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True Or False – You Should Auto Pay All Your Bills?

If your goal is to simplify your finances one thing the experts tell you to auto pay all your bills. That way you’ll never have to remember your payment due dates, never have to mail a check and never have to remember whether you paid that utility bill or not. If you have online banking then putting your bills on auto pay should be a real snap. You might even be able to have your statements sent to you electronically so you would never again have to worry about filing them or ultimately shredding them. Putting your bills on auto pay would certainly help simplify your finances but should you really put all of them on auto pay?Manager working diligently on the computer

The pros

The biggest pro of putting your bills on auto pay is, of course, convenience. As noted above when your bills are on auto pay you’ll never have to wonder whether or not you’re late on a payment or when your bills are due. When you fully automate your bill paying you’ll had made sure that your bills will be paid when they’re due and in full – assuming, of course, that you have a sufficient amount of money in your checking account to cover them.

You might also earn some nice incentives by signing up for auto pay. This is because there are companies that will reward you for paying them automatically. As an example of this, Nelnet will cut the interest rate on your loans by 0.25% when you agree to pay it automatically. This may not seem like a lot but could actually add up to many thousands of dollars over the life of your loan.

Third, paying your bills automatically can help your credit score because it should mean you never miss a payment. And missed payments can hurt your credit score fairly seriously. In fact, missing a single payment could ding your credit score by 60 points. Miss two and your credit score could be reduced by 120 points, which could drop you from having a good credit score to a poor score. In either event this would ultimately cost you money because you’d end up paying higher interest rates. This might even increase the cost of your auto insurance premiums.

The cons

There’s no question but that automatic bill pay can make your financial life simpler. However, there are times when it might not make good sense.

One of these is if you need tight control over your monthly spending. If you’re living from paycheck to paycheck then paying your bills manually could make better sense as this would give you greater control over how you allocate your funds and keep you from going into overdraft in a tough month. This would also help you keep money available for crucial expenses such as food and rent.

A second type of bill you might not want to put on auto pay is one that varies monthly. An example of this might be your utility bill, which could vary considerably between winter and summer – especially if you have air conditioning. If you were to put it on auto pay and had a very hot June or July this could substantially mess up your monthly finances. On the other hand, if you have bills such as a cell phone bill or your rent that remain the same from month-to-month they would be great candidates for auto pay.

A third consideration is that if you’re not careful you could end up paying for things you didn’t intend to buy. For example, it’s never a good idea to set up auto pay for temporary services or memberships. There are instances where if you were to try to cancel or change the service you could end up in customer service hell. Suppose you were to sign up to try Amazon’s Prime Service free for a month. If you forget to cancel you could find yourself hit with an unpleasant surprise – a $99 yearly fee.

Some other things to consider

When you sign up with a company for auto-pay this tells your bank to automatically approve requests to withdraw money for that company. The Federal Trade Commission says that you should only do this with those companies you trust and know. If not, you could wind up paying for stuff you didn’t want. It’s also possible that automatically paying your bills would make you more susceptible to having your identity stolen. While this may or may not be true it’s always a good idea to carefully read the company’s privacy policy and make sure that it will encrypt all of your transactions digitally.

As we have seen from the data breaches that recently hit Anthem Blue Cross/Blue Shield and Target there is no such thing as a totally safe website. However, automatic bill payment is usually much safer than mailing your payments physically. This is due to the fact that the postal system is more vulnerable to tampering and interception.

Video thumbnail for youtube video 6 Tips For Simplifying Your Financial LifeThe net/net

Automatic bill payment may not be for everybody but it is a very convenient way to pay bills for many consumers – making sure their bills are paid in full and on time. It can save money as well as time. But most banks now allow you to set up your bills to be paid online but not automatically. While this puts the burden of paying your bills back on your shoulders it does provide the convenience of paying your bills electronically but allows you to keep control of how much money goes out of your of your account each month. We have a number of bills that vary from month to month. We have it set up with our bank so that we can pay them online. When one of these bills arrives in the mail we note its due date and then immediately go online to our checking account and arrange to pay the bill on that date. This eliminates the need for us to remember to make the payment as well as the annoyances of having to find a stamp and to get the bill in the mail in enough time for it to make its due date. We view this as sort of the best of both worlds.

Automate your saving, too

In addition to putting your bills on auto pay it’s also a good idea to automate your saving. This short video explains how to do this and why it makes really good sense.

Watch Out For These Financial Scams

Nobody wants to get scammed but unfortunately it’s almost impossible to avoid it these days. You’ve probably read about the data breaches at Target and Anthem Blue Cross/Blue Shield and you can bet that there will be more in the future. Scammers can be very smart and no matter how carefulMan in ski maskly we guard our finances they can find ways to steal our money.

Financial scams generally fall into one of two categories – mortgage scams and credit card scams. Here’s information that can help you understand both of them and what steps you can take to protect yourself.

Credit Card scams

It’s hard to keep track of credit card scams because they come in many different forms. Scammers sometimes use spyware or some other way to obtain your credit card information. Or a scammer might trick you into revealing your security code, which is that little three or four digit code on the back of your cards. They then use this information to buy stuff over the Internet or by telephone. If they can find some way to get your PIN number they could actually get cash advances from an ATM using what’s called a “cloned” credit card. This is where they copy the details on your card to another card’s magnetic strip. Then of course it’s possible that someone could use your credit card if you lost it or it was stolen.

The warning signs of a credit card scam

There are things to watch out for that can tell you that you may have been scammed. For example, you may find transactions on your credit card statement that you don’t understand or don’t remember making. Maybe you gave your credit card information to someone that you now believe might not be trustworthy – like over the Internet. Of course, you could have lost your card or you could have kept your security information (your PIN or personal access code) near your card and it went missing.

How to avoid credit card scams

If you follow these tips it’s relatively easy to avoid a credit card scam.

• Do not share your PIN (personal identity number) with anybody. And make sure that you don’t keep a copy of your PIN number with your card.

• Don’t ever send money or give information about your credit card or online account to anyone that you do not know and are not sure you can trust.

• When you get your bank account and credit card statements each month make sure you review them carefully. If you find a transaction that you can’t explain or don’t understand report it to your bank or credit union.

• Don’t do your Internet banking in public places such as Internet cafés or libraries.

• Make up passwords that would be difficult for other people to guess. Research has revealed that many people use passwords such as 123456 or ABCDEF or even the word password. These passwords are simply too easy to guess. If you have a problem thinking up a secure one go online to a password generator for help.

• Don’t provide your credit card, online account details or personal information over the phone unless you are the one that made the call and that the phone number was that of a source you trust.

• Finally, don’t ever send your personal, credit card or online account details in an email.

Report suspicious activity

If you believe your identity has been stolen or that someone else is using your bank account or credit card be sure to report this immediately to your bank. If the scam involved your credit card your liability is probably limited to $50 and it might even be waived. It’s a different story if your debit card was involved as it could take up to 60 days to get your money back.

House and calculator and credit scoreMortgage scams

While most mortgage lenders are honest and ethical every industry has its bad apples and so does this one. Here are the signs that the lender could be a scammer.

Many points

You may want to purchase points to reduce the amount of interest that you will be required to pay on the loan. If you find that points have been built into the loan of more than 3% to 4% of the total loan amount, this is a sign that the lender may be questionable. Your best option would be to go someplace else.

Not taking into consideration your ability to pay

A good rule of thumb is that your mortgage payment should not be more than of 28% of your gross monthly income. While it’s not the lender’s job to help you with your household budget it should ask a lot of questions about your finances especially about your income. In the event the lender doesn’t, this is probably not a company with which you want to do business.

Penalties for prepayment

You should not be charged a penalty if you decide to pay off your loan early. Lenders that are unscrupulous will try to charge a prepayment penalty of 5% or more. This fee could make it very difficult for you to get out of your loan later.

Inflated interest rates

If you’re trying to get your loan through a mortgage broker ask if it will be paid what’s called a “yield spread premium.” If the answer is yes, run do not walk out of the office. This means that the broker is charging you a higher interest rate than the one you would actually qualify for. It’s his or her way to make extra money and it’s entirely unnecessary.

“Bad credit doesn’t matter to us”

If a lender tells you that it doesn’t matter whether you have bad credit this will probably be a predatory loan and will almost certainly have terrible terms. The sad fact is predatory loans are often aimed at lower-income people as they are more likely to have bad credit.

Balloon payments

You may be offered very good terms if you agree to a balloon payment, which is a lump sum that’s due at the end term of the loan. There are cases where this payment can be as high as the amount of money you originally financed. Don’t be sucked in by what seems to be better terms prior to that balloon payment. Do the math and you may find that it won’t work out for you.

Inflation of home value or income

If a lender helps you qualify for a mortgage loan by inflating the value of the home or your income, avoid it. This is not neither legal nor ethical and second, if you can’t afford the loan you’re just headed down a slippery slope towards trouble. Besides, if the lender is willing to lie for you they may be lying to you. This is definitely not a company with which you would want to do business.

There’s not a good a good-faith estimate

By law lenders must provide you with basic information about the loan including its estimated cost. This comes in the form of a good faith estimate on a form called HUD-GFE. If you don’t receive the GFE within three days or it comes on some other form, just don’t use that company.

If it sounds too good to be true

The net/net here is that if you’re being offered a deal on your mortgage that sounds too good to be true it probably is. Make sure you don’t fall for predatory mortgage loan tactics and up with a loan you can’t afford or that has really awful terms. There are numerous websites available designed to help you find a good mortgage loan. Use one of them to make sure you’re not scammed.

Budgeting For People Who Hate Budgeting

When you hear the B word as in budgeting, does it cause cold chills to run up and down your spine? Or maybe it feels as if someone had just run his or her fingernails up and down a blackboard. If you hate budgeting it’s probably because you’ve always tried to do it the hard way, which means tracking every single little thing you spend money on down to that candy bar you purchased at work last week. Then you had to get out all of the receipts you saved so faithfully, your credit card statements and your checking account statement, make a list of everything and then divide it into categories. Ouch!budget on top of money

Then there’s figuring out how much money to allocate to each category, hoping that when you total it all up there will be money left over to save or to pay down your credit card debts. But that’s not even the hardest part. The hardest part is sticking to that budget. This is so much work we can understand why you would hate the B word. Well, take a deep breath and relax. There is a much easier way to budget but that will still get you to where you want to be.

No complicated tracking schemes

If your goal is to get your finances under control without the headache of budgeting the traditional way there are easier answers. It begins with making a simple spreadsheet. List on it your monthly expenses and income. Don’t have a cow over your expenses. Just estimate how much you spend each month by general categories. You can probably do this in about five minutes.

Have just a few categories

There’s a lot of budget software out there where you are required to fill in a zillion different categories and subcategories. If you’re kind of a linear person this can be useful but it’s not required. Use broad categories instead like food, gasoline, entertainment, housing and utilities. You can always make adjustments or add more categories later.

A simple budget

There are many different ways to organize a budget but the easiest is what’s called the “60% solution.” This just means fitting your normal monthly expenses into 60% of your net income so that you will have room left over for savings, retirement and “fun money.” These are the areas that can break you budget if you forget to include them.

What goes in the 60%?

These should be your monthly expenses including housing, insurance, food, Internet, and transportation. And yes, this is the part that is generally thought of as being your budget.

The rest

Of the 40% you should have left then 10% should go towards your retirement. The easiest way to do this is to have the money automatically withdrawn from your checking account and put into your 401(k) or IRA. If your employer offers a 401(k) that’s where the money should go at least for now. Ultimately you will want to have an IRA, too, but that’s the subject for another article.

A second 10% should be allocated towards debt reduction or long-term savings. This is money that you should invest in stocks, a mutual fund or an index fund and can also serve as an emergency fund. If you’re having a problem with debt, you should use this money to pay it off and you might even want to take some money from another of your categories such as retirement so that you could increase this to about 20%. Of course, once you’ve gotten your debts paid off then you can change back to long-term savings. In the event that you are working to reduce your debts, you should also create a small emergency fund out of either this category or the next one.

Short-term savings

A second 10% should go for expenses you can’t exactly anticipate. This would include auto repairs or maintenance, medical expenses, birthday and holiday gifts and home maintenance. Don’t be afraid to spend this money when these expenses crop up.. That’s what it’s for. When you run into these expenses the money will be there to cover them instead of having to take it out of one of your other budget categories or worse yet putting it on a credit card

Fun Money

Here comes the good stuff. As mentioned above, you need to have some fun money and this should be the final 10% of your budget. You can use this money to eat out, go to movies, buy books, go clubbing, camp out overnight or whatever it is that you enjoy. And you can do it guilt free because you’ve covered all your other bases.

Pay all your bills online

You can simplify your financial life considerably just by arranging to pay all of your bills online. This should be most of the stuff in your 60% category such as rent or your mortgage payment, utilities, cell phone, etc. If for some reason you can’t pay these electronically arrange to have your bank mail checks to your vendors. And arrange to have these payments made automatically so that you will never have to worry about missing a payment.

Automate your savings, too

You can also automate your saving, which makes it much easier because it’s harder to miss money you never see. Get a high-yield online savings account such as from ING Direct, or HBSD and have transfers made automatically to it from every one of your paychecks.

Use cash for everything else

Assuming that you’ve set up automatic bill paying and saving you should be able to pay cash for everything else such as your fun money, gas and groceries. You can go to your bank, credit union or a nearby ATM and get the money twice a month. The reason that you want to do this instead of using credit cards or checks is that it’s simpler. When you pay cash for things you never have to worry about overspending. In fact, you shouldn’t use credit cards unless you absolutely have to such as when you’re traveling.

woman with a full grocery shopping bagHave three envelopes

If you decide to use cash for the three categories listed above, get three envelopes and label them accordingly. When you go shopping for groceries, bring the groceries envelope with you. You will know exactly how much is left in that category before you begin shopping. Pay for your groceries out of the envelope and you’ll easily be able to see how much is left. It’s simple and requires no tracking. Of course, when the money is gone, it’s gone. You’ve spent the amount you budgeted. If you’re a few days short of when you will next get cash, you could move the money from one envelope to another with no need to make adjustments to your budget.

Just 20 minutes a week

There, you now have a budget, you’re organized and you have your finances under control. However, you’ll need to do some maintenance and that should require only about 20 minutes weekly. Schedule each week a day and time to review your finances. Spend that time putting your transactions into your financial software or spreadsheet. Assuming you’re using the plan outlined in this article all you’ll have to do is go on the Internet review your bank account and enter the bills you paid, deposits, ATM withdrawals and any fees you were charged. You might want to spend another 5 to 10 minutes reviewing your budget to make sure that all of your bills were paid. If not, pay them. It’s that simple.

The Best Ways To Buy Clothing Cheap You Don’t Know About

If you have a family we don’t need to tell you how much money it costs to clothe them. Keeping your family in clothes can be especially expensive if you have kids – that are always outgrowing their stuff. As of 2012, the most recent year for which this information is available, the average American family was spending more than $600 a year per person. If yours is a family of four that’s $2400 and this was nearly 5 years ago. You can just bet it’s gone up fairly substantially since then.

Thrift stores, yes thrift stores

The best way to buy clothing cheap that you probably don’t know about is thrift stores. Yes, thrift stores. That’s the best place to update your wardrobe regardless of the season for the least amount of money. Spring has just about sprung and summer is on its way. But what could you do to make the most out of your thrift store shopping?

Start with no expectations

The best way to maximize your thrift store shopping is to approach it with no expectations. It’s usually possible to browse aisles of bottoms, tops, dresses and more. So don’t begin with some particular item in mind such as a new blouse, skirt or shirt. Have a flexible attitude so that you can browse through everything. Yes, we know that sounds like a chore. But you really need to go through the entire store to update your wardrobe. The odds are that you’ll find the store is not very well organized. You might find that women’s apparel is mixed in with the men’s or that a blazer made for a man could be a better fit than jackets found in the woman’s section. You just never know. Begin by giving the entire store a quick once-over. The rapper Macklemore doesn’t just sing about thrift stores. He shops them regularly and recently said that of the more than the 3000 purchases he’s made in these stores the best have come from sections that weren’t even meant for him.

First hit the hot spots

There’s something else you probably didn’t know. Thrift stores have hotspots. You can spot newly stocked racks when employees put them out on the sales floor. You should check these out first because the best goods and the items that are most in-season are usually the first to go. Another hot spot is the racks right outside dressing rooms. This can be a virtual gold mine for in-season clothes and items that are in the best condition but are there because they didn’t fit someone else.

Don’t just buy clothes, accessorize

Let’s say that you’re browsing your nearest thrift store but aren’t doing very well. If you’re not having much luck finding an outfit don’t stop there. Go through all the accessories. You might be able to find a cute spring purse, a skinny belt, a light scarf, a gently-worn watch or a few wrist bangles just sitting there waiting to be grabbed up.

Examine everything carefully

Maybe this goes without saying but we’ll say it anyway. Make sure you closely examine whatever it is you’re thinking of buying in a thrift store. If it’s ripped, stained, overly worn or discolored you probably won’t be able to fix it. And you won’t be happy wearing it. On the other hand, if you believe the problem can be fixed, then go for it – assuming the cost to repair it won’t trump your thrift store shopping bargain. For example. If you were to find a great looking pair of pants with a ripped knee this is something that could be patched at a very low cost. On the other hand, a grease stain down the front of a summer dress is likely to stay there forever.

Choose kids clothing, popular labels and maternity clothes

It’s not a closely guarded secret that some brands hold up better than others. If you find something you like check the labels. One of the best ways to freshen up your child’s wardrobe is through thrift store shopping. Kids stuff is typically not worn out because they outgrow them and, of course, pregnancies last only so long. If you’re in the expecting way thrift stores can be a good place to score some great-looking maternity clothes at a fraction of what you would pay for them new.

What to avoid

Just as there are some things it makes sense to buy in thrift stores there are some things to avoid. You should probably never buy used underwear and socks due to health and sanitary reasons. You should also stay away from hats, boots and shoes for the same reason.

When to shop thrift stores

While there is no ideal time to shop thrift stores it’s a good idea to talk with some of the workers there to find out when new inventory arrives and when sales are scheduled. If there’s a thrift shop fairly close to where you live, you might make a habit of visiting it often so you could learn its schedule. And, of course, some of the best bargains surface when items are out of season. You might be looking for some spring or summer clothes but could score some really great buys on winter wardrobe updates, too.

If you just can’t bring yourself to shop thrift storesWoman smiling with monitor in the background

We understand that some people would have a really hard time shopping thrift stores. If you just can’t bring yourself to do this but are not adverse to the idea of wearing gently used clothing you could go to Swap.com and connect
with 500,000 other people looking to trade items such as clothing, books, electronics and jewelry. When we last checked Swap.com had 1.5 million items to choose from.

If you have kids that are outgrowing their clothes check out the website Thredup.com. This site is designed to help you get rid of the old clothes and find used ones that fit.

Finally, the online websites RueLaLa, Gilt.com and ShopItToMe offer designer clothes for women, children and men at 40% to 70% off. If you were to shop these websites as well as a couple of nearby thrift stores you should be able to cut your clothing budget dramatically.

9 Tips For Spring Cleaning Your Personal Finances

Cleaning womanFor many of us spring just arrived – at least officially. We’re watching our lawns green up, thinking about having carpets cleaned and wondering when we’ll have time to clean those dirty windows. Now would also be a good time to think about your personal finances and what you could do in terms of spring-cleaning them. Here are nine tips that could help spruce them up, too.

#1. Revisit those credit card offers

The credit card companies are now hollering for business. One research firm has reported that the direct mail offers from credit card companies increased 12% between November and December. Did you receive one or more of these offers? Now might be a good time to apply for one, as the rewards offers are getting juicier. In fact, the credit card companies have been 25% more generous in handing out frequent-flyer miles, rewards points and sign up bonuses versus what they were offering just a year ago.

#2. Check out the new home financing options

The big quasi-governmental organizations Fannie Mae and Freddie Mac recently announced programs where you could put down as little as 3% when buying a home. The Federal Housing Agency requires as little as 3.5% down and recently lowered its annual mortgage premium. So if you’re thinking about buying a house now might be a good time to start shopping.

#3. Go cheap

There are some items were it doesn’t pay to be cheap such as toilet paper. However they’re other items where you can save a good deal by skimping. Grocery items are often marked way down when they near their sell-by dates. These can be perfectly okay so long as you either freeze or cook them right away. Inexpensive dishes and glassware will hold up just as well is the more costly ones. Plus, it hurts a lot less when you break a plate. Another place to save is on children’s clothes, as they will soon be outgrown anyway.

#4. Get your FICO score free

JP Morgan Chase, USAA, the State Employees’ Credit Union, Ally Financial, Discover and Bank of America are in the process of rolling out programs that will provide their customers with their FICO scores free. This is a monumental change because it will help you know your own creditworthiness, which is critical when it comes to applying for a loan or credit card. However, this is an area where it pays to be a bit careful as not all credit scores are created equal – even those that carry the FICO brand. But whichever you get should be close enough to your true FICO to know how potential lenders will view you.

#5. Move your money to an online savings account

The job market has approved this past year and gas prices dropped dramatically. If these have left you with some extra money you could save the best place to put it isn’t in a conventional bank or credit union savings account. These have an annual yield of around 0.0017% meaning that if you were to save $1000 you would earn just $1.70. But the online banks can generally offer higher interest rates and charge lower fees because they are not required to maintain brick-and-mortar branches. As an example of this MySavingsDirect and GE Capital Bank are currently offering 1.05%. While this may not change your life much it is certainly better than what you would get from your local bank.

Adult Woman#6. Get the credit card you want

We know that if you’ve been rejected for a credit card it can really sting. There are ways to maximize your chances of getting the cards you want and the most important is, of course, to maintain a high credit score. The way you do this is to pay your debts on time and carry as little debt as you possibly can. You should also space out your credit applications. You could call and ask for your application to be reconsidered if you have been rejected. Your creditor might send you a rejection letter explaining why you were rejected. In this case learn a lesson and take whatever steps would be required to remedy the problem. You can learn more information about raising your credit score by checking out this brief video.

#7. Consider leasing you next car

If you can pay cash for your car and keep it past your loan’s payoff date you will probably come out ahead financially. But if you are always shackled to a car payment because you trade in frequently, then leasing could be a good choice. You will have lower payments because you’re paying for the depreciation of the car only over the term of the lease. Also, the car will almost always be under warranty because most leases are for three years. As an example of what this could mean, if you were to lease a 2015 Chevy Malibu for three years you will come out $4000 ahead then if you were to buy the car with a five-year loan and then sell it after three years.

#8. Check out a HELOC

If you have equity in your home now could be a good time to tap it. It’s likely that the Fed will raise interest rates in the coming months and you might be able to get a HELOC or home equity line of credit with a good temporary fixed rate before any interest rate increase. While HELOCs generally have interest rates that fluctuate, some of the current offers have a fixed rate from 12 months to many years and this can be a way to save money if you plan to pay it back before the fixed-rate period ends. And it could be a good way to finance renovations to your home, to cover college tuition or to consolidate your credit card debts.

#9. Save money with free coupon apps

If you stayed away from using coupons because it all seemed too time-consuming then rejoice. It’s now as simple as swiping the screen on your smart phone. There are dozens of apps available that will help you compare prices, navigate sales and even get money back on some of the stuff you buy. ShopSavvy and RedLaser will let you scan an item’s barcode and then will tell you how much it costs at different online stores and if there are special deals available on the item at nearby stores. The app CouponSherpa includes coupons from hundreds of restaurants and retailers and RetailMeNot will alert you as to those stores near you that have coupons and deals available. PriceJump has a feature that will tell you precisely where you can find the best price on an item in each of three categories – Amazon, local and online.

How To Put Your Personal Finances On Autopilot

student with a notebook and calculatorIf you’re like most of us you have a smart phone. If so, you’ve probably already learned how to manage a lot of your life. You may be using apps to wake you up in the morning, to remind you of meetings and other important dates, to keep track of your music and to provide you with the news of the day. But did you know that you could use that phone to automate much of your personal finances? There are a number of great apps that can help you better manage your money whether you’re saving, investing or just want to keep an eye on your cash flow. But of all these apps there are five you could harness to put your financial life basically on autopilot.

Mint Bills

One of our personal favorites for budgeting is Mint.com. The app Mint Bills distills down the best of what this program offers and presents it in clear, easy to understand snapshots of your overall budget. It combines this with the ability to pay your bills. All that’s required is that you sync your bill-paying account with those bills you pay each month such as your credit card bill, cable, cell phone, etc. Mint Bills will then determine when your bills are due and send you an alert. You could open the app and pay the bill right there and then. Mint Bills also allows you to track your investment accounts and your savings. Another feature of this app, which you should definitely take advantage of is its alert system. If any suspicious transactions occur on your account or your account balances run low, it will immediately tip you off. You can download Mint Bills free and any payments you make via your bank account are also free. But one thing you don’t want to do is use this app to pay bills with a credit card. These transactions cost a $4.99 processing fee, which switches to a flat 4% if the payments are over $125. Do the math. That’s $5 per transaction. Ouch.

Acorns

You’ve probably heard that old adage that giant oak trees from little acorns grow. We’re assuming that this probably has something to do with the name of this app. Whether that’s true or not, this app is a great way to start investing if you don’t have much money. You link it to your debit card. When you use the card to buy something and it doesn’t come out to be a round number, Acorns will round up the transaction to the nearest dollar and then save that change. When your savings balance hits $5, Acorns deposits the money in whatever investment account you chose. You will need to provide the app with some personal information regarding your investment goals, your income and your net worth. It will then recommend one of five investment portfolios. These portfolios range from aggressive to conservative and consist of ETF’s that are chosen and rebalanced by the Acorns people. The app is free to download but costs $1 a month until there’s $5000 in your account. After that, Acorn’s fee is 0.25% of your total assets per month. If you decide to withdraw your funds there are no fees.

Digit

Would you like to be able to save money without even knowing you’re doing it? I mean, talk about painless. After you sign up for Digit you will need to link it to your checking account. The app has a very smart algorithm that will monitor your spending. Then every few days it will determine what you can afford to save. It will then move the money into a Digit savings account, which is insured by the FDIC up to a maximum of $250,000. The beauty of this app is that it only takes a small bit of cash at a time so that you hardly notice the money has been withdrawn. It also eliminates the fear of overdrawing your account because of this was to happen, Digit will pay any overdraft fees. Most of the savings transfers that Digit makes range between $5 and $30. However, there is one downside, which is that you don’t earn any interest on your money. This means that you don’t want to use this account for long-term savings. You would be better off leaving that money in high interest-bearing accounts. But Digit represents a terrific way to save up for something mindlessly such as gifts for the holidays or a weekend getaway.

Credit Karma

There are a number of ways to get your credit score. You could get it on the site www.myfico.com if you’re willing to either pay for it or sign-up for a free trial of one of FICO’s services. You can also get your credit score free from the three credit reporting bureaus – Experian, Equifax and Transunion. Some of the credit card companies are now giving credit scores free. Even Mint now provides them. But we really like Credit Karma because it gives you that critical credit score not from just one of the three major credit-reporting bureaus but from two of them – Transunion and Equifax. It will also provide you with a complete summary of your credit history and let you see almost immediately what would happen if you were to make a new credit inquiry or get an increase in one of your credit limits and how this will affect your credit score. Credit Karma can also be very useful for monitoring your credit to see if there are any suspicious activities. Just as important, it’s free.

stack of cash

Personal capital

Finally, the app Personal Capital offers all the same would impact your credit score. budget-tracking abilities of programs such as Mint but is great if you are an investor and would like to track all your investments in one place. One of Personal Capital’s most important features is that it will analyze your mutual fund and retirement account fees and then alert you if they’re are higher than average. You can also see snapshots of how your investments are doing in real time with a feature called Investment Checkup. To take advantage of this you will need to sync your accounts with the app or to its website. If you have more than $100,000 in assets Personal Capital offers a financial advisory service that provides low-cost wealth management services. Personal Capital is free to download. The fees for financial advice start at 0.89% for assets under $1 million.

A word of warning

All of these apps with the exception of Credit Karma require that you link them to your financial accounts. As you might guess they each have an impressive list of security and privacy protections to ensure that your information stays secure. However, beyond this you should take whatever steps you can to protect your accounts on your end. This means setting up a PIN on your smart phone or what’s even better is fingerprint ID. Also, sign up for two-factor password protection if it’s offered and alerts that will tell you if your account changes.

The net/net is that if you’re willing to spend a few minutes downloading and setting up these apps you will have basically automated the most important parts of your personal finances – and saved yourself many hours of drudgery.

Purchasing A Big-Ticket Item – Pay Cash or Use Credit?

Man looking frustratedIt doesn’t happen every month but at least once or twice a year you’re faced with the task of purchasing a big-ticket item. It might be a new washer-dryer, new living room furniture or an entertainment center. You’ve decided what you want to buy and how much you’re willing to pay for it but … the question is should you pay cash or use credit? Unfortunately, what financial experts will tell you is that there is no hard and fast answer. The decision to pay cash or to use credit will depend on your finances, whether or not the asset will increase in value and what interest rates are available.

The first thing you should do according to most financial experts is evaluate your personal finances. What’s your household income? Do you have one or two wage earners? Is your income very consistent? How much are you saving for retirement? Do you have a lot of revolving, credit card debt? If your answers to these questions tended to be on the negative side, it would make less sense to buy that big-ticket item in the first place. If you find that you would have trouble financing the purchase, this could create even greater problems going forward.

When financing doesn’t make sense

If you’re eyeing something that’s actually out of your reach financially or beyond your means then financing it just doesn’t make sense. The only time it makes sense to finance a big purchase is if it’s an asset that will grow in value such as your home or an educational degree. The reasoning here is that the asset will ultimately be worth more than what it would cost you plus the interest you paid. And despite what you may have been told, it just doesn’t make sense for most people to pay $500,000 in cash for a home when they could invest that money and get a 6% or 7% rate of return.

Not all are created equal

It’s important to understand that not all loans are created equal. If you were to take out an interest-only loan this can mean that you’re buying a house you truly can’t afford. When you do this, you really don’t own your home. The bank does. While your mortgage loan payment may be low it’s important to remember that you’re spending money every month but not making any progress towards owning your home. In other words you never gain any equity. The better option is to get a loan where every month you’re paying on both the interest and principal.

The conventional wisdom

While conventional wisdom is that you shouldn’t finance any asset that will depreciate such as a car, a vacation or consumables this is not necessarily true these days. Interest rates are at almost all-time lows. It might make good sense to finance that car. If you can find a dealer that will give you 2%, why not take it? This means that if you have a four- or five-year loan, you’re basically financing your purchase at the rate of inflation. For that matter, 0% financing can be had on a number of purchases such as furniture and jewelry or even an automobile. Unfortunately, those mouthwatering rates are typically available only if you have a credit score of 720 or higher.

Paying it off immediately

If you decide it’s not best to finance that big-ticket purchase you might consider using a credit card to buy it and then pay off your balance immediately in place of handing over cash or writing a check. The policies on credit cards vary but there are often advantages to charging a big purchase. In fact, any time you can put a large purchase on a credit card, it’s pretty appealing to do so. When this is the case, you’re simply using the credit card as a sort of payment conduit so that you can pick up points or miles. In addition, some cards offer protection for the purchases you make with them. As an example of this, if you have a credit card with built-in travel insurance you’d probably be better off charging that $5,000 vacation as cash doesn’t come with any of these kinds of protections.

The caveats

If you decide to use your credit card to make a big-ticket purchase there are some caveats to keep in mind. For one thing, don’t max out your card in such a way that it disrupts your everyday cash flow. You could have an utility bill you pay automatically that bounces because putting that big-ticket item on your card put you at your credit limit. In addition, you should try to keep your debt-to-credit ratio at 30% or less to maintain a good credit score. If you’re not familiar with your debt-to-credit ratio it’s simply the amount of debt you’ve used divided by the total amount of credit you have available. For example, if you have $7500 in total credit limits and you’ve charged up $2000, your debt-to-credit ratio would be roughly 26%, which is good. Your debt-to-credit ratio makes up 30% of your credit score so if you were to let it get to 40% or more your credit score could be adversely affected. You need to be careful when charging that big-ticket item as it could put you over the 30%. And of course, you don’t want to put a big purchase on a credit card if you’re already carrying a revolving balance. This can be a slippery slope that ends in serious financial problems. In fact, this is where most people get into trouble – by continuing to use their credit cards when they can barely make the minimum monthly payments required.

If you’d like to learn more about credit scoring and why your credit score is important then here’s a short video from the credit reporting bureau TransUnion you should find of interest.

When it makes more sense to pay cash

There are certain instances where it’s better to pay cash or to write a check then to put the purchase on a credit card. As an example of this, it’s best to pay cash if it would allow you to negotiate a price as with an independent shop or a dealer. You might be able to save 10% or even better on a purchase if you can pay with cash. There are also some institutions or businesses that charge credit card-processing fees. If this is the case, make sure that the miles, points or cash back that you’re earning is more than what these fees will cost you.

In short, the answer to the question of whether to pay cash or to use credit when purchasing a big-ticket item is … it all depends. You need to take stock of your financial situation including how much you currently owe on your credit cards, whether you’re purchasing an asset that will grow in value and what the purchase could do to your credit score. If you do this you’re certain to make a good decision and not one that will come back to haunt you in the months ahead.

5 Things You Absolutely Must Know About Your Personal Finances

woman thinkingThere are situations in life where what you don’t know could actually kill you. You don’t know that the snake sitting next to your chair is one of the deadliest in the world. You don’t know that little spider is a Brown Recluse and that its bite could send you to the hospital or worse. And maybe you don’t know that tree branch right above you is rotten and could fall on you any minute.

While the things you don’t know about your personal  finances won’t kill you they can definitely cost you. For example, do you know your net worth? If you don’t, you’re not the Lone Ranger. Most Americans have no idea about the net worth. It’s very important for you to know this and it’s very easy to calculate. It’s just the total value of your assets including your savings and retirement accounts, your home, car, any collectibles you own and your boat, your second home or RV (if any of these are applicable). Subtract your total debts from that number including the payments on your house and car and you’ll have your net worth. It’s important because it’s the key to keeping track of your financial health. When you know what your net worth is, you will have a good picture of the state of your finances showing how you handle your money. Once you’ve determined your net worth you should calculate it regularly like once a quarter so that you will be able to see those areas where you can make improvements.

What’s your mortgage interest rate?

There was a report released recently by the website Bankrate.com revealing that an amazing 35% of us don’t know our mortgage interest rates. Or maybe you once knew your interest rate but forgot it over the years. The interest rates on mortgages have hovered around historical lows for the past few years. If you don’t know your interest rate you need to look it up, as you might be able to benefit from refinancing. We’ve heard stories of people who refinanced their mortgages and saved $200, $300, or even $400 a month. Wouldn’t this kind of increase help you?

Have you seen your credit report recently – or ever?

If you haven’t seen your credit reports recently it’s absolutely critical that you get them. You have three reports, as there are three credit-reporting bureaus. They are Experian, Equifax and TransUnion. You can get your report from each of them free once a year or on the website www.annualcreditreport.com.

Why is this so important? It’s because your credit report has very detailed information about your credit history. This includes the way you have used credit cards, your auto loans and any debts that were sent to collection. Even more important, they could contain errors that are hurting your credit. One recent FTC study revealed that almost 40,000,000 Americans have mistakes in their credit reports. Given the fact that fewer than one in five of us check our reports, the odds are that most people have errors in theirs but don’t know about them. If it turns out that you are one of these people and that it’s a serious error or even a case of identity theft, you definitely should dispute it with the appropriate credit bureau. While all three of the credit bureaus have forms on their sites for this purpose most experts say it’s best to dispute the matter in writing and be sure to send a letter registered and return receipt requested. Once the credit bureau receives your letter it’s obligated by law to contact the institution that provided the information and ask for it to be verified. If the institution doesn’t verify the information or fails to respond within 30 days, the credit bureau must remove the item from your report, which could give your credit score a nice boost.

credit history definitionSpeaking of your credit score

Something else that’s crucial to know is your credit score. It’s the little three-digit number that represents how much of a risk you are for credit. The credit scoring service used by the overwhelming majority of lenders is FICO. Its scores range from 300 to 850 and as you might guess, the higher your score the better. Everyone from lenders to landlords look at your credit score as do an ever-growing percentage of employers. The National Foundation for Credit Counseling recently discovered that 60% of us haven’t reviewed our credit scores within the previous year. This can be a really big mistake, especially if you’re looking for a loan. The reason for this is that there is an inverse ratio at work here. The higher your credit score in the lower your interest rate will be. If your score is somewhere in the mid-700s you will save thousands of dollars in low interest rates. Conversely, if your score is below 620 and you apply for a loan it will be at a higher interest rate and less favorable terms or you might not even be able to get the loan at all.

Where can you get your credit score? The only place you can get your true FICO score is on its website www.myfico.com where you may have to pay for it. The three credit reporting bureaus will give you your credit score though it won’t be your true FICO score. There are also sites like CreditKarma.com and CreditSesame.com where you can get your credit scores. While these won’t be your true FICO scores they should be close enough to give you a good idea as to how lenders will view you.

Your credit card statements

When one of your credit card statements arrives in the mail to you review it carefully or do you simply make a note of your balance and then file it away until it’s time to make a payment? In this day and age of identity theft and data breaches its critical to review your credit card statements carefully every month. Look for transactions you don’t remember having made or merchants you can’t remember doing business with. Also look for small charges of one dollar or less. What identity thieves often do is make a very small charge to your account to see what happens. If you don’t spot the charge and dispute that you could then be in for a world of trouble, as the thief will then hit your card hard. The same is true of any errors you find. Most credit card issuers restrict your liability in cases like this to $50 and may even waive that. But if you do find an error it’s important that you report it to the credit card issuer within 60 days or it’s possible you could be stuck with the charge.

13 Things You Need To Know To Know All About Personal Finance

Two smiling girls have coffee timeWhen you hear the term personal finance does it cause you to roll your eyes? Or maybe it just puts you to sleep or causes a headache. We understand that the subject of personal finance is not an exciting one. But it is an important one. We’re sure you know the old saying that insanity is doing the same thing over and over but expecting a different outcome. Personal finance is a bit like that. If you’re having a problem with your finances it’s probably because you’re continuing to do the same things over and over but hoping for different outcomes.

The good news is that it’s easy to learn the important stuff about personal finances and here it is.

#1: Don’t buy lottery tickets

States don’t run lotteries unless they can make a profit. The way they win is by you losing. In many lotteries your odds of winning are one in several million. You would stand a better chance of walking outside and being hit by lightning. Plus, studies have shown that people who win those huge jackpot lotteries end up no happier than those that lost.

#2: Buy high-deductible car and home insurance

While you need to have insurance on your house and car, it can be very expensive. If you buy high-deductible insurance, you’ll save money over the long run but will still be protected against those big-ticket items like having to replace your roof.

#3: Keep it simple

Were sure you’ve heard the old acronym KISS as in Keep It Simple, Stupid. We’re sure you’re not stupid but you do need to keep it simple. When you try to follow complicated financial strategies it just makes things tougher and your life more stressful. All you really need to manage your personal finances successfully is a budget and a savings account. Creating that first budget doesn’t have to be that tough, either. The easiest way to do it is to get out your checking account statements and credit card bills for the past month and total them up. Then compare this to your total earnings for that month. Ideally you should be spending at least 10% less than you earn. If not, you’ll need to go back to those statements and make a list of your spending by categories such as food, dining out, entertainment, utilities and so forth. That will show you roughly where your money’s going. Once you do this you should be able to see where you can make cuts in your spending to get it down to that 10% less than your earnings.

#4: Create an emergency fund

If you’re wondering why it’s important to get your spending down to less than 10% of your earnings it’s so that you can use the difference to create an emergency fund. You must have an emergency fund. Let us repeat that. You must have an emergency fund to shield you from the unexpected. When you don’t have an emergency fund and you run into an unexpected occurrence your only option will be to borrow money, which means creating debt.

#5: Protect yourself from worst-case scenarios

Disasters happen. We’re not talking about needing to put a new transmission in your car or pay for a medical emergency. We’re talking about a real disaster such as losing your job or becoming disabled. You can buy disability insurance either directly or through your job. It’s a relatively inexpensive way to protect yourself. You should also buy term insurance to protect your loved ones in the event you suffer the worst-case scenario possible, which is to die. If you’re in, say, your mid-30s you should be able to buy $100,000 or more in term life insurance for practically pennies a month.

#6: Learn to be content with what you have

We all tend to be on what’s called the “hedonistic treadmill,” which is that no matter how much we earn we want more. Try not to pin your hopes on that next raise or a new high-paying job. The only path to true happiness is by getting off the treadmill and learning to be satisfied with what you have.

cutting a credit card#7: Pay off your credit cards

Credit cards come with the highest interest rates you’ll probably ever pay on a loan. In fact, we’d be surprised if you don’t have at least one credit card with an interest rate of 19% or even higher. When you rollover the balance on a credit card the interest will be compounded meaning that you’ll be paying interest on the interest you accrued the month before and so on and so on. There are essentially two ways to pay off credit card debts. The first is to order your debts from the one with the highest interest rate down to the one with the lowest and then do everything possible to pay off the card with the highest interest rate, as this will save you the most money. The second method is called snowballing your debt. It’s where you list your debts from the one with the lowest balance down to the one with the highest and then do everything possible to pay off the card with the lowest balance. Whichever of these methods you choose be sure to keep making the minimum payments on your other cards.

#8: Never buy a vacation home as an investment

Sharp sales people will tell you that a vacation home is a good investment because of the depreciation you’ll earn. What they won’t tell you is that the cost to finance and maintain that vacation home will outweigh the depreciation you’ll earn. It just makes much better sense financially to rent a vacation home two or three weeks a year rather than buying it.

#9: Don’t spend money trying to impress people

“Luxury” clothes labels and designer brands are designed to overcharge people that are seriously insecure. You’ll save money when you buy non-designer brand clothing and you won’t be seen as nouveau riche. Watch what old-money families do and you’ll see they generally keep it on the down low.

#10: Cut out the waste

Review your bills and you’re very likely to find ones where you’re spending too much. One of the best examples of this is your cell phone bill. You may also be spending too much money on your car or cars. And nothing busts the budget more than dining out regularly.

#11: When you invest put the majority of your money into equities (stocks)

Once you build up an emergency fund equal to three or six months of your living expenses you can begin investing. The best place to put your money into is equities or stocks. They might be the most volatile but they almost always generate the best returns long term of anywhere from 4% to 5% a year above inflation. And don’t panic when your stocks plummet. Hang on to them, as they will come back.

#12: Never gamble on individual stocks

Your Uncle Henry might tell you that you’ll double or triple your money by buying stock in Amalgamated Industries but don’t do it. You could make money this month but then see it all disappear next month. The safest way to invest money in stocks is by buying mutual funds or indexed funds.

#13: Plan to live a long life

The odds are that you will live one third of your life after you turn 65. This means the best strategies are to pay off your mortgage and then save at least 10 times your annual salary by the time you’re ready to retire. Also, avoid taking your Social Security benefits for as long as you can up to when you turn 70. This will maximize your monthly checks.

How To Improve Your Personal Wealth This 2015

piggy bank with moneyDo you think that you experienced any genuine financial improvement last year? As we start 2015, you may want to look back a little to figure out the right and wrong decisions that you made about your money. This is important if you want to improve your personal wealth by the end of this year.

In truth, improving one’s finances is not as hard as it used to be thanks to our rising economy. According to an article published on Bloomberg.com the US economy improved last year. The household net worth is actually $1.3. trillion higher than the peak before the recession – which was at $67.9 trillion in the second quarter of 2007. This is caused in part by the improving real estate market that grew by 4.9% by September of 2014. Not only that, the improving job market is also a factor in improving the net worth of Americans.

It was not all good news though. There was a damper in the household wealth improvement caused by a drop in the stock indexes. However, this should be easy to recover as long as consumers take extra care of how they manage their investments. Another thing that may be slowing the growth of household wealth is the rising consumer debt. Obviously, the growth in our personal wealth is making us confident when it comes to taking in more credit.

3 steps to improve your finances this year

If you want to take your wealth to the next level, you need to start planning how you can do that. As early as now, you should have plans in place that you can follow periodically this year. Without a strategy, you will just go around blindly, hoping that you will hit the jackpot. Obviously, this is not the best way to improve your personal finances this year.

If you really want to revolutionize how your money is spent, think about these three steps that you can work on this 2015.

Pay off your debts

The first thing that you should do is to pay off your debts. According to a speech delivered by William C. Dudley at the Bernard M. Baruch College in New York, when debt goes down, the net worth goes up. The speech titled “The 2015 Economic Outlook and the Implications for Monetary Policy” was published on FRB.org. While discussing how consumers are in better financial shape, the speaker revealed that the household liabilities have gone down by roughly $500 billion as compared to the peak debt amount in 2008. This is helped by the lower interest rates – which is a factor in increasing debt loads. With this decrease in debt, the household net worth was able to recover and increase – thanks to a higher asset value.

It seems to correlate with each other. The less debt you have, the more you have in your personal wealth. Even if you own a home that is valued at $500,000, if you still owe $400,000 in your mortgage, you only have $100,000 in your personal assets. The more you pay towards your mortgage, the more equity you own in your home. This concept can be applied to all your debts – whether it is credit card debt, auto loans or student loans. What you are paying towards your debts can be used to grow your savings or increase your investments.

Another way that paying off debts can improve your wealth is the money that you will save on interest. This is only making your creditors and lenders rich. Pay off what you owe as soon as possible to lower the money you waste on interest payments.

Increase your savings

Once you have paid off your debts or at least implemented a repayment plan, it is time for you to focus on your savings. Increasing your savings is the direct way for you to improve your personal wealth. When you spend, you are distributing what you earned and putting them in the pocket of other people. When you save your money, you are putting it in your pocket. Whether it is to be spent on something that will increase your net worth or saved for the rainy day, the bottom line is it will be an addition to your assets.

According to an article published on EquitableGrowth.org, wealth comes from two sources – your income and your savings. While wealth can be inherited, that is something that is beyond your control. Your income and savings, on the other hand, is something that you have full control over – more so with savings. Your income will still depend on your employer but the amount you save will entirely be based on your own discretion. So grow your savings and it will directly affect your wealth.

Map out your financial goals

After working on your debts and savings, the third step that you need to work on is mapping out your financial goals. In some cases, this should be the first on your list. But considering how debt is rising and savings are decreasing, it may be more prudent to work on the first two before adding more financial goals.

So what goals can you work on? That will depend on you. It can be a new home, a car, your child’s college fund, retirement, or a business. The important thing is to have a goal. When you have a goal, it gives you focus. It gives you motivation. It gives you something to reach for. In essence, it gives you something to live for in the future. Not only will it do all that, it can also grow your personal net worth – at least, if you choose the right financial goal.

Tips to make your wealth last long

Growing your personal wealth is only the first phase in achieving financial success. Make sure that after growing your wealth, you know how to make it last long. You may end up with a huge amount but if you do not know how to manage it, this will not last.

Here are some tips that can help you make your money last long.

  • Live below your means. One of the fastest way to deplete your wealth is by living beyond your means. This simply means you are spending more than what you are earning. Some people think that living within your means is the best way to go. While it will keep you in debt, it will only preserve your finances and keep you in the same financial state. The best way to make your wealth last long and increase it at the same time is to live below your means. This way, you can take care of all your expenses while having extra money to set aside for savings.
  • Think before you spend. Regardless of how much wealth you have, smart spending will always be important. Even if you can afford it, that does not mean you should buy it. Ideally, you want to buy things that are aligned to your financial goals. If not, then think carefully before you make the purchase.
  • Make investments. Like savings, this investing is another way to grow your personal wealth. think about where you can place your money and consider the risks that you will face. Without a little risk, growing your money will not be as rewarding as it should be. Investing the extra money you have is one of the best ways to make your finances work for you.
  • Be aware and educate yourself at all times. In the end, you can make better financial decisions if you are aware of your options. Always make time to educate yourself about something. Read about rules, laws and various techniques to manage your money. While hiring financial experts will work, it will serve you better if you know what is going on with your personal wealth.
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