March 3, 2012

Debt Trap: the Trendy Lifestyle

The most frequent complaint with modern society is its growing emphasis on consumerism, looking to material possessions to create a satisfying life. The media, both print and online, focus on the glamourous nouveau riche lifestyle, where it's normal to spend $800 on a pair of shoes, $5000 on the "right" purse or six figures on a particularly desirable mechanical watch.

The problem? This lifestyle is attractive to my age group as well, but with our average income, it's impossible to support such a lifestyle without going deep into debt.

The result of this is increasing insecurity, spending and debt for items we don't need. How do we break the cycle of confusing "need" with "want, magnified by social pressure"?

Rule 1: Focus on the Bare Necessities.
• Put yourself first. Make sure your necessities--rent, water, food--are covered.
• Save at least 10% of your income. There will always be surprises in life that hit you financially; a savings account will help make sure it doesn't ruin your month.
• Invest in health and dental insurance. A medical emergency shouldn't force you into bankruptcy. Neither should that tablet computer. Put your health first.

The money left after these expenses are met is your "splurge" fund and can be spent accordingly. No extra cash? Wait until next month to buy your gadget.

Rule 2: Research what you want to buy and make sure it's going to improve your life. And I don't mean enhance your social standing, I mean make a meaningful and lasting impact to your personal routine.

Not sure whether you need or want it after researching? Wait to buy it until you've saved up the purchase price. Then go shopping again and see if your item (car, phone, computer, whatever) still fits your needs, or if the desire has gone away. Sites like Amazon, eBay and Newegg can help you purchase smarter.

Rule 3: If you must have fashion, buy it right. The average person can't tell that you bought your designer purse secondhand and paid $200 for it instead of $2000. eBay, Amazon and Etsy are all great resources for clothing and accessories; your local Goodwill may also have a designer clothing boutique.

Most importantly, remember that buying later isn't a punishment; it's a completely guilt-free treat to yourself. You will be outwardly fabulous with a savings account balance to match. Life is so much better lived smarter.

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February 25, 2012

Smartphone Apps: Bang for your Buck

Smartphone technology has changed how we interact with each other and the world. It's an industry that has made the humble cellular phone a streamlined portal to our daily digital experience, and now software companies are bringing that same access-anywhere "app" convenience to world of personal finance. Like or hate the smartphone revolution, these devices can be a powerful tool to help you manage your money. I've listed some of my favorite iPhone apps below. Easy, effective finance tools for less than a dollar? Yes, please!

1) Accounts - Checkbook (SVT Software) $0.99 from Apple iTunes
An all-in-one account balancing and transaction tracking app that allows you to photograph receipts, add recurring payments and see your vital bank account stats graphed by category. This app has iCloud backup and the ability to export your financial information to your desktop computer. No more paper checkbook ledger or rows of white out smears! Enter, save, and forget about it.

2) Personal Finance (Intuit Software) $Free! on Apple iTunes
An award-winning Intuit product (creators of TurboTax). I use the desktop version of Mint constantly and the iPhone app is a helpful mobile tool. You can edit and organize transactions, track your budget and investments, and see your spending trends...everything you need on-the-go. Update it on the fly as long as you have cell service or wifi. And best of all? It's free!

3) Unitus Online (Unitus Community Credit Union) $Free! from Apple iTunes
Not content to let big banks dominate the app market, many credit unions including Unitus now have their own apps available for iPhone and Android. All the perks of doing business with a big bank, without the attitude and hefty fees! See your accounts, make transfers, and access online bill pay. Mobile banking at its easiest.

4) Citi Mobile (CitiBank NA) $Free! from Apple iTunes
Every major credit card company has a smartphone app available in both major app markets. All have the same convenient features, including access to your current balance, account activity, statement history, and bill pay. Citi even tracks and displays your rewards points. (And allows you to redeem them in the Citi Mobile's sister app, "ThankYou Rewards.")

The app world holds a myriad of other tools to better serve today's digital age customer. Check it out and see what your finances can do away from home!

Do you have a favorite app? Or are you a fan of the old-fashioned methods? Everyone has their own method for managing their money. Discuss!

February 26, 2011

Young Credit: No Open Installment Loans = Bad Credit Score?

The first month of this year brought an unexpected surprise for me as I checked my credit score. All three credit bureau reports reflected my closed auto loans, all listed as Paid Off, Paid Satisfactorily. (Sweet!) But instead of the feel-good hike in my score I was anticipating for being a debt-settling champ, I saw that my score had actually dumped 15 points since I closed my last loan!

Why the drastic downward turn? I scoured my credit reports to find out. The surprising answer? Because my credit history was so limited (a mere three years on my oldest account), not having an open installment loan actually HURT my credit score. News on me, they don't cover that in Credit 101!

Ah, but in the same breath they used to condemn my zero balance credit rap sheet, all three oh-so-helpful credit reporting agencies assured me that there was salvation to be had from my bruised credit pain. At the bottom of the reports were some humble suggestions to get me back on track: "Open another installment loan!" and, "Buy a house! (Mortgage rates have never been lower, you know.)"

I couldn't have a better reminder that the Credit Bureaus are only there to rate your creditworthiness, and creditworthiness is not equal to financial responsibility. Your credit score is a tool used to measure how reliable, and more importantly how profitable, you are as a debtor. They are not there to cheerlead your overall financial health.

I've been weighing my ultimate goal of financial responsibility against the credit healing opportunity my new car loan represents. I planned to pay the new car off in two years, but would my credit score suffer yet again from the lack of an installment loan when I was done?

I decided on a compromise to help my young credit: pay regular installments on the loan for two years -- long enough for my credit to mature -- then do the financially responsible thing and pay it off. I have things to accomplish in my life, and I want my money free to do them.

What are your thoughts about young credit? Is it better to be in debt for the life of a loan, or suffer a drop in your credit score but have your money free sooner?

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New Experience: Renters Insurance

Out of the many unexpected expenses that were now my responsibility after becoming single, the need to purchase a new renters insurance policy for the apartment reared its head first. My ex's parents had generously paid for renters insurance while we had been living together. As a gift to me, his parents allowed the policy to expire on its renewal date of October 2010 instead of terminating it when he moved out, but I still needed to find replacement coverage as quickly (and as economically) as possible.

You may be asking, why is renters insurance so important? Why not just let the policy my ex's parents paid for lapse, and not worry about it? Renters insurance is a form of personal property insurance and vital when you're living on your own. In the event of [theft, vandalism, natural disaster or apartment fire/flood], personal property insurance helps you replace your belongings, which means you can get your life back on track as quickly as possible. An apartment complex's insurance policy does not protect its renters. It's up to you to protect your own property when you have your own living space. (This is why many apartment complexes require renters insurance when you sign your lease agreement.) Renters insurance is also a wonderful safety net in the event your car is broken into. Your auto insurance will fix the physical damage, yes. But what about the stereo that was stolen? Auto insurance won't cover replacement of your radio, cell phone or CD collection...but your renters/homeowners insurance will. 

I spent the grace period before the current renters insurance policy lapsed researching providers, determining the coverage limits I would like and deciding what a comfortable premium was for me. Progressive Insurance, my car insurance provider, had an attractive policy with a negligible deductible and $5,000 in coverage for $143 a year. This was a step up over the existing USAA policy, which had a low deductible but a policy limit of only $2500. The paperwork arrived within four days, and I had the peace of mind of knowing that when the USAA policy expired, I was protected...and I'd done it all on my own.