Archive for May, 2009

In a previous blog post, Small Savings Matter, I have talked about what being frugal means. Those who have read this post have emailed me and asked me how they can tell whether their frugality is within reason or out of bounds.

This reminded me of a short and fun test which I took some months back.  So, here it is.  Get a piece of paper and write down your answers.

A. Do you eat out (not counting lunches at work)?

1. All the time
2. Two to three times a week
3. Two to three times a month
4. Never

B. When you eat out, do you…

1. Order whatever you crave?
2. Order an entree for each person and take leftover to go?
3. Share your meals to save some money?
4. You don’t eat out

C. What kind of car do you buy?

1.  The latest and greatest vehicle that a two-year lease can get
2.  I buy new car every few years
3.  I always buy used car
4.  I don’t own a car

D. What kind of TV do you have?

1.  1080 HDTV, of course!
2.  A flat screen TV, but not the latest and biggest
3.  I still have the one I bought 10 years ago
4.  I don’t have a TV

E. What cable/satellite package do you have?

1.  Premium channel with everything on it
2.  Just the basic channels so I can watch the news
3.  Whatever I get with the rabbit ears
4.  I don’t have a TV

F. You have some old clothes, do you…

1.  I don’t have old clothes.
2.  Donate them when they get a little older?
3.  Turn them into rags?
4.  I am still wearing them!

G. When you buy something, do you…

1.  Buy what you want, whenever you want?
2.  Occasionally splurge on what you want?
3.  Only buy what you need, clip coupons, use discount cards, etc.?
4.  Avoid making any kind of purchases?

H. When you receive gifts, do you…

1.  Take them back to the store to trade up?
2.  Keep all your gifts?
3.  Return or re-gift some?
4.  Sell them on eBay for cash?

I. When you buy clothes, do you…

1.  Always shop brand names?
2.  Usually buy when they are on sale?
3.  Usually shop at goodwill and thrift stores?
4.  Ask you friends and family for hand me downs?

J. Regarding your lunches, do you..

1.  Always go out to the local restaurants?
2.  Mostly eat low cost take out lunches?
3.  Occasionally pack your own lunch?
4.  Always pack your own lunch?

Now, let’s check your answers. For each question, give yourself -

1 point for all #1 answers
2 points for all #2 answers
3 points for all #3 answers
4 points for all #4 answers

Now, add up the points and rate yourself:

35+ = You’re definitely cheap
25-34 = You’re frugal. Good job!
16-24 = You’re not frugal, but you appear to be reasonable with your spending habits
10-15 = There are a lot of opportunities for you to save money

Protecting yourself is your best defense against identity theft.  Below are some tips to safeguard your identity.  Following these tips will lessen your risk of being a victim of identity theft.

1. Guard your personal information with care.  Before you reveal any personal information, always verify first how your information will be used and if it will be shared.
2. Never give out personal information on the phone, by mail or through the internet unless you initiated the contact or know with whom you are dealing.  If you really must give out personal information over the phone, request that you call them back.
3. Invest in a good, cross-cut document shredder.  Shred all sensitive documents that contain personal financial information before throwing them out.  These include financial statements, credit card offers, credit and loan applications, receipts and insurance forms, tax forms, bills, invoices and basically any document that contains personal information before throwing them out.
4. Carry only the identification information you need.  Remove all unnecessary items from your wallet and your bag.  Your social security number, birth certificate and passport must be kept in a safe place together with all your other sensitive documents.  It is wise to also keep a list of all your account numbers and contact information just in case you need them.
5. Ensure that no one else has access to your mail.  Invest in a mailbox that could be locked to ensure that none of your mail will fall into the wrong hands.
6. When selecting passwords for your credit cards, bank accounts and other personal accounts, choose one that cannot be easily guessed even by those who know you well.
7. When using automated teller machines, always shield your PIN and ensure that no one is within close distance.  Be wary of anyone who stays too close.
8. Never give away your Social Security Number unless it’s absolutely necessary.
9. When purchasing online, avoid questionable online merchants.
10. Keep track of your purchases and always check your financial statements to ensure that all the purchases on your statement is correct.
11. Carefully monitor your FICO credit score using service providers like MyFiCO.
12. It is recommended that you regularly review your credit report from each of the three credit bureaus.  You are eligible for one free credit report per bureau.  The easiest way is to order one free report from AnnualCreditReport.com every 4 months.  What you can do is to stagger the requests from Equifax, Experian and TransUnion.

Identity theft is best defined as someone pretending to be someone else in order to steal money and obtain other financial benefits. The person whose identity is used is held responsible for all the actions of the one who had pretended to be him.

If you are a victim of identity theft, you could be left with huge amounts of bills, bad credit and the hassle of dealing with financial agencies and police departments to clear your name. This can be a very long and daunting experience.

Do not let this happen to you. As identity theft can happen to anyone, it would be wise for you to be well-informed.

So, how do thieves obtain your personal information?

There are a number of ways by which thieves can get your personal information such as your name, date of birth, address, credit card, social insurance number and other personal identification. When thieves obtain these information, they can easily steal money from your existing accounts, open other financial accounts, make purchases, or even obtain employment by using your identity.

I have written below some of the common ways by which thieves gather your information:

• Going through your trash or what is called as “Dumpster Diving”
• Stealing mails from your mailbox
• Looking over your shoulders either at a bank or a store while you process your credit card
• Searching for your personal information on the Internet
• Posing as an employee from one of your service provider companies over the phone to get your personal information

Of the five common ways mentioned above, it is searching on the internet that is the most scary of all. With all the social networking sites popping up like Facebook, MySpace, Twitter, etc, people do not think twice about sharing personal information. They do so casually without taking into consideration the possible repercussions of sharing these personal information.

Always be careful with what you share and always safeguard your identity. On my next post, I will discuss with you some of the ways by which you can protect yourself against identity theft.

If you are thinking of getting a financial planner, it is going to be to your advantage to choose one with whom you are comfortable with. Meet with him and get to know him. Ask him questions and find out if they are the right financial planner for you.

I have listed below some of the basic things you should know about your financial planner.

1. Professional Fees and Charges

One of the first things you should ask is how much a financial planner charges. Since you are acquiring his service, it is only proper that you know how much his services would cost you. You certainly do not want to be caught offguard when his invoice arrives in your mail.

Financial planners charge differently. Some are commission-based, some are fee-only and others may be fee-based. For others, it can be a combination of the three charges mentioned. It is important that you are aware of how much he charges before you forge a working relationship with him. It is always a good idea to have him write down his fees so that everything will be clear.

2. U4 Report Card

The U4 contains the financial planner’s work background. Any complaints against him and any wrongdoing on his part will be reflected on his U4. When in doubt, you can always log on to www.finra.org to check on the background of your financial planner.

3. Number of Clients

Some financial planners take on more clients than they can handle. Knowing how many clients he has will give you a gauge as to how you will be serviced. He may be good but if he doesn’t have the time for you, then it might make more sense to acquire the services of someone else.

4. Fired by a Client?

It is a fact that a working relationship with a client does not always work out. Sometimes, the client decides to move ahead with another financial planner. Nevertheless, it would be good for you to know why this happens. It could be due to poor service or could be a clash of personalities. It is an uncomfortable question but one that will give you a good insight into the financial planner’s character.

5. Check his Portfolio

A good and trustworthy planner should be able to follow what he advises. If his portfolio does not reflect the investment strategy that he advises you, then that would be cause for alarm. A financial planner who is willing to show you some of the holdings in his portfolio exudes confidence in his strategy and will help you believe in his investment strategy.

6. Business Plans

One of the things that people often miss out on is knowing what the financial planner’s business plans are. When we seek the services of someone else, it is easy to fall into thinking that they will always be around to provide the service for you. Unfortunately, this is not true. Not knowing the business plans of your financial planner can leave you out in the dark when she suddenly leaves the business. Getting a sense of how long your financial planner will be in the business and what her plans are for you when she leaves will definitely help you make the right decision.

Remember that it is your responsibility to interview the financial planner and to assess whether he is the right person to manage your investments for you.

One of the most common questions that people always ask me is how much money they should save monthly to be considered financially responsible. This is a difficult question as there is no hard rule on this.

To me, the more important thing is to develop the habit of saving. This is because people have different incomes as well as different needs. Such that, it would be inappropriate to put a number on what being financially responsible means. For example, would you consider a person saving 20 percent of his income more responsible than someone who is saving only 10 percent of his income? I don’t think so.

Each one of us is in a different situation. While it may make sense for others to save 20 percent of their income, others are only able to save 5 percent and there could be others who are able to save 30 percent of their income.

Now, of all the suggested formulas out there, Elizabeth Warren’s balanced money formula seems to be the more “realistic” one. She said that to have a balanced money formula, one must keep their “needs” below 50 percent of their income after tax, keep their “wants” at 30 percent and keep the remaining 20 percent as “savings.”

Doing this may sound difficult to some but sometimes, a little restructuring of your finances and spending habits is all that you need to be able to achieve this. Add a lot of determination and focus, and you will be on your way to a brighter financial future.

Ultimately, the percentage of income you save is not important. What is important is that you develop the habit of saving. It may be difficult at first but it will become easier once you make a conscious effort to do so. Always look for opportunities to save and keep in mind that no amount is too little to be saved.

It’s easy to spend money and there are times that we’d really rather just spend it. But if your goal is to be financially responsible, then you have to make saving a priority. Stop making excuses and start saving now.

When saving money, always remember that small savings matter. I have encountered some people who do not like to sweat the small stuff. They see no difference in spending 50 cents more on a loaf of bread today. It’s just fifty cents after all. How can saving 50 cents on a loaf of bread affect your savings?

While saving 50 cents on a loaf of bread may seem inconsequential today, imagine the savings you will have over a year. Over a year, that will amount to $26. Add to that the 50 cents you could also save on the carton of milk which would again be $26 a year. As you can see, all these small and seemingly irrelevant savings do add up. They may not be noticeable on a one-time purchase but you will see its effect over time. If you pay attention to the nickels and dimes, you will see your savings grow in time.

It is easier to see huge savings when buying a high ticket item. After all, how can you ignore the 50% discount on a 40″ LCD TV? A $1,000 savings is always tempting and hard to resist. Savings do get magnified when items are expensive and it is easy to fall into the trap of buying one just because you see the huge amount of money you can save.

Before you make the decision to buy, always ask yourself whether you really need the item. Take special care when making these high ticket purchases and make sure that you get the best deal there is.

Remember that being frugal should not make you feel deprived. It is ok to spend a little more on some of your favorite brands.

Frugality is not being cheap nor does it mean living like a pauper. Frugality means choosing to make the most out of your money. It means living within your means and not spending more that you are earning. Understanding your spending habits and realize that small amounts matter.

Having a credit card nowadays is not only convenient but also necessary. Not only is it the preferred mode of payment for most purchases but it is also a powerful tool by which you can improve your credit score.

Let me show you how to build your credit profile through the use of credit cards:

1. Assess your situation. It is recommended that you check your credit report and know where you stand. Do you have an account in your name in the past 7 years? Have you ever had a credit card or loan before? If you have never had a credit or loan account, there will not be enough data on your credit report to evaluate accurately and your report will be reported as “thin files.” Remember that having positive records on your credit report will make opening a new account a lot easier.

2. Know your options. Some credit cards are easier to apply for than others. If this is your first time to apply for a credit card, it is recommended that you apply for a gas or department credit card or a secured credit card. There are also some credit cards that cater specifically to students. Choose a secured credit card or pre-paid card that reports to the credit bureaus if you want to improve your credit standing.

3. Send in your application. It would only take a couple of weeks to know whether your application has been approved or not. If you are not approved, the creditor will usually offer a free credit report and explain to you why you your application has been denied.

4. Be responsible. Use your credit card regularly for small purchases but make sure to keep your balance below 35% of your credit limit. Remember to only make purchases that you can pay in full and on time. If you do this, you can be sure that your credit score will start to improve. In fact, it is possible that people with no previous credit history can actually have a credit score in the 600’s after three to six months.

5. Consider applying for another card. After a few months of responsible use of your new credit card, you will see your credit score improve. When this happens, it is recommended that you start applying for a standard credit card. Not a gas card. Not a secured card. And not a pre-paid card. But a regular credit card.

Continue using your credit cards responsibly. It is said that having two to six open and active credit cards on your report will improve your credit score.

I have often been asked if all credit cards are the same. Well, they are not.

With all the credit cards in the market today, choosing the right one for you may be tricky if you do not know what you are looking for. The key is to understand your financial needs and know what it is you want from a credit card.

Before you choose a credit card, you need to know the following -

* How much will you spend on the card each month?
* Will you pay your balance in full each month?
* Do you want a card that has a rewards program?
* Do you want to pay an annual fee?

Once you have your answers to the four main questions above, now is the time to shop around. While it maybe tempting to grab the first one that offers you a credit card, I would highly discourage you from doing just that.

It is important that you compare the features and fees of the credit cards in the market and choose one that answers your needs. Weigh the pros and cons of each card. Some cards may offer you a cash back but may have a steep penalty for late payments. Some may waive the annual fees but do not offer a rewards program.

Once you have narrowed down your choices, I would suggest that you study the terms and conditions of your card before you make your final choice. Make sure you understand all the provisions and can keep up with the conditions on your end. Believe me, knowing this will save you a lot of time, money and frustration.

Keep in mind that a credit card agreement is a legally binding contract. Make sure you understand all the terms and conditions before you use your card. If something isn’t completely clear to you, do not be afraid to ask questions. And if you are not comfortable with the terms and conditions, then look for another credit card that you are comfortable with.