When you don’t have credit all you can get is a low limit, high interest credit card. This is fine. Get the credit card, use it and pay it off every month. This process is called “credit building.” You need credit. Some people make the mistake of avoiding credit cards in their youth because they worry about mismanaging them. Then they become adults and want a car or a house and they find that the bank thinks they same thing about them and denies them a loan. If you think you can’t handle having access to a few thousand what makes you think the banks are going to have any more confidence in you?

Get a credit card. Be responsible with it. After you’ve used your card enough to get higher limits and lower interest rates and have a real job making a good salary you can start considering making bigger purchases like a new(er) car and a home. Interestingly enough by the time you have a real job you should have a real credit history. You should be in a salaried position by your mid twenties which means you should also have 7-10 years of credit history built up. Perfect history. No missed payments. No maxing out cards. Always paying more than the minimum to pay them off quickly. It’s okay to take a month or few to pay off a larger amount of credit card debt.

And now that you have a real job and real credit it’s time to stop playing the credit card game. You should have your car and your house. Those are enough to float your credit boat. Congratulations, you got your house you won the credit game. Now STOP PLAYING. I have over $50,000 in available credit with credit cards. That’s 1/3 of my mortgage. It’s time to start getting all the credit cards down to a zero balance and never using them again.

And think about this, if you need credit cards then you’re living outside your means. That means you need to cut back spending. If you don’t need your credit cards then why are you using them? Statistically people who use credit cards spend more money. That’s why every store is trying to get you one. If you want to go shopping take out cash and leave the plastic at home. You’ll spend less and also be more aware of deals allowing you to save more. If you only have $100 to spend and you want a new outfit you’re going to shop around. With credit you know you can fudge. You can ignore tax. You can go over by “just a little bit.” Because you know that your credit card will flex to cover it. Cash doesn’t flex. You only can spend what is in your hand.

You don’t have to work to make it fit on credit. You have to work to make it fit within your cash budget.

A liability is something that costs you money. An investment is something that makes you money and an asset is something that helps you.

If you believe your car is a liability, a money pit, then you’re probably going to buy the cheapest car you can find that runs. You assume that the $3000 piece of junk you found is going to be cheaper than paying for a new car even after all the repairs you end up doing. That may end up being true if you happen to find a used car that isn’t a lemon. The biggest monthly savings on a cheap used car are paying it off and not having comprehensive coverage on your insurance. When you’re a teenager that may force your hand to go with a cheap car. When you’re an adult, you have other options.

If you believe a car is an investment then you’re going to look for a classic car that’s not in particularly good shape and fix it up. In the end you’re hoping that the cost to purchase the car plus the cost of repairs is less than the amount you will be able to sell it for. If you have a good eye for cars and the time for that sort of thing it may be worth the effort.

However, if you see a car as an asset; Something to make your life easier, then you should probably go with a new car. By new I mean less than 5 years old with 0 to 20,000 miles. You’re paying $200 a month to know that every morning you will be able to go to work so you can bring home $150 - $300 a work day. A car does not directly make you money. It indirectly makes you money by getting you to work and making it possible for you to work any hours the job requires. In that sense, your car is actually an investment. As long as your job pays more than the cost of owning and maintaining the car then you’re ahead.

So when it comes to cars it’s more about minimizing costs. Not about eliminating them. You could go with a used car and eliminate a monthly payment (at least temporarily) at the expense of piece of mind and possibly safety. How much are those things worth to you?

When deciding on what car to buy you need to consider many things:

1. This is what will get you to work
2. In the event of an accident, how important is it that you survive?
3. Are you willing to put the time, effort and money into fixing major problems?
4. What is the optimal miles per gallon the car gets?
5. How many miles can I reasonably expect it to last?
6. What’s the most car I can get for 10% of my income per year?

Your car is an investment no matter what it is. The key to minimizing the cost of paying for a car is recognizing needs vs wants. You may want to get to work in a Bentley but you could probably get away with a brand new $9,990 Nissan Versa and have just as much reliability and safety.

People who want to be smart go to college. Or at least educate themselves. Some people think that they can just read books and they’ll know something. That’s not actually true. You can’t just read books or just observe others doing things. You need to apply your knowledge to really learn things. You have to read the book and apply what’s in the book to really learn. Otherwise all you have is a bunch of theories about how things are but you don’t really know. Many times the theories are nice but they aren’t entirely accurate when it comes to practical application. Also, if you don’t apply your knowledge to practical applications you won’t learn when it is appropriate to apply certain ideas to various situations. Knowledge that cannot be properly applied is useless.

You also will never be smarter than a book if you only do strictly what the book tells you to do. You have to color outside the lines or you will stifle your ability to learn and grow. By applying the book to the real world you will see that how the book tells you to do it may not be entirely accurate. Now you know more than the book is telling you.

When it comes to finances there is probably a book that will tell you anything you want to hear. If you want to believe that you can get rich flipping houses, a book exists that will be more than happy to take your money in exchange for telling you that. If you want to believe you can get rid trading on the foreign exchange (aka forex) there are books and programs that will take your money in exchange for telling you how you can get rich doing just that.

There are also books that will explain why you can’t get rich on the Forex markets or by flipping houses.

The fact of the matter is; they’re both right. The forex market contains a huge amount of risk. You can get rich and you can fail. Same with flipping houses. The key factor is you. The amount of effort you put into doing those things. You can’t just throw money at a problem and expect more money to come back.

So you need to educate yourself. If you’re not willing to learn and educate yourself then you really should stick to just reducing spending and putting your money in safe places like high yield savings accounts and bonds.

Your biggest financial investment is you. Educating yourself. Spending the money to learn. Get the information and get the tools to apply it. Don’t be the idiot that risks their life savings on their first time out playing poker. Be the smart player that finds ways to play for free and then goes in with some beer money to see how they can do once real money is involved.

There’s not a day that goes by that there isn’t a great opportunity. Smart people don’t bet on the “once in a lifetime opportunity” they learn how to find opportunities every day. And once you realize that, you don’t mind taking your time to learn because you know you’re not missing out on anything you can’t get when you’re really ready.

http://www.savingsbonds.gov/indiv/products/prod_eebonds_glance.htm is the government web-site where you can learn all about Savings Bonds. Savings Bonds are a government backed investment with a reasonable guarenteed return on investment.

You can purchase a paper bond at half of the face value. So for a $1000 bond it will cost you $500. These bonds are guarenteed to be worth their face value in 20 years regardless of the interest rate. After the bond has reached its face value it will continue to earn interest at the fixed rate when it was purchased. Currently the rate is 1.3%. For those 20 years you will be earning 1.3% each year for $1000 compounded every 6 months.

So we earn $295.84 in interest over 20 years.

Let’s calculate the effective interest rate assuming that a $1000.00 bond matures (reaches face value) in 20 years. The interest on Treasury Bonds is compounded every 6 months so in 20 years there will be 40 periods.

We multiply the result by 2 since there are two periods per year making the effective interest rate about 4.8%. If we were to compound interest monthly it would be an effective interest rate of about 4.77%.

About a year ago ING was paying about 4.0% for their savings accounts. Now they are paying 2.75%. You can see that a Savings Bond provides a stable long term investment. However, because you can only purchase up to $5,000 per year (investment value) of these savings bonds you are limited in the amount you can invest.

An advantage of savings bonds is that the interest you earn is only taxed federally. They are also tax free if used to pay for an education. This makes them great gifts for babies. By the time they are ready to pay off student loans their bonds will have matured.

With a savings account the interest is counted as income and both the state and federal government take a piece of it.

A savings bond can allow you to make more and keep more of the return that you earn on your investment. The trade off is that it is very long term and you have very restricted access to the money until it matures.
href=”http://www.savingsbonds.gov/indiv/products/prod_eebonds_glance.htm”>http://www.savingsbonds.gov/indiv/products/prod_eebonds_glance.htm is the government web-site where you can learn all about Savings Bonds. Savings Bonds are a government backed investment with a reasonable guarenteed return on investment.

You can purchase a paper bond at half of the face value. So for a $1000 bond it will cost you $500. These bonds are guarenteed to be worth their face value in 20 years regardless of the interest rate. After the bond has reached its face value it will continue to earn interest at the fixed rate when it was purchased. Currently the rate is 1.3%. For those 20 years you will be earning 1.3% each year for $1000 compounded every 6 months.

So we earn $295.84 in interest over 20 years.

Let’s calculate the effective interest rate assuming that a $1000.00 bond matures (reaches face value) in 20 years. The interest on Treasury Bonds is compounded every 6 months so in 20 years there will be 40 periods.

We multiply the result by 2 since there are two periods per year making the effective interest rate about 4.8%. If we were to compound interest monthly it would be an effective interest rate of about 4.77%.

About a year ago ING was paying about 4.0% for their savings accounts. Now they are paying 2.75%. You can see that a Savings Bond provides a stable long term investment. However, because you can only purchase up to $5,000 per year (investment value) of these savings bonds you are limited in the amount you can invest.

An advantage of savings bonds is that the interest you earn is only taxed federally. They are also tax free if used to pay for an education. This makes them great gifts for babies. By the time they are ready to pay off student loans their bonds will have matured.

With a savings account the interest is counted as income and both the state and federal government take a piece of it.

A savings bond can allow you to make more and keep more of the return that you earn on your investment. The trade off is that it is very long term and you have very restricted access to the money until it matures.

The Sunday Paper is one of the most valuable papers you will find. In it are contained dozens of coupons for products you already buy. The Arizona Republic costs $2 a week for Sunday only. The East Valley Tribune is $240.24 for 52 weeks or about $4.62 per week. The East Valley Tribune doesn’t have a Sunday only subscription like the Arizona Republic does. Research major papers in your area to find the cheapest way to get the Sunday paper. You may even save money by just walking down to the local convienence store and paying the newstand price.

In addition to the Sunday paper there are a number of sources to find coupons on-line including http://www.coupons.com. The selection of on-line coupons tends to be very small compared to what you can find in the Sunday paper.

Often grocery stores will multiply coupons up to a certain amount so for example a 50 cent coupon could end up saving you a dollar or two dollars. Lose any concept you may have of store loyalty. When prices are comparable, fine, go to the store you like most. But don’t pass up savings just because it’s not the store you usually go to. Stores don’t have customer loyalty. There’s no point in being loyal to stores.

With only a few coupons a week you can easily pay for the paper and then some. One of the tricks with coupons is that coupons tend to come out when the item is not on sale but do not expire until after the item goes on sale. Unless you need an item now, keep the coupon until the item goes on sale or use the coupon on the last possible day. And if the last possible day rolls around and you decide you don’t need the item, throw the coupon away.

Part of the purpose of coupons (from the marketing standpoint) is to get you to muddy your view of wants and needs. Buying items you wouldn’t normally buy just because you have a coupon is a good way to lose money. Buying an item that isn’t on sale just because eyou have a coupon is a good way to spend more money than you need to.

Buy only things you need and try to minimize the price you pay by waiting for sales and coupons.

You will find that the Sunday paper will save you hundreds of dollars per year for a very small investment.

A Certificate of Deposit or CD is a product a bank offers that allows you to earn a larger interest rate. A CD uses Simple Interest to calculate how much you will earn over a certain period of time. In exchange for the higher interest rate the bank typically requires that you leave the money in the account for the entire duration that you agreed upon when signing up for the CD. Taking your money out early could result in penalties.

Currently ING is offering a CD with a yield of 4.00% over 12 months. So if you deposit $1000.00 into this CD you will make $40.00 in interest at the end of 12 months.

Since a CD is simple interest, let’s determine what the equivalent compound interest rate would be assuming that the interest is compounded monthly.

PV is the present value which is the amount you start with. In this case we started with $1000.00. FV is the future value or the amount you will have at the end. In this case we will have $1040.00. N is the number of periods that we are compounding the interest. Since we’re compounding monthly for a year N would be 12.

However, “i” is the periodic rate. We multiply by 12 to get the annual rate which is about 3.9%.

So you would need to put your money into a savings account with a 3.9% rate in order to match the return of a 4.00% CD.

Currently ING is offering a savings account with a 2.75% APY. So you can see that in exchange for keeping your money in one place banks are willing to offer a higher interest rate. When deciding whether or not to put your money into a CD you need to consider the return compared to a regular savings account and the potential need to have access to the money.

So with compound interest over 12 months at 2.75% you would end up with $27.85 in interest; $12.15 less than the CD.

So in effect it costs you $1 per month to have unrestricted access to your money.

The potential money you make in a CD over what you would earn in a high yield savings account may not justify locking your money away. If you think you may need the money prior to the end of the period required by the CD then you should not put it into the CD.