Credit Card Series - Part I

"What's a good credit card?" I've definitely had this question asked more than once.  The truth is, it depends on your spending habits and what you want in benefits.  So, I'm going to list out some things that you might want to consider and some of the most popular cards I've seen amongst people our age.

Things to consider:
1) Why do you want a credit card?  What do you want to use with your credit card benefits?  For example, do you want cash or do you want flight points? Do you want gift cards or do you want statement credits?  Depending on your answers to these questions, your credit card options may change because the rewards are different among the different credit card companies.

2) Where do you spend the most money?  Where are you going to gather the most points?  It's a game, really.  The more you spend, the more points you get and the more points you gather, the more rewards you get.  Some credit cards will give you 5% points on restaurants, while others will give you 1%.  If you only ever use your card on food, it would be wise to get the former.

3) Are you making money? Can you pay off your credit card bills on time? I guess this is the most important and I probably should have put this as the #1 consideration, but this should really effect what credit card you go with.  If for some reason, you only pay the minimum payment each month (which I highly, HIGHLY discourage), you will have to pay interest on the remaining balance, as well.  Depending on the card, this interest rate will vary pretty significantly. 

4) Are you spending enough/gathering enough rewards such that a yearly fee is worth it?  The "better" credit cards (or the cards where you can receive a lot more benefits) usually have a yearly fee.  This can be worth it if you spend enough throughout the year so that the fee is actually cancelled out in benefits.  This is kind of hard to determine until you've actually had the card, but it's just something to consider.

Popular cards amongst our friends:

1) American Express - Everyday Blue Cash
I actually have this card, and to be honest, the rewards really aren't that great. 3% groceries, 2% gas, 1% everything else. I've had a hard time building my rewards with this card, but the card itself looks really cool. 

2) Bank of America - Power Rewards
I also have this card and have seen much better rewards with it compared to my Amex.  I usually use it for statement credit, which is really great.

3) Chase Freedom
A lot of my friends have this one.  It has a neat 5% back on certain items feature and the item changes every few months.  They also usually have a deal when you initially open up the card... i.e. spend $500 in the first 3 months, get $100 back.  I've heard only good things about this one.

4) Chase Sapphire
This is also a popular card in NYC as it gives you double the points on restaurants.  One of my close friends bought a plane ticket to Europe with all of with her credit card points. Note this is a "better" card and there is a yearly fee.

5) GAP/Banana Republic, J.Crew, or other clothing cards
Most of my friends have at least one of these clothing store cards.  I was always told not to get one, but I can see where it can have its perks, especially if you only ever shop at that specific store. I think it would just encourage me to shop more, which is why I've never gotten a store credit card.

Next, we'll be covering how to use the credit card!

Ali

Filing Your Taxes: The Basics

Hi there!

Since no one answered my poll (sigh) I decided the next topic on my own.  Filing your taxes (or Form 1040)!  How fun!  The deadline is April 15, so you still have a decent amount of time to gather everything you need, plop yourself down on a couch, and do the dreaded task that no one wants to do.  I actually think filing taxes are really fun, mainly because I know that I'll likely be getting cash at the end of it. 

Why do I have to file in the first place?  The government wants a little piece of every dollar that you make.  They need that money to give us highways and public schools and parks and unemployment benefits and everything else to run this country.  They also want this money consistently throughout the year, which is why every time you get a paycheck you should see federal and state and perhaps city withholdings.  Your employer takes out the amount of taxes from your paycheck that it thinks you owe, but it's an estimate.  It doesn't account for any deductions that you may have or credits that you may have earned.  So, when you file your taxes, you are taking that estimate and adjusting it to what it really should be.  It may be the case that you have underpaid your taxes throughout the year, so you will owe money, or it may be the case that you have overpaid your taxes throughout the year, so you will receive a refund.

What do I need to file? Before you even think about filing your tax return, you need to have your W-2.  Your employer should either mail it to you or allow you to access it electronically at your workplace, but this is the most important (and sometimes only) document you need.  It's the backbone of your tax return.  It lists out your earnings, federal and state withholdings, and other taxes that are all entered into the tax form.  The company also sends your W-2 to the IRS, so the IRS will be able to see any discrepancies between what you file and what is on the W-2 that they receive.  If you have multiple employers, you should receive a W-2 from each employer, and you'll have to enter all of this information separately into your tax return.

What else do I need? Depending on the deductions/credits that you plan to take, you'll need a few more documents.  If you gave any money to a church, synagogue, or charity, those organizations should provide you with documentation listing the total amounts you've donated throughout the year. Donations to charities and nonprofits are deductible.  If you made student loan payments, your servicer should provide you with the form 1098-E, which lists out the amounts paid on the interest portion of your loan. Only the amount paid on interest is deductible.

Did you do Standard vs Itemized? I hear this a lot.  These are the 2 types of deductions.  The standard deduction is the deduction that the government gives everyone, regardless of the deductions that they actually have.  It varies a little each year and is different if you are married or single, but for individuals, the standard deduction is $6,100 for the taxable year 2013.  The itemized deduction is  calculated on your own, and you will obviously only itemize if your deduction is greater than the standard.  How do you calculate it?  You use the various tax forms that you've received and just add up what your potential deduction would be.  If you use any programs (like the ones mentioned below), the program will calculate the deduction and determine whether you should use the standard or itemized deduction.

There are a bunch of sites that offer free filings of the federal return (states are a different story). You can file through the IRS, TurboTax, TaxACT, or H&R Block all for free. Because we are pretty simple people with only a few simple deductions, it's really not necessary to buy a TurboTax Deluxe program or hire an accountant.  Remember that you also have to file a state return for every state in which you have earned income, and you usually have to shell out some money for these returns (no more than $30).

Happy tax filing!

Ali

Starting a Savings Account

One of my goals for 2014 was to start saving.  I was never a fan of savings accounts because I thought they were silly.  Most of them generate returns of only .01%, which amounts to pennies (literally), and that seemed pointless to me.  More and more, however, I realize that I have little self-control, and if I see the money in my checking account, I'll spend it.  The only real advantage of having a savings account is that it forces you to save.

When I was looking into different types of accounts, I realized that there are quite a few different kinds from different banks that you can choose from.  Here are the 3 most common types that you can choose that I found:

Regular Savings: These are basic savings accounts that usually have rates of .01% per year.  This means for every $100 you have in your savings account, you'll get a return of half a penny. Yes, 0.5 cents.  (It's nothing, I know, but again, remember that the purpose of a savings account is to force you to save, not necessarily making money off of it.) Regular savings accounts often have smaller dollar requirements for you to open and maintain, often $200-$300 depending on the bank.  They will also charge fees if you don't maintain that amount or if you don't have a reoccurring deposit in the account each month, somewhere around $20-$30, again depending on the bank.

Regular Savings on Steroids:  These accounts are just like regular savings accounts, but generate higher returns for higher balances.  Different banks will call them different names, like "Platinum Savings" or "Plus Savings".  These often require you to open and maintain at least $1,000 and will charge fees if you don't maintain that amount or don't have the reoccurring deposit.

Certificates of Deposits (CDs): These are different from savings accounts because they have specific and fixed terms with fixed interest rates. They are also virtually risk free and have rates higher than a regular savings account.  The downside of this account is that you need to start and maintain a higher dollar requirement - almost always $1,000 minimum.  Depending on the timeline that you choose, you will get a greater return.  So say you buy a 3 year CD of $1000, you will generate a higher return, maybe in the range of .13%-.17%, as opposed to a 3 month CD, where you will probably get .02%.  The caveat is that when you put the money in, you cannot take it out until your time is completed.  This is a good account to have if you have thousands of dollars just sitting in your account that you plan not to spend for a while.

Like I said before, I think savings accounts are more to force you to save rather than to generate a return.  Keep in mind that the interest rates don't really matter that much if you think about how much you're putting in.  If you put $1,000 in, you'll get 5 cents instead of 1 cent with a CD rather than a regular savings.  Woah! 4 cent difference!!  It would only really matter if you have more than a few thousand dollars sitting in your account, in which case you probably don't need to read this at all.

Cheers!

Ali

Creating a Budget

Who loves budgeting? Nobody. But you gotta do it, especially if you live in NYC and are in a lot of debt like me!  Yesterday, I spent some time trying to figure out how I wanted to budget for 2014.  For 2013, I used my own template that I created on Excel, I dabbled a little bit with Mint, and I used an iPhone app Toshl, but for the most part, I didn't really budget. For 2014, I've decided to revamp my own spreadsheet and use Mint in conjunction. 

What is Mint? Mint is one of the more popular budgeting websites.  It links up your bank accounts, loans, credit cards, mortgages (basically anything you have to your name), and it'll sort out your expenses by type.  So everytime you swipe your card at a restaurant, Mint will record it and label it as "restaurant."
Pros: It's a great way to see where you spend your money and track your spending trends. It's also really good from a "big picture" standpoint.  You can create budgets and goals on the site, which can really be helpful. There's also a nifty app that's nice.
Cons: It's so damn complicated.  You have to categorize some of your expenses.  It's only really helpful if you use credit/debit cards for everything.  Cash withdrawals/checks are harder to categorize.

My budget is a little bit more user friendly, but I guess you can decide that for yourself.  I've created a hypothetical budget below.

Part I:  INCOME

How much do you bring home a month?  This should be your paycheck and any other money you're bringing in.  I have tax net savings on there, which we'll get to later.

Part II: EXPENSES

What are the 8-10 categories that you spend the most money on?  Maybe you take cabs every night, so you could add public transportation on there.  Maybe you go to a lot of broadway shows, so you could add entertainment on there.  Be real with yourself, and really assess where your money goes.  The percentage next to the amount is the percentage that you spend on that item with respect with your total income. This should be less than 100%.  If it's over, that means you're overspending on your income.

Part III: Net Savings

This is the real important number.  This should not be a negative number.  If it's zero, that's fine (not ideal), but as long as you are not negative, you are not overspending. You can carry this through as "Net Savings" income for the next month.

Once you have the file set up, you have to make sure you update it monthly or that defeats the purpose.  See how much you've actually spent (what you use Mint for) and then match it against this budget that you've created.

If you would like the actual excel file, feel free to comment and let me know.  Happy to share!

Cheers!
Alison

Making Loan Payments 101

So now you know what loans you have.  Maybe you consolidated them, may you didn't.  Now what do you do?  Pay them. Duh. Here's how.

(Disclaimer: If you have just one loan, you're in luck and this post might not help you much.  If you happen to have more than one, read on.)

Organize yourself: List out your loans by interest rate: from the highest interest rate to the lowest.

Not all are treated equal: You're going to start with the loan with the highest interest rate.  Pay over the minimum payment on the loan with the highest interest rate and pay the minimum payment on everything else.  Obviously don't overpay if you can't afford the minimum payment on everything else.  Once you're done paying off that loan, move down the list to the next highest interest and so on.  The goal is to overpay on the highest interest rates first so you pay less interest in the long term.

Another move to make: Sign up for direct deposit. You can usually get a 0.25% reduction in the interest rate if you sign up for direct deposit, which means that the servicer will automatically take the minimum payment out of your account.  Keep in mind if you overpay,  most servicers will still take out the minimum regardless.  So make sure you double check to make sure that you have the funds in your account for the minimum payment.

Two is better than one: Paying more frequently will reduce the interest built up each month.  Instead of making one monthly payment of $300, make 2 payments of $150 a month. BUT (This is a HUGE BUT) if you can sign up for direct deposit, ignore this point, as getting a 0.25% interest rate deduction will probably be more beneficial.

Now let them steal your money! Just kidding... not really.  You're one step closer to being debt free.

Cheers!
Ali

Loan Consolidation 101

Yesterday, in my post "Paying off Student Loans 101", I mentioned loan consolidation.  It's something that requires some math and a little thinking, and I didn't go into great detail about it. I'll try to make it as straight forward and easy as I can.  I believe in you. You can do this.

You know what it issss... right?:  Loan consolidation allows you to take all your existing loans and all their different interest rates and combine them all into one big (AKA consolidated) loan with a single interest rate.

So what does that mean?: It means that if you have a huge loan at a high interest rate and a small loan at a low interest rate, you can actually save money with consolidation. An example I used in the last post, if you have a $40,000 loan at a 7% interest rate, you will be paying $2,800/year in interest.  Say you also have a $10,000 loan at a 2% interest rate, you will be paying $200/year in interest.  That means, in total for both of your loans, you will be paying $3,000/year. Just in interest. SIGH. But, you can consolidate! So rather than having 2 separate loans with 2 different interest rates, you have can a $50,000 ($40,000 + $10,000) loan at a 4.5% (7% + 2% divided by 2) interest rate, which means you'll be paying $2,250/year.  You do the math.

Gimme more: Another huge advantage of loan consolidation is that it makes it a lot easier to make your payments.  Instead of making different payments to different loan providers, you just pay one guy, and it's done.  This was extremely helpful for me as I consolidated 10 loans into 1 ginormo one.

Hold on, the math ain't adding up: Loan consolidation is not for everyone.  Sometimes you can pay more interest with loan consolidation.  If you have a small loan at a high interest rate and a big loan with a low interest rate, it won't help you.  So make sure you do the math! Another thing to watch out for is consolidating private loans.  Federal loans are nicer to us because they qualify for loan forgiveness.  If you become a teacher in an underprivileged community or volunteer in the PeaceCorps, you can have your loans forgiven, but if you consolidate federal loans and private loans, you will lose these benefits.

Let's get to it to it:  This is the sketchy site I used to consolidate my loans.  I know, I know, it looks like a 5th grader website.  Unfortunately, the government can only hire 12 year olds to make their websites these days. It'll take a few weeks for them to process everything, so I would call weekly and make sure things are moving.

Phew. Hope this wasn't too boring, but you made it through.  Do a happy dance!

Cheers!
Ali

Paying Off Student Loans 101

I've been working for a little over a year now.  To be honest, I thought that by now I would have cut out a significant portion of my student debt, have a few grand saved up in my bank account, and not be living paycheck to paycheck, but I'm not even close. (So now that I think about it, maybe I shouldn't be really giving advice....) But I am an accountant! This is my job, and going into 2014, I want to make a conscious effort to eliminate my student loan debt by $15,000 next year. This means I have to pay off at least $1,250 a month. Holy. Crap.

Just a little history and a bit about myself, I am 23 years old.  I went to college at one of the most expensive private universities in New York City.  And as if I wanted to dig myself an even bigger hole, I did my graduate studies at the same expensive private university.  After 5 years of school, I accumulated $90,000 in student loans.  I secured a full time job at a top accounting firm, and I currently work as an tax accountant.  This was the ultimate goal: to get a stable job and pay off my loans quickly.  I'm looking back at the past year and see that I have utterly failed at the latter.  So now, in an attempt to motivate myself, and the 37 million other student loan borrowers, I have created a list of tips to start the journey to eliminate student loan debt.

1) Get a reality check.  Know your debt- student loans, credit card debt, mortgages, what have you.  When I started college, I signed whatever I needed to sign to take my classes, not knowing at all what I was really signing up for.  The National Student Loan Data System is a federal system that gathers all the loans under your name. 
2) Cry a little.  Take a deep breath.  Then organize. List out all of your loans from the highest interest rate to the lowest, with the principal balance, interest accrued and new principal balances.
3) Look for glimmers of hope.  Look into consolidating your federal loans (NOT private).  What loan consolidation does is average out the interest rates to give you one huge consolidated loan.  You will have to calculate the percentages to see if it is worthwhile. For example, if you have a $40,000 loan at 7% ($2,800/year) and a $10,000 loan at 2% ($200/year), you can consolidate to have a $50,000 loan at 4.5%. ($2,250/year).  With consolidation, in this example, you save $750 a year! 
4) Pay more now, save more later.  Pay off more than the minimum payment.  An extra $25 will go a LONG way.  Also paying 2 smaller amounts a month, rather than 1 big amount a month, will lower your interest accrued each month.
5) Did you really need that Celine bag? Budget, budget, budget! I will have to create multiple posts for just this point.
6) Everyday I'm hustlin'. Find some more money.  Sell your old textbooks on Amazon, old clothes on Poshmark, look through your couch cushions, or start a blog and get ad revenue!

I know this can be very overwhelming, but I hope you find comfort in knowing that there are millions struggling with student debt.  Whoo-sahhhhh.  We will get through this together.

Cheers,
Ali