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.

Related posts:

1. Am I Financially Ready For Home Ownership?
2. Create Your Dream Home And Put Money In Your Pocket
3. How Much Home Can You Afford To Buy?

Basic Savings Account

The Basic Savings Account is a type of account you can use to store your emergency cash. I wouldn’t recommend using it for large amounts of cash being that the interest rates on the Basic Savings Account is usually pretty low and you could find other accounts with higher interest rates for your large lump sums of money so that you can earn more money on your money.

With this type of account there may be fees associated with it if you don’t meet the minimum balance or if you perform more transactions beyond the minimum amount allowed. Therefore, it is important for you to ask your bank representative about any fees associated with this type of account before you consider opening one.

High-Yield Money Market Accounts

These accounts can be compared to a checking and savings account rolled into one. On the savings side they pay an interest rate, which is usually higher than a Basic Savings Account and on the checking side you have the ability to write a limited amount of checks. However, with a High Yield Money Market Account you will need a higher balance to open one compared to the required minimum balance of a Basic Checking or Savings Account. Another difference in High Yield Money Market Accounts is that you normally would have to go to an online bank to find one. Online banks are able to offer higher interest rates due to their minimal expenses they incur in relation to a physical bank such as Chase or Bank Of America.

Once you begin to look around for online banks offering High Yield Money Market Accounts, you are sure to find many other institutions offering them however it is important to do your research on these offers. I would recommend, for those just starting out, to go with institutions that are FDIC insured this way you know your money is safe.

Certificates of Deposit

A Certificate of Deposit is a way to earn higher interest on your money. However, it is different from the Basic Savings Account and the High Yield Money Market Account being that you can’t make any transactions on the account. You can’t withdraw any money or write checks on the account. You earn higher interest rates by keeping your money in the account for a certain amount of time.

Basic CD’s

When you invest in a Basic Certificate of Deposit you are committing your money to the bank for a certain period of time. The longer you commit your money to the bank the higher interest rate you will receive. This is because any money that you deposit into this account the bank will use to offer loans to it’s customers at a higher interest rate. Therefore, the longer you commit to leaving your money untouched the higher compensation you get because the bank will be able to make a profit off of your money. This is the business of banks.

The normal time commitment can range from three months to five years. When you have completed your time commitment you are free to take your money and your earnings or you could rollover the balance into another CD. In some instances your bank may automatically renew your CD therefore it is important to ask your representative how they handle that and ask to be notified once your CD has matured. If you have to withdraw your money before the end of your time commitment you will be charged a fee. Therefore, it’s important to decide how much money you can afford to put away for the length of time required by your bank.

There are many different types of CD’s you could choose from. Some banks offer a variety of CD’s while others may offer one or two options. Just know that just because you are banking with one bank that doesn’t mean that you can’t go to other banks and compare their investment options with your current bank. You may find a better option somewhere else.

Related posts:

1. Checking Accounts
2. Asset Management
3. The Safety of Your Accounts

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!

Related posts:

1. Understanding Good Debt Vs. Bad Debt
2. Debt Management
3. The Effect of Interest on the Economy

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.

Related posts:

1. Savings Accounts
2. Checking Accounts
3. Maintaining Your Accounts

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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1. Savings Accounts
2. Asset Management
3. Maintaining Your Accounts

Alongside it being your duty to do as much research as possible there is also a responsibility that the lenders have to you. The Consumer Credit Protection Act of 1968, also known as Truth in Lending, is a law requiring lenders to disclose all the costs affiliated with your loan. This is where the Annual Percentage Rate (APR) or the actual cost of the loan including fees and expenses is found. This rate is normally higher than any advertised rate that may have gotten your attention and should be the rate you use when deciding which loan will work best for your situation.

For example, the next time you receive a mailing for a credit card pay attention to the way the interest rate is advertised. The company may state that the interest rate is 10 percent however somewhere in the fine print will be a disclaimer indicating the APR is 10.25 percent. You must review the credit card company’s guidelines to be really sure about their offer.

Deception

There is a lot of confusion and complication when deciding to choose a loan based solely off of the APR. This is because lenders use APR’s differently. Some may include all of the fees associated with the loan while others will include some fees and leave others out. Lenders use this to get around the Truth in Lending law and provide the consumer with a number that will more likely get them to borrow.

Advantages of APY

Not only did the Truth in Lending law require lenders to provide the APR but it also requires them to quote interest rates on an annual basis. This is the Annual Percentage Yield. APY is easier to use over APR because it gives you numbers that you can compare. Whereas with the APR you couldn’t really compare numbers because all of the numbers were calculated differently depending on the lender.

With the APY it’s pretty simple. All you have to do is calculate the total interest earned on an interest-bearing account for a full year. The APY allows you to compare two products with the same length however one may pay interest quarterly while the other pays it monthly. Since it would be more complicated to compare the rates of the two products by using their methods of interest payouts, it would be easier to calculate the APY. The key thing to remember here is that some products you are calculating the APY for may not have a length of time for a year. They may only last for 6 months or so. In this case you would be using the APY to get an idea of which product is the best deal. Your calculations for that particular product will not give you the actual APY.

Clarity

APR, Annual Percentage Rate, is meant to be the cost of the loan in totality and is used when you are borrowing money. Meaning any fees or expenses normally are added in and the total amount you are going to pay for the loan is revealed in the APR. However, many lenders will only disclose certain fees and expenses in the APR making it a deceptive number. You should always read the fine print and if you have any misunderstanding contact a bank representative for clarity.

APY, Annual Percentage Yield is the total amount of interest you could earn on an investment or deposit product. It is used to calculate and compare your profit on different deposit products. It should be remembered here that if you are comparing products that don’t last as long as a year then you are only getting an idea of the potential earnings of those accounts for the sake of comparing and not getting the actual APY.

Another factor in calculating interest rates and their effects on your loan or investments is compounding interest. For more information on compounding interest you can take a look at the article “The Basics of Interest (Part Three)” where it is discussed in more detail.

Photo by: quizzleblog

Related posts:

1. The Basics of Interest: Part 1
2. The Basics of Interest (Part Two)
3. Most Common Types Of Mortgage Loans

What is Inflation?

Inflation is when there are too little goods or services for the amount of demand on those goods or services. Simply put it is when a lot of people want too much of one thing. This allows for the merchant to raise the price because it is a highly desired product that is hard to get.

The biggest effect inflation has is it’s ability to rob you of your purchasing power by lessening the value of your money in the future. For instance, if there is a 4 percent a year inflation that means anything costing a dollar today will cost $1.04 in a year. Usually when you see the rate on inflation it is just an average number and does not necessarily mean everything will rise to that number. Some things will not rise as high and some will rise higher, whichever way keep in mind that the rate of inflation is normally given as an average and not a definite number.

It is important to consider the effects of inflation on the future value of your investment only if you are choosing between different time periods. If you are choosing between two different amounts but with the same time period the effects of inflation need not be considered.

The Dangers of Inflation

In most cases with the rise in prices there is a rise in salaries. However, there may be some companies who, due to the need to compete with other businesses, aren’t able to raise their prices therefore enabling them to raise the salaries of their employees. This in turn has a negative effect on those employees.

Another danger with inflation is for those who are invested in a fixed income product such as bank CD’s or bonds. With one of the solutions to inflation being higher interest rates those involved in a fixed rate investment will definitely lose out on the benefit of the prevailing interest rate.

What Does Inflation Mean To You?

Inflation can work for you or against you depending on your situation. If you are invested primarily in stocks for a lengthy period of time you could do fairly during the fluctuation of inflation. However, the negative effect comes into play if your money is heavily involved with bank CD’s or bonds with fixed interest rates. If you feel safer with your banks CD’s or bonds it is important to see if they offer special investments with inflation protection. If your bank doesn’t there may be other banks that do offer these services. Therefore, always remember to do your research before committing to an investment.

Whenever picking and choosing your investments and determining their present and future value it would be wise to always consider inflation and the effect it will have on your investment.

Photo by: ZeroOne

Related posts:

1. The Effect of Interest on the Economy
2. Most Common Types Of Mortgage Loans
3. The Basics of Interest (Part Two)

Balancing Your Checkbook

The first thing to keeping track of your account is to balance your checkbook. When you do this you are always aware of how much money you have in the bank, as well as what transactions will be posting to your account at a later date. That can be tricky as we sometimes forget certain transactions because they don’t instantly show up on our account. Therefore, if we post our transactions in our checkbook as we perform them we will always know what has already posted and what hasn’t.

A good way to keep an accurate record of your accounts’ balance is to use the account ledger that comes with your checkbook. This way you can enter the date, the vendor, the amount of the purchase, and whether you wrote a check, or used your debit card. You also want to record your withdrawals from ATM’s and deposits to be sure your balance is as accurate as possible. Once you enter in this information you can then subtract the amount of your recent purchase from your current balance. If you stay on track with this process you will always know how much money you have remaining in your account. I also use this process to look at the amount of money I am spending. A tip is at the end of the month review your purchases and how much money you are spending on what. This way you can do away with frivolous spending and find ways to put extra money in your savings.

Monitoring Your Account

Alongside recording your transactions, you also want to keep a close eye on your actual account. If you prefer to check your account online you can go to your banks website and setup an online account there where you will be able to have access to your account 24 hours a day seven days a week. If you would rather monitor your account over the phone your bank provides a phone number you can call when you would like to speak to speak with a live representative or even access your account through an automated system, for times when you call after hours. Whichever way you choose to keep an eye on your account you should always make an effort to check it at least once a week. This way you can compare the balance in your transaction ledger with the balance the bank has and be sure they are the same. Another important advantage to keeping a close eye on your account is in the case someone else besides yourself gets a hold of your account information. When you pay close attention to your account and the transactions posted to it you can easily catch a fraudulent transaction and alert the bank immediately.

Bank Mistakes

In the case of a transaction not being fraudulent activity and it being the banks mistake you can also alert them in timely fashion if you are regularly checking your account. If you happen to come across a bank error the best thing to do is to call in to the customer service number and speak with a live representative. That way they can view your account and make the proper notation so that your account can be corrected expediently.

All in all you want to pay close attention to your spending, the transactions posted to your account and how it all affects your balance. This will help you to keep a close reign on your finances and assist you with improvements to it in the future.

Photo by: scitech

Related posts:

1. Savings Accounts
2. Checking Accounts
3. Asset Management

The FDIC

The creation of The Federal Deposit Insurance was designed to insure up to $100,000 of the money deposited by the banks customers. This means in the case of bank failure the FDIC will guarantee a return of your funds up to and not to exceed $100,000. Any bank that offers the protection of their customers deposits by the FDIC will have a sign in their facility that says “member FDIC”. When opening an account with a bank be sure to look for this sign to ensure your protection.

Although the FDIC covers $100,000 per customer there are a few exceptions to the rule. U.S. Treasury securities, annuities, insurance products, stocks, bonds and mutual funds are examples of items not covered by the FDIC. Although you may come across some of these products that operate like a checking account-allowing you to write checks, etc.-it is imperative to find out if it is protected by the FDIC.

Is Your Bank Safe?

A good way to check out the stability of your banks is to visit www.bankrate.com and use the rating service titled “Safe and Sound”. This tool gives you a rating of banks and credit unions by using different financial measurements such as earnings (how profitable a bank is), liquidity (how well the bank can meet its day to day expenses), asset quality (the quality of the loans provided by the bank, how risky they are and how many are delinquent) and capitalization (how much of the company’s assets are company owned or owned by it’s shareholders as opposed to being owned by creditors). The strongest rating is a 1 and the weakest rating will be a 5.

You can use the ratings provided by the website to choose a bank or decide if you are going to stay with your current bank. However, this doesn’t mean that the ratings are 100% accurate but they will give you an idea of where each bank stands.

Photo by: kenyee

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1. The Business of Banking
2. Savings Accounts
3. Online Banks

Net-Only Banking

Online banking isn’t for everybody. It has its disadvantages. For instance, the majority of the Net-Only banks, or Online banks, only allow access to tellers through email. Therefore, you won’t get an immediate response but instead have to wait for them to answer your email. There used to be a problem with having to make your deposits by mail, however a lot of Net-Only banks are now making ATM’s available to their customers allowing immediate withdrawals and deposits. Even though the disadvantages are slim to none it is important to go to the website of the Net-Only bank you are deciding on choosing and make yourself familiar with their site and the way they operate. You may find that you will be able to become accustomed to online banking or that it is just not right for you.

Why Choose A Net-Only Bank?

If you find yourself on the fence about Net-Only banking some things to consider would be if you travel a lot or have to relocate often a Net-Only bank will work for you due to you not having to worry about it being in the region you are moving to. With Net-Only banks, they go wherever you go! Also, as previously stated, Net-Only banks offer lower fees and better interest rates than brick and mortar banks. On top of these advantages, Net-Only banks also offer the same services as brick and mortar banks such as online bill pay, applying for loans, purchase certificate of deposits, transfer money and of course manage your account online.

I have a savings account with a Net-Only bank simply because I wanted to try it out and I must say so far so good. It is pretty much the same as a regular bank however I did get a sweet interest rate on my account. And to my surprise communication is not just through email, there is a 1-800 number I can dial if I need immediate assistance with my account. If you feel comfortable with online banking I recommend opening at least a savings account so that you can take advantage of the higher interest you can get!

Photo by: -sou-

Related posts:

1. The Safety of Your Accounts
2. The Business of Banking
3. Savings Accounts