your stress levels.

I’m not going to lie to you, pulling yourself out of the hole is hard, thankless work.  It’s going to take a long time and there will be times when you wonder if it’s worth it.  I assure you it is.  I can tell you without fear of contradiction that life is a thousand times better outside the hole than inside.  Don’t believe me?  I dare you to try it.

Until next time, keep on saving!


Proper Care and Feeding of Your Credit Card: Same As Cash Edition

Hey guys, how’s it goin’?

In the previous installment of Proper Care and Feeding of Your Credit Card, I gave some general rules for using a credit card responsibly.  These rules will keep you out of debt and out of trouble with your credit card.  Today, I’m going to talk about same as cash options.

About a year ago, my old CRT television died after 15 years of reliable service.  No, I didn’t use it as an excuse to throw out my cable box and swear off television for the rest of my life.  I used it as an opportunity to finally upgrade my system.  I did all the things you’re supposed to do when planning a large purchase.  I did my due diligence, narrowing my options down to four models.  I shopped around and looked for deals.  After thinking about it, my partner and I went down to a big box store and got our hands dirty.  Yes, I know I’m supposed to stay away from those stores, but the local store was about 25% more expensive and I didn’t want to leave something like this to the tender mercies of a shipper.  I used to work for a UPS type carrier and I know what they do to packages.

I made sure I had enough room on my credit card and the money to cover the purchase at the end of the month (there’s something to be said for convenience.)  After some inspection and quite a bit of discussion, we picked our poison and asked the salesman to haul our choice up front.  The guy sent me to the customer service counter where the girl at the counter asked if I wanted to apply for a credit card and get three years same as cash.  I considered it and broke one of my own rules by applying for a second credit card.

The question is, did I make the correct choice?  At the time, it seemed like the smart play.  I deferred paying for the television interest free for three years.  As long as I had the money on hand to pay the card off if something went wrong, I should be okay, right?

As I previously posted, it’s always better to pay off debt before investing, unless the interest rate on the debt is low.  And it doesn’t get any lower than 0%.  Any investment I made with a non-negative return would put me ahead of the game.  I could leverage that debt into an opportunity to make a few extra bucks.

On the other hand, to hedge against unforeseen circumstances, I would need to keep enough money on hand to pay off the card on a moment’s notice.  Somehow, it doesn’t feel right to rely on my Emergency Fund to pay for a television, so that money would have to be above and beyond my Emergency Fund.  If I’m going to keep the money in my savings account anyway and invest it piecemeal as I pay down the debt, why not just pay it all off now and invest the money?  Seems like a wash.

The deferred interest rate isn’t much of an issue.  When I signed on, I was already planning to pay off the debt in about half the interest-free period.  Of course, there’s always the chance something goes wrong and I lose my job tomorrow.  I wouldn’t be able to make accelerated payments and even though I have the money to pay it off, could I really pull the trigger?  After all, I would need to stretch my savings for as long as possible until I found a new job.  Instead of paying it off altogether, would I just start paying it off with an eye towards the end of the interest-free period and use the hedge for food or other bills?  It would mean another debt millstone around my neck, but desperate times call for desperate measures.

There are pros and cons to entering into a Same as Cash arrangement.  Is it the smart play?  Beats me.  Even after a year, I’m not sure I made the right decision.  It hasn’t bitten me in the butt yet, but it also hasn’t put me ahead, either.  I guess it will depend if I’m able to pay it off before something bad happens.

That’s the thing about personal finance.  Rules will get you through the easy stuff, but there will always be something out there that doesn’t fit the rules.  Like life, Personal Finance is a long series of judgment calls.  Sometimes they work out, sometimes they don’t.

It’s a nice television, though.

Until next time, keep on saving!


There is Always Room for Improvement

Hey guys, how’s it goin’?

There are a lot of people out there who are in desperate need of financial advice.  Their ship is sinking fast and they need a lifeline.

But there are also a lot of people who aren’t facing imminent financial catastrophe.  They are merrily sailing along, able to bail just a little bit faster than the water is coming in.  These folks may look at this blog and say, “Hey, this guy is a pretty nifty writer, but I don’t see how this applies to me.”

Chances are you will do just fine.  But what if you can do better?  Sure, you’re keeping ahead of the leaks.  But think how much easier life could be if you eliminated them entirely.  A lot of the things I talk about here can help you do just that.

Do you think you can use the money you spend on interest for more important things?

Do you think you’ll sleep a little better at night knowing you can pay your bills for a while if you lose your job?

Do you think you’ll worry less about emergencies knowing you can handle them without going into debt?

Do you think you’ll be a little more comfortable if you’re taking care of your retirement?

The things I talk about here are not just applicable to the financial novice.  They are applicable to anyone who wants to be more secure in their finances.  You don’t have to be drowning in debt or one paycheck away from being homeless to make your financial situation better.  The concepts that help people fix the big holes in their financial ships are just as useful when you only need to plug a small leak.  Emergency funds are a good idea for everyone.  Paying off debt is a good idea for everyone.  Putting extra money away for retirement is a good idea for everyone.  Controlling spending benefits anyone who does it.

Even if you’re doing just fine, there’s always room for improvement.

Thanks for reading, guys.  And until next time, keep on saving!


When Is An Emergency Not An Emergency?

Hey guys, how’s it goin’?

A little while ago, I talked about Emergency Funds and why you should have one.  Some readers may be asking the question, what constitutes an emergency?

An emergency is an unforeseen event that threatens your life or livelihood and overwhelms your normal ability to pay for it.

If you use your emergency fund when you don’t need to, you’re hurting your ability to take on a genuine emergency.  Having an emergency fund is only truly effective if you know when to use it.

So when should you use your Emergency Fund?

Can you afford it out of your normal savings?  Tap into your Emergency Fund as a last resort when your ability to otherwise pay is overwhelmed.  If you can pay for it out of your regular savings, then don’t touch the Emergency Fund.  For example, if the garbage disposal in my kitchen breaks and I have to replace it.  While a good garbage disposal may cost a couple of hundred dollars, this is something I can pay for out of pocket leave my Emergency Fund alone.

Does it jeopardize your life or livelihood?  If something happens that directly affects your ability to live or make a living and you can’t pay for it out of your regular savings, tap into the Emergency Fund.  This is for cases where you may not be able to pay for it right out of the gate, but it’s more of an annoyance than a necessity.  Using the garbage disposal example, if I couldn’t afford to replace it without saving for a month or so, it’s not really a big deal.  I can just use the other sink.  If I was feeling really adventurous, I could even remove the garbage disposal altogether and replace it with regular pipes at minimum cost.  On the other hand, if a branch falls and knocks a hole in my roof, that puts my life and property in danger.  In this case, I’d use the Emergency Fund.

Is it really an emergency?  This should go without saying, but I’ve seen it happen.  Getting a new pair of shoes for your date is not an emergency, even if they’re going to arrive in an hour.  Getting Call of Duty so you can play your buddies on the internet in a half hour does not constitute an emergency.

Did you know it was coming?  Every car requires some regular maintenance.  Sometimes that maintenance can get costly.  A new set of good tires or a brake job will cost a few hundred dollars, but these are not things that happen out of the blue.  You should have some money set aside for this kind of regular maintenance.

All that being said, if a frog had wings it wouldn’t bump it’s butt on the ground, as my mom used to say.  Obviously, if the choice is between dipping into your emergency fund and going back into debt, dip into the emergency fund.  But you need to evaluate whether it’s truly necessary before doing so.  And if you do use it, make arrangements to replenish it as quickly as possible.  Emergencies won’t wait until you’re ready for them.

Until next time, keep on saving!


The Tax Man Came, The Tax Man Saw, The Tax Man Kicked My A**

Hey guys, how’s it goin’?

Did my taxes this weekend and oh boy did I get a shock.  Between my Federal and State income taxes, I barely broke even.  This is probably the first time since I was in my early twenties that I didn’t get at least a few hundred dollars back.  So what happened and how do I do better next year?

1.  I was chintzy on my tax-deferred retirement account.  For the past few years, I’ve been concentrating on maximizing my Roth IRA and other investments and not paying attention to my Traditional or 401k.  The lack of pre-tax contributions left me vulnerable to a higher tax burden than was necessary.

Yes, I know I gave this advice a while ago.  And shame on me for not making it happen until I got a boot to the head from the IRS.  I just never got around to it before, but the first thing I did when I got to work Monday morning was get my enrollment going with a 10% deduction.  While the idea of not paying taxes on your retirement savings is very attractive, the truth is that with the $5,000.00 yearly limit you probably won’t be able to save enough money in a Roth account to pay for your retirement.  Taxes or not.  You’ll need some kind of tax-deferred account besides your IRA to make it happen.

2.  Exposure to medical expenses.  Last year, I had minor surgery that put me out of work for a couple of days and maxed out the deductible on my insurance.  Since I’m a contractor, I don’t get paid if I don’t work.  This meant a significant out of pocket expense that still didn’t meet the minimum amount to write it off on my taxes.

I checked with the HR department of my contract house and my health insurance is HSA qualified.  An HSA is similar to an IRA that can be used for certain medical expenses.  So some time in the next week or so, I’m setting up an HSA.  This may not work for you, but since my focus is now shifting to minimizing my taxable income it works for me.

3.  Student Loan interest phases out between $65,000 and $75,000.  In previous years, I was able to count on major deductions from my student loan interest.  But now that I’m moving up in the world, it doesn’t apply to me as much.  I was able to deduct only 20% of the total interest expense.

There were two reasons why I didn’t focus more on paying down my student loan debt in previous years.  The interest write-off and the low interest rates.  Now that one of those reasons no longer applies, I have to ask myself what’s more important?  Do I continue to pay off on schedule and use the extra money to invest or do I get out from under the debt?  Remember, by the numbers, it’s always cheaper to pay off your debt before investing.  Unless your interest rate is so low that you have a high probability of returns greater than the interest rate.  On one hand, I really don’t want this debt hanging over my head longer than necessary.  On the other hand, I’ve got some momentum behind my investing that I don’t want to lose.  I think what’s called for here is to split the difference.  I’ve already started accelerating the payoff since I paid off my car, so I’ll throw a few more bucks on top of that and a few more bucks into my investments.

While a big refund check was always nice every year, the good fortune of a well-paying job means I have to switch tactics and find new ways to lower my taxes.  This is especially true as the years roll on and my investments start to pay off greater dividends.  Now the name of the game is adjusting my taxable earnings down by whatever (legal) means necessary.

Don’t get me wrong, I’m not one of those sour folks who bemoan every penny I have to pay in taxes.  It costs money to run this country in a way that provides the opportunities we can all take advantage of.  While you can make arguments about how the money is spent, it really just comes down to a matter of opinion.  There are plenty of things I think the government shouldn’t spend tax dollars on.  There are plenty of things the government spends money on that I’m completely in favor of.  And there is someone out there who has the exact opposite opinions, so it all comes out in the wash at the end.

Until next time, keep on saving!