Do you spend enough time managing your finances? Paying the bills, putting away money into your savings account, putting away money into your retirement account, transferring money from account to account and managing your budget? What about investments, cutting down on expenses and paying off old debts? When faced with so many choices and decisions we often just give up, put it aside or do nothing.
Personal finance, saving and your over all financial well being is about more than just will power. It takes knowledge and a plan to make it happen. It is also about automating everything you can, especially the psychology of automation. Getting yourself trained in good habits. If you automate as much as possible you are far more likely to succeed financially as it takes away the stress and time needed to pump into managing everything. What can you automate? For one thing your bill payments can be automated using your banks bill pay service. You can also automate dividing your pay check to your checking and savings accounts. You can set up automated contributions to your retirement plan through work. You can set it up with your bank to pull a certain percent of your check to your Roth IRA retirement account as well.
If you have certain savings goals you can set up separate savings accounts for each of these goals. What is great about this is that it is easy to see where you are for that specific goal as well as the fact that once the money hits your savings account it will be harder to touch, IE save it and forget it. If you have for an example a goal to save for both a house and a wedding you would open two separate savings accounts and set up auto deductions from your paychecks into both of these accounts. It takes out the work and stress of saving for these two things and makes it very easy to track your progress.
Lets take an example of an automated finance program in action. Freddy Fingers Jr makes $3678 per month take home from his job. Freddy want to save 3% to his Roth IRA retirement account or $110.34. Freddy already has a 401(k) through his work place and these deductions already come out of his check. Freddy Rents so he has to cut a check for $1390 to his landlord every month on the 1st. He owes $110 per month to his car insurance but he sets this up as an automated bill payment. Freddy has an auto loan for $390 per month which he sets up on auto pay. Freddy has health insurance through work and this gets auto deducted pretax from his paycheck. He also pays roughly $200 per month to The city of Austin power company and roughly $45 per month for gas both of which he sets up automated payments for. His time Warner cable, phone and internet payment of $175 per month is also set to bill pay. Finally he has his cell phone bill for $75 which he sets up as an auto payment. After all expenses are paid he has paid out $2495.34 per month leaving him only 1182.66 per month. Freddy luckily is married and his wife Mona earns $3954 per month which goes to the joint checking account. This leaves Freddy and Mona a sum of 5136.66 per month with only needing to write one check. Freddy and Mona want to own a house so they are setting up a 2nd savings account and auto deducting $1550 per month to this account. They also want to go to Bora Bora so they have set up another saving account and are putting away $450 per month towards Bora Bora. They also want a general savings account so they divert $450 a month towards this
Roth IRA: $110.34 (Automated)
Rent: $1390 (Manual Check)
Car Insurance $110 (Automated)
Car Loan: $390 (Automated)
Electric: $200 (Automated)
Gas: $45 (Automated)
Cable, phone and internet: $175 (Automated)
Cell Phone: $75
= $2495.34 expenses
Left over combined for Fred and Mona: 5136.66
Diverted to savings:
House savings: $1550 per month (Automated)
Vacation Savings: $450 per month (Automated)
General Savings $900 per month (Automated)
Under this plan they have roughly $2236.66 per month left over for good, gas and life style choices all with only needing to ever cut one check per month. The worry and stress has been taken away making it more easy for them to achieve their goals.
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The state of consumer finances in America is in a state of decline, further more this state of decline is accelerating at a rapid rate. Falling incomes of Americans along with inflation which devalues the limited dollars being earned by everyday average Americans coupled with the lack of asset accumulation is likely to make retirement at a normal age more difficult for most Americans. The Federal Reserve Board collects a massive amount of data every three years. This data ranges from incomes of Americans, assets, real estate, debts public and private, and data related to the banking and credit card industry. This data paints a picture of the state of American finances, and the latest “painting” is rather bleak indeed.
According to the last study dating back at 2013 the bulk of Americas wealth is held by the top 1% of Americans. While there has been some income gain for Americans since the last study, most of this income gain has been segmented to the higher income groups while the middle class and poor continue to hover in that category or decline further in income and asset allocation.
The study from 2013 showed an interesting statistic. The median income earned by all Americans except for Americans aged 65 to 75 and 75 or higher declined, while Americans aged 65 to 75 and 75 or higher earned more median income. The most hard hit financially has been Americans aged 55 to 64 as they struggle to meet the requirements for retirement coupled with falling incomes and inflating and rising health costs. Income was not the only factor to this rise and decline among the various age groups, but also the fact that the value of assets such as stocks and real estate has fallen due to the recession which started in 2007. The recession has forced families to carefully make decisions on what they would finance during such uncertain economic times and this has had a ripple effect on every industry in a domino like effect that has effected nearly every aspect of our economy. Stock ownership has declined in all age groups due to Americans distrusting the market and struggling with every day expenses.
There is some good news among the bleak outlooks of the last study. The one big improvement is that between the start of the recession and today the number of households which hold some form of an asset has increased across nearly every age group except those under age 35. Almost 100% of families headed by someone age 35 or higher held some type of asset. Those under 35 actually lost assets, in fact the percent of those under 35 holding assets fell 5% between 2007 and 2013. The sharpest decline asset wise for those under 35 was those owning a vehicle, which declined very sharply, while in every other age group those owning a vehicle rose sharply. Real estate was also hard hit during the recession with those between 35 and 64 investing less in real estate both primary or investment grade real estate, while those age 65 or higher have been investing more into real estate.
The one great piece of information gathered is that the proportion of all households with any type of debt has decreased slightly from 77 percent down to 74.5 percent. More Americans than ever before are focused on paying down and paying off debt. The decline in debt was sharpest among those 35 or under. The only loan category that has risen sharply among Americans has been loans for education as more Americans are focused on improving their skill set to earn more income.
What does this study show then? That more Americans are concerned with gathering assets, paying down debt but that the value of these assets has been declining at least for now. It shows that Americans are earning less due to inflation and spending less. Of investments made stocks are the least likely to be chosen as an investment today likely due to distrust due to the volatility of the stock market. It also shows that more Americans today are focused on obtaining higher education even at the expense of more debt.
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Prime rate: What is it? Why does it impact your credit card or loan interest rates?
Credit card interest rates are on the rise. At Bankrate.com they have been tracking APR’s for several years. It’s a lot of work to update all our credit card offers, so we definitely take notice when there are changes. What is driving these increases?
Many credit card interest rates may soon be rising because they are directly tied to the “prime rate.” The prime rate is determined by the Wall Street Journal surveying the top 30 leading banks to see what rates they are offering to their best customers. When 75% of the banks change their rates, a new prime rate is published. Prime rates move up and down in coordination with short-term interest rates set by the Federal Reserve Board.
Currently, the prime rate is 3.25%. Last month, the prime rate was 3.25% and a year ago this rate was 3.25%.
It’s common for credit card offers to be listed as “prime plus” as in the prime rate plus 2% to 15% on average. Most credit card offers range from 9% to 22% APR right now because of the prime rate. You will also see references to “prime plus” with student loans and auto loans, online loans and home equity lines of credit. You can check the “Schumer’s Box” on your next credit card statement or look for the “Rates & Terms” link online to see where your credit card APR currently stands.
Starting the month of February with some fun, lets dig deeper as we continue to study credit scoring and their impact on your finances, ability to qualify for a new loan and overall impact on your everyday life.
Why are rumors, urban legends and myths so durable? Remember the one where Bill Gates would give you $100 for forwarding an email? Or the one about it taking seven years to digest swallowed chewing gum?
The same thing is true for urban legends concerning credit. Because the credit reporting system is complex and rarely understood, rumors tend to fly about credit reports, credit scores and more. Here are some of the most popular credit rumors:
• Making a lot of money helps your credit score (False)
• Checking your own credit data harms your credit scores (False)
• Paying off collection accounts doesn’t help your credit score (True)
• Paying cash for everything improves your credit score (False)
• Closing credit accounts will help boost your credit score (False)
• Insurance and utility companies use your credit data to determine rates (True)
• Once you have poor credit, you are stuck with it for seven years (False)
• Debit cards can help boost your credit score (False)
• You can opt-out of pre-approved credit card offers (True)