Let's talk personal finance

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flynrider · Fri Mar 07, 2008 3:32 pm

Interesting topic, and one that really doesn't get enough attention.

Credit card debt is nuts. If you have any, do whatever you can to get rid of it. If you don't have any, avoid it like the plague. Of all the ways there are of borrowing money, a credit card is near the bottom of the list, just above the "payday loan" sharks. Just about all credit card agreements give the banks enormous power to change the terms whenever they like. The end result is that a small financial problem can turn into a huge one if you have CC debt hanging over your head.

That said, I have a couple of CCs that I use regularly. I don't charge anything on a card that I can't pay off at the end of the billing cycle. The regular on time payments keep my credit score looking healthy. This requires a bit of financial discipline, so if you can't do that, you should probably get rid of the cards.

The less debt you have to service every month, the more money you can put into your own pocket. If you can avoid acquiring debt in the first place, you're well along the way to financial security. This means doing things like buying a used car (or bike) that you can pay cash for, rather than a brand new one. Do that for a few years and you'll save enough on car/bike payments to pay cash for a new one (if you must have one). It can be done, and in the long run, you get to bank all of that interest you would have been giving away.

Lastly, live below your means. Financial stability is not something that you can't get because of your income level. It has more to do with one's attitude towards money, rather than how much they make. I work with people making in excess of $100K/yr. who would be at serious risk financially if something happened (i.e. long term illness, job loss). They are just getting by every month servicing debt on darn near everything they own. They can't look forward to retirement anytime soon. If you don't make a commitment to live below your means early on, it won't get any better when you're making more money in the future.

#12 Unread post by **Skier** » Fri Mar 07, 2008 8:52 pm

flynrider wrote: Lastly, live below your means. Financial stability is not something that you can't get because of your income level. It has more to do with one's attitude towards money, rather than how much they make. I work with people making in excess of $100K/yr. who would be at serious risk financially if something happened (i.e. long term illness, job loss). They are just getting by every month servicing debt on darn near everything they own. They can't look forward to retirement anytime soon. If you don't make a commitment to live below your means early on, it won't get any better when you're making more money in the future.

I realize you mean this is the last part of your post but it should be near the top of things to do financially. More income coming in than expenses going out is how you stay afloat. It's a vitally important aspect of personal finance that isn't repeated often enough.

#13 Unread post by **Skier** » Wed Mar 12, 2008 7:16 am

What have you done in the past few days to improve your personal finances? Start that high-interest savings account yet? Increased your monthly contributions to an existing one?

I received my federal tax refund yesterday. I've got part of it earmarked to max out my IRA contributions for the '07 tax year and the rest is going into savings.

flynrider · Wed Mar 12, 2008 11:54 am

Good point. I received a pretty substantial bonus from my company on Monday (we had a very good 2007). It went directly into my savings/investment account. I never even saw it.

One of the tricks I've been using for years to live below my means is to treat pay raises (and other things like bonuses and tax refunds) as though they didn't exist. Most people will see substantial increases in their income as they progress through their chosen profession. Doing something simple like not altering you lifestyle everytime this happens (like new cars/TVs/bikes/bigger house), will go along way towards financial independence.

Pittance · #15 Unread post by **Pittance** » Thu Mar 13, 2008 6:19 am

A nifty web-based program that has helped me out a lot is called PearBudget.com. Its an application that helps you plan out all of your expenses and income for the month, enter your expense receipts, and review your spending while showing how close to your expense limit for each category you are. Its free (for now), easy to start with and to use.

The only problem I have is that I like the "review" section to match what actual assets in my checking out are, instead of what my online banking screen tells me. That way its easier to keep track of CC payments that havent gone through yet, and checks not yet cashed. Overdrawing sucks.

Another thing I found recently is that Paypal has the ability to change your account into a money market account at (currently) about 3.5%. Ive put away $1000 in the last month saving up for the gear and bike I want to get within another month or two.

Can anyone reccomend any alternative that keeps my money liquid (couple days at most) that yields higher than what paypal has? Or any better place to put it? Thanks.

#16 Unread post by **Skier** » Thu Mar 13, 2008 7:44 am

3.5% is competitive with today's rates. If it works for you, keep it in there.

If you weren't needing the funds in a pretty liquid account, you could use CD (certificate of deposit) ladders.

Say you have $5000 to invest. To build a CD ladder, you would invest the money in CDs with staggered maturation dates:

* $1000 in a one-year CD
* $1000 in a two-year CD
* $1000 in a three-year CD
* $1000 in a four-year CD
* $1000 in a five-year CD

As each CD matures, you immediately invest your money in a five-year CD, effectively maintaining the one-year stagger, or ladder. You won’t earn the best possible rate of return, but you will earn a good one, and your income will be relatively constant. The CD ladder is also a form of diversification: you’re not betting all your money on one interest rate.

koji52 · #17 Unread post by **koji52** » Fri Mar 14, 2008 4:00 am

The HSBC online savings account has an annual yield of 3.55% right now. Google HSBC direct banking. Should have results at the top.

And actually, with the yield curve possibly turning negative. From a relatively short term investment standpoint, a ladder portfolio of securitized bonds with various maturity dates might not be a terrible idea. Certainly, the CD ladder right now also is not a bad idea but you won't be able to touch the money until maturity without hitting some penalties.