Top 6 Cash Rewards Credit Cards with No Annual Fee

Top 6 Cash Rewards Credit Cards with No Annual Fee

While all of these cash rewards credit cards have great benefits, using a few of these cards strategically in tandem can provide you with an average cash back on credit card purchases of over 2%, potentially giving you $100s in extra rewards every year. Do you have a favorite cash rewards credit card that is not mentioned here? If so please mention it below in the comments.

Chase Freedom Card

Comments: Although the Chase Freedom Card does give you a chance every quarter to have 5% cash back in a category that you spend a lot of money in, the real power of this card is in the additional benefits you gain from having a checking account in addition to the credit card. While $0.10 may not sound like much, when you receive that amount on purchases less than $10 it adds an additional 1%! This is an excellent card for those every day purchases you make under $10 that don’t fit in to one of your 5% cash back categories. If you don’t have a card that pays a base 1.5% to 2% then this card should be used for purchases up to $25, as the $0.10 plus 1.1% cash back amounts to 1.5% of $25.

Cash Rewards:

  • 1% cash back on all purchases
  • 5% cash back on select quarterly categories up to $1,500/quarter
  • Must opt in quarterly for 5% cash back categories; you can choose to receive reminders

Additional benefits with a checking account:

  • 10% additional cash back on purchases
  • $0.10 cash back per purchase

5% cash rewards category schedule for 2013:

  • January – March: Gas Stations, Drugstores, Starbucks
  • April – June: Restaurants, Movie Theaters, Lowe’s Home Improvement
  • July – August: Theme Parks, Kohl’s
  • September – October: Amazon.com

New Cardholder Bonus: $100

Interest Rate: 0% APR for 15 months, then variable APR of 13.99%, 18.99% or 22.99%

Balance Transfers: 3% fee, 0% APR for 15 months

Foreign Transaction Fee: 3% in U.S. dollars

Discover It Card

Comments: This card has many similar features to the Chase Freedom Card. It lacks bonuses for having other discover accounts and therefore it is not a go to card for small purchases. The 5% cash back categories for the Discover It Card often differ from those on the Chase Freedom Card, giving you even more opportunity to earn 5% cash back on the things you buy most.

The Discover It card also has a 0% foreign transaction fee, making it a great card to travel with if you go abroad every once in a while. This is the one card featured here with 0% foreign transaction fee; the Capital One VentureOne card offers 1.25% cash back (when spent on travel) on all purchases and a 0% foreign transaction fee, giving it superior rewards for frequent out of country travelers because 5% cash back categories only apply in the USA. Because the VentureOne card has no additional cash back features I did not include it here as I believe the 2% rewards from the Fidelity Investment Rewards American Express Card are superior for day to day transactions. For those who travel once in a while the Discover It Card in addition to the Fidelity Investment Rewards American Express Card would be a superior combination to having the VentureOne card with the Fidelity Investment Rewards AMEX Card.

Cash Rewards:

1% cash back on all purchases

5% cash back on select quarterly categories up to $1,500/quarter

Must opt in quarterly for 5% cash back categories; you can choose to receive reminders

5% cash rewards category schedule for 2013:

  • January – March: Restaurants
  • April – June: Movies, Home Improvement
  • July – August: Gas Stations
  • September – October: Holiday Shopping

New Cardholder Bonus: $0

Interest Rate: 0% APR for 14 months, then variable APR of 10.99% – 22.99ºlance Transfers: 3% fee, 0% APR for 14 months

Foreign Transaction Fee: None

Rebuild or Establish Credit with a Secured Credit Card

Rebuild or Establish Credit with a Secured Credit Card

Once you have made a few credit mistakes and you have bad credit, it can be very difficult to climb out of the financial hole; luckily, secured credit cards can help rebuild your credit. Credit cards are being used for an ever expanding pallet of transactions these days which is making it more difficult to operate without one. Credit cards are used for Hotels, car rentals, airline tickets, a deposit hold for rental equipment, the list goes on. Using a debit card comes with the risk of fees, such as if a company places a hold on money in your checking account while you are purchasing other things, resulting in overdrafts. If you don’t qualify for a traditional credit card, having a secured credit card for day to day purchases will give you a simpler way to run your finances and it will help you build good credit in the process.

Using a secured credit card is a great way to establish credit

If you have never had any credit and do not qualify for a student or introductory credit card, secured credit cards offer a great way to easily begin building credit. Secured credit cards are also a great way to repair and strengthen credit after events that have damaged credit (Bankruptcy, short sale, delinquency, missed payments, lines of credit being closed by the lender, being sent to collections, etc.).

People are more likely to get approved for a secured credit card because of how they work

Secured credit cards are designed to reduce the risk the bank takes on by loaning money out on credit. Applicants are required to put a deposit down, typically equivalent to the amount they want to borrow on the credit card, for example, a $500 deposit equals a $500 credit card limit. The deposit is what makes the credit card “secured”. If for some reason the borrower, YOU, cannot pay the credit card bill, the bank will then take the money deposited as collateral and close the card. Because the applicant must put a deposit down before the card is approved there is less risk to the financial institution issuing the card. In this way banks can lend to and extend credit to applicants who may not qualify for a traditional credit card.

Another benefit of secured credit cards is that they operate, look, feel, and report to the credit bureau like a normal credit card would. Your credit score will benefit and the fact that you have a card that has an initial deposit will not be held against you.

Before getting a secured credit card take a moment to think about several factors:

What is my purpose for getting a secured credit card? Is it to build credit or repair credit?

What size credit limit do I want to apply for? Do I have the ability to deposit that same amount in cash and not be in financial distress?

How will I use the secured credit card? What is my plan to successfully establish credit or rebuild it without carrying a balance? (paying bills on time, not using more than 50% of my credit limit, purchasing only items that I would be buying anyways so I know I can repay the bill without interest)

Before you get a secured credit card, make sure that you understand the necessity of not overextending yourself. You can only build a good credit score if you make sure to make your payments, so make sure you pay close attention to item number 3 above. Above all else, come up with a strategy that you will stick to and make sure you don’t spend more than you can afford to pay.

If you are ready to take control of your finances and build credit responsibly and patiently, but you can’t get approved for a traditional credit card, then a secured credit card is for you

Establishing and rebuilding/repairing credit have one major thing in common: they both take time. Time is a major component in building credit, and especially in repairing it. Don’t be discouraged by starting with a secured credit card. It is a step in gaining control over your credit score and future credit opportunities.

If the annual fee and APR aren’t too much of a concern when selecting a secured credit card, my recommendation is to go with a bank that you have access to and feel comfortable with. If you have a relationship with a bank not mentioned below, check to see if your bank has any options for rebuilding credit.

Secured Credit Cards are an excellent tool for building and repairing your credit. If you are in a situation where gaining access to normal credit is not an option, and you are ready to establish and strengthen your credit score, I highly recommend the use of a secured credit card. Having a good credit score will give you the ability to buy a house, take out a car loan, and expand your access to credit, so start building or repairing your credit today with a secured credit card.

Cash vs. Credit: Financial Benefits and Drawbacks

Cash vs. Credit: Financial Benefits and Drawbacks

Many of you have probably heard about the studies on using cash vs. credit (or debit) as a way to help control spending. Using cash tends to produce the feeling of pain when handing it over to the cashier, where as plastic allows us to be detached from our purchase. We don’t see the money leave our wallet/purse and so the pain is delayed, maybe even gone all together. This may be true for people in average situations, but I argue that a better approach to this situation is to become conscious of your spending habits with credit/debit cards, and not lose out on the benefits that come along with using a card.

Cash vs. Credit Point #1: Individuals need to be aware of their spending regardless of whether they use cash vs. credit

Using Cash vs. credit shouldn’t be the only way for someone to realize their spending is real dollars leaving their personal economy. Instead of convincing everyone to pay in cash to avoid spending pitfalls, why not examine why people can’t control their spending on a debit/credit card. Check out “Why You Need to Start Tracking Your Spending” to explore the benefits of tracking your money using a budget. If you can track your cash flow accurately you will always have a clear picture of what your spending is doing to your bottom line.

Cash vs. Credit Point #2: There are benefits that come with using a card to purchase items that cash will never be able to give.

Rewards, cash back, travel points, security on purchases, fraud protection, the list goes on. I strongly believe that credit/debit cards should not be treated differently than cash. You, the consumer, have a finite amount of cash in your account; the plastic card in your hand is only a different means of spending that cash. It does not magically create more money for you to spend on items you can’t afford (technically it does but you will have to pay it back later!). A credit/debit card should only be a different medium for spending the money you already have.

Cash vs. Credit Point #3: One side affect of spending with cash is the wasted money that literally “falls through the cracks”

Ask yourself this question: The last time you paid for something in cash, and you received change under a dollar, say $0.70, what did you do with it? Did you thoughtlessly leave it as a tip, throw it in the cup holder, place it in your wallet/purse, or let it fall down somewhere on the floor of your car only to discover it 3 months later as your searching for your iPod cord that fell down from the dash. If you were to complete this transaction once a day for a year, you would end up with $255 in change.

This number, while not life altering, could be money spent elsewhere to improve your life. Keep in mind that in my example it was only one transaction a day. What if someone is doing multiple of these transactions a day with various amounts of change that they are throwing around? I am a penny pincher. I will admit it proudly. I keep a bag in my car where I place my change, and then when I am going to the bank to make a normal check or cash deposit, I will bring in my bag of change and put it back into my account.

Cash vs. Credit Point #4: It is much harder for someone to steal money from a card than from your wallet.

Using a credit card brings with it many fraud protection benefits. If your card is stolen and you notify your bank within the specified time frame your account will be protected from any unauthorized use while your money is kept safe. In contrast, if a $20 bill drops out of your pocket and onto the street, no bank is going to give that back to you. There is no mechanism for protection against stolen or misplaced cash. It is much harder to prove that you did not intend your cash to be used in a purchase then when you use a credit card to make purchases. Credit card transactions provide a level of safety and security in your purchases and put a barrier between your cash and fraudulent activities.

Cash vs. Credit Point #5: Using cash can mean having to pay cash for the cash you use.

For some consumers using cash means having to pay to get cash, such as from fees at the ATM, cashing a check without a bank account, or getting an advance on pay. These fees are also taking money away from individuals that could potentially be using plastic and not incurring the cost of cash. This is money that could be put towards retirement or quality of life enhancements.

The benefits of paying with cash vs. credit have been studied and articulated and you will likely find people who will urge you to spend with cash as opposed to using a credit/debit card to help save you money and control your spending. I take a different approach. I challenge you to become acutely aware of your spending habits first and take ownership and control of your finances. With the knowledge you will gain on your own behaviors using a credit/debit card will not represent a danger to your financial well being.

Interest Rate Reduction: 3 Ways To Reduce Your Rates

Interest Rate Reduction: 3 Ways To Reduce Your Rates

The holidays are over, routines are back in order, and by now many, if not most of our resolutions have fallen by the wayside. Now is a great time to sit down, open up your credit card statement, and start thinking about rate reduction. Like most Americans, we underestimate how much we spend by about 30% when using a credit card vs. cash, which can lead to carrying a balance on credit cards.

Looking at the looming balance in front of us can feel overwhelming as the interest racks up. But fear not! There are a few things that can be done to try and lower your interest rate and save you money. Read below for a few tricks to get yourself back on track to becoming debt free.

1) Call the credit card company and ask for a temporary or permanent interest rate reduction

When I worked as a banker I often had customers come in who were stressed about their interest rates. One of my first steps was to see if I could reduce the interest rate on their current credit card. Most often people were eligible for a temporary interest rate reduction anywhere from 3-9 months. Check with your own financial institution or credit card company for an offer specific to you. This should be your first step because you will start saving money right away on interest.

2) Explore other credit card offers with a 0% balance transfer introductory rate

I don’t typically promote going out and getting yet another credit card; but sometimes it can be the right move when done wisely. A lot of financial companies will offer introductory rates to entice people to switch credit cards, and along with it, move a balance from the prior credit card. This may make sense for people looking to get a balance into on a card with a 0% interest rate so they can do serious work against the principal instead of paying interest. Evaluate your own situation and see if a balance transfer is right for you.

Things to think about when doing this are:

  • How long the 0% is good for?
  • What will the rate go to after the intro rate is over?
  • What is the balance transfer fee to move your balance from one card to another? (Typically this is a 3% fee but read the fine print to be certain.)
  • There are helpful calculators on the web to show you much you can save by moving a balance to a 0%. Play around until you find a solution that fits your budget and can save you money.

3) Consider a consolidation loan to reduce your interest rate

If you want to avoid having another credit card bill to worry about, or you want to be done with credit cards altogether I recommend looking into a consolidation loan. Financial institutions offer unsecured loans that can have interest rates lower than some credit cards. These loans a great for tackling several credit cards at once and geting them into a fixed monthly payment with a fixed rate (again check the fine print but most financial institutions will offer a fixed rate on these types of loans). This can also help a hurting credit score as it shows lenders that there is a fixed timeline for paying off the debt while a credit card can drag on forever when people only make the minimum payment and accrue more and more interest. (Hint: If you are a homeowner and have equity to borrow against that is an even cheaper loan to reduce credit card debt and may be tax deductible, consult your financial advisor for tax purposes.)

Reducing your interest rate on a credit card or loan has very positive benefits from reducing the overall amount paid in interest expense which will allow you to chip away at principal more quickly. Taking these simple steps can save you time and money and get you back on track to a stable credit future. Take some time to evaluate if you have any interest rates that can be reduced today.

Why You Should Get a Line of Credit Before it’s Too Late

Why You Should Get a Line of Credit Before it’s Too Late

When life happens a line of credit may be the only thing standing between you and a major credit card debt problem. No matter how big your emergency fund, a line of credit can provide you with a low cost buffer for unforeseen spending before you have to use a high interest rate credit card. Unfortunately, lines of credit are typically only available to those who already have good credit, so if you can, you should get one BEFORE YOU NEED IT.

A line of credit is often a better deal than a 6 month 0% interest rate credit card

Why would you want to pay an 8% interest rate on a line of credit when you could just open up a credit card that has a 0% interest rate for six months and roll over your balance? Believe it or not there are actually a few reasons. The first is that a line of credit builds credit history even while you don’t use it. If you decide to tap your line of credit that is five years old in order to pay off a larger than expected credit card balance, your overall credit score wont be damaged and your total available credit will maintain its average age. Now lets go with the 0% interest credit card scenario. If you open a 0% interest rate credit card you will be placing a credit inquiry on your credit report as well as reducing the average overall age of your available credit. This is a clear sign to lenders that you are in need of immediate credit and will potentially make it harder to get credit in the future.

Lowering your credit score doesn’t seem to be a big deal when you could save a lot of money paying no interest for six months; however, if you have to start rolling over balances the costs actually become very close to the rate on a line of credit. Let’s say you have to pay a 3% balance transfer fee when you open a new 0% interest card for 6 months. Over that same 6 month time frame, your 8% line of credit would have only cost you 1% more than your balance transfer. This is because you only pay half of the 8% annual interest over a 6 month period.

Now let’s assume that you don’t get around to transferring your balance to a new card until six months after the 0% interest rate period expires. If the interest rate on your card is 21% annually, you just paid 10.5% interest over the entire year. In that same amount of time your line of credit would have only cost you 8%.

How a line of credit can save you from being stuck paying a high interest rate on your credit card

While there are many people out there who have successfully used 0% interest rate credit cards to save on interest costs, your credit still has to be good in order to open one. Now imagine that your missed a few payments and you are unable to open up a new 0% interest rate card so you can roll over the balance from your 21% interest rate card. If you had a line of credit in the first place you wouldn’t have had to worry about rolling over your debt onto new credit cards, but as it is now you are stuck paying the higher rate.

A line of credit is a great way to build credit history while adding an extra layer of protection to your finances

Having a line of credit doesn’t mean that you cant play around with opening 0% interest rate credit cards. What it does mean is that you can feel safe knowing that you have a source of money to fall back on if and when you are in a situation where you would have to pay credit card interest. Also, don’t forget that a line of credit allows you to draw cash out for free (plus interest) while cash advances from credit cards carry higher interest rates and fees. Make sure to open a line of credit while you still can to improve your financial flexibility!

Student Credit Cards for Fall 2013: Start Building Credit Today!

Student Credit Cards for Fall 2013: Start Building Credit Today!

While you are thinking about how this next school year will pan out, you might also want to consider the benefits of opening a student credit card if you don’t already have one. Besides classes and extracurricular activities, college is also a great time to start learning about building and managing credit.

Student credit cards provide a great opportunity for young adults to enter the credit world and begin to build a positive credit relationship with their bank or credit union, as well as a solid foundation for their future credit score.

Why get a student credit card now? Banks often understand the student lifestyle and therefore offer credit cards geared toward young adults.

The limits on student credit cards are typically small to help the student learn and practice using credit without going in over their head. The requirements to obtain a student credit card are also a bit different than a typical credit card, making it a bit easier to get approved for a credit card in college than after graduation.

Remember: a good rule of thumb is get credit before you need it.

Starting out with a student credit card while you are in school will allow you a perfect chance to build good credit with a low limit. Then once you have graduated you have achieved two things. 1) You have a credit card. 2) You have established credit history.

I have put together a list of several well known bank-branded student credit cards. These cards have been selected for their ability to provide:

  • Rewards programs for students
  • Benefits for making on time payments
  • Ease and simplicity of understanding/redeeming rewards
  • Ease of use and wide base of business that except the card

Student Credit Cards for Fall 2013

building a good credit score does not come from bad habits. Here are few tips to get you started with your student credit card:

  • Pay all bills on time, even if you can only afford the minimum amount.
  • Spend no more than 50% of your available credit. (Ex: With a $300 limit, try to not spend more than $150 in any statement period). This looks good in the eyes of creditors.
  • Find a way to set up auto pay or bill pay at the credit card website or from your own financial institutions website so you can make payments whenever & wherever.
  • And my last tip for students starting out, only use your student credit card for things you are already buying. This could include cell phone bill, gas, books, groceries, etc. But please, please, please, always remember to STICK WITHIN YOUR BUDGET!

If you are a student or young adult without established credit or without a student credit card now is the time to take action. Take control of your financial future today. Build a strong credit score with a student credit card.

Will College Tuition Keep Rising? How To Prepare For Tuition Inflation

Will College Tuition Keep Rising? How To Prepare For Tuition Inflation

Rising college tuition costs can be explained by supply and demand. On the supply side, well established colleges often have restricted space and must make large investments to expand their capacity. Some prestigious schools may want to keep capacity small so they can ensure that they get great teachers, small classes, and a great atmosphere for the select few who can attend. Private for profit schools have come into the market lately as many have seen an opportunity to add supply to the squeezed higher education marketplace.

When it comes to demand, it’s clear in the ever rising college attendance rates in the United States that more people are getting college degrees. An easy way to understand why the demand for college degrees is rising is to look at a college degree like an investment. Nowadays it’s not hard to find headlines like “Among millennials ages 25 to 32, earnings for college-degree holders are $17,500 greater than for those with high school diplomas only”. Even though these are just averages, many people today are relying on data like this when they decide to go to college, even without a degree in mind.

Why it makes sense to go to college if you can make $17,500 more that if you only had a high school diploma

If you are faced with the decision to go to college, you can easily calculate how much an additional $17,500 per year will amount to over 10 years after graduation. Assuming that the opportunity cost of money is 8%, in 14 years (10 years after graduation) you will have earned $86,000 more than someone who didn’t go to college on average. This does NOT count money the high school grad would have earned while you were in school, nor does it count tuition expense. Even so, if you add up the extra earnings your college degree will afford you on average you can rest assured that you will make more money than a high school grad over your lifetime… on AVERAGE.

Why the term AVERAGE is a major driving force behind rising college tuition

Even though there are many college grads that make more than the average additional salary, there are also many that don’t. There is a lot of data out there on college degrees that represent the best returns on investments after tuition, but many college students don’t make their degree choice until they are half way through.

Typically professors are very passionate about their work and it is easy to get swayed into believing you want to pursue a career based on classes you like. The problem with this is that it takes away from the focus on return on investment and instead focuses on gaining a surface level interest in something. Passion is MUCH MORE than a surface level interest. It is something that you can’t stop doing because it feels like a driving life force. For many who have not narrowed in on a passion, a flitting interest in a class or professor can be misconstrued as passion. For this reason paying lofty college tuition before having an idea of what you want to do can result in disastrous return on investment.

There are ever increasing numbers of people willing to pay high tuition for college who don’t know what their passion is yet. The problem stems from the fact that many have been told that they will make more money over their lifetime if they go. As long as the perceived value of a general college degree is higher than the tuition cost, demand will continue to push college tuition up.

When you know you’re going to have kids you can prepare for tuition inflation by starting a 529 plan

There are many great options out there for state sponsored 529 plans. 529 plans allow you to save money and earn tax free investment returns. The key with 529 plans is not making sure that you select the perfect plan, but simply that you start investing. If you want your kids to go to college, start putting whatever amount seems reasonable into a 529 plan. The sooner you do this the better as investments need time to grow.

To ensure college is worth while, help your kids find their passion before they have to make the decision to go to college

While college is a worthwhile investment for many, it’s a much better investment if it can be focused on an already discovered passion. It’s not easy to discover your passion when you’re young, but exposure to many different lines of work and fostering of interests can help a lot.

Will tuition rise over the next 20 years as quickly as it has over the past 20?

While I only speak for myself and the people I know, I think that millennials who have been trying to find jobs after the 2008 market crash will look at college degrees differently when they raise kids. I met many people in college who had not yet found their passion who got “x” or “y” degree and then ended up working at a service job afterward or even getting a completely different degree. Those people now have student loans and have been struggling in the weak economy. I imagine that when they raise kids they will emphasize the importance of knowing what you want to do before deciding to spend a lot of money on college tuition. All else equal, the experience of my generation should lead to more careful scrutiny of the benefits of college and lower overall demand for general degrees in the future. Even though this would indicate that college tuition inflation should slow, it still doesn’t hurt to start a 529 plan early to make sure that your kids will have the ability to go to college when they are ready.

Why You Should Choose a Degree and Lifestyle Before Choosing a College

Why You Should Choose a Degree and Lifestyle Before Choosing a College

With student debt in the united states climbing to all time highs, parents, high school grads, and college grads alike are asking if college is worth the cost before they even choose a degree or think about the lifestyle they want after graduation. Recalling my college search I remember a lot of effort going into looking for the right “fit” in a school. I had basically already decided I wanted to get a degree in finance; however, I also wanted to pursue music. Linfield College turned out to be the perfect place to study both. I ended up with both degrees; however, in hind sight I wish I had put more practical thought into stacking a math degree on top of my finance degree. It’s not that I don’t love music or even that I regret pursuing it; simply put, I could have gotten a much higher monetary value out of my degree if I had gotten a math degree instead.

The issue with high school grads looking into going to college is that they focus on the wrong things. What high school student has the ability to understand how much difference a $60,000 salary will make on their lifestyle compared to a $40,000 salary? Sure, maybe they have worked full time over the summer or maybe they have experienced unemployment through their parents; but the vast majority of high school grads don’t have the experience to know the difference. If they did, they would not only pursue something that they liked doing but also something that would produce a high enough salary to maintain the lifestyle they wanted.

Choosing a degree is much more important than selecting which college to attend

Regardless of what college a degree comes from, the bottom line is that certain degrees pay much more than others. One major issue with colleges today is that two different bachelors degrees with totally different expected salaries after graduation cost nearly the same amount at any given college. Many people go to college without having a degree in mind, only to be swept up into an “interesting class” which leads them to believe they want to get a degree in philosophy, psychology, or religion instead of something that would produce more job prospects after school. These are NOT bad degrees, but degrees like these with fewer potential job prospects should be seriously thought about before making a choice to pursue them.

After seeing multiple of these last minute degree decisions, I am convinced that they don’t always end up with the person having found their passion in their chosen degree. Instead many people are left with an expensive piece of paper (a diploma) that can’t help them land a professional level job.

If someone isn’t sure what they’re passionate about should they pursue a four year degree before they know?

It’s not a fun position to be in when your high school friends are selecting colleges and talking about what degrees they want to pursue while you are totally clueless. I believe many people feel pressured by peer perception and/or parents to get an expensive four year degree even if they haven’t decided on what degree to get. Instead of going straight to a four year college, high school grads could spend less money by going to a community college while deciding what four year degree they want to get. This gives them the opportunity to explore different academic subjects without the pressure of paying $20,000 or more per year.

Before choosing a degree, college students should ask themselves what kind of lifestyle they want to have after college

“Do something that you’re passionate about” is sage advice; however, it’s tough to be happy when you can’t live the lifestyle you want to live. Many of the degrees that result in lower paying jobs don’t necessarily result in fewer hours of work every week, meaning you may be working just as hard for much less pay than other college grads. If someone is just scratching the surface of a potential “passion” while in college, they should look into the lifestyle that would result from pursuing that passion with a degree. Too many students focus on what subject area they think they are “passionate about” and not on the lifestyle they want to achieve.

Ultimately the degree you choose will have a much larger effect on your job prospects, pay after school, and lifestyle than the school you select. College can be very expensive. If you’re thinking about making a large investment of time and money by going to college, make sure you are getting a degree that will support the lifestyle you want while letting you pursue your passion!

How to Build a Retirement Portfolio in a 401k or IRA for Ages 18-40

How to Build a Retirement Portfolio in a 401k or IRA for Ages 18-40

Building a retirement portfolio can be very confusing, especially when you are handed a list of potential mutual fund investments available in your 401k and you have no knowledge of how they are supposed to go together to form an investment portfolio. It can be even more daunting to invest an IRA you just began funding as the investment options often appear limitless. Target date funds can offer an easy way around picking multiple mutual funds or ETFs to include in your portfolio, but unfortunately not all target date funds are created equal and picking the wrong one could end up costing you a large sum of money. Before making any fund mutual fund or ETF selections in your retirement portfolio, you will first want to understand generally what a retirement portfolio should look like at ages 18-40 when properly allocated among investment types, keeping in mind that investors in this age bracket can afford to take more risk than those who are approaching retirement and consequently their portfolios should be more heavily weighted to common stock (equity) than to bonds.

401k: How do I Choose Which Funds to Invest In?

In a 401k your options will likely be limited and in that case you will want to either select the appropriate target date retirement fund (make sure you look into these funds before investing in them; I will discuss later) or build a basic portfolio using your options that is similar to one of the below charts, depending on what is available:

Next check that the target date fund you would invest in is at least similar to one of the above asset allocations. There may be additional asset classes in the fund but it should be roughly the same. In my case the target date fund I would have to invest in is the 2050 Fidelity Adviser Fund (to the right). This is an example of an overly complicated non-transparent fund that I would stay away from. First of all, the fees are 1.29% which is high.

Secondly, there appear to be actively managed funds in the portfolio that have unclear investment strategies (actively managed means that investment managers are choosing which stocks/bonds to invest in and when to buy and sell them). I prefer to see index funds in a target date portfolio as there is conflict of interest when a fund company picks the funds that will be in their target date fund (they may be more expensive funds or funds with unproven portfolio managers. Target date

fund managers may do this to increase assets in underlying funds that would otherwise remain small and dissolve). You can tell a fund is an index fund because they typically have the name of the index they replicate in their name (S&P 500 is large cap, Russell 3000 is all-cap, etc.). Thirdly, the Fidelity fund i am looking at has a 12% cash position, which is quite high especially at my current age; I would like to see cash no greater than 1-2%. It may be that they are counting the commodity strategies’ cash and adding up the cash of all of the funds in the portfolio; either way this amount of cash is a red flag without additional explanation. I was not pleased with the complexity and opaque nature of the Fidelity target fund available and therefore I chose to put together my own allocation based on my above basic recommendations for 401ks.

Roth IRAs and Traditional IRAs: How do I Pick Investments When There Are So Many Options?

While you could spend days poring over your investment options, I personally I prefer Vanguard ETFs and mutual funds as they tend to be one of the least expensive managers of index funds around (at least as far as management fees are concerned). In my case I have to pay commissions on Vanguard funds and therefore I have had to find alternatives (I plan to build my IRA portfolio with the iShares ETF products that I can trade for free on Fidelity in conjunction with a few mutual funds to get exposure to asset classes not offered in my free-to-trade ETF options). When selecting index ETFs the number one thing to concern yourself with is cost; the lower the better.

If you prefer to let someone else invest your portfolio, the Vanguard target date funds offer well priced indexing target date options (under 0.20% management fees) that will be very similar to creating your own indexed allocation such as those I outlined in the above basic target allocations for a 401k. For me personally I like to be in more control of the weights of the assets in my portfolio; however, a target date fund is a great place to start if you don’t have the assets to put together a more complex allocation such as the example below.

When it comes to obscure asset classes such as emerging market bonds or high risk bank debt (if you want an even more diverse portfolio), I would advise doing some serious research on funds before you invest. As long as you stay with indexing you can cut your research time significantly and take comfort in the fact that you will not greatly under-perform or outperform the asset class of that particular index. Remember that no matter how complex or simple you make your portfolio, if you fall in the 18-40 age bracket you should end up with the same rough portfolio allocation of about 50% domestic equity, 30% international equity, and 20% bonds.

Budgeting and Saving: Make Yourself As Happy As Possible With The Money You Have

Budgeting and Saving: Make Yourself As Happy As Possible With The Money You Have

I used to think that budgeting was a way to set spending goals for different categories of spending such as eating out, vacation saving, and groceries. I would pat myself on the back for spending $10 less than my allotment last month on eating at restaurants while I would give myself a hard slap across the face for overspending by $20 on bowling… Unfortunately I was missing the point of budgeting altogether.

Budgeting is a tool that you use to help you maximize the happiness you obtain from spending your money

Have you ever heard someone say “I have tried budgeting but I just could not stick to it” or “budgeting makes me stress about my spending habits so I just gave up”? If that is how you feel about tracking your spending, making a budget and sticking to it then I suggest you try applying this alternative approach:

  • Track your spending with as much detail as you can. Use software such as Quicken or Mint.com
  • Once you know about how you tend to spend your money, look at the items you are spending money on and ask yourself: If I changed what I am spending money on could I make myself happier?
  • If you could make yourself happier by changing what you spend money on, then a budget is for you. A budget is a roadmap that guides you to spend your money on the things that are going to make you the happiest. When putting together your budget, take money away from the things that make you less happy and put more money into the things that will make you happier.
  • Don’t feel bad for not reaching your budgeting goals. A budget is not meant to help you give yourself a slap on the wrist when you don’t stick to it, instead it is meant to help you live as well as you possibly can. If you didn’t reach your goal it simply means you did not get the most out of your money that month. Not getting your maximum amount of happiness is punishment enough!

Instead of making a budget many people find it easier to set money aside every month for their future costs such as retirement or buying a house and then simply spend the rest of their money earned every month as they see fit in the moment. While this strategy still accomplishes the goal of saving money for later consumption, it does not address the fact that the money you don’t save every month (the money that you spend) may not have been spent in a way that made you as happy as you could possibly be.

Tracking your spending and budgeting will help you assess the tradeoff between the things you choose to spend your money on

Sometimes things seem really great and I just want to have them immediately. It is so easy to convince myself in the moment that whatever it is I want is worth the cost of buying it. A budget is protection against these frivolous expenditures because it has already forced you to think about tradeoffs. I am NOT saying that frivolous expenditures are bad. All I am trying to get across is that if you have a budget, you can assess the tradeoff between that frivolous expense and the other things on your budget that bring you a lot of happiness.

After tracking my own expenses for the last two years, it became obvious that I like to go out to eat. I typically spend around $250-$350 per month eating out, usually for dinner because I bring my lunch to work 95% of the time. There are times when I feel the urge to go to a really nice restaurant and order the whole gambit including drinks… While this usually ends up being a great time, at the end of the night when I have spent over $80 I realize that I have already spent about 1/3 of my eating out budget for the month and I only got one meal. What my budget helps me do is realize that I would probably get nearly as much happiness out of a $15 dollar meal… the difference is that I could have five $15 meals for the price of one $80 meal. I can still choose to have the $80 meal, but at least I am consciously aware of the fact that I am giving up potentially more happiness down the road by choosing the more expensive option.

Tradeoffs also apply to all of the different categories we could spend money in. It may be that you really like doing adventurous things like skydiving but you find that you never have the $200 at the end of the month to go. Budgeting allows you to look at your other spending and choose where you could take $200 away from things that make you less happy than your monthly adventure. Tradeoffs are different for every person, but the concept is the same: Figure out how you can make yourself the happiest with the money that you have.