Debit versus Credit

Have You Made Your Financial Resolutions?

I spoke earlier about how it’s important to set personal finance goals. Today I’d like to expound on this idea a little. It’s absolutely important to sit down and make finance related goals, and what better time to do this than at the start of a new year? Of course if you’re going to sit down and make goals for yourself you’ll have to think about your finances and if you have a family it’s probably a good idea to talk with them about your financial situation as well (especially your significant other).

Have you begun to think about your financial situation and where you’d like to be in a year? If you haven’t yet it’s not too late. Go ahead and sit down, do a little brainstorming and see what you can come up with. Here are a few ideas to get you started.

Review Your Insurance Coverages and Needs

Do you have a family? Are you the primary (or the sole) breadwinner? Do you own a home?

If you’ve answered yes to any of these questions (or more than one) there is a good chance that you need life insurance. If you don’t already have life insurance then now would be the time to look into it. God forbid that something bad were to happen to you or your significant other, but if one of you were to tragically pass then what sort of a financial situation would that leave your family or significant other in?

Another thing to consider is disability insurance. If you were to become disabled would you lose your income? Most employers offer disability insurance as a benefit to their employees. Check to see if it’s a benefit that you’re receiving, and if you’re not then consider signing up for it. My friend Trent at The Simple Dollar has made it a goal of his to review his insurance needs so he can be prepared in the event of a disaster.

Review Your Retirement Accounts & Plans

Are you participating in your 401k retirement account, or if it’s not an offered benefit are you investing in an IRA or Roth IRA? It’s important to start planning for retirement at an early age because the sooner you begin saving for retirement the sooner you’ll be able to retire, or the more money you’ll have when you retire.

Make sure to review the retirement plans that you have in place and if you’re not already investing in a 401k or similar retirement plan it’d be a great idea to set a goal to start saving for retirement.

Pay Down Your Debts

Do you owe thousands of dollars in credit card or other unsecured debt? This would be a great time to review what you owe and what you can do to pay down your debt as much as possible. My friend Doctor S at Finance Your Life has set himself a goal to pay down a large portion of his student loan debt throughout the next year.

Don’t Do Nothing

I hope these tips have helped to give you an idea of the kind of planning and resolution setting that you can do in order to improve your financial situation. The important thing to remember is this: don’t do nothing. I know it’s worded weirdly, grammatically speaking, but it’s true. Plan for the future and you’ll be in a much better position than you’re in today. Good luck on those New Year’s Resolutions!

January 3, 2009
Grow Your Wealth With Automatic Savings

While most people yearn for wealth not all will achieve any significant levels of wealth in their lifetime.

I am of the opinion that anyone can build wealth, but for most of us building wealth will take time. It doesn’t come to most of us because of our natural abilities or talents or because we were born into a wealthy family. Instead it takes time, patience and perseverance.

Wealth building is not necessarily an easy process, but it can be done. One way to attempt to ensure your future wealth is to set up an automatic savings plan.

Leverage Your Automatic Savings to Build Wealth

Does your employer offer Direct Deposit of your paycheck? If it does you might consider using Direct Deposit to automatically transfer a certain amount (or percentage) of your paycheck into a savings account (or various savings accounts). It’s important to save for various large expenses, as well as for emergency needs and then of course, retirement.

For example, if you don’t already have an emergency fund you might consider opening a high-yield savings account, such as the Orange Savings Account, or a money market account and then setting up your paycheck to automatically deposit a certain amount (or percentage) every pay period into your emergency fund account.

It would also be wise of you to set aside a certain portion for any large purchases you plan to make in the future. If you have kids you might consider setting aside a certain dollar amount every month for their future educational expenses, for example. Of course you’ll also want to consider retirement. If you’re not already taking advantage of an employer sponsored retirement account (such as a 401k) then start. If it’s not something that your employer offers then start your own retirement account: a Roth IRA or a traditional IRA.

What Might All This Automatic Saving Look Like?

For simplicities sake let’s assume that your paycheck is currently deposited into your checking account to the tune of $1,000 every week. Now let’s assume that you don’t have an emergency fund yet and that your employer does not offer a retirement account, therefore you have decided to fund your own IRA. Also let’s assume you’re saving up for a new computer that you’d like to be able to pay cash for.

Since your weekly expenses are relatively low (about $400) you’ve decided to save a substantial amount of every paycheck. You want to put at least $200 every week into your emergency fund and you’d like to put at least $200 into your IRA as well. That leaves $200 after other weekly expenses and you’ve decided to put just $100 into it, leaving the rest as petty cash for you to play with throughout the week. You could set this up several ways. You could have the money deposited directly into your different accounts by your employer or you could put it into one account (such as your checking) and have it automatically transferred from there to your different savings accounts.

The advantage of having your employer Direct Deposit the amounts is that they should be able to support percentage based deposits. If you set it up this way then as your salary increases so will your savings, automatically. Check out this calculation I did from the retirement calculator over at Dinkytown.net.

As you can see from the calculator results if you save $800 a month from age 30 to 65 in an IRA account with a 10% average rate of return then you’ll have just over $3 million dollars in your IRA by the time you’re ready to retire. That’s not a bad amount, and keep in mind that is without ever increasing the amount you’re saving every month. Not to mention that if you are able to start saving before 30 you’ll be in an even better position.

Start Your Automatic Savings Plan Today

Don’t wait to get started. Set up whatever you need to and make your savings automatic. You’ll thank me for it. Trust me.

January 3, 2009
Best of Debit versus Credit, December 2008

December marked the end of a unique year. We saw everything from a major financial catastrophe to a historical presidential election. Here at Debit versus Credit we saw some interesting articles as well on everything from Investor Psychology to an argument in favor of making as small a down payment on a home as possible.

Go on ahead and check out the best of Debit versus Credit, December 2008.

Investing

An Interesting Thought On Investor Psychology

Determining Your Future Return With A Fixed Income Investment

Real Estate

Does A Large Down Payment Save Money In The Long Run?

Why A Large Down Payment Isn’t Always Best: Take Two

Personal Finance

Have You Made Your Financial Resolutions?

Did you miss any of the articles in December? To make sure that you don’t miss anything in the future don’t forget to subscribe to the RSS feed or if you prefer you can receive updates through your e-mail inbox!

January 1, 2009
Are You Prepared for the New Year?
The start of a new year is a great time to not only reflect on the previous year but also to think about what you would like to accomplish in the upcoming year. It’s true that to many people a New Year’s Resolution is often nothing more than a wish-list of self-improvement and related goals (such as finally quitting smoking) which are often left unfulfilled. Unfortunately even those who do set goals and accomplish them throughout the course of the year often forget to include financial planning in their new year planning process.

It’s usually a matter of perspective and visibility. If you follow the tradition of setting New Year’s Resolutions what thought process do you use? It’s easy to find yourself thinking about only what’s visible and at the forefront of your mind.

For example when I was a teenager my goal was to work out every week so I could expand my strength, and more importantly the size of my muscles. Of course I’d often make personal finance related goals as well, but they were usually vague and generic. As an example I’d often make a goal to save up enough money to buy the latest and greatest video game that all of my friends had.

The point I’m trying to make is twofold:

Make achievable and specific resolutions that can be easily tracked.

Don’t forget about money. Always take a look at your financial situation and where you’d like it to be at the end of the following year.

I think I’ve mentioned before how I think it is important to do, at the very least, a semi-annual checkup of your finances to make sure they are in order. Well there’s no better time than the start of a new year to look at your situation and make sure all of your ducks are in a row. As always if you have any comments or questions please feel free to contact me or leave a comment below!
December 26, 2008
Merry Christmas to All and to All A Debt Free Life

It’s my favorite time of the year once again. I’m out of school until next semester and right now all I have to worry about is going to work and making money. I still have a job and I don’t have to worry about losing it either so to be completely honest with you, my life is going pretty well.

While things are going well for me, I am not naive enough to believe that everyone else in the World is having a merry holiday season. I know things are rough out there for a lot of people, and while I’m counting my blessings that right now I’m not facing a lot of difficulties I’m still concerned for others’ well-being.

I’m especially concerned that people are getting themselves into unnecessary debt this Christmas season, just to pay for the most extravagant presents they can think of for their kids or their significant others. While it’s nice to give and receive the best presents it’s really not practical to give what you can’t afford to give. Don’t get yourself into debt that you’ll be paying off until next Christmas just to pay for this one.

With that being said I’d like to ask you a question, and be honest with me here.

[poll id=”5″]

With any luck the answers are going to come back with very little to no debt taken on this year, but I’m worried that I won’t get the results I’d really like to see. Nevertheless I hope that you all have a Merry Christmas and if you’re not there already make sure you get started on creating a debt-free life for yourself!

December 26, 2008
Monday Movie Madness: In Dividends We Trust?

I saw an interesting movie on TheStreet.com today about GE and Dow Chemical and their promise to continue to pay dividends on their stock. I actually hold some shares in GE and so I was interested to see what TheStreet had to say about their pledge to continue paying out dividends. Check it out.

I have a question for you now. If you are investing right now, do you base any of your investment decisions off of any dividend payments?

December 8, 2008
An Interesting Thought On Investor Psychology

In my Investing class yesterday I learned some interesting stuff about investor psychology and I wanted to share just a small section of it with you today. We’ll start things off first with two scenarios, so I can do a little case study of my own (and because they’re just fun!).

Let’s take a look at the first scenario:

[poll id=”7″]

Now let’s take a look at the second scenario:

[poll id=”8″]

What were your answers? When my professor polled our class I chose “A” for the first scenario and “B” for the second scenario. It turns out that a large majority of people think this way because for the first scenario my class voted 18 times for “A” and 8 times for B while for the second scenario my class voted 10 times for “A” and 16 times for “B.”

Based on previous research 85% of the people who are presented with the first scenario choose “A” and about 70% of the people who are presented with the second scenario choose “B.”

Now if you look closely at the questions you’ll see that the two scenarios have identical end results, they are just presented differently. In either scenario you’ll end up with $1,500 if you pick option “A” and you will have a 50-50 chance to either end up with $1,000 or $2,000 if you pick option “B.”

Based on those facts you should pick the same option in both scenarios, but most people don’t – most people pick “A” and then “B”, respectively.

Interesting isn’t it?

December 5, 2008