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MyQuo.com » 2006 » July

Archive for July, 2006

Buying Our First House

Monday, July 31st, 2006

My fiancée and I are moving to Springfield Missouri from San Diego in October.  Our original plan was to rent a place and start looking for a starter home to buy.  Recently we have decided to skip the rental and start looking from a house right now.

Anyone who has bought or looked at buying a house knows that this can be a stressful time.  I’ll be documenting my experience on myquo.com over the next couple months.

Here is my plan for buying a home:

1. Identify the areas of Springfield that we would like to live in
2. Decide on our representation (if any)
3. Select a house
4. Buy the house
5. Set up our financing
6. Move in

Pretty simple eh?  I’m sure there will be some bumps along the way.  And of course, I’ll make some mistakes, but that is how you learn.  The plan above is my outline.  It may change with time and if it does, I’ll keep you updated.  Wish me luck.

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My Plan To Buy A House In 6 Years

Friday, July 28th, 2006

I’ll be moving to Springfield Missouri with my fiancée in the coming months.  The main reason for the move is that we simply can’t afford to buy a house here in San Diego.  The cost of living is outrageous here and is very affordable in Springfield.

This will be my first home purchase, but I have a plan.  I plan on buying a home well below my means and pay it off as quickly as possible.  There are 3 main reasons I want to do so.

#1 – I want to save myself as much interest as possible on the loan.  When you pay off a mortgage over the full term of the loan, you end up paying so much money in interest, that the house becomes an expense instead of an investment.

#2 – I want a paid off home that so that my family will always have a roof over their head.  I am looking at the house as my safety net.  There are many plans rattling around in my head for business ventures that I hope to take in the coming years.

Some of them are more risky than others.  The up side is great, but as with all business ventures, so is the downside.  If I lose everything trying to strike it rich, I want to at least have a house to live in.

#3 – There is nothing like owning your own home.  There is a sense of accomplishment and pride in it.  I realize that this is emotional reasoning and not in tune with the doing the most financially appropriate thing.  However, this reason only plays a minor role compared to the more important first 2 reasons.  Which are obviously financially objective.

My plan:

I hope to buy a $130,000 house with a 15 year mortgage at 7% interest.  The estimate for the interest rate is purposely overestimated so that I have some cushion.  Hopefully I’ll be able to secure a loan for under 6.5% interest.  A lot of the rate I will end up getting depends on how much the Federal Reserve raises interest rates in the next year.

The payments on this house will be $1169 per month.  The plan is to make an additional prepayment to the principle of the loan of $1200 each month.  Doing so will allow the house to be paid off in 5 years and 7 months.

When they home is paid off I will end up paying $26,600 in interest.  This will save me about $48,000 in interest payments if I had paid the home off over the 15 years.  To me paying $156,600 for a $130,000 home is a heck of a lot better than paying $230,300 for the same $130,000 home.

I would then be able to invest the interest money I am saving into other potentially more profitable investments.

There are people out there that would argue that doing so is missing out on a chance to earn more money.  The say that the prepayments of $1200 would be better spent on stocks.  However, there is no guarantee that the stocks will beat the interest savings of the prepayments.  If you prepay, you are guaranteed to save the interest.

If you do plan on paying your home off as soon as possible.  It is essential that you have a 6 month living expenses safety net set up.  That is, you should have enough money in savings to life off of if you lose your job, or you cannot work for whatever reason.

The bank will not care if you have made prepayments, if you suddenly find that you cannot make the mortgage payments.  That being said, you should already have the 6 months savings in your accounts.

Prepaying on your house is a guaranteed way to make you some money by saving you some interest.  There are few investments out there that can offer a guaranteed return.  This is one investment that you won’t lose any sleep over.

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Don’t Just Let Your Credit Cards Sit There

Thursday, July 27th, 2006

If you have credit cards that you have not used in many months or even years, you may want to consider using them with your next purchase.  This is because your credit card can be closed at any time at the credit grantor’s request.

You may be thinking why they would want to close your credit card.  The credit card companies want to close inactive accounts because they cost them money.  They have to keep a file on you, they send you monthly statements, they send you special offers, etc.  If all that you are doing is costing them money, of course they are going to close your account.

If your credit card is one of your newer accounts and it has a lower credit limit, then this is not much of a concern for you.  But, for many people theses accounts can be an older account and have a significant credit limit.  Having these types of accounts closed can lower your credit score.

So what can you do?  It’s really simple.  All you have to do is go out and buy something with the credit card at least once a year.  If you want to be really safe, you should buy something every 6 months.  As some credit card issuers are more aggressive closing accounts than others.

Of course this isn’t the case for all credit card issuers.  You will have people tell you that they haven’t used their credit cards in years, and it’s still there.  The problem is that you don’t know what their policies are on this and when they may change.  They could decide tomorrow to cut costs by closing their inactive accounts.  Guess what happens to your friend’s credit card then.

It may be also a good idea to use your cards a couple months before they expire so that the credit card company’s computers will see that they account is active. 

All you have to do is buy a stick of gum or put a few gallons of gas in your car to keep these cards active.  It’s so easy that there is no excuse to have one of your credit cards cancelled for inactivity.

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Lots Happening At MyQuo

Wednesday, July 26th, 2006

There has been a lot happening at MyQuo.com this week.  Here is a recap of what is going on:

Problogger has a group writing project that I took part in.  You can where I have taken part in the project at The Submittion Project.

I have taken part in Festival of Frugality #32.  You can read all the posts here:  Festival of Frugality.

I have taken part in the latest Carnival of Personal Finance.  You can read all the posts here:  Carnival of Personal Finance.

I have taken part in the latest Personal Development Carnival.  You can read all the posts here:  Personal Development Carnival.

There are lots of good posts in there.  Check them out, as well as the blogs they are hosted on.

I would like to welcome all the new visitors to MyQuo.com.  Hopefully you have found some value from the information here.  There are lots of posts coming down the pipeline, so stick around.

You can sign up for MyQuo’s RSS feed on the bottom left side of the side bar.  And as always, feel free to Contact Me with comments or suggestions.  I love feedback.  Don’t be shy about suggesting something you would like me to look into for you.  I’ll research it and make a post about it.

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Hindsight Is 20/20

Tuesday, July 25th, 2006

ProBlogger is doing a group writing project on what bloggers would do differently if they had a chance to do it all over again.  If you’re a website owner and haven’t checked out Darren’s blog, you should really do so.  There is a wealth of information on his site and he is well known.

Now on to what I would have done differently if I had to do it all over:

I would have started my blog earlier.  As with all business ventures, the earlier you get in the game the easier it is to succeed.  There is less competition and there are lower barriers to entry.

Of course hind sight is 20/20.  Who would have known blogging would be so big 5-10 years earlier?

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Live Below Your Means – Part 3 of 4

Monday, July 24th, 2006

In part two of this Live Below Your Means series, I wrote about everyday purchases like buying a coffee from Starbucks or buying lunch at work.  Today I would like to write about a major purchase like buying a house.

For most people buying a house is the most expensive purchase they will make in their lifetime.  Unfortunately, this is also an area where people throw a lot of money away. 

One of the first things that a real estate agent will go over with you is to figure out how much of a house you can afford.  This how much of a house you can afford thinking is costing you a lot of money.

Yes, everyone wants to live in the biggest and nicely house possible.  But how much is buying the biggest house you can afford costing you?  Well it could possibly cost you your house if you have to foreclose.

When you buy the biggest, you leave little cushion for yourself financially.  What if your expenses go up?  Everyone should be well aware of this with gas prices tripling over the last few years. That aside, there is a just as important reason to not buy as much house as you can.  What about investing for your future?  My fiancée has a friend that is looking to buy a house for $200,000 in Dallas. 

Sure she can afford the house, but she doesn’t need that much house.  She could easily buy a home for $150,000 and invest the difference for her and her family’s future.  Let’s look at how much money buying a $200,000 house is costing her over buying a $150,000 one.

Scenario #1 – 30 Year Loan at 6.5% Interest:

Home Cost:             $150,000
Monthly Payment:    $948.10
Total Interest Paid:  $191,316.00

Scenario #2 - 30 Year Loan at 6.5% Interest:

Home Cost:              $200,000
Monthly Payment:     $1264.14
Total Interest Paid:   $255,090.40

The $200,000 dollar home will not cost her $50,000 more; it will cost her $113,800 more over the life of the loan.  This turns out to be $3800 per year or $316 per month.  Which you can see is the difference in the monthly payments.

Remember that you will have more than your $113,800 in cash after 30 years if you go with the smaller home.  This is because your money should be working for you, making you money. 

In part 4 of 4 in this series, I will show some details on how your money will make money over time.

* Note that I rounded numbers in some instances to make it easier to follow.

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Make Money By Entering Contests

Friday, July 21st, 2006

Did you know that there are people out there who enter contests and sweepstakes as their hobby?  They enter dozens of contests a day and win hundreds of dollars worth of prizes a month.  Sweeping, as it is called, is a good hobby because you can do it as much as you like, and you actually make money doing it.

I dabbled in sweeping for a month or so a while back.  I entered about 20 contests a day; which took me about 40 minutes.  Although I did not win anything huge, I did win some smaller prizes.  Here are some of the things that I won:

- 2 vouchers for a free Crunch Bar
- 3 vouchers for a free movie
- 4 vouchers for a free music download
- 1 fleece blanket

Here is how you can get started:

1.  Make a free e-mail account for the contests

You will make one specifically for sweeping because your e-mail will get tons of spam after you enter the contests.  Any Yahoo, MSN, Google or other e-mail will do the trick.

2.  Get a free Internet phone number

Just as your e-mail will be sold to marketers, so may your phone number.  I didn’t want to take any chances, so I got one of Internet numbers.  There are some choices out there, but I went with http://www.ringcentral.com/.

3.  Find some contests to enter

There are a lot of sites that have contest listings.  I use the contests and sweepstakes forum on Fatwallet.  You can find it here: http://www.fatwallet.com/c/45/.

4.  Enter the contests

There are once, daily, monthly, and quarterly sweepstakes that you can enter.  Make sure you keep track of which ones you can enter more than once.  By entering more, you give yourself more of a chance to win.

Now if you’re really serious about winning, you should try to get into the local contests and sweepstakes.  You can often find these at grand openings of stores and radio station promotions.  Keep an eye out for these or search for them on the Internet.

That’s it.  Good luck, and if you win a car, remember who told you about this…

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Understanding Money Market Accounts

Thursday, July 20th, 2006

Chances are that you have your money sitting in the bank in your savings and checking accounts.  The interest rates in these accounts are likely to be 0-1.5%.  If you are one of these people, you are missing an opportunity to make some money with your money.

Why not park your money in a money market account?  These accounts often pay 3-5% interest on your money, which can be 2-3 times the interest you are earning from your savings account.

Here are a few facts about these accounts:

Pro’s:
- they are low risk
- they are federally insured, just like your savings account
- the higher your balance, the higher your interest rate

Con’s:
- there can be a maintenance fee if the balance gets too low
- you are limited to 3 personal checks a month

These accounts are a great place to put your money that you may need to access quickly.  You can transfer money in and out of this account to your checking account to pay your bills or earn some extra interest.

As with all accounts you need to be careful about fees your bank may be charging you.  For example, you bank may have a fee if you close the money market  account within 6 months of opening it.  Remember to read the fine print.

The key to making sure you are getting a good deal is to ask the right questions.  Find out about the minimum deposits, the interest rates, any tiers, and any fees involved.  Do your homework and you will be fine.

A good bank or credit union will make a money market account an attractive opportunity for you by not charging fees. You may think that the $5 extra you earn each month on your money market account is small potatoes.  But remember that you should be maximizing all your money opportunities and they do add up.  As I covered in my A Dollar Is Not A Dollar post, that $5 will be $20.90 in 15 years.

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Why You Shouldn’t Pay Off Your Student Loans Early

Wednesday, July 19th, 2006

My fiancée has a BS in Biology and a MFA in Forensics.  As you can imagine, she had to get a lot of student loans to cover the university costs.  $23,000 to be exact.  Fortunately, as with a lot of student loans, it is subsidized by the government.  Which means her interest rate on her loan is only 2.625%.

Having recently paid off her truck, she was going to use the money she would have paid on the truck to pay down her student loans a little quicker to safe herself some interest.  What she did not realize was that by paying off her student loan early, she was actually costing herself money from a missed opportunity.

There are many safe investments out there right now that are paying 5% interest.  These money market and CD accounts are a great place to put your money because of their guaranteed return.

I will spare both of us the calculations on this one.  They are involved and very complicated.  I will however, try to explain this abstractly.

Here’s the deal.  Her student loans have a 2.625% interest rate on them.  She can invest money safely in at a 5% rate of return.  So if she only pays the minimal every month on her student loans and uses the rest of the “former truck payment” to put CD’s, she will come out 2.375% ahead.

She still has to pay the 2.625% interest on the loan, however she is now earning 5% on the CD’s.  Here is the math:

5% - 2.625% = 2.375%

Basically she is earning 2.375% by choosing not to pay off her student loans early.  The government in effect is giving her low interest money that she can invest safely.  There is a catch however.  She must make sure she buys CD’s with the money.  If she does not and spends that money on clothes, then she is costing herself money.

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Game Plan For Complaint Resolutions

Tuesday, July 18th, 2006

Calling in to a company you are doing business with to correct a problem or concern can be an intimidating experience.  Many people by nature are non-confrontational, and calling in is a form of confrontation.

Here are 5 things you should do to make sure you are taken care of.

#1 – Stick to the facts

You should tell the customer service representative the facts of the situation.  Make sure you stay calm and objective.  Doing so will make sure that you do not cloud the issue that you want addressed.

#2 – Keep the conversation pleasant

Remember that the CSR deals with angry customers all day.  You may find that if you are nice and courteous, that your CSR will be more willing to work with you.  You want the person on the other end of the phone to want to fix your problems.

#3 – Inform the CSR how you want the problem resolved

CSR’s are not mind readers.  Do not assume they know what you would like to have done.  If you want a fee taken off, make sure you tell them.  If you want to be compensated for your wasted time or trouble, tell them.

#4 – Thank the CSR for helping you

Make sure you remember to thank the person for helping you out.  This is not only a courtesy, but it also helps them to help out others in the future.  Remember that you were their next call after the last problem they dealt with.  Their experience with the call before you may very well affect the outcome of your call.

#5 – Step it up a notch if necessary

Be ready to fight if you have to.  Although all companies like to claim that they provide excellent customer service.  This is clearly not the case.  Know your rights and make sure you hold the companies you are doing business with accountable.
                                                                                                                            
Having a good game plan is essential to being successful in any endeavor.  Complaint resolution is no different.  Don’t call in without knowing what you are going to say and what you want done.

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I Wouldn’t a Touch 50 Year Mortgage With A 50 Foot Pole

Monday, July 17th, 2006

We’re in the middle of a housing bubble.  There is no doubt about it.  What is debatable is what the fall out is going to be.  Is the housing market going to crash?  Will it level off for a while?  No one knows.

What I do know there are people who will come out on top, and there are those who will come out on the bottom.  And as I am watching the real estate market, I am seeing some disturbing trends.  The newest of which is the 50 Year Mortgage.

The mortgage companies out there are touting this as a way for American families to be able to afford the high prices of today’s real estate.  The reality is that these loans are a great way to make the mortgage companies even more money.  This means that the average family will be paying even more for their homes.

Let’s compare the traditional 30 Year Mortgage with the new 50 Year Mortgage:

30 Year Mortgage:

Home Cost:                $150,000
Interest:                     6.5%
Monthly Payment:       $948.10
Total Interest Paid:     $191,316.00

50 Year Mortgage:

Home Cost:                $150,000
Interest:                     6.5%
Monthly Payment:      $845.58
Total Interest Paid:    $357,348.00

For a $100 reduction in monthly payments you are paying $166,000 more over the life of the 50 year loan.  This makes absolutely no financial sense at all.  So when you are getting ready to retire you will have $166,000 less to live on.  This is not counting the fact that you could have had this $166,000 working for you to be making you money.

Here is another way to think about it:

After paying off your 50 year loan you would have paid $507,000 for a $150,000 house.  Sure the house may be worth $250,000 in 50 years, but you still paid twice that.  Paying off a house in 30 years is bad enough, don’t hurt yourself financially even more by getting one of these 50 year loans.

If you cannot come up with the $100 difference for the 30 year mortgage, you need to look for a lower priced home.  In this example you would be looking to buy a home for $134,000 to make your payments $847 a month.

Buying a less expensive home will allow you to not only make the payments, but also to invest for your future.  A little sacrificing now will have a lot of benefit for you in the future.

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Who Is Responsible For Credit Card Fraud?

Friday, July 14th, 2006

I recently got into a debate with a friend of mine about credit cards.  He thought I should be concerned about having thousands of dollars of available credit with the credit card companies.

My response was to tell him that the only risk you take by having a lot of available credit from credit cards is from yourself losing control and buying all kinds of things you don’t need.

So what happens if your credit card info is stolen and a thief uses your $20,000 credit card?

The answer is the exact same thing as if you had a $1,000 credit card that was stolen.  You report the fraud to your credit card company within 60 days of the fraudulent charges and start clearing up your credit report mess.

The bottom line is that you are not responsible for the charges to your card, no matter how high they are.  By federal law, the most you are liable to pay is $50 if your credit card was used without authorization before you report it missing.

So if your $20,000 credit card is stolen and has a $12,000 charge on it, you at worst will only have to pay $50 if you had not already reported it to the credit issuer.

Any charges that take place after you report the card stolen to your issuer are not your responsibility.

If you are not responsible for the credit card fraud, where does it fall?  Ultimately it will fall to the merchants where the goods and services were purchased.  The credit issuers will take their money back, leaving the merchants holding the bag.  Not only that, but the merchants are often charged research and investigation fees by the banks checking out the fraud.

Although you are not responsible for the credit card fraud, you still end up paying for it in the end.  This is because merchants will include credit card fraud loss into their business plans and price their products higher to cover the costs.

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Is Your Home Really An Investment?

Thursday, July 13th, 2006

I have always heard that my future house will be the biggest investment I will ever make.  But is a house really an investment?  Consider the following:

- You have to pay property taxes on your home every year
- You must keep your home insured by homeowners insurance
- Your home requires maintenance

The above sounds like a lot of expenses to me.  Let’s figure out the property tax for a typical house in a medium sized city.  For the purposes of this post I will use the property tax rates for Springfield, MO.

$150,000   House
$4.35 per $100 Valuation  Property Tax Rate
Assessed value is 1/3 of true value of home

$150,000 x 1/3 = $50,000 assessed value
$50,000 / 100   = 500 taxable value
500 x $4.35      = $2175 in property taxes

There will always be something that needs fixing or replacing with your house.  It can be new windows, a new roof, or a new furnace.  You must include these expenses into the equation here to get an accurate picture.  For this example, I’ll use $1200 per year.

Homeowners Insurance can vary greatly depending on a number of factors.  But, let’s just say that it’ll run $600 a year to give us a ballpark value.

Here are the yearly expenses:

$2175 in property taxes
$1200 for house repairs
$600 for homeowners insurance

$3975 total yearly expenses

This comes out to be $331 per month just for the upkeep of your house.  We haven’t even tackled the interest that you are paying on your mortgage.  With a $150,000 30 year mortgage at 6.5% interest you will end up paying $191,316 over the life of the loan.  Which comes to $6377 a year in interest.

This makes the total expenses:

$3975 yearly expenses
$6377 yearly mortgage interest

$10,352 total house expenses

Now that we have taken care of the expenses, let’s have a look at your gains.

Everyone has watched the real estate market sky rocket over the last few years.  And a lot of people are leaping at the opportunity to cash in on those gains.  I have news for you.  The real estate market will not go up forever.  Yes, housing prices do actually go down.

From 1991 to 1996 they dropped 21% in Los Angeles.  From 1988 to 1995 they dropped 10% in New York.  From 1989 to 1991 they dropped 7% in Boston.

The housing market and economy is different today than it was back then.  But my point is, real estate values can and will drop in the future.  You cannot automatically think that your home will always go up in value.

It will go up in value over the long haul however, which is how you should look at it.  A good estimate would be an annual appreciate rate of 4% per year.  So your $150,000 will increase in value approximately $6000 after the first year.

If you take the $6000 appreciation and subtract the $10,352 expenses, you will notice that your biggest investment is not making money.  Therefore your house is actually an expense.  It becomes an investment only after you have lived in your home for many years to benefit from the multiple annual appreciations.

So yes, you could say it is technically an investment because it makes money in the long run.  However, it is a very poor investment at best.  Obviously you need somewhere to live, and you can pass your home on to your children.  So there are additional benefits to look at.  But as a purely financial point of view, you should not be calling your house your biggest investment.

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How To Make Money By Spending Money

Wednesday, July 12th, 2006

Unless you have been living under a rock for the last few years, you should have heard of the rewards cards that many credit card companies are offering.  These cards often give you 1% cash back for purchases made on their credit cards.  This cash back is usually in the form of some kind of gift card that you can use at authorized retailers.

Do you have a reward card?  If you don’t, you should get one right away.  Because you are throwing away free money.  I recently convinced my fiancée to apply for a rewards card.  She was approved for a rewards card that gave her 1% cash back on her purchases.

The card has a credit limit of $1000, of which she has been charging $500 to each month.  At the end of the month she pays the balance off in full.  This is important.  If you do not pay the balance off in full, you are losing all the benefits of the cash back by paying the high interest rates on the card.  Make sure you only charge what you normally spend on the card.  Remember that as with all credit cards, you have to pay the money back.

She easily has $500 in bills and expenditures every month.  Before, she was using her debit card, cash and checks to pay for these goods and services.  Now however, she is using her rewards card and earning cash back.  At the end of the year she will receive a rewards card for $60.

As I always say, $60 bucks is $60 bucks.  I am not one to turn down easy money, and I’m still working on my fiancée.  Especially money that is this easy.  And remember this $60 has the potential to be a lot more than $60 if she uses it wisley.

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Live Below Your Means – Part 2 of 4

Tuesday, July 11th, 2006

In part one of this Live Below Your Means series, I wrote about semi-major purchases like buying a new couch.  Today I would like to write about day to day spending.

Most people do not realize how much money they are spending every month.  If you look at your monthly spending, I would be willing to bet that you are spending hundreds of dollars every month that can be saved or invested for the future.

Do you buy a Starbucks coffee every morning on the way to work?  Do you eat at Subway for lunch everyday?  Do you pay $80 a month for parking in the parking structure, when you could park farther and walk into work?

If you do, you are throwing away not just that hundred dollars every month, but thousands when you factor in the gains lost from not investing this money.  Let’s just assume that you spend $200 a month that you could easily save yourself each month.  You then take this $200 and invest it earning a 10% return.  Some people could save and invest a lot more btw.  Let’s look at some numbers:

$2400 in discretionary funds

Scenario #1 – Over a year period ($200/month x 12 months)

Today:

$2400 – Spent on coffee, fast food for lunch at work

10 Years Later:

$0 – All the money spend was on consumable goods

Scenario #2 – over a year period ($200/month x 12 months)

Today:

$400 – Coffee made at home, lunch brought from home. This money has all been spent on consumable goods
$2000 - Invested into stock market earning an average return of 10%

10 Years Later:

$5185 - $2000 Investment has now grown approx 250%

As you can see, by cutting down on your spending by $200 each month ($2400 per year), you not only save $2400 a year, but your money makes you and additional $2800 when that money is invested.

Now if you do this year in and year out, you will have thousands of investments out there to further invest and or retire on.

One of the best ways to control your spending is to make a monthly budget and stick to it.  Once the costs are on paper, you cannot forget facts or twist spending to make them seem okay in your mind.  You will also realize how much money you are throwing away everyday.  It may seem like a small amount of money everyday, but it adds up quickly.  Especially when you take into account the potential investment lost over the years.

In part 3 of 4 in this series, I will be writing about savings in a major purchase.

* Note that I rounded numbers in some instances to make it easier to follow.

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This Week’s Carnival - The Real Returns

Monday, July 10th, 2006

Welcome visitors from The Real Returns.  MyQuo.com chronicles my journey to become financially savvy and free.  As I learn about things I will be posting them on this blog.  If you have something you want to learn more about, feel free to send me a message.

 If you haven’t checked out The Real Returns, you may want to.  He has some nice articles on finance which make you think.  You can check out the blog here: The Real Returns.

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What Is A Credit Limit And What Is So Important About It?

Friday, July 7th, 2006

A credit limit is the amount of available credit that the credit card companies have allowed you to put on their cards.  Pretty simple enough.  But, there is a lot more to a credit limit than that.

Your available credit, more specifically, your credit utilization is a good part of your credit score.  Credit reports with a lower utilization rate are scored higher and those reports with a higher utilization are scored lower.

You should be taking advantage of this system.  Obviously the best way to do this is to keep your utilization as low as possible.  One way to do this is to make sure you only spend what you can and will fully pay off when your statement comes.  Credit reports love people who do this.  These people are a lower credit risk and receive higher scores.

There is another easy way to help out your credit score with regards to utilization.  It is by increasing your available credit.  The more credit you have, that you are not spending, the higher your score will be.

Your credit limit is increased by CLI’s – credit limit increases.  Sometimes you are given a CLI automatically by your credit card company.  Other times you can get a CLI by requesting one.

Many people are not ensuring that they are getting their CLI’s.  Not doing so is hurting your credit score, which in turn is costing you money.  A higher credit score means lower interest rates on loans and credit cards.

So how do you make sure you are getting your CLI’s?  You have to ask for them!  Ask for a CLI every 6 months.  Many of the issuers today have online request forms that you can use.  They are quick, simple, and easy.  If you are not asking for your CLI’s, you may very well not be getting as many as you could.

When you ask for a CLI, sometimes you will be given a set increase.  Other times they will ask you how much of an increase you want.  Don’t say, “As much as I can get”.  A better response would be asking how much you are eligible for.  They may tell you, taking the guess work out of the game.

As your available credit increases, so will your score.  That is as long as you keep spending only what you can pay off when your statement comes in.  This is an easy and cheap way to help improve your financial situation.

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Tips When Buying A New Car

Thursday, July 6th, 2006

As a strong proponent of living below your means, I recommend that you never buy a new car.  However, sometimes people want the new safety features that are available for today’s models.  Other times they are financially secure and can actually afford a new car.

Whatever the reason, buying a new car can be a stressful and expensive experience.  Here are some ideas and tips to help you pay the lowest price for your new wheels.

#1 - Choose the time of the day carefully.  The less people that are at the car dealership, the more likely the dealer will be interested in making a deal.  Also, dealers are more likely to make a deal when they have to meet quotas at the end of the month/quarter.  Ideally you want to be the last person of the day for the dealer.

Important times to go to the dealership:

- weekday
- late evening
- end of month
- end of quarter

If you are really serious about going when there is no foot traffic.  Go in the middle of a rainstorm or snowstorm.  You’ll likely be the only person there and the salesperson will be much more willing to negotiate.

#2 - Do not start your negotiations from the sticker price, aka the suggested manufactures price.  Start at the invoice price of the vehicle.  This is what the dealership paid for the car.  You can determine the invoice price for your particular vehicle at http://www.edmunds.com or http://www.cars.com.

Once you have the invoice price make your offer the invoice price minus $500.  This is the standard rule of thumb as is a good starting point.

Here are some other tips that may help you out:

- Make sure you start the bidding, don’t get anchored by their bid price.
- Do not negotiate by the new car, use the dealer’s office.  They want you to fall in love with the vehicle.
- Don’t let the manufactures rebate influence the vehicle price.  It’s from the manufacturer not the dealership.
- Don’t let the salesperson distract you by asking how much you want to pay per month.  This is an irrelevant question in regards to the vehicle price.
- Negotiate the dealer prep fee.  All they are doing is washing the car and taking the plastic out of the interior.  Tell them you will wash the car and take the plastic out yourself.
- Negotiate a trade-in after you have finished with the new vehicle, it’s a different issue.  Plus this is an added distraction in negotiations.

Buying a car is one of the most expensive purchases a person may make in their life.  Make sure you do your homework.  And most importantly, make sure you get a good deal.

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This Weeks Carnival And 4th Of July

Wednesday, July 5th, 2006

I’d like to thank Raising 4 Boys for hosting this week’s carnival.  These article events are a lot of work, and I appreciate it.

For those who have found my site through theirs, welcome.  MyQuo.com has many tips on how to make, save, and think about money.  My post for the carnival is A Dollar Is Not A Dollar.

If you haven’t checked out Raising 4 Boys, give it a look.  The posts are not only entertaining but they are informative.  This is especially the case if you have or hope to have kids in the future.

And finally, I hope everyone had a great 4th of July.  I had my Dad and his wife up for dinner.  Everything went smoothly.  My Dad and I talked about a few business ideas, my fiancee made an amazing meal, and we all played Stategories to end out the night.

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Renting Out A Room In My Home

Tuesday, July 4th, 2006

I live in San Diego, California.  As such, the cost of living here is very high.  San Diego is one of the hottest markets in the country.  Two years ago I moved into 2 bedroom, 1 bath, 975 sq ft apartment for $1050 with my fiancée.

As you can imagine, this cost takes up a huge part of our budgets.  To lessen the load, I decided to rent out the 2nd bedroom.  This can be a great way to save money; money that can be invested to work for you.

Here is what I did:

I advertised the room for rent in Craigslist for San Diego.  If you have not heard of Craigslist, check it out: Craigslist.  It is a message board in which you can find jobs, rentals, and used goods.

Back to the story…  I listed the room for $350, which is 1/3 of the apartment’s rent.  This is a steal of a deal in San Diego.  After a few hours of being posting I had received 40 replies and had to take the ad down.

I sorted through the replies and choose a handful to interview.  On the third interview I found the perfect roommate and rented the room out to him on the spot.

Here are some tips and observations that I gained from my room renting experience:

- Set your rent a little below market value.  This will allow you to choose the pick of the litter from the renter pool.  Everyone will be scrambling to get your room.  For renters price is the #1 consideration.  For the rentee, the roommate is the #1 consideration.

- Obviously you want to get as much money for the room as possible.  But, this is only half of the game.  You also want to keep the room rented as much as possible.  If the room goes unrented, you will quickly lose any gains you would have from getting a higher rent.

- Trust your gut instincts on people.  When you interview potential renters, they will be on their best behavior.  If you have a gut feeling, go with it.  If you don’t have gut feelings, work on developing one.  My gut is right the majority of the time.

- Make sure you do a background check on anyone you rent to.  You don’t want to rent to someone who has credit problems or who has a record.  The eviction process can be very slow, time consuming, and costly.

- Set up rules for the home.  You need to let the potential renter know straight up what the rules are.  Do they have access to your kitchen and TV?  What about guests, pets, drugs and parties?

- Sign a rental contract with the renter.  Make sure the cost of rent, deposit, rules, and move out policies are in there.

The renter turned out to be a great roommate, and we saved hundreds of dollars during our agreement.  I used the money I saved to help start up my business.  It is important that you invest the money you save by renting out a room in your home.  If you just spend it all, you haven’t really gained anything for the future.

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Diamond Engagement Ring Alternatives

Monday, July 3rd, 2006

Marriage is a serious financial commitment and you should treat it as such.  It is common knowledge that money is the number one reason why couples split up.  As such, it is important for you and your significant other to be on the same page on fiscal matters.

However, it starts even before then.  My fiancée and I had to decide what our wedding plans were.  The first issue was buying an engagement ring.

Diamond engagement rings are traditional here in the United States.  But, if you have ever looked at the prices of the diamonds, you will know they are outrageously priced.  This is because Debeers has a monopoly on the diamond supply.

With their monopoly they constrict supply, increasing prices and their bottom lines.  There are a few alternatives to diamonds, whether you choose them for morally or financial reasons.

Some alternatives are:

- Diamond simulants
- Lab grown diamonds
- Alternative stones

The diamond simulants are basically other materials made to mimic the look of real diamonds.  They are very inexpensive in price.

The ring I was considering was a 2.04 carat stimulant, which included the wedding band for only $535.  Rock bottom prices like these are very tempting.  However, I decided that if I wasn’t willing to pay the price for a real diamond, I should not buy a simulated one. 

Lab grown diamonds are real diamonds.  They have the same chemical structure as natural diamonds.  The only difference is that they are grown in a lab over a year or two period instead of formed in the ground over thousands of years.

I was very interested in these lab grown diamonds.  It is very cool that people can make a diamond in a lab in a fraction of the time that it would take Mother Nature to make it.  As I researched the prices, I found that they were just as expensive as the natural diamonds.  Prices are sure to drop in the coming years as they become more common place, but for me it was too early.

Many couples today are choosing alternative stones for their engagement rings.  I have friends that decided to take this route.  And many high profile people have gone this route also.  Did you know that Princess Diana had an alternative stone engagement ring?  It was a sapphire.

We decided to go with an alternative stone in the end also.  There were a few reasons that we went this route. 

- I have a major problem paying for a product in which the price has been heavily manipulated through constricting the supply
- My fiancée does not feel comfortable wearing jewelry worth thousands of dollars
- The money we saved is being put towards a down payment for a house

She has been wearing the ring for a while now and loves it.  She has received many compliments on the stone and ring.  What stone did we decide to go with?  A topaz.

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