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Just the other week I made my final, 0% interest payment on the flat screen TV that hangs above the fireplace.  It was an 18 month payment plan that I paid off in 14 months.  At the time, getting the store credit card and taking advantage of this offer seemed like a really good idea.  If you are not careful, however, the 0% interest can jump to their default percentage (20-30%).  This is something that many people do not take into consideration.  I did, however, consider it carefully and made sure that I had enough funds to cover it before I made my purchase.

Why did I use a store card even though I had the cash to pay for it? I did not want to touch my savings account to pay for it up front.  I was able to keep my money making money (even though it wasn’t much) while I sent the payments in every month.

These store cards can be really tricky, for instance, if you are late or miss a payment they can charge you a late fee, all of the deferred interest, and take away the 0% interest on this item for the remainder of the balance!  This can leave you up a creek, spending money you didn’t intend to.

To give you an idea of the amount of deferred interest, here are the numbers on my final statement.  This is after 14 months of deferred payments:

Initial Purchase: $1,241.16
Deferred Interest Charge @ 26.99%: $237.22
Late Fee: $39.99

Grand Total for Missing Payment: $277.21

Imagine spending an extra $277 on an item because you missed a payment?  I know I’d rather spend (or save) $277 elsewhere.  This is how credit card companies make their money.  Imagine if they gave 0% to everyone and they all paid on time and in full?  Credit card companies wouldn’t be in business!

All-in-all, I feel more free not having another bill to pay every month.  This monthly payment is now going to my “Gotta Live a Little” fund for weekend trips and vacations.  I just felt that having this extra, non-essential bill every month made things a bit more complicated in my life.  As of right now, my goal is to simplify things.  To me, this means de-cluttering the house, reducing my debt, and spending more time doing things I love to do.

What experiences have you had with credit cards?

If you have read my previous post, Life After an Auto Loan, you’ll notice that I was undecided on what I wanted to do after my auto loan was paid off.  Over the past month I made a decision to split it up.  I am allocating 75% of the $400 to my student loans and the remainder to my Roth IRA.

By making this move, my student loans repayment schedule fell to 4 years from their original 10 years!  This is a huge drop in time and interest.  Based on my calculations, I should be keeping about $3,000 in my pocket that would otherwise go to the loan company.  If I allocated 100% to the loan, that would cut the time down to about 3.5 years.

Depending on your income level, you may be able to claim student loan interest paid on your taxes.  Unfortunately for me, I am unable to claim this.  So, for me, it makes no financial sense to carry this “good” debt.  Depending on how you look at things, some say that no debt is “good” debt.

What exactly is “good” debt?  “Good” debt is any debt that’s taken out for the prospect of growth, such as a student or home loan; it may also be tax-deductible.  When you take out a student loan, you are investing in education that will, hopefully, increase the earning potential over your lifetime.

As much as I want to pay down my student loan quickly, I still need to save for retirement.  I currently match my employer’s 403b at 1% and contribute to my Roth IRA.  Before I bought the house, my Roth IRA was maxed out every year at $5,000.  This past year, I only contributed a $1,000 to it – after my tax return!  This year I am trying to set aside for my Roth IRA every month, while still saving a portion from my tax return.  If my calculations are correct, this will place me at roughly $2,000 saved for the 2010 year.

Once you finished with a debt, what did you do with the extra money?

Wow, it’s been one month since my last posting!  Things have been really busy at work.  I had two weeks of overnight work and had two decent snowstorms that made travel treacherous and time consuming.  This left me with minimal time for myself and blogging.  I’m going to realign my schedule to allow more time for writing quality blog content.

It’s been one year since I closed on my first home and I cannot believe how time flies!  I only have about 28 years left on the mortgage!  Paying down the principle helped.  The house has come a long way since we first moved in:

• Removed all the carpet upstairs and restored the hardwood floors
• Planted a plentiful vegetable garden
• Landscaped the front yard
• Removed carpet on the enclosed porch; cleaned and primed all the walls

These are only a few of the larger projects we have done around in the first year.  Not bad for working full-time on a rotating schedule!

Some of the projects lined up this year include:

• Install a new fence while expanding the flower and vegetable gardens
• Complete the porch by sealing up all leaks, installing electric radiant floor heating, tiling, and possibly a small wood/pellet stove
• Complete the office with furniture and other items.

On another note, I received a letter from my mortgage broker advising me that the escrow is underfunded.  To correct this, I can pay the $604 up front and keep a smaller, almost similar monthly payment.  The other option is to divide the $604 into 12 months to fund the escrow; essentially increasing my payment by roughly $50 per month.  Whether I pay in full or in increments, it all comes out to the same amount in the end.  There are no fees or additional charges if I choose one or the other.  So now the big question: Do I pay it all up front or keep my money and pay more per month?

After talking with a few people, they seem to go with the option of making the larger monthly payments as this gets reevaluated every year.  One person also had an experience where he paid it in full, to only have it all returned one year later.  This was because they over-projected the taxes and insurance.

Since I over allocate for my mortgage every month, this increase will not affect my current goals.  So I’ve decided I will be paying the increased mortgage payment, while continuing to pay down the principle.

I set aside biweekly for my mortgage so I can accumulate one additional  payment per year. Over the next year I want to try something new: Take the extra allocated money and make a monthly principal payment while still making one large principal payment every year.  This will allow me to cut my mortgage down even faster.  However, I am having remorse about paying the house down more when I have student loans that I want to pay down quickly.

The emergency fund is probably the most important savings account.  Think of it as self-insurance.  You save for an unforeseeable event: loss of income, furnace goes, or the roof springs a leak.  So how much do you need to keep in an emergency fund?  It all depends on your comfort level and what you are saving for.  You may even want to have different, targeted, emergency funds.  Some people recommend saving for at least 6 months of expenses.  Personally, with everything going on in the world, I would save for at least 12 months of expenses.  This will give you some flexible time to look for another income.

My current emergency fund is for anything at this point in my life.  Once I reach my ultimate goal of $20,000, I will set this account aside and name it the “Loss of Income Fund”.  The $20,000 will keep my current lifestyle afloat for about a year.  I may even open short-term CDs to make some more money rather than letting it sit at a lower interest rate.  To keep my savings on track, I could direct the money a few ways:

• Keep putting money into the “Loss of Income Fund” after I reach my goal
  • Every $1,000 I go over my goal, a 1-year CD gets opened
• Create a new emergency fund targeted towards another goal
  • Maybe an “Emergency Home Repair Fund”?
• Send it to another savings account for non-emergencies
  • Vacation fund
  • Auto fund
• Save more towards my Roth IRA

I also use my emergency fund for when I overspend on my credit card the previous month.  I refuse to maintain a balance on my credit card unless I have no other choice.  Most of the items are unforeseen expenses and this is where it is very nice to have a fund to tap into.

Do you have an emergency fund?  How do you use it?

This is the third in a series of weekly posts titled “How I Did It”.  I’ve been so inconsistent with the weekly postings, I’m not sure that I can call it a weekly series.  The past week has been very unusual with two blizzards and getting stuck overnight at work.  I will try my best to post on a weekly basis. Throughout this series I will be describing my methods of personal finance, frugality, and what it took to get where I am today.

If you’ve read the series from the beginning, you’ll notice that I received my first credit card when I opened my checking and savings accounts.  This was around 2004 when they were giving credit out like free pancakes at the diner.  To recap, my local bank offered me a credit card.  I was hesitant at first and I asked a few of questions that were important to me:

• Is there a monthly/yearly fee associated with this card?
  • No
• Does it cost anything to apply?
  • No
• What’s the benefit of holding this card?
  • Reward Points: 1 point for every dollar spent
• If the card it paid off every month, will I incur a finance charge?
  • Not unless cash advances are made

Once I had the questions answered, I sat and thought about the positives and negatives of holding a credit card.

Positives

• Building a credit history at an early age
• Have it in case of emergencies
• Order items online without too much worry; It’s not linked to my checking account
• Ability to reserve hotels and rental cars without putting a hold on my checking account

Negatives

• I could slip into debt if I did not think about my spending.
• Someone could steal my card number and use it.
• The company could change my terms of agreement at any time.  If I did not pay attention to the changes, it could cost me in fees.

After careful consideration, I decided that the pros outweigh the cons and I went for the credit card.  About a week later the approval letter arrived in the mail.  The credit limit: $500; not too bad since this was my first card and I haven’t held a job for too long.

Using this card responsibly, every month, opened up another door from my local bank.  About two years later, they were offering me another credit card.  After reading their terms and talking with the local representative, I decided to go for it.

The advantage of this card was:

• It was from the same company as my local bank
• It had a better rewards structure
• A higher credit limit

Now I had two credit cards in my name from the same bank.  A few weeks later I understood what their reasoning was.  I received a letter in the mail about how my first credit card company was separating from my local bank.  I believe the local bank wanted to keep me as a customer.

In the end, I am glad I signed up for these credit cards.  It’s been 5 years since my first card and I’ve had a great experience ever since.

By making this small first step, I was able to build my credit history at an early age.  Keep in mind, I always pay my cards off.  It does not make any sense to leave a balance on them.  You’ll never gain back the money in interest payments through a savings account.  If I overspend, I tap into my savings account to pay it off.  Yes it hurts, but it hurts less than owing more money in interest.

Automating your life can make things a lot easier.  A great example is the morning coffee.  You prepare it the night before and set a timer.  By the time you awake, the coffee has already brewed and is ready for your enjoyment.

The same thing can be said for savings; set it up and enjoy!  Automating your savings can get you on the right path to retirement, vacation, college, emergency fund, or whatever you have your mind set on.

Automation Through Your Employer

Probably the best way to automate your savings is through your employer.  Like most companies out there, they probably offer direct deposit into a checking account.  If you talk with them, they may be able to divide up your pay into multiple accounts by a fixed amount or a percentage of your salary.  By doing this, you can put away regularly without thinking about it or “seeing it” in your check.

Automation With Your Bank

You can also automate transfers with your bank.  My bank, ING Direct, has the option of automating a transfer from a checking account to a savings account.  This is another great way to save money without thinking about it.  It’s also an alternative if your employer does not offer the ability to send your pay to multiple accounts.  It also gives you a little more control over your money.  For example, you can login and change the amount at anytime.  With your employer, this change could take a few pay periods to kick in.  Plus, you may get a regular check instead of a direct deposit while the changes are processed – this is a huge inconvenience for me.

The only downfall to the automatic transfer with your bank is the risk of inadequate funding.  For example, my employer normally deposits on every other Thursday.  If a holiday falls on a Monday of that pay period, the deposit does not get made until Friday.  If I do not time the transfers accordingly, I could end up incurring non-sufficient funds (NSF) fee with my bank. This is something I avoid doing like the plague!

What I Do

Personally, I only automate 403b transfers direct from my employer.  Every pay period I sit down and transfer the money where it needs to go.  This gives me a better understanding of my money and where it goes.

However, I feel the best way to automate would be to have your employer make the deposit for you.  This way you avoid the NSF fee and you don’t “see” the money.  By having my employer deduct my 403b, I do not “see” how large my check would be.  Over the course of two years, I have a decent amount put away for retirement and I do not miss it in my check!

If I decide to automate my savings, I will allow my employer to make the transfer over my bank’s automatic transfer.

Do you automate your savings?

Remember, you can contribute to your Roth IRA for 2009 until April 15th!

I have yet to contribute anything for 2009.  Quite frankly, I’m upset that I did not put anything in at this point.  However, it’s been a big year for me: buying a house and paying off the car.

Over the past 2 years, I have contributed the maximum amount to the Roth IRA.  With the most recent economic crisis, that $10,000 turned into less than $5,000.  Within a few months time, I lost one year’s contribution.  I guess it could have been worse; I could have lost it all.  Since then, I traded in the Global Real Estate for Global Bonds and opened a Roth IRA Savings account with ING Direct.  Probably not the best choice to regain my money back.  The Global Bonds (IGBOX) are only up about 7% compared to 29% with Global Real Estate (IDGTX).

I think the recent events with the market and buying a house made me realize my true risk tolerance.  I do not like losing money – especially when I see what I put in and lost.  For some reason, I feel differently about my 403b.  I think it’s because it’s deducted bi-weekly and I don’t “see it” except on the quarterly statement.  I still have yet to compare all the statements to see what I have really lost.

However, it’s good to have a balance of funds.  I think I will keep my 403b on the aggressive side and make my Roth IRA fixed with savings, CDs, and bonds.  The market took a large hit in the past week and I do not think we are out of the water yet.  Remember, bonds are more attractive when the markets go south and are less attractive when the markets rise.

I should have a plan for my 2009 Roth IRA by the end of the month.

A few weeks ago I wrote about if the Sam’s Club Advantage Plus membership is worth it.  To recap, a plus account adds “eValues”, which are digital coupons, to your account.  You log into your Sam’s Club account online (or at an in-store kiosk) to see what’s available.  From there, you are able to email or print the items on the list.  All you need to do is buy the items and the discounts appear at the register.  According to Sam’s Club eValue FAQs, “eValues means $300 in guaranteed savings. With eValues, you have the opportunity to save an additional $200 a year on top of the savings you already enjoy.”

Checking back on the eValues page, I now have $378 in “savings”.  Unlike last month, I am noticing a few useful items that I would actually buy.  This would include $2 off paper towels and $3 off toiletry products; none of which I would have bought during my next trip.

I guess a $5 savings is a start.  I only $15 more in eValues to go before I recoup my costs and two more months until I renew my membership.  Will I choose the Advantage Plus membership again?  If the eValues do not become more relevant to my shopping; probably not.

Here’s a PDF of the eValues page.  Keep in mind, a lot of the items listed have restrictions such as “you may choose 1 of the following 5 eValues”.  An example of this would be the Pampers Cruisers diapers.  You can choose sizes 1-6 and save $3 on any one.  However, you cannot buy size 5 and 6 and expect to save $6.

I will be posting another update after I obtain some more eValues.  Have you found savings with Sam’s Club eValues?

I’m not sure why a lot of people cringe at the thought of budgeting.  It is a good way to get your finances under control.  In order to budget properly, you should have an understanding where your money is going.  An hour or two of your time can change the way you look at your finances.

I budget based on my bi-weekly paycheck.  I take my monthly expenses, divide them into two, and put them into appropriate savings accounts.  The advantage of this is I am not tempted to spend the money.  I find that if it’s in my checking account, I am more likely to spend it.  The other advantage of my bi-weekly savings is that I will build another monthly payment over the course of a year. This is particularly useful for building that extra mortgage payment every year.  Some mortgage companies charge you to change your payments from monthly to bi-weekly.

Budgeting for Variable Bills
I’m still working on this area in my personal finance.  One example of a variable bill that I have is the gas and electric.  I’m thinking about taking the average price of the bill over the past year and putting that amount away into another savings account. So when my bill is $50 in the spring or $250 in the winter, I will have enough money to cover it all. Sure, I can assume the worst case and always put away $250, but that will limit my cash flow.  Have any suggestions?

How do you budget?

Somewhere along the way, I got addicted to bottled water.  I found myself drinking at least 5 bottles a day, which is a little more than a case a week.  A case of water at Sam’s Club has 32 bottles and costs roughly $5.  Each bottle I drank ran me $0.16, which turned into $0.80 a day.  Over the course of a year, this totaled $292 and 1,825 bottles sent to recycling (or garbage if recycling was not available)!

Two years ago, I decided enough was enough and searched for alternatives.  That’s where I found the 1 Liter Sigg Bottle on Amazon for about $20.  The Sigg bottle is made from aluminum and the inside is coated with a water-based epoxy resin which, unlike plastic, does not leach out into the water.  The best part is, the inner coating does not alter the water’s taste!  If you were ever turned off by the reusable plastic water bottles because of the taste, you gotta give the Sigg bottle a try.

Over the course of a year, this would translate to $0.05 a day to use it.  I did not factor in the cost of using a Brita or Pur filter, but the overall cost-per-day is far less than 80 cents and creates far less waste.

Over the course of two years, I saved $584 and 3,650 bottles from the landfill!  Finally, a good habit to break.