Thursday, April 30, 2015

10 things you can do to improve your credit score

Did you know that only 10 percent of Americans know their credit score?

Those are the findings of a survey commissioned by, a web subsidiary of the credit bureau, TransUnion. “It is shocking how little Americans know about their credit,” said John Danaher, president of “Good credit is a cornerstone of your financial profile, enabling you to finance major purchases, such as a home, education, or car.” Then, he added, “Not knowing about your credit can expose you to higher interest rates which translates into less money in your pocket at the end of the day.” When you apply for credit, your credit scores help lenders determine whether or not you are able to repay the loan based on your past financial performance. With a higher score, you qualify for better interest rates, higher credit limits, and more types of credit than you would with a lower score. Your score reflects the way you use credit, and there are no tricks or quick fixes to getting a good score. However, you can raise your score over time by demonstrating that you consistently manage your credit responsibly.

Here are 10 things you can do to improve your credit scores.

1. Pay your bills on time. If you have a history of paying your bills on time, you’ll have an easier time getting a mortgage loan, car loan, or credit cards. Even if you’ve had serious delinquencies in the past, a recent history (24 months) of on-time payments carries weight in credit decisions.

2. Keep credit card balances low. High outstanding debt can pull your score down.

3. Check your credit report for accuracy. Inaccurate information on your credit report can be cleared up easily. Always contact the original creditor and the credit bureaus whenever you clear up an error so that the inaccurate information won’t reappear later.

4. Pay down debt. Consolidating your credit card debt or spreading it over multiple cards will not improve your score in the long run. The most effective way to improve your credit is by slowly paying down the amount you owe.

5. Use credit cards—but manage them responsibly. In general, having credit cards and installment loans that you pay on time will raise your score. Someone who has no credit cards tends to have a lower score than someone who has already proven that he can manage credit cards responsibly.

6. Don’t open multiple accounts too quickly, especially if you have a short credit history. This can look risky because you are taking on a lot of possible debt. New accounts will also lower the average age of your existing accounts which is something that your credit score also considers.

7. Don’t close an account to remove it from your record. A closed account will still show up on your credit report. In fact, closing accounts can sometimes hurt your score unless you also pay down your debt at the same time.

8. Shop for a loan within a focused period of time. Credit scores distinguish between a search for a single loan and a search for many new credit lines, based in part on the length of time over which recent requests for credit occur.

9. Don’t open new credit card accounts you don’t need. This approach could backfire and actually lower your score.

10. Contact your creditors or see a legitimate credit counselor if you’re having financial difficulties. This won’t improve your score immediately, but the sooner you begin managing your credit well and making timely payments, the sooner your score will get better.

These ideas won’t create a dramatic improvement in your credit score overnight, but over time, they will. Remember, it takes time to develop a strong profile. Once you’ve done it, you’ll find it easier to apply for credit and favorable interest rates.

Wednesday, April 29, 2015

Borrowing Against Your 401(k) – Is It Ever A Good Idea?

One of the many perks available to working folk is a company-matched retirement plan, named after the part of the tax code authorizing it. These tax-deferred retirement packages are the principal retirement vehicle for just over half of all people in the United States. Americans sock away about 6% of their pay in 401(k) plans to receive employee matching and tax breaks.

One feature many people don’t realize about 401(k) funds is that the account holder can borrow against the balance of the account. About 87% of funds offer this feature. The account holder can borrow up to 50% of the balance or $50,000, whichever is lower, but the whole amount must be repaid within 5 years. There’s no approval process and there’s no interest. It’s basically a loan you give yourself, and is a popular enough option that 17% of millennial workers, 13% of Gen Xers and 10% of baby boomers have made loans against their 401(k) accounts.
Despite these benefits, borrowing against a 401(k) is a risky proposition. There are harsh penalties for failure to repay and taking money away from retirement savings is always risky. Borrowing from a 401(k) account should not be a decision that is made lightly.

As with most financial moves, there are benefits and disadvantages to borrowing from a 401(k). It can be difficult to sort through them, particularly if your need for money is acute and immediate. Before you borrow from a 401(k), though, ask yourself these four questions:

1.) Will the money fix the problem?

Many borrowers use money from their 401(k) to pay off credit cards, car loans and other high-interest consumer loans. On paper, this is a good decision. The 401(k) loan has no interest, while the consumer loan has a relatively high one. Paying them off with a lump sum saves interest and financing charges.

But the question of whether repaying that loan will fix the underlying problem remains. Take a look at your last six months of purchases. If you had made a 401(k) loan six months ago and paid off revolving debt, would your debt load still be a problem? Perhaps not – your current situation may reflect an emergency or an unplanned expense. On the other hand, if your credit cards are financing a lifestyle that is above your means, you may find yourself back in the same position a year down the road – and with no money in your 401(k).

Borrowing against a 401(k) to deal with a medical bill, a first-time home purchase or an emergency car repair can be a smart move. Using a 401(k) loan to put off a serious change in spending habits is, as one financial expert put it, “like cutting off your arm to lose weight.” Before you borrow against your future, make sure it will really fix your present.

2.) Will the investment offer a better return?

Your 401(k) is earning money for you. It’s invested in stocks, bonds, and mutual funds that are appreciating, usually at a fairly conservative pace. If you pull money out in the form of a 401(k) loan, that stops.

The statement that a 401(k) loan is interest-free is only technically true. You have to pay back what you pull out, but before you do, it doesn’t earn any interest. Therefore, the “interest” you pay on your 401(k) loan really comes in the form of the gains you never produced on the money you borrowed since you were not investing it during that time.

If you’re borrowing from your 401(k) to invest in a business, ask yourself if your new venture will beat the return you’re currently getting. If you’re planning to pay off your mortgage, compare the interest rate you’re paying to that return. Don’t worry about trying to time or forecast the market. Assuming a 4% return (a safe average) is the most prudent course of action.

3.) Is your job secure?

If you’ve recently been promoted or gotten new training on an important job duty, you can be pretty confident you aren’t going to be let go from your job any time soon. If your recent performance reviews haven’t been stellar, or if your company has some layoffs pending, you might want to beware. If you’re at all hesitant about your future at the company, hold off on borrowing from a 401(k).

If you lose your job or retire with a loan outstanding, you have 60 days to repay the loan in its entirety. Otherwise, it counts as a “disbursement.” You’re responsible for taxes on the entire amount and you’ll have to pay a 10% early withdrawal penalty. Staring down big bills like that after you’ve just lost your job is not a fun predicament.

While job loss can happen at any time, you want to make sure you’ll be happy and welcome at your current employer for the next five years before you pull money out of your 401(k). You may also want to consider accelerating your repayment plan to get your 401(k) refunded as quickly as you can. Unlike some loans, there’s no penalty for early repayment. Plus, the sooner the money is back in your account, the sooner it can start earning for you again.

4.) Do you have other options?

If you’ve identified your need for money as immediate, consider what other options you may have available before you dig into your retirement savings. For home repairs, using your home equity line of credit can be a smarter choice. For an outstanding car loan, refinancing may make more sense. For a medical bill, it may be wiser to negotiate a repayment plan with the hospital.

If you’re purchasing a first home, consider the tax implications of mortgage interest. In many cases, you’ll receive preferential tax treatment for interest paid on a home loan. You won’t receive that same benefit from a 401(k) loan.

Borrowing from a 401(k) can be a good way to solve a short-term, specific problem. It does have risks, however, and the consequences to your future can be severe. If you’ve got another option, that’ll be better option for you more often than not.

Tuesday, April 28, 2015

Four Reasons To Make 2015 The Year Of The Homeowner

Having a little piece of the world to call your own has always been a cornerstone of the American dream. Couple it with a picket fence and a dog, and you’ve got a perfect Norman Rockwell vision of Americana. It all begins with home ownership.

Yet, for many people, this has been a dream deferred. In 2014, the percentage of Americans who own the place they live fell to a 20-year low, with just under 64% of people owning their homes.

There are many reasons for this trend. Many young people, burdened by student loans and struggling to find stable employment, have postponed significant life decisions, including home buying. After the real estate bubble burst in 2008, many families watched as their assets evaporated. Job loss, mounting debt and depleted savings have put home ownership on the back burner.
Things are finally starting to look up. Jobs are being added to the economy and the long financial night may finally be over for many Americans. There has never been a better time to own a house! Here are four reasons why now is the time to buy.

1.) The rent is too dang high!

For many Americans, the decision not to buy a house is motivated by their current housing affordability. They’re happy where they are and there’s no incentive to move. What could go wrong?
Well, demand for apartment rentals is poised to skyrocket. The vacancy rate of rental properties in America was just 7% in the fourth quarter 2014, the lowest point in more than 20 years. As more millennials find jobs and move out of the house, that rate will continue to fall. New household formation, or the rate at which new addresses are registered, shot up to 1.7 million in the same period. This increase will apply continuous upward pressure on rent prices.

New construction in rental properties will not alleviate these concerns in time. It will take years for the new buildings to be habitable. In the meantime, the window to own will close.

2.) The price will keep going up!

The traditional advice about home ownership is that it’s the best investment you can make. Over time, the value of your home will increase. The rate of increase is never fantastic, but it’ll gradually go up. That represents an increase in your total net worth. For most people, a house is the biggest piece of their net worth.

The converse is equally true. The longer you wait to get into the housing market, the more expensive it’ll be. That’s never been more true. The median house price now is $178,400. By May 2017, experts agree the price will have increased to nearly $196,000, which is past the peak pre-recession price.
Confidence in the housing market is clearly on the rise. Roughly 5.2 million people plan to buy homes this year. That will keep housing prices on the rise looking forward.

3.) Rates are low … but not for long!

Low interest rates are the biggest boon to potential buyers. If it’s cheaper to borrow, a mortgage will ultimately cost less in the long run. Mortgage rates are currently stalling around 4% for a 30-year mortgage. Experts expect those rates to rise to 5% by the end of the year. That may not seem like much, but a 1% increase in mortgage rate increases the cost of a 30-year loan by about 11%.
The low interest rates were an effort by the central bank to aid economic recovery. Now that recovery is well underway, it’s only a matter of time before rates are raised again. Buying now can mean tremendous savings. Now’s the time not to delay!

4.) Mortgage availability

A year ago, mortgages were hard to come by. Lenders were under very close scrutiny and no one without a superior credit history was in line for a loan. The shadow of financial crisis was still looming large.

Now, lenders are taking advantage of low rates and a booming market to make loans more available. Lower down payments and more complicated credit histories are getting approval for homes. That’s a dream come true for millions of families.

As this is partly a response to market conditions, these rates won’t last forever. It might not be long before loans tighten up again. If you’re on the fence about home ownership, you owe it to yourself to speak to a mortgage representative. Otherwise, you might wake up to find the fence has been sold – to another buyer.

Monday, April 27, 2015

Financial Self Defense

Business Directory Scam

Every business owner knows there's no such thing as bad publicity, especially when it's free. Newspaper articles, business exchanges and other means to get more people exposed to your company's name are great, especially if your business is small. When you don't have a big advertising budget, these organizations can be a lifesaver.

 Unfortunately, scammers realize that this desire for publicity is a powerful motivation. Scams targeting business owners involving fake businesses directories are on the rise. These schemes come in a variety of flavors.

One variant has the scammer call, fax or email asking the business to "confirm" or "verify" its contact information for a business directory. No discussion about price occurs. The scammer usually tries to target office professionals, receptionists and personal assistants who are more likely to be bullied into saying yes. In the case of a fax or email, the terms and conditions on the statement may include fine print about exorbitant listing fees. Of course, there is no directory, but that won't stop them from billing.

 After the initial contact, the next step is a slew of invoices marked "urgent," for anywhere from a few hundred dollars to thousands. Many scammers are counting on a low-oversight accounts payable system, where invoices are posted and paid without much investigation. If the invoice is not paid, the scammer will escalate to collection notices and calls, and may threaten the business' credit. They may even discuss litigation.

 At this point, the scammer will usually offer a "settlement" amount which seems incredibly generous. This is a powerful psychological tactic which takes advantage of the contrast effect. Paying $500 when you've previously been told you'll have to pay $1000 seems much more reasonable than just being told to pay $500.

Other variants may claim to confirm Yellow Pages listings. They may also claim to represent a charity network and target small not-for-profit groups like churches or community food banks. The process is the same in all cases.

 Authorities suspect the scams originate in a small number of large call centers located outside the US. Recently, the FTC filed suit against a Montreal-based call center which had defrauded thousands of business and charities in the US. Despite these charges, the scam continues to grow in popularity.

 If your business or charity is targeted by this scam, there are a few things you need to know. To keep your business out of trouble, make sure you do the following:
1) Protect and educate your employees

 If you have a marketing department, establish a policy that all promotion efforts go through that department. Add language to your employee handbook or other documentation specifying who is authorized to make promotional deals on behalf of your business. Make sure it's written down and that your employees know about it. This language will protect them should they be the ones to sign one of these fake agreements.  

Also, make it a point to discuss this and other scams with your employees during regular meetings. This scam preys on the unwary and relies on ignorance to make a cheap buck. Knowledge is your best defense!

2) Don't pay them a dime

 If you notice an invoice like this, you should check with the Better Business Bureau in your area to see if complaints have been filed against the organization that issued it. If there is, you should store the invoice somewhere safe. You should never ever agree to pay it.

Most of these "contracts" are unenforceable. Particularly if they use Yellow Pages branded icons and names to establish their legitimacy, they were agreements made under false pretenses. A verbal agreement, even one recorded over the phone, likely isn't binding, especially if no discussion of price occurs.

 Even if they were, the litigation to collect the debt would be hopelessly expensive. Reporting the debt to credit reporting agencies would expose the group doing the reporting to defamation liability. The bluster surrounding the collection process is just that.
3) Inspect, collect, and notify

 If you haven't before, now's a good time to take a look at your accounts payable processes. Make sure tight controls exist to ensure that invoices are checked for legitimacy before being paid. Double check to make sure you're only paying for services you receive.
If you do get fraudulent invoices, don't throw them away! File them in a safe place. You may need them to help an investigation of scammers down the line. They may also be helpful if you need to contest a report with a credit reporting agency.

You should also notify the FTC immediately. Misrepresentations like these over the phone, fax or email are a violation of FTC rules regarding advertisement. The FTC can be reached at 877-FTC-HELP or online at

 4) Be proactive

The best way to stay ahead of this scam is to stay abreast of new promotional opportunities in your community. Your local chamber of commerce likely maintains a directory of local businesses, and is an excellent place to start for help promoting your business. Get involved with local organizations and charities that represent the values of your business. Don't sit back and wait for those opportunities to call you up. Get out and take charge of them yourself!

Friday, April 24, 2015

Google In The Cellphone Game: What You Need To Know

Google has gone from popular search engine to a company that specializes in disrupting markets. In the past three years, it’s brought out a line of office productivity tools that forced Microsoft Office to adapt to an online work environment. Chromebooks are forcing other PC developers to cut prices and improve service. Google Fiber is changing the face of Internet service wherever it gets implemented. This year, Google is poised to shake up another market: cellphone service.

Thanks to a series of mergers throughout the early 2000’s, cellphone service competition has decreased dramatically. AT&T and Verizon have purchased most of the competition while smaller providers, like Sprint and T-Mobile, are constantly at risk of buy-out. This concentration of the market has led to an uncomfortable stasis. Neither company has much incentive to offer lower prices or better service, and innovation has slowed to a crawl compared to more competitive industries.
Google is poised to change all that. Earlier this year, the Internet giant announced plans to offer wireless plans direct to consumers. Its goal in doing so is to get more people online. The motive is simple: More people doing more searches creates more data points for Google to sell to advertisers. Nefarious purposes aside, though, this promises to be a good deal for consumers.

Before you call your cellphone provider and let them have it for their high prices and shoddy customer service, take a minute to consider these three factors that might influence your decision.

1.) Will Google have service where I live?

Google isn’t going to build towers to establish its own network. Rather, it will be leasing data from other providers to resell to consumers. It will be what’s known as a mobile virtual network operator, or MVNO.

Google will be purchasing data transmission time in bulk from T-Mobile and Sprint, then reselling that data to consumers. It will also be using a patchwork of municipal and private WiFi networks to supplement the service. Primarily, the focus for the tech rollout will be places where Google already has an extensive infrastructure. New York and San Francisco are clear choices, with Provo, Kansas City, and Austin all likely to be secondary roll-out options.

If you don’t live in one of these areas, you may be underwhelmed with the service and speed of the data you may get from Google. T-Mobile and Sprint both have much smaller networks than the other giants of telecommunications. If you can’t get them where you live, odds are good you won’t get much out of Google’s service, either.

2.) What are the risks?

Google’s contract allows for a certain number of users, and both T-Mobile and Sprint have clauses in their sales contract that allow them to renegotiate if too many people sign up. The possibility exists that subscribers to the new Google cellphone service may have their rates change if the service gets too popular. Google’s pricing structure may change data use patterns, which could result in slow-downs in service for existing T-Mobile and Sprint customers. It seems unlikely that this change will come about, as smartphone market saturation is already fairly high.

Google’s horizontal integration may raise some concerns about trust issues. The search engine company will be providing the hardware, the software and the connection for the device. Such an arrangement is similar to the case that brought antitrust action against Microsoft in the late 1990s. Such a suit might cause Google to shift its development priorities to reflect new legal realities.
There’s also the possibility that Google might see trouble with its stock price. The tech giant has been a reliable investment for years, holding its value relative to the rest of the market. With a new business line comes new risks to the company and customer complaints may drive people to competitors. Still, this venture will not do irreparable damage to Google as a company.

3.) How will this affect consumers?

The good news for consumers everywhere is that this move is likely to bring down prices across the board. That’s been the historic effect of Google’s market interventions in other ventures. For instance, AT&T launched a massive infrastructure upgrade in Austin to keep customers away from Google’s Fiber service. Internet speed increased by a factor of 50 and cable prices dropped by $80 on average.

Because of Google’s publicity and available investment capital, AT&T and Verizon may have to change their mode of business to keep up. Expect them to engage in more investment for so-called “5G” networks in an effort to attract and maintain customer loyalty with higher quality products. They may also attempt to mimic the contract and subsidy structure that Google plans to offer.
Generally, the “Google Fiber” effect should bring down prices and up the quality of service for everyone involved in telecommunications. You can look forward to faster mobile data service, lower prices and more transparent billing practices in the next few years.

Thursday, April 23, 2015

Saving At The Vet: How To Keep Your Furry Friends From Breaking The Bank

We all love our pets. Cats, dogs, ferrets and furry babies of all sorts are members of the family. They eat and sleep under the same roof. They give affection when you’ve had a rough day. Your fridge, mantle and social media are full of pictures of your animals clowning around, just like any other family member.

Also like every other member of your family, if your pets get sick, they need medical care. Medical care for a family member – whether they are furry or not – can get expensive. Unlike what you have access to for other members of your family, veterinary insurance is something offered by very few employers.
This unfortunate circumstance can set families up to make tragic decisions. If your faithful furry friend needs medical care to save its life or daily medication to keep dangerous conditions at bay, costs can add up quickly. Yet, putting a price on your pet’s life isn’t easy. If there are multiple animals involved, veterinary bills can become a real source of stress. Letting a pet die because of costs, though, can wreak havoc on your emotional well-being.

There aren’t easy answers to these decisions, and sometimes they’re unavoidable. However, you can take steps to avoid these challenges. Let’s take a look at three steps you can take to keep your furry friends safe and your savings account flush.

1.) Stock a veterinary first aid kit

Lots of pet health crises can be handled by a compassionate hand and some basic interventions. Scrapes, burns, and bruises can all be handled without professional intervention. Many accidental ingestion incidents can be solved with an expert consultation and a little bit of caring.

A first-aid kit for pets looks an awful lot like a first-aid kit for humans. You should have supplies for dealing with cuts and scrapes, like gauze, adhesive tape and an antiseptic spray or cream. For general illnesses, you need a thermometer to check for fever (make sure to get a fever thermometer- small mammals have natural body temperatures between 100 and 103), diphenhydramine (Benadryl) for allergic reactions, and hydrogen peroxide to induce vomiting if necessary. You should also include activated charcoal or milk of magnesia to protect against accidental poisoning. Other things to include in an emergency first-aid kit include a blanket, a leash and a muzzle.

It may be frightening to muzzle or restrain your pet, but try to see it from their perspective. Your pet is in pain and relying on instinct. Muzzling will help you feel more calm and secure, since you won’t be worried about being bitten. That calmness will translate to your pet, who will be easier to tend to when they are a little less panicked.

Before you take any steps to heal your pet, speak to an expert. Many veterinarians have emergency contact hours where they may be willing to walk you through basic first aid. The ASPCA also maintains an animal poison control number where you can speak to a trained representative. They can tell you if you need to induce vomiting, what dosage of activated charcoal to administer, or if you need to seek in-person veterinary help immediately.

2.) Negotiate

Most veterinarians got into their practice because they genuinely love animals. They want to help your pet feel better. If you’re not sure about your ability to pay, be up front about that. There may be several options available to you.

If it’s prescription medication, you may be able to have it filled elsewhere at a considerable savings. Online pharmacies are usually able to offer discounted prices on many medications and animal medications are no exception. These institutions may require a phone call or a fax from your vet, but most veterinary offices are well-equipped to provide that authorization. When your vet recommends a medication, ask for a written prescription so you can shop around to find the best price.

You may also be able to negotiate the cost of a procedure. Veterinarians may know of local charities that help fund care for animals in need. They may also be willing to reduce the cost themselves, or work out a payment plan with you. No one – especially your vet – wants to see an animal life lost over finances.

3.) Consider pet insurance

“Pet insurance” sounds like a ridiculous luxury good for the mega-rich. In truth, it’s no different than any other kind of insurance that protects against expensive calamity. Compared to a veterinary emergency, these plans are very affordable. If you have an older pet, it’s worth considering.
Programs like PetAssure offer a 25% discount on any veterinary services you need at “in-network” veterinarians. There’s no deductible and no limits or exclusions. At $100 per year for 1 dog, the program offers considerable savings.

Every part of veterinary care is expensive. Blood tests on a dog, for example, can easily cost $200. If you need two blood tests in a year, PetAssure pays for itself. In fact, on average, dog owners spend between $500 and $1,000 each year on veterinary services. Getting a 25% discount on that price for $100 is an incredible savings.

Other programs offer more coverage for more money. Healthy Paws, for example, offers 90% coverage for about $230 per year. How much you choose to insure is a matter of personal risk tolerance, but getting some form of insurance is a great way to get peace of mind.

Wednesday, April 22, 2015

Rebuilding An Emergency Fund

Q And A

Rebuilding An Emergency Fund


Q: I just had a pretty significant financial crisis. I under withheld on my taxes all year and ended up cleaning out my savings to pay the bill. What do I do now?


A: All the best financial experts agree you need to keep an emergency fund. Keeping 3-5 months of living expenses in a savings account, certificate account, or investment account can be the difference between a temporary hardship and a life-long debt trap. Using that money instead of credit cards or short-term loans is a lot less expensive in the long run.


There are many reasons why you might need to use that money. It could be from an unexpected expense, like a medical bill or a car repair. It could also be job loss that forces you to tap out your savings. Whatever the cause, it's a whole lot cheaper to pay for it out of savings than to have to borrow, and it's much less embarrassing than having to beg friends or family to cover your bills.


In the midst of a stressful crisis, it can be hard to focus on the positive. It's important to take a moment to congratulate yourself for having the foresight to manage your problem. Things could be much worse than they are now. In addition to all the stress you're currently feeling, you could have a big ball of debt to add to it. It's not because of luck, it's because of good planning.


Despite that relief, you're not out of the woods yet. Without savings, you're in a position of significant insecurity. Another crisis right now, even a very minor one, can cause financial problems that will create a ripple effect on into the future. You could find yourself in a much worse position in three months' time than you are now.


Getting back to a position of financial security should be your highest priority. That means rebuilding your emergency fund as quickly as possible. These three steps will have you back on track before you know it.


1.) Make an emergency budget - and stick to it!


Without an emergency fund, you're one blown tire, one missed shift or one broken arm away from a financial catastrophe. That's why an emergency fund is so important. Cut spending wherever you can. If you can do without cable for a few months, call and suspend service. Temporarily cutting back on media, clothes, and other discretionary spending is also a great idea.


Also, consolidate your savings. If you've been saving for a vacation, a new car or some other big ticket item, stop putting money into those "buckets" until you rebuild a few months' living expenses. Once you return to having a decent cushion, you can get back to saving for your other priorities.


If these cuts aren't enough, finding money in more extreme places might be helpful. If you can, spend a few months taking public transportation. If it works out well, you might find yourself thinking about selling your vehicle for another quick infusion of cash.


Remember, a budget is only as good as your commitment to it. If you make extreme cuts that you can't keep, you'll end up spending even more because you feel entitled to it. Make sure your budget is realistic and humane!


2.) Build income wherever you can


There's no secret about building your savings. You can only save the difference between your income and your expenses. In your budget, you worked on the minimizing expenses part of that equation. Now, it's time to turn your attention to the income side.


Raising your income at work could be as easy as asking for a raise. It could also mean taking additional hours or picking up extra shifts from co-workers. You don't have to do so for the rest of your career, just for a few months until things get better.


You may also need to boost your income outside work. Selling old clothes and books can be a source of quick cash. Picking up freelance or contract work can also be a way to earn extra money. It'll create a stressful few months, but it'll be worth it to get back to security. You might also make connections that could help your career over the long term.


3.) Build a backup plan


The worst thing that could happen right now would be another crisis with no way to pay for it. You may not have the money to deal with it, but you've still got your financial smarts. It's time to make a plan.


Think about what you'd do now if you lost your job, even without your emergency fund. Make a list of phone calls you can make to find temporary work. Who in your network do you know who could use your skills on a temporary or contract basis? Do you know anyone who, if you absolutely had to, you could call for a quick loan?


There are a few other questions to ask. What stuff sitting around your house would you sell if you had to? What does your food budget look like with $50 taken out of it? It's easier to make these decisions when you've got the time and space to reflect on it. Making these choices with a past due notice in hand is much harder to do.


Hopefully, you'll never have to use these ideas, but you'll feel better for having thought about them beforehand. It's also something pro-active you can do instead of worrying. Taking action, any action, to remedy your situation can help fight the stress involved in insecurity and get you in a better head space. That alone is worth the effort.

Tuesday, April 21, 2015

Time Is Money: How To Calculate Your Wage For Savings

Exchanging time for money is a basic economic activity. It underscores every transaction. You go to work and exchange your time and labor for a salary. You’re tired on the way home, so instead of cooking, you exchange money for the time and labor of a fast-food worker. You want to go out to dinner with your partner, so you give money to a babysitter in exchange for leisure time.

We make these exchanges all the time, usually without thinking too carefully about them. But, for most people, particularly young people, the biggest reserve of capital you have is your available time. That’s why it’s important to budget it accordingly. If you’re considering a freelancing project, negotiating a salary or hiring an assistant, these calculations are fairly obvious. However, there may be other circumstances where a slightly more nuanced approach is justified.

How do you decide how much your time is worth? Well, there are a few ways. If you’re employed, you can use your hourly wage as a baseline. If you’re relatively satisfied with both your work and your salary, that’s a pretty good estimation of what your time is worth. You could also use a maintenance calculation. Figure out how much you need to earn to break even each day, counting all your bills and saving for the future. Then, divide that by 8 or 10 for the number of hours you think you should be working. That’s what an hour of your labor is worth, at a minimum.

Once you have that figure, it’s much easier to decide whether a cost-saving measure is worth your time. Here are a couple of tough call cases so you can see how much your time is worth. Would you…

1.) Clip coupons?

Couponing is one of the traditional tenets of frugal living. Veteran shoppers pore over weekly circulars looking for discounts on everyday items. They create extensive databases listing weekly sales and specials. They find, clip and organize dozens of tiny slips of paper.

These activities reflect a considerable time investment. Between research, planning, organization and storage, couponing could easily take 10 hours a week. The result for that savings? Very successful couponers might save $90 a week.

That works out to $9 per hour. Would you take a job earning $9 per hour? Given the flexibility of hours, the ability to work from home and the relative ease of the task, perhaps you might. It’s a mistake, though, to think of that $90 as “free money.” It’s actually the result of significant labor.

2.) Shop at a second-hand store?

It takes quite a bit of extra time to go thrift store shopping for things you need. These stores can be poorly organized, so it may take time to find anything. You’re going to walk away empty-handed quite often. If you have to make one shopping trip a week, it might take an hour of your time.
If you can find something you need there, though, the savings can be considerable. Let’s imagine some numbers. Suppose you need a new dresser. A new one from a furniture store might cost $200, but you can easily find one at a thrift store for $50. That’s “earnings” of  $150.

If you have a successful outing like that once a month, you’re spending 4 hours to earn $150. That’s a little more than $37 an hour. Spending an hour a week at the thrift store might not be such a bad idea!

3.) Manage your own retirement fund?

Keeping up with investing can be a hassle. In order to make the most of your money, you need to stay abreast of financial news and developments. Unlike most tasks, this one also requires a considerable up-front cost in terms of time. There’s a vocabulary to learn and quite a bit of research to be done before wading in. It might take you 4 hours a week of reading and studying just to master the fundamentals for a month. Add another 2 hours a week after that for checking news and staying current on the markets. Your first year, you might spend 160 hours developing your skills as an investor.

The cost savings, on the other hand, could be significant. The median retirement fund is about $101,630. A fee-based advisor would charge 2% annually to manage those funds, which in the first year would be $2,020. In the first year of investing, you’d be “making” $12.70 for managing your own retirement funds. After the initial investment, your “salary” – assuming fees stayed the same – would be just over $19.

There’s obviously much more to the decision to begin an activity than the money per hour. There’s also your personal capacity, the time it adds (or subtracts) to family or leisure time, and the extent to which you enjoy the activity. It’s worthwhile to remember that you’re not always better off doing it yourself and that your time has value. Spend it wisely; it’s the most important asset you have.