$75 Bonus Free Money – Citi Forward Visa Credit Card

I just redeemed my ThankYou Points I received through this credit card offer last night for $75. Not bad at all!

Here’s what to do to get it:

1. Go to the link below and sign up for the Citi Forward Credit Card. Note that this credit card has no annual fee, so this is basically free money!
https://www.citicards.com/cards/wv/cardDetail.do?screenID=960

2. Once you receive your card in the mail, perform the following to earn a total of 11,100 ThankYou points!
          a. 6,000 ThankYou® Points after you make $250 in purchases within the first 3 months
          b.5,000 ThankYou® Points when you sign up for Paperless Statements within 3 months of account opening
          c. 100 ThankYou® Points each billing period when you pay on time and stay under your credit line

3. To redeem your points for the $75, follow the instructions on Citi online account webpage, go to the ThankYou website, and order 1 $50 pre-paid Visa debit card and 1 $25 pre-paid Visa debit card for 7,000 and 3,500 points, respectively.

They will then ship your cards in the mail and they can be used like cash wherever Visa is accepted! Good luck! Let me know of your success stories!

I have student loans and credit card debt, which one do I pay off first?

The answer to this question is easy: PAY OFF THE CREDIT CARD, or highest interest loan first. In fact, after paying to ensure you have health insurance to protect yourself, eliminating your credit card debt is the next highest priority on where your money should be going. Not only that, it is the easiest way to get a guaranteed return of close to 20%! No mutual fund in the world can match that guarantee!

Another great thing about student loans is that very often the interest rate is very low or even 0% for several years after college…All the more reason to make sure to pay off your credit card debt first and foremost!

Keep saving and learning!

Account Hierarchy Priority Order

“As new funds come in to my bank account, in what order should I prioritize them to my different monetary needs?”

This is a question I get asked fairly frequently, and indeed, it makes sense to pose the question because it is not totally straight-forward and involves much complexity.

However, the following two priority orders are what I have learned in reading several financial related books and from studying finance in college. In my experience, I’ve found that two orders are needed – one for people that are either debt-free or mostly debt-free and another separate one for people are heavily in debt.

Debt-Free Account Hierarchy

Hierarchy of what order to contribute money to which accounts if you do not have significant amounts of consumer debt (can be paid off within 2-5 years – does not include mortgage debt).

1. Buy or make sure you have adequate health insurance coverage.

This is absolutely the most important and highest ranking thing on the list due to the fact that you will have no income if you get hurt and can’t work. Additionally, medical procedures can cost hundred’s of thousands of Dollars these days. Can you afford that with the cash out of your savings account? I sure can’t.

Most of the time, this coverage will be provided through your employers plan to defray some of the cost. Independent plans are available at a higher monthly premium cost, but is still worth having in the long run.

2. Invest enough cash in a high yield taxable money market savings account to cover 6-9 months of living expenses


The purpose of this account is to have enough a safety cushion to cover your expenses in the event that you lose your job or cannot work due to an injury for an extended period. While it is possible to obtain a personal loan to obtain some extra liquidity, it is best to make sure that you have some reserves of your own.

You can open up a high yield savings account online at Dollarsavingsdirect that I discuss in this previous post with the link below. Whatever account you choose in the end will need to be taxable so you have easy access to it, and can withdraw money at any time without penalty.

Favorite High-Yield Online Savings Accounts

3. Pay off/get rid of your high-interest credit card debt


After you have ensured that you will not be in “financial ruin” if you lose your job or get injured and have to pay for medical expenses, the next highest priority of where to put your money will be to pay off your high interest credit card debt. In essence, this is the best idea to do because you will get a guaranteed 18% return by getting rid of your debt. No one else can promise you that high of a return/money savings!

4. Pay your monthly mortgage payment (only the minimum amount required)

After you have secured health insurance, a sufficient emergency fund, and paid off the majority of high interest credit card debt, you can then think about buying a house/condo/townhouse. If you have not done steps 1-3, I would not recommend buying property.

Since you receive significant tax savings from the interest your pay on your home loan and the property tax paid on your property, you should pay off your required monthly or biweekly mortgage payments. However, you should not pay off any additional principal loan balance at this time, as there are no tax benefits to doing so.

5. Invest in your employer’s 401k only up to the company match level


In general, the investment selections for mutual funds in company 401k programs are not the best. Usually, the  management fee levels and management style are not as good as with the indexed mutual funds that Vanguard offers.

For this reason, it is best I believe to invest only enough initially in your 401k to the level which your employer matches. For example, my company matches 75 cents per dollar for what I contribute up to 6% of my annual income. So, I make sure to invest a base level of 6% in my 401k so I can get this free money!

6. Max our your IRA (individual retirement account – either Roth IRA or Traditional IRA)


The next place to contribute your money to is to max out your individual retirement account (I use Vanguard for my Roth IRA). The current contribution amounts for 2009 and 2010 are $5000 per year, and you can still contribute to your 2009 levels until March 31 of 2010. The only thing you have to make sure of is that you can only contribute money in your IRA up to the level of income you make in a year, with $5000 being the maximum. For example, when I was 18 years old and wanted to contribute to my IRA, I could only contribute $2500 because that was the level of income I had that year.

Once the money is parked in your self-directed IRA, you can invest as you want to (see link below for index mutual fund recommendations that I invest in)

My Current Investment Selections and Asset Allocation


7. Finish fully funding your company 401k account


This is the next highest priority account to place your money after maxing out your IRA because you will be able to take advantage of tax-free growth/protection until retirement when you withdraw funds.

With most employers, there is a limit of how much you can contribute to your your 401k. Usually, this level is 25% of your base salary, up to $15-16K per year.

8. Prepay additional amounts to reduce the principal on your home mortage loan

Assuming that you did your homework and obtained a loan that doesn’t involve penalties for pre-paying a home loan (paying off more of the loan than is required by the mortgage amortization schedule), you should now focus committing funds to paying off additional principal of the loan. This will benefit you greatly, as it will reduce the amount of interest you pay going forward.

9. Open up an individual, taxable mutual fund account with Vanguard.com to invest any remaining money


This one is pretty much self-explanatory! Once you have pretty much exhausted all of your tax-sheltered account options and still have money to invest, open up an individual account and invest in tax-efficient mutual funds.

Since this account is not tax-sheltered, be careful about the tax-liability of short-term selling of shares. In the book, Random Walk Down Wall Street by Burton Malkiel, he has a good section summarizing what type of index mutual funds to invest in with taxable accounts.

He suggests using something called Tax-Managed Funds. Essentially, what these funds are are index funds that minimize taxes by deferring capital gains realization. However, the main pitfall I ran in to with these funds is that they require $10,000 of principal to buy into, an amount of money that I do not keep handy.  Instead, I do the next best thing which is to invest in large cap domestic index funds in my taxable accounts, since these generally experience less buying/selling than small cap funds.

10. Open up a tax deferred higher education savings account for your children and fund it

As I mentioned in my post at the link below, the government has set up a special type of account that can give you tax deferred growth that you can use to save money for your child’s college education. Take advantage of this with whatever money you have leftover!

However, be sure to place the account in your name (but in support of your child) so that they still qualify for financial aid.

My Money Blog – Give Your Children a Financial Head Start in Life

So, I’ve found that the priority order listed above works great for people with low amounts of debt. However, if you have LARGE amounts of car, student, and credit card debt that you will have to pay off for MANY years to come, this order won’t work.

For complete details about exactly why it won’t work, visit the following post – Account Hierarchy Paradox – Should Paying Off Debt, Saving for Retirement, Having an Emergency Fund, or Securing Health Insurance Be Your Highest Priority?. Because of this, I’ve recently created a second account hierarchy for people with large amounts of debt (see below).

Debt-Payoff-And-Retire Account Hierarchy


Hierarchy of what order to contribute money to which accounts if you DO have significant amounts of consumer debt (that CANNOT be paid off within 2-5 years – does not include mortgage debt).


Note: Before we get started with this list, for the sake of simplicity, I’m going to make the assumption that it is known that prior to embarking on prioritizing funds according to the list below, that you have already met your very basic requirements for survival each month. 

These include paying the rent or minimum required mortgage payment, water/electricity/sewer/gas/trash bills (other bills also), and buying food from the grocery store for your family. However, these basic survival needs do not include cable TV, internet, going out to eat every night of the week, or other frivolous spending. With this in mind, let’s get on with the list!

Part A – The Minimum Requirements

1. Pay only the minimum required payment on your credit card and other loans (student, car, etc). DO NOT PAY MORE (yet)!

In the Debt Free Account Hierarchy, you probably noticed that debt payments weren’t addressed until Priority #3. However, if money is very tight and you have large amounts of debt to payoff, the reality of the situation is that you cannot skip out on paying back the minimum required balance on your debts. Well, I suppose you could, but no up-standing citizen wants to have debt collectors calling them up, right?! 

Because of this, paying only the minimum required balance on your debt accounts is first on the list. Prioritizing the minimum loan payments ahead of health insurance (see below) was one of the paradoxes I ran in to with this exercise. I wanted to place it first, but ultimately decided against it in the end. 

In addition, I would advise you to negotiate a lower APR rate with your credit card company and also discuss your “low-money” situation with your student loan provider (student loans like to see ex-students succeed and may be lenient in pushing back the terms of loan repayment).

2. Buy or make sure you have adequate health insurance coverage.   
   
The next highest priority on the hierarchy is getting adequate health insurance. I cannot stress enough how important health insurance is. If you get in a car wreck or get injured otherwise, medical bills can rack up to be in the $100,000 range or higher, something that could result in financial ruin for the rest of your life. Because of this, you simply cannot afford to go without health insurance. 

The trouble? Health insurance is VERY expensive if it is not provided through your employer, especially if you have multiple part time jobs as a lot of people do these days. Typically, if you have to pay for your own health insurance, you should expect to pay between $150-$400 per month. When you are shopping for health insurance, make sure that you find a policy that features a low enough deductible that you can actually pay it with your emergency fund money (see below for details). I personally like to see my deductible be between $500-$750.

Also, remember – with the new health care regulations, you can still be covered under your parents’ health insurance until you are age 26. This may be a viable option for some of the younger people out there. 

3. Invest enough cash in a high-yield taxable money market savings account to cover 6-9 months of living expenses (Emergency Fund)

After first paying the minimum payments on your loans so that you don’t have debt collectors knocking down your door and securing health insurance, it is now time to focus as much money you have remaining on accumulating a secure, liquid, readily-available source of cash that you can tap in to in the event of an emergency. Often, this fund is used to pay the deductible on your health insurance (or other forms of insurance) mentioned above. It is very important to state also that the purpose of this account is NOT TO MAKE TONS OF MONEY. It is to provide you with peace of mind and security.

In today’s low-interest landscape, it’s important to be very selective in choosing where to park your emergency fund. I prefer to use a high-yield online savings money market account. These accounts offer much higher interest rates/returns than savings accounts at brick-and-mortar banks and are still FDIC insured! A no-lose situation if you ask me!

So, this all sounds well-and-good. However, you might be asking yourself the following question at this point. – “But Jacob, funds are really tight for me right now. If I’m doing this math correctly, at the current $1000 monthly expenses level at which I am operating, this would sum to $6000-$9000 total. I currently have $0 saved up. This might take me 9 years to accumulate! How do I proceed?” 

This is actually a great question! It’s quite tempting to recommend that people only really need a minimum level of an emergency fund (maybe only $500), and after they accumulate this amount, they can move on to higher-earning investments and credit card debt payoff. This is even more tempting given the plethora of options available to people for personal loans in the event of an emergency. For example, you can compare loans online and very quickly narrow down your choices to a loan with suitable terms.   

However, at the end of the day (and although there might be some disagreement on this), I believe that the peace of mind and safety that comes from having a sufficient emergency funds outweighs the benefits of being “debt free.” So, my answer to this would be that if it does take you 9 years to accumulate an emergency fund, then so be it. Your debt balances may accumulate significantly, but at least you won’t experience financial ruin if an emergency occurs and you cannot work.

Part B: Beyond the Minimum Requirements

Having fulfilled the absolutely essential requirements listed in Priorities 1-3 above, you can now shift your focus to actually becoming debt free and saving for retirement.

Enter our next paradox: traditional financial wisdom states that if you had to choose between investing in mutual funds for retirement (which at best can earn you 10-11%) and paying off credit card debt balances which carry a 20% or higher interest rate, the clear choice would be to pay off the credit card interest rate first because it represents an AUTOMATIC and GUARANTEED savings.

Indeed, this is the wisdom that applies for myself and many others who are lucky enough to be consumer debt-free. However, if you have large amounts of consumer debt that you cannot possibly pay off in less than 5 years, the choice becomes much harder. On one hand, we need to pay off our credit card debts to capture the automatic savings on the extraordinarily higher interest. However, if you are 24 years old and will be paying off your huge debt balances for 20 years to come, you cannot put off saving for retirement until that time. That would be both very unfulfilling and unwise due to the power of compound interest over long periods of time. 

Because of these facts, in the Debt-Payoff-and-Retire Account Hierarchy, I recommend the following hybrid approach:

4. With the money leftover from Priorities 1-3 above, split the balance in to two (2) sub-accounts – one forpaying off debt and one for saving for retirement. 

4.1 Use the debt-payoff sub-account to pay off your various debt accounts beyond the minimum balance

In this exercise, funds should be prioritized to pay off your highest interest debt balances (probably credit cards) first and then moving down the chain from there.

4.2  Using the funds in your “saving for retirement” sub-account, invest in your employer’s 401k only up to the company match level

Matching employer contributions represent free money, and we should all take advantage of this! After that, continue working your way through the priorities listed below. This order pretty much remains the same from the original Account Hierarchy.

4.3 Max our your IRA (individual retirement account – either Roth IRA or Traditional IRA).
4.4 Finish fully funding your company 401k account.
4.5 Prepay additional amounts to reduce the principal on your home mortage loan (if you have one).
4.6 Open up an individual, taxable mutual fund account with Vanguard.com to invest any remaining money.
4.7 Open up a tax deferred higher education savings account for your children and fund it.

$100 Bonus to sign up for a FREE Bank of America MyAccess Checking Account

So I just signed up for this bonus yesterday through Bank of America. The offer is good through February 28th, 2010, so sign up for it as quickly as you can!

Details – To get the $100 dollar bonus, go to the website below and sign up for a MyAccess Free Checking Account with Bank of America. When you sign up for an account online, you avoide the monthly maintenance fee as well!

https://www6.bankofamerica.com/applyonline/process.action

You must then reference offer code AOU261209 when opening your new MyAccess Checking account. This offer is only available to new customers who open a qualifying personal checking account with a minimum balance of $500. Additionally, the new checking account must be open for at least 30 days and you must make a minimum of 1 transaction with your new Bank of America check card. Bank of America will then deposit the $100 bonus directly into your new checking account within 90 days of its opening date.

It’s that simple! Good luck! Let me know if you have any questions.

Which asset allocation calculator on the web is best?

After searching around and trying out the different asset allocation calculators on the internet, I’ve determined that most of them are severely lacking. They either a) do not gather enough information / inputs to result in a well defined choice, or b) produce results that are too broadly defined to know exactly how to invest your money. For example, it will suggest putting 50% of your money, for example, in to equity mutual funds. However, it doesn’t mention how to divide that up between the different subcategories available in that asset class (small cap, large cap, international, emerging markets, etc).

The best calculator that I could find was the one from CNN listed at the link below. I like this one because it does break up the recommendations in to large cap, small cap, foreign stocks, and bonds.

CNN’s Calculator

http://cgi.money.cnn.com/tools/assetallocwizard/assetallocwizard.html

However, the best tips I have found on asset allocation have been from the finance books I have read. These are shared in the post on my blog at the link below.

http://mypersonalfinancejourney.blogspot.com/2010/01/index-mutual-funds-and-current-assett.html

Keep on learning!

Jacob

Get $25 of Free Money when you open an INGDirect Checking Account

Another great promotion from INGDirect bringing us some free money on this fine Monday night.


Details – To receive the ING Direct $25 bank bonus, just open an online savings account with a minimum opening balance of $250, and you will receive the $25 cash bonus. You’ll get a very nice interest rate through your FDIC-insured Orange Savings Account, which has no fees.

To receive the $25 ING Direct online savings account bonus, you must be referred by a current customer. Please email me at jazzdog059@aol.com for a referral code. Please include your full name so that INGDirect can you send you an email with the correct link.

Get $50 to sign up for a new PNC Bank Checking Account

I just heard about this promotion for free money on the radio tonight, and so I had to check it out!

Details – Open a free checking account with PNC Bank using their website below, set up a direct deposit of at least $400 from your employer, and you will be credited your $50…not bad! I would recommend doing this is it is easy to switch deposit accounts with your employer. I’m going to do this tomorrow at work!

https://www.pnc.com/webapp/unsec/Blank.do?siteArea=/pnccorp/PNC/Home/Personal/Checking/Checking+Offers/Bonus+Days&WT.ac=BONUS_0110_P_MH

Select fine print details shown below


The payout of $50 will be credited to the eligible account within 30 days of the first Direct Deposit, which must occur before 3/31/10. The payout will be identified as “Direct Deposit Reward” on your monthly statement. A qualifying Direct Deposit is defined as a Direct Deposit of a paycheck, pension, Social Security or other regular monthly income electronically deposited into a Free, Performance or Performance Select Checking account or the Spend Account for Virtual Wallet. The minimum amount of any single Direct Deposit must be at least $400. The Direct Deposits must be made by an employer or an outside agency. Transfers from one account to another or deposits made at a branch or ATM do not qualify as Direct Deposits. Offer available to new PNC Bank checking account customers only who must open the account using the on-line application. Offer only available to residents of: DC, DE, FL, IN, KY, MD, NJ, OH, PA, VA.

One thing to keep in mind if you are searching for checking accounts that offer bonuses for opening:

Many offers only give you the free money bonus is you either 1) keep the account open for a set amount of time, or 2) make a minimum number of debit transactions each month. As you might guess, keeping up with these required transactions can be tedious. Micromaximus is a good website for helping you manage your rewards checking accounts by automatically making the transaction each month.

Reasons to shop at Walmart

I found the following good news article relating to this topic at the link below.
http://walmartstores.com/FactsNews/NewsRoom/8594.aspx

At this website, you can go to another link where you can find a pdf document with the details of a complex study done by the Global Insight Group showing that shoppers can save $700 per year by shopping at Wal-Mart. Wow!

So, let’s look at what that has meant for me in the past several years since I have been shopping at Wal-Mart (2005-2009). Multiplying $700 per year times the 5 years would yield a total savings of $3,500.

Assuming that I placed this money in my Roth IRA account and invested it until retirement at the age of 65 years old (and assuming the 80 year historical average return of 12.4% in the stock market), this would result in a nest egg of $600,854 at the end of the 41 year period. Applying the effects of inflation to this sum (assume 3.2%), this would yield $165,159.

This is quite amazing if you ask me!

Student

Buy VHS Tapes Instead of DVD’s = A lot of savings

One of the best ways that I save on entertainment these days if by buying VHS tapes instead of DVD’s.

Where to find VHS players – These days, VHS players are pretty hard to find, but if you go to pawn shops or look on eBay, you can pick one up for a good price. And, it will definitely pay for itself along the way! See the eBay link below if you have trouble finding one.
http://shop.ebay.com/?_from=R40&_trksid=p3907.m38.l1313&_nkw=vhs+player&_sacat=See-All-Categories

A good example of the savings you can receive from buying VHS instead of DVD was highlighted to me when I recently purchased two of my favorite trilogies – Lord of the Rings and Indian Jones

Price Comparison –

Lord of the Rings – $23 for DVD trilogy (see link below), $9.99 + free shipping for VHS trilogy. Same movies, half the cost!

http://cgi.ebay.com/The-Lord-of-the-Rings-Trilogy-Widescreen-DVD-Theatrical_W0QQitemZ220542984862QQcmdZViewItemQQptZUS_DVD_HD_DVD_Blu_ray?hash=item335962e29e

http://cgi.ebay.com/Lord-of-the-Rings-Trilogy-4-VHS-Tapes-FREE-SHIP_W0QQitemZ360227432476QQcmdZViewItemQQptZVHS?hash=item53df3a681c

Just an idea to think about next time you want to buy a movie! Let me know of your success stories!

Presentation on benefits of starting to invest at a senior in high school!

Hi everyone! I’ve been wanting to post a presentation/powerpoint slide deck on my blog that I put together that I am going to present to high school seniors in the area on the benefits of starting to invest early to take advantage of compound interest over the long term.

However, the settings on the site won’t allow me to upload an entire presentation.

If you are interested in seeing the presentation (or even better, dessiminating the information to teenagers), please email a request at jazzdog059@aol.com!

Talk to you soon!
Student