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When You Dream Big, Every Penny Counts

Written by Brett McKay

The New York Times hs a great article about the lengths young people are taking in order to save money to buy a condo in Manhattan.

The Aguerros

The Agueros married five years ago. They dreamed of owning an condo in Manhattan; however, the $445,000 price tag for a two bedroom condo made that dream seem impossible to reach.They both had student loans and credit card debt, and their combined income is a little more than $100,000. On top of that, they welcomed a new baby into their life. While their salaries qualified them for the mortgage, it was going to be a challenge to come up with a down payment.

But the Aguerros made it happen. How’d they do it? Let’s take a look.

Have the right mindset. If owning your home or paying off your student loans is your goal, you have to make that your top priority. As Mr. Aguerro says, “If you want to own a place, you have to do everything to own a place and everything else comes second.”

Quit your vices. The Aguerros quit smoking and stopped going out with friends to drink. By quitting they not only saved a lot of money, they also received the side benefit of a healthier life.

Cook at home instead of going out. Instead of going out with friends, the Aguerros started having meals at their home. Eating out may be convenient, but costs can add up quickly.

Save your tax return. Most people look at tax returns as free money they can use to splurge. Instead of buying stuff you may not need, sock that money towards your goal. The Aguerros were able to put a couple of thousand dollars towards their goal by saving their tax returns.

Quit impulse shopping. Mrs. Aguerro had a weakness for $300 Prada shoes; however, after they made it a goal to buy a condo, frivolous purchases stopped. By watching what they bought, the Aguerros saved over $15,000 in a year. If you feel the temptation to make an impulse purchase, remember to practice tantric shopping.

Get a second job. Mr. Aguerro did freelance work, but was scarce. So he got a job at a bank. The couple lived off just Mrs. Aguerro’s salary and socked Mr. Aguerro’s pay into savings. One possible side job is to become a consultant of some kind.

Amy Wegenaar

Amy Wegaenarr is single and 31 years old. She had a dream of owning her own place after she started to find paying rent in the Lower East Side difficult. How did Ms. Wegenaar make her dream come true? Let’s see.

Set aside a certain amount each month. Ms. Wegenaar started putting aside $400 from each pay check toward her downpayment. Make savings automatic by setting up an automatic deposit into a high yield savings account. The less you have to think about saving, the easier it is.

Save all your bonuses and raises. Instead of splurging, Ms. Wegenaar saved her bonuses and raises. Whenever you get a raise, act like you never got it and put the money into your savings.

Shop with a grocery list. Shopping with a grocery list is the best way to cut back on food costs. When you know what you’re going to get at the store, you’re less likely to make impulse purchases. Also, look for other ways to cut your food bill. It’s possibly the easiest thing to reduce in your budget.

Make your own clothes. Ms. Wegenaar sewed her own dresses from discount fabric she bought in the Lower East Side. Do it yourself is always a great money saver. If you don’t know how to sew, at least buy your clothes at thrift or discount stores.

Obi Onyejekwe

Mr. Onyejekwe really impressed me. He had been saving in a 401(k) since his first job at J.C. Penny. After college, he saved over half his salary from his first job. When he decided he wanted to become a homeowner in Manhattan, he had over $50,000 saved. The only problem was he became a big spender. Luckily, Mr. Onyejekwe turned it around. Here’s how he did it.

Surround yourself with people who have similar goals. Part of Mr. Onyejekwe ’s spending problem was that his friends liked to spend money. As a result, he spent money. When Mr. Onyejekwe finally decided to get serious about saving money for the condo, he surrounded himself with people who were as obsessed as he was about owning a condo. If you want to save money, avoid hanging out with big spenders. Additionally, friends with similar goals are a great resource for encouragement and ideas on how to make your goals happen.

Carina Katigbak and Michael Lenton

Carina and Michael were engaged to be wed. They had the goal of purchasing a $300,000 apartment on their combined annual income of $100,000. Their biggest obstacle was paying for a wedding. How could they do that and still afford owning a condo? Here’s how they did it.

Set priorities. Carina and Michael made owning a condo a priority. When they considered the cost of a fancy wedding they would ask themselves, “Do you want to have a fancy wedding, or do you want a place to live in?” I like this exercise. My wife and I have started doing it as well when we’re tempted to buy some frivolous thing.

> Brett McKay | 31 Jul 07 | Personal Finance, Saving | Comments (2)

Is Quicken Really Quicker?

Written by Brett McKay

Figuring out how to track my finances has been a challenge for me. I’m constantly switching back and forth from a computer based to paper based system. Right now, I’m leaning more towards a paper based system. I tried using Quicken a few times and every time I did, it seemed like I spent more time fidgeting with the program trying to get it right, that I defeated the purpose of having a piece of software tracking my expenses.

Time investment for set up

My biggest pet peeve about Quicken is that I spend about an hour setting up my accounts and half the time only half of them can connect with Quicken. I have to wait a few days before connection can be re-established so I can check my balances.  It would be faster for me to just sign on to my banks’ online services and write down my balances and transactions.

Addictive time wasting charts

Quicken and MS Money also have lots of fancy charts showing everything from your net worth to spending for the past three months by category. These charts, while helpful, can become an addictive time waster. I find myself  changing the parameters of the graphs in order to see different things, not because the info I receive is particularly useful, but simply because I can.  Using a simple paper based system, I don’t have  luxury to create instant charts. Consequently, I spend more time looking at the bottom line.

Delay in transaction posting

The other problem with computer based systems is that most of the time they don’t display my actual balance. Whenever I make a purchase with my debit card, it often takes many days to show up on my bank statement , and consequently in my Quicken registry. By not having an up to date balance in Quicken, you might be lulled into a false sense of security about having sufficient funds. I’ve been burned by this a few times and have been hit with overdraft fees. I’ve found it much better to write down the transaction in a registry right when you make the purchase. That way I always know how much money I have.

The one thing Quicken does have going for it is the ability to crunch numbers quickly. It’s nice having an instant balance of your bank accounts. I guess a calculator works just as well.

> Brett McKay | 26 Jul 07 | Money Management, Personal Finance | Comments (7)

Crouching Debt, Hidden Credit Card Fees

Written by Brett McKay

When you sign up for a credit card, make sure to read the fine print. You may be agreeing to fees that might bite you in the butt if you’re not aware of them. Here’s a quick list of hidden credit card fees you should be on the look out for:

  1. Credit limit fee. When you ask to raise your credit limit on your card, come cards charge you as much as 50% to make the bump. While having more available credit is good for your credit score, the fee might not make it worth it.
  2. Residual interest. This happens when you’re paying down debt over time and you’re paying off a whole balance. If you carried some balance the previous month, the following month credit card still assess interest on the balance from the previous amont. It’s a pretty sneaky interest calculation system. Keep your eyes open for it.
  3. Foreign transactions. Credit cards can definitely make foreign travel easy because most major credit cards are accepted everywhere. But be careful, some companies will charge you extra for transactions in foreign countries.

What you can do to avoid these fees

If you have a card that charges you these sneaky fees, you’re not stuck with them. Congress has recently done investigations into hidden fees and are cracking down on companies using them. If you believe you’re being charged hidden fees, call up your credit card company and threaten to report the company. If that doesn’t make them change their tune, just tell them you’ll take your business else where if the fees stay.

Featured Resource

It is true that almost all Credit Cards actually have hidden fees in the fine print, particularly Late Fees. When you are choosing a Credit card, it is always smart to compare Credit Card Offers to find one with minimal hidden charges and a low APR.

> Brett McKay | 20 Jul 07 | Credit Cards, Personal Finance | Comments (7)

How I Plan For Irregular Expenses

Written by Brett McKay

My wife and I have done a good job of controlling our spending and saving money. For the most part, we know how much we spend each month and have been able to budget our money so we have enough left over for building our emergency fund as well as putting away for long term saving goals.

Everything goes swimmingly until we get notice that our $400 car insurance is due next month or we have our 6 month dental check-up. Costs like these are so irregular that they’re easy to forget. When they do come,we usually have to dip into our emergency funds for these not quite emergencies.

This arangement annoyed me, so I sat down last week to figure out how to plan for these irregular expenses. Here’s what I did.

Write down all your irregular expenses and how much you usually spend. For me, my irregular expenses include car insurance, car maintenance, Christmas shopping, and doctor/dental visits.

Add up how much you spend on each irregular expense and divide by 12. The outcome is how much you’ll need to put away each month in order to cover your irregular expenses when they come up. Instead of dipping into my emergency fund, I’ll already have the money.

Open and ING Electric Orange Checking account. I’m stashing my irregular expense money in the ING Electric Orange account with a 3.93% interest rate. Because these expenses happen every 3-4 months, I’ll be able to earn some decent dividends.

Use your ING Account for these expenses. I like keeping this money separate from my normal accounts. It keeps things easy and organized.

My wife and I are putting about $140 a month aside into this account. In order to make this work, we had to reduce the amount we put into our investment accounts a little. I definitely think it’s worth it. We were only fooling ourselves of our financial position by not taking into account these expenses. Sure, by not putting money aside for these costs we can invest extra or put more money in our emergency fund, but when these expenses come up, we have to take the extra money we stashed in an emergency fund and spend it. It’s kind of a blow to our psyche. Now we’ll always know that we have money for these irregular expenses.

> Brett McKay | 18 Jul 07 | Personal Finance, Saving | Comments (7)

Why Personal Finance Books Suck

Written by Brett McKay

The first half of my summer I had absolutely nothing to do while I waited for my background check to clear at the US Trustees office. I filled the time by going to my local library and reading every single personal finance book they had. Seriously.  When I finished the ones at my local branch, I started doing inter-library loans to get more. After reading so many personal finance books, I’ve come to the conclusion that personal finance books suck.

Why personal finance books suck

Personal finance books suck because all personal finance books are pretty much the same. OK, my use of the universal quantifier “all” is an overstatement, but after reading over 60 personal finance books in the past two months, it sure does seem like they’re all the same.

The biggest problem with writing for the personal finance genre is that there isn’t much to say about personal finance. The principles of personal finance are actually quite simple. How much more can be written about saving or being frugal or earning more money? Not much. Personal finance authors could try to present this information in a unique and different way, but most don’t. Why should they when it’s just easier to reproduce what others have said and slap a new catchy title on the cover?

Kumbiya my David Ramsey, Kumbiya

Another thing that irritates me about many personal finance books is the new agey, schmaltzy, touchy feely stuff about money. I hate it when an author devotes a majority of a book talking about overcoming your emotional issues with money and why people spend more than they have and then only devoting a chapter about practical things one can do to fix their finances. I think what most people need is someone to explain how they can solve their problem. Most people who read personal finance books probably have enough self awareness to understand why they have a financial problem. If they didn’t, they probably wouldn’t be reading the book in the first place. What they’re looking for are answers to solve those problems.

Authors assume all readers are in their 40’s, married, have 2.5 children, and mortgaged

Most of the personal finance books weren’t relevant to me, a young married student. I’m not at a stage in my life where I’m worrying about mortgages or paying for children’s college. I also don’t have a job, so I can’t contribute to a 401(k). Unfortunately, most personal finance books devote a large portion to these types of subjects. What can I do to save money while in school full time? How can I get the best deals on rent? Their really aren’t many personal finance books geared towards young people.  The best I’ve read was Suze Orman’s The Money Book for the Young, Fabulous & Broke.

How you can avoid sucky personal finance books and still get the info you need

So, personal finance books suck. But how are we supposed to get the info we need to make good financial decisions. Here’s two things that I suggest:

  1. Read personal finance blogs. Blogs have been my number one source for personal finance info. What I like about blogs is the variety of them that are out there with a personal finance theme. I’ve been able to find blogs with financial information relevant to my life stage, so I’m not wasting my time reading books that aren’t relevant to me at all. Personal finance blogs also seem to offer more practical advice. I love being able to read a quick top 10 money savings list or a how to on personal finances. I get the info I need quickly and efficiently.
  2. Read The Simple Dollar’s book reviews. If you must read personal finance books, make sure to head by The Simple Dollar. Trent has done extensive reviews for tons of personal finance books. Read through them and if a book looks like something you’d like, go and read it.

What do you all think? Do you like personal finance books? If you do, what do you like about them? If you don’t, what’s your beef against them?

> Brett McKay | 16 Jul 07 | Books, Personal Finance | Comments (12)

The History of Mechanical Toy Banks

Written by Brett McKay

bank2.jpg

While I was in Vermont last week, my family and I visited the Shelburne Museum. One of the displays that captured my attention was dedicated to old cast iron mechanical banks. I’m sure many of you have seen these things. They come in a variety of forms- from clowns to baseball players. All mechanical banks work on the same two principles: the weight of the deposited coin causes an action to begin or a person pulls a lever that sets the bank in motion.

uncle-sam-bank-toy-3.jpg

Mechanical toy banks grew in popularity between 1870 and 1930. The two biggest firms that manufactured mechanical banks were Stevens and W.J. Shepard. After the creation of the first charted savings bank in New York City in 1819, thrift became a national policy. Manufactures felt that mechanical toy banks could help instill that ideal in children. Consequently, most mechanical banks have themes geared towards children such as sports and the circus. However, several mechanical banks illustrated controversial political and social subjects. You’ll find many of the bank designs mirroring the racism of the time by depicting African Americans in offensive stereotypes.

mechanical_bank1.jpg

As a kid, I thought old cast iron toy banks were pretty cool. To me, they represent a unique part of Americana. I was happy to see a museum working to preserve this part of our country’s financial history.

Featured Resource

Keeping your Money in a toy bank can help you save but it won’t earn any interest. Investing your Finances wisely you can save money to get out of credit or Tax Debts more easily. If you are paying multiple creditors, Consolidating Debt can help you pay less each month.

> Brett McKay | 12 Jul 07 | Personal Finance, Saving | Comment (1)
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