The first issue style post comes from somebody very close to me. It comes from somebody sitting right next to me in fact. Thanks Kate! Keep sendin questions and examples this way, kids!
For a first shot at the massive subject of personal finance... how about.. how to save? Or more interestingly.. why save?
Everybody makes at least some income. Everybody spends at least some money, and the difference gets saved for .... something. That something usually ends up in the out pile... either you spend it on a KitchenAid mixer tomorrow or trip to Kathmandu next month, on tuition for an grad degree that takes you years, or motorcycle, or on some mix of frisbee golf, choice prescription drugs, and some nice slacks when you retire. What you want to be doing with your life will dictate how you trade your time for money, or whether you relish what you do and happen to get paid for it.
There are two ways to get more of what you want (appliances, vacations, etc).
1.) Take in more money. If you don't know what you want to be doing, you might as well be getting paid well for your time so that you can put resources into living your life how you want to live it. I often felt this culture that seemed common at liberal arts schools for New England's elite- this culture assumes that since my parents have money, I will have money. This may come from the "it's who you know, not what you know" mindset. This assumption exists that even if I don't talk about money or values tied in with it explicitly, I will have plenty of it.
To see what our fields will get you bank, or to negotiate your next job offer, check out sites to set your expectations. Some examples are salary.com, payscale.com, or a search for the bls (bureau of labor stats) with the occupation you're interested in - if you're in SF you'll make more than the national average for that job. Being able to work as a contractor is very choice in my opinion, and if you're willing to either learn on the job or take some courses (at ccsf.edu for example), it's easy to make $25 and up - the hard part is just finding something you like. Some examples of in demand work are trades, various computer jobs, financial arrangements, and medical professions. Building these skill sets takes some time and interest but makes you desirable and portable.
If you're suddenly consulting for McKinsey, but you spend all that on expensive toys... houses, cars, crystal, and the company of b-list celebrities, then you're no better off than before (ps. I will buy you coffee if you can explain to me in English what they do and why they get paid $250/hr). So, the other thing is, you have to save something. If you're not as grossly overpaid, 1 hour of your time generally can't be exchanged for 1 hour of your doctor's/mechanic's/accountant's time, so it's harder to save.This is possible, but much harder, even if you're making a part time chef's salary. This route involves delayed gratification and minimizing the little expensive thoughtless habits. It's unwise not to fix your broken tooth/broken car/pay your rent, even though these things cost thousands and it would help easily save a bunch just to cut out one of them. Much more possible is cutting out little habits- if you can manage without your daily latte/gibraltar/tallboy of sapporo, or make a lunch at home instead of the crap you can buy in FiDi, walk/take your bike instead of bus/car, or buy your grocery basics at Trader Joe's & the farmer's market/s instead of at Safeway/WholePaycheck/Bi-Pricey, you're ONLY saving $3-6/day. Play with this to see how much that adds up over time. A $3 habit costs you $109,000 over the course of your working life.
If you're already saving as much as you can and making as much as you're able, here are some intermediate techniques: take advantage of your local neighborhood (un)friendly credit card providers. Pick one (or a few) cards with sign up bonuses (I've seen some with between $50-100 bonuses for signing up or referring people) and 1-3% cashback on each transaction. This also means you don't have to worry about paying pointless bank fees. Would you give a guy on the street $3 for doing nothing? Good, then do that. Maybe he'll get beer, maybe a burrito. But do you really want to give $3 to the ATM for doing as much as the dude on the street (ie, nothing). If you want to support the building of more ATMs or a shinier tie for your banker, then go right ahead. Otherwise don't pay to get your cash, just use credit and keep some money in your wallet for farmers markets and small businesses.
You also will avoid overdrawing your account, and can spend less time thinking about where your paycheck went already?! It's all there in print. If you get a high yield savings account and a cred-card, just pay your balance every month and you're making 1-3% on what you spend plus 3-4% on money that's sitting in the bank waiting to pay the bill at the end of the month. This all adds up.
If you already do all that, here's an advanced tip for the truly motivated: work at Google/Yahoo/an i-bank/some other huge company that wants to consume your life but that will feed you and do your laundry in exchange. Don't learn how to cook a meal or why you'd want to do a hot or cold load of wash, or what to bleach/how to use an iron. No really, it's cool, you'll be able to find a spouse who will know how to do those things when your mom dies.
Wednesday, August 6, 2008
Monday, August 4, 2008
I want answers!
For everybody that replied in some way: thank you for the feedback on this effort. There's a lot of good questions and a lot to talk about, but for the antsy or impatient among you, I am assembling a quick cheat sheet. This is like skipping to the end of the book without reading what happened in the middle: it could be totally useless, or could be all you were really interested in.
This is a list that will track some of the best places to take your financial services business. I'll update this with input from you as I hear it. If you don't have the familiarity or interest to research brokerages/banks/credit cards, this is a cheat sheet pointing to some of the best (lowest cost, highest return) places. There are plenty of other cheat sheets easily searchable if you don't like this one.
Regular Investing:
Stocks and ETFs:
I like this one because it doesn't charge you a fee to buy a stock or stock index. You just pay for the stock (or ETF). If you're looking for a place to buy stock/ETF's, you'll see that most of them (scottrade, etrade, sharebuilder, etc.) will charge you transaction fees ... usually something like $5-10 per trade sometimes plus a small % of the trade. If you're 20-something and buying $100 or so at a time, you've just lost about 10% of your investment (side note: 10% is the "average" return of the stock market per year...which is not to say that you should expect it each year). Then, when you go to sell it, you've lost another $10 and you're starting $20 in the negative.
Zecco: Once you have $2,500 to invest, you get free trades. My corporate whoring disclosure: if you click on this link, and fund with that amount, I get a $50 referral fee (so Delfina is on me that night) http://friends.zecco.com/r/88b2a344b349102b8555
Regular Investing and Retirement Investing:
I like these for mutual funds. They provide a variety of fund types, many index funds, so generally can charge low management fees for performance that matches the market. If you know more about particular funds that you think will do well, it might be worth paying more for them.. but I still don't know/have time to determine whether a fund is well managed or not. So, instead of spending a bunch of time researching to make an educated gamble on one or another, I am lazy and choose indexes, which by definition guarantee a return that is average.
www.vanguard.com
www.fidelity.com
High Yield Savings/Checking Accounts:
No monthly fees, no minimum balances. You're loaning banks money, you shouldn't be paying for the privilege of giving them a loan:
www.wamu.com - 3.75% APY in an online savings account only when linked to an also free checking account
www.everbank.com - 2.25% APY in a checking account. While your money is parked waiting for the landlord to cash your check, you're earning money. This account reimburses you for some amount of out of network ATM fees which is also nice. I believe www.ingdirect.com has the same thing but lower APY (pays you less money) ... if you sign up for this one, there's a $25 referral bonus if you can find a friend that already has it to refer you.
Credit Cards:
www.chase.com - The 'chase real rewards' card has something between 1-3% cash back on each purchase. This is good if you don't carry a balance. If you do, get one with the lowest interest rate available (then send the name of it to me so I can post it)
american express has a similar one- the blue card. I hate american express on behalf of retailers everywhere. They charge retailers 3x as much to take their cards, but give you the same amount back and don't do anything else special that I know of.
Vocabulary:
If somebody says something...like ETF, option, annuity.. that you don't understand (and you want/need to understand it), a good common sense, quick definition can usually be found @ www.investopedia.com.
This is a list that will track some of the best places to take your financial services business. I'll update this with input from you as I hear it. If you don't have the familiarity or interest to research brokerages/banks/credit cards, this is a cheat sheet pointing to some of the best (lowest cost, highest return) places. There are plenty of other cheat sheets easily searchable if you don't like this one.
Regular Investing:
Stocks and ETFs:
I like this one because it doesn't charge you a fee to buy a stock or stock index. You just pay for the stock (or ETF). If you're looking for a place to buy stock/ETF's, you'll see that most of them (scottrade, etrade, sharebuilder, etc.) will charge you transaction fees ... usually something like $5-10 per trade sometimes plus a small % of the trade. If you're 20-something and buying $100 or so at a time, you've just lost about 10% of your investment (side note: 10% is the "average" return of the stock market per year...which is not to say that you should expect it each year). Then, when you go to sell it, you've lost another $10 and you're starting $20 in the negative.
Zecco: Once you have $2,500 to invest, you get free trades. My corporate whoring disclosure: if you click on this link, and fund with that amount, I get a $50 referral fee (so Delfina is on me that night) http://friends.zecco.com/r/
Regular Investing and Retirement Investing:
I like these for mutual funds. They provide a variety of fund types, many index funds, so generally can charge low management fees for performance that matches the market. If you know more about particular funds that you think will do well, it might be worth paying more for them.. but I still don't know/have time to determine whether a fund is well managed or not. So, instead of spending a bunch of time researching to make an educated gamble on one or another, I am lazy and choose indexes, which by definition guarantee a return that is average.
www.vanguard.com
www.fidelity.com
High Yield Savings/Checking Accounts:
No monthly fees, no minimum balances. You're loaning banks money, you shouldn't be paying for the privilege of giving them a loan:
www.wamu.com - 3.75% APY in an online savings account only when linked to an also free checking account
www.everbank.com - 2.25% APY in a checking account. While your money is parked waiting for the landlord to cash your check, you're earning money. This account reimburses you for some amount of out of network ATM fees which is also nice. I believe www.ingdirect.com has the same thing but lower APY (pays you less money) ... if you sign up for this one, there's a $25 referral bonus if you can find a friend that already has it to refer you.
Credit Cards:
www.chase.com - The 'chase real rewards' card has something between 1-3% cash back on each purchase. This is good if you don't carry a balance. If you do, get one with the lowest interest rate available (then send the name of it to me so I can post it)
american express has a similar one- the blue card. I hate american express on behalf of retailers everywhere. They charge retailers 3x as much to take their cards, but give you the same amount back and don't do anything else special that I know of.
Vocabulary:
If somebody says something...like ETF, option, annuity.. that you don't understand (and you want/need to understand it), a good common sense, quick definition can usually be found @ www.investopedia.com.
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