Learning My Finance

Preparation for the unexpected

2011-08-08T20:02:00.000-07:00

Each day at work I have the chance to speak with borrowers, real estate agents, and attorneys regarding financial hardships that people are having in today's tough economy. Many of these financial hardships are involuntary. People often cannot control when they are going to lose their job, have a car break down, require surgery, or even have a spouse leave them.

Certain phone calls seem to make a lasting impression on me. I sometimes find myself asking the question, "Could they have done something to better prepare for this hardship?" or "What else could these borrowers trim from their current budget in order to afford their payments until they can get another job?"

To the individual couple that had a home valued at over $1 million with $400,000-$500,000 in mortgages and only Social Security income--"Why did you not plan differently? Why didn't you think about what would happen to the mortgages when the other income stopped?"

My plea to everyone that reads this post: Please plan for the future! Think about what you need to do to weather the storm if you lose your job. How will your spouse make the mortgage payment if you die unexpectedly? What will you do if you have to get surgery? Please prepare for the unexpected!

Rewards

2011-07-19T21:25:00.000-07:00

I recently ordered some gift cards with some rewards from by credit card at the local credit union. This reminded me of when I realized that I was using my credit card for normal purchases anyway. Why not take advantage of rewards that were offered through the credit union anyway. All I had to do was opt in to the rewards program. Now we have reaped many free meals with the gift cards to restaurants we would not get to as often.

Now there are many different programs out there that offer nice perks. This should't mean we need to go out of our way to spend, spend, spend just to get rewards. Taking advantage of the rewards programs that are in place for things we do anyway is a no brainer. We didn't change our way of life at all to get set up on the rewards at that credit union. Setting up an account at another credit union so we could take advantage of a nice interest bearing checking account is another example of getting rewards for doing what you do anyway. No matter what program you choose, just keep in mind that businesses do reward customers for doing what they already do.

Electronic Envelope budgeting

2010-11-01T20:59:00.000-07:00

Janell and I have tried different ways to manage our budget throughout our marriage. The different things I have done with excel to organize our budget have evolved to what we now use.
Our current system is pretty much a virtual envelope system. We use excel to break down the amount of money in our checking account to different categories. Each category receives certain dollar amounts credited to the total after each paycheck. When we spend the money from the different categories the balance is then decreased. The goal is to only spend money that has been allocated to the category.
This system has certainly helped us have a fresh look on our finances. It supports our desire to live within our means. We are able to better stick to our budget. Ultimately, it is vital for everyone to find the budgeting system that works for them and use it!

Just Say No!

2010-10-29T20:43:00.000-07:00

After work today, my wife told me about the few things she purchased from a yard sale this afternoon. One great find was a used national bestseller, "Financial Peace Revisited" by Dave Ramsey.

Although it has been a while since I have posted, I could not help but post about a simple thought from the beginning of chapter 2. In elementary school I was taught to "Just say no to drugs." In college I was taught to "Just say no" when my schedule was already too full for anything else.

Dave Ramsey indicates that the nation's situation at the time was a reflection of our inability to "just say no" to ourselves! What is it that makes it so difficult to stop the impulse purchases when we cannot afford them? One possible answer could be a lack of vision for the future. I assert that cultivating the ability to "just say no" to ourselves when we really don't need something will certainly allow us to be better prepared for the future when our money is needed elsewhere as money just doesn't grow on trees.

Investing our Time wisely

2009-09-20T13:03:00.000-07:00

I know I touched on the wise use of time in my last post, but this principle is really something that I need to work on.

When I think of a financial investment I often think about what the potential return is going to be. This varies based on the risk involved with the investment.

For some reason, it is easy to forget that our use of time is really an investment. What return am I going to get from my chosen use of time? Some returns come right away while others don't become apparent for some time.

What is the return for using my time to complain?
What is the return for using my time to show gratitude?
What is the return for using my time to learn new things?
What is the return for spending time playing cars with my son?
What is the return for doing date nights with my wife?
What is the return for giving service to others?
What is the return for spending time to ponder or meditate?
What is the return for . . .

Regular financial returns come when we diligently invest in that which brings good returns.
Likewise, we get regular returns in other measure when we consistently do that which brings the reward. In other words, we reap what we sow.

Opportunity Cost and the use of Time

2009-08-26T20:16:00.000-07:00

Again I want to reference my Personal Finance textbook mentioned in my previous text.

"Have you ever noticed that you always give up something when you make choices?" That is opportunity cost. There is a cost in what we give up when we make choices. Therefore, our choices should be such that we get the most desirable result. The value of what we get from our choices should be greater than the value of what we give up.

In financial decisions, something is given up in order to receive a "more desirable" result. Some people might give up the use of 10% of their income now in order to have it set aside for retirement. Others may give up having money set aside for a big vacation in order to go out to eat on a regular basis.

Regardless of demographics everyone has a preference on how to use time and money. Opportunities are passed by in order to use our time and money the way we want. Hopefully we make the decisions that bring us the short and long term consequences we desire.

To finish the post I extend the following invitation from the textbook:

"Select your use of time [and money] to meet your needs, achieve your goals, and satisfy your personal values."

Goal Setting

2009-08-22T22:04:00.000-07:00

I recently started reviewing some of the things I learned from my Personal Finance class at Snow College. The following tidbits come from my textbook from the class.

"If you don't know where you're going, you might end up somewhere else and not even know it."

--Goal setting is central to financial decision making

Financial goals should be:

1. Realistic . . . don't set goals that you cannot achieve with your income and life situation.

2. Specific and measurable . . .Having specific, measurable goals helps us create a plan to acheive the goals.

3. Have a time frame. . . This helps us avoid procrastination in working toward the goals.

4. Indicate the type of Action to be taken . . . Without action Goal setting is of no use.

1 in 84 homes in America have received . . .

2009-07-29T20:24:00.000-07:00

On a recent conference call at work we heard a crazy statistic.

-1 in 84 homes in America have received a forclosure notice.

What? Why so many?

First off, why are so many homes in foreclosure? Some homebuyers stretched themselves too thin. Others didn't understand the terms of the Mortgage they signed (you mean I'm supposed to read and understand the legal contract I enter into?). Many homeowners don't think about property tax increases, homeowners insurance rate hikes, repair and maintenance costs. The last broad category I want to include is those that were hit so hard by declining home values that they owe more than the home is worth.

While thinking of homeownership as an investment is good, it is vital that the borrower does their due diligence. My brother-in-law spoke of going through the "worst case scenario" before making their home purchase. I believe that too many people only go through the "best case scenario" and forget that life doesn't always turn out how exactly as planned.

Don't let the loan officer convince you to borrow the maximum amount you can qualify for. That is why so many people are upside down in their mortgages. Borrowing less than you could afford will allow you to still enjoy life with the extra cash flow.

My point is not to scare anyone out of buying a house. I only hope that more Americans, including myself, will truly seek to understand what costs are associated with buying a home before the purchase is made.

Prepare for the future

2009-07-02T18:09:00.001-07:00

This morning I had a bit of a paradigm shift. Some financial experts seem to focus a lot on building wealth. Although that focus can be a good one, my mind shifted a bit on how I want to look at it.

Instead of focusing on a desire to be wealthy I believe that it is better to focus on being prepared financially for the future. Being prepared financially truly is a key to the future.

I want to be prepared for. . . when the car breaks down. . . . buying our 1st house . . . . going on regular dates with my wife. . . . taking vacactions . . . . furthering my education and learning. . . . unexpected illness . . . .retirement . . missions. . . charitable goals. . . etc.

So, some great preparedness questions to ask oneself are:

"What do I need to be financially preparing for?"

"How am I going to be financially prepared for . . . .?"

"What should I be doing differently to be better prepared for . . . ?

My favorite line from the Disney Movie, The Lion King, is "Be Prepared!"

APR vs APY

2009-06-19T20:53:00.000-07:00

You might hear APR or APY everyday on TV, the radio, or even the internet. I did a little reading on investopedia.com and here are some interesting findings to help the average consumer.

What is the difference between apr and apy?

APR=Annual percentage rate
APY=Annual percentage yield
A big difference in these two rates is the use of compounding interest.
APR is a basic rate that doesn't use the compounding effect while APY does use this compounding effect.
APR = Periodic rate X number of periods
APY = (1+periodic rate)^number of periods - 1
For example, a credit card company might charge 1%interest each month; therefore the APR would equal 12% (1% x 12 months = 12%). This differs from APY, which takes into account compound interest. The APY for a 1% rate of interest compounded monthly would be [(1 + 0.01)^12 – 1= 12.68%] 12.68% a year. If you only carry a balance on your credit card for one month's period you will be charged the equivalent yearly rate of 12%. However if you carry that balance for the year, your effective interest rate becomes 12.68% as a result of the compounding each month.
So, banks will quote the apr when they are trying to lend money because it doesn't take into account the extra money they will make off you because their interest isn't compounded annually. It is generally compounded quarterly or monthly. so if a bank quotes a rate of 9% apr and the loan compounds monthly then you are really getting charged 9.38% a year. That .38% accounts for a lot of money if your loan is large.

On the other hand, banks are going to quote the apy when they are trying to get you to put your savings with them. They are going to quote the highest rate possible. We will get the "higher" rate assuming we let the interest we earned start earning more interest.

Include the Entertainment category in your budget

2009-05-20T21:32:00.000-07:00

What is the use of have a meticulous budget if you don't get to have some fun too? No matter how big or small, I feel it is important to have an entertainment category in the budget. We are looking forward to our family trip to Yosemite, San Francisco, and Modesto. The blessing of a budget is helping us afford it.

The entertainment category is great to have when siblings want to head to a sporting event, musical, or the movies. This is great when you just want to go get some ice cream. The only down side to the entertainment category of the budget is there has to be a limit.

Enjoy the journey. Make some memories. Have fun!

Sacrifice

2009-05-09T12:04:00.000-07:00

This week Janell and I made a sacrifice that will hopefully help us with our goals for the coming year. We had been paying quite the premium for our cable/internet bundle after the introductory period expired a couple of months ago. Now that Janell is done with her Bachelors degree (Congrats Janelly!!!) we have decided to go with basic cable and basic internet. The switch happens Monday. So, now we will have to deal with the much slower speeds while online.

I guess the point here is that reaching our goals takes sacrifice. We must give up something we have or want to get something better. In business, opportunity cost is what you give up to get something different. We must decide if what we are sacrificing is worth more than what we are getting for the sacrifice or not. The answer is subjective and thus it is different for everyone.

Hopefully we are sacrificing the right things for that which will last. Giving our time, talents, and money is worth the reward of a strengthened relationships with family and friends.

Commitment

2009-05-06T18:52:00.000-07:00

In the book, "How Successful People. . . Keep their lives out of the toilet" by Sandra Phillips and Don Aslett, I learned a new way of thinking about commitment. Commitment is the "I will . . ." attitude. This differs from I wonder. . ., I wish . . ., I will try. . . ., I'll see what I can do . . ., I will do it as soon as . . .Instead of just having an intention to do something great we must make the commitment to do so. "Yes. I will." "I promise."

According to Yoda, "Do or Do not. There is no Try." After the commitment is made there must be followthrough. Distractions, detours, and temptations will certainly follow the making of a commitment. If we are truly commited then we will not falter from achieving what we said we would do.

Stick to your task till it sticks to you;
Beginners are many, but enders are few.
Honour, power, place, and praise
Will come, in time, to the one who stays.

Stick to your task till it stick to you;
Bend at it, sweat at it, smile at it too;
For out of the bend and the sweat and the smile
Will come life's victories, after awhile.
-Anonymous

Improve Your Credit Score

2009-04-22T21:16:00.000-07:00

Recently I was reminded of a friend in my ward. He and his wife wanted to buy a home several years ago, but found that it would actually take some time. When they went in to inquire about a Mortgage the lender told them they had no Credit scores. Essentially they would have to build their credit before purchasing their home. So, unless you are going to buy your first home or your next home with Cash it is a great idea to pay special attention to your credit score.

Another secret I recently learned reminded me to keep improving our credit scores. Higher credit scores mean that borowers are less risky to investors. Therefore, they are willing to loan you money at a lower interest rate. If you don't have great credit then you will likely get charged higher interest rates. Even worse, you may not qualify for a loan at all. Remember if you are qualifying with both husband and wife then both credit scores need to be great because your interest rate will be affected by the lower of the two spouse's scores.

Delay Gratification

2009-04-22T20:57:00.000-07:00

Today I just wanted to do a short post about the benefit of delayed gratification. This principle really goes with not buying things that don't increase in value unless you have cash. When you want to get something it pays to give it some time. Make sure that after "sleeping on it" you still want it, you can afford it, and you can afford it now.

Janell and I recently purchased a bedroom set. This is something that we have wanted (especially Janell) since we got married. Well, now that we have had a few years of saving we can afford it. We found something we really like on sale. So, we slept on it and decided to go ahead and make the purchase. Wow, it really gives you satisfaction to pay with the debit card (Cash).

In our "I want it now" world it actually means more when we put off things we want until we are truly ready financially to get them. When considering a purchase we can ask ourselves the following questions:

Can I afford to get this?

Can I pay cash?

What do I have to give up to get it?

Does it make sense to buy it now or later?

Only pay "cash" for things that depreciate

2009-03-21T10:22:00.000-07:00

This post got started a couple weeks ago, but the internet went down. Now I finally post it. I don't remember the source of this train of thought. Nevertheless, it is good advice. Don't buy stuff on credit that is going to depreciate or go down in value. Sometimes this isn't always possible, but the ideal is there. When we buy stuff on credit the value of the product or service can go down. This means that we could owe more money on a product or service than it is worth. For example, The value of a New car goes down several thousand dollars right when you drive it of the lot. Why should we owe more money on the car than it is worth.

There are some things that do go up in value after they are purchased. For example, the value of an education generally goes up every year. We can certainly earn more money with higher education. So, if it takes some debt to get an education it can definitely be worth the "investment". Likewise, buying a home is likely a great long term investment. Debt can be used wisely in buying a home. In most cases over a long period the value of a home will go up. location, bad neighborhood, flood, cracked foundation, etc are some examples of when a home may not appreciate. Tough economic times can also cause the value of a home to temporarily stay constant or go down in value.

The Moral--when you cannot afford to buy something that depreciates with cash. . . . .don't buy it until you save the money to pay "cash". Let interest work for you instead of against you.

Take baby steps

2009-03-18T20:11:00.000-07:00

I jumped on Dave Ramsey's website tonight. He does a national radio show about personal finance. Dave seems to focus on real life personal finance for the average American. I love step number 1. $1,000 emergency fund. hmmm, it seems like I've heard something similar before. Setting a goal for how much to start an emergency fund with will certainly be beneficial When we have an emergency in our everyday life. Starting now with a budget has helped us work on building our emergency fund.

Dave quotes John Maxwell on his website, "A budget is telling your money where to go, instead of wondering where it went." In other words we should plan on paper or on the compter what we are going to spend before we spend it. This also sounds familiar--Spiritual creation before the physical creation. This principle has sure helped us begin building our emergency fund while saving for other things as well.

Build a Reserve

2009-02-22T15:55:00.000-08:00

"We encourage you wherever you may live in the world to prepare for adversity by looking to the condition of your finances. We urge you to be modest in your expenditures; discipline yourselves in your purchases to avoid debt. Pay off your debt as quickly as you can, and free yourselves from this bondage. Save a little money regularly to gradually build a financial reserve. If you have paid your debts and have a financial reserve, even though it be small, you and your family will feel more secure and enjoy greater peace in your hearts."
-The First Presidency (All is safely gathered in pamphlet)

I love the principle that is taught here by the First Presidency. If we regularly save a little money, then this growing financial reserve will offer us peace and a sense of security. I know that our reserve is currently small, but as we regularly put money aside that will help us have hope and peace in what will come in the future.

Conquer Procrastination

2009-02-08T20:13:00.000-08:00

Today is a great day to write about Conquering Procrastination. In the book " The Richest Man in Babylon" George Clason writes about the need to Conquer Procrastination. One of the characters in the book said, "To me, Procrastination proved to be an enemy, ever watching and waiting to thwart my accomplishments." I've been wanting to post about this principle for a while, but now I finally do it.

It is so easy to procrastinate. We often think about things that we need to do, but wait to do it. Later in his book Clason says, "Action will lead thee forward to the successes thou dost desire." There is no better way to conquer procrastination than to take action now. Of course we should set goals and plans to accomplish them. Then we must act on those plans. We should prioritize and then stick to the plan.

I think that many young couples wait to save for retirement or wait to set a budget. Hopefully we can do a little better in areas that we know we need to to set goals and work towards them. Let us conquer procrastination as it relates to our finances and other important areas of our lives.

Take Responsibility for Your Money

2009-01-17T10:36:00.000-08:00

Richard Paul Evans gave some great advice in his book, "The 5 lessons A Millionaire Taught Me."

One of those 5 things is to Take Responsibility of Your Money.

We should:

1. Know how much money we have

2. Know where it comes from

3. Know where it is going

4. Know what it is doing in the mean time.

I think

that people often forget about number 4. What is our money doing while it isn't yet spent?

There are many options to get our money to earn before we spend it. After learning this principle I thought of different ways to let the money work for us while it is waiting to be spent. Our solution is 5.01% Rewards checking account

from Deseret First Credit Union. Other banks and credit unions also have insured accounts that allow for your money to earn interst before it is spend. Any little bit helps.

Another tidbit--I believe Heavenly Father wants us to take responsibility for our money (everything we have he has given us). Hopefully we are being good stewards.

Look and Wake up

2008-12-20T08:21:00.000-08:00

Waking up in the middle of the night just isn't much fun. When I have to get up in the night to go to the bathroom I do everything I can to Not look at the light fixture or I will wake up too much. Then it takes a lot longer to get back to sleep. Well, today was one of those sleep in days, but I had to get up for to use the bathroom at 7:15 when it was still dark. I did my best not to look at the light, but a great spiritual application came to my mind that I had to write down.

Maybe we don't look to The Light, The Savior enough because deep down inside we know that we will "wake up" and not be able to go back to sleep very easily. If we look to The Light then we won't be able to do our own thing as much. Instead we will be inspired to follow the Savior. We will more consciously know we shouldn't take the easy road. Really it will still be up to us if we follow the Savior or decide to go back to sleep. Hopefully when we feel the need to "wake up" and "look to the Light" then we will follow those promptings. Doing so will truly bless our lives. We will get more lasting happiness than the pleasure of extra "sleep" we don't need. Now of course we all need our sleep at night, but there are times when we need to "awake and arise from the dust . . . and come unto Christ and be perfected in him."

After thinking about the spiritual application I knew that I wanted to share it. The financial application came to mind as well. Often times we don't want to look at our finances to see where we can improve. We would rather stay asleep for the temporary pleasure of buying things we don't need, spending more than we earn, or paying to much for something when we could save a lot by purchasing somewhere else or even waiting until the price comes down. We should actually Look to at finances to see where we can do a little better. Make sure we aren't asleep to our financial situation. Delaying gratification can sure bring longer lasting financial freedom as we live within our means and save for the future.

Sharing what I learn about finance.

2008-12-19T21:56:00.000-08:00

Last May I had the opportunity to graduate from the John M Huntsman School of Business at Utah State with degrees in Finance and Economics. I decided I wanted to share some of the things that I learn about finance. By no means am I saying that I am an expert in personal finance, but I do believe that I will better learn and apply these things after sharing them with others. Feel free to comment on the topics that I post about.

Although it may sound weird, I took a few notes from my commencement exercise and business convocation. Let me share some main points from James Quigley and L. Tom Perry.
First James Quigley taught the following main points:
1. Respect others.
2. Opportunity instead of entitlement (I love this because when we seek to take advantage of opportunities we succeed in more ways than we would if we just think we are entitled to things).
3. Lifelong learning

L Tom Perry taught the following main points:
1. Practice integrity so others can trust you.
2. Reap what you sow.
3. Look people in the eye to communicate with them.
4. Develop friendships-show interests in the lives of others.