Wednesday, August 5, 2015

A New Way to Think About Money

I recently finished reading a book on personal finance that a friend of mine recommended (Thank you, Garrett). To be honest, I'm not much of a book reader. I really enjoy reading articles and news stories on my areas of interest, but I don't usually sit down and read for hours at a time. In any case, I started and finished this book in less than 48 hours, with a total reading time of a few hours. It was a short read, but it changed the way I thought about money. The book I'm writing about is Rich Dad, Poor Dad by Robert Kiyosaki.

For full disclosure, I'm not someone who subscribes to the idea that there is a one-size-fits-all way to become wealthy. For one, being "wealthy" is subjective because it is a comparative idea. What one thinks is wealth, another might see as average, depending on each person's perspective. However, what this book describes is the difference in mindset between his biological (or poor) dad and his friend's dad (who was very wealthy). The poor dad was very educated while the rich dad never completed the 8th grade. However, due to the rich dad's financial literacy, he ended up being much more financially successful.

From this book, I wanted to share three things I learned that may also help you make better financial decisions in your life.

1. Most People Believe Their Liabilities are Actually Assets

This first concept is one of the most important concepts Mr. Kiyosaki stresses throughout the book. What the "Middle Class" describes as an "asset" the "rich" understand to be a liability. To simplify this, Mr. Kiyosaki says that "An asset is something that puts money in my pocket," and a liability is "something that takes money out of my pocket."

For example, what most people believe to be their biggest "asset," their house, Mr. Kiyosaki argues is almost entirely a liability. There are intricacies to this, because some people rent out a room or two of their home.Therefore, they make their home an asset that pays for their mortgage or even better, pays for their mortgage AND puts money in their pocket. The chart below is what Mr. Kiyosaki uses in his book to more visually describe what "the rich" view as an asset vs. what the "Middle Class" or "Poor" believe to be an asset.

As you can see from the chart, assets contribute directly to income while liabilities take directly from income and turn into monthly expenses.

2. The Three Types of Income

Part of understanding the previous chart is understanding the three types of income about which Mr. Kiyosaki writes.

The three types of income are as follows:

1. Earned Income

2. Portfolio Income

3. Passive Income

Earned income is the typical income. Someone gets up, goes to work, and gets a paycheck. Portfolio Income is any income, dividends included, that someone earns from the purchase and sale of stocks, bonds, etc. The third type of income is Passive Income, or income that is earned from owning an asset, such as rent from a piece of real estate you own. The biggest lesson Kiyosaki emphasizes, with regard to income, is the transition of earned income into portfolio and passive income. By using earned income to buy assets, such as real estate, one could quite possibly rent out the real estate and earn income on top of earned income, while also having the specific property appreciate. What's better than having someone else pay for you to increase your wealth?!

3. Don't be a Cynic, Do Your Research!

One thing that really caught my eye was Robert Kiyosaki's take on cynics. Again and again he talks about friends who have, at one time or another, criticized his decisions to go to real estate seminars that seemed expensive, but ended up making him millions of dollars. He also mentions various friends who have asked for his help and taken his time, only to back out of a deal that would have made them a significant amount of money, due to others telling them that it's very risky.

His point isn't to say that every deal is a win or that there isn't any risk to an investment. Part of investing is the understanding of risk (and how much you're willing to take). However, what he does recommend is staying diligent and doing your research. Don't simply take someone's word that a specific investment is a "sure thing," but, on the other hand, don't always believe someone who says it's a sure fail. In short, do your research and be patient!

There are MANY more lessons Mr. Kiyosaki teaches, and I just scratched the surface on the three I mention in this post. If you would like to read Mr. Kiyosaki's book, I HIGHLY recommend it! Here's a Link to the book on Amazon. The book is pretty cheap, but it's definitely worth a read!

Thank you for reading and please leave any comments or questions you may have at the bottom! I hope you have found my posts to be helpful! Best of luck to you and your personal finance goals!

-Ben Wetherby

Monday, July 6, 2015

Five Ways to Live More with Less Money

One of the goals of this blog is to share the lessons I have learned with those who might be facing similar problems. Arguably the biggest lesson I've been forced to teach myself is how to enjoy myself when money is not abundant. Whether I want to buy groceries (and maybe have a more expensive meal) or I want to go out to watch the newest movie release, everything has some monetary cost associated with it. I have put together a list of tips that I generally use for almost any purchase I make. If you have more (or want to add something to one of mine) feel free to comment!

1. Create a Budget

According to a 2013 Gallup poll, only 32% of Americans prepare a detailed written or computerized budget. Although it might seem trivial, sitting down and writing out a budget can really help you see where your money goes and how much you SHOULD be saving or using for other things. If you have no idea how much money you're spending on various categories, make up a conservative number of what you think is reasonable and track your spending for the month. Usually, we spend a lot more than we think. If you don't want to track your expenditures by hand, I suggest downloading on your smart phone. It connects all of your checking, savings, and investment accounts into one convenient app, and sends you a weekly report of your income and expenditures. Challenge yourself each week to minimize frivolous expenditures!!

Once you have created this budget, you can begin to see how much money you truly have available to spend. Ideally, you should incorporate "Savings" as part of your expenses, because it forces you to save and doesn't give the illusion that you can spend that money freely. I try to save close to 50% of my income in savings because I have very few expenses (thank you FAFSA and UNC financial aid!). For most, 10% of your paycheck is a good starting point.

2. Compare

Once you know how much you have available to spend per month on activities/entertainment, it is important to compare. My comparison might not be what you're thinking. I compare the activity I want to do to a typical purchase or activity. For example, if I want to do something that costs $20, I may compare it to going out to eat, working for 2 hours (assuming I make $10 per hour net), or to my available money for activities. If my budget for monthly activities is $60 and it's the beginning of the month, $20 might seem more significant. I then decide whether or not it's worth it to do that activity. This helps you really think about what you're purchasing.

3. Leverage Your Resources

Leveraging your resources can help in two different ways: helping you make money and helping you save money. It is basic human nature for people to want to help others. For example, my dad and I love playing golf together every once in a while. Most courses can be pretty expensive for a round of 18, but he's great friends with the head of a golf course and is usually able to get a much cheaper price than a course somewhere else. I'm not suggesting you use and abuse your friends or family, but like I said, most people really enjoy helping others and this can translate into significant savings.

Next, leveraging your resources can help you generate some income. Since my dad runs a landscaping business, it's normal for him to order many bales of pine needles. He is usually so busy that he only has time to pine needle his regular customers. With this in mind, I put out flyers around my neighborhood offering to deliver and put out pine needles. Within a week, I had 3 jobs to do and made a decent amount of money even after paying my dad more than what he paid for the needles. This really helped me save for the upcoming school year and this was all because I leveraged my resources.

4. Coupon

The first thing that comes to mind when I suggest using coupons is the extreme couponing show that comes on TV. The people on that show are crazy about coupons and often get $1,000 bills down to literally nothing. That's really impressive and to this day, I wish I had the time, energy, or know-how to get such a bargain. I don't, but what I do suggest is looking for coupons when you can. I usually get a few coupons a week in the Sunday newspaper that I use. In my opinion, most of the coupons are for things I wouldn't purchase, so I don't clip those. It doesn't make sense to buy something that's $5 simply because you have a $1 coupon. If you wouldn't normally buy it, don't worry about clipping the coupon. There are TONS of websites that offer free manufacturers coupons and some stores even double the manufacturer's coupon. Saving $5 (or more) per week on things you would normally purchase can translate into a lot of money.

5. Find a Deal

One of my favorite things to do is to find a deal. Most websites offer 50% or more off of restaurants and activities. Essentially, by using these deal websites, you're doubling the amount of things you can do within your budget. I use Amazon Local, Groupon, and Living Social to do various activities and try different places to eat. If you're open to trying new places to eat, these websites are all the more useful. Another great website I love using is Ebates. Ebates gives you a percentage of cashback on almost any online retailer. You can even use it on Groupon or Living Social to get an even BIGGER discount! In addition, you also get a free $10 giftcard from Ebates when you sign up!

Sign up for Groupon here:

Ebates here:

LivingSocial Here:

As always, please comment any questions you may have! I hope this post helps some of you when the money is tight, but you still want to get out and enjoy yourself! Thanks for reading!

-Ben Wetherby

Wednesday, July 1, 2015

What is Credit and Why Should I Care About It?

For this upcoming year, I will be the Vice President of Operations for the Financial Literacy Initiative. The goal of this organization is to help students with any financial questions or issues they may have. I mention this because credit is one of the topics we make sure to cover. Credit can  be one of the most helpful (or damaging) components of your personal financial situation. I often get asked, "Why does having a credit card help me?" In short, having "credit," allows a lender to calculate how risky giving money to you is, based upon your past. Think of all the times you asked your parents to "borrow" some money. Moreover, imagine that you didn't pay them back. Should they really trust you to pay them back if you come to them and ask to borrow money again?

I mentioned in a previous post that a better credit score could save you well over $74,000 on a $200,000 mortgage. While I used a hypothetical interest rate and time period, the principle remains the same. Although your parents might continue giving you money despite your empty promises to pay them back, lenders, who deal with much larger amount of money and have to profit in order to stay in business, will not. Lenders will either give you a much higher interest rate or deny you the ability to get a loan altogether.

So what gives someone a better credit score? First off, there are multiple factors in determining a credit score. These factors include payment history (35%), amount you owe (30%), length of credit history (15%), new credit opened (10%), and types of credit you have (10%). Each of these contribute to what ultimately is your credit "score." The higher this score is (anywhere between 300 and 850) the better interest rate and chance of approval you will have.

With one of the factors of your score being determined by the LENGTH of credit history, it is very beneficial to begin showing lenders as early as possible that you are trustworthy when borrowing money. When you carry NO credit, it's practically the same as bad credit. Imagine a stranger comes up to you and asks to borrow $50. Would you lend them the money without any other knowledge? This is similar to what lenders see when someone without a credit score asks for a loan. If you have no credit card, I recommend opening one and simply paying the entire balance off each month. This way, credit will be established and you won't be a complete stranger to lenders. (Shameless endorsement: Discover is currently offering a $50 referral bonus to both the person who signs up and the person referring. Shoot me a message if you don't have a credit card and you're interested in getting $50 for signing up!)

Last, but certainly not least, it is important to understand that opening new credit cards can hurt your score (and therefore your interest rate in the future). It is easy to fall prey to limited-time offers of $30 from Amazon or $50 from Discover. Trust me, I've done it. If you do this, it isn't the end of the world, but it usually takes about a month to recover to the same credit score. Once again, this is for those of you who might already have a credit card, but want the signup bonus for another one.

The best way to help yourself is to research and ask questions. It is pretty easy to raise your credit score simply by using your card on purchases you would normally make throughout the month and paying that entire balance at the end of each month. Within the first few months, my credit score went up 50 points or more. As always, each person's situation is different and I encourage all of you to ask as many questions as you can in order to set yourself up for financial success. Please feel free to comment or message me any questions you may have!


Benjamin Wetherby

Monday, June 22, 2015

How You're Throwing Away Money Without Realizing It

When I was growing up, my parents always told me what they believed to be sound financial advice. After all, they had a lot more financial experience than I did. "Stay away from credit cards!" they would tell me. I'm sure many of you have parents who told you something similar. As a result, I always believed credit cards were just another way for the average person to get into excess levels of debt. It isn't uncommon for people to associate trouble with credit cards. After all, it's pretty easy to spend what you don't have when the money doesn't come straight out of your checking account. However, when credit cards are used responsibly, they can save you tens of thousands of dollars in the future, and quite a bit of money right now as well.

1. Credit Cards (and other "cards") can save you money RIGHT NOW.

When I finally realized that credit cards weren't as bad as my parents made them out to be, I looked into various options. I now use two credit cards: the Discover It Student Credit Card and the Amazon Rewards Visa. The Discover Card gives 5% cashback in a rotating category (right now it is restaurants and movies) as well as 1% back on all other purchases. The Amazon Rewards Visa gives 3% cashback at, 2% back for gas, restaurants, and drug stores, and 1% on all other purchases. I use the Discover Card for the rotating category and the Rewards Visa for Amazon and gas (when Discover's cashback on gas isn't 5%). While 1%-5% doesn't sound like much, it usually adds up to at least one meal for me each month. The Discover Card also has something called "Discover Deals" which can give you 5%-50% off online purchases at various retailers.

The trick to responsibly using a credit card is to only use the card for necessary purchases, or purchases that you would make even if it weren't for the cashback. You can get into trouble quickly if you begin going out to eat because of your 5% cashback. Rather, use your card IF you HAPPEN to go out to eat.  At the end of the month, pay off the entire balance, collect your cashback, and, in essence, you've saved yourself from throwing away money. Essentially, each time you swipe your debit card or pay in cash, you've thrown away at LEAST 1% of the purchase.

There are other tricks to saving money right now with cards as well. The Target Red Card, which can be used as a credit card OR hooked directly to your checking account, gives you 5% off EVERY purchase, including gift cards, instantly. My girlfriend is a HUGE fan of Target, buying all of her essentials, including shampoo, toothpaste, food, clothes, and almost anything else Target has to offer. For a long time, she refused to get the Red Card, which drove me nuts. Near the end of last year, she finally caved, and this year alone has saved close to $45 for purchases she would have made anyway.

2. Credit Cards can save you tens of thousands of dollars in the future

One of the biggest reasons I decided to get a credit card was because of the ever-so-important Credit Score. There are other ways to get a better credit score than getting a credit card, but getting a credit card is probably the easiest way to show future lenders that you are a responsible borrower (especially as a college student). There are several factors that go into this score, but I'll have an entire post on that topic later. For now, the big question is "How much can a higher credit score actually save you?" Well, it depends HOW much higher and how large of a loan you get in the future.

For example, based on your credit score, you get a 3.5% interest rate on your $200,000 30-year fixed rate mortgage. After all 360 payments are said and done, you will have paid a whopping $323,312.18 including principal and interest. However, if your score is much lower, you may get a 5.25% interest rate. If this is the case, you'll end up paying $397,586.67 for that same $200,000 loan. That's a difference of over $74,000!! This logic can also be applied to a car loan, or any loan for that matter.

At the end of the day, each person's situation is different and there isn't a "one-size-fits-all" solution. However, practicing better money habits, in general, will lead everyone to living with a little less stress and a bit more money in their pockets.

Please feel free to comment any questions or concerns you may have!

Thanks for reading!!