ENTREPRENEUR

This is a re-posting of an article from Intigril, my site on investing, trading, and personal finance. To view the original article on Intigril, click here.

Image from rubenshito

Avoid financing large purchases

Image from David Castillo Dominici

It’s proven. We love shopping. When we go out and buy something new, all of these wonderful, pleasure-invoking neurotransmitters flood our brain with warm fuzzies^1,2. That new Coach bag or iPad can make you feel awesome – for a while. When you’re in the midst of a shopping spree, you’re less prone to think about how far that new gadget will put you in debt. That’s why it’s important to do a little bit of planning before you make that next big purchase.

In a perfect world, you’d be able to pay for everything you want, both small and large, with cash. One big, lump sum payment right at the start, and you’d be done. But since that’s not usually an option, it’s easy to put that new gadget on our credit cards and slowly pay it off over a few months.

Don’t do that!

If you realize that you want to buy a large item early on, then you can usually avoid financing it. How? Pay yourself first.

Set up “gadget” accounts

One way to avoid paying 12-month payments for your latest gadget is by setting up a savings account for any large items that you think you’ll want to buy in the future. Once you do this, you can transfer a small portion of your paycheck into that account every month. When you’ve saved up enough to buy the item, use the money from this account to cover the purchase. This is one of the simplest ways to save yourself from debt worries in the long run.

A separate account for your major purchases puts you in the right frame of mind to properly manage your finances. It makes you focus on achieving a specific goal, and it also reduces the chance that you’ll use the money in that account to pay for something other than what you set it aside for. This focus, combined with the discipline you’ll develop by regularly contributing to a savings account that you set up for a specific item, will also help you develop the skills you’ll need to be a good trader or investor.

Truly LARGE purchases

Image from cooldesign

Sometimes, you may think that something is just too expensive for this method to work well. You may be right. There are things out there that you probably won’t be able to save up for. But that doesn’t mean this method is completely useless in those scenarios.

You can still setup an account and start saving for your next big purchase. Any money that you save up can be used to cover part of the cost. The more you save, the less you’ll have to finance.

But before you think something is so expensive that you’ll never be able to save for it, just think twice. You may be surprised at what you can cover if you plan for it early enough.

Let’s say you know you’ll need to buy a car in a few years. Most people just assume they’ll finance it because it’s so expensive. But what would happen if you started saving for it now?

If you start a “future ride fund” today, and start paying into it with your next paycheck, you may just be able to save up enough to pay for it all at once. What if you set aside $500 every month? In 4 years, you’d suddenly have at least $24,000 (maybe more, if you used an interest-bearing account) to pay for a new car.

You can’t say that’s not doable. And by paying for your new car all at once, you avoid spending too much and going into debt for a depreciating asset.

You can do this for all sorts of major purchases: a car, a down payment on a house, a computer, anything. Try it.

In the next article, we’ll cover a boring, but important topic: insurance. We’ll tell you what you need and what you don’t, so read on.

¹http://www.psychologytoday.com/articles/200603/doped-shopping
²http://www.tantricnews.com/life-in-the-brain-s-pleasure-center.html

http://videos.howstuffworks.com/health/science-of-sex-appeal-videos-playlist.htm

This is a re-posting of an article from Intigril, my site on investing, trading, and personal finance. To view the original article on Intigril, click here.

Image from LotusHead

Credit cards are not loans

It’s no surprise that Americans have a lot of credit card debt. In fact, it’s estimated that the average household with credit card debt owes around $15,799 on their cards¹. That’s a lot of money to owe – especially if you don’t have it. That kind of debt can take years to pay off, and can severely affect your credit score. It goes without saying that you should try to avoid credit card debt – especially with the ridiculously high interest fees that card issuers are charging these days.

So why would you use your credit cards at all?

1. Convenience
   
   If you are disciplined enough to pay off your credit cards every month, in full, you can avoid getting caught in a spiral of debt while also taking advantage of the convenience that your cards provide. If you’ve set up automatic balance payments from your checking account to your card, you don’t even have to take any actions yourself (other than making sure you’re not spending too much).
2. Build your credit score
   
   Buy having a lot of available credit, but not using all of it, you build up your credit score. The ratings agencies like to see that people have discipline. If you have a lot of cards, though, it’s important to make sure you pay off each one on time. The longer you maintain a track record of on-time payments, the better your score will be.
3. Get points and cash back
   
   This is obviously the biggest benefit of using a credit card. The more you use it (in moderation, of course), the more money you can earn back. By using a credit card for all of your payments, you can actually save save money, when compared to using cash. Just remember, pay it all off.
4. Protected against identity theft
   
   When you use your credit card, you have the power of your bank behind you. If something goes wrong, you can cancel fraudulent transactions, or get your money back from a merchant that tried to rip you off. You won’t be responsible for any charges made without your authorization.

There you have it. As long as you can think of your credit card as cash straight out of your pocket as opposed to free money or a never-ending loan from your bank, you can actually use credit to your benefit. In the next article, we’ll discuss how to approach paying for large purchases so you can avoid financing them and falling into the debt trap. Read on.

¹http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php

Image from Susan NYC

An email from a friend got me thinking about who I am – my personality, character traits, where I’ve gone in life.  Perhaps unsurprisingly, the reflection in this proverbial mirror is quite different than what I would have expected to see only a few years ago.

One of the things that I’m most proud about is that people tend to perceive me as being very even keel, calm, with a certain determination and willpower that make me driven.

Do you know how sometimes you can still see yourself as the same person you were 5 or 10 years ago?  Well, for me, being called calm and even keel is exactly the opposite of who I used to be.

My family is hot-blooded, emotional, and I’m no exception.  I was (at some point, maybe as long ago as when I was a kid or teenager), volatile.  I’ve always been passionate, and I hope that that hasn’t changed, but beyond that passion, I couldn’t control my outbursts.  I didn’t know how to express myself without getting overly emotional.  Maybe that was due to a lack of experience or even a lack of happiness, but whatever it was, it was not calmness.

That was one of the things I tried very hard to change.  Very little good can come from being so up and down.  It’s hard to be productive, it’s hard to maintain positive relationships.  It’s just unhealthy, so I forced myself to change that characteristic in me.

I’m not sure how I did it, exactly.  A lot of it just came from being a better observer of people.  I used to think that actions were all telling and intentions didn’t matter at all.  Though it’s true that I still think that what a person does is far more important than what he or she says, I slowly began to realize that there is a method and a certain logic to the way people behave.  There are incentive structures, emotional prompts and responses, and logical reactions to situational stimuli.

When I started to understand why and how people reacted to different things, I slowly realized that there was indeed a method to all the madness, and when I realized that, I started to chill out a bit.  I think one of my biggest problems is that I hate not understanding the reasoning behind something.  Whether it’s the way a device works or the way someone acts, I can’t stand not knowing why, and that not knowing used to cause me an incredible amount of frustration that I didn’t know how to deal with.

But things change.  After going through a few major, life-shaping experiences, getting a bit more educated, making more friends and being more social, and just experiencing more of what this unbelievably diverse and grandiose world has to offer, I started to get it.

So it makes me extremely happy, and a bit proud, to hear people say that my calmness and drive inspires them.  It just goes to show that you can do anything you set your mind to.  I truly believe that you can teach yourself to do anything simply through rote repetition.  If you do something enough, it will become second nature.  The hard part is having the discipline to continue doing it until you’ve mastered it.

I still tend to think of myself as that shy, nerdy kid with no self-confidence and very few friends that didn’t have any idea what was happening around him.  It’s always nice to hear when other people have a different opinion (at least the good stuff, I know there’s a lot of bad stuff that I can still improve).

I’m also pretty amazed at how much I like New York.  I had visited a few times on various occasions before Stern and I was never a fan.  The huge buildings, lack of sunlight, and overwhelming hustle of it all was not my thing.  Of course, I had visited the typical tourist sites and the financial district.  New York is much more than that.  In fact, its best asset is its residents.  The people that live in New York are unlike the people anywhere else in the world.  They’re all different, with different races, languages, backgrounds, cultures, and perceptions.  But there’s one thing that they have in common, and that thing is the unfaltering drive to be better than what they are.

People in New York are ambitious.  They’re talented.  They’re smart.  They’re the farthest thing from being complacent.  They know life and how to live it.

The amount of energy and motivation I have when I even think about it is enormous.  I’m not usually one to align myself with any sort of larger group – religious, cultural, geographic, belief-based, what have you, but when I think of myself as a “New Yorker” I feel a bit of pride and energy that I never did before.  I think that’s a positive trend in my larger life, too.  I have more motivation, energy, knowledge, and inspiration now to succeed than I ever did before.

I have a long way to go in life, but looking back and seeing how far I’ve come is not only reassuring, but motivating as well.  There are a lot of goals I need to reach before I’ll be satisfied (not to be confused with happy or content), and I need to make sure that the pendulum doesn’t swing too far to the other end and I lose all emotion and passion, but I feel much better about where I am now, as a starting point for the future, than I have at any other point in my life.

And I want to make sure this isn’t all about “me, myself, and I.”  Without the help of others, I would be nowhere close to where I am now.  Most importantly, I have my parents and one or two extremely close friends (you know who you are) to thank for getting me through it all.

So, as the intro for SBTB: The College Years put it, “I’m standing at the edge of tomorrow, from here, the future looks bright for me.”  And yes, that show (maybe not the college years version, but the rest) is still extremely relevant.

This is a re-posting of an article from Intigril, my site on investing, trading, and personal finance. To view the original article on Intigril, click here.

Image from nusrin

Debt is a major issue

Generations X and Y have a big problem. They’re getting paid less and working more than the generations that came before them. They’re paying more for college. They’re paying more for housing. Their salaries aren’t going anywhere. Everything said, they got a pretty raw deal. But, there’s also another problem. Young professionals are spending. A lot.

Make no mistake, though, it’s not just the baby boomers’ kids that are in debt. A huge number of Americans are in debt for more than just their mortgages.

The different types of debt

Image from v i p e z

Sometimes, you have to borrow money to get ahead. School loans are almost a necessity for many students, especially with the skyrocketing costs of college. In fact, according to a 2008 report from the American Savings Education Council and the AARP, 32% of all members of Generation Y have outstanding student loan debt.

Necessary debts, such as those that come with student loans, are investments in your future earning potential, or “self-investment” debts. We need them – fortunately, these debts usually come with delayed payments and lower interest than the other types of debts – the “lifestyle debts.”

“Lifestyle debts,” the bad debts, are the high-interest debts that can generally be avoided. The most common of these is credit card debt. According to the same report mentioned above, 57% of young professionals have some sort of credit card debt.

Sometimes, this is valid debt. Credit cards can be used to pay off anything these days, including expenses that are unavoidable, or related to basic needs. But more often than not, those cards are probably being used for lattes, electronics, clothes, cars, and other such items.

Regardless of the type of debt you have, it’s important to create a plan to get out of it.

Planning to get out of debt

Image from lusi

If you’re saddled with thousands of dollars of debt, chances are, you may not know how to start paying it off. Try this:

Open up Excel, make a list of every single debt you owe, along with their interest rates, total amounts, and any other important terms. Now, take a step back and absorb what you just put down. Is it a lot? Is it manageable? Is it mostly good debt (self-investment) or bad debt (lifestyle debt)?

Now, try to figure out if you can stop the bleeding.

Is the majority of debt lifestyle-related? Are you spending too much on things you don’t need? If so, make a commitment to stop right now. If you have too much credit card debt, you may want to cut up your credit cards and use debit cards instead. If you’re making payments on a sports car, maybe you should trade it in for something less expensive. Are you paying too much on rent? Look for a cheaper place. Before you can start generating money by trading, you’ll need to get the rest of your finances in order, because you don’t want to be trading money that you need to pay off your apartment for the next month.

Let’s assume you’ve been able to take care of your lifestyle debt, but you’re still owe a lot of money. What do you do?

Read ahead: Your plan to pay off your debt »

This is a re-posting of an article from Intigril, my site on investing, trading, and personal finance. To view the original article on Intigril, click here.

Image from muresan113

Keep the right amount of money in your checking account

Your checking account is the main financial engine of your life. You use it to hold short-term cash – the cash that you’ll need to pay for that new phone, next month’s rent, and that trip to Europe. So it’s important to keep it well-funded, but you can’t afford to put all your money into your checking account. After all, you want to use some of that in your options account to start generating income, don’t you?

Knowing how much to keep in your checking account is just like balancing a scale. Most checking accounts don’t pay you a lot of interest, so you don’t want to keep too much money in them, but you do want to have enough to make sure you can cover any expenses that come up.

To get this balancing act just right, you need to take a look in your financial mirror. The first step is to figure out how much you’re spending each month. Once you know this, you’ll know how much to keep in your checking account.

So how much is just enough?

Image from Salvatore Vuono

On the 1^st of each month, take your average monthly expenses, multiply it by 2, and then subtract what’s currently in your checking account from this number. That’s how much you need to add to your checking account.

By doing this, you’ll be able to cover all of your expected costs for the month, and you’ll have enough to quickly pay for any small or medium unexpected expenses that inevitably creep up. Having that extra balance means avoiding the need to transfer money from another account, particularly your emergency fund, just to pay for a short-term expense. Over the course of the month, your balance will slowly drift downward, but when your next paycheck comes in, you can just bring it “refill” your checking account as you need, and start the cycle again.

A few final tips to keep in mind:

1. Fees – You really shouldn’t have a checking account that charges you money. There are so many different options out there that it’s very easy to find an institution that won’t charge you just to maintain an account with them.
2. Linked accounts – Keeping your checking account with the same bank that provides your main credit card will easily let you transfer fund from your checking account to your card with very little hassle. The bank may even give you the option to automatically pay off your balance every month by withdrawing from your checking account. If you have the option to link one or more of your accounts, particularly a credit card account, you may want to do it.
3. Multiple accounts – You may also want to keep multiple checking accounts for all of the different expenses you have. This is a good way of making sure you don’t tap into next month’s rent payment for the next gadget you want to buy.

That’s it for this part. In the next article, we’ll discuss how to get that nagging debt under control.

This is a re-posting of an article from Intigril, my site on investing, trading, and personal finance. To view the original article on Intigril, click here.

Image from CarbonNYC

Use your paycheck wisely

Image from forwardcom

Every working professional has one event that they don’t need their calendar to remember: payday. Whether you get paid monthly, bi-monthly, or for those lucky few, every week, there’s no doubt that you know exactly when all of your hard work is going to pay off, literally. Chances are, you’ve been looking forward to it since your last paycheck, and as the balance in your checking account gets closer and closer to zero, you’re probably jumping at the opportunity to log on to your bank’s website and see all of that just sitting there, waiting for you to spend it.

Hopefully, you’ll funnel some of it into a savings account. You may set some aside for rent and utilities, maybe even put some away into your 401(k) or other long term investment account. Chances are you’ll use the rest of it on random purchases throughout the month. But as the end of the month gets closer, your account dwindles back down to zero and the cycle starts all over again.

For a while, this works out just fine. But then, one day, something happens. Your car breaks down. You need to pay for a big purchase. You have to pay a friend back. What do you do then?

Your checking account doesn’t have enough money in it, and your next paycheck doesn’t come in for another week. If you’re lucky, you may be able to borrow money from your already debt-laden credit card, or maybe even a friend or your parents. Neither of these options are any good.

Take control

Image from Danilo Rizzuti

Does it surprise you to know that nearly half of all Americans live paycheck-to-paycheck? It’s even worse for people under the age of 35. One study from Metlife, several years ago, showed that about 59% of all workers between 20 and 30 have no savings and need to rely on their monthly paycheck to make ends meet. That’s a shame, because starting to save and invest in the early 20′s and 30′s is a great way to build up a huge cash balance for later in your life.

So how do you get control and build up your nest-egg?

Traditional wisdom says to “pay yourself first.” For those that haven’t heard this term before, it means that before you spend money on any bills, utilities, clothes, electronics, or other expenses, you should set aside a certain amount of your paycheck to go into a pre-planned savings, checking, or investment account.

Now, let’s talk about how to plan for that unexpected expense by paying yourself first.

Read ahead: Your most important account »

This is a re-posting of an article from Intigril, my site on investing, trading, and personal finance. To view the original article on Intigril, click here.

Did you know:

• Half of all Americans have less than 1 month’s worth of savings¹
• The average graduating college senior leaves school with $23,186 in debt²
• The personal savings rate at the start of the Great Recession was 1.3%³
• A majority of people live paycheck to paycheck – including those that make 6-figures⁴
• Only half of all current workers participate in a retirement savings plan⁵
• In the US, the average savings for someone that is 50 years old is $2,500⁶
• 97% of Americans that reach the retirement age of 65 retire with less than $100,000⁶

Do these statistics scare you? I certainly hope so.

Start planning now

Image from Stuart Miles

Most Americans don’t know much about managing their personal finances, much less managing investments and building long-term wealth in the market. But the truth of the matter is, with a little planning and discipline, it’s not that difficult to build up long-term wealth.

Think living it up now is more important than building up some money for your future? Hope you like working into your 70s, or even your 80s.

I believe that anyone can achieve financial independence through the use of options. But before you can start trading, you need to know the basics of managing your money – which is really as simple as saving a little bit and making sure you have enough to cover your expenses. To give you a hand, I’ve created a 8-step guide for getting your personal finances in order. If you read through these tutorials, and then slowly start investing with stocks and options, you’ll be well on your way to quitting that job of yours years before you thought you’d be able to.

Let’s get started.

My guide to managing your personal finances

1. Plan for the unplannable with an emergency fund
2. Handle expenses with your checking account
3. Get rid of that nagging debt with some simple planning
4. Use your credit cards for everything – wisely
5. A different take on those big purchases
6. Insure yourself properly
7. Turn today’s income into an early retirement by growing your money
8. Wrapping it up with your five step financial plan

¹http://www.businesswire.com/portal/site/google/?ndmViewId=news_view&newsId=20090825005344&newsLang=en
²http://www.finaid.org/loans/
³http://www.mydollarplan.com/effects-of-the-recession-on-americans-personal-finances-how-long-will-they-last/
⁴http://www.cnbc.com/id/32862851/
⁵http://www.census.gov/compendia/statab/2010/tables/10s0539.pdf
⁶http://www.smartmoneyadvice.com/retirement-statistics.html

Image from Rambis (Flickr)

Total as of 11/27/2011: $314,874.98

Only five months ago, I wrote a post “commemorating” the point where I passed $200,000 in business school-related expenses.  That was not a particularly joyous thing to recognize, and, somehow, less than half a year later, I’ve hit an even more impressive milestone.

This past month, I surpassed $300,000 in expenses.  Unbelievable.  They never told us this in the application prep process.

Though, it’s not unexpected.  Like I’ve said before, these costs include both actual incurred costs, as well as the opportunity cost of not working, which is by far the largest expense in the whole process.  Of the current total of $314,000, more than half ($171,000) is made up of lost wages from not working.  Tuition accounts for about another $100,000, so it’s not like there were a lot of unexpected expenses along the way.

But for anyone debating whether or not to go to business school, this is important to keep in mind.  At this point, I could rationalize how future earnings can account for this number, or how business school is a priceless incredible life experience (it is), but I won’t diminish the true, gargantuan magnitude of this number.

That’s a lot of money.  Make of it what you will.  Fortunately, my last tuition payment has been made, and soon I get to start working on the startup full time, not to mention, I’m able to support myself by trading, so, all in all, I can’t complain.  Below is a link to the spreadsheet where I keep track of all of my expenses.  Feel free to see for yourself.

https://spreadsheets0.google.com/ccc?key=tUCdEcQ2OgZNYWguoMJT1Hw&hl=en#gid=0

2 Comments

Shona on December 3, 2011

Wow; well kudos to you for being so open and honest about your MBA costs. It is very interesting to see the various experiences of different MBA students and the value attributed to different MBA programs (both by themselves and the public). I'm also working on my MBA, but for me, keeping costs to a minimum was the most important thing to me. So I opted for a program at a public university. My total tuition costs will be about $12K; although I have just as much wrapped up in related expenses and lost income (even more perhaps). Only time will tell if the difference in cost between my program and other top tier programs is justifiable.

Shanif on December 3, 2011

Hi Shona, thanks so much for providing your perspective! I'm always glad to see when my posts spawn some discussion. That's great that your tuition costs are so low. As I said above, tuition was the second largest expense (and the largest actual out-of-pocket expense) for me, so being able to keep that low absolutely works wonders with the whole money situation. Everyone has their reasons for going back to school to get an MBA, I think that as long as your program was able to satisfy your reasons for doing so, then it's worth the investment, regardless of whether you go to a public or private school.

Leave a Comment

Name / Alias (required) E-mail address Your comment Add your comment

Looking back on Poland

After my last post, where I told you about the amazing salt mines near Krakow, I left off by saying that I’d be heading to Warsaw and Poland next.  Since that time, Gowri, Oat, Caroline, and I were able to head to Warsaw and saw its reconstructed old town square – a UNESCO World Heritage site.  It was very cool to see.

Overall, Poland was a pretty interesting place.  We ate very well.  In fact, I ate much better in Poland then I did in Milan.  And the portions were huge.  Probably bigger than what you get in the States.  We spent most of our time in Krakow, and only a night in Warsaw, which was what every single guide and site on the Internet told us to do.  In retrospect, though, I wish we had done it the other way around.

From what I was able to see in Warsaw, things were a lot more lively, and it just had a better vibe.  There were more young people, lights decorated every street, people were out, about, and more attractive, there was more culture, more things to see.  I wish I had more time there.

Be careful what advice you take

Interestingly enough, I felt the same way about my trip to Morocco.  All of the guides suggested going to Fes, possibly Marrakech, and avoiding Casablanca, which we did.  Strangely enough, though, I liked Casablanca a lot, and wish I had spent more time there and slightly less time in Fes and Marrakech (on the other hand, the desert tour was awesome, and I wouldn’t have changed that at all).

It’s interesting to note that both cities that others have suggested staying away from had the feel of more modern, 21^st century cities, whereas the cities that others suggested visiting all had more of an old world feel to them.  I wonder if I’ve just gotten so jaded by all my travels that I don’t appreciate historical value, anymore, or if I just really like being in a modern city.  In any case, just keep this in mind if you ever decide to visit Morocco or Poland.

After leaving the freezing cold temperatures of Poland, Oat, Gowri, and I flew to the temperate climate of Rome, while Caroline flew back home for Thanksgiving and a high school reunion.  It’s too bad, too.  She got us through Poland, she was a blast to hang out with, and, not least of all, she was our 4^th for spades.

The eternal city (Rome)

I must say, I wish Bocconi were situated in Rome, instead of Milan.  The weather here is really nice, it just feels like there’s more to do here, and there are more Americans around, which, after four or five months of living without, becomes a very nice thing to have.

When we got in, Oat, Gowri, and I checked out Trevi Fountain and the Pantheon.  The last time I was here, I don’t think I went to see the fountain, so that was a nice sight.  Today, we met up with Anthony (another friend from Stern who happened to be in Rome), and took a tour of the Colosseum and the Emperor’s Palace.  The tour was great, and both of our guides were awesome.  The first one had an amazing ability to tell a story such that you could visualize yourself in its settings.

The Colosseum was truly impressive, and I was surprised to learn just how advanced the Romans were in their mechanical engineering capabilities.  After the tours, we went to see the Spanish Steps and the Pantheon (this time, from the inside).  After an unsatisfyingly small (but tasty) dinner, we went to a small pizzeria, where Oat got a second meal, and the rest of us played spades once again, followed by a card game called golf, which Gowri taught us how to play.  Once again, I was completely satisfied sitting there, trying to figure out which card to play (in my defense, spades is an awesome game).

Tomorrow, we’ll all head over to the Vatican to see some of the great sights that they have there.  Right now, I should probably try to get some work done.

Before I sign off, though, I have to say how nice it has been to be able to hang out with some of my true Stern friends on this trip.  The Bocconi exchange crew was awesome, but we didn’t have the same amount of time to bond as the Stern crew.  Hanging out with them brings a certain level of comfort that I haven’t had on this exchange (which is good, considering I wanted to push myself out of my comfort zone to see how I’d react).  It makes me want to get back to New York even more.

Until then, though, ciao Ciao ciao.