As I’m sure you can tell, I don’t think you should have a credit card if you haven’t cleaned up your financial life and you are confident you will use it appropriately.  In the US, the average credit card debt is over $6,000.  At other points in time, I have heard this has actually been closer to $10,000.  That doesn’t sound like moderation to me.  Use your card once per month for a necessity, like a tank of gas, or put a bill on autopay through the card.  Pay it off in full every month.  Do not use it for buying toys or other want items.

If you are on the younger side and don’t have much credit, a credit card can be a good tool to build credit.  When I was younger, around 20 years old, I managed to build my credit score up to the 730 range only using only one credit card.  You don’t need a wallet or purse filled with plastic.  Find one good card, and stick with it.  It is important that you select one, and keep it for the long run.  Part of your credit score comes from the length of your accounts.  If you are closing old accounts and opening new ones, your credit score is going to be lower than someone who has used the same card, the longest.

When looking for a credit card, the most important factor is the interest rate charged.  Most folks consider anything under 10% is pretty good, for a credit card.  However, finding one of these cards when you don’t have much credit.  Stick to it and you can always call and try to get the credit card company to lower your rate.

Next, look for a card with no fees.  You should NEVER pay an annual fee to use a credit card.  An annual fee is simply money the credit company charges you just to have the card, even if you don’t use it.  This fee can vary, but stay away.  In addition, look for a card with no minimum finance charge.  This isn’t a huge deal since the minimums are usually only $.50 to $1.00.  But hey, if you can, get one without a minimum.

If you are having trouble getting approved for credit cards starting out, try department stores or big box stores.  Try to stay away from stores where you might have the urge to impulse buy, control your finances, don’t slip into that trap.  If you can’t get approved at even a department store, go to your bank and see if they offer a secured credit card.  The idea is pretty simple.  Your limit is usually the amount you secure with a deposit.  Example:  You deposit $500 into your savings account, your credit limit is $500.  You will not be able to use your deposit until the bank decides you are credit worthy or you close the account.  With the secure deposit, the bank can’t lose because your maximum credit line is the same or less than that of your deposit.  This is how I started building my credit.

One last comment…  Don’t chase the cards that offer the rewards.  If your new card has it, great!  Consider it an added bonus.  The rewards usually add up so slowly its almost worthless.  For my personal credit card, I can get a $50 gift card for every $6,500 I spend.  Whoopity doo.  Thanks anyways.  Find a card with a good rate.  With the money you save that way, you will be able to afford a $50 gift for yourself anyways.

Ok.  The first thing you need to do is come back to reality.  Unless you are the perfect soul who never gives in to life’s finer things, you can find money to cut.

The first thing that comes to my mind for myself, is my terrible habit of smoking.  While I didn’t quit in my journey, it certainly was there to help motivate me to try even harder.  Another huge money waster for me was eating breakfast and lunch at my employer’s cafeteria 5 days per week.  I always said to myself, “ah its only $2 for breakfast and $3 for lunch.”  Pretty easy to do the math on this one.  I was wasting $100+ a month on this alone.  Now I bring generic cinnamon pop tarts that cost $1.25 per BOX for breakfast and bring leftovers or prepare my own lunch.  While that still costs money, I know I don’t spend half of what I used to.  Pick your poison, everyone has one, or in many cases, more than one.  This is all about sacrifice at this stage in the game.

There are countless other expenses I’m sure you could do without.  Cable TV, cell phones, etc. are all wants, not needs.  Sometimes it can be hard to distinguish the two, but again, focus.

A little story about a friend of mine…

My friend starts the conversation similar to one I’m confident you were involved with.  Not necessarily you yourself, but someone you know.

“I’m broke.  I don’t know where my money is going.  I’m telling you, I don’t shop, I don’t eat out.”  Line after line.  I knew for a fact that this person was making more money than I.  Probably even more than both me and my wife combined.  So I go into my usual pitch, to get out of the seemingly endless race, you have to sacrifice some things now to be much, much better off later.  The immediate response was “Well, there are some things I just cannot sacrifice.”  This person must have been referring to the near new truck, boat, ATV, and motorcycle they had.  This was in addition to the cars he and his significant other drove daily to work and around town.  I was floored.

The idea behind this is to get you back to reality.  Get a grip.  Make it happen.  It is up to no one but YOU.

It’s odd.  Every financial adviser I’ve ever encountered swears up and down that their actively managed fund will out perform index funds hands down.  However, statistics show otherwise.  Statistics show that index funds out perform managed funds 80% of the time.  On top of that, of the 20% of managed funds that do out perform the index funds, how is one supposed to know which managed funds, or more importantly, WHEN the managed funds will be in that top 20%.

Lets take a quick look at the differences between actively managed funds and index funds.

Actively Managed Funds

The name is pretty obvious with actively managed funds.  It simply means that there is an individual or group of individuals that watch your funds.  They buy and sell based on their professional expertise.  Expenses are typically much higher than index funds because someone is actually “watching” your money.  Fees can be 1.5% or even higher.

Index Funds

Index funds are simple.  Index funds have literally a spread of all stocks on the market.  A little of this, a little of that.  Index funds do not have anyone watching your money.  As the market fluctuates as a whole, so do these funds.  They are bench marked against some of the biggest indexes like the DOW, S&P 500, Nasdaq, and many more.  Fees for these funds can be as low as .02%.

After reading the difference of the two types of funds, you’re probably thinking you’ve got to be kidding me!  I can let this run on auto-pilot and do better than the professionals?  The short answer is yes, or at least 80% of the time.  Remember that even though 20% do out perform the index funds, it is nearly impossible to tell which funds will, and even more difficult, when they will.  Heck, even if you do win, the margin of difference is usually so low the fees eat up the rest of superior gains.

In a nutshell, stick to index funds for the long term.  These funds are available in any style, conservative, moderate, aggressive, you name it.  Keep in mind, you will be investing for 20, 30, or more years.  Stick with your plan.

Winter is here and if you don’t control your thermostat, you can expect one of those hefty bills from your friendly energy company.  Here are some ways to save on your heating bill.

1.  Planning on being out for the evening?  Turn down the thermostat.  Also, if you’ll be away for a weekend or longer, lower your dial to 55 F.  You will save on heat without risking a freeze up to your pipes.
2.  Whenever you are able to turn the thermostat down significantly, you will save a little on the operation of the refrigerator and freeze.  They simply won’t need to work as hard to maintain the lower temps.

3.  Try to accustom yourself to lower temperatures.  Lower the thermostat by one degree every week for 3 to 4 weeks.  Gradually, you may be able to save a chunk of money by lowering the thermostat by just three to four degrees.

4.  Try turning down the thermostat at night by 5-10 degrees and then fire it back up in the morning.  This can easily shave 5%-10% off your monthly bill.

5.  For increase ease, install a programmable thermostat.  These are generally available for most heating systesm and can be had for less than $50.  You may not even notice the difference in temperature as you will be sleeping throughout the lower temps.  You can program these to heat up the house right before you get home and then back down before you leave.

6.  Some programmable thermostats have a weekend setting.  This makes it even easier.  These will be a great money saver for you.

7.  If you heat your home with electricity, you can take advantage of the individual room thermostats.  Simply turn off heat to rooms that are not used.

8.  When its time to open the windows in the spring, don’t forget to turn the thermostat off.  When the cooler temps enter the house, this will trigger the furnace to go into overdrive wasting lots of fuel.

9.  Planning a party or get together?  Every person in the house puts out as much heat as a 175 watt heater.

Follow these and compare your current heating bill to your next one.  You will be thrilled to see the savings!

Everyday I am amazed at the prices I see online in comparison to their retail counterparts around town.  I’m convinced I’m never leaving the house again.

There are so many benefits of shopping online.  Chances are, you can save on sales tax.  As long as the site you are buying from does not have a physical presence in your home state, guess what, no tax!  In my home state, this saves me 7% on everything I buy online that would usually be taxed.  On top of the tax savings, the prices for most items are significantly cheaper than those in the stores.  Online dealers don’t have to pay a staff, don’t have to have a giant physical store to display their goods, and so on.  This makes it easier for them to keep prices low.

Some of the online merchants I ofter use are Amazon, Newegg, and often times even the websites of popular clothing stores.  Clothes aren’t taxed anyways so you don’t have to worry about them having a presence in your state.  The other day, I was able to pick up 2 t-shirts and a hooded sweat shirt for $29 shipped to my door.  The t-shirts were a whopping $6 each.  Have fun finding that locally.

The best advice I can give you is look around online first.  Live by the rule never pay retail!

I can’t begin to tell you my frustrations lately with the credit card companies.  I had heard of all these people saying their rates are getting jacked up for now reason.  They all stated they had never been late or missed a payment, never went over their limit, etc.  I figured there was more to it they simply weren’t disclosing.  I was wrong.  It happened to me.

Traditionally, I never carry a balance on credit cards month to month.  About 4 months ago, my credit card company must have realized that in the midst of the declining market and cut my credit limit in half.  I really wasn’t upset that the limit itself was cut, I would probably never use anywhere close to the max.  However, another piece of the credit score puzzle, is the ratio of debt to available balance.  Generally, you don’t want to have a ratio higher than around 30% or so.  Example below.

Using $300 of a $1,000 balance = 30% ratio
Using $500 of a $1,000 balance = 50% ratio

While even after my limit was cut in half, I still didn’t go over the 30% threshold, I was still a little peeved that this is what they are pulling on loyal customers.  I have never missed a payment, and I have had this account open for around 6 years.  Thanks anyways.

Even more recently, I received my first credit declined message.  I had applied for a gas card good at one of the major gas station chains in the US.  I know I advocate not opening credit cards, but this one offered a 5% rebate on all purchases at this chain.  I figured, I’m here constantly, lets save a few bucks.  There was no fees, so I was good to go.

I was expecting the card in the mail.  When I received the envelope, I could tell there was no card in there.  I almost started to panic at the thought of a declining letter because I know my credit is good and if I was declined, maybe I could have been a victim of identity theft.  Then I opened the envelope.

DECLINED!

As I read through the letter, I was happy to find they provide you with the reason for decline.  It stated my credit history was excellent.  So why would they decline a good outstanding citizen like myself?

“Expected expenses will likely outweigh the revenues for this account.”

I guess they wised up and realized they won’t make any money with me!  So much for saving 5% on gas.

Anyone else have a similar experience?

Stocks are simply a piece of ownership in a company.  While usually not a very big chunk of ownership, you can own a piece of any publicly traded company for a small price.

Companies generally start out as private companies, mom and pop if you will, but on a larger scale of course.  At this phase, most investors (Average Joe’s) cannot buy into the company via a stock.  When the mom and pop company starts to grow and needs more capital (Cash!) to increase production or open more stores, they offer an IPO.  An IPO is an “Initial Public Offering.”  This is the first time a stock will be available for the company in question.

So why buy a stock?  Stocks, in general, are the fastest way to grow your investment.  In simple terms, if the company you own the stock in is doing well, the price of the stock goes up.  Of course there are many factors that go into the price being driven up or down.  The current state of the economy, expected future growth or shrinkage, industry trends, etc.  Over the stock market’s history, the average return is 11%.  Keep in mind that is over a very long period of time.  The last year or so has shown us that this is not constant and you should be prepared at any time for extreme losses if you are in higher risk stocks/mutual funds.

Ok, ok.  So this is probably the most worn out topic ever.  However, based on recent survey data, only about a third of the workforce that is offered a 401k, are enrolled and contributing to it.  This is a ridiculous statistic considering the average company match is 4%.  Think of it this way, if your boss asked you if you would like a 4% raise, would you take it?  I sure hope so.  If not close this web page, there is no hope for you.  All kidding aside, take a look at the numbers below to see how much FREE money you are missing.

The calculation is easy.  Take your earnings, before tax (Gross) and multiply it by the employer match.

Ex.  Current salary is $36,000 per year with a 5% employer match.

$36,000 * .05 (The employer 5% match) = $1800.  The total contribution is simply the employer match * 2.  The other half is what you need to contribute.  Hence the employer “match.”  So for this example, the total is $3600 per year total contribution.  Remember, this is FREE money.  All you have to do is contribute your portion first.

What investments does my 401k use?

Most 401k plans consist of mutual funds that target different objectives.  Most plans offer a little something for everyone.  Some funds are more conservative while others are much more aggressive.  The mutual funds offered are typically stock funds, bond funds, target funds, index funds, real estate funds, and more.

Stay tuned for more on how you can determine your risk tolerance and other factors on determining what funds you should invest in.

The book compares the teachings of both men.  The book demonstrates how they both attempted to climb the financial latter and how they succeeded.

Definitely a good read, the book can be purchased for only $9.90 new on Amazon.  Otherwise, used copies start at $.01 + shipping.

The sooner you realize that any credit card debt is too much the better off you will be.  Most folks have to learn this the hard way.  Once you have acknowledged that you need to rid yourself of credit cards, start with these steps to get rid of them for good.

I have 8 credit cards.  Where do I start?

I have found that paying off the lowest balance card first makes the most sense.  You may have heard of something called the “Debt snowball.”  This was mentioned in one of Dave Ramsey’s books.  The idea is simple.  Start with the lowest balance first.  Apply the most you can to that card while making only the minimums on all the others.  This helps in many ways.  First, it helps you realize you ARE making progress.  Once one card is paid off you can see for yourself that you have accomplished something.  The bill stops coming and its one less thing to worry about.

Once the first card is paid off, take the money you were using to pay the first card with in addition to the money you were using for the minimum payment on the next lowest balance card.  Do this until all cards are paid off.  You will be shocked at how fast this can get things rolling.

But wait!  Some of my cards have much higher interest rates on them.  While you raise a excellent concern, people need constant motivation to stick to the plan at hand.  Unless all of your cards have similar balances, stick to paying off the smallest balances first.  If your cards have similar balances, then it would of course make sense to pay off the higher interest rate credit cards first.

And last but not least, once you are done paying off all these balances, cut up the cards and never use them again.  You can no longer use the excuse they are for emergencies.  If you have setup an emergency fund, you won’t need them.  Plain and simple.  Don’t fall back into the debt trap once your out.