This is more from our session with our church leader.
Question: Should we be looking at life insurance and what type?
Answer: Especially if you have children you should consider getting life insurance. This is especially important for the bread winner of the family. Term life insurance is a relatively inexpensive way to go because it does not build a cash value.
I will also discuss insurance more later.
Question: Should we have a will?
Answer: The main reason at our age to have a will was to designate guardianship of our children if we did not have a will covering that then the state decides the fate of the children.
Questions were also raised about budgeting and retirement investing.
With budgeting one of the main points was to review a few months statements if using a credit card approach and budget using the past as your guide, be careful with food purchasing a lot of money can be wasted on nonessential foods, start with set expenses such as church/charitable donations, rent, utilities, and others.
With retirement we discussed the approach of starting good habits now, Aiming for home ownership, IRA accounts and a few other things I will discuss in detail later.
We also discussed government aid programs and the opportunities available to get help with medical insurance, grocery shopping, and home buying. These will be other things I will try and cover in depth as well.
Wednesday, August 1, 2007
Question and Answer Session
I recently had the opportunity to attend a church sponsored session with a leader in our church where he spoke to some young married couples about financial management and I am going to post a few things covered in that here.
He talked about how April showers bring May flowers meaning that the more we can do early in life the more it will help us later on establishing good habits makes a big difference in life.
3 reasons for credit cards
You get a detailed monthly statement which can help you follow your expenses (Useful in Budgeting)
Very convenient to use
Possible minor benefits such as air miles
I would add to this the concept of improving your credit history
Warnings on credit cards, they are one of the worst ways to borrow money, pay them off every month and do so as soon as you get the bill. He mentioned that missing the payment by even a day can bring all sorts of extra charges that may not even make sense as well as raise interest rates on all of your credit accounts not just the one card you missed. There is a term called Universal Default which means for a late bill payment of whatever type be it utility or credit card or whatever interest rates can go up for everything because of 1 missed payment.
Rule of thumb: Don't spend what you don't have
He talked about how April showers bring May flowers meaning that the more we can do early in life the more it will help us later on establishing good habits makes a big difference in life.
3 reasons for credit cards
You get a detailed monthly statement which can help you follow your expenses (Useful in Budgeting)
Very convenient to use
Possible minor benefits such as air miles
I would add to this the concept of improving your credit history
Warnings on credit cards, they are one of the worst ways to borrow money, pay them off every month and do so as soon as you get the bill. He mentioned that missing the payment by even a day can bring all sorts of extra charges that may not even make sense as well as raise interest rates on all of your credit accounts not just the one card you missed. There is a term called Universal Default which means for a late bill payment of whatever type be it utility or credit card or whatever interest rates can go up for everything because of 1 missed payment.
Rule of thumb: Don't spend what you don't have
Sunday, July 22, 2007
Interest
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.
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.
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.
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