The Fountainhead

I’m going to be completely honest, I’ve been pretty swamped with school stuff lately (partly due to my work load and partly due to my procrastination – okay, mostly due to my procrastination).  I should have known these kind of days would come where I’m just too busy to crank out a quality post.  So instead of giving you all, my homies, nothing on this fine Tuesday morning, I’ve decided to make a new series out of it that will hopefully encourage you in some way.

I’d like to start this series off with one of my favorite quotes from Ayn Rand’s The Fountainhead.  As an Entrepreneurship major I love this quote.  It helps me keep in mind my goal of starting a business.  Hope it inspires something in you.

As for now, I’ve got to get back to studying… bleh.

One Budget to Rule Them All – The Beliefs

I think it is about time that I gave you guys a basic rundown of how I do my own personal finances.  I’ve talked about elements of it but haven’t really given the big picture yet.  In this series, “One Budget to Rule Them All,” I’m going to be explaining some of the budgeting concepts and methods I’ve come to believe are best suitable for helping college students handle their money.  Now this system has evolved over my college years from personal experience and I’m still learning, so if you see anywhere that I can improve let me know.

I could probably write an entire post about each of the posts below (and eventually will), but to start off the series, here is an overview of some basic beliefs I’ve picked up about budgeting:

1. Tracking expenses is a waste of time.

Most personal finance sites will tell you that the first step to creating a budget is to write down every single purchase you make to see where your money goes.  I’m telling you this is crap.  It is too tedious and I believe it is one of the top reasons why people quit budgeting – they get too caught up in the details.

The reason they tell you this is so that you can see where your money is going.  Now this might be necessary for people out in the “real world,” especially those just getting ahold of their personal finances, because they have more expenses and a wider variety of them, but for college students it’s pretty simple.

Our immediate expenditures (those that we will be spending money on in the near future and doing so frequently) are made up of food and stupid stuff (to find out more about these, especially stupid stuff, click here).  Basically, anything you are going to spend can be lumped into one of these two categories.  Now you might ask, “Surely you must spend things outside of that,” to which I reply, “Keep reading… and don’t call me Shirley.”

Looks like I picked the wrong week to stop reading Coinege!

2. A fund for everything.

If you aren’t immediately spending money on something, it should be actively going towards some expected or unexpected item in the future.  Every dollar I get is named.  That is to say I’m putting it towards something.

Funds can be something as specific as “Two Peavey PV-115 Speakers,” which sound awesome by the way, or as vague as “The Guys,” which I dig into when I’m hanging out with my bros and want to spend more than my allotted stupid stuff money.  They can have a specific saving goal or be never-ending.  They can be numerous or few.  They can be whatever your heart desires, just as long as every dollar you make is assigned to one of them.

Just as a side note, two funds that I highly recommend you have are one for Treasure and one for Giving.  For me, these accounts are never-ending in their amounts and each one receives 10% of my income.

3. College is a pretty unique environment.

School provides me with a dorm and a meal plan.  Those are two major expenses that I don’t have to worry about out of pocket at least on a day to day basis (although I will have to worry about them eventually when I start paying off my student loans).

It makes me comfortable knowing that if I absolutely hit rock bottom and go broke, I at least have a place to sleep at night and three square meals a day.  The basics for survival are covered.  It’s almost like a safety net, which makes learning personal finance skills in college all the more attractive.  You have room to comfortably make mistakes.

4. Using cash is the best way to limit your spending.

At the beginning of every month I withdraw money for food and stupid stuff.  Currently this amount is $30 for each.  I happen to have a nifty wallet with two pockets for bills so I am easily able to keep these separated.  This way I never have to wonder how much money I have left for each of these things.  I just have to look in each wallet pocket and count.

When I run out of money in my wallet I am out of money for the month.  Period (this is with the exception of funds; see belief number two if you skipped it).  Being able to visually see how much money I have left and actually having to pull that money out of my wallet and count it out to pay for something really makes me think twice about what I am spending it on.  This is an especially helpful tip if you are prone to impulse buys.

5. If you have money, spend it.

Now this is not to say that you should keep your bank account riding at zero.  It is saying that if you have the money to buy something, don’t feel guilty about buying it.  Having the money to buy something means you have properly saved for that thing, and thus should view the purchase as a reward for your discipline.

This belief is just as useful for not spending money as well.  It is just as powerful to say the opposite – if you don’t have money, don’t spend it.  For me this is just common sense.  It is also why I am against credit cards.  If you find yourself in a given situation where you don’t have enough money to buy something then why are you buying it?  Save for everything you need.

Do you agree with my beliefs?  Why or why not?  Also, do you have any major personal beliefs about your own finances?  Leave it in the comments!

Treasure Tracker: Looking at CDs

Savings accounts have pretty lousy interest rates, but they are designed that way.  Banks give you interest on the money you put into savings accounts because you will presumably be leaving it there for a while which gives them the time to make money on your money by doing things like giving out loans.  The rate is still pretty lousy though because there is no safeguard against you deciding to go to the bank one day and withdrawing all the money from your savings account.  It’s the way they entice you to save while mitigating their own risk.

I say all that to say this:  I’m tired of making pennies a month on interest so I decided to see if there was something out there that could make me a little bit more money.  I wanted something that earned a higher interest rate but did not require thousands of dollars to start.  Luckily, the financial world has something exactly for people who want to do that.  It’s called a Certificate of Deposit, or CD for short.

CDs are purchased from your bank.  I personally think purchase is a bit of a misleading term though because you will eventually get your money back (plus some!).  The Securities and Exchange Commission lays out how a CD works as follows:

“you invest a fixed sum of money for fixed period of time – six months, one year, five years, or more – and, in exchange, the issuing bank pays you interest, typically at regular intervals. When you cash in or redeem your CD, you recieve the money you originally invested plus any accrued interest. If you redeem your CD before it matures, you may have to pay an ‘early withdrawal’ penalty or forfeit a portion of the interest you earned.”

It is basically the same thing as a savings account except you agree to keep your money at the bank for a specified amount of time or pay a penalty.  By knowing how long they will have your money, your bank can better plan its own investments and thus reward you with a higher interest rate.

I wanted to open the CD with my bank so I did some research on their website.  They offer several different options when it comes to CDs, each with their own pros and cons.  After reviewing my possibilities, I came up with the following possible scenarios:

(NOTE: When listing the rates in the scenarios below I use the term APY.  APY stands for Annual Percentage Yield and basically means the amount of return you will get on your investment per year with compound interest factored in.  I also use the term Treasure.  If you don’t know what that is, click here.)

Scenario 1 – Variable Rate CD

A variable rate CD would lock me in for a year at approximately 0.71% APY.  I say approximately because as the name implies, the rate is free to change over the term of the CD based off the most current interest rates.  Despite the chance of getting stuck with a low rate, I like the fact that I can deposit money into the CD at any time because I know that in the near future I will be receiving an inheritance from which I will be throwing a sizable sum into my Treasure (just to clarify this is from my dear old grandmother, rest her soul, and has been sitting in a trust until I turn 21… I am not banking on the hope that someone in my family dies soon!).  I also like that it only ties my money up for 12 months, allowing me to be more flexible should a better investment opportunity arise.

Scenario 2 – Fixed Rate CD

A fixed rate CD gives me a slightly larger bang for the buck with a 0.95% APY.  However, that is really the only thing I like about this type of CD.  The length of the term (how long I must keep my money in the bank) and the inability to put more money into the CD are real turn-offs.  This particular CD will lock my money in for 18 months as opposed to the 12 months of the variable rate.  Doing this will mean I will not be able to add my inheritance nor the money I make next summer into the CD.  However, there is always the option of putting that future Treasure into a different (possibly better) investment.

The Verdict

My decision makes me glad that I started this series because I’ve had to actually think through what I am doing with this money.  I’ve decided not to purchase a CD at all. A CD looks like a swell move on paper.  I would at least get seven times the amount of interest I currently get from my savings account.  But the tradeoffs in order to achieve these higher rates of return don’t really jive with my current financial goals.

Higher rates of return only account for half of the goals for my Treasure.  The projections above are based off of starting the CD using the entirety of my current Treasure.  By investing in a CD my money becomes tied up for at least a year.  That is an entire year during which I am planning on not having an emergency.  News flash!  You can’t plan for emergencies!  By choosing one of these scenarios, I am neglecting the other use of my Treasure, to protect me from the randomness of life.

I could invest  less, keeping some of my Treasure in my savings account while the rest goes into a CD.  The problem is my Treasure isn’t all that great right now.  My piratical status is more like that pirate from Spongebob rather than a full-fledged, financially secure Blackbeard.

Blackbeard is fierce and financially secure from emergencies… like scurvy!

If I were to throw all of my Treasure into a CD, at the very least it would be gone for a year and at the very most I’d be making about $5.  Break that down into a wage and that’s only 45 cents a month!  Now for doing nothing at all, 45 cents may seem like an acceptable wage for some, but I know people who lifeguard and they make way more than that per month (I’m not saying lifeguards do nothing, I’m just saying they have the chillest job every and get paid for doing next to nothing).  Even with all of my Treasure thrown in  it is not really worth it to pursue a CD at this time.

Next step:  I need to research other investment vehicles and establish a savings goal that will make investing worthwhile for my situation.

Current Treasure Balance: $454.04

What has been your experience with CDs?  Any tips on other investments I should look in to?  Post it in the comments!

Is This an Emergency!?

Emergencies are inevitable.  That’s why you have Treasure, so that when an emergency hits you have the funds on hand to save you from eating up your other savings and protect you from debt.  But what exactly is an emergency?  Here’s what the experts have to say about the matter:

“A real emergency is something that threatens your survival, not just your survival to be comfortable.”

-David Bach, The Automatic Millionaire

“An emergency fund is a rainy day fund, an umbrella.”

-Dave Ramsey, DaveRamsey.com

“An emergency fund is an easily accessible stash of money for use only in case of emergency. It is not to be used to buy a new car. It is not to be used to buy a new PlayStation…  It is for use only in case of emergency.”

-J.D. Roth, GetRichSlowly.org

Basically what they are saying is that a real emergency affects you in a way that prevents you from carrying out your daily business.  Not to sound too parenty, but as a college student your daily business is school.  To help you understand, let’s try a little exercise.  It’s called spot the non-emergency:

  1. You are about to park your car at your dorm/house/apartment when all of a sudden the carburetor explodes!  You now have no way of getting to class until you have a new carburetor.
  2. You are about to walk into class/the library/the student union when all of a sudden your laptop explodes!  You now have no way of doing any of your class work until you repair your computer.
  3. You procrastinated on the exam/paper/project that is due in class tomorrow and are frantically trying to get it done when all of a sudden your mind explodes!  You now have no way of concentrating on your work until you get a triple venti double expresso chai mocha frappuccino.

Explosions – the #1 cause of college emergencies

I hope you spotted it (psssttt… the answer is C – not that you can’t get the coffee; just use the appropriate money – your Food money).

Now not all emergencies are going to be that obvious to spot.  There isn’t any hard and fast rule to categorizing something as an emergency or not.  However, if you find yourself asking “is this an emergency?” then it’s probably not.

If you don’t trust your own judgment, then find someone else to help you make the decision.  Having someone else to keep you accountable with your financial decisions just makes financial sense in general anyway.  In fact, I am using you all to keep me accountable with my Treasure spending habits.

When weighing your decision it helps to remember what you are actually doing by digging into your Treasure.  Your Treasure doubles as investment money, so when you take away funds to use for emergencies, that is less money you can use to invest.  Effectively, you are taking away from your future wealth.  Using money from your Treasure to cover emergencies should be a last resort.  You should also make it a priority to replace any money you take out for emergencies.

What was a big emergency you’ve had while at school?  How did you handle it and what did it teach you about having emergency money?  Leave it in the comments below!

The Monthly Spending Plan

A little while ago, I talked about how you should stockpile some money during the summer.  A Stockpile guarantees you will have money during the year.  The next step is figuring out how you are going to spend your Stockpile payout each month.  For this, you need a monthly spending plan.  Each month when I dig into my Stockpile I know exactly what that money is going towards.  I break this money down into four spending categories, each with its own dollar amount determined at the beginning of the month.  I personally stockpiled enough money to spend $100 a month.  I have it distributed as follows:

Stupid Stuff – $30

My friends seem to find it funny that I have stupidity budgeted for.  I think it just makes financial sense.  My Stupid Stuff fund is a catch-all fund.  It’s for when I’m convinced by the argument “ because Transformers are awesome”  to buy a toy Bumblebee (I mean c’mon, he is pretty awesome).  It’s for when my friend and I decide the most practical way of floating down a creek is in a giant, hot pink blow-up tub (it’s not).  It’s for all of those spur of the moment, frivolous situations that I am bound to face.  There is only one restriction on my Stupid Stuff category – I can spend it on anything except for food or gas.  That’s because I have specific categories dedicated to those two major spending areas.

Why would you not buy this!?

Food – $30

I am not ashamed to say that most of my Food money goes to Taco Bell.  It’s gotten to the point where I measure in burritos – I can have this one sandwich or four burritos.  It sounds ridiculous but this actually helps me prioritize how I spend my money.  By realizing I only have $30 for food for the entire month I know that if I blow $20 on a fancy meal the first week, then I may not have the money to make those late night Taco Bell runs with my friends by the end of the month.

Gas – $20

Gas is the bane of my existence.  I hate having to account for gas because it is a pricey expense and occurs frequently.  Having money specifically for gas takes some of the anxiety out of that whole calculation.  It also makes me smarter about travel.  I know that if I try to carpool more often with friends while going places I can afford to drive to awesome, faraway location XYZ… without getting stranded on the side of the road.

Planned Savings – $20

I am not a fan of having money lie around without a name to it, so during the summer, the time when I make the majority of my annual income, everything I make is saved towards something.  However, in July I don’t necessarily know what I will want in January (though I turn 21 this January so I have a general idea of what I’ll be spending money on).  That’s why I have planned saving built into my monthly spending plan.  It gives me money that I can put into the latest item I want to save up for.

Now you might be wondering why I call it Planned Savings and not just plain, old Savings.  That’s because it is just the minimum amount of money I plan to save that month.  If I come in underbudget for any of my other categories, that leftover money becomes extra saving money at the end of the month.

It is important to remember that the amounts you assign to each category are not set in stone.  Figuring these amounts out for yourself is going to take some experimenting, but it will definitely be worth the time you put in.  First off you will end up with a spending plan that is custom tailored to your needs.  Secondly, by reflecting on the decisions you make in your monthly spending you will see where your priorities are which will make you more aware of who you are financially.

Have questions on how you can apply the monthly spending plan to your life?  Leave them in the comments!

Treasure Tracker: Let Your Money Be Lazy

In the past, I’ve had trouble with keeping my Treasure… well, treasured.  For those of you that don’t know, Treasure is what I call the 10% of all my income that I set aside for investing and emergencies.  I highly encourage you to do the same in this article.

Like I’ve said before, putting aside the money was never a problem for me.  It’s been the not spending it on things other than investing and emergencies that I’ve had a problem with.  You see I have a problem with laziness.  It drives me crazy when I’m lazy, when people I work with are lazy, and apparently also when my money is lazy.  Every few months when I see that my money is just lounging around in my savings account like a lethargic teen addicted to Call of Duty, I feel like I have to put it to work.

This work usually ends up coming in the form of blowing my Treasure on something spur of the moment, like clothes or a piece of music software (both of which I have done).  These temptations to put my money to work are entirely reasonable, and although they end up making me look fresh to death and giving me the ability to produce incredibly dope beats, they are not what a Treasure fund is for.  The truth is your Treasure does its best work by being lazy.

Take a cue from Abroham Lincoln and just let your money chill.

You have to remember why you are letting this money lounge around in your savings account.  It is for investing and emergencies.  You can bet that when the time comes that you are in a jam, that money will get off its lazy butt and help you prevent an otherwise awful financial situation.  Or when the opportunity presents itself to make some money with your money, it’ll be there to step up to the plate.  By letting your money be lazy you are doing the best thing possible to set yourself up for future wealth and financial security.

Like I said, I’ve had problems in the past letting my money be lazy, so to keep myself more accountable I’ve decided to do something drastic.  Every time I withdraw, spend, or transfer money from my Treasure (or even think about doing these things) I will post a summary of the transaction here on Coinege along with my reasoning.  This will do a few things.  First, it will let you guys all know that I’m not a hypocrite by spending my money on some spur of the moment thing while I tell you all to save.  Secondly, if I have to write out a post rationalizing my transaction, it will prevent me from doing a lot of stupid things with my money.  Finally, it will hopefully give you all some ideas on what to do with your own Treasure.

I’ve decided to call this foreseeably never ending series Treasure Tracker (mostly because I’m a fan of alliteration).  I hope it benefits both you and me, so be on the lookout for more posts like this!

Current Treasure balance: $354.04

Have you had problems letting your money be lazy?  What were some mishaps or what are some things you do to keep yourself more accountable?  Share in the comments!

Stockpile for the School Year

If you are like me you probably aren’t making a lot of money during the school year.  Turns out a lot of you are like me.  According to a Bureau of Labor report, only about half of us (51.8% to be exact) have jobs while we are at school.  That means the other half of us are relying on birthday checks from grandma for the majority of our income.  To have this money last the year, you need to be smart about how you use it.   By stockpiling your own income you will make it last longer and have a more regular amount of money to expect to receive every month.

What is Stockpiling?

My Stockpile is what I call the money I set aside to get me through the year.  It is the fund that I pull money from to cover my monthly expenses.  I fill it up when times are good (when I have money) and live off it when they are bad (when I don’t have money).

Below is an outline of how I set up and use my Stockpile fund to get me through the year.  Also know that this method isn’t just for people without a steady paycheck during the year.  If you have a Stockpile set up during the summer all of that money you earn during the school year is gravy and you can use it for other totally awesome things.

Be a hoarder like those crazy people on TV… but with money.

How to Stockpile

1. Determine an amount you can live on each month

Believe me; this number can go a lot lower than you think.  In bad times I’ve had it as low as $20.  Currently I have it at $100 per month.  Keep in mind what this money is covering.  I consider monthly spending to be food, gas, planned savings, and stupid stuff (basically money to make spur of the moment purchases; I’ll elaborate more on these in a later post).

Once you have your monthly spending number in mind you need to come up with your savings goal for the fund which is simply the amount you can live on each month times 12.  For example, I decided my monthly amount as $100 so my savings goal would be $1,200.  This will be enough to get me to next summer when I will once again be earning the majority of my money for the year . . .  which brings me to my next point.

2. Fill your Stockpile

The best time to fill up your Stockpile fund is during the summer.  You don’t have all those distractions that you would during the school year like exams and papers.  You can throw your full attention into making tons of mullah!  When you get your paychecks during the summer you should always set enough aside from it so that you will be able to meet your savings goal before you go back to school.  I figure out what percentage of each paycheck I need to set aside at the beginning of the summer so that I have a plan to fill my Stockpile.  This leads to the final step – sticking to the plan.

3. Stay Disciplined

You will probably face the temptation of spending this money before the summer is out.  Remembering why you are setting all this money aside can help in keeping you motivated.  You are setting money aside now so that you will have money to do things during the year.  Pretend like you are stockpiling for the zombie apocalypse.  You wouldn’t shoot all of your ammo now.  You would have no way of defending yourself once an outbreak occurred and thus defenseless you would be eaten and become a zombie!  You want to conserve your ammo and save it for the right time. 

Similarly, by limiting yourself with what you can do in the summer, you can have the money to do things with your friends when you get back to school.  And the amount you limit yourself to in the summer is all up to you.  It depends on how much you feel you can live on per month.  It will get tough at times, but by  fall semester you will be thanking yourself for the saved money so you can chill with your friends.

I realize that everyone’s situation is different and you may not use this fund like I do.  If you have a question on how to use it in your own situation, leave it in the comments below and I’ll help you out the best I can!