Archive for May, 2008|Monthly archive page

What is a Money Market Account?

As I created this blog, one of my main goals was to make this a place where people can find simple and to the point answers on personal finance.  In previous posts, I have covered things such as compound interest, high yield savings account, 401k’s, and more.  The next topic I would like to talk about would be money market accounts.

Money market accounts are similar to a savings account.  The money is usually invested in  short term securities.  What makes them different from a savings account is that they usually have higher interest rates and your are limited to the transactions you can do per month.  Warning:  Money Market Accounts are different from Money Market Funds.  MMFs are not insured by the Federal Deposit Insurance Company (FDIC).  For more info on MMFs check this article in About.com-Money Market Funds-Risks and Benefits.

Who/Why should one have a money market account?  I would recommend a money market account to those who are going to do some long term saving.  This is money that you would not be touching for a long time (3+ years).  Many people suggest using an mma for your emergency fund.

I don’t have an mma.  The interest rate that you can earn is higher than most regular savings accounts but the limited transactions is something I don’t like about them.  I prefer using a high yield savings account as a place to store your emergency fund.

If you would like to compare mma’s check out Bankrate for side by side comparisons.

 

Saving for a Vacation

On a previous post, I had mentioned how travelling is my one thing I like to splurge on.  I love going to other places, eating different food, meeting new people and all the things you get when vacationing.  But with the rising cost of oil, saving for a vacation has become harder to do.

I am a firm believer in paying cash for almost everything, which includes vacations.  Vacationing is a luxury not a need.  So if you don’t have the money to go on a vacation, you simply just don’t go.  With our hectic schedules and high pressure jobs, a vacation can be a great way to relax from the every day grind.  Here are some tips on how to save and make money for a vacation:

Make sure to include it in your budget.  When making your monthly or yearly budget, include a category for vacation(s).  That way, you are allocating money to it little by little until you have enough to take a trip.

Pick up a part time job.  For a couple of months, try to work part time to get extra money so you can have that special vacation sooner, and have more cash to spend on it as well. 

If travelling abroad, watch out for the weakening dollar.  Our current economic state has made our currency less powerful in many countries.  Right now, going to countries that take Euros can be quite expensive.  Research countries that your dollar might be able to go a long way.  I did a quick search and found that the dollar is still pretty strong in Argentina.  What better place to go if you want that European vibe with that Latin flavor.

Vacation in the great USA.  We have over 3 million square miles of land right in front of us.  If you are looking for something exotic, why not try Hawaii.  How about the Pacific Northwest if you want to see our beautiful wilderness.  Skiing anyone?  California and Colorado have great ski resorts.  You want to go to the beach?  We have  vasts coastlines both sides the country.  With 50 states to choose from, there is something for everyone right in our soil.  You don’t always have to travel outside of the country to experience new things.

In September I’m planning going to Mexico.  I have been saving all year long a little bit every month.  On top of that, I have picked up little side jobs to make some extra spending money for the trip.  The dollar is still strong there depending in where you stay.  High-travel cities tend to inflate prices because they can usually get away with it.  Foreigners might not know any better, so they will pay the higher costs.  If you go to a city not so high in tourism, you can surely stretch your dollar a long way.  As with any type of spending, do some research.  Compare and contrast places, and make sure to not go in debt just so you can have a vacation.

Happy travelling!

Carnival of Personal Finance #154

Hey Guys,  make sure to check the Carnival of Personal Finance #154 hosted by Canadian Dream: Free at 45 .  My article Self-Dicipline and Money was one of the articles chosen.  Thanks for all the support!

Rising Cost of Traveling by Plane

airplaneI love travelling.  That is the one thing I like to splurge on.  I was born and lived my childhood in Mexico so I specially love travelling back to my hometown at least once a year.  In September, I’m getting married in Mexico so something that I have followed closely has been the cost of plane tickets.  What use to cost me around $250 round trip has spiked up to more than $500 in 5 months!

While browsing USA Today, I found an article talking about the rising cost of oil and its future effects on the air travel industry.

But with today’s unprecedented jet fuel prices, airline executives and aviation analysts are warning that only extreme fare increases and dramatic cutbacks in flights will enable the industry to cover a 2008 jet fuel bill the airlines’ trade group projects will be 44% higher than last year’s.

By this time next year, there could be as many as 20% fewer seats available if carriers respond to oil prices well above $100 a barrel by cutting as many flights as securities analysts such as JPMorgan’s Jamie Baker are suggesting…

 This is something that I’m monotoring carefully.  Unfortunately, I don’t see plane tickets dropping back to what they use to be.  What I’m looking for is a stabilization of prices.  It looks like I will have to be reconsidering travelling more than once a year by plane or finding ways to cope with the increase in prices.

Carnival of Financial Planning-May 24 2008 Edition

The Skilled Investor has just published a carnival with great posts from all over the web.  Make sure to check them out.

He was also kind enough to include my previous post:  To Commute or Not Commute.  I discuss how commuting can affect your pocket book, your health, and your personal life.

Careful When Lending Money

Most of us have been in the position where we where have been asked if we could lend some money to a friend or relative.  Many of us have also been in the situation where we might of had to be the ones asking for the money.  Did it change the relationship between the two of you? How did you come to an agreement of paying it back?  Personally, lending money to friends and family are just something I don’t do. 

When I am talking about lending money, we are talking about $100 or more (To me that is a lot of money to loan, but I understand that to some that is not a large amount).If you where the potential lender, think back to that awkward feeling you had while trying to make the decision whether to lend the money or not.  If you did loan the money, think about how the relationship changed afterwards.  Maybe he didn’t pay you back, maybe you had to hassle him for the money.  Whatever the case may be, it is an experience we all hate to have.

My father was a small business owner back when we lived in Mexico.  His business was in all kinds of financial troubles so he started to look into other ways to make ends meet as well.  To pursue these other business interests he need it some money to make it happen so he went to his brothers and cousins for some money that they could “invest” with the promise of payment in full in the future.  As you can guess, my father never payed the money back and his relationship with them has never been the same.  Money became such a divider between them that my father has very little contact with his brothers and cousins.

Due to prior experiences with lending money and hearing so many other people have negative experiences as well with the subject, I have come to the decision to not loan money to friends and/or family.  If somebody I care for finds themselves in a situation that they need help financially and ask me for me money, depending on the circumstance, either I will help them some other other way (educating them on personal finance-If they are receptive to the info) or I will gift them the money with no expectations of getting the money back.

Lending money is a personal issue that can strain and even break relationships.  Some point in time we are all asked and will probably be asked again if we can loan somebody money.  Don’t just think of the amount they are asking for-think about the other effects that it can cause between you and the other party involved. 

Top Money Pitfalls

Back in 2007, I started my crusade on becoming better informed in the world of personal financing.  As I began to read personal finance books, I started to notice that many of this authors had different ideas and solutions for retirement, savings, spending etc.  At the same time though, you can still find many similarities.  Here are some of the four most common mistakes people can make financially:

  • Car payments.  In my opinion, this is one of the biggest money pitfalls people can fall into.  Usually, this becomes the largest monthly expense an individual has other than their house payment.  Imagine what you could invest your money in if you didn’t have to give $300 a month($3600 a year) to a car that is depreciating every time you drive it.  Instead of spending money on a new car, your best bet is to save cash and buy a reliable used car.
  • Rent/House payments.  Many people make the mistake of getting”too much house”.  What I mean by that is that they buy a house that they really can’t afford (Hmm sounds like mortgage crisis).  Basic rule of thumb is that your house payment shouldn’t be any more than 1/4 of your take home pay.
  • Not Saving Long Term.  Start saving now!  It is never too early or too late to start investing in your future.  The power of compound interest is in our sides, especially for those starting off early.  If you don’t have any car payments, you have a reasonable house payment, and you are watching your spending, there should be no reason why you are not saving a little a very month for your future.
  • Not Budgeting.  Having an understanding and a plan of where your money is going is considered one of the simplest, yet most important things you can do with your finances.  It doesn’t matter if you do it monthly or yearly, with software or by pen and paper, the important thing is that you do it.

Knowing what mistakes to avoid financially is very important when trying to gain your financial freedom.  Many times we are told what we need to do to reach our goals, just remember to watch out for those pitfalls that might occur around the way.

I’m curious of finding out what do you consider to be money pitfalls?  Do you agree with the ones I’ve chosen?  How can you avoid them? 

High Yield Savings Account

If you are a regular to any blog dealing with personal finance you will surely run into the great use of high yield savings account instead of your regular savings account at your brick and mortar bank. The term high yield savings account are just like a regular savings account but with some perks to it. These types of accounts usually offer a higher APY (Annual Percentage Yield) which are their most attractive aspect of using one.

The most popular place to obtain one of these accounts has become through internet banking. Online Banks such as HSBC Direct and ING Direct have become very popular due to their higher yield, great customer service, and ease of set up.

If you prefer using a traditional brick and mortar bank rather than an online bank, most national banks offer a high yield savings account. Check with your current bank and ask if they have any higher rate accounts. More than likely they should offer this type account. The most common criteria to open the account would be:

  • A suffeciently large initial deposit
  • Keep a certain balance over time
  • Limit transactions in and out of the account
  • Maintain other banking relationships

For years, I had a savings account with Washington Mutual earning a whoping .25%. When I found out about higher yield savings account, I decided to do some research on them. Washington Mutual did offer an account with a great rate. I believe it was aroung 5.50% at the time (As of May 15 it is 3.30%). The problem was that they did have to many restrictions to open and maintain one of these accounts. As mentioned earlier in the criteria section of this post, they asked for a large initial deposit, you had to keep a certain balance at all times or suffer penalties and fees, and other things that steered me away from opening an account with them.

I decided instead to go with an online bank and chose HSBC Direct. The setup progress is very easy. It takes you about 20 minutes to apply and if you need any help, they have great customer service that can answer any questions you have via phone or email. The initial deposit is $1 and there is no minimum amount you need to keep. There is no monthly maintenance fees and you are not required to have a checking account with HSBC. In all, I have been more than happy with their services. So much that I have multiple accounts setup with them for differenct uses.

With so many options and the ease of opening a high yield savings, there shouldn’t be a reason why one should continue using a crummy traditional savings account. While you are not earning a tremendous amount of money from the interest earned from the account it sure beats what you where earning before. I’m earning more than $200 a year which is much better than the $10-12 I was earning before.

If you are interested in opening a high yield savings account, do some research and find customer reviews for them. I recommend going over to Bankrate to compare rates and their different options. Lets stop letting our money go to waste and lets start watching our money grow.

Self-Discipline and Your Money

Personal finance is much more than just numbers.  A commitment has to be made if whether you want to pay off debt, increase your savings, or become more frugal.  One of the key components to being successful with your finances is self-discipline.

Simply stated, self discipline is the ability to get yourself to do something and to follow completely through with it.

A great example of self discipline is starting a diet to loose weight and sticking with it till you get to your ultimate goal.  But if you have ever been on a diet, you know how important it is to plan for it.  You inform yourself and try to figure out what diet you are going to do.  Nutritionists stress the importance of writing down everything about your diet starting with your goals.  Then, they suggest tracking what you eat for a week before the diet.  The reason is twofold.  They want you to see how much you actually eat and make you conscious about it and to see what kind of changes are needed to be made.  Then a plan is made according to your needs and goals.

First, you start the diet in a slow pace, you cut down on certain high calorie foods and start to work out slowly.  Slowly, but surely you start increasing your work out regimen, your diet becomes better and better and the pounds begin to shed.  In the mean time, you are recording the process and keeping track of it.

This was one of the best examples I could come up because self discipline is something that needs to be build up.  Back to the diet analogy, if you eat nothing but junk food and all of the sudden the next day you are eating nothing but fruits and vegetables and lean protein, you are probably going to regress back to the junk food.  Similarly, if you try going to the gym and lifting 200 pounds on the bench press for the first time, you are most likely going to hurt yourself.  On the other hand, if you take your time, slowly start improving your diet and increasing little by little your workouts, the chances of success and self discipline vastly increase.

Enough talk about diets.  Lets instead use self-discipline in personal finance terms:

Make a commitment.  You have to decide that it is time for a change and that you are going to do something about it. Say it, write it, do whatever you need to do to remind yourself about your commitment.

Track your current spending.  Write down everything, and I mean everything you spend your money on.  You will be surprised at where your money goes and will realize that you need to change.  Maybe you are eating out too much, or that morning coffee you are buying is costing you more than what you think.  By actually adding the total you are spending daily, weekly, and even in a monthly basis, you will have a better understanding of how much money you could be saving.

Make a plan.  I suggest start reading personal finance books, blogs and magazines to educate yourself on the subject.  Ask other people that you might know that are doing well financially.  Get some advice and figure out what works and what doesn’t.  Remember, that most often than not, personal finance is quite simple and boring.  There is no quick way into changing your financial future.  It takes self-discipline and a good solid plan.

Start slow and track your progress.  You have to crawl before you walk.  Make small reachable goals.  Remember that you are committed to change your finances so take it slow and don’t let small hurdles affect your overall goal.

In all, self-discipline is more than what I mentioned above.  for a more in depth look I suggest reading Steve Pavlina post on Self-Discipline.  He breaks it down into five pillars which address the subject in a thorough matter.  By addressing and understanding what self-discipline is, we can use it not only with our finances, but with other facets of our lives as well.   

 

Hand Washing vs Dishwashers

When we first moved to the United States, I remembered asking my mother why she wouldn’t use the dishwasher. She would tell me that while it did save some time, it was expensive to use. The water and electricity that it consume was not worth the 15 to 20 minutes it might save you in time. But dishwashers have come along way since I had that conversation with my mother over ten years ago. So are you better off using a new dishwasher than washing the dishes by hand?

I did a little research and I found this:

The Bonn study proves that the dishwasher uses only half the energy and one-sixth of the water, less soap too. Even the most sparing and careful washers could not beat the modern dishwasher. The study also rated the cleanliness achieved, again in favor of the washing machine (sorry mom). There have been studies before, but this is one of the few that stands (wo)man against machine and it sets itself apart by including a thorough analysis of the effect of half-loads and the whole demand range from your cake plate to the grimiest pots. Surf to research under household technology at U. Bonn’s site for more. :: U. Bonn Household Technology.

Even with the study done, I still don’t know what side of the fence I am in. Here are some thoughts I had after reading this:

  • The study was done by dishwasher manufacturers. How much did they invest on this study? Is it really unbiased?
  • Remember that it is talking about newer dishwashers. Specifically energy star approved models. If you have an older model dishwasher, you are probably better off washing by hand.
  • Everyone has a different method to wash dishes by hand. I know that some people keep the water running while washing while others fill the sink and many other ways. Not all methods where used to compare with the study.

So what do you guys think about dishwashers? Take a look at the study and let me know what you think.