As college graduation is approaching, I’m asked with increasing frequency what my next steps are going to be.  Where am I going to live?  What do I want to do for my career?  How am I going to support myself?  It can be overwhelming.  One thing I do know, though, is that my finances are going play an integral role in my success over the next few years—who am I kidding… for the rest of my life.  So, I asked Get Smart’s financial expert Shannah Compton to help me come up with a few things I can add to my ever-growing to do list to secure my financial future.  Here’s what she came up with: Shannah: I can still clearly remember graduating from college. For me, that day was almost 11 years ago. I remember being so full of energy and excitement for what the world had in store for me.  I remember having the “senior swagger”, which for me was an untouchable feeling that I was on top of the world.  I also remember having absolutely no clue how I was going to operate in the “real word.” I always thought that on the day after I graduated a special fairy came down and tapped me on the shoulder and reveled this great plan for how my life was to progress from that point.  The special “graduation fairy” would tell me which job to take, where to live, who to marry.  And of course with that I would quickly have an ever growing account balance and know exactly which financial decisions to make. I know you won’t admit it, but don’t you secretly wish we did have a “graduation fairy?” My 20’s were pretty rocky, filled with a lot of trial and error, especially where my finances were concerned.  This learning curve can be pretty steep, especially when you don’t have your peers to turn to for advice—they are experiencing the same highs and lows as you are even if they don’t want to talk about it. So what do you do? How do you know where to start? Below is my 6 Point Checklist that I wish my “graduation fairy” would have whispered in my ear! 1. Create a Cash Compass: A cash compass, also known as your monthly budget, is the most essential item you can prepare on a monthly basis to get yourself pointed in the right direction. Would you be surprised to know that many of my million dollar earning clients still don’t have a budget? And even though they earn that much money, they are in worse financial shape than you and me! My point is that you never have too little or too much money to take this important step. So where do you start? It’s simple. Create a 12 month excel spreadsheet with tabs for each month.  The sheet should look like this: Income Expenses (Income items listed on the left side) (ALL expenses listed on    right side) Total Income - Total Expenses = Net Income *Your goal is for Net Income to be positive There are 2 important rules to your cash compass= (1) That you always list all of your expenses, even things such as haircuts, groceries, ATM withdrawals, etc. (2) That any positive net is put into a savings account each month. 2. Build Your Score: Your credit score is one of the single most important numbers that you will ever possess. This little 3 digit number will dictate how much you have to pay when you buy a car, a house, borrow a loan, etc. I joke that you should first ask your potential wife or husband what their credit score is. If acceptable, then you can marry them! You need to open a credit card in your name to begin building your score. Like most things in life you need to use credit to get credit. But you must remember to use it wisely and follow these rules: (1) Always pay off the balance every month (2) Apply for a credit card that offers some sort of reward program (cash back, airline miles, etc.) You should always be getting something for your money. 3. Savings, Savings, Savings: Most financial professionals will tell you to open a savings account and aim for saving at least 10% of your take home income every month.  This is your goal, but not where you start if you are new to saving. I suggest you start with a modest 2-3% of your take home pay for 6 months. Once you are comfortable with that, stretch yourself and see if you can increase that to 5% for the next 6 months. Once you have made savings a habit, increase your savings, if you can, to 8-10% for the following years. You may not always be able to hit this target every month but the goal is to put forth an effort and create a habit. Always look for ways to build your savings too. Great ideas are if you get a raise, or if you get money back from your tax returns. Another idea is to find ways to use any special talents you may have to make some extra money. For example, I love to cook and could offer weekend cooking classes to friends and charge them $20 each. There are tons of creative ideas once you start thinking about your unique talents. 4. Protect Your Identity: Identity theft is a real threat, especially since we do so much on our computers. You’re on Facebook- and then Twitter- and then Email- and then back to Facebook. You would be surprised how easy it is for someone to hack into your computer and steal your social security number, passwords, bank balances, etc. So, not only is it important to create your cash compass, build your credit, and save, but you have to also make sure that you are protected. There are many different identity theft programs out there. Most offer monthly payments or an annual payment at a discount. Be sure to make this an important item in your expense column for your cash compass. If you can’t afford an identity theft program, at least take a couple of steps to safeguard your information. (1) Make sure your computer is protected by a firewall of some sort. (2) Make sure you change your passwords frequently and keep a list of the passwords somewhere other than your computer. 5. Protect Your Most Valuable Asset- Your Health Make sure you are still covered under your parents’ health insurance plan once you graduate. You’ve probably never thought about it, but if you were ever sick or hurt and needed to spend time in the hospital, and you didn’t have health insurance, you could have a bill in the 10’s to 100’s of thousands of dollars. It could quickly bankrupt you and or your parents. This is no way to start out your financial future. Most colleges offer a discounted plan to graduates. If you are not covered by your parents’ plan, check out the plan offered by your college. At least put in place a catastrophe policy- meaning a policy that will cover you in the “oh my god” instances. These types of policies usually have a much lower premium but still provide you with enough coverage should you have a major accident or get sick. 6. Bonus Item- Read These Important Books 1.     Think and Grow Rich, by Napoleon Hill 2.     One Up on Wall Street, by Peter Lynch

As college graduation is approaching, I’m asked with increasing frequency what my next steps are going to be.  Where am I going to live?  What do I want to do for my career?  How am I going to support myself?  It can be overwhelming.  One thing I do know, though, is that my finances are going play an integral role in my success over the next few years—who am I kidding… for the rest of my life.  So, I asked Get Smart’s financial expert Shannah Compton to help me come up with a few things I can add to my ever-growing to do list to secure my financial future.  Here’s what she came up with:

Shannah: I can still clearly remember graduating from college. For me, that day was almost 11 years ago. I remember being so full of energy and excitement for what the world had in store for me.  I remember having the “senior swagger”, which for me was an untouchable feeling that I was on top of the world.  I also remember having absolutely no clue how I was going to operate in the “real word.”

I always thought that on the day after I graduated a special fairy came down and tapped me on the shoulder and reveled this great plan for how my life was to progress from that point.  The special “graduation fairy” would tell me which job to take, where to live, who to marry.  And of course with that I would quickly have an ever growing account balance and know exactly which financial decisions to make.

I know you won’t admit it, but don’t you secretly wish we did have a “graduation fairy?”

My 20’s were pretty rocky, filled with a lot of trial and error, especially where my finances were concerned.  This learning curve can be pretty steep, especially when you don’t have your peers to turn to for advice—they are experiencing the same highs and lows as you are even if they don’t want to talk about it. So what do you do? How do you know where to start?

Below is my 6 Point Checklist that I wish my “graduation fairy” would have whispered in my ear!

1. Create a Cash Compass:

A cash compass, also known as your monthly budget, is the most essential item you can prepare on a monthly basis to get yourself pointed in the right direction. Would you be surprised to know that many of my million dollar earning clients still don’t have a budget? And even though they earn that much money, they are in worse financial shape than you and me!

My point is that you never have too little or too much money to take this important step.

So where do you start? It’s simple. Create a 12 month excel spreadsheet with tabs for each month.  The sheet should look like this:

Income Expenses

(Income items listed on the left side) (ALL expenses listed on    right side)

Total Income - Total Expenses = Net Income

*Your goal is for Net Income to be positive

There are 2 important rules to your cash compass=

(1) That you always list all of your expenses, even things such as haircuts, groceries, ATM withdrawals, etc.

(2) That any positive net is put into a savings account each month.

2. Build Your Score:

Your credit score is one of the single most important numbers that you will ever possess. This little 3 digit number will dictate how much you have to pay when you buy a car, a house, borrow a loan, etc. I joke that you should first ask your potential wife or husband what their credit score is. If acceptable, then you can marry them!

You need to open a credit card in your name to begin building your score. Like most things in life you need to use credit to get credit. But you must remember to use it wisely and follow these rules:

(1) Always pay off the balance every month

(2) Apply for a credit card that offers some sort of reward program (cash back, airline miles, etc.) You should always be getting something for your money.

3. Savings, Savings, Savings:

Most financial professionals will tell you to open a savings account and aim for saving at least 10% of your take home income every month.  This is your goal, but not where you start if you are new to saving.

I suggest you start with a modest 2-3% of your take home pay for 6 months. Once you are comfortable with that, stretch yourself and see if you can increase that to 5% for the next 6 months. Once you have made savings a habit, increase your savings, if you can, to 8-10% for the following years. You may not always be able to hit this target every month but the goal is to put forth an effort and create a habit.

Always look for ways to build your savings too. Great ideas are if you get a raise, or if you get money back from your tax returns. Another idea is to find ways to use any special talents you may have to make some extra money. For example, I love to cook and could offer weekend cooking classes to friends and charge them $20 each. There are tons of creative ideas once you start thinking about your unique talents.

4. Protect Your Identity:

Identity theft is a real threat, especially since we do so much on our computers. You’re on Facebook- and then Twitter- and then Email- and then back to Facebook. You would be surprised how easy it is for someone to hack into your computer and steal your social security number, passwords, bank balances, etc.

So, not only is it important to create your cash compass, build your credit, and save, but you have to also make sure that you are protected.

There are many different identity theft programs out there. Most offer monthly payments or an annual payment at a discount. Be sure to make this an important item in your expense column for your cash compass.

If you can’t afford an identity theft program, at least take a couple of steps to safeguard your information.

(1) Make sure your computer is protected by a firewall of some sort.

(2) Make sure you change your passwords frequently and keep a list of the passwords somewhere other than your computer.

5. Protect Your Most Valuable Asset- Your Health

Make sure you are still covered under your parents’ health insurance plan once you graduate. You’ve probably never thought about it, but if you were ever sick or hurt and needed to spend time in the hospital, and you didn’t have health insurance, you could have a bill in the 10’s to 100’s of thousands of dollars. It could quickly bankrupt you and or your parents. This is no way to start out your financial future.

Most colleges offer a discounted plan to graduates. If you are not covered by your parents’ plan, check out the plan offered by your college. At least put in place a catastrophe policy- meaning a policy that will cover you in the “oh my god” instances. These types of policies usually have a much lower premium but still provide you with enough coverage should you have a major accident or get sick.

6. Bonus Item- Read These Important Books

1.     Think and Grow Rich, by Napoleon Hill

2.     One Up on Wall Street, by Peter Lynch

--Tagged under: advice--

--Tagged under: personal finance--

--Tagged under: Shannah Compton--

--Tagged under: graduation--

How To Save Money While Going Out To Eat

I love going out to eat.  There’s something about getting out of the house, having someone else do the work and being in a good atmosphere in good company that is just so appealing to me.  Not so appealing to me: spending money.  How can I both eat out and save money?

  • Discounts: Aside from the usual Entertainment book and/or local paper, there are also several surprising ways to save money while eating out.

Option 1: Half Off Depot—> This is a website where you can buy gift certificates to restaurants, bars, clubs and the like for half of their face value.  I’ve done it, I swear it’s legit and it’s a great deal.  You always save at least 50% off, but you have to wait for the certificates to arrive in the mail, so be prepared to order them at least 2 weeks in advance.

Option 2: Restaurant.com—> The instant gratification alternative to Half Off.  On this site, you can print the gift certificates immediately with a few catches.  For one, there is not an unlimited number of restaurants you can choose from.  For another, there is a minimum you have to spend.  The best option I’ve found for 2 people is to buy a $25 gift certificate that requires you spend at least $35 (excluding alcohol).  There are often promo codes that you can use on this site, too.  In fact, I bought $300 worth of gift certificates for $24.  Talk about a steal!

Option 3: Ask for student discounts and the like.  Or learn which restaurants have specials on which night.  Often times, Mondays are half-priced bottles of wine.  Eat out strategically.

  • You don’t always have to go to a fancy restaurant.  By finding cheap, delicious places to eat, you can achieve that same satisfaction at half the price.  I love Taqueria del Sol, but I’ve never spent more than $10.  Find places like that!
  • It’s okay to have an appetizer, entree, dessert, and drink all in the same meal now and then, but you can really save money by cutting one or two of these out, especially if it’s alcohol.
  • As for alcohol, a lot of places allow you to bring your own bottle and charge a small corkage fee.  You can buy a great bottle for less than $10, add in the $5 corkage fee and you just saved at least 50%.

--Tagged under: personal finance--

--Tagged under: saving tips--

--Tagged under: food--

Get a Financial Education in Your Twenties

--Tagged under: personal finance--

I read an amazing finance book this summer— I know, who knew there was such a thing.  But really, it changed my life.  The book is called Smart Women Finish Rich, by David Bach, and it was one of the smartest books I’ve read in a long time.  I highly recommend reading it if you’re a woman and if you’re a man, there are tons of other books written by Bach that you should look into. Anyway, while I was reading this book I got to a section about values.  I nearly skipped over the chapter because I was being my cynical self that thinks even the term “values” sounds too new-age-y to actually mean something.  Boy was I wrong.  This chapter ended up being one of my favorites.  (If you’d like to read it, click here!)  So, long story short, I’ve created my own values circle which you can see above along with a blank one for you to make for yourself.  I highly recommend this activity— it really gets you in the right mindset for making smart decisions with your money.  Try it out!

I read an amazing finance book this summer— I know, who knew there was such a thing.  But really, it changed my life.  The book is called Smart Women Finish Rich, by David Bach, and it was one of the smartest books I’ve read in a long time.  I highly recommend reading it if you’re a woman and if you’re a man, there are tons of other books written by Bach that you should look into.

Anyway, while I was reading this book I got to a section about values.  I nearly skipped over the chapter because I was being my cynical self that thinks even the term “values” sounds too new-age-y to actually mean something.  Boy was I wrong.  This chapter ended up being one of my favorites.  (If you’d like to read it, click here!)  So, long story short, I’ve created my own values circle which you can see above along with a blank one for you to make for yourself.  I highly recommend this activity— it really gets you in the right mindset for making smart decisions with your money.  Try it out!

--Tagged under: David Bach--

--Tagged under: Financial Goals--

--Tagged under: Values Circle--

--Tagged under: personal finance--

The Rule of 72

If you’ve ever read any “Self-help” books, you know that the first step toward achieving your goals is admitting we are powerless over alcohol (whoops, that’s a different goal) putting them in writing.  And not only writing down your goals, but making them Specific, Measurable and Provable.  One way to do this is to set a timeline for your dreams.  Sometimes that can be tricky, especially when you’re dealing with financial goals and you’re not Warren Buffet.  Fortunately, Shannah Compton is back and she knows just how you can determine what your timeframe for each of your goals should be. 

“I bet you never knew that the number 72 was a powerful number!

If you have ever asked yourself the question, “how long will it take before my money doubles”, look no further than the Rule of 72. Before we had computers that would quickly calculate compound interest the Rule of 72 was used as a quick and easy way to figure out the “money double” question.

Remember, compound interest is your best friend! It is what will turn your IRA/401K into a sizable asset in your retirement. When compound interest is at work you can watch your money double, triple, and quadruple in size given a favorable rate of return.

To apply the Rule of 72 you must either know a) the Rate of Return, or b) the Number of Years. Let’s see it in action:

Rate of Return-

Let’s say you have $50,000 in your IRA (remember we’re just pretending here…but it gives you something to work towards). If you made no additional contributions, how long would take for your money to double? Let’s assume a conservative 8% rate of return. (Tip: in a normal economy 8% is a conservative number, however since the meltdown last year an 8% return would be better than average.)

We divide our power number (72) by our 8% rate of return= 9 Years.

So, in 9 years our $50,000 will now be $100,000 given no additional contributions.

Number of Years-

Let’s take our original $50,000 in our IRA. If you made no additional contributions how long would it take for your money to double? Let’s assume we would like our money to double in 6 years.

We divide our power number (72) by 6 years= 12% rate of return you would have to earn on our money.

Not only will learning the Rule of 72 impress all your friends and family members but it is a useful tool to use in everyday life. For instance you can use this Rule to figure out:

  • how many years it will take you to reach your financial goals
  • how many years you will need to save to have a down payment for your dream home
  • how long must I save to afford a trip to Europe
  • how long it might take before your home doubles in value”

--Tagged under: Financial Goals--

--Tagged under: Rule of 72--

--Tagged under: Shannah Compton--

--Tagged under: personal finance--

Mint.com’s Credit Score Commandments

I read this article on Mint.com about how to maintain a good credit score.  Pure genius!

To see the full article, visit Mint.

1. Thou Shalt Not Avoid Using Credit. If you don’t use credit, you won’t have much of a credit score. “A credit score is an important tool companies use to protect themselves,” Sweet says. The lower the score, the higher the risk, and this can affect whether or not a loan is approved.

2. Thou Shalt Not Miss Payments. Paying a bill late will hurt your credit, but missing a payment will damage it even more. “If you do so, you can’t make it up,” Sweet says. In other words, making two payments in the next billing cycle will not remove the blemish from your credit history. Whether or not you pay your bills on time determines 33% of your score.

3. Thou Shalt Not Limit Loan Types. Despite what your bank account may think, a car payment and a mortgage may not be enough. Also managing an installment debt, such as a credit card, is a good indicator of credit savviness. There are five elements to the credit score model and revolving credit, which allows consumers to charge and owe different amounts each month, is one of them. “It’s 10% of the score,” says Gail Cunningham, vice president of public relations for National Foundation for Credit Counseling.

4. Thou Shalt Not Close Unused Credit Card Accounts. Actually, just use caution, says Sweet. A factor in credit score models is your utilization, which is your debt vs. how much is available. For instance, if you owe $4,800 on a card with a $5,000 limit, you’re using most of your available credit and this “utilization” will have a negative impact on your score. Counting toward 30 percent, your utilization is the second highest factor in your credit score. You should charge no more than 30% of your available credit, recommends Cunningham.

5. Thou Shalt Not Be A Credit Tease. Don’t run up charges all over town or apply for several cards at once while looking for the best rewards program. Recent inquiries means that you have accessed your credit and this can affect your score negatively. “This signals that you’re desperate for credit and don’t have enough cash available for your purchases,” says Cunningham. She adds that if you are shopping for a major purchase, such as a mortgage or car loan, the inquiries will usually roll together into one.

6. Thou Shalt Not Rob Peter To Pay Paul. Don’t charge anything unless you know how and when you are going to pay it back. One of the benefits of credit is the ability to spread out payments on a big purchase, not to delay paying with hopes that the money will come in – from somewhere. If you need to use a credit card for convenience, use a prepaid card or a secured card that enables you to make payments to your own line of credit.

7. Thou Shalt Not Get On The Call List. When a debt turns into a collection account, it’s an indication that you got yourself in hot water. Once a collection agency jumps into the arena, it becomes the owner of the debt, which will show on your credit history. Trying to make payments to the original debtor will not make the collection agency or the negative mark on your credit go away.

8. Thou Shalt Not Forget The Little Things. That library fine you didn’t pay or the health club contract you signed but didn’t honor can show up on your credit report. Any debtor has the right to report unpaid bills to the credit bureaus, and many of them exercise that right.

9. Thou Shalt Not Negotiate. On paying less than what you owe, that is. If you cannot repay a debt in full and a creditor agrees to settle for less than you owe, you haven’t won the battle. The transaction will be reported as a settled account and this will hurt your credit score. Instead of negotiating to lower the overall amount of the debt, ask to have your interest rate or monthly payment lowered so that you can continue to pay the debt off in full.

10. Thou Shalt Not Give Up. If you have late payments, missed payments, defaulted loans, and similar credit mess-ups in-between, don’t give up and think that your credit history is ruined. Although offenses like these generally stay on your credit history for seven years, the recovery clock doesn’t start ticking until you have one full month of paying all of your debts on time, says Sweet.

--Tagged under: Credit Score Commandments--

--Tagged under: Improve your credit score--

--Tagged under: personal finance--

Don’t understand the recession?  Failed Econ… more than once?  You’re not alone.  This stuff can be boring tricky, but it’s so important.  So, since I certainly struggled in Economics, I’ve enlisted our financial guru Shannah Compton to help us try to make some sense of this all.  Take it away, Shannah. Did you Say the “R” Word? Recession Schmession…wait, what exactly is a recession anyway? If you open a newspaper or turn on your TV you are bound to see a report on our nasty recession. It seems like all you see or hear are stories about our terrible gas prices, the declining housing market and the unstable stock market. It’s no wonder that you seldom read the newspaper or hardly ever listen to the news. If you are anything like me you are asking yourself, “Who cares?” Until a few years ago I couldn’t even begin to tell you what a recession really was and furthermore what it actually meant to me. My goal for this guest post is to demystify the meaning of the terrible “R” word and provide you with some solid knowledge of what this really means to you. So what is a Recession? A recession is defined by a decline in GDP (Gross Domestic Product) for two or more consecutive quarters. This is the classic definition but is one that is universally disagreed upon. Many economists argue that this definition does not take in effect many different variables that are ever changing in today’s economy. Ok, so what is GDP? GDP is simply the sum total of all goods and services produced by the United States. You can deduce that when the GDP is high the economy is thriving and when the GDP is low the economy is in flux. A recession is determined by the National Bureau of Economic Research (NBER). The NBER is a committee that determines if we are in a recession by taking a look at unemployment rates, wholesale and retail sales volume, industrial production, and income factors. According to the NBER a recession lasts approximately one year. I recently went to an insurance convention in Texas. One of the guest speakers happened to be an amazing finance professor at Tulane University. In one short hour I learned more about our economy and finance than I think I learned in my entire MBA! According to the professor the simplest way to define a recession and perhaps the most accurate is when company profits are declining across the board (and massive layoffs are happening). The great thing is that you don’t need to be a financial expert to take notice of such a trend. Just keep your eyes and ears open and you’ll be sure to spot a recession on the rise. History of Recessions While you might not remember, I remember clearly when the dot com bubble burst. Your parents or older brothers and sisters might have been laid off or a part of a company that crumbled. That was the last US recession which ran from March 2001 to November 2001, according to NBER. You can blame that recession on 9/11 and fear that it generated in the US economy. In that recession the government made massive interest rate cuts. This was an effort by the Fed to shorten the recession. Good news is the recession was short and shallow; bad news is that these efforts led to the Subprime mess that we are now facing. Below is a listing of historic recession periods in the US: November 1948- October 1949 July 1953- May 1954 August 1957- April 1958 April 1960- February 1961 December 1969- November 1970 November 1973- March 1975 January 1980- July 1980 July 1981- November 1982 July 1990- March 1991 March 2001- November 2001 Do you notice any trends? First, they all seem to last the better part of a year in length. Second, recessions seem to occur fairly frequently, until the 10 year gap between the last two recessionary periods. Third, three of the four last recessions have been very short contrary to history. Fourth, two recession periods were caused by “oil shocks” when oil supply was low and consequently prices rose sharply. And finally, the recession in 1981-1982 was the longest in history since WWII. What Does This Mean To Me? Rule number one is to take what the media and newspapers are reporting with a grain of salt. There is no doubt that we have experienced a deep recession, probably the greatest since the Great Depression. The big question though is what does this mean to you in everyday terms. According to Villanova economics professor, David Fiorenza, below is a list of wonderful things that you can look forward to in a recession. You might have trouble getting a loan for stuff like houses and cars. During a recession banks become nervous and tighten their reins on lending money, particularly to young people. You might lose your job or miss out on a bonus or promotion. A recession usually means that corporate profits are down because consumers begin purchasing less and less. If the mucky mucks aren’t making money, guess what, you aren’t going to be making money either. Your gas and utility bills might increase. As oil and gas prices increase so will your bills for these items. We are already at $4.00 a gallon gas, just how worse can it really get?! Your investments might lose money (this is a great time to take a look at your 401K/IRA and make any necessary fund changes). You can say bye-bye to your luxurious vacation plans. Odds are if all of the above items begin to take place your discretionary money will begin to dry up. So as you can see, yes, a recession does have an impact on you. Just about everyone is affected by a recession in one way or another. My advice during these unstable times is to keep your discretionary (fun) money close, be on the lookout for deals and steals when you need to purchase big ticket items, and carefully monitor your investments. The good news is a recession typically does not last long and our economy has a stellar track record of bouncing back better than expected.

Don’t understand the recession?  Failed Econ… more than once?  You’re not alone.  This stuff can be boring tricky, but it’s so important.  So, since I certainly struggled in Economics, I’ve enlisted our financial guru Shannah Compton to help us try to make some sense of this all.  Take it away, Shannah.

Did you Say the “R” Word?

Recession Schmession…wait, what exactly is a recession anyway?

If you open a newspaper or turn on your TV you are bound to see a report on our nasty recession. It seems like all you see or hear are stories about our terrible gas prices, the declining housing market and the unstable stock market. It’s no wonder that you seldom read the newspaper or hardly ever listen to the news. If you are anything like me you are asking yourself, “Who cares?”

Until a few years ago I couldn’t even begin to tell you what a recession really was and furthermore what it actually meant to me. My goal for this guest post is to demystify the meaning of the terrible “R” word and provide you with some solid knowledge of what this really means to you.

So what is a Recession?

A recession is defined by a decline in GDP (Gross Domestic Product) for two or more consecutive quarters. This is the classic definition but is one that is universally disagreed upon. Many economists argue that this definition does not take in effect many different variables that are ever changing in today’s economy.

Ok, so what is GDP?

GDP is simply the sum total of all goods and services produced by the United States. You can deduce that when the GDP is high the economy is thriving and when the GDP is low the economy is in flux.

A recession is determined by the National Bureau of Economic Research (NBER). The NBER is a committee that determines if we are in a recession by taking a look at unemployment rates, wholesale and retail sales volume, industrial production, and income factors. According to the NBER a recession lasts approximately one year.

I recently went to an insurance convention in Texas. One of the guest speakers happened to be an amazing finance professor at Tulane University. In one short hour I learned more about our economy and finance than I think I learned in my entire MBA!

According to the professor the simplest way to define a recession and perhaps the most accurate is when company profits are declining across the board (and massive layoffs are happening). The great thing is that you don’t need to be a financial expert to take notice of such a trend. Just keep your eyes and ears open and you’ll be sure to spot a recession on the rise.

History of Recessions

While you might not remember, I remember clearly when the dot com bubble burst. Your parents or older brothers and sisters might have been laid off or a part of a company that crumbled. That was the last US recession which ran from March 2001 to November 2001, according to NBER.

You can blame that recession on 9/11 and fear that it generated in the US economy. In that recession the government made massive interest rate cuts. This was an effort by the Fed to shorten the recession. Good news is the recession was short and shallow; bad news is that these efforts led to the Subprime mess that we are now facing.

Below is a listing of historic recession periods in the US:

  • November 1948- October 1949
  • July 1953- May 1954
  • August 1957- April 1958
  • April 1960- February 1961
  • December 1969- November 1970
  • November 1973- March 1975
  • January 1980- July 1980
  • July 1981- November 1982
  • July 1990- March 1991
  • March 2001- November 2001

Do you notice any trends? First, they all seem to last the better part of a year in length. Second, recessions seem to occur fairly frequently, until the 10 year gap between the last two recessionary periods. Third, three of the four last recessions have been very short contrary to history. Fourth, two recession periods were caused by “oil shocks” when oil supply was low and consequently prices rose sharply. And finally, the recession in 1981-1982 was the longest in history since WWII.

What Does This Mean To Me?

Rule number one is to take what the media and newspapers are reporting with a grain of salt. There is no doubt that we have experienced a deep recession, probably the greatest since the Great Depression. The big question though is what does this mean to you in everyday terms.

According to Villanova economics professor, David Fiorenza, below is a list of wonderful things that you can look forward to in a recession.

  • You might have trouble getting a loan for stuff like houses and cars. During a recession banks become nervous and tighten their reins on lending money, particularly to young people.
  • You might lose your job or miss out on a bonus or promotion. A recession usually means that corporate profits are down because consumers begin purchasing less and less. If the mucky mucks aren’t making money, guess what, you aren’t going to be making money either.
  • Your gas and utility bills might increase. As oil and gas prices increase so will your bills for these items. We are already at $4.00 a gallon gas, just how worse can it really get?!
  • Your investments might lose money (this is a great time to take a look at your 401K/IRA and make any necessary fund changes).
  • You can say bye-bye to your luxurious vacation plans. Odds are if all of the above items begin to take place your discretionary money will begin to dry up.

So as you can see, yes, a recession does have an impact on you. Just about everyone is affected by a recession in one way or another.

My advice during these unstable times is to keep your discretionary (fun) money close, be on the lookout for deals and steals when you need to purchase big ticket items, and carefully monitor your investments. The good news is a recession typically does not last long and our economy has a stellar track record of bouncing back better than expected.

--Tagged under: GPD definition--

--Tagged under: Shannah Compton--

--Tagged under: What is a recession?--

--Tagged under: personal finance--

Over the past few years, it has started dawning on me that I don’t know anything about money outside of the monthly allowance my parents so generously give me each month.  I realize that statement makes me sound rather spoiled, and perhaps that may very well be the case, but the other thing I know about money is that after college graduation… I’m on my own.  Completely and totally, 100% financially independent from the rents. Yikes!  That sounds terrible!  I don’t even have a credit card!  And more importantly, I don’t even have a job!  Luckily, I came to this realization as a junior in college, leaving me a sufficient amount of time to get my bearings, learn the financial basics and prepare myself for landing on my own two feet—with no mommy or daddy to catch me when I overdraft my checking account.  And now, I feel like I can proudly say that I feel prepared and knowledgeable enough that I know I will be ok without that monthly allowance.  It’s a scary thought, and yet, it’s really exciting.  Not having to rely on anyone else.  Not having to explain to my dad why I spent $200 at Nordstrom and now I can’t afford groceries for the rest of the month.  It’ll be kind of nice. Getting to the point, however, I didn’t know anything about personal finance 2 years ago.  I had 2 accounts to my name, both sitting at Wachovia earning at most $2 a year in interest.  So, I figured I better get my act together.  Now, while I am certainly no financial expert, I have done my fair share of reading and spent a lot of time doing research.  At the very least, I feel quite comfortable with the basics.  I now have some credit cards, which carry no balance (a vow I’ve made to myself to never have even 1 cent of credit card debt), I have my money in high-interest yielding accounts, and I’ve even started saving for retirement.  Who woudda thunk it?  And what’s more is that I’ve brought in an authority for Get Smart to lend us some financial expertise.  So without much further ado, I give you Shannah Compton. Shannah, 32, is one of the country’s youngest and most successful financial strategy experts.  She is a partner in an award-winning LA-based financial services company and is nationally recognized for her work aimed at educating her peers — the Gen-Xers, Gen Y’s, and Millennials — about the importance of having a sound financial future. I chose Shannah for several reasons, but mostly because her message is simple: “You can have your iPod now and retire rich later.”  I like that.  I mean, I want to be prepared for my financial future and all, but I don’t want to save every last penny now just so in 40 years I can afford to buy 2.  Shannah has found a way to offer young people a financial plan that will provide them financial security without eliminating their lifestyle.  “My passion is to teach every person in their 20’s and 30’s that no matter how much money you make, no matter what your money mishaps are, today is the best day to take control of your financial future!”  For more info. about Shannah, visit her website at www.slcinsuranceservices.com and her blog at www.slcinsuranceservices.com/blog. So, get ready for some great financial tips.  We’ve got more spreadsheets and reading material than you’ll know what to do with coming your way.  And I promise, it’ll be fun and it’ll be worth it! Oh and P.S.  Here is some great reading material to get you started: http://www.onmyowntwofeet.com/ http://www.finishrich.com http://www.ruleoneinvestor.com

Over the past few years, it has started dawning on me that I don’t know anything about money outside of the monthly allowance my parents so generously give me each month.  I realize that statement makes me sound rather spoiled, and perhaps that may very well be the case, but the other thing I know about money is that after college graduation… I’m on my own.  Completely and totally, 100% financially independent from the rents.

Yikes!  That sounds terrible!  I don’t even have a credit card!  And more importantly, I don’t even have a job!  Luckily, I came to this realization as a junior in college, leaving me a sufficient amount of time to get my bearings, learn the financial basics and prepare myself for landing on my own two feet—with no mommy or daddy to catch me when I overdraft my checking account.  And now, I feel like I can proudly say that I feel prepared and knowledgeable enough that I know I will be ok without that monthly allowance.  It’s a scary thought, and yet, it’s really exciting.  Not having to rely on anyone else.  Not having to explain to my dad why I spent $200 at Nordstrom and now I can’t afford groceries for the rest of the month.  It’ll be kind of nice.

Getting to the point, however, I didn’t know anything about personal finance 2 years ago.  I had 2 accounts to my name, both sitting at Wachovia earning at most $2 a year in interest.  So, I figured I better get my act together.  Now, while I am certainly no financial expert, I have done my fair share of reading and spent a lot of time doing research.  At the very least, I feel quite comfortable with the basics.  I now have some credit cards, which carry no balance (a vow I’ve made to myself to never have even 1 cent of credit card debt), I have my money in high-interest yielding accounts, and I’ve even started saving for retirement.  Who woudda thunk it?  And what’s more is that I’ve brought in an authority for Get Smart to lend us some financial expertise.  So without much further ado, I give you Shannah Compton.

Shannah, 32, is one of the country’s youngest and most successful financial strategy experts.  She is a partner in an award-winning LA-based financial services company and is nationally recognized for her work aimed at educating her peers — the Gen-Xers, Gen Y’s, and Millennials — about the importance of having a sound financial future.

I chose Shannah for several reasons, but mostly because her message is simple: “You can have your iPod now and retire rich later.”  I like that.  I mean, I want to be prepared for my financial future and all, but I don’t want to save every last penny now just so in 40 years I can afford to buy 2.  Shannah has found a way to offer young people a financial plan that will provide them financial security without eliminating their lifestyle.  “My passion is to teach every person in their 20’s and 30’s that no matter how much money you make, no matter what your money mishaps are, today is the best day to take control of your financial future!”  For more info. about Shannah, visit her website at www.slcinsuranceservices.com and her blog at www.slcinsuranceservices.com/blog.

So, get ready for some great financial tips.  We’ve got more spreadsheets and reading material than you’ll know what to do with coming your way.  And I promise, it’ll be fun and it’ll be worth it!

Oh and P.S.  Here is some great reading material to get you started:

  1. http://www.onmyowntwofeet.com/
  2. http://www.finishrich.com
  3. http://www.ruleoneinvestor.com

--Tagged under: Shannah Compton--

--Tagged under: Personal Finance--

--Tagged under: Young Finance--

--Tagged under: Finance after College--

Welcome to Get Smart’s very first money post!  I’m so excited about this section of Get Smart and I hope that you all enjoy and learn from it as much as I have.  Some of you may be way beyond your years and already know all about ARM mortgages and stock options and what not, but we’re going to start with the basics first, and it doesn’t get more basic than budgeting.  I know, I know.  Nobody likes budgeting and it’s nearly impossible to stick to a budget every month, but Shannah and I are here to help and I promise, it’s not nearly as painful as it sounds. Kate: We’re talking about budgeting today, and we’d really like to just get it down to the basics.  Any thoughts right off the bat? Shannah: Sometimes, there is almost too much information out there to make sense of any of it. And it seems like everyone has a different opinion as to how to “do it the right way”.  While I am certainly not professing to have the “right way”, there are a few old school basics that any strong financial foundation is build on. The #1 old school basic is simple; you must have a “Money Map” (aka your budget) and follow it religiously every single month. Think of it as your homepage from which all your other money applications are launched. Kate: A money map, eh?  And what exactly is a money map?  How would I go about creating one? Shannah:  Making a Money Map is easier than finding the hidden treasure with a pirate’s map. It starts with just 30 days and 3 simple steps. Step # 1 is to collect all your receipts and bills for 30 days. Gather them all together in one central location and separate them into 3 piles: one for all your bills, one for all your receipts, and one for your paycheck stubs. Step # 2 is that you are honest with yourself. This may sound like an obvious rule, but it is really important to remember. There’s no cheating when it comes to making your Money Map! Step #3 is that you list everything from your rent payments to your clothing purchases to your utilities to your valet fees.  It must all be reflected in your Money Map so that you have an accurate representation of your savings and spending each month. Tip: It’s perfectly normal that your spending will vary each month, but make sure you make the changes in that month’s Money Map. **Helpful Hint: There are a lot of resources out there now that can help make this process a little less painful, too.  I personally use Mint for all of my budgeting needs.  If you’re not familiar with Mint, check out their website and prepare to be amazed: www.mint.com.   It’s super user-friendly, totally safe and it does all the grunt work for you.  No more stressing out about balancing your checkbook or holding onto hundreds of receipts.  Just upload your accounts to Mint and let them do it all for you.  Now you’ll probably have to go in and make some adjustments to the transactions, but it’s so worth it in the end.  It really helps you to see where all of your money is going and where you need to cut back. Kate: I love it.  It’s definitely do-able and I think it will really shed some light on some areas that most of us have been trying to hide.  I know that when I first made my “Money Map”, I was appalled at the percentage of my money I was spending each month on shopping, especially when I compared it to how much I was spending on food and rent.  So this is great.  Just what we need! We’ve gone ahead and created a sample Money Map for you all to use as a guide, but of course, feel free to tailor it to your needs. **Another note about budgeting:  While I have just recently begun learning more about money, budgeting is something I have been doing since I’ve had my first dollar.  And while different things work for different people, one thing that I have found is that the more categories you have, the more difficult it is to stick to a budget.  Recently, I have narrowed my spending categories down from about 20 to about 5 and I find it is much easier to stay within budget each month this way.  You’re still spending the same amount of money, but because each month brings with it different activities and spending habits, I have found it nearly impossible to stick to the same budget each month.  That said, whatever route you choose, make sure you adhere to my 3 Golden Rules to for budgeting: Rule #1: Know how much you have to spend each month. Rule #2: Keep close track of your spending. Rule #3: Don’t spend more than you have. On that note, I’ve also gone ahead and provided a simplified budget spreadsheet that I have been using myself.  Choose whichever you feel more comfortable with, or come up with your own system.  Whatever floats your boat.  Just don’t forget the three golden rules.

Welcome to Get Smart’s very first money post!  I’m so excited about this section of Get Smart and I hope that you all enjoy and learn from it as much as I have.  Some of you may be way beyond your years and already know all about ARM mortgages and stock options and what not, but we’re going to start with the basics first, and it doesn’t get more basic than budgeting.  I know, I know.  Nobody likes budgeting and it’s nearly impossible to stick to a budget every month, but Shannah and I are here to help and I promise, it’s not nearly as painful as it sounds.

Kate: We’re talking about budgeting today, and we’d really like to just get it down to the basics.  Any thoughts right off the bat?

Shannah: Sometimes, there is almost too much information out there to make sense of any of it. And it seems like everyone has a different opinion as to how to “do it the right way”.  While I am certainly not professing to have the “right way”, there are a few old school basics that any strong financial foundation is build on. The #1 old school basic is simple; you must have a “Money Map” (aka your budget) and follow it religiously every single month. Think of it as your homepage from which all your other money applications are launched.

Kate: A money map, eh?  And what exactly is a money map?  How would I go about creating one?

Shannah:  Making a Money Map is easier than finding the hidden treasure with a pirate’s map. It starts with just 30 days and 3 simple steps.

Step # 1 is to collect all your receipts and bills for 30 days. Gather them all together in one central location and separate them into 3 piles: one for all your bills, one for all your receipts, and one for your paycheck stubs.

Step # 2 is that you are honest with yourself. This may sound like an obvious rule, but it is really important to remember. There’s no cheating when it comes to making your Money Map!

Step #3 is that you list everything from your rent payments to your clothing purchases to your utilities to your valet fees.  It must all be reflected in your Money Map so that you have an accurate representation of your savings and spending each month. Tip: It’s perfectly normal that your spending will vary each month, but make sure you make the changes in that month’s Money Map.

**Helpful Hint: There are a lot of resources out there now that can help make this process a little less painful, too.  I personally use Mint for all of my budgeting needs.  If you’re not familiar with Mint, check out their website and prepare to be amazed: www.mint.com.   It’s super user-friendly, totally safe and it does all the grunt work for you.  No more stressing out about balancing your checkbook or holding onto hundreds of receipts.  Just upload your accounts to Mint and let them do it all for you.  Now you’ll probably have to go in and make some adjustments to the transactions, but it’s so worth it in the end.  It really helps you to see where all of your money is going and where you need to cut back.

Kate: I love it.  It’s definitely do-able and I think it will really shed some light on some areas that most of us have been trying to hide.  I know that when I first made my “Money Map”, I was appalled at the percentage of my money I was spending each month on shopping, especially when I compared it to how much I was spending on food and rent.  So this is great.  Just what we need!

We’ve gone ahead and created a sample Money Map for you all to use as a guide, but of course, feel free to tailor it to your needs.

**Another note about budgeting:  While I have just recently begun learning more about money, budgeting is something I have been doing since I’ve had my first dollar.  And while different things work for different people, one thing that I have found is that the more categories you have, the more difficult it is to stick to a budget.  Recently, I have narrowed my spending categories down from about 20 to about 5 and I find it is much easier to stay within budget each month this way.  You’re still spending the same amount of money, but because each month brings with it different activities and spending habits, I have found it nearly impossible to stick to the same budget each month.  That said, whatever route you choose, make sure you adhere to my 3 Golden Rules to for budgeting:

Rule #1: Know how much you have to spend each month.

Rule #2: Keep close track of your spending.

Rule #3: Don’t spend more than you have.

On that note, I’ve also gone ahead and provided a simplified budget spreadsheet that I have been using myself.  Choose whichever you feel more comfortable with, or come up with your own system.  Whatever floats your boat.  Just don’t forget the three golden rules.

--Tagged under: Budgeting Tips--

--Tagged under: Creating a budget--

--Tagged under: Money Map--

--Tagged under: Shannah Compton--

--Tagged under: personal finance--

A savings account?  No… I don’t have a savings account—or at least there’s nothing in it.  I live paycheck to paycheck (or for some of us, allowance to allowance), I have a pile of student loans, I don’t even have one extra dollar at the end of each month.  How am I going to save?  And why should I care?  Shannah’s back and we’re going to attempt to explain exactly why and how and everything else you need to know about savings. Kate: Why is savings the most overlooked money fundamental with young adults? Shannah:  We simply have too much to spend our money on: nice cars, fantastic trips, a night out at the bar, the movies, clothes to impress, etc…it is a never ending list. Kate:  So where does that leave us? Shannah: My challenge to you is to stop the spending and start the savings. Here are a few rules we’ve come up with to help keep your savings on track: Rule #1: Establish an Emergency Fund: The old adage is that you should have 3-6 months of basic living expenses put aside; however times are changing. With the way the economy has been lately, it’s not a bad idea to set aside a little more than that.  My challenge to you is to save 9-12 months of basic living expenses.  Basic living expenses include all the items that you HAVE to pay every month, i.e. rent, car payments, credit card bills, etc.  Use your Money Map to determine all of your basic living expenses. Add this number up and then multiply it by at least 9, but 12 is best. For example: Basic Living Expenses= $800 a month Multiply by 12= $9600 Now that you have the amount set that is your *ideal* savings, you need to figure out how much per month you can actually save for the future, as in retirement. Rule # 2: Pay Yourself First, Pay Yourself Automatically and Pay Yourself At Least 10%: It’s ok to be selfish.  You are your #1 Employee. It’s time to stop putting the companies you owe money to at the top of your list.  Paying yourself first is one of the most important money foundation principles you can learn that will be beneficial to you no matter what income you are earning.  Whatever your gross salary is, you should be putting at least 10% away for the future. For example: Salary before taxes= $30,000/year or $2500/month 10%= $3000/year or $250/month Set up something automatic so that you won’t even be tempted to spend that money.  And if your company offers any kind of a match, you absolutely must take advantage of it.  This is essentially free money! **Another hint** Once you create the habit of savings you can become creative about finding additional savings each month.  For example: • Do you really need that extra Starbucks per week, or can you add another $5 per week to your savings? • Can you carpool to work and save an extra $35 per month on gas? There are lots of creative ways to multiply your savings. Find what works best for you and make it a challenge and have fun with it. You’ve figured out your *ideal* savings goal, figured out approximately how much you can save each month, and have started to think about creative ways to add to your savings. So what now? Rule # 3: Compound, Compound, Compound: Our advice for you is to put your emergency fund money directly into a high-interest bearing account or a money market account and don’t touch it until you need it. Most bank savings accounts offer the lowest interest accrual, sometimes as low as .25%, while other savings accounts, such as the Charles Schwab High Interest Savings, accrue interest starting around 1.5% (it was higher before the economy crashed). You might be thinking, “that doesn’t seem like that much of a difference”, right? Well, let’s see it in action: Savings $100 a month x 8 years earning 0% interest= $9,600.00 Savings $100 a month x 8 years earning .25% interest= $ 9,810.65 Savings $100 a month x 8 years earning 2% interest=   $ 10,622.72 As you can see, the power is in the interest amount! That’s because it compounds on top of itself month after month, year after year. Once you have your emergency fund established, you’ll likely want to invest any additional savings in the stock market, which averages a 10% annual return. Savings $100 a month x 8 years earning 10% return=   $ 15,309.73 And even better, since we’re in our twenties, we’ll be investing for closer to 40 years.  Check out these savings with the magic of compound interest! Savings $100 a month x 40 years earning 10% return=   $588,758.10 The real beauty of compound interest is only seen when you’re investing for a significant period of time. So that is why it is so important to start young. The difference between starting to invest $100 a month at age 20 and at age 30 is a whopping $369,871.05!!! We’ll talk more about the stock market later, though.  Right now, just be working on establishing an emergency fund. Savings will give you power and control over your future. It will allow you to purchase a home when you are older, take a dream vacation, or better yet, provide you with a great base for all those “Oh No” expenses that come up in life. If you remember, and follow, the 3 simple rules above you will be ahead of approximately 99% of your friends. So I encourage you to take these lessons and email them to all your friends…what a great achievement it would be if we all learned how to save.

A savings account?  No… I don’t have a savings account—or at least there’s nothing in it.  I live paycheck to paycheck (or for some of us, allowance to allowance), I have a pile of student loans, I don’t even have one extra dollar at the end of each month.  How am I going to save?  And why should I care?  Shannah’s back and we’re going to attempt to explain exactly why and how and everything else you need to know about savings.

Kate: Why is savings the most overlooked money fundamental with young adults?

Shannah:  We simply have too much to spend our money on: nice cars, fantastic trips, a night out at the bar, the movies, clothes to impress, etc…it is a never ending list.

Kate:  So where does that leave us?

Shannah: My challenge to you is to stop the spending and start the savings.

Here are a few rules we’ve come up with to help keep your savings on track:

Rule #1: Establish an Emergency Fund: The old adage is that you should have 3-6 months of basic living expenses put aside; however times are changing. With the way the economy has been lately, it’s not a bad idea to set aside a little more than that.  My challenge to you is to save 9-12 months of basic living expenses.  Basic living expenses include all the items that you HAVE to pay every month, i.e. rent, car payments, credit card bills, etc.  Use your Money Map to determine all of your basic living expenses. Add this number up and then multiply it by at least 9, but 12 is best.

For example:

Basic Living Expenses= $800 a month

Multiply by 12= $9600

Now that you have the amount set that is your *ideal* savings, you need to figure out how much per month you can actually save for the future, as in retirement.

Rule # 2: Pay Yourself First, Pay Yourself Automatically and Pay Yourself At Least 10%: It’s ok to be selfish.  You are your #1 Employee. It’s time to stop putting the companies you owe money to at the top of your list.  Paying yourself first is one of the most important money foundation principles you can learn that will be beneficial to you no matter what income you are earning.  Whatever your gross salary is, you should be putting at least 10% away for the future.

For example:

Salary before taxes= $30,000/year or $2500/month

10%= $3000/year or $250/month

Set up something automatic so that you won’t even be tempted to spend that money.  And if your company offers any kind of a match, you absolutely must take advantage of it.  This is essentially free money!

**Another hint**

Once you create the habit of savings you can become creative about finding additional savings each

month.  For example:

• Do you really need that extra Starbucks per week, or can you add another $5 per week to your savings?

• Can you carpool to work and save an extra $35 per month on gas?

There are lots of creative ways to multiply your savings. Find what works best for you and make it a challenge and have fun with it.

You’ve figured out your *ideal* savings goal, figured out approximately how much you can save each month, and have started to think about creative ways to add to your savings. So what now?

Rule # 3: Compound, Compound, Compound: Our advice for you is to put your emergency fund money directly into a high-interest bearing account or a money market account and don’t touch it until you need it. Most bank savings accounts offer the lowest interest accrual, sometimes as low as .25%, while other savings accounts, such as the Charles Schwab High Interest Savings, accrue interest starting around 1.5% (it was higher before the economy crashed).

You might be thinking, “that doesn’t seem like that much of a difference”, right? Well, let’s see it in action:

Savings $100 a month x 8 years earning 0% interest= $9,600.00

Savings $100 a month x 8 years earning .25% interest= $ 9,810.65

Savings $100 a month x 8 years earning 2% interest=   $ 10,622.72

As you can see, the power is in the interest amount! That’s because it compounds on top of itself month after month, year after year.

Once you have your emergency fund established, you’ll likely want to invest any additional savings in the stock market, which averages a 10% annual return.

Savings $100 a month x 8 years earning 10% return=   $ 15,309.73

And even better, since we’re in our twenties, we’ll be investing for closer to 40 years.  Check out these savings with the magic of compound interest!

Savings $100 a month x 40 years earning 10% return=   $588,758.10

The real beauty of compound interest is only seen when you’re investing for a significant period of time.

So that is why it is so important to start young.

The difference between starting to invest $100 a month at age 20 and at age 30 is a whopping $369,871.05!!!

We’ll talk more about the stock market later, though.  Right now, just be working on establishing an emergency fund.

Savings will give you power and control over your future. It will allow you to purchase a home when you are older, take a dream vacation, or better yet, provide you with a great base for all those “Oh No” expenses that come up in life.

If you remember, and follow, the 3 simple rules above you will be ahead of approximately 99% of your friends. So I encourage you to take these lessons and email them to all your friends…what a great achievement it would be if we all learned how to save.

--Tagged under: Shannah Compton--

--Tagged under: Savings--

--Tagged under: Personal Finance--

--Tagged under: Saving Tips--

As we’re all well aware, credit cards can be dangerous.  Put in the wrong hands, it’s easy for a credit card user to rack up thousands of dollars in debt in no time at all.  That said, put in the right hands, it’s easy for a credit card user to live within their means and earn rewards while they’re at it.  But you’ve got to be smart about it. If you don’t already have a credit card, my advice to you is to get one now.  It’s so important to start building credit at a young age that you shouldn’t wait.  However, promise me this:  “I will apply for a credit card today, which I will use as if it were cash and I will NEVER, EVER have even $1 of credit card debt.”  Repeat this phrase every day and don’t ever even consider using your credit card to pay for something that you can’t afford. Why you ask?  Think of it like this.  Let’s say I want to buy a new flatscreen TV for my new place.  The TV’s retail price is $500.  I don’t have that, so I put it on my credit card.  If my interest rate is 14.99% (the average in the U.S.), that means that I will actually be paying more like $740 if I don’t pay it off within just 3 months.  Credit card companies are essentially robbing us blind when we don’t pay off our balance IN FULL each month. So… you can see why it’s so important to use credit cards wisely.  And as usual, here to help us understand credit cards is Shannah Compton. Kate: Hi Shannah.  Can you help us wrap our brains around credit cards and scores and debt and all that fun stuff? Shannah: Of course.  I love the challenge of coming up with new ideas regarding credit cards because, although they can create financial problems for many, they also can create financial achievements for others.  Credit cards used properly can help you build a solid credit score; can help you leverage your money in relation to surprise expenses, and so much more. Kate: Great!  Let’s get started.  Why should I get a credit card?  What’s the goal here? Shannah:  The goal is always to avoid paying fees and interest while building a great credit score. The best way to do this is to follow these 3 simple rules: Rule #1: Use one credit card for all your budgeted monthly expenses such as your grocery bills, gas, eating out, etc. and PAY THE BILL OFF IN FULL each month. Rule #2: If you already have a balance on a credit card, call your other credit card companies and request a 0% interest rate transfer. Although you do incur a transfer fee this is the smartest way to pay down a credit card balance. Rule #3: If you have more than one credit card, keep your other existing cards open but do not use them. Tuck these credit cards into a safe “hiding spot” where they are out of sight, but do not close the card. Building strong credit requires that your ratio of credit available to credit used is relatively low. Keeping 2 or 3 credit cards open will not only help out your credit score but will give you options should you need to do a 0% interest rate transfer. Kate: Is it really that smart to have 2-3 credit cards?  That opens up so many temptations? Shannah: In my experience the majority of financial advisors blanket this conversation topic with an overwhelming response, “don’t use your credit cards….ever!” I think this advice is not realistic particularly for us (us meaning those of us under the age of40). Kate: True.  What mistakes can we avoid in the process of building credit? Shannah: The consumer, particularly us younger adults, should avoid using our credit cards as a crutch. It is essential that you construct a comprehensive budget (Money Map) that you update every month. I even advise you to print out a small copy of your Money Map and keep it with you in your wallet. This will help keep your spending on track and keep you accountable to your monthly expenses. In today’s society we younger adults are constantly confronted with images in TV, Magazines and Online of the “things” that a young adult should possess to be successful. These “things” carry a hefty price tag and have single handedly helped credit card companies build fortunes. You should also be aware of the interest rates on your credit cards. Some credit card companies are charging 24% and higher in interest charges. *That means for a $100 charge that is not paid off you are paying an extra $24 in interest charges, or almost a quarter more than their purchase.* If that balance is not paid off in one month the 24% begins to compound spiraling into an out of control debt. With the average consumer credit card debt of $5,000 plus, these numbers begin to multiply fast. Credit card companies understand that the average consumer is not even aware of the amount of interest they pay or how they can begin to counteract this process. The lesson is to use your credit cards wisely or don’t use them at all! A few smart strategies: • Use a credit card that offers rewards for your purchases. If you spend $500 a month on your credit card you can earn well over 6,000 points every year. These points can purchase vacations, discount car rentals, airfare, Christmas gifts and so on. Put yourself in the driver’s seat with the credit card company. • Gather together all your credit cards and make a list of each card and its corresponding interest rate and credit limit. For credit cards with interest rates over 12% contact the company and request a lower interest rate. For credit cards with limits substantially over your monthly budgeted expenses contact the company and ask them to lower your credit limit so that you are not tempted to use the credit in an adverse manner. • Put all your monthly budgeted expenses on one credit card. This is essential for the ease of tracking your expenses and the simplicity of making one payment. Most financial professionals will tell their young professional clients not to use their credit cards.  This is simply not realistic for our generation. We grew up with credit cards and rarely carry any cash at all.  The trick is to simply use your credit card as if it were a debit card/cash.  Don’t charge something on your card that you can’t pay off with the money in your checking account. Get a free credit report immediately.  There are tons of sites today that can give you your credit score for free every year.  Check out www.FreeCreditReport.com or www.Experian.com.  For more information about FICO scores, check out this great blog post from the Digerati Life.

As we’re all well aware, credit cards can be dangerous.  Put in the wrong hands, it’s easy for a credit card user to rack up thousands of dollars in debt in no time at all.  That said, put in the right hands, it’s easy for a credit card user to live within their means and earn rewards while they’re at it.  But you’ve got to be smart about it.

If you don’t already have a credit card, my advice to you is to get one now.  It’s so important to start building credit at a young age that you shouldn’t wait.  However, promise me this:  “I will apply for a credit card today, which I will use as if it were cash and I will NEVER, EVER have even $1 of credit card debt.”  Repeat this phrase every day and don’t ever even consider using your credit card to pay for something that you can’t afford.

Why you ask?  Think of it like this.  Let’s say I want to buy a new flatscreen TV for my new place.  The TV’s retail price is $500.  I don’t have that, so I put it on my credit card.  If my interest rate is 14.99% (the average in the U.S.), that means that I will actually be paying more like $740 if I don’t pay it off within just 3 months.  Credit card companies are essentially robbing us blind when we don’t pay off our balance IN FULL each month.

So… you can see why it’s so important to use credit cards wisely.  And as usual, here to help us understand credit cards is Shannah Compton.

Kate: Hi Shannah.  Can you help us wrap our brains around credit cards and scores and debt and all that fun stuff?

Shannah: Of course.  I love the challenge of coming up with new ideas regarding credit cards because, although they can create financial problems for many, they also can create financial achievements for others.  Credit cards used properly can help you build a solid credit score; can help you leverage your money in relation to surprise expenses, and so much more.

Kate: Great!  Let’s get started.  Why should I get a credit card?  What’s the goal here?

Shannah:  The goal is always to avoid paying fees and interest while building a great credit score.

The best way to do this is to follow these 3 simple rules:

Rule #1: Use one credit card for all your budgeted monthly expenses such as your grocery bills, gas, eating out, etc. and PAY THE BILL OFF IN FULL each month.

Rule #2: If you already have a balance on a credit card, call your other credit card companies and request a 0% interest rate transfer. Although you do incur a transfer fee this is the smartest way to pay down a credit card balance.

Rule #3: If you have more than one credit card, keep your other existing cards open but do not use them. Tuck these credit cards into a safe “hiding spot” where they are out of sight, but do not close the card. Building strong credit requires that your ratio of credit available to credit used is relatively low. Keeping 2 or 3 credit cards open will not only help out your credit score but will give you options should you need to do a 0% interest rate transfer.

Kate: Is it really that smart to have 2-3 credit cards?  That opens up so many temptations?

Shannah: In my experience the majority of financial advisors blanket this conversation topic with an overwhelming response, “don’t use your credit cards….ever!” I think this advice is not realistic particularly for us (us meaning those of us under the age of40).

Kate: True.  What mistakes can we avoid in the process of building credit?

Shannah: The consumer, particularly us younger adults, should avoid using our credit cards as a crutch. It is essential that you construct a comprehensive budget (Money Map) that you update every month. I even advise you to print out a small copy of your Money Map and keep it with you in your wallet. This will help keep your spending on track and keep you accountable to your monthly expenses. In today’s society we younger adults are constantly confronted with images in TV, Magazines and Online of the “things” that a young adult should possess to be successful. These “things” carry a hefty price tag and have single handedly helped credit card companies build fortunes.

You should also be aware of the interest rates on your credit cards. Some credit card companies are charging 24% and higher in interest charges.

*That means for a $100 charge that is not paid off you are paying an extra $24 in interest charges, or almost a quarter more than their purchase.*

If that balance is not paid off in one month the 24% begins to compound spiraling into an out of control debt. With the average consumer credit card debt of $5,000 plus, these numbers begin to multiply fast. Credit card companies understand that the average consumer is not even aware of the amount of interest they pay or how they can begin to counteract this process.

The lesson is to use your credit cards wisely or don’t use them at all!

A few smart strategies:

• Use a credit card that offers rewards for your purchases. If you spend $500 a month on your credit card you can earn well over 6,000 points every year. These points can purchase vacations, discount car rentals, airfare, Christmas gifts and so on. Put yourself in the driver’s seat with the credit card company.

• Gather together all your credit cards and make a list of each card and its corresponding interest rate and credit limit. For credit cards with interest rates over 12% contact the company and request a lower interest rate. For credit cards with limits substantially over your monthly budgeted expenses contact the company and ask them to lower your credit limit so that you are not tempted to use the credit in an adverse manner.

• Put all your monthly budgeted expenses on one credit card. This is essential for the ease of tracking your expenses and the simplicity of making one payment.

  • Most financial professionals will tell their young professional clients not to use their credit cards.  This is simply not realistic for our generation. We grew up with credit cards and rarely carry any cash at all.  The trick is to simply use your credit card as if it were a debit card/cash.  Don’t charge something on your card that you can’t pay off with the money in your checking account.
  • Get a free credit report immediately.  There are tons of sites today that can give you your credit score for free every year.  Check out www.FreeCreditReport.com or www.Experian.com.  For more information about FICO scores, check out this great blog post from the Digerati Life.

--Tagged under: Credit Card Tips--

--Tagged under: Shannah Compton--

--Tagged under: Using Credit Cards Wisely--

--Tagged under: personal finance--

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