Categories
investing

Risk vs. Reward – Are you a Risk Taker?

I am sure that many of you will understand what I mean by the title, “Risk vs. Reward.” In just about any walk of life, if we do not take any “risks” our rewards by not doing so are generally much lower.

That is not to say there is anything wrong with individuals whom do not wish to take any risks, in financial circles these people are referred to as “risk adverse” and it is a perfectly acceptable view to take on both your everyday life as well as financial matters.

Taking Risks – Risk vs. Reward

There is of course a major consideration in taking risks and that is the higher likelihood that you may fail at whatever task you take on. Whether that is investing your hard earned money into a savings vehicle which is considered to be “high risk” or a lifestyle change which you cannot guarantee will work out.

Risks and Benefits

To illustrate this point further let me give you a personal example. When I was starting out in life and as most young men do, I wanted to get a house of my own. The cost of a mortgage payment, with what was my young and small income, was significant at that time. I didn’t have much room to move in terms of financial commitments but it did mean I could get my leg up onto the property ladder at the ripe age of 18 years. This was a significant risk to me, could I afford it? Would I have to sacrifice my social life? What about the hidden costs?

All these questions and more were going round my head (and my wallet!) but after weighing up all the options I decided to take the risk and purchase my first house. For me, it was the best “risk” I had ever taken and after only 3 years of living at the address the value of the property had raised by some 45%. This enabled me to move up the property ladder to something bigger and in a nicer neighborhood and some 20 years later; I have the house of my dreams.

The Risks of Failure

Things could of course have gone completely differently. If I had purchased this first home just 4 or 5 years ago the chances are I would not have made any money at all, in addition, I probably would not have afforded the large deposits lenders now require in the wake of the biggest financial meltdown for 50 years!

Consider the Risks

You will have heard of the term “calculated risks.” This is an excellent concept and helps people understand the pitfalls in taking actions. By assessing the background to the risk you are considering and looking at many of the details associated with it, you will be in a better position to consider the options at hand. Knowledge is most definitively power when discussing risks, gather everything you can about the problem and set time aside to consider them.

Even with taking “calculated risks” remember that risks are “risks,” you have to go into them with a open mind and importantly a mindset of success – the bigger the risk, the larger the reward, but just make sure you understand all the risk attributes as much as possible before making a decision.

Categories
banking

What Should You Keep in Your Safety Deposit Box?

Safety Deposit Boxes at your bank are important for keeping items that are difficult to replace. These are private, so not even the bank knows what is in them. Keeping items in a fire-proof safe in the house is not as good protection from theft, fire and flood. Many are only fire-proof up to a certain temperature.

Write down the date you open your safety deposit box and where it is located, in case you forget. Write down the contents of your safety deposit box and store in a file in case you are looking for a certain document. “Did I put the birth certificate in my safety deposit box or is it somewhere else?”

You usually get the best deal on a safety deposit box with your current bank or credit union. The usual cost per year is $30 to $75.

What should you keep in your safety deposit box?

  • Birth certificates
  • Marriage certificates
  • Social security cards
  • Adoption records
  • Death certificates
  • Divorce records
  • Child custody documents
  • Military records
  • Deeds
  • Titles
  • Mortgages
  • Leases
  • Stocks
  • Bonds
  • Certificates of Deposit
  • Insurance policies
  • Expensive jewels
  • Medals
  • Rare stamps
  • Collectibles
  • Photos – and back ups of digital photos on CDs or DVDs, photo negatives
  • Videos
  • Video and pictures of house with its contents for insurance purposes
  • Copies of your driver’s license
  • Copies of the contents of your wallet (front and back of cards) in case your wallet is stolen
  • List of your credit card numbers
  • Account numbers account numbers, balances, online banking ID’s & passwords. Deposit accounts, PayPal, eBay, ClickBank and anything else a family member would need to know in case they had to take over the finances.
  • Copy of your will (not the original)
  • Current credit reports
  • Hard to replace items

Put these in air tight containers or zip locks to help prevent any damage in case something happens to the bank. Their vaults are highly resistant but not 100% guaranteed.

What not to keep in a safety deposit box

Safety deposit boxes are available only during bank hours so emergency items are not a good idea to store.

  • Passport
  • Power of Attorney
  • Medical directives
  • Funeral Instructions
  • Cemetery deeds
  • Estate documents
  • Will

Some states allow co-renters or family members to get wills out of safety deposit boxes. But other states require a court order, so check your state before putting your will in a safety deposit box. You can also get a co-renter for emergencies who will have access to your box. Or you can get an agent in the presence of the bank who will have access. Many times power of attorney does not give access to safety deposit boxes.

Law enforcement can obtain a court order if they suspect something illegal in your box. The IRS can also freeze your assets (Including your safety deposit box) in disputes.

See if your insurance will cover Safety Deposit boxes because the FDIC does not cover loss of these.

Make sure you know where your most important documents and valuables are.

Categories
banking

Sallie Mae Debit Card Is A Helpful Convenience For Students, If Handled Responsibly

The student loan company Sallie Mae is preparing to release a student debit card in partnership with Mastercard. The new program, which will start this summer, allows students to receive financial aid money and tuition refunds in a special checking account.

Sallie Mae Debit Card Features

Perks of the accounts include:

  1. A free checking account (Here is a Sallie Mae savings account review).
  2. More efficient receipt of money. Students can expect to receive a refund the day it is issued rather than the typical two- to three-day bank lag.
  3. FDIC insurance on deposits.
  4. Surcharge-free withdrawals at 35,000 ATMs nationwide.
  5. No minimum account balance.
  6. The card will not allow the user to overdraw.

Saves students money. The new Sallie Mae debit card will save students money in the long run, especially compared to some of the main competitors in the space. With the new accounts, Sallie Mae is challenging Higher One, its main rival in student payments. Higher One runs a similar program but only has 600 fee-free ATMs. It also charges fees for PIN-based transactions.

Faster and safer for financial aid refunds. Sallie Mae’s move comes in time to comply with new rules taking effect in July requiring universities to refund unused financial aid money in 7 days instead of 14. In addition refunds and other transactions can be handled electronically, which is faster and safer than other types of financial transactions.

Added convenience. The cards will be convenient for students and provide an incentive to borrow from Sallie Mae. But with financial aid money in hand, they will need to be extra careful not to spend it carelessly since, for most students, it will need to be paid back with interest eventually.

A great option for students. Overall, this card is a solid option for students, since they will have added convenience, free checking, many fee-free ATM options, FDIC insurance, no minimum account balance, and the inability to overdraw their accounts.

Categories
credit

5 Steps To Debt Freedom

Experiencing personal debt can feel like falling into quicksand: no matter how hard you try to climb out, you just keep sinking further down.  In a society where more is better, it can be difficult to watch your peers enjoying the finer things in life while the collections agencies are knocking at your door.

If you’re in debt, you’ve probably made yourself a lot of big promises.  “I will conquer this,” you’ve said, and three days later you were completely overwhelmed.  This may be what’s tripping you up.  The world’s problems are not fixed overnight, just like weight isn’t lost by taking one magic pill.  Be honest with yourself.  Arm yourself with knowledge both about your own behaviors and the many options available to help you reach debt freedom.

5 Steps To Debt Freedom

Step 1 – Understand Your Situation

First, know what you’re dealing with.  Take a pad of paper with you wherever you go for one week and write down everything you spend.  Then rate each purchase on a scale of “must have” to “want to have” to “don’t need.”

If you rely more on debit cards, sign up for a money-tracking site like mint.com to have your spending automatically tracked and categorized.  This will also help you evaluate how you pay for your purchases.

If you have more than one credit card, cut the extra ones up.  Once you’ve evaluated your spending, cut out your “don’t needs,” and think critically about your “want to haves”.  Is there any way you can make them cheaper?  For instance, if you “want to have” coffee, can you make it at home six days out of seven?  Can you use generic rather than brand products?

You don’t need to cut out all of your creature comforts, but by identifying them as such, you can determine just how important they are to you, and instead use them as occasional rewards rather than as givens.

Once you’ve made these decisions, add up all that you’ve cut out.  If you’ve saved, say, $300 per month, this is money you will be able to apply in later steps to paying off your debts.

Step 2 – Organize Your Debt

Next, open up a spreadsheet and start making columns.  Make one column for your fixed expenses-costs that do not change, like mortgage or rent, health insurance, and so on.  Make another column for your variable payments-things like gas, gifts, and restaurants.  Make one more for your debts, and another for your income.

In your debt column, highlight “good” vs. “bad” debt; that is, student loans with lower interest rates vs. credit cards higher rates.  Then add it all up. This is a great way to visualize just where your money is flowing and what you can do about it.

Step 3 – Make a Spending Plan

Now, make a spending plan.  Start by paying your fixed expenses and minimum balances.  Then pay any variable expenses you must to avoid going into more debt.  These are the things you just have to do to keep your head above water.

Take a look at that $300 you’re now saving every month by cutting out extras.  It’s not just a lump of money; it can do things!  Put that money away in a savings or money market account with as high an interest rate as you can find, and keep doing so until you reach the $1,000 mark.  This is your emergency fund; it will help you stay out of more debt should something unexpected come up.

Step 4 – Eliminate Debt Strategically

Choose a target.  Which debt do you want to tackle first?  Start on one with a higher interest rate.  19% might not seem like a lot more than 15%, but it adds up quickly.  If you have many debts with high rates, call the companies and try to renegotiate for a lower one.  You’d be surprised what the term, “I’m a loyal customer” can do!

Step 5  – Increase Your Income

If you’re finding after taking these steps that you still do not have anything left to pay off more than the minimum balances on one debt at a time, then it may be time to consider increasing your income.  This could be by searching for a higher-paying job, but if this is too intimidating, stick to that small steps mentality.

Can you make that extra $300 per month by babysitting? How about working in a coffee shop, or doing some freelance work on the side?

Summary

To summarize, that’s: one credit card (or none!), cut out extras, pay off minimums, focus on one high-interest debt, increase income. You may also want to try old fashioned approaches, like paying only in cash, separating all of your expenses into envelopes labeled, “fixed,” “variable,” and “debt” and not spending anything after those envelopes are empty.  You can also put limits on your cards, or make automatic alerts on an online payment tracker.

Remember, this is about understanding your own mentality.  What can you do to make money more concrete to you?

Feeling overwhelmed?  Here’s a little secret: we all have debt-especially those people you see driving fancy cars.  The theme in any “get out of debt” plan should be moderation.  If you find yourself sliding, try to figure out why rather than beating yourself up.  Did you have a tough week and really need an extra purchase on iTunes?  This shouldn’t be a big deal now that you know your finances intimately.  Just look at your upcoming week and see how you can make up for it.

If you ever start really feeling deprived, make a wish-list and write down things you desire as they come up.  Once you’ve addressed your debt, look back at that list and see what things you can now afford.  You may find that time has satiated those desires more than the purchase itself.

While paying off debt is never fun, remember that you’re paying for your future.  Get the past settled so you can move on and start doing what you’d really like to with that hard-earned money!

Categories
banking

Top 5 Things to Consider When Shopping for a Home Safe

When a tragedy strikes, will your meaningful belongings and documents be protected? It is never too late (or early) to add a safe to your house. Burglary, fire and floods are all variables that cannot be controlled however; you can do something to ensure that at least irreplaceable items and important documents will not be lost forever. Any size family and home can find a safe to fulfill their needs by considering the following five things.

What you need to consider for your home safe

1. Content – What do you intend on keeping in your safe? You should know that not all safes are created equally and certain styles are designed to be more protective of certain items. For example, Gardall safes are available in models that are specifically designed for firearms which is crucial, especially if you have children in your home. Different models of safes are even made from different material so considering whether you will primarily be storing documents, money, valuables, media files, firearms or a little of everything will help you choose the right safe for you.

2. Locks – What type of lock will you be most comfortable with? Most safes and safety security boxes come with a standard lock but some allow you the option to either change it or add on another lock for more security. Key locks are popular and if you happen to lose your key, most companies can send you a new one. Combination locks are quite common as well are are a preferred choice, alongside a key lock when double protection is desired. Lastly, electronic locks empower you to program different combinations for multiple users and you can change these as needed.

3. Location – Where is the best place for a safe to be stored in your home? Some models are free-standing that can be hidden in a closet, pantry, etc., or there are those that are installed in a wall or the floor of your home. These provide an added security feature of being able to hide them.

4. Waterproof – Do you need your safe to be waterproof? For many people, this is a top concern if they live in an area prone to flooding and hurricanes. However, water damage can occur regardless of where you live from roof damage, frozen pipes that burst or just a freak of nature. More and more catastrophes are happening today that are blamed on the weather that no one is prepared for them.

5. Fireproof – Is your primary concern with fire protection? A fire can happen to any home at any time and there is never the chance to gather your important belongings and get your family and pets out of the house. There are some safes that are designed to keep the contents of your safe cool for as long as two hours so when the fire is put out, you will find everything inside unharmed.

Buying a home safe should be a priority on the list of everyone. There are many sizes to choose from with various features so use this guide to help determine the kind of safe that will best fulfill your needs.

Categories
banking

American Express Getting Into Debit Market

American Express has always been the most mysterious credit card company. Besides the fact that many establishments don’t accept the gold and black card, their presence in the debit market has been non-existent. As the companies first step in the wide world of consumer debit, American Express opened last week a new product called Serve.

The Serve web site is a prepaid electronic wallet, where consumers can access and transfer money through smartphones and computers equipped with Visa Inc., MasterCard Inc., and PayPal Inc. Consumers can go to the website on their phones and download an application for iPhones, iPads and Androids. Blackberry will have access to the technology later this year.

There is no initial cost for opening an account with Serve. Also, deposited funds don’t expire, nor is there a minimum balance required. Refusing to use a debit method attached to checking accounts sets American Express debit cards apart from Bank of America and JPorgan Chase & Co. debit cards which will likely see balance minimums and ATM fees due to the Dodd-Frank Act interchange fee cap.

Serve.com account holders will receive plastic cards linked to their electronic wallets. The Serve logo is on the front of the card, and on the back is a blue box that explains which merchants and consumers that it may be used at. Customers using the card will get one free withdrawal a month from an automated teller machine and be charged $2 for each subsequent withdrawal.

Debit cards are becoming the most common form of payment. According to Bloomberg, global consumer spending and cash transactions on Visa and MasterCard debit cards climbed 20 percent to $3.95 trillion last year. In the U.S., spending on debit cards rose 15 percent in 2010, compared with 6.3 percent for credit cards, according to the Nilson Report, an industry newsletter.

With a recent partnership with the social network FourSquare, American Express has made headway in exploring digital markets. Last year, American Express spent $305 million to buy the Internet-based payment processor Revolution Money, which is the tech foundation for Serve.

There’s no charge for using debit cards or checking accounts to fund a Serve account. Fees for funding accounts with credit cards have been waived for the first six months. After that, AmEx will charge 2.9 percent of the transaction total plus 30 cents, which is competitive with PayPal’s pricing, said Joanna Lambert, an American Express spokeswoman.

Customers can shop online without being required to enter sensitive information, such as a credit-card number and mailing address. They also will be able to send money person- to-person in the U.S. by entering a PIN number and the recipient’s e-mail address. The latter feature will be available worldwide later this year.

Categories
banking

Debit Card Transaction Limits and $5 ATM Fees

Banks are hurting right now and are doing everything in their power to continue minting the kind of money their shareholders expect. Due to changes in legislation, some banks are considering limiting the size of debit card transactions. Chase Bank recently announced they are considering capping debit card transactions at $50 or $100 to protest government regulations which place a cap on interchange fees. The cap will limit interchange fees to $0.12 per transaction, which could cost Chase up to $1 billion in profits each year. They claim it will no longer be profitable for them to continue making these transactions at such a low cost.

Chase has already ended their debit rewards card program, which was a very popular program. Ending it, and potentially limiting debit card transactions to $50 or $100 has the potential to destroy Chase’s banking business, as many customers will look to go to banks with a more generous online banking program.

$5 ATM fees. Chase is trying out $5 ATM transaction fees on a limited basis in Illinois, and $4 ATM fees in Texas. They want to monitor how many people are willing to pay these higher fees, and if they are still profitable, they will be rolled into more markets.

Other banking fees. We’re not picking on Chase, I promise. We are just highlighting them because of how frequently they have been in the news within the last week or so. For example, Chase is also testing out additional fees including a $3 per month debit card fee, and $15 per month fee to have a checking account.

The big problem is that banks are like the airline industry – where one goes, others will follow. It’s not good news for consumers as most banks are only considered with making their shareholders happy. In the end, we suffer, while they make more money.

What can consumers do? The best thing you can do is put your money where your mouth is. If you have a problem with the fees banks are charging, let them know. If the banks continue to charge high fees or won’t waive the fees, then walk away. It’s as simple as that. There are plenty of great banks which would love to have your business. Here is a list of free online checking accounts, which don’t have minimum balance requirements and offer ATM access at thousands of locations. Why keep your money with a bank that will charge you too much money just for the pleasure of doing business with them?

Categories
saving money

Save Money on Traveling Expenses

With the cost of fuel around the world rising at an ever increasing rate, many people are looking at alternative travel arrangements in an attempt to reduce costs.  But why is the cost of fuel rising at such an alarming rate?

Let’s first take a look at how the price of gasoline is constituted in the US;

  • 13% Tax
  • 8% Marketing and Distribution
  • 14% Refining
  • 65% Crude Oil

As you can see the bulk of the costs emanate from the production of crude oil with just 13% taxation. This is in comparison to the UK for example;

  • 60% Taxation
  • 6% Marketing and Distribution
  • 11% Refining
  • 23% Crude Oil

Ever increasing tensions around a large proportion of the world’s oil providing countries (Saudi Arabia, Russia, Norway, Iran, Venezuela, United Arab Emirates, Kuwait, Nigeria, Mexico and Algeria) help to spur concerns over demand. This is a result of oil markets concern that production will suffer as a result of the ability of oil producing nations to fulfill demand – simple supply and demand in essence.

How can I save Money on Traveling Expenses?

There are a number of areas you can focus on to save fuel costs each with its own benefits and drawbacks;

1. Buy a motorcycle

Pro’s – Motorcycles are cheap to buy and have staggering fuel economy compared to standard SUV’s with a typical smaller motorbike being able to travel around 100-130mpg.

Con’s – You are limited in what (and who) you can transport. Bad weather can restrict your ability to use safely. Safety – many drivers aren’t used to looking out for motorcycle riders.

2. Make use of public transport

Pro’s – Public transport can be very economical if you make use of monthly/yearly bus subscriptions. They can also be a stress free method of transport given someone else is doing the driving!

Con’s – Can be limited in destinations, may not deliver you to the desired location and can also extend journey times considerably.

3. Buy a pushbike

Pro’s – There is a lot to be said for pedal power including the obvious health benefits and zero running costs.

Con’s – Takes some effort to get to your destination via your own steam. You are subjected to the elements and therefore can be tricky when there is bad weather. Unable to transport anything significant, other than yourself.

4. Hybrid/Electric Cars

Pro’s – Great fuel economy and good for the environment in terms of vehicle emissions.

Con’s – Expensive to buy and limited in range (full electric). Hybrid vehicles (combination of fuel and battery) are also very expensive to maintain and service.

We have all been subjected to increased fuel prices to such an extent that people are turning to alternative methods of getting around. Each person and family will need to address their particular needs and see what options could be used for them.

Have I taken action to reduce my fuel Gasoline dependence?

I personally have reduced our car consumption from 2 cars to 1, and have invested in a small motorcycle for the trip to work. This small investment will save our family considerable amounts over the next five years. We continue to retain one car to ensure we can transport the family around and also to accommodate moving bulky items should the need arise. It seems to be that fuel prices are only going to increase; therefore, the sooner you take action to reduce your reliance upon gasoline the sooner you can start making some significant savings.

Categories
credit

Banks to Reduce Credit Card Interest Rates

The credit card industry has been doing back flips to reach the good graces of the credit consumer. And they have made a step in the right direction.

Since the passage of the Credit CARD Act in 2009, banks have been losing money, and began to charge consumers for services that used to be free. Bank of America began charging credit card users a $59 annual fee, and Chase implemented a $5 ATM fee. Well, these same banks and others, under the guidance of the CARD Act are starting to do something that actually helps pack our wallets – welcome, a decrease in credit interest rates.

Last year, millions of consumers experienced credit card interest hikes, before the passage of the Credit CARD Act due to bank scandals, an unruly economy, and pending reforms. According to Federal Reserve, the average interest rate increased almost a full percent, from 13.57 percent in 2008 to 14.31 in 2009.  Credit-Land.com estimates that between 91 million and 121 million credit cards experienced rate hikes during the recession.

A section of the Credit CARD Act requires credit card companies to review any rate hikes that happened since January 2009. The law explains that if a state’s interest rate was increased due to high credit risk or market conditions, those issues had to be reconsidered every six months. The law then demands that the rates be cut when credit risk declines and market conditions improve.

By law, once the rate has been lowered it can not be raised again, according to Ken Clayton, general counsel for card policy at the American Bankers Association. The law requires banks to warn customers about rate hikes 45 days in advance and limits increases on new purchases.

But any decrease in payment can mean big savings for the consumer. According to www.Credit-Land.com the average balance on a credit card at the end of 2010 was $4,965. At a 19 percent interest rate it would take 13 years, 9 months to pay it off. Interest would be $3,894. If interest rates were cut to even 16 percent it would only take 12 years, 5 months to pay off. Interest would drop to $2,906.

Millions will feel the reprieve. Bank of America said that it will reduce the interest rate on about 1 million of its cards, according to the Associated Press. JP Morgan Chase & Co. , Citigroup Inc., Capital One Financial Corp., Discover Financial Services and American Express haven’t revealed the number of cards affected, but all confirmed that some customers will receive lower rates. If all banks changed rates on 2% of their cards like Bank of America is doing, then over 10.5 million card will be affected.

Consumers will not only see the changes in their pockets, they will also see it on their bank statements. Consumers who saw hikes in interest rates during the recession due to poor payment histories and did not reconcile their debts, will not be eligible for the reducing interest rates.

Categories
banking

Why Certificate of Deposits Are One of the Safest Places to Put Your Money

Volatile markets, falling home prices and an unpredictable economy are all reasons for one to be concerned about the safety of one’s money. If you are seeking to keep your assets protected, then I suggest using Certificates of Deposit, or CDs, as one of the safest places to keep your money. There are several reasons for this:

  • Insurance – If you open a CD with a FDIC insured bank your money is protected up to $250,000, up from the previous limit of $100,000. Just as with a savings or checking account if that bank should fail the federal government will make sure that all customers will get back their money up to that limit. There are no such guarantees with stocks and bonds.
  • Guaranteed Return – A Certificate of Deposit often comes with a fixed interest rate that is higher than a regular savings account and that can outperform stocks and mutual funds in a down market. There is no guessing at what your return will be at the end of you CD’s term. It can be calculated and you can plan on having that return on your investment.
  • No Broker Fees – Setting up a CD is just like setting up any other bank account and does not carry with it any origination or maintenance fees. Unlike a brokerage account there is no need to pay someone to keep looking at your assets, changing their allocation and charging you for the privilege.
  • Low Risk – Real estate has climbed and fallen over the past ten years. During that same time the stock market has been flat. Even bonds do not have the return rates they used to. Investing in any of those three over the past decade could very well have resulted, and for many did result, in a significant monetary loss. By contrast a CD would have continued to earn money during that same time period. The low risk of CDs can make it a wise portfolio investment during uncertain times.
  • No Monitoring – Once opened the CD takes care of itself. There is no need to fret or to pore over you monthly statement. Just sit back, wait until the end of the account’s term and enjoy the return.

Some may assume that uncertain times are when risks should be taken. But some investors are looking not for risk but safety. If so then a certificate of deposit is one of the safest places to keep your money.