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Author: christyne

The Most Convenient Way to Keep Track of Your Budget

Posted on by christyne

It’s important to keep track of one’s budget for many reasons.

  1. First of all, a budget let’s you decide where your money goes before you spend it, instead of wondering where your money went at the end, or worse in the middle, of the month.
  2. Secondly, by keeping track of your budget you can find categories that you spend a lot of money on. It helps you get an exact picture of your spending and helps you decide whether or not it depicts your priorities. Is spending $30 a month on coffee where you want your money to go? Do you really like TV enough to spend $100 a month on it? What else could you do with that money?
  3. Further, keeping track of your budget allows you to plan your financial future. Saving for emergencies, a trip or retirement and repaying loans is only possible if you have a good grip on your finances.

All the benefits of setting up a budget can empower and motivate you to try and follow everything to a tee to get your finances in great shape. Unfortunately, the reality of tracking all of your spending can be tedious. When you have to keep all your receipts and enter the amounts, one by one, into a spreadsheet or even a notebook, staying on top of your budget can become a pain.

A good and reasonable budget is important and is actually tied to financial success. At PFC, peer counselors use the budgeting process for many different personal financial situations. Budgets uncover spending leaks, show how large an emergency fund needs to be, can give college students an understanding of how much the first job out of college should pay, how much student loans are needed and last, but not certainly not least, to decide where the money should go before it’s spent.

One thing that we have found very helpful and has found much resonance with clients is Mint.com. The website comes with an app for iOS and Android and is the best resource we have found to track spending and manage finances. When a user first opens an account with Mint, he or she is prompted to enter access information to all checking, savings, and investment accounts, credit cards, and even loans. There is also an option to enter property, such as cars and a home, to the account. This approach allows the user to examine his or her entire financial situation.  Mint has a triple layered security system to protect this sensitive information, which one can read more about on their site before creating an account.

The main function of the site, however, is tracking spending and budgeting. By entering credit card and bank account information, the user allows the website to track all transactions. Mint automatically places the expenditures into categories. So a purchase at a supermarket, such as Dillon’s, will automatically be placed under “Groceries”, and a transaction with Chipotle will automatically go into the “Restaurant” category. There are a problems with misplacement, especially with one-stop shops such as Wal-Mart, however the website allows one to change the category of a particular purchase and to split the transaction into multiple categories.  If you spend cash, there is also the option to manually input transactions.

Spending in each category fills up a bar graph representing the budgets the user sets on the budget tab. Mint will come up with an estimate of an appropriate budget based on past spending and US spending averages, but they can also be manually adjusted by the user. The Website will send alerts via email when spending approaches budgeted limits, keeping the user on track. Besides setting budgets, users also have the opportunity to set goals, such as for a spring break trip, paying down debt, or saving for a down payment. Mint has preset goals that walk the user through the process, while custom goals are also an option.

On the trends tab, users will find statistics about their spending, income, debts and assets. This tab, among other things, can be useful in determining what the biggest spending categories are and give users a visualization of net income. While most investors find this information with their brokers, Mint’s investments tab can be useful by having all the information in one place. Lastly, the “Ways to Save” tab gives suggestions for savings and checking accounts, loans and credit cards, as well as investments and insurance. If a user is actually in the market for any of these items, this tab can be a great place to start researching, however it should not be the only place to look or and should not encourage one to take on new, unneeded credit.

Overall, Mint is one of the easiest money management and budgeting tools out there and a gold mine for anyone who struggles to keep up with tracking, no pun intended.  Mint is one of the best websites/apps to help track spending, because it’s able to integrate with users’ bank accounts. Mint currently collaborates with more than 7,500 financial institutions, more than any other budgeting website (Rapacon*). Transactions are updated and put into categories automatically which makes it the easiest to use application out there.  Try it out today by going to http://www.mint.com.

*Source:  Rapacon, Stacy. “The Six Best Budgeting Sites.”  Kiplinger.com.

Lara Blomberg
Peer Counselor I
Powercat Financial Counseling
www.k-state.edu/pfc

The Power of Compounding

Posted on by christyne

Albert Einstein once said that compounding interest is the most powerful force in the universe. Luckily, you don’t have to be as smart as Albert Einstein to understand this simple, yet very powerful concept.

The wonder of compounding can substantially grow your money over time.  The simple idea is that the investor is generating earnings on an asset’s reinvested earnings. In order to work, you will need initial investment, re-investment of earnings, and time. The earlier you start, the more you are able to accelerate the income potential of your original investment. Metaphorically,  you can think of compounding interest as a snowball rolling downhill:  it is going to get bigger over time as it accumulates more snow along the way.

Example:

Let’s say that you have $10,000 today and you can put it in a savings account that pays 5%. For simplicity purposes, the interest is compounded annually. This means that in a year, you will have $10,500 ($10,000*5%). Now, let’s assume that rather than withdrawing your interest gain of $500, you keep it in there for another year. If you continue to earn the same 5% rate, your investment will grow to $11,025 ($10,500*5%). As you can see, by reinvesting your earnings of $500 with your principal of $10,000 at 5% interest rate, you will be able to generate an additional $25 that you otherwise wouldn’t have if you invested just the principal of $10,000 at 5% in year two. In year three, you will have $11,576 ($11,025*5%). Without compounding interest, at the end of the year three, you would have $11,500 which is $76 ($11,576-$11,500) less than with compounding interest. This might not sound like a lot at the beginning, but it will make a big difference as time passes in the long run.

The Rewards of Starting Saving Early

Let’s consider a hypothetical situation of twin sisters Jessica and Kim. Jessica and Kim just graduated from college at age 25 and they were able to get very good jobs that offered them a $5,000 signing bonus.

Jessica starts saving now

Jessica decided she was going to put $5,000 towards her savings account right away at age 25. The savings account offered Jessica 5% annual interest rate. After 35 years, when Jessica is 60 years old, she will have $27,580.08 ($5,000*[1+5%]^35) in her savings account.

Kim starts saving 10 years later

On the other side, Kim spent her signing bonus when she started working at age 25. After 10 years, when Jennifer was 35, she started worrying about her retirement and decided to put $5,000 towards her savings account at 5% annual interest rate. After 25 years, when Kim is 60 years old, she will have $16,125.50 ($5,000*[1+5%]^25).

Lesson Learned

Jessica is able to make $11,454.58 ($27,580.08-$16,125.50) more than Kim just by starting 10 years earlier. Both Jessica and Kim were able to generate funds by not doing much rather than just letting their money grow with compounding interest. This is a very simple example, but you can imagine how much money you would be able to generate if you have a higher initial investment to start with or if you are putting away a monthly portion of your paycheck towards your savings account that is using compounding interest. If you allow enough time, the power of compounding can do wonders for your financial goals!

Elvis Hodzic
Graduate Assistant
Powercat Financial Counseling
www.k-state.edu/pfc

When Is The Best Time To Negotiate Your Salary?

Posted on by christyne

An employer ask you to take a seat and you start talking about the job as he looks over your resume. You are thinking really hard about all your qualifications that will get you this job. The employer then ask what sort of salary are you looking for. Is this the right time to tell him what you want to be paid? The answer is no, not just yet.

First, think of when you go to the store and you are looking at clothing.  Think about when you first see something you want! You are very interested and you have to buy it. What stops you? For most people, it is the price tag.  What happens when the retailer asks you to try it on before you see the price? Most people that see the merchandise on them before they see the price tag are more than likely to buy it. This is the same thing with employers: you want them to commit to liking you before you talk about how much you are worth. Don’t let them screen you out because you are over their budget.

The employer asked early on in the conversation how much you are wanting to get paid, so what do you say?  To postpone the salary talk until you have been offered the job reply, “I’m sure we can come to a good salary agreement if I am the right person for the job, so let’s first agree on whether I am.” Or: “Salary? Well, so far the job seems to have the right amount of responsibility for me, and I am sure you pay a fair salary, don’t you?” (What can they say here?) “So let’s hold off on the salary talk until you know you want me. What other areas should we discuss now?”

You may think this seems bad that you are trying to avoid the employer’s question, but think of it from the glass half full side instead of half empty. The employer may be impressed that you’re wanting to make sure you are a good fit before you talk about how much you want to be paid. The more qualifications the employer knows you have, the more he is willing to pay you. So by postponing the salary talk until you have been told you are the right person, you will not get screened out and their salary offer may go up.

Resource:  Negotiating Your Salary: How to Make $1000 a Minute

Tyler Larson
Peer Counselor II
Powercat Financial Counseling
www.k-state.edu/pfc

IRAs: What They Are and What They Can Do For You

Posted on by christyne

What is an IRA?

An IRA is an individual retirement account in which you can contribute up to $5,500 per year (2014), with an additional $1000 when you are 50 years and older, to save for your retirement. Most banks, mutual fund companies, and brokerage firms offer IRAs.  You must have earned income in order to contribute, and you can start withdrawing at age 59½.  There are two types of IRAs:

Traditional IRA:

  • Money goes in before taxes
  • Taxed on withdrawals
  • Must start withdrawing specified amounts at age 70½
  • 10% early withdrawal fee in most cases

Roth IRA:

  • Money goes in after taxes
  • Money isn’t taxed again, not even on the interest accrued or at withdrawal – allows your money to grow tax free
  • Not required to withdraw money at a specific age
  • Can withdraw early with no penalty for a first-time home purchase (up to $10,000) or in the event you become disabled

Some logic to consider about these is that when you first graduate and start out at a new job, generally you will be in a lower tax bracket than you will be as you reach retirement.  This being the case, it may be better to go with a Roth IRA so that you are taxed at a lower rate than you would be if you paid taxes upon withdrawal as with a traditional IRA.  On the other hand, if you don’t open an IRA until you have been working for several years and you are in a higher tax bracket, you may want a traditional IRA instead, since you will most likely drop to a lower tax bracket by the time you withdraw funds—this would happen if you were no longer earning income.  Try to choose the one that is the most taxably efficient for you depending on your situation and your plans.  Historically, tax rates tend to increase over time; however, there is always a possibility that the rates will be lower when you withdraw the funds, so this is another factor to consider as well.

Why Save Now?

You might be thinking, “I have student loans I need to pay off for the next 10 years, I can’t afford to save now,” or, “I’m only in my early 20’s, I have plenty of time to save for retirement.”  While these may be true, the reality is that life costs money.  Saving early, even if it is a minimal amount, will pay off.  If you are thinking that you want to retire at age 65 to 67, you have to consider how much you will realistically need to live on for 20-30 years after you retire.  You should also consider that you may not be the only one you need to provide for during that time: you may have a family to support as well.  Time is of the essence when it comes to saving for retirement.  If you start early, you will save yourself much stress later on.  If your employer offers you a retirement plan, take full advantage of it.  That alone, however, may not be enough to support you in retirement; this is why it is important to consider other avenues of saving such as IRAs, a savings account through your bank, or even investment portfolios.

Even if you have student loans or any other debt you are paying—such as a mortgage or car loan—it is still important to be saving.  Think of it as paying yourself.  You want to “pay yourself first”—you are investing in your future!  A good rule of thumb for saving is to set aside 10% of each paycheck.  Depending on your situation, you may want to save less than that in order to pay your bills, but if you are able to save more than that, you should.  There may come a time in your life when you aren’t able to save much at all for whatever reason, and you want to be able to have a cushion for those times.

The following is an example from PracticalMoneySkills.com of how postponing savings can hurt you:

The longer you delay saving, the harder it is to catch up…if you saved $100 a month at 8% interest, after 20 years your account would be worth $57,266. But wait only two years to begin saving and that balance would shrink to only $46,865 – over $10,000 less. A five-year delay would reduce the balance to only $33,978.

The Magic that is Compound Interest

Compound interest is a very powerful tool.  To illustrate, let’s say you are able to find a savings account that offered 8% interest on your money—this, unfortunately, is not a realistic bank account rate currently; however, if you shop around in the investment arena, you should be able to find higher rates of return.  If you started putting $100 per month into the account, you would have $450,000 by age 65.  If you put in $200 per month, you would have $900,000 in the same amount of time; and if you increased the amount to $300, you would have $1,000,000!  How cool is that?  This is how IRAs work.

This site also has many other calculators that you might find useful.

To learn more about compound interest, visit: http://www.practicalmoneyskills.com/personalfinance/experts/practicalmoneymatters/columns/compounding_110708.php

Saving Tips

If it is hard for you to save, whether it is something you easily forget, or it is just difficult for you to physically transfer money into savings, one simple solution is to have a portion of your paycheck go directly into savings.  When setting up a direct deposit through your job, you can specify how much you want to put into a separate savings account, whether this be a percentage or a dollar amount.  This way you won’t “miss” the money; you will be accumulating funds without even noticing that the money isn’t in your checking account.  You can also set up an automatic transfers from your checking to your saving account by talking with your bank.

Resources

Rachel Vogler
Peer Counselor II
Powercat Financial Counseling
www.k-state.edu/pfc

Save a Bundle Every Time You Shop!

Posted on by christyne

Shopping at the grocery store can be a daunting task for anyone. From the amount of time it takes to purchase your food items to the bill that you receive when you check out, it can be difficult to enjoy a trip to the grocery store. However, there are many tools available to make your shopping trip run smoothly and to make sure you do not overspend while you are there. It takes planning and discipline, but over time you will find that shopping with a plan will make your grocery store shopping experience much better overall. Here are just a few ways that you can save money while you are at the grocery store:

Sign Up for Weekly Advertisements

Every grocery store has an option to sign up for weekly ads to be sent to you via e-mail. This is a great way to be able to comparison shop right from the comfort of your own home. Create a list of things you need and then go through the weekly ads and see what the stores in your area are offering. You can often times find very good deals on things on your shopping list by shopping this way. Be careful though!  Sometimes advertisements can sway you to buy things you never intended to. If you are purchasing more than you can use to get a special deal, then it is probably not a good deal for you at all. Be aware of “10 for $10” or “Buy 3 get one free” type of advertisements. While these may seem like good deals, the average college student probably does not need everything that the sale is offering. Make a detailed list of your needs and stick to it.

Shop With a Plan

There are few things more dangerous than shopping at the grocery store with no clear idea of what you really need. Grocery stores thrive on customers who mindlessly buy products they don’t really need. The best way to combat overspending and mindless spending is to go in with a plan. The best way to plan is by making a list of everything you need before you go to the grocery store. Make a plan of all of the meals that you will eat for the week and buy only what you need to make those meals. Go through your fridge and pantry and make sure you are not buying things you already have. When you go into the store, stick to your list and avoid putting things in your cart that you did not write down. Another way to combat overspending at the grocery store is to simply stick with cash. By only bringing in a set amount of cash with, you will never be able to overspend. Only having cash forces you to keep track of what you are putting in your cart and what your total will be. No more mindless spending!

Buy Your Produce in Season

One of the best ways to save money at the grocery store is by purchasing produce only when it is in season. Buying produce during its harvesting season will ensure that you don’t overpay while buying fresh fruits and vegetables. The best way to know what is in season is to download a chart or table for your area that lists all of the produce typically sold in your local grocery store.

How much could you save from buying produce in season? Take asparagus for example. Currently, at the supermarket, asparagus is selling anywhere from $3.99-$4.99 a pound. Compare this to prices in April when asparagus can be found for around a $1.50-2.50 a pound. That’s 50% cheaper just by buying it during its growing season. Use this method for all of your fresh fruits and vegetables to save big while shopping.

Get the Most Out of Your Loyalty Card
A grocery store loyalty card is a great way to save money while you shop. By using the card in the store, you can save on many items just by scanning your card. Best of all, many of these cards offer rewards such as discounts on gas and exclusive coupons. Keep your eyes open for deals that these cards offer. These loyalty cards are completely free and are a great way to save several dollars on food and gas every time you shop!

Use Apps Created by your Grocery Store

A great way to save money and stay focused on your shopping trip is to download an app for the store you are shopping at. A few grocery stores in Manhattan offer this convenience. Usually the app will have a copy of your store rewards card so that you never forget it! These apps also have the weekly advertisement available so that you can check for savings while you shop. Many manufacturers will post their digital coupons on these apps to allow you to download them. Saving money has never been so easy! Another great feature is the ability to create a list right in the app. This will ensure that you buy only the things you need. These grocery store apps provide a “one stop shop” for all of your grocery store savings needs.

While these are just a few tips to save money while at the grocery store, there are still many more that can be used while shopping. Do you have any tips or trick that you use at the grocery store? Feel free to share them with us; we would love to hear from you! At Powercat Financial Counseling, we strive to provide tips to students at K-State to help them save money in their everyday lives. Have a question about saving, budgeting, or anything else related to your personal finances? Powercat Financial is here to help. Set up an appointment with us today and we can help you create a spending plan that works for you!

Tyler Pemble
Peer Counselor II
Powercat Financial Counseling
www.k-state.edu/pfc

How To Save Money As A College Student

Posted on by christyne

1.    Create a Budget

Before you start saving money, make sure you have enough to save. Start by creating a budget and see where your money is going. This will help you cut on unnecessary spending and allow you to contribute more to your savings.  Details on the process and a downloadable spending plan worksheet can found on our site at http://www.k-state.edu/pfc/budgeting/.

2.    Utilize Student Discounts

Take advantage of the perks of being a college student. When you go out to Carmike Seth Childs’ to watch a movie with your friends, show your student ID.  If you would like to save a lot more, be a little patient and wait for the new movie you really want to watch to be shown at the by UPC in the Union.

Use the CampusSpecial coupon book that’s being distributed to students, you’ll save plenty over the semester when you go out to eat.  Many restaurants offer perks for showing your student ID – just ask!

3.    Avoid ATM Fees

Brick and mortar banks are facing stiff competition from online banks. If your bank is only located in your home town and there isn’t a single ATM in Manhattan, then you may be paying annoying ATM fees when you have to withdraw money. Well, there’s a solution out there! Most online banks do not charge ATM fees and if you do get charged by the ATM you withdraw from your online bank will fully reimburse you! Some brick and mortar banks charge monthly maintenance fees and this isn’t the case for most online banks. They are growing in popularity and if you would like to save on ATM fees and account charges this might be something to consider. Remember to make sure that the online bank you choose is FDIC insured!

ATM fees can also be avoided by getting cash back with your debit card at the store.  Simply run it as debit and respond to the question with how much cash back you would like.

4.    Grow Your Savings Further

If you have money left over after taking care of all your expenses, then you can consider building your wealth.  Choosing the type of account depends on the individual and the financial goals in mind. Below are a few accounts to consider. 

Basic Savings Account

Offers low interest rates and allows a limited number of free withdrawals a month depending on the bank. It is very easy to access, especially if you use your current bank. The interest that you could earn ranges from 0.01-0.9%. In other words, this is an account to put money aside for rainy days and emergencies, not your entire life savings! 

Certificate of Deposit (CD)

You can earn a little more money by putting your money away for a set amount of time ranging from a month to 5 years. The certificate entitles you to receive a fixed amount in interest payments. Interest on CDs range from 0.15-2.35% depending on the length of time and amount of deposit.  They can easily be set up at any commercial bank.  Be aware that there are fees for withdrawing the money prior to the agreed upon time.

Money Market Account

MMAs offer a higher interest rate (0.05-1.02%) than a savings account and you can write checks against your deposit. However, you have to maintain a higher minimum balance compared to a savings account, hence the higher interest rate. Again, if you decide to open up this account, make sure the account is FDIC insured. 

Mutual Funds

If you would like to earn greater returns on the money you have left over after putting some aside in a safe savings account or MMA, then this is another vehicle to consider. Most of us don’t have millions of dollars to invest like Warren Buffett or Carl Icahn, but this fund allows the ordinary individual to be able to afford and hold a piece of the same fund that a billionaire is invested in. It is a pool of funds invested in stocks, bonds and other money market instruments. Their purpose is to beat the market and manage volatility by pooling money and diversifying investments. They are more risky compared to savings accounts, CDs and MMAs and they are more expensive since they are actively managed, but they have the potential for a higher yield.

Online Brokerage Account

If you would like to build your wealth, then you should have a long-term strategy – a brokerage account is one way to get there. You can create your own portfolio and allocate your funds into stocks, bonds and other funds however you please. The allocation depends upon your risk tolerance. When you are young, you can afford to lose more money, so it’s okay to have an aggressive portfolio (invested in more equities than bonds) as long as you understand the risks. When you reach your thirties, it’s recommended to reallocate your portfolio and lower the amount you have invested in equities and when you are close to retirement, you should have more in bonds than equities since bonds are safer and offer fixed, stable payments to the bondholder. Setting up an account is simple, but make sure to shop around first. Some accounts don’t require minimum deposits and others offer cheap trading costs. Learn about investing strategies before you put your money in the market!  Visit finance pages such as Google Finance, Yahoo Finance, Morning Star, Bank Rate, and Investopedia.

Gerald Mashange
Peer Counselor II
Powercat Financial Counseling
www.k-state.edu/pfc