Archive for November, 2010

Don’t Hate Your Student Loans

By: Kristina | Date posted: November 09, 2010 (2:49 am)

I graduated from University in 2005 and I am currently still paying off my student loans 5 years later. I know that some people do not like to take out student loans; they will live dirt poor through 4 years of university before they go into debt.  I chose not to do this.  I did work full time during my 4 years of university, and I still chose to take out student loans for 3 of my 4 years. 

I do not regret taking student loans to help fund my university education because my life would have been a lot harder without that extra money.  Working full time at a call center for a financial institution allowed me to pay for my basic monthly expenses such as rent, groceries, and transportation.  I was making about $28,000 per year during my studies which is approximately $14.35 an hour.  This doesn’t seem like a lot now, but it was a lot for a student. 

My student loans allowed me to pay for my tuition as well as any books and other school supplies, without having to worry about paying rent and buying groceries.  I went to school in the mornings and I worked from 2:30 pm to 11:00 pm at the call center.  I chose to work for a financial institution because they pay was good, the benefits were excellent, and I was studying Economics. 

I borrowed a total of $12,333.23 from the Federal Government for my student loans.  After my graduation in December 2005 I had a 6 month grace period before I had to start repaying my student loans.  My original student loan agreement was for 10 years. But I make more than the minimum payment each month; therefore my student loan term has been lowered to 100 months, which is just over 8 years.  Even $10 extra per month will help to significantly lower the term of a student loan.

The interest rate on a student loan is lower than a regular loan or line of credit from a financial institution.  This is great for student loan borrowers because the majority of our payments go towards the capital repayment, which helps pay off the student loan quicker.  The current interest rate on my student loan is prime rate plus 2.5%.

I currently have 41 months remaining on my student loan and $5846.91.  I am in no hurry to pay off my student loan because the interest is tax deductible on my annual income tax return.  My biweekly payments are debited directly from my checking account and therefore my student loan payments are helping to maintain my good credit score.

(Photo By Dimitry )

Places That I Will Never Spend My Money

By: Kristina | Date posted: November 08, 2010 (1:18 am)

Successful people still need to be smart about money.  Just because we are lucky enough to have a steady income, doesn’t mean that we should be careless with our money.  Every time I want to spend money I ask myself…Do I really need this, or do I just really want it?

More often is the case that I end up walking away from an item that I really wanted because I didn’t really need it.  I don’t believe in paying for items or services that I could do myself.  I always weigh the opportunity cost of an item and/or service before I buy it.  In other words I ask myself…Is this really worth the price?

 

Here are 4 places where I will never spend my Money:

-       A Full Service Brokerage.  I work in Personal Finance and I don’t feel that a full service broker adds any benefit to the investment service.  I much prefer to have a self directed brokerage account where I do not pay an annual fee, and the transaction fees are also lower.  I can buy and sell my own stocks and investments online or by telephone.

-       At the Nail Salon for Fake Nails. I will definitely spend my money on a monthly manicure, but I will not pay for acrylic or gel nails because I can grow my own nails. I don’t believe in paying for something to be fake when I have the real thing.  I think that this is a good lesson to live by because so many other procedures, such as fake body parts and sucking unwanted fat out of our bodies, are very expensive. With a little TLC and a lot of exercise we could achieve the same results.  It is cheaper to pay $40 for a gym membership than it is to spend $5000 for new boobs.

-       ATM Fees.  I refuse to pay convenience fees for withdrawing money from another financial institutions ATM just because it is closer to me.  I will walk 10 blocks before I pay $4.00 to withdraw $20.00 from another financial institutions ATM.  If I cannot find an ATM from my bank I will make a purchase and ask for cash back.

-       A Travel Agency.  I don’t understand why people would pay fees for a travel agent if we can book our own trip on user friendly websites such as Expedia and Travelocity.  My two favourite sites are Hotwire.com (regardless of my fear of the unknown) and Priceline.com.

I will always pay extra for our name brand items, and tips for delivery food and restaurant dining. I strongly believe that we get what we pay for.  I love a great deal just as much as the next girl; however I prefer to pay a bit more to get better quality.  I also always over tip in restaurants because to me it’s just an extra $1.  But, to the waitress/waiter it could be a lot of money, if every single one of their clients tipped them an extra $1.

(Photo By Purpleslog )

»crosslinked«

What’s Cool Around The Web

By: MD | Date posted: November 05, 2010 (6:00 am)

Friday is here and we can once again look at some of the top links from around the web:

1. How Much You Need To Retire And Never Have To Worry Again @ Financial Samurai.

2. Are You Financially Insecure? @ The Financial Blogger.

3. Always keep $100 in your checking account @ Budgets Are Sexy.

4. Why You Should Pay Off Student Debt Before Saving For Retirement @ Do Not Wait.

5. How Combining Your Finances Can Improve Your Marriage @ Christian PF.

6. Making Smart Hobby Decisions @ Canadian Finance Blog.

7. What is the Best Online Bank for 20-Somethings? @ Studenomics.

8. How Financial Advisors Get Paid @ Money Smarts Blog.

9. CFA: Working on strengths or weaknesses @ Smart Financial Analyst.

10. Financial Lessons from a Different Generation – Learning from Grandparents @ Couple Money.

11. The Wardrobe Mission @ Debt Free Adventure.

12. How to Start an Emergency Fund on any Budget @ Squawk Fox.

13. How To Hire A Top Financial Advisor Even If You Don’t Have Much To Invest @ Wealth Pilgrim.

14. Five Ways to Invest Without Buying Stocks @ Free From Broke.

15. Carnival of Personal Finance: Halloween Edition.

Don’t Be Intimidated By Money Management

By: MD | Date posted: November 04, 2010 (6:00 am)

Money Management TipsBodybuilding magazines often promote new & improved workouts that will help you “gain an inch of muscle in your biceps by lunch time” or some other amazing results. They will usually offer complex explanations for why it works. We figure that it must be true since it’s in a magazine. The same goes for personal finance advice. So called “experts” tell us what the latest hot stock picks are and where we should be putting our money. We often get so caught up in the personal finance confusion that we choose to listen to these “experts” or we blindly hire someone to manage our money for us.

I want to tell you guys to stop getting intimidated by money management!  I wanted to share the DOs and DO NOTs of money management:

The DO NOTs of money management:

You don’t have to invest in stocks.

You don’t have to stress about finding the next hot stock pick. You don’t have to look at boring charts all day. As a matter of fact, you don’t even have to invest in stocks if you don’t want to. I get the occasionally reader emailing me about stock advice. For starters I don’t even want to give stock tips (from the little that I know) to close friends, let alone readers. Also there’s no sense in investing your hard earned money into something you don’t understand. If you don’t understand something, how could you risk your money on it? Is it really worth it?

You don’t have to buy a property.

Buying real estate can be very overwhelming for most 20-somethings. Yet for some reason every college graduate feels the need to purchase a home. Why? You can rent or stay at home for a bit while you save up money until you’re comfortable with such a heavy investment. You don’t have to feel the pressure to purchase a home right after college or at any time for that matter. This is a decision that you will make when the you know that the time is right.

You don’t have to understand how the stock market works.

Who the hell cares anyway? Unless you want to get a certification as a financial planner, you won’t need to worry about how the stock market works. We get completely confused when we attempt to understand how the stock market works and we just give up. The thing is that we don’t have to clutter our minds with complicating thoughts.

The DOs of personal finance:

You must be accountable.

Claiming that you don’t understand how to manage your money is not a viable excuse for ignoring your finances. You don’t have to track every grain of salt, but you can keep track of your problem areas with your spending. If you don’t take accountability for your finances then nobody else will. Nobody else will ever care about your money as much as you will. You don’t have to understand how currency is valued, but you do need to be responsible for your own financial decisions. There’s no excuse for this.

You must attempt to earn more money.

If your current income sucks then it’s up to you to change that. Nobody will ever offer you more money. You have to ask for a raise or find that well paid position. If you don’t make moves to earn money money, then your money management skills will never improve. Below are a few quick tips to consider for earning more money:

You must learn to save money.

If you don’t find ways to fix your problem areas or to cut back on your spending, your financial situation will never improve. That savings account will never grow and that debt won’t go away. Arguable the most important aspect of improving your money management skills revolves around learning to save more of your money. Below are just a few articles to help you get started:

Student saving and spending.

Budgets and spending plans: find what works.

5 Easily Avoidable Financial Mistakes Young People Make.

Did you guys enjoy my no nonsense money management tips? Did I miss anything? I hope I didn’t scare anyone away.

(photo credit: justin and elise)

College Internships – How Can You Maximize It?

By: Green Panda | Date posted: November 03, 2010 (7:46 am)

If you’ve been in college, you’ve heard how important internships are. Junior and seniors are strongly encouraged to have  one done by the time they graduate.

I want to highlight some pros and cons of getting an internship.

Needle in the Haystack

Getting a good internship is not easy. It was frustrating when I was looking at them in college. I was upset because many of the offerings were lower paying than working at  a local grocery store, but had a job description that looked like it would involve a commitment of an indentured servant.

What’s worse is that the job description wasn’t about a challenging assignment that would test my newly acquired skills. It was a collection of the low level work everyone else rejected. They would’ve never put this job in the newspaper classifieds.

I understood that a high paying internship that taught me skills I would actually use after graduation wasn’t typical. I just wanted something that I could be proud to put on my resume or job application, especially when I had to fill out the job duties section.

Since I was working student, I knew that I needed to get the most bang for my buck. I hunted for a job that would get my foot in the door for my interests and still pay enough to cover utilities. I’d say it was 6 months of hardcore hunting before I found an internship that was right. The pay was good and the job description read like something I would apply for after I graduated.

Prepare Properly for the Interview

I knew right away that if I found this job, my fellow student would too. When I was notified of the interview date. I practiced my answers to interview questions, made numerous copies of my resume and researched the company. At the lobby, I only saw one other student who was dressed up and prepared with a portfolio.

Guess which two students got the internships?

If you know that an internship is the real deal, then treat it like one. Great internships aren’t rehearsals for real jobs, they are real jobs. Act professional and be ready to work as hard as your co-workers.

Do You Really Gain Experience?

There are plenty of internships that offer no valuable experience. Taking care of the paperwork and drudgery isn’t got to do anything worthwhile to your resume.

If you are stuck in an internship going nowhere then you need to find a project to latch on to and assist with. Better yet, take charge and look for ways to streamline work, including your position. Are there redundancies in what you’re doing? find a better way and show your manager how much you’re saving them.

As you whittle down your tedious work ask for more responsibilities to fill in the time. Which project needs an extra pair of hands? Who could use your technical expertise? Be proactive and be willing to show others your talents.

Creating a Professional Network

Besides putting into practice your studies, a solid internship helps you start and develop a professional network. This is a valuable resource that you can develop.

What if no one in management was to help you reach out? What can you do then? If you can’t reach up, then reach out. Meet people from other departments during lunch. Learn how their jobs interacts with your department. Not all open jobs are advertised, who you know can make a big difference. In today’s world of changing companies, your friends at the internship could help you land a job in another company when you graduate.

Thoughts on Internships at Your School

What’s been your experience with internships? Does your school offer good/great internships? Have you turned a bland internships into something special?

My First Major Purchase

By: Kristina | Date posted: November 02, 2010 (1:43 am)

Some people purchase a home as their first major purchase when they move out of their parent’s house. Some people decide to take a summer long vacation after graduation, and travel to exotic places; their first major purchase becomes the journey of a lifetime that they will never forget. I graduated from university in 2005 and my first major purchase was my brand new Honda Civic.

On June 1, 2007 I drove off the car lot as the proud new owner of a Honda Civic, at 26 years old and over $30,000 later.  In the beginning my car was a novelty, it was the first item that I had ever purchased on my own…with all of my own money.  I had owned a car before, but I had never paid for my own car.  In my early 20’s my father gave me an old Honda Prelude that I drove until I handed it down to my younger sister, who crashed it within 24 hours. 

I did know how to be financially responsible because I had purchased other large items such as a flat screen television and I had also paid for my own mini vacations. I had been supporting myself financially and paying for my own monthly living expenses since I moved out of my parent’s house at 19.  However, my Honda Civic was my first major purchase.

After the novelty of my new car wore off, I quickly learned that my shiny new car was definitely not a smart financial decision…especially for my first major purchase. The day I bought my car I called my father to share the great news of my first major purchase. “Kristina, a car is a money pit.” He responded.  I had a feeling that my father’s advice was correct, but at the time I didn’t care.  I didn’t actually need a car, since I live within walking distance of my work.  I bought it because I felt that a young professional who is 26 years old should have a car.

Even if I over look the fact that I overpaid for my car, the monthly expenses were definitely overpriced.  It wasn’t that I couldn’t afford the $800 per month for my car payment, the insurance, indoor parking in my apartment building, and gas; it was that a Honda Civic is not worth $800 per month…or $30,000.  In September of this year I sold my Honda Civic. Now, I feel that an $800 financial burden has been lifted off of my shoulders. 

 

Here are 3 major financial lessons that I learned from the financial mistake of my first major purchase:

-       Never buy anything because it seems like the right thing to do.

-       Always weigh the opportunity cost of a major purchase.  Ask yourself is the benefit worth the cost?

-       Always shop around and compare prices. Do not make impulse purchases because usually we end up being overcharged.

(Photo By Gillian )

A Defined Contribution is Better for Us

By: Kristina | Date posted: November 01, 2010 (1:25 am)

If we are in our 20s and 30s then a Defined Contribution Pension Plan may be a better option for us than a Defined Benefit Pension Plan.

As we graduate from college and enter the workforce we will need to choose our employee benefits which may include health and medical coverage, life insurance, and our pension plan options.  As employees, we usually have 2 options to choose from when deciding on a Retirement Savings Plan.

A Defined Contribution Pension Plan is an option that allows us to contribute a fixed percentage of our annual salary through payroll deductions.  With a Defined Contribution Pension Plan the employee retains total control over the investment options as well as the contribution amount.  Our employee contributions are defined by a fixed percentage rate and are usually matched by our Employer.

The contributions are known with a Defined Contribution Pension Plan, but the amount at retirement is unknown.  Employees contribute a fixed contribution amount, and we choose and manage our investment options over the years.  We have the option to invest in stock, mutual funds, or low risk term deposits. 

The total amount, including both Employee and Employer contributions, belongs to the employee; we are able to take it with us if we leave our employer.  This is a major reason why I feel the Defined Contribution is a better option for our Retirement Savings Plan if we are in our 20s and 30s.  I once read that the average young professional under 30 changes jobs every 5 years.  As we grow our careers and move from employer to employer, our money will move with us.

A Defined Benefit Pension Plan is the exact opposite of a Defined Contribution Pension Plan.  With a Defined Benefit Pension Plan the primary contributions come from the Employer and Employee contributions are optional.  Our Employer contributes to our pension plan on our behalf and therefore the Employer retains total control over the investment options, as well as the management of the account.

We often do not know the exact formula of employer contributions into our defined benefit Pension Plan and we also do not know the exact investments, although they are usually very low risk term deposits, bonds, or preferred shares in the company.  This information is unknown, but it is also not relevant.  The monetary benefit at retirement is guaranteed and therefore everything up to our retirement date is irrelevant. 

The formula for a full Defined Benefit Pension Plan benefit is usually a magic number that consists of our age at retirement, plus our number of years of service with one employer.  As a Financial Planner who specializes in investment and retirement planning, I often see the magic number as 85.  This means that in order for an employee to obtain full benefits (i.e. $3000 per month) their age plus the number of years of service must equal 85.  As an example if James is 55 and he has been working for the same employer for 30 years, he is eligible to retire with a full Pension benefit.

The Defined Benefit Pension Plan is not an admirable option for young professionals because we are unlikely to finish our careers with the same employer as we started them with.  I, for one, enjoy having control of my own retirement accounts and choosing my own investment options.

(Photo By Michelena )

This blog uses the cross-linker plugin developed by Jan Hvizdak, owner of Aqua-Fish.Net