I can feel your eyes glazing over, but stick with me and I swear I'll keep this one short. Trust me: You're gonna need this.
I see you drifting away. Come back here for a sec!
As you open bank accounts, store credit cards, etc. just stash a few of your monthly statements in a file.
This weekend I've been pulling my credit scores, and I've had to answer some questions to prove I am me (and not someone pretending to be me). I've had to answer questions like the name of the company that bought a student loan years ago, the account number of a JC Penney store credit card I opened back in the mid-1990s, what my minimum monthly payment on a certain account was back in 2003, etc.
You have to be able to look these things up one day, even many years later than you might expect.
As identity theft becomes an increasingly big deal, the importance of this step will only grow.
Personally, I just keep a file folder for each account I open in a filing cabinet. People have told me I overdo it because the IRS only requires that you keep files going back a certain number of years. But twice in the last few months I've had to dig deep in the files for TransUnion and then FairIsaac.
Please, keep your old files.
Saturday, October 18, 2008
Saturday, October 11, 2008
give yourself a pay day in advance with a CD ladder
OK, so you followed my advice and started doing a few things to save up for a brighter future through spending less than you have coming in and saving up for the future. Awesome!
Today I'd like to show you how to super-charge your emergency fund to help out when you lose that rockin' grocery-bagging job and have to go on the hunt for a new one. There's a certain way you can actually loan money to banks when you have it so you can give yourself regular pay checks when the well runs dry.
The HEMI under the hood to power your emergency fund is called a CD ladder, but that's not really sexy, so let's call 'em CD PayDays.
Why you need CD PayDays...
When you have a regular job, you come to count on a certain amount of money coming in at certain intervals (monthly, twice monthly, every two weeks, etc.).
Based on this expectation, you line up a bunch of regular expenses because you know that money is coming in. But eventually something bad happens, such as the loss of that job or some emergency expenses (car broke down, broke your toe, etc.), and you still have to pay the rent/mortgage, phone bill, grocery store, etc.
Sooner or later, you'll also want/need to take on whole new expenses, too, so you need to prepare for those in advance so you can afford them when the time comes. After all, your car/furniture/health isn't going to last forever, and you may want something new (Master's degree, baby, vacation...).
There's a fairly simple way you can keep the paychecks coming in the future by making spending a few minutes every paycheck or two while you're earning money now.
I use ING for this, but there are other perfectly fine banking institutions that will gladly help you make this happen.
Start now, even if it means starting small.
One thing I like about ING is that they let you open CDs with small amounts. So if you don't have hundreds or thousands of dollars to start out with, you start with what you can. My first ING CD was for an earth-shattering ten bucks. But as you open more CDs, it can really add up.
You want to get as much money as possible into your emergency payday fund as soon as you can, but if you have to start small, it is definitely better than not setting aside emergency pay for when it all goes wrong.
What's a CD ladder?
A CD is money you loan to the bank for a certain period of time, for which they pay you interest at the end of the loan period. The amount of interest they pay you on a CD tends to be a better deal for you than other forms of in-bank savings accounts, because they are rewarding you for letting them hang on to that money for a known period of time.
A CD ladder is a series of CDs that become due at regular intervals, such that every few weeks, month, year, or other timing of your choice, at least one CD comes back to you.
I like to know that I have an emergency fund that ensures I'll have a predictable amount of money coming to me at least monthly to help pay my bills in the event of an emergency, but actually get paid every other week. So I've set my phone to remind me every two weeks to open another CD from my pay before I can be tempted to spend it.
As a result, I'll have CD PayDays every couple of weeks, just like the pay I'm used to from my current employer.
You can get better interest rates from the bank on CDs that the bank gets to keep for longer periods of time, so when first starting your ladder, you should consider opening at least one or two of your CDs for longer periods to take advantage of the better rates.
I like 6-month CDs for my emergency fund, because the interest rate isn't as important to me as the other advantages of the ladder. But I still started off with a few longer-term CDs to start off stronger.
You can always go for longer-term CDs after your emergency CD PayDay fund gets big enough.
When you start building your CD ladder, go ahead and grab a wall calendar and write down the dates on which the bank will be repaying the loans to you, and how much they will be repaying. (They will spell this out in a non-confusing way.) Then, each time you open up another CD, make a new entry on the calendar so you know when you're going to be paid back.
The calendar will be useful in helping you know exactly when how much money is coming in, which should make you feel a lot less stressed about money. But it will also help you see when you need to open up more CDs to make sure more money is coming your way often enough to really help out when you need it.
Try to keep that job and avoid actually taking the money from the bank on these CD PayDays, and the bank will gladly automatically handle the process of that money being loaned to them again for the same period of time, continuing to earn even more interest for you. Because even the interest they owe you already will be part of the loan, and they'll owe you even more interest when the follow-up loans become due to you.
So when that happens, log in to your account and make another entry for the new upcoming CD PayDay, which will be an even higher paycheck than the last one!
More than just an emergency fund...
This is a great and simple way to prepare for emergencies, but also to help save up for something big, like a home loan.
When you try to borrow money to buy a house, the lender will consider the CD ladder as further proof that you are a good risk, because you have some insurance that you will have money to pay them when the payments are due. And you can also use your CDs as straight loan collateral.
In a worst case scenario, your CD pay days are there to pay your bills when you find yourself in a bind.
Here's another guy's discussion of his family's CD ladders that describes it differently.
Today I'd like to show you how to super-charge your emergency fund to help out when you lose that rockin' grocery-bagging job and have to go on the hunt for a new one. There's a certain way you can actually loan money to banks when you have it so you can give yourself regular pay checks when the well runs dry.
The HEMI under the hood to power your emergency fund is called a CD ladder, but that's not really sexy, so let's call 'em CD PayDays.
Why you need CD PayDays...
When you have a regular job, you come to count on a certain amount of money coming in at certain intervals (monthly, twice monthly, every two weeks, etc.).
Based on this expectation, you line up a bunch of regular expenses because you know that money is coming in. But eventually something bad happens, such as the loss of that job or some emergency expenses (car broke down, broke your toe, etc.), and you still have to pay the rent/mortgage, phone bill, grocery store, etc.
Sooner or later, you'll also want/need to take on whole new expenses, too, so you need to prepare for those in advance so you can afford them when the time comes. After all, your car/furniture/health isn't going to last forever, and you may want something new (Master's degree, baby, vacation...).
There's a fairly simple way you can keep the paychecks coming in the future by making spending a few minutes every paycheck or two while you're earning money now.
I use ING for this, but there are other perfectly fine banking institutions that will gladly help you make this happen.
Start now, even if it means starting small.
One thing I like about ING is that they let you open CDs with small amounts. So if you don't have hundreds or thousands of dollars to start out with, you start with what you can. My first ING CD was for an earth-shattering ten bucks. But as you open more CDs, it can really add up.
You want to get as much money as possible into your emergency payday fund as soon as you can, but if you have to start small, it is definitely better than not setting aside emergency pay for when it all goes wrong.
What's a CD ladder?
A CD is money you loan to the bank for a certain period of time, for which they pay you interest at the end of the loan period. The amount of interest they pay you on a CD tends to be a better deal for you than other forms of in-bank savings accounts, because they are rewarding you for letting them hang on to that money for a known period of time.
A CD ladder is a series of CDs that become due at regular intervals, such that every few weeks, month, year, or other timing of your choice, at least one CD comes back to you.
I like to know that I have an emergency fund that ensures I'll have a predictable amount of money coming to me at least monthly to help pay my bills in the event of an emergency, but actually get paid every other week. So I've set my phone to remind me every two weeks to open another CD from my pay before I can be tempted to spend it.
As a result, I'll have CD PayDays every couple of weeks, just like the pay I'm used to from my current employer.
You can get better interest rates from the bank on CDs that the bank gets to keep for longer periods of time, so when first starting your ladder, you should consider opening at least one or two of your CDs for longer periods to take advantage of the better rates.
I like 6-month CDs for my emergency fund, because the interest rate isn't as important to me as the other advantages of the ladder. But I still started off with a few longer-term CDs to start off stronger.
You can always go for longer-term CDs after your emergency CD PayDay fund gets big enough.
When you start building your CD ladder, go ahead and grab a wall calendar and write down the dates on which the bank will be repaying the loans to you, and how much they will be repaying. (They will spell this out in a non-confusing way.) Then, each time you open up another CD, make a new entry on the calendar so you know when you're going to be paid back.
The calendar will be useful in helping you know exactly when how much money is coming in, which should make you feel a lot less stressed about money. But it will also help you see when you need to open up more CDs to make sure more money is coming your way often enough to really help out when you need it.
Try to keep that job and avoid actually taking the money from the bank on these CD PayDays, and the bank will gladly automatically handle the process of that money being loaned to them again for the same period of time, continuing to earn even more interest for you. Because even the interest they owe you already will be part of the loan, and they'll owe you even more interest when the follow-up loans become due to you.
So when that happens, log in to your account and make another entry for the new upcoming CD PayDay, which will be an even higher paycheck than the last one!
More than just an emergency fund...
This is a great and simple way to prepare for emergencies, but also to help save up for something big, like a home loan.
When you try to borrow money to buy a house, the lender will consider the CD ladder as further proof that you are a good risk, because you have some insurance that you will have money to pay them when the payments are due. And you can also use your CDs as straight loan collateral.
In a worst case scenario, your CD pay days are there to pay your bills when you find yourself in a bind.
Here's another guy's discussion of his family's CD ladders that describes it differently.
Wednesday, October 1, 2008
Beat the tax man.
If you got a tax refund this year, you blew a chance at free money.
Tax refunds are bad, bad, bad, bad, and bad.
I wish it hadn't taken me years to find this out, because I missed out on a whole lot of free money over the years.
First off, if you're getting a refund, you missed a chance to take the money that went to taxes and put it in an interest-bearing savings account during the year.
If you underpay your taxes a little in each paycheck, and put that money into savings, it earns money for you until you do your taxes in April of the next year. At that point, they let you know how much you need to pay, and you pull that much out of savings to pay it. In the mean time, it has been working hard in the bank to earn you free money.
You can even do better than that by putting some of it in a CD for several months, which has a couple of benefits. First off, it earns better interest than in the savings account, so you get even more money. Secondly, the money you put in a CD is money you can't easily touch, so it's harder to blow your savings when temptation comes around.
You can go to the IRS website and punch in a few numbers from your latest pay stub to find out how much money you should have withheld from the rest of your checks for the year to avoid paying too much (and almost everybody pays too much).
If you do this from a computer attached to a printer, you can even print out the results and take it to work, so your employer can make the change without you having to do any math or fill out forms.
There are a few other ways you can easily beat the tax man, some of which give you free money from your boss.
If your employer offers a 401K program, you should seriously consider signing up, especially if they offer a matching contribution.
What's a 401K, and what's a matching contribution?
A 401K is a way for you to save money for retirement, and every penny you contribute is money the tax man can't touch until you retire. This is good, because taxes reduce the amount that your money can work hard to make you the money you'll definitely want later.
A matching contribution is when your employer says, "If you'll put money in the 401K, we will put money in it for you, as well." This is exactly the same thing as your employer giving you a raise.
And remember the lesson on timing? The earlier you put even a tiny amount of money in a 401K, the longer it will have to earn money for you, so you won't be broke when you retire. And you seriously don't want to be broke when you retire.
But there's one more tax freebie you'll want to know about: an IRA, and specifically a Roth IRA.
The money you put into an IRA is after you pay your income taxes, and the government will never touch a penny of it ever again. Ever. Ever. It sits there earning you money for the rest of your life or until you take it out.
You can borrow money from either of these (but I'll spare you the details of all that for now), but their main purpose is to beat the tax man and make you a millionaire in time to retire.
No, really. The government actually wants you to be wealthy and has given you chances like this to do what you need to do.
Tax refunds are bad, bad, bad, bad, and bad.
I wish it hadn't taken me years to find this out, because I missed out on a whole lot of free money over the years.
First off, if you're getting a refund, you missed a chance to take the money that went to taxes and put it in an interest-bearing savings account during the year.
If you underpay your taxes a little in each paycheck, and put that money into savings, it earns money for you until you do your taxes in April of the next year. At that point, they let you know how much you need to pay, and you pull that much out of savings to pay it. In the mean time, it has been working hard in the bank to earn you free money.
You can even do better than that by putting some of it in a CD for several months, which has a couple of benefits. First off, it earns better interest than in the savings account, so you get even more money. Secondly, the money you put in a CD is money you can't easily touch, so it's harder to blow your savings when temptation comes around.
You can go to the IRS website and punch in a few numbers from your latest pay stub to find out how much money you should have withheld from the rest of your checks for the year to avoid paying too much (and almost everybody pays too much).
If you do this from a computer attached to a printer, you can even print out the results and take it to work, so your employer can make the change without you having to do any math or fill out forms.
There are a few other ways you can easily beat the tax man, some of which give you free money from your boss.
If your employer offers a 401K program, you should seriously consider signing up, especially if they offer a matching contribution.
What's a 401K, and what's a matching contribution?
A 401K is a way for you to save money for retirement, and every penny you contribute is money the tax man can't touch until you retire. This is good, because taxes reduce the amount that your money can work hard to make you the money you'll definitely want later.
A matching contribution is when your employer says, "If you'll put money in the 401K, we will put money in it for you, as well." This is exactly the same thing as your employer giving you a raise.
And remember the lesson on timing? The earlier you put even a tiny amount of money in a 401K, the longer it will have to earn money for you, so you won't be broke when you retire. And you seriously don't want to be broke when you retire.
But there's one more tax freebie you'll want to know about: an IRA, and specifically a Roth IRA.
The money you put into an IRA is after you pay your income taxes, and the government will never touch a penny of it ever again. Ever. Ever. It sits there earning you money for the rest of your life or until you take it out.
You can borrow money from either of these (but I'll spare you the details of all that for now), but their main purpose is to beat the tax man and make you a millionaire in time to retire.
No, really. The government actually wants you to be wealthy and has given you chances like this to do what you need to do.
Timing isn't everything, but it sure as heck helps.
My friend who made a lot of the right decisions and is living a good life as a result took advantage of his youth to do some things that would help him become a millionaire. And now he's well on his way.
I got a later start at becoming financially secure, so to achieve my goals, I'm making some different decisions. (But some of our differences are actually because we have different personalities. What was right for him just wasn't right for me.)
He wanted to have nice things when he was older, and didn't want to have to struggle with a bunch of debt to do it. So he set some rules for himself with the help of some money-savvy friends.
Part of his big plan was to go to a nice college full of rich people, so he could make the right connections and benefit from being in the world of the rich when he got a job after graduation. And it worked!
The starting salary for his job coming out of college was more than I make years later, because he met the right people, impressed them, and was given a good job as a direct result of who knew that he was a good guy to hire.
The sooner you start making good money, or investing money, or saving money, the more time that money will have to work for you, making you even more.
So don't p*** away a lot of time if you really want success. Every day wasted will make it harder for you to get the successful life you really want.
You only have so many years in which to earn a living, so try not to blow the chances you get.
But there's more to it than just that.
Let's say you get a job bagging groceries at the age of 18, and skip college entirely. But out of each grocery bagging paycheck, you set aside ten bucks in an interest-bearing savings account.
That first ten bucks starts earning more money for you right away. It doesn't look like much, because at first we're talking about pennies. But those pennies also earn interest.
So you keep putting in your ten bucks every two weeks, and you keep earning interest on the money you put in and on the interest itself.
Even if you stop putting money in at some point (because you lose the job, get sick, or whatever), as long as you don't take the money out of that account, it keeps earning money for you. And over years, we're talking about a lot of money.
So don't waste the time you've got. Start earning interest on at least some small bit of savings right away. Set yourself up for as good a paycheck as you can manage as young as you can, so your income can grow.
Notice that I haven't told you not to have a good time or to deprive yourself of nice things. The goal isn't to live a life of poverty, but to avoid one!
I got a later start at becoming financially secure, so to achieve my goals, I'm making some different decisions. (But some of our differences are actually because we have different personalities. What was right for him just wasn't right for me.)
He wanted to have nice things when he was older, and didn't want to have to struggle with a bunch of debt to do it. So he set some rules for himself with the help of some money-savvy friends.
Part of his big plan was to go to a nice college full of rich people, so he could make the right connections and benefit from being in the world of the rich when he got a job after graduation. And it worked!
The starting salary for his job coming out of college was more than I make years later, because he met the right people, impressed them, and was given a good job as a direct result of who knew that he was a good guy to hire.
The sooner you start making good money, or investing money, or saving money, the more time that money will have to work for you, making you even more.
So don't p*** away a lot of time if you really want success. Every day wasted will make it harder for you to get the successful life you really want.
You only have so many years in which to earn a living, so try not to blow the chances you get.
But there's more to it than just that.
Let's say you get a job bagging groceries at the age of 18, and skip college entirely. But out of each grocery bagging paycheck, you set aside ten bucks in an interest-bearing savings account.
That first ten bucks starts earning more money for you right away. It doesn't look like much, because at first we're talking about pennies. But those pennies also earn interest.
So you keep putting in your ten bucks every two weeks, and you keep earning interest on the money you put in and on the interest itself.
Even if you stop putting money in at some point (because you lose the job, get sick, or whatever), as long as you don't take the money out of that account, it keeps earning money for you. And over years, we're talking about a lot of money.
So don't waste the time you've got. Start earning interest on at least some small bit of savings right away. Set yourself up for as good a paycheck as you can manage as young as you can, so your income can grow.
Notice that I haven't told you not to have a good time or to deprive yourself of nice things. The goal isn't to live a life of poverty, but to avoid one!
Why can't I get ahead when all these other slobs are making it???
For years I was mystified.
I worked my tail off but couldn't get The American Dream while I watched people around me who seemed lazy, stupid, and/or just plain evil get cars, houses, awesome toys, etc.
I felt despair. I felt like a failure. I felt like there was no justice in the world.
And some times at 2:30 in the morning I couldn't sleep, wondering what horrible things would happen if I lost my job, or got sick, or needed a car repair I couldn't afford.
It sucked. Oh, how it sucked.
I eventually came to learn that things weren't as they seemed.
A lot of these people really weren't living the dream after all. They were flat broke, and doomed to stay that way.
They had borrowed and borrowed and borrowed to get these things until there was no realistic hope of ever shaking off the burden of debt. They were lying awake at night worrying, too!
By contrast, my best friend had taken a different route from all the broke people, including me.
He did have some luck on his side here and there, but he had also gotten some good advice early in life and had made some good (and tough) decisions early on. Although he had a great time in his youth, he also did some of "the right things" to invest in a better future.
By the time he hit his mid-twenties, he was making more money than I am even today, and has continued to enjoy a great quality of life.
He learned a lot of hard lessons along the way, and has shared them with me. And I want to share not only my hard-earned advice with you, but some of his, as well.
Because there isn't really one single solution for everybody. I hope you'll find some value for your own situation in what I'll be sharing here.
I worked my tail off but couldn't get The American Dream while I watched people around me who seemed lazy, stupid, and/or just plain evil get cars, houses, awesome toys, etc.
I felt despair. I felt like a failure. I felt like there was no justice in the world.
And some times at 2:30 in the morning I couldn't sleep, wondering what horrible things would happen if I lost my job, or got sick, or needed a car repair I couldn't afford.
It sucked. Oh, how it sucked.
I eventually came to learn that things weren't as they seemed.
A lot of these people really weren't living the dream after all. They were flat broke, and doomed to stay that way.
They had borrowed and borrowed and borrowed to get these things until there was no realistic hope of ever shaking off the burden of debt. They were lying awake at night worrying, too!
By contrast, my best friend had taken a different route from all the broke people, including me.
He did have some luck on his side here and there, but he had also gotten some good advice early in life and had made some good (and tough) decisions early on. Although he had a great time in his youth, he also did some of "the right things" to invest in a better future.
By the time he hit his mid-twenties, he was making more money than I am even today, and has continued to enjoy a great quality of life.
He learned a lot of hard lessons along the way, and has shared them with me. And I want to share not only my hard-earned advice with you, but some of his, as well.
Because there isn't really one single solution for everybody. I hope you'll find some value for your own situation in what I'll be sharing here.
The Basic Idea
I'd like to share some tips and tricks to help you improve your cash situation and enjoy life more as a result.
Over the years, I've made both good and bad financial decisions, had both good and bad luck, been ignorant and eventually better-informed about money.
In this blog, I hope to spare you some of the pain and heartache I've either known personally or seen others experience by telling you the truth about how things work in this world.
If you've ever stressed out over how to make ends meet or just wanted things you can't ever seem to afford, you may find that your life really can be better. And you may even find that things aren't always how they seem!
Over the years, I've made both good and bad financial decisions, had both good and bad luck, been ignorant and eventually better-informed about money.
In this blog, I hope to spare you some of the pain and heartache I've either known personally or seen others experience by telling you the truth about how things work in this world.
If you've ever stressed out over how to make ends meet or just wanted things you can't ever seem to afford, you may find that your life really can be better. And you may even find that things aren't always how they seem!
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