by Patrick on October 26, 2009
Sometimes less is more. In the world of money and finances, more is usually more. But when it comes to administration and bookkeeping, less is certainly more. These tips can help you automate and streamline your finances – reducing the time needed to stay on top of things and giving you more time to do the things that are important to you.
10 Steps to Declutter and Simplify Your Finances
Handle your mail more efficiently
The average person receives 560 pieces of junk mail each year, or about 1.5 per day. A great way to minimize the clutter is to stop junk mail and opt out of pre-screened credit offers, leaving you with the more important pieces of mail to deal with. From there set up a system that works for you. Some people find it easier to do batch processing, where they go through a week’s worth of bills and correspondence at one time, and others prefer to deal with it immediately. Experiment to find which method is best for you.
Do Not Call List.
You can also opt out of annoying phone calls by signing up for the Do Not Call List. This won’t stop phone calls from companies you currently deal with or charities, but it should stop unsolicited phone calls from mortgage brokers and debt consolidation companies.
Handle e-mail more efficiently
Use your personal e-mail account for personal items and a dedicated e-mail account for finances and official household business. My wife and I set up a dedicated e-mail account through GMail for our finances, insurance, and online shopping accounts. We don’t use it for anything else, including communication with family and friends. Be sure to opt out of store e-mails and coupon offers as most of these are just clutter that you won’t read anyway. The result is a clean inbox with actionable items.
Go paperless
Opt to receive electronic statements, which has multiple benefits, including less mail to process and a lower environmental impact. Some companies will also waive fees if you go paperless, including Vanguard and Zecco Trading. If you prefer paper statements, then get an all in one printer so you can scan the document for your records. Then shred it; reducing clutter at home.
Use Automatic Bill pay
Most online savings accounts offer free bill pay as part of their service, and it has become very common through most brick and mortar banks as well. Set up as many bills on auto pay as possible, reducing the amount of mail you send and receive, and reducing the time you spend worrying about paying bills. You can also link some payments to your credit card each month so you can take advantage of rewards points or cash back. Only use this method if you are certain you can and will pay your bill in full each month.
Automate your investments
Just like paying bills, it is easier to invest when you don’t have to sit down and write a check or initiate an electronic funds transfer each month. Set your basic asset allocation and make automatic payments for your investments. This can often be done through work via 401k contributions or a payroll deduction. You can also do automatic transfers through many brokerages, investment houses, or other financial institutions. Some discount brokerages, such as ShareBuilder, offer discounts on automatic stock trades vs. real time stock trades. Be sure to go over your asset allocation every so often to maintain a balance with your investments.
Use personal finance software
Managing money is much easier when you know how much is coming and going, and where it is coming from and what you are spending it on. There are many great financial management tools including You Need a Budget, Quicken, Quicken Online, and a host of free online money management tools.
Consolidate financial accounts
It’s not uncommon for people to have several bank accounts, but most people can get by with a local bank and an online bank for better interest rates. Many people also have multiple retirement accounts because they change jobs often. Depending on your needs, it may be a good idea to consolidate these accounts. Find a bank with high interest interest rates and nice features and park your money there. If you have an old 401k plan you can roll it into an IRA. IRAs can also be transferred to one brokerage account for easier tracking. Here is a list of the best places to open an IRA.
Reduce the number of credit cards you carry
The average American carries between 4 and 6 credit cards. Access to easy credit can be convenient, but it can cause problems for some people. Reducing the number of credit cards you keep can reduce the amount of mail you receive and make it easier to manage your money. Just keep in mind that canceling a credit card can affect your credit score, so you should probably leave the oldest card open and make sure canceling any credit cards won’t make your credit utilization too high (amount of credit used vs. amount of available credit). Here are more tips about the affects of canceling a credit card.
Consolidate debt
This won’t apply to everyone, but it may be a lifesaver for some. If you are making multiple credit card and other payments each month, then you might consider reducing the number of bills you receive and need to pay each month. One way to do this is by consolidating your debt. Don’t worry, you don’t need to pay a company thousands of dollars for this because you can consolidate your debt on your own. An easy way to consolidate your credit card debt is through a 0% balance transfer, which allows you to transfer your credit card balances to a new credit card at a 0% interest rate. There is usually a fee involved to do this, but it usually maxes out around 3-5%, which is much lower than the average credit card interest rate, which hovers around 20%. This tip can simplify your bill paying and save you money.
Simplify and automate to save time and money
Simplifying and automating your finances only takes a small amount of time and effort to set up and maintain and it can save you time and money by reducing clutter and wasted energy. It’s a win-win situation.
by Patrick on October 25, 2009
I joined a fantasy football league with 9 other personal finance bloggers, and we are now entering week 7 of the season. So far I am in 3rd place with a 4-2 record. My team is pretty decent, but as with all fantasy sports there is an element of luck involved, and lady luck has been kind so far this season. While this is all for bragging rights and fun and games, I decided to add a little spice to the outcome and make a $100 donation to the winner’s favorite charity. If I win the league, I will let readers vote on where the donation should go. The season should finish right around the holidays, so it fits in with the spirit of giving. And it should be a lot of fun! 
Recommended personal finance and career articles:
This Week’s Carnivals:
by Patrick on October 23, 2009
Unemployment. A car accident. A medical emergency. Even the best laid plans can go awry, and the last thing you want to worry about in a time of crisis is how you are going to get by financially. Life is full of unplanned events, which is why everyone needs an emergency fund.
Why you need an emergency fund
If you are living paycheck to paycheck and don’t have any cash reserves, even a minor financial emergency can set you back months – causing you to get into debt and increasing the amount you owe creditors. An emergency fund can help you avoid that situation. By planning for the unplanned, you relieve stress, reduce risk, and increase your financial flexibility.
Where to open an emergency fund
You want the money to be liquid so you can have access to it at a moment’s notice, and you also want to ensure your money retains its value. Your emergency fund isn’t designed to grow wealth, it is designed to preserve your financial flexibility and help prevent you from going into debt. So you don’t want to keep your emergency fund in stocks or mutual funds which can vary substantially according to the markets and may take several days to cash out and transfer the funds to your bank account.
The best places to keep your emergency fund are accounts that offer quick access and a stable rate of return. Some good examples include savings accounts, money market accounts, CD’s, and Checking Accounts. Be sure to find a bank that offers high interest rates because the idea is to let the money sit there until needed. You can check with your local brick and mortar bank or credit union, or use an online savings account.
Consider a CD Ladder for your emergency fund. A CD Ladder allows you to stagger your CDs so you can earn more money than a standard savings account and still have access to the money on a regular basis.
How much should be in your emergency fund?
This is an area where each expert has an opinion, and the answers vary. Some people recommend at least 3-6 months living expenses, some recommend 6 months to a year, and some recommend a few thousand dollars. In my opinion, this is a very personal decision and should be based on your individual circumstances.
If you have no debt and minimal living expenses, you can probably get away with a smaller emergency fund than someone who carries a large amount of debt and has high monthly living expenses. Another factor to consider is your income and employment status. Someone who works for the government or in a stable industry may keep less than someone who is self-employed or works in a volatile industry that often experiences layoffs or seasonal work. As a rule of thumb I would start with $1,000 at the minimum, then work up from there to a level that gives you the financial flexibility you are seeking.
What does Dave Ramsey recommend? Dave Ramsey’s Baby Steps is a financial plan to get out of debt and become financially free. Dave Ramsey recommends starting with a $1,000 emergency fund, paying off all debts except for your mortgage, then saving from 3-6 months of expenses before moving to the next step, investing 15% of your household income.
How do you fund your emergency fund?
Hopefully you have a good understanding of your cash flow (a working budget is helpful here). This will make it easier to find areas where you can free up cash to divert to your emergency fund. Consider treating your emergency fund like a bill and sending a predetermined amount to your emergency fund each pay cycle, or month. A good way to do this is to automate it through automatic deduction or payroll deduction. You can also find areas to cut back from your regular budget, or send any overages to your emergency fund. For example, if you budget $500 for groceries and only spend $400, you can save the $100 toward your rainy day fund instead of spending it elsewhere. Other ideas include funding your account with bonuses, tax returns, income from a side job, etc.
What about using credit cards or other credit for emergencies?
The point of an emergency fund is to avoid using credit for unexpected expenses, so while using a credit card or another loan is certainly an option, it is one that should be a near the end of the list. Using credit for an emergency can make the problem worse because it will put you deeper into debt. The clock is always running on the interest and it may take you months or even years to repay the loan. Credit cards and other loans can be convenient when you take them, but it is rarely convenient to repay them.
What about tapping into retirement funds?
This should be considered a last case scenario because can set your retirement planning back several years. You can repay a 401k loan, but it will still end up hurting your retirement fund. If you make a withdrawal from a retirement account instead of taking a loan then you will be subjected to immediate taxes and possibly early withdrawal penalties if you are under the minimum withdrawal age.
One of the best financial decisions you can make
An emergency fund is one of the most important financial steps you can take after becoming current on your living expenses and graduating from living paycheck to paycheck. And with a little planning and luck, it can help you manage unexpected expenses and avoid going into debt.
by Patrick on October 22, 2009
A frequent question I get asked is where to find the Roth IRA with the best interest rates. I applaud anyone seeking to improve his investment returns. Unfortunately, this is a question without a specific answer because a Roth IRA by itself isn’t a fixed rate investment; it is an investment account that can contain multiple types of investments with varying rates of return and amounts of risk.
A Roth IRA is an investment vehicle, not an investment
The first thing we need to do is understand what an IRA is and is not. According to the IRS, an IRA is an Individual Retirement Arrangement or an Individual Retirement Account, depending on how the term is used. The key word here is “Individual.” The person who owns the IRA determines how the assets are invested.
Roth IRAs are a trust or custodial account designed for special tax benefits. But a Roth IRA by itself is not an investment – it is an account designed to hold investments. The Roth IRA itself is just a piece of paper designating you as the account owner and beneficiary. The trustee or custodian maintains the document and record keeping on your behalf, and works to ensure you maintain certain requirements. From there it is up to you to determine how to allocate your assets as part of your long term retirement plans. If this is not a strong point for you, then consider working with a professional financial advisor to assist you.
Where do you get the best Roth IRAs?
As we mentioned, a Roth IRA is just a vessel for your retirement investments. You can open a Roth IRA with a trustee or custodian at a bank, a federally insured credit union, a savings and loan association, or an entity approved by the IRS to act as trustee or custodian.
How to open an Roth IRA.
Opening a Roth IRA is an easy process. Once you ensure you meet eligibility criteria, you will need to select a custodian, fill out some paperwork, select which funds you wish to invest in, and fund your IRA.
Best places to open a Roth IRA.
The best place to open an IRA depends on your investment needs. A professional financial planner may be able to open a Roth IRA in your name. You can also open a Roth IRA with many banks and credit unions, as well as a variety of mutual fund houses and brokerage firms. You should make your decision based on your investment needs and style.
If you need assistance with your investments, then a professional advisor or broker may be the best option for you. If you are a hands on investor, then you may wish to take a look at the best brokerages for Roth IRAs, some of which include Scottrade, E*Trade, and Zecco.
Where are the best Roth IRA rates?
Because Roth IRAs are individual accounts and you can invest in virtually anything, you will need to search out the best investment that meets your needs and risk tolerance. If you are looking for a guaranteed interest rate, then consider a Certificate of Deposit (CD) or government bonds. If you are willing to assume more risk and potential reward, then you may be better investing in equities, REITs, or other investments. Roth IRAs can hold almost any type of investment, therefore the rate you receive is subject to the type of investments you use in your Roth IRA.
by Patrick on October 20, 2009
The quickest way to get out of debt is to never get into debt in the first place. The next quickest way to get out of debt is to throw as much money as possible at your loans until they are gone. Unfortunately, that may not be quick enough. If you have high interest loans and can only just cover the principal and maybe a little extra, then it may take you years to pay off your debt.
As crazy as it sounds, borrowing more money can actually help you get out of debt more quickly. But there is one big caveat – if you borrow more money it should be as a last resort and you need to do it with a plan and under controlled circumstances. That means you need to make the commitment to get out of debt, borrow money only if you can get it at a lower interest rate or more favorable terms than your current debt, and only borrow enough money to consolidate your loans to make it easier and less expensive to repay your debt.
When to consider Debt Consolidation
If you find yourself struggling to make your payments, the first step you should take is to contact your creditors and ask for more favorable terms such as a lower interest rate or more time to make a payment. Sometimes the lenders will work with you and the crisis is averted. Other times you may need to get more creative. That is when a debt consolidation loan can come in handy. Again, this should only be used with the commitment to get out of debt as soon as you are able, and not as an excuse to increase spending and rack up more debt.
Do it Yourself Debt Consolidation Options
If you can commit to a repayment schedule and stop using credit cards, then a debt consolidation loan may be a good option to help you get back on pace with your loan payments. A debt consolidation loan only makes sense if you will be saving money, will be able to pay your debt more quickly, or if you have other more favorable terms. The best part is, you can create your own debt consolidation loan.
Why not get a debt consolidation loan from a debt consolidation company? Because many (not all) debt consolidation companies offer expensive services that you can do yourself. The key is knowing where to look and what to do. The following tips give some options that may be less expensive than many traditional debt consolidation loans, and they are available to almost anyone with good credit.
1. Transfer your credit card debt to a 0% balance transfer credit card
If you currently have a lot of high interest credit card debt, you may be able to transfer some or all of it to a 0% balance transfer credit card, which will significantly reduce the amount of interest you are paying and make it faster and easier to repay your debt. Keep in mind that most balance transfer cards charge a fee to transfer the balance to the card. Even so, a 3-5% fee is substantially lower than the interest rates on many credit cards, which often exceed 20%. Here are a few of the top options if you want to do a 0% balance transfer:
2. Debt Consolidation with a Home Equity Line of Credit
A Home Equity Line of Credit (HELOC) is a flexible line of against the value of your home – you use your home’s equity as collateral. HELOCs should be used with caution because you are using your home as collateral. But you can save a lot of money on interest when you use a HELOC as a tool to consolidate debt and not enable spending. The interest rate you can get on a HELOC depends on many factors including current interest rates, your credit history and score, and other factors. With a strong credit score you can currently find HELOCs in the low 5% range, and they go up from there.
3. Lending Club and other peer to peer lending companies
Lending Club is currently the leader in the peer to peer lending company, which allows regular folks such as you and I to request a loan which is funded by other regular folks. Lending Club just acts as the middle man and facilitates the loans. P2P loans are a good way to obtain a personal loan for whatever you need it for, including bill consolidation loans, home improvements, major purchases, etc. Lending Club also offers people a way to do online investing in a secure manner.
Other debt consolidation options
There are other debt consolidation options, but the three options listed above are the best for many people. Other options include refinancing your home and withdrawing equity, making a withdrawal from your 401k or other retirement account, or getting a home equity loan (similar to a HELOC, but it is a one time loan and is not as flexible). These options present more drawbacks than the options listed above and can prove to be more expensive than they are worth.
Debt consolidation is a chance to start over – don’t blow it
Debt is expensive, and if you are considering a debt consolidation loan, you recognize that you need to eliminate your debt once and for all. If you are able to secure a debt consolidation loan at a lower interest rate, then take advantage of it. Stop borrowing new money, cut up your credit cards, and repay your debt as quickly as possible.
