I realized I hadn't mentioned interest. Working for you or against you interest makes a big difference in today's finance. Creditors use interest rates to charge you money for your credited money and savings accounts work the opposite direction paying you interest on the money you are "lending".
Interest is simple or complicated depending on how you look at it and the number of times it is compounded per year also changes things quite a bit. There are formulas for calculating interest in its many forms the most simple is that Interest = Principal x interest rate x time. Lets say you get "about 5% APR" on a money market account, we could get an idea of your interest in a year simply by multiplying what you have in the bank by .05 and we have an estimate of what you would make in a year. So in this example we would get the interest 1 time at the end of a year, usually this is not used in today's market. Usually accounts award the interest on a more frequent basis, this is called compounding.
I won't go over the math for this but just say that the more often the money is compounding the more interest will be made this is because the interest itself will be making interest. When you are investigating any interest account either as credit or savings you should be able to get an idea for how often the account compounds and often you will see an APY (annual percentage yield) in addition to the APR (annual percentage rate) the APY gives a slightly different rate and should be higher because it contains the compounding adjustments for a years time using this rate you can perform the simple multiplication described above.
Remember with interest you want it to work for you lower rates on credit and higher rates on savings. Examples of different rates would be for loans a credit card would be above 10% many times well above but a secured loan I took out was less than 8%. For savings you might find rates at 2% for some CDs, higher or lower depending on how much you are putting into it, or the amount of time you are putting it in for. Remember the more money or the more time something is subject to an interest rate the interest will grow. Also, APY is going to give you a quick idea about how much you are going to make with your savings.
Sunday, July 22, 2007
Emergency / Short Term Savings
I was actually able to combine these types of savings for the most part so I will cover them together. It is always a good idea to have a certain amount of accessible money for emergencies. I like to have a certain amount in my checking account for immediate emergencies and then another amount in an emergency savings type of account.
First the checking account money is important to have for emergencies that are pay now types. I would call a pay now emergency something like car problems you want to get the bill paid when the car breaks down. Also there are emergencies that may be pay "later" you can have a day or two to transfer the money from your savings account to checking to be available this might be something like injury or losing a job. Your checking account sum should be probably in the range of a months expenses you wouldn't be able to get much interest on that money in a month anyway.
The other emergency short term savings should cover about 3 months expenses just to have a time of recovering in case of problems. Larger amounts of short term savings should be held in an interest bearing account. There are quite a few options for short term savings from interest checking accounts, to savings accounts, even some CD accounts. I personally have been impressed with the opportunities presented by Money Market accounts. These accounts carry restrictions similar to savings accounts but have higher interest rates some are even around a 5% APR.
The choice of savings account type depends on how you like to access your money, how much rollover you might expect, and how much you are hoping to make in interest. Some examples of money market restrictions can be seen here. I am currently holding my short term savings in an internet money market which is at about 5% APR and is not too much of a hassle if you are used to online banking. It gives a decent amount of flexible access and can be accessed for short term needs.
First the checking account money is important to have for emergencies that are pay now types. I would call a pay now emergency something like car problems you want to get the bill paid when the car breaks down. Also there are emergencies that may be pay "later" you can have a day or two to transfer the money from your savings account to checking to be available this might be something like injury or losing a job. Your checking account sum should be probably in the range of a months expenses you wouldn't be able to get much interest on that money in a month anyway.
The other emergency short term savings should cover about 3 months expenses just to have a time of recovering in case of problems. Larger amounts of short term savings should be held in an interest bearing account. There are quite a few options for short term savings from interest checking accounts, to savings accounts, even some CD accounts. I personally have been impressed with the opportunities presented by Money Market accounts. These accounts carry restrictions similar to savings accounts but have higher interest rates some are even around a 5% APR.
The choice of savings account type depends on how you like to access your money, how much rollover you might expect, and how much you are hoping to make in interest. Some examples of money market restrictions can be seen here. I am currently holding my short term savings in an internet money market which is at about 5% APR and is not too much of a hassle if you are used to online banking. It gives a decent amount of flexible access and can be accessed for short term needs.
Introduction to Saving
Savings that little bit of money set away for a rainy day. We all know that we should be saving money for the future not only is it a healthy and safe practice but it is liberating and necessary if we hope to have something to keep us alive later on when we might decide to retire. There are many different forms of saving money for the future and also different types of savings. I will try and go over 3 major types of savings:
emergency savings
short term savings
long term savings
These 3 types of savings are usually handled in different ways and I will go over experiences with all three. One other thing I want to stress is the power of savings to bring freedom and peace of mind into your world. Being able to cover your necessary living expenses for several months for example allows you time to recover from loss of a job, injury, or other losses of income. If you are not able to cover these things not only would you have more worries but may face such things as eviction. We want to control our money so it does not control us. Well on to a little bit of savings then.
emergency savings
short term savings
long term savings
These 3 types of savings are usually handled in different ways and I will go over experiences with all three. One other thing I want to stress is the power of savings to bring freedom and peace of mind into your world. Being able to cover your necessary living expenses for several months for example allows you time to recover from loss of a job, injury, or other losses of income. If you are not able to cover these things not only would you have more worries but may face such things as eviction. We want to control our money so it does not control us. Well on to a little bit of savings then.
Sunday, July 15, 2007
Building Credit
I am sure many of us have heard horror stories about a good person with a good job and no debt trying to get a loan for a house or some other purchase and they are turned down or some other negative thing happens because they do not have a credit history. If you don't have history it is going to be hard to have a good credit score simply because it is a report of your history. Simple approaches can work very well for the problem of building credit. My first experience was very simple it was an overdraft protection on my checking account. I decided to use the overdraft a few times and pay it off promptly even sometimes in the same day. Doing this over the period of only a few months let my credit presence be known and later when applying for a loan I had a good credit score from one little account. A few things to consider about building credit:
You don't have to have large purchases
You don't have to carry a balance for large periods of time
Take advantage of offers early in life for small things to build for later things, students especially have many opportunities with student accounts or credit cards
I do not advise carrying any large amount of debt other than for "necessities" of life principally an affordable home. Building credit helps with future goals such as being able to get a home loan.
You don't have to have large purchases
You don't have to carry a balance for large periods of time
Take advantage of offers early in life for small things to build for later things, students especially have many opportunities with student accounts or credit cards
I do not advise carrying any large amount of debt other than for "necessities" of life principally an affordable home. Building credit helps with future goals such as being able to get a home loan.
Debt
This is a point of warning before any more talk on credit. Debt is a thief of freedom. We value freedom very highly as human beings and even children have a sense of wanting to live their own lives. Debt makes us slaves to our creditors and we will live with much better peace of mind and enjoy our lives when we avoid debt.
Requesting a credit report or Credit Score
There are 3 businesses in the US that monitor credit. Equifax, Transunion, and Experian
The US government has worked with these companies and they now provide everyone to obtain a free credit report once a year. Each company will give you access to your report once a year so you are entitled to 3 reports a year. Some people elect to see all three at the same time or you can space them out over the year to have an updated view of your credit more often. To obtain the free copies of your credit report you can visit http://www.annualcreditreport.com/ which is the site that is listed by the government to access the free reports.
Also available from these companies and others is the opportunity to view your credit score. This service usually comes with a fee and I have not had a use for it as of yet. I took out a small personal loan last year and in the process the lender obtained my score and I was able to ask them the score and hear it in that way, so if you are in that position keep that in mind and when applying for credit you may be able to ask for your score in the process. I have heard that too frequent requesting of your score can have a negative effect on credit and that is one of my reasons for avoiding requesting it. Also, as mentioned in the previous post credit scores are simply a number used by lenders to assess reliability. If you obtain your credit report you can get a feel for what type of a score you might have.
The US government has worked with these companies and they now provide everyone to obtain a free credit report once a year. Each company will give you access to your report once a year so you are entitled to 3 reports a year. Some people elect to see all three at the same time or you can space them out over the year to have an updated view of your credit more often. To obtain the free copies of your credit report you can visit http://www.annualcreditreport.com/ which is the site that is listed by the government to access the free reports.
Also available from these companies and others is the opportunity to view your credit score. This service usually comes with a fee and I have not had a use for it as of yet. I took out a small personal loan last year and in the process the lender obtained my score and I was able to ask them the score and hear it in that way, so if you are in that position keep that in mind and when applying for credit you may be able to ask for your score in the process. I have heard that too frequent requesting of your score can have a negative effect on credit and that is one of my reasons for avoiding requesting it. Also, as mentioned in the previous post credit scores are simply a number used by lenders to assess reliability. If you obtain your credit report you can get a feel for what type of a score you might have.
Credit Score/Credit Report
I know this is something that we hear quite frequently in our day of borrowing money and identity theft.
First lets go over the two terms
Credit Report
A credit report is a list of your credit transactions typically including loans, credit cards or other money borrowed from an official lender. The report has different sections of information that you can review, it may include; a credit summary, detailed account information, inquires made by lenders, any accounts turned over to collections, public record information, and information on your file disputes. In summary it is your history of how you interacted with your lenders and how you managed your accounts.
Credit Score
Using a summary view of a credit report a person receives the all elusive Credit Score. This is a number that is used to predict your credit reliability based on your past experiences. A high credit score suggests that you are a reliable person that has been good with creditors in the past and should continue to do so.
With the two terms better in mind we will talk about what they do. First the Credit Report is a useful tool to you the consumer to get an idea about what things might have and affect on your credit. You get to see your past accounts and check if any information might be suspect. These reports have become an important tool in protecting yourself against identity theft to check that you don't have accounts that you don't know about. For the most part the consumer uses the report or the agencies that give a credit score use it.
Second the credit score, lenders are going to be using this and not the credit report. They don't need every detail of your past experience they simply want to have an idea about the risk they are taking by giving you money. Remember high numbers typically will get you better interest rates and will help you be accepted for a loan.
That is a little bit of explanation about the two Credit watch dogs.
First lets go over the two terms
Credit Report
A credit report is a list of your credit transactions typically including loans, credit cards or other money borrowed from an official lender. The report has different sections of information that you can review, it may include; a credit summary, detailed account information, inquires made by lenders, any accounts turned over to collections, public record information, and information on your file disputes. In summary it is your history of how you interacted with your lenders and how you managed your accounts.
Credit Score
Using a summary view of a credit report a person receives the all elusive Credit Score. This is a number that is used to predict your credit reliability based on your past experiences. A high credit score suggests that you are a reliable person that has been good with creditors in the past and should continue to do so.
With the two terms better in mind we will talk about what they do. First the Credit Report is a useful tool to you the consumer to get an idea about what things might have and affect on your credit. You get to see your past accounts and check if any information might be suspect. These reports have become an important tool in protecting yourself against identity theft to check that you don't have accounts that you don't know about. For the most part the consumer uses the report or the agencies that give a credit score use it.
Second the credit score, lenders are going to be using this and not the credit report. They don't need every detail of your past experience they simply want to have an idea about the risk they are taking by giving you money. Remember high numbers typically will get you better interest rates and will help you be accepted for a loan.
That is a little bit of explanation about the two Credit watch dogs.
Virtual Money
Money is a powerful tool and often an object of desire among humans and it can also be a burden when mismanaged. We all know that money can buy things that we want and that we are going to need it for necessities of life such as food and shelter. Most money used in transactions these days is virtual, meaning we don't actually carry the cash. We use debit cards, credit cards, and occasionally we even still use checks but these are all forms of payment that don't have the cold hard cash at hand.
We also face the daunting beasts of "inflation" and "debt". We hear the words and want to run and hide. Honestly the common person hardly knows what inflation is and even less what exactly causes it. Lets just consider a simple explanation: as time passes the money we are using is going to decrease in value by a hopefully small percentage every year. Simply put prices rise over time and thus cost of living increases and we tend to need more money. With the invisible agent of inflation working against us among other things we need to figure our how to take care of our money so that it can take care of us. Several areas of personal finance exist and I will comment on these and others.
Savings/Investments
Credit
Budgeting
Purchasing
Finance on the Web
I'm sure I will think of other things as I go.
We also face the daunting beasts of "inflation" and "debt". We hear the words and want to run and hide. Honestly the common person hardly knows what inflation is and even less what exactly causes it. Lets just consider a simple explanation: as time passes the money we are using is going to decrease in value by a hopefully small percentage every year. Simply put prices rise over time and thus cost of living increases and we tend to need more money. With the invisible agent of inflation working against us among other things we need to figure our how to take care of our money so that it can take care of us. Several areas of personal finance exist and I will comment on these and others.
Savings/Investments
Credit
Budgeting
Purchasing
Finance on the Web
I'm sure I will think of other things as I go.
Here we go with tidbits of knowledge
Well, I finally figured out something I can blog about and try to contribute something to the www. I am a young married college student that has received some benefit from personal finance practices and maybe can pass some of that on in a simple way that gives some ideas to people trying to get a handle on similar situations. Good luck and I hope something on this site helps.
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