Credit cards can be a good thing, or they can be very bad for a person. If you’re looking to build your credit score, then you probably look forward to doing well with your credit card.  However, if you find that you have many spending temptations, then credit cards are probably not the best thing in your life.

I personally have 3 credit cards. I pay them off every month (I’ve never carried a balance) and I use them mainly for credit card rewards. I earn a decent amount and right now I have around $200 in credit card reward points saved up for Christmas presents that I plan on buying.

Most of my friends have no credit cards. When I tell them that I have 3, they usually think I’m crazy and that I must be in major debt. There is a correct way to use a credit card! Anyways, how do you know whether you should have any credit cards though? Maybe you should even close one?

A lot of people have credit cards for many different reasons. The cash flow from month to month is nice to have, the credit card rewards can add up nicely, and you can build your credit. However, many people are scared to close their credit card because they are afraid that they will destroy their credit score.

Your credit score is important in certain situations, but if you don’t know how to properly manage your credit card or credit cards, then closing them might be a better idea for the moment for you.

Reasons why you might want to close your credit card:

1. You can’t control yourself.

Do you see your credit card as free money? The other day my friend told me how she only had a $400 limit on her credit card, BUT that she could still go out to eat because she still had around $50 left to use on it. This makes no sense of me! She also said that she’s only been paying the minimum payment since she’s gotten it because she thought that was helping her credit score.

If you see yourself going to mall just because you have credit left on your card to use, then credit cards may not be good for you. Credit on your credit card is not something that you should just be spending and racking up just because it is there and available for you.

2. You don’t want to rely on credit.

One of my friends pays for everything with cash and refuses to have credit cards. While I wish I could say that this is the way that I live, some people actually DO (of course) pay for everything with cash so that they aren’t forced to rely on money that they don’t actually have.

Be Careful.

There are things to keep in mind if you do decide to close your credit cards. The effect of closing a credit card on your credit score can vary greatly. It all depends on your credit score now, how long you’ve had the specific card and your credit limits.

Maybe just hiding your card from yourself is a better idea, so that you can keep that long standing card that you’ve had. Freezing your credit card (such as putting it in ice in your freezer) may not be a good idea because the credit card company may close your account because of inactivity.

Also, if you close an account that had a high limit, this can affect your utilization ratio. If your ratio becomes too high, then this will negatively affect your credit.

Have you ever closed a credit card? Why?

I’m sure you have all noticed that holiday stuff is everywhere now. Halloween stuff has been on the shelves for quite some time, and Christmas and winter items are starting to come out as well. It seems like just yesterday it was summer and 100 degrees out.

Traveling during the holidays can kill your budget, so there are many things to think about.

Below are ways to save on your holiday travel:

1. Think about your travel dates.

Can you be flexible with your traveling dates at all? Flying a couple of days before Thanksgiving and leaving a couple of days after will be very expensive, and also very busy at the airport. If it is possible, then try arriving or leaving the day of the holiday. Yes, this isn’t always ideal, but if it is possible, then it should be though about.

In general, days matter also. However, not when it comes to Thanksgiving though as these days I’m about to list are prime Thanksgiving traveling days. Flying on different days can also save you. Flying in on a Tuesday and leaving on a Saturday will save you much more money then leaving or coming back from your destination on Friday or Saturday.

Leaving at different times of the day can cost differently as well. Taking a 6am flight or an 11pm flight will most likely cost less than taking a flight during a more normal time.

2. Buy now.

Prices will most likely only go up from now until the holidays. There will be the occasional super sale on airfare, but would you want to risk that and possibly paying double if the sale never comes?

3. Use different airports.

Flying into airports that aren’t as busy can save you a lot of money. Farther airports might also be closer to your destination, so don’t always rule them out.

However, there are other factors to think about when doing this. How much will the additional cost is gas or a taxi cost? Can you use public transportation from this airport location?

 4. Use a Rewards Card.

If you can get any extra money back, then why not? If you already have a travel or rewards card, then look into the details to see how you can get the most money back.

5. Looks at bidding websites.

If you’re booking a hotel, try bidding on websites such as Priceline. If you look at bidding tips websites, they can tell you what most people pay and what hotels you most likely are bidding on. I greatly recommend this so that you aren’t just shooting in the dark for a price and a hotel.

6. Use Airbnb or other home rental websites.

I have used Airbnb once before, and I got a great deal. Renting a place for a couple of days is most likely much cheaper than getting a room at a hotel.

7. Get the economy car.

If you need to rent a car, then try getting the economy car. It is most likely the cheapest and will get the best gas mileage. Also, see if your hotel will spring for the rental car cost, as some hotels do this nowadays.

8. Use public transportation.

If it is possible in the place that you are going to, then trying using their metro system. It will most likely be much cheaper, and you might possibly be able to get places faster since you will be avoiding traffic.

9. Use coupons on food.

Food on vacations can be a budget buster. Try looking for coupons or specials for the restaurant that you are about to go to. Also, eating during happy hour or during lunch time will be much cheaper than eating during dinner at most restaurants.

10. Cook at your place.

If you have a kitchen in your room, then cook! Go to the grocery store and stock up on foods that you will be eating.

How do you save on holiday travel?

A mistake that many new home buyers make is not looking at the total cost of the house that they are about to buy. Only looking at the actual mortgage amount is a big mistake, as looking at that amount alone can fool you.

The principal and insurance amount of your monthly home budget can actually be relatively small when compared to the whole amount.

My friend and her fiance are looking at houses right now, and they are making a mistake when calculating their housing costs. They are looking at houses farther away because houses in the more rural areas are much, much cheaper. However, the costs that they are saving by being able to get a newly built house in a far away area are eliminated because of the long drive they will have to venture on every morning. They will both work more than 60 miles from their jobs and won’t be able to commute together.

Commuting costs should definitely be thought as, as demonstrated above! They also both have horrible gas guzzling cars, and will most likely be spending a little over $1,000 on gas every month.

When looking at houses, you should be looking at the overall costs such as the costs listed below:

1. Property taxes.

Many estimate that these will be lower, but in reality, property taxes are high. For us, property taxes equal approximately one-third of our total monthly house payment.

2. Private Mortgage Insurance (PMI).

If you don’t put a large enough down payment on the house that you are about to buy, then you will have to pay PMI most likely. This can end up being a large amount tacked onto your monthly mortgage amount, such as $50 or $150 per month.

3. Home Insurance.

The neighborhood you live in and the type of house that you buy play a big role in how expensive your home insurance will be. You can of course try shopping around to find the best price, but there can be other things making your home insurance high. If you live in a risky weather area (such as floods, high winds, tornadoes, etc.), then this will cause your home insurance expenses to rise.

4. Maintenance.

With houses, there will something that will go wrong eventually. Pipes might need to be placed, water heaters will need to be repaired and so on. Some of these expenses might be “low” and only be a couple hundred dollars, while others might be thousands. A family member needs their roof replaced, and they had multiple people bid on the replacement. The lowest bid they received was $65,000. And no, they are not being duped, they have a VERY steep roof and asbestos, so that’s the lowest that any place would offer. Keep these maintenance costs in mind!

Also, the furnace can be an expensive fix or replacement as well. A friend of mine had to spend $6,000 to get hers replaced. Keeping a home maintenance fund is very important just in case something does come up.

5. Landscaping.

Your house looks nice now, but will it require a professional person to come by every now and then to make the landscaping look the same? Will you be able to do it yourself? If you have a very large yard (acres and acres), then you will have to either hire someone to come often, or you will have to put time, labor and buy a reliable mower to cut your lawn.

6. Utilities.

Even if a bigger house may seem like a “deal,” it might not actually be. A bigger house will require more maintenance, landscaping, and higher utility bills.

7. Extras.

You might say “oh I’ll buy this house but I won’t get internet, cable, cell phone, etc. so that I can afford the house payment.” How realistic is this though? If you know that you will be buying these things, then you should budget this into your housing costs so that you aren’t running later.

 

Did you forget about any housing costs when you first bought?

Hobbies with Low Costs

Corey —  September 27, 2012 — 7 Comments

When my wife and I were just married, as I have shared before, we struggled to make ends meet. We had an emergency fund in place so we never had to stress about whether we were going to be able to pay the bills, but we always wanted to pay our bills with our income and not draw from the emergency fund. That is, after all, not the purpose of an emergency fund.

In order to achieve this goal, we had to cut back in many ways. This meant only eating out once a month and doing free hobbies. Naturally, we focused on hanging out, doing stuff outdoors, and board games. This is all great fun… for a while. Eventually, these free activities get old and they did. We got very tired of playing the same board games over and over. As a result, we were forced to find new hobbies that didn’t break the bank.

Find Cheap Shared Experiences

The first thing we did was to look for new ways that we could spend time together that wouldn’t break the bank. If it meant spending a little more money to have new experiences, we were okay with that. But we weren’t willing to spend too much money that would compromise our financial position. Here’s what we came up with:

Movie Night - One of the first things we did was implement a movie night. It wasn’t anything glamorous and 90% of the times, we got the movie from our local Redbox. That way we could make dinner at home and watch a $1 movie. It didn’t just involve sitting around the house, but it somehow became a time that we looked forward to. We eventually watched all of the movies that we wanted to on Redbox, so we had to splurge and spend $10 per month on Netflix. I know, big spenders!

New Scenery - Another thing that we did together was to explore new areas. If there was a park that we hadn’t visited, we scheduled a time to visit. In a matter of months, we saw several waterfalls, went on tons of new hikes, and just enjoyed experiencing new things. There are only so many times that you can do the same hike without feeling a little boredom.

Develop Personal Hobbies

Another thing that my wife and I realized is that we needed time to ourselves. Not only because it’s important to have alone time, but also because we each have different interests. My wife likes to do some crafts and I like to bike and build websites. We gave ourselves a little bit of spending money to find new personal hobbies.

Crafting - My wife instantly realize that the enjoyed doing crafts. Normally, she is not the stereotypical woman (doing all the girly things), but this was an exception. Yet, as many people probably already know, crafting can add up. She came back from the craft store the first time spending $80. Wow! That was a shock and forced us to find cheaper ways to continue this hobby. Now, we look for coupons or deals (like Jo-Ann Fabrics coupons) and are keeping her craft expenses to a minimum.

Biking - One of the first things I needed to do was to buy a bike. I looked on craigslist and wasn’t able to find a bike that I wanted. I ended up using some Birthday money to buy my bike and then enjoyed a practically free hobby. If only my wife could enjoy a free hobby. :)

Saving money while developing hobbies and discovering your interests is always a difficult balance. For us personally, we found the best success with prioritizing savings first and then allowing us to splurge a little bit as we made more money. This meant that we didn’t live with any regret and we were able to slowly enjoy ourselves even more.

Have you had success balancing saving money and enjoying yourself?

 

Everyone dreams of the day that their mortgage for their house will be paid off right? I know I do! We bought our house around 3 years ago, and would like to have it paid off in around 4 to 5 years. We have a long 30-year loan though.

There are many reasons why people want to pay off their homes early. Maybe you just hate debt and want all of your debt to be gone. Maybe you want to retire and lower your spending so that you are more prepared.

However, I do know that not everyone is in a rush to pay off their mortgages early. Your mortgage rate might be extremely low and you might be earning a much higher return in the stock market or in your other investments, which would persuade you to invest and throw your money at your investments instead of your house.

How is it possible that we can pay off our house so much earlier than the planned 30-year loan that we have? There are many reasons for this, mainly because of the fact that we plan on paying extra large payments to our mortgage debt soon. Our goal is to make a couple thousand dollars extra towards our payments every month, and we also hope to switch our payments to biweekly if our bank allows for it.

1. Increase your payment amounts.

This one is a no brainer. If you throw more money towards your debts, then of course you can pay your mortgage off more quickly!

Another way is to make more payments towards your debt. Did you receive a bonus for the holidays, signing on with a company, or for some other reason? Put that extra money towards your debt and make a new payment!

Even if you can’t put a large amount of extra money towards your mortgage payment, even a little bit helps if it is put towards your principal. That way you are not being charged all of that extra interest anymore.

2. Increase the amount of payments that you make.

As stated above, try and apply any extra money towards your mortgage. Everything counts and one extra payment is worth it.

This also goes hand in hand with making bi-weekly payments. With biweekly payments, you make a payment every 2 weeks. There are 52 weeks in a year, so instead of making 12 payments in one year, you are making 13 payments.

You are also shaving a little off interest as well. Not all banks will allow you to do this though, so first ask your bank. You might have to sign up for some sort of biweekly plan with them.

With paying your mortgage biweekly, you will most likely be able to shave AT LEAST a couple of years off your mortgage, and it’s really just that simple!

3. Refinance your mortgage.

Mortgage rates are extremely low right now, and everyone knows that. My friends don’t have the greatest credit in the world (they don’t have a car payment or credit cards, so they haven’t been able to build their credit the normal way), but still received a 30-year loan at what I believe was a 3.2%. That is great! Our mortgage is at 5%. We should refinance.

Refinancing your mortgage might cost a couple thousand up front, but in the end, if you can slash more than 1.5% to 2% off your rate, then it is probably worth it to refinance your mortgage.

Do you plan on paying off your mortgage early? Why or why not?

What Are Your Financial Priorities?

Michelle —  September 17, 2012 — 1 Comment

Everyone has some sort of financial priority in their life.  Setting priorities can be very good for a person or a family. If you know what you are striving for, then you most likely will try a little harder and put more effort towards it.

Without priorities, then everything would be all over the place. How would a person even know where to start, where to end, when things are going run, etc.? How will individuals know when to celebrate completing a goal as well?

Maybe you want to eliminate all of your debt, give a higher percentage of your income to charity, go to school, pay off your house, retire early or just have financial freedom. Each person is different in how they value different things in their life, and their different financial priorities. One thing to keep in mind that even if financial priorities are similar, you shouldn’t always compare yourself to others. Different people complete their goals differently of course.

How to set financial priorities for yourself:

1. Decide what you value the most.

Make a list of what’s important to you. You probably have a very long list of things that you want to accomplish. What honestly cannot wait another second? Try to determine what should be done first and what can wait a little while.  You can sort through the rest of the financial things you need to do as well, and maybe you can contribute to the rest equally but put most of your might to your top priorities.

Think about your future and think about where you want to be and what you want to have done. This is the first step!

2. Let people join you.

If there are others, such as family and friends, who might have similar priorities as you, then let them join you. You and them can most likely push each other to achieve your similar goals. Talking about things out loud can also be helpful.

Also, sit down with your family to make sure that everyone is on the same page. If everyone agrees on the financial priority, it will make it much easier, and of course, much less arguments.

3. Make sure your goal or goals are possible and realistic.

Creating a goal of paying off all your debt in one year when you know it’s absolutely not possible, then it’s probably not a SMART goal. A smart goal is specific, measurable, achievable, rewarding and track-able.

If your goal is not possible, then you are most likely spending way too much time (and wasting time) on something that will not work out in the end. And then you are also sidetracking other goals that you should be working on as well.

4. Keep track and always adjust.

You should constantly be keeping track of your goals. Try to set maybe a certain time for when you will track how you are doing. Maybe daily (if you want to be very on track), weekly, monthly or some other amount of time.

This way, if something does happen to be OFF track, then you can try to adjust it. It’s of course much better than waiting to see how you’re doing a year later and figuring out that you are way off track what you wanted to be.

5. Be prepared for things that will throw you off track.

In the end, something will most likely come up. If something sidetracks your goal or priority for a little bit, don’t let it ruin everything. Realize that things will come up and not everything can be scheduled perfectly.

What are your priorities?

What’s on the back-burner for you now?

Investing Principle: Diversification

Corey —  September 17, 2012 — 6 Comments

Any smart investor is going to look to look to both protect their investments while also securing the best return possible. It is always a juggling act for any investor, regardless of how much experience he/she may have. Investment tracking is quite a task. While there are many important ways to accomplish this balance, diversification is one of best ways to accomplish both values.

What is Diversification?

According to investopedia, diversification is defined as:

A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio. 

Diversification strives to smooth out unsystematic risk events in a portfolio so that the positive performance of some investments will neutralize the negative performance of others. Therefore, the benefits of diversification will hold only if the securities in the portfolio are not perfectly correlated.

Why Diversification is Important

Diversification is important, as I mentioned above, because it allows you to accomplish two things at once. The first, and perhaps more important, is to protect yourself from any significant loss. The basic idea is that one area of the market is performing poorly, the others will make up for it. It is also very unlikely for all markets or investments within a market to drop significantly at one time. The risk is inherently lower despite taking a more aggressive investment strategy.

The other major benefit to diversification is the ability to maintain an aggressive approach and thereby maximizing long-term return. Instead of sticking to conservative investments like bonds or cd’s, diversified investors are able to keep their money in high-yielding investments.

How to Diversify Your Investments

While a lot (maybe enough to fit in entire books) could be said about how to actually diversify your investments, I thought I would give you a picture of what I am doing to diversify my portfolio. Keep in mind that my investment history is quite short and over the next few years I plan to diversify it even further.

Employer 403b Account - One of the best ways to start investing is with your employer’s investment account. It often comes with some form of matching, so it automatically gives you a great return on your investment. I personally have mine set up with a mutual fund because of how little is being invested. It provides for some inherent diversification.

Real Estate Investing – One of the ways I am in the process of investing in over the next few months is real estate investing. I believe this to be a secure investment for decades to come and the revenue stream should only increase with inflation.

Dividend Stocks - While I am not an expert on dividend stocks, I have been learning a lot about the benefits of investing in dividend stocks. In fact, dividend stocks over a period from 1972 to 2010 provided a significantly larger return than non-dividend stocks. Dividend stocks offer some minor diversification as there are two revenue streams. The first is the dividend as a form of cash flow and the other in the potential increase in the stock value. If you want to learn more about dividend stocks, there are many great resources like the list of high yield dividend stocks by Dividend Stocks Online.

Side Business - Another way that I am trying to diversify my investments is to build up a side business for myself. Eventually I would like to see it develop into my full-time gig, but I have to sustain a decent income before I make that leap.

While diversification can (and often is) be simplified to investing in mutual funds or ETFs, it is much more than that. It should include different investment vehicles and markets.

How are you diversifying your investments?