Personal Finance Ology

Everyone seems to say that buying a home is always better than renting. Well tell that to all the people in the states hardest hit by the subprime crisis. They now know that there are risks associated with owning a home. It isn’t always a good idea to buy. I plan on giving you a few things you should think about before making the plunge into owning your new home.

Reasons to buy:

You plan on settling down and would really like someplace more permanent.

Over the long term, they tend to be good investments. The population keeps growing but land doesn’t, the price of homes with land should theoretically keep going up.

You are benefiting from your monthly payments, not your landlord. Often your payments are going to be larger when you are buying your own home, but some of that money goes to pay down the mortgage. This is money you will get back when you sell.

Reasons not to buy:

You plan on moving soon. Realtors take out huge chunks of the sale price. If you buy then sell shortly after, it is hard to get all of your money back. Even if you are in a good market, the price of the house would have to go up significantly just for you to break even.

If you don’t need a lot of space. Sharing an appartment with another person or two is often cheaper than buying your own place. If you don’t mind living with others, you could probably save more money if you shared an apartment with a few other people.

You are lazy and don’t like taking care of a yard. Either you have to do the work yourself, or you have to hire someone to mow the lawn. This costs you either time or money which I’m sure you don’t have enough of.

Things to think about before you buy:

If you are really interested in saving money, do the calculations before you buy. I would assume that the value of your home stays the same to be on the safe side. To make a like comparason of home vs rental, figure out your monthly payment for both house and rental. Make sure you include all the small things that go along with a house like maintenance, taxes and utilities.

For an amortization schedule and calculator check out this amortization calculator. Here you can see how much you actually are ‘paying down the house’. Most people are surprised to see how little of it goes to pay down the house. In the first few years of home ownership, most of your mortgage is going to pay interest to the bank. Very little of it is going to pay off your home.

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So I was taking some time catching up on current events and the top finance news stories when I began to think about the effects a firm knowledge of personal finance issues can have on the future of my generation. The reason I became an advocate for being knowledgeable on personal finances is because I noticed that a lot of people my age just weren’t that interested in learning about their finances. This in turn leads to bad spending habits, unpreparedness for emergencies and a lot of time an extended dependence on their parents for financial assistance. I can go on an on about how this cycle then effects the parents of those uninterested in controlling their finances and how that can later trickle down to the economy, however I am choosing to take a different route.

Rather than rant and rave about the effects, I thought I’d take a look at the causes and by doing this hopefully deter some from making irresponsible financial choices or lackadaisical attempts to learn about their finances. What we don’t realize is what we pay the least attention to is what has a large impact on our lives.

Take for instance myself. During my earlier years in college, I took advantage of all of the offers of credit I was given only to later find myself unable to pay back my debts, which in turn was reflected on my credit report. The negative reports on my credit would later come back to haunt me when I was trying to purchase my first car. However, I didn’t think of that while I was carelessly spending money I didn’t really have. I just think that personal finance should definitely be talked about more in high school and college if not in depth at least to the point where it would peak the interest of students to go out and learn more about it on their own.

I know I’ve talked about this in my other blogs, but making smart decisions is a benefit in all aspects of your life-especially concerning your finances. So I thought I’d offer some areas where you could start making better decisions.

Plan What You Spend - being conscious of the amount of money you make in relation to your overhead will keep you aware of what you can and can not spend and also help you to focus on areas where you can lower expenses and create more spending money.

Use Your Credit Wisely - this means knowing the advantages and disadvantages of credit cards, their rates and their purpose. This also gets into Good Debt vs. Bad debt. I wrote about this in an earlier blog.

Stay Within Your Means - when you do this you make room to increase your means so that you are able to comfortably afford even more luxuries without overextending your finances.

Build An Emergency Fund - when you have an amount of money put aside you don’t have to worry about car trouble or a pricey repair putting you behind on your monthly expenses.

IRA or 401(k) - contributing to one of these accounts prepares you for a comfortable retirement.

Learn More About Investing - gaining more knowledge on investing will help you to increase your finances by having the ability to choose the investments that are right for you. A lot of people shy away from investing thinking they can’t do it however if you learn about it you will find that anyone can use investing to their advantage.

All of these topics, if they haven’t already been discussed, will be discussed in depth throughout this blog so that you can gain full control of your financial future. It all starts with a base. Having a firm knowledge of how personal finances work and what areas to strengthen before you move on to the next is the best way to go. That’s why in this blog I started with the base, the ground floor, of your financial fortress so that you can learn about how everything works together for your benefit. Once you understand how everything works, why you should do certain things in a certain order and how to make the right financial choices that will lead you to the achievement of your financial goals, it makes it that much easier to move along the right path to financial success. Here’s to the desire to learn more about personal finance and the want to make the right financial choices towards financial abundance!

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Money Market Accounts

The characteristics of Money Market Accounts resemble that of a savings account rather than a checking account because of their limitation on monthly transactions. The benefits of these types of accounts are their interest rates. They offer a much higher interest rate. However, along with the higher interest rates comes a required higher minimum balance. Therefore if your balance falls below the minimum balance you will be charged a large amount of fees. These types of accounts are used to save up for large purchases such as college tuition or income taxes.

Money Market Mutual Fund

These accounts can be used as another way to earn interest on your money while still being able to use it and they work almost the same way as a Money Market Account. However, the FDIC does not insure these. Therefore, a lot of people just use them to hold money for a short period of time until they decide where they would like to invest that money. If you have a certain amount of money that you won’t need for about 6- 12 months I would recommend you consider investing it rather than just holding it in this type of account.

Asset Management Account

An Asset Management Account is a mixture of a bank account and a brokerage account. What this means is that you get the benefits of investing your money while still being able to have access to it. You have check writing privileges with this account however you don’t want to use the money for everyday purchase as you would use your checking account ATM card. The advantage of having access to the money in this account is that you can use it to take advantage of other investment opportunities.

As you can see there are quit a few options when it comes to checking accounts. Take the time to have your banking representative explain them to you so that you can choose the one that best suits your needs.

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Checking accounts are usually the primary reason many people start a relationship with their banks. Usually you will find parents opening an account for their children or grandparents opening one for their grandchildren. Either way checking accounts are a popular service within the Banking Facility.

Types of Checking Accounts

Alongside the common checking account, there are many other options, services and features you can add on to your account to personalize it to suit your needs. The basic function of the checking account stays the same it’s just the way it performs that changes with the different type you choose.

Basic Checking

This account is normally for people who write very few checks monthly and would like an ATM or debit card. At some Banks there may be some fees associated with this account such as a maintenance fee, which is a monthly fee charged to your account if your balance falls below the required amount or you may be charged a fee if you write more checks than what is allowed monthly. A lot of times you can avoid fees being charged to your account if you use direct deposit for your paychecks. Before opening any account be sure to ask about any and all fees that are associated with it.

Student Checking Accounts and Senior Citizen Checking Accounts

Many banks offer accounts geared towards the particular needs of students or senior citizens. They are similar to the Basic Checking Accounts, however they may offer discounts on certain things. For instance, a Student Checking Account may offer free ATM usage or discounts to venues that students may find interesting while Senior Citizen Checking Accounts may offer discounts on prescriptions or discounted travelers checks.

Interest Bearing Checking Account

An Interest Bearing Checking Account is designed to pay you a small percentage of interest on your account monthly if you meet the certain qualifications. One of the most common qualifications is maintaining a certain balance. It is important to know how your bank calculates the minimum balance. Some banks require you to have the minimum balance in your account every day of the month while others require the average of your monthly balance to be higher than the minimum balance. This is information you should know so that you know when, where and how you would be charged a fee.

Photo by: Custom Direct

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