Finance U

I just came across an awesome money management tool on the web and it’s news to me, but some of y’all may have heard of it before. It’s called Yodlee and it’s basically a consolidation tool for all of your financial accounts. It lets you view your checking accounts, savings accounts, credit cards, investment accounts, email, news, and more all on one screen. The link above is the demo that shows you how it works, here’s the signup/login page.

It’s extremely secure and safe and this is an excellent tool. Now, instead of logging into 5+ different banking sites to see where I’m at, I can just use Yodlee. I would recommend everyone check it out.

In addition, Fed chairman Bed Bernanke delivered his semiannual testimony to Congress today. These speeches can have implications on the interest rate and gives insight into how the Fed is approaching changes in inflation and economic growth. Bernanke basically said that interest rates will stay unchanged - for now. Gas prices continue to rise and the housing market is struggling.

The market has been excellent lately. Last week, the Dow had its biggest percentage gain in 3 or 4 years and the S&P had a huge 1-day point gain as well.

If you’ve got extra cash that’s just sitting in an account somewhere, stick it in a high interest-bearing online savings account (such as FNBO Direct) or start investing. I’d recommend some S&P index funds or Total Stock Market index funds to get you started on the road to financial freedom. Vanguard’s a good place to start.

Enjoy this Wednesday!

If you’re like most people, you have at least 2 or 3 credit cards you regularly spend on. Most people our age tend to carry a balance as well, as our income is not high enough yet (or our spending is too lavish) to make paying in full each month a reality. This is an easy and simple way to pay off your credit cards that will save you the most $, but I don’t see enough people using it yet.

Simply put, pay off your highest interest rate credit card first, even if that one does not carry your highest balance. By doing this, you will reduce the amount you pay in interest and have a lot more money left over to apply to other credit card payments, or even better, invest or save.

To make things even easier, try not to carry balances over on your highest interest rate credit card if possible. For large purchases which you know you will take several months to pay down, try to charge them on your lowest interest rate card.

In addition, you can sometimes do a balance transfer, where you move the money owed on a higher interest credit card to your lowest-interest rate card. Be careful juggling this though, you can get in over your head quick and owe a lot of money.

Well, the stock market has been interesting lately. If you’re young and investing for the future however, as we have talked about before, these swings over the short run are largely irrelevant. You want to look at the big picture and see how your money is doing 5, 10, 15 years down the road.

I hope most of you have been putting your money into liquid online savings accounts as I have suggested before. Rates keep rising and are to the point where you can invest in a totally safe and insured liquid savings account that earns a better interest rate than a Certificate of Deposit.

For instance, FNBO Direct has a savings account that is currently earning 6% APY until September 28, at which point it will drop back down to 5.25% or above, rates that are equivalent to and often better than the current CD rates available. In addition, this money is total liquid, making it a great place to stick your savings or rainy day fund.

I hope everyone is staying on top of their finances and paying down their credit card debt. The sooner you get that paid off, the more interest you can earn, and the richer you will be in the future.

So, get yourself over to FNBO Direct, or ING Direct, or any of the other number of online savings accounts and start making $$. Email me or post a comment if I can help in any way. These savings accounts will earn you much, much more than anything you will get at a big, traditional bank, and they are perfectly safe and insured and link to your current checking accounts. Good luck!

The Motley Fool has posted a good article on what to do when you lose your wallet. It’s just a general list of guidelines that everyone needs to know and while it’s very basic, I think it’s something everyone (including myself) should know to do by routine, if and when the time comes. Here is the link to the article:

What to Do When you Lose your Wallet

Hope everyone is doing great.

I was accepted to an MBA program for the fall. Time to go back and get more business education! I’m sorry things have been so slow on the blog (if anyone out there is reading..I lose hope sometimes ) It will pick up more now, I was extremely busy preparing for school and other things. I will update more often, for my own sake if nothing else.

Hope everyone is doing well and congrats to anyone graduating this month.

If you’re looking to redistribute your portfolio or just want some solid long-term funds to invest in, here are a few that have caught my eye recently:

Vanguard Total Stock Market ETF (symbol: VTI) - very solid fund, gives you great diversification.

Vanguard Primecap Core (mutual fund) (symbol: VPCCX) - the original Vanguard primecap fund, (VPMCX) has been closed to investors for years. Probably because it averaged 13.8% over the last 20 years. This core fund is a new fund that is supposed to be very similar to the original.

iShares MSCI EAFE Index ETF (symbol: EFA) - tracks international markets, also a great fund to have for diversity.

Go out and research some of these!

While browsing today, I came across a really, really good article relating to personal finance that I thought I’d share. It’s a very basic and broad overview, with the 4 goals listed as the title of this post. It’s by David Berky and the link follows:

http://www.simplejoe.com/article-david-berky-personal-finance-101.htm

Make some sound financial decisions this week guys, and I hope your taxes are done.

I think now’s a good time to talk more about budgeting and its importance for all of us. For whatever reason, whether it be the complexity of personal finances, or the fast-paced nature, or any number of reasons, most people are not very organized when it comes to knowing how much they spend and what they spend it on.

There are a number of reasons that budgeting is a great idea, and the #1 reason is fairly obvious: it saves you a ton of money. When you are acutely aware of exactly how much money you are spending, you start to realize it’s probably too much and back down. You can also efficiently buy what you want in the exact quantities you will need based on how much you have been using in the past and how much you predict to use in the future.
Yes, this is a lot of work, and it is impractical for most people to have an itemized, line-by-line budget of their spending, but a little organization helps. Find the midpoint that works for you. Once you begin budgeting and stick with it for a few months, you will see the results and will continue to have some form of a budget, whether mental or written down, and it will help you in many facets of life.

Another big plus of budgeting is that, while automated payments and bank drafts and the like are very, very convenient, they are set up by people, and people make mistakes. Often times you are overcharged, or not charged at all, and this impacts your finances very negatively if you aren’t paying close attention. Budgeting and keeping a close eye will let you know when something is not in its projected range, and gives you a chance to investigate further and determine the cause. People make mistakes again, so make sure you watch those automated payments very carefully.

Again, start out small. Make a list of all your expenses, daily. Start tomorrow. Write down everything you pay for, from a $25 dinner to $0.25 candy bar from the vending machine. Use this piece of paper for the entire week, tracking your expenses daily and review it at the end of the week, seeing how much you spent on various things. Then, either mentally or with a physical note, determine what you want to be/should be spending on certain categories, and stick to this budget plan as much as reasonably possible. Also, write in your income too.

Make sure you distinguish between needs and wants in your budget. This is a very important distinction and lets you know if you are spending too much money on some things you can live without. Living within your means is the key to financial success, and the earlier we all learn this, the better. It’s OK to go over budget sometimes too, but at least this way you know you’re going over and you can work to correct it.

Google around for personal budget templates to get an idea of categories to include. Once you get more comfortable with the whole process, you will add and modify your own categories, and these that are personalized by you, for you will be the most accurate tools for you.

If you begin budgeting today, you will save money. If you save money, you will be able to put more money away in savings. If you put more money away in savings earlier, you will be rich when you retire. This is a fact and one you should take comfort in. I sure do!

I was in Europe for over a week, and I’m taking the GMAT this Saturday, so I haven’t been updating much, and I’m sorry for that. I’ve got a lot of things I want to discuss regarding personal finance and retirement planning for the worker/college student in their 20s and will be updating with some very content-rich posts very soon. Thanks for your continued support, and I hope you find this blog useful.

Matt

Wow, hello everybody. I have been extremely busy at work, on vacation, and preparing to take the GMAT. But, on to more interesting matters:

Emergency funds! I’ve alluded to these important stashes of cash (figuratively speaking) in several posts, and now I feel it is time to expound on them a little more.

An emergency fund, or rainy-day fund, or whatever your personal favorite phrase for this may be, is a fund that should only be used for emergencies. This is often overlooked and extremely important.

This fund should only be used for emergencies.

Only you can know how much money should be in your ER fund, but I can give you an idea by telling you about mine. It’s enough to pay 2-5 months worth of rent, utilities, and unavoidable expenses (food, water, etc.) Most people think they don’t need a fund, but the truth is, everyone does. Again, I hate to give figures, but I’d say from $2000-$4000 would be sufficient for a college student or recent graduate, to start. Once you gain more financial assets and freedom, you can stash away more.

Examples of emergencies include a layoff from your job, serious injury, home damage from natural disasters, car accidents, etc etc. No matter how careful you are, you can’t plan to avoid some of these things. It’s best to have some money stashed away just in case, and you will be extremely happy that you did.

The average American will charge their way out of an emergency and bury themselves in credit card debt. This is not fiscally smart planning. We’ve already discussed the ludicrous interest rates credit card companies charge, so it would be very prudent to avoid this unpleasant fate of charging your way through an emergency.

Now, regarding where to keep your money, the best option available right now (in my opinion) is an online high-yield savings account, such as ING Direct, Citibank’s e-Savings account, HSBC Direct, or any of the other numerous ones. These earn good interest as we discussed before, and are a convenient option when it comes to transferring money back and forth between accounts.

Everyone needs an emergency fund. Don’t learn the lesson the hard way by not having one the first time an emergency rears its ugly head.

Also, ING Direct is now offering an Electric Orange checking accountwith a 4.0% APY that is an interesting and lucrative option to a normal checking account. Check it out if you are so inclined.

Back to regular updates! See you soon, Finance U.

OK, I wanted to make a short post about this before I forget, because, quite simply, your credit report/score is one of the most misunderstood aspects of personal finance out there.

Myth #1: Having too much credit / keeping old credit cards open hurts your credit/credit score.

FALSE. A big component of your credit score is the average age of your combined accounts. The longer you’ve had an account open in good standing, the more favorably creditors look upon you. Put that card in a drawer, cut it up, or keep it in your wallet and don’t spend with it, but DON’T close one of your oldest accounts for no reason. Average credit age is very important.

Myth #2: Pulling your credit report hurts your credit.

FALSE. As discussed earlier in this blog, there are two types of credit inquiries; a soft pull and a hard pull. When you pull your own credit report for accuracy purposes, it is a soft inquiry and never shows up on your report.

Again, if you haven’t yet, go to http://www.annualcreditreport.com and get the free credit report you are entitled to. Your FICO score is not included for free, however, you don’t need this until you are ready to shop around for a mortgage/loan. There are several benefits for reviewing your free credit report though, most importantly to check for accuracy and any potential fraud.

Myth #3: You have to have a great credit history to get approved for credit cards.

False, false, false. There are many cards you can get, and if you have to start small, you either get a student card or a department store card and build up from there.

That’s all for now, and remember, don’t close your old accounts, it doesn’t help your credit score at all!!

Does anyone have any suggestions for the site that would make you come back regularly? If so, please email me at matt@financeu.info.

Wow, it’s been a crazy week. Sorry I haven’t updated, like I said, it’s been very hectic. Did anyone else see that the Dow dropped 415 points this week? See this as a financial opportunity. If you have been waiting to open an IRA or contribute to the one you have, now is the time. You can get a lot more for your money now because the market will start going back up again fairly soon, so buy now while it’s cheap (relatively). If you’re serious about financial management and personal financial planning. there’s no better time than now to get started. Remember compound interest. If you start now as opposed to someone who starts 10 years from now, at comparable savings rates, you would have between 5-10 times the money they would @ retirement.

Another key concept I want to mention today is living below your means, something that’s essential if you want to have money when you retire. Live modestly now, keep expenses below 75% of your earnings, and you will be rewarded later in life. This is a critical component of successful financial management and it also helps you to appreciate the things you have (bonus for the psyche). You don’t have to drive a Lexus or a BMW right after graduation; save and invest that money instead and reward yourself later in life.

Seriously, I’m sure I sound like a broken record, but I’d wager less than 20% of Americans have an IRA, which is alarming because it’s one of the most important and effective tools in securing a comfortable (even luxurious) retirement. Start now.

For people interested in further reading, pick up an issue of Kiplinger’s at B&N and read for a while. It is an excellent magazine discussing personal finance and financial planning, much like Finance U (only a bit more established..for now.)

I hope everyone had a good weekend. I was extremely busy and did not get to post.

A key aspect of financial mangement and financial planning is knowing your FICO, or credit score, before you apply for a loan/mortgage/etc. It is important to know ahead of time so you know what interest rate you deserve and if you should go to another financial institution. While your credit report is free, obtaining your FICO score will cost you a small fee. However, knowing this is an invaluable resource for planning your financial future. Anything above 700 is excellent, although this is extremely hard to realize as a college student. Anywhere between 600-700 is an excellent base to begin building on, so that you when you are ready to buy a house you will save yourself thousands of dollars in interest simply by being a responsible and knowledgeable consumer.

Budgeting is a fantastic tool and resource that most college students don’t utilize. It seems old-fashioned and trivial, but the ease and speed of online payments, automatic bank drafts, credit cards, and other easy payment options make it much harder to keep track of all the money leaving your account. Before you know it, you’ve spent most of your paycheck and are reduced to paying for utilities + rent on credit. You don’t even have to make it complex to start; make a simple budget. Money in and money out. Keep track of every dollar you spend and you’ll be surprised where most of it goes. You’ll also be surprised how much you save when you are actively thinking about where you are spending your money. For college students, food and alcohol generally make up the majority of discretionary spending and cutting back on these is an easy way to save some money.

I’m traveling some this weekend, but I’ll try to update as often as I can. Enjoy your Friday night!

As always, email me at matt@financeu.info with any questions. I am happy to help and advise on anything.

If you’re looking to retire comfortably and have the money to do what you want well into old age, a 401(k) will be a necessity. Factoring in the already mentioned benefits of compound interest, starting your 401(k) at your first job out of college is one of Finance U’s Keys to Success.

For those that aren’t aware, a 401(k) is a retirement plan offered by your employer. You decide how much of each paycheck you want to contribute, and your employer will even match a certain percentage of your contribution. There’s no hard and fast rule for how much you should contribute (it’s measured in % of your paycheck), but do as much as you can afford, within reason. Anywhere from 5-10% is a good place to start, but again, I am reluctant to give a number to go by, because your contribution really depends on your employer’s plan and how much you can afford to spend.

Anyways, the reason a 401(k) is so valuable is because a) the money is invested in a variety of funds (you can choose how you contribute) and b) you are contributing pre-tax dollars. This is beneficial because you never see the money (so you don’t miss it, since it comes straight of your paycheck) and it reduces the amount of income that the government taxes you on. The money will be only taxed when you withdraw it. There are also Roth 401(k) plans that are not taxed when they are withdrawn, and this is the route you want to take if you think you will be in a higher tax bracket when you retire, but more on that later.

To sum up:

A 401(k), an employer-sponsored retirement program, is an essential for anyone looking to retire comfortably and have the power to buy the things they want later in life. These are extremely easy to maintain once you understand them, and probably the best thing you can do to plan for your financial future. The more you contribute now, the more you will benefit in the future, due to compound interest.

Enjoy the weekend and stop by, I’ll be adding more content daily.

Something you should be doing, if you aren’t already, is checking your credit report regularly. This report lists all of your credit cards/lines of credit, if you’ve ever missed a payment or payed late, and a wealth of other valuable information.

Under the FACT Act, all consumers are entitled to one free credit report per year from each of the 3 main credit agencies (Experian, Transunion, and Equifax). You can obtain this free in about 5 minutes at http://www.annualcreditreport.com. Don’t be fooled by freecreditreport.com or their commercials; the inital report is free; however, it requires you to sign up for a service that you must cancel within 30 days to avoid being charged. If you do want credit-report monitoring services, you should sign up directly through Equifax, Experian, or Transunion.

There are a number of reasons to check your credit 2-3 times a year. The biggest one at the moment is identify theft. If someone opens an account in your name with a fake address and begins charging and not paying, it will be a headache for you to fix and will consume a lot of time and energy better spent elsewhere. Checking your credit will alert you to all credit accounts opened in your name. It is also intelligent to know what’s contained on your credit report, because these companies do make mistakes. You could have something hurting your credit score on your report that can be disputed and taken off. The average credit score is around 650 in the U.S. A rating of 750+ will get you the best rate from lenders and classifies you as ‘lowest risk.’ Obviously, it is very difficult to get these rates in college, but laying the foundation is essential. Again, the best way to improve your credit score is to have a reasonable amount of credit available to you; keep your overall credit ratio low; (for example, if you have 10,000 in credit available across all cards, keep a large portion of it available for spending), and don’t have any payments 30 days or more late!! If you miss a credit card payment by 30 days or more, this fact will stay on your credit report for years and seriously hurt your credit score.

That’s it for now, I’ll post again later tonight. Thanks everyone who has visited so far!

I’ve known a lot of college students (just recently being one myself) and one of the most surprising things I see is college students carrying a high balance on a credit card, over the period of several months to even over a year, all while paying a high interest rate. Carrying a balance is, for the majority of the population, inevitable, however, don’t limit yourself to paying the high interest rate if at all possible!

Two solutions:

1 - call your company and ask them to lower your rate. This works a lot more often than you would think. Credit card companies need and want to hold on to your business and lowering your rate a few points will help you immensely and not bother them that much.

2 - this option is better if you can do it. There are a ton of credit cards out there with 0% Balance Transfer (BT) offers (generally ranging from 6 months to a year) that allow you to transfer your balance to the new credit card and pay 0% interest for up to a year, which greatly reduces the amount of money you will owe. All you have to do is get approved for the new credit card with the 0% BT offer; apply for the balance transfer, and continue making your minimum payment on your old card until the balance is transferred over. This can save you hundreds of dollars in interest.

That’s it for now, check back later for more content. I also plan to add some Finance U forums as soon as I get the chance.

The majority of savings accounts offered at physical banks yield very little interest, often under 3%. As tech-savvy college students, we at Finance U recommend you use one of the many savings accounts available exclusively online. These offer much better interest rates than traditional savings accounts (anywhere from 4.5%-6% currently) and money is easily transferred between your checking account and the savings account online.

If you don’t have a savings account, now is the time to open one. Compound interest, where you earn interest on interest already obtained, is a valuable concept and one that must be understood and used correctly.

For a very simple and hypothetical example, if you put $100 into an online savings account earning 5% interest, and continue to put $50 each month, in 5 years you would have $4,323.11. In 10 years, you would have $7,928.81. $50/month may seem like a lot now, but any amount you can spare will be invaluable to you in the future.

In the example above, you put down $100 initially and then $50/month for 10 years. That’s $6100 of your money invested over the 10 years, for a future value of $7,928.81. That’s almost $1900 in new money earned! (Assuming interest rates stay where they are for these savings accounts.)

To summarize, a savings account is essential for several reasons. You can never predict the future and you might need a large sum of cash at some point for an emergency. You may eventually want to start your own business and need the capital to take out a loan to do so. You may even just live more comfortably knowing you have money waiting for you, earning interest, that you can use if need be. These are just a few of the reasons for maintaining a savings account.

Currently, several institutions offer high-quality online savings accounts with excellent customer service and banking software. The two I recommend are ING Direct (http://www.ingdirect.com) and the HSBC Direct Online Savings Account (http://www.hsbcdirect.com). They both offer no fees and no minimum balance required. They are both FDIC Insured up to $100,000. Currently, the ING account has an interest rate of 4.5% and the HSBC account offers 6%. These rates are subject to change.

So, open an account and start saving today. You won’t regret it.

Credit, specifically credit cards, is a topic that is widely misrepresented, especially to college students, and therefore used incorrectly.

Building credit is one of the most important things you can do for yourself, and college is definitely the right time to start, if you have not already. Building your credit history will be primarily done with credit cards, and this is one of the most important aspects of finance.

There are many reasons you will need good credit, namely approval for loans, good mortgage rates, and the ability to pay for necessities in emergency situations. Credit is an asset if used correctly, and not a liability (which it unfortunately becomes for most people, when they get in too deep.) Start thinking of credit as an asset that must be used responsibly.

To start, you will need to begin establishing your credit. One option is to apply for a student credit card. You can do this almost anywhere; however, I recommend doing some research online and applying for one through one of the major corporations such as American Express, Chase, Capital One, and others. Do some research and find out which card is best for you. Keep in mind that each credit card you apply for will affect your credit score, so don’t apply for too many at one time.

NOTE: If you have absolutely zero credit, sometimes you will have to settle for a department store card to begin building up your credit. Think of it as a positive step and something you have to do to let creditors know you are reliable.

Congratulations! You were approved. To maintain and build good credit, make all of your payments on time. Late payments are what hurt your credit score the most. As you make payments on time, your credit score will rise and you will be able to apply for more cards with better interest rates, reward programs, and higher limits.

These are simply the basics. There is a large amount of information available on credit cards; some good, some bad, some simply wrong. I’ll be posting often on this subject, and I will filter out the good and relevant information and bring it to you here at Finance U.

The most important thing to remember is that planning for your financial future in college will enable you to live comfortably your entire life. Everyone begins planning for their future at some point; get a head start and you will not have to work as hard later in life.

Howdy college students! To start, I would like to restate the primary goal of Finance U:

To provide college-age students with objective financial management advice in a clear and concise manner.

I began this website because I feel that many people in this age range both need and want easily accessible information on financial management. If you narrow the scope as far as savings accounts, it is estimated that anywhere between 4-6 trillion dollars is parked in savings accounts yielding less than 3% interest annually. (Peter Crane, Kiplinger’s, March 2007) This website cannot fix that widespread problem, but even changing one person’s outlook about their personal finances makes a difference.

Thanks for visiting.