End Of December and 2008 Financial Status

January 7, 2009

I had a nice relaxing holiday break, minus the wedding and new years party towards the end, and I hope you all did as well. I suppose now it’s time to get back to the grind of working, tutoring and blogging. In the near future, I will be posting my 2009 goals, which will include both financial and non-financial goals. For now, here’s my standard financial status summary for the end of December, which is also my end of 2008 summary.

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Cash

My available cash was the only asset to decrease for December. This is because my three months of 0% interest on my American Express ran out. This means I had to pay for my TV and three months of gas and food. Also, this month had my first mortgage payment. Combining these major payments with only two work pay days (January will consist of three) and not cashing my tutoring paycheck, and my cash assets decreased slightly.

Stock Market

December was the first month with an increase in my stock market assets since August. It is important to remember that I haven’t made any contributions to the stock market so far in 2008, so all of the monthly increases and decreases are due solely to stock prices. I will contribute towards 2008 retirement savings before the tax filing deadline, but that’s more for my upcoming goals post. In the end, it’s a good feeling to see my stock assets increase in value, however, I’m not confident they are going to continue rising.

Over the course of the year, I’ve lost between 29% of my stock assets, I feel very fortunate that I was not heavily invested in the stock market, but I plan on investing soon to take advantage of the coming uptick.

Liabilities

I made my standard car payment this month and my first mortgage payment. It’s rather depressing that only $214.63 of my mortgage payment went towards principal. This makes me really want to make an extra payment every month so that I can build equity more quickly.

Net Worth

My net worth increased ever so slightly in December as a result of an increase in the stock market, which is the exact opposite of the recent trend. I was able to decrease my liabilities by more than the decrease in assets to increase my net worth by 0.2%. Obviously, I’d like to see my net worth increase by more than 0.2% every month, but due to the extreme circumstances I will take what I can get.

Over the course of the year I was able to increase my net worth by 189%!!! I increased my net worth from $30,898.77 at the beginning of 2008 to $89,232.39 at the end of 2008. I’m very happy with my net worth increase, especially since it was all due to hard earned money and a buying real estate with built in value. In the future I am hoping my earnings will continue to boost my net worth, however, I would like to see stock market investments begin to take over as the catalyst for my net worth growth. Here’s to 2009!

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Free FICO Score From Mint

November 26, 2008

Back in early October, I stumbled upon a free credit report that provided me with my FICO score courtesy of Equifax. Mint.com is offering a free FICO score for members. This deal expires Wednesday November 26th. Back in October my credit score was 723. My current FICO score is 759.

How Did My Score Increase?

Previously, the factors hurting my score were a lack of credit history, I had recently been looking for credit, and I had no activity on my revolving accounts. I can’t imagine an extra two months really increased the length of my credit history. Also, I’m still applying for credit. My credit score increase must be due to the correct reporting of my revolving credit history. I use my revolving credit accounts regularly in search of as much cash back on all of my purchases. I didn’t think I was lacking activity with my revolving accounts and the increased score must be a reflection of the correct reporting of my accounts.

What’s Holding My Score Back

My most recent FICO score mentioned the key factor affecting my score was that I recently opened a new credit account, which is true multiple times over. Since my last FICO score I have opened two new checking accounts, a new savings account and two credit cards. Additionally, I now have a mortgage. I suppose I can’t really complain about this knock on my credit score. Since I won’t need to worry about my credit score within a year, I’m not too worried about opening so many accounts.

Conclusion

It’s always good to know your credit score. Fluctuations are inevitable. It’s also important to know what factors affect your score, especially if you will be applying for a mortgage or a loan within the year.

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The Obama Presidency And Future Changes To Your Taxes And Personal Finances

November 21, 2008

I recently posted about how I thought Barack Obama’s presidency would affect your personal finances, especially regarding taxes. Today I read an article from Schwab’s November Investing Insights regarding Michael Townsend’s thoughts on the Obama presidency. The president and his policies can have a significant effect on your investing. I’ve been gathering as much information on the impending “change” to put myself in the best investing position possible for the next four years. Below are my thoughts on Townsend’s thoughts.

Obama’s Priorities and Another Economic Stimulus Package

Obama was elected on a campaign that promised “change”. His campaign called for many changes regarding the financial world including:

raising taxes on wealthier Americans, encouraging retirement savings, reshaping the financial regulatory system, supporting alternative energy sources and expanding health care.

Townsend correctly states that he must focus his attention on the economic crisis and stabilizing the financial sector. If Obama does not fix the economy, he will be a one-term president and will not have a chance to implement any of his other plans. This most likely means another economic stimulus, which might consist of the following:

increased unemployment benefits and food stamps, probably combined with a major infrastructure-spending program. … a moratorium on foreclosures and perhaps additional help for struggling homeowners, a temporary elimination of the penalties on individuals who take early withdrawals from their retirement savings plans due to financial hardship, an increase in the deduction for capital losses, aid for the automotive industry and states that have serious budget problems, and possibly rebate checks or a payroll-tax “holiday” for some Americans.

I don’t know how I feel about another economic stimulus package, but Obama will look to quickly make his mark on the economic crisis. A second stimulus package is a foregone conclusion.

Tax Increases

Obama campaigned on a policy of increasing taxes for the wealthy. As soon as Obama has made his mark on the economic crisis you should look for him to start increasing taxes. He will increase taxes on the wealthy first by increasing the top tier or two of the marginal tax rate, as well as, increasing the dividends and capital gains tax rates. If the economy recovers while he’s still in office, I look for him to increase taxes across the board to pay for some of his other changes.

The estate tax is scheduled to be eliminated in 2010 along with Bush’s tax cuts. The estate tax refers to the tax imposed on the transfer of the taxable estate of deceased family members. Obama campaigned on a 45% estate tax rate. Townsend believes the following will occur:

Lawmakers will likely forge a compromise solution before the end of 2009 that sets the estate tax rate at 25% to 35%, perhaps as high as 40%, with an exemption amount of $3 million to $5 million.

Retirement Savings

I may not agree with all of Obama’s changes, however, promoting retirement saving is a great idea. Townsend believes Congress will focus on the areas of coverage, fees and advice. He believes Congress will try to increase retirement savings by setting up “automatic IRAs” for small businesses to allow for payroll deductions straight into an IRA. The point is to provide retirement options for employees of small businesses, without increasing the burden on the employers. This is a great idea. Although it should probably be coupled with an opt-out clause where the employee will be automatically enrolled, and would have to opt out of making contributions to a retirement account.

Fees and advice kind of go hand in hand. Townsend states that Congress has been working on making retirement fees more transparent to the employee, while possibly requiring a low-cost index fund in all retirement plans. Similarly, Congress might try to push through reform regarding the advice available to employees. Congress believes the advisers giving advice to employees might have a conflict of interest. Reform might be initiated to protect the employees from these conflicts of interest. As far as I’m concerned, requiring a low-cost index fund option in retirement plans, in addition to advisers that have the same interests as the advisers will only lead to individuals who are better positioned to take care of themselves in retirement.

Financial Regulation Reform

Since the collapse of the financial sector is at the heart of the economic crisis, reform of the financial sector regulatory system is inevitable. Townsend provides a few options:

One possibility is the creation of a “select committee” in the House, bringing together senior lawmakers from several committees that have jurisdiction. Such a panel would most likely try to create a reform package that could cover a wide swath of issues.

An alternative is to simply let the current committee structure consider a series of reform proposals and perhaps approve them in pieces, rather than in a comprehensive package.

Personally, I don’t like regulation in any form, although fear has definitely gripped the stock market and regulation might be the only way to release it’s stranglehold. I just hope the regulation is not permanent.

Conclusion

Townsend wrote a great article and I recommend everybody read it. The president has a huge effect on taxes and any type of reform. I recommend staying as well informed as possible and this article was a great start.

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Deals For Opening ING Direct Orange Savings And Electric Orange Checking Accounts

October 30, 2008

Recently I blogged about opening a National City checking account with a $150 bonus (conveniently they are now offering a $200 bonus). I also provided a brief overview of online savings accounts. After paying my down payment, I’ve decided to open a few checking accounts and online savings accounts to determine which accounts work best for me. Also, I plan on using each account to save for different goals, which are yet to be completely determined. Making extra money with account opening bonuses never hurts. ING currently has an offer for bonuses of $25 and $50 if you open a savings and checking accounts, respectively.

ING Direct Orange Savings Account

ING has a standard referral policy for new customers, that if you open a savings account through a referral link from an existing customer with an initial deposit of at least $250, you get $25 and the referrer gets $10.

The first step is to fill in your personal information, which includes the following: name, address, email, SSN, phone number, DOB and a security question. Next, you create a Login Pin similar to a pin for a debit card. This login pin is needed with your customer number (provided at the end) to gain access to your account.

The next two steps consist of agreeing to various online documents. First, you commit to receiving paperless e-statements, which enables online accounts to provide such high interest rates. Second, you agree to personal account disclosures, that the SSN is your own, you are not subject to backup withholding and that you are a US person.

The final step is to enter bank information for your initial deposit. Enter the routing number, account number and deposit value ($250 for the $25 bonus).

Your funding deposit will be taken from your bank account without confirmation, however, you can not withdraw funds until ownership of your bank account is confirmed. To confirm ownership of the bank account, ING uses the standard small deposit method. You have 60 days to verify your linked bank account or your ING account will be closed and your initial deposit will be returned.

During the enrollment process ING makes it easy to enroll in an automatic savings plan. The plan allows for money to be automatically withdrawn weekly, biweekly, monthly and on the 15th and last day of the month. You provide the start date, end date (which is optional) and the recurring amount.

The final step is an information review where you confirm all of the information that has been entered.

Congratulations, your account is now open. This probably takes about 5 minutes if you’re not trying to write a blog entry at the same time. Make sure you print out or make a copy of the page that displays your customer number as it is with the Login Pin to allow entry to your account, which is done at ingdirect.com.

ING Direct Electric Orange Checking Account

ING is currently offering a $50 bonus if you have an existing ING savings account and open a checking account. To take advantage of this deal, do the following:

  • Follow this link
  • Open an Electric Orange checking account with code: EM227
  • Gain access to your MasterCard Debit Card
  • Make 3 signature-based purchases with your Debit Card within 45 days of opening your account
  • You will get your $50 bonus, 50 days after your account has been opened

The ING Electric Orange checking account is worth opening for more than just the $50 bonus. It offers a n interest rate of 1.50% APY if your account balance is below $50,000. If you’re balance is between $50,000 and $100,000 your APY is 3.05%. If you’re balance is over $100,000 your APY is 3.50%.

Note: The account must be opened by 10/31/08 to get the $50 bonus. I have so far been unable to open a checking account with this deal because my savings account is not confirmed. Hopefully, my savings account will be confirmed by the end of the day Friday and I will be able to open a checking account and get the $50 bonus.

After playing around with the functionality of the website I will do a review of the ING Direct Orange savings account. For now enjoy your $25 and $50 bonuses if you were lucky enough to get both.

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Opinions On Student Loan Debt

October 28, 2008

Awhile back I read an article about student loan debt from Yahoo! finance and saved it as an article to re-read and write about. The article starts out with a horror story about a master’s student who had $140,000 in student loans and only managed to find a job paying $35,000. A story like this is strangely reminiscent of the current subprime mortgage mess. A young adult takes out loans despite not having the means to repay them. I imagine the student loan credit market will feel the effects of the subprime disaster. If fully educated adults make poor borrowing decisions, I can only imagine young adults will make even worse borrowing decisions. What follows are my opinions on student loan debt.

Plan your College Financing

Just like any other major purchase, you have to research and plan it out. You have to examine every option. What are the costs of state schools vs. private schools? Are there any scholarships available? What are the financial aid packages? What is the projected starting salary for your intended career? Taking out student loans of $30,000 to $40,000 is most likely one of the top 5 most expensive purchases for your entire life. Make sure you put in the same type of research you would as if you were purchasing a house or car.

The Purpose of Higher Education

The article states that college grads make 60% more than those with a high school diploma. Higher education certainly opens doors in your career that might not be possible otherwise. Higher education is for making career paths available that were previously unavailable. Higher education is not for doing what everyone else is doing. I had numerous friends go to college and return a year later with no idea what they wanted to do. They ended up enrolling in the local community college and finding a career path that made them happy and then attending college with a well thought out career path. It’s unfortunate that going to community college is looked down on in our society when it is the financially sound decision for confused young adults.

Assessing Earnings Potential

Student loans can be smart financial investments. I elected to attend a private institution instead of the local state school. The costs would be significantly greater, which would result in my taking out student loans. I was able to pay off my student loans prior to any interest accumulating and am gainfully employed in a career that I enjoy. I knew prior to committing to student loans that my earnings potential would be significantly increased by attending the private school in my instance.

It is extremely important to weigh the potential of increased earnings with the potential downside of 20-year loan payments. When assessing the decision to attend college and take out student loans, it is crucial to be able to determine the future earnings potential as a result of earning a degree from that institution. This should be strictly a financial decision.

Types of Student Loans

The type of student loan is an important detail when assessing the financial package. I took out Perkins loans for the first three years of college. The fourth year I paid in full what was supposed to be a Stafford loan. Perkins loans do not begin accruing interest until after a grace period, which is post-graduation. My Stafford loans had fees associated with them that were large enough that it made financial sense to pay them off with internship earnings. Most federal loans do not begin accruing interest until after graduation. Private loans, on the other hand, begin accruing interest the minute you incur the debt. A friend of mine was forced to take out private loans, which resulted in large amounts of debt when he graduated. It is extremely important to know when your loans begin accruing interest.

Graduate School

I have put significant thought into graduate degrees. I personally feel that graduate degrees should only be pursued if they are completely necessary to open a new career path or significantly advance your career and increase your salary. Also, I will most likely try to find a company who will pay for a portion of my graduate degree, if not the entire degree. Taking on significant student loans for graduate degrees can push retirement goals back instead of bringing them closer to reality.

Conclusion

I was fortunate enough to be able to pay off my student loans before they started accruing interest. According to this article, others have not been so fortunate. I’m hoping that this subprime mess will be a learning experience for both borrowers and lenders of all kinds of debt. Not only should people only take on mortgages that they can afford, but young adults should not take on student debt that will have negative effects on their personal finances for 20 to 30 years.

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Quicken Online Review

October 27, 2008

Recently, Quicken Online has switched to a free service in order to compete with other free account aggregators. I have never consistently used an account aggregator to manage my personal finances, I have mostly used the Excel and file folder method. I gave Mint a shot when it first arrived on the personal finance scene, but I stopped using it when I couldn’t import my Capital One Money Market Rewards account. When Quicken Online changed to a free service I decided to give online aggregating another shot.

Set Up

Follow this LINK and click on the Start Now button. Conveniently, if you have a TurboTax, Quicken.com or QuickBooks user ID already, you can use that same ID. To register you have to provide an email address, user ID, password and security question. It also asks for your year of birth and zip code to tailor financial advice.

Now all you have to do is add all of your bank, credit card and investment accounts. To add an account you can either type in the bank name or select it from a most used list. Once you’ve selected the correct bank, you have to provide your online ID and password. Also, if there are security questions from the bank’s end, you have to correctly answer those to proceed. It’s the exact same process as signing into your online account.

After adding at least one account, you can either add another account or begin using Quicken Online. I entered my checking account, money market rewards account, two credit card accounts, Schwab account and Vanguard accounts.

Home

The home page keeps track of all of your accounts in a column on the left-hand side that is divided into three segments (at least for me): bank accounts, credit cards and loans, and investment accounts. Each section has a total and there is a total balance that sums up the three sections. This is the most useful tool in my opinion. It will make my monthly financial updates significantly easier to keep track of. Also, it’s a great way to make sure that accounts that are no longer in use, but are still open do not incur random fees or begin to accumulate interest.

The home page also has a tool for bill pay reminders, which I will most likely not take advantage of. I don’t have any problems paying bills on time and most of my bills are automatically paid. There is a pie chart that keeps track of spending for the previous rolling month. There’s also a tool that displays your money in, money out and the difference between those two numbers for the previous rolling month. These two tools are not exactly useful for me upon first glance as it considers my down payment an expense. Apparently, I have overpaid in the last 30 days by over $40,000 and my pie chart is 95% Misc. Expense. There is a way to change the time range that is displayed in these tools to any value desired under one year.

My Transactions

The my transactions page has all of the transactions for all accounts that occurred in the time line selected. Each transaction includes the date of transaction, account, payee (ie. Mcdonald’s), category and amount. This page has potential to be very useful, however, it does a poor job at first of categorizing the transactions. My paychecks are categorized as “transfer in” instead of paycheck. The categories may be changed manually and new categories may be formed.

Track Spending

This page breaks down where you are spending your money. It has the same pie chart from the home page. There is a bar chart that breaks down your total spending by month. Also, there is a list that sums up the expense categories. This page will be more useful once I manually correct the categories.

My Budget

The my budget page tracks selected categories for budgeting purposes. Goals are entered for a given category and the amount spent already for the month is tracked. At the top the overall expenses and goal is tracked. I have never used a budget and I do not foresee myself using one in the near future, however, the functionality of this budgeting page appears to be good.

Other Features

Quicken Online provides mobile and email updates and reminders. You can have balances and transactions sent to your mobile device either daily or weekly. Weekly summaries can be sent via email. You can have bill reminders sent a desired number of days prior to the due date to either your email of mobile device. You can also have alerts sent to your email or mobile device if your checking account dips below a certain level, a large expense is made or your credit card account goes over a certain limit.

There is a community section that allows you to post questions for other Quicken Online users to answer. I haven’t surfed around this section yet, but it appears to be a nice way to have any questions answered by experienced users. Also, there is a blog run by Quicken Online that will keep you updated with changes and upgrades.

Security

The security of Quicken Online is very similar, if not the exact same as online banks. I’m not sure how this whole online security works, but here is what the website says:

We rely on advanced, industry-recognized security and virus safeguards to keep all your financial data private and protected. With password-protected sign in, firewall protected servers, and the same encryption technology (128-bit SSL) used by the world’s top financial institutions, we have the security elements in place to give you peace of mind. Quicken Online is a VeriSign Secured™ product.

Good enough for me.

Overall

The simplicity and quickness that an account can be set up was extremely encouraging. It was nice to see all of my accounts were fully covered by the service. The major down fall is the inability to automatically and correctly categorize my spending. I will most likely continue using Quicken Online as it is very nice to have all of my accounts aggregated in one place.

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Overview of Online Savings Accounts

October 23, 2008

I recently signed up for a National City checking account to take advantage of a $150 deal, which has now increased to $200. I had never used a checking account other than Harris, which has been my only checking account I was in middle school. I wanted to check out the pros and cons of some of the other brick and mortar banks in my area. What better way to evaluate a bank than by first-hand experience?

I have also been looking into various online savings accounts to take advantage of the interest rates for some of my short-term savings goals. I’m sure the different savings accounts have different pros and cons, which is why I will most likely be opening a few savings accounts to find the bank that suits me best. The following is an overview of the top online savings accounts from my initial research.

ING offers an online savings account with a 2.75% interest rate. ING has no fees and no minimums. The FDIC coverage is up to $250,000 as per the recent increase. ING offers direct deposit and an automatic savings plan. ING also offers CDs that are easy to set up and ladder through an existing savings account. The CDs offer interest rates of 3.5%, 3.75% and 4.25% for 6, 9 and 12 months, respectively. Also, ING offers an electric orange checking account an APY of 1.5% for account balances below $49,999.99, 3.05% for account balances between $50,000 and $99,999.99 and 3.5% for account balances of $100,000 or more. ING also gives you $25 for opening a savings or checking account from a referral.

HSBC offers an online savings account with a 3.00% interest rate. Similar to ING, HSBC has no fees, minimums and is FDIC covered. Only $1 is required to open an account. HSBC also offers direct deposit and automatic savings plans. HSBC offers CDs with interest rates of 4.0%, 3.6% and 3.7% for terms of 6, 9 and 12 months, respectively.

FNBO offers an online savings account with a 3.25% interest rate. There are no minimums or monthly fees. $1 is all that is required to open an account. FNBO offers CDs, however, the rates were not quickly found on the website so I got lazy and stopped looking.

Dollar Savings Direct (DSD) offers an online savings account with a 4.00% interest rate. There are no monthly fees, however, you have to maintain a $1,000 account to maintain the 4.00% interest rate. If your account drops below $1,000 there are no fees, but your rate drops to 1.00%. DSD is FDIC insured. It appears as though DSD is a spin off of Emigrant Direct, which has a 3.00% online savings account interest rate.

EverBank

EverBank offers a checking account called FreeNet that has a promotional 3-month interest rate of 4.65% for the first $99,999.99 deposited. After the bonus period, the interest rate drops to 3.51%. A FreeNet checking account has a $1,500 minimum opening balance. If your account dips below $1,500 a monthly fee of $4.95 is charged. FreeNet offers free unlimited check writing. EverBank reimburses $6/month in non-EverBank ATM fees. EverBank pledges to keep the yield in the top 5% of competitive accounts.

Summary

There are a variety of options available for anybody interested in opening an online savings account. I will most likely open savings accounts with ING and DSD in the near future. After doing so, I will post reviews based on my experiences with the banks.

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