Things to Consider When Applying for a Credit Card

Whether you’re applying for your first credit card or your tenth, there are key factors you should always consider. These include things like your credit score, income, and what you want out of a credit card.

Your Creditworthiness

The first thing to consider when applying for a credit card is your creditworthiness. Creditworthiness is a lender’s judgment on your ability to pay back money that you borrow. The better you rank, the wider range of credit cards you’ll be able to get.

As you can imagine, your credit score plays a major factor in determining your creditworthiness. So, it’s important to know your most current score when applying for a new card. You can find out your credit score in a number of ways, including:

You have multiple credit scores, and each can vary slightly. Knowing a general range of your credit scores is ideal to figure out how your credit ranks (poor, fair, good, or excellent).

Learn More: 5 Quick Fixes to Improve Your Credit Score

Your credit score isn’t the only thing lenders look at when determining your creditworthiness. Another important factor is your income, more specifically your debt-to-income (DTI) ratio. How much debt you have compared to how much you earn reveals how much more debt you can reasonably take on. Having a low DTI ratio increases your likelihood of getting approved for a credit card, and makes it easier to get a credit limit increase.

Creditors may also consider your assets when you apply for a credit card. If you have assets such as a savings or investment account, this is attractive to creditors. It demonstrates you have money you can liquidate in the event you’re unable to pay your bill with your regular income.

What to Look for in a Credit Card

Regular interest rate. Although many credit cards come with introductory interest rates as low as 0%, it’s important to know what the regular interest rate on the credit card will be once the introductory period is over. Introductory periods usually last between 6 and 12 months. After that, you could be stuck with an interest rate of up to 20% if you’re not careful! Having a credit card with a low interest rate (something like 13%) can save you a lot of money in the event you’re unable to pay your balance in full.

Fees. Common fees to look for include: annual fees, balance transfer fees, foreign transaction fees, and late payment fees. It’s easy to avoid paying annual fees by simply not apply for credit cards that charge them. Sometimes, though, the annual fee could be worth it depending on what rewards are offered.

Balance transfer fees are charged when you move debt to a new credit card. Make sure the balance transfer fee doesn’t negate your savings on interest. For those who travel often, watch out for foreign transaction fees, which can range from 1% to 3% of your purchases overseas. You can easily avoid late payment fees by paying at least the minimum payment by the due date. Some credit cards offer forgiveness for your first late payment.

Qualifications for sign-up bonus. Whether it’s in the form of miles, points, or cash, a credit card sign-up bonus can be a huge financial boost. There’s usually a required amount of spending within a certain timeframe in order to qualify for the sign-up bonus. Make sure you’re able to meet those qualifications before you apply for the credit card if you’re after the sign-up bonus.

Resource: The Best Credit Cards of 2017

Rewards. Credit card rewards can be very financially beneficial when paired with your spending habits. For example, a credit card that rewards you for gas purchases is great if you drive often. If you travel often, a card that offers points in the form of miles would be incredibly convenient. Since the accrual rates for points, cash, or miles varies depending on the credit card, knowing your spending habits will help you decide which form of rewards is best for you.

Final Thoughts

Once you have a general idea of your creditworthiness and what you want out of a credit card, it’s time to start applying. Applying for new credit can cause your credit score to temporarily decrease a little, since inquiries affect your credit score. So if you’re about to buy a home or lease a car, applying for a credit card might not be the best idea right now. It’s best to apply for a credit card when you don’t have any big financial events impending.


Rebuilding Your Savings After An Emergency Expense

Few of us are strangers to unexpected expenses. A financial emergency can occur at any given time, no matter how diligent and prepared you think you’ve been. Whether it’s a sudden job loss, large medical expense, or major home repair, life throws obstacles at us that sometimes come at a large cost.

This is why those in the personal finance realm preach heavily on the importance of an emergency fund. This money stash can help you when an unplanned expense pops up, without your having to dip into things like retirement accounts or lines of credit. If you prepare and have an emergency fund ready, it can lessen the pinch of these sudden bills.

So, what if you’ve spent a great deal of money on a financial emergency recently, pulling from (or even depleting) your cash stores? Here’s what you can do to quickly and effectively rebuild your savings:

Create a Bare Bones Budget

A bare bones budget is a budget reduced to the minimum spending you need to survive and still maintain your financial responsibilities. After a financial emergency, this stripped budget is necessary for several reasons.

For one, it lets you know exactly how much income you need in order to get by and what your burn rate will be if your income doesn’t match up. A bare bones budget also lets you know how long your emergency fund will last, so you can adequately plan if it’s in danger of running out.

To create a bare bones budget, you’ll need to itemize your current expenses just like you would when creating a normal budget. At first, make sure you include everything from rent/mortgage to groceries to occasional shopping. Then, eliminate all expenses you can go without, such as restaurant dining or other entertainment spending.

A bare bones budget typically includes the following:

  • Housing and utilities
  • Gas or public transportation fare
  • Groceries
  • Cell phone plan
  • Personal care items (toiletries, prescription medications, etc.)
  • Child care expenses (day care, babysitting, school tuition, etc.)
  • Debt (minimum payments only)
  • Insurance premiums

A bare bones budget normally doesn’t include things like:

  • Entertainment (movie tickets, magazine subscriptions, Netflix/Spotify subscriptions, etc.)
  • Dining out or takeout meals
  • Vacations
  • Non-essential shopping (clothing, cosmetics, etc.)
  • Cable TV
  • Gym memberships

No two bare bones budgets are equal. Some people may have more categories on their essentials list, depending on their circumstances.

It’s important to be honest about needs versus wants. You may think your morning stop at the coffee shop is a necessary part of your routine, but be honest with yourself. You’ll need to be realistic in order to get a true assessment of how much money you need to survive and stay afloat each month. It’s bare bones for a reason; it’s not supposed to be comfortable.

Identify Areas for Additional Savings

After you’ve created a bare bones budget, you can take it a step further and identify areas for additional savings. This will make your money last longer, and help you rebuild your savings faster. Here are three examples of things you can do:

Housing: Housing is usually people’s largest monthly expense. There are multiple ways to save money on housing. The extent you can go for savings will depend on your individual circumstances. One option is to get a roommate, or rent out a room through Airbnb. If you have the space, this option can reduce your housing expense by half or more!

Another option is to move in with relatives. Of course, these options won’t work for everyone — namely people who have children or don’t have any close relatives nearby. If the opportunity presents itself, however, you should seriously consider it. Saving on housing can help you get ahead on your finances very quickly.

Coupons: There are coupons for just about everything nowadays. Two categories that offer a lot of savings via coupons are groceries and personal care items. If you match your grocery shopping with your grocery store’s weekly ad and manufacturer coupons, you can snag a considerable amount of savings.

You may need to look around to find the best deals on things like toiletries. The best deal could be at a pharmacy, wholesale club, or retail store, depending on the sales cycles.

Debt: As previously mentioned, you should only be paying the minimum payments on your debt when using a bare bones budget. You can even call your credit card issuer to ask for a lower minimum payment if needed. No, this is not ideal for paying down your debt, but that’s not the short-term goal right now — rebuilding your emergency fund is.

Another thing you can negotiate is the interest rate on your credit card. Simply call your credit card issuer, explain your situation, and ask for a reduction in interest rate. You’d be amazed at how cooperative credit card issuers can be if you’re a loyal cardholder.

As these additional savings add up, you’ll find it easier to rebuild those accounts that you depleted during your financial emergency.

Identify Additional Money-Making Opportunities

There are only so many ways to save money. To really speed up the process of rebuilding your savings after a financial emergency, consider finding ways to make extra money, as well. Here are three ideas:

Get a part-time job: Getting a part-time job is one of the simplest ways to make extra money. You’ll have set hours for a certain hourly rate (probably minimum wage). It may not be the most enjoyable way to spend your free time, but it’s worth it if you need a reliable way to make extra money while you rebuild your savings. Some examples of part-time jobs you can find include:

  • Cashier at a grocery store
  • Sales associate at a department store (especially during holiday seasons)
  • Pizza delivery person
  • Restaurant wait staff
  • Babysitting
  • Car wash attendant

Freelance: If you have a highly desirable skill, freelancing is another way to make extra money. You can do anything from writing to photography to graphic design. You may even find that you enjoy your freelance work so much, you continue to do it even after you’ve reached your savings goal.

Sell unwanted items: Selling unwanted items is a quick way to bring in cash when you need it. Some things you can sell are clothing, electronics, unused furniture, and artwork. Craigslist is one established website where people go to sell and buy items from other people.

There are also plenty of mobile apps like OfferUp and LetGo that facilitate local sales between people. Be sure to also search Facebook — many neighborhoods and even counties have private yard sale pages you can request to join. In addition, you can sell things online and ship them via eBay (this works best for smaller items).

There’s another benefit to making extra money besides reaching your savings goal faster. It also creates more financial security and gives you peace of mind. If you have that financial buffer, you don’t have to worry as much about not being able to meet your budget each month.

Protect Yourself From Another Financial Emergency

After a financial emergency happens, the last thing you’ll be thinking about is the occurrence of another one down the line. There will be so many other immediate things on your plate that you may forget that you still need to protect yourself from falling into an even deeper financial hole.

This is a risky situation to be in. It’s important, especially at times like this, to make sure you do what you can to prevent further financial damage.

What I’m talking about here is insurance. Insurance is your safety net from falling into debt when catastrophic events occur. For example, car insurance protects you from the financial repercussions from an accident harming another vehicle or person. Renter’s insurance will help you replace your personal belongings in the event of fire or vandalism. Health insurance covers a large portion of your medical bills, should you need to see a doctor or enter the hospital.

It’s easy to think that these insurance policies aren’t necessary, especially if you haven’t experienced a situation in which you needed one of them in a while. But having an accident without them can put in you in a desperate situation.

As tempting as it may seem, don’t remove insurance policies from your bare bones budget. Remember that you can always find additional money-making opportunities if you’re struggling to meet your budget.

Example: Rebuilding Your Savings After a Major Car Repair

Although difficult, rebuilding your savings after a financial emergency is definitely possible.

Let’s take a look at Julie’s situation, as an example. Julie’s car began experiencing some noticeable wear and tear after she owned it for about 10 years. The engine needed to be replaced. Since driving is Julie’s only method of commuting to work, she needed to get the repair completed right away. It set her back $3,000, which was her entire emergency fund.

The first step Julie took in rebuilding her savings was to reduce her spending to a bare bones budget. She evaluated her expenses and eliminated the things she didn’t need, such as her Hulu subscription and nail salon visits (saved: about $60 a month). The next thing she did was overhaul her spending on food. She stopped eating out at restaurants and started grocery shopping based on weekly sales (saved: about $175 a month). At the same time, she started looking for part-time work and soon landed a weekend job as a cashier at a local retail store (earned: about $500 a month). She put all her additional savings and extra income into her savings account. After several months, Julie was able to replenish her emergency fund to the full $3,000.

Spending $3,000 on a single car repair would be financially devastating to a lot of people. By being realistic and staying focused, Julie was able to turn a tough situation into a more manageable situation.

Final Thoughts

Rebuilding your savings after a financial emergency takes persistence. Finding ways to trim your budget and make extra money are two important parts of the process.

Remember not to skip out on insurance just because you’re in a tough situation! Being uninsured only creates more possibilities for financial havoc.

Most of all, stay hopeful. Taking a large financial hit is difficult for anyone. With time, you’ll be able to replenish your savings and feel secure again.


How to Prepare to Shift Into a New Career

Whether you’re driven by practicality or passion, the reality is that for many of us, career change is “the new normal.” This trend is largely due to a potent combination of a volatile employment landscape, and an increasing number of innovative ways that we can strike a new balance between work and life. All of this combined means that more of us than ever will switch careers during our working lifetimes.

career shift

As a coach, I have worked with dozens of clients who are seeking positive change in their careers. But the fact that career change is becoming more common on a global scale doesn’t necessarily mean it’s any easier for individuals going through this transition. Moving from a tired day job — even to something that fits our passion more closely — is an exciting, but daunting, challenge.

Related: How Much Can You Save By Working From Home?

If you’re thinking of shifting to a brand new career, here are some pointers to help you on your way.

Know Your ‘Why’

There are as many reasons for wanting to shift careers, as there are people making that transition. It’s a unique journey for each of us, and the driving force will be personal to you.

Changing careers can be challenging, and most often it’s a marathon rather than a sprint. There will be times when you doubt your decision or your ability to follow through. This is where knowing your ‘why’ comes into play.

Before you really start to make the transition to a new career, invest time in figuring out what motivates you. This should revolve around the reasons you are moving towards your new career, rather than the factors making you want to shift away from your previous field.

What is it about the new work that makes you excited? Why are you passionate about the change? How does it fit with your vision of yourself in five (or even ten) years’ time? What will your life look like once you achieve the transition?

Be Prepared With a Flexible Career Plan

Find a meaningful way to answer these questions. This could mean writing your thoughts in a journal or creating a visual image (such as a moodboard of pictures) to help you remember your ‘why.’ It will also serve to drive you on when your motivation starts to slow.

Take Time to Plan

It’s unlikely that your career change will happen overnight. Think realistically about the steps you will need to take and how you can mitigate risks along the way.

Learn More: Are You In a Dead-End Job?

For many people, this will involve stashing away extra savings to rely on during the switch. It could mean taking extra training opportunities and researching the types of roles you might qualify for. Brainstorm the areas you need to research and the questions you will need to answer before you can truly move forward with your plans. Then, break down the actions into manageable steps, creating a timeline you can live with.

Don’t try to do this alone — it’s a perfect time to expand your network into your new field. Find some people who have already achieved the type of change you’re aiming for, and ask their advice. The internet is the perfect place to research and hook up with the right people if you don’t have them in your direct circle already. Try career change blogs, for example, like the helpful advice on hand from the Career Shifters team.

Alternatively, you could consider getting a coach to help you with your planning or joining a career change support group which you might find locally or through meetup.com.

Rewrite Your Career Story

If you’re looking for a new job in a different sphere, chances are your resume will need a radical overhaul. Don’t be tempted to just tweak your existing documents. If you want to be taken seriously in a new industry, you need to make sure your resume turns heads for the right reason.

Research It: How to Build Your First (or Just Your Best) Resume

Research is your friend here, with many job hunters sharing their resumes online. By reviewing the type of resume posted by others looking for a similar role, you can select the style and content highlights you need to use. This will probably mean you need to cut out some of the detail of your previous roles. Then, you can frame what you achieved in a way that entices your new audience.

Try to read your resume through the eyes of a recruiter from your new industry. How can you show your transferable skills in their best light?

Don’t forget: rewriting your career story is as much about what you believe of yourself as it is about the words on your resume. You need to make a mental switch to view yourself differently — to “promote” yourself into your new role.

If you aspire to be a personal trainer or an artist, then consider yourself as such. It’s much more powerful than telling yourself you’re an accountant who dreams of being a designer, or a teacher who does some coaching “on the side,” for example. Visualization and positive affirmations can be very powerful and will come out in your job search and interview process.

A Personal Account: How I Cut My Spending In Half to Take a Job I Loved

The journey to a new career takes courage and imagination. It draws on your practical planning skills, as well as your personal drive and passion. There’s no single right way to go about the transition, but there’s plenty of help out there for those looking to make a change.

If you’re struggling to see where your current career path will lead you, then maybe it is time to consider a new route. Use the building blocks above, and don’t be afraid to ask for help from others. You can begin to tailor-make your new career as soon as today.

If you’ve considered shifting careers but held back, why? What is your biggest concern?

 


You Can Only Spend Each Dollar Once

You Can Only Spend Each Dollar Once

Over the weekend, I sat down to talk a bit about money with our oldest son. He receives a decent monthly allowance; he got some gift money for his birthday back in October, and he also makes money from random jobs like pet sitting, etc. Yet, he was broke… and more importantly, he wasn’t sure how it happened.

Obviously, the root cause was that he had spent all of his money, but he couldn’t figure out how or why it was all gone. The culprit? Mental accounting.

Related: 7 Tools for Tracking Your Money

All too often, people use mental accounting tricks to justify expenditures they really shouldn’t be making. They receive a windfall of some sort and spend it on a night on the town. Then, a few days later, they spend it on a fancy new gadget. And a few days after that, they spend it yet again on another extravagance.

All the while, they’ve been using the same windfall to justify their spending. In essence, they’ve been spending those same dollars over and over. That’s exactly what happened to our son.

He received some cash for his birthday, got his allowance, and made a few bucks taking care of the neighbor’s dogs. Suddenly, he felt flush. So, he downloaded a new video game. He downloaded a movie and a few songs from iTunes. He bought himself a new football jersey. He ordered an Airsoft gun. And suddenly he was broke.

In his mind, he had been justifying all those purchases with the same few dollars. And guess what? You can’t spend your dollars more than once. If you try, you’ll wind up broke — or worse.

So how can you avoid getting into my son’s situation? These tips should help.

Cash is Sometimes Better

Of course, if you’re dealing with cash, you literally can’t spend your dollars more than once. But if you’re using a cash equivalent — such as paying with a credit card, etc. — then it’s easy to lose touch with your spending.

In our son’s case, we were enablers. We covered some of his purchases when he had left his money at home on the promise that he’d pay us back. I paid for his video game download with my PayPal account on the same premise. And so on. He kept spending, secure in the knowledge that he had a ton of money.

Learn More: Cash or Credit — How Should You Pay?

But he didn’t have a ton of money. And by the time he paid us back, he was tapped out, having spent everything that he had taken in recently, as well as all of the spending money that he’d been saving up. Fortunately for him, we settled the bill before he went into debt.

Common Sense or Not, It’s Still A Struggle for Some

The lesson here is that impulse purchases add up. Fast. And it’s incredibly easy to let your spending get the best of you if you’re not keeping close track of things. Making mental notes, especially when you are feeling comfortable thanks to a recent windfall (like a tax return!) can be detrimental to your bank account.

As a general rule, we don’t lend our kids money to buy things they can’t afford, but we also leave it up to them to make their own spending decisions (within reason, of course). The idea here is to let them make mistakes while the stakes are low.

In our son’s case, hopefully he’ll learn from this experience and avoid similar problems in the future. I think, or at least hope, it worked this time around. He was pretty downtrodden when it came time to settle his bill. And when we talked about what had happened, he seemed genuinely chagrined.

Going forward, I’ll make a point of encouraging him to carry and spend his own cash so he’ll have a better feel for what he’s spending. And if you’ve fallen into similar traps in the past, I suggest that you try doing the same.


How to Protect Yourself From Identity Theft

We live in a digital age where all sorts of personal information is stored on our cell phones, computers, and even in the chips of our credit cards. This has opened us up to the possibility of a security breach… and, in turn, identity theft.

identity theft

Over the years, the frequency of identity theft and fraud complaints has continued to increase, and shows no signs of stopping anytime soon. It’s important to be informed as to what identity theft actually is and how you can protect yourself. That way, you can prevent this growing crime from happening to you.

Before we discuss ways to protect yourself from identity theft, let’s take a look at how it can happen in the first place.

How Your Identity Can Be Stolen

There are a number of ways your identity can be stolen. With the prevalence of the internet and technology, identity thieves are always coming up with new ways to gain your information.

Hacking

Think of all the pieces of technology you own that are connected to the internet: your smartphone, your tablet, your computer, and your TV, just to name a few. Hackers can find ways to get into those devices and install malicious software that steals your information. For example, keystroke-logging software records what you type on your computer and can pick up any personal information you enter. This may mean giving a thief access to your credit card or Social Security numbers.

Hackers don’t only target individuals; they also target large organizations. The retail giant, Target, was hacked in 2013, exposing many of their customers’ names and credit card numbers.

Phishing

Phishing is the act of sending fraudulent emails to people. The sender claims to be from a reputable company, often playing on fears in order to get the receiver’s personal information.

Two common phishing emails include a “bank” asking you to verify your account and an “email provider” claiming you need to change your password (often claiming that they believe your account has been compromised, and that this password update is a security measure). Email providers have picked up on this scam, thankfully. Gmail will display an alert above an email it believes may be phishing. They may not pick up on each instance, though, so it’s smart to check the sender’s actual email address, avoid clicking links in emails of which you are unsure, and never sending your personal information in a response.

Identity thieves target people by phone and text message, as well. The terms for those acts are “vishing” and “smishing” respectively.

Dumpster diving

Dumpster diving is a technique identity thieves use to retrieve personal information from people’s trash. They search through dumpsters and trash bins looking for mail and other documents that may have personal information they can use. Some common mail pieces that identity thieves may look for include credit card offers, bank statements, and tax documents.

How to Protect Yourself From Identity Theft

Now that you know how your identity can be stolen, it’s time to discuss ways to protect yourself. Here are five effective ways to keep your personal information safe and reduce your chances of becoming a victim of identity theft:

1. Review your account statements. You should get into the habit of reviewing your account statements on a regular basis. You’ll want to look for any fraudulent or questionable charges and dispute them immediately. If you don’t receive paper statements, you can almost always review statements online. It takes only a couple of minutes to glance over your latest activity — this can potentially alert you if someone has been using any of your accounts.

2. Shred documents that have your personal information on them. To prevent identity thieves from finding your personal information via dumpster diving, you should shred documents that contain that type of information before tossing them. You could either invest in a paper shredder or shred the documents by hand. Many office supply stores also offer shredding services (though these are for a fee).

3. Use strong passwords, and change them often. Strong passwords can prevent potential hackers from getting into your accounts, stealing your information, and making unauthorized purchases. An ideal password will use a combination of upper and lowercase letters, numbers, and symbols, and will not use any full words in the English language. No, they shouldn’t be your pet’s name and your birthdate.

You should change your passwords often, as an added layer of precaution. Also, try to use different passwords for different accounts. This will prevent all of your accounts from being compromised, should a hacker get access to one of your passwords.

4. Check your annual credit report. Your credit report is the ultimate place to look for evidence of identity theft. You can see, for example, if someone opened up a credit card or took out a personal loan in your name. You can even place a freeze on your credit through the credit bureaus to prevent new credit from being opened in your name.

Learn How: How a Credit Freeze Can Protect You

5. Sign up for suspicious activity alerts. A lot of places that hold your personal information now offer suspicious activity alerts to notify you when someone may have attempted to steal your information. A common sign of suspicious activity is too many incorrect login attempts. You can receive alerts by text and email.

What to Do If Your Identity Is Stolen

Straighten it out with the company. The first thing you should if your identity is stolen is contacted the affected institution to stop the damage. For example, if you notice a fraudulent charge on your credit card statement, contact the credit card issuer so that they can investigate the charge. They may end up changing your account number.

Report the identity theft to law enforcement. The next step is to report the identity theft to law enforcement. This includes filing a police report and contacting the Federal Trade Commission (FTC). The FTC has a website dedicated to identity theft where you can file a report and get a recovery plan.

Monitor your accounts moving forward. It’s important to continue monitoring your accounts after the identity theft incident has been resolved. This will prevent the same thing from happening again. There are even identity theft monitoring services out there, such as LifeLock, that not only detect identity theft activity but also help you restore your identity in the event of theft.

Resource: A Review of LifeLock’s Services

Final Thoughts

No one wants to imagine being the victim of identity theft. Not only is it a violating experience, but it can have financial repercussions as well. To better understand identity theft, it’s best to know how it happens.

We have discussed ways that identity thieves go about stealing people’s information, as well as ways to protect yourself from those acts. We also covered what to do in the unfortunate event that your identity is stolen. If you take one thing away from this article, it should be the importance of monitoring your accounts. The earlier you can detect an act of identity theft, the better you can control its effects.

Have you had your identity stolen in the past? What was the worst part about the experience and how did you correct the theft?


Should You Invest Your Money in a CD?

If you’ve been researching different avenues for saving and investing your money, you’ve likely come across the term “CD.” Let’s discuss what a CD is, how it can be used, and if it’s a worthwhile investment. We’ll also look at alternatives if you decide a CD isn’t for you.

INVEST CD

What Is a CD?

A certificate of deposit, or CD, is an FDIC-insured savings product that offers a fixed interest rate for a specific term length. It’s an attractive option because of the guaranteed return. But if you withdraw your money before the end of the term length, you’ll have to pay an early withdrawal penalty.

Learn More: What Are “No Penalty” CDs?

CD interest rates vary widely depending on the term length, the bank, and the amount deposited. For example, Bank of America offers a CD interest rate of 0.07% for a $10,000 deposit on a 12-month term. Ally, an online bank, offers a CD interest rate of 1.05% for the same deposit on the same term length. You can visit ValuePenguin for average CD interest rates across the nation’s largest banks.

CD Ladders

If you’re concerned about locking your money away for long periods of time or just want more flexibility in terms of being able to catch an increased rate, a CD ladder could be a good method for you. A CD ladder involves depositing money into smaller CDs with staggered term lengths, rather than depositing all your money into one long-term CD.

Here’s an example of a how to set up a CD ladder with $10,000 in total funds. You need to put:

  • $2,000 in a 12-month (1-year) CD
  • $2,000 in a 24-month (2-year) CD
  • $2,000 in a 36-month (3-year) CD
  • $2,000 in a 48-month (4-year) CD
  • $2,000 in a 60-month (5-year) CD

After your 1-year CD has matured, you can reinvest your withdrawal into a 5-year CD. Repeat this process as each shorter-term CD matures, and you’ll eventually end up with a portfolio of 5-year CDs with one maturing each year. This CD ladder is an attractive method because long-term CDs typically offer higher interest rates than short-term CDs. So, you’ll be getting the benefits of the best interest rates while still maintaining flexibility (and liquidity), because you will have one CD maturing every year.

Resource: Building a Reverse CD Ladder

Are CDs a Worthwhile Investment?

CDs have multiple benefits that make them attractive for investing your money. Since CDs are offered by banks and are FDIC-insured up to at least $250,000, they are considered safe. You don’t risk losing money. Another advantage is the guaranteed interest rate. You’ll receive a fixed, predictable return on your money.

Despite these benefits, CDs have several disadvantages that can be deal breakers to some. One of the major drawbacks of CDs is the lack of liquidity. Once you deposit your money into a CD, you’ll have to pay an early withdrawal penalty to get access to your money before the end of the term length. The early withdrawal penalty can be several months’ worth of accrued interest.

Related: Buying Non-Laddered CDs With Your Emergency Fund

Another disadvantage is that your money may not keep up with inflation during its time in the CD. Especially if you have a long-term CD, the interest rate provided may not be high enough to maintain the purchasing power of your money over time.

One instance in which a CD would be a worthwhile investment is saving for a home down payment. If you have the money already saved up and just want it to earn a little interest until you’re ready to buy the home in a few years, a CD would be a good place to park the money. In most other instances, though, you can find a more lucrative financial product to achieve your savings goals.

CD Alternatives

I’ve personally never invested in a CD. The drawbacks have always outweighed the benefits in my mind. Instead, here are two other financial products I’ve used to earn a return on my money:

High-yield online savings accounts: I have several savings accounts with Capital One 360, an online bank. Capital One 360 offers a 0.75% interest rate on its savings accounts (as of February 3, 2017) — just 0.15% less than what the online bank offers for CDs. So I get the advantage of having continuous access to my money, while still receiving a notable amount of interest.

Learn More: The Best High-Yield Online Banks

Stock market investing: I have invested money in the stock market through mutual funds with T. Rowe Price and stock portfolios with Motif Investing. In both instances, the value of my money has increased more than it ever would have had it been in a CD. Although my money in mutual funds and stock portfolios isn’t FDIC-insured and the returns aren’t guaranteed, the potential for growth is much higher than that of a CD.

If you want to save money and earn interest on it but know that you may need access to the money in the near future, a high-yield online savings account is a good option. If you know that you won’t need to touch the money in over five years, consider investing in the stock market to potentially earn a greater return than you would with a CD.

Final Thoughts

CDs are attractive because of their security and guaranteed returns. However, in most instances, you can find a better financial product that meets your needs — such as a high-yield online savings account or a stock market investment. One situation in which it makes sense to invest in a CD, though, is saving for a home down payment.

At the end of the day, it comes down to how liquid you need your money to be and your level of tolerance for risk.

Have you invested in CDs in the past? Would you do it again?


4 Questions to Ask When Picking Your First (or Next) Bank

Do you remember when you opened your first bank account? I do.

I remember the time my mom helped me open my very first savings account at Wells Fargo. My initial deposit was around $100, which I had saved up from my eighth birthday. I was always so excited to receive the bank statements and, even though it was only a few cents, I enjoyed watching my money slowly grow each month.

As I got older, I began using different banks and credit unions. My father served in the U.S. Navy; while I was a dependent, he insisted I open accounts with financial institutions that most civilians are not able to access. When I went to college, I closed out my Wells Fargo account and transferred everything into another big bank checking account. This was simply a matter of convenience — they had several ATMs on campus and a branch within walking distance of my apartment.

Resource: Best Savings Accounts for Children

Most people that I know have done the same thing. They have either chosen to use a bank (or credit union) that a family member or friend recommended, or chosen one solely on convenience. But, I have seen the transformation of the banking experience shift from the teller, to the ATM, and now to the online experience. With these advances in technology, selecting a bank that will work for you should be about more than recommendations or convenience. Do your research!

Four questions to ask before choosing your first (or next) bank

1. Do you prefer a physical branch location?

Take a look at your comfort with technology and your banking habits. Chances are, you won’t need to visit or haven’t been to a local branch in the past year. That’s because these days, most people do their banking online or at an ATM. But choosing a bank with a local branch does have some benefits.

Local branches offer other financial services such as auto loans, home loans, check cashing, CDs, credit cards, and more. On top of that, you get to talk to an actual person! Opening an account or applying for a loan can be a bit confusing, especially if you’ve never done it before. Having an actual banker guide you through the process can make it a little easier.

If you prefer a local branch, you can use Google Maps to find your local banks, compare available services on each bank’s website, and you can ask more questions at your local branch.

For those of you who don’t need a physical branch, check out this list of the Best Online Banks of 2017. Be sure to find out what you’ll need to open your account online.

2. How often do you use the ATM, and where do you prefer to access your cash?

Withdrawing cash. If you have an account at a big bank, you can usually use any of their ATMs to withdraw cash at no charge. Bigger banks have more ATM locations available, so they typically charge fees to use out of network ATMs. Alternatively, some local banks and credit unions use Co-op Network ATMs that allow you to pull out cash at no charge at any in-network ATM.

Before choosing a bank, I would take a look at the local, in-network ATMs to see how convenient they are to your home or work. Next, I would then check to see how safe the area is surrounding the ATM, by actually visiting the location.

  • Added bonus: Some banks will reimburse you the fees for withdrawing at an out-of-network ATM. Check your terms & conditions to see if this benefit is available to you.

biggest bankCourtesy of GoBankingRates.com

Depositing cash or checks. If you will be depositing your funds at an ATM, you’ll need to use an in-network ATM in order to do so. Keep in mind, if you are using a Co-op ATM for your online bank or credit union, it may take additional business days for your check deposits to clear.

Related: Bank on the Advantages of Credit Unions

3. & 4. Does your employer offer direct deposit? How much do you intend to deposit and keep in your bank account at all times?

Waived Monthly Fees. These two questions are not directly related, but will usually determine whether you are qualified for a waiver of your monthly service fees. The minimums vary from bank to bank, but the magic number is usually around $1,500 average balance OR a minimum monthly deposit of $500.

wells fargo

A screenshot from the Wells Fargo website

Higher Tier Checking or Savings Accounts. A higher average monthly balance will usually qualify you for additional checking and/or savings account benefits like free checks, high-interest checking accounts, and more.

Sign up Bonuses. There are several bonuses out there, such as this Chase promotion for up to $300 when you open an account. These bonuses usually require a larger minimum of $10,000 or more.

See More: 20 of the Best Bank Promotions and Bonuses

Other things to consider

    • Be sure that the potential banks you look into are FDIC insured (most banks are). Read more about this on FDIC.gov.
    • Know your fees. Do you tend to keep a low balance? Do you sometimes overdraft? Your fees can pile up if you don’t keep enough cash in your account. As a college student, I was guilty of overdrafting several times a year. In fact, I had over $300 in fees in one year alone! Do your research, and know which fees you could incur.
    • Are you planning on financing a car or home in the near future? Selecting an institution with competitive loan rates might make it easier to manage if your loan and bank are consolidated at the same location.
    • You are not restricted to one bank! You can use a combination of brick and mortar banks, credit unions, and/or high-yield online savings accounts.

In my case, I found that there is an advantage to having multiple bank accounts. I have taken advantage of low auto loan rates at one bank; I get reimbursed for ATM withdrawal fees from my online bank; I have a different high yield online savings account for my emergency fund, and I have the option to speak to an actual banker, in person, at another institution.

No matter how many accounts you have, it is important that you ask these kind of questions when choosing your next bank. That way, you will know exactly what services you are getting and how well a bank will fit your needs.

When did you open your first bank account? What’s the biggest learning lesson you’ve come across since then?


What Is Compound Interest and How Can It Impact Your Finances?

Whether you’re heavily involved in your personal finances or take a more hands-off approach, you’ve likely heard about the term “interest.” If you’ve ever used a credit card, you see it on your monthly statement. If you have a savings account, you see it there as well.

fcn

Interest is everywhere in the financial world. More specifically, compound interest is what most financial products use. In this article, we discuss what exactly compound interest is and how it can work for you — or against you.

What Is Compound Interest?

Interest can be calculated in one of two ways: simple interest or compound interest. To calculate simple interest, just multiply the rate by the principal. Since simple interest is so straightforward, it’s easy to determine exactly how much interest will ultimately be charged.

For example, let’s say you have an auto loan of $20,000 with an annual 6% simple interest rate. You’ll pay $1,200 per year in interest.

Resource: Refinancing Your Auto Loan to Save Money

Compound interest, on the other hand, is more variable. Compound interest is calculated on both the initial principal as well as the accumulated interest. In this way, the amount of interest you pay per year, or even per payment cycle, can vary. Each payment cycle, the accumulated interest is combined with the principal to calculate the next payment cycle’s interest.

Let’s look at the same loan amount mentioned above ($20,000), but with compound interest. Instead of a simple 6% rate, you’ll be paying interest on your interest… resulting in an average of $1,395.06 per year in interest. Over the life of the loan, you’ll be paying $1,170.38 more with compound interest versus simple.

Related: Compound Interest Is More Powerful Than You Know

While simple interest is the easier to calculate out of the two methods, it’s rarely used by financial institutions. Credit card issuers, banks, and other financial institutions tend to use compound interest for their financial products — and by looking at how much more you owe with compound, it’s easy to understand why.

How Compound Interest Works in Your Favor

One notable way that compound interest works in your favor is in investing. In particular, if you have a large initial balance and a lot of time to let it grow, compound interest can work wonders for your money. Your money will grow exponentially as you earn interest on not only on your initial balance but also on the accumulated interest. Just as you pay interest on your interest when talking about a compounding loan, you will also earn interest on your interest when talking about a compounded investment.

A good way to explain how compound interest works in your favor is to take a look at how the Rule of 72 works. The Rule of 72 is used to determine how long it’ll take to double your money, given a fixed return rate. You simply divide the number 72 by the annual rate of return. The result is how many years it’ll take to double your money.

Let’s see the Rule of 72 in action:

  • You have $10,000 to invest in an index fund
  • You’re assuming an average annual return rate of 7.25% based on historical data
  • 72 / 7.25 = 9.9 years to double your money
Year Balance at beginning of year Return rate Balance at year end
1 $10,000 7.25% $10,725
2 $10,725 7.25% $11,502.56
3 $11,502.56 7.25% $12,336.50
4 $12,336.50 7.25% $13,230.90
5 $13,230.90 7.25% $14,190.14
6 $14,190.14 7.25% $15,218.93
7 $15,218.93 7.25% $16,322.30
8 $16,322.30 7.25% $17,505.67
9 $17,505.67 7.25% $18,774.83
10 $18,774.83 7.25% $20,136.01

As demonstrated in the table, your initial investment of $10,000 has increased by another $10,000 in just 10 years with the power of compound interest! Of course, stock market fluctuations are unpredictable, and you won’t get exactly 7.25% in annual returns every year. But this gives you an idea of how quickly your money can grow with compound interest.

How Compound Interest Works Against You

Compound interest works against you primarily in situations when you borrow money. Take most loans, for example. The interest that builds on the initial principal can be surprising! The reason you end up paying much more than you initially borrowed is because of compound interest. When you have a loan (or some other form of debt), you continue paying interest until the loan, plus all the interest, is paid.

As you make payments, more interest is compounded onto the remaining balance. Your remaining balance is now composed of both the loan amount and the previous interest added. As mentioned, new interest is then calculated on top of the old interest! If you are making only the minimum payments, you’ll find that you’ll end up paying a lot more than you originally borrowed.

Resource: Power Over Plastic: Seven Tips for Paying Off Credit Card Debt

To avoid letting the negative effects of compound interest put you further into debt, it’s wise to pay off as much as possible each month. For credit card bills, try to get into the habit of paying them off in full each month to avoid interest completely. As for larger debts like student loans or a mortgage, paying even just a little more than the minimum payment each month can result in substantial savings down the road.

Final Thoughts

Compound interest is a powerful concept. Knowing how it works can help you build wealth and manage your debt better. Once you understand how compound interest can work both for and against you, you can take your finances into your own hands and make more informed decisions. The key here is to minimize the amount of interest you pay on your debts and maximize the amount of interest you earn on your investments.

How has compound interest affected your finances in a surprising way?


Tips From a Recovering Procrastinator

Tips from a recovering procrastinator

Co-workers tend to look at me as someone who dives head-first into projects and generally meets deadlines ahead of schedule, so they don’t realize my hidden secret.

I’m a recovering procrastinator.

When I was a student, I did everything at the last minute. I suppose the blessing is that it taught me to work fast. However, the stress made me miserable, and often the results were not my best work. Once I started my career, with so much more at stake, I made a conscious change.

I’m not sure that the natural tendency to procrastinate every really left me, which is why I refer to myself as a recovering procrastinator. I now force myself to jump on every project as soon as it comes up. I know that the longer I delay, the harder it will be to get started. The result is much better productivity, but that’s not why I do it. The truth is that it just makes me happier. There’s an awful lot of stress and misery in being a procrastinator, and once I realized that, I chose to avoid it.

Anyway, I bring all this up because procrastination has a terrible effect on personal finance. The more you neglect your responsibilities or put off saving, the worse your finances will be. So, here are four tips from a procrastinator’s point of view for overcoming the tendency to delay financial decisions:

1. Use automatic deductions to take the effort out of savings

Saving money effectively relies on starting early and being consistent — two things that procrastinators are not good at.

If you find you often don’t get around to putting money into savings, set it up to happen automatically. If your employer sponsors a retirement plan, you can generally have contributions automatically deducted from your payroll.

Check It Out: Today’s Best High-Yield Savings Rates

Even without a retirement plan, you can save money out of your paycheck by having a little more than you need for taxes withheld every week. Financial advisers don’t generally recommend that, but with interest rates so low these days, you aren’t losing much by getting your money a little later. Plus, having a lump sum accumulate automatically is simply a more effective saving method for many people. This saves them fromhaving to make a regular effort throughout the year, and maybe even talking themselves out of saving one month because things are tight.

Finally, check with your bank to see if you can have money regularly transferred from your checking account into a savings vehicle, so you can put more savings on autopilot.

2. You can start saving for retirement before you do any actual retirement planning

Most people realize more savings accumulate if you start early, but when you are young,  retirement planning seems like a big chore that is best put off until you are a little older. Here’s the thing though — you don’t really need to go through a detailed planning process before you start setting aside some retirement money. You know you’ll need that money later, even if you haven’t yet set specific goals.

Related: The Power of Compounding Interest… Even Math Geeks Will Be Amazed

Don’t get me wrong — the planning process is important and you should get to it eventually. It’s just that for most people, setting up payroll deductions or some other savings mechanism is a much smaller barrier than going through detailed retirement planning, so get the money flowing first if you find that easier.

3. Learn to love IRA contributions

IRA contributions have tremendous tax advantages, but they can also be a procrastinator’s dream. First, they extend the official end of the prior year until the April 15th tax deadline (that is, you’ll be able to make a 2017 contribution until April 15, 2018). Then, special “catch-up” contributions are available to older taxpayers who may be a little behind in their retirement savings.

4. Honor the pleasure principle

In psychology, the pleasure principle is simply the idea that a lot of human behavior is motivated by seeking pleasure. Overcoming procrastination does not have to be based completely on puritanical concepts like self-denial and discipline. You can honor the pleasure principle by looking for enjoyable aspects of the task at hand.

Seemingly thankless tasks like retirement planning and saving can be leavened by fantasies about the vacations you’ll take or the things you’ll have time for when you meet your retirement goals. And, of course, work itself goes by much more effortlessly — and often with better results — when you decide to enjoy it. You won’t like everything about your job, but focus on the parts you do like. Then, get as much satisfaction as you can out of that.

Learn More: Balancing Career Satisfaction with Financial Security

I hope some of this is helpful to my fellow procrastinators. Acknowledging and confronting my tendency to put things off has helped in my career and in my personal finances. I’m semi-retired now, so you could say I’ve taken the approach of being a little lazy on the back end of life, rather than on the front end. Still, I got this blog written ahead of schedule — and that feels great.

Any fellow procrastinators out there? What are your favorite management tools and how have you had to work harder at your finances because of this trait?


How to Build Your First Resume

Whether you’re embarking on your first big job, looking for a career change, or getting back into the workforce after an extended period of time, you’re going to need a stellar resume to get your foot in the door. However, a blank page is pretty intimidating, and it can be hard to know where to start.

resumeThe hardest part is getting the ball rolling, though. Don’t put it off for too long, as it’s far better to just bite the bullet and get started. Treat the process as a gradual drafting, ensuring that you don’t miss out on any pertinent selling points or end up with a page that looks thrown together. Remember, this is a potential employer’s very first impression of you — make it a great one!

Learn More: Are You Looking for a New Job?

Chances are that you won’t produce the perfect document the very first time. But by following these steps, and being prepared to do some polishing at the end, you can create a resume to be proud of. Here’s how to get started.

Choose a Template for Structure

An important first step is to understand the commonly-used styles of resumes, and figure out which will serve you best.

A chronological resume is commonly used by those presenting a continuous work history. In it,  different roles and their responsibilities are set out one by one, up to the present. If you have little or no employment to-date, though, this might not be the best choice for you.

An alternative is a skills-based resume, which focuses on the talents and abilities you will use in your new role. These skills might be gathered from vocational school or college, voluntary work, or even places like sports or activity groups. That makes this a good option if you haven’t held a paid position just yet.

The third commonly used format is a ‘mixed’ resume, which includes both a skills section and a short employment summary. If you have done voluntary or part-time roles, or have taken a long break from your professional activities, this style might work best for you.

Using a template is the best way to get a sense of the different structures, and some guidance on the layout and detail expected for each. Luckily, getting your hands on a template is easy. There are free resources out there — such as this one — as well as those you can buy through online marketplaces like Etsy.

Browse the options, and simply download the one you like best (in a format that you can easily download, such as Word). You’re now well on the way to nailing your resume.

Consider the Skills Employers Want

Once you have a resume structure you are comfortable with, you need to put yourself in the shoes of the employers you’re targeting. What are they looking for in a new employee?

The outputs of this exercise will vary wildly depending on the type of role and industry you’re seeking. The skills and attributes needed to become a veterinary assistant will be quite different than those needed when applying for a role as a financial analyst. Knowing your audience is crucial.

The best way to come up with a list of skills, competencies, experiences, or personal attributes that are relevant to employers in your sector, is to look at job ads. Collect a few current or lapsed online ads for the type of role you want to find. What are the key skills described?

Most likely, you will come up with a pool of skills which overlap between similar jobs for different employers. Look for things like organizational skills, teamwork, a passion for customer service, detail orientation, personal drive, and an ability to communicate with colleagues and customers. You may also spot technical requirements such as IT literacy, or familiarity with certain processes.

Resource: 10 Steps on the Career Ladder

Become familiar with the type of thing the employers in your field are asking for. That way, you can be sure to present your personal skills and experiences in a way that matches the need.

Brainstorm

This is the place where most people begin their resume writing process. But by doing the preparation described above, this stage will be far more productive and focused for you.

First, you’re going to brainstorm the experiences, skills, and attributes that you have acquired to date. Then, begin to fit together how these will ‘sell’ you to the employer.

Start with a large sheet of paper. Trust me, this exercise is one place where pen and paper has an advantage over working online. You will want to ‘join the dots’ as you go. Being able to annotate, group, and link experiences with a simple stroke of the pen will make life much easier.

If you have work experience, write this down first. This could be part time, voluntary, or freelance work… it all counts! Now briefly elaborate on the tasks you assumed within these roles, and the skills you needed to carry them out. By thinking in this way, you will create a far more professional listing.

For example, you could simply say, “Helped out my local Girl Scout troop as a volunteer.” A far better statement using this structure, though, would be, “Accompanied my local Girl Scout troop on a week-long adventure trip. This included raising $500 to fund the trip, before leading and supporting groups of 8 girls through challenging activities to help them develop teamwork and survival skills.”

One Story: How I Cut My Spending in Half to Take a Job I Loved

Similarly, “Held a charity car wash event to support the American Red Cross” can become, “Mobilized 10 students to plan, advertise, and implement a charity car wash event for the American Red Cross. We raised $750 after expenses, which was significantly ahead of our target, thanks to using social media to recruit record numbers of customers.”

Carry on the exercise to include the skills and experiences you have gathered through school and college activities. Also consider other areas of life, such as caring for your family, traveling, or taking part in sports, drama, or other clubs. As you go, think about which of these experiences are most valuable to your prospective employers. These will be your priorities in the next step.

Drop in the Details

Now it’s time to build your draft resume. Using the template you have chosen, start with the basics, such as your personal details and educational record.

If you have chosen a chronological style resume, add in the job roles you have held and their corresponding dates (starting with the most recent). Select three or four bullet points that are the most relevant from the exercise above. Include these under the position details, as they will illustrate the responsibilities you took on.

Make sure you include quantifiable data, such as the size of the team you led, the amount of budget you managed, or how you improved efficiency, customer satisfaction, or profitability. Saying, “I implemented new processes which resulted in a 15% drop in customer complaints” helps the reader understand the impact of the actions you describe.

Read More: The Biggest Mistake I Made at My First Job — and How I Learned From It

If you’re using a skills-based resume, then you need to approach the outline differently. You’ll need to group the skills and experiences you have collected in the exercise above. Then, you’ll use these to build your document.

For example, say you identified Teamwork as one attribute that all employers in your field were looking for. You should highlight your skills in this area by grouping three or four relevant examples in bullet point format. Then, add them into your resume. Prioritize the skills you believe employers are really looking for. Then, use quantifiable details to make the examples come to life.

A mixed resume uses a skills section followed by an (often short) employment history summary. Focus on the skills that employers want and build your resume around these. Then, fill out the employment history with a couple of key successes for each role, from your brainstorm list created above.

Whichever style you have chosen, the template is likely to include a more personal section up top. This is often called something like “Personal Statement, ” “Personal Profile, ” or “Career Objective.” This is the absolute first thing that the recruiter will read, and is ideally the hook that will keep them reading further.

Make sure your statement briefly introduces you, highlights what you will bring to the role, and says what you’re looking for in a new position. You should have all the detail you need to write a great personal statement now, from your previous exercises. However, you can check out more about it here.

Check, Edit, Check Again

Well done — you’re nearly finished now!

The last step when writing your resume is to check it over, make changes, and check again. It is helpful to have someone else look over your document to spot any mistakes you might miss. You can even hire a freelance proofreader through a site like Fiverr.com.

Going back over your resume might feel like a drag, but this is the most important stage of all. Typos, grammatical errors, and silly mistakes are the sort of thing that stop a recruiter from reading. They most likely have a large pile of resumes to get through. One that’s rife with poor use of language or simple mistakes will end up in the trash.

Be Careful of These Common Job Interview Mistakes

Once you’re happy with your final document, give yourself a pat on the back. Then, get ready to start sending in applications. If you’re asked for a cover letter, make sure you tailor this to each application to get your foot in the door. You can also check out this guide to writing a great cover — it’s not as hard as you think!

With your eye-catching cover letter, backed up by a knockout resume, you’re well on the way to landing that dream job.