How to Properly Pay Down Your Credit Cards

(This is a guest article by Elise Degrass*)

Even in an economic downturn, the widespread available of credit to consumers is staggering: nearly anyone can apply for, and receive, a credit card today. With the growing ease of use (you no longer have to even sign for many transactions) and the vast number of businesses which accept credit transactions, fiscal responsibility with credit cards can be as difficult as ever. Keeping disciplined in your spending, as well as your payments, will help you to stay out of debt in the long run.

As a first step, consider working through a complete review of all of your existing credit card debt. If you have multiple cards, a spreadsheet may be an effective way to keep track of all of the data, from minimum payment amounts to due dates and interest rates. Also, it's important to note any variability in interest payments,
especially if an introductory rate becomes much higher after a certain point. Once you have collected data on your debt burden, you can begin taking steps to pay down your credit cards.

Prioritize your payments on cards which have the highest interest rates, and make a plan to shift your spending to cards with lower rates. Figure out your monthly expenses and determine which you can pay off with cash to reduce further interest rate payments. Additionally, you may want to consider looking at your overall expenses to prioritize repayment of debts over unnecessary purchases, especially for vacations and other upscale expenses.

As part of a larger budgeting process, ensure that you can meet all of the minimum payments while planning to consolidate your debt into just a few cards in the long-run; having fewer cards will simplify the budgeting process, as well as making it easier to keep track of your purchases. Working with a debt counselor to devise a long run plan, as well as working with credit card companies to negotiate lower rates, will help you on the path to a debt-free future.

*About the author: This article was contributed by Elise Degrass. Elise is a new writer who currently is blogging about cell phones.

*Image Credit: Photograph by Andres Rueda [via Flickr Creative Commons]

Money Management Tips For Women

(This is a guest article by Trisha Wagner*)
As all women know, one size does not fit all. The same is true regarding financial advice. Every situation is unique and requires personal advice and not surprisingly the advice for women differs slightly from advice for men. Although women have made huge strides in the last century, regrettably we are sometimes considered fickle emotional creatures unable to handle the complex issues such as finance. In reality woman are more than capable of handling these issues both at home and in a corporate setting, nevertheless the fact remains a large percentage of women do not have control of over their own financial situations. The following tips can help get you back on track and in control of your finances as well as your future.

• Educate yourself. The more you know about finances and the investment process, the more likely you will feel confident dealing with personal finance issues. After generations of men having control of household budgets, saving, retirement and investments, women have assumed the role in many households. Unfortunately we don't have a long line of role models to look to for example and many women feel ill prepared and even resentful of being in charge of finances and count on a spouse or partner to make the right decisions. Take advantage of the information available on line, in books, community or college classes and even from other women to educate yourself on financial matters. The more knowledgeable you are- the more confident you will feel in your decisions.


• Pay yourself. As the New Year looms closer, consider a new approach to beef up your savings account. Consider paying yourself at the start of each day. Start with just one dollar a day and increase that amount by one dollar at the beginning of each month. Women are quite accomplished at finding ways to take care of everyone else's needs first. It might be the needs of their spouse, children, employer, friends and family; we find a way to make sure everyone is taken care of. Apply the same thought and determination towards providing for you financially.


• Pad your retirement account. Saving for retirement should begin the day you begin working, but in the real world people tend to start later. It is especially important for women who are more likely than men to enter and leave the work force while raising their families to begin saving for retirement early. You will also want to take advantage of the increased amount of money you are permitted to contribute to your 401k after the age of 50. By contributing the maximum amount allowable, you will ensure you have a comfortable nest egg to live off of in your golden years.


• Use credit wisely. Credit is a good thing. Irresponsible use of credit is a bad thing. Resist the urge to help others out by co-signing or loaning money to family and friends. Do not use money or possessions as a means to feel self worth. You will find happiness comes from living well, not spending more.

*About the author:Trisha Wagner is a freelance writer for DestroyDebt.com, a debt community featuring debt forums. Trisha writes regularly on the topics of getting out of debt and personal finance.

*Image Credit: Photograph by red5standingby [via Flickr Creative Commons] of Faile Lost In Glimmering Shadows show at Lilian Baylis school in Kennington.

Make Your Paperwork Work for You

(This is a guest article by Melanie Taylor*)

Who says paperwork isn’t fun? What could be more fun than producing conclusive evidence that proves that YOU are 100% right? It’s all the more satisfying when being right means you’re saving money.

Blazing a paper trail...

Our lives are full of paperwork. Master it and you’ll find your finances run more smoothly. Let’s look at three of the most important paperwork categories…

Category One – Receipts

How many times have you had a ‘guaranteed’ product break within months of buying it?

One thing’s always guaranteed: the shop will be festooned with ‘No receipt, no returns’ signs, carefully placed within convenient finger-tapping range of the employee(s) you’re haggling with.

Argue, plead, point out that no other shop within 1,000 miles even sells that product – it all makes no difference in the face of that simple four-word logic. More frustrating yet, even manufacturers’ warranties can require proof of purchase!

If only you’d kept the receipt, you could be turning that broken product into cash, not trash.

Action: Never throw away receipts. Keep them in a dedicated drawer / folder, under whatever kind of filing system helps you locate them at need.

Category Two – Bank (and Credit Card) Statements

In this golden age of technology, it’s tempting to assume that all orders will be obeyed, all payments paid, all transactions transacted – on time and to n decimal places.

Yet banks, like all companies, are run by humans, inevitably the source of all human errors. Whatever instructions you’ve issued – whether by phone, online, or in person – there’ll always be a human involved somewhere down the line. It could be the person who takes your phone call, the ‘techie’ overseeing the online database, or the cashier who ferries your requests to the bank’s system.

This isn’t a criticism of banks. It’s an acknowledgement that human error is as ubiquitous as humans. However impressive the security checks, no organization anywhere on the planet can guarantee 100% safety.

Then there are the technical errors, computer errors, software errors... Whatever label they come with, they can all result in problems with your payments: problems which can affect your credit rating, saddle you with fines for late payment, and potentially land you in debt that you are responsible for clearing.

Which is why you should take the time to check your bank (and credit card) statements. Not just to look for hints that you’re the victim of fraud, but to make sure your planned transactions have been carried out on time and in full.

Action: Check your statements, then file them in date order, so you can refer back to specific instances whenever necessary.

Category Three – Letters

Disagreements can be terrible things, however trivial the subject matter. When it comes to finance, verbal agreements are often described as being ‘worth the paper they’re written on’.

So when you agree something with a creditor / debtor / customer / supplier, get them to put it in writing. When it arrives, keep it. Scan it, file it – do whatever makes it easy for you to find it quickly.

Nothing settles an argument quicker than: “In your letter, dated May 5th, you state – and I quote…”

Similarly, keep copies of everything you send them. If you think it’s necessary, send it registered, and keep the receipt stapled to the copy.

Action: Keep – and file – copies of everything.

A Final Thought

Like it or not, we live in bureaucratic times. Paperwork is everywhere, so learning to deal with it effectively is an important part of modern life.

The better you do that, the more you’ll save on three of the most valuable commodities in your life – time, money, and patience.

*About the author: This article was contributed by Melanie Taylor of Think Money, who provide debt help & advice.

*Image Credit: Photograph by lejoe [via Flickr Creative Commons]

Vanishing Act of the Thin Line between "Want" and "Need"...

Our little baby girl is here! She is such an angel! We are getting settled in and things are beginning to fall in place. Knock on wood. I have a lot of help and support from my family and the "better half" has shown that he truly deserves that name :) But still, somehow, there seems to be no time for anything else, other than learning to be parents! Posting on this blog is going to continue to be pretty sparse, unless I have some guest posts to publish.

A quick note on the personal finance front - it seems to me like the thin line between "want" and "need" has started pulling a vanishing act on us. For instance, we have a very good crib (for upstairs) and a pack 'n play which acts as a bassinet (for downstairs). But within the first two days of bringing our baby home, we ran out to get a co-sleeper so we can put her on the bed with us. She would neither sleep in the crib nor the bassinet and I don't know what made us think the co-sleeper would work... To cut a long story short, now in addition to the crib and bassinet, we have a co-sleeper that she won't sleep in.

There are so many other things we have done this with! Her grand parents have got her a tonne of newborn clothes and we had gone and bought a few too. Within a few days of bringing her home though, we realized that the most convenient clothes were ones that did not have to be slipped over her head and did not have zippers or lace etc. So we ran out and got more sets of the one type of outfit that we like, while the rest of the clothes are just sitting in the closet, waiting for her to outgrow them.

We have gone from a household of two part-time residents (we did spend a lot of time at the office!!!) to a household of five full-time residents (at least until the better half returned to work), and the cost of everything from utilities to groceries has more than tripled! I was expecting the costs to increase (though not as much!) and have a buffer for it. What is completely unexpected though is this sudden inability to distinguish between what we really need and the sleep-deprivation induced urge to buy stuff with the hopes that they will magically make things smoother! Oh well, it ain't everyday that you have a precious little baby, so roll with it the way it goes for the next few months (years?) I guess...

Eight Questions about 529 Accounts for Jonah Keegan, the Founder of Freshman Fund

These days, whenever I get some time, I have been thinking and reading about 529 plans and trying to determine if we should have one for our baby. Coincidentally, I was recently contacted by Jonah Keegan about an interview to introduce his site Freshman Fund to the readers of this blog. Since its a good chance for me to get some of my questions answered, I quickly took up the offer! I hope some of these questions and answers will be helpful to you readers as well. If you have more questions, I have added the contact information for Jonah at the bottom of the interview - please feel free to contact him directly.

Jonah Keegan is the founder of Freshman Fund. Freshman Fund helps parents save for college by giving them a free online gift registry for their college fund. When you register your 529 college savings plan at Freshman Fund, gifts from friends and family go directly into the plan.

OK. Here we go...

ISPF: With so many different 529 accounts available, how can one determine which plan is the best for them?

Jonah: Like Smokey and the Miracles say, "You Gotta Shop Around." The best 529 is going to be different for each family depending on their child's age, their investment pattern and other factors. Similar to big-ticket purchases like a computer or television, you will find that there are a large number of plans that fit your basic needs, and from there it's a matter of doing some research or working with your financial advisor to determine the best choice for your family.

The good news is that if you do want to enroll in a 529 directly, there are some great online tools for comparison-shopping.

The number-one industry expert is Joe Hurley, and his site SavingForCollege.com has great features that let you look at the plans available in your state, run comparisons on different plans or plan features, and see what he thinks are the current top-rated plans.

ISPF: How can parents pass word to relatives and friends that they would prefer to receive the gifts in the form of contribution to the 529 accounts?

Freshman Fund makes this easy in two ways.

First, we have a contacts manager that lets you import your webmail or social network address book. This makes it easy to build and manage messages on our site, as well as discover if anyone in your address book is already using Freshman Fund.

Second, we've included a notification message that you can send right from your Freshman Fund account. Login, and you will see a "Notifed" link next to your student. Clicking the link takes you to our notifications page (Tip: Import your contacts first and adding message recipients is as easy as clicking on their names, right from your message page). We provide a default message, but you can customize it however you like before you send.

ISPF: What are the limits on how much can be saved in a 529 account each year? How do contributions from friends and family effect this?

The limit on 529 savings for each student is set by the IRS gift tax exclusion limit, currently $12,000. This is a limit per student and not per donor, so parents who save or receive gifts at or near this amount need to keep an eye on their annual savings. Also, this is not a per plan limit, so if a student has multiple 529s in their name, they will also need to keep track of their account balances.

In part, this is one of the problems we started Freshman Fund to solve. Parents were telling us that between grandparents, godparents and themselves, they had multiple 529s open for their children and no idea how much money was actually being saved each year. Freshman Fund lets parents consolidate 529 savings to a single account to better plan for the future (and avoid a visit from the tax man!).

Oh, and most plans have a maximum contribution limit as well, it varies from plan to plan, but on average it's more than $250,000 per account.


ISPF: How does a 529 account affect a child's federal financial aid?

The impact of a 529 on a student's financial aid depends on who owns the plan (the beneficiary of a 529 is always the student, but the owner could be the parents, grandparents or the student themself).

If the 529 is owned by the parent or another non-beneficiary, it is treated as a parental asset, and assessed at a 5.64% rate when calculating financial aid awards.

If the 529 owner and beneficiary are the same, the rate could be as high as 20% for the 2008-09 school year because the funds are treated as a student asset, but starting with the 2009-10 school year, they will be treated as a parental asset whether or not the parent owns the 529, and will be assessed at the 5.64% rate.

Also, 529 distributions are not counted as income for that year, which helps when next year's financial aid eligibility is calculated.

ISPF: What happens if my child does not want to go to college?

Parents with a child who does not attend college can transfer the account to a sibling, grandchild, step-sibling, cousin, niece, nephew or in-law without incurring any taxes or penalties.

Other transfers would be viewed as "non-qualified withdrawals" by the IRS, and the account would be subject to federal (and possibly state) income tax on any account earnings, as well as a 10% federal penalty tax on earnings.

ISPF: What qualifying expenses can be paid with 529 savings without incurring a penalty?

The easy ones are the following: tuition, room & board, any mandatory college fees, books, and a computer (if required).

From there, it varies from plan to plan and state to state, if you have a question about something that is not on the list above, consult with your plan manager or financial advisor.

ISPF: Does investing in a 529 make sense for families who may possibly return to their home country before the children start college?

Much like the question "What's the best 529 for my family?" there is no one answer to this question, families who foresee this scenario in their future should research all of the available college savings options, including 529s, or talk to their financial advisor before making a choice.

I can tell you that 529 savings may be used to pay for many non-U.S. colleges, you can search a list of eligible institutions at http://www.savingforcollege.com/eligible_institutions/, in the STATE: drop-down list, choose Canada for a Canadian college, or Foreign Country for any other international school.

ISPF: What are some alternatives to 529 accounts?

Here are some of the more popular college savings options. Space, time and the limits of my expertise prevent me from including every feature of these savings options, but here are a few highlights.

MUM (Money Under the Mattress... or in a no-interest savings account)
Very rarely a wise choice for any type of savings, and college savings are no exception. Loses ~3% per year at the current rate of inflation, and if it's earmarked for college then you're in even worse luck, as college costs inflate at about twice that rate, or ~6% per year.

U.S. Education Savings Bonds
Savings bonds can have tax benefits at both the federal and state level, but the exact nature of the benefit varies depending on the exact type of bond purchased. Unlike 529 gifts, savings bonds are not covered by the gift exclusion. Also, to qualify for the tax benefit, savings bonds may only be used for tuition and fees, whereas 529 distributions can be used for the broader array of expenses mentioned above. The annual limit on bond purchases is $5,000 per owner per type of bond, or $90,000 over the 18 years of a typical future freshman's life. In contrast, 529 plans have an average lifetime maximum contribution of more than $250,000.

UGMA/UTMA
The Uniform Gift to Minors Act and Uniform Transfer for Minors Act are custodian accounts set up for minors by a donor, usually a parent or guardian. The donor is the custodian of the fund, but the donations are an irrevocable gift and must be used for the benefit of the minor. Further, custodianship terminates when the minor reaches the legal age (18 or 21 depending on the state of residence) and may be spent on whatever the beneficiary desires. As you might expect, UGMA/UTMAs are treated as student assets when making financial aid determinations.

Coverdell Education Savings Accounts (ESA)
An education savings account that is more flexible than an UGMA/UTMA, and unlike 529s, can be used for pre-college education expenses. HOWEVER, the ability to use Coverdell ESAs for pre-college expenses will expire at the end of 2010 unless Congress intervenes to preserve this feature. Two other things to note with Coverdell ESAs is that only $2,000 per year may be saved in a beneficiary's name, regardless of who owns the account or how many accounts exist for the beneficiary, and the government steps that limit down, ultimately to zero, starting with incomes of at least $190,000 per year for couples or $95,000 for single filers.

I would like to thank Jonah for taking the time to answer my questions. If you have any additional questions about Freshman Fund, please feel free to contact Jonah at jonah dot keegan at freshmanfund dot com, or 347-416-6498. Please note that he is not a financial advisor, so while he can provide information, he cannot make recommendations. For specific advice, please consult with a financial advisor or tax professional.

Chasing Money - Is There Ever An End To It?

I chatted with an old friend today after a long time. And while we were talking about our jobs and how our companies fared, he told me that they had recently got a new CEO. And as a matter of conversation, he mentioned that the new CEO was going to be paid something along the lines of 30+ Million dollars in stocks (restricted units, not options!), in addition to 1.2 Million dollars in annual salary and 2.4 Million dollars in annual bonus, to take the job. The numbers were just mind boggling. And this new CEO guy is just 45 years old!!! As most conversations with old friends go, we were all over the place, and before we knew it we were debating about whether we would even want to be in the shoes of this guy.

On the one hand, being just 45 and being offered so much money to take on a job seems like an incredible accomplishment. Especially for a guy who was just like us - with a Ph.D. degree and not a fancy schmancy M.B.A degree or someone who wasn't exactly born with a silver spoon in his mouth. How cool is a life with millions of dollars to throw around!!! On the other hand, how much life would this guy have had? He must have worked his butt off to get where he did right? Sure, luck and timing and being at the right place at the right time had something to do with it.... but unless he burnt a lot of midnight oil and stressed out enough to turn several hair gray, I doubt he could have got where he is today. When you are busy building such a high profile career, where is the time for the simpler things in life? To smell the roses, to attend your children's plays and recitals, to cook a meal with your spouse and enjoy it on the back porch? What good is several million dollars, if you don't have time to enjoy spending it? We consoled ourselves that our average Joe jobs that paid decent salaries while allowing us time with our families was good enough.

After I hung up the call though, I couldn't stop thinking about this. Are we really that different from this CEO guy, other than the fact that we don't make a multi-million dollar salary per year (that's a big glaring difference, but lets ignore that for a second, shall we?). Let me take my example. I am currently *very* pregnant but I still continue to go to work, so I can save all my PTO for the time after the baby comes. Even with all this saved vacation and the short term disability pay, I will have only about 9 weeks of time off with my new baby. And then I need to make a choice - either go on unpaid leave or return to work. And I am not very open to the idea of going on unpaid leave for long periods of time :(

Now, do we *need* the pay I will get by foregoing those few weeks of unpaid leave? Well, not really. The better half makes a decent salary, and we have some money in both short and long-term savings and we can survive fine without my paycheck for several weeks, months or maybe even years. So, why am I so reluctant to forego a few weeks of salary? Ultimately, are we all addicted to money so much, that we cannot stop chasing it? Do we all just trade in our time blindly in the pursuit of money? In some cases like that of the CEO guy its millions, and in other cases like me it is a few thousands but is it the same thing? Do we all intentionally (or out of habit) just chase financial security at the cost of quality family time?

I don't think I am cut out to be a stay at home mom. I admire those that have made the brave decision to give up their careers to raise families. But a large majority of my friends and the people I know are like me - they have reluctantly got back to work after having babies. They spend the days from morning to late night switching roles - an ideal employee to an ideal mom to an ideal spouse. Trying to advance the career and bring in a bigger paycheck, while at the same time trying to be a good mother and wife and provide a good nurturing family. Balancing, juggling, being super women....

What is it that fuels this insane desire to chase money? Is there ever an end to it? Do any of you ever wonder, or is it just my pregnancy hormones talking? :)

*Image Credit: Photograph by David M* [via Flickr Creative Commons]

PS:This article was featured as an Editor's Picks in the Carnival of Personal Finance #165 over at No Debt Plan. Head on over there for some really good reading...

Don’t Go Down with the Economy!

(This is a guest article by Melanie Taylor*)

It’s hard to open a news site or newspaper without hearing more about the economic woes besetting the world in general and the States in particular. From credit crunch to housing crisis, it seems like everything that could go wrong now officially has. It’s no wonder the airwaves are full of heated debates disputing the meaning of the ‘R’ word, and whether or not we can officially use it (yet).

A recession might not be ‘real’ until we’ve seen two consecutive quarters of decline in real GDP, yet plenty of individuals started suffering long before the economy as a whole. Regardless of the nation’s communal health, the real question is this: “What’s my financial situation – and how can I improve it?”

There’s always something you can do (basically earn more & spend less) to improve your finances, and it’s always a good idea.

At a time like this, it’s simply more important.

Rule 1: Use it wisely
You may be tired of hearing the word ‘budget’, but money management is more important than ever during times of economic uncertainty. So figure out your income and expenditure. Spend a month writing down everything you spend. This can deliver three benefits – practical, psychological and motivational.

• Practical. Everyone wastes some money – it’s just a question of how and how much. Pinpoint where you’re wasting money and you’ll know what to do.


• Psychological. Doing ‘the wrong thing’ is always harder when someone’s watching, even if it’s only yourself. If you find that ‘self-auditing’ helps keep you on the straight and narrow, keep it up – when your debts are paid off and today’s problems are a distant memory, this could be the key to saving for retirement.


• Motivational. Calculate how much you could save in three months, or in a year – there’s nothing like multiple zeroes to inspire an economy drive...

Now use that calculation to figure out how much faster you’ll be able to pay off your debt, and how much interest you’ll be saving. The sooner you clear your debts, the sooner your money will be your money again, to spend or invest as you see fit.

Rule 2: Don’t panic
Trading down – either property or cars – can be a good idea and save you a fortune in the long run. Just make sure you don’t:

• Overreact. Don’t sell your $250,000 house because you need $5,000.


• Mistime your reaction. Don’t, for example:
  
  • sell property during a property crash – there may be alternatives, such as renting it out and moving into a smaller property yourself.
  
  
  • sell shares when they’re down – if they’re worth $500 now and might be worth either $0 or $5,000 in a year or two, isn’t a $4,500 profit worth risking a $500 loss?

Rule 3: Careful what you borrow – and how
There’s nothing wrong with debt per se. ‘Healthy’ debts can more than pay for themselves: your mortgage might be your ticket to property-boom profits, for example, or your car loan might be your only path to a better-paying job.

‘Unhealthy’ debt, on the other hand, can lead to a miserable existence that’s the exact opposite of the picture painted by adverts of smiling people waving credit cards at shop clerks. As a general rule, credit cards are fine if you use them because they’re convenient – and pay them off a.s.a.p. – but once you start using them to borrow money, you’re running a real risk of entering a ‘debt spiral’.

So if a slowing economy means you’re faced with short-term cash flow issues, remember there are better ways of dealing with them. Just three ideas:

• Talk to your mortgage provider about taking a payment holiday (a short break from making mortgage payments).


• Cut out luxuries altogether until you’re back on track.


• See what you can sell to raise cash.

If you’re just a few dollars short, you may be able to find it elsewhere, without resorting to credit cards.

And if you’re faced with a serious shortfall, then borrowing a lot on your credit cards is almost certain to lead to serious interest charges, especially when lenders are reacting to economic problems by raising interest rates.

Rule 4: If you need debt help, get it!
There’s no shame in asking for help with your debts. If you’re frightened that people will think you’re a fool for being in debt, how much more foolish would it be to let that fear deter you?

The kind of help you need depends on your situation: your existing debts, your current finances and your future earning potential.

• You might just need some advice from a seasoned professional – someone who understands how budgets work, how lenders think, how repayment plans are calculated…


• Or you might need a professional debt solution. Talk to a professional who understands the various solutions available and can advise you on which one would be best for you. Make sure you find a company that offers a range of solutions so you won’t feel they’re pushing you down a path that isn’t appropriate.

Rule 5: Remember you’re an individual
Finally, remember you’re not the USA. Your finances and the country’s are not inextricably linked.

A few tips.

• Threats: prepare for the worst


• Do whatever you can to stand out at work – take night classes, volunteer for special assignments, do overtime...


• Cut your spending to an absolute minimum and save – if you do lose your job, you’ll need this safety net.


• Read the papers. If your company’s in trouble, don’t be the last to know.


• Keep your eyes open for alternative employment, whether you’re just establishing a Plan B or convinced that your job / company is doomed. Just don’t forget the ‘last in, first out’ rule – unless you’re confident about the new company’s future (and your own in it), making yourself the ‘last in’ could be a terrible move.


• Opportunities: hope for the best


• Think about moving into a ‘recession-proof’ industry that does well in troubled times (food, for example, medical services, energy provision or debt collection)


• If you’re in business, be prepared to seize the market share that’s freed up when competitors go out of business.


• If you have a bit to invest, keep an eye out for shares that have come down in price because of today’s troubles. If a big company’s shares have fallen from $5 to 50c, there’s a good chance they’ll be back at $5 in the not-too-distant future. It might be best to spread your bets – rather than buying $2,000 of share in one company, buy $200 in ten companies.


• If you have a lot to invest, do your homework and look out for cheap property.

Just as some people suffer more than average from a (potential) recession, others suffer a great deal less. Plenty of people buck the trend altogether and do as well as usual – or better. There’s a lot of luck involved, but there’s also a lot of skill…

*About the author: This article was contributed by Melanie Taylor, of GregoryPennington.com, a debt management specialist.


*Image Credit: Photograph by lemonjenny [via Flickr Creative Commons]

Hurdles on the Path to Career Success – Part 2

Last week, in Part 1 of this series we looked at a few hurdles that we create around us that prevent us for being as successful as we can otherwise be. Here is a list of few more gotchas to watch out for.

Being an island
The world today is a much smaller place than yesterday. No matter who you work for – be it for a small firm, a large corporation or for yourself, unless you are willing to go out, network and make contacts, you probably will not be able to succeed on a large scale. It does not mean that you need to go out and have drinks with peers and clients every day of the week. But you do need to make an effort to shed your shyness, leave your comfort zone and venture out of your shell to meet people.

How to fix it: Make some key friends. If you are an extrovert and it comes naturally to you to make contacts, you will likely not have this problem. If you are an introvert, find those few extroverts that you are comfortable with and be friends with them. You don’t have to know everyone – just knowing those one or two people who know everyone will get the job done most of the time!

Not marketing yourself
If you are still naïve enough to believe that if you are good, people will notice you, then it is time to wake up! In a world of cut-throat competition, if you cannot market yourself, you could be in for some serious disappointment. It does not matter whether you work in a research lab or a multi-national corporation – you need to learn to sell yourself.

How to fix it: Practice! If you are from a cultural background where boasting is shunned, recognize that and find ways to make your accomplishments noticed. Learn to speak up, and take credit for what you have done. Make sure that your manager knows how much effort you have put in the project and the small successes you have had. Learn to keep your failures to yourself, unless you have been asked about it, in which case learn to share them in a positive light.

Not being able to take criticism
There is positive criticism and there is negative criticism. And chances are, you will come across both at your work place. Getting defensive and not learning from the criticism is and will always remain one of the biggest down fall of most people.

How to fix it: When you receive positive criticism, thank the person and try to implement the changes suggested. These can help you grow both as a person and an employee. On the other hand, if you receive negative criticism, go ahead and make the necessary changes – you can still learn from these. In addition, work with the person to see if you can help them grow as a person and improve their communication skills. If not, just brush it off as some behavior quirk and move on.

Not keeping up with the latest advances
It seems like every day there is a new, easier and “improved” way of doing things. Sometimes it is exciting. At other times, it could be downright annoying, disruptive or scary. But if you hesitate to embrace the change, then you will soon be replaced by someone else who is not so threatened by it.

How to fix it: Network with the younger generation and stay in touch with what is the latest. Read voraciously, and attend trade shows, conferences etc. Do not hesitate to ask someone for help if you find the technology intimidating. If needed register for classes – either at the company’s learning center, or community college, or online!

Being prejudiced
All of us have our quirks. There are some things that we are not quite comfortable with. But in a world where half the office is in the US and the other in India or China, half the work force is male while the other is female, and the skin color takes on all shades of white, black and everything else in between, unless you learn to overcome your prejudice, you will have trouble adjusting to your career.

How to fix it: Look deep into yourself to find out what caused the prejudice. Maybe it was a dinner table discussion between your grand father and your parents that instilled the prejudice in you – do you still think it is valid? May be some experience while growing up caused you to start looking down on a particular race – isn’t it time to grow past it? Again, getting to the roots of your prejudice to free yourself will not only help you in your professional life, but personal life as well!

Nobody is perfect, but we can all try to get rid of some of the limitations around ourselves and aim to be better than we are now. I am sure there are a lot more hurdles out there that prevent us for reaching our full potential for success. I would love to hear your views on this. I will write more on this topic in the future weeks.

*Image Credit: Photograph by misspiepie [via Flickr Creative Commons]

Hurdles on the Path to Career Success – Part 1

All of us have inside us the potential to succeed. To go above and beyond the average. But over a period of time, consciously or not, we end up creating hurdles around us that block us from being as successful as we can otherwise be. This is true both in the career, and life itself. Here is a quick look at some of the common hurdles in the path to career success.

(What has this got to do with personal finance, you ask? Well simple. The personal finance equation has two parts to it - how much you make and how much you keep. And needless to say your career success has a huge impact on how much you make. So there you go. Now, lets move on to the focus of the article - the hurdles on the path to career success)

Trying to please everyone
Remember the old adage “He who tries to please all pleases none”? This is particularly true at work. If you try to please your colleagues, boss and subordinates all at the same time, eventually you end up not pleasing anyone. Worst of all, you could end up with a particular sense of dissatisfaction that can ruin your peace of mind.

How to fix it: Prioritize! The first and the most important person is of course yourself. You need to be happy and content with what you do. Next, it should be the boss/manager who is responsible for your career progress. Next, is your subordinates. Finally, your friends and colleagues.

Not clearly understanding the expectations
If you do not communicate well with your manager and your peers, your understanding of what needs to be done, and theirs can be very different. Even if you put in a lot of hard work, if you are working against a wrong set of requirements, eventually none of it matters.

How to fix it: Listen! And then repeat. It may sound silly – but a simple repetition of what the expectations are can clear up the understanding. Make the following sentences part of your discussion with your manager and peers: “Let me see if I got it straight – you want me to…”; “OK, so here is my understanding. Please let me know if this is correct…”; “Based on what you just said, here’s the list of things I need to get done…”. If you are a manager, encourage your subordinates to summarize your discussions and listen carefully for any misunderstandings.

Too focused on job security
Last year my company laid off a little over 7% of the job force. There is nothing unique or strange about that number. For many of us that work in the tech sector, lay off is a part of life. Unfortunately, some of use adjust to this fact better than others. If you are worried to take risks and speak up because you are too focused on the job security, then you could be seriously curtailing your own growth – both professionally and personally.

How to fix it: Prepare! Have a list of other companies that you can work for if you get laid off. Keep your resume updated. Have an emergency fund and maybe some sources of alternate income. Once you are prepared to face a lay off, you will stop worrying about it and be willing to take on more challenges at work.

Letting personal life influence work life
Everybody has issues in personal life at some point or the other. There isn’t one of us that has a perfect hassle free life out of work. There are ups and there are downs. If you let it effect the quality of work, then eventually your career will come tumbling down.

How to fix it: Practice professionalism. Learn to mask your emotions at work. In fact, take it one step further – when you feel utterly dejected in personal life, make sure you find ways to achieve success in your work life! When you can make your work complement your personal life and offset the downs, you will succeed not just in your career but also in your personal life!

Short-term thinking
Last year I was assigned to a project which I was not too keen on doing. The work was boring and I thought it did not use my “potential” well. Needless to say I was quite disappointed and not very motivated. One of the days when I was stuck in traffic, I was thinking about this, and realized it was not all bad. The project is has high visibility, so if I did a good job, I can get some recognition. In addition, there is no defined team lead – and I could easily step into the role and take on more responsibility. The more I thought about it, the more it seemed like this project was far better in the long term than the project I had coveted and was hoping to be a part of.

How to fix it: Step outside and think long term. How will what you are doing now help you 2 years down the line? 5 years down the line? What are you learning now that will prepare you for success in the long run – not the promotion next year, but in the next job that you accept in some other company? And the one after that? If you get into the habit of questioning the long term implications of your every day actions, you can escape the myopic stand that most average people end up taking.

These are by no means the only hurdles that stop us from being successful in our careers. But if you do identify any of these as part of your life, work to improve. All of us are mere humans and susceptible to flaws. The real tragedy is if we do not identify these flaws and try to fix them! I will post part 2 of this article soon.

*Image Credit: Photograph by Stew pendous [via Flickr Creative Commons]

Wiping out Emergency Savings to Pay off Debt

In the personal finance blogging world, when you bring up the question of whether your primary focus should be on building an emergency fund or paying off your debt first, you will likely get a very strong passionate response supporting one or the other. Those belonging to the emergency fund first camp argue that without an emergency fund, it is easy to slip into the murky world of more debt when unexpected circumstances strike. On the other hand, those belonging to the pay debt first camp argue that to get the best mileage out of your money, use it to pay off high interest debt, instead of letting it sit around in a low interest savings account (and compared to the hay days, even the best online savings accounts look like low interest savings accounts these days!). We definitely belong to the latter camp. For us, debt feels like a constantly nagging thorn on our side and during the past couple of months we pretty much wiped out our emergency funds to pay off our debt. While there were heavy psychological and emotional overtones to this decision, it was not made lightly. I would like to lay out our reasoning here, in case someone else is in a similar boat and finds it interesting.

The psychological and emotional reasons

Before going into the logical reasoning, let me first provide an overview of our situation so it may help you understand why we were so itching to pay off the debt. During our years in grad school, which were our first few years in the US, we had amassed a whopping $42,500 in debt! Coming to the realization of how deep a hole we were in and pulling ourselves out of it bit by bit was a experience that left a permanent distaste for debt. For around 4-5 years after that we were clean. During those years we have been saving and investing aggressively. Last year however, when our trusted 14 year old 150K mile car died, we gave in to our whims and ended up buying our dream car. It was a pre-owned vehicle but way too expensive and not having the liquid cash in hand we ended up financing it. (If interested, you can read my confessions and justifications regrading that decision). While we have no regrets about the car, the decision to finance it has been sticking out like a sore thumb to us.

What makes matters worse is that during the past few months there have been rumors, which are turning to be less of rumors and more of a certainty as the months pass, that our company could soon be bought over, and I will likely lose my job. Being pregnant, it is not going to be easy for me to go find another job immediately. While I think we can handle the dramatic change from double-income-no-kids to single-income-new-baby without going financially downhill again, I would feel a lot more comfortable if we can do it without the added stress of carrying debt. So a couple of months back, when I received the stocks for the past 6 months of investment into the employee stock purchase plan, I sold them for an immediate 15% profit, withdrew almost all the money from our emergency savings and plonked all that money on the cashiers desk to payoff our car loan. Even though depleting the cash reserves was scary, the thrill of being debt-free again (apart from mortgage, which we are continuing to pay off aggressively) is exhilarating!

The plan for surviving emergencies

We did not take the decision to wipe out our emergency savings lightly (nor do I think anyone should, no matter how much of a staunch supporter of the pay debt first ideology they are). Here is our reasoning which is very specific to our situation.

Daily expenses on job loss

Fortunately, since both of us work, this case is not as severe a threat to us as it is to single income families. Even though there is a possibility that both of us could lose our jobs within a span of few weeks from each other, I doubt that it is likely to happen (in the inadvertent case that it does happen, one of the cases listed below should cover us at least for a few weeks, and hopefully one of us can find a job by then?). Currently, we pay twice the amount to the mortgage, max out both our 401Ks, invest in one employee stock purchase plan and could pay our car loan. In case of one job lost, we can cut down the aggressive mortgage payments and possibly reduce the contribution to the 401K just enough to get the employer match. Also, with the car loan gone, that is some more money freed up. With a slightly more frugal lifestyle, I think we can get on by fine for our daily expenses and possibly manage to save a little each month to rebuild our emergency account.

Additional unexpected expenses up to $1000

While we were students, both of us used credit unions. When we started working we started using a regular bank. But since our credit union was our oldest standing account, in the interest of maintaining a better credit history, we decided to leave our credit union accounts open. And in order to keep it in good standing we each have a direct deposit of $50 or so into that account each paycheck. Since we have been doing this siphoning right from our first paycheck, we do not really miss that $50 each paycheck. And since this account grows oh-so-slowly, we do not consider it a part of any of our accounting. Over a period of time we have each had a few hundred to sometimes a cushy $1000 accumulated in that account unnoticed. And it has been a good source to tap into when we have small emergencies but do not want to dip into our real emergency savings. Currently, we probably have low hundreds in each of our accounts, but with monies from both our accounts pooled, we should be able to handle small unexpected expenses up to $1000 or so.

Additional unexpected expenses up to $6000

We are not really into stock market investing (other than our 401Ks). But last year when I had an additional $5K, I had opened a Vangaurd account and had setup an auto deduction of $100 per month to go to this account. With the stock market slump, this account barely stands at $6000+, in spite of a year passing by with money being pumped into it on a regular monthly basis! While I would love to keep this around for a long time and see where it goes, I will not be terribly upset if I have to sell the index funds to pay for an emergency. Sure, I will incur some taxes and possibly lose some money, but frankly I have not been making any money on that account since I got it and the rate of returns is probably at 0% or slightly negative. So, using it up for paying for an emergency will not bother me at all!

Additional unexpected expenses up to $15,000

When the interest rates on savings accounts were high, I used to play the 0% APR balance transfer game quite heavily. With the slump in interest rates the credit cards charging fees for balance transfers, I don't play this game any longer. But between the two of us, we have access to around $80K - $100K in credit and I am assuming that with the car loan paid off and no outstanding debt, we should be able to have access to at least $15K at low interest rates. For instance, currently, I have an outstanding offer from one of my cards for a 0% balance transfer for one year, with 3% fees capped at $199. I have a $17K credit limit on that card (if necessary, by transferring credit lines, I should be able to increase that to $42K). I know this is not something I can rely on, since the offers change from time to time, but it makes it easier to justify against letting money sit in an emergency account earning next to nothing in interest.

Additional unexpected expenses up to $30,000

As listed early in the history of this blog, our financial goals and the approach to realizing them is to rely primarily on our 401K contributions, and owning our house outright as soon as possible. In addition to that, our outside investments (as and when we can) have been mostly into the real estate back in home country. During the past few months, with the car loan, medical expenses etc, we have not been able to do much towards the overseas investments. But during the golden 4-5 years in the middle when we were debt-free and saving like squirrels, we did manage to stash away a little in these investments. In the worst case, for largish emergencies we should be able to liquidate some of our holdings and pay for it. This will likely cause a lot of stress and heart ache and may even cause us to lose some money, but if it an emergency that large, I doubt we will really care! What's money good for if you cant use it when you need it? Besides, we will never stash away $30K in a liquid emergency fund, so this would probably be inevitable in case of large emergencies anyway!

Additional unexpected expenses > $30,000

Finally, for those super large blows (which I hope we will not have to face in this lifetime!!!) I think we can dip into our last resort - a 401K loan, or a home equity loan etc. This one will likely impact our ability to retire on our own terms, but if we are faced with super large emergencies, and live to tell the tale, then that will likely be a small price to pay. Besides, we are still young and we should be able to rebuild from scratch....

Since this analysis was specific to our situation, I don't know if it will help anyone make their own decisions. But it sure was helpful to me in ensuring my peace of mind that in spite of depleting our emergency fund, an emergency in the near future (until we plump up our emergency funds again) will not throw us over the edge into the debt hole again. Irrespective of whether you have a blog or not, I encourage you to do this analysis with your own situation. If you are in the same boat as us (early stages of financial life) or much ahead, it will help offer the peace of mind that you can possibly survive many of life's curve balls. If you are where we were 5 years back (just paid off all debt, but don't have much in savings yet), I am sure an analysis like this will motivate you to stay frugal and save as much as you can. And if you are where we were 7-8 years back (with a pile of debt in front of us, and no savings whatsoever to speak of), then I am sure an analysis like this will push you into digging out of that debt hole much faster. Either ways, feel free to share your thoughts!

*Image Credit: Photograph by 24thcentury (via Flickr Creative Commons)

5 Ways to Save Money in College

(This is a guest article by Heather Johnson*)

When you’re in college you never have enough money. It’s just the way it is, unless you’re a trust fund brat. If you don’t have mommy and daddy’s big pockets, you have to find alternative ways to get by. Chances are most of your purchases will revolve around beer and books. With this in mind you have to figure your budget for each semester to have a goal of saving enough during the summer and winter breaks. But when you’re actually at school, there are many ways you can make sure you always have a little dough to spare. Here are five tips for saving money when you have no real income while in college:

1. Have a financial record. This can be as easy as having a sheet of paper in your desk where you can keep track of your income streams and expenses. Write down how much you’ll have coming in during the month and what you have going out. This will keep you prepared and aware of what you have at your disposal. Once you have this knowledge you’ll know what you can afford when it comes to the weekend. Too bad the weekends start on Wednesdays. Good luck.


2. Keep your receipts. This sounds tedious but it’s important in case you’re ever overcharged. You can’t afford a company’s mistakes. If you’re overcharged you’ll have the receipt to recoup your lost money.


3. Spend money only on what you need. If you went to the store for a twelve-pack then don’t come out with a case and a bottle of wine. Only buy what you absolutely intended on buying. You never know when a parking ticket will appear on your windshield or when you’ll need a new set of tires. Always be prepared for a hidden expense.


4. Consider your options. Go to a local bank near your school and speak with a financial services representative about the different programs they have specifically geared to college students. Most banks will have some system in place for college students and are great ways to get introduced to the real world.


5. Pay your bills on time. The last thing you need are late fees and other expenses associated with not paying your bills on time. Stay current with your credit card bill as the interest alone can clean you out later on down the road. If you stay up to date with your bills there will be no out-of-the-blue fees.

*About the author: This article was contributed by Heather Johnson, who is a regular writer on the subject of instant credit card approval. She welcomes your questions, comments and writing job opportunities at heatherjohnson2323 at gmail dot com.

How Much Should You Borrow for Your Education?

(This is a guest article by Miranda Marquit*)

One of the items that seems to continually go up in cost is education. It's up there with food, health care and gas. Only you don't usually have to take loans out to buy those other things. The rising cost of higher education pretty much guarantees that you will need to take out student loans in order to help fund your degree.

The good news is that there are many sources for student loans, both from the government and from private sources. And even in the current climate, there are still plenty of loans available. Indeed, the danger becomes borrowing too much, and then having to pay it all back. While student loans can help you offset living expenses so you can focus on school (in addition to paying the cost of tuition), few people really need the maximum amount they are approved for.

My mother's voice echoes in my head "Just because you can, doesn't mean you should." This is just as true for figuring out how much to borrow in student loans.

Create a budget

Take a realistic look at your expenses and your education costs. Find out how much you will pay in rent, and get an estimate of the cost of utilities. If you live in housing provided by your school, most utilities are included in the cost of your rent. Even if you don't, many apartment managers can give you a good idea of how much utilities will cost. Estimate a food budget, transportation costs and even a little fun money. Are you planning on getting a job? Figure any income into your calculations. A part time job will reduce the amount you will need to borrow. Also, if you have scholarships and grants, that will reduce your student loan amounts.

Multiply your estimated monthly expenses by the number of months that you will be in school. Then add that number to the cost of your tuition, student fees and estimated cost of books. Take the amount of scholarships, grants and estimated income and subtract that from your total expenses. The difference is how much you will need to borrow. In order to allow for leeway, take 125% of that difference, and round it up to the nearest $1,000. Example:

You estimate that your total cost for attending school is $30,000. Between scholarships, grants and a part-time job, plus your savings, you have $20,000. The difference is $10,000. Multiply 10,000 by 1.25 to get 12,500. Round it up, and you would borrow about $13,000. Each year (if you are getting a four year degree), you would borrow $3,250.

Other considerations

You also need to consider how much you can afford to borrow. With the job you get when you finish, will you be able to handle the loan payments? If you won't be able to afford the loan on your salary, you might want to reconsider your major, or the amount that you are planning to borrow.

Perhaps you should consider a less expensive school as well. Private schools can cost as much in one year as many state school cost in the entire four years. Consider that most private schools do not offer a big enough edge to make paying (and having to borrow) the extra worth it.

Consider your loan type

Another thing to consider is the loan type. If possible, avoid private student loans, since the interest rate is usually higher, and this will result in paying more money back. A federal student loan will result in a lower interest rate, and if you get a subsidized loan, you will not accrue any interest until after you are done with school. This can allow you further savings.

Carefully consider your options before taking out student loans. They can be very helpful, but like any other debt you can find yourself in over your head.

*About the author: Miranda Marquit edits information on debt consolidation for DestroyDebt.com.

Money saving: Keep your money safe

Savings are an important part of every ones financial life. However, the beast of inflation is attempting to take even them from you. If your money is held at home in cash or in your current account and does not accumulate any kind of interest, it is losing its value over time. Inflation cuts down your money's purchasing power and you must use at least some of these savings instruments to protect your money from inflation. And protecting your money from inflation is the primary objective in order for your savings to grow in time, instead of perish in the labyrinths of time.

Simple savings account

Since you already know about the importance of the emergency fund, you already have a savings account, and maybe even made an agreement with a bank so it transfer portions of money from your current account into this one. In this case, a savings account is probably the easiest way to store your savings in. However, savings account does not make make your money work for you.
It is essential to know the interest rate, when your are using a savings account.
You could earn somewhere from around 0.5% to 5% or more, it all depends on your bank and kind of your savings account. However, banks tend to offer higher interest rates to accounts with bigger amounts of money in them. It might even be so, that the interest rate does not cover inflation and you lose some of the purchasing power your money has.
Probably the best thing savings accounts has, is their liquidity. Liquidity is quite an important factor when it comes to savings, as you can get back your money from the bank almost instantly. It does not require for you to wait days to lay your fingers on your money, you can just access your savings account online and transfer your money from savings to current account at grab them at cash dispensers, or just visit a local branch.

Certificates of Deposit

There are various other places to put your savings in to earn a little something, one of them is a certificate of deposit. It is a good place to save your money in. Certificates of deposit are insured, just like your savings account and are generally risk-free. The difference from savings accounts is that the certificates of deposit has a fixed amount of time or term (from three months for up to five years), and, usually, an interest rate that is also already fixed. After that fixed amount of time is over and certificate of deposit reaches its maturity, the money you invested can be withdrawn with the interest it has accumulated. Usually, the longer the term you have agreed to invest your money the higher the interest you will get paid by the bank.
Certificates of deposit tend to be far less liquid than savings accounts, since your money is required to stay invested for the fixed amount of time, so this means that your money is less accessible than in the savings account. If an emergency occurred and you need the money, however you can take back your money before the maturity of the certificate, but you will have to pay a penalty which can easily remove all the money you earned from the interest so far.

Money markets and money market funds

An alternative to a simple savings account are money markets and money market mutual funds. You can choose using money market bank accounts or money market mutual funds. Even though they have quite a similar name, they are not the same. A money market fund is some type of mutual fund (an investment company), where as money market bank accounts are
issued by banks. Money market accounts work very similarly to your normal account, however there are more restrictions, such as having a higher balance or having a number of money withdrawals limited per month.
Investment companies offer money market mutual funds. You need to create a new account in the company to become a part of a money market mutual fund. To have a quite good interest rate These funds invest in a wide range of short-term investments. The downside of money market mutual funds is that, your money does not have insurance, unlike in money market bank account. Money market accounts usually net higher interests than savings accounts, but their liquidity tends to suffer quite a bit, due to restrictions they have.

Treasury securities

There are other choices for your savings such as treasury securities. Treasury securities are bills, notes and bonds issued by the Government of the U.S. Similar to certificates of deposit, treasury securities have a fixed maturity term. The maturities differ from 1 to a whopping 30 years, depending if it is a bill, a note or a bond.
Like with certificates of deposit, liquidity is an issue with treasury securities. But this problem can be effectively solved, as there are highly active and liquid secondary markets where you can easily sell your treasury securities.

What should i do?

As regards savings, there is pretty much no difference on which savings method to choose, as long as they cover inflation, and does not let your money lose value. Everything after that depends on your own needs. If your savings are just those in an emergency fund, then probably a simple savings account would be the most convenient. However if your savings are larger and you intend to save for something big, and it would take months or years to save, your best bet would probably be at looking for better interest rates in certificates of deposit, money markets or treasury securities.
Usually these savings instruments are just a part of investors portfolio. There might be some stocks for some higher yield, maybe some precious metals or other investment instruments. However, the bottom line is that you do not let your money sit in your sock and lose its value due to inflation. Inflation can easily kill your money and you definitely don't want that, do you?

Money saving: Emergency Fund

The key point of building wealth is saving your money. You need to spend less than all your earnings, in order to save any money. But oftentimes this is one of the hardest things to do, however there are plenty of ways to help you to save your money on even the tightest budget. As you probably already know - the money earned is the money saved.

The first thing you need: Emergency Fund

The unexpected always happens in your life when you are the least expecting it, and this is exactly why you must have an emergency fund. It is the best solution to be prepared for those unexpected emergencies that require additional money. Whether it be a job loss, health issues and medical care, car or house repairs, the death of your loved ones or anything that might require quite a portion of our money. And the very last thing you want to do is taking a loan or rely on any other kind of credit. It might even worsen the situation.

The size of the emergency fund

It is commonly known that there should be such an amount of money in your emergency fund, that you could live normally for at least three to six months without worrying. The amount of money in your emergency fund could be modified considering your current situation. It might be changed due to whether or not you have children, have any kind of debt, insurance, other liabilities or even current economic situation. (i.e. Unemployment rate is rising due to hard economic times and your job loss chance is increased.)
In fact, the reason you might want to have emergency fund set up is that the most common reason of family money problems is due to a sudden loss of income. So, if you or your husband/wife loses a job you still have bills to pay and food to buy, and it could take months to find a new job that you would be satisfied with. That's why it is best to plan ahead for the worst-case scenario. In this case less critical emergencies will be easily dealt with.

Start with small deposits

Most people don't have an emergency fund, because they find it difficult to save money. But the key to doing so is to start saving with small deposits. You must realize that saving enough money for one month will take quite some time. If you set your goals to be realistic, small to affordable, you will have a much better chance in reaching them faster. Bank would probably be the best way to get started saving. You could open up a new savings account (if you don’t have one already) and start saving there first. Making regular deposits into this savings account would be the next step. Make it a habit. Creating a schedule could help. Make deposits weekly or monthly and try to never skip it. You could also agree with a bank that it would transfer that money from your current account into that newly created savings account and you wouldn't even need to think about it.
Start with a very small amount, if you feel that it is difficult to begin saving. You could try making deposits as small as $10 a week at the very start. The amount is not impressive and it will not build up quickly, but the important thing is make it a habit to put some cash away. After a while the amount you save and don't spend will not even be noticeable, so you can raise it to a larger sum. With this done, you will have your emergency fund all saved up in no time.

A place for an emergency fund

You should remember that starting with a savings account is the best, simply because it is so easy to use and does not cost you anything. It doesn't care how much you put away every week/month, just do it. After a while when your emergency fund is bigger, you could find a place to keep it where it can gather some nice interest. It is essential, however, to keep it in a fairly liquid place then, such as money markets, so you could get the money out quickly, if any emergency occurs. It is not advised to have this money invested into stocks or mutual funds, because you could lose money in the short-term period, due to the volatility of the markets.

Personal Banking

I thought i would go ahead and write this article just as a little introduction to Personal Banking. Some of the main functions mentioned only. This should give some basic information you need to know about Personal Banking.

Current accounts

A current account is an account which allows customers to take out or withdraw money, with no restrictions. Money in the account does not usually earn a high rate of interest: the bank does not pay much for 'borrowing' your money. However, many people also have a savings account or deposit account which pays more interest but has restrictions on when you can withdraw your money. Banks usually send monthly statements listing recent sums of money going out, called debits, and sums of money coming in, called credits.
Nearly all customers have a debit card allowing them to make withdrawals and do other transactions at cash dispensers. Most customers have a credit card which can be used for buying goods and services as well as for borrowing money. In some countries, people pay bills with cheques. In other countries, banks don't issue chequebooks and people pay bills by bank transfer. These include standing orders, which are used to pay regular fixed sums of money, and direct debits, which are used when the amount and payment date varies.

Banking products and services

Commercial banks offer loans - fixed sums of money that are lent for a fixed period (e.g. two years). They also offer overdrafts, which allow customers to overdraw an account - they can have a debt, up to an agreed limit, on which interest is calculated daily. This is cheaper than a loan if, for example, you only need to overdraw for a short period. Banks also offer mortgages to people who want to buy a place to live. These are long-term loans on which the property acts as collateral or a guarantee for the bank. If the borrower doesn't repay the mortgage, the bank can repossess the house or flat - the bank takes it back form the buyer, and sells it.
Banks exchange foreign currency for people going abroad, and sell traveller's cheques which are protected against loss or theft. They also offer advice about investments and private pensions plans - saving money for when you retire from work. Increasingly, banks also try to sell insurance products to their customers.

E-banking

In the 1990s, many commercial banks thought the future would be in telephone banking and Internet banking or e-banking. But they discovered that most of their customers preferred to go to branches - local offices of the bank - especially ones that had longer opening hours, and which were conveniently situated in shopping centres. However E-banking is still getting increasingly popular for it's convenience, especially after making it more user-friendly. Currently Internet banking allows customers to, for example, transfer funds, pay bills, view checking and savings account balances, pay mortgages,purchasing financial instruments and certificates of deposit, etc. This has lead to millions of people using E-banking daily.

Two commonly misunderstood financial statements

There are two commonly misunderstood financial statements which tend to generate loads of questions for people. So i decided to write a little article about them and clarify what they mean. I hope this will be helpful.

The profit and loss account

P&L Account
Sales Revenue						48,782
Cost of Sales						33,496
Gross Profit						15,286
Selling, General and Administrative Expenses						10,029
Earnings before Interest, Tax, Depreciation and Amortization						5,257
Depreciation and Amortization						1,368
Earnings before Interest and Tax						3,889
Interest expenses						257
Income Tax						1,064
Net Profit						2,568

Companies' annual reports contain a profit and loss account (commonly referred as P&L). This is a financial statement which shows the difference between the revenues and expenses of a period. Non-profit ( or not-for-profit) organizations such as charities, public universities and museums generally produce an income and expenditure account. If they have more income than expenditure this is called a surplus rather than profit.
At the top of these statements is total sales revenue or turnover: the total amount of money received during a specific period. Next is the cost of sales, also known as cost of goods sold (COGS): the costs associated with making the products that have been sold, such as raw materials, labour, and factory expenses. The difference between the sales revenue and the cost of sales is gross profit. There are many other costs of expenses that have to be deducted from gross profit, such as rent, electricity and office salaries. There are often grouped together as selling, general and administrative expenses (SG&A).
The statement also usually shows EBITDA (earnings before interest, tax, depreciation and amortization) and EBIT (earnings before interest and tax). The first figure is more objective because depreciation and amortization expenses can vary depending on which system a company uses.
After all the expenses and deductions in the net profit, often called the bottom line. This profit can be distributed as dividends (unless the company has to cover past losses), or transferred to reserves.

The cash flow statement

British and American companies also produce a cash flow statement. This gives details of cash flows - money coming into and leaving the business, relating to:

• operations - day-to-day activities
• investing - buying or selling property, plant and equipment
• financing - issuing or repaying debt, or issuing shares.

The cash flow statement shows how effectively a company generates and manages cash. Other names are sometimes used for it, including funds flow statement and source and application of funds statement.
British companies also have to produce a statement of total recognized gains and losses (STRGL), showing any gains and losses that are not included in the profit and loss account, such as the revaluation of fixed assets.

The balance sheet, part II

This is the second part of the balance sheet series. I'm hoping to get into more detail about assets in this part. Hopefully this can be helpful. Read the previous part here.

Current assets
Cash and equivalents 3,415
Accounts receivable	8,568
Inventory	5,699
Other current assets	5,562
Total current assets	$23,244
Non-current assets
Property and plant	6,700
Goodwill	5,015
Total non-current assets	$11,715
Total assets	$34,959

Fixed and current assets

In accounting, assets are generally divided into fixed and current assets. Fixed assets (or non-current assets) and investments, such as buildings and equipment, will continue to be used by the business for a long time. Current assets are things that will probably be used by the business in the near future. They include cash -money available to spend immediately, debtors - companies or people who owe money they will have to pay in the near future, and stock.
If a company thinks a debt will not be paid, it has to anticipate the loss - take action in preparation for the loss happening, according to the conservatism principle. It will write off, or abandon, the sum as a bad debt, and make provisions by charging a corresponding amount against profits: that is, deducting the amount of the debt from the year's profits.

Valuation

Manufacturing companies generally have a stock of raw materials, work-in-progress - partially manufactured products - and products ready for sale. There are various ways of valuing stock or inventory, but generally they are valued at the lower of cost or market, which means whichever figure is lower: their cost - the purchase price plus the value of any work done on the items - or the current market price. This is another example of conservatism: even if the stock is expected to be sold at a profit, you should not anticipate profits.

Tangible and intangible assets


Assets can also be classified as tangible and intangible. Tangible assets are assets with a physical existence - things you can touch - such as property, plant and equipment. Tangible assets are generally recorded at their historical cost less accumulated depreciation charges - the amount of their cost that has already been deducted from profits. This gives their net book value.
Intangible assets include brand names - legally protected names for a company's products, patents - exclusive rights to produce a particular new product for a fixed period, and trade marks - names or symbols that are put on products and cannot be used by other companies. Networks of contacts, loyal customers, reputation, trained staff or 'human capital', and skilled management can also be considered as intangible assets. Because it is difficult to give an accurate value for any of these things, companies normally only record tangible assets. For this reason, a going concern should be worth more on the stock exchange than simply its net worth or net assets: assets minus liabilities. If a company buys another one at above its net worth - because of its intangible assets - the difference in price is recorded under assets in the balance sheet as goodwill.

You can find the next part here.

The balance sheet, part I

This is the first of three articles about the balance sheet. I intend to give some core information about the balance sheet. Since the balance sheet is one of key parts of bookkeeping, i decided to start this series of articles to make it easier to catch the information.

Here's an example how a balance sheet looks like:

Assets		Liabilities and Owners' Equity
Cash	$ 27,600	Liabilities
Accounts Receivable	11,200	Notes Payable	$ 64,000
Land	76,000	Accounts Payable	$ 27,000
Buildings	89,000	Total liabilities	$ 91,000
Tools and equipment	36,200	Owners' equity
		Capital Stock
		Retained Earnings
		Total owners' equity	$149,000
Total	$240,000	Total	$240,000

Assets, liabilities and capital

Company law in Britain, and the Securities and Exchange Commission in the US, require companies to publish annual balance sheets: statements for shareholders and creditors. The balance sheet is a document which has two halves. The totals of both halves are always the same, so they balance. One half shows a business's assets, which are things owned by the company, such as factories and machines, etc., that will bring future economic benefits. The other half shows the company's liabilities, and it's capital or shareholders' equity. Liabilities are obligations to pay other organizations or people: money that the company owes, or will owe at a future date. These often include loans, taxes that will soon have to be paid, future pensions payments to employees, and bills from suppliers: companies which provide raw materials or parts. If the suppliers have given the buyer a period of time before they have to pay for the goods, this is known as granting credit. Since assets are shown as debits (as the cash or capital account was debited to purchase them), and the total must correspond with the total sum of the credits - that is the liabilities and capital - assets equal liabilities plus capital ( or A = L + C).
American and continental European companies usually put assets on the left and capital and liabilities on the right. In Britain, this was traditionally the other way round, but now most British companies use a vertical format, with assets at the top, and liabilities and capital below.

Shareholders' equity

Shareholders' equity consists of all the money belonging to shareholders. Part of this is share capital - the money the company raised by selling its shares. But shareholders' equity also include retained earnings: profits from previous years that have not been distributed - paid out to shareholders - as dividends. Shareholders' equity is the same as the company's net assets, or assets minus liabilities
A balance sheet does not show much money a company has spent or received during a year. This information is given in other financial statements: the profit and loss account and the cash flow statement.

You can find the next part here.