Sobering questions about the US dollar

Posted by Tad Johnson - Apr 4th, 2008 at 18:04

Watch this excerpt from a Danish documentary that asks the question, “what if the dollar collapsed?”



Leverage in a Global Economy

Posted by T.W. Hanson - Apr 2nd, 2008 at 20:04

 earth

The New York Times devoted an entire section of today’s paper to living in a leveraged world.  The potential problems of this reality are small compared to global climate change, but they are much larger than the current U.S. housing crisis.

This is a must read for vicenarians interested in how money, markets and the global economy functions.

Leveraged Planet

Get paid to use your credit cards

Posted by Tad Johnson - Feb 9th, 2008 at 12:02

Credit cards can be a great financial tool or a terrible nightmare. Depending on how you use them, you can either pay 15-30% above your actual purchases or you can politely ask the credit companies to pay you. Which would you prefer? Sadly, you won’t get the same interest rates as the big guys. 1-5% is pretty easy to find, though some people push it further using complicated (and risky) APR arbitrage. But I digress.

credit-cards.jpgThe first step to establishing a profitable relationship with your credit card company is to pay off your balance. If you routinely carry a monthly balance, look at your budget (you do have a budget, right?) and figure out what spending you can cut to drive that balance to zero. Once you hit the magical number zero, you’re ready to start making money.

The next step is to find some good rebate cards. I personally use a rebate card from Citibank that gives me 1-2% cash back on all purchases and a BP Chase card that gives me 5% back on BP gasoline and 2% on food & travel. Since I don’t carry a monthly balance, this means that I’m earning a small return on each dollar I spend. Splendid!

Now for the caveats:

  • If you don’t have the income stability (or financial discipline) to pay off your balance in full each month, don’t bother with these rebate cards. They generally come with a higher APR than standard cards, so just one month of carrying a balance could cost you more than a year’s worth of rebates.
  • Read all the fine print for the card as well. Make sure that you’re getting the deal you want without any bogus strings or exceptions. The BP card advertises 10% cash back but reading the fine print reveals a 60 day bonus period after which the rate drops to 5%. Such marketing tactics are common among card offers.
  • Don’t bother with points–go for the green. Some cards offer points that can be redeemed for travel, prizes, or gift cards. Skip over these and go straight for the cash.

Final suggestion: try one of the new online financial management services like Yodlee or Mint that automatically import transactions from all your financial institutions and give you a daily snapshot of your balances. This makes it much easier to stay on top of your spending and prevent any unexpected bills.

Spending plan

Posted by Tad Johnson - Feb 5th, 2008 at 18:02

Chances are, your income is going to increase dramatically when you start your first job after graduating from college. Success!money.jpg

Sadly, your expenses are going to increase dramatically as well. Without some wise planning, you could easily find yourself slipping into debt. Here’s an approach to prevent that from happening:

Develop a spending plan

Your plan should include these main areas :

  • Regular bills (rent, car payment, insurance, phone bill, etc.)
  • Debt repayment (credit cards, college debt)
  • Regular savings (retirement savings, savings for large purchases, rainy day savings)
  • Categories of spending with a broad brush (clothes, food, entertainment, travel)
  • Expected monthly totals (savings will increase by $x; debt will decrease by $y)

This isn’t as hard as it sounds. Here’s a handy spreadsheet that will do most of the work for you: Spending Plan. (It’s in .xls format so you can open with Excel, OpenOffice, or import into Google Docs.)

Don’t obsess about accounting for every last dollar–this will only frustrate you and you’ll end up giving up on the whole plan. Instead, this should be an exercise to help you understand where all that hard earned money is going. When I did this, I was surprised by how much money I was spending on my car. Now, I take the bus or carpool a few times each week and all of a sudden I have more cash for the fun things in life.

Student Loan Psychology

Posted by T.W. Hanson - Feb 4th, 2008 at 19:02

Upper Quad

Our generation has been dubbed “Generation Debt”. This characterization comes predominantly from the financial hole many of us find ourselves in right after college. Public and private universities and colleges are expensive, and many of us exit these institutions with thousands, tens of thousands and even hundreds of thousands of dollars of debt.

The financial benefits of a college education typically far outweigh the costs. Take comfort in knowing that being 22 with student loans and an undergraduate diploma is usually better than being 22 without a degree. According to one study, over the average working life, high school graduates earn an average of $1.2 million, associate degree holders earn $1.6 million and bachelor degree holders earn $2.1 million.

When you see student loan dollars siphoned out of your paycheck for your college education, remember that this is often a good sign.

Try to avoid my biggest mistake of not budgeting for the cash outflows. When picking out my New York apartment after undergrad, I had heard that approximately 1/3 of your income should go to rent. Rules of thumb like this do not account for student loans. I unfortunately took the 1/3 advice, and my first 12 months in the city were difficult. I was in more debt after twelve months of work than before I arrived.

College is valuable for many people. If you like me are facing the debt associated with a degree, budget for it, keep making the monthly payments, and keep the prudent investment in perspective.

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