Less debt means more money

I honestly don’t get the Media sometimes.  Between them and politicians, I might go crazy.  Seriously, I mean it!  The other day I was browsing a couple of sites and I see a link to a Pew Report on debt for young households (“Young” being defined as the head of the household is between 20 and 35).  So, I start taking a look at this and in general, I like what I see.

Turns out, we young folk aren’t doing too bad.  Between 2007 and 2010, the last year data is available, we decreased the median level of debt in our age group by nearly 30%!  That’s ridiculous.  What’s more ridiculous is when you see that the rest of the country (everyone over 35) only decreased theirs by 8%.  Even more ridiculous are the facts that 22% of young households have no debt and 61% of households don’t even have credit card debt!

So here I am, reading this and thinking wow, we’re doing good.  We’ve got less credit card debt, less mortgage debt, less auto debt.  In fact, the only debt that’s growing is student loan debt and that only makes up 15% of the total debt for the age group.  Overall, we’re doing really well!  This is exactly how you build a good, solid foundation for later on in life.

As I start reading a little more, I see there are some outliers, as there are in any studies.  25% have debt over $106K, with 25% holding 80% of the debt.  That’s not good, especially when you take into account the good facts about.  But overall, I don’t think this stat ruins the Pew report at all.

But there’s at least one person out there who thinks this is all bad news.  The same day I saw this report, I saw this headline on the front page of CNN: “Why Less Debt among Young Adults is Bad News.”  Nin-Hai Tseng wrote this piece and I’ve gotta say, I really disagree with the sentiment.  I get what Tseng is trying to say: young adults aren’t spending as much and America is a consumer culture.  If we don’t spend more, like the generations before us, then the economy will drag and will never reach our full potential, outgrow the government debt/spending and we’re doomed.  Doomed!

If you know me, you understand that I just can’t get behind this realm of thinking.  For example, last year the US government paid almost $360 Billion in Interest, just to service their debt.  From 2003 to 2012 we spent $3.89 Trillion on interest payments on US government debt alone.  Trillion.  With a T.  Now think of that as your household.  It won’t be trillions but it will be thousands.  For example, let’s say you use your credit card and purchase $10,000 worth of goods at 18%.  You didn’t want to do this of course but you felt guilty of making the economy drag and slow down after reading Tseng’s article.  You start paying down your debt every month, putting $200 towards your credit card bill.  After 7 years and 10 months, you’ve finally paid off your credit card!  And you only paid $8600 in interest over those years.  I won’t even get into how much money you’d have if you had invested it (it’s worth a downpayment on a cheap house).  The point is here, Tseng is arguing that we’re slowing down the economy by not using debt to fund our lifestyles.  I’d like to think that we’re really just finally being smart with our money.

If anything, Tseng does bring up the point of wages being lower for young households.  It’s true that less of us have ordinary jobs, let along good paying ones.  But I think it says something to how we’ve obviously wised up to the mistakes of others, especially if we’re not utilizing credit cards and other financial instruments to make up for lost cash flow.

In the end, I think that maybe, just maybe, our generation is going to be OK.  If we keep up with maintaining less debt then we’ll ultimately have more cash to spend.  And I think in the long run, that’s more of what we need than using debt to fund everything we do.

Shameless Plug: Negotiating your Startup Job Offer

Today’s post is a shameless plug and is also very short.  No, I don’t feel sorry for it!  A former classmate of mine posted the other day about negotiating your startup job offer.  I’ve never read a post that puts the it out there so clearly.  If you’re in that period where you’re getting job offers from startups, you definitely need to take a look at this.  It will at least change how you evaluate the pay and equity you may be receiving.  Check it out and hopefully it will help some of you!

Negotiating your Startup Job Offer by @FreeRobby

Let me know what everyone thinks!

Online Banking vs the Brick and Mortar bank

Just the other day, someone sent me an article about online banking and I found something I didn’t expect.  Apparently, brick and mortar banks are opening online banking divisions.  But I’m not talking about Chase or Bank of America.  I’m talking about your hometown bank, the bank you grew up with, had a little bank book with, went to kindergarten with the teller’s son.  I guess they saw that online banking is most likely the next big thing in banking.  Considering banks hate change, this is probably a good thing.  I mean, we all like better interest rates and no fee accounts right?  So this means that we should all just walk into our corner bank and enjoy the good life right?  We’ll have all the benefits of both worlds!

Wrong.

The community banks that are going this route are being a little bit sneaky about this.  If you walk in to one of the banks and open an account, you’re not going to get the same rate as their online accounts.  But what’s even worse is that you won’t even be given the option.

You see, banks love not paying us interest.  Seriously, they love it.  The lower they can push their interest rates, the better off they are.  Now, these banks are opening online banking divisions and are offering some of the BEST rates in the country on those online accounts.  But a brick and mortar account is going to be 0.20% or less.  Granted, that’s WAY better than Bank of America.  And the service is probably miles better than B of A as well (sorry guys).  But if that’s a full 1.00% less than their online account, you’re being cheated.  Plain and simple.

This is not to say that regular banks are all bad.  There is some merit to walking in and dealing with a person face to face.  Same goes for knowing that there will almost always be a free ATM around when you need one.

So what is the real benefit of online banking?  Well, let’s run this down really quickly:

1.  Get paid actual interest:  Just compare the online banks versus the brick and mortar banks and you can see this one.  It’s a simple side by side comparison!  Online banks are giving you around 1.00% a year (my bank, Capital 360, the form ING Direct, is offering 0.75%).  The best brick and mortar bank?  Well that would be Chase, which is offering 0.25% in NY.  Citibank is offering the best nationwide right for a brick and mortar, at 0.20% .  Did I mention the online banks have checking accounts with interest? I think that online banking wins this round.

2.  Customer Service: When was the last time you tried to actually close an account with your bank?  What about when you had a simple question about something?  Obviously this is a pretty objective area but we the benefits of rankings.  Overall, the online banks by and large crush the national banks with great customer service.  On a community level, credit unions and your smaller, local banks are actually fantastic.  It helps when you grew up with the people there and have had your account with them all your life.  This is definitely a tie between small, local banks and online banks.  National banks do not stand a chance in the customer service arena.

3.  Ease of use:  Online banking is pretty easy.  Most people get concerned about depositing money, etc, but most of the online banks have figured out how to get around it.  USAA, one of my favorite online banks, has built a special app for your phone to facilitate deposits.  And it’s actually surprisingly safe.  I know some people that prefer going to a teller but for me, I’d rather not walk into a bank ever again!  Online banking is definitely the easiest thing out of the options.

Overall, I’m a huge proponent of online banking.  It just seems to make the most sense!  However, that’s just me.  What it really comes down to is what is best for YOU!  While I think that these accounts are easy and getting tons of interest is great, it might not be right for everyone.  So do what works best for you but at the very least, make an informed decision!  Ask your bank if they offer online banking accounts with higher rates and see if you can get those!  There’s money to be made out there so go get it!

This post contained several referral links so if you clicked on them, thanks!

Revising my budget

Every once in a while, I find that I need to revise my budget to make sure that it really reflects what is going on in my life.  I know some people like to create a budget and stick to it until the end of time but for me, it’s really a fluid part of our lives.  In my case, my budget needs a drastic overhaul.  The girlfriend and I have moved into a new (more expensive) apartment, I have increased my contributions into my 401k and my savings, and payroll tax wen t up (damn 2%!).  Overall, I need to seriously adjust my budget to account for an additional $600 a month I’m moving into other locations.

This is really leading me to my main point about being flexible.  As I mentioned above, a lot of people create their budget and never deviate from it.  As if it were handed to them from up on high, they worship the budget.  No no no no no.  Not cool.  A budget is a tool, a flexible tool, that we need to use as part of our financial freedom repertoire.

So then, how the hell will I do this without letting my life suffer?  I’ve got to find $600 a month!  And I’m not getting any additional income from any other sources right now.  So, how will I do it?  Well, I won’t lie, I haven’t been living the most mustachian of lifestyles (by the way, if you haven’t checked out Mr. Money Mustache yet, do it.  He’s insane and it’s amazing.  I love it).  Basically, I have been indulging in some things that I shouldn’t have.  Namely, spending excess money going out to eat, drink, etc.

Now, we all need to enjoy ourselves from time to time.  Going out with friends is typically a good time and I doubt you look back too often and say to yourself “Damn, that burrito with Tony was not worth it.”  Because let’s face it, a burrito is almost always worth it.  But what isn’t worth it is going out to lunch EVERY day.  It’s not worth it for your wallet or your belt.  Really, going out to eat or get drinks should be an occasion for you, your friends, and your family.  Why waste the time, and the money, doing something like that every day.

I can understand what some of you are probably thinking: you just cannot stay in the office at lunch.  Yeah, you’re not the only one.  Trust me on that one.  But if you can’t stand it then just get out!  Eat in the park or go for a walk.  Bottom line is that if you can pare down your lunchtime expenses so you’re only eating lunch out of the office maybe once a week, it can go a long, long way to correcting your budget.

Granted, I don’t spend that much money a money eating out.  I’m also going to have to cut out on other things.  I’ll be walking to work more in order to save on gas, as well as wear and tear, on my car.   I’ll also take a little bit out of my cost of insurance, as that recently went down, as well as my bottom line.  Generally, I always budgeted in a cushion each month.  Between that, the things above, and more diligence on my part, I should be just fine with this extra $600 a month.  Just, you know, don’t hate me when you see my February net worth update.  Because it’s going to be AWFUL.  Moving and getting some new (used) furniture, as well as a security deposit, has wiped me out.  But that’s a story for another day.  Until next time!

Earning more than you spend

Image courtesy of 401(k) 2013

Image courtesy of 401(k) 2013

There are some interesting opinions about personal finance floating around the internet the past few days, some of them from more respected sources than others.  Two, however, really stuck out more than the rest.  The first was a Lifehacker post that a friend of mine posted on facebook.  Melanie Pinola of Lifehacker wrote an interesting article titled “Why you should focus on earning more, rather than spending less” and it really was not something I anticipated from Lifehacker.  But what REALLY surprised me was her source of inspiration: Get Rich Slowly.  For those of you not familiar with it, Get Rich Slowly is probably one of the oldest finance websites out there.  JD Roth, the founder, started it in 1999 or so and maintained it for his faithful audience for years.  Unfortunately, he has since sold the website and left as editor.  Which led to El Nerdo, one of the writers there, writing a post yesterday entitled “Throwing away an old rule.”   The rule is one you see constantly in the personal finance sphere: “Spend less than you earn.”

Now, the big thing here is that Lifehacker and El Nerdo are both using the difference in phrasing between to the two in order to put the emphasis back on earnings.  Why should we try to “squeeze blood from a stone” as El Nerdo writes, when we could focus instead on finding more work, more pay, more money!  I won’t lie, I don’t disagree with it.  Net income, how much you make each month after you subtract all your expenses and spending from your take home pay, is a two way street.  Like a business, you have Revenue and Expenses.  Like a business you want more revenue but you’re also mindful of your expenses, keeping them from getting too high and overwhelming your revenue.

Now, here is the big thing.  Like a business, we can suffer if we cut too much from our lives.  If you cut too much from the pay of employees or from Research and Development, a company will suffer in the long run.  If we cut too much out of our lives, we too will suffer.  Just because you can technically eat Ramen for every meal and save X amount of dollars doesn’t mean you should!

However, I’m not sure I 100% agree with the logic behind this. Granted, yes, we all want to earn more.  However, by shifting the focus to earnings rather than spending I feel we hit two problem areas.  One: we are no longer focused on our spending.  Obviously.  Because of this, your renewed focus on earnings will no longer keep you diligently focused on your budget, allowing little things to pile up and cost your more money than if you had just stayed focused on your budget.  This is what gets people into trouble in the first place!  Plenty of people make enough money to live a good, solid life.  The problem is that they try to have a rich lifestyle before they are truly rich.  Or, they are rich but they STILL spend more than they should.  All because they focus on their earnings instead of their spending.

Second: we now are running into a lifestyle change.  For some of us, a change in career could be a good thing.  Maybe we’ve outlived engineering and want to be a teacher.  For others, we’re underemployed and it’s time to find a better job for us.  However, for many of us, making more money means a sizable tradeoff.  For those of us with full time jobs, it means we either need to find a new job (not easy and fairly time consuming), work more hours (if we’re hourly), or get a second job.

We only have so much time in this world and if you ask me, working MORE is not how we should be spending it.  I know for a fact I could work weekends and evenings at a running shoe store nearby (they asked me already) and could easily pull down an extra $1000 a month.  However, I’d give up my weekends and evenings.  I’d lose out on the time with my girlfriend, my friends, and myself.  I won’t lie, an extra grand a month is huge.  But at what cost?

Overall, I’m pretty disappointed with both GRS and Lifehacker.  Of course everyone wants to earn more money rather than cutting their spending but that’s not the point of a frugal living.  Living within your means is supposed to mean living within what you can do right now.  If you make more money, great!  Stash 50% of it away and use the rest to up your standard of living a little bit.  But don’t go killing yourself to make an extra $500 or $1000 in life.  You’re supposed to live a balanced and healthy life.  We shouldn’t waste it all working our lives away.

Net Worth Update – January 2013

And it’s that time of the month again! It’s time for the monthly Net Worth Update.  January was a very good month for me, as I actually received my first ever bonus from the Corporation.  As you’ll see below, it significantly improved my current cash holdings and it is certainly making me feel a whole lot better about things.  Unfortunately, with moving into a new apartment (and getting some new furniture), I don’t anticipate the bonus to last all that long.  But hey, something is better than nothing!  Even better though, January was a great month for stocks and my 401k and Vanguard account both grew tremendously.  I’m definitely looking forward to 2013 as the year I hit positive numbers! (Template courtesy of J. Money at Budgets are Sexy)

Net Worth

My January Net Worth

HUGE improvement!  My biggest increase to date.  As I mentioned above, I don’t think this is going to be a continuous thing.  In fact, chances are February will be a down month, with the deposit and moving costs, as well as new furniture.  However, with no more credit card debt and a decent amount of savings, I’m definitely feeling good about the days to come.

Checking Account: I won’t lie, I’m not sure where I’m going to be moving this cash.  Some of it will definitely go into the B of A generic savings account, enough to make it so I never pay any fees.  The rest of it will be split between apartment obligations, my Vanguard and my ING account.

Savings Accounts:  Still low but only temporarily.  I’m contributing double into my ING account now, so that should grow much quicker.

401K: I actually increased my contribution for 2013 and with the very minor raise I got, it should grow by at least $800 every month.  This is quickly becoming the most significant component of my Net Worth and I’m OK with that.

Vanguard:  In addition to doubling my contribution to ING, I have also doubled my contribution to Vanguard.  This way, things will grow much, much quicker here!  Additionally, I’m considering finally opening a Roth IRA this year.  I’ve been considering it for a while and I think it’s about time.

The Acura: This decline is to be expected.  More and more I’m thinking about selling this and going with a less expensive car.  I’ll stick with it for now but we’ll see.

Liabilities: Still no credit card debt!  I also paid a bit extra towards my student loans last month.  I’m not sure why but I just felt like making a bit more of an impact.  Hopefully this helps.  These just keep going down which, I hope, remains a constant over 2013.

So there we have it.  I’m pretty close to a positive Net Worth!  If I really work at this, I’m pretty sure I can get there before the middle of the year.  We’ll see.  Does anyone out there have any good news about their Net Worth?  Let me know!

 

 

Automate your Life

If you want to make things just a little bit easier on yourself, you’re going to need to automate your life.  This isn’t a new or original concept.  Timothy Ferris, author of the Four Hour Work Week, touts it as a pretty crucial part of de-cluttering your life.  One of my favorite writers, Ramit Sethi, outlines his beliefs about automating finances and your life here.  He likens it to building a bullet proof system with which to make your finances and life simple.

Pretty much everyone has their own beliefs on this system or reasons why we should do it.  I’ll give you a simple one: we can’t trust ourselves.  We just can’t!  Let’s face it, there are some people who have their lives on complete lock down.  They know every penny that travels in and out of their accounts and their budget isn’t an outline, it’s a fact.  However, these people are freaks.  They’re anomalies!  And you, me, and pretty much everyone you know, are not one of those people.  We don’t have ironclad wills, we’re humans and we make mistakes.  Sticking to a budget is one of the HARDEST things we will have to do.  So, let’s make it easier on ourselves.  Automate your financial life with just a few easy steps that should make things a little bit easier for you.

First, you’re going to need a bank account.  For this to really work, you’re actually going to need TWO bank accounts.  One checking account and one high yield savings account.  My choice is ING Direct (now Capital One 360). While they don’t have the highest interest rate around anymore (that distinction falls to Everbank, with an interest rate of 1.01%, followed closely by CIT).  In general, I go with the bank provides the best service and for me right now, that’s ING Direct.  If you can find a good, online, interest bearing checking account to accompany your savings account, do it!  The more interest, the better.  Something that goes along with this step would be contributing to your Roth IRA or any other investment accounts.

Second, set up direct deposit with your employer.  If you’re still getting your paycheck as an actual check every other week, well, I don’t even know what to think.  Just stop.  Seriously.  What are you doing?  Direct deposit!  It’s easy and you don’t have to worry about it.  When you set it up, you’ll set it up to automatically send 10% of each paycheck into your savings account, with the rest of the balance going into your checking.  This way, you never have the temptation to spend and not save.  This will remove the temptation and force you to stick to your plan!

Third, you need to do a little bit of research. Chances are every bill you pay, every loan and every little item, can be paid online.  More so, a lot of institutions, particularly student loan servicers, offer a discount if you set up the account to auto debit from your checking account each month.  In order to maximize the automation, as well as savings, make sure you call your Power and water companies, your credit card companies (although by now you’ve paid off your debt, right?) and your student or car loan companies, seeing if you can get a rate reduction for the auto debit.  You’ll set this up to pull out of your checking account each month on the specified payment dates.  If you’re worried about having the money because it won’t line up with your paycheck, talk to the company and explain that to them.  Most credit cards and loan servicers have no problem changing things around to work better with your schedule.  After all, they want to get paid.  I know that dealing with customer service is pretty much anyone’s idea of a bad time but overall, it’s worth it.  Even if it’s just peace of mind you’re acquiring, it’s better than the budget busting alternative!

Last but not least, check up every once in a while to make sure that your accounts are rolling just right.  You never want to overdraft your checking, so you should always keep an eye on that.  At the same time, just because your Power and Water bills are paid automatically every month doesn’t mean you should ignore how much energy you use.  You still have a responsibility to your frugalness to keep a close eye on your usage and keep your bills down!

Hopefully this post helps you simply and automate your life.  It’s just one more step in a simplification that can lead to a substantial release of stress in your life.  Until next time!

Please note that most of the links in this article are affiliate links.  Don’t feel obligated to purchase anything through the links but if you do, thank you!