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jamestl2
10-30-2009, 01:16 PM
Well, my College Graduation is coming up in a few months, and I'll most likely be moving out on my own (Maybe not immediately, but pretty soon after I graduate). One of the biggest issues for me, I feel, is my finances. And I haven't really made a big decision on where I want to live, or what I want my exact career path to be. (In case my business doesn't provide enough support...)

I've tried talking to my parents, councilors, etc. about it, but they didn't help very much, the only typical response they've usually given me is that "I don't have the time to help you with something like that" or "it'll be different for everyone".

OK, this is really a two part question:

First, I'm curious as to all the financial struggles that I'm going to need to be aware of. I do know that everyone's needs are different, but then again all people pay a minimum to survive in some form or another. I know there's things I'm going to need to pay for like Health Insurance, Auto Insurance, Rent, Taxes, etc. But I'm sure there's some I'm not thinking about, and I don't want to be in a situation where I'm SOL and going "Oh Crap! How did I not realize I'm suppose to pay for that! Now what am I suppose to do?".

Basically what are the key financial burdens people should be prepared for when they get out on their own? And how did you keep track of everything?

And secondly, I know there's many jobs out there that have perks such as health benefits, but what about SB owners? How do you guys deal with those issues? Do you just pay for these expenses right out of your pocket? Or do your local Governments have special programs for Small Business Owners that help you with the additional fees? What did you do?

I'm just curious about personal stories you may have to share when you got your own place and how you could afford everything you needed to survive :).

As I stated in my intro thread, accounting and finances aren't exactly my strong suit, and I haven't made a definitive decision on what I'm going to do...

Thanks.

vangogh
10-30-2009, 01:42 PM
It really is going to be different for everyone. You have to look at what money comes in and what money goes out and make sure that more money is not going out.

Your biggest expense is going to be rent. You'll also be spending money each month on utilities. Gas and electric, phone, maybe cable or satellite tv. I'd assume you'll be paying for an internet connection as well. Sometimes utilities can be part of your rent, but that depends on where you live.

You also need to figure in money for food and maintaining a car if you have one. Figure in some extra money for personal expenses like entertainment. Odds are you're going to spend some money each month on things that aren't necessities.

As far as health insurance I bet there's a mix of answers. Some people are covered under a spouses policy, some pay it on their own, and some won't have it. If you're under 25 I think you can still be carried on your parent's policy.

All your questions are just part of learning to live on your own. The only things you'll have to pay is rent, the associated utilities for gas and electric, and food. Everything else is up to you. I have lived without a phone, without a tv, with very little money for food, and in apartments you'd rather not be inside of because it was all I could afford.

Figure out how much money you'll have coming in and then do your best to estimate what utilities will cost. Over estimate to cover yourself. Look at your parents bills. They'll probably pay more for a house than you will for an apartment. Estimate the bills you can and then figure out how much is left to afford on rent. The less rent you have to pay the better you'll be. I think the general rule is not to spend more than a third of what you take in each month on rent, though I've always managed to get by paying more.

jamestl2
10-30-2009, 02:41 PM
For the first few years, I think it may be better if I get an apartment, it seems much less complicated than actually owning a property, and it may be better for me once I get my feet off the ground on the other things.

Honestly the only "entertainment" Utility I need is internet, for everything I do on it (and I've got all the music I ever listen in my iTunes library already :)). I don't watch TV, don't go to the movies, don't talk on the phone, don't go on vacation, etc. So my entertainment expenses will be at a very minimum, if any at all.

For Health insurance, ATM I'm covered under my parents' family plan (until I'm 24, I believe, which gives me a bit over a year). Auto Insurance varies greatly from year to year, once it was $800 annually, the next year it dropped to $400, then it went back up about another hundred again, so it's hard to predict just what it'll be. But I rarely use my car (only use it to drive to and from school, that's about it), not that it makes much difference.

Another concern of mine is just who I'm going to decide to get my insurance from. There seems to be a ton of unknown (to me) companies from whom I can choose from, they pretty much all sound the same to me. My parents were basically the ones who chose all the plans through their work, union, etc. and I pretty much stayed out of it.

So the list I basically have right now is:

Rent (and Utilities)
Food
Business (Internet, Domain, and Hosting fees)
Health Insurance
Auto Insurance


The list just feels extremely short to me, and it could be missing some things I can't think of, like some obscure insurance that I should look into, or some form of taxes that I'm supposed to be required to pay. Don't know why I feel that way.

I have probably around $2 or 3K in the bank, plus the freelance money I've made so far since staring my business about a month ago (about $200). While I don't have a job immediately ATM, the internship work I'm doing now is on the verge of completion, and I may get a job opportunity with that, but it's a huge unknown at this point. At the rate I'm going now, I'm thinking my bank reserves will dry up pretty fast, so I'll need to sacrifice business time for job time (if I can find something that interests me and requires my skills), not that I'm really looking forward to it though.

vangogh
10-30-2009, 04:21 PM
I think you have the basics covered in your list. As far as health insurance if you're covered for a year then you don't have to worry too much about it right away. Yes, be prepared for it, but you have some time to figure it out.

As far as who to use for insurance (health or auto or both?) you just have to call them and see what they offer and make a decision. It's a more complicated decision than deciding what cell phone to buy, but the process is the same. Your auto insurance rates are going to suck for a number of years. Unfortunately young males cause more than their share of auto accidents and so get higher rates. If you want your rates to go down don't get into an accident and don't get any tickets and get older. Getting married also moves you into a lower insurance group.

Even if you don't think you'll need it plan on some money for entertainment. If you go out to dinner with friends one day a month you spent something on entertainment. If you budget for it and don't use the money you'll have more in savings.

Makes sense to rent until your income is more stable. That's going to be your biggest expense. The less you spend on rent the easier the rest will be. You could also find a roommate to save on rent and utilities.

When you get down to it there are very few things you have to pay. The problem for most people is they have a hard time going without and want to buy more than they should. If you can learn to cut your expenses you can get by during down times.

One thing that will be hard for you is not having a steady income at the moment. The money you have in the bank will only last a couple or three months so you'll need to be brining in more before that time is up. It's much easier to have the income first to know what you can afford, but sometimes you also just have to take a chance.

You might also want to separate your personal and business finances. I know that both are you and the finances will mix, but it could help you decide what you can afford on one side or the other. You might also decide that the business money should be reinvested in the business even if you need it personally.

Everything you're thinking about is just part of life. We all go through it and it can be a little scary with all the unknowns, especially at first. The fact that you're even thinking about this stuff puts you light years ahead of me. I jumped right in without a clue and hoped I'd figure it out. Sometimes I did and sometimes I didn't.

The smart thing to tell you is that you should stay at home until you have more of a steady income coming in and then based on what's coming in you can figure out what you can afford in expenses. However I won't tell you that since sometimes being forced to have to come up with the money motivates us to do more.

Know that in the end you'll be fine. There will be up and down months and the more you're out on your own the better you'll get at making sure the bills are all paid.

Steve B
10-30-2009, 08:27 PM
I've got a pretty radical idea that, if you follow it, could make a HUGE difference for you financially for the rest of your life.

Once you get your first "real" job - do everything you can to continue living the life of a poor college student. Continue to live at home, don't go out to dinner, do free things for fun, don't buy a new car - or any car at all if you can help it. Put every dime you can in the bank and get some advice on long-term investing. By front-loading your savings - the math that happens to it with compounding is abosolutely astounding.

The trick is to continue living like a poor college student immediately after graduation and for 1 full year after you start making money. You should already be used to being poor - so just keep up those habits for a little while longer. Otherwise, once you start surrounding yourself with the trappings of modern life in America (toys, tools, rent, house payments, cars, kids, etc.) then it's impossible to go backwards. Just one lousy year of living on crumbs will have a huge payoff. To verfiy what I'm talking about do a Google search for Retirement planning tool and play with one for a little while. You'll see what I'm talking about.

Anyway, that's my advice.

To answer another part of your question, I purchase health insurance for my family from an insurance company. It's insanely expensive and carries a huge deductible. We're all relatively heathly and were declined 5 out of 6 times. Finally, we got someone willing to cover us - then the premium went up 25% for the second year (despite no major claims). It has proven impossible for me to get STD and LTD (Short Term and Long Term Disability) as a small business owner. So, we're screwed if anything happens to me and I can't work.

I hope this helps.

huggytree
10-30-2009, 09:07 PM
local goverment doesnt provide me with any special deals...they only take from me.

health insurance is $1,200 a month for my family (includes dental/vision)...i get a group rate by being a union contractor.

I strongly recommend writing down all your expenses...thats your budget!..stick to it....make sure you have extra every month for extra expenses...try to build up $10k+ in your bank account for rainy days...most people have nothing but debt.

I always pay cash for everything....my house is the only loan/debt i have...i have taken out loans for cars, but paid them off in a couple of months....

I lived at home until i was 23 and bought a house with a large downpayment & paid cash for a new Mustang GT...i would save $1k+ a month(i made $9 per hour) and work as much overtime as i could to save up....people at work made fun of me for working too much and not wasting my money....but it got me about 15+ years ahead financially of anyone i know...

now that im older and financially stable i can have fun and blow money when i feel like it...all because i didnt when i was young....all the guys who joked about me working too much are still working at the same factory making $12 per hour and working night shift.

Evan
10-30-2009, 10:28 PM
Congratulations on your achievement. I received my bachelor's degree in May, and went straight on for my MBA (which I receive this May). I'm also contemplating a doctorate for the challenge, but most people think I should just check into a nut house.

The biggest challenge you'll probably find isn't the major things, which you seem to understand. It is the minor things. You get an apartment, but it comes with nothing. Do you have a bed? Sheets? Pillows? You have a kitchen... do you have plates? Utensils? Seasoning? Pans? You have a bathroom... do you have a plunger? toilet paper? Heck, is electricity and heat also included? Plus how is it heated, by electric or oil -- and where are you living? Heat in Florida doesn't matter as much as it does in Boston. There are so many "small" things which seem obvious in the house that you forget about when looking at the big picture of moving out.

My suggestion is to live as cheaply as possible. You don't need fine china for the kitchen, and you may find that yard sales could be a godsend. Also, check out Craigslist for other useful things, such as furniture. So often people are moving out and have a couch they no longer want/need. Their loss is your gain! Sometimes you don't even need to pay for it. Take advantage of ANYTHING that is free.

Life can sometime seem depressing from this cheap lifestyle. To cure that, I really recommend working as MANY hours as you possibly can. If you can work 60 hours, why not -- especially if you're still hourly! Also, you are still young and can put in the time, plus it may land you to raises and show you have initiative. Good if you want to keep a "real" job while trying to get your side business going. And if you can't work 60 hours from one real job, you could always get another side job.

Health insurance, by the way, covers you up to 24 ONLY if you are a student. If you graduate in May 2010, then come December 2010, your coverage lapses. You MAY be eligible to continue the health insurance via COBRA. If you have no medical issues, this may not seem like a good idea. But if you have ANY medical issues, you really aught to pay for it.

For other insurances, get price quotes from companies. For auto, I do use GEICO because it was the lowest price for the custom policy I have now. But I checked about 6 different companies. If you know what you get under your current contract, and you shop with company A, B, and C, the only difference is price (generally). Stick with what is cheap for now. They will probably reward you if you stick with them by way of providing discounts. If you are a renter as well, I strongly suggest RENTER'S INSURANCE. Like car insurance, it's not there IF something happens, it's WHEN. Something may inevitably happen, and you want to be protected. Also, you may opt to choose a lower deductible despite a higher premium because you're the one that needs to scrape up that cash immediately. If you don't have much of a cushion (and you don't), then you'll need it.

Having $2-3K saved up is no small feat, and probably greater than most of my college friends who seem to live paycheck to paycheck. I could never live that way, and have multiple sources of funds I could tap if needed -- from any one of my businesses. If you can manage credit cards without using it as a crutch to get by, I recommend utilizing credit cards to manage your cash flows. If you were to pay $2,000 for an item -- why take it all out of your checking account (assuming you had the cash). Even though the interest rate may be high (or higher than a savings account), if you make decent payments, you can maximize your cash flows at a minimal cost. But NEVER, EVER, live off credit cards or use it to get by every month. And your payments need to be something substantial, say $300 a month for that $2,000 widget. I also suggest not putting additional debt on that card while you pay it off.

Also, if possible, live at home as long as possible. It is the best way to save cash so you aren't struggling. If you need to move to a new area, look at Craigslist to try to find an apartment to sublet for the interim so you can try to find an apartment. Things often seem too good online, and you may find that you're not exactly in the best neighborhood. (That may explain why it's so cheap!)

FINALLY -- stay single. You'll save lots of money.

Steve B
10-31-2009, 05:09 AM
I'm not sure I understand Evan's advice on credit cards.

My advice on credit cards is to have one, but NEVER use it. If you do use it, pretend it's a debit card (even if it's a credit card) and pay off everything you buy completely within the grace period they give you (usually 25 days). You should NOT pay any interest on anything you buy - with the one exception of maybe a house. I would suggest looking up a guy named Dave Ramsey. He's got a radio show that answers people's questions on financial stuff. He will tell you to never use a credit card for anything.

Huggytree did it right in the beginning and now he's reaping the rewards. Paying cash for a new Mustang GT means he had some awesome discipline.

When I got out of graduate school and moved out of my parents house (my first real job was out of town), I found a roomate to share a 2 bedroom apartment with. We then rented a house and got two more roomates. The money I saved by having roomates allowed me to save enough for a downpayment on a house. It gave me a huge headstart that most of my peers didn't have because they thought having a roomate was weird after they were done with college.

Spider
10-31-2009, 09:06 AM
I must weigh in on this discussion about credit cards. There is nothing to be afraid of, if you are smart about finances, and have a good understanding of how money works. Unfortunately, Money 101 does not seem to be a subject in school these days and few people seem to be aware of how to handle money. In fact, simple mathematics - as in knowing how much you spend as you spend it - is really all that is needed.

I have never heard Dave Ramsey say never use a credit card except to people who are in over their heads. That is the sort of person Dave Ramsey addresses in his radio shows and public presentations. Such comments are to help them get out of the problems they have caused themselves. (He has a website, btw - not surprisingly, daveramsey.com (http://www.daveramsey.com) ) Such advice would be irresponbsible, anyway, in a world that is moving more and more towards online purchasing of everything.

I absolutely agree with the previous comments about saving hugely in one's early years in the workforce. If one was to save $1,000/month for the first 10 years, then save nothing for the next 30 years but let the saving compound, you would have as much money at retirement as if you didn't save for the first ten years but saved $1,000 /month for the next 30 years. Compound interest is the secret to wealth.

Steve B
10-31-2009, 02:17 PM
Dave Ramsey definitely recomends not using credit cards for everyone - I'm guessing you haven't listened to him in the last couple years. It's not just for those that are in over their heads. I don't follow this part of his advice because of the convenience and, of course, on-line purchases. But, that is his recommendation. He's a very rich guy and he doesn't use them - ever.

See the quote below taken right off of his website:

"We do accept debit cards, but we do not accept credit cards—never have, never will. Dave personally uses debit cards for purchases, and that’s the advice he gives to America."


I believe his advice has a lot to do with the fact that pulling out the cash makes you think twice before buying something you don't really need. He also seems to have a personal vendetta against credit card companies.

The compounding of interest even amazed Albert Einstein - starting out early is so beneficial, but so few do it because they can't wait to get that new car (or whatever).

Evan
10-31-2009, 05:07 PM
I don't agree that people should not use credit cards, and in fact I would recommend it over debit cards. You have more protection as a consumer, and you do not need to front the cash. But using a credit card doesn't mean you don't have to set aside cash to pay it off -- that is a must. I agree that you should consider it and use it like a debit card (spend only what you can pay off). BUT, if an expense comes up and you do not have the cash -- you need to do everything you can to make the largest payment possible to minimize interest paid. Credit cards shouldn't be a crutch for living a lifestyle you cannot afford, and if it seems like you're doing that -- shred the card if it is what is necessary to avoid using it.

At a minimum, I recommend using debt to maximize cash flows. If I pay for a $10 item today with a debit card, I no longer earn interest on that $10. In a savings account, you can earn interest on it for sometimes as long as 60 days (depending on the date of the transaction, when your grace period.) That $10 is one item... multiply that by many items, and you have a lot of money that could be earned -- money in YOUR pocket.

Admittedly, I do use a mix of debit and credit cards. My credit cards offer a minimum of 1% cash back, sometimes more. My debit card pays me 10 cents each time I use it. So if the transaction is less than $10, I'll use my debit card, but the remainder my credit card because I can save 1% (or greater) on the transaction.

I know many people who cannot manage debt, and this advice wouldn't work. If you know you're not disciplined to do this, then save yourself the hassle by not sinking yourself in debt.

jamestl2
10-31-2009, 10:34 PM
Wow, thanks for all the great, thought-out advice everyone.

I sat down with my family earlier (well my Mom anyway, my Dad says that none of this finance stuff is even remotely important until I actually find a job and get hired, so he wouldn't even discuss this with me) and we went over a balance sheet (Is that what it's called? The chart with all my expenses and Income totaled up.).

Anyway, I found out my Health Insurance is going to be much more urgent. It DOES expire when I graduate, so I'll need to look into that right away too. Plus the pills I'm taking (to fight my disease issues) cost $700 a month w/o insurance (only around $40 w/ insurance).

I did a search on some various Health Plans (using ehealthinsurance.com), and it was quite intimidating. I have no idea what deductibles are for, what coinsurance percentages are important, or even what the different plan types mean. I don't know why these things have to appear so complicated, just to get some extra insurance!


About the credit cards, that was probably one of the things I was looking for having on my list, just couldn't think of it. I don't have one yet, but once I get an offer or two in the mail, I'll probably sign up for one.

Would it be a good idea to spend with some credit cards anyway (and pay them back ASAP) to build up a credit rating? I'm not sure what entirely I'll need one for, but my family recommended I work for it as soon as I can.



do everything you can to continue living the life of a poor college student


Don't worry, I'm already doing that ;), as I said, my entertainment expenses are at a bare minimum. And I don't really plan on doing things like eating out, buying expensive toys, having kids or even dating (had a bad experience in that department). So I'm covered mostly in that social aspect of my finances.

I definitely don't plan on spending very much at all in the future besides what's required to survive.

Evan, I'm not entirely certain what you refer to by:


At a minimum, I recommend using debt to maximize cash flows


How does debt help with cash flows? I understand keeping money in the bank means more interest will be earned on whatever's in there, but I'm not sure about the relation between cash and using debt, which is money you owe to other people...

Evan
10-31-2009, 11:55 PM
we went over a balance sheet (Is that what it's called? The chart with all my expenses and Income totaled up.).

In accounting, that would be the income statement. A balance sheet shows what assets you have, your liabilities, and then what is left over (equity).


Anyway, I found out my Health Insurance is going to be much more urgent. It DOES expire when I graduate, so I'll need to look into that right away too. Plus the pills I'm taking (to fight my disease issues) cost $700 a month w/o insurance (only around $40 w/ insurance).

It usually expires at the end of the calendar year, not in the middle of the year. Call the member services number on the back of your health insurance card to ask.


I did a search on some various Health Plans (using ehealthinsurance.com), and it was quite intimidating. I have no idea what deductibles are for, what coinsurance percentages are important, or even what the different plan types mean. I don't know why these things have to appear so complicated, just to get some extra insurance!

If you have medical issues, you want a low deductible. This is the amount you must pay before the health insurance company pays anything to any of your providers (pharmacy, doctors, etc.). Coinsurance is your responsibility after you satisfy your deductible. So if it says 20%, that means 80% of the costs are paid by the health insurance company, and you pay the remaining 20% out of pocket. Coinsurance is very similar to a co-payment.


About the credit cards, that was probably one of the things I was looking for having on my list, just couldn't think of it. I don't have one yet, but once I get an offer or two in the mail, I'll probably sign up for one.

Would it be a good idea to spend with some credit cards anyway (and pay them back ASAP) to build up a credit rating? I'm not sure what entirely I'll need one for, but my family recommended I work for it as soon as I can.


That is very unfortunate that you have no credit cards, as it means you do not have established credit. You most likely have student loans, and those certainly do affect your credit, but when credit checks are done, they really look for "revolving" lines -- aka credit cards that you can pay off whenever you please.

Having an established credit history is important. Sometimes employers even want to do a credit check, and it isn't uncommon for landlords to request this before renting to a tenant (you).


Evan, I'm not entirely certain what you refer to by:

How does debt help with cash flows? I understand keeping money in the bank means more interest will be earned on whatever's in there, but I'm not sure about the relation between cash and using debt, which is money you owe to other people...

Cash flows refers to how you manage your cash (inflows and outflows). Say you make $500 a week, and you deposit it in your checking account each week. That means you have $500 week one, $1000 week two, $1500 week three, and $2000 during week four.

Now let's say $600 is needed for rent during week two, and you spend $250 a week on groceries, gas, etc. You're in a bit of a bind if you use strictly cash, eh?

At the end of week 1, you only have $250 remaining, at week 2, you'd have $500 -- not enough to pay the $600 in rent.

Now let's use the same facts above, except assume you put the $250 a week of necessary purchases on a credit card. The $600 for rent still needs to be paid week two, so at the end of the month, you have $2000 - $600 (rent needs to be cash, as no credit cards are usually acepted). That is $1,400 sitting in your checking account. Next, your credit card bill comes in for the $1,000 -- the 4 weeks of $250 purchases. Now you have $1,400 in your checking account to pay that $1,000. The remaining $400 you could then sweep into savings OR spend it on something necessary.

Most people who never have cash and overdraw their checking accounts seem to not know how to manage their cash flows. Admittedly, I haven't paid my credit card bills in full because I may have been temporarily strapped for cash (though not really -- just didn't want to transfer it from savings) -- but I was smart enough to pay only $3.00 in interest on the balance, versus a $35 overdraft fee for each transaction that makes my balance negative.

Spider
11-01-2009, 08:30 AM
Dave Ramsey is speaking more against credit cards than I remember. I think he is going overboard now. While his advice is good for people who have let credit get the better of them, it is not good advice for people who know how to handle money. It's like saying no-one should drive an automobile because a few don't know how they work and won't learn to drive properly. Even 45,000 deaths a year from auto accidents won't make that argument correct!

Here's what I see as benefits of using credit cards--

1. The use of credit cards builds credit history - and a good credit history is essential for getting lower interest rates and better terms on loans such as home mortgages, which most people need if they want to buy a home rather than having to rent for their entire lives.

2. A good credit history helps in getting better jobs, better insurance rates and better anything that involves money, because the providers (employers, insurance companies, etc.) consider you a better risk if you have your personal finances in order.

3. Purchasing on credit gives you more protection against faulty goods and bad service if the venders will not stand behind their products. You cannot take back cash you have already paid but you can refuse to pay the bill - and credit card companies generally favor the cardholder over the vendor in a dispute. But even that depends on yours (and the vendor's) credit history.

4. Credit cards help people balance their income and expenditures, thus helping them manage their finances by evening out cash flow.

Notice, I do not count "instant gratification" and "buying now instead of waiting until you have saved up" to be benefits of credit cards. In some respects, these are negatives and are the reasons many people get into trouble with them.

I look on credit cards in the same way I look on cars - they are a needed and beneficial part of modern life but they will destroy you if you don't handle them properly. So will dogs, electricity, fast food, barbed wire, and a zillion other things we live with every day.

Steve B
11-01-2009, 08:30 AM
Re: losing your health insurance. Your parent's employer will be required to offer you COBRA - which will allow you to purchase the same coverage for up to 19 months. It will almost certainly be the best deal you will find. If you have a disease that requires expensive drugs, you will certainly get a quick lesson on this debate about health care reform. You won't have a problem if you get a job and the company offers medical insurance because you will be part of a big group. But, purshasing it on your own could literally be impossible - so working for yourself may not be a reasonable possibility for you at this point.

My advice on your personal credit card situation is to get one (if you can) and use it for a couple of purchases that you know for SURE you will pay off in full immediately. This will help build your credit which is important. Evan is right, credit cards do offer more protection than debit cards. Just be honest with yourself about your ability to use them ONLY for purchases that will be paid off in full - without incurring interest.

I use credit cards for absolutely everything possible. But, I always pay it off immediately and haven't paid any interest in 20 years.

Don't forget to play around with some retirement calculation programs. There are TONS of them out there for free. There is an urban legend that Albert Einstein once said compound interest is the greatest force in the universe. Whether he said it or not (probably not) is not important. It is truly amazing what starting early does and you just have to see for yourself.

The fact that you asking these quesitons so early is very impressive. I'm sure you'll be fine. From reading these posts you already know more about personal finance than 99% of the population. It's ashame we don't teach it in school.

Patrysha
11-01-2009, 10:03 AM
It is a shame we don't teach it in school...

But I can see it causing an uproar in homes across the nation if children came home with financial opinions.

Just thinking on the lessons they bring home on nutrition and the environment...kids can be really annoying when they come home fresh from a lesson with their slogans.

Spider
11-01-2009, 10:20 AM
On the matter of purchasing something with a credit card and paying it off immediately --

I believe this will not lead to a good credit score. FICA credit scoring is based - as far as I understand it - on the credit you use and your ability and willingness to pay it back. If you buy something and pay it off immediately, you have not used the credit available to you. Sure, doing that is better than not paying it at all, but unless you use the credit that is available to you, FICA cannot score you on it. IOW, you must buy something and pay it off over time. That means you will be paying some interest.

There's no need to get all hung up about paying some interest. If you manage your finances well, the amount of interest will not be much. I purposely maintain a balance on my cards so that I pay a planned $5-$10 per month in interest. I figure that $80 a year on average is a good price for an active credit record, many excellent and long-standing credit references and the ability to draw on substantial credit at a moment's notice with no questions, no forms and no chance of refusal.

huggytree
11-01-2009, 01:42 PM
I use REWARD credit cards for everything I buy...i get $100 Home Depot cards monthly for my reward....i get $1,200 in credit card rewards a year. All for paying my cards off monthly..

Steve B....Im saving for a 2010 Challenger Plum Crazy STR8 for next year...thats why im building the garage for the business...to free up a spot for something special....

I strongly recommend saving 10% of your wages for retirement...Roth IRA to be exact... Max it out if you can......I always put in 10% a year from 18 years old on...Im not happy with where my retirement is at...wish i would have saved more....most young people save nothing....they spend it all at the bar

Evan
11-01-2009, 10:04 PM
Always paying your credit card fully each month may not help build credit. My boss actually has only one credit card, and was rejected when he applied for a gas card (from the station he always goes to). The reason? They checked his credit and determined he wouldn't be a profitable customer.

He always pays his credit card bill in full each month.

My thing with paying off credit card debt is you need to be realistic. There are worse things in life than credit card debt. Even if you didn't pay it off in full in one month, what is important is that you are making substantial contributions to paying down the debt.

Racking up $20,000 of debt and making minimum payments isn't how you do it. It is LIVING within your means, and making reasonable strides to pay off debt. Say you have a $1,000 credit card bill... paying $250 each month can be beneficial, even if you have the $1,000. Just don't pay the $20 minimum they have though -- or else you're in way over your head.

One good thing that did come out of this credit card reform bill that passed in Congress was higher minimum payments. 5% isn't an unreasonable minimum, and if you cannot afford making a payment of at least 20%, you are living the life of someone who makes much more than you do. Shred the credit card, or put it in a bowl of water in the freezer.

Steve B
11-02-2009, 04:59 AM
"They checked his credit and determined he wouldn't be a profitable customer."

Your goal shouldn't be being a profitable customer to credit card companies! I can't imagine intentionally paying double digit interest on gasoline just so you can qualify for future credit cards. But, if that is your goal - then Evan is right. They definitely like customers that don't pay off in full far better than me and Evan's boss. Although it should be pointed out credit card companies make money on people like me also - they charge the merchant a fee for every transaction (around 2% of the purchase).

Although I'm not the most profitable type of customer for them, I've never had any problem getting credit when I needed it. So, even if your goal is to be able to qualify for future credit, I think you can take the risk of not paying double digit interest on gas.

Spider
11-02-2009, 09:12 AM
There's usually too much emotion involved in this topic of credit card debt and credit card interest, and we have been devoid of that attribute until now. Let me try to turn down the spigot.

"Double digit interest" is an emotional term. Interest is interest, and what is important is the AMOUNT we pay, not the rate.

Let's use the $1,000 balance already stated. And let's use 12½% as the double-digit interest. If you don't make any payment at all for a whole year, your total interest would be $125.0. Is that such a big deal? I'll bet most everyone on this board wastes $4.00 a day = $120 a month, let alone per year!

And if one only pays the minimum 3% - $30 - you are not paying much over $100 for the year. Pay off $100 per month and your total interest payment is approx. $60, about $5 per month.

What else can you get for $5? A cup of coffee and a sticky bun?

IOW, don't let's distort the details. I think one is far better off having that $1,000 to use to improve their life and forego one cup of coffee and one sticky bun per month.

But that's just me!

Evan
11-02-2009, 01:56 PM
Your goal shouldn't be being a profitable customer to credit card companies!

Although I'm not the most profitable type of customer for them, I've never had any problem getting credit when I needed it.

I think he had two issues: only has one credit card (that he uses rarely), and the fact he pays it off in full each month. If you use your credit card often and pay it off, you are still profitable for them because they DO collect a portion the merchant's fee.

What I should have said is don't just get ONE credit card and never use it. If you plan to build credit, you need to actively use it (wisely) and pay it off. Letting it collect dust doesn't benefit you.

Evan
11-02-2009, 01:58 PM
What else can you get for $5? A cup of coffee and a sticky bun?

Or MAYBE a cup of coffee from Starbucks. But anywhere else, you're probably right! :D