Category — Finances

Open up an equity account with a discount broker online. Do it right now. Open up a regular account an IRA account and a Roth IRA Account. This should cost you $0. If your brokerage wants more find another one.

In a regular brokerage account you can buy and sell stocks, mutual funds, index funds, etfs and options. You use after tax dollars and you pay taxes on you profits. You can take the money out any time you want.

In an IRA account you can buy and sell stocks, mutual funds, index funds, etfs and options. You use before tax dollars (this means that when you file your taxes you deduct the amount you put in your IRA account from your income so you don’t pay taxes on it). You pay taxes on your profits but only when you withdraw the funds. You can’t take the money out until retirement age (if you do you pay a penalty.) except for an approved purpose (like buying your first home). You must start taking your money out at age 71(?).

In a Roth IRA account you can buy and sell stocks, mutual funds, index funds, etfs and options. You buy stocks with after tax dollars (it has no immediate effect on you tax returns). You don’t pay taxes on your profits. You’re restricted on when you can and must withdraw the money just like the IRA account.
Roth IRA

The best way to build up good credit is to use credit cards. If you’re in college you should be receiving regular offers for cards. Get a couple of them.

This is the key to properly using credit cards. First off you’re not using them to borrow money and you’re not using them to buy things you can’t afford.

You use them to make the purchases you were going to make anyway and then you pay them off in full every month. This does a number of things.

I’m sure most of you know someone who always is about a week behind with money. You know who I mean. They give you a check but ask you to hold it. Well with credit cards you get 25 days to pay (actually up to 55 if you make a purchase on the last day of the billing period). so this helps you spread things out a little more evenly.

The second thing is this will show up on your credit report as an open account that was always paid on time, a good thing. Another consideration is that how long you have had credit is part of how your credit rating is calculated. So the sooner you have an open credit line and the longer you have it open the better.

Periodically the issuers may offer you a higher limit to your cards. Take it. Part of your rating is based on what percentage of your available credit you’re using. As a rule of thumb never use more than half your available credit on any one card and try to keep your overall usage to less than 30%.

If you’re not in college and not getting credit card offers then things are a little more complicated. It’s possible you already have negative items on you credit reports.

Go to http://annualcreditreport.com and request a free credit report. There are three reporting agencies and each of them is required by law to give you a free report.

The reports will be complete but will not include a FICO number. They’ll try to get you to pay for the number. I wouldn’t bother. Look over your report and make sure everything is correct. If there are errors follow instructions to correct them. This is a very slow and lengthy process. Just make sure you’re heading in the right direction.

When you start looking for credit cards remember that store cards are actually the hardest to get. If you’ve already messed up your credit you might have to get a card that has a fee. Avoid this if you can but you need to start putting positive things on your report.

Good luck.

I once had an employee who wanted to buy my van from me. I said “OK but you’re going to have to get someone to finance it for you”. He said “No problem. I’ve got great credit. I always pay for everything with cash”. Did I mention he was an idiot?

Having a good credit rating is first of all based on your history of using credit. That is you say I’ll make this payment every month and then you do. If you never use credit then there is no means of appraising how responsible you’re going to be.

“But why do I need credit”? Well one reason is that for most people the only way they are able to buy a home is with a mortgage. When you apply for a mortgage your costs are going to be much higher if you don’t have good credit. In fact you might not be able to get a mortgage at all.

But there is more to this. Many organizations have started to use Credit Reports as part of their screening process. So if you don’t have good credit you might not be able to rent the apartment you want or get the job you apply for.

This is serious stuff.

You really have to approach this from two directions; don’t do bad things and do do good things.

Here’s what I mean. A number of people who have never had a loan or a credit card already have Bad credit. How did this happen? There are many financial situations that won’t show up on your credit report unless you don’t make payments or are late in doing so.

A phone bill, a utility bill, rent, etc are not reported on your credit history showing that you made timely payments. They will show up if you’re delinquent in paying or if your account was turned over to a collection agency. These are the bad things you need to avoid.

But not doing bad is not enough. You have to have positive things on your credit report also.

So you’ve bought into the importance of savings and you’ve been socking money away with regularity. One day you look at your bank balance and you’ve saved a couple of thousand dollars.

So what happens? This might be more of a guy thing but, a light goes on in your head and an idea arrives fully formed, “Plasma TV”.

When we’re talking about saving were talking long term. We’re talking about accumulating capital whose purpose is to generate a return and grow.

If you want to buy something that you have to save up for, then you have to set up another account for that purpose.

There are a couple of obstacles you’re likely to trip over when you finally figure “Hey, saving is a great idea.” The First one is the “I’ve got to go to gym” problem.

You know how you keep telling yourself that you have to go to the gym and when you finally do you work out to much or too hard?This can happen in saving, where you figure “yeah 10-15% is good but I think saving 30% would be Great!!!” 

So what happens? You put your money into savings but then you don’t have enough to pay your bills so you have to take the money back out. This violates the sanctity of your savings account. It’s like popping a soap bubble.Once you get into the habit of taking money back out it’s not a savings account anymore, it’s a temporary resting place.

Save the right amount and put it away. 

Investing is the enterprise of trying to make money with your savings.The amount of money you make is normally quantified as an annual percentage yield of the money invested.

To illustrate, imagine you have a magic box that only opens on New Years Day. This New Years Day you put $100 in the box. Next New Years Day you open the box and there is $110; your invested $100 and your $10 gain. This represents a Yield of 10% (ten percent - 10 per hundred).

There is a handy rule of thumb called the “rule of 72″. Simply put, you divide 72 by your yield and the result is an approximation of how long it will take you to double your money. In this example you divide 72 by 10 and you get 7.2.

So if you keep making a 10% yield, your money will double in 7.2 years.Now here is where it gets interesting.

Let’s say you’re 21 years old and you just graduated from college. Your parents give you a graduation gift of $2000. Your dad tells you that you should put it in your “magic box” to save for Retirement. You want to buy a big ass flat screen TV which with tax, cables and the wall mounting brackets comes to exactly $2000.

So how much did the TV cost? Of course it cost $2000 but what would have happened if you’d put it in your “magic box” and then taken it out when you turned 65.

We’re talking about almost 44 years. 7.2 goes into 44 over 6 times.So your money would have doubles 6 times.So $2000 would become $4000 then $8000 then $16000 then $32000 then $64000 then $128000.

$128,000

If you’re like me, at one time or another you got paid and you put all your money in your pocket. You went about your daily tasks and did what all good Americans are supposed to do; buy stuff.

When you had spent all your money you sat down and tried to figure out where you spent it all. You all know you’ve done this and you know that there is no way in the world that you could account for all of it. I’m pretty sure I dropped some of in the street when I was pulling it out of my pocket.

That part that you can’t account for, that’s the money you should be saving. You won’t miss it. You don’t even know where it went.You save this money up front.

This is called “Paying Yourself”. It’s about 10-15% of your income.

How many of you have had this happen?  Winter comes and you go to your closet to get a coat. In the coat you find $10.Most of us have experienced this. And how did it make you feel? Great?

This is an example of the pocket time machine. This is what saving is. You take money and send it to the future you. You’ll be glad you did.

Many people just send debt and work and worry into the future.By taking some positive steps now you can have a better tomorrow.

Let’s start with Step 2…Save some money.This is the first lesson you need to learn. Pay yourself first.Every expert, every advisor, every planner will tell you the same thing.If  you could not get credit you would have to save up money to make any large purchase;If you have credit and have monthly payments to make, you need to save money so that you can continue to make the payments if you have an interruption in your income.

You need to save money to give yourself the freedom to take time off from work.You need to save money if you want to start building your fortune.Simply put, you need to save money.